Greetings, and welcome to CSW Industrials Fiscal Fourth Quarter 2024 and Full Year Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Alexa Huerta. Thank you. You may begin.

Thank you, Rob. Good morning, everyone, and welcome to the CSW Industrials fiscal 2024 fourth quarter and full-year earnings call. Joining me today is 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, updated Investor Relations presentation and Form 10-K prior to the markets opening today, all of which are available on the Investors 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.

Thank you, Alexa. Good morning, everyone. Once again, it's my pleasure to report to you that our team has executed and outperformed in the markets we serve. We achieved record results in both the fourth quarter and the full fiscal year, surpassing the healthy performance of the prior year. Earlier this morning, we reported record fourth quarter revenue, EBITDA and earnings per diluted share. We also delivered meaningful EBITDA margin expansion in the fiscal fourth quarter. CSWI has now delivered four consecutive quarters of record results and therefore also generated record full-year results in revenue of $793 million or 4.6% growth, and adjusted earnings per diluted share of $7.01 or 12.9% growth and an adjusted EBITDA of $200 million representing a robust 14.9% growth. For the full year, our adjusted EBITDA margin expanded by 220 basis points. We continued to deliver strong cash flow from the operations despite being in a quarter where we typically are building inventory for the start of the summer season, with a fiscal fourth quarter cash flow from operations of more than $22 million. Our gross profit margin has expanded this year primarily due to increased volumes, pricing initiatives and reduced ocean and domestic freight in the first few quarters of the year. CSWI has achieved meaningful operating leverage and further expanded our best-in-class margins. We have invested in future growth that will outpace the markets we serve. In line with our capital allocation strategy of prioritizing capital investments based on their expected risk-adjusted returns this year, the company invested in capital expenditures, acquisitions and returned cash to shareholders through dividends and share repurchases. We continue to seek both organic and inorganic investments and opportunities for growth with attractive returns that support our healthy margins. To fund our capital allocation strategy, we relied on our…

Thank you, Joe, and good morning, everyone. As Joe mentioned, during the full fiscal 2024 year, we delivered record revenue of $793 million representing growth of 4.6%. $24 million of the growth was organic through increased volumes and pricing initiatives. The remaining $11 million of growth for the full year came from the acquisitions of Cover Guard, AC Guard, Falcon and Dust Free. Operating leverage on this revenue drove 15% growth in adjusted EBITDA, along with 220 basis points of margin expansion, and over 13% growth in adjusted earnings per diluted share. Our consolidated record revenue during the fiscal fourth quarter of 2024 was $211 million an 8% increase when compared to the prior year period. This growth was half driven organically through increased unit volumes on pricing initiatives and half driven by inorganic growth from the newly acquired Dust Free business. Consolidated gross profit in the fiscal fourth quarter was $94 million representing nearly 10% growth over the prior year period. The gross profit margin improved by 80 basis points to 44.4% compared to 43.6% in the prior year period. Our consolidated EBITDA for the fourth quarter increased by $6 million to $56 million or 13% growth when compared to the prior year period. Our EBITDA margin improved by 130 basis points to 26.5% as compared to 25.2% in the prior year quarter, driven by gross margin expansion, partially offset by incremental investments for future revenue growth. We will continue to strive for additional EBITDA leverage as we grow revenue and manage expenses, but we are very proud of our current EBITDA margins, and we maintain our focus on growing the EBITDA dollars as revenues grow. Net income attributable to CSWI in the fiscal fourth quarter was $32 million or $2.04 per diluted share compared to $27 million or…

Thank you, James. To summarize, during the fourth fiscal quarter of 2024 and the full year, we posted record results across the board, highlighted by organic and inorganic revenue growth, expanded margins and robust cash flow and consummated the acquisition of Dust Free. Since going public in 2015, CSWI has grown our market cap over 700% to around $3.8 billion, while also delivering 720% total shareholder return. We are proud that we have the same number of shares outstanding today as when we went public. Fiscal 2024 was a record year for CSWI, and our revenue CAGR over the past 5 years is 18%, including both organic growth and growth through acquisitions, where we have invested over $600 million since fiscal 2016. As we begin fiscal 2025, we expect a year of revenue, EBITDA and EPS growth, as James mentioned earlier. We also expect to continue our history of executing on acquisitions to complement our organic growth. As I look at our expectations for fiscal year 2025, we should see similar top-line growth as fiscal 2024, while maintaining our strong margin profile. Our goal is to make it as easy as possible to do business with CSWI and to be the partner of choice for our loyal customers. Earlier this month, our Contractor Solutions segment received the Vendor of the Year award from Blue Hawk, and HVAC/R distributor cooperative with over 200-member owners. This award further demonstrates our commitment to our customers, and I'm extremely proud of the Contractor Solutions team for their continued achievements. Of note, this is the third major vendor of the year award we have won over the last 18 months. At CSWI, we are committed to a culture of diversity, inclusion and respect where we focus on recruiting and retaining great talent, offering rewarding careers and recognizing team members who excel while providing the opportunity for a safe, secure and dignified retirement. I could not be more proud to announce that CSWI has recently been certified as a great place to work for the second year in a row. This recognition is a testament to our team members embracing our focus on core values, such as accountability, citizenship, teamwork, respect, integrity, stewardship and excellence. How we succeed matters and our success is shaped by the collaborative efforts of our team members. As always, I want to close by thanking all my colleagues here at CSWI who have collectively, who collectively own approximately 4% of CSWI through our employee stock ownership plan as well as all of our shareholders for their continued interest in and support of our company. With that, operator, we're now ready to take questions.

