Azz Inc 10-Q for FY2025 Q2

Azz Inc (AZZ)

10-Q 2024-10-09 For: 2024-08-31

Added on April 04, 2026

About this 10-Q

Azz Inc filed this 10-Q on October 9, 2024, covering the quarter ended August 31, 2024 (FY2025 Q2).

Headline figures

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

Revenue: $409.01M; up 2.6% from $398.54M a year earlier
Net income: $35.42M; up 25.0% from net income of $28.33M a year earlier
Diluted EPS: $1.18; up 21.6% from $0.97 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	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 5	Other Information	40
Item 6.	Exhibits	41

	SIGNATURES	42


	As of
	August 31, 2024		February 29, 2024

Assets
Current assets:
Cash and cash equivalents	$	2,152	$	4,349
Trade accounts receivable, net of allowance for credit losses of $(2,128) and $(2,347) at August 31, 2024 and February 29, 2024, respectively	153,108		142,246
Other receivables	22,804		15,599
Inventories	115,249		117,656
Contract assets	93,983		79,335
Prepaid expenses and other	13,860		7,814


Total current assets	401,156		366,999
Property, plant and equipment, net	569,732		541,652
Right-of-use assets	22,053		23,739
Goodwill	705,724		705,468
Deferred tax assets	5,616		5,606
Intangible assets, net	433,929		445,435
Investment in AVAIL joint venture	97,768		98,169
Other assets	4,352		8,437

Total assets	$	2,240,330	$	2,195,505
Liabilities, Mezzanine Equity and Shareholders’ Equity
Current liabilities:
Accounts payable	$	108,699	$	88,001
Income taxes payable	1,919		172
Accrued salaries and wages	24,947		30,823
Other accrued liabilities	74,991		68,651
Lease liability, short-term	6,574		6,659


Total current liabilities	217,130		194,306
Long-term debt, net	912,572		952,742
Lease liability, long-term	16,263		17,827
Deferred tax liabilities	42,261		38,567
Other long-term liabilities	52,348		57,572

Total liabilities	1,240,574		1,261,014
Commitments and contingencies (Note 16)
Mezzanine equity:
Series A Preferred Stock, $1,000 par value; 100,000 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; 29,877 and 25,102 shares issued and outstanding at August 31, 2024 and February 29, 2024, respectively	29,877		25,102
Capital in excess of par value	411,263		103,330
Retained earnings	565,511		576,231
Accumulated other comprehensive loss	(6,895)		(3,894)
Total shareholders’ equity	999,756		700,769
Total liabilities, mezzanine equity and shareholders' equity	$	2,240,330	$	2,195,505


	Three Months Ended August 31,				Six Months Ended August 31,
	2024		2023		2024		2023
Sales	$	409,007	$	398,542	$	822,215	$	789,415
Cost of sales	305,493		301,296		616,031		595,150
Gross margin	103,514		97,246		206,184		194,265

Selling, general and administrative	35,868		36,239		68,789		67,762

Operating income	67,646		61,007		137,395		126,503

Interest expense, net	(21,909)		(27,770)		(44,683)		(56,476)
Equity in earnings of unconsolidated subsidiaries	1,478		974		5,302		2,394
Other income, net	417		88		621		50
Income before income taxes	47,632		34,299		98,635		72,471
Income tax expense	12,213		5,967		23,614		15,617




Net income	35,419		28,332		75,021		56,854
Series A Preferred Stock Dividends	—		(3,600)		(1,200)		(7,200)
Redemption premium on Series A Preferred Stock	—		—		(75,198)		—
Net income (loss) available to common shareholders	$	35,419	$	24,732	$	(1,377)	$	49,654




Basic earnings (loss) per common share	$	1.19	$	0.99	$	(0.05)	$	1.99



Diluted earnings (loss) per common share	$	1.18	$	0.97	$	(0.05)	$	1.95

Weighted average shares outstanding - Basic	29,852		25,054		28,294		24,997
Weighted average shares outstanding - Diluted	30,057		29,210		28,294		29,196

