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
January 9, 2023
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 January 9, 2023, AZZ Inc. ("AZZ") issued a press release reporting AZZ’s third quarter financial results for the period ended November 30, 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 January 9, 2023, 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 thethirdquarter of fiscal year 2023, endedNovember30, 2022. |
| 99.2 | Investor Presentation, dated January 9, 2023 |
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: | January 9, 2023 | By: | /s/ Philip A. Schlom |
| Philip A. Schlom <br>Chief Financial Officer |
Document
AZZ Inc. Announces Fiscal Year 2023 Third Quarter Results
Third Quarter Sales Growth Reflects Continued Solid Demand
Robust Cash Flow Generation Has Reduced Net Leverage by 0.9x
Raising FY2023 Adjusted EPS Guidance Range to $4.05 - $4.25
January 9, 2023 - 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 third quarter ended November 30, 2022.
Third quarter notable highlights:
◦Sales of $373.3 million from continuing operations; Excludes one month of AIS sales totaling $42.3 million, classified as discontinued operations
◦Strong third quarter sales performance across both segments with Metal Coatings up 17.2% and Precoat Metals up 14.8% on a comparable basis
◦Consolidated Adjusted EPS of $0.88; Reported Diluted EPS of $(0.97) includes non-cash write down related to previously announced AIS divestiture
◦Adjusted EBITDA of $71.2 million or 19.1% of sales for the quarter
◦Net income from continuing operations of $18.4 million compared to $13.1 million in the prior year
◦Raising Fiscal Year 2023 Adjusted EPS guidance to $4.05 - $4.25
◦Reduced debt by $230.3 million
◦Completed divestiture of AIS on September 30, 2022
"We were pleased with our second full quarter as a focused metal coatings business. We delivered strong sales across the Metal Coatings and Precoat Metals segments and completed the divestiture of our majority stake in the Infrastructure Solutions segment resulting in EPS growth from continuing operations of 11.3% in the quarter,” said Tom Ferguson, President and Chief Executive Officer. “These results reflect continued stable customer demand in both segments, the team’s ability to manage the increasing costs of materials and labor, through pricing and operational improvement initiatives, and our focus on providing outstanding value to our customers. As we continue to progress through the seasonally slower second half of the year, our outlook remains positive. We are well positioned to create long-term value for our shareholders.”
Third Quarter Fiscal Year 2023 Segment Review
Metal Coatings Segment
Strong sales of $158.3 million, up 17.2% from the third quarter of the prior year. Improved sales were driven by value pricing initiatives, the impact of fully integrated prior acquisitions, and an increase in volume for hot-dip galvanizing driven by continued strength within the renewables, utility, OEM, and non-residential construction markets.
EBITDA of $41.9 million was up 2.9% versus the third quarter of the prior year. EBITDA margin declined 370 basis points, primarily due to increased zinc, labor, acid, and energy costs in galvanizing, partially offset by increased price, mix and sales volume.
Precoat Metals Segment
Strong sales of $215.0 million, primarily driven by value pricing initiatives and stable volumes from non-residential construction markets and mix.
EBITDA of $34.4 million in line with management's seasonal expectations as higher than normal customer inventories, inflationary pressures and sales mix posed productivity, efficiency, and cost headwinds. We have specific plans in place to address production inefficiencies and are encouraged by the results to date.
Balance Sheet, Liquidity and Capital Allocation
The Company generated year-to-date operating cash flow of $68.6 million through strong earnings and effective management of working capital. A total of $230.3 million of operating cash and proceeds from the sale of AIS were used to pay down debt in the period. At the end of the third quarter, net leverage was 3.4x LTM EBITDA, which improved approximately 0.9x in the six months since closing the Precoat Metals acquisition. Consistent with the capital allocation strategy, the Company returned cash to shareholders through cash dividend payments. Capital expenditures were $18.3 million during the quarter.