[Operator Instructions]. Our first question comes from Jon Tanwanteng with CJS Securities. Please proceed with your question.

Good morning. Thank you for taking my questions and really nice quarter there. My first question is just regarding the quarter, this Q4 looked a lot like your historical Q1 and Q2 performances just from a revenue and margin perspective. I was wondering did you pull anything into the quarter or seeing that was more one times in nature, maybe in the project-based businesses or is this more of a base that you expect to build on going forward into your seasonally stronger summer quarters?

Yes, Jon, thanks. This is James. Appreciate your question and all the good work you do for the shareholder community. I've mentioned a couple of things. If you dive into the 10-K, you'll see a couple of things as well. Our Engineered Building Solutions segment sold a prior facility. They relocated to a larger facility this quarter. So, we had kind of a onetime property gain that was $1.2 million. Didn't hit revenue, but that would help our EBITDA a little bit. So that was a bit of a one timer. You had some things going the other way in other segments, so that was relatively neutral. So, we didn't call it out. We don't do adjusted-type things very often. You'll recall, at the end of Q3, our Specialized Reliability segment, just getting some product out at the end of December, and we were able to make that up on the last call. You'll remember early February we had already made that up. So, they had a little better quarter than they might have as a result of that. That was more a catch-up than a pull forward though, so that was certainly not the case. And our Contractor Solutions segment just continued to perform well. I mean, I think we see and the OEMs have said it as well, but a lot of the destocking seems to be behind us now. Our customers ordered from us. We have our usual price increase and promotional session as we go through our fiscal fourth quarters, everybody gets ready for the summer season. So, their quarter I think was pretty normal. They did a really nice job getting things out the door by the end of the quarter. And I'd say, overall, a pretty normal quarter, certainly on the top line. It's hard to ever know what you expect quarter to quarter. Some things come in, but there weren't any big project pull forwards to your point. We didn't necessarily pull anything dramatic from Q1 to end of Q4. So, I think as we said, we expect to have top-line growth this next year, very healthy top-line growth and our goal is to maintain these margins that our team has been putting forth for the last several quarters.

Got it. That’s very helpful. And I was just wondering about that top-line growth guidance, or I guess the outlook is similar to 2020, excuse me, the fiscal 2024. What are the components of that? Could you kind of rank what you expect to be growing the fastest and the slowest among the segments or end markets that you're in?

Yes. I don't think anything terribly unusual there. It's a little early in the year to know where the end markets are going. The residential HVAC space has been a bit of a headwind and it's starting to turn a little bit. We've clearly outperformed that from the residential OEM HVAC perspective. So, our team continues to do a really nice job there. It hasn't gotten real hot yet, but folks of course are gearing up for that and it will. From a specialized Reliability Solutions standpoint, the joint venture continues to ramp up and our business is prepared for that. So, we've got a little bit of an optimistic tailwind there. In Engineered Building Solutions, they built a really healthy backlog. Their book-to-bill continued to stay in a really good place. There's some headwinds there in certain markets as we all would expect some of the construction markets. But overall, again, last year, we had nearly 5% revenue growth. And we said roughly in line from an organic standpoint, I think we would expect that. And then we only had a couple of months of the Dust Free acquisition. We pointed out, that was about $3.5 million and that was just a couple of months. So, you'll have a full year of that now. So that run rate would get you kind of a little bit higher from an inorganic perspective growth rate given that Dust Free has been a really nice addition to the portfolio already.

Thank you. And then last one, I'll jump back in queue. But just any thoughts to the margins going forward? You're expecting revenue growth, but maybe not so much margin expansion. And to your credit, you've done a great job on margins on a trailing basis. So, I'm wondering, is there less upside to the margins as you see it today and kind of what might be holding you back if that's the case?

