AZZ Inc.

Good day and welcome to the AZZ Inc. first quarter of fiscal year 2021 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. Please note this event is being recorded. I would now like to turn the conference over to Joe Dorme. Please go ahead.

Thanks, Sarah. Good morning and thank you for joining us today to review the financial results of AZZ Inc. for the first quarter of fiscal year 2021, ended May 31st, 2020. Joining the call today are Tom Ferguson, Chief Executive Officer, and Philip Shlom, Interim 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 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 and 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 political stability and economic conditions of the various markets that AZZ serves, foreign and domestic, customer requested delays of shipments, acquisition opportunities, currency exchange rates, 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, let me turn the call over to Tom Ferguson, Chief Executive Officer of AZZ. Tom?

Thanks, Joe. Welcome to our first quarter fiscal 2021 earnings call. Thank you for joining us this morning. Let me first start by saying that COVID-19 is still very much front and center for all of us and was the single largest event affecting our Q1 results. Our top priorities at AZZ continue to be ensuring employee health and safety while supporting our customers during these unprecedented times. As an essential infrastructure manufacturing company, all of our facilities were allowed to remain open and did so. I am extremely proud of the way our folks managed through this crisis during our first quarter and took care of each other and our customers during this pandemic. We are truly grateful for everyone's efforts that allowed us to continue safe operation of all of our plants worldwide. For the first quarter of fiscal 2021, total revenues contracted 26.2% versus the same quarter prior year, totaling $213 million, with metal coatings revenue declining slightly, 2.6%, to $119 million, and energy revenue declining 43.5% to $94 million. I will get into the details behind each segment's performance as we go along. We entered Q1 back in March with great enthusiasm, just as the pandemic was beginning to reach our shores here in the U.S. By April, when we announced record sales and strong adjusted earnings for fiscal 2020, we made the decision to suspend fiscal 2021 guidance and cited the uncertainty COVID was creating on both segments, metal coatings and energy. In particular, we pointed out uncertainty in the spring refining turnaround season, business disruption associated with our high-voltage bus orders in China, and overall weaker demand as customers implemented capital spending and social distancing guidelines. Normally a strong quarter for us, our first quarter ended up being as, or perhaps even more, challenging than we had imagined. Refiners shut down production, delayed both capex and maintenance spend, and essentially took a pass on the spring turnaround season. International travel was restricted, and businesses significantly slashed capital spending. As a result, our revenue declined 26 percent in the quarter, while net income slid to $5.5 million, or 21 cents per diluted share. I wouldn't normally call a 2.6% reduction in our metal coatings business a bright spot. However, with the backdrop of this challenging market, I say we perform much better than many probably expected. Sales totaled $119 million for the quarter as compared to $122 million for the same quarter a year ago. Our galvanizing team, in particular, was able to benefit from lower zinc costs while maintaining above average industry pricing by offering outstanding quality and outstanding customer service. While overall margins in the segment declined 300 basis points to 21.1%, galvanizing actually finished above 23%, pretty close to where they finished last year. The overall decline in our metal coatings margins was due primarily to lost operational efficiencies within our surface technologies plants, as some had to shut down due to a temporary loss in volume from customers. We remain committed to our strategic growth plan for the surface technologies business and driving meaningful margin improvement post-COVID-19 crisis and are also seeing improving market conditions as most customers have now reopened. Our energy segment, first quarter fiscal 21, revenue decreased 43.5% to $94 million, resulting in an operating loss of $1 million as compared to $12.6 million positive in the same quarter a year ago. As I mentioned previously, the decline in revenue was a result of a lack of spring refining turnaround season, delays in both shipments and service work resulting from COVID-related international business restrictions, and overall weaker demand for electrical products. While our industrial platform shops were open and working, very few crews were deployed during the normally busy spring seasons. In some cases, we had to get our crews home from international projects in countries that went on lockdown after crews had already been deployed, which caused additional expense and disruption. Due to the prolonged uncertainty associated with the recent COVID-19 pandemic on many of our end markets, we cannot actually provide an update at this time to our previously suspended fiscal 21 earnings guidance range of $2.65 to $3.15 per and sales guidance range of $970 million to $1 billion, $60 million. Neither the duration nor depth of this disruption can be accurately estimated at this time. We have adjusted capital spending plans, operating plans, and headcount 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 21 and beyond. We hope to be able to reestablish our financial guidance as we get to the back half of this fiscal year. In the interim, we will work to provide as much context to our outlook as possible. So in that regard, the summer is a normally slow season for our industrial platform, and shipments remain slower than normal for electrical as many customers have not returned to normal operations yet. Our metal coatings business is operating at a fairly normal level, although there are restrictions in some of the states we operate in. We are also experiencing additional expenses. We work to keep our facilities clean and safe so our employees remain healthy and productive. 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 Philip.