UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended November 30, ~~2022~~2023


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

Commission file number: 1-12777

AZZ Inc.

(Exact name of registrant as specified in its charter)


Texas		75-0948250
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Museum Place, Suite 500
3100 West 7th Street
Fort Worth,	Texas	76107
(Address of principal executive offices)		(Zip Code)

(817) 810-0095

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock

AZZ

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of December ~~30, 2022,~~29, 2023, the registrant had outstanding ~~24,894,526~~25,076,871 shares of common stock; $1.00 par value per share.

Table of Contents

~~AZZ INC.~~

~~INDEX~~

Table of Contents

~~Contents~~

PART I. FINANCIAL INFORMATION

~~Item 1. Financial Statements~~

AZZ INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

~~(Unaudited)~~


							As of
							November 30, 2023		February 28, 2023
		November 30, 2022		February 28, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	3,290	$	12,082	Cash and cash equivalents	$	7,509	$	2,820
Accounts receivable (net of allowance for credit losses of $5,763 as of November 30, 2022 and $4,716 as of February 28, 2022)		173,341		85,106
Inventories:
Raw material		137,100		81,022
Work-in-process		1,763		840
Finished goods		2,583		1,135
Trade accounts receivable, net of allowance for credit losses of $2,096 and $5,752 at November 30, 2023 and February 28, 2023, respectively						Trade accounts receivable, net of allowance for credit losses of $2,096 and $5,752 at November 30, 2023 and February 28, 2023, respectively	142,463		156,443
Other receivables						Other receivables	31,005		26,969
Inventories						Inventories	126,737		143,920
Contract assets	Contract assets	78,560		2,866		Contract assets	75,719		79,273
Prepaid expenses and other	Prepaid expenses and other	9,997		1,583		Prepaid expenses and other	9,295		7,991
Assets held for sale		—		235
Current assets of discontinued operations		—		201,664

Total current assets	Total current assets	406,634		386,533		Total current assets	392,728		417,416
Property, plant and equipment, net	Property, plant and equipment, net	491,367		193,358		Property, plant and equipment, net	525,338		498,503
Right-of-use assets	Right-of-use assets	24,248		13,954		Right-of-use assets	22,830		26,392
Goodwill	Goodwill	710,246		190,391		Goodwill	705,487		702,512
Intangibles and other assets, net		481,121		39,115
Deferred tax assets	Deferred tax assets	3,438		3,464		Deferred tax assets	5,820		12,467
Intangible assets, net						Intangible assets, net	451,289		469,392
Investment in joint venture	Investment in joint venture	82,420		—		Investment in joint venture	97,238		84,760
Non-current assets of discontinued operations		—		306,212
Other assets						Other assets	8,026		10,037

Total assets	Total assets	$	2,199,474	$	1,133,027	Total assets	$	2,208,756	$	2,221,479
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	108,935	$	24,840	Accounts payable	$	95,158	$	84,256
Income tax payable	Income tax payable	—		3,828		Income tax payable	45		272
Accrued salaries and wages	Accrued salaries and wages	35,821		17,123		Accrued salaries and wages	25,868		26,262
Accrued dividends		4,640		—
Other accrued liabilities	Other accrued liabilities	51,402		12,873		Other accrued liabilities	72,476		70,047
Customer deposits		536		294
Contract liabilities		1,022		—
Lease liability, short-term	Lease liability, short-term	5,399		3,289		Lease liability, short-term	6,453		6,403
Debt due within one year		13,000		—
Current liabilities of discontinued operations		—		88,283

Total current liabilities	Total current liabilities	220,755		150,530		Total current liabilities	200,000		187,240
Debt due after one year, net		1,010,648		226,484
Long-term debt, net						Long-term debt, net	980,004		1,058,120
Lease liability, long-term	Lease liability, long-term	19,673		11,403		Lease liability, long-term	17,112		20,704
Deferred income taxes		31,879		47,672
Deferred tax liabilities						Deferred tax liabilities	33,370		40,536
Other long-term liabilities	Other long-term liabilities	64,006		5,366		Other long-term liabilities	57,120		61,419
Long-term liabilities of discontinued operations		—		24,207

Total liabilities	Total liabilities	1,346,961		465,662		Total liabilities	1,287,606		1,368,019
Commitments and contingencies
Commitments and contingencies (Note 17)						Commitments and contingencies (Note 17)
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Series A Convertible Preferred Stock, $1 par, shares authorized 240; 240 shares issued and outstanding at November 30, 2022 and 0 shares issued and outstanding at February 28, 2022		240		—
Common stock, $1 par, shares authorized 100,000; 24,876 shares issued and outstanding at November 30, 2022 and 24,688 shares issued and outstanding at February 28, 2022		24,876		24,688
Series A Convertible Preferred Stock, $1 par, shares authorized 240; 240 shares issued and outstanding at November 30, 2023 and February 28, 2023						Series A Convertible Preferred Stock, $1 par, shares authorized 240; 240 shares issued and outstanding at November 30, 2023 and February 28, 2023	240		240
Common Stock, $1 par value; 100,000 shares authorized; 25,077 and 24,912 shares issued and outstanding at November 30, 2023 and February 28, 2023, respectively						Common Stock, $1 par value; 100,000 shares authorized; 25,077 and 24,912 shares issued and outstanding at November 30, 2023 and February 28, 2023, respectively	25,077		24,912
Capital in excess of par value	Capital in excess of par value	325,433		85,847		Capital in excess of par value	333,555		326,839
Retained earnings	Retained earnings	512,815		584,154		Retained earnings	566,235		506,042
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(10,851)		(27,324)		Accumulated other comprehensive loss	(3,957)		(4,573)
Total shareholders’ equity	Total shareholders’ equity	852,513		667,365		Total shareholders’ equity	921,150		853,460
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	2,199,474	$	1,133,027	Total liabilities and shareholders' equity	$	2,208,756	$	2,221,479

The accompanying notes are an integral part of the ~~condensed~~ consolidated financial statements.

Table of Contents

~~Contents~~

AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share ~~data)~~amounts)

(Unaudited)

Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Sales $ 373,301 $ 135,083 $ 987,145 $ 395,732
Cost of sales 300,219 97,510 752,455 285,572
Gross margin 73,082 37,573 234,690 110,160
Selling, general and administrative 27,689 16,283 97,247 47,483
Operating income from continuing operations 45,393 21,290 137,443 62,677
Interest expense 26,123 1,627 61,739 5,017
Equity in (earnings) loss of unconsolidated subsidiaries (1,006) — (1,006) —
Other (income) expense, net (610) (91) (582) (106)
Income from continuing operations before income taxes 20,886 19,754 77,292 57,766
Income tax expense 2,447 6,647 18,380 18,778
Net income from continuing operations 18,439 13,107 58,912 38,988
Income from discontinued operations, net of tax 1,069 7,978 17,126 23,412
Loss on disposal of discontinued operations, net of tax (40,050) — (130,073) —
Net income (loss) from discontinued operations (38,981) 7,978 (112,947) 23,412
Net income (loss) (20,542) 21,085 (54,035) 62,400
Accrued dividends on preferred stock (3,600) — (4,640) —
Net income (loss) available to common shareholders $ (24,142) $ 21,085 $ (58,675) $ 62,400
Earnings per common share from continuing operations
Basic earnings per share $ 0.60 $ 0.53 $ 2.19 $ 1.57
Diluted earnings per share $ 0.59 $ 0.53 $ 2.17 $ 1.55
Earnings per common share from discontinued operations
Basic earnings (loss) per share $ (1.57) $ 0.32 $ (4.55) $ 0.94
Diluted earnings (loss) per share $ (1.56) $ 0.32 $ (4.52) $ 0.93
Earnings per common share
Basic earnings (loss) per share $ (0.97) $ 0.85 $ (2.37) $ 2.51
Diluted earnings (loss) per share $ (0.97) $ 0.85 $ (2.35) $ 2.48
Cash dividends declared per common share $ 0.17 $ 0.17 $ 0.51 $ 0.51


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

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

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

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

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

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

The accompanying notes are an integral part of the ~~condensed~~ consolidated financial statements.

Table of Contents

~~Contents~~

AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Net income (loss) available to common shareholders $ (24,142) $ 21,085 $ (58,675) $ 62,400
Other comprehensive income:
Unrealized translation gain (loss) (5,019) (1,508) (7,765) (1,953)
Reclassification of foreign currency translation adjustment from accumulated other comprehensive loss to loss on sale of discontinued operations 27,750 — 27,750 —
Unrealized gain (loss) on derivatives qualified for hedge accounting:
Unrealized gain (loss) on interest rate swap (3,512) — (3,512) —
Other comprehensive income (loss) 19,219 (1,508) 16,473 (1,953)
Comprehensive income (loss) $ (4,923) $ 19,577 $ (42,202) $ 60,447


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

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

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

(1) Net of tax expense (benefit) of $(42) and $678 for the three and nine months ended November 30, 2023, respectively.
(2) Net of tax benefit of $(384) and $(924) for the three and nine months ended November 30, 2023, respectively.

The accompanying notes are an integral part of the ~~condensed~~ consolidated financial statements.

Table of Contents

~~Contents~~

AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended November 30,
2022 2021
Cash flows from operating activities
Net income (loss) available to common shareholders (58,675) 62,400
Less: Net income (loss) from discontinued operations (112,947) 23,412
Plus: accrued dividends on Preferred Stock 4,640 —
Net income from continuing operations 58,912 38,988
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Bad debt expense (38) (250)
Depreciation and amortization 55,813 28,033
Deferred income taxes (20,421) (4,925)
Equity in earnings of unconsolidated entities (1,006) —
Loss on disposal of business — 640
Impairment of long-lived assets 235 —
Net (gain) loss on sale of property, plant and equipment (1,381) 284
Amortization of deferred borrowing costs 5,916 551
Share-based compensation expense 7,138 6,542
Effects of changes in assets and liabilities, net of acquisitions and dispositions:
Accounts receivable (16,430) (16,322)
Inventories (14,646) (9,522)
Prepaid expenses and other (6,195) (49)
Other assets (3,950) (2,750)
Net change in contract assets and liabilities 2,410 (377)
Accounts payable (15,122) 2,370
Other accrued liabilities and income taxes payable 17,387 2,725
Net cash provided by operating activities of continuing operations 68,622 45,938
Cash flows from investing activities
Proceeds from sale or insurance settlements of property, plant and equipment 4,114 2,371
Purchase of property, plant and equipment (35,085) (15,777)
Proceeds from sale of subsidiaries, net 106,766 —
Acquisition of subsidiaries, net of cash acquired (1,283,448) —
Net cash used in investing activities of continuing operations (1,207,653) (13,406)
Cash flows from financing activities
Proceeds from issuance of common stock 1,767 1,544
Payments for taxes related to net share settlement of equity awards (2,592) (2,169)
Proceeds from revolving loan 255,000 216,000
Payments on revolving loan (322,000) (203,000)
Proceeds from long term debt 1,540,000 —
Payments of debt financing costs (87,555) —
Payments on long term debt (366,500) —
Repurchase and retirement of treasury stock — (28,869)
Payments of dividends (12,664) (12,673)
Net cash provided by (used in) financing activities of continuing operations 1,005,456 (29,167)
Effect of exchange rate changes on cash (2,199) 1,442
Net cash provided by operating activities from discontinued operations 7,973 3,730
Net cash used in investing activities from discontinued operations (3,991) (3,019)
Net cash provided by financing activities from discontinued operations 120,000 —
Cash provided by discontinued operations 123,982 711
Net increase (decrease) in cash and cash equivalents (11,792) 711
Cash and cash equivalents at beginning of period 15,082 14,837
Cash and cash equivalents at end of period 3,290 15,548
Less: Cash and cash equivalents from discontinued operations at end of period — (19,415)
Cash and cash equivalents from continuing operations at end of period $ 3,290 $ 940


	Nine Months Ended November 30,
	2023		2022
Cash flows from operating activities
Net income (loss) available to common shareholders	$	72,944	$	(58,675)
Less: Net loss from discontinued operations	—		112,947
Plus: Dividends on preferred stock	10,800		4,640
Net income from continuing operations	83,744		58,912
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Bad debt expense (recovery)	53		(38)
Depreciation and amortization	59,034		55,813
Deferred income taxes	(274)		(20,421)
Equity in earnings of unconsolidated entities	(11,136)		(1,006)




Impairment of long-lived assets	—		235
Net (gain) on sale of property, plant and equipment	(39)		(1,381)
Amortization of debt financing costs	9,105		5,916
Share-based compensation expense	6,207		7,138
Changes in current assets and current liabilities	38,819		(34,969)
Changes in other long-term assets and long-term liabilities	(4,585)		(1,577)
Net cash provided by operating activities of continuing operations	180,928		68,622
Cash flows from investing activities
Purchase of property, plant and equipment	(66,900)		(35,085)
Acquisition of subsidiaries, net of cash acquired	—		(1,283,448)
Proceeds from sale of subsidiaries, net	—		106,766


Other investing activities	47		4,114
Net cash used in investing activities of continuing operations	(66,853)		(1,207,653)
Cash flows from financing activities
Proceeds from issuance of common stock	1,465		1,767
Payments for taxes related to net share settlement of equity awards	(791)		(2,592)
Proceeds from revolving loan	189,000		255,000
Payments on revolving loan	(274,000)		(322,000)
Proceeds from long term debt	—		1,540,000
Payments of debt financing costs	(1,299)		(87,555)
Payments on long term debt and finance leases	(268)		(366,500)

Payments of dividends	(23,551)		(12,664)
Net cash provided by (used in) financing activities of continuing operations	(109,444)		1,005,456
Effect of exchange rate changes on cash	58		(2,199)

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
Net cash provided by discontinued operations	—		123,982
Net increase (decrease) in cash and cash equivalents	4,689		(11,792)
Cash and cash equivalents at beginning of period	2,820		15,082


Cash and cash equivalents from continuing operations at end of period	$	7,509	$	3,290

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

Supplemental disclosures of non-cash investing and financing activities
Cash paid for interest $ 52,488 $ 3,655
Cash paid for income taxes $ 15,627 $ 23,259
Issuance of preferred stock in exchange for convertible notes $ 233,722 $ —
Accrued dividends on Series A Preferred Stock $ 4,640 $ —

AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Three Months Ended November 30, 2023
	Series A Preferred Stock			Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Amount		Shares	Amount
Balance at August 31, 2023	240	$	240	25,077	$	25,077	$	331,366	$	547,208	$	(5,814)	$	898,077
Share-based compensation	—	—		—	—		2,189		—		—		2,189




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


	Nine Months Ended November 30, 2023
	Series A Preferred Stock			Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Amount		Shares	Amount
Balance at February 28, 2023	240	$	240	24,912	$	24,912	$	326,839	$	506,042	$	(4,573)	$	853,460
Share-based compensation	—	—		—	—		6,207		—		—		6,207

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

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

Table of Contents


	Three Months Ended November 30, 2022
	Series A Preferred Stock			Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total

	Shares	Amount		Shares	Amount
Balance at August 31, 2022	240	$	240	24,862	$	24,862	$	323,386	$	541,203	$	(30,070)	$	859,621
Share-based compensation	—	—		—	—		2,348		—		—		2,348

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


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


	Nine Months Ended November 30, 2022
	Series A Preferred Stock			Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Amount		Shares	Amount
Balance at February 28, 2022	—	$	—	24,688	$	24,688	$	85,847	$	584,154	$	(27,324)	$	667,365
Share-based compensation	—	—		—	—		7,118		—		—		7,118
Issuance of Class A convertible preferred stock in exchange for convertible debt	240	240		—	—		233,482		—		—		233,722
Common stock issued under stock-based plans and related income tax expense	—	—		136	136		(2,728)		—		—		(2,592)
Common stock issued under employee stock purchase plan	—	—		52	52		1,714		—		—		1,766

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

The accompanying notes are an integral part of the ~~condensed~~ consolidated financial statements.

