13. Segments

General

The Company has seven 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 seven operating segments based on the Company’s seven geographic divisions, which are Central, Midwest, Northeast, Southern, Southeast, Western and Canada. On June 1, 2018, the Company acquired Titan, which resulted in the addition of a new operating segment. 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.

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 Quarterly Report on Form 10‑Q.

The following tables present segment results for the three months ended July 31, 2018 and 2017:


	Three Months Ended July 31, 2018
					Depreciation and		Adjusted
	Net Sales		Gross Profit		Amortization		EBITDA
	(in thousands)
Geographic divisions	$	771,550	$	242,575	$	25,855	$	74,595
Other		6,594		2,241		58		677
Corporate		—		—		409		—
	$	778,144	$	244,816	$	26,322	$	75,272


	Three Months Ended July 31, 2017
					Depreciation and		Adjusted
	Net Sales		Gross Profit		Amortization		EBITDA
	(in thousands)
Geographic divisions	$	636,367	$	203,024	$	16,026	$	52,227
Other		5,790		2,080		64		525
Corporate		—		—		255		—
	$	642,157	$	205,104	$	16,345	$	52,752

The following table presents a reconciliation of Adjusted EBITDA to net income for the three months ended July 31, 2018 and 2017:


	Three Months Ended
	July 31,
	2018		2017
	(in thousands)
Net income	$	8,650	$	15,343
Interest expense		16,188		7,500
Write-off of debt discount and deferred financing fees		—		74
Interest income		(236)		(23)
Income tax expense		2,836		10,060
Depreciation expense		10,610		5,990
Amortization expense		15,712		10,355
Stock appreciation expense(a)		334		590
Redeemable noncontrolling interests(b)		531		866
Equity-based compensation(c)		404		473
Severance and other permitted costs(d)		4,836		205
Transaction costs (acquisitions and other)(e)		4,753		159
Gain on sale of assets		(121)		(390)
Effects of fair value adjustments to inventory(f)		4,129		—
Change in fair value of financial instruments(g)		6,019		196
Secondary public offering costs(h)		—		631
Debt transaction costs(i)		627		723
Adjusted EBITDA	$	75,272	$	52,752

(a)

Represents non‑cash income or expenses 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 acquisitions paid to third party advisors.

(f)

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

(g)

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

(h)

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

(i)

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

Revenues by Product

The following table presents the Company’s net sales to external customers by main product lines for the three months ended July 31, 2018 and 2017:


	Three Months Ended
	July 31,
	2018		2017
	(in thousands)
Wallboard	$	317,735	$	284,657
Ceilings		115,855		99,710
Steel framing		129,112		104,651
Other products		215,442		153,139
Total net sales	$	778,144	$	642,157

Geographic Information

The following table presents the Company’s net sales by major geographic area for the three months ended July 31, 2018 and 2017:


	Three Months Ended
	July 31,
	2018		2017
	(in thousands)
United States	$	690,731	$	642,157
Canada		87,413		—
Total net sales	$	778,144	$	642,157

The following table presents the Company’s long-lived assets by major geographic area as of July 31, 2018 and April 30, 2018:


	July 31,		April 30,
	2018		2018
	(in thousands)
United States	$	878,415	$	813,909
Canada		513,891		—
Total long-lived assets	$	1,392,306	$	813,909