Azz Inc 10-Q for FY2024 Q3

Azz Inc (AZZ)

10-Q 2024-01-09 For: 2023-11-30

Added on April 04, 2026

About this 10-Q

Azz Inc filed this 10-Q on January 9, 2024, covering the quarter ended November 30, 2023 (FY2024 Q3).

Headline figures

Quarter ended November 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $381.61M; up 2.2% from $373.3M a year earlier
Net income: $26.89M; compared with a net loss of $20.54M a year earlier
Diluted EPS: $0.92; compared with -$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	43
Item 4.	Controls and Procedures	43

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 5	Other Information	44
Item 6.	Exhibits	45

	SIGNATURES	46


	As of
	November 30, 2023		February 28, 2023

Assets
Current assets:
Cash and cash equivalents	$	7,509	$	2,820
Trade accounts receivable, net of allowance for credit losses of $2,096 and $5,752 at November 30, 2023 and February 28, 2023, respectively	142,463		156,443
Other receivables	31,005		26,969
Inventories	126,737		143,920
Contract assets	75,719		79,273
Prepaid expenses and other	9,295		7,991


Total current assets	392,728		417,416
Property, plant and equipment, net	525,338		498,503
Right-of-use assets	22,830		26,392
Goodwill	705,487		702,512
Deferred tax assets	5,820		12,467
Intangible assets, net	451,289		469,392
Investment in joint venture	97,238		84,760
Other assets	8,026		10,037

Total assets	$	2,208,756	$	2,221,479
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	95,158	$	84,256
Income tax payable	45		272
Accrued salaries and wages	25,868		26,262
Other accrued liabilities	72,476		70,047
Lease liability, short-term	6,453		6,403


Total current liabilities	200,000		187,240
Long-term debt, net	980,004		1,058,120
Lease liability, long-term	17,112		20,704
Deferred tax liabilities	33,370		40,536
Other long-term liabilities	57,120		61,419

Total liabilities	1,287,606		1,368,019
Commitments and contingencies (Note 17)
Shareholders’ equity:
Series A Convertible Preferred Stock, $1 par, shares authorized 240; 240 shares issued and outstanding at November 30, 2023 and February 28, 2023	240		240
Common Stock, $1 par value; 100,000 shares authorized; 25,077 and 24,912 shares issued and outstanding at November 30, 2023 and February 28, 2023, respectively	25,077		24,912
Capital in excess of par value	333,555		326,839
Retained earnings	566,235		506,042
Accumulated other comprehensive loss	(3,957)		(4,573)
Total shareholders’ equity	921,150		853,460
Total liabilities and shareholders' equity	$	2,208,756	$	2,221,479


	Three Months Ended November 30,				Nine Months Ended November 30,
	2023		2022		2023		2022
Sales	$	381,605	$	373,301	$	1,171,020	$	987,145
Cost of sales	293,456		300,219		888,606		752,455
Gross margin	88,149		73,082		282,414		234,690

Selling, general and administrative	35,325		27,689		103,087		97,247

Operating income	52,824		45,393		179,327		137,443

Interest expense	25,855		26,123		82,331		61,739
Equity in earnings of unconsolidated subsidiaries	(8,742)		(1,006)		(11,136)		(1,006)
Other (income) expense, net	41		(610)		(9)		(582)
Income from continuing operations before income taxes	35,670		20,886		108,141		77,292
Income tax expense	8,780		2,447		24,397		18,380
Net income from continuing operations	26,890		18,439		83,744		58,912
Income from discontinued operations, net of tax	—		1,665		—		17,126
Loss on disposal of discontinued operations, net of tax	—		(40,646)		—		(130,073)
Net loss from discontinued operations	—		(38,981)		—		(112,947)
Net income (loss)	26,890		(20,542)		83,744		(54,035)
Dividends on preferred stock	(3,600)		(3,600)		(10,800)		(4,640)
Net income (loss) available to common shareholders	$	23,290	$	(24,142)	$	72,944	$	(58,675)
Basic earnings (loss) per share
Earnings per common share from continuing operations	$	0.93	$	0.60	$	2.91	$	2.19
Loss per common share from discontinued operations	$	—	$	(1.57)	$	—	$	(4.55)
Earnings (loss) per common share	$	0.93	$	(0.97)	$	2.91	$	(2.37)
Diluted earnings (loss) per share
Earnings per common share from continuing operations	$	0.92	$	0.59	$	2.86	$	2.17
Loss per common share from discontinued operations	$	—	$	(1.56)	$	—	$	(4.52)
Earnings (loss) per common share	$	0.92	$	(0.97)	$	2.86	$	(2.35)

