CSW Industrials, Inc.

Greetings and welcome to the CSW Industrials, Inc. Fiscal 2025 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief 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, Alexa Huerta, CSWI's Vice President of Investor Relations and Treasurer. Thank you. You may begin.

Thank you, Michelle. Good morning, everyone, and welcome to the CSW Industrials Fiscal 2025 First Quarter Earnings Call. Joining me today is 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, updated investor relations presentation, and Form 10-Q prior to the market's opening today, all of which are available on the investors portion of our website at www.cswindustrials.com. This call is being webcast, and information on accessing 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 and 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.

Thank you, Alexa. Good morning, everyone. I'm proud to report that once again, our team has delivered record results in the first fiscal quarter of 2025 and has outperformed the markets we serve. This morning, we reported all-time highs for each of our quarterly revenue of $226 million, EBITDA of $65 million, earnings per diluted share of $2.47, net income of $39 million, and cash flow from operations of $63 million. Our gross profit margin expanded an additional 220 basis points to 47.5 percent as a result of pricing, favorable product mix, cost containment, and operational efficiency. Our EBITDA margin also expanded by 210 basis points to 28.9% in the quarter. Our sharp focus on cash flow from operations drove a fiscal first quarter record of $63 million or 24.7% growth over the prior year. Our strong cash flow will continue to fund our capital allocation strategy and we remain focused on building our pipeline of inorganic investment opportunities with returns that will grow shareholder value. During the fiscal first quarter, we utilized our strong cash flow to pay down the outstanding debt on our revolving credit facility by $51 million. We ended the quarter with a balance of $115 million outstanding on our $500 million facility. allowing us to further reduce our interest expense and to maximize the capital available to us, which will fund future opportunities as they arise. Our balance sheet strength, liquidity, and increasing cash flows give us the luxury of being able to quickly act on business opportunities of size. Once again, each of the three business segments impressed during the quarter with their execution, resilience, and ability to deliver results. I will let James provide more details on the performance of each segment during the quarter. CSWI has a demonstrated nine-year track record of increasing long-term shareholder value. We continue to maintain a strong balance sheet, grow revenue meaningfully, and efficiently allocate capital using a rigorous risk-adjusted returns analysis to guide us. The power of our product distribution model is one key to our success, allowing us to grow faster than our market served, and our acquisitions benefit greatly from this model. At CSWI, we also care about how we succeed, so we prioritize investing in our team members' well-being and focusing on our customers, which positions us for sustainable, long-term growth and profitability. At this time, I will turn the call over to James for a closer look at our results, and following that, I will return and conclude our prepared remarks.

Thank you, Joe, and good morning, everyone. As Joe mentioned, our consolidated record revenue during the fiscal first quarter of 2025 was $226 million, a $23 million, or 11%, increase when compared to the prior year period and a record all-time quarterly high for CSWI. $16 million of the growth was organic, mainly through increased volumes and some pricing initiatives. The remaining $7 million of growth came from the acquisition of Dust Free in February of this year. Consolidated gross profit in the fiscal first quarter was $107 million, representing nearly 17% growth over the prior year period. As Joe mentioned, our gross profit margin improved by 220 basis points. to 47.5 percent compared to 45.3 percent in the prior year period. Our record consolidated EBITDA for the first quarter increased by $11 million to $65 million, which was 20 percent growth when compared to the prior year period. Our EBITDA margin improved by 210 basis points to 28.9 percent as compared to 26.8 percent in the prior year quarter. driven by the gross margin expansion. As we mentioned on our fiscal year-end call in May, we will continue to strive for additional EBITDA leverage as we grow revenue and manage expenses. However, we are very proud of our recent EBITDA margins, and our team works hard to maintain these levels. Our focus will remain on increasing EBITDA dollars as our revenues grow. Net income attributable to CSWI in the fiscal first quarter was a record $39 million, or a record $2.47 per diluted share, compared to $31 million, or $1.97 per diluted share in the prior year period, representing growth of 26%. Our contractor solution segment, with $160 million in revenue, accounted for 71% of our consolidated revenue and delivered $20.5 million, or 14.6% total growth, when compared to the prior year quarter. Of the revenue growth in the quarter, $13.3 million, or 9.5%, was organic, while the remaining $7.2 million, or 5.1%, came from the dust-free acquisition. Growth for the quarter was reported in all of this segment's end markets and was a result of increased unit volumes and some pricing initiatives. Additionally, we benefited in the first quarter from a customer adding a new distribution center network that required a one-time stock up of inventory. Segment EBITDA was $58.3 million, or 36 percent of revenue, compared to $46.7 million, or 33 percent of revenue, in the prior year period, as our already market-leading margins continue to expand, mostly from volume leverage. Our Specialized Reliability Solutions segment revenue decreased 2 percent to $36.8 million, due to a slight volume decrease. During the quarter, a weather event in May at our manufacturing plant in Rockwall, Texas, caused a five-day power outage, leading to a delay in certain revenues, as well as higher than normal maintenance and IT expenses. Revenue increased in the general industrial and rail transportation end markets, but declined in the mining and energy end markets. Pricing initiatives had a positive impact on revenue in the quarter, but were offset by the slight decrease in volume. The segment EBITDA of $8.5 million in the fiscal 2025 first quarter was in line with the prior year period results. However, EBITDA margin improved 70 basis points to 23% in the current period, above our EBITDA margin target for this business of 20%. Our engineer building solution segment revenue increased to $30.9 million, a 12% increase as compared to $27.6 million in the prior year period. Bidding and booking trends remained solid, and at the end of the fiscal first quarter, our book-to-bill ratio for the trailing eight quarters remained unchanged from year end at 1.1 to 1. Segment EBITDA grew 32% to $6.2 million, or 20% EBITDA margin, compared to $4.7 million and a 17% EBITDA margin in the prior year period. We are pleased to see our EBS segment reach the 20% EBITDA margin target for the quarter, but keep in mind that this will fluctuate on a quarterly basis due to project mix. Transitioning to our strong balance sheeting cash flow, we ended our fiscal 2025 first quarter with $19 million of cash and reported record fiscal first quarter cash flow from operations of $63 million, compared to $50 million in the same quarter last year, representing 25% growth over the prior year period. The cash flow from operations in the quarter was an all-time record for CSWI. Our free cash flow, defined as cash flow from operations minus capital expenditures, was $59.6 million in the fiscal first quarter, compared to $45.3 million in the same period a year ago. That resulted in a free cash flow per share of $3.82 in the fiscal first quarter as compared to $2.91 in the same period a year ago, growth of 31%. As Joe mentioned, this impressive level of free cash flow allows us to invest in growth with the goal of increasing long-term shareholder value. Joe mentioned that we paid down $51 million of our revolver due to our strong cash flows. As a result, our bank covenant leverage ratio at quarter end declined 0.49 times from 0.73 times at the end of the fiscal 2024. As a reminder, the company has been in the lowest tier of our revolver pricing grid for a solid year now, reducing our interest rate spread and saving on interest expense. Our effective tax rate for the fiscal first quarter was 26.4% on a GAAP basis. We still anticipate delivering full-year growth in revenue, EBITDA and EPS growth, along with strong cash flow. With that, I'll now turn the call back to Joe for his closing remarks.

