Azz Inc 10-Q for FY2023 Q2

Azz Inc (AZZ)

10-Q 2022-10-11 For: 2022-08-31

Added on April 04, 2026

About this 10-Q

Azz Inc filed this 10-Q on October 11, 2022, covering the quarter ended August 31, 2022 (FY2023 Q2).

Headline figures

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

Revenue: $406.71M; up 209.4% from $131.43M a year earlier
Net loss: $57.57M; compared with net income of $18.98M a year earlier
Diluted EPS: -$1.91; compared with $0.76 a year earlier

Search and read filings like this one from Claude or ChatGPT with the SEC filings MCP server →


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 Shareholders’ Equity	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38

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

	SIGNATURES	41


	August 31, 2022		February 28, 2022
Assets
Current assets:
Cash and cash equivalents	$	11,340	$	12,082
Accounts receivable (net of allowance for credit losses of $5,801 as of August 31, 2022 and $4,716 as of February 28, 2022)	193,647		85,106
Inventories:
Raw material	137,841		81,022
Work-in-process	1,716		840
Finished goods	2,887		1,135
Contract assets	82,897		2,866
Prepaid expenses and other	13,044		1,583
Assets held for sale	—		235
Current assets of discontinued operations	215,068		201,664
Total current assets	658,440		386,533
Property, plant and equipment, net	496,125		193,358
Right-of-use assets	25,550		13,954
Goodwill	736,218		190,391
Intangibles and other assets, net	478,284		39,115
Deferred tax assets	3,622		3,464
Non-current assets of discontinued operations	186,508		306,212
Total assets	$	2,584,747	$	1,133,027
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	158,085	$	24,840
Income tax payable	11,135		3,828
Accrued salaries and wages	27,294		17,123
Accrued dividends	1,040		—
Other accrued liabilities	52,512		12,873
Customer deposits	323		294
Contract liabilities	1,553		—
Lease liability, short-term	5,386		3,289
Debt due within one year	13,000		—
Current liabilities of discontinued operations	79,932		88,283

Total current liabilities	350,260		150,530
Debt due after one year, net	1,238,170		226,484
Lease liability, long-term	20,941		11,403
Deferred income taxes	29,044		47,672
Other long-term liabilities	65,090		5,366
Long-term liabilities of discontinued operations	21,621		24,207
Total liabilities	1,725,126		465,662
Commitments and contingencies
Shareholders’ equity:
Series A Convertible Preferred Stock, $1 par, shares authorized 240; 240 shares issued and outstanding at August 31, 2022 and 0 shares issued and outstanding at February 28, 2022	240		—
Common stock, $1 par, shares authorized 100,000; 24,862 shares issued and outstanding at August 31, 2022 and 24,688 shares issued and outstanding at February 28, 2022	24,862		24,688
Capital in excess of par value	323,386		85,847
Retained earnings	541,203		584,154
Accumulated other comprehensive loss	(30,070)		(27,324)
Total shareholders’ equity	859,621		667,365
Total liabilities and shareholders' equity	$	2,584,747	$	1,133,027


	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 earnings per share	$	0.97	$	0.57	$	1.59	$	1.04
Diluted earnings per share	$	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

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


	Three Months Ended August 31,				Six Months Ended August 31,
	2022		2021		2022		2021
Net income (loss) available to common shareholders	$	(58,610)	$	18,978	$	(34,533)	$	41,315
Other comprehensive income:
Unrealized translation loss	(3,370)		(3,096)		(2,746)		(515)

Other comprehensive loss	(3,370)		(3,096)		(2,746)		(515)
Comprehensive income (loss)	$	(61,980)	$	15,882	$	(37,279)	$	40,800


☒			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


Supplemental disclosures of non-cash investing and financing activities
Cash paid for interest	$	3,442	$	3,304
Cash paid for income taxes	$	10,065	$	14,360
Issuance of preferred stock in exchange for convertible notes	$	233,722	$	—
Accrued dividends on Series A Preferred Stock	$	1,040	$	—


