Tom Ferguson: Growth, Innovation, and the Future of Coated Metals Industry

June 24, 2024 00:19:05
Tom Ferguson: Growth, Innovation, and the Future of Coated Metals Industry
AYNA INSIGHTS
Tom Ferguson: Growth, Innovation, and the Future of Coated Metals Industry

Jun 24 2024 | 00:19:05

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Show Notes

Host Connor Bradley from Ayna.AI has an illuminating discussion with Tom Ferguson, the President and CEO of AZZ Inc. Tom shares his insights on AZZ’s role in the infrastructure and construction sectors, driven by the data center market boom. The conversation also explores AZZ's strategic growth, including the 2022 acquisition of Precoat Metals, the impact of the IIJA and CHIPS Act, and innovations in metal manufacturing.

Tom Ferguson, the President and CEO of AZZ Inc., has been at the helm for over a decade, and has propelled the company to prominence in the hot-dip galvanizing and coil-coating industry. Before AZZ, Tom spent nearly 25 years at FlowServe, where he held multiple leadership roles. Under his guidance, AZZ has seen substantial growth, including the strategic acquisition of Precoat Metals and a smooth CFO transition. Tom's expertise has been pivotal in driving AZZ's success in the infrastructure and construction sectors.

 

Discussion Points

Ayna Insights is brought to you by Ayna.AI—a managed service provider that combines domain expertise and transformation capabilities to create alpha—performance superior to market indices—in the industrial and industrial technology sector. The host of this episode, Connor Bradley, is an Associate at Ayna.AI.

 

