CSW Industrials, Inc.

Greetings and welcome to the CSW Industrials, Inc. Fiscal Third Quarter 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. If anyone connected via the phone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, This is Adrienne Griffin, Vice President of Investor Relations and Treasurer. Thank you. Please go ahead.

Thank you, Donna. Good morning, everyone, and welcome to CSW Industrials Fiscal Third Quarter 2021 Earnings Call. Joining me today are Joseph Armes, Chairman, Chief Executive Officer and President of CSW Industrials, and James Perry, our Executive Vice President and Chief Financial Officer. We issued our earnings release, presentation, and form 10Q prior to the market's opening today, and all are available on the investor portion of our CSWI website at 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, which are subject to various risks and uncertainties. Actual results could materially differ because of factors discussed today in our 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 FCC. We do not undertake any duty to update any forward-looking statements. I will now turn the call over to Joe Armes.

Thank you, Adrienne. Good morning, and thank you for joining our fiscal third quarter conference call. First, I would like to express my gratitude to the entire CSWI organization, which thrived in 2020 in spite of macroeconomic uncertainty. We embraced changes to enhance our safe working practices, and we continue to deliver on our capital allocation strategy to drive long-term shareholder value. Beginning on slide four, you will see that CSWI has now invested $465 million through six acquisitions since our spinoff in 2015. Pro forma for the TrueAir acquisition, CSWI's trailing 12-month revenue grows to approximately $490 million, with over 45% of those sales into the HVACR end markets. Including our quarterly dividend payment this month, we will have returned nearly $100 million to shareholders in the form of dividends and share repurchases. Since October 2015, our total shareholder return is approximately 300%. So rest assured, our commitment to being good stewards of your capital will continue unabated. Slide 5 of the presentation exhibits the consistent strength and our consolidated results with total quarterly revenue growth of 7.4% as compared to the prior year period of which 2.1% was organic with the remainder contributed by the TrueAir acquisition which closed on December 15, 2020. The team delivered leverage on this sales growth with a 15% increase in adjusted operating income Equating to an adjusted operating income margin of 13.4% as compared to 12.5% in the prior year period. On an adjusted basis, earnings per share in the quarter were 59 cents, or 23% higher than the same prior year period. In summary, our third fiscal quarter resulted in improved revenue and profitability over the prior year period, continued balance sheet strength and ample cash flow generation while closing the acquisition and beginning the integration of TrueAir. I would like to provide an update on our fiscal 2021 guiding objectives included on slide six. Commentary on this slide reflects some of the proactive qualitative measures that have enabled and will continue to enable CSWI to thrive through cycles. CSWI is now comprised of approximately 2,300 employees around the globe, most of which are located in North America and Vietnam. Our employee-centric culture is reflected in the daily decisions of each of the business unit management teams, as well as the strategic decisions of the executive team and board of directors. In addition to our historic focus on providing employees with a comprehensive suite of benefits including our employee stock ownership plan, we have thoroughly enhanced our approach to employee health and safety. We conducted a corporate-wide safety awareness month in January of this year as senior leaders from across our organization promoted disciplined adherence to safe work practices, supplementing the existing health and safety programs at each operating site. and intending to reflect the importance of and our commitment to safety in our corporate culture. Our second guiding objective is to serve our customers well, which we know drives long-term relationships and organic growth. This quarter we highlighted selection of initiatives across our organization. RectorSeal recently expanded its mobile responsive e-commerce platform that allows manufacturers, representatives, distributors, End users and RectorSeal sales staff access to the company's complete product portfolio 24-7. This expansion provides options to research specific products, receive product training, order products, and review invoices, and it demonstrates a natural evolution of the tools and technology that support our objective of providing the best possible customer experience. We expect to enhance TrueAir's operations with our tools and technology, including our common ERP and the e-commerce platform, representing future opportunity for organic growth. Each quarter we affirm our commitment to our disciplined investment process, especially regarding returns, prospective synergies, cultural fit, and ease of integration, all of which are critical components driving long-term shareholder value. In November, we announced the largest acquisition in CSWI history, as presented on slide 7, TruAir, an organization focused on manufacturing and selling a broad suite of high-quality grills, registers, and diffusers into the heating, ventilation, air conditioning, and refrigeration, or HVACR, end market. We welcome all of our new CSWI colleagues, and we look forward to demonstrating to them how we live out our company's mission, Thank you for joining us today. Our team has quickly transitioned to integration and customer service with an emphasis on expanding HVAC-R accessory market share and growing customer share of wallet. We continue to anticipate that the TrueAir acquisition will provide new supply chain strategic opportunities as well as short and long-term accretion for shareholders. Our team stays engaged in seeking accretive growth opportunities and just last month we announced that our subsidiary Whitmore had executed a definitive agreement to form a joint venture with Shell Lubricants. On slide nine we outlined the potential for enhanced distribution of Whitmore products in the Americas and the maximization of our world-class specialty chemical manufacturing operations. This transaction was enabled by our 20-year private label relationship with Shell and is expected to drive incremental sales growth. Moreover, this transaction is consistent with our capital allocation strategy, as capital required from CSWI is expected to be minimal. The joint venture is expected to be modestly accretive in the first year of operations. Turning now to our in-market performance, in the fiscal third quarter and year-to-date periods, Demand and execution in the HVAC-R and architecturally specified building products, or ASBP, in markets resulted in comparative period growth. Year-to-date, HVAC-R in-market sales grew 20.8%, or $18.4 million, of which 15.7%, or $14 million, was organic, with the remainder contributed by TrueAir. as a sustained number of people worked and were educated from home. Single family home renovation strengthened in correlation with increasing home equity and single family housing starts continued to outpace expectations. Looking to the fiscal fourth quarter, we anticipate ongoing strength in this end market with significant total growth as compared to the same prior year period as we expect the same macro trends to continue in the fourth quarter and generate modest organic growth and ongoing inorganic growth from true heirs' contributions. In ASBP, year-to-date sales grew $2.8 million or 3.3%, all of which was organic. And thus, sales into this end market were approximately 30% of total CSWI revenue during this nine-month period. The strong performance was driven by continued acceleration of projects already underway, as well as success in taking market share, despite the general reduction in activity across the construction industry. During the first three quarters of fiscal 2021, pandemic-driven demand softness resulted in a lower rate of bookings, and when combined with project pull forward, our trailing eight-quarter book-to-bill ratio was just below as of the end of the quarter. Cumulative fiscal third quarter sales into the energy, mining, rail, and general industrial end markets slightly exceeded each of the fiscal first and second quarters of 2021, marking a slow initial recovery from pandemic lows. Sales into these end markets collectively accounted for 22% of year-to-date revenue Modest growth in the fiscal third quarter sales, combined with improving macroeconomic indicators such as rig count, consumer demand, rail car traffic, and GDP growth, indicate the potential for a nascent recovery, and hence we expect fiscal fourth quarter to perform much like fiscal third quarter. In summary, we expect ongoing organic growth in the HVAC RN market. Some weakness in the fiscal fourth quarter ASVP end market that I discussed previously and stabilization across other end markets that we serve. Our team is managing through certain headwinds, including global trends and market forces such as price increases in specific raw materials and logistics expenses, especially related to the global container shortage. Despite these factors, organic growth, Strong Execution, and the contribution from True Air Acquisition are expected to produce a solid finish to our fiscal year. And with that, I'll turn the call over to James for a closer look at the numbers.