Q1 2024 CSW Industrials Inc Earnings Call
Good day and welcome to E W and Dr. Chuck first quarter 'twenty 'twenty four earnings.
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All participants will be listen only mode, Virginia system. This thing of a conference specialist by pressing the star key followed by zero after.
After todays presentation, there will be an opportunity to ask questions.
I would not like to attend the conference over to Alex a waster, Vice president of Investor relation and Treasurer. Please go ahead.
Thank you Andre good morning, everyone and welcome to the CSW Industrials' fiscal 2024 first quarter earnings call. Joining me today is Joseph Armes, Chairman, Chief Executive Officer, and President of CSW Industrials.
And James theory, 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, which are available on the investor portion of our website at Www Dot CSW industrials dotcom.
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 uncertainty.
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 Jeff.
Thank you Alexia.
Good morning, everyone and thank you for joining our fiscal first quarter conference call.
Once again, our team executed well in the face of headwinds in certain key markets.
Our first quarter results reflect the tenacity.
Personalism of our team members around the world.
We are acutely focused on managing our costs outperforming the categories, we compete in and expanding our margins.
Our record first quarter earnings per diluted share of $1 97 per share.
We also delivered impressive operating leverage as EBITDA grew by 10% on 2% growth in revenue.
But potentially are most impressive metric as record cash flow from operations of $50 million for the first quarter. This.
This led to a pay down of $43 million of borrowings under our revolving credit facility.
And the company ended the quarter with a balance of $210 million outstanding.
On our 500 million dollar facility.
Allowing us to reduce our interest expense and maximize our potential to secure future opportunities.
As they arise.
During the first fiscal quarter last Fall's cover Guard AC guard and Falcon acquisitions, collectively contributed $5 $1 million to inorganic revenue.
All of which was reported in our contractor solutions segment.
These product line extensions expanded our offerings into our high margin H B, a C R and plumbing end markets.
Reflecting the accretive nature of our of our capital allocation strategy and our focus on complementary product categories within our existing end markets served.
As we've mentioned on our recent earnings calls the cost of shipping containers from Asia is down quite a bit since last year.
And now we are seeing a reduction in domestic freight as well.
As well as a reduction in certain raw materials over the prior year.
We are however, still experiencing increased employee expenses as well as increased amortization of intangible assets due to recent acquisitions.
By successfully maintaining our pricing across all three segments, we have further expanded our margins.
And the first three months of fiscal year 2024, we deployed $7.9 billion of capital.
A dividend and capital expenditures in addition to the revolver reduction that I already mentioned.
We continue to pursue both internal and external opportunities for growth consistent with our disciplined risk adjusted return methodology and have maintained a healthy pipeline of acquisition opportunities.
I want to touch briefly on our segment then James will provide the additional detail on our performance.
Overall I remain pleased with the execution of all three business segments and.
And in particular with the leadership team's ability to adapt.
The dynamic conditions.
The strength of this segment centers around leveraging our powerful distribution network optimizing acquisition integration.
And delivering high value products to our customers.
We were able to quickly acquire or master distribute products, resulting in sales at a faster and more cost effective rate due to logistics leverage.
Supply agreements or.
Our network of sales Representatives credit and back office support.
This allows us to do what we have always done well, which is to focus on serving our customers well as we add new products to our portfolio.
Our specialized reliability solutions segment continues to exceed expectations.
The capacity utilization at our primary facility continues to increase and our team there remains focused on top and bottom line growth by driving operational efficiencies and offering the optimal mix of products to our customers around the globe.
The energy market growth remains solid and industrial end markets are stable.
Our joint venture with shell continues to yield financial benefits and we expect to complete the previously announced capacity expansion project within our existing facility by the end of this fiscal year, which will allow for increased revenue and profitability in fiscal 2025.
Our engineered building solutions segment was down slightly the decrease in revenue of 3% in the quarter.
However for a sixth consecutive quarter. This segment's backlog reached another all time high with the aluminum railings business driving most of the growth.
I will remind you that a significant portion of the current backlog is coming from larger jobs that typically do not turn into revenue for 18 months to two years.
