GMS Inc.

Greetings and welcome to the GMS Incorporated third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Carrie Phelps, Vice President of Investor Relations. Thank you. You may begin.

Thanks, Daryl. Good morning. Thank you for joining us for the GMS earnings conference call for the third quarter of fiscal 2025. I'm joined today by John Turner, President and Chief Executive Officer, and Scott Deacon, Senior Vice President and Chief Financial Officer. In addition to the press release we issued this morning, you can find a set of PowerPoint slides to accompany this call in the investor section of our website at www.gms.com. Now looking at slide two. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risk and uncertainties, many of which are beyond our control and may cause actual results to differ from those discussed today. As a reminder, forward-looking statements represent management's current estimates and expectations. The company assumes no obligation to update any forward-looking statements in the future. Listeners are encouraged to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC, including the risk factors section of the company's 10-K and other periodic reports. Today's presentation also includes a discussion of certain non-GAAP measures. The definitions and reconciliations of these non-GAAP measures are provided in the press release and presentation slides. Please note that references on this call to the third quarter of fiscal 2025 relate to the quarter ended January 31st, 2025. Once we begin the question and answer session of the call, we kindly request that you limit yourself to one question and one follow-up in the interest of time. With that, I'll turn the call over to John Turner, who will begin on slide three. J.T.?

Thank you, Carrie. Good morning, and thank you all for joining us. I'd like to begin with a review of our third quarter performance, which overall came in below our expectations as we continue to face a challenging macro environment. I will then turn the call over to Scott for a closer look at the financial results before concluding with an overview of our outlook. As highlighted in our press release this morning, results for our fiscal third quarter reflect the impact of demand conditions that deteriorated meaningfully starting in December, continuing through the end of the quarter, and through today. This ultimately led to reduced sales volumes and gross margin for the quarter versus prior year. Uncertainty, general affordability, and tight lending conditions combined with an estimated $20 million negative impact from revenue impact from weather, resulting also from holiday timing, all contributed to project delays and slower activity in each of our end markets. We reported net sales of $1.3 billion for our third quarter, which was roughly flat compared to the same period a year ago, including the benefits of recent acquisitions. Organic sales declined 6.7% for the quarter. Gross margin of 31.2% for the quarter was slightly down from the 31.4% we reported in our fiscal second quarter, given vendor incentive headwinds and transactional price cost pressure, and was down from 33% a year ago. Despite the challenging demand backdrop, outside of steel, pricing generally remained resilient during the quarter, as prices in ceilings continued their notable pace of consistent increases. Favorable pricing for insulation and lumber helped offset decreases in other products within our complementary products category. We also recorded price increases on a like-for-like product basis in Wallboard. While there have been additional recent manufacturer price increase announcements, given the recent pullback in demand, it is possible that the implementation of these pricing actions may get delayed beyond a typical three- to six-month absorption cycle, but it is too soon to speculate. Regardless, there are no signs at this point that prices will move backward. Looking at end market demand dynamics, first with commercial. It's notable that the architectural billings index has been below 50, indicating a month-to-month sequential decline 17 out of the last 18 months. As such, our U.S. commercial revenues were down 7.8% organically as compared to last year. with activity levels that are expected to remain constrained until lending costs and standards loosen and greater confidence returns to the economy. The office category in particular, which was our largest commercial vertical prior to COVID, continues to suffer, but we believe it also represents a large potential opportunity in the future, given the shifting viewpoints surrounding in-office work. To share some perspective, at the end of calendar 2019, there was approximately 160 million square feet of office space under construction. That compares to only around 40 million square feet today. As the return to office movement continues to evolve, we will be ready to take advantage of any improvement in this space for both new and repair and remodel, should it materialize. In the meantime, with runway still ahead, well-funded megaprojects and those that are not otherwise dependent upon private financing such as those in public education, healthcare, and infrastructure, continue to dominate the commercial landscape. Data centers, especially, are expected to continue to grow, with one analyst recently estimating a current backlog of seven years of construction at the 2024 build rates. Separately, one of the leading investment banking and consulting firms for the construction industry projects that data center construction will grow more than 10% through 2026. Data centers are attractive business for us, as they require both our higher-end, more energy-efficient core products, as well as complementary products. Turning to residential activity. Although December housing starts rebounded nicely from November, driven by a 61% month-over-month increase in multifamily, January starts reverse course, as frigid temperatures, winter storms, continued macro uncertainty, and persistently high mortgage rates suppress demand. This said, Given record high absorption levels for multifamily during the calendar fourth quarter and the continuing need for affordable housing across North America, we are hopeful that we are nearing the bottom of the cycle for this end market. Year-over-year comparisons will still be challenged, likely until at least late in the calendar year, but we are optimistic that we will start to see sequential unit growth closer to the end of calendar 2025 or early 2026. For single family, despite the considerable well-documented need for housing in both the U.S. and Canada, demand in this end market continues to be negatively impacted by affordability challenges driven in large part by high mortgage rates, but also currently hampered by widespread economic uncertainty, heightened by questions around the pace of inflation and the scale, scope, and impacts of potential tariffs and other policy decisions. The latest builder sentiment numbers, which had been gaining steadily since August on the hope of lower mortgage rates and potential pro-development policies, took a negative turn in its most recent survey, with sales expectations from builders for the next six months declining to their lowest level since 2023. As a result, while we continue to believe that the solid underlying demand fundamentals of the housing market will support longer-term growth, we expect that single-family housing starts will remain muted for at least this calendar year. With a similar underbuilt and pent-up demand situation, interest rate cuts and other pro-development policies are serving as an economic catalyst in Canada as residential building permit activity ended calendar 2024 on a high note with the total value of permits reaching their highest level since 2017. In December, building permits there surged 11% sequentially. Directionally, we continue to expect for the U.S. to eventually follow suit particularly if we see similar expansionary efforts to improve affordability and ease development burdens for builders. As our team works diligently through this economic backdrop, we remain confident that we have the right strategy in place, which is highlighted on slide four. Through our execution of our four strategic pillars to expand share in our core products, grow our complementary products category, expand our platform, and drive improved productivity and profitability, we see additional long-term growth opportunities for the company and value creation opportunities for our stakeholders. Given that we expect the current macro conditions to continue through the bulk of calendar 2025, we are taking actions to further align and rationalize our operations with the market realities of today. As such, leveraging our previous investments in technology and efficiency optimization, we are implementing an additional estimated $20 million in annualized cost reductions. which would bring our total annualized run rate of cost reductions to $50 million since the start of our fiscal year. Amidst the down cycle in our markets, a bright spot is our ability to continue generating significant cash. This, along with our solid balance sheet, provides the foundation to enable the continued execution of our strategic pillars to pursue long-term growth opportunities while utilizing a balanced approach to capital allocation, ultimately delivering value for shareholders. Before turning the call over to Scott, I would like to take a moment to thank the entire GMS team for their continued commitment to providing the highest levels of service to our customers, even during these difficult market conditions. I'd also like to thank our customers and our suppliers who are also feeling the impacts of softening business conditions. All in, we believe that we are well positioned to pivot up or down as demand levels continue to change. We believe this flexibility will enable us to capitalize on opportunities as demand returns. With that, I'll now ask Scott to take you through the detailed results of our quarter.