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Table of Contents
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, 2024
or

☐ | 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 January 2, 2025, the registrant had outstanding 29,882,176 shares of common stock; $1.00 par value per share.

Table of Contents

|  | PAGE NO.
PART I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements (Unaudited) |
| Condensed Consolidated Balance Sheets | 3
| Condensed Consolidated Statements of Operations | 4
| Condensed Consolidated Statements of Comprehensive Income (Loss) | 5
| Condensed Consolidated Statements of Cash Flows | 6
| Condensed Consolidated Statements of Changes in Shareholders’ Equity | 7
| Notes to Condensed Consolidated Financial Statements | 9
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 45
Item 4. | Controls and Procedures | 45
PART II. | OTHER INFORMATION |
Item 1. | Legal Proceedings | 45
Item 1A. | Risk Factors | 46
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 46
Item 5 | Other Information | 46
Item 6. | Exhibits | 47
| SIGNATURES | 48

Table of Contents
PART I. FINANCIAL INFORMATION
AZZ INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)

|  | As of
|  | November 30, 2024 |  | February 29, 2024
Assets |  |  |  |
Current assets: |  |  |  |
Cash and cash equivalents |  | $ | 1,484 |  |  | $ | 4,349 |
Trade accounts receivable, net of allowance for credit losses of $2,204 and $2,347 at November 30, 2024 and February 29, 2024, respectively |  | 139,843 |  |  | 142,246 |
Other receivables |  | 28,499 |  |  | 15,599 |
Inventories |  | 114,701 |  |  | 117,656 |
Contract assets |  | 99,158 |  |  | 79,335 |
Prepaid expenses and other |  | 10,720 |  |  | 7,814 |
Total current assets |  | 394,405 |  |  | 366,999 |
Property, plant and equipment, net |  | 580,178 |  |  | 541,652 |
Right-of-use assets |  | 25,888 |  |  | 23,739 |
Goodwill |  | 704,569 |  |  | 705,468 |
Deferred tax assets |  | 5,563 |  |  | 5,606 |
Intangible assets, net |  | 427,812 |  |  | 445,435 |
Investment in AVAIL joint venture |  | 102,121 |  |  | 98,169 |
Other assets |  | 4,014 |  |  | 8,437 |
Total assets |  | $ | 2,244,550 |  |  | $ | 2,195,505 |
Liabilities, Mezzanine Equity and Shareholders’ Equity |  |  |  |
Current liabilities: |  |  |  |
Accounts payable |  | $ | 97,798 |  |  | $ | 88,001 |
Income taxes payable |  | 2,723 |  |  | 172 |
Accrued salaries and wages |  | 34,286 |  |  | 30,823 |
Other accrued liabilities |  | 80,051 |  |  | 68,651 |
Lease liability, short-term |  | 7,434 |  |  | 6,659 |
Total current liabilities |  | 222,292 |  |  | 194,306 |
Long-term debt, net |  | 879,548 |  |  | 952,742 |
Lease liability, long-term |  | 19,255 |  |  | 17,827 |
Deferred tax liabilities |  | 44,544 |  |  | 38,567 |
Other long-term liabilities |  | 49,323 |  |  | 57,572 |
Total liabilities |  | 1,214,962 |  |  | 1,261,014 |
Commitments and contingencies (Note 16) |  |  |  |
Mezzanine equity: |  |  |  |
Series A Preferred Stock, $1,000 par value; 100,000 shares authorized; 240 shares issued and outstanding February 29, 2024; aggregate liquidation preference $312,520 at February 29, 2024 |  | — |  |  | 233,722 |
Shareholders’ equity: |  |  |  |
Common stock, $1 par value; 100,000 shares authorized; 29,877 and 25,102 shares issued and outstanding at November 30, 2024 and February 29, 2024, respectively |  | 29,877 |  |  | 25,102 |
Capital in excess of par value |  | 415,059 |  |  | 103,330 |
Retained earnings |  | 594,034 |  |  | 576,231 |
Accumulated other comprehensive loss |  | (9,382) |  |  | (3,894) |
Total shareholders’ equity |  | 1,029,588 |  |  | 700,769 |
Total liabilities, mezzanine equity and shareholders' equity |  | $ | 2,244,550 |  |  | $ | 2,195,505 |

