Greetings and welcome to the CSW Industrials, Inc. Fiscal Fourth Quarter 2021 Earnings Conference 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. I would now like to turn this conference over to your host Adrianne Griffin, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Laura. Good morning everyone and welcome to CSW Industrials' fiscal fourth quarter 2021 earnings call. Joining me today are Joseph Armes, Chairman, Executive Officer, and President of CSW Industrials; and James Perry, Executive Vice President and Chief Financial Officer. We issued our earnings release, presentation, and Form 10-K prior to the markets opening today, and all are available on the Investor portion of our website at www.cswindustrials.com. This call is being webcast and information on how to access the replay is included 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 today in our earnings release and in 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 Armes.

Thank you Adrianne. Good morning and thank you for joining our fiscal fourth quarter conference call. Last April, amidst a difficult and highly uncertain macroeconomic backdrop, we articulated four guiding objectives which included treating our employees well, serving our customers well, effectively managing our supply chains, and thus positioning the company for sustainable long-term success. With these in mind, we began fiscal 2021 well positioned to successfully navigate near-term uncertainty with a clear objective of emerging as an even stronger company. Today, I am pleased to announce that in fiscal 2021 by many measures, our team delivered CSWI’s best ever year. Our achievements were enabled by the strength of our diversified business model and resulted from our team's tireless work and dedication, coupled with strategic, disciplined allocation of capital. During the last year, we executed on all aspects of our capital allocation strategy, including inorganic investments via the acquisition of TRUaire and the formation of the Whitmore Shell joint venture, the return of $15.4 million to shareholders through share repurchases and dividends, and an $8.8 million investment in organic growth capital expenditures. Additionally, we reported impressive fiscal fourth quarter and full year revenue growth, record full-year adjusted EPS of $3.37, and adjusted EBITDA of $91.6 million. Subsequent to the fiscal year end, we increased our quarterly cash dividend by 11.1% to $0.15 per share, indicating confidence in our fiscal 2022 outlook. Today, we announced the execution of a new five-year $400 million revolving credit facility providing $168 million of effective availability based upon the amount borrowed as of the fiscal year-end further strengthening our balance sheet and providing capital for future inorganic growth opportunities. I will now turn the call over to James, who will discuss our fourth quarter and full year results.

Thank you, Joe. Good morning, everyone. During the fiscal fourth quarter, consolidated total revenue grew 35.4% or $34.9 million to $133.4 million, with $10.4 million of cumulative organic growth in our HVAC/R, plumbing, mining and energy end markets and $29.4 million contributed by the TRUaire acquisition offset by cumulative sales declines of $4.9 million across the general industrial, architecturally specified building products, and rail end markets, and ongoing delay in capital investing are some of our end-use customers impacted the general industrial end market, and the slow recovery in rail resulted in revenue declines as compared to the prior year period. However, sales into the general industrial and rail end markets during the fourth quarter were flat to our fiscal third quarter. In the fourth quarter, we achieved record sales into the HVAC/R and plumbing end markets, validation of our ongoing strategy to acquire and develop niche product subcategories which when paired with our powerful go to market distribution platform, creates the opportunity for outsized category growth. We continue to generate significant market and wallet share growth for products that serve the mini split HVAC and condensation management subcategories, most recently adding grills, registers, and diffusers to the product portfolio. The integration of TRUaire continues in line with and is in many ways exceeding our expectations. TRUaire continues to deliver the outstanding service to which customers are accustomed. Impressively, many of the back office functions are well into or have completed integration and product cross-selling is generating initial share of wallet gains. In the upcoming phases of integration, we will seek opportunities such as co-locating products and warehouses to serve customers through expedient shipping, maximizing the potential of our extensive distribution channels, and deploying our ERP system. The industrial products segment delivered fiscal fourth quarter revenue of $96.9 million, a…