We are highly focused on pursuing institutional and multifamily projects undertaken by the highest quality developers with the highest likelihood of completion.
And our team is performing well and delivering on current projects.
As well as the consumable nature of many of our products that are used either in maintenance repair and replacement applications or to extend the reliability performance and lifespan of mission critical assets.
Specific to our largest end markets HVAC are in plumbing.
The products, we sell and the value. They provide are often non discretionary fundamental necessities for both homeowners and businesses.
We continue to outperform the categories in which we compete.
We have continued to maintain a strong balance sheet that allows us to withstand market headwinds with ample liquidity that affords us the ability to pursue growth opportunities that arise across our entire portfolio of businesses.
At this time I will turn the call over to James for a closer look at our results and then I will conclude our prepared remarks.
Thank you Joe and good morning, everyone.
Our consolidated revenue during fiscal first quarter 2024 with $203 million.
The 2% increase as compared to the prior year period.
About pricing actions inorganic contributions from recent product acquisition.
Consolidated gross profit in the fiscal first quarter was $92 million representing.
Representing 7% growth with the incremental profit, resulting from revenue growth and decreased costs from certain raw materials as well as lower inbound and outbound freight costs.
Gross profit margin improved to 45, 3% compared to 43, 2% in the prior year period from revenue growth in the higher margin contractor solutions segment due to pricing initiatives and acquisitions as well as growth in the energy end markets within specialized reliability solutions.
<unk> with the lower freight costs as compared to a year ago and strong operational execution.
Consolidated EBITDA increased by $5 million to $54 million or 10% growth when compared to the prior year period.
Consolidated EBITDA margin improved to 27% as compared to 25% in the prior year quarter.
Yeah from a revenue growth that outpaced the incremental expenses.
This margin growth demonstrates the operating leverage that we strive for as we focus on managing expenses as we increase right.
Net income attributable to DSW odd in the fiscal first quarter was $31 million or $1 97 per diluted share.
Compared to $29 million or $1 88 per diluted share in the prior year period.
The current quarter includes increased amortization expense for maintained velocity as it was.
Salt of last fall's acquisitions, and contractor solutions as well as higher interest expense due to higher interest rates over the prior year.
Our contractor solutions segment was $140 million of revenue accounted for 69% of our consolidated revenue and delivered $2 million or 2% total growth compared to prior year quarter.
Revenue growth was driven by the plumbing and architecturally specified building products end markets.
Inorganic growth was $5 $1 million in the quarter from the cover Guard AC Guard and Falcon acquisitions offset by a 2% decrease in organic revenue.
The organic revenue decrease was driven by a reduction in unit volume, partially offset by pricing actions, we've taken over the last couple of years.
Segment, EBITDA was $47 million or 33% of revenue compared to $43 million or <unk>, 31% of revenue in the prior year period as our margins continue to expand.
The increasing margins or from the company's ability to maintain pricing even as certain costs. In this segment have come down over the prior year.
Our specialized raw ability solutions segment achieved another impressive quarter of organic revenue growth of $2 million or 6% due to the continued benefits from pricing initiatives.
All in end market demand, including energy and mining.
And improvements in our operational execution.
Segment, EBITDA and EBITDA margin were $8 million and 22% respectively. In the fiscal 2024 first quarter compared to $7 million and 19% in the prior year period.
As Joe mentioned with the ongoing addition of equipment in our Rockwall, Texas facility to support the Sherwood more joint venture.
We are in a position to continue to post compelling growth in this segment as we progress through the rest of our current fiscal year and into the next fiscal year.
Our engineered building solutions segment revenues declined slightly to $28 million.
A 3% decrease compared to $29 million in the prior year period.
Bidding and booking trends remained strong in <unk>.
Our quarter end backlog increased by approximately 6% over the fiscal 2023 backlog close.
At the end of the fiscal first quarter.
Our book to Bill ratio for the trailing eight quarters was almost $1 two to one.
We ended June with a sixth consecutive quarter of record backlog in this segment.
Transitioning to the strength of our balance sheet and cash flow.
We ended our fiscal 2020 for first quarter was $15 million of cash and reported record cash flow from operations up $50 million compared to $17 million in the same quarter last year.
