Q3 2022 CSW Industrials Inc Earnings Call

February 3, 2022

Greetings and welcome to CSW Industrials, Inc. Fiscal third quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Adrianne Griffin, Vice President of Investor Relations and Treasurer.

Thank you Joe Good morning, everyone and welcome to the CSW Industrials' fiscal 2022 third quarter earnings call.

Joining me today are Joe 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's opening today, which are available on the investor portion of our website.

W Industrials dot 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.

We do not undertake any duty to update any forward looking statements I will now turn the call over to Joe Armes.

Thank you Adrian and good morning, and thank you for joining our fiscal third quarter conference call.

In our fiscal third quarter, we saw the benefit of our diversified business model and our strong results as all three segments contributed to our growth.

We achieved Q3 year over year revenue and adjusted EBITDA growth of 52% and 25% respectively.

In comparing the year to date results with the prior year period.

Revenue and adjusted EBITDA grew 59% and 55% respectively.

On December 15, we celebrated the one year anniversary of our true Air acquisition and simultaneously closed on the Shoemaker acquisition.

Shoemaker represents another accretive acquisition in the highly attractive HVA see our end markets served by our contractor solutions segment.

I'm also very pleased to report that our true air manufacturing facility in Vietnam returned to full production in the fiscal third quarter as in country Covid restrictions eased.

Taking a moment to expand upon our strong year to date performance as compared to the prior year period sales increased in all segments due to volume growth and price increases.

In addition to the inorganic growth from the true <unk> and shoemaker acquisitions the.

The contractor solutions segment drove $42 $8 million of organic revenue growth primarily into the HVAC ACR and plumbing end markets.

Our engineered building solutions segment grew by $1 8 million or two 6%.

From dedicated efforts to promote existing and newly developed products and to maintain market share gains due to competitive lead times. Despite a downturn in the largest construction categories that we serve.

Our specialized reliability solutions segment achieved $28 $4 million of organic revenue growth as demand returned and the energy mining rail and general industrial end markets.

In fact in the year to date period specialized reliability solutions revenue exceeded its revenue in the same period in fiscal 2020 of two years ago by seven 3% or nearly $6 million.

Diversity in the end markets, we serve supported our performance during the past nine months and it provides an even stronger platform for growth.

As we start the new year.

In the past 13 months, we closed two acquisitions at our contractor solutions segment, adding products for our HVA see our offerings, which is our stated highest priority for capital investment.

Through the acquisitions of true are Anne Shoemaker, we invested approximately $430 million of capital.

These complementary acquisitions gives us a strong position in the grilles registers, and diffusers or giardi product category with.

With shoemaker enhancing our commercial giardi offerings.

We now have significant <unk> manufacturing capacity in both Vietnam, and the United States with.

With the recent acquisition.

Addition of shoemakers manufacturing facility in <unk>, Washington.

Shoemaker also brings with it a Pacific northwest distribution and logistics operation from which we can expand sales of other contractor solution products.

And at this point, we'd like to extend a warm welcome to our new Shoemaker team members.

<unk>.

As international logistics remain a highly discussed topic and boardrooms and in the media.

Want to provide an update on our operations and international supply chain.

Our true air manufacturing facility in Vietnam shipped an average of 32 containers per week in December and January .

Achieving a peak weekly shipping rate of 41 containers.

Our goal is to consistently ship a volume of containers in this range in the intermediate term to ensure product availability.

However, there are significant port delays in California, with the unloading process, becoming most impactful to our operations.

Simply stated everything is taking a bit longer than usual as ships and cargo await unloading.

We expect that the lunar new year.

It will bring a respite in the inbound ship traffic, allowing this congestion to eased east naturally.

We know the inventory availability supported our strong revenue growth in calendar 2021.

In managing our supply chain effectively remains a key component of our growth strategy.

Each quarter, we provide an update on our commitment to treating our employees well and I'm very pleased to report significant improvement in our safety measures.

In calendar year 2021, our total recordable incident rate was one three which is a meaningful reduction from three two.

In calendar year 2020.

While we are pleased with this progress we are certainly not satisfied or.

Our leadership team is focused on a zero incident workplace.

And in January of this year, we completed our second annual company wide safety awareness month, demonstrating our core values of excellence and accountability as we make safety a priority each day.

As we've discussed on prior calls we implemented multiple price increases in calendar 2021 across each of our businesses for a cumulative increase well into double digits for most of our products.

