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DATE
Wednesday, June 18, 2025 at 8:30 a.m. ET
CALL PARTICIPANTS
President and Chief Executive Officer — John Turner
Senior Vice President and Chief Financial Officer — Scott Deakin
Vice President of Investor Relations — Carey Phelps
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RISKS
Organic sales declined 8.3% per day in Q4 FY2025, with management citing a "continued challenging macro backdrop" and ongoing "pressure across the business amid the ongoing macroeconomic challenges impacting our industry."
Net income (GAAP) fell to $26.1 million from $56.4 million in the prior-year quarter, while adjusted EBITDA margin decreased to 8.2% from 10.4% in Q4 FY2024.
"Stubbornly high interest rates and policy uncertainty remain the primary impediments to growth both residentially and commercially," with homebuyers retreating and multifamily and commercial developers pausing or delaying starts.
Multifamily revenues declined 32.4% per day and commercial revenues fell 10.1% per day, contributing to a 6% daily decline in total U.S. residential revenues.
TAKEAWAYS
Net Sales: $1.3 billion for the fiscal fourth quarter, down 5.6% on an absolute basis and 4.1% per day compared to the prior year.
Organic Sales: Decreased 9.7% (or 8.3% per day) in the fourth quarter of fiscal 2025 compared to the prior year period, slightly ahead of guidance.
Wallboard Sales: $526.6 million for the fiscal fourth quarter, down 10.1%, or 8.7% per day; organic wallboard sales declined 12.5%, or 11.1% per day, with a 12.1% drop in volume in the fourth quarter of fiscal 2025 compared to the prior year period partially offset by a 1% increase in price and mix.
Ceilings Sales: $201 million, up 6.4% (8.1% per day), driven by a 1.4% rise in volume and 6.8% improvement in price and mix in the fourth quarter of fiscal 2025 compared to the prior year period.
Steel Framing Sales: $189.2 million in steel framing sales for Q4 FY2025, down 14.2% (12% per day); organic steel framing sales decreased 17.9% (16.6% per day) with volumes down 10.1% and price/mix down 6.5%.
Complementary Product Sales: $416.9 million for Q4 FY2025, nearly flat year-over-year (up 1.4% per day), marking the 20th consecutive quarter of per day growth; organic sales fell 7.3% (5.8% per day).
Gross Margin: 31.2% gross margin for Q4 FY2025, flat sequentially, but down 70 basis points from the previous year due to lower volumes and decreased vendor incentives.
SG&A Expense: $315.1 million for the fourth quarter of fiscal 2025, slightly lower than the prior year quarter despite $14 million in new acquisition-related costs; SG&A as a percentage of sales increased 130 basis points to 23.6%.
Cost Savings: Achieved $25 million in additional annualized operating cost reductions in Q4 FY2025, raising the FY2025 total to $55 million.
Free Cash Flow: $183.4 million in free cash flow for Q4 FY2025 (167% of adjusted EBITDA), the second-highest result in company history, with full-year free cash flow of $336.1 million (67.1% of adjusted EBITDA) for FY2025.
Net Income: $26.1 million for the fourth quarter of fiscal 2025.
Leverage Ratio: Increased to 2.4x adjusted EBITDA (up from 1.7x a year ago) as of Q4 FY2025 due to lower adjusted EBITDA despite sequential net debt reduction.
Share Repurchases: 348,600 shares were repurchased for $26.4 million at an average price of $75.60 per share during Q4 FY2025, leaving $192 million available in authorization.
Guidance for Next Quarter: Anticipated net sales decline of low to mid single digits for Q1 FY2026 and organic sales down mid to high single digits for Q1 FY2026; adjusted EBITDA expected in the $132 million–$137 million range with a 9.5%–9.8% margin (non-GAAP); Gross margin is expected to remain consistent at 31.2%.
Segment Expectations: Flat to up slightly year over year for single family wallboard volumes in the fiscal first quarter, multifamily organic wallboard volumes expected to be down 25%–30%, Commercial organic wallboard volumes are expected to be down low teens as compared with the prior year period in the fiscal first quarter, and ceilings volumes down low single digits; steel framing volumes expected to be down high single digits with prices expected to remain flat near term.
SUMMARY
GMS Inc. (GMS 10.57%) ended Q4 FY2025 with significant operational cost reductions and historically high free cash flow, despite meaningful volume declines and margin compression across several core categories. Management confirmed that the largest negative trends came from multifamily and commercial markets, while ceilings products benefited from enhanced project mix and recent acquisitions. Strategic efforts centered on cost control, debt repayment, and digital transformation continue to support business resilience in the current challenging environment.
Management projects wallboard price and mix to be "roughly flat" year-over-year in Q1 FY2026, with ceilings price/mix expected to increase mid to high single digits in Q1 FY2026 and steel framing prices expected to remain flat in Q1 FY2026 despite new supplier price announcements.
John Turner stated, "high interest rates and policy uncertainty remain the primary impediments to growth" acknowledging structural demand weakness in both residential and commercial segments.
Ceilings and certain complementary products exhibited "volume improvement" and margin accretion during Q4 FY2025, partially mitigating core product declines.
Streamlined subsidiary consolidation and investments in technology and digital portals have driven sustainable cost savings and improved operational efficiency.
Guidance includes a continued focus on operating leverage, with expectations for cash flow to remain at 60%–65% of adjusted EBITDA for FY2026.