The accompanying notes are an integral part of the consolidated financial statements.
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AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and dividend amounts)
(Unaudited)

|  | Three Months Ended November 30, |  | Nine Months Ended November 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Sales |  | $ | 403,654 |  |  | $ | 381,605 |  |  | $ | 1,225,869 |  |  | $ | 1,171,020 |
Cost of sales |  | 305,876 |  |  | 293,456 |  |  | 921,907 |  |  | 888,606 |
Gross margin |  | 97,778 |  |  | 88,149 |  |  | 303,962 |  |  | 282,414 |
Selling, general and administrative |  | 39,243 |  |  | 35,325 |  |  | 108,032 |  |  | 103,087 |
Operating income |  | 58,535 |  |  | 52,824 |  |  | 195,930 |  |  | 179,327 |
Interest expense, net |  | (19,223) |  |  | (25,855) |  |  | (63,906) |  |  | (82,331) |
Equity in earnings of unconsolidated subsidiaries |  | 7,168 |  |  | 8,742 |  |  | 12,470 |  |  | 11,136 |
Other income (expense), net |  | (763) |  |  | (41) |  |  | (142) |  |  | 9 |
Income before income taxes |  | 45,717 |  |  | 35,670 |  |  | 144,352 |  |  | 108,141 |
Income tax expense |  | 12,114 |  |  | 8,780 |  |  | 35,728 |  |  | 24,397 |
Net income |  | 33,603 |  |  | 26,890 |  |  | 108,624 |  |  | 83,744 |
Series A Preferred Stock Dividends |  | — |  |  | (3,600) |  |  | (1,200) |  |  | (10,800) |
Redemption premium on Series A Preferred Stock |  | — |  |  | — |  |  | (75,198) |  |  | — |
Net income available to common shareholders |  | $ | 33,603 |  |  | $ | 23,290 |  |  | $ | 32,226 |  |  | $ | 72,944 |
Basic earnings per common share |  | $ | 1.12 |  |  | $ | 0.93 |  |  | $ | 1.12 |  |  | $ | 2.91 |
Diluted earnings per common share |  | $ | 1.12 |  |  | $ | 0.92 |  |  | $ | 1.11 |  |  | $ | 2.86 |
Weighted average shares outstanding - Basic |  | 29,879 |  |  | 25,077 |  |  | 28,819 |  |  | 25,024 |
Weighted average shares outstanding - Diluted |  | 30,118 |  |  | 29,330 |  |  | 29,076 |  |  | 29,278 |
Cash dividends declared per common share |  | $ | 0.17 |  |  | $ | 0.17 |  |  | $ | 0.51 |  |  | $ | 0.51 |

The accompanying notes are an integral part of the consolidated financial statements.
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AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)

