17. 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 Annual Report on Form 10‑K.

The following tables present segment results for the years ended April 30, 2019, 2018 and 2017:


	Year Ended April 30, 2019								April 30, 2019
					Depreciation and		Adjusted		Total
	Net Sales		Gross Profit		Amortization		EBITDA		Assets
	(in thousands)
Geographic divisions	$	3,090,314	$	994,981	$	114,558	$	293,190	$	2,125,518
Other		25,718		9,138		220		2,479		16,897
Corporate		—		—		2,681		—		7,139
	$	3,116,032	$	1,004,119	$	117,459	$	295,669	$	2,149,554


	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

The following table presents a reconciliation of net income to Adjusted EBITDA for the years ended April 30, 2019, 2018 and 2017:


	Year Ended April 30,
	2019		2018		2017
	(in thousands)
Net income	$	56,002	$	62,971	$	48,886
Interest expense		73,677		31,395		29,360
Write-off of debt discount and deferred financing fees		—		74		7,103
Interest income		(66)		(177)		(152)
Provision for income taxes		14,039		20,883		22,654
Depreciation expense		46,456		24,075		25,565
Amortization expense		71,003		41,455		43,675
Stock appreciation expense(a)		2,730		2,318		148
Redeemable noncontrolling interests(b)		1,188		1,868		3,536
Equity-based compensation(c)		3,906		1,695		2,534
Severance and other permitted costs(d)		8,152		581		(157)
Transaction costs (acquisitions and other)(e)		7,858		3,370		2,249
Gain on sale of assets		(525)		(509)		(338)
Management fee to related party(f)		—		—		188
Effects of fair value adjustments to inventory(g)		4,176		324		946
Change in fair value of financial instruments(h)		6,395		6,125		382
Secondary public offering costs(i)		—		1,525		1,385
Debt transaction costs(j)		678		1,285		265
Adjusted EBITDA	$	295,669	$	199,258	$	188,229

(a)

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

(b)

Represents non‑cash compensation expense related to changes in the 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 costs related to acquisitions paid to third parties.

(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 costs related to our secondary offerings 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 line for the years ended April 30, 2019, 2018 and 2017:


	Year Ended April 30,
	2019		2018		2017
	(in thousands)
Wallboard	$	1,272,068	$	1,109,552	$	1,058,400
Ceilings		451,695		387,360		341,007
Steel framing		506,805		411,630		374,151
Other products		885,464		602,927		545,588
Total net sales	$	3,116,032	$	2,511,469	$	2,319,146

Geographic Information

The following table presents the Company’s net sales by major geographic area for the years ended April 30, 2019, 2018 and 2017:



	Year Ended April 30,
	2019		2018		2017
	(in thousands)
United States	$	2,701,678	$	2,511,469	$	2,319,146
Canada		414,354		—		—
Total net sales	$	3,116,032	$	2,511,469	$	2,319,146

The following table presents the Company’s long-lived assets by major geographic area as of April 30, 2019 and 2018:


	April 30,
	2019		2018
	(in thousands)
United States	$	868,498	$	813,909
Canada		460,491		—
Total long-lived assets	$	1,328,989	$	813,909