Greetings and welcome to the CSW Industrials Inc. Third Quarter 2017 Earnings 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 is being recorded. It is now my pleasure to introduce your host, Tom Cook. Thank you, Mr. Cook. You may begin.

Thank you, Doug. Good morning, everyone, and welcome to CSW Industrials' fiscal third quarter investor call. Joining me today are Joseph Armes, Chief Executive Officer of CSW Industrials; Gregg Branning, Chief Financial Officer; and Christopher Mudd, Chief Operating Officer. If you have not received the earnings release, it is available on our website at www.cswindustrials.com. This call is being recorded. A replay of today's call will be available and details on how to access the replay are in the earnings release. During this call, we will be making 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 in today's earnings release and the comments made during this call and in the risk factors sections of 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. This call will also include an analysis of adjusted operating income, net income and earnings per share which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to and not a substitute for operating income, net income and earnings per share computed in accordance with GAAP. For a more complete discussion of adjusted operating income, net income and earnings per share see our earnings release. I would now like to turn the call over to our Chairman and CEO, Joe Armes.

Thank you, Tom. Good morning, everyone, thank you for joining us on our call today. During our third fiscal quarter, we continued to make progress on our long term objectives of integrating our business and driving synergies across CSWI. Much like the prior quarter, operating results were affected by discrete end market exposures and the respective cycles. However, unlike the prior quarter, I am pleased to report that we grew consolidated sales by 6.5% including 6.2% organic growth during the period, while adjusted net income grew by 9.9%. Higher profit levels were primarily the result of higher sales and margins in our industrial products especially chemical segments. Within industrial products, these improvements were driven by continued growth in our large, smoke curtain product categories coupled with strong contributions from HVAC, plumbing and other architecturally specified building products. In our speciality chemical segment, trends improved during the third quarter as a 10% sales growth rate, operating leverage on higher volume and contributions from our cost savings initiative all contributed to improved segment level performance year-over-year. Consistent with our expectations articulated last quarter, sales for Jet Lube and Whitmore products were inflated during the third quarter by approximately $1.5 million as we burned off excess backlog associated with our Houston facility consolidation. Turning to Coatings, Sealants and Adhesives, we are in the earlier innings of our restructuring efforts, rail volume had still not recovered and start up volume of new products had an unfavourable effect on mix during the period. On the topline, we were pleased to see a meaningful moderation of the pace of this segment revenue decline as our sales diversification efforts began to offset lost volume and rail. However this effect did create margin pressure during the period and our adjusted operating margin declined 480 basis points to 5.7%.…

Thanks, Joe and good morning everyone. Our consolidated fiscal third quarter revenue increased 6.5% to $75.5 million compared to the prior year period of $70.9 million. The increase was primarily attributable to increases in construction markets and the burn off of excess backlog following the Jet Lube facility consolidation partially offset by decreases in the rail and energy markets. Looking at our segment level revenue and operating income industrial product segment revenue increased 11.3% during the quarter to $31.7 million compared to the prior year level of $28.5 million. The increase in revenue was the result of strength in the construction market including higher HVAC volume and deliveries of large and small curtains. Industrial product segment operating income was $4 million compared to the prior year level of $3.4 million. Adjusted operating income was $4.3 million compared to $3.4 million in the prior year and marked a 150 basis point improvement in segment adjusted operating margin to 13.5%. Coatings, Sealants and Adhesive segment revenue decreased 1.9% to $23.8 million compared to the prior year level of $24.3 million. Lower revenue was mainly attributable to decreased sales volumes in the rail end market. Although lower rail activity continue to pressure our segment level topline, we were encouraged to see a sharp deceleration and the pace of decline as revenue from our sales diversification efforts began to offset this discreet end market impact. Segment operating income in the third quarter of 2017 was $813,000 compared to operating income of $4.2 million in the prior year period. Adjusted operating income was $1.4 million or 5.7% of sales compared to $2.5 million or 10.5% of sales in the prior year. The decrease was attributable to loss leverage on lower sales and an unfavourable mix on start up volume on sales diversification products. Turning to…

Thanks, Greg. I’d like to begin today by providing an update to our corporate wide integration initiatives followed by discussing coatings, sealants and adhesives and close by touching on some of other company highlights. We can group our strategy into two distinct paths. The first includes the coatings, sealants and adhesives and speciality chemicals businesses where our current objectives are in rationalizing our operational footprint and expanding sales of existing products into new regions with broader end market exposure. The other path is within our industrial products business which we are focussed on cross selling in the expansion of our product line which I will explain as we go through the segment individually. As we have previously communicated since the spinoff transaction, we have identified approximately $10 million to $11 million in annual savings driven primarily by our facility consolidations and our global procurement initiatives. And we’ve continued to make incremental progress on these programs throughout the quarter. Across the organization, we remain confident in our ability to generate approximately $2 million to $2.5 million in annual savings as previously communicated through our procurement programs. In specialty chemicals, we expect to achieve a $5.5 million annual savings run rate by April 1, 2017 inclusive of the consolidation of Jet-Lube, Canada. The balance of the $10 million to $11 million savings will be realized by manufacturing footprint consolidation in the coatings, sealants and adhesives segment, which I'll revisit in a moment. As part of our sales diversification initiative we have begun gaining traction in Southeast Asia and China where we have begun penetrating markets in this region, examples of this would be the use of our products and cement and sugar mill plants in Asia, and also in Latin America where products are being used in the mineral and mining end…

Thanks Chris. In closing we're focused on driving growth and healthy end markets such as our construction-related end markets and exporting a healthy macro backdrop. While we're navigating through challenge commodity-related end markets and reducing costs where appropriate. As I said before, our broadly diversified product portfolio and end market exposure provide stability in all market conditions and that was once again demonstrated here the third quarter. Our balance sheet remains strong and we’re building a team capable of executing on our long-term strategic priorities. Through these actions we believe we are taking the right steps to manage through the various cycles and position the company to deliver long-term sustainable value creation for our shareholders. Now, I’d like to take opportunity to thank all of my colleagues and CSW Industrials as we continue to server customers and to steward well the capital entrusted to us and our shareholders. Thank you for your interest in CSW Industrials. And now operator we’re ready to take questions.

