# AZZ Inc: Form 10-Q for the period ended Nov 30, 2023

- Company: [AZZ Inc](/companies/azz.md) (CIK 8947)
- Form: 10-Q
- Filed: 2024-01-09
- Accepted by EDGAR: Jan 9, 2024, 16:19 ET
- Period: 2023-11-30
- Accession: 0000008947-24-000013
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/8947/000000894724000013/azz-20231130.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/8947/000000894724000013/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-11-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-09-01 to 2023-11-30 | $381.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-03-01 to 2023-11-30 | $1.17bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-09-01 to 2023-11-30 | $293.5m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-03-01 to 2023-11-30 | $888.6m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-09-01 to 2023-11-30 | $88.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-03-01 to 2023-11-30 | $282.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-09-01 to 2023-11-30 | $35.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-03-01 to 2023-11-30 | $103.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-09-01 to 2023-11-30 | $52.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-03-01 to 2023-11-30 | $179.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-09-01 to 2023-11-30 | $25.9m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-03-01 to 2023-11-30 | $82.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-09-01 to 2023-11-30 | $8.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-03-01 to 2023-11-30 | $24.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-09-01 to 2023-11-30 | $26.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-03-01 to 2023-11-30 | $83.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-09-01 to 2023-11-30 | $0.92 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-03-01 to 2023-11-30 | $2.86 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-09-01 to 2023-11-30 | $0.93 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-03-01 to 2023-11-30 | $2.91 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-09-01 to 2023-11-30 | 29,330,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-03-01 to 2023-11-30 | 29,278,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 9 months, 2023-03-01 to 2023-11-30 | $66.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-03-01 to 2023-11-30 | $23.6m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2023-11-30 | $7.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-11-30 | $392.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-11-30 | $2.21bn | us-gaap:Assets |
| Current liabilities | at 2023-11-30 | $200.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-11-30 | $1.29bn | us-gaap:Liabilities |
| Long-term debt | at 2023-11-30 | $980.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-11-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-11-30 | $921.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 47,432 characters.

### 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. 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 Quarterly Report 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, the industrial markets, and the metal coatings markets. 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; an increase in our debt leverage and/or interest rates on our debt, of which a significant portion is tied to variable interest rates; availability of experienced management and employees to implement AZZ’s growth strategy; a downturn in market conditions in any industry relating to the products we inventory or sell or the services that we provide; economic volatility, 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, including in Part I, Item 1A. Risk Factors, in AZZ's Annual Report on Form 10-K for the fiscal year ended February 28, 2023 and other filings with the 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 when 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.

The following discussion should be read in conjunction with management’s discussion and analysis contained in our Annual Report on Form 10-K for the fiscal year ended February 28, 2023, and with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

### RESULTS OF OPERATIONS

#### Overview

We are a provider of hot-dip galvanizing and coil coating solutions to a broad range of end-markets, predominantly in North America. We operate three distinct business segments, the AZZ Metal Coatings segment, the AZZ Precoat Metals segment, and the AZZ Infrastructure Solutions segment. For the three and nine months ended November 30, 2023, the AZZ Infrastructure Solutions segment consists of the Company's 40% investment in the AVAIL JV. For the three and nine months ended November 30, 2022, the AZZ Infrastructure Solutions segment includes the results of operations of the AIS business prior to the divestiture of the AVAIL JV. See Note 3 of our consolidated financial statements for more information about the divestiture of the AVAIL JV. Our discussion and analysis of financial condition and results of operations is divided by each of our segments, along with corporate costs and other costs not specifically identifiable to a segment. For a reconciliation of segment operating income to consolidated operating income, see Note 8 to the consolidated financial statements. Management believes that the most meaningful analysis of our results of operations is to analyze our performance by segment. We use sales and operating income by segment to evaluate the performance of our segments. Segment operating income consists of sales less cost of sales and selling, general and administrative expenses that are specifically identifiable to a segment.

### QUARTER ENDED NOVEMBER 30, 2023 COMPARED TO THE QUARTER ENDED NOVEMBER 30, 2022

#### Segment Sales and Operating Income from Continuing Operations

The following table reflects the breakdown of net income from continuing operations by segment (in thousands):

|  | 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 |
| (1) Infrastructure Solutions segment includes the Company’s equity in (earnings) loss from its investment in the AVAIL JV, as well as other expenses related to receivables and liabilities that were retained by the Company following the sale of the AIS business. |  |  |  |  |  |
| (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 2024, amortization expense for acquired intangible assets is included in Corporate expenses in "Selling, general and administrative" expense as these expenses are not allocated to the segments. |  |  |  |  |  |

