AZZ Inc (AZZ) 2026 Q3 法說會逐字稿

Good day, and welcome to the AZZ Inc., quarter three full-year earnings conference call and webcast. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Phillip Kupper with Three Part Advisors. Please go ahead.

Good morning. Thank you for joining us today to review AZZ's third-quarter fiscal 2026 results for the period ended November 30, 2025.

Joining the call today are Tom Ferguson, President and Chief Executive Officer; Jason Crawford, Chief Financial Officer; and David Nark, Chief Marketing, Communications, and Investor Relations Officer. After today's prepared remarks, we will open the call for questions. Please note the live webcast for today's call can be found at www.azz.com/investor-events.

Before we begin, I would like to remind everyone that our discussion today will include forward-looking statements made in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Either nature, forward-looking statements are uncertain and outside the company's control.

Except for actual results, AZZ's comments containing forward-looking statements may involve risks and uncertainties, some of which are detailed from time to time in documents filed by AZZ with the Securities and Exchange Commission, including the latest annual report on Form 10-K. These statements are not guarantees of future performance, therefore, undue reliance should not be placed upon them. Actual results could differ materially from these expectations.

In addition, in today's call, we'll discuss non-GAAP financial measures, which should be considered supplemental, not as a substitute for GAAP financial measures. We refer shareholders to our reconciliations from GAAP to non-GAAP measures contained in today's earnings press release.

I would now like to turn the call over to Tom Ferguson.

Thank you, Phillip. Thank you all for joining us today, and Happy New Year. After I provide a brief overview of our results and an update on what we are seeing across our segments, Jason will cover AZZ's detailed financial results, and Dave will discuss industry dynamics across our end markets.

First, let me share a couple of important milestones. We achieved record sales of $426 million in the third quarter, surpassing any quarter in our company's history. And we had a record high trailing 12-month adjusted EBITDA of $358 million.

These financial results reflect our unwavering commitment to execute on our disciplined strategy that focuses on driving growth and creating shareholder value. This quarter, we maintained our cash dividend of $0.20 per share, marking 63 consecutive quarters of consistently returning capital to our shareholders through cash dividends.

Now turning to our third-quarter results. We grew total sales by 5.5% and generated a robust adjusted EBITDA of more than $91 million. Metal Coatings delivered an exceptional quarter, with sales rising 15.7% year over year, fueled by higher volumes and strong demand from infrastructure projects. Segment EBITDA margins of 30.3% reflect an increased mix of larger projects in electrical, solar, and transmission and distribution work, which tend to be more price competitive.

Precoat Metals delivered sequential improvement over the prior quarter, though sales were down 1.8% year over year. This was primarily the result of continued softness in construction, HVAC and transportation markets.

Meanwhile, food and beverage container demand reached new record highs, driven by new customer acquisitions and market share gains. This trend further underscores the accelerated shift from plastics to aluminum, which aligns with the ongoing ramp-up at our new Washington, Missouri facility.

Overall, the increase in end market demand was driven by growth in infrastructure modernization, energy transition, and industrial reshoring along with data center construction, integrated LNG power generation, and renewable energy projects.

These market sectors depend on galvanized steel and coated materials, areas where AZZ offers unmatched scale, coating solutions expertise, and exclusive technologies to deliver exceptional value to our customers. Our diversified portfolio positions us uniquely to seize project opportunities across multiple end markets. Dave will share more details on this in a moment.

We continue to emphasize AZZ's proprietary ERP platform as a core differentiator within our business model. Our Digital Galvanizing System and CoilZone platforms deepen customer relationships and reinforce our competitive moat, while providing durable returns on invested capital. Operationally, the systems are margin enhancing through higher throughput, improved yields, better zinc utilization, improved administrative and production efficiencies, and increased customer connectivity.

