Capital Southwest Q4 2025 Earnings Call Transcript

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Provided by Quartr
May 22, 2025

Key Takeaways

  • CSW Industrials reported record fourth quarter results with $231 million in revenue, $60 million in adjusted EBITDA, and $2.24 in adjusted EPS, and also posted record full‐year metrics including $878 million in revenue and $137 million in adjusted net income.
  • The company closed its $313.5 million acquisition of Aspen Manufacturing on May 1, expanding its HVACR offerings with U.S.‐made evaporator coils and air handlers expected to be EBITDA‐accretive.
  • Contractor Solutions drove 71% of Q4 revenue with 17.5% growth and a 33.7% EBITDA margin, while Specialized Reliability Solutions and Engineered Building Solutions saw revenue declines of 9% and 4% respectively with margins under pressure despite strong backlog and book‐to‐bill ratios.
  • CSW expects tariff headwinds to impact up to 10% of Contractor Solutions’ COGS in FY26 and has enacted broad‐based price increases, though margin compression is still anticipated.
  • For FY26, management forecasts growth in revenue, adjusted EBITDA and operating cash flow along with EPS growth that will be tempered by higher share count, increased interest expense and acquisition‐related amortization.
AI Generated. May Contain Errors.
Earnings Conference Call
Capital Southwest Q4 2025
00:00 / 00:00

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Operator

Greetings. Welcome to CSW Industrials Incorporated Fourth Quarter and Full Year Earnings 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.

Operator

It is now my pleasure to introduce Alexa Hirta, Vice President of Investor Relations and Treasurer. Thank you. You may begin.

Alexa Huerta
VP of Investor Relations & Treasurer at CSW Industrials

Thank you, Sherry. Good morning, everyone, and welcome to the CSW Industrials' fiscal twenty twenty five fourth quarter and full year earnings call. Joining me today on the call is Joseph Arms, 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 ks 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.

Alexa Huerta
VP of Investor Relations & Treasurer at CSW Industrials

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 ks 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.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

Thank you, Alexa. Good morning, everyone. It is my pleasure to report that once again, our team has delivered record results for revenue, adjusted EBITDA, adjusted earnings per diluted share and adjusted net income for the fourth quarter of fiscal year twenty twenty five. This morning, we reported fiscal fourth quarter revenue of $231,000,000 as well as fiscal fourth quarter adjusted EBITDA of $60,000,000 adjusted earnings per diluted share of $2.24 and adjusted net income of $38,000,000 I'm also proud to note that the team delivered record results for the full fiscal year 2025 for revenue, adjusted EBITDA, adjusted earnings per diluted share, adjusted net income and cash flow from operations. We reported full year revenue of $878,000,000 adjusted EBITDA of two twenty eight million dollars including margin expansion of 70 basis points to 25.9%.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

Adjusted earnings per diluted share of $8.41 adjusted net income of $137,000,000 and cash flow from operations of $168,000,000 Our resilient business segments have focused on our customers and on operational excellence. And as a result, we have outperformed the end markets we serve. James will provide further details of the performance of each of the three business segments for the last quarter of fiscal twenty twenty five. During the fiscal fourth quarter, we announced a definitive agreement to acquire Aspen Manufacturing for $313,500,000 and we were pleased to consummate this accretive and synergistic acquisition on 05/01/2025. The Aspen acquisition is the second largest acquisition our company has made and Aspen will expand our HVACR product offering with the addition of market leading evaporator coils and air handlers.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

Before I turn the call over, I'd like to thank our team for delivering solid growth for the fiscal full year 2025. Our impressive results, strong balance sheet and capital allocation discipline have continued to fuel our success. We will be celebrating our ten year anniversary as a public company later this year. And in anticipation of this milestone, we announced in late April that the company will be moving to the New York Stock Exchange on June 9. We believe this strategic move to the world's largest stock exchange will be beneficial to all shareholders and provide additional liquidity.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

And our team looks forward to joining the other outstanding industrial companies on the NYSE. I also wanted to share a few longer term metrics that demonstrate the execution and commitment of our dedicated team. Our revenue compound annual growth rate or CAGR since the spin off in October of twenty fifteen is 14.1%. This average annual growth rate for the last nine point five years has outpaced the markets we serve by a wide margin. Our adjusted EBITDA CAGR over the same period is 16.5%, which denotes that the team has delivered operating leverage on the revenue growth despite our already having industry leading margins when we went public in 2015.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

In less than ten years, we have grown our market cap over 1000% and total shareholder return is also over 1000%. While I am pleased with the results that we have delivered and the value we have created for our shareholders over this past decade, I am equally optimistic as I look forward to what the company can accomplish over the next ten years. At this time, I'll turn the call over to James for a closer look at our results. And following those comments, I'll return and conclude our prepared remarks.

