Azz Inc Q1 FY2027 Earnings Call

Good day, and welcome to the AZZ Fiscal 2027 First Quarter Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Philip Cooper, Managing Director of Three-Part Advisors. Please go ahead.

Thank you for joining us today to review AZZ's Fiscal 2027 First Quarter Results for the period ended May 31, 2026. Joining the call today are Tom Ferguson, President and Chief Executive Officer. Jason Crawford, Chief Financial Officer, and David Nark, Chief Marketing, Communications, and Investor Relations Officer. After today's prepared remarks, we will open the call for questions. Please note that the live webcast for today's call is available at www.azz.com forward slash investor dash events. Before we begin, I would like to remind everyone that our discussion today will include forward-looking statements made in accordance with the safe harbor provisions of the private securities litigation reform act of 1995. By their nature, forward-looking statements are uncertain and outside the company's control. Except for actual results, AZZ's comments containing forward-looking statements may involve risks and uncertainties, some of which are detailed from time to time in documents filed by AZZ with the Securities and Exchange Commission, including the latest annual report on form 10k and quarterly reports on form 10q these statements are not guarantees of future performance therefore undue reliance should not be placed upon them actual results could differ materially from these expectations in addition today's call will discuss non-gap financial measures which should be considered supplemental and not as a substitute for gap financial measures we refer shareholders to our reconciliations from gap to non-gap measures contained in today's earnings press release i would now like to turn the call over to tom ferguson

thank you philip good morning everyone and thank you for joining us today we appreciate your interest in az and the opportunity to discuss our first quarter fiscal 2027 results we are off to a strong start for the first quarter we delivered record sales in both segments generated solid cash flow maintained a strong balance sheet announced raising our dividend and raised our full-year guidance. These results reflect the strength of our strategy, the durability of our end markets, and the continued execution of our teams. Our results consistently reflect our ability to convert demand into high-quality, profitable growth. We continue to leverage our market leadership positions in both metal coatings and pre-coat metals to expand earnings and generate robust cash flow, while investing strategically to extend our competitive advantages. In metal coatings, we're investing in added capacity where demand supports attractive returns. In North Texas, for instance, we successfully commissioned a new large kettle to meet growing regional demand for hot-dip galvanizing, effectively doubling our capacity at Crowley, Texas. This low-risk, high-return investment supports growing customer demand and strong market fundamentals. David will discuss U.S. end-market demand in more detail in just a moment. Additionally, a key element of our growth strategy is identifying innovative ways to grow share and deepen customer partnerships. One example of this is a vertically integrated manufacturer who chose to partner with AZZ to divest its non-core galvanizing operation to reduce complexity and cost. As part of this agreement, we acquired their galvanizing kettle and zinc, providing them with immediate cash liquidity while securing a long-term service agreement. We believe this de-verticalization model creates value for our customers while delivering long-term revenue streams for AZZ. We view this as a scalable blueprint for future partnerships. At Preco Metals, our Missouri facility continues to ramp production as planned. We remain on track to reach targeted utilization with our strategic partner while actively seeking the commercialization of the remaining capacity. The facility is approaching an expected contribution margin levels for this year, and performance with our partner in this beer and beverage-related container category has been very encouraging. Across both segments, our focus remains clear, increase share of wallet, capture incremental market share, and deploy capital into high-confidence organic and inorganic growth opportunities. These investments drive operational efficiencies and position us to deliver sustained long-term Underlying all this progress and momentum are our structural advantages that differentiate AZZ, including our proprietary technologies. In metal coatings, our digital galvanizing system drives consistency, efficiency, and data-driven decision-making at scale. In preco metals, Coilzone enhances customer visibility with real-time insights that improve throughput and enable benchmarking across our footprint. These digital capabilities are not just operational tools They are scaled strategic assets that strengthen customer relationships, improve execution, and are forming the basis for utilizing AI to improve customer intimacy, fine-tune pricing decisions, and support operating efficiency improvements and sustainability. Looking ahead, we remain confident in our ability to execute on our strategic priorities, winning in our markets, deploying capital with discipline, investing in high-value capacity expansion, delivering superior customer service, and leveraging AZZ's differentiated capabilities. Collectively, these efforts position us to drive profitable growth, enhance shareholder value, and reinforce our leadership across our end markets. With that, I will turn it over to Jason.