Last month, we executed an additional round of price actions in specific end markets.

Each of these actions is intended to offset ongoing inflation, primarily in raw materials and logistics costs with.

With most increases now absorbed into the base product price.

Because the majority of our products are low cost with high value to the customer we can effectively use pricing as a tool to maintain our profitability.

At this time I'll turn the call over to James for a closer look at our results and then I'll conclude our prepared remarks with some longer term strategic outlook.

Thank you Joe and good morning, everyone.

Consolidated revenue during our fiscal third quarter, 2022 was $136 3 million or 51, 5% increase as compared to the prior year period.

Consolidated gross profit in the fiscal third quarter was $50 million, representing 27, 2% growth with the incremental profit, resulting predominantly from the true error and shoemaker acquisitions increased organic sales volumes and pricing initiatives.

Gross profit margin was 36, 7% compared to 43, 7% in the prior year period.

This margin decline is due in part to inclusion of the <unk> business material and freight cost inflation that outpaced instituted price increases.

And a shift in sales to lower margin projects in the engineered building solutions segments.

The reduction in profitability was also negatively impacted by half a million dollars of under absorption costs, resulting from reduced production levels and incremental compensation expense incurred as a truer manufacturing facility in Vietnam to maintain operations in accordance with COVID-19 restrictions.

As Joe noted in his opening remarks. This facility returned to full production during the fiscal third quarter.

I will note that we did not make any adjustments to our reported earnings in the current fiscal quarter.

Consolidated operating income was $12 $1 million equating to an eight 9% margin. The 450 basis point decrease as compared to adjusted operating margin in the prior year period as the decline in gross profit margin was only partially offset by an improved operating expense margin.

Fiscal 2022 third quarter operating income margin was also negatively impacted by the half a million dollars of shoemaker transaction expenses.

Consolidated adjusted EBITDA.

<unk> 25, 4% to $19 9 million as compared to the prior year period.

Consolidated adjusted EBITDA margin was 14, 6% and 17, 7% in the current and prior year periods, respectively. Due to the decline in gross profit margin as well as the shoemaker in sugar cost mentioned previously.

Reported net income attributable to <unk> in the fiscal 2022 third quarter was $8 3 million or <unk> 52 per diluted share.

Compared to $2 3 million or 16 in the prior year period.

In the prior year period, adjusted for approximately $8 million of truly our acquisition and JV formation costs.

Prior year, adjusted net income and EPS were $8 8 million and 59% respectively.

Transitioning to a discussion of our segments.

As compared to the prior year quarter, our contractor solutions segment accounted for 65% of our consolidated revenue.

And deliver $38 million or <unk> 85, 6% total growth comprised of organic revenue growth of $11 $2 million or 25, 3% and inorganic growth from the <unk> and shoemaker acquisitions.

Segment, EBITDA was $16 6 million or 22% of revenue.

Compared to $12 $3 million or 27, 6% of revenue in the prior year period.

GAAP segment operating income was $10 8 million compared.

Compared to the prior year period, a $2 9 million or $9 8 million adjusted for the true Air transaction expenses.

Segment adjusted EBITDA in the fiscal year to date was $16 6 million or 22% of revenue compared to $12 3 million or 27, 6% of revenue in the prior year period.

Okay.

<unk> to our engineered building solutions segments.

Previously discussed air pocket in the longer term higher margin projects materialized in the third quarter as a decline in revenue as compared to the prior year period.

Our team's success with new product expansion and share gains due to competitive lead times offset most of the revenue decline.

Segment, EBITDA was $3 6 million or 15, 1% of fiscal 2022 third quarter revenue.

In recent quarters, we added head count in key markets to support our go to market strategy.

Bidding and booking trends quantify the early positive results from this decision.

In fact, our year to date bookings and backlog have increased approximately 42% and 13% respectively.

As of the end of fiscal 2022 third quarter, our book to Bill ratio for the trailing eight quarters was just below one to one.

Our specialized reliability solutions segment posted another solid quarter of organic growth of $11 5 million or.

Or 57, 9% due to incremental sales volumes driven by improving end market dynamics and numerous price initiatives during the last year, the latest of which we successfully implemented in January .

Segment, adjusted EBITDA, and adjusted EBITDA margin were $4 million 12, 9% in the fiscal 2022 third quarter compared to $3 million and 15% in the prior year period.

