Tom Ferguson - Chief Executive Officer Philip Schlom - Chief Financial Officer David Nark - Senior Vice President, Marketing, Communications & IR Joe Dorame - Lytham Partners.

Good day! And welcome to the AZZ Inc. Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded.

I would now like to turn the conference over to Joe Dorame at Lytham Partners. Please go ahead, sir..

Thank you, Matt. Good morning and thank you for joining us today to review AZZ’s financial results for the fourth quarter and fiscal year 2022, ended February 28, 2022. Joining the call today are Tom Ferguson, Chief Executive Officer; Philip Schlom, Chief Financial Officer; and David Nark, Senior Vice President, Marketing, Communications, and IR.

After the conclusion of todays prepared remarks, we’ll open the call for questions. Please note, there is a slide presentation for today's call which can be found on AZZ's Investor Relations page, under Latest Earnings Release Presentation at azz.com.

Before we begin with the prepared remarks, I would like to remind everyone, certain statements made by the management team of AZZ during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed from time to time in documents filed by AZZ with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended February 28, 2022.

Those risks and uncertainties include, but are not limited to changes in customer demand and response to products and services offered by the company, including demand by the power generation markets, electrical transmission and distribution markets, the industrial markets, and the metal coatings markets; prices and raw material costs, including zinc and natural gas, which are used in the hot-dip galvanizing process; changes in political stability and economic conditions of the various markets that AZZ serves, foreign and domestic; customer-requested delays of shipment; acquisition opportunities; currency exchange rates; adequate financing and availability of experienced management and employees to implement the company's growth strategies.

In addition, AZZ’s customers and its operations could potentially be adversely impacted by ongoing COVID-19 pandemic. The company can give no assurance that such forward-looking statements will prove to be correct.

These statements are based on information as of the date hereof, and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. With that out of the way, let me turn the call over to Tom Ferguson, Chief Executive Officer of AZZ.

Tom?.

Thanks Joe, and welcome to our fourth quarter and full year fiscal 2022 earnings call. Thank you for joining us this morning. Let me first express my great appreciation to our employees for their outstanding efforts during the past year.

Despite the lingering effects of COVID, high inflation supply chain disruptions, labor shortages, and the war in Europe, I am extremely proud of the way our folks stepped up to take care of their customers and each other, while continuing to operate in a safe manner.

For fiscal 2022, total sales grew 7.6% versus prior year, reaching a total of $903 million. Primarily as a result of Metal Coatings exemplary efforts, Infrastructure Solutions total sales were relatively flat over the prior year, primarily due to experiencing a greater impact from the previously mentioned disruptions.

Infrastructure Solutions did improve its backlog during the year, with the Electrical Platform generating strong bookings and they are well positioned to convert these bookings into revenue in fiscal 2023.

We are pleased to have completed our 35th consecutive year of profitability, while achieving strong growth in sales and operating income for the 2022 fiscal year. We continue to generate strong cash flow from operations in fiscal 2022, generating $86 million in net cash flow.

For the fiscal year, excluding one-time expenses, we delivered adjusted EPS of $3.34 per diluted share, an increase of more than 58% as compared to the prior year. We were bolstered by a great finish to the year with fourth quarter EPS of $0.87.

I give both Bryan Stovall and Gary Hill tremendous credit for keeping their team's focus while we pursued Precoat Metals and continued our strategic efforts for AIS. We successfully completed two Metal Coatings acquisitions during our fiscal year in the fourth quarter. Our strategic review, our Infrastructure Solutions business was completed.

As a result of that review, we pursued a select set of strategic recommendations for the segment. These efforts have taken longer than expected and were affected by the Precoat process that ramped up after Thanksgiving. But we now have refocused resources towards continuing to work on these opportunities.

Due to several confidentiality agreements, I cannot comment further at this time, but I would like to emphasize that are remaining [ph] increasingly helpful, that we will have more details to disclose to our shareholders in the upcoming weeks.

Overall, sales growth was driven by increased volumes and higher selling prices in our Metal Coatings segment. Metal Coatings team grew operating income on an adjusted basis to $127 million, an increase of over 32% versus reported fiscal 2021.