Importantly, these benefits are achieved with limited incremental capital, making our technology investments highly accretive to ROIC, while also reducing waste and supporting more sustainable operations. Subsequent to quarter end, AVAIL completed the sale of a majority interest in its Welding Solutions Business, which they refer to as WSI. The transaction creates value for shareholders and further simplifies AVAIL's portfolio. Our joint venture partner remains focused on completing additional divestitures with only the RIG-A-LITE and a small portion of international WSI business left.

With that, I will turn it over to Jason.

Thank you, Tom. For the third quarter, we reported record sales of $425.7 million, representing a 5.5% increase from $403.7 million in the prior year period. The growth was led by our Metal Coatings segment, where sales increased 15.7% year over year, driven by higher volumes and infrastructure-related spending across our largest verticals.

Although Precoat Metals sales improved sequentially from last quarter, sales were down 1.8% from the same quarter of the prior year, due to an overall weaker end market environment. Driven by lower volumes in construction, HVAC, and transportation, partially offset by residential reroofing and stronger food and beverage container sales.

Within Precoat Metals, excess imported prepainted metal has worked its way through the market. And with tariffs likely to remain in place, we anticipate Precoat Metals will start to benefit from the replacement of prepainting metal imports.

The company's third-quarter gross profit was $101.9 million, or 23.9% of sales, compared to $97.8 million or 24.2% of sales in the same quarter of the prior year. Selling, general, and administrative expenses totaled $32.5 million in the third quarter, or 7.6% of sales. This compares favorably to last year's third quarter, which was $39.2 million, or 9.7% of sales, which included costs associated with severance and one-off employee retirement expenses.

Operating income for the quarter was $69.5 million, or 16.3% of sales, a 180-basis point improvement compared with $58.5 million, or 14.5% of sales in the prior year third quarter, due to operational improvements this year and nonrecurring items included in last year's third-quarter results. For the third quarter, we reported a net loss in equity and earnings of $1.4 million. This was after recording $0.6 million post-closing loss adjustment on the previously announced divestiture of the Electrical Products business.

Losses in the quarter from our AVAIL joint venture are primarily due to the excess overhead costs resulting from this divestiture. Compared to the third quarter of last year, equity in earnings were $8.6 million lower. With the sale of WSI in December 31, 2025, and progress in resizing AVAIL's overhead costs, we are forecasting equity and earnings from unconsolidated subsidiaries to be zero for the fourth quarter of this year.

Interest expense for the third quarter was $12.2 million, representing a $7 million improvement from the prior year. Driven by a combination of actions, including debt paydown, debt repricing, and the introduction of the receivable securitization facility. The current quarter income tax expense was $14.5 million, reflecting an effective tax rate of 26.1%, compared to 26.5% tax rate in the prior year's third quarter.

We do not expect the One Big Beautiful Bill Act to have any material impact on our income tax expense or effective tax rate for the year. However, it will reduce our cash taxes paid in 2026. Reported net income for the third quarter was $41.1 million, compared to $33.6 million for the third quarter of the prior year.

AZZ reported adjusted net income of $46 million, which excludes the amortization of intangible assets of $5.8 million and the AVAIL equity loss adjustment of $0.6 million, our adjusted diluted EPS of $1.52. This compares favorably to the prior year's adjusted net income of $41.9 million and adjusted diluted EPS of $1.39, an increase of 9.4% compared to the third quarter of the prior year. Third quarter adjusted EBITDA was $91.2 million, or 21.4% of sales, compared to $90.7 million, or 22.5% of sales, for the same period last year.

Turning to our financial position and balance sheet. Our strategy for deploying cash flow includes investing in high-return organic and inorganic initiatives, paying down debt, returning capital to our shareholders through our quarterly cash dividend, and buying back our stock.

During the third quarter, we generated cash flow from operations of $79.7 million. Capital expenditures for the quarter were $18.5 million, which included a combination of sustaining and growth capital. Stock repurchases for the third quarter were $20 million, at an average price of $99.28 per share, while cash taxes were higher in the quarter associated with the previously mentioned AVAIL joint venture gain offset somewhat by the impact of the One Big Beautiful Bill Act.

