AZZ Inc.

Good day and welcome to the AZZ Incorporated Q4 FY 2025 Earnings Conference Call and Webcast. All participants will be in the 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 your telephone keypad. 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 of Three Part Advisors. Please go ahead.

Thank you, operator. Good morning. Thank you for joining us today to review AZZ's financial results for the fourth quarter and full fiscal year that ended February 28th, 2025. Joining the call today are Tom Ferguson, President and Chief Executive Officer, Jason Crawford, Chief Financial Officer, and David Nark, Chief Marketing, Communications, and Investor Relations Officer. After today's prepared remarks, we will open the call for questions. Please note that 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, AZZ's 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. 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 as a substitute for GAAP financial measures. We refer investors 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.

Good morning, and thank you for joining us. Today, we will discuss AZZ's fiscal 2025 financial results and achievements, as well as our outlook for fiscal 2026. Then we will open up the call for questions. I am pleased to report that our coating segments delivered record sales and profitability for fiscal 2025 due to a combination of business momentum and disciplined execution of our growth initiatives. Metal coatings generated fiscal year 2025 sales of $665 million, while pre-coat metals generated $912 million. Strong sales for the full year were largely based on increased volume as we processed higher tonnage in both fabricated steel and coal coatings. For the full year, our top-line results were primarily driven by infrastructure investments to support community growth, urban expansion, and economic development. More specifically, AZZ's record-breaking performance was driven by growth in bridge and highway construction, including new projects and renovation projects across the U.S., the continued expansion in transmission and distribution, including solar projects, and general construction, which for AZZ includes data centers. Jason will cover our fourth quarter financial results in a moment, but as a reminder, the fourth quarter is typically our weakest season due to the winter holidays and inclement weather that hampers construction activity. During our fourth quarter, which ended February 28, 2025, the construction activity was impacted by significantly more inclement weather days than in a typical year. Collectively, we experienced over 200 days of lost production in the fourth quarter due to adverse weather conditions. David will provide more color on this shortly. In fiscal 2025, metal coatings delivered an EBITDA margin of 30.9%, primarily due to better operating leverage on expanding volumes and improved zinc productivity. As discussed previously, we believe our new margin range for AMC of 27 to 32% is sustainable. Preco metals EBITDA margin of 19.6% exceeded its prior year comparable. demonstrating strength based on increased volume, a more profitable business mix, and improved operational performance. Our strong EBITDA generated in fiscal 2025 converted to cash from operations of $250 million. This robust cash generation allowed us to pay down $110 million of debt and fund our new Greenfield facility near St. Louis, Missouri, which is currently ramping up commercial production as we speak. This year, we plan to continue to pay down debt and strengthen the balance sheet while prioritizing other capital allocation strategies, including paying quarterly cash dividends. We also plan to invest in AZZ's enterprise-wide technologies by enhancing DGS, which is our digital galvanizing system in our galvanizing plants, and CoilZone in the coil coating facilities. These customer-centric technologies continue to elevate service levels and enhance our unique value proposition. as well as provide effective business intelligence reporting for better decision-making, particularly in relation to improving operating productivity and efficiency. AZZ's pipeline of acquisition targets continues to grow, and we are carefully evaluating M&A in markets throughout the United States. We focus on synergistic targets that present attractive risk-adjusted returns for enhancing long-term shareholder value. We are disciplined in our approach, and decide on acquisitions based on timing, targeted valuation, and appropriate balance sheet leverage. After solely focusing on debt reduction, we anticipate closing the single-side bolt-on galvanizing deal during the first quarter. AZZ continues to differentiate with industry-leading market share positions in both segments. We believe our geographic footprint and scale across the U.S. and Canada, as well as technical expertise, reputation for customer service excellence, and longstanding customer relationships, create a durable competitive mode for AZZ. Our three to five year strategy is anchored on organic market share growth, as well as inorganic acquisition growth that we are pursuing for both segments. Under the Trump administration's current tariff mandates, we expect demand for coating solutions of both steel and aluminum, produced domestically, to accelerate. Additionally, in the fiscal of 2026, we will continue to benefit from our tolling model, which insulates us from commodity risks since we do not take ownership of steel or aluminum processed through our facilities. Currently, our zinc and paint supplies have not been impacted by the tariffs. With that, I will turn it over to Jason.