Mergers, Acquisitions and Divestitures
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
Mr. Ferguson continued, “Due to the consistent operating performance in our business segments, we are reaffirming our annual sales guidance range of $1.27 billion to $1.32 billion. In addition, we are raising our guidance for adjusted earnings per diluted share for fiscal year 2023 by $0.25 to $4.05 – $4.25 from previously issued guidance of $3.80 – $4.00. Our updated guidance reflects continued strong performance within our segments during the third quarter. Full year guidance reflects the previously communicated seasonally lower fourth quarter, additional interest expense, dividends on our Preferred Stock, and the impact of a normalized forward-looking tax rate. Fourth quarter also excludes any potential impact of equity in earnings on our investment in the AIS JV.”
As we have previously stated, we remain highly focused on executing upon our growth strategy reinforced by our #1 market position in both segments. The underlying fundamentals of our business remain strong and secular growth drivers are in place in key end-markets as we near the end of our seasonally slower period. 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.
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 third quarter of fiscal year 2023 tomorrow, Tuesday, January 10, 2023 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: 9454594, through January 17, 2023, 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 coil coating solutions to a broad range of end-markets. Collectively, our business segments provide sustainable, unmatched metal 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,” ”could,” “should,” “expects,” “plans,” “will,” “might,” “would,” “projects,” “currently,” “intends,” “outlook,” “forecasts,” “targets,” “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. Forward-looking statements speak only as of the date they are made and are subject to risks that could cause them to differ materially from actual results. 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 construction markets, 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 continuing impact of the COVID-19 pandemic, including governmental issued mandates regarding the same in the jurisdictions in which we operate, sell to or from whom we purchase. 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 opportunities; currency exchange rates; adequacy of financing, 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, including a prolonged economic downturn or macroeconomic conditions such as inflation 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 Part I, Item 1A. Risk Factors, 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:
Sandy Martin / Phillip Kupper
Three Part Advisors
(214) 616-2207
www.threepa.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 November 30, | Nine Months Ended November 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Sales | $ | 373,301 | $ | 135,083 | $ | 987,145 | $ | 395,732 |
| Cost of sales | 300,219 | 97,510 | 752,455 | 285,572 | ||||
| Gross margin | 73,082 | 37,573 | 234,690 | 110,160 | ||||
| Selling, general and administrative | 27,689 | 16,283 | 97,247 | 47,483 | ||||
| Operating income from continuing operations | 45,393 | 21,290 | 137,443 | 62,677 | ||||
| Interest expense | 26,123 | 1,627 | 61,739 | 5,017 | ||||
| Equity in (earnings) loss of unconsolidated subsidiaries | (1,006) | — | (1,006) | — | ||||
| Other (income) expense, net | (610) | (91) | (582) | (106) | ||||
| Income from continuing operations before income taxes | 20,886 | 19,754 | 77,292 | 57,766 | ||||
| Income tax expense | 2,447 | 6,647 | 18,380 | 18,778 | ||||
| Net income from continuing operations | 18,439 | 13,107 | 58,912 | 38,988 | ||||
| Income from discontinued operations, net of tax | 1,069 | 7,978 | 17,126 | 23,412 | ||||
| Loss on disposal of discontinued operations, net of tax | (40,050) | — | (130,073) | — | ||||
