Greetings, and welcome to the CSW Industrials, Inc. Fiscal 2025 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alexa Huerta, CSWI's Vice President of Investor Relations and Treasurer. Thank you. You may begin.

Thank you, Michelle. Good morning, everyone, and welcome to the CSW Industrials fiscal 2025 first quarter 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-Q prior to the market's 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, and 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. I'm proud to report that once again, our team has delivered record results in the first fiscal quarter of 2025 and has outperformed the markets we serve. This morning, we reported all-time highs for each of our quarterly revenue of $226 million, EBITDA of $65 million, earnings per diluted share of $2.47, net income of $39 million and cash flow from operations of $63 million. Our gross profit margin expanded an additional 220 basis points to 47.5% as a result of pricing, favorable product mix, cost containment and operational efficiency. Our EBITDA margin also expanded by 210 basis points to 28.9% in the quarter. Our sharp focus on cash flow from operations drove a fiscal first quarter record of $63 million, or 24.7% growth over the prior year. Our strong cash flow will continue to fund our capital allocation strategy, and we remain focused on building our pipeline of inorganic investment opportunities with returns that will grow shareholder value. During the fiscal first quarter, we utilized our strong cash flow to pay down the outstanding debt on our revolving credit facility by $51 million. We ended the quarter with a balance of $115 million outstanding on our $500 million facility, allowing us to further reduce our interest expense and to maximize the capital available to us, which will fund future opportunities as they arise. Our balance sheet strength, liquidity and increasing cash flows give us the luxury of being able to quickly act on business opportunities of size. Once again, each of the three business segments impressed during the quarter with their execution, resilience and ability to deliver results. I will let James provide more details on the performance of each segment during the quarter. CSWI has a demonstrated nine-year track record of increasing long-term shareholder value. We continue to maintain a strong balance sheet, grow revenue meaningfully and efficiently allocate capital using a rigorous risk-adjusted returns analysis to guide us. The power of our product distribution model is one key to our success, allowing us to grow faster than our markets served and our acquisitions benefit greatly from this model. At CSWI, we also care about how we succeed. So we prioritize investing in our team members well-being and focusing on our customers, which positions us for sustainable long-term growth and profitability. At this time, I will turn the call over to James for a closer look at our results and following that, I will return and conclude our prepared remarks.

Thank you, Joe, and good morning, everyone. As Joe mentioned, our consolidated record revenue during the fiscal first quarter of 2025 was $226 million, a $23 million or 11% increase when compared to the prior year period and a record all-time quarterly high for CSWI. $16 million of the growth was organic, mainly through increased volumes and some pricing initiatives. The remaining $7 million of growth came from the acquisition of dust free in February of this year. Consolidated gross profit in the fiscal first quarter was $107 million, representing nearly 17% growth over the prior year period. As Joe mentioned, our gross profit margin improved by 220 basis points to 47.5% compared to 45.3% in the prior year period. Our record consolidated EBITDA for the first quarter increased by $11 million to $65 million, which was 20% growth when compared to the prior year period. Our EBITDA margin improved by 210 basis points to 28.9% as compared to 26.8% in the prior year quarter, driven by the gross margin expansion. As we mentioned on our fiscal year end call in May, we will continue to strive for additional EBITDA leverage as we grow revenue and manage expenses. However, we are very proud of our recent EBITDA margins, and our team works hard to maintain these levels. Our focus will remain on increasing EBITDA dollars as our revenues grow. Net income attributable to CSWI in the fiscal first quarter was a record $39 million or a record $2.47 per diluted share compared to $31 million or $1.97 per diluted share in the prior year period, representing growth of 26%. Our Contractor Solutions segment with $160 million in revenue accounted for 71% of our consolidated revenue and delivered $20.5 million or 14.6% total growth when compared to the prior year quarter.…

