8-K
AZZ INC (AZZ)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
October 11, 2022
Date of Report (Date of earliest event reported)
AZZ Inc.
(Exact name of Registrant as specified in its charter)
| Texas | 1-12777 | 75-0948250 |
|---|---|---|
| (State or other jurisdiction<br><br>of incorporation) | (Commission<br><br>File Number) | (I.R.S. Employer<br><br>Identification No.) |
One Museum Place, Suite 500
3100 West 7th Street
Fort Worth, Texas 76107
(Address of principal executive offices) (Zip Code)
(817) 810-0095
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
|---|---|---|
| Common Stock | AZZ | New York Stock Exchange |
Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On October 11, 2022, AZZ Inc. ("AZZ") issued a press release reporting AZZ’s second quarter financial results for the period ended August 31, 2022. A copy of this press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.
The information in this Item 2.02 (including Exhibit 99.1) is being furnished and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or subject to the liabilities of that Section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. Nor shall the information in this Current Report be incorporated by reference in any other filing with the U.S. Securities and Exchange Commission made by AZZ, whether made before or after the date hereof, unless specifically identified therein as being incorporated therein by reference in such filing.
Item 7.01 Regulation FD Disclosure.
On October 11, 2022, AZZ also posted an investor presentation to its website at https://www.azz.com/investor-relations. A copy of the investor presentation is attached hereto as Exhibit 99.2 and incorporated herein by reference.
The information in this Item 7.01 (including Exhibit 99.2) is being furnished and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or subject to the liabilities of that Section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. Nor shall the information in this Current Report be incorporated by reference in any other filing with the U.S. Securities and Exchange Commission made by AZZ, whether made before or after the date hereof, unless specifically identified there as being incorporated therein by reference in such filing.
Item 9.01 Financial Statements and Exhibits.
The following exhibits are filed as part of this report.
| Exhibit | Description |
|---|---|
| 99.1 | Press release, reporting financial results for thesecondquarter of fiscal year 2023, endedAugust31, 2022. |
| 99.2 | Investor Presentation, datedOctober11, 2022. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AZZ Inc. | |||
|---|---|---|---|
| Date: | October 11, 2022 | By: | /s/ Philip A. Schlom |
| Philip A. Schlom <br>Chief Financial Officer |
Document
AZZ Inc. Announces Fiscal Year 2023 Second Quarter Results
October 7, 2022 - FORT WORTH, TX - AZZ Inc. (NYSE: AZZ), the leading independent provider of hot-dip galvanizing and coil coating solutions, today announced financial results for the second quarter ended August 31, 2022.
Achieved Sales of $406.7 million and Adjusted EPS of $1.24
Second Quarter 2022 Highlights (all metrics compared to Second Quarter 2021 unless otherwise noted)
◦Record Sales of $406.7 million, including first full quarter of AZZ Precoat Metals
◦Record Adjusted EBITDA of $100.5 million
◦Net loss of $(58.6) million due to recording the estimated loss on the divestiture of AIS JV. As adjusted net income of $35.9 million, up $16.9 million or 89.3%
◦Diluted EPS of $(1.91). Adjusted EPS of $1.24, up $0.48 or 63.2%
◦Returned $4.2 million to shareholders through dividends
◦Effective tax rate of 18.1% compared to 20.6%
◦Infrastructure Solutions segment classified as assets held for sale and moved to discontinued operations
Key Financial Metrics
| Second Quarter - Fiscal Year 2023 | ||||||||
|---|---|---|---|---|---|---|---|---|
| As Reported (GAAP) | Adjusted | |||||||
| Q2-FY2023 | Q2-FY2022 | Q2-FY2023 | Q2-FY2022 | |||||
| Sales | $ | 406,710 | $ | 131,434 | $ | 406,710 | $ | 131,434 |
| EBITDA | (17,130) | 36,756 | 100,476 | 36,756 | ||||
| EBITDA as percent of Sales | — | — | — | — | ||||
| Net income (loss) available to common shareholders | (58,610) | 18,978 | 35,920 | 18,978 | ||||
| Diluted earnings (loss) per share (EPS)(1) | $ | (1.91) | $ | 0.76 | $ | 1.24 | $ | 0.76 |
| Diluted shares used in EPS | 29,059 | 25,135 | 29,059 | 25,135 | ||||
| Year-to-Date - Fiscal Year 2023 | ||||||||
| As Reported (GAAP) | Adjusted | |||||||
| Q2-FY2023 | Q2-FY2022 | Q2-FY2023 | Q2-FY2022 | |||||
| Sales | $ | 613,844 | $ | 260,650 | $ | 613,844 | $ | 260,650 |
| EBITDA | 37,101 | 79,521 | 167,333 | 79,521 | ||||
| EBITDA as percent of Sales | — | — | — | — | ||||
| Net income (loss) available to common shareholders | (34,533) | 41,315 | 70,067 | 41,315 | ||||
| Diluted earnings (loss) per share (EPS)(1) | $ | (1.26) | $ | 1.64 | $ | 2.55 | $ | 1.64 |
| Diluted shares used in EPS | 27,428 | 25,216 | 27,428 | 25,216 | ||||
| (1) The numerator for the calculation of As Reported Diluted earnings (loss) per share includes the impact of dividends on preferred stock and after-tax interest expense on Convertible Notes, and is calculated as follows: | ||||||||
| Q2-FY2023 | Q2-FY2022 | YTD-FY2023 | YTD-FY2022 | |||||
