10-Q 1 gms-20220731.htm 10-Q gms-20220731
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2022
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
COMMISSION FILE NUMBER: 001-37784
______________________________________________________________

GMS INC.
(Exact name of registrant as specified in its charter)
______________________________________________________________
Delaware46-2931287
(State or other jurisdiction of incorporation(IRS Employer Identification No.)
or organization)
100 Crescent Centre Parkway, Suite 800
Tucker,
Georgia30084
(Address of principal executive offices)(ZIP Code)
(800) 392-4619
(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareGMSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
    Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
There were 42,406,821 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of August 31, 2022.



FORM 10-Q
TABLE OF CONTENTS
Page
PART I
Item 1
Item 2
Item 3
Item 4
PART II
Item 1
Item 1A
Item 2
Item 3
Item 4
Item 5
Item 6

2


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can generally identify forward-looking statements by our use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” or “should,” or the negative thereof or other variations thereon or comparable terminology. Statements about the growth of or other future developments relating to our various markets, and statements about our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance contained in this Quarterly Report on Form 10-Q are forward-looking statements.
We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed under the heading “Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended April 30, 2022, filed with the U.S. Securities and Exchange Commission (the “SEC”), may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

the ongoing effects of the COVID-19 pandemic and other widespread public health crises on our business, industry and results of operations;
general business, financial market and economic conditions, including inflation, rising interest rates, supply chain disruptions, labor shortages and capital market volatility;
our dependency upon commercial and residential construction, both new and repair and remodeling, or R&R, markets;
competition in our highly fragmented industry and the markets in which we operate;
consolidation in our industry;
the fluctuations in prices and mix of the products we distribute, and our ability to pass on price increases to our customers and effectively manage inventories and margins in both inflationary and deflationary pricing environments;
our ability to successfully implement our growth strategy, including through making and integrating acquisitions, opening new branches and expanding our product offerings;
our ability to expand into new geographic markets;
product shortages, other disruptions in our supply chain or distribution network and potential loss of relationships with key suppliers, including increased shipping costs and delays and heightened risks relating to sourcing products from international suppliers;
our ability to drive improved productivity and profitability, including managing operating costs and achieving productivity initiatives;
the potential loss of any significant customers, a reduction of the quantity of products our customers purchase or inability to pay;
our ability to renew leases for our facilities on favorable terms or identify new facilities;
our ability to effectively manage our inventory as our sales volume or the prices of the products we distribute fluctuate;
significant fluctuations in fuel costs or shortages in the supply of fuel;
3


natural or man-made disruptions to our facilities;
the risk of our Canadian operations, including currency rate fluctuations;
our ability to continue to anticipate and address evolving consumer demands;
exposure to product liability and various other claims and litigation, and the adequacy and costs of insurance related thereto;
operating hazards that may cause personal injury or property damage;
the impact of federal, state, provincial and local regulations, including potential changes in our effective tax rate;
our inability to engage in activities that may be in our best long-term interests because of restrictions in our debt agreements;
our current level of indebtedness and our potential to incur additional indebtedness;
our ability to obtain additional financing on acceptable terms, if at all;
our ability to attract and retain key employees while controlling costs, including the impact of labor and trucking shortages;
cybersecurity breach, including misappropriation of our customers’, employees’ or suppliers’ confidential information, and the potential costs related thereto;
a disruption in our IT systems and costs necessary to maintain and update our IT systems; and
the imposition of tariffs and other trade barriers, and the effect of retaliatory trade measures.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and actual results and events may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q.
Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q. You should review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of the filing of this Quarterly Report on Form 10-Q.
4


PART I – Financial Information
Item 1. Financial Statements
GMS Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)
July 31,
2022
April 30,
2022
Assets
Current assets:  
Cash and cash equivalents$106,613 $101,916 
Trade accounts and notes receivable, net of allowances of $9,583 and $9,346, respectively
820,589 750,046 
Inventories, net577,938 550,953 
Prepaid expenses and other current assets24,856 20,212 
Total current assets1,529,996 1,423,127 
Property and equipment, net of accumulated depreciation of $237,746 and $227,288, respectively
359,556 350,679 
Operating lease right-of-use assets158,295 153,271 
Goodwill698,631 695,897 
Intangible assets, net438,103 454,747 
Deferred income taxes19,415 17,883 
Other assets8,429 8,795 
Total assets$3,212,425 $3,104,399 
Liabilities and Stockholders’ Equity
Current liabilities:    
Accounts payable$363,287 $367,315 
Accrued compensation and employee benefits62,344 107,925 
Other accrued expenses and current liabilities153,380 127,938 
Current portion of long-term debt47,712 47,605 
Current portion of operating lease liabilities39,904 38,415 
Total current liabilities666,627 689,198 
Non-current liabilities:
Long-term debt, less current portion1,192,101 1,136,585 
Long-term operating lease liabilities116,815 112,161 
Deferred income taxes, net48,114 46,802 
Other liabilities49,544 55,155 
Total liabilities2,073,201 2,039,901 
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.01 per share, 500,000 shares authorized; 42,298 and 42,773 shares issued and outstanding as of July 31, 2022 and April 30, 2022, respectively
423 428 
Preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of July 31, 2022 and April 30, 2022
  