Thank you, Tom. We delivered record first quarter sales of $448.5 million, up 6.3% year over year, driven by strong double-digit sales growth in our metal coating segment, which increased 12.3%. This performance reflects continued momentum across construction, industrial, and infrastructure end markets. Pre-coop metal sales increased 1.5% year-over-year, supported by the pass-through of higher paint and input costs and the continued ramp-up at our Washington, Missouri facility. partially offset by softer volume in certain construction, HVAC, and appliance end markets. From a profitability standpoint, gross profit was $112.2 million, or 25% of sales, representing a 30 basis point improvement year over year. This reflects favorable mix, pricing discipline, and improved operational execution. SG&A expenses were $35.1 million, or 7.8% of sales, compared to 8.2% last year. Even after excluding the $2.2 million non-cash retiree incentive charge in the prior year, we demonstrated good cost control while supporting growth. operating income increased to $77 million, or 17.2% of sales, an improvement of 70 basis points versus the prior year, reflecting strong incremental margins on higher volumes. Turning briefly to the VLJV, as a reminder, our first quarter of the prior year included $173.5 million of total equity and earnings, of which a substantial portion was related to the divestiture of its electrical products group. While this creates a difficult year-over-year comparison, it's important to note that our current results reflect our 40% interest in the remaining business. Our JV partner continues to pursue the divestiture of its remaining avail operations. Interest expense improved to $11.3 million, down $7.3 million from the prior year, driven by deliberate debt reduction following the avail distribution and financing optimization initiatives discussed in more detail in our SEC filings. This highlights the strength of our balance sheet, support from our capital market partners, and our continued focus on reducing debt and the company's cost of capital. First quarter's income tax expense of $14 million reflects an effective tax rate of 21.2% compared to 22.2% last year when we exclude the impact of the JV equity earnings. GAAP net income was $52 million, and adjusted diluted EPS was $1.85, up 3.9% year-over-year, demonstrating continued earnings growth despite the absence of the prior-year JV-related earnings. Consolidated adjusted EBITDA was $99.5 million, or 22.2% of sales. Infrastructure Solutions adjusted EBITDA dropped from $7.6 million in the prior year first quarter to a loss of $0.8 million in the current quarter, reflecting the impact of the business divestitures in the AvailJV that occurred throughout fiscal year 2026. projects. In our metal coating segment, an increase in large projects and the sale of land in the prior year quarter contributed to a drop on year-on-year margins, while margins in our pre-coat metal segment improved modestly on operational performance and mix from our Washington, Missouri facility. Importantly, underlying margins remained strong and consistent with our long-term expectations. As Tom noted, our Washington, Missouri facility volumes continue to ramp in line with expectations and remain on track to contribute meaningfully to revenue and profitability as we move through fiscal year 2027. In addition, we are starting to make progress in commercializing the remaining capacity at this facility. Turning to our balance sheet in capital allocation. We generated $37.1 million of operating cash flow in the quarter, driven by earnings growth and disciplined working capital management. Our net leverage remained low at 1.4 times, providing significant flexibility to fund growth and return capital to our shareholders. Capital expenditures totaled $18.7 million, with a growing focus on high-return organic investments. We remain committed to returning capital to our shareholders. We recently increased our quarterly cash dividend from $0.20 per share to $0.24 per share, representing a 20% increase and further underscoring our confidence in the sustainability of our earnings and cash flows. In addition, we continue to maintain a strong share repurchase program with $133.2 million available, however, no shares were repurchased in the first quarter. Overall, our capital allocation priorities remain unchanged, that is, to maintain a strong balance sheet, invest in high-return growth opportunities, and return excess capital to our shareholders. With that, I'd like to turn the call over to David.