Thank you, Tom, and good morning. Starting with a summary of the full year, we reported sales of $1.578 billion, an increase of 2.6% from the prior year. By segment, pre-coat metal sales increased 3.5% and metal coating sales increased 1.4%, within which the galvanising segment increased 2.6%. Gross margins for the year were 24.3%, an increase of 70 basis points compared to a year ago. Net income before the preferred stock dividend and redemption premium in fiscal year 2025 was $128.8 million, an increase of 26.8% compared to the prior year. This was another record year for the company in terms of sales and net income, which speaks to the strength of the businesses and progress made on our strategic initiatives during the fiscal year. Turning to the fourth quarter results, sales for the quarter were $351.9 million, down 4% from the same quarter in the fiscal year 2024. As Tom mentioned, Bad weather impacted our quarter more than normal, which created lost production days for both segments. Despite the lower volumes in the quarter, gross margins improved to 22.4%, primarily due to operational improvements, up 30 basis points from the prior year's quarter. In the fourth quarter, selling, general and administrative expenses were $38.3 million or 10.9% of sales compared to $38.8 million or 10.6% of sales in the prior year quarter. Operating income was $40.4 million or 11.5% of sales compared to $42.3 million even with last year on a percentage of sales basis. Interest expense of the for the fourth quarter was $17.4 million, down $7.4 million from a year ago period. This is due to the lower weighted average debt outstanding and lower interest rates from debt repricings and Fed reductions that occurred in 2024. In addition, on March 3rd, after our fiscal year end, we announced a repricing of our $400 million senior secured revolving line of credit that will allow us to continue to lower our interest expenses going forward. The performance and outlook for the business has allowed us to improve our capital structure and reduce interest costs, and we fully anticipate this trend to continue into fiscal year 2026. Equity and earnings of unconsolidated subsidiaries for the fourth quarter was $3.7 million, compared to $4.3 million for the same quarter last year. These equity and earnings are from our 40% minority ownership interest in the Avail joint venture. The current quarter income tax expense was $6.1 million, reflecting an interim effective tax rate of 23.2% to support the final full year 2025 tax provision of 24.5%. This was higher than the 2024 effective tax rate of 21.9%, primarily attributable to favorable adjustments in 2024 related to uncertain tax positions partially offset by higher tax deductions for stock compensation in 2025. Net income from the fourth quarter was $20.2 million compared to $14.3 million for the prior year's quarter. On an adjusted basis, Q4 adjusted net income was $29.6 million compared to $27.5 million, an increase of 7.9% from the prior year. Fourth quarter adjusted EBITDA was $71.2 million, or 20.2% of sales, compared to $73.9 million in the prior year, flat on a percentage of sales basis on lower volume. Turning to our financial position and balance sheet, we generated significant cash flows from operations at $249.9 million in fiscal year 2025, ahead of last year's $244.5 million. After funding the company's annual capital expenditures of $115.9 million, which included $52.8 million for a new coil coating facility, our free cash flow was $134 million. As previously communicated, we have expanded our coil coating capabilities by constructing a new 25-acre aluminum coil coating facility in Washington, Missouri. This new facility contained within a pre-coated metal segment is supported by a contract for approximately 75% of the plant's capacity. During fiscal year 2025, our capital expenditures, as previously stated, were $52.8 million and the remaining and final balance of approximately $8 million is scheduled to occur by the end of Q1 in fiscal year 2026. This will bring the project online within our originally stated cost and timelines. Further, we're pleased to announce that the facility has started to ship commercial production as of a few weeks ago and will continue to ramp volumes through the fiscal year. Aligned with our previously stated strategies, our disciplined approach to capital allocation includes paying down debt, investing for growth, and returning value to our shareholders through dividends and share buybacks. During the fourth quarter of fiscal year 2025, we reduced debt by $30 million and made debt repayments of $110 million for the full fiscal year. Our debt to adjusted EBITDA ended the year at 2.5 times, which compares favorably to our leverage of 2.9 times at the end of fiscal year 2024. With our investment in the new Washington, Missouri facility largely behind us and our debt to adjusted EBITDA below 2.5 times, And overall improvements to our capital structure, we will start to transition our focus to a more balanced capital allocation with greater emphasis on M&A and returning value to our shareholders. Finally, subsequent to the end of the fiscal year, on March 10th, we announced that our JV partner has entered into a definitive agreement to sell the Electric Products Group to Envent Electric plc for a purchase price of $975 million. This transaction is expected to close in the first half of calendar year 2025, subject to customary closing conditions, at which time we will receive a pro rata portion of the cash proceeds from the sale, which we estimate to be approximately $200 million after accounting for debt repayments, deal costs and cash retained in the remaining businesses. Post-transaction, AZZ will continue to own 40% interest in Avail, which will then consist of the industrial lightings and welding solution businesses and will represent approximately 30% of pre-transaction group revenue. With that, I'll turn the call over to David Knopp. Thank you, Jason.

