AZZ Inc.

Good day, and welcome to the AZZ, Inc. Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. 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 Dorame at Lithum Partners. Please go ahead, sir.

Thank you, Matt. Good morning, and thank you for joining us today to review ADZ's financial results for the fourth quarter and fiscal year 2022, ended February 28, 2022. Joining the call today are Tom Ferguson, Chief Executive Officer, Philip Shlom, Chief Financial Officer, and David Nark, Senior Vice President, Marketing, Communications, and IRR. 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 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 28, 2022. 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 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 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 2022 earnings call. Thank you for joining us this morning. Let me first express my great appreciation to our employees for their outstanding efforts during the past year. Despite the lingering effects of COVID, high inflation, supply chain disruptions, labor shortages, and a war in Europe, I'm extremely proud of the way our folks stepped up to take care of their customers and each other while continuing to operate in a safe manner. For fiscal 2022, total sales grew 7.6% versus prior year, reaching a total of $903 million, primarily as a result of Metal Coating's exemplary efforts. Infrastructure Solutions total sales were relatively flat over the prior year, primarily due to experiencing a greater impact from the previously mentioned disruptions. Infrastructure Solutions did improve its backlog during the year, with the electrical platform generating strong bookings, and they are well positioned to convert these bookings into revenue in fiscal 2023. We are pleased to have completed our 35th consecutive year of profitability while achieving strong growth in sales and operating income for the 2022 fiscal year. We continue to generate strong cash flow from operations in fiscal 2022, generating $86 million in net cash flow. For the fiscal year, excluding one-time expenses, we delivered adjusted EPS of $3.34 per diluted share, an increase of more than 58% as compared to the prior year. We were bolstered by a great finish to the year with fourth quarter EPS of 87 cents. I give both Brian Stovall and Gary Hill tremendous credit for keeping their teams focused while we pursued pre-code metals and continued our strategic efforts for AIS. We successfully completed two metal coatings acquisitions during our fiscal year in the fourth quarter. Our strategic review of infrastructure solutions business was completed. As a result of that review, we pursued a select set of strategic recommendations for the segment. These efforts have taken longer than expected and were affected by the pre-code process that ramped up after Thanksgiving. But we now have refocused resources towards continuing to work on these opportunities. Due to several confidentiality agreements, I cannot comment further at this time, but I would like to emphasize that I remain increasingly hopeful that we will have more details to disclose to our shareholders in the upcoming weeks. Overall, sales growth was driven by increased volumes and higher selling prices in our metal coating segment. Our metal coatings team grew operating income on an adjusted basis to $127 million, an increase of over 32% versus reported fiscal 2021. Our results within infrastructure solutions were driven by improved turnaround activity for our welding solutions business, as well as improved bookings in our electrical platforms. Operating income grew as a result of increased operating leverage across both the metal coatings and infrastructure solution segments, fully realizing the benefit of realignment actions taken in the prior year. We continue to execute on our commitment to return value to our shareholders through both quarterly cash dividends and purchasing almost 602,000 shares of company common stock throughout the year. In metal coatings, we posted record sales of $519 million and improved operating margins to 24.5%. Results were primarily due to higher volumes of steel process, growth in spin galvanizing, and higher price realization as a result of product mix and price surcharges that were implemented to offset higher operating costs, including zinc, labor, and energy. Growth in our metal coating segment primarily resulted from continued organic growth in galvanizing. with only slight contribution from the recent acquisition of Steel Creek at the end of the year. Our infrastructure solution segment for fiscal 2022 grew sales just slightly to $384 million, while increasing adjusted operating income by 115% and operating margins by 470 basis points over the previous year. Sales growth resulted from an improved turnaround season within the industrial platform as they completed more turnaround projects during the year, particularly in North America. Although our industrial business had a reasonably good year internationally, our crews still encountered COVID-related travel restrictions in several international markets. Within our electrical platform, demand for our switchgear and e-house business was robust, and the team booked our largest ever order for battery energy storage e-houses. This project is now in our backlog and will be delivered to one of North America's largest renewable energy sites next year. This order demonstrates that AZZ's electrical platform is well positioned to capitalize upon the future growth within the renewable energy market and our commitment to deliver more products and services that support environmental sustainability. Last month, we announced that we have entered into a definitive agreement whereby AZZ will acquire CEQA's pre-coat metals business for a purchase price of approximately $1.28 billion. When adjusted for the net present value of about $150 million of expected tax benefits, the net purchase price is approaching $1.13 billion, which represents about 8.2 times pre-coat's adjusted EBITDA for the 12 months into December 31, 2021. We are pleased to acquire North America's largest independent provider of metal coil coatings and related services. Through this acquisition, AZZ will significantly broaden our metal coatings offerings, create unrivaled scale and breadth of metal coating solutions in both the prefabricated and post-fabricated coatings markets. We believe the coil coating market will provide sustainable future growth for AZZ and plan on providing Preco with the appropriate financial resources to expand and grow its business and market share. The pre-code acquisition is consistent with our previously communicated strategy to focus our M&A efforts on North American coatings targets that have a strong strategic fit and are creative within the first year of operation. It is also a testament to our commitment to drive profitable growth, and we are excited to have Kurt Russell and his team joining the AZZ family. This acquisition represents a continued transition of AZZ from a diverse holding company to a focused provider of galvanizing and coating solutions. Previously stated, we expect the transaction to close in the first quarter of ACC's fiscal year 2023, subject to customary closing conditions. I am pleased with the progress the team is making, and we have recently received regulatory approval to proceed to closing. Due to our recent announcement related to the acquisition of pre-code metals, we will not issue fiscal year 2023 guidance at this time. However, based upon the evaluation of information currently available to management, We anticipate metal coatings will exceed $150 million in sales and exceed 30% EBITDAs for the first quarter of fiscal year 2023. We anticipate infrastructure solutions for the first quarter will exceed their good results from the first quarter of fiscal 2022. This reflects our best estimates given current market conditions, existing execution on our current backlog, and does not include the impact of any additional acquisitions or divestitures related to expenditures nor any federal regulatory changes that may emerge. And I have to note that we currently have asked for better financial and operational strength during which to execute on a transformational acquisition. The businesses that make up AZZ today are tracking to generate over $1 EPS for the first quarter and well over $4 EPS for the full year. But naturally, we will not be completing the quarter or the year with our current mix of businesses. We have a lot of great people that remain focused on doing their jobs well, and they have much to be proud of. Within our metal coatings business, we continue to see strong demand from several end markets, including solar, transmission, utility, industrial, and construction. We're also seeing continued growth from our spin valve operations. This first quarter will also include the full benefit of both Steel Creek and Dom acquisitions. Uninterrupted manufacturing operations continue within our electrical platform despite seeing some supply chain delays for certain switchgear and e-house components. Bus deck business remains good with increasing service work from several utility customers and hazardous duty lighting and tubular products are seeing improved demand due to higher oil prices. Our industrial solutions platform is seeing improved demand as refiners schedule more turnarounds and with crews deployed during the normal spring season. With that said, I'll turn it over to Philip.

