Azz Inc 10-Q for FY2024 Q2

Azz Inc (AZZ)

10-Q 2023-10-10 For: 2023-08-31

Added on April 04, 2026

About this 10-Q

Azz Inc filed this 10-Q on October 10, 2023, covering the quarter ended August 31, 2023 (FY2024 Q2).

Headline figures

Quarter ended August 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $398.54M; down 2.0% from $406.71M a year earlier
Net income: $28.33M; compared with a net loss of $57.57M a year earlier
Diluted EPS: $0.97; compared with -$1.91 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 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	27
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


	As of
	August 31, 2023		February 28, 2023
Assets
Current assets:
Cash and cash equivalents	$	2,108	$	2,820
Accounts receivable, net of allowance for credit losses of $2,137 and $5,752 at August 31, 2023 and February 28, 2023, respectively	183,951		183,412
Inventories:
Raw material	130,230		138,227
Work-in-process	2,186		1,558
Finished goods	4,061		4,135
Contract assets	76,799		79,273
Prepaid expenses and other	10,534		7,991


Total current assets	409,869		417,416
Property, plant and equipment, net	516,499		498,503
Right-of-use assets	24,273		26,392
Goodwill	705,531		702,512
Deferred tax assets	5,820		12,467
Intangibles and other assets, net	467,034		479,429
Investment in joint venture	85,535		84,760

Total assets	$	2,214,561	$	2,221,479
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	127,408	$	109,861
Income tax payable	46		272
Accrued salaries and wages	21,307		26,262
Other accrued liabilities	50,984		44,442
Lease liability, short-term	6,572		6,403


Total current liabilities	206,317		187,240
Long-term debt, net	1,002,364		1,058,120
Lease liability, long-term	18,434		20,704
Deferred tax liabilities	31,417		40,536
Other long-term liabilities	57,952		61,419

Total liabilities	1,316,484		1,368,019
Commitments and contingencies (Note 16)
Shareholders’ equity:
Series A Convertible Preferred Stock, $1 par, shares authorized 240; 240 and 240 shares issued and outstanding at August 31, 2023 and February 28, 2023, respectively	240		240
Common Stock, $1 par value; 100,000 shares authorized; 25,077 and 24,912 shares issued and outstanding at August 31, 2023 and February 28, 2023, respectively	25,077		24,912
Capital in excess of par value	331,366		326,839
Retained earnings	547,208		506,042
Accumulated other comprehensive loss	(5,814)		(4,573)
Total shareholders’ equity	898,077		853,460
Total liabilities and shareholders' equity	$	2,214,561	$	2,221,479


	Three Months Ended August 31,				Six Months Ended August 31,
	2023		2022		2023		2022
Sales	$	398,542	$	406,710	$	789,415	$	613,844
Cost of sales	301,296		305,155		595,150		452,236
Gross margin	97,246		101,555		194,265		161,608

Selling, general and administrative	36,239		37,414		67,762		69,558

Operating income	61,007		64,141		126,503		92,050

Interest expense	27,770		28,144		56,476		35,615
Equity in (earnings) of unconsolidated subsidiaries	(974)		—		(2,394)		—
Other (income) expense, net	(88)		55		(50)		28
Income from continuing operations before income taxes	34,299		35,942		72,471		56,407
Income tax expense	5,967		10,822		15,617		15,922
Net income from continuing operations	28,332		25,120		56,854		40,485
Income from discontinued operations, net of tax	—		6,737		—		15,449
Loss on disposal of discontinued operations, net of tax	—		(89,427)		—		(89,427)
Net loss from discontinued operations	—		(82,690)		—		(73,978)
Net income (loss)	28,332		(57,570)		56,854		(33,493)
Dividends on preferred stock	(3,600)		(1,040)		(7,200)		(1,040)
Net income (loss) available to common shareholders	$	24,732	$	(58,610)	$	49,654	$	(34,533)
Basic earnings (loss) per share
Earnings per common share from continuing operations	$	0.99	$	0.97	$	1.99	$	1.59
Loss per common share from discontinued operations	$	—	$	(3.33)	$	—	$	(2.99)
Earnings (loss) per common share	$	0.99	$	(2.36)	$	1.99	$	(1.39)
Diluted earnings (loss) per share
Earnings per common share from continuing operations	$	0.97	$	0.93	$	1.95	$	1.57
Loss per common share from discontinued operations	$	—	$	(2.85)	$	—	$	(2.70)
Earnings (loss) per common share	$	0.97	$	(1.91)	$	1.95	$	(1.13)

Weighted average shares outstanding - Basic	25,054		24,836		24,997		24,772
Weighted average shares outstanding - Diluted	29,210		29,059		29,196		27,428