|  | Three Months Ended November 30, |  | Nine Months Ended November 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Net income available to common shareholders |  | $ | 33,603 |  |  | $ | 23,290 |  |  | $ | 32,226 |  |  | $ | 72,944 |
Other comprehensive income (loss): |  |  |  |  |  |  |  |
Unrealized translation loss |  | (1,943) |  |  | (59) |  |  | (1,504) |  |  | (21) |
Unrealized translation loss for unconsolidated subsidiary(1) |  | (730) |  |  | 3,088 |  |  | (1,261) |  |  | 1,314 |
Unrealized gain (loss) on derivatives qualified for hedge accounting: |  |  |  |  |  |  |  |
Unrealized gain (loss) on interest rate swap, net of tax(2) |  | 1,037 |  |  | (22) |  |  | 194 |  |  | 1,847 |
Amounts reclassified from accumulated other comprehensive income to earnings, net of tax(3) |  | (663) |  |  | (1,057) |  |  | (2,876) |  |  | (2,544) |
Unrealized gain on interest rate swap, net of tax for unconsolidated subsidiary(4) |  | (188) |  |  | (93) |  |  | (41) |  |  | 20 |
Other comprehensive income (loss) |  | (2,487) |  |  | 1,857 |  |  | (5,488) |  |  | 616 |
Comprehensive income |  | $ | 31,116 |  |  | $ | 25,147 |  |  | $ | 26,738 |  |  | $ | 73,560 |
(1) Unrealized translation loss for unconsolidated subsidiary is related to our unconsolidated investment in the AVAIL JV and represents our 40% interest in this amount. Net of tax benefit of $(227) and $(438) for the three and nine months ended November 30, 2024, respectively, and $0 for both the three and nine months ended November 30, 2023.
(2) Net of tax expense (benefit) of $327 and ($8) for the three months ended November 30, 2024 and 2023, respectively. Net of tax expense (benefit) of ($15) and $671 for the nine months ended November 30, 2024 and 2023, respectively.
(3) Net of tax benefit of ($209) and ($384) for the three months ended November 30, 2024 and 2023, respectively. Net of tax benefit of $(908) and $(924) for the nine months ended November 30, 2024 and 2023, respectively. See Note 8.
(4) Unrealized gain (loss) on interest rate swap, net of tax for unconsolidated subsidiary is related to our unconsolidated investment in the AVAIL JV and represents our 40% interest in this amount. Net of tax expense (benefit) of ($59) and ($34) for the three months ended November 30, 2024 and 2023, respectively. Net of tax expense (benefit) of ($13) and $7 for the nine months ended November 30, 2024 and 2023, respectively.

The accompanying notes are an integral part of the consolidated financial statements.
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AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

|  | Nine Months Ended November 30,
|  | 2024 |  | 2023
Cash flows from operating activities |  |  |  |
Net income available to common shareholders |  | $ | 32,226 |  |  | $ | 72,944 |
Plus: Dividends on Series A Preferred Stock |  | 1,200 |  |  | 10,800 |
Plus: Redemption premium on Series A Preferred Stock |  | 75,198 |  |  | — |
Net income |  | 108,624 |  |  | 83,744 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
Bad debt expense (recovery) |  | (66) |  |  | 53 |
Depreciation and amortization |  | 61,383 |  |  | 59,034 |
Deferred income taxes |  | 7,421 |  |  | (274) |
Equity in earnings of unconsolidated entities |  | (12,470) |  |  | (11,136) |
Distribution on investment in AVAIL joint venture |  | 6,764 |  |  | — |
Net gain on sale of property, plant and equipment |  | (397) |  |  | (39) |
Amortization of debt financing costs |  | 9,359 |  |  | 9,105 |
Share-based compensation expense |  | 11,244 |  |  | 6,207 |
Changes in current assets and current liabilities |  | 2,909 |  |  | 38,819 |
Changes in other long-term assets and long-term liabilities |  | (9,174) |  |  | (4,585) |
Net cash provided by operating activities |  | 185,597 |  |  | 180,928 |
Cash flows from investing activities |  |  |  |
Purchase of property, plant and equipment |  | (85,942) |  |  | (66,900) |
Proceeds from sale of property, plant and equipment |  | 842 |  |  | 47 |
Net cash used in investing activities |  | (85,100) |  |  | (66,853) |
Cash flows from financing activities |  |  |  |
Proceeds from issuance of common stock |  | 310,237 |  |  | 1,465 |
Redemption of Preferred Stock |  | (308,920) |  |  | — |
Tax payments related to net share settlement of equity awards |  | (4,977) |  |  | (791) |
Proceeds from Revolving Credit Facility |  | 271,000 |  |  | 189,000 |
Payments on Revolving Credit Facility |  | (261,000) |  |  | (274,000) |
Payments of debt financing costs |  | (1,541) |  |  | (1,299) |
Payments on long term debt and finance lease liabilities |  | (90,689) |  |  | (268) |
Payments of dividends |  | (18,022) |  |  | (23,551) |
Net cash used in financing activities |  | (103,912) |  |  | (109,444) |
Effect of exchange rate changes on cash |  | 550 |  |  | 58 |
Net increase (decrease) in cash and cash equivalents |  | (2,865) |  |  | 4,689 |
Cash and cash equivalents at beginning of period |  | 4,349 |  |  | 2,820 |
Cash and cash equivalents at end of period |  | $ | 1,484 |  |  | $ | 7,509 |