Thanks, Tom. I'd like to thank you for joining our call today. And like Tom, thank each of our employees for executing so well in another year of existing uncertainty. As you can see, our results of operations reflect the accomplishments the hard work of our teams have had on our business. Fiscal year fourth quarter reported sales, or $224.7 million, were $29 million, or 15% above the $196 million reported the same quarter last year. Sales within our metal coating segment was up 20.8% to $128.3 million. And our infrastructure solution segment sales were up 7.7% to $96.4 million on improved order volume, pricing, and improving market conditions within the infrastructure solutions markets. Fourth quarter gross margin of $55.2 million exceeded prior year by 9.4 million or 20.6% of sales. Gross margin increased 120 basis points to 24.6% from 23.4% of sales in the prior year as margins in both segments expanded during the fourth quarter. Debt income for the quarter was $21.6 million. $5.4 million, or 34% above the prior year's fourth quarter, as the business excelled in all facets given the market uncertainties that exist. Reported diluted EPS for the fourth quarter was $0.87, $0.24, or 38% above the prior year. For the full fiscal year, sales of $903 million were up 7.6%, or $63.7 million compared with the prior year sales of $838 million. Improved sales were driven by increased metal coatings, volumes, and increased commodity pricing, while infrastructure solution segment sales were flat versus the prior year. Year-over-year reported gross margins improved a very solid 250 basis points to 25% from 22.5% on continued strong metal coatings performance and improved market conditions and infrastructure as a segment that is recovering from the pandemic era. Reported operating profit in fiscal year 2022 was $113.3 million, 84.0% above the $61.6 million recorded in the prior year. Adjustments in the fourth quarter included a $1.8 million gain associated with returning assets previously held for sale to operating status. Partially offsetting this adjustment was $1.5 million related to the due diligence legal fees incurred as part of our recent acquisitions. as well as our pending acquisition of pre-coat metals from CEQA, a Carlyle company. On an adjusted basis, fiscal 2022 operating income of $113.1 million exceeded prior year adjusted operating income of $81.6 million by $31.5 million, or 39%. EBITDA, as adjusted for the year, was $157.2 million, compared with adjusted EBITDA of $125.2 million in the prior year on higher earnings and improved operational performance. The company reported diluted earnings per share for the year of $3.35, increases of 120 and 58% compared to the $1.52 and $2.11 on a reported and adjusted basis in the prior year. Cash flows from operations in the current year were $86 million compared with $92 million in the prior year. The $6 million decrease was primarily attributable to increases in inventories, timing receipts on contracts, and timing of payments to suppliers. The company continued to invest in the business over the year, having invested $28.4 million in capital expenditures for both growth and capital maintenance projects, or $10.2 million below last year's CapEx spend. Part of that was related to delays in spending from supply chain. For fiscal 23, we expect to invest $25 to $30 million in our base business. During the year, the company repurchased $30.8 million in outstanding shares compared to $48.3 million in the prior year. During the fourth quarter, the company reduced our purchase activity due to the acquisitions of Steel Creek Galvanizing, Dom Galvanizing, and our pending acquisition of Precote Metals. During the year, we continue to return capital to our showholders, returning $16.9 million to shareholders through dividend payments. As we progress forward with our acquisition of pre-cut metals, our leverage profile will change significantly as we incur higher borrowings to pay for this highly accretive acquisition. We expect our leverage following our equity raise to be approximately 4.2 times compared with our current leverage of approximately 1.4 times. We have fully secured term loan financing for the acquisition financing through our bank group, and we'll begin marketing our term loan very shortly. We are under an NDA on the equity financing component, have finished due diligence, and are well down a contractual path and expect to shortly have our capital allocation desired to effectively fund and close on the pre-code acquisition. We have just completed a very strong fourth quarter and have started our fiscal year 2023 with continued strength across our segments. Once we complete the pre-code acquisition, we will continue to focus strongly on utilizing our strong cash flow generation to repay newly established debt and deleverage quickly. With that, I'll turn it back over to you, Tom.

