Thank you for standing by. This is the conference operator. Welcome to the Griffon Corporation third quarter fiscal 2021 earnings conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Brian Harris, CFO. Please go ahead.
Thank you. Good afternoon, everyone. With me on the call is Ron Kramer, our Chairman and Chief Executive Officer. Our call is being recorded and will be available for playback, the details of which are in our press release issued earlier today. As in the past, our comments will include forward-looking statements about the company's performance based on our views of Griffon's businesses and the environments in which they operate. Such statements are subject to inherent risks and uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and in our various Securities and Exchange Commission filings. Finally, some of today's remarks will adjust for those items that affect comparability between reporting periods. These items are explained in our non-GAAP reconciliations included in our press release or in our investor presentation, which will be available on our website.
Now I'll turn the call over to Ron.
Thanks. Good afternoon, everyone. We're pleased with our third quarter performance, which was slightly above our expectations. Revenue increased 2% over the prior year quarter, or 4% excluding the impact of the SEG disposition. Adjusted EBITDA was $76 million, excluding unallocated costs, and adjusted EPS was $0.43. We're executing well in a very complex operating environment. I want to spend a minute discussing it before moving to the segments. Demand remained very healthy across our product categories, supported by strong housing market, repair and remodel activity, and consumer spending. We're currently carrying record levels of backlog in both the CPP and HBP segments due to transportation disruptions and tight labor availability, which limited our ability to catch up with demand.
We implemented price adjustments and continually worked through efficiency programs to mitigate rapidly rising input costs, and we'll continue to work with our suppliers and customers to implement further price adjustments. Our businesses have proven to be resilient, and we're reiterating our full-year guidance. Our AMES strategic initiative that will consolidate operations, increase automation, support e-commerce growth, and create a new global data and analytics platform for AMES by the end of 2023 is on track. We expect this to further improve margins in the years ahead. We reiterate our expectation to realize annual cash savings of $30 million-$35 million and inventory reductions of the same magnitude when the benefits of the initiative are fully realized.
As we navigate through the second year of managing our businesses during the global pandemic, we continue to prioritize protecting our employees, even as restrictions in the United States, Canada, the United Kingdom, and Australia are evolving. We are closely monitoring the situation due to the spread of the COVID-19 Delta variant. We'll make adjustments as needed to be responsive to government guidelines and to ensure the safety of our employees and customers. Turning to the segments. In Consumer and Professional Products, we saw robust demand across all geographies and product lines. Shipping delays related to availability of transportation impacted U.S. revenue. EBITDA was impacted by the implementation of price adjustments, which, as expected, lagged input cost increases. In the Home and Building Products segment, we continue to see strong demand for both residential and commercial door products.
Sales increased from the prior year quarter, driven by increased volume and favorable pricing and mix. EBITDA also increased, benefiting from the increased sales, partially offset by the timing of price adjustments versus increasing input costs. In Defense Electronics, Telephonics revenue decreased from the prior year, primarily driven by reduced volume resulting from timing of deliveries on communications and radar systems, as well as the divestiture of SEG, partially offset by volume increases in naval and cyber systems. EBITDA increased over the prior year as actions taken to reduce operating expenses took effect and performance on naval and cyber system programs improved. Backlog in the quarter was $375 million, compared to $341 million at June 30, 2020, excluding SEG, with trailing 12-month book-to-bill of 1.1x . We continue to see a bright future for the Telephonics intelligence, surveillance, and reconnaissance products in the years ahead. Turning to the balance sheet.
We continue to have a solid capital structure with excellent flexibility. We have $221 million in cash and $362 million available on our revolving credit facility, putting us in an excellent position to execute on our organic growth initiatives and to capitalize on an active pipeline of acquisition opportunities while returning cash to shareholders through our quarterly dividends. We've de-levered to 2.9x , marking 1.5 turns of improvement over the prior year period. Earlier today, our board authorized an $0.08 per share dividend payable on September 16th, 2021, to shareholders of record on August 19th. This marks the 40th consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17% since we initiated it in 2012. Let me turn it over to Brian, who will take you through some of the financials.
