CSW Industrials, Inc.

Greetings and welcome to the CSW Industrials Fiscal First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Adrienne Griffin, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, Carl. Good morning, everyone, and welcome to the CSW Industrials Fiscal First Quarter 2022 Earnings Call. Joining me today are Joseph Arms, Chairman, Chief Executive Officer and President of CSW Industrials, and James Perry, Executive Vice President and Chief Financial Officer. We issued our earnings release presentation, and Form 10Q prior to the market's opening today, as well as a supplemental Form 8K regarding our resegmentation. And all are available on the investor portion of our website at www.cswindustrials.com. In conjunction with our resegmentation announcement, we've relaunched our website. The newly designed site includes descriptions of our new reportable segments, expanded information regarding our operations and products, corporate responsibility, and investor materials. This call is being webcast, and information on how to access the replay is included in the earnings release. During this call, we will make forward-looking statements. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Actual results could materially differ because of factors discussed today in our earnings release, in the comments made during this call, as well as the risk factors identified in our annual report on Form 10-K and other filings with the SEC. We do not undertake any duty to update any forward-looking statements. I will now turn the call over to Joe Arms.

Thank you, Adrienne. Good morning, and thank you for joining our conference call. We are extraordinarily pleased to share our fiscal first quarter 2022 consolidated results, reporting nearly 80 percent growth in both revenue and adjusted earnings per share as compared to the fiscal first quarter of last year. Our team delivered $70.3 million, or 77.3 percent, in total revenue growth, of which $36.8 million or 40.5 percent, was organic growth, and $33.5 million, or 36.8 percent, was inorganic growth from our TruAir acquisition. This tremendous outcome was driven by our team's intense focus on understanding our customers' needs, active management of our supply chains, investment and inventory, bringing the best products to market, and increasing our wallet share and share of market. I would also like to highlight that we returned to organic growth in every end market that we served, specifically outperforming the growth of the HVAC industry by a significant margin. To underscore the magnitude and the significance of our top-line growth, we can compare this quarter's results to our fiscal first quarter two years ago, our fiscal 2020. For that period, we reported $102.3 million in revenue. Accordingly, fiscal first quarter 2022 represents total growth of $59 million, or 57.6%, including organic growth of $25.5 million, or 24.9%, over fiscal 2020. Our adjusted EBITDA this quarter was $40.5 million, representing growth of nearly 108% compared to last year and 67% growth as compared to two years ago. Our profitability remains strong with an adjusted EBITDA margin of 25.1, 21.4, and 23.7% in the first quarter of each of the last three fiscal years. We are also reporting quarterly adjusted earnings per share attributable to CSWI of $1.46, which is 80 percent growth over the 81 cents per share in the prior year period, and 44.6 percent growth over the $1.01 we reported in fiscal first quarter of 2020. While we're very pleased with our strong quarterly consolidated results, we are not satisfied. our diligent pursuit of operational excellence, our expectation of outperforming the end markets we serve, and our commitment to robust profitability establish the manner in which we assess performance across all areas of our organization, and we will continue to swiftly respond to address and resolve any underperformance. Since we have now owned TruAir for over two full quarters, we wanted to provide financial and operational updates. the demand for our TruAir products is strong, and the results are exceeding the expectations we had when we made the decision to acquire that business. Commercial integration occurred promptly after closing, and we are actively executing the next phases