CSW Industrials(CSWI) - 2026 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements CSW Industrials reported $263.6 million net revenues and $40.9 million net income for Q1 FY2026, with total assets growing to $1.54 billion due to the Aspen acquisition Consolidated Statements of Income Highlights (Q1 FY2026 vs Q1 FY2025) | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | | :--- | :--- | :--- | | Revenues, net | $263.6 | $226.2 | | Gross profit | $115.4 | $107.4 | | Operating income | $54.9 | $55.1 | | Net income attributable to CSW | $40.9 | $38.6 | | Diluted EPS | $2.43 | $2.47 | Consolidated Balance Sheet Highlights | Metric | June 30, 2025 (Millions USD) | March 31, 2025 (Millions USD) | | :--- | :--- | :--- | | Total current assets | $451.0 | $592.9 | | Goodwill | $365.4 | $264.1 | | Intangible assets, net | $536.4 | $357.9 | | Total assets | $1,535.9 | $1,379.1 | | Long-term debt | $95.0 | $0 | | Total equity | $1,109.8 | $1,072.2 | Consolidated Statements of Cash Flows Highlights (Q1 FY2026 vs Q1 FY2025) | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $60.6 | $62.7 | | Net cash used in investing activities | $(326.7) | $(3.2) | | Net cash provided by (used in) financing activities | $78.4 | $(62.3) | | Cash paid for acquisitions, net of cash received | $(323.8) | $(0.05) | Notes to the Consolidated Financial Statements Key notes detail the $325.9 million Aspen Manufacturing acquisition, an increased $700 million credit facility, a higher dividend, and tax rate impacts - On May 1, 2025, the company acquired Aspen Manufacturing for a preliminary aggregate purchase price of $325.9 million, funded by cash on hand and borrowings, adding $100.4 million in goodwill and $187 million in finite-lived intangible assets[31][33] - In May 2025, the company entered into a new Third Amended and Restated Credit Agreement, increasing its revolving credit facility to $700 million with a $250 million accordion feature, maturing in May 2030[56] - The company increased its quarterly dividend to $0.27 per share in April 2025, with total dividends paid in the quarter amounting to $4.5 million[73] - The effective tax rate for the quarter was 24.3%, compared to 26.4% for the same period last year, with the company monitoring potential impacts from the OECD's Pillar Two framework and the U.S. "One Big Beautiful Bill Act"[82][85][86] Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 FY2026 revenue grew 16.6% to $263.6 million driven by acquisitions, though gross and operating margins compressed due to mix and higher costs Quarterly Performance Summary (Q1 FY2026 vs Q1 FY2025) | Metric | Q1 FY2026 (Millions USD) | Q1 FY2025 (Millions USD) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues, net | $263.6 | $226.2 | +16.6% | | Gross Profit | $115.4 | $107.4 | +7.5% | | Gross Margin | 43.8% | 47.5% | -370 bps | | Operating Income | $54.9 | $55.1 | -0.3% | | Operating Margin | 20.8% | 24.3% | -350 bps | - Revenue growth was primarily driven by acquisitions (Aspen Manufacturing, PSP Products, and PF WaterWorks), which contributed $43.7 million (19.3%), offsetting an organic revenue decline of $6.2 million (2.8%)[104] - Gross profit margin decreased to 43.8% from 47.5% due to the inclusion of recent acquisitions, unfavorable revenue mix, volume leverage, and an escalation in material and project costs[105] - The company's capital allocation strategy prioritizes organic growth, strategic acquisitions, and returning cash to shareholders via dividends and share repurchases[101] Business Segments Analysis Contractor Solutions revenue grew significantly from acquisitions, while Specialized Reliability and Engineered Building Solutions faced margin pressure from costs and investments Contractor Solutions Segment (Q1 FY2026 vs Q1 FY2025) | Metric | Q1 FY2026 (Millions USD) | Q1 FY2025 (Millions USD) | | :--- | :--- | :--- | | Revenues, net | $196.7 | $160.4 | | Operating income | $52.8 | $49.9 | | Operating margin | 26.8% | 31.1% | Specialized Reliability Solutions Segment (Q1 FY2026 vs Q1 FY2025) | Metric | Q1 FY2026 (Millions USD) | Q1 FY2025 (Millions USD) | | :--- | :--- | :--- | | Revenues, net | $36.8 | $36.8 | | Operating income | $5.2 | $7.2 | | Operating margin | 14.2% | 19.4% | Engineered Building Solutions Segment (Q1 FY2026 vs Q1 FY2025) | Metric | Q1 FY2026 (Millions USD) | Q1 FY2025 (Millions USD) | | :--- | :--- | :--- | | Revenues, net | $31.9 | $30.9 | | Operating income | $4.0 | $5.7 | | Operating margin | 12.5% | 18.5% | Liquidity and Capital Resources Cash decreased to $38.0 million due to the $325.9 million Aspen acquisition, funded by cash and $95.0 million from the $700 million credit facility - Cash and cash equivalents decreased by $187.9 million during the quarter, ending at $38.0 million[126] - Net cash used in investing activities was $326.7 million, dominated by the cash payment for the Aspen Manufacturing acquisition[128][129] - Net cash provided by financing activities was $78.4 million, reflecting net borrowings of $95.0 million on the revolving credit facility, partially offset by $4.7 million in share repurchases and $4.5 million in dividend payments[130][133] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from $95.0 million in variable rate debt, foreign currency fluctuations, and changing global trade policies and tariffs - The company has $95.0 million in unhedged variable rate debt, where a 0.25% change in interest rates would result in an approximate $0.2 million annual change in interest expense[141] - A sensitivity analysis indicates that a 10% adverse change in foreign currency exchange rates would have impacted net earnings by approximately 6% for the quarter[144] - The company faces risks from changing global trade policies and tariffs, which could increase operating costs, particularly related to its manufacturing in Vietnam and sourcing from China[145][99] Controls and Procedures Management concluded disclosure controls were effective, excluding the Aspen Manufacturing acquisition, with no material changes to internal controls - Management concluded that disclosure controls and procedures were effective as of the end of the quarter[147] - The assessment of internal controls excluded the recently acquired Aspen Manufacturing, which accounted for 24% of total assets and 12% of total net revenue as of and for the three months ended June 30, 2025[148] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[149] PART II - OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal actions, not expected to materially impact financial position or results - The company is involved in ordinary course legal actions but does not expect them to have a material impact on its financial condition or results[151][80] Risk Factors No material changes occurred to previously disclosed risk factors, though new risks may emerge - No material changes have occurred in the risk factors discussed in the company's Annual Report[153] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 30,505 shares, including 15,539 under its program, with $188.5 million remaining for future repurchases Share Repurchase Activity (Quarter Ended June 30, 2025) | Period | Total Shares Purchased | Shares Purchased (Public Program) | Approx. Value Remaining (Millions USD) | | :--- | :--- | :--- | :--- | | April 2025 | 20,463 | 5,497 | $191.6 | | May 2025 | 4,989 | 4,989 | $190.0 | | June 2025 | 5,053 | 5,053 | $188.5 | | Total | 30,505 | 15,539 | $188.5 | - The current $200.0 million share repurchase program was authorized on November 18, 2024, and expires on December 31, 2026[157] Other Information No directors or officers adopted or terminated Rule 10b5-1 trading plans during the quarter - No directors or officers adopted or terminated Rule 10b5-1 trading plans during the quarter[156] Exhibits This section lists exhibits filed with the Form 10-Q, including key agreements and officer certifications