CSW Industrials - Earnings Call - Q4 2025

Transcript

Operator (participant)

Greetings. Welcome to CSW Industrials 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. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Alexa Huerta, Vice President of Investor Relations and Treasurer. Thank you. You may begin.

Alexa Huerta (VP of Investor Relations and Treasurer)

Thank you, Sherry. Good morning, everyone, and welcome to the CSW Industrials Fiscal 2025 fourth-quarter and full-year earnings call. Joining me today on the call is Joseph Armes, 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-K 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. 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, in the comments made during this call, as well as the risk factors identified in our annual report on Form 10-K 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 (Chairman, CEO, and President)

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 2025. This morning, we reported fiscal fourth-quarter revenue of $231 million, as well as fiscal fourth-quarter adjusted EBITDA of $60 million, adjusted earnings per diluted share of $2.24, and adjusted net income of $38 million. 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 million, adjusted EBITDA of $228 million, including margin expansion of 70 basis points to 25.9%, adjusted earnings per diluted share of $8.41, adjusted net income of $137 million, and cash flow from operations of $168 million. 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 2025. During the fiscal fourth quarter, we announced a definitive agreement to acquire Aspen Manufacturing for $313.5 million, and we were pleased to consummate this accretive and synergistic acquisition on May 1, 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. 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 10-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. 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 spinoff in October of 2015 is 14.1%. This average annual growth rate for the last nine and a half 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. In less than 10 years, we have grown our market cap over 1,000%, and total shareholder return is also over 1,000%.

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 10 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 (EVP and CFO)

Thank you, Joe, and good morning, everyone. As Joe mentioned, during fiscal 2025, we delivered record revenue of $878 million, representing growth of 11%. $38 million of the growth was organic, with the remaining $48 million of growth coming from the acquisitions of Dust-Free, PSP Products, and PF Waterworks 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 2025 was a record $231 million, a $20 million, or 9% increase when compared to the prior year period. $13.5 million of the revenue growth came from the aforementioned acquisitions. 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 million, 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 engineering building solutions, mostly offset by growth in contractor solutions. Our consolidated adjusted EBITDA during the fiscal fourth quarter increased by $4 million to a fiscal fourth quarter record of $60 million, which was 7% growth when compared to the prior year period. 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 million, with a record $2.24 of adjusted earnings per diluted share compared to $32 million or $2.04, 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 million shares for $347 million 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.

There were two non-recurring adjusting items to EBITDA, net income, and EPS in the fiscal fourth quarter: the $2.1 million increase in the expected earn-out consideration for the PSP Products acquisition due to revenue outperformance since the acquisition, and $1.4 million of transaction expenses incurred during the quarter for the Aspen Manufacturing acquisition. Both of these adjusted items occurred in our contractor solution segment. During the fourth quarter, our contractor solution segment, with $166 million in revenue, accounted for 71% of our consolidated revenue and delivered $24.7 million, or 17.5% growth, when compared to the prior year quarter. Of the revenue growth in the quarter, $13.5 million, or 9.5%, came from our recent acquisitions, while the remaining $11.2 million, or 8%, was driven by organic volume growth and pricing actions.

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 million, or 33.7% of revenue, compared to $47 million, 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 the decrease in operating expenses as a percent of revenue. Our specialized reliability solution segment revenue decreased by 9% to $38 million as compared to the prior period. 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 $5.8 million in the fourth quarter represented a decrease of 30% from $8.2 million in the prior year period. The EBITDA margin contracted 450 basis points to 15.3% in the current period, driven primarily by a decrease in gross margins due to 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 engineering building solution segment revenue decreased by 4% to $28.7 million compared to $30.1 million in the prior year period, driven simply by the timing of projects converting to revenue from backlog. 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 1 to 1. 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 $4.2 million, or a 14.5% EBITDA margin, compared to $6.2 million and 20.5% in the prior year period.

