AZZ Inc.

10/08/2025 | Press release | Distributed by Public on 10/08/2025 14:13

Quarterly Report for Quarter Ending August 31, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
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 manufactured solutions, 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, paint used in ourcoil coating process; supply-chain vendor delays; customer requested delays of our manufactured solutions; 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 manufactured solutions 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; tariffs, 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, 2025, 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 "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the fiscal year ended February 28, 2025, and with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
Business Operations Update
Our results for the six months ended August 31, 2025 (the "current six-month period") were favorably impacted primarily by the recognition of equity in earnings for the AVAIL JV, which included the gain from AVAIL's sale of the Electrical Products Group business to nVent Electric plc., and by the growth in demand for our manufactured solutions in the construction and utilities industries.
The equity in earnings from the AVAIL JV was the primary contributor to net income of $260.3 million for the current six-month period. Our operating results for the current six-month period, including operating results by segment, are described in the summary on the following page, and detailed descriptions can be found below under "Results of Operations."
Our operations generated $373.2 million of cash for the current six-month period. The components of our liquidity and descriptions of our cash flows, capital investments, and other matters impacting our liquidity and capital resources can be found below under "Liquidity and Capital Resources."
Outlook
While it is difficult to predict future North American economic activity and its impact on the demand for our galvanizing and coil coating solutions, as well the impact that political or regulatory developments may have on us, we have noted several factors below that have impacted or may impact our results of operations during the third quarter of fiscal 2026.
•Sales prices in our AZZ Metal Coatings segment are expected to remain consistent with current levels. Fluctuations in product mix, along with competitive market pressures, may impact selling price.
•Sales prices in our AZZ Precoat Metals segment are expected to increase on average from past levels, resulting from passing through higher pricing on specified materials along with increased overall selling prices, although fluctuations in mix may impact the average selling price.
•Demand in our AZZ Metal Coatings and AZZ Precoat Metals segments is expected to follow our typical seasonal patterns.
•Volumes for our AZZ Metal Coatings segment remain at normal seasonal levels, which should support the continued demand for our metal coatings solutions.
•Customer inventories for our AZZ Precoat Metals segment remain at normal seasonal levels, which should support the continued demand for our coil coating solutions.
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. 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. 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 AUGUST 31, 2025 COMPARED TO THE QUARTER ENDED AUGUST 31, 2024
Segment Sales and Operating Income
The following tables contain operating segment data by segment, for the Company's corporate operations and on a consolidated basis (in thousands):
Three Months Ended August 31, 2025
Metal Coatings Precoat Metals
Infrastructure Solutions(1)
Corporate(2)
Total
Sales $ 189,984 $ 227,291 $ - $ - $ 417,275
Cost of sales 132,923 183,060 - - 315,983
Gross margin 57,061 44,231 - - 101,292
Selling, general and administrative 5,355 7,710 26 19,740 32,831
Operating income (loss) $ 51,706 $ 36,521 (26) (19,740) 68,461
Interest expense - - - (13,665) (13,665)
Equity in earnings of unconsolidated subsidiaries(3)
- - 59,345 - 59,345
Other income 2 - - 186 188
Income (loss) before income tax $ 51,708 $ 36,521 $ 59,319 (33,219) 114,329
Income tax expense 24,983 24,983
Net income (loss) $ (58,202) $ 89,346
See notes below tables.
Three Months Ended August 31, 2024
Metal Coatings Precoat Metals
Infrastructure Solutions(1)
Corporate(2)
Total
Sales $ 171,500 $ 237,507 $ - $ - $ 409,007
Cost of sales 118,193 187,300 - - 305,493
Gross margin 53,307 50,207 - - 103,514
Selling, general and administrative 5,619 7,677 9 22,563 35,868
Operating income (loss) 47,688 42,530 (9) (22,563) 67,646
Interest expense - - - (21,909) (21,909)
Equity in earnings of unconsolidated subsidiaries - - 1,478 - 1,478
Other income (expense) (7) - - 424 417
Income (loss) before income tax $ 47,681 $ 42,530 $ 1,469 (44,048) 47,632
Income tax expense 12,213 12,213
Net income (loss) $ (56,261) $ 35,419
(1)
Infrastructure Solutions segment includes the equity in earnings from our investment in the AVAIL JV, as well as other expenses related to receivables and liabilities that were retained 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)
During the first quarter of fiscal 2026, AVAIL completed the sale of the Electrical Products Group ("EPG") to nVent Electric plc. The three months ended August 31, 2025 includes $61.6 million, which represents the gain related to the sale of the EPG, offset by the recognition of an impairment loss on the AVAIL JV and an adjustment related to a change in AVAIL's transfer pricing policy. See "Liquidity and Capital Resources-AVAIL JV."