INDUSTRY GLOSSARY
Adjusted EBITDA: Non-GAAP measure representing earnings before interest, taxes, depreciation, and amortization, adjusted for specified items as defined by management.
SG&A: Selling, General, and Administrative Expenses—a company's overhead and operating expenses not directly tied to product manufacturing or sales cost.
Complementary Products: Non-core construction product lines distributed alongside wallboard and ceilings, often including tools, fasteners, insulation, and specialty finishes with higher margins or strategic growth potential.
Wallboard: Also known as drywall or gypsum board, a core construction material used for building interior walls and ceilings.
Full Conference Call Transcript
John Turner, President and Chief Executive Officer, and Scott Deakin, Senior Vice President and Chief Financial Officer. In addition to the press release issued this morning, we have posted PowerPoint slides to accompany this call in the Investors section of our website at www.gms.com. Beginning with 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 risks 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 in the company's 10-Ks 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 fourth quarter of fiscal 2025 relate to the quarter ended April 30, 2025.
Finally, once we begin the question and answer session of the call, in the interest of time, we kindly request that you limit yourself to one question and one follow-up. With that, I'll turn the call over to John Turner, whose discussion will start on slide three. JT? Thank you, Carey. Good morning.
John Turner: And thank you all for joining us today. I'll begin by reviewing our full year and fourth quarter performance, which overall, despite a continued challenging macro backdrop, came in at the higher end of the expectations we provided in March. I will then turn the call over to Scott to further review the financial results. Before concluding with an overview of our guidance, and opening the line up, for Q and A. For the full year, net sales were $5.5 billion, up marginally compared to the prior year driven by positive contributions from our recent acquisitions including CAMCO, Yvonne Building Supply, RS Elliott and Howard and Sons Building Materials.
Organic sales for the year were $5.2 billion, down 5.4% on a same-day basis compared to the prior year. Net income for the full year was $115.5 million inclusive of the $42.5 million non-cash goodwill impairment charge we recorded in the third quarter. Adjusted EBITDA was $500.9 million and free cash flow for the year was $336.1 million or 67% of adjusted EBITDA. Looking at the fourth quarter, which is highlighted on slide four, we delivered solid results even as we continue to face pressure across the business amid the ongoing macroeconomic challenges impacting our industry. We reported $1.3 billion in net sales, Organic sales declined 8.3% per day. Which was slightly better than our expectations.
Net income was $26.1 million, and adjusted EBITDA was $109.8 million coming in at the high end of our outlook. Our cash flow generation continues to demonstrate our operational through this down cycle, with $196.8 million of cash from operating activities, and $183.4 million or 167% of adjusted EBITDA of free cash flow generated during the quarter. This was the highest level of quarterly free cash flow conversion in our company's history, with the exception of our fiscal fourth quarter of 2020 when COVID first hit, and we moved swiftly and extraordinarily to protect the business. Even against a challenging backdrop, ceilings and complementary products saw volume improvement during the quarter.
Ceilings performed particularly well given the continued benefits of the addition of CAMCO, combined with our intentional strategic focus on architectural specialties projects. Which have higher average unit pricing. In wallboard, the implementation of calendar 2025 manufacturer price increases came later than originally announced with only modest pricing actions realized in May. We continue to work diligently with our customers to effect these increases as we continue to focus on protecting our margins. In steel framing, as our suppliers navigate the latest tariff actions, we have received notices of upcoming manufacturer price increases. Through the end of the fourth quarter, however, steel prices remain pressured. Beyond steel, we anticipate minimal direct impact from tariffs.
As most of our products distributed in The US and Canada are sourced domestically. We believe that the primary risk to our business from trade policy is the potential negative effect on broader demand. Looking at our end markets, on slide five, we are cautiously optimistic that we are nearing the bottom of the cycle. Although the intensity and duration of the downturn will vary by each market. Fourth quarter demand was down across both residential and commercial, as economic uncertainty dominated the headlines. As a result, wallboard industry volumes as reported by the Gypsum Association were down 10% in the first calendar quarter.
Stubbornly high interest rates and policy uncertainty remain the primary impediments to growth both residentially and commercially. These factors are causing homebuyers to retreat to the sidelines multifamily and commercial developers to pause or delay starts, and regional banks to both increase their commercial lending requirements for new projects and lend less overall. For residential, while single family is experiencing softness, there remains a clear and fundamental need for housing in both The United States and Canada that continues to give us optimism for the eventual recovery of that sector. In the near term, given recent share gains, and some regional strength, we expect to slightly outpace normal seasonal trends.
Specifically with wallboard volumes expected to be flat to up slightly for our fiscal first quarter, we expect similar year over year growth in single family volumes throughout the balance of our fiscal year. In multifamily, rents have been stable or have continued to rise in most markets since COVID. Also, developers appear to be modestly optimistic about demand levels, as the number of new starts has possibly bottomed and recently begun to increase. Once there is less uncertainty in the broader macro environment, we expect demand to return for this end market. Hopefully, year over year declines in our sales volumes ending by early calendar 2026.
Commercial activity continues to also be negatively impacted by high interest rates, the lack of available financing, and again, general economic uncertainty. Contributing to soft starts and mixed results among commercial applications, early this calendar year. We expect this dynamic to continue but moderate with some recovery in our business towards the first half, of calendar 2026. This assumes we see rates decrease as expected and generally improved confidence in the direction of the economy. Within commercial, current category strength continues to come from larger projects and those that are not as dependent on private financing. Particularly those in public education, health care, and technology.
