AZZ Inc. (AZZ) Q3 2015 Earnings Report, Transcript and Summary

Good morning. Welcome to the AZZ Incorporated Third Quarter Fiscal Year 2015 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Joe Dorame of Lytham Partners. Please go ahead, sir.

Thank you, Denise. Good morning and thank you for joining us today to review the financial results of AZZ Incorporated for the third quarter of fiscal year 2015 ended November 30, 2014. As Denise indicated, my name is Joe Dorame. I am with Lytham Partners and we are the Investor Relations consulting firm for AZZ Incorporated. With us on the call representing the company are Mr. Tom Ferguson, Chief Executive Officer and Mr. Paul Fehlman, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the press release, you can retrieve it from the company’s website at azz.com or numerous financial websites. Before we begin with prepared remarks, I would like to remind everyone certain statements made by the management team of AZZ during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed from time-to-time in documents filed by AZZ with the United States Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended February 28, 2014. 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 electrical power generation markets, electrical transmission and distribution markets, the industrial markets and the hot-dip galvanizing markets; prices and raw material costs, including zinc and natural gas, which are used in the hot-dip galvanizing process; changes in the economic conditions of the various markets the company serves, foreign and domestic; customer-requested delays of shipments; acquisition opportunities; currency exchange rates; adequate financing; and availability of experienced management employees to implement the company's growth strategies. The company can give no assurance that such forward-looking statements will prove to be correct. These statements are based on information as of the date hereof and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. With that said, let me turn the call over to Mr. Tom Ferguson, Chief Executive Officer of AZZ. Tom?

Thank you, Joe. Good morning to all of you and happy New Year. We thank you for your interest in AZZ. Overall, I am pleased with our results for the third quarter and the effort and commitment of our employees. Our realignment actions are already generating many of the improvements we had targeted and the integrated WSI business showing good progress. Our legacy, galvanizing and electrical businesses continue to perform well in spite of the mixed market conditions. My disappointments for the quarter are around the continued struggles with NLI and the fact we were unable to complete any M&A transactions. On the positive side, we are making progress in NLI, and getting the operations back to their core business. NLI had some key large new project shipments that we were expecting to ship in this fiscal year delayed by the customer until late in 2016, most likely. Their on-time performance is improving and quality and efficiencies are normalizing. We remain committed to maintaining a disciplined M&A process and not getting deal fever. The decline in oil prices had impacted a couple of transactions both, on the acquisition and divestiture front. We remain very active in pursuing strategic accretive opportunities that fit our margin profile as well as cleaning up our platform to improve focus and market leverage. We are also active on the joint venture new product development front as well. WSI is benefiting from improved operational performance and a more normalized nuclear outage cycle. The high refinery utilization rates continue to generate headwinds for WSI though, in spite of the rebuild sales team developing a lot of the customer opportunities and making a lot of the contacts. We look for WSI to benefit from their renewed international focus as well as their rebuilt North American sales team as we enter next year. Our Galvanizing business is solid and there is several new products service growth initiatives underway. The price of oil has a mixed impact on this segment, but generally we feel good about the upside in this business through remainder of this year and into the next. We are quite active on the M&A front in this segment, and the plant in Goodyear has recovered from the fire, but did have a slight impact on our results in the past quarter. For the Galvanizing Services segment, we will continue to focus on operational excellence, pricing on a value and growth through acquisitions and other metal finishing services For our legacy electrical business, the overall results are meeting our expectations with some businesses doing well and others being a little more challenged. This platform's overall performance is reasonably good given their mixed market conditions. The electric utility market in the U.S. remained sluggish, but we have benefited from strong international opportunities and a good backlog. Bookings continue to strengthen, although we did have a couple of large opportunities push-out of this quarter. We remain optimistic about their performance, the balance of this year based on very strong backlog and their stable team and operating performance. Overall, I remain quite bullish on our future at AZZ. While Q3 was challenging due to the leadership changes we made in the second quarter, sluggish markets, margin adjustments and realignment actions, we accomplished a lot and set ourselves up for a strong close for the year. However, based on the uncertainty in the energy markets due to the price of oil, and the push-out of the specific large nuclear shipments in NLI that I have already referred to, we are narrowing our current fiscal year guidance range to $2.40 to $2.60 EPS and $825 million to $850 million in revenue. Now, I would like to turn it over to Paul Fehlman, to cover the financial highlights.

