Welcome to the CSW Industrials' Second Quarter 2021 Earnings Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask question. [Operator Instructions] I would now like to turn the conference over to Adrianne Griffin, Vice President, Investor Relations and Treasury. Please go ahead.

Thank you, Claudia. Good morning, everyone, and welcome to CSW Industrials' fiscal second quarter 2021 earnings call. Joining me today are Joseph Armes, Chairman, Chief Executive Officer and President of CSW Industrials; and James Perry, Executive Vice President and Chief Financial Officer. We issued our earnings release and presentation prior to the market opening today and both are available on the Investor portion of our website at www.cswindustrials.com. During this call, we will reference specific slides in the presentation. This call is being webcast and information on how to access the replay is included in the earnings release. During this call, we will be making 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 in the comments made during this call as well as the Risk Factors section of 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 Armes.

Thank you, Adrianne. Good morning and thank you for joining our fiscal second quarter conference call. First, I want to congratulate each of our over 750 CSWI team members for their ongoing efforts. They're working together so effectively during times of uncertainty, positioning us for future growth and remaining dedicated to delivering results for our shareholders. I'll begin with a high level discussion of consolidated results and key end markets, conclude with commentary on the second half of our fiscal year. Through the cycles, we had CSWI measure our success in many ways focusing this fiscal year on our four guiding objectives that we outlined in May, the details of which are included on Page 6 of the October 2020 Investor Presentation. Notably, this quarter as compared to the prior year period, we realized 30% total growth in sales into the HVAC/R and plumbing end markets, driving top and bottom line organic growth. In addition to solid growth in revenue and operating income, we reported increased profitability with record quarterly operating income margin of 21.1%. And further enhanced our financial position with nearly $300 million of liquidity, including $47 million of cash on hand and our full unfunded revolving credit facility at quarter end. On Slide 8 of that presentation, we outlined the results for the quarter, culminating an earnings per share from continuing operations of $1.10 per share, which is approximately 20% higher than the prior year period. Our strong fiscal second quarter results contributed to a 19.4% increase in operating cash flow from continuing operations in the first fiscal half of 2021 over the prior year period. And earnings per diluted share from continuing operations of $1.91, an increase over $1.89 in the prior year period. We'd also like to share a few metrics illustrating the strength of…

Thank you, Joe, and good morning, everyone. Before I begin my remarks about our financial performance, I would like to announce that our Board of Directors authorized a new upsized share repurchase program. The previous $75 million program was set to expire in November 8th, 2020. And the cumulative investment under this program was $46 million and approximately 740,000 shares. Our new $100 million authorization replaces the old program, takes effect immediately and expires on December 31st, 2022. We welcome the opportunity to continue to support our share price and execute on our capital allocation policy as described on Slide 20, which includes share repurchases. Our consolidated revenue during the fiscal second quarter of 2021 increased 3.6% to $104.9 million compared to $101.3 million in the prior year period. 100% of this growth was organic. The higher revenue was driven by $9.7 million of increased sales in the Industrial Products segment, partially offset by a $6.1 million decrease in the Specialty Chemicals segment. Our profitability metrics remained strong with consolidated gross profit margin of 46.4%, 40 basis points higher than the same period last year after removing a prior-year gain on sale that did not recur. Consolidated operating income margin was 21.1%, a 130-basis-point increase from fiscal second quarter 2020 due to the stronger-than-expected growth in sales and some end markets served, combined with cost reduction measures to offset some of the impacts from declining sales in the remaining end markets. We expect margins in the second half of the year to be lower than the prior year period. Net income from continuing operations in the fiscal second quarter was $16.4 million or $1.10 per diluted share compared to $8.8 million or $0.92 per diluted share in the prior year period after adjusting for the one-time charge of $0.35 per…

Thank you, James. When we think about evaluating the sustainability of our company, we are seeking to generate strong business results despite the challenges our market space today. And we also want to attract and retain outstanding diverse talent to propel us into the future. Certainly, this quarter, we've continued to demonstrate CSWI sustainability, delivering top and bottom line growth above the end markets served and increasing profitability that results and growing EPS, ample liquidity and a strong balance sheet. While maintaining a commitment to our guiding objectives that are consistent with and supportive of our core values. I'm very proud and honored to announced during the quarter, CSWI was awarded the Cigna Outstanding Culture of Well-Being Award for 2020, which is further evidence of our commitment to support the health and well-being of our team members. Our dedicated employees have enabled our operations to continue without disruption. Our employees are essential to our success and we are committed to providing a safe workplace and an inclusive and diverse environment supporting professional development through employee education and advancement opportunities in addition to a compensation strategy where each member of the CSWI team participates financially and the success of our company. As I always do, I want to close by thanking all my colleagues here at CSWI, who collectively own approximately 5% of CSWI to our employee stock ownership plan, as well as all of our shareholders for their continued interest in and support of the Company. With that, operator, we're now ready to take questions.