Good morning, everyone. During fiscal 2025, customer demand in key industries drove annual sales growth, primarily in our largest category, construction, and in meaningful end markets that include industrial and electrical sectors. Smaller categories at AZZ also experienced growth in fiscal 2025, and those were related to HVAC and container industries. As Tom and Jason mentioned, the demand environment for overall construction was weaker in the fourth quarter due to inclement weather. We believe that both wet and cold conditions, meaning temperatures below 40 degrees, impacted construction days throughout our final quarter of the fiscal year. To put this in perspective, for December, the number of wet days increased 13% versus the same month a year ago. In January, the number of warm days available for construction were down 29% year over year. Finally, in February, the number of wet days increased by 10%, while the number of warm days available for construction were down 27% year over year. For the full year, organic top line growth was 2.6% over the prior year. Looking into fiscal 2026, we expect a continuation of infrastructure spending related to the AIIJA program. We expect public and private investment to continue to remain resilient with infrastructure spending from planned projects and recent natural disasters. Also, as Tom mentioned, growing populations and urbanization will continue to support the need for infrastructure-related projects, especially bridge and highway, transmission and distribution, and airport construction. In addition, we know that pre-painted aluminum and steel will continue to play a critical role in many reshoring projects, and the conversion of plastics to aluminum in food and beverage industries will continue to be a longer-term secular trend. With that, I'd now like to turn the call back over to Tom.

Thank you, David. To summarize our fiscal 2025, we posted record results for revenue, operating income, adjusted EBITDA, adjusted earnings per share, and adjusted net income. Our sales expansion that grew to almost $1.6 billion consisted of 100% organic volume growth, which speaks to our market-leading segments and service-driven culture. Our ability to improve margins demonstrates our emphasis on value-added service to our customers and disciplined focus on operating quality, efficiency, and productivity. We improved our capital structure by eliminating the preferred equity, continuing to reduce debt, and improving our net leverage ratio to below 2.5 times. Looking ahead to fiscal 2026, we anticipate delivering above market growth while getting some bolt-on acquisitions done. Importantly, we will be sticking to the disciplined approach to investments, capital allocation, and growth that has made us so successful. Today, we are reiterating our fiscal year guidance for 2026, which reflects our confidence in the company's strategic execution, operational resilience, and market positioning. Starting with sales, our best estimates given market conditions and sentiment are $1.625 to $1.725 billion, adjusted EBITDA of $360 to $400 million, and adjusted earnings per share of $550 to $6.10. The midpoints of these ranges demonstrate business expansion ahead of any future M&A activity. We look forward to completing its divestiture of the electrical platform so that we can utilize the cash to reduce debt and invest in growth. For this reason, we're leaving our EPS estimates unchanged. Also, capital expenditures for the fiscal year are expected to be $60 to $80 million, and debt paydowns are expected to exceed $165 million. This amount excludes any additional debt reduction from the AIS sale proceeds as well as any capital used for acquisitions. Additionally, we are off to a good start in the first quarter and have not seen any significant impact from the tariffs, particularly in our metal coating segment. I am proud to recognize AZZ's 38th consecutive year of growth and profitability from continuing operations. This accomplishment was due to the dedicated efforts of our employees. I sincerely thank them for their hard work and continuing commitment to excellence. Finally, we are excited to announce that we will host an Analyst Day on August 14th. The event will be held in St. Louis, Missouri and will include management presentations from our pre-code headquarters and a tour of our new aluminum coatings plant. I encourage the analyst community to contact our investor relations team if you are interested in participating later this year. With that, operator, I would like to open up the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. 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. The first question comes from the line of Adam Thalheimer with Thompson Davis. Please go ahead.

Hey, good morning, guys. Tom, I was hoping to start off with, and you addressed this at the end of your prepared remarks, but what you're seeing in the May quarter and what kind of a bounce back you've seen from the bad winter weather?

