Greetings, and welcome to the CSW Industrials Second Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alexa Huerta, Vice President of Investor Relations and Treasurer. Thank you. You may begin.

Thank you, Maria. Good morning, everyone, and welcome to the CSW Industrials Fiscal 2025 Second Quarter Earnings Call. Joining me today is 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, updated investor relations presentation and Form 10-Q prior to the market's opening today, all of which are available on the Investors portion of our website at www.cswindustrials.com. This call is being webcast and information on accessing the replay is included in the earnings release. During this call, we will make 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 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.

Thank you, Alexa, and good morning, everyone. I'm proud to report that once again, our team has delivered record results for the second quarter of this fiscal year outperforming the markets we serve. This morning, we reported an all-time high for quarterly revenue of $228 million and cash flow from operations of $67 million and fiscal second quarter records for EBITDA of $61 million, earnings per diluted share of $2.26 and net income of $37 million. As compared to the prior year period, our gross profit margin expanded an additional 90 basis points to 45.6% as a result of volume leverage and pricing. Our EBITDA margin also expanded by 70 basis points to 26.7% in the quarter. During the second fiscal quarter, CSWI issued equity to the public for the first time in our history. We saw strong investor demand for the shares offered, allowing the company to issue a total of 1.265 million common shares in the successful follow-on equity offering, ultimately raising $347 million of proceeds, further strengthening our balance sheet. Also in September, we were pleased to be added to the S&P 600 Small Cap Index. We are already a member of the Russell 2000 and other indices, but this new index inclusion is a testament to our long-term growth and overall strength as a company. Our sharp focus on cash flow from operations drove a fiscal second quarter record of $67 million or 49.5% growth over the prior year. Our continued strong cash flow, now combined with proceeds from the follow-on equity offering, will continue to fund our capital allocation strategy. We remain focused on our pipeline of innovative, inorganic investment opportunities with returns that will enhance shareholder value. During the fiscal second quarter, we paid down all of the outstanding borrowings under our revolving line of credit utilizing the cash received from our follow-on equity offering and our record quarterly cash flows from operations of $67 million. As a result, we ended the quarter with no debt outstanding. Our balance sheet strength, liquidity, and increasing cash flows enable CSWI to swiftly act on business opportunities of any size. I am pleased to announce that each of the three business segments delivered impressive results and growth and profitability during the quarter, marked by resilience and execution. I will let James provide more details on the performance of each segment during this quarter. CSWI has a proven track record as a compounder of long-term shareholder value, and the success of our follow-on equity offering proved that both existing and new shareholders believe in our ability to continue to perform. Our approach to allocating capital, meaningfully growing revenue and profits while maintaining a strong balance sheet has been the foundation for the success of the company. At CSWI, our employee-centric culture helps to drive these results, and the health and safety of our team members truly matter. We also focus on serving our customers well by being their partner of choice and managing our supply chains effectively to position us for long-term growth and profitability. At this time, I'll turn the call over to James for a closer look at our results. And following James, I'll return to conclude our prepared remarks.

