AZZ Inc (AZZ) 2018 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the AZZ Inc. Third Quarter -- Fourth Quarter and Fiscal Year 2018 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

At this time, I would 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 Inc. for the fourth quarter and fiscal year 2018 ended February 28, 2018.

As Denise indicated, my name is Joe Dorame. I'm with Lytham Partners, and we are the Investor Relations consulting firm for AZZ Inc. On the call representing the company are Mr. Tom Ferguson, Chief Executive Officer; and Mr. Paul Fehlman, Chief Financial Officer. After the conclusion of today's prepared remarks, we'll open the call for a question-and-answer session. Please note, there is a slide presentation for today's call, which can be found on AZZ's Investor Relations page at www.azz.com.

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, 2018.

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 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 political stability and economic conditions of the various markets AZZ serves, foreign and domestic; customer-requested delays of shipments; acquisition opportunities; currency exchange rates; adequate financing; and availability of experienced management and 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, and thank you for joining our year-end fiscal 2018 earnings call. Just a heads up. I'm going to be on this Page 3 for a while. A lot of my comments are going to be addressed to it. So just want to let you all know. It was a challenging year compounded by financial restatement efforts over the past several months. Unfortunately, the situation limited our ability to communicate publicly since our second quarter earnings call. So for today's call, we have published a presentation to help explain the complexity of issues we dealt with during fiscal year 2018 and also, with further support to guidance for fiscal year 2019 that we are issuing today.

We are glad to have the year as well as the restatement behind us. During this quiet period, we have worked to ensure our businesses hit the ground running coming into fiscal year 2019. We did navigate a wide range of challenges during the year, many of which were market-related, but some that were operational. Refinery turnarounds last spring were light, but this was dramatically compounded by the impact of Hurricane Harvey on the fall turnaround season. The already soft nuclear power generation market turned into -- in effect, the hurricane-level impact on our businesses once Westinghouse Electric declared bankruptcy in March.

During the third quarter, the magnitude of the impact and going into the fourth quarter as well became more evident. The bankruptcy itself negatively impacted several businesses within our Energy segment, but then the VC Summer nuclear construction project in South Carolina was canceled in July of 2017. Additionally, the Vogtle nuclear project in Georgia changed engineering firms away from Westinghouse, which resulted in some order cancellations.

Also, during Q3, our partner for waterjet peening, Mitsubishi Nuclear, decided to withdraw from the U.S. nuclear market. This resulted in impairing about $10.5 million of equipment that has been specifically built for nuclear services within our Specialty Welding organization. This also gutted what had been anticipated to be a strong and long-lived growth opportunity for our Specialty Welding business.

We now believe the nuclear market is likely to remain in secular decline going forward, with the nuclear fleet that will continue to get smaller. While we believe, our Specialty Welding and NLI, our Nuclear Logistics Inc., businesses can continue to compete well in this market and are also focused on international nuclear opportunities, we have sized our organizations for the smaller opportunity level we see.

We're also accelerating our international expansion for Specialty Welding, which over time will more than feel the impact on revenue and profit from the [Rhenish] nuclear opportunity.

Within our Energy segment, our normally solid electrical enclosure business ran into a situation where there was way too much industry capacity for the available demand, which resulted in some competitors offering irrational prices and contract terms. The Lectrus bankruptcy was evidence of this market situation, but it allowed us to buy those assets out of bankruptcy at a very good price. We're quite pleased with the addition of a third facility to our electrical enclosure platform and believe this positions us well geographically and gives us the scale to drive greater operational leverage.

Our Metal Coatings business was unable to drive price increases well enough to offset inflation from both zinc and the tight labor pool. It had been our intent to be able to offset cyclical zinc inflation with operational improvement programs in creating the digitized galvanizing plant that could be operated more efficiently in terms of energy consumption, zinc usage and labor productivity.

We had also hoped to find growth by offering more related services, such as powder coating and continuous galvanized rebar. Unfortunately, most of these initiatives struggled and even created some additional expense during fiscal 2018.

