CSW Industrials (CSWI) Q3 2025 Earnings Call January 30, 2025 10:00 AM ET Company Participants Alexa Huerta - VP of Investor Relations & TreasurerJoseph Armes - Chairman, President & CEOJames Perry - EVP & CFOJonathan Tanwanteng - Managing DirectorNatalia Bak - Equity Research Associate Conference Call Participants Susan Maklari - Senior Equity Research Analyst Operator Greetings, and welcome to the CSW Industrials Third Quarter Earnings Conference Call. At this time, all participants are in a listen only m ...

Group 1 - CSW Industrials reported quarterly earnings of $1.48 per share, exceeding the Zacks Consensus Estimate of $1.29 per share, and up from $1.07 per share a year ago, representing an earnings surprise of 14.73% [1] - The company achieved revenues of $193.65 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 3.01%, and an increase from $174.97 million year-over-year [2] - CSW Industrials has consistently surpassed consensus EPS estimates over the last four quarters [2] Group 2 - The stock has underperformed the market, losing about 2.1% since the beginning of the year compared to the S&P 500's gain of 2.7% [3] - The current consensus EPS estimate for the upcoming quarter is $2.23 on revenues of $228 million, and for the current fiscal year, it is $8.22 on revenues of $870 million [7] - The Zacks Industry Rank for Chemical - Specialty is currently in the bottom 14% of over 250 Zacks industries, indicating potential challenges for stock performance [8]

Revenue Growth - Total revenue for fiscal Q3 2025 reached $193.6 million, a 10.7% increase from the prior year, with inorganic growth contributing 8.7% and organic growth 1.9%[4]. - Year-to-date revenue for fiscal 2025 was $647.8 million, representing an 11.3% growth over the prior year, with organic growth contributing 5.5% and inorganic growth 5.9%[19]. - Revenue for the three months ended December 31, 2024, was $193,649,000, compared to $174,967,000 in 2023, representing an increase of 10.6%[64]. - Revenue for the nine months ended December 31, 2024, was $647,754,000, an increase from $581,980,000 for the same period in 2023, representing a growth of 11.3%[67]. - Revenue from the Specialized Contractor Solutions segment for the nine months ended December 31, 2024, was $451,403,000, up from $395,268,000 in 2023, representing a growth of 14.2%[67]. Profitability - Net income attributable to CSWI was $26.9 million, a 48.9% increase compared to $16.7 million in the prior year, with adjusted earnings per diluted share rising to $1.48, up 38.2% from $1.07[4][11]. - Adjusted EBITDA for fiscal Q3 2025 grew 14.2% to $42.0 million, with an adjusted EBITDA margin expansion of 70 basis points to 21.7%[12]. - Segment operating income for Contractor Solutions was $122.9 million, compared to $104.4 million in the prior year, reflecting increased unit volumes and favorable product mix[30]. - Operating income for the nine months ended December 31, 2024, was $136,204,000, up from $114,780,000 in 2023, showing an increase of 18.6%[67]. - Adjusted EBITDA for the nine months ended December 31, 2024, reached $168,102,000, a 16.6% increase from $144,205,000 in 2023[60]. Segment Performance - The Contractor Solutions segment revenue increased 14.5% to $132.2 million, driven primarily by recent acquisitions, with segment operating income improving to $26.8 million[16]. - Contractor Solutions segment revenue reached $451.4 million, a $56.1 million or 14.2% increase year-over-year, driven by $34.1 million from acquisitions and $22.1 million from organic growth[30]. - Specialized Reliability Solutions segment revenue grew to $109.9 million, a $1.9 million or 1.7% increase, with operating income improving by 17.2% to $18.2 million[32]. - Engineered Building Solutions segment revenue increased by $7.7 million or 9.1% to $92.4 million, primarily due to backlog conversion and market expansion[33]. - Adjusted EBITDA for Contractor Solutions was $149.4 million, or 33.1% of revenue, compared to $126.4 million, or 32.0% of revenue in the prior year[31]. Cash Flow and Investments - Net cash provided by operating activities for the fiscal year-to-date period was $141.1 million, a slight decrease of 0.6% compared to the prior year[28]. - The company reported a net cash used in investing activities of $98,573,000 for the nine months ended December 31, 2024, compared to $15,130,000 in 2023[52]. - Free cash flow for the nine months ended December 31, 2024, was $129,334,000, slightly down from $130,246,000 in 2023, indicating a decrease of 0.7%[69]. - The free cash flow as a percentage of adjusted EBITDA for the nine months ended December 31, 2024, was 76.9%, down from 90.3% in 2023, indicating a decline of 13.4 percentage points[69]. - The Company invested $84.5 million in acquisitions and $11.7 million in organic capital expenditures during the fiscal year-to-date period[4]. Tax and Equity - The effective tax rate for fiscal Q3 2025 was 13.8%, significantly lower than the prior year period's 43.2%[15]. - The adjusted effective tax rate for the nine months ended December 31, 2024, was 25.8%, compared to 27.1% in 2023[58]. - Total assets increased to $1.35 billion as of December 31, 2024, from $1.04 billion in the prior year[48]. - Total equity rose to $1.04 billion as of December 31, 2024, compared to $615.7 million in the prior year[48].