The contraction in EBITDA margin in the current period was primarily due to a $1.2 million 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 2025 with $226 million of cash and reported cash flow from operations of $27 million in the quarter, up 22% compared to $22 million 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 million, or 2% growth, compared to $164 million in the prior fiscal year.

Our free cash flow, defined as cash flow from operations minus capital expenditures, was $22.8 million in the fiscal fourth quarter, as compared to $17.5 million 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. Our free cash flow for the full fiscal year was $152.1 million, as compared to $147.8 million in the prior fiscal year. That resulted in free cash flow per share of $9.32 for fiscal 2025, as compared to $9.48 in the prior fiscal year. The reduction in 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 2024, 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. As Joe mentioned, in the fiscal fourth quarter, we announced a definitive agreement to acquire Aspen Manufacturing for $313.5 million. We completed the acquisition subsequent to year-end on May 1st, 2025. We used most of our cash on hand at that time and borrowed $135 million from our revolving credit facility to fund the transaction. I would also like to highlight that, subsequent to the end of fiscal 2025, the company renewed, extended, and upsized our revolving credit facility to $700 million 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. 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 2026, 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 2025. We expect Aspen's fiscal 2026 revenue to grow in the high single to low double digits off their trailing 12-month revenue of $125 million through our fiscal 2025 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 that contractor solutions' go forward quarterly revenue seasonality will be more pronounced than we've experienced in the past. 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 11 months during fiscal year 2026 and two months in our fiscal first quarter due to the May 1st acquisition date. As I previously mentioned, the company borrowed $135 million from our revolving line of credit and used the remainder of our cash on hand from the follow-on equity offering to fund the Aspen acquisition on May 1st, so we are no longer forecasting quarterly net interest income.

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 2026 if the company does not have further acquisitions throughout fiscal year 2026. Note that we continue to actively seek acquisitions but do not include that in our forecast. With that context, we currently anticipate approximately $5.3 million 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. We currently expect that the Aspen acquisition will add approximately $9.5 million of amortization expense in fiscal year 2026. This is a preliminary internal estimate and will be finalized during the fiscal year.

In our first quarter 10Q, 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 30% versus the recent margins closer to the mid 30% as we layer in our acquisitions and the expected impact of tariffs. 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 are taking 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.

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. During fiscal year 2026, specialized reliability solutions and engineering building solutions are each expected to have higher full-year EBITDA margin on higher revenue than the prior year. We expect to see EPS growth in fiscal 2026, 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 2026 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 (Chairman, CEO, and President)

Thank you, James. To summarize, during the fiscal fourth quarter of 2025, 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.

I would 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 US. 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 US. 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. It's my pleasure to also announce that our board has recently approved a profit-sharing ESOP contribution for fiscal 2025 equal to 6% of each U.S. employee's salary, as well as an additional profit-sharing 401(k) contribution of 3% for fiscal 2025, 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. Operator, we're now ready for questions.

Operator (participant)

Thank you. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment while we pull for questions. Our first question is from Jon Tanwanteng with CJS Securities. Please proceed.

Jon Tanwanteng (Managing Director)

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

James Perry (EVP and CFO)

Sure, Jon. Good morning, it's James. Thanks for being on as always. Appreciate your coverage. Tariffs are 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. We have been working through that inventory the last couple of months, so there's not much trailing impact.

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. As you know, we do have some of our product that comes out of China. We expect for fiscal 2026 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. Vietnam continues to be important to us with our facility there. We have no owned facilities internationally outside of Vietnam. Vietnam's in the 30s now as a result. We are watching the tariffs very closely. Obviously, the current pause is helpful in the near term.

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. We do expect that there's going to be an impact. We do expect that we'll weather that well working closely with our customers on that. 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 the other end in really good shape.

Jon Tanwanteng (Managing Director)

Okay, great. Thank you. Just in regards to the M&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. Is there more in the pipeline that would utilize that capacity, or is that more of just in case as you move forward?

Joseph Armes (Chairman, CEO, and President)

Jon, this is Joe.

