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CSW Industrials Reports Fiscal Fourth Quarter and Full Year 2017 Results

Highlights

  • Fourth quarter 2017 revenue of $87.3 million, up 14.5% compared to $76.3 million in the prior year period, led by organic revenue growth of 12.9%.
  • Full Year 2017 revenue of $327.1 million, up 2.3% compared to $319.8 million in the prior year period, including organic revenue growth of 0.6%.
  • Fourth quarter 2017 GAAP operating income of $4.7 million; Non-GAAP operating income of $11.1 million.
  • Fourth quarter 2017 GAAP net earnings of $2.7 million, or $0.17 per diluted share; Non-GAAP net earnings of $6.9 million, or $0.43 per diluted share.

DALLAS, June 14, 2017 (GLOBE NEWSWIRE) -- CSW Industrials, Inc. (NASDAQ:CSWI), a diversified industrial growth company with well-established, scalable platforms and domain expertise across three segments: Industrial Products; Coatings, Sealants & Adhesives; and Specialty Chemicals, today reported results for the fiscal fourth quarter and full year ended March 31, 2017.

Net revenue during the fiscal fourth quarter of 2017 increased 14.5% to $87.3 million, compared to the prior year period of $76.3 million. Organic growth was 12.9%, and acquisitions contributed 1.6% to total growth.  The increase in revenue was primarily attributable to increases in architecturally-specified building products and HVAC end markets, partially offset by decreases in the rail end market.

Net income in the fiscal fourth quarter of 2017 was $2.7 million, or $0.17 per diluted share, compared to $1.9 million, or $0.12 per diluted share, in the prior year period. Adjusted to exclude one-time expenses, adjusted net income in the fiscal fourth quarter of 2017 was up 23.5% to $6.9 million, or $0.43 per diluted share, compared to $5.6 million, or $0.35 per diluted share, in the prior year period.

During the fiscal fourth quarter 2017 the Company announced the acquisition of Greco Aluminum Railings, a leading manufacturer of high-quality engineered railing and safety systems for multi-family and commercial structures in the United States and Canada.  The acquisition underscored CSWI’s strategy to identify best-in-class products and leverage existing routes to market and served end markets to drive profitable growth, creating a strong strategic fit within the Company’s architecturally-specified building product category.  The integration of this acquisition is progressing well, and results are included in CSWI’s Industrial Products business segment.

Joseph B. Armes, CSW Industrials’ Chief Executive Officer, commented, “We are pleased to report the successful completion of our first full-year as a public company. We achieved several milestones during the year, including successfully rationalizing the footprint of our Jet-Lube operations and the acquisition of Greco. We finished the fourth quarter with a record-breaking performance in several of our construction related end markets, and while we are still managing macro pressure in rail and the volatility in the energy markets, we are beginning to see some stability and modest recovery in some areas.” Armes concluded, “Fiscal 2017 was a year of transition, which included a substantial effort to optimize our management structure and our operations as a new public company against a backdrop of mixed end market conditions. We are excited to enter Fiscal 2018 with the bulk of our most significant reorganization efforts behind us, and we expect to leverage our greater efficiency to drive further improvement in our results.”

Fourth Quarter Results of Operations
Consolidated revenue increased to $87.3 million, compared with the prior year level of $76.3 million.

Industrial Products segment revenue was $41.6 million, compared to the prior year of $33.9 million. Higher revenue was mainly the result of strong sales of our architecturally-specified products, plumbing and HVAC end markets. GAAP operating income increased to $8.4 million, compared to the prior year of $6.3 million. Adjusted to exclude non-recurring expenses, segment operating income increased 52.2% to $9.6 million, compared to the prior year period of $6.3 million.

Coatings, Sealants and Adhesives (CS&A) segment revenue was $26.7 million, compared to the prior year of $25.3 million. Higher sales were attributable to new business associated with fire stopping sealants, HVAC and plumbing, partially offset by lower OEM rail volume with existing customers. GAAP segment operating loss was $59.0 thousand, compared to the prior year loss of $63.0 thousand. Adjusted to exclude non-recurring costs primarily related to realignment and restructuring, segment operating income was $1.9 million, compared to the prior year period of $424 thousand.

Specialty Chemicals segment revenue was $19.1 million, compared to the prior year of $16.9 million. Higher sales were driven by drilling compounds plus new industrial lubricant business in cement and power generation end markets. GAAP segment operating loss was $817 thousand, compared to prior year period operating income of $3.1 million. Adjusted to exclude non-recurring costs, segment operating income decreased to $2.4 million, compared to $3.1 million in the prior year.