Thank you, James. To summarize, during the first fiscal quarter of 2025, we posted all-time record results for revenue, for EBITDA, for earnings per share, for net income and for operating cash flow. Our 11% revenue growth included both organic and inorganic growth and resulted in higher margins due to strong operating leverage. Looking further into fiscal 2025, CSWI will continue to deliver growth that outpaces our markets served. We will continue to cultivate relationships in our strategic acquisition pipeline to complement our organic growth while maintaining our superior margins. At CSWI, we are focused on recruiting and retaining great talent, offering rewarding careers and recognizing team members who excel while providing them with the opportunity for a safe, secure and dignified retirement. Partnering with our employees to drive success is a very important part of our strategy. And one way that we affect this is through our employee stock ownership plan. I'm proud to announce that last month, CSWI contributed $4.2 million to our ESOP. This marks the ninth consecutive year of contributions and CSWI has now contributed an aggregate of $26.5 million to the plan since 2016 at zero cost to our team members. With the growth of our stock price, these ESOP contribution since 2016 have grown to well over $100 million of value today. And together with our 401(k) match have helped facilitate retirements for many of our long tenured team members. So lastly, I just want to close my prepared remarks by thanking the dedicated team here at CSWI, who collectively own 4% of the company through our employee stock ownership plan as well as all of our loyal shareholders for their continued investment in, commitment to and support of CSW Industrials. Michelle, we're now ready for questions.

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question. Q – Charlie Strauzer: It's Charlie Strauzer filling for Jon. Good morning.

Good morning, Charlie. Q – Charlie Strauzer: Hi, Joe. Joe, James, can you talk a little bit more about the sustainability of sales and margin momentum going into Q2? And looking at Q1, were there any pull forwards or unusual items that we should take into account?

Hi. Good morning, Charlie. It's James. Let me just, first of all, say this was an exceptional quarter. Really proud of the work the team did, prepared well for the demand that was there. I think if you look at our EBS and SRS segment, Q1 and Q2, you should see continued type growth opportunities that we saw year-over-year. Margins will fluctuate as always, given product mix and timing. We talked about the little bit of revenue delay in May in specialized liability solutions. It pretty much made that up. But obviously, that affects you a little bit. But overall, those two segments, we do feel good about that. Contractor solutions just truly exceptional. You asked specifically about pull forward. I mentioned in my comments, we have one customer that's a large customer of ours that opened a new distribution network, and they had to stock up those distribution centers and our team did a great job of doing that. Some of that could have been a little bit of a pull forward. The demand may come a little sooner than we expected. Q1 versus Q2, another customer placed some large orders near the back part of Q1. So you could say there's a little pull forward from Q1 to Q2. So I don't know, if I'd say, I would expect a repeat performance from a revenue perspective, but we have had a hot summer, most places around the country. So demand has been solid. From a margin perspective, we said on our Q4 year-end call that to maintain the type of margins we had last year would be our expectation. We obviously, exceeded that this quarter. I think looking at the margins we've had over the last several quarters is more realistic on a generally go-forward basis. They'll move around some. But when you had a Q1 at contractor solutions with the type of volume pull-through that the team was able to accomplish, especially this couple of larger orders that again may have been a little bit of pull forward, that's going to help margins. So to see that business beat its margin number kind of year-over-year by several hundred basis points, a lot of that is volume driven. There's some good mix in there. But you've just got a set of kind of fixed overhead costs that don't need to move a lot to push more volume through the system. So a long way of saying, really proud of the first quarter, looking forward to a solid rest of the year. We talked about growing at roughly last year's growth rates plus the acquisitions. We obviously exceeded that in Q1. That's a seasonally strong quarter, but we're still optimistic for the year in total.

Great. Thanks and thoughts on the OEM HVAC companies kind of increasing their forecast and if that flows through to you guys versus the base kind of MRO demand.

Yes, we're encouraged by that. Clearly, to see all the OEMs won't even this morning talk about nice year-over-year order volume pickup. The residential OEM market has been solved for the last couple of years. There were some pull forward from COVID, obviously, higher interest rates and inflation caused a bit of a headwind for residential HVAC. But I think they've -- a couple of things I've mentioned. They've all talked about kind of the destocking is behind them. We've said that for a while. They've said that pretty emphatically here recently. But clearly, residential HVAC volumes being up is a good thing for us. We're all about the installed base. So the more units that are going into new homes, more replacement units to go into existing homes, people moving, putting in new units. The installed base is what's most important to us because we touch a new unit, we touch a replacement unit, we touch repair, we touch maintenance. The other thing I'll mention is their year-over-year numbers are coming off some pretty soft comps. They had -- this time last year, they were talking about things being down high single to low teens from a volume perspective. We've never said that. So we've held up pretty well throughout this because of our mix across the gamut. It's not just about new OEM installations. So our comps are a little bit tougher. So while we continue to see unit volume growth from market share gains, certainly there's a tailwind from the OEM seeing more demand.

