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AZZ Inc (AZZ) Q2 2021 Earnings Call Transcript

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AZZ Inc (NYSE: AZZ)
Q2 2021 Earnings Call
Oct 13, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning everyone and welcome to the AZZ Inc. Second Quarter of Fiscal Year 2021 Financial Results Conference Call. [Operator Instructions].

At this time, I’d like to turn the conference call over to Mr. Joe Dorame, Lytham Partners. Sir, please go ahead.

Joe DorameManaging Partner, Lytham Partners

Thank you, Jamie. Good morning and thank you for joining us today to review the financial results of AZZ Inc. for the second quarter of fiscal year 2021, ended March 31, 2020. Joining the call today are Tom Ferguson, Chief Executive Officer; Philip Schlom, Interim Chief Financial Officer; and David Nark, Senior Vice President, Marketing and Communications and Investor Relations. After the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. Please note there is a slide presentation for today’s call, which can be found on AZZ’s Investor Relations page under Financial Information at azz.com.

Before we begin with prepared remarks, I’d like to remind everyone, certain statements made by the management team of AZZ during this conference call, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed from time to time in documents filed by AZZ with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended February 29, 2020. Those risks and uncertainties include, but are not limited to, changes in customer demand and response to products and services offered by the company, including demand by the power generation markets, electrical transmission and distribution markets, the industrial markets and the metal coatings markets. Prices of raw material costs, including zinc and natural gas, which are used in the hot dip galvanizing process; changes in the political stability and economic conditions of the various markets that AZZ serves, foreign and domestic; customer requested delays of shipments, acquisition opportunities, currency exchange rates, adequate financing and availability of experienced management and employees to implement the company’s growth strategies.

In addition, AZZ’s customers and its operations could potentially be adversely impacted by the ongoing COVID-19 pandemic. The company can give no assurance that such forward-looking statements will prove to be correct. These statements are based on information as of the date hereof, and AZZ assumes no obligation to update any forward-looking statements, whether a result of new information, future events or otherwise.

With that out of the way, let me turn the call over to Tom Ferguson, Chief Executive Officer of AZZ. Tom?

Thomas E. FergusonPresident and Chief Executive Officer

Thanks Joe, and welcome to our second quarter fiscal 2021 earnings call, and thank you for joining us this morning. Let me first start by saying that COVID-19 is still very much front and center for all of us here at AZZ, and it continues to affect our results. Our top priorities at AZZ continue to be ensuring employee health and safety supporting our customers during these unprecedented times, finishing this fiscal year well, and positioning the company for fiscal year 2022, as well as beyond.

As an essential infrastructure manufacturing company, all of our facilities remained open. I’m extremely proud of the way our folks manage through this crisis during our first quarter and second quarter as well, and took care of each other and our customers. During this pandemic, we are truly grateful for everyone’s efforts that allowed us to continue safe operation of our plants worldwide.

We entered the second quarter in June, which is normally the final month of the seasonal spring turnaround season. Consequently, the quarter got off to a slow start. Historically, however, Q2 is sequentially lower for our Infrastructure Solutions segment under any circumstances. The Metal Coatings segment navigated the economic uncertainty well. However result in our galvanizing business were impacted by several factors beyond COVID. But I will cover these later. As a result, our second quarter consolidated sales declined 13.9% versus the second quarter of the prior year. Adjusted net income decreased 16.7% to $13 million or $0.49 per diluted share. In light of the disruption caused by COVID on our markets in some of our operations, we decided to accelerate elements of our long-term strategic plan, and initiate some strategic actions that will have longer-term benefits.

Our Metal Coatings segment experienced a wide range of challenges. Plants experienced disruptions from hurricanes in the Gulf to civil unrest in some cities and some even had difficulty finding direct labor. Suffice it to say, it was a crazy summer. Sales totaled $117 million for the quarter as compared to $125 million for the same quarter a year ago. I am particularly pleased with how our galvanizing team in particular, was able to benefit from lower zinc costs during the quarter, while maintaining above-average industry pricing. These actions coupled with our quality workmanship and outstanding customer service, resulted in an overall segment margins that were flat at 23%. While our galvanizing margins in particular finished above 25%. Additionally, the Metal Coatings team did a nice job of integrating the powder coating and plating operations and sales teams during the quarter. Many of our powder coating customers that had closed to reduce production because of COVID, began to place orders again. We remain committed to our strategic growth plan for the powder coating and plating business and driving meaningful margin improvement post COVID-19 crisis. So much so, that we chose to rename Surface Technologies to Powder Coating and Plating to better represent our focus for that business.