James Perry
James Perry
EVP & CFO at CSW Industrials

Thank you, Joe, and good morning, everyone.

James Perry
James Perry
EVP & CFO at CSW Industrials

As Joe mentioned, during fiscal twenty twenty five, we delivered record revenue of $878,000,000 representing growth of 11%. Thirty eight million dollars of the growth was organic with the remaining $48,000,000 of growth coming from the acquisitions of Dust Free, PSP Products and Water Works that we completed since February 2024. Operating leverage on this revenue drove 14% growth in adjusted EBITDA along with 70 basis points of margin expansion and over 20% growth in adjusted earnings per diluted share. Our consolidated revenue during fiscal fourth quarter of twenty twenty five was a record $231,000,000 a $20,000,000 or 9% increase when compared to the prior year period. Dollars 13,500,000.0 of the revenue growth came from the aforementioned acquisitions.

James Perry
James Perry
EVP & CFO at CSW Industrials

The remaining growth was organic, primarily due to higher volumes and pricing actions in Contractor Solutions, offset somewhat by declines in the other two segments. Consolidated gross profit in the fiscal fourth quarter was $102,000,000 representing 9% growth over the prior year period. Our gross profit margin remained relatively flat at 44.2% compared to 44.4% in the prior year period. The slight decrease from the prior year was primarily driven by decreased gross profit margins in both specialized reliability solutions and engineered building solutions, mostly offset by growth in contractor solutions. Our consolidated adjusted EBITDA during the fiscal fourth quarter increased by $4,000,000 to a fiscal fourth quarter record of $60,000,000 which was 7% growth when compared to the prior year period.

James Perry
James Perry
EVP & CFO at CSW Industrials

Our adjusted EBITDA margin declined by 60 basis points to 25.9% compared to 26.5% in the prior year quarter. As we had additional expenses related to our recently acquired companies, including investments to support their successful integration, as well as inbound increased freight expense. Adjusted net income attributable to CSW in the quarter was a fiscal fourth quarter record of $38,000,000 with a record $2.24 of adjusted earnings per diluted share compared to $32,000,000 or $2.4 respectively in the prior year period, representing 19% growth in adjusted net income and 10% growth in adjusted EPS. The lower EPS growth as compared to net income was due to the higher share count from the successful follow on equity offering in September, in which we issued an additional 1,265,000.000 shares for $347,000,000 in proceeds net of fees. This growth came as a result of the aforementioned performance in adjusted EBITDA and lower interest expense, which turned to interest income in the fiscal second quarter after the full repayment of our revolver balance with the proceeds from our follow on equity offering.

James Perry
James Perry
EVP & CFO at CSW Industrials

There were two non recurring adjusting items to EBITDA, net income and EPS in the fiscal fourth quarter. The $2,100,000 increase in the expected earn out consideration for the PSP Products acquisition due to revenue outperformance since the acquisition and $1,400,000 of transaction expenses incurred during the quarter for the Aspen Manufacturing acquisition. Both of these adjusted items occurred in our Contractor Solutions segment. During the fourth quarter, our Contractor Solutions segment with $166,000,000 in revenue accounted for 71% of our consolidated revenue and delivered $24,700,000 or 17.5% growth when compared to the prior year quarter. Of the revenue growth in the quarter, dollars 13,500,000.0 or 9.5% came from our recent acquisitions, while the remaining $11,200,000 or 8% was driven by organic volume growth and pricing actions.

James Perry
James Perry
EVP & CFO at CSW Industrials

This solid organic growth is in line with our stated mid to high single digit growth target in the Contractor Solutions segment. During the quarter, we had growth in the HVACR and electrical end markets. Adjusted EBITDA for the segment was $56,000,000 or 33.7 percent of revenue compared to $47,000,000 or 33.5% of revenue in the prior year period. The slight increase in adjusted EBITDA margin came from higher gross margins due to pricing actions, which offset increased freight expense, combined with a decrease in operating expenses as a percent of revenue. Our specialized reliability solutions segment revenue decreased by 9% to $38,000,000 as compared to the prior period.

James Perry
James Perry
EVP & CFO at CSW Industrials

Revenue increased in the general industrial end market, but declined in the energy, rail transportation, and mining end markets. The lower revenue was driven primarily by softer market demand most pronounced early in the fourth quarter, which drove a decline in unit volumes versus the prior period and also due to a stronger prior year fourth quarter due to a catch up from shipping issues at the end of the third quarter of the prior fiscal year. The segment EBITDA of $5,800,000 in the fourth quarter represented a decrease of 30% from $8,200,000 in the prior year period. The EBITDA margin contracted four fifty basis points to 15.3% in the current period, driven primarily by a decrease in gross margins due to the lower volume, more growth coming from lower margin products, and higher freight expenses related to the strategic management of international inventory ahead of tariffs. Our Engineered Building Solutions segment revenue decreased by 4% to 28,700,000 compared to $30,100,000 in the prior year period, driven simply by the timing of projects converting to revenue from backlog.