| Net income (loss) available to common shareholders | (58,610) | 18,978 | (34,533) | 18,978 | ||||
| After-tax interest expense on Convertible Notes | 2,006 | — | 2,554 | — | ||||
| Dividends on Preferred Stock | 1,040 | — | 1,040 | — | ||||
| Numerator for diluted earnings (loss) per share | ||||||||
| available to common shareholders | (55,564) | 18,978 | (30,939) | 18,978 |
"We delivered record quarterly sales and solid adjusted earnings per share that increased 63.2%. We were pleased with our first full quarter as a focused metal coatings business, in what is a traditionally strong season for both segments,” said Tom Ferguson, President and Chief Executive Officer. “These results reflect the strength of our businesses, our team's ability to execute at a high level, and the completion of a major phase of our strategic transformation efforts. I remain pleased with the team’s ability to manage the increasing costs of materials and labor, through pricing and operational improvement initiatives, while focusing on providing outstanding customer service. As we progress through the seasonally slower back half of the year, our overall outlook remains positive, although we are seeing signs of economic slowing in some areas. We are well positioned to create sustainable growth across our businesses and long-term value for our shareholders.”
Second Quarter Fiscal Year 2023 Segment Review
Metal Coatings Segment (41% of sales)
Record sales of $165.8 million, up 26.2%. Improved sales were driven by pricing strategies to offset inflationary costs, and increased volume for hot-dip galvanizing within the renewables, utility, OEM, and construction markets. Results this quarter include both DAAM Galvanizing, Steel Creek Galvanizing, and the addition of AZZ Tubular Products that previously was reported as part of the divested AIS segment.
Operating income improved to $45.0 million, up 40.4% and operating margin improved to 27.1% or 270 basis points, due to strong operational performance, strategic pricing, and $5.1 million received from a real estate sale and two insurance settlements. EBITDA of $53.0 million was up 34.1% versus the prior year's second quarter.
Precoat Metals Segment (59% of sales)
Record sales of $240.9 million. Increased sales were driven primarily by significantly higher average selling price from paint cost pass-through. Higher operating costs driven by inflation.
Operating income totaled $36.2 million, and operating margin for the quarter was 15.0%. Excluding the impact of additional quarterly depreciation and amortization of $2.2 million and $4.6 million, respectively, operating margins would have been 17.8%.
EBITDA of $49.6 million, or 20.6% was within the range of expectations, although higher than normal customer inventories posed some productivity and efficiency headwinds.
Balance Sheet, Liquidity and Capital Allocation
The Company generated year-to-date operating cash flows of $42.0 million through strong earnings and managing working capital to mitigate supply chain volatility while supporting strong sales growth. At the end of the second quarter, cash and cash equivalents were $14.3 million. AZZ did not purchase company stock in the second quarter and approximately $55.2 million remains on the current authorization with no expiration. Capital expenditures for continuing operations were $12.3 million during the quarter, and $2.9 million related to discontinued operations.
Subsequent Event
On September 30, 2022, the Company completed the transaction whereby AZZ contributed its AZZ Infrastructure Solutions segment to AIS Investment Holdings LLC (the “AIS JV”) and sold a 60% interest in the AIS JV to Fernweh Group. The Company received proceeds from the sale of approximately $108.0 million, as well as $120.0 million that was funded by committed debt financing taken on by the AIS JV, for total cash received of $228 million.
Financial Outlook and Key Assumptions
Due to the acquisition of Precoat Metals, and the recently announced completion of the divestiture of a controlling (60%) interest in the Company’s Infrastructure Solutions segment, via the AIS JV, AZZ will not issue full-year fiscal year 2023 guidance at this time. We anticipate returning to our normal cadence of issuing guidance prior to fiscal year 2024.
Mr. Ferguson continued, “as we have previously stated, for the balance of fiscal 2023, we remain highly focused on executing upon our growth strategy and various initiatives within both our Metal Coatings and Precoat Metals segments. The underlying fundamentals of our business remain strong and provide us a good foundation upon which to execute our strategic plan. As part of our corporate commitment to Trust, Respect, Accountability, Integrity, Teamwork and Sustainability (“TRAITS”), we continue to carefully manage our workforce to ensure a safe and healthy operating environment, while leveraging our operational capacity to match our customers’ demand for our products and services. Previously, we have disclosed a desire for AZZ to become predominately a metal coatings company to drive growth and enhance shareholder value, and believe the actions completed over the past two quarters have delivered upon that commitment.”
