AZZ Inc. (NYSE:AZZ) Q4 2023 Earnings Call Transcript

AZZ Inc. (NYSE:AZZ) Q4 2023 Earnings Call Transcript April 26, 2023

AZZ Inc. beats earnings expectations. Reported EPS is $0.3, expectations were $0.29.

Operator: Good morning and welcome to the AZZ, Inc. Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Sandy Martin, Three Part Advisors. Please go ahead.

Sandy Martin: Thank you, operator. Good morning and thank you for joining us today to review AZZ’s financial results for the fiscal 2023 fourth quarter and full year ended February 28, 2023. Joining the call today are Tom Ferguson, President and Chief Executive Officer; Philip Schlom, Chief Financial Officer; and David Nark, Senior Vice President, Marketing Communications and Investor Relations. After the conclusion of today’s prepared remarks, we will open the call for questions. Please note there is a webcast and slide presentation for today’s call, which can be found on AZZ’s Investor Relations page under the latest earnings presentation at azz.com. Before we begin, I would like to remind everyone that our discussion today will include forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements by their nature are uncertain and outside of the company’s control. Except for actual results, our comments containing forward-looking statements may involve risks and uncertainties, some of which are detailed from time-to-time in documents filed by AZZ with the Securities and Exchange Commission, including the annual report on Form 10-K for the fiscal year. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. Actual results could differ materially from these expectations. In addition, today’s call will include a discussion of non-GAAP financial measures. Non-GAAP financial measures should be considered as a supplement to and not a substitute for GAAP financial measures.

We refer you to the reconciliation of non-GAAP to the nearest GAAP measure included in today’s earnings press release and investor presentation for further detail. The earnings press release and Q4 presentation are posted on our website and have been included in the Form 8-K submitted to the SEC. I would now like to turn the call over to Tom Ferguson, CEO. Tom?

Tom Ferguson: Thank you, Sandy. Welcome to AZZ’s fourth quarter and fiscal year 2023 full year earnings call. Thank you for joining us this morning. Starting on Slide 3, I am pleased with our performance for fiscal 2023. We made tremendous progress towards our strategy to become a pure metal coatings company. I am appreciative of the hard work of the entire AZZ team. I commend our AZZ Metal Coatings team for generating record results and our AZZ Precoat Metals team for coming into AZZ and performing well. We are fully committed to building a stronger and more sustainable and focused company. On a continuing operations basis, we achieved record annual sales of $1.32 billion, up 46% versus reported fiscal 2022 sales of $903 million, while generating EBITDA and adjusted earnings per share within our previously stated guidance.

We paid down debt resulting in net leverage of 3.5x adjusted EBITDA at year end and received $2.6 million equity income from our remaining interest in AIS. As you can see here on Slide 4, we achieved good flow through on higher sales generating over $267 million of adjusted EBITDA or 20% of sales. These numbers reflect Metal Coatings for a full 12 months and Precoat Metals for about 42 weeks in fiscal year 2023. Net income on adjusted basis was $86.9 million, up 55% resulting in adjusted EPS of $3.48. Philip will talk more about our fourth quarter and full year financial results shortly. Moving to Slide 5, AZZ Metal Coatings had another strong year, with sales up 21% to $637 million, with over 16% coming from organic growth. The growth was a result of organic sales growth of $87 million and the earlier acquisitions of DAAM and Steel Creek, which added another $25 million.

Operating income was up 21% versus prior year, with an operating margin of 24.5% despite inflationary pressures, particularly as zinc costs peaked in most of our kettles. We continue to maintain our pricing discipline and focus on delivering value to our customers. Our investments in digitization continue to payoff in both productivity and customer service. Our investments in technology and innovation are focused on improving efficiencies, asset maintainability and supporting our energy efficiency and sustainability initiatives. Turning to Slide 6, Precoat during its 42 weeks as part of AZZ had solid sales growth to nearly $687 million and generated $120 million of EBITDA. Precoat sales grew by 20% on a comparable basis versus the prior year, mostly through unit volume growth and paint cost increases that were passed through.