Because of the impact of COVID on the oil and gas and petrochemical sectors, we made a difficult decision to classify some underutilized facilities, as assets held for sale. As well as closed a couple of sites and integrated their business into our other sites in the adjacent areas. We also closed one plating site, relocated its operations to a nearby plant. We are excited by the progress the new integrated team is making and the speed at which they are moving. We believe that restructuring actions that are currently in process should provide approximately $2 million of savings benefits annually.

Our Infrastructure Solutions segment’s second quarter fiscal 2021 sales decreased by 22.5% to $86 million, resulting in an adjusted operating income of about $3 million as compared to about $4 million in the same quarter a year ago. As I mentioned previously, the decline in sales was a result of lack of refinery turnaround activity in June, lower China high voltage bus shipments and lower overall demand for some of our electrical products and services.

While our Industrial platform shops were open and working, and crews did begin deploying during the quarter, the summer is usually a period of weak activity. In line with our strategy to reduce our participation in the U.S. nuclear sector, a lower outlook for activity in the oil patch sector, and in our desire to focus on core businesses, we initiated several restructuring actions in this segment. These include personnel actions, some site consolidation, deciding to divest some non-core businesses to buyers that are interested in investing and growing these businesses, and impairing $2.5 million of inventory. We believe the third quarter will be sequentially better than Q2 of this year, but turnaround activity remains constrained by COVID travel restrictions and continued low demand for gasoline and jet fuel.

Due to the prolonged uncertainty associated with the recent COVID-19 pandemic on many of our end markets and delays by some of our customers due to election uncertainty, we are not able to accurately provide an update for the full year at this time. We can say that our third quarter will be nicely improved sequentially over the second quarter, but it is unlikely to generate the earnings we did in the strong third quarter of last year. Our low debt level, combined with our consistent ability to generate cash, gives us the confidence that we can manage both debt and liquidity satisfactorily throughout fiscal year ’21, as well as beyond. We hope to get back into a normal guidance cadence, as we enter calendar year 2021, and as we see customers returning to normal business engagement levels.

Our Metal Coatings business is operating in a fairly normal level, although there are restrictions and disruptions in some of the cities and states we operate in. We are also experiencing additional expense, as we work to keep our facilities clean and safe, so our employees remain healthy and productive. We are confident that our businesses remain vital to improving and sustaining infrastructure, so we will use this time of global pandemic to position our core businesses to emerge stronger and better equipped to provide sustainable profitability, long into the future.

With that said, I’ll turn it over to Philip.

Philip SchlomInterim Chief Financial Officer and Chief Accounting Officer

Thanks Tom. For the second quarter of fiscal year 2021, we reported sales of $203.4 million, a decrease of $32.8 million or 13.9% lower than the second quarter sales of $236.2 million last year. Our earnings release and 10-K reported due to the impacts of COVID and certain restructuring and impairment charges, the company reported a net loss for the second quarter of fiscal ’21 of $1.8 million or 111.5% lower than the prior year second quarter. As a result, reported diluted earnings per share was a loss of $0.07 compared to EPS of $0.59 in the prior year same quarter. On an adjusted basis, reflecting the impact of the impairments we took, the company’s net income was $13 million or $0.49 per diluted share. In the current quarter, the company recorded restructuring and impairment charges of $18.7 million, $14.8 million net of associated tax benefits. As a result of the restructuring, we classified for operating facilities as assets held for sale, two operating locations are within the Infrastructure Solutions segment, and two are in — our two other non-operating locations are in the Metal Coatings segment. The impact of the impairments to the Metal Coatings segment operating income was $11.3 million, and includes a loss of sale of Galvabar, assets held for sale impairments, and impairments related to closing facilities. The impact of the impairments to the Infrastructure segment operating income was $7.4 million, including assets held for sale impairments and writedown of oil and gas tubing inventories.