Thanks, Tom. For the third quarter of fiscal 2015, we are reporting revenues of $224.8 million and EPS of $0.77, which includes $0.02 in net benefits from insurance payments for the fire in our Goodyear galvanizing operation, as compared to $197.8 million in revenue and EPS of $0.72 in the same quarter last year. Bookings were $196.1 million this quarter compared to $193.7 million in the third quarter fiscal 2014. Our backlog at the end of the third quarter grew to $300.3 million, reflecting the book-to-bill ratio of 0.87 based on strong shipments. That's down from 0.98 book-to-bill posted during the third quarter last year. As we have noted before, we expect our sales to continue to be seasonally skewed to our first and third quarters, and this quarter was certainly no exception. Overall, revenues were up 13.7% compared to the third quarter last year as they grew 16.1% in the energy segment, primarily on strong shipments from backlog in several of our energy business units and up 10.6% in Galvanizing Services compared to the same period last year and the Joliet facility returned to service. The acquisition [ph] in June and demand in the petrochem and transmission markets. Gross margins for the quarter finished at 27%, essentially flat with the third quarter of last year. Our SG&A fell to 12.4% of sales compared to 14.2% in third quarter of fiscal '14. As a result, we achieved the operating margin of 14.6% for the third quarter of fiscal '15, but up 180 basis points compared to the third quarter of fiscal 2014. We also continued to improve our tax position and recorded an effective tax rate of 30.4% for the third quarter compared to 33.9% for the same quarter last year. While we are probably not able to sustain this sort of rate in the long-term, I am confident that the tax team will continue to drive rates to lower level than we have seen in the past several years. Finally, I am pleased that we had a much quieter quarter in terms of special items, and I am particularly pleased with the operational improvements I am seeing as well as our execution on working capital and SG&A cost management. It's only early innings of the earnings of the ballgame, but what I've seen so far is very, very encouraging. With that, I will turn it back to Tom for concluding remarks. Tom?

Thanks, Paul. The key takeaways I would like to leave you with are that believe AZZ remains a compelling investment due to another quarter of profit operations, our strong balance sheet and cash flows, great portfolio of products and services, significant international growth opportunities and a talented and seasoned leadership team. We will continue to focus on growing our Galvanizing business both, organically and through acquisitions. We will continue to expand the presence of our electrical businesses internationally both, directly and through joint ventures. We will accelerate our emphasis on operational excellence and customer service at both WSI and NLI. While we have made a lot of progress over the past 12 months, we have tremendous upside going forward as our leadership team continues to gain traction on our key initiatives and our customer see the improvement in our service performance. We are looking forward to continued improvement in our businesses and greater impact from our new growth strategies as we enter fiscal year 2016. Thank you for your participation on call today, and now we will open it up for questions.

Thank you. We will now begin the question and answer session. [Operator Instructions] The first question will come from John Franzreb of Sidoti & Company. Please go ahead.

Good morning, guys.

Good morning.

Tom, could you just talk about the large project that was delayed or actually projects in the nuclear business, what is the size of those projects? How certain are you of the timing that that is going to be realized in second half of next fiscal year?

The project relates to a couple of the new construction at nuclear plants going on in the U.S. as well as in China. It is roughly 25 million that is pushed out, with pretty good margin on it, so we don't control when those are going to ship. I think you might have read about the delays at [indiscernible] nuclear power construction projects. The fact we don't control that, we are confident that these are moving forward. With the customer, we continue to have discussions around when, but that is why we have been a little cautious in saying it is likely the latter part of next fiscal year. Could go earlier, but that is the current horizon that all these things are pushed about a year plus.

Okay. Can you just talk a little bit about the progress you made on improving the workflow in the energy business, the realignment activities you have done. Can you give a little color on what you have achieved on that business?

Yes. I think the part was when integrating the leadership at WSI across nuclear and industrial. It just didn't make any sense to have these two complete sets of infrastructure in terms of organization, in what for nuclear is kind of fairly flat to slow market. In industrial, which includes refining, which is a pretty active set of opportunities on a global basis, so by putting those together, we are now leveraging the resources. We did take out some of that management team in favor of the current leader who have been leading the industrial side, now leading both and he has integrated that entire team, so that allows us to leverage our project management, leverage our engineering, leverage the back office and it just gives us the opportunity how to go forward on a global basis as one WSI team. On the NLI side, we have put in a new GM. He has been there several months now, focused on operational excellence, driving back to bidding the kinds of jobs that NLI had made good money at in the past, so that has been part of the process over the last few months. Then internally rebuilding that team, bringing in some new blood, changing to where we could get more focus between the ongoing normal run rate business and get that on-time delivery up as well as improve the quality of the supply chain, so the additions to that team have been on the supply chain front operations management. The sales team there is very stable, very strong, so we did not have to rebuild the sales effort on NLI like we had to do on the WSI side, so we feel very good about that business going forward, partly because we are focused on the right things, we are building opportunities with OEMs to pick up some of their parts business. Operationally, I think, customers are already seeing the improvements in terms of response, on-time delivery commitments and quality.

