• Revenue: $194 million for the fiscal third quarter, an 11% increase from the prior year period.
• Adjusted EBITDA: $42 million, a 14% growth compared to the prior year period.
• Adjusted Earnings Per Diluted Share: $1.48, compared to $1.07 in the prior year period, representing a 49% growth.
• Adjusted Net Income: $25 million for the fiscal third quarter.
• Adjusted EBITDA Margin: Expanded by 70 basis points to 21.7%.
• Gross Profit: $80 million, representing 8% growth over the prior year period.
• Gross Profit Margin: Declined by 90 basis points to 41.4% due to increased freight expenses.
• Contractor Solutions Segment Revenue: $132 million, accounting for 67% of consolidated revenue, with 14.5% total growth.
• Specialized Reliability Segment Revenue: $34.6 million, a 3% increase from the prior period.
• Engineered Building Solutions Segment Revenue: $28.8 million, a 3% increase from the prior year period.
• Cash and Cash Flow from Operations: Ended the fiscal third quarter with $214 million of cash and reported cash flow from operations of $12 million.
• Free Cash Flow: $8.5 million in the fiscal third quarter, compared to $43.1 million in the same period a year ago.
• Effective Tax Rate: 13.8% on a GAAP basis and 24.5% when adjusted.

• Warning! GuruFocus has detected 4 Warning Signs with CSWI.

Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• CSW Industrials Inc (NASDAQ:CSWI) reported record fiscal third-quarter revenue of $194 million, marking an 11% increase compared to the prior year.
• The company achieved a record adjusted EBITDA of $42 million, reflecting a 14% growth year-over-year.
• CSW Industrials Inc (NASDAQ:CSWI) successfully executed its capital allocation strategy by acquiring PF WaterWorks, expanding its product offerings in the Contractor Solutions segment.
• The company's adjusted earnings per diluted share increased to $1.48, a 49% growth from the previous year.
• CSW Industrials Inc (NASDAQ:CSWI) maintained a strong balance sheet with $214 million in cash and eliminated most of its interest expense by repaying its revolver balance.

Negative Points

• The gross profit margin declined by 90 basis points to 41.4% due to increased freight expenses.
• Free cash flow decreased significantly to $8.5 million from $43.1 million in the same period last year, impacted by a $17 million tax payment deferral and increased inventory.
• The Contractor Solutions segment experienced a slight decline in adjusted EBITDA margin due to increased freight expenses and acquisition integration costs.
• Organic revenue growth was modest at 1.8%, with some headwinds from the architecturally specified building products market.
• The Specialized Reliability segment saw revenue declines in the mining and energy end markets, despite overall segment growth.

Q & A Highlights

Q: Can you address the impact of freight on margins and gross profit year-over-year? What was the exact impact, and do you expect to offset it with pricing or other mechanisms? A: Freight was a significant headwind due to a four- to six-month lag on ocean freight costs. Rates have started to come down, and we expect our fiscal fourth quarter to better cover these expenses with the price increase that went into effect on January 1.

Q: How long do you expect to hold the inventory built up ahead of potential strikes and disruptions? A: The inventory was brought in to prepare for the busy season and potential disruptions. It will work its way through inventory normally, and about half of the inventory growth year-over-year was due to acquisitions.

Q: Could you address organic growth in the quarter and your thoughts on future growth? A: We expect mid- to high single-digit organic growth over a cycle. Year-to-date, organic growth is up 5.5% to 6%. The acquisitions will start contributing to organic growth next year. There were some headwinds in the quarter, but we expect normal demand moving forward.

Q: What is the update on the acquisition pipeline as you enter 2025? A: We see opportunities for both small and larger acquisitions. We are optimistic and maintaining our discipline, looking for the right opportunities to enhance our growth.

Q: How do you see the macro environment affecting your business as you transition towards fiscal year 2026? A: We expect a normal year of growth. The HVAC market is stable, and we are positioned well with our acquisitions. We are monitoring interest rates and inflation but remain favorably inclined about our growth prospects.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.