Sales
For the three months ended August 31, 2025 (the "current quarter"), consolidated sales increased $8.3 million, or 2.0%, compared to the three months ended August 31, 2024 (the "prior year quarter").
Sales for the AZZ Metal Coatings segment increased $18.5 million, or 10.8%, for the current quarter, compared to the prior year quarter. The increase was primarily due to $22.1 million resulting from a higher volume of steel processed, partially offset by a decrease in selling price of $2.8 million, due to product mix, and a decrease in other sales of $0.9 million.
Sales for the AZZ Precoat Metals segment decreased $10.2 million, or 4.3% for the current quarter, compared to the prior year quarter. The decrease is due to a lower volume of coil coated, partially offset by an increase in the average price due to vendor price increases that were passed through to the customer.
Operating Income
For the current quarter, consolidated operating income was $68.5 million, an increase of $0.8 million, or 1.2%, compared to the prior year quarter.
Operating income for the AZZ Metal Coatings segment increased $4.0 million, or 8.4%, for the current quarter, compared to the prior year quarter. The increase was due to increased sales as described above, offset by an increase in cost of sales. The increase in cost of sales of $14.7 million was primarily due to a $7.9 million increase in variable costs, a $4.8 million increase in zinc cost, and a $2.6 million increase in labor costs, offset by a decrease in other direct costs of $0.6 million. Selling, general and administrative expense decreased $0.3 million.
Operating income for the AZZ Precoat Metals segment decreased $6.0 million, or 14.1%for the current quarter, compared to the prior year quarter. The decreasewas primarily due to decreased sales as described above. In addition, cost of sales decreased by $4.2 million, primarily due to variable costs related to the decreased volume of coil coated, partially offset by an increase in cost of sales for the new plant in Washington, Missouri, which became operational during the first quarter of fiscal 2026.
Corporate Expenses
Corporate selling, general and administrative expenses decreased $2.8 million, or 12.5%, for the current quarter, compared to the prior year quarter. The decrease was primarily due to decreases in salaries and wages, employee benefits and stock-based compensation, primarily due to retirement and other severance costs recognized in the prior year.
Interest Expense
Interest expense for the current quarter decreased $8.2 million, to $13.7 million, compared to $21.9 million for the prior year quarter. The decrease in interest expense was primarily attributable to a decrease in the weighted average debt outstanding of $304.4 million and a decrease in the weighted average interest rate of 1.77% in the current quarter, compared to the prior year quarter. The decrease in interest expense is partially offset by lower capitalized interest associated with the construction of the new plant in Washington, Missouri, for the current quarter, compared to the prior year quarter.
Equity in Earnings of Unconsolidated Entities
Equity in earnings of unconsolidated subsidiaries for the current quarter increased $57.9 million to $59.3 million, compared to $1.5 million in the prior year quarter. The increase was due to the recognition of a gain of $109.4 million following the sale of AVAIL's Electrical Products Group, offset by an impairment loss of $45.9 million recognized on the AVAIL JV to reduce the carrying value to estimated fair value, and a decrease in our proportionate share of net losses of $5.6 million. See "Item I. Financial Statements-Note 8" for more information about the AVAIL JV.
Income Taxes
The provision for income taxes reflects an effective tax rate of 21.9% for the current quarter, compared to 25.6% for the prior year quarter. The decrease in the effective tax rate is primarily attributable to higher R&D tax credits related to the R&D efforts in the construction of the new aluminum coil coating facility in Washington, Missouri, which became operational during the first quarter of fiscal 2026.
SIX MONTHS ENDED AUGUST 31, 2025 COMPARED TO THE SIX MONTHS ENDED AUGUST 31, 2024
Segment Sales and Operating Income
The following tables contain operating segment data by segment, for the Company's corporate operations and on a consolidated basis (in thousands):
Six Months Ended August 31, 2025
Metal Coatings Precoat Metals
Infrastructure Solutions(1)
Corporate(2)
Total
Sales $ 377,199 $ 462,038 $ - $ - $ 839,237
Cost of sales(3)
263,279 370,536 - - 633,815
Gross margin 113,920 91,502 - - 205,422
Selling, general and administrative(4)
11,482 15,627 106 40,197 67,412
Operating income (loss) 102,438 75,875 (106) (40,197) 138,010
Interest expense - - - (32,228) (32,228)
Equity in earnings of unconsolidated subsidiaries(5)
- - 232,868 - 232,868
Other income (expense) (60) - - 1,575 1,515
Income (loss) before income tax $ 102,378 $ 75,875 $ 232,762 (70,850) 340,165
Income tax expense 79,911 79,911
Net income (loss) $ (150,761) $ 260,254
See notes below.
