CSW Industrials, Inc.

and welcome to CSW Industrials Incorporated Fiscal Third Quarter 2023 Earnings Call. At this time, all participants are in the listed only mode. A 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. Please note this conference is being recorded. I will now turn the conference over to your host, James Perry, CSWI's Executive Vice President and Chief Financial Officer. Thank you, Mr. Perry. You may begin.

Thank you, Sherry. Good morning, everyone, and welcome to the CSW Industrials Fiscal 2023 Third Quarter Earnings Call. Joining me today is Joseph Arms, Chairman, Chief Executive Officer, and President of CSW Industrials. We issued our earnings release presentation and Form 10-Q 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, in 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, James. Good morning, and thank you for joining our fiscal third quarter conference call. Once again, our team executed well in the face of economic headwinds. Our record third quarter results reflect the diligence and professionalism of our team members around the globe. Demand for our high value products remains strong. We are highly focused on managing our costs while pursuing market share growth. We have continued to deploy capital opportunistically while strengthening our balance sheet and liquidity. through reducing our leverage ratio and proactively increasing our revolver capacity, thereby maximizing our ability to pursue future opportunities as they arise. We delivered impressive operating leverage as EBITDA grew by 47 percent on 26 percent growth in revenue, while also generating $33 million in free cash flow, equal to 19 percent of revenue. In the current quarter, all three segments contributed to organic revenue growth of $23 million, driven primarily by the numerous price actions we have taken over the last two years. While we are still experiencing inflationary cost pressure, we have been able to partially offset these with productivity gains. We have seen reduction in the cost of shipping containers from Asia, as well as lower costs for certain raw materials. but still face higher costs for certain line items, such as domestic freight. We have successfully maintained our pricing, thereby expanding our margins. However, the net result of these variables is that we have not yet returned to our historical pre-pandemic margins, which remains a goal for all of us here at CSWI. During the fiscal third quarter, we consummated the previously announced acquisition of Falcon Stainless. This product line expands our offerings sold into our profitable HVACR and plumbing in markets. As a reminder, in our third fiscal quarter of last year, we closed the Shoemaker acquisition, which expanded our GRD offerings sold into the HVACR in markets. During the fiscal third quarter, the Shoemaker, CoverGuard, AC Guard, and Falcon acquisitions collectively contributed $12 million in revenue, all of which was reported in our contractor solution segment. These acquisitions reflect the accretive nature of our capital allocation strategy and our focus on complementary product categories and our existing end markets served. In the first nine months of fiscal year 2023, we deployed $105 million of capital via acquisitions, opportunistic share purchases, dividends, and capital expenditures. We continue to pursue both internal and external opportunities for growth, consistent with our discipline, risk-adjusted returns methodology, and to maintain a pipeline of acquisition opportunities. In prior quarters, we have discussed strategic investments we made in working capital in an effort to mitigate shipping delays and other uncertainties with the global supply chain. I am pleased to report that these delays have eased and our business leaders have shifted focus to reducing inventory and accounts receivable as prudent. This focus is intended to free up cash and reduce the accompanying interest expense and I am encouraged by the progress in recent months and optimistic about our ability to see continuous improvement in this area. I want to touch briefly on our segments, then James will provide the details on our performance. Overall, I remain pleased with the performance of all three segments, and in particular with the leadership team's response to changes in their markets. We are entering the busy season for our contractor solution segment, and our team is gearing up for another year of growth that exceeds the industry average. The strength of this segment lies in leveraging our distribution network, optimizing acquisition integration, and bringing high-value products to our customers. Our recent acquisitions have been well integrated, and the focus, as always, remains on serving our customers well as we add new products to our portfolio of offerings. Our specialized reliability solutions segment continues to exceed expectations. The capacity utilization in our main facility continues to increase, and our team there remains focused on top-line and bottom-line growth by driving operational efficiencies and offering the optimal mix of products. Energy markets remain strong, and industrial end markets are stable. Our distributors remain cautious about their inventory levels, so we stay in close communication with them relative to demand. Our joint venture with Shell continues to gain momentum, and we expect to complete the previously announced capacity expansion project of our existing facility later this calendar year, which will allow for increased revenue and profitability. Our engineered building solutions segment continued to grow with an increase of revenues of 7.6% year-to-date. And for a fourth consecutive quarter, this segment's backlog reached an all-time high. We are seeing a slowdown in biddings for new projects in line with recent AIA data, but are highly focused on pursuing those projects undertaken by the highest quality developers with the highest likelihood of completion. And our team is performing well in delivering on the current projects, albeit at a lower margin due to when those projects began. Before I turn the call over to James, I would like to remind everyone of the demonstrated resiliency of our business model. Despite the expectation of many in the financial community of a recession this year, we remain well positioned. Strengths of our business model include the diversification of our product portfolio and of the end markets we serve, as well as the consumable nature of many of our products that are used either in maintenance, repair, and replacement applications, or to extend the reliability, performance, and lifespan of mission-critical assets. Specific to our largest end markets, HVACR and plumbing, The products we sell and the value we provide are often non-discretionary, fundamental necessities for homeowners and businesses. We have maintained a strong balance sheet that allows us to withstand market headwinds with ample liquidity that affords us the ability to pursue growth opportunities across our portfolio of businesses. At this time, I'll turn the call over to James for a closer look at our results And then I will conclude the prepared remarks with our strategic outlook.