James Perry
James Perry
EVP & CFO at CSW Industrials

I'll note that the prior year period had a large project completed that will not recur this year. Bidding and booking trends remained solid during the fiscal fourth quarter, which was one of the segment's highest booking quarters in our history. And our book to bill ratio for the trailing eight quarters remained at one to one. The backlog increased sequentially during the quarter with projects that will deliver favorable margin mix in future quarters as they convert to revenue. Segment EBITDA was 33% lower than the prior year period at $4,200,000 or a 14.5% EBITDA margin compared to $6,200,000 and 20.5% in the prior year period.

James Perry
James Perry
EVP & CFO at CSW Industrials

The contraction in EBITDA margin in the current period was primarily due to a $1,200,000 gain in the prior year period on the sale of an operating property that did not recur, which reduced gross margin during the current reporting period as well as operating expenses as a higher percentage of revenue. Transitioning to our strong balance sheet and cash flow, we ended our fiscal fourth quarter twenty twenty five with $226,000,000 of cash and reported cash flow from operations of $27,000,000 in the quarter, up compared to twenty two million dollars in the same quarter last year driven by increased net income. For the full fiscal year 2025, the company had a record cash flow from operations of $168,000,000 or 2% growth compared to $164,000,000 in the prior fiscal year. Our free cash flow defined as cash flow from operations minus capital expenditures was $22,800,000 in the fiscal fourth quarter as compared to $17,500,000 in the same period a year ago. This resulted in free cash flow per share of $1.35 in the fiscal fourth quarter as compared to $1.12 in the same period a year ago, which was even more impressive when considering the additional shares included in this year's quarter from the follow on equity offering.

James Perry
James Perry
EVP & CFO at CSW Industrials

Our free cash flow for the full fiscal year was $152,100,000 as compared to $147,800,000 in the prior fiscal year. That resulted in free cash flow per share of $9.32 for fiscal twenty twenty five as compared to $9.48 in the prior fiscal year. The reduction of free cash flow per share on the higher free cash flow was due to the additional shares from the follow on equity offering. As discussed last quarter, we repaid all of our borrowings under the revolver in September of twenty twenty four, utilizing the cash received from our follow on equity offering. As a result, the company was able to eliminate most of our interest expense and invest the net proceeds from the follow on equity offering in money market accounts to generate interest income.

James Perry
James Perry
EVP & CFO at CSW Industrials

As Joe mentioned, in the fiscal fourth quarter, we announced a definitive agreement to acquire Aspen Manufacturing for $313,500,000 We completed the acquisition subsequent to year end on 05/01/2025. We used most of our cash on hand at that time and borrowed $135,000,000 from our revolving credit facility to fund the transaction. I would also like to highlight that subsequent to the end of fiscal twenty twenty five, the company renewed, extended and upsized our revolving credit facility to $700,000,000 earlier this month. The renewal of our revolver provides us with access to additional capital, allowing us to be nimble and opportunistic on growth opportunities. We are grateful to our banking partners for their support.

James Perry
James Perry
EVP & CFO at CSW Industrials

Our effective tax rate for the fiscal fourth quarter was 24.6% on a GAAP basis and 24.7% when adjusted. As mentioned in this morning's earnings release, as we look into fiscal twenty twenty six, we anticipate delivering full year growth in revenue and adjusted EBITDA for each segment, as well as consolidated EPS growth and even stronger growth in operating cash flow than in fiscal year twenty twenty five. We expect Aspen's fiscal twenty twenty six revenue to grow in the high single to low double digits off their trailing twelve month revenue of $125,000,000 through our fiscal twenty twenty five year end. Note that Aspen's quarterly revenue sequencing is weighted more heavily to our first and second fiscal quarters due to the nature of their products. As such, we expect the contractor solutions go forward quarterly revenue seasonality will be more pronounced than we've experienced in the past.

James Perry
James Perry
EVP & CFO at CSW Industrials

We expect Aspen's EBITDA margin to be approximately 24% for the full fiscal year 2026 as we begin our work to improve the Aspen margins over time. The Aspen margin will vary from this full year level from quarter to quarter due to the seasonality of the business. As a reminder, Aspen will only be included in our results for eleven months during fiscal year twenty twenty six and two months in our fiscal first quarter due to the May 1 acquisition date. As I previously mentioned, the company borrowed $135,000,000 from our revolving line of credit and used the remainder of our cash on hand from the follow on equity offering to fund the Aspirin acquisition on May 1. So we are no longer forecasting quarterly net interest income.