Transitioning to the strength of our balance sheet. We ended fiscal 2022 third quarter was $16 2 million of cash and reported cash flow from operations of $69 $5 million or 28, 5% increase over the prior year period.

In calendar year 2021, we repaid approximately $55 million of the amount we borrowed to fund. The <unk> acquisition, then borrowed approximately $30 million to fund a portion of the Shoemaker acquisition in December .

As a result of prudent cash management, we ended the fiscal 2022 third quarter with $230 million of long term debt.

This is approximately $25 million lower than the end of the prior year period, providing us approximately $179 million of revolving borrowing capacity as of the end of fiscal 2022 third quarter.

Our leverage ratio as of quarter end was approximately one six times well within our stated range of one to three times.

Our balance sheet provides sufficient liquidity for our continued disciplined capital allocation.

I'd like to remind our audience. The cotwo has a $100 million share repurchase program and during the fiscal 2022 third quarter, we purchased a modest amount of shares.

We remain committed to support our share price via opportunistic market purchases as part of our broader capital allocation strategy.

The company's effective tax rate for the fiscal third quarter was 19, 1% on a GAAP basis, which differed from the statutory rate primarily due to excess tax deductions related to stock compensation.

The company's effective tax rate year to date was 23, 6% on a GAAP basis and the company continues to expect a 25% tax rate for full fiscal 2022.

Moving now to an update for the guidance we provided in November .

Since February is maintaining the previously provided aggregate guidance for the second half of fiscal 2022, which was $1 50 to $1 65 of EPS and <unk> 50 million to $53 $5 million of EBITDA.

For the fiscal 2022 third quarter Cotwo reported $19 9 million of adjusted EBITDA and 52 cents of EPS exceeding the previously provided quarterly guidance range for both metrics are 40% to 45 of EPS and 17% to $18 $5 million of EBITDA.

We realized some revenue pull forward in the fiscal third quarter, primarily in our specialized reliability solutions segments.

We experienced a lower than expected fiscal third quarter tax rate somewhat offset by a delay in sugar revenue due to current port congestion, especially impacting California.

With that I'll now turn the call back to Joe for closing remarks.

Thank you James.

During the fiscal year to date period, we generated 59% topline growth with increases across all reporting segments.

Nearly 25% of our total growth was organic.

<unk> through a combination of price and volume.

Adjusted EPS grew by 25% to $3 12.

In the current year to date period.

Looking at a few metrics with a longer term perspective, our revenue CAGR from fiscal years 2016 through 2021 was nine 4%.

And we are well on our way to outpacing that performance in fiscal 2022.

Our adjusted EBITDA margin during the six fiscal year period was 21% we.

We expect fiscal 2022, adjusted EBITDA margin to be in line with prior fiscal years.

Our success is rooted in our commitment to serve our customers well.

Cross the diverse end markets we serve.

We offer products upon which our customers rely.

With a considerable focus on adding innovative products into our existing distribution channels.

We seek to develop niche product categories to grow in excess of the end markets we serve.

And we understand that innovation and customization lend themselves.

The higher margins.

In short our customer focus operational excellence and our highly engaged workforce, whose interests are directly aligned with our shareholders through our employee stock ownership plan is how we win.

I want to note that im extremely pleased to welcome Bobby Griffin, who joined our board of directors in December .

<unk> currently serves as chief diversity equity and inclusion officer at Rockwell automation.

Previously he served in leadership roles with CBRE Group closer Corporation, and other industry, leading companies, including Coca Cola Enterprises.

And Merck and company.

Bobby adds experience.

Independence and diversity to our board and will bring tremendous insight and a fresh perspective to our company.

And as always I want to close by thanking all my colleagues here at CSW, who collectively own 5% or so of CSW through our employee stock ownership plan.

As well as all of our shareholders for their continued interest in and support of our company.

And with that operator, we're now ready to take questions.

Thank you, ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the queue. You May press star two to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question is from John <unk> Cheng with CG CJS Securities. Please proceed.

Hey, good morning, everyone. Thank you for taking my questions and nice quarter, it's nice to see that performance number one and the guidance we affirmed in a tough environment.

I guess my first question is.

If you take the midpoint of the I guess the reaffirmed.

Second half guidance it implies slightly weaker.

Fiscal Q4 than what you had previously so I get you pulled in some revenue.

Taxes were a little bit lower than maybe you're seeing some port congestion is there any other incremental headwind that youre seeing in the fiscal fourth quarter that maybe you hadn't anticipated when you gave the guidance out.