Additional paid-in capital502,536 522,136 
Retained earnings637,447 547,977 
Accumulated other comprehensive loss(1,182)(6,043)
Total stockholders' equity1,139,224 1,064,498 
Total liabilities and stockholders' equity$3,212,425 $3,104,399 

The accompanying notes are an integral part of these condensed consolidated financial statements.
5


GMS Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(in thousands, except per share data)
Three Months Ended
July 31,
20222021
Net sales$1,359,553 $1,042,076 
Cost of sales (exclusive of depreciation and amortization shown separately below)924,832 706,243 
Gross profit434,721 335,833 
Operating expenses:
Selling, general and administrative267,689 214,081 
Depreciation and amortization32,440 27,714 
Total operating expenses300,129 241,795 
Operating income134,592 94,038 
Other (expense) income:
Interest expense(14,661)(13,657)
Other income, net1,569 792 
Total other expense, net(13,092)(12,865)
Income before taxes121,500 81,173 
Provision for income taxes32,030 19,971 
Net income$89,470 $61,202 
Weighted average common shares outstanding:
Basic42,549 43,089 
Diluted43,317 43,972 
Net income per common share:
Basic$2.10 $1.42 
Diluted$2.07 $1.39 
Comprehensive income
Net income$89,470 $61,202 
Foreign currency translation adjustments2,642 (8,233)
Changes in other comprehensive income, net of tax2,219 1,962 
Comprehensive income$94,331 $54,931 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6


GMS Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(in thousands)
Common StockAdditional
 Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
SharesAmount
Balances as of April 30, 202242,773 $428 $522,136 $547,977 $(6,043)$1,064,498 
Net income— — — 89,470 — 89,470 
Foreign currency translation adjustments— — — — 2,642 2,642 
Other comprehensive income, net of tax— — — — 2,219 2,219 
Repurchase and retirement of common stock(516)(5)(23,790)— — (23,795)
Equity-based compensation— — 3,132 — — 3,132 
Exercise of stock options1 — 29 — — 29 
Vesting of restricted stock units7 — — — — — 
Tax withholding related to net share settlements of equity awards— — (300)— — (300)
Issuance of common stock pursuant to employee stock purchase plan33 — 1,329 — — 1,329 
Balances as of July 31, 202242,298 $423 $502,536 $637,447 $(1,182)$1,139,224 


Common StockAdditional
Paid-in
 Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
SharesAmount
Balances as of April 30, 202143,073 $431 $542,737 $274,535 $4,759 $822,462 
Net income— — — 61,202 — 61,202 
Foreign currency translation adjustments— — — — (8,233)(8,233)
Other comprehensive income, net of tax— — — — 1,962 1,962 
Repurchase and retirement of common stock(85)(1)(3,854)— — (3,855)
Equity-based compensation— — 1,958 — — 1,958 
Exercise of stock options44 1 862 — — 863 
Vesting of restricted stock units8 — — — — — 
Tax withholding related to net share settlements of equity awards— — (256)— — (256)
Issuance of common stock pursuant to employee stock purchase plan43 — 1,140 — — 1,140 
Balances as of July 31, 202143,083 $431 $542,587 $335,737 $(1,512)$877,243 
The accompanying notes are an integral part of these condensed consolidated financial statements.

