Good morning and welcome to the AZZ Inc. Fourth Quarter and Fiscal Year 2016 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joe Dorame of Lytham Partners. Please go ahead.

Thank you, Denise. Good morning and thank you for joining us today to review the financial results of AZZ Incorporated for the fourth quarter and fiscal year ended 2016. As Denise indicated, my name is Joe Dorame. I am with Lytham Partners, and we are the investor relations consulting firm for AZZ Inc. With us on the call representing the company are Mr. Tom Ferguson, Chief Executive Officer; and Mr. Paul Fehlman, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the press release, you can retrieve it from the company's website at azz.com or numerous financial websites. Before we begin with 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 United States Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended February 29, 2016. 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 electrical power generation markets, electrical transmission and distribution markets, the industrial markets and the hot-dip galvanizing markets; prices and raw material costs, including zinc and natural gas, which are used in the hot-dip galvanizing process; changes in the economic conditions of the various markets the company serves, foreign and domestic; customer requested delays of shipments; acquisition opportunities; currency exchange rates; adequate financing; and availability of experienced management employees to implement the company's growth strategies. 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 said, let me turn the call over to Mr. Tom Ferguson, Chief Executive Officer of AZZ. Tom?

Thanks, Joe. Good morning to all of you on today's call and we thank you for your continued interest in AZZ. I'm quite pleased with our record financial performance for fiscal 2016 and also that AZZ has now completed its 29th consecutive year of profitability. Topline revenue is up 10.6% over fiscal year 2015 and we achieved our 22% growth on EPS on an adjusted basis, or 17% on a GAAP basis as compared to the prior fiscal year. We had a couple of non-recurring expenses during fiscal year 2016 and chose to resolve a commercial law suit in Q4 to insure it was not a distraction as we entered fiscal year 2017. We have also taken steps to improve our process discipline to reduce the likelihood of these types of issues occurring in the future. Our energy segment did quite well for the year in spite of having runs from new oil and gas market that impacted a couple of our businesses. I would like to congratulate the WSI Team for managing large volume of projects in an efficient and timely manner while improving focus on our operational excellence standards. Our galvanizing business faced some challenges due to the pricing pressure on the Gulf Coast but made significant progress on improving the acquired U.S. galvanizing margins and is positioned well going into fiscal year 2017. We recently had a successful grand opening of our new galvanizing plant near Reno, Nevada and had a great turnout for the official ribbon cutting. With Reno and the addition of Alpha Galvanizing in Nebraska we now have 43 sites in the U.S. and Canada. Additionally, we continue to make progress on several technology and operational improvement initiatives that we believe would drive future organic growth and value in our galvanizing business. Fiscal year…

Thanks Tom. For fiscal year 2016 we reported a record net sales of $923 million, an increase of $86.5 million or 10.6% over the prior year. Net income for fiscal 2016 was $76.8 million, an increase of $11.8 million or 18.2% over the prior year. Reported EPS grew 17.5% to $2.96 and are back on finishing $334.5 million up 0.6% versus last year. On an adjusted basis EPS was $3.80 as Tom has already discussed are outlined in the press release in the cash reconciliation table. Gross margin grew 25.5% from 25.2% year-over-year and SG&A fell to 11.9% from 12.1% year-over-year driving an operating margin of 13.5% compared to 13.1% in fiscal 2015. We were also successful in two areas of focus for the year taxes and cash. Our tax rate fell from 27.9% in fiscal 2015 to 26.4% in fiscal 2016 and we posted 21.5% growth in cash flow from our operations year-over-year up $25.4 million to a $143.6 million. As for our full year segment results fiscal 2016 revenues in our energy segment were up 9.3% to $500.8 million compared to the prior year while operating income grew 51% to $58.5 million compared to the prior year. Our Galvanizing services segment full year revenue grew 12.3% to $402.2 million compared to the prior year while operating income rose 7% to $94.8 million compared to the prior year. Looking at the fourth quarter fiscal 2016 performance, on a consolidated basis we reported revenues of $217.6 million and income of $16.1 million and reported EPS of $0.62 as compared to $182.3 million in revenues, $16.3 million in net income and reported EPS of $0.63 in the same quarter last year. As noted earlier, for fourth quarter fiscal 2016 EPS was negatively affected by $0.10 for those two non-recurring events which…