Precoat’s business performance was solid and within our expectations through its seasonally slower quarters where construction slows due to weather. As mentioned during our third quarter call, the management team at Precoat took action in the fourth quarter reduced the customer owned inventory that had caused bottlenecks at many locations. Additionally, the team recently finished a plant expansion project at their MMC facility that it started prior to our acquisition. This was an important expansion as this facility focuses on heavier gauge material that supports our construction and infrastructure initiatives. Precoat team is now reporting normalized inventory levels at most of their plants. Finally, I believe Precoat has taken steps to bring its pricing curve in line with the cost curve that has experienced significant inflation.

While the team still has more work to do on production efficiencies, we have realized over half the expected synergies and still expect to identify sales synergies between Precoat and Metal Coatings. I am encouraged by the progress and expect their efforts to show up in our run-rates in fiscal year 2024. And with that, I will turn it over to Philip to run through the financials.

Philip Schlom: Thanks, Tom. My financial commentary will focus on the results from continuing operations. Our continuing operations include the results of our AZZ Metal Coatings segment and our Precoat Metal segment from our acquisition date on May 13, equity and earnings resulting from our non-controlling interest in the avail infrastructure business and our corporate overhead supporting these businesses. On Slide 7, AZZ generated fourth quarter sales from continuing operations of $336.5 million significantly above the $130.1 million recognized in the same quarter of the prior year. The significant current year quarterly increase is a direct result of the addition of AZZ Precoat Metals of $187.1 million and our current quarter AZZ Metal Coating sales of $149.4 million.

The Metal Coating segment sales were up 14.8% in the quarter versus prior year on stronger volumes and pricing. On a comparable basis, Precoat Metal sales for Q4 increased by roughly 17%. Operating profits from continued operations for the fourth quarter were $36.2 million or 10.8% of sales. Prior year operating margins of 13.1% reflected only with the results of our Metal Coating segment. While the current year reflects the inclusion of AZZ Precoat Metals, as we explained on our last earnings, call, Precoat’s fourth quarter margins were compressed primarily due to normal seasonally lower volumes coupled with inflationary headwinds. We expect this to reverse in the first quarter due to improved volumes and the pricing curve as Tom noted catching up to the inflated cost curve.

Adjusted EBITDA on the fourth quarter of $57.2 million was 112.6% higher than the prior year, again as a result of the addition of Precoat Metals. Adjusted EBITDA as a percentage of sales was 17% reflects the blended rate – sorry blended with Precoat Metals and was 370 basis points lower than the prior year’s fourth quarter, a period in which included only our Metal Coating segment. The combined results of the two businesses for the fourth quarter, was in line with our expectations. We anticipate higher EBITDA margins moving forward as contemplated in our full year guidance. On Slide 8, our full year sales were $1.32 billion reflecting the addition of Precoat Metals for roughly 42 weeks of the year. Our full year operating profit of $173.6 million was significantly above prior year when including Precoat Metals for the period on their ownership.

Operating margins from continuing operations of 13.1% were 200 basis points below the prior year, a period only including our Metal Coating segments, who had strong performance during the period. Adjusted EBITDA of $267.4 million or 20.2% reflects the strong performance of the newly combined businesses. Both our Metal Coatings and Precoat Metal segments have worked hard at managing the inflationary market pressures and generate results in line with our expectations. Adjusted EPS from continuing operations for fiscal year 2023 was $3.48 per diluted share compared with adjusted EPS of $2.24 per share in fiscal ‘22. On Slide 9, cash flows from continuing operations for the fiscal year were $91.4 million compared with $60.6 million in the prior year.

Our fiscal year 2023 capital expenditures from continuing operations were $57.1 million compared with $23.6 million in the prior year. This increase was expected as part of our strategic rationale for the Precoat acquisition. Our fiscal 2024 capital investment plan of nearly $80 million includes roughly $50 million in normal maintenance and growth capital spending and nearly $30 million allocated to the construction of our new Precoat Greenfield facility in the St. Louis, Missouri area. We have continued to declare and pay quarterly common dividends. For the full year, we paid common dividends of $16.9 million and made payments of $5.8 million in preferred dividends. On Slide 10, we purchased Precoat Metals on May 13, 2022 from Carlyle Sequa for $1.3 billion and then subsequently sold the controlling interest in our AZZ Infrastructure Solution segment, excluding our small oilfield tubing business for $220 million in cash on September 30, 2022.