Thanks, Philip. While we have just continued our guidance, let me give you some key indicators that we are paying particular attention to. For the metal coating segments galvanizing business, we are carefully tracking input costs, especially the cost of zinc in our kettles, which we expect will continue to arise. We believe we will be able to continue to offset increasing costs with both price surcharges, general price increases, and operating efficiencies. Within the industrial solutions platform, we're seeing improved spring turnaround activity and the outlook for the fall turnaround schedule is filling in nicely, including internationally. For the electrical platform, we continue to track proposal activity and have strong backlogs for most of our business units, particularly switchgear and enclosures. Finally, for corporate, we will work to complete the acquisition of pre-code metals, continue our strong cash management processes, and we'll focus on paying down debt associated with the pending acquisition of pre-code. We anticipate closing the pre-code metals acquisition in May, and we are optimistic regarding the contribution we will soon begin to realize for the balance of fiscal year 2023. And while I do not want to distract from the great operating results and bright prospects for fiscal 2023, I will note that we should have an announcement out soon on the equity, as Phillip mentioned. We will remain committed to our growth strategy around metal coatings. Believe the acquisition of Preco will allow AZZ's combined metal coatings businesses to support our 21 to 23% operating margin targets, even factoring in inflationary commodity pressures. For infrastructure solutions, we will continue to focus on improving profitability while finalizing strategic negotiations currently in process. We survived the disruption of COVID in 2020, gained momentum in 2021, and have been able to hit fiscal year 2023 at a gallop. We are on the cusp of fulfilling our commitment over a year ago of becoming predominantly a highly profitable growth-oriented metal coatings company. We thank you for your patience as we take these significant next steps. And with that, we'll open it up for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from John Fransreb with Sidoti and Company. Please go ahead.