Q2 fiscal 21 gross margins improved to 22.7% from 22.3% on a year-over-year basis, primarily on continued strength in the Metal Coatings segment. Operating profit as reported for Q2 fiscal year ’21 was $0.7 million, down from $22.2 million in the prior year. On an adjusted basis, operating income was $19.3 million or 9.5% of sales compared to 9.4% in the prior year, a 10 basis point improvement over prior year. EBITDA, as reported for Q2 was $12 million. EBITDA, as adjusted was $30.7 million or down 9.2% as compared to the second quarter of fiscal year 2020, with much of the reduction being directly attributable to the economic impact and business disruption associated with the COVID pandemic. Year-to-date, through the second quarter of fiscal ’21, we reported sales of $416.7 million, a 20.7% decrease from the strong prior year-to-date sales of $525 million. 90% of that decrease in sales occurred within the Infrastructure Solutions segment, where the company experienced the most prominent impacts of the pandemic. Fiscal year ’21 year to date net income for the second quarter, as reported was $3.8 million, a decrease of $33.1 million from the prior year-to-date results. On an adjusted basis, taking into consideration the impairment related charges, year-to-date net income was $18.5 million or $0.71 per diluted share, a 49.3% reduction from the prior year-to-date diluted EPS of $1.40.

I will now provide highlights on the balance sheet and our liquidity position, given the attention this has garnered, as a result of a pandemic. For the first half of the year, cash flow from operations was $32.2 million, down $6 million or 15.7% from prior year, as a result of lower sales and net income generated by the business. Free cash flow was $12.9 million on a year-to-date basis. Current borrowings on our revolver ended the second quarter at $47 million, a $31 million or a 39.7% reduction from the $78 million as of year-end February. We invested $19.3 million in capital spending during the first half of the year, an increase of 17% from the prior year-to-date capital spending of $16.5 million. We repurchased $6.4 million or 200,000 shares of our stock during the quarter, at an average price of just under $32 per share, and we continue to announce and make dividend payments. While slowed for a period of time by the pandemic, we continue to actively pursue acquisition targets, primarily in our Metal Coatings businesses.

And some great news on the liquidity front. Last Friday, we finalized the refinancing and upsizing of our 5.42%, a $125 million senior secured notes that are set to mature in January of ’21. We reentered the private placement market and borrowed $150 million, with a combination of seven and 12 year senior secured notes in two tranches of $70 million and $80 million, with fixed rates of 2.77% and 3.17% respectively, for a blended rate of 2.98%, the new notes we will fund in December and January — December 2020 and January ’21. The company intends to use these proceeds to repay the notes maturing in January, as well as using excess borrowings to reduce our revolving credit, and to repurchase shares to reduce further dilution from employee stock plans.

Lastly, like Tom, I’d like to thank our employees remaining committed during the difficult year, following and demonstrating the company trades, by which we all ascribe by.

With that, Tom, I’d like to turn it back to you.

Thomas E. FergusonPresident and Chief Executive Officer

Thanks Philip. As I did on the previous earnings call, I wanted to close by sharing with you some key indicators that we continue to pay particular attention to. For the Metal Coatings segment, fabrication activity remained solid in Q3, and we got off to a good start in September. Within our Galvanizing business, we are carefully tracking steel fabrication and construction activity. Zinc costs are relatively stable and the cost of zinc in our kettles continues to gradually decline. For Powder Coating and Plating, we are primarily focused on getting back to normal production levels with both existing and new customers. But we’d like to see more activity from our aerospace customers.

Within the Infrastructure Solutions segment’s Industrial platform, we are seeing the fall turnaround activity improve, but not to the same level from last year, particularly in the U.S. market. We are carefully monitoring the COVID situation in the states with large refining capacities. Currently, we still have travel restrictions in some countries.

For the Electrical group, we are carefully tracking proposal activity and expect bookings to continue to increase this quarter and beyond, which should provide sufficient backlog for many of our business units in the back half of the year. For tubing and lighting, which make up a small portion of our Electrical group, we continue to look for increased rig activity and MRO [Phonetic] taking significant realignment actions.