Notably, we have a data center backlog that extends well into 2026, and there is no indication of these projects slowing down in the near term. Data centers continue to be an excellent offering for us as they utilize both our core and complementary products often with higher end specifications. Helping to fill the gap left by the ongoing malaise in office activity. As we look ahead, we expect that the near term will remain challenging for our business. And the industry as a whole given the rate environment and macroeconomic dynamics at play.
That said, given our focus on our customers and exceptional service, as well as the execution of our four strategic pillars, to expand share in our core products, grow our complementary products, expand our platform, and drive improved productivity and profitability we expect to capitalize on long term growth opportunities for the company and value creation opportunities for our stakeholders. As we've discussed in previous quarters, we have taken decisive action to further align and rationalize our operations with our volume, and the market realities of today. Setting us up for more efficient realization of growth through the next cycle.
Notably, we've continued to execute on a significant cost savings program through which we took actions to achieve another $25 million in annualized cost savings in our fiscal fourth quarter. Higher than the $20 million we projected earlier. With these actions, we have implemented a total of $55 million of annualized cost savings during fiscal 2025. We also continue to pay down debt and return cash to our shareholders through repurchase activity. We reduced net debt by more than 10% during the quarter leaving us within our target debt leverage range of 1.5 to 2.5 times with high confidence in our ability to continue generating excellent cash flow. With that, I'll turn the call over to Scott. Thanks, JT.
Good morning, everyone.
Scott Deakin: Starting with Slide six, net sales for our fiscal fourth quarter ahead of our forecast as market conditions recovered slightly after a particularly challenging winter. As compared with a year ago, net sales of $1.3 billion decreased 5.6% or 4.1% on a per day basis. Ceilings, which continue to benefit from project mix, and complementary products both saw volume growth during the quarter. While our other product categories experienced weaker sales than a year ago. Organically, decreased 9.7% or 8.3% on a per day basis, as compared with the fourth quarter of fiscal 2024 coming in slightly ahead of our guidance.
As JT mentioned, given the ongoing uncertainty in the market and across the industry, we continue to implement additional cost reduction actions during the quarter. Working to take out another $25 million in annualized operating costs bringing our total to $55 million of cost reduction implemented during fiscal 2025. These savings reduced general SG and A expenses, which together with four yard closures were principally realized through workforce reductions. Leveraging efficiencies gained from our previous technology and process investments designed to better optimize our operational activities.
We estimate that we captured roughly a third of the quarterly run rate of our latest round of savings during this fiscal fourth quarter, as much of the actions were implemented during the last half of the quarter. We expect to realize the full quarterly run rate of our fiscal 2025 cost actions during the fiscal first quarter of 2026. Further supporting our cost reduction activity, we are continuing to consolidate our legacy subsidiary structure to drive greater efficiencies by leveraging ERP data standardization removing redundancies, and streamlining processes. An example of the potential benefits, looking at the first division to implement this transformation, with the combination of four subsidiaries into one centralized division.
Redundant back office operations were eliminated, disparate regional data was standardized, and operational best practice deployment increased. Resulting in reduced administrative costs, higher inventory turnover, lower DSO, and decreased operating expenses. We look forward to our other U. Divisions concluding similar efforts by the end of this calendar year. As a result of our cost reduction efforts, we are well positioned to this cycle as a better more efficient operator. Now before we proceed into the rest of the results for our fourth quarter, please note that we had one less selling day during this year's fourth quarter, as compared to the prior year. First on revenues.
Looking at our US markets, revenues for our single family end market increased 4.5% on a per day basis, as compared with the fourth quarter of fiscal 2024. Multifamily and commercial revenues on the other hand fell 32.410.1%, respectively, on a per day basis. Given the significant decline in multifamily, total US residential revenues declined 6% per day as compared with the prior year period. By product category, wallboard sales for the quarter of $526.6 million were down 10.1% over the same period last year, or 8.7% on a per day basis. Single family volumes in The US were down 1.9% per day. Outperforming our expectations as we successfully picked up share during the quarter.
US multifamily wallboard volumes were down 37% per day, and commercial volumes were down 18.3% per day. Organically, fourth quarter wallboard sales were down 12.5% compared with the prior year period, or 11.1% on a per day basis, comprised of a 12.1% decrease in volume partially offset by a 1% increase in price and mix. Reflective of myriad capacity utilization and commodity excuse me, commodity dynamics influencing wallboard manufacturing, pricing has remained resilient throughout the cycle. The average realized price per wallboard for the fourth quarter was $478 per thousand square feet. Down only marginally from the third quarter price of $479 all the result of a mix shift toward lower dollar single family wallboard product.
On a like for like product basis, wallboard pricing excluding mix was up 1% sequentially for the quarter, Year over year, pricing was up from $475 in the prior year period. As JT mentioned, manufacturers launched small regional price increases in May, and we expect our teams work to implement these increases to continue at least through the summer. Due to the soft demand conditions and uncertainty in macro environment, it is too soon to know how successful the adoption of these increases will be in the near term. For ceilings, sales of $2.00 $1 million were up 6.4% compared to the prior year period.
