AZZ Inc. Aktie

Good day, and welcome to the AZZ Inc. Fourth Quarter Fiscal Year 2026 Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Phillip Kupper, Managing Director of 3 Part Advisors. Please go ahead.

Good morning. Thank you for joining us today to review AZZ's fiscal 2026 Fourth Quarter and Full Year Results for the period ended February 28, 2026 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 of today's call is available at www.azz.com/investor-events. Before we begin, I would like to remind everyone that our discussion today will include forward-looking statements made in accordance with 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 delays in the annual report on Form 10-K.

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, which should be considered supplemental and not as a substitute for GAAP financial measures. We refer shareholders to our reconciliations from GAAP to non-GAAP measures contained in today's earnings press release.

I would now like to turn the call over to Tom Ferguson.

Thanks, Philip. Good morning, everyone, and thank you for joining us today. We delivered a strong close to the year and achieved record sales and profitability for the third consecutive year. I'm especially proud of how our teams recovered from the major winter storm in late January to finish a strong fourth quarter. Full year sales totaled $1.65 billion adjusted EBITDA surpassed $367 million and adjusted earnings per share grew 19% year-over-year to $6.19. Our performance reflects the strength of our strategy disciplined execution, operational excellence and commitment of teamwork and values-based culture across the organization. During fiscal 2026 we further fortified our competitive position by driving market share gains across our segments.

AZZ continue to win by delivering superior customer service and operating with discipline and consistency while leveraging our proprietary technologies and galvanizing research capabilities to create differentiated value. Throughout the year, we made organic investments across both of our segments to enhance operating efficiencies and support our long-term growth. A key milestone was the completion of our greenfield precoat metals facility in Washington, Missouri, this investment advances our organic growth strategy and strengthens our free code Metals segment, expanding AZZ's participation in the growing alminum coatings and beverage-related end markets.

We further expanded our Metal Coatings platform last year through the acquisition of a galvanizing facility in Canton, Ohio, which extended our footprint and broadened our service offering for new and existing customers. At the same time, we continue to evaluate acquisition opportunities through a disciplined capital allocation framework while growing an active strategic pipeline of deals. Jason will cover our fourth quarter results in detail.

So I'll focus my remaining comments on the significant secular tailwinds that continue to propel our long-term growth. We are seeing momentum across our end markets driven by infrastructure-related investment themes that are reshaping the industrial landscape. These include industrial reshoring, bridge and highway investments, hyperscale data center expansion, investments in power generation, transmission and distribution and continued growth in renewable energy. Each of these trends are structural multiyear and increasingly central to our customers' capital spending priorities.

As we've seen throughout the year, these markets rely heavily on galvanized steel and coated metal solutions areas where AZZ brings meaningful scale, deep coding experience, operational reliability and exceptional value. Our diversified portfolio positions us uniquely to be able to support large-scale complex projects across multiple end markets and states often simultaneously, and to do so with consistency and speed. Together, these demand drivers and our differentiated operating model allows AZZ to capture market share and deepen existing customer relationships. Dave will share additional details on how industry dynamics translate into project activity in just a moment. We continue to drive incremental improvements across our network using our digital galvanizing system in metal coating plants and coal in precoat metals these systems [indiscernible] customer engagement, while driving productivity and margin improvement across our operations. together, these custom digital capabilities reinforce our competitive advantages and support consistent profitable growth.

With that, I'll turn it over to Jason.

Thank you, Tom, and good morning. Starting with a summary of results for the year. In fiscal 2026, which ended February 28, 2026, we reported record sales of $1.65 billion up 4.6% from the prior year. For our core segments, we increased metal coating sales 14.1% and generated strong EBITDA of over $235 million or 31% of sales. For pre-court metals, despite a modest 2.3% sales decline driven by industry-wide softness in residential and other key markets we generated solid EBITDA of $176 million or 19.8% of sales. Consolidated gross margins remained robust at 23.9% and operating income from the year rose by 12% to $165 million. Also, for the full year, GAAP net income comparisons included 2 noteworthy matters.

First, in 2026, our Vail joint venture generated equity and earnings from unconsolidated subsidiaries totaled $210 million, primarily driven by successfully divesting businesses within the joint venture which I will discuss in more detail in a moment. Second, for the fiscal year 2025, GAAP net income available to common shareholders included our preferred stock redemption premium expense totaling $75 million. Adjusted net income, excluding these items, plus intangible asset amortization and restructuring charges resulted in adjusted EPS of $6.19, an increase of 19% on the prior year. In addition, consolidated adjusted EBITDA increased year-over-year to $367.6 million or 22.3% of sales, up from 22% of sales a year ago.

Shifting to our quarterly results. We reported record fourth quarter sales of $385.1 million represent a 9.4% increase from $351.3 million in the prior year period. This was supported by strong double-digit sales growth from our Metal Coatings segment, up 25.7% year-over-year. Compared to the prior year, Q4 results benefited from continued momentum from higher infrastructure-related demand and less impact from inclement weather. Precourt metal sales were down 2.4% for the same quarter of the prior year, primarily due to continued lower end market demand and pockets of construction, transportation and HVAC.

The company's fourth quarter gross profit was $87.6 million or 22.7% of sales, up 30 basis points from 22.4% of sales in the same quarter of the prior year. Selling, general and administrative expenses totaled $30.5 million in the fourth quarter or 7.9% of sales. This compares favorably with last year's fourth quarter which reported $38.2 million or 10.9% of sales, inclusive of $6.7 million in accrued costs related to legal, retirement and severance expenses. Operating income for the quarter was $57.1 million or 14.8% of sales and exception 330 basis point improvement compared with $40.4 million or 11% of sales in the fourth quarter of the prior year.

Also in the fourth quarter, we reported a net loss from the AVAIL joint venture equity and earnings of $21.7 million primarily reflecting a loss in the sale of the welding services buses and an unfavorable prior period adjustment from AVAIL. Excluding the loss on sale and prior period adjustment transactions, the Val joint ventures, equity and earnings for the quarter was approximately $700,000 compared with $3.7 million for the fourth quarter of the prior year. Interest expense for the fourth quarter was $11.2 million, an improvement of $6.2 million from the prior year, driven by debt paydown from continuing operations debt paydown from the Vale joint venture distribution, the issuance of an AR securitization loan with favorable pricing and a favorable repricing of the term loan.

The fourth quarter's income tax expense was $8.7 million and GAAP net income was $5.9 million compared to GAAP net income of $20.2 million for the fourth quarter of the prior year. We reported adjusted net income of $40.4 million, excluding intangible asset amortization and valet loss discussed earlier resulting in adjusted diluted EPS of $1.34, up 36.7% versus a year ago. Fourth quarter adjusted EBITDA was $81.3 million or 21.1% of sales compared to $71.2 million or 20.2% of sales for the same period last year.

Turning to our financial position and balance sheet. Consistent with our capital allocation priorities for the year, we executed with discipline across our balance sheet, growth investments and shareholder returns. We reduced debt by $385 million and ended the year with a net debt-to-EBITDA ratio of 1.4x providing significant financial flexibility moving forward. We continue to invest in the efficiency of the core buses. During the year, we invested $80.8 million in capital expenditures, a growing portion of which was dedicated to internal growth initiatives. Also included in the year within our capital expenditures was approximately $7.9 million on our new Washington, Missouri facility over the past 3 years, we've invested approximately $125 million in this aluminum coil coating facility with the team delivering the project on time and on budget.

With the facility now fully operational, volume continues to ramp in alignment with our partner customer and was profitable at the contribution margin level in Q4. Finally, winning offer investments for the year. We further strengthened our Metal Coatings segment by acquiring a galvanizing facility in Canton, Ohio for approximately $30 million, demonstrating our commitment to grow the core businesses organically and inorganically. At the same time, we remain committed to returning capital to our shareholders.

During the year, we paid $23 million in cash dividends and repurchased $20 million and shares at an average price of $98.28 per share. Together, these actions reflect a disciplined approach to capital deployment and our focus on creating long-term shareholder value. For the remaining AVAIL joint venture invent, we account for our 40% interest as equity and earnings on unconsolidated subsidiaries, which also constitutes a separate operating segment. In 2026, Arval generated equity and earnings of $210 million, which includes the sale of its electrical and welding businesses and provided cash distributions of $287 million during the year. ESG's cash flows from operations of $525 million includes $273 million of cash distributions from Aval net of the associated taxes paid.

The remaining $14 million of cash distributions from AVAIL were classified as cash flows from investing activities. Finally, as expected, 2026 cash taxes were higher in the year associated with higher equity and earnings from Avail offset somewhat by positive effects from the 1 big beautiful Bill Act on depreciation, R&D expenses and interest expense.

With that, I'll turn the call over to David.

Thank you, Jason. Good morning, everyone. Consistent with our disclosures found in the company's 10-K, Total sales for the full year grew at 5% as compared to the prior fiscal year. Construction, our largest end market, grew at 3%, while Electrical & Industrial delivered strong double-digit sales growth, resulting in 17% and 15% growth rates, respectively. As Tom noted, AZZ continues to benefit from early stages of a longer investment cycle driven by sustained U.S. infrastructure-related spending and the continued expansion of large data centers.

These often pair with the construction of significant co-located power generation, driving our electrical, industrial and construction end market results. Our consumer end market performed well, growing at 6% on higher volume of coated aluminum, driven by the shift from plastic to aluminum in the beverage market and the continued ramp of the new Washington, Missouri facility while our transportation category declined by 3% due to weaker overall on-demand for semitrailers. Looking forward, industry research characterizes the AI data center build-out as more structural rather than cyclical and the U.S. data center electricity demand is expected to roughly double by the end of the decade.

Despite ongoing geopolitical and interest rate uncertainties, we believe AZZ's demand is driven by fundamental shifts in the economy rather than traditional construction cycles. External forecasts indicate that the U.S. hyperscale data related spending will be approximately $700 billion in calendar year 2026, with AI investments accounting for the majority of that capital. This infrastructure heavy spending environment aligns well with our end markets. Modern data center construction requires advanced corrosion protection and usually drive significant investments in on-site power generation, grid reinforcement and transmission infrastructure.

These are complex multiyear projects that require substantial hot-dip galvanized content. As a result, our Metal Coatings segment is well positioned to support this expanding market. Excluding data centers, we anticipate nonresidential construction will continue to remain subdued in fiscal year 2027, primarily driven by interest rates, geopolitical and lingering tar-related uncertainties. Within the residential housing market, current industry research indicates that single-family housing starts are expected to be at to down low single digits as a large stock of homes already under construction dampens new starts. Additionally, Current estimates project 30-year fixed mortgage rates will remain above 6%, limiting affordability and slowing demand for new construction. As a result, builders are increasingly focused on finishing existing projects and offering incentives to reduce current inventory. We expect the softness in both residential construction may provide a headwind for our precoated Metals segment in the current fiscal year.

With that, I will now turn the call back over to Tom.

Thank you, Dave. We anticipate the number of data center projects entering the construction phase in 2026 will increase, which will drive further infrastructure build-out. Importantly, our customer demand is not isolated to data centers. We are seeing continued strength across key end markets, including bridge and highway construction, power generation and electrical transmission and distribution all of which are supported by long-term secular tailwinds. These projects drive sustained demand for hot dip galvanizing services and may create incremental opportunities for pre-coated metal solutions. .

We win in competitive markets because we provide delivery, reliability, high quality and speed of execution. While we are off to a good start in the first quarter, it is early in the year. So today, we are reiterating our fiscal 2027 guidance. Sales are expected to be in the range of $1.725 billion to $1.775 billion adjusted EBITDA in the range of $360 million to $400 million and adjusted diluted earnings per share in the range of $6.50 to $7. We estimate debt reduction in range from $130 million to $170 million in fiscal 2027. We are confident that our strong financial and market positions will enable us to capitalize on strategic growth opportunities, while executing on our broader capital allocation plans.

Due to our strong balance sheet and desire to provide above-market growth, we will remain selectively aggressive in our approach to M&A opportunities. We focus on investments to strengthen our metal cans and precoated metal segments, expand our geographic reach and deepen customer relationships. Using a proven disciplined playbook, we are pursuing opportunities that reinforce our competitive advantages and deliver sustainable returns for our shareholders. As we look ahead, we are confident in AZZ's ability to consistently improve performance and execute at a high level, while delivering profitable growth and long-term value for our shareholders.

Finally, I'm proud to recognize AZZ's 39th consecutive year of growth and profitability from continuing operations. This achievement is a direct result of the dedication, expertise and commitment of our employees across the organization. Our focus on safety, quality, customer service and execution continues to differentiate AZZ and I want to sincerely thank our teams for the outstanding work they do every single day.

Now operator, we would like to open the call for questions.

[Operator Instructions] The first question today comes from Ghansham Panjabi with Baird.

I guess, first off, on Metal Coatings, obviously, a very big year last year from a volume standpoint, including what you delivered in the fourth quarter. If you could just share with us, what are you embedding for growth specific to fiscal year '27 for the segment? And then for pre-code, if I understood you correctly, I know you called out some headwinds as it relates to residential construction. Are you expecting a worsening of the trend in terms of volumes or just headwinds that may be offset with other tailwinds, including your Washington a Missouri plant. .

Yes. I can pick that up. So from a metal coatings point of view, if you look at the projections for the next year, somewhere in the mid-single to upper single digits for that business. Obviously, ending the year very strongly, and that builds momentum coming into the year. As you look at the pre-cometals business, probably in and around where we've seen them. So relatively flat year-on-year as you look at the overall market, where the benefit is, obviously, they've got better comps year-on-year to compare against versus the pre sorry the Metal Coatings business, we've got a little bit more difficult comps. So on high mid- to high single digits, they are relatively flat.

Okay. And then for pre-code, just to clarify, what is your exposure towards residential construction for that segment?

Yes. I think if you look at overall, the market that they cover, so if you look around 75% of their end markets are driven by construction. And then around about 1/3 of that has that residential exposure.

Okay. And then just for my second question, as it relates to zinc prices and just maybe you can comment on your rumtrial basket trends in context of what's been happening with commodities more broadly, obviously, the events in the Middle East, et cetera. What are you seeing at this point? And how are you managing through that?

Yes. I think from a zinc perspective, there hasn't been much effect. Prices were trending up before all of the disruption. And as you know, that's about to months in our kettles and we were feeling that coming into the year anyway. So we've but there's general inflation going on within both segments, whether it's pay prices going up, which also which is more of a pass-through on the precise side, but on the albanizing side, it's acids, caustics, chemicals, as I like to call it, super open do all that stuff is inflating.

And we that's why we come value pricing. We try to keep up with pricing. The 1 thing we're doing from a surcharge perspective is in relation to transportation, fuel costs, things like that because we do have a large fleet of our own trucks and trailers. So there were using surcharges to offset that and make sure we protect our margins. We're not seeing that change. There's hardly a day goes by anymore that we don't get some price increase from suppliers. And so both segments are pushing price to offset that and maintain margin. And it seems to be expected in the marketplace now because everybody is facing the same issues.

The next question comes from Daniel Rizzo with Jefferies.

So just thinking about the preco market, obviously, higher interest rates are an issue, but are there other meaningful affordability issues that you can pinpoint for the commercial market. I mean, I think we all understand what happens with residential, but for nonres, I was wondering if there's other things that are kind of a factor that are hindrance besides, again, high interest rates.

Yes, Daniel, really pretty much everything we've described in the remarks. When you think about nonresidential, we've seen project costs overall from some of our end markets and customer go slightly up and get inflated due to some of the things that Tom mentioned. Obviously, when we put our budget together, the war in Iran had not started yet. But so we've seen some escalation there. And again, interest rate uncertainties, I think, are going to be the main thing on the residential side.

And I would add that 1 of the things we are facing is availability is sub-grade. It's with tariffs on imports, domestic supply ramping up there are some constraints in terms of available sub strength to be painted. So some of our customers are experiencing that. So which drives them to wait and probably to inventory less wait until it's closer to the demand for the season to go ahead and place orders to be able to best utilize the substrate that's available. So that's 1 of the things we're seeing, which tends to drive us to it fits our profile, quick turnarounds, small lots, lots of customization.

So it's that's a little bit of an underlying trend, which does increase cost on projects and also makes demand a little less harder to predict because they're not buying to normal inventory trends.

More so for metal coatings, are backlogs a thing, just given the size of your projects and what people are planning out, I assume years ahead. But I was wondering if you have a sizable backlog or that's not something that's not part of your business.

Yes, it's really not part of our business. We I say this jokingly. A lot of our sites, they look out on the yard and then that's their demand and backlog for the week. But and we're really good at turning stuff. And so our customers depend on the fact that we're very, very reliable. They get it to us on Monday. We're going to have it back to them on Friday. So we're aware of it because in our sales process, we're forecasting it. So as customers are communicating to us what their demand is going to be month in, month out. and even week out. So we feel really good on the metal side right now.

Most of our customers it's a broad-based growth profile in infrastructure. So it's not any 1 whether it's data centers, pull our substations and then all the stuff that has to go in, whether it's roads, lighting, electrical systems to support data centers in substations and things like that. So it's a really broad-based market and our network of facilities plays well to it. So we don't record backlog that way, but we can look forward and say, our customers are bullish on demand in the metal coatings space.

The next question comes from Adam Thalhimer with Thompson Davis.

Congrats on the strong quarter and the strong year. On the data center piece, how are you guys handling the demand? I mean, do you have certain facilities that seem to be dedicated towards those projects? And then from a disaggregated sales standpoint, do you put that revenue into construction or into industrial or some other bucket?

I'll let David answer the second part of it. On the first part, we just had our annual Metal Coatings, plant managers and sales managers meeting and so we've got 120 folks in there, and there was hardly a 1 single plant manager or sales manager, I talk to that isn't working on one, 2 or 3 data center projects at any given time right now. So very, very broad-based. It's what they like about us is we've got a network of facilities and so we can handle large projects across multiple facilities or in many cases, on facility can handle the entire project.

So gives them surety of delivery, reliability of execution, all those kind of things that just play well for pick and AZZ for your galvanizing. In terms of how we coat it. That gets a little dicier, so I'll turn that over to David.

Yes. Thanks, Tom. There's some variation in how it gets coated based upon how the order really comes to us, whether it's from a general fabricator or a dedicated project development team, et cetera. So sometimes you'll see that show up as you can see in our results by electrical and industrial because we know we can visually see it. And we know that, for instance, it's a monopole and that's obviously going to be in electrical whereas some of the structures, and you've been to some of our plants, Adam. So you've seen some of the things that we're working with.

It can be a little more unclear as to if it's going into a data center or if it's going into an LNG project, for instance. So that sometimes we'll get a little bit more clouded and will go into either construction or industrial as a result.

Okay. Good color on that. And then I wanted to ask about M&A potential M&A. You mentioned a pipeline of deals. Can you just update us on what the pipeline looks like and potential timing?

Yes, the pipeline is looking good, particularly on the Metal Coatings side. They're mostly what we're looking at, they're one-off sites. And so if you just kind of take our average fleet sales and EBITDA, call it $15 million in sales. $4 million to $6 million in EBITDA. That's kind of the size that we're looking at in terms of bolt-ons. .