Thank you, Jason, and good morning, everyone. This quarter, we have enhanced our disaggregated sales disclosure in the 10Q to provide greater transparency and improved end market comparability. Our reporting now reflects six primary categories. Construction, which remains our largest end market, and includes commercial, residential, agriculture, and data centers. Industrial, mainly comprised of processing plants for a variety of applications, including power, food, and water as examples. Infrastructure includes electrical, transmission, and distribution, solar, petrochemical, and bridge and highway projects. HVAC and appliances includes both residential and commercial HVAC, as well as appliance. Transportation includes truck, trailer, bus, and RVs. And finally, container, which represents food and beverage-related end markets. Our other category represents all other miscellaneous sales. This updated framework better aligns our disclosures with how we manage and evaluate the business and no longer calls out consumer or electrical. Now, turning to performance. Consolidated sales grew 6.3% year-over-year. Construction grew at 3.9%, driven by continued strength in large data center and manufacturing-related projects. Industrial sales increased by 7.8 percent, supported by increased demand for utility-scale power projects. Container was up 194 percent, primarily resulting from the ramp at the new Washington, Missouri plant, as mentioned by both Tom and Jason, while infrastructure was essentially flat compared to the same quarter in the prior year, with mixed results by segment. Offsetting our growth in construction, industrial, and container end markets were transportation down 1.2% on lower commercial trailer activity and HVAC and appliances down 2.4% on lower residential new construction. Looking ahead, we believe we are in early stages of a significant and sustained investment cycle. Modernizing the aging electric grid to support our nation's accelerating electrical demand will require a meaningful step up in capacity and capital deployment. This dynamic, combined with ongoing investment in infrastructure, energy, and industrial capacity, supports our view that a once-in-a-generation infrastructure rebuild is underway. Our thesis is that AZZ is well-positioned to benefit from a multi-decade capital investment cycle across utility, transmission, distribution, and grid technology. Importantly, these trends are not cyclical. They are structural, long-duration drivers that are increasingly central to our customers' capital spending priorities. We continue to see strength at the customer level. For example, one of our largest galvanizing customers has recently reported a 35% growth in their utility-related structures backlog. While we do not operate the business on a backlog basis, this customer's demand forecast, along with others, provides us confidence in future activity and the durability of certain end markets. With that, I will turn the call over to Tom.

Thank you, Dave. Adding to Dave's commentary on industrial infrastructure and utility momentum, we are evaluating how our footprint aligns with anticipated demand. Recently, the southern U.S., beginning with Texas and expanding east through key growth states, is expected to account for nearly half of the country's proposed utility capital spending. This reinforces our recently completed capacity expansion in North Texas, which we believe is both well-timed and strategically aligned with our growth priorities. Reflecting strong sales momentum and operational resilience, we are confident in raising our fiscal 2027 outlook. we now expect sales of $1.8 to $1.85 billion, adjusted EBITDA of $375 to $415 million, adjusted diluted EPS of $6.75 to $7.15. As we drive growth, we also expect to reduce debt by $130 to $170 million in fiscal 2027, Demonstrating our continued commitment to balance sheet strength alongside expansion. Looking forward, our strategy remains clear and consistent. We are scaling the business through a combination of organic investments, market share gains, and a disciplined M&A approach. We are actively evaluating a robust pipeline of high-quality acquisition targets that align with our core capabilities and meet our return thresholds. We expect to announce a deal later this month. We are also evaluating greenfield galvanizing opportunities where we can partner with strategic customers. These efforts position AZZ to capitalize on what we believe is a long-duration secular growth cycle driven by increasing demand for infrastructure, electrification, data centers, and grid modernization. At the same time, aging infrastructure across North America continues to require significant reinvestment, further reinforcing the long-term opportunity set. Our confidence is reflected in the Board's recent decision to increase our quarterly cash dividend to $0.24 per share. Finally, we believe AZZ is uniquely positioned operationally, strategically, and financially to deliver sustained, profitable growth and long-term shareholder value. Before we open the call to questions, I'd like to recognize and thank our employees. I am proud to work alongside such a talented and dedicated team that brings pride and passion to everything they do to serve our customers. Now, Operator, we are ready to take questions from analysts.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Gancham Punjabi with Baird. Please go ahead.