~~Table of~~ ~~Contents~~

~~AZZ INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~

~~(In thousands)~~

~~(Unaudited)~~

Three Months Ended November 30, 2022
Series A Preferred Stock Common Stock Capital in
Excess of
Par Value Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Shares Amount Shares Amount
Balance at August 31, 2022 240 $ 240 24,862 $ 24,862 $ 323,386 $ 541,203 $ (30,070) $ 859,621
Share-based compensation — — — — 2,348 — — 2,348
Common stock issued under stock-based plans and related income tax expense — — 14 14 (301) — — (287)
Accrued dividends on preferred stock — — — — — (3,600) — (3,600)
Cash dividends paid — — — — — (4,246) — (4,246)
Net income (loss) — — — — — (20,542) — (20,542)
Foreign currency translation — — — — — — (5,019) (5,019)
Reclassification of foreign currency translation adjustment — — — — — — 27,750 27,750
Interest rate swap — — — — — — (3,512) (3,512)
Balance at November 30, 2022 240 $ 240 24,876 $ 24,876 $ 325,433 $ 512,815 $ (10,851) $ 852,513
Nine Months Ended November 30, 2022
Series A Preferred Stock Common Stock Capital in
Excess of
Par Value Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Shares Amount Shares Amount
Balance at February 28, 2022 — $ — 24,688 $ 24,688 $ 85,847 $ 584,154 $ (27,324) $ 667,365
Share-based compensation — — — — 7,118 — — 7,118
Issuance of Series A convertible preferred stock in exchange for convertible debt 240 240 — — 233,482 — — 233,722
Common stock issued under stock-based plans and related income tax expense — — 136 136 (2,728) — — (2,592)
Common stock issued under employee stock purchase plan — — 52 52 1,714 — — 1,766
Accrued dividends on preferred stock — — — — — (4,640) — (4,640)
Cash dividends paid — — — — — (12,664) — (12,664)
Net income (loss) — — — — — (54,035) — (54,035)
Foreign currency translation — — — — — — (7,765) (7,765)
Reclassification of foreign currency translation adjustment — — — — — — 27,750 27,750
Interest rate swap — — — — — — (3,512) (3,512)
Balance at November 30, 2022 240 $ 240 24,876 $ 24,876 $ 325,433 $ 512,815 $ (10,851) $ 852,513

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~~AZZ INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~

~~(In thousands)~~

~~(Unaudited)~~

Three Months Ended November 30, 2021
Series A Preferred Stock Common Stock Capital in
Excess of
Par Value Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Shares Amount Shares Amount
Balance at August 31, 2021 — $ — 24,840 $ 24,840 $ 79,908 $ 559,207 $ (25,529) $ 638,426
Share-based compensation — — — — 1,860 — — 1,860
Common stock issued under stock-based plans and related income tax expense — — 1 1 (21) — — (20)
Repurchase and retirement of treasury shares — — (148) (148) — (7,488) — (7,636)
Cash dividends paid — — — — — (4,163) — (4,163)
Net income — — — — — 21,085 — 21,085
Foreign currency translation — — — — — — (1,508) (1,508)
Balance at November 30, 2021 — $ — 24,693 $ 24,693 $ 81,747 $ 568,641 $ (27,037) $ 648,044

Nine Months Ended November 30, 2021
Series A Preferred Stock Common Stock Capital in
Excess of
Par Value Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Shares Amount Shares Amount
Balance at February 28, 2021 — $ — 25,108 $ 25,108 $ 75,979 $ 547,289 $ (25,084) $ 623,292
Share-based compensation — — — — 6,542 — — 6,542
Common stock issued under stock-based plans and related income tax expense — — 108 108 (2,277) — — (2,169)
Common stock issued under employee stock purchase plan — — 41 41 1,503 — — 1,544
Repurchase and retirement of treasury shares — — (564) (564) — (28,305) — (28,869)
Cash dividends paid — — — — — (12,673) — (12,673)
Net income — — — — — 62,400 — 62,400
Foreign currency translation — — — — — (70) (1,953) (2,023)
Balance at November 30, 2021 — $ — 24,693 $ 24,693 $ 81,747 $ 568,641 $ (27,037) $ 648,044

~~The accompanying notes are an integral part of the condensed consolidated financial statements.~~

~~Table of~~ ~~Contents~~

AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(Unaudited)~~

1. The Company and Basis of Presentation

AZZ Inc. ~~(“AZZ”~~("AZZ", the ~~“Company”~~"Company", "our" or ~~“we”~~"we") was established in 1956 and incorporated under the laws of the state of Texas. ~~The Company is the leading independent~~We are a provider of hot-dip galvanizing and coil coating solutions to a broad ~~array~~range of ~~markets and customers, predominantly~~end-markets in North America.

On May 13, 2022, the Company completed the acquisition of the Precoat Metals business division (“Precoat Metals”) of Sequa Corporation (“Sequa”), a portfolio company owned by Carlyle, a global private equity firm. See Notes 2 and 14 for further discussion about Precoat. As a result of the Precoat Acquisition, the Company changed its reportable segments, and added AZZ Precoat Metals as a new reportable segment. See Note 6 for more information about the Company's operating segments.

~~The Company has~~ We have three distinct operating segments: the AZZ Metal Coatings segment, the AZZ Precoat Metals segment, and the AZZ Infrastructure Solutions segment. The Company's AZZ Metal Coatings ~~provides~~segment is a leading provider of metal finishing solutions for corrosion protection, including hot-dip galvanizing, spin galvanizing, powder coating, anodizing and plating ~~and other metal coating applications~~ to the North American steel fabrication and other ~~industries through 41 galvanizing plants and six surface technologies plants located in the United States and Canada.~~industries. The AZZ Precoat Metals segment provides ~~advanced applications of~~aesthetic and corrosion protective ~~and decorative~~ coatings and related value-added services for steel and aluminum coil, primarily serving the construction; appliance; heating, ventilation, and air conditioning (HVAC); container; transportation and other end ~~markets. AZZ Precoat Metals operates through 13 plants located~~markets in ~~the United States.~~North America. The AZZ Infrastructure Solutions segment consists of the Company's 40% interest in AIS Investment Holdings LLC (the "AVAIL JV"). AIS Investment Holdings LLC is dedicated to delivering safe and reliable transmission of power from generation sources to end customers, and automated weld overlay solutions for corrosion and erosion mitigation to critical infrastructure in markets worldwide. ~~As discussed in Note 3, on~~AIS Investment Holdings LLC was wholly-owned by the Company until September 30, 2022, ~~the Company consummated a transaction whereby the Company~~when AZZ contributed ~~its~~its' AZZ Infrastructure Solutions ~~business,~~segment, excluding AZZ Crowley Tubing and excluding certain receivables retained by AZZ ("AIS"), to ~~a joint venture~~the AVAIL JV and sold a 60% interest in the ~~joint venture~~AVAIL JV to Fernweh ~~AIS Acquisition LP. The~~Group LLC ("Fernweh"). For the three and nine months ended November 30, 2022, financial data for the AZZ Infrastructure Solutions segment is segregated and reported as discontinued operations, and financial data for the segment has been segregated and presented as discontinued operations for all periods presented. See Note 3 and Note 7 for additional information about the Company's discontinued operations and consummation of the joint venture.operations.

Presentation

The accompanying condensed consolidated balance sheet as of February 28, ~~2022~~2023 was derived from audited financial statements. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. These financial statements should be read in conjunction with the audited financial statements and related notes for the fiscal year ended February 28, ~~2022,~~2023, included in the Company’s Annual Report on Form 10-K covering such period. Certain previously reported amounts have been reclassified to conform to current period presentation. See Note 3 for more information about results of operations reported in discontinued operations in the consolidated ~~balance sheets, statements~~statement of operations and ~~statements~~statement of cash flows ~~as of and~~ for the three and nine months ended November 30, ~~2022 and as of February 28,~~ 2022.

The Company's fiscal year ends on the last day of February and is identified as the fiscal year for the calendar year in which it ends. For example, the fiscal year ending February ~~28, 2023~~29, 2024 is referred to as fiscal ~~2023.~~2024.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, which are necessary to present fairly the financial position of the Company as of November 30, ~~2022,~~2023, the results of its operations for the three and nine months ended November 30, ~~2022~~2023 and ~~2021,~~2022, and cash flows for the nine months ended November 30, ~~2022~~2023 and ~~2021.~~2022. The interim results reported herein are not necessarily indicative of results for a full year.

~~Coronavirus (COVID-19)~~Significant Accounting Policies

Other receivables

Other receivables includes income taxes receivable, receivables for supplier rebates, and ~~Current State of the Business Environment~~other miscellaneous receivables.

While we continue to support our customers, there remains continuing uncertainties regarding to what extent, if any, that the COVID-19 pandemic, or newly identified variants of COVID-19, or additional regulatory requirements, will ultimately have on the demand for our products and services or with our supply chain or our employees. We expect continued uncertainty in our business and the global economy due to the duration and intensity of the COVID-19 pandemic, pressure from inflation, supply chain disruptions, and volatility in employment trends and consumer confidence in the economy which may potentially impact our future results.

~~Table of~~ ~~Contents~~

The impact of COVID-19 to the Company's personnel and operations has been limited during the third quarter of fiscal 2023. However, labor market shortages and supply chain challenges have continued throughout the quarter. The constrained labor market and supply chain disruptions continue to impact the availability and cost of skilled labor and has increased cost for production materials. Disruptions to certain parts of our supply chain have, in certain cases, limited our ability to fulfill demand in the future. The extent of COVID-19's impact on our business will depend on future developments, including the continued new variants and surges in the spread of COVID-19, the Company's continued ability to source and distribute its products, the impact of COVID-19 on capital and financial markets, and the related impact on consumer confidence and spending, all of which are uncertain and difficult to predict, considering the continuously evolving landscape. Accordingly, our financial condition, results of operations or cash flows could be impacted in ways that we are not able to predict today.

~~Recently Adopted~~ Accounting Pronouncements Not Yet Adopted

In ~~October 2021,~~November 2023, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued ~~Accounting Standards Update No. ("ASU") 2021-08,~~ASU 2023-07, ~~Business combinations~~Segment Reporting (Topic ~~805)~~280): ~~Accounting for Contract Assets and Contract liabilities from Contracts with Customers~~Improvements to Reportable Segment Disclosures ("ASU ~~2021-08"~~2023-07"), which expands disclosures about a public entity’s reportable segments and requires ~~contract assets~~more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and ~~contract liabilities acquired~~how a public entity’s chief operating decision maker uses reported segment profit or loss information in ~~a business combination in accordance with ASC Topic 606,~~ ~~Revenue from Contracts with Customers~~ ~~("ASC 606") at the acquisition date as if the acquirer had originated the contracts rather than adjust them to fair value. The standard~~assessing segment performance and allocating resources. ASU 2023-07 is effective for fiscal years beginning after December 15, ~~2022, including~~2023 and interim periods within ~~those~~ fiscal ~~years. The Company adopted ASU 2021-08 during~~years beginning after December 15, 2024. We are currently assessing the ~~first quarter~~impact of ~~fiscal 2023. The adoption~~this update on our consolidated financial statement disclosures.

Table of ASU 2021-08 did not have a material impact on the Company's financial condition, results of operations or cash flows as of November 30, 2022, including the acquisition of Precoat Metals during the first quarter of fiscal 2023.Contents

AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In ~~March 2020 and as clarified in January 2021,~~December 2023, the FASB issued ASU ~~2020-04,~~2023-09, ~~Reference Rate Reform~~Income Taxes (Topic ~~848)~~740): ~~Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~ Improvements to Income Tax Disclosures~~(“ASU 2020-04”)~~, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. An entity may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date between March 12, 2020 and December 31, 2022. The Company continues to evaluate its contracts and transactions for the potential application of ASU 2020-04, but there has been no material impact to its financial condition, results of operations, or cash flows as of November 30, 2022.

~~Investment in Unconsolidated Joint Venture~~

~~The Company accounts for its investment~~expands disclosures in an ~~unconsolidated joint venture under the equity method of accounting as we exercise significant influence over, but do not control, the joint venture. The investment~~entity’s income tax rate reconciliation table and regarding cash taxes paid both in the ~~unconsolidated joint venture is initially recorded at fair value,~~U.S. and ~~subsequently increased~~foreign jurisdictions. The update will be effective for ~~capital contributions and allocations~~annual periods beginning after December 15, 2024. We are currently assessing the impact of ~~net income, and decreased for capital distributions and allocations of net income or loss. Equity in net income or loss from the unconsolidated joint venture is allocated based~~this update on our economic interest. We record our interest in the joint venture on a one-month lag to allow sufficient time to review and assess the joint venture’s effect on our reported results. We assess our investment in unconsolidated joint venture for recoverability when events and circumstances are present that suggest there has been a decline in value, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value. We do not believe that the value of our equity investment was impaired as of November 30, 2022.consolidated financial statement disclosures.

2. Acquisitions

Precoat Acquisition

On May 13, 2022, the Company acquired Precoat Metals for a purchase price of approximately $1.3 billion (the "Precoat Acquisition"). ~~Based in St. Louis, Missouri,~~AZZ Precoat Metals is the leading independent provider of metal coil coating solutions in North America. Precoat engages in the advanced application of protective and decorative coatings and related value-added services for steel and aluminum coil primarily serving the construction; appliance; heating, ventilation and air conditioning (HVAC); container; transportation and other end markets. The acquisition ~~represents~~represented a continued transition of the Company to a focused provider of coating and galvanizing services for critical applications.

~~The Precoat Acquisition was funded primarily with proceeds from a Term Loan B and Preferred Equity. See Note 9 for a description of the Term Loan B.~~ The Company ~~incurred acquisition costs~~completed the final purchase accounting valuation during the first quarter of $13.2 million for the nine months ended November 30, 2022, which are included in "Selling, general and administrative" expense in the accompanying condensed consolidated statements of operations. AZZ Precoat Metals contributed revenue of $499.6 million and operating income of $63.9 million to the Company's condensed consolidated statements of operations from May 13, 2022, through November 30, 2022.

~~Table of~~ ~~Contents~~

fiscal year 2024.

The Company accounted for the Precoat Acquisition as a business combination under the acquisition method of accounting. Goodwill from the acquisition of ~~$532.4~~$527.8 million represents the excess purchase price over the estimated value of net tangible and intangible assets and liabilities assumed, and is expected to be deductible for income tax purposes. The Company's chief operating decision maker assesses performance and allocates resources to Precoat separately from the AZZ Metal Coatings ~~and AZZ Infrastructure Solutions segments;~~segment; therefore, Precoat is accounted for as a separate segment, the AZZ Precoat Metals segment. See Note 68 for more information about the Company's operating segments. Goodwill from the acquisition was allocated to the AZZ Precoat Metals segment. Assets acquired and liabilities assumed in the Precoat Acquisition were recorded at their estimated fair values as of the acquisition date. ~~See Note 15 for additional information regarding certain environmental liabilities assumed as part of the Precoat Acquisition.~~

The Company has not finalized these estimates as of the date of this report; therefore, the fair value estimates set forth below are subject to adjustment during the measurement period following the acquisition date. The final allocation of purchase consideration could include changes in the estimated fair value of working capital (including accounts receivable, inventories, contract assets, prepaid assets, account payable and accrued liabilities), right-of-use assets and lease liabilities, property, plant and equipment, intangible assets and other long-term liabilities. Adjustments in the purchase price allocation may require a change in the amount allocated to goodwill during the period in which the adjustments are determined.

When determining the fair values of assets acquired and liabilities assumed, management made significant estimates, judgments and assumptions. The Company ~~has~~ engaged third-party valuation experts to assist in determination of fair value of property and equipment, intangible assets, pension benefit obligation and certain other assets and liabilities. Preliminary estimates from third-party experts along with the analysis and expertise of management have formed the basis for the preliminary allocation. Detailed analysis and review of the condition, existence and utility of assets acquired, and assumptions inherent in the estimation of fair value of intangible assets and pension obligation is currently ongoing. Management believes that the current information provides a reasonable basis for ~~estimating~~the fair values of assets acquired and liabilities assumed. ~~These estimates, judgments~~During the first quarter of fiscal 2024, the Company made purchase price allocation adjustments that impacted goodwill, contract assets and assumptions are subject to change and should be treated as preliminary values as there could be significant changes upon final valuation. The Company expects to complete the final valuations within one year of the acquisition date.accrued expenses.

The following table represents the ~~preliminary~~ summary of the assets acquired and liabilities assumed, in aggregate, related to the Precoat Acquisition, as of the date of the acquisition (in thousands):

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	May 13, 2022
Assets

Accounts receivable, net	$	77,422

Inventories	43,369
Contract assets	~~70,731~~68,314
Prepaid expenses and other	~~2,245~~2,247
Property, plant and equipment	~~306,953~~305,503
Right-of-use ~~asset~~assets	~~10,954~~13,753
Goodwill	~~532,391~~527,793
~~Intangibles and other~~Deferred tax asset	8,660
Intangible assets, net	446,000
Other assets	~~446,746~~546
Total fair value of assets acquired	$	~~1,490,813~~1,493,607
Liabilities
Accounts payable	$	(99,223)
Accrued expenses	~~(32,062)~~(31,761)
Other accrued liabilities	~~(3,741)~~
~~Customer deposits~~	~~(1,574)~~(5,330)
Lease liability, short-term	~~(1,706)~~(2,440)
Lease liability, long-term	~~(9,248)~~(11,313)
~~Deferred tax liabilities~~	~~(3,100)~~
Other long-term liabilities	~~(56,711)~~(60,091)
Total fair value of liabilities assumed	~~(207,365)~~$	(210,158)
Total ~~Purchase Price,~~purchase price, net of cash acquired	$	~~1,283,448~~1,283,449

~~During~~Intangible assets include customer relationships, tradenames and technology. Other long-term liabilities include the ~~nine months ended November 30, 2022, the Company made adjustments to the assets acquired for Inventories, Property, plant~~pension obligation and ~~equipment, Goodwill and Intangibles and other assets. As a result of these changes, for the three~~

~~Table of~~ ~~Contents~~

~~months ended November 30, 2022, the Company recorded a net decrease to depreciation and amortization expense of approximately $0.3 million related to prior quarters of fiscal 2023.~~

~~DAAM Acquisition~~

On February 28, 2022, the Company entered into an agreement to acquire all the outstanding shares of DAAM Galvanizing Co. Ltd. ("DAAM"), a privately held hot-dip galvanizing company based in Edmonton, Alberta Canada, for approximately $35.5 million. DAAM currently operates two galvanizing facilities in Canada; one located in Edmonton, Alberta and a second in Saskatoon, Saskatchewan,certain environmental liabilities assumed as well as a service depot in Calgary, Alberta. The addition of DAAM expanded the Company's geographical coverage in the Northwest and enhanced the scope of metal coatings solutions offered in Canada. The business is included in the Company's AZZ Metal Coatings segment. The goodwill arising from this acquisition was allocated to the AZZ Metal Coatings segment, and the Company estimates that approximately 50%part of the ~~goodwill amount is expected to be deductible~~Precoat Acquisition. See Notes 16 and 17 for ~~income tax purposes.~~

The Company has engaged third-party valuation experts to assist with the purchase price allocation, the recorded valuation of property, plant and equipment, intangible assets and certain other assets andmore information about these long-term liabilities. Estimates from third-party experts along with the analysis and expertise of management have formed the basis for the allocation. During the three months ended November 30, 2022, the purchase price allocation was finalized.