James Perry
James Perry
EVP & CFO at CSW Industrials

Beginning in May, the company will begin incurring interest expense on our revolver borrowings. We anticipate paying off our current borrowings outstanding by the end of fiscal year twenty twenty six if the company does not have further acquisitions throughout fiscal year twenty twenty six. Note that we continue to actively seek acquisitions, but do not include that in our forecast. With that context, we currently anticipate approximately $5,300,000 in net interest expense for the full year with the second fiscal quarter being the highest level. Our amortization of intangible assets will increase significantly over the prior year due to our acquisitions, most prominently from the Aspen acquisition.

James Perry
James Perry
EVP & CFO at CSW Industrials

We currently expect that the Aspen acquisition will add approximately $9,500,000 of amortization expense in fiscal year twenty twenty six. This is a preliminary internal estimate and will be finalized during the fiscal year. In our first quarter ten Q, we will provide the initial results of our purchase price allocation. Note that this forward looking outlook was included in the quarterly investor presentation that we posted to our website this morning. We expect Contractor Solutions' overall adjusted EBITDA margin for the full fiscal year 2026 to be in the low 30s versus the recent margins closer to the mid-30s as we layer in our acquisitions and the expected impact of tariffs.

James Perry
James Perry
EVP & CFO at CSW Industrials

We are anticipating an overall cost of goods sold impact from increased tariffs, and we will update you each quarter as warranted on this highly fluid situation. We have taken broad based action on pricing for our Contractor Solutions products to offset the new tariffs. Our approach as always is to prioritize protecting margin dollars, and we know that this approach can result in some margin compression. And we continue to make strategic changes to our global supply chain to minimize the impact of tariffs and other potential disruptions. We also remain highly focused on cost discipline across the company, especially in the current economic environment.

James Perry
James Perry
EVP & CFO at CSW Industrials

During fiscal year twenty twenty six, specialized reliability solutions and engineered building solutions are each expected to have higher full year EBITDA margin on higher revenues in the prior year. We expect to see EPS growth in fiscal twenty twenty six, although the company does not anticipate EPS to grow as a percentage as much as revenue and EBITDA due to the additional shares outstanding from the follow on equity offering, increased interest expense and the increased intangible amortization from recent acquisitions. Thus, we continue to focus on EBITDA as the best comparable measure of our profitability growth over time. We currently forecast our fiscal twenty twenty six tax rate to be 26%, which may vary from quarter to quarter due to specific items. With that, I'll now turn the call back to Joe for his closing remarks.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

Thank you, James. To summarize, during the fiscal fourth quarter of twenty twenty five, we posted record quarterly results for revenue, adjusted EBITDA, adjusted earnings per share and adjusted net income. Our impressive 9% plus revenue growth included both inorganic growth from our recent acquisitions and strong organic volume growth in Contractor Solutions. Looking ahead to the full fiscal year of 2026, we will continue to focus on delivering sustainable growth that exceeds the markets we serve. We will continue to identify and pursue accretive acquisitions of innovative companies and products that are synergistic to our existing portfolio.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

I'd like to take a moment to welcome the most recent group of employees to join the CSW family in connection with our acquisition of Aspen Manufacturing. Aspen Manufacturing is one of the largest independent evaporator coil and air handler manufacturers for the HVACR industry and is a recognized leader in product quality and indoor comfort. All of Aspen's products are designed, engineered and assembled in The U. S. Bringing this line of HVACR equipment and the Aspen team under the CSW umbrella will expand our current product offering and allow us to distribute these products through our existing distribution centers across The U.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

S. At CSW, we are committed to an employee centric culture where we focus on recruiting and retaining great talent, offering rewarding careers and recognizing team members who excel while providing them the opportunity to earn a safe, secure and dignified retirement. I could not be more proud to announce that CSW Industrials has recently been certified as a great place to work for the third year in a row. This recognition is a testament to our focus on core values such as accountability, citizenship, teamwork, respect, integrity, stewardship, and excellence. How we succeed matters and our success is shaped by the collaborative efforts of our team members.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

It's my pleasure to also announce that our board has recently approved a profit sharing ESOP contribution fiscal twenty twenty five equaled 6% of each U. S. Employee's salary, as well as an additional profit sharing four zero one ks contribution of 3% for fiscal twenty twenty five, which is in addition to our already healthy 6% match. As always, to close my prepared remarks, I just want to thank the dedicated team here at CSW Industrials who collectively own approximately 4% of our company through the employee stock ownership plan, as well as all of our shareholders for your continued interest in and support of CSW Industrials. So operator, we're now ready for questions.

Operator

Thank Our first question is from John Tanwanteng with CJS Securities. Please proceed.

Jonathan Tanwanteng
Managing Director at CJS Securities

Thank you for taking my questions and congrats on a nice quarter. I was wondering if you could go over a little more detail the impact of tariffs on your COGS, maybe you saw on a trailing basis, if any, and what your assumptions are by segment going forward with Vietnam especially in focus?