Six Months Ended August 31, 2024
Metal Coatings Precoat Metals
Infrastructure Solutions(1)
Corporate(2)
Total
Sales $ 348,152 $ 474,063 $ - $ - $ 822,215
Cost of sales 240,929 375,102 - - 616,031
Gross margin 107,223 98,961 - - 206,184
Selling, general and administrative 11,602 16,338 38 40,811 68,789
Operating income (loss) 95,621 82,623 (38) (40,811) 137,395
Interest expense - - - (44,683) (44,683)
Equity in earnings of unconsolidated subsidiaries - - 5,302 - 5,302
Other income 49 - - 572 621
Income (loss) before income tax $ 95,670 $ 82,623 $ 5,264 (84,922) 98,635
Income tax expense 23,614 23,614
Net income (loss) $ (108,536) $ 75,021
(1)
Infrastructure Solutions segment includes the equity in earnings from our investment in the AVAIL JV, as well as other expenses related to receivables and liabilities that were retained 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)
Metal Coatings segment includes restructuring charges of $3.8 million. See "Item I. Financial Statements-Note 18."
(4)
Includes stock-based compensation expense of $2.2 million, of which $0.4 million and $1.8 million are included in Metal Coatings and Corporate, respectively. See Note 16.
(5)
During the first quarter of fiscal 2026, AVAIL completed the sale of the Electrical Products Group ("EPG") business to nVent Electric plc. The six months ended August 31, 2025 includes $227.5 million, which represents the gain related to the sale of the EPG business, offset by the recognition of an impairment loss on the AVAIL JV and an adjustment related to a change in AVAIL's transfer pricing policy. See "Liquidity and Capital Resources-AVAIL JV."
Sales
For the current six-month period, consolidated sales increased $17.0 million, or 2.1%, compared to the six months ended August 31, 2024 (the "prior year six-month period").
Sales for the AZZ Metal Coatings segment increased $29.0 million, or 8.3%, for the current six-month period, compared to the prior year six-month period. The increasein sales was primarily due to an increase of $33.8 million resulting from a higher volume of steel processed during the period, partially offset by a decrease of $4.3 million in selling price, due to product mix. Other sales decreased $0.4 million.
Sales for the AZZ Precoat Metals segment decreased $12.0 million, or 2.5% for the current six-month period, primarily due to a lower volume of coil coated, partially offset by an increase in selling price due to vendor price increases that were passed through to the customer.
Operating Income
For the current six-month period, consolidated operating income increased $0.6 million, or 0.4%, to $138.0 million, compared to the prior year six-month period.
Operating income for the AZZ Metal Coatings segment increased $6.8 million, or 7.1% for the current six-month period, compared to the prior year six-month period. The increasewas due to improved sales as described above, and lower selling, general and administrative expenses, partially offset by higher cost of sales. Cost of sales increased $22.4 million, primarily due to higher labor and variable costs of $15.4 million, and increased zinc costs of $6.9 million. Selling, general and administrative expense decreased $0.2 million.
Operating income for the AZZ Precoat Metals segment decreased $6.7 million, or 8.2%. The decrease was primarily due to the decrease in sales as described above. In addition, cost of sales decreased by$4.6 million, primarily due to variable costs related to the decreased volume of coil coated, partially offset by an increase in cost of sales for the new plant in Washington, Missouri, which became operational during the first quarter of fiscal 2026.
Corporate Expenses
Corporate selling, general and administrative expenses decreased $0.6 million, or 1.5%, for the current six-month period, compared to the prior year six-month period. The decrease was primarily due to decreases in compensation costs, primarily due to retirement and other severance costs recognized in the prior year, partially offset by an increase in stock-based compensation in the current six-month period, primarily due to the adoption of the Executive Retiree LTI Program and the acceleration of expense for the related stock awards.
Interest Expense
Interest expense for the current six-month period decreased $12.5 million, to $32.2 million, compared to $44.7 million for the prior year six-month period. The decrease in interest expense is primarily attributable to a decrease in the weighted average debt outstanding of$136.4 million and a decrease in the weighted average interest rate of 1.54% in the current six-month period compared to the prior year six-month period, partially offset by lower capitalized interest associated with the construction of the new plant in Washington, Missouri.