|  | Three Months Ended November 30, 2022 Metal Coatings | Precoat Metals | Infrastructure Solutions(1) | Corporate(2)(3) | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Sales | $158,274 | $215,027 | $— | $— | $373,301 |
| Cost of sales | 120,134 | 180,085 | — | — | 300,219 |
| Gross margin | 38,140 | 34,942 | — | — | 73,082 |
| Selling, general and administrative | 4,594 | 13,889 | — | 9,206 | 27,689 |
| Operating income (loss) from continuing operations | 33,546 | 21,053 | — | (9,206) | 45,393 |
| Interest expense | — | — | — | 26,123 | 26,123 |
| Equity in earnings of unconsolidated subsidiaries | — | — | (1,006) | — | (1,006) |
| Other income | (124) | — | — | (486) | (610) |
| Income (loss) from continuing operations before income tax | $33,670 | $21,053 | $1,006 | (34,843) | 20,886 |
| Income tax expense |  |  |  | 2,447 | 2,447 |
| Net income (loss) from continuing operations |  |  |  | $(37,290) | $18,439 |
| (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. |  |  |  |  |  |

31

#### Sales

For the three months ended November 30, 2023 (the "current quarter"), consolidated sales increased $8.3 million, or 2.2%, compared to the three months ended November 30, 2022 (the "prior year quarter"). Sales for the AZZ Metal Coatings segment increased $4.9 million, or 3.1%, for the current quarter, compared to the prior year quarter. The increase was primarily due to an increase in the selling price, partially offset by a lower volume of steel processed during the quarter. Sales for the AZZ Precoat Metals segment increased $3.4 million, or 1.6% for the current quarter. The increase is primarily due to an increase in selling price, partially offset by a lower volume of coil coated in the current period.

#### Operating Income

For the current quarter, consolidated operating income increased $7.4 million, or 16.4%, compared to the prior year quarter.

Operating income for the AZZ Metal Coatings segment increased $4.3 million, or 12.8% for the current quarter, compared to the prior year quarter. The current quarter increase was due to increased sales as described above, coupled with lower cost of sales, partially offset by higher selling, general and administrative expenses. The decrease in cost of sales of $4.2 million was primarily due to lower zinc and overhead costs, and a change in classification of amortization of intangible assets of $1.9 million, partially offset by an increase in labor costs. Selling, general and administrative expense increased due to the recognition of a $4.5 million legal accrual, and the change in classification of certain compensation and information technology costs of $0.7 million, to the AZZ Metal Coatings segment, from the Corporate segment.

Operating income for the AZZ Precoat Metals segment increased $11.7 million, or 55.6% for the current quarter. The increase is primarily due to: lower applied cost of sales (primarily driven by improved efficiencies which offset higher cost of labor and materials, as well as lower freight costs); lower selling, general and administrative expense (primarily salaries and wages and the change in classification of amortization of intangible assets of $4.3 million); and the increase in sales as described above.

Operating income for the AZZ Infrastructure Solutions segment decreased $0.3 million, due to legal expenses.

#### Corporate Expenses

Corporate selling, general and administrative expenses increased $8.3 million, or 89.9%, for the current quarter, compared to the prior year quarter. The increase is primarily due to: amortization expense of $5.9 million related to all intangible assets, which is included in corporate expense in the current quarter, and allocated to the segments in the prior year quarter; a decrease in income from the transition services agreement associated with the AVAIL JV; and employee-related costs; partially offset by the allocation of certain compensation and information technology costs to the segments, that were previously included in corporate expenses.

#### Interest Expense

Interest expense for the current quarter decreased $0.3 million, to $25.9 million, compared to $26.1 million for the prior year quarter. The decrease in interest expense is primarily attributable to a decrease in the weighted average debt outstanding, partially offset by an increase in interest rates on our outstanding debt.

#### Equity in Earnings of Unconsolidated Entities

Equity in earnings of unconsolidated subsidiaries for the current quarter increased $7.7 million, to $8.7 million, compared to $1.0 million in the prior year quarter. The increase is primarily due to higher earnings from the AVAIL JV, and three months of equity in earnings in the current quarter, compared to one month in the prior year quarter, as the AVAIL JV equity in earnings are recorded on a one-month lag.

See Note 9 of our consolidated financial statements for more information about the AVAIL JV.

#### Income Taxes

The provision for income taxes from continuing operations reflects an effective tax rate of 24.6% for the three months ended November 30, 2023, compared to 11.7% for the three months ended November 30, 2022. The increase in the effective tax rate is attributable to a favorable adjustment in the prior year period due to the recognition of an outside basis difference related to the AVAIL JV.

