AZZ Inc (AZZ) 2015 Q3 法說會逐字稿

Good morning and welcome to the AZZ incorporated third-quarter fiscal year 2015 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, sir.

Thank you, Denise. Good morning and thank you for joining us today to review the financial results of AZZ incorporated for the third quarter of fiscal year 2015 ended November 30, 2014.

As Denise indicated, my name is Joe Dorame. I'm with Lytham Partners and we are the investor relation consulting firm for AZZ incorporated.

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 28, 2014.

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-dipped galvanizing markets; prices in raw material costs, including zinc and natural gas, which are used in the hot-dipped galvanizing process; changes in 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?

Thank you, Joe. Good morning to all of you and Happy New Year. We thank you for your continued interest in AZZ.

Overall, I am pleased with our results for the third quarter and the effort and commitment of our employees. Our realignment actions are already generating many of the improvements we had targeted and the integrated WSI business is showing good progress. Our legacy galvanizing and electrical businesses continue to perform well in spite of the mixed market conditions.

My disappointments for the quarter are around the continued struggles at NLI and the fact we were unable to complete any M&A transactions.

On the positive side, we are making progress at NLI and getting the operations back to their core business. NLI had some key large new project shipments that we were expecting to ship in this fiscal year delayed by the customer until late in 2016, most likely.

Their on-time performance is improving and quality inefficiencies are normalizing. We remain committed to maintaining a disciplined M&A process and not getting deal fever.

The decline in oil prices have impacted a couple of transactions, both on the acquisition and divestiture front. We remain very active in pursuing strategic accretive opportunities that fit our margin profile as well as cleaning up our platform to improve focus and market leverage. We were also active on the joint venture and new product development front as well.

WSI is benefiting from improved operational performance and a more normalized nuclear outage cycle. The high refinery utilization rates continue to generate headwinds for WSI, though, in spite of the rebuilt sales team developing a lot of new customer opportunities and making a lot of new contacts. We look for WSI to benefit from their renewed international focus as well as their rebuilt North American sales team as we enter next year.

Our galvanizing business is solid and has several new products service growth initiatives underway. The price of oil has a mixed impact on this segment, but generally we feel good about the upside in this business through remainder of this year and into the next.

We were quite active on the M&A front in this segment and the plant at Goodyear has recovered from the fire, but did have a slight impact on our results in the past quarter. For the galvanizing services segment, we will continue to focus on operational excellence, pricing on our value, and growth through acquisitions and other metal finishing services.

For our legacy electrical business, the overall results are meeting our expectations, with some businesses doing well and others being a little more challenge. This platform's overall performance is reasonably good, given their mixed market conditions.

The electric utility market in the US remains sluggish, but we have benefited from strong international opportunities and a good backlog. Bookings continue to strengthen, although we did have a couple of large opportunities push out of this quarter.

We remain optimistic about their performance the balance of this year, based on very strong backlog and their stable team and operating performance.

Overall, I remain quite bullish on our future at AZZ. While Q3 was challenging due to the leadership changes we made in the second quarter, sluggish markets, margin adjustments, and realignment actions, we continue to a lot -- we accomplished a lot and set ourselves up for a strong close for the year.

However, based on the uncertainty in the energy markets due to the price of oil and the push out of the specific large nuclear shipments in NLI that I have already referred to, we're narrowing our current fiscal year guidance range to $2.40 to $2.60 in EPS and $825 million to $850 million in revenue.

Now I would like to turn it over to Paul Fehlman to cover the financial highlights.

Thanks, Tom. For the third quarter of fiscal 2015, we reported revenues of $224.8 million and EPS of $0.77, which includes $0.02 of net benefits from insurance payments for the fire in our Goodyear galvanizing operation. That's comparing to $197.8 million in revenue and EPS of $0.72 in the same quarter last year. Bookings were $196.1 million this quarter compared to $193.7 million in the second -- I'm sorry, in the third quarter of fiscal 2014.

Our backlog at the end of the third quarter grew to $300.3 million, reflecting a book to bill ratio of 0.87 based on strong shipments. That's down from the 0.98 book to bill posted during the third quarter last year. As we've noted before, we expect our sales to continue to be seasonally skewed to our first and third quarters, and this quarter was certainly no exception.

Overall, revenues were up 13.7% compared to the third quarter last year, as they grew 16.1% in the energy segment, primarily on strong shipments from backlog in several of our energy business units, and up 10.6% in galvanizing services compared to the same period last year on the Joliet facility return to service, the acquisition of Zalk in June, and demand in the petrochem and transmission markets.