of our integration plan. The region in Vietnam where our TruAir manufacturing operation is located was recently placed under enhanced COVID-19 restrictions. We have taken appropriate actions to ensure that we can continue operations while protecting the health, safety, and welfare of our employees. Production levels at this facility are currently reduced to help satisfy COVID protocols, and our manufacturing is focused on products with the highest demand. For context, in the recent weeks prior to the reduced production levels, we shipped an average of 36 containers a week from Vietnam to the United States. Last week, we shipped 14 containers. We are continuing with our current operational plan. However, we are monitoring the situation closely and are prepared to respond to any further disruption. We anticipate that our focused production plan through this restriction period in conjunction with inventory on hand in our U.S. distribution centers will be sufficient to meet customer demand for the foreseeable future. Our fiscal first quarter results reflect the sound measures established by our leadership team in the early months of last fiscal year, which were executed in an ongoing manner by CSWI team members around the globe. We remain steadfast in our commitment to the guiding objectives we previously articulated, and our outcomes have demonstrated that we are focused on the right solutions to the benefit of our team members, our customers, communities, and our shareholders. addressing many aspects of our corporate sustainability efforts. Over the past several quarters, we have shared specific metrics that provide insight into our guiding objective to treat our employees well. In our recently filed proxy statement, we shared an important metric that communicates the effectiveness of our focus on safety, total recordable incident rate, or TRIR. At the end of calendar 2020, our TRIR was 3.2, which was improved over calendar 2019. And through the first six months of calendar 2021, our TRIR was 1.5, demonstrated continued meaningful improvements year over year. Additionally, we recently announced the 2021 CSWI scholarship recipients who were awarded a total of $50,000 in assistance to further their education. This scholarship fund was established four years ago and has awarded a total of $200,000 to 26 students. Recipients of these scholarships must be dependents of our CSWI team members and attend a technical college or two- or four-year university. Of the 26 recipients to date, 61% are their family's first generation to pursue a post-secondary education. We're very proud of those students and of our company's investment in their future. Returning to our recent results, our capacity to serve our customers well, which is another guiding objective, was demonstrated through our outstanding revenue growth. Demand for our products correlates with strong sell-through channel inventory restocking, and general improvement in the health of the global economy. To address the ongoing inflation in materials, freight, and commodities during the first fiscal quarter across all segments and in markets served, we took price actions to protect profitability. These price actions were implemented at various points in the quarter, and therefore, this quarter's results do not reflect the full benefit of those price actions. resulting in some margin compression in certain end markets served. Additional pricing actions have taken place since the end of the fiscal first quarter, and we continue closely monitoring the cumulative impact of realized pricing actions and ongoing cost inflation to determine if further action is needed to protect profitability. While we are managing the same supply chain constraints that others are discussing, We have qualitative data that indicates we are performing significantly better than competitors on lead time and product availability across the end markets that we serve, reflective of our guiding objective to manage our supply chains effectively. We believe that we provide a premium product concurrent with best-in-class availability and customer service and will continue to appropriately address price inflation. At this time, I'll turn the call over to James for a closer look at our segment results. James?

