AZZ (NYSE:AZZ) Q4 2026 Earnings Call

0:00 Good day and welcome to the AZZ Inc. Fourth Quarter Fiscal Year twenty twenty six Earnings Conference Call and Webcast. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Philip Cooper, Managing Director of Three Part Advisors. Please go ahead. Good morning. Thank you for joining us today to review AZZ's fiscal twenty twenty six fourth quarter and full year results for the period ended 02/28/2026.

0:48 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 that the live webcast of today's call is available at www.azz.com/investorevents. 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. By their nature, forward looking statements are uncertain and outside of 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 ks.

1:47 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, today's call will discuss non GAAP financial measures, which should be considered supplemental and 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. Thanks Philip. Good morning everyone and thank you for joining us today. We delivered a strong close to the year and achieved record sales and profitability for the third consecutive year. I'm especially proud of how our teams recovered from the major winter storm in late January to finish a strong fourth quarter.

2:33 Full year sales totaled $1,650,000,000 adjusted EBITDA surpassed $367,000,000 and adjusted earnings per share grew 19% year over year to $6.19 Our performance reflects the strength of our strategy, disciplined execution, operational excellence and commitment of teamwork and values based culture across the organization. During fiscal twenty twenty six, we further fortified our competitive position by driving market share gains across our segments. AZZ continued to win by delivering superior customer service and operating with discipline and consistency, while leveraging our proprietary technologies and galvanizing research capabilities to create differentiated value. Throughout the year, we made organic investments across both of our segments to enhance operating efficiencies and support our long term growth. A key milestone was the completion of our Greenfield precoat metals facility in Washington, Missouri. This investment advances our organic growth strategy and strengthens our precoat metals segment expanding AZZ's participation in the growing aluminum coatings and beverage related end markets.

3:42 We further expanded our metal coatings platform last year through the acquisition of a galvanizing facility in Canton Ohio which extended our footprint and broadened our service offering for new and existing customers. At the same time, we continue to evaluate acquisition opportunities through a disciplined capital allocation framework while growing an active strategic pipeline of deals. Jason will cover our fourth quarter results in detail. So I'll focus my remaining comments on the significant secular tailwinds that continue to propel our long term growth. We're seeing momentum across our end markets driven by infrastructure related investment themes that are reshaping the industrial landscape. These include industrial reshoring bridge and highway investments, hyperscale data center expansion, investments in power generation, transmission and distribution and continued growth in renewable energy.

4:32 Each of these trends are structural multi year and increasingly central to our customers capital spending priorities. As we've seen throughout the year these markets rely heavily on galvanized steel and coated metal solutions areas where AZZ brings meaningful scale, deep coating experience, operational reliability and exceptional value. Our diversified portfolio positions us uniquely to be able to support large scale complex projects across multiple end markets and states often simultaneously and to do so with consistency and speed. Together these demand drivers and our differentiated operating model allows AZZ to capture market share and deepen existing customer relationships.

5:17 Dave will share additional details on how industry dynamics translate into project activity in just a moment. We continue to drive incremental improvements across our network using our digital galvanizing system and metal coating plants and CoolaZZone in precoat metals. These systems strengthen customer engagement while driving productivity and margin improvement across our operations. Together these custom digital capabilities reinforce our competitive advantages and support consistent profitable growth. With that, I'll turn it over to Jason. Thank you, Tom and good morning. Starting with a summary of results for the year. In fiscal twenty twenty six, which ended 02/28/2026, we reported record sales of $1,650,000,000 up 4.6 from the prior year.

6:07 For our core segments, we increased metal coating sales 14.1% and generated strong EBITDA of over $235,000,000 or 31% of sales. For precoat metals, despite a modest 2.3% sales decline driven by industry wide softness in residential and other key markets, we generated solid EBITDA of $176,000,000 or 19.8% of sales. Consolidated gross margins remained robust at 23.9% and operating income from the year rose by 12% to two sixty five million dollars Also for the full year, GAAP net income comparisons included two noteworthy matters.

6:54 First, in 2026, our AZZ joint venture generated equity and earnings from unconsolidated subsidiaries totaling $210,000,000 primarily driven by successfully divesting businesses within the joint venture, which I will discuss in more detail in a moment. Second, for the fiscal year 2025, GAAP net income available to common shareholders included a preferred stock redemption premium expense totaling $75,000,000 Adjusted net income, excluding these items, plus intangible asset amortization and restructuring charges resulted in adjusted EPS of $6.19 an increase of 19% on the prior year.