~~The following table represents the summary of the assets acquired and liabilities assumed, in aggregate, related to the DAAM acquisition, as of the date of the acquisition (in thousands):~~


	~~February 28, 2022~~
~~Assets~~
~~Accounts receivable~~	$	~~3,253~~
~~Inventories~~	~~2,451~~

~~Property, plant and equipment~~	~~11,462~~
~~Goodwill~~	~~13,691~~
~~Intangibles and other assets~~	~~9,975~~
~~Liabilities~~
~~Accounts payable and other accrued liabilities~~	~~(3,910)~~
~~Deferred tax liabilities~~	~~(1,422)~~
~~Total purchase price~~	$	~~35,500~~

Unaudited Pro Forma Information

The following unaudited pro forma financial information for the three and nine months ended November 30, 2022 ~~and 2021~~ combines the historical results of the Company and the ~~acquisitions~~acquisition of Precoat Metals, ~~and DAAM,~~ assuming that the companies were combined as of March 1, ~~2021 and include~~2022. The pro forma financial information includes business combination accounting effects from the Precoat Acquisition, including amortization ~~charges~~expense from acquired intangible assets, depreciation expense onfrom acquired property, plant and equipment, interest expense ~~on the~~from financing transactions ~~used~~which occurred to fund the Precoat Acquisition, acquisition-related transaction costs and tax-related effects. The pro forma information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the ~~acquisitions~~acquisition of Precoat Metals ~~and DAAM~~ had taken place on March 1, ~~2021~~2022 or of future operating performance.


		Three Months Ended November 30,				Nine Months Ended November 30,					Three Months Ended November 30,		Nine Months Ended November 30,
		2022		2021		2022		2021			2022		2022
Revenue	Revenue	$	373,301	$	329,885	$	1,180,165	$	972,267	Revenue	$	373,301	$	1,180,165
Net income from continuing operations(1)	Net income from continuing operations(1)	$	18,439	$	26,088	$	49,487	$	91,956	Net income from continuing operations(1)	$	18,439	$	43,442

(1) Net income for the nine months ended November 30, 2022 includes acquisition costs of approximately $45.0 million, of which $11.5 million was incurred by AZZ and $33.5 million was incurred by Precoat Metals prior to the acquisition.										(1) Net income for the nine months ended November 30, 2022 includes acquisition costs of approximately $45.0 million, of which $11.5 million was incurred by AZZ and $33.5 million was incurred by Precoat Metals prior to the acquisition.

~~Table of~~ ~~Contents~~

3. Discontinued Operations

~~In fiscal 2023, the Company continued to execute its plan to divest of non-core businesses.~~ On ~~June 23,~~September 30, 2022, ~~the Company and Fernweh Group LLC ("Fernweh"), jointly entered into a definitive agreement whereby~~ AZZ contributed its AZZ Infrastructure Solutions ("AIS") segment, ~~(“AIS”)~~excluding AZZ Crowley Tubing, to a joint venture, AIS Investment Holdings LLC (the ~~“AIS JV”~~"AVAIL JV"), and sold a 60% interest in the ~~AIS~~AVAIL JV to Fernweh ~~at an implied enterprise value~~Group LLC ("Fernweh"). On September 30, 2022, the AVAIL JV was deconsolidated. Beginning October 1, 2022,

Table of ~~AIS of $300.0 million.~~Contents

AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Management previously committed~~the Company began accounting for its 40% interest in the AVAIL JV under the equity method of accounting. The AVAIL JV is included in the AZZ Infrastructure Solutions segment.

The divestiture of the AZZ Infrastructure Solutions segment represents an intentional strategic shift in our operations and will allow the Company to become a ~~plan to divest substantially all~~focused provider of coating and galvanizing solutions for critical applications. As a result, the results of the AIS segment were classified as discontinued operations in our condensed statements of operations and ~~classified~~excluded from both continuing operations and segment results for the ~~AIS business as held for sale in the accompanying interim consolidated balance sheets as of August 31,~~three and nine months ended November 30, 2022.

As part of recognizing the business as held for sale in accordance with GAAP, the Company was required to measure AIS at the lower of its carrying amount or fair value less cost to sell. As a result of this analysis, during ~~the second quarter of~~ fiscal 2023, the Company recognized ~~an estimated~~a non-cash, pre-tax loss on disposal of $159.9 million, of which $45.0 million was recognized during the three months ended November 30, 2022, and $114.9 ~~million.~~million was recognized during the second quarter of fiscal 2023. The loss is included in "Loss on disposal of discontinued operations" in the consolidated statements of operations. The loss was determined by comparing the fair value of the consideration received for the sale of a 60% interest in the AIS JV and the fair value of the Company’s retained 40% investment in the AIS JV with the net assets of the AIS JV immediately prior to the transaction. The fair value of the Company’s retained investment in the AIS JV was determined in a manner consistent with the transaction price received for the sale of the 60% interest in the AIS JV.

The results of operations from discontinued operations for the three and nine months ended November 30, 2022, have been reflected as discontinued operations in the consolidated statements of operations and consist of the following (in thousands):


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

Selling, general and administrative		4,074		26,186

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

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

The depreciation, amortization, capital expenditures, and significant operating and investing non-cash items of the discontinued operations consist of the following (in thousands):


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

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Inventories

The following table summarizes the components of inventory (in thousands):


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

5. Earnings Per Share

Basic earnings per share is based on the weighted average number of common shares outstanding during each year. Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the year.

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):~~During~~


	Three Months Ended November 30,				Nine Months Ended November 30,
	2023		2022		2023		2022
Numerator:
Net income from continuing operations	$	26,890	$	18,439	$	83,744	$	58,912
Dividends on preferred stock	(3,600)		(3,600)		(10,800)		(4,640)
Numerator for basic earnings per share continuing operations	$	23,290	$	14,839	$	72,944	$	54,272

Dividends on preferred stock	3,600		—		10,800		—
Numerator for diluted earnings per share continuing operations	$	26,890	$	14,839	$	83,744	$	54,272

Net loss from discontinued operations	$	—	$	(38,981)	$	—	$	(112,947)

Net income (loss) available to common shareholders	$	23,290	$	(24,142)	$	72,944	$	(58,675)

Dividends on preferred stock	3,600		—		10,800		—
Numerator for diluted earnings per share—net income (loss) available to common shareholders	$	26,890	$	(24,142)	$	83,744	$	(58,675)

Denominator:
Weighted average shares outstanding for basic earnings per share	25,077		24,867		25,024		24,804
Effect of dilutive securities:
Employee and director stock awards	136		128		137		180

Series A Convertible Preferred Stock	4,117		—		4,117		—
Denominator for diluted earnings per share	29,330		24,995		29,278		24,984

Basic earnings (loss) per share
Earnings per common share from continuing operations	$	0.93	$	0.60	$	2.91	$	2.19
Loss per common share from discontinued operations	$	—	$	(1.57)	$	—	$	(4.55)
Earnings (loss) per common share	$	0.93	$	(0.97)	$	2.91	$	(2.37)
Diluted earnings (loss) per share
Earnings per common share from continuing operations	$	0.92	$	0.59	$	2.86	$	2.17
Loss per common share from discontinued operations	$	—	$	(1.56)	$	—	$	(4.52)
Earnings (loss) per common share	$	0.92	$	(0.97)	$	2.86	$	(2.35)

For the three months ended November 30, 2023 and 2022, approximately 120,819 and 103,403 shares related to employee equity awards, respectively, were excluded from the computation of diluted earnings per share, as their effect would have been anti-dilutive. For the nine months ended November 30, 2023 and 2022, 126,356 and 78,862 shares, respectively, were excluded from the computation of diluted earnings per share as their effect would have been anti-dilutive. In addition, all shares related to the Series A Convertible Preferred Stock (4.1 million weighted average shares) were excluded from the computation of diluted earnings per share for the three and nine months ended November 30, 2022, as their effect would have been anti-dilutive. These shares could be dilutive in future periods.

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Sales

Disaggregated Sales

The following table presents disaggregated sales, for continuing operations, by customer industry (in thousands):


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

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

See also Note 8 for sales information by operating segment.

Contract Assets and Liabilities

The timing of revenue recognition, billings and cash collections results in accounts receivable, contract assets (unbilled receivables), and contract liabilities (customer advances and deposits) on the consolidated balance sheets. Our contract assets and contract liabilities are primarily related to the AZZ Precoat Metals segment. Customer billing can occur subsequent to revenue recognition, resulting in contract assets. In addition, the Company ~~completed~~can receive advances or deposits from its customers, before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the ~~sale~~consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

As of November 30, 2023 and February 28, 2023, the ~~AIS segment,~~balance for contract assets was $75.7 million and ~~recorded an additional pre-tax loss~~$79.3 million, respectively, primarily related to the AZZ Precoat Metals segment. Contract liabilities of ~~$45.0~~$1.0 million ~~which is~~and $1.3 million as of November 30, 2023 and February 28, 2023, respectively, are included in ~~"Loss on disposal of discontinued operations"~~"Other accrued liabilities" in the consolidated statements of operations. The additional loss includes $27.8 million from the derecognition of the cumulative translation adjustment related to its investment in foreign entities within the AIS segment, as well as an adjustment of $17.2 million for the change in net assets for the period between August 31, 2022, when the estimated loss was recorded, and September 30, 2022, when the transaction closed.balance sheets.

On September 30, 2022, the AIS JV transaction closed; as a result, the joint venture was deconsolidated and the Company retained a 40% interest in the joint venture, which is now accounted for under the equity method of accounting. The proceeds from the sale consisted of approximately $108.0 million, as well as $120.0 million that was funded by committed debt financing taken on by the AIS JV immediately prior to the closing of the sale. The debt financing of the AIS JV did not impact the Company's existing credit facility. The Company used the cash received from the AIS JV to repay a portion of the Term Loan B, the Revolving Credit Facility and for general corporate purposes. See Note 9.

The divestiture of the AZZ Infrastructure Solutions segment represents an intentional strategic shift in our operations and will allow the Company to become a focused provider of coating and galvanizing solutions for critical applications. As a result, the results of the AIS segment were classified as discontinued operations in our condensed statements of operations and excluded from both continuing operations and segment results for all periods presented.

~~Table of~~ ~~Contents~~

We have separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of November 30, 2022 and February 28, 2022, and consist of the following (in thousands):


	~~November 30, 2022~~		~~February 28, 2022~~
~~Current assets of discontinued operations:~~
~~Cash and cash equivalents~~	$	—	$	~~3,000~~
~~Accounts receivable~~	—		~~81,911~~
~~Inventories~~
~~Raw materials~~	—		~~36,581~~
~~Work-in-process~~	—		~~6,445~~
~~Finished goods~~	—		77
~~Contract assets~~	—		~~71,762~~

~~Prepaid expenses and other~~	—		~~1,888~~

~~Total current assets of discontinued operations~~	—		~~201,664~~
~~Long-term assets of discontinued operations:~~
~~Property, plant and equipment~~	—		~~37,490~~
~~Right-of-use asset~~	—		~~29,332~~
~~Goodwill~~	—		~~195,222~~
~~Intangibles and other assets, net~~	—		~~42,442~~
~~Deferred tax asset~~	—		~~1,726~~

~~Total non-current assets of discontinued operations~~	—		~~306,212~~
~~Total assets of discontinued operations~~	$	—	$	~~507,876~~
~~Current liabilities of discontinued operations:~~
~~Accounts payable~~	$	—	$	~~19,146~~
~~Income tax payable~~	—		~~(264)~~
~~Accrued salaries and wages~~	—		~~11,301~~
~~Other accrued liabilities~~	—		~~11,219~~
~~Customer deposits~~	—		~~387~~
~~Contract liabilities~~	—		~~42,465~~
~~Lease liability, short-term~~	—		~~4,029~~

~~Total current liabilities of discontinued operations~~	—		~~88,283~~
~~Long-term liabilities of discontinued operations:~~

~~Lease liability, long-term~~	—		~~24,207~~


~~Total long-term liabilities of discontinued operations~~	—		~~24,207~~
~~Total liabilities of discontinued operations~~	$	—	$	~~112,490~~

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Supplemental Cash Flow Information

The results of operations from discontinued operations for the three and nine months ended November 30, 2022 and 2021, have been reflected as discontinued operations in the consolidated statements of operations and consist of the following (in thousands):

Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Sales $ 42,300 $ 96,654 $ 256,224 $ 282,278
Cost of sales 35,020 77,263 202,707 222,432
Gross margin 7,280 19,391 53,517 59,846
Selling, general and administrative 4,074 10,589 26,186 35,192
Loss on disposal of discontinued operations 45,010 — 159,910 —
Operating income (loss) from discontinued operations (41,804) 8,802 (132,579) 24,654
Interest expense 2 2 8 63
Other (income) expense, net 2,002 1,504 6,270 1,468
Income (loss) from discontinued operations before income tax (43,808) 7,296 (138,857) 23,123
Income tax (benefit) expense (4,827) (682) (25,910) (289)
Net income (loss) from discontinued operations $ (38,981) $ 7,978 $ (112,947) $ 23,412
Earnings per common share from discontinued operations:
Basic earnings (loss) per share $ (1.57) $ 0.32 $ (4.55) $ 0.94
Diluted earnings (loss) per share $ (1.56) $ 0.32 $ (4.52) $ 0.93

~~We have included the~~In order to determine net cash provided by ~~discontinued operations~~operating activities, net income is adjusted by, among other things, changes in ~~the consolidated statements of cash flows. The depreciation, amortization, capital expenditures,~~current assets and ~~significant operating and investing non-cash items of the discontinued operation for the nine months ended November 30, 2022 and 2021, consists of the following~~current liabilities as follows (in thousands):

Nine Months Ended November 30,
2022 2021
Amortization and depreciation $ 7,279 $ 5,189
Purchase of property, plant and equipment $ 4,831 $ 3,373
Non-cash loss on disposal of discontinued operations $ 159,910 $ —

~~Table of~~ ~~Contents~~

~~4. Earnings Per Share~~

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if any potentially dilutive securities were converted into common shares during the period.

~~The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):~~

Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Numerator:
Net income from continuing operations $ 18,439 $ 13,107 $ 58,912 $ 38,988
Dividends on preferred stock (3,600) — (4,640) —
Net income from continuing operations available to common shareholders 14,839 13,107 54,272 38,988
Net income (loss) from discontinued operations $ (38,981) $ 7,978 $ (112,947) $ 23,412
Net income (loss) available to common shareholders $ (24,142) $ 21,085 $ (58,675) $ 62,400
Denominator:
Weighted average shares outstanding for basic earnings per share 24,867 24,729 24,804 24,910
Effect of dilutive securities:
Employee and director stock awards 128 216 180 222
Denominator for diluted earnings per share 24,995 24,945 24,984 25,132
Earnings per common share from continuing operations:
Basic earnings per share $ 0.60 $ 0.53 $ 2.19 $ 1.57
Diluted earnings per share $ 0.59 $ 0.53 $ 2.17 $ 1.55
Earnings per common share from discontinued operations:
Basic earnings per share $ (1.57) $ 0.32 $ (4.55) $ 0.94
Diluted earnings per share $ (1.56) $ 0.32 $ (4.52) $ 0.93
Earnings per common share:
Basic earnings per share $ (0.97) $ 0.85 $ (2.37) $ 2.51
Diluted earnings per share $ (0.97) $ 0.85 $ (2.35) $ 2.48

For the three months ended November 30, 2022 and 2021, 103,403 and 150,171 shares related to stock-based compensation, respectively, were excluded from the calculation of diluted earnings per share because the effect would be anti-dilutive. For the nine months ended November 30, 2022 and 2021, 78,862 and 137,186 shares related to stock-based compensation, respectively, were excluded from the calculation of diluted earnings per share because the effect would be anti-dilutive. In addition, all shares related to the Series A Convertible Preferred Stock (4.1 million shares) were excluded for the three and nine months ended November 30, 2022 because the effect would be anti-dilutive. These shares could be dilutive in future periods.


