Griffon Corporation

Greetings. Welcome to the Griffin Corporation Annual and Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-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, Brian Harris, Chief Financial Officer of Griffin Corporation. Thank you. You may begin.

Thank you, Hillary. Good morning, everyone. With me on the call is Ron Kramer, our Chairman and Chief Executive Officer. Our call is being recorded and will be available for playback, the details of which are in our press release issued earlier today. As in the past, our comments will include forward-looking statements about the company's performance based on our views of Griffin's businesses and the environments in which they operate. Such statements are subject to inherent risks and uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and in our various securities and exchange commission filing. Finally, some of today's remarks will adjust for those items that affect comparability between reporting periods. These items are explained in our non-GAAP reconciliations included in our press release. Now I'll turn the call over to Ron. Thanks and good morning, everyone.

2021 was a record year for Griffin. We continue to see strong demand in our businesses, driven by a robust housing market and a leading product portfolio in the U.S. and internationally, while effectively navigating a highly dynamic and challenging operating environment. Griffin entered 2021 with significant momentum, reflecting more time spent in and around the house and a renewed appreciation for a lifestyle including the lawn, garden, and the outdoors. During the course of the year, we continued to see healthy demand, but supply challenges across the global economy emerged and then escalated, creating increasing headwinds for us and the entire global economy, particularly in the second half. Despite these challenges in 2021, inclusive of telephonics, we generated record revenue of $2.5 billion, record segment adjusted EBITDA of $317 million, and record-adjusted earnings of $1.86 per share. Our businesses also continue to see unprecedented levels of backlog, which bodes well for continued momentum into 2022. Our record performance this year is a direct result of our being able to realize the benefits of the strategic actions we've taken to strengthen the company and position ourselves for future growth and increased profitability. Our portfolio repositioning and strategic acquisitions, along with the critical investments we made in infrastructure at our Cornell Cookson Commercial Door Facility in Mountaintop, Pennsylvania, and our ongoing AIM strategic initiative have put us into a position to capitalize on the consistent strength of the housing market and homeowner activity. Notwithstanding our record levels of performance, we continue to be impacted by an increasingly difficult global operating environment. COVID is better, but it's not over. Particularly in the second half of this year, labor, transportation, and supply chain disruptions, both domestically and internationally, have affected our ability to meet market demand and have disrupted the steady flow of our operations. Our customers, affected by these same challenges, continue to be desperate for product to restock their shelves and replenish their inventory levels and have begun looking more broadly across their supplier and vendor base to secure the product needed to meet the continued demand in the market given these inefficiencies. This presents both challenges as well as opportunities across the competitive landscape. We've also taken significant strategic actions this year with the goal of increasing value to our shareholders and enhancing our competitiveness. In September, we announced the exploration of strategic alternatives, including a sale for Telephonics, our defense electronics business. Telephonics is a terrific company with a long history of impressive achievement, and we are evaluating opportunities to realize the value of the business and focus our resources on areas where we believe we can achieve stronger growth. On the acquisition front, we have an extremely active pipeline of high-quality businesses, and we will continue to be optimistic about finding acquisition opportunities that are value-enhancing and immediately accretive. Let's shift to the results for the year and give some more detail around the performance of the segments. Starting with consumer and professional products, our AIMS business, revenue increased by 8% year over year, and adjusted EBITDA increased 11%. The increase in revenue benefited from increased volume and favorable price, mix, and foreign exchange. AIMS saw volume gains in international markets, largely driven by consumer activity, catching up after earlier pandemic shutdowns and other demand disruptions. Domestically, U.S. volumes were lowered due to the labor, transportation, and supply chain disruptions that have been widely reported and commented upon. Despite these disruptions, consumer demand appears to continue to be healthy. In terms of profitability, increased material costs in the U.S., coupled with continued lag of price catching up with rapidly rising input costs, have been and continue to be headwinds on margins. We expect price and cost to reach parity at the end of our second quarter of 2022. Turning to home and building products, our Clopay business saw record revenue in EBITDA which increased by 12% and 18% respectively. The increase in revenue benefited from increased favorable price and mix and increased volume. We saw broad strength across both residential and commercial products throughout the year. Commercial products in particular did well with heightened customer interest in the new products developed by Cornell Cookson, strong performance of core rolling steel product offerings, and successful cross-selling of sectional doors through commercial channels. and with an infrastructure bill finally signed, the future looks bright for demand. EBITDA and Clopay benefited from the increased revenue, partially offset by continued price and cost lag, rapidly rising prices for steel, interruptions of supply of raw materials and chemicals, as well as significant shortages in labor continue to create challenges for the business, as evidenced by Clopay's unprecedented levels of backlog. Turning to telephonics, we announced the exploration of strategic alternatives for the business on September 27th and are now treating the business as a discontinued operation in our reported results. Lazard, our banker, is actively working on these alternatives, which includes a sale. We expect this process to conclude by the end of our second fiscal quarter ending March 2022. Excluding the contribution of the SEC director, SEG business, which we divested in the first quarter of 2021. Telephonics revenue in 2021 decreased by 15% year over year, and EBITDA decreased by 15%. Revenue was impacted by reduced volume due to delayed awards in certain programs, as well as decreased deliveries. EBITDA was likewise affected by the lower volume, as well as by cost growth in surveillance systems. partially offset by favorable program performance in the radar systems and reduced operating expenses resulting from efficiency actions taken last November. We expect increased sale and profit, including strong margin improvement as the company enters fiscal 2022. Turning to our dividend and balance sheet, our record performance this year reduced our leverage to 2.8 times net debt to EBITDA, which is well below our stated target of 3.5 times and does not include the benefit from the telephonic strategic process. This balance sheet strength provides us with substantial flexibility to pursue value-enhancing and immediately accretive acquisitions while making strategic investments in our existing businesses. We increased our dividend to $0.09 per share, which marks the 41st consecutive quarterly dividend paid to shareholders. Our dividend has grown at a 17% compound annual growth rate since our dividend program was started. Separately, each year we reach out to institutional shareholders to discuss their views on a variety of subjects, including our governance practices. Over the past five years, we've refreshed approximately half of our independent directors, adding diversity and relevant expertise to our board. As we evolve, we are continuing this process. Our board has adopted two amendments to our certificate of incorporation for submission to our shareholders at our 2022 annual meeting. The first amendment will declassify the board over a three-year transition period after the amendment becomes effective. The second will reduce the percentage of voting power necessary to call a special meeting of shareholders. These amendments will become effective upon the approval of our shareholders at our 2022 annual meeting. Our board has also undertaken a commitment to further diversify with an objective that by 2025, 40 percent of our independent directors will be women or persons of color. These enhancements and refinements to our corporate governance practices will further align our interests with those of our long-term shareholders and contributing to maximizing shareholder value. Let me turn it over to Brian now for more details regarding Q4's financial results. Brian?