Thank you, Ron. I'll start by highlighting our third quarter consolidated performance. Revenue increased 2% to $647 million or increased 4% when excluding the SEG divestiture. Adjusted EBITDA decreased 7% to $65 million and adjusted EBITDA margins decreased 100 basis points to 10%. Gross profit on a GAAP basis for the quarter was $170 million, increasing 3% compared to the prior year quarter. Excluding restructure-related charges, gross profit was $171 million, increasing 3.5% compared to the prior year quarter, with gross margin increasing 30 basis points to 26.4%. Third quarter GAAP selling, general, and administrative expenses were $126 million compared to $114 million in the prior year quarter. Excluding restructuring-related charges, selling, general, and administrative expenses were $122 million or 18.9% of revenue, compared to $112 million or 17.7% in the prior year quarter, primarily driven by restoration of selling and marketing expenditures and increased distribution and transportation costs.
Third quarter GAAP net income was $17 million, or $0.31 per share, compared to the prior year period of $22 million or $0.50 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $23 million or $0.43 per share, compared to the prior year of $26 million or $0.59 per share. Keep in mind, the equity offering in August 2020 impacted current quarter adjusted EBITDA by approximately $0.08. Corporate and unallocated expenses, excluding depreciation, were $11 million in the quarter, in line with prior year third quarter. Our effective tax rate, excluding items that affect comparability for the quarter, was 31.2%, and for the year-to-date period was 31.1%. Capital spending was $10 million in the third quarter compared to $12 million in the prior year quarter.
Depreciation and amortization totaled $15.8 million compared to $15.5 million in the prior year quarter. Regarding our balance sheet and liquidity as of June 30, 2021, we had net debt of $835 million and leverage of 2.9x , calculated based on our debt covenants. This is a 1.5 turn reduction from our prior year third quarter, and is a half turn reduction from our 2020 fiscal year-end. As a reminder, Griffon uses cash in the first six months of its fiscal year, which will be more than offset by the generation of significant cash flow in the second half. Our cash and equivalents were $221 million, and debt outstanding was $1.06 billion. Borrowing availability under the revolving credit facility was $362 million, subject to certain loan covenants. Regarding our 2021 guidance, with our third quarter behind us, we are continuing to see strong demand for products across our portfolio.
Recovering consumer activity and a strong housing market are contributing to a constructive macro environment, and homeowners continue to focus on outdoor living and repair and remodeling projects. While we are seeing the expected headwinds from cost inflation, supply chain disruptions, and a tight labor market, we are managing through those effects, and we expect in excess of $2.5 billion of revenue and continue to expect $320 million of adjusted EBITDA, excluding unallocated and one-time charges. Now I'll turn the call back over to Ron.
Thanks, Brian. As we enter the final quarter of our fiscal year, we are seeing strong demand trends across all of our segments. We continue to successfully manage through this dynamic environment, driven by the exceptional dedication, perseverance, and performance of our 7,500 employees. Over the last three years, since the sale of our plastics business and the purchase of ClosetMaid and CornellCookson, we fundamentally strengthened Griffon. During this period, our revenue and adjusted EBITDA have increased at a compound annual growth rate of 11% and 20% respectively. Adjusted earnings per share have grown from $0.67- $1.91 on a trailing 12-month basis, which is a 42% compound annual growth rate. Most importantly, over this period, we've generated $212 million in free cash flow and reduced our leverage by almost three full turns to 2.9x . We are very pleased with our progress creating long-term shareholder value.
We expect significant additional benefits to come as we execute on our strategic initiatives to improve margins and take advantage of our balance sheet firepower to invest in our businesses and capitalize on acquisition opportunities. Our best is yet to come. Operator, we'll take any questions.
Thank you. We will now begin the question- and- answer session. In the interest of time, we do ask that you limit yourself to one question and one follow-up question. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Bob Labick with CJS Securities. Please go ahead.
Good afternoon, and congratulations on another strong quarter.
Thanks, Bob.
I wanted to start, you touched on this, so maybe we could dig in a little further. Raw material and transportation has obviously been a headwind in the near term, and also from your results, you can see you have some nice pricing power. We also know it lags over time. Maybe just give us a sense of how you see it playing out over the next six to 12 months in terms of your margins, your ability, and the timing of price increases. How should we think about the margin progression and when you catch up to the?
cost inflations that are out there for everybody?