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Episode Transcript

[00:00:03] Speaker A: Welcome to INA Insights, where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. InA Insights is brought to you by Ina AI, a firm focused on working with industrial companies to make them unrivaled. Segment of one leaders to learn more about Ina AI, please visit our website at www. Dot ina dot AI. [00:00:40] Speaker B: Morning folks. Welcome to another episode of our Titanium economy podcast series hosted by Inaai. Our guest today is Mister Tom Ferguson, president and CEO of AZ Inc. For over ten years, Tom has led AZ Inc. As a leader in the hot tip galvanizing and coil coating solutions to a broad range of end markets. Prior to serving as president and CEO of AZ, Tom has had an almost 25 year career at Flowserve, a leading provider of flow control systems. While at Flowserve, Tom held a number of leadership roles across various business units and functions. Tom, welcome to the podcast. We're super excited to have you and look forward to talking about your journey as an organizational leader in the industrial space. [00:01:24] Speaker C: Thanks Connor. Glad to be here. [00:01:26] Speaker B: Awesome. So before we get started, for the folks at home that aren't maybe as familiar with ACC and its products, could you provide a little bit of background on the space that you guys play in? [00:01:36] Speaker C: We are the largest independent metal coatings provider. We like to consider ourselves a solution provider for hot dip galvanizing and coil coating of sheet metal and, and including aluminum. So you wouldn't necessarily know us as such, but you probably see our products. Anytime you're driving down the road, you're going to see light poles, transmission poles, probably the buildings are going to have sheet metal that we've painted. So while we're not a well known name, we actually are the biggest in those two spaces. [00:02:08] Speaker B: So folks are, folks are touching your products every day, if not, if they don't know the name. [00:02:13] Speaker C: Yeah, as we like to say, we like things like to make things last 50 to 100 years and we also want to make them look good. [00:02:19] Speaker B: I think you touched on some of the end markets and applications that you see your products going into. It's like a lot of infrastructure building. Any other primary segments that you guys serve? [00:02:30] Speaker C: Yeah, basically infrastructure. And a lot of infrastructure is construction. So that basic residential, commercial, industrial, you name it. When it comes to construction, we like to consider ourselves in it. So that could touch anything from petrochemical to the warehouse here, the Amazon warehouse, you might see. And then we're big in data centers and any kind of electric utility, transmission, distribution, construction. [00:02:59] Speaker B: I just read a Wall Street Journal article earlier this week about the wave of that. A lot of industrial companies are riding on the data center explosion that's happening across the country. So very, very cool that you guys are in a front row seat to see that. [00:03:14] Speaker C: Yeah, the nice part is we're not only in it directly, but we sold 60% of a business to that's now operating as a veil. And they're big in that same space, so they do the enclosures to switch gear for the data centers. And so it's great business these days. [00:03:30] Speaker B: I'll continue to talk about AZ here, but maybe switch tracks slightly. ACC recently announced a succession plan for the CFO, Philip Schlom, which, congratulations to Philip on an excellent career. What are some of the things that your team knew that you needed to get right to have a successful transition plan? And are there some risks that are still outstanding or being resolved? [00:03:52] Speaker C: Yeah, we were very fortunate as a public company. Obviously, we got to get our reporting right. We got to mitigate risk. We've got to be able to report our numbers and keep tight controls in place. The good news here is Philip gave us plenty of notice. He basically announced that he was going to retire at the end of his contract, which runs to November 4. And we had a good, strong internal successor candidate ready in the wings. So Jason Crawford. And it doesn't hurt that Jason, when we acquired precoat metals back in 22, Jason was the top financial leader at that time for them, and he'd also been the top leader in CEQA, who was the Carlyle company that owned precode. So the transition has been very, very smooth. We're a quarter into it, and they are just checking off the boxes. We recently were able to hire Jason's replacement at Precoat, who I think is joining us in a week. So, usually those are always. The risk is the team doesn't know each other. They don't. And in this case, Jason knows that entire team. Philip had built a really strong group here, and Jason had a strong team up at pre code in St. Louis. So they just came off of a brainstorming session where they're putting a lot of these things together. So we basically check all the boxes that you want to focus on, which is knowledge of the business, understanding the control, understanding what a public company has to do for the controls, and to be in compliance, and then how do you support the businesses from FP and a. From financial analytics perspective? So we're excited about it. I think Philip, he's actually got some free time to focus on. I think he finally took a vacation which is kind of nice to see. So we feel real good about it also. [00:05:38] Speaker B: And that actually kind of sets up. My next question well, is that Azz had an acquisition of the precode business in 22 that gave you access to kind of that coil coatings market. And market is obviously, the public markets have responded very well, ACC stocked up past two years. How has that integration come along? It sounds like the personnel part was a huge, not surplus windfall from that. To be able to have that contribute to the succession plan. What are some of the other, I guess, components of that integration and how they're going? [00:06:12] Speaker