Weighted average shares outstanding - Basic	25,077		24,867		25,024		24,804
Weighted average shares outstanding - Diluted	29,330		24,995		29,278		24,984

Cash dividends declared per common share	$	0.17	$	0.17	$	0.51	$	0.51


	Three Months Ended November 30,				Nine Months Ended November 30,
	2023		2022		2023		2022

Net income (loss) available to common shareholders	$	23,290	$	(24,142)	$	72,944	$	(58,675)
Other comprehensive income (loss):
Unrealized translation gain (loss)	3,029		(5,019)		1,293		(7,765)
Reclassification of foreign currency translation adjustment from accumulated other comprehensive loss to loss on sale of discontinued operations	—		27,750		—		27,750

Unrealized gain (loss) on derivatives qualified for hedge accounting:
Unrealized gain (loss) on interest rate swap, net of tax(1)	(115)		(3,512)		1,867		(3,512)
Amounts reclassified from accumulated other comprehensive income to earnings, net of tax(2)	(1,057)		—		(2,544)		—
Other comprehensive income	1,857		19,219		616		16,473
Comprehensive income (loss)	$	25,147	$	(4,923)	$	73,560	$	(42,202)

(1) Net of tax expense (benefit) of $(42) and $678 for the three and nine months ended November 30, 2023, respectively.
(2) Net of tax benefit of $(384) and $(924) for the three and nine months ended November 30, 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 November 30, 2023
	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 August 31, 2023	240	$	240	25,077	$	25,077	$	331,366	$	547,208	$	(5,814)	$	898,077
Share-based compensation	—	—		—	—		2,189		—		—		2,189




Dividends on preferred stock	—	—		—	—		—		(3,600)		—		(3,600)
Dividends paid on common shares	—	—		—	—		—		(4,263)		—		(4,263)
Net income	—	—		—	—		—		26,890		—		26,890
Other comprehensive income	—	—		—	—		—		—		1,857		1,857
Balance at November 30, 2023	240	$	240	25,077	$	25,077	$	333,555	$	566,235	$	(3,957)	$	921,150


	Nine Months Ended November 30, 2023
	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, 2023	240	$	240	24,912	$	24,912	$	326,839	$	506,042	$	(4,573)	$	853,460
Share-based compensation	—	—		—	—		6,207		—		—		6,207

Common stock issued under stock-based plans and related income tax expense	—	—		123	123		(914)		—		—		(791)
Common stock issued under employee stock purchase plan	—	—		42	42		1,423		—		—		1,465

Dividends on preferred stock	—	—		—	—		—		(10,800)		—		(10,800)
Dividends paid on common shares	—	—		—	—		—		(12,751)		—		(12,751)
Net income	—	—		—	—		—		83,744		—		83,744
Other comprehensive income	—	—		—	—		—		—		616		616
Balance at November 30, 2023	240	$	240	25,077	$	25,077	$	333,555	$	566,235	$	(3,957)	$	921,150


	Three Months Ended November 30, 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 August 31, 2022	240	$	240	24,862	$	24,862	$	323,386	$	541,203	$	(30,070)	$	859,621
Share-based compensation	—	—		—	—		2,348		—		—		2,348

Common stock issued under stock-based plans and related income tax expense	—	—		14	14		(301)		—		—		(287)


Dividends on preferred stock	—	—		—	—		—		(3,600)		—		(3,600)
Dividends paid on common shares	—	—		—	—		—		(4,246)		—		(4,246)
Net income (loss)	—	—		—	—		—		(20,542)		—		(20,542)
Other comprehensive income	—	—		—	—		—		—		19,219		19,219
Balance at November 30, 2022	240	$	240	24,876	$	24,876	$	325,433	$	512,815	$	(10,851)	$	852,513