I would talk later about the changes we have made organizationally in the terms of leadership that have now accelerated these critical initiatives. Finally, some other onetime nonrecurring charges affected us during the last half of the year. We had a galvanizing competitor that we received a $4.2 million judgment against in 2013, recently declared bankruptcy, matter of fact in March, triggering a write-off of that judgment that we have been collecting on each month. We also had an adverse ruling on a large bus systems project, which started in 2013, causing us to write-off a $2.9 million receivable for that project. Additionally, we took the opportunity to reserve for closing 2 low-profit galvanizing plants and to write-off some other impaired assets.

While progress has been too slow in terms of operational excellence, we did gain traction towards the end of the year and into this fiscal year. I will talk about -- talk more about these initiatives as I address each business group.

Additionally, our finance team negotiated a new primary credit agreement that increased its size and flexibility as well as lowered the cost of borrowing for us. Our tax department completed several tax planning initiatives to improve our tax position in anticipation with federal tax reform. Consequently, the Tax Reform and Jobs Act created a significant onetime benefit for the company for fiscal year 2018, in addition to the ongoing benefit of the local tax rate.

While Metal Coatings performance was the most stable business segment for the year, it is also where we invested a great deal of human and financial capital and growth in operational excellence initiatives as well as strategic acquisitions.

During fiscal 2018, we faced rise in zinc costs and struggled to implement the right mix of raw material purchasing strategies and resources to offset the zinc price increases that we have navigated so well in the past. I also faced -- or we also faced rising direct labor costs as craft labor became more difficult to find and more expensive to recruit and retain. Many of our markets were slower than anticipated as some customers seem to be holding back on investment as they waited for the new federal tax plan. As we have entered our new fiscal year, we have seen an increase in investment among many of our customers across a broad span of markets. As we reflect on fiscal 2018 performance, I would say, a good portion of our miss was due to the inability to get the traction needed on operational improvement initiatives relating to procurement, digitization and standardization around best practices. These initiatives were critical to offsetting the zinc and labor cost increases.

While we push price wherever we could and without the aggressive value-added selling effort we needed, this may have cost us some market share primarily in the southern region. Despite the challenges in most of the Metal Coatings organic growth and operational efficiency improvement initiatives, the majority of acquisitions have attained or exceeded their justification plans. We reorganized Metal Coatings to merge with plant sales teams in a cohesive professionally-led group, consolidated the number of operating areas to increase the number of plants each had control of and integrated the 3 operating regions into 2.

We also consolidated the Galvabar and Powder Coating teams under one Vice President and General Manager, since these need to be operated more entrepreneurially.

Finally, I took over direct leadership of Metal Coatings in April 2018 to ensure we are executing AZZ's corporate culture, and we are executing the operational improvement initiatives that are imperative to be able to grow market share while improving return on assets.

Having worked directly with the senior Metal Coatings team over the past few weeks, we've already gained traction on Metal Coatings reorganization, accelerated procurement initiatives and increased customer focus. We've also implemented annual overhead expense reductions of approximately $2 million.

We closed the marginally performing galvanizing plant in West Virginia, reorganized the sales structure and improved incentive programs. We've completed rolling out our best -- our plant best practices playbook, are finalizing our plant digitization testing in one region and then plan on implementing the technology at the other 36 galvanizing facilities. We've improved the organization structure. We structured our Powder Coating operational leadership. And our Catoosa Galvabar plant is now producing effectively and efficiently.

Matter of fact, we're so pleased with the Galvabar results that we are currently assessing beginning construction of the second Galvabar plant during the year.

For Energy, we had too many negative events, and we found some of the Electrical grid management that was okay for normal market conditions, was unable to respond to tougher markets in more complex international project activity. Industrial, which is primarily our Specialty Welding, or WSI business, and Nuclear Logistics Inc., NLI, was impacted by both the Westinghouse bankruptcy and generally lower nuclear outage activity as well as weaker-than-expected international opportunities, and then there was Hurricane Harvey.

The Electrical platform was impacted by the poor enclosure market situation and the nuclear sector downturn as well as some self-inflicted wounds.