Equity in Earnings of Unconsolidated Entities
Equity in earnings of unconsolidated subsidiaries for the current six-month period increased $227.6 million, to $232.9 million, compared to $5.3 million in the prior year six-month period. The increase is due to $275.2 million of a gain from the sale of the Electrical Products Group, offset by an impairment loss of $45.9 million on the AVAIL JV, both in the current six-month period, and a decrease of $1.7 million of equity in earnings from the AVAIL JV's operations for the current six-month period, compared to the prior year six-month period. See "Item I. Financial Statements-Note 8" for more information about the AVAIL JV.
Income Taxes
The provision for income taxes reflects an effective tax rate of 23.5% for the six months ended August 31, 2025 compared to 23.9% for the prior year comparable period. The decrease in the effective tax rate is primarily attributable to higher R&D tax credits related to the construction of the new aluminum coil coating facility in Washington, Missouri, which became operational during the first quarter of fiscal 2026.
On July 4, 2025, the U.S. enacted the One Big Beautiful Bill Act ("the Act") that includes several U.S. corporate tax provisions, including the restoration of 100% bonus depreciation on qualified property and the current deductibility of domestic research and experimental expenditures. The provisions of the Act did not have a material impact to our income tax expense or effective tax rate. We expect the provisions of the Act to result in a reduction in our fiscal 2026 cash tax payments.
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 working capital needs, capital improvements, quarterly cash dividends, acquisitions and other general corporate purposes. Based on our current financial condition and current operations, 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.
As of August 31, 2025, our total liquidity of $362.2 million consisted of available capacity on our Revolving Credit Facility and Receivables Securitization Facility of $361.3 million and cash and cash equivalents of $0.9 million.
Cash Flows
The following table summarizes our cash flows by category for the periods presented (in thousands):
Six Months Ended August 31,
2025 2024
Net cash provided by operating activities $ 373,169 $ 119,430
Net cash used in investing activities (66,491) (58,740)
Net cash used in financing activities (306,614) (62,750)
Net cash provided by operating activities for the current six-month period was $373.2 million, driven primarily by net income of $260.3 million, adjusted to exclude non-cash charges, net of non-cash income of $171.7 million, a cash distribution received on the investment in the AVAIL JV of $273.2 million, a decrease in cash resulting from an increase in working capital of $5.7 million, and an increase in cash resulting from changes in other long-term assets and liabilities, including deferred taxes, of $17.1 million. The increase in working capital is due primarily to decreases in accrued liabilities and increases in accounts receivable and prepaid expenses, offset by increases in accounts payable and income taxes payable, and decreases in inventories and contract assets. Net cash provided by operating activities was used to fund $40.2 million of capital expenditures, make net payments on long-term debt and finance leases of $291.4 million, make dividend payments of $11.1 million and make payments for taxes related to net share settlement of equity awards of $5.0 million.
Net cash provided by operating activities for the prior year six-month period was $119.4 million, driven primarily by net income of $75.0 million, adjusted to exclude non-cash charges, net of non-cash income of $48.6 million and a decrease in cash resulting from an increase in working capital of $8.5 million, partially offset by a decrease in cash resulting from other long-term assets and liabilities, including deferred taxes, of $0.9 million. Net cash provided by operating activities was used to fund $59.5 million of capital expenditures, make net payments on long-term debt and finance leases liabilities of $45.4 million, make dividend payments of $12.9 million and make payments for taxes related to net share settlement of equity awards of $5.0 million.
Financing and Capital
2022 Credit Agreement and Term Loan B
We have a credit agreement with a syndicate of financial institutions as lenders that was entered into on May 13, 2022 and was subsequently amended on August 17, 2023, December 20, 2023, March 20, 2024, September 24, 2024, February 27, 2025, and August 5, 2025 (collectively referred to herein as the "2022 Credit Agreement").
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; as of August 31, 2025, the outstanding balance of the Term Loan B was $434.9 million;
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 Secured Overnight Financing Rate ("SOFR") plus 1.75% and the Revolving Credit Facility bears a leverage-based rate with various tiers between 1.75% and 2.75%; as of August 31, 2025, the interest rate was SOFR plus 1.75%;
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 August 5, 2025, we repriced the Term Loan B. The repricing reduced the margin from SOFR plus 2.50% to SOFR plus 1.75%.