Hey, guys. This is actually Josh Vesely on for Gancham. Thanks for taking my question. Maybe, you know, Tom, if we could just start off on just the overall market conditions. You know, obviously it sounds like end market demand is pretty robust for you guys. But, you know, just in terms of the volatility over the past few months with energy costs, you know, from the Middle East, et cetera, you know, just curious how that's kind of translated into, you know, customer decision making, you know, how they're thinking about going forward with projects. Are they getting delayed right now and getting pushed into the back half of the calendar year? Anyway, you know, any thoughts on your end would be great.

Sure thing, Josh. You know, a couple of things. One, on the metal coating side, I think, you know, the markets are robust. You see it in the growth in the quarter. And, you know, us taking our guidance up is because we see a lot of strength there going forward for at least the balance of this calendar year. There's been talk of project delays, you know, depending somewhat on interest rates or energy costs, things like that. But for the most part, the things that we're seeing, they've got to put towers and poles in the ground. They've got to continue to improve the grid. And then data centers, I'd say the majority of our plants have at least one data center project going on at any given time lately. So, you know, we have not seen much in terms of headwinds there. Matter of fact, it's mostly stuff moving forward, customers converting capacity to where they can focus more on poles, towers, and things related to electrical infrastructure. On the pre-code side, I'd say we've encountered the tariff impact, which has made substrate less available in many ways or of higher cost. I think that's probably stabilized at this point as we're looking forward. So not much more impact on tariffs and the substrate prices have gone up. It could actually bring some imports back into play, which is generally good for our customers on the pre-coat side. So I think everything we're looking at, it's pretty positive. And we feel like either, like on pre-coat, we've bottomed and stabilized in terms of market conditions. We're benefiting from the container demand, especially for the new Washington site, which has ramped up according to schedule and pretty much hitting its pace now and almost at its run rates early. And on the metal coating side, there's just not a lot of clouds on the horizons. Obviously, we battle it out at 48 sites every day, but most of those sites, I'd say we're winning every day.

That's great. Thank you for that. Maybe just for my second question, Tom, on that de-verticalization model that you're talking about with your customers, just any more color on that would be great. I mean, it sounds like a lot of it are maybe customers that you kind of serve as flex capacity for right now. Is that correct, and is this a trend that's kind of growing across your customer base? How should we think about that?

Yeah, it's something we talk about and we like, and we talk to a lot of our customers about it. If they've got a kettle, especially when that kettle goes down and they've got to replace it or repair it, that's a great time for our teams to be in there talking to them, why do you want to go through this headache? We've got, you know, plants within relatively short distances from you. We can negotiate a long-term agreement, and we can take that furnace and kettle off your hands and give you a decent price for your sink. So we're having those conversations with customers all the time. There's, you know, a target list of those. We're happy that we finally got one closed. We had not done one of these since, I'm going to say, about five or six years now. So we'd love to see this turn into – And that's why we wanted to talk about it, because we just want to make sure our customers, we've got their attention, that this is something we can do. And we're happy to deploy some of our capital towards, you know, helping them with what we think is a better long-term solution for them. And we just like to think we're a whole lot better at hot-dip galvanizing than they probably are, since it's not their focus. That's great. Thank you, guys.

The next question comes from Nick Giles with B. Riley. Please go ahead.

Thank you, operator, and good morning, everyone. This is actually Henry Hurl on for Nick Giles. Maybe to start off. Hey, guys. To start off on M&A, you know, it's been in the background for a while now, and you mentioned likely announcing one this month. I'm just curious on what some of the gating factors might be. Willing sellers, sites that make sense geographically, any color there would be really helpful.