Thank you, James. To summarize, during the first fiscal quarter of 2025, we posted all-time record results for revenue, for EBITDA, for earnings per share, for net income, and for operating cash flow. Our 11 percent revenue growth included both organic and inorganic growth and resulted in higher margins due to strong operating leverage. Looking further into fiscal 2025, CSWI will continue to deliver growth that outpaces our markets served. We will continue to cultivate relationships in our strategic acquisition pipeline to complement our organic growth while maintaining our superior margins. At CSWI, we are focused on recruiting and retaining great talent, offering rewarding careers, and recognizing team members who excel while providing them with the opportunity for a safe, secure, and dignified retirement. Partnering with our employees to drive success is a very important part of our strategy. And one way that we affect this is through our employee stock ownership plan. I'm proud to announce that last month, CSWI contributed $4.2 million to our ESOP. This marks the ninth consecutive year of contributions And CSWI has now contributed an aggregate of $26.5 million to the plan since 2016 at zero cost to our team members. With the growth of our stock price, these ESOP contributions since 2016 have grown to well over $100 million of value today. And together with our 401 match have helped facilitate retirements for many of our long-tenured team members. So lastly, I just want to close my prepared remarks by thanking the dedicated team here at CSWI who collectively own 4% of the company through our employee stock ownership plan, as well as all of our loyal shareholders for their continued investment in, commitment to, and support of CSW Industrials. Michelle, we're now ready for questions.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first question comes from the line of John Tanwentang with CJS Securities. Please proceed with your question.

Hi, it's Charlie Struthers for John. Good morning. Good morning, Charlie. Hey, Joe. Joe, James, can you talk a little bit more about the sustainability of sales and margin and momentum going into Q2? And looking at Q1, were there any pull-forwards or unusual items that we should take into account?

Yeah, good morning, Charlie. It's James. Let me just first of all say this was an exceptional quarter. Really proud of the work the team did, prepared well for the demand that was there. I think if you look at our EBS and SRS segments, Q1 and Q2, you should see continued type growth opportunities that we saw year over year. Margins will fluctuate, as always, given product mix and timing. We talked about the little bit of revenue delay in May in specialized reliability solutions. They pretty much made that up, but obviously that affects you a little bit. But overall, those two segments, we do feel good about that. Contractor solutions, just truly exceptional. You asked specifically about pull forward. I mentioned in my comments we have one customer that's a large customer of ours that opened a new distribution network, and they had to stock up those distribution centers, and our team did a great job of doing that. Some of that could have been a little bit of pull forward. The demand may have come a little sooner than we expected. Q1 versus Q2, another customer placed some large orders near the back part of Q1. So you could say there's a little pull forward from Q1 to Q2, so I don't know If I'd say I would expect a repeat performance from a revenue perspective, but we have had a hot summer most places around the country, so demand has been solid. From a margin perspective, we said on our Q4 year-end call that to maintain the type of margins we had last year would be our expectation. We obviously exceeded that this quarter. I think looking at the margins we've had over the last several quarters is more realistic, and on a generally go-forward basis, they'll move around some. But when you had a Q1 quarter, at Contractor Solutions with the type of volume pull through that the team was able to accomplish, especially those couple of larger orders that, again, may have been a little bit of pull forward, that's going to help margins. So to see that business beat its margin number kind of year over year by several hundred basis points, a lot of that's volume driven. There's some good mix in there, but you've just got a set of kind of fixed overhead costs that don't need to move a lot to push more volume through the system. Long way of saying really proud of the first quarter. Looking forward to a solid rest of the year. We talked about growing at roughly last year's growth rates plus the acquisitions. We obviously exceeded that Q1. That's a seasonally strong quarter. But we're still optimistic for the year in total.

