Azz Inc 10-Q for FY2025 Q1

Azz Inc (AZZ)

10-Q 2024-07-10 For: 2024-05-31

Added on April 04, 2026

About this 10-Q

Azz Inc filed this 10-Q on July 10, 2024, covering the quarter ended May 31, 2024 (FY2025 Q1).

Headline figures

Quarter ended May 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $413.21M; up 5.7% from $390.87M a year earlier
Net income: $39.6M; up 38.8% from net income of $28.52M a year earlier
Diluted EPS: -$1.38; compared with $0.98 a year earlier

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Texas		75-0948250
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Museum Place, Suite 500
3100 West 7th Street
Fort Worth,	Texas	76107
(Address of principal executive offices)		(Zip Code)


		PAGE NO.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Statements of Changes in Shareholders’ Equity	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 5	Other Information	35
Item 6.	Exhibits	36

	SIGNATURES	37


	As of
	May 31, 2024		February 29, 2024

Assets
Current assets:
Cash and cash equivalents	$	10,546	$	4,349
Trade accounts receivable, net of allowance for credit losses of $2,322 and $2,347 at May 31, 2024 and February 29, 2024, respectively	144,391		142,246
Other receivables	17,403		15,599
Inventories	113,988		117,656
Contract assets	93,262		79,335
Prepaid expenses and other	16,752		7,814


Total current assets	396,342		366,999
Property, plant and equipment, net	555,355		541,652
Right-of-use assets	22,592		23,739
Goodwill	705,204		705,468
Deferred tax assets	5,594		5,606
Intangible assets, net	439,558		445,435
Investment in joint venture	101,639		98,169
Other assets	9,495		8,437

Total assets	$	2,235,779	$	2,195,505
Liabilities, Mezzanine Equity and Shareholders’ Equity
Current liabilities:
Accounts payable	$	116,829	$	88,001
Income tax payable	3,414		172
Accrued salaries and wages	18,806		30,823
Other accrued liabilities	78,258		68,651
Lease liability, short-term	6,558		6,659


Total current liabilities	223,865		194,306
Long-term debt, net	929,800		952,742
Lease liability, long-term	16,801		17,827
Deferred tax liabilities	42,033		38,567
Other long-term liabilities	56,048		57,572

Total liabilities	1,268,547		1,261,014
Commitments and contingencies (Note 16)
Mezzanine equity:
Series A Convertible Preferred Stock, $1 par value; 240 shares authorized; 240 shares issued and outstanding February 29, 2024; aggregate liquidation preference $312,520 at February 29, 2024	—		233,722
Shareholders’ equity:
Common stock, $1 par value; 100,000 shares authorized; 29,814 and 25,102 shares issued and outstanding at May 31, 2024 and February 29, 2024, respectively	29,814		25,102
Capital in excess of par value	405,309		103,330
Retained earnings	535,168		576,231
Accumulated other comprehensive loss	(3,059)		(3,894)
Total shareholders’ equity	967,232		700,769
Total liabilities, mezzanine equity and shareholders' equity	$	2,235,779	$	2,195,505


	Three Months Ended May 31,
	2024		2023
Sales	$	413,208	$	390,873
Cost of sales	310,538		293,854
Gross margin	102,670		97,019

Selling, general and administrative	32,921		31,523

Operating income	69,749		65,496

Interest expense, net	(22,774)		(28,706)
Equity in earnings of unconsolidated subsidiaries	3,824		1,420
Other income (expense), net	204		(38)
Income before income taxes	51,003		38,172
Income tax expense	11,401		9,650




Net income	39,602		28,522
Dividends on Series A Preferred Stock	(1,200)		(3,600)
Redemption premium on Series A Preferred Stock	(75,198)		—
Net income (loss) available to common shareholders	$	(36,796)	$	24,922




Basic earnings (loss) per common share	$	(1.38)	$	1.00



Diluted earnings (loss) per common share	$	(1.38)	$	0.98

Weighted average shares outstanding - Basic	26,751		24,940
Weighted average shares outstanding - Diluted	26,751		29,150

Cash dividends declared per common share	$	0.17	$	0.17


	Three Months Ended May 31,
	2024		2023

Net income (loss) available to common shareholders	$	(36,796)	$	24,922
Other comprehensive income (loss):
Unrealized translation gain (loss)	(425)		19
Unrealized translation gain for unconsolidated subsidiary(1)	—		1,112


