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Good morning, and welcome to the A

Thanks, Gary. Good morning, and thank you for joining us today to review A

Thanks, Joe. Welcome to A

Thanks, Tom. We finished in an extremely busy first quarter, closing on the Precoat Metals acquisition and funding the acquisition with a new credit facility that significantly modified our debt structure. And then subsequent to the end of the quarter, we announced entering into a definitive agreement to sell a majority stake in our A

Thanks, Philip. For Metal Coatings, markets remain strong, and the team continues to focus on taking share and expanding our service offerings. Fabrication activity is solid, although a few customers are experiencing steel shortages or delays.

[Operator Instructions] Our first question is from John Franzreb with Sidoti & Company. Please go ahead.

Good morning, guys. Thanks for taking the questions.

Morning.

I guess I want to start with Precoat here. The revenue contribution in the two short weeks as part of the company is very impressive in my view. Can you talk a little bit about the sustainability or is there something to a time here that we should be cognizant of? Just a little bit more color on how that's going to play out on a go-forward basis based on the current order book?

Yeah, John, good question. Number one, let's not multiply those - that into like four quarters. But first quarter in terms of their first quarter with us is typically a strong construction quarter, as will be the second quarter. So this is kind of high season, similar to our galvanizing business. But generally, they're carrying a lot of customer steel and aluminum, which provides stable opportunities going forward. We see that continuing. We're having to add space to be able to absorb those higher than normal customer inventories. We're also carrying more that's been coating - been coated. So it bodes well for Q2, which is why we decided to go ahead and give our outlook for that. Hopefully, that gives you a little bit of color.

Okay. Fair enough. And on the Metal Coatings business, another impressive quarter. Can you talk a little bit about your ability to pass-through zinc prices that - it seems like you're carrying higher zinc, at least, we'll be carrying for the balance of this year, despite the fact that we're looking at a falling zinc market, maybe kind of reconcile what the pricing environment is looking like for you on a go-forward basis?

Yeah, I think there's a couple of things there, John. It's one, we've done a lot with digital galvanizing and how we provide customer service and how we manage customer jobs. So I think the value we bring as A

Got it. And since we maintain a stake in IS business, the margin profile has been the best in years. Is there anything in particular that drove that margin? And how sustainable is that? Do you kind of suggest there's going to be kind of a little bit of a flattish market on a go-forward basis until we get to the fall?

Yeah, I think there's a couple of things. One, if you were to ask me 3 or 4 years ago, whether we could book electrical projects with 12 month lead times, I would have probably laughed and said we'd be out of business. But because of supplier component delivery cycles, and you know, it's virtually every major component from breakers to panels to even some of the steel in some cases, is just out there pretty significantly. So we've had a lot of customers that have booked projects well in advance of what they normally do. So that allows us to flex how we manufacture and produce to utilize the labor that we have available to manage our supply chains which has allowed us on the electrical side to improve our margins pretty significantly. And we think that's sustainable going forward because everybody is scrambling for supply and predictability of delivery. So we're using a lot more contract labor to help us with where we have skilled craft shortages. And then on the WSI or the industrial side, as we mentioned, the third quarter is stacking up very nicely. We had taken some pretty significant cost out during, well, 2020, so fiscal '21 for us. Because of COVID, and so I think their margins are more sustainable. And then when we get the opportunities, particularly on some of these nice international jobs where we can get the engineering done early and be ramped up to deploy in the fall season, then that also improves our surety of margins and - and I do think Fernweh being consulting expertise oriented. I look for them to continue to sustain that and maybe even improve it beyond what we've been able to do.

Okay, great, guys. Thanks. I'll get back in the queue.

The next question is from Noelle Dilts with Stifel. Please go ahead.

Hi, guys. I was hoping that you could sort of walk us through more of the details on the trends you're seeing in the end markets for Metal Coatings, both the legacy business and then with the legacy business and then also on the Precoat side, how you're thinking about some of the more commercial and residential exposure and how you're thinking about higher interest rates impacting those markets? Thanks.

