AZZ Inc.

Good morning and welcome to the AZZ Inc. Second Quarter Fiscal Year 2022 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 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, Managing Partner.

Please go ahead. Thank you, Anthony. Good morning, and thank you for joining us today to review the financial results of AZZ Inc. for the second quarter of fiscal year 2022, ended August 31st, 2021. 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 questions. Please note there's a slide presentation for today's call, which can be found on AZZ's investor relations page under latest earnings release presentation 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 28, 2021. 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 shipment, 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? Thank you, Joe, and welcome to our second quarter fiscal 2022 earnings call, and thank you for joining us this morning. We continued to gain momentum in the second quarter and completed our fourth consecutive quarter of solid performance after the disruptions from COVID in the first half of last year. I especially want to thank our employees who show up every day and do their job so well. Their perseverance through the past 19 months of COVID-19 turmoil has allowed AZZ to attain the results we are now reporting. Overall sales of $216 million improved 6.4% versus the prior year or 8% when adjusted for the divestiture of SMS. Metal coatings turned in another excellent quarter with sales up 10.7%, almost $130 million, and infrastructure solutions flat at about $87 million. Sales were somewhat impacted by labor constraints and COVID-19 related material shortages in some businesses. I will get into the details of this as we go along. We are pleased to have completed another strong quarter of performance. We continue to generate strong cash flow during the second quarter while also returning capital to our shareholders. We generated net income of 18.9 million and EPS of 76 cents per diluted share, reflecting the resiliency of our businesses and the dedication of our people. Our businesses leveraged the realignment actions taken last year to improve profitability while maintaining their focus on providing outstanding quality and service to our customers. We also benefited from lower interest expense while incurring a 20.4% tax rate for the quarter. In line with our strategic commitment to value creation, we repurchased over 290,000 shares for $15 million and distributed $4.2 million in dividends. In metal coatings, which represented 60% of our sales in the second quarter, we achieved 24.4% operating margins on sales of $130 million. This resulted in operating income being up over 17% from the previous year. The margin improvement was primarily due to driving operating efficiencies and productivity while realizing improved pricing in the face of rising zinc labor and energy costs. While we have several active acquisition discussions underway, we were slowed somewhat due to the uptick in COVID Delta variant cases that reduced some travel. Our metal coatings team continues to demonstrate their ability to perform and deliver great results while managing labor shortages and the increasing zinc costs. Our infrastructure solution segment demonstrated continued profitability improvement through their seasonally slow second quarter. We were up about 4.3% when considering the impact of the SMS divestiture. The team delivered operating income of $7 million, or 130%, up dramatically versus the prior year. The segment benefited from its realignment actions from last year, but did face some labor constraints and material delays. We were focused on strategic selling initiatives and are well positioned to deliver a strong fiscal year 2022. For fiscal year 2022, while COVID continues to generate some uncertainty in many sectors, given our strong performance in the first half and due to seeing more opportunities than risk the balance of this year, we are tightening and raising our guidance. We anticipate sales to be in the range of $865 to $925 million and EPS at $2.90 to $3.20. This excludes any acquisitions or divestitures. Metal coatings is continuing to focus on sales growth, including leveraging our spin galvanizing operations at several sites, operational execution, and customer service as labor and operating expenses increase due to inflation. Our infrastructure solution segment is seeing more normalized business levels and entered the third quarter with some momentum in bookings activity, particularly in electricals. Our WSI business is seeing good results from the expanded Poland facility, although internationally the business continues to experience some intermittent project delays due to COVID outbreaks at certain customer sites. The electrical platform is focused on operational execution and growing its e-house and switchgear businesses. We anticipate continuing to benefit from low interest rates, While we expect solid performance in the third quarter due to the continued COVID impact on our international markets, we do not anticipate quite as strong of a performance as we experienced in this past first quarter. While the fall turnaround activity is good, we are seeing several projects that are already likely to stretch into the fourth quarter. I will note that we are already seeing a lot of activity lining up for the spring season. For fiscal year 2022, AZZ will continue to execute on our strategic growth objectives to drive shareholder value. Our commitment to superior customer service is unwavering. Our ability to generate strong cash flow is based on initiatives that drive operational excellence, manage costs, ensure pricing discipline, and emphasis on receivables collection within our operating platforms. We are confident that our businesses remain vital to improving and sustaining infrastructure So we are actively working to position our core businesses to provide sustainable profitability and regardless of whether we see any infrastructure legislation. With that said, I'll turn it over to Philip.