	Nine Months Ended November 30, 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	—	—		—	—		7,118		—		—		7,118
Issuance of Class 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	—	—		136	136		(2,728)		—		—		(2,592)
Common stock issued under employee stock purchase plan	—	—		52	52		1,714		—		—		1,766

Dividends on preferred stock	—	—		—	—		—		(4,640)		—		(4,640)
Dividends paid on common shares	—	—		—	—		—		(12,664)		—		(12,664)
Net income (loss)	—	—		—	—		—		(54,035)		—		(54,035)
Other comprehensive income	—	—		—	—		—		—		16,473		16,473
Balance at November 30, 2022	240	$	240	24,876	$	24,876	$	325,433	$	512,815	$	(10,851)	$	852,513


	May 13, 2022
Assets

Accounts receivable, net	$	77,422

Inventories	43,369
Contract assets	68,314
Prepaid expenses and other	2,247
Property, plant and equipment	305,503
Right-of-use assets	13,753
Goodwill	527,793
Deferred tax asset	8,660
Intangible assets, net	446,000
Other assets	546
Total fair value of assets acquired	$	1,493,607
Liabilities
Accounts payable	$	(99,223)
Accrued expenses	(31,761)
Other accrued liabilities	(5,330)
Lease liability, short-term	(2,440)
Lease liability, long-term	(11,313)

Other long-term liabilities	(60,091)
Total fair value of liabilities assumed	$	(210,158)
Total purchase price, net of cash acquired	$	1,283,449


	Three Months Ended			Nine Months Ended
		November 30, 2022		November 30, 2022
Sales		$	42,300	$	256,224
Cost of sales		35,020		202,707
Gross margin		7,280		53,517

Selling, general and administrative		4,074		26,186

Loss on disposal of discontinued operations		45,010		159,910
Operating loss from discontinued operations		(41,804)		(132,579)

Interest expense		2		8
Other (income) expense, net		2,002		6,270
Loss from discontinued operations before income tax		(43,808)		(138,857)
Income tax benefit		(4,827)		(25,910)
Net loss from discontinued operations		$	(38,981)	$	(112,947)
Loss per common share from discontinued operations:
Basic loss per share		$	(1.57)	$	(4.55)
Diluted loss per share		$	(1.56)	$	(4.52)


	Nine Months Ended November 30, 2022
Depreciation and amortization	$	7,279
Purchase of property, plant and equipment	4,831
Non-cash loss on disposal of discontinued operations	(159,910)
Gain on sale of property, plant and equipment	486


	Three Months Ended November 30, 2023
	Metal Coatings		Precoat Metals		Infrastructure Solutions(1)		Corporate(2)(3)		Total
Sales	$	163,186	$	218,419	$	—	$	—	$	381,605
Cost of sales	115,952		177,504		—		—		293,456
Gross margin	47,234		40,915		—		—		88,149

Selling, general and administrative	9,392		8,163		290		17,480		35,325

Operating income (loss) from continuing operations	37,842		32,752		(290)		(17,480)		52,824

Interest expense	—		—		—		25,855		25,855
Equity in earnings of unconsolidated subsidiaries	—		—		(8,742)		—		(8,742)
Other expense	29		—		—		12		41
Income (loss) from continuing operations before income tax	$	37,813	$	32,752	$	8,452	(43,347)		35,670
Income tax expense							8,780		8,780
Net income (loss) from continuing operations							$	(52,127)	$	26,890


	Nine Months Ended November 30, 2022
	Metal Coatings		Precoat Metals(4)		Infrastructure Solutions(1)		Corporate(2)(3)		Total
Sales	$	487,567	$	499,578	$	—	$	—	$	987,145
Cost of sales	350,152		402,303		—		—		752,455
Gross margin	137,415		97,275		—		—		234,690

Selling, general and administrative	13,603		33,361		—		50,283		97,247

Operating income (loss) from continuing operations	123,812		63,914		—		(50,283)		137,443

Interest expense	—		—		—		61,739		61,739
Equity in earnings of unconsolidated subsidiaries	—		—		(1,006)		—		(1,006)
Other (income) expense	6		(41)		—		(547)		(582)
Income (loss) from continuing operations before income tax	$	123,806	$	63,955	$	1,006	(111,475)		77,292
Income tax expense							18,380		18,380
Net income (loss) from continuing operations							$	(129,855)	$	58,912

(1) Infrastructure Solutions segment includes the Company’s equity in (earnings) loss from its investment in the AVAIL JV.
(2) Interest expense and Income tax expense are included in the Corporate segment as these items are not allocated to the segments.
(3) For fiscal year 2023, amortization expense for acquired intangible assets is included in Metal Coatings expenses in "Cost of sales" and in Precoat Metals in "Selling, general and administrative" expense.
(4) For the nine months ended November 30, 2022, Precoat Metals segment includes results from May 13, 2022 - November 30, 2022.