During the year, we reduced our debt by $237.5 million through proceeds from the AIS sale and from operating cash flows, reducing our acquisition leverage of $4.25 to $3.46 as of fiscal year end. While we have a good pipeline of M&A opportunities, particularly for galvanizing, we are focused only on highly accretive low risk deals that exceed our targeted returns. Given our focus on growth and debt reduction, we did not buyback stock in fiscal 2023. Slide 11, we reduced our Term Loan B debt since the preferred acquisition date improved our leverage to 3.5x, a good step towards our long-term target of below 3x leverage. We continue to have more than 50% of our existing term loan debt covered by swap agreement to reduce further interest rate exposure.

We do not have any maturities on our current credit facility until 2027. I will turn it back to Tom now for his closing comments.

Tom Ferguson: Thank you, Philip. Moving to Slide 13, the outlook in the first quarter for Metal Coatings is for a seasonally strong spring fabrication and construction season, with many of our customers citing good backlogs as they benefit from increased infrastructure spending. Fabrication activity remained solid with many of our customers noting good backlogs. Precoat continues to see solid customer demand, particularly in growing industries that directly relate to construction, container and data centers. As I mentioned earlier, customer inventories have been normalized due to the actions we have taken. Our announced pricing actions to offset inflation are beginning to show positive impact on Precoat’s margins. We have entered the stronger quarters of the year.

And quite frankly, I am glad to have the slower fourth quarter behind us. Our corporate team will continue to focus on cash flow generation to allow rapid debt reduction, customer credit metrics, risk mitigation, prudently allocating capital to the highest return on investment projects. Before we move on to the guidance slide, I would like to comment on strong secular growth drivers impacting our end markets that we are excited about for fiscal 2024. Our financial outlook this year reflects our expectation to directly or indirectly benefit from U.S. spending bills totaling over $250 billion from the American Infrastructure Investment and Jobs Act. We hold strong market positions in Metal Coatings and Precoat Metals and with these leadership positions.

We are bullish about our perspective opportunities related to roads, bridges and important clean energy and power transmission projects as well as data centers, airports and other critical infrastructure. Our long-term growth drivers include the shift to manufacturing reshoring with the Build America Buy America focused as well as benefiting from the migration to pre-painted aluminum and steel. In addition, there are important sustainability projects. They are supporting critical material conversions, for example, the conversion from plastics to aluminum in the beverage industry. All of these secular trends create incremental opportunities for AZZ. Finally, we are progressing with our Greenfield plant construction that supports aluminum coatings with a valuable dedicated customer committed to filling a majority of our capacity in this new plant.

That is an exciting project for us and we will keep you updated on the progress. As you can see here on Slide 14, we are maintaining our full fiscal 2024 sales guidance at $1.4 billion to $1.55 billion, adjusted EBITDA guidance of $300 million to $325 million, and adjusted EPS guidance of $3.85 to $4.35. While we are expecting some equity income from our minority stake, we are not ready to predict how much this will be while they are still working on their purchase price accounting. I will also note that the first quarter EPS is based on a more normalized tax rate than we experienced in the fourth quarter. Finally, on Slide 15, as a reminder, why we believe AZZ as a great investment? AZZ is the leading independent hot dip galvanizing and cold coating company with an irreplaceable footprint serving a broad and diverse set of markets.

As a high value-added tolling business, we are not directly exposed to metal commodities. Also, we have shown that we can protect margins with a long track record of profitability during all economic cycles. We produce great margins and solid financial returns as well as generate free cash flow by delivering outstanding value to our customers emphasizing operational excellence and continuing to innovate and develop our people and technology. We are driving sales expansion through both organic and acquisition growth and are committed to improving margins and cash flow generation to fund our growth strategy. We will continue to focus on driving performance and financial results as well as maximizing long-term shareholder value. Again, I want to thank all our shareholders and the Board for their support and I especially want to thank our AZZ team for their hard work and dedication during our transformational journey to become a focused metal coatings company.

