AZZ(AZZ) - 2026 Q1 - Quarterly Report

Part I. Financial Information Financial Statements (Unaudited) Unaudited financial statements for Q1 FY2026 show significant net income and operating cash flow growth, primarily from a large AVAIL joint venture gain and debt reduction Condensed Consolidated Balance Sheets Balance sheets show total assets decreased to $2.16 billion due to the AVAIL JV write-off, with long-term debt significantly reduced and equity increased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | May 31, 2025 | February 28, 2025 | | :--- | :--- | :--- | | Total Assets | $2,159,185 | $2,227,101 | | Cash and cash equivalents | $3,043 | $1,488 | | Investment in AVAIL joint venture | $— | $99,379 | | Total Liabilities | $944,887 | $1,181,606 | | Long-term debt, net | $569,807 | $852,365 | | Total Shareholders' Equity | $1,214,298 | $1,045,495 | Condensed Consolidated Statements of Operations Sales increased 2.1% to $422.0 million, with net income surging to $170.9 million primarily due to a $173.5 million AVAIL JV distribution gain, yielding $5.66 diluted EPS Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 FY2026 (3 mo ended May 31, 2025) | Q1 FY2025 (3 mo ended May 31, 2024) | Change | | :--- | :--- | :--- | :--- | | Sales | $421,962 | $413,208 | +2.1% | | Operating Income | $69,549 | $69,749 | -0.3% | | Equity in earnings of unconsolidated subsidiaries | $173,523 | $3,824 | +4437% | | Net Income | $170,908 | $39,602 | +331.6% | | Diluted EPS | $5.66 | ($1.38) | N/A | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly increased to $314.8 million, driven by a $273.2 million AVAIL joint venture distribution, with $295.5 million used in financing for debt payments Cash Flow Summary (in thousands) | Cash Flow Category | Q1 FY2026 (3 mo ended May 31, 2025) | Q1 FY2025 (3 mo ended May 31, 2024) | | :--- | :--- | :--- | | Net cash provided by operating activities | $314,782 | $71,944 | | Net cash used in investing activities | ($17,122) | ($27,379) | | Net cash used in financing activities | ($295,512) | ($38,542) | | Net increase in cash and cash equivalents | $1,555 | $6,197 | - A cash distribution of $273.2 million from the investment in the AVAIL joint venture was a primary contributor to the increase in cash from operating activities[13] - The company made significant payments on long-term debt and finance leases totaling $335.8 million during the quarter[13] Notes to Condensed Consolidated Financial Statements Notes detail the company's three segments, the significant $165.8 million AVAIL JV gain, debt structure, and recent restructuring activities, including a new coil coating facility and a $3.8 million charge - The company operates in three segments: AZZ Metal Coatings (hot-dip galvanizing), AZZ Precoat Metals (coil coating), and AZZ Infrastructure Solutions (40% interest in AVAIL JV)[19] - In May 2025, the AVAIL JV sold its Electrical Products Group, with AZZ receiving a cash distribution of $273.2 million, which exceeded its investment basis, resulting in a recognized gain of $165.8 million recorded in 'equity in earnings'[46][47] - During the quarter, the company initiated a restructuring of certain surface technologies facilities within the Metal Coatings segment, recognizing $3.8 million in charges, primarily for asset write-offs[98] - The new aluminum coil coating facility in Washington, Missouri became operational during the first quarter of fiscal 2026, with a total expected capital spend of $121.8 million[106] - Subsequent to the quarter end, on July 1, 2025, AZZ acquired a hot-dip galvanizing facility in Canton, Ohio for $30.1 million[108] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting the positive impact of the AVAIL JV distribution, segment performance, debt reduction, and non-GAAP measures with Adjusted EPS at $1.78 Results of Operations Consolidated sales increased 2.1% to $422.0 million, with Metal Coatings sales up 6.0% and Precoat Metals down 0.8%, while operating income was flat and net income surged due to a $169.7 million AVAIL JV gain Segment Sales and Operating Income (in thousands) | Segment | Sales Q1 FY26 | Sales Q1 FY25 | % Change | Op. Income