We ended the quarter with a net debt position of $534.7 million and $337.1 million in available borrowing capacity, consisting of $336.4 million in the company's revolving credit facility, and $0.6 million in cash and cash equivalents. After paying down $35 million of debt in the quarter, our credit agreement net leverage ratio was 1.6 times, which is within our previously announced target range of 1.5 to 2.5 times.

And finally, as Tom mentioned, over the same period last year, we increased and paid our quarterly cash dividend of $0.20 per share, up from $0.17 per share.

With that, I'll turn the call over to David.

Thank you, Jason. Good morning, everyone. The US infrastructure investment cycle, along with an intense wave of investments in generative AI and machine learning technologies, is in the early stages of driving demand for high-power density and advanced cooling systems.

These hyperscale data centers require coatings that extend well beyond just structural steel and transmission poles. For example, these projects require specialized coatings for critical applications, including corrosion protection, aesthetics, functionality, fire safety, and regulatory compliance.

Massive data center investments are typically paired by necessity with co-located power generation and grid upgrades, which are multiyear construction projects. We expect these private and public colocation investments will reinforce a positive long-term secular trend benefiting both AZZ Metal Coatings and AZZ Precoat Metals.

We also expect solar projects to remain strong as many of our solar customers have backlogs that extend well past the expiration of the current tax credits. These projects are focused on large-scale sites, including data centers being developed commercially that provide power for continuous high load requirements. Excluding data centers, nonresidential construction remains subdued in the quarter, primarily driven by interest rate and lingering tariff-related uncertainty while residential construction was also soft.

Despite this, we saw positive trends in the metal residential reroofing market as it continues to gradually take share from the asphalt roofing market. This helped offset a slower-than-normal storm season as no named hurricanes made landfall in the Continental United States in the current year. Looking ahead, most forecasts point to flat to regionally selective modest growth in construction through calendar year 2026.

Finally, as we progress through our fourth quarter, it's worth noting that last year's fourth quarter was impacted by unusually wet and cold weather. Prolonged temperatures below 40 degrees, and gas curtailment actions by utility providers, led to a record number of lost production days in the prior year quarter, particularly in Texas. Therefore, we anticipate our fourth quarter may present somewhat easier year-over-year comparisons to last year's December through February period.

With that, I will turn the call back over to Tom.

Thank you, Dave. Turning to our, fiscal 2026 guidance update. We have narrowed the forecast ranges for total sales, EBITDA and adjusted EPS. We anticipate that our sales will be in the range of $1.625 billion to $1.7 billion. Adjusted EBITDA will be in the range of $360 million to $380 million. And adjusted diluted earnings per share will be in the range of $5.90 to $6.20.

And as Dave mentioned, we believe that last year's fourth quarter weather-related impacts will be less severe. Our strong financial and market positions enable us to capitalize on strategic growth opportunities while executing on our broader capital allocation plans. We expect to release fiscal 2027 guidance in the next few weeks for our new year starting March 1.

Consolidation in the industry continues to present compelling opportunities, and we are currently evaluating several strategic tuck-in acquisitions that align with our playbook and expand our market reach in Metal Coatings and Precoat Metals. We continue to take a disciplined approach to M&A, targeting opportunities to drive sustainable growth and generate meaningful value for shareholders.

Finally, I want to sincerely thank our AZZ team for their unwavering dedication, disciplined focus, and the pride and passion they bring every day to deliver exceptional quality, service, and value creation to our customers and other stakeholders.

Now operator, we would like to open the call for questions.

(Operator Instructions) Ghansham Panjabi, Baird.

Thank you, operator. Good morning, everybody and Happy New Year to you. I guess, first off, on the Metal Coatings segment and also Precoat, can you just give us a sense as to how your order backlogs have shaped up in context of some of the complications of the operating backdrop with the government shutdown, and so on and so forth? And just specific to the government shutdown, did it have any material impact on you in either of the two segments?