Well, as we discussed at the end of the second quarter, the pace of increases in raw material costs, freight, and labor were going up, and our ability to pass along those increases was going to happen with a lag. We are continuing to pass along price increases, and we're continuing to try to mitigate the inflationary trends that are going on for us and across all the economy. Our view is the consumer is strong. The housing market remains strong. The demand in our business has never been stronger. We're going to continue to try to deal with the things that are in our control, trying to be more efficient. Our AMES initiative in particular, was always meant to be about a 300 basis point margin improvement story over a multi-year journey. That still is in front of us.
We see this as evolutionary for our business, and we're going to continue to find ways to pass along price increases, and take costs out of our business in order to improve our margins. Most importantly, we see the demand trends as being strong and in our favor. Brian?
Yeah, I'll just add to that. The costs after our last call continued to rise, and they rose rapidly. We'll continue to have to pass through price, and we'll still have some price cost pressure into the fourth quarter. We expect if the costs stop rising, that we'll resolve that by early in our next fiscal year.
Got it. Okay, great. In terms of my follow-up, for lack of a better word, in the past, you've obviously had some very nice success with small international kind of tuck-in type acquisitions and medium-sized ones in that regard. You highlighted, obviously, below three turns of leverage now. Can you talk about the M&A environment? Obviously a lot of asset prices have risen. Are there things out there? Are you still looking in the international market, or how are you thinking about the M&A environment, and what's the environment like for you?
Well, the first part is that capital is unlimited, and therefore, competition is leading to increasingly higher prices. That's something that's been happening, and we expect will continue to happen. Our strategy has always been to buy things that we can run better. We are improving our own businesses and allocating capital and looking at ways to make what we already have incrementally better. That's the best acquisition that we can make. The pipeline of acquisitions has never been better, and yet, I'm disappointed this quarter that we don't have anything to announce, because there are a lot of processes that ended up with prices that we weren't prepared to pay or values that we didn't think was incrementally better than what we already own. We're going to continue to look at things as they come along.
We continue to believe that our ability to deploy capital is ahead of us. The significant amount of cash that we have on our balance sheet and heading into our fourth quarter, we'll have even more at fiscal year-end. We're in a very good position to find things to do with our enhanced liquidity, and that'll happen over time. We're in no rush. Until it's clear that we can all be traveling and visiting, the way we buy businesses, we like to be able to get under the hood and due diligence at a level that I still am uncomfortable that the world is opened, where we're really understanding the things that we're looking at buying at the level that we want to.
We're very content to spend our time just getting the margin improvement story, the free cash flow story, and the increasing earnings per share story that we've been able to deliver over the next several years.
The next question comes from Julio Romero with Sidoti & Co. Please go ahead.
Hi. Yes, good afternoon, Ron and Brian. 1 thing that we've seen is some initial signs of slowing in DIY products. When I think about Griffon's product portfolio, I think about the Consumer and Professional Products segment, and ClosetMaid would be something that sticks out to me that could have some DIY exposure. Can you just talk about how demand is trending in ClosetMaid and broadly across the CPP segment?
We've seen the same commentary, and as we've said to you, we have backlog levels that say just the opposite.
That's encouraging to hear. Okay. I guess for my follow-up, in the HBP segment, can you maybe give us an update on how some of the new product launches in that business are being received?
Sure. Our new product launches continue to perform well. We've come out with several things, StormDefender, EntryDefender, and Store Defender, which do just what they say. We have a MicroCoil Grille product that has performed well in fire suppression products. That the market has received well. Those products and the expansion we made in our Mountain Top facility to supply people with those products has been a good investment.
The CornellCookson acquisition is everything we had hoped. We continue to believe that the growth of the commercial business and the innovation pipeline in both commercial and in residential, we are in a very strong position. I believe this is the first quarter in Clopay's history where trailing 12 months we're over $1 billion in revenue. We're really executing well. We expect that business to continue to show growth.
Great. Thank you very much.
The next question comes from Justin Bergner with G. Research. Please go ahead.
Good afternoon, Ron. Good afternoon, Brian.
Hi, Justin.
Hi, Justin.