Our free cash flow defined as cash flow from operations minus capital expenditures was $45 $3 million in the fiscal first quarter as compared to $14 $8 million in the same period a year ago.
That resulted in free cash flow per share of $2 91.
In the fiscal first quarter as compared to 95 cents in the same period a year ago.
This impressive level of free cash flow fuels, our risk adjusted returns capital allocation strategy, which in turn enhances shareholder value.
As part of our broad capital allocation strategy during the quarter, we paid down $43 million of our outstanding debt.
We ended the fiscal first quarter were $210 million outstanding on our $500 million revolver.
Our bank covenant leverage ratio as of the current quarter end was approximately one one times an improvement from one three times at the end of fiscal 2023 due to our strong EBITDA growth.
This leverage ratio now places us in the lowest tier of our revolver and pricing grid, reducing our interest rate spread which creates interest expense savings.
As a reminder, in February of 2023, we entered into an interest rate hedge for the first $100 million of borrowings under our revolver.
During the fiscal first quarter of this saved us $300000 in interest expense.
Our effective tax rate for the fiscal first quarter was 25, 2% on a GAAP basis, we still expect a tax rate of approximately 25% for fiscal 2024.
As we look out to the rest of fiscal 2024, we're still anticipate revenue growth for the full year, which when coupled with meaningful operating leverage.
We expect will result in strong year over year, EBITDA, and EPS growth as well as strong cash flow generation.
We expect to continue to benefit from stability in our raw material and freight costs as well as operational efficiencies with that I'll now turn the call back to Joe for closing remarks.
Thank you James.
Summarize during the first fiscal quarter of 2024, we delivered record results highlighted by expanded margins and robust cash flow.
While there are headwinds in certain key end markets, we still expect to outperform the categories, we serve and to deliver consolidated revenue and earnings growth in fiscal 2024.
We are focused on efficiency gains.
And cost reductions and we're committed to providing our customers with high quality products and customer service that they expect from CSW op.
We will rely on the dedication of our team members to accomplish that goal.
We have expanded margins, we've driven cash flow conversion.
We are confident in our near and long term opportunities for disciplined capital allocation.
Which is enabled by the strength of our balance sheet.
We remain committed to sustainable growth and shareholder value.
By doing this in the past we've consistently delivered outstanding financial results.
We will utilize that same approach for the remainder of this fiscal year and beyond.
At CSW I, we must and we will succeed there's no other option.
But we also say at CSW I, how we succeed matters.
And everything we do is accomplished with a focus on environmental stewardship, the health and safety of our team members, which supports the growth we have seen since inception.
Of note, we are trending very well this year in terms of our safety record and I have a couple of examples that I would like to share.
During the month of July our true are factory in Vietnam celebrated a new milestone of 365 days with no lost time injuries.
That translates to over three 6 billion hours worked based on the number of team members, we have at that facility.
And at our Balco facility in Wichita, Kansas. We're currently at over four years with no lost time injuries.
We are extremely proud of both of those teams for achieving these important an admirable milestones, which are not only keeping our team members safe and healthy, but also contributing to our bottom line results.
Achieving continued exceptional results over time demonstrates our commitment to be good stewards of your capital and to our goal of driving sustainable long term shareholder value.
As always I want to close by thanking all of my colleagues here at CSW, who collectively own approximately 5% of CSW YOD through our employee stock ownership plan.
As well as all of you our shareholders for your continued interest in <unk>.
And our support of our company.
With that Andre we're now ready to take questions.
Who.
We'll now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Anytime your question has been addressed and you would like to withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
The first question comes from the line up John One thing with C. J, Yes Securities. Please go ahead.
Hi, its actually lead you go to for John This morning.
I guess, just starting with the volumes in the quarter, how much of the lower volumes related to inventory management at the distribution network versus sell through at retail and how should we think about those volume expectations over the next couple of quarters.
Good morning, Lee, it's James Thanks for being on and Thanks for your question. We don't have the whole sense of inventory management versus retail sales a couple of data points them without given other people's data too much.
The Oems have.
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In the last quarter were clearly.
Outperforming that so we're outperforming the category given where we focus on the replacement the maintenance from repair work those kind of things.
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