#### Income from Discontinued Operations

The results of our AZZ Infrastructure Solutions segment were classified as discontinued operations in our condensed consolidated statements of operations and excluded from continuing operations for all periods presented. The results of operations from discontinued operations for the three months ended November 30, 2022 consist of the following (in thousands):

|  | Three Months Ended November 30, 2022 |
| --- | ---: |
| Sales | $42,300 |
| Cost of sales | 35,020 |
| Gross margin | 7,280 |
| Selling, general and administrative | 4,074 |
| Loss on disposal of discontinued operations | 45,010 |
| Operating loss from discontinued operations | (41,804) |
| Interest expense | 2 |
| Other (income) expense, net | 2,002 |
| Loss from discontinued operations before income tax | (43,808) |
| Income tax benefit | (4,827) |
| Net loss from discontinued operations | $(38,981) |

See Note 3 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.

### NINE MONTHS ENDED NOVEMBER 30, 2023 COMPARED TO THE NINE MONTHS ENDED NOVEMBER 30, 2022

#### Segment Sales and Operating Income from Continuing Operations

The following table reflects the breakdown of net income from continuing operations by segment (in thousands):

|  | Nine Months Ended November 30, 2023 Metal Coatings | Precoat Metals | Infrastructure Solutions(1) | Corporate(2)(3) | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Sales | $501,816 | $669,204 | $— | $— | $1,171,020 |
| Cost of sales | 353,280 | 535,326 | — | — | 888,606 |
| Gross margin | 148,536 | 133,878 | — | — | 282,414 |
| Selling, general and administrative | 20,143 | 24,429 | 6,244 | 52,271 | 103,087 |
| Operating income (loss) from continuing operations | 128,393 | 109,449 | (6,244) | (52,271) | 179,327 |
| Interest expense | — | — | — | 82,331 | 82,331 |
| Equity in earnings of unconsolidated subsidiaries | — | — | (11,136) | — | (11,136) |
| Other (income) expense | 40 | — | — | (49) | (9) |
| Income (loss) from continuing operations before income tax | $128,353 | $109,449 | $4,892 | (134,553) | 108,141 |
| Income tax expense |  |  |  | 24,397 | 24,397 |
| Net income (loss) from continuing operations |  |  |  | $(158,950) | $83,744 |
| (1) Infrastructure Solutions segment includes the Company’s equity in (earnings) loss from its investment in the AVAIL JV, as well as other expenses related to receivables and liabilities that were retained by the Company following the sale of the AIS business. |  |  |  |  |  |
| (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 2024, amortization expense for acquired intangible assets is included in Corporate expenses in "Selling, general and administrative" expense as these expenses are not allocated to the segments. |  |  |  |  |  |

|  | 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. |  |  |  |  |  |

34

#### Sales

For the nine months ended November 30, 2023 (the "current nine-month period"), consolidated sales increased $183.9 million, or 18.6%, compared to the nine months ended November 30, 2022 (the "prior year nine-month period"). Sales for the AZZ Metal Coatings segment increased $14.2 million, or 2.9%, for the current nine-month period, compared to the prior year nine-month period. The increase in sales was primarily due to an increase in the volume of steel processed during the period, and improved price realization for our superior quality and service. Sales for the AZZ Precoat Metals segment increased $169.6 million, or 34.0% for the current nine-month period, primarily due to: the current year including a full nine-month period compared to the period from May 13, 2022 through November 30, 2023 for the prior year nine-month period, which contributed $178.4 million in sales, partially offset by a decrease of $8.8 million in sales due to lower volume of coil coated, partially offset by an increase in selling price.

#### Operating Income

For the current nine-month period, consolidated operating income increased $41.9 million, or 30.5%, compared to the prior year nine-month period.

Operating income for the AZZ Metal Coatings segment increased $4.6 million, or 3.7% for the current nine-month period, compared to the prior year nine-month period. The increase was due to improved sales as described above offset by higher cost of sales and higher selling, general and administrative expenses. Cost of sales increased $3.1 million, primarily due to higher labor and overhead costs, partially offset by a change in classification of amortization of intangible assets of $5.4 million and a decrease in zinc costs. Selling, general and administrative expense increased due to the recognition of a $4.5 million legal accrual, and the change in classification of certain compensation and information technology costs of $2.0 million to the AZZ Metal Coatings segment, from the Corporate segment.

Operating income for the AZZ Precoat Metals segment increased $45.5 million, or 71.2%. The increase is primarily due to the inclusion of a full 1st quarter of fiscal 2024 compared to a partial fiscal quarter of 2023, which contributed $31.0 million, and increases in operating income for the 2nd and 3rd quarters of current nine-month period compared to the prior year nine-month period. The increases in the 2nd and 3rd quarters were due to: lower applied cost of sales (primarily driven by improved efficiencies which offset higher cost of labor and materials, as well as lower freight costs); lower selling, general and administrative expense (primarily salaries and wages and the change in classification of amortization of intangible assets of $12.2 million); and the increase in sales as described above.

