AZZ Inc.

Good day, and welcome to the AZZ Second Quarter 2025 Earnings Conference Call and Webcast. 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 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 fiscal 2025 second quarter, which ended August 31st, 2024. Joining the call today are Tom Ferguson, President and Chief Executive Officer Jason Crawford, Chief Financial Officer, and David Nark, Senior Vice President of Marketing, Communications, and Investor Relations Officer. After today's prepared remarks, we will open the call for questions. Please note the live webcast for today's call can be found at www.azz.com slash investor dash events. Before we begin, I want to remind everyone that our discussion today will include forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements are uncertain and outside 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. These statements are not guarantees of future performance. Therefore, undue reliance should not be placed upon them. Actual results could differ materially from these expectations. In addition, today's call will discuss non-GAAP financial measures. Non-GAAP financial measures should be considered supplemental to, not a substitute for, GAAP financial measures. We refer to the reconciliation from GAAP to non-GAAP measures in today's earnings press release. I would now like to turn the call over to Tom Ferguson.

Thank you, Sandy. Good morning and thank you for joining us. Today I will discuss the second quarter results and cover our outlook for the rest of the year. Jason Crawford will review our detailed financial results and David Nark will provide an industry update on sales to our end markets. Then we will open up the call for questions. We are pleased this year with the team's emphasis on business execution and productivity improvements. And we continue to focus on what matters most, delighting customers through exceptional service and quality and innovative solutions. Topline sales momentum continued in the second quarter, and sales grew by 2.6% to $409 million compared to the prior year's quarter. We reported another quarter of expanded EBITDA dollars and margins compared to the prior year. As a result, we generated meaningful cash flow from operations of $119 million for the first half of our fiscal year. Compared to the prior year's quarter, metal coating sales increased by 1% and pre-coat metal sales increased by 3.8%, due primarily to market share gains. Organic sales in both segments grew almost entirely based on volume due to higher steel and coal coating tonnage processed in the quarter. As Dave will cover in more detail, we benefited from AZZ's diversified end markets and the continued growth in certain markets like construction. The construction-related markets represented 57% of our combined coding sales and were driven by strength related to infrastructure projects, including bridge and highway, transmission and distribution, and renewables. This critical infrastructure spending tracks closely to public sector construction, energy, and manufacturing. We are optimistic that Fed actions to lower interest rates may spur greater capital spending into calendar year 2025. Continuing with the summary of our results, Metal Coatings delivered a strong EBITDA margin of 31.7%, exceeding the prior year and our target margin range of 25 to 30% due to higher volume and improved zinc productivity and cost. Preco Metal's EBITDA margin of 21.1% was also strong due to higher volume, improved operational performance, and better mix. This year's strategic objectives for AZZ are to drive revenue growth and improve the company's profitability through maximizing operational efficiencies. Executing our objectives well this year has generated significant cash flow to pay down debt and strengthen the business and our balance sheet. For the first six months of our fiscal year, Our growth has been entirely organic, while we continue to evaluate bolt-on acquisitions to add inorganic growth in each segment. We knew that rebuilding our acquisition pipeline would take several quarters as market transactions slowed after we paused to delever and pay down debt. We plan to remain patient while evaluating the best timing, leverage, and target valuations in these markets. Jason will discuss our capital allocation strategy in a moment. But I want to emphasize that we will continue to seek high return on investment projects to drive growth. We will also continue to pay down debt and return capital to shareholders through our cash dividends. We paid down $20 million of debt this quarter and once again repriced our term loan last month to lower interest costs by another 75 basis points. An important investment this year is our construction of the new aluminum coil coating facility in Washington, Missouri. This facility will expand capacity in the aluminum container sector, where we anticipate sustainable long-term growth to occur. We continue to track on schedule and budget and expect to be operational in early fiscal year 2026. As a reminder, this facility's production and capacity will benefit from a long-term contract with one customer committed to 75% of the new site's capacity. We are excited about the progress of the new plant.