As you know, I mean, we have been acquisitive since the beginning, and we will continue to do that. We take a very disciplined approach, and we never forecast acquisitions. 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. We think that the target list for acquisitions is very, very robust and strong, and there is 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. Domestic manufacturing, like the Aspen Manufacturing acquisition, would still be very, very actionable in the short term.

Jon Tanwanteng (Managing Director)

Got it. Thank you. One last question on Aspen. Do you believe that to be accretive to your margins over the longer term? What's the, I guess, the upside there as you bring it into your distribution and try to do your product improvements on the business?

James Perry (EVP and CFO)

Yeah, Jon, I think given where the margins are now at 24%, I think accretion to the 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, a 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. We do think there's a good path to see accretion in the near term to the consolidated margin. 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 is in the investor deck online. You've got interest expense for a little while, those kind of things. From an EBITDA accretion perspective, it's accretive day one from a dollar's perspective. The margins on consolidated, we think we will get there in the kind of near to midterm.

Jon Tanwanteng (Managing Director)

Got it. Thank you.

James Perry (EVP and CFO)

Thanks, Jon.

Operator (participant)

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

Susan Maklari (Senior Equity Research Analyst)

Thank you. Good morning, everyone.

Joseph Armes (Chairman, CEO, and President)

Good morning, Susan.

Susan Maklari (Senior Equity Research Analyst)

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'll come from China in fiscal 2026. 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 (EVP and CFO)

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%, and it'll be even less now with Aspen coming in, have virtually nothing that comes from overseas, a little bit here and there. But I'm referring to contractor solutions cost of goods sold for fiscal 2026.

Susan Maklari (Senior Equity Research Analyst)

Okay. All right.

That's helpful. 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 that pricing action coming through and the implications that we could see to the margins as we move through fiscal 2026?

Joseph Armes (Chairman, CEO, and President)

Yeah, 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. That's been in effect all through the fiscal fourth quarter and now into the fiscal first quarter of 2026. The price increase that I mentioned earlier is 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'll take place likely during this quarter. We've worked through that with our customers.

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

Susan Maklari (Senior Equity Research Analyst)

Okay. That's helpful. 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 some of the changes in the regulations on the refrigeration side? Did you see any pull forward or any actions in response to the tariffs that have been announced by your customers or in turn in the field?

James Perry (EVP and CFO)

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. 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 (Senior Equity Research Analyst)

Okay. All right. Thanks for all the color and good luck.

Joseph Armes (Chairman, CEO, and President)

Thanks, Susan.

Operator (participant)

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

Sam Reid (Executive Director of Equity Research)

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 interquarter just for modeling purposes. Sounds like overall margins running at around 24%. But maybe just give us some bands around that 24% just so we have some guardrails for modeling.

James Perry (EVP and CFO)

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

Sam Reid (Executive Director of Equity Research)

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 it taken pricing ahead of the industry? And just maybe any context on price gaps versus some of the competitors in the air handler and evaporator coil space?

James Perry (EVP and CFO)

Yeah, I think Aspen has done a good job. Obviously, they've 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. Aspen has done a good job of that. I think that you'll see them react like the competitors do, them react as they need to. Aspen doesn't have the tariff impact necessarily given that it's US-based. 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.

In general, Aspen is doing a good job with pricing, and 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 (Executive Director of Equity Research)

No, that's helpful. 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. Talk through kind of how those pricing discussions have worked by channel. Are you finding it easier to push pricing through on the distribution side versus, say, some of the home centers?

James Perry (EVP and CFO)

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

I think it's early, and I don't think we get so precise to bifurcate retail versus distribution. As a reminder, we are heavily weighted towards distribution. Retail plays a role in some of the products, of course. 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. You may see a little bit of compression. We saw that, Sam, 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. Again, we continue to focus on those distribution customers. Where we have relationships with retailers, we're having good discussions there as well.

Sam Reid (Executive Director of Equity Research)

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

James Perry (EVP and CFO)

Thanks, Sam.