Got it. One last question, just switching to the galvanizing side, as the price of zinc drops from $1.10 or so this summer to $0.97 right now, how should we think about the impact on the gross margin profile in the galvanizing business? Can you just address that a little bit?

I think, one of the things I am learned about that businesses is, we had hoped we would be able to push some pricing premiums as their price was increasing, but it was such a gradual increase in zinc price. Given the fact that there is a little more capacity in the Galvanizing market available, we were not able to push price up and we kind of look at it that way now, but even though zinc is going down, I don't know that we will see a lot different margin profile. Prices have, they slowly ramped up and they will probably slowly ramp down, just because it is more gradual and when we have had the spikes in zinc prices, they have not stuck long enough to have any major impact on overall price levels.

Okay. Thank you. I will get into queue, guys.

The next question will come from Schon Williams of BB&T. Please go ahead.

Hi, good morning, gentlemen.

Good morning, Schon.

Maybe just to stick on that last topic around galvanizing, I mean, if I adjust out for all the moving pieces for Joliet, take out the gains from the insurance, maybe add back the losses last year that you incurred. I mean, galvanizing, according to my numbers were running several hundred basis points behind the typical 26% to 27% operating margins that you have done in the past. I am just trying to get a sense of how much of that is purchase accounting, how much of that is the headwinds from zinc. I mean, are you happy within that margin profile of that business and kind of where can we get back to in the near to medium-term?

Schon this is Paul. First thing on that would be, so on the segment phase, we would be talking 25% margins this quarter. If you pull out the net gain on the insurance from the Goodyear staff here at 243, I believe, so I am going to push back just a little bit on the few hundred basis points below normal run, but call it 100 and 150. You do have a little bit of lag on the zinc prices from where they were [ph] slowly. There is a lot more project work out there. As Tom said, there is some more capacity that is coming to the markets, putting some pressure on price, so keeping a close eye on this. I know that Tim is working his guys to figure the best ways to get back to that 26 in there is a lot of different things they can do in some of their plants, but we continue to see a little bit pricing headwind, because of this additional capacity in the market.

I think, I would add a little bit to that. We have not given up on 25% to 26% operating margins, but we like that margin profile, but one of the things that happened to be a little more specific, the new capacity that came, primarily came along in the southeast along the Gulf Coast in anticipation of his huge petrochemical boom, so what we are seeing is some that petrochemical spend is coming into play, but not nearly at the boom numbers that folks were talking about, but their capacity has come online there. You got that capacity now chasing demand, so that is kind of where we are seeing the rest of the businesses pretty normalized margins in, but those petrochemical projects have been able to be priced pretty aggressively, because they are large projects and the ones that have come forward and there is more capacity to chase. I don't know that that normalized out any time soon. On the other hand, there is still quite a bit of what I would like to call white space opportunities as well as other services that we can bring to bear that should have similar margins that we are used to.

All right, that is helpful. Then maybe just switching back to the energy business, I just wanted to kind of clarify, you talked about some of the big nuclear projects that being about, I guess, $25 million of the push out, but the guidance revision is kind of closer to $40 million. What is the delta in there? Are there other projects kind of beyond the big nuclear stuff that got moved into next fiscal year?

I would say it's more of the uncertainty of spending as you look at the price of oil had some folks hung up on whether they are going to deploy their budgets or not, so it is just a more our cautiousness. We are just not seeing some of that run rate spend that we would expect at this point to allow us to go ahead and make year. It is softness that we been feeling for a couple months and we just do not have the projects out there in our backlog now to allow us to hit that original guidance as well as the large nuclear jobs that we have mentioned more specifically. It is kind of a combination of that that given our lead times in electrical businesses particularly, given the fact that the businesses, they have the backlog are pretty full in their normal shipment cycle. That is kind of what adds to that $25 million-ish impact.

I appreciate it, guys. I will get back in the queue here.

Our next question will come from Noelle Dilts of Stifel. Please go ahead.

Hi. Thanks. Good morning.

Good morning.