Our results within Infrastructure Solutions were driven by improved turnaround activity for our Welding Solutions business, as well as improved bookings in our electrical platform.

Operating income grew as a result of increased operating leverage across both the Metal Coatings and Infrastructure Solutions segments, fully realizing the benefit of realignment actions taken in the prior year.

We continue to execute on our commitment to return value to our shareholders through both quarterly cash dividends and purchasing almost 602,000 shares of company common stock throughout the year. In Metal Coatings we posted record sales of $519 million and improved operating margins to 24.5%.

Results were primarily due to higher volumes of steel process growth and it’s been galvanizing and higher price realization as a result of product mix and price surcharges that were implemented to offset higher operating costs, including zinc, labor and energy.

Growth in our Metal Coatings segment primarily resulted from continued organic growth in galvanizing, with only slight contribution from the recent acquisition of Steel Creek at the end of the year.

Our Infrastructure Solution segment for fiscal 2022 grew sales just slightly to $384 million, while increasing adjusted operating income by 115% and operating margins by 470 basis points over the previous year.

Sales growth resulted from an improved turnaround season within the industrial platform as they completed more turnaround projects during the year, particularly in North America. Although our industrial business had a reasonably good year internationally, our crew still encountered COVID related travel restrictions in several international markets.

Within our electrical platform, demand for our Switchgear and e-house business was robust and the team booked our largest ever order for battery energy storage e-houses. This project is now in our backlog and will be delivered to one of North America's largest renewable energy sites next year.

This order demonstrates that AZZ’s Electoral Platform is well positioned to capitalize upon the future growth within the renewable energy market and our commitment to deliver more products and services that support environmental sustainability.

Last month we announced that we have entered into a definitive agreement, whereby AZZ will acquire Sequa's Precoat Metals business for a purchase price of approximately $1.28 billion.

When adjusted for the net present value of about $150 million of expected tax benefits, the net purchase price is approaching $1.13 billion, which represents about 8.2x Precoat’s adjusted EBITDA for the 12 months ended December 31, 2021. We are pleased to acquire North America's largest independent provider of Metal Coatings and related services.

Through this acquisition AZZ will significantly broaden our Metal Coatings offerings, create unrivalled scale and breadth of Metal Coatings solutions in both the prefabricated and post fabricated Coatings markets.

We believe the coatings market will provide sustainable future growth for AZZ and plan on providing Precoat with the appropriate financial resources to expand and grow its business and market share.

The Precoat acquisition is consistent with our previously communicated strategy to focus our M&A efforts on North American coatings targets that have a strong strategic fit and are creative within the first year of operation.

It is also a testament to our commitment to drive profitable growth, and we're excited to have Kurt Russell and his team join in the AZZ family. This acquisition represents a continued transition of AZZ from a diverse holding company to a focused provider, galvanizing and coatings solutions.

As we previously stated, we expect the transaction to close in the first quarter of AZZ's fiscal year in 2023, subject to customary closing conditions. I am pleased with the progress the team is making and we have recently received regulatory approval to proceed to closing.

Due to our recent announcement related to the acquisition of Precoat Metals, we will not issue fiscal year 2023 guidance at this time. However, based upon the evaluation of information currently available to management, we anticipate metal coatings will exceed $150 million in sales and exceed 30% EBITDA’s for the first quarter of fiscal year 2023.

We anticipate infrastructure solutions for the first quarter will exceed their good results from the first quarter of fiscal 2022.

This reflects our best estimates given current market conditions, existing execution on our current backlog and does not include the impact of any additional acquisitions or divestitures related to expenditures nor any federal regulatory changes that may emerge.

And I have to note, that we couldn’t have asked for better financial and operational strength during which to execute on a transformational acquisition. The businesses that make up AZZ today are tracking to generate both the $1 EPS growth in the first quarter and well over $4 EPS for the full year.

But naturally, we will not be completing the quarter or the year with our current mix of businesses. We have a lot of great people that remain focused on doing their jobs well, and they have much to be proud off.

Within our Metal Coatings business we are continuing to see strong demand from several end markets including solar, transmission, utility, industrial and construction. We are also seeing continued growth from our spin galve operations. This first quarter will also include the full benefit of both Steel Creek and DAAM acquisitions.