	Nine Months Ended November 30,
	2023		2022
Decrease (increase) in current assets:
Accounts receivable, net	$	13,922	$	(6,927)
Other receivables	(4,033)		(9,503)
Inventories	17,191		(14,646)
Contract assets	1,136		(3,950)
Prepaid expenses and other	(1,304)		(6,195)
Increase (decrease) in current liabilities:
Accounts payable	8,654		(15,122)
Income taxes payable	(227)		(3,784)
Accrued expenses	3,480		25,158
Changes in current assets and current liabilities	$	38,819	$	(34,969)

Cash flows related to interest and income taxes were as follows (in thousands):


	Nine Months Ended November 30,
	2023		2022
Cash paid for interest	$	74,993	$	52,488
Cash paid for income taxes	17,683		15,627

Supplemental disclosures of non-cash investing and financing activities were as follows (in thousands):


	Nine Months Ended November 30,
	2023		2022
Issuance of preferred stock in exchange for convertible notes	$	—	$	233,722
Accrued dividends on preferred stock	2,400		4,640
Accruals for capital expenditures	4,768		960

~~Table of~~ ~~Contents~~

~~5. Sales~~

~~Disaggregated Sales~~

~~The following table presents disaggregated sales, for continuing operations, by customer industry (in thousands):~~

Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Sales:
Construction $ 205,316 $ 32,419 $ 493,573 $ 91,018
Industrial 37,330 28,367 118,457 87,061
Consumer 29,864 — 78,972 —
Transportation 33,597 24,315 98,715 75,189
Electrical/Utility 26,131 20,262 69,100 55,402
Other (1)
41,063 29,720 128,328 87,062
Total sales $ 373,301 $ 135,083 $ 987,145 $ 395,732
(1) Other includes less significant markets, such as agriculture, recreation, petro-chem, AZZ Tubular products and sales from recycling and other.

~~See also Note 6 for sales information by operating segment.~~

~~Contract Assets and Liabilities~~

The timing of sales recognition, billings and cash collections results in accounts receivable, contract assets (unbilled receivables), and contract liabilities (customer advances and deposits) on the consolidated balance sheets, primarily related to the AZZ Precoat Metals segment. The Company periodically receives advances or deposits from customers, before sales are recognized, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

Contract assets and contract liabilities were $78.6 million and $1.0 million, respectively, as of November 30, 2022. The Company did not record any sales for the three or nine months ended November 30, 2022 or 2021 related to performance obligations satisfied in prior periods.

6.8. Operating Segments

Segment Information

The ~~Company has three distinct~~Company’s Chief Executive Officer, who is the chief operating ~~segments:~~decision maker ("CODM"), reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance. Sales and operating income are the primary measures used by the CODM to evaluate segment operating performance and to allocate resources to the AZZ Metal Coatings ~~segment,~~and the AZZ Precoat Metals ~~segment~~segments, and net income is the primary measure used by the CODM to evaluate performance and allocate resources to the AZZ Infrastructure Solutions segment. ~~The AIS Joint Venture agreement discussed~~Expenses related to certain centralized administration or executive functions that are not specifically related to an operating segment are included in Corporate. As presented in Note 3, ~~resulted in our AZZ Infrastructure Solutions segment being classified~~the AVAIL JV operating results for the period prior to deconsolidation are included within discontinued operations, with the exception of AZZ Crowley Tubing, which was retained by the Company and merged into the AZZ Metal Coatings segment. See Note 3 for the results of operations related to the AZZ Infrastructure Solutions segment. ~~For the three and nine months ended November 30, 2022,~~

A summary of each of the Company's ~~investment in the AIS JV~~operating segments is ~~a reportable operating segment.~~as follows:

~~The~~

Table of Contents

AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AZZ Metal Coatings ~~segment~~ — provides hot-dip galvanizing, spin galvanizing, powder coating, anodizing and plating, and other metal coating applications to the steel fabrication and other industries through facilities located throughout the United States and Canada. Hot-dip galvanizing is a metallurgical manufacturing process in which molten zinc reacts to steel. The zinc alloying provides corrosion protection and extends the ~~life-cycle~~life cycle of fabricated steel for several decades. ~~The Tubing business provides small-diameter offset pipe utilized primarily in the energy sector.~~

~~The~~ AZZ Precoat Metals ~~segment provides aesthetic~~— engages in the advanced application of protective and ~~corrosion protective~~decorative coatings and related value-added ~~services~~manufacturing for steel and aluminum coil primarily serving the construction; appliance; heating, ventilation and air conditioning (HVAC); container; transportation and other end ~~markets in the United States.~~markets.

~~The~~ AZZ Infrastructure Solutions ~~segment~~ — consists of the ~~Company's investment in and~~ equity in earnings of the Company's 40% investment in the AVAIL JV, as well as other expenses directly related to AIS receivables and liabilities that were retained following the divestiture of the AIS business. The AVAIL JV ~~which~~ provides specialized products and services designed to support primarily industrial and electrical applications. The product offerings include custom switchgear, electrical enclosures, ~~medium~~medium- and ~~high voltage~~high-voltage bus ducts, explosion proof and hazardous

~~Table of~~ ~~Contents~~

duty ~~lighting.~~lighting products. The ~~AIS JV~~AZZ Infrastructure Solutions segment also focuses on life-cycle extension for the power generation, refining and industrial infrastructure, through providing automated weld overlay solutions for corrosion and erosion mitigation.

~~Sales and operating~~Net income from continuing operations by segment for ~~each period were~~the three and nine months ended November 30, 2023 and 2022 was as follows (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

Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Sales:
AZZ Metal Coatings $ 158,274 $ 135,083 $ 487,567 $ 395,732
AZZ Precoat Metals 215,027 — 499,578 —
Total sales $ 373,301 $ 135,083 $ 987,145 $ 395,732
Operating income:
AZZ Metal Coatings $ 33,546 $ 33,111 $ 123,812 $ 97,072
AZZ Precoat Metals 21,053 — 63,914 —
Corporate(1)
(9,206) (11,821) (50,283) (34,395)
Total operating income from continuing operations $ 45,393 $ 21,290 $ 137,443 $ 62,677
(1) Includes expenditures of $15.2 million for the nine months ended November 30, 2022, directly related to the Precoat Acquisition and the divestiture of the AZZ Infrastructure Solutions operating segment. There were no such expenditures for the three months ended November 30, 2022.

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	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.


	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

Table of Contents

AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	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.

Asset balances by operating segment for each period were as follows (in thousands):
November 30, 2022 February 28, 2022
Total assets:
AZZ Metal Coatings $ 579,830 $ 578,885
AZZ Precoat Metals 1,484,074 —
AZZ Infrastructure Solutions - Investment in Joint Venture 82,420 —
Corporate 53,150 46,266
Discontinued operations:
AZZ Infrastructure Solutions — 507,876
Total $ 2,199,474 $ 1,133,027


	As of
	November 30, 2023		February 28, 2023
Assets:
Metal Coatings	$	559,149	$	588,337
Precoat Metals	1,504,828		1,488,810
Infrastructure Solutions - Investment in Joint Venture	97,238		84,760
Corporate	47,541		59,572


Total assets	$	2,208,756	$	2,221,479

Financial Information About Geographical Areas

~~The following table presents sales by geographic region~~Financial information about geographical areas for ~~each period~~the periods presented was as follows (in thousands):

Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Sales:
United States $ 363,660 $ 127,462 $ 951,855 $ 370,910
International 9,641 7,621 35,290 24,822
Total $ 373,301 $ 135,083 $ 987,145 $ 395,732


	Three Months Ended November 30,				Nine Months Ended November 30,
	2023		2022		2023		2022
Sales:
United States	$	370,485	$	363,660	$	1,140,344	$	951,855
Canada	11,120		9,641		30,676		35,290

Total	$	381,605	$	373,301	$	1,171,020	$	987,145

Table of Contents

AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	As of
	November 30, 2023		February 28, 2023
Property, plant and equipment, net:
United States	$	506,070	$	478,722
Canada	19,268		19,781

Total	$	525,338	$	498,503

~~The following table presents fixed assets by geographic region for each period (in thousands):~~

November 30, 2022 February 28, 2022
Property, plant and equipment, net:
United States $ 471,279 $ 167,634
Canada 20,088 25,724
Total $ 491,367 $ 193,358

9. Investments in Unconsolidated Entity

~~On September 30, 2022,~~AVAIL JV

Following the ~~Company entered into a joint venture with Fernweh Group LLC ("Fernweh"), whereby AZZ contributed~~sale of its AZZ Infrastructure Solutions segment (“AIS”) to AIS Investment Holdings LLC (the “AIS JV”), and sold a 60% interest in the AIS JV to Fernweh. The Company's investment in the AIS JV was $82.4 million at November 30, 2022. The Company recognized equity in earnings of unconsolidated entities of $1.0 million for the three and nine months ended November 30, 2022. See Note 7 for further discussion of the Company's investment in the AIS JV.

~~7. Investments in Unconsolidated Entity~~

~~AZZ Infrastructure Solutions (AIS) Joint Venture~~

On September 30, 2022, the Company and Fernweh Group LLC ("Fernweh") closed on the transaction whereby AZZ contributed its AZZ Infrastructure Solutions segment (“AIS”) to AIS Investment Holdings LLC (the “AIS JV”), and sold a 60% controlling interest in the ~~AIS~~AVAIL JV to Fernweh, ~~at an implied enterprise value of~~ AIS ~~of $300.0 million. The AIS JV operates under the name "Avail Infrastructure Solutions" ("AVAIL"). As a result of the transaction, AIS is~~was deconsolidated and the ~~Company's retained~~Company began accounting for its 40% interest in the AVAIL ~~joint venture is accounted for~~JV under the equity method of accounting. The ~~proceeds from~~AVAIL JV is included in the sale included approximately $108.0 million, as well as $120.0 million that was funded by committed debt financing taken on by the AIS JV immediately prior to the closing of the divestiture of AZZ’s controlling interest.

~~As a change of control occurred with the transaction, a new basis of accounting will occur at the AIS JV when AVAIL completes its business combination accounting for the transaction.~~ AZZ has not presented summarized financial statements, as those statements are incomplete at this time and do not include adjustments to asset values, depreciation, or amortization that may be required once AVAIL completes its business combination accounting.Infrastructure Solutions segment. We record our ~~interest~~equity in earnings in the ~~joint venture~~AVAIL JV on a one-month lag to allow sufficient time to review and assess the joint venture’s effect on our reported results. ~~Since~~As of November 30, 2023, our investment in the ~~transaction closed on September 30, 2022, we have~~AVAIL JV is $97.2 million. We recorded ~~one month~~$11.1 million of equity in earnings during the nine months ended November 30, 2023. The Company has a related-party payable with the AVAIL JV. As of ~~unconsolidated entities in~~November 30, 2023 and February 28, 2023, the ~~amount of $1.0~~balance was $4.6 million representing AVAIL's October 2022 results of operations. Once AVAIL completes the business combination accounting, the reported results will reflect the effects of the business combination accounting as though such values were recorded at the time the transaction closed.and $6.3 million, respectively,

~~8. Derivative Instruments~~


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


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

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

10. Derivative Instruments

Interest Rate Swap Derivative

As a policy, the Company does not hold, issue or trade derivative instruments for speculative purposes. The Company may periodically enter into forward sale contracts to purchase a specified volume of zinc at fixed prices. These contracts are not accounted for as derivatives because they meet the criteria for the normal purchases and normal sales scope exception in ASC 815.

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We manage our exposure to fluctuations in interest rates using a mix of fixed and variable-rate debt. We utilize ~~fixed-rate~~ 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 ~~a fixed-rate~~an interest rate swap agreement with banks that are parties to the ~~2021~~2022 Credit ~~Agreement, amended on~~Agreement. On October 7, 2022, the agreement was amended to change the SOFR-based component of the interest rate on a portion of ~~the Company's~~our variable-rate debt to a fixed rate of 4.277%, resulting in a total fixed rate of 8.627% (the ~~“2022 Swap”~~"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 ~~each quarter~~ by a pro-rata portion of ~~the~~any quarterly principal payments made on the Term Loan B.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. ~~The Company~~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.

At November 30, ~~2022,~~2023, changes in fair value attributable to the effective portion of the 2022 Swap were included on the condensed consolidated balance ~~sheet~~sheets in accumulated other comprehensive income. For derivative instruments that qualify for

~~Table of~~ ~~Contents~~

hedge accounting treatment, the fair value is recognized on ~~the Company’s~~our condensed consolidated balance sheets as derivative assets or liabilities with offsetting changes in fair value, to the extent effective, recognized in accumulated other comprehensive income until reclassified into earnings when the interest expense on the underlying debt is reflected in earnings. The portion of a cash flow hedge that does not offset the change in the fair value of the transaction being hedged, which is commonly referred to as the ineffective portion, is immediately recognized in earnings. During the nine months ended November 30, 2023, we reclassified $3.5 million before income tax, or $2.5 million net of tax, from other comprehensive income to earnings.

9.11. Debt

The ~~Company's~~Company’s long-term debt ~~consisted of the following~~instruments and balances outstanding for each of the periods presented (in thousands):

November 30, 2022 February 28, 2022
Revolving Credit Facility $ 10,000 $ 77,000
2020 Senior Notes — 150,000
Term Loan B 1,083,500 —
Total debt, gross 1,093,500 227,000
Unamortized debt issuance costs (69,852) (516)
Total debt, net 1,023,648 226,484
Less amount due within one year (13,000) —
Total debt due after one year, net $ 1,010,648 $ 226,484

~~2021 Credit Agreement~~

On July 8, 2021, the Company entered into a five-year unsecured revolving credit facility under a credit agreement, by and among the Company, borrower, Citibank, N.A., as administrative agent and the other agents and lender parties thereto (the “2021 Credit Agreement”). The 2021 Credit Agreement was scheduled to mature in July 2026 and included the following significant terms;

i.provided for a senior unsecured revolving credit facility with a principal amount of up to $400.0 million of revolving loan commitments, and includes an additional $200.0 million uncommitted incremental accordion facility;

~~ii.~~interest rate margin ranges from 87.5 bps to 175 bps for Eurodollar Rate loans, and from 0.0 bps to 75 bps for Base Rate loans, depending on the leverage ratio of the Company and its consolidated subsidiaries as a group;

~~iii.included a letter of credit sub-facility up to $85.0 million for the issuance of standby and commercial letters of credit;~~

~~iv.included a $50.0 million sublimit for swing line loans;~~

v.included customary representations and warranties, affirmative covenants and negative covenants, and events of default; including restrictions on incurrence of non-ordinary course debt, investment and dividends, subject to various exceptions, carve-outs and baskets, and;

~~vi.included a maximum leverage ratio financial covenant and an interest coverage ratio financial covenant, each to be tested at each quarter-end;~~

~~On May 13, 2022, the 2021 Credit Agreement was repaid with proceeds from the 2022 Credit Agreement, which is described below.~~


	As of
	November 30, 2023		February 28, 2023
Revolving Credit Facility	$	10,000	$	95,000

Term Loan B	1,030,250		1,030,250
Total debt, gross	$	1,040,250	$	1,125,250
Unamortized debt issuance costs	(60,246)		(67,130)
Total debt, net	980,004		1,058,120
Less current portion of long-term debt	—		—
Long-term debt, net	$	980,004	$	1,058,120

2022 Credit Agreement and Term Loan B

OnThe Company has a credit agreement with a syndicate of financial institutions as lenders that was entered into on May 13, 2022 ~~the Company replaced the 2021 Credit Agreement with a new Credit Agreement~~ (the "2022 Credit Agreement") ~~by and among~~. On August 17, 2023, the Company ~~borrower, Citibank, N.A., as administrative and collateral agent, and~~repriced the ~~other agents and lender parties thereto~~$1.0 billion Term Loan B, which was outstanding under the 2022 Credit ~~Agreement.~~ 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;~~terms:

i.provides for a senior secured initial term loan in the aggregate principal amount of ~~$1.1~~$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~~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;

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Contents~~

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 ~~each bear~~bears an interest rate of ~~Secured Overnight Financing Rate ("SOFR")~~SOFR plus 4.25% (as of November 30, 2023—see Note 18 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;~~exceptions; and,

vi.includes a maximum quarterly leverage ratio financial covenant, ~~and an interest coverage ratio financial covenant,~~ with reporting requirements to our banking group at each ~~quarter-end;~~quarter-end.