Thank you, sir. Our first question is from Jon Tanwanteng with CJS Securities. Please go ahead.

To start, I was wondering if you had, I was wondering if you had any view of the channel inventory in HVAC and plumbing and if your customers still need to restock after a very good quarter?

Yeah. John, that has not been a major topic of conversation with our team's. I mean I think that we saw the destocking earlier in the year and then the restocking, and I think the sell-through has been pretty strong since then and so that's not a driving a factor at this point.

And then, just in terms of the spiking COVID cases around the country. What are you doing to prepare for that, with regards to you on operations and how could impact your demand or supply chain and have you integrated that into your outlook for the second half?

Yeah. Jon, this is James. Yeah. Certainly, we've looked at that a little. I wouldn't say we've necessarily try to predict what the financial impact of that would be. One thing, I would say that we've done and it's kind of the corollary to what you asked a minute ago, as we've certainly talked to our businesses a lot about adding a little bit of inventory internally, so you may see working capital move up a little bit this quarter because we do want to be sure whether it's COVID-related, supply chain related which may be COVID-related as well. We've seen little issues here and there, nothing substantial certainly not internal COVID disruptions. But we have told our folks and we support with the balance sheet we have, which is a great reason that we're proud of the strength we have in the balance sheet to invest that an inventory to be showing our customers do need to stock, when our customers due to the product, we can get it to them in a timely manner and not lose those sale. But I would say, Jon that we continue to have anecdotes of where we've been able to pick up business from competitors because of shorter lead times and our ability to deliver during these uncertain times and that's gaining market share for us.

Got it. Thank you. And then just on the chemical business, the margins there were much stronger than I expected, I think you mentioned that there was due to cost cutting. I know that should come down seasonally in the next quarter, but should we think of this quarter's performance as a new base. If was there a one-off or do you think some of those cost reductions get rolled back as you normalized demand there?

Yeah, Jon. This is James. Again as you pointed out, you have some seasonality with certain businesses and as we mentioned there, certainly a little bit of unpredictability. But the team has done a nice job across the board. I was certainly highlight the Specialty Chemicals segment, but at the same-store and Industrial Products. The teams have done a good job reducing cost. I think some of those costs stay out of the system, as we see things start to pick back up some of that may come back. Clearly, you've continue to reduce travel. It's an expense that in the near term release is going to stay low. You could see some of that creep back. But I think we've learned to adjust at some short levels at the administrative level potentially in some other type cost that maybe you thought were discretionary, but now there somewhat permanent in the system. So I wouldn't necessarily want to say that we're at a new margin level or that's our new base, so to speak. I think it will take a couple of quarters for that to roll out, but I think the team has gotten very comfortable with this new level of expenses. I'll remind you, and we talked about this on the last couple of calls, we've committed to maintaining employment as a result of COVID. So as we've had attrition then we've been able to right-size operations, but we've not made COVID-related employment decisions. So some of your personnel expenses are up or down here and there. Overall, there are costs that are out of the system, that I think we can maintain long term.

Got it. That's very helpful. And then just, I think you mentioned that architectural some of the business pulled in from the second half. Can you quantify that and how much it impacted your quarter both on a top and bottom line?

Yeah. This is James. We wouldn't quantify that. I know that would help some certainly that helped the second quarter and it helped us, as we pointed out almost make up for the first quarter, which obviously the first half of the first quarter was tough. So we almost caught all the way back up on a consolidated level, and did so on an earnings level. So we had some pull-forward. We started seeing that a little at the end of the first quarter, certainly, saw it in our fiscal second quarter. So that leads to this weakness, a bit of an air pocket in the third quarter, potentially for us and that's why we really want to point out the third quarter is kind of where we see the weakness on top of just seasonality. So we wouldn't quantify that, but it was certainly an impact on beating our expectations, so to speak on the second quarter along with the HVAC performance that was very strong.

Okay. Fair enough. And obviously, congrats on landing more orders in that business. Can you describe the customers that place those orders and kind of where that came from those? Was something that were delayed and then finally were released or is it just more organic demand and kind of what you're expecting in the next couple of quarters there?

Yes, John. This is Joe. I think it's a combination of all of the above. I would say the business that we bought down in Florida, a couple of years ago has been really strong and institutionals, educational type of kind of end market, if you will or categories, which has been stronger than some other areas. So our diversification into that has paid off really, really nicely and that's worked well. But it's been a mix of residential, it's been office and again this more institutional educational piece, all of the above and it's been spread geographically. And so I think it's been a really nice result to see the strength across the board there and our bookings growing, been very pleased with that John and our team is performing well.

This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.