Yeah. Thanks, and Happy New Year. I think as we've discussed typically on the Metal Coatings side, we really don't have much backlog. We've got -- but we do have a good forward look from our sales organization in terms of what our customers are -- what their outlooks are.

So we feel really good at this point as we look at finishing the year. That's why unless weather gets really, really ugly as it did last year, we think Metal Coatings has the momentum and opportunities to have a really good finish to the year.

So feeling really good about that, and it's both as we've mentioned, the big projects, lot of opportunities, whether it's data centers, whether it's solar plants, transmission distribution, a lot of the pulp business and towers. It's just all really active, particularly in a lot of the areas that we've got good capacity.

On the Precoat side, much more of a mixed bag. I think -- didn't feel anything from the government shutdown to speak of on either side just to get that out there. But on Precoat, yeah, they're more challenged with residential, commercial construction.

They are getting -- benefiting from some of the data centers, a lot of painted metals on those. But -- and then in terms of roofing, it's more than conversions as houses are putting new roofs on. They're more and more of them are moved into metal, which is good for us, but it's not enough to offset the market -- call it the market headwinds.

So -- and they don't really have backlog either, but they do have a lot of bare metal, and the bare metal is lower than at this time last year. So they're chasing stuff that's going to be quicker turn to maintain their sales levels.

Got it. And then specific to Precoat, Tom. I mean, obviously, a lot of distortions in order patterns last year with tariffs and the adjustments in imports, and so on and so forth. Is the underlying operating environment worsening as we head into fiscal year -- into calendar year '26? Or is it just at a low point and there's no recovery on a consolidated basis given the ups and downs you -- across the business as you called out?

No. I think you got a couple of things going on, some of which is in our control, some of which isn't. But I think we believe the markets have pretty much bottomed and stabilizing. And so we're seeing opportunities. And of course, we're going after more.

We're winning some market share that's out there to offset the market softness. But -- and then we've got the Washington plant ramping up, and that is one of the areas where we are seeing opportunities in the container. And as we continue to talk about plastics converting to aluminum, that's just -- we probably couldn't have opened up new capacity for the container business at any better time.

So we get pretty excited looking at next year and having a full year of run rate production at the new Washington site. Not to mention we've made some investments and are going to continue making investments at the St. Louis container site.

So that's where we are excited, and we're chasing all of that we can find and have a good partner on Wash, MO, and then other opportunities with other customers there. So that's where our focus is and then doing everything we can to convince customers to go with us instead of the competition.

Okay. Just one final one on -- I know you'll give fiscal year '27 guidance formally in a few weeks. But any sneak preview you can share with us as it relates to the variances that we should keep in mind as we finalize our estimates for next year?

No, I think, as I alluded to, Metal Coatings, we look at them finishing strong for the balance of this fiscal year. And even though they don't have backlog, they're stacking up some pretty good opportunities as we kick off going into next year. So we're feeling real good about that. Obviously, we've got a budget to get approved by our Board. So we'll do that in about three -- well, two weeks at this point, and then communicate as soon as we can put something together and get new guidance out.

But yeah, feeling really good. I like where we're positioned. I like what our teams are doing. I like the leadership teams we've got in place. And I like what they're focusing on. So I'm pretty enthusiastic.

Okay. Perfect. Thank you so much.

Nick Giles, B. Riley Securities.

Yeah. Thanks, operator. Good morning, everyone. Guys, congrats on the strong results. It's especially nice to see both the buybacks and the debt reduction, but I wanted to go back to M&A. And I was just curious if you could give us some additional color around what kind of opportunities you're seeing out there today? Is it Metal Coatings versus Precoat? Single site or multisite? Thanks a lot.

Yeah, that's a great question. I think the M&A pipeline is very active. It's predominantly bolt-ons onesie-twosies, which is -- I'd like to say it's in our sweet spot. We acquired Canton and just ramped it right up. It's our typical integration playbook and bring it right up to our fleet margin levels and go grow it.

