15. Segments

General

The Company has six operating segments based on geographic operations that it aggregates into one reportable segment. The Company defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by the Chief Operating Decision Maker (“CODM”) in order to assess performance and allocate resources. The Company’s CODM is its Chief Executive Officer. The Company determined it has six operating segments based on the Company’s six geographic divisions, which are Central, Midwest, Northeast, Southern, Southeast and Western. On May 1, 2017, the Company combined the Southern and Southwest into the Southern operating segment, which resulted in a reduction (from seven to six) in the number of operating segments. The Company aggregates its operating segments into a single reportable segment based on similarities between the operating segments’ economic characteristics, nature of products sold, production process, type of customer and methods of distribution. The accounting policies of the operating segments are the same as those described in the summary of significant policies. In addition to the Company’s reportable segment, the Company’s consolidated results include both corporate activities and certain other activities. Corporate includes the Company’s corporate office building and support services provided to its subsidiaries. Other includes Tool Source Warehouse, Inc., which functions primarily as an internal distributor of tools. As of April 30, 2018, the Company did not earn revenues or have long‑lived assets located in foreign countries.

Segment Results

The CODM assesses the Company’s performance based on the periodic review of net sales, Adjusted EBITDA and certain other measures for each of the operating segments. Adjusted EBITDA is not a recognized financial measure under GAAP. However, we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes Adjusted EBITDA is helpful in highlighting trends in our operating results, while other measures can differ significantly depending on long‑term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments.

In addition, we utilize Adjusted EBITDA in certain calculations under the ABL Facility and the First Lien Facility. The ABL Facility and the First Lien Facility permit us to make certain additional adjustments in calculating Consolidated EBITDA, such as projected net cost savings, which are not reflected in the Adjusted EBITDA data presented in this Annual Report on Form 10‑K.

The following tables present segment results for the years ended April 30, 2018, 2017 and 2016:


	Year Ended April 30, 2018								April 30, 2018
					Depreciation and			Adjusted	Total
	Net Sales		Gross Profit		Amortization			EBITDA	Assets
	(in thousands)
Geographic divisions	$	2,487,557	$	809,884	$	64,491	$	196,903	$	1,434,371
Other		23,912		8,692		242		2,355		12,854
Corporate		—		—		797		—		7,286
	$	2,511,469	$	818,576	$	65,530	$	199,258	$	1,454,511


	Year Ended April 30, 2017								April 30, 2017
					Depreciation and			Adjusted	Total
	Net Sales		Gross Profit		Amortization			EBITDA	Assets
	(in thousands)
Geographic divisions	$	2,298,871	$	750,564	$	68,001	$	186,155	$	1,376,655
Other		20,275		8,007		310		2,074		11,916
Corporate		—		—		929		—		4,694
	$	2,319,146	$	758,571	$	69,240	$	188,229	$	1,393,265


	Year Ended April 30, 2016								April 30, 2016
					Depreciation and			Adjusted	Total
	Net Sales		Gross Profit		Amortization			EBITDA	Assets
	(in thousands)
Geographic divisions	$	1,842,634	$	587,213	$	63,093	$	137,459	$	1,217,871
Other		15,548		5,951		295		724		12,310
Corporate		—		—		827		—		10,633
	$	1,858,182	$	593,164	$	64,215	$	138,183	$	1,240,814

The following table presents a reconciliation of net income to Adjusted EBITDA for the years ended April 30, 2018, 2017 and 2016:


	Year Ended April 30,
	2018		2017		2016
	(in thousands)
Net income	$	62,971	$	48,886	$	12,564
Interest expense		31,395		29,360		37,418
Write-off of debt discount and deferred financing fees		74		7,103		—
Interest income		(177)		(152)		(928)
Income tax expense		20,883		22,654		12,584
Depreciation expense		24,075		25,565		26,667
Amortization expense		41,455		43,675		37,548
Stock appreciation expense(a)		2,318		148		1,988
Redeemable noncontrolling interests(b)		1,868		3,536		880
Equity-based compensation(c)		1,695		2,534		2,699
Severance and other permitted costs(d)		581		(157)		379
Transaction costs (acquisitions and other)(e)		3,370		2,249		3,751
Gain on sale of assets		(509)		(338)		(645)
Management fee to related party(f)		—		188		2,250
Effects of fair value adjustments to inventory(g)		324		946		1,009
Change in fair value of financial instruments(h)		6,125		382		19
Secondary public offering costs(i)		1,525		1,385		—
Debt transaction costs(j)		1,285		265		—
Adjusted EBITDA	$	199,258	$	188,229	$	138,183

(a)

Represents non‑cash expense related to stock appreciation rights agreements.

(b)

Represents non‑cash compensation expense related to changes in the redemption values of noncontrolling interests.

(c)

Represents non‑cash equity‑based compensation expense related to the issuance of share-based awards.

(d)

Represents severance expenses and other costs permitted in calculations under the ABL Facility and the First Lien Facility.

(e)

Represents one‑time costs related to our IPO and acquisitions paid to third party advisors.

(f)

Represents management fees paid by us to AEA. Following our IPO, AEA no longer receives management fees from us.

(g)

Represents the non‑cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value.

(h)

Represents the mark‑to‑market adjustments for derivative financial instruments.

(i)

Represents one-time costs related to our secondary offering paid to third-party advisors.

(j)

Represents expenses paid to third party advisors related to debt refinancing activities.

Revenues by Product

The following table presents Company’s net sales to external customers by main product lines for the years ended April 30, 2018, 2017 and 2016:


	Year Ended April 30,
	2018		2017		2016
	(in thousands)
Wallboard	$	1,109,552	$	1,058,400	$	870,952
Ceilings		387,360		341,007		297,110
Steel framing		411,630		374,151		281,340
Other products		602,927		545,588		408,780
Total net sales	$	2,511,469	$	2,319,146	$	1,858,182