Uninterrupted manufacturing operations continue within our Electrical Platform despite seeing some supply chain delays for certain switchgear and e-house components.

BESS [ph] business remains good with increasing service work from several utility customers, and hazardous duty lighting and tubular products are seeing improved demand due to higher oil prices. Our Industrial Solutions platform is seeing improved demand as refiners schedule more turnarounds and with crews deployed during the normal spring season.

With that said, I'll turn it over to Philip. .

Thanks, Tom. I'd like to thank you for joining our call today, and like Tom, thank each of our employees for executing so well and another year of existing uncertainty. As you can see, our results of operations reflect the accomplishments, the hard work our teams have had on our business.

Fiscal year fourth quarter reported sales were $224.7 million or $29 million or 15% above the $196 million reported the same quarter last year.

Sales within our Metal Coatings segment was up 20.8% to $128.3 million and our Infrastructure Solutions segment sales were up 7.7% to $96.4 million on improved order volume, pricing and improving market conditions within the Infrastructure Solutions markets.

Fourth quarter cost – I'm sorry, fourth quarter gross margin of $55.2 million exceeded prior year by $9.4 million or 20.6% of sales. Gross margin increased 120 basis points to 24.6% from 23.4% of sales in the prior year as margins in both segments expanded during the fourth quarter.

Net income for the quarter was $21.6 million, $5.4 million or 34% above the prior year's fourth quarter, as the business excelled in all facets given the market uncertainties that exist. Reported diluted EPS for the fourth quarter was $0.87, $0.24 or 38% above the prior year.

For the full fiscal year sales of $903 million were up 7.6% or $63.7 million compared with the prior year sales of $838 million. Improved sales were driven by increased Metal Coatings, volumes and increased commodity pricing, while Infrastructure Solutions segment sales were flat versus the prior year.

Year-over-year reported gross margins improved a very solid 250 basis points to 25% from 22.5% on continued strong Metal Coatings performance and improved market conditions and infrastructure. As a segment, that is recovering from the pandemic era.

Reported operating profit in fiscal year 2022 was $113.3 million, 84.0% above the $61.6 million reported in the prior year. Adjustments in the fourth quarter included a $1.8 million gain associated with the returning assets previously held for sale to operating status.

Partially offsetting this adjustment was $1.5 million related to the due-diligence legal fees incurred as part of our recent acquisitions, as well as our pending acquisition of Precoat Metals from Sequa, a Carlyle company.

On an adjusted basis, fiscal 2022 operating income of $113.1 million exceeded prior year adjusted operating income of $81.6 million by $31.5 million or 39%. EBITDA as adjusted for the year was $157.2 million compared with adjusted EBITDA of $125.2 million in the prior year and higher earnings and improved operational performance.

The company reported diluted earnings per share for the year of $3.35, increases of 120% and 58% compared to the $1.52 and $2.11 on a reported and adjusted basis in the prior year. Cash flows from operations in the current year were $86 million compared with $92 million in the prior year.

The $6 million decrease was primarily attributable to increases in inventories, timing of receipts and contracts, and timing of payments to suppliers.

The company continued to invest in the business of the year, having invested $28.4 million in capital expenditures for both growth and capital maintenance projects were $10.2 million below last year's CapEx spend. Part of that was related to delays in spending from supply chain.

For fiscal ’23 we expect to invest $25 million to $30 million in our base business. During the year the company repurchased $30.8 million in outstanding shares compared to $48.3 million in the prior year.

During the fourth quarter the company reduced our purchase activity due to the acquisitions of Steel Creek Galvanizing, DAAM Galvanizing and our pending acquisition of Precoat Metals. During the year we continue to return capital to our shareholders, returning $16.9 million to shareholders through dividend payments.

As we progress forward, with our acquisition of Precoat Metals, our leverage profile will change significantly as we incur higher borrowings to pay for this highly accretive acquisition. We expect our leverage following our equity raise to be approximately 4.2x compared with our current levers of approximately 1.4x.

We had a fully secured term loan financing for the acquisition financing through our bank group and will begin marketing our term loan very shortly.

