Greetings, and welcome to the CSW Industrials Inc. Fiscal Third 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Adrianne Griffin, Vice President, Investor Relations and Treasurer. Thank you. Please go ahead.

Thank you, Donna. Good morning, everyone, and welcome to CSW Industrials' fiscal third quarter 2021 earnings call. Joining me today are Joseph Armes, Chairman, Chief 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-Q prior to the market opening today, and all are available on the Investor portion of our CSWI website at www.cswindustrials.com. During this call, we will reference specific slides in the presentation. 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, which 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 section 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. I will now turn the call over to Joe Armes.

Thank you, Adrianne. Good morning, and thank you for joining our fiscal third quarter conference call. First, I would like to express my gratitude to the entire CSWI organization which thrived in 2020 in spite of macroeconomic uncertainty. We embraced changes to enhance our safe working practices and we continue to deliver on our capital allocation strategy to drive long term shareholder value. Beginning on Slide 4, you will see that CSWI has now invested $465 million through six acquisitions since our spin off in 2015. Pro forma for the TRUaire acquisition, CSWI's trailing 12 months revenue grows to approximately $490 million with over 45% of those sales into the HVAC/R end market. Including our quarterly dividend payment this month, we will have returned nearly $100 million to shareholders in the form of dividends and share repurchases. Since October 2015, our total shareholder return is approximately 300%. So rest assured our commitment to being good stewards of your capital will continue unabated. Slide 5 of the presentation exhibits the consistent strength in our consolidated results with total quarterly revenue growth of 7.4% as compared to the prior year period, of which 2.1% was organic with the remainder contributed by the TRUaire acquisition, which closed on December 15, 2020. The team delivered leverage on the sales growth with 15% increase in adjusted operating income, equating to an adjusted operating income margin of 13.4% as compared to 12.5% in the prior year period. On an adjusted basis, earnings per share in the quarter were $0.59 or 23% higher than the same prior year period. In summary, our third fiscal quarter resulted in improved revenue and profitability over the prior year period, continued balance sheet strength and ample cash flow generation, while closing the acquisition and beginning the integration of TRUaire. I would like to provide an update on our fiscal 2021 guiding objectives included on Slide 6. Commentary on this slide reflects some of the proactive, qualitative measures that have enabled and will continue to enable CSWI to thrive through cycles. CSWI is now comprised of approximately 2,300 employees around the globe, most of which are located in North America and Vietnam. Our employee-centric culture is reflected in the daily decisions of each of the business unit management team, as well as the strategic decisions of the executive team and Board of Directors. In addition to our historic focus on providing employees with a comprehensive suite of benefits, including our employee stock ownership plan, we have thoroughly enhanced our approach to employee health and safety. We conducted a corporate-wide safety awareness month in January of this year, as senior leaders from across our organization promoted discipline, adherence, safe work practices, supplementing the existing health and safety programs at each operating site, and intending to reflect the importance of and our commitment to safety and our corporate culture. Our second guiding objective is to serve our customers well, which we know drives long term relationships and organic growth. This quarter, we highlight a selection of initiatives across our organization. RectorSeal recently expanded its mobile responsive e-commerce platform that allows manufacturers, representatives, distributors, end users and RectorSeal sales staff access to the company's complete product portfolio 24x7. This expansion provides options to research specific products, receive product training, order products and review invoices, and it demonstrates a natural evolution of the tools and technology that support our objective of providing the best possible customer experience. We expect to enhance TRUaire's operations with our tools and technology, including our common ERP and the e-commerce platform, representing future opportunity for organic growth. Each quarter we affirm our commitment to our disciplined investment process, especially regarding returns, prospective synergies, cultural fit and ease