Thank you. [Operator Instructions] Our first question comes from the line of Jon Tanwanteng from CJS Securities. Please proceed with your question.

Good morning, gentlemen and thanks for taking my questions.

Hey, good morning, Jon.

How you’re doing? To start, in the specialty business can you update us on the mix between drilling and completion, production and how each one of those is doing from your point of view and maybe with the lag look likes if and when drilling does recovered?

Yes, Jon. The traditional products like KOPR-KOTE is a drilling compound and that is related primarily, and driven primarily by rig count. There are other products that are more production-oriented that the name brand would mean much to investors, but we do have those productions -- products related to production. So, while production has remain obviously more stable than the rig count, the rig count is a pretty dramatically from the lows and we are beginning to see a demand rise there. The delay or the lag time there affects us, but we are beginning to see that growth and that I would also add that those products such as KOPR-KOTE have been nice margin products for us historically, and so we would expect that to come back as the volume come back as well.

Okay. Thanks. And just moving on to the CSA segment regarding the margins, the new products that you’re ramping up, are those just inherently lower margins than the previous ones or is it just a drag from start-up cost related to getting those up to speed and volume?

It’s a little bit of both, but it certainly the more transactional business is lower margin business. And so we have had an initiative to go out and aggressively pursue that business in order to fill up the plan to add to the diversified revenue base and then we think over the longer term we will migrate back towards the higher specification items and products that have longer sales cycle and higher-margin.

Got it. That’s helpful. And just on the efforts to diversify your customer base in that segment. Can you just update us on the potential for added revenue, I think last time you spoke -- you said it was a $6 million opportunity that you’re ramping towards. Can just quantify the results related efforts there?

Yes. We were continue – this is Chris. We’re continue to make progress in that direction and as Joe mentioned, much of that is going to be transactional in nature with shorter qualification times and so we’re continue to be pleased with our progress in that direction.

But I think we’re still tracking to six plus million at this point.

That’s true.

Okay, great. And then finally just an update on the pipeline for M&A, what do you see in terms of availability valuations, anything you can give us that would be helpful? Thanks.

Yes. Haven’t seen a lot of the change in that area Jon, we continue to pursue acquisitions, we continue to take a disciplined approach, valuations are still high, and the to-date we've not found the right opportunities, the right value. Having said that, we continue to pursue aggressively and with the real focus on the industrial products segment as being an area of historical growth that we’d like to exploit going forward as well, but the really no change brought about the last couple quarters.

Great. Thank you again.

Your next question comes from the line of Liam Burke with Wunderlich Securities. Please proceed with your question.

Thank you. Good morning, Joe, good morning, Chris.

Good morning, Liam.

Joe, I know that release 2017 is not a trend, but we are seeing rail traffic volumes modestly tick up, probably stabilized. Could you give a sense of timing if this trend continues and we’d see rail volumes up maybe 1%, 2%, what the sequence would be of the recovery of the lubrication in the Whitmore Systems business?

Yes. Liam, I think that’s a great question. I think that obviously track miles or the utilization there by the rail will drive the lubrication needs, the miles carried. We’re hoping to see additional cash that will be invested into the operations there. Our products promote efficiency, they promote the longevity of the asset life and reduce wear and tear on both rail and the wheels, it can reduce noise, there’s a lot of attributes there, they’re very valuable if that rails are healthy. And so, if they could see an uptick in the track miles, we would expect to see that as well. We do believe that the specialty chemical segment will see positive kind of turnarounds there, quite a bit before the coatings, sealants and adhesives business, the OEM manufacturer of the railcars. And so, that would be the area to be focused on and hopefully would be earlier in the cycle as that business picks up.

Great. And on the HVAC side do you’re seeing a healthy uptick in ductless mini-splits driving that HVAC business?

Absolutely, this is Chris. In fact, I was just at the big air conditioning show last month in Las Vegas and it's incredible to see the number of mini-splits on display. It is the exciting technology in that industry. This is OEMs that manufacture these and they all need to be installed. We had a really nice traffic at our booth and a lot of interest in our new products that support ductless mini-splits and really just HVAC in general. So it's a great end market for us.

Chris, you might also mention the Leak Freeze new applicator and the buzz around it at the show.

Yes, thanks Gregg. Yes. There are as you might remember we made an acquisition at the end of 2015 of AC Leak Freeze. At that time our strategy was to come up with a new more contractor friendly application method. We’ve come out with that. We spend some time trialing that in the field and officially launched it’s at the show and we’re going to have some preseason promotions coming up next month and just a lot of buzz around the new AC Leak Freeze Pro product line which we expect to be a big seller of this upcoming HVAC season.

Great.

It’s just the one that off [ph] leaks in the air-conditioning units.

Sure. Okay. Well, thank you, Joe and thank you, Chris.

Thank you, Liam.

There are no further questions in the queue. At this time, I’d like to hand the call back over to management for closing comments.

Great. Once again we just want to say, thank you very much for your interest. We appreciate your participating in the call today. Look forward to doing it again next quarter. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.