CSW INDUSTRIALS, INC.

CSW Industrials, Inc. is a diversified industrial growth company operating in three business segments: Contractor Solutions, Specialized Reliability Solutions, and Engineered Building Solutions. The company's products include mechanical products for heating, ventilation, air conditioning and refrigeration (HVAC/R), plumbing products, grilles, registers and diffusers (GRD), building safety solutions, and high-performance specialty lubricants and sealants. End markets served include HVAC/R, architecturally-specified building products, plumbing, general industrial, energy, rail transportation, mining, and electrical. Manufacturing operations are concentrated in the United States, Vietnam, and Canada, with distribution operations in the U.S., Australia, Canada, and the United Kingdom. Products are sold directly to end-users or through designated channels in over 100 countries, primarily in the U.S., Canada, the U.K., and Australia.

The company competes in varied markets. In the Contractor Solutions segment, competitors include DiversiTech, DuraVent, Intermatic, Little Giant, Nu-Calgon, RGF, BrassCraft, IPS, J.R. Smith, Mainline, and Oatey. In the Specialized Reliability Solutions segment, typical competitors include Exxon-Mobil, Fuchs, Kluber, Shell, and South Coast Products. In the Engineered Building Solutions segment, competitors include McKeon, US Smoke & Fire, Won Door, Construction Specialties, Emseal, and InPro. The company competes primarily on the basis of product differentiation, superior performance and quality, customer-centric service, and the breadth of its product lines. Management believes its brands are well known in the specific end markets served and have a reputation for high quality. For the year ended March 31, 2026, no single customer represented 10% or more of net revenues.

The company generates revenue through the sale of niche, value-added products across three segments. Revenue is recognized when control of promised goods or services is transferred to customers, with most contracts having a duration of one year or less. Products are sold through full-service distribution networks, internal and third-party sales representatives, and directly to end-users. The company relies on both organic growth and inorganic growth through acquisitions to provide a broad portfolio of performance-optimizing solutions. Many products are used to protect capital assets that are expensive to repair or replace, providing a source of recurring revenue from maintenance, repair, overhaul, and consumable nature. The company also provides custom engineered products that strengthen customer relationships.

The Contractor Solutions segment manufactures efficiency and performance enhancing products predominantly for residential and commercial HVAC/R and plumbing applications, designed primarily for the professional trades. Key product types include condensate pads, pans and pumps, condensate switches and traps, drain management systems, ductless mini-split systems installation support tools, electrical protection for HVAC/R, evaporator coils and air handlers, grilles, registers, diffusers and vents, installation supplies for HVAC/R, line set covers, load management systems, maintenance chemicals for HVAC/R, motors and capacitors, refrigerant caps, solvents, cements, traps, vents, and thread sealants, surge protection devices, and wire pulling head tools. Brand names include Amrad, AquaGuard, Aspen Manufacturing, Clean Check, Cover Guard, Desolv, Duckt-Strip, Dust Free, EZ Trap, Falcon, Fortress, Goliath, G-O-N, Guardian Drain Lock, Hubsett, Kickstart, Leak Freeze, MARS, No. 5, Novent, PF WaterWorks, PRO-Fit, PSP Products, RectorSeal, Safe-T-Switch, Shoemaker Manufacturing, SureSeal, TRU-BLU, TRUaire, and Turbo 200. For the year ended March 31, 2026, this segment generated net revenues of $810,317,000 ¹ and operating income of $175,676,000 ² with an operating margin of 21.7% ³.

The Specialized Reliability Solutions segment provides products for increasing the reliability, efficiency, performance, and lifespan of industrial assets, including specialty lubricants, compounds, sealants, desiccant breather filtration products, and lubrication management systems. Key product types include anti-seize products, compounds, lubricants and sealants, contamination control, desiccant breather filtration products, industrial maintenance and repairs, lubricant management systems, operations solutions, rail applicators, lubricants and friction modifiers, and sealants. Brand names include AccuTrack, Air Sentry, BioRail, Deacon, Envirolube XE Extreme, Extreme, Gearmate 1000 ICT, Hydrotex, Jet-Lube, Kopr-Kote, Matrix, NCS-30 ECF, OilSafe, ProAction Fluids, RailArmor, Run-N-Seal ECF, TOR Armor, and Whitmore. For the year ended March 31, 2026, this segment generated net revenues of $160,111,000 ⁴ and operating income of $22,079,000 ⁵ with an operating margin of 13.8% ⁶. The Engineered Building Solutions segment provides primarily code-driven, life-safety products engineered for construction, refurbishment, and modernization of commercial, institutional, and multi-family residential buildings. Key product types include architectural railings and metals, expansion joints and joint seals, fire and smoke curtains, large curtains, perimeter protection solutions, fire stopping solutions, and pre-engineered and custom architectural building components. Brand names include Balco, BlazeSeal, Duraspan, Greco, IllumiTread, Jointspan, Metacaulk, Metablock, Metaflex Pro, Quakespan, and Smoke Guard. For the year ended March 31, 2026, this segment generated net revenues of $119,911,000 ⁷ and an operating loss of $(1,179,000) ⁸ with an operating margin of (1.0)% ⁹.

