AZZ Inc.

Good morning and welcome to the AZZ Inc. Fourth Quarter Fiscal Year 2020 Financial Results Conference Call. All participants will be in a 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 of Lithum Partners. Please go ahead.

Thank you, Andrea. Good morning and thank you for joining us today to review the financial results of AZZ Inc. for the fourth quarter and fiscal year 2020 ended February 29, 2020. Joining the call today are Tom Ferguson, Chief Executive Officer of and 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 would 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 29, 2020. 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 coating 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 delays of shipments, acquisition opportunities, currency exchange rate, adequate financing, and availability of experienced management and employees to implement the company's growth strategies. In addition, AZZ's customers and its operations could potentially be adversely impacted by the ongoing COVID-19 pandemic. 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 out of the way, let me turn the call over to Tom Ferguson, Chief Executive Officer of AZZ. Tom?

Thanks, Joe. And welcome to our fourth quarter and full year fiscal 2020 earnings call. And thank you for joining us this morning. With COVID-19 on everyone's mind, our top priority at AZZ is ensuring employee health and safety, as well as supporting our customers during these unprecedented times. I'd be remiss if I did not express my great appreciation for the way our employees, families, and partners have stepped up during the COVID crisis. While fear and uncertainty were running rampant around the world, I'm extremely proud of the way our folks stepped up and got crews home from countries that had closed, realigned processes to ensure safe operation, and took care of each other during this pandemic. I also want to thank our auditors, Grant Thornton, for their diligent efforts under difficult remote circumstances. We are truly grateful to be here today presenting our results on time. For fiscal 2020, total revenues grew 14.5% versus prior year, reaching a record $1.06 billion, with metal coatings revenue growing 13% to $499 million, and energy revenue growing 16% to $563 million. I will get into the details of this as we go along. We are pleased to have completed our 33rd consecutive year of profitability while achieving strong double-digit growth in revenue, operating income, and cash provided by operating activities for the 2020 fiscal year. Our metal coatings businesses grew operating income on an adjusted basis to $107 million, an increase of over 39% versus fiscal 2019. We have a strong cash flow business that in fiscal 2020 generated $145 million of net cash provided by operating activities, an increase of almost 30% versus prior year. For fiscal 2020, excluding one-time expenses, we delivered adjusted EPS of $2.71 per diluted share, an increase of more than 38% as compared to the prior year. We successfully completed the divestiture of our Nuclear Logistics, Inc. business, which we call NLI. at the end of our fiscal year. As we previously communicated upon completing our annual strategic review of our businesses, it became apparent that NLI was not a core business and that it was better suited being part of another company that had a stronger commitment to the nuclear market. We also took the opportunity to take a non-cash impairment of the majority of WSI's nuclear intangibles due to lower demand for most of their major nuclear customers and the continued challenging outlook for the nuclear industry in the U.S. Overall sales growth was driven by increased volumes and higher selling prices in our metal coating segment, along with poor acquisitions within metal coatings. The growth in energy was driven by an uptick in the sales of our electrical products, highlighted by switchgear and e-houses. Also contributing to the top line growth in energy was successfully shipping large international high-voltage bus projects in China and the completion of large international refining turnaround projects. Operating income grew as a result of increased operating leverage across both the metal coatings and energy segments. Metal coatings margins improved for the year predominantly in galvanizing, but overall margins for the segment were impacted by surface technologies revenue mix at somewhat lower margins. We remain committed to our strategic growth plan for the surface technologies business and driving meaningful margin improvement post COVID-19 crisis. In this regard, we recently closed one plating site without affecting our customers by integrating those operations into the remaining North Texas sites. In metal coatings for fiscal 2020, we posted record revenues of $499 million and improved operating margins by 260 basis points to 21.6% as compared to 19% for the previous year. For reference, our galvanizing platform exceeded operating margins of 23% for the year primarily due to higher volumes of steel processed lower zinc costs, and maintain an above-average industry pricing by offering quality workmanship and outstanding customer service. Growth in our metal coatings business came from continued organic growth in galvanizing and acquisitions for both galvanizing and surface technologies. We remain committed to delivering meaningful returns on the investments made in our surface technologies business. During the year, we completed three acquisitions in surface technologies, giving us a total of seven