Consolidated gross profit was $31.1 million, a 9.7% decrease compared to the prior year level of $34.4 million.  Gross margin as a percentage of sales was 35.6%, compared to 45.1% in the prior year period. Lower gross margin compared to the prior year primarily reflected increased costs related to restructuring and realignment as the Company improves its operational footprint. In total, the Company incurred $5.3 million in restructuring and realignment costs during the period.

Consolidated operating expenses decreased 4.6% to $26.4 million, or 30.2% of sales, compared to the prior year level of $27.6 million, or 36.2% of sales. Lower operating costs compared to the prior year were primarily attributable to reduced compensation and benefit expenses.

Consolidated net income was $2.7 million, or $0.17 per diluted share, compared to $1.9 million, or $0.12 per diluted share in the fiscal 2016. Adjusted to exclude one-time expenses and applying a normalized tax rate, adjusted net income in the fourth quarter of fiscal 2017 was up 23.5% to $6.9 million, or $0.43 per diluted share, compared to $5.6 million, or $0.35 per diluted share, in the prior year period.

Full Year Results of Operations
Consolidated revenue increased 2.3% to $327.1 million, compared with prior year revenue of $319.8 million. Higher revenue was attributed to recent acquisitions, coupled with organic growth in HVAC, plumbing and architecturally-specified building products. Higher construction related volume was partially offset by decreased volumes in rail, energy, and mining end markets.

Industrial Products segment revenue increased to $158.7 million, compared to the prior year level of $138.6 million. The increase in revenue was mainly the result of strong organic growth and acquisitions made in the past twelve months. GAAP operating income increased to $32.9 million, over the prior year level of $31.1 million. Segment adjusted operating income increased to $34.6 million compared to the prior year of $27.9 million.

CS&A segment revenue decreased to $96.9 million, compared to the prior year level of $106.0 million. Decreased sales were attributable to lower sales volumes in rail end markets, partially offset by higher sales into fire stopping sealants, HVAC and Plumbing end markets. GAAP operating income was $851 thousand, compared to the prior year period of $10.9 million. Segment adjusted operating income declined to $8.2 million, compared to the prior year level of $11.1 million.

Specialty Chemicals segment revenue decreased to $71.5 million, compared to the prior year level of $74.9 million. Lower sales were attributable to weakness in rail, mining and energy end markets. GAAP operating income was $2.0 million, compared to the prior year period of $12.5 million. Segment adjusted operating income declined to $8.6 million, compared to the prior year level of $9.6 million.

Consolidated organic revenue increased 0.6%, reflecting our strong sales in HVAC, plumbing and architecturally-specified building products.

Consolidated gross profit decreased 9.5% to $133.8 million over the prior year level of $147.9 million. Gross margin as a percentage of sales was 40.9%, compared to 46.2% in the prior year period. Lower gross margin compared to the prior year primarily reflects lower volume and profitability of products sold into energy and rail end markets, restructuring and realignment charges, and pension gain in the prior-year that did not recur and other discrete items.

Consolidated operating expenses were $111.4 million, or 34.0% of sales, compared to the prior year level of $100.4 million, or 31.4% of sales. Increased operating expenses were attributable to restructuring and other discrete items in the current year and the pension gain in the prior year that did not recur, partially offset by startup costs in the prior year which did not recur.  In addition, the prior year reflects only half a year of corporate costs, as this was our first full year as a public company.

Consolidated net income was $11.1 million, or $0.70 per diluted share, compared with net income of $25.5 million, or $1.62 per diluted share, in the prior year period. Adjusted for one-time items and a normalized tax rate, net income was $26.7 million, or $1.68 per diluted share, compared to net income of $27.0 million, or $1.72 per diluted share in the prior year.  Adjustments to net income are shown in the table below.

Conference Call Information
The company will host a conference call today at 10:00 a.m. ET to discuss the results, followed by a question and answer session for the investment community.  A live webcast of the call can be accessed at ir.cswindustrials.com. To access the call, participants may dial toll-free at 1-877-407-0784 or 1-201-689-8560 (international) and request to join the CSW Industrials earnings call.

To listen to a telephonic replay of the conference call, dial toll-free 1-844-512-2921 or 1-412-317-6671 (international) and enter confirmation code 13663735. The telephonic replay will be available beginning at 1:00 p.m. ET on Wednesday, June 14, 2017, and will last through 11:59 p.m. ET on Wednesday, June 28, 2017.  The call will also be available for replay via the webcast link on CSW Industrials’ Investor Relations website.

Safe Harbor Statement
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "forecasts," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, earnings forecasts, statements relating to our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations and financial performance and condition.