Last quarter, yes.

Yes, John Good morning, It's James I appreciate you being on the call. Thanks, and thanks for the feedback.

As we mentioned there were certainly some pull forward a little more on the specialized reliability solutions segment at the end of December . So you had a little bit of that when we gave guidance back in November we've not given guidance before and don't plan to necessarily continue that youre trying to look at the back half of the year and we split it up in quarters, because thats everybody thinks about it so that's why we.

Feel comfortable maintaining the aggregate guidance a little bit of pull forward you have a little bit of timing of when we were able to get price increases through I think as we look at the fourth quarter and we kind of reaffirmed the guidance to your point, which which we feel good about based on our re forecasting of what the fourth quarter looks like there is a couple of things I'd note. One is yes, and you mentioned and we continue to see.

Port congestion that leads to some freight cost staying pretty high a little bit of headwind there, we'd like to see that alleviate but we've got to continue to work on price actions and use the opportunities we have with the value of our products to get pricing, where it needs to be to cover those costs, if that persists and the secondly, just the timing of receipt.

<unk> materials as we've talked about in prior years, we're kind of hitting that buying season that February March April may timeframe people start stocking up in March is a pretty key months for that.

And with the Port congestion and timing I think we wanted to be careful not getting too far ahead of ourselves in raising that guidance necessarily not knowing exactly when some of that product will get off the boats get onto drugs and then our distributors take delivery of the products. So so theres, a little bit of being a little bit careful and cautious and not getting ahead of ourselves our businesses are certainly.

Working hard what I will note is across the board demand remains very high and virtually all of our businesses right now as we look at wrapping up this fiscal year and starting the next fiscal year. So we feel optimistic about that but we felt right now it was probably best to keep the guidance where it was for the aggregate back half of the year hopefully that helps.

Yes.

Thank you I was wondering is there any incremental omicron risk at all I know that you had the true shutdowns in Vietnam in the past I don't know if its cases rising there now with similar risk at all.

Yes.

Yes, John .

We have not seen any impact yet as we noted during the call our production is back to <unk>.

Normal levels.

We are not getting any reports on the ground of our.

Folks, having excess absenteeism or anything like that so certainly.

We've all learned not to predict the future as it relates to these things but.

But we've seen normal levels of <unk> over the absenteeism over there currently but we're going to keep a close eye on it.

For sure.

Okay, Great I was just actually wondering if there would be a government restriction on your factory attendance and.

Something more like a lockdown then.

Yes, we certainly do not expect that all indications that we have received is that the government has decided that that is not.

The best way to deal with this going forward.

And I think the Vietnam Vietnamese vaccination rate is actually higher than our country. These days and so they've done a really nice job of getting people vaccinated.

And at this point, we would not expect any serious restrictions like we had to look through last year.

Okay, Great. That's helpful. And then finally, maybe could you talk a little bit about shoemaker and just what the opportunity is there and I know you gave us some infill with the press release, but I was wondering if you can talk about longer term growth and synergy expectation.

And then also the conditions and timing for the $2 million or not to be satisfied.

Yes, let me take the first part of that I'll, let James follow up I mean schumaker is in.

Really.

Very similar business too.

True error on the residential side and so we saw high quality products.

Our U S manufacturing base, we saw.

Great brand recognition, there and in our business has been around a long time had been really resilient. So it fits into our thesis.

<unk> is really well that we are putting more products through our distribution channels. The Pacific northwest was not a particularly strong.

Region for us in part because shoemaker was so strong up there and so so geographically it's complementary for US and then the second piece is they have a commercial side of their business that is addition.

Incremental to what we had and we think thats, an interesting foothold and gives us an opportunity.

On the commercial side that we didn't have before the last thing I would say is there's opportunities too.

Move production back and forth a little bit we're not going to.

Not make anything in <unk>, Washington by any stretch, we would probably see production increase there, but having it here in the U S.

More customized items and things that maybe have a shorter lead time can be produced there.

And in the hands of our customers more quickly. So we think thats an important part of the equation with respect to the.

The earn out and I'll, let James address that yes, sure schumaker is accretive for us going forward. So we feel good about that and certainly adds to the bottom line and helps offset some of the inflationary pressures we're seeing.

Exciting about bringing the shoemaker team onboard is this is really a win win win when the family decided to sell the company and sell to US specifically I think based on opportunity to really accelerate their growth given the Pacific northwest foothold that they have in the spread a little bit of across the upper Midwest use.