Thanks Paul. Key takeaways I would like to leave you with are these. We have a solid balance sheet and strong cash flows, great portfolio of products and services, a great leadership team and outstanding personnel. We have significant national growth opportunities and we would continue to focus on growing our galvanizing business both organically and through targeted acquisitions. We will continue to expand the presence of our electrical businesses internationally both directly and through joint ventures. We are now better fitting from our accelerated emphasis on operational excellence and customer service at both WSI and NOI. While we have made significant progress over the past few quarters we still believe we have great upside going forward into fiscal year 2017. I will remind everybody that we are not a quarter-over-quarter business due to the impact of refinery turnaround and power plant outage cycles as well as the dependence of some of our businesses on large projects. We anticipate a solid first quarter in fiscal year 2017 but have a fairly tough compare due to the great results of fiscal year 2016's first quarter. We will continue to leverage our expertise as a solutions leader in protected metal and electrical systems to drive infrastructure and with a good pipeline of acquisition targets we are looking forward to continue growth in our businesses and greater impact from our new growth strategies for the balance of fiscal year 2017 and beyond. So now we will open it up for questions.

[Operator Instructions] Our first question will come from Schon Williams of BB&T Capital. Please go ahead.

Hi, good morning. Tom I wondered if we could maybe take a longer term perspective here and I would like you to maybe address kind of the margin outlook on both of these segments. You guys have done a good job of re-stabilizing operating margins within the energy segments but obviously versus historical standards, still several hundred basis points below where the company had been. And then even with galvanizing, still several hundred basis points below where you were a couple of years and almost 600 basis points below where you were at the peak. So I wonder if you could just talk a little bit about what is still head win for you. What's moving in the right direction, what's the opportunity as you look in kind of 2 years to 3 years out?

I think on the galvanizing side we anticipated margins to go back to our historical levels towards the latter part of the year. We are seeing good improvement in the acquired U.S. galvanizing assets but there are still not quite to our norms. So we still got some work to do there but we are seeing progress quarter to quarter and feel pretty good about being back to north of 25% as we get to the end of the year. And then beyond, that's our target we want to balance, maintain that level of margin in galvanizing focus on growth and be able to grow faster than we historically have. So but with 25% -ish margin for us all. When I think on the energy side as we talk we will continue to focus on getting WSI to double digit operating margins on a consistent basis including the purchase price headwinds for both them and NOI. We acquired probably a little bit lower margin than our normal electrical businesses but we see line in sight to getting those up to our normal levels once again towards the latter part of the year as we leverage our sales assets and customer service assets and as well as some of back office and infrastructure. But that was a great business and a good example, something that you're creative to as provides growth, provides the opportunity to drive some margin synergies as we get into it. So I see the electrical, I think we've kind of said around 15'ish and north of that as we go forward. We are at best in internationally and some of that as we put infrastructure in place. It impacts our margins from an expense standpoint with the benefit of the lower cost local operations benefitting in the outer years. Oh, Paul wants to add something to add.

Yes. I'd say, Sean that we still have ways to go. Obvious the PPA has created the headwind as you've observed from two large acquisitions made a few years ago that continue to linger with us. So our comp bases maybe that's not quite the same if you are looking at it a few years ago. But I think Tom has covered the main points as well we'll continue to refine the portfolio to the length that we think strategically we want to go into the future, and that may have some impact on margins as well.

All right, that's a helpful overview. I appreciate it. My follow up question, I'd like to maybe address some of the guidance. I thought the revenue guidance was maybe a tad bit conservative. Given that you've got kind of 2 acquisitions kind of falling into this year now, you have the startup at Reno and I understand that's just one site but I mean that will be tail end. I kind of thought what kind of the midpoint of guidance. In my mind it seems like that should be achievable just using kind of where we exited the year plus the acquisitions. So I'm just trying to get a sense of, I mean do you consider the legacy businesses to be kind of flat on an organic basis. Am I looking at that incorrectly or, and where do you see more strength between the two different businesses and which one should be outperforming as we move forward the next couple of months here?

I think there is a couple of things to keep in mind. One, NOI we did finally shift at Westinghouse backlog so you got $25 million of stuff that we won't have year-over-year, so to me that kind of creates a headwind on the energy side. WSI, the focus is not so much now on continued growth. We had good growth year-over-year but the focus on margin is now let's get that up in the 12%-ish range and continue to drive towards that and not let the margins decline on that piece of the business where we'd made outstanding process. Then the legacy electrical, I mean with some of the spend we're seeing could we have additional upside particularly as we leverage the newly acquired PEI assets, we'll probably can. Just a little cautious given we're not seeing an outstanding economic future for manufacturing. So particularly and we talked about it probably too often but along the Gulf Coast for galvanizing, we're still worried about the longer term impact of lower oil prices on the economy in Texas, Oklahoma, Louisiana, so while we feel well positioned and we've been able to sustain our volumes and the margins. We have had some pricing pressure and so we're trying not to sacrifice price just to get volume. So lots of different pieces. Just in the aggregate if we see any kind of an economic uptick in along the Gulf as the quarters go along we'll probably get more confident that we can drive more revenue.