Hi. Just to follow up on the Consumer and Professional Products business, did the shipping delays put any business at risk? Would the backlog still have been up and at record levels if you had not experienced those shipping delays?
I wouldn't say it put the business at risk. We certainly had revenue that got pushed off to a later date by the pressure we had from transportation not being as available as one would like. The demand has been very strong across CPP and across HBP as well. It's hard to say exactly what order patterns, because people wouldn't necessarily order more until they got their original product, so I can't fully answer your question. The baseline is demand has been very strong.
Okay. Then just to follow up on HBP, are you seeing any deceleration in demand trends there? It doesn't look it. Is there any limitation on your ability to put through price? I imagine that the commodity prices could start impacting demand, but maybe not. Just curious your perspective there.
Sure. The demand has continued to be strong. It has not dropped off. So far, the consumer continues to accept price. It's as simple as that.
Great. Thank you.
The next question comes from Keith Hughes with Truist Securities. Please go ahead.
Hi, good afternoon. This is Denys Klimyentyev in for Keith Hughes. Thank you for taking the question. The first question I'd like to ask is regarding the HBP pricing, which seemed particularly strong at 13% in the quarter. Just curious if you can share some of the factors behind that and what are some of the fundamentals driving that pricing strength in that segment. For the other question, I'd like to ask a general about just the priorities in terms of capital allocation, particularly if you can give some color as to the cadence of share repurchases going forward and where that falls in the list of priorities. Thank you.
Sure. Let me start with, it's pricing and mix. That is that 13%, just to be clear. That's about 50/50 between the two. On the pricing side, it's a result of us passing through price to customers to cover rapidly rising input costs, and those input costs are raw materials such as steel, it's labor, it's insurance, it's transportation costs. We continue to see good demand and good mix in that demand, where people continue to buy higher level doors for their homes, and we continue to see good results of our new products on the commercial side, which are at a higher price and margin. Do you want to take the capital, Ron?
Sure. We have a $58 million authorization for share repurchases, and we believe our stock is a compelling value. We didn't buy any stock this quarter.
Okay. Thank you.
Once again, if you have a question, please press star then one. The next question comes from Trey Grooms with Stephens. Please go ahead.
Hi, good afternoon, Ron and Brian.
Hi.
How you doing?
Doing well. Thank you. I guess just switching gears a little bit here. Ron, you mentioned on the demand front, clearly still very strong. You mentioned housing, you mentioned R&R and consumer spending, that these have all continued to be very healthy. I think commercial, it does drive some business on the HBP side. Can you talk about what you're seeing on commercial, specifically as it relates to the HBP business?
Very strong growth. My personal expectation is if we ever get an infrastructure bill, we'll see even more commercial door growth.
Yeah, I'll just add to that. We've seen good residential and commercial growth in this quarter, year- to- date and the quarter. In this particular quarter, commercial was actually even stronger than residential, though they both did well.
Wow. That's encouraging. I guess on one other kind of housekeeping a little bit and just trying to understand the mechanics. You mentioned, of course, both CPP and HBP with very strong backlog. With the shipping delays that we have now, I guess, just trying to get my head around how this typically flows through and then translates into revenue. Now with this kind of dynamic we have on the transportation situation, how is that impacting that, and when are you expecting that backlog to kind of start to transition into revenue?
Yeah. The transportation situation is really a global issue. It's not just our issue.
No, no, yeah.
It's hard to say when the backlog will relieve. The orders keep coming in. We are doing everything we can to mitigate the transportation situation.
Look, we believe the recovery is still ahead of us, and the bottlenecks that you're seeing in this economy, which transportation is just one of, are going to work themselves through. The timing and the predictability of it, you'll see it clearly across lots of different products and categories, where we're doing everything we can to meet our backlog. The underlying trend that we clearly are saying is demand is strong.
Yeah. I'll just add one little thing to that. Hopefully, as labor improves, that will give more people to help the transportation situation. Hopefully, that will start clearing by the end of the year.
Yep. I hope you're right. I hope you're right. Well, thank you very much for taking my questions.
Appreciate it. Thank you.
Okay.
This concludes the question- and- answer session. I would like to turn the conference back over to Ron Kramer for any closing remarks.
Thank you. Stay well, everyone. Bye-bye.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.