7:42 In addition, consolidated adjusted EBITDA increased year over year to $367,600,000 or 22.3% of sales, up from 22% of sales a year ago. Shifting to our quarterly results, we reported record fourth quarter sales of $385,100,000 representing a 9.4% increase from $351,900,000 in the prior year period. This was supported by strong double digit sales growth from our Metal Coatings segment, up 25.7% year over year. Compared to the prior year, Q4 results benefited from continued momentum from higher infrastructure related demand and less impact from inclement weather.

8:31 Pre caught metal sales were down 2.4 for the same quarter of the prior year, primarily due to continued lower end market demand and pockets of construction, transportation and HVAC. The company's fourth quarter gross profit was $87,600,000 or 22.7% of sales, up 30 basis points from 22.4% of sales in the same quarter of the prior year. Selling, general and administrative expenses totaled $30,500,000 in the fourth quarter or 7.9% of sales. This compares favorably with last year's fourth quarter, which reported 38,300,000 or 10.9% of sales, inclusive of $6,700,000 and accrued costs related to legal retirement and severance expenses.

9:25 Operating income for the quarter was $57,100,000 or 14.8% of sales, an exceptional three thirty basis point improvement compared with $40,400,000 or 11.5% of sales in the fourth quarter of the prior year. Also in the fourth quarter, we reported a net loss from the AZZ joint venture equity and earnings of $21,700,000 primarily reflecting a loss in the sale of the welding services businesses and an unfavorable prior period adjustment from AZZO. Excluding the loss in sale and prior period adjustment transactions, the AZZ joint venture's equity and earnings for the quarter was approximately $700,000 compared with 3,700,000 for the fourth quarter of the prior year.

10:16 Interest expense for the fourth quarter was $11,200,000 an improvement of $6,200,000 from the prior year, driven by debt paydown from continuing operations, debt paydown from the AZZ joint venture distribution, the issuance of an AR securitization loan with favorable pricing and a favorable repricing of the term loan. The fourth quarter's income tax expense was $8,700,000 and GAAP net income was $50,900,000 compared to GAAP net income of $20,200,000 for the fourth quarter of the prior year. We reported adjusted net income of $40,400,000 excluding intangible asset amortization and the AZZO equity loss discussed earlier, resulting in adjusted diluted EPS of $1.34 up 36.7% versus a year ago.

11:13 Fourth quarter adjusted EBITDA was $81,300,000 or 21.1% of sales compared to $71,200,000 or 20.2% of sales for the same period last year. Turning to our financial position and balance sheet. Consistent with our capital allocation priorities for the year, we executed with discipline across our balance sheet, growth investments and shareholder returns. We reduced debt by $385,000,000 and ended the year with a net debt to EBITDA ratio of 1.4 times, providing significant financial flexibility moving forward. We continue to invest in the foundations of the core businesses. During the year, we invested $80,800,000 in capital expenditures, a growing portion of which was dedicated to internal growth initiatives.

12:08 Also included in the year within our capital expenditures was approximately $7,900,000 on our new Washington, Missouri facility. Over the past three years, we've invested approximately $125,000,000 in this aluminum coil coating facility with the team delivering the project on time and on budget. With the facility now fully operational, volume continues to ramp in alignment with our partner customer and was profitable at the contribution margin level in Q4. Finally, broadening off our investments for the year, we further strengthened our Metal Coating segment by acquiring a galvanizing facility in Canton, Ohio for approximately $13,000,000 demonstrating our commitment to grow the core businesses organically and inorganically.

12:59 At the same time, we remain committed to returning capital to our shareholders. During the year, we paid $23,000,000 in cash dividends and repurchased $20,000,000 in shares at an average price of $99.28 per share. Together, these actions reflect a disciplined approach to capital deployment and our focus on creating long term shareholder value. For the remaining AZZ joint venture investment, we account for our 40% interest as equity in earnings and unconsolidated subsidiaries, which also constitutes a separate operating segment. In 2026, AZZO generated equity in the earnings of $210,000,000 which includes the sale of its electrical and welding businesses and provided cash distributions of $287,000,000 during the year.