	Three Months Ended August 31, 2022
	Series A Preferred Stock			Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total

	Shares	Amount		Shares	Amount
Balance at May 31, 2022	—	$	—	24,788	$	24,788	$	85,432	$	604,039	$	(26,700)	$	687,559
Share-based compensation	—	—		—	—		2,772		—		—		2,772
Issuance of Series A convertible preferred stock in exchange for convertible debt	240	240		—	—		233,482		—		—		233,722
Common stock issued under stock-based plans and related income tax expense	—	—		22	22		(14)		—		—		8
Common stock issued under employee stock purchase plan	—	—		52	52		1,714		—		—		1,766

Accrued dividends on preferred stock	—	—		—	—		—		(1,040)		—		(1,040)
Cash dividends paid	—	—		—	—		—		(4,226)		—		(4,226)
Net income (loss)	—	—		—	—		—		(57,570)		—		(57,570)
Foreign currency translation	—	—		—	—		—		—		(3,370)		(3,370)

Balance at August 31, 2022	240	$	240	24,862	$	24,862	$	323,386	$	541,203	$	(30,070)	$	859,621


	Six Months Ended August 31, 2022
	Series A Preferred Stock			Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total

	Shares	Amount		Shares	Amount
Balance at February 28, 2022	—	$	—	24,688	$	24,688	$	85,847	$	584,154	$	(27,324)	$	667,365
Share-based compensation	—	—		—	—		4,770		—		—		4,770
Issuance of Series A convertible preferred stock in exchange for convertible debt	240	240		—	—		233,482		—		—		233,722
Common stock issued under stock-based plans and related income tax expense	—	—		122	122		(2,428)		—		—		(2,306)
Common stock issued under employee stock purchase plan	—	—		52	52		1,715		—		—		1,767

Accrued dividends on preferred stock	—	—		—	—		—		(1,040)		—		(1,040)
Cash dividends paid	—	—		—	—		—		(8,418)		—		(8,418)
Net income (loss)	—	—		—	—		—		(33,493)		—		(33,493)
Foreign currency translation	—	—		—	—		—		—		(2,746)		(2,746)

Balance at August 31, 2022	240	$	240	24,862	$	24,862	$	323,386	$	541,203	$	(30,070)	$	859,621


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

	Shares	Amount		Shares	Amount
Balance at May 31, 2021	—	$	—	25,071	$	25,071	$	75,600	$	559,173	$	(22,433)	$	637,411
Share-based compensation	—	—		—	—		2,871		—		—		2,871

Common stock issued under stock-based plans and related income tax expense	—	—		18	18		(66)		—		—		(48)
Common stock issued under employee stock purchase plan	—	—		41	41		1,503		—		—		1,544
Repurchase and retirement of treasury shares	—	—		(290)	(290)		—		(14,679)		—		(14,969)

Cash dividends paid	—	—		—	—		—		(4,265)		—		(4,265)
Net income	—	—		—	—		—		18,978		—		18,978
Foreign currency translation	—	—		—	—		—		—		(3,096)		(3,096)

Balance at August 31, 2021	—	$	—	24,840	$	24,840	$	79,908	$	559,207	$	(25,529)	$	638,426


	Six Months Ended August 31, 2021
	Series A Preferred Stock			Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total

	Shares	Amount		Shares	Amount
Balance at February 28, 2021	—	$	—	25,108	$	25,108	$	75,979	$	547,289	$	(25,084)	$	623,292
Share-based compensation	—	—		—	—		4,682		—		—		4,682

Common stock issued under stock-based plans and related income tax expense	—	—		107	107		(2,256)		—		—		(2,149)
Common stock issued under employee stock purchase plan	—	—		41	41		1,503		—		—		1,544
Repurchase and retirement of treasury shares	—	—		(416)	(416)		—		(20,817)		—		(21,233)

Cash dividends paid	—	—		—	—		—		(8,510)		—		(8,510)
Net income	—	—		—	—		—		41,315		—		41,315
Foreign currency translation	—	—		—	—		—		(70)		(445)		(515)