Operator (participant)

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

Jamie Cook (Managing Director of Equity Research)

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 and 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. 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%.

Just wondering when we should see that translate into positive organic growth for EBS. Thank you.

Joseph Armes (Chairman, CEO, and President)

Yeah, Jamie, thanks. If I missed some of that, circle back, please. I'll start at the end. Engineered building solutions, again, we wanted to highlight a historically strong booking quarter for us. Given things like the ABI index and those kind of things, we're really proud of the team. 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 rebidding, which means projects are getting very close to getting done instead of just kind of that initial bid they throw out but do not turn into a booking. 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. We think we're going to have a nice booking year in fiscal 2026 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 they're bid and booked. Some of those are 18-24 months out. 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. 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.

I think that they're back to a nice order booking level and a nice sales level. 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. 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, it's been a slow hot season so far, but the group is still doing a great job of getting our product in customers' hands. They have what they need as soon as it heats up. We do a great job of getting things out very near-term.

Obviously, the fact that some of it comes from overseas, we have to plan accordingly. We have strategically placed the right inventory. We feel good about the organic growth prospects there as well. I will mention, on top of introducing new products through the acquisitions we have, product innovation with those acquisitions. 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. 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-pointed contact. We are picking up share as we continue to add products.

Jamie Cook (Managing Director of Equity Research)

Thank you.

Joseph Armes (Chairman, CEO, and President)

Hopefully, I covered it all, Jamie.

Jamie Cook (Managing Director of Equity Research)

Yep, you did. Thank you. Thanks.

Operator (participant)

As a reminder, this is Star One on your telephone keypad if you would like to ask a question. Our next question is from Andrew Kaplowitz with Citi. Please proceed.

Natalia Bak (Equity Research Senior Associate)

Hi, good morning. This is Natalia Bak on behalf of Andy Kaplowitz.

Joseph Armes (Chairman, CEO, and President)

Hi, Natalia.

Alexa Huerta (VP of Investor Relations and Treasurer)

Hi, Natalia.

Natalia Bak (Equity Research Senior Associate)

The first question I want to ask, just in engineering or engineered building solutions, last quarter, you reiterated a 20% EBITDA margin target in the intermediate term. As backlog quality improves, what's the timeline to approach that goal? Are there any key hurdles like cost, scale, or pricing you need to overcome to get there?

Joseph Armes (Chairman, CEO, and President)

Yeah, Natalia, great question. We still target that as the midterm hurdle. Whether we're there each and every quarter, that'll 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. We're working on that. Obviously, a little tariff relief is helpful. 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 2026? Probably a little early to say that necessarily, but we're approaching it here as we go through quarter to quarter, yes.

Natalia Bak (Equity Research Senior Associate)

Helpful. And then just on SRS, margins compressed this quarter, but what specific factors contributed to the performance?

But more importantly, what strategies are in place to address these challenges? I saw on the presentation, there's a mention of new product introductions and new deals in process. Maybe if you could expand on those points.

Joseph Armes (Chairman, CEO, and President)

Yeah, sure, Natalia. The biggest factor for specialized reliability solutions, as we've talked about, is volume. 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. Volume matters in that business. The volume was soft in January and February, and that's just going to hit margins. Your absorption is not as 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. That's going to vary quarter to quarter.

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. 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 in Texas. That's our highest margin group of products. A, we eliminated a little bit of cost by moving that down here. Secondly, we've got more eyes on those products now. We're doing better with product development there, having it right here in the same lab, in the same facility. We're doing things like that structurally that will continue to push top-line and bottom-line growth and help those margins.

Natalia Bak (Equity Research Senior Associate)

Got it. Helpful.

That's all my questions. Congrats on the quarter.

Joseph Armes (Chairman, CEO, and President)

Thanks, Natalia.

Operator (participant)

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

Joseph Armes (Chairman, CEO, and President)

Thank you. 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 (participant)

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