The accompanying notes are an integral part of the consolidated financial statements.
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AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)

|  |  |  |  |  | Three Months Ended November 30, 2024
|  |  |  | Common Stock |  | Capital in Excess of Par Value |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total
|  |  |  |  |  | Shares |  | Amount |
Balance at August 31, 2024 |  |  |  |  |  | 29,877 |  |  | $ | 29,877 |  |  | $ | 411,263 |  |  | $ | 565,511 |  |  | $ | (6,895) |  |  | $ | 999,756 |
Share-based compensation |  |  |  |  |  | — |  |  | — |  |  | 3,796 |  |  | — |  |  | — |  |  | 3,796 |
Cash dividends paid on common stock |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (5,080) |  |  | — |  |  | (5,080) |
Net income |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 33,603 |  |  | — |  |  | 33,603 |
Other comprehensive loss |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,487) |  |  | (2,487) |
Balance at November 30, 2024 |  |  |  |  |  | 29,877 |  |  | $ | 29,877 |  |  | $ | 415,059 |  |  | $ | 594,034 |  |  | $ | (9,382) |  |  | $ | 1,029,588 |
|  |  |  |  |  | Nine Months Ended November 30, 2024
|  |  |  | Common Stock |  | Capital in Excess of Par Value |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total
|  |  |  |  |  | Shares |  | Amount |
Balance at February 29, 2024 |  |  |  |  |  | 25,102 |  |  | $ | 25,102 |  |  | $ | 103,330 |  |  | $ | 576,231 |  |  | $ | (3,894) |  |  | $ | 700,769 |
Share-based compensation |  |  |  |  |  | — |  |  | — |  |  | 11,234 |  |  | — |  |  | — |  |  | 11,234 |
Common stock issued under stock-based plans and related tax expense |  |  |  |  |  | 132 |  |  | 132 |  |  | (5,099) |  |  | — |  |  | — |  |  | (4,967) |
Common stock issued under employee stock purchase plan |  |  |  |  |  | 43 |  |  | 43 |  |  | 1,526 |  |  | — |  |  | — |  |  | 1,569 |
Secondary public offering and issuance of additional common stock |  |  |  |  |  | 4,600 |  |  | 4,600 |  |  | 304,068 |  |  | — |  |  | — |  |  | 308,668 |
Dividends on Series A Preferred Stock |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (1,200) |  |  | — |  |  | (1,200) |
Cash dividends paid on common stock |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (14,423) |  |  | — |  |  | (14,423) |
Redemption premium on Series A Preferred Stock |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (75,198) |  |  | — |  |  | (75,198) |
Net income |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 108,624 |  |  | — |  |  | 108,624 |
Other comprehensive loss |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,488) |  |  | (5,488) |
Balance at November 30, 2024 |  |  |  |  |  | 29,877 |  |  | $ | 29,877 |  |  | $ | 415,059 |  |  | $ | 594,034 |  |  | $ | (9,382) |  |  | $ | 1,029,588 |