Unrealized gain (loss) on derivatives qualified for hedge accounting:
Unrealized gain (loss) on interest rate swap, net of tax(2)	2,219		(3,384)
Amounts reclassified from accumulated other comprehensive income to earnings, net of tax(3)	(1,100)		(549)
Unrealized gain (loss) on interest rate swap, net of tax for unconsolidated subsidiary(4)	141		(165)
Other comprehensive income (loss)	835		(2,967)
Comprehensive income (loss)	$	(35,961)	$	21,955

(1) Unrealized translation gain for unconsolidated subsidiary is related to our unconsolidated investment in the AVAIL JV and represents our 40% interest in this amount.
(2) Net of tax expense (benefit) of $625 and ($1,229) for the three months ended May 31, 2024 and May 31, 2023, respectively.
(3) Net of tax benefit of ($348) and ($199) for the three months ended May 31, 2024 and May 31, 2023, respectively. See Note 8.
(4) Unrealized gain (loss) on interest rate swap, net of tax for unconsolidated subsidiary is related to our unconsolidated investment in the AVAIL JV and represents our 40% interest in this amount. Net of tax expense (benefit) of $44 and ($60) for the three months ended May 31, 2024 and May 31, 2023, respectively.


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		Three Months Ended May 31, 2024
	Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total
		Shares									Amount
Balance at February 29, 2024		25,102	$	25,102	$	103,330	$	576,231	$	(3,894)		$	700,769
Share-based compensation		—	—		2,535		—		—			2,535

Common stock issued under stock-based plans and related tax expense		112	112		(4,679)		—		—			(4,567)

Secondary public offering and issuance of additional common stock		4,600	4,600		304,123		—		—			308,723

Dividends on Series A Preferred Stock		—	—		—		(1,200)		—			(1,200)
Cash dividends paid on common stock		—	—		—		(4,267)		—			(4,267)
Redemption premium on Series A Preferred Stock		—	—		—		(75,198)		—			(75,198)
Net income		—	—		—		39,602		—			39,602
Other comprehensive income		—	—		—		—		835			835
Balance at May 31, 2024		29,814	$	29,814	$	405,309	$	535,168	$	(3,059)		$	967,232


		Three Months Ended May 31, 2023
	Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total

		Shares									Amount
Balance at February 28, 2023		24,912	$	24,912	$	93,357	$	506,042	$	(4,573)		$	619,738
Share-based compensation		—	—		1,904		—		—			1,904

Common stock issued under stock-based plans and related tax expense		101	101		(1,812)		—		—			(1,711)


Dividends on Series A Preferred Stock		—	—		—		(3,600)		—			(3,600)
Cash dividends paid on common stock		—	—		—		(4,235)		—			(4,235)
Net income		—	—		—		28,522		—			28,522
Other comprehensive loss		—	—		—		—		(2,967)			(2,967)
Balance at May 31, 2023		25,013	$	25,013	$	93,449	$	526,729	$	(7,540)		$	637,651


	Three Months Ended May 31, 2024
	Metal Coatings		Precoat Metals		Infrastructure Solutions(1)		Corporate(2)		Total
Sales	$	176,651	$	236,557	$	—	$	—	$	413,208
Cost of sales	122,735		187,803		—		—		310,538
Gross margin	53,916		48,754		—		—		102,670

Selling, general and administrative	5,984		8,660		29		18,248		32,921

Operating income (loss)	47,932		40,094		(29)		(18,248)		69,749

Interest expense	—		—		—		(22,774)		(22,774)
Equity in earnings of unconsolidated subsidiaries	—		—		3,824		—		3,824
Other income	56		—		—		148		204
Income (loss) before income tax	$	47,988	$	40,094	$	3,795	(40,874)		51,003
Income tax expense							11,401		11,401
Net income (loss)							$	(52,275)	$	39,602


Summarized Balance Sheet
	As of
	May 31, 2024(1)
Current assets	$	279,806
Long-term assets	171,533
Total assets	$	451,339
Current liabilities	113,512
Long-term liabilities	126,625
Total liabilities	$	240,137
Total partners' capital	211,202
Total liabilities and partners' capital	$	451,339


Summarized Operating Data
	May 31, 2024(1)
Sales	$	129,107
Gross profit	31,526
Net income	8,160

(1) We report our equity in earnings on a one-month lag basis; therefore, amounts in the summarized financials above are as of and for the three months ended April 30, 2024. Amounts in the table above exclude certain adjustments made by us to record equity in earnings of the AVAIL JV under U.S GAAP for public companies, primarily to reverse the amortization of goodwill.