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


	Three Months Ended August 31,				Six Months Ended August 31,
	2023		2022		2023		2022

Net income (loss) available to common shareholders	$	24,732	$	(58,610)	$	49,654	$	(34,533)
Other comprehensive income (loss):
Unrealized translation loss	(2,867)		(3,370)		(1,736)		(2,746)


Unrealized gain (loss) on derivatives qualified for hedge accounting:
Unrealized gain (loss) on interest rate swap, net of tax(1)	5,531		—		1,982		—
Amounts reclassified from accumulated other comprehensive income to earnings, net of tax(2)	(938)		—		(1,487)		—
Other comprehensive income (loss)	1,726		(3,370)		(1,241)		(2,746)
Comprehensive income (loss)	$	26,458	$	(61,980)	$	48,413	$	(37,279)


(1) Net of tax expense of $2,009 and $720 for the three and six months ended August 31, 2023, respectively.
(2) Net of tax benefit of $(341) and $(540) for the three and six months ended August 31, 2023, respectively.


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Three Months Ended August 31, 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 May 31, 2023	240	$	240	25,013	$	25,013	$	326,931	$	526,729	$	(7,540)	$	871,373
Share-based compensation	—	—		—	—		2,115		—		—		2,115

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

Dividends on preferred stock	—	—		—	—		—		(3,600)		—		(3,600)
Dividends paid on common shares	—	—		—	—		—		(4,253)		—		(4,253)
Net income	—	—		—	—		—		28,332		—		28,332
Foreign currency translation	—	—		—	—		—		—		(2,867)		(2,867)


Interest rate swap	—	—		—	—		—		—		4,593		4,593
Balance at August 31, 2023	240	$	240	25,077	$	25,077	$	331,366	$	547,208	$	(5,814)	$	898,077


	Six Months Ended August 31, 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	—	—		—	—		4,019		—		—		4,019

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		1,422		—		—		1,464

Dividends on preferred stock	—	—		—	—		—		(7,200)		—		(7,200)
Dividends paid on common shares	—	—		—	—		—		(8,488)		—		(8,488)
Net income	—	—		—	—		—		56,854		—		56,854
Foreign currency translation	—	—		—	—		—		—		(1,736)		(1,736)


Interest rate swap	—	—		—	—		—		—		495		495
Balance at August 31, 2023	240	$	240	25,077	$	25,077	$	331,366	$	547,208	$	(5,814)	$	898,077


	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 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	—	—		22	22		(14)		—		—		8
Common stock issued under employee stock purchase plan	—	—		52	52		1,714		—		—		1,766

Dividends on preferred stock	—	—		—	—		—		(1,040)		—		(1,040)
Dividends paid on common shares	—	—		—	—		—		(4,226)		—		(4,226)
Net 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 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	—	—		122	122		(2,428)		—		—		(2,306)
Common stock issued under employee stock purchase plan	—	—		52	52		1,715		—		—		1,767

Dividends on preferred stock	—	—		—	—		—		(1,040)		—		(1,040)
Dividends paid on common shares	—	—		—	—		—		(8,418)		—		(8,418)
Net 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


	May 13, 2022
Assets

Accounts receivable	$	77,422
Inventories	43,369
Contract assets	68,314
Prepaid expenses and other	2,247
Property, plant and equipment	305,503
Right-of-use asset	13,753
Goodwill	527,793
Deferred tax asset	8,660
Intangibles and other assets	446,546
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			Six Months Ended
		August 31, 2022		August 31, 2022
Sales		$	106,660	$	213,924
Cost of sales		84,826		167,686
Gross margin		21,834		46,238

Selling, general and administrative		9,710		22,114

Loss on disposal of discontinued operations		114,900		114,900
Operating loss from discontinued operations		(102,776)		(90,776)

Interest expense		5		6
Other (income) expense, net		3,443		4,268
Loss from discontinued operations before income tax		(106,224)		(95,050)
Income tax benefit		(23,534)		(21,072)
Net loss from discontinued operations		$	(82,690)	$	(73,978)
Loss per common share from discontinued operations:
Basic loss per share		$	(3.33)	$	(2.99)
Diluted loss per share		$	(2.85)	$	(2.70)


	Six Months Ended August 31, 2022
Depreciation and amortization	$	6,248
Purchase of property, plant and equipment	2,878

Loss on discontinued operations	(114,900)


	Three Months Ended August 31, 2023
	Metal Coatings		Precoat Metals		Infrastructure Solutions(1)		Corporate(2)(3)		Total
Sales	$	169,837	$	228,705	$	—	$	—	$	398,542
Cost of sales	119,471		181,825		—		—		301,296
Gross margin	50,366		46,880		—		—		97,246