Cash dividends declared per common share	$	0.17	$	0.17	$	0.34	$	0.34


	Three Months Ended August 31,				Six Months Ended August 31,
	2024		2023		2024		2023

Net income (loss) available to common shareholders	$	35,419	$	24,732	$	(1,377)	$	49,654
Other comprehensive income (loss):
Unrealized translation gain	864		18		439		38
Unrealized translation loss for unconsolidated subsidiary(1)	(531)		(2,885)		(531)		(1,774)


Unrealized gain (loss) on derivatives qualified for hedge accounting:
Unrealized gain (loss) on interest rate swap, net of tax(2)	(3,062)		5,254		(842)		1,869
Amounts reclassified from accumulated other comprehensive income to earnings, net of tax(3)	(1,113)		(939)		(2,214)		(1,487)
Unrealized gain on interest rate swap, net of tax for unconsolidated subsidiary(4)	6		278		147		113
Other comprehensive income (loss)	(3,836)		1,726		(3,001)		(1,241)
Comprehensive income (loss)	$	31,583	$	26,458	$	(4,378)	$	48,413

(1) Unrealized translation loss for unconsolidated subsidiary is related to our unconsolidated investment in the AVAIL JV and represents our 40% interest in this amount. Net of tax benefit of $(210) for both the three and six months ended August 31, 2024 and $0 for both the three and six months ended August 31, 2023.
(2) Net of tax expense (benefit) of ($967) and $1,908 for the three months ended August 31,2024 and 2023, respectively. Net of tax expense (benefit) of ($342) and $679 for the six months ended August 31, 2024 and 2023, respectively.
(3) Net of tax benefit of ($351) and ($341) for the three months ended August 31,2024 and 2023, respectively. Net of tax benefit of $(699) and $(540) for the six months ended August 31, 2024 and 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 of $2 and $101 for the three months ended August 31,2024 and 2023, respectively. Net of tax expense of $46 and $41 for the six months ended August 31, 2024 and 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 August 31, 2024
	Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total
		Shares									Amount
Balance at May 31, 2024		29,814	$	29,814	$	405,309	$	535,168	$	(3,059)		$	967,232
Share-based compensation		—	—		4,903		—		—			4,903

Common stock issued under stock-based plans and related tax expense		20	20		(420)		—		—			(400)
Common stock issued under employee stock purchase plan		43	43		1,526		—		—			1,569
Secondary public offering and issuance of additional common stock		—	—		(55)		—		—			(55)


Cash dividends paid on common stock		—	—		—		(5,076)		—			(5,076)

Net income		—	—		—		35,419		—			35,419
Other comprehensive loss		—	—		—		—		(3,836)			(3,836)
Balance at August 31, 2024		29,877	$	29,877	$	411,263	$	565,511	$	(6,895)		$	999,756


		Six Months Ended August 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		—	—		7,438		—		—			7,438

Common stock issued under stock-based plans and related tax expense		132	132		(5,099)		—		—			(4,967)
Common stock issued under employee stock purchase plan		43	43		1,526		—		—			1,569
Secondary public offering and issuance of additional common stock		4,600	4,600		304,068		—		—			308,668

Dividends on Series A Preferred Stock		—	—		—		(1,200)		—			(1,200)
Cash dividends paid on common stock		—	—		—		(9,343)		—			(9,343)
Redemption premium on Series A Preferred Stock		—	—		—		(75,198)		—			(75,198)
Net income		—	—		—		75,021		—			75,021
Other comprehensive loss		—	—		—		—		(3,001)			(3,001)
Balance at August 31, 2024		29,877	$	29,877	$	411,263	$	565,511	$	(6,895)		$	999,756


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

		Shares									Amount
Balance at May 31, 2023		25,013	$	25,013	$	93,449	$	526,729	$	(7,540)		$	637,651
Share-based compensation		—	—		2,115		—		—			2,115

Common stock issued under stock-based plans and related tax expense		22	22		898		—		—			920
Common stock issued under employee stock purchase plan		42	42		1,422		—		—			1,464

