CSW Industrials(CSWI) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q3 2022, the company achieved a year-over-year revenue growth of 52% and adjusted EBITDA growth of 25% [5] - Year-to-date results showed revenue and adjusted EBITDA growth of 59% and 55% respectively compared to the prior year [5] - Consolidated revenue for Q3 2022 was $136.3 million, a 51.5% increase from the prior year [13] - Reported net income for Q3 2022 was$ 8.3 million or $0.52 per diluted share, compared to$ 2.3 million or $0.16 in the prior year [16] Business Segment Data and Key Metrics Changes - The Contractor Solutions segment accounted for 60.5% of consolidated revenue, delivering$ 38 million or 85.6% total growth, with organic revenue growth of $11.2 million or 25.3% [17] - The Engineered Building Solutions segment experienced a decline in revenue, but new product expansion and share gains helped offset most of the decline, with segment EBITDA at$ 3.6 million or 15.1% of revenue [18] - The Specialized Reliability Solutions segment posted organic growth of $11.5 million or 57.9%, with adjusted EBITDA of$ 4 million and a margin of 12.9% [19] Market Data and Key Metrics Changes - The company noted significant port delays in California impacting operations, with an average of 32 containers shipped per week from the TRUaire facility in Vietnam [9] - Demand returned in the energy, mining, rail, and general industrial end markets, supporting the Specialized Reliability Solutions segment's performance [7] Company Strategy and Development Direction - The company is focused on maintaining a strong balance sheet and liquidity for opportunistic acquisitions, having invested approximately $430 million in the TRUaire and Shoemaker acquisitions [8][20] - The strategy includes expanding product offerings through acquisitions and enhancing distribution capabilities, particularly in the HVAC/R market [8][24] - The company aims to develop niche product categories that grow faster than the end markets served, emphasizing innovation and customization for higher margins [24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about high demand across virtually all businesses despite challenges such as port congestion and inflationary pressures [29] - The company expects to see a tailwind in the Engineered Building Solutions segment as bidding and booking trends improve, particularly in fiscal 2023 [45] Other Important Information - The company reported a total recordable incident rate improvement in safety measures, reducing from 3.2 in 2020 to 1.3 in 2021 [10] - The effective tax rate for Q3 2022 was 19.1% on a GAAP basis, with expectations of a 25% tax rate for the full fiscal year [21] Q&A Session Summary Question: Any incremental headwind anticipated in fiscal Q4? - Management noted some revenue pull forward and ongoing port congestion as potential headwinds but maintained confidence in the overall guidance [27][28] Question: Is there any risk from Omicron affecting production? - Management reported no current impact from Omicron, with production levels back to normal and no excess absenteeism reported [30][31] Question: What are the growth opportunities with Shoemaker? - Management highlighted Shoemaker's strong brand and geographic complementarity, expecting synergies and growth opportunities in both residential and commercial markets [32][33] Question: How is the M&A environment perceived? - Management feels well-positioned with a strong balance sheet to pursue acquisitions, maintaining discipline while being opportunistic [39] Question: Update on inflation versus pricing in fiscal Q4? - Management indicated that raw material prices are stabilizing, but elevated freight costs remain a concern, with efforts to pass through costs to customers [41][42]