10-Q

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, 2019

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)

Delaware	46-2931287
(State or other jurisdiction of incorporation	(IRS Employer Identification No.)
or organization)
100 Crescent Centre Parkway, Suite 800
Tucker, Georgia	30084
(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 class	Trading Symbol(s)	Name of each exchanged on which registered
Common Stock, par value $0.01 per share	GMS	New 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. Yes ⌧ No ◻

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 and post such files). Yes ⌧ No ◻

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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer     ⌧	Accelerated filer                          ☐
Non-accelerated filer       ☐	Smaller 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 41,639,363 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of August 27, 2019.

FORM 10-Q

TABLE OF CONTENTS

		Page
Cautionary Note Regarding Forward-Looking Statements		3
PART I	Financial Information	5
Item 1	Financial Statements	5
	Condensed Consolidated Balance Sheets (Unaudited)	5
	Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)	6
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4	Controls and Procedures	37
PART II	Other Information	38
Item 1	Legal Proceedings	38
Item 1A	Risk Factors	38
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3	Defaults Upon Senior Securities	38
Item 4	Mine Safety Disclosures	38
Item 5	Other Information	38
Item 6	Exhibits	39
Signatures		40

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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. In particular, statements about the growth of 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, 2019, 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:

● general economic and financial conditions;

● our dependency upon the commercial and residential construction and residential repair and remodeling, or R&R, markets;

● competition in our highly fragmented industry and the markets in which we operate;

● the fluctuations in prices of the products we distribute;

● the consolidation of our industry;

● our ability to successfully implement our strategic initiatives, including our growth strategies and cost reduction initiatives;

● our ability to open new branches and expand into new geographic markets;

● our ability to successfully identify acquisition candidates, complete and integrate acquisitions and realize anticipated benefits and synergies from completed acquisitions;

● product shortages and potential loss of relationships with key suppliers;

● the seasonality of the commercial and residential construction markets;

● the potential loss of any significant customers;

● exposure to product liability and various other claims and litigation;

● our ability to attract and retain key employees;

● rising health care costs and labor costs, including the impact of labor and trucking shortages;

● the reduction of the quantity of products our customers purchase;

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● the credit risk from our customers;

● 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 increases or the prices of the products we distribute fluctuate;

● an impairment of our goodwill or intangible assets;

● the impact of federal, state, provincial and local regulations;

● the cost of compliance with environmental, health and safety laws and other regulations;

● significant increases in fuel costs or shortages in the supply of fuel;

● a 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;

● natural or man-made disruptions to our facilities;

● our exposure to greater than anticipated tax liabilities;

● the risk of our foreign operations, including currency rate fluctuations;

● the imposition of tariffs and other trade barriers, and the effect of retaliatory trade measures;

● 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 holding company structure;

● the influence of AEA Investors LP and certain affiliates thereof on us; and

● future sales of our common stock.

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, however, 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.

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PART I – Financial Information

Item 1. Financial Statements

GMS Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except per share data)

	July 31,		April 30,
	2019		2019
Assets
Current assets:
Cash and cash equivalents	$	24,123	$	47,338
Trade accounts and notes receivable, net of allowances of $6,683 and $6,432, respectively		473,411		445,771
Inventories, net		295,553		290,829
Prepaid expenses and other current assets		17,925		18,368
Total current assets		811,012		802,306
Property and equipment, net of accumulated depreciation of $132,815 and $123,583, respectively		287,535		282,349
Operating lease right-of-use assets		111,213		—
Goodwill		622,032		617,327
Intangible assets, net		419,250		429,313
Deferred income taxes		7,410		4,676
Other assets		15,942		13,583
Total assets	$	2,274,394	$	2,149,554
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	164,794	$	173,751
Accrued compensation and employee benefits		36,606		62,858
Other accrued expenses and current liabilities		70,669		79,848
Current portion of long-term debt		49,308		42,118
Current portion of operating lease liabilities		32,622		—
Total current liabilities		353,999		358,575
Non-current liabilities:
Long-term debt, less current portion		1,111,697		1,099,077
Long-term operating lease liabilities		83,384		—
Deferred income taxes, net		9,647		10,226
Other liabilities		45,191		41,571
Liabilities to noncontrolling interest holders, less current portion		8,181		10,929
Total liabilities		1,612,099		1,520,378
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.01 per share, 500,000 shares authorized; 41,589 and 40,375 shares issued and outstanding as of July 31, 2019 and April 30, 2019, respectively		416		404
Preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of July 31, 2019 and April 30, 2019		—		—
Exchangeable shares		—		29,639
Additional paid-in capital		512,244		480,113
Retained earnings		170,414		145,594
Accumulated other comprehensive loss		(20,779)		(26,574)
Total stockholders' equity		662,295		629,176
Total liabilities and stockholders' equity	$	2,274,394	$	2,149,554

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

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GMS Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(in thousands, except per share data)

	Three Months Ended
	July 31,
	2019		2018
Net sales	$	847,176	$	778,144
Cost of sales (exclusive of depreciation and amortization shown separately below)		573,522		533,328
Gross profit		273,654		244,816
Operating expenses:
Selling, general and administrative		194,631		185,435
Depreciation and amortization		29,275		26,322
Total operating expenses		223,906		211,757
Operating income		49,748		33,059
Other (expense) income:
Interest expense		(18,277)		(16,188)
Change in fair value of financial instruments		—		(6,019)
Other income, net		939		634
Total other expense, net		(17,338)		(21,573)
Income before taxes		32,410		11,486
Provision for income taxes		7,590		2,836
Net income	$	24,820	$	8,650
Weighted average common shares outstanding:
Basic		41,001		41,094
Diluted		41,615		42,074
Net income per common share(1):
Basic	$	0.60	$	0.21
Diluted	$	0.59	$	0.20
Comprehensive income
Net income	$	24,820	$	8,650
Foreign currency translation income (loss)		11,860		(3,791)
Changes in other comprehensive income, net of tax		(6,065)		113
Comprehensive income	$	30,615	$	4,972

(1) See Note 15 for detailed calculations.

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

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GMS Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands)

										Accumulated
						Additional				Other		Total
	Common Stock			Exchangeable		Paid-in		Retained		Comprehensive		Stockholders'
	Shares	Amount		Shares		Capital		Earnings		Loss		Equity
Balances as of April 30, 2019	40,375	$	404	$	29,639	$	480,113	$	145,594	$	(26,574)	$	629,176
Net income	—		—		—		—		24,820		—		24,820
Exercise of Exchangeable Shares	1,129		11		(29,639)		29,628		—		—		—
Foreign currency translation adjustments	—		—		—		—		—		11,860		11,860
Change in other comprehensive loss, net of tax	—		—		—		—		—		(6,065)		(6,065)
Equity-based compensation	—		—		—		1,349		—		—		1,349
Exercise of stock options	9		—		—		133		—		—		133
Issuance of common stock pursuant to employee stock purchase plan	76		1		—		1,021		—		—		1,022
Balances as of July 31, 2019	41,589	$	416	$	—	$	512,244	$	170,414	$	(20,779)	$	662,295

										Accumulated
						Additional				Other		Total
	Common Stock			Exchangeable		Paid-in		Retained		Comprehensive		Stockholders'
	Shares	Amount		Shares		Capital		Earnings		Income (Loss)		Equity
Balances as of April 30, 2018	41,069	$	411	$	—	$	489,007	$	89,592	$	441	$	579,451
Net income	—		—		—		—		8,650		—		8,650
Issuance of Exchangeable Shares	—		—		33,194		—		—		—		33,194
Foreign currency translation adjustments	—		—		—		—		—		(3,791)		(3,791)
Change in other comprehensive income (loss), net of tax	—		—		—		—		—		113		113
Equity-based compensation	—		—		—		358		—		—		358
Tax withholding related to net share settlements of equity awards	—		—		—		(7)		—		—		(7)
Exercise of stock options	35		—		—		431		—		—		431
Issuance of common stock pursuant to employee stock purchase plan	35		—		—		881		—		—		881
Balances as of July 31, 2018	41,139	$	411	$	33,194	$	490,670	$	98,242	$	(3,237)	$	619,280

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

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GMS Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Three Months Ended
	July 31,
	2019		2018
Cash flows from operating activities:
Net income	$	24,820	$	8,650
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		29,275		26,322
Write-off and amortization of debt discount and debt issuance costs		835		825
Provision for losses on accounts and notes receivable		657		148
Provision for obsolescence of inventory		119		(22)
Effects of fair value adjustments to inventory		151		4,129
Increase in fair value of contingent consideration		228		229
Equity-based compensation		2,071		1,269
Gain on sale and disposal of assets		(156)		(121)
Change in fair value of financial instruments		—		6,019
Deferred income taxes		(1,440)		(571)
Changes in assets and liabilities net of effects of acquisitions:
Trade accounts and notes receivable		(23,230)		(40,974)
Inventories		18		(20,943)
Prepaid expenses and other assets		(1,359)		416
Accounts payable		(9,526)		(1,696)
Accrued compensation and employee benefits		(26,347)		(22,945)
Derivative liability		—		(10,778)
Other accrued expenses and liabilities		(8,556)		2,219
Cash used in operating activities		(12,440)		(47,824)
Cash flows from investing activities:
Purchases of property and equipment		(5,891)		(3,793)
Proceeds from sale of assets		232		266
Acquisition of businesses, net of cash acquired		(10,633)		(575,499)
Cash used in investing activities		(16,292)		(579,026)
Cash flows from financing activities:
Repayments on the revolving credit facility		(262,107)		(176,769)
Borrowings from the revolving credit facility		274,810		392,170
Payments of principal on long-term debt		(2,492)		(2,492)
Payments of principal on finance lease obligations		(6,021)		(3,998)
Borrowings from term loan		—		996,840
Repayments from term loan		—		(571,840)
Debt issuance costs		—		(7,933)
Proceeds from exercises of stock options		133		431
Other financing activities		1,022		873
Cash provided by financing activities		5,345		627,282
Effect of exchange rates on cash and cash equivalents		172		(4)
(Decrease) increase in cash and cash equivalents		(23,215)		428
Cash and cash equivalents, beginning of period		47,338		36,437
Cash and cash equivalents, end of period	$	24,123	$	36,865
Supplemental cash flow disclosures:
Cash paid for income taxes	$	18,776	$	958
Cash paid for interest		17,011		10,980

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

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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. (“we,” “our,” “us,” or the “Company”), through its wholly-owned operating subsidiaries, is a distributor of specialty building products including wallboard, suspended ceilings systems, or ceilings, steel framing and other complementary building products. We purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of wallboard and ceilings contractors and homebuilders and, to a lesser extent, general contractors and individuals. We operate a network of more than 250 distribution centers across the United States and Canada.

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. As a result, 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, 2019.

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. 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 deductible amount per incident is $0.3 million, $0.5 million and $1.0 million for general liability, workers’ compensation and automobile, respectively. The coverage consists of a primary layer and an excess layer. The primary layer of coverage is from $0.5 million to $2.0 million and the excess layer cover claims from $2.0 million to $100.0 million. 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

9

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using loss development factors, actuarial assumptions and historical loss development experience.

As of July 31, 2019 and April 30, 2019, the aggregate liabilities for medical self-insurance were $3.9 million and $3.4 million, respectively, and are included in other accrued expenses and current liabilities in the Condensed Consolidated Balance Sheets. As of July 31, 2019 and April 30, 2019, reserves for general liability, automobile and workers’ compensation totaled approximately $18.2 million and $17.7 million, respectively, and are included in other accrued expenses and current liabilities and other liabilities in the Condensed Consolidated Balance Sheets. As of July 31, 2019 and April 30, 2019, expected recoveries for medical self-insurance, general liability, automobile and workers’ compensation totaled approximately $6.2 million and $6.0 million, respectively, and are included in prepaid expenses and other current assets and other assets in the Condensed Consolidated Balance Sheets.

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 the forecasted 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.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Authoritative guidance for fair value measurements establishes a three-level hierarchy that prioritizes the inputs to valuation models based upon the degree to which they are observable. The three levels of the fair value measurement hierarchy are as follows:

Level 1	Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2	Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3	Inputs are unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

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GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The carrying values of the Company’s cash, cash equivalents, trade receivables and trade payables approximate their fair values because of their short-term nature. Based on borrowing rates available to the Company for loans with similar terms, the carrying values of the Company’s debt instruments approximate fair value. See Note 11, “Fair Value Measurements,” for additional information with respect to the Company’s fair value measurements.

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 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.

The holders of the Company’s Exchangeable Shares (as defined in Note 8, “Stockholders’ Equity”) were entitled to receive dividends or distributions that are equal to any dividends or distributions on the Company’s common stock. As a result, when the Exchangeable Shares were outstanding, they were classified as a participating security and thereby required the allocation of income that would have otherwise been available to common stockholders when calculating earnings per share. Diluted earnings per share is calculated by utilizing the most dilutive result of the if-converted and two-class methods. In both methods, net income attributable to common stockholders and the weighted-average common shares outstanding are adjusted to account for the impact of the assumed issuance of potential common shares that are dilutive, subject to dilution sequencing rules.

Recently Adopted Accounting Pronouncements

Leases—In February 2016, the FASB issued authoritative guidance on accounting for leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with such classification affecting the pattern of expense recognition in the statement of operations. The new standard is effective for the Company’s fiscal year beginning May 1, 2019 (the first day of fiscal 2020), including interim reporting periods within that fiscal year. A modified transition approach is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

On July 30, 2018, the FASB issued new guidance that provided entities with an additional (and optional) transition method to adopt the new lease standard. Under this new transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted the new lease standard on May 1, 2019 using the optional transition method. The Company elected the package of practical expedients permitted in the guidance, which among other things, allows the Company to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. The Company also elected to use the practical expedient to not separate lease and nonlease components. The Company did not elect the hindsight practical expedient. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off the Consolidated Balance Sheet.

The adoption of the standard resulted in the recording of operating lease ROU assets and operating lease liabilities of $118.8 million on the Condensed Consolidated Balance Sheet as of the adoption date. The Company also

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GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

reclassed deferred rent of $4.8 million from liabilities into its operating lease ROU assets. The adoption did not have a material impact on the Company’s Statement of Operations or Statement of Cash Flows. See Note 6, “Leases,” for information and disclosures regarding leases. 

Recently Issued Accounting Pronouncements

Goodwill – In January 2017, the FASB issued authoritative guidance that simplifies the accounting for goodwill impairments by eliminating Step 2 from the goodwill impairment test. Under the new guidance, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value. The new standard is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its financial statements.

Fair Value Measurement Disclosures – In August 2018, the FASB issued new guidance that changes certain fair value measurement disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity is permitted to early adopt all of the disclosure changes or early adopt only the removed disclosure requirements and delay adoption of the additional disclosures until the effective date of this amendment. Except for changes to certain disclosures related to fair value measurements, the Company does not expect the adoption of this standard to have a material impact on its financial statements.

2. Revenue

Revenue Recognition

Revenue is recognized upon transfer of control of promised 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 when the Company does not bill the customer.

See Note 14, “Segments,” for information regarding disaggregation of revenue, including revenue by product and by geographic area.

Performance Obligations

The Company primarily satisfies its performance obligations at a point in time, which is upon delivery of products. The Company’s payment terms vary by the type and location of its customers. The amount of time between point of sale and when payment is due is not significant and the Company has determined its contracts do not include a significant financing component. Product warranties do not constitute a performance obligation for the Company, as products are warrantied directly by the manufacturer.

Our contracts with customers involve performance obligations that are one year or less. Therefore, we applied the standard’s optional exemption that permits the omission of information about our unfulfilled performance obligations as of the balance sheet dates.

Significant Judgements

The Company’s contracts may include terms that could cause variability in the transaction price, including customer rebates, returns and cash discounts for early payment. Variable consideration is estimated and included in total consideration based on the expected value method. These estimates are based on historical experience, anticipated performance and other factors known at the time. The Company only includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

12

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Contract Balances

Receivables from contracts with customers were $457.8 million and $431.4 million as of July 31, 2019 and April 30, 2019, respectively. The Company did not have material amounts of contract assets or liabilities as of July 31, 2019 or April 30, 2019.

3. Business Acquisitions

The Company accounts for business combinations by recognizing the assets acquired and liabilities assumed at the acquisition date fair value. In valuing 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 as a part of the purchase price allocation process to accurately 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 Condensed Consolidated Statements of Operations and Comprehensive Income. The results of operations of acquisitions are reflected in the Company’s Condensed Consolidated Financial Statements from the date of acquisition.

On June 3, 2019, the Company acquired the acoustical and drywall operations of J.P. Hart Lumber Company (“Hart Acoustical and Drywall Supply”). Hart Acoustical and Drywall Supply distributes drywall, metal studs, insulation and ceiling tiles through two locations in San Antonio, TX and one location in La Feria, TX. The impact of this acquisition is not material to the Company’s Consolidated Financial Statements.

4. Goodwill and Intangible Assets

Goodwill

The following table presents changes in the carrying amount of goodwill during the three months ended July 31, 2019:

	Carrying
	Amount
	(in thousands)
Balance as of April 30, 2019	$	617,327
Goodwill acquired		862
Translation adjustment		3,843
Balance as of July 31, 2019	$	622,032

13

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Intangible Assets

The following tables present the components of the Company’s definite-lived intangible assets as of July 31, 2019 and April 30, 2019:

	Estimated	Weighted	July 31, 2019
	Useful	Average	Gross				Net
	Lives	Amortization	Carrying		Accumulated		Carrying
	(years)	Period	Amount		Amortization		Value
	(dollars in thousands)
Customer relationships	5 - 16	12.8	$	527,732	$	229,991	$	297,741
Definite-lived tradenames	5 - 20	16.3		56,659		7,939		48,720
Vendor agreements	8 - 10	8.3		6,644		3,963		2,681
Developed technology	5	4.9		5,322		1,263		4,059
Leasehold interests	1 - 15	7.6		3,725		1,696		2,029
Other	3 - 5	3.4		4,178		1,525		2,653
Totals			$	604,260	$	246,377	$	357,883

	Estimated	Weighted	April 30, 2019
	Useful	Average	Gross				Net
	Lives	Amortization	Carrying		Accumulated		Carrying
	(years)	Period	Amount		Amortization		Value
	(dollars in thousands)
Customer relationships	5 - 16	12.8	$	520,703	$	214,044	$	306,659
Definite-lived tradenames	5 - 20	16.3		56,018		6,993		49,025
Vendor agreements	8 - 10	8.3		6,644		3,761		2,883
Developed technology	5	4.9		5,209		971		4,238
Leasehold interests	1 - 15	7.6		3,707		1,502		2,205
Other	3 - 5	3.4		4,118		1,182		2,936
Totals			$	596,399	$	228,453	$	367,946

Definite-lived intangible assets are amortized over their estimated useful lives. The Company amortizes its customer relationships using an accelerated method to match the estimated cash flows generated by such assets, and amortizes its other definite-lived intangibles using the straight-line method because a pattern to which the expected benefits will be consumed or otherwise used up could not be reliably determined. Amortization expense related to definite-lived intangible assets was $16.9 million and $15.7 million for the three months ended July 31, 2019 and 2018, respectively. Amortization expense is recorded in depreciation and amortization expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.

Based on the current amount of definite-lived intangible assets, the Company expects to record amortization expense of approximately $48.6 million during the remaining nine months in the fiscal year ending April 30, 2020 and $55.4 million, $46.4 million, $38.7 million, $31.5 million and $137.3 million during the fiscal years ending April 30, 2021, 2022, 2023, 2024 and thereafter, respectively. 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.

The Company’s indefinite-lived intangible assets consist of tradenames that had a carrying amount of $61.4 million as of July 31, 2019 and April 30, 2019.

14

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

5. Long-Term Debt

The Company’s long-term debt consisted of the following as of July 31, 2019 and April 30, 2019:

	July 31,		April 30,
	2019		2019
	(in thousands)
First Lien Facility (1) (2)	$	970,754	$	972,650
ABL Facility		53,673		43,972
Finance lease obligations		114,043		109,286
Installment notes at fixed rates up to 5.0%, due in monthly and annual installments through 2024 (3)		19,494		15,287
Titan Facility		3,041		—
Carrying value of debt		1,161,005		1,141,195
Less current portion		49,308		42,118
Long-term debt	$	1,111,697	$	1,099,077

(1) Net of unamortized discount of $2,059 and $2,149 as of July 31, 2019 and April 30, 2019, respectively.

(2) Net of deferred financing costs of $11,566 and $12,072 as of July 31, 2019 and April 30, 2019, respectively.

(3) Net of unamortized discount of $1,127 and $1,200 as of July 31, 2019 and April 30, 2019, respectively.

First Lien Facility

The Company has a senior secured first lien term loan facility (the "First Lien Facility") with aggregate principal amount of $984.4 million outstanding as of July 31, 2019. The First Lien Facility is due in June 2025 and the Company is required to make quarterly principal payments of 0.25% of the aggregate principal amount. The First Lien Facility bears interest at a floating rate based on LIBOR plus 2.75%, with a 0% floor. As of July 31, 2019, the applicable rate of interest was 4.98%.

Asset Based Lending Facility

The Company has an asset based revolving credit facility (the “ABL Facility”) that provides for aggregate revolving commitments of $345.0 million (including same day swing line borrowings of $34.5 million). GYP Holdings III Corp. is the lead borrower. 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.

At the Company’s option, the interest rates applicable to the loans under the ABL Facility are based at LIBOR 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. As of July 31, 2019, the applicable rate of interest was 4.18%. The ABL Facility also contains an unused commitment fee subject to utilization, as included in the ABL Facility agreement.

During the three months ended July 31, 2019, the Company made net borrowings under the ABL facility of $9.7 million. As of July 31, 2019, the Company had available borrowing capacity of approximately $281.7 million under the ABL Facility. The ABL Facility will mature on November 18, 2021 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 First Lien Facility.

15

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Covenants under the First Lien Facility and ABL Facility

The First Lien Facility contains a number of covenants that limit our ability and the ability of our restricted subsidiaries, as described in the First Lien Credit Agreement, 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. The Company was in compliance with all restrictive covenants as of July 31, 2019.

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, 2019.

Titan Revolving Credit Facility

Through its WSB Titan (“Titan”) subsidiary, the Company has a revolving credit facility (the “Titan Facility”) that provides for aggregate revolving commitments of $22.8 million ($30.0 million Canadian dollars). The Titan 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. During the three months ended July 31, 2019, the Company made net borrowings under the Titan facility of $3.0 million. As of July 31, 2019, the Company had available borrowing capacity of approximately $14.7 million under the Titan Facility. The Titan Facility matures on June 28, 2022.

Debt Maturities

As of July 31, 2019, the maturities of long-term debt were as follows

	First Lien			ABL	Finance		Installment			Titan
	Facility(1)			Facility	Leases		Notes(2)			Facility	Total
Years ending April 30,	(in thousands)
2020 (remaining nine months)	$	7,476	$	—	$	22,446	$	4,264	$	3,041	$	37,227
2021		9,968		—		28,807		4,874		—		43,649
2022		9,968		53,673		25,493		4,438		—		93,572
2023		9,968		—		19,888		4,405		—		34,261
2024		9,968		—		12,958		1,781		—		24,707
Thereafter		937,031		—		4,451		859		—		942,341
	$	984,379	$	53,673	$	114,043	$	20,621	$	3,041	$	1,175,757

(1) Gross of unamortized discount of $2,059 and deferred financing costs of $11,566 as of July 31, 2019.

(2) Gross of unamortized discount of $1,127 as of July 31, 2019.

16

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

6. Leases

The Company leases office and warehouse facilities, distribution equipment and its fleet of vehicles. The Company’s leases have lease terms ranging from one to eleven years. The Company’s facility leases generally contain renewal options for periods ranging from one to five years. The exercise of lease renewal options is typically at the Company’s sole discretion. The Company does not recognize ROU assets or lease liabilities for renewal options unless it is determined that the Company is reasonably certain of exercising renewal options at lease inception. Certain of the Company’s equipment leases include options to purchase the leased property and certain of the Company’s equipment leases contain residual value guarantees. Any residual value payment deemed probable is included in the Company’s lease liability. The Company’s lease agreements do not contain any material restrictive covenants.

The Company determines if an arrangement is a lease at inception and evaluates whether the lease meets the classification criteria of a finance or operating lease. Operating leases are included in operating lease right-of-use assets, current portion of operating lease liabilities and long-term operating lease liabilities in the Condensed Consolidated Balance Sheet. Finance leases are included in property and equipment, current portion of long-term debt and long-term debt in the Condensed Consolidated Balance Sheet.  

Lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. For leases that do not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of future payments. The Company determines its incremental borrowing rate based on the applicable lease terms and the current economic environment. Lease ROU assets also include any lease payments made in advance and excludes lease incentives and initial direct costs incurred. Some of the Company’s lease agreements contain rent escalation clauses (including index-based escalations), rent holidays, capital improvements funding or other lease concessions. Lease expense is recognized on a straight-line basis based on the fixed component over the lease term. Variable lease costs consist primarily of taxes, insurance and common area or other maintenance costs for leased facilities and vehicles and equipment, which are paid based on actual costs incurred.

The components of lease expense were as follows:

	Three Months
	Ended
	July 31, 2019
	(in thousands)
Finance lease cost:
Amortization of right-of-use assets	$	6,059
Interest on lease liabilities		3,422
Operating lease cost		10,420
Variable lease cost		3,199
Total lease cost	$	23,100

Operating lease cost, including variable lease cost, is included in selling, general and administrative expenses; amortization of finance ROU assets is included in depreciation and amortization; and interest on finance lease liabilities is included in interest expense in the Condensed Consolidated Statement of Operations.

17

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, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	10,236
Operating cash flows from finance leases		3,422
Financing cash flows from finance leases		6,021
Right-of-use assets obtained in exchange for lease obligations
Operating leases		6,241
Finance leases		11,874

Other information related to leases was as follows:

	July 31, 2019
		(in thousands)
Finance leases included in property and equipment
Property and equipment	$	143,274
Accumulated depreciation		(31,564)
Property and equipment, net	$	111,710
Weighted-average remaining lease term (years)
Operating leases		4.7
Finance leases		4.2
Weighted-average discount rate
Operating leases		5.5	%
Finance leases		5.4	%

Future minimum lease payments under non-cancellable leases as of July 31, 2019 were as follows:

	Finance		Operating
Year Ended April 30,
2020 (remaining nine months)	$	31,712	$	29,362
2021		38,061		31,829
2022		31,246		23,263
2023		22,544		16,999
2024		13,703		12,400
Thereafter		4,561		18,707
Total lease payments	$	141,827	$	132,560
Less imputed interest		27,784		16,554
Total	$	114,043	$	116,006

18

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 23.4% and 24.7% for the three months ended July 31, 2019 and 2018, respectively. The increase in the effective income tax rate over the U.S. federal statutory rate of 21.0% is primarily due to the impact of foreign tax rates and state taxes as well as other tax effects associated with the acquisition of Titan.

The Company is subject to provisions of the Tax Act related to current tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. We have elected to recognize the tax on GILTI as a period expense in the period the tax is incurred.

In general, the Company no longer intends to permanently reinvest its accumulated earnings in its non-U.S. subsidiaries and will continue to periodically distribute the earnings on an as needed basis. To the extent there is unremitted earnings in future years, the Company does not anticipate significant tax consequences as there is sufficient paid up capital in Canada to return the cash free of withholding taxes.

Valuation allowance. The Company had a valuation allowance of $1.4 million and $1.1 million against its deferred tax assets related to certain U.S. tax jurisdictions as of July 31, 2019 and April 30, 2019, 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 reserve for uncertain tax positions as of July 31, 2019 or April 30, 2019.

8. Stockholders’ Equity

Exchangeable Shares

In connection with the acquisition of WSB Titan on June 1, 2018, the Company issued 1.1 million shares of equity that were exchangeable for the Company’s common stock (“Exchangeable Shares”). The Exchangeable Shares were issued by an indirect wholly-owned subsidiary of the Company. The Exchangeable Shares ranked senior to the Company’s common stock with respect to dividend rights and rights on liquidation, dissolution and winding-up. The holders of the Exchangeable Shares were entitled to receive dividends or distributions that were equal to any dividends or distributions on the Company’s common stock. The holders of the Exchangeable Shares did not have voting rights.

The Exchangeable Shares contained rights that allowed the holders to exchange their Exchangeable Shares for GMS common stock at any time on a one-for-one basis. If converted, the holders were prevented from transferring such GMS common stock for one year from the Titan acquisition date. On June 13, 2019, the holders of the Exchangeable Shares exchanged all of the Exchangeable Shares for 1.1 million shares of the Company’s common stock. Following such exchange, the Exchangeable Shares ceased to be outstanding.

Share Repurchase Program

On November 30, 2018, the Company’s Board of Directors authorized a common stock repurchase program to repurchase up to $75.0 million outstanding common stock. 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

19

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

in privately negotiated transactions, in compliance with Rule 10b-18 under the Exchange Act of 1934, as amended, subject to a variety of factors, including, but not limited to, our liquidity, credit availability, general business and market conditions, our debt covenant restrictions and the availability of alternative investment opportunities. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended or terminated at any time at the Company’s discretion.

The Company did not repurchase any shares of its common stock during the three months ended July 31, 2019. As of July 31, 2019, the Company had $58.5 million remaining under its repurchase program. 

Accumulated Other Comprehensive Loss

The following table sets forth the changes to accumulated other comprehensive loss, net of tax, by component for the three months ended July 31, 2019:

	Accumulated
	Other
	Comprehensive
	Loss
	(in thousands)
Accumulated other comprehensive loss as of April 30, 2019	$	(26,574)
Foreign currency translation adjustments		11,860
Other comprehensive loss on derivative instruments		(6,065)
Accumulated other comprehensive loss as of July 31, 2019	$	(20,779)

Other comprehensive loss on derivative instruments for the three months ended July 31, 2019 is net of $1.9 million of tax.

9. Equity-Based Compensation

General

The Company measures compensation cost for all share-based awards at fair value on the grant date (or measurement date if different) and recognizes compensation expense, net of estimated forfeitures, over the requisite service period for awards expected to vest. The Company estimates the fair value of stock options using the Black-Scholes valuation model, and determines the fair value of restricted stock units based on the quoted price of GMS’s common stock on the date of grant. The Company estimates forfeitures based on historical analysis of actual forfeitures and employee turnover. Actual forfeitures are recorded when incurred and estimated forfeitures are reviewed and adjusted at least annually.

Equity-based compensation expense related to stock options and restricted stock units was $1.2 million and $0.3 during the three months ended July 31, 2019 and 2018, respectively, and is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income.