Conference Call Details
AZZ Inc. will conduct a live conference call with Tom Ferguson, Chief Executive Officer, and Philip Schlom, Chief Financial Officer to discuss financial results for the second quarter of fiscal year 2023 today, Tuesday, October 11, 2022, at 11:00 A.M. ET. Interested parties can access the conference call by dialing (844) 855-9499 or (412) 317-5497 (international). A webcast of the call will be available on the Company’s Investor Relations page at http://www.azz.com/investor-relations.
A replay of the call will be available at (877) 344-7529 or (412) 317-0088 (international), replay access code: 2145531, through October 18, 2022, or by visiting http://www.azz.com/investor-relations for the next 90 days.
There will be a slide presentation accompanying today’s event. The Company’s slide presentation for the call will be available on the Investor Relations page at http://www.azz.com/investor-relations.
About AZZ Inc.
AZZ Inc. is the leading independent provider of hot-dip galvanizing and a variety of metal coating solutions and coil coating solutions to a broad range of end-markets. AZZ’s Metal Coatings segment (AMC) is a leading provider of metal finishing solutions for corrosion protection, including hot-dip galvanizing, spin galvanizing, powder coating, anodizing and plating, to the North American steel fabrication industry. AZZ’s Precoat Metals segment (APM) is a leading provider of aesthetic and corrosion protective coatings to the North American steel and aluminum coil market. Collectively, our coatings segments provide sustainable, unmatched coating solutions that enhance the longevity and appearance of buildings, products and infrastructure that are essential to everyday life.
Safe Harbor Statement
Certain statements herein about our expectations of future events or results constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Such forward-looking statements are based on currently available competitive, financial and economic data and management’s views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. Certain factors could affect the outcome of the matters described herein. This press release may contain forward-looking statements that involve risks and uncertainties including, but not limited to, changes in customer demand for our products and services, including demand by the power generation markets, electrical transmission and distribution markets, the industrial markets, and the metal coatings markets. In addition, within each of the markets we serve, our customers and our operations could potentially continue to be adversely impacted by the ongoing COVID-19 pandemic, including governmental issued mandates regarding the same. We could also experience additional increases in labor costs, components and raw materials, including zinc and natural gas, which are used in our hot-dip galvanizing process; supply-chain vendor delays; customer
requested delays of our products or services; delays in additional acquisition or disposition opportunities; currency exchange rates; availability of experienced management and employees to implement AZZ’s growth strategy; a downturn in market conditions in any industry relating to the products we inventory or sell or the services that we provide; economic volatility or changes in the political stability in the United States and other foreign markets in which we operate; acts of war or terrorism inside the United States or abroad; and other changes in economic and financial conditions. AZZ has provided additional information regarding risks associated with the business in AZZ’s Annual Report on Form 10-K for the fiscal year ended February 28, 2022 and other filings with the Securities and Exchange Commission (“SEC”), available for viewing on AZZ’s website at www.azz.com and on the SEC’s website at www.sec.gov. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. 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.
Company Contact:
David Nark, Senior Vice President of Marketing, Communications and Investor Relations
AZZ Inc.
(817) 810-0095
www.azz.com
Investor Contact:
Joe Dorame, Managing Partner
Lytham Partners
(602) 889-9700
www.lythampartners.com
---Financial tables on the following page---
| AZZ Inc. | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Condensed Consolidated Statements of Income | ||||||||||||||
| (dollars and shares in thousands, except per share data) | ||||||||||||||
| (unaudited) | ||||||||||||||
| Three Months Ended August 31, | Six Months Ended August 31, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Sales | 406,710 | 131,434 | 613,844 | 260,650 | ||||||||||
| Cost of sales | 305,155 | 94,991 | 452,236 | 188,062 | ||||||||||
| Gross margin | 101,555 | 36,443 | 161,608 | 72,588 | ||||||||||
| Selling, general and administrative | 37,414 | 16,481 | 69,558 | 31,200 | ||||||||||
| Operating income from continuing operations | 64,141 | 19,962 | 92,050 | 41,388 | ||||||||||