We are under an NDA on the equity financing component, have finished due diligence and are well down a contractual path and expect to shortly have our capital allocation desire to effectively fund and close on the Precoat acquisition.

We have just completed a very strong fourth quarter and have started our fiscal year 2023 with continued strength across our segments. Once we complete the Precoat acquisition, we will continue to focus strongly on utilizing our strong cash flow generation to repay newly established debt and deleverage quickly.

With that, I’ll turn it back over to you Tom. .

Thanks Philip. While we have just continued our guidance, let me give you some key indicators that we are paying particular attention to. For the Metal Coatings segments, galvanizing business we are carefully tracking input costs, especially the cost of zinc in our kettles, which we expect will continue to arise.

We believe we will be able to continue to offset increasing cost with both, price surcharges, general price increases and operating efficiencies. Within the Industrial Solutions platform we're seeing improved spring turnaround activity and the outlook for the fall turnaround scheduled is filling in nicely, including internationally.

For the electrical platform we continue to track proposal activity and have strong backlogs for most of our business units, particularly switchgear and enclosures.

Finally for corporate, we will work to complete the acquisition of Precoat Metals, continue our strong cash management processes and will focus on paying down debt associated with the recent acquisition or the pending acquisition of Precoat.

We anticipate closing the Precoat Metals acquisition in May and we're optimistic regarding the contribution we will soon begin to realize for the balance of fiscal year 2023.

And, while I do not want to distract from the great operating results and bright prospects for fiscal 2023, I will note that we should have an announcement out soon on the equity as Philip mentioned. We will remain committed to our growth strategy around Metal Coatings.

I believe the acquisition of Precoat will allow AZZ’s combined Metal Coatings businesses to support our 21% to 23% operating margin targets, even factoring in inflationary commodity pressures. For Infrastructure Solutions we will continue to focus on improving profitability, while finalizing strategic negotiations currently in process.

We survived the disruption of COVID in 2020, gained momentum in 2021, and have been able to hit fiscal year 2023 at a gallop. We are on the cusp of fulfilling our commitment over a year ago of becoming predominantly a highly profitable, growth oriented, Metal Coatings company. We thank you for your patience as we take these significant next steps.

And with that, we'll open it up for questions. .

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

Good morning Tom, Phil and David. Congratulations on a nice quarter! A quick question on zinc prices, you know the commodity prices. Tom you mention that you’re instituting surcharges and price increases.

Can you talk a little bit about, if you're ahead of the curve on this, as far as the price increases, especially zinc you know with the highest level since 2005, and how much it's impacting your margin profile right now?.

Yes, you know we've been able to, I’d say somewhat – stay somewhat ahead of the curve, but yeah, we're just looking to continually rising prices, so we track what we've got to do very carefully to stay even or abreast of and ahead of that curve, and so our – Brian and his team are reacting to it I'd say on a daily, weekly basis.

When it comes to our electrical businesses, more project related and so those kind of things, we have the escalation clauses in most of our contracts and we’re taking advantage of that. But there I'd say we've – the cost curve and the price curves are pretty much in sync. Moving forward we'll try to get more escalation in.

And then on the WSI or the industrial solutions, they are deploying to jobs and their escalations come on welding the wire and – but they had pretty good inventories of that in place. So I'd say they are even to or maybe even a little bit ahead of the curve. .

And any thoughts on how much the commodity costs impacted the gross margin in the fourth quarter?.

No, they didn’t – I don't believe that it had a significant impact on our margins in the fourth quarter..

Yeah..

Got it.

And the reversal of the impairment charge, what asset is now not for sale?.

There’s one of our electrical facilities in our electrical platform and we had had it up for sale, under negotiations and that fell out and you know with the expansion of a year's point of time we looked at it and determined to return it back to operating status. .

Got it.

And regarding the $150 million revenue or exceed $150 million revenue outlook for metal coatings, how much of that contribution is coming from Steel Creek and then as far as the revenue profile in the quarter?.

It’s still relatively small. I mean it's probably 3% or 4%, yeah..

Okay, alright I'll get back in the queue. Thanks for taking my questions..