13:54 AZZ's cash flows from operations of $525,000,000 includes $273,000,000 of cash distributions from Avel, net of the associated taxes paid. The remaining $14,000,000 of cash distributions from Avel were classified as cash flows from investing activities. Finally, as expected, 2026 cash taxes were higher in the year associated with higher FD and the earnings from AZZO offset somewhat by positive effects from the One Big Beautiful Bill Act on depreciation, R and D expenses and interest expense. With that, I'll turn the call over to David. Thank you, Jason. Good morning, everyone.

14:39 Consistent with our disclosures found in the company's 10 ks, total sales for the full year grew at 5% as compared to the prior fiscal year. Construction, our largest end market, grew at 3%, while Electrical and Industrial delivered strong double digit sales growth resulting in 1715% growth rates respectively. As Tom noted, AZZ continues to benefit from early stages of a longer investment cycle, driven by sustained U. S. Infrastructure related spending and the continued expansion of large data centers. These often pair with the construction of significant co located power generation driving our electrical, industrial and construction end market results. Our consumer end market performed well, growing at 6% on higher volume of coated aluminum, driven by the shift from plastic to aluminum in the beverage market and the continued ramp of the new Washington, Missouri facility, while our transportation category declined by 3% due to weaker overall end demand for semi trailers.

15:41 Looking forward, industry research characterizes the AI data center build out as more structural rather than cyclical and The U. S. Data center electricity demand is expected to roughly double by the end of the decade. Despite ongoing geopolitical and interest rate uncertainties, we believe AZZ's demand is driven by fundamental shifts in the economy rather than traditional construction cycles. External forecasts indicate that The U. S. Hyperscale data related spending will be approximately $700,000,000,000 in calendar year 2026 with AI investments accounting for the majority of that capital. This infrastructure heavy spending environment aligns well with our end markets. Modern data center construction requires advanced corrosion protection and usually drive significant investments in on-site power generation, grid reinforcement and transmission infrastructure.

16:36 These are complex multi year projects that require substantial hot dip galvanized content. As a result, our Metal Coatings segment is well positioned to support this expanding market. Excluding data centers, we anticipate non residential construction will continue to remain subdued in fiscal year twenty twenty seven, primarily driven by interest rate, geopolitical and lingering tariff related uncertainties. Within the residential housing market, current industry research indicates that single family housing starts are expected to be flat to down low single digits as a large stock of homes already under construction dampens new starts. Additionally, current estimates project thirty year fixed mortgage rates will remain above 6%, limiting affordability and slowing demand for new construction.

17:22 As a result, builders are increasingly focused on finishing existing projects and offering incentives to reduce current inventory. We expect the softness in both non residential and residential construction may provide a headwind for our Precoat Metals segment in the current fiscal year. With that, I will now turn the call back over to Tom. Thank you, Dave. We anticipate the number of data center projects entering the construction phase in 2026 will increase, which will drive further infrastructure build out. Importantly, our customer demand is not isolated to data centers. We are seeing continued strength across key end markets including bridge and highway construction, power generation and electrical transmission distribution all of which are supported by long term secular tailwinds.

18:10 These projects drive sustained demand for hot dip galvanizing services and may create incremental opportunities for Preco metal solutions. We win in competitive markets because we provide delivery reliability, high quality and speed of execution. While we're off to a good start in the first quarter it is early in the year. So today we are reiterating our fiscal twenty twenty seven guidance. Sales are expected to be in the range of 1,725,000,000 to $1,775,000,000 adjusted EBITDA in the range of $360,000,000 to $400,000,000 and adjusted diluted earnings per share in the range of $6.50 to $7 We estimate debt reduction to range from 130,000,000 to $170,000,000 in fiscal twenty twenty seven. We are confident that our strong financial and market positions will enable us to capitalize on strategic growth opportunities while executing on our broader capital allocation plans.

19:08 Due to our strong balance sheet and desire to provide above market growth, we will remain selectively aggressive in our approach to M and A opportunities. We focus on investments to strengthen our Metal Coatings and Pre Coat Metals segments, expand our geographic reach and deepen customer relationships. Using a proven disciplined playbook, we are pursuing opportunities that reinforce our competitive advantages and deliver sustainable returns for our shareholders. As we look ahead, we are confident in AZZ's ability to consistently improve performance and execute at a high level, while delivering profitable growth and long term value for our shareholders. Finally, I'm proud to recognize AZZ's thirty ninth consecutive year of growth and profitability from continuing operations.