So we did have a few positive highlights and believe some of these have improved our position going into fiscal 2019. We acquired Enhanced Powder Coating, or EPC, in Gainesville, Texas. We built the powder coating plant in Crowley, Texas to expand our effort in this area. We acquired Powergrid Solutions, or PSI, in Oshkosh, Wisconsin to expand our switchgear portfolio, which is a market that is doing well for us. We also acquired Rogers galvanizing in Rockford, Illinois, which is a great business and expands our offering in the spinner galvanizing technology.

Shortly after fiscal 2018, we closed -- shortly after fiscal 2018 closed, we completed the acquisition of Lectrus-select enclosures out of bankruptcy, and also, our Reno galvanizing plant performed ahead of its original operating plan. And as we mentioned, Catoosa Galvabar plant moved into full production.

During last year, we saw electrical end market spending shift as power generation investment decreased due to improving energy efficiency, nuclear and coal plant closures and fewer new gas-fired plants being built. We also saw continued low level of refinery turnarounds that was further impacted by Hurricane Harvey. Even international refinery turnarounds tended to be smaller, and the opportunities we did see were emergent projects of smaller scope.

As a result, our revenue by market shifted away from the traditional industrial and power gen sectors, more towards transmission and distribution, with the net result of the significant reduction in revenue. For fiscal 2019, we are seeing a very nice uptick in industrial opportunities, particularly in both domestic and international refinery turnarounds. While we believe Transmission & Distribution will remain strong, we see a continued decline in power gen projects and outages.

While overall Metal Coatings revenue increased, mostly due to acquisitions, the electrical market remained a steady contributor for us. OEMs and petrochemical contributed less, while industrial grew. For fiscal 2019, we are seeing electric utility with some improvement from solar growing. OEM business will continue down somewhat, with petrochemical pretty flat. We're seeing a lot of opportunities from industrial and expect Bridge & Highway to be a bright spot as our Galvabar offering grows.

For Energy, there weren't many bright spots as our revenue declined significantly, due to low refinery turnaround activity and nuclear headwinds. For fiscal 2019, we are seeing a lot more industrial activity, particularly in domestic refinery turnarounds and international opportunities. Transmission & Distribution looks to remain strong, which is good for our switchgear and enclosure businesses. Power gen will remain muted, particularly in nuclear.

To close, we have faced an increasingly challenging environment, finding qualified craft labor. But we believe we have taken positive steps to improve employee engagement and retention, including a new employee recognition program funded from a portion of the onetime tax benefit from the Tax Reform and Jobs Act, implementing an employee and company crisis fund for any future tragic events that affect our employees and we continue to invest in the training and development of our employees. We also have improved our planning process significantly to better align goals and incentives with drivers of revenue income and cash flow. This is already resulted in improved hiring of critical direct labor for the galvanizing plants that cannot previously handle all of their opportunities.

Paul will talk more about the financial details, and then I will wrap up with a discussion about our guidance for fiscal 2019.

Thanks, Tom. Turning to Page 9. For the full fiscal year 2018, we reported net revenue of $810.4 million, which is a $53.1 million decrease or 6.2% less than fiscal year 2017. Net income for fiscal 2018 was $45.2 million, a decrease of $16.1 million or 26.3% less than the prior year. Reported diluted EPS fell 26.4% to $1.73 on a GAAP reported basis compared to $2.35 in the prior year, a drop of 26.4%.

Fiscal 2018 gross margins fell to 19.8% from 23.8% on a year-over-year basis, primarily as revenue from the Energy segment fell during the year and overhead costs remained, while zinc costs froze in the Metal Coatings segment.

SG&A finished at 13.8% of total sales compared to 12.3% in the prior year on onetime nonrecurring costs and slightly higher corporate cost, driving the fiscal operating margin for the year of 6.0% compared to 11.5% in the prior year.

Our effective tax rate for the year was negative 46.2% compared to last year's rate of 28.2%. As we booked a net gain of $23.7 million mostly from revaluation of the deferred tax liabilities under the new Tax Cuts and Jobs Act of 2017 passed in December, the net effect of the cut was to add $0.91 to our earnings per share for the year. Without the rate, we would estimate we would have a raise around 30-ish percent for fiscal 2018.