Gross margins for the quarter finished at 27%, essentially flat with the third quarter last year, while SG&A fell to 12.4% of sales compared to 14.2% in the third quarter of fiscal 2014. As a result, we achieved an operating margin of 14.6% for the third quarter of fiscal 2015. That's up 180 basis points compared to the third quarter of fiscal 2014.

We also continued to improve our tax position and recorded an effective tax rate of 30.4% for the third quarter compared to 33.9% for the same quarter last year. While we are probably not able to sustain this sort of a rate in the long term, I'm confident that the tax team will continue to drive rates to a lower level than we've seen in the past several years.

Finally, I'm pleased that we had a much quieter quarter in terms of special items. And I'm particularly pleased with the operational improvements I'm seeing as well as our execution on working capital and SG&A cost management. We still in the early innings of the ballgame, but what I've seen so far is very encouraging.

With that, I'll turn it back to Tom for concluding remarks. Tom?

Thanks, Paul. The key takeaways I'd like to leave you with are that I believe AZZ remains a compelling investment due to another quarter of profitable operations, our strong balance sheet and cash flows, great portfolio of products and services, significant international growth opportunities, and a talented and seasoned leadership team.

We will continue to focus on growing our galvanizing business, both organically and through acquisitions. We will continue to expand the presence of our electrical businesses internationally, both directly and through joint ventures.

We will accelerate our emphasis on operational excellence and customer service at both WSI and NLI. While we have made a lot of progress over the past 12 months, we have tremendous upside going forward as our leadership team continues to gain traction on our key initiatives and our customers see the improvement in our service performance.

And we're looking forward to continuing improvement in our businesses and greater impact from our new growth strategies as we enter fiscal year 2016.

Thank you for your participation on the call today. And now we will open it up for questions.

Operator

(Operator instructions) John Franzreb, Sidoti and Company.

Tom, could you just talk about the large project that was delayed or actually projects in the nuclear business? What's the size of those projects and how certain are you of the timing that that's going to be realized in the second half of next fiscal year?

Yes, it was -- the projects relate to a couple of the new construction nuclear plants going on in the US as well as in China. It's roughly $25 million that's pushed out with pretty good margin on it.

So we don't control when those are going to ship. I think everybody's read about the delays at the [Vodel and Sumner] nuclear power construction projects. So we -- the fact that we don't control that, we're confident that these are moving forward with the customer.

We continue to have discussions around when, but that's why we've been a little cautious in saying it's likely the latter part of the next fiscal year. Could go earlier, but that's the current horizon that all these things have pushed about a year-plus.

Okay, okay. And can you just talk a little bit about the progress you've made on improving the workflow in the energy business, the realignment activities you've done? Can you give a little color on what you've achieved on that business?

Yes, I think the big part was integrating the leadership at WSI across nuclear and industrial. It just didn't make any sense to have these two complete sets of infrastructure in terms of organization in a -- in what, for nuclear, is kind of a fairly flat to slow market, and industrial, which includes refining, which is a pretty active set of opportunities on a global basis.

So by putting those together, we are now leveraging the resources. We did take out some of that management team in favor of the current leader who had been leading the industrial side, now leading both, and he's integrated that entire team. So that allows us to leverage our project management, leverage our engineering, leverage the back office, and just gives us the opportunity now to go forward on a global basis as one WSI team.

On the NLI side, we put in a new GM. He's been there several months now, focused on operational excellence, driving back to bidding the kinds of jobs that NLI had made good money at in the past. So that's been part of the process over the last few months.

And then internally, rebuilding that team, bringing in some new blood, changing to where we can get more focused on -- between the ongoing normal run rate business and get that on-time delivery up as well as improve the quality in the supply chain. So the additions to that team have been on the supply chain front, operations management. And the sales team there is very stable, very strong, so we didn't have to rebuild the sales effort on NLI like we had to do on the WSI side.

So we feel very good about that business going forward, partly because we're focused on the right things. We're building opportunities with OEMs to pick up some of their parts business. And operationally, I think customers are already seeing the improvements in terms of response, on-time delivery commitments, and quality.

Got it. And one last question, just switching to the galvanizing side. As the price of zinc drops from $1.10 or so this summer to $0.97 right now, how should we think about the impact on the gross margin profile in the galvanizing business? Can you just address that a little bit?