We've got 3 or 4 in fairly active discussions. We've got 1 underway in due diligence. So love to get 1 closed in before we talk again and then see if David and his team can get a couple more close this year. On the precut side, we've got 1 that I'll call in active discussions. It's not a big one. So it's kind of a single line sort of thing. And that bot sums it up. There's obviously the bigger things that we're looking at, but they're going to be further out. I don't know that I project any of the larger ones for this year.

The next question comes from Nick Giles with B. Riley.

My first question was just CapEx is around $90 million at the midpoint. I saw in the assumptions that hot dip capacity expansions are part of that. Can you just speak to what the potential EBITDA impact could be? And how much of those expansions are embedded in this year's guide versus something that may be more visible next year?

Yes. I think as we're looking at adding kettles, we're adding 1 here in North Texas because of demand. It will be starting up here in the next month or so. So it's going to have some impact. I'm struggling to want to publicly say what a new cattle is worth in terms of EBITDA. But it is going to have an impact. It's at a large site. So it's going to give us incremental capacity. The other things we're doing, and we are looking at other locations to add kettles those are fairly quick. We could put them in, and we approved the 1 I talked about just a few months ago, and it will be up and running this quarter. or June 1.

So not long cycle times on these things. hopefully has a couple of million impact in EBITDA. If you ask the Metal Coatings team, they would say it's embedded in their forecast. If you ask me, I'd say maybe, maybe not other things we're doing in ground line coating that's common with poles and towers and things like that. So doing more of that just because transmission distribution continues to boom. So adding that capability. Once again, $2 million or $3 million investments for nice incremental sales and EBITDA. Jason, do you want to add any color to that?

I mean, I think it's if you look at the growth in that business continues to go in the right direction and some of these cats are getting ahead of the curve and making sure when the volume hits then we're in the right place to go deliver against that. I would say the forecast and guidance that we have at the moment, plus or minus includes it. Really, you look, it's more kind of long-term returns.

I mean the good news is they're really low-risk investments because the demand is already there. .

Understood. Appreciate that, guys. And you know the stock has obviously been on the nice run. So just was curious to ask about your appetite to do more buybacks here? Or would you prefer to keep more cash on the balance sheet just for some of those M&A opportunities that you mentioned?

Yes. I think given the activity we've got on the acquisition side, we're committed to minimizing the dilution with stock buybacks. And so we remain committed to that. so that remains in terms of capital allocation strategy. Given the list of possible or even becoming more probable deals that we can get done. I like using the cash for that because that's going to set us up. It brings immediate EBITDA uptick for us. And as you know, our guidance does not include the M&A incremental that we would pick up.

The next question comes from Gerry Sweeney with Roth Capital.

Tom, Jason and Dave, the we've hit upon Metal Coatings quite a bit. But just 1 follow-up question, especially on the transmission and distribution. It sounds like you talk a lot to some of the metal fabricators, et cetera. But I'm just curious as to do you ever talk to some of the end users or the end purchasers and how much visibility you have on that? Or how forward out do you can you see or at least some discussions in general terms?

Yes, I'd say we look at the general end user trends in terms of their spending and where they're going to be adding capacity and things like that. David can add more to it. But we attend a variety of conferences where we're in touch with that. And a lot of that is generally available capacity additions in terms of gigawatt additions so that kind of stuff. We're in contact with them. We compare that to what our customers are telling us and then we look at the general available market trending data. And David can put some color on it.

Yes. Thanks, Tom. Yes, Gerry, I would add to that. We've been more active than we have in the past and marketing directly to the industry and end users of it. Metal Coatings team, in particular, has put together a nice bit of marketing materials. And as Tom mentioned, has recently been to some industry conferences as well to showcase our capabilities for that market. So we're pretty pleased with what we're seeing there. And again, it shows up in the results and it also shows up in some of the backlog that those GCs and others that are calling on them share with us that give us a good forecast.

Got you. And then just 1 more quick question. Just on the Washington facility. I think you mentioned that it was profitable on a contribution basis. And in the fourth quarter. What utilization is that running at? And how should we think about that sort of ramping up through the rest of the year, if it's not already there?

I'd say it's at about 40% now. It's going to continue to ramp and we've got yes, it's got to produce around 45,000 to 50,000 tons this year and we're feeling pretty comfortable with the trends that it's going to get there. And so that's really going to ramp up as we get to second quarter, third quarter, fourth quarter. But we're watching that positive trend month in, month out, Jason, I don't know if you want to add something there.

Yes. No. I mean it's very much ramping up to our expectations, getting to that 40%, 50% here in the first quarter or sorry, getting beyond the 40% closer to the 50%, there's 3 different processes and the 3 processes are at slightly different stages. But all signs in terms of the plans for the year are very much in alignment with expectations.

Next question comes from John Franzreb with Sidoti & Company.

Congratulations on a great year, guys. Just want to stick with the Washington facility. What was the revenue contribution of that business in fiscal 2026?

I think it was about $11 million or so in revenue. .

For the full year?

Yes, for the full year. I believe that's...

All right. And I'm curious about filling the balance of the plant. I think you had about 75% of it allocated where do you stand on the remaining 25%?

We've got a lot of interest in it. We're trying to make sure we take care of our partner first. And so, so we're continuing to ramp their volume up. As you know, the aluminum business is booming. So but yes, we won't have any trouble filling that capacity once we've taken care of our partner first. And so we would hope to by, call it, by the end of the third quarter to be in a position to start filling the balance of that.

Got it. Got it. Understood. And I just got off a conference call where the company mentioned that there was a concern about municipality spending in the coming year. Is that something that you share? Any kind of commonality with? I'm just kind of curious about your thoughts there.

Yes, it's interesting because a lot of the communities we're in. We tend to be heavily concentrated in the Midwest, the South and the West, a little bit up in Canada. Most of the municipalities we're talking to are in good shape. They've still got like here in DFW, there's still a lot of growth in housing, multi-unit housing commercial construction. So we still got a lot of companies moving. And that's kind of the story throughout as, which is our biggest concentration of capacity for galvanizing.

So every 1 of those communities is struggling with their budgets, but every 1 of the communities has to make these investments. So it's yes, it just is what it is. As you move up further through the Midwest. Mostly, I'd say 2/3 are very comfortable. They're moving forward with these infrastructure projects because they have to and then even in the other areas, the difficulty, I think the difficulty here is if you've got a big data center moving in, and it's going to require you to expand roads, you're going to have different means on your electric utilities. I think those are still being sorted out.

So not that we're having direct conversations with those municipalities, but just kind of looking at the challenges that they're facing, how do they balance their budget when you've got this big facility coming in, which and it's going to require infrastructure. It's going to require water is going to require electricity some of the bigger data centers, they're building as David pointed out, they're now building the power generation concurrently with it. But you still got to give roads and other infrastructure, things to it. So I don't know. It's a challenge. I don't see it creating problems for us this year. But I think as you go out further, that's going to become a bigger question for a lot of these municipalities.

[Operator Instructions] The next question comes from Eric Boyes with Evercore. .

First, could you please remind how paint pass-through is typically incorporated in pre-code. Is it directly itemized for customers? And how many months of paid inventory does precoat generally carry?

Yes, Eric, I can pick that up. So generally, the paint is not itemized and obviously, the end customers have a very good understanding and typically have a relationship with the paint companies. So any paint pricing that comes from the paid companies has generally passed on for 1 through to the end customer. And that's something that's within the industry and not just within AZZ.

Great. I appreciate that, Jason.

And then sorry, you asked about inventory, sorry. We have very, very tight in inventory. All inventory is bought to customer order. So as you can appreciate there isn't any speculation in terms of the manufacturing within that business. given it's all custom colors, et cetera, et cetera. So generally, we have around about 3 or 4 weeks' worth of inventory on hand. We hold a little bit more of the common product in terms of primes and backers, but when you really get to the top coats and the customization, then it's pretty much coming in the door to align with the production schedules.

Got it. I appreciate that. And then second follow-up. I think you said earlier on the call that Precoat is expected to be roughly flat year-over-year. But on kind of a quarterly cadence, is that assuming some contraction in the first half? And then in the back half, we see some end market normalization? Or is that more kind of flattish across the year?

Yes. I mean I think we're looking at it more flat across the year. And I would say, from a conservative point of view, we keep getting signals, things are turning and not quite a transition into results, et cetera. The only thing I feel to mention in the first part of that question, that Girsham had provided is the addition and growth associated with the new Washington facility really. So when you start to add that into the equation, then Precoat should show growth quarter-on-quarter as we go through the year.

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

I just want to thank everybody for joining us today. Hopefully, what you're taking away is we feel like we're off to a good start this quarter, feel good about the year at this point, even with all the external things that may be going on out there, what's within our control, we feel very good about, and we feel that we've got great teams working real hard to do everything they can for our shareholders. So look forward to talking to you at the end of the first quarter. Thank you. Have a great day.

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

Good day, and welcome to the AZZ Inc. quarter 3 Full Year Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to [ Philip ] Cooper with Three Part Advisors. Please go ahead.

Good morning. Thank you for joining us today to review AZZ's third quarter fiscal 2026 results for the period ended November 30, 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 the live webcast for today's call can be found at www.azz.com/investor-events.

Before we begin, I would like to remind everyone that our discussion today will include forward-looking statements made in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Either 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 latest annual report on Form 10-K. 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 we'll discuss non-GAAP financial measures, which should be considered supplemental, not as a substitute for GAAP financial measures. We refer shareholders to our reconciliations from GAAP to non-GAAP measures contained in today's earnings press release.

I would now like to turn the call over to Tom Fergus.

Thank you, [ Philip ]. Thank you all for joining us today, and Happy New Year. After I provide a brief overview of our results and an update on what we are seeing across our segments, Jason will cover AZZ's detailed financial results, and Dave will discuss industry dynamics across our end markets.

First, let me share a couple of important milestones. We achieved record sales of $426 million in the third quarter, surpassing any quarter in our company's history. And we had a record high trailing 12-month adjusted EBITDA of $358 million. These financial results reflect our unwavering commitment to execute on our disciplined strategy that focuses on driving growth and creating shareholder value. This quarter, we maintained our cash dividend of $0.20 per share, marking 63 consecutive quarters of consistently returning capital to our shareholders through cash dividends.

Now turning to our third quarter results. We grew total sales by 5.5% and generated a robust adjusted EBITDA of more than $91 million. Metal Coatings delivered an exceptional quarter, with sales rising 15.7% year-over-year, fueled by higher volumes and strong demand from infrastructure projects. Segment EBITDA margins of 30.3% reflect an increased mix of larger projects in electrical, solar and transmission and distribution work, which tend to be more price competitive. Precoat Metals delivered sequential improvement over the prior quarter, though sales were down 1.8% year-over-year. This was primarily the result of continued softness in construction, HVAC and transportation markets.

Meanwhile, food and beverage container demand reached new record highs, driven by new customer acquisitions and market share gains. This trend further underscores the accelerated shift from plastics to aluminum, which aligns with the ongoing ramp-up at our new Washington, Missouri facility.

Overall, the increase in end market demand was driven by growth in infrastructure modernization, energy transition and industrial reshoring along with data center construction, integrated LNG power generation and renewable energy projects. These market sectors depend on galvanized steel and coated materials, areas where AZZ offers unmatched scale, coating solutions expertise, and exclusive technologies to deliver exceptional value to our customers. Our diversified portfolio positions us uniquely to seize project opportunities across multiple end markets. Dave will share more details on this in a moment.

We continue to emphasize AZZ's proprietary ERP platform as a core differentiator within our business model. Our Digital Galvanizing System and coil zone platforms deepen customer relationships and reinforce our competitive moat while providing durable returns on invested capital. Operationally, the systems are margin enhancing through higher throughput, improved yields, better zinc utilization, improved administrative and production efficiencies and increased customer connectivity. Importantly, these benefits are achieved with limited incremental capital, making our technology investments highly accretive to ROIC, while also reducing waste and supporting more sustainable operations.

Subsequent to quarter end, [ Avail ] completed the sale of a majority interest in its Welding Solutions business, which they refer to as [ WSI ]. The transaction creates value for shareholders and further simplifies [ Aval's ] portfolio. Our joint venture partner remains focused on completing additional divestitures with only the [indiscernible] and a small portion of international WSI business left.

With that, I will turn it over to Jason.

Thank you, Tom. For the third quarter, we reported record sales of $425.7 million, representing a 5.5% increase from $403.7 million in the prior year period. The growth was led by our Metal Coatings segment, where sales increased 15.7% year-over-year, driven by higher volumes and infrastructure-related spending across our largest verticals. Although Precoat Metals sales improved sequentially from last quarter, sales were down 1.8% from the same quarter of the prior year, due to an overall weaker end market environment. Driven by lower volumes in construction, HVAC and Transportation, partially offset by residential reroofing and stronger food and beverage container sales. Within Precoat Metals, excess imported [ prepainted ] metal has worked its way through the market. And with tariffs likely to remain in place, we anticipate Precoat Metals will start to benefit from the replacement of prepainting metal imports.

The company's third quarter gross profit was $101.9 million, or 23.9% of sales, compared to $97.8 million or 24.2% of sales in the same quarter of the prior year. Selling, General and Administrative expenses totaled $32.5 million in the third quarter, or 7.6% of sales. This compares favorably to last year's third quarter, which was $39.2 million, or 9.7% of sales, which included costs associated with severance and one-off employee retirement expenses.

Operating income for the quarter was $16.5 million, or 16.3% of sales, a 180 basis point improvement compared with $58.5 million, or 14.5% of sales, in the prior year third quarter, due to operational improvements this year and nonrecurring items included in last year's third quarter results. For the third quarter, we reported a net loss in equity and earnings of $1.4 million. This was after recording $0.6 million post-closing loss adjustment on the previously announced divestiture of the Electrical Products business.

Losses in the quarter from our [indiscernible] joint venture are primarily due to the excess overhead costs resulting from this divestiture. Compared to the third quarter of last year, [ equity in ] earnings were $8.6 million lower. With the sale of WSI in December 31, 2025, and progress in resizing [ Avail's ] overhead costs, we are forecasting equity and earnings from unconsolidated subsidiaries to be [ zero ] for the fourth quarter of this year.

Interest expense for the third quarter was $12.2 million, representing a $7 million improvement from the prior year. Driven by a combination of actions, including debt paydown, debt repricing and the introduction of the receivable securitization facility. The current quarter income tax expense was $14.5 million, reflecting an effective tax rate of 26.1%, compared to 26.5% tax rate in the prior year's third quarter.

We do not expect the One Big Beautiful Bill Act to have any material impact on our income tax expense or effective tax rate for the year. However, it will reduce our cash taxes paid in 2026. Reported net income for the third quarter was $41.1 million, compared to $33.6 million for the third quarter of the prior year. AZZ reported adjusted net income of $46 million, which excludes the amortization of intangible assets of $5.8 million and the [indiscernible] equity loss adjustment of $0.6 million, our adjusted diluted EPS of $1.52. This compares favorably to the prior year's adjusted net income of $41.9 million and adjusted diluted EPS of $1.39, an increase of 9.4% compared to the third quarter of the prior year. Third quarter adjusted EBITDA was $91.2 million, or 21.4% of sales, compared to $90.7 million, or 22.5% of sales, for the same period last year.

Turning to our financial position and balance sheet. Our strategy for deploying cash flow includes investing in high-return organic and inorganic initiatives, paying down debt, returning capital to our shareholders through our quarterly cash dividend and buying back our stock. During the third quarter, we generated cash flow from operations of $79.7 million. Capital expenditures for the quarter were $18.5 million, which included a combination of sustaining and growth capital. Stock repurchases for the third quarter were $20 million, at an average price of $99.28 per share, while cash taxes were higher in the quarter associated with the previously mentioned [ Avail ] joint venture gain offset somewhat by the impact of the One Big Beautiful Bill Act.

We ended the quarter with a net debt position of $534.7 million and $337.1 million in available borrowing capacity, consisting of $336.4 million in the company's revolving credit facility, and $0.6 million in cash and cash equivalents. After paying down $35 million of debt in the quarter, our credit agreement net leverage ratio was 1.6x, which is within our previously announced target range of 1.5 to 2.5x. And finally, as Tom mentioned, over the same period last year, we increased and paid our quarterly cash dividend of $0.20 per share, up from $0.17 per share.

With that, I'll turn the call over to David.

Thank you, Jason. Good morning, everyone. The U.S. infrastructure investment cycle, along with an intense wave of investments in generative AI and machine learning technologies, is in the early stages of driving demand for high-power density and advanced cooling systems. These hyperscale data centers require coatings that extend well beyond just structural steel and transmission poles. For example, these projects require specialized coatings for critical applications, including corrosion protection, aesthetics, functionality, fire safety and regulatory compliance.

Massive data center investments are typically paired by necessity with co-located power generation and grid upgrades, which are multiyear construction projects. We expect these private and public colocation investments will reinforce a positive long-term secular trend benefiting both AZZ Metal Coatings and AZZ Precoat Metals. We also expect solar projects to remain strong as many of our solar customers have backlogs that extend well past the expiration of the current tax credits. These projects are focused on large-scale sites, including data centers being developed commercially that provide power for continuous high load requirements. Excluding data centers, nonresidential construction remains subdued in the quarter primarily driven by interest rate and lingering tariff-related uncertainty while residential construction was also soft.

Despite this, we saw positive trends in the metal residential reroofing market as it continues to gradually take share from the [ asphalt ] roofing market. This helped offset a slower-than-normal storm season as no named hurricanes made landfall in the Continental United States in the current year.

Looking ahead, most forecasts point to flat to regionally selective modest growth in construction through calendar year 2026. Finally, as we progress through our fourth quarter, it's worth noting that last year's fourth quarter was impacted by unusually wet and cold weather. Prolonged temperatures below 40 degrees, and gas curtailment actions by utility providers, led to a record number of lost production days in the prior year quarter, particularly in Texas. Therefore, we anticipate our fourth quarter may present somewhat easier year-over-year comparisons to last year's December through February period.

With that, I will turn the call back over to Tom.

Thank you, Dave. Turning to our fiscal 2026 guidance update. We have narrowed the forecast ranges for total sales, EBITDA and adjusted EPS. We anticipate that our sales will be in the range of $1.625 billion to $1.7 billion. Adjusted EBITDA will be in the range of $360 million to $380 million. And adjusted diluted earnings per share will be in the range of $5.90 to $6.20. And as Dave mentioned, we believe that last year's fourth quarter weather-related impacts will be less severe. Our strong financial and market positions enable us to capitalize on strategic growth opportunities while executing on our broader capital allocation plans. We expect to release fiscal 2027 guidance in the next few weeks for our new year starting March 1.

Consolidation in the industry continues to present compelling opportunities, and we are currently evaluating several strategic tuck-in acquisitions that align with our playbook and expand our market reach in Metal Coatings and Precoat Metals. We continue to take a disciplined approach to M&A, targeting opportunities to drive sustainable growth and generate meaningful value for shareholders.

Finally, I want to sincerely thank our AZZ team for their unwavering dedication, disciplined focus and the pride and passion they bring every day to deliver exceptional quality, service and value creation to our customers and other stakeholders. Now operator, we would like to open the call for questions.