7


GMS Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Three Months Ended
July 31,
20222021
Cash flows from operating activities:  
Net income$89,470 $61,202 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization32,440 27,714 
Amortization of debt discount and debt issuance costs425 642 
Equity-based compensation5,971 3,160 
Gain on disposal of assets(284)(78)
Deferred income taxes(945)(140)
Other items, net2,958 1,573 
Changes in assets and liabilities net of effects of acquisitions:
Trade accounts and notes receivable(69,635)(73,479)
Inventories(28,712)(87,313)
Prepaid expenses and other assets(3,709)(1,491)
Accounts payable(4,405)(4,265)
Accrued compensation and employee benefits(46,065)(24,219)
Other accrued expenses and liabilities18,088 21,617 
Cash used in operating activities(4,403)(75,077)
Cash flows from investing activities:
Purchases of property and equipment(10,943)(6,814)
Proceeds from sale of assets272 287 
Acquisition of businesses, net of cash acquired(2,606)(123,049)
Cash used in investing activities(13,277)(129,576)
Cash flows from financing activities:
Repayments on revolving credit facilities(141,247)(102,872)
Borrowings from revolving credit facilities195,113 195,049 
Payments of principal on long-term debt(1,278)(1,278)
Payments of principal on finance lease obligations(7,639)(7,397)
Repurchases of common stock(23,795)(3,855)
Proceeds from exercises of stock options29 863 
Payments for taxes related to net share settlement of equity awards(300)(256)
Other financing activities1,329 1,140 
Cash provided by financing activities22,212 81,394 
Effect of exchange rates on cash and cash equivalents165 (163)
Increase (decrease) in cash and cash equivalents4,697 (123,422)
Cash and cash equivalents, beginning of period101,916 167,012 
Cash and cash equivalents, end of period$106,613 $43,590 
Supplemental cash flow disclosures:
Cash paid for income taxes$3,232 $1,007 
Cash paid for interest17,834 8,616 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8


GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
Founded in 1971, GMS Inc. (together with its consolidated subsidiaries, “we,” “our,” “us,” or the “Company”), through its wholly owned operating subsidiaries, operates a network of approximately 300 distribution centers with extensive product offerings of wallboard, ceilings, steel framing and complementary construction products. The Company also operates approximately 100 tool sales, rental and service centers. Through these operations, the Company provides a comprehensive selection of building products and solutions for its residential and commercial contractor customer base across the United States and Canada. The Company’s unique operating model combines the benefits of a national platform and strategy with a local go-to-market focus, enabling the Company to generate significant economies of scale while maintaining high levels of customer service.
Basis of Presentation
The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) that permit reduced disclosure for interim periods. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary for a fair presentation of the results of operations, financial position and cash flows. All adjustments are of a normal recurring nature unless otherwise disclosed. The results of operations for interim periods are not necessarily indicative of results for any other interim period or the entire fiscal year. The unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022.
Principles of Consolidation
The condensed consolidated financial statements present the results of operations, financial position, stockholders’ equity and cash flows of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The results of operations of businesses acquired are included from their respective dates of acquisition.
Use of Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
Assets and liabilities of the Company’s Canadian subsidiaries are translated at the exchange rate prevailing at the balance sheet date, while income and expenses are translated at average rates for the period. Translation gains and losses are reported as a separate component of stockholders’ equity and other comprehensive income (loss). Gains and losses on foreign currency transactions are recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income within other income, net.
Insurance Liabilities
The Company is self-insured for certain losses related to medical claims. The Company has stop-loss coverage to limit the exposure arising from medical claims. In addition, the Company has deductible-based insurance policies for certain losses related to general liability, automobile and workers’ compensation. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using historical loss development factors and actuarial assumptions followed in the insurance industry.
9

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The following table presents the Company’s aggregate liabilities for medical self-insurance, general liability, automobile and workers’ compensation and the expected recoveries for medical self-insurance, general liability, automobile and workers’ compensation. Liabilities for medical self-insurance are included in other accrued expenses and current liabilities. Reserves for general liability, automobile and workers’ compensation are included in other accrued expenses and current liabilities and other liabilities. Expected recoveries for insurance liabilities are included in prepaid expenses and other current assets and other assets in the Condensed Consolidated Balance Sheets.
July 31,
2022
April 30,
2022
(in thousands)
Medical self‑insurance$4,015 $3,371 
General liability, automobile and workers’ compensation21,180 21,707 
Expected recoveries for insurance liabilities(4,792)(4,973)

Revenue Recognition
Revenue is recognized upon transfer of control of contracted goods to customers at an amount that reflects the consideration the Company expects to receive in exchange for those goods. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company includes shipping and handling costs billed to customers in net sales. These costs are recognized as a component of selling, general and administrative expenses.
See Note 13, “Segments,” for information regarding disaggregation of revenue, including revenue by product and by geographic area.
Income Taxes
The Company considers each interim period an integral part of the annual period and measures tax expense (benefit) using an estimated annual effective income tax rate. Estimates of the annual effective income tax rate at the end of interim periods are, out of necessity, based on evaluation of possible future events and transactions and may be subject to subsequent refinement or revision. The Company forecasts its estimated annual effective income tax rate and then applies that rate to its year-to-date pre-tax ordinary income (loss), subject to certain loss limitation provisions. In addition, certain specific transactions are excluded from the Company’s estimated annual effective tax rate computation but are discretely recognized within income tax expense (benefit) in their respective interim period. Future changes in annual income (loss) projections, tax rate changes, or discrete tax items could result in significant adjustments to quarterly income tax expense (benefit) in future periods.
The Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required. In this evaluation, the Company considers both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The primary negative evidence considered includes the cumulative operating losses generated in prior periods. The primary positive evidence considered includes the reversal of deferred tax liabilities primarily related to depreciation and amortization that would occur within the same jurisdiction and during the carryforward period necessary to absorb the federal and state net operating losses and other deferred tax assets.
Deferred tax assets and liabilities are computed by applying the federal, provincial and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carry-forwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse.
Earnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of outstanding shares of common stock for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, including stock options and restricted stock units (collectively “Common Stock Equivalents”), were exercised or converted into common stock. The dilutive effect of outstanding stock options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. In
10