Great, thanks James. During the first few weeks of fiscal 2022, many of the positive trends we observed in the fiscal fourth quarter have continued with encouraging signs across the end markets we serve. Demand in the HVAC/R and plumbing end markets for both our newly acquired and our legacy products remains extremely strong. This market strength is supported by reports of robust sell through in our distribution channels. During fiscal 2022, our architecturally specified building products end market could experience some weakness as a result of the decline and new project bookings during fiscal 2021. Early in fiscal 2022 we see multiple signs of health for this end market, including a trailing eight quarter book-to-bill ratio of nearly one to one as of the end of the fiscal year and year to date bidding activity at the highest levels we have seen since our fiscal year 2020. Many of these recent bookings are projects that are one to two years from initiation. So while the backlog is regaining its growth trajectory, these bookings are expected to translate into revenue in fiscal first quarter of 2023. To achieve these incremental bookings, our team has taken multiple proactive steps such as adding sales professionals in targeted markets, developing new products aimed at taking market share, and completing an extremely capital efficient expansion of manufacturing capability within an existing facility here in Texas. Rounding out our end market discussions, general industrial, energy, mining, and rail end markets are returning to growth. Any infrastructure spending will likely be accretive to these end markets, along with strength and macroeconomic indicators such as rig count, consumer demand, railcar traffic, and GDP growth. In summary, organic growth, strong execution, and the contribution from the TRUaire acquisition provide confidence for fiscal 2022. In my opening remarks, I…

[Operator Instructions]. Our first question comes from the line of Chris Howe with Barrington. You may proceed with your question.

Good morning, everyone. Thanks for taking my questions and what a terrific year it has been for the share price.

Thanks, Chris.

Yeah. Just going through some of my notes here, you mentioned some of the initiatives that you have moving forward with the TRUaire integration, the co-location of product warehouses, some work on the distribution channels to optimize that beyond where they are today, and then you have an ERP system. You certainly have a strong balance sheet and you mentioned the new five-year $400 million revolving credit facility. Can you talk about TRUaire and kind of what you're seeing in the competitive landscape in this supply chain pressured environments and some of the other challenges that this macroeconomic landscape presents, and how this may offer some opportunity for TRUaire to flex some of its competitive advantage versus some of its direct competition?

Yeah, Chris, this is Joe. Thanks for the question. Yeah, we're really pleased with the TRUaire business and the integration thus far. Two things that we have said about TRUaire in the past, which are really helping us at this point, one is their fantastic reputation for customer service and so being able to continue to deliver on that in the stress times, I think really makes us a reliable supplier of choice for our customers, and we're seeing that benefit us greatly. Secondly, I think we made mention the fact that TRUaire held an ample amount of inventory, and so that has been timely. And so, we've been able to continue to supply to our customers, and our team is just doing a phenomenal job of dealing with all the logistical hurdles that we face. And at this point, we're very pleased with our delivery, with our customer service, and with our ability to get product to our customers; and I do think over time, that will absolutely [indiscernible] to our benefit and the benefit of our customers.

That's great, very helpful. And one follow-up on that as we think about the balance sheet and this new revolving credit facility, as we look at the business from an organic investment perspective and also from an inorganic investment perspective in the different attractive end markets that we have such as HVAC/R and plumbing. How should we think about capital allocation within some of these end markets from an inorganic perspective, and is there something of the size that would make you have to consider other things while also balancing where you are so that you can have the flexibility to adapt to this changing environment?

Well, I'll address that strategically and then James can address it from a balance sheet standpoint. But I -- listen, we don't want to take anything off the table from a standpoint of opportunities. As you know, we have a pretty disciplined approach with respect to risk adjusted return analysis of any opportunity that we see. And so, whether that be organic or inorganic, we do believe that the organic growth opportunities are going to be lower risk oftentimes and therefore the hurdle rate on those will be lower than the inorganic opportunities, but there's no question that the strong cash flow that this business generates, the lack of capital intensity and this new credit facility all combined gives us a lot of dry powder. And so, I think that we view that as a strategic advantage. And as we said last quarter, the phone rings more now than it did before TRUaire. And so, I think we're seeing opportunities that we might not have seen before. I say all that to say there's a lot of opportunity in front of us. We are continuing to digest TRUaire and we're going to be prudent and disciplined in everything we do. We're not ready for another career size deal today, but it won't be too long before we're going to be in a position to consider those options again. And then I think we've got the balance sheet and the cash flow, and the team in place to do something like that.