[Operator Instructions] The first question comes from Ghansham Panjabi with Baird.

I guess, first off, on the Metal Coatings segment and also Precoat. Can you just give us a sense as to how your order backlogs have shaped up in context of some of the complications of the operating backdrop with the government shutdown and so on and so forth?

And just specific to the government shutdown, did it have any material impact on you in either of the two segments?

I think as we've discussed typically on the Metal Coatings side, we really don't have much backlog. We've got -- but we do have a good forward look from our sales organization in terms of what our customers are -- what their outlooks are. So we feel really good at this point as we look at finishing the year. That's why unless weather gets really, really ugly as it did last year, we think Metal Coatings has the momentum and opportunities to have a really good finish to the year. So feeling really good about that, and it's both as we've mentioned, the big projects, lot of opportunities, whether it's data centers, whether it's solar plants, transmission distribution, a lot of the pulp business and towers. It's just all really active, particularly in a lot of the areas that we've got good capacity.

On the Precoat side, much more of a mixed bag. I think -- didn't feel anything from the government shutdown to speak of on either side just to get that out there. But on Precoat, yes, they're more challenged with residential, commercial construction. They are getting -- benefiting from some of the data centers, a lot of painted metals on those. But -- and then in terms of roofing, it's more of the conversions as houses are putting new roofs on. They're more and more of them are moved into metal, which is good for us, but it's not enough to offset the market -- call it the market headwinds. So -- and they don't really have backlog either, but they do have a lot of bare metal, and the bare metal is lower than at this time last year. So they're chasing stuff that's going to be quicker turn to maintain their sales levels.

Got it. And then specific to Precoat. I mean, obviously, a lot of distortions in order patterns last year with tariffs and the adjustments in imports and so on and so forth. Is the underlying operating environment worsening as we head into fiscal year into calendar year '26? Or is it just at a low point and there's no recovery on a consolidated basis given the ups and downs you -- across the business as you called out?

No. I think you got a couple of things going on, some of which is in our control, some of which isn't. But I think we believe the markets have pretty much bottomed and stabilizing. And so we're seeing opportunities. And of course, we're going after more. We're winning some market share that's out there to offset the market softness.

But -- and then we've got the Washington plant ramping up, and that is one of the areas where we are seeing opportunities in the container. And as we continue to talk about plastics converting to aluminum, that's just -- we probably couldn't have opened up new capacity for the container business at any better time.

So we get pretty excited looking at next year and having a full year of run rate production at the new Washington site. Not to mention we've made some investments and are going to continue making investments at the St. Louis container site. So that's where we are excited, and we're chasing all of that we can find and have a good partner on [ Washmo ] and then other opportunities with other customers there. So that's where our focus is and then doing everything we can to convince customers to go with us instead of the competition.

Okay. Just one final one on -- I know you'll give fiscal year '27 guidance formally in a few weeks. But any sneak preview you can share with us as it relates to the variances that we should keep in mind as we finalize our estimates for next year?

No, I think -- I think as I alluded to, Metal Coatings, we look at them finishing strong for the balance of this fiscal year. And even though they don't have backlog, they're stacking up some pretty good opportunities as we kick off going into next year. So we're feeling real good about that. Obviously, we've got a budget to get approved by our Board. So we'll do that in about 3 -- well, 2 weeks at this point, and then communicate as soon as we can put something together and get new guidance out.

But yes, feeling really good. I like where we're positioned. I like what our teams are doing. I like the leadership teams we've got in place. And I like what they're focusing on. So I'm pretty enthusiastic.

The next question comes from Nick Giles with B. Riley Securities.

Congrats on the strong results. It's especially nice to see both the buybacks and the debt reduction, but I wanted to go back to M&A. And I was just curious if you could give us some additional color around what kind of opportunities you're seeing out there today? Is it Metal Coatings versus Precoat? Single site or multisite?

Yes, that's a great question. I think the M&A pipeline is very active. It's predominantly bolt-ons onesie-twosies, which is kind of -- I'd like to say it's in our sweet spot. We acquired [ Canton ] and just ramped it right up. It's our typical integration playbook, and bring it right up to our fleet margin levels and go grow it. So those are the kind of things we've got in the pipeline.

I don't see us getting anything closed by the end of this fiscal year. It's just too many things going on and not that we're not focused on it and got some good -- the teams are active. But I'll be really shocked if I'm sitting here on this call at this time next year without a couple of wins on the board in talking about those onesie, twosie bolt-ons, which just -- we'd like to get a couple of them in the camp, or in the family so to speak.

Got it. Well, Tom, that's good to hear. Maybe switching gears. You talked about plastics to aluminum and Washington was extremely well-timed on that front. But aluminum prices have reached all-time highs in the U.S. And I know you don't directly feel the impact of that. You have the [indiscernible] model. But your customers might feel that impact. So I was curious if you've seen any changes in demand on that basis? Or if you feel the Precoat business has a sensitivity to aluminum prices?

Yes. Thanks, Nick. This is Dave. I'll take that one. We don't think that there's going to be much sensitivity to the aluminum just because when you look at the container market, in particular, there has been the secular shift to aluminum driven largely by people's more reluctance to drink things out of plastics, in particular, and the concern around microplastics.

When you look at in the quarter, in particular, I think it's underpinned by the results of the segment. Our Consumer segment in particular, was up 11%. And when you take a look at the disaggregated sales. So we feel really good about what we're seeing. [indiscernible] is ramping nicely, as Tom mentioned. We've got a great partner there and a lot of long-term prospects that continue to come our way.

The next question comes from Eric Boyes with Evercore.

Maybe first, how impactful to Precoat segment margins might the Washington, Missouri ramp, the 75% exit rate in fiscal 4Q B? And when might we hear about remaining capacity allocation there?

Yes. Eric, it's Jason here. I can take that one up. Certainly, as we've previously communicated the margins that we expect from the Washington facility just based on the math of the equation of that product that we're selling are going to be [ complementary ]. So it is going to add a lot but tailwind to the margins that we see at Precoat.

In terms of the additional capacity, we're solely focused on our partner at the moment, and ramping up capacity for that partner is coming through the cycle. And we're very pleased with where we're at, but we still got a lot of work to do and certainly a lot of work to achieve here in Q4. So it's really going to be into the early part to the mid part of next year before we really start to focus on bringing additional customers to that facility.

Okay. Appreciate that. And then maybe second, and Dave, I think you alluded to it in the prepared remarks, but can you help us with how we should think about kind of quantifying the benefit of the favorable weather comp in fiscal 4Q?

Yes. As we mentioned, on a high level, when you look at last year, it was unseasonably cold and wet. We had mentioned last year, I think that we lost around 200 days of production collectively in the quarter. So I don't have the specifics in front of me right now, but we do believe that we're seeing better weather so far in the fourth quarter. Today, in Texas, it's going to be 80 degrees. So a far cry better than it was last year at this time. But we can follow up maybe after the call, and I can see if I can get you more detail.

The next question comes from Adam Thalhimer with Thompson Davis.

Congrats on the record sales quarter. Can you update us on pricing in the Metal Coatings segment? I'm curious also how price might be impacting margins in that segment?

Yes. We talked a lot about -- we try not to talk directly about pricing, since we do have some competitors on these calls. But when we're chasing large projects and when we talk about transmission, distribution, and solar, and data centers, they tend to be bigger projects, and so it just attracts more competition. So it will -- that's when we're talking about the mix because you're going to have -- not significantly, but you're going to have marginally lower margins on those big projects. And so they formed a bigger piece of our business. And we had opened up to that because we had decided that we were pushing the top end of our margins. And so we've kind of opened up the opportunities.

Let's chase some [indiscernible] chasing the volume. But let's be more open to taking some of that -- those opportunities. And I think it's been good for us because we've got capacity. That's going to help us the balance of this quarter. It definitely helped us in the third quarter. But we're not getting out of control. It's -- we got a tightly controlled process on how we price projects.

A couple of things others that hasn't been talked about, but we do have zinc continuing to go up in our kettles. We tend to push price as those costs go up. And we price it 41 plants on every given day. So I think the teams have demonstrated great discipline and yet going after opportunities with customers to build sustainable momentum. And -- so we're pretty excited at this point about what that team is doing.

And -- either Tom or David could address this. But I am curious, you guys aren't the only ones talking about the data center is getting bigger in 2026 versus 2025. Just curious if you could flesh that out a little bit for us, and why you're focused more on it today?

Yes. I think as you look at the data centers and in my remarks, I was talking about, we're really excited about the number of opportunities within a data center that we touch. So it goes just beyond structural steel that's used for building foundations, and the structure or envelope of the building, and then the related power coming into it.

We do believe that Precoat will see some opportunities as those projects move further along. We've got customers on the Precoat side that make insulated wall panels for instance. And then there's a lot of coat specific work that's driving the need for increased metal and coated metal, whether it's galvanized or prepainted. So that's why we're bullish on the segment. It's a big segment. It's a growing segment and our share within it is expanding as well.

Good. And last one for me. David, you brought up the metal roofing opportunity. Do you have any idea today what the share of metal roofing is for new construction and repair and remodel versus [indiscernible]?

Yes, we do have some data on that. When you look at sort of the breakout in residential between new construction and replacement, it's just shy of 5% of the new construction market, is now embracing metal roofing. It's gone up about a point, a full point since 5 years ago. And so we think that trend is going to continue.

And then on the replacement side, it's a larger impact there. It's about 14% of the replacement market today. And growing at a faster rate, driven by a few things. One of them is building coats. It is more resistant to storm damage over time than [ asphalt shingle ] and also [ HOAs ], which have historically been a little reluctant to embrace different types of roofing material other than asphalt are now loosening up their standards and embracing that as well. So we're very excited about it.

The next question comes from Daniel Rizzo with Jefferies.

Just to follow up on that last comment. Is there a particular region in a country where metal reroofing is more prevalent? You mentioned HOAs, I don't know when I think HOAs, I think of where my parents live, which is a kind of retirement places in Florida and Arizona. Is there any regional mix that's relevant?

Absolutely, Daniel. Yes, we're seeing a stronger concentration of that through the south in the areas that you mentioned. So Florida, in particular, as well as here in Texas, and all the way over to Southern California and Arizona are all markets that generally have a higher concentration of metal roof than in the northern climates.

Okay. And I may have asked this before, but -- sorry, go ahead, I'm sorry, you said something?

No, I was just going to say yes, they do well where we got more of a corrosive environment, or you've got a lot of sun. So they tend to hold up better.

Okay. Okay. No, that makes sense. And then for the just kind of traditional nonresi construction, and maybe I've asked this before, but what's the lag between when you start to see some easing in credit towards a [indiscernible] resi starting to rebuild and it kind of translates to demand for you guys. Is it immediate? Or is it like a 6-month lag? Or how should we think about it?

Yes. When you look at it and again kind of taking a look at just some of our sales data, we have seen -- in my prepared remarks, I talked about subdued construction on the non-resi side, and then the residential being down a little more significantly. So I think that as you move forward through the end of this year and into next year, the fact that there's been some rate movement already should be a positive for the market, and we should start to see the benefit of that sometime here and as we enter into calendar 2026 and our FY 2027.

And I'd add on the residential side, it's more tracking to mortgage rates. But it's going to -- on a lot of these capital projects, it's a 6- to 9-month lag time in general. So -- and -- but it's looking at the forward curve. So we're hearing more optimism out there, I guess, I'd leave it at that.

The next question comes from Mark Reichman with NOBLE Capital Markets.

Just focusing on the Metal Coatings business for a minute. So the second quarter, the sales growth was 10.8% relative to the prior year quarter, and 15.7% third quarter year-over-year. And we did see the gross margin go down a little bit, 30% in the second quarter versus -- what was it, 30.9% and 29.8% versus 30.9%. You mentioned chasing these bigger projects, but could you maybe get a little more specific -- are there specific large contracts that kind of drove the big sales increase, and might you expect in 2027, maybe a little more moderation in the sales growth, but maybe a tick up in the margin? Or do you think these big projects are just going to continue?

No, I think there's a couple of things here. So if you take typical transmission distribution, big poles, towers, it's -- it depends on where it hits -- which plants the project activities act. Some of our plants are built for big poles when projects come in different sections of the -- so this is a very temporary kind of thing. And we've invested a lot in our capabilities and capacities. So yes, as we get into next year, I expect that you'll see those margins hopefully improve as we've got some operational improvement activities.

We've invested in [ cattle ] capacity. We've invested in specific things that will help us run some of these kinds of projects, or the bigger projects better. And then we've added more trucking so that we can move things in between our customers and our plants. And pivot things to the plants that are going to be more capable of running certain projects. So a lot of things that we've been doing this year to -- which is one of the reasons we did open it up, and we want to want to continue with that momentum going into next year.

So yes, I would not expect to see double-digit growth quarter-over-quarter going in as we get into next year. I expect growth, and also expect us to be able to handle it with the margin profile, that kind of where we're at plus.

Then -- so you've done a great job reducing debt and repurchasing shares. Just on the dividend policy, have you kind of announced at a precedent with the increase in the first quarter dividend? I mean, is that kind of what investors kind of expect is maybe one increase per year?

It's certainly, obviously, with the realignment of our debt in the [indiscernible] transaction in the summer. It gives us the luxury to readdress that and [ whether ] it be an annual basis or such like. It's certainly something that's on our radar. It's certainly something that we continue to consider and continue to take a look at. So given that profile, then it's certainly something that we will look at come up for this next cycle.

Yes. And we are committed to being more regimented about looking at it consistently each year and -- and as we -- this is the time where we are putting the budget together, the plans together and talking about these things with our Board. So the timing is good, as Jason said, but we're committed to evaluating this annually and not having to go several years like it did this last time before we have an increase.

The next question comes from Gerry Sweeney with ROTH Capital.

Most of my questions have been answered, but I just had one quick question on Precoat. You implied that you think the segment has bottomed, but we also talked about some prepayment imports that are being at surplus. Are you able to bracket out how much that surplus was a headwind for the segment, and what we should be thinking about that on a go-forward basis?

Yes, certainly. The thought process around about the prepainted metal imports is really correlating the data that we can see internally. So we can see internally the [indiscernible] imports coming in and get a feeling for that and then translate it back into what prepainted import material is out there in the pipeline. So we've seen that filter through our system and filter through our customer systems to the point where less prepainted metal imports historically, up to this point in time, have not necessarily had any impact on our business. And our anticipation going forward is we start to see some of that benefit filter through.

If you think about that prepainted metal import market, it's around about 10% of the U.S. market is fulfilled through that supply chain. It's down around about 35% this year, but it's gaining momentum in terms of how much it's down, obviously, it's down more as you get to the third quarter versus the first quarter. So it creates that market opportunity. And really, if you look at that prepainted metal import market, and who can serve that market, then there's only a couple of players that can really serve that market. And obviously, AZZ Precoat is one of the names [indiscernible]. So it creates a nice opportunity for us as we start to look at our opportunities for next year.

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

Thank you, operator. And thank you for joining us this morning. As you can tell, we're pleased with our results for the Q3. Feeling good about the full year. And then it's early, but getting excited about fiscal 2027, looking forward to announce some guidance for fiscal 2027, and then announcing our results in a few months. So happy new year. Thank you for joining us.

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

Good day, and welcome to AZZ's Second Quarter Fiscal 2026 Earnings Conference Call and Webcast. [Operator Instructions] 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.

Good morning. Thank you for joining us today to review AZZ's Second Quarter fiscal 2026 Results for the period ended August 31, 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/investor-events. Before we begin, I would like to remind everyone that our discussion today will include forward-looking statements made in accordance with 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 latest annual report on Form 10-K. 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, which should be considered supplemental and not as a substitute for GAAP financial measures.

We refer our shareholders to our reconciliations from GAAP to non-GAAP measures contained 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 to review AZZ's financial results today. We delivered solid second quarter results. Total sales increased by 2%, adjusted earnings per share rose 13.1% and operating cash flow improved by 23%, underscoring our disciplined execution in a highly dynamic environment.

Metal Coatings achieved a strong double-digit sales growth, supported by higher volumes and sustained momentum related to robust infrastructure project activity. Metal Coating margins of 30.8% were down slightly as our mix of solar and transmission distribution increased, and these tend to be slightly lower margin markets. We remain confident in the strength of our core markets and the growth potential ahead for galvanized steel in construction, industrial and electrical utility projects this year.

Similar to others in the industry this quarter, Precoat Metals faced some mixed market conditions, particularly in relation to tariffs, but focused on protecting margins while pursuing market share opportunities. While Precoat benefited from the tariff impact on pre-painted imported metal they faced headwinds due to softer building construction that extended to HVAC and appliance end markets.

Looking ahead, we are encouraged by Precoat's new customer wins, which are generating market share gains. This is primarily due to a strong focus on key markets impacted by reduced access to imported pre-painted metal, including the aluminum container market. Our container and beverage results continue to reach new highs during the quarter, indicating that the shift from plastic to aluminum is gaining momentum as we ramp production at the new facility in Washington, Missouri.

However, the overall demand outlook remains mixed for Precoat's end markets So we are maintaining a cautious outlook as ongoing tariffs have contributed to customer hesitation on non infrastructure-related projects. Dave will provide more details on industry trends and AZZ's end markets shortly.

Consolidated adjusted EBITDA for the quarter was $88.7 million, reflecting a margin of 21.3%. The divestiture of the Electrical Products Group through the AVAIL joint venture created a modest EBITDA headwind in the quarter. which Jason will address shortly. At our new Washington, Missouri facility, sales continued to increase and operating leverage is improving as we ramp up production.

We remain confident in achieving gross margin improvements as volumes grow at the new site through the second half of the year. AZZ's proprietary technology continues to set us apart. We continue to pursue technology upgrades ranging from updating system applications, continuing to migrate data systems to Oracle, exploring AI opportunities, and developing new galvanizing and coding processes to drive operational efficiencies across our broad network of facilities.

As is normal for our Metal Coatings team, they quickly integrated the newly acquired Ohio facility onto Oracle and DGS which is our proprietary digital galvanizing system. With that, I will turn it over to Jason.

Thank you, Tom. For the second quarter, we reported sales of $417.3 million, representing a 2% increase from $409 million in the prior year period. Growth was led by our Metal Coatings segment, where sales increased 10.8% over the prior year's quarter driven by higher volumes and supported by infrastructure-related spending across our largest verticals.

In contrast, Precoat Metal sales declined 4.3% and due to a weaker market environment, reflecting lower volumes in building construction, HVAC and appliance end markets. As Tom mentioned, Precoat continues to win market share in a competitive and dynamic marketplace. The second quarter gross profit was $101.3 million or 24.3% of sales compared to $103.5 million or 25.3% of sales in the same quarter of the prior year.

The Precoat Metals segment margins were impacted by customer buying patterns and the introduction of our new aluminum [ colo ] coating facility, which when combined, contributed to a small drag on margins. Whereas in the Metal Coatings segment, product mix was slightly unfavorable in comparison to the prior year quarter. Selling, general and administrative expenses totaled $32.8 million in the second quarter or 7.9% of sales.