Good morning, Tom, Phil, and David. Congratulations on the next quarter. Quick question on zinc prices and other commodity prices. Tom, you mentioned that you're instituting surcharges and price increases. Can you talk a little bit about if you're ahead of the curve on this as far as the price increases, especially in zinc at the highest level since 2005, and how much it's impacting your margin profile right now?

Yeah, you know, we've been able to, I'd say, stay somewhat ahead of the curve. But yeah, we're just looking at continually rising prices. So we track what we've got to do very carefully to stay even or abreast of and ahead of that curve. And so Brian and his team are reacting to it, I'd say, on a daily, weekly basis. When it comes to Our electrical business is more project related, so those kind of things. We have escalation clauses in most of our contracts, and we're taking advantage of that. But there, I'd say the cost curve and the price curves are pretty much in sync. Moving forward, we'll try to get more escalation in. And then on the WSI, or the industrial solutions, They're deploying to jobs, and their escalations come on welding wire, but they had pretty good inventories of that in place. So I'd say they're even, too, or maybe even a little bit ahead of the curve.

And any thoughts on how much the commodity costs impacted the gross margin in the fourth quarter?

No, it didn't. I don't believe that it had a significant impact on our margins in the fourth quarter.

Yeah.

Got it. And on the reversal of the impairment charge, what asset is now not for sale?

It was one of our electrical facilities in our electrical platform. Then we had had it up for sale under negotiations and it fell out and, you know, with the expansion of a year's point of time, we looked at it and determined to return it back to operating status.

And regarding the $150 million revenue or exceed $150 million revenue outlook for metal coatings, how much of that contribution is coming from Steelcrete and them as far as the revenue profile in the quarter?

It's still relatively small. I mean, it's probably 3%, 3%, 4%. Yeah.

All right, I'll get back into queue. Thanks for taking my questions.

Our next question will come from Noel Diltz with Stifel. Please go ahead.

Hi, thanks. Just following up on that last question from John, maybe a little bit more clarification. When you look at the metal coatings business for this past year and also looking forward into fiscal 23, Can you give us a sense of what you're seeing from a volume perspective and if you're expecting the volume element of growth to pick up as you get into 2020, fiscal 23?

Well, you know, we're off to a good start in the first quarter. We would hope that that pace continues. Obviously, if zinc costs continue to rise and we'll seek to keep our prices in line with the with that. So, but I think first quarter is, you know, we would hope it's fairly indicative of at least the first half of the year, second half of the year. Normally our fourth quarter weakens a little bit as we, you know, may have winter storms and things like that. So we anticipate kind of the same cadence, but obviously at a, you know, what, a 9% or 10% improvement over prior years, you look at it. It's partly from the acquisitions, partly from the organic growth and the continued expansion of things like spin galvanizing.