C: Yeah, I think, fortunately, the people side of it, the leadership side of it, the cultures immediately meshed. One of the things I loved about touring their facilities, meeting their team before we even completed the acquisition was just how compatible we were in our style, our approach to business, our approach to people, developing people leadership and management philosophy. So that was great. We're both coating businesses. I'd had the opportunity to kick the tires, so to speak, on Preco back in 2018. So it was a business that I was attracted to back then. So the ability to bring these two teams together and also tremendous talent on both sides, so, and leaders in their respective spaces. So when I look at it, what could have been complexity turns into our opportunity. We also were able, as I mentioned, divest what was more of a holding company. It was kind of a mini conglomerate, about eight or ten different business units doing different things to divest that into the private space, which was outstanding. So that freed our team in corporate up to focus on how do we bring these two great businesses together, how do we grow them faster, how do we deploy capital more wisely. Our focus initially was on paying down debt, because AZ had never had a lot of debt. We were about 1.5 times levered on EBITDA, and we popped up to over four. So focusing on how do you manage your cash flows and yet continue to invest in your businesses. So we had put acquisitions off to the side and focused on paying down debt, investing in the businesses. We did announce a huge investment, $125 million investment in building a new facility up outside of St. Louis in Washington, Missouri. And we have a partner on that, a customer who had to contractually committed to 75% of that volume. And it's on schedule and running. We're hoping to have it up and doing some test runs here at the end of the summer. So nothing but exciting things as we look at it. But, yeah, it was a big step for us, and followed by another big step, which was divesting the successful, what we call Azz infrastructure solutions. So we're excited at this point, excited about the future and focused on how do we continue to grow and. And deploy capital. [00:08:33] Speaker B: Well, yeah, so that facility that you mentioned, that sounds like an organic growth, is that off of the solution acquisition or was that core to the galvanizing business? [00:08:47] Speaker C: Yeah, that was pre coach. This was something that they had in the wings and been focused on. But being a private company, they had not pulled the trigger on it. So when we looked at it, it's in the aluminum space, which is a growing aluminum cans. All my wife drinks now is aluminum can water. So we like it because we'll now be providing paint for pre paint solutions for things like that, aluminum containers. So we see it as a growth track, as kind of replace some of the plastic options. And it's like, as I mentioned, we haven't announced who the partner is yet, but it's a topic. Aluminum company. [00:09:30] Speaker B: It's an interesting angle. The inorganic growth allows. It gives you more places to leverage your status as a public company and deploy that capital into new markets. It sounds like that's the immediate next step. Are there other kind of thoughts about future expansion in the world of coatings or. It's maybe one step at a time with this facility first. [00:09:51] Speaker C: Now we tend to plan pretty far out. We're back on the acquisition trail for the most part. We've grown. We almost call it organically. We bolt on one off galvanizing sites to our metal coatings group. So we've put the flag back up that after two years of focusing on debt reduction, we're back in the acquisition space. There's also larger acquisitions that we obviously will court. We were fortunate that a couple of processes shortly. Well, as we were going through the process to acquire pre coat, a couple of larger opportunities came available. Fortunately for us, the process has failed, and hopefully they come back available again some other day. So we're excited about that. [00:10:33] Speaker B: Awesome. [00:10:34] Speaker C: Well, and also we've got a lot of technology. We've been applying digital technology, which, by the way, is something we love about Ina. I mean, it's great for the digital space, for AI. We've been doing that for about seven or eight years on the galvanizing side. So we are far, far more automated and digitally integrated than any of our competition, which we believe gives us differential advantage, allows us to be far more integrated with our customers and provide that value. And we're doing some of the same things on the pre cut side. They've got what's called coil zone. So we're going to continue to invest in those things, which is continuing to make us closer to our customers and give them solutions that we like to think our competition can. [00:11:18] Speaker B: Yeah, absolutely. It becomes such a. As consumer technology becomes so much richer, it trickles over into what B two B customers expect. They're used to this ultra level of convenience and accessibility that they get in DoorDash and Uber Eats and it's starting to, starting to get the same standards being applied and those same folks doing their, their day jobs. So it's great to see that AZ is ready to meet those changing demands. I'd love to switch tack a little bit here from talking to AZ to about infrastructure in the US, largely as you are a leading supplier of a lot of those inputs, I'd love to get your assessment of the state of us infrastructure. Where are there bright spots, areas of improvement? How are we compared to maybe other economic competitors? Light that you could shed there would be fascinating. [00:12:12] Speaker C: Yeah, I think there's multiple areas. So as you think about just the basic infrastructure, we usually think of bridge and highway, as I mentioned, the electrical transmission distribution everywhere you see the high wires and things like that, but now you got buried cables. Those are areas where the country has needed huge investments and you see where people are