During the fourth quarter of fiscal 2026, the company committed to a plan to pursue a sale of the Greco US business and a strategic exit of the Greco Canada business, recording a non-cash impairment expense of $15.6 million ¹⁰ for the Greco US and Canada businesses and additional expenses of $2.1 million ¹¹ in connection with the Greco Canada Exit. On March 12, 2026, the company acquired certain assets of Joyce Sales Group, LLC and Copper2Glass, LLC (Duckt-Strip) for cash consideration of $21.0 million ¹². On November 20, 2025, the company acquired certain assets of ProAction Fluids, LLC for cash consideration of $9.5 million ¹³. On November 5, 2025, the company acquired certain assets of Hydrotex Holdings, Inc. for an aggregate purchase price of $17.0 million ¹⁴. On November 4, 2025, the company acquired 100% of the equity interests of Dusk Acquisition Corporation and its wholly owned subsidiaries (MARS Parts) for an aggregate purchase price of $658.1 million ¹⁵, funded with a combination of a new senior secured term loan A (TLA) in an aggregate principal amount of up to $600.0 million ¹⁶ and borrowings under the existing Revolving Credit Facility. On May 1, 2025, the company completed the acquisition of 100% of the equity interests of Aspen Manufacturing, LLC for an aggregate purchase price of $327.6 million ¹⁷. On December 15, 2025, the company announced an expansion of its share repurchase program authorization from $200.0 million ¹⁸ to $250.0 million ¹⁹. During the year ended March 31, 2026, the company repurchased 503,076 ²⁰ shares under the current program for $127.5 million ²¹ and paid dividends of $18.0 million ²².

For the fiscal year ended March 31, 2026, total net revenues were $1,082,549,000 ²³, an increase of $204.2 million, or 23.3% ²⁴, compared to $878,301,000 ²⁵ in the prior year. Gross profit was $453,682,000 ²⁶ with a gross profit margin of 41.9% ²⁷, compared to $393,312,000 ²⁸ and 44.8% ²⁹ in the prior year. Operating income was $168,535,000 ³⁰ with an operating margin of 15.6% ³¹, compared to $181,248,000 ³² and 20.6% ³³ in the prior year. Net income attributable to CSW was $112,045,000 ³⁴, compared to $136,652,000 ³⁵ in the prior year. Diluted earnings per share attributable to CSW was $6.70 ³⁶, compared to $8.38 ³⁷ in the prior year. Net cash provided by operating activities was $149,653,000 ³⁸.

For fiscal 2027, management holds a positive view of primary end markets and remains focused on competitive outperformance through strategic and operational strengths. Each of the three segments is expected to deliver revenue and profit growth, driven by product expansion, market share gains, acquisition synergies, and pricing improvements. Strong operating cash flows are anticipated to support the capital allocation strategy. The company expects to maintain a strong balance sheet in fiscal year 2027, providing access to capital through cash on hand, internally-generated cash flow, and availability under the Revolving Credit Facility.

The company's growth strategy includes leveraging existing customer relationships and products to drive revenue growth, profitability, and cash flows by cross-selling products across the three business segments. The company also focuses on innovating new products to accelerate organic growth through collaborative relationships with distributors and end-users, with R&D teams located in multiple facilities including Cle Elum, Washington; Dong Nai, Vietnam; Earth City, Missouri; Fall River, Massachusetts; Houston, Texas; Humble, Texas; Manassas, Virginia; Palm Coast, Florida; and Royse City, Texas. Additionally, the company invests in focused acquisitions that leverage its distribution channels, primarily targeting commercially-proven products and solutions that would benefit from a broader distribution network. The company invested almost $1.2 billion ³⁹ in multiple acquisitions made in fiscal years 2026, 2025, and 2024.

The company's growth strategy also includes identifying strategic end markets yielding sustainable growth and expanding market share through new product development and targeted acquisitions. The company expects to continue to identify and execute acquisitions that will broaden its portfolio of products and offer attractive risk-adjusted returns, focusing on commercially-proven products and solutions that would benefit from a broader distribution network. The company also seeks to leverage its existing customer base to cross-sell products and solutions across its three business segments, thereby driving organic growth.

Gross profit margin for the year ended March 31, 2026 decreased to 41.9% ⁴⁰ from 44.8% ⁴¹ in the prior year, driven by the inclusion of recent acquisitions, increases in tariffs and material costs, acquisition integration expenses, a discrete inventory write-down associated with a realignment of distribution strategy, and Greco Canada Exit related expenses, partially offset by pricing actions and favorable freight costs. Selling, general and administrative expenses as a percentage of revenues increased to 26.3% ⁴² from 24.1% ⁴³ in the prior year, primarily attributable to operating expenses increasing by a greater percentage than the revenue increase.