Okay. And then, you know, solar in the past has been a kind of a key driver of growth, and I know you've talked about it a bit recently. Recently, we heard that you're seeing a Department of Commerce investigation into solar panels and that that may – defer some work, anything you're seeing on that front in terms of projects or deliveries getting delayed?

Hey, Noel, this is David. Yeah, at this time, we're not seeing any delays in what we've got from our team that we're working at this point. But, you know, we're tracking that closely. We think that if, you know, anything shows up, it's going to be well out in, you know, the latter part of the second half of this year. But right now, we're not seeing any impact from that at all.

And then just last, I was hoping you could go back to pre-code and just discuss if you see any synergies either on the sales or the cost side that you expect to materialize over the next several years. Thanks. Oh, absolutely.

Yeah. The sales side particularly, it's interesting. We have a lot of similar, well, same customers, but we probably call on them in different parts of the process. So you know, particularly our galvanizing sales team and the pre-code sales team, we have a really nice plan to explore opportunities across joint customers as well as into, you know, new opportunities with each other's customers. So, We're pretty excited about that. We haven't quantified it yet. We actually have a meeting next week. We'll start to pin some of these things down a little tighter, but we think that's going to be a nice part of the synergies is just this opportunity across the fabrication line, both prefab and postfab. Then on the cost side, we've got the standalone costs and things like that. We're we'll look to leverage some of these things and, and we had teams, teams engaged this, uh, well this week and we'll continue to have teams engaged, uh, from now until close and, and obviously thereafter, uh, looking for other opportunities, whether it be on the system side or, um, process side. So, you know, while cost synergies are not a big part of this, uh, we just think we're going to have some scale opportunities and, and we've got some pretty good teams, um, that hopefully we can get some benefits from some of our contracts on insurance and things like that.

Great. Thank you.

Our next question will come from John Bratz with Kansas City Capital. Please go ahead.

Excuse me. Good morning, everyone. Good morning. Tom, you mentioned that you've seen some strong order flows and good backlog growth in the electrical products platform. What end markets are you seeing that business come from?

Yeah, you know, we booked this large battery energy storage system project. We call it, you know, the big best order. Unfortunately, we can't quantify it for confidentiality reasons, but we see more opportunities for that just because in the renewable space, you've got to have battery energy storage to be able to get store it and get the electricity to the grid. So those are large opportunities. They fit well with us because we've got five plants that build enclosures, three of them which are pure e-house businesses. Data centers continues to be strong. And then transmission distribution is also solid, and we think that's going to stay that way for several years. There's this, you know, firming up the grid is critical. David, I don't know if you want to answer, add anything to that.

I can add one point on there. I just think across our businesses in the electrical side, we're seeing increases in backlog, whether it's our lighting and tubing, our switchgear is strong. So we're seeing improvements across the electrical platform.

Okay, so it's more than just the battery energy storage contract. And it is.

Yeah, if you take out some of the reductions in China backlog and then you take out the battery-generated storage, we're up about 28%. Okay. Backlog year over year on base business.

Okay, good. Okay, okay. And then secondly, when you announced the acquisition of pre-code about a month ago or whenever it was, subsequently interest rates have risen considerably. And I guess, Phillip, when you look at the economics of the acquisition, has it changed at all during this past month because of the rising rates?

I mean, not really. And we're going to have to pay a little more in interest. But we have a term loan facility that's got collars on it. And so we're proceeding down that financing path. We're working on the equity piece of the capital allocation strategy that we're working to employ. is moving along really nicely. So I don't see that this is really a creative opportunity for us. So when you look at the cash flow generation for AZZ that we just discussed and kind of how we're starting off our fiscal 23, we don't own them yet, but we do have some communication going back and forth. It looks like they're still having some nice operations, and so we think this is a great opportunity, regardless of the current market, to take advantage of that accretion and the tax-based savings and everything to move this forward.

