AZZ Inc.

Good day and welcome to the ACC, Inc. Second Quarter Fiscal Year 2023 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. 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 Dorme of Listen Partners. Please go ahead.

Thanks, Betsy. Good morning and thank you for joining us today to review AZZ's financial results for the second quarter of fiscal year 2023, ended August 31st, 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 IR. After the conclusion of today's prepared remarks, we will open the call for questions. Please note there is a slide presentation for today's call, which can be found on AZZ's Investor Relations page under Latest Earnings Releases 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. Additional increases in labor costs, prices of raw material costs, including zinc and natural gas, which are used in the hot-dip galvanizing process, coil coating process, changes in political stability and economic conditions of the various markets that ADZ serves, foreign and domestic, customer-requested delays of shipments, supply chain vendor delays, acquisition opportunities, currency exchange rates, adequate financing, and availability of experienced management and employees to implement the company's growth strategies. In addition, AZD'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?

Thanks, Joe. Welcome to AZZ's second quarter fiscal 2023 earnings call. Thank you for joining us this morning. I'm excited to have the opportunity to share the progress we've made on our strategic commitment to become predominantly a metal coatings company. The actions taken to further deliver the business, as well as the first full quarter of combined results of our metal coatings and pre-coat metal segments. Before I do, however, let me take just a moment to recognize and thank everyone involved with the divestiture of the majority stake in the infrastructure solution segment, which we completed on September 30th. I also want to thank all the employees of AIS for continuing to focus on the business, taking care of customers, and finishing out a nice second quarter with significantly improved results over the prior year. If we would not have had to take AIS to discontinued ops, AZZ would have had another $107 million of sales for a total of about $513 million in net sales and another $12 million of operating income for the quarter. I wish all of AIS folks success as part of the new joint venture with Firmware Group, which has been rebranded as Avail Infrastructure Solutions. Next, as we dive into the quarterly results, I am pleased to say that AZZ, as we committed to back in November of 2020, is now a truly focused metal coatings company with leading market positions in both of our segments. We had a very busy quarter highlighted by our metal coating segment achieving record-level sales, while continuing to post strong profitability. Pre-code metals completed their first full quarter of results as part of AZZ with record sales and also strong profitability. We are reporting the infrastructure solution segment as discontinued operations. After the end of the quarter, we closed the sale of AIS, collected the $228 million in proceeds, and immediately used $210 million to reduce the term loan B debt, with most of the remaining balance used to reduce the revolving credit facility. Additionally, to hedge against rising interest rates, we entered into a floating to fixed rate swap for $550 million of the remaining term loan deed debt. Phillip will speak more about this later. So let's talk about the operational performance of our businesses. On a consolidated basis, we generated sales of $407 million, with the AZZ metal coating segment posting almost $166 million, which is another record quarter. And the pre-code metal segment generated $241 million, which is the highest in their history. Most markets were active, and our businesses managed well through the ongoing supply chain delays and labor shortages, and continued to operate safely while taking care of their customers. We generated over $100 million of EBITDA on an adjusted basis, excluding the one-time non-cash loss on the sale of AIS. Net income and EPS were down on a reported basis due to transaction-related expenses, depreciation, amortization, and the loss on sale of AIS, but the businesses generated EPS of $1.24 on an adjusted basis, which is an increase of 63% versus prior year. Philip will get into the details of the adjustments later. It gives me great pleasure to congratulate the entire Metal Codings team on another outstanding quarter. Despite supply chain disruptions and labor shortages, they kept their people safe, took care of their customers, and continued to drive great results. These results included the impact of the DOM and Steel Creek galvanizing acquisitions and the addition of tubing from the AIS divestiture, but organic growth was still over 20%. Operating margins of 27% provided operating income of $50 million, which is a 40% increase year over year. We did have the benefit of 5.1 million of impact from a real estate sale and insurance settlements. So normalized margins would have been just over 24%. We continue to see solid demand as we progress into Q3, but are experiencing the rising cost of zinc in our kettles as we have noted previously. Precoat joined AZZ with some momentum and generated sales of $241 million. Operating income of $36 million, or 15%. Operating margins would have been 17.8%, but were impacted by 280 basis points due to preliminary purchase price accounting, amortization, and depreciation. And also faced about $2 million of impact from other supply chain disruptions and labor shortages. One of the key services Preco provides is warehousing steel and aluminum coils for their customers. But due to well-publicized supply chain disruptions, customers have increased safety stocks, so Preco is experiencing much higher than normal inventory levels, which is both a blessing and a curse. The volume bodes well for shipments, but presents challenges to productivity and efficiencies. Preco generated solid EBITDA of almost 50 million, or 20.6%. We are pleased with how the Preco team settled into AZZ with minimal disruption and has been a great cultural fit. With that, I'll turn it over to Philip to discuss our results in further detail.