The forward-looking statements included in this press release are based on our current expectations, projections, estimates and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements, and include, without limitation, the risk factors described from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K.

All forward-looking statements included in this press release are based on information currently available to us, and we assume no obligation to update any forward-looking statement except as may be required by law.

Non-GAAP Financial Measures
This press release includes an analysis of adjusted earnings per share, adjusted net income, and adjusted operating income, which are non-GAAP financial measures of performance.  For a reconciliation of these measures to the most directly comparable GAAP measures and for a discussion of why we consider these Non-GAAP measures useful, see the “Reconciliation of Non-GAAP Measures” section of this release.

About CSW Industrials
CSWI is a diversified industrial growth company with well-established, scalable platforms and domain expertise across three segments: Industrial Products; Coatings, Sealants & Adhesives; and Specialty Chemicals. CSWI's broad portfolio of leading products provides performance optimizing solutions to its customers. CSWI's products include mechanical products for heating, ventilation and air conditioning ("HVAC") and refrigeration applications, coatings and sealants and high performance specialty lubricants. Markets that CSWI serves include: HVAC, industrial, rail, plumbing, architecturally-specified building products, energy, mining and general industrial markets.

     
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
     
Quarter Ended March 31, 2017     2017     2016
Revenues, net     87,349     76,259
Cost of revenues     (56,276)     (41,832)
Gross profit     31,073     34,427
Gross profit margin     35.6%     45.1%
Total operating expenses     (26,352)     (27,631)
Operating expenses as a % of Sales     30.2%     36.2%
Operating income     4,721     6,796
Operating margin     5.4%     8.9%
Interest expense, net     (532)     (743)
Other income (expense), net     (116)     (41)
Income before income taxes     4,073     6,012
Provision for income taxes     (1,345)     (4,152)
Net income     2,728     1,860
Diluted EPS   $ 0.17   $ 0.12
         
(audited)  
Year Ended March 31, 2017     2017     2016
Revenues, net     327,084     319,831
Cost of revenues     (193,247)     (171,967)
Gross profit     133,837     147,864
Gross profit margin     40.9%     46.2%
Total operating expenses     (111,356)     (100,378)
Operating expenses as a % of Sales     34.0%     31.4%
Operating income     22,481     47,486
Operating margin     6.9%     14.8%
Interest expense, net     (2,695)     (3,035)
Other income (expense), net     1,758     (226)
Income before income taxes     21,544     44,225
Provision for income taxes     (10,473)     (18,754)
Net income     11,071     25,471
Diluted EPS   $ 0.70   $ 1.62
         
Diluted shares QTD     15,919     15,717
Diluted shares YTD     15,839     15,675
             


CONSOLIDATED BALANCE SHEETS
(audited)
           
    March 31,
 
(in thousands, except per share amounts)     2017       2016    
ASSETS          
Current assets:          
Cash and cash equivalents   $ 23,146     $ 25,987    
Bank time deposits     1,776       13,278    
Accounts receivable, net     63,782       52,637    
Inventories, net     50,401       51,634    
Prepaid expenses and other current assets     7,178       11,985    
Total current assets     146,283       155,521    
Property, plant and equipment, net     63,897       64,357    
Goodwill     80,863       67,757    
Intangible assets, net     90,610       88,727    
Other assets     16,011       15,898    
Total assets   $ 397,664     $ 392,260    
           
LIABILITIES AND EQUITY          
Current liabilities:          
Accounts payable     14,418     $ 9,912    
Accrued and other current liabilities     22,756       21,090    
Current portion of long-term debt     561       561    
Total current liabilities     37,735       31,563    
Long-term debt     72,646       89,121    
Retirement benefits payable     1,464       1,746    
Other long-term liabilities     13,380       11,820    
Total liabilities     125,225       134,250    
Equity:          
Common shares, $0.01 par value     157       156    
Shares authorized – 50,000        
Shares issued – 15,846 and 15,659, respectively        
Preferred shares, $0.01 par value     -       -    
Shares authorized – 10,000          
Shares issued – 0          
Additional paid-in capital     38,701       31,597    
Treasury shares, at cost     (1,011 )     -    
Retained earnings     245,026       233,955    
Accumulated other comprehensive loss     (10,435 )     (7,698 )  
Total equity     272,438       258,010    
Total liabilities and equity   $ 397,663     $ 392,260    
           


 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(audited)
 