| Net income (loss) from discontinued operations | (38,981) | 7,978 | (112,947) | 23,412 | ||||
| Net income (loss) | (20,542) | 21,085 | (54,035) | 62,400 | ||||
| Accrued dividends on preferred stock | (3,600) | — | (4,640) | — | ||||
| Net income (loss) available to common shareholders | $ | (24,142) | $ | 21,085 | $ | (58,675) | $ | 62,400 |
| Earnings per common share from continuing operations | ||||||||
| Basic earnings per share | $ | 0.60 | $ | 0.53 | $ | 2.19 | $ | 1.57 |
| Diluted earnings per share | $ | 0.59 | $ | 0.53 | $ | 2.17 | $ | 1.55 |
| Earnings per common share from discontinued operations | ||||||||
| Basic earnings (loss) per share | $ | (1.57) | $ | 0.32 | $ | (4.55) | $ | 0.94 |
| Diluted earnings (loss) per share | $ | (1.56) | $ | 0.32 | $ | (4.52) | $ | 0.93 |
| Earnings per common share | ||||||||
| Basic earnings (loss) per share | $ | (0.97) | $ | 0.85 | $ | (2.37) | $ | 2.51 |
| Diluted earnings (loss) per share | $ | (0.97) | $ | 0.85 | $ | (2.35) | $ | 2.48 |
| Diluted weighted average shares outstanding | 24,995 | 24,945 | 24,984 | 25,132 | ||||
| AZZ Inc. | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Segment Reporting | ||||||||
| (dollars in thousands) | ||||||||
| (unaudited) | ||||||||
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| (In thousands) | (In thousands) | |||||||
| Sales: | ||||||||
| Metal Coatings | $ | 158,274 | $ | 135,083 | $ | 487,567 | $ | 395,732 |
| Precoat Metals | 215,027 | — | 499,578 | — | ||||
| Total sales | $ | 373,301 | $ | 135,083 | $ | 987,145 | $ | 395,732 |
| EBITDA(1): | ||||||||
| Metal Coatings | $ | 41,895 | $ | 40,729 | $ | 148,591 | $ | 119,788 |
| Precoat Metals | 34,434 | — | 93,846 | — | ||||
| Total segment EBITDA | $ | 76,329 | $ | 40,729 | $ | 242,437 | $ | 119,788 |
| (1) See the Non-GAAP disclosure section below for a reconciliation between the various measures calculated in accordance with GAAP to the Adjusted Earnings Measures | ||||||||
| AZZ Inc. | ||||||||
| --- | --- | --- | --- | --- | ||||
| Condensed Consolidated Balance Sheets | ||||||||
| (dollars in thousands) | ||||||||
| (unaudited) | ||||||||
| November 30, 2022 | February 28, 2022 | |||||||
| Assets: | ||||||||
| Current assets | $ | 406,634 | $ | 184,869 | ||||
| Property, plant and equipment, net | 491,367 | 193,358 | ||||||
| Other assets, net | 1,301,473 | 246,924 | ||||||
| Assets of discontinued operations | — | 507,876 | ||||||
| Total assets | $ | 2,199,474 | $ | 1,133,027 | ||||
| Liabilities and Shareholders’ Equity: | ||||||||
| Current liabilities | $ | 220,755 | $ | 62,247 | ||||
| Long-term debt due after one year, net | 1,010,648 | 226,484 | ||||||
| Other liabilities | 115,558 | 64,441 | ||||||
| Liabilities of discontinued operations | — | 112,490 | ||||||
| Shareholders' Equity | 852,513 | 667,365 | ||||||
| Total liabilities and shareholders' equity | $ | 2,199,474 | $ | 1,133,027 | ||||
| AZZ Inc. | ||||||||
| --- | --- | --- | --- | --- | ||||
| Condensed Consolidated Statements of Cash Flows | ||||||||
| (dollars in thousands) | ||||||||
| (unaudited) | ||||||||
| Nine Months Ended November 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash provided by operating activities of continuing operations | $ | 68,622 | $ | 45,938 | ||||
| Net cash used in investing activities of continuing operations | (1,207,653) | (13,406) | ||||||
| Net cash provided by (used in) financing activities of continuing operations | 1,005,456 | (29,167) | ||||||
| Cash provided by discontinued operations | 123,982 | 711 | ||||||
| Effect of exchange rate changes on cash | (2,199) | 1,442 | ||||||
| Net increase (decrease) in cash and cash equivalents | (11,792) | 5,518 | ||||||
| Cash and cash equivalents at beginning of period | 15,082 | 14,837 | ||||||
| Cash and cash equivalents from continuing operations at end of period | $ | 3,290 | $ | 940 |
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.