This compares favorably to last year's second quarter, which was $35.9 million or 8.8% of sales. Operating income for the quarter was $68.5 million or 16.4% of sales compared with $67.6 million or 16.5% of sales in the prior year second quarter, reflecting the strength in operational execution on lower volumes. As noted last quarter, Fernweh, our 60% joint venture partner on [indiscernible] divested the majority of its electrical products business in the quarter.

For the second quarter, this transaction resulted in accounting adjustments to record an additional gain on the sale. Combined with other adjustments and operating performance of the remaining businesses we reported equity in earnings of $59.3 million in the quarter. On an adjusted basis, our quarterly equity in earnings reflected a loss of $2.3 million from continuing operations.

The loss in the quarter is primarily due to the excess overhead costs resulting from the divestiture of the electrical products business and is a [indiscernible] weaker summer season from our build welding solutions business. Looking ahead, regarding our 40% ownership interest in the remaining avail business, which now consists of welding services, lighting and some international joint ventures we are forecasting extent earnings from unconsolidated subsidiaries to be 0 for the remainder of the year.

Interest expense for the second quarter was $13.7 million represent a significant improvement of $8.2 million from the prior year due to a combination of debt paydown, debt repricing and accounts receivable securitization facility introduced in the quarter. The accounts receivable facility has a borrowing limit of $150 million and is accounted for secured borrowings with an interest rate of 1 month so far plus 95 basis points.

Create an expected annual interest savings of $1.4 million versus current borrowings on the term loan. During the quarter, 100% of the proceeds received from this facility were used to pay down existing debt. The current quarter's income tax expense was $25 million, reflecting an effective tax rate of 21.9% compared to 25.6% tax rate in the prior year's quarter.

The tax rate reduction in the quarter is due to an increase in R&D tax credits attributable to technology spend on our new build Washington, Missouri facility. Reported net income for the second quarter was $89.3 million compared to $35.4 million for the prior year quarter. Since our non-GAAP measure for adjusted net income excludes amongst starter items, equity and earnings from the available divestiture are $61.6 million AZZ reported adjusted net income of $46.9 million or adjusted diluted EPS of $1.55.

This compares favorably to the prior year's adjusted net income of $41.3 million or adjusted diluted EPS of $1.37, an increase of 13.1% compared to the same period of the prior year. Second quarter adjusted EBITDA was $88.7 million or 41.2% of sales compared to $91.9 million or 22.5% of sales in the prior year.

Excluding the impact of equity and earnings, our adjusted EBITDA for the second quarter would have been $91 million or 21.8% compared to $90.4 million or 22.1% and in the same quarter last year. Turning to our financial position and balance sheet. For the second quarter, we generated cash flow from operations of $58.4 million.

Consistent with our capital allocation strategy, in the quarter, we invested $19.3 million in capital expenditures for the businesses, invested a further $30.1 million in the acquisition of our new galvanizing facility in Canton, Ohio and increased our dividend payments to shareholders over prior year.

With a slight pay down of debt in Q2, combined with our continued financial performance, our credit agreement net leverage ratio remained at 1.7x compared to 2.7x in Q2 of last year. As communicated, we continue to maintain a disciplined approach to our capital allocation strategy transition our focus to investments in organic growth and strategic M&A while returning value to our shareholders through cash dividends and share buybacks and maintaining our debt leverage in the target range of 1.5x to 2.5x.

With that, I'll turn the call over to David.

Thank you, Jason. Let me begin with an update on the Infrastructure Investment and Jobs Act. As of August of this year, the Department of Transportation reported that 73% of II JA program funds totaling $319 billion have been committed to specific projects.

With approximately $177 billion already outlaid. Similarly, according to the Department of Energy website, 77% or $74.9 billion had been obligated to certain projects. Both agencies are expected to continue to announce awards or initiatives throughout the balance of this year. We believe that because the current legislation is scheduled to expire in 2026 and requires projects such as utility-grade solar to be completed by the end of next year, IIJA-related spending is having a positive effect on demand for our Metal Coatings segment.

We expect multiyear tailwinds associated with IIJA spending, and we'll continue to monitor discussions regarding potential reauthorization beyond 2026 once the government reopens. During AZZ's second quarter, we continue to see infrastructure, nonbuilding and civil works projects as a bright spot, offset by softness in nonresidential and residential building construction.

Reported end market sales for AZZ were up, including utilities, up 19%, consumer up 7.6%, while construction sales were up by less than 1% as compared to the same quarter last year. As noted today and in prior quarters, end market growth in utilities is elevated due to IIJA-related project spending, particularly solar, transmission and distribution and data center projects. As Tom mentioned, the transition to aluminum packaging in both the food and beverage sectors remains a significant growth driver for AZZ.

Our container end market has sustained strong momentum this year supported by a continued ramp-up of the production at our new greenfield facility in Washington, Missouri, and recent share gain activity. While we have seen increased opportunities from tariffs associated with imported pre-painted aluminum steel.

Weakness in both nonresidential building, particularly commercial office and retail construction as well as residential building has created some divergence in our construction end market sales. However, our teams remain well positioned to execute through the balance of the fiscal year and we are approaching calendar year 2026 with measured optimism. With that, I will now turn the call back over to Tom.

Thanks, Dave. We continue to see a strong pipeline of project-related activity driven by megatrends such as energy transition and the growing demand for electricity generation to support the rapid growth of data centers. Grid modernization, transmission line expansion and the integration of multiple energy sources will fuel further demand at our plants.

As the country continues its journey to reindustrialize the AI boom and cloud expansion are driving massive data center projects and infrastructure development with higher interest rates lasting longer than anticipated, new housing development and related supporting projects remain muted. Public infrastructure spending tends to be less sensitive to interest rate fluctuations as it is often funded through grants bonds or supported by subsidies.

Overall, we anticipate and have planned for a multiyear tailwind and infrastructure spending particularly in energy and power generation capacity despite the potential for continued pressure on residential construction. For our 2026 fiscal year, we are reiterating guidance for total sales, EBITDA and adjusted EPS.

We anticipate that our sales will be in the range of $1.625 billion to $1.725 billion. Adjusted EBITDA will be within the lower half of the range of $360 million to $400 million due to the lack of available equity income as they continue to transition without the Electrical Products businesses.

Adjusted diluted earnings per share will be in a range of $5.75 to $6.25 which translates to an increase of between 10% to 20% over the fiscal 2025 adjusted earnings. Although markets may be choppy in the second half of our current fiscal year, which extends through February 2026 our numbers are supported by strengthening projects and structural steel demand forecasts.

We continue to strengthen our operational performance and maintain disciplined execution at each of our facilities. Our liquidity position and balance sheet are strong and flexible with a low debt-to-EBITDA ratio, especially given our cash generation capabilities. We remain well positioned to pursue strategic growth opportunities, including our other capital allocation strategies as we have already discussed.

Finally, industry consolidation presents ongoing opportunities for our company, and we are actively evaluating bolt-on acquisitions that are strategically aligned, fit our integration playbook and extend our market leadership in metal coatings. Our M&A pipeline is healthy, and we plan to remain disciplined in pursuing only high-quality opportunities that create long-term accretive value for our shareholders.

As always, I would like to express my gratitude to our hard-working and highly talented team for executing AZZ's shared vision of growth, profitability and operational excellence. Our mission is to create superior value within a culture where our people can grow and traits matter. Our culture is built on providing outstanding quality and services directed within our servant leader mindset.

These principles continue to shape our path forward and underpin our success. I am proud of our team's execution of the fiscal 2026 plan so far this year and remain confident we are positioned for continued growth and success. We are committed to driving top line growth, enhancing profitability and generating robust cash flow, all of which are supported by a disciplined capital allocation philosophy.

Through the successful execution of our strategic priorities, we believe we will continue to deliver sustainable value for all of our stakeholders. Now operator, we would like to open up the call for questions.

[Operator Instructions] Our first question comes from Ghansham Panjabi with Baird.

I guess first off, on the Precoat market share gains that you called out, Tom, can you just give us a bit more color on that dynamic and maybe dimensionalize the boost for AZZ. And I'm just asking because obviously, volumes were down in the quarter, you cited some of the obvious in terms of construction and so on and so forth. How should we think about the contribution from the share gain piece?

Yes. I think -- so a couple of things there. One, we picked up share gain because the -- and we referenced it. The pre-painted imports are because of the tariffs are down significantly. So that's been transitioning to domestic supply, and we're painting at least as much as our share. But if you take that, it's probably, David, what about 10% on imports.

So we've picking up our share of it. So we've picked up 3% or 4% to offset the roughly 9%, 10% market decline. So it's just offsetting. But it's also positioning us depending on what happens with tariffs. Hopefully, to sustain that market share and be able to take advantage of it as we go forward.

As we're picking up new customers, new applications, converting that. And that's pretty much at our normal margin profile. So it's not like we've had to go aggressively discount to take that share which is why I'm also confident that those margins will continue to flow through going forward post market softness, if you will.

Sure. And so sticking with Precoat, so some of the challenges that you called out, building construction, HVAC, appliances, they all seem sort of aligned towards the same theme. It doesn't seem like there's any short-term catalyst for those end markets in terms of reversing that weakness. Would it just be the share gains?

And then the Washington Missouri facility that are the positive offsets? And how do you think that nets out for segment volumes as we think about the back half of the year for Precoat.

Yes, I'll start and then Jason can probably add some additional color. Yes, I think you pretty much summed it up. So we're going to continue to -- assuming the tariffs stay in place, which looks like they will, then we should be able to sustain that market -- those market share gains from picking up the past imported pre-painted metal.

Two, we are -- do have the [indiscernible] site. It's still I think we're saying it's running about 20% of its capacity or some number thereabouts. So it's still got a ramp to it as the next 6 months go on and pretty significantly. So that's opportunity. And that is where there is strong demand in that aluminum container market that's our sister facility to [indiscernible] which is the St. Louis which has 2 lines is doing really well because of the high demand in that market.

So as I look at it, I think -- well, then the third piece is we're also aggressively going after other conversions and chasing things. So any kind of rebound in construction. And I think we're seeing some signs of that. We had a big customer -- well, we have a lot of customers at our annual golf tournament. And they generally feel like things have bottomed and starting to come back up in certain areas of the country, particularly.

So we feel good about what we're doing and also commend the Precoat team. they've adjusted their operating and shifts and times and capacity. We're retaining capacity for the upturn that we hope to have as the year goes on. But also, as we talk about our variable cost structure, they've been able to adjust that pretty quickly.

And I know this is about Precoat, but I'd say the Metal Coatings side has done that outstandingly well during that same time period. Jason, did you want to add anything?

No. I think the only other thing you could potentially add there is when you think about the construction, it certainly have an impact on the H5 appliance, but very minimally so if you look at those 2 businesses, they're actually doing reasonably well. And quarter-to-quarter, there's an impact in terms of inventory levels and model changes, et cetera. So I don't necessarily see them as being as much of a drag in comparison to the construction market.

I'll also add in. We had a good solid September. So we feel good as we've kicked off the third quarter. So kind of in line with the fact that a lot of the Precoat customers are feeling like things are starting -- the corner is starting to turn.

The next question comes from Nick Giles with B. Riley Securities.

It's still a very solid quarter here. And I wanted to just turn it on the guidance for a second. So you've reiterated your adjusted EBITDA guidance. And just curious really what would take you to the high or low end of the range at this point? I mean how much is end market-driven versus operational? And then how much EBITDA could Washington incrementally contribute as volumes continue to ramp?

I'll answer the first part of that, and then Jason can opine on Washington. I feel like when it comes to -- and I don't know if this has got missed or not, we've talked about it a few times. But you look at the $14 million, $15 million of avail EBITDA impact from last year versus we've signaled 0 for Q2, Q3 and Q4 for Aval. And so that's the biggest impact in terms of our EBITDA guidance.

And I'd say that was harder for us to predict until now you can -- we can see with primarily WSI as the main asset left in avail. And they had just gone through this summer is obvious weak because there's just not turnarounds and outages during the summer. So we felt that -- and going forward, they do come back into -- so in terms of the upside, hopefully, they do have a strong fall season, which is back to how turnarounds and outages run.

I think interest savings is going to continue. We've paid down the debt. We continue, even after acquiring Canton, we paid down some debt. So and interest rates have finally moved a little lower. And we've done that through our own actions in terms of repricing and the securitization. So we feel good about that. It's mostly embedded in our outlook, but there's upsize to that.

And then hopefully, we get a deal or 2 done on the -- particularly on the galvanizing side that before the end of the year and have some impact there because obviously, the assets we're buying are going to be good galvanizing assets that we hope to improve as well. I think those are all the kind of pieces. Precoat performing well. I think they're driving to sustain those margins over 20%. And given the volume fall off as volumes pick up at all, that could also be upside to us.

And then we do believe the metal coatings folks are driving hard to sustain that 30%, 31% margin profile while taking advantage of the higher-than-expected growth, driven partly by regulatory changes and the threat that solar is going to go away. So we're seeing lots of solar in pole transmission and distribution kind of activity, which is we signal maybe slightly lower margin than on balance, but it's really, really good volumes. So we like that stuff a lot.

And then Jason, on Washington.

Yes. Certainly, Washington, as we've previously communicated, would be a drag in margins in the first half of the year and then start to turn positive in the second half of the year. And we're very much in line with that. Around about $2 million of a hit to margins in the first -- in Q2 essentially. From a contribution margin point of view, the business is contributing to the volume that's flowing through there. We know that's ramp up volume.

But obviously, you've got the fixed costs associated with that facility and largely the effect costs are driven by depreciation of the $125 million. So it's very much in line with expectations as you start to look at the second year than Q3, Q4, it starts to ramp. And we're very much in line with the expectation of that ramp profile. We'll start to hit capacity towards the 50% arena through Q3 and then really see that start to pop in Q4. So very much aligned with expectations and very much built into original guidance and where we sit here today.

Jason, really appreciate all that detail. Maybe just back on the coating side. I mean, you've obviously deployed meaningful growth capital to expand capacity with Washington. But in the past, I think you have spoken about there could be some margin expansion opportunities in the coil coating side that could require some capital.

Can you just remind us how you're thinking about that opportunity today? What would be the timing around kind of a project like that? And how many quarters would something like that undertake

Yes. And to be fair, I don't think there's any one big silver bullet out there. I think there's multiple projects that we've started to kick off through the summer program. That we'll start to incrementally see some benefits, and we're seeing them start to kick in. And to be fair, that's applicable to both sides of the business.

There's -- as we've highlighted, our capital allocation is looking at outside and inside in some of the projects that [indiscernible] sidelines are now getting turned into execution. So again, I don't think there's going to be a big boost in terms of our stent function, but we're going to continue to drive the opportunities that we see in front of ourselves.

Yes. Keep up the good work.

The next question comes from Adam Faltenheimer with Thompson Davis.

Adam, we can't hear you. You might be on mute.

Pardon me, we have Timna Tanners with Wells Fargo.

Import opportunity. Is that fully played out? Or are we still in somewhat early innings? I know that imports only really started to drop off more recently. So I'm just wondering if we could see a bit more share gains still to come.

Yes, it's really early innings. I think probably a couple of months of that. So and that should have a good tail to it. It just -- it takes time to ramp up the domestic capacity change project sourcing and things like that. So we feel good about that, the balance of the year. I'm not sure it's fully embedded in our forecast.

Jason, would probably disagree with me, probably it is fully embedded. But I'm probably more of the optimist in so -- Yes. I look forward to that because it's -- we're engaging with some new customers and able to demonstrate our value-add capabilities in terms of quality service and particularly responsiveness and it does impact our -- I would say, it does have a slight negative impact on our margin profile because we -- a lot of these are smaller orders, and we're winning them because we can turn them quickly and give them whatever kind of color combination that they want.

So we really look forward to that continuing to grow and be able to sustain it regardless of whether the imports come back up or not

Got you. Okay. On the Washington ramp-up, are you seeing any impact of reduced substrate because of the Oswego fire?

No, no. I mean, certainly not from our point of view at this point. Obviously, there's one customer supports that facility. And quite frankly, our production ramp is ahead of plan and we're executing with the material were out at the facility a couple of weeks ago and it's really starting to look like a coil quota facility versus a short piece that the analysts that saw a couple of, I guess, 6 weeks ago or so.

So I think we're in very good shape from that executing through the end of the year.

Yes, there's a lot of aluminum sitting in that -- on that floor now. So.

Got you. Okay. All right. And then final one for me, if I could. I wanted to just probe a little bit more the M&A pipeline? Any updated thoughts on the economy having any impact on more or less appetite to sell to you at this juncture?

Yes. I think there's -- we're working on a couple of typical bolt-ons for galvanizing. And it's One of them was actually a process. So we know that when we go forward. We can never quite predict -- we tend to believe we're always going to be a strong contender for those.

And then we've got a good game plan once we do acquire them as we just did with Canton almost immediately ramping it up to our margin profile. So I look forward to that, and we're going to be as aggressive as we need to be. Not seeing a whole lot shake loose because of it, which is actually a little bit surprising. We were hoping to see maybe one of these multisite galvanizers decide to go on the market, but we haven't gotten any indication of that at this point.

And then on the precode side, there's a couple of things out there. I think it's probably as much in our control as they can be. But once again, the market hasn't seemed to cause them to want to move any faster than they were before. So it's a good pipeline. I think we've got 9 good opportunities that are in various stages, not to mention a long list of other ones that we remain in contact with.

So I'm hopeful we get something done before the end of the year and maybe more than one.

The next question comes from Adam Thalhimer with Thompson Davis.

Can you hear me now?

We can.

Great. First one, within pre-code, I think there's also a negative impact from tariffs that possibly offsets the positive impact I was just curious if you could walk through that, Tom.

I'll let David do it.

As you look at the overall market for imported steel, Adam. We know that the pre-painted imports are down 23% this year. That has been a bright spot or a tailwind for pre- because that means there's less competitive pre-painted steel coming in. But offsetting that, the bar [ Galvalume ] market has been down about 50% due to the tariff impacts.

So that's really the difference in the numbers and why Precoat was having some headwinds as this year because normally, that imported bear is volume that they would be the natural source to be selected to and coat that product. So -- but as Tom mentioned, we think that our customers are telling us things have bottomed out.

They did buy ahead and placed orders ahead of the tariffs and have been working through the inventory that they've had on the shelf. And we look forward to things turning around later on.

Yes. And I'd add that the tariff impact is really driven, as David mentioned, it's just the uncertainty. So you've got projects being deferred, delayed. And I'd say it's a combination of tariffs as well as the lower interest expectations as we had noted.

Interest rates have stayed higher from the Fed longer than I think a lot of people anticipated and now with the government shutdown, who knows what the next step is. So I think that's just created hesitancy on non-infrastructure projects versus what you see on the Metal Coatings side, where those infrastructure projects are going forward.

And if anything, on the solar stuff, it's accelerated. So on one segment, it's a positive on the other segment, it's mixed, as you said, and probably more negative than positive in the aggregate for Precoat.

Okay. That makes sense. And then second question for me. I was curious on your confidence in no further losses from the veil. I'm just curious if -- just to be conservative, if we should model a slight loss in Q3 and then where they are in the process of monetizing the remaining businesses?

Yes. And we are very much aligned that now you got a subscale piece of business, which is really 3 pieces. WSI forming by far, the largest in terms of sales, but not in terms of contribution margin. Then you got a lighting business, which is a nice little business that I think they'll get that transacted hopefully this year.