On Page 10, as you can see, there are many adjustments to the income during the year. Although the Tax Act created a $0.91 benefit for the year, there were several onetime nonrecurring charges totaling about $0.72 of negative impact to the year. All told, these onetime risks created a total of about $0.38 of benefits to the full year.

Fully applied to the GAAP number of $1.73 for the year, the adjusted earnings without these benefits would have been $1.35 for the year.

Moving to Page 11. For the segment results, full year revenues in our Energy segment were down 13.7% to $421 million compared to the prior year of $488 million. Much of the decrease in sales can be attributable to many of the factors Tom already discussed. Reduced turnaround activity in the U.S. refinery market deepened by the effects of Hurricane Harvey, and the declining nuclear market that hit so many business inside of this segment, drove asset impairment charges and caused a certain disruption in jobs that we expected to book or complete in fiscal year 2018, among other disruptions to the year.

Operating income fell to negative $1.8 million compared to $52.6 million in the prior year, which included pretax charges of $15.3 million during the year.

Gross margins in the segment fell to 14.9% in fiscal '18 compared to 24.1% in the prior year. Operating margins for 2018 were negative 0.4% compared to 10.8% in the prior year.

In our Metal Coatings segment, fiscal 2018 revenues rose 3.7% to $389.4 million compared to prior year at $375.5 million, while operating income rose 6.7% to $84.3 million compared to $79 million in the same period last year, which included a $7.3 million in realignment charges.

Operating margins finished at 21.7% for the year, up 70 basis points compared to the 21% for the prior year.

On Page 12. Highlighting the cash flow from operations, which fell by $32.3 million in fiscal 2018 compared to prior year on lower net income and slightly higher working capital. Free cash flow was down $20.4 million on lower CapEx spend compared to prior year. In total, we generated cash flow in excess of net income at 109.1% clip, down slightly from the prior year. Despite the challenging year, we doubled our cash spent on acquisitions compared to fiscal '17, and we increased our cash returned to shareholders by around 15%.

Page 13. Just briefly, despite the challenging year, we continue to achieve our goal of free cash flow in excess of net income once again.

And on Page 14, as you can see, in fiscal 2018, we focused our CapEx spending scale downward as we start to drive traction on capital projects spent earlier. At this point, we expect spending in fiscal '19 slightly above the spend in fiscal '18. However, we always have the ability to ramp up in certain areas if the operational metrics signal that it's time for additional capital investment. With that, I'll turn it back to Tom.

Thanks, Paul. On Page 15, we are cautiously optimistic about fiscal 2019 and have started off in Q1 even a little better than we had expected to. Our guidance of $900 million to $960 million in revenue and $1.75 to $2.25 in EPS is a significant improvement from fiscal 2018.

With the restatement now behind us, we do need to regain momentum and rebuild confidence in some of our leadership teams. We believe Metal Coatings will have stronger revenue due to inflation, a stronger selling effort and improving markets.

We need to continue to focus the Metal Coatings team on driving operational excellence initiatives, enhance customer focus to generate the cultural and financial impact necessary to grow market share and expand margins.

For the industrial platform, where we have very stable and capable leadership, we are seeing stronger turnaround activity and very active international markets that should help us offset the weak nuclear market.

The electric enclosure market has improved. New management is quickly gaining traction, which gives us confidence in our ability to execute to their fiscal year 2019 plans. The electrical platform overall will have a full year benefit from the Powergrid and Lectrus acquisitions.

On Page 16, while we have started the first quarter well, we are still climbing out of a tough year, including the distractions of the restatement. As we look to adjust guidance, we are looking at the following signals: for the industrial platform, we want the opportunities we are currently bidding on for the fall turnaround and outage season to convert into orders or firm commitments. We'll be looking for the Metal Coatings team to execute their critical initiatives to their commitments early in the year and to push price to offset the inflationary impacts of zinc and direct labor. We will be looking to see recruiting and retention, particularly in Metal Coatings, improve.