Thank you, Joe, and good morning, everyone. Earlier this morning, as disclosed in our Form 10-Q and our quarterly earnings release, we announced a strategic realignment of our reportable segments, and we also filed a Form 8-K providing supplemental historical segment information recast to reflect our new reportable segments. Following the acquisition of TruAir and the formation of the Whitmore Joint Venture with Shell Lubricants, our leadership team, in consultation with our board of directors, determined it was appropriate to realign our reportable segments to more clearly reflect the manner in which our leadership team reviews business performance and allocates capital. We feel this resegmentation provides our investors with a clearer picture of the performance of our various businesses after the acquisition and the formation of the JV. CSWI is now organized into three segments. Our contractor solutions segment is comprised predominantly of our RectorSeal and TruAir businesses, which are well-known for the value-adding products mainly targeting residential and commercial HVAC-R and plumbing applications. Our engineered building solutions segment is comprised primarily of our Balco, Greco, and SmokeGuard businesses, which provide code-driven products focused on life safety, that are engineered to provide aesthetically pleasing solutions for the construction, refurbishment, and modernization of commercial, institutional, and multifamily residential buildings. Our third segment is specialized reliability solutions, primarily comprised of our Whitmore business and the Whitmore Shell joint venture, which provide products that enhance the reliability, performance, and lifespan of critical assets in the general industrial, energy, mining, and rail end markets. Given the enhanced correlation between our reportable segments and the end markets served, we believe investors will have improved clarity to understand our performance. We will no longer provide quantitative updates on end market sales, as these will be appropriately reflected directly within the segment results. Another item to note in our financials this quarter This is the first fiscal quarter in which we are reporting the results of the Whitmore joint venture. The joint venture financial results are fully consolidated into CSWI, and we have reported select financial information on a basis that is attributable to CSWI. For clarity, these attributable results exclude the net income attributable to the non-controlling interest. As Adrienne mentioned in the opening remarks, our new website is available, and it, along with our quarterly investor presentation found on the website, reflects this new segment structure and incremental joint venture reporting. Our consolidated revenue during the fiscal first quarter of 2022 increased 77.3% to $161.3 million, compared to $91 million in the prior year period. The higher revenue was driven by each segment, with $60.4 million from contractor solutions, $3.5 million from engineered building solutions, and $6.4 million from specialized reliability solutions. Contractor solutions segment revenue was $110.2 million, a 121% increase from the prior year period due to increased organic sales into the HVAC-R plumbing, and architecturally specified building products and markets, plus the $33.5 million of work in organic growth from TrueAir and pricing initiatives that began in the fiscal fourth quarter 2021 and that continued and increased during the fiscal first quarter 2022. In fiscal first quarter 2022, this segment accounted for 68% of our consolidated revenue, Adjusted segment EBITDA was $39.4 million, or 35.8 percent of revenue, compared to $17.3 million, or 34.7 percent of revenue in the prior year period. Engineer building solutions segment revenue was $25.7 million, a 15.8 percent increase from the prior year period of $22.2 million, principally due to enhanced marketing efforts to promote existing and newly developed products. Many of these products have a shorter sales cycle, which contributed to our ability to drop growth despite a contracting non-residential construction market. Segment EBITDA was $4.3 million, or 16.6 percent of revenue, compared to the prior year period of $4.2 million, or 19.1 percent of revenue, with the margin decrease due to a shift in sales to lower margin products. Pricing increases in this segment have been implemented in the second fiscal quarter. As of the end of the fiscal first quarter, our book-to-bill ratio for the trailing eight quarters was just below one. Specialized reliability solutions segment revenue was $25.4 million, a 33.9% increase from the prior year period of $19 million, mostly due to increased sales volumes into the general industrial and energy end markets. Segment EBITDA was $1.8 million, or 7.3 percent of revenue, approximately flat to the prior year period, as growth in material and freight expenses accelerated more quickly than the effectiveness of the implementer pricing initiatives. The JV contributed income this quarter and is expected to continue growing in future quarters as we ramp up production, which we are accelerating due to supply recently leaving the market. While we are disappointed in the results from this segment, we remain confident in the expectation of improved profitability in the back half of the year due to improving in-market conditions, accelerating growth of the JV, and new segment leadership that arrived in June that has already instituted pricing increases. Consolidated gross profit in the fiscal first quarter was $68.6 million, representing 60.5% growth from $42.8 million in the prior year period. with the incremental profit resulting predominantly from the TrueAir acquisition and increased organic sales volumes. Adjusted to exclude the final $3.9 million purchase accounting effect from the TrueAir inventory value step-up, gross profit was $72.5 million, resulting in an adjusted gross profit margin of 45%, compared to 47% in the prior year period. As mentioned previously, the decline in gross profit margin was primarily due to incremental expenses related to inclusion of the true bear business, as well as inflation in material and freight costs that outpaced instituted price increases in some end markets served. Adjusted consolidated operating income increased by 99.3% to $32.4 million, equating to a 20.1% margin and representing a 220 basis point increase over adjusted operating income margin in the prior year period. Adjusted consolidated EBITDA increased 107.9 percent to $40.5 million from $19.5 million in the prior year period. Adjusted consolidated EBITDA as a percent of revenue was 25.1 percent and 21.4 percent in the current and prior periods respectively. Reported net income attributable to CSWI in the fiscal first quarter of 2022 was $20 million, or $1.27 per diluted share, compared to $12 million, or $0.81 in the prior year period, which had no adjustments. Adjusted to exclude the final true error purchase accounting effect, adjusted net income attributable to CSWI was $23 million, or $1.46 per diluted share. Transitioning to the strength of our balance sheet, we ended the fiscal first quarter with $15.7 million of cash and increased our cash flow from operations to $18.9 million, a 33.8% increase over the prior year period. During the quarter, we reduced the outstanding amount under our $400 million revolving credit facility by $11 million, resulting in approximately $180 million of availability as of the end of the fiscal first quarter. As of quarter end, our leverage ratio was less than 1.5 times, well within our stated range of one to three times. These metrics leave us well positioned for the continued allocation of capital as outlined in our capital allocation strategy. The company's effective tax rate for the fiscal first quarter was 23.9% on a GAAP basis, and the company continues to expect a 25% tax rate for the fiscal year 2022. With that, I'll now turn the call back to Joe.