Thank you, Joe, and good morning, everyone. As Joe mentioned, our consolidated revenue during the fiscal second quarter of 2025 was a record $228 million, a $24 million or 12% increase when compared to the prior year period and a record all-time quarterly high for CSWI. $13 million of the growth was organic through increased volumes and pricing initiatives. The remaining $12 million of growth came from the Dust Free and PSP acquisitions. Consolidated gross profit in the fiscal second quarter was $104 million, representing 14% growth over the prior year period. As Joe mentioned, our gross profit margin improved by 90 basis points to 45.6% compared to 44.7% in the prior year period due to operating leverage. Our consolidated EBITDA for the second quarter increased by $8 million to a record $61 million, which was 15% growth when compared to the prior year period. Our EBITDA margin improved by 70 basis points to 26.7% as compared to 26% in the prior year quarter, driven by the gross margin expansion. We will continue to strive for additional EBITDA leverage as we grow revenue and manage expenses. However, we are very proud of these margins, and our focus will remain on increasing EBITDA dollars as we grow revenue. Net income attributable to CSWI in the fiscal second quarter was a record $36 million or a record $2.26 per diluted share compared to $30 million or $1.93 per diluted share in the prior year period, representing growth of 20%. Our Contractor Solutions segment, with $159 million in revenue, accounted for 70% of our consolidated revenue and delivered $18.9 million or 13.5% total growth when compared to the prior year quarter. Of the revenue growth in the quarter, $7.3 million or 5.2% was organic, while the remaining $11.6 million or 8.3% came from recent acquisitions. Growth for the quarter was reported in the HVAC/R, electrical, and plumbing end markets and was the result of increased unit volumes as well as a slight increase from normal pricing initiatives as compared to a year ago. Segment EBITDA was $53.7 million or 34% of revenue compared to $46.6 million or 33% of revenue in the prior year. EBITDA margin expansion mostly came from volume leverage and gross margins. Our Specialized Reliability Solutions segment revenue increased by 5% to $38.5 million as compared to the prior period. Revenue increased in the energy, rail transportation, and mining end markets, but declined in the general industrial end market. The increased revenue was driven primarily by the increase in unit volumes. The segment EBITDA of $7.1 million in the second quarter represented an increase of 13% from $6.3 million in the prior year period's results, and the EBITDA margin improved by 120 basis points to 18.4% in the current period, driven primarily by manufacturing efficiencies. Our Engineered Building Solutions segment revenue increased to $32.7 million, a 12% increase as compared to $29.2 million in the prior year period, driven by strength in the backlog conversion to revenue. Bidding and booking trends remained solid in the fiscal second quarter, and we have seen a favorable margin mix in bookings in the backlog. Segment EBITDA grew 15% to $6.6 million or a 20% EBITDA margin compared to $5.7 million and a 19.5% EBITDA margin in the prior year period. We are pleased to see our EBS segment reach the 20% EBITDA margin target for the second quarter in a row, but keep in mind that this will fluctuate on a quarterly basis due to project mix. Transitioning to our strong balance sheet and cash flows, we ended our fiscal 2025 second quarter with $273 million of cash and reported all-time record quarterly cash flow from operations of $67 million compared to $45 million in the same quarter last year, representing 50% growth over the prior year period. The cash flow from operations in the quarter was an all-time record for CSWI. Cash flows from operations in the quarter benefited from a $16.8 million tax payment deferral from fiscal first half 2025 under a temporary federal tax relief related to the severe storms and flooding in Texas in early calendar 2024. These taxes will be paid in the fiscal third quarter. Our free cash flow, defined as cash flow from operations minus capital expenditures, was $61.3 million in the fiscal second quarter compared to $41.9 million in the same period a year ago. That resulted in free cash flow per share of $3.85 in the fiscal second quarter as compared to $2.69 in the same period a year ago, growth of 43%. This impressive level of free cash flow allows us to invest in growth with the goal of increasing long-term shareholder value. Joe mentioned earlier that during the second quarter and for the first time in CSWI's history, the company issued equity into the public market. On September 4, we announced the commencement of an underwritten public offering of 1 million shares of common stock. The next day, the company announced the upsize and pricing of the registered public offering of common stock to 1.1 million shares at the price of $285 per share with an option for the underwriters to purchase up to an additional 165,000 shares. All 1.265 million shares were ultimately issued and sold, resulting in proceeds of approximately $347 million, net of the underwriting discount and expenses directly related to the offering. During the second quarter, we were able to pay off all of our borrowings under the revolver due to the cash received from our follow-on equity offering and our strong cash flows. As a result, the company was able to eliminate interest expense and invest the net proceeds from the equity offering and money market accounts to generate interest income. For the fiscal second quarter, our weighted average share count was 15.9 million shares due to the timing of the equity offering in early September. The third fiscal quarter will include the full amount of the new shares issued. As shown on the cover of our Form 10-Q, the shares outstanding as of October 24 was 16.8 million. Our effective tax rate for the fiscal second quarter was 26.1% on a GAAP basis. As a reminder, our tax rate in our fiscal third quarter may be lower due to the potential release of uncertain tax positions related to prior acquisitions. There may also be a potential favorable impact on net income in the fiscal third quarter as a result. We will detail this impact when we announce our third quarter results. We still anticipate delivering full year growth in revenue, EBITDA, and EPS, along with continued strong cash flow.

Thank you, James. To summarize, during the second fiscal quarter of 2025, we posted all-time record quarterly results for revenue and operating cash flow and record second fiscal quarter results for EBITDA, earnings per share, and net income. Our strong 12% revenue growth included both organic and inorganic growth and resulted in higher margins due to strong operating leverage. Looking into the second half of fiscal 2025, CSWI will remain focused on delivering growth that outpaces the markets we serve. We will continue to pursue a strategic acquisition pipeline of innovative companies and products that complement our organic growth. I would like to take a moment to welcome the most recent group of employees to join the CSWI family through our acquisition of PSP Products in August. PSP brings a family of superior surge protection and load management products to CSWI. In recent years, our teams have partnered together to develop an industry-leading series of HVAC electrical products. Bringing this new team under the CSWI umbrella will allow our Contractor Solutions segment to continue our pace of innovation in the electrical end market by further expanding our product offering. Lastly, I want to acknowledge that on October 1, we marked our ninth anniversary as an independent public company. As we enter the tenth year, I always want to close my prepared remarks by thanking the dedicated team here at CSWI, who collectively own approximately 4% of our company through our employee stock ownership plan, as well as all of our long-term and new shareholders for their interest in and investment in CSWI. We want to thank you for your time. And operator, we're now ready for your questions.

