Segments

3 Months Ended

Jul. 31, 2020

Segments

Segments

14. Segments

General

The Company has eight 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 eight operating segments based on the Company’s eight geographic divisions, which are Central, Midwest, Northeast, Southern, Southeast, Southwest, Western and Canada. During the three months ended July 31, 2020, the Company divided its Southern operating segment into two operating segments, Southern and Southwest, which resulted in an increase (from seven to eight) in the number of operating segments. The Company performed a goodwill impairment test immediately before and after the change in operating segments, which

indicated the fair values of the Company’s reporting units exceeded their carrying values. 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 Term Loan Facility. The ABL Facility and the Term Loan 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, including a reconciliation thereof to net income, the most directly comparable GAAP measure.

The following tables present segment results for the three months ended July 31, 2020 and 2019:

	Three Months Ended July 31, 2020
					Depreciation and		Adjusted
	Net Sales		Gross Profit		Amortization		EBITDA
	(in thousands)
Geographic divisions	$	794,472	$	257,838	$	26,782	$	82,503
Other		8,101		2,620		91		551
Corporate		—		—		224		—
	$	802,573	$	260,458	$	27,097	$	83,054

	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

The following table presents a reconciliation of Adjusted EBITDA to net income for the three months ended July 31, 2020 and 2019:

	Three Months Ended
	July 31,
	2020		2019
	(in thousands)
Net income	$	27,219	$	24,820
Interest expense		14,081		18,277
Interest income		(37)		(12)
Provision for income taxes		9,604		7,590
Depreciation expense		12,827		12,422
Amortization expense		14,270		16,853
Stock appreciation expense(a)		792		60
Redeemable noncontrolling interests(b)		252		662
Equity-based compensation(c)		1,605		1,395
Severance and other permitted costs(d)		1,947		554
Transaction costs (acquisitions and other)(e)		100		972
Loss (gain) on disposal and impairment of assets(f)		394		(156)
Effects of fair value adjustments to inventory(g)		—		151
Adjusted EBITDA	$	83,054	$	83,588

(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 the calculation of Adjusted EBITDA under the ABL Facility and the Term Loan Facility, including certain unusual, nonrecurring costs due to COVID-19.

(e) Represents costs related to acquisitions paid to third parties.

(f) Includes impairment of assets resulting from restructuring plans to close certain facilities and gains from the sale of assets.

(g) Represents the non-cash cost of sales impact of acquisition accounting adjustments to increase inventory to its estimated fair value.

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, 2020 and 2019:

	Three Months Ended
	July 31,
	2020		2019
	(in thousands)
Wallboard	$	327,997	$	341,595
Ceilings		113,702		129,110
Steel framing		110,487		131,829
Other products		250,387		244,642
Total net sales	$	802,573	$	847,176

Geographic Information

The following table presents the Company’s net sales by major geographic area for the three months ended July 31, 2020 and 2019:

	Three Months Ended
	July 31,
	2020		2019
	(in thousands)
United States	$	679,321	$	731,343
Canada		123,252		115,833
Total net sales	$	802,573	$	847,176

The average exchange rates for translating net sales in Canada from Canadian dollars to U.S. dollars were 0.7308 and 0.7518 for the three months ended July 31, 2020 and 2019, respectively.

The following table presents the Company’s property and equipment, net, by major geographic area as of July 31, 2020 and April 30, 2020:

	July 31,		April 30,
	2020		2020
	(in thousands)
United States	$	265,351	$	270,855
Canada		34,310		34,612
Total property and equipment, net	$	299,661	$	305,467