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amount of compensation cost attributed to future services and not yet recognized. Diluted earnings per share is computed by increasing the weighted-average number of outstanding shares of common stock computed in basic earnings per share to include the dilutive effect of Common Stock Equivalents for the period. In periods of net loss, the number of shares used to calculate diluted loss per share is the same as basic net loss per share.
Recently Issued Accounting Pronouncements
Reference Rate Reform – In March 2020, the Financial Accounting Standards Board (“FASB”) issued new guidance to temporarily ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (“LIBOR”). The guidance was effective upon issuance and generally can be applied through December 31, 2022. However, the new guidance is not applicable to contract modifications made, and hedging relationships entered into or evaluated after, December 31, 2022. The Company is adopting this guidance when its relevant contracts are modified to alternative reference rates. The Company does not expect the adoption to have a material impact on its consolidated financial statements.
Business Combinations – In October 2021, the FASB issued new guidance which requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Code 606, "Revenue from Contracts with Customers." This creates an exception to the general recognition and measurement principles in existing business combination guidance. The new guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The amendments in this new guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
2. Business Combinations
The Company accounts for business combinations by recognizing the assets acquired and liabilities assumed at the acquisition date fair value. In valuing certain acquired assets and liabilities, fair value estimates use Level 3 inputs, including future expected cash flows and discount rates. Goodwill is measured as the excess of consideration transferred over the fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments arising from new facts and circumstances are recorded to the Consolidated Statements of Operations and Comprehensive Income. The results of operations of acquisitions are reflected in the Company’s Consolidated Financial Statements from the date of acquisition.
Fiscal 2023 Acquisition
On June 1, 2022, the Company acquired certain assets of Construction Supply of Southwest Florida, Inc. (“CSSWF”). CSSWF is a distributor of various stucco, building and waterproofing supplies serving markets in the southwest Florida area. The impact of this acquisition is not material to the Company’s Consolidated Financial Statements.
Pro Forma Financial Information
The following table presents the unaudited pro forma consolidated net sales and net income for the Company for the period indicated:
Three Months Ended
July 31, 2021
(in thousands)
Net sales$1,099,110 
Net income67,056 
On July 1, 2021, the Company acquired substantially all the assets of Westside Building Material (“Westside”). On December 1, 2021, the Company acquired Ames Taping Tools Holding LLC (“Ames”). The above pro forma results have been calculated by combining the historical results of the Company, Westside and Ames as if the acquisitions of Westside and Ames
11

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

had occurred on May 1, 2021, the first day of the comparable prior reporting period presented. The pro forma results include estimates for intangible asset amortization, depreciation, interest expense and income taxes, and are subject to change once final asset values have been determined. The pro forma information is not necessarily indicative of the results that would have been achieved had the transactions occurred on the first day of each of the periods presented or that may be achieved in the future. See Note 2, "Business Combinations," in the Company's Annual Report on Form 10-K for the year ended April 30, 2022 for more information regarding these acquisitions.
3. Accounts Receivable
The Company’s trade accounts and notes receivable consisted of the following:
July 31,
2022
April 30,
2022
(in thousands)
Trade receivables$716,668 $675,724 
Other receivables113,504 83,668 
Allowance for expected credit losses(5,380)(5,087)
Other allowances(4,203)(4,259)
Trade accounts and notes receivable$820,589 $750,046 
The following table presents the change in the allowance for expected credit losses during the three months ended July 31, 2022:
(in thousands)
Balance as of April 30, 2022$5,087 
Provision678 
Other(385)
Balance as of July 31, 2022$5,380 

Receivables from contracts with customers, net of allowances, were $707.1 million and $666.4 million as of July 31, 2022 and April 30, 2022, respectively. The Company did not have material amounts of contract assets or liabilities as of July 31, 2022 or April 30, 2022.