Or 8.1% on a per day basis, representing a 1.4% increase in volume and a 6.8% improvement in price and mix. Organic sales for ceilings grew 2.94.5% on a per day basis for the quarter, despite a 1.5% decrease in volume. Given constrained commercial activity due to the macroeconomic and lending environment. Price and mix increased 6%. Benefiting from both the normal cadence of regular price increases on ceilings as well as a favorable shift towards architectural specialties products. Steel framing sales of a $189.2 million down 14.2% for the quarter or 12% on a same day basis versus the prior year quarter. As volumes were down 2.6% and price and mix were down 10.2%.
On an organic basis, steel framing sales were down 17.9 in total, or 16.6% on a same day basis with a 10.1% decline in volume in a 6.5% decline in price and mix. Recent tariff announcements on steel have indeed resulted in price announcements from our suppliers, and we do expect eventual higher pricing as a result. However, due to the continuing soft consumption levels in steel's primary end markets, including automotive, structural construction and appliances, the broader tariff activity has for now only set a likely bottom for pricing in our applications. As such, although still difficult to predict, while there could be upside, we are assuming relatively flat steel prices for our business in the near term.
Complementary product sales of $416.9 million for the quarter were nearly flat a year ago in total or up 1.4% on a per day basis. Representing the twentieth consecutive quarter per day growth in this margin accretive category. On an organic basis, sales were down 7.3%, or 5.8% on a same day basis. We continue to see complementary products as an attractive expansion opportunity and are targeting its growth at twice the rate of our core products. Similarly, as the broader sector has faced the pressure of recent macro challenges, this category has organically contracted more slowly than our core products.
Within complementary products, we are particularly focused on expanding our reach in tools and fasteners, given the fragmentation of its niche pro focused market. Insulation, as there is a real opportunity for pull through organic growth within our current commercially focused footprint, and exterior finishes such as eaves, stucco, and siding. Particularly through leveraging the capabilities from our recent RS Elliott acquisition. In total, these three product types grew 2% for the fourth quarter, or 3.6% on a per day basis. With East and Stucco firmly in our wheelhouse, we've also recently begun to include siding in our exterior finish offerings and have already captured work from some of the country's largest homebuilders. Now turning to slide seven.
Highlights our profitability for the quarter. Gross profit of $416.2 million decreased 7.7% compared to the prior year quarter. Our gross margin of 31.2% was flat sequentially and in line with our expectations on stable price cost dynamics but down 70 basis points from the prior year. Reflecting decreased sales volumes and as a result, lower vendor incentive income as compared to the prior year period. Selling, general and administrative expenses were $315.1 million for the quarter, down slightly from $315.5 million in the prior year quarter. Despite a $14 million year over year inorganic increase related to our recent acquisitions.
Separately, we saw a $4 million increase in rent expense, a $4 million increase related to higher insurance claim costs, and $1.5 million in severance expenses. These expenses were fully offset by lower overall operating costs resulting from the structural cost reductions we took earlier this fiscal year together with lower variable cost as a result of lower sales volumes. As a reminder, we expect to realize additional savings in our first quarter fiscal 2026 results from those actions implemented during the fourth quarter. SG and A expense as a percentage of net sales increased 130 basis points to 23.6% for the quarter, up from 22.3% a year ago.
But reflected a sequential improvement compared with the prior quarter's level of 24.7%. General operating cost inflation, including higher rent expense, drove 110 basis points of deleverage the majority of which was offset by the previously announced cost out actions. Accident claim activity contributed 30 basis points of deleverage. And net product price deflation led by steel was unfavorable to SG and A leverage by 30 basis points. The remainder of the year over year difference was related to reduced absorption on lower sales, offset partially by the benefit of acquisitions. On an adjusted SG and A basis, expenses as a percentage of net sales of 23.1% increased 130 basis points from 21.8%.
All in, inclusive of a 5.7% increase in interest expense, net income decreased to $26.1 million compared to $56.4 million a year earlier. Net income per diluted share of $0.67 decreased from a dollar 39 per excuse me, a dollar 39 per diluted share. And finally, relating to the p and l, adjusted EBITDA of $109.8 million came in at the high end of our expected range for the quarter and compared to $146.6 million a year ago. Adjusted EBITDA margin of 8.2% was down from 10.4% in the prior year period.
With improvement in demand and less uncertainty in the market, particularly given the recent operating cost reductions, we continue to expect that annual EBITDA margin will return over time to a range of 10% to 12% in a more normalized environment. Now, turning to the balance sheet on slide eight. As of April 30, we had cash on hand of $55.6 million $631.3 million of available liquidity under our revolving credit facility. Although we achieved a sequential reduction in net debt, our leverage ratio increased to 2.4 times adjusted EBITDA compared to 1.7 times a year ago. Primarily due to the year over year decline in adjusted EBITDA. Cash generation was a definite highlight in the quarter.
Cash provided by operating activities for the quarter was $190.8 million compared to $204.2 million in the prior year quarter. Free cash flow was $183.4 million compared to $186.7 million for the same period last year. Totaling 167% of adjusted EBITDA. For the full year, we generated cash provided by operating activities of three excuse me, dollars 383.6 million.0 and free cash flow of $336.1 million representing 67.1% of adjusted EBITDA. Slightly our full year expectation. Capital expenditures for the quarter were $13.4 million compared to $17.5 million a year ago.