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|  |  |  |  |  | Three Months Ended November 30, 2023
|  |  |  | Common Stock |  | Capital in Excess of Par Value |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total
|  |  |  |  |  | Shares |  | Amount |
Balance at August 31, 2023 |  |  |  |  |  | 25,077 |  |  | $ | 25,077 |  |  | $ | 97,884 |  |  | $ | 547,208 |  |  | $ | (5,814) |  |  | $ | 664,355 |
Share-based compensation |  |  |  |  |  | — |  |  | — |  |  | 2,189 |  |  | — |  |  | — |  |  | 2,189 |
Dividends on Series A Preferred Stock |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (3,600) |  |  | — |  |  | (3,600) |
Cash dividends paid on common stock |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (4,263) |  |  | — |  |  | (4,263) |
Net income |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 26,890 |  |  | — |  |  | 26,890 |
Other comprehensive loss |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,857 |  |  | 1,857 |
Balance at November 30, 2023 |  |  |  |  |  | 25,077 |  |  | $ | 25,077 |  |  | $ | 100,073 |  |  | $ | 566,235 |  |  | $ | (3,957) |  |  | $ | 687,428 |
|  |  |  |  |  | Nine Months Ended November 30, 2023
|  |  |  | Common Stock |  | Capital in Excess of Par Value |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total
|  |  |  |  |  | Shares |  | Amount |
Balance at February 28, 2023 |  |  |  |  |  | 24,912 |  |  | $ | 24,912 |  |  | $ | 93,357 |  |  | $ | 506,042 |  |  | $ | (4,573) |  |  | $ | 619,738 |
Share-based compensation |  |  |  |  |  | — |  |  | — |  |  | 6,207 |  |  | — |  |  | — |  |  | 6,207 |
Common stock issued under stock-based plans and related tax expense |  |  |  |  |  | 123 |  |  | 123 |  |  | (914) |  |  | — |  |  | — |  |  | (791) |
Common stock issued under employee stock purchase plan |  |  |  |  |  | 42 |  |  | 42 |  |  | 1,423 |  |  | — |  |  | — |  |  | 1,465 |
Dividends on Series A Preferred Stock |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (10,800) |  |  | — |  |  | (10,800) |
Cash dividends paid on common stock |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (12,751) |  |  | — |  |  | (12,751) |
Net income |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 83,744 |  |  | — |  |  | 83,744 |
Other comprehensive loss |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 616 |  |  | 616 |
Balance at November 30, 2023 |  |  |  |  |  | 25,077 |  |  | $ | 25,077 |  |  | $ | 100,073 |  |  | $ | 566,235 |  |  | $ | (3,957) |  |  | $ | 687,428 |

The accompanying notes are an integral part of the consolidated financial statements.
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AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Basis of Presentation
AZZ Inc. ("AZZ", the "Company", "our" or "we") was established in 1956 and incorporated under the laws of the state of Texas. We are a provider of hot-dip galvanizing and coil coating solutions to a broad range of end-markets in North America. We have three distinct operating segments: the AZZ Metal Coatings segment, the AZZ Precoat Metals segment, and the AZZ Infrastructure Solutions segment. Our AZZ Metal Coatings segment is a leading provider of metal finishing solutions for corrosion protection, including hot-dip galvanizing, spin galvanizing, powder coating, anodizing and plating to the North American steel fabrication industry and other industries. The AZZ Precoat Metals segment provides aesthetic and corrosion protective 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 in North America. The AZZ Infrastructure Solutions segment represents our 40% non-controlling interest in AIS Investment Holdings LLC (the "AVAIL JV"). AIS Investment Holdings LLC is primarily 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.
Presentation
The accompanying condensed consolidated balance sheet as of February 29, 2024 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 29, 2024, included in our Annual Report on Form 10-K covering such period which was filed with the Securities and Exchange Commission ("SEC") on April 22, 2024. Certain previously reported amounts have been reclassified to conform to current period presentation.
Our 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, 2025 is referred to as fiscal 2025.
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, 2024, the results of its operations and cash flows for the three and nine months ended November 30, 2024 and 2023. The interim results reported herein are not necessarily indicative of results for a full year.
Accounting Pronouncements Not Yet Adopted
In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which expands disclosures about a public entity’s expenses, including inventory, employee compensation, depreciation, intangible asset amortization, selling expenses and other expense categories. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. We do not expect the adoption of ASU 2024-03 to affect our financial position or our results of operations, but will result in additional disclosures for our annual reporting period ending February 29, 2028, and interim reporting periods in fiscal 2029.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. We expect to adopt ASU 2023-09 for the annual period ending February 28, 2025 and the adoption will not affect our financial position or our results of operations, but will result in additional disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within
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AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
fiscal years beginning after December 15, 2024. We do not expect the adoption of ASU 2023-07 to affect our financial position or our results of operations, but will result in additional disclosures for our annual reporting period ending February 28, 2025 and interim reporting periods in fiscal 2026.
2. Inventories
The following table summarizes the components of inventory (in thousands):