Great. Thanks. Thoughts on the OEM HVAC companies kind of increasing their forecast and, you know, if that flows through to you guys versus the base kind of MRO demands?

Yeah, we're encouraged by that, clearly to see, you know, all the OEMs, one even this morning, talk about nice year-over-year order volume pickups. You know, the residential OEM market has been soft for the last couple of years. There was some pull forward from COVID, obviously higher interest rates and inflation caused a bit of a headwind for residential HVAC. But, you know, I think they've – a couple things I've mentioned. They've all talked about kind of the destocking is behind them. We've said that for a while. They've said that pretty emphatically here recently. But clearly, residential HVAC volumes being up is a good thing for us. We're all about the installed base. So the more units that are going into new homes, more replacement units that go into existing homes, people moving, putting in new units, the installed base is what's most important to us because we touch a new unit, we touch a replacement unit, we touch repair, we touch maintenance. The other thing I'll mention is their year-over-year numbers are coming off some pretty soft comps. This time last year, they were talking about things being down high single units to low teams from a volume perspective. We've never said that. So we've held up pretty well throughout this because of our mix across the gamut. It's not just about new OEM installations. So our comps are a little bit tougher. So while we continue to see unit volume growth from market share gains, certainly there's a tailwind from the OEM seeing more demand.

Great. One more from me before I jump back in queue. Can you provide us an update on the input cost expectations going forward, especially overseas freight, which has risen significantly, and your ability to maintain margin or margin dollars via pricing?

Yeah, great question, Charlie. I'm glad you brought that up. So, we've clearly seen ocean freight accelerate throughout the year. Not much impact in Q1, as we've talked about before, and you know, but for the benefit of the others on the phone, you know, that takes three, four, five months to get through the system. So, Q1, you were really seeing containers that were priced back in kind of November, December, January, you know, February timeframe. Now you're seeing those prices have accelerated a lot over the last few months. So Q2 is going to start seeing some of that impact, which is a headwind to margins. Q3 and Q4 certainly will. Rates have gone up about every week for the last few months. The last two weeks, we've seen rates come down. The last couple of weeks, about 10%. So hard to say two weeks is a trend, but that's certainly encouraging that maybe you've seen a peak, and now it's coming down. But nonetheless... The freight rates we're seeing the last couple months are what's going to inform us on Q2, Q3, and now even into Q4. So it is a bit of a margin headwind without a doubt. We've not taken pricing action to counteract that beyond our normal pricing we put through back in February and March. But we're certainly watching input costs closely. And if we continue to see elevated costs, then, you know, it's something that we always consider taking a look at as we go through the year.

Great. Thank you.

Thank you, Charlie.

Thank you. Our next question comes from the line of Julio Romero with Sudoti and Company. Please proceed with your question.

Thanks. Hey, good morning, Joji and Alexa. Appreciate it.

Maybe to start on contractor solutions, you know, you called out very nice volumes in this quarter. Can you maybe quantify the sales contribution from that one customer that needed to load in? And then you mentioned a second customer that also placed a large order How much will that benefit the second quarter?

Yeah, cool. This is James. Good morning. Thanks for being on, as always, and for your coverage. You know, it's not material enough that it's something we call out in the 10Q or anything like that, but it's a few percent of revenue. I mean, it was, you know, that customer would have ordered some in Q1, so it's hard to know exactly how much was pulled forward that they simply ordered and were able to deliver. So the couple of customers, it was a few percent of revenue, nothing material that we needed to get real specific about, but enough to be sure we mentioned it because when you do see some revenues like that shift from what could have probably been Q2 into Q1, we wanted to be sure to inform people of that so they understood the expectations are a little different as we look forward to Q2.

Okay, that's helpful there. And then turning to the engineered building solution segment. This was your second straight quarter of 20% plus EBITDA margins. Very nice performance there, and I know that was the target for a long time. Is this just a function of the higher margin mix you've talked about for a while finally flowing through? And then secondly, what inning are we in in regards to that higher margin mix flowing through? Do we have more runway there for that to continue?

