Earnings call transcript Q1 2024

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Operator

Good day and welcome to the CSW Industrials First Quarter 2024 Earnings Conference Call. I am [indiscernible], the operator. Please note, this event is being recorded. I would now like to turn the conference over to Alexa Huerta, Vice President of Investor Relations and Treasurer. Please go ahead.

Alexa Huerta

Andre. you, Thank and first everyone the Industrials CSW Good earnings welcome call. XXXX quarter fiscal morning, to

Joining is Perry, President of and me Officer Financial CSW Executive today Chief Industrials, Joseph Armes, and James Officer. Executive President Chief Vice Chairman, and

is being Relations accessing our earnings to in XX-Q This website included opening which at Investor market’s the the on is and are Form www.cswindustrial.com. We issued available release. updated webcast Investor earnings presentation on our today, release, replay and prior information the portion the call of

During as call this results statements to expectations that well call, because our report update SEC. duty this we forward-looking during any Actual statements. as our risk We release discussed any subject materially could will and statements. identified filings are made These make factors comments various are Form uncertainties. do in of the current based on and with factors differ annual risks to forward-looking on today and in XX-K assumptions other the undertake the not and earnings

now turn the will to over Joe. call I

Joseph Armes

markets. of you in Good our executed thank conference face everyone, in and call. our team joining you, Alexa. the first Thank Once fiscal key morning, again, certain for well quarter headwinds

first around Our our reflect professionalism team tenacity, the of results quarter the members world.

managing We categories we are our outperforming costs, on acutely compete margins. focused the our in and expanding

results first and record first quarter our share $XXX record first of many quarter with $X.XX a per quarter earnings million. For EBITDA record the diluted announcing record we quarter, of million, share our are $XX per revenue of

cash from and a This first our But to interest on in for million metric XX% operating operations to on We opportunities impressive of ended pay-down million secure and facility maximize as they million grew facility, company quarter. growth of quarter $XXX balance flow EBITDA a $XX record $XXX potential most our our impressive expense by credit $XX us reduce the to also delivered is potentially, of the our outstanding led of arise. revenue. with our million leverage as the revolving borrowings under allowing X% future

fall’s our During contributed the These and $X.X Contractor which Solutions quarter, of was AC first revenue, Guard in fiscal reported HVAC/R markets, Falcon Cover product inorganic our categories acquisitions segment. Guard, expanded into million the last extensions strategy our our markets our plumbing all to line collectively focus nature high-margin on end capital offerings of within reflecting end and our and product served. complementary existing accretive allocation

a from year. year. we domestic mentioned in a recent reduction calls, down is on quite since over materials we a Asia shipping the As prior our bit And earnings last as as well containers reduction have cost raw now freight in the of certain seeing are

recent pricing are, assets of to X margins. expanded our however, our still employee all expenses increased amortization due We By as maintaining we intangible segments, across successfully as experiencing well increased acquisitions. further have

first the already capital reduction $X.X we X months capital in In revolver expenditures of mentioned. XXXX, addition the that year dividends and million deployed I to via of fiscal

risk-adjusted disciplined and We for opportunities. a pipeline acquisition growth, have healthy continue external of both our with methodology return to opportunities internal pursue and consistent maintained

business conditions. I on ability execution performance. team’s to our leadership want our with segments, to touch then our I remain to provide pleased all James with briefly the additional Overall, of will on three adapt particular, details dynamic and the in segments

powerful products experiencing in delivering distribution integration a acquisition HVAC/R for busy Contractor team our decline in optimizing our segment, leveraging are industry to year The centers strength currently despite network, of the and customers. on highly focused middle summer of of residential growth high-value and the season Solutions We around volumes. a this is another our segment our

logistics as to always well we agreements, faster a well, to portfolio. acquire we able of allows quickly sales add resulting rate products, what to to our and or on have in at distribute due This do our back-office sales our and us done representatives, new credit supply customers is products support. are leverage, which more network master serving focus We cost-effective to

Solutions utilization to increase, continues products there exceed around mix continues and the Our team line specialized remains on expectations. segment in the Reliability primary our of driving capacity operational and globe. bottom customers our efficiencies to focused offering The top our and by optimal facility to growth

market and end Energy are solid growth markets remains industrial stable.