of integration, all of which are critical components driving long term shareholder value. In November, we announced the largest acquisition in CSWI's history as presented on Slide 7, TRUaire, an organization focused on manufacturing and selling a broad suite of high quality grills, registers and diffusers into the heating, ventilation, air conditioning and refrigeration, or HVAC/R end market. We welcome all of our new CSWI colleagues and we look forward to demonstrating to them how we live out our company's mission, culture and values. Through this transaction, we acquired a wholly owned manufacturing facility in Vietnam and five U.S. distribution centers that expand our manufacturing and logistics footprint. This acquisition was the result of two years of relationship building wherein we discovered that TRUaire and CSWI share a commitment to premier customer service. Upon closing this acquisition in mid-December, our team has quickly transitioned to integration and customer service with an emphasis on expanding HVAC/R accessory market share and growing customer share wallet. We continue to anticipate that the TRUaire acquisition will provide new supply chain strategic opportunities, as well as short and long term accretion for shareholders. Our team stays engaged in seeking accretive growth opportunities and just last month, we announced that our subsidiary Whitmore had executed a definitive agreement to form a joint venture with Shell Lubricants. On Slide 9, we outline the potential for enhanced distribution of Whitmore products in the Americas and the maximization of our world class specialty chemical manufacturing operations. This transaction was enabled by our 20 year private label relationship with Shell and is expected to drive incremental sales growth. Moreover, this transaction is consistent with our capital allocation strategy as capital required from CSWI is expected to be minimal. The joint venture is expected to be modestly accretive in the first year of operations. Turning now to our end market performance. In the fiscal third quarter and year-to-date periods, demand and execution in the HVAC/R area and architecturally specified building products or ASBP end markets resulted in comparative period growth. Year-to-date, HVAC/R end market sales grew 20.8% or $18.4 million, of which 15.7% or $14 million was organic with the remainder contributed by TRUaire as the sustained number of people worked and were educated from home. Single family home renovation strengthened in correlation with increasing home equity and single family housing starts continued to outpace expectations. Looking to the fiscal fourth quarter, we anticipate ongoing strength in this end market with significant total growth as compared to the same prior year period as we expect the same macro trends to continue in the fourth quarter, and generate modest organic growth and ongoing inorganic growth from TRUaire’s contributions. In ASBP year-to-date sales grew $2.8 million or 3.3%, all of which was organic. And thus sales into this end market were approximately 30% of total CSWI revenue during this nine month period. The strong performance was driven by continued acceleration of projects already underway, as well as success in taking market share despite the general reduction in activity across the construction industry. During the first three quarters of fiscal 2021, pandemic driven demand softness resulted in a lower rate of bookings. And when combined with project pull forward, our trailing eight quarter book-to-bill ratio was just below 1 as of the end of the quarter. Cumulative fiscal third quarter sales into the energy, mining, rail and general industrial end markets slightly exceeded each of the fiscal first and second quarters of 2021, marking a slow initial recovery from pandemic lows. Sales into these end markets collectively accounted for 22% of year-to-date revenue. Modest growth in fiscal third quarter sales combined with improving macroeconomic indicators, such as rig count, consumer demand, railcar traffic and GDP growth indicates the potential for a nascent recovery, and hence we expect fiscal fourth quarter to perform much like fiscal third quarter. In summary, we expect ongoing organic growth in the HVAC/R end market, some weakness in the fiscal fourth quarter ASBP end market that I discussed previously and stabilization across other end markets that we serve. Our team is managing through certain headwinds, including global trends and market forces, such as price increases and specific raw materials and logistics expenses, especially related to the global container shortage. Despite these factors, organic growth, strong execution and the contribution from the TRUaire acquisition are expected to produce a solid finish to our fiscal year. And with that, I'll turn the call over to James for a closer look at the numbers.