All right, that's very helpful overview. I'll get back in the queue here.

Our next question will come from John Franzreb of Sidoti & Company. Please go ahead.

Greetings. Good morning guys. Just to piggyback on that last question. How much in trailing 12-month revenue contribution is coming from PEI and Alpha?

How much contribution revenue is coming from PEI and Alpha?

Right.

Well PEI is complete full year and we had stated their revenue was in the business, and so you would expect that much for this year. We did get nine months out of U.S. galvanizing so you're picking up three months' worth year-over-year and we pick up Alpha Galv which is actually smaller than the average galvanizer than with our others galvanizing business. We have one month for that last year so you'll pick up 11 months of that. But it's again, it's smaller than the prior than the other galvanizers. So while I won't give you exact numbers that should probably put you in the ballpark.

Okay.

We'd give you is a little bit more color on that. Actually when we've talked about how on the electrical side several of our businesses have been pretty much full. So enclosures and for instance some of the bus facilities. So yes, and we aren't increasing the capacity other than through operational efficiencies in trying to remodel make some things. So we're kind of counting on flattish revenues in those legacy electrical businesses and in the tubular business held up last year during the first part of the year and then was impacted by the much, to the dramatic slowdown in reactivity. So when you look at the electrical side and the aggregate it's pretty flat-ish and galvanizing that are coming from Alpha and having the additional three months of U.S. Galv. So but the headwinds on NOI from not having the project backlog.

Regarding I guess times, some cautionary statements about reintegration into Q2 due to the tough comp. Are your expectations that the maintenance schedule is maybe firmer in the third quarter than the first quarter?

Yes. That's exactly it. We've seen some deferrals of turnarounds in the first quarter being deferred to the third quarter or even a little bit pushed into the second quarter. But so as we look at that, our concern there is as much as may push into the third quarter, we've got a little bit of capacity to handle it. So we can be chuck a block full on the WSI side as those turnarounds to push. We are seeing, we are pursuing more international opportunities, but the outage schedule and the turnaround schedules, the good news is they're tending to be a little larger than some of what we've seen in the past so they're kind of getting back to a normal turnaround cycle, full turnarounds and larger turnarounds. So which is we like the small stuff, we like the emerging work, but we really like it when we can plan and have a quite a few resources on site.

Okay, and one last question. Regarding U.S. Galvanizing and bringing the margin up. Is there something that you can actually there to improve the margin profile? Are you really more dependent in marketing and customer based turning around more so of it than maybe you can actually do internally?

No. A lot of what we're doing is just more of the operational improvements, bringing them up to our level of standard operating practices, driving the discipline, leveraging the zinc productivity if you will. And so it's mostly internal stuff, there's a little bit of pricing maybe but I think we're counting on mostly what we have control over to get there. So we don't see tremendous risk. It's just a lot of it's around giving the right people and the right roles and making sure they have the right training and the right tools.

Great, thanks man. Thanks very much. I'll get back in the queue.

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

Thanks good morning. First just expanding a little bit on your comments about turn around season. Are you guys starting to see more full scale turnaround work or are you expecting that to come as we move into the fall. Turnaround season just in thoughts there would be helpful.

Yes I think we are seeing the stuff we are folding for the third quarter and it is ramped up pretty highly in the last few weeks or couple of months and two they are larger, I don't know if they are necessarily full scale but they are planning on working on a lot more stuff than they have been whereas a lot of what we have seen last year for takeaway and maybe year before which is fixed what they absolutely had to fix and so now it's a larger planned activities which tends to bode well for us because we like to get into the cokers and reactor drums and things like that so which tends to be a longer turnaround talks.

Okay. Great and then just in terms of the U.S versus the North American utility spending, can you just comment a bit there, both in terms of what you are seeing, is it sheer enclosures business and then just on the generation side, how you are thinking about the outlook care for fiscal 2017?

It is interesting, we have seen more spin for us from the power generation side and which is been good for us, lot of large enclosures and switch like that. And everything we are hearing, that's going to continue for us. We are going to see a little call off we were doing and we diluted to it couple of times last year. The pipeline enclosure business that now probably off a little bit but it's now going to replace by Powergen. And the transmission distribution stuff is strengthening but it's still not robust so I would say we are pleased with the power generation stuff.

