AZZ Inc.

Good day, and welcome to the AZZ Inc. Q3 2023 Earnings Conference Call and Webcast. 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 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 Sandy Martin, three-part advisors. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us today to review AZZ's financial results for the third quarter of fiscal 2023, ended November 30, 2022. Joining the call today are Tom Ferguson, President and Chief Executive Officer, Philip Shlom, Chief Financial Officer, and David Nark, Senior Vice President Marketing, Communications, and Investor Relations. After the conclusion of today's prepared remarks, we will open the call for questions. Please note there is a webcast and slide presentation for today's call, which can be found on AZZ's Investor Relations page under the latest earnings presentation at azz.com. Before we begin, I would like to remind everyone that our discussion today will include forward-looking statements, that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements by their nature are uncertain and outside of the company's control. Except for actual results, our comments containing forward-looking statements may 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 28th, 2022. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. Actual results could differ materially from these expectations. In addition, today's call will include a discussion of non-GAAP financial measures. Non-GAAP financial measures should be considered as a supplement to, and not a substitute for GAAP measures. We refer you to the reconciliation of non-GAAP to the nearest GAAP measure included in today's earnings release and investor presentation for further detail. The earnings press release and Q3 presentation are posted on our website and have been included in the Form 8K submitted to the SEC. I would now like to turn the call over to Tom Ferguson, CEO. Tom?

Thank you, Sandy. Welcome to AZZ's third quarter earnings call, and thank you for joining us this morning. We accomplished a lot this quarter, including completing the divestiture of 60% of our infrastructure solution segment. We also paid off over $230 million of our debt, which improved our leverage to 3.4 times EBITDA. Both of our business groups grew their sales significantly, and I will get into the specifics shortly. But let me first express how appreciative I am of our AZZ Metal Coatings and AZZ Precoat Metals leadership teams. I commend them for the professionalism they have demonstrated as they have maintained focus on their customers while dealing with continual supply chain and labor issues, as well as storms and other distractions. Working with leaders that demonstrate so much pride and passion for their teams and business is truly invigorating. As you can see here, we achieved nice flow through of adjusted EBITDA on the higher sales, generating over $71 million, or a 79% increase versus prior year. Net income on adjusted basis was $22 million, up 4%, resulting in adjusted EPS of $0.88. Philip will talk about the one-time write-down on AIS shortly. Metal coatings had another strong quarter, with sales up 17% to $158 million. The growth was a result of volume, the earlier acquisitions of Dom and Steel Creek, and adding tubing to the metal coatings, as it was not divested along with the rest of AIS. Operating income was only up slightly versus prior year due to inflationary pressures, particularly as ink cost peaked in most of our kettles. We continue to maintain our pricing discipline and focus on delivering value to our customers. Tubing is a good business, albeit relatively small and with significantly lower margins than our galvanizing business. Additionally, service technology is underperformed for the quarter. The net of these two things amounted to about 100 basis points of margin headwind for metal coatings. The metal coatings team has already taken actions to strengthen surface technologies leadership, and improved performance. EBITDA of almost $42 million was up 3% over prior year. We continue to benefit from our investment in DGS, or the Digital Galvanizing System, which is driving both productivity and customer service. We are also seeing potential in the longer term to improve performance of our kettles arising out of technology efforts in conjunction with Texas A&M. The outlook in the fourth quarter is for a typical winter season, and we'd hope to not experience any more major storms like we navigated in December. Pre-code in its second full quarter with AZZ had nice sales growth to 215 million, which generated over 34 million of EBITDA. While pre-code did grow its underlying unit volume modestly versus prior year, sales were lower than the second quarter due to normal seasonality, as we have noted previously. The lower volume sequentially has about a 100 basis point impact due to the deleveraging effect on fixed cost. Pre-code's underlying business performance was solid given the continued inflation on indirect materials, labor shortages, and extraordinarily high customer owned inventories that caused significant inefficiencies in cost. We have taken actions to improve the inventory situation and have focused initiatives to improve productivity at several plants, but are still dealing with skilled labor shortages and some logistical inefficiencies. Additionally, we have taken pricing actions to address the indirect material inflation and higher logistical costs. We have made progress on the 10 million of synergies we had noted at the time of the acquisition. And while so far the benefits have been balanced by the cost, these will be showing up in our run rates in fiscal year 2024. Year to date, our business on a consolidated basis has done well. To put it in perspective, we have generated sales approaching $1 billion in the first nine months, which used to be what we did all year. We have generated over $238 million in adjusted EBITDA, which doubles the prior year. Adjusted net income of $97 million and adjusted EPS of $3.89 are up 56% versus the prior year. For the AIS joint venture, we have recognized a little over $1 million of equity income. While it has been a tumultuous year, we are positioned well as we finish up this fiscal year and prepare for fiscal 2024. So now, I'll turn it over to Philip.