| Interest expense | 28,144 | 1,731 | 35,615 | 3,391 | ||||||||||
| Other (income) expense, net | 55 | 45 | 28 | (15) | ||||||||||
| Income from continuing operations before income taxes | 35,942 | 18,186 | 56,407 | 38,012 | ||||||||||
| Income tax expense | 10,822 | 3,918 | 15,922 | 12,131 | ||||||||||
| Net income from continuing operations | 25,120 | 14,268 | 40,485 | 25,881 | ||||||||||
| Income from discontinued operations, net of tax | 6,737 | 4,710 | 15,449 | 15,434 | ||||||||||
| Estimated loss on disposal of discontinued operations, net of tax | (89,427) | — | (89,427) | — | ||||||||||
| Net income (loss) from discontinued operations | (82,690) | 4,710 | (73,978) | 15,434 | ||||||||||
| Net income (loss) | (57,570) | 18,978 | (33,493) | 41,315 | ||||||||||
| Accrued dividends on preferred stock | (1,040) | — | (1,040) | — | ||||||||||
| Net income (loss) available to common shareholders | $ | (58,610) | $ | 18,978 | $ | (34,533) | $ | 41,315 | ||||||
| Earnings per common share from continuing operations | ||||||||||||||
| Basic | $ | 0.97 | $ | 0.57 | $ | 1.59 | $ | 1.04 | ||||||
| Diluted | $ | 0.93 | $ | 0.57 | $ | 1.57 | $ | 1.03 | ||||||
| Earnings per common share from discontinued operations | ||||||||||||||
| Basic earnings (loss) per share | $ | (3.33) | $ | 0.19 | $ | (2.99) | $ | 0.62 | ||||||
| Diluted earnings (loss) per share | $ | (2.85) | $ | 0.19 | $ | (2.70) | $ | 0.61 | ||||||
| Earnings per common share from consolidated operations | ||||||||||||||
| Basic earnings (loss) per share | $ | (2.36) | $ | 0.76 | $ | (1.39) | $ | 1.65 | ||||||
| Diluted earnings (loss) per share | $ | (1.91) | $ | 0.76 | $ | (1.13) | $ | 1.64 | ||||||
| Diluted weighted average shares outstanding | 29,059 | 25,135 | 27,428 | 25,216 | ||||||||||
| AZZ Inc. | ||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||
| Segment Reporting | ||||||||||||||
| (dollars in thousands) | ||||||||||||||
| (unaudited) | ||||||||||||||
| Three Months Ended August 31, | Six Months Ended August 31, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Sales: | ||||||||||||||
| Metal Coatings | $ | 165,849 | $ | 131,434 | $ | 329,293 | $ | 260,650 | ||||||
| Precoat Metals | 240,861 | — | 284,551 | — | ||||||||||
| Total sales | $ | 406,710 | $ | 131,434 | $ | 613,844 | $ | 260,650 | ||||||
| Operating income: | ||||||||||||||
| Metal Coatings | $ | 44,996 | $ | 32,047 | $ | 90,266 | $ | 63,961 | ||||||
| Precoat Metals | 36,213 | — | 42,861 | — | ||||||||||
| Corporate | (17,068) | (12,085) | (41,077) | (22,573) | ||||||||||
| Total operating income from continuing operations | $ | 64,141 | $ | 19,962 | $ | 92,050 | $ | 41,388 | AZZ Inc. | |||||
| --- | --- | --- | --- | --- | ||||||||||
| Condensed Consolidated Balance Sheets | ||||||||||||||
| (dollars in thousands) | ||||||||||||||
| (unaudited) | ||||||||||||||
| August 31, 2022 | February 28, 2022 | |||||||||||||
| Assets: | ||||||||||||||
| Current Assets | $ | 443,372 | $ | 184,869 | ||||||||||
| Property, Plant and Equipment, Net | 496,125 | 193,358 | ||||||||||||
| Other assets, net | 1,243,674 | 246,924 | ||||||||||||
| Assets of discontinued operations | 401,576 | 507,876 | ||||||||||||
| Total assets | $ | 2,584,747 | $ | 1,133,027 | ||||||||||
| Liabilities and Shareholders’ Equity: | ||||||||||||||
| Current liabilities | $ | 270,328 | $ | 62,247 | ||||||||||
| Long-term debt due after one year, net | 1,238,170 | 226,484 | ||||||||||||
| Other liabilities | 115,075 | 64,441 | ||||||||||||
| Liabilities of discontinued operations | 101,553 | 112,490 | ||||||||||||
| Shareholders' equity | 859,621 | 667,365 | ||||||||||||
| Total liabilities and shareholders' equity | $ | 2,584,747 | $ | 1,133,027 | ||||||||||
| AZZ Inc. | ||||||||||||||
| --- | --- | --- | --- | --- | ||||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||||||||
| (dollars in thousands) | ||||||||||||||
| (unaudited) | ||||||||||||||
| Six Months Ended August 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Net cash provided by operating activities of continuing operations | $ | 42,011 | $ | 31,258 | ||||||||||
| Net cash used in investing activities of continuing operations | (1,313,120) | (8,163) | ||||||||||||
| Net cash provided by (used in) financing activities of continuing operations | 1,245,096 | (26,348) | ||||||||||||
| Cash provided by discontinued operations | 22,770 | 4,100 | ||||||||||||
| Effect of exchange rate changes on cash | 2,501 | (197) | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | (742) | 650 | ||||||||||||
| Cash and cash equivalents at beginning of period | 15,082 | 14,837 | ||||||||||||
| Cash and cash equivalents at end of period | 14,340 | 15,487 | ||||||||||||
| Less: Cash and cash equivalents from discontinued operations at end of period | (3,000) | (3,000) | ||||||||||||
| Cash and cash equivalents from continuing operations at end of period | $ | 11,340 | $ | 12,487 |
AZZ Inc.