Looking forward, for full year fiscal 2026, we now expect capital expenditures to total between 40,000,000 and $45 million During the quarter, we repurchased 348,600.0 shares of common stock for $26.4 million at an average price of $75.6 per share. At April 30, there was a $192 million of share repurchase authorization remaining. For the full year, we repurchased 1.9 million shares of common stock, for $164.1 million at an average cost of $85.27 per share. Looking ahead, we expect to maintain a disciplined approach to capital as we balance stock buybacks, with debt reduction. While maintaining enough cash to pursue attractive m and a opportunities that expand our offerings and build on strategic priorities.
During this suppressed demand environment, we will continue to be tightly focused on managing operating efficiencies and cash, maintaining optimal financial flexibility to best position the company, for a still widely expected eventual return to improved economics. With that, I'll turn the call back over to JT who will start on slide nine.
John Turner: Thank you, Scott. We finished fiscal 2025 having undergone a period of macroeconomic difficulty that impacted our industry as a whole. And will likely continue to do so for the remainder of calendar 2025. While we continue to expect recovery to be tightly closed to more tied closely to mortgage rates, and the broader macroeconomic environment, our team has been working diligently to service our customers and execute against our strategic priorities. Despite headwinds, we believe that there's a great deal of pent up demand that will materialize when conditions improve.
Looking ahead, as Scott discussed, continuing business simplification efforts are on track to be finished by the end of this calendar year leveraging standardized datasets, streamlining processes, and reducing redundancies across our business units. Combined with the strong fundamentals of the business, and our already implemented cost reductions, we believe our strategic approach should position the company to capture demand when it returns as a leaner, more efficient operator Given this backdrop, let me turn to what our expectations for our product categories look like this next quarter. Starting with Wallboard, on an organic basis, and using our US business as the proxy, we anticipate single family volumes to be flat to up slightly year over year, for our fiscal
Scott Deakin: first quarter.
John Turner: Multifamily organic wallboard volumes are expected to be down 25% to 30% for the first quarter, and commercial organic wallboard volumes are expected to be down low teens as compared with the prior year period. In total, including Canada, we expect first quarter organic wallboard volumes to be down high single digits and total wallboard volumes, including recent acquisitions, to be down mid to high single digits. Although prices on a like for like product basis should be slightly higher year over year for Wallboard, including the impact of mix shifts, we anticipate our first fiscal quarter overall price and mix for wallboard to be roughly flat with the prior year period.
In ceilings, a low single digit decline in volumes is expected for our first fiscal quarter. Reflective of the soft commercial end market conditions. In addition, the results of our Camco business whose acquisition was completed in March 2024, are now fully reflected in both the current quarter and the prior year period. With a typical pattern of price increases anticipated, price and mix for ceilings is expected to be up mid to high single digits for our first fiscal quarter. Steel framing, which is also heavily impacted by commercial market conditions, expected to be down high single digits in volume and low single digits in price and mix.
While pricing does still have the potential to increase in subsequent quarters, given the lag dynamics from rolled steel, through our manufacturing partners to us, we don't expect to see any significant improvement in the first quarter. Including with complementary products, while we remain focused on growing this product category, due to expose its exposure to commercial end market, we expect for year over year sales to be down low single digits. In the first quarter. All in, and as shown on Slide 10, we anticipate net sales for our fiscal first quarter to be down low to mid single digits in total, and down mid to high single digits organically as compared to the prior year period.
While gross margins are expected to be consistent with both our fourth quarter and the prior year period, around 31.2% we expect to see lower operating expenses year over year as a result of our cost reduction actions and lower sales volumes. All considered, we anticipate that adjusted EBITDA will be in the range of 132,000,000 to $137 million for the first fiscal quarter. With margins in the 9.5% to 9.8% range. Cash flow generation should remain strong for fiscal 2026. Likely 60% to 65% of adjusted EBITDA for the full year.
Before I conclude, I'd like to take a moment to thank the entire GMS team for their continued commitment to delivering outstanding service and adding value for our customers during soft market conditions. I'd also like to thank our customers and suppliers for their continued partnership working hard every day while navigating the same headwinds we're facing. As conditions improve, interest rates lower, and uncertainty lessens, pent up demand within the market should materialize and we believe our strong foundation will set us up for continued shared success. Thank you for joining us this morning. Donna, we can now open the line for questions.
Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press 1 on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We do ask that you please limit yourself to one question and one follow-up. Again, that's 1 to register a question. Today's first question is coming from David Manthey of Baird. Please go ahead.
Scott Deakin: Yeah. Thank you. Good morning. JT, you mentioned that sequential organic trends
David Manthey: would be seasonally better next quarter. And I think, quarter to quarter, trends have been running below expectations for about a year now. Maybe I didn't catch it. Did you outline why you feel that way?
John Turner: I think we referred specifically to the single family market. As that improvement, and so we're just experiencing that. We also have some share gain we've achieved with some of our big bigger customers. That we will enjoy for the balance of this year. Dave. So we're really speaking primarily from an improvement in single family for our business. Maybe not so much the whole market, although you know, recent commentary from Lennar and also, you know, Horton you guys have read it. You know, the sky is not falling. In that respect.
So we feel pretty good about, you know, where we are and how we bottomed and we're experiencing that normal seasonality and a little bit better, like I said, today in single family primarily.