moving. Here in Texas, you can't get in your car and drive down the road without seeing construction going on, whether it's bridges, highways, or just roads and sidewalks. So that's all really good to see through the IJA providing some investment, because I do think it's going to take billions, if not probably trillions, to get us to a competitive universal capability in terms of infrastructure. Then we've got the water systems, we've got everything from electrical, cars. How are you going to get charging stations out there? Almost all of this plays well to us data centers you mentioned, because if you're going to have lots of continue to build out anything from cryptocurrency to you name it, it's going to take electricity, it's going to take data systems, data centers. And so we see this finally really being built out in both the chips act as well as IJA. Those funds are now getting deployed. We're seeing them show up in projects. I still think we're in the early innings. So this should be a good long tail if you look out over the next decade, providing tailwinds for companies like AZ. [00:13:46] Speaker B: Yeah, and it's an interesting position the US is in compared to some other emerging economies, because there's some new build. But there's also, how do you revamp an existing infrastructure versus other countries that are coming online? New age, it's new build. You're starting with a blank canvas. I'm sure that that poses its own kind of, kind of complications. How do we build around what we've already got? [00:14:10] Speaker C: It's true, because there's always a tendency to just want to build over it, but in this case we need integrated solutions, which also, as I mentioned, plays well to us. You're seeing more of the warehouses and everywhere you go, distribution is king now. So because we all want it now and we want what we want now. So those distribution centers tend to have a lot of pre painted metal on them, just like the new chips plants. So massive amounts of painted sheet metal, if you will. All of which it's easier to construct, it's higher quality, and you can get projects done quicker. [00:14:47] Speaker B: Yeah. No exciting time certainly for infrastructure build in the US over the years to come. So switching tracks again would love to, as we talk about the industrial space overall, would love to kind of maybe a more personal note, understand if there are any names or organizations in the industrial space that you enjoy following or you think are doing really interesting things. [00:15:09] Speaker C: It's interesting because I mentioned Ina, which obviously I've had a long relationship with Nick Snatham and things worked at home. [00:15:18] Speaker B: We didn't pay him to say that. [00:15:19] Speaker C: So you did it. But I find Nick has been just a great partner advisor, if you will. And Fernwa bought the majority of of AI's now called avail. And that, that's an interesting company because I'm watching what they're doing in the industrial space and growing enclosures and switch gear and electrical things are just taking off. But so there you go from more of a kind of a mini conglomerate to focus coatings. I hesitate to mention any of our large customers. I do respect, have great respect for the SDIs and some of the steel metal manufacturers and because I think it all starts with metal and we've got to have that capability in our country to provide it. And that's kind of the source in terms of almost all industrial construction activity. So when I'm thinking about it, I should have better answers to that. I like one of the companies I'm at because it's transportation. So wabash. But I also like great all of the. When you think about trucks and trailers and everything to move products across the country, that's fits right in with infrastructure. Fits right in with. Then how do you transit the country and get products across it. So. And then how do we utilize technology going forward? So, so that's kind of the ones I think about. There's so many that fit our customer base. By mentioning one name, I almost exclude others. I'm just being a little cautious right now. [00:16:59] Speaker B: It's like the Oscar acceptance speech. You want to thank everyone that there's. [00:17:04] Speaker C: No one to alienate anybody. [00:17:06] Speaker B: No, totally. But I appreciate you sharing that perspective. We'd like to end on a little bit of a fun question here. I know you're Dallas Fort Worth based, if that's correct. So I don't know if you watched the Mavericks game last night, but your Mavericks are one game away from the NBA Finals for the first time in ten years. Are you tuning in? Do you like them over the Celtics or how do we feel? [00:17:31] Speaker C: We've had a good run. So we had the Rangers win the World Series last year, and then we've got. So now we have both the stars and the Mavs. The Mavs are up two to one or Mavs are up three to one and should have won last night, but tough, tough finish. But it's okay. Get them back home. And then we're hoping for the stars. Cause my wife became a hockey fan back in 1999 when they won their first, actually, I think first and only Stanley cup. So the only thing we, we lag on is our Cowboys haven't, haven't seemed to find a way to compete. [00:18:01] Speaker B: So, yeah, they're, they're coming. They just need the Mavs and the stars to show them the way, and they'll, I'm sure they'll be in hot pursuit. [00:18:09] Speaker C: Yeah, there you go. There you go. Yeah, we're excited. So we can have two contenders here in the finals. [00:18:15] Speaker B: Very cool. Well, I'm sure the country will be watching excitedly. In the meantime, Tom, thanks so much for this discussion. It's been, been really enlightening. And for the folks at home, thanks again for tuning into another episode of the titanium economy. Take care. [00:18:30] Speaker C: Thanks, Connor. Take care. [00:18:38] Speaker A: Thanks for listening to INa Insights. Please visit Ina AI for more podcasts, publications and events on developments shaping the industrial and industrial technology sector.

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