The following tables provides a reconciliation for the three and nine months ended November 30, 2022 and 2021 between the various measures calculated in accordance with GAAP to the Adjusted Earnings Measures (dollars in thousands, except per share data):
| Nine Months Ended November 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2021 | |||||||||||||
| Per<br><br>Diluted Share(1) | Amount | Per<br><br>Diluted Share(1) | 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 | (24,142) | (0.97) | $ | 21,085 | 0.85 | $ | (58,675) | (2.35) | $ | 62,400 | 2.48 | ||||
| Adjustments: | |||||||||||||||
| Acquisition and transaction related expenditures(2) | — | — | — | 15,320 | 0.61 | — | — | ||||||||
| Loss on disposal of discontinued operations | 1.80 | — | — | 159,910 | 6.40 | — | — | ||||||||
| Additional depreciation and amortization related to acquisition(3) | 0.32 | — | — | 18,634 | 0.75 | — | — | ||||||||
| Subtotal | 2.12 | — | — | 193,864 | 7.76 | — | — | ||||||||
| Tax impact(4) | (0.28) | — | — | (37,986) | (1.52) | — | — | ||||||||
| Total adjustments | 1.85 | — | — | 155,878 | 6.24 | — | — | ||||||||
| Adjusted earnings and adjusted earnings per share | 21,977 | $ | 0.88 | $ | 21,085 | $ | 0.85 | $ | 97,203 | $ | 3.89 | $ | 62,400 | $ | 2.48 |
| (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 into the AIS JV. | |||||||||||||||
| (3) Due to purchase price accounting related to the acquisition of Precoat Metals, additional depreciation and amortization was adjusted during the third quarter. The year-to-date amount includes 3.2 million related to the first quarter, 7.5 million related to the second quarter and 8.0 million related to the third quarter. | |||||||||||||||
| (4) Tax benefit consists of: 21% federal statutory rate and 3% blended state tax rate for all adjustments except the loss on disposal of discontinued operations, and 11% and 18% for the loss on disposal of discontinued operations for the three and nine months ended November 30, 2022, respectively. |
All values are in US Dollars.
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Net income (loss) | $ | (20,542) | $ | 21,085 | $ | (54,035) | $ | 62,400 |
| Interest Expense(1) | 26,126 | 1,630 | 61,747 | 5,081 | ||||
| Income Tax (Benefit) Expense(1) | (2,380) | 5,964 | (7,530) | 18,489 | ||||
| Depreciation and Amortization(1) | 22,970 | 11,138 | 63,092 | 33,222 | ||||
| Total Adjustments | 46,716 | 18,732 | 117,309 | 56,792 | ||||
| Non-GAAP EBITDA | 26,174 | 39,817 | 63,274 | 119,192 | ||||
| Acquisition and transaction-related expenditures | — | — | 15,320 | — | ||||
| Loss on disposal of discontinued operations | 45,010 | — | 159,910 | — | ||||
| Adjusted EBITDA | $ | 71,184 | $ | 39,817 | $ | 238,504 | $ | 119,192 |
| (1) Interest expense, income taxes, depreciation and amortization above include both continuing and discontinued operations, so will not be comparable to the statements of operations included herein, which separate continuing and discontinued operations. | ||||||||
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2022 | 2021 | 2022 | 2021 | |||||
| Metal Coatings | ||||||||
| Net income (loss) | $ | 32,972 | $ | 33,191 | $ | 121,832 | $ | 97,169 |
| Interest Expense | 9 | 4 | 21 | 9 | ||||
| Income Tax Expense | 689 | — | 1,953 | — | ||||
| Depreciation and Amortization Expense | 8,225 | 7,534 | 24,785 | 22,610 | ||||
| Total adjustments | 8,923 | 7,538 | 26,759 | 22,619 | ||||
| Non-GAAP EBITDA | 41,895 | 40,729 | 148,591 | 119,788 | ||||
| Precoat Metals | ||||||||
| Net income (loss) | $ | 21,235 | $ | — | $ | 64,221 | $ | — |
| Interest Expense | (182) | — | (266) | — | ||||
| Income Tax Expense | — | — | — | — | ||||
| Depreciation and Amortization Expense | 13,381 | — | 29,891 | — | ||||
| Total adjustments | 13,199 | — | 29,625 | — | ||||
| Non-GAAP EBITDA | 34,434 | — | 93,846 | — | ||||
| Corporate | ||||||||
| Net income (loss) | $ | (35,768) | $ | (20,084) | $ | (127,141) | $ | (58,181) |
| Net income from continuing operations | $ | 18,439 | $ | 13,107 | $ | 58,912 | $ | 38,988 |
q3_fy2023xearningsxdeckx
AZZ Inc. Q3 FY2023 Earnings Release Presentation January 10, 2023
Q3 FY2023 EARNINGS PRESENTATION Disclaimers 2 Cautionary Statements Regarding Forward Looking Statements — 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. Non-GAAP – Regulation G Disclosures — 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, 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.