Additionally, Ken Lavelle, President and General Manager of the Electrical Systems Group, has hired several new leaders in his group, and we need to ensure they sustain the positive traction they've gained over the past couple of months over the remainder of the year. So while we believe we have taken the steps necessary to effectively deal with the risks within our control, we are carefully monitoring the external risk indicators.

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

(Operator Instructions) And the first question will come from John Franzreb of Sidoti & Company.

Couple of questions I guess, going to start with the guidance. It's actually better than I expected on the top line. So I want to go through it a little bit in detail here. Firstly, how much of acquisition-related revenue is built into your top line guidance? And while I'm talking about revenue, should we expect a similar normal distribution on that revenue being heavily weighted in Q1 and Q3?

Yes. I think the -- we did because we had closed on the Lectrus deal in March, we have embedded that in our guidance as well as rock -- as the Rogers galvanizing. We don't have other anticipated acquisitions embedded in that at this point. So wherever we're able to do in our normal galvanizing-type acquisitions or powder coating could be incremental to this. I'm looking at Paul. The answer to the question on Q1 and Q3.

Yes. So none of this is going to be related to the industrial. So we're not going to look for that sort of cyclical turn on 1 and 3. The galvanizing is a little flatter than that, probably down a bit in Q4 with that shift. I suppose metal coatings business. So look, the incremental, based on this, I believe, is about 25-ish. It can be a little -- it will be a hair more, John, and yes, you would look for pretty fair margins out of these businesses off the bat. We're already happy with what Lectrus is doing. We're very happy with what we're seeing out of the spinner up in Illinois, which is Rogers Brothers. And so -- yes, we expect pretty comparable margins.

Perfect. Okay. And on the gross margin profile, on the electrical side of the business, is there contracts that you're still working through that has lower margins that are working against you in the near term? Can you talk about or maybe is it you mentioned the competitive landscape was a problem. When does the margin profile come closer to SAR trends on that business?

Okay. Good. Good question. Yes. Because we're -- that's part of what's going on with that margin ramp up is that on the Energy side, especially electrical, there were some jobs taken that were at some challenging margins. That's really where the market was at that point. We saw a market -- a challenging market last year as there was lot of capacity in certain areas, especially enclosures. We -- you'll probably see those starting to turn up I'd say towards the end of the year, probably third quarter, and you'll see them ramp for the next, well, probably into '19. I'm not going to give you the exact ramp dimensions there. But yes, you're calling it right, which is they're lower right now. And that's part of what you're seeing as the dynamic between the higher revenue, and maybe, a bit lower margin than you might expect on the guidance. We also have some larger ones that we've taken in China, and we'll see how those come out with the margins. And I think that covers it pretty much.

Yes. I think that is one of the things on the China stuff. We're in final negotiations on a couple of large projects. So those aren't in our backlog, yet. But we do have a good handle on what the margins would look like and assuming we're successful as we anticipate. So -- but once again, those are some of the things that have made us a little hesitant about embedding that in our guidance as it currently stands.

Okay. And one last question, and I'll get back into queue. What kind of tax rate are you assuming in your guidance?

We're going with about 23.5.

23.5. Okay, guys.

The next question will be from Noelle Dilts of Stifel.

So first of all, a bit of a housekeeping question. Paul, you talked about the Energy margins and the Metal Coatings margins being 0.4% and 21.7%, respectively. Do you have an adjusted number there? Because it does look like some of those onetime charges fell into the segment allocations.

Yes, I do. Actually, let me grab those right. Let me answer that in just a second so I'm just going to hand that to...

.

Okay. So -- sure. So basically, part of why I was asking that question is, first, if we started with Metal Coatings, you guys called out a number of factors that sort of impacted the margins year-over-year, obviously price cost, craft labor, and I think to some extent, internal investments and some of what maybe went on in terms of some of these changes around management and perhaps there is a little bit of a cost there. But can you help us understand kind of how those impacted margins year-over-year on -- in terms of order of magnitude and then just give us some thoughts on how to think about margins as we move into '19, given that with a lag associated with zinc, it looks like that should be a drag in the, at least, first couple of quarters of the year, but maybe you should start to see a relief as you get into the latter part of the year.