Finally, for Corporate, we have very good cash management processes and have further tightened our oversight on cash flow indicators and customer credit. Currently, we are not seeing any slowdown in customer payments.

So post COVID-19 crisis, or at least as it winds down at some point, we remain committed to our growth strategy around Metal Coatings and achieving 21% to 23% operating margins, including an increased contribution from Powder Coating and Plating. We believe galvanizing will tend to run to the high end, if not above the 23%, while powder coating plating should be able to consistently generate 15% to 20%. We believe the integration will allow the outstanding galvanizing resources to be brought to bear to increase sales penetration, drive operational efficiencies and leverage the seasoned business development resources, and we are already seeing the benefits of that.

For Infrastructure Solutions, we will continue to focus on our core businesses, seek to divest things that are not core to our future strategic interest. Most of our infrastructure BUs are experiencing a relatively modest level of disruption due to COVID, and we are taking this opportunity to rightsize operations and alignment with expected demand post pandemic. We feel quite confident, in spite of COVID and other disruptions about the actions we have already taken, and the restructuring activities that are now under way. We intend to complete our restructuring actions quickly and effectively, finish this fiscal year well, and position our businesses to enter fiscal 2022 with momentum.

Finally, we remain active in the area of M&A, primarily in Metal Coatings, with activities that support our strategic growth initiatives. While pandemic related deal travel is still somewhat restricted during Q2, we do see improving conditions and have an active portfolio of opportunities to pursue, and have our teams actually out in the field, as we speak. We hope to close on anywhere from one to three galvanizing deals for the balance of this year.

And with that we’ll open it up for questions.

Questions and Answers:

Operator

[Operator Instructions]. Our first question today comes from John Franzreb from Sidoti & Company. Please go ahead with your question.

John FranzrebSidoti and Company — Analyst

Good morning, gentlemen.

Thomas E. FergusonPresident and Chief Executive Officer

Hey John

John FranzrebSidoti and Company — Analyst

I think — to just start with the comments you made about the hurricane season. Perhaps Tom, you can compare and contrast the potential disruptions you’ve had in the quarter or are currently having, versus the relative opportunity or not, of any reconstruction activity in the region?

Thomas E. FergusonPresident and Chief Executive Officer

Yeah, it’s kind of interesting. None of our facilities, thankfully, will hit head on. But we didn’t have a lot of facility damage. But it did impact our customers and their ability to — they were already in some ways, particularly along the Gulf, struggling with reduced demand on the oil and gas front and some were struggling to get — to keep people working. So I think we’ve experienced mid to moderate disruption. It’s hard to say what opportunities we’re seeing, that may come out of that. We have not seen tremendous damage from our customers directly, which would be refining, petrochemical and things like that. So I’m going to guess though that that on balance, we’re going to pick up what we lost, as the year goes on. But that’s assuming we don’t have any more [Indecipherable].

John FranzrebSidoti and Company — Analyst

Selling deep into the season normally. Okay. And you talked a little bit about the turnaround season, both the fall and the spring. The fall being a little muted, the spring you’re getting — sounds like bidding activity, a little bit earlier than you expected. Can you talk about why that’s the case or why you think that might be the case?

Thomas E. FergusonPresident and Chief Executive Officer

Yeah, I think on the refinery turnaround side in the U.S., we just — as we talked last time, we weren’t seeing the kind of activity that you normally expect at that point, because we were kind of — we were ready to come into, what was hopefully a busy season, but we just all of the — not all, but a lot of the inquiry activity was already focused on the spring. And I think that’s just because, the refineries, even though the price of oil has increased, there is still not huge demand in oil and gas or for gasoline and jet fuel. We see more planes flying, and today was the first day I looked out my condo window and saw all of the freeways jammed for the traffic. So maybe that will get better, but they just didn’t have the demand in the summer to drive production.

So the good news for the spring is that we’ve already gotten firm orders. We’ve got engineering orders for the spring. So our challenge for the spring is going to be accessing all of the craft that we couldn’t possibly access and making sure we get our crews deployed to the best opportunities. We also have seen still countries with restricted travel internationally, so places like India, to some extent in parts of Asia, which restricts our ability to get the people for those jobs. But even though, as customers are saying, they are going to — as we get into the move, in particular, spring, and we also think that spring will be a longer turnaround season than we often experience. So longer and better.