I think we set our goals to sustain the margins we have. These are best-in-class margins in all of our segments. That SRS segment has gotten to the 20% goal. Of course, we're going to continue to push and see where we can find some more margin points. EBS' goal is to get to 20%. They were there this quarter, aided a little bit by the gain I talked about. But nonetheless, even without that, it's still kind of a mid- to high-teens business. And the goal there from the team is to hit 20% as well, in the not-too-distant future. And then Contractor Solutions with this kind of low to mid-30s margins, 33% margin, we have in the rearview mirror now just tremendous margins. The one thing we point out when we say the goal is to sustain this is, hey, we're very proud of the margins. As we grow the top-line, the bottom-line is going to grow of course from a dollar perspective and that's the ultimate goal is to have dollars to reallocate, have strong cash flows and invest in our growth. But we had some tailwinds on the pricing the last couple of years that we were able to increase. And if some of the costs came down, we held onto that pricing. So, we were able to kind of improve our margins and get back to some of the pre-COVID type margins, especially in Contractor Solutions we're back there, even though cost of goods sold continue to be elevated in some of the places. While we've had some of that come back and we've held onto the pricing that's given us this bump, but this year was kind of a year of normal pricing increases and normal inflation so far it looks like. So, to hang on to these type of margins and of course the goal is to maximize margins where we can as we hold on to cost. But we would expect to sustain these margins. And as we can eke out some basis points here and there, we're going to work hard to deliver that.

As you recall, because you've been with us for a long time, when we went public, we had best-in-class margins, and we stated our goal was to grow meaningfully and maintain our margins. And we said if we did that, our shareholders would be rewarded. And we feel like that's played out exactly the way we planned. The ups and downs on how we got there have been very, very different, could have never predicted that. But I think that continues to be the strategy. I mean, it is a strong filter on acquisitions and other investments that we make that we have this kind of margins. And I think that adds to our disciplined approach on M&A and I think that it's served us really, really well to have that kind of strategy. And I think we'll just continue doing the same.

Our next question is from Julio Romero with Sidoti & Company. Please proceed with your question.

Maybe to start on the Contractor Solutions segment, very nice quarter here. Your prepared commentary sounds like you feel pretty good through customer destocking. Some of the HVAC OEMs have noted positive commentary surrounding residential HVAC demand. I think one major one called out low-single-digit volume growth for the remainder of calendar '24. Is that kind of in line with what you folks are seeing at the moment?

Well, we've seen mixed projections. The industry wide estimates going forward are much lower than that. But I do believe that, in real time, the OEM community seems to be a little more positive. So, I would say mixed kind of backdrop for us. But against that, our commitment is always to outgrow the market, and we think that will result positive organic growth for us, and it will look similar to last year.

Understood. And I guess as we think about Contractor Solutions positive organic growth, I guess it would be a mix of price and volume for fiscal '25?

Yes. We've already put our price increase through, and that's the usual few percent. We're back to just kind of normal lowish single digits. And then we would expect volumes to grow as well. Then you have the acquisition tailwind from dust free, as I mentioned, getting into that indoor air quality market was important to us. So, yes, so we see acquisition growth, unit volume growth and then the tailwind of pricing all contributing to that top-line growth.

And then I guess just to delve into Dust Free a little bit. Indoor air quality is not a theme I believe I've heard you guys talk about too much in the past. Can you maybe speak to the indoor air quality opportunity? And are there other inorganic opportunities that are in line with that indoor air quality theme going forward?

There are, sure. And you can we can certainly dive into indoor air quality quite a bit. It's a topic that has been out there for a long time with filtration and some UV technology. But when COVID hit, it became a really big topic. And I'll give our contractor solutions team a lot of credit. Our first step was not to go out and make an acquisition when it really started to surge. Our step was to partner with Dust Free, who's a local company here just outside of Dallas. So, our team being in Houston, it was convenient to do that. Our team had known the folks at Dust Free, which is a multi-generational company for a long time. So, we licensed their product and we became a master distributor for them and we kind of learned the product category, we learned how to sell through the channel. There's some OEM customer business there as well. It's not all the same distribution channel that we go through. There's some direct to OEM type products as well. So, our sales force learned that channel, learned to work with those folks in a little different way and really understood the category. A lot of indoor air quality company’s kind of had a surge, came back to earth and didn't make it or haven't done much. Dust Free has continued to be proven to be one of the winners in the category. So, we had the opportunity to partner with the ownership team there and buy the company, and we took advantage of that opportunity earlier this year and a really nice transaction for that family that really built a great company and good to have this as part of the CSWI family now. So again, it's a product that's got a lot of different applications, again, through filtration and UV technology and some other things they're developing. So really proud to have that business. But it's a quality, it's indoor air quality as a segment that we've talked about here and there because we've been licensing it. But now that it's part of who we are, we can look at growing that business organically, but also seeing bolt on acquisitions as we always do when we enter a new category. You saw us do that when we bought TRUaire four years ago. We bought TRUaire, that was our entry to the GRD market. A year later, we added Shoemaker as a product portfolio. They gave us a little different geography and got us into the Pacific Commercial segment as well. So, yes, building on categories like that, that we are already in has been a focus of our M&A on Depreciation and amortization.