Yes. I think one of the things I'm learning about that business is we had hoped we would be able to push some pricing premiums as the price was increasing, but it was such a gradual increase in zinc price. And given the fact that there's a little more capacity in the galvanizing market available, we weren't able to push the price up.

And we kind of look at it that way now, that even though zinc is going down, I don't know that we will see a whole lot different margin profile. Prices are kind of -- they slowly ramped up and they will probably slowly ramp down. Just because it's more gradual and when we've had the spikes in zinc prices, they haven't stuck long enough to have any major impact on overall price levels.

Okay, thank you. I will get back into queue, guys.

Schon Williams, BB&T.

I -- maybe just to stick on that last topic around galvanizing. If I had adjust out for all the moving pieces for Joliet, kind of take out the gains from the insurance, maybe add back the losses last year that you incurred, galvanizing, according to my numbers, were running several hundred basis points behind the typical 26%, 27% operating margins that you've done in the past.

I'm just trying to get a sense of how much of that is purchase accounting, how much of that is the headwinds from zinc. Are you happy with the margin profile of that business and where can it -- where can we get back to in the near to medium term?

Schon, this is Paul. First thing on that would be on the segment face, we'd be talking 25% margin this quarter. If you pull out the net gain on the insurance from the Goodyear stuff, you're at 24.3%, I believe.

And so I'm going to push back just a little bit on the few hundred basis points below normal run, but call it 100 basis points, 150 basis points. You do have a little bit of a lag on the zinc prices from where they were. They move slowly. There's a lot more project work out there, and there's -- as Tom said, there's some more capacity that's coming to the markets, putting some pressure on price.

So we are keeping a close eye on this. I know that Tim is working his guys to figure the best ways to get back to that 26%, and there's a lot of different things that they can do in some of their plants, but we continue to see a little bit of pricing headwind because of this additional capacity in the market.

Okay, that -- all right --

I'm sorry. This is Tom. I think I would add a little bit to that. We haven't given up on 25%, 26% operating margins, but we like that margin profile.

But one of the things that happened, to be a little more specific, the new capacity that came in primarily came in the southeast and along the Gulf Coast in anticipation of this huge petrochemical boom. So what we're seeing is some of that petrochemical spend is coming into play, but not nearly at the boom numbers that folks were talking about.

But that capacity has come online there. So you got that capacity now chasing demand and -- so that's kind of where we are seeing it. The rest of the business is pretty normalized margins and -- so -- but those petrochemical projects have been able to be priced pretty aggressively because they are large projects, the ones that have come forward, and there's more capacity to chase them.

So that -- I don't know that that normalizes out anytime soon. On the other hand, there's still quite a bit of what I would like to call whitespace opportunities as well as other services that we can bring to bear that should have that -- similar margins that we're used to.

All right, that's helpful. And then maybe just switching back to the energy business. I just wanted to kind of clarify -- so you talked about some of the big nuclear projects, that being about $25 million of the push out, but the guidance revision is kind of closer to $40 million.

What's the delta in there? Are there other projects kind of beyond the big nuclear stuff that got moved into next fiscal year?

You know, it's -- I would say it's more the uncertainty of spending as you look at -- the price of oil has some folks hung up on whether they are going to deploy their budgets or not.

And so it's just more our cautiousness. We are just not seeing some of that run rate spend that we would expect at this point to allow us to go ahead and make that year. So we -- that's softness that we have been feeling for a couple of months and we just don't have the projects out there in our backlog now to allow us to hit that original guidance as well as the large nuclear jobs that we've mentioned more specifically.

So it's kind of a combination of that that given our lead times in the electrical business, particularly given the fact that the businesses that have the backlog are pretty full in their normal shipment cycle, that's kind of what adds to that $25 million-ish impact.

All right. Appreciate it, guys. I will get back into queue here.

Noelle Dilts, Stifel.

I was hoping that you could -- just given this tremendous decline we've seen in oil, just maybe walk us through how you're thinking about where your business is most vulnerable to the decline in oil. And then if in fact you think you might be able to see some benefit on the downstream side, maybe -- with a bit of a lag -- but just hoping you could dig into that in a little bit more detail.

Yes, on the energy side, particularly in the legacy electrical, we've got a couple of businesses that are highly exposed to the production side. So our lighting business, which a pretty good chunk of it comes from rigs -- hazards duty rig lighting. And the other is our tubing business, which tends to be on that oil pad side.