Yeah, I think, you know, the one I'm hoping we're going to close, I'd say we got a little bit rusty. Even though we did a camp and galv last year, normally I'd like to see us get these done in 45 to 75 days. And this one's kind of drug along for about six months now. You know, particularly on what I'll call a one-off galvanizer. So, you know, I think this is us being disciplined and making sure that, you know, it's not just that we're crossing the T's and dotting the I's. It's, you know, that we've got to have a sense of urgency about getting these things done. And because they just drag and, of course, it costs us money to do that, but it also delays our ability to take them on and get them into our process and our playbook. So there's more out there. I think we're having a lot of conversations. Obviously, galvanizing market is fairly hot right now. So some of these owners, I think they're kind of sitting on what they view as good demand at the moment and just not at that peak point where they're ready to transact something. But, yeah, I'd say our guys are having conversations every week, every month with, you know, a pretty good number of these independent owners. And I'd like to see more of them break loose. We're paying better multiples than probably we have historically. but it's, you know, part of that's just our ability and our confidence in our ability to drive the synergies and grow those businesses. So, you know, I'm hoping some more will break loose. It'll be good to get this next flag on the map for us. And then on the pre-code side, we're also working some things. Obviously, those are typically bigger, but they would still be a bolt-on because we want to be able to bolt it on, drive the synergies, run the playbook, and not disrupt anything. So we're not looking for anything like a third leg.

Gotcha. That's very helpful, Culler. And then just to confirm, with the one that might close at the end of this month, would that be the same one you mentioned on your last call that was in due diligence?

That's correct.

And then for my second question, you know, 1Q came in really strong here, and your EBITDA run rate is now at the higher end of your updated guide. As we try to model, you know, 2Q and 3Q, knowing 4Q tends to be softer, are there any seasonality or other factors we should be keeping in mind?

No, we're feeling pretty good. I mean, you know, the things that affect us, fourth quarters usually tell us what the severity of the winter is going to be, and we'll tell you what our forecast is going to be for that quarter. But, you know, I think, which is why we'll, you know, re-forecast that as we get towards the, as we can see what winter's stacking up to be. But in terms of summer and early fall right now, there's nothing on the horizon that gives us any concern. If a hurricane pops up, usually that, unless it hits our sites directly, it's usually more positive than negative for us. So not that we're projecting any. But, yeah, there's nothing within our control or that we're hearing from our customers that would indicate we're going to see anything unusual. So we would anticipate second and third quarters tracking. And I will say, you know, we're almost halfway through the second quarter. And we got off to a really good start. So we're feeling good.

Understood. Thanks a lot. And continue the best of luck.

Thank you.

The next question comes from Daniel Rizzo with Jefferies. Please go ahead.

Hey, guys. Thanks for taking my questions. You mentioned a couple things. One, you mentioned, like, essentially doing some greenfield facilities with customers. For you to build that, would there be, like, the customer have to be responsible for taking on 75% of EBITDA? How would it be structured? Is there, like, a take or pay component? I mean, any color. And I guess what would be the cost, too, to you guys in terms of CapEx?

Yeah, on the galvanizing side, we typically, on pre-coat, we went with the TegraPay because it was a huge investment. And particularly for AZZ, we were new into pre-coat. So we wanted to make sure that we had the demand there and that we had a great partner customer committed. For galvanizing, we're just usually looking for anchor customers, so usually existing customers that we do a lot of business with. but maybe they've expanded the site, they're investing in some new production capacity, and we want to be partnered with them, so we're not looking for a contractual arrangement. I would just say that we've probably got about a dozen of our sites that have that anchor customer that makes up anywhere from 10% to 25% of volume. And as long as we've got that kind of knowledge and, clearly, the relationship, yeah, we don't require a contract. we're typically probably with inflation the way it's been on materials kettles furnaces everything else which you've seen in our run rate capex you know we're looking at 35 40 million dollars to including real estate or even say someone dependent on the cost of the real estate in some cases 18 month build out and then you know ramp up and because they're you know we're talking to what we would consider anchor customers. The ramp-up should be much quicker than we did in Reno, which was our last greenfield plant. And the ramp-up took longer. We didn't have an anchor customer in the area. We did it just because it was a high-growth region that had a lot of potential for the future, which we're very pleased with at this time.