We primarily utilize proceeds from the Revolving Credit Facility to finance timing fluctuations of working capital needs, capital improvements, quarterly cash dividends, acquisitions and other general corporate purposes.
As defined in the 2022 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 contributed to these required quarterly payments. Due to prepayments made against the Term Loan B since August 31, 2022, the quarterly mandatory principal payment requirement has been met, and the quarterly payments of $3.25 million are no longer required.
Receivables Securitization Facility
On July 10, 2025, we entered into a credit agreement secured by our accounts receivable (the "Receivables Securitization Facility.") Under this arrangement, we transferred our trade receivables to a special purpose entity ("SPE"), which in turn pledged those receivables as collateral for borrowings under the facility. The transaction does not qualify as a sale under ASC 860, Transfers and Servicing; as a result, the arrangement is accounted for as a secured borrowing.
Accordingly, the receivables transferred to the SPE will remain on our consolidated balance sheet within trade accounts receivable and contract assets, and the Receivables Securitization Facility is included in "Long-term debt, net." The Receivables Securitization Facility has a limit of $150.0 million and is due July 10, 2028. As of August 31, 2025, the total amount of receivables pledged under the facility was $233.5 million, consisting of $129.3 million in trade accounts receivable and $104.1 million in contract assets, with outstanding borrowings of $150.0 million. The interest rate on the Receivables Securitization Facility is one-month SOFR plus 0.95%.
We remain exposed to the credit risk associated with the underlying receivables and are responsible for their collection. The Receivables Securitization Facility includes provisions that allow the SPE to take control of the assets only in the event of bankruptcy or violation of servicing the secured accounts receivable. We will monitor these provisions to ensure ongoing compliance and availability under the facility.
The proceeds from the Receivables Securitization Facility were used to pay down the Term Loan B.
The weighted average interest rate for our outstanding debt, including the Revolving Credit Facility, the Term Loan B, and Receivables Securitization Facility was 6.49% and 8.03% for the six months ended August 31, 2025 and 2024, respectively. We are also obligated to pay a leverage-based commitment fee with various tiers between 0.2% and 0.3% per year for unused amounts under the Revolving Credit Facility. As of August 31, 2025, the commitment fee rate was 0.20%.
Debt Compliance and Outstanding Borrowings
Our 2022 Credit Agreement requires us to maintain a maximum Total Net Leverage Ratio (as defined in the loan agreement) no greater than 4.5. As of August 31, 2025, we were in compliance with all covenants and other requirements set forth in the 2022 Credit Agreement.
As of August 31, 2025, we had $609.9 million of debt outstanding, with varying maturities through fiscal 2030. We had approximately $361.3 million of additional credit available as of August 31, 2025.
Letters of Credit
As of August 31, 2025, we had total outstanding letters of credit in the amount of $13.7 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 on our floating-rate debt by entering into interest rate swap agreements to convert a portion of our variable-rate debt to a fixed rate.
On September 27, 2022, we entered into a fixed-rate interest rate swap agreement, which was subsequently amended on October 7, 2022. The 2022 Swap was terminated on June 30, 2025. Simultaneous to the termination of the 2022 Swap, we entered into a new fixed-rate interest rate swap agreement on June 30, 2025. The 2025 Swap converts the SOFR-based component of the interest rate to 3.759%. As of August 31, 2025, the 2025 Swap resulted in a total fixed rate of 5.509%. The 2025 Swap had an initial notional amount of $290.0 million and a maturity date of June 30, 2027. The objective of the 2025 Swap is to eliminate the variability of cash flows in interest payments attributable to changes in benchmark one-month SOFR interest rates. 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 2025 Swap as a cash flow hedge at inception. Cash settlements, in the form of cash payments or cash receipts, of the 2025 Swap are recognized in interest expense.
Capital Commitments-Greenfield Aluminum Coil Coating Facility
We are expanding our coatings capabilities through the construction of a new 25-acre aluminum coil coating facility in Washington, Missouri, which became operational during the first quarter of fiscal 2026. The new greenfield facility is 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 $121.8 million in capital payments over the life of the project, of which $113.6 million was paid prior to fiscal 2026 and $4.1 million was paid during the six months ended August 31, 2025. The remaining balance of $4.1 million is on schedule to occur by the third quarter of fiscal 2026, for which we have capital commitments of $4.1 million. The remaining payments in fiscal 2026 are expected to be funded through cash flows from operations.