Good morning.

Hi. I was hoping, just given this tremendous decline we have seen in oil, just maybe walk us through how you are thinking about where your business is most vulnerable to the decline in oil. Then if in fact you think you might be able to see some benefit on the downstream side. Maybe with a bit of a lag, but just hoping you could dig into that in a little bit more detail.

Yes. I think on the energy side, particularly in legacy electrical, we had a couple businesses that are highly exposed to the production side, so our lighting business which is a pretty good chunk of it comes from rigs, hazards duty rig lighting and the others is our tubing business, which tends to be on that oil pad side, so that is where we have most of the exposure in those businesses. On the other hand, a lot of that was taxes spend and the Bakken and things like that going forward, so we are just not sure of the impact yet. That is where we have a hard time predicting it. On the Galvanizing side, it is much more of a mixed bag. We still pick up some of that stuff, so I don't know that we have seen too much impact there [ph] nor we anticipated, because on the petrochemical refining spend to your point Noelle, that we are still see the opportunities. That will move more with what happens with refiners margins as time goes on, gasoline prices have adjusted down, so I think that affects what we will see there. Yes, so we are still chasing opportunities in the petrochemical refining side. Then for WSI, we really on the refinery side, we love to see these utilization rates go down a little bit, get back into normal turnaround cycle on the refinery, so I think that where WSI benefit and we see that improvement from the rebuilt sales organization that has been in place for the six to nine months now, so rebuilding old relationships or finding new relationships, so that is where we see some potential upside. That is why we continue to refer to others mixed impact and some of it is still unknown, I think which is what most folks would say.

Right. Are you starting to see any pricing pressure in the more upstream exposed businesses and regulate or in tubing?

I have to say, we have not seen it too much, partly because it is more of a run rate business and some of that goes through third-party distribution channels. We have not never really seen it too much yet and we are such [ph] significant players anyways that it's hard to say that we will. We would hope, we don't, but we really are. These are fairly small businesses overall in terms of our overall scope.

Okay. Then when you talk about M&A activity and divestiture activity, you were kind of saying that the lower oil prices have impacted that to some degree. I can kind of see where that could impact some of your plans for the divestitures you are looking at, but can you talk about what you are seeing in terms of the market and how that is impacting some of the opportunities you are looking at for M&A?

Well, I think on the acquisitions side, I would say we just have not been able to get to the alter to get the deal done, but not due to lack of effort and lack of trying. We just have not been able to come up with - and we are we are trying to be very disciplined around, it has got to fit the profile, it has got to fit our price range, we have got to have a clear line of sight to what the synergies and strategies are that are going to allow us to make something out of these acquisitions. We have been working on several and have not been able to get them done, and I don't definitely do not blame anybody on our side, but I think part of that has been just the uncertainty in the marketplace that has made people a little more skittish and maybe made us a little more skittish. On the divestiture side, it is just all tied to how do you value any business that has a significant exposure to that oil pad side and can we agree on what that is and I have to say that the private equity folks, particularly, have gotten kind of pulled their horns in on some of the staff while they are waiting to see what happen to the longer-term price of oil?

Sure. Then one very quick question, the transmission market on the galvanizing side was obviously pretty lumpy in calendar 14. How are you thinking about that business for '15?

Yes. We are looking at it. It maybe pick up off of the bottom or is bottomed out, so we are feeling okay about it. It is stable. We look forward to stay stable there as far as impacting our business, but at least we feel like it is no longer declining, so that is a positive for us as we go into the next fiscal year.

Great. Thanks.

Sure.

[Operator Instructions]. Our next question will come from Jon Braatz of Kansas City Capital. Please go ahead.

Good Morning, Tom; Paul.

Good morning, Jon.

Returning back to the oil and gas sector, is there a percentage figure you can give us as to what you think your revenue exposure is to the oil and gas, 10%, 15%? Anything you can help us help quantify that amount?

This is real rough, I would say maybe 5% to 10%.

Okay.

Part of that that because there lots of different.

Yes.

…pieces that, you know, we run into so.

Yes. We would probably on lower end of that if we are just talking about the upstream..

Right.

We have got mid and downstream and those that are less affected by this and actually some of them are benefiting from.

Right. Okay. Then secondly, Tom, in your commentary you were talking a little bit about the leveraging opportunities in WSI and NLI and so on. I am trying to get a sense as to where you might be able to take margins in those businesses from the current levels as you as you say leveraging those expenses and leveraging those opportunities. What do you see on the upside in those operations?