Yeah, Julio, thanks. James again. Really proud of the work that EBS did this quarter. We said 20% is kind of our long-term margin goal, and hitting that this quarter was really impressive. So really proud of that team, and congratulations to them. Yeah, it was a result of some higher margin products coming through the backlog and converting to revenue. That's obviously important. We have good visibility, you know, going out another quarter or so of that. The backlog remained solid. You know, backlog was generally flat. You see that if you do the math on the book to bill, you know, the last couple quarters. So we've been able to maintain the backlog despite some weakness in the commercial construction markets, certainly in the multifamily market. The other thing I would point out besides some better mix is the team has really done a good job and had a concerted effort the last year, and I think we saw the fruits of that this quarter, of finding ways to take out costs from the supply chain. They've really tried to re-engineer some products, find some new sources for the inputs for their products. as they assemble the different products. So that's come through, and that's led to some nice margin points. The margin is going to bounce around. So I don't think we're saying that we're at 20% permanently yet. We've kind of said that's a little bit of a longer-term goal, so it's going to bounce around. As we look at the backlog the next couple quarters, we're going to continue to have solid revenues. Margin is going to bounce around. You know, Joe and I often say, you know, we'll kind of see it coming. Given the backlog is there, we feel good about it. We would say things are maybe a little softer the back part of the year right now. So we're working to fill that in. Some of these projects, if we just put something in the backlog last week, it may be a year or two out. So we see maybe a little softness the back part of the year. In the next fiscal year, we see some of that picking up again. There are some projects that have sped up, in fact, up in the Toronto market. As a very specific example, you've heard us talk about Toronto quite a bit. We've got some nice backlog up there. They're having a labor crunch because there are so many projects, and some of those have gotten sped up. So we've benefited from that. Other markets think they'll slow down because the demand has slowed down a little bit. So it bounces around, but a long way to say that really proud of the quarter, really proud of the way the rest of the year looks. But it's going to pop up and down a little bit.

Got it. That's very helpful color there. And then that kind of dovetails into my last question here is just, you know, overall thinking about your margins, you know, obviously you had very strong margin performance in the quarter. You guys reiterated that your focus is really on the EBITDA dollars and growing that portion. But if you could just talk to us about, you know, aside from maybe the volume leverage, you know, why some of this margin performance isn't sustainable or maybe asked in another way. Anything from this quarter that may get us more constructive on margin expansion for the remaining three quarters of the year?

Yeah, it's a great question, Julio. You know, obviously we're always aiming for margin expansion. The team did it in the first quarter. Really proud of the team's work there from top to bottom. You know, we talked about last year's margins being market leading and very proud of that. You know, yeah, mix matters. And there were some products in the quarter that mix really was favorable to us. And that can obviously move around. The team has picked up some share and, you know, getting these couple of orders we talked about, maybe a little bit of pull forward from Q2 to Q1, that's volume leverage. There were also a nice mix of orders in that perspective. You know, the team, I think going into the year when we talked about protecting margins and maintaining where we are, has really taken a hard look at cost and has held off on, you know, maybe some hiring and some costs from a G&A perspective. As we continue to see the volume pick up and as we continue to see success, there's some holes we need to fill in, I think. So you'll see some of those costs maybe come in, but Q1, they weren't there. But overall, you know, we're optimistic, but we really just want to caution folks that, you know, the margin performance in Q1, which is always going to be seasonally a strong quarter, you know that as well as anybody on this call. And when you have a little bit of pull forward, things just fart on all cylinders. So we don't want to talk down margin too much, but I think looking at last year's margins and applying that and then accounting for the pull forward, maybe a little bit from you know, Q2 to Q1, as you asked earlier, a few percent of revenue, kind of get you back to what's probably a little more normal expectations for a Q2 and then going forward the rest of the year.

And Julio, the other thing I would point you to is Q3 is always the seasonally lowest revenue for contractor solutions, which has our highest margins. And so that margin is never, you know, the same as Q1. So just it's important to keep that in mind.

No, absolutely. Great call there, guys. Nice job. Appreciate it. Thanks, Julio.

Thanks, Julio. Thank you. Our next question is a follow-up from John Tanwentang with CJS Securities. Please proceed with your question.

Hi. Just one more for you. Actually, two more. When you look at your strong cash flow, is M&A still kind of a high priority for you and are opportunities becoming more actionable there in the pipeline?

Yeah, Charlie, it is. We've always kind of laid out our capital allocation policy. Organic growth opportunities are almost always the most competitive from a return standpoint, but we don't have enough of those to spend $200 million of cash flow in a year. So M&A is going to be an important part of our story. It has been and will continue to be. We're pleased with the pipeline. We're very pleased with the opportunities that we're seeing. I would say a really good mix of small and large acquisition targets. And there's a little bit of price discovery still going on right now, trying to figure out exactly what the clearing price is on these targets. But it feels like we're closer today than we were, you know, three months ago, the last time we talked to you guys about these things online. folks coming together on a meaningful, you know, kind of way on price. So, yeah, we're very pleased with the pipeline, very pleased with the calls we're getting, the opportunities we're seeing, and the pricing, you know, kind of valuation issues I think are going to shake out here.

Great. And just lastly, just with the storms recently in Houston and the area there, any impact determined? How should we think about weather in general this year impacting our driving demand?

Yeah, we did have some minor damage in Houston to a roof, insured loss, and actually Honestly, a roof we were getting ready to replace anyway. The five days kind of out of power here in Dallas, we were laughing earlier. You don't get a lot of TV coverage on a power outage. There's no good video for that. But it affected their business. And so hopefully those are behind us now. I think we've got a very resilient organization, Houston Powerhouse. team certainly has been through this repeatedly, and we don't see that as a really high risk, but it's something that we keep in mind and are always prepared for. So at this point, there's nothing that we would point to, nothing that we would say would affect our financial results.

Great. I appreciate the question. Thank you. Thanks, Charlie. Thanks, Charlie. Thanks for being on.

Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Arms for any additional closing remarks.

Yes, thank you. We just appreciate everybody's interest in taking part in this call and look forward to our next conversation next quarter. So thank you very much.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day. © transcript Emily Beynon Bye. you Thank you. Thank you Greetings and welcome to the CSW Industrials, Inc. Fiscal 2025 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief 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, Alexa Huerta, CSWI's Vice President of Investor Relations and Treasurer. Thank you. You may begin.