Yes. That's a good set, of course. I think as we look at it, and I'll try to put it in context, yes, we're -- we do believe, it's going to take us a little while to get back to the -- we're still committed to getting back to, hopefully, close to 25%, but that's going to take us a while. We would hope to be in the 21%, 22% range this year based on what we viewed as kind of a dismal fourth quarter, where we did get hit with the higher zinc costs as it was flowing through our kettles and it moved too slowly on price. And then the factor that, I think, has been impacting us a little longer than anybody realized was the inflation area effect of a tight labor market. So we had to beef up our recruiting and retention programs, particularly around direct labor and craft. So that all takes -- as we're now in the first quarter, we feel like those things have taken root, so that you'll see us bounce back to the more normal 21%, 22% and then we'll build off of that as the year goes on. But it's going to take us most of the year to really see that acceleration beyond that.

Okay. And then can -- that was helpful.

(inaudible)

Sorry, Paul.

Okay. No, go right ahead. Actually, Drew is pulling up the margin right now.

Yes. So that was helpful in understanding how to think about the coatings business margin moving forward. Can you kind of give us some thoughts on energy as well. Just -- I mean, I know you kind of discussed that in the first -- with the first question, but kind of how to think about the cadence of margins as we move through the year.

Yes. I think as we look at, if you take the industrial piece of the energy, usually, we're heavy into the spring turnaround season. So their margins bump up nicely, and then of course, their best quarter is usually the third quarter. So that's that lumpiness that's caused by the industrial piece. The electrical, it's going to take us a little while. We're very pleased with adding that third facility with Lectrus on the enclosure side, but we've still got some of that backlog to work through during the first half of the year. And we're doing some pretty aggressive things to integrate those 3 plants so that we can leverage their overhead structure of their back office and drive on operational excellence and procurement across all 3 sites. So once again, that kind of stacks up towards the latter half of the year and that has a -- right now, that's part of their margin drag, Powergrid and our Fulton switchgear business, they've got decent backlog. And it's okay, backlog, we just got to perform to it. Interestingly enough, 2 of our bright spots, although relatively small, are the lighting and tubular business, which have gotten out of the blocks really well. And also, lighting, particularly in spite of the hurricane, did really well last year. So those businesses we're feeling -- they're in full swing right now. Then talking about high-voltage bus, what we're looking for is to get these Chinese orders in so that we've got those firmly in backlog. And -- but it will take a while. We're -- we've been doing some engineering work on them, but we got to ramp up the production. So kind of once again, back-end loaded. On the medium-voltage bus, the main difference there is they won't have the negative impacts of their projects that were related to VC Summer and Vogtle. So their margins are stabilized. What we're working on there is to fill that gap in their backlog from that. So long answer to say really by third quarter, we ought to be seeing that ramp back to something that's more normal for them.

Noelle, the answers on your other stuff. It looks like for the full year, energy will be more like around 3.2% and Metal Coatings wouldn't change much, maybe 0.10 to 21.8 -- 21.7, 21.8. So as you can see, the vast majority of the charges were over on the Energy side.

Yes. Okay. Perfect. That's helpful. All right. And then just given these headwinds that you've experienced in nuclear over the past year, can you give us some -- a sense of just how you're thinking about your remaining nuclear exposure and sort of the percentage of revenues exposed to that market? And then when you look at that exposure, whether it's in the bus product or at NLI, how are you thinking about that remaining exposure, which pieces are may be more vulnerable to this continued decline in the market versus which pieces are a little bit more stable?

Yes, I think -- whereas if you go back, and it -- just talking about kind of the general exposure we would see, we're not really chasing anything on the nuclear side, on the electrical piece, other than related switchgear and stuff like that. Or -- so now it just falls almost purely to the industrial platform piece. And it was -- we don't want to beat it up too much, but we had a lot of their growth opportunities going forward out of the waterjet peening initiative -- those were $10 million, $12 million projects. And we were structured to do a couple of them a year. So that's a gap we no longer count on. So WSI now, the nuclear turnarounds, it's really, they're chasing some international stuff to domestic piece. It may only be about $15 million or so for us out of what used to be $40 million to $50 million. And if you look at NLI, we've really structured it for $40 million to $50 million. And we think that's sustainable because they really are in the aftermarket supplying components. So we think we've got them about where they're going to be able to sustain that. I'd probably say on the lower end, the $40 million to $45 million is where they're going to be able to sustain it. Hopefully, that gives you the color you're looking for.