Thank you, James. My colleagues hear me say this often. At CSWI, how we succeed matters. Achieving these outstanding consolidated first quarter results represents an outcome of our commitment to be good stewards of your capital and to our goal of delivering long-term shareholder value. Our outstanding revenue growth during this first fiscal quarter was fueled by the TrueAir acquisition, organic volume growth, and contributions from the price actions we've discussed today. Consolidated EBITDA margins were protected from inflation. As we look ahead to the remainder of this fiscal year, we continue to expect year-over-year quarterly growth. and further expect that the rate of growth will necessarily decline from the 77% growth rate we realized this quarter as our strong performance in the last nine months of FY 2021 make future quarter-over-quarter comparisons more difficult. As we consider the drivers of expected revenue growth in the remainder of the fiscal year, we remind everyone that we acquired TruAir on December 15, 2020, and accordingly, fiscal fourth quarter true error contributions will be included in our organic growth, consistent with how we've treated all prior acquisitions. We expect that the fiscal third quarter will continue to be our lowest revenue quarter due primarily to the seasonally reduced spend in the HVACR industry. While we are proactively managing pricing to protect profitability, timing differences in the short-term headwinds in raw materials and freight could impact margins modestly. As I commented in my opening remarks, we are not satisfied with the performance of all of our segments, but we are optimistic about the long-term health of the end markets we serve and the strength of our leadership team today to return to consistently improving profitability across our organization. And before we open the line for questions, I'd like to take this moment to thank Bill Quinn, who has served on the board of directors of CSWI since our founding nearly six years ago. As part of our strong commitment to the highest of governance standards, we have a mandatory retirement age for directors. And after our annual meeting of shareholders later this month, Bill's service on our board will conclude. Bill has provided thoughtful, wise, and decisive leadership to our organization. I would like to thank him for his indispensable contributions as chair of our audit committee and as a member of our board. On a personal note, Bill has been a mentor to me, and his influential presence will be sorely missed. We wish him the very best as he continues to serve on other boards and serve in his community. As always, I'd like to close by thanking all of my colleagues here at CSWI who collectively own 6 percent of our company through our employee stock ownership plan and do such a great job, as well as all of our shareholders for their continued interest in and support of our company. With that, operator, we're now ready to take questions.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. The first question comes from John Sanluntang from CJS Securities. Please go ahead.