20

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Stock Option Awards

The following table presents stock option activity for the three months ended July 31, 2019:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Options	Price		Life (years)	Value
	(shares and dollars in thousands)
Outstanding as of April 30, 2019	2,080	$	16.34	6.15	$	7,615
Options granted	85		18.04
Options exercised	(9)		14.77
Options forfeited	(6)		37.49
Options expired	—		—
Outstanding as of July 31, 2019	2,150	$	16.36	6.04	$	15,284
Exercisable as of July 31, 2019	1,645	$	13.70	5.16	$	14,902
Vested and expected to vest as of July 31, 2019	2,144	$	16.33	6.03	$	15,284

The aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the period in excess of 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, 2019 and 2018 was $0.1 million and $0.5 million, respectively. As of July 31, 2019, there was $3.2 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 2.1 years.

There were no stock options granted during the three months ended July 31, 2018. The fair value of stock options granted during the three months ended July 31, 2019 was estimated using the Black-Scholes option-pricing model with the following assumptions:

	Three Months
	Ended
	July 31, 2019
Volatility	48.96	%
Expected life (years)	6.0
Risk-free interest rate	2.36	%
Dividend yield	—	%

The weighted average grant date fair value of options granted during the three months ended July 31, 2019 was $8.84 per share. The expected volatility was based on historical and implied volatility. The expected life of stock options was based on previous history of exercises. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock option. The expected dividend yield was 0% as we have not declared any common stock dividends to date and do not expect to declare common stock dividends in the near future. The fair value of the underlying common stock at the date of grant was determined based on the value of the Company’s closing stock price on the trading day immediately preceding the date of the grant.

21

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Restricted Stock Units

The following table presents restricted stock unit activity for the three months ended July 31, 2019:

		Weighted
	Number of	Average
	Restricted	Exercise
	Stock Units	Price
	(shares in thousands)
Outstanding as of April 30, 2019	193	$	25.48
Granted	42		18.04
Vested	—		—
Forfeited	(2)		37.49
Outstanding as of July 31, 2019	233	$	24.09

As of  July 31, 2019, there was $3.3 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 2.0 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. During the three months ended July 31, 2019, 0.1 million shares of the Company’s common stock were purchased under the ESPP at an average price of $13.37 per share. The Company recognized $0.2 million and $0.1 million of stock-based compensation expense during the three months ended July 31, 2019 and 2018, respectively, related to the ESPP.

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 for the three months ended July 31, 2019:

	Stock				Redeemable
	Appreciation		Deferred		Noncontrolling
	Rights		Compensation		Interests
	(in thousands)
Balance as of April 30, 2019	$	23,458	$	1,695	$	12,498
Amounts redeemed		(361)		(116)		(4,921)
Change in fair value		60		57		604
Balance as of July 31, 2019	$	23,157	$	1,636	$	8,181
Classified as current as of April 30, 2019	$	1,355	$	108	$	1,569
Classified as long-term as of April 30, 2019		22,103		1,587		10,929
Classified as current as of July 31, 2019	$	1,190	$	—	$	—
Classified as long-term as of July 31, 2019		21,967		1,636		8,181

Total expense related to these instruments was $0.7 million and $0.9 million during the three months ended July 31, 2019 and 2018, respectively, and was included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income.

22

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Stock Appreciation Rights

Certain subsidiaries have granted stock appreciation rights to certain employees under which payments are dependent on the appreciation in the book value per share, adjusted for certain provisions, of the applicable subsidiary. Settlements of the awards can be made in a combination of cash or installment notes, generally paid over five years, upon a triggering event. As of July 31, 2019, all stock appreciation rights were vested.

Deferred Compensation

Subsidiaries’ stockholders have entered into other deferred compensation agreements that granted the stockholders a payment based on a percentage in excess of book value, adjusted for certain provisions, upon an occurrence as defined in the related agreements, which are called “Buy Sell” agreements. These instruments are redeemed in cash or installment notes, generally paid in annual installments over the five years following termination of employment.

Redeemable Noncontrolling Interests

Noncontrolling interests were issued to certain employees of certain of the Company’s subsidiaries. All of the noncontrolling interest awards are subject to mandatory redemption on termination of employment for any reason. These instruments are redeemed in cash or installment notes, generally paid in annual installments over the five years following termination of employment. Liabilities related to these agreements are classified as share-based liability awards and are measured at intrinsic value. Intrinsic value is determined to be the stated redemption value of the shares. Under the terms of the employee agreements, the redemption value is determined based on the book value of the subsidiary, as adjusted for certain items.

Upon the termination of employment or other triggering events including death or disability of the noncontrolling stockholders in the Company’s subsidiaries, we are obligated to purchase, or redeem, the noncontrolling interests at either an agreed upon price or a formula value provided in the stockholder agreements. This formula value is typically based on the book value per share of the subsidiary’s equity, including certain adjustments.

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 as of July 31, 2019 and April 30, 2019:

	July 31,		April 30,
	2019		2019
	(in thousands)
Liabilities:
Interest rate swap (Level 2)	$	13,551	$	5,613
Stock appreciation rights (Level 3)		23,157		23,458
Deferred compensation (Level 3)		1,636		1,695
Noncontrolling interest holders (Level 3)		8,181		12,498
Contingent consideration (Level 3)		12,577		12,354

Derivative instruments. The Company has interest rate swap agreements with a notional amount of $500.0 million that convert the variable interest rate on its First Lien 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

23

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

as a cash flow hedges. The derivative instruments are classified in other liabilities in the Condensed Consolidated Balance Sheets as of July 31, 2019 and April 30, 2019.

The fair value of derivative instruments is determined using Level 2 inputs. Generally, the Company obtains the Level 2 inputs from its counterparties. Substantially all of the inputs are observable in the marketplace throughout the full term of the instruments, which 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.

Stock appreciation rights, deferred compensation and redeemable noncontrolling interests. The fair values of stock appreciation rights, deferred compensation and redeemable noncontrolling interests are determined using Level 3 inputs. These inputs include a volatility rate based on comparable entities, a discount rate, the expected time to redemption of the liabilities, historical values of the book equity of certain subsidiaries and market information for comparable entities. The use of these inputs to derive the fair value of the liabilities at a point in time can result in volatility to the financial statements. See Note 10, “Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests,” for a reconciliation of the beginning and ending balances.

Contingent consideration. In connection with the acquisition of Titan, the Company assumed certain contingent consideration arrangements. The fair value of contingent consideration is determined using Level 3 inputs. These inputs include a discount rate and probability adjusted payments. During the three months ended July 31, 2019, the Company recorded expense of $0.2 million related to the contingent consideration, which was included in selling, general and administrative expenses in the Condensed Consolidated Statement of Operations and Comprehensive Income.

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 subsequent to 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 3, “Business Acquisitions.” There were no material long-lived asset impairments during the three months ended July 31, 2019 or 2018.

12. Transactions With Related Parties

The Company purchases inventories from Southern Wall Products, Inc. (“SWP”) on a continuing basis. Certain executive officers and stockholders of the Company are stockholders of SWP, which was spun-off from Gypsum Management and Supply, Inc. on August 31, 2012. The Company purchased inventory from SWP for distribution in the amount of $3.6 million and $3.4 million during the three months ended July 31, 2019 and 2018, respectively. Amounts due to SWP for purchases of inventory for distribution were $1.1 million and $1.2 million as of July 31, 2019 and April 30, 2019, respectively, and are included in accounts payable in the Condensed Consolidated Balance Sheets.

13. Commitments and Contingencies

The Company is a defendant in various lawsuits and administrative actions associated with personal injuries, 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 these claims covered by insurance.

24

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

14. 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. 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.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Non-GAAP Financial Measures” for a further discussion of this non-GAAP measure.

The following tables present segment results for the three months ended July 31, 2019 and 2018:

	Three Months Ended July 31, 2019
					Depreciation and		Adjusted
	Net Sales		Gross Profit		Amortization		EBITDA
	(in thousands)
Geographic divisions	$	840,157	$	271,354	$	28,934	$	83,082
Other		7,019		2,300		52		506
Corporate		—		—		289		—
	$	847,176	$	273,654	$	29,275	$	83,588

25

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

	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

The following table presents a reconciliation of Adjusted EBITDA to net income for the three months ended July 31, 2019 and 2018:

	Three Months Ended
	July 31,
	2019		2018
	(in thousands)
Net income	$	24,820	$	8,650
Interest expense		18,277		16,188
Interest income		(12)		(236)
Provision for income taxes		7,590		2,836
Depreciation expense		12,422		10,610
Amortization expense		16,853		15,712
Stock appreciation expense(a)		60		334
Redeemable noncontrolling interests(b)		662		531
Equity-based compensation(c)		1,395		404
Severance and other permitted costs(d)		554		4,836
Transaction costs (acquisitions and other)(e)		972		4,753
Gain on sale of assets		(156)		(121)
Effects of fair value adjustments to inventory(f)		151		4,129
Change in fair value of financial instruments(g)		—		6,019
Debt transaction costs(h)		—		627
Adjusted EBITDA	$	83,588	$	75,272

(a) Represents non-cash expense related to stock appreciation rights agreements.

(b) Represents non-cash compensation expense related to changes in the fair 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 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 costs paid to third-party advisors related to debt refinancing activities.

26

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

During the three months ended July 31, 2019, the Company recorded operating lease ROU assets as a result of the adoption of the new lease guidance. The Company’s geographic divisions, other and corporate segments, recorded $113.3 million, $0.3 million and $5.2 million, respectively, of operating lease ROU assets as of the transition date.

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, 2019 and 2018:

	Three Months Ended
	July 31,
	2019		2018
	(in thousands)
Wallboard	$	341,595	$	317,735
Ceilings		129,110		115,855
Steel framing		131,829		129,112
Other products		244,642		215,442
Total net sales	$	847,176	$	778,144

Geographic Information

The following table presents the Company’s net sales by major geographic area for the three months ended July 31, 2019 and 2018:

	Three Months Ended
	July 31,
	2019		2018
	(in thousands)
United States	$	731,343	$	690,731
Canada		115,833		87,413
Total net sales	$	847,176	$	778,144

Net sales for Canada for the three months ended July 31, 2019 includes three months of net sales compared to two months for the three months ended July 31, 2018 due to our acquisition of Titan on June 1, 2018. The average exchange rate for translating Canada net sales from Canadian dollars to U.S. dollars was 0.7518 for the three months ended July 31, 2019 and 0.7652 for the two months ended July 31, 2018.

The following table presents the Company’s property and equipment, net, by major geographic area as of July 31, 2019 and April 30, 2019:

	July 31,		April 30,
	2019		2019
	(in thousands)
United States	$	255,037	$	249,857
Canada		32,498		32,492
Total property and equipment, net	$	287,535	$	282,349

27

GMS Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

15. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per share of common stock for the three months ended July 31, 2019 and 2018:

	Three Months Ended
	July 31,
	2019		2018
	(in thousands, except per share data)
Net income	$	24,820	$	8,650
Less: Net income allocated to participating securities		319		156
Net income attributable to common stockholders	$	24,501	$	8,494
Basic earnings per common share:
Basic weighted average common shares outstanding		41,001		41,094
Basic earnings per common share	$	0.60	$	0.21
Diluted earnings per common share:
Basic weighted average common shares outstanding		41,001		41,094
Add: Common Stock Equivalents		614		980
Diluted weighted average common shares outstanding		41,615		42,074
Diluted earnings per common share	$	0.59	$	0.20

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Cautionary Note Regarding Forward-Looking Statements,” and discussed in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended April 30, 2019.

Overview

Founded in 1971, GMS Inc. (“we,” “our,” “us,” or the “Company”) is a distributor of specialty building products including wallboard, suspended ceilings systems, or ceilings, steel framing and other complementary specialty building products. We purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of wallboard and ceilings contractors and homebuilders and, to a lesser extent, general contractors and individuals. We operate a network of more than 250 distribution centers across the United States and Canada.

Business Strategy

Our growth strategy includes increasing our market share within our existing footprint, expanding into new markets by opening new branches and acquiring competitors. We expect to continue to capture profitable market share in our existing footprint by delivering industry-leading customer service. Our strategy for opening new branches is to further penetrate markets that are adjacent to our existing operations. Typically, we have pre-existing customer relationships in these markets but need a new location to fully capitalize on those relationships. In addition, we will continue to selectively pursue acquisitions. Due to the large, highly fragmented nature of our market and our reputation throughout the industry, we believe we have the potential to access a robust acquisition pipeline that will continue to supplement our organic growth. We use a rigorous targeting process to identify acquisition candidates that will fit our culture and business model and have an experienced team of professionals to manage the acquisition and integration processes. As a result of our scale, purchasing power and ability to improve operations through implementing best practices, we believe we can achieve substantial synergies and drive earnings accretion from our acquisition strategy.

Acquisition of Titan

On June 1, 2018, we acquired all of the outstanding equity interests of WSB Titan (“Titan”), a distributer of drywall, lumber, commercial and residential building materials. Titan is Canada’s largest gypsum specialty dealer with 30 locations across five provinces in Canada. The stated purchase price was $627.0 million ($800.0 million Canadian dollars). As part of the consideration, certain members of Titan’s management converted a portion of their ownership position into 1.1 million shares of equity that were exchanged for 1.1 million shares of the Company’s common stock in June 2019. The transaction extended our leadership position in North America with expanded scale and footprint, expanded our geographic coverage into the Canadian market and has created opportunities for further expansion in Canada.

Fiscal 2020 Acquisition

On June 3, 2019, we acquired the acoustical and drywall operations of J.P. Hart Lumber Company (“Hart Acoustical and Drywall Supply”). Hart Acoustical and Drywall Supply distributes drywall, metal studs, insulation and ceiling tiles through two locations in San Antonio, TX and one location in La Feria, TX.

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Our Products

The following is a summary of our net sales by product group for the three months ended July 31, 2019 and 2018:

	Three Months Ended
	July 31,		% of			July 31,	% of
	2019		Total			2018	Total
	(dollars in thousands)
Wallboard	$	341,595	40.3	%	$	317,735	40.8	%
Ceilings		129,110	15.2	%		115,855	14.9	%
Steel framing		131,829	15.6	%		129,112	16.6	%
Other products		244,642	28.9	%		215,442	27.7	%
Total net sales	$	847,176			$	778,144

Results of Operations

The following table summarizes key components of our results of operations for the three months ended July 31, 2019 and 2018:

	Three Months Ended
	July 31,
	2019			2018
		(dollars in thousands)
Statement of operations data(1):
Net sales	$	847,176		$	778,144
Cost of sales (exclusive of depreciation and amortization shown separately below)		573,522			533,328
Gross profit		273,654			244,816
Operating expenses:
Selling, general and administrative expenses		194,631			185,435
Depreciation and amortization		29,275			26,322
Total operating expenses		223,906			211,757
Operating income		49,748			33,059
Other (expense) income:
Interest expense		(18,277)			(16,188)
Change in fair value of financial instruments		—			(6,019)
Other income, net		939			634
Total other expense, net		(17,338)			(21,573)
Income before taxes		32,410			11,486
Provision for income taxes		7,590			2,836
Net income	$	24,820		$	8,650
Non-GAAP measures:
Adjusted EBITDA(2)	$	83,588		$	75,272
Adjusted EBITDA margin(2)(3)		9.9	%		9.7	%

(1) The comparison of statement of operations data is affected by our acquisition of Titan on June 1, 2018. The results of operations of Titan are included in our operating results beginning on the acquisition date.

(2) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. See “—Non-GAAP Financial Measures—Adjusted EBITDA,” for how we define and calculate Adjusted EBITDA and Adjusted EBITDA margin, reconciliations thereof to net income and a description of why we believe these measures are important.

(3) Adjusted EBITDA margin is Adjusted EBITDA as a percentage of net sales.

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Net Sales

Net sales of $847.2 million increased $69.1 million, or 8.9%, during the three months ending July 31, 2019 compared to the three months ended July 31, 2018. The increase in net sales was due to the following:

● Wallboard sales, which are impacted by both commercial and residential construction activity, increased $23.9 million, or 7.5%, compared to the three months ended July 31, 2018. The increase in wallboard sales was driven by higher organic volumes and the benefit from acquisitions, partially offset by a slight decrease in price.

● Ceilings sales increased $13.3 million, or 11.4%, compared to the three months ended July 31, 2018. The increase in ceilings sales was primarily due to higher organic volumes, the positive impact of acquisitions and higher pricing.

● Steel framing sales increased $2.7 million, or 2.1%, compared to the three months ended July 31, 2018. The increase in steel framing sales was driven by higher organic volumes and the positive impact of acquisitions, partially offset by lower pricing.

● Other products sales, which includes insulation, joint treatment, tools, lumber and various other specialty building products, increased $29.2 million, or 13.6%, compared to the three months ended July 31, 2018. The increase was due to the positive impact of acquisitions, as well as higher organic growth.

Organic net sales increased $26.1 million, or 3.4%, during the three months ending July 31, 2019 compared to the prior year period primarily driven by an increase in demand for our products as a result of the improvement in new housing starts, R&R activity and commercial construction.

The following table breaks out our net sales into organic, or base business, net sales and recently acquired net sales for the three months ended July 31, 2019:

	Three Months
	Ended
	July 31, 2019
	(in thousands)
Net sales	$	847,176
Recently acquired net sales (1)		(43,808)
Impact of foreign currency (2)		847
Base business net sales (3)	$	804,215

(1) Represents net sales of branches acquired by us until the first anniversary of the acquisition date. For the three months ended July 31, 2019, this includes our acquisitions of Titan on June 1, 2018, Commercial Builders Group, LLC on March 4, 2019 and Hart Acoustical and Drywall Supply on June 3, 2019.

(2) Represents the impact of foreign currency translation on net sales.

(3) Represents net sales of existing branches and branches that were opened by us during the period presented.

During the three months ended July 31, 2019, we modified our calculation of organic sales growth. When calculating organic sales growth for the current period, we now exclude the net sales of acquired businesses until the first anniversary of the acquisition date. In addition, we exclude the impact of foreign currency translation in our calculation of organic net sales growth. Previously, we excluded net sales of businesses acquired in the current fiscal year, the prior fiscal year and three months prior to the start of the prior fiscal year.

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Gross Profit and Gross Margin

Gross profit of $273.7 million for the three months ended July 31, 2019 increased $28.8 million, or 11.8%, from the three months ended July 31, 2018 as a result of higher net sales, both organically and including the positive impact of acquisitions, as well as $4.1 million of non-cash purchase accounting adjustments recorded in the prior year related to the Titan acquisition. Gross margin on net sales increased to 32.3% for the three months ended July 31, 2019 compared to 31.5% for the three months ended July 31, 2018 primarily due to net favorable price-cost dynamics, Titan purchasing synergies, and the prior year purchase accounting adjustments. During the prior year period, we recognized a $4.1 million non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value. As part of our accounting for business combinations, we are required to value inventory acquired in the business combination at its net realizable value. The inventory adjustment is typically fully recognized in cost of sales within the first month after completion of an acquisition. This step-up in basis and related expense has a negative effect on gross margins as the related inventory is sold.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of warehouse, delivery and general and administrative expenses. Selling, general and administrative expenses of $194.6 million for the three months ended July 31, 2019 increased $9.2 million, or 5.0%, from the three months ended July 31, 2018. The increase was primarily due to the inclusion of a full period of Titan’s selling, general and administrative expenses during the three months ended July 31, 2019 compared to a partial period during the three months ended July 31, 2018, as well as growth in our base business. This was partially offset by a $3.8 million decrease in transaction costs, a $4.3 million decrease in severance costs and a $0.6 million decrease in debt transaction costs. Selling, general and administrative expenses was 23.0% of our net sales during the three months ended July 31, 2019 compared to 23.8% of our net sales during the three months ended July 31, 2018. The decrease was primarily driven by costs incurred in the prior year period related to the acquisition of Titan and to the reduction in workforce implemented during the three months ended July 31, 2018 and increased cost efficiencies resulting from previous cost reduction initiatives, partially offset by investments in business initiatives, reduced operating leverage in Canada and inflationary cost pressures including those resulting from adverse weather conditions.

Depreciation and Amortization Expense

Depreciation and amortization includes depreciation of property and equipment and amortization of definite-lived intangible assets acquired in purchases of businesses and purchases of assets from other companies. Depreciation and amortization expense was $29.3 million for the three months ended July 31, 2019 compared to $26.3 million for the three months ended July 31, 2018. The increase was due to a $1.8 million increase in depreciation expense and a $1.1 million increase in amortization of definite-lived intangible assets. The increases were primarily attributable to expense resulting from property and equipment and definite-lived intangible assets obtained in the acquisition of Titan. The three months ended July 31, 2019 includes a full period of depreciation and amortization expense for property and equipment and intangible assets obtained in the acquisition of Titan compared to a partial period during the three months ended July 31, 2018.

Interest Expense

Interest expense consists primarily of interest expense incurred on our debt and finance leases and amortization of deferred financing fees and debt discounts. Interest expense was $18.3 million during the three months ended July 31, 2019 compared to $16.2 million for the three months ended July 31, 2018. The increase was primarily due to an increase in the outstanding amount of debt related to the financing of the acquisition of Titan. The three months ended July 31, 2019 includes a full period of interest expense for the new debt financing compared to a partial period during the three months ended July 31, 2018.

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Income Taxes

We recognized income tax expense of $7.6 million during the three months ended July 31, 2019 compared to $2.8 million during the three months ended July 31, 2018. Our effective tax rate was 23.4% and 24.7% for the three months ended July 31, 2019 and 2018, respectively. The change in the effective income tax rate from the three months ended July 31, 2018 to the three months ended July 31, 2019 was primarily due to the impact of foreign tax rates and other tax effects associated with the acquisition of Titan.

Net Income

Net income was $24.8 million during the three months ended July 31, 2019 compared to $8.7 million for the three months ended July 31, 2018. The increase in net income was primarily due to an increase in operating income, driven by the inclusion of the operating income of Titan for a full period compared to a partial period in the three months ended July 31, 2018. This was partially offset by an increase in depreciation and amortization expense resulting from property and equipment and definite-lived intangible assets obtained in the acquisition of Titan, a loss on financial instruments recognized in the prior year, an increase in income tax expense and an increase in interest expense resulting from the debt financing completed in connection with the acquisition of Titan.

Adjusted EBITDA

Adjusted EBITDA of $83.6 million for the three months ended July 31, 2019 increased $8.3 million, or 11.0%, from our Adjusted EBITDA of $75.3 million for the three months ended July 31, 2018. The increase in Adjusted EBITDA was primarily due to the inclusion of the Adjusted EBITDA of Titan for a full period compared to a partial period in the three months ended July 31, 2018 and increased cost efficiencies. See “—Non-GAAP Financial Measures—Adjusted EBITDA,” below for how we define and calculate Adjusted EBITDA, reconciliations to net income and a description of why we believe these measures are important.

Liquidity and Capital Resources

Summary

We depend on cash flow from operations, cash on hand and funds available under our revolving credit facilities to finance working capital needs and capital expenditures and to fund share repurchases. We believe that these sources of funds will be adequate to fund debt service requirements and provide cash, as required, to support our growth strategies, ongoing operations, capital expenditures, lease obligations and working capital for at least the next 12 months.

As of July 31, 2019, we had available borrowing capacity of approximately $281.7 million under our $345.0 million Asset Based Lending Credit Facility (“ABL Facility”). The ABL Facility will mature on November 18, 2021 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.

As of July 31, 2019, we had available borrowing capacity of approximately $14.7 million under our Titan revolving credit facility (the “Titan Facility”) that provides for aggregate revolving commitments of $22.8 million ($30.0 million Canadian dollars). The Titan Facility matures on June 28, 2022.

For more information regarding our ABL Facility and other indebtedness, see Note 5 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and Note 7 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019.

In November 2018, our Board of Directors authorized a common stock repurchase program to repurchase up to $75.0 million of our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended or terminated at any time at our discretion. The timing and amount of any purchases of our common stock will be subject to a variety of factors, including, but not limited to, our

33

liquidity, credit availability, general business and market conditions, our debt covenant restrictions and the availability of alternative investment opportunities. We did not repurchase any shares of our common stock during the three months ended July 31, 2019. As of July 31, 2019, we had $58.5 million available under our repurchase program. 

Cash Flows

A summary of our operating, investing and financing activities is shown in the following table:

	Three Months Ended
	July 31,
	2019		2018
	(in thousands)
Cash used in operating activities	$	(12,440)	$	(47,824)
Cash used in investing activities		(16,292)		(579,026)
Cash provided by financing activities		5,345		627,282
Effect of exchange rates on cash and cash equivalents		172		(4)
(Decrease) increase in cash and cash equivalents	$	(23,215)	$	428

Operating Activities

The decrease in cash used in operating activities during the three months ended July 31, 2019 compared to the prior year period was primarily due to a $9.7 million increase in net income after adjustments for non-cash items and a $25.7 million increase in cash resulting from changes to our net working capital.

Investing Activities

The decrease in cash used in investing activities during the three months ended July 31, 2019 compared to the prior year period was primarily due to a $564.9 million decrease in cash used for acquisitions, primarily due to cash used for our acquisition of Titan in the prior year period. The decrease was partially offset by a $2.1 million increase in capital expenditures.

Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. Historically, capital expenditures have remained at relatively low levels in comparison to the operating cash flows generated during the corresponding periods.

Financing Activities

The decrease in cash provided by financing activities during the three months ended July 31, 2019 compared to the prior year period was primarily due to debt financing entered into in the prior year period in connection with our acquisition of Titan, partially offset by an increase in principal payments on finance leases.  

Debt Covenants

The First Lien Facility contains a number of covenants that limit our ability and the ability of our restricted subsidiaries, as described in the First Lien Credit Agreement, 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. We were in compliance with all restrictive covenants as of July 31, 2019.

The ABL Facility contains certain affirmative covenants, including financial and other reporting requirements. We were in compliance with all such covenants as of July 31, 2019.

34

Contractual Obligations

There have been no material changes to the contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019, other than those made in the ordinary course of business.

Off Balance Sheet Arrangements

There have been no material changes to our off-balance sheet arrangements as discussed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019.

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. We report our financial results in accordance with GAAP. However, we present Adjusted EBITDA and Adjusted EBITDA margin, which are not recognized financial measures under GAAP, because we believe they assist 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 and Adjusted EBITDA margin are 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. We may in the future reflect such permitted adjustments in our calculations of Adjusted EBITDA.

We believe that Adjusted EBITDA and Adjusted EBITDA margin are frequently used by analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA or Adjusted EBITDA margin measure when reporting their results. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

We also include information concerning Adjusted EBITDA margin, which is calculated as Adjusted EBITDA divided by net sales. We present Adjusted EBITDA margin because it is used by management as a performance measure to judge the level of Adjusted EBITDA that is generated from net sales.

Adjusted EBITDA and Adjusted EBITDA margin have their limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.

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The following is a reconciliation of our net income to Adjusted EBITDA for the three months ended July 31, 2019 and 2018:

	Three Months Ended
	July 31,
	2019			2018
	(in thousands)
Net income	$	24,820		$	8,650
Interest expense		18,277			16,188
Interest income		(12)			(236)
Provision for income taxes		7,590			2,836
Depreciation expense		12,422			10,610
Amortization expense		16,853			15,712
Stock appreciation expense(a)		60			334
Redeemable noncontrolling interests(b)		662			531
Equity-based compensation(c)		1,395			404
Severance and other permitted costs(d)		554			4,836
Transaction costs (acquisitions and other)(e)		972			4,753
Gain on sale of assets		(156)			(121)
Effects of fair value adjustments to inventory(f)		151			4,129
Change in fair value of financial instruments(g)		—			6,019
Debt transaction costs(h)		—			627
Adjusted EBITDA	$	83,588		$	75,272
Net sales	$	847,176		$	778,144
Adjusted EBITDA Margin		9.9	%		9.7	%

(a) Represents non-cash expense related to stock appreciation rights agreements.

(b) Represents non-cash compensation expense related to changes in the fair 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 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 costs paid to third-party advisors related to debt refinancing activities.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our exposure to market risks from those reported in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of July 31, 2019, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Based upon that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended July 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – Other Information

Item 1. Legal Proceedings

From time to time, we are involved in lawsuits that are brought against us in the normal course of business. We are not currently a party to any legal proceedings that would be expected, either individually or in the aggregate, to have a material adverse effect on our business or financial condition. For additional information, see Note 13, “Commitments and Contingencies.”

Item 1A. Risk Factors

There have been no material changes in the risks facing the Company as described in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

(a) Exhibits. The following exhibits are filed as part of this report:

Exhibit No.		Exhibit Description
3.1		Second Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to Amendment No. 5 to the Registrant’s Registration Statement on Form S1 filed on May 16, 2016 (File No. 333205902)).
3.2		Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to Amendment No. 5 to the Registrant’s Registration Statement on Form S1 filed on May 16, 2016 (File No. 333205902)).
4.1		Specimen Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 to Amendment No. 5 to the Registrant’s Registration Statement on Form S1 filed on May 16, 2016 (File No. 333205902)).
10.1	*	Employment Agreement, by and between Lynn Ross and the Company, dated August 29, 2018.
10.2	*	Form of Non-Statutory Stock Option Award Agreement under the GMS Inc. Equity Incentive Plan.
10.3	*	Form of Restricted Stock Unit Award Agreement under the GMS Inc. Equity Incentive Plan.
31.1	*	Certification of Chief Executive Officer pursuant to Rule 13a14(a) or Rule 15d14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2	*	Certification of Chief Financial Officer pursuant to Rule 13a14(a) or Rule 15d14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1	*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 INS	*	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document.
101 SCH	*	Inline XBRL Taxonomy Extension Schema Document.
101 CAL	*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101 DEF	*	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101 LAB	*	Inline XBRL Taxonomy Extension Label Linkbase Document.
101 PRE	*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

*     Filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

	GMS INC.
Date: August 29, 2019	By:	/s/ Lynn Ross
		Lynn Ross
		Interim Chief Financial Officer
		(Principal Financial Officer)

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT, dated as of August 29, 2018 (the “Employment Agreement”), by and between Gypsum Management and Supply, Inc., a Georgia corporation (the “Company”) and Lynn Ross (the “Executive”) (each of the Executive and the Company, a “Party,” and collectively, the “Parties”).

WHEREAS, the Company desires to employ the Executive as Chief Accounting Officer and Corporate Controller (“CAO”) of the Company and wishes to be assured of Executive’s services on the terms and conditions hereinafter set forth; and

WHEREAS, the Executive desires to be employed by the Company as CAO and to perform and to serve the Company on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other valid consideration, the sufficiency of which is acknowledged, the Parties hereto agree as follows:

Section 1. Employment.