Yeah, I would just add Chris, this is James. Good morning. Appreciate you acknowledging the credit facility, Adrianne and the team did a great job with that. It really gives us a lot of flexibility. If the capital markets are choppy at any given time, we have that. That came to our benefit when we acquired TRUaire, we were able to do that very quickly without needing to hit the capital markets in what might've been a volatile time in the calendar fourth quarter last year. From an organic perspective, the balance sheet gives us a lot of strength. We don't invest a lot of organic capital. We have capacity in our facility, so we don't necessarily need to build a new facility to grow, which is great. We've been able to find very creative capital efficient transactions like the JV with Shell, which was very strategically important to us, minimal capital from our perspective now. As that grows, we can put some capital in but we have plenty of room in that facility here, East of Dallas right now that we can grow into, which really helps those gross margins potentially in that business as that Shell business grows, that got done April 1 and are starting to do business, which is great. From an inorganic perspective, I think Joe hit it. We've had TRUaire for five months now, there's a lot of integration still going on. When we made that acquisition, we said very clearly that we weren't making a lot of cost synergies. I think we're going to find them, but we didn't necessarily bake that into our risk adjusted returns analysis. And we're seeing the revenue synergies. So as we talked about, some cross-selling of product picks up more wallet share. They have five distribution centers with TRUaire. Our RectorSeal business has a couple of locations. One of those overlap in the same geographic area, the others we can start utilizing, which is great. And as we get the ERP system implemented into RectorSeal -- into TRUaire I apologize and get that more connected with the RectorSeal, which is going to be a pretty big undertaking. The team's working on that planning right now, that's going to even further enhance our ability to really share one product portfolio with RectorSeal and TRUaire. So, a lot of opportunity as Joe said, we would all tell you we're ready for the next opportunity and we see a lot of opportunities. None of us are going to say we're too busy or something's too big, but we're going to be sure we have the resources. And I feel confident we have the balance sheet to look at anything that comes our way.

That's fantastic color. And just one last quick, on your last comment about the ERP system, is there a roughly right expectation for when we should expect that ERP system integration to be completed?

I say we have that yet. We're truly in the planning phase. We spent kind of the first quarter of, of TRUaire getting fully integrated. And as you may recall, we just flipped the switch on the RectorSeal ERP back in November. So, we kind of made sure that we were walking before we started running. That system is running very well. The team has had very good, uh, success. The, as you saw the results in the fiscal fourth quarter, that was helped by the ERP system really running smoothly and well. The demand has been strong and so we had to be sure we had that in good shape. You don't want to start a new system before you're sure the one before you've kind of worked out the kinks and learned from what you could do better. The team has done that. We're literally in the planning phase now. The team's have been visiting each other and it's an integrated team. TRUaire reports up through RectorSeal. So it's very well integrated. So we've got folks that are on that project plan right now. So we're in the planning phase. We will start that in the coming months, how long that takes to finish. We'll see, you really do it site by site to kind of peel back the curtain a little bit and with five distribution centers here in the U.S. you've kind of got to be very strategic about how you do that. So we're going to take our time and get it right. It's not stopping us from increasing that wallet share, market share by any means, but it will be enhanced in the back office by being able to connect those systems as we get that done. So we'll provide updates as we go along, but we're a little ways from being able to give you an end date right now.

Okay, great. Thanks for taking my questions.

Thank you, Chris.

Our next question comes from the line of Jon Tanwanteng, with CGS Securities. You may proceed with your question.

Hey, good morning everyone. Thank you for taking my questions and a very nice quarter. How are you doing. My first one, is just on the gross margin that you're expecting in the June quarter, I think, you might've mentioned that they would increase sequentially. I'm wondering, is that just the normal seasonal increase that you're seeing or is there something more to it compared to what you would see in a normal season either greater than or less than that historical figure?

Okay, Jon I'll point to two things. First of all, you always had some seasonality and that just gets started in the fiscal fourth quarter, fiscal first quarter, the HVAC business is really ramping up and that's where our higher margin products are. So yes, there is some seasonality there. The comment we made about the opportunity for that to improve in near-term quarters, I would say is twofold. Number one as we mentioned, the cost increases on the logistics side primarily and to some degree on the commodity side came pretty quick in Q4. You can't open the paper without seeing that. Our team has done a great job getting shipping containers, getting our product in, getting the raw materials, but those cost increases happened pretty quick and we got price increases in but there was a bit of a lag. So you had a little bit of pressure on that in the fiscal fourth quarter across most of our end markets. The team has done a great job getting price increases in, even more than one in some end markets, getting those in very quickly, the market has absorbed that, there could be more of cost continue to increase. So I think now pricing is keeping up with costs whereas there was a lag before, and we always are first focused on protecting our margin dollars. So I think we've done a good job of that. And then we're looking to protect the margin of course, and even improving on the margin. So as we can catch up as we have on the price increases, and as we can continue to manage costs, I think we have opportunity for the gross margin to come up. That's the second piece on top of seasonality. The third thing I'll mention…