Thank you, Michelle. Good morning, everyone, and welcome to the CSW Industrials Fiscal 2025 First Quarter Earnings Call. Joining me today is 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, updated investor relations presentation, and Form 10-Q prior to the market's opening today, all of which are available on the investors portion of our website at www.cswindustrials.com. This call is being webcast, and information on accessing 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 and 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.

Thank you, Alexa. Good morning, everyone. I'm proud to report that once again, our team has delivered record results in the first fiscal quarter of 2025 and has outperformed the markets we serve. This morning, we reported all-time highs for each of our quarterly revenue of $226 million, EBITDA of $65 million, earnings per diluted share of $2.47, net income of $39 million, and cash flow from operations of $63 million. Our gross profit margin expanded an additional 220 basis points to 47.5 percent as a result of pricing, favorable product mix, cost containment, and operational efficiency. Our EBITDA margin also expanded by 210 basis points to 28.9% in the quarter. Our sharp focus on cash flow from operations drove a fiscal first quarter record of $63 million or 24.7% growth over the prior year. Our strong cash flow will continue to fund our capital allocation strategy and we remain focused on building our pipeline of inorganic investment opportunities with returns that will grow shareholder value. During the fiscal first quarter, we utilized our strong cash flow to pay down the outstanding debt on our revolving credit facility by $51 million. We ended the quarter with a balance of $115 million outstanding on our $500 million facility. allowing us to further reduce our interest expense and to maximize the capital available to us, which will fund future opportunities as they arise. Our balance sheet strength, liquidity, and increasing cash flows give us the luxury of being able to quickly act on business opportunities of size. Once again, each of the three business segments impressed during the quarter with their execution, resilience, and ability to deliver results. I will let James provide more details on the performance of each segment during the quarter. CSWI has a demonstrated nine-year track record of increasing long-term shareholder value. We continue to maintain a strong balance sheet, grow revenue meaningfully, and efficiently allocate capital using a rigorous risk-adjusted returns analysis to guide us. The power of our product distribution model is one key to our success, allowing us to grow faster than our market served, and our acquisitions benefit greatly from this model. At CSWI, we also care about how we succeed, so we prioritize investing in our team members' well-being and focusing on our customers, which positions us for sustainable, long-term growth and profitability. At this time, I will turn the call over to James for a closer look at our results, and following that, I will return and conclude our prepared remarks.

Thank you, Joe, and good morning, everyone. As Joe mentioned, our consolidated record revenue during the fiscal first quarter of 2025 was $226 million, a $23 million, or 11%, increase when compared to the prior year period and a record all-time quarterly high for CSWI. $16 million of the growth was organic, mainly through increased volumes and some pricing initiatives. The remaining $7 million of growth came from the acquisition of Dust Free in February of this year. Consolidated gross profit in the fiscal first quarter was $107 million, representing nearly 17% growth over the prior year period. As Joe mentioned, our gross profit margin improved by 220 basis points. to 47.5 percent compared to 45.3 percent in the prior year period. Our record consolidated EBITDA for the first quarter increased by $11 million to $65 million, which was 20 percent growth when compared to the prior year period. Our EBITDA margin improved by 210 basis points to 28.9 percent as compared to 26.8 percent in the prior year quarter. driven by the gross margin expansion. As we mentioned on our fiscal year-end call in May, we will continue to strive for additional EBITDA leverage as we grow revenue and manage expenses. However, we are very proud of our recent EBITDA margins, and our team works hard to maintain these levels. Our focus will remain on increasing EBITDA dollars as our revenues grow. Net income attributable to CSWI in the fiscal first quarter was a record $39 million, or a record $2.47 per diluted share, compared to $31 million, or $1.97 per diluted share in the prior year period, representing growth of 26%. Our contractor solution segment, with $160 million in revenue, accounted for 71% of our consolidated revenue and delivered $20.5 million, or 14.6% total growth, when compared to the prior year quarter. Of the revenue growth in the quarter, $13.3 million, or 9.5%, was organic, while the remaining $7.2 million, or 5.1%, came from the dust-free acquisition. Growth for the quarter was reported in all of this segment's end markets and was a result of increased unit volumes and some pricing initiatives. Additionally, we benefited in the first quarter from a customer adding a new distribution center network that required a one-time stock-up of inventory. Segment EBITDA was $58.3 million, or 36 percent of revenue, compared to $46.7 million, or 33 percent of revenue, in the prior year period, as our already market-leading margins continue to expand, mostly from volume leverage. Our Specialized Reliability Solutions segment revenue decreased 2 percent to $36.8 million, due to a slight volume decrease. During the quarter, a weather event in May at our manufacturing plant in Rockwall, Texas, caused a five-day power outage, leading to a delay in certain revenues, as well as higher-than-normal maintenance and IT expenses. Revenue increased in the general industrial and rail transportation end markets, but declined in the mining and energy end markets. Pricing initiatives had a positive impact on revenue in the quarter, but were offset by the slight decrease in volume. The segment EBITDA of $8.5 million in the fiscal 2025 first quarter was in line with the prior year period results. However, EBITDA margin improved 70 basis points to 23% in the current period, above our EBITDA margin target for this business of 20%. Our engineer building solution segment revenue increased to $30.9 million, a 12% increase as compared to $27.6 million in the prior year period. Bidding and booking trends remained solid, and at the end of the fiscal first quarter, our book-to-bill ratio for the trailing eight quarters remained unchanged from year-end at 1.1 to 1. Segment EBITDA grew 32% to $6.2 million, or 20% EBITDA margin, compared to $4.7 million and a 17% EBITDA margin in the prior year period. We are pleased to see our EBS segment reach the 20% EBITDA margin target for the quarter. but keep in mind that this will fluctuate on a quarterly basis due to project mix. Transitioning to our strong balance sheeting cash flow, we ended our fiscal 2025 first quarter with $19 million of cash and reported record fiscal first quarter cash flow from operations of $63 million, compared to $50 million in the same quarter last year, representing 25% growth over the prior year period. The cash flow from operations in the quarter was an all-time record for CSWI. Our free cash flow, defined as cash flow from operations minus capital expenditures, was $59.6 million in the fiscal first quarter, compared to $45.3 million in the same period a year ago. That resulted in a free cash flow per share of $3.82 in the fiscal first quarter as compared to $2.91 in the same period a year ago, growth of 31%. As Joe mentioned, this impressive level of free cash flow allows us to invest in growth with the goal of increasing long-term shareholder value. Joe mentioned that we paid down $51 million of our revolver due to our strong cash flows. As a result, our bank covenant leverage ratio at quarter end declined to 0.49 times from 0.73 times at the end of the fiscal 2024. As a reminder, the company has been in the lowest tier of our revolver pricing grid for a solid year now, reducing our interest rate spread and saving on interest expense. Our effective tax rate for the fiscal first quarter was 26.4% on a GAAP basis. We still anticipate delivering full-year growth in revenue, EBITDA and EPS growth, along with strong cash flow. With that, I'll now turn the call back to Joe for his closing remarks.