So that's where we have most of the exposure in those businesses. But on the other hand, a lot of that West Texas spend in the Bakken and things like that is going forward. So we are just not sure of the impact yet. That's where we have a hard time predicting it.

On the galvanizing side, it's much more of a mixed bag. We still pick up some of that stuff. There is -- so I don't know that we've seen too much impact there, nor would we anticipate it. Because on the petrochemical refining spend, to your point, Noelle, that we are still seeing opportunities. That will move more with what happens with refinery margins.

As time goes on, gasoline prices will be adjusted down. So I think that affects what we will see there. But -- yes, so we're still chasing opportunities in the petrochemical refining side.

And then for WSI, we really -- on the refinery side, we love to see these utilization rates go down a little bit, get back into a normal turnaround cycle on the refinery side, because that's where WSI will benefit. And we would see that improvement from the rebuilt sales organization that's been in place for six to nine months now.

So rebuilding old relationships or finding new relationships. So that's where we see some potential upside and that's why we continue to refer to it is mixed impact. And some of it is still unknown, I think, which is what most folks would say.

Right, right. Are you starting to see any pricing pressure in the more upstream exposed businesses in regulate or in tubing?

I'd have to say we haven't seen it too much, partly because we've -- it's more of a run rate business. They -- and some of that goes through third-party distribution channels, so we haven't really seen it too much yet.

And we are such niche players anyway that it's hard to say that we will. We would hope we don't, but we really are. These are fairly small businesses overall in terms of our overall scope.

Okay. And then when you talk about M&A activity and divestiture activity, you were kind of saying that the lower oil prices have impacted that to some degree. I can kind of see where that could impact some of your plans for the divestitures you're looking at, but can you talk about what you're seeing in terms of the market and how that's impacting some of the opportunities you're looking at for M&A?

Well, I think from our -- on the acquisition side, I would say it's just we just haven't been able to get to the altar to get the deal done. But not due to lack of effort and lack of trying. We just haven't been able to come up with -- and we are.

We're trying to be very disciplined around it's got to fit the profile, it's got to fit our price range, it's got to -- we've got to have a clear line of sight to what the synergies and strategies are that are going to allow us to make something out of these acquisitions.

So that's just been -- we been working on several and haven't been able to get them done. And I don't think it's -- I don't blame -- definitely don't blame anybody on our side, but I think part of that has been just the uncertainty in the marketplace has made people a little more skittish and maybe even made us a little more skittish.

On the divestiture side, it's just -- it's all tied to how do you value any business that has a significant exposure to that oil pad side and can we agree on what that is. And I would have to say that the private equity folks, particularly, have gotten -- kind of pulled their horns in on some of this stuff while they are waiting to see what happens with the longer-term price [plan].

Sure. And then one very quick question. The transmission market on the galvanizing side was obviously pretty lumpy in calendar 2015 -- or I'm sorry, in calendar 2014. How are you thinking about that business for 2015?

We're looking -- maybe it's ticked up off of the bottom or has bottomed out and so we're feeling okay about it. It's stable. We look for it to stay stable as far as our -- impacting our business, but at least we feel like it's no longer declining. So that's a positive for us as we go into the next fiscal year.

Great. Thanks.

(Operator Instructions) Jon Braatz, Kansas City Capital.

Returning back to the oil and gas sector, is there a percentage figure you can give us as to what you think your exposure -- your revenue exposure is to the oil and gas? 10%, 15%? Anything you can help us -- help quantify that amount?

And this is real rough. I would say maybe 5% to 10%.

Okay.

It's hard to -- because there's lots of different pieces that we run into.

Yes, it would probably be at the lower end of that, if we're just talking about the upstream. We've got mid- and downstream in those that are a lot less affected by [this action]. Some of them are benefiting from it.

Right, right. Okay, okay. And then secondly, Tom, you talked -- in your commentary, you're talking a little bit about the leveraging opportunities in WSI and NLI and so on.

And I'm trying to get a sense as to where you might be able to take margins in those businesses from the current levels as you begin -- as you say, leveraging those expenses and leveraging those opportunities. What do you see on the upside in those operations?

Yes, I think on NLI side, we just see returning to more normalized 15%-plus margins is where we would like to go. But it may be on -- we may not be able to have the same volumes in that business. So there were -- yes, we have put a new opportunity management system in place that allows us to look at these on a more proactive basis.