This is an exceptional accomplishment and I am proud of our entire team. With that, we will open it up for questions.

Q&A Session

Operator: And our first question will come from John Franzreb of Sidoti & Company. Please go ahead.

John Franzreb: Good morning, guys and thanks for taking the questions.

Tom Ferguson: Hey, John.

John Franzreb: I’d like to start with the two business segments, surprisingly good underlying growth, roughly 15% and 17% in the fourth quarter. Could you just talk about what your growth assumptions are in the two segments embedded in your revenue guide of 1.41 and 1.55?

David Nark: Yes, John, I think on the two segments, when you look at the Metal Coating segment, to start with, they have continued to run a really solid business through COVID over the last 8 or 12 quarters and the back – we don’t have a lot of backlog, but the opportunities for some of those secular drivers that Tom was speaking to are there. When you look at the Precoat side of the business, same thing, they have got good opportunities and a lot of their markets are seeing a slight slowdown in some of the construction, but overall a very solid business.

Tom Ferguson: Yes, John, let me just add, I think we don’t have significant growth, top line growth embedded in our guidance, most of the uptick is going to come from having Precoat for the full year. And our focus is going to be more on value and cash flow management and generation. So we don’t have to have significant growth to hit that guidance.

John Franzreb: Okay, fair enough. And last quarter, you talked about roughly three to four plants at Precoat that was taking lower margin business. And this was a roughly three to four quarter solution in your view back then, probably fiscal ‘25 to get resolved, update us on the status of that and maybe talk about what kind of business to taking that lower margin?

Tom Ferguson: Yes, I think some of it was more focused on just more our internal efficiency misses, if you will. So we have made some management changes at some of – at those plants. We have also made some organizational changes to help support the focus on improving efficiencies and productivity. And we have made some pricing adjustments for some lower margin customers that just kind of been consistently. It’s not really a category of customers. It’s just things that have gone on for a while in the type of business. So it’s not anything specific, more just to focus on a general focus on we want to deliver value, we want to perform well and the vast majority of Precoat plants do exactly that.

John Franzreb: Got it. And just one last question and get back into queue, a new aluminum coil plant at $80 million in CapEx this year, how does that look 2 years from now in the CapEx and maybe kind of any updated the status of the built?

Tom Ferguson: Ye, we had the groundbreaking ceremony with the Governor of Missouri that was a fun event on a cold dreary day. And quite frankly, they are – the groundbreaking was more of – they were already doing quite a bit of excavation work on that site. So, official groundbreaking but things have been going on. We have got the equipment on order and delivery secured. We have got the long lead items under control. We have – it’s a really good schedule with enough float in it that we are going to hit the targets. So I feel real good about it at this point. We are going to spend about $30 million this year on that facility, which is both construction down payments on equipment, things like that to make sure we get critical items in.

That drifts off especially as we get into, I want to say calendar ‘25 that drops pretty significantly we get the facility open. I’d also say that we are still having somewhat slightly higher than normal CapEx spend in both Metal Coatings and Precoat that I think that normalized is back in nicely under the $50 million range. So we are doing things both for – to drive some operational improvements. I mentioned in my remarks this MMC facility expansion. We had some other CapEx that’s being deployed to improve controls and continue to drive digitization. And those things just play out is helping us improve efficiencies and productivity, but the investments start to go away.

John Franzreb: Got it. Great. Thanks. I will get back into queue.

Operator: The next question comes from Adam Thalhimer of Thomson Davis. Please go ahead.

Adam Thalhimer: Hey, good morning, guys. Congrats on the solid Q4.

Tom Ferguson: Thanks.

Philip Schlom: Thank you.

Adam Thalhimer: You had a – I wanted to get your thoughts on and you commented on sequential revenue growth at Metal Coatings, what are the expectations, just because we don’t have a lot of history for sequential revenue growth at Precoat Q4 to Q1?

Tom Ferguson: It’s pretty – it’s significant, because Q4 is the by far the slowest quarter for Precoat. It’s winter months. So construction just slows up and the construction they are doing is inside when they can. We are now into spring, which better weather more construction. I quite frankly, I’d have to check the percentage, but I’m going to say at least 10%, 15% quarter-over-quarter. Philip, you have anything better?