Yeah, great question. Just in April alone, we've recovered the shortfall from the fourth quarter for metal coatings and probably exceeded that. So we're looking for a very strong first quarter on the metal coating side, and they're out of the gate really, really well. So March was great. April is solid and positive. the outlook for may is, uh, is good as well on the pre-code side, little, you know, about the same that they were weather impacted, but somewhat differently. So instead of as much lost production days, it was more customers, uh, who, who, who were closed and didn't, didn't take a delivery on some finished goods inventory. So, you know, we look for a solid, uh, first quarter for pre-code, uh, Jason will talk, probably want to add something to, to my comments, but, uh, You know, we have a lot going on in the first quarter for pre-code. We've got the new site ramping up, which is great news for us, production in play. And, you know, we do focus more on market share growth. So if you just look at last year, our markets generally were down. And yet we were able to grow in both segments. So, Jason, you may want to add a little bit on pre-code.

Yeah, I mean the only other thing I would add in Precourt is round about their inventory and you know the seasonality ramp that we would normally see with the good weather coming out of January, February would impact our Q4 and we've never seen that. We carried a little bit more inventory from Q3 into Q4 and You know that that that happens, you know, in relation to where steel prices is at and obviously as we kind of enter Q4, there was a little bit of uncertainty around about the administration and what that was going to impact or how it was going to impact and essentially if you go back eight years ago, how it impacted us was round about supply and price. So you know, to be fair, our customers stocked up a little bit and we carry that. So that was probably the main impact And then we'll see that getting back out the system as we go into Q1 here.

Okay. Great color. And then, Jason, what's in the guidance for the avail, JV?

Yeah, I mean, if you look at the avail JV, you know, and obviously the guidance that Tom reiterated, there is no impact. And the reason we look at no impact is there's $15 to $18 million in the guidance. for the JVA and as Tom, I think as I highlighted, there's around about 30% of that JVA continues after the sale. So it comes down to a fairly nominal level once we complete the sale of the electrical products division. If you take the incoming cash and convert that into lower interest rates, it's within the zip code of one for one. So obviously we've not fully decided the capital allocation of that, You know, from an EPS point of view, we're looking at it as being very insignificant in terms of our guidance.

I'll turn it over. Thanks, guys. Thank you.

The next question is from the line of John Franzreb with Sidoti & Company. Please go ahead.

Good morning, guys, and thanks for taking the questions. I guess I'd like to start with a little question about the tempo of the order book. I know you had some catch-up from weather, but have you seen any change in momentum based on the current macroeconomic environment, be it positive or negative?

Yeah, interestingly enough, we spend a lot of time going through our weekly reports from the field, and the optimism is positive. It's so, you know, projects are going forward. Customers are confirming we've got capacity. And, you know, so I'd say generally, while there's always concern, you know, further out in the year, the short-term outlook over first quarter and second quarter, more positive than I think we would have expected. You know, so I think, like I said, mostly checking our capacity, making sure we've got shifts to run the infrastructure, Jason can probably comment on pre-code a little better. He already alluded to the fact of the finished goods inventory. But generally, it's positive there, too. And, you know, the construction season was a little slow to get started, but now it's getting off, you know, well.

Yeah, John, the only other thing I'd add is, you know, if you look at the couple of industry forums that we've been to at the start of the year and The general sentiment in those forums and conferences is relatively upbeat. So at this point, obviously there's a lot of turmoil outside, but within our four walls of our business, then we're not necessarily seeing it at the moment.

Great. That's good to hear. I guess the second thing I wanted to touch on was zinc. The US doesn't produce an awful lot of zinc. A lot of it comes from China and South America. I'm just curious, how should we be thinking about zinc in this current tariff environment? You know, any kind of color you could provide would actually be very helpful.

Yeah, John, this is Dave. I'll take that one. You know, as we look at zinc, one of the things, I think the biggest thing to note is that it is listed on the Annex II list that came out from the administration as something that is exempt from the tariffs. So, While, to your point, the U.S. is a net importer of zinc, the vast majority of ours comes from North American sources, and again, it's not an impact for us because it's on the exempt list.

Yeah, and I'd also add, talking to all of our suppliers, they don't have any concerns at this point, so supply is good. We'd actually taken on some inventory at the end of the year just as a cushion, but it doesn't look like we're going to need that extra inventory.

Thank you. I appreciate the clarity.

The next question comes from Mark Reichman with Noble Capital Markets. Please go ahead.