Okay. All right. Thank you.

Thanks.

Our next question will come from Brett Kearney with Gabelli Funds. Please go ahead.

Hi, guys. Good morning. Thanks for taking my questions. We touched on it some in your prepared remarks and the Q&A so far, but just any additional updates you can provide around latest thinking in terms of the financing components and then, I guess, the timing of each of those to close the deal next month.

Yeah, we're, you know, headed into the market now. We've got the committed financing in place. And so I won't go too much further but just to say that, you know, We will begin shortly a marketing campaign to push out our term loan B and finalize our equity transaction.

Okay, great. And then just follow up. Curious what the key inputs to pre-coat metals formulations are. I imagine resin, some amount of zinc. If you could just help me think about the major inputs on that business.

Yeah, you know, Brett, when you take a look at it, their major input is paint. And so that's really their big driver. It's definitely a high variable cost business and, you know, very similar, you know, just overall mechanics wise on how we operate on the tolling business on the galvanizing side. So it's really just paint and labor costs.

Okay. Thanks so much.

Again, if you have a question, please press star then 1. Our next question will come from DeForest Hinman with Walt Heisen and Company. Please go ahead.

Hey, thanks for taking my questions. Just another one on the pre-code transaction may close. It's within 40 days. Can you just help us with a little bit more color on the mix of the equity and the debt? Is there a range we should be thinking about in terms of how you're looking to fund this transaction?

Yeah, I think we had disclosed that before, but we're looking at roughly a $1.5 billion borrowing facility with $400 million revolver, and up to $240 million of that would be the equity component.

Okay. And then... Can you talk a little bit more about the backlog to the extent that you can? I mean, just a really big number. You make mention in the press release of the battery storage contract, but then in your verbal comments, you said you can't really talk a lot about it. But I mean, just sequentially and even on a year-over-year basis, I mean, it's a really big uh, dollar, uh, increase in your, in your backlog. And you said they're sizable opportunities. Uh, you know, simplistic question is, is that, you know, over a hundred million dollar increase in backlog. Is that the battery order? Is that a fair statement? Most of it or all of it.

I think when you look at that, it's, um, I kind of explained the 20% when you take out the best order in the China. backlog decreases that we had. So it's not over $100 million. It's a nice sizable order. It's 120 plus units. And so it'll come in and out of our backlog during, as Tom was speaking to, our fiscal 23. So it's already under construction and it'll shift or it's planned to shift during the fiscal year. We believe, based on what we're seeing, this is a great opportunity for us to execute well and there's an expanded market potential for these, you know, these battery energy storage facilities going forward.

Yeah, this is a, this was a design we'd been working for the battery energy storage. It was a design we'd been working on for a while. So we, you know, there's a, there's a need out there and, um, you know, we see this over the next two or three years being two, three, $400 million of opportunities over that period. And, uh, yeah, so we, and we think we've got a great solution for it. So, um, So we're, you know, a significant portion of the increase is in the enclosures space, which is three facilities. And then we've got strong backlog in our switch gear as well. And we've got two of those facilities. And as Philip mentioned, then our bus businesses have been performing well, but reduced input on the international front, but more on domestic and service. And our oil pass businesses have improved significantly. So So it's a broad-based improvement in that backlog, not just from the battery energy storage.

Yeah, that's helpful. And then when we think about some of the battery solution components, that you have won business on. Is this, I don't know how to say it or ask about it, but is it in our wheelhouse? Is this something from an engineering perspective we've done before? Or is this some new things where maybe we're buying batteries from a third party and that's part of the backlog in there? Or what is it exactly that we're doing? What's the new design?

This is our very traditional fabricate the enclosure, do the integration work and wiring and certain components supplied from the customer. So the backlog represents very much our traditional backlog for the enclosure space because it's the heavy fabrication, wiring, integration, relay panels, things like that. So very, very traditional. You know, there's nuances in the design, but it's structurally and electrically, it's the same thing we do consistently year in, year out.