And then there's a Chinese joint venture, high-voltage bus business that once again, I'd hope that they could get that transacted this year. WSI is a tougher one because it's a little more impacted in -- from a market perspective in terms of refinery turnarounds and things like that. So that's probably -- we prefer not, but it's probably a longer-term piece.

In terms of the Q3, you could -- I'd say it's hard for us to predict because Q3 should be typically is the fall season and tends to be a stronger one for WSI. On the other hand, as Jason alluded to, they are carrying more overhead that they can't get at while the TSAs within Venor running. So on balance, I think we're pegging it at 0.

And I'd say it's more likely slightly negative in -- the risk is probably more negative in Q3 than the upside. And then Q4, they go into the winter, but hopefully, some of these other things transact.

And the other thing I would add on top of that, Adam, is they've started to digest the TSA and started to accommodate the infrastructure that they need to support that. So are starting to see some moves in terms of realigning their corporate overhead costs. So you should get that pickup into the second half. And then as Tom mentioned, the seasonality impact of the WSI business.

[Operator Instructions] Our next question comes from Mark La Reichman with Noble Capital Markets.

Just a couple of questions. On interest expense, when we published at the end of September, we took our interest expense numbers down. I think we were kind of landing around $49 million, $50 million for the year. And of course, the second quarter came in a little higher than our revised estimate.

So I was just kind of curious, your guidance hasn't changed. But in the past, your guidance had included $55 million to $65 million of interest expense what would your expectations be for interest expense for the full year of 2026 for the fiscal year 2026.

Yes. I mean I think the part in terms of the interest and just picking up some favorability given that we've reduced our total debt through the bail transaction. As you look at our interest expense in the quarter, then we certainly picked up some favorability, but it was more towards the back end of the year. Sorry, the back into the quarter given the repricing the term loan and the introduction of the securitization.

So obviously, if you look at our quarter -- that's what improved in Q3 and Q4, obviously, through the cost of debt. And then we will continue to pay down debt through the second half of the year, excluding any impact from M&A or any share repurchases.

And then the second question is SG&A in '25, ran about 9% of sales, that was 8.2%, I think, in the May quarter, but dipped down to 7.9% this quarter. What are kind of your expectations for the -- well, I guess is as a percentage of sales the right way to look at it? Or what would you kind of your expectations be for the remainder of the year and maybe kind of an ongoing percentage?

Yes. I mean I think that 8% number is fairly representative. Obviously, seasonality kicks in the back half of the year or certainly in Q4, we are -- obviously, SG&A is a little bit more of a fixed cost. So the number that you're seeing in Q2, there really isn't any great pluses or minus fees away from that through the end of the year. So it's got to be more of a fixed number versus a fixed percentage as you look at.

Okay. And just one follow-up to Adam's question on the equity and earnings of unconsolidated subsidiaries. So we originally had like $1.4 million in the third quarter and I think $774,000 in the February quarter.

So what I heard from you is basically 0 in the third quarter and kind of maybe modestly positive or close to neutral in the fourth quarter for that, and that would be a male obviously.

Yes, yes. I mean our guidance is 0 for both. And I think some of the discussions that we've been having is certainly a sensitivity around about that. We don't get it wrong. We've got to get it slightly wrong in the upside or the downside.

I would say in Q3, it's probably -- if anything, it's slightly wrong in the upside and then slightly wrong in the downside. The seasonality for the WSI business has got to kick in Q4. So the determining factor in Q4 is going to be how quickly they can ramp the overhead cost to realign to the current business.

But really, as you look at the numbers then in Q3 and Q4, it should be a very minimal plus or minus a.

Okay. That's very helpful.

The next question comes from John Franzreb with Sidoti & Company.

I actually want to go back to one of your responses to an earlier question about Precoat doing better in September. Do you have any idea or can you give us any color as to what's driving maybe the recovery in Precoat during that month?

The only thing I would add is there's certainly fluctuations month-to-month and inventory by buying partners plays a part into that. And we're still coming through our strong construction season. So shipments versus -- or sorry, building inventory versus depleting inventory year you ended that time period where you're starting to look at the end of the season and accommodate your inventory for that.

And again, quite frankly, in September, we've seen a lot of bot strength to our customers. If you take that one single data point, our customers are looking for a healthy end to the season. would be my takeaway.

Okay. Great. And it also sounds like that maybe demand in the Washington facilities is maybe a little bit better than you expected. Can you kind of remind us or update us as to what the revenue contribution is in Washington that's embedded in your full year revenue guidance?

Yes. To be fair, we've not went into that level of detail. And there's still a lot of variations to take place. And quite frankly, we've got a sister facility in the [indiscernible] area, and we'll use some of the volume from that to help ramp, et cetera.

So it's not a black and white just looking at that single facility and how it's going to play into the overall results. They start a lot to play out here. We are we started the production in April, and we're certainly progressing very, very well. But equally, we're cautious just in terms of what could be around the corner.

So really not a specific numbers around about it, but what we have built into the guidance, we're certainly very comfortable with those numbers.

Okay. Fair enough. And one last question, if I may. The zinc prices have rebounded sharply from their bottoms early in the spring. Just maybe some thoughts or commentary on what you're seeing in the zinc market that might be helpful for us?

Sure. Yes. First thing is -- yes, we have seen that, which usually makes opportunities for not that we based our price off of cost. We were very value pricing oriented. But usually, when zinc's going up on the LME customers understand that's going to start to affect prices.

So that create some opportunities. Two, we've got 6 to 8 months of inventory in our kettles. So it doesn't have much impact on our margin profile, the balance of the year, our cost of zinc, the balance of the year. But clearly, that will start to color how we look at next year and as we're entering the process to put our plans and budgets together for the next fiscal year.

But generally, I think it's going to continue up but I'm not sure -- I'm not sure we're going to -- usually when things start to change when you see some spikes, and this has been more of a gradual increase. And generally, that's very manageable for us.

So yes, minor impact on our outlook in metal coatings for this year, clearly, as we start to put our plans together, it will be a talking point as we talk about however, we end up guiding for the next fiscal year.

Great. Makes sense.

The next question comes from Jon Braatz with Kansas City Capital.

Tom, a couple of questions. On the Metal Coatings business, you completed the Canton acquisition, I think, July 1. How much of a contribution did Canton have in terms of revenues in the quarter?

It's -- revenues in the quarter. $2 million. Yes, and a few hundred thousand of contribution margin.

Okay. Okay. Good.

It was 2 months in the quarter. So we'll see a full quarter here going forward.

That's right.

Okay. And secondly, on the margin profile for the metal coating business, it's been very, very good over the last couple of years. And absent any significant change in zinc prices or the economy and so on. Is that range that you provided in terms of adjusted EBITDA margin for that segment.

Is that -- that low -- at lower end of the range, is that still relevant? Is there a point where maybe you feel comfortable raising that lower end and getting closer to the 30% to 32%, something like that, absent -- again, absent any significant economic changes.

Yes. We tend to -- yes, we haven't seen that -- the low end of that or even very much, I think one quarter, we were below 30%, which was last winter. We had a rougher than normal in Q4 last year. So that was probably the only time in a while we've seen below 30%.

But yes, I think we're pretty confident in this -- where we're at is 30% to 32%. We'll look at that as we go into the planning process. We just completed our strategic plan and we'll be rolling out some communication on that as we go forward. But Yes, we're pretty comfortable with their margin profile at holding in the 30-plus percent range, the balance of this year. So yes, we might get comfortable to guide to a tighter range on that.

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

Yes. Just a couple of things. I don't think we got any questions on share buybacks. Jason alluded to it, but we had kind of guided that we'd be buying -- well, we issued a 10b5-1 that for $20 million at a couple of price points. I think we're going to -- I'm confident we will get $20 million of our shares bought in over the next perhaps a few weeks to a couple of months.

And look forward to doing that and -- because we think we're still a great high-value stock and business with an outstanding outlook, particularly as we kind of finish out the choppiness of this year and look forward to next year. So thank you for joining us. We look forward to talking to you after our third quarter results.

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

Okay. Good morning, and welcome to AZZ sell-side Analyst Day. I'm David Nark, the company's Chief Marketing, Communications and Investor Relations Officer. Today, we are webcasting our morning session live from approximately 8:00 a.m. to 9:00 a.m. Central Time today, and our remarks will include an overview of the company and important elements of our long-term strategic plans.

Our presenters today are Tom Ferguson, the company's President and Chief Executive Officer; Jason Crawford, Chief Financial Officer; Kurt Russell, Chief Strategy Officer; Jeff Vellines, President and Chief Operating Officer of AZZ Precoat Metals; and Todd Bella, Senior Vice President of Metal Coatings.

After our management presentations, we will take questions from the in-person group. Please note that the webcast and its replay can be found at www.azz.com/investor-events. Before I begin, I want to remind everyone that management's comments 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 and the Securities and Exchange Commission, including the latest annual report on Form 10-K. 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 remarks may include a discussion of non-GAAP financial measures, which should be considered supplemental to and not a substitute for GAAP financial measures. We refer our shareholders to reconciliations from GAAP to non-GAAP measures contained in today's slides.

With that, I would now like to turn the discussion over to Tom Ferguson.

All right. Thanks, David, and welcome. As we'll talk about, we believe we've got 2 outstanding operating platforms. We try to keep most things as simple as we can and focus on providing outstanding quality and service to our customers so that we can provide superior value to our shareholders. And we'll talk a lot about this on Page 4.

We are the largest independent and metal coating provider for hot-dip galvanizing and coil coating. And for us, that's important because we're very -- we're quite agnostic about whose metal we coat. So we don't matter. It doesn't matter to us who steel or aluminum or stainless that happens to be. We're willing to paint it, hot-dip galvanize it, protect it, make it look better. We have scale in both segments. We have -- we'll talk a lot about or you hear us talk a lot about process playbooks, operating playbooks, leadership discipline and a deep bench of service leaders.

And so that's important to us. We continue to invest in those areas because we believe that having great leadership teams out there. As for some of you at dinner last night, we talked about we've got folks that have been with us 40 years and continue to show up and contribute and allow us to grow. And then we got people that have been with us just a few months and are focusing on new technologies and AI. So it's just a great -- as you'll see today at the Washington site, just facilities are important, but people are critical. Foundation for growing sales and margins. I'll talk a little bit more about that in just a second.

We've been very focused on capital allocation, maintaining discipline as we execute. It was fairly easy to pay down debt, get our leverage down before we got back into the market for acquisitions. During that time, we have been using our significant cash flows to invest in CapEx that have helped us modernize facilities, modernize lines, modernize technology. We'll talk a little bit about some of the technology we're investing in and some of the technology partnerships that we have. So while we've been successful in paying down debt, we benefited from -- we had divested 60% of Infrastructure Solutions, which helped us immediately bring our leverage down back in 2022.

And then receive a significant amount of cash from that. And there's still a couple of assets left in Avail to be divested. So that story is not quite over yet. I think they've probably over the next 12 to 15 months, that will play itself out. So we can -- hopefully, we can anticipate some additional cash coming in from our 40% share of Avail. We are committed to EPS growth.

I've got a graph in here that I'll talk to in a minute. And then we do try to keep things pretty simple. We are coil coating, and we're hot-dip galvanizing. We provide a lot of services around that. But for the most part, those are the 2 key things we do. And you wouldn't expect it. But because hot-dip galvanized metal can last -- those structures can last 50 to 100 years, you just think about you're not continually repairing and repainting and -- so environmentally friendly, coil coating is just -- we capture over 99% of all emissions versus, as you can imagine, we were painting outside.

So environmentally friendly, cost effective and absolutely necessary to infrastructure and construction industries. Page 5. As I just mentioned, we're the largest independent post-fabrication hot-dip galvanizing and coil coating solutions company. We've got about 4,000 employees on any given day. We do use contractors and temps for flex labor, things like that. Both segments have significant scale. We're fairly balanced between the 2 when you look at it. And even on the margin profile, when you look at the 2 businesses on a return after materials percent, they're actually relatively similar in the 35% to 40% range.

So one is roughly 31%, 32% EBITDA margin and the other is roughly 20%, they're very similar in terms of the amount of cash and the returns that we have for each one.

Page 6. This is what gets exciting for me we showed when $571 million, we're pushing towards $2 billion. I think we have a clear line of sight for finishing up our strategic plan next week, which we'll present to the Board in early October. And it's pretty much a continuation of what we've been doing with more emphasis on acquisitions and investing in significant organic growth opportunities.

So that's what's going to get accelerated as we talk about ascending -- so we are committed to driving this business to north of $2 billion and 25% EBITDA margins. And while -- well, I'll talk about this in a second. But -- and we think just continuing to do what we do, very disciplined capital allocation strategy, focus on high ROIC opportunities, continuing to provide outstanding service to our customers, develop that leadership bench, maintain and develop solid disciplined playbooks so that we can sustain our processes because we're tolling -- both are tolling businesses.

And so we don't own that metal, but it means that we have to be able to differentiate ourselves by having outstanding process discipline and continually making those processes more efficient and more productive. Talked about pursuing bolt-on acquisitions, we got one small one done in Canton, which is fun because you would look at -- and I think Todd is going to show it. You look at the map, and you would not have anticipated that it would make sense to buy a galvanizing plant in Canton, Ohio when we have a plan less than 5 miles up the road. But it was focused on different parts of the market and a different piece of it that with our large structural kettle that they could go after opportunities.

And so as we're becoming very focused and we're trying to be very disciplined about how we approach these opportunities. We're finding that a lot of things that [Audio Gap] that didn't look all that attractive a couple of years ago can look attractive to us now. And we're very good at running our playbook and integrating on the galvanizing side.

We hope to get a pre-COVID acquisition done in somewhere in the not-too-distant future. Page 7, and you've heard me say this before. It's -- we make our commitments, we execute against those commitments, and we're doing what we say and achieving those things ahead of schedule as we've committed, if not sooner. So we got our leverage down. We're now in the fun situation of let's figure out how to deploy that cash to provide profitable growth. We do -- both businesses, strong cash flow generation, solid margins. We continue to believe there is some margin upside as we get through the tariff uncertainty, and I'll talk about that in a second. Acquisition policy, whatever we buy is going to bolt on to one of these two operating platforms in the two existing segments and we're not going to get too exotic out there.

Don't look for us to be building a third leg anytime soon. And we've had all the transformation I want to go through. So I think -- but we have a good pipeline of opportunities. We -- for the first time in a while, and we increased our dividend, and we're not a high dividend paying stock, but that is something we're committed to now review it every year and hopefully continuing to increase as we generate these cash flows.

We are buying back shares mostly to minimize dilution. So we have a 10b5-1 in place. It has not triggered. So -- but we can also be opportunistic as we buy in shares. That's mostly just to offset the dilution that comes off the shares we issue for compensation.

And with that, I'm going to turn it over to David to talk about the -- because our markets, we do have tailwinds. And as I was about to say around the tariffs, those have provided probably more headwinds than tailwinds, and it's mostly around the uncertainty. It's created some opportunities, and we've taken advantage of that to some extent on the galvanizing side or infrastructure type things.

On the Precoat side, it's been more of a mixed bag as fewer metal imports, so it's a mixed bag. But I think what -- we see projects delayed mostly because of the uncertainty of what they're going to be. And obviously, we've talked about this before. Any kind of a rate cut, we think would start to trigger some of these projects [indiscernible] kick in. But infrastructure stuff is moving forward. Other things that have more discretion. I think our view is they're just being delayed and not being canceled or mothballed. So with that, David?

So with that, David.

All right. Thanks, Tom. Yes. So one of the things that I love to talk about our end markets and some of the drivers. So as you look at Slide #8, and starting off on the left-hand side, one of the questions that we always get is what has made this business so stable. And we have some slides later on, we go through the financials that you see the stability of the business on a consolidated basis over time.

And it really is a reflection of how diverse our end markets are. And although construction is 55% of our reported book end markets, when you break that down, there's really 3 components within. There's infrastructure, construction, the nonresidential construction and residential construction. And those are about 1/3 each of that respect to 55%. So kind of going around from there. You can see the rest of those industrial, we touch on transportation. We have consumer related items that we're coating steel and aluminum for like HVAC appliance and of course, container, which you'll see that plant later today.

Electrical infrastructure, lot of [indiscernible] bolts and then other things, the smaller nut bolts and other accessories that we need to galvanize the paint. But collectively, that broad base gives us a very stable earnings flow. When you look at the secular drivers that Tom had mentioned, certainly infrastructure investment has been helping us. I won't get too much into that because I have a slide on the next page, and we'll talk a little bit more about that.

Reshoring is taking place. We think that it's going to still take some time for people to reshore just because they've got build plants, you've got certainly go out and acquire the equipment that needs to come in and be commissioned for that. But there's no doubt about it that that's a trend that's occurring and will benefit us over time since we're North American focused.

There's certainly a migration. We've all talked about the migration from prepainted steel to aluminum that's happening in the manufacturing space and also conversion that's happening both on plastics to aluminum and the conversion from using wet spray, as Tom mentioned, and things that not as environmentally primarily to the coil coating, which is a much more environmentally friendly process, which you'll see demonstrated later today.

Talking about AIIJA and the impacts going forward. As you kind of look at this, we're 3 years into a 5-year legislation. Collectively, there's been $454 billion that has been allocated to over 60,000 projects across 50 states.

How that really affects us is there's about $110 billion in roads, bridges and major projects that's been announced and awarded $65 billion in clean energy and power and then $75 billion allocated toward data centers, water, airports and other types of infrastructure projects. So we are well aligned to take advantage of that as those things move through the pipeline and they are moving through, some of them a little faster than others.

As Tom mentioned, infrastructure seems to be doing really well. And we do a lot of galvanization on the infrastructure side. So we're encouraged by that. We think, again, when we talk about tailwinds in the business, this will be a tailwind for us -- for some time.

Moving forward to Slide 10, strategic value proposition. Oftentimes, we are asked about what makes these businesses logically put together going forward and why Metal Coatings and Precoat Metals. I think as you look at it, we do have a #1 position in the marketplace with both the segments that we operate today. Both of the businesses fundamentally are tolling based businesses, which means we have minimal of any commodity risk.

Again, we don't buy paint or we do I think. We don't buy aluminum or steel, our customers do that, and we are just really caretakers of it that to be painted or regalvanized it. So fundamentally, tolling-based businesses is what we are at our core. We have a lot of technology that's proprietary. I'll talk about that going forward here in a few minutes. And then as Tom mentioned, we really focus on serving leadership culture and a service-minded culture focused on our customers.

Just a brief touch on technology. As I mentioned, we have some proprietary technology that we believe gives us an advantage in the marketplace starting with our digital galvanizing system. You've heard us talk about that in the past on several calls, but this has eliminated nearly all the paper in our operations. It's integrated into our back-end systems, and it's providing us with real-time decision-making process from the frontline individuals who are scanning and taking pictures of steel as it's approaching our yards at the time that, that steel is leaving the yard and providing customer notifications.