Operating income for the AZZ Infrastructure Solutions segment decreased $6.2 million, due to a legal settlement of $5.75 million and legal expenses associated with the settlement and other matters.

#### Corporate Expenses

Corporate selling, general and administrative expenses increased $2.0 million, or 4.0%, for the current nine-month period, compared to the prior year nine-month period. The increase is primarily due to: amortization expense of $18.1 million related to all intangible assets, which is included in corporate expense in the current nine-month period, and allocated to the segments in the prior year nine-month period; a decrease in transition services agreement fees associated with the AVAIL JV; and employee-related costs. These increases were offset by a decrease in acquisition costs of $15.3 million incurred in the prior year nine-month period and the allocation of certain compensation and information technology costs to the segments in the current nine-month period, that were previously included in corporate expenses.

#### Interest Expense

Interest expense for the current nine-month period increased $20.6 million, to $82.3 million, compared to $61.7 million for the prior year nine-month period. The increase in interest expense is attributable to the debt that was obtained in conjunction with the Precoat Acquisition, which was outstanding for the full current nine-month period, compared to the prior year, as well as higher rates of interest on our borrowings.

#### Equity in Earnings of Unconsolidated Entities

Equity in earnings of unconsolidated subsidiaries for the current nine-month period increased $10.1 million, to $11.1 million, compared to $1.0 million in the prior year nine-month period. The increase is primarily due to higher earnings from the AVAIL JV, and nine months of equity in earnings in the current nine-month period, compared to one month in the prior year nine-month period, as the AVAIL JV equity in earnings are recorded on a one-month lag. See Note 9 of our consolidated financial statements for more information about the AVAIL JV.

#### Income Taxes

The provision for income taxes from continuing operations reflects an effective tax rate of 22.6% for the nine months ended November 30, 2023, compared to 23.8% for the prior year comparable period. The decrease in the effective tax rate is attributable to an unfavorable adjustment in the prior year related to management fees recorded as a result of continuing operations versus discontinued operations reporting.

#### Income from Discontinued Operations, net of tax

The results of our AZZ Infrastructure Solutions segment were classified as discontinued operations in our condensed consolidated statements of operations and excluded from continuing operations for all periods presented. The results of operations from discontinued operations for the prior year nine-month period consist of the following (in thousands):

|  | Nine Months Ended November 30, 2022 |
| --- | ---: |
| Sales | $256,224 |
| Cost of sales | 202,707 |
| Gross margin | 53,517 |
| Selling, general and administrative | 26,186 |
| Loss on disposal of discontinued operations | 159,910 |
| Operating loss from discontinued operations | (132,579) |
| Interest expense | 8 |
| Other (income) expense, net | 6,270 |
| Loss from discontinued operations before income tax | (138,857) |
| Income tax benefit | (25,910) |
| Net loss from discontinued operations | $(112,947) |

See Note 3 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.

### LIQUIDITY AND CAPITAL RESOURCES

We have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt. Our cash requirements generally include cash dividend payments, capital improvements, debt repayment, acquisitions, and share repurchases. We believe that our cash position, cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future.

### Cash Flows

The following table summarizes our cash flows by category for the periods presented (in thousands):

|  | Nine Months Ended November 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities of continuing operations | $180,928 | $68,622 |
| Net cash used in investing activities of continuing operations | (66,853) | (1,207,653) |
| Net cash provided by (used in) financing activities of continuing operations | (109,444) | 1,005,456 |
| Net cash provided by operating activities from discontinued operations | — | 7,973 |
| Net cash used in investing activities from discontinued operations | — | (3,991) |
| Net cash provided by financing activities from discontinued operations | — | 120,000 |
| Working Capital | 192,728 | 230,176 |

Net cash provided by operating activities of continuing operations for the nine-month period was $180.9 million compared to $68.6 million for the prior year nine-month period. The increase in cash provided by operating activities is primarily attributable to increases in net income from continuing operations and in depreciation and amortization, a decrease in deferred income taxes and increases from changes in working capital in the current nine-month period compared to the prior year nine-month period. Changes in current assets and current liabilities increased cash provided by operating activities by $73.8 million, due to decreases in accounts receivable, other receivables, inventories and prepaid expenses and increases in accounts payable, partially offset by decreases in other accrued liabilities. Net cash provided by operating activities from discontinued operations was $8.0 million for the prior year nine-month period.

Net cash used in investing activities of continuing operations for the nine-month period was $66.9 million compared to $1.21 billion for the prior year nine-month period. The decrease in cash used in investing activities for the current quarter was attributable to the Precoat Acquisition completed in the first quarter of fiscal 2023. In the current year, cash used in investing activities was primarily due to cash used for capital expenditures and increased from the prior year nine-month period due to the construction of the coil coating facility in Washington, Missouri. Net cash used in investing activities from discontinued operations was $4.0 million for the prior year nine-month period.