And then just last one for me is I'm sure it's probably somewhere in the 10-K somewhere, but remind us what your HVAC sales and as of today as a percentage of the overall business?

Let me pull that forward real quick. HVAC was 54% this last year and was 55% the year before, so it stayed pretty steady.

Stays steady, but with, I assume with Dust Free, it'll probably trend.

That's the total Contractor Solutions HVAC is the vast majority. Well, plumbing and electric being the other couple of pieces relatively small, HVAC is the vast majority. And keep in mind, again, we categorize those things based on who we sell to. So, there's some HVAC products that go to more plumbing distributors and vice versa. So, it's not an exact science, but the overall consolidated entity, the way we reported in the 10-K is 54% total, all of that, of course, being within contractors.

Yes. Industry will be incremental to that. Absolutely.

Our next question is from Jon Tanwanteng with CJS Securities. Please proceed with your question.

Just wanted to get an update on the M&A pipeline, what you're seeing out there, what end markets look relatively more attractive today and if you're seeing the opportunities and valuations change compared to the last quarter or two quarters that you've been in the market?

Sure. We see a strong, robust pipeline for our potential acquisitions, very pleased with the continuing kind of interest in partnering with us and the way the team identifies opportunities for us. So, no shortfall there. We do feel like the backdrop has cooled off just a bit. Feels like maybe the sponsor community has been slower to bid on overbid on central acquisitions. And so, we're encouraged by that. Obviously, interest rates are up and it's more expensive, but that is with our strong balance sheet and our cash flow. We think that's a better environment for us in a lot of ways because we can weather that storm much better than some others. So very pleased with the outlook, very pleased with the pipeline. We'd be very disappointed if we can't get something done this year.

And then lastly, just a little more drill down on the EBS segment. I was just wondering what the order trends have looked like and you've given the trailing eight quarters of book-to-bill. But in the last two quarters, if things have kept pace relatively with how things have trended over a longer timeframe, just looking at ABI has been down for many quarters in a row now and I'm wondering if that strength is sustainable. I know you guys are at the end of projects that are funded, but any insight into the real-time benefit would be helpful.

Yes. We see the same ABI results and obviously that's the negative for a while. Our team has just done a really good job focused on the right products. The backlog has been relatively flat for the last couple of quarters. At least we're keeping up with the revenues, which is important. So, we've got a good healthy backlog. Some of the projects have slowed down a bit, but as we've always said, the vast majority of our projects in the backload are out of the ground and we're at the back end, so it takes a while. Some of the markets that were a little hotter a couple of years ago, like Toronto, slowed down a bit. That's just natural. Some parts of California have picked up, so you've seen things flip a little bit. Our Falcon business has done really well. The Greco business has done really well. Smoke Guard is finding some new creative ways to use their products in different applications. So, Scott and his team are really doing a nice job of seeing things. I would say that overall, things are a little slower going from bidding to booking, but our team is out there seeing a lot of bids. Just that cycle to turn it into backlog is maybe taking a little longer, but they're still getting the job done. And across the board, they're finding, as I said, new applications really focused on the right areas. When one area slows down, another one tends to pick up a little bit, in the construction market. And despite ABI being relatively negative, our team is just focused on the right markets and the right projects. And that's important. We really make sure before we book a project that we've invested a lot of time on the estimating to really cost out the project, but also do the due diligence on the project itself. Is it a high-quality project? Does it have financing? Those kind of things. So, you don't see in our backlog projects that are kind of high in the sky. One may go away occasionally. That happens in any business. But overall, we are working with very high-quality customers and projects that expect to be completed.

Jon, the other thing I would add there is you've been an astute observer here, but the slowdown, if there is a slowdown, will be well [indiscernible]. It shows up in biddings. It shows up in bookings. It shows up in backlog long before it shows up in revenue. So, we kind of learned that through the pandemic. And at this point, a lot of that backlog is now in the revenue phase, and that is going to be shown in the positive results we're seeing. But we'll have lots of warning if that market for us, if that segment turns down.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to management for closing comments.

Great, Rob. Thank you very much. We really appreciate everybody's interest in CSWI, 8.5 years and really, really pleased with the results, really pleased with the performance of the team. And thank you for your interest, and I hope you'll continue to partner with us. Thank you.

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.