Core Insights - CSW Industrials, Inc. reported record results for the fiscal 2025 third quarter, driven by strategic acquisitions and organic growth [1][3]. Fiscal 2025 Third Quarter Highlights - Revenue for the fiscal third quarter was $193.6 million, a 10.7% increase from the prior year, with $15.3 million (8.7%) from inorganic growth and $3.4 million (1.9%) from organic growth [4][7]. - Gross profit increased to $80.1 million, an 8.3% growth, while gross margin contracted to 41.4% due to increased freight expenses [5]. - Operating income was $29.6 million, with a margin of 15.3%, slightly down from 15.8% in the prior year [7][8]. - Net income attributable to CSWI reached $26.9 million, a 48.9% increase compared to $16.7 million in the prior year [7][11]. - Adjusted EBITDA grew 14.2% to $42.0 million, with a margin expansion to 21.7% [12]. Fiscal 2025 Year-to-Date Highlights - Year-to-date revenue was $647.8 million, an 11.3% increase, with $34.1 million (5.9%) from inorganic growth and $31.7 million (5.5%) from organic growth [20]. - Gross profit for the year-to-date period was $291.4 million, a 13.3% increase, with a gross margin of 45.0% [21]. - Operating income improved to $136.2 million, with an operating margin of 21.0% [23]. - Net income attributable to CSWI for the year-to-date period was $101.6 million, a 28.6% increase from $77.4 million [26]. Segment Results - Contractor Solutions segment revenue was $132.2 million, a 14.5% increase, primarily from recent acquisitions [16]. - Specialized Reliability Solutions segment revenue grew to $34.6 million, a 2.5% increase, with operating income improving to $5.2 million [17]. - Engineered Building Solutions segment revenue was $28.8 million, a 3.4% increase, with operating income slightly improving to $3.6 million [19]. Cash Flow and Shareholder Returns - The company invested $84.5 million in acquisitions and returned $24.3 million to shareholders through dividends and share repurchases [7][28]. - Cash flows from operations for the year-to-date period were $141.1 million, slightly down from $141.9 million in the prior year [27]. Tax and Interest - The effective tax rate for the fiscal third quarter was 13.8%, down from 43.2% in the prior year [15]. - Interest income was $2.0 million, compared to interest expense of $2.8 million in the prior year, due to no outstanding debt during the quarter [9].

Revenue Growth - Net revenues for the three months ended December 31, 2024 increased by $18.7 million, or 10.7%, compared to the same period in 2023, primarily due to acquisitions[109]. - Net revenues for the nine months ended December 31, 2024 increased by $65.8 million, or 11.3%, with $34.1 million attributed to acquisitions[110]. - For the three months ended December 31, 2024, the company reported net revenues of $132.2 million, an increase of $16.7 million or 14.5% compared to the same period in 2023[130]. - The Contractor Solutions segment reported net revenues of $451.4 million for the nine months ended December 31, 2024, an increase of $56.1 million or 14.2% compared to the same period in 2023[132]. - The Engineered Building Solutions segment achieved a 9.1% increase in net revenues for the nine months ended December 31, 2024, totaling $92.4 million[143]. Profitability - Gross profit for the three months ended December 31, 2024 increased by $6.1 million, or 8.3%, while the gross profit margin decreased to 41.4% from 42.3%[111]. - Gross profit for the nine months ended December 31, 2024 increased by $34.3 million, or 13.3%, with the gross profit margin improving to 45.0% from 44.2%[113]. - Operating income for the three months ended December 31, 2024 increased by $2.0 million, or 7.3%, with an operating margin of 15.3%[116]. - Operating income for the nine months ended December 31, 2024 increased by $21.4 million, or 18.7%, with an operating margin of 21.0%[117]. - The Specialized Reliability Solutions segment's operating income for the three months ended December 31, 2024 increased by 40.1% to $5.2 million compared to the same period in 2023[138]. Cash Flow and Capital Management - Cash provided by operating activities for the nine months ended December 31, 2024 was $141.1 million, slightly down from $141.9 million in the same period of 2023[148]. - The company’s cash balance at December 31, 2024 was $213.8 million, significantly up from $22.2 million at March 31, 2024[147]. - Capital expenditures during the nine months ended December 31, 2024, were $11.7 million, focused on capacity expansion and new product introductions[150]. - Cash flows provided by financing activities during the nine months ended December 31, 2024, were $149.9 million, compared to $(119.5) million in 2023[151]. - Net repayments on the Revolving Credit Facility were $166.0 million during the nine months ended December 31, 2024[156]. Tax and Interest - The effective tax rate for the three months ended December 31, 2024 was 13.8%, with a provision for income taxes of $4.3 million on earnings of $31.3 million[121]. - The effective tax rate for the three months ended December 31, 2023 was 43.2%, while for the nine months ended December 31, 2023, it was 28.4%[125]. - The company expects $6.2 million of reserves for unrecognized tax positions (UTPs) to either be settled or expire within the next 12 months[126]. - Net interest income for the three months ended December 31, 2024 improved by $4.7 million compared to the same period in 2023, resulting in net interest income of $2.0 million[118]. Acquisitions - The company remains focused on identifying additional acquisition opportunities in core end markets to drive organic and inorganic growth[104]. - Acquired PF WaterWorks for an estimated purchase price of $43.2 million, including $40.0 million in cash consideration[150]. - Acquired PSP for an estimated purchase price of $47.1 million, including $32.5 million in cash consideration at closing[150]. Shareholder Returns - The capital allocation strategy prioritizes investments in organic growth, strategic acquisitions, and returning cash to shareholders through share repurchase and dividend programs[106]. - Share repurchases amounted to $13.7 million during the nine months ended December 31, 2024, compared to $5.8 million in 2023[156]. - Received proceeds of $347.4 million from a follow-on equity offering in September 2024[156]. Working Capital - Working capital used cash for the nine months ended December 31, 2024, due to higher inventories of $42.5 million and higher prepaid expenses of $17.2 million[150]. Foreign Currency Impact - Foreign currency transaction net gain (loss) was $0.1 million for the nine months ended December 31, 2024[163]. - A 10% change in foreign currency exchange rates would have impacted net earnings by approximately 3%[164].