Hey, good morning, everyone. Really, really great quarter. Congratulations on that. My first question is regarding TruAir. That's that commentary out from Vietnam. It seems a little bit concerning. I was wondering how many days of inventory do you have for TrueRack at current demand and supply levels and are you expecting to leave any revenue on the table potentially for competitors to regain share or just not being able to meet in near-term quarters?

Yeah, John, this is James. Good morning. Thanks for the nice remarks. Very pleased with the quarter. The $1.46 of adjusted earnings is a record for us and very happy with that, and I appreciate the kind words. As far as Vietnam, yeah, we wanted to be sure that you and our investors were aware of the situation over there. That's not necessarily in the news as much. The team over there, let me first of all say, is doing a tremendous job. Health and safety of our employees is priority one, and we've done a great job with that. What we've done with the reduced staff that we have, and we talked about the container loads we have coming over each week the last couple weeks, and you see the reduction there, Yeah, I'll mention two things. We are highly focused on those products in the highest demand, as Joe mentioned. We know which products are the fastest moving products. As you recall, John, when we announced the acquisition and even in the last couple quarters earnings calls, we talked about TrueArea carrying a high level of inventory so they can meet the customer demand very quickly. We don't see that being a problem anytime soon. We keep a high level of inventory. We talked, in fact, about that may be a strategic advantage for us being able to do that when we bought the company. And as a result, that required some investment. We've taken that same tack in some of the other parts of the company to hold a little extra inventory to be safe these days. And we've not had issues getting product to customers. At TruAir specifically, again, we're focused on what's coming over in those containers is those highest moving products. But we did a pretty deep dive in the analysis, and the TruAir and RectorSeal team and Contractor Solutions did a really good job with this. We've got several, and by several I mean more than a few months of inventory of this highest moving products already here in the States, and more coming over in containers every week. So we feel very good about being able to meet customer demand for those products for the next several months. It's hard to look much further than that. Not many companies talk about several months of inventory. So having that little bit of extra already here, being able to continue to ship product over is an advantage to us, we think, in this market. You know, if situations were to change in coming quarters, we'll talk about that, but to date, we don't see revenue being left on the table anytime soon.

Got it. That's comforting to hear. Thank you for the clarifications there. Second, I was just wondering if you'd comment on demand trends, and specifically if you pulled forward anything from Q3. I know sometimes your distributors, you know, over-order or restock or overstock sometimes. And I think in this environment, I think people would want more safety stock than normal, as you demonstrated. So I'm wondering, you know, are you seeing continued demand strength? And if so, what are the components of that from an inventory versus true demand basis?

Sure, John. Yeah, that's a great question and a key question for us. You know, we watch closely what the distributors are doing, those that publicly report what the OEMs are doing, although it's not a perfect comp. Obviously, you have a few OEM comps out there that you know very well. And we generally outperform the market in the HVAC space and very, very pleased with that. And that's really a testament to our commercial sales efforts, the availability of inventory, like I talked about, and the team to produce and get these products out the door. But in terms of the other side of things, we watch very closely the sell-through rates at the distributors. And those rates were very high this last quarter. There may be a little deceleration of that, and we're starting to see, you know, orders kind of, I think, get in equilibrium with that. As Joe talked about, you know, the comps get harder year over year because our first quarter last year, you know, we kind of had half of a tough quarter and the back half ended up good. Last year, our second and third quarters were very strong. We're starting out this quarter very well again. We feel good about demand is still there. It's always hard to know until you get on the other side, is there a pull-forward demand? But again, the sell-through rates that we watch very closely at the couple of institutions that publish that tell us that the distributors are selling what they're buying. So we feel right now that there's not much pull-forward. Time will tell if there's a little bit, but the demand is still strong.

And John, this is Joe. One thing I would add to that is that we are building backlogs of orders that we haven't had before in much larger quantities. And so businesses that have typically tried to ship out within 24, 48, 72 hours of an order coming in, we have significant backlogs there. So again, demand is not a problem at this point, and we feel really good about that.

Got it. That's helpful. And I really appreciate you breaking out the architectural business. into this new segment structure. I was wondering, on a go-forward basis, are you expecting continuous improvements for these levels, or is there more of a trough ahead as non-construction continues to be a little bit weaker?

