CSW Industrials, Inc.

Welcome to the CSW Industrials Second Quarter 2021 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Adrienne Griffin, Vice President, Investor Relations and Treasury. Please go ahead.

Thank you, Claudia. Good morning, everyone, and welcome to CSW Industrials Fiscal Second Quarter 2021 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 and presentation prior to the market's opening today and both are available on the investor portion of our website at www.cswindustrials.com. During this call, we will reference specific slides in the presentation. This call is being webcast and information on how to access the replay is included 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 could materially differ because of factors discussed in today's earnings release and in the comments made during this call, as well as 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. I will now turn the call over to Joe Arms.

Joe Arms Thank you, Adrienne. Good morning, and thank you for joining our fiscal second quarter conference call. First, I want to congratulate each of our over 750 CSWI team members for their ongoing efforts. They're working together so effectively during times of uncertainty, positioning us for future growth and remaining dedicated to delivering results for our shareholders. I'll begin with a high-level discussion of consolidated results and key end markets, conclude with commentary on the second half of our fiscal year. Through the cycles, we at CSWI measure our success in many ways, focusing this fiscal year on our four guiding objectives that we outlined in May, the details of which are included on page six of the October 2020 investor presentation. Notably, this quarter, as compared to the prior year period, we realized 30 percent total growth in sales into the HVACR and plumbing in markets. Driving top and bottom line organic growth. In addition to solid growth in revenue and operating income, we reported increased profitability with record quarterly operating income margin of 21.1% and further enhanced our financial position with nearly $300 million of liquidity, including $47 million of cash on hand and our full unfunded revolving credit facility at quarter end. On slide eight of that presentation, we outlined the results for the quarter, culminating in earnings per share from continuing operations of $1.10 per share, which is approximately 20% higher than the prior year period. Our strong fiscal second quarter results contributed to a 19.4% increase in operating cash flow from continuing operations in the first fiscal half of 2021 over the prior year period. and earnings per diluted share from continuing operations of $1.91, an increase over $1.89 in the prior year period. I would also like to share a few metrics illustrating the strength of our financial position. In the last 12 months, over $42 million of cash was returned to shareholders in quarterly dividends and share repurchases, and our net cash provided by operating activities of 78.7% million during the same period represents a nearly 21% cash flow yield. Earlier this month, we celebrated the fifth anniversary of our existence as a standalone public company. In our first five years, our total shareholder return was in excess of 150%. And today, we remain unceasingly committed to being good stewards of your capital. In recent months, our pursuit of value-accretive growth opportunities has persisted as our companies and brands demonstrate attractive through the cycle durability. We remain active, evaluating organic and inorganic growth opportunities, yet disciplined, especially regarding valuation, prospective synergies, cultural fit, and ease of integration. Our ample liquidity at quarter end Enduring access to capital markets and our experienced leadership team facilitate our pursuit of accretive bolt-on acquisitions within our existing end markets to broaden our portfolio of brands and products. During the fiscal second quarter, our largest end markets outperformed ours and the street's expectations. We achieved 33% growth and record sales into the HVACR end market driven by warmer than average temperatures and work-from-home trends. A similar trajectory held in our plumbing end market as distributors restocked their inventory, and sales increased nearly 20 percent over the prior year period. Turning to slide nine in the presentation, sales into the HVAC-R and plumbing end markets accounted for 42 percent and 11 percent of total quarterly revenue, respectively. Looking to the fiscal second half of the year, we anticipate ongoing strength in these markets with modest growth compared to the same prior year period. We anticipate capitalizing on the strength and new single-family housing construction, as well as the ever-increasing installed base, which is most important for our repair and replacement products. Longer term, we remain bullish on these end markets, as our products are utilized in new and replacement installations, maintenance, and repair. Sales into the architecturally specified building products end market remained at 28% of total revenue in the fiscal second quarter, exceeding sales in the fiscal first quarter, and were nearly flat with the same prior year period. Projects originally scheduled for the fiscal second half of the year were accelerated by our customers into the fiscal second quarter, positively impacting results. As we've discussed on prior calls, pandemic-driven demand softness resulted in lower bookings earlier this calendar year. During the fiscal second quarter, we experienced a positive inflection point as bookings exceeded those in the fiscal first quarter by approximately 38%, indicating potential early improvement. As of the end of the fiscal second quarter, our book-to-bill ratio for the trailing eight quarters was just barely below one. Given project pull forward into the fiscal second quarter and a reduction in first quarter bookings, we do expect fiscal second half revenue into this end market to be moderately lower than the prior year period, with the positive impact of the recent increases in bookings anticipated to be realized in our fiscal 2022, which begins in April of next year. In our general industrial rail and mining end market, sales declined in the short term due to pandemic weakened demand. but there are signals of early stage recovery for the types of maintenance and capital investing decisions that drive demand for our products. Quarterly sales into our general industrial end market comprised approximately 10 percent of total sales and 11.6 percent increase over the fiscal first quarter, providing early signs of recovery. Macro indicators for the energy, rail, and mining end markets, which collectively account for 9 percent of our sales, have also begun to stabilize. With this backdrop, we expect sales into these end markets in the fiscal third and fourth quarters to perform much like the fiscal second quarter with potential for modest increase. Regarding the second half of the fiscal year, we expect consolidated revenues to be mid to high single digits lower than the prior year period. During the fiscal third quarter, Expected performance in HVACR and plumbing are anticipated to be more than offset by a decline in our architecturally specified building products due to lower bookings in the fiscal first quarter and a slow recovery in the general industrial, rail, and mining end markets. Fiscal third quarter earnings will be impacted more meaningfully than revenues due to decremental margins and normal seasonality as we expect to return to normalcy in the fiscal fourth quarter. We remained diligent in our pursuit of operational excellence and a competitive cost structure, and were flexible to initiate swift reaction to the realities of the markets. During the fiscal second quarter, strength in our served markets delivered organic revenue growth, increased profitability, and enhanced liquidity, resulting in an increase in our net cash position. Our attractive business model and diversified end markets continue to provide financial strength, stability, and resiliency, while our team provides thoughtful direction as we execute on our capital allocation policy, ensuring that investments are directed to the highest risk-adjusted return opportunities that will continue to deliver long-term shareholder value. And with that, I'll turn the call over to James for a closer look at the numbers.