CSW Industrials — Fiscal 2027 Second Quarter Earnings Summary

Financial Performance:

• Total revenue for the quarter ended September 30, 2026, increased 31% to a record $361 million ($361.4 million), driven by $56.3 million in inorganic growth from acquisitions and $28.2 million in organic growth.
• Net income attributable to CSW increased 16% to $47 million ($47.3 million) from $41 million ($40.7 million) in the prior year period.
• Earnings per diluted share (EPS) rose 20% to $2.90 from $2.41; adjusted EPS increased 24% to a record $3.66 from $2.96.
• Adjusted EBITDA reached a record $97 million ($96.7 million), up 33% from $72.9 million, with an adjusted EBITDA margin of 26.8% compared to 26.3% previously.
• Cash flows from operations were a record $95 million ($95.4 million), a 54% increase from $61.8 million.
• Free cash flow (operating cash flow less capital expenditures) was $91.9 million, up 56.5% from $58.7 million.
• Net debt stood at $734 million at quarter-end, reflecting a $91 million paydown during the quarter, resulting in a net leverage ratio of 2.10x within the 1-3x target range.
• Gross margin contracted 100 basis points to 42.0% (42.1% adjusted) due to increased ocean/domestic freight expenses and rising raw material costs.
• Operating expenses were $76.4 million ($75.6 million adjusted), or 21.1% of revenue, compared to 22.5% in the prior year.
• Interest expense, net, increased to $12.5 million from $1.3 million due to higher debt balances from acquisitions and share repurchases.
• Effective tax rate was 24.1% (24.5% adjusted), down from 26.4% in the prior year.

Guidance and Future Outlook:

• Management maintains an optimistic outlook for the remainder of fiscal 2027, expecting sustained organic revenue growth in excess of the markets served.
• Short-term margin headwinds are anticipated due to recent cost increases, though the company remains confident in achieving adjusted EBITDA growth exceeding revenue growth long-term.
• The company expects to continue accelerating growth in profitability through prudent financial management, disciplined capital allocation, and rigorous cost management.

Business Segments and Product Lines:

• Contractor Solutions: Revenue increased 37.1% to $285.8 million, driven by the MARS Parts acquisition ($50.5 million) and 12.9% organic growth from pricing and volume. Adjusted EBITDA rose 31.5% to $88.9 million.
• Specialized Reliability Solutions: Revenue grew 27.6% to a record $49.5 million, with 12.7% organic growth and 14.9% inorganic growth. Adjusted EBITDA reached a record $10.6 million (21.5% margin), meeting the long-term target of >20%.
• Engineered Building Solutions: Revenue decreased 11.1% to $28.4 million due to the Greco Plan (sale of Greco U.S. and exit of Greco Canada). Excluding Greco, revenue increased 2.4% to $22.7 million. Adjusted EBITDA margin for non-Greco operations was 19.3%.
• Acquisitions completed over the last twelve months contributed significantly to growth in the Contractor Solutions and Specialized Reliability Solutions segments.

Market and Competitive Landscape:

• Primary end markets served include HVAC/R, plumbing, electrical, general industrial, architecturally-specified building products, energy, mining, and rail transportation.
• Revenue growth in Specialized Reliability Solutions occurred across all end markets served.
• Contractor Solutions organic unit volumes increased due to end market improvement and leveraging an extended product portfolio.

Risks and Challenges:

• Gross margin contraction was driven by increased ocean and domestic freight expenses and rising raw material costs.
• Short-term margin headwinds are expected due to recent cost increases.
• Higher interest expense resulted from increased borrowings under the revolving line of credit and Term Loan A.
• The Greco Plan involves exit-related expenses and revenue decline in the Engineered Building Solutions segment.

Management Commentary and Tone:

• Chairman, President, and CEO Joseph B. Armes described the results as "all-time-record" for revenue, adjusted EBITDA, adjusted EPS, and operating cash flow for the first half of fiscal 2027.
• Management emphasized the "wisdom of our strategy, the excellence of our execution, and the resilience of our business."
• The tone was confident regarding long-term profitability growth and debt reduction, noting that recent acquisitions have strategically expanded the product portfolio.

Other Key Points:

• The Company announced a regular quarterly cash dividend of $0.30 per share, payable November 13, 2026, marking the thirty-first consecutive quarterly dividend.
• During the first half of fiscal 2027, the Company returned $39 million to shareholders via $29 million in share repurchases and $10 million in dividends.
• The Company repaid $105 million of debt since fiscal year-end using strong operating cash flows.
• The Company entered into a three-year syndicated interest rate hedge in fiscal 2026 to lock in the SOFR rate at 3.416% for the first $300 million of Term Loan A borrowing.
• The MARS Parts acquisition contributed $50.5 million to Contractor Solutions revenue in the second quarter.
• The Greco Plan resulted in $0.1 million in additional exit-related expenses during the fiscal quarter.