Non-GAAP Disclosure
Adjusted Earnings Measures
(dollars in thousands, except per share data)
(unaudited)
In addition to reporting financial results in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”), the Company has provided adjusted earnings, adjusted earnings per share, Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA (collectively, the “Adjusted Earnings Measures”), which are non-GAAP measures. Management believes that the presentation of these measures provides investors with a greater transparency comparison of operating results across a broad spectrum of companies, which provides a more complete understanding of the Company’s financial performance, competitive position, and prospects for the future. Management also believes that investors regularly rely on non-GAAP financial measures, such as adjusted operating income, adjusted earnings and adjusted earnings per share, to assess operating performance and that such measures may highlight trends in the Company’s business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP.
In the second quarter of fiscal 2021, the Company developed and began the implementation of a plan to divest certain non-core businesses and later, divested several non-core businesses. During the three and six months ended August 31, 2022, the Company did not recognize any restructuring and impairment charges. The following tables provides a reconciliation for the three and six months ended August 31, 2022 and 2021 between the various measures calculated in accordance with GAAP to the Adjusted Earnings Measures (dollars in thousands, except per share data):
| Three Months Ended | Six Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| August 31, 2022 | August 31, 2022 | |||||||
| Amount | Per<br><br>Diluted Share(1) | Amount | Per<br><br>Diluted Share(1) | |||||
| Net income (loss) available to common shareholders and diluted earnings per share | $ | (58,610) | $ | (34,533) | ||||
| Impact of after-tax interest expense for Convertible Notes | 2,006 | 2,554 | ||||||
| Impact of Preferred share dividends | 1,040 | $ | 1,040 | |||||
| Net income for diluted earnings per share | $ | (55,564) | (1.91) | $ | (30,939) | (1.13) | ||
| Adjustments: | ||||||||
| Acquisition and transaction related expenditures(2) | 2,706 | 0.09 | 15,236 | 0.56 | ||||
| Estimated loss on discontinued operations | 114,900 | 3.95 | 114,900 | 4.19 | ||||
| Subtotal | 117,606 | 4.05 | 130,136 | 4.74 | ||||
| Tax benefit(3) | (26,122) | (0.90) | (29,130) | (1.06) | ||||
| Total adjustments | 91,484 | 3.15 | 101,006 | 3.68 | ||||
| Adjusted earnings and adjusted earnings per share | $ | 35,920 | $ | 1.24 | $ | 70,067 | $ | 2.55 |
| (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 AZZ Infrastructure Solutions business. | ||||||||
| (3) Tax benefit consists of 21% federal statutory rate and 3% blended state tax rate for acquisition and transaction related expenditures and depreciation and amortization, and 22.2% for Estimated loss on discontinued operations. | ||||||||
| Three Months Ended | Six Months Ended | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| August 31, | August 31, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Net income (loss) | $ | (57,570) | $ | 18,978 | $ | (33,493) | $ | 41,315 |
| Interest Expense | 28,148 | 1,755 | 35,621 | 3,451 | ||||
| Income Tax (Benefit) Expense | (12,712) | 4,878 | (5,150) | 12,525 | ||||
| Depreciation and Amortization | 25,004 | 11,000 | 40,123 | 22,083 | ||||
| Total Adjustments | 40,440 | 17,633 | 70,594 | 38,059 | ||||
| Non-GAAP EBITDA | (17,130) | 36,611 | 37,101 | 79,374 | ||||
| Acquisition and transaction-related expenditures | 2,706 | — | 15,332 | — | ||||
| Estimated loss on disposal of discontinued operations | 114,900 | — | 114,900 | — | ||||
| Adjusted EBITDA | $ | 100,476 | $ | 36,611 | $ | 167,333 | $ | 79,374 |
q2_fy2023xearningsxdeckx
AZZ Inc. Q2 FY2023 Earnings Release Presentation October 11, 2022
Q2 FY2023 EARNINGS PRESENTATION Safe Harbor Statement 2 Certain statements herein about our expectations of future events or results constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995, including the statements regarding our strategic and financial initiatives. You can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Such forward-looking statements are based on currently available competitive, financial and economic data and management’s views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. Certain factors could affect the outcome of the matters described herein. This presentation may contain forward-looking statements that involve risks and uncertainties including, but not limited to, changes in customer demand for our products and services, including demand by the power generation markets, electrical transmission and distribution markets, the industrial markets, and the metal coatings markets. In addition, within each of the markets we serve, our