Okay. And then I guess, on the galvanizing side, can you just comment a little bit on some of the transfers you are seeing and market maybe again, it sounds like it is coming back a little bit but not particularly strong. Maybe talk about some of the aftermarket OEM work you are doing. That would be helpful Tom.

Yes, Tim Pendley our COO of the galvanizing business is sitting here so I will just let him answer that.

Good morning Noelle, what we are seeing on the industrial market is - we're anticipating it's basically flat compared to the previous year. Our utility spin, we are looking at that increasing to a small magnitude going forward. The petrochemical side is relatively flat. We are seeing the decrease in the oil but at the same time we are seeing an increase in L&G facilities. The transportation market continues to be very solid for us. We see some growth potential there, same with the OEM, looking to maybe creating inroads there. Giving the intensity of use of the galvanizing in the U.S. has increased from 25% to 35%, 2011 compared to 2015.

Okay. Great that's very helpful. Thanks a lot.

Alright, thanks Noelle.

[Operator Instructions] Our next question will come from Jon Braatz of Kansas City Capital. Please go ahead.

Good morning Tom, Paul. I was reading the 10-K and I think if I have read correctly the litigation expenses included in the other income in the fourth quarter, other expenses I should say?

Part of it's in SG&A and part of it's in other.

Okay. So corporate overhead was up like $2 million in the fourth quarter from $7 million to $9 million. Does that explain a lot of the increase?

It's a good part of that increase.

Okay. And then, on the raw material front Paul and Tom, what are you seeing in maybe terms of outlook for Zinc, Steel and we are hearing a little bit about some cost increases, what can you - what are you seeing?

I think it's very volatile right now it's down year-over-year. we are watching the volatility closely as you know we do turning in some Zinc forward as we have in the past and we are re-evaluating it every day which is the best thing to do to - I think it's more important for us to dampen that volatility just get a normalized flat Zinc cost overtime. As far as steel goes, that's no reason for rejoices as any but currently [indiscernible] and fourth quarter about 89 tons of pound was realized. We continue chasing markets down. We talked about a couple of times in the past. We had locked in a certain amount of supply and as the price in the market continues to fall we are chasing net cost down.

Alright, thank you Paul.

The next question will be a follow-up question from John Franzeb of Sidoti & Company. Please go ahead.

Yes, I need some sense of perspective here. The Westinghouse job and jobs of that size and magnitude for L&I how often do they come about, how should we think about them and in recurring nature of them or not?

Yes, they don't come around very often because there is not much new plain construction going on and those jobs were related to the two plants in the Carolina's, wobble and summer, and also it's the Chinese nuclear plants and there may be some additional Chinese nuclear plants go forward, so we could see that and it's rare and I would have to say that as we look forward we probably did those at different price points, now that we understand how much engineering goes into those names and so we evaluate very carefully as we move forward on that large a project. I think at the time they were taken that was just prior to when AZZ acquired L&I, so we have different processes for reviewing those. We are not seeing a whole lot of anything anywhere near that size and by the way even though we have talked about the $25 million it was actually several projects within that $25 million. It's just they were all related to new construction and there is not much new construction on the horizon at the moment.

Okay. So there's nothing you are bidding on say within the next two years rising and no deals of any size?

No, I would say we are much more normalized. We are bidding more and more on the normal jobs so it's the maintenance job, it's the ongoing, there's still some ongoing upgrades. Not a lot at the Fukushimo things but we are in a normal cycle, we have been working very hard on signing up new original equipment manufacturers to do their testing, certification and qualification so it's a larger base, has a base than what it was say three years ago. But now we don't have the big new project at our table.

Got it. And when you look at the energy segments and the market profile, what kind of market profile are you embedding in your guidance for fiscal 2017, what kind of range you expecting?

We haven't gotten down into that level of guidance, but we would expect it, as Tom eluded a little bit earlier and recalled we could expect some improvement there.

Okay. Fine, thank you.

Alright, thank you.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Tom Ferguson for his closing remarks.

Thank you. I am confident we will make progress for the M&A front while improving the structure and focus of our operating platforms as we get in deeper into fiscal year 2017. I look forward to discussing the impact of these activities when appropriate so thank you for participating in today's call and we look forward to talking to you again at the conclusion of the current quarter. So again, thank you and have a great day.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's conference call.