4. Goodwill and Intangible Assets
Goodwill
The following table presents changes in the carrying amount of goodwill:
GrossAccumulatedNet
Carrying AmountImpairment LossCarrying Amount
(in thousands)
Balance as of April 30, 2022$762,424 $(66,527)$695,897 
Goodwill recognized from acquisitions685 — 685 
Acquisition accounting adjustments from prior period1,487 — 1,487 
Translation adjustment798 (236)562 
Balance as of July 31, 2022$765,394 $(66,763)$698,631 
During the three months ended July 31, 2022, the Company recorded measurement period adjustments related to its Westside acquisition.
12

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Intangible Assets
The following tables present the components of the Company’s intangible assets:
Estimated
Useful
Lives
(years)
Weighted
Average
Amortization
Period
July 31, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Value
(dollars in thousands)
Customer relationships
5-16
12.5$670,257 $(397,664)$272,593 
Definite-lived tradenames
5-20
15.697,608 (21,143)76,465 
Vendor agreements
8-10
10.01,000 (500)500 
Developed technology
5-10
6.88,503 (4,835)3,668 
Other
3-5
3.51,821 (1,311)510 
Definite-lived intangible assets$779,189 $(425,453)$353,736 
Indefinite-lived intangible assets84,367 
Total intangible assets, net$438,103 
Estimated
Useful
Lives
(years)
Weighted
Average
Amortization
Period
April 30, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Value
(dollars in thousands)
Customer relationships
5-16
12.5$669,018 $(381,650)$287,368 
Definite-lived tradenames
5-20
15.697,453 (19,496)77,957 
Vendor agreements
8-10
10.01,000 (475)525 
Developed technology
5-10
6.88,471 (4,462)4,009 
Other
3-5
3.61,761 (1,240)521 
Definite-lived intangible assets$777,703 $(407,323)$370,380 
Indefinite-lived intangible assets84,367 
Total intangible assets, net$454,747 
Amortization expense related to definite-lived intangible assets was $17.4 million and $14.8 million for the three months ended July 31, 2022 and 2021, respectively.
The following table summarizes the estimated future amortization expense for definite-lived intangible assets. Actual amortization expense to be reported in future periods could differ materially from these estimates as a result of acquisitions, changes in useful lives, foreign currency exchange rate fluctuations and other relevant factors.
Year Ending April 30,(in thousands)
2023 (remaining nine months)$48,860 
202455,328 
202546,344 
202639,136 
202734,080 
Thereafter129,988 
Total$353,736 
The Company’s indefinite-lived intangible assets as of July 31, 2022 and April 30, 2022 consisted of indefinite-lived tradenames.

13

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

5. Long-Term Debt

The Company’s long-term debt consisted of the following:
July 31,
2022
April 30,
2022
(in thousands)
Term Loan Facility$503,335 $504,613 
Unamortized discount and deferred financing costs on Term Loan Facility(3,291)(3,581)
Senior Notes350,000 350,000 
Unamortized discount and deferred financing costs on Senior Notes(4,677)(4,836)
ABL Facility265,000 211,134 
Finance lease obligations124,511 120,138 
Installment notes at fixed rates up to 5.0%, due in monthly and annual installments through 2025
5,203 7,086 
Unamortized discount on installment notes(268)(364)
Carrying value of debt1,239,813 1,184,190 
Less current portion47,712 47,605 
Long-term debt$1,192,101 $1,136,585 
Term Loan Facility
The Company has a senior secured first lien term loan facility (the “Term Loan Facility”). The Company is required to make scheduled quarterly payments of $1.3 million, or 0.25% of the aggregate principal amount of the Term Loan Facility, with the remaining balance due in June 2025. The Term Loan Facility bears interest at a floating rate based on LIBOR plus 2.50%, with a 0% floor. As of July 31, 2022, the applicable rate of interest was 4.87%.
Senior Notes
The Company has senior unsecured notes due May 2029 (the "Senior Notes"). The Senior Notes bear interest at 4.625% per annum and mature on May 1, 2029. Interest is payable semi-annually in arrears on May 1 and November 1.
Asset Based Lending Facility
The Company has an asset based revolving credit facility (the “ABL Facility”) that provided for aggregate revolving commitments of $545.0 million as of July 31, 2022. Extensions of credit under the ABL Facility are limited by a borrowing base calculated periodically based on specified percentages of the value of eligible inventory and eligible accounts receivable, subject to certain reserves and other adjustments.
As of July 31, 2022, at the Company’s option, the interest rates applicable to the loans under the ABL Facility were based on Secured Overnight Financing Rate ("SOFR") or base rate plus, in each case, an applicable margin. The margins applicable for each elected interest rate are subject to a pricing grid, as defined in the ABL Facility agreement, based on average daily availability for the most recent fiscal quarter. The ABL Facility also contains an unused commitment fee. As of July 31, 2022, the weighted average interest rate on borrowings was 3.53%.
As of July 31, 2022, the Company had available borrowing capacity of approximately $246.8 million under the ABL Facility. The ABL Facility matures on September 30, 2024 unless the individual affected lenders agree to extend the maturity of their respective loans under the ABL Facility upon the Company’s request and without the consent of any other lender. The ABL Facility contains a cross default provision with the Term Loan Facility.
14