1.1. Subject to Section 3 hereof, the Company agrees to employ the Executive, and the Executive agrees to be employed by the Company, in each case pursuant to this Employment Agreement, for a period commencing as of September 1, 2018 (the “Effective Date”), and ending on the first anniversary of the Effective Date (the “Initial Term”); provided,  however, that the period of the Executive’s employment pursuant to this Employment Agreement shall be automatically extended for successive one-year periods thereafter (each, a “Renewal Term”), in each case unless either Party hereto provides the other Party hereto with written notice that such period shall not be so extended at least 90 days in advance of the expiration of the Initial Term or the then-current Renewal Term, as applicable (the Initial Term and any Renewal Term, collectively, the “Term”).  Each additional one-year Renewal Term shall be added to the end of the next scheduled expiration date of the Initial Term or Renewal Term, as applicable, as of the first day after the last date on which notice may be given pursuant to the preceding sentence.  The Executive’s period of employment pursuant to this Employment Agreement shall hereinafter be referred to as the “Employment Period.”

1.2. Duties.  During the Employment Period, the Executive shall serve as CAO of the Company and such other positions as an officer or director of the Company and such affiliates of the Company as the Company shall determine from time to time, and shall report directly to the Chief Financial Officer.  In Executive’s position of CAO, the Executive shall perform duties customary for the CAO of a company similar to the Company’s size and nature, plus such additional duties, consistent with the foregoing, as the Chief Financial Officer may reasonably assign.  The Executive’s principal place of employment shall be the Company’s headquarters in Tucker, Georgia.

1.3. Exclusivity.  During the Employment Period, the Executive shall devote substantially all of Executive’s business time and attention to the business and affairs of the Company, shall faithfully serve the Company, and shall conform to and comply with the lawful and reasonable directions and instructions given to Executive by the Chief Financial Officer, consistent with Section 1.2 hereof.  During the Employment Period, the Executive shall use Executive’s best efforts to promote and serve the interests of the Company and shall not engage in any other business activity, whether or not such activity shall be engaged in for pecuniary profit; provided, that the Executive may (a) serve any civic, charitable, educational or professional organization, (b) manage Executive’s personal investments and (c) act as a director on the board of directors of another company with prior written consent of the Company, in each

case so long as any such activities do not (x) violate the terms of this Employment Agreement (including Section 4) or (y) materially interfere with the Executive’s duties and responsibilities to the Company.

Section 2. Compensation.

2.1. Salary.  As compensation for the performance of the Executive’s services hereunder, during the Employment Period, the Company shall pay to the Executive a salary at an annual rate of $257,504, payable in accordance with the Company’s standard payroll policies (the “Base Salary”).  The Base Salary will be reviewed annually and may be adjusted upward (but not downward) by the board of directors of the Company (the “Board”) (or a committee thereof) in its discretion.

2.2. Annual Bonus.  For each fiscal year ending during the Employment Period, the Executive shall be eligible for potential awards of additional compensation to be determined based upon the Company’s performance and other criteria for each such fiscal year as set forth in the annual bonus plan (the “Corporate Bonus Plan”, with any amount payable under the Corporate Bonus Plan, the “Annual Bonus”), each as adopted by the Compensation Committee of the Board (“Compensation Committee”). The Executive’s target Annual Bonus opportunity under the Corporate Bonus Plan for each fiscal year that ends during the Employment Period shall equal 50% of the Base Salary, assuming 100% achievement of the performance target as set forth in the Corporate Bonus Plan (the “Corporate Target Bonus Opportunity”), with the actual Annual Bonus to be based upon the Company’s performance as determined by the Compensation Committee. The Annual Bonus shall be paid at such time as annual bonuses are paid to other similarly situated executives of the Company, but in no event later than August 31st following the fiscal year in respect of which such Annual Bonus is earned.  The Annual Bonus shall be paid in cash. 

2.3. Employee Benefits.  During the Employment Period, the Executive shall be eligible to participate in such health and other group insurance and other employee benefit plans and programs and any fringe benefit programs of the Company as in effect from time to time on the same basis as other senior executives of the Company, and shall receive such perquisites as provided to other executives of the Company from time to time.  Executive acknowledges that Executive currently has use of a Company vehicle but that such benefit may not be provided in the future.

2.4. Vacation.  During the Employment Period, the Executive shall be entitled to up to four weeks (20 days) vacation per calendar year.  The number of vacation days is prorated for any partial year of service during the Employment Period.

2.5. Business Expenses.  The Company shall pay or reimburse the Executive, upon presentation of documentation, for all commercially reasonable out-of-pocket business expenses that the Executive incurs during the Employment Period in performing Executive’s duties under this Employment Agreement and in accordance with the expense reimbursement policy of the Company as approved by the Board (or a committee thereof) and in effect from time to time.  Notwithstanding anything herein to the contrary or otherwise, except to the extent any expense or reimbursement described in this Employment Agreement does not constitute a “deferral of compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and guidance thereunder (“Section 409A”), any expense or reimbursement described in this Employment Agreement shall meet the following requirements: (i) the amount of expenses eligible for reimbursement provided to the Executive during any calendar year will not affect the amount of expenses eligible for reimbursement to the Executive in any other calendar year; (ii) the reimbursements for expenses for which the Executive is entitled to be reimbursed shall be made on or before the last day of the calendar year following the calendar year in which the applicable expense is incurred; (iii) the right to payment or reimbursement or in-kind benefits hereunder may not be liquidated or exchanged for any other benefit; and (iv) the reimbursements shall be made pursuant to objectively determinable and nondiscretionary Company policies and procedures regarding

such reimbursement of expenses.

Section 3. Employment Termination. 

3.1. Termination of Employment.  The Company may terminate the Executive’s employment hereunder for any reason during the Employment Period upon not less than 15 days’ written notice to the Executive (other than in the event of a termination by the Company for Cause), and the Executive may voluntarily terminate Executive’s employment hereunder for any reason during the Employment Period upon not less than 15 days’ written notice to the Company (subject to the longer notice requirements in connection with a termination of employment by the Executive for Good Reason as set forth in Section 3.2(b)(iii)) (the date on which the Executive’s employment terminates for any reason is herein referred to as the “Termination Date”).  Upon the termination of the Executive’s employment with the Company for any reason, the Executive shall be entitled to (i) payment of any Base Salary earned but unpaid through the date of termination, (ii) earned but unpaid Annual Bonus for any fiscal year completed prior to the Termination Date (payable in the ordinary course pursuant to Section 2.2), (iii) unused vacation days (consistent with Section 2.4 hereof) paid out at the per-business-day Base Salary rate, (iv) benefits in accordance with the applicable terms of applicable Company plans or arrangements and (v) any unreimbursed expenses in accordance with Section 2.5 hereof (collectively, the “Accrued Amounts”); provided,  however, that if the Executive’s employment hereunder is terminated by the Company for Cause, then any Annual Bonus earned pursuant to Section 2.2 in respect of a prior fiscal year, but not yet paid or due to be paid, shall be forfeited. 

3.2. Certain Terminations.

(a) Termination by the Company other than for Cause, Death or Disability; Termination by the Executive for Good Reason.  If the Executive’s employment is terminated (i) by the Company other than for Cause, death or Disability, (ii) by the Executive for Good Reason or (iii) if the Company has given the Executive notice of its intent not to renew this Employment Agreement as of the end of the Initial Term or any Renewal Term, by the Executive within 15 days following the end of the Initial Term or any such Renewal Term, as applicable, then in addition to the Accrued Amounts, the Executive shall be entitled to (A) the payment of an amount equal to one times Executive’s Base Salary at the rate in effect immediately prior to the Termination Date in equal installments on the Company’s regular payment dates occurring during the 12-month period beginning on the first payroll date following the date on which the Release (as defined below) has become effective and (B) a prorated portion of the Executive’s actual Annual Bonus, determined in accordance with Section 2.2 and payable at the same time as annual bonuses are paid to other senior executives of the Company, with the prorated Annual Bonus determined by multiplying the actual Annual Bonus, if any, by a fraction, the numerator of which is the number of days the Executive is employed by the Company during the applicable year and the denominator of which is 365 ((A) and (B) collectively, the “Severance Amount”).  In addition, the Company shall provide the Executive with continued medical and dental insurance coverage for 12 months following the Termination Date or, if earlier, until the Executive becomes covered under a health plan offered by a subsequent employer, with such insurance coverage to be fully paid by the Company (“Benefits Continuation”).  In the event that the Benefits Continuation is taxable to the Executive, an additional amount shall simultaneously be paid with any Benefits Continuation such that the Executive shall receive the Benefits Continuation and the additional amounts paid under this sentence on an after tax basis. The Company’s obligations to pay the Severance Amount and pay premiums relating to Benefits Continuation shall be conditioned upon: (i) the Executive’s continued compliance with Executive’s obligations under Section 4 of this Employment Agreement and (ii) the Executive’s execution, delivery and non-revocation of a valid and enforceable general release of claims (the “Release”) substantially in the form attached hereto as Exhibit A, within 45 days after the Executive’s Termination Date. 

(b) Definitions.  For purposes of Section 3, the following terms have the following meanings:

(i) “Cause” shall mean the Executive’s having engaged in any of the following: (A) willful misconduct or gross negligence in the performance of any of Executive’s duties to the Company, which, if capable of being cured, is not cured to the reasonable satisfaction of the Board within 30 days after the Executive receives from the Board written notice of such willful misconduct or gross negligence, which notice is given to Executive no later than 30 days after the Board becomes aware of such willful misconduct or gross negligence; (B) intentional failure or refusal to perform reasonably assigned duties by the Board, which is not cured to the reasonable satisfaction of the Board within 30 days after the Executive receives from the Board written notice of such failure or refusal, which notice is given to the Executive no later than 30 days after the Board becomes aware of such failure or refusal; (C) any conviction of, or plea of guilty or nolo contendere to, (1) any felony (other than motor vehicle offenses) or (2) any crime (whether or not a felony) involving fraud, theft, or embezzlement, whether of the United States or any state thereof or any similar foreign law to which the Executive may be subject; or (D) any willful failure to comply with any written rules, regulations, policies or procedures of the Company which, if not complied with, would reasonably be expected to have a material adverse effect on the business or financial condition of the Company, which in the case of a failure that is capable of being cured, is not cured to the reasonable satisfaction of the Board within 30 days after the Executive receives from the Company written notice of such failure, which notice is given to the Executive no later 30 days after the Board becomes aware of such failure.  If the Company terminates the Executive’s employment for Cause, the Company shall provide written notice to the Executive of that fact on or before the termination of employment.

(ii) “Disability” shall mean the Executive’s inability, due to physical or mental ill health, to perform the essential functions of the Executive’s job, with or without a reasonable accommodation, for 180 days out of any 270 day consecutive day period. 

(iii) “Good Reason” shall mean one of the following has occurred without the Executive’s written consent: (A) a material breach by the Company of any of the covenants in this Employment Agreement, (B) any material reduction in the Executive’s Base Salary or other compensation (including the Executive’s bonus opportunity), (C) any material and adverse change in the Executive’s position, title, or reporting lines or any change in the Executive’s job duties, authority or responsibilities to those of lesser status, or (D) a relocation of the Executive’s primary work location that would increase Executive’s one-way commute by more than 30 miles.  A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice of the termination, setting forth the conduct of the Company that constitutes Good Reason, within 30 days of the first date on which the Executive has knowledge of such conduct.  The Executive shall further provide the Company at least 30 days following the date on which such notice is provided to cure such conduct, if such conduct is capable of being cured.  Failing such cure, a termination of employment by the Executive for Good Reason shall be effective on the day following the expiration of such cure period.

3.3. Section 409A.  The payments contemplated by this Employment Agreement are intended either not to be subject to Section 409A or, if subject to Section 409A, to be administered, operated and construed in accordance with Section 409A and all regulations and other guidance issued thereunder. If the Executive is a “specified employee” for purposes of Section 409A, any Severance Amount required to be paid pursuant to Section 3.2 which is non-qualified deferred compensation that is subject to Section 409A shall commence on the day after the first to occur of (i) the day which is six months from the Termination Date and (ii) the date of the Executive’s death.  For purposes of this Employment Agreement, the terms “terminate,” “terminated” and “termination” mean a termination of the Executive’s employment that constitutes a “separation from service” within the meaning of the default rules under

Section 409A.  For purposes of Section 409A, the right to a series of installment payments under this Employment Agreement shall be treated as a right to a series of separate payments.

3.4. Exclusive Remedy.  The foregoing payments and benefits continuation upon termination of the Executive’s employment shall constitute the exclusive severance payments and benefits continuation due to the Executive upon a termination of Executive’s employment. 

3.5. Resignation from All Positions.  Upon the termination of the Executive’s employment with the Company for any reason, the Executive shall resign, as of the date of such termination, from all positions Executive then holds as an officer, director, employee and member of the board of directors (and any committee thereof) of Holdings and its direct and indirect subsidiaries and affiliates (the “Company Group”).  The Executive shall be required to execute such writings as are required to effectuate the foregoing.

3.6. Cooperation.  Following the termination of the Executive’s employment with the Company for any reason, the Executive shall reasonably cooperate with the Company upon reasonable request of the Board and be reasonably available to the Company (taking into account any other full-time employment of the Executive) with respect to matters arising out of the Executive’s services to the Company and its subsidiaries. 

Section 4. Unauthorized Disclosure; Non-Competition; Non-Solicitation; Interference with Business Relationships; Proprietary Rights.

4.1. Unauthorized Disclosure.  The Executive agrees and understands that in the Executive’s position with the Company, the Executive has and will be exposed to and has and will receive information relating to the confidential affairs of the Company Group, including, without limitation, technical information, intellectual property, business and marketing plans, strategies, customer information, software, other information concerning the products, promotions, development, financing, expansion plans, business policies and practices of the Company Group and other forms of information considered by the Company Group to be confidential or in the nature of trade secrets (including, without limitation, ideas, research and development, know-how, formulas, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals) (collectively, the “Confidential Information”).  Confidential Information shall not include information that is generally known to the public or within the relevant trade or industry other than due to the Executive’s violation of this Section 4.1 or disclosure by a third party who is known by the Executive to owe the Company an obligation of confidentiality with respect to such information.  The Executive agrees that at all times during the Executive’s employment with the Company and thereafter, the Executive shall not disclose such Confidential Information, either directly or indirectly, to any individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof (each a “Person”) without the prior written consent of the Company and shall not use or attempt to use any such information in any manner other than in connection with Executive’s employment with the Company, unless required by law to disclose such information, in which case the Executive shall provide the Company with written notice of such requirement as far in advance of such anticipated disclosure as possible.  This confidentiality covenant has no temporal, geographical or territorial restriction.  Upon termination of the Executive’s employment with the Company, the Executive shall promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data and any other tangible product or document which has been produced by, received by or otherwise submitted to the Executive during or prior to the Executive’s employment with the Company, and any copies thereof in Executive’s (or reasonably capable of being reduced to Executive’s) possession; provided that nothing in this Employment Agreement or elsewhere shall prevent

the Executive from retaining and utilizing: documents relating to Executive’s personal benefits, entitlements and obligations; documents relating to Executive’s personal tax obligations; Executive’s desk calendar, rolodex, and the like; and such other records and documents as may reasonably be approved by the Company.

4.2. Non-Competition. By and in consideration of the Company’s entering into this Employment Agreement, and in further consideration of the Executive’s exposure to the Confidential Information of the Company Group, the Executive agrees that the Executive shall not, during the Employment Period and for 12 months following the Executive’s Termination Date (the “Restriction Period”), directly or indirectly, own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of, or be connected in any manner with, including, without limitation, holding any position as a stockholder, director, officer, consultant, independent contractor, employee, partner, or investor in, any Restricted Enterprise (as defined below); provided, that in no event shall ownership of one percent or less of the outstanding securities of any class of any issuer whose securities are registered under the Securities Exchange Act of 1934, as amended, standing alone, be prohibited by this Section 4.2, so long as the Executive does not have, or exercise, any rights to manage or operate the business of such issuer other than rights as a stockholder thereof.  For purposes of this paragraph, “Restricted Enterprise” shall mean any Person that is actively engaged in any geographic area in which any member of the Company Group operates or markets in any business which is in material competition with the business of any member of the Company Group.  During the Restriction Period, upon request of the Company, the Executive shall notify the Company of the Executive’s then-current employment status.

4.3. Non-Solicitation of Employees.  During the Restriction Period, the Executive shall not directly or indirectly contact, induce or solicit (or assist any Person to contact, induce or solicit) for employment any person who is, or within 12 months prior to the date of such solicitation was, an employee of any member of the Company Group other than an employee (a) whose employment was involuntarily terminated by a member of the Company Group after the Executive’s Termination Date and (b) who has not been an employee of the Company Group for six months or longer.  The foregoing restriction will not apply to the placement of general advertisements or other notices of employment opportunities that are not targeted, directly or indirectly, to any current or former employee of the Company otherwise covered by the scope of such restriction so long as the Executive is not personally involved in the recruitment or hiring of any such employee subsequent to such general advertisement or other notice.

4.4. Interference with Business Relationships.  During the Restriction Period (other than in connection with carrying out Executive’s responsibilities for the Company Group), the Executive shall not directly or indirectly induce or solicit (or assist any Person to induce or solicit) any customer or client of any member of the Company Group to terminate its relationship or otherwise cease doing business in whole or in part with any member of the Company Group, or directly or indirectly interfere with (or assist any Person to interfere with) any material relationship between any member of the Company Group and any of their customers or clients so as to cause harm to any member of the Company Group.

4.5. Extension of Restriction Period.  The Restriction Period shall be tolled for any period during which the Executive is in breach of any of Sections 4.2, 4.3 or 4.4 hereof.

4.6. Proprietary Rights.  The Executive shall disclose promptly to the Company any and all inventions, discoveries, and improvements (whether or not patentable or registrable under copyright or similar statutes), and all patentable or copyrightable works, initiated, conceived, discovered, reduced to practice, or made by Executive, either alone or in conjunction with others, during the Executive’s employment with the Company and related to the business or activities of the Company Group (the “Developments”).  Except to the extent any rights in any Developments constitute a work made for hire under the U.S. Copyright Act, 17 U.S.C. § 101 et seq. that are owned ab initio by a member of the Company

Group, the Executive assigns and agrees to assign all of Executive’s right, title and interest in all Developments (including all intellectual property rights therein) to the Company or its nominee without further compensation, including all rights or benefits therefor, including without limitation the right to sue and recover for past and future infringement.  The Executive acknowledges that any rights in any Developments constituting a work made for hire under the U.S. Copyright Act, 17 U.S.C § 101 et seq. are owned upon creation by the Company as the Executive’s employer.  Whenever requested to do so by the Company, the Executive shall execute any and all applications, assignments or other instruments which the Company shall deem necessary to apply for and obtain trademarks, patents or copyrights of the United States or any foreign country or otherwise protect the interests of the Company Group.  These obligations shall continue beyond the end of the Executive’s employment with the Company with respect to inventions, discoveries, improvements or copyrightable works initiated, conceived or made by the Executive while employed by the Company, and shall be binding upon the Executive’s employers, assigns, executors, administrators and other legal representatives.  In connection with Executive’s execution of this Employment Agreement, the Executive has informed the Company in writing of any interest in any inventions or intellectual property rights that Executive holds as of the date hereof.  If the Company is unable for any reason, after reasonable effort, to obtain the Executive’s signature on any document needed in connection with the actions described in this Section 4.6, the Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Executive’s agent and attorney in fact to act for and on the Executive’s behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of this Section 4.6 with the same legal force and effect as if executed by the Executive.

4.7. Confidentiality of Agreement.  Other than with respect to information required to be disclosed by applicable law, the Executive agrees not to disclose the terms of this Employment Agreement to any Person; provided the Executive may disclose this Employment Agreement and/or any of its terms to the Executive’s immediate family, financial advisors and attorneys, so long as the Executive instructs every such Person to whom the Executive makes such disclosure not to disclose the terms of this Employment Agreement further.  Anytime after this Employment Agreement is filed with the Securities and Exchange Commission or any other government agency by the Company and becomes a public record, this provision shall no longer apply.

4.8. Remedies.  The Executive agrees that any breach of the terms of this Section 4 would result in irreparable injury and damage to the Company Group for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled toan immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all Persons acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity, including, without limitation, the obligation of the Executive to return any portion of the Severance Amount paid by the Company to the Executive as set forth in the last sentence of this Section 4.8.  The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, without limitation, the recovery of damages from the Executive.  The Executive and the Company further agree that the provisions of the covenants contained in this Section 4 are reasonable and necessary to protect the businesses of the Company Group because of the Executive’s access to Confidential Information and Executive’s material participation in the operation of such businesses.  In the event that the Executive willfully and materially breaches any of the covenants set forth in this Section 4, then in addition to any injunctive relief, the Executive will promptly return to the Company any portion of the Severance Amount that the Company has paid to the Executive.

Section 5. Representations.  The Executive represents and warrants that (i) he is not subject to any contract, arrangement, policy or understanding, or to any statute, governmental rule or regulation, that

in any way limits Executive’s ability to enter into and fully perform Executive’s obligations under this Employment Agreement and (ii) Executive is not otherwise unable to enter into and fully perform Executive’s obligations under this Employment Agreement.

Section 6. Non-Disparagement.  From and after the Effective Date and following termination of the Executive’s employment with the Company, (a) the Executive agrees not to make any statement, whether direct or indirect, whether true or false, that is intended to become public, or that should reasonably be expected to become public, and that criticizes, ridicules, disparages or is otherwise derogatory of the Company, any of its subsidiaries, affiliates, employees, officers, directors or stockholders; (b) none of the members of the Board who is also an employee of AEA Investors LP (or any of its affiliates) shall make any statement that is intended to become public, or that should reasonably be expected to become public, and that criticizes, ridicules, disparages or is otherwise derogatory of the Executive; and (c) the Company shall instruct the Board and the executive officers of the Company not to make any statement that is intended to become public, or that should reasonably be expected to become public, and that criticizes, ridicules, disparages or is otherwise derogatory of the Executive.   

Section 7. Withholding.  All amounts paid to the Executive under this Employment Agreement during or following the Employment Period shall be subject to withholding and other employment taxes imposed by applicable law.  The Executive shall be solely responsible for the payment of all taxes imposed on Executive relating to the payment or provision of any amounts or benefits hereunder.

Section 8. Miscellaneous.

8.1. Indemnification.  To the extent provided in the Company’s By-Laws and Certificate of Incorporation, the Company shall indemnify the Executive for losses or damages incurred by the Executive as a result of all causes of action arising from the Executive’s performance of duties for the benefit of the Company, whether or not the claim is asserted during the Employment Period.  This indemnity shall not apply to the Executive’s acts of willful misconduct or gross negligence.  The Executive shall be covered under any directors’ and officers’ insurance that the Company maintains for its directors and other officers in the same manner and on the same basis as the Company’s directors and other officers.

8.2. Amendments and Waivers.  This Employment Agreement and any of the provisions hereof may be amended, waived (either generally or in a particular instance and either retroactively or prospectively), modified or supplemented, in whole or in part, only by written agreement signed by the parties hereto; provided, that, the observance of any provision of this Employment Agreement may be waived in writing by the party that will lose the benefit of such provision as a result of such waiver.  The waiver by any party hereto of a breach of any provision of this Employment Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach, except as otherwise explicitly provided for in such waiver.  Except as otherwise expressly provided herein, no failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder, or otherwise available in respect hereof at law or in equity, shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. 

8.3. Assignment; Third-Party Beneficiaries. This Employment Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive, and any purported assignment by the Executive in violation hereof shall be null and void.  Nothing in this Employment Agreement shall confer upon any Person not a party to this Employment Agreement, or the legal representatives of such Person, any rights or remedies of any nature or kind whatsoever under or by reason of this Employment Agreement, except (i) the personal representative of the deceased Executive may enforce the provisions hereof applicable in the event of the death of the Executive and (ii) any member of

the Company Group may enforce the provisions of Section 4.  The Company is authorized to assign this Employment Agreement to a successor to substantially all of its assets.

8.4. Notices.  Unless otherwise provided herein, all notices, requests, demands, claims and other communications provided for under the terms of this Employment Agreement shall be in writing.  Any notice, request, demand, claim or other communication hereunder shall be sent by (i) personal delivery (including receipted courier service) or overnight delivery service, with confirmation of receipt (ii) e-mail (with electronic return receipt), (iii) reputable commercial overnight delivery service courier, with confirmation of receipt or (iv) registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below:

If to the Company: Gypsum Management and Supply, Inc.

100 Crescent Centre Parkway, Suite 800

Tucker, GA  30084

Attn:  Chief Human Resources Officer

Email:  khara.julien@gms.com

with a copy to:Gypsum Management and Supply, Inc.

100 Crescent Centre Parkway, Suite 800

Tucker, GA  30084

Attn:  General Counsel

Email:  craig.apolinsky@gms.com

If to the Executive:Lynn Ross, at Executive’s principal office and e-mail address at the Company (during the Employment Period), and at all times to Executive’s principal residence as reflected in the records of the Company.

All such notices, requests, consents and other communications shall be deemed to have been given when received.  Either party may change its contact information or its address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other parties hereto notice in the manner then set forth.

8.5. Governing Law.  This Employment Agreement shall be construed and enforced in accordance with, and the laws of the State of Georgia hereto shall govern the rights and obligations of the parties, without giving effect to the conflicts of law principles thereof.

8.6. Severability.  Whenever possible, each provision or portion of any provision of this Employment Agreement, including those contained in Section 4 hereof, will be interpreted in such manner as to be effective and valid under applicable law but the invalidity or unenforceability of any provision or portion of any provision of this Employment Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Employment Agreement in that jurisdiction or the validity or enforceability of this Employment Agreement, including that provision or portion of any provision, in any other jurisdiction.  In addition, should a court or arbitrator determine that any provision or portion of any provision of this Employment Agreement, including those contained in Section 4 hereof, is not reasonable or valid, either in period of time, geographical area, or otherwise, the parties hereto agree that such provision should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable or valid.

8.7. Entire Agreement.  From and after the Effective Date, this Employment Agreement constitutes the entire agreement between the parties hereto, and supersedes all prior

representations, agreements and understandings (including any prior course of dealings), both written and oral, between the parties hereto with respect to the subject matter hereof.

8.8. Counterparts.  This Employment Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument.

8.9. Survivorship.  Upon the expiration or other termination of this Employment Agreement, the respective rights and obligations of the parties hereto, including, without limitation, with respect to the Executive’s obligations set forth in Section 4, shall survive such expiration or other termination to the extent necessary to carry out the intentions of the parties under this Employment Agreement.

8.10. Binding Effect.  This Employment Agreement shall inure to the benefit of, and be binding on, the successors and assigns of each of the parties, including, without limitation, the Executive’s heirs and the personal representatives of the Executive’s estate and any successor to all or substantially all of the business and/or assets of the Company.

8.11. General Interpretive Principles.  The name assigned this Employment Agreement and headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Employment Agreement are for convenience of reference only and shall not in any way affect the meaning or interpretation of any of the provisions hereof.  Words of inclusion shall not be construed as terms of limitation herein, so that references to “include,” “includes” and “including” shall not be limiting and shall be regarded as references to non-exclusive and non-characterizing illustrations.  Any reference to a Section of the Internal Revenue Code of 1986, as amended, shall be deemed to include any successor to such Section.

[signature page follows]

IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first written above.

GYPSUM MANAGEMENT AND SUPPLY, INC.

/s/ H. Douglas Goforth

By: H. Douglas Goforth

Title: Chief Financial Officer

EXECUTIVE

/s/ Lynn Ross

Lynn Ross

EXHIBIT A

You should consult with an attorney before signing this release of claims.

Release of Claims

1.In consideration of the payment of the Severance Amount and the provision of the Benefits Continuation (as such terms are defined under the Employment Agreement, dated as of [_______], 2018 (the “Employment Agreement”), to which Lynn Ross (the “Executive”) and Gypsum Management and Supply, Inc., a Georgia corporation (the “Company”) (each of the Executive and the Company, a “Party” and collectively, the “Parties”) are parties, the sufficiency of which the Executive acknowledges, the Executive, with the intention of binding Executive and Executive’s heirs, executors, administrators and assigns, does hereby release, remise, acquit and forever discharge Holdings (as defined in the Employment Agreement), the Company and each of its and their subsidiaries and affiliates (the “Company Affiliated Group”), their present and former officers, directors, executives, shareholders, agents, attorneys, employees and employee benefit plans (and the fiduciaries thereof), and the successors, predecessors and assigns of each of the foregoing (collectively, the “Company Released Parties”), of and from any and all claims, actions, causes of action, complaints, charges, demands, rights, damages, debts, sums of money, accounts, financial obligations, suits, expenses, attorneys’ fees and liabilities of whatever kind or nature in law, equity or otherwise, whether accrued, absolute, contingent, unliquidated or otherwise and whether now known or unknown, suspected or unsuspected, which the Executive, individually or as a member of a class, now has, owns or holds, or has at any time heretofore had, owned or held, arising on or prior to the date hereof, against any Company Released Party that arises out of, or relates to, the Employment Agreement, the Executive’s employment with the Company or any of its subsidiaries and affiliates, or any termination of such employment, including claims (i) for severance or vacation benefits, unpaid wages, salary or incentive payments, (ii) for breach of contract, wrongful discharge, impairment of economic opportunity, defamation, intentional infliction of emotional harm or other tort, (iii) for any violation of applicable state and local labor and employment laws (including, without limitation, all laws concerning unlawful and unfair labor and employment practices)and (iv) for employment discrimination under any applicable federal, state or local statute, provision, order or regulation, and including, without limitation, any claim under Title VII of the Civil Rights Act of 1964 (“Title VII”), the Civil Rights Act of 1988, the Fair Labor Standards Act, the Americans with Disabilities Act (“ADA”), the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Age Discrimination in Employment Act (“ADEA”), and any similar or analogous state statute, excepting only:

(A)rights of the Executive arising under, or preserved by, this Release;

(B)the right of the Executive to receive COBRA continuation coverage in accordance with applicable law;

(C)claims for benefits under any health, disability, retirement, life insurance or other, similar employee benefit plan (within the meaning of Section 3(3) of ERISA) of the Company Affiliated Group;

(D)rights to indemnification the Executive has or may have under the by-laws or certificate of incorporation of any member of the Company Affiliated Group or as an insured under any director’s and officer’s liability insurance policy now or previously in force; and

(E)any matters intended to survive the termination of employment and the execution of this Release as set forth in the Employment Agreement, including, without limitation, Sections 3, 6 and 8, the terms and conditions of which are incorporated herein by reference.

2.The Executive acknowledges and agrees that this Release is not to be construed in any way as an admission of any liability whatsoever by any Company Released Party, any such liability being expressly denied.