AVAIL JV
We account for our 40% interest in the AVAIL JV under the equity method of accounting and include our equity in earnings as part of the AZZ Infrastructure Solutions segment. We record our equity in earnings in the AVAIL JV on a one-month lag. In May 2025, Avail Infrastructure Solutions ("AVAIL"), in which we have an unconsolidated investment through the AVAIL JV, completed the sale of its electrical enclosures, switchgear, and bus systems businesses (the "Electrical Products Group") to nVent Electric plc for a purchase price of $975.0 million.
During the three months ended May 31, 2025, we received a distribution of cash from the AVAIL JV of $273.2 million, which exceeded our investment in the AVAIL JV of $107.4 million. Since we are not liable for the obligations of the AVAIL JV nor otherwise committed to provide financial support, after writing off our investment in the AVAIL JV, we recognized $165.8 million as a gain for the three months ended May 31, 2025. Due to the timing of the receipt of cash and the recognition of equity in earnings, we suspended the recognition of equity in earnings of the AVAIL JV as of May 31, 2025, until our proportionate share of earnings exceeds the excess distribution previously recognized in earnings. During the three months ended August 31, 2025, we recognized the equity in earnings from AVAIL related to our proportionate share of the gain on the sale of the Electrical Products Group. The equity in earnings was in excess of the amount we recorded in the first quarter of fiscal 2026. Therefore, we resumed the recognition of equity in earnings of the AVAIL JV for the three months ended August 31, 2025.
Following the recognition of our proportionate share of the gain on the sale of the Electrical Products Group and equity in earnings for the three months ended August 31, 2025, management identified events and circumstances indicating that the fair value of the Company's investment in the AVAIL JV may have fallen below its carrying value on an other-than-temporary basis. These indicators arose principally from the significant business divestiture by AVAIL and a corresponding reduction in AVAIL's projected future earnings. In response, management performed a recoverability analysis of our investment in the AVAIL JV. Management estimated the fair value of our 40% interest in the AVAIL JV and concluded that the decline in fair value was other-than-temporary. Accordingly, we recorded an impairment charge of $45.9 million to write down the carrying value of our investment in the AVAIL JV to $60.2 million. After recognizing the impairment loss, management believes the carrying value of the investment in the AVAIL JV is recoverable based on AVAIL's current financial position. We will continue to monitor the AVAIL JV for any indicators of impairment, and if further declines in the fair value occur and are deemed other-than-temporary, additional write-downs will be recorded. For the six months ended August 31, 2025, we recorded $232.9 million in equity in earnings, which consists of 1) $3.6 million of equity in earnings from the AVAIL
JV's operations for the six months ended August 31, 2025, 2) $275.2 million of a gain from the sale of the Electrical Products Group, offset by 3) an impairment loss of $45.9 million on the AVAIL JV.
Share Repurchase Program
During the six months ended August 31, 2025, we did not repurchase shares of common stock under the 2020 Share Authorization. As of August 31, 2025, there was $53.2 million remaining to repurchase shares under the 2020 Authorization. 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 scrap in the AZZ Precoat Metals segment. We attempt to minimize these increases by entering into agreements with our zinc suppliers and such agreements generally include fixed premiums, and by entering into agreements with our natural gas suppliers to fix a portion of our purchase cost. 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 to match inflationary increases 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 August 31, 2025, we 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.
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 consolidated financial statements and the accompanying notes.
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, 2025.
Recent Accounting Pronouncements
See "Item I. Financial Statements-Note 1" for a full description of recent accounting pronouncements, including the actual and expected dates of adoption and estimated effects on our consolidated results of operations and financial condition, which is incorporated herein by reference.
Non-GAAP Disclosures
In addition to reporting financial results in accordance with Generally Accepted Accounting Principles in the United States ("GAAP"), we provide adjusted net income, adjusted earnings per share and Adjusted EBITDA (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, 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, adjusted earnings per share and Adjusted EBITDA 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.
Management defines adjusted net income and adjusted earnings per share to exclude: 1) intangible asset amortization, 2) restructuring charges, 3) retirement and other severance expenses, 4) redemption premium on Series A Preferred Stock, 5) additional stock compensation expense related to the adoption of our executive retiree long-term incentive program, and 6) certain adjustments related to the Company's unconsolidated joint venture from the reported GAAP measure. Management defines Adjusted EBITDA as adjusted net income excluding depreciation, amortization, interest, provision for income taxes and Series A Preferred Stock dividends. Management believes Adjusted EBITDA is used by investors to analyze operating performance and evaluate the Company's ability to incur and service debt, as well as its capacity for making capital expenditures in the future.