locations as we consolidated two nearby facilities into one. Our Galvabar product continues to expand its market presence as more DOTs approve the product spec for bridge and highway projects across the United States. Admittedly, this process has been slower than anticipated and now somewhat impacted by the COVID-related lockdowns. Our energy segment for fiscal 2020 grew revenue by 16% to $563 million. While increasing adjusted operating income, while increasing adjusted operating income by 34% and operating margins by 110 basis points over the previous year. Revenue growth was a result of increased demand for our switchgear and e-houses in our electrical platform and large shipments to China for high voltage bus products. The industrial platform completed large refining turnaround projects during the year with a particularly large project in Canada. Although our industrial business had a strong year internationally, our crews have not been able to deploy from Poland due to the COVID travel restrictions. Prior to the COVID-19 pandemic, fiscal 2021 was developing into another solid year for us with substantial momentum in all four business groups, working on several key acquisitions, positive signals from our customers and their end markets, and continuing to invest in key growth opportunities. Since the initial COVID-19 lockdowns, all of our metal coatings plants remain open And while our galvanizing plants continue to operate at pre-pandemic levels, some are beginning to see declines caused by various states' COVID-19 restrictions. The consolidated impact thus far has been moderate, and we continue to assess operations daily by leveraging our investment in the digital galvanizing system. Uninterrupted manufacturing operations continue within our electrical platform, as our end markets for switchgear e-houses and bus ducts remain good. while hazardous-duty lighting and tubular products are seeing lower demand due to lower rig counts and less activity in the oil patch due to lower oil prices. Our industrial field services platform is seeing a shift in work originally scheduled for Q1 move into the summer Q2 as well as Q3 as refiners defer turnarounds. Collectively, the industrial platform shops are open and working, but very few crews are being deployed during the normally busy spring season. While we were able to get our crews home from international projects where those countries went on lockdown after our crews had deployed, we have little field activity going on internationally at this time. That said, let me just take a moment now and discuss the recent COVID-19 pandemic a bit more. Again, at AZZ, employee health and safety remains our top priority. We will continue to follow the recommendations and guidelines provided by the CDC and World Health Organization. We have ratcheted up our best practices around protecting employees from the spread of COVID-19 while in the workplace and have had very few cases. This includes following physical distancing, hand washing, sanitization, and disinfecting guidelines for work areas. Most of our shops have high bays with good air circulation, which reduces the chance for viral droplets to dwell. We have had very few employees test positive for the virus and almost all have now recovered. AZZ produces products and services that are critical to operating and maintaining infrastructure. Our products and services are counted on to meet the needs of critical infrastructure throughout the United States as well as around the globe. For Homeland Security, Cybersecurity and Infrastructure Security Agency, AZZ is classified as an essential business. in supporting the critical infrastructure needs in the United States. All of our manufacturing facilities remain open around the world, and we are not facing any craft labor shortages at this time. Due to uncertainty associated with the recent COVID-19 pandemic on many of our end markets, we are currently discontinuing our previously issued fiscal 2021 earnings for fully diluted shared guidance range of $2.65 to $3.15. as well as sales guidance range of $970 million to $1.06 billion. At this time, neither the duration nor depth of this disruption can be accurately estimated. We have adjusted capital spending plans, operating plans, and headcount. We've implemented a salary freeze on executive compensation and have taken other mitigating actions in response to the crisis. Our low debt level, combined with our consistent ability to generate cash, gives us the confidence that we can manage both debt and liquidity satisfactorily throughout fiscal year 2021 and beyond. We will provide an update during our first quarter 2020 earnings release for the period ended May 31, 2020. For fiscal year 2021, AZZ will continue to execute on strategic growth objectives that drive shareholder value. At our core, we are a metal coatings company and a manufacturer of products and provider of services that are critical to sustaining infrastructure. Our commitment to superior customer service is unwavering. Our ability to deliver strong cash generation is based on initiatives that drive operational excellence, manage costs, ensure pricing discipline, and receivables collection within our operating platforms. We are confident that our businesses remain vital to improving and sustaining infrastructure, so we will use this time of global pandemic to position our core businesses to emerge stronger and better equipped to provide sustainable profitability long into the future. With that said, I'll turn it over to Paul. Thanks, Tom.