John FranzrebSidoti and Company — Analyst

Great. Great. And I apologize if I missed this, but assets that are being held for sale, there were two in Metal Coatings and two in infrastructure, which businesses are that?

Thomas E. FergusonPresident and Chief Executive Officer

We haven’t — we’re not quite ready to announce that yet. We’ve got some internal communication and we’re under NDAs in active negotiations. So I want to be careful not to violate those NDAs. But we will announce those as soon as we possibly can, and they are active. They are non-core, which gives you a little direction in — and just apologize for having to be so obtuse at this point.

John FranzrebSidoti and Company — Analyst

Well, how about maybe — in the broader sense, what’s the collective sales profile of those four businesses?

Thomas E. FergusonPresident and Chief Executive Officer

I think on the infrastructure side, we’re looking at about $60 million in revenue roughly, and really — unfortunately low margin business, low margin contributors or fortunately if — but they are hoping, the businesses they go to, can invest and do better than we’ve done really, as we’ve refocused. And I think on the Metal Coatings side, we’re really talking about real estate for the most part of the plants that have been closed and we are now holding the real estate for sale for the most part.

John FranzrebSidoti and Company — Analyst

Great.

Thomas E. FergusonPresident and Chief Executive Officer

We are taking action on one of the closures, of the one of the galvanizing plants, which — it was just too much capacity in the area, and it was further impacted by some of the issues we talked about in the Gulf Coast. We were fortunate we were able to get some really good seasoned employees to relocate to one or the other plant. So we were pleased with that.

John FranzrebSidoti and Company — Analyst

Okay, great. Thanks for taking my questions. I’ll get back into the queue.

Operator

[Operator Instructions]. Our next question comes from Noelle Dilts from Stifel. Please go ahead with your question.

Thomas E. FergusonPresident and Chief Executive Officer

Hey Noelle.

Noelle DiltsStifel — Analyst

Hi. Good morning. I just wanted to build on John’s question there on the non-core businesses. I know you said they were low margin, but I guess I just wanted to confirm that they are contributing to operating margin right now, they’re not a drag overall, is that fair?

Thomas E. FergusonPresident and Chief Executive Officer

That’s fair.

Noelle DiltsStifel — Analyst

Okay. And then the second question that again is building on John’s, it’s just — could you tell us how many galvanizing facilities you are going to have after the closures — given the closures that have occurred and the sales that you’re planning?

Thomas E. FergusonPresident and Chief Executive Officer

Well, we like to think we’re between the closures divestitures or I guess, disclosures. And then the acquisitions will still be at 40.

Noelle DiltsStifel — Analyst

Okay. And then in terms of the acquisitions that you’re pursuing, are they in new geographies, could you help us just sort of understand the strategic rationale than what you’re kind of targeting to bring in with these deals?

Thomas E. FergusonPresident and Chief Executive Officer

Yeah. We’re looking to — as you know from — you know us pretty well. So we like to buy adjacent to where we already have facilities. And so this will move us hopefully further north, further northeast — and yeah. So this will be in new geographies that will be incremental to what we’re doing and not overlapping, for the most part.

Noelle DiltsStifel — Analyst

Okay, great. And then I just wanted to touch on the rebranding of Energy into Infrastructure Solutions and the strategy there. So when you kind of talk about this idea of Infrastructure Solutions, I know you have a solid presence there in transmission and distribution. Could you give us a little bit more of a feel for how you’re thinking about that, serving that infrastructure sector, as we move forward.

Thomas E. FergusonPresident and Chief Executive Officer

I am going to let David answer that.

David NarkExecutive Vice President Marketing and Investor Relations

Yeah, good morning, Noelle. Yeah, we decided to rebrand it, to really focus on those core markets; transmission, distribution and utility. We particularly like our enclosures and switchgear business, continue to invest in that area. We think that it’s an area of secular growth. The other area that we like, is our Welding Solutions business. We’ve got a lot of great technology in that business, and we have done a really good job there, of expanding into other markets, they traditionally serve just refining, and then they’ve moved away from nuclear and are into all sorts of other interesting markets now, that we’re bringing that technology to bear. So collectively, I think those two markets we really like and you’ll continue to see us make moves there.