expect this financial our allow yield fiscal to within complete will expansion continues Shell the for announced and end with facility which venture increased we revenue in profitability year, of previously the to benefits, joint project Our and existing capacity XXXX. by fiscal

was segment revenue quarter. slightly, decrease Solutions X% Building Engineered the the of in Our down in

revenue segment’s reached is years. for portion to for business backlog will aluminum this typically turn that all-time backlog sixth railing a you I into consecutive do from jobs X the with that months the coming high driving growth. significant another of current not XX most quarter, remind of the larger a However,

performing focused highly developers are highest our undertaken by on pursuing highest quality on multifamily team We delivering the and projects. And current and completion. well is institutional the with of likelihood projects

Before well our both nature assets. maintenance, I I necessities repair performance our used our largest HVAC/R of reliability, would businesses. many in are the markets, the plumbing, resiliency life consumable sell and model diversification products mission-critical the homeowners as and Strength the of end and that of replacement products and are turn and serve portfolio non-discretionary to provide our demonstrated applications Specific model. the of or the the include markets value they to we fundamental our span either for of extend call remind product business everyone the as of end of of we like over to business to James, and often

compete. We the categories outperform in we which to continue

affords to We maintain our pursue headwinds growth portfolio the to entire that of us have ability that allows arise with continued balance us strong opportunities a that market sheet ample liquidity businesses. withstand to across

our our at I and a conclude look I this will closer then over call James results, time, will to At remarks. turn the for prepared

James Perry

everyone. and Thank good you, Joe, morning,

product $XXX fiscal during was by driven from acquisitions. and increase XXXX revenue million, prior compared period, consolidated as a inorganic X% quarter recent first the actions to year contributions pricing Our

increased profit to as to was gross fiscal with Gross revenue within raw freight to lower $XX costs ago XX.X% $XX profit Consolidated year growth the in to in $X the XX.X% resulting well million quarter market freight specialized growth higher-margin reliability incremental compared margin end and by to compared XX% or million that profit expenses. costs. Contractor combined period. as when as the acquisitions year to from in representing as the year year margin X% to well inbound XX% a EBITDA XX% prior initiatives operational growth Consolidated quarter, incremental outbound materials revenue the certain the and growth from improved execution. compared in above the improved EBITDA as due prior first and costs growth compared lower as energy outpaced revenue the with From solutions, and decreased Solutions million, growth prior segment to in period. pricing Consolidated strong

contractor demonstrates or from prior fiscal diluted million the that as includes per increased share due we focus expense leverage interest as share quarter compared $XX operating the solutions the margin million attributable year well was $X.XX to we result or Net over diluted CSWI quarter we for higher strive a increase The the expense in in $X.XX $XX on to income higher first of per This assets growth as revenues. to managing current as intangible rates acquisitions interest amortization prior last as period. year. and fall’s expenses

The partially and $X XX% delivered acquisitions, in our from million offset organic or and revenue by we of specified Solutions accounted growth $X.X AC have taken revenue, consolidated growth Guard, revenue by offset by revenue actions total over by segment was The last architecturally and year to pricing was a decrease driven Guard end for reduction markets. growth Contractor million years. quarter. was Our the of building in $XXX revenue. products as a decrease Falcon was compared Cover unit million the the in Inorganic prior driven of X% couple organic plumbing quarter the X% the volumes,

increasing XX% to are to pricing revenue this down XX% have year. over the million or costs come prior in $XX the margins EBITDA period prior of even The revenue $XX company’s as ability in the Segment million expand. maintain was segment margins year certain our as continue to or compared from of

million in prior Our segment year achieved Solutions and X% initiatives, fiscal the pricing XX% Specialized due compared $X period. impressive from operational the in benefits respectively, improvements million Reliability mining, energy XXXX or $X EBITDA million and execution. to quarter first another to continued margin demand, of and and quarter including organic the revenue and end-market our growth in XX%, $X Segment of were EBITDA solid

joint Texas our continue fiscal and growth are ventures, segment progress next year. of equipment position mentioned, Joe as support ongoing As a addition the the this current more in facility the to Rockwall, to with of rest fiscal into Selwood in through to our in post-compelling we year the we

Engineered decrease revenue slightly period. Solutions Bidding and booking prior million $XX to to million, remain Building X% year trends a compared Our declined segment in the $XX strong.