The company's capital expenditures during the year ended March 31, 2026 were $17.3 million ⁴⁴, focused on continuous improvement and automation, safety enhancements, capacity expansion, enterprise resource planning systems, and new product introductions. The company plans to continue investing in capital expenditures in the future to improve manufacturing productivity, enhance operational safety, upgrade information technology infrastructure and security, and implement advanced technologies for existing facilities. As of March 31, 2026, the company had $279.0 million ⁴⁵ outstanding under the Revolving Credit Facility and $592.5 million ⁴⁶ outstanding under the TLA, resulting in borrowing capacity of $419.7 million ⁴⁷ (net of credit utilization).

The company's capital allocation strategy prioritizes directing capital to the highest risk adjusted return opportunities within the categories of organic growth, strategic acquisitions, and the return of cash to shareholders through share repurchase and dividend programs. R&D costs were $5.8 million ⁴⁸ for the year ended March 31, 2026. On April 2, 2026, the company announced a quarterly dividend increase to $0.30 ⁴⁹ per share. Under the current $250.0 million ⁵⁰ share repurchase program, as of March 31, 2026, 523,121 ⁵¹ shares were repurchased for an aggregate amount of $134.3 million ⁵². The Board of Directors has established an expiration date of December 31, 2026 ⁵³ for completion of the repurchase program.

The company faces headwinds from changes in global trade policy and tariffs, including country-specific tariffs on Vietnam and China and commodity-specific tariffs on steel, aluminum, and copper. The company has responded by negotiating cost reductions with certain suppliers, transitioning certain sources of supply, and raising prices to customers. The U.S. Supreme Court's February 2026 decision invalidating tariffs imposed under the International Emergency Economic Powers Act (IEEPA) may allow for recovery of IEEPA tariff amounts previously paid, though the timing and administration of any potential refunds is uncertain. The ongoing conflict in the Middle East, including active military operations in Iran beginning February 28, 2026, has contributed to elevated crude oil prices, ocean and domestic freight costs, and extended lead times from Asian suppliers. The company is working with logistics partners to mitigate these impacts and does not currently believe they will have a material adverse effect on its ability to meet customer demand.

The company faces structural headwinds from the cyclical nature of certain end markets served, including HVAC/R, general industrial, construction, energy, rail transportation, and mining, which can cause significant fluctuations in results of operations and cash flows. These markets are highly competitive, driven to a large extent by end-use markets, affected by distributor stocking behaviors, and may experience overcapacity. The company's operations and earnings may also be affected by changes in oil, gas, and petrochemical prices and drilling activities, which depend on local, regional, and global events or conditions that affect supply and demand for the relevant commodity.

The company faces material risks from changes in global trade policy and tariffs, including country-specific tariffs on Vietnam and China and commodity-specific tariffs on steel, aluminum, and copper, which have impacted manufacturing costs and logistics. The U.S. Supreme Court's February 2026 decision invalidating tariffs imposed under IEEPA may allow for recovery of amounts previously paid, though the timing and administration of any refunds is uncertain. The company's significant manufacturing operations in Vietnam and use of third-party manufacturers in China expose it to these risks. The company also faces risks related to its substantial goodwill of $632,631,000 ⁵⁴ as of March 31, 2026, as a future impairment of these assets could have a material adverse effect on results of operations and financial condition, as evidenced by the $7.5 million ⁵⁵ goodwill impairment recorded for the Greco businesses during the year. The company's outstanding indebtedness of $871,500,000 ⁵⁶ as of March 31, 2026, including the Revolving Credit Facility and TLA, imposes restrictive covenants that limit operating and financial flexibility, including requirements to maintain a maximum leverage ratio of 3.50 to 1.00 ⁵⁷ (subject to a temporary increase to 4.00 to 1.00 ⁵⁸) and a minimum interest coverage ratio of 3.00 to 1.00 ⁵⁹. The company's international sales and manufacturing operations involve inherent risks including political and economic uncertainty, currency exchange rate fluctuations, and compliance with foreign laws, with main currency exposures to the Australian dollar, British pound, Canadian dollar, and Vietnamese dong.

Management's message to shareholders conveys a positive view of primary end markets for fiscal 2027, with a focus on competitive outperformance through strategic and operational strengths. Each of the three segments is expected to deliver revenue and profit growth, driven by product expansion, market share gains, acquisition synergies, and pricing improvements. Management expresses confidence in the strategy and the team's ability to execute, and expects to maintain a strong balance sheet in fiscal year 2027, which provides access to capital through cash on hand, internally-generated cash flow, and availability under the Revolving Credit Facility. The capital allocation strategy continues to guide investing decisions, with a priority to direct capital to the highest risk adjusted return opportunities within the categories of organic growth, strategic acquisitions, and the return of cash to shareholders through share repurchase and dividend programs. Management emphasizes the importance of continuing to drive organic growth and investing additional capital in opportunities with attractive risk-adjusted returns, while remaining disciplined in the approach to acquisitions, particularly as it relates to assessment of valuation, prospective synergies, diligence, cultural fit, and ease of integration.