        Fiscal Years Ended March 31,    
(amounts in thousands)     2017       2016       2015  
Cash flows from operating activities:            
Net income   $ 11,071     $ 25,471     $ 29,705  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation     7,857       7,032       5,922  
Amortization of intangible and other assets     7,939       7,129       4,593  
Provision for inventory reserves     1,644       -       -  
Provision for doubtful accounts     178       (282 )     1,515  
Share-based and other executive compensation     4,641       2,231       -  
Acquisition-related non-cash gain     (376 )     (1,950 )     -  
Net loss (gain) on disposals of property, plant and equipment     221       60       (1,627 )
Pension plan curtailment benefit     -       (8,020 )     -  
Net pension (benefit) expense     (1,092 )     3,506       3,392  
Impairment of assets     4,115       -       710  
Net deferred taxes     528       7,262       (7,887 )
Changes in operating assets and liabilities:            
Accounts receivable, net     (5,762 )     2,522       (37 )
Inventories     (36 )     5,056       (6,655 )
Prepaid expenses and other current assets     1,132       (4,945 )     4,351  
Other assets     (115 )     (3,275 )     109  
Accounts payable and other current liabilities     4,706       910       1,086  
Retirement benefits payable and other liabilities     2,385       (1,177 )     291  
Net cash provided by operating activities     39,036       41,530       35,468  
Cash flows from investing activities:            
Capital expenditures     (9,369 )     (11,053 )     (8,672 )
Proceeds from sale of assets held for investment     349       -       3,494  
Proceeds from sale of assets     263       46       6,393  
Net change in bank time deposits     10,968       (1,978 )     3,353  
Cash paid for acquisitions     (28,179 )     (97,236 )     (7,193 )
Net cash provided by (used in) investing activities     (25,968 )     (110,221 )     (2,625 )
Cash flows from financing activities:            
Borrowings on lines of credit     -       81,000       12,229  
Repayments of lines of credit     (561 )     (94,561 )     (30,622 )
Borrowings on revolving credit agreement     30,000       98,040       -  
Payments on revolving credit agreement     (45,915 )     (21,500 )     -  
Payments of deferred loan costs     -       (1,081 )     -  
Purchase of treasury shares     (1,011 )     -       (206 )
Cash contribution from Capital Southwest     -       13,000       -  
Proceeds from stock option activity     2,169       96       -  
Dividends paid to Capital Southwest     -       (300 )     (8,294 )
Net cash (used in) provided by financing activities     (15,318 )     74,694       (26,893 )
Effect of exchange rate changes on cash and equivalents     (591 )     (464 )     (913 )
Net change in cash and cash equivalents     (2,841 )     5,539       5,037  
Cash and cash equivalents, beginning of period     25,987       20,448       15,411  
Cash and cash equivalents, end of period   $ 23,146     $ 25,987     $ 20,448  
             

Reconciliation of Non-GAAP Measures

                 
Reconciliation of Operating Income to Adjusted Operating Income                
 
  (unaudited)  
(in thousands) For the Three Months Ended March 31,     For the Year Ended March 31,  
    2017     2016       2017     2016    
                   
GAAP Operating Income $ 4,721   $ 6,796     $ 22,481   $ 47,486    
                   
Adjusting items:                  
Pension gain   -     -       -     (8,020 )  
Restructuring & realignment   5,257     -       9,964     -    
Asset Impairment   220     -       3,234     -    
Estimated reserve for excess inventory   -     -       719     -    
Transaction and integration costs   431     487       431     2,128    
Spin related costs   -     684       -     3,730    
Consulting projects   509     -       1,904     -    
CFO Transition   -     -       2,872     -    
                   
Adjusted Operating Income $ 11,138   $ 7,967     $ 41,604   $ 45,324    
 


Reconciliation of Net Income to Adjusted Net Income                
                 
  (unaudited)
(in thousands, except share data) For the Three Months Ended March 31,     For the Year Ended March 31,
    2017     2016       2017     2016  
                 
GAAP Net Income $ 2,728   $ 1,860     $ 11,071   $ 25,471  
                 
Adjusting items, net of tax:                
Pension gain   -     -       -     (5,213 )
Restructuring & realignment   3,401     -       6,555     -  
Asset Impairment   142     -       2,102     -  
Estimated reserve for excess inventory   -     -       467     -  
Transaction and integration costs   279     315       280     1,377  
Spin related costs   -     443       -     2,413  
Consulting projects   329     -       1,238     -  
CFO Transition   -     -       1,867     -  
Discrete Tax Provisions   -     2,953       3,073     2,953  
                 
