AZZ Inc. Midwest IDEAS Conference

Good morning, and welcome to the IDEAS conference. I am Sandy Martin, and next up we have AZZ. AZZ is a client, so if you have questions or want a follow-up meeting after the presentation or later on after the conference, please let me know. AZZ is traded on the NYSE. The market cap is over $4 billion now. With us today is David Nark, the Chief Marketing, Communications and Investor Relations Officer.

Dave? Thank you, Sandy. Good morning, everyone.

Happy to be here bright and early. I am in the leadoff batter spot of the conference, I guess, in this morning's presentation. I will walk you through the investor deck. We recently updated the investor deck, so happy to be sharing that with you today. It will be the first time we are presenting this one since refreshing the deck. Let us get to it. Of course, a quick disclaimer statement. I am not going to read that, but just know that today's discussion is covered by the Private Securities Litigation Reform Act of 1995. So real quick on why own AZZ. I really have five things that you can take away from today's presentation. First is our unrivaled footprint. We are the nation's largest provider of hot-dip galvanizing as well as coil coating solutions in North America.

We are operating 47 Metal Coatings locations, most of those, 33 of which are hot-dip galvanizing. The 14 coil coating locations are providing coil coating for both steel and metal. That footprint gives us a leg up on the competition. We are about 2X the size of our nearest competitors and strategically placed around the nation, being close to either fabricators on the hot-dip galvanizing side or mills and service centers on the coil coating side. As you look at the story and you unpack it, what you are going to find is that AZZ has been consistently providing above-market growth and continuing to do that as we look into the future.

We have plans to grow at 2X GDP organically, maintaining margins on a consolidated basis of over 22%, and we will continue to invest in the business as we move forward, and we will talk more about that throughout the presentation. Industry-leading margins. I already mentioned the 22% consolidated adjusted EBITDA margins. In our hot-dip galvanizing business, again, the hot-dip galvanizing rolls up under Metal Coatings. Metal Coatings segment margins of 31%, so really strong margins for an industrial business. Our balance sheet has never been better. We are currently at 1.4 times debt to EBITDA after being as high four years ago as 3.6 times debt to EBITDA. So we have brought down the leverage after doing a strategic acquisition four years ago through debt repayment and are very pleased with where we sit today.

That's unlocked a lot of value for our shareholders and is certainly allowing us to reinvest back in the business. Last but not least is we are a toll coater. If you're not familiar with a tolling business, you're going to learn all about it today. What that means is we don't buy steel. We don't have exposure to steel. We don't have exposure to aluminum. Our customers buy that, and then they bring their product to us, and we simply coat it. So our exposure is going to be on zinc and on paint, and that's it. So high variable costs running through the business, which again, makes us very resilient and resistant to fluctuation. Kind of unpacking the story a little bit more. One of the things I want to share you with is we are very focused in the business of coating metal.

That's what we do, plain and simple. When you look at the storyline, you're going to see that we're a $1.65 billion company, adjusted EBITDA of $368 million. We already talked about the 22% adjusted EBITDA margin. 61 collective locations throughout North America. About 3,700 employees and a market cap, as Sandy said, about $4.6 billion. So very strong position in the marketplace. You can kind of think of us as like the Walmart of galvanizing if you want to do a comparison in your mind. We're just about everywhere where our customers need us to be, and despite that, we're relatively unheard of and unknown amongst investors. So a terrific story for you to take a closer look at. Going to unpack both of the segments a little bit more for you and talk about each one.

Metal Coatings, our segment there, hot-dip galvanizing and Surface Technologies, $758 million in sales through FY 2026, which ended in February of this year, 31% margins, and again, growing at 14% year-over-year. A lot of that growth coming from the investments that we see happening in power infrastructure, T&D, utility spend, as well as data centers. So this business is ideally positioned to take advantage of a lot of those generational shifts that are happening in the end markets, where we're seeing a lot of investment in utility infrastructure across North America. So a great way to play that business. Precoat Metals, $891 million, almost 20% EBITDA margins. Was down slightly last year. It has some residential exposure in it.

When you think about metal roofing for houses, metal front doors, metal garage doors, that's a portion of the business, and that's where some of the headwind came from. I'll walk through what we've been doing this year to correct that, and the business has been trending up ever since the start of our new fiscal year, which started in March of this year, and posted a gain year-over-year for the first quarter. So certainly tracking to grow that business this year. I mentioned the footprint a little bit on my opening statement. I'd like to just share with you that footprint in a little more detail on slide 6. What you'll see here is two maps. The map on the left shows our AZZ Metal Coatings footprint. Again, North America's leading provider of hot-dip galvanizing with a really, really strong competitive moat.

Being in all these locations in North America, which you can see are predominantly in the U.S., as well as some locations in Canada, really serves our customers well. We want to be as close as possible to the fabrication base. That's the key ingredient to our success. Being within a 150 to 250-mile radius of metal fabrication within the U.S. allows us to be their first choice and allows us to provide them with quick and very competitive and repeatable service. We can typically turn steel around in 3 to 5 days when it gets delivered to our facility. That's usually our quote time. The reason that's important is if there are other competitors in the marketplace, generally they're much smaller. Some of them are just single-site, family-run businesses, and once they're full, they're full.

With us, we've got this network, this footprint, and we also have a transportation network that supports this, so we can move steel around for our customers from site to site and from their site to our sites. As the network gets loaded in, we can make adjustments and continue to serve our customers with that 3-to-5-day turnaround time. We have roughly a 27% market share in that market today. Looking at Precoat Metals, again, an industry leader in their space as well. We've got the 14 locations with 16 coil coating lines, including a new addition that we just turned on this past year, which I'll share with you in more detail. Again, what they're doing is providing roll-coated services for aluminum and steel.

These big rolls of steel and aluminum that you see pictured here on the screen come from the mill or the service center, and the customer at that point doesn't know what color they want it because their end customers, they may not have sold that steel into their end customers, but they want to make that decision later in the purchase cycle. They purchase that from a steel mill or service center. They bring it to us. We warehouse it for a period of time for them, and again, they're owning it the whole time. It's not on our books. Then at some point when they get an order for that steel or aluminum and know what color it needs to be, they'll call us and then we'll paint it for them and ship it off. About 23% market share in that business.

Let's talk a little bit about end markets and end market diversification, kind of moving from left to right on this slide. Starting with construction, that's our biggest end market. We have exposure in commercial construction, residential construction, industrial construction, and then we also lump data centers into that market as well. Data centers are a single-digit number for us, call it 5%-8% of the total overall, but rolls up meaningfully within construction. Infrastructure is our second-largest segment. This is one of the segments that we've seen the largest growth in, consisting of bridge and highway projects, and electrical T&D projects. When you think about as you're driving down the nation's highways, or you're stopped at a traffic light, we're often overlooked, but we're all around you.

We are providing the gray color that goes on the light poles that are holding up the traffic lights, the gray color that you see along the freeway when you see the guardrails. Then if you look in the distance and you see high voltage transmission lines or you see the monopoles, we are providing, again, that gray color that goes on all of that steel that you see everywhere as you look around. When you think of the color gray, you can think of AZZ. On industrial plants, 9% of the end market. We are really focused in on galvanizing structures that support the power needs for the U.S. and Canada, as well as water and food processing plants. Again, a lot of steel outside holding up these structures and gas turbines, and so we are providing, again, the finish for all those products.