Thank you, Joe, and good morning everyone. Our consolidated revenue during the fiscal third quarter of 2021 increased 7.4% to $89.9 million compared with $83.7 million in the prior year period. 2.1% of this growth was organic, and the remaining $4.5 million of growth was due to the TRUaire acquisition in December. Our results reflect TRUaire's contribution for the period of time since we closed the acquisition. The higher revenue was driven by $10.1 million of increased sales in the Industrial Product segment, partially offset by $3.9 million decrease in the Specialty Chemicals segment. Our profitability metrics remained strong with consolidated gross profit margin of 43.7% compared to 45% in the prior year period. The slight decline was primarily due to costs associated with the accelerated, lower margin projects in the ASBP end market. Adjusted for the $8 million in transaction expenses, consolidated operating income margin was 13.4%, a 90 basis point increase from fiscal third quarter 2020, due to the stronger than expected growth in sales in some end markets served, combined with cost reduction measures to offset some of the impacts from declining sales in the remaining end markets. Net income in the fiscal third quarter was $2.3 million or $0.16 per diluted share, compared to $7.3 million or $0.48 per diluted share in the prior year period, adjusted to exclude transaction expenses in the current period. Adjusted net income was $8.8 million or $0.59 per diluted share, which compares very favorably to last year's fiscal third quarter. Turning to Slide 12. The Industrial Product segment delivered fiscal third quarter revenue of $58.8 million, 20.8% higher than the prior year period of which 11.6% was organic. Adjusted for the TRUaire transaction expenses of $6.9 million, segment operating income and operating income margin were $9.9 million and 16.9% respectively as compared to the prior year period of $8.6 million and 17.8% respectively. These results were driven by organic sales into the HVAC/R and ASBP end markets, as well as the inorganic revenue contribution from TRUaire. Continuing to Slide 13. The Specialty Chemical segment realized fiscal third quarter revenue of $31.1 million compared to $35 million in the prior year period. Adjusted segment operating income and adjusted segment operating income margin were $5.8 million and 18.5% respectively, as compared to their prior year period of $5.4 million and 15.4% respectively. Transitioning to the strength of our balance sheet. As of quarter end, our pro forma leverage net of cash was approximately 1.95 times, which reflects the funding of our largest to date acquisition. We ended the quarter with $55 million of availability under our existing $300 million revolving credit facility, $18 million of cash and maintained our durable cash flow from operations of approximately $54 million in the fiscal first nine months of 2021. These figures all leave us well positioned with continued allocation of capital into strategic initiatives. I'll now cover our fiscal first nine months consolidated financial results, as I outlined beginning on Slide 16. The strength of our second and third quarters nearly offset the weakness of the first quarter with fiscal first nine month revenue of $285.8 million, only a 0.5% decrease as compared to the same period last year. Increased sales into the HVAC/R and ASBP end markets were slightly offset by pandemic driven demand declines in other end markets served. Gross profit margin was 45.8% or 20 basis points lower than the same prior year period due to the modest year-over-year decline in sales. Adjusted for transaction expenses, operating income and operating income margin were $50.5 million and 17.7% respectively, as compared to $50.2 million and 17.5% in the prior year period. Adjusted for the transaction expenses in the current year, net income and earnings per share were $37.2 million or $2.49 per diluted share, higher than the $35.8 million or $2.35 per diluted share in the prior year period after adjusting for the one-time charge of $0.35 per diluted share after-tax to terminate the company's U.S. qualified pension plan. Turning to Slide 17. The Industrial Product segment delivered fiscal first nine months revenue of $192.5 million, 10.1% higher than the prior year period, as excellent execution and product demand drove 15.7% organic growth in the HVAC/R end market. Ongoing project completion plus acceleration of projects in the ASBP backlog resulted in 3.3% organic growth and the $4.5 million of inorganic sales contributed by TRUaire. This growth was partially offset by other end markets served. Adjusted segment operating income and adjusted operating income margin were $46 million and 23.9% respectively after being adjusted for the $6.9 million in TRUaire transaction expenses. This compared favorably to $42.1 million and 24.1% in the prior year period. Continuing to Slide 18. The Specialty Chemicals segment realized revenue of $93.3 million in the first nine months of the fiscal year compared to $112.6 million in the prior year period. Adjusted segment operating income was $15.5 million with adjustments related to the $1.1 million of joint venture related transaction expenses, resulting in adjusted operating income margin of 16.6% compared to adjusted segment operating income of $18.4 million and adjusted operating income margin of 16.3% in the prior year period as year-over-year profitability was maintained despite the decline in sales due to management's effective cost reduction efforts. The effective tax rate on continuing operations for the fiscal third quarter was 23.2% on a GAAP basis. We continue to expect our full year tax rate within a range of 24% to 26% for fiscal 2021. Moving to our cash generation and balance sheet. As I mentioned earlier, our operating cash flow from continuing operations was $54 million in the first nine months of fiscal 2021 as compared to $60.4 million in the prior year period. The decrease in operating cash flow was primarily attributable to transaction expenses in the current period. With that, I will now turn the call back to Joe.