Thomas E. FergusonPresident and Chief Executive Officer

Yeah Noelle, I want to add that, I think in Welding Solutions, about 40% of their business is now non-refinery related. So we’ve been able to transition away from most of the nuclear and replaced a chunk of that refinery business with other markets in the Infrastructure sector, and the technology is really outstanding.

Noelle DiltsStifel — Analyst

Okay, great. That’s helpful. And then finally just on Galvanizing and Metal Coatings; I know you mentioned aerospace is still a little bit weaker. But any other verticals that you could call out, in terms of particular strength or weakness in the quarter?

Thomas E. FergusonPresident and Chief Executive Officer

You know we’ve seen — truck and trailer has been improving, ag is improving — oh and solar has been really really active, this move to renewables in a lot of areas has been really big for us, and there is a lot of steel on those. And then we’ve seen — transmission has been good as well.

Noelle DiltsStifel — Analyst

Thank you.

Operator

And our next question comes from DeForest Hinman from Walthausen & Company. Please go ahead with your question.

DeForest HinmanWalthausen & Company — Analyst

Hi, thanks for taking my questions. Very nice transaction on the debt side. Private placement going out seven and 12 years, a lot further than we’ve been seeing some companies go out, but still maintaining very attractive fixed rate. Can you just give us any color there, in terms of covenants attached to that or any other thing, we should be aware about that on that debt?

Philip SchlomInterim Chief Financial Officer and Chief Accounting Officer

Yeah, this is Philip. You know, we entered the market at a good favorable rate environment. We entered the private placement market after 10 years of being outside that market, and had a mix of new investors and existing investors join in on our deal. We are able to upsize. We had a tremendous amount of interest in our offering. So we were able to upsize and we were also able to spread out some of our risk related to covenants. We were able to increase basket sizes, and things like that for different covenants within our deal. So that really helps us, as we look forward.

DeForest HinmanWalthausen & Company — Analyst

Just so we know, is there any ones to call out debt-to-EBITDA covenant looking at…

Philip SchlomInterim Chief Financial Officer and Chief Accounting Officer

No, our primary covenant — our leverage covenant is in line with our current credit facility, at 3.25 to 1, but it was more of the different covenants in baskets that we were able to stretch out, acquisition baskets and dividend payment basket, things like that.

DeForest HinmanWalthausen & Company — Analyst

Okay. Very helpful. That positions the company very well going forward, and probably builds into the next question. On the M&A side, you talked about deals that — sounds like you want to try to get them closed, I think you said by the end of the year. Is that your calendar year or fiscal year?

Thomas E. FergusonPresident and Chief Executive Officer

Well, I’d like to get it done by the end of the calendar year. But given some of the travel things and stuff like that, it may be — we’ll get one or two done in the calendar year, and I hope we get three done by the end of the fiscal year.

DeForest HinmanWalthausen & Company — Analyst

Okay. And can you help us understand what you’re seeing in terms of outlay? I know we just redid the debt. We got a lot of availability on the revolver ballpark, in terms of cash outlay to get those deals done and any color you can provide on multiple range that you’re seeing?

Thomas E. FergusonPresident and Chief Executive Officer

Yeah. These are our traditional galvanizing deals, so they tend to be under $10 million each. Although in this case, there could be one larger, but that gives you a ballpark, and we tend to target five to seven times, and what I — you know, the history of our galvanizing team, as they tend to within, with very quick integration and bringing their scale to bear, they will be usually able to improve that by at least long term, within the first year.

DeForest HinmanWalthausen & Company — Analyst

Okay. And then M&A on the sales side, can you give us any update in terms of what you think, timing-wise on some of those transactions? And then I know you have the NDAs and I respect that, any color you could provide, in terms of proceeds potentially from those transactions, and what will we do with those proceeds from the balance…

Thomas E. FergusonPresident and Chief Executive Officer

Yeah. Couple of things there. We are trying to get these done as quickly as possible. We’ve been working on it for a little while, and just somewhat restricted by travel, but now the focus is to get those done as quickly as possible. So my intent, assuming we are successful, will get them done before the end of this calendar year, which means we probably have to get them done before we get deep into the holiday. So proceeds are not going to be major, not anything that’s going to move the needle to any great extent. What we are doing, is getting out from under the capex that they draw, the resources that they draw, just the various corporate functions that support them. And so we free up resources to focus on the growth side, and focus on the core, and they will generate a little bit of cash.

