AZZ Inc.

Good day and welcome to the AZZ Inc. Third 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 touchtone phone. 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.

Thank you, Sarah. Good morning, and thank you for joining us today to review the financial results of AZZ Inc. for the third quarter of fiscal year 2020, ended November 30, 2019. On the call representing the company are Mr. Tom Ferguson, Chief Executive Officer, and Mr. Paul Fellman, Chief Financial Officer. After the conclusion of today's prepared remarks, we will 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 AZZ 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 and 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 AZZ serves, foreign and domestic, customer requested delay 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 ACZ 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?

Thank you, Joe. Welcome to our third quarter fiscal year 2020 earnings call. Thank you for joining us this morning. We are pleased with the continued strong performance of our business groups in fiscal year 2020 as a direct result of successfully implementing our strategic growth initiatives. We generated 22% revenue growth and 43% net income growth in the third quarter versus prior year. Operating margins improved overall to 11.5% with strong performance by both business segments. Our energy segment experienced a strong fall turnaround season, continued shipping the Chinese high voltage bus orders. Our energy team did a good job of focusing on operational execution for improved margins. Our bookings in the third quarter of $264 million were up 25% year-over-year, driven by improving market conditions in welding solutions, electrical enclosures, and domestic high-voltage bus. We continue to build on the positive momentum in the energy segment with strong third quarter bookings of $134 million, an increase of 32% versus last year. The metal coating segment experienced increased demand in the solar and petrochemical markets and contribution from the acquisitions completed earlier this year, resulting in improved volumes across most of our regions. We experienced continued revenue growth from our surface technologies group, which now includes eight powder coating and plating plants. On a consolidated basis, we were able to drive operating income up over 47% to $33.4 million versus third quarter of last year. The metal coating segment revenue increased over 20%, and operating income of $27.3 million was up 49% versus prior year. Operating margins increased to 21.1% compared to 17% in the third 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. offset somewhat by the growing impact from surface technologies, which currently operates at a lower contribution margin level. The metal coatings team improved operational efficiencies as usage of DGS, which is our digital galvanizing system, continues to be implemented throughout all of our galvanizing plants. 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, powder coating, plating, and galvanized rebar. This gives us growing confidence that our investments will yield positive financial performance in the years to come. Overall, our energy segment had a very good quarter with operating income of $17.4 million, an increase of 51% over prior year, demonstrating great leverage on the 23% revenue growth. Our energy segment's electrical platform continues to focus on operational execution and improving customer service. While some of their electrical markets, particularly for electrical enclosures, are improving compared to last year, our lighting and tubular products businesses are seeing reduced demand due to slower upstream production activity. During the quarter, we booked a nice domestic order for high-voltage bus. 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 reduced our dependence on the U.S. nuclear market. Our upgraded welding technology is earning us large new opportunities, and our teams are performing extremely well, which will help us maintain our differentiation in the downstream markets. Just to recap how we are doing year-to-date, overall our revenue is up 12.7% and net income up 37% versus prior year. Our metal coating segment has completed four acquisitions, resulting in the addition of one galvanizing plant and five surface technology plants. Year-to-date, our metal coating's revenue is up 11%, and operating income up 30% versus prior year, driven by both organic and inorganic growth. Our energy segment's revenue is up 14%, and operating income up 33% versus prior year, driven by growth at welding solutions and China high-voltage bus projects. We will continue to focus on AZZ's core strengths of customer service, productivity, and operational excellence. Looking forward, we are maintaining our previously issued fiscal 2020 guidance of earnings per share in the range of $260 to $290 per diluted share, and annual sales in the range of $1,020,000,000 to $1,060,000,000. And with that, I'll turn it over to Paul Fellman.