Great. Thank you, James. During the fiscal third quarter, we delivered impressive revenue growth in our largest end markets, we closed our largest acquisition to date, we announced an agreement to form a strategic joint venture and we delivered 23% growth in adjusted earnings per share, all while maintaining our strong balance sheet and liquidity. Outstanding customer service, along with the value added high quality products and services drive our reputation for excellence. While we work to ensure the successful integration of our recent strategic transactions, our team remains active in our pursuit of value accretive organic and inorganic growth opportunities as we know the business development life cycle can take time. As always, I would like to close by thanking my colleagues here at CSWI, who not only do a fantastic job each day but also collectively own just over 4% of CSWI through our employee stock ownership plan, and also thank all of our other shareholders for their continued interest in and support of our company. With that, Donna, we're ready to take questions.

Our first question is coming from Jon Tanwanteng of CJS Securities.

My first one, Joe, could you provide just a high level overview of how things have trended in January, both from a demand perspective and the impact on your business and across maybe your business line supply chains with COVID in January and then heading out of December?

Yes, January is continued really the same trend that we've seen in the third quarter. No major changes there at all. We're six weeks into the TRUaire acquisition and integration. And so that is going well but too early to really name any trends there. But we're pleased with the way things are going. I would say on the purchasing and strategic sourcing side, there are some cost pressures. Everybody's read about the container shortage, steel prices, other commodity price increases that our team is dealing with. But we have a demonstrated track record of dealing with those headwinds and by managing through that and protecting our profitability, and so we would expect to do the same here.

Specifically to TRUaire, they're shipping from overseas, how much is the container shortage impacting them compared to maybe what you thought they could do when you announced the agreement to acquire them?

Again, Jon, it's really early on. I would say at this point, there's no material disruption. We're trying to look around the corner here and make sure we don't get any surprises. But at this point, things are relatively stable. Expensive in some respects, but so far, so good.

I would just add to that. As you recall when we announced the TRUaire acquisition, we talked about we maybe had some opportunity given the amount of inventory that they carry. That's always been strategic for them to meet their customers' needs in times like this, where we might anticipate a little bit of disruption from container shortage. Again, nothing dramatic yet. But that inventory turns into an asset for us and we're able to use that to meet customers' demands and pull from our distribution centers around the country to be sure customers have what they need.

Just wanted to scale back to the broader HVAC business. You mentioned home starts. Just wanted to get a sense of, do you know how much COVID benefit you've gotten in that business, whether it's working from home, ventilation, things that might go away as year progresses, assuming that people get vaccinated and dynamics aside. Do you see any of that or is it more organic as you're looking at it now?

Well, I mean, the honest answer is we don't know for sure. I would say, remember, Jon, that 80% of the HVAC market generally is going to be repair and replacement, 20% is new residential construction. And so the install base really, really matters here. We do think that there's been the stay-at-home, work-from-home, go-to-school-at-home, has had additional demand on systems and people have invested in that and repaired and you're running your air conditioning 24 hours a day as opposed to turning it off to go to work, those types of things. So there's clearly some additional demands put on your system. But we feel like the installed base is really the single largest important factor here and that installed base continues to grow. And we have both repair parts and products as well as parts and products that go into a replacement or a new install and so that provides a ballast.