3.This Release applies to any relief no matter how called, including, without limitation, wages, back pay, front pay, compensatory damages, liquidated damages, punitive damages, damages for pain or suffering, costs, and attorneys’ fees and expenses. 

4.The Executive specifically acknowledges that Executive’s acceptance of the terms of this Release is, among other things, a specific waiver of Executive’s rights, claims and causes of action under Title VII, ADEA, ADA and any state or local law or regulation in respect of discrimination of any kind; provided,  however, that nothing herein shall be deemed, nor does anything contained herein purport, to be a waiver of any right or claim or cause of action which by law the Executive is not permitted to waive.

5.The Executive acknowledges that Executive has been given a period of 45 days to consider whether to execute this Release (and if Executive executed the Release prior to the close of the 45-day period, Executive did so voluntarily).  If the Executive accepts the terms hereof and executes this Release, Executive may thereafter, for a period of seven days following (and not including) the date of execution, revoke this Release.  If no such revocation occurs, this Release shall become irrevocable in its entirety, and binding and enforceable against the Executive, on the day next following the day on which the foregoing seven-day period has elapsed.  If such a revocation occurs, the Executive shall irrevocably forfeit any right to payment of the Severance Amount (as defined in the Employment Agreement) or the Benefits Continuation (as defined in the Employment Agreement), but the remainder of the Employment Agreement shall continue in full force.

6.The Executive acknowledges and agrees that Executive has not, with respect to any transaction or state of facts existing prior to the date hereof, filed any complaints, charges or lawsuits against any Company Released Party with any governmental agency, court or tribunal.

7.The Executive acknowledges that Executive has been advised to seek, and has had the opportunity to seek, the advice and assistance of an attorney with regard to this Release, and has been given a sufficient period within which to consider this Release.

8.The Executive acknowledges that this Release relates only to claims that exist as of the date of this Release.

9.The Executive acknowledges that the Severance Amount Executive is receiving in connection with this Release and Executive’s obligations under this Release are in addition to anything of value to which the Executive is entitled from the Company.

10.Each provision hereof is severable from this Release, and if one or more provisions hereof are declared invalid, the remaining provisions shall nevertheless remain in full force and effect.  If any provision of this Release is so broad, in scope, or duration or otherwise, as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. 

11.This Release constitutes the complete agreement of the Parties in respect of the subject matter hereof and shall supersede all prior agreements between the Parties in respect of the subject matter hereof except to the extent set forth herein. For the avoidance of doubt, however, nothing in this Release shall constitute a waiver of any Company Released Party’s right to enforce any obligations of the Executive under the Employment Agreement that survive the Employment Agreement’s termination,

including without limitation, any non-competition covenant, non-solicitation covenant or any other restrictive covenants contained therein.

12.The failure to enforce at any time any of the provisions of this Release or to require at any time performance by another party of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect the validity of this Release, or any part hereof, or the right of any party thereafter to enforce each and every such provision in accordance with the terms of this Release.

13.This Release may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.  Signatures delivered by facsimile shall be deemed effective for all purposes.

14.This Release shall be binding upon any and all successors and assigns of the Executive and the Company.

15.Except for issues or matters as to which federal law is applicable, this Release shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflicts of law principles thereof. 

[signature page follows]

IN WITNESS WHEREOF, this Release has been signed by or on behalf of each of the Parties, all as of ____________________.

GYPSUM MANAGEMENT AND SUPPLY, INC.

___________________________________________

By:

Title:

EXECUTIVE

___________________________________________

Lynn Ross

EX-10.2

Exhibit 10.2

GMS INC. Equity Incentive Plan

NONSTATUTORY STOCK OPTION - Notice of Grant

GMS Inc. (the “Company”), a Delaware corporation, hereby grants to the Optionee set forth below (the “Optionee”) an option (the “Option”) to purchase the number of Shares of common stock of the Company (“Shares”) set forth below at the Option Price set forth below, pursuant to the terms and conditions of this Notice of Grant (the “Notice”), the Nonstatutory Stock Option Award Agreement attached hereto as Exhibit A (the “Award Agreement”), and the GMS Inc. Equity Incentive Plan (the “Plan”).

Date of Grant:[●]

Name of Optionee:[●]

Number of Shares
Subject to Option:[●] Shares

Option Price

(Price Per Share):$[●] per Share

Expiration Date:10 year anniversary of the Date of Grant.

Vesting:The Option shall vest pursuant to the terms and conditions set forth in Section ‎3 of the Award Agreement.

Vesting Start Date:[●]

The Option shall be subject to the execution and return of this Notice by the Optionee to the Company within 30 days of the date hereof (including by utilizing an electronic signature and/or web-based approval and notice process or any other process as may be authorized by the Company). This Option is a non-qualified stock option and is not intended by the parties hereto to be, and shall not be treated as, an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. Capitalized terms used but not defined herein shall have the meaning attributed to such terms in the Award Agreement or, if not defined therein, in the Plan, unless the context requires otherwise. By executing this Notice, the Optionee acknowledges that his or her agreement to the covenants set forth in Section ‎7 of the Award Agreement is a material inducement to the Company in granting this Award to the Optionee.

This Notice may be executed by facsimile or electronic means (including, without limitation, PDF) and in one or more counterparts, each of which shall be considered an original instrument, but all of which together shall constitute one and the same agreement, and shall become binding when one or more counterparts have been signed by each of the parties hereto and delivered to the other party hereto.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have executed this Notice of Grant as of the Date of Grant set forth above.

GMS INC.

By:

Name:

Title:

OPTIONEE

By:

Name:

Exhibit A

GMS INC.

Equity Incentive Plan

NON-STATUTORY STOCK OPTION

Award Agreement

THIS NONSTATUTORY STOCK OPTION AWARD AGREEMENT (the “Award Agreement”) is entered into by and among GMS Inc. (the “Company”) and the individual set forth on the signature page to that certain Notice of Grant (the “Notice”) to which this Award Agreement is attached.  The terms and conditions of the Option granted hereby, to the extent not controlled by the terms and conditions contained in the Plan, shall be as set forth in the Notice and this Award Agreement.  Capitalized terms used but not defined herein shall have the meaning attributed to such terms in the Notice or, if not defined therein, in the Plan, unless the context requires otherwise.

1. No Right to Continued Employee Status or Consultant Service

Nothing contained in this Award Agreement shall confer upon the Optionee the right to the continuation of his or her Employee status, or, in the case of a Consultant or Director, to the continuation of his or her service arrangement, or in either case to interfere with the right of the Company or any of its Subsidiaries or other affiliates to Terminate the Optionee.

2. Term of Option

As a general matter, the Option will expire on the Expiration Date set forth in the Notice and be deemed to have been forfeited by the Optionee. As provided below, the Optionee’s right to exercise the Option may expire prior to the Expiration Date if the Optionee Terminates, including in the event of the Optionee’s Retirement, Disability or death. This Award Agreement shall remain in effect until the Option has fully vested and been exercised or any unexercised portion thereof has been forfeited by the Optionee as provided in this Award Agreement. No portion of this Option shall be exercisable after the Expiration Date, or such earlier date as may be applicable, except as provided herein.

3. Vesting of Option 

[Option 1: Subject to the remainder of this Section ‎3, the Option will vest as to thirty-three and one third percent (33.33%) on each anniversary of the Vesting Start Date, such that the Option shall become fully (100%) vested as of the third anniversary of the Vesting Start Date, subject to the Optionee not having Terminated as of the applicable vesting date.]

[Option 2: Subject to the remainder of this Section ‎3, the Option shall become fully (100%) vested upon first anniversary of the Vesting Start Date, subject to the Optionee not having Terminated prior to such anniversary.]

Except as otherwise provided herein, if the Optionee Terminates for any reason, the portion of the Option that has not vested as of such date shall terminate upon such Termination and be deemed to have been forfeited by the Optionee without consideration.

4. Exercise

Prior to the Expiration Date and at any time prior to the Optionee’s Termination, the Optionee may exercise all or a portion of the Option, to the extent vested, by giving notice in the form, to the person, and using the administrative method and the exercise procedures established by the Committee from time to time (including any procedures utilizing an electronic signature and/or web-based approval and notice process), specifying the number of Shares to be acquired. The Optionee’s right to exercise the vested portion of the Option following the date that of the Optionee’s Termination will depend on the reason for such Termination, as described in Sections ‎5,  ‎6 and 7 below.

The Optionee must pay to the Company at the time of exercise the amount of the Option Price for the number of Shares covered by the notice to exercise (“Aggregate Option Price”). The Aggregate Option Price for any Shares purchased pursuant to the exercise of an Option shall be paid in any or any combination of the following forms: (v) cash or its equivalent (e.g., a check);  (w) by making arrangements through a registered broker-dealer pursuant to cashless exercise procedures established by the Committee from time to time; (x) if permitted by the Committee in its sole discretion, the transfer, either actually or by attestation, to the Company of Shares held by the Optionee , such transfer to be upon such terms and conditions as determined by the Committee; (y) in the form of other property as determined by the Committee in its sole discretion; or (z) through Share withholding as a result of which the number of Shares issued upon exercise of an Option would be reduced by a number of Shares having a Fair Market Value equal to the Aggregate Option Price. Any Shares transferred to the Company as payment of the Aggregate Option Price shall be valued at their Fair Market Value on the last business day preceding the date of exercise of such Option. If requested by the Committee, the Optionee shall deliver this Award Agreement to the Company, which shall endorse thereon a notation of such exercise and return such Award Agreement to the Optionee. No fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded down to the nearest number of whole Shares.

5. Termination of Service 

If the Optionee incurs a Termination for any reason, whether voluntarily or involuntarily, without Cause, other than as a result of the Optionee’s death, Disability or Retirement, then the portion of this Option that has previously vested but has not been exercised shall remain exercisable until, and shall terminate upon, the first to occur of (a) the end of the day that is forty-five (45) days following the date of the Optionee’s Termination or (b) the Expiration Date. If the Optionee incurs a Termination for Cause, then this Option and all rights attached hereto shall be forfeited and terminate immediately upon the effective date of such Termination for Cause.

6. Death or Disability of the Optionee 

Upon the Optionee’s Termination by reason of death or Disability, the vested portion of the Option shall remain exercisable until, and shall terminate upon, the first to occur of (a) the end of the day that is one hundred and eighty (180) days after the date of the Optionee’s Termination for death or Disability, as applicable, or (b) the Expiration Date of the Option.  Until such termination of the Option, the vested portion of the Option may, to the extent that this Option has not previously been exercised by the Optionee, be exercised by the Optionee in the case of his or her Disability, or, in the case of death, by the Optionee’s personal representative or the person entitled to the Optionee’s rights under this Award Agreement.

7. Retirement of the Optionee

(a)If the Optionee Terminates as a result of the Optionee’s Retirement and the Optionee agrees to be bound by the restrictive covenants set forth in Exhibit B attached hereto (the “Restrictive Covenants”), then (i) the Optionee shall continue to vest in the portion of the Option that was not vested and exercisable as of the date of the Optionee’s Retirement for the [Option 1: three-year] [Option 2: one-year] period following Optionee’s Retirement as if the Optionee’s employment had not terminated, unless the Optionee violates any of the Restrictive Covenants; and (ii) the Option shall terminate upon the Expiration Date, unless the Optionee violates any of the Restrictive Covenants.  If, in the sole discretion of the Company, the Optionee violates one of the Restrictive Covenants, then the Option, whether or not vested, shall be immediately forfeited and cancelled as of the date of such violation.

For purposes of this Award Agreement, “Retirement” shall mean the Optionee’s termination of employment following attainment of age 63 or following attainment of age 60 plus 5 years of service, whichever is the first to occur.

For the avoidance of doubt, the Restrictive Covenants are separate and apart from, and shall be in addition to, any restrictive covenants the Optionee may be subject to pursuant to a another agreement or arrangement with the Company.

(b)If the Optionee Terminates as a result of the Optionee’s Retirement and the Optionee does not agree to be bound by the Restrictive Covenants, then the portion of this Option that has previously vested but has not been exercised shall remain exercisable until, and shall terminate upon, the first to occur of (i) the end of the day that is forty-five (45) days following the date of the Optionee’s Retirement or (ii) the Expiration Date.

8. Change in Control

(a)If (i) a Change in Control occurs while Optionee is employed by the Company or one of its Subsidiaries, and (ii) the Option is not assumed by the surviving entity or otherwise equitably converted or substituted in connection with the Change in Control in a manner approved by the Committee, then, as of the effective date of the Change in Control, the Option shall become immediately vested and exercisable. 

(b)If (i) a Change in Control occurs while Optionee is employed by the Company or one of its Subsidiaries, (ii) the Option is assumed by the surviving entity or otherwise equitably converted or substituted in connection with the Change in Control in a manner approved by the Committee, and (iii) within two (2) years after the effective date of the Change in Control, the Optionee’s employment is terminated by the Company or one of its Subsidiaries without Cause or, if applicable, the Optionee resigns for Good Reason (as defined herein), then as of Optionee’s Termination, the Option shall be immediately vested and exercisable.  For purposes of this Award Agreement, “Good Reason” shall have the meaning, if any, assigned such term in the employment, severance or similar agreement, if any, between the Optionee and the Company or one of its Subsidiaries, provided, however that if there is no such employment, severance or similar agreement in which “Good Reason” is defined, then “Good Reason” as used herein shall not be operative and shall not apply to the Option.

9. Prohibited Activities 

(a) No Sale or Transfer. Unless otherwise required by law, this Option shall not be (i) sold, transferred or otherwise disposed of, (ii) pledged or otherwise hypothecated or (iii) subject to attachment, execution or levy of any kind, other than by will or by the laws of descent or distribution; provided,  however, that any transferred Option will be subject to all of the same terms and conditions as provided in the Plan and this Award Agreement and the Optionee’s estate or beneficiary appointed in accordance with the Plan will remain liable for any withholding tax that may be imposed by any federal, state or local tax authority.

(b) Right to Terminate Option and Recovery. The Optionee understands and agrees that the Company has granted this Option to the Optionee to reward the Optionee for the Optionee’s future efforts and loyalty to the Company and its affiliates by giving the Optionee the opportunity to participate in the potential future appreciation of the Company.  Accordingly, if (a) the Optionee materially violates the Optionee’s obligations relating to the non-disclosure or non-use of confidential or proprietary information under any Restrictive Agreement to which the Optionee is a party, or (b) the Optionee materially breaches or violates the Optionee’s obligations relating to non-disparagement under any Restrictive Agreement to which the Optionee is a party, or (c) the Optionee engages in any activity prohibited by this Section 7 of this Award Agreement, or (d) the Optionee materially breaches or violates any non-solicitation obligations under any Restrictive Agreement to which the Optionee is a party, or (e) the Optionee breaches or violates any non-competition obligations under any Restrictive Agreement to which the Optionee is a party, or (f) the Optionee is convicted of a felony against the Company or any of its affiliates, then, in addition to any other rights and remedies available to the Company, the Company shall be entitled, at its option, exercisable by written notice, to terminate the Option (including the vested portion of the Option), or any unexercised portion thereof, which shall be of no further force and effect.  “Restrictive Agreement” shall mean any agreement

between the Company or any Subsidiary and the Optionee (including any prior option agreement) that contains non-competition, non-solicitation, non-hire, non-disparagement, or confidentiality restrictions applicable to the Optionee.

(c) Other Remedies. The Optionee specifically acknowledges and agrees that its remedies under this Section 7 shall not prevent the Company or any Subsidiary from seeking injunctive or other equitable relief in connection with the Optionee’s breach of any Restrictive Agreement.  In the event that the provisions of this Section 7 should ever be deemed to exceed the limitation provided by applicable law, then the Optionee and the Company agree that such provisions shall be reformed to set forth the maximum limitations permitted.

10. No Rights as Stockholder

The Optionee shall have no rights as a stockholder with respect to the Shares covered by any exercise of this Option until the effective date of issuance of the Shares and the entry of the Optionee’s name as a shareholder of record on the books of the Company following exercise of this Option.

11. Taxation Upon Exercise of Option; Tax Withholding; Parachute Tax Provisions

The Optionee understands that, upon exercise of this Option, the Optionee will recognize income, for Federal, state and local income tax purposes, as applicable, in an amount equal to the amount by which the Fair Market Value of the Shares, determined as of the date of exercise, exceeds the Option Price. The acceptance of the Shares by the Optionee shall constitute an agreement by the Optionee to report such income in accordance with then applicable law and to cooperate with Company and its subsidiaries in establishing the amount of such income and corresponding deduction to the Company and/or its subsidiaries for its income tax purposes.

The Optionee is responsible for all tax obligations that arise as a result of the exercise of this Option. The Company may withhold from any amount payable to the Optionee an amount sufficient to cover any Federal, state or local withholding taxes which may become required with respect to such exercise or take any other action it deems necessary to satisfy any income or other tax withholding requirements as a result of the exercise this Option. The Company shall have the right to require the payment of any such taxes and require that the Optionee, or the Optionee’s beneficiary, to furnish information deemed necessary by the Company to meet any tax reporting obligation as a condition to exercise or before the issuance of any Shares pursuant to this Option. The Optionee may pay his or her withholding tax obligation in connection with the exercise of the Option, by making (w) a cash payment to the Company, or (x) arrangements through a registered broker-dealer pursuant to cashless exercise procedures established by the Committee from time to time.  In addition, the Committee, in its sole discretion, may allow the Optionee, to pay his or her withholding tax obligation in connection with the exercise of the Option, by (y) having withheld a portion of the Shares then issuable to him or her upon exercise of the Option or (z) surrendering Shares, in each case having an aggregate Fair Market Value equal to the withholding taxes.   

In connection with the grant of this Option, the parties wish to memorialize their agreement regarding the treatment of any potential golden parachute payments as set forth in Exhibit A attached hereto.

12. Securities Laws; Tolling of Exercise Period Expiration

(a) Upon the acquisition of any Shares pursuant to the exercise of the Option, the Optionee will make such written representations, warranties, and agreements as the Committee may reasonably request in order to comply with securities laws or with this Award Agreement. Optionee hereby agrees not to offer, sell or otherwise attempt to dispose of any Shares issued to the Optionee upon exercise of the Option in any way which would: (x) require the Company to file any registration statement with the Securities and Exchange Commission (or any similar filing under state law or the laws of any other county) or to amend or supplement any such filing or (y) violate or cause the Company to violate the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, or any other Federal, state or local law, or the laws of any other country. The Company reserves the right to place restrictions on any Shares the Optionee may receive as a result of the exercise of the Option.

(b) Notwithstanding any provision contained in this Award Agreement or the Plan to the contrary,

(i) if, following the Optionee’s Termination, all or a portion of the exercise period applicable to the Option occurs during a time when the Optionee cannot exercise the Option without violating (w) an applicable Federal, state or local law, (x) the rules related to a blackout period declared by the Company, (y) any agreed to lock-up arrangement, or (z) other similar circumstance, in each case, the exercise period applicable to the Option will be tolled for the number of days that such prohibitions or restrictions apply, such that the exercise period will be extended by the same number of days as were subject to the prohibitions or restrictions; provided,  however, that the exercise period may not be extended due to such tolling past the Expiration Date of the Option as set forth above; and

(ii) if the Expiration Date is set to occur during a time that the Optionee cannot exercise the Option without violating an applicable Federal, state or local law (and the Option has not previously been exercised or otherwise terminated), the exercise period will be tolled until such time as the violation would no longer apply; provided,  however, that the exercise period applicable to the Option in this event will be fifteen (15) days from the date such potential violation is longer applicable.

13. Modification, Extension and Renewal of Options

This Award Agreement may not be modified, amended, terminated and no provision hereof may be waived in whole or in part except by a written agreement signed by the Company and the Optionee and no modification shall, without the consent of the Optionee, alter to the Optionee’s material detriment or materially impair any rights of the Optionee under this Award Agreement except to the extent permitted under the Plan.

14. Notices

Unless otherwise provided herein, any notices or other communication given or made pursuant to the Notice, this Award Agreement or the Plan shall be in writing and shall be deemed to have been duly given (i) as of the date delivered, if personally delivered (including receipted courier service) or overnight delivery service, with confirmation of receipt; (ii) on the date the delivering party receives confirmation, if delivered by facsimile to the number indicated or by email to the address indicated or through an electronic administrative system designated by the Company; (iii) one (1) business day after being sent by reputable commercial overnight delivery service courier, with confirmation of receipt; or (iv) three (3) business days after being mailed by registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below:

(a) If to the Company at the address below:

GMS Inc.

100 Crescent Centre Parkway, Suite 800

Tucker, Georgia 30084

Phone:  (800) 392-4619

Attention:  General Counsel

(b) If to the Optionee, at the most recent address, facsimile number or email contained in the Company’s records.

15. Award Agreement Subject to Plan and Applicable Law

This Option is made pursuant to the Plan and shall be interpreted to comply therewith. A copy of the Plan is attached hereto. Any provision of this Option inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan. The Plan shall control in the event there shall be any conflict between the Plan, the Notice, and this Award Agreement, and it shall control as to any matters not contained in this Award Agreement. The Committee shall have authority to make constructions of this Award Agreement, and to correct any defect or supply any omission or reconcile any inconsistency in this Award Agreement, and to prescribe rules and regulations relating to the administration of this Award and other Awards granted under the Plan.

This Option shall be governed by the laws of the State of Delaware, without regard to the conflicts of law principles thereof, and subject to the exclusive jurisdiction of the courts therein. The Optionee hereby consents to personal jurisdiction in any action brought in any court, federal or state, within the State of Delaware having subject matter jurisdiction in the matter.

16. Headings and Capitalized Terms

Unless otherwise provided herein, capitalized terms used herein that are defined in the Plan and not defined herein shall have the meanings set forth in the Plan. Headings are for convenience only and are not deemed to be part of this Award Agreement. Unless otherwise indicated, any reference to a Section herein is a reference to a Section of this Award Agreement.

17. Severability and Reformation

If any provision of this Award Agreement shall be determined by a court of law of competent jurisdiction to be unenforceable for any reason, such unenforceability shall not affect the enforceability of any of the remaining provisions hereof; and this Award Agreement, to the fullest extent lawful, shall be reformed and construed as if such unenforceable provision, or part thereof, had never been contained herein, and such provision or part thereof shall be reformed or construed so that it would be enforceable to the maximum extent legally possible.

18. Binding Effect

This Award Agreement shall be binding upon the parties hereto, together with their personal executors, administrator, successors, personal representatives, heirs and permitted assigns.

19. Entire Agreement

This Award Agreement, together with the Plan, supersedes all prior written and oral agreements and understandings among the parties as to its subject matter and constitutes the entire agreement of the parties with respect to the subject matter hereof.  If there is any conflict between the Notice, this Award Agreement and the Plan, then the applicable terms of the Plan shall govern.

20. Waiver

Waiver by any party of any breach of this Award Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right whether or not of the same or a similar nature. The failure of any party to take action by reason of such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or condition giving rise to such rights continues.

Exhibit A

PARACHUTE TAX PROVISIONS

This Exhibit A sets forth the terms and provisions applicable to the Optionee pursuant to the provisions of Section 9 of the Award Agreement.  This Exhibit A shall be subject in all respects to the terms and conditions of the Award Agreement. 

(a)To the extent that the Optionee, would otherwise be eligible to receive a payment or benefit pursuant to the terms of this Award Agreement, any employment or other agreement with the Company or any Subsidiary or otherwise in connection with, or arising out of, the Optionee’s employment with the Company or a change in ownership or effective control of the Company or of a substantial portion of its assets (any such payment or benefit, a “Parachute Payment”), that a nationally recognized United States public accounting firm selected by the Company (the “Accountants”) determines, but for this sentence would be subject to excise tax imposed by Section 4999 of the Code (the “Excise Tax”), subject to clause (c) below, then the Company shall pay to the Optionee whichever of the following two alternative forms of payment would result in the Optionee’s receipt, on an after-tax basis, of the greater amount of the Parachute Payment notwithstanding that all or some portion of the Parachute Payment may be subject to the Excise Tax: (1) payment in full of the entire amount of the Parachute Payment (a “Full Payment”), or (2) payment of only a part of the Parachute Payment so that the Optionee receives the largest payment possible without the imposition of the Excise Tax (a “Reduced Payment”).

(b)If a reduction in the Parachute Payment is necessary pursuant to clause (a), then the reduction shall occur in the following order:  (1) cancellation of acceleration of vesting on any equity awards for which the exercise price exceeds the then fair market value of the underlying equity; (2) reduction of cash payments (with such reduction being applied to the payments in the reverse order in which they would otherwise be made, that is, later payments shall be reduced before earlier payments); and (3) cancellation of acceleration of vesting of equity awards not covered under (1) above; provided,  however, that in the event that acceleration of vesting of equity awards is to be cancelled, acceleration of vesting of full value awards shall be cancelled before acceleration of options and stock appreciation rights and within each class such acceleration of vesting shall be cancelled in the reverse order of the date of grant of such equity awards, that is, later equity awards shall be canceled before earlier equity awards; and provided,  further, that to the extent permitted by Code Section 409A and Sections 280G and 4999 of the Code, if a different reduction procedure would be permitted without violating Code Section 409A or losing the benefit of the reduction under Sections 280G and 4999 of the Code, the Optionee may designate a different order of reduction.

(c)For purposes of determining whether any of the Parachute Payments (collectively the “Total Payments”) will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Total Payments shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of the Code, and all “parachute payments” in excess of the “base amount” (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the opinion of the Accountants, such Total Payments (in whole or in part):  (1) do not constitute “parachute payments,” including giving effect to the recalculation of

stock options in accordance with Treasury Regulation Section 1.280G-1, Q&A 33, (2) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the “base amount” or (3) are otherwise not subject to the Excise Tax, and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code.

(d)All determinations hereunder shall be made by the Accountants, which determinations shall be final and binding upon the Company and the Optionee.

(e)The federal tax returns filed by the Optionee (and any filing made by a consolidated tax group which includes the Company) shall be prepared and filed on a basis consistent with the determination of the Accountants with respect to the Excise Tax payable by the Optionee.  The Optionee shall make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his or her federal income tax return as filed with the Internal Revenue Service, and such other documents reasonably requested by the Company, evidencing such payment (provided that the Optionee may delete information unrelated to the Parachute Payment or Excise Tax and provided,  further that the Company at all times shall treat such returns as confidential and use such return only for purpose contemplated by this paragraph). 

(f)In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Optionee shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Optionee but the Optionee shall control any other issues.  In the event that the issues are interrelated, the Optionee and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue.  In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Optionee shall permit the representative of the Company to accompany the Optionee, and the Optionee and his representative shall cooperate with the Company and its representative.

(g)The Company shall be responsible for all charges of the Accountants.

(h)The Company and the Optionee shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this Exhibit A.

(i)Nothing in this Exhibit A is intended to violate the Sarbanes-Oxley Act of 2002 and to the extent that any advance or repayment obligation hereunder would do so, such obligation shall be modified so as to make the advance a nonrefundable payment to the Optionee and the repayment obligation null and void.

(j)Notwithstanding the foregoing, any payment or reimbursement made pursuant to this Exhibit A shall be paid to the Optionee promptly and in no event later than the end of the calendar year next following the calendar year in which the related tax is paid by the Optionee or where no taxes are required to be remitted, the end of the Optionee’s calendar year following the

Optionee’s calendar year in which the audit is completed or there is a final and nonappealable settlement or other resolution of the litigation.

(k)The provisions of this Exhibit A shall survive the termination of the Optionee’s employment with the Company for any reason and the termination of the Award Agreement.

Exhibit B

RESTRICTIVE COVENANTS

This Exhibit B contains the Restrictive Covenants applicable to the Optionee if the Optionee agrees to be bound by the Restrictive Covenants as a condition to receipt of the benefits set forth in Section 7(a) of the Award Agreement. 

1.Unauthorized Disclosure.  The Optionee agrees and understands that in the Optionee’s position with the Company, the Optionee has and shall be exposed to and has and shall receive information relating to the confidential affairs of the Company and its direct and indirect subsidiaries and affiliates (the “Company Group”), including, without limitation, technical information, intellectual property, business and marketing plans, strategies, customer information, software, other information concerning the products, promotions, development, financing, expansion plans, business policies and practices of the Company Group and other forms of information considered by the Company Group to be confidential or in the nature of trade secrets (including, without limitation, ideas, research and development, know-how, formulas, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals) (collectively, the “Confidential Information”).  Confidential Information shall not include information that is generally known to the public or within the relevant trade or industry other than due to the Optionee’s violation of this Section 1 of Exhibit B or disclosure by a third party who is known by the Optionee to owe the Company an obligation of confidentiality with respect to such information.  The Optionee agrees that at all times during the Optionee’s employment with the Company and thereafter, the Optionee shall not disclose such Confidential Information, either directly or indirectly, to any individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof (each a “Person”) without the prior written consent of the Company and shall not use or attempt to use any such information in any manner other than in connection with the Optionee’s employment with the Company, unless required by law to disclose such information, in which case the Optionee shall provide the Company with written notice of such requirement as far in advance of such anticipated disclosure as possible.  This confidentiality covenant has no temporal, geographical or territorial restriction.  The Optionee understands and acknowledges that nothing in this section limits the Optionee’s ability to report possible violations of federal, state, or local law or regulation to any governmental agency or entity; to communicate with any government agencies or otherwise participate in any investigation or proceeding that may be conducted by any government agencies in connection with any charge or complaint, whether filed by the Optionee, on the Optionee’s behalf, or by any other individual; or to make other disclosures that are protected under the whistleblower provisions of federal, state, or local law or regulation, and the Optionee shall not need the prior authorization of the Company to make any such reports or disclosures and shall not be required to notify the Company that the Optionee has made such reports or disclosures.  In addition, and anything herein to the contrary notwithstanding, the Optionee is hereby given notice that the Optionee shall not be criminally or civilly liable under any federal or state trade secret law for disclosing a trade secret (as defined by 18 U.S.C. § 1839) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, in either event solely for the purpose of reporting or investigating a suspected violation of law; or disclosing a trade secret

(as defined by 18 U.S.C. § 1839) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

2.Return of Property.  Upon termination of the Optionee’s employment with the Company, the Optionee shall promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data and any other tangible product or document which has been produced by, received by or otherwise submitted to the Optionee during or prior to the Optionee’s employment with the Company, and any copies thereof in the Optionee’s (or reasonably capable of being reduced to the Optionee’s) possession; provided that nothing in this Award Agreement or elsewhere shall prevent the Optionee from retaining and utilizing: documents relating to the Optionee’s personal benefits, entitlements and obligations; documents relating to the Optionee’s personal tax obligations; the Optionee’s desk calendar, rolodex, and the like; and such other records and documents as may reasonably be approved by the Company. To the extent that the Optionee has electronic files or information in the Optionee’s possession or control that belong to the Company or contain Confidential Information (specifically including but not limited to electronic files or information stored on personal computers, mobile devices, electronic media, or in cloud storage), on or prior to Optionee’s Termination, or at any other time the Company requests, the Optionee shall (i) provide the Company with an electronic copy of all of such files or information (in an electronic format that readily accessible by the Company); (ii) after doing so, delete all such files and information, including all copies and derivatives thereof, from all non-Company-owned computers, mobile devices, electronic media, cloud storage, and other media, devices, and equipment, such that such files and information are permanently deleted and irretrievable; and (iii) provide a written certification to the Company that the required deletions have been completed and specifying the files and information deleted and the media source from which they were deleted. 