Adjusted Net Income $ 6,879   $ 5,571     $ 26,653   $ 27,001  
                 
GAAP Diluted income per common share $ 0.17   $ 0.12     $ 0.70   $ 1.62  
                 
Adjusting items, per diluted common share:                
Pension gain   -     -       -     (0.33 )
Restructuring & realignment   0.21     -       0.41     -  
Asset Impairment   0.01     -       0.13     -  
Estimated reserve for excess inventory   -     -       0.03     -  
Transaction and integration costs   0.02     0.02       0.02     0.09  
Spin related costs   -     0.03       -     0.14  
Consulting projects   0.02     -       0.08     -  
CFO Transition   -     -       0.12     -  
Discrete Tax Provisions   -     0.18       0.19     0.20  
                 
Adjusted earnings per diluted common share $ 0.43   $ 0.35     $ 1.68   $ 1.72  
Weighted-average shares outstanding (in thousands)                
Diluted   15,919     15,717       15,839     15,675  
                           


 
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
 
  (unaudited)
(in thousands, except percentages)   For the Three Months Ended March 31, 2017     For the Three Months Ended March 31, 2016
    Industrial Products   Coatings,
Sealants &
Adhesives
  Specialty Chemicals   Corporate
and Other
  Consolidated     Industrial Products   Coatings,
Sealants &
Adhesives
  Specialty Chemicals   Corporate
and Other
  Consolidated
                                           
Revenue   $ 41,605     $ 26,651     $ 19,089     $ 4     $ 87,349       $ 33,934     $ 25,314     $ 16,921     $ 90     $ 76,259  
                                           
Operating Income   $ 8,411     $ (59 )   $ (817 )   $ (2,814 )   $ 4,721       $ 6,289     $ (63 )   $ 3,068     $ (2,498 )   $ 6,796  
                                           
Adjusting items:                                          
Restructuring & realignment     624       1,803       2,830       (0 )     5,257         -       -       -       -       -  
Asset Impairment     13       153       54       -       220         -       -       -       -       -  
Transaction and integration costs     431       -       -       -       431         -       487       -       -       487  
Spin related costs     -       -       -       -       -         -       -       -       684       684  
Consulting projects     96       50       336       27       509         -       -       -       -       -  
                                           
Adjusted Operating Income   $ 9,574     $ 1,947     $ 2,403     $ (2,787 )   $ 11,138       $ 6,289     $ 424     $ 3,068     $ (1,814 )   $ 7,967  
% of revenue     23.0 %     7.3 %     12.6 %         12.8 %       18.5 %     1.7 %     18.1 %         10.4 %
                                           
                                                                                   
    (unaudited)
(in thousands, except percentages)   For the Year Ended March 31, 2017     For the Year Ended December 31, 2016
    Industrial Products   Coatings,
Sealants & Adhesives
  Specialty Chemicals   Corporate
and Other
  Consolidated     Industrial Products   Coatings,
Sealants & Adhesives
  Specialty Chemicals   Corporate
and Other
  Consolidated
                                           
Revenue   $ 158,654     $ 96,869     $ 71,469     $ 92     $ 327,084       $ 138,594     $ 106,035     $ 74,930     $ 272     $ 319,831  
                                           
Operating Income   $ 32,893     $ 851     $ 2,012     $ (13,275 )   $ 22,481       $ 31,075     $ 10,911     $ 12,490     $ (6,990 )   $ 47,486  
                                           
Adjusting items:                                          
Pension gain     -       -       -       -       -         (3,179 )     (1,418 )     (3,423 )     -       (8,020 )
Restructuring & realignment     624       3,759       5,581       (0 )     9,964         -       -       -       -       -  
Asset Impairment     227       2,953       54       (0 )     3,234         -       -       -       -       -  
Estimated reserve for excess inventory     17       279       423       -       719         -       -       -       -       -  
Transaction and integration costs     431       -       -       -       431         -       1,620       508       -       2,128  
Spin related costs     -       -       -       -       -         -       -       -       3,730       3,730  
Consulting projects     371       314       537       682       1,904         -       -       -       -       -  
CFO Transition     -       -       -       2,872       2,872         -       -       -       -       -  
                                         
Adjusted Operating Income $ 34,563     $ 8,155     $ 8,607     $ (9,721 )   $ 41,604       $ 27,896     $ 11,113     $ 9,575     $ (3,260 )   $ 45,324  
% of revenue   21.8 %     8.4 %     12.0 %         12.7 %       20.1 %     10.5 %     12.8 %         14.2 %
                                                                         


We use adjusted earnings per share, adjusted net income and adjusted operating income, together with financial measures prepared in accordance with GAAP, such as revenue, income from operations, operating expense, operating income and net income, to asses our historical and prospective operating performance and to enhance our understanding of our core operating performance. We also believe these measures are useful for investors to assess the operating performance of our business without the effect of non-operating items.

Investor contact:
Michael Callahan, ICR
(203) 682-8311
Michael.Callahan@icrinc.com

CSW Industrials