So those are the kind of things we've got in the pipeline. I don't see us getting anything closed by the end of this fiscal year. It's just too many things going on and not that we're not focused on it and got some good -- the teams are active.

But I'll be really shocked if I'm sitting here on this call at this time next year without a couple of wins on the board and talking about those onesie-twosie bolt-ons, which just -- we'd like to get a couple of them in the camp, or in the family so to speak.

Got it. Well, Tom, that's good to hear. Maybe switching gears. You talked about plastics to aluminum and Washington was extremely well-timed on that front. But aluminum prices have reached all-time highs in the US.

And I know you don't directly feel the impact of that. You have the tolling model. But your customers might feel that impact. So I was curious if you've seen any changes in demand on that basis? Or if you feel the Precoat business has a sensitivity to aluminum prices?

Yeah. Thanks, Nick. This is Dave. I'll take that one. We don't think that there's going to be much sensitivity to the aluminum just because when you look at the container market, in particular, there has been the secular shift to aluminum driven largely by people's more reluctance to drink things out of plastics, in particular, and the concern around microplastics.

When you look at in the quarter, in particular, I think it's underpinned by the results of the segment. Our Consumer segment in particular, was up 11% when you take a look at the disaggregated sales. So we feel really good about what we're seeing. Wash, MO is ramping nicely, as Tom mentioned. We've got a great partner there and a lot of long-term prospects that continue to come our way.

Got it. Thanks for that, Dave. Guys, I'll turn it over but keep up the good work.

All right. Thank you.

Eric Boyes, Evercore.

Thank you and good morning. Maybe first, how impactful to Precoat segment margins might the Washington, Missouri ramp, the 75% exit rate in fiscal 4Q be? And when might we hear about remaining capacity allocation there?

Yeah. Hi, Eric, it's Jason here. I can take that one up. Certainly, as we've previously communicated, the margins that we expect from the Washington facility just based on the math of the equation of that product that we're selling are going to be complementary. So it is going to add a lot but tailwind to the margins that we see at Precoat.

In terms of the additional capacity, we're solely focused on our partner at the moment, and ramping up capacity for that partner is coming through the cycle. And we're very pleased with where we're at, but we still got a lot of work to do and certainly a lot of work to achieve here in Q4. So it's really going to be into the early part to the mid part of next year before we really start to focus on bringing additional customers to that facility.

Okay. Appreciate that. And then maybe second, and Dave, I think you alluded to it in the prepared remarks, but can you help us with how we should think about quantifying the benefit of the favorable weather comp in fiscal 4Q?

Yeah. As we mentioned, on a high level, when you look at last year, it was unseasonably cold and wet. We had mentioned last year, I think that we lost around 200 days of production collectively in the quarter. So I don't have the specifics in front of me right now, but we do believe that we're seeing better weather so far in the fourth quarter.

Today, in Texas, it's going to be 80 degrees. So a far cry better than it was last year at this time. But we can follow up maybe after the call, and I can see if I can get you more detail.

Great. Thanks so much.

Adam Thalhimer, Thompson Davis.

Hey. Good morning, guys. Congrats on the record sales quarter.

Thank you.

Can you update us on pricing in the Metal Coatings segment? I'm curious also how price might be impacting margins in that segment?

Yeah. We talked a lot about -- we try not to talk directly about pricing, since we do have some competitors on these calls. But when we're chasing large projects and when we talk about transmission, distribution, and solar, and data centers, they tend to be bigger projects, and so it just attracts more competition.

So it will -- that's when we're talking about the mix because you're going to have -- not significantly, but you're going to have marginally lower margins on those big projects. And so they formed a bigger piece of our business.

And we had opened up to that because we had decided that we were pushing the top end of our margins. And so we've opened up the opportunities. Let's chase some -- hate to call it chasing the volume. But let's be more open to taking some of that -- those opportunities. And I think it's been good for us because we've got capacity.

That's going to help us the balance of this quarter. It definitely helped us in the third quarter. But we're not getting out of control. It's -- we got a tightly controlled process on how we price projects. A couple of things others that hasn't been talked about, but we do have zinc continuing to go up in our kettles.