Thank you. By my calculations, it seems like you would need to reduce debt about $300 million to offset the impact from the sale of the JV transaction. I was just wondering, with that $200 million that you're expected to receive, Could you just maybe elaborate on your debt reduction goals and, you know, how you might look at that from a capital allocation standpoint? I know you still have about $50 million left on your repurchase authorization. So just some clarity regarding the debt reduction goals would be helpful.

Yeah, certainly. And I can certainly pick that up. You know, at this point, we've not fully decided the capital allocation at $200 million, but If you go back to the loss impact from the JV income, that doesn't affect our calculation on the 2.5% that we ended the year. So that's excluded from that calculation. As you look at the opportunities from an M&A point of view, potentially returning shareholder value via Increased dividends or shared buybacks, that's all on the table. And, you know, if we decide that there's no opportunities there, then we'll continue to pay down debt. We're in the comfort zone of 2.5, and, you know, if we go slightly below that, then, you know, I think that would be our priorities there.

Okay. Well, just to kind of put a little more clarity, so... Basically, you'll go from that equity, you know, in earnings from unconsolidated subsidiaries, you'll go from 15 to 18 down to 4.5 to 5.4. So to make that up, you're going to have to pay down some additional debt to reduce the interest expense. And you've already said that you'll pay down more than $165 million. And I guess what I'm asking is $300 million, is that unrealistic? in terms of what to expect in terms of your debt repayment in fiscal year 2026?

Oh, that's very realistic. Yeah, I don't think it's unrealistic. That's what I'm assuming.

I mean, the math is correct. Yeah, absolutely. And that still leaves us room for, as we talked about, buying in stock to eliminate the dilution from equity compensation and things like that. So, you know, we've We fully intend to utilize a chunk of that $53 million remaining buyback authorization in addition to the debt reduction that you just mentioned.

Okay. And then just a second question, a final question. You know, the fiscal year 2026 capital expenditures of $60 to $80 million, you know, what's the split between metal coatings and pre-coat metals? I mean, we have a pretty good history of for normalized run rate for metal coatings, but maybe not so much for pre-coat metals. So just was kind of curious about, you know, the normalized spending budget for each of those segments.

Yeah. And I would say it's roughly to very close to within the pennies of a 50-50 split. I think you can look at the lower end of that as being a normal year. And then the upper end of that where maybe we're investing in some projects. I think we've highlighted historically that there's some projects that have sat on the sidelines as we focused on paying down debt. And they start to come into vogue in terms of generating a return.

Yeah, and I would just add to Jason's point, which Yeah, $30 million each for the two segments. And then we did have, so in that $68 million, we had some carryover on the new Washington facility that just, you know, bills to pay carried into this year. So that's part of it. And then we, to Jason's point, we've got a couple of nice new investments in, you know, blend cells and things like that that will give us new capabilities in certain facilities. So, you know, we'll always look at some increment for growth capital.

Okay. Well, that's very helpful. Thank you very much.

Absolutely.

Thank you.

The next question comes from Gansham Punjabi with Baird. Please go ahead.

Hey guys, good morning. You know, if you covered it, I missed it, but what do you estimate the impact from weather was on your 4Q fiscal year 25 quarter? And is that lost sales just add to the future backlogs? And is that in effect what you're seeing in the first quarter thus far?

Yeah, that's a, that was, so probably, you know, lost, lost revenue that we can directly attribute on the metal coating side of eight to $12 million. Virtually, Well, I'd say virtually all of it has now been recovered in March and April on the metal coating side. On the pre-coat side, as Jason talked about, there was some weather impact, but also this finished goods inventory build. It was about 200 lost production days, and most of it hit from mid-January through February. And we couldn't make it up on weekends just because of storms, ice, weather, and also customers who weren't shipping stuff in. But we saw that ramp up hit quickly in March and worked a lot of weekends to take care of our customers.

Okay, got it. Thank you. And then relative to when you initially gave your fiscal year 26 guidance back in February, I mean, obviously, there's more uncertainty as it relates to the macroeconomic backdrop, you know, tariffs, and also mixed indicators on construction, including from the homebuilders. You know, you're reiterating guidance for the year, obviously. Are there any incremental positives for fiscal year 26 relative to, you know, your view back in February that's sort of underpinning your confidence? And then also, how should we think about sequencing of earnings for fiscal year 26?