David Manthey: Okay. Yeah. It looks like based on your overall guidance, you're pretty much in line with normal quarter to quarter trends into the first quarter. So hopefully, holds up. And then, second, as you're thinking about the technology and efficiency optimization efforts in this 25,000,000 in annualized savings. I think you said it was mostly RIFs. But could you talk about the technology that you're implementing? And if there's any additional digital benefits beyond what you've already outlined in savings?
John Turner: Yeah. I mean, we haven't done anything. You know, we never slowed down our investment in digital. At all throughout this entire cycle. You know, depending on when you wanna say the cycle started declining. We've continued to focus really heavily on our digital efforts and our customer portal, and our ecommerce efforts and our automation efforts. Part of that success is why we were able to take out the addition the amount of cost we have been able to take out during this period you know, which is in excess of what we otherwise would have been able to do simply from a volume perspective. So our efficiencies have continued to get better on a year over year basis.
Over the course of the last several years. You know, we have no slowdown in investment in our ecommerce. So we have some AI applications we're looking at that are auto gonna automate order entry for us. This next year. We are continuing to advance the actual b to b and b to c capability of our commerce.
Scott Deakin: Our portal gets better all the time, although it's fully functioning now.
John Turner: We're up to almost 20% of our accounts receivable being collected. Online through our portal. I mean, that's a really significant number. Considering we have a lot of large customers that naturally pay another way. So we're just constantly seeing the metrics associated with what we've invested in. Getting better. Which allows us to be confident that even though we've taken the cost out that we have, that we continue to deliver exceptional service. We'll have that ability going forward.
Scott Deakin: David, also, I think, you know, we've got a common ER plea platform across our entire US footprint. And what's really nice about what we're doing is we clean up this data standardization is the ability to get better utilization out of those other technologies goes up. So not only do we get efficiencies in terms of working with that data back office efficiencies, etcetera, but some of those underlying tools that JT just mentioned actually become more effective with that cleaner data.
David Manthey: Perfect. Thanks, and good luck.
John Turner: Thanks, Dave.
Operator: Thank you. The next question is coming from Mike Dahl of RBC Capital Markets.
Mike Dahl: Thanks for taking my questions.
John Turner: J. C, maybe just to follow-up on the single family dynamic. I respect that some of the commentary has suggested things aren't necessarily crashing, but that's also coming in the context of the companies that you quoted, reporting order trends that are still well below normal seasonality and some other commentary suggesting, you know, the bottoms. A little bit elusive and apply and that they're more vocally applying pressure to their partners. So I wanna tie that back to your share gain. If I look at your single family guide compared to single family starts or under construction, it would imply a very healthy share gain. I think those numbers are still running down high single digits year on year.
Help us understand the nature of the share gains, the categories and then when the builders are asking for you know, the concessions, how your how you're balancing that kind of share versus margin and price dynamic.
John Turner: Yeah. I mean, we're we're leveraging our scale to help our builder partners. Where necessary. You know, obviously, we're somewhat limited as the distributor, but we have wonderful relationships you know, back throughout the supply chain, right, on the supply side. So we're work working really diligently to help builders through this period of time and partner with builders through this period of time. We feel pretty good about it, quite frankly, and I think it's part of this next quarter's guide we just talked about. We know that we picked up some share gain recently you know, so I think maybe we're just over performing a little bit. I wouldn't say dramatically.
I'm guessing it's not quite as dramatic as would know, you just you just rattled off there. I do think that we've done some things on a geographic basis be better where builders are building. So we have some regional strength Some of our greenfield activity over the course of the several years has been focused in and around where builders are focused on building. As well. And so I think that's helping us. And, you know, our acquisition track record here has been pretty good too. So I think we're picking up on the complimentary product side.
We're picking up some things that we otherwise, you know, in state of Florida as an example with RS Elliott, we wouldn't have had any of that East and stucco business to speak of. East is really primarily multifamily, but think about stucco, the first level and still the second level in a lot of homes and Florida is stucco. And so, you know, we're much better as a result of that RSL eight acquisition down in Florida. So think those are kind of the primary drivers.
Mike Dahl: Okay. Great. That's really helpful. And then just shifting gears to the margin dynamics, it's it's nice to see the, the OpEx coming back down and some of the cost outs starting to bear fruit, at least looking at the guide in particular. The comments about margins 10% to 12% longer term, historically, had seen that in the COVID years, which benefited a lot from price. And before that, you were slightly below. So when you think about that margin target, how much would you attribute to being kind of dependent on a market outcome? Versus, obviously, you guys are doing a lot under the hood. To improve the internal operation cost efficiencies, data transparency, etcetera.
Help us kinda understand what's the self help in there versus market dynamic.
John Turner: Yeah. I mean, clearly, still need the market to come back. Right? I mean, we need to put some volume through the machine. To get to those kinds of numbers. Right? I mean, we have the ability today to do a lot more volume even after taking out the cost that we've taken out. And all, you know, all of that incremental volume across this cost structure means we're leveraging that the fixed side, right, straight to the bottom line.
So let me let me tell you, maybe half of what we think we can do is volume related, and the other half is just being leaner now going forward and the work that we've done in both in our product mix Right? We've talked about complimentary products being accretive. When we continue to grow that side of the business. But then also our cost structure, we're just leaner going into this. And again, I would expect not to have the same degree of inflation that we all experienced post COVID either. Right? So on the cost side of the business. I'm talking about.