Similarly on coil zone, that's the industry-leading tool that is in the Precoat Metals business, that allows those customers to log in. We also have a lot of EDI connectivity with those customers. So our systems are seamlessly integrated with their systems, which makes us very sticky. And then finally, just to kind of talk broadly like across all businesses about IT infrastructure and AI, we have been investing in systems architecture and getting ourselves future ready for AI. We do have policies and procedures that have already been established and communicated to our organization around appropriate use of AI. And we've already begun to deploy it in areas like Microsoft, CoPilot and Teams. So that's helping us make better decisions.

Really quickly on R&D, we're really proud about the partnership that we've had with Texas A&M since 2019. That partnership has allowed us on part of galvanizing side to really advance the ball forward in a lot of different ways. And some of those include operational activities and safety procedures on the product quality side and also fixturing, which we use in galvanizing process. And the other things that we're really excited about has been the ability to reduce costs and improve quality through produced usage, better use of things like acids and other consumables that we use in the process, and it certainly helped us with reduced emissions as well.

One quick note on sustainability. I think what I'll do is just hit the highlights on the top three here. We have been and are a very essential and environmentally friendly operation. We are very mindful with that and the way we conduct our business. We have been leading the industry with respect to our initiatives and reporting. We have had 3 years and now working on the fourth year of communicating our ESG efforts through our ESG reports, which you can find on our website under the Sustainability section, that includes Scope 1 and Scope 2 reporting and feedback on that.

We have targeted a 10% reduction, and we're on track to exceed that before our goals. And then, of course, with sustainability, a key aspect is people and we recognize our people are key to driving sustainable business, and we are actually very diverse organization as well.

So with that, I'm going to tip it back to Tom, and he can talk about the team a little bit.

Yes, it's great when we've got a good experienced team and make much a lot easier for me. But we have Jason, EVP of Finance here at Precoat. So a little over a year ago, we brought him in as CFO in Fort Worth. And you can tell he's developed that Texas accent, quickly. And, yes, his business focused finance support, it's -- as we move to get more aggressive and profitable growth, it was a good move. Bryan Stovall, Todd's representing him. He had a little minor surgery earlier this week, but about 35 years with us. So tremendous experience, Jeff took over for Kurt and we were fortunate. Kurt has been driving strategic opportunities, which -- we won't talk too much about that, but I can tell you, it's a key part of why we're more excited about the shorter-term opportunities for growth because he's come up with some really good opportunities that we're looking forward to pursuing over the next 12 months or so.

Tara, Chief Legal Officer. She also manages our ESG, has been with me since almost at the beginning. David was here just before I got here and just keep adding responsibilities to his title. Chris, he's our corporate development guy. He's done a lot of deals while he's been here and Haley runs HR; and Roy, just an outstanding experienced guy on the IT front. So we anticipate doing some really good things with -- I won't claim to understand AI all that much. I'm going to go off to a conference to learn more. I think it brings -- because we've got so much data through our systems and processes and things like DPS that that's what gives us the opportunity and it can get us excited about how we utilize AI going forward.

So good team, solid leadership. And we're -- we basically -- we work well as a team and get a long grade. So when I talk about family, this is kind of the first family of AZZ and and just sets the tone for our whole organization.

With that, I'll turn it over to Kurt.

Okay. Well, thanks, Tom, and thanks again to everyone for joining us. Making the trip to St. Louis, hear the AZZ story and hopefully be excited about the slide which you can see here in just a little bit. You've got a few of us between you and that, so we'll try to hurry through it.

On Slide 16, I'll expand a little bit on the strategic journey that Tom mentioned. I give a little bit more color to that. Rightfully, so, our focus over the past several years has been debt reduction. Clearly, that's been the priority and we've been strategically rough mind around that. But we continue to grow organically through that period.

And you'll see it come through and Todd and Jeff's presentation, the organic growth that we've seen, while we're focusing on the debt reduction. So we've definitely demonstrated the ability to grow organically, and that continues to be a focus of ours. They had highlighted the markets. We really like the markets we're in. We like the diversity as well as the performance of the market and the outlook of the markets going forward. But that's not the only driver for the organic growth. Both businesses have a business development function that is integrated inside the business and a pipeline of organic projects.

So the ability to grow greater than GDP organically, we feel comfortable with that. Jason will talk about the capital allocation strategy in just a moment, but we plan to continue to invest and accelerate [Audio Gap] the high-value, high ROIC projects for the organic group.

Tom has mentioned, I guess, probably the last 3 or 4 investor calls that we're moving more to shifting focus to M&A. And clearly, the divestiture of the electrical business was -- that was a big catalyst for accelerating that. And over this time period, we really started out by honing our investment thesis, what do we want to be in terms of M&A strategy. And we've got that aligned, and I'll talk about it in just a moment. But as well as developing the investment thesis, the guardrails, the -- evaluating the opportunities we've been reviving the pipeline of opportunities that are in front of us. Both segments had a pipeline. We know where the opportunities are, what we'd like to do. But we revised that as well.

So if you flip to Slide 17. This is a little bit about our investment thesis. Like I said, we like the markets. So we're going to continue to focus on opportunities that are aligned with the current markets are complementary to align with the current processes or complementary to, i.e., we're not looking for a third segment, right? We feel comfortable that there is opportunity in the existing segments. We do like geographic expansion inside North America. That doesn't say that we'll never look outside, but we feel comfortable that there's opportunities. So this kind of sets the funnel or the filter, if you will, for evaluating the pipelines.

We've identified 68 -- over 68 opportunities that we like. So a robust feed into the filter pipeline. When you apply those filters to that and a view of actionability, right, M&A, that's a key point. You have to have the capital. Again, Jason will talk about that, and you have to have the opportunity and it has to be actionable. So we've kind of filtered it to a point that we have 13 opportunities under evaluation at various stages. And as Tom alluded to, we just acquired and closed on galvanized. So -- what I will say about these opportunities is they vary and scale. Like I said, there are different phases of the process from NDA to due diligence type activity.

But they also vary in scale from galvanizing single site to something much larger than that. So there's a lot of energy and excitement around that. And I'll kind of finish that with -- we're very mindful of our target leverage range. We have a loss side of that. And if you look at the most aggressive scenario inside of this M&A strategy, we're going to be comfortably inside of that leverage range. So we feel like we're in a pretty privileged position. We have the opportunity, we have the ability, we have the capital, and we have a strategy now that we're going to focus on M&A to supplement the proven track record on organic growth.

So with that, we can talk about the exciting stuff, and Jeff and Todd can get into the segments. So I'll turn it over to Todd Bella and he can tell you a little more about Metal Coatings.

All right. The picture on Slide 19, I think, is a really good snapshot of many of our sites look like. You'll see a wide variety of fabricated products arriving from our customers that galvanize. We have the #1 market share in North America with a strong reputation for quality and service, and we're proud of the success growth and expanded margins over the past 5 years. Talking about our value proposition. Our goal is to be a one-stop shop for our customer needs, and that could involve a big project with very large pieces or we received a high quantity of small parts or even transportation to the job site or to the customer. We're aided by continuous enhancements to DGS that help with customer communication and operational efficiency. And we definitely lean into our large footprint in size to provide unmatched service and quality.

Slide 21 shows that footprint a little bit, and you'll see how we're well positioned in the U.S. and Canada. Our large customer base and diversified end markets are a big strength. We continue to look to grow with both our current customer base and pursue new end markets. Taking a look at our financials and the positive trend. The large majority of that growth has been organic. Our stated EBITDA margins were 25% to 30% since raised that to [ 27.2%. ]

Then on to Slide 23. As David said, we have the wind at our bags currently and moving forward with restoring infrastructure spending and the data center work. We're going to continue to focus on organic growth through sales activities and operational excellence, pounding the payment on M&A opportunities, vertical integrations and partnerships. And our general preference has been to buy into a market with synergies or brownfield expansion. But we've had success with greenfield. So we'll keep our options open if any opportunities arise.

Going to turn it over to Jeff.

Good morning, everybody. Welcome to St. Louis, like I said, really looking forward to the group getting a chance to get out to the Washington facility later this morning. So if you don't mind, turning to Slide 25 for me. That would be terrific. And just in terms of -- as Tom mentioned, we're a toll processor where all of our operations are a continuous processing line. And while we do primarily coat steel and aluminum, pretty much if it's flat-rolled substrate, we have the ability to coat it. And so there's not a market that can be that can be coil coated that Precoat doesn't participate in.

And so the great news is, just as David touched on, with the markets, we love the markets that we're in, and we love the customers that are in those markets even more. And so that provides us a lot of opportunity. And you see a kind of a picture down below, for example, of our finished goods warehouse in West Virginia. So switching over to Slide 26, some very common themes that kind of goes to Tom's point in terms of the culture, value proposition and overlap between the businesses that Todd just talked about. We've got a tremendous value proposition in terms of what we had to offer to our customers.

As Todd mentioned, similarly, we have a one-stop shop where at the end of the day, what we do is we paint and provide great coated services but more than 1/3 of our customers utilize an additional processing service that we offer to add value and provide better supply chain and more flexibility. In addition to that, we embrace complexity. We know that our customers want to delight with their customer. And so our ability to be fast and flexible and nimble, that is what is continually on our mind every day.

So we're building our supply chains around our customers. So when you think about the things that David talked about with 24/7 highly customized access to technology or you think about our operational flexibility, where we allow our customers to be agnostic, as Tom mentioned, set substrate in from anywhere that they need to and then late point identify, which basically means they're able to utilize our warehousing capability and our ability to toggle between very flexible runs quickly and give them the finished goods exactly when they need them as close as they need them for their customers, which again, is a very, very important value, requires a little bit of planning and work and understanding of our customers' business to be able to do that.

And again, as I mentioned, and I'll kind of toggle over to Slide 27. But if we had the opportunity to build our footprint again, and then kind of if you see the way that the map is laid out, it's a purpose-built footprint that we had a chance to start over, we built in exactly the same place. The vast majority of consumption in the addressable market is kind of in this space now to that point.

It doesn't mean we're not looking at other places in the map that may not be shown right now and things like that. But again, this is where the demand and the opportunities are. And we're in the flight path of the inbound, substrate, outbound freight lanes, which can be truck, rail boat and a lot of other areas.

And again, as David already touched on, tremendous exposure in terms of the markets that we're in. And I suspect, as we talk in the future, the container share will continue to rise as we participate more in that market as Washington ramps up in that space.

Again, turning over to the financials briefly, Jason will touch on those a little bit more. But again, as Tom mentioned, we're looking to continue to deliver value for our customers. And as we do that, we continue to expect that this chart will move in a direction we're pleased with in terms of our performance and doing a nice job for our customers.

All right. I'm definitely not going to talk a lot about this, but I will just say that I'm going to talk a little bit about the people instead. And I would just say that for a 3-year construction project to be completed on time and on budget and on budget. And then with the added little caveat there of achieving of profitability ahead of schedule. I couldn't be more proud of the team. And just looking forward very much continuing to ramp up with our valued customer partner and providing great value in this market in the time ahead. So looking forward to showing it to you. And I think that will speak for itself.

There's only 4 bullets on this final slide, but I would say they are fairly compelling bullets and in terms of what gets me particularly excited about with the team and about the business. As David talked about, we've got some really nice tailwinds. No example is smaller in terms of the shift from plastic to aluminum, which justifies the investment that you're going to see later this morning.

Again, when I think about what we're really competing with it's really alternate materials. And we have a team that's really focused on finding out how does coil coating stack up versus alternate curing technologies and other options. And there's so many opportunities in that area for us to grow in North America, it's a very, very exciting pipeline activities to continue to evangelize the benefits of prepainting coil coating and Precoat. Well, we can still Jason -- and then last but not least, I would just say that, as Kurt has talked about, there's an exciting pipeline of opportunities. And also, I think we've got a solid track record that you're going to see later this morning in terms of continuing to consider greenfield plant expansions as they exist.

So with that, I'll turn it over to my friend, Jason Crawford.

Perfect. Thanks, Jeff. I guess turning to Slide 32. I think the key element of this slide is the very first comment in terms of consistency. I think back to a comment that Tom made earlier on, we st our goals to set our objectives and we deliver against them. I think we've seen from both businesses the consistency that we've demonstrated through our transformation phase. If you look at our CAGR from a sales point of view and then leveraging up from an overall earnings point of view up to 10% CAGR. And then just take a quick look at the margins.

The margins are something that we've continued to invest in, albeit, as you think of our transformation phase, we're solely focused on paying down debt. So it's an area that certainly provides an opportunity for us going forward. Moving across to the next slide, as you look at another key element, it's not really been demonstrated in the most recent past, you need back to calendar year 2029, 2014 in terms of our resiliency. If you look at our overall business model, there's a lot of components that make up who we are as a company. But if you start to think about some of those elements, the tolling model, the highly variable cost structure when there is an element of going through a phase in the markets, we weather that storm very well.

And then as you look at coming out of that storm, we position ourselves as a company to take opportunity of the available market space. This is a cycle that we generally get through on an annualized basis, given our concentration in the construction market comes through the summer phase, winter phase. We're consistently ramping up or ramping it down to accommodate the markets that we participate in. So when we do face a potential cycle, then we're uniquely positioned to manage through that.

Moving across to Slide 34. Obviously, this has been the key focus for us over the last number of years. As you look at that transformation phase, obviously, a lot of key elements that go behind the success and our leverage taking us down to 1.7% in our most recent financials, consistently generating free cash flow and allocate that to keep free cash flow to paying down there. But equally, if you look at the joint venture, very upfront, we sold 60% of the joint venture.

And then most recently, we transacted that and received [indiscernible] [ $70 million ] worth of cash. So that's got us in a position where we're very, very comfortable in terms of where we sit from an overall capital structure point of view. If you move across to the next slide, you start to look at where we've been to where we're going. I don't think our value proposition changes as you look at the superior returns that we provided back to our shareholders, we're going to consistently provide that. Really, where we start to do is we start to spend a little bit more time and effort and the return of capital investment projects and strategic M&A.

As you look at the last number of years, most notably in the last 2 years, between roughly $60 million that we've been spending in the new facility and north of $100 million of paying down debt. That's no longer a sucking aspect of our capital structure. So we then start to look at where do we deploy that. Again, I go back to our gross margins and the profile. There's a number of projects that we continue to invest in, support the businesses, et cetera. But there's a number of projects that are there in the sideline at the same time. So we get the opportunity to really lower the bar to invest back in the business and the health and the strength of the business.

And as Kurt highlighted there's a pipeline of M&A opportunities that if you take our capital structure into account and the free cash flow generation, there's a tremendous opportunity to bring those two together. Moving across to the next slide. We don't -- we talk about being a unique coatings company. We don't really fit well with many of our peer groups. Certainly, we participate in each one of these segments. But as you look at AZZ as a company, we don't necessarily sit in any specific segment.

When you start to look at our financial returns, whether it be revenue growth or EBITDA margin or net working capital the market who you're comparing us against, then we'd be set at the higher tier of that. And again, a lot of the structure here that we've developed over the last couple of years is the foundation of where we go going forward. And it's really about building on this and continue to grow our sales and our margins.

And then finally, just reiterating our guidance. Obviously, in the last financial report and in Q1, we upped our guidance. You can see our sales number between $1.6 billion to $1.7 billion, adjusted EBITDA between the $360 million and $400 million and then our adjusted EPS between [ $5 and $6. ]

So with that, I'll pass it back to David.

Okay. That concludes our prepared remarks and presentation and what we can do now is open it up to any questions we have from anyone in the room. Since we are live webcasting this, if you would just state your name and the company you're with before you ask your question so we can pick that up.

I'm Mark Reichman with NOBLE Capital Markets. You've been successful with the bolt-on acquisitions within the Metal Coatings business. And I was just curious when you talked about the 68 opportunities that you've identified and 13 under consideration. What's kind of what the profile of the bolt-on acquisitions within the Metal Coatings division, but could you talk a little bit about the opportunities in Precoat Metals.

I'm happy to address that. So when you look at the -- we've tried to take a balanced approach in filtering down to Metal Coating and Precoat Metals. And I would say that the landscape doesn't look dramatically different on the Precoat side than the Metal Coating inside. There are some small single-site-type bolt-ons. But additionally, there's multi-site opportunities out there as well. So I guess, I would answer it simply that it's very similar in terms of the population.

You don't have to do much math to kind of see that the ratio of coil coating line to galvanizing line is about 3:1 in terms of the investment to build the amount of revenue it can generate similar financial profiles and there's 3x more galvanizing sites and and coil coating. So there's that aspect of it. But there's kind of a mixed bag...

My name is [indiscernible]. Tom, you started off the conversation with the similarities between the 2 segments, right? The EBITDA margins are quite a bit different, so almost 10 percentage points roughly between the 2. What do you think would drive -- do you think it's reasonable to expect a convergence in terms of the margin profile between the two segments as you mark on your acquisition activity, et cetera?

I think there's upside opportunity on the Precoat side. We'll continue to invest and modernize like just investment in Washington, that's going to be a higher-margin business, partly because of the customer base and the value-added services, the different products. So I think that, hopefully, there may not be that much convergence. So I think there's still some upside. We have not pushed the range up on Metal Coatings yet. But I think as we're now looking at some of the focus on what else we can do, how much we can use the amazing amount of data that we have to leverage that business.

I would anticipate, as we think strategically that there's opportunities to push Metal Coatings just a little bit. And then as I mentioned, the biggest issue, and it's not that we -- most of the paint, which is over half of our cost on the Precoat side is more of a pass-through. We do have some margin on it, but it's typically specified by the customers. So we're accommodating their requests, which means we don't have nearly the margin on pass-through as we do and versus zinc, which is a commodity 20% to 25% of the order cost.

So while I see improvement opportunity, pushing towards the upper end of the current range and then hopefully being able to expand beyond that because we get some of these deals done and just continue to build scale without increasing our overhead structure. So we're going to continue to leverage both the overhead within both segments, but also leveraging that corporate overhead structure that we maintain that efficiency. So it's a long answer to a straightforward question.

Adam Thalhimer at Thompson, Davis. I was curious if you could comment on the 2x GDP growth potential organic. Was that for both segments? And maybe you can just give some color on what drives them.

Yes. I see it for both segments, I think on the Metal Coatings side, is going to be a continuation of just maintaining market share. There's growth -- continued growth in infrastructure. So we see those tailwinds. We want to be able to grow beyond that because we've got the size and scale of the network, and we're continuing to add services. So everything from transportation and freight just get bigger wallet share. So that's how I see Metal Coatings getting to above 2x GDP.

On the Precoat side, I think it's -- we've got the ramp-up of the new facility, we've got the ability to invest in CapEx to continue to modernize and expand and also expand services and opportunities and as Jeff alluded to, there's some technology things that we can do that and we think will give us some advantages and then maintain that flexibility for -- as an independent supplier. So it really is on both sides.

And then obviously, we -- I think there's acquisition opportunities on both sides, but they're going to move the needle more on Precoat side.

Nick Giles with B. Riley Securities. You've had such success with the bolt-on strategy. Can you just kind of walk us through what that looks like from day 1 after you make that acquisition? Kind of what are you doing on day 1 versus day 60, day 90? What is that process?