Our next question will come from Noelle Dilts with Stifel. Please go ahead..

Hi! Thanks. Just following up on that last question from John, maybe a little bit more clarification.

When you look at the metal coatings business for this past year and also looking forward into fiscal ’23, can you kind of give us a sense of what you're seeing from a volume perspective and if you're expecting the volume element of growth to pick up as you get into ‘2020 – fiscal ’23?.

Well, you know we're off to a good start in the first quarter. We would hope that that pace continues. Obviously if zinc costs continue to rise, then we’ll seek to keep our prices in line with that, so. But I think the first quarter is – you know we would hope it's fairly indicative of at least the first half of the year.

Second half of the year, normally our fourth quarter weakens a little bit as we you know may have winter storms and things like that. So we anticipate kind of the same cadence, but obviously at a what, a 9% or 10% improvement over prior years if you look at it.

I mean it’s partly from the acquisitions, partly from the organic growth and a continued expansion of things like spin galvanizing. .

Okay. And then you know solar in the past has been a kind of a key driver of growth and I know you talked about it a bit recently. Recently we heard that the – you're seeing a department of commerce investigation into solar panels and that that may differ some work.

Anything you're seeing on that front in terms of project or delivery getting delayed?.

Yeah, hey Noelle! This is David. Yeah, at this time we're not seeing any delays in what we've got from our team that we’re working at this point, but you know we're tracking that closely.

We think that if you know anything shows up, it’s going to be well out in you know the latter part of the second half of this year, but right now we're not seeing any impact from that at all. .

And then just last, I was hoping you could go back to Precoat and just discuss, you know if you see any synergies either on the sale or the cost side that you expect to materialize over the next several years? Thanks. .

Oh absolutely! Yeah, we've – the sales side particularly, it’s interesting.

We have a lot of similar cust – well, same customers, but we probably call on them at different parts of the process, so you know our – particularly our galvanizing sales team and in the Precoat sales team, we have a really nice plan to explore opportunities across joint customers, as well as into new opportunities with each other's customer, so we're pretty excited about that.

We haven't quantified it yet. We actually have a meeting next week. We’ll start to pin some of these things down a little tighter, but we think that's going to be a nice part of the synergies. It’s just this opportunity across the fabrication line, both pre-fab and post-fab. Then on the cost side we've got the standalone cost and things like that.

We’ll look to leverage some of these things and we had teams engaged, well this week, and we’ll continue to have teams engaged from now until close and then obviously thereafter. Looking for other opportunities, whether it be on the system side or process side.

So you know while cost synergies are not a big part of this, we just think we're going to have some scale opportunities and we've got some pretty good teams that hopefully we can get some benefits from some of our contracts on insurance and things like that. .

Great! Thank you. .

Our next question will come from John Braatz with Kansas City Capital. Please go ahead..

Good morning everyone! Tom, you mentioned that you've seen some strong order flows and good backlog growth in the electrical products platform.

What end markets are you seeing that business come from?.

Yes, you know we've booked this large battery energy storage system projects. We call that the big BESS order.

Unfortunately we can't quantify it for confidentiality reasons, but we see more opportunities for that, just because in the renewable space you've got to have battery energy storage to be able to get – store it and get the electricity to the grid. So those are large opportunities.

They fit well with us because we've got five plans to building closures, three of them which are pure e-house businesses. Data centers continues to be strong and then transmission distribution is also solid and we think that's going to stay that way for you know several years versus you know firming up the grid is critical.

David, I don’t know if you want to answer or add anything to that..

I can add one point on there. I just think across our back businesses, in the electrical side we're seeing increases in backlog, whether it's our lighting and tubing or switchgear strong, so we’re seeing improvements across the electrical platform..

Okay, so it's more than just the battery energy storage. .

Yeah, if you take out you know some of the reductions in China backlog and then you take out the battery energy storage, we’re up about 20% backlog year-over-year on base business..

Okay, good, okay, okay.

And then secondly, you know when you announced the acquisition of – or acquisition of Precoat about a month ago or whenever it was, you know subsequently interest rates have risen considerably and I guess well, when you look at the economics of the acquisition, has it changed at all during this past month because of the rise in rates?.