Core Points - CSW Industrials, Inc. will release its earnings results for the fiscal third quarter ended December 31, 2024 on January 30, 2025, before market opens [1] - A conference call to discuss the results will be held on the same day at 10:00 am Eastern Time [1] - The company operates in three segments: Contractor Solutions, Specialized Reliability Solutions, and Engineered Building Solutions [4] Earnings Call Details - Participants can access the call at 1-877-407-0784, with international callers using 1-201-689-8560 [2] - A live webcast will be available at the company's website [2] - A telephone replay will be available until February 13, 2025, with access codes provided for participants [3] Company Overview - CSW Industrials is a diversified industrial growth company providing niche, value-added products known for performance and reliability [4] - The primary end markets served include HVAC/R, plumbing, electrical, general industrial, architecturally-specified building products, energy, mining, and rail transportation [4]

Core Viewpoint - CSW Industrials, Inc. has declared a quarterly cash dividend of $0.24 per share, reflecting the company's commitment to returning value to shareholders [1][2]. Dividend Details - The declared dividend amount is $0.24 per share [2]. - The record date for shareholders is January 31, 2025 [2]. - The dividend will be payable on February 14, 2025 [2]. Company Overview - CSW Industrials is a diversified industrial growth company operating in three segments: Contractor Solutions, Specialized Reliability Solutions, and Engineered Building Solutions [2]. - The company provides niche, value-added products characterized by performance and reliability [2]. - Key end markets served include HVAC/R, plumbing, electrical, general industrial, architecturally-specified building products, energy, mining, and rail transportation [2].

Core Insights - Flair has received a strategic investment from RectorSeal, aimed at accelerating growth and expanding its hvacOS™ smart heating and cooling platform [1][2][5] - The investment will enhance Flair's position in the home HVAC control market and support its mission of energy reduction while improving comfort [2][4] Company Overview - Flair, founded in 2014, specializes in smart home technology that allows homeowners to manage indoor climate and energy consumption effectively [5] - RectorSeal, a subsidiary of CSW Industrials, Inc., provides solutions for HVAC/R, plumbing, electrical, and construction markets [6] Strategic Collaboration - The partnership with RectorSeal will provide Flair access to a vast distribution network and resources, facilitating the delivery of innovative solutions to HVAC challenges [4][5] - Both companies share a commitment to enhancing the HVAC/R industry and expanding the smart home HVAC control market [5]

Core Points - CSW Industrials, Inc. has authorized a new $200 million share repurchase program, replacing the previous $100 million program [1][2] - Since the initiation of the share repurchase program in 2017, the company has repurchased approximately 2.0 million shares for a total of $152 million [1] - The new program reflects the Board's confidence in the company's strong business model, future growth, and cash generation [2] - The company has returned over $200 million to shareholders through share repurchases and dividends since its spin-off in 2015 [2] Company Overview - CSW Industrials is a diversified industrial growth company operating in three segments: Contractor Solutions, Specialized Reliability Solutions, and Engineered Building Solutions [3] - The company provides niche, value-added products characterized by performance and reliability [3] - Key end markets served include HVAC/R, plumbing, electrical, general industrial, architecturally-specified building products, energy, mining, and rail transportation [3]

Investment Highlights Capital investment of $40 million for acquisition of PF Waterworks, LP, which offers innovative, eco-friendly drain management solutionsValuation represents approximately 9.5x PF Waterworks’ trailing twelve-months’ EBITDAExpected to be accretive to earnings per share in the first full year of ownership$695 million of cumulative acquisition capital investment since going public in October 2015 DALLAS, Nov. 07, 2024 (GLOBE NEWSWIRE) -- CSW Industrials, Inc. (Nasdaq: CSWI) today announced ...