AZZ Inc. (AZZ) Earnings Call Transcript & Summary

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].