James Perry
James Perry
EVP & CFO at CSW Industrials

Sure, John. Good morning. It's James. Thanks for being on as always. Appreciate your coverage.

James Perry
James Perry
EVP & CFO at CSW Industrials

Tariffs is obviously very dynamic. There's not a lot of trailing impact yet, just given the lag of that and when tariffs came into play. As you may recall, in our fiscal third quarter, we brought in extra inventory as well as early in the fourth quarter to get ahead of any potential tariffs. So we've been working through that inventory the last couple of months. So there's not much trailing impact.

James Perry
James Perry
EVP & CFO at CSW Industrials

As we go forward, as a reminder, despite the current pause on tariffs, there's still a 10% tariff everywhere and 30% plus in China. And as you know, we do have some of our product that comes out of China. We expect for fiscal twenty six for that number to be at or a little less than 10%. As I mentioned, we've been working hard to strategically move things around. The addition of Aspen, which is fully United States based helps that percentage as well.

James Perry
James Perry
EVP & CFO at CSW Industrials

Vietnam continues to be important to us with our facility there. We have no owned facilities internationally outside of in Vietnam. Vietnam is in the 30s now as result. So we're watching the tariffs very closely. Obviously, the current pause is helpful in the near term.

James Perry
James Perry
EVP & CFO at CSW Industrials

And as I mentioned, we've had some broad based pricing action on certain products that have been impacted and that's a product by product type conversation. So we do expect that there's going be an impact. We do expect that we'll weather that well, working closely with our customers on that. And again, as we continue to strategically work our way out of areas like China into other areas that have less impact there, I think we're going to come out of other end in really good shape.

Jonathan Tanwanteng
Managing Director at CJS Securities

Okay. Great. Thank you. And then, in regards to the M and A pipeline, you mentioned being able to pay off your debt, your revolver by the year end. You're increasing the size of your revolver.

Jonathan Tanwanteng
Managing Director at CJS Securities

Is there more in the pipeline that would utilize that capacity or is that more of just in case as you can move forward?

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

Well, John, this is Joe. As you know, I mean, we have been acquisitive since the beginning. And so we will continue to do that. We take a very disciplined approach. And so we never forecast acquisitions.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

We have said, since the equity offering that we feel like we can fund the typical strategic product line extension type acquisitions that are smaller through our free cash flow that we generate through operations, the revolving line of credit is available for chunkier, sizable acquisitions like Aspen Manufacturing that we just closed and like TruAir that we did several years ago. The revolver is there so that we can be opportunistic and we think that the target list for acquisitions is very, very robust and strong and there's still a lot of consolidation and a lot of innovation that we can acquire over the next few years. I would say that there seems to be a bit of a sorting out. As we sit here today, we would likely wait for some of the uncertainty to settle down before we did anything with international manufacturing. But domestic manufacturing, like the Aspen manufacturing acquisition, would still be very, very actionable in the short term.

Jonathan Tanwanteng
Managing Director at CJS Securities

Got it.

Jonathan Tanwanteng
Managing Director at CJS Securities

Thank you. And then just one last question Do you believe that to be accretive to your margins over the longer term? What's the upside there as you bring it into your distribution and try to do your product improvements on the business?

James Perry
James Perry
EVP & CFO at CSW Industrials

Yes, John, think given where the margins are now at 24%, I think accretion to consolidated margin is a goal of ours in the kind of near to midterm. We're a couple of points from that. Accretive to the Contractor Solutions margins in the 30s, that's a stronger bar to higher bar to get over. Given the nature of that product being more in the equipment space and the accessory space, the margins just aren't quite as opportunistic there. But we do think there's a good path to see accretion in the near term to the consolidated margin.

James Perry
James Perry
EVP & CFO at CSW Industrials

I will also say, as I mentioned in my script, that we're really highly focused on the EBITDA from that acquisition. You're going to have intangible amortization as I detailed and it's in the investor deck online. You've got interest expense for a little while, those kind of things. But from an EBITDA accretion perspective, it's accretive day one from a dollar perspective. The margins on consolidated, we think we will get there in the near to mid term.

Jonathan Tanwanteng
Managing Director at CJS Securities

Got it. Thank you.

James Perry
James Perry
EVP & CFO at CSW Industrials

Thanks, John.

Operator

Our next question is from Susan Maklari with Goldman Sachs. Please proceed.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Thank you. Good morning, everyone.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

Good morning, Susan.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Good morning. My first question is, I just want to follow-up on the answers that you gave to the prior question with the 10% or less that will come from China in fiscal twenty six. Is that as a percent of the COGS or as a percent of the portfolio sales? How should we think about what that number is exactly referring to?