Balance at August 31, 2021	—	$	—	24,840	$	24,840	$	79,908	$	559,207	$	(25,529)	$	638,426


	May 13, 2022
Assets

Accounts receivable	$	77,422
Inventories	43,369
Contract assets	70,731
Prepaid expenses and other	2,245
Property, plant and equipment	306,953
Right-of-use asset	10,954
Goodwill	547,894
Intangibles and other assets	446,746
Total fair value of assets acquired	$	1,506,314
Liabilities
Accounts payable	$	(99,223)
Accrued expenses	(31,781)
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	(56,711)
Total fair value of liabilities assumed	(207,084)
Total Purchase Price, net of cash acquired	$	1,299,230


	August 31, 2022		February 28, 2022
Total assets:
Metal Coatings	$	594,116	$	578,885
Precoat Metals	1,528,250		—
Corporate	60,805		46,266
Discontinued operations:
Infrastructure Solutions	401,576		507,876
Total	$	2,584,747	$	1,133,027


	August 31, 2022		February 28, 2022
Property, plant and equipment, net:
United States	$	472,001	$	167,634
Canada	24,124		25,724

Total	$	496,125	$	193,358


	Three Months Ended August 31,				Six Months Ended August 31,
	2022		2021		2022		2021
Sales:
Construction	$	220,657	$	30,231	$	289,882	$	65,163
Industrial	41,214		28,862		79,182		65,163
Consumer	38,340		—		45,421		—
Transportation	36,825		25,337		69,097		49,524
Electrical/Utility	24,172		15,996		46,452		39,098
Other	45,502		31,008		83,810		41,702
Total sales	$	406,710	$	131,434	$	613,844	$	260,650


	August 31, 2022		February 28, 2022
Weighted-average remaining lease term - operating leases (years)	7.11		7.90
Weighted-average discount rate - operating leases	4.47	%	4.56	%
Weighted-average remaining lease term - financing leases (years)	4.67		4.73
Weighted-average discount rate - financing leases	4.11	%	2.95	%


Fiscal year:	Operating Leases		Finance Leases		Total
2023	$	3,106	$	117	$	3,223
2024	5,940		234		6,174
2025	5,368		234		5,602
2026	4,642		188		4,830
2027	3,789		163		3,952
Thereafter	5,626		118		5,744
Total lease payments	28,471		1,054		29,525
Less imputed interest	(3,100)		(98)		(3,198)
Total	$	25,371	$	956	$	26,327


	August 31, 2022		February 28, 2022
Revolving Credit Facility	$	27,000	$	77,000
2020 Senior Notes	—		150,000
Term Loan B	1,296,750		—

Total debt, gross	1,323,750		227,000
Unamortized debt issuance costs	(72,580)		(516)
Total debt, net	1,251,170		226,484
Less amount due within one year	(13,000)		—
Total debt due after one year, net	$	1,238,170	$	226,484


Balance Sheet	Classification	August 31, 2022		February 28, 2022
Assets
Right-of-use assets	Right-of-use assets	$	25,550	$	13,954
Liabilities
Operating lease liabilities ― ST	Lease liability - short-term	5,186		3,131
Operating lease liabilities ― LT	Lease liability - long-term	20,185		10,798
Finance lease liabilities ― ST	Lease liability - short-term	200		158
Finance lease liabilities ― LT	Lease liability - long-term	756		605


	Three Months Ended				Six Months Ended
	August 31, 2022				August 31, 2022
	Amount		Per Diluted Share(1)		Amount		Per 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 disposal of 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 disposal of 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


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 Current Report on Form 8-K filed by the Registrant on June 27, 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.

101.INS+						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH+						Inline XBRL Taxonomy Extension Schema Document

101.CAL+						Inline XBRL Taxonomy Extension Calculation Linkbase Document


101.DEF+						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB+						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE+						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104+						Cover Page Interactive Date File (embedded with the Inline XBRL document).


Dated:	October 11, 2022	/s/ Thomas E. Ferguson
		Thomas E. Ferguson
		President and Chief Executive Officer


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