19:54 This achievement is a direct result of the dedication, expertise and commitment of our employees across the organization. Our focus on safety, quality, customer service and execution continues to differentiate AZZ. And I want to sincerely thank our teams for the outstanding work they do every single day. Now operator, we would like to open the call for questions. We will now begin the question and answer session. The first question today comes from Ghansham Panjabi with Baird. Please go ahead.

20:45 Thanks, operator. Good morning, everybody. I guess first off on Metal Coatings, obviously very big year last year from a volume standpoint, including what you delivered in the fourth quarter. If you could just share with us what are you embedding for growth specific to fiscal year twenty twenty seven for the segment? And then for PreCoat, if I understood you correctly, I you called out some headwinds as it relates to residential construction. Are you expecting a worsening of the trend in terms of volumes or just headwinds that may be offset with other tailwinds including your Washington and Missouri plant? Yes. Good morning. I can pick that up. So from a metal coatings point of view, if you look at the projections for the next year, somewhere in the mid single to upper single digits for that business obviously ending the year very strongly and that builds momentum coming into the year.

21:40 As you look at the pre core metals business probably in their own where we've seen them. Relatively flat year on year as you look at the overall market where they have the benefit is obviously they've got better comps year on year to compete against versus the pre coat metal sorry, the metal coatings business is a little bit more difficult comps. So one high mid to high single digits, the other relatively flat. Okay. And then for pre coat, just to clarify, what is your exposure towards residential construction for that segment? Yes. I think as you look at overall the market that they cover. So if you look around 75% of their end markets are driven by construction and then round about a third of that has that residential exposure.

22:31 Okay. Thank you for that. And then just for my second question, as it relates to zinc prices and just maybe comment on your rum drill basket trends in context of what's been happening with commodities more broadly, obviously the events in The Middle East, etcetera. What are you seeing at this point? And how are you managing through that? Yes. I think from a zinc perspective, there hasn't been much effect. Prices were trending up before all of the disruption. As you know, that's about six to eight months in our kettles and we were feeling that coming into the year anyway. So we've but there's general inflation going on within both segments whether it's paint prices going up which also which is more of a pass through on the precoat side. But on the galvanizing side, it's acids, caustics, chemicals, as I like to call it soap, rope and dough.

23:27 All that stuff is inflating. We that's why we call it value pricing. We try to keep up with pricing. The one thing we're doing from a surcharge perspective is in relation to transportation, fuel costs, things like that because we do have a large fleet of our own trucks and trailers. So there we're using surcharges to offset that and make sure we protect our margins. We're not seeing that change. There's hardly a day goes by anymore that we don't get some price increase from suppliers. And so both segments are pushing price to offset that and maintain margin. And it seems to be expected in the marketplace now because everybody's facing the same issues.

24:17 Perfect. Thank you for that, Tom and Jason. The next question comes from Daniel Rizzo with Jefferies. Please go ahead. Thank you for taking my questions. So just thinking about the preco market, obviously, higher interest rates are an issue, but are there other meaningful affordability issues that you can pinpoint for the commercial market? I mean, I think we all understand what happens with residential, but for non res, I was wondering if there's other things that are kind of a factor that are hindrance besides again high interest rates? Yes, Daniel. Really pretty much everything we've described in the remarks. When you think about non residential, we've seen project costs overall from some of our end markets and customers go slightly up and get inflated due to some of things Tom mentioned.

25:09 Obviously, when we put our budget together, war in Iran had not started yet. But so we've seen some escalation there. And again, interest rate uncertainties I think are going to be the main thing on residential side. And I would add that one of the things we are facing is availability of substrate. It's with tariffs on imports domestic supply ramping up. There are some constraints in terms of available substrate to be painted. So some of our customers are experiencing that. So which drives them to wait and probably to inventory less, wait until it's closer to demand for the season to go ahead and place orders to be able to best utilize the substrate that's available. So that's one of the things we're seeing, which tends to drive us to it fits our profile, quick turnarounds, small lots, lots of customization.