Yeah, I'll answer the first part, and then Jason can answer the sequencing. But Um, yeah, so a couple of things that have, that have happened. One, we're off to a strong start in Q1, particularly in metal coatings, which, you know, with that weather and things like that, there, you know, we, we, we just did have a little bit of concern, uh, which is now gone. And, and two, we do, uh, we do intend to get, uh, at least one, uh, hate to call it mom and pop, but you know, I've, I've called it that for a while. One mom, mom and pop galvanizer done. hopefully this quarter and then another later this year. So those would both be nice margin businesses incremental to what we were looking at back in January. And then we have been pushing price because, you know, while we're not impacted on the zinc and paint side from a cost perspective, you know, a lot of other things we have seen inflation on, whether it's due to tariffs or just due to supplier taking opportunities. You know, we are pushing prices, as I think most folks know we do in this case, because we offer the value and want to make sure that we continue to deliver for our customers. So that's kind of the optimism that I would, at least that's my optimism as I'm looking forward this year and mostly what we're hearing from the field and our sales resources and what our customers are telling us.

In terms of the seasonality, I would say it's got to be a normal seasonality partner that we've seen historically, other than three things and two of them we've touched on. In regards to the metal coatings division, we are going to see a little pop in Q1, as we've seen the negative side in Q4. which is going to be nice for the quarter. And then as Tom highlighted, if we execute on the acquisition, then Q3, Q4 should provide that additional little boost for that division. From a pre-call point of view, business is normal from a seasonality, other than bringing on the new facility. We highlighted that in Q1, we're starting to see commercial production. Obviously, it's a brand new asset. So it's going to be a little bit of a drag, not materially so, but certainly it's going to be a drag before you really see that start to pop in the second half of the year. So other than those three factors, at this point, we're not really seeing anything major in terms of seasonality for the fiscal year.

Okay, great. And then just one final one, you know, your capital position, your balance sheet is already quite strong and, you know, clearly you're going to get more proceeds post the JV asset sale. As it relates to acquisitions going forward, should we sort of be thinking about slightly larger deals than maybe originally envisioned, just given balance sheet flexibility and just more holistically? What does the pipeline look like for acquisitions at this point?

Yeah, the pipeline's looking really good. I think we've got deals we could do. The one-off galvanizing, those are just slam dunk. That's kind of our history. What we do is normal routine. So we've got, you know, I think three active at the moment, one close to fruition. The two others that hopefully we can get done later this year. And then on the pre-code side, they're just generally going to be bigger. We're probably... I'd say there's things that we could act on, but we're taking a wait-and-see approach to see how the tariffs impact those businesses. But they're in our pipeline, active, good, solid relationships, things that if we can get the right value for them and the timing's right and we prove out what happens to some of these businesses with tariffs, because generally galvanizers are like our metal coatings has not been affected too much because they're focused on infrastructure and construction spend that's going to go forward. But on the pre-code side, it's, you know, they are going to be bigger deals.

Thanks for taking my questions. Sure.

Our next question is from Nick Giles with B Reilly Securities. Please go ahead.

Thank you very much, Operator, and good morning, everyone. Maybe just as a follow-up to the last question there, as you think about other potential bolt-on opportunities, I mean, what geographies are most compelling, and how does end-market exposure come into the decision matrix?

Yeah, I think, and kind of back to you, for us on the galvanizing side specifically, Almost any geography is good. Whether we've got plants in the area or not, we're still going to be interested in those, you know, whether it's one site or five or six or seven sites. It's just our sweet spot. We've got a great playbook. We believe we can add value and improve margins with virtually anything that we acquire in that space. If it's U.S. or Canada, we're interested. We continue to have relationships with galvanizers outside of the U.S. and Canada, but that's not on our short-term horizon. On the pre-code side, I think back to everything we have is U.S.-centered, so probably U.S.-Canada is the geography. Um, the end markets tend to be relatively of, of, of the things that we're aware of out there that are potential. They tend to be in the same, uh, serve markets that we're in. Um, I'm not sure Jason might add to this or, or David, but I, I'm not sure that there's any geography, um, you know, in that, that would limit us from looking at it. Um, if it's in the U S and Canada.

Yeah, I would agree. And in terms of the markets, both businesses, you know, as the number one player within the market, cover all end markets. And really all you would see via acquisition is a little bit more concentration and something bigger than what we have today. So there's not any new markets out there that we could take galvanising or coil coating to. It would just be a greater presence within those spaces.