Okay. And then just to follow up the last piece on the infrastructure side, I think, you know, going back, if we had seen backlog in the $300 million range in the past, and, you know, obviously there's a mixed component there as well, but that, you know, segment had, you know, generated 10% type operating margins with those type of backlogs. Is that, you know, what you're seeing currently from a mixed perspective as an opportunity for that business?

Yeah, it is. You know, there's good – when we get that kind of backlog, there's good scale leverage. And our focus is just on managing the supply chain, making sure we get components in time, keeping labor focused and productive and efficient, which, you know, there's a few more challenges these days. But still, yeah, we get a nice margin pop when we get this kind of volume.

Okay, thank you. And the last question is just on a rundown of the labor situation within the two segments. You know, anything you're seeing there, better, worse, same, would be very helpful.

Yeah, I think on the metal coating side, the team's done a great job. We're doing better with retention than – Due to some programs we have, hiring has improved. We did increase wages, so when we talk about inflation, that's part of it. But I think the teams do a great job. We've got programs that help employees get onboarded and engaged, which is helping us with our retention. When it comes to the infrastructure solutions, I think on the industrial side, the WSI side, they've In the U.S., we're using, you know, contract craft. And I'd say we've done a good job there. I don't know that it's improving or not, but it's at least stable. And on the electrical side, where we're trying to get, it's more related to semi-skilled, skilled craft, I'd say it's improved a little bit. You know, and part of this is our programs for recruiting and hiring have continued to mature and get better. engaged with, you know, new ways to recruit. So I'd say it's improving and moving from, you know, into more of a stable situation. So we actually feel pretty good, but I think it's a lot of what our teams have been able to do to get us to that point.

Okay. Thank you for taking my questions.

Our next question will come from Bill Baldwin with Baldwin Anthony Securities. Please go ahead.

Thank you, and good job, folks, on the job you've been doing over there. Thanks, Bill. Been a long journey, but it's paying off. It's paying off. On the bus side of the business, can you remind me again of what the major market drivers are for both your medium bus and high-voltage bus? Ben's products?

Yeah, sure thing, Bill. The main drivers there are really transformer swap outs. Also, some of the work goes into connecting up to existing and new switch gear. So that's really it for medium voltage bus. Medium voltage bus also doing a fair amount of service work as well where they're going out into the field and helping folks retrofit and refurbish equipment And then the high-voltage bus side, it's really about power gen. Again, we had the big project in China last year, and the group continues to work with a couple of very large customers here domestically on some power gen projects.

Are those power gen products natural gas power gen, or would it be hydro power gen, or does it make any real difference what the source of –

the power is. It really doesn't make any difference for us. We see projects on both sides of those, so really no difference.

When we see the manufacturing side of our economy really spend a lot of money on upgrades, expansions, and so forth, is that a driver for what we're talking about here on the medium bus side of the business?

Yeah, it can be. Where we really see it a lot is, you know, on the medium voltage switchgear. And then, again, to that extent, you'll have some medium voltage bus coming off that to connect into some of these industrial plants and manufacturing plants, as you just described.

Is that order flow looking pretty good, Dan, on the medium bus side?

You know, they're kind of running at their normal rates. You know, nothing...

yeah but we've pivoted more towards services so so they're able to pursue you know more opportunities than just the project side yep okay thank you very much all right thank you bill this concludes our question and answer session i would like to turn the conference back over to tom ferguson for any closing remarks all right thank you well thanks uh for joining us today we uh look forward to uh continuing to get some announcements out there so that everybody gets confirmation on the things we've been planning and involved in. So we're hopeful over the next few weeks you'll see more of that and that you'll get a good announcement when we close on the pre-code metals acquisition. We're looking forward to that, as well as continuing to make progress in our businesses and on our strategic initiatives. Thank you very much. Look forward to talking to you next time.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.