26:15 So it's that's a little bit of an underlying trend which does increase costs on projects and also makes demand a little less harder to predict because they're not buying to normal inventory trends. More so for metal coatings, are backlogs a thing just given the size of your projects and what people are planning out I assume years ahead. I was wondering if you have a sizable backlog or that's not just something that's not part of your business? Yes, it's really not part of our business. We I say this jokingly, a lot of our sites, they look out on the yard and then that's their demand and backlog for the week. But and we're really good at turning stuff. And so our customers depend on the fact that we're very, very reliable.

27:04 They get it to us on Monday. We're going to have it back to them on Friday. So we're aware of it because in our sales process we're forecasting it. So as customers are communicating to us what their demand is going to be month in month out and even week in week out. We feel really good on the Metal Coatings side right now. Most of our customers, it's a broad based growth profile in infrastructure. So it's not anyone whether it's data centers, poles, towers, substations. And then all of the stuff that has to go in whether it's roads, lighting, electrical systems to support data centers and substations and things like that. So it's a really broad based market and our network of facilities plays well to it. So we don't record backlog that way, but we can look forward and say our customers are bullish on demand in the metal coating space.

28:13 Thank you very much. The next question comes from Adam Thalhimer with Thompson Davis Co. Please go ahead. Hey, good morning guys. Congrats on the strong quarter and the strong year. Hey, on Thank the data center piece, how are you guys handling the demand? I mean, do you have certain facilities that seem to be dedicated towards those projects? And then from a disaggregated sales standpoint, do you put that revenue into construction or into industrial or some other bucket? I'll let David answer the second part of it. On the first part, we just had our annual Metal Coatings plant managers and sales managers meeting and so we've got 120 folks in there and there was hardly a one single plant manager or sales manager I talked to that isn't working on one, two or three data center projects at any given time right now.

29:12 So very, very broad based. It's what they like about us is we've got a network of facilities and so we can handle large projects across multiple facilities or in many cases one facility can handle the entire project. Gives them surety of delivery, reliability of execution, all those kind of things that just play well for picking AZZ for your galvanizing. In terms of how we code it, that gets a little dicier. So I'll turn that over to David. Yes. Thanks, Tom. There's some variation in how it gets coded based upon how the order really comes to us, whether it's from a general fabricator or a dedicated project development team, So sometimes we'll see that show up as you can see in our end results by electrical and industrial because we know we can visually see it and we know that for instance it's a monopole and that's obviously going to be an electrical.

30:17 Whereas some of the structures and you've been to some of our plants Adam, so you've seen some of the things that we're working with. It can be a little more unclear as to if it's going into a data center or if it's going into an LNG project for instance. So that sometimes will get a little bit more clouded and will go into either construction or industrial as a result. Okay. Good color on that. And then I wanted to ask about M and A potential M and A. You mentioned the pipeline of deals. Can you just update us on what the pipeline looks like and potential timing? Yes. The pipeline is looking good, particularly on the Metal Coatings side. There's mostly what we're looking at, they're one off sites. And so if you just kind of take our average fleet sales and EBITDA, call it $15,000,000 in sales, dollars 4,000,000 to $6,000,000 in EBITDA that's kind of the size that we're looking at in terms of bolt ons.

31:20 We've got three or four in fairly active discussions. We've got one underway in due diligence. So love to get one closed in before we talk again and then see if David and his team can get a couple more closed this year. On the precoat side, we've got one that I'll call in active discussions. It's not a big one. So it's kind of a single line sort of thing. And that about sums it up. There's obviously the bigger things that we're looking at but they're going to be further out. I don't know that I project any of the larger ones for this year. Awesome. Good luck closing out Q1. Thanks.

32:07 All right. Thank you. The next question comes from Nick Giles with B. Riley. Please go ahead. Thanks. Good morning, guys. First question was just, CapEx is around $90,000,000 at the midpoint. I saw in the assumptions that hot dip capacity expansions are part of that. Can you just speak to what the potential EBITDA impact could be? And how much of those expansions are embedded in this year's guide versus something that may be more visible next year? Thanks. Yes. I think, so we're looking at adding kettles. So we're adding one here in North Texas because of demand. It'll be starting up here in the next month or so. So it's going to have some impact.