Our distribution channel, which is always a big strength for us they saw an opportunity to really put their product in a deeper geographic reach and thats very complementary to what we do with true are very complementary to what we do with the rector sale.

I'll point out the Big National show was this week out in Las Vegas, and our true our team are wrecked our sales team and our shoemaker team. We're all together talking to the same folks demonstrating products talking about the opportunity to to buy the various products.

What's exciting to US you may recall, John So I know, we talked about it is.

There was family ownership of Shoemaker, John unclear and they stayed with the company to run the company.

They are very involved day to day is still of course running the company for us and merging into our culture very smoothly and so the opportunity to rely on their expertise and history in this space continue to rely on.

The heritage true our expertise.

Legendary type status in this business, one plus one I think equals a lot more than two.

Got it thanks, guys I'll jump back in the queue.

Thanks, John .

Our next question comes from Chris Howe with Barrington Research. Please proceed.

Good morning, Joe and James.

Good morning, Chris.

Good morning.

Following up on one of John's questions.

In your remarks, you mentioned shoemaker northwest presence.

Can you comment just on the business today bye.

By region.

What other regions would you be attracted to that perhaps you don't have the exposure that.

That you would like to have some day.

Okay.

Yes, Chris.

I would say ranked on the <unk> side, we feel like that's a very national business and one of the real benefits to us.

Our acquisition strategy is being able to put new products into a national distribution footprint lots of points of sale and so I think that that was.

Yeah.

That's proven to be true.

In many circumstances, so I think the rector steel business is very national true. There was is national as well this has been a little bit of a.

The soft spot for them, though and the Pacific Northwest.

Don't know that Theres any other particular area that we would identify at this point Chris that we're we.

Certainly we have reach into all of them as we.

Noted with the <unk> acquisition every single one of their customers were customers of ours and so we have reach into those it's just a matter of strengths and weaknesses of little bit so.

From a competitive standpoint.

I think were fine, but I also don't want to give away any secrets, one thing I'll mention just to repeat.

When we bought sugar, we acquired the five distribution facilities, they have California, Houston, Indiana, Florida, Maryland and.

As we talked about on the last call. We started to put a rector scale products in those distribution centers as we switch over to our ERP system here in the next couple of months, that's going to increase that opportunity to co locate product and make it easier for the customer to order to receive shipment all those types of things it's going to it.

It's going to make that easier. So I think to Joes point, we already cover the nation pretty well, but I think we're going to be able to have even deeper penetration in some regions, because we're going to be able to have inventory closer to where it needs to be and deliver that product more quickly.

Okay, that's great actually.

It led me to another question.

In the past you've commented on different regions.

And how recent easing of restrictions in those regions would be beneficial to your business.

I think you may have mentioned.

The West coast as it relates to that can you talk about the easing of restrictions and how that may impact.

Construction activity in.

And growth in your engineered building solutions segment.

Yes, Thanks, and that is the segment that I'll highlight and that's a good point to bring up as we look at we've got a significant operation in Canada, where theres, obviously been some restrictions, but California, especially what's important about California for us, especially with our smoke guard business with the smoke curtains for elevators and buildings and.

Atriums and those type things.

Not only sell the product there, but we have the kind of the double dip so to speak of of having the distribution ourselves. We're not just selling to distributors. So you really get the sales of the product and the other pieces as well and then growing as a parts business for us in the service business for Us and so California is an important market for that Thats, where we really have the foothold.

For that double dip models, so to speak as California has opened and closed and opened and closed and those type things you've had fewer projects you've had fewer people will be able to get in to buildings with restrictions and those type things. So as we've seen in the last couple of years. Those openings then you see a little opportunity, we do have really good bidding and booking in that.

So I think that.

Folks in the state are optimistic that they're going to be able to to get those projects going in now on a more extended period of time, given the current variant and prognosis for what we see there. So it's an important market for us. The business has continued to do well, but we have a lot of optimism as California, specifically reopens to your west coast point that that business will be able.

To continue to grow and really see some nice uptick.

That's great and I'll throw one more and then ill jump back in the queue.

If you could comment just on what Youre seeing in the M&A environment, obviously, we're entering into a rising rate environment.

There's different scenarios out there that could play out from a macro perspective.

But given your balance sheet and then it's always remains strong.

Feel we're going into this with DSW.

Perhaps.