No, I appreciate the color. That's all very helpful. I was just trying to get a sense of also, maybe as you look at the rest of the year, compared to where you were standing in January, you said you manage your gross profit dollars as opposed to the margin percentage. I'm wondering, do you see that with the stronger demand versus the installation, your profits will be on an absolute level be better this year than maybe you thought they would've been in January?

You know, I'll tell you -- I'll say this, I'll say pricing is certainly up. So the top line I think is certainly up. In terms of profit dollars I think it's a little early to say there, we're protecting the profit dollars. I don't want to by the way say we're not always looking at margin as well, but we want to be sure we protect that bottom line first. So I think it's a little early to say what we see there versus January. There's been a lot in the last few months, but the inflation impact is certainly going to take the top line up versus where we thought it was. And I guarantee that our business leaders and we are striving to make sure the profit dollars match that as being better than we expected. But still a little early to tell as we see whether it's inflation levels out.

Okay, fair enough. Just on the architectural business, I think you mentioned it would be a little bit weaker this year. Is there any quarter that you can point to that would be -- from a P&L level before these projects that you were bidding on start coming back in?

You know, it's hard to get that specific, Jon. It's a great question. I think, my first day as CFOs was a year ago on the same call, and I think we were already talking about that air pocket coming in. The team did a great job with the leadership continuing to push which quarter that is out because they've done a good job finding projects. We do see the trough coming, is it this quarter, is it a quarter or two out it's hard to say. As Joe mentioned in his remarks, we really see kind of this time next year when a lot of those projects that have been bid in one lately are really coming in, does often have one or two-year lead times. So where the trough is which is still a very good business by the way, but where the trough is, is probably a little more precise than we could say. We obviously have some internal budgets that would tell us that, but there's three businesses within that building product space and they each have a little different kind of backlog and a little different cycle. So, we would say we're approaching that Jon I would say, but we would've told you the same thing a couple of quarters ago, and the team's done a nice job pushing that out.

But Jon, this is Joe, I would tell you the long-term outlook for that business were very bullish on us. We made a small incremental investment in capacity here in a preexisting location here just outside of Dallas and added the ability to serve clients here in Texas in particular, but also West of here. Because our other two plants are on the -- so this is in the Greco business. The other two plants are in Florida and Windsor, Ontario. And so to serve the Sunbelt West, this incremental capacity here we think is going to provide great opportunity to be close to high growth markets like Austin and Dallas and others. And that's going to be organic growth opportunity for us. We're very bullish on that and we're willing to make that investment based on our outlook.

Got it. Thank you. One last one from me and I will jump back in queue. Just, can you talk about the strength in HVAC/R and plumbing demand, just given where we are between vaccinations and work from home and a housing shortage, how long do you see that tailwind continuing, is it more a secular thing or is it more temporary just based on all the things that are going on in the world today?

The honest answer is Jon, we don't know for sure. It feels more secular than short-term to us. As we've always talked about the installed base matters and it feels like there's expansion in the market, housing prices going up, provide financing for house improvements and expansions of people's homes, which need to be air conditioned. And so, we feel a really nice tailwind there and we don't foresee this being any kind of a short-term phenomenon. But, the honest answer is we don't know for sure, but that's certainly our gut today.

Yeah, as Joe said, I think we've certainly seen a trend which doesn't seem like a short-term in people investing in their homes, whether it's from stimulus money or more comfort around their employment as the economy picks up, the market picking up, those kinds of things. This isn't just work from home, educate from home type now. As Joe mentioned in his remarks, we're seeing strong sell through real time on what we're selling. This isn't just inventory stocking. We're seeing the sell through. So, our products continue to go into homes as people invest in those homes and that seems to be a long-term trend right now.

Got it, that’s helpful. Thank you guys.

Thank you, Jon.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Joe Armes for closing remarks.

Yes, thank you operator. Yes, just grateful for everybody's time and interest in our company. Look forward to talking to you again at the end of next quarter and we really appreciate your support and interest. Thank you.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.