Are there other high-growth regions you could point to? I don't know if you can do that on a public call or anything like that, or places you're looking within the U.S. or wherever?

yeah i think when yeah i'm not going to point to anything specifically when uh you know what once we commit to some real estate we'll get an announcement out and um and let folks know where where we're at and what we've committed to um there's quite a few you know when we look at a map even though we've got 42 hot dip galvanizing plants uh you know there's still quite a quite a bit of open space out there with growth you know we we tend to be either in the high growth states like texas right now and some of the southeast and um but yeah there's there's several places where we think we could provide a better solution than some of the competitors and uh and and provide it closer to some of the customer concentration so you know it's it um and i'd say this is this is a balanced strategy if if we could buy a decent competitor in the area we'd love to do it but these are areas where there is some competition but but they're not going to be willing to sell. So that brings forward the greenfield opportunity, and particularly when we're talking to major customers who want to have that discussion. Thank you very much.

Sure thing. The next question comes from Adam Valheimer with Thompson Davis Co. Please go ahead.

Hey, good morning, guys. Congrats on the strong Q1. Good morning. Hey, Tom, I wanted to ask, and you've talked around this but I still feel like it's worth asking you know you guys beat the first quarter by on the EBITDA line 2 million but you raised the full year guide by at the midpoint by 15 million which is a pretty it's a strong move and I'm just curious what gave you the underlying confidence to do

yeah part of it is that the new Washington site it's hit its It's hit its dates and commitments, and so we're feeling bullish about that new site and working with our partner and what they're telling us. So a chunk of it's just tied to the new site getting to its run rate targets, and we believe being sustainable at those run rates sooner than we had budgeted for, if you want to call it that. So that's one piece of it. But as I mentioned, on the pre-coat side, there's a couple of things going on. We're seeing, you know, even though the markets in some areas are still soft because of the lack of substrate, still you've got paint price increases that have gone through. You've got – and we've got, you know, our usual material burden and stuff we put on top of that. And then we have – we are pushing price to either keep up with material inflation, And in some cases, we've added – well, we are adding surcharges on the zinc because zinc stayed high. So you factor all those things in, and we felt good about taking the EBITDA up significantly more than what we had generated in the first quarter.

Awesome. Yeah, it's great to see. And then on the expansion at Crowley, is that fully ramped yet? And I'm curious if there are other facilities where you could do the same thing, adding a kettle.

yeah so you know it's always nice when we can do that it's not even really a brownfield we're basically you know we were structured to be able to to tuck in that second kettle and ramp it up we had the demand for it so uh so we feel good about that that's another piece uh as we look at the outlook for the for the second half of the year that uh that'll be at full uh full run rates we've got others we look at this Texas just it's a hot market I'd say there's probably a couple others the other thing we're doing is we talk about secondary services so as we put in ground line coding and things like that so we've done that in a couple of sites we put in a spin kettle not that long ago so these are things we're continuing to look at and I don't think we have another kettle ready to go, the balance of this year, but as we get to the planning process, we'll start looking at that. This was one that we pulled forward late last year, which is why we were able to get it ramped up this early in the year instead of waiting. So, you know, we'll continue to look at that. I think we're feeling good. We had, I think we talked about this. We put a team in place, call it operational excellence and support, which allows us to probably be more aggressive on some of these investments and get them in the ground faster and get the production from them. So we're feeling real good about what the team's doing in that

regard. Perfect. Good luck with the rest of you, too. Thanks.

All right. Thank you. The next question comes from Tina Tanners with Wells Fargo. Please go ahead.

Yeah, hey. Good morning. I wanted to ask about the metal coating sales progress, so double digits for the last four quarters. and that's coincided with a really strong move, of course, upward in zinc at the same time. Can you just remind us how to think about what a flatter zinc outlook could mean for the sales growth in that segment?