A better position than companies that are more strained.

Thanks, Phil.

Yes, Chris Thanks, Thanks for noting that we think so I mean, that's been part of our if you remember we issued a capital allocation strategy. Several years ago number one is that we will always maintain a strong and resilient balance sheet maintained look liquidity. So that we can be opportunistic when when necessary we did that during the.

<unk> was a perfect example, with the <unk> acquisition of being decisive and making an acquisition. Despite some of the macro headwinds and other folks who are worrying about.

Their existence.

We were able to grow and be aggressive we feel the same way today I mean, as you said really strong results.

Strong balance sheet.

The dry dry powder capital available to to be decisive and make acquisitions pipeline is strong. So we do feel like it's a competitive advantage to maintain the balance sheet strength.

And.

And so that's exactly why we do that on the other hand.

Disciplined has always been an important part of our story as well and so it's a balancing act every single day, but.

If we we remained disciplined and the right opportunity does come along we absolutely have the.

Capital base, and the flexibility to do that kind of acquisition.

Perfect. Thanks, Joe Thanks, James.

Thank you Chris.

Our next question comes again from the line of John 10, one Teng with CJS Securities. Please proceed.

Hi, guys. Thanks for the follow up I was wondering if you could comment on inflation versus pricing in fiscal Q4, and that spread has gotten worse or better.

Just as you see it today.

Yes. This is James Thanks, John in terms of inflation, we're generally seeing.

Most of the raw material prices stabilizing we certainly keep an eye on oil prices the base oil input in the specialized reliability solutions segment as oil prices rise and that has the potential to rise I'll say there is a tailwind at the same time as oil prices rise, we sell more product to the energy markets as well, so so theres a bit of an offset there to some degree.

That segment has done a good job of raising prices pretty quickly as they need to so we're able to I think match that pretty well and have done a real good job catching up and staying ahead of that as we need to.

Steel those type things.

Cause plastic resins, those type things they've stabilized we do continue though to see elevated prices on the freight side and Thats, obviously become a significant cost for us.

Both for what we see coming over from true air as well as other offshoring that we do in importing some products. So we're working to stay in line or ahead of that as we've talked about our goal is to react as quickly as we can really rely on the value of our products we have.

Said, we've said numerous times that our goal is that the investors and the shareholders don't bear the brunt of that but the eventual end customer that will get pass through the system through that standpoint. So we're continuing to work hard on that Theres. Some lead times for some pricing increases. So you can have a headwind at times in our tailwind at others.

We will say this that as as those cost start to come down there is some stickiness so to speak so you've got a bit of a tailwind at times on the pricing. So the team is I think doing a really nice job of that but we're keeping a very close eye on it. Obviously every container we who we contract for we're seeing shipping rates are and they've stayed elevated but.

As Joe talks about the lunar new year, there is an opportunity for some of that to alleviate and we'll see what that industrial pricing in right now availability of the containers as well.

Got it Okay, and then two questions on the reliability solution the.

The first one just can you comment on how big the pull in was.

And kind of what product it was related to two.

I was wondering if you could provide an update on the JV with shell and kind of where you are and how thats performing compared to what we thought it would be.

Yes, happy to I wouldn't really quantify what the pull forward was I'll say it was enough to mentioned not enough to call out specifically, so when we're talking about beating guidance by a pretty healthy margin, but some of that got pulled forward in what you say fourth quarter. It was enough to where it made sense to mentioned.

But nothing significant really that was we were able to arrange them logistics for some customers. They needed the product, we're able to get it out sooner than we expected and that's a really good thing and when you are looking at it in November you are not sure whats going to happen. Those last couple of weeks of December so so a little bit of pull forward, but still looking at a good opportunity there and that business continues to see good demand.

<unk> continues to see margin opportunity and we're very optimistic and the recovery of that business off the trough that came from.

In terms of the joint venture with shell, we continue to see growth. There you can see when you look at the press release and the 10-Q when you look at the bottom of the income statement you saw profitability again, we talked about it being marginally accretive. This year. It continues to be I'll say this the team is doing a good job getting through.

Getting the product kind of recipe so to speak from shell are getting the blending correct getting that approved the testing you can imagine there's a lot of steps in that we're getting more and more product to prove that we are ready to produce we continued to install equipment in the next couple of phases of that JV growth within our facility out in Rockwall, Texas that will allow us to produce.

That volume.