Philip Schlom: Yes. No, that’s about right. It’s, their fourth quarter is, I think 12 or 13 slowest weeks of the year. So we will see a nice uptick in Q1.

Adam Thalhimer: Okay. And then you had a comment in the press release about a seasonally higher first quarter. Was that a sequential comment or is Q1 the highest EPS for the year?

Tom Ferguson: Q1 and Q2 are both strong quarters. They – I think if you look historically, particularly for Metal Coating, it’s sometimes its Q1, sometimes its Q2. But mainly we are just – we are talking about seasonality coming out of winter, going into spring, as a general seasonality thing. And secondly and of course now we entered two really good strong quarters for both construction and infrastructure. Then third quarter in the fall somewhat more dependent on weather, but tends to be a reasonably good quarter. And then the fourth quarter, you just get as Philip just said 12 of the 13 weeks tend to be heavy winter, particularly in some of the areas that we serve as you get up north. Our Metal Coatings business tends to do – they tend to be a little stronger in third quarter because most of our facilities are in the South and Midwest other than the things we have up in Canada, so…

Adam Thalhimer: Okay. And then Philip, within the EPS guide, what are you assuming for share count and preferred dividends. I am trying to get to the right EPS. And within your range for revenue and EBITDA, but something is off on EPS, I am just wondering if it might be share count and the preferred dividends?

Philip Schlom: Yes, on the preferred dividends, there is 4.1 million shares associated with the Blackstone preferred equity, it’s 240 million and the conversion price is $58.30. And the preferred will be dilutive for the year. So you need to take that into consideration.

Adam Thalhimer: Okay. And then last one high level thoughts on cash flow from operations in fiscal ‘24?

Philip Schlom: When you look at our guidance, I think it’s in line with the EBITDA less CapEx is a good barometer for our ability to generate cash flow.

Tom Ferguson: Yes. As we have noted, we are targeting, $75 to hopefully $100 million of debt paid down just to help us as we move on, Q1 is more of we consume some cash or so not likely to be paying down a lot of debt in Q1, just because it’s two things, we are ramping up some inventory for the big season. And this is also when we do have bonus payouts and things like that. So then we get into the quarters where you can expect to see more significant debt pay-down.

Adam Thalhimer: I’ll turn it over. Thanks, guys.

Tom Ferguson: Thank you.

Operator: The next question comes from John Braatz of Kansas City Capital. Please go ahead.

John Braatz: Good morning, everyone.

Tom Ferguson: Good morning, John.

John Braatz: Tom, it seems like let’s say this year the focus at Precoat will be on improving productivity margins and so on and so forth. And I guess my question is, as you complete or complete some of those projects and so on and improve the efficiency? What kind of improvement could we see in terms of the incremental margins once volume gets better at Precoat? How much better might those incremental margins be versus maybe where they were before and any thoughts on that?

Tom Ferguson: I think there is a variety of things that particularly impacted. I think we – I know, we had done this presentation to try to explain how our fiscal year and AZZ kind of hits Precoat pretty badly in terms of and they used to have a better spread of profit margins across their quarters. So, this is inflicted by our fiscal year. But we are still committed to getting them to the 20% EBITDA margins and which means we have need to get improvements pretty quickly. I think Kurt and the team, they have taken some good structural actions organizationally. In terms of some of the plants that were struggling, this I can’t understate the impact of that customer inventory on Precoat. So, most of that’s gone. We have gotten rid of a lot, almost all of the outside warehouses that had to be leased to accommodate that.

And you just think about the impact on their efficiencies, when you are having to go several miles down the road to an outside warehouse, move material, that creates time, cost and some quality issues, that’s pretty much gone. So, returning to their – the 20% margins we have talked about, obviously there is a lot of work that goes into that. But the vast majority of the actions to do it have been taken. So, we are going to see that pretty quickly as we get into this year.

John Braatz: Okay. And then secondly, the St. Louis facility, how quickly does that get up and going and begin to contribute to the bottom line?