3.Non-Competition. By and in consideration of the Company’s grant of the Option, and in further consideration of the Optionee’s exposure to the Confidential Information of the Company Group, the Optionee agrees that the Optionee shall not, during Optionee’s employment with the Company and for twelve (12) months following the Optionee’s Termination (the “Restriction Period”), directly or indirectly, own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of, or be connected in any manner with, including, without limitation, holding any position as a stockholder, director, officer, consultant, independent contractor, employee, partner, or investor in, any Restricted Enterprise (as defined below); provided, that in no event shall ownership of one percent or less of the outstanding securities of any class of any issuer whose securities are registered under the Securities Exchange Act of 1934, as amended, standing alone, be prohibited by this Section 3 of Exhibit B, so long as the Optionee does not have, or exercise, any rights to manage or operate the business of such issuer other than rights as a stockholder thereof.  For purposes of this paragraph, “Restricted Enterprise” shall mean any Person that is actively engaged in any geographic area in which any member of the Company Group operates or markets in any business which is in material competition with the business of any member of the Company Group.  During the Restriction Period, upon request of

the Company, the Optionee shall notify the Company of the Optionee’s then-current employment status.

4.Non-Solicitation of Employees.  During the Restriction Period, the Optionee shall not directly or indirectly contact, induce or solicit (or assist any Person to contact, induce or solicit) for employment any person who is, or within twelve (12) months prior to the date of such solicitation was, an employee of any member of the Company Group other than an employee (a) whose employment was involuntarily terminated by a member of the Company Group after the Optionee’s Termination and (b) who has not been an employee of the Company Group for six months or longer.  The foregoing restriction shall not apply to the placement of general advertisements or other notices of employment opportunities that are not targeted, directly or indirectly, to any current or former employee of the Company otherwise covered by the scope of such restriction so long as the Optionee is not personally involved in the recruitment or hiring of any such employee subsequent to such general advertisement or other notice.

5.Interference with Business Relationships.  During the Restriction Period (other than in connection with carrying out the Optionee’s responsibilities for the Company Group), the Optionee shall not directly or indirectly induce or solicit (or assist any Person to induce or solicit) any customer or client of any member of the Company Group to terminate its relationship or otherwise cease doing business in whole or in part with any member of the Company Group, or directly or indirectly interfere with (or assist any Person to interfere with) any material relationship between any member of the Company Group and any of their customers or clients so as to cause harm to any member of the Company Group.

6.Extension of Restriction Period.  The Restriction Period shall be tolled for any period during which the Optionee is in breach of any of Sections 3, 4 or 5 of this Exhibit B.

7.Proprietary Rights.  The Optionee shall disclose promptly to the Company any and all inventions, discoveries, and improvements (whether or not patentable or registrable under copyright or similar statutes), and all patentable or copyrightable works, initiated, conceived, discovered, reduced to practice, or made by the Optionee, either alone or in conjunction with others, during the Optionee’s employment with the Company and related to the business or activities of the Company Group (the “Developments”).  Except to the extent any rights in any Developments constitute a work made for hire under the U.S. Copyright Act, 17 U.S.C. § 101 et seq. that are owned ab initio by a member of the Company Group, the Optionee assigns and agrees to assign all of the Optionee’s right, title and interest in all Developments (including all intellectual property rights therein) to the Company or its nominee without further compensation, including all rights or benefits therefor, including without limitation the right to sue and recover for past and future infringement.  The Optionee acknowledges that any rights in any Developments constituting a work made for hire under the U.S. Copyright Act, 17 U.S.C § 101 et seq. are owned upon creation by the Company as the Optionee’s employer.  Whenever requested to do so by the Company, the Optionee shall execute any and all applications, assignments or other instruments which the Company shall deem necessary to apply for and obtain trademarks, patents or copyrights of the United States or any foreign country or otherwise protect the interests of the Company Group.  These obligations shall continue beyond the end of the Optionee’s employment with the Company with respect to inventions, discoveries, improvements or copyrightable works initiated, conceived or made by the Optionee while employed by the Company, and shall be binding upon the

Optionee’s employers, assigns, executors, administrators and other legal representatives.  If the Company is unable for any reason, after reasonable effort, to obtain the Optionee’s signature on any document needed in connection with the actions described in this Section 7 of Exhibit B, the Optionee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Optionee’s agent and attorney in fact to act for and on the Optionee’s behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of this Section 7 of Exhibit B with the same legal force and effect as if executed by the Optionee.

8.Remedies.  The Optionee agrees that any breach of the terms of the Restrictive Covenants contained in this Exhibit B would result in irreparable injury and damage to the Company Group for which the Company would have no adequate remedy at law; the Optionee therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled toan immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Optionee and/or any and all Persons acting for and/or with the Optionee, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity.  The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, without limitation, the recovery of damages from the Optionee.  The Optionee and the Company further agree that the provisions of the covenants contained in this Exhibit B are reasonable and necessary to protect the businesses of the Company Group because of the Optionee’s access to Confidential Information and the Optionee’s material participation in the operation of such businesses.  In the event that the Optionee willfully and materially breaches any of the covenants set forth in this Exhibit B, then in addition to any injunctive relief, the Optionee shall forfeit the Option in its entirety, whether vested or unvested.

9.Applicable Law; Forum Selection; Consent to Jurisdiction.  The Company and the Optionee agree that, notwithstanding anything in this Award Agreement to the contrary, this Exhibit B shall be governed by and construed and interpreted in accordance with the laws of the State of Georgia without giving effect to its conflicts of law principles.  The Optionee agrees that the exclusive forum for any action to enforce this Exhibit B, as well as any action relating to or arising out of this Exhibit B, shall be the federal and state courts of the State of Georgia.  With respect to any such court action, the Optionee hereby irrevocably submits to the personal jurisdiction of such courts.  The Company and the Optionee hereto further agree that the courts listed above are convenient forums for any dispute that may arise herefrom and that neither party shall raise as a defense that such courts are not convenient forums. 

10.Non-Disparagement. From and after the date of grant and following the Optionee’s Termination, the Optionee agrees not to make any statement, whether direct or indirect, whether true or false, that is intended to become public, or that should reasonably be expected to become public, and that criticizes, ridicules, disparages or is otherwise derogatory of the Company, any of its subsidiaries, affiliates, employees, officers, directors or stockholders.  This Section 10 of Exhibit B shall not in any way limit any of the protected rights contained in the last two sentences of Section 1 of Exhibit B of this Award Agreement, or the Optionee’s ability to provide truthful testimony pursuant to a subpoena, court order or as otherwise required by law.

11.Survival. The obligations of the Optionee under this Exhibit B shall survive the termination of this Award Agreement and the Optionee’s Termination for the periods expressly designated in this Exhibit B or, if no such period is designated, for the maximum period permissible under applicable law.

EX-10.3

Exhibit 10.3

GMS INC. Equity Incentive Plan

RESTRICTED STOCK UNIT - Notice of Grant

GMS Inc. (the “Company”), a Delaware corporation, hereby grants to the Grantee set forth below (the “Grantee”) Restricted Stock Units (the “Restricted Stock Units”), pursuant to the terms and conditions of this Notice of Grant (the “Notice”), the Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Award Agreement”), and the GMS Inc. Equity Incentive Plan (the “Plan”).  Capitalized terms used but not defined herein shall have the meaning attributed to such terms in the Award Agreement or, if not defined therein, in the Plan, unless the context requires otherwise.  Each Restricted Stock Unit represents the right to receive one (1) Share at the time and in the manner set forth in Section ‎4 of the Award Agreement.

Date of Grant:[●]

Name of Grantee:[●]

Number of
Restricted Stock Units:[●]Shares

Vesting:The Restricted Stock Units shall vest pursuant to the terms and conditions set forth in Section ‎3 of the Award Agreement.

Vesting

Start Date [●]

The Restricted Stock Units shall be subject to the execution and return of this Notice by the Grantee to the Company within 30 days of the date hereof (including by utilizing an electronic signature and/or web-based approval and notice process or any other process as may be authorized by the Company). By executing this Notice, the Grantee acknowledges that his or her agreement to the covenants set forth in Section 8 of the Award Agreement is a material inducement to the Company in granting this Award to the Grantee.

This Notice may be executed by facsimile or electronic means (including, without limitation, PDF) and in one or more counterparts, each of which shall be considered an original instrument, but all of which together shall constitute one and the same agreement, and shall become binding when one or more counterparts have been signed by each of the parties hereto and delivered to the other party hereto.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have executed this Notice of Grant as of the Date of Grant set forth above.

GMS INC.

By:

Name: 

Title: 

GRANTEE

By:

Name: [●]

Exhibit A

GMS INC.

Equity Incentive Plan

RESTRICTED STOCK UNIT

Award Agreement

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (the “Award Agreement”) is entered into by and among GMS Inc. (the “Company”) and the individual set forth on the signature page to that certain Notice of Grant (the “Notice”) to which this Award Agreement is attached.  The terms and conditions of the Restricted Stock Units granted hereby, to the extent not controlled by the terms and conditions contained in the Plan, shall be as set forth in the Notice and this Award Agreement.  Capitalized terms used but not defined herein shall have the meaning attributed to such terms in the Notice or, if not defined therein, in the Plan, unless the context requires otherwise.

1. No Right to Continued Employee Status or Consultant Service

Nothing contained in this Award Agreement shall confer upon the Grantee the right to the continuation of his or her Employee status, or, in the case of a Consultant or Director, to the continuation of his or her service arrangement, or in either case to interfere with the right of the Company or any of its Subsidiaries or other affiliates to Terminate the Grantee.

2. Term of Restricted Stock Units

This Award Agreement shall remain in effect until the Restricted Stock Units have fully vested and been settled or been forfeited by the Grantee as provided in this Award Agreement.

3. Vesting of Restricted Stock Units.

[Option 1: Subject to the remainder of this Section 3, the Restricted Stock Units will vest as to thirty three and one third percent (33.3%) on each anniversary of the Vesting Start Date, such that the Restricted Stock Units shall become fully (100%) vested as of the third anniversary of the Vesting Start Date, subject to the Grantee not having Terminated as of the applicable vesting date.]

[Option 2: Subject to the remainder of this Section 3, the Restricted Stock Units shall become fully (100%) vested upon first anniversary of the Vesting Start Date, subject to the Grantee not having Terminated prior to such anniversary.]

Except as otherwise provided herein, if the Grantee Terminates for any reason, the portion of the Restricted Stock Units that has not vested as of such date shall terminate upon such Termination and be deemed to have been forfeited by the Grantee without consideration.

4. Settlement

Within thirty (30) days following the date on which any portion of the Restricted Stock Units vest pursuant to Section ‎3 of this Award Agreement (or Section 6 or 7 of this Award Agreement, if

applicable), the Company shall deliver to the Grantee one (1) Share in settlement of each Restricted Stock Unit that becomes vested on such vesting date.

5. Termination of Service 

Except as otherwise provided herein, if the Grantee incurs a Termination for any reason, whether voluntarily or involuntarily, then the portion of the Restricted Stock Units that have not previously vested shall terminate as of the date of the Grantee’s Termination and be deemed to have been forfeited by the Grantee without consideration. If the Grantee incurs a Termination for Cause, then the Restricted Stock Units (whether or not vested) shall be forfeited and terminate immediately without consideration upon the effective date of such Termination for Cause.

6. Retirement of the Grantee

(a)If the Grantee Terminates as a result of the Grantee’s Retirement and the Grantee agrees to be bound by the restrictive covenants set forth in Exhibit B attached hereto (the “Restrictive Covenants”), then the Grantee shall continue to vest in the portion of the Restricted Stock Units that were not vested as of the date of the Grantee’s Retirement for the [Option 1: three-year] [Option 2: one-year] period following Grantee’s Retirement as if the Grantee’s employment had not terminated, unless the Grantee violates any of the Restrictive Covenants.  If, in the sole discretion of the Company, the Grantee violates one of the Restrictive Covenants, then the Restricted Stock Units shall be immediately forfeited and cancelled as of the date of such violation.

For purposes of this Award Agreement, “Retirement” shall mean the Grantee’s termination of employment following attainment of age 63 or following attainment of age 60 plus 5 years of service, whichever is the first to occur.

For the avoidance of doubt, the Restrictive Covenants are separate and apart from, and shall be in addition to, any restrictive covenants the Grantee may be subject to pursuant to a another agreement or arrangement with the Company.

(b)If the Grantee Terminates as a result of the Grantee’s Retirement and the Grantee does not agree to be bound by the Restrictive Covenants, then the portion of the Restricted Stock Units that have not previously vested shall terminate as of the date of the Grantee’s Termination and be deemed to have been forfeited by the Grantee without consideration.

7. Change in Control

(a)If (i) a Change in Control occurs while Grantee is employed by the Company or one of its Subsidiaries, and (ii) the Restricted Stock Units are not assumed by the surviving entity or otherwise equitably converted or substituted in connection with the Change in Control in a manner approved by the Committee, then, as of the effective date of the Change in Control, the Restricted Stock Units shall become immediately vested. 

(b)If (i) a Change in Control occurs while Grantee is employed by the Company or one of its Subsidiaries, (ii) the Restricted Stock Units are assumed by the surviving entity or

otherwise equitably converted or substituted in connection with the Change in Control in a manner approved by the Committee, and (iii) within two (2) years after the effective date of the Change in Control, the Grantee’s employment is terminated by the Company or one of its Subsidiaries without Cause or, if applicable, the Grantee resigns for Good Reason (as defined herein), then as of Grantee’s Termination, the Restricted Stock Units shall be immediately vested.  For purposes of this Award Agreement, “Good Reason” shall have the meaning, if any, assigned such term in the employment, severance or similar agreement, if any, between the Grantee and the Company or one of its Subsidiaries, provided, however that if there is no such employment, severance or similar agreement in which “Good Reason” is defined, then “Good Reason” as used herein shall not be operative and shall not apply to the Restricted Stock Units.

8. Prohibited Activities

(a) No Sale or Transfer. Unless otherwise required by law, the Restricted Stock Units shall not be (i) sold, transferred or otherwise disposed of, (ii) pledged or otherwise hypothecated or (iii) subject to attachment, execution or levy of any kind, other than by will or by the laws of descent or distribution; provided,  however, that any transferred Restricted Stock Units will be subject to all of the same terms and conditions as provided in the Plan and this Award Agreement and the Grantee’s estate or beneficiary appointed in accordance with the Plan will remain liable for any withholding tax that may be imposed by any federal, state or local tax authority.

(b) Right to Terminate Restricted Stock Units and Recovery. The Grantee understands and agrees that the Company has granted the Restricted Stock Units to the Grantee to reward the Grantee for the Grantee’s future efforts and loyalty to the Company and its affiliates by giving the Grantee the opportunity to participate in the potential future appreciation of the Company.  Accordingly, if (a) the Grantee materially violates the Grantee’s obligations relating to the non-disclosure or non-use of confidential or proprietary information under any Restrictive Agreement to which the Grantee is a party, or (b) the Grantee materially breaches or violates the Grantee’s obligations relating to non-disparagement under any Restrictive Agreement to which the Grantee is a party, or (c) the Grantee engages in any activity prohibited by this Section 8 of this Award Agreement, or (d) the Grantee materially breaches or violates any non-solicitation obligations under any Restrictive Agreement to which the Grantee is a party, or (e) the Grantee breaches or violates any non-competition obligations under any Restrictive Agreement to which the Grantee is a party, or (f) the Grantee is convicted of a felony against the Company or any of its affiliates, then, in addition to any other rights and remedies available to the Company, the Company shall be entitled, at its option, exercisable by written notice, to terminate the Restricted Stock Units (including the vested portion of the Restricted Stock Units) without consideration, which shall be of no further force and effect.  “Restrictive Agreement” shall mean any agreement between the Company or any Subsidiary

and the Grantee that contains non-competition, non-solicitation, non-hire, non-disparagement, or confidentiality restrictions applicable to the Grantee.

(c) Other Remedies. The Grantee specifically acknowledges and agrees that its remedies under this Section 8 shall not prevent the Company or any Subsidiary from seeking injunctive or other equitable relief in connection with the Grantee’s breach of any Restrictive Agreement.  In the event that the provisions of this Section 8 should ever be deemed to exceed the limitation provided by applicable law, then the Grantee and the Company agree that such provisions shall be reformed to set forth the maximum limitations permitted.

9. No Rights as Stockholder

The Grantee shall have no rights as a stockholder with respect to the Shares covered by the Restricted Stock Units until the effective date of issuance of the Shares and the entry of the Grantee’s name as a shareholder of record on the books of the Company following delivery of the Shares in settlement of the Restricted Stock Units.

10. Taxation Upon Settlement of the Restricted Stock Units; Tax Withholding; Parachute Tax Provisions

The Grantee understands that the Grantee will recognize income, for Federal, state and local income tax purposes, as applicable, in respect of the vesting and/or settlement of the Restricted Stock Units. The acceptance of the Shares by the Grantee shall constitute an agreement by the Grantee to report such income in accordance with then applicable law and to cooperate with Company and its subsidiaries in establishing the amount of such income and corresponding deduction to the Company and/or its subsidiaries for its income tax purposes.

The Grantee is responsible for all tax obligations that arise as a result of the vesting and settlement of the Restricted Stock Units. The Company may withhold from any amount payable to the Grantee an amount sufficient to cover any Federal, state or local withholding taxes which may become required with respect to such vesting and settlement or take any other action it deems necessary to satisfy any income or other tax withholding requirements as a result of the vesting and settlement of the Restricted Stock Units. The Company shall have the right to require the payment of any such taxes and require that the Grantee, or the Grantee’s beneficiary, to furnish information deemed necessary by the Company to meet any tax reporting obligation as a condition to delivery of any Shares pursuant to settlement of the Restricted Stock Units. The Grantee may pay his or her withholding tax obligation in connection with the vesting and settlement of the Restricted Stock Units, by making a cash payment to the Company.  In addition, the Committee, in its sole discretion, may allow the Grantee, to pay his or her withholding tax obligation in connection with the vesting and settlement of the Restricted Stock Units, by (x) having withheld a portion of the Shares then issuable to him or her upon settlement of the Restricted Stock Units or (z) surrendering Shares that have been held by the Grantee prior to the settlement of the Restricted Stock Units, in each case having an aggregate Fair Market Value equal to the withholding taxes.   

In connection with the grant of the Restricted Stock Units, the parties wish to memorialize their agreement regarding the treatment of any potential golden parachute payments as set forth in Exhibit A attached hereto.

11. Securities Laws

Upon the acquisition of any Shares pursuant to the settlement of the Restricted Stock Units, the Grantee will make such written representations, warranties, and agreements as the Committee may reasonably request in order to comply with securities laws or with this Award Agreement. Grantee hereby agrees not to offer, sell or otherwise attempt to dispose of any Shares issued to the Grantee upon settlement of the Restricted Stock Units in any way which would: (x) require the Company to file any registration statement with the Securities and Exchange Commission (or any similar filing under state law or the laws of any other county) or to amend or supplement any such filing or (y) violate or cause the Company to violate the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, or any other Federal, state or local law, or the laws of any other country. The Company reserves the right to place restrictions on any Shares the Grantee may receive as a result of the settlement of the Restricted Stock Units.

12. Modification, Amendment, and Termination of Restricted Stock Units

This Award Agreement may not be modified, amended, terminated and no provision hereof may be waived in whole or in part except by a written agreement signed by the Company and the Grantee and no modification shall, without the consent of the Grantee, alter to the Grantee’s material detriment or materially impair any rights of the Grantee under this Award Agreement except to the extent permitted under the Plan.

13. Notices

Unless otherwise provided herein, any notices or other communication given or made pursuant to the Notice, this Award Agreement or the Plan shall be in writing and shall be deemed to have been duly given (i) as of the date delivered, if personally delivered (including receipted courier service) or overnight delivery service, with confirmation of receipt; (ii) on the date the delivering party receives confirmation, if delivered by facsimile to the number indicated or by email to the address indicated or through an electronic administrative system designated by the Company; (iii) one (1) business day after being sent by reputable commercial overnight delivery service courier, with confirmation of receipt; or (iv) three (3) business days after being mailed by registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below:

If to the Company at the address below:

GMS Inc.

100 Crescent Centre Parkway, Suite 800

Tucker, Georgia 30084

Phone:  (800) 392-4619

Attention:  General Counsel

If to the Grantee, at the most recent address, facsimile number or email contained in the Company’s records.

14. Award Agreement Subject to Plan and Applicable Law

This Award Agreement is made pursuant to the Plan and shall be interpreted to comply therewith. A copy of the Plan is attached hereto. Any provision of this Award Agreement inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan. The Plan shall control in the event there shall be any conflict between the Plan, the Notice, and this Award Agreement, and it shall control as to any matters not contained in this Award Agreement. The Committee shall have authority to make constructions of this Award Agreement, and to correct any defect or supply any omission or reconcile any inconsistency in this Award Agreement, and to prescribe rules and regulations relating to the administration of this Award and other Awards granted under the Plan.

This Award Agreement shall be governed by the laws of the State of Delaware, without regard to the conflicts of law principles thereof, and subject to the exclusive jurisdiction of the courts therein. The Grantee hereby consents to personal jurisdiction in any action brought in any court, federal or state, within the State of Delaware having subject matter jurisdiction in the matter.

15. Section 409A

To the maximum extent permitted, the Restricted Stock Units and this Award Agreement shall be interpreted to be exempt from Section 409A of the Code or, if not exempt, in compliance therewith.  Nothing contained herein shall constitute any representation or warranty by the Company regarding compliance with Section 409A of the Code.  The Company shall have no obligation to take any action to prevent the assessment of any additional income tax, interest or penalties under Section 409A of the Code on any Person and the Company, its Subsidiaries and affiliates, and each of their respective employees and representatives, shall have no liability to the Grantee with respect thereto.

Notwithstanding anything in this Award Agreement to the contrary, to the extent that the Restricted Stock Units constitute non-exempt deferred compensation for purposes of Section 409A of the Code, the following shall apply: (i) references herein to “Change in Control” and “termination of employment” shall mean the description or definition of “change in control event” or “separation from service”, respectively, in Section 409A of the Code and applicable regulations; and (ii) if the Restricted Stock Units become payable by reason of the Grantee’s separation from service during a period in which the Grantee is a “specified employee” (as defined in Section 409A of the Code), then the Restricted Stock Units that would otherwise be payable during the six-month period immediately following the Grantee’s separation from service will be accumulated through and

paid or provided on the first day of the seventh month following the Grantee’s separation from service.  

16. Headings and Capitalized Terms

Unless otherwise provided herein, capitalized terms used herein that are defined in the Plan and not defined herein shall have the meanings set forth in the Plan. Headings are for convenience only and are not deemed to be part of this Award Agreement. Unless otherwise indicated, any reference to a Section herein is a reference to a Section of this Award Agreement.

17. Severability and Reformation

If any provision of this Award Agreement shall be determined by a court of law of competent jurisdiction to be unenforceable for any reason, such unenforceability shall not affect the enforceability of any of the remaining provisions hereof; and this Award Agreement, to the fullest extent lawful, shall be reformed and construed as if such unenforceable provision, or part thereof, had never been contained herein, and such provision or part thereof shall be reformed or construed so that it would be enforceable to the maximum extent legally possible.

18. Binding Effect

This Award Agreement shall be binding upon the parties hereto, together with their personal executors, administrator, successors, personal representatives, heirs and permitted assigns.

19. Entire Agreement

This Award Agreement, together with the Plan, supersedes all prior written and oral agreements and understandings among the parties as to its subject matter and constitutes the entire agreement of the parties with respect to the subject matter hereof.  If there is any conflict between the Notice, this Award Agreement and the Plan, then the applicable terms of the Plan shall govern.

20. Waiver

Waiver by any party of any breach of this Award Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right whether or not of the same or a similar nature. The failure of any party to take action by reason of such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or condition giving rise to such rights continues.

Exhibit A

PARACHUTE TAX PROVISIONS

This Exhibit A sets forth the terms and provisions applicable to the Grantee pursuant to the provisions of Section 10 of the Award Agreement.  This Exhibit A shall be subject in all respects to the terms and conditions of the Award Agreement. 

(a)To the extent that the Grantee, would otherwise be eligible to receive a payment or benefit pursuant to the terms of this Award Agreement, any employment or other agreement with the Company or any Subsidiary or otherwise in connection with, or arising out of, the Grantee’s employment with the Company or a change in ownership or effective control of the Company or of a substantial portion of its assets (any such payment or benefit, a “Parachute Payment”), that a nationally recognized United States public accounting firm selected by the Company (the “Accountants”) determines, but for this sentence would be subject to excise tax imposed by Section 4999 of the Code (the “Excise Tax”), subject to clause (c) below, then the Company shall pay to the Grantee whichever of the following two alternative forms of payment would result in the Grantee’s receipt, on an after-tax basis, of the greater amount of the Parachute Payment notwithstanding that all or some portion of the Parachute Payment may be subject to the Excise Tax: (1) payment in full of the entire amount of the Parachute Payment (a “Full Payment”), or (2) payment of only a part of the Parachute Payment so that the Grantee receives the largest payment possible without the imposition of the Excise Tax (a “Reduced Payment”).

(b)If a reduction in the Parachute Payment is necessary pursuant to clause (a), then the reduction shall occur in the following order: (1) cancellation of acceleration of vesting on any equity awards for which the exercise price exceeds the then fair market value of the underlying equity; (2) reduction of cash payments (with such reduction being applied to the payments in the reverse order in which they would otherwise be made, that is, later payments shall be reduced before earlier payments); and (3) cancellation of acceleration of vesting of equity awards not covered under (1) above; provided,  however, that in the event that acceleration of vesting of equity awards is to be cancelled, acceleration of vesting of full value awards shall be cancelled before acceleration of options and stock appreciation rights and within each class such acceleration of vesting shall be cancelled in the reverse order of the date of grant of such equity awards, that is, later equity awards shall be canceled before earlier equity awards; and provided,  further, that to the extent permitted by Code Section 409A and Sections 280G and 4999 of the Code, if a different reduction procedure would be permitted without violating Code Section 409A or losing the benefit of the reduction under Sections 280G and 4999 of the Code, the Grantee may designate a different order of reduction.

(c)For purposes of determining whether any of the Parachute Payments (collectively the “Total Payments”) will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Total Payments shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of the Code, and all “parachute payments” in excess of the “base amount” (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the opinion of the Accountants, such Total Payments (in whole or in part):  (1) do not constitute “parachute payments,” including giving effect to the recalculation of

stock options in accordance with Treasury Regulation Section 1.280G-1, Q&A 33, (2) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the “base amount” or (3) are otherwise not subject to the Excise Tax, and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code.

(d)All determinations hereunder shall be made by the Accountants, which determinations shall be final and binding upon the Company and the Grantee.

(e)The federal tax returns filed by the Grantee (and any filing made by a consolidated tax group which includes the Company) shall be prepared and filed on a basis consistent with the determination of the Accountants with respect to the Excise Tax payable by the Grantee.  The Grantee shall make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his or her federal income tax return as filed with the Internal Revenue Service, and such other documents reasonably requested by the Company, evidencing such payment (provided that the Grantee may delete information unrelated to the Parachute Payment or Excise Tax and provided,  further that the Company at all times shall treat such returns as confidential and use such return only for purpose contemplated by this paragraph). 

(f)In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Grantee shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Grantee but the Grantee shall control any other issues.  In the event that the issues are interrelated, the Grantee and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue.  In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Grantee shall permit the representative of the Company to accompany the Grantee, and the Grantee and his representative shall cooperate with the Company and its representative.

(g)The Company shall be responsible for all charges of the Accountants.

(h)The Company and the Grantee shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this Exhibit A.

(i)Nothing in this Exhibit A is intended to violate the Sarbanes-Oxley Act of 2002 and to the extent that any advance or repayment obligation hereunder would do so, such obligation shall be modified so as to make the advance a nonrefundable payment to the Grantee and the repayment obligation null and void.

(j)Notwithstanding the foregoing, any payment or reimbursement made pursuant to this Exhibit A shall be paid to the Grantee promptly and in no event later than the end of the calendar year next following the calendar year in which the related tax is paid by the Grantee or where no taxes are required to be remitted, the end of the Grantee’s calendar year following the

Grantee’s calendar year in which the audit is completed or there is a final and nonappealable settlement or other resolution of the litigation.

(k)The provisions of this Exhibit A shall survive the termination of the Grantee’s employment with the Company for any reason and the termination of the Award Agreement.

Exhibit B

RESTRICTIVE COVENANTS

This Exhibit B contains the Restrictive Covenants applicable to the Grantee if the Grantee agrees to be bound by the Restrictive Covenants as a condition to receipt of the benefits set forth in Section 6(a) of the Award Agreement. 

