Azz Inc 10-Q for FY2023 Q1

Azz Inc (AZZ)

10-Q 2022-07-11 For: 2022-05-31

Added on April 04, 2026

About this 10-Q

Azz Inc filed this 10-Q on July 11, 2022, covering the quarter ended May 31, 2022 (FY2023 Q1).

Headline figures

Quarter ended May 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $314.4M; up 36.8% from $229.83M a year earlier
Net income: $24.08M; up 7.8% from net income of $22.34M a year earlier
Diluted EPS: $0.96; up 9.1% from $0.88 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	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Statements of Shareholders’ Equity	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 5	Other Information	30
Item 6.	Exhibits	31

	SIGNATURES	32


	May 31, 2022		February 28, 2022
Assets
Current assets:
Cash and cash equivalents	$	100,998	$	15,082
Accounts receivable (net of allowance for credit losses of $4,886 as of May 31, 2022 and $5,207 as of February 28, 2022)	255,749		167,016
Inventories:
Raw material	176,734		117,603
Work-in-process	9,032		7,285
Finished goods	3,649		1,212
Contract assets	155,863		74,629
Prepaid expenses and other	18,136		3,471
Assets held for sale	235		235
Total current assets	720,396		386,533
Property, plant and equipment, net	491,722		230,848
Right-of-use assets	51,909		43,286
Goodwill	918,877		385,613
Deferred tax assets	5,217		5,191
Intangibles and other assets, net	594,171		81,557
Total assets	$	2,782,292	$	1,133,028
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	185,645	$	43,987
Income tax payable	1,661		3,564
Accrued salaries and wages	27,261		28,424
Other accrued liabilities	57,477		24,092
Customer deposits	712		681
Contract liabilities	39,682		42,465
Lease liability, short-term	8,975		7,318
Debt due within one year	13,000		—

Total current liabilities	334,413		150,531
Debt due after one year, net	1,594,777		226,484
Lease liability, long-term	42,603		35,610
Deferred income taxes	48,137		47,672
Other long-term liabilities	74,803		5,366
Total liabilities	2,094,733		465,663
Commitments and contingencies
Shareholders’ equity:
Common stock, $1 par, shares authorized 100,000; 24,788 shares issued and outstanding at May 31, 2022 and 24,688 shares issued and outstanding at February 28, 2022	24,788		24,688
Capital in excess of par value	85,432		85,847
Retained earnings	604,039		584,154
Accumulated other comprehensive loss	(26,700)		(27,324)
Total shareholders’ equity	687,559		667,365
Total liabilities and shareholders' equity	$	2,782,292	$	1,133,028


	Three Months Ended May 31,
	2022		2021

Sales	$	314,398	$	229,826
Cost of sales	229,942		171,899
Gross margin	84,456		57,927

Selling, general and administrative	44,546		27,215

Operating income	39,910		30,712

Interest expense	7,473		1,697

Other expense (income), net	798		(969)
Income before income taxes	31,639		29,984
Income tax expense	7,562		7,647
Net income	$	24,077	$	22,337
Earnings per common share
Basic earnings per share	$	0.97	$	0.89
Diluted earnings per share	$	0.96	$	0.88

Cash dividends declared per common share	$	0.17	$	0.17


	Three Months Ended May 31,
	2022		2021
Net income	$	24,077	$	22,337
Other comprehensive income:
Unrealized translation gain	624		2,581

Other comprehensive income	624		2,581
Comprehensive income	$	24,701	$	24,918


☒			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, 2022
	Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total

	Shares	Amount
Balance at February 28, 2022	24,688	$	24,688	$	85,847	$	584,154	$	(27,324)	$	667,365
Share-based compensation	—	—		1,998		—		—		1,998
Common stock issued under stock-based plans and related income tax expense	100	100		(2,413)		—		—		(2,313)


Cash dividends paid	—	—		—		(4,192)		—		(4,192)
Net income	—	—		—		24,077		—		24,077
Foreign currency translation	—	—		—		—		624		624

Balance at May 31, 2022	24,788	$	24,788	$	85,432	$	604,039	$	(26,700)	$	687,559


	Three Months Ended May 31, 2021
	Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total

	Shares	Amount
Balance at February 28, 2021	25,108	$	25,108	$	75,979	$	547,289	$	(25,084)	$	623,292
Share-based compensation	—	—		1,811		—		—		1,811
Common stock issued under stock-based plans and related income tax expense	89	89		(2,190)		—		—		(2,101)

Repurchase and retirement of treasury shares	(126)	(126)		—		(6,138)		—		(6,264)
Cash dividends paid	—	—		—		(4,245)		—		(4,245)
Net income	—	—		—		22,337		—		22,337
Foreign currency translation	—	—		—		(70)		2,651		2,581

Balance at May 31, 2021	25,071	$	25,071	$	75,600	$	559,173	$	(22,433)	$	637,411


	May 13, 2022
Assets

Accounts receivable	$	77,422
Inventories	44,309
Contract assets	70,731
Prepaid expenses and other	2,245
Property, plant and equipment	262,154
Right-of-use asset	10,954
Goodwill	534,599
Intangibles and other assets	513,546
Total fair value of assets acquired	$	1,515,960
Liabilities
Accounts payable	$	(99,223)
Accrued expenses	(31,891)
Other accrued liabilities	(3,741)
Customer deposits	(1,574)
Lease liability, short-term	(1,706)
Lease liability, long-term	(9,248)
Deferred tax liabilities	(3,100)
Other long-term liabilities	(66,247)
Total fair value of liabilities assumed	(216,730)
Total Purchase Price, net of cash acquired	$	1,299,230