|  | As of
|  | November 30, 2024 |  | February 29, 2024
Raw material |  | $ | 111,172 |  |  | $ | 111,674 |
Work in process |  | 769 |  |  | 898 |
Finished goods |  | 2,760 |  |  | 5,084 |
Total inventories |  | $ | 114,701 |  |  | $ | 117,656 |

Our inventory reserves were $3.5 million and $4.5 million as of November 30, 2024 and February 29, 2024, respectively. Inventory cost is determined principally using the first-in-first-out (FIFO) method for the AZZ Metal Coatings segment and the specific identification method for the Precoat Metals segment.
3. Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during each period. 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 period.
On April 30, 2024, we completed a secondary public offering in which we issued 4.6 million common shares. The weighted average number of shares for the period outstanding for the nine months ended November 30, 2024 are included in weighted average shares outstanding for basic earnings per share. See Note 14. As of November 30, 2024, there were 29.9 million common shares outstanding, which includes the shares from the secondary public offering.
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AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Numerator: |  |  |  |  |  |  |  |
Net income |  | $ | 33,603 |  |  | $ | 26,890 |  |  | $ | 108,624 |  |  | $ | 83,744 |
Series A Preferred Stock Dividends |  | — |  |  | (3,600) |  |  | (1,200) |  |  | (10,800) |
Redemption premium on Series A Preferred Stock |  | — |  |  | — |  |  | (75,198) |  |  | — |
Numerator for basic earnings per share |  | $ | 33,603 |  |  | $ | 23,290 |  |  | $ | 32,226 |  |  | $ | 72,944 |
Series A Preferred Stock Dividends |  | — |  |  | 3,600 |  |  | — |  |  | 10,800 |
Numerator for diluted earnings per share |  | $ | 33,603 |  |  | $ | 26,890 |  |  | $ | 32,226 |  |  | $ | 83,744 |
Denominator: |  |  |  |  |  |  |  |
Weighted average shares outstanding for basic earnings per share |  | 29,879 |  |  | 25,077 |  |  | 28,819 |  |  | 25,024 |
Effect of dilutive securities: |  |  |  |  |  |  |  |
Employee and director stock awards |  | 239 |  |  | 136 |  |  | 257 |  |  | 137 |
Series A Preferred Stock |  | — |  |  | 4,117 |  |  | — |  |  | 4,117 |
Denominator for diluted earnings per share |  | 30,118 |  |  | 29,330 |  |  | 29,076 |  |  | 29,278 |
Basic earnings per common share |  | $ | 1.12 |  |  | $ | 0.93 |  |  | $ | 1.12 |  |  | $ | 2.91 |
Diluted earnings per common share |  | $ | 1.12 |  |  | $ | 0.92 |  |  | $ | 1.11 |  |  | $ | 2.86 |

For the three months ended November 30, 2024 and 2023, there were 34,824 and 120,819 shares, respectively, related to employee equity awards that 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, 2024 and 2023, 56,088 and 126,356 shares, 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, 2024, all shares related to the Series A Preferred Stock (1.0 million weighted average shares) were excluded from the computation of diluted earnings per share, as their effect would be anti-dilutive. These shares could be dilutive in future periods.
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AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Disaggregated Sales
The following table presents disaggregated sales by customer industry (in thousands):