So a little bit of normalization in gross profit, a little bit of volume, and leveraging our cost and product mix gets us right there.
Mike Dahl: Alright. Thank you.
John Turner: Thank you. Appreciate it, Mike.
Operator: Thank you. The next question is coming from Matthew Bouley of Barclays. Please go ahead.
Matthew Bouley: Good morning, everyone. Thank you for taking the questions. I'm gonna stick to the single family guide. You know, as
Mike Dahl: as Mike alluded to, I think we just saw single family starts of May. probably down about 7%, year over year in the month of And so, you know, I hear you all on the share gain and, you know, partnering with your builder customers and all that. So my question is really, the visibility that you have into that end market. If you know, to the extent you can, you know, look a little bit forward on orders.
Just, you know, how do you think about or to what degree do you have visibility And kinda secondly, you know, thinking about kinda lag times and all that is I mean, just historically speaking, when would you see start activity end up flowing into your own shipments? Thank you.
John Turner: Usually, about three to six months, you know, because it's you know, we're really very production large builder focus. We have less of a customer. It's not really a focus as much as it's just the nature of the business. We don't have as big a custom home builder mix. So although a couple of the big production you know, luxury builders, we do pretty well with, So three to six months, Matt, is kind of the lead time there. You know, our visibility that we're very comfortable with is kind of the quarter. That's kinda why we give you a guide for a quarter. Know, obviously, if starts just collapse, going forward, then you know, the outlook changes.
But I don't think that's probably what we're going see. I think it's gonna be challenging here for a little period of time from starts, but I'm I'm I believe that you'll get through the summer months, and we'll start to see a little bit of uptick again and get prepared for next year's spring selling season. I mean, just again, if you go back is gonna be the fourth year most likely now of declining single family home starts. And home starts really in total.
Matthew Bouley: And so that's
John Turner: almost always it's not a longer cycle than four years. Four years usually about three to four years. Right? And so it would be an exceptional situation to move into a fifth year with you know, home starts down again. So I don't see anything out there that
Matthew Bouley: that
John Turner: says things are gonna be exceptionally bad. So our expectation is things will kinda bottom here, and then and then move up going into next year's spring selling season. I mean, we're already halfway through the calendar year.
Matthew Bouley: Okay. It. Thank you for that, JT. And then yeah, I guess, you know, great color around, you know, kind of, I guess, streamlining the cost structure in terms of, you know, where you wanna be if and when we do have that end market recovery. So I guess just double clicking on the s g and a savings, may maybe that incremental 25,000,000 You obviously gave a lot of great color on kinda what's behind that.
But we always like to just kinda check on, I guess, the permanence of a lot of these cuts and I'm just trying to understand, you know, if and when you do have volume recovery, you know, to what degree does some of those costs actually kinda come back into the system versus you know, to what degree do you think, you know, you've sort of permanently reduced the cost structure? Thank you.
John Turner: Yeah. I mean, we've historically always talked about our fixed variable being fifty. I think between the investments we've made in our productivity capability, The current structure of the business actually has some upside in volume in volume before we would begin adding back even the very some of the variable cost. But, you know, I would tell you probably you know, over the over a long run of growth, 50% of the cost stays out and 50% variable. And might come back.
Matthew Bouley: Okay.
Matthew Bouley: It. Thank you for that, JT. Good luck, guys.
John Turner: Thanks, Matt. Appreciate it.
Operator: Thank you. The next question is coming from Brian Brioz of Thompson Research Group. Please go ahead.
Matthew Bouley: Hey, good morning. Thank you for taking my questions. I guess, sticking on kinda still the homebuilders and the single family environment, just
Brian Biros: I guess, as the big homebuilders continue to be a larger share of the home starts, How does that impact, I guess, distribution channel and your business On the one hand, I can kinda see builders being able to take advantage of your offerings. Better than the smaller builders. But also maybe you lose some leverage when you have fewer customers there. So just curious to hear your thoughts on how the distribution channel and your company specifically is adapting its kind of go to market strategy here in the current
John Turner: Yeah. I mean, the near term, I think that's another tailwind to kind of what we're guiding to here is the fact that those big builders are significantly more positive than the small builders. And we've gained quite a bit of share with big builders over the last couple of years because of our service proposition, our national ability to service their business. And really the quality of that delivery that ensures that in particularly in these times, no added cost going into their process. As a result of doing business with us.
Brian Biros: Right? If anything,
John Turner: we should help them be more lean and more efficient by having the most professional delivery capability in the industry. And so I think that's kind of why we appeal to them And we're we're great partners with them. Right? They are important customers, and we're gonna work with them. And we're gonna we're gonna help them through this period of time, and gonna do everything we can on every side of our business to reduce cost. Reduce product cost, reduce operating cost to help our builder partners.
Brian Biros: Through this period of time. And
John Turner: you know, keeps us going in the in the in the near term. And then in the long term,
Scott Deakin: you know, I really think there's gonna be some significant growth in that channel
Brian Biros: you know, when
John Turner: when all this pent up demand gets released. I think we said we saw some article yesterday, there's a million millennials that are either living together as roommates or back in their homes again. Through this down cycle. Right? That's millennials. That's not young people. I mean, that's people that are ready to form households and start buying houses. We got a million people sitting in that environment right now. So that alone says there's a there's a lot of pent up demand out there and yes, we're we're better with national builders because our service proposition and partnering proposition you know, really fits that business model.