Q3 FY2023 EARNINGS PRESENTATION Q3 FY2023 Company Highlights Q3 Fiscal 2023 Sales $373 million(1) Metal Coatings Segment $158.3M +17.2% vs. Q3 FY2022 Precoat Metals Segment $215.0M Key Accomplishments in the Quarter +14.8% vs. Comparable Q3 FY2022 Completed the divestiture of a 60% majority stake in the Infrastructure Solutions Segment(2) on September 30, 2022 Debt decrease of $230.3 million, resulting in net leverage of 3.4x LTM Adjusted EBITDA at end of Q3 (1) Reflect Sales from Continuing Operations (2) Divestiture excluded AZZ Crowley Tubing 3
Q3 FY2023 EARNINGS PRESENTATION Sales Net Income Diluted EPS Q3 Fiscal Year 2023 Summary – AZZ Consolidated Results $135.1 $373.3 FY2022 FY2023 +176% • Solid third quarter sales performance across both segments driven by value-pricing initiatives and higher volume • Excludes AIS sales of $42.3 million (reflected in discontinued operations) • Continued strong operational performance across the Segments • Adjusted Net Income Q3 FY23 reflects impact of non-cash add- backs • Write down on disposal of discontinued operations ($40.1) million, net of tax • Q3 adjusted EPS includes $1.85 of EPS add-backs (214%) / (a) +4% (214%) / (a) +4% In $millions, except percentages and per share amounts $21.1 -$24.1 $22.0 FY2022 FY2023 FY2023(a) $0.85 -$0.97 $0.88 FY2022 FY2023 FY2023(a) EBITDA (34%) / (a) +79% • Flow through from higher sales, particularly AMC $39.8 $26.2 $71.2 FY2022 FY2023 FY2023 (a) (a) Adjusted (Non-GAAP measure. See slides 20 and 21 for reconciliation of GAAP to Non-GAAP) 4
Q3 FY2023 EARNINGS PRESENTATION Q3 FY2023 Segment Results – Metal Coatings Segment • Strong total segment sales growth during the quarter, driven by an increase in galvanizing volumes and price realization • Operating margin of 21.2% for the current quarter, primarily due to peak cost of zinc flowing through the majority of our kettles and mix • Outlook for the 4th quarter of the year remains good but with normal winter impact on construction activity • Improved customer responsiveness and productivity through continued investment in our Digital Galvanizing System (DGS) In millions $ except percentages Sales $135.1 $158.3 FY2022 FY2023 +17% Operating Income +1%Key Statistics FY2022 Sales Organic Acquisitions FY2023 Sales $135.1 $158.3 $5.9 $17.3 AZZ Metal Coating Segment (AMC) Summary: 5 $33.1 $33.5 FY2022 FY2023 EBITDA(1) $40.7 $41.9 FY2022 FY2023 +3% 24.5% 21.2% 30.2% 26.5% (1) Non-GAAP measure. See slides 20 and 2` for reconciliation of GAAP to non-GAAP
Q3 FY2023 EARNINGS PRESENTATION Q3 FY2023 Segment Results – Precoat Metals (acquisition date May 13, 2022) • Sales up 14.8% on a comparable basis • Adjusted EBITDA of $34.4 million in line with management’s seasonal expectations • Specific plans are in place to address production inefficiencies and we are encouraged by the results to date In millions $ except percentages Key Statistics AZZ Precoat Metals Segment (APM) Summary: 6 Sales $215.0 FY2023 Adjusted Operating Income(1) EBITDA(2) $29.0 FY2023 $34.4 FY2023 13.5% FY2022 Sales Organic Acquisitions FY2023 Sales $ 0.0 $215.0 $215.0 $0.0 16.0% (1) Adjusted operating income represents GAAP operating income of $21.1 plus depreciation and amortization related to the Precoat Acquisition of $7.9 (2) Non-GAAP measure. See slides 19 and 20 for reconciliation of GAAP to non-GAAP