Thanks, guys. That's helpful. And then, you know, working capital management was a key contributor to, you know, strong cash flow in 25. So are there any working capital considerations you'd highlight as we think about cash flow in 2026? Or, you know, could we see further improvements?

Yeah, I mean, I definitely think there's further improvement. As you look at, you know, I think Tom had made a couple of mentions in regards to, you know, bringing a little bit more zinc in than we had optimally got to, you know, so certainly filtering that back through the system. And then as you look at our finished goods position, and our contract assets, it's called New Balance Sheet, for our pre-code division, there's certainly opportunities there. I think we finished just below 11% in terms of working capital, and certainly getting that to single digit is a very strategic goal for us. So there is a little bit more movement, but certainly we're going to see the blockbusters that we've seen maybe two years ago.

Well, and I would also add, because we are ramping up the new Washington code coding facility, there'll be some working capital, new working capital to get attached to that. So I think that's why we're really looking at working capital being relatively flat overall this year, but that includes absorbing a new location.

Got it. No, that's helpful. And then one more, if I could, as we think about margin cadence over the year, You know, should we be thinking about margins that could be closer to the high end as far as pre-code goes as Washington ramps?

Yeah, I mean, I think as we've previously stated, then Washington definitively comes in the higher end just by the product, you know, just the margin profile of that product. And then above and beyond that, just a leverage of the fixed costs that are within that business unit. So certainly once we ramp the Washington facility and get it fully capable and producing, then we should see an overall bump to the pre-code margins that we've been operating on.

Got it. Well, guys, I appreciate all the color and continue best of luck. All right. Thank you. Thank you.

The next question comes from Timna Tanners with Wolf Research. Please go ahead.

Yeah, hey, good morning. I had a few follow-ups, if I could, on tariffs broadly. So I just wanted, sorry to be pedantic on this, but on this last quarterly call, you said that there could be some project delays due to tariff uncertainty. So in this time, there is no mention. So were there no project delays? And are you not hearing anything about tariff uncertainty from your customers anymore?

Okay, on the, yeah, I think the, as we looked at it particularly, and I'll start with the metal coating side, but yeah, there were concerns, and it was, but I think what we saw was steel has been available, metal's been available, so as long as there was that available for construction, those projects moved forward, they were under, you know, already agreed to price levels and things like that, so know as we're looking out um and what we did see weather delays in the fourth quarter and i just mentioned the first quarter started off strong so there's there's this natural level of concern about the do price do uh construction costs spike do you know but i think it's less around uh construction material availability more around Do project costs spike? If they spike, does that make some of them less viable later on this year? So the general sentiment is still positive, but let's see how it goes as we get to the latter part of this year. On the metal coating side, I think on the pre-coat side, Jason or David, you may want to add, but I think it's You know, relatively the same. Construction was a little, due to weather, was a little later to get, the season was later to get ramped up, and it's ramping up fine at this point. I'm going to guess that, you know, if we dug into more details and you get beyond infrastructure, bridge and highway, T&D, electric utilities, data centers, then, you know, I think the sentiment may be a little weaker as you get further out only because of the unpredictability of the cost estimates and do projects become less viable.

Yeah. And I mean, to be fair, the only other thing I would add is, you know, three months ago, it was all very new and, you know, certainly we were in a little bit cautious and, you know, maybe even speculating what could happen versus, you know, three months later, We've engaged with our customers. As I mentioned, we've been at the industry forums, et cetera, and we're not hearing that same sentiment that, you know, it's got to impact us.

Okay, thank you. And then similarly along those same lines, you mentioned that paint availability was not impacted by tariffs. We already talked about zinc. But are you or your customers finding any materials needed for your business impacted by tariffs? And then along those same lines, Are you or any of your customers benefiting from some of the downstream tariffs on steel and aluminum? I just don't – I'm trying to get my head around, like, how that could also maybe benefit you on the downstream side. Thanks.

Yeah, I mean, I think it's hard to believe that there's any company out there that's not been impacted by tariffs. And, you know, certainly our biggest inputs are zinc and paint. And as we've highlighted, we're not seeing any impact to them. But, you know, you go to the greater population of the goods that we are procuring and some of them, you know, in terms of production supplies, et cetera, are being impacted. Obviously, we've been very customer conscious in terms of pushing back in those, but some of those are sticking. So in terms of margin accountability, then we're driving appropriate from a pricing point of view. So that's something that we continue to stay on top of. Obviously, it's the smaller part of our input cost, but at the same extent, every penny counts, and we just stay on top of that and continue to monitor it.