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

As defined in the ~~Term Loan B~~credit agreement, quarterly prepayments were ~~used to finance a portion of~~due against the ~~Precoat Acquisition, pay transaction-related costs owed under the Securities Purchase Agreement (defined below) and refinance certain prior indebtedness, including the repayment of~~ outstanding ~~borrowings under the 2021 Credit Agreement. The proceeds were also utilized to redeem 100% of the Company’s 2020 Senior Notes on June 6, 2022.~~

~~Outstanding~~ principal of the Term Loan B isand 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 ~~8.53%~~8.54% at November 30, ~~2022.~~2023.

The Company's credit agreement ~~requires~~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.

~~Convertible Subordinated Notes~~

On May 13, 2022, the Company completed the issuance of $240.0 million aggregate principal amount of 6.00% convertible subordinated notes due June 30, 2030 (the "Convertible Notes") pursuant to the Securities Purchase Agreement (the "Securities Purchase Agreement") with BTO Pegasus Holdings DE L.P., a Delaware limited partnership (together with its assignees, "Blackstone"), an investment vehicle of funds affiliated with Blackstone Inc. Interest on the Convertible Notes was payable on June 30 and December 31. The Convertible Notes were exchanged for 240,000 shares of the Company's 6.0% Series A Convertible Preferred Stock on August 5, 2022, following the receipt of shareholder approval for the issuance of preferred shares. See Note 13 for a description of the Series A Convertible Preferred Stock.

~~The Company used the proceeds of the Convertible Notes, along with the Term Loan B, to fund the Company’s Precoat Acquisition.~~

~~The Company's debt agreements require the Company to maintain certain affirmative and negative covenants.~~ As of November 30, ~~2022,~~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 ~~and~~or other requirements set forth in the debt agreements.

~~During the three months ended~~As of November 30, ~~2022, the Company utilized a significant portion~~2023, we had $1.04 billion of ~~the cash received from the AIS JV to reduce the Term Loan B,~~floating- and ~~utilized the remaining cash received to reduce~~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 ~~general corporate purposes.~~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.

~~10.~~12. Fair Value Measurements

Recurring Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. In accordance with ASC 820, Fair Value Measurements and Disclosures (“("ASC ~~820”~~820"), certain of the Company’s assets and liabilities, which are carried at fair value, are classified in one of the following three categories:

•Level 1: Quoted market prices in active markets for identical assets or liabilities.

•Level 2: Observable market-based inputs, other than Level 1, or unobservable inputs ~~that are~~ corroborated by market data.

•Level 3: Unobservable inputs that are not corroborated by market data and reflect the Company’s own assumptions.

The carrying amount of the Company's financial instruments (cash equivalents, accounts receivable, accounts payable and accrued liabilities) approximates the fair value of these instruments based upon their short-term nature.

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Interest Rate Swap Agreement

The Company’s derivative instrument consists of an interest rate swap contract, which is a Level 2 of the fair value hierarchy and ~~reported~~included in "Other assets" in the condensed consolidated balance sheet as of ~~December 31, 2021 as derivative liabilities current and derivative liabilities long-term.~~November 30, 2023. See Note 810 for more information.

~~Table of~~ ~~Contents~~

The Company’s financial instrument that is measured at fair value on a recurring basis as of November 30, ~~2022~~2023 and February 28, ~~2022~~2023 is as follows (dollars in thousands):


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

November 30, Fair Value Measurements Using February 28, Fair Value Measurements Using
2022 Level 1 Level 2 Level 3 2022 Level 1 Level 2 Level 3
Interest rate swap agreement $ (3,512) $ — $ (3,512) $ — $ — $ — $ — $ —
Non-recurring Fair Value Measurements

Investment in Joint Venture

The fair value of the AVAIL JV that is accounted for under the equity method was determined based on the transaction price. Subsequent measurement of the fair value of the AVAIL JV is determined based on the income approach. The income approach uses discounted cash flow models that require various observable and non-observable inputs, such as operating margins, revenues, product costs, operating expenses, capital expenditures, terminal-year values and risk-adjusted discount rates. These valuations resulted in Level 3 nonrecurring fair value measurements. As of November 30, 2023, the estimated fair value of the investment in the AVAIL JV approximates the carrying value of $97.2 million.

Long-Term Debt

The fair value of the Company’s Term Loan B is based on quoted market prices in active markets and is included in the Level 1 fair value hierarchy. The fair value of the Company’s revolving credit facility is estimated based on market values for debt issues with similar characteristics or rates currently available for debt with similar terms and is included in the Level 2 fair value hierarchy. The principal amount of our outstanding debt was $1.04 billion and $1.13 billion at November 30, 2023 and February 28, 2023, respectively. The estimated fair value of our outstanding debt was $1.04 billion and $1.13 billion at November 30, 2023 and February 28, 2023, respectively.

~~11.~~13. Leases

The Company is a lessee under various leases for facilities and equipment. As of November 30, ~~2022,~~2023, the Company was the lessee for ~~167~~159 operating leases and 25 finance leases with terms of 12 months or ~~more and 15 finance leases.~~more. Many of the operating leases either have renewal options of between one and five years or convert to month-to-month agreements at the end of the specified lease term.

The Company’s operating leases are primarily for (i) operating facilities, (ii) vehicles and equipment used in operations, (iii) facilities used for back-office functions and (iv) equipment used for back-office functions, and (v) temporary storage. The majority of the Company’s long-term lease expenses have both a fixed and variable component.

Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has a significant number of short-term leases, including month-to-month ~~agreements, some of which continue in perpetuity until the lessor or the Company terminates the lease agreement.~~agreements. The Company's short-term lease agreements include expenses incurred hourly, daily, monthly and for other durations ~~for a~~of time ~~period~~ of one year or less.

The Company’s future lease commitments as of November 30, ~~2022~~2023 do not reflect ~~the entirety~~all of the Company’s short-term lease commitments.

The following table outlines, for the Company's continuing operations, the classification of the Company's right-of-use assets and lease liabilities in the consolidated balance sheets as of November 30, 2022 and fiscal year end 2022 (in thousands):

Balance Sheet Classification November 30, 2022 February 28, 2022
Assets
Right-of-use assets Right-of-use assets $ 24,248 $ 13,954
Liabilities
Operating lease liabilities ― ST Lease liability - short-term 5,199 3,131
Operating lease liabilities ― LT Lease liability - long-term 18,971 10,798
Finance lease liabilities ― ST Lease liability - short-term 200 158
Finance lease liabilities ― LT Lease liability - long-term 702 605

~~Supplemental non-cash information related to the Company's portfolio of operating leases was as follows (in thousands):~~

Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Operating cash flows from operating leases included in lease liabilities $ 2,862 $ 2,338 $ 8,069 $ 6,780
Lease liabilities obtained from new ROU assets - operating 2,396 376 4,938 13,646
Operating and financing cash flows from financing leases included in lease liabilities 70 37 182 74
Lease liabilities obtained from new ROU assets - financing — 348 398 362

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AZZ INC.

November 30, 2022 February 28, 2022
Weighted-average remaining lease term - operating leases (years) 7.03 7.90
Weighted-average discount rate - operating leases 4.72 % 4.56 %
Weighted-average remaining lease term - financing leases (years) 4.45 4.73
Weighted-average discount rate - financing leases 4.12 % 2.95 %
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table outlines the classification of the Company's right-of-use asset and lease liabilities in the balance sheets as of November 30, 2023 and February 28, 2023 (in thousands):


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

Supplemental information related to the Company's portfolio of operating leases from continuing operations was as follows (in thousands, except years and percentages):


	Three Months Ended November 30,				Nine Months Ended November 30,
	2023		2022		2023		2022
Operating cash flows from operating leases included in lease liabilities	$	1,811	$	2,862	$	5,471	$	8,069
Lease liabilities obtained from new ROU assets - operating	60		2,396		1,942		4,938
Decrease in ROU assets related to lease terminations	—		—		(1,294)		—
Operating and financing cash flows from financing leases included in lease liabilities	130		70		330		182
Lease liabilities obtained from new ROU assets - financing	173		—		773		398


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

The following table outlines the classification of lease expense related to operating leases from continuing operations, in the statements of operations (in thousands):

Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Cost of sales $ 3,306 $ 1,858 $ 8,590 $ 5,073
Selling, general and administrative 494 339 1,435 939
Total lease expense $ 3,800 $ 2,197 $ 10,025 $ 6,012

~~As of November 30, 2022, maturities of the Company's lease liabilities, excluding lease liabilities associated with our discontinued operations, were as follows (in thousands):~~

Fiscal year: Operating Leases Finance Leases Total
2023 $ 1,595 $ 58 $ 1,653
2024 5,978 232 6,210
2025 5,410 232 5,642
2026 4,634 188 4,822
2027 3,784 163 3,947
Thereafter 5,624 118 5,742
Total lease payments 27,025 991 28,016
Less imputed interest (2,855) (89) (2,944)
Total $ 24,170 $ 902 $ 25,072


	Three Months Ended November 30,				Nine Months Ended November 30,
	2023		2022		2023		2022
Cost of sales	$	2,997	$	3,306	$	9,234	$	8,590
Selling, general and administrative	495		494		1,500		1,435
Total lease cost	$	3,492	$	3,800	$	10,734	$	10,025

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of November 30, 2023, maturities of the Company's lease liabilities were as follows (in thousands):


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

The Company subleases multiple buildings in Columbia, South Carolina to multiple subtenants. The Columbia sublease agreements are by and between AZZ Precoat Metals and multiple subtenants. Sublease income is recognized over the term of the sublease on a straight-line basis and is reported in the consolidated statement of operations in "Cost of sales." The Company recognized $0.3 million and $0.8 million of income from subleases during the three and nine months ended November 30, 2023, respectively.

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AZZ INC.

~~12.~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Income Taxes

Continuing Operations

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.

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.

Discontinued Operations

The following table outlines income or loss and the related tax expense (benefit) from discontinued operations for the three and nine months ended November 30, 2022 ~~and 2021~~ (in thousands):


		Three Months Ended November 30,				Nine Months Ended November 30,					Three Months Ended		Nine Months Ended
		2022		2021		2022		2021			November 30, 2022		November 30, 2022
Income from discontinued operations before income taxes	Income from discontinued operations before income taxes	$	1,202	$	7,296	$	21,053	$	23,123	Income from discontinued operations before income taxes	$	1,202	$	21,053
Income tax (expense) benefit	Income tax (expense) benefit	(133)		682		(3,927)		289		Income tax (expense) benefit	463		(3,927)
Income from discontinued operations, net of tax	Income from discontinued operations, net of tax	$	1,069	$	7,978	$	17,126	$	23,412	Income from discontinued operations, net of tax	$	1,665	$	17,126

Loss on disposal of discontinued operations	Loss on disposal of discontinued operations	$	(45,010)	$	—	$	(159,910)	$	—	Loss on disposal of discontinued operations	$	(45,010)	$	(159,910)
Income tax benefit	Income tax benefit	4,960		—		29,837		—		Income tax benefit	4,364		29,837
Loss on disposal of discontinued operations, net of tax	Loss on disposal of discontinued operations, net of tax	$	(40,050)	$	—	$	(130,073)	$	—	Loss on disposal of discontinued operations, net of tax	$	(40,646)	$	(130,073)

The provision for income taxes from continuing operations reflects an effective tax rate of 11.7% for the three months ended November 30, 2022, compared to 33.6% for the three months ended November 30, 2021. The decrease in the effective tax rate was primarily attributable to the tax benefit from an outside basis difference between book and tax in the Company's investment in the AIS JV.

The provision for income taxes from discontinued operations reflects an effective tax rate of 11.0% and 18.7% for the three months ended November 30, 2022, compared to (9.3)% for the three months ended November 30, 2021. The increase is related to an unfavorable permanent adjustment for cumulative translation adjustment that, for tax purposes, is non-deductible.

~~For the~~and nine months ended November 30, 2022, the effective tax rate from continuing operations was 23.8%, compared to 32.5% for the prior year comparable period. The decrease in the effective tax rate is the result of unfavorable adjustments related to uncertain tax positions recorded in the prior year comparable period and to the tax benefit from an outside basis difference between book and tax in the Company's investment in the AIS JV.

The provision for income taxes from discontinued operations reflects an effective tax rate of 18.7% for the nine months ended November 30, 2022, compared to (1.2)% for the nine months ended November 30, 2021. The increase is related to an unfavorable permanent adjustment for cumulative translation adjustment that, for tax purposes, is non-deductible.2022.

~~13.~~15. Equity

~~2020 Share Authorization~~

On November 10, 2020, the Company's Board of Directors authorized a $100 million share repurchase program, pursuant to which the Company may repurchase its common stock (the “2020 Share Authorization”). Repurchases under the 2020 Share Authorization will be made through open market and/or private transactions, in accordance with applicable federal securities laws, and could include repurchases pursuant to Rule 10b5-1 trading plans, which allows stock repurchases when the Company might otherwise be precluded from doing so.

During the nine months ended November 30, 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. During the nine months ended November 30, 2021, the Company repurchased 564,300 shares of common stock for $28.9 million, or $51.16 per share.

Series A Convertible Preferred Stock

On August 5, 2022, the Company exchanged ~~the Convertible Notes~~its $240.0 million aggregate principal amount of 6.0% convertible subordinated notes due June 30, 2030 for 240,000 shares of 6.0% Series A Convertible Preferred Stock, following the receipt of shareholder approval for the issuance of preferred stock. The Series A Convertible Preferred Stock is convertible by the holder at any time into shares of the Company's common stock at a conversion price of $58.30 per common share. The preferred stock accumulates a 6.0% dividend per annum. Dividends are payable quarterly on March 31, June 30, September 30 and December 31 of each year. In addition, the preferred shares are subject to a minimum conversion threshold of 1,000 shares per conversion, and customary anti-dilution and dividend adjustments. The preferred shares have full voting rights as if converted and have a fully participating liquidation preference.

~~Table of~~ ~~Contents~~

As of both November 30, ~~2022,~~2023 and February 28, 2023, the 240,000 shares of outstanding Series A Convertible Preferred Stock had accrued dividends of ~~$4.6~~$2.4 million and could be converted into 4.1 million shares of common stock, at the option of the holder.

Table of ~~February 28,~~Contents

AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income (loss) ("AOCI"), after tax, for the three and nine months ended November 30, 2023 and 2022 ~~there were no shares~~consisted of ~~outstanding preferred stock and no accrued dividends.~~the following (in thousands):


	Three Months Ended November 30,
	2023								2022
	Foreign Currency Translation Gain (Loss)		Net Actuarial Gain (Loss), Net of Tax		Interest Rate Swap, Net of Tax		Total		Foreign Currency Translation Gain (Loss)		Net Actuarial Gain (Loss), Net of Tax		Interest Rate Swap, Net of Tax		Total
Balance as of beginning of period	$	(9,307)	$	119	$	3,374	$	(5,814)	$	(30,070)	$	—	$	—	$	(30,070)
Other comprehensive income before reclassification	3,029		—		(115)		2,914		(5,019)		—		(3,512)		(8,531)
Amounts reclassified from AOCI	—		—		(1,057)		(1,057)		27,750		—		—		27,750
Net change in AOCI	3,029		—		(1,172)		1,857		22,731		—		(3,512)		19,219
Balance as of end of period	$	(6,278)	$	119	$	2,202	$	(3,957)	$	(7,339)	$	—	$	(3,512)	$	(10,851)


	Nine Months Ended November 30,
	2023								2022
	Foreign Currency Translation Gain (Loss)		Net Actuarial Gain (Loss), Net of Tax		Interest Rate Swap, Net of Tax		Total		Foreign Currency Translation Gain (Loss)		Net Actuarial Gain (Loss), Net of Tax		Interest Rate Swap, Net of Tax		Total
Balance as of beginning of period	$	(7,571)	$	119	$	2,879	$	(4,573)	$	(27,324)	$	—	$	—	$	(27,324)
Other comprehensive income before reclassification	1,293		—		1,867		3,160		(7,765)		—		(3,512)		(11,277)
Amounts reclassified from AOCI	—		—		(2,544)		(2,544)		27,750		—		—		27,750
Net change in AOCI	1,293		—		(677)		616		19,985		—		(3,512)		16,473
Balance as of end of period	$	(6,278)	$	119	$	2,202	$	(3,957)	$	(7,339)	$	—	$	(3,512)	$	(10,851)

~~14.~~16. Defined Benefit Pension Plan

Pension and Employee Benefit Obligations

In the Company's Precoat Metals segment, certain current or past employees participate in a defined benefit pension plan ~~sponsored~~(the "Plan"). Prior to the Precoat Acquisition, benefit accruals were frozen for all participants. After the freeze, participants no longer accrued benefits under the Plan, and ~~administered by the Company. The pension plan calls for benefits~~new hires of AZZ Precoat Metals are not eligible to ~~be paid to eligible employees at retirement, based primarily upon years of service and compensation rates near retirement. The plan is closed to new participants, while those participants already~~participate in the ~~plan continue to accrue benefits. In conjunction with~~Plan. As of November 30, 2023, the ~~acquisition of Precoat Metals,~~Plan was underfunded, and the Company ~~assumed an accumulated benefit obligation in excess of related plan assets associated with the defined benefit~~has a pension ~~plan~~liability of $31.6 million, which is included in "Other long-term liabilities" in the consolidated balance ~~sheets. The Plan has been frozen to new participants,~~sheets and ~~supports existing employees of AZZ Precoat Metals and other participating employees. See Note 2 for a discussion~~represents the underfunded portion of the ~~acquisition of Precoat Metals.~~Plan.