Yes. That does. And then one last question for me. How should we think about CapEx on a go-forward basis?

I think it should be just a hair more than prior year. We posted just short of 30 last year. We're probably set for 30 to 35. And we'll be careful of that during the year and keep a very close eye on it, both up and down. And meaning that if the market does demand in certain areas like as Tom mentioned, waterjet peening, if we do need a second plant this year, we can certainly deploy that. But I would say, we've been very measured and careful in the last year with the CapEx, and we certainly deployed enough and as we've said in the past, our maintenance is 20, 25 a share, so we're pretty tight.

And I just want to add to that. I think, keep in mind, our Galvabar plant is about half of what a full-blown galvanizing plant would be. So if we did do that, it wouldn't all hit this year, it would just -- we'd get it rolling towards the end. Two, we do think we found some procurement leverage on our CapEx side, particularly around the maintenance capital for Metal Coatings. So we're feeling a little more confident that we can get more bang for the buck, so to speak, given our emphasis now on how we buy a lot of those capital items.

Oh, and did I say waterjet peening there, certainly with Galvabar.

Yes, Galvabar, sorry.

Okay. Thank you.

(Operator Instructions) The next question will be from Jon Braatz of Kansas City Capital.

Tom, you talked a little, obviously, there are some industry headwinds and so on, but you also spoke about some internal changes, sales organization changes, and I guess, officer changes and so on. Were those -- how disruptive were those changes? And do you have all the changes that you're contemplating in place, and do you expect some more sort of organizational changes in 2018?

Yes. We -- couple of things. One, the disruption occurred last year as we were scrambling, trying to respond to some of the market conditions and not getting the traction on -- in procurement and operational excellence. I think, I'm sitting here looking at a good part of the Metal Coatings team, and I'm very confident that the changes are behind us. That -- they've already gained traction quickly and really driving the discipline around those organizational changes and improving processes. And we think we see a lot of upside now. And as I mentioned, we did take out about $2 million of overhead expense in those very fairly senior positions. And with minimal disruption, far less than maybe even I was concerned about, and they're nodding at me. So I feel good about that. On the electrical side, Ken Lavelle had been in place as a consultant, so it was a pretty smooth transition. And -- but as he's made changes in the plants, unlike Metal Coatings, where the vast majority, a matter of fact, all the promotions, all the positions were filled with internal candidates that had been in our succession planning process, on the electrical side, we had to bring in some outside folks. And so there's always the risk that we selected wrong. We'd like to think we hired well, but -- I do feel good about Ken Lavelle, who I've known for 25 years and nobody is capable of. And he surrounded himself with a couple of folks that he used to work with or at least one, and actually a couple. So he's got a -- but he's got a more of a mixed bag. It's partly the folks he knows, partly the folks have come in from the outside. I feel good about the changes. The disruption was in changing out some of those business unit level general managers. But they completed 2 acquisitions in the year. And I don't think we could have done that without a solid team that was in place. And I think they'll continue to improve, which is also why I -- as I'm telling Noelle, I'm more optimistic about the latter half of year as all these things really sync and gain traction.

Okay. Then secondly, when you look at the turnarounds, the upcoming turnaround season, can you talk a little bit about the number of turnarounds that you may be looking at, the scope and size of the turnarounds and maybe the margin opportunity in the turnarounds versus maybe last year or the year before?