Our first question comes from Jon Tanwanteng with CJS Securities.

Congratulations on your impressive results. I was curious if you could discuss the sustainability of the strength you've experienced in the first half of this year. As we approach the same period next year, do you believe you can maintain those margins close to the 28% EBITDA level? What were the sustainable factors versus one-time drivers behind what you've observed?

Jon, thanks for being on and for your coverage of us. We appreciate the support. I don’t think there’s anything that indicates anything unusual in the quarter or in the first half. There are always some fluctuations. We don’t provide guidance, so we haven’t begun discussing next fiscal year yet, but demand has been strong overall. Our teams have responded well. We’ve gained market share across our portfolio and are securing solid projects in EBS. Our SRS team is benefiting from increased volumes and improvements in our manufacturing facility operations. Additionally, the Contractor Solutions team is successfully identifying good acquisitions, which will drive future organic growth. As we introduce these products into more storefronts and distribute them through our network, we maintain excellent distribution relationships. We're achieving operating leverage as we increase our revenue. While we advise caution against assuming margins will continue to rise given their strong levels, there’s nothing unusual about the first half of the year or the quarter that would suggest a change by this time next year.

And Jon, this is Joe. The only thing I would add to James' remarks is just that we're highly confident in our pricing power. We have seen historically the ability to pass along input costs, and we don't see any reason why we couldn't continue to do that.

Got it. That's helpful. You're flush with cash now. What are the expectations for that? How does the pipeline for M&A look like compared to where it was last quarter? Just help me understand if there's more larger or more opportunities out there and if you raised that cash specifically for a targeted acquisition or something else that was going on?

Yes. No, thanks, Jon. That's a great question. Yes, obviously, as a result of the successful equity offering, we do have no debt and cash on our balance sheet. We did not raise that capital in light of any particular acquisition that we had identified. It was really more of a war chest for us to be in the position so that we could exploit attractive opportunities that came about. I would say that our pipeline continues to be very robust. We're very pleased with the level of activity, with the opportunities that we're seeing, and we're pleased with the inbound calls that we're receiving now as a result of this. And then I would just remind you that we found ourselves in this position about 4 years ago when we had no debt and cash on our balance sheet, and that is when we were able to consummate the acquisition of TRUaire, which has been our largest and most successful acquisition to date. And so we like being in that position. We like being able to provide speed and certainty to a seller. And we think it helps us in actually capturing those opportunities and also helps us and is attractive to the seller from a valuation standpoint that we can move quickly and that we don't need to go to the market to raise financing. So robust pipeline. We intend to put this capital to work, but we will always stick to our disciplined approach and apply the same sort of rigor that we always have on evaluating these opportunities, and the risk-adjusted return analysis will drive our decision making.

Great. Could you talk a little bit more about PSP and kind of what that business does? It seems a little bit outside your traditional verticals. Maybe talk about the financials of the business, the prospects going forward? And kind of does that open up new pathways or doorways to M&A to add on to that type of business?

Yes, Jon, this is James. Thanks for mentioning that. I’m really pleased with the PSP acquisition. Just like Dust Free earlier in the year, this is a company that we had partnered with and been distributing their products for a while. And once again, that model turned out very well for us. We learned the product, our sales force and folks understood the product, understood the industry. We were doing a little bit in the electrical space. We’ve always said that kind of HVAC is obviously the big part of it, plumbing is there and electrical is there in a small way. This gets us much more seriously in the electrical end market. So it allows us to run through the same distribution channels that we do with our other products and now put PSP through even more distributors. And so the owner of that business is a great innovator, continues to work with us and will for quite a while, innovating new products. So these are surge protection devices that can protect your HVAC unit. So when the contractor comes out to your house and installs a new unit or does a repair, they can literally add a surge protector unit for a relatively low cost. We’ve always said, for years, we always have these surge protectors for TVs and computers and those kinds of things. Well, your HVAC system is the most important and most expensive part of your house. So for a relatively low price, a contractor can install that very quickly. I’ve done it myself and now protect that in the event of a surge in your house. And so our ability to continue to innovate with the seller of that business, who’s doing a great job working with our team and continues to explore more opportunities within the electrical end market, and we’ll start talking about that more and more as people see us as a provider of electrical products as well. And lastly, like I said, going through the same distribution channels is always a hallmark of our strategy and acquisitions, allowing us to distribute that product to more folks than was previously probably done. In terms of financials, the initial press release we did on that kind of gave you some basic details and there are earnout opportunities as that business continues to grow. The business is performing very well already. Margins are roughly in line with where our overall margins are, so we’re very pleased with the performance of that business and growth prospects that we’re already seeing in the first few months.