Great. And one more for me, before I jump back in queue. Can you provide us an update on the input cost expectations going forward, especially when you look at overseas freight, which is significantly in your ability to maintain margin or margin dollars via pricing?

Yes. Great question, Charlie. I'm glad you brought that up. So we've clearly seen ocean freight accelerate throughout the year. Not much impact in Q1, as we've talked about before and you know, but for the benefit of the others on the phone, that takes three, four, five months to get through the system. So Q1, you were really seeing containers that were priced back in kind of November, December, January, February time frame. Now you're seeing those prices have accelerated a lot over the last few months. So Q2 is going to start seeing some of that impact, which is a headwind to margins. Q3 and Q4 certainly will. Rates have gone up about every week for the last few months. The last two weeks, we've seen rates come down, the last couple of weeks, about 10%. So hard to say two weeks is a trend, but that's certainly encouraging that maybe you've seen a peak and now it's coming down. But nonetheless, the freight rates we're seeing in the last couple of months are what's going to inform us on Q2, Q3 and now even into Q4. So, it is a bit of a margin headwind without a doubt. We've not taken pricing action to counteract that beyond our normal pricing we put through back in February and March, but we're certainly watching input costs closely. And if we continue to see elevated cost, then it's something that we always consider taking a look at as we go through the year.

Great. Thank you.

Thank you, Charles.

Thank you. Our next question comes from the line of Julio Romero with Sidoti & Company. Please proceed with your question.

Thanks. Hey, good morning Joe, James, Alexa. Appreciate it. Maybe just start on Contractor Solutions. You called out very nice volumes in this quarter. Can you maybe quantify the sales contribution from that one customer that needed to load in? And then you mentioned a second customer that also placed a large order. How much will that benefit the second quarter?

Yes, Julio, this is James. Thanks for being on as always and for your coverage. It's not material enough that it's something we call out in the 10-Q or anything like that, but it's a few percent of revenue. I mean it was that customer would have ordered some in Q1. So, it's hard to know how exactly how much was pulled forward that they simply ordered and we were able to deliver. So, there a couple of customers, it was a few percent of revenue, nothing material that we needed to get real specific about, but enough to be sure we mentioned it because when you do see some revenues like that shift from what could have probably been Q2 into Q1, we want to be sure to inform people at best. So, they understood the expectations are a little different as we look forward to Q2.

Okay, that's helpful there. And then turning to the Engineered Building Solutions segment. This was your second straight quarter of 20% plus EBITDA margins, very nice performance there. And I know that was a target for a long time. Is this just a function of the higher margin mix you've talked about for a while finally flowing through? And then secondly, what inning are we in regards to that higher margin mix flowing through? Do we have more runway there for that to continue?

Yes, Julio. Thanks, James, again. Really proud of the work that EBS did this quarter. We said 20% is kind of our long-term margin goal and hitting that this quarter was really impressive. So, really proud of that team, and congratulations to them. Yes, it was a result of some higher-margin products coming through the backlog and converting to revenue. That's obviously important. We have good visibility going out another quarter or so of that. The backlog remains solid. Backlog was generally flat. You see that if you do the math on the book-to-bill the last couple of quarters. So, we've been able to maintain the backlog despite some weakness in the commercial construction markets, certainly in the multifamily market. The other thing I would point out besides some better mix is the team has really done a good job and had a concerted effort the last year, and I think we saw the fruits of that this quarter of finding ways to take out costs from the supply chain. They've really tried to reengineer some products, find some new sources for the inputs for their products as they assemble the different products. So, that's come through. And that's led to some nice margin points. The margin is going to bounce around. So, I don't think we're saying that we're 20% permanently yet. We've kind of said that's a little bit of a longer term goal. So, it's going to bounce around. As we look at the backlog in the next couple of quarters, we're going to continue to have solid revenues, margin is going to bounce around. What -- Joe and I often say, we'll kind of see it coming, given the backlog is there, we feel good about it. We would say things are maybe a little softer in the back part of the year right now. So we're working to fill that in. Some of these projects, if we just put something in the backlog last week, it may be a year or two out. So, we see maybe a little softness in the back part of the year and the next fiscal year, we see some of that picking up again. There are some projects that have sped up, in fact, up in the Toronto market as a very specific example. You've heard us talk about Toronto quite a bit. We've got some ice backlog up there. They're having a labor crunch because there are so many projects and some of those have gotten sped up. So, we've benefited from that. Other markets, things have slowed down, because the demand has slowed down a little bit. So it bounces around. But a long way to say that really proud of the quarter, really proud of the way the rest of the year looks, but it's going to pop up and down a little bit.