customers and our operations could potentially continue to be adversely impacted by the ongoing COVID-19 pandemic, including governmental mandates regarding the same. We also continue to experience additional increases in labor costs, components, and raw materials including zinc and natural gas which are used in the hot- dip galvanizing process; supply-chain vendor delays; customer requested delays of our products or services; delays in additional acquisition or disposition opportunities; currency exchange rates; availability of experienced management and employees to implement the Company’s growth strategy; a downturn in market conditions in any industry relating to the products we inventory or sell or the services that we provide; economic volatility or changes in the political stability in the United States and other foreign markets in which we operate; acts of war or terrorism inside the United States or abroad; and other changes in economic and financial conditions. The Company has provided additional information regarding risks associated with the business in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2022 and other filings with the Securities and Exchange Commission (“SEC”), available for viewing on the Company’s website at www.azz.com and on the SEC’s website at www.sec.gov. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. These statements are based on information as of the date hereof and the Company’s assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Q2 FY2023 EARNINGS PRESENTATION In addition to reporting financial results in accordance with Generally Accepted Accounting Principles in the United States ("GAAP"), AZZ has provided EBITDA and Adjusted EBITDA, which are non-GAAP measures. Management believes that the presentation of these measures provides investors with a greater transparency comparison of operating results across a broad spectrum of companies, which provides a more complete understanding of AZZ’s financial performance given the influx of merger and acquisition and divestiture activities, competitive position and prospects for the future. Management also believes that investors regularly rely on non-GAAP financial measures, such as EBITDA and Adjusted EBITDA, to assess operating performance and that such measures may highlight trends in the Company’s business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. Non-GAAP Disclosure of EBITDA 3
Q2 FY2023 EARNINGS PRESENTATION Company Highlights AZZ Metal Coatings had another outstanding quarter, including record Sales of $166 million AZZ Precoat Metals completed its first full quarter as part of AZZ with sales of $241 million AZZ Infrastructure Solutions is now reported as discontinued operations Subsequent Events Completed the divestiture a 60% majority stake in the Infrastructure Solutions Segment(1) receiving cash of $228 million on September 30, 2022 $210 million immediately applied to reduce Term Loan B debt; $15 million applied to the revolving credit facility; and $3 million allotted to working capital Entered into a floating-to-fixed rate swap for $550 million at 4.277%, representing approximately 50% of the remaining Term Loan B debt Finalized Precoat acquisition working capital peg, realizing $15.8 million in cash settlement. Proceeds to be used to further reduce borrowings on the Company Revolving Credit Facility 4 (1) Excludes AZZ Crowley Tubing.
Q2 FY2023 EARNINGS PRESENTATION Q2 FY2023 Sales and Segment Market Highlights (excludes AIS) Q2 Fiscal 2023 Consolidated Sales: $407 million Metal Coatings Segment $165.8M AZZ Metal Coatings (AMC) • Total pounds of steel galvanized up 9.7% with almost all served markets providing increased opportunities 5 +26.2% vs. Q2 FY2022 Precoat Metals Segment $240.9M Segment Market Highlights AZZ Precoat Metals (APM) • Record-level sales driven by stable market conditions across most end-markets and Supply Chain Solutions initiatives Both segments effectively managed inflationary pressures and labor constraints while maintaining strong levels of customer service
Q2 FY2023 EARNINGS PRESENTATION Sales Net Income Diluted EPS Q2 Fiscal Year 2023 Summary – AZZ Consolidated Results $131.4 $406.7 FY2022 FY2023 +209.4% • Precoat Metals sales reported for the first full quarter • Strong demand within both AMC and APM drove sales growth • Continued strong operational performance across the Segments • Adjusted Net Income Q2-23 impacted by divestiture related expenditures and AIS sale loss • Improved operational earnings across both Segments • Estimated loss on disposal of discontinued operation ($114.9M), net of tax loss of ($89.4) million • Q2 adjusted EPS includes $3.15 of EPS add-backs (a) +89.3% (a) +63.2% In $millions, except percentages and per share amounts 6 $19.0 -$33.8 $35.9 FY2022 FY2023 FY2023(a) $0.76 -$1.91 $1.24 FY2022 FY2023 FY2023(a) EBITDA (a) +174.4% • Flow through from higher sales, particularly AMC • Includes one-time acquisition and transaction-related costs of $2.7 million and adds back one-time non- cash loss on sale of AIS of $114.9 million $36.6 -$17.1 $100.5 FY2022 FY2023 FY2023 (a) Note: See slide 20 & 21 for reconciliation of GAAP to Non-GAAP