Brian Biros: Got it. And then, I guess, if you could talk about what you're seeing kind of across the return to office movement here. We were at NeoCon earlier this month. Return to office trend there seems to be kinda slow and steady pace. Actually happening, but nothing to get too excited about currently. Guess, how are you guys thinking about that going forward? And kinda what are you seeing in the market today? Thank you.
John Turner: Yeah. I mean, you know, longer term,
Brian Biros: it's a it's a
John Turner: really nice opportunity. In the very near term, right, we're not touting it because it's not happening to the extent that yet is driving a ton of TI work. And that tenant improvement work is what's so important for us. You know, an equally important trend is the conversion of all of this office space to residential. Particularly in some of the major metros. It'd be very good for us. New York City is an example. I think we just saw a forecast in New York. There's, like, 14 buildings that have now been approved and permitted to be converted. So that's really good business for us as well.
So I guess we are cautiously optimistic, but I wouldn't put that in a twelve month view us. I think that's still
Brian Biros: you know,
John Turner: calendar 2027 type time frame. When things might be better there. When it does come back though, that's really good for us. I mean, that prior to COVID was a huge part of our business and we were the best at it. And I think we're still pretty damn good at it, and
Brian Biros: and when it happens,
John Turner: it'll happen for us. But again, too far out into the future still to get too excited about it.
Operator: Our final question today is coming from Kurt Yinger of D. A. Davidson.
Kurt Yinger: Yes. Great. Thanks, and good morning, everyone.
David Manthey: I just wanted to go back to kinda wallboard pricing and
Kurt Yinger: and hopefully, you guys could give maybe a little bit more color around kinda high level, the timeline in terms of you know, what you're absorbing in terms of some of those regional price increases, know, how you're thinking about maybe success and what would be required for that from a demand perspective and maybe ultimately how that ties back into wallboard price cost for GMS going forward?
John Turner: Yes. I would tell you that our guide incorporates basically the ability to pass through limited price increases and or work backwards. And take that cost out of our business. So it's the magnitude of what we're going through now and experiencing nothing like we experienced you know, a year ago. Everybody thought things were gonna be better. And the prices all went in. And then you know, two, three months later, things start to fall apart from a volume perspective. You know, I think everybody understands the environment we're in today. All of our understand where we are and we're we're all working through it you know, together from a cost perspective.
And then we're pushing through where we have to push through. It's pretty limited. Quite frankly.
Brian Biros: Okay. Okay. That's helpful. And then, know, if we kinda look at
Kurt Yinger: some of the numbers that the Gypsum Association has in terms of expected industry capacity and layer on, you know, a more challenged kind of volume scenario this year, it's not hard to see industry operating rates fall back to you know, a mid to high seventies level this year.
Mike Dahl: I guess, how do you think about that in terms of
Kurt Yinger: you know, the resiliency of pricing sustaining and maybe any other kind of high level thoughts around the industry's ability to kind of hold pricing with that sort of kind of operating rate environment?
Brian Biros: I mean, I you know, there's still a lot of inflation on the manufacturer side on the
John Turner: on the inputs. You know, with this synthetic and natural gypsum situation, all capital that's been invested to handle that situation,
Mike Dahl: I would guess that through a short period of time, which we're looking at
John Turner: here, six months, you know, maybe nine months, you know, with a recover a an outlook in the calendar 2026 that looks like it's more of recovery, I think things can stay pretty resilient. You know, if you were go gonna go into a significant downturn, you know, recessionary type situation. Well then, you know, things could be different. That's not what I'm expecting.
Scott Deakin: Particularly for an extended period. Yeah. Particularly for an extended period. Mean, we're not expecting
John Turner: deep recessionary environment. Obviously, if that happens, it's a different you know, it's a different situation and everybody has to act differently.
Kurt Yinger: Okay. That makes sense. And I guess,
Kurt Yinger: you know, you talked about kind of the more extreme negative demand environment potential for 2026. The unlikely hood of that. But know, if we were to think about demand just you know, being pretty stagnant again and maybe some competitive forces coming back into the market Is that a scenario that concerns you? Or do you really need to have demand deteriorate further for some of those more negative scenarios around pricing or price cost to really materialize in your view?
John Turner: You know, I you know, we say does it concern me? I certainly would
Kurt Yinger: prefer
John Turner: not to have another year of muted demand. You know, all the way through '26. It was not, you know, not as much fun as a better economy. I don't really know what to tell you from a price perspective if we got into a full year of, let's say, 75% utilization of capacity. Could there be some erosion in price Yeah. I mean, there could be, I guess. You got a full year of 75% kinda utilization rates.
Kurt Yinger: Again,
John Turner: into '26. But I also do believe that, you know, there's still a lot of pent up inflation that these manufacturers are have eaten. And there's still a lot of investment to be done. I mean, there's there's whole industry is not completely ready to go to some you know, away from synthetic yet, and synthetic continues to go away. So there's still that there's still that challenge. Okay.
Kurt Yinger: Okay. No. That's that's very helpful, Bert.
Mike Dahl: Perspective. Thank you.
John Turner: Thanks, Kurt.
Operator: Thank you. Ladies and gentlemen, this concludes today's question and answer session. And today's event. You may disconnect your lines or log off the webcast at this time. And enjoy the rest of your day.
Carey Phelps: Thank you.