Tom Ferguson: It gets up and going and it’s – but it’s, the construction is coinciding with the customers demand for it as well. And I believe that’s it – we are not going to see any measurable impact until 2025.

John Braatz: Okay. Alright. Thank you.

Tom Ferguson: Alright. Thanks.

Operator: The next question is a follow-up from John Franzreb of Sidoti & Company. Please go ahead.

John Franzreb: Yes. Guys, I think it seems like everyone has got a ton of good field in metal coatings business. But as far as Precoat, we kind of separate it into a tale of two halves. For you guys on your calendar year, how much of revenue Precoat will fall into the first half of the fiscal year versus the second half?

Philip Schlom: To about 56%.

Tom Ferguson: Yes.

Philip Schlom: I think if you look at the seasonality charts, if you look over the 5-year history, they tend to be in our fiscal year, more heavily weighted in our Q1 and Q2, than a fewer working days in Q3. And then as Tom explained earlier, the slower fourth quarter seasonally.

Tom Ferguson: Yes. I think that’s 56-44, 57-43. And there is enough sensitivity in – particularly in these days, where it’s harder to get skilled labor. So, our tendency – the tendency is to hold on to the capacity and drive through this. So, you get that kind of movement in absorption levels. You get a lot of flow through pretty quickly when we get that kind of volume shift.

John Franzreb: Got it. And in the fourth quarter, the margins that Precoat registered, how much was that normal seasonality impact versus the inventory rebalancing impact in the quarter? Do you have a sense of that…?

Tom Ferguson: Yes. I would say it’s about 50-50 on seasonality, because when you look at it, the revenue drop, but not materially greater than normal. In terms of the season, and the rest was, as I have toured the plants, the constraints created by that phenomena, and this move in between outside warehouses was just dramatic. I can’t understate it. So, the fact we are talking about that mostly being gone, that’s why sequentially it’s, you are going to see a big pop quarter-over-quarter.

John Franzreb: Great. And one last question. It looks like zinc’s printing at the 1 year low, can you just talk about your thoughts about that and maybe why you didn’t reassess your guidance in light of that?

Philip Schlom: Well, we have talked about this before we have pretty much separated as much as we can our pricing from the cost of zinc. So, we are focused on delivering the value that sustains the price levels. That for us, it will take another six months before these lower cost – this lower cost zinc starts to hit our kettles. And so we are well into this year before we see any of the benefit of this lower cost hitting our kettles. So, we will take a look at that again as we get deeper into the year. But it’s just that that cycle of call it six months on average that in terms of the inventory in our kettles that we have got to move first before we see the lower cost of that. And then two, we have got to make sure we can hold our prices and continue to offer in the value services to sustain that.

John Franzreb: Right. And who knows what the zinc looks like in six months, right?

Philip Schlom: Exactly. We started with quite a bit just over this within a quarter.

John Franzreb: Yes. Okay, guys. Thanks for taking my follow-ups. Appreciate it.

Tom Ferguson: Thanks.

Operator: The next question comes from Bill Baldwin of Baldwin Anthony Securities. Please go ahead.

Bill Baldwin: Yes. Good morning gentlemen and thanks for taking my call.

Tom Ferguson: Sure, Bill.

Bill Baldwin: Just a quick oversight on this new plant as far as looking at it 10,000 feet. When that gets up and running, should that be accretive in the first full 12 months of operation as far as accretive to contribute to operating income?

Tom Ferguson: Yes. It will be in the first full 12 months of operation, yes, because the volumes are committed. There is a lot of testing that goes on to get it into full operation, but once that that process is completed then the volumes ramp up fairly quickly.

Bill Baldwin: And remind me, Tom, what’s the scheduled date for beginning the testing and this type of thing as far as the plant beginning to operate?

Tom Ferguson: It’s we – I am going to say it’s early next year, as I am thinking about. I should have brought the schedule in with me, so I apologize. But early in fiscal ‘25.

Philip Schlom: Yes. Early fiscal ‘25, I believe is the current schedule for that, and it ramps up because it will require some FDA approval, that’s what Tom was talking about the testing. So, we will ramp up, if we get those approvals, we will then ramp up to a full year rate, which is accretive.