Thank you, James. To summarize, during the first fiscal quarter of 2025, we posted all-time record results for revenue, for EBITDA, for earnings per share, for net income, and for operating cash flow. Our 11 percent revenue growth included both organic and inorganic growth and resulted in higher margins due to strong operating leverage. Looking further into fiscal 2025, CSWI will continue to deliver growth that outpaces our markets served. We will continue to cultivate relationships in our strategic acquisition pipeline to complement our organic growth while maintaining our superior margins. At CSWI, we are focused on recruiting and retaining great talent, offering rewarding careers, and recognizing team members who excel while providing them with the opportunity for a safe, secure, and dignified retirement. Partnering with our employees to drive success is a very important part of our strategy. And one way that we affect this is through our employee stock ownership plan. I'm proud to announce that last month, CSWI contributed $4.2 million to our ESOP. This marks the ninth consecutive year of contributions, And CSWI has now contributed an aggregate of $26.5 million to the plan since 2016 at zero cost to our team members. With the growth of our stock price, these ESOP contributions since 2016 have grown to well over $100 million of value today. And together with our 401 match have helped facilitate retirements for many of our long-tenured team members. So lastly, I just want to close my prepared remarks by thanking the dedicated team here at CSWI who collectively own 4% of the company through our employee stock ownership plan, as well as all of our loyal shareholders for their continued investment in, commitment to, and support of CSW Industrials. Michelle, we're now ready for questions.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Start 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Start keys. One moment, please, while we poll for your questions. Our first question comes from the line of John Tanwentang with CJS Securities. Please proceed with your question.

Hi, it's Charlie Strauss of 74 John. Good morning. Good morning, Charlie. Hey, Joe. Joe, James, can you talk a little bit more about the sustainability of sales and margin and momentum going into Q2? And looking at Q1, were there any pull-forwards or unusual items that we should take into account?

Yeah, good morning, Charlie. It's James. Let me just first of all say this was an exceptional quarter. Really proud of the work the team did, prepared well for the demand that was there. I think if you look at our EBS and SRS segments, Q1 and Q2, you should see continued type growth opportunities that we saw year over year. Margins will fluctuate, as always, given product mix and timing. We talked about the little bit of revenue delay in May in specialized reliability solutions. It pretty much made that up, but obviously that affects you a little bit. But overall, those two segments, we do feel good about that. Contractor solutions, just truly exceptional. You asked specifically about pull forward. I mentioned in my comments we have one customer that's a large customer of ours that opened a new distribution network, and they had to stock up those distribution centers, and our team did a great job of doing that. Some of that could have been a little bit of pull forward. The demand may have come a little sooner than we expected. Q1 versus Q2, another customer placed some large orders near the back part of Q1. So you could say there's a little pull forward from Q1 to Q2, so I don't know If I'd say I would expect a repeat performance from a revenue perspective, but we have had a hot summer most places around the country, so demand has been solid. From a margin perspective, we said on our Q4 year-end call that to maintain the type of margins we had last year would be our expectation. We obviously exceeded that this quarter. I think looking at the margins we've had over the last several quarters is more realistic, and on a generally go-forward basis, they'll move around some. But when you had a Q1 quarter, at Contractor Solutions with the type of volume pull through that the team was able to accomplish, especially those couple of larger orders that, again, may have been a little bit of pull forward, that's going to help margins. So to see that business beat its margin number kind of year over year by several hundred basis points, a lot of that's volume driven. There's some good mix in there, but you've just got a set of kind of fixed overhead costs that don't need to move a lot to push more volume through the system. Long way of saying really proud of the first quarter, looking forward to a solid rest of the year. We talked about growing at roughly last year's growth rates plus the acquisitions. We obviously exceeded that Q1. That's a seasonally strong quarter, but we're still optimistic for the year in total.