DeForest HinmanWalthausen & Company — Analyst

Okay. And then, can you give us all an update on the capital allocation focus, post restructuring? And I know you’re working on the deals you just discussed, but maybe more broadly, as it relates to the dividend strategy going forward, share repurchases? I do know that you bought some stock at somewhat lower valuations to offset dilution, but has there been an updated discussion with the Board about buybacks, potentially more than offsetting dilution, if you’re looking to reduce the share count?

Thomas E. FergusonPresident and Chief Executive Officer

We’ve had discussions, we’re not ready to really announce, going beyond minimizing dilution or buying in the dilution. But that is something we’re continuing to focus on. We do deploy quite a bit of capex into — particularly our Metal Coatings business to keep it productive, inefficient and continue to invest in things like BGS. We did have the capex that we will continue to deploy, particularly into WSI, for both their facilities and technology that I spoke of. We announced this dividend. It’s been a long time since we haven’t paid a dividend. But each time we look at it, my forward-look on it, I don’t see any reason why we would withdraw it at this point, but you got a decent yield, and at this time, until we see bigger acquisition opportunities that would be attractive, we’re probably going to continue to be committed to that.

And then on the acquisition front, it’s just not — given the cost of our debt, there’s just not a huge draw. All the deals we’ve talked about are just pretty easy to tuck-in.

DeForest HinmanWalthausen & Company — Analyst

I would just add just more of a comment, being able to term out your debt the way you did with the private placement notes, is very positive development. I know you’re working on getting that refinanced. I think we were discussing that on the last call, but really locking in very attractive rates, seven years and 12 years, is kind of a game changer for you, from a cost of capital perspective. I would believe you’re already working on initial discussions with your revolver, and in an environment, where you have clear cost of capital outlook out, potentially five, six, seven years, very low cost of debt. Maybe not very large deals. It would seem that there’d have to be a greater discussion on greater dividend payouts or share repurchases or a combination of both.

Thomas E. FergusonPresident and Chief Executive Officer

Well the good news is, as we get this quarter ramped up, this is where we usually do our — we are a little delayed on doing our strategic planning engagement. So we’ll be doing that over the next few weeks, and we’ll definitely take that into consideration.

Operator

[Operator Instructions].. Our next question comes from Bill Baldwin from Baldwin Anthony Securities. Please go ahead with your question.

Thomas E. FergusonPresident and Chief Executive Officer

Hey Bill.

Bill BaldwinBaldwin Anthony Securities — Analyst

Thank you. Yeah, good morning. Good morning. Couple of areas here Tom. Can you give us any color, as to kind of proposal activity or sales pipeline you’re seeing in your domestic enclosure and switchgear businesses at this point in time?

Thomas E. FergusonPresident and Chief Executive Officer

Yeah. It’s improving and we’re seeing engineering firms and contractors come back to kind of — I don’t know if they’re coming back to the office, but we’re just seeing more activity, and we feel good about the outlook, the balance of this year and hopefully getting some things in place. We’ve also taken the opportunity to continue to train, and work on improving the professionalism of all our sales organizations during this time, and feel good about our opportunity pipeline, as well as our visibility and ability to drive value. So, yeah, we’re feeling pretty good.

Bill BaldwinBaldwin Anthony Securities — Analyst

Super. Super. So looks like maybe go into fiscal ’22 with a little bit of momentum going on?

Thomas E. FergusonPresident and Chief Executive Officer

I am hoping.

Bill BaldwinBaldwin Anthony Securities — Analyst

Well, I understand. Second area I wanted to cover just briefly Tom, is your International area. I know you had some ongoing projects with joint ventures in the bus business. Can you kind of bring us up to date, as to where we stand on those projects at this point?