I mean not really, and we're going to have to pay a little more in interest, but we have a term loan facility that's got colors on it and so we're proceeding down that financing path. We’re working on the equity piece of the capital allocation strategy that we're working to employ.

It’s moving along really nicely, so I don't see that you know this is a really accretive opportunity for us. So when you look at the cash flow generation for AZZ that we just discussed and you know kind of how we're starting off our fiscal ’23. We're not – we don't own yet, but we do have some communication going back and forth.

It looks like they are still having some nice operations and so we think this is a great opportunity regardless of the current market to take advantage of that accretion and the tax based savings and everything to move this forward..

Okay. Alright, thank you..

Thanks. .

Our next question will come from Brett Kearney with Gabelli Fund. Please go ahead..

Hi guys! Good morning! Thanks for taking my questions..

Good morning..

We touched on it some in your prepared remarks and the Q&A so far, but just any additional updates you can provide around latest thinking in terms of the financing components and then I guess the timing of each of those to close the deal next month?.

Yeah, we're headed into the market now. We've got the committed financing in place and so I won't go too much further, but just to say that you know we will begin shortly a marketing campaign to push out our term loan B and finalize our equity transaction. .

Okay, great. And then just a quick follow-up. Curious what the key inputs to Precoat metals formulations are? I imagine a rise in some amount of zinc. If you could just help me think about the major inputs on that business. .

Yeah, you know Brett when you take a look at it, their major input is paint and so that's really the big driver. It's definitely a high variable cost business and you know very similar, you know just overall mechanics wise on how we operate on the totaling [ph] business on the galvanizing side. So it's really just paint and labor costs. .

Okay, thanks so much. .

Sure..

[Operator Instructions] Our next question will come from DeForest Hinman with Walthausen &Co. Please go ahead..

Hey! Thanks for taking my questions. Just another one on the precoat transactions and they close within 40 days. Can you just help us with a little bit more color around the mix of the equity and the debt reserve arranged. We should be thinking about it in terms of you know how you are looking upon this transaction. .

Yeah, I think we had disclosed that before, but we're looking at roughly a $1.5 billion borrowing facility with a $400 million revolver, and upto $240 million of that would be the equity component. .

Okay. And then can you talk a little bit more about the backlog to the extent that you can, I mean just a really big number you make mention in the press release of the battery storage contract and then your verbal comment.

You said you can't really talk a lot about it, but I mean just sequentially and even on a year-over-year basis, I mean it's a really big dollar increase in your backlog and you said they are sizeable opportunities.

You know simplistic question, is that you know over $100 million increase in backlog, is that the battery order? Is that a fair statement, most of it or all of it?.

I think when you look at that, it's – you know kind of explained the 20% when you take out the best order in the China backlog decreases that we had. So it's not over $100 million.

A nice sizable order is 120 plus units and then so it'll come in and out of our backlog during, as Tom was speaking to our fiscal ’23, so it's already under construction and it will ship or its planned to ship during the fiscal year.

We believe based on what we're seeing, this is a great opportunity for us to execute well and there's an expanded market potential for you know this battery energy storage facilities going forward..

Yeah, this was a design we've been working.

For the battery energy storage it was a design we've been working on for a while, so we – you know there's a need out there and you know we see this over the next two or three years being $200 million, $300 million, $400 million of opportunities over that period and you know so we – and we think we've got a great solution for it.

So you know a significant portion of the increase is in the enclosure space, which is three facilities, and then we've got strong backlog in our switchgears as well, and we’ve got two of those facilities.

And as Philip, and our BESS businesses have been performing well, but reduced input on the international front, but more on domestic and service, and our all-pass [ph] businesses have improved significantly. So it's a broad based improvement in that backlog, not just from the battery energy storage. .

Yeah, that's helpful.

And then when we think about some of the battery solution, you have won business on, is this – I don’t know how to say it or ask about it, but I mean is it in our wheelhouse? Is this something you know from an engineering perspective we've done before or is this some new things where you know maybe we're buying batteries from a third party and that's part of the backlog in there or what is it exactly that we're doing, what’s the new design?.