Yes. That's where it's going to, I'd say, the Metal Coatings side, typically, because we are significantly -- to the most part, we're significantly higher margin than most of the companies we're buying. And that comes down to the playbook and leadership. I regard to take that too much. But -- so we went to as quickly as possible. Brands them AZZ, get them on Oracle so that we can utilize DGS. And so usually -- and typically particularly on a one-off, you're talking about 5 people in the front office. [Audio Gap]

And so we're sitting in a team that's done this time after time after time. And by the end of the first week, if not at most of the second week, they're on DGS. They're operating to our playbooks. And we're providing the management oversight, whether it's at the regional level, sometimes we insert one of our plant managers. So it's a very quick integration process. I mean, Todd can comment. But we've owned Canton for a little over a month. I'd say they're fully integrated and functioning and following on our playbooks.

Yes. And I would just add that I think with our history on bolt-on acquisitions, I think we've learned and developed kind of a rinse and repeat approach that we can take from one facility to the next by bringing in a group of top performers to help get the plant rolling and right into the AZZ.

On the Precoat side because so much of it is going to be more dependent on what's the age of that line, what's -- what are the markets that it's in. I'm going to say while we'll be pursuing synergies, a lot of that is just expansion of marketing customers capacity. So some of these opportunities might not be as synergy rich, if you will, which means we're also not getting -- we may not be able to come in and say, this is how we're going to run it because of the technology. So it's just a wider range of approaches that we're going to have to take. I don't know if Jeff wants to.

No, I agree. And I do think we are able to take advantage of our central structure though. So in terms of the way that we're organized. I think that we're able to take the best practices. I think the fact that we participate in every major market, to Tom's point, depending on what the opportunity is, we're going to be able to apply our playbook and our best practices to that. So I think, again, it speeds the integration, which will customize to the opportunity, as Tom mentioned.

I think the key to look for there is we're going to want to buy it something less than our multiple. And -- and I mean, it's the same on the Metal Coatings side, typically, the multiples there have been. And they used to be in the 5x to 6x range, I'd say they're probably in the 8x to 9x range. But obviously, either way, we're going to get both a multiple bump [Audio Gap] as well as find synergies.

Tom, maybe worth mentioning on the Precoat side. While it's not in the public space just because of our ownership structure prior to AZZ, there's a long history of M&A. And if you go back to the cycle slide that Jason shared, you kind of noticed the EBITDA of Precoat at that point in time was $40 million compared to touching $200 million now. A huge part of that growth was M&A on the multisite, an acquisition of [indiscernible], and that was integrated in about 6 months to synergize. And then most recent was probably 2017, '18, the Columbia site.

And it's very similar to what Todd has described. We were operating on the Precoat centralized system. within the first week. So it's not that much different. The difference is the public track record is not [indiscernible].

Daniel Rizzo from Jefferies. So the target is 22% consolidated EBITDA margins, but given all your efforts and what you're doing going forward seems a little conservative.

Yes. That's why I kind of through '25 out there. I think that as we look forward strategically and move forward, particularly from a business perspective, maintaining corporate entity as it is. Yes, I think that's going to lever up. And particularly as we're looking for acquisitions and we can acquire those without any significant increase in the segment over head or in the corporate over head. So I think there's opportunity there.

And in Precoat side with the acquisitions you're going to make, these are more like turnaround stories where the kind of an underutilized asset that you can make better? Or is it something that seamlessly goes into your network?

Kurt, do you want to take that one?

Yes. So there's both, to be honest with you. There's -- and I would add complementary to that, looking at the marketing capabilities. So -- and I'm speaking, obviously, inside I have that we're focused on, but it kind of has all of the above. There are some that are turnaround. And Metal Coatings, one beauty of both businesses that you didn't really talk about is the ability to leverage best practices. And when we you think about any business or any plant that has ability to look inside and get complete transparency to its top 5 competitors and know what they do well.

Both segments have that ability with the other plants. And that's we bring that to bear at all of the acquisitions as well. So it's a little bit of all of those.

Eric Boyes, Evercore. I appreciate the look back on Slide 33 of the prior cycle now with Washington and maybe more kind of consumer packaging mix in there? Does that kind of dampen some of the variability on the Precoat side even more in the cycle?

Yes, I would think so. I think there's growing demand for those assets, which is why it's ramping up nicely. And I think also outstanding work from the team that's brought that online and overcome a lot of challenges.

But yes, I think it does probably project that mix, if you will. And we've talked about the fact that because so much of our cost -- so on the Pecoat side, in a downturn, you quit buying paint, you cut shifts and so that variable costs can can adapt quickly. But I would see modern assets, we can run a lot on these new modern assets, state-of-the-art. So yes, I think it becomes another protective layer in terms of our ability to protect margins throughout the [ down ] cycle.

John Braatz, Kansas City Capital. On the coating business, I don't think there's a lot of new galvanizing facilities coming on stream, can conditions, if the secular wins play out the way they are, can the conditions in the galvanizing business get tight and allow for some pricing?

Yes.

Hasn't in the past?

It has in the past. And I think for us, and we always talk about the fact that we've got 42 sites, and I want to win 2/3 of the battles every day. And so at any given time, we're probably averaging 2 shifts where we're in the heavy season. But -- so the capacity constraints ebb and flow a little bit with the construction season -- but yes, I think we've been known to push price through up and down cycles. And we're seeing zinc as a commodity.

The cost of zinc rise. So yes, I'd anticipate sales teams are going to be as aggressive as they can and we talk about it, but we have to earn that short cycle times, outstanding quality and service and making sure we're there. And the advantage, of course, we have in capacity constrained situations, which are occurring in some areas right now is we can flex across our sites.

And so, like in North Texas, we've got 4 kettles 3 sides. I can guarantee you all 3 sites are not equally busy every single day. So one of our strengths is we can move capacity to the site to accommodate and meet the customer schedule and then charge for that.

Am I correct that there are no new galvanizing?

No, there's some. There's -- there's a couple. One of our multisite competitors and then Nucor has a line going in. Of course, it's going in with their additional capacity. So it's more vertical integration. So yes, there's been a couple. I'd say over -- if you just look at it, there's always going to be -- they average about 1 year. So it's -- in the overall scheme of things, it's not huge.

Sometimes, if it's in our backyard, then yes, we feel the effect. If it's more of a vertical integration play, we don't feel.

Gerard Sweeney, ROTH Capital. A little different tact. You talked about tailwinds, but you also mentioned business development even on like the galvanizing side, there's a lot of value add in terms of longevity. Is there a way you can actually pull through some business on the business development side go out and market that benefit and maybe drive additional demand?

There is. We've talked a little bit about this and Yes. So there's some -- some of our customers have at least a portion of their galvanizing is vertically integrated. And we think we can probably do that better than they can do it. We just have to prove that. So going into -- so from a business development standpoint, approaching customers to take over their vertically integrated galvanizing operations and commit our galvanizing capacity, like whether it's nearby or require some transportation support. We see that as opportunities for us because of the strength of our network and the breadth of it.

And there's just a lot of places out there that we don't cover with capacity. And so the need for somebody and we see it because when their kettle goes down, they particularly in these days to get a new kettle could take -- used to take about 6 months, that could take over a year now. So what used to be something that was relatively routine before we got into disruption from whether it's tariffs or for just capacity for machinery furnaces, kettles, things like that, that used to be more attractive for businesses, but it's becoming less so like you're down for 12 months and you have to buy from us or you have to buy from somebody.

And you may find at that time the capacity is relatively constrained. And so I think those are opportunities. That's why [indiscernible] is such an important issue for us, and we're putting so much efforts.

How big is that opportunity?

Yes, I'd say we're still quantifying it, but it's back to, if you looked at them as acquisitions, that's also how we see getting to 2x GDP. That we'll have to think that's -- that's part of how -- and there's lots of them out there. It's just -- and they can be really small kettles, they relatively larger times. But that was the stuff that we used to just -- it's not that we walk by it, but we would pick up on it, because yes, they're having a kettle change and we're picking up their business for a couple of months versus now, okay, when we pick it up, can we go in and convince them just let us do this work.

So I think -- and also with the cost of capital for them, in most cases, higher than our cost of borrowing now. So we've got different opportunities that we had probably 5 years ago.

I could ask another one kind of quarter term. Could you maybe talk to the interplay between kind of what was maybe a slowdown in orders after kind of prebuying ahead of tariffs versus maybe some incremental business you guys are getting from people no longer importing our coating coil.

Yes. Well, I'll let Jeff take that one because he's on the front lines of it right now.

So Yes. I mean I think you kind of quantified the question or do you think that with a lot of the uncertainty and some of the tariff actions that have taken place, it does seem like some of the statistics, I think, that maybe David had shared in the last earnings release kind of supported that there was maybe some buying ahead in advance of some of those changes and then that's going to drive up. I think inventory levels, to your point, around orders. And then I think that customers are pulling from inventory as a result of that. And then standing on the sidelines in some cases, a little bit trying to make sure what is going to have impact. And so we want to be conservative in terms of potentially -- and I think both Tom and David touched on it, standing on the sidelines are now in some cases for some of those projects to say that let's wait and see or maybe have a little bit extra inventory than they would have had previously because of some of those actions.

So I think it kind of goes to some of the customer sentiment just around uncertainty and wanting to make sure that as they replenish and support their customers that they see a clear path in terms of how the supply chain should need to develop an underlying cost structure given all the changes there are right now that seems to be a daily update one way or the other.

Michael Kupinski, NOBLE Capital Markets. You mentioned interest rates as being somewhat of a fuel for the prospect of seeing some acceleration in revenue growth. I was just wondering what are typical lead times in terms of that. Typically, it would be obviously some -- if we're anticipating some great action in September. I was just wondering in terms of how far do you see the lead? Like are you starting to see a pickup now? It would kind of indicate that you should be if people are anticipating that.

I think that's -- one of the -- we'd love to see the rate reductions, which hopefully would trigger some of these projects to move forward. I think the issue on trying to figure out the timing is just as I mentioned, the lead times on major equipment. So if you're having to get major machine tools from a U.S. supplier because the cost tariffs may be something that maybe you can import before. We're seeing those lead times for even stuff we buy, stretch out to the 24 months that used to be sub 12 months.

So what we need to see it because we need that signal for people to start placing purchase orders, but it's going to be a few at least a few months, if not a few quarters before that turns into galvanizing opportunities and paying opportunities on the coil side. So -- but we'd like to see that as a positive signal to start triggering some of these things.

Now hopefully, with reshoring and other things that we'll start to bring some these lead times back down. But I see that as kind of 18 months out. And that's -- and some of the reshoring actually creating some of the new demand on every machine and things like that. So while these are all positive signs, and I was talking at dinner last night, the good news is it will extend this cycle for several years beyond what it might normally be. The bad news is it's probably 12 months out before we start to see the real significant benefit. What we would -- what I do think happens in the short term is things have been held up because nobody wants to commit that $1 billion project and then find out, we just have a rate reduction. By the way, what's going on with tariffs. Is it up or down? Can we buy it from Mexico or not? Because fortunately, for us, very little of our supply comes from outside U.S.

We do get some outside, but it hasn't been -- most of everything we're doing has been affected with a lot of our customers they have.

All right. I think we're on schedule.

Thank you, everyone. This concludes our Analyst Day presentation and Q&A, and we'll look forward to moving on to the [indiscernible].

Good morning, and welcome to the AZZ First Quarter Fiscal 2026 Results Conference Call. [Operator Instructions] 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.

Good morning, everyone, and thank you for joining us today to review AZZ's first quarter fiscal 2026 results for the period ended May 31, 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/investor-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 latest annual report on Form 10-K.

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, which should be considered supplemental to and not a substitute for GAAP financial measures. We refer our shareholders to our reconciliations from GAAP to non-GAAP measures, and those are contained in today's earnings press release.

I would now like to turn the call over to Tom Ferguson.

Thank you, Sandy. First, we at AZZ send our condolences to the families affected by the flash flooding throughout Central Texas. Having grown up in Austin, I've river-rafted to Guadalupe and camped along the banks often in my younger years, so I have a special place in my heart for folks affected throughout Central Texas, including friends and family.

We are pleased to share our first quarter results. Today, we reported record high sales, adjusted EBITDA and EPS for the quarter ended May 31, 2025, along with industry-leading adjusted EBITDA margins of 32.9% from Metal Coatings and 20.7% for Precoat Metals. These positive operating results were driven by infrastructure-related demand in key markets for our Metal Coatings segment, including construction, industrial and electrical transmission and distribution.

Similarly, our Precoat Metals segment experienced growth in construction, our largest market sector as well as in the aluminum container market. We did take the opportunity during the quarter to restructure Metal Coatings surface technologies platform. We closed 1 power coating facility and divested a plating facility to better position the Surface Technologies platform to achieve greater than 20% EBITDA margins.

For Precoat Metals, while sales were down slightly versus prior year due to lower volume, the team outperformed the market when compared to the National Coil Coating Association, or NCCA. Importantly, precoat shipments were up for the quarter as its customers began to draw down their inventories from precoat warehouses. Dave will discuss industry trends in a moment.

As we announced during the quarter, we monetized nearly all of the Electrical Products businesses that was held within our AVAIL joint venture and received $273 million in cash during the quarter. As a reminder, AVAIL still owns and operates the WSI and lighting businesses. Jason will walk through the details of the transaction in a moment.

Our consolidated adjusted EBITDA for the quarter was over $106 million, representing an adjusted EBITDA margin of 25.2%. This is supported by higher EBITDA margins over the first quarter of last year in both segments.

Additionally, we are excited to report our newly commissioned aluminum coating facility in Washington, Missouri, shipped its first qualification orders during the quarter. As we ramp up sales at the new facility throughout the year, we expect operating leverage to continue to improve, and we anticipate gross margins to turn positive in the second half of the year.

We continue to invest in systems that enable us to improve productivity and better support our customers with AZZ's proprietary technology, specifically our Digital Galvanizing System, or DGS platform, which serves all of our galvanizing plants and Coil Zone in our Precoat facilities. These technologies provide our customers with real-time updates and enable management to gain business intelligence, further enhancing production efficiencies across our 46 Metal Coatings locations and 14 coil coatings facilities throughout North America.

On July 1, we announced the acquisition of Canton Galvanizing located in Canton, Ohio. This acquisition is immediately accretive as it further scales our galvanizing business with predictable synergies. We will also benefit from gaining a new set of customers to serve in that market and the expansion of our spin galvanizing offerings.

Our distinct competitive advantage is deeply rooted in high-value, environmentally-responsible solutions with nearly 7 decades of technical expertise, customer-centric, digital platforms and a network of strategically located facilities across North America. AZZ's long-standing deep customer relationships, combined with the culture of operational excellence, position us well to sustain growth and add to profits and significant cash flows this year and for many years to come.

I am incredibly proud of our progress and the accomplishments of the entire team. In fiscal year 2014, we initiated a strategy to drive greater operational and customer service excellence as well as to optimize the Metal Coatings business. The successful execution of this strategy has ultimately transformed the company through a series of strategic acquisitions and divestitures, which culminated in the pure-play metal coatings company we are today.

AZZ is a leader in the North American metal coatings market. And over the past 12 years, we have added over $1 billion in sales through the disciplined execution of our organic and inorganic growth initiatives and expanded our margins and doubled our EBITDA.

Coming out of COVID, we shifted our strategy, embarked on transforming AZZ into a pure-play metal coatings company. A key part of our strategy included the acquisition of Precoat Metals in 2022, which has outperformed our expectations.

We are also proud of the significant progress achieved by monetizing a large portion of our AVAIL joint venture following Fernweh sale of the legacy electrical businesses to nVent. This deal is a testament to the success of our long-term strategy. I am very pleased with the strength of our team, our financial position as well as the trajectory of our business growth initiatives.

With that, I will turn it over to Jason.

Thanks, Tom. We are very pleased with our first quarter results, which align well with our full year fiscal financial guidance.

We reported first quarter sales of $422 million, compared to $413.2 million for the same quarter in the prior year. Total sales increased by 2.1% versus last year. Growth was driven by the Metal Coatings segment, where sales rose 6% in Q1 due to higher steel volume processed, offset slightly by lower mix related selling price.

Precoat Metals outperformed the market despite sales from the quarter declining 0.8% as customers navigated through inventory challenges associated with tariff concerns, partially offset by an increase in the average selling price. The first quarter gross profit was $104.1 million or 24.7% of sales, compared to $102.7 million or 24.9% of sales in the prior year quarter.

During the first quarter for Metal Coatings, we incurred a $3.8 million restructuring charge related to the previously mentioned disposition of our small powder coating facility and a small plating facility.

In the Precoat Metals segment, our new Washington, Missouri coil coating facility began production in the first quarter, which, as planned, created a slight drag on margins. Without these 2 items, consolidated gross margins for the quarter would have been higher by 110 basis points compared to the prior year quarter.

Selling, general and administrative expenses totaled $34.6 million in the first quarter, which included a charge to the executive retiree long-term incentive program and its related acceleration of stock awards. This resulted in a noncash charge of $2.2 million in the quarter. Excluding this add-back, Q1 SG&A costs were 7.7% of sales, an improvement versus 8% of sales in the prior year quarter.

Operating income for the quarter was $69.5 million or 16.5% of sales, compared to $69.7 million or 16.9% of sales in last year's first quarter. Current quarter operating margins also compare favorably to prior year when you adjust for the items highlighted in gross margin and in SG&A expense.

As Tom mentioned, Fernweh, our 60% joint venture partner in AVAIL, divested the majority of its electrical products businesses in the quarter. As part of the divestiture, we received a cash distribution of $273.2 million, and we recorded $165.8 million on the income statement as positive equity and earnings, which represented the excess distribution after writing off the total equity investment of $107.4 million.

Total equity and earnings for the period were $173.5 million, represent Q1 equity and earnings of $7.7 million, plus the excess income from distribution of $165.8 million. Regarding the future estimates for equity and earnings in the AVAIL JV, representing our 40% JV ownership interest in the remaining AVAIL businesses, we are currently forecasting a range of 0 to a small plus or minus for the remaining quarters of this year.

Interest expense for the first quarter was $18.6 million, down $4.2 million from the prior year due to a combination of debt paydown and debt repricings. As the AVAIL funds were received in May, this had minimal impact on interest expense in the quarter.

The current quarter's income tax expense was $54.9 million, reflecting an effective tax rate of 24.3%. This includes $42.5 million of accrued taxes on the equity and earnings recorded in the period. Excluding the impact of equity and earnings, our effective tax rate would have been 22.2% compared to 22.4% in the prior year quarter.

Reported net income for the first quarter was $170.9 million, compared to $39.6 million for the prior year quarter. Since our non-GAAP measure for adjusted net income excludes, amongst other items, equity and earnings from the AVAIL divestiture of $165.8 million, AZZ reported adjusted net income of $53.8 million or adjusted diluted EPS of $1.78. This compares favorably to the prior year's adjusted net income of $44 million or adjusted diluted EPS of $1.46. On an adjusted basis, our first quarter earnings increased by 22.2% compared to the same period of the prior year.

First quarter adjusted EBITDA was $106.4 million or 25.2% of sales, compared to $94.1 million or 22.8% of sales in the prior year. This 240 basis point improvement in adjusted EBITDA margin was mainly driven by increased volume, productivity improvements and the performance in the quarter from the AVAIL JV.