Dividends on Series A Preferred Stock		—	—		—		(3,600)		—			(3,600)
Cash dividends paid on common stock		—	—		—		(4,253)		—			(4,253)
Net income		—	—		—		28,332		—			28,332
Other comprehensive loss		—	—		—		—		1,726			1,726
Balance at August 31, 2023		25,077	$	25,077	$	97,884	$	547,208	$	(5,814)		$	664,355


		Six Months Ended August 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		—	—		4,019		—		—			4,019

Common stock issued under stock-based plans and related tax expense		123	123		(914)		—		—			(791)
Common stock issued under employee stock purchase plan		42	42		1,422		—		—			1,464

Dividends on Series A Preferred Stock		—	—		—		(7,200)		—			(7,200)
Cash dividends paid on common stock		—	—		—		(8,488)		—			(8,488)
Net income		—	—		—		56,854		—			56,854
Other comprehensive loss		—	—		—		—		(1,241)			(1,241)
Balance at August 31, 2023		25,077	$	25,077	$	97,884	$	547,208	$	(5,814)		$	664,355


	Three Months Ended August 31, 2024
	Metal Coatings		Precoat Metals		Infrastructure Solutions(1)		Corporate(2)		Total
Sales	$	171,500	$	237,507	$	—	$	—	$	409,007
Cost of sales	118,193		187,300		—		—		305,493
Gross margin	53,307		50,207		—		—		103,514

Selling, general and administrative	5,619		7,677		9		22,563		35,868

Operating income (loss)	47,688		42,530		(9)		(22,563)		67,646

Interest expense	—		—		—		(21,909)		(21,909)
Equity in earnings of unconsolidated subsidiaries	—		—		1,478		—		1,478
Other (expense) income	(7)		—		—		424		417
Income (loss) before income tax	$	47,681	$	42,530	$	1,469	(44,048)		47,632
Income tax expense							12,213		12,213
Net income (loss)							$	(56,261)	$	35,419


	Six Months Ended August 31, 2023
	Metal Coatings		Precoat Metals(4)		Infrastructure Solutions(1)		Corporate(2)		Total
Sales	$	338,631	$	450,784	$	—	$	—	$	789,415
Cost of sales	237,328		357,822		—		—		595,150
Gross margin	101,303		92,962		—		—		194,265

Selling, general and administrative	10,751		16,266		5,954		34,791		67,762

Operating income (loss)	90,552		76,696		(5,954)		(34,791)		126,503

Interest expense	—		—		—		(56,476)		(56,476)
Equity in earnings of unconsolidated subsidiaries	—		—		2,394		—		2,394
Other income (expense)	(11)		—		—		61		50
Income (loss) before income tax	$	90,541	$	76,696	$	(3,560)	(91,206)		72,471
Income tax expense							15,617		15,617
Net income (loss)							$	(106,823)	$	56,854


Summarized Balance Sheet
	As of
	August 31, 2024(1)
Current assets	$	281,937
Long-term assets	177,926
Total assets	$	459,863

Current liabilities	139,333
Long-term liabilities	124,359
Total liabilities	$	263,692
Total partners' capital	196,171
Total liabilities and partners' capital	$	459,863


Summarized Operating Data
	Three Months Ended		Six Months Ended
	August 31, 2024(1)		August 31, 2024(1)
Sales	$	119,584	$	249,300
Gross profit	27,569		59,086
Net income	2,780		10,955

(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 and six months ended July 31, 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
	August 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(1)	$	—	$	—	$	—	$	—	$	3,410	$	—	$	3,410	$	—
Total Assets	$	—							$	3,410
Liabilities:
Interest Rate Swap Agreement(1)	687		—		687		—		—		—		—		—
Net Pension Obligation	26,007		—		—		26,007		31,148		—		—		31,148
Total Liabilities	$	26,694							$	31,148


	Balance Sheet Classification	As of
		August 31, 2024		February 29, 2024
Assets
Operating right-of-use assets	Right-of-use assets	$	17,194	$	19,808
Finance right-of-use assets	Right-of-use assets	4,859		3,931
Liabilities
Operating lease liabilities ― short-term	Lease liability - short-term	$	5,579	$	5,893
Operating lease liabilities ― long-term	Lease liability - long-term	12,284		14,606
Finance lease liabilities ― short-term	Lease liability - short-term	995		766
Finance lease liabilities ― long-term	Lease liability - long-term	3,979		3,221