James Perry
James Perry
EVP & CFO at CSW Industrials

Sure, Susan. Thanks for asking. This is James. That's on COGS and that is specific to Contractor Solutions. The other two segments, which last quarter were less than 30%, it will be even less now with Aspen coming in, have virtually nothing that comes from overseas, little, little bit here and there.

James Perry
James Perry
EVP & CFO at CSW Industrials

But I'm referring to Contractor Solutions cost of goods sold for fiscal twenty twenty six.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Okay. All right. That's helpful. And then just following up on the pricing, can you give us some sense about how we should think about the magnitude and perhaps the timing of those prices that pricing action coming through and the implications that we could see to the margins as we move through fiscal twenty twenty six?

James Perry
James Perry
EVP & CFO at CSW Industrials

Yes, we're still working through some of that. As you recall in Contractor Solutions, we had a price increase January 1 with the increased freight expenses from last year. So that's been in effect all through the fiscal fourth quarter and now into the fiscal first quarter of twenty twenty six. The price increase that I mentioned earlier, kind of broad based and it's targeted by specific products based on their country of origin, certain customers, those kind of things. That's something that will take place likely during this quarter.

James Perry
James Perry
EVP & CFO at CSW Industrials

We worked through that with our customers. Obviously, that's very dynamic with all the changes that we see. So in terms of margin impact, you're starting to see the tariff cost come through, but we think we're matching that pretty well with pricing as we need to as we go through this quarter and through the fiscal year.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Okay. That's helpful. And then one last question. As you think about the setup into the busy spring and summer season, how are you thinking about the inventory on the ground? Are you seeing that your customers and the contractors have started to kind of focus perhaps more on some of these products as they've moved past the changes in the regulations on the refrigeration side?

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Did you see any pull forward or actions in response to the tariffs have been announced by your customers or in turn in the field?

James Perry
James Perry
EVP & CFO at CSW Industrials

I don't think we've seen anything terribly unusual. We had a nice fiscal fourth quarter with 8% organic growth in Contractor Solutions. We were really happy with the performance of that team on the ground. It's been a little later hot season. If you look at cooling days across the country so far, I think people have taken a bit of a wait and see approach at the very beginning of the quarter.

James Perry
James Perry
EVP & CFO at CSW Industrials

But overall, things feel relatively normal. I think what you saw the pull forward on the equipment from the OEMs was probably more pronounced with the refrigeration change to be sure they had the new equipment as well as the old equipment. As we've said all along, that just hasn't affected us a whole lot. I think our normal seasonality and pattern of purchasing from our customers for the parts and accessories, and now with Aspen, the evaporator coils, which are more of a replacement part, has been pretty normal.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Okay. Alright. Thanks for all the color, and good luck.

James Perry
James Perry
EVP & CFO at CSW Industrials

Thanks, Susan.

Operator

Our next question is from Sam Reid with Wells Fargo. Please proceed.

Sam Reid
Sam Reid
Analyst at Wells Fargo

Awesome. Thanks so much. Really appreciate all the context on Aspen, the detail you gave on the margin profile. Wanted to drill down a little bit on the swings in margins inter quarter just for modeling purposes. Sounds like overall margins running at around 24%.

Sam Reid
Sam Reid
Analyst at Wells Fargo

But maybe just give us some bands around that 24% just so we have some guardrails for modeling.

James Perry
James Perry
EVP & CFO at CSW Industrials

Yes, Sam, this is James. That's hard. I think we'll be able to give you more clarity as we go through this first couple of quarters of owning Aspen. Obviously, we're looking to make improvements where we can. It's several hundred basis points either side of that 24%, I can safely say that.

James Perry
James Perry
EVP & CFO at CSW Industrials

How many hundreds of basis of points it is, I think we're going to we'll learn as we get through this first year because obviously, we'll get them into our accounting system and our operations and those kind of things. So I think it's early to get beyond that. We wanted to give you what we could and at least give you a sense of that 24%, give you some sense of revenue. But being able to get detailed on the swings quarter to quarter is a little premature for us.

Sam Reid
Sam Reid
Analyst at Wells Fargo

No, that's fair. And then just another quick one on Aspen. Just historically, has Aspen taken pricing kind of in line with the industry? Has taken pricing ahead of the industry? And just maybe any context on price gaps versus some of the competitors in the air handler evaporator coil space?

James Perry
James Perry
EVP & CFO at CSW Industrials

Yeah, I think Aspen has done a good job obviously as they become part of our environment now May 1 and we're working with them on that. Couldn't really do anything before that and working with them of course, but Aspen has done a good job of that. And I think that you'll see them react like the competitors do, them react as they need to. But again, Aspen doesn't have the tariff impact necessarily given that it's U. S.

James Perry
James Perry
EVP & CFO at CSW Industrials

Based. So as we compete with evaporator coils and air handlers that have either components or the full system coming in from overseas, you have an opportunity there. But in in general, asthma is doing a good job with pricing, and they'll they'll fall under the same discipline that we do from a cost perspective and a pricing perspective with the rest of contractor solutions.