~~15.~~17. Commitments and Contingencies

Legal

The Company and its subsidiaries are named defendants and plaintiffs in various routine lawsuits incidental to ~~its~~our business. These proceedings include labor and employment claims, ~~worker’s compensation, environmental matters, and~~ various commercial disputes, ~~including certain breach~~use of ~~contract claims,~~the Company’s intellectual property, worker’s compensation and environmental matters, all ~~of which arise~~arising in the normal course of ~~conducting~~ business. As discovery progresses on all outstanding legal matters, the Company ~~continuously evaluates~~will continue to evaluate opportunities to either settle the

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

disputes for nuisance value or potentially enter into mediation as a way to resolve the disputes prior to trial. As the pending cases progress through additional discovery ~~including expert testimony~~ and potential mediation, our assessment of the likelihood of an unfavorable outcome on ~~one or more of~~ the pending lawsuits may change. ~~The~~Although the outcome of these lawsuits or other proceedings cannot be predicted with certainty, and the amount of any potential liability that could arise with respect to such lawsuits or other matters cannot be predicted at this ~~time. Management,~~time, management, after consultation with legal counsel believes it has strong defenses to all of these matters and does not expect liabilities, if any, from these claims or proceedings, either individually or in the aggregate, to have a material effect on the Company’s financial position, results of operations or cash flows.

The Company’s prior-owned affiliate ₋ The Calvert Company entered into a series of commercial contracts in 2011 and 2015 to provide equipment and services to a power plant in Georgia. The general contractor on the project, WECTEC (a subsidiary of Westinghouse), filed bankruptcy in New York in March of 2017. The Company’s affiliate continued to perform work on the project for the owners/licensee under an interim bridge contract. We believe the affiliate was eventually terminated for convenience on the project, and the affiliate filed an adversary proceeding in bankruptcy court against WECTEC and the owners to collect all unpaid amounts. The owners of the Georgia power plant filed a countersuit in April of 2018. In connection with the Company selling the majority interest in the AIS business to Fernweh Group on September 30, 2022, the Company agreed to retain this lawsuit. After a long and protracted discovery process and motion practice, we determined in the quarter ended August 30, 2023 that the most favorable outcome to the Company to resolve the dispute may be a negotiated settlement. This decision was made in consideration of the expenses of a lengthy jury trial and potentially protracted appeal process; the resources necessary to continue the prosecution and defense of the case given the size of the discovery and the number of issues involved; the risk factors typically associated with jury verdicts in light of all of the political circumstances currently present in Georgia regarding the power plant; and the benefit of resolving a dispute whose genesis arose more than twelve years ago based solely upon risk avoidance, and not upon the merits of the case. During the third quarter of fiscal 2024, all of the parties entered into a confidential settlement agreement, with no parties admitting any guilt or negligence and the Company agreed to pay the owners/licensee $5.75 million on or around January 15, 2024 to resolve all outstanding matters related to the dispute. In addition, the agreement included the forgiveness of the Company's receivable from WECTEC of $3.7 million, which was fully reserved by the Company. This settlement of $5.75 million was accrued during the second quarter of fiscal year 2024, and is included in "Selling, general and administrative" expense in the consolidated statement of operations for the nine months ended November 30, 2023 and in "Other accrued liabilities" in the consolidated balance sheet as of November 30, 2023. The settlement was included in the AZZ Infrastructure Solutions segment, and the settlement payment will be made in the fourth quarter of fiscal 2024.

In 2017, Southeast Texas Industries, Inc. (“STI”) filed a breach of contract lawsuit against the Company in the 1st District Court of Jasper County, Texas (the “Court”). In 2020, the Company filed a counter suit against STI for amounts due to the Company for work performed. The parties unsuccessfully mediated the case in November 2021. On October 16, 2023, the case went to trial, and on October 27, 2023, the jury rendered a verdict in favor of STI and against AZZ Beaumont in the amount of $4.5 million in damages for breach of contract and breach of express warranty. After a final judgment amount is entered with the Court, the Company expects to pursue all available appellate options as the Company believes it has strong grounds for appeal, which may take up to 2 years. As of November 30, 2023, the Company has recorded a legal accrual of $4.5 million, which is included in "Other accrued liabilities" on our consolidated balance sheets, reflecting the Company's best estimate of the probable loss. It is reasonably possible that our estimate of the probable loss may change after: (i) the hearing on attorney fees, which is currently scheduled for January 26, 2024; (ii) after the Judge renders a final judgement; or (iii) throughout the appellate process. The Company expects to purchase a supersedeas bond to cover the final judgment amount throughout the duration of the appellate process.

A litigation matter between the Company and a previous customer of an affiliate of the AIS business, which was retained following the disposition of the AIS business, is scheduled to go to trial during the fourth quarter of fiscal 2024. The Company is the Plaintiff and believes that it will be able to recover its damages against the Defendant. As of November 30, 2023, the Company has a receivable due from the Defendant, net of allowance, of $5.2 million, which is included in "Accounts receivable, net" in the consolidated balance sheets, which the Company believes is collectible. However, neither the likelihood of an unfavorable outcome nor the ultimate collectability of this receivable, if any, can be determined at this time.

Environmental

The Company assumed certain environmental liabilities as part of the Precoat Acquisition described in Note 2. As of November 30, ~~2022,~~2023, the reserve balance for environmental liabilities was $22.0 million, of which ~~$1.5~~$3.2 million is classified as current. Environmental remediation liabilities include costs directly associated with site investigation and clean up, such as materials, external contractor costs, legal and consulting expenses and incremental internal costs directly related to ~~onging~~ongoing remediation plans. Estimates used to record environmental remediation liabilities are based on the Company's best estimate of

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

probable future costs based on site-specific facts and circumstances known at the time of the estimate and these estimates are updated on a quarterly basis. Estimates of the cost for the potential or ongoing remediation plans are developed using internal resources and third-party environmental engineers and consultants.

The Company accrues the anticipated cost of environmental remediation when the obligation is probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. While any revisions to the Company's environmental remediation liabilities could be material to the operating results of any fiscal quarter or fiscal year, the Company does not expect such additional remediation expenses to have an adverse material effect on its financial position, results of operations, or cash flows.

Capital Commitments—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.

18. Subsequent Events

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.

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Item 2. 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,”~~"could," "should," "expects," "plans," ~~“will,” “might,” “would,” “projects,” “currently,” “intends,” “outlook,” “forecasts,” “targets,”~~"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.In addition, within each of the markets we serve, our customers and our operations could potentially continue to be adversely impacted by the continuing impact of the COVID-19 pandemic, including governmental issued mandates regarding the same in the jurisdictions in which we operate, sell to, or from whom we purchase.We could also experience additional increases in labor costs, components and raw materials including zinc and natural gas, which are used in our hot-dip galvanizing process; supply-chain vendor delays; customer requested delays of our products or services; delays in additional acquisition opportunities; ~~currency exchange~~an increase in our debt leverage and/or interest rates on our debt, of which a significant portion is tied to variable interest rates; ~~adequacy of financing;~~ availability of experienced management and employees to implement AZZ’s growth strategy; a downturn in market conditions in any industry relating to the products we inventory or sell or the services that we provide; economic volatility, including a prolonged economic downturn or macroeconomic conditions such as inflation or changes in the political stability in the United States and other foreign markets in which we operate; acts of war or terrorism inside the United States or abroad; and other changes in economic and financial conditions. AZZ has provided additional information regarding risks associated with the business, including in Part I, Item 1A. Risk Factors, in AZZ's Annual Report on Form 10-K for the fiscal year ended February 28, ~~2022~~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, ~~2022,~~2023, and with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

~~Strategy~~Overview

We ~~have~~are a ~~developed strategy~~provider of hot-dip galvanizing and ~~periodically review our performance, opportunities, market conditions and competitive threats. On May 13, 2022, the Company completed the acquisition~~coil coating solutions to a broad range of the Precoat Metals business division (“Precoat”) of Sequa Corporation (“Sequa”), a portfolio company of global investment firm Carlyle, for a purchase price of approximately $1.3 billion (the "Precoat Acquisition"). As part of the Precoat Acquisition, the Company acquired the Precoat Metals division from the Seller, which engagesend-markets, predominantly in the business of applying protective and decorative coatings and films for continuous steel and aluminum coil and performing ancillary services related thereto. The Precoat Acquisition advances our strategy to become a predominantly metal coatings focused company, which we believe will more rapidly enhance shareholder value. See Note 2 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information about the Precoat Acquisition.

~~Table of~~ ~~Contents~~

~~Coronavirus (COVID-19~~)

While we continue to support our customers, there remains continuing uncertainties regarding to what extent, if any, that the COVID-19 pandemic, or newly identified variants of COVID-19, or additional regulatory requirements, will ultimately have on the demand for our products and services or with our supply chain or our employees.North America. We expect continued uncertainty in our business and the global economy due to the duration and intensity of the COVID-19 pandemic, pressure from inflation, supply chain disruptions, and volatility in employment trends and consumer confidence which may impact our results.

The impact of COVID-19 to the Company's personnel and operations has been limited during the third quarter of fiscal 2023. However, labor market shortages and supply chain challenges have continued during the quarter, resulting in increased operating expenses as the constrained labor market and supply chain disruptions impacted the availability and cost of skilled labor and materials. Disruptions to certain parts of our supply chain have, in certain cases, limited our ability to fulfill demand in the future. The extent of COVID-19's impact on our business will depend on future developments, including the continued new variants and surges in the spread of COVID-19, the Company's continued ability to source and distribute its products, the impact of COVID-19 on capital and financial markets, and the related impact on consumer confidence and spending, all of which are uncertain and difficult to predict, considering the continuously evolving landscape. Accordingly, our financial condition, results of operations or cash flows could be impacted in ways that we are not able to predict today.

~~Overview~~

~~The Company has~~operate three distinct ~~operating segments:~~business segments, the AZZ Metal Coatings segment, the AZZ Precoat Metals segment, and the AZZ Infrastructure Solutions segment. ~~The~~For the three and nine months ended November 30, 2023, the AZZ Infrastructure Solutions segment ~~(excluding~~consists of the Company's 40% investment in the AVAIL JV. For the three and nine months ended November 30, 2022, the AZZ ~~Crowley Tubing) is now reported as discontinued~~Infrastructure Solutions segment includes the results of operations ~~and financial data for this segment has been segregated and presented as discontinued operations for all periods presented.~~of the AIS business prior to the divestiture of the AVAIL JV. See Note 3 toof our consolidated financial statements for ~~additional information.~~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. For the three and nine months ended November 30, 2022, the Company's investment in the AIS JV is a reportable operating segment. For a reconciliation of operating income from continuing operations by segment to consolidated operating income from continuing operations, see Note 6 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

~~Recent Developments~~

~~Acquisitions~~

On May 13, 2022, the Company completed the Precoat acquisition for a purchase price of approximately $1.3 billion (the "Precoat Acquisition"). Headquartered in St. Louis, Missouri, Precoat is the leading independent provider of metal coil coating solutions in North America. Precoat engages in the advanced application of protective and decorative coatings and related value-added services for steel and aluminum coil primarily serving the construction; appliance; heating, ventilation and air conditioning (HVAC); container; transportation and other end markets. The acquisition represents a continued transition of the Company from a diverse holding company to a focused provider of coating and galvanizing services for critical applications.

~~Divestiture of AZZ Infrastructure Solutions Business~~

2830

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QUARTER ENDED NOVEMBER ~~31, 2022~~30, 2023 COMPARED TO THE QUARTER ENDED NOVEMBER ~~31, 2021~~30, 2022

Segment Sales and Operating Income from Continuing Operations

The following table reflects the breakdown of ~~sales~~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 2021
Sales:
Metal Coatings $ 158,274 $ 135,083
Precoat Metals 215,027 —
Total Sales $ 373,301 $ 135,083


	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.

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Sales

For the three months ended November 30, ~~2022~~2023 (the "current quarter"), consolidated sales increased ~~$238.2~~$8.3 million, or ~~176.3%~~2.2%, compared to the three months ended November 30, ~~2021~~2022 (the "prior year quarter"). Sales for the AZZ Metal Coatings segment increased ~~$23.2~~$4.9 million, or ~~17.2%~~3.1%, for the current quarter, compared to the prior year quarter. The increase was primarily due to ~~improved price realization for our superior quality and service and~~ an increase in the selling price, partially offset by a lower volume of steel ~~galvanized.~~

processed during the quarter. Sales for the AZZ Precoat Metals segment ~~which was acquired on May 13, 2022, were $215.0~~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.

~~Segment~~ Operating Income

~~The following table reflects~~For the ~~breakdown of~~current quarter, consolidated operating income ~~by segment (in thousands):~~

Three Months Ended November 30, 2022 Three Months Ended November 30, 2021
Metal Coatings Precoat Metals Corporate Total Metal Coatings Precoat Metals Corporate Total
Operating income (loss) from continuing operations:
Sales $ 158,274 $ 215,027 $ — $ 373,301 $ 135,083 $ — $ — $ 135,083
Cost of sales 120,134 180,085 — 300,219 97,510 — — 97,510
Gross margin 38,140 34,942 — 73,082 37,573 — — 37,573
Selling, general and administrative 4,594 13,889 9,206 27,689 4,462 — 11,821 16,283
Total operating income (loss) from continuing operations $ 33,546 $ 21,053 $ (9,206) $ 45,393 $ 33,111 $ — $ (11,821) $ 21,290
increased $7.4 million, or 16.4%, compared to the prior year quarter.

Operating income for the AZZ Metal Coatings segment increased ~~$0.4~~$4.3 million, or ~~1.3%,~~12.8% for the current quarter, compared to the prior year quarter. The current quarter increase was due to ~~improved~~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 ~~for labor and raw materials for~~of $0.7 million, to the ~~current quarter.~~AZZ Metal Coatings segment, from the Corporate segment.

Operating income for the AZZ Precoat Metals segment ~~which was acquired on May 13, 2022, was $21.1~~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 ~~decreased $2.6~~increased $8.3 million, or ~~22.1%~~89.9%, for the current quarter, compared to the prior year quarter. The ~~decrease~~increase is primarily due ~~to income~~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 ~~AIS JV, as well as external consulting~~AVAIL JV; and employee-related costs; partially offset by the allocation of certain compensation and information technology costs ~~associated with our ongoing strategic review~~to the segments, that were previously included in ~~the prior year quarter, with no corresponding expense in the current quarter.~~corporate expenses.

Interest Expense

Interest expense for the current quarter ~~increased $24.5~~decreased $0.3 million, to ~~$26.1~~$25.9 million, compared to ~~$1.6~~$26.1 million for the prior year quarter. The ~~significant increase~~decrease in interest expense is primarily attributable to a decrease in the ~~additional~~weighted average debt ~~that was obtained~~outstanding, partially offset by an increase in conjunction with the Precoat Acquisition, including the Term Loan B of $1.3 billion and the Convertible Notes of $240.0 million. The Convertible Notes transitioned from subordinated debt (e.g., interest) to Preferred Equity (e.g., dividends)interest rates on ~~August 5, 2022.~~

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our outstanding debt.

Equity in Earnings of Unconsolidated Entities

Equity in earnings of unconsolidated subsidiaries offor the current quarter increased $7.7 million, to $8.7 million, compared to $1.0 million ~~represents our proportionate share of net income from our investment~~ in the ~~AIS JV. We have a 40%~~prior year quarter. The increase is primarily due to higher earnings from the AVAIL JV, and three months of equity ~~interest~~in earnings in the ~~AIS~~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 ~~current quarter, compared to 33.6% for the prior year quarter.~~three months ended November 30, 2022. The ~~decrease~~increase in the effective tax rate ~~was primarily~~is attributable to a favorable adjustment in the ~~tax benefit from~~prior year period due to the recognition of an outside basis difference ~~between book and tax in~~related to the ~~Company's investment in the AIS~~AVAIL JV.