And that would be things like wire, additives, chemicals, acids. So those secondary supply items in both segments have been impacted. But like I said, we're trying to push price and also negotiate. And in a lot of cases, we're still fairly large customers for certain of those items. So in reasonably good position and have not seen much negative impact at this point, if any.

Okay, helpful. And on the opportunities on the downstream side, is there much that you think you could pick up in terms of business on what might have otherwise? I don't think you compete a lot with imports, but even some of the substrate that you buy maybe being domestic, are you able to see some volume improvement perhaps for more domestic production opportunities?

Absolutely, Tim. What we are seeing, particularly on the metal coating side, we know that imports, pre-painted imports in particular, account for about 10% of the volume that comes in. That equates to about 800,000 tons annually. We do believe that a portion of that will be looking for domestic supply, and obviously being a leading coil coater here in North America, as they source domestically, it stands to reason that we'll pick up some tailwind from that this year.

Great. Thanks again. All right.

Thank you.

The next question comes from John Bratz with Kansas City Capital. Please go ahead.

Good morning, everyone. Tom, now that Washington has reached the commercialization stage, and maybe along with the prior question and maybe some additional imports, looking for domestic sources. Any reason to believe that Washington's ramp up might go better than expected and, and, and we might see some, um, uh, something more positive out of, uh, out of Washington here in, uh, this fiscal year?

Yeah, that's always the, you know, I think, uh, the hope it's, uh, it's a big complex project. It's, uh, it's been run well. Uh, the, the team has done a great job of, uh, you know, mitigating, uh, any issues with, uh, deliveries of equipment and getting things ramped up. So, uh, we're looking forward to, uh, to the analyst day there in, in August, but, uh, absolutely. We've, uh, we've got, they're, they're working to a more aggressive plan than we've got embedded in our, in our guidance. And so if they hit that more aggressive plan, which, uh, so far the team has shown they're able to do, then we would have some nice upside this year. So I know some of the teams probably on this call just scratching their heads. But, yeah, they signed up to – and it really hits as they hit the capacity mid-year. So as we get into that third quarter and especially at that point, They're in full stride, and we've heard from at least one customer that they're forecasting higher demand, which is good news. So we'll have the demand. If the facility comes online well, which we continue to see signs it is, then we're going to have a really good year there.

Okay. If I'm correct, the initial revenue expectation is around $40 million, $50 million for this year. Is that correct?

I think it's a little lower than that. So the revenue for this year is not $50 or $60 million. The revenue, once we get to ramp, we've previously stated is that kind of $60 million opportunity. And that's obviously a variable number. There's actually three lines within that facility. There's, I'd say, a pre-slip line and then a coating line and then an overall slitting line. So there's a lot of variables in that equation in terms of the type of product but as you look at within our models then you know full capacity is you know in around that 60 million dollar number okay okay thank you and one last question david you spoke about the 200 days of loss production mostly in the metal coatings was the inclement weather

mostly impactful impact in your southeastern locations, or was it pretty much across the board?

Yeah, we saw it pretty much across the board. In the areas where we operate, you know, the south in particular was definitely impacted more than it was a year ago, as well as the upper Midwest and some of the eastern operations as well.

Yeah, Texas, we hadn't seen this since, what, 2012? And even then, we didn't have this many down days. And so part of it was that natural gas got curtailed in North Texas. And obviously with our big furnaces that, you know, we basically had everything on slow roll. So it really was. And these are big, you know, so it happened to impact where we had big facilities. But all of that has ramped back up in Q1. Okay.

All right. Thank you very much. Sure thing. Thank you.

This concludes our question and answer session. I would now like to turn the conference back over to Tom Ferguson for any closing remarks.

Thank you, Operator. I want to thank everybody for joining us. And as we've implied on this call, we think the fundamentals of our business are outstanding and pretty much unchanged in spite of a lot of the tariff uncertainty. We focus on providing outstanding value, which allows us to take market share. We've made great investments in adding capacity, whether it's spin lines on the metal coating side or whether it's slitting lines on the pre-coat side. So we have added other services that are flowing through into our revenue line. And look forward to continuing to do that, getting some deals done and announcing some additional positives as this quarter goes on. And then talking to you all at the end of the first quarter. Thank you very much.

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