Yeah, and thanks for recognizing the new segments. We're pleased to be able to present that. We think over time it's going to make things easier for everybody, and you can see the historical performance of those segments in the 8K we published. You know, in terms of that segment specifically with Valco, Greco, and SmokeGuard, It's going to be a bit of a mix. We are seeing what looks in 2022 like a downturn in commercial construction that leads to some of what these businesses sell, of course, having a little less demand. There is a backlog in these businesses. We are seeing, however, bidding activity up, order activity up, and we're starting to rebuild some backlogs in these. Some of those, though, are a few quarters out, as we always talk about. So without getting real specific business by business right now, some of the products in these businesses are kind of moving into the air pocket we've talked about for a while and a little bit of trophy following the commercial side of things. But some of the other businesses and products are still performing very well. Those are shorter term in nature. And that's what's really held this business up to have nice margins and nice revenue growth year over year. So We'll continue to update that, but the trends we're seeing, you're right, that there seems to be a downturn in commercial construction this year because obviously coming out of the pandemic, a lot of projects were put on hold. Some of those are getting ramped back up, and we're seeing that in orders for projects that'll be completed later this year and into early next fiscal year.

Well, we are strongly optimistic about fiscal 2023 for that business, John, and so we can already begin to look through the back half of the year here and see, you know, we're setting up for a nice year in fiscal 2023 there.

Okay, great. Thank you for that. And then last one for me, just are the pricing increases in the reliability segment enough to increase the margins on a sequential basis?

Yeah, I'll say a couple of things. That was the business that probably was the latest in the timing of the price increases. Part of that was due to kind of our change in leadership and really getting the feet on the ground and working through that. Some of it was you've got some contractual relationships, that business has some backlog, and it has to work its way through. you had some higher price costs coming through pretty quickly, and it's taken us a little bit of time to get that pricing increase to really offset that from a margin perspective. So you had some degradation. We're going to see some of that this quarter as well before we really kind of get our sea legs there, and that really starts kicking in. The contractor solutions businesses, and I'll come back to reliability for you. Contractor solutions was able to do that early and often during the quarter and continues to, and engineering building solutions had success there as well. But the specialized reliability solution segment Had a bit of a headwind there. I'd say a couple of things in terms of margins. Number one is we go through, and I specifically in my remarks mentioned the back half of the year, looking a little through this current quarter that we're in the middle of now to the back half of the year. We see those pricing increases really having nice effect all the way through the back half of the year. I will also say as demand and business is picking up in the end markets served in that space, the general industrial market, the mining, the rail, the energy spaces. Demand's picking up, so volumes are picking up. You saw that year over year, obviously, in the numbers. And then lastly, the JV, as the joint venture's ramping up very quickly, and we're even accelerating some of that because we mentioned some supply leaving the market and we have an opportunity to fill that demand, that all leads to better absorption in the plant. You know very well, John, and most of our investors do, that we have a very nice facility that had a lot of capacity. And one reason the JV was very elegant for us and worked very well was to fill that capacity So between the organic demand and the JV demand, we think we have good opportunity back half of the year and fully expect to have back half of this year and certainly in the next fiscal year, margin improvement is going to be quite noticeable.

Okay, thanks for that.

Thank you, John. Thanks, John. The next question comes from Chris Howe from Barrington Research. Please go ahead.

Good morning, everyone. Good morning, Chris. Good morning. Jumping right in here, and I apologize if this was asked earlier, juggling multiple things this morning, but as we think about this pressured environment that may or may not pressure profit, can you talk about anything in the quarter that a As far as the timing of orders, is there anything to point out there that might be pushing into the following quarter? And as far as the price increases, you mentioned it as to how it relates to the reliability segment. Can you talk about just how this environment is playing out versus your expectation without kind of getting into a quantifiable number?