Selling, general and administrative	5,285		7,874		5,932		17,148		36,239

Operating income (loss) from continuing operations	$	45,081	$	39,006	(5,932)		(17,148)		61,007

Interest expense					—		27,770		27,770
Equity in earnings of unconsolidated subsidiaries					(974)		—		(974)
Other (income) expense					—		(88)		(88)
Income (loss) from continuing operations before income tax					$	(4,958)	(44,830)		34,299
Income tax expense							5,967		5,967
Net income (loss) from continuing operations							$	(50,797)	$	28,332


Summarized Balance Sheet
	As of
	August 31, 2023(1)
Current assets	$	248,243
Long-term assets	177,829
Total assets	$	426,072
Current liabilities	89,726
Long-term liabilities	135,694
Total liabilities	$	225,420
Total partners' capital	200,652
Total liabilities and partners' capital	$	426,072


Summarized Operating Data
	Three Months Ended August 31, 2023(1)		Six Months Ended August 31, 2023(1)
Sales	$	104,863	$	219,337
Gross profit	24,577		50,899
Net income	2,886		8,701

(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 six months ended July 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.


	Three Months Ended August 31,				Six Months Ended August 31,
	2023		2022		2023		2022
Sales:
Construction	$	216,807	$	220,657	$	422,337	$	289,882
Industrial	42,245		41,214		82,889		79,182
Consumer	34,673		38,340		70,258		45,421
Transportation	35,869		36,825		72,626		69,097
Electrical/Utility	25,905		24,172		51,312		46,452
Other (1)	43,043		45,502		89,993		83,810
Total Sales	$	398,542	$	406,710	$	789,415	$	613,844

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


	As of
	August 31, 2023		February 28, 2023
Revolving Credit Facility	$	35,000	$	95,000

Term Loan B	1,030,250		1,030,250
Total debt, gross	$	1,065,250	$	1,125,250
Unamortized debt issuance costs	(62,886)		(67,130)


Long-term debt, net	$	1,002,364	$	1,058,120


	Carrying Value								Carrying Value
	August 31,		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	$	4,447	$	—	$	4,447	$	—	$	3,925	$	—	$	3,925	$	—
Total Assets	$	4,447							$	3,925


	Three Months Ended August 31,				Six Months Ended August 31,
	2023		2022		2023		2022
Operating cash flows from operating leases included in lease liabilities	$	1,834	$	1,999	$	3,654	$	3,133
Lease liabilities obtained from new ROU assets - operating	373		2,775		1,895		2,885
Decrease in ROU assets related to lease terminations	(1,294)		—		(1,302)		—
Operating and financing cash flows from financing leases included in lease liabilities	113		49		199		94
Lease liabilities obtained from new ROU assets - financing	599		277		599		277


	Balance Sheet Classification	As of
		August 31, 2023		February 28, 2023
Assets
Right-of-use assets	Right-of-use assets	$	24,273	$	26,392
Liabilities
Operating lease liabilities ― short-term	Lease liability - short-term	$	6,145	$	6,119
Operating lease liabilities ― long-term	Lease liability - long-term	17,093		19,659
Finance lease liabilities ― short-term	Lease liability - short-term	427		284
Finance lease liabilities ― long-term	Lease liability - long-term	1,341		1,045


Fiscal year:	Operating Leases		Finance Leases		Total
2024	$	3,583	$	254	$	3,837
2025	6,505		500		7,005
2026	5,574		423		5,997
2027	4,401		386		4,787
2028	2,435		312		2,747
2029	1,869		101		1,970
Thereafter	1,252		5		1,257
Total lease payments	$	25,619	$	1,981	$	27,600
Less imputed interest	(2,380)		(214)		(2,594)
Total	$	23,239	$	1,767	$	25,006


3.1+						Amended and Restated Certificate of Formation dated July 12, 2022 (with Certificate of Correction dated May 15, 2023)
3.2+						Certificate of Designations, Preferences, Rights and Limitations of 6.0% Series A Convertible Preferred Stock (included as Exhibit A to Exhibit 3.1 filed herewith)
3.3						Amended and Restated Bylaws dated April 24, 2023 (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2023 filed with the SEC on April 25, 2023)
10.1						First Amendment to Credit Agreement, dated as of August 17, 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 August 17, 2023)
10.2*						AZZ Inc. 2023 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filed with the SEC on July 11, 2023)
10.3*						Form of Restricted Share Unit Award Agreement under the 2023 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on July 11, 2023)
10.4*						Form of Performance Share Award agreement under the 2023 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the SEC on July 11, 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.

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 10, 2023	/s/ Thomas E. Ferguson
		Thomas E. Ferguson
		President and Chief Executive Officer


Dated:	October 10, 2023	/s/ Philip A. Schlom
		Philip A. Schlom
		Chief Financial Officer