Yes, I think, comparing to last year, we had a -- we started off with a soft spring season and without one of the large mega international opportunities, so it was a soft spring, as you all know, coming out of the gate for us. We're 2.5 months in to the first quarter, so we can't hide the fact, we know how it's going, and it's going well. We picked up a couple of large international jobs, which gives us some tailwinds, and we performed well on those. I'm a little hesitant to talk about margins, I don't want our customers getting upset that we think we're doing something -- to them. But the international jobs tend to be a little more profitable than the domestic because there's more risks to them as we deploy resources out of Poland, out of Brazil, out of Canada, out of the U.S. In the domestic refinery turnarounds, there was a nice pickup as they delayed those during -- because of the hurricane. So we've had a nice pickup. And they tend to be nicely larger than a lot of the small emergent jobs. So -- and yet, we've picked up some nice emergent jobs in the quarter as well. Our hesitancy is, we thought we had -- we were seeing good activity for the fall before. And we've just become a little more conservative in our outlook. So we're going to wait and see that those either turn into orders, engineering work or firm -- firmer commitments because we were still getting firm commitments on the spring as late as February. So you can look -- we can look to August before we're really able to commit firmly about how the fall season is looking.

Okay. Okay. One last question. Paul, did the restatement process cost a lot of money, nonrecurring expenses, so to speak?

No. I hate be so flippant and just say no, but the -- I would say the vast majority, there were a couple of small pieces here and there, but the vast majority of it was done internally and my hat is off to the team that did it.

Yes, I'd reinforce that. It's -- our internal team pretty much work around the clock to get a lot of this done. And so we're very sparing with outside consultants. We used them where we needed -- where we needed some knowledge and input, but not to do the majority of the work.

The next question will be follow-up from John Franzreb of Sidoti & Company.

I guess, I'm struggling with the margins in the Metal Coatings business. 2018 was 21.7%, 2017 was 21%, but you had the spike in zinc that hurt the 2018 numbers. Now when I look at the zinc charts here, the worst was about $1.63, $1.64 in January and February. So I'm wondering the timing of how you incurred those costs, you incurred them quickly or is Q1 of 2019, when you're going to hit the bulk of those costs? Or is there some kind of supply agreement that you don't get hit with the most? Can you kind of walk me through how we should be thinking about, especially, since now we're down to $1.38 in zinc. I just want to understand how that flows through and when is the worst of it and when do you start to see any benefits?

Yes. I know we use FIFO accounting on that, but the -- so I think a couple of points I want to make. One, in past run-ups we were able to -- we've committed a good bit of the zinc at lower prices that flow through into our kettles, as much as 6 months' worth of inventory in our kettles as we saw the run-ups. So we were actually, as we were able to push price, that's back in those 25%, 26%, 27% margin days. This time, for a variety of reasons, we didn't get a good buy-in point to do that. We did, at a certain point, lock in about 4 months' worth of demand, but not at real favorable cost, just at kind of normalized costs. So I think, I'll say in Q4, we had about $1.30 flowing through our kettles. So we'd seen a good bit of that impact in the fourth quarter. We were able to push prices as we came into Q1, just the general inflationary attitude that a lot of our customers are seeing and being exposed to. So the push in price was a little easier as well as I do think the structure we have in place is able to sell value better than we were before. So this cycle, I know I think we get back to fairly normal -- not to fairly normal 25% margins we used to see, but the fairly normal 21%, 22% margins, we've seen the last -- most of the last 6 or 7 quarters.

Right away here in Q1?

Yes. And we got 2 months behind us. So we sort of know where we're at.

Okay. And for the balance of the year, as zinc prices have been coming down, would you expect the margin profile to improve?

I'm going to be at low cost only because I'm saying we've got a couple of our customers on the line. But we love to say that we're providing a value to be able to hold the prices that we put out there, and if we're able to do that we'll see some margin appreciation as the year goes on. We do have a lot more focus on how we buy and how we move the zinc between our facilities. And so in terms of premiums and transportation costs and things like that, I think, we're already doing a better job. And I feel confident that we'll continue to do that.

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

I don't have a whole lot. I think I've done a lot of talking on this call, and so I put it with -- we'll wrap it up. I want to thank you all for joining us. Hopefully, you liked the first presentation we've done since Paul and I have been here. And hopefully, that provide some color and gave you some specific facts that were helpful. I look forward a lot to just in a few weeks having our first quarter earnings call and hopefully, being able to demonstrate that we're back on track in putting up the kind of numbers that we would feel a lot better with. So with that, I thank you all. And have a good rest of the day.

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.