Net cash used in financing activities of continuing operations for the nine-month period was $109.4 million compared to net cash provided by financing activities of $1.01 billion for the prior year nine-month period. The decrease in cash from financing activities during the current quarter was primarily attributable to proceeds from long-term debt in the prior year nine-month period, which were used to fund the Precoat Acquisition.

### Financing and Capital

#### 2022 Credit Agreement and Term Loan B

The Company has a credit agreement with a syndicate of financial institutions as lenders that was entered into on May 13, 2022 (the "2022 Credit Agreement"). On August 17, 2023, the Company repriced the $1.0 billion Term Loan B, which was outstanding under the 2022 Credit Agreement as of November 30, 2023. The repricing reduced the interest rate margin by 50 basis points to an interest rate of Secured Overnight Financing Rate ("SOFR") plus 3.75% and removed the Credit Spread Adjustment, as defined in the 2022 Credit Agreement, of 10 basis points.

The 2022 Credit Agreement includes the following significant terms:

i. provides for a senior secured initial term loan in the aggregate principal amount of $1.3 billion (the "Term Loan B"), due May 13, 2029, which is secured by substantially all of the assets of the Company;

ii. provides for a maximum senior secured Revolving Credit Facility in the aggregate principal amount of $400.0 million (the "Revolving Credit Facility"), due May 13, 2027;

iii.includes a letter of credit sub-facility of up to $100.0 million, which is part of, and not in addition to, the Revolving Credit Facility;

iv. borrowings under the Term Loan B bear an interest rate of SOFR plus 3.75% (following the repricing on August 17, 2023 as noted above) and the Revolving Credit Facility bears an interest rate of SOFR plus 4.25% (as of November 30, 2023—see below for information related to the repricing of the Company’s Revolving Credit Facility on December 20, 2023);

v. includes customary affirmative and negative covenants, and events of default; including restrictions on the incurrence of non-ordinary course debt, investment and dividends, subject to various exceptions; and,

vi. includes a maximum quarterly leverage ratio financial covenant, with reporting requirements to our banking group at each quarter-end.

On December 20, 2023, the Company repriced the $400.0 million Revolving Credit Facility, which was outstanding under the 2022 Credit Agreement. The repricing converted from a rate of SOFR + 425 plus a Credit Spread Adjustment of 10 basis points, to a tiered rate ranging from SOFR plus 275 - 350 basis points, depending on the Company's net leverage ratio, with no Credit Spread Adjustment.

The Company utilizes proceeds from the Revolving Credit Facility primarily to finance working capital needs, capital improvements, dividends, acquisitions and for general corporate purposes.

As defined in the credit agreement, quarterly prepayments were due against the outstanding principal of the Term Loan B and were payable on the last business day of each May, August, November and February, beginning August 31, 2022, in a quarterly aggregate principal amount of $3.25 million, with the entire remaining principal amount due on May 13, 2029, the maturity date. Additional prepayments made against the Term Loan B contribute to these required quarterly payments. Due to a prepayment of $240.0 million that the Company made on the Term Loan B during fiscal year 2023 in connection with the sale of the AIS business, the quarterly mandatory principal payment requirement has been met, and the quarterly payments of $3.25 million are not required at this time.

The weighted average interest rate for the Company's outstanding debt, including the Revolving Credit Facility and the Term Loan B, was 8.54% at November 30, 2023.

The Company's credit agreement required the Company to maintain a maximum Total Net Leverage Ratio (as defined in the loan agreement) no greater than 6.25 through November 2022. For each subsequent quarter, the maximum ratio decreases by 25 basis points through May 31, 2024, when the maximum Total Net Leverage Ratio reaches 4.5. As of November 30, 2023, the Company was required to maintain a Total Net Leverage Ratio no greater than 5.0. As of November 30, 2023, we were in compliance with all covenants or other requirements set forth in the debt agreements.

As of November 30, 2023, we had $1.04 billion of floating- and fixed-rate debt outstanding on the Revolving Credit Facility and the Term Loan B, with varying maturities through fiscal 2029. As of November 30, 2023, we are in compliance with each of the covenants related to these outstanding borrowings. Additionally, as of November 30, 2023, we had approximately $375.5 million of additional credit available for future draws or letters of credit.

#### Letters of Credit

As of November 30, 2023, we had total outstanding letters of credit in the amount of $14.5 million. These letters of credit are issued for a number of reasons, but are most commonly issued in lieu of customer retention withholding payments covering warranty, performance periods and insurance collateral.