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Income from Discontinued Operations

~~Following the AIS JV agreement with Fernweh, the~~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 ~~and 2021~~ 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)

Three Months Ended November 30,
2022 2021
Sales $ 42,300 $ 96,654
Cost of sales 35,020 77,263
Gross margin 7,280 19,391
Selling, general and administrative 4,074 10,589
Loss on disposal of discontinued operations 45,010 —
Operating income (loss) from discontinued operations (41,804) 8,802
Interest expense 2 2
Other (income) expense, net 2,002 1,504
Income (loss) from discontinued operations before income tax (43,808) 7,296
Income tax (benefit) expense (4,827) (682)
Net income (loss) from discontinued operations $ (38,981) $ 7,978

~~Sales for the AZZ Infrastructure Solutions segment decreased $54.4 million, or 56.2%, for the current quarter, compared~~See Note 3 to ~~the prior year quarter. The decrease is primarily due to the divestiture of~~ our ~~AZZ Infrastructure Solutions segment on September 30, 2022, resulting in the inclusion of one month of sales for the current quarter, compared to a full quarter for the prior year period.~~

Operating income for the AZZ Infrastructure Solutions segment decreased by $50.6 million, or 574.9%, for the current quarter, compared to the prior year quarter. For the three months ended November 30, 2022, the Company recognized a non-cash loss on disposal of approximately $45.0 million, which isconsolidated financial statements included in ~~"Loss~~this Quarterly Report on ~~disposal of discontinued operations" above.~~During the three months ended November 30, 2022, the Company completed the sale of the AIS segment. The additional loss includes $27.8 million from the derecognition of the cumulative translation adjustment related to its investment in foreign entities within the AIS segment, as well as an adjustment of $17.2 millionForm 10-Q for ~~the change in net assets for the period between August 31, 2022, when the estimated loss was recorded, and September 30, 2022, when the transaction closed.~~

The provision for income taxes from discontinued operations reflects an effective tax rate of 11.0% for the current quarter, compared to (9.3)% for the prior year quarter. The increase is related to an unfavorable permanent adjustment for cumulative translation adjustment that, for tax purposes, is non-deductible.more information.

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NINE MONTHS ENDED NOVEMBER ~~31, 2022~~30, 2023 COMPARED TO THE NINE MONTHS ENDED NOVEMBER ~~31, 2021~~30, 2022

Segment Sales and Operating Income from Continuing Operations

The following table reflects the breakdown of ~~sales~~net income from continuing operations by segment (in thousands)~~. The results for Precoat Metals represent results of operations from May 13, 2022, the acquisition date, through November 30, 2022.~~:

Nine Months Ended November 30,
2022 2021
Sales:
Metal Coatings $ 487,567 $ 395,732
Precoat Metals 499,578 —
Total Sales $ 987,145 $ 395,732


	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.

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Sales

For the nine months ended November 30, ~~2022~~2023 (the "current nine-month period"), consolidated sales increased ~~$591.4~~$183.9 million, or ~~149.4%~~18.6%, compared to the nine months ended November 30, ~~2021~~2022 (the "prior year nine-month period"). Sales for the AZZ Metal Coatings segment increased ~~$91.8~~$14.2 million, or ~~23.2%~~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. ~~The volume of steel processed also increased in the current period, compared to the prior year period.~~

Sales for the AZZ Precoat Metals segment ~~which was acquired on~~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 ~~were $499.6 million~~through November 30, 2023 for the ~~nine months ended.~~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.

~~Segment~~ Operating Income

~~The following table reflects~~For the ~~breakdown of~~current nine-month period, consolidated operating income ~~by segment (in thousands):~~

Nine Months Ended November 30, 2022 Nine Months Ended November 30, 2021
Metal Coatings Precoat Metals Corporate Total Metal Coatings Precoat Metals Corporate Total
Operating income (loss) from continuing operations:
Sales $ 487,567 $ 499,578 $ — $ 987,145 $ 395,732 $ — $ — $ 395,732
Cost of sales 350,152 402,303 — 752,455 285,572 — — 285,572
Gross margin 137,415 97,275 — 234,690 110,160 — — 110,160
Selling, general and administrative 13,603 33,361 50,283 97,247 13,088 — 34,395 47,483
Total operating income (loss) from continuing operations $ 123,812 $ 63,914 $ (50,283) $ 137,443 $ 97,072 $ — $ (34,395) $ 62,677
increased $41.9 million, or 30.5%, compared to the prior year nine-month period.

Operating income for the AZZ Metal Coatings segment increased ~~$26.7~~$4.6 million, or ~~27.5%,~~3.7% for the current nine-month period, compared to the prior year nine-month period. The increase was ~~primarily~~ due ~~the increase in~~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 ~~for labor and raw materials for~~of $2.0 million to the ~~current nine-month period.~~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 ~~was acquired on May 13, 2022, was $63.9~~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 ~~$15.9~~$2.0 million, or ~~46.2%~~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 ~~related~~of $15.3 million incurred in the prior year nine-month period and the allocation of certain compensation and information technology costs to the ~~Precoat Acquisition, costs related to~~segments in the ~~AIS joint venture, and increased payroll and employee-related compensation costs related to both of these transactions.~~current nine-month period, that were previously included in corporate expenses.

Interest Expense

Interest expense for the current nine-month period increased ~~$56.7~~$20.6 million, to ~~$61.7~~$82.3 million, compared to ~~$5.0~~$61.7 million for the prior year nine-month period. The ~~significant~~ increase in interest expense ~~was primarily~~is attributable to the ~~additional~~ debt that was obtained in conjunction with the Precoat Acquisition, ~~including~~which was outstanding for the ~~Term Loan B~~full current nine-month period, compared to the prior year, as well as higher rates of ~~$1.3 billion and the Convertible~~

~~Table of~~ ~~Contents~~

~~Notes of $240.0 million. The Convertible Notes transitioned from from subordinated debt (e.g., interest) to Preferred Equity (e.g., dividends)~~interest on ~~August 5, 2022.~~our borrowings.

Equity in Earnings of Unconsolidated Entities

Equity in earnings of unconsolidated subsidiaries ~~of $1.0 million represents our proportionate share of net income or loss from our investment in the AIS JV. We have a 40% equity interest in the AIS JV.~~

~~Income Taxes~~

~~For~~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.

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Income Taxes

The provision for income taxes from continuing operations reflects an effective tax rate ~~from continuing operations was 23.8%,~~of 22.6% for the nine months ended November 30, 2023, compared to ~~32.5%~~23.8% for the prior year ~~nine-month~~comparable period. The decrease in the effective tax rate is ~~the result of~~attributable to an unfavorable ~~adjustments related to uncertain tax positions recorded~~adjustment in the prior year ~~comparable period and~~related to ~~the tax benefit from an outside basis difference between book and tax in the Company's investment in the AIS JV.~~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 ~~are~~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 ~~current and~~ prior year nine-month period consist of the following (in thousands):

Nine Months Ended November 30,
2022 2021
Sales $ 256,224 $ 282,278
Cost of sales 202,707 222,432
Gross margin 53,517 59,846
Selling, general and administrative 26,186 35,192
Loss on disposal of discontinued operations 159,910 —
Operating income (loss) from discontinued operations (132,579) 24,654
Interest expense 8 63
Other (income) expense, net 6,270 1,468
Income (loss) from discontinued operations before income tax (138,857) 23,123
Income tax (benefit) expense (25,910) (289)
Net income (loss) from discontinued operations $ (112,947) $ 23,412


	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)

~~Sales for the AZZ Infrastructure Solutions segment decreased $26.1 million, or 9.2%, for the current nine-month period, compared~~See Note 3 to ~~the prior year nine-month period. The decrease is primarily due to the divestiture of~~ our AZZ Infrastructure Solutions segment on September 30, 2022, resulting in the inclusion of a partial period of sales for the current nine-month period, compared to a full period for the prior year nine-month period.

Operating income for the AZZ Infrastructure Solutions segment decreased by $157.2 million, or 637.8%, for the current nine-month period, compared to the prior year nine-month period. For the current nine-month period, the Company recognized a non-cash loss on disposal of approximately $159.9 million, which isconsolidated financial statements included in ~~"Loss~~this Quarterly Report on disposal of discontinued operations" above. The loss represents the difference between the carrying amount and the estimated fair value of the Company's interest in the AIS JV. The loss includes a $45.0 million loss recognized during the current quarter. The additional loss includes $27.8 million from the derecognition of the cumulative translation adjustment related to its investment in foreign entities within the AIS segment, as well as an adjustment of $17.2 millionForm 10-Q for ~~the change in net assets for the period between August 31, 2022, when the estimated loss was recorded, and September 30, 2022, when the transaction closed.~~more information.

The decrease is also due to the divestiture of our AZZ Infrastructure Solutions segment on September 30, 2022, resulting in the inclusion of a partial period of operating income for the current nine-month period, compared to a full period for the prior year nine-month period.

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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 ~~and working capital~~ for the periods presented (in thousands):


		Nine Months Ended November 30,					Nine Months Ended November 30,
		2022		2021			2023		2022
Net cash provided by operating activities of continuing operations	Net cash provided by operating activities of continuing operations	$	68,622	$	45,938	Net cash provided by operating activities of continuing operations	$	180,928	$	68,622
Net cash used in investing activities of continuing operations	Net cash used in investing activities of continuing operations	(1,207,653)		(13,406)		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	Net cash provided by (used in) financing activities of continuing operations	1,005,456		(29,167)		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	Net cash provided by operating activities from discontinued operations	7,973		3,730		Net cash provided by operating activities from discontinued operations	—		7,973
Net cash used in investing activities from discontinued operations	Net cash used in investing activities from discontinued operations	(3,991)		(3,019)		Net cash used in investing activities from discontinued operations	—		(3,991)
Net cash provided by financing activities from discontinued operations	Net cash provided by financing activities from discontinued operations	120,000		—		Net cash provided by financing activities from discontinued operations	—		120,000

Working Capital	Working Capital	185,879		236,003		Working Capital	192,728		230,176

Net cash provided by operating activities of continuing operations for the nine-month period was ~~$68.6~~$180.9 million compared to ~~$45.9~~$68.6 million for the prior year nine-month period. The increase in cash provided by operating activities is primarily attributable to ~~an increase~~increases in net income from continuing operations and ~~an increase~~ 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 ~~increases in deferred taxes and~~ decreases in ~~working capital. The decrease in working capital resulted from lower quarter-end accounts payable and increases in inventories, prepaid expenses, other assets, partially offset by increases~~ other accrued liabilities. Net cash provided by operating activities offrom discontinued operations ~~for the nine-month period~~ was $8.0 ~~million, compared to $3.7~~ million for the prior year nine-month period.

Net cash used in investing activities of continuing operations for the nine-month period was ~~$1.2 billion,~~$66.9 million compared to ~~$13.4 million~~$1.21 billion for the prior year nine-month period. The ~~increase~~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 ~~provided by~~used in investing activities offrom discontinued operations ~~for the nine-month period~~ was $4.0 ~~million, compared to $3.0~~ million for the prior year nine-month period.

Net cash ~~provided by~~used in financing activities of continuing operations for the nine-month period was ~~$1.0 billion,~~$109.4 million compared to net cash ~~used in~~provided by financing activities of ~~$29.2 million~~$1.01 billion for the prior year nine-month period. The ~~increase~~decrease in cash ~~used in~~from financing activities during the current quarter was primarily attributable to ~~an increase in~~ proceeds from long-term ~~debt.~~ ~~See “Financing and Capital” section below for additional information.~~debt in the prior year nine-month period, which were used to fund the Precoat Acquisition.

Financing and Capital

~~2021 Credit Agreement~~

On July 8, 2021, the Company entered into a five-year unsecured revolving credit facility under a credit agreement, by and among the Company, as borrower, Citibank, N.A., as administrative agent and the other agents and lender parties thereto (the “2021 Credit Agreement”). The 2021 Credit Agreement was scheduled to mature in July 2026 and included the following significant terms:

~~iii.included a letter of credit sub-facility up to $85.0 million for the issuance of standby and commercial letters of credit;~~

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~~iv.included a $50.0 million sublimit for swing line loans;~~

v.included customary representations and warranties, affirmative covenants and negative covenants, and events of default, including restrictions on incurrence of non-ordinary course debt, investment and dividends, subject to various exceptions, carve-outs and baskets; and

~~vi.included a maximum leverage ratio financial covenant and an interest coverage ratio financial covenant, each to be tested at quarter end.~~

~~On May 13, 2022, the Revolving Credit Facility under the 2021 Credit Agreement was repaid with proceeds from the 2022 Credit Agreement, which is further described below.~~

2022 Credit Agreement and Term Loan B

OnThe Company has a credit agreement with a syndicate of financial institutions as lenders that was entered into on May 13, 2022 ~~the Company replaced the 2021 Credit Agreement with a new Credit Agreement~~ (the "2022 Credit Agreement") ~~by and among~~. On August 17, 2023, the Company ~~as borrower, Citibank, N.A., as administrative and collateral agent, and~~repriced the ~~other agents and lender parties thereto~~$1.0 billion Term Loan B, which was outstanding under the 2022 Credit ~~Agreement.~~ 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.

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The 2022 Credit Agreement includes the following significant ~~terms;~~terms:

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 ~~each bear~~bears an interest rate of ~~Secured Overnight Financing Rate ("SOFR")~~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);

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

The Company utilizes proceeds ~~of the advances under~~from the Revolving Credit Facility ~~will be utilized~~ primarily to finance working capital needs, capital improvements, dividends, acquisitions and for general corporate purposes. ~~The proceeds of~~

The ~~effective~~weighted average interest rate for the ~~2022~~Company's outstanding debt, including the Revolving Credit Facility and the Term Loan B, was ~~8.53%~~8.54% at November 30, ~~2022.~~2023.

The ~~2022 Credit Agreement requires~~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.

~~Convertible Subordinated Notes~~

On May 13, 2022, the Company completed the issuance of $240.0 million aggregate principal amount of 6.00% convertible subordinated notes due June 30, 2030 (the "Convertible Notes") pursuant to the Securities Purchase Agreement (the "Securities Purchase Agreement") with BTO Pegasus Holdings DE L.P., a Delaware limited partnership (together with its assignees, "Blackstone"), an investment vehicle of funds affiliated with Blackstone Inc. Interest on the Convertible Notes was payable on June 30 and December 31. The Convertible Notes were exchanged for 240,000 shares of the Company's 6.0% Series A Convertible Preferred Stock on August 5, 2022, following the receipt of shareholder approval for the issuance of preferred shares. The Series A Preferred Stock are convertible by the holder at any time into shares of the Company's common stock at a price of $58.30 per share of common stock. In addition, the Series A Preferred Stock are subject to a minimum conversion threshold of 1,000 shares per conversion, and customary anti-dilution and dividend adjustments.

~~The Company used the proceeds of the Convertible Notes to fund the Company’s Precoat Acquisition.~~

~~Table of~~ ~~Contents~~

As of November 30, ~~2022,~~2023, we had ~~$1.1~~$1.04 billion of floating- and fixed-rate ~~notes~~debt outstanding on the Revolving Credit Facility and the Term Loan B, with varying maturities through fiscal ~~2032 and~~2029. As of November 30, 2023, we ~~were~~are in compliance with ~~all~~each of the covenants related to these outstanding borrowings. AsAdditionally, as of November 30, ~~2022,~~2023, we had approximately ~~$373.3~~$375.5 million of additional credit available for future draws or letters of credit.

Letters of Credit

~~We incurred higher average interest rates compared to the same period~~As of November 30, 2023, we had total outstanding letters of credit in the ~~prior year,~~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 we expect this trend to continue throughout fiscal 2023. While the actual timing and extent of the future increases in interest rates remains unknown, higher long-term interest rates are expected to significantly increase interest expense on our variable-rate outstanding debt.insurance collateral.

Interest Rate Swap

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variable-rate debt to a fixed rate of 4.277%, resulting in a total fixed rate of 8.627% (the ~~“2022 Swap”~~"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~~$550.0 million and a maturity date of September 30, 2025. The notional amount of the interest rate swap decreases ~~each quarter~~ by a pro-rata portion of ~~the~~any quarterly principal payments made on the Term Loan B.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. ~~The Company~~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.

~~AZZ Infrastructure Solutions (AIS) Joint Venture~~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 ~~AIS Investment Holdings LLC (the “AIS JV”), and sold a 60% interest~~be operational in 2025. The new facility will be included in the ~~AIS JV to Fernweh at an implied enterprise value~~AZZ Precoat Metals segment and is supported by a take-or-pay contract for approximately 75% of ~~AIS of $300.0 million. The AIS JV operates under~~ the ~~name "Avail Infrastructure Solutions" ("AVAIL"). The Company received proceeds~~output from the ~~sale~~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 ~~$108.0~~$48.4 million. We expect to pay approximately $71.2 million ~~as well as $120.0~~in fiscal 2024, of which $33.6 million ~~that~~ was paid during the current nine-month period. The remaining payments in fiscal 2024 are expected to be funded by committed debt financing taken on by the AVAIL joint venture immediately prior to the closing of the divestiture of AZZ’s controlling interest. As a result of the transaction, AIS is deconsolidatedthrough cash flows from operations and ~~the Company's retained 40% interest in the AVAIL joint venture is accounted for~~borrowings under the equity method of accounting. See Note 3 of our consolidated financial statements included in this Quarterly Report on Form 10-Q for further information about the AIS segment. The Company used the cash received from the transaction to repay $210.0 million on the Term Loan B, $15.0 million on the Revolving Credit ~~Facility and $3.0 million for working capital purposes.~~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 ~~three~~nine months ended ~~May 31,~~November 30, 2023 and 2022, to prioritize repayments of debt, including debt incurred to finance the Precoat Acquisition, the Company did not ~~purchase any~~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 ~~AIS~~AVAIL JV.