Well, a couple of things. One, we don't, unlike with paint on the pre-coach side, we don't tie the pricing directly to, generally we don't tie the pricing directly to zinc. But with zinc where it's at now and where it's – even if it doesn't continue to trend up, we would still move forward with the surcharges because of the level it's at. So unless it took a significant dip down, you're going to see the surcharge impact flowing through in sales. So I think that's one piece. In terms of the other, you know, typically the zinc we're buying today is going to flow through our kettles in six to eight months out, so we're very confident that we understand what the cost is going to be going through those kettles, which also makes us confident in what we're going to be doing with the surcharges. We did do some general pricing, but Tim, as you probably remember, we price individually at all 42 sites pretty much every day, so they're reacting to the market. Obviously, we have some margin targets and pricing guidelines in place, and then when we put through a blanket or when we put through surcharges, those are mandated from the top, but in reaction to what's going on in the local market. So we feel real good about sustainability of the actions we've taken and how that's going to flow through into continued sales and revenue.

Okay, that's helpful. Can you elaborate on the comments you were making about some of the struggles to obtain substrate? What do you mean by that? I mean, I know there's higher tariffs on imported material, and then you mentioned that there may be more coming in going forward. I think that's a function of the higher prices maybe starting to attract supply. But can you elaborate on what that means for your business to understand that dynamic better, please?

Yeah, because most of our customers, their choice is to either buy from a mill and a mill who paints or buy their substrate from a mill or distributor and then have us paint it. So the imports used to be heavily, when our customers were buying imports, imported substrate, that was a high percentage chance that we're obviously going to be one of the ones that paints it. Versus domestic, it's a little less so. So the availability for our customers is costing them more for the substrate, as they're buying it today, either because of the tariffs and what domestic mills are pricing it at, which, to your last point, is now making some of the imports potentially more attractive because it's at a price point that makes sense, even including the tariffs. So that's just been a thing that we've run into where our customers are managing their inventories a little tighter, their ability, and Jason can probably add something to this since he's close to it. You know, so it's just created some disruptions in ability to plan, ability to know for sure that you've got the substrate available for your demand and how you're making those decisions.

I mean to be fair Tom I wouldn't add much more on top of that just the supply constraints that our customers are seeing is having an impact in their decisions that we're working very closely with them to get through those disruptions as the supply starts to ease itself up a little bit and hopefully some imports come into that equation then it gives our customers more options that a lot more of that business starts to flow through pre-quote versus other alternatives So it's been a challenging environment over the last 18, 24 months, and, you know, we see the horizon. It's starting to ease itself up a little bit.

Okay, that makes sense. Thanks for the detail.

Sure.

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

Thank you. With respect to the Washington, Missouri facility, you mentioned that it's approaching its target run rate. So if we could just step back a minute, could you just remind us the full capacity? You know, you've got roughly, I think, 75% of the capacity that's under contract. So what are your production targets, and where is the facility operating now, and how long will it take to get to your production target?

Yeah, good question, Mark. We spoke about the facility in the $50 million to $60 million sales range for that 75% capacity. As you look at our Q1 performance, then we are starting to approach that on a run rate basis, so plus or minus $15 million. Certainly, we're not at $15 million, but we're starting to approach that as you look at our progress through the quarter. As we start to get into the second half of the year, then we should be starting to hit those targets from aligning with our contracted customer. And then, you know, equally as we come through the quarters, we come through the year, our margin profile, our operating performance starts to get up to, you know, kind of full run rate. to the point that once we get to the end of the year, via our contracted customer, we should be at those full run rate metrics and performance. And, you know, then it really starts to provide a meaningful impact to our financial performance. On top of that, the other 25% as we start to really get into the swing with our partner customer, it allows us the opportunities to start to think about that next 25%. So it's starting to become a part of our thought process and our discussions out there in the market. But, you know, that's still further out there into the second half of the year.

Is it more helpful to talk about it in terms of the revenue versus, say, like the tonnage or the output?

Yeah, I mean, the tonnage, you know, we certainly convert it into tons. We've always spoke about revenue. We don't really speak a lot about tons. The challenge with this facility is it's 100% aluminum, and you start to talk about tons, and they really get, you know, add another layer of confusion in comparison to the vast majority of our world is steel.