Q2 FY2023 EARNINGS PRESENTATION Q2 FY2023 Segment Results – Metal Coatings • Strong total segment sales growth during the quarter, driven by galvanizing volumes up 9.7%, and organic growth of 21% • Operating margins of 27.1% for the current quarter were a result of strong operational execution, price, and mix of products galvanized, and includes approximately $5.1 million in insurance settlements and gain on sale of land • Increased costs in Galvanizing (zinc, labor, acid, energy) continued to be offset by operating efficiencies, productivity and value pricing • Outlook for the 2nd half of the year remains good but with normal winter impact on construction activity as well as rising zinc costs in our kettles In millions $ except percentages Sales $131.4 $165.8 FY2022 FY2023 +26% Operating Income +40%Key Statistics FY2022 Sales Organic Acquisitions FY2023 Sales $131.4 $165.8 $7.0 $158.8 AZZ Metal Coating Segment (AMC) Summary: 7 $32.0 $45.0 FY2022 FY2023 EBITDA $39.5 $53.0 FY2022 FY2023 +34% 24.4% 27.1% 30.1% 32.0%
Q2 FY2023 EARNINGS PRESENTATION Q2 FY2023 Segment Results – Precoat Metals (acquisition date May 13, 2022) • Record level sales in Q2 • EBITDA Margins slightly lower than expected due to labor shortages/turnover, costs associated with supply-chain challenges, and storm damage in Columbia, South Carolina • Quarterly impact of purchase accounting depreciation and amortization affects operating income by 280 basis points • Higher paint costs, transportation/logistics and other inflationary pressures present some headwinds for 2nd half of year • Expect typical, seasonally-lower volumes in 2nd half of fiscal year as construction activity slows during the winter months In millions $ except percentages Key Statistics AZZ Precoat Metals Segment (APM) Summary: 8 Sales $240.9 FY2023 Operating Income EBITDA $36.2 FY2023 $49.6 FY2023 15.0% FY2022 Sales Organic Acquisitions FY2023 Sales $ 0.0 $240.9 $240.9 $0.0 20.6%
Q2 FY2023 EARNINGS PRESENTATION 9 Q2 FY2023 Consolidated Results In millions, except for EPS and percentages Q2 FY 2023 Q2 FY 2022 % Change vs. Prior Year Sales $406.7 $131.4 209.4% Gross Profit $101.6 $36.4 178.7% Gross Margin 25.0% 27.7% (270)Bps Operating Profit $64.1 $20.0 221.3% Operating Margin 15.8% 15.2% 60bps EBITDA $(17.1) $36.6 (146.8)% Net Income $(58.6) $19.0 (408.8)% Diluted Earnings Per Share $(1.91) $0.76 (351.3)% Diluted Shares Outstanding(1) 29,059 25,135 15.6% (1) – Increase in shares directly attributable to Preferred Equity shares accounted for on the “as converted” method of accounting.
Q2 FY2023 EARNINGS PRESENTATION YTD FY2023 AZZ Consolidated Cash Flow Highlights In millions, except for percentages YTD FY 2023 YTD FY 2022 Cash flows from continuing operations provided from operating activities $42.0 $31.3 Less: Capital Expenditures $(18.7) $(10.6) Free Cash Flow $23.3 $20.6 Net Income available to common shareholders $(34.5) $41.3 Free Cash Flow / Net Income (67.5)% 49.9% Acquisition of Subsidiaries, net of cash acquired $1,298.5 $0.0 Payment of Dividends $(8.4) $(8.5) Share Repurchases $0 $21.2 10
Q2 FY2023 EARNINGS PRESENTATION Capital Allocation Focused on Growth $12.3 $0.0 $0.0 $4.2 Capital Expenditures Acquisitions Share Repurchases Dividends Capital Expenditures Acquisitions Share Repurchases Dividends Q2 2023 Capital Deployment In millions • Safety, Health and Environmental • Productivity and capacity initiatives • General maintenance and sustainability • $8.0M Precoat Metals incremental • Excludes $2.9M of Capex on discontinued operations • Focused on APM integration • Portfolio of targets • No share repurchases in the quarter • Focus remains on reducing existing debt and leverage • Approved second quarter FY2023 dividend Gr ow th Sh ar eh ol de r R et ur n 11
Q2 FY2023 EARNINGS PRESENTATION 12 2.4x 1.7x 0.9x 1.5x 1.5x 4.2x 4.3x 3.6 Max Leverage 6.25x 0.0x 1.5x 3.0x 4.5x 6.0x 7.5x 2018 2019 2020 2021 2022 Pro Forma Leverage Qtr 1 FY2023 Qtr 2 FY2023 5.0x 4.3x 5.0x Note: 6.25X represents Max Leverage Covenant in debt agreement. Q2 Fiscal Year 2023 – Debt Compliance / Net Leverage (1) – Current quarter leverage ratio excludes the impact from the reduction of debt from cash received on sale of 60% interest in AIS JV. (1)
Key Indicators And Financial Guidance 13