Summarized Balance Sheet
	As of
	November 30, 2023(1)
Current assets	$	273,535
Long-term assets	173,312
Total assets	$	446,847
Current liabilities	102,225
Long-term liabilities	132,175
Total liabilities	$	234,400
Total partners' capital	212,447
Total liabilities and partners' capital	$	446,847


	As of
	November 30, 2023		February 28, 2023
Raw material	$	120,761	$	138,227
Work in process	1,587		1,558
Finished goods	4,389		4,135
Total inventories	$	126,737	$	143,920


	Three Months Ended November 30,				Nine Months Ended November 30,
	2023		2022		2023		2022
Sales:
Construction	$	214,081	$	205,316	$	637,035	$	493,573
Industrial	35,489		37,330		118,273		118,457
Consumer	29,384		29,864		99,537		78,972
Transportation	35,871		33,597		107,734		98,715
Electrical/Utility	24,804		26,131		76,116		69,100
Other (1)	41,976		41,063		132,325		128,328
Total Sales	$	381,605	$	373,301	$	1,171,020	$	987,145

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


	Carrying Value								Carrying Value
	November 30,		Fair Value Measurements Using						February 28,		Fair Value Measurements Using
	2023		Level 1		Level 2		Level 3		2023		Level 1		Level 2		Level 3
Assets (Liabilities):
Interest Rate Swap Agreement	$	2,975	$	—	$	2,975	$	—	$	3,925	$	—	$	3,925	$	—
Total Assets	$	2,975							$	3,925


	As of
	November 30, 2023		February 28, 2023
Weighted-average remaining lease term - operating leases	4.29 years		5.04 years
Weighted-average discount rate - operating leases	4.44	%	4.31	%
Weighted-average remaining lease term - financing leases	4.25 years		4.61 years
Weighted-average discount rate - financing leases	5.66	%	5.15	%


Summarized Operating Data
	Three Months Ended November 30, 2023(1)		Nine Months Ended November 30, 2023(1)
Sales	$	127,156	$	346,493
Gross profit	36,150		87,013
Net income	13,139		21,969

(1) The Company reports on a one-month lag basis; therefore, amounts in the summarized financials above are as of and for the three and nine months ended October 31, 2023. Amounts in the table above exclude certain adjustments made by the Company to record equity in earnings of the AVAIL JV, primarily related to goodwill amortization.


	Balance Sheet Classification	As of
		November 30, 2023		February 28, 2023
Assets
Right-of-use assets	Right-of-use assets	$	22,830	$	26,392
Liabilities
Operating lease liabilities ― short-term	Lease liability - short-term	$	5,999	$	6,119
Operating lease liabilities ― long-term	Lease liability - long-term	15,732		19,659
Finance lease liabilities ― short-term	Lease liability - short-term	454		284
Finance lease liabilities ― long-term	Lease liability - long-term	1,380		1,045


Fiscal year:	Operating Leases		Finance Leases		Total
2024	$	1,787	$	136	$	1,923
2025	6,532		536		7,068
2026	5,583		459		6,042
2027	4,410		423		4,833
2028	2,441		349		2,790
2029	1,871		138		2,009
Thereafter	1,252		24		1,276
Total lease payments	$	23,876	$	2,065	$	25,941
Less imputed interest	(2,145)		(231)		(2,376)
Total	$	21,731	$	1,834	$	23,565


10.1						Second Amendment to Credit Agreement, dated as of December 20, 2023, 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 December 21, 2023)
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:	January 9, 2024	/s/ Thomas E. Ferguson
		Thomas E. Ferguson
		President and Chief Executive Officer


Dated:	January 9, 2024	/s/ Philip A. Schlom
		Philip A. Schlom
		Chief Financial Officer