So we're going to be more active and actively engaged in strategically pricing some of these things to make sure that we are balancing load versus the opportunity, whereas I think if you look at some of the backlog we've had in WSI and NLI, it was because they were just chasing volume. So some of this margin impact -- margin improvement is going to come from the fact we are chasing better business and we are paying more attention to -- we're not just taking it for load, we're taking it because it's good business to go forward with with the right customers.

On the other hand, the operational improvement -- we've got to drive 200 or 300 basis points in margin improvement in some of these businesses that we've acquired based on operating them better, managing the cost better, and putting more emphasis around on-time delivery, quality, and operating efficiencies. So they're just good -- and supply chain, quite frankly.

We have done very little to leverage our spend on materials, even sheet metal and fabrication stuff. So those are the kinds of opportunities that now that we have stable leadership in those organizations, we can start to address.

Okay.

And Jon, just to be real clear, both of them are still challenged by -- obviously that big amortization from --

Right, right.

What we have been saying earlier was that we trying to hit an exit velocity this year. The NLI just getting back to double digits and WSI giving you mid-digits. So we had [signals] -- I mean, double, sorry. So exactly like Tom said, 10% to 15%.

So we are on our way to that. And again, the big challenge there for us is just getting past that amortization.

Right, right, right. Okay. One last question. Tom, I know you've been making a push on the international markets. Is that push being tendered because of the lower oil and gas prices or were there different markets that you were looking at beyond -- obviously, you were looking at markets beyond oil and gas, but how much is that international push being hurt by the lower oil and gas prices?

Yes, I don't think it's had much impact on us because most of our current international business is focused on the downstream side, which --

Okay.

Is still positive. And then in terms of the new things we are pursuing, there has been very little impact, because they are just -- where we're trying to go into, we haven't been there in it to any great extent. And so the fact we are entering the market, I don't think the price of oil has a whole lot of impact on that.

So we're still going full bore on those. If there's been any slow up, it was just -- it was really just around the integration of -- at WSI and NLI on their operations rather than -- and they're not bringing in more business than we can handle.

Okay, all right. Thank you very much.

Brent Thielman, DA Davidson.

Apologize if any of this is repetitive. I did get on a little late. But did NLI see positive sales comparisons this quarter?

We don't go down to that level of detail in our disclosures.

Okay. I guess maybe to ask another way, beyond the uncertainty around oil and gas, is the guidance more to do with what you're now expecting for business levels there in Q4?

Yes, the guidance change was -- the biggest singular item was the nuclear projects at NLI that have pushed out. And that was we estimated to roughly $25 million, give or take.

So that's been the big part. The rest is just general uneasiness around how much activity there is on our businesses that are more exposed to the upstream side.

Okay.

And that was -- but NLI, I think, as we look forward should be a more stabilized business around their traditional nuclear parts. That tends to be better margin, tends to be easier to handle, and tends to flow through the plant a whole lot better.

And so we've really focused the sales force on those kinds of activities, rather than -- and there aren't a whole lot of new construction projects on the nuclear side to chase anyways. Which right now, we wouldn't be all that aggressive on them.

Okay. Thank you for that. And I think you mentioned you expected to close out the year on a strong note with respect to backlog. Is the confidence here due to orders you have in hand? And then how much is kind of dependent upon securing some larger orders?

A lot of it. We are only, what, five weeks into this quarter, and so we do have some -- we booked some business. But we -- our quoting activity is good. We anticipate that we need to book some of these larger projects. A couple of them fairly large international jobs on the booking side to give us that backlog that we'd like to see going into the next fiscal year.

So we're still chasing those really hard and -- but we feel good about it. We feel good about what we're quoting, we feel good about our history on -- in win rates. A lot of these are larger electrical projects. So we feel pretty good about those.

And then on the WSI side, they are chasing some -- they are lumpy. But they've got a line of sight to some pretty good opportunities this quarter and we feel very well positioned.

Okay. And then in the North American market with respect to electrical utilities, is there further hesitation with moving forward with projects? Just kind of -- with everything going on in the market right now?

You know, an awful lot of -- if you look at our galvanizing side, we are -- the opportunities are moving forward. We're not -- the solar stuff tends to be the smaller projects, not the big massive wins that we did really well on a couple of years ago.

But there's several of them moving forward, mostly around the economics of that specific project and their ability to drive to a particular price per kilowatt hour, rather than call it broad-brush. And then on the transmission side, like I said, we just feel a little better that it's bottomed and bounced off of the bottom. And as long as it stays where it's at, we are feeling pretty good about it.