Great. Thanks. Thoughts on the OEM HVAC companies kind of increasing their forecast and, you know, if that flows through to you guys versus the base kind of MRO demands?

Yeah, we're encouraged by that. Clearly, to see all the OEMs, one even this morning, talk about nice year-over-year order volume pickups. The residential OEM market has been soft for the last couple of years. There was some pull forward from COVID. Obviously, higher interest rates and inflation caused a bit of a headwind for residential HVAC. But I think a couple of things I've mentioned. They've all talked about kind of the destocking is behind them. We've said that for a while. They've said that pretty emphatically here recently. But clearly, residential HVAC volumes being up is a good thing for us. We're all about the installed base. So the more units that are going into new homes, more replacement units that go into existing homes, people moving, putting in new units, the installed base is what's most important to us because we touch a new unit, we touch a replacement unit, we touch repair, we touch maintenance. The other thing I'll mention is their year-over-year numbers are coming off some pretty soft comps. This time last year, they were talking about things being down high single units to low teams from a volume perspective. We've never said that. So we've held up pretty well throughout this because of our mix across the gamut. It's not just about new OEM installations. So our comps are a little bit tougher. So while we continue to see unit volume growth from market share gains, certainly there's a tailwind from the OEM seeing more demand.

Great. One more from me before I jump back in queue. Can you provide us an update on the input cost expectations going forward, especially when you look at overseas freight, which has risen significantly, and your ability to maintain margin or margin dollars via pricing?

Yeah, great question, Charlie. I'm glad you brought that up. So, we've clearly seen ocean freight accelerate throughout the year. Not much impact in Q1, as we've talked about before, and you know, but for the benefit of the others on the phone, you know, that takes three, four, five months to get through the system. So, Q1, you were really seeing containers that were priced back in kind of November, December, January, you know, February timeframe. Now you're seeing those prices have accelerated a lot over the last few months. So Q2 is going to start seeing some of that impact, which is a headwind to margins. Q3 and Q4 certainly will. Rates have gone up about every week for the last few months. The last two weeks, we've seen rates come down. The last couple of weeks, about 10%. So, you know, hard to say two weeks is a trend, but that's certainly encouraging that maybe you've seen a peak and now it's coming down. But nonetheless... The freight rates we're seeing the last couple of months are what's going to inform us on Q2, Q3, and now even into Q4. So it is a bit of a margin headwind without a doubt. We've not taken pricing action to counteract that beyond our normal pricing we put through back in February and March. But we're certainly watching input costs closely. And if we continue to see elevated costs, then it's something that we always consider taking a look at as we go through the year.

Great. Thank you.

Thank you, Charlie.

Thank you. Our next question comes from the line of Julio Romero with Sidoti and Company. Please proceed with your question.

Thanks. Hey, good morning, Joe, James, Alexa. I appreciate it.

Maybe to start on contractor solutions, you know, you called out very nice volumes in this quarter. Can you maybe quantify the sales contribution from that one customer that needed to load in? And then you mentioned a second customer that also placed a large order How much will that benefit the second quarter?

Yeah, cool. This is James. Good morning. Thanks for being on, as always, and for your coverage. You know, it's not material enough that it's something we call out in the 10Q or anything like that, but it's a few percent of revenue. I mean, it was, you know, that customer would have ordered some in Q1, so it's hard to know exactly how much was pulled forward that they simply ordered and we were able to deliver that. So the couple of customers, it was a few percent of revenue, nothing material that we needed to get real specific about, but enough to be sure we mentioned it because when you do see some revenues like that shift from what could have probably been Q2 into Q1, we wanted to be sure to inform people of that so they understood the expectations are a little different as we look forward to Q2.

Okay. That's helpful there. And then turning to the engineered building solution segment, you know, this was your second straight quarter of 20% plus EBITDA margins, you know, very nice performance there. And I know that was the target for a long time. You know, is this just a function of the higher margin mix you've talked about for a while finally flowing through? And then secondly, you know, what inning are we in in regards to that higher margin mix flowing through? Do we have more runway there for that to continue?