|  | Three Months Ended November 30, |  | Nine Months Ended November 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Sales: |  |  |  |  |  |  |  |
Construction |  | $ | 233,653 |  |  | $ | 214,081 |  |  | $ | 695,344 |  |  | $ | 637,035 |
Industrial |  | 37,551 |  |  | 35,489 |  |  | 114,318 |  |  | 118,273 |
Transportation |  | 35,047 |  |  | 35,871 |  |  | 109,959 |  |  | 107,734 |
Consumer |  | 29,464 |  |  | 29,384 |  |  | 94,633 |  |  | 99,537 |
Utilities |  | 29,599 |  |  | 24,804 |  |  | 88,944 |  |  | 76,116 |
Other (1) |  | 38,340 |  |  | 41,976 |  |  | 122,671 |  |  | 132,325 |
Total Sales |  | $ | 403,654 |  |  | $ | 381,605 |  |  | $ | 1,225,869 |  |  | $ | 1,171,020 |
(1) Other includes less significant markets, such as agriculture, recreation, petro-chem, AZZ Tubular products and sales from recycling.

See also Note 6 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, we can receive advances from our customers, before revenue is 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.
The increases or decreases in contract assets and contract liabilities during the nine months ended November 30, 2024 were primarily due to normal timing differences between AZZ's performance and customer payments. As of November 30, 2024 and February 29, 2024, the balance for contract assets was $99.2 million and $79.3 million, respectively, primarily related to the AZZ Precoat Metals segment. The increase was primarily due to the timing differences noted above, as well as the increase in the volume of coil coated for the nine months ended November 30, 2024. Contract liabilities of $0.7 million and $1.0 million as of November 30, 2024 and February 29, 2024, respectively, are included in "Other accrued liabilities" in the consolidated balance sheets.
As of November 30, 2023 and February 28, 2023, the balance for contract assets was $75.7 million and $79.3 million, respectively, primarily related to the AZZ Precoat Metals segment. Contract liabilities were $1.0 million and $1.3 million as of November 30, 2023 and February 28, 2023, respectively.
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5. Supplemental Cash Flow Information
To arrive at net cash provided by operating activities, net income is adjusted by, among other things, changes in current assets and current liabilities as follows (in thousands):

| Nine Months Ended November 30,
| 2024 |  | 2023
Decrease (increase) in current assets: |  |  |
Accounts receivable, net | $ | 2,297 |  |  | $ | 13,922 |
Other receivables | (12,966) |  |  | (4,033) |
Inventories | 2,775 |  |  | 17,191 |
Contract assets | (19,833) |  |  | 1,136 |
Prepaid expenses and other | (2,910) |  |  | (1,304) |
Increase (decrease) in current liabilities: |  |  |
Accounts payable | 13,632 |  |  | 8,654 |
Income taxes payable | 2,551 |  |  | (227) |
Accrued expenses | 17,363 |  |  | 3,480 |
Changes in current assets and current liabilities | $ | 2,909 |  |  | $ | 38,819 |

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

|  | Nine Months Ended November 30,
|  | 2024 |  | 2023
Cash paid for interest |  | $ | 59,258 |  |  | $ | 74,993 |
Cash paid for income taxes |  | 22,277 |  |  | 17,683 |

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

|  | Nine Months Ended November 30,
|  | 2024 |  | 2023
Accrued dividends on Series A Preferred Stock |  | $ | — |  |  | $ | 2,400 |
Accruals for capital expenditures |  | 5,137 |  |  | 4,768 |

6. Operating Segments
Segment Information
Our Chief Executive Officer, who is the chief operating 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 and the AZZ Precoat Metals segments, and net income is the primary measure used by the CODM to evaluate performance and allocate resources to the AZZ Infrastructure Solutions segment. Expenses related to certain centralized administration or executive functions that are not specifically related to an operating segment are included in Corporate.
A summary of each of our operating segments is as follows:
AZZ Metal Coatings — provides hot-dip galvanizing, spin galvanizing, powder coating, anodizing and plating, and other metal coating applications to the steel fabrication industry and other industries through facilities located throughout North America. Hot-dip galvanizing is a metallurgical manufacturing process in which molten zinc reacts with steel, which provides corrosion protection and extends the lifecycle of