Off Balance Sheet Arrangements and Contractual Obligations

As of November 30, ~~2022, we~~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.

~~Table of~~ ~~Contents~~

As of November 30, ~~2022,~~2023, we had outstanding letters of credit in the amount of ~~$16.7~~$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.

~~Except as noted below, during the current quarter, there~~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, ~~2022.~~

~~Environmental Remediation Liabilities~~

The Company assumed certain environmental liabilities as part of the Precoat Acquisition. The Company's accounting policy for the recognition of environmental liabilities requires significant judgements and estimates by management and may be impacted by changing regulations and approaches to remediation plans. Any revisions to these estimates could have a material adverse impact on the Company's financial condition or results of operations.

Environmental remediation liabilities include costs directly associated with site investigation and clean up, such as materials, external contractor costs, legal and consulting expenses and incremental internal costs directly related to the remedy. Estimates used to record environmental remediation liabilities are based on the Company's best estimate of probable future costs based on site-specific facts and circumstances known at the time of the estimate and these estimates are updated on a quarterly basis. Estimates of the cost for the likely remedy are developed using internal resources and third-party environmental engineers and consultants. The Company records the environmental remediation liabilities that represent the points in the range of estimates that are most probable, or the minimum amount when no amount within the range is a better estimate than any other amount.

The Company accrues the anticipated cost of environmental remediation when the obligation is probable and can be reasonably estimated. While any revisions could be material to the operating results of any fiscal quarter or fiscal year, the Company does not expect such additional expenses would have a material adverse effect on its financial position, results of operations, or cash flows.

~~Business Combinations~~

Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to utilize assumptions and estimates, which are based upon available information that may be subject to further refinement over the purchase accounting period of one year.

~~Joint Venture~~

On September 30, 2022, the Company completed the joint venture between the Company and Fernweh Group LLC ("Fernweh"). Under the agreement with Fernweh, AZZ contributed its AZZ Infrastructure Solutions segment (“AIS”) to AIS Investment Holdings LLC (the “AIS JV”), and sold a 60% interest in the AIS JV to Fernweh at an implied enterprise value of AIS of $300.0 million. Following the classification of the AIS segment as held for sale, the Company measured the AIS segment at the lower of its carrying amount or fair value. As a result, the Company recorded a loss on the sale of the AIS segment. The loss was determined by comparing the fair value of the consideration received for the sale of a 60% interest in the AIS JV and the fair value of the Company’s retained 40% investment in the AIS JV with the net assets of the AIS JV immediately prior to the transaction. The fair value of the Company’s retained investment in the AIS JV was determined in a manner consistent with the transaction price received for the sale of the 60% interest in the AIS JV. The determination of the estimated fair value of the Company's 40% interest in the AIS JV required significant judgement, including the utilization of assumptions and estimates, which were based on available information at the time of the assessment.

The Company accounts for its investment in an unconsolidated joint venture under the equity method of accounting as we exercise significant influence over, but do not control, the joint venture. The investment in the unconsolidated joint venture is initially recorded at fair value, and subsequently increased for capital contributions and allocations of net income, and decreased for capital distributions and allocations of net income or loss. Equity in net income (loss) from the unconsolidated joint venture is2023.

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allocated based on our economic interest. We record our interest in the joint venture on a one-month lag to allow sufficient time to review and assess the joint venture’s effect on our reported results. We assess our investment in unconsolidated joint venture for recoverability when events and circumstances are present that suggest there has been a decline in value, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value.

~~Interest Rate Swap~~

The Company is exposed to interest rate risk on its floating-rate debt. On September 27, 2022, the Company entered into an interest rate swap agreement to effectively convert its floating-rate debt to a fixed-rate basis. The principal objective of this contract is to reduce the variability of the cash flows in interest payments associated with the Company’s floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. The Company has elected to apply the hedge accounting rules in accordance with authoritative guidance for certain of these contracts. Changes in the fair value of interest rate swap agreements designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are amortized to interest expense over the term of the related debt.

~~Recent Accounting Pronouncements~~

See Note 1 to the condensed consolidated financial statements, included herein, 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.

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Non-GAAP Disclosures

In addition to reporting financial results in accordance with Generally Accepted Accounting Principles in the United States ~~(“GAAP”~~("GAAP"), we provided adjusted ~~earnings,~~net income and adjusted earnings per share, ~~Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA~~ (collectively, the ~~“Adjusted~~"Adjusted Earnings ~~Measures”~~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 ~~the future.~~future capital investment and debt reduction. Management also believes that investors regularly rely on non-GAAP financial measures, such as ~~EBITDA,~~ adjusted ~~EBITDA, adjusted operating~~net income ~~adjusted earnings~~ 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, ~~2022~~2023 and ~~2021~~2022 between the various measures calculated in accordance with GAAP to the Adjusted Earnings Measures (in thousands, except per share data):

~~Adjusted Earnings and Adjusted Earnings per Share~~

Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Amount
Per
Diluted Share(1)
Amount
Per
Diluted Share(1)
Amount
Per
Diluted Share(1)
Amount
Per
Diluted Share(1)
Net income (loss) available to common shareholders and diluted earnings per share $ (24,142) (0.97) $ 21,085 0.85 $ (58,675) (2.35) $ 62,400 2.48
Adjustments:
Acquisition and transaction related expenditures(2)
— — — — 15,320 0.61 — —��
Loss on disposal of discontinued operations 45,010 1.80 — — 159,910 6.40 — —
Additional depreciation and amortization related to acquisition(3)
7,986 0.32 — — 18,634 0.75 — —
Subtotal 52,996 2.12 — — 193,864 7.76 — —
Tax impact(4)
(6,877) (0.28) — — (37,986) (1.52) — —
Total adjustments 46,119 1.85 — — 155,878 6.24 — —
Adjusted earnings and adjusted earnings per share $ 21,977 $ 0.88 $ 21,085 $ 0.85 $ 97,203 $ 3.89 $ 62,400 $ 2.48
(1) Earnings per share amounts included in the table above may not sum due to rounding differences.
(2) Includes expenses related to the Precoat acquisition, as well as the divestiture of the AZZ Infrastructure Solutions business into the AIS JV.
(3) Due to purchase price accounting related to the acquisition of Precoat Metals, additional depreciation and amortization was adjusted during the third quarter. The year-to-date amount includes $3.2 million related to the first quarter, $7.5 million related to the second quarter and $8.0 million related to the third quarter.
(4) Tax benefit consists of: 21% federal statutory rate and 3% blended state tax rate for all adjustments except the loss on disposal of discontinued operations, and 11% and 18% for the loss on disposal of discontinued operations for the three and nine months ended November 30, 2022, respectively.

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~~EBITDA and Adjusted EBITDA~~

Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Net income (loss) $ (20,542) $ 21,085 $ (54,035) $ 62,400
Interest Expense(1)
26,126 1,630 61,747 5,081
Income Tax (Benefit) Expense(1)
(2,380) 5,964 (7,530) 18,489
Depreciation and Amortization(1)
22,970 11,138 63,092 33,222
Total Adjustments 46,716 18,732 117,309 56,792
Non-GAAP EBITDA 26,174 39,817 63,274 119,192
Acquisition and transaction-related expenditures — — 15,320 —
Loss on disposal of discontinued operations 45,010 — 159,910 —
Adjusted EBITDA $ 71,184 $ 39,817 $ 238,504 $ 119,192
(1) Interest expense, income taxes, depreciation and amortization above include both continuing and discontinued operations, so will not be comparable to the statements of operations included herein, which separate continuing and discontinued operations.

~~Adjusted EBITDA by Segment~~
Three Months Ended November 30, Nine Months Ended November 30,
2022 2021 2022 2021
Metal Coatings
Net income (loss) $ 32,972 $ 33,191 $ 121,832 $ 97,169
Interest Expense 9 4 21 9
Income Tax Expense 689 — 1,953 —
Depreciation and Amortization Expense 8,225 7,534 24,785 22,610
Total adjustments 8,923 7,538 26,759 22,619
Non-GAAP EBITDA 41,895 40,729 148,591 119,788
Precoat Metals
Net income (loss) $ 21,235 $ — $ 64,221 $ —
Interest Expense (182) — (266) —
Income Tax Expense — — — —
Depreciation and Amortization Expense 13,381 — 29,891 —
Total adjustments 13,199 — 29,625 —
Non-GAAP EBITDA 34,434 — 93,846 —
Corporate
Net income (loss) $ (35,768) $ (20,084) $ (127,141) $ (58,181)
Net income from continuing operations $ 18,439 $ 13,107 $ 58,912 $ 38,988

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Adjusted Net Income and Adjusted Earnings Per Share from Continuing Operations


	Three Months Ended November 30,								Nine Months Ended November 30,
	2023				2022				2023				2022
	Amount		Per Diluted Share(1)		Amount		Per Diluted Share(1)		Amount		Per Diluted Share(1)		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%.

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Adjusted EBITDA from Continuing Operations


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

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	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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the Company’s market risk disclosures during the three and nine months ended November 30, ~~2022.~~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, ~~2022.~~2023.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company closed the Precoat Acquisition May 13, 2022, as discussed in Note 2 in the accompanying notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. As such, the scope of the assessment of the effectiveness of our disclosure controls and procedures did not include internal control over financial reporting at Precoat. Precoat's assets and revenues represented approximately 67.5% of the Company's total assets and 57.6% and 50.6% of its total revenues (from continuing operations) as of and for the three and nine months ended November 30, 2022.

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, ~~which excluded the internal control over financial reporting of Precoat,~~ 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

On May 13, 2022, the Company completed its previously announced acquisition of Precoat. During the first quarter of fiscal 2023, management commenced an evaluation of the design and operating effectiveness of internal control over financial reporting related to the Precoat Acquisition. The evaluation of changes to processes, technology systems, and other components of internal controls over financial reporting related to the acquisition of Precoat is ongoing. This process may result in the addition or changes to our internal controls over financial reporting.

~~Except for the changes made in connection with the Precoat Acquisition, there~~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.

~~Table of~~ ~~Contents~~

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company and its subsidiaries are named defendants and plaintiffs in various routine lawsuits incidental to its business. These proceedings include labor and employment claims, worker’s compensation, environmental matters, and various commercial disputes, all of which arise in the normal course of conducting business. As discovery progresses on all outstanding legal matters, the Company will continue to evaluate opportunities to either settle the disputes for nuisance value or potentially enter into mediation as a way to resolve the disputes prior to trial. As the pending cases progress through additional discovery, including expert testimony and mediation, our assessment of the likelihood of an unfavorable outcome on one or more of the pending lawsuits may change. The outcome of these lawsuits or other proceedings cannot be predicted with certainty, and the amount of any potential liability that could arise with respect to such lawsuits or other matters cannot be predicted at this time. Management, after consultation with legal counsel, believes it has strong defenses to all of these matters and does not expect liabilities, if any, from these claims or proceedings, either individually or in the aggregate, to have a material effect on the Company’s financial position, results of operations or cash flows.

Item 1A. Risk Factors

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

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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, ~~2022.~~2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On November 10, 2020, the Company's Board of Directors authorized a $100 million share repurchase program pursuant to which the Company may repurchase its common stock (the "2020 Share Authorization"). Repurchases under the 2020 Share Authorization will be made through open market and/or private transactions, in accordance with applicable federal securities laws, and could include repurchases pursuant to Rule 10b5-1 trading plans, which allows stock repurchases when the Company might otherwise be precluded from doing so.

The Company did not purchase any shares of common stock under the 2020 Share Authorization during the nine months ended November 30, ~~2022.~~2023. The Company has $84.0 million that may be used to repurchase outstanding shares of common stock.

Item 5. Other Information.

~~None.~~During the nine months ended November 30, 2023, none of our directors or executive officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement as defined in Item 408 of Regulation S-K.

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Item 6. Exhibits


2.1*10.1						~~Contribution and Purchase~~Second Amendment to Credit Agreement, dated as of ~~June 23, 2022,~~December 20, 2023, by and ~~between~~among AZZ Inc., ~~AIS Investment Holdings LLC~~the Guarantors, the Lenders, and ~~Fernweh AIS Acquisition L.P. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Registrant on June 27, 2022).~~

10.1*						~~First Amended~~Citibank, N.A. as Administrative Agent and ~~Restated Limited Liability Company Agreement of AIS Investment Holdings LLC, dated as of September 30, 2022, by and between AZZ Inc., Fernweh AIS Acquisition LP and Atkinson Holding Company LLC~~Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed bywith the ~~Registrant~~SEC on ~~October 6, 2022).~~December 21, 2023)

31.1+						Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2+						Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1++						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2++						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS+						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH+						Inline XBRL Taxonomy Extension Schema Document

101.CAL+						Inline XBRL Taxonomy Extension Calculation Linkbase Document


101.DEF+						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB+						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE+						Inline XBRL Taxonomy Extension Presentation Linkbase Document

~~104+~~104						Cover Page Interactive Date File (embedded with the Inline XBRL document).

* ~~Schedules and exhibits have been omitted pursuant to Item 601(b) of Regulation S-K.The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.The Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules and exhibits so furnished.~~

+ Filed ~~herewith~~herewith.

~~++ Furnished herewith~~

4245

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AZZ Inc.
(Registrant)

Date:

January 9, ~~2023~~2024

By:

/s/ ~~Philip A. Schlom~~Tiffany Moseley

~~Philip A. Schlom~~Tiffany Moseley
Chief ~~Financial~~Accounting Officer and
Principal Accounting Officer

4346


		PAGE NO.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Statements of Changes in Shareholders’ Equity	87
	Notes to Condensed Consolidated Financial Statements	109
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2730
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4043
Item 4.	Controls and Procedures	4043

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	4143
Item 1A.	Risk Factors	4143
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4144
Item 5	Other Information	4144
Item 6.	Exhibits	4245

	SIGNATURES	4346


	Three Months Ended November 30, 2021
	Series A Preferred Stock			Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total

	Shares	Amount		Shares	Amount
Balance at August 31, 2021	—	$	—	24,840	$	24,840	$	79,908	$	559,207	$	(25,529)	$	638,426
Share-based compensation	—	—		—	—		1,860		—		—		1,860

Common stock issued under stock-based plans and related income tax expense	—	—		1	1		(21)		—		—		(20)

Repurchase and retirement of treasury shares	—	—		(148)	(148)		—		(7,488)		—		(7,636)

Cash dividends paid	—	—		—	—		—		(4,163)		—		(4,163)
Net income	—	—		—	—		—		21,085		—		21,085
Foreign currency translation	—	—		—	—		—		—		(1,508)		(1,508)

Balance at November 30, 2021	—	$	—	24,693	$	24,693	$	81,747	$	568,641	$	(27,037)	$	648,044


	Nine Months Ended November 30, 2021
	Series A Preferred Stock			Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total

	Shares	Amount		Shares	Amount
Balance at February 28, 2021	—	$	—	25,108	$	25,108	$	75,979	$	547,289	$	(25,084)	$	623,292
Share-based compensation	—	—		—	—		6,542		—		—		6,542

Common stock issued under stock-based plans and related income tax expense	—	—		108	108		(2,277)		—		—		(2,169)
Common stock issued under employee stock purchase plan	—	—		41	41		1,503		—		—		1,544
Repurchase and retirement of treasury shares	—	—		(564)	(564)		—		(28,305)		—		(28,869)

Cash dividends paid	—	—		—	—		—		(12,673)		—		(12,673)
Net income	—	—		—	—		—		62,400		—		62,400
Foreign currency translation	—	—		—	—		—		(70)		(1,953)		(2,023)

Balance at November 30, 2021	—	$	—	24,693	$	24,693	$	81,747	$	568,641	$	(27,037)	$	648,044


	November 30, 2022		February 28, 2022
Total assets:
AZZ Metal Coatings	$	579,830	$	578,885
AZZ Precoat Metals	1,484,074		—
AZZ Infrastructure Solutions - Investment in Joint Venture	82,420		—
Corporate	53,150		46,266
Discontinued operations:
AZZ Infrastructure Solutions	—		507,876
Total	$	2,199,474	$	1,133,027


Balance Sheet	Classification	November 30, 2022		February 28, 2022
Assets
Right-of-use assets	Right-of-use assets	$	24,248	$	13,954
Liabilities
Operating lease liabilities ― ST	Lease liability - short-term	5,199		3,131
Operating lease liabilities ― LT	Lease liability - long-term	18,971		10,798
Finance lease liabilities ― ST	Lease liability - short-term	200		158
Finance lease liabilities ― LT	Lease liability - long-term	702		605