1.Unauthorized Disclosure.  The Grantee agrees and understands that in the Grantee’s position with the Company, the Grantee has and shall be exposed to and has and shall receive information relating to the confidential affairs of the Company and its direct and indirect subsidiaries and affiliates (the “Company Group”), including, without limitation, technical information, intellectual property, business and marketing plans, strategies, customer information, software, other information concerning the products, promotions, development, financing, expansion plans, business policies and practices of the Company Group and other forms of information considered by the Company Group to be confidential or in the nature of trade secrets (including, without limitation, ideas, research and development, know-how, formulas, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals) (collectively, the “Confidential Information”).  Confidential Information shall not include information that is generally known to the public or within the relevant trade or industry other than due to the Grantee’s violation of this Section 1 of Exhibit B or disclosure by a third party who is known by the Grantee to owe the Company an obligation of confidentiality with respect to such information.  The Grantee agrees that at all times during the Grantee’s employment with the Company and thereafter, the Grantee shall not disclose such Confidential Information, either directly or indirectly, to any individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof (each a “Person”) without the prior written consent of the Company and shall not use or attempt to use any such information in any manner other than in connection with the Grantee’s employment with the Company, unless required by law to disclose such information, in which case the Grantee shall provide the Company with written notice of such requirement as far in advance of such anticipated disclosure as possible.  This confidentiality covenant has no temporal, geographical or territorial restriction.  The Grantee understands and acknowledges that nothing in this section limits the Grantee’s ability to report possible violations of federal, state, or local law or regulation to any governmental agency or entity; to communicate with any government agencies or otherwise participate in any investigation or proceeding that may be conducted by any government agencies in connection with any charge or complaint, whether filed by the Grantee, on the Grantee’s behalf, or by any other individual; or to make other disclosures that are protected under the whistleblower provisions of federal, state, or local law or regulation, and the Grantee shall not need the prior authorization of the Company to make any such reports or disclosures and shall not be required to notify the Company that the Grantee has made such reports or disclosures.  In addition, and anything herein to the contrary notwithstanding, the Grantee is hereby given notice that the Grantee shall not be criminally or civilly liable under any federal or state trade secret law for disclosing a trade secret (as defined by 18 U.S.C. § 1839) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, in either event solely for the purpose of reporting or investigating a suspected violation of law; or disclosing a trade secret (as defined by

18 U.S.C. § 1839) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

2.Return of Property.  Upon termination of the Grantee’s employment with the Company, the Grantee shall promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data and any other tangible product or document which has been produced by, received by or otherwise submitted to the Grantee during or prior to the Grantee’s employment with the Company, and any copies thereof in the Grantee’s (or reasonably capable of being reduced to the Grantee’s) possession; provided that nothing in this Award Agreement or elsewhere shall prevent the Grantee from retaining and utilizing: documents relating to the Grantee’s personal benefits, entitlements and obligations; documents relating to the Grantee’s personal tax obligations; the Grantee’s desk calendar, rolodex, and the like; and such other records and documents as may reasonably be approved by the Company. To the extent that the Grantee has electronic files or information in the Grantee’s possession or control that belong to the Company or contain Confidential Information (specifically including but not limited to electronic files or information stored on personal computers, mobile devices, electronic media, or in cloud storage), on or prior to Grantee’s Termination, or at any other time the Company requests, the Grantee shall (i) provide the Company with an electronic copy of all of such files or information (in an electronic format that readily accessible by the Company); (ii) after doing so, delete all such files and information, including all copies and derivatives thereof, from all non-Company-owned computers, mobile devices, electronic media, cloud storage, and other media, devices, and equipment, such that such files and information are permanently deleted and irretrievable; and (iii) provide a written certification to the Company that the required deletions have been completed and specifying the files and information deleted and the media source from which they were deleted. 

3.Non-Competition. By and in consideration of the Company’s grant of the Restricted Stock Units, and in further consideration of the Grantee’s exposure to the Confidential Information of the Company Group, the Grantee agrees that the Grantee shall not, during Grantee’s employment with the Company and for twelve (12) months following the Grantee’s Termination (the “Restriction Period”), directly or indirectly, own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of, or be connected in any manner with, including, without limitation, holding any position as a stockholder, director, officer, consultant, independent contractor, employee, partner, or investor in, any Restricted Enterprise (as defined below); provided, that in no event shall ownership of one percent or less of the outstanding securities of any class of any issuer whose securities are registered under the Securities Exchange Act of 1934, as amended, standing alone, be prohibited by this Section 3 of Exhibit B, so long as the Grantee does not have, or exercise, any rights to manage or operate the business of such issuer other than rights as a stockholder thereof.  For purposes of this paragraph, “Restricted Enterprise” shall mean any Person that is actively engaged in any geographic area in which any member of the Company Group operates or markets in any business which is in material competition with the business of any member of the Company Group.  During the Restriction Period, upon request of

the Company, the Grantee shall notify the Company of the Grantee’s then-current employment status.

4.Non-Solicitation of Employees.  During the Restriction Period, the Grantee shall not directly or indirectly contact, induce or solicit (or assist any Person to contact, induce or solicit) for employment any person who is, or within twelve (12) months prior to the date of such solicitation was, an employee of any member of the Company Group other than an employee (a) whose employment was involuntarily terminated by a member of the Company Group after the Grantee’s Termination and (b) who has not been an employee of the Company Group for six months or longer.  The foregoing restriction shall not apply to the placement of general advertisements or other notices of employment opportunities that are not targeted, directly or indirectly, to any current or former employee of the Company otherwise covered by the scope of such restriction so long as the Grantee is not personally involved in the recruitment or hiring of any such employee subsequent to such general advertisement or other notice.

5.Interference with Business Relationships.  During the Restriction Period (other than in connection with carrying out the Grantee’s responsibilities for the Company Group), the Grantee shall not directly or indirectly induce or solicit (or assist any Person to induce or solicit) any customer or client of any member of the Company Group to terminate its relationship or otherwise cease doing business in whole or in part with any member of the Company Group, or directly or indirectly interfere with (or assist any Person to interfere with) any material relationship between any member of the Company Group and any of their customers or clients so as to cause harm to any member of the Company Group.

6.Extension of Restriction Period.  The Restriction Period shall be tolled for any period during which the Grantee is in breach of any of Sections 3, 4 or 5 of this Exhibit B.

7.Proprietary Rights.  The Grantee shall disclose promptly to the Company any and all inventions, discoveries, and improvements (whether or not patentable or registrable under copyright or similar statutes), and all patentable or copyrightable works, initiated, conceived, discovered, reduced to practice, or made by the Grantee, either alone or in conjunction with others, during the Grantee’s employment with the Company and related to the business or activities of the Company Group (the “Developments”).  Except to the extent any rights in any Developments constitute a work made for hire under the U.S. Copyright Act, 17 U.S.C. § 101 et seq. that are owned ab initio by a member of the Company Group, the Grantee assigns and agrees to assign all of the Grantee’s right, title and interest in all Developments (including all intellectual property rights therein) to the Company or its nominee without further compensation, including all rights or benefits therefor, including without limitation the right to sue and recover for past and future infringement.  The Grantee acknowledges that any rights in any Developments constituting a work made for hire under the U.S. Copyright Act, 17 U.S.C § 101 et seq. are owned upon creation by the Company as the Grantee’s employer.  Whenever requested to do so by the Company, the Grantee shall execute any and all applications, assignments or other instruments which the Company shall deem necessary to apply for and obtain trademarks, patents or copyrights of the United States or any foreign country or otherwise protect the interests of the Company Group.  These obligations shall continue beyond the end of the Grantee’s employment with the Company with respect to inventions, discoveries, improvements or copyrightable works initiated, conceived or made by the Grantee while employed by the Company, and shall be binding upon the Grantee’s

employers, assigns, executors, administrators and other legal representatives.  If the Company is unable for any reason, after reasonable effort, to obtain the Grantee’s signature on any document needed in connection with the actions described in this Section 7 of Exhibit B, the Grantee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Grantee’s agent and attorney in fact to act for and on the Grantee’s behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of this Section 7 of Exhibit B with the same legal force and effect as if executed by the Grantee.

8.Remedies.  The Grantee agrees that any breach of the terms of the Restrictive Covenants contained in this Exhibit B would result in irreparable injury and damage to the Company Group for which the Company would have no adequate remedy at law; the Grantee therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled toan immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Grantee and/or any and all Persons acting for and/or with the Grantee, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity.  The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, without limitation, the recovery of damages from the Grantee.  The Grantee and the Company further agree that the provisions of the covenants contained in this Exhibit B are reasonable and necessary to protect the businesses of the Company Group because of the Grantee’s access to Confidential Information and the Grantee’s material participation in the operation of such businesses.  In the event that the Grantee willfully and materially breaches any of the covenants set forth in this Exhibit B, then in addition to any injunctive relief, the Grantee shall forfeit the unvested Restricted Stock Units in their entirety.

9.Applicable Law; Forum Selection; Consent to Jurisdiction.  The Company and the Grantee agree that, notwithstanding anything in this Award Agreement to the contrary, this Exhibit B shall be governed by and construed and interpreted in accordance with the laws of the State of Georgia without giving effect to its conflicts of law principles.  The Grantee agrees that the exclusive forum for any action to enforce this Exhibit B, as well as any action relating to or arising out of this Exhibit B, shall be the federal and state courts of the State of Georgia.  With respect to any such court action, the Grantee hereby irrevocably submits to the personal jurisdiction of such courts.  The Company and the Grantee hereto further agree that the courts listed above are convenient forums for any dispute that may arise herefrom and that neither party shall raise as a defense that such courts are not convenient forums. 

10.Non-Disparagement. From and after the date of grant and following the Grantee’s Termination, the Grantee agrees not to make any statement, whether direct or indirect, whether true or false, that is intended to become public, or that should reasonably be expected to become public, and that criticizes, ridicules, disparages or is otherwise derogatory of the Company, any of its subsidiaries, affiliates, employees, officers, directors or stockholders.  This Section 10 of Exhibit B shall not in any way limit any of the protected rights contained in the last two sentences of Section 1 of Exhibit B of this Award Agreement, or the Grantee’s ability to provide truthful testimony pursuant to a subpoena, court order or as otherwise required by law.

11.Survival. The obligations of the Grantee under this Exhibit B shall survive the termination of this Award Agreement and the Grantee’s Termination for the periods expressly designated in

this Exhibit B or, if no such period is designated, for the maximum period permissible under applicable law.

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John C. Turner, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended July 31, 2019 of GMS Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(a) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	August 29, 2019	/s/ John C. Turner, Jr.
		John C. Turner, Jr.
		Chief Executive Officer, President and Director (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lynn Ross, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended July 31, 2019 of GMS Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	August 29, 2019	/s/ Lynn Ross
		Lynn Ross
		Interim Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of GMS Inc., a Delaware corporation (the "Company"), for the quarter ended July 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), John C. Turner, Jr., Chief Executive Officer, President and Director of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 29, 2019	/s/ John C. Turner, Jr.
	John C. Turner, Jr.
	Chief Executive Officer, President and Director
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of GMS Inc., a Delaware corporation (the "Company"), for the quarter ended July 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Lynn Ross, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 29, 2019	/s/ Lynn Ross
	Lynn Ross
	Interim Chief Financial Officer
	(Principal Financial Officer)

XML

Leases (Details) $ in Thousands	3 Months Ended
	Jul. 31, 2019 USD ($)
Leases
Option to extend	true
Finance lease cost:
Amortization of right-of-use assets	$ 6,059
Interest on lease liabilities	3,422
Operating lease cost	10,420
Variable lease cost	3,199
Total lease cost	$ 23,100
Minimum
Leases
Lease term (in years)	1 year
Renewal lease term (in years)	1 year
Maximum
Leases
Lease term (in years)	11 years
Renewal lease term (in years)	5 years

XML

Long-Term Debt - Acquisition Debt (Details) $ in Millions	3 Months Ended
	Jul. 31, 2019 USD ($)
First Lien Loan
Long-term debt
Aggregate principal amount	$ 984.4
Percentage of quarterly principal payments	0.25%
Borrowing interest rate (as a percent)	4.98%
First Lien Loan | LIBOR
Long-term debt
Margin added to variable rate (as a percent)	2.75%
Variable rate floor (as a percent)	0.00%
ABL Facility
Long-term debt
Borrowing interest rate (as a percent)	4.18%

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Jul. 31, 2019	Apr. 30, 2019
Condensed Consolidated Balance Sheets
Trade accounts and notes receivable, allowances (in dollars)	$ 6,683	$ 6,432
Property and equipment, accumulated depreciation (in dollars)	$ 132,815	$ 123,583
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	500,000	500,000
Common stock, shares issued	41,589	40,375
Common stock, shares outstanding	41,589	40,375
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	50,000	50,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0

XML

Transactions With Related Parties - Purchased Inventories (Details) - Southern Wall Products, Inc. - Inventory purchases - USD ($) $ in Millions	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Apr. 30, 2019
Transactions with related parties
Purchases from related party	$ 3.6	$ 3.4
Accounts payable
Transactions with related parties
Due to SWP	$ 1.1		$ 1.2

XML

Segments - Net Sales by Main Product Lines (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018
Revenue from external customers
Total net sales	$ 847,176	$ 778,144
Wallboard
Revenue from external customers
Total net sales	341,595	317,735
Ceilings
Revenue from external customers
Total net sales	129,110	115,855
Steel framing
Revenue from external customers
Total net sales	131,829	129,112
Other products
Revenue from external customers
Total net sales	$ 244,642	$ 215,442

XML

Business, Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Jul. 31, 2019

Business, Basis of Presentation and Summary of Significant Accounting Policies

Business, Basis of Presentation and Summary of Significant Accounting Policies

1. Business, Basis of Presentation and Summary of Significant Accounting Policies

Business

Founded in 1971, GMS Inc. (“we,” “our,” “us,” or the “Company”), through its wholly-owned operating subsidiaries, is a distributor of specialty building products including wallboard, suspended ceilings systems, or ceilings, steel framing and other complementary building products. We purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of wallboard and ceilings contractors and homebuilders and, to a lesser extent, general contractors and individuals. We operate a network of more than 250 distribution centers across the United States and Canada.

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. As a result, 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, 2019.

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. 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 deductible amount per incident is $0.3 million, $0.5 million and $1.0 million for general liability, workers’ compensation and automobile, respectively. The coverage consists of a primary layer and an excess layer. The primary layer of coverage is from $0.5 million to $2.0 million and the excess layer cover claims from $2.0 million to $100.0 million. 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 loss development factors, actuarial assumptions and historical loss development experience.

As of July 31, 2019 and April 30, 2019, the aggregate liabilities for medical self-insurance were $3.9 million and $3.4 million, respectively, and are included in other accrued expenses and current liabilities in the Condensed Consolidated Balance Sheets. As of July 31, 2019 and April 30, 2019, reserves for general liability, automobile and workers’ compensation totaled approximately $18.2 million and $17.7 million, respectively, and are included in other accrued expenses and current liabilities and other liabilities in the Condensed Consolidated Balance Sheets. As of July 31, 2019 and April 30, 2019, expected recoveries for medical self-insurance, general liability, automobile and workers’ compensation totaled approximately $6.2 million and $6.0 million, respectively, and are included in prepaid expenses and other current assets and other assets in the Condensed Consolidated Balance Sheets.

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 the forecasted 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.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Authoritative guidance for fair value measurements establishes a three-level hierarchy that prioritizes the inputs to valuation models based upon the degree to which they are observable. The three levels of the fair value measurement hierarchy are as follows:

Level 1	Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2	Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3	Inputs are unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The carrying values of the Company’s cash, cash equivalents, trade receivables and trade payables approximate their fair values because of their short-term nature. Based on borrowing rates available to the Company for loans with similar terms, the carrying values of the Company’s debt instruments approximate fair value. See Note 11, “Fair Value Measurements,” for additional information with respect to the Company’s fair value measurements.

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 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.

The holders of the Company’s Exchangeable Shares (as defined in Note 8, “Stockholders’ Equity”) were entitled to receive dividends or distributions that are equal to any dividends or distributions on the Company’s common stock. As a result, when the Exchangeable Shares were outstanding, they were classified as a participating security and thereby required the allocation of income that would have otherwise been available to common stockholders when calculating earnings per share. Diluted earnings per share is calculated by utilizing the most dilutive result of the if-converted and two-class methods. In both methods, net income attributable to common stockholders and the weighted-average common shares outstanding are adjusted to account for the impact of the assumed issuance of potential common shares that are dilutive, subject to dilution sequencing rules.

Recently Adopted Accounting Pronouncements

Leases—In February 2016, the FASB issued authoritative guidance on accounting for leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with such classification affecting the pattern of expense recognition in the statement of operations. The new standard is effective for the Company’s fiscal year beginning May 1, 2019 (the first day of fiscal 2020), including interim reporting periods within that fiscal year. A modified transition approach is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

On July 30, 2018, the FASB issued new guidance that provided entities with an additional (and optional) transition method to adopt the new lease standard. Under this new transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted the new lease standard on May 1, 2019 using the optional transition method. The Company elected the package of practical expedients permitted in the guidance, which among other things, allows the Company to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. The Company also elected to use the practical expedient to not separate lease and nonlease components. The Company did not elect the hindsight practical expedient. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off the Consolidated Balance Sheet.

The adoption of the standard resulted in the recording of operating lease ROU assets and operating lease liabilities of $118.8 million on the Condensed Consolidated Balance Sheet as of the adoption date. The Company also

reclassed deferred rent of $4.8 million from liabilities into its operating lease ROU assets. The adoption did not have a material impact on the Company’s Statement of Operations or Statement of Cash Flows. See Note 6, “Leases,” for information and disclosures regarding leases. 

Recently Issued Accounting Pronouncements

Goodwill – In January 2017, the FASB issued authoritative guidance that simplifies the accounting for goodwill impairments by eliminating Step 2 from the goodwill impairment test. Under the new guidance, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value. The new standard is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its financial statements.

Fair Value Measurement Disclosures – In August 2018, the FASB issued new guidance that changes certain fair value measurement disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity is permitted to early adopt all of the disclosure changes or early adopt only the removed disclosure requirements and delay adoption of the additional disclosures until the effective date of this amendment. Except for changes to certain disclosures related to fair value measurements, the Company does not expect the adoption of this standard to have a material impact on its financial statements.

XML

Business, Basis of Presentation and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Jul. 31, 2019

Business, Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

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. As a result, 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, 2019.

Principles of Consolidation

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

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

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. 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

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 deductible amount per incident is $0.3 million, $0.5 million and $1.0 million for general liability, workers’ compensation and automobile, respectively. The coverage consists of a primary layer and an excess layer. The primary layer of coverage is from $0.5 million to $2.0 million and the excess layer cover claims from $2.0 million to $100.0 million. 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 loss development factors, actuarial assumptions and historical loss development experience.

As of July 31, 2019 and April 30, 2019, the aggregate liabilities for medical self-insurance were $3.9 million and $3.4 million, respectively, and are included in other accrued expenses and current liabilities in the Condensed Consolidated Balance Sheets. As of July 31, 2019 and April 30, 2019, reserves for general liability, automobile and workers’ compensation totaled approximately $18.2 million and $17.7 million, respectively, and are included in other accrued expenses and current liabilities and other liabilities in the Condensed Consolidated Balance Sheets. As of July 31, 2019 and April 30, 2019, expected recoveries for medical self-insurance, general liability, automobile and workers’ compensation totaled approximately $6.2 million and $6.0 million, respectively, and are included in prepaid expenses and other current assets and other assets in the Condensed Consolidated Balance Sheets.

Income Taxes

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 the forecasted 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.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Authoritative guidance for fair value measurements establishes a three-level hierarchy that prioritizes the inputs to valuation models based upon the degree to which they are observable. The three levels of the fair value measurement hierarchy are as follows:

Level 1	Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2	Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3	Inputs are unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The carrying values of the Company’s cash, cash equivalents, trade receivables and trade payables approximate their fair values because of their short-term nature. Based on borrowing rates available to the Company for loans with similar terms, the carrying values of the Company’s debt instruments approximate fair value. See Note 11, “Fair Value Measurements,” for additional information with respect to the Company’s fair value measurements.

Earnings Per Share

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 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.

The holders of the Company’s Exchangeable Shares (as defined in Note 8, “Stockholders’ Equity”) were entitled to receive dividends or distributions that are equal to any dividends or distributions on the Company’s common stock. As a result, when the Exchangeable Shares were outstanding, they were classified as a participating security and thereby required the allocation of income that would have otherwise been available to common stockholders when calculating earnings per share. Diluted earnings per share is calculated by utilizing the most dilutive result of the if-converted and two-class methods. In both methods, net income attributable to common stockholders and the weighted-average common shares outstanding are adjusted to account for the impact of the assumed issuance of potential common shares that are dilutive, subject to dilution sequencing rules.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Leases—In February 2016, the FASB issued authoritative guidance on accounting for leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with such classification affecting the pattern of expense recognition in the statement of operations. The new standard is effective for the Company’s fiscal year beginning May 1, 2019 (the first day of fiscal 2020), including interim reporting periods within that fiscal year. A modified transition approach is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

On July 30, 2018, the FASB issued new guidance that provided entities with an additional (and optional) transition method to adopt the new lease standard. Under this new transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted the new lease standard on May 1, 2019 using the optional transition method. The Company elected the package of practical expedients permitted in the guidance, which among other things, allows the Company to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. The Company also elected to use the practical expedient to not separate lease and nonlease components. The Company did not elect the hindsight practical expedient. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off the Consolidated Balance Sheet.

The adoption of the standard resulted in the recording of operating lease ROU assets and operating lease liabilities of $118.8 million on the Condensed Consolidated Balance Sheet as of the adoption date. The Company also

reclassed deferred rent of $4.8 million from liabilities into its operating lease ROU assets. The adoption did not have a material impact on the Company’s Statement of Operations or Statement of Cash Flows. See Note 6, “Leases,” for information and disclosures regarding leases. 

Recently Issued Accounting Pronouncements

Goodwill – In January 2017, the FASB issued authoritative guidance that simplifies the accounting for goodwill impairments by eliminating Step 2 from the goodwill impairment test. Under the new guidance, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value. The new standard is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its financial statements.

Fair Value Measurement Disclosures – In August 2018, the FASB issued new guidance that changes certain fair value measurement disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity is permitted to early adopt all of the disclosure changes or early adopt only the removed disclosure requirements and delay adoption of the additional disclosures until the effective date of this amendment. Except for changes to certain disclosures related to fair value measurements, the Company does not expect the adoption of this standard to have a material impact on its financial statements.

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Stockholders' Equity (Tables)

3 Months Ended

Jul. 31, 2019

Stockholders' Equity

Schedule of changes to accumulated other comprehensive loss, net of tax, by component

	Accumulated
	Other
	Comprehensive
	Loss
	(in thousands)
Accumulated other comprehensive loss as of April 30, 2019	$	(26,574)
Foreign currency translation adjustments		11,860
Other comprehensive loss on derivative instruments		(6,065)
Accumulated other comprehensive loss as of July 31, 2019	$	(20,779)

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Goodwill and Intangible Assets

3 Months Ended

Jul. 31, 2019

Goodwill and Intangible Assets

Goodwill and Intangible Assets

4. Goodwill and Intangible Assets

Goodwill

The following table presents changes in the carrying amount of goodwill during the three months ended July 31, 2019:

	Carrying
	Amount
	(in thousands)
Balance as of April 30, 2019	$	617,327
Goodwill acquired		862
Translation adjustment		3,843
Balance as of July 31, 2019	$	622,032

Intangible Assets

The following tables present the components of the Company’s definite-lived intangible assets as of July 31, 2019 and April 30, 2019:

	Estimated	Weighted	July 31, 2019
	Useful	Average	Gross				Net
	Lives	Amortization	Carrying		Accumulated		Carrying
	(years)	Period	Amount		Amortization		Value
	(dollars in thousands)
Customer relationships	5 - 16	12.8	$	527,732	$	229,991	$	297,741
Definite-lived tradenames	5 - 20	16.3		56,659		7,939		48,720
Vendor agreements	8 - 10	8.3		6,644		3,963		2,681
Developed technology	5	4.9		5,322		1,263		4,059
Leasehold interests	1 - 15	7.6		3,725		1,696		2,029
Other	3 - 5	3.4		4,178		1,525		2,653
Totals			$	604,260	$	246,377	$	357,883

	Estimated	Weighted	April 30, 2019
	Useful	Average	Gross				Net
	Lives	Amortization	Carrying		Accumulated		Carrying
	(years)	Period	Amount		Amortization		Value
	(dollars in thousands)
Customer relationships	5 - 16	12.8	$	520,703	$	214,044	$	306,659
Definite-lived tradenames	5 - 20	16.3		56,018		6,993		49,025
Vendor agreements	8 - 10	8.3		6,644		3,761		2,883
Developed technology	5	4.9		5,209		971		4,238
Leasehold interests	1 - 15	7.6		3,707		1,502		2,205
Other	3 - 5	3.4		4,118		1,182		2,936
Totals			$	596,399	$	228,453	$	367,946

Definite-lived intangible assets are amortized over their estimated useful lives. The Company amortizes its customer relationships using an accelerated method to match the estimated cash flows generated by such assets, and amortizes its other definite-lived intangibles using the straight-line method because a pattern to which the expected benefits will be consumed or otherwise used up could not be reliably determined. Amortization expense related to definite-lived intangible assets was $16.9 million and $15.7 million for the three months ended July 31, 2019 and 2018, respectively. Amortization expense is recorded in depreciation and amortization expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.

Based on the current amount of definite-lived intangible assets, the Company expects to record amortization expense of approximately $48.6 million during the remaining nine months in the fiscal year ending April 30, 2020 and $55.4 million, $46.4 million, $38.7 million, $31.5 million and $137.3 million during the fiscal years ending April 30, 2021, 2022, 2023, 2024 and thereafter, respectively. 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.

The Company’s indefinite-lived intangible assets consist of tradenames that had a carrying amount of $61.4 million as of July 31, 2019 and April 30, 2019.

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Stockholders' Equity

3 Months Ended

Jul. 31, 2019

Stockholders' Equity

Stockholders' Equity

8. Stockholders’ Equity

Exchangeable Shares

In connection with the acquisition of WSB Titan on June 1, 2018, the Company issued 1.1 million shares of equity that were exchangeable for the Company’s common stock (“Exchangeable Shares”). The Exchangeable Shares were issued by an indirect wholly-owned subsidiary of the Company. The Exchangeable Shares ranked senior to the Company’s common stock with respect to dividend rights and rights on liquidation, dissolution and winding-up. The holders of the Exchangeable Shares were entitled to receive dividends or distributions that were equal to any dividends or distributions on the Company’s common stock. The holders of the Exchangeable Shares did not have voting rights.

The Exchangeable Shares contained rights that allowed the holders to exchange their Exchangeable Shares for GMS common stock at any time on a one-for-one basis. If converted, the holders were prevented from transferring such GMS common stock for one year from the Titan acquisition date. On June 13, 2019, the holders of the Exchangeable Shares exchanged all of the Exchangeable Shares for 1.1 million shares of the Company’s common stock. Following such exchange, the Exchangeable Shares ceased to be outstanding.

Share Repurchase Program

On November 30, 2018, the Company’s Board of Directors authorized a common stock repurchase program to repurchase up to $75.0 million outstanding common stock. 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 compliance with Rule 10b-18 under the Exchange Act of 1934, as amended, subject to a variety of factors, including, but not limited to, our liquidity, credit availability, general business and market conditions, our debt covenant restrictions and the availability of alternative investment opportunities. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended or terminated at any time at the Company’s discretion.

The Company did not repurchase any shares of its common stock during the three months ended July 31, 2019. As of July 31, 2019, the Company had $58.5 million remaining under its repurchase program. 

Accumulated Other Comprehensive Loss

The following table sets forth the changes to accumulated other comprehensive loss, net of tax, by component for the three months ended July 31, 2019:

	Accumulated
	Other
	Comprehensive
	Loss
	(in thousands)
Accumulated other comprehensive loss as of April 30, 2019	$	(26,574)
Foreign currency translation adjustments		11,860
Other comprehensive loss on derivative instruments		(6,065)
Accumulated other comprehensive loss as of July 31, 2019	$	(20,779)

Other comprehensive loss on derivative instruments for the three months ended July 31, 2019 is net of $1.9 million of tax.

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Transactions With Related Parties

3 Months Ended

Jul. 31, 2019

Transactions With Related Parties

Transactions With Related Parties

12. Transactions With Related Parties

The Company purchases inventories from Southern Wall Products, Inc. (“SWP”) on a continuing basis. Certain executive officers and stockholders of the Company are stockholders of SWP, which was spun-off from Gypsum Management and Supply, Inc. on August 31, 2012. The Company purchased inventory from SWP for distribution in the amount of $3.6 million and $3.4 million during the three months ended July 31, 2019 and 2018, respectively. Amounts due to SWP for purchases of inventory for distribution were $1.1 million and $1.2 million as of July 31, 2019 and April 30, 2019, respectively, and are included in accounts payable in the Condensed Consolidated Balance Sheets.

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Goodwill and Intangible Assets - Goodwill (Details) $ in Thousands	3 Months Ended
	Jul. 31, 2019 USD ($)
Carrying Amount of Goodwill
Balance	$ 617,327
Goodwill acquired	862
Translation adjustment	3,843
Balance	$ 622,032

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Business, Basis of Presentation and Summary of Significant Accounting Policies - Insurance Liabilities (Details) - USD ($) $ in Millions	Jul. 31, 2019	Apr. 30, 2019
Other accrued expenses and current liabilities.
Insurance Liabilities
Aggregate liabilities for medical self-insurance	$ 3.9	$ 3.4
General liability
Insurance Liabilities
Deductible amount	0.3
Workers' compensation
Insurance Liabilities
Deductible amount	0.5
Automobile
Insurance Liabilities
Deductible amount	1.0
General liability, workers' compensation and automobile | Other accrued expenses and current liabilities.
Insurance Liabilities
Reserve for insurance	18.2	17.7
General liability, workers' compensation and automobile | Prepaid expenses and other current assets
Insurance Liabilities
Insurance recovery receivable	6.2	$ 6.0
General liability, workers' compensation and automobile | Minimum
Insurance Liabilities
Primary layer of insurance coverage	0.5
Excess layer of insurance coverage	2.0
General liability, workers' compensation and automobile | Maximum
Insurance Liabilities
Primary layer of insurance coverage	2.0
Excess layer of insurance coverage	$ 100.0

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Stockholders' Equity - Exchangeable Shares and Share Repurchase Program (Details) shares in Millions, $ in Millions	Jun. 13, 2019 shares	Jun. 01, 2018 shares	Jul. 31, 2019 USD ($)	Nov. 30, 2018 USD ($)
Exchangeable Shares and Share Repurchase Program
Remaining amount under repurchase program | $			$ 58.5
Maximum
Exchangeable Shares and Share Repurchase Program
Stock repurchase program, authorized amount | $				$ 75.0
Titan
Exchangeable Shares and Share Repurchase Program
Issuance of shares to current shareholders of Titan (in shares) | shares		1.1
Exchangeable shares converted | shares	1.1
Exchangeable shares conversion ratio		1
Duration which stock can not be transferred		1 year

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Equity-Based Compensation - Restricted Stock Units (Details) - Restricted stock units $ / shares in Units, shares in Thousands, $ in Millions	3 Months Ended
	Jul. 31, 2019 USD ($) $ / shares shares
Number of Restricted Stock Units
Outstanding, beginning of the period (in shares) | shares	193
Granted (in shares) | shares	42
Forfeited (in shares) | shares	(2)
Outstanding, end of the period (in shares) | shares	233
Weighted Average Exercise Price
Outstanding, beginning of period (in dollars per share) | $ / shares	$ 25.48
Granted (in dollars per share) | $ / shares	18.04
Forfeited (in dollars per share) | $ / shares	37.49
Outstanding, end of the period (in dollars per share) | $ / shares	$ 24.09
Unrecognized compensation cost | $	$ 3.3
Weighted-average period for recognition of unrecognized compensation expense (in years)	2 years

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Commitments and Contingencies

3 Months Ended

Jul. 31, 2019

Commitments and Contingencies

Commitments and Contingencies

13. Commitments and Contingencies

The Company is a defendant in various lawsuits and administrative actions associated with personal injuries, 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 these claims covered by insurance.

