AZZ Inc.

Good morning, and welcome to the AZZ Inc. Second Quarter Fiscal Year 2020 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Joe Dorme. Please go ahead.

Thanks, Ben. Good morning, and thank you for joining us today to review the financial results of AZZ Inc. for the second quarter of fiscal year 2020, ended August 31st, 2019. On the call representing the company are Mr. Tom Ferguson, Chief Executive Officer, and Mr. Paul Feldman, Chief Financial Officer. After the conclusion of today's prepared remarks, we'll open the call for a question and answer session. Please note there is a slide presentation for today's call, which can be found on AZZ's Investor Relations page under financial information at www.AZZ.com. Before we begin with prepared remarks, I'd like to remind everyone certain statements made by the management team of AZZ during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed from time to time in documents filed by AZV with the Securities and Exchange Commission, including the annual report on Form 10-K for the fiscal year ended February 28, 2019. Those risks and uncertainties include but are not limited to changes in customer demand and response to products and services offered by the company, including demand by the power generation markets, electrical transmission and distribution markets, the industrial markets, and the metal coatings markets. Prices of raw material costs, including zinc and natural gas, which are used in the hot-dip galvanizing process, changes in the political stability and economic conditions of the various markets that AZD serves, foreign and domestic, customer requests or delays of shipments, acquisition opportunities, currency exchange rates, adequate financing, and availability of experienced management and employees to implement the company's growth strategies. The company can give no assurance that such forward-looking statements will prove to be correct. These statements are based on information as of the date hereof, and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. With that said, let me turn the call over to Mr. Tom Ferguson, Chief Executive Officer of AZZ. Tom?

Thanks, Joe. Welcome to our second quarter fiscal year 2020 earnings call, and thank you for joining us this morning. We are pleased with the continued strong performance of our business groups in fiscal year 2020. We generated 6% revenue growth and 38% net income growth versus prior year. Operating margins improved overall to 9.4%, in spite of about $1 million of tariff and FX impact on the Chinese project shipments during the quarter. Year-to-date, our business is tracking nicely ahead of our plans, which bodes well for the full fiscal year. Our energy segment experienced a normally slow summer season, shipped another portion of the high-voltage bus Chinese orders, and regained operational traction in most businesses. While our energy bookings were down 6% versus second quarter last year, we were lapping a quarter where we booked one of the large Chinese orders, so non-China-related bookings are in the range we expected. The metal coating segment experienced increased demand in the solar and petrochemical markets and contribution from the acquisitions completed earlier this year. The metal coatings team improved operational efficiencies as usage of DGS, which is our digital galvanizing system, continues to grow in our galvanizing plants. We also experienced improved contribution from surface technologies, which now includes eight powder coating and plating plants. We also continued our emphasis on value pricing. While we had lower zinc costs flowing through our kettles, labor costs continue to rise as the craft labor market remains tight. Overall, we were able to drive net income up over 38% versus second quarter last year to $15.6 million. We continue to build on the positive momentum in the energy segment with a strong backlog of more than $300 million. This sets the stage for solid performance in the back half of the year. while our metal coatings business continues to gain traction from our key initiatives to drive growth both organically and through an aggressive acquisition program. The metal coating segment revenue increased 7.4% from the second quarter of last year. Operating margins increased to 23% compared to 19% in the second quarter of fiscal year 2019. This improvement was due to lower zinc costs flowing through our kettles, value pricing, and the contribution from our emphasis on operational improvement. We have taken steps to improve labor productivity and are seeing our digital galvanizing system drive greater operational efficiency and productivity while also improving customer service. We remain the industry leader in North America with 41 galvanizing plants. We are pleased to be gaining meaningful traction in our new surface technology businesses, which include powder coating, plating, and the galvanized rebar business. This gives us growing confidence that our investments will yield positive financial performance in the years to come. Our energy segment's electrical platform continues to focus on operational execution and improving customer service. While some of their electrical markets are improving compared to prior year, our oil patch businesses are seeing somewhat reduced demand. Profitability was negatively impacted by the tariffs on the high voltage bus Chinese shipments. We are especially pleased with the demand for specialty welding solutions, both domestically and internationally, particularly as our investments in Europe, Brazil, and Canada have positioned us to participate in these opportunities and reduce our dependence on the US nuclear market. We remain somewhat cautious due to the uncertainty related to tariffs and the Chinese trade situation, as well as the tighter market for labor in many of our US locations. Looking forward, We are raising our previously issued fiscal 2020 guidance of earnings per share in the range of $2.60 to $2.90 per diluted share, and annual sales in the range of $1.2 billion to $1.6 billion. We have completed our third quarter and experienced a very strong turnaround season internationally. We also have the benefit of our recent surface technologies acquisitions, have more Chinese backlog to ship in electrical, and continue to gain traction in our galvanizing business. With that, I'll turn it over to Paul Thurman.