Sam Reid
Sam Reid
Analyst at Wells Fargo

No, that's helpful. Then maybe if I could just squeeze one more in here. Tariff pricing, you sell into multiple channels. You sell into distributors. You sell into retailers.

Sam Reid
Sam Reid
Analyst at Wells Fargo

Talk to kind of how those pricing discussions have worked by channel. And then are you finding it easier to push pricing through on the distribution side versus say some of the home centers?

James Perry
James Perry
EVP & CFO at CSW Industrials

Yeah. I don't think we bifurcate quite that much. Obviously, each customer is a little bit different. You know, we've always said where we are in the supply chain is important. So our ability to to to push pricing and that working its way through the system, we feel comfortable with.

James Perry
James Perry
EVP & CFO at CSW Industrials

But, you know, I think it's it's it's early and I don't think we get so precise to bifurcate, you know, retail versus distribution. We are heavily weighted towards distribution. Retail plays a role in some of the products, of course, but our ability to look at pricing and have good relationships and always think about the long term with distributors is very important to us. As I mentioned, we're focused on the dollars, not the margin as much. So you may see a little bit of compression.

James Perry
James Perry
EVP & CFO at CSW Industrials

We saw that saying you weren't with us at the time, but we saw that during COVID and we recovered that over time as some of those costs came back down. But again, we continue to focus on the distribution customers where we have relationships with retailers. We're having good discussions there as well.

Sam Reid
Sam Reid
Analyst at Wells Fargo

Awesome. Thanks so much. I'll pass it on.

James Perry
James Perry
EVP & CFO at CSW Industrials

Thanks, Sam.

Operator

Our next question is from Jamie Cook with Truist Securities. Please proceed.

Jamie Cook
Jamie Cook
Managing Director - Equity Research at Truist Securities

Hi, good morning. I guess two questions. One, just on we're in May and your quarter ended March. Just wondering if there was any change in demand as we entered into April in May across the portfolio? And then my second question on Contractor Solutions, it sounds like organic growth is still expected to be healthy in 2026.

Jamie Cook
Jamie Cook
Managing Director - Equity Research at Truist Securities

Obviously, you're putting through price increases because of tariffs. Do you assume volumes are still healthy or do you assume to what degree does higher pricing sort of have a negative impact on volumes? And then my last actually, why don't you my last question is sorry, just on Engineered Building Solutions. Organic growth was obviously negative, but you posted a strong book to bill and your bookings were up 18%. So just wondering when we should see that translate into positive organic growth for EDS? Thank you.

James Perry
James Perry
EVP & CFO at CSW Industrials

Yes, Jamie, thanks. And if I miss some of that, circle back, please. I'll start at the end. Engineered Building Solutions, again, we want to highlight historically strong booking quarter for us. And given things like the ABI Index and those kind of things, we're really proud of the team.

James Perry
James Perry
EVP & CFO at CSW Industrials

We're focused on the direct sales of those smoke curtains. We're focused on the right projects that are still getting built and getting permitted. One thing that our leadership team has told us they're seeing a higher number of rebiddings, which means projects are getting very close to getting done instead of just kind of that initial bid they throw out, but don't turn into a booking. So we had a really nice fourth quarter across the board. They're really bucking some of the industry trends based on the team's hard work there and the commercial sales efforts.

James Perry
James Perry
EVP & CFO at CSW Industrials

And we think we're going to have a nice booking year in fiscal twenty twenty six as well. In terms of when that turns into revenue, obviously, some of it's rather near term, things like smoke curtains can be near term depending on when bid and booked. Some of those are eighteen to twenty four months out, but we do expect good top line growth as well as EBITDA and margin growth at EBS. Within Specialized Reliability Solutions, going back to your demand question again, we had a soft fourth quarter. January, February were soft.

James Perry
James Perry
EVP & CFO at CSW Industrials

As we exited March, April and now into May, we've seen things pick up some. You still have a little bit of softness in the energy markets, for example, but the team is doing a good job finding opportunities. So I think that they're that they're back to a nice order booking level and a nice sales level. And again, we expect revenue and EBITDA with margin growth in that segment as well. In contractor solutions, as I mentioned, 8% organic growth in the fiscal fourth quarter.

James Perry
James Perry
EVP & CFO at CSW Industrials

We do expect kind of single or mid to high single digit growth as we go mid and long term in that business. That's going to vary a little bit quarter to quarter. We feel good about it. As I mentioned to one of the earlier questions, Jamie, you know, it's been a slow, hot season so far, but the the group is still doing a great job of getting our product in customers' hands so they have what they need as soon as it heats up. We do a great job of getting things out very near term.