Yeah, good morning, Chris. This is James. I'll start and Joe will add a little bit to that. You know, the first question you asked about timing of orders, I think where I would point to nothing unusual other than what Joe mentioned a minute ago about backlog. We did have some backlog in some of our businesses because the demand has been so strong. And so in order that was placed maybe in our fiscal first quarter, the revenue we may see here in the fiscal second quarter because of those backlogs. We have a couple product lines where that built and we got some relief when we had some good Good shipment of product come in and got that out the door. So other than that, nothing unusual in terms of timing of orders that I would talk about this quarter. In terms of the reliability solution segment, as I mentioned earlier, you know, opportunity for pricing increases there, opportunity to continue to focus on which products have the best margin opportunity, where we need to focus our capacity, which geographies have the best margin opportunity, where we need to focus our sales efforts and our capacity. And I think we're heading in the right direction in that respect. Joe?

Yeah, I think there's a laser focus on this within the management team. And while, as James said, the reliability business got a little bit of a late start, everybody is highly focused on this. And we see no reason why we won't have the pricing power available to protect our profits. And that's absolutely our commitment.

And Chris, one thing I'll mention, we've mentioned it a couple times, just to clarify, and I'll let you ask your next question, is what we're really focused on first is profit dollars. So as we increase our prices, our first goal is to be sure we're covering those cost increases, which span across raw materials, airborne freight, or seaborne freight, excuse me, and labor. All of those have cost increases. Some of those likely won't go back down. Something like freight likely will over time as we see some congestion relief, but Some costs won't, but our pricing increases have been to at least cover those costs from a dollar perspective. As we are able to in the market, increase price beyond that, we can protect that margin percentage. So while margin percentage may see a little bit of headwind, as you mentioned, those dollars we feel very good about, and thus the record year-over-year earnings.

That's very color, and it led me to another question I didn't have planned. As we think about these price increases, I mean, if we look at TrueAir, you have a good market position, and the brand names that you carry in some of the other areas of the business. Is this an opportunity for the company to take price? In other words, not give some of it back as this inflationary environment or strained environment starts to loosen, given your market position?

Yeah, Chris, I think you're right that there'll be some stickiness on some of this pricing, but we're going to take a long-term perspective with respect to our customers, and treating our customers well, serving our customers well is one of our guiding principles. Being overly optimistic in this environment is probably not the right approach either. So, you know, we're going to work through that, but take a long-term perspective. But there's no question that price increases have some stickiness to them. Some of these commodities, some of these freight costs, those types of things will come down. They're all cyclical. And, you know, we'll see how it plays out from there.

Okay. And one last question. If probably has been asked, but there aren't many companies around with your capital structure. You've got a leverage ratio of less than one and a half turns. Surely we have to make sure TrueAir is integrated fully. But as you kind of navigate this environment from a competitive perspective, I would assume your pipeline for inorganic growth is only growing and it's just about being disciplined and making sure that fits the timing of the company.

Yeah, Chris, I couldn't agree more. I mean, I think we are setting up very, very nicely with a lot of free cash flow, a really strong balance sheet, a lot of dry powder. And as you said, discipline is key. We have a demonstrated track record of being disciplined and waiting for the right opportunity, as TruAir was. but then being decisive and taking advantage of the opportunity. So we're looking for another opportunity to do that. And with every passing day, you know, we're getting closer to that because, you know, the integration of the JV and TrueAir are going well. And we're going to be in a great position to allocate capital to inorganic growth opportunities. But again, Discipline is the word of the day. We're not going to overpay, and we're going to make sure it's the right acquisition at the right price so that it creates shareholder value.

All right, great. And thank you to you and the team for a great quarter.

Great, Chris. Thank you very much.

This concludes the question and answer session. I would like to turn the conference back over to Mr. Joe Worms for any closing remarks.

Yeah, I just want to say thank you very much for joining us today. I know it's a busy week and appreciate your interest in CSWI and look forward to doing this again next quarter. So thank you. Take care.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.