And then just maybe a comment on the architectural product line. You pulled in some projects. One, can you quantify how much came into the quarter compared to what you're expecting, number one? And number two, when do you see the orders and demand recovering in that business? I think you had said it would have been this quarter, next quarter, maybe three months ago. What are you thinking now?

I'll let Joe supplement what I might have to say. We won't necessarily quantify that. You can kind of see what the end market look like in our presentation quarter-to-quarter, so you can get a little sense of that it held pretty steady in general. We've talked for a couple of quarters now about kind of an air pocket coming, and the business has done a really nice job of filling that air pocket by some short term projects and then some have gotten pulled forward. And as a reminder, it's not us to pull those forward. It's the project manager that says, hey, we're ready for your product a little earlier than we expected. And so our team has done a great job adapting to that pull. And so in some of those projects, just from a mix basis, we're a little lower margin. So that was a bit of a headwind interestingly. So maybe help the sales side, hit the margin a little bit more. We would say, from a bidding standpoint, things are a little softer but we're still seeing activity from a booking standpoint, as we mentioned. Things are a little softer but not dramatic necessarily. So we continue to look out and kind of push out that air pocket. And so now we would say the fourth quarter, there's some softness. We've talked about that and we kind of expected that as we've talked the last couple of quarters. Again, the team is looking to fill in the gaps with some smaller projects and some other things have gotten pulled forward. But it's hard to say really kind of when that really necessarily hits, but the bookings we're taking now are more obviously into our next fiscal year, now that we're a couple of months away from the beginning of the next fiscal year. So management there is doing a good job, strong effort on sales. Some of the areas where we are stronger geographically have some headwinds right now just because they're a little more slow on the construction side. So there's some specific instances there. But overall, the business has done a good job.

Last one for me. You continue to really impress with the Specialty Chemicals margins. Is this the new floor we should be thinking about in a seasonally weaker quarter, this kind of high 18, 19-ish percentage, or how should we think about that going forward?

It's hard to say a quarter or two is a trend quite yet. I think what we've seen happen through the year, clearly, you've continued to see the impact year-over-year of lower cost like travel and entertainment. That will return at some point, maybe not in the near term but it's a global business. So you have some global travel, you have a lot of domestic travel but obviously it is minimized right now. That will come back at some point as it will for any company that has that type of model. I will also say, and I'm sure you recall this very well. We talked about when the pandemic first hit in our first earnings call back in May after this started that we had made a commitment not to make pandemic related reductions in our labor force. I would say that's a business that because it got hit a little bit harder in terms of headwinds of the end markets it serves, the rail, the mining, the energy, industrial, those type of things, that you had some more labor than you probably needed. And we've kind of let attrition take its course. So as people have moved on for various reasons, we've maybe not backfilled as much as you might, if things are really going strong. We're able to ramp back up as we need to and we're starting to see some of the demand pick up. But you've got some nice cost factors that are in the business right now that some of that is probably not repeatable like the T&E, eventually that will fade away. But I think the businesses all have found where their labor pool needs to be and really learned how to manage that even more effectively through the cycle.

Our next question is coming from Chris Howe of Barrington Research.

You mentioned the contribution of TRUaire in the quarter. For overall perspective, would you be able to provide TRUaire's revenue in the quarter? And how that compares sequentially and on a year-over-year basis and what your outlook in Q4 is specifically for TRUaire, how that's looking?