#### Interest Rate Swap

We manage our exposure to fluctuations in interest rates using a mix of fixed and variable-rate debt. We utilize interest rate swap agreements to change the variable interest rate to a fixed rate on a portion of our variable-rate debt. On September 27, 2022, the Company entered into an interest rate swap agreement with banks that are parties to the 2022 Credit Agreement. On October 7, 2022, the agreement was amended to change the SOFR-based component of the interest rate on a portion of our variable-rate debt to a fixed rate of 4.277%, resulting in a total fixed rate of 8.627% (the "2022 Swap"). On August 17, 2023, the Company repriced its Term Loan B, to which the 2022 Swap is related, to reduce the interest rate to SOFR + 3.75%. Following the repricing, the 2022 Swap has a total fixed rate of 8.027%. The 2022 Swap had an initial notional amount of $550.0 million and a maturity date of September 30, 2025. The notional amount of the interest rate swap decreases by a pro-rata portion of any quarterly principal payments made on the Term Loan B, and the current notional amount is $543.1 million. The objective of the 2022 Swap is to eliminate the variability of cash flows in interest payments attributable to changes in benchmark one-month SOFR interest rates, for approximately one-half of the total amount of our variable-rate debt. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month SOFR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable-rate debt. We designated the 2022 Swap as a cash flow hedge at inception. Cash settlements, in the form of cash payments or cash receipts, of the 2022 Swap are recognized in interest expense.

### Greenfield Aluminum Coil Coating Facility

We are expanding our coatings capabilities by constructing a new 25-acre aluminum coil coating facility in Washington, Missouri that is expected to be operational in 2025. The new facility will be included in the AZZ Precoat Metals segment and is supported by a take-or-pay contract for approximately 75% of the output from the new plant. We expect to spend approximately $125.8 million in progress payments over the estimated two-year construction timeline and we currently have capital commitments of approximately $48.4 million. We expect to pay approximately $71.2 million in fiscal 2024, of which $33.6 million was paid during the current nine-month period. The remaining payments in fiscal 2024 are expected to be funded through cash flows from operations and borrowings under the Revolving Credit Facility. The project is not expected to result in a material adverse effect on our business, results of operations, cash flow or financial condition.

### Share Repurchase Program

During the nine months ended November 30, 2023 and 2022, to prioritize repayments of debt, including debt incurred to finance the Precoat Acquisition, the Company did not repurchase shares of common stock under the 2020 Share Authorization. The Company has $84.0 million that may be used to purchase shares. See Part II, “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.”

### Other Exposures

We have exposure to commodity price increases in all three of our operating segments, primarily zinc and natural gas in the AZZ Metal Coatings segment, and natural gas, steel and aluminum in the AZZ Precoat Metals segment. We attempt to minimize these increases through fixed cost contract purchases on zinc and natural gas. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing process, supply chain management, and through increases in prices where competitively feasible. We have indirect exposure to copper, aluminum, steel and nickel-based alloys in the AZZ Infrastructure Solutions segment through our 40% investment in the AVAIL JV.

### Off Balance Sheet Arrangements and Contractual Obligations

As of November 30, 2023, the Company did not have any off-balance sheet arrangements as defined under SEC rules. Specifically, there were no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on the financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.

As of November 30, 2023, we had outstanding letters of credit in the amount of $14.5 million. These letters of credit are issued for a number of reasons, but are most commonly issued to support collateral requirements with insurance companies.

### Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. We continuously evaluate our estimates and assumptions based upon current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, sales and expenses that are not readily apparent from other sources.

There were no significant changes to our critical accounting policies and estimates compared to the critical accounting policies and estimates disclosed in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended February 28, 2023.

### Non-GAAP Disclosures

In addition to reporting financial results in accordance with Generally Accepted Accounting Principles in the United States ("GAAP"), we provided adjusted net income and adjusted earnings per share, (collectively, the "Adjusted Earnings Measures"), which are non-GAAP measures. Management believes that the presentation of these measures provides investors with greater transparency when comparing operating results across a broad spectrum of companies, which provides a more complete understanding of our financial performance, competitive position and prospects for future capital investment and debt reduction. Management also believes that investors regularly rely on non-GAAP financial measures, such as adjusted net income and adjusted earnings per share, to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP.

In calculating adjusted net income and adjusted earnings per share, management excludes intangible asset amortization, acquisition expenses, transaction related expenses and certain legal settlements and accruals. Management also provides EBITDA and Adjusted EBITDA, which are non-GAAP measures. Management defines EBITDA as earnings excluding depreciation, amortization, interest, and provision for income taxes. Adjusted EBITDA is defined as earnings excluding depreciation, amortization, interest, provision for income taxes, acquisition expenses, transaction related expenses and certain legal settlements and accruals. Management believes EBITDA and Adjusted EBITDA are used by investors to analyze operating performance and evaluate the Company's ability to incur and service debt and its capacity for making capital expenditures in the future. EBITDA and Adjusted EBITDA are also useful to investors to help assess the Company's estimated enterprise value. In addition, management believes that the adjustments shown below are useful to investors in order to allow them to compare the Company's financial results during the periods shown without the effect of each of these adjustments.

