AZZ Inc.

Good day, and welcome to the AZZ Inc. Third Quarter of Fiscal Year 2021 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. Please know that this event is being recorded. I would now like to turn the conference over to Joe Dorme. Please go ahead, sir.

Thank you, Chuck. Good morning and thank you for joining us today to review the financial results of AZZ Inc. for the third quarter of fiscal year 2021, ended November 30th, 2020. Joining the call today are Tom Ferguson, Chief Executive Officer, Philip Shlom, Chief Financial Officer, and David Nark, Senior Vice President, Marketing, Communications, and IR. 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 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 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 be potentially 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. Happy New Year to everyone, and welcome to our third quarter fiscal year 2021 earnings call. And thank you for joining us this morning. While we continue to be impacted by COVID-19, our markets are stabilizing and our businesses have adapted to the new normal way of operating, which encompasses a variety of challenges that we have had to overcome. While we have had an uptick in COVID cases, all of our plants have remained open with normal production. The collective efforts of our folks generated consolidated sales of $227 million for the third quarter, split almost equally between our metal coatings and infrastructure solution segments. We had sequential improvement in operating performance, and we have returned over $44 million of capital to shareholders in the form of cash dividends and share repurchases through the third quarter of this year. Also, we have made good progress on our board-led strategic review that we announced earlier. While sales were down 22% from Q3 of last year, our realignment activities and operational performance generated net income of $19.7 million, down about 10% from the same period of the prior year. This resulted in EPS of 76 cents per diluted share or 80 cents on an adjusted basis. Our metal coatings business continues to execute strongly while navigating the economic uncertainty resulting from COVID. Hot dip galvanizing sales were down 8.8% from the same quarter last year, while surface technologies was down more due to the nature of their customer base being more impacted by COVID. Within our infrastructure solution segment, third quarter sales results improved sequentially, even with a muted fall refining turnaround season. Segment results were below the same quarter of the prior year due to the protracted weak demand for refined oil products, as well as lower international sales, primarily from China. As we previously communicated earlier this year, due to shifting industry and customer dynamics and the protracted impact of the COVID-19 pandemic, we began to take aggressive steps to accelerate the strategic restructure of our portfolio of businesses with the goal of becoming predominantly a coatings business. Our actions during the quarter included recording a loss on the sale of SMS of $1.9 million and initiating a comprehensive board-led review of our businesses with the assistance of leading independent financial, legal, and tax advisors. As I mentioned, our review of the infrastructure solutions businesses and associated assets and the exploration of other capital allocation opportunities to maximize shareholder value is ongoing, and I am pleased with the progress the team has made during the quarter. Finally, given the share repurchase is currently in attractive use of our capital, we repurchased over 652,000 shares in the quarter, which brings our total for the year to over 850,000 shares. While our metal coating segment had lower sales than the third quarter of the prior year, they were able to generate higher operating income and improved operating margins to 24.8%. Surface technology sales were still way off at some plants, primarily due to how badly COVID impacted demand for several of their largest customers. However, during the quarter, Surface Technologies began to reopen powder coating lines in two Texas plants that had previously been idled earlier in the year. I am particularly pleased with how the metal coatings team continues to drive value through outstanding customer service and operational performance, while maintaining market-level pricing as they benefited from lower zinc costs during the quarter. We remain committed to our strategic growth plan for this segment, as evidenced by last week's announcement regarding the acquisition of Acme Galvanizing in Milwaukee, Wisconsin. Although COVID has slowed our normal pace of acquisitions, I am grateful that the team was able to close this acquisition right after the holidays and want to take a moment to welcome the Acme Galvanizing employees and customers to AZZ. As we previously indicated, On our second quarter earnings call, the third quarter turned out sequentially stronger, but turnaround activity remained constrained by COVID travel restrictions and continued low demand for refinery products. Our infrastructure solution segment's third quarter fiscal 2021 sales decreased by 31.5% to $111 million. This resulted in operating income of $8.7 million as compared to $17.4 million in Q3 a year ago. As I mentioned previously, the decline in sales was a result of muted refinery turnaround activity in the quarter, particularly in the U.S., as well as lower China high-voltage bus shipments and decreased demand for some of our oil patch-related products and services. WSI's domestic and foreign facilities remained open and working, and crews deployed on several smaller projects. All of the electrical platform's operations also remained open throughout the quarter as they effectively managed the uptick in COVID cases. Due to the prolonged uncertainty associated with COVID pandemic on many of our end markets, we will not provide an update to our previously suspended fiscal 2021 earnings and sales guidance range. However, we believe our fourth quarter will be seasonally lower than the third quarter, but we should generate improved earnings versus the fourth quarter adjusted earnings of last year. Our low debt level, combined with our consistent ability to generate strong cash flow, provides us with the ability to effectively manage our debt and liquidity throughout the remainder of fiscal year 2021 and beyond. We expect to establish guidance for our normal cadence for the fiscal 2022 as we wrap up our annual budgeting process and review it at our upcoming board meetings. Our metal coatings business is operating at a fairly normal level, despite some continued restrictions and disruptions in a few of the cities and states we operate in. We are confident, though, that our business remains vital to improving and sustaining infrastructure, so we will use the remainder of our fiscal year to position our core businesses to emerge stronger and better equipped to provide sustainable profitability growth long into the future. With that said, I'll turn it over to Philip.