Q3 FY2023 EARNINGS PRESENTATION Sales Net Income Diluted EPS YTD Fiscal Year 2023 Summary – AZZ Consolidated Results $395.7 $987.1 FY2022 FY2023 +149% • Metal Coatings Sales of $487.6 up 23% YTD • Precoat Sales $499.5 • Continued strong operational performance across the Segments • Adjusted Net Income Q3 FY23 reflects impact of non-cash add- backs (194%) / (a) +56% (195%) / (a) +56% In $millions, except percentages and per share amounts $62.4 $97.2 FY2022 FY2023 FY2023(a) $2.48 $3.89 FY2022 FY2023 FY2023(a) EBITDA (47%) / (a) +100% • Metal Coatings EBITDA $148.6 • Precoat EBITDA $93.8 • EBITDA in table above includes both continuing and discontinued operations $119.2 $63.3 $238.5 FY2022 FY2023 FY2023 (a) (a) Adjusted (Non-GAAP measure. See slides 20 and 21 for reconciliation of GAAP to Non-GAAP) 7 $(2.35)$(58.7) • Write down on disposal of discontinued operations ($130.1) million, net of tax • YTD adjusted EPS includes $6.24 of EPS add-backs
Q3 FY2023 EARNINGS PRESENTATION 8 Q3 FY2023 Consolidated Results In millions, except for EPS and percentages Q3 FY 2023 Q3 FY 2022 % Change vs. Prior Year Sales $373.3 $135.1 +176.3% Gross Profit $73.1 $37.6 +94.4% Gross Margin 19.6% 27.8% (820)bps Operating Profit $45.4 $21.3 +113.2% Operating Margin 12.2% 15.8% (360)bps Adjusted EBITDA(1) $71.2 $39.8 +78.9% Adjusted Net Income(1) $22.0 $21.1 +4.3% Adjusted Diluted Earnings Per Share(1) $0.88 $0.85 +3.5% Diluted Shares Outstanding 24,995 24,945 0.2% (1) Adjusted (Non-GAAP measure. See slides 20 and 21 for reconciliation of GAAP to non-GAAP)
Q3 FY2023 EARNINGS PRESENTATION YTD FY2023 AZZ Cash Flow Highlights – Continuing Operations In millions, except for percentages YTD FY 2023 YTD FY 2022 Net Cash Provided by Operating Activities $68.6 $45.9 Less: Capital Expenditures(1) $(35.1) $(15.8) Free Cash Flow(2) $33.5 $30.1 Net Income from continuing operations $58.9 $39.0 Free Cash Flow / Net Income 56.9% 77.2% Acquisition of Subsidiaries, net of cash acquired $1,283.4 $0.0 Payment of Dividends $(12.7) $(12.7) Share Repurchases $0 $28.9 9 (1) Represents capital expenditures for FY2023 and FY2022 from continuing operations - excludes year-to-date expenditures from discontinued operations of $4.8 million and $3.4 million, respectively (2) Free Cash Flow is a Non-GAAP measure that is reconciled to the GAAP measure (net cash provided by operating activities)
Q3 FY2023 EARNINGS PRESENTATION $18.3 $0.0 $0.0 $4.2 $230.3 Share Repurchases Capital Allocation Capital Expenditures Acquisitions Share Repurchases Dividends Q3 2023 Capital Deployment In millions • Safety, Health and Environmental • Productivity and capacity initiatives • General maintenance and sustainability • Focused on Precoat Metals integration • Active pipeline of targets, but none actionable in the near term • No share repurchases in the quarter, nor anticipated • Paid second quarter FY2023 common dividend Gr ow th Sh ar eh ol de r R et ur n 10 Debt Repayment • Reduced debt by $230.3 million • Reduced net leverage to 3.4xCapital Expenditures Acquisitions Dividends Debt Repayment