by ratio quarter We the the quarters ended over to sixth At record backlog June X% trailing almost our fact, for quarter, fiscal was our segment. X quarter the in consecutive In increased backlog the end approximately of close. XXXX the book-to-bill this backlog X. of fiscal first end with X.X

cash fiscal the XXXX sheet balance record reported in with last first strength compared cash and from of ended Transitioning million and to quarter quarter operations We of $XX same $XX million our $XX of to the million year. flow. our flow cash

$XX.X to free the in $XX.X flow, defined a year as Our operations quarter period per from the flow same million capital in our share cash enhances flow fiscal to cash turn, level resulted flow as strategy, That ago. value. first expenditures, in returns, of a quarter fiscal was of in $X.XX which, ago. free risk-adjusted compared minus the same as cash free compared in impressive cash in fuels This first year shareholder $X.XX capital the allocation period million

the of broad strategy, our we allocation during part paid of down our As million quarter, debt. $XX outstanding capital

$XXX fiscal million the We revolver. ended with on million our outstanding $XXX quarter first

an savings. due the reducing was interest the grid, This X.Xx our revolving spread, of to covenant as ratio strong places expense leverage fiscal at pricing bank leverage improvement ratio which our Our EBITDA now lowest of rate our of approximately interest XXXX end in tier quarter from creates growth. the current end us X.Xx,

interest an million XXXX, $XXX As into rate of borrowings hedge entered we a in revolver. of first the reminder, under for our February

first the quarter, in $XXX,XXX expense. us this During interest fiscal saved

rate basis. first for We tax still a XX.X% GAAP was Our on quarter for XX% XXXX. approximately expect rate of effective a fiscal tax the fiscal

As of revenue flow EPS and EBITDA still expect growth out growth year, when to for anticipate will cash strong leverage, we coupled strong well operating fiscal as with we the year-over-year which XXXX, we meaningful full the in look rest result generation. as

material raw freight well as our We expect costs in and continue benefit to to from stability operational efficiencies. as

With back will to now call turn that, closing Joe I for the remarks.

Joseph Armes

Summarize, James. you, quarter highlighted fiscal robust Thank record flow. cash XXXX, expanded during of we the margins delivered first and by results,

While markets, there earnings outperform we to headwinds key serve still end growth we XXXX. in expect in the deliver fiscal are categories certain consolidated and revenue and to

and are of customers on reductions, customer cost goal. service and that they dedication products gains we high-quality are to rely We efficiency from we members and And providing with CSWI. to the our our expect team accomplish focused committed will on that

have We conversion. cash We’ve margins. flow expanded driven

financial have and by We are value. growth of consistently this sustainable the long-term By balance allocation, doing confident outstanding in for is to opportunities near- we shareholder capital enabled sheet. committed our delivered our We which disciplined and the in remain results. past, strength

will CSWI, we utilize succeed we CSWI no beyond. the how year must succeed. we approach matters. of and We remainder There’s say we fiscal At other But will and also at same this that option. for

health seen a supports in the would that of And I our trending very of stewardship, everything focus safety And we I we to on since accomplished this with inception. note, our record. growth we year members, couple do well and have team like have a Of is environmental share. examples which safety of are terms the

years worked based of facility. new During of injuries. lost the Wichita, days with month that of milestone billion time X.X translates Vietnam And no lost facility on at currently to at in at X a have that the over celebrated time And number Balco factory XXX members we’re no we Kansas, hours team July, injuries. over with in our our TRUaire

continued value. these commitment which not members our line shareholder We admirable and are safe for over and keeping both Achieving time to to capital team exceptional only achieving extremely also contributing our long-term teams but our be of proud healthy, milestones, of to stewards are driving goal our results bottom results. of your of those good sustainable and important demonstrates

my as of shareholders, colleagues by support As our to in at I thanking through here our well always, stock company. CSWI, continued our of plan interest own for employee as all of close collectively your X% ownership want approximately our you, all who of and CSWI

ready take now we’re Andre, questions. that, to With

Operator

the The go Securities. ahead. [Operator Tanwanteng line CJS Please Instructions] first question comes Jon from of with

Lee Jagoda

it’s on for versus in we volumes this of the Hi, volume with And to retail? I network how of couple next are how at actually sell-through the Jagoda John those much starting should the management lower over just Lee expectations at volumes think distribution the morning. guess related the about quarter, quarters? inventory

James Perry

the things Good people’s points Lee, double quarter. We management of couple sense and down have – too data A don’t last a full giving being the for James. question. in it’s sales. morning, of Thanks the much, talked for digits have about versus data inventory without OEMs your being other thanks though, retail