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Long-Term Debt

3 Months Ended

Jul. 31, 2019

Long-Term Debt

Long-Term Debt

5. Long-Term Debt

The Company’s long-term debt consisted of the following as of July 31, 2019 and April 30, 2019:

	July 31,		April 30,
	2019		2019
	(in thousands)
First Lien Facility (1) (2)	$	970,754	$	972,650
ABL Facility		53,673		43,972
Finance lease obligations		114,043		109,286
Installment notes at fixed rates up to 5.0%, due in monthly and annual installments through 2024 (3)		19,494		15,287
Titan Facility		3,041		—
Carrying value of debt		1,161,005		1,141,195
Less current portion		49,308		42,118
Long-term debt	$	1,111,697	$	1,099,077

(1) Net of unamortized discount of $2,059 and $2,149 as of July 31, 2019 and April 30, 2019, respectively.

(2) Net of deferred financing costs of $11,566 and $12,072 as of July 31, 2019 and April 30, 2019, respectively.

(3) Net of unamortized discount of $1,127 and $1,200 as of July 31, 2019 and April 30, 2019, respectively.

First Lien Facility

The Company has a senior secured first lien term loan facility (the "First Lien Facility") with aggregate principal amount of $984.4 million outstanding as of July 31, 2019. The First Lien Facility is due in June 2025 and the Company is required to make quarterly principal payments of 0.25% of the aggregate principal amount. The First Lien Facility bears interest at a floating rate based on LIBOR plus 2.75%, with a 0% floor. As of July 31, 2019, the applicable rate of interest was 4.98%.

Asset Based Lending Facility

The Company has an asset based revolving credit facility (the “ABL Facility”) that provides for aggregate revolving commitments of $345.0 million (including same day swing line borrowings of $34.5 million). GYP Holdings III Corp. is the lead borrower. 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.

At the Company’s option, the interest rates applicable to the loans under the ABL Facility are based at LIBOR 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. As of July 31, 2019, the applicable rate of interest was 4.18%. The ABL Facility also contains an unused commitment fee subject to utilization, as included in the ABL Facility agreement.

During the three months ended July 31, 2019, the Company made net borrowings under the ABL facility of $9.7 million. As of July 31, 2019, the Company had available borrowing capacity of approximately $281.7 million under the ABL Facility. The ABL Facility will mature on November 18, 2021 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 First Lien Facility.

Covenants under the First Lien Facility and ABL Facility

The First Lien Facility contains a number of covenants that limit our ability and the ability of our restricted subsidiaries, as described in the First Lien Credit Agreement, 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. The Company was in compliance with all restrictive covenants as of July 31, 2019.

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, 2019.

Titan Revolving Credit Facility

Through its WSB Titan (“Titan”) subsidiary, the Company has a revolving credit facility (the “Titan Facility”) that provides for aggregate revolving commitments of $22.8 million ($30.0 million Canadian dollars). The Titan 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. During the three months ended July 31, 2019, the Company made net borrowings under the Titan facility of $3.0 million. As of July 31, 2019, the Company had available borrowing capacity of approximately $14.7 million under the Titan Facility. The Titan Facility matures on June 28, 2022.

Debt Maturities

As of July 31, 2019, the maturities of long-term debt were as follows

	First Lien			ABL	Finance		Installment			Titan
	Facility(1)			Facility	Leases		Notes(2)			Facility	Total
Years ending April 30,	(in thousands)
2020 (remaining nine months)	$	7,476	$	—	$	22,446	$	4,264	$	3,041	$	37,227
2021		9,968		—		28,807		4,874		—		43,649
2022		9,968		53,673		25,493		4,438		—		93,572
2023		9,968		—		19,888		4,405		—		34,261
2024		9,968		—		12,958		1,781		—		24,707
Thereafter		937,031		—		4,451		859		—		942,341
	$	984,379	$	53,673	$	114,043	$	20,621	$	3,041	$	1,175,757

(1) Gross of unamortized discount of $2,059 and deferred financing costs of $11,566 as of July 31, 2019.

(2) Gross of unamortized discount of $1,127 as of July 31, 2019.

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Equity-Based Compensation

3 Months Ended

Jul. 31, 2019

Equity-Based Compensation

Equity-Based Compensation

9. Equity-Based Compensation

General

The Company measures compensation cost for all share-based awards at fair value on the grant date (or measurement date if different) and recognizes compensation expense, net of estimated forfeitures, over the requisite service period for awards expected to vest. The Company estimates the fair value of stock options using the Black-Scholes valuation model, and determines the fair value of restricted stock units based on the quoted price of GMS’s common stock on the date of grant. The Company estimates forfeitures based on historical analysis of actual forfeitures and employee turnover. Actual forfeitures are recorded when incurred and estimated forfeitures are reviewed and adjusted at least annually.

Equity-based compensation expense related to stock options and restricted stock units was $1.2 million and $0.3 during the three months ended July 31, 2019 and 2018, 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, 2019:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Options	Price		Life (years)	Value
	(shares and dollars in thousands)
Outstanding as of April 30, 2019	2,080	$	16.34	6.15	$	7,615
Options granted	85		18.04
Options exercised	(9)		14.77
Options forfeited	(6)		37.49
Options expired	—		—
Outstanding as of July 31, 2019	2,150	$	16.36	6.04	$	15,284
Exercisable as of July 31, 2019	1,645	$	13.70	5.16	$	14,902
Vested and expected to vest as of July 31, 2019	2,144	$	16.33	6.03	$	15,284

The aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the period in excess of 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, 2019 and 2018 was $0.1 million and $0.5 million, respectively. As of July 31, 2019, there was $3.2 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 2.1 years.

There were no stock options granted during the three months ended July 31, 2018. The fair value of stock options granted during the three months ended July 31, 2019 was estimated using the Black-Scholes option-pricing model with the following assumptions:

	Three Months
	Ended
	July 31, 2019
Volatility	48.96	%
Expected life (years)	6.0
Risk-free interest rate	2.36	%
Dividend yield	—	%

The weighted average grant date fair value of options granted during the three months ended July 31, 2019 was $8.84 per share. The expected volatility was based on historical and implied volatility. The expected life of stock options was based on previous history of exercises. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock option. The expected dividend yield was 0% as we have not declared any common stock dividends to date and do not expect to declare common stock dividends in the near future. The fair value of the underlying common stock at the date of grant was determined based on the value of the Company’s closing stock price on the trading day immediately preceding the date of the grant.

Restricted Stock Units

The following table presents restricted stock unit activity for the three months ended July 31, 2019:

		Weighted
	Number of	Average
	Restricted	Exercise
	Stock Units	Price
	(shares in thousands)
Outstanding as of April 30, 2019	193	$	25.48
Granted	42		18.04
Vested	—		—
Forfeited	(2)		37.49
Outstanding as of July 31, 2019	233	$	24.09

As of  July 31, 2019, there was $3.3 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 2.0 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. During the three months ended July 31, 2019, 0.1 million shares of the Company’s common stock were purchased under the ESPP at an average price of $13.37 per share. The Company recognized $0.2 million and $0.1 million of stock-based compensation expense during the three months ended July 31, 2019 and 2018, respectively, related to the ESPP.

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Business Acquisitions (Details) - Hart Acoustical and Drywall Supply	Jun. 03, 2019 location
San Antonio
Acquisition of Titan
Number of locations	2
La Feria
Acquisition of Titan
Number of locations	1

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Business, Basis of Presentation and Summary of Significant Accounting Policies - Business (Details)	3 Months Ended
	Jul. 31, 2019 item
Minimum
Business
Number of distribution centers	250

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Stockholders' Equity - Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018
Stockholders' Equity
Balance	$ 629,176	$ 579,451
Foreign currency translation adjustments	11,860	(3,791)
Balance	662,295	619,280
Other comprehensive loss on derivative instruments before reclassification, tax	1,900
Accumulated Other Comprehensive Income (Loss)
Stockholders' Equity
Balance	(26,574)	441
Foreign currency translation adjustments	11,860	(3,791)
Other comprehensive loss on derivative instruments before reclassification	(6,065)
Balance	$ (20,779)	$ (3,237)

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Equity-Based Compensation - Employee Stock Purchase Plan (Details) - USD ($) $ / shares in Units, $ in Thousands, shares in Millions	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 1,395	$ 404
ESPP
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of common stock price based on closing price at the beginning or end of the last day of the purchase period	90.00%
Purchase period	6 months
Number of shares purchased under ESPP	0.1
Average price per share	$ 13.37
Share-based compensation expense	$ 200	$ 100

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Long-Term Debt - Maturities (Details) - USD ($)	Jul. 31, 2019	Apr. 30, 2019
Debt maturities
2020 (remaining nine months)	$ 37,227,000
2021	43,649,000
2022	93,572,000
2023	34,261,000
2024	24,707,000
Thereafter	942,341,000
Total	1,175,757,000
First Lien Loan
Debt maturities
2020 (remaining nine months)	7,476,000
2021	9,968,000
2022	9,968,000
2023	9,968,000
2024	9,968,000
Thereafter	937,031,000
Total	984,379,000
Long Term Debt
Unamortized discount	2,059,000	$ 2,149,000
Deferred financing costs	11,566,000	12,072,000
ABL Facility
Debt maturities
2022	53,673,000
Total	53,673,000
Finance lease obligations
Debt maturities
2020 (remaining nine months)	22,446,000
2021	28,807,000
2022	25,493,000
2023	19,888,000
2024	12,958,000
Thereafter	4,451,000
Total	114,043,000
Installment notes
Debt maturities
2020 (remaining nine months)	4,264,000
2021	4,874,000
2022	4,438,000
2023	4,405,000
2024	1,781,000
Thereafter	859,000
Total	20,621,000
Long Term Debt
Unamortized discount	1,127,000	$ 1,200,000
Titan Facility
Debt maturities
2020 (remaining nine months)	3,041,000
Total	$ 3,041,000

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Long-Term Debt - Components (Details) - USD ($) $ in Thousands	Jul. 31, 2019	Apr. 30, 2019
Long-term debt
Carrying value of debt	$ 1,161,005	$ 1,141,195
Less current portion	49,308	42,118
Long-term debt	1,111,697	1,099,077
First Lien Loan
Long-term debt
Carrying value of debt	970,754	972,650
Unamortized discount	2,059	2,149
Deferred financing costs	11,566	12,072
ABL Facility
Long-term debt
Carrying value of debt	53,673	43,972
Finance lease obligations
Long-term debt
Carrying value of debt	114,043	109,286
Installment notes
Long-term debt
Carrying value of debt	$ 19,494	$ 15,287
Interest rate	5.00%	5.00%
Unamortized discount	$ 1,127	$ 1,200
Titan Facility
Long-term debt
Carrying value of debt	$ 3,041

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jul. 31, 2019	Apr. 30, 2019
Current assets:
Cash and cash equivalents	$ 24,123	$ 47,338
Trade accounts and notes receivable, net of allowances of $6,683 and $6,432, respectively	473,411	445,771
Inventories, net	295,553	290,829
Prepaid expenses and other current assets	17,925	18,368
Total current assets	811,012	802,306
Property and equipment, net of accumulated depreciation of $132,815 and $123,583, respectively	287,535	282,349
Operating lease right-of-use assets	111,213
Goodwill	622,032	617,327
Intangible assets, net	419,250	429,313
Deferred income taxes	7,410	4,676
Other assets	15,942	13,583
Total assets	2,274,394	2,149,554
Current liabilities:
Accounts payable	164,794	173,751
Accrued compensation and employee benefits	36,606	62,858
Other accrued expenses and current liabilities	70,669	79,848
Current portion of long-term debt	49,308	42,118
Current portion of operating lease liabilities	32,622
Total current liabilities	353,999	358,575
Non-current liabilities:
Long-term debt, less current portion	1,111,697	1,099,077
Long-term operating lease liabilities	83,384
Deferred income taxes, net	9,647	10,226
Other liabilities	45,191	41,571
Liabilities to noncontrolling interest holders, less current portion	8,181	10,929
Total liabilities	1,612,099	1,520,378
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.01 per share, 500,000 shares authorized; 41,589 and 40,375 shares issued and outstanding as of July 31, 2019 and April 30, 2019, respectively	416	404
Preferred stock, par value $0.01 per share, 50,000 shares authorized; 0 shares issued and outstanding as of July 31, 2019 and April 30, 2019
Exchangeable shares		29,639
Additional paid-in capital	512,244	480,113
Retained earnings	170,414	145,594
Accumulated other comprehensive loss	(20,779)	(26,574)
Total stockholders' equity	662,295	629,176
Total liabilities and stockholders' equity	$ 2,274,394	$ 2,149,554

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Segments (Details)	3 Months Ended
	Jul. 31, 2019 division segment
Segments
Number of operating segments	7
Number of reportable segments	1
Number of geographic divisions | division	7

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Segments - Net sales by major geographic area (Details) $ in Thousands	2 Months Ended	3 Months Ended
	Jul. 31, 2018 $ / $	Jul. 31, 2019 USD ($) $ / $	Jul. 31, 2018 USD ($)
Revenues from External Customers and Long-Lived Assets [Line Items]
Total net sales		$ 847,176	$ 778,144
Average exchange rates | $ / $	0.7652	0.7518
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Total net sales		$ 731,343	690,731
Canada
Revenues from External Customers and Long-Lived Assets [Line Items]
Total net sales		$ 115,833	$ 87,413

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018
Cash flows from operating activities:
Net income	$ 24,820	$ 8,650
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	29,275	26,322
Write-off and amortization of debt discount and debt issuance costs	835	825
Provision for losses on accounts and notes receivable	657	148
Provision for obsolescence of inventory	119	(22)
Effects of fair value adjustments to inventory	151	4,129
Increase in fair value of contingent consideration	228	229
Equity-based compensation	2,071	1,269
Gain on sale and disposal of assets	(156)	(121)
Change in fair value of financial instruments		6,019
Deferred income taxes	(1,440)	(571)
Changes in assets and liabilities net of effects of acquisitions:
Trade accounts and notes receivable	(23,230)	(40,974)
Inventories	18	(20,943)
Prepaid expenses and other assets	(1,359)	416
Accounts payable	(9,526)	(1,696)
Accrued compensation and employee benefits	(26,347)	(22,945)
Derivative liability		(10,778)
Other accrued expenses and liabilities	(8,556)	2,219
Cash used in operating activities	(12,440)	(47,824)
Cash flows from investing activities:
Purchases of property and equipment	(5,891)	(3,793)
Proceeds from sale of assets	232	266
Acquisition of businesses, net of cash acquired	(10,633)	(575,499)
Cash used in investing activities	(16,292)	(579,026)
Cash flows from financing activities:
Repayments on the revolving credit facility	(262,107)	(176,769)
Borrowings from the revolving credit facility	274,810	392,170
Payments of principal on long-term debt	(2,492)	(2,492)
Payments of principal on finance lease obligations	(6,021)	(3,998)
Borrowings from term loan		996,840
Repayments from term loan		(571,840)
Debt issuance costs		(7,933)
Proceeds from exercises of stock options	133	431
Other financing activities	1,022	873
Cash provided by financing activities	5,345	627,282
Effect of exchange rates on cash and cash equivalents	172	(4)
(Decrease) increase in cash and cash equivalents	(23,215)	428
Cash and cash equivalents, beginning of period	47,338	36,437
Cash and cash equivalents, end of period	24,123	36,865
Supplemental cash flow disclosures:
Cash paid for income taxes	18,776	958
Cash paid for interest	$ 17,011	$ 10,980

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Jul. 31, 2019

Goodwill and Intangible Assets

Schedule of changes in the carrying amount of goodwill

	Carrying
	Amount
	(in thousands)
Balance as of April 30, 2019	$	617,327
Goodwill acquired		862
Translation adjustment		3,843
Balance as of July 31, 2019	$	622,032

Schedule of components of definite-lived intangible assets

	Estimated	Weighted	July 31, 2019
	Useful	Average	Gross				Net
	Lives	Amortization	Carrying		Accumulated		Carrying
	(years)	Period	Amount		Amortization		Value
	(dollars in thousands)
Customer relationships	5 - 16	12.8	$	527,732	$	229,991	$	297,741
Definite-lived tradenames	5 - 20	16.3		56,659		7,939		48,720
Vendor agreements	8 - 10	8.3		6,644		3,963		2,681
Developed technology	5	4.9		5,322		1,263		4,059
Leasehold interests	1 - 15	7.6		3,725		1,696		2,029
Other	3 - 5	3.4		4,178		1,525		2,653
Totals			$	604,260	$	246,377	$	357,883

	Estimated	Weighted	April 30, 2019
	Useful	Average	Gross				Net
	Lives	Amortization	Carrying		Accumulated		Carrying
	(years)	Period	Amount		Amortization		Value
	(dollars in thousands)
Customer relationships	5 - 16	12.8	$	520,703	$	214,044	$	306,659
Definite-lived tradenames	5 - 20	16.3		56,018		6,993		49,025
Vendor agreements	8 - 10	8.3		6,644		3,761		2,883
Developed technology	5	4.9		5,209		971		4,238
Leasehold interests	1 - 15	7.6		3,707		1,502		2,205
Other	3 - 5	3.4		4,118		1,182		2,936
Totals			$	596,399	$	228,453	$	367,946

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Equity-Based Compensation - (Tables)

3 Months Ended

Jul. 31, 2019

Equity-Based Compensation

Summary of stock option activity

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Options	Price		Life (years)	Value
	(shares and dollars in thousands)
Outstanding as of April 30, 2019	2,080	$	16.34	6.15	$	7,615
Options granted	85		18.04
Options exercised	(9)		14.77
Options forfeited	(6)		37.49
Options expired	—		—
Outstanding as of July 31, 2019	2,150	$	16.36	6.04	$	15,284
Exercisable as of July 31, 2019	1,645	$	13.70	5.16	$	14,902
Vested and expected to vest as of July 31, 2019	2,144	$	16.33	6.03	$	15,284

Schedule of weighted average assumptions used in Black-Scholes option-pricing model

	Three Months
	Ended
	July 31, 2019
Volatility	48.96	%
Expected life (years)	6.0
Risk-free interest rate	2.36	%
Dividend yield	—	%

Summary of restricted stock unity activity

		Weighted
	Number of	Average
	Restricted	Exercise
	Stock Units	Price
	(shares in thousands)
Outstanding as of April 30, 2019	193	$	25.48
Granted	42		18.04
Vested	—		—
Forfeited	(2)		37.49
Outstanding as of July 31, 2019	233	$	24.09

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Goodwill and Intangible Assets - Definite-Lived Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Jul. 31, 2019	Apr. 30, 2019
Definite-lived intangible assets
Gross Carrying Amount	$ 604,260	$ 596,399
Accumulated Amortization	246,377	228,453
Net Carrying Value	$ 357,883	$ 367,946
Customer relationships
Definite-lived intangible assets
Weighted Average Amortization Period (in years)	12 years 9 months 18 days	12 years 9 months 18 days
Gross Carrying Amount	$ 527,732	$ 520,703
Accumulated Amortization	229,991	214,044
Net Carrying Value	$ 297,741	$ 306,659
Customer relationships | Minimum
Definite-lived intangible assets
Estimated Useful Lives (years)	5 years	5 years
Customer relationships | Maximum
Definite-lived intangible assets
Estimated Useful Lives (years)	16 years	16 years
Tradenames
Definite-lived intangible assets
Weighted Average Amortization Period (in years)	16 years 3 months 18 days	16 years 3 months 18 days
Gross Carrying Amount	$ 56,659	$ 56,018
Accumulated Amortization	7,939	6,993
Net Carrying Value	$ 48,720	$ 49,025
Tradenames | Minimum
Definite-lived intangible assets
Estimated Useful Lives (years)	5 years	5 years
Tradenames | Maximum
Definite-lived intangible assets
Estimated Useful Lives (years)	20 years	20 years
Vendor agreements
Definite-lived intangible assets
Weighted Average Amortization Period (in years)	8 years 3 months 18 days	8 years 3 months 18 days
Gross Carrying Amount	$ 6,644	$ 6,644
Accumulated Amortization	3,963	3,761
Net Carrying Value	$ 2,681	$ 2,883
Vendor agreements | Minimum
Definite-lived intangible assets
Estimated Useful Lives (years)	8 years	8 years
Vendor agreements | Maximum
Definite-lived intangible assets
Estimated Useful Lives (years)	10 years	10 years
Developed technology
Definite-lived intangible assets
Estimated Useful Lives (years)	5 years	5 years
Weighted Average Amortization Period (in years)	4 years 10 months 24 days	4 years 10 months 24 days
Gross Carrying Amount	$ 5,322	$ 5,209
Accumulated Amortization	1,263	971
Net Carrying Value	$ 4,059	$ 4,238
Leasehold interests
Definite-lived intangible assets
Weighted Average Amortization Period (in years)	7 years 7 months 6 days	7 years 7 months 6 days
Gross Carrying Amount	$ 3,725	$ 3,707
Accumulated Amortization	1,696	1,502
Net Carrying Value	$ 2,029	$ 2,205
Leasehold interests | Minimum
Definite-lived intangible assets
Estimated Useful Lives (years)	1 year	1 year
Leasehold interests | Maximum
Definite-lived intangible assets
Estimated Useful Lives (years)	15 years	15 years
Other intangible assets
Definite-lived intangible assets
Weighted Average Amortization Period (in years)	3 years 4 months 24 days	3 years 4 months 24 days
Gross Carrying Amount	$ 4,178	$ 4,118
Accumulated Amortization	1,525	1,182
Net Carrying Value	$ 2,653	$ 2,936
Other intangible assets | Minimum
Definite-lived intangible assets
Estimated Useful Lives (years)	3 years	3 years
Other intangible assets | Maximum
Definite-lived intangible assets
Estimated Useful Lives (years)	5 years	5 years

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Business, Basis of Presentation and Summary of Significant Accounting Policies - Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands		3 Months Ended
	May 01, 2019	Jul. 31, 2019
Adoption of new accounting pronouncement
Operating lease right-of-use assets		$ 111,213
Operating lease liability		116,006
Operating lease right-of-use assets obtained in exchange for lease obligations		$ 6,241
Adjustment | ASU 2016-02
Adoption of new accounting pronouncement
Operating lease right-of-use assets	$ 118,800
Operating lease liability	118,800
Operating lease right-of-use assets obtained in exchange for lease obligations	$ 4,800

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Segments (Tables)

3 Months Ended

Jul. 31, 2019

Segments

Schedule of segment results

	Three Months Ended July 31, 2019
					Depreciation and		Adjusted
	Net Sales		Gross Profit		Amortization		EBITDA
	(in thousands)
Geographic divisions	$	840,157	$	271,354	$	28,934	$	83,082
Other		7,019		2,300		52		506
Corporate		—		—		289		—
	$	847,176	$	273,654	$	29,275	$	83,588

	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

Reconciliation of Adjusted EBITDA to net income

	Three Months Ended
	July 31,
	2019		2018
	(in thousands)
Net income	$	24,820	$	8,650
Interest expense		18,277		16,188
Interest income		(12)		(236)
Provision for income taxes		7,590		2,836
Depreciation expense		12,422		10,610
Amortization expense		16,853		15,712
Stock appreciation expense(a)		60		334
Redeemable noncontrolling interests(b)		662		531
Equity-based compensation(c)		1,395		404
Severance and other permitted costs(d)		554		4,836
Transaction costs (acquisitions and other)(e)		972		4,753
Gain on sale of assets		(156)		(121)
Effects of fair value adjustments to inventory(f)		151		4,129
Change in fair value of financial instruments(g)		—		6,019
Debt transaction costs(h)		—		627
Adjusted EBITDA	$	83,588	$	75,272

(a) Represents non-cash expense related to stock appreciation rights agreements.

(b) Represents non-cash compensation expense related to changes in the fair 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 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 costs paid to third-party advisors related to debt refinancing activities.

Schedule of net sales to external customers by main product lines

	Three Months Ended
	July 31,
	2019		2018
	(in thousands)
Wallboard	$	341,595	$	317,735
Ceilings		129,110		115,855
Steel framing		131,829		129,112
Other products		244,642		215,442
Total net sales	$	847,176	$	778,144

Schedule of net sales by major geographic area

	Three Months Ended
	July 31,
	2019		2018
	(in thousands)
United States	$	731,343	$	690,731
Canada		115,833		87,413
Total net sales	$	847,176	$	778,144

Schedule of long-lived assets by major geographic area

	July 31,		April 30,
	2019		2019
	(in thousands)
United States	$	255,037	$	249,857
Canada		32,498		32,492
Total property and equipment, net	$	287,535	$	282,349

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Income Taxes

3 Months Ended

Jul. 31, 2019

Income Taxes

Income Taxes

7. Income Taxes

General. The Company’s effective income tax rate on continuing operations was 23.4% and 24.7% for the three months ended July 31, 2019 and 2018, respectively. The increase in the effective income tax rate over the U.S. federal statutory rate of 21.0% is primarily due to the impact of foreign tax rates and state taxes as well as other tax effects associated with the acquisition of Titan.

The Company is subject to provisions of the Tax Act related to current tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. We have elected to recognize the tax on GILTI as a period expense in the period the tax is incurred.

In general, the Company no longer intends to permanently reinvest its accumulated earnings in its non-U.S. subsidiaries and will continue to periodically distribute the earnings on an as needed basis. To the extent there is unremitted earnings in future years, the Company does not anticipate significant tax consequences as there is sufficient paid up capital in Canada to return the cash free of withholding taxes.

Valuation allowance. The Company had a valuation allowance of $1.4 million and $1.1 million against its deferred tax assets related to certain U.S. tax jurisdictions as of July 31, 2019 and April 30, 2019, 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 reserve for uncertain tax positions as of July 31, 2019 or April 30, 2019.

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Fair Value Measurements

3 Months Ended

Jul. 31, 2019

Fair Value Measurements

Fair Value Measurements

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 as of July 31, 2019 and April 30, 2019:

	July 31,		April 30,
	2019		2019
	(in thousands)
Liabilities:
Interest rate swap (Level 2)	$	13,551	$	5,613
Stock appreciation rights (Level 3)		23,157		23,458
Deferred compensation (Level 3)		1,636		1,695
Noncontrolling interest holders (Level 3)		8,181		12,498
Contingent consideration (Level 3)		12,577		12,354

Derivative instruments. The Company has interest rate swap agreements with a notional amount of $500.0 million that convert the variable interest rate on its First Lien 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 a cash flow hedges. The derivative instruments are classified in other liabilities in the Condensed Consolidated Balance Sheets as of July 31, 2019 and April 30, 2019.

The fair value of derivative instruments is determined using Level 2 inputs. Generally, the Company obtains the Level 2 inputs from its counterparties. Substantially all of the inputs are observable in the marketplace throughout the full term of the instruments, which 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.

Stock appreciation rights, deferred compensation and redeemable noncontrolling interests. The fair values of stock appreciation rights, deferred compensation and redeemable noncontrolling interests are determined using Level 3 inputs. These inputs include a volatility rate based on comparable entities, a discount rate, the expected time to redemption of the liabilities, historical values of the book equity of certain subsidiaries and market information for comparable entities. The use of these inputs to derive the fair value of the liabilities at a point in time can result in volatility to the financial statements. See Note 10, “Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests,” for a reconciliation of the beginning and ending balances.

Contingent consideration. In connection with the acquisition of Titan, the Company assumed certain contingent consideration arrangements. The fair value of contingent consideration is determined using Level 3 inputs. These inputs include a discount rate and probability adjusted payments. During the three months ended July 31, 2019, the Company recorded expense of $0.2 million related to the contingent consideration, which was included in selling, general and administrative expenses in the Condensed Consolidated Statement of Operations and Comprehensive Income.

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 subsequent to 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 3, “Business Acquisitions.” There were no material long-lived asset impairments during the three months ended July 31, 2019 or 2018.

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Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Apr. 30, 2019
Effective income tax rate (as a percent)	23.40%	24.70%
Reserve for uncertain tax positions	$ 0.0		$ 0.0
Valuation allowance	$ 1.4		$ 1.1
Domestic
Federal statutory rate (as a percent)	21.00%

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Equity-Based Compensation - Black Scholes Options - Pricing Model (Details) - Stock Options	3 Months Ended
	Jul. 31, 2019 $ / shares
Stock options
Volatility (as a percent)	48.96%
Expected life (years)	6 years
Risk-free interest rate (as a percent)	2.36%
Dividend yield (as a percent)	0.00%
Weighted average grant date fair value (in dollars per share)	$ 8.84

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Fair Value Measurements (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 31, 2019	Apr. 30, 2019	Feb. 28, 2019
Fair Value, Measurements, Recurring | Level 3
Fair Value Measurements
Stock appreciation rights	$ 23,157	$ 23,458
Deferred compensation	1,636	1,695
Noncontrolling interest holders	8,181	12,498
Contingent consideration	12,577	12,354
Interest rate cap | Fair Value, Measurements, Recurring | Level 2
Fair Value Measurements
Derivative liabilities	13,551	$ 5,613
Interest rate swap agreements | First Lien Loan
Derivative instruments
Notional amount			$ 500,000
Interest rate swap agreements | LIBOR | First Lien Loan
Derivative instruments
Fixed interest rate			2.46%
Selling, general and administrative expenses | Titan
Fair Value Measurements
Contingent consideration expense	$ 200

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Revenue

3 Months Ended

Jul. 31, 2019

Revenue

Revenue

2. Revenue

Revenue Recognition

Revenue is recognized upon transfer of control of promised 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 when the Company does not bill the customer.

See Note 14, “Segments,” for information regarding disaggregation of revenue, including revenue by product and by geographic area.

Performance Obligations

The Company primarily satisfies its performance obligations at a point in time, which is upon delivery of products. The Company’s payment terms vary by the type and location of its customers. The amount of time between point of sale and when payment is due is not significant and the Company has determined its contracts do not include a significant financing component. Product warranties do not constitute a performance obligation for the Company, as products are warrantied directly by the manufacturer.

Our contracts with customers involve performance obligations that are one year or less. Therefore, we applied the standard’s optional exemption that permits the omission of information about our unfulfilled performance obligations as of the balance sheet dates.