Management provides non-GAAP financial measures for informational purposes and to enhance understanding of the Company’s GAAP consolidated financial statements. Readers should consider these measures in addition to, but not instead of or superior to, the Company's financial statements prepared in accordance with GAAP. These non-GAAP financial measures may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

The following tables provide a reconciliation for the three and nine months ended November 30, 2023 and 2022 between the various measures calculated in accordance with GAAP to the Adjusted Earnings Measures (in thousands, except per share data):

### Adjusted Net Income and Adjusted Earnings Per Share from Continuing Operations

|  | Three Months Ended November 30, 2023 Amount | Per Diluted Share(1) | 2022 Amount | Per Diluted Share(1) | Nine Months Ended November 30, 2023 Amount | Per Diluted Share(1) | 2022 Amount | Per Diluted Share(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net income from continuing operations | $26,890 |  | $18,439 |  | $83,744 |  | $58,912 |  |
| Less: preferred stock dividends | (3,600) |  | (3,600) |  | (10,800) |  | (4,640) |  |
| Net income from continuing operations available to common shareholders | 23,290 |  | 14,839 |  | 72,944 |  | 54,272 |  |
| Impact of after-tax interest expense for convertible notes | — |  | — |  | — |  | — |  |
| Impact of preferred stock dividends | 3,600 |  | — |  | 10,800 |  | — |  |
| Net income and diluted earnings per share from continuing operations(2) | 26,890 | $0.92 | 14,839 | $0.59 | 83,744 | $2.86 | 54,272 | $2.17 |
| Impact of preferred stock dividends | — |  | — |  | — |  | 4,640 |  |
| Net income and diluted earnings per share from continuing operations for Adjusted net income calculation(2) | 26,890 | 0.92 | 14,839 | 0.59 | 83,744 | 2.86 | 58,912 | 2.10 |
| Adjustments: |  |  |  |  |  |  |  |  |
| Acquisition and transaction-related expenditures(3) | — | — | — | — | — | — | 15,320 | 0.55 |
| Amortization of intangible assets | 5,872 | 0.20 | 6,133 | 0.25 | 18,108 | 0.62 | 17,615 | 0.63 |
| Legal settlement and accrual(4) | 4,500 | 0.15 | — | — | 10,250 | 0.35 | — | — |
| Subtotal | 10,372 | 0.35 | 6,133 | 0.25 | 28,358 | 0.97 | 32,935 | 1.18 |
| Tax impact(5) | (2,489) | (0.08) | (1,472) | (0.06) | (6,806) | (0.23) | (7,904) | (0.28) |
| Total adjustments | 7,883 | 0.27 | 4,661 | 0.19 | 21,552 | 0.74 | 25,031 | 0.90 |
| Adjusted net income and adjusted earnings per share from continuing operations | $34,773 | $1.19 | $19,500 | $0.78 | $105,296 | $3.60 | $83,943 | $3.00 |
| Weighted average shares outstanding - Diluted |  | 29,330 |  | 24,995 |  | 29,278 |  | 28,022 |

(1) Earnings per share amounts included in the table above may not sum due to rounding differences. Year-to-date earnings per share does not always represent the

sum of the quarters' earnings per share when the preferred shares for any quarter in the year-to-date period are anti-dilutive.

(2) For the nine months ended November 30, 2022, the calculation of diluted earnings per share is based on weighted average shares outstanding of 24,984, as the

preferred shares are anti-dilutive for this calculation. The calculation of adjusted diluted earnings per share is based on weighted average shares outstanding of

28,022, as the preferred shares are dilutive for this calculation. Adjusted net income for adjusted earnings per share also includes the addback of preferred

dividends.

(3) Includes Corporate expenses related to the Precoat Metals acquisition and the divestiture of AZZ Infrastructure Solutions business into the AVAIL JV.

(4) For the three months ended November 30, 2023, represents a legal accrual related to the Metal Coatings segment of $4.5 million. For the nine months ended

November 20, 2023, consists of the $4.5 million accrual for the Metal Coatings segment and $5.75 million for the settlement of a litigation matter related

to the AIS segment that was retained following the sale of the AIS business. See Note 17.

(5) The non-GAAP effective tax rate for each of the periods presented is estimated at 24.0%.