Q2 FY2023 EARNINGS PRESENTATION 14 Metal Coatings Segment Market activity remains normal as we enter the seasonally slower winter months Fabrication activity remains solid for Q3; some customers experiencing labor shortages Zinc costs in our kettles continue to increase and will not peak until late this fiscal year Precoat Metals Segment Market activity remains normal as we enter the seasonally slower winter months Continue to realize growth through our Supply Chain Solutions initiatives, by expanding the market and focusing on new markets Inflationary pressures, higher logistical costs and lower scrap values offset by pricing Corporate Continue to monitor cash flow, customer credit, expenses and ensure effective capital deployment Key Indicators All businesses are battling labor shortages and supply chain constraints, while finding ways to achieve plans and keep customers satisfied
Q2 FY2023 EARNINGS PRESENTATION Fiscal Year 2023 – Financial Guidance • We are not issuing Full Year guidance at this time due to the recently completed transactions o Precoat Metals acquisition, which closed on May 13, 2022 o The recent divestiture of 60% stake in AIS which closed on September 30, 2022 15
Q2 FY2023 EARNINGS PRESENTATION AZZ has taken the actions necessary to become a ‘pure play’ metal coatings leader in North America Our focus is on expanding our leading market positions in both AZZ Metal Coatings as well as recently acquired AZZ Precoat Metals to position the Company to remain the leader in the pre- and post-fabrication metal coatings markets In the shorter term our focus is on seamlessly onboarding Precoat Metals and paying down debt We have reduced risk associated with debt by entering floating to fixed interest rate swaps for $550 million of our $1.3 billion Term Loan B (under $1.1 billion with reduction in term loan on September 30, 2022) Strategic Direction 16
Q&A
Reg “G” Tables
Q2 FY2023 EARNINGS PRESENTATION Non-GAAP Disclosure of Consolidated EBITDA 19 In millions Consolidated Q2 FY 23 Consolidated Q2 FY 22 Consolidated YTD FY 23 Consolidated YTD FY 22 GAAP Net Income $(57.8) $19.0 $(33.5) $41.3 Adjustments to reconcile GAAP to non- GAAP Financial Measures: Interest Expense 28.1 1.8 35.6 3.5 Income Tax Expense(1) (12.7) 4.9 (5.2) 12.5 Depreciation and Amortization Expense(1) 25.0 11.0 40.1 22.1 Total GAAP adjustments $40.4 $17.6 $70.6 $38.1 Non-GAAP EBITDA (2) $(17.1) $36.6 $(37.1) $79.4 Acquisition Costs 2.7 0.0 15.3 0.0 Estimated Loss on Discontinued Operations 114.9 0.0 114.9 0.0 Adjusted EBITDA $100.5 $36.6 $167.3 $79.4 (1) – Income tax expense and depreciation and amortization amounts include both continuing and discontinued operations. (2)- Refer to slide 7 for detailed walk-forward and summary of the expenditures incurred for acquisition and transaction-related activities for the current quarter.
Q2 FY2023 EARNINGS PRESENTATION Non-GAAP Segment Disclosure from Continuing Operations (Metal Coatings and Precoat Metals) 20 In millions Consolidated Q2 FY 23 Consolidated Q2 FY 22 Consolidated YTD FY 23 Consolidated YTD FY 22 GAAP Net Income $25.1 $14.3 $40.5 $25.9 Adjustments to reconcile GAAP to non- GAAP Financial Measures: Interest Expense 28.1 1.7 35.6 3.4 Income Tax Expense 10.8 3.9 15.9 12.1 Depreciation and Amortization Expense 22.0 7.9 33.9 15.9 Total GAAP adjustments $60.9 $13.5 $85.4 $31.4 Non-GAAP EBITDA (1) $86.0 $27.8 $125.9 $57.3
Q2 FY2023 EARNINGS PRESENTATION 21 In millions Consolidated Q2 FY 23 Consolidated Q2 FY 22 Consolidated YTD FY 23 Consolidated YTD FY 22 GAAP Net Income $(82.7) $4.7 $(74.0) $15.4 Adjustments to reconcile GAAP to non- GAAP Financial Measures: Interest Expense .005 .023 .006 .061 Income Tax Expense (23.5) 1.0 (21.0) 0.4 Depreciation and Amortization Expense 3.1 3.1 6.2 6.2 Total GAAP adjustments $(20.4) $4.1 $14.8 $6.6 Non-GAAP EBITDA (1) $(103.1) $8.8 $(88.8) $22.1 Non-GAAP Segment Disclosure from Discontinued Operations (Infrastructure Solutions)
Appendix
Q2 FY2023 EARNINGS PRESENTATION 23 Q2-2023 Earnings Per Share (EPS) Walk(1) -$1.91 $1.24 $0.09 $0.90 EPS, as reported Loss on Sale Transaction Costs Tax Impact EPS, as adjusted $3.95 (1) – Earnings per share amounts included in the chart above may not sum due to rounding differences.
Q2 FY2023 EARNINGS PRESENTATION Q2 FY2023 Segment Results – Infrastructure Solutions Segment (AIS) • AIS performed well in the quarter, with sales up in both Electrical and WSI platforms • Backlog increased year-over-year by $128.7M, or 63.9% • WSI had higher sales, as compared to the same quarter prior year, and completed a number of key projects both in the U.S. and globally • Subsequent event – completed the divestiture of 60% of AIS through Joint Venture arrangement to Fernweh Group on September 30, 2022 In millions $ except percentages Sales $85.0 $106.7 FY2022 FY2023 +25.5% Operating Income Key Statistics AZZ Infrastructure Solutions Segment (AIS) Summary: 24 $6.7 -$102.8 FY2022 FY2023 EBITDA $13.1 -$72.4 FY2022 FY2023 FY2022 Book to Sales 1.18 to 1 FY2023 Book to Sales 1.22 to 1 FY 2022 Sales $85.0 FY2023 Sales $106.7 (1) – Adjusted operating income, excluding the loss on sale of the AIS JV, would have been $12.1 million, $5.4 million and 80.6% improved from the prior year 2nd quarter on stronger backlog dollars and margins within the backlog. (1)