	2022		2021
Balance at February 28,	$	42,465	$	16,138
Contract liabilities added during the period	36,674		12,375
Sales recognized during the period	(39,457)		(11,415)
Balance at May 31,	$	39,682	$	17,098


	May 31, 2022		February 28, 2022
Total assets:
Metal Coatings	$	594,207	$	575,088
Precoat Metals	1,538,809		—
Infrastructure Solutions	526,311		525,086
Corporate	122,965		32,854
Total	$	2,782,292	$	1,133,028


	May 31, 2022		February 28, 2022
Property, plant and equipment, net:
United States	$	456,409	$	194,539
Canada	25,900		26,264
Other countries	9,413		10,045
Total	$	491,722	$	230,848


	May 31, 2022		February 28, 2022
Revolving Credit Facility	$	—	$	77,000
2020 Senior Notes	150,000		150,000
Term Loan B	1,300,000		—
Convertible Notes	240,000		—
Total debt, gross	1,690,000		227,000
Unamortized debt issuance costs	(82,223)		(516)
Total debt, net	1,607,777		226,484
Less amount due within one year	(13,000)		—
Total debt due after one year, net	$	1,594,777	$	226,484


Balance Sheet	Classification	May 31, 2022		February 28, 2022
Assets
Right-of-use assets	Right-of-use assets	$	51,909	$	43,286
Liabilities
Operating lease liabilities ― ST	Lease liability - short-term	8,786		7,140
Operating lease liabilities ― LT	Lease liability - long-term	41,978		34,965
Finance lease liabilities ― ST	Lease liability - short-term	189		178
Finance lease liabilities ― LT	Lease liability - long-term	625		645


	Three Months Ended May 31,
	2022		2021
Sales:
Industrial (General industry, Oil & Gas and Construction)	$	207,502	$	153,983
Transmission and distribution	72,312		43,667
Power generation	34,584		32,176
Total sales	$	314,398	$	229,826


	Three Months Ended May 31,
	2022		2021
Beginning balance	$	3,686	$	4,079
Warranty costs incurred	(721)		(112)
Amounts charged to income (expense)	(152)		170
Acquisitions	1,662		—
Ending balance	$	4,475	$	4,137


	May 31, 2022		February 28, 2022
Weighted-average remaining lease term - operating leases (years)	7.28		7.90
Weighted-average discount rate - operating leases	4.48	%	4.56	%
Weighted-average remaining lease term - financing leases (years)	4.48		4.73
Weighted-average discount rate - financing leases	2.99	%	2.95	%


Fiscal year:	Operating Leases		Finance Leases		Total
2023	$	8,254	$	158	$	8,412
2024	10,144		211		10,355
2025	9,155		203		9,358
2026	7,608		139		7,747
2027	6,815		111		6,926
Thereafter	17,851		46		17,897
Total lease payments	59,827		868		60,695
Less imputed interest	(9,064)		(53)		(9,117)
Total	$	50,763	$	815	$	51,578


	Period Ended			Period Ended
Backlog	2/28/22	$	304,522	2/28/2021	$	186,119
Net bookings		317,302			229,805

Sales recognized		(314,398)			(229,826)
Backlog	5/31/2022	$	307,426	5/31/2021	$	186,098
Book to sales ratio		1.01			1.00


	Three Months Ended
	May 31, 2022
	Amount		Per Diluted Share(1)
Net income and diluted earnings per share	$	24,077
Impact of after-tax interest expense for Convertible Notes	547
Net income for diluted earnings per share	$	24,624	$	0.96
Adjustments:




Acquisition and transaction related expenditures(2)	12,614		0.49
Increase in interest expense due to Precoat Acquisition	5,776		0.22
Depreciation and amortization - Precoat Metals	3,181		0.12
Precoat Metals segment contribution	(6,666)		(0.26)
Subtotal	14,905		0.58
Tax benefit(3)	(3,577)		(0.14)
Total adjustments	11,328		0.44
Adjusted earnings and adjusted earnings per share	$	35,952	$	1.40

(1) Earnings per share amounts included in the table above may not sum due to rounding differences.
(2) Includes expenses related to the Precoat acquisition as well as the divestiture of the Infrastructure Solutions business.
(3) Tax benefit consists of 21% federal statutory rate and 3% blended state tax rate.


2.1**						Securities Purchase Agreement dated as of March 7, 2022 by and between Sequa Corporation and AZZ Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Registrant on March 8, 2022).

2.2						First Amendment to Securities Purchase Agreement, dated as of May 6, 2022, by and between Sequa Corporation and AZZ Inc. (incorporated by reference to Exhibit 2.1 the Current Report on Form 8-K filed by the Registrant on May 9, 2022).

3.1						Amended and Restated Certificate of Formation of AZZ Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on July 14, 2015).

3.2						Amended and Restated Bylaws of AZZ Inc. (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q filed by the Registrant on October 12, 2021).

4.1						Indenture, dated as of May 13, 2022, by and between AZZ Inc. and UMB Bank, N.A. (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by the Registrant on May 16, 2022).

10.1**						Credit Agreement, dated as of May 13, 2022, by and among AZZ Inc., the Guarantors, the Lenders, the L/C Issuers and Citibank, N.A., as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on May 16, 2022).

10.2**						Securities Purchase Agreement, dated as of May 13,2022, by and between AZZ Inc. and BTO Pegasus Holdings DE L.P. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on May 16, 2022).

10.3						Registration Rights Agreement, dated as of May 13, 2022, by and between AZZ Inc. and BTO Pegasus Holdings DE L.P. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by the Registrant on May 16, 2022)
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 11, 2022	/s/ Thomas E. Ferguson
		Thomas E. Ferguson
		President and Chief Executive Officer


Dated:	July 11, 2022	/s/ Philip A. Schlom
		Philip A. Schlom
		Chief Financial Officer