Yes. I think [indiscernible] we just returning to more normalize 15 plus percent margins and is where we would like to go, but it may be on - we may not be able to have the same volumes in that business.

We have put a new opportunity management system in place that allows us to look at these on a more proactive basis, so we are going to be more actively engaged in strategically pricing some of these things to make sure that we are balancing versus the opportunity whereas I think if you look at some of the backlog we have had in WSI and NLI, it was because they were just chased volume.

Okay.

Some of this margin improvement is going to come from the fact we are chasing better business and we are paying more attention, we are not just taking it for low, we are taking it because it is good business to go forward with, with the right customers. On the other hand, the operational improvement, we got to drive 200 basis points or 300 basis points margin improvement in some of these businesses that we have acquired based on operating them better, managing the cost better and putting more emphasis around on-time delivery, quality and operating efficiencies, so there is just good - and supply chain quite frankly. We have done very little to leverage our spend on materials even sheet-metal and fabrication stuff, so those are the kind of can opportunities that, now that we have stable leadership in those organizations, we can start to address.

Okay.

Jon, just to be real clear, I mean, both of them are still challenged by, obviously that big amortization from…

Right.

…what we have been saying earlier once that we are trying to exit [ph] this year. NLI just getting back to double digits and WSI getting to mid-doubles, so exactly like Tom said, 10 to 15.

Yes.

Run our way to that and again the big challenge there for us is just getting past that amortization.

Right. Okay. One last question, Tom, I know you have been making a push on the international markets. Is that push being hindered because of the lower oil and gas prices or were there different markets that you were looking at beyond. Obviously, you were looking at markets beyond oil and gas, but how much is that international push being hurt by the lower oil and gas prices?

Yes. I do not think it has as much impact on us, because most of our current international business is focused on the downstream side.

Okay.

…positive. Then in terms of the new things we are pursuing, there has been very little impact, because there is just where we are trying to go into, we have not been there to any great extent, so the fact we are entering the market I do not think the price of oil has a lot of impact on that. We are still going full bore on those. If there has been any slow up, it was really just around the integration of WSI.

Okay.

NLI, on their operations rather than bringing in more business that we could handle.

Okay. Thank you very much.

Our next question will come from Brent Thielman of D.A. Davidson . Please go ahead.

Good morning.

Hi, Brent.

Apologize if any of this is repetitive, I did get on a little late, but did NLI see positive sales comparisons this quarter?

We do not go to that level of detail in our disclosures.

Okay. I mean, I guess maybe to ask another way, I mean, beyond kind of the uncertainty around oil and gas, is the guidance more to do with what you are now expecting for business levels there in Q4?

Yes. The guidance change - the biggest are singular item the nuclear projects at NLI that have pushed out and that was, we the estimated roughly $25 million give or take, so that has been the big part. The rest is kind of general uneasiness around know how much activity there is on our businesses that are more exposed to the upstream side.

Okay.

NLI, I think, as we look forward should be no more stabilized business around their traditional nuclear parts that there tends to be better margins, tends to be easier to handle and tends to flow through the plan a whole lot better, so we have really the sales force on those kinds of activities rather and there are not a whole lot of new construction projects on the nuclear side to chase anyways, which right now we wouldn't be all that aggressive.

Okay. Thank you for that. I think, you mentioned, you expected to close out the year on a strong note with respect to backlog. Is the confidence here due to orders you have in hand? Then how much is kind of dependent upon securing some larger orders?

A lot of it we are only what five weeks into this quarter, so we do have books of business, but our quoting activities is good. We anticipate that we need to book some of these larger projects. A couple of them are fairly large international jobs. On the booking inside, to give us that backlog that we would like to see going into the next fiscal year, so we are still chasing those really hard, but we feel good about it. You know, we feel good about what we are quoting, we feel good about our history on and win rates, a lot of these are larger electrical projects, so we feel pretty good about those. Then on the WSI side, they are lumpy. They have got a line of sight. They are seeing pretty good opportunities this quarter and we feel very well positioned so.

Okay. Then in the North American market, with respect to electrical utilities, is there kind of further hesitation with moving forward projects just going to - that is going on in the market right now?