Yeah. Hi, Noelle. Good morning. It's David. I'll take those. So starting off on the Metal Coatings side, particularly the legacy business, we're still seeing strong demand from the typical end markets, including utility, the T&D markets, general construction, as well as renewables, particularly in solar. So all those markets are holding up really well, and we like what we're seeing with respect to each of those. When we switch over to Precoat Metals and you take a look at that, the biggest market end markets served there is the general commercial, industrial and – or excuse me, architectural construction markets, which equates to about 26% of their volume. So still seeing good demand coming out of there as well as the container market, which is about 23% of their volume. So collectively, that's about half the business, and we're still seeing a strong demand, like I said, from both. I'll turn it over to Philip for your other half of your question.

On the…

Financing.

On the financing, yeah, I mean we're looking at our – Noelle, our interest rates will be a lot higher, obviously, this year, sulfur based. We're - we have good visibility to what is going to cost us and the cash flows we're generating should cover that. I don't know if you have specific questions Noelle.

Sure. That's fine. Thank you. And then I guess just one sort of housekeeping question. You talked about anticipating and seeing higher levels of amortization, which is expected after the deal. Is that something you'd be adjusting out in adjusted EPS? Or are you thinking about keeping - including that? Just curious how you're thinking about treating that from a reporting perspective?

Yeah, we're still evaluating that as we finish the purchase accounting Noelle, but it is a big number. And so we will look to highlight that cost, either in an adjusted basis or in our earnings presentation because it's a significant number and much different than where we've been historically.

Okay. Thank you.

The next question is from John Braatz with Kansas City Capital. Please go ahead.

Phil, just going back to the borrowing costs. At this time, what you got $1.6 billion outstanding. What's the rate you're paying on that debt?

Right around 5.5%. Blackstone equity piece is 6%.

Yes, yes. Okay…

And then our Term Loan B is running about 5.5% right now.

Okay. Given the formula used in that rate, assuming the Fed raises rates 75 basis points, would you see that number going up 75 basis points too?

We would.

Okay. Okay. All right, all right. David, you mentioned some of the stronger markets in Metal Coatings and you know, it seemed as though the solar market maybe tailed off a little bit because of the issues surrounding tariffs. But you said it was still fairly strong. Did you see it back off at all with the possible imposition of tariffs?

There's always that possibility with the imposition of tariffs. For us, in particular, what we see, of course, is that there's a lot of steel that has to get fabricated and then galvanized to support the panels. And I know earlier this year, there were some issues with respect to panels and panel shortages. Those have largely subsided and are starting to come back into the market. So that's why we still look pretty optimistic around what we're seeing in solar.

Okay. Okay. On the Precoat business, most of the costs are passed through quickly. Was there any delay in passing through the higher paint costs?

No. Precoat has been - as the customers are hit with paint increases from the paint suppliers, they're able to quickly pass us along.

Yeah, because usually, they're specified by the customer, so.

Okay, okay. All right. Thank you.

The next question is from Josh Taykowski with Credit Suisse. Please go ahead. Josh, your line is open or perhaps you have muted.

Hey. Can you hear me?

Yes, sir.

Hey, Josh.

Good morning. Good morning, guys. Just a couple for me. First, more administrative. Just looking at the reconciliation on Page 21, totally get the 12.6 in acquisition costs. But the Precoat contribution, the negative 6.7. Just trying to understand that, it looks like you're stripping it out to show, I guess, the year-over-year comparison of the base business. But I guess, is that correct? And then how does that 6.7 compare with - it looks like $9 million of contribution from Precoat this quarter?

Yeah, that is what it was. Just attempting to strip that out to be comparative for the legacy businesses. And it was - one was operating income and then the $9 million was the EBITDA. So that was the only reason for doing that since we were also stripping out all the onetime costs and incremental amortization that we picked up just because it was - they were on the books for 2 weeks.

Got it. So is the difference between - if I look at - I know this is - we're talking $2 million of differential here, so I apologize, but just curious, is that the difference between like a “GAAP EBITDA” figure and adjusted EBITDA?

It is.

Okay. Okay. Got it. And then just the last one for me. I know you mentioned in the prepared remarks some issues getting - procuring zinc. I was wondering if you could just comment a little bit further on that, what kind of issues are you seeing? What's the - how much do you have currently in the kettles and how long can you go?