Not a lot of detail to provide yet. I'll say a couple of things. One is we're, as Joe said, six, seven weeks into the acquisition. We're still getting the feel for the run rate, but things have been very smooth. When we announced TRUaire, Chris, as we talked about, I know you initiated after that. But as we announced TRUaire, we talked about their calendar 2020 revenues were tracking at about $108 million and that is dead on. If you look at it the last two weeks of the year, we said they were $4.5 million. So the math literally tells you that's dead on that number. We talked about EBITDA of about $36 million. Again, that was a backwards looking type thing as we were closing in on the end of the calendar year. So that type of run rate has translated so far. We would expect that they would see the type of organic growth that we hope to see this year. But we're still diving into what that looks like, putting together strategic plans for this year. We've done a great job integrating the customer base. We had talked about 100% customer overlap. And our sales team has integrated extremely well with theirs and spending a lot of time with those customers. So we've not really seen any headwinds in what we've had. In fact, we've seen some tailwinds. So I think there's good opportunity there, but not really comparative year-over-year specific to TRUaire that we would detail at this time.

As things normalize a little bit in the fourth quarter, even more so as we get into next calendar year. What's your view as of now as how incremental margins look coming out of this? And as we normalize and get to a better than normal, which I hope happens sooner rather than later versus how the business has done historically coming out of a recession?

And obviously, coming out of the pandemic may look differently coming out of a recession. A recession may kind of take all the end markets down whereas in this case, as we talked about a few minutes ago with Jon, you did have some tailwinds from the work from home and educate from home new cycle that we've never seen something like that before. So you had some tailwinds with HVAC. We continue to see good tailwinds from HVAC and continue to hear and see good things from others in the industry. We're just starting the restocking and busy season for our end market there. So that's really kicking off right now. So we'll get a good sense for that, as we talk to you again in May as we talked about the fourth quarter. So I think it's a little too early to talk about what normalized looks like. We just talked a minute ago also about the Specialty Chemicals margins in those markets. So as we think these things come back to what looks like normal, whether that's a few weeks or a couple of quarters, depends on the end market, that they're all going to come back differently. But right now, most end markets have a tailwind. Rig counts are up, rail traffic is up. Oil prices have moved up. You've still got some restrictions being able to travel, as I said and get out to certain mines, for example, some of those things that demonstrate your products and win over some market share. But I think we have the opportunity, certainly from a margin perspective, to do very well. Again, we've continued to put up nice margins these last couple of quarters in both segments and looking more directly in our end markets, we're pleased with the performance we've seen. But we're really going to need to kind of get into the post pandemic world to get back to normal. And then again, integrate TRUaire and it will be a little bit of apples and oranges, but we'll do our best to try to give you apples to apples as we get through that.

And one last question. The integration of TRUaire going well, six weeks into it, but I assume it will continue to run relatively well. As we consider this integration, your leverage came in at 1.95 times, a little bit ahead, a little bit below where you were expecting at 2.1 times, which is good. How should we think about inorganic activity. A pause here perhaps for the next three to six months as we integrate TRUaire, or it continues to roll nonetheless?

It's interesting. We continue doing exactly the same things we were doing before as it relates to looking for acquisition opportunities as far as evaluating those types of things. Having said that, we did make clear that we needed to digest this acquisition with this management team. And so you see the Shell JV announced, that's a different management team. And so you've got an opportunity to generate some organic growth through that initiative, we believe, with the Specialty Chemicals side of the business. And so our activities continue just as they were before. I would say, especially as it relates to product line extension, smaller acquisitions, I don't think we'd have any hesitation whatsoever in doing something like that. Doing something else the size of TRUaire in the HVAC space with the same management team, there's a period of digestion that needs to take place here. But on the other hand, I'll tell you, I mean like TRUaire, we pursued that for two years. And so we can't stop. We continue doing what we're going to do. The cycle on those on the development of those opportunities takes months, if not years, at times. And so I think we'll be prepared when the next opportunity arises just because of the way the calendar works.

Ladies and gentlemen, this brings us to the end of our Q&A session and of today's teleconference. We thank you for your interest in CSW Industrials. We wish everyone a good weekend. You may disconnect your lines, and enjoy the rest of your day.