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.