	As of
	August 31, 2024		February 29, 2024
Raw material	$	111,728	$	111,674
Work in process	552		898
Finished goods	2,969		5,084
Total inventories	$	115,249	$	117,656


	Three Months Ended August 31,				Six Months Ended August 31,
	2024		2023		2024		2023
Sales:
Construction	$	233,196	$	216,807	$	461,691	$	422,337
Industrial	36,691		42,245		76,767		82,889
Transportation	36,550		35,869		74,913		72,626
Consumer	31,408		34,673		65,169		70,258
Utilities	30,731		25,905		59,346		51,312
Other (1)	40,431		43,043		84,329		89,993
Total Sales	$	409,007	$	398,542	$	822,215	$	789,415

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


	As of
	August 31, 2024		February 29, 2024
Revolving Credit Facility	$	75,000	$	30,000

Term Loan B	890,250		980,250
Total debt, gross	965,250		1,010,250
Unamortized debt issuance costs	(52,678)		(57,508)


Long-term debt, net	$	912,572	$	952,742


	Three Months Ended August 31,				Six Months Ended August 31,
	2024		2023		2024		2023
Operating cash flows from operating leases included in lease liabilities	$	1,794	$	1,834	$	3,561	$	3,654
Lease liabilities obtained from new ROU assets - operating	410		373		628		1,895
Decrease in ROU assets related to lease terminations	—		(1,294)		—		(1,302)
Financing cash flows from finance leases included in lease liabilities	236		92		432		162
Operating cash flows from finance leases included in lease liabilities	83		21		151		37
Lease liabilities obtained from new ROU assets - finance leases	1,009		599		1,419		599


Fiscal year:	Operating Leases		Finance Leases		Total
2025	$	3,259	$	665	$	3,924
2026	5,912		1,263		7,175
2027	4,598		1,224		5,822
2028	2,542		1,137		3,679
2029	1,918		920		2,838
2030	462		499		961
Thereafter	796		170		966
Total lease payments	$	19,487	$	5,878	$	25,365
Less imputed interest	(1,624)		(904)		(2,528)
Total	$	17,863	$	4,974	$	22,837


	Three Months Ended August 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	$	(8,053)	$	1,418	$	(184)	$	3,652	$	108	$	(3,059)
Other comprehensive income before reclassification	864		(531)		—		(3,062)		6		(2,723)
Amounts reclassified from AOCI	—		—		—		(1,113)		—		(1,113)
Net change in AOCI	864		(531)		—		(4,175)		6		(3,836)
Balance as of end of period	$	(7,189)	$	887	$	(184)	$	(523)	$	114	$	(6,895)


2.1						Contribution and Purchase Agreement, dated as of June 23, 2022, by and between AZZ Inc., AIS investment Holdings LLC and Fernweh AIS Acquisition L.P. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the SEC on June 27, 2022.)

3.1						Amended and Restated Bylaws dated April 24, 2023 (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the SEC on April 25, 2023.)

3.2						Amended and Restated Certificate of Formation (with Certificate of Correction dated May 15, 2023) (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on October 10, 2023 .)

4.1						Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on October 13, 2000.)

4.2						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 Company's Current Report on Form 8-K filed with the SEC on May 16, 2022.

10.1						Employment Agreement between AZZ Inc. and Jason Crawford, dated as of June 3, 2024 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on June 3, 2024.)

10.2						Employment Agreement between AZZ Inc. and Bryan Stovall, dated as of July 15, 2024 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 19, 2024.

10.3						Fourth Amendment to Credit Agreement, dated as of September 24, 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 September 24, 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:	October 9, 2024	/s/ Thomas E. Ferguson
		Thomas E. Ferguson
		President and Chief Executive Officer


Dated:	October 9, 2024	/s/ Jason Crawford
		Jason Crawford
		Chief Financial Officer