Q3 FY2023 EARNINGS PRESENTATION 4.2x 4.3x 3.6x 3.4x 3.0x Max Leverage 6.25x 0.0x 1.5x 3.0x 4.5x 6.0x Pro Forma Leverage Qtr 1 FY2023 Qtr 2 FY2023 Qtr 3 FY2023 Feb-24 11 Note: 6.25X represents Max Leverage Covenant in debt agreement as of November 30, 2022. Q3 Fiscal Year 2023 – Debt Compliance / Net Leverage • No debt maturities until 2027 • Strong cash flow generation supports deleveraging priority • Robust cash flow with expected adjusted EBITDA of $285-$305 million • Tax benefits of Precoat transaction reduces cash tax outlays Long-Term Target Range 2.5-3.0X
Key Indicators And Financial Guidance 12
Q3 FY2023 EARNINGS PRESENTATION 13 Metal Coatings Segment Market activity remains normal as we progress through the seasonally slower winter months Fabrication activity remains solid for Q4 Zinc costs in our kettles have peaked in most markets Precoat Metals Segment Business more reliant on construction sector, expected to be seasonally slower during winter months Expect customer inventories to normalize based on actions taken Pricing actions expected to help offset continued inflationary pressures Corporate Continue to monitor cash flow, customer credit, expenses and ensure effective capital deployment Key Indicators
Q3 FY2023 EARNINGS PRESENTATION 14 Prior Guidance - FY 2023 Adjusted EPS(2) Sales $3.80 - $4.00 $1,455 - $1,505mm(1) $1,275 - $1,325mm Pro Forma Sales Sales Adjusted EBITDA Revised Guidance – FY 2023 $300 - $320mm(1) $285 - $305mm Pro Forma EBITDA Adjusted EBITDA Adjusted EPS $3.40 - $3.60(1) Pro Forma EPS No change Raising Guidance to $4.05 - $4.25(3) Adjusted EPS Note: FY based on February year-end (1) Includes full-year impact of Precoat as if transaction closed March 1, 2022 (2) Adjusted earnings and earnings per share include post-tax cash impact of Precoat depreciation and amortization (3) Full year guidance reflects the previously communicated seasonally lower fourth quarter, additional interest expense, dividends on our Preferred Stock, and the impact of a normalized forward-looking tax rate. Fourth quarter also excludes any potential impact of equity in earnings on our investment in the AIS JV No change
Q3 FY2023 EARNINGS PRESENTATION INVESTOR PRESENTATION 15 North America’s leading independent hot-dip galvanizing and coil coating company with #1 positions in both markets Value-added tolling business model protects margins, limits metal commodity exposure, and minimizes NWC intensity Diversified and resilient end markets with secular growth tailwinds Irreplaceable footprint provides cost advantages and enables service capabilities to customers Best-in-class margins, returns and free cash flow Mission-driven, experienced management team Investment Thesis 15
Q&A
Appendix
Q3 FY2023 EARNINGS PRESENTATION 18 Q3-2023 Earnings Per Share (EPS) Walk(1) (1) Earnings per share amounts included in the chart above may not sum due to rounding differences. ($0.97) $0.88 $0.27 $1.80 $0.32 ($1.50) ($1.00) ($0.50) $0.00 $0.50 $1.00 $1.50
Reg “G” Tables
