AZZ Inc.

Good morning, everyone, and welcome to the AZZ Inc. second quarter of fiscal year 2021 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please know 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 and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Joe Dorme, Lithium Partners. Sir, please go ahead.

Thank you, Jamie. Good morning, and thank you for joining us today to review the financial results of AZZ, Inc. for the second quarter of fiscal year 2021, ended March 31, 2020. Joining the call today are Tom Ferguson, Chief Executive Officer of Philip Shlom, Interim Chief Financial Officer, and David Nart, Senior Vice President, Marketing and Communications and Investor Relations. 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 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, 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 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 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 second quarter fiscal 2021 earnings call. And 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 here at AZZ and continues to affect our results. Our top priorities at AZZ continue to be ensuring employee health and safety, supporting our customers during these unprecedented times, finishing this fiscal year well, and positioning the company for fiscal year 2022, as well as beyond. As an essential infrastructure manufacturing company, all of our facilities remained open. I am extremely proud of the way our folks managed through this crisis during our first quarter and second quarter as well, 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 our plants worldwide. We entered the second quarter in June, which is normally the final month of the seasonal spring turnaround season. Consequently, the quarter got off to a slow start. Historically, however, Q2 is sequentially lower for our infrastructure solution segment under any circumstances. The metal coating segment navigated the economic uncertainty well. However, results in our galvanizing business were impacted by several factors beyond COVID, but I will cover these later. As a result, our second quarter consolidated sales declined 13.9% versus the second quarter of the prior year. Adjusted net income decreased 16.7% to $13 million, or 49 cents per diluted share. In light of the disruption caused by COVID on our markets and some of our operations, we decided to accelerate elements of our long-term strategic plan and initiate some strategic actions that will have longer-term benefits. Our metal coating segment experienced a wide range of challenges. Plants experienced disruptions from hurricanes in the Gulf to civil unrest in some cities, and some even had difficulty finding direct labor. Suffice it to say, it was a crazy summer. Sales totaled $117 million for the quarter as compared to $125 million for the same quarter a year ago. I am particularly pleased with how our galvanizing team, in particular, was able to benefit from lower zinc costs during the quarter while maintaining above-average industry pricing. These actions, coupled with our quality of workmanship and outstanding customer service, resulted in overall segment margins that were flat at 23%, while our galvanizing margins in particular finished above 25%. Additionally, the metal coatings team did a nice job of integrating the powder coating and plating operations and sales teams during the quarter. Many of our powder coating customers that had closed or reduced production because of COVID began to place orders again. We remain committed to our strategic growth plan for the powder coating and plating business and driving meaningful margin improvement post-COVID-19 crisis. So much so that we chose to rename surface technologies to powder coating and plating to better represent our focus for that business. Because of the impact of COVID on the oil and gas and petrochemical sectors, we made a difficult decision to classify some underutilized facilities as assets held for sale. as well as close a couple of sites and integrate their business into our other sites in the adjacent areas. We also closed one plating site, relocated its operations to a nearby plant. We are excited by the progress the new integrated team is making and the speed at which they are moving. We believe the restructuring actions that are currently in process should provide approximately $2 million of savings benefits annually. Our infrastructure solution segment segment's second quarter fiscal 2021 sales decreased by 22.5% to $86 million, resulting in an adjusted operating income of about $3 million as compared to about $4 million in the same quarter a year ago. As I mentioned previously, the decline in sales was a result of lack of refinery turnaround activity in June, lower China high-voltage bus shipments, and lower overall demand for some of our electrical products and services. While our industrial platform shops were open and working and crews did begin deploying during the quarter, the summer is usually a period of weak activity. In line with our strategy to reduce our participation in the U.S. nuclear sector, a lower outlook for activity in the oil patch sector, and in our desire to focus on core businesses, we initiated several restructuring actions in this segment. These include personnel actions, some site consolidations, deciding to divest some non-corp businesses, the buyers that are interested in investing and growing these businesses, and impairing $2.5 million of inventory. We believe the third quarter will be sequentially better than Q2 of this year, but turnaround activity remains constrained by COVID travel restrictions and continued low demand for gasoline and jet fuels. Due to the prolonged uncertainty associated with the recent COVID-19 pandemic on many of our end markets and delays by some of our customers due to election uncertainty, we were not able to accurately provide an update for the full year at this time. We can say that our third quarter will be nicely improved sequentially over the second quarter, but it is unlikely to generate the earnings we did in the strong third quarter of last year. 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 as well as beyond. We hope to get back into a normal guidance cadence as we enter calendar year 2021 and as we see customers returning to normal business engagement levels. Our metal coatings business is operating at a fairly normal level, although there are restrictions and disruptions in some of the cities and states we operate in. We are also experiencing additional expense as 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.