We’re clearly outperforming that.

we we’re of a not given things. be the sense the the So where the work, I great maintenance on in those category gotten kind folks We’ve the of replacement, know seems decelerating. industry to couple focus repair of the that destocking outperforming said destocking. a and

may the inventory our you chain confidence Obviously, through feel appropriately. little more about have supply in that. that. been now, good there bit So we work of a with

bit us is headwinds. more to of mention a saw that of the outperforming a late But was those summer. You Last have questions and I’ll that little you start free we’re the thing would despite category we say, some it overall, up inventory.

of that been too Again, to got and management, much. June the going kind the So a up so speak. But called there may July. one really bit no late of summer have little inventory

So normally start seeing way. May, pick things kind you of in pretty a June, good up

the are a basis tracked at on pulling year-to-date down look and you days you If degree the week, that were XX%, for days each there cooling a out XX% while.

last the down XX% I you’re saw. about your that Now week

product made saw of our on of So a demand certainly a side, in to lot I’d to picked our we little signs overall, had customers about overall, up the ability softness that early and given We the with the feel was heat ability ground. in certainly metrics. July sell effect has was of July taking a But bit those little up. the summer good maybe of bit late to retail destocking. there some our But regions, continue outperform the say

Lee Jagoda

materials. any on going – you or freight guess or I getting the a in you terms cost talked like, whether How bit to How better, you still do does that Great. as are see of forward little And all margin about it’s shake getting then other able pushback? that raw you prices raise are out?

James Perry

for was costs with come years couple over and quarter, you such freight a $XXX at a a $XXX, big Yes. a lower From a Long gas in the sub couple Last of prices settled settle lower. freight past little quarters fuel ocean you have talked because now. about new that’s from prices. the normal of different of ocean things have haven’t bit, The price Domestic to well. lot per freight whole oil, seen different parts bare to freight, little year, it oil. XX% a last for which bounces X,XXX and was a seems costs than a China down new at But Again, freight to deal last Lee. of around it bounces perspective, year we’ve it were more look around. looking It This into as pandemic. low. week-to-week, kind we a of kind in with looking obviously, too, was at certainly the yes, lower when of Beach Domestic kind Thanks, bit you in at ago. diesel were XX%,

in tailwind price always a in cost. of we normal that’s of the We increases our round had us bit So been a for last do. terms of as spring

I on think is is. hold our to our to focus ability where that

holding then to things the to. we Labor the need across think confident now, time, price still couple to I We to importantly, pricing is move I our right cost in continue appropriate some current still some still said what at if But costs think ability move up, the the But important. we we have cost. see we’ve increases if feel things there. And we There pretty for on years, and is will steady. pricing businesses while is down, has pressures, tough, come we like things some would of a got, been action. most see so you environment labor. take watch pressure

through careful some through But through some some has the key being watching down growth as we’re really pricing led So and margins. some in again, expansion and come raised line, acquisitions, loss of unit leverage pricing, the while that. operational top to we’ve markets, margin

Lee Jagoda

Got secular – the those positively issue. one have hottest about kind high-level do like queue. demand? day, several obviously, think that, last How year hop I demand the every issue. record. you years? of ever the guess I over the there’s cyclical There’s argue impacted we other on hottest see a whether cyclical, much of over much question, etcetera, it. several And that others driver And argue and headlines it’s the more I feels one, in then next in a some of guess, It back I’ll to And about secular, it’s as a month years of how it’s guess, things, how news

Joseph Armes

for rising Lee I season some from a start, trend temperatures us by standpoint. have and then that’s secular vary. will we and But mean, me a add James certainly, can detail. Let positive seen Season

start we said, season it’s late ever than now but year, to a hotter the James summer this had As been. it’s

and that. our for the products of immune value our just the whatever go, – and cycle same time, things and to those we’re that add year. they is it of products the than customers at character each do, makes so things more resilient our But the following come it’s And the kind not

So that us gives confidence.

systems. performance the enhancing are conditioning air products Our of

to the job. We’re for their easier making do technicians it

We’re adding value homeowner, and to we great strategy. the to both think that’s the long-term technician a and