James Perry
James Perry
EVP & CFO at CSW Industrials

Obviously, fact that some of it comes from overseas, have to plan accordingly. So we strategically place the right inventory. So we feel good about the organic growth prospects there as well. And I'll mention, on top of introducing new products to the acquisitions we have, product innovation with those acquisitions, and we will always include as part of our organic growth expectations, market share growth. The team is highly focused on continuing to offer more and more of the contractor solutions products to our customers.

James Perry
James Perry
EVP & CFO at CSW Industrials

And the more products we can offer our distribution customers, the more they want to do business with us. We make it easy to do business with technology, with shipments, with invoicing, one point of contact, so we're picking up share as we continue to add products.

Jamie Cook
Jamie Cook
Managing Director - Equity Research at Truist Securities

Thank you.

James Perry
James Perry
EVP & CFO at CSW Industrials

Hopefully, I covered it all, Jamie.

Jamie Cook
Jamie Cook
Managing Director - Equity Research at Truist Securities

Yep. You did. Thank you.

Operator

Our next question is from Andrew Kaplowitz with Citigroup. Please proceed.

Natalia Bak
Natalia Bak
Equity Research Senior Associate at Citigroup

Hi. Good morning. This is Natalia Bock on behalf of, Andy Kaplowitz.

James Perry
James Perry
EVP & CFO at CSW Industrials

Hi, Natalia.

Operator

Hi, Natalia.

Natalia Bak
Natalia Bak
Equity Research Senior Associate at Citigroup

First question I wanna ask, just in engineering or engineered building solutions. Last quarter, you reiterated a 20% EBITDA margin target in the intermediate term. So as backlog quality improves, what's the timeline to approach that goal? Like, there any key hurdles like cost, scale or pricing you need to overcome to get there?

James Perry
James Perry
EVP & CFO at CSW Industrials

Yes, Natalia, great question. We still target that as the midterm hurdle, whether we're there each and every quarter that will bounce around as it has. The only thing I would say that's a little in the face of that is there's a minimal tariff impact there as they do import some products, motors, for example, those kind of things. We've seen a little cost and it's a little harder to get pricing through that business because you bid projects. So we're working on that.

James Perry
James Perry
EVP & CFO at CSW Industrials

Obviously, a little tariff relief is helpful. So we're going to bring in all the products we can at a little bit lower tariff than we thought we might have. But 20% is still the intermediate term hurdle. Are we there for the full year fiscal twenty six? Probably a little early to say that necessarily, but we're approaching it here as we go through quarter to quarter, yes.

Natalia Bak
Natalia Bak
Equity Research Senior Associate at Citigroup

Helpful. And then just in SRS, like margins compressed this quarter, but what specific factors contributed to the poor performance? But more importantly, what strategies are in place to address these challenges? Like I saw in the presentation, there's a mention of new product introductions and new deals in process. So maybe if you could expand on those points.

James Perry
James Perry
EVP & CFO at CSW Industrials

Yeah. Sure, Natalia. The biggest factor for specialized reliability solutions as we've talked about is volume. And it was a soft January and February. Certainly, compared to the prior year, we had some catch up last year from some shipments we missed.

James Perry
James Perry
EVP & CFO at CSW Industrials

Volume matters in that business. And the volume was soft in January and February, and that's just going to hit margins. Your absorptions aren't strong with your overhead. It's a pretty high fixed cost base there. Also, as we went through the mix in the quarter, we had a few more products that sold that were just lower margin products.

James Perry
James Perry
EVP & CFO at CSW Industrials

That's going to vary quarter to quarter. So nothing is wrong with that business. Nothing intuitively tells us that that's the new hurdle. We've talked about that being a 20% margin business as well. They've hit it several times.

James Perry
James Perry
EVP & CFO at CSW Industrials

So I think more than anything, it's making sure we have the volume. One thing that's a little under the radar, we've mentioned just in passing to folks, we relocated a facility from Pennsylvania down to our main facility here Texas. And that's our highest margin group of products. And so, a, we eliminate a little bit of cost by moving that down here. But secondly, we've got more eyes on those products now.

James Perry
James Perry
EVP & CFO at CSW Industrials

We're doing better with product development there, having it right here in the same lab, in the same facility. And so we're doing things like that structurally that will continue to push top line and bottom line growth and help those margins.

Natalia Bak
Natalia Bak
Equity Research Senior Associate at Citigroup

Got it. Helpful. That's all my questions. Congrats on the quarter.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

Thanks, Natalia.

Operator

There are no further questions at this time. I would like to turn the conference back over to Joe Arms for closing remarks.

Joseph Armes
Joseph Armes
Chairman, President & CEO at CSW Industrials

Thank you. And we just want to thank everyone for joining us for this fourth quarter and full year conference call. Appreciate your support and look forward to the next time we'll be in contact. Thank you.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

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