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Debt Covenants
The Term Loan Facility and the indenture governing the Senior Notes contain a number of covenants that limit our ability and the ability of our restricted subsidiaries, as described in the respective credit agreement and the indenture, to incur more indebtedness; pay dividends, redeem or repurchase stock or make other distributions; make investments; create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with our affiliates; and prepay or amend the terms of certain indebtedness. Such covenants are subject to several important exceptions and qualifications set forth in the Term Loan Facility and the indenture governing the Senior Notes. As of July 31, 2022, the Company was in compliance with all covenants contained in the Term Loan Facility and the indenture governing the Senior Notes.
The ABL Facility contains certain affirmative covenants, including financial and other reporting requirements. The Company was in compliance with all such covenants as of July 31, 2022.
Canadian Revolving Credit Facility
Through one of its Canadian subsidiaries, the Company has a revolving credit facility (the “Canadian Facility”) that provides for aggregate revolving commitments of $23.4 million ($30.0 million Canadian dollars). The Canadian Facility bears interest at the Canadian prime rate plus a marginal rate based on the level determined by Titan’s total debt to EBITDA ratio at the end of the most recently completed fiscal quarter or year. As of July 31, 2022, the Company had available borrowing capacity of approximately $23.4 million under the Canadian Facility. The Canadian Facility matures on January 12, 2026.
Debt Maturities
As of July 31, 2022, the maturities of long-term debt were as follows:
Term Loan
Facility
Senior NotesABL FacilityFinance
Leases
Installment
Notes
Total
Year Ending April 30,(in thousands)
2023 (remaining nine months)$3,832 $ $ $29,485 $2,431 $35,748 
20245,110   34,150 1,881 41,141 
20255,110  265,000 24,619 891 295,620 
2026489,283   17,720  507,003 
2027   11,555  11,555 
Thereafter 350,000  6,982  356,982 
$503,335 $350,000 $265,000 $124,511 $5,203 $1,248,049 

6. Leases
The components of lease expense were as follows:
Three Months Ended
July 31,
20222021
(in thousands)
Finance lease cost:
Amortization of right-of-use assets$5,818 $5,592 
Interest on lease liabilities1,822 2,301 
Operating lease cost12,971 11,012 
Variable lease cost5,903 3,861 
Total lease cost$26,514 $22,766 

15

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Supplemental cash flow information related to leases was as follows:
Three Months Ended
July 31,
20222021
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$12,880 $11,189 
Operating cash flows from finance leases1,822 2,301 
Financing cash flows from finance leases7,639 7,397 
Right-of-use assets obtained in exchange for lease obligations
Operating leases15,477 24,210 
Finance leases14,305 4,076 
Other information related to leases was as follows:
July 31,
2022
April 30,
2022
(in thousands)
Finance leases included in property and equipment
Property and equipment$202,254 $193,380 
Accumulated depreciation(58,974)(57,363)
Property and equipment, net$143,280 $136,017 
Weighted-average remaining lease term (years)
Operating leases4.74.6
Finance leases3.63.7
Weighted-average discount rate
Operating leases4.6 %4.7 %
Finance leases4.2 %4.2 %
Future minimum lease payments under non-cancellable leases as of July 31, 2022 were as follows:
FinanceOperating
Year Ending April 30,(in thousands)
2023 (remaining nine months)$33,892 $34,301 
202437,675 44,950 
202526,668 34,286 
202618,894 22,526 
202712,137 13,268 
Thereafter7,202 26,151 
Total lease payments136,468 175,482 
Less imputed interest11,957 18,763 
Total$124,511 $156,719 

16

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

7. Income Taxes

General. The Company’s effective income tax rate on continuing operations was 26.4% and 24.6% for the three months ended July 31, 2022 and 2021, respectively. The difference in the effective income tax rate over the U.S. federal statutory rate of 21.0% for the three months ended July 31, 2022 was primarily due to the impact of foreign taxes, state taxes and equity compensation. The difference in the effective income tax rate over the U.S. federal statutory rate for the three months ended July 31, 2021 was primarily due to the impact of state taxes, foreign tax rates and a change in the valuation allowance.
Valuation allowance. The Company had a valuation allowance of $11.8 million and $11.7 million against its deferred tax assets related to certain U.S. tax jurisdictions as of July 31, 2022 and April 30, 2022, respectively. To the extent the Company generates sufficient taxable income in the future to utilize the tax benefits of the net deferred tax assets on which a valuation allowance is recorded, the effective tax rate may decrease as the valuation allowance is reversed.
Uncertain tax positions. The Company had no uncertain tax positions as of July 31, 2022 or April 30, 2022.