Thomas E. FergusonPresident and Chief Executive Officer

You know the high-voltage bus business in China, there is a ton of activity. It tends to not be in our sweet spot. We are continuing to work on a joint venture partner over there, that would allow us to handle it better with — from that side. We have seen activity for the high-voltage bus domestically and we did — we do have things going on in Saudi Arabia as well. So it’s kind of a mixed bag, but we see a lot of activity, it’s just we’re not, we’re not seeing a whole lot that gets us too excited. So, we’re using good discipline around that.

Bill BaldwinBaldwin Anthony Securities — Analyst

Okay. So that’s more of a long-term situation.

Thomas E. FergusonPresident and Chief Executive Officer

It is. It is.

Bill BaldwinBaldwin Anthony Securities — Analyst

Basically in the Middle East. Okay. And then second question internationally, do you see opportunity, Tom to take your enclosure and switchgear business into some international markets for AZZ?

Thomas E. FergusonPresident and Chief Executive Officer

You know, that would probably require us to go acquire something, and right now, that’s just not on our radar. And that will be one, we will take your comment to heart and make sure we do have that discussion, as we get into our strategic planning process.

Bill BaldwinBaldwin Anthony Securities — Analyst

And lastly domestically switchgear and enclosure, do you feel like you’ve got the facilities you need right now to conduct that business, the way you want to here in North America? Or do you do you see a need for some additional products and/or locations to really flesh out that business for you?

Thomas E. FergusonPresident and Chief Executive Officer

I just took a tour of those facilities with some of our executive team, and was really pleased with the progress our three enclosure sites have made. I only made it to one of the switchgear sites, with the big one in Fulton. The teams are really working well together. I think I’ve seen progress in their supply chain. Their design standardization. Things that they had to do, working remotely, I mean doing it by part, instead of putting teams together. And I am encouraged. So I feel good with the five facilities we currently have. You know, this will always be an area, as has happened on the last two deals, well particularly when we acquired Lectrus, it was an opportunistic kind of thing.

So you know, it’s an area, we don’t have anything on our radar screen right now. But if it gets — something popped up, we’ll take a look at it. The key right now is we have plenty of capacity, and we like kind of the distribution of it, because we’re over on the East Coast, outside of Baltimore. We’re in in Chattanooga, with a large facility. We are in Fulton, Missouri. We are in the Southeast corner of Kansas. We are up in Oshkosh, Wisconsin. So right now, we like our distribution, given where the activity is, and we haven’t had to go chase a whole lot down in the Gulf Coast. So it’s plenty of capacity, and just need to see more opportunities, but we feel good about our position.

Bill BaldwinBaldwin Anthony Securities — Analyst

Very good. That’s good color. Appreciate it and best success.

Thomas E. FergusonPresident and Chief Executive Officer

All right. Thanks, Bill. Okay. Well I think that’s it? Good…

Operator

Yes, sir. At this time, we’ve reached the end of the question-and-answer session. I’d like to turn the conference call back to call back over to Mr. Ferguson for any closing remarks.

Thomas E. FergusonPresident and Chief Executive Officer

All right, thank you. All right, thanks, everybody. We’ve had good discussions, and we look forward to finishing a reasonable third quarter and continue to let COVID and elections and things like that settle, and then we will have completed a strategic planning process, which was delayed, while we saw how things going kind of sorted themselves out, and we’ll get back to that. So hopefully by the time we get to do this call for the third quarter, we will be able to talk to you in more detail about what’s now fully core, what’s not core, what is likely — hopefully we’ll have some announcements. You have seen some of the transactions we’ve talked about and then also talk to you about how the outlook is for Metal Coatings going forward, and that kind of thing. So thank you for your time. Look forward to talking more, over, as this quarter plays out.

Operator

[Operator Closing Remarks].

Duration: 46 minutes

Call participants:

Joe DorameManaging Partner, Lytham Partners

Thomas E. FergusonPresident and Chief Executive Officer

Philip SchlomInterim Chief Financial Officer and Chief Accounting Officer

David NarkExecutive Vice President Marketing and Investor Relations

John FranzrebSidoti and Company — Analyst

Noelle DiltsStifel — Analyst

DeForest HinmanWalthausen & Company — Analyst

Bill BaldwinBaldwin Anthony Securities — Analyst

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