Significant Judgements

The Company’s contracts may include terms that could cause variability in the transaction price, including customer rebates, returns and cash discounts for early payment. Variable consideration is estimated and included in total consideration based on the expected value method. These estimates are based on historical experience, anticipated performance and other factors known at the time. The Company only includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

Contract Balances

Receivables from contracts with customers were $457.8 million and $431.4 million as of July 31, 2019 and April 30, 2019, respectively. The Company did not have material amounts of contract assets or liabilities as of July 31, 2019 or April 30, 2019.

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Segments - Reconciliation of Net Income to Adjusted EBITDA (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018
Segments
Net income	$ 24,820	$ 8,650
Interest expense	18,277	16,188
Interest income	(12)	(236)
Provision for income taxes	7,590	2,836
Depreciation expense	12,422	10,610
Amortization expense	16,853	15,712
Stock appreciation expense	60	334
Redeemable noncontrolling interests	662	531
Equity-based compensation	1,395	404
Severance and other permitted costs	554	4,836
Transaction costs (acquisitions and other)	972	4,753
Gain on sale of assets	(156)	(121)
Effects of fair value adjustments to inventory	151	4,129
Change in fair value of financial instruments		6,019
Debt transaction costs		627
Adjusted EBITDA	$ 83,588	$ 75,272

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Earnings Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended
		Jul. 31, 2019	Jul. 31, 2018
Computation of basic and diluted earnings per share of common stock
Net income		$ 24,820	$ 8,650
Less: Net income allocated to participating securities		319	156
Net income attributable to common stockholders		$ 24,501	$ 8,494
Basic earnings per common share:
Basic weighted average common shares outstanding (in shares)		41,001	41,094
Basic earnings per common share (in dollars per share)	[1]	$ 0.60	$ 0.21
Diluted earnings per common share:
Basic weighted average common shares outstanding (in shares)		41,001	41,094
Add: Common Stock Equivalents		614	980
Diluted weighted average common shares outstanding (in shares)		41,615	42,074
Diluted earnings per common share (in dollars per share)	[1]	$ 0.59	$ 0.20

[1] See Note 15 for detailed calculations

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Condensed Consolidated Statements of Operations and Comprehensive Income - USD ($) shares in Thousands, $ in Thousands		3 Months Ended
		Jul. 31, 2019	Jul. 31, 2018
Condensed Consolidated Statements of Operations and Comprehensive Income
Net sales		$ 847,176	$ 778,144
Cost of sales (exclusive of depreciation and amortization shown separately below)		573,522	533,328
Gross profit		273,654	244,816
Operating expenses:
Selling, general and administrative		194,631	185,435
Depreciation and amortization		29,275	26,322
Total operating expenses		223,906	211,757
Operating income		49,748	33,059
Other (expense) income:
Interest expense		(18,277)	(16,188)
Change in fair value of financial instruments			(6,019)
Other income, net		939	634
Total other expense, net		(17,338)	(21,573)
Income before taxes		32,410	11,486
Provision for income taxes		7,590	2,836
Net income		$ 24,820	$ 8,650
Weighted average common shares outstanding:
Basic (in shares)		41,001	41,094
Diluted (in shares)		41,615	42,074
Net income per common share:
Basic (in dollars per share)	[1]	$ 0.60	$ 0.21
Diluted (in dollars per share)	[1]	$ 0.59	$ 0.20
Comprehensive income
Net income		$ 24,820	$ 8,650
Foreign currency translation income (loss)		11,860	(3,791)
Changes in other comprehensive income, net of tax		(6,065)	113
Comprehensive income		$ 30,615	$ 4,972

[1] See Note 15 for detailed calculations

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Leases - Supplemental cash flow information (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$ 10,236
Operating cash flows from finance leases	3,422
Financing cash flows from finance leases	6,021	$ 3,998
Right-of-use assets obtained in exchange for lease obligations - Operating leases	6,241
Right-of-use assets obtained in exchange for lease obligations - Finance leases	$ 11,874

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Long-Term Debt - Asset-Based Lending Facility (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018
Long-term debt
Net borrowings	$ 274,810	$ 392,170
ABL Facility
Long-term debt
Maximum amount under the facility	$ 345,000
Borrowing interest rate (as a percent)	4.18%
Available borrowings under the facility	$ 281,700
Net borrowings	9,700
ABL Facility | Swing-line
Long-term debt
Maximum amount under the facility	$ 34,500

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Goodwill and Intangible Assets - Estimated Aggregate Amortization Expense (Details) $ in Millions	Jul. 31, 2019 USD ($)
Estimated aggregate future amortization expense
Expense remainder of fiscal year	$ 48.6
2021	55.4
2022	46.4
2023	38.7
2024	31.5
Thereafter	$ 137.3

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Earnings Per Common Share

3 Months Ended

Jul. 31, 2019

Earnings Per Common Share

Earnings Per Common Share

15. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per share of common stock for the three months ended July 31, 2019 and 2018:

	Three Months Ended
	July 31,
	2019		2018
	(in thousands, except per share data)
Net income	$	24,820	$	8,650
Less: Net income allocated to participating securities		319		156
Net income attributable to common stockholders	$	24,501	$	8,494
Basic earnings per common share:
Basic weighted average common shares outstanding		41,001		41,094
Basic earnings per common share	$	0.60	$	0.21
Diluted earnings per common share:
Basic weighted average common shares outstanding		41,001		41,094
Add: Common Stock Equivalents		614		980
Diluted weighted average common shares outstanding		41,615		42,074
Diluted earnings per common share	$	0.59	$	0.20

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Leases (Tables)

3 Months Ended

Jul. 31, 2019

Leases

Summary of components of lease expense

	Three Months
	Ended
	July 31, 2019
	(in thousands)
Finance lease cost:
Amortization of right-of-use assets	$	6,059
Interest on lease liabilities		3,422
Operating lease cost		10,420
Variable lease cost		3,199
Total lease cost	$	23,100

Summary of components of supplemental cash flow information related to leases

	Three Months
	Ended
	July 31, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	10,236
Operating cash flows from finance leases		3,422
Financing cash flows from finance leases		6,021
Right-of-use assets obtained in exchange for lease obligations
Operating leases		6,241
Finance leases		11,874

Summary of other lease information

	July 31, 2019
		(in thousands)
Finance leases included in property and equipment
Property and equipment	$	143,274
Accumulated depreciation		(31,564)
Property and equipment, net	$	111,710
Weighted-average remaining lease term (years)
Operating leases		4.7
Finance leases		4.2
Weighted-average discount rate
Operating leases		5.5	%
Finance leases		5.4	%

Schedule of maturities for finance leases

	Finance		Operating
Year Ended April 30,
2020 (remaining nine months)	$	31,712	$	29,362
2021		38,061		31,829
2022		31,246		23,263
2023		22,544		16,999
2024		13,703		12,400
Thereafter		4,561		18,707
Total lease payments	$	141,827	$	132,560
Less imputed interest		27,784		16,554
Total	$	114,043	$	116,006

Schedule of maturities for operating leases

	Finance		Operating
Year Ended April 30,
2020 (remaining nine months)	$	31,712	$	29,362
2021		38,061		31,829
2022		31,246		23,263
2023		22,544		16,999
2024		13,703		12,400
Thereafter		4,561		18,707
Total lease payments	$	141,827	$	132,560
Less imputed interest		27,784		16,554
Total	$	114,043	$	116,006

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Fair Value Measurements (Tables)

3 Months Ended

Jul. 31, 2019

Fair Value Measurements

Schedule of assets and liabilities measured at fair value on a recurring basis

	July 31,		April 30,
	2019		2019
	(in thousands)
Liabilities:
Interest rate swap (Level 2)	$	13,551	$	5,613
Stock appreciation rights (Level 3)		23,157		23,458
Deferred compensation (Level 3)		1,636		1,695
Noncontrolling interest holders (Level 3)		8,181		12,498
Contingent consideration (Level 3)		12,577		12,354

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Document and Entity Information - shares	3 Months Ended
	Jul. 31, 2019	Aug. 27, 2019
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jul. 31, 2019
Entity File Number	001-37784
Entity Registrant Name	GMS INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	46-2931287
Entity Address, Address Line One	100 Crescent Centre Parkway, Suite 800
Entity Address, City or Town	Tucker
Entity Address, State or Province	GA
Entity Address, Postal Zip Code	30084
City Area Code	800
Local Phone Number	392-4619
Title of 12(b) Security	Common Stock
Trading Symbol	GMS
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		41,639,363
Current Fiscal Year End Date	--04-30
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Entity Central Index Key	0001600438
Amendment Flag	false

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Segments - Net Sales, Adjusted EBITDA and Certain Other Measures (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	May 01, 2019
Segment information
Net sales	$ 847,176	$ 778,144
Gross Profit	273,654	244,816
Depreciation and Amortization	29,275	26,322
Adjusted EBITDA	83,588	75,272
Operating lease right-of-use assets	111,213
Geographic divisions
Segment information
Net sales	840,157	771,550
Gross Profit	271,354	242,575
Depreciation and Amortization	28,934	25,855
Adjusted EBITDA	83,082	74,595
Operating lease right-of-use assets			$ 113,300
Other.
Segment information
Net sales	7,019	6,594
Gross Profit	2,300	2,241
Depreciation and Amortization	52	58
Adjusted EBITDA	506	677
Operating lease right-of-use assets			300
Corporate
Segment information
Depreciation and Amortization	$ 289	$ 409
Operating lease right-of-use assets			$ 5,200

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Segments - Property and equipment, net, by major geographic area (Details) - USD ($) $ in Thousands	Jul. 31, 2019	Apr. 30, 2019
Revenues from External Customers and Long-Lived Assets [Line Items]
Property and equipment, net	$ 287,535	$ 282,349
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Property and equipment, net	255,037	249,857
Canada
Revenues from External Customers and Long-Lived Assets [Line Items]
Property and equipment, net	$ 32,498	$ 32,492

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Condensed Consolidated Statements of Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands	Common Stock	Exchangeable Shares	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Balance at Apr. 30, 2018	$ 411		$ 489,007	$ 89,592	$ 441	$ 579,451
Balance (in shares) at Apr. 30, 2018	41,069
Increase (Decrease) in Stockholders' Equity
Net income				8,650		8,650
Exercise of Exchangeable Shares		$ 33,194				33,194
Foreign currency translation adjustments					(3,791)	(3,791)
Change in other comprehensive income (loss), net of tax					113	113
Equity-based compensation			358			358
Tax withholding related to net share settlements of equity awards			(7)			(7)
Exercise of stock options			431			431
Exercise of stock options (in shares)	35
Issuance of common stock pursuant to employee stock purchase plan			881			881
Issuance of common stock pursuant to employee stock purchase plan (in shares)	35
Balance at Jul. 31, 2018	$ 411	33,194	490,670	98,242	(3,237)	619,280
Balance (in shares) at Jul. 31, 2018	41,139
Balance at Apr. 30, 2019	$ 404	29,639	480,113	145,594	(26,574)	$ 629,176
Balance (in shares) at Apr. 30, 2019	40,375					40,375
Increase (Decrease) in Stockholders' Equity
Net income				24,820		$ 24,820
Exercise of Exchangeable Shares	$ 11	$ (29,639)	29,628
Exercise of Exchangeable Shares (in shares)	1,129
Foreign currency translation adjustments					11,860	11,860
Change in other comprehensive income (loss), net of tax					(6,065)	(6,065)
Equity-based compensation			1,349			1,349
Exercise of stock options			133			133
Exercise of stock options (in shares)	9
Issuance of common stock pursuant to employee stock purchase plan	$ 1		1,021			1,022
Issuance of common stock pursuant to employee stock purchase plan (in shares)	76
Balance at Jul. 31, 2019	$ 416		$ 512,244	$ 170,414	$ (20,779)	$ 662,295
Balance (in shares) at Jul. 31, 2019	41,589					41,589

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Business Acquisitions

3 Months Ended

Jul. 31, 2019

Business Acquisitions

Business Acquisitions

3. Business Acquisitions

The Company accounts for business combinations by recognizing the assets acquired and liabilities assumed at the acquisition date fair value. In valuing 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 as a part of the purchase price allocation process to accurately 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 Condensed Consolidated Statements of Operations and Comprehensive Income. The results of operations of acquisitions are reflected in the Company’s Condensed Consolidated Financial Statements from the date of acquisition.

On June 3, 2019, the Company acquired the acoustical and drywall operations of J.P. Hart Lumber Company (“Hart Acoustical and Drywall Supply”). Hart Acoustical and Drywall Supply distributes drywall, metal studs, insulation and ceiling tiles through two locations in San Antonio, TX and one location in La Feria, TX. The impact of this acquisition is not material to the Company’s Consolidated Financial Statements.

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Long-Term Debt - Titan Revolving Credit Facility (Details) $ in Thousands, $ in Millions	3 Months Ended
	Jul. 31, 2019 USD ($)	Jul. 31, 2018 USD ($)	Jun. 01, 2018 CAD ($)	Jun. 01, 2018 USD ($)
Debt Instrument [Line Items]
Net borrowings	$ 274,810	$ 392,170
Titan Facility
Debt Instrument [Line Items]
Maximum amount under the facility			$ 30.0	$ 22,800
Net borrowings	3,000
Available borrowings under the facility	$ 14,700

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Goodwill and Intangible Assets - Indefinite-Lived Intangible Assets (Details) - USD ($) $ in Millions	Jul. 31, 2019	Apr. 30, 2019
Goodwill and Intangible Assets
Tradenames	$ 61.4	$ 61.4

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Leases - Other information (Details) - USD ($) $ in Thousands	Jul. 31, 2019	Apr. 30, 2019
Finance leases included in property and equipment
Accumulated depreciation	$ (132,815)	$ (123,583)
Property and equipment, net	$ 287,535	$ 282,349
Weighted-average remaining lease term (years) - Operating leases	4 years 8 months 12 days
Weighted-average remaining lease term (years) - Finance leases	4 years 2 months 12 days
Weighted-average discount rate - Operating leases	5.50%
Weighted-average discount rate - Finance leases	5.40%
Finance Leased Assets
Finance leases included in property and equipment
Property and equipment	$ 143,274
Accumulated depreciation	(31,564)
Property and equipment, net	$ 111,710

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Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests (Tables)

3 Months Ended

Jul. 31, 2019

Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests

Summary of changes to liability for equity based compensation arrangements

	Stock				Redeemable
	Appreciation		Deferred		Noncontrolling
	Rights		Compensation		Interests
	(in thousands)
Balance as of April 30, 2019	$	23,458	$	1,695	$	12,498
Amounts redeemed		(361)		(116)		(4,921)
Change in fair value		60		57		604
Balance as of July 31, 2019	$	23,157	$	1,636	$	8,181
Classified as current as of April 30, 2019	$	1,355	$	108	$	1,569
Classified as long-term as of April 30, 2019		22,103		1,587		10,929
Classified as current as of July 31, 2019	$	1,190	$	—	$	—
Classified as long-term as of July 31, 2019		21,967		1,636		8,181

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Segments

3 Months Ended

Jul. 31, 2019

Segments

Segments

14. 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. 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.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Non-GAAP Financial Measures” for a further discussion of this non-GAAP measure.

The following tables present segment results for the three months ended July 31, 2019 and 2018:

	Three Months Ended July 31, 2019
					Depreciation and		Adjusted
	Net Sales		Gross Profit		Amortization		EBITDA
	(in thousands)
Geographic divisions	$	840,157	$	271,354	$	28,934	$	83,082
Other		7,019		2,300		52		506
Corporate		—		—		289		—
	$	847,176	$	273,654	$	29,275	$	83,588

	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

The following table presents a reconciliation of Adjusted EBITDA to net income for the three months ended July 31, 2019 and 2018:

	Three Months Ended
	July 31,
	2019		2018
	(in thousands)
Net income	$	24,820	$	8,650
Interest expense		18,277		16,188
Interest income		(12)		(236)
Provision for income taxes		7,590		2,836
Depreciation expense		12,422		10,610
Amortization expense		16,853		15,712
Stock appreciation expense(a)		60		334
Redeemable noncontrolling interests(b)		662		531
Equity-based compensation(c)		1,395		404
Severance and other permitted costs(d)		554		4,836
Transaction costs (acquisitions and other)(e)		972		4,753
Gain on sale of assets		(156)		(121)
Effects of fair value adjustments to inventory(f)		151		4,129
Change in fair value of financial instruments(g)		—		6,019
Debt transaction costs(h)		—		627
Adjusted EBITDA	$	83,588	$	75,272

(a) Represents non-cash expense related to stock appreciation rights agreements.

(b) Represents non-cash compensation expense related to changes in the fair 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 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 costs paid to third-party advisors related to debt refinancing activities.

During the three months ended July 31, 2019, the Company recorded operating lease ROU assets as a result of the adoption of the new lease guidance. The Company’s geographic divisions, other and corporate segments, recorded $113.3 million, $0.3 million and $5.2 million, respectively, of operating lease ROU assets as of the transition date.

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, 2019 and 2018:

	Three Months Ended
	July 31,
	2019		2018
	(in thousands)
Wallboard	$	341,595	$	317,735
Ceilings		129,110		115,855
Steel framing		131,829		129,112
Other products		244,642		215,442
Total net sales	$	847,176	$	778,144

Geographic Information

The following table presents the Company’s net sales by major geographic area for the three months ended July 31, 2019 and 2018:

	Three Months Ended
	July 31,
	2019		2018
	(in thousands)
United States	$	731,343	$	690,731
Canada		115,833		87,413
Total net sales	$	847,176	$	778,144

Net sales for Canada for the three months ended July 31, 2019 includes three months of net sales compared to two months for the three months ended July 31, 2018 due to our acquisition of Titan on June 1, 2018. The average exchange rate for translating Canada net sales from Canadian dollars to U.S. dollars was 0.7518 for the three months ended July 31, 2019 and 0.7652 for the two months ended July 31, 2018.

The following table presents the Company’s property and equipment, net, by major geographic area as of July 31, 2019 and April 30, 2019:

	July 31,		April 30,
	2019		2019
	(in thousands)
United States	$	255,037	$	249,857
Canada		32,498		32,492
Total property and equipment, net	$	287,535	$	282,349

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Long-Term Debt (Tables)

3 Months Ended

Jul. 31, 2019

Long-Term Debt

Schedule of long-term debt

	July 31,		April 30,
	2019		2019
	(in thousands)
First Lien Facility (1) (2)	$	970,754	$	972,650
ABL Facility		53,673		43,972
Finance lease obligations		114,043		109,286
Installment notes at fixed rates up to 5.0%, due in monthly and annual installments through 2024 (3)		19,494		15,287
Titan Facility		3,041		—
Carrying value of debt		1,161,005		1,141,195
Less current portion		49,308		42,118
Long-term debt	$	1,111,697	$	1,099,077

(1) Net of unamortized discount of $2,059 and $2,149 as of July 31, 2019 and April 30, 2019, respectively.

(2) Net of deferred financing costs of $11,566 and $12,072 as of July 31, 2019 and April 30, 2019, respectively.

(3) Net of unamortized discount of $1,127 and $1,200 as of July 31, 2019 and April 30, 2019, respectively.

Scheduled of maturities of long-term debt

	First Lien			ABL	Finance		Installment			Titan
	Facility(1)			Facility	Leases		Notes(2)			Facility	Total
Years ending April 30,	(in thousands)
2020 (remaining nine months)	$	7,476	$	—	$	22,446	$	4,264	$	3,041	$	37,227
2021		9,968		—		28,807		4,874		—		43,649
2022		9,968		53,673		25,493		4,438		—		93,572
2023		9,968		—		19,888		4,405		—		34,261
2024		9,968		—		12,958		1,781		—		24,707
Thereafter		937,031		—		4,451		859		—		942,341
	$	984,379	$	53,673	$	114,043	$	20,621	$	3,041	$	1,175,757

(1) Gross of unamortized discount of $2,059 and deferred financing costs of $11,566 as of July 31, 2019.

(2) Gross of unamortized discount of $1,127 as of July 31, 2019.

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Revenue (Details) - USD ($) $ in Millions	3 Months Ended
	Jul. 31, 2019	Apr. 30, 2019
Revenue
Revenue, Practical Expedient, Financing Component [true false]	true
Revenue, Practical Expedient, Remaining Performance Obligation [true/false]	true
Receivables from contracts with customers	$ 457.8	$ 431.4

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Earnings Per Common Share (Tables)

3 Months Ended

Jul. 31, 2019

Earnings Per Common Share

Schedule of computation of basic and diluted earnings per share of common stock

	Three Months Ended
	July 31,
	2019		2018
	(in thousands, except per share data)
Net income	$	24,820	$	8,650
Less: Net income allocated to participating securities		319		156
Net income attributable to common stockholders	$	24,501	$	8,494
Basic earnings per common share:
Basic weighted average common shares outstanding		41,001		41,094
Basic earnings per common share	$	0.60	$	0.21
Diluted earnings per common share:
Basic weighted average common shares outstanding		41,001		41,094
Add: Common Stock Equivalents		614		980
Diluted weighted average common shares outstanding		41,615		42,074
Diluted earnings per common share	$	0.59	$	0.20

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Goodwill and Intangible Assets - Amortization (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018
Intangible assets
Amortization expense	$ 16,853	$ 15,712
Depreciation and amortization expense
Intangible assets
Amortization expense	$ 16,900	$ 15,700

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Leases

3 Months Ended

Jul. 31, 2019

Leases

Leases

6. Leases

The Company leases office and warehouse facilities, distribution equipment and its fleet of vehicles. The Company’s leases have lease terms ranging from one to eleven years. The Company’s facility leases generally contain renewal options for periods ranging from one to five years. The exercise of lease renewal options is typically at the Company’s sole discretion. The Company does not recognize ROU assets or lease liabilities for renewal options unless it is determined that the Company is reasonably certain of exercising renewal options at lease inception. Certain of the Company’s equipment leases include options to purchase the leased property and certain of the Company’s equipment leases contain residual value guarantees. Any residual value payment deemed probable is included in the Company’s lease liability. The Company’s lease agreements do not contain any material restrictive covenants.

The Company determines if an arrangement is a lease at inception and evaluates whether the lease meets the classification criteria of a finance or operating lease. Operating leases are included in operating lease right-of-use assets, current portion of operating lease liabilities and long-term operating lease liabilities in the Condensed Consolidated Balance Sheet. Finance leases are included in property and equipment, current portion of long-term debt and long-term debt in the Condensed Consolidated Balance Sheet.  

Lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. For leases that do not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of future payments. The Company determines its incremental borrowing rate based on the applicable lease terms and the current economic environment. Lease ROU assets also include any lease payments made in advance and excludes lease incentives and initial direct costs incurred. Some of the Company’s lease agreements contain rent escalation clauses (including index-based escalations), rent holidays, capital improvements funding or other lease concessions. Lease expense is recognized on a straight-line basis based on the fixed component over the lease term. Variable lease costs consist primarily of taxes, insurance and common area or other maintenance costs for leased facilities and vehicles and equipment, which are paid based on actual costs incurred.

The components of lease expense were as follows:

	Three Months
	Ended
	July 31, 2019
	(in thousands)
Finance lease cost:
Amortization of right-of-use assets	$	6,059
Interest on lease liabilities		3,422
Operating lease cost		10,420
Variable lease cost		3,199
Total lease cost	$	23,100

Operating lease cost, including variable lease cost, is included in selling, general and administrative expenses; amortization of finance ROU assets is included in depreciation and amortization; and interest on finance lease liabilities is included in interest expense in the Condensed Consolidated Statement of Operations.

Supplemental cash flow information related to leases was as follows:

	Three Months
	Ended
	July 31, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	10,236
Operating cash flows from finance leases		3,422
Financing cash flows from finance leases		6,021
Right-of-use assets obtained in exchange for lease obligations
Operating leases		6,241
Finance leases		11,874

Other information related to leases was as follows:

	July 31, 2019
		(in thousands)
Finance leases included in property and equipment
Property and equipment	$	143,274
Accumulated depreciation		(31,564)
Property and equipment, net	$	111,710
Weighted-average remaining lease term (years)
Operating leases		4.7
Finance leases		4.2
Weighted-average discount rate
Operating leases		5.5	%
Finance leases		5.4	%

Future minimum lease payments under non-cancellable leases as of July 31, 2019 were as follows:

	Finance		Operating
Year Ended April 30,
2020 (remaining nine months)	$	31,712	$	29,362
2021		38,061		31,829
2022		31,246		23,263
2023		22,544		16,999
2024		13,703		12,400
Thereafter		4,561		18,707
Total lease payments	$	141,827	$	132,560
Less imputed interest		27,784		16,554
Total	$	114,043	$	116,006

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Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests

3 Months Ended

Jul. 31, 2019

Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests

Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests

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 for the three months ended July 31, 2019:

	Stock				Redeemable
	Appreciation		Deferred		Noncontrolling
	Rights		Compensation		Interests
	(in thousands)
Balance as of April 30, 2019	$	23,458	$	1,695	$	12,498
Amounts redeemed		(361)		(116)		(4,921)
Change in fair value		60		57		604
Balance as of July 31, 2019	$	23,157	$	1,636	$	8,181
Classified as current as of April 30, 2019	$	1,355	$	108	$	1,569
Classified as long-term as of April 30, 2019		22,103		1,587		10,929
Classified as current as of July 31, 2019	$	1,190	$	—	$	—
Classified as long-term as of July 31, 2019		21,967		1,636		8,181

Total expense related to these instruments was $0.7 million and $0.9 million during the three months ended July 31, 2019 and 2018, respectively, and was included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income.

Stock Appreciation Rights

Certain subsidiaries have granted stock appreciation rights to certain employees under which payments are dependent on the appreciation in the book value per share, adjusted for certain provisions, of the applicable subsidiary. Settlements of the awards can be made in a combination of cash or installment notes, generally paid over five years, upon a triggering event. As of July 31, 2019, all stock appreciation rights were vested.

Deferred Compensation

Subsidiaries’ stockholders have entered into other deferred compensation agreements that granted the stockholders a payment based on a percentage in excess of book value, adjusted for certain provisions, upon an occurrence as defined in the related agreements, which are called “Buy Sell” agreements. These instruments are redeemed in cash or installment notes, generally paid in annual installments over the five years following termination of employment.

Redeemable Noncontrolling Interests

Noncontrolling interests were issued to certain employees of certain of the Company’s subsidiaries. All of the noncontrolling interest awards are subject to mandatory redemption on termination of employment for any reason. These instruments are redeemed in cash or installment notes, generally paid in annual installments over the five years following termination of employment. Liabilities related to these agreements are classified as share-based liability awards and are measured at intrinsic value. Intrinsic value is determined to be the stated redemption value of the shares. Under the terms of the employee agreements, the redemption value is determined based on the book value of the subsidiary, as adjusted for certain items.

Upon the termination of employment or other triggering events including death or disability of the noncontrolling stockholders in the Company’s subsidiaries, we are obligated to purchase, or redeem, the noncontrolling interests at either an agreed upon price or a formula value provided in the stockholder agreements. This formula value is typically based on the book value per share of the subsidiary’s equity, including certain adjustments.

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Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Apr. 30, 2019
Equity based compensation arrangements
Long-term liabilities related to plans	$ 8,181		$ 10,929
Selling, general and administrative expenses
Equity based compensation arrangements
Expense related to equity based compensation arrangements	700	$ 900
Stock Appreciation Rights
Equity based compensation arrangements
Award liability as of beginning of period	23,458
Amounts redeemed	(361)
Change in fair value	60
Award liability as of end of period	23,157
Current liabilities related to plans	1,190		1,355
Long-term liabilities related to plans	$ 21,967		22,103
Settlement period	5 years
Deferred Compensation
Equity based compensation arrangements
Award liability as of beginning of period	$ 1,695
Amounts redeemed	(116)
Change in fair value	57
Award liability as of end of period	1,636
Current liabilities related to plans			108
Long-term liabilities related to plans	$ 1,636		1,587
Settlement period	5 years
Redeemable Noncontrolling Interests
Equity based compensation arrangements
Award liability as of beginning of period	$ 12,498
Amounts redeemed	(4,921)
Change in fair value	604
Award liability as of end of period	8,181
Current liabilities related to plans			1,569
Long-term liabilities related to plans	$ 8,181		$ 10,929
Settlement period	5 years

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Leases - Future minimum lease payments under non-cancellable leases (Details) $ in Thousands	Jul. 31, 2019 USD ($)
Finance lease
2020 (remaining nine months)	$ 31,712
2021	38,061
2022	31,246
2023	22,544
2024	13,703
Thereafter	4,561
Total lease payments	141,827
Less imputed interest	27,784
Total	114,043
Operating lease
2020 (remaining nine months)	29,362
2021	31,829
2022	23,263
2023	16,999
2024	12,400
Thereafter	18,707
Total lease payments	132,560
Less imputed interest	16,554
Total	$ 116,006

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Equity-Based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		12 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Apr. 30, 2019
Other disclosures
Equity-based compensation	$ 1,395	$ 404
Selling, general and administrative expenses
Other disclosures
Equity-based compensation	$ 1,200	$ 300
Stock Options
Number of Options
Outstanding, beginning of the period (in shares)	2,080
Options granted (in shares)	85	0
Options exercised (in shares)	(9)
Options forfeited (in shares)	(6)
Outstanding, end of the period (in shares)	2,150		2,080
Exercisable at end of period (in shares)	1,645
Vested and expected to vest at end of period (in shares)	2,144
Weighted Average Exercise Price
Outstanding, beginning of period (in dollars per share)	$ 16.34
Options granted (in dollars per share)	18.04
Options exercised (in dollars per share)	14.77
Options forfeited (in dollars per share)	37.49
Outstanding, end of the period (in dollars per share)	16.36		$ 16.34
Exercisable at end of period (in dollars per share)	13.70
Vested and expected to vest at end of period (in dollars per share)	$ 16.33
Other disclosures
Weighted Average Remaining Contractual Life, Outstanding (in years)	6 years 14 days		6 years 1 month 24 days
Weighted Average Remaining Contractual Life, Exercisable at end of period (in years)	5 years 1 month 28 days
Weighted Average Remaining Contractual Life, Vested and expected to vest at end of period (in years)	6 years 10 days
Aggregate Intrinsic Value, Outstanding	$ 15,284		$ 7,615
Aggregate Intrinsic Value, Exercisable at end of period	14,902
Aggregate Intrinsic Value, Vested and expected to vest at end of period	15,284
Intrinsic value of options exercised	100	$ 500
Unrecognized compensation cost	$ 3,200
Weighted-average period for recognition of unrecognized compensation expense (in years)	2 years 1 month 6 days