Got it. That's very helpful color there. And then that kind of dovetails into my last question here is just overall, thinking about your margins. Obviously, you had very strong margin performance in the quarter. You guys reiterated that your focus is really on the EBITDA dollars and growing that portion. But if you could just talk to us about aside from maybe the volume leverage, why some of this margin performance isn't sustainable or maybe asked another way, anything from this quarter that may get us more constructive on margin expansion for the remaining three quarters of the year?

Yes, it's a great question, Julio. Obviously, we're always aiming for margin expansion. The team did it in the first quarter, really proud of the team's work there from top to bottom. We talked about last year's margins being market-leading and very proud of that. Yes, mix matters, and there were some products in the quarter that mix really was favorable to us, and that can obviously move around. The team has picked up some share and getting these couple of orders we talked about, maybe a little bit of pull forward from Q2 to Q1. That's volume leverage. There were also a nice mix of orders in that perspective. The team, I think, going into the year, when we talked about protecting margins and maintaining where we are, has really taken a hard look at cost and has held off on maybe some hiring and some cost from a G&A perspective. As we continue to see the volume pick up and as we continue to see success, there are some holes we need to fill anything. So you'll see some of those costs maybe come in, but Q1, they weren't there. But overall, we're optimistic, but we really just want to caution folks that the margin performance in Q1, which is always going to be seasonally a strong quarter. You know that as well as anybody on this call. And when you have a little bit of pull forward, things just fired on all cylinders. So we don't want to talk down margin too much. But I think looking at last year's margins and applying that and then accounting for the pull forward maybe a little bit from Q2 to Q1, as you asked earlier, a few percent of revenue kind of gets you back to what's probably a little more normal expectations for Q2 and then going forward with the rest of the year.

And Julio, it's Joe. The other thing I would point you to is Q3 is always a seasonally lowest revenue for our Contractor Solutions, which has our highest margins. And so that margin is never the same as Q1. So just -- it's important to keep that in mind.

No, absolutely. Great color, guys. Nice job. Appreciate it.

Thanks, Julio.

Thanks, Julio.

Thank you. Our next question is a follow-up from Jon Tanwanteng with CJS Securities. Please proceed with your question.

Hi. Just one more for you, actually two more. When you look at your strong cash flow, is M&A still kind of a high priority for you and opportunities becoming more actionable there in the pipeline?

Yeah, Charlie, it is. We've always kind of laid out our capital allocation policy, organic growth opportunities are almost always the most competitive from a return standpoint, but we don't have enough of those to spend $200 million of cash flow in a year. So M&A is going to be an important part of our story. It has been and will continue to be. We're pleased with the pipeline. We're very pleased with the opportunities that we're seeing. I would say a really good mix of small and large acquisition targets. And there's a little bit of price discovery still going on right now, trying to figure out exactly what the clearing price is on these targets. But it feels like we're closer today than we were three months ago. The last time we talked to you guys about these things on, folks coming together on a meaningful kind of way on price. So yeah, we're very pleased with the pipeline. Very pleased with the calls we're getting, the opportunities we're seeing and the pricing kind of valuation issues, I think, are going to shake out here.

Great. Just lastly, just with the storms recently in Houston and the area there, any impact in near-term? And how should we think about weather kind of in general this year impacting our driving demand?

Yeah. We did have some minor damage in Houston to a roof, insured loss and actually, honestly, a roof, we were getting ready to replace anyway. The five days kind of out of power here in Dallas, we were laughing earlier. You don't get a lot of TV coverage on a power outage. There's no good video for that. So -- but it affected their business. And so hopefully, those are behind us now. I think we've got a very resilient organization. Houston team certainly has been through this repeatedly. And we don't see that as a really high risk, but it's something that we keep in mind and are always prepared for. So at this point, we -- there's nothing that we would point to, nothing that we would say would affect our financial results.

We appreciate the questions. Thank you.

Thanks, Jon. Thanks for being on.

Thank you. There are no further questions, at this time. I'd like to turn the call back over to Mr. Armes, for any additional closing remarks.

Yes. Thank you. We just appreciate everybody's interest and taking part of this call. And look forward to our next conversation next quarter. So thank you very much.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. And have a wonderful day.