No, this is our very traditional fabricate the enclosure due to the integration work and wiring and certain components supplied from the customer. So the backlog, it represents very much our traditional backlog for the enclosure space, because it's the heavy fabrication, wiring integration, relay panels, things like that, so very, very traditional.

You know there is nuances in the design, but it's structurally and electrically it's the same thing we do consistently year-in, year-out. .

Okay, and then just to follow-up the last piece on the Infrastructure side, I think going back if we had seen backlog in the $300 million range in the past, you know obviously there is a mix component there as well. But that segment had generated 10% type operating margins with those type of backlog.

Is that what you're seeing currently from a mix perspective as a opportunity for that business?.

Yeah, it is.

You know there's good – when we get that kind of backlog there's good scale leverage and our focus is just on managing the supply chain, making sure we get components in time, keeping labor focused and productive and efficient, which there is a few more challenges these days, but still yeah, we get a nice margin pop when we get this kind of volume. .

Okay, thank you. And then the last question is just on a rundown of the labor situation within the two segments, you know anything your seeing there, better or worse, same would be very helpful. .

Yeah, I think on the Metal Coatings side, the team's done a great job. We are doing better with retention and due to some programs we have, hiring has improved. We did increase wages, so when we talk about inflation, that's part of it. But I think the teams do a great job.

We've got programs that help employees get on boarded and engaged, which is helping us with our retention. When it comes to the Infrastructure Solutions, I think on the industrial side, the WSI side, they’ve – in the U.S. we are using contract craft and I’d say we've done a good job there.

I don't know that it's improving or not, but it's at least stable. And on the electrical side where we're trying to get, it's more related to semi-skilled, skilled craft, I'd say it's improved a little bit. You know and part of this is our programs for recruiting and hiring, have continued to mature and get engaged with new ways to recruit.

So I'd say it's improving and moving from – you know into more of a stable situation. So we actually feel pretty good, but I think it's a lot of what our teams have been able to do to get us to that point. .

Okay, thank you for taking my questions. .

Sure, thanks. .

Our next question will come from Bill Baldwin with Baldwin Anthony Securities. Please go ahead. .

Thank you. And good job folks on the job you've been doing over there. .

Thanks Bill. .

It’s been a long journey, but it’s paying off, it’s paying off.

On the BESS size of the business, can you remind me again of what the major market drivers are for your, both your medium BESS and high voltage BESS business products?.

Yeah, sure thing Bill. The main drivers there are really transformer swap out. Also some of the work goes into connecting up to existing and new switchgear, so that's really it for me in voltage BESS.

Medium voltage BESS also doing a fair amount of service work as well, where they are going out into the field and helping folks retrofit and refurbish equipment. And then the high voltage BESS side, it's really about power gen.

Again, we had the big project in China last year and you know the group continues to work with very large customers here domestically on some power gen projects. .

Probably are those power gen products natural gas power gen or would be hydro power gen or is it like, does it make any real difference what the source of the power is, the source of the….

It really doesn’t make any difference for us. We see projects on both sides of those, so yeah, really no difference. .

When we see the manufacturing side of our economy really spent a lot of money on upgrades, expansions and so forth, is that a driver for what we're talking about here on the medium BESS out of the business. .

Yeah, it can be. Where we really see it a lot is on the medium voltage switchgear and then again to that extent you'll have some medium voltage BESS coming off that to connect into some of these industrial plants and manufacturing plants as you just described. .

Is that order flow looking pretty good then on the medium BESS side?.

You know, they are kind of run at their normal rates, you know nothing. Yeah, but we’ve pivoted more towards services. So they are able to pursue more opportunities than just the project size. .

Yes. .

Okay. Thank you very much. .

Alright, thank you Bill. .

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

Alright, thank you. Well, thanks for joining us today. We look forward to continuing to get some announcements out there, so that everybody gets confirmation on the things we've been planning and involved in.

So we're hopeful over the next few weeks, you'll see more of that and that you’ll get a good announcement when we close on the Precoat Metals acquisition. We're looking forward to that and as well as continue to make progress in our businesses and on our strategic initiatives. Thank you very much. We look forward to talking to you next time. .

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