Yeah. So it was more around just regional supply. And a lot of the LME warehouses were depleted. And I think there was a smelter in Brazil or the - it was a mix of things. So the inventory I'm talking around about we keep our kettles full, but we also carry some ingots in certain plants just for this eventuality, so that we can transport those and move them to ensure that our kettles remain full and functioning. So that's the inventory I'm talking about. And we were in good shape. We were able to move that. It was just part of the benefit of having over 40 locations and having inventory in several of them that we can move around.

Sure, sure. And is there any thought behind, I mean, I guess, to the extent you can find it, but kind of just given where we're seeing spot zinc prices today, any consideration in purchasing in bulk and just kind of holding on to it?

We typically don't purchase in large bulk, but as the pricing has come down as quickly as it has. We look across the facilities and purchase inventory as we can find availability and - but we don't want to - we typically don't load up on inventory.

But this is kind of a unique situation. So we are - and we do, we look at it - well, the team looks at it every day. But these are things we look at and try to - primarily we're focused on availability. But in this case, it's just dropped so quickly. So we'll work with our banking advisers and which we do every month and every quarter. Just - so I don't want to preclude that we may not do that as it's always a possibility. But at the moment, we're continuing to kind of let it right [ph].

Got it. Okay. And then maybe if I could just sneak one last one in. I know you touched on demand already, but any pockets of end market customers where you're seeing it actually starting to weaken a bit more?

That - on the Metal Coatings side, no, there's obvious geographic things as we see for a while, we saw cellular fabrication move into different parts of the country. But yeah, I can't think of anything and not really. And even on the Precoat side, I know a lot of the analysts will follow things like non-residential construction. However, the areas within non-residential construction that we particularly play in on the Precoat side have been performing quite well. So we're really not seeing any particular end markets with slowdowns.

[Operator Instructions] The next question is from Brett Kearney with Gabelli Funds. Please go ahead.

Hey, guys, good morning. Congratulations on execution on the base business as well as all the moving pieces strategically.

Thanks, Brett.

Thanks, Brett.

Just had one question on the JV partnership with Fernweh. It sounds like a great fit for that business going forward. And I know you guys had highlighted in the past, you know, this business could benefit from someone kind of dedicated 100% operationally and maybe even some incremental investments to make there. I know you can't speak directly for them. But anything you understand in terms of how they think about investing in that business and whether that would kind of - would like 40% of go-forward growth investments you guys be funding?

I think there's a couple of things there. We did believe that if we could focus more fully and consistently to streamline processes and do some of that kind of thing that there would be a benefit. But for the last 2 years since COVID that has pretty much been put on hold. Now interestingly enough, I had known the firm of our guys is when they were still with McKinsey. So we'd actually been engaged with them in discussions around some of these potential process improvements, which is why it became one of our opportunities to pursue that fairly quickly as we pivoted to it. So I think it's around streamlining processes moving to quoting one product where it makes sense like for enclosures or switchgear, including the best product from the best location, which means you've got to have rough cut capacity planning in place, S&OP, stuff like that. So these are all things that I think Fernweh can bring to the table quickly. We have really, really good operating teams. And these are mostly the ideas that they've been serving up the last couple of years, but we haven't been able to focus on it. In terms of the capital investments or if they could do tuck-in acquisitions, things like that, we'll look at each one of those on its surface and decide whether to invest, we're not required to by contract. But obviously, we'll have to make a decision around each one of those if it's significant, and there would be additional capital required either for an acquisition or for a major growth investment. So we look at them. We're not ready to call the ball on that. We'll have a couple of board seats. So we look forward to seeing those opportunities.

Okay. Terrific. And then just on the convertible with Blackstone, is it the expectation just timing-wise, that, that would, if upon shareholder approval, that would kind of convert to preferred equity this week?

Yeah. I think it's got a 5-day window, if I remember correctly. And so at our shareholder meeting tomorrow, we anticipate that would be approved. If it's approved, then we'll go ahead and move into that 5-day or 7-day window of exchanging.

Terrific. Thanks so much, guys.

All right, thanks.

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

All right. Well, thank you. And we appreciate your attention. We look forward to presenting the second quarter results here and just what seems like just a few weeks. But - so we thank you for your time. We thank all of our employees that have also logged on to listen in, and we look forward to talking about another quarter of success and completing another one of the major strategic transactions. Thank you.