We tend to push price as those costs go up. And we price it 41 plants on every given day. So I think the teams have demonstrated great discipline and yet going after opportunities with customers to build sustainable momentum. And so we're pretty excited at this point about what that team is doing.

And -- either Tom or David could address this. But I am curious, you guys aren't the only ones talking about the data center is getting bigger in 2026 versus 2025. Just curious if you could flesh that out a little bit for us, and why you're focused more on it today.

Yeah. I think as you look at the data centers and, in my remarks, I was talking about we're really excited about the number of opportunities within a data center that we touch. So it goes just beyond structural steel that's used for building foundations, and the structure envelope of the building, and then the related power coming into it. We do believe that Precoat will see some opportunities as those projects move further along.

We've got customers on the Precoat side that make insulated wall panels for instance. And then there's a lot of coat-specific work that's driving the need for increased metal and coated metal, whether it's galvanized or prepainted. So that's why we're bullish on the segment. It's a big segment. It's a growing segment and our share within it is expanding as well.

Good. And last one for me. David, you brought up the metal roofing opportunity. Do you have any idea today what the share of metal roofing is for new construction and repair and remodel versus asphalt?

Yeah, we do have some data on that. When you look at the breakout in residential between new construction and replacement, it's just shy of 5% of the new construction market, is now embracing metal roofing. It's gone up about 1 point -- 1 full point since five years ago. And so we think that trend is going to continue.

And then on the replacement side, it's a larger impact there. It's about 14% of the replacement market today. And growing at a faster rate, driven by a few things. One of them is building coats. It is more resistant to storm damage over time than asphalt shingle and also HOAs, which have historically been a little reluctant to embrace different types of roofing material other than asphalt are now loosening up their standards and embracing that as well. So we're very excited about it.

Great. I'll turn it over. Thanks, guys.

Thanks.

Daniel Rizzo, Jefferies.

Hi. Thanks for taking my question. Just to follow up on that last comment. Is there a particular region in a country where metal reroofing is more prevalent? You mentioned HOAs, I don't know when I think HOAs, I think of where my parents live, which is a retirement places in Florida and Arizona. Is there any regional mix that's relevant?

Absolutely, Daniel. Yeah, we're seeing a stronger concentration of that through the south in the areas that you mentioned. So Florida, in particular, as well as here in Texas, and all the way over to Southern California and Arizona are all markets that generally have a higher concentration of metal roof than in the northern climates.

Okay. And I may have asked this before, but -- sorry, go ahead, I'm sorry, did you say something?

No, I was just going to say yeah, they do well where we got more of a corrosive environment, or you've got a lot of sun. So they tend to hold up better.

Okay. Okay. No, that makes sense. And then for the just traditional non-resi construction, and maybe I've asked this before, but what's the lag between when you start to see some easing in credit towards -- a resi starting to rebuild and it translates to demand for you guys. Is it immediate, or is it like a six-month lag? Or how should we think about it?

Yeah. When you look at it and again taking a look at just some of our sales data, we have seen -- in my prepared remarks, I talked about subdued construction on the non-resi side, and then the residential being down a little more significantly.

So I think that as you move forward through the end of this year and into next year, the fact that there's been some rate movement already should be a positive for the market, and we should start to see the benefit of that sometime here and as we enter into calendar 2026 and our FY2027.

And I'd add on the residential side, it's more tracking to mortgage rates. But it's going to -- on a lot of these capital projects, it's a six- to nine-month lag time in general. So -- and then -- but it's looking at the forward curve. So we're hearing more optimism out there, I guess, I'd leave it at that.

Okay. Thank you for the color.

Sure.

Mark Reichman, Noble Capital Markets.

Thank you. Just focusing on the Metal Coatings business for a minute. So the second quarter, the sales growth was 10.8% relative to the prior year quarter, and 15.7% third quarter year over year. And we did see the gross margin go down a little bit, 30% in the second quarter versus -- what was it, 30.9% and 29.8% versus 30.9%.