Okay. Well, that was very helpful. Just a second question, and I did appreciate the disaggregated sales section in the 10Q, and I was hoping that David, he provided a lot of color on this call, But if you could just maybe dive a little deeper in terms of the construction and industrial, what really kind of drove that growth? Was it data centers, you know, and how durable do you see that? And then are there any puts and takes for the remainder of the year in any of the other categories? I guess we would expect to see container continue to grow with Washington, Missouri. But what about some of the other categories?

Yeah, sure, Mark. I'll jump in on that one. A couple of things. Certainly one of the, and in fact the highest growth area in our construction segment was data centers. So certainly outpaced the rest of the group. But, you know, double-digit growth there as well as in general construction as well. So I think we feel pretty good about, you know, what we're seeing overall, as Tom had mentioned with, you know, the customers and the backlog for the back of the year. but certainly data centers led that segment, or that end market, rather.

Okay. Well, thank you very much.

The next question comes from John Fansrup with Sidoti & Company. Please go ahead.

Good morning, guys, and congratulations on another good quarter. I might have missed this, but when you raised your revenue guidance, it seems to me like it was entirely in metal coatings. I didn't hear any underlying meaningful improvements in pre-code. Am I reading this properly, and does that explain a lot of the EBITDA improvements? I'm just curious about how you deconstruct the revenue guidance by segment.

I mean, I can certainly add to that. When you think about both segments and where we put our guidance out at the start of the year, coming out of the winter season, coming into our construction season, And equally, as Tom has commented, as you think about our Washington facility, all of those have contributed to us providing an update to our guidance and an improvement in our guidance. So I wouldn't necessarily say it is only centered in the metal coating segment, especially when you bring the new Washington facility in. So it's more across the board as you look at it. And certainly that's what we're seeing as we, you know, we look at it more from a market point of view as opposed to the two businesses.

And I'm just curious, with the new facilities, the Greenfield facilities, were they included in the revenue guidance, the original revenue guidance?

No.

No. No, they were not. That's helpful. Thank you very much. I'll get back in the queue. Thanks.

The next question comes from Eric Boyce with Evercore. Please go ahead.

good morning and thank you um 765 kv higher voltage transmission is kind of an interesting storyline in tnd i'm just wondering with your kettle size and footprint um how do you see that flowing through to az is that incrementally meaningful and then do we maybe see that in calendar 27 or is that something that's further out thanks yeah you know we do think that that's

going to be meaningful to us. As you know, AZZ operates the largest kettles in the nation. So certain locations, like we mentioned, Crowley, Texas, Arizona, areas where we've got some of the largest kettles in our fleet are ideally positioned for some of the larger KV projects. And most of those towers, too, are ones that have multiple sections to them. So when you think about the way they are constructed and then galvanized, they fit pretty well into our kettles. So we do think that as that segment of the market continues to grow, we're going to be really positioned well to take advantage of it. Okay, thanks. And for my second,

can you just speak to how the large project mix in metal coatings and T&D, data center solar, et cetera, may impact EBITDA margin structurally there? Thanks.

I think the team's done a great job of, as I mentioned, some of the surcharges and things like that that they're doing going forward So to protect margins and offset the material inflation and things like that. So even though large projects are more competitive, we still have a really good mix of business overall. And I don't know that the mix is – well, I do know that the mix is we look forward. We don't anticipate it being a whole lot different than what it's been the last couple of quarters. So we feel good about that margin profile and the team being able to drive their scale and their leverage and do what they need to do on surcharges and things like that to offset the material inflation to be able to protect those margins in the 30% range.

Appreciate that.

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

Yeah, thank you for joining us today. And I don't think it came up on the call, but at least I don't recall any questions about it. But we obviously, as Jason had mentioned, we do have an approved share buyback facility that, you know, if the stock continues to trade in the range it has for the last week or so, then we would anticipate being in the market to buy some shares back. Good point in time for us. Other than that, I think we've pretty much answered what we hope y'all wanted to know. Look forward to finishing up a good Q2 and having another conversation here in a couple of months. So, thank you very much.

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