An awful lot of, if you look at our Galvanizing side, we are the opportunities are moving forward. We are not. The solar stuff tends to be the smaller projects, not those the big massive ones that we did really well on a couple of years ago, but there's several of them moving forward, mostly around the economics of that specific project and their ability to drive to a particular price per kilowatt hour rather than, call it broad-brush. Then on transmission side, like I said, we just feel a little better that it has bottomed and bounced off of the bottom and as long as it kind of stays where it is at, we are feeling pretty good about it. Then on the transmission distribution side, where we are doing enclosures and things like that, that is just actually has become a smaller piece of their businesses as we had been focused more on pipelines and some of the mainstream oil and gas opportunities, which once again have not been impacted that much by the price of oil. On the electric utility side, I will say we are uncertain, but it is we are a little less dependent on it. While we do see, we feel okay about it.

Great. Again, I apologize if you said it earlier, are you guys planning to offer fiscal 2016 guidance in the next few weeks as in years past or just update there?

Yes. We do it as part of our normal. We complete our budgets and plans, present those to the board. Then within fairly shortly thereafter we issue guidance. We anticipate getting that done by the end of the month as part of the normal cycle.

Okay. Thanks a lot guys.

Okay.

Our next question will come from Peter Van Roden of Spitfire Capital. Please go ahead.

Good morning. Two questions, while we are discussing growth axe the restarted Joliet and the acquisition?

I am sorry. You broke up. Can you restate that?

Galvanizing revenue growth axe Joliet and the acquisition.

Again, we did not call out the size of was. The acquisition is not terribly large, especially when you look at a quarter basis. Joliet coming back online is one of our larger plants, but it is one of 36, so know a couple of percentage. It would be what you take…

Yes. Got it. As you think about that sort of 11% growth, do you guys break it out in terms of tax [ph]?

Sorry. You broke up again at the end. Do we break it out in terms?

Volume and price.

No. We have not broken things out in terms of volume and price. Although for galvanizing, we have set the volume [ph] chart.

Okay. Thanks, guys.

Welcome.

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

Yes. A year ago, the dialogue centered around the number of outages and how 2013 was unusually low and 2014 was supposed to be a rebound, but the duration was short and I was just wondering if you would just walk us through what your expectations are for calendar 2015 in the outages market? Do you expect the durations to remain low, what is the calendar look like as far as how many should be realized in the year ahead?

I think as we look into next year, we are kind of looking at as a normal versus this year roughly the same outage cycles, the same number would be different, obviously different sites, but roughly the same volume of outages on the nuclear side that we have this year. Even though there may be - in the normal cycle, there could be fewer, some of them are going to have to be longer ones, because we are just hitting that point in the cycle, so that is why I would say we are looking at that as kind of flat impact year-over-year at this point.

Tom, even though there might be less, does a longer duration actually help you or is it just a net neutral?

The longer duration helps us, because that brings more of our portfolio to bear [ph]. When you look at short duration stuff, NLI benefits from that. Some of our other businesses benefit a little bit from that, but on the longer one that is where we get WSI engaged, because then you are going to have some of the larger weld overlay repair. When they are doing short, we just don't get to deploy the larger crews from WSI the way we like to.

Got it. Perfect. Paul, I know you backed off the sustainability of the current tax rate and you have been working on it, your team has. Could you just talk a little bit about what our expectations should be as a more normalized tax rate and what is the split the difference kind of a number?

Well, I do not want to get too specific about it. Look, what I have been saying to people, if you take a look at our run rate last few years, you got 36-week, 37-week probably be - by a few hundred basis points going forward. We will probably have more to talk about that when we do guidance. Tell you after by the end of the month. I am not trying to be too cagy there, John. It is more of, we are very early into this. We still have not turn over all the rocks. Although, we did get, an extension of some the tax rules through the end of the year it is still up in the year exactly what the administration is going to do for the following years, so that would have an impact.

Okay. Fair enough. Thank you, guys. Appreciate it.

Welcome.

Ladies and gentlemen, that will conclude our question and answer session. I would like to turn the conference back over to the AZZ management for closing remarks.

Thank you for participating in today's call and I would just like to, I led off by saying I felt pretty good about our third quarter results, because it was significantly better than third quarter of last year. We definitely did not have kind of the number of moving pieces and the amount, as I would called them on the last call, the fumbles and core blocking and tackling, I think we stabilized operationally, the leadership team is now in their roles for a few months, we are seeing the benefit of that, so I feel a lot better as we look at the fourth quarter. We are already into it. Then as we prepared to get into next year, we have already taken opportunities for next fiscal year, things feel a lot better to me and feel like we do have a team on the field at this point. I am looking forward to talking with you guys again at the conclusion of this fourth quarter and the year, so thank you and have a good day.

Thank you. Ladies and gentlemen, this concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.