Griffon Corporation

Hello, and welcome to the Griffin Corporation first quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. We ask that you please ask one question and one follow-up, then return to the queue. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Brian Harris, CFO. Please go ahead.

Thank you, Kevin. Good morning, everyone. With me on the call is Ron Kramer, our Chairman and Chief Executive Officer, and Bob Mamel, our President and Chief Operating 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 filings. 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. We're very pleased with our results this quarter. We're off to an excellent start to fiscal 2022. Griffin first quarter revenue increased 9% over the prior year as we saw a sustained demand across our consumer products categories, a robust housing and commercial construction market, and healthy repair and remodel activities. Despite the challenging macroeconomic backdrop, consumer demand and homeowner activity continue to be strong. Our adjusted EBITDA trailed the prior year, but as we indicated on our fourth quarter call, we expected margin compression in our first quarter as we continue to work with customers and suppliers to normalize price to cost parity across our businesses. I'm pleased to say that we made good progress with this initiative in the first quarter, and we're on track to reach our target of achieving price to cost parity by the end of our second quarter. Last week, we announced the exciting news that we closed on our acquisition of the Hunter Fan Company, the leading residential ceiling fan brand in the United States. Hunter is an icon in the marketplace with 135-year heritage and a well-earned reputation for innovation, superior quality, and craftsmanship. Hunter is a fantastic acquisition to our consumer and professional product segment. The strong alignment of the two businesses will strengthen our relationships with our key retailers, expand our product offerings, provide compelling opportunities for outsized growth, augment our global sourcing model, and will accelerate the sales of our products through e-commerce channels. The Hunter team will also now be able to leverage the broad infrastructure of the consumer and professional product segment and we'll realize benefits from our AIM strategic initiative. To finance this acquisition, we wanted the flexibility to rapidly reduce our leverage with low-cost interest, so we chose a term loan B facility to finance the Hunter acquisition. We saw extraordinarily high demand when marketing this term loan B, as lenders recognized the strength of the Hunter business and the compelling strategic alignment of Hunter with Griffins. Because of this extraordinarily strong demand, we were able to upsize the amount of our Term Loan B facility by $50 million to $800 million, while simultaneously achieving favorable interest rates. Let me shift back to the segments and provide some additional commentary regarding the performance of our two segments, as well as telephonics. In consumer and professional products, we saw continued strength in retail demand across all geographies. Volume was up in all of our international markets, but was down in the U.S. due to the ongoing labor, transportation, and global supply chain disruptions. Pricing was stronger, reflecting the ongoing actions we've been taking across the segment's products, and we also saw a favorable product mix. EBITDA at CPP reflected the margin compression we expected as pricing and other actions were being taken to catch up with increased costs. Some pricing actions materialized earlier than expected, and this, along with increased international volume, helped offset some of these effects. We have continued to make steady progress with our AIMS strategic initiative and remain on track in terms of the timing and the expected benefits. As part of this initiative, we recently announced that AIMS will be closing its manufacturing facility located in Reynosa, Mexico, and distribution center in Pharr, Texas. These operations will be consolidated into other AIMS facilities in the U.S. and are expected to be completed by the end of our fiscal third quarter. Further, Hunter will benefit from the AIMS initiative, including from our investments in East and West Coast e-commerce fulfillment facilities, as well as our business intelligence and enterprise systems. We also look forward to leveraging our international footprint to further distribute Hunter FAMS. Home and building products, or HBP, had another strong quarter as the commercial door business, and in particular, our rolling steel product offerings continue to see increased volume and strong pricing. On the residential side, order activity continues to be strong, but labor and supply chain challenges continue to generate production headwinds, resulting in lower sales volume and a high level of order backlog. The combination of strong price and strong product mix driven by commercial sales resulted in HBP sales increasing 23% over the prior year first quarter. Backlog in the business continues to be significantly higher than what we would consider to be normal levels. Adjusted EBITDA at HBP exceeded the prior year by 16%, driven by increased revenue, which was offset by substantial increases in material costs. We expect the pricing actions underway will allow HBP to reach price-cost parity by the end of our fiscal second quarter. Turning to telephonics, on September 27th, we announced the exploration of strategic alternatives for this business and are now treating the business as a discontinued operation in our reported results. The sale process led by Lazard is ongoing, and we expect to have more to report by the end of March. Telephonics revenue, excluding SEG, which was sold in December 2020 in the first quarter, decreased by 12% year over year, driven by the timing of work on certain surveillance system programs, as well as the recognition of the legal settlement in the prior year quarter that benefited . EBITDA decreased in the quarter due to the lower revenue. However, margins were consistent due to the better program performance. We expect increased sales and profit, including strong margin improvement as the company progresses through fiscal 2022. Before turning the call over to Brian for financial details and our guidance update, let me provide a few comments about our balance sheet and dividends. At the end of December 2021, Griffin leverage was 3.3 times and does not include the expected benefits from the telephonic sale or the purchase of Hunter fans. This increased leverage from year end is in line with our seasonal cash usage and working capital build. As in the past, the second half of our year, we'll see strong free cash flow generation and with a reduction in our leverage. Our continued strong free cash flow generation combined with our focus on deleveraging the business over the past three plus years directly resulted in our strong balance sheet, which positioned us to pursue the Hunter acquisition with high confidence and strong investor support. Finally, yesterday, our board authorized a $0.09 per share dividend payable on March 23, 2022, to shareholders of record on February 23, 2022. This marks the 42nd consecutive quarterly dividend to shareholders which has grown at an annualized compound rate of 17% since our dividend program was started. Let me turn it to Brian to provide more financial detail and our full year guidance. Brian?