CSW Industrials, Inc.

Greetings and welcome to the CSW Industrial's third quarter 2019 earnings conference 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, Tom Cook. Thank you, sir. You may begin.

Thank you, Christine. Good morning, everyone, and welcome to CSW Industrials Fiscal Third Quarter 2019 Earnings Call. Joining me today are Joseph Armes, Chief Executive Officer of CSW Industrials, and Greg Branning, Chief Financial Officer. If you have not received the earnings release, it is available on our website at www.cswindustrials.com. This call is being recorded. A replay of today's call will be available, and details on how to access the replay are in the earnings release. During this call, we will be making forward-looking statements. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Actual results can materially differ because of factors discussed in today's earnings release, in the comments made during this call, and in the risk factors section of 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. This call will also include an analysis of adjusted operating income, net income, and earnings per share, which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to, and not a substitute for, operating income, net income, and earnings per share computed in accordance with GAAP. For a more complete discussion of adjusted operating income, net income, and earnings per share, see our earnings release. I would now like to turn the call over to our Chairman and Chief Executive Officer, Joe Arms. Joe?

Thank you, Tom. Good morning, and thank you for joining our fiscal third quarter conference call. We're going to begin today with a brief recap of our results for the quarter. Next, I will provide some segment highlights and a review of each of our end markets. Then I will hand the call off to Greg for a closer review of our financials. I'm pleased to report that we had an exceptionally strong third quarter, highlighted by consolidated revenue growth of 12.3%, all of which was organic, and a 44% increase in adjusted diluted earnings per share to 46 cents, which was driven by higher revenue, effective cost controls, and operating leverage. Higher revenue resulted from growth in both of our industrial products and specialty chemicals segments and was led by stronger sales in HVAC, architecturally specified building products, and general industrial end markets. Gap earnings per share increased to 39 cents per share compared to the prior year period of 17 cents per share. In our industrial product segment, sales were up over 15% to 43.7 million as we experienced continued strength in demand for our HVAC products and a strong contribution from architecturally specified building products. Segment-level operating margins remained at a healthy 18.5%, although that was down 80 basis points compared to the prior year as a result of higher performance-related compensation expense on stronger results and spending on an ERP upgrade. We are very pleased by this result and looking forward, we expect to continue to grow at a pace in excess of our end markets as we bring new innovative products to the market and capture incremental share as demonstrated by our 6.6% organic revenue growth rate on a year-to-date basis. As we've said in the past, we do experience volatility quarter to quarter as a result of customer order patterns and weather. The third quarter was no exception as the pace of our growth benefited from an easier comparison as we lap some cold weather that occurred in fiscal third quarter of 2018. Therefore, we would expect to see some moderation in our growth rate over the next few quarters as compared to the growth rate we experienced in the third quarter. We would expect our future growth trend to be more in line with our year-to-date growth rate. Anecdotally, during the quarter I had the opportunity to attend the AHR Expo in Atlanta, which is the largest global HVAC trade show. At the event, our team launched two new products which generated substantial and immediate interest. These product launches included a surge protector for heating and cooling units, as well as TripleGuard, which is an innovative water leak monitoring system designed to protect the home from water damage. Turning to our specialty chemical segment, sales grew almost 9% to $33.8 million, with growth stemming from general industrial end markets and higher volume in architecturally specified building products. Operating margins improved 100 basis points to 13.5% as our restructuring activities and improved sales leverage bolstered our profitability. Turning now to our end markets and beginning with HVAC and plumbing, we continue to see robust demand for our products and we expect that we will outpace end market growth over the long term. New housing starts are moderating, which presents a modest headwind to us, although we would remind stakeholders that we are relatively insulated to the cyclicality as our products are used in repair and replacement applications, as well as new construction. In our architecturally specified building products, to date we have not seen a slowdown in commercial construction, and our bidding and backlog activity remains strong. Our products in this category are typically installed near the completion of a project, so we have good visibility through calendar 2019. Importantly, we are still a small player in this category and have strengthened our breadth of products and geographic reach through the acquisition of Greco, combined with our legacy businesses of Smokegar and Balco. As a result, we believe our ability to execute is the more impactful factor relative to the effects of macro trends in this end market. Our rail business, which primarily consists of trackside applicators and lubricants and generally follows rail traffic, was up mid-single digits during the third quarter, which was in line with overall track volume. As we have noted in the past, this is a GDP growth type business, and based on macro forecasts, we would anticipate modest growth throughout 2019. Turning to energy, we experienced incremental growth during the quarter despite relatively flat North American rig count, with increasing volatility in commodity prices, particularly in Canada. We will continue to monitor these dynamics and their effect on our ability to serve this end market. Finally, in our general industrial end markets, demand was very strong in the third quarter, particularly for lubricants that extend the useful life of heavy machinery. So to conclude, we are very pleased with our performance in the third quarter. Our end markets remain largely healthy. We continue to capture incremental share across the business, and we are seeing the tangible benefits from our cost reduction activities that we implemented last year. We continue to focus on our strategic capital deployment plan, which is designed to maximize shareholder value. This plan includes investing in organic growth initiatives, strategic bolt-on acquisitions, and the return of cash to shareholders. To that end, during the quarter, we returned $9.9 million to shareholders through share repurchases, bringing the year-to-date total to $40.7 million. We will continue to direct capital to the opportunities providing the highest risk-adjusted return, and we look forward to providing additional updates on the execution of this strategy. Now I'll turn the call over to Greg for a closer look at the numbers. Greg?