CSW Industrials, Inc.

Good morning and welcome to the CSW IndustrialSync fiscal second quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, This event is being recorded. I would now like to turn the conference over to Adrienne Griffin. Please go ahead.

Thank you, Maura. Good morning, everyone, and welcome to the CSW Industrials Fiscal 2023 Second Quarter 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, which are available on the investor 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 Arms.

Thank you, Adrienne. Good morning, and thank you for joining our fiscal second quarter conference call. Our record fiscal second quarter and record fiscal first half results demonstrate our successful efforts to drive top-line growth, expand margins, and increase earnings per share. Comparing our fiscal second quarter year-over-year performance, we reported 23% revenue growth, 29% EBITDA growth, and 37% growth in EPS. These metrics clearly demonstrate our ability to generate leverage on incremental sales as gross margin growth outpaced revenue growth, operating income growth outpaced gross margin growth, and this trend continued through the income statement to EPS. Against a backdrop of macroeconomic uncertainty, our team continues to perform exceptionally well, combining operational excellence disciplined capital allocation, and a keen focus on customer service. In the current quarter, all three segments contributed to organic revenue growth of $25 million, driven primarily by the numerous price actions in the current and prior fiscal year periods. Due to the high value nature of the products that we bring to market, we are able to realize positive pricing of our products. Our story this quarter is one of building on commercial momentum created in prior periods founded upon our highly differentiated products and leading positions in the end markets that we serve. During the fiscal second quarter, we closed the previously announced acquisitions of CoverGuard and ACGuard. And subsequent to quarter end, we completed the acquisition of Falcon Stainless. The acquired product lines expand our offerings sold into our profitable HVACR and plumbing in markets. Through these bolt-on acquisitions, we deployed $58.1 million of capital at a valuation of 6.6 times EBITDA, which was funded through cash on hand and borrowings under our existing credit facility. As a reminder, in December, we closed the Shoemaker acquisition which expanded our GRD offerings sold into our HVAC RN market. During the fiscal second quarter, the Shoemaker, CoverGuard, and AC Guard acquisitions collectively contributed $11 million in revenue, all of which was reported in our contractor solutions segment. The Falcon acquisition will be included in our results beginning with this quarter. These acquisitions reflect the highly accretive nature of our completed acquisitions and our focus on complementary product categories and our existing end markets. In reviewing the first two quarters of the fiscal year, material and freight costs and freight delays improved sequentially, providing early signs of supply chain recovery. While the persistence of this recovery is not yet known, Supplier on-time delivery has meaningfully improved, and we have proactively diversified sourcing for critical components. Our leadership team continuously evaluates inventory at the product and category levels to ensure that we can meet customer demand for our products while optimizing working capital investments. I'll transition now to a discussion of our segments. Our contractor solutions segment reported sales of $130 million, a 27 million or 26% increase, including organic growth of $16 million. The strength of this segment lies in leveraging our distribution network, optimizing acquisition integration, and selling high-value products. The acquired CoverGuard, AC Guard, and Falcon products were swiftly relocated to our existing distribution centers, and sales of these products have transitioned to our team. Our success in integrating acquisitions reflects a process that we've honed through multiple transactions that is predicated upon adding value to our customers consistent with our creative growth goals. We expect to continue to deliver growth that exceeds the end markets served supported by price actions and recent acquisitions. Our engineered building solutions segment continued to grow, reporting revenue of $26 million, an increase of 8% due to multi-year initiatives to professionalize our commercial team, focus on high-growth geographies, and introduce new products. For a third consecutive quarter, this segment's backlog reached an all-time high as we continued to be awarded high-quality jobs in multifamily residential, institutional, educational, and commercial categories. Several leading construction indicators continue to show signs of health. The latest FMI data demonstrates overall growth in the construction market with supportive outlooks for our primary subcategories. AIA billings have remained positive and above 50 for 20 months in a row. We are mindful of rising interest rates, flattening, and modest declines in some categories and geographies, but our team has defined actionable goals to maintain performance that exceeds the broad construction industry. Our specialized reliability solution segment continues to exceed expectations. delivering a second consecutive record quarter of $37 million in revenue. This was the fourth consecutive quarter for mid to high teen segment EBITDA margin. As capacity utilization increased, operational practices improved, and material cost inflation moderated. We expect continued strength in the segment, albeit at a moderating growth rate, as compared to these exceptional results. Before I turn the call over to James, I would like to acknowledge the resiliency of our business model. Important attributes include the diversification of our product portfolio and of the end markets we serve, and the consumable nature of our products that are used either in maintenance, repair, and replacement applications, or to extend the reliability, performance, and lifespan of critical assets. Specific to our largest end markets, HVAC, R, and plumbing, the products we sell and the value we provide are often non-discretionary, fundamental necessities for the homeowners and businesses. Over the past two years, our leadership team embraced the opportunity to successfully manage through uncertainty. We've strengthened our supply chain, remained focused on profitable growth, and confirmed our commitments to our customers and our employees. Now, at this time, I'd like to turn the call over to James for a closer look at our results, and then I'll conclude the prepared remarks with a strategic outlook.