You mentioned chasing these bigger projects, but could you maybe get a little more specific? Are there specific large contracts that drove the big sales increase, and might you expect in 2027, maybe a little more moderation in the sales growth, but maybe a tick up in the margin? Or do you think these big projects are just going to continue?

No, I think there's a couple of things here. So if you take typical transmission distribution, big poles, towers, it's -- it depends on where it hits -- which plants the project activities act. Some of our plants are built for big poles when projects come in different sections of the -- so this is a very temporary kind of thing.

And we've invested a lot in our capabilities and capacities. So yeah, as we get into next year, I expect that you'll see those margins hopefully improve as we've got some operational improvement activities. We've invested in kettle capacity. We've invested in specific things that will help us run some of these kinds of projects, or the bigger projects better.

And then we've added more

trucking so that we can move things in between our customers and our plants. And pivot things to the plants that are going to be more capable of running certain projects. So a lot of things that we've been doing this year to -- which is one of the reasons we did open it up, and we want to want to continue with that momentum going into next year.

So yeah, I would not expect to see double-digit growth quarter over quarter going in as we get into next year. I expect growth and also expect us to be able to handle it with the margin profile that where we're at plus.

Then so you've done a great job reducing debt and repurchasing shares. Just on the dividend policy, have you announced at a precedent with the increase in the first quarter dividend? I mean, is that what investors expect is maybe one increase per year?

It's certainly, obviously, with the realignment of our debt and the AVAIL transaction in the summer, it gives us the luxury to readdress that and whether it be an annual basis or such like. It's certainly something that's on our radar. It's certainly something that we continue to consider and continue to take a look at. So given that profile, then it's certainly something that we will look at come up for this next cycle.

Yeah. And we are committed to being more regimented about looking at it consistently each year and -- and as we -- this is the time where we are putting the budget together, the plans together, and talking about these things with our Board. So the timing is good, as Jason said, but we're committed to evaluating this annually and not having to go several years like it did this last time before we have an increase.

Yeah. We are in a good spot. You have the debt paid down and you're generating good cash flow. So thank you very much for the color.

Sure thing. Thank you.

Gerry Sweeney, Roth Capital.

Good morning, Tom, Jason, David. Thanks for taking my call. Most of my questions have been answered, but I just had one quick question on Precoat. You implied that you think the segment has bottomed, but we also talked about some prepayment imports that are being at surplus. Are you able to bracket out how much that surplus was a headwind for the segment, and what we should be thinking about that on a go-forward basis?

Yeah, certainly. The thought process around about the prepainted metal imports is really correlating the data that we can see internally. So we can see internally the better imports coming in and get a feeling for that and then translate it back into what prepainted import material is out there in the pipeline.

So we've seen that filter through our system and filter through our customer systems to the point where less prepainted metal imports historically, up to this point in time, have not necessarily had any impact on our business. And our anticipation going forward is we start to see some of that benefit filter through.

If you think about that prepainted metal import market, it's around about 10% of the US market is fulfilled through that supply chain. It's down around about 35% this year, but it's gaining momentum in terms of how much it's down, obviously, it's down more as you get to the third quarter versus the first quarter.

So it creates that market opportunity. And really, if you look at that prepainted metal import market, and who can serve that market, then there's only a couple of players that can really serve that market. And obviously, AZZ Precoat is one of the names at the top of that list. So it creates a nice little opportunity for us as we start to look at our opportunities for next year.

Got it. I appreciate it. That's it for me. Happy New Year and congrats on a nice quarter.

All right. Happy New Year.

Thanks, Gerry.

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

Thank you, operator. And thank you for joining us this morning. As you can tell, we're pleased with our results for the Q3. Feeling good about the full year. And then it's early, but getting excited about fiscal 2027, looking forward to announce some guidance for fiscal 2027, and then announcing our results in a few months. So Happy New Year. Thank you for joining us.

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