Turning to our financial position and balance sheet. For the first quarter, we generated cash flow from operations of $314.8 million, which included $273.2 million from the AVAIL divestiture mentioned earlier. Under GAAP accounting, this JV distribution was recognized as a cash flow from operations.

Our Q1 capital spending was $20.9 million, of which $3.2 million related to the new Washington, Missouri facility, while in the quarter we realized proceeds of $3.8 million from the sale of certain property, plant and equipment.

Proceeds from the AVAIL divestiture combined with free cash flow generation allowed us to pay down $285.4 million of debt in the quarter. With the paydown of debt and our continued financial performance, our credit agreement net leverage ratio improved to 1.7x, compared to 2.8x in Q1 of last year.

Our capital allocation strategy remains disciplined with a focus on debt paydown, investments in organic growth, combined with strategic M&A, as demonstrated by the bolt-on acquisition announced on July 1. Additionally, as part of our capital allocation plans, we expect to pursue regular and opportunistic share repurchases under our current 10b5-1 buyback plan in the current fiscal year.

And finally, the Board approved an increase to our quarterly cash dividend from $0.17 per share to $0.20 per share, representing a 17.6% increase.

With that, I'd like to turn the call over to David.

Thank you, Jason. In Q1, we continue to see the demand from infrastructure-related project spending benefit AZZ across multiple end markets. Overall market strength continued in both construction and electrical, driven by continued growth in submarkets, including data centers, electrical transmission and distribution and solar power generation. This was somewhat offset by lower demand in end markets, including industrial, particularly agriculture, transportation as well as appliance and HVAC.

The aluminum transition in food and beverage packaging remains a key driver for growth in the business, and we are excited about our new greenfield plant, which continues to ramp production. We will also continue to benefit from the execution of reshoring activity accelerated by Invest in America initiatives and tariffs under the current administration, which we believe will be tailwinds for the domestic steel market as well as U.S. manufacturing and warehousing. As we are busy in an active construction season, our teams are well positioned to execute for the remainder of the fiscal year.

With that, I would now like to turn the call back over to Tom.

Thanks, David. Fiscal year 2026 is starting off with good momentum, and our teams continue to focus on the disciplined execution of our strategic plan by growing via market share expansion and converting customers from post-paint to pre-paint.

As Jason discussed, our capital allocation playbook remains active with the recent acquisition on the Metal Coatings side, debt paydown and increase in our quarterly cash dividend, and a plan to opportunistically repurchase our stock to offset dilution. We believe AZZ continues to be undervalued at 9 to 10x forward EBITDA, which gives us confidence to buy back our stock.

Today, we are reiterating our sales and EBITDA guidance and are moving up our EPS guidance. We continue to believe that our fiscal 2026 sales will be in the range of $1.625 billion to $1.725 billion, and adjusted EBITDA will be in a range of $360 million to $400 million with the midpoint representing our best estimate.

Regarding adjusted diluted EPS, we believe that $5.75 to $6.25 better reflects our current forecast, which means an increase of between 10% and 20% over the fiscal 2025 adjusted earnings. These numbers are supported by strength in demand forecasts and continuing momentum in our operational performance.

Our liquidity position and balance sheet are strong and flexible, particularly following our debt reduction in the first quarter. Also, we are well positioned to pursue strategic growth opportunities, including our other capital allocation strategies, as already discussed.

To summarize, AZZ delivered a great start to fiscal 2026. Both Metal Coatings and Precoat Metals performed well with strong profitability and disciplined execution of our business strategy.

Now operator, we would like to open it up the call for questions.

[Operator Instructions] And the first question comes from Ghansham Panjabi with Baird.

Congrats on a strong start to your fiscal year. I guess on that, if I remember correctly, volumes during your 4Q quarter was impacted, by some extent, because of weather and some of the tariff uncertainty, et cetera, did 1Q benefit from any sort of normalization in volumes accordingly?

Yes, there was some. I'd say on the Metal Coatings side was where we were mostly affected by storms, weather, that kind of thing. And I'd say so about half of that was recovery from Q4 and the other half was pure organic growth.

Got it. Perfect. And then in terms of your prepared comments and also the press release you referenced, improved zinc utilization for Metal Coatings during the first quarter. Obviously, very, very strong performance for that segment from a margin standpoint. Can you just give us more specific color on what drove that? And also give us the volume numbers by segment specific to 1Q.

Yes. I can talk to the first part. I think what the team has been doing, and we talked a lot about digital galvanizing system, developing the leadership bench, the playbooks we have, the training, the technical capabilities, engineering. You put them all together and we're in many parts of our -- particularly our galvanizing operations, we're pretty much nearing the theoretical zinc efficiency levels. Because -- and it's all those factors together, everything from the digital tools, the training, experienced people, leadership and just managing a lot of the details really, really well.

I think the team still feels like they've got a little bit of room. But in terms of zinc efficiencies and productivity, we're getting to the -- close to perfection. Obviously, we still have opportunities on labor productivity, utilizing our assets efficiently, continuing to invest in things that will make us even more productive from those -- in those perspective and continuing to drive outstanding quality and service for our customers and lead the industry in terms of short cycle times. So I don't think we typically give volumes.

I'm looking over to Jason and David.

Yes. We typically don't break out the volume number specific in the reporting.

And your next question comes from Adam Thalhimer with Thompson, Davis.

Congrats on the strong Q1. I wanted to ask on the outlook for Precoat. You mentioned that customer inventory levels are higher than last year. You have Washington ramping up. And I'm curious if there is an impact of tariffs on imported prepayment steel. Just curious how that all rolls up in terms of your top line expectations at Precoat.

Yes, I'll give you some color on that. David may want to add something. But -- so yes, our customer inventory, so when we talk about sales, we're talking about what we produce and how we recognize revenue. When we're talking about shipments, that's the shipments out of inventories in our warehouses for customers.

So a couple of things. One, the inventories have ramped up as -- towards the end of the year. And in the first quarter, we had customers pulling inventory down, which we view as the true demand.

Now overall, the markets are still generally down when you look at the NCCA or the MBNA. So we're down less than the overall market, but seeing -- we view it as a positive sign that the customers are pulling inventory, which says they've got demand.

When it comes to the imports, we did see a ramp up coming into the year of imported pre-paint in anticipation of the tariffs. And then since then, we've seen the drawdown. So we've seen those pre-painted imports falling off pretty dramatically here in the last few months. And I don't know if David wants to add anything to that.

I would just add, yes, a little more color on that. In May, the pre-painted imports overall fell 38% year-over-year. There was a 50% drop in April. So collectively, on a calendar basis, it's about a 20% decline year-over-year, which really aligns with the team's expectations on what we imagined that the tariff impact would be.

So as we roll forward, we think that, again, as we talked in our prepared remarks, that can provide a bit of a tailwind for the business as people will be sourcing steel locally. And obviously, we're in a great position to coat that steel here in the domestic market.

Good. Good color there. And then just quickly, the 2 small facilities that you disposed of during the quarter. Do those volumes get shifted to another facility?

Yes. One of them was over in Tampa, and we don't have any other facilities over there. But it was a small facility. Keeping in mind that total Surface Technologies is 1%, 1.5% of our overall sales. And then the other facility was -- it was plating. We'll pick up some of that. We've got facilities in the area.

So not a tremendous impact on sales. But definitely, they were not profitable facilities, so an opportunity to clean that up, retain some of the volume and clearly drive improved profitability through that because we also took some G&A cost reductions as well to better align the overhead structure with the remaining volume.

So just a good time to do it, and we've been at it for about 3 years, done what we can do. We still think there's opportunities in it, and -- but we want to get it up to where it's a more profitable contributor to the segment.

And your next question comes from Nick Giles with B. Riley Securities.

Guys, really significant debt reduction in the quarter, which is great to see. You're now comfortably below 2x. So I just was hoping to go back to capital allocation. I mean, is it fair to assume we could see share repurchases kind of tick up in future quarters? Or what other considerations should we keep in mind?

Yes. We took the dividend up for the first time in a while. So we had -- that was a fairly easy decision for us.

In terms of share buybacks, as we've stated, we're committed to buying in. We have the approved $100 million facility, which I think we have roughly half of it left. So we've got plenty of room within the approved facility to acquire our stock or buy it back, and we're committed to doing that.

I think we've -- as we've talked, we've got a full pipeline of bolt-on acquisition opportunities. So we'd like to get another 1 or 2 closed, particularly on the Metal Coatings side. We were really pleased at getting Canton Galv deal done. We were a little rusty. It took us a little bit longer to close it than we probably would have liked. But I think we're all buffed back up and ready to remain active. So feel real good about that.

And then, yes, we are kind of, on the debt reduction side, pretty quickly approaching 1.5x leverage, which is the low end of where we'd like to be. So yes, share buybacks, get some additional deals done, and we've got good investment strategies for CapEx to continue to improve our productivity and allow us to take share and expand our services. And then we're committed to every year now looking at the dividend.

That's all great to hear. I appreciate that, Tom. My second one, just would be great to hear more color on what you're hearing from a customer and project perspective, particularly on the back of the copper tariff announcement. Are you hearing any rumblings of time lines that could shift out? I know it's -- this is very recent, but just curious on your thoughts given how copper-intensive some of your end markets are.

Yes. That one, we don't have much input on because it is so recent. I would say prior to that, we were hearing positive things, getting the -- sorry, getting the tax cuts approved so that, that becomes predictable for projects, companies. Still love to see a Fed rate cut. I think a lot of our customers are -- it's just project viability, it would improve it slightly.

But I think the reshoring, a lot of the data centers, just continued expansion, infrastructure, as we saw in the first quarter, particularly on the Metal Coatings side, it's all pretty positive, but the more settled with the Big Beautiful Bill or whatever they're calling it these days, the more things are settled, the more opportunity. I just read in the Wall Street today, the administration reducing a lot of the environmental holes and things like that to streamline permitting. That's all positive. But we will, over the next couple of weeks, be checking with customers on what this latest news may mean. I'm not sure that -- I would not see it as a significant impact on the kinds of projects that we're looking at.

And your next question comes from Daniel Rizzo with Jefferies.

So the outlook -- I mean, it was a pretty solid quarter and you raised your EPS guidance. I was just -- I was a little surprised you didn't raise EBITDA as well. I don't know, it just seems like things are going fairly well. And I don't know if you're just seeing a lot of uncertainty or what would cause you to trigger to be a little more, I guess, a little more positive with EBITDA and sales as well, or what's causing maybe some hesitance?

I think on the sales side, we're just continuing to -- the tariff uncertainty just continues to make us a little cautious. Since we don't have backlogs, we're just basically -- we've got great customer relations and talking about their future plans and what they're doing, which I just alluded to, which is relatively positive going forward. But the fact that there's still that tariff uncertainty, what does it mean?

So we're cautious on the sales side. We've got lots of levers to pull on the EPS side, so that's why we get more confident on that. EBITDA, just keep in mind that, with the AVAIL transacting the electrical businesses, that -- so we're going to lose EBITDA from what was equity income, but we're getting interest savings that offsets that. So that's in the $10 million, $12 million, $13 million range, but they offset. So that's a headwind for EBITDA, but a tailwind for EPS. It's -- and that's about as far as we've calculated at this point.

That's actually very helpful. And then if we think about the margin improvement you've kind of done already, what we expect going forward, I assume that a lot of that going forward is going to come from just better throughput. Or I mean, are there additional levers you can pull, or should we just look for volume improvements to kind of drive most of that?

Yes, you've got a couple of things going on. On the Precoat side, we do have the new facility ramping up, as I've talked about previously, that we view for that ramp really to hit in the second half and then as we finish the year in the fourth quarter. So that's volume and EBITDA flow-through that we're anticipating.

On the -- we will have the addition now of, not that it's huge, but it's a typical sight, from the Canton Galv acquisition, hopefully, get another one done. And then it's just the typical organic growth, continuing to drive on market share. The levers that we will always focus on is related to operational excellence, how we manage our expenses, keeping things tight as the year plays on -- plays out and seeing where tariffs go.

So we feel like we've got good levers. We'll -- Jason could talk about the fact we may be out repricing our debt again. There's things that we've got that should be positive going forward from an EPS perspective. And we'll pull all those levers as we go forward.

Jason, I don't know if you want to add.

All right. And then final question. Just when we look at M&A and your activity, should we think about it like we just saw where there's like site additions and maybe some smaller tuck-ins? Or are there things that are not necessarily transformative, but are there bigger things out there that could be added to the network?

Yes. From the Metal Coatings side, it's mostly the one-offs that we have in the pipeline right now. There's a couple of multi-site things, 6, 7, 8 sites out there that, if they come available, we'll obviously be very interested and believe we have good relationships in both those cases. But we can't predict when that would happen. What we can predict is the one-offs that were -- that are in the pipeline now. And can we get those closed? Can we get the right deal done?

On the Precoat side, it's typically if we can buy a line from somebody, otherwise, which would be the smaller side, but if we could -- and then that's going to get bigger. But by bigger, there's same thing. There's a couple of multisite opportunities out there that those would be bigger, they're going to take a little bit longer. So I think if -- to see those, it'd be towards the end of this year, getting into next year before we would be looking at those kinds of things, or actively pursuing it. But there are some out there. So we like to think they're nicely placed in our pipeline as we continue to generate cash at the levels we're doing.

And I will add one other thing, David had just shown the Dodge Momentum Index is showing up 7%. So things are trending in a positive way.

And your next question comes from Mark Reichman with NOBLE Capital Markets.

I was just curious, in the past, you've kind of described the bolt-on acquisitions as those with kind of revenue in the $10 million to $20 million range and EBITDA in the $3 million to $4 million range. I was just wondering, is Canton -- is that -- does that match pretty much that profile? Or was it on the smaller side? And because that asset was relatively new, are there meaningful opportunities to improve the economics once integrated?

Yes, that's a great question. It's within the range, but on the lower side of that range you just gave in the $10 million to $20 million. It was nicely profitable. So it's definitely not a fixer upper. Very nice business with a good customer base. So can we add some -- we will drive some margin improvement using DGS. We've got a good sales team in the area, things like that. So we would hope to grow it quickly out of the box and improve the margin somewhat. But it was already in a very nice profit range.

And then second question, I guess, really last question, is the Precoat Metals sales were down relative to the prior year period. And I was just wondering if you could kind of provide your expectations for the Precoat Metals segment in terms of maybe sales growth or margin given that there's some moving pieces there with the Washington, Missouri facility coming online and expected to operate at a slightly higher margin.

Yes. I think as we talked, Precoat has been more affected by tariffs and some moving pieces when it comes to imported pre-painted metal and stuff like that. So their volumes were affected. But I think the thing I would point to, their margins were up, and that just demonstrates the variability of their cost structure. They -- like on the Metal Coatings side, they can adapt their cost quickly due to the variability of it and sustain their margins. And so we look for them to continue that disciplined focus and adjust as volumes play out.

So as the new facility ramps up, we're -- this is -- first quarter was test qualifications, things like that, finalizing the equipment performance. This quarter, we'll start to ramp some volume up. And then as we get into the third quarter, we start to get into a pretty good level of contribution. In fourth quarter, we're hoping to be at almost normal run rates. It's a lot of moving pieces. So I don't want to oversimplify that. But so far, everything has been tracking really well. The team has been doing a great job of bringing up a large complex facility.

Jason, I don't know if you want to add something to that.

No. No, I think you highlighted the 2 main points there, which greater margins and smaller volumes, so businesses doing all the right things. Q1 was a fairly disruptive quarter just in terms of the volumes associated with the import material coming in and some build ahead in terms of the tariff impact. So we see that starting to come back out the system as we enter Q2 and going forward.

And your next question comes from John Braatz with Kansas City Capital.

I have a question for David. David, you mentioned a couple of pieces of the Metal Coatings business being strong, that is solar and electrical. And I guess with the passage of the Big Bill and maybe the solar subsidies easing, what do you -- how do you look at the outlook for the solar piece of that -- of the Metal Coatings business? And maybe also, you're talking about copper tariffs going up 50%, any thoughts on how that might impact the business?

Yes, sure thing. As you look at it, we -- with respect to the first part of the question, I think what we're seeing and are going to expect to see is that there'll be a pull forward of some of these projects, specifically the solar projects. Those will need to, as they look at the -- what's happened with the Big Beautiful Bill and some of the cuts that have happened, those need to get from planning into production within the next 12 months. And then they need to be completed within -- by 2027.

So we do think that a lot of the solar projects that are in the pipeline are going to get pulled forward as a result. So that could provide some tailwind again for the business in the shorter term.

Yes. And I'd also add that our electricity demand is going to continue to go up with the addition of all these data centers. And so it's going to have to be electricity of some kind that comes into place, whether that's new gas turbine plants or other things. So -- and as long as it uses steel that we can galvanize or paint, we're good with it.

Okay. Tom, not that it's a big deal, but the remaining interest in your joint venture, industrial lighting, but does that also include the welding business?

Yes. It does include the Welding Solutions, Inc., which is the WSI business, which is a bigger piece of it.

Okay. Now did they not have exposure to the nuclear industry?

They do. At one time, that was almost half the business. It's a smaller piece now, but it's still a good, solid piece, and that has lots of opportunities.

Okay. I mean can it move the needle for you?

I think right now, the AVAIL team's focus is on supporting the TSAs with nVent for the divested business, not that they're not paying attention to WSI and lighting. But I think there is that opportunity, and I know they are focused on it. I think we've got a Board meeting coming up here in another month, so we'll get better color on that. But yes, no, there's -- that used to be a very profitable piece of the business if you go back a decade or so.

And your next question comes from Gerry Sweeney with ROTH Capital.

Most of my questions were asked. Just one quick one and probably an easy one. But just with the Canton acquisition, spin galvanizing, I think you mentioned when you announced that, that expands that type of business. Just curious if the spin galvanizing side, you can leverage some of your existing customers and sort of what is the potential revenue capacity at the Canton facility?

Yes. We've got a facility in the vicinity within a few miles, which is a larger -- much larger kettle, structural -- does a lot of structural work. So we'll be operating those 2 plants, optimizing what customers we can bring in, and just view it as a broader set of capabilities and capacities. So yes, I think between the 2, we're -- the team will focus on optimizing the capacity utilization. There are some customers, including some vertically integrated customers, for Canton Galvanizing, which will be additional customer base for us at our existing site.

So it's a fun one. But these things, if we can pick up another 5 million or 6 million of incremental volume across the whole thing that -- so not -- yes, not huge. But like I said, fun and getting back in the bolt-on acquisition game, just makes us feel good and getting another flag planted and another one under our belt. So hopefully, we get a couple more done.

Get the cobwebs out, as you said. So I appreciate it. Congrats on a nice quarter, nice start to the year.

Thank you.

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

Thank you, operator. Thank you all for joining us today. We continue to believe we've got an outstanding business, tremendous cash flows that we intend to utilize well and deploy to continue to grow this business to buy back stock as we move forward and continue to invest in acquiring businesses that we think we can drive great synergies and become a great piece of our platform.

We feel well positioned for this year and believe we're off to a great start, looking forward to finishing up the second quarter and talking to you all in just a couple of months. Thank you very much.

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