Our next question comes from Tom Hayes with CL King.

Congratulations on the quarter as well.

Thanks, Tom.

I wanted to follow up on the PSP that Jon mentioned. Is that business now fully integrated into the CSW network? How do acquisitions usually ramp up? Is it a gradual process or do they tend to start at different speeds? I would appreciate your insights on this.

Yes. Sure, Tom. This is James. The first thing I'll say in terms of integration is getting it through our sales channel. And given the fact that we were already selling this product, that was very smooth. So this was not new. Some acquisitions we do, the day we bought the company is the first time we've ever sold the product, so it takes a while to get through the system. Dust Free, we did back in February and then PSP in August, were the model where we already knew the product. So we were already buying the product from PSP and selling it through our channels. So that was very, very smooth. So in terms of commercial integration, very smooth. Now, like I said in response to Jon's question, our ability to continue to blow that out through more of our distribution channels, introducing it to more folks, and educating folks on the utility of that product will continue as we go along. In terms of systems integration, that's in process. Some of these acquisitions get done in a matter of a few months, some take a couple of years, depending on the need to do that. PSP is in the process of doing that, but not holding us back in any way from an accounting or financial standpoint. Our team has really developed the muscle now within Contractor Solutions, specifically with the numerous acquisitions we've done in the last 5 or 6 years to make this a very repeatable process. So yes, eventually, all these get on our ERP system, which makes it even smoother and cleaner, but our team has done a great job getting these products on the shelves, getting them in our portfolio. And then from a back-office financial and integration standpoint, that comes in due time. But no hiccups there. Nothing is holding us back in that respect.

Great. I appreciate that. That's great color. That's really helpful. Maybe just kind of shifting gears a little bit. I think last time we spoke, I think it was on Q1, you indicated that in the back half of FY '25, there could be higher COGS, if you will, coming in from higher shipping rates for products that you're bringing into the country. I was just wondering, is that still the case?

It is, Tom. Yes, we've talked obviously over the years about ocean freight. Ocean freight has been higher than it was a year ago and even then it was 7, 8 months ago. And those costs on the crossing the ocean rates are pretty much baked in the system now, and that will be our second half COGS. So we have a pretty good sense now through March what that's going to look like. They started to come down. So as we enter the next fiscal year, we may have an opportunity for that to come back a little bit. But yes, it's a headwind for us. So you do have things a little higher than we would have originally thought back in budget season, back in the March, April timeframe, at the beginning of our fiscal year. We know what those costs are. As Joe said, if those costs remain elevated, we have the opportunity to raise prices and push those through because they make sense and they're justified. The pricing power that we've always talked about is real, and that's something that we've alluded to in the past. I will say that there have been some other costs that have offset some of that, that have come down a bit, that's natural and all. But yes, we will exercise pricing action as we need to. But yes, we still see that second half COGS for the ocean freight higher than it was in the first half.

Okay. Appreciate that. And maybe just lastly, obviously, you guys spend a lot of time talking to your customers. And I was just wondering specifically on the Contractor Solutions business, just wondering if there's been any change in the sentiment or their outlook given with similar maybe, call it a mixed economic outlook? I appreciate the color.

Tom, I would not say as it relates to our products. I know that there have been inventory issues for the OEMs over some of the impending changes. The fact that we’re agnostic to OEM, we’re agnostic to refrigerants, we’re agnostic to SEER rating, all of those things really benefit us in those times. So I think the answer is no. I think that we’ve seen unit contraction over the last two years or so and some inventory issues. Deals like most of those are in the rearview mirror now. So no, we see the prospects as bright and do not have any overriding concerns at this point from the overall HVAC/R market.

There are no further questions at this time. I would now like to turn the floor back over to Joe Armes for closing comments.

Great. Thank you, Maria. Thank you, everyone, for joining us on this fiscal second quarter fiscal 2025 call. We look forward to our next time to visit together. And in the meantime, we will continue to be good stewards of your capital. So thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.