32:59 I'm struggling to want to publicly say what a new kettle is worth in terms of EBITDA, but it is going to have an impact. It's at a large site. So it's going to give us incremental capacity. The other things we're doing and we are looking at other locations to add kettles. Those are fairly quick. We could put them in and we approved the one I talked about just a few months ago and it'll be up and running this quarter or June 1. So not long cycle times on these things. Hopefully has a couple million impact in EBITDA. If you ask the Metal Coatings team, they would say it's embedded in their forecast. If you ask me, I'd say maybe not.

33:48 Other things we're doing in ground line coating that's common with poles and towers and things like that. So doing more of that just because transmission distribution continues to boom. So adding that capability once again 2,000,000 or 3,000,000 investments for nice incremental sales and EBITDA. Jason, do you want to add any color to that? No, I mean, think it's as you look at the growth in that business continues to go in the right direction and some of these KOLs are getting ahead of the curve and making sure when the volume hits then we in the right place to go deliver against that. I would say that the forecast and guidance that we have at the moment plus or minus includes it really as you look it's more kind of long term returns.

34:41 I mean the good news is they're really low risk investments because the demand is already there. Understood. Appreciate that guys. And then the stock's obviously been on the nice run. So just was curious to ask about your appetite to do more buybacks here? Or would you prefer to keep more cash on the balance sheet just for some of those M and A opportunities that you mentioned? Yes. I think given the activity we've got on the acquisition side, we're committed to minimizing dilution with stock buybacks. And so we remain committed to that. So that remains in terms of capital allocation strategy.

35:28 Given the list of possible or even becoming more probable deals that we can get done. I like using the cash for that because that's going to set us up. It brings immediate EBITDA uptick for us. And as you know our guidance does not include the M and A incremental that we would pick up. Very helpful. Guys, appreciate all the color and continue best of luck. All right. Thank you. Thank you. The next question comes from Gerry Sweeney with ROTH Capital. Please go ahead. Good morning, Tom, Jason and Dave. Thanks for taking my call. We've hit upon metal coatings quite a bit, but just one follow-up question, especially on the transmission and distribution.

36:22 It sounds like you talk a lot to some of the metal fabricators, etcetera. But I'm just curious as to do you ever talk to some of the end users or the end purchasers and how much visibility you have on that or how far how forward out do you can you see or at least some discussions in general terms? Yes. So we look at the general end user trends in terms of their spending, where they're going to be adding capacity and things like that. David can add more to it. But we attend a variety of conferences where we're in touch with that. And a lot of that's generally available capacity additions in terms of gigawatt additions.

37:09 That kind of stuff, we're in contact with them. We compare that to what our customers are telling and then we look at the general available market trending data. David can put some color on it. Yes. Thanks Tom. Yes, Gerry, would add to that. We've been more active than we have in the past at marketing directly industry and end users of it. Metal Coatings team in particular has put together a nice bit of marketing materials and as Tom mentioned has recently been to some industry conferences as well to showcase our capabilities for that market. So we're pretty pleased with what we're seeing there and again it shows up in the results and it also shows up in some of the backlog that those GCs and others that are calling on them share with us that give us a good forecast.

38:04 Got you. Then just one more quick question just on the Washington facility. I think you mentioned that it was profitable on a contribution basis in the fourth quarter. What utilization is that running at? And how should we think about that sort of ramping up to the rest of the year if it's not already there? I'd say it's at about 40% now. It's going to continue ramping. We've got yes, it's got to produce around 45,000 to 50,000 tons this year and we're feeling pretty comfortable with the trends that it's going to get there. And so that's really going to ramp up as we get to second quarter, third quarter, fourth quarter. But we're watching that positive trend month in month out.

38:50 Jason, I don't know if you want to add something there. Yes. No, I mean it's very much ramping up to our expectations getting to that 40%, 50% here in the first quarter or sorry getting beyond the 40% closer to the 50%. There's three different processes and the three processes are at slightly different stages. But all signs in terms of the plans for the year are very much in alignment with expectations. Got it. Great. I appreciate it. Thank you for your time. Thanks, Jerry. The next question comes from John Franzreb with Sidoti and Company. Please go ahead. Congratulations on a great year guys. Just want to stick with the Washington facility.