And then on the transmission distribution side, where we are doing enclosures and things like that, that's just -- that actually has become a smaller piece of their business, as they've been focused more on pipelines and some of those -- the midstream oil and gas opportunities, which once again have not been impacted that much by the price of oil. So on the electric utility side, we -- I won't say we are uncertain, but it's -- we are a little less dependent on it and what we do see, we feel okay about.

Great. And again, I apologize if you said it earlier. Are you guys planning to offer fiscal 2016 guidance in the next few weeks as in years past or is the update there?

We do it as part of our normal -- we complete our budgets and plans, present those to the Board, and then within fairly -- shortly thereafter, we issue guidance. We anticipate getting it done by the end of the month as part of the normal cycle.

Okay. Thanks a lot, guys.

Peter van Roden, Spitfire Capital.

(technical difficulty) some questions. (technical difficulty) growth ex the restarted Joliet and the acquisition?

I'm sorry, you broke up. Can you restate that?

Galvanizing revenue growth ex Joliet and the acquisition.

Again, we didn't call out the size. The acquisition was not terribly large, especially when you look at a quarter basis. Joliet coming back online, it's one of our larger plants, but it's one of 36. So --

Couple percent.

A couple percent should be roughly --

Would be what you would take off of the 10.6% --

Yes, yes.

Got it. And then as you think about the 11% growth, do you guys break it out in terms of (technical difficulty)?

Sorry, you broke up again at the end. Do we break it out in terms of?

Volume and price.

No. We haven't broken things out publicly in terms of value and price. Although for galvanizing, we have set said that the volume's up.

Okay. Thanks, guys.

John Franzreb, Sidoti and Company.

A year ago, the dialogue centered around the number of outages and how 2013 was unusually low and 2014 was supposed to be a rebound. But the duration was showing -- I'm just wondering if you could just walk us through what your expectations are for calendar 2015 in the outages market? Do you expect the durations to remain low? What's the calendar look like as far as how many should be realized in the year ahead?

Yes, I think as we look into next year, what we're kind of looking at is a normal -- versus this year, roughly the same outage cycle was the same number that -- it would be different -- obviously different sites. But roughly the same volume of outages on the nuclear side that we've had this year.

So even though there may be -- in the normal cycle, there could be fewer. Some of them are going to have to be longer ones, because they are just hitting that point in the cycle. So that's why I would say we're looking at that as kind of flat impact year over year at this point.

So Tom, even though there might be less, does a longer duration actually help you or is it really just a net neutral?

The longer duration helps us because that brings more of our portfolio to bear. When you look at short duration stuff, NLI benefits from that, some of our other businesses benefit from that.

But on the longer ones, that's where we get WSI engaged, because then you're going to have some of the larger weld overlay repair. When they do them short, we just don't get to deploy the larger crews from WSI the way we like to.

Got it. Perfect. And Paul, I know you backed off the sustainability of the current tax rate, but I know you've been working on it, your team has. Can you just talk a little bit about what our expectations should be as a more normalized tax rate and what's the difference kind of a number?

Well, while I don't want to get too specific about it, what I have been saying to people is if you take a look at our run rate the past few years, 36%, 37%, we could probably beat that by a few hundred basis points going forward. We will probably have more to talk about that when we do guidance coming up here by the end of the month.

But I'm not trying to be too cagey there either, John. It's more of we are very early into this. We still haven't turned over all the rocks. And although we did get an extension of some of the tax rules to the end of the year, it's still up in the air exactly what the administration is going to do for the following years. So that would have an impact.

Okay, fair enough. Thank you, guys. Appreciate it.

And ladies and gentlemen, that will conclude our question-and-answer session. I would like to turn the conference back over to the AZZ management for closing remarks.

Thank you for participating in today's call. And I would just like to -- I led off by saying I felt pretty good about our third-quarter results and -- because it was significantly better than third quarter of last year. We definitely did not have the kind of -- the number of moving pieces and the amount of, as I would call them, on the last call, the fumbles and core blocking and tackling.

I think we stabilized operationally. The leadership team is now in their roles for a few months. We're seeing the benefit of that, so I feel a lot better as we look at the fourth quarter. We are already into it.

But then as we prepare to get into next year and we are already taking opportunities for the next fiscal year, things feel a lot better to me and feel like we do have a good team on the field at this point. So I'm looking forward to talking with you guys again at the conclusion of this fourth quarter and the year. So thank you and have a good day.

Thank you. Ladies and gentlemen, this concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.