Yeah, Julio, thanks, James, again. Really proud of the work that EBS did this quarter. We said 20% is kind of our long-term margin goal, and hitting that this quarter was really impressive. So really proud of that team, and congratulations to them. Yeah, it was a result of some higher margin products coming through the backlog and converting to revenue. That's obviously important. We have good visibility, you know, going out another quarter or so of that. The backlog remained solid. You know, backlog was generally flat. You see that if you do the math on the book to bill, you know, the last couple quarters. So we've been able to maintain the backlog despite some weakness in the commercial construction markets, certainly in the multifamily market. The other thing I would point out, besides some better mix, is the team has really done a good job and had a concerted effort the last year, and I think we saw the fruits of that this quarter, of finding ways to take out costs from the supply chain. They've really tried to re-engineer some products, find some new sources for the inputs for their products as they assemble the different products. So that's come through, and that's... led to some nice margin points. The margin is going to bounce around. So I don't think we're saying that we're at 20% permanently yet. We've kind of said that's a little bit of a longer-term goal, so it's going to bounce around. As we look at the backlog the next couple quarters, we're going to continue to have solid revenues. Margin is going to bounce around. You know, Joe and I often say, you know, we'll kind of see it coming. Given the backlog is there, we feel good about it. We would say things are maybe a little softer the back part of the year right now, so we're working to fill that in. You know, some of these projects, if we just put something in the backlog, you know, last week, it may be a year or two out. So we see maybe a little softness the back part of the year. In the next fiscal year, we see some of that picking up again. There's some projects that have sped up, in fact, up in the Toronto market. As a very specific example, you've heard us talk about Toronto quite a bit. We've got some nice backlog up there. They're having a labor crunch because there's so many projects, and some of those have gotten sped up. So we've benefited from that. Other markets think they'll slow down because the demand has slowed down a little bit. So it bounces around, but long way to say that really proud of the quarter, really proud of the way the rest of the year looks, but it's going to, it's going to pop up and down a little bit.

Got it. That's very helpful color there. And then that kind of dovetails into my last question here is just, you know, overall thinking about your margins, you know, obviously you had very strong margin performance in the quarter. Um, you guys reiterated that your focus is really on the EBITDA dollars and growing that portion. But if you could just talk to us about, you know, um, aside from maybe the volume leverage, you know, why some of this margin performance isn't sustainable or maybe asked in another way, anything from this quarter that may get us more constructive on margin expansion for the remaining three quarters of the year?

Yeah, it's a great question, Julio. You know, obviously we're always aiming for margin expansion. The team did it in the first quarter. Really proud of the team's work there from top to bottom. You know, we talked about last year's margins being market leading and very proud of that. You know, yeah, mix matters, and there were some products in the quarter that mix really was favorable to us, and that can obviously move around. The team has picked up some share, and, you know, getting these couple of orders we talked about, maybe a little bit of pull forward from Q2 to Q1, that's volume leverage. They were also a nice mix of orders in that perspective. You know, the team, I think going into the year when we talked about protecting margins and maintaining where we are, has really taken a hard look at cost and has held off on, you know, maybe some hiring and some costs from a G&A perspective. As we continue to see the volume pick up and as we continue to see success, there's some holes we need to fill in, I think. So you'll see some of those costs maybe come in, but Q1 they weren't there. But overall, you know, we're optimistic, but we really just want to caution folks that, you know, the margin performance in Q1, which is always going to be seasonally a strong quarter. You know that as well as anybody on this call. And when you have a little bit of pull forward, things just fart on all cylinders. So we don't want to talk down margin too much, but I think looking at last year's margins and applying that and then accounting for the pull forward maybe a little bit from, you know, Q2 to Q1, as you asked earlier, a few percent of revenue. kind of get you back to what's probably a little more normal expectations for a Q2 and then going forward the rest of the year.

And Julio, the other thing I would point you to is Q3 is always the seasonally lowest revenue for contractor solutions, which has our highest margins. And so that margin is never, you know, the same as Q1. So just it's important to keep that in mind.

No, absolutely. Great call there, guys. Nice job. Appreciate it.

Thanks, Julio.

Thanks, Julio. Thank you. Our next question is a follow-up from John Tanwentang with CJS Securities. Please proceed with your question.

Hi. Just one more for you. Actually, two more. When you look at your strong cash flow, is M&A still kind of a high priority for you and are opportunities becoming more actionable there in the pipeline?

Yeah, Charlie, it is. You know, we've always kind of laid out our capital allocation policy plan Organic growth opportunities are almost always the most competitive from a return standpoint, but we don't have enough of those to spend $200 million of cash flow in a year. So M&A is going to be an important part of our story. It has been and will continue to be. We're pleased with the pipeline. We're very pleased with the opportunities that we're seeing. I would say a really good mix of small and large acquisition targets and opportunities There's a little bit of price discovery still going on right now, trying to figure out exactly what the clearing price is on these targets. But it feels like we're closer today than we were three months ago, the last time we talked to you guys about these things, on folks coming together on a project. meaningful, you know, kind of way on price. So, yeah, we're very pleased with the pipeline, very pleased with the calls we're getting, the opportunities we're seeing, and the pricing, you know, kind of valuation issues I think are going to shake out here.

Great. And just lastly, just with the storms recently in Houston and the area there, any impact determined? How should we think about weather in general this year impacting our driving demand?

Yeah, we did have some minor damage in Houston to a roof, insured loss, and actually Honestly, a roof we were getting ready to replace anyway. The five days kind of out of power here in Dallas, we were laughing earlier. You don't get a lot of TV coverage on a power outage. There's no good video for that. But it affected their business. And so hopefully those are behind us now. I think we've got a very resilient organization, Houston Powerhouse. team certainly has been through this repeatedly, and we don't see that as a really high risk, but it's something that we keep in mind and are always prepared for. So at this point, there's nothing that we would point to, nothing that we would say would affect our financial results.

Great. I appreciate the question. Thank you. Thanks, Charlie. Thanks, Charlie. Thanks for being on.

Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Arms for any additional closing remarks.

Yes, thank you. We just appreciate everybody's interest in taking part in this call and look forward to our next conversation next quarter. So thank you very much.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.