### Adjusted EBITDA from Continuing Operations

|  | Three Months Ended November 30, 2023 | 2022 | Nine Months Ended November 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income from continuing operations | $26,890 | $18,439 | $83,744 | $58,912 |
| Interest expense | 25,855 | 26,123 | 82,331 | 61,739 |
| Income tax expense | 8,780 | 2,447 | 24,397 | 18,380 |
| Depreciation and amortization | 20,357 | 21,938 | 59,034 | 55,813 |
| Adjustments: |  |  |  |  |
| Acquisition and transaction-related expenditures | — | — | — | 15,320 |
| Legal settlement and accrual | 4,500 | — | 10,250 | — |
| Adjusted EBITDA from continuing operations | $86,382 | $68,947 | $259,756 | $210,164 |

### Adjusted EBITDA from Continuing Operations by Segment

A reconciliation of adjusted EBITDA by segment to net income from continuing operations is as follows (in thousands):

|  | Three Months Ended November 30, 2023 Metal Coatings | Precoat Metals | Infrastructure Solutions | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net income (loss) from continuing operations | $37,813 | $32,752 | $8,452 | $(52,127) | $26,890 |
| Interest expense | — | — | — | 25,855 | 25,855 |
| Income tax expense | — | — | — | 8,780 | 8,780 |
| Depreciation and amortization | 6,678 | 7,501 | — | 6,178 | 20,357 |
| Adjustments: |  |  |  |  |  |
| Legal accrual | 4,500 | — | — | — | 4,500 |
| Adjusted EBITDA from continuing operations | $48,991 | $40,253 | $8,452 | $(11,314) | $86,382 |

|  | Nine Months Ended November 30, 2023 Metal Coatings | Precoat Metals | Infrastructure Solutions | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net income (loss) from continuing operations | $128,353 | $109,449 | $4,892 | $(158,950) | $83,744 |
| Interest expense | — | — | — | 82,331 | 82,331 |
| Income tax expense | — | — | — | 24,397 | 24,397 |
| Depreciation and amortization | 19,647 | 20,407 | — | 18,980 | 59,034 |
| Adjustments: |  |  |  |  |  |
| Legal settlement and accrual | 4,500 | — | 5,750 | — | 10,250 |
| Adjusted EBITDA from continuing operations | $152,500 | $129,856 | $10,642 | $(33,242) | $259,756 |

|  | Three Months Ended November 30, 2022 Metal Coatings | Precoat Metals | Infrastructure Solutions | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net income (loss) from continuing operations | $33,670 | $21,053 | $1,006 | $(37,290) | $18,439 |
| Interest expense | — | — | — | 26,123 | 26,123 |
| Income tax expense | — | — | — | 2,447 | 2,447 |
| Depreciation and amortization | 8,225 | 13,381 | — | 332 | 21,938 |
| Adjusted EBITDA from continuing operations | $41,895 | $34,434 | $1,006 | $(8,388) | $68,947 |

42

|  | Nine Months Ended November 30, 2022 Metal Coatings | Precoat Metals | Infrastructure Solutions | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net income (loss) from continuing operations | $123,806 | $63,955 | $1,006 | $(129,855) | $58,912 |
| Interest expense | — | — | — | 61,739 | 61,739 |
| Income tax expense | — | — | — | 18,380 | 18,380 |
| Depreciation and amortization | 24,785 | 29,891 | — | 1,137 | 55,813 |
| Adjustments: |  |  |  |  |  |
| Acquisition and transaction-related expenditures | — | — | — | 15,320 | 15,320 |
| Adjusted EBITDA from continuing operations | $148,591 | $93,846 | $1,006 | $(33,279) | $210,164 |

## Market risk

As filed, 403 characters.

There have been no material changes to the Company’s market risk disclosures during the three and nine months ended November 30, 2023. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the year ended February 28, 2023.

## Controls and procedures

As filed, 1,457 characters.

### Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, management of the Company has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q to provide reasonable assurance that information required to be disclosed in Company reports, filed or submitted, under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules; and (ii) accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely discussions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There have been no significant changes in the Company's internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

## Risk factors

As filed, 944 characters.

There are numerous factors that affect our business, financial condition, results of operations and cash flows, many of which are beyond our control. In addition to other information set forth in this Quarterly Report, careful consideration should be given to “Item 1A. Risk Factors” in Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and

Results of Operations” in Part II of our Annual Report, which contain descriptions of significant factors that might cause the actual results of operations in future periods to differ materially from those currently projected in the forward-looking statements contained therein.

There have been no material changes from risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K. See the discussion of the Company’s risk factors under Part I, Item 1A. in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2023.

Filed Jan 9, 2024.
Source: SEC EDGAR, the filing index for accession 0000008947-24-000013. Last ingested by Listed: Oct 26, 2026, 16:17 ET. No prices; not investment advice.