Bill Baldwin: And would it be reasonable to assume that you would be operating that close to the capacity that your demand allows you to by the second half of fiscal ‘25, say, gave you six months to ramp up, is that sufficient design?

Tom Ferguson: I would say it’s going to be a little bit longer than that. There is – part of this is also depending on how the customer demand ramps up with it. But I would say more towards the latter part of the year.

Bill Baldwin: Okay. Very good. Nice performance too with the latest quarter. Good job.

Tom Ferguson: Alright.

Philip Schlom: Thanks Bill.

Operator: The next question comes from Brett Kearney of Gabelli Funds. Please go ahead.

Brett Kearney: Hi guys. Good morning. Thanks for taking my question.

Tom Ferguson: Good morning Brett.

Philip Schlom: Good morning Brett.

Brett Kearney: Tom, you mentioned some of the fiscal support we have seen from the U.S. Government, the tailwinds that provides for your businesses. I guess pretty familiar and it feels like, particularly on the galvanizing side, the funding sources behind that, utility CapEx budgets, we have good visibility of that from the municipal highway and bridge activity, it feels pretty good. How about I guess fiscal support, how that plays into the Precoat Metals side and how you were thinking about any dislocations that could happen from financing and banking channel on that side of the portfolio?

Tom Ferguson: That’s a great question. I think on the Precoat side, they have been impacted by some of the slower residential activity. But some of these underlying trends to convert to pre-painted aluminum and steel, I think offset some of that. On the non-commercial investments, we are still seeing good activity there. And part of this is the, I guess technically we will call it re-shoring of manufacturing of things like chips and stuff. That’s all good stuff. We are seeing several factories being constructed here in Texas, particularly, all of those use a ton of pre-painted sheet. So, that kind of activity is continuing. I wish I had a better crystal ball, how long that’s going to continue with capital costs remain high.

Right now, the outlook is fine. And hopefully, we are also continuing to find new opportunities, which we talked about some of those, like the heavy gauge. Expanding that facility is, that’s a fairly big deal for us, because that focuses more on infrastructure support, culverts and things like that. So, we have been taking those steps, making those investments and unless something dramatic happens, hopefully we continue to benefit from it at Precoat.

Brett Kearney: Excellent. And then we talked about the favorable moving zinc prices, how those probably peaked in your kettles. How are you thinking about, I guess two pieces, one, acid, energy, labor, the other portions of your cost base. And then I guess, second question kind of, how is labor availability trending in a lot of the markets you are active in?

Tom Ferguson: Yes. This is kind of the – generally, labor is still tight. So, I bet we are down. I think at the peak we probably had 400 openings for labor on any given day, we are probably down to a couple of 100, which is, that’s a level we can cover with overtime and extra shifts and things like that. It’s we just went through our merit review process for the majority of the company. It wasn’t outrageous we had made adjustments as the year went on to attract labor and retain labor. So, we feel pretty good. It’s not a high ramp at this point in terms of increase on – increased costs on labor. We are doing – we have done some things to retain labor better and manage it more efficiently. Precoat uses more skilled, highly skilled labor.

That’s still tight in certain parts of the country, and but once again, we have implemented programs to attract and retain. In terms of the acid chemicals, that some of the things that really impacted Precoat was these additives and chemicals and things like that were outside of paint. So, that’s why we kind of got behind the cost curve there towards the latter part of the year. On the metal coating side, we are doing a better – I mean one of our big focuses is on acid and acid disposal and managing acid. So, even though costs were up on everything from wire to acid, we have been able to maintain the price curve at least staying even with it. So, our focus has been on availability and making sure we can service our customers when some of our competition can’t and we have been able to do all of that.

Brett Kearney: Excellent. That’s very helpful. Thanks so much Tom.

Tom Ferguson: Alright. Thank you.

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

Tom Ferguson: Thank you all for joining us today. I look forward to updating you on our first quarter results in just a few weeks. And I am confident that fiscal year 2024 will result in further value creation as we capitalize on strong demand environment in AZZ’s diverse markets and the investments that we have made. Thank you very much.

Operator: The conference is now concluded. Thank you for attending today’s presentation and you may now disconnect.