8. Stockholders’ Equity
Share Repurchases
On June 20, 2022, the Company's Board of Directors approved an expanded share repurchase program under which the Company is authorized to repurchase up to $200.0 million of its outstanding common stock. This expanded program replaced the Company’s previous share repurchase authorization of $75.0 million. The Company may conduct repurchases under the share repurchase program through open market transactions, under trading plans in accordance with SEC Rule 10b5-1 and/or in privately negotiated transactions, in each case in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The timing and amount of any purchases of the Company's common stock are subject to a variety of factors, including, but not limited to, the Company’s liquidity, credit availability, general business and market conditions, debt covenants and the availability of alternative investment opportunities. The share repurchase program does not obligate the Company to acquire any amount of common stock, and it may be suspended or terminated at any time at the Company’s discretion.
The Company repurchased approximately 516,000 shares of its common stock for $23.8 million during the three months ended July 31, 2022, of which $10.8 million was repurchased under the previous authorization and $13.0 million was repurchased under the new authorization. The Company repurchased approximately 85,000 shares of its common stock for $3.9 million during the three months ended July 31, 2021. As of July 31, 2022, the Company had $187.0 million of remaining repurchase authorization under its stock repurchase program. 
Accumulated Other Comprehensive Income (Loss)
The following table sets forth the changes to accumulated other comprehensive income (loss), net of tax, by component for the three months ended July 31, 2022:
Foreign
Currency
Translation
Derivative
Financial
Instruments
Accumulated
Other
Comprehensive
Income (Loss)
(in thousands)
Balance as of April 30, 2022$(5,041)$(1,002)$(6,043)
Other comprehensive income before reclassification2,642 3,470 6,112 
Reclassification to earnings from accumulated other comprehensive income (loss)(1,251)(1,251)
Balance as of July 31, 2022$(2,399)$1,217 $(1,182)
Other comprehensive income before reclassification on derivative instruments for the three months ended July 31, 2022 is net of $1.1 million of tax. Reclassification to earnings from accumulated other comprehensive income is net of $0.4 million of tax.

17

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

9. Equity-Based Compensation
General
Equity-based compensation expense related to stock options and restricted stock units was $2.8 million and $1.7 million during the three months ended July 31, 2022 and 2021, respectively, and is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income.
Stock Option Awards
The following table presents stock option activity for the three months ended July 31, 2022:
Number of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(shares and dollars in thousands)
Outstanding as of April 30, 20221,245 $25.65 6.4$28,121 
Options exercised(1)22.91 
Options forfeited(2)28.17 
Outstanding as of July 31, 20221,242 $25.65 6.1$34,106 
Exercisable as of July 31, 2022758 $20.15 4.7$24,955 
Vested and Expected to vest as of July 31, 20221,239 $25.62 6.1$34,078 
The aggregate intrinsic value represents the excess of the Company’s closing stock price on the last trading day of the period over the weighted average exercise price multiplied by the number of options outstanding, exercisable or expected to vest. Options expected to vest are unvested shares net of expected forfeitures. The total intrinsic value of options exercised during the three months ended July 31, 2022 was not material. The total intrinsic value of options exercised during the three months ended July 31, 2021 was $1.2 million, respectively. As of July 31, 2022, there was $3.7 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 1.8 years.
Restricted Stock Units
The following table presents restricted stock unit activity for the three months ended July 31, 2022:
Number of
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
(shares in thousands)
Outstanding as of April 30, 2022330 $35.83 
Vested(14)18.04 
Outstanding as of July 31, 2022316 $36.62 
As of July 31, 2022, there was $4.6 million of total unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over a weighted-average period of 1.8 years.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan (“ESPP”), the terms of which allow for qualified employees to participate in the purchase of shares of the Company’s common stock at a price equal to 90% of the lower of the closing price at the beginning or end of the purchase period, which is a six-month period ending on December 31 and June 30 of each year.  The Company recognized $0.3 million and $0.2 million of stock-based compensation expense related to the ESPP during the three months ended July 31, 2022 and 2021, respectively.
18

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The following table presents the number of shares of the Company’s common stock purchased under the ESPP and average price per share:
Three Months Ended
July 31,
20222021
(in thousands)
Number of shares purchased under the ESPP
33 43 
Average purchase price$40.05 $26.36 

10. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests
The following table presents a summary of changes to the liabilities for stock appreciation rights, deferred compensation and redeemable noncontrolling interests:
Stock
Appreciation
Rights
Deferred
Compensation
Redeemable
Noncontrolling
Interests
(in thousands)
Balance as of April 30, 2022$30,878 $2,205 $11,026 
Change in fair value2,344 62 433 
Balance as of July 31, 2022$33,222 $2,267 $11,459 
Classified as current as of April 30, 2022$1,532 $ $ 
Classified as long-term as of April 30, 202229,346 2,205 11,026 
Classified as current as of July 31, 2022$6,936 $506 $2,532 
Classified as long-term as of July 31, 202226,286 1,761 8,927 
Total expense related to these instruments was $2.8 million and $1.2 million during the three months ended July 31, 2022 and 2021, respectively, and was included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income. Current and long-term liabilities for stock appreciation rights, deferred compensation and redeemable noncontrolling interests are included in other accrued expenses and liabilities and other liabilities, respectively, in the Condensed Consolidated Balance Sheets. See Note 13, "Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests," in the Company's Annual Report on Form 10-K for the year ended April 30, 2022 for more information regarding stock appreciation rights, deferred compensation and redeemable noncontrolling interests.
11. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the estimated carrying amount and fair value of the Company’s assets and liabilities measured at fair value on a recurring basis:
July 31,
2022
April 30,
2022
(in thousands)
Interest rate swaps (Level 2)$1,803 $(1,136)
The Company has interest rate swap agreements with a notional amount of $500.0 million to convert the variable interest rate on a portion of its Term Loan Facility to a fixed 1-month LIBOR interest rate of 2.46%. The contracts were effective on February 28, 2019 and terminate on February 28, 2023. The objective of the interest rate swap agreements is to eliminate the variability of interest payment cash flows associated with variable interest rates. The Company believes there have been no material changes in the creditworthiness of the counterparty to this interest rate swap and believes the risk of nonperformance by such party is minimal. The Company designated the interest rate swaps as cash flow hedges.
19

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

As of July 31, 2022, the interest rate swap asset was classified in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheet. As of April 30, 2022, the interest rate swap liability was classified in other accrued expenses and current liabilities in the Condensed Consolidated Balance Sheet. The Company recognized losses, net of tax, of $1.3 million and $2.2 million in earnings during the three months ended July 31, 2022 and 2021, respectively, related to its interest rate swaps. These amounts are included in interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income and within cash flows from operating activities within the Condensed Consolidated Statements of Cash Flows. As of July 31, 2022, the Company expects that approximately $1.8 million of pre-tax earnings will be reclassified from accumulated other comprehensive income (loss) into earnings during the next twelve months.
The fair value of interest rate swaps is determined using Level 2 inputs. Generally, the Company obtains the Level 2 inputs from its counterparties. Substantially all the inputs throughout the full term of the instruments can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. The fair value of the Company’s interest rate swap was determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves and implied volatilities.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Disclosures are required for certain assets and liabilities that are measured at fair value on a nonrecurring basis in periods after initial recognition. Such measurements of fair value relate primarily to assets and liabilities measured at fair value in connection with business combinations and long-lived asset impairments. For more information on business combinations, see Note 2, “Business Combinations.” There were no material long-lived asset impairments during the three months ended July 31, 2022 or 2021.
Fair Value of Debt
The estimated fair value of the Company’s Senior Notes was determined based on Level 2 input using observable market prices in less active markets. The carrying amounts of the Company’s Term Loan Facility and ABL Facility approximates their fair value as the interest rates are variable and reflective of market rates. The following table presents the carrying value and fair value of the Company’s Senior Notes:
July 31, 2022April 30, 2022
Carrying AmountFair ValueCarrying AmountFair Value
(in thousands)
Senior Notes$350,000 $283,500 $350,000 $310,625 

12. Commitments and Contingencies
The Company is a defendant in various lawsuits and administrative actions associated with personal injuries, property damage, environmental matters, product liability claims, claims of former employees and other events arising in the normal course of business. As discussed in Note 1 “—Insurance Liabilities”, the Company records liabilities for these claims, and assets for amounts recoverable from the insurer, for claims covered by insurance.


20

GMS Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

13. Segments
There have been no changes to the Company's reportable segments during the three months ended July 31, 2022. For more information regarding the Company's reportable segments, see Note 17, "Segments," in the Company's Annual Report on Form 10-K for the year ended April 30, 2022.
Segment Results
The following tables present segment results:
Three Months Ended July 31, 2022
Net SalesGross ProfitDepreciation and
Amortization
Adjusted
EBITDA
(in thousands)
Geographic divisions$1,328,448 $416,138 $27,978 $167,368 
Other31,105 18,583 4,335 7,646 
Corporate127 
$1,359,553 $434,721 $32,440 $175,014 
Three Months Ended July 31, 2021
Net SalesGross ProfitDepreciation and
Amortization
Adjusted
EBITDA
(in thousands)
Geographic divisions$1,032,388 $332,685 $27,428 $127,017 
Other9,688 3,148 88