Q3 FY2023 EARNINGS PRESENTATION Consolidated Non-GAAP Disclosure 20 Three Months Ended November 30, Nine Months Ended November 30, 2022 2021 2022 2021 Amount Per Diluted Share(1) Amount Per Diluted Share(1) Amount Per Diluted Share(1) Amount Per Diluted Share(1) Net income (loss) available to common shareholders and diluted earnings per share $ (24,142) $ 21,085 $ (58,675) $ 62,400 Net income for diluted earnings per share $ (24,142) (0.97) $ 21,085 0.85 $ (58,675) (2.35) $ 62,400 2.48 Adjustments: Acquisition and transaction related expenditures(2) — — — — 15,320 0.61 — — Loss on disposal of discontinued operations 45,010 1.80 — — 159,910 6.40 — — Additional depreciation and amortization related to acquisition(3) 7,986 0.32 — — 18,634 0.75 — — Incremental normalized tax expense — — — — — — — — Subtotal 52,996 2.12 — — 193,864 7.76 — — Tax impact(4) (6,877) (0.28) — — (37,986) (1.52) — — Total adjustments 46,119 1.85 — — 155,878 6.24 — — Adjusted earnings and adjusted earnings per share $ 21,977 $ 0.88 $ 21,085 $ 0.85 $ 97,203 $ 3.89 $ 62,400 $ 2.48 (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 into the AIS JV. (3) Due to purchase price accounting related to the acquisition of Precoat Metals, additional depreciation and amortization was adjusted during the third quarter. The year-to-date amount includes $3.2 million related to the first quarter, $7.5 million related to the second quarter and $8.0 million related to the third quarter. (4) Tax benefit consists of: 21% federal statutory rate and 3% blended state tax rate for all adjustments except the loss on disposal of discontinued operations, and 11% and 18% for the loss on disposal of discontinued operations for the three and nine months ended November 30, 2022, respectively.
Q3 FY2023 EARNINGS PRESENTATION Non-GAAP Disclosure of Consolidated EBITDA 21 (1) Interest expense, income tax expense and depreciation and amortization amounts include both continuing and discontinued operations. Three Months Ended Nine Months Ended November 30, November 30, 2022 2021 2022 2021 Net income (loss) $ (20,542) $ 21,085 $ (54,035) $ 62,400 Interest Expense(1) 26,126 1,630 61,747 5,081 Income Tax (Benefit) Expense(1) (2,380) 5,964 (7,530) 18,489 Depreciation and Amortization(1) 22,970 11,138 63,092 33,222 Total Adjustments 46,716 18,732 117,309 56,792 Non-GAAP EBITDA 26,174 39,817 63,274 119,192 Restructuring and impairment charges: Acquisition and transaction-related expenditures — — 15,320 — Loss on disposal of discontinued operations 45,010 — 159,910 — Adjusted EBITDA $ 71,184 $ 39,817 $ 238,504 $ 119,192
Q3 FY2023 EARNINGS PRESENTATION Non-GAAP Segment Disclosure from Continuing Operations (Metal Coatings and Precoat Metals) 22 Three Months Ended November 30, Nine Months Ended November 30, 2022 2021 2022 2021 Metal Coatings Net income (loss) $ 32,972 $ 33,191 $ 121,832 $ 97,169 Interest Expense 9 4 21 9 Income Tax Expense 689 — 1,953 — Depreciation and Amortization Expense 8,225 7,534 24,785 22,610 Total adjustments 8,923 7,538 26,759 22,619 Non-GAAP EBITDA 41,895 40,729 148,591 119,788 Precoat Metals Net income (loss) $ 21,235 $ — $ 64,221 $ — Interest Expense (182) — (266) — Income Tax Expense — — — — Depreciation and Amortization Expense 13,381 — 29,891 — Total adjustments 13,199 — 29,625 — Non-GAAP EBITDA 34,434 — 93,846 — Corporate Net income (loss) $ (35,768) $ (20,084) $ (127,141) $ (58,181) Net income from continuing operations $ 18,439 $ 13,107 $ 58,912 $ 38,988