At a bigger level I will also say, we continue to see some really nice opportunity in our oil safe and air century, our reliability products and those are products that werent, specifically part of when we called out rail and mining Michelle has always had an interest in those products. Those are very nice products for us to sell shelf distribution and sales network is obviously bigger than ours they've got.

A lot of demand for those products now that they can sell them. We're very optimistic that we can see some nice.

Growth in uptake in those products and Thats good for the joint venture and certainly good for our segment.

Okay, Great and then finally.

We have been anticipating this air.

Air Pocket in the engineering engineered building products business for a while now does that mean, the next quarter should be sequentially upwards, there, maybe a little bit more than a quarter alone.

Yes, I think we look at the air product pocket kind of Q3 that we just finished and into this quarter as well Q4, and when we talked about the biddings in bookings and backlog are up most of that is as we get into fiscal 'twenty. Three so I think as we get into our fiscal first and second quarter, we're going to start seeing a tailwind with those larger better margin construction.

Projects. The best we can see right now, whereas Q3 and Q4, there is some of that but a little more of thats been the shorter term be sure to keep our folks busy in filling the blank I mentioned briefly the leadership team. There has done a good job really focusing on the commercial side of things and then obviously on the operational excellence side of things and Thats, starting to bear fruit, but that's probably more of a fiscal year.

23 story.

Got it thank you so much.

Thank you John Thanks, Sean.

Thank you ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to Joe Armes for any closing remarks.

Great. Thank you, it's our privilege each quarter to be able to address.

Those assembled and we appreciate your interest in our company and look forward to doing this again next quarter. So thank you.

This concludes today's conference you may disconnect. Your lines at this time. Thank you very much for your participation.

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Greetings and welcome to CSW Industrials, Inc. Fiscal third quarter 2022 earnings call.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded I would now like to turn the conference over to your host Adrianne Griffin, Vice President of Investor Relations and Treasurer.

Thank you Joe Good morning, everyone and welcome to the CSW Industrials' fiscal 2022 third quarter earnings call.

Industrial's Dot com this call is being webcast and information on accessing the replay is included in the earnings release.

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 Adrian and good morning, and thank you for joining our fiscal third quarter conference call.

In our fiscal third quarter, we saw the benefit of our diversified business model and our strong results as all three segments contributed to our growth.

We achieved Q3 year over year revenue and adjusted EBITDA growth of 52% and 25% respectively.

In comparing the year to date results with the prior year period.

Revenue and adjusted EBITDA grew 59% and 55% respectively.

On December 15, we celebrated the one year anniversary of our true Air acquisition and simultaneously closed on the Shoemaker acquisition.

Shoemaker represents another accretive acquisition in the highly attractive HVA see our end markets served by our contractor solutions segment.

I'm also very pleased to report that our true air manufacturing facility in Vietnam returned to full production in the fiscal third quarter as in country Covid restrictions eased.

Taking a moment to expand upon our strong year to date performance as compared to the prior year period sales increased in all segments due to volume growth.

And price increases.

In addition to the inorganic growth from the true <unk> and shoemaker acquisitions the.

The contractor solutions segment drove $42 $8 million of organic revenue growth primarily into the HVA CR and plumbing end markets.

Our engineered building solutions segment grew by $1 8 million or two 6%.

Our specialized reliability solutions segment achieved $28 $4 million of organic revenue growth as demand returned and the energy mining rail and general industrial end markets.

In fact in the year to date period specialized reliability solutions revenue exceeded its revenue in the same period in fiscal 2020 of two years ago by seven 3% or nearly $6 million.

Diversity in the end markets, we serve supported our performance during the past nine months and it provides an even stronger platform for growth.

As we start the new year.

In the past 13 months, we closed two acquisitions at our contractor solutions segment, adding products to our HVA see our offerings, which is our stated highest priority for capital investment.

Through the acquisitions of true are Anne Shoemaker, we invested approximately $430 million of capital.

These complementary acquisitions gives us a strong position in the Grilles registers and Diffusers were giardi product category with.

With shoemaker enhancing our commercial giardi offerings.

We now have significant <unk> manufacturing capacity in both Vietnam, and the United States with.

With the recent acquisition.

Addition of shoemakers manufacturing facility in <unk>, Washington.

Shoemaker also brings with it a Pacific northwest distribution and logistics operation from which we can expand sales of other contractor solution products.

And at this point, we'd like to extend a warm welcome to our new shoemaker team members to.