			Fair Value Measurements Using								Fair Value Measurements Using
	Carrying Value						Assets measured		Carrying Value						Assets measured
	May 31, 2024		Level 1		Level 2		at Net Asset Value		February 29, 2024		Level 1		Level 2		at Net Asset Value
Assets:
Interest Rate Swap Agreement	$	4,806	$	—	$	4,806	$	—	$	3,410	$	—	$	3,410	$	—
Total Assets	$	4,806							$	3,410
Liabilities:

Pension Liability	30,257		—		—		30,257		31,148		—		—		31,148
Total Liabilities	$	30,257							$	31,148


	Balance Sheet Classification	As of
		May 31, 2024		February 29, 2024
Assets
Operating right-of-use assets	Right-of-use assets	$	18,474	$	19,808
Finance right-of-use assets	Right-of-use assets	4,118		3,931
Liabilities
Operating lease liabilities ― short-term	Lease liability - short-term	$	5,729	$	5,893
Operating lease liabilities ― long-term	Lease liability - long-term	13,429		14,606
Finance lease liabilities ― short-term	Lease liability - short-term	829		766
Finance lease liabilities ― long-term	Lease liability - long-term	3,372		3,221


Fiscal year:	Operating Leases		Finance Leases		Total
2025	$	4,940	$	816	$	5,756
2026	5,740		1,015		6,755
2027	4,552		976		5,528
2028	2,529		889		3,418
2029	1,917		672		2,589
2030	462		447		909
Thereafter	796		170		966
Total lease payments	$	20,936	$	4,985	$	25,921
Less imputed interest	(1,778)		(784)		(2,562)
Total	$	19,158	$	4,201	$	23,359


	As of
	May 31, 2024		February 29, 2024
Raw material	$	109,590	$	111,674
Work in process	625		898
Finished goods	3,773		5,084
Total inventories	$	113,988	$	117,656


	Three Months Ended May 31,
	2024		2023
Sales:
Construction	$	228,512	$	207,162
Industrial	40,076		39,087
Transportation	38,362		35,179
Consumer	35,385		35,179
Utilities	28,615		27,361
Other (1)	42,258		46,905
Total Sales	$	413,208	$	390,873

(1) Other includes less significant markets, such as agriculture, recreation, petro-chem, AZZ Tubular products and sales from recycling.


	As of
	May 31, 2024		February 29, 2024
Revolving Credit Facility	$	35,000	$	30,000

Term Loan B	950,250		980,250
Total debt, gross	985,250		1,010,250
Unamortized debt issuance costs	(55,450)		(57,508)


Long-term debt, net	$	929,800	$	952,742


	As of
	May 31, 2024		February 29, 2024
Weighted-average remaining lease term - operating leases	3.97 years		4.12 years
Weighted-average discount rate - operating leases	4.55	%	4.49	%
Weighted-average remaining lease term - finance leases	5.08 years		5.21 years
Weighted-average discount rate - finance leases	6.86	%	6.70	%


	Three Months Ended May 31,
	2024
	Foreign Currency Translation Gain (Loss)		Foreign Currency Translation Gain (Loss) for Unconsolidated Subsidiary, Net of Tax		Net Actuarial Gain (Loss), Net of Tax		Interest Rate Swap, Net of Tax		Interest Rate Swap, Net of Tax for Unconsolidated Subsidiary		Total
Balance as of beginning of period	$	(7,628)	$	1,418	$	(184)	$	2,533	$	(33)	$	(3,894)
Other comprehensive income before reclassification	(425)		—		—		2,219		141		1,935
Amounts reclassified from AOCI	—		—		—		(1,100)		—		(1,100)
Net change in AOCI	(425)		—		—		1,119		141		835
Balance as of end of period	$	(8,053)	$	1,418	$	(184)	$	3,652	$	108	$	(3,059)


1.1						Third Amendment to Credit Agreement, dated as of March 20, 2024, by and among AZZ Inc., the Guarantors, the Lenders, and Citibank, N.A., as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 20, 2024.)
10.1						Underwriting Agreement, dated April 25, 2024, among AZZ Inc., Evercore Group L.L.C., Jeffries LLC and each of the other Underwriters named in Schedule A to the Underwriting Agreement (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 26, 2024.)
31.1+						Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2+						Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1+						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2+						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Dated:	July 10, 2024	/s/ Thomas E. Ferguson
		Thomas E. Ferguson
		President and Chief Executive Officer


Dated:	July 10, 2024	/s/ Jason Crawford
		Jason Crawford
		Chief Financial Officer