Q1 FY26 | Op. Income Q1 FY25 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Metal Coatings | $187,215 | $176,651 | +6.0% | $50,732 | $47,932 | +5.8% | | Precoat Metals | $234,747 | $236,557 | -0.8% | $39,354 | $40,094 | -1.8% | - The increase in Metal Coatings operating income was driven by higher sales, partially offset by $3.8 million in restructuring charges[124] - Interest expense decreased by $4.2 million due to a lower average debt balance and a lower weighted average interest rate[127] Liquidity and Capital Resources Total liquidity was $309.4 million, with operating cash flow of $314.8 million driven by the $273.2 million AVAIL JV distribution, primarily used to reduce Term Loan B, maintaining debt covenant compliance - Total liquidity as of May 31, 2025, was $309.4 million, consisting of $3.0 million in cash and $306.3 million in available credit[131] - The company used proceeds from the AVAIL JV distribution to pay down its Term Loan B[146] - The company has a remaining capital commitment of $5.0 million for its new aluminum coil coating facility in Washington, Missouri, expected to be paid by Q2 FY2026[144] Non-GAAP Disclosures Non-GAAP measures, excluding one-time items, show Q1 FY2026 Adjusted Net Income at $53.8 million and Adjusted EPS at $1.78, with Adjusted EBITDA increasing to $106.4 million Non-GAAP Financial Reconciliation (in thousands, except per share data) | Metric | Q1 FY2026 (3 mo ended May 31, 2025) | Q1 FY2025 (3 mo ended May 31, 2024) | | :--- | :--- | :--- | | Net Income (GAAP) | $170,908 | $39,602 | | Adjustments (net) | ($117,101) | $79,601 | | Adjusted Net Income (Non-GAAP) | $53,807 | $44,005 | | Diluted EPS (GAAP) | $5.66 | ($1.38) | | Adjusted EPS (Non-GAAP) | $1.78 | $1.46 | Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 FY2026 (3 mo ended May 31, 2025) | Q1 FY2025 (3 mo ended May 31, 2024) | | :--- | :--- | :--- | | Net Income | $170,908 | $39,602 | | Interest, Taxes, D&A | $95,318 | $54,498 | | Other Adjustments | ($159,784) | $0 | | Adjusted EBITDA (Non-GAAP) | $106,412 | $94,100 | - The Net Leverage Ratio improved significantly to 1.7x as of May 31, 2025, down from 2.5x as of February 28, 2025, due to debt paydown and higher Adjusted EBITDA[161] Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures were reported for the quarter ended May 31, 2025, compared to the prior Annual Report on Form 10-K - There were no material changes to market risk disclosures from the most recent Annual Report on Form 10-K[162] Controls and Procedures Disclosure controls and procedures were deemed effective by principal officers, with no material changes in internal control over financial reporting during the quarter - The company's disclosure controls and procedures were deemed effective by the CEO and CFO[163] - No material changes to internal controls over financial reporting occurred during the quarter[164] Part II. Other Information Legal Proceedings The company is involved in routine legal proceedings, which management does not expect to materially affect its financial position, results, or cash flows - AZZ is involved in routine legal proceedings but does not anticipate a material impact on its financial condition[166] Risk Factors No material changes to risk factors were reported compared to the latest Annual Report on Form 10-K - No material changes to risk factors were reported compared to the latest Form 10-K[167] Unregistered Sales of Equity Securities and Use of Proceeds No common stock was repurchased during the quarter, with $53.2 million remaining authorized for future share repurchases under the 2020 program - No common stock was repurchased during the quarter[169] - As of May 31, 2025, $53.2 million remains authorized for future share repurchases[169] Other Information No Rule 10b5-1 trading arrangements were adopted or terminated, and Kurt Russell, SVP and Chief Strategic Officer, announced his retirement effective October 1, 2025 - No directors or executive officers adopted or terminated a Rule 10b5-1 trading plan during the quarter[170] - Kurt Russell, SVP and Chief Strategic Officer, announced his retirement effective October 1, 2025[171]