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, and undue reliance should not be placed on these non-GAAP financial measures. Additionally, 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 six months ended August 31, 2025 and 2024 between the non-GAAP Adjusted Earnings Measures to the most comparable measures, calculated in accordance with GAAP (in thousands, except per share data):
Adjusted Net Income and Adjusted Earnings Per Share
Three Months Ended August 31, Six Months Ended August 31,
2025 2024 2025 2024
Amount
Per
Diluted Share(1)
Amount
Per
Diluted Share(1)
Amount
Per
Diluted Share(1)
Amount
Per
Diluted Share(1)
Net income $ 89,346 $ 35,419 $ 260,254 $ 75,021
Less: Series A Preferred Stock dividends - - - (1,200)
Less: Redemption premium on Series A Preferred Stock - - - (75,198)
Net income (loss) available to common shareholders(2)
89,346 2.95 35,419 1.18 260,254 8.61 (1,377) (0.05)
Impact of Series A Preferred Stock dividends(2)
- - - 1,200 0.04
Net income (loss) and diluted earnings (loss) per share for Adjusted net income calculation(2)
89,346 $ 2.95 35,419 $ 1.18 260,254 $ 8.61 (177) $ (0.01)
Adjustments:
Amortization of intangible assets 5,823 0.19 5,787 0.19 11,557 0.38 11,580 0.38
Restructuring charges(3)
- - - - 3,827 0.13 - -
Retirement and other severance expense(4)
- - 1,888 0.06 - - 1,888 0.06
Redemption premium on Series A Preferred Stock(5)
- - - - - - 75,198 2.50
Executive retiree long-term incentive program(6)
- - - - 2,185 0.07 - -
AVAIL JV equity in earnings adjustment(7)
(61,639) (2.04) - - (227,465) (7.52) - -
Subtotal (55,816) (1.84) 7,675 0.25 (209,896) (6.94) 88,666 2.94
Tax impact(8)
13,396 0.44 (1,842) (0.06) 50,375 1.67 (3,232) (0.11)
Total adjustments (42,420) (1.40) 5,833 0.19 (159,521) (5.27) 85,434 2.83
Adjusted net income and adjusted earnings per share (non-GAAP) $ 46,926 $ 1.55 $ 41,252 $ 1.37 $ 100,733 $ 3.33 $ 85,257 $ 2.83
Weighted average shares outstanding-Diluted for Adjusted earnings per share(2)
30,244 30,057 30,243 30,123
See notes on page 46.
Adjusted EBITDA
Three Months Ended August 31, Six Months Ended August 31,
2025 2024 2025 2024
Net income $ 89,346 $ 35,419 $ 260,254 $ 75,021
Interest expense 13,665 21,909 32,228 44,683
Income tax expense 24,983 12,213 79,911 23,614
Depreciation and amortization 22,372 20,429 44,199 40,750
Adjustments:
Restructuring charges(3)
- - 3,827 -
Retirement and other severance expense(4)
- 1,888 - 1,888
Executive retiree long-term incentive program(6)
- - 2,185 -
AVAIL JV equity in earnings adjustment(7)
(61,639) - (227,465) -
Adjusted EBITDA (non-GAAP) $ 88,727 $ 91,858 $ 195,139 $ 185,956
See notes on page 46.
Adjusted EBITDA by Segment
A reconciliation of Adjusted EBITDA by segment to net income is as follows (in thousands):
Three Months Ended August 31, 2025
Metal Coatings Precoat Metals Infra-
structure Solutions 		Corporate Total
Net income (loss) $ 51,708 $ 36,521 $ 59,319 $ (58,202) $ 89,346
Interest expense - - - 13,665 13,665
Income tax expense - - - 24,983 24,983
Depreciation and amortization 6,830 9,424 - 6,118 22,372
Adjustments:
AVAIL JV equity in earnings adjustment(7)
- - (61,639) - (61,639)
Adjusted EBITDA (non-GAAP) $ 58,538 $ 45,945 $ (2,320) $ (13,436) $ 88,727
See notes on page 46.
Three Months Ended August 31, 2024
Metal Coatings Precoat Metals Infra-
structure Solutions 		Corporate Total
Net income (loss) $ 47,681 $ 42,530 $ 1,469 $ (56,261) $ 35,419
Interest expense - - - 21,909 21,909
Income tax expense - - - 12,213 12,213
Depreciation and amortization 6,685 7,639 - 6,105 20,429
Adjustments:
Retirement and other severance expense(4)
- - - 1,888 1,888
Adjusted EBITDA (non-GAAP) $ 54,366 $ 50,169 $ 1,469 $ (14,146) $ 91,858
See notes on page 46.