39:36 What was the revenue contribution of that business in fiscal twenty twenty six? Yes. I think it was about $11,000,000 or so in revenue. For the full year? Yes, for the full year. I believe that's correct. Got it. And I'm curious about filling the balance of the plant. I think you had about 75% of it allocated. Where do you stand on the remaining 25%? We've got a lot of interest in it. We're trying to make sure we take care of our partner first. And so we're continuing to ramp their volume up. As you know the aluminum business is booming. So but yes we won't have any trouble filling that capacity once we've taken care of our partner first. And we would hope to by the it by the end of the third quarter to be in a position to start filling the balance of that.

40:37 Got it. Got it. Understood. And I just got off a conference call with the company mentioned that there was a concern about municipality spending in the coming year. Is that something that you share any kind of commonality with? I'm just kind of curious about your thoughts there. Yes. It's interesting because a lot of the communities we're in, we tend to be heavily concentrated in the Midwest, the South and the West a little bit up in Canada. Most of the municipalities we're talking to are in good shape. They've still got like here in DFW, there's still a lot of growth in housing, multi unit housing, commercial construction. So they still got a lot of companies moving. And that's kind of the story throughout Texas, which is our biggest concentration of capacity for galvanizing.

41:32 So, every one of those communities is struggling with their budgets, but every one of the communities has to make these investments. So, it's yes, just is what it is. As you move up further through the Midwest, mostly I'd say two thirds are very comfortable. They're moving forward with these infrastructure projects because they have to. And then even in the other areas, the difficulty, I think the difficulty here is if you've got a big data center moving in and it's going to require you to expand roads, You're going to have different demands on your electric utilities.

42:18 I think those are still being sorted out. So, not that we're having direct conversations with those municipalities, but just kind of looking at the challenges that they're facing. How do they balance their budget when you've got this big facility coming in, which and it's going to require infrastructure. It's going to require water. It's going to require electricity. Some of the bigger data centers they're building as David pointed out, they're now building the power generation concurrently with it. But you still got to get roads and other infrastructure things to it. So, don't know, it's a challenge. I don't see it creating problems for us this year. But I think as you go out further, that's going to become a bigger question for a lot of these these municipalities.

43:11 Great, great. Thanks for the feedback. I appreciate it. The next question comes from Eric Bois with Evercore. Please go ahead. Thank you. First, could you please remind how paint cost pass through is typically incorporated in Precode? Is it directly itemized for customers? And how many months of paint inventory does Precode generally carry? Yes, Eric, I can pick that up. So generally the paint is not itemized and obviously the end customers have a very good understanding and typically have a relationship with the paint companies. So any paint pricing that comes from the paint companies is generally passed one for one through to the end customer and that's something that's within the industry and not just within AZZ.

44:07 Great. I appreciate that Jason. Then sorry you asked about inventory sorry. We're very, very tight in inventory. All inventory is bought to customer order. So as you can appreciate there isn't speculation in terms of the manufacturing within that business, given it's all custom colors, etcetera, etcetera. So generally, we have round about three or four weeks' of inventory on hand. We hold a little bit more of the common product in terms of primers and backers, but when you really get to the top coats and the customization then as pretty much coming in the door to align with the production schedules. Got it. I appreciate that. And then a second follow-up. I think you said earlier on the call that precoat is expected to be roughly flat year over year. But on kind of a quarterly cadence, is that assuming some contraction in the first half and then in the back half we see some end market normalization or is that more kind of flattish across the year? Thank you very much.

45:09 Yes. I mean, think we're looking at it more flat across the year. And I would say from a conservative point of view that we keep getting signals, things are turning and not quite transitioning into results, etcetera. The only thing I feel to mention in the first part of that question that Gershom had provided is the addition and growth associated with the new Washington facility. Really so when you start to add that into the equation then pre quote should show growth quarter on quarter as we go through the year. Thank you. Thanks, Eric. This concludes our question and answer session. I would like to turn the conference back over to Tom Ferguson for any closing remarks.

45:58 I just want to thank everybody for joining us today. Hopefully, what you're taking away is we feel like we're off to a good start this quarter, feel good about the year at this point. Even with all the external things that may be going on out there, what's within our control, we feel very good about and we feel that we've got great teams working real hard to do everything they can for our shareholders. So look forward to talking to you at the end of the first quarter. Thank you. Have a great day. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.