James Perry

have to products reporting that’s to you really been Those that trends, important that they’re is our for One in places that’s is where places That’s us a Northeast condition, Northwest, can’t areas Yes. product we’ve necessarily in out they’ve split It’s a we to buildings. mini and efficient had category in continue lot installation. in at, a lot work before All where as in expectations see air is if years think you predict in add, the that the rising. of Joe presentation, specifically markets. a long-term when as the Lee, they I’ll And position those in of a thing where point Duct are but not generally would you look where would West, mini our in clear said, Duct not of the temperatures air split the put we the one overall, temperatures have risen I in places. tailwind been highlighted Duct things, look few surrounding and and certain work investor conditioning I last historically is lot the not it’s scientists.

over years that. slips, really products surrounding unit year-over-year and leaned installation a which lot of continues is type be few to double-digit into, growth we and positive we’ve So mini something the a have last of

the helped thing earlier, as has just category. I one overall us mentioned that’s ducted OEM So outperform unitary that,

Lee Jagoda

much. very Thanks helpful. That’s very

Joseph Armes

Lee. Thanks,

Operator

of Romero the ahead. Julio with & Please Company. from comes Sidoti line question next The go

Alex Hantman

for good Julio. and Thanks is Alexa. morning, questions. for on Hantman This Hi, James actually Alex taking Joe,

Joseph Armes

Thanks, Alex.

Alex Hantman

with segment Contractor diffusers, start better as registered the the Solutions driven. demand stronger to of wanted for grills, segment. construction I in would the with repaired environment? I implications lines fare select this Yes. is replacement those such But new on homes know

Joseph Armes

a little a are some other different of products. our They do. little cycle They than on

their drive selling and bit homes. like as So the We’ve there folks folks can their Also instead current new elected quite remodels, construction moving a about mortgages have read house. opportunity business. refurbish and investing for we’re because uptick opportunity. they’ve homes is of seeing well feels to spending existing certainly And in got that’s GRD with homes who which into an money sold instead good that up. their of They’re in GRD on just another the their selling to be and stay cheap

So yes, the bit difference there’s in a cycle. little of

homeowner our Of portfolio, course, for use the to adds to products. and and product our need of more the our it diversification products the broader opportunities a

for that’s think we the So overall long-term. healthy

Alex Hantman

And in you. you could side, Solutions add the any helpful. on can or What’s within the segment focus the Thank demand trends Engineering would talk backlog segment? new be Basically, you products, the on strength Building go-to-market. about the color driving

Joseph Armes

Solutions, Engineered said? you for that’s Sorry, Building

Alex Hantman

Yes.

Joseph Armes

us have their resilient Yes, a some that introducing of is marketplace. been absolutely. product that One new advantage of It’s on in some has nice the team a improvements give parts enhancements, couple really Also, things. done products, of market. competitive hyper-focused job they a more

you imagine, lot reads about a construction everybody As maybe driven office being can downward.

over last on have, residential. high-rise years, focused And few so we still they the institutional of lot And a do type. product

airports, market very the very has schools, in Institutional things. types strong, those particular so And strong. hospitals, residential that submarket been of is

And think markets. right the so it’s targeting I

I think value And ability just the clearly enhanced our communicate products professionalism to market. to go-to-market in new our the and to of our of products the and is in kind think strategy field our the overall market. I providing improved we’ve it

Alex Hantman

last still context. here, the the about question of to EBS. you. products smoke like higher-margin mix quarter. railings or And on Great in quarter last curtains you compared Thank Can talk

Joseph Armes

margins Yes. of some say products. are material changes in I differences no there that among would would some I say the there.

of within matter And focus kind And sales enterprise-wide products so earnings focus margin really be really focus, really products on on We through line. that’s on. side a and differentials are And on the out on it execution does higher you mix. focus emphasis, we’re of and you regard. to products. energy and our a right the internal reporting, seeing higher-margin in commercial side, some effort beginning margin the expanding on on the and each that to of have matter efforts focusing some literally results of folks selling why just to your that’s time, of of a to realize kind report segments, when of and try increase recognize those matter the commercial the we can byproduct really our And on

Alex Hantman

Thank helpful. you, very

Operator

more for remarks. are there gentlemen, CSWI would over and closing to at I back any this Ladies questions no the to like turn time. conference

Joseph Armes

Great, much. Andre. today you say want joining so CSWI. us everyone in just appreciate you We Thank to to thank your interest and for

Operator

The conference is for now presentation. you Thank today’s attending concluded.

You may lines. now your disconnect Goodbye.

CSW Industrials (CSWI) 3 Aug 232024 Q1 Earnings call transcript