Six Months Ended August 31, 2025
Metal Coatings Precoat Metals Infra-
structure Solutions 		Corporate Total
Net income (loss) $ 102,378 $ 75,875 $ 232,762 $ (150,761) $ 260,254
Interest expense - - - 32,228 32,228
Income tax expense - - - 79,911 79,911
Depreciation and amortization 13,490 18,546 - 12,163 44,199
Adjustments:
Restructuring charges(3)
3,827 - - - 3,827
Executive retiree long-term incentive program(6)
358 - - 1,827 2,185
AVAIL JV equity in earnings adjustment(7)
- - (227,465) - (227,465)
Adjusted EBITDA (non-GAAP) $ 120,053 $ 94,421 $ 5,297 $ (24,632) $ 195,139
See notes on page 46.
Six Months Ended August 31, 2024
Metal Coatings Precoat Metals Infra-
structure Solutions 		Corporate Total
Net income (loss) $ 95,670 $ 82,623 $ 5,264 $ (108,536) $ 75,021
Interest expense - - - 44,683 44,683
Income tax expense - - - 23,614 23,614
Depreciation and amortization 13,341 15,232 - 12,177 40,750
Adjustments:
Retirement and other severance expense(4)
- - - 1,888 1,888
Adjusted EBITDA (non-GAAP) $ 109,011 $ 97,855 $ 5,264 $ (26,174) $ 185,956
See notes on page 46.
Debt Leverage Ratio Reconciliation
Trailing Twelve Months Ended
August 31, 2025 February 28, 2025
Gross debt $ 609,875 $ 900,250
Less: Cash per bank statement (5,417) (12,670)
Add: Finance lease liability 11,914 6,647
Consolidated indebtedness $ 616,372 $ 894,227
Net income $ 314,067 $ 128,833
Depreciation and amortization 85,653 82,205
Interest expense 68,827 81,282
Income tax expense 98,147 41,850
EBITDA 566,694 334,170
Cash items(9)
20,352 15,325
Non-cash items(10)
14,544 12,161
Equity in earnings, net of distributions (236,317) (3,598)
Adjusted EBITDA per Credit Agreement $ 365,273 $ 358,058
Net leverage ratio 1.7x 2.5x
(1)
Earnings per share amounts included in the "Adjusted Net Income and Adjusted Earnings Per Share" table above may not sum due to rounding differences.
(2)
For the six months ended August 31, 2024, diluted earnings per share is based on weighted average shares outstanding of 28,294, as the Series A Preferred Stock that was redeemed May 9, 2024 is anti-dilutive for this calculation. The calculation of adjusted diluted earnings per share is based on weighted average shares outstanding of 30,123, as the Series A Preferred Stock is dilutive to adjusted diluted earnings per share. Adjusted net income for adjusted earnings per share also includes the addback of Series A Preferred Stock dividends for the period noted above. For further information regarding the calculation of earnings per share, see "Item 1. Financial Statements-Note 4."
(3)
Includes restructuring charges related to the closure of two surface technology facilities in our Metal Coatings segment. See "Item 1. Financial Statements-Note 18."
(4)
Related to retention and transition of certain executive management employees.
(5)
On May 9, 2024, we redeemed AZZ's Series A Preferred Stock. The redemption premium represents the difference between the redemption amount paid and the book value of the Series A Preferred Stock.
(6)
During the six months ended August 31, 2025, we recognized additional stock-based compensation expense of $2.2 million upon the adoption of the Executive Retiree Long-term Incentive Program. For further information regarding the adoption of the ERP, see "Item 1. Financial Statements-Note 16."
(7)
During the first quarter of fiscal 2026, AVAIL completed the sale of the Electrical Products Group ("EPG") to nVent Electric plc. The three and six months ended August 31, 2025 includes $61.6 million and $227.5 million, which represents the gain related to the sale of the EPG, partially offset by the recognition of an impairment loss on the AVAIL JV. For further information, see "Item 1. Financial Statements-Note 8."
(8)
The non-GAAP effective tax rate for each of the periods presented is estimated at 24.0%.
(9)
Cash items include certain legal settlements, accruals, and retirement and other severance expenses, and restructuring charges associated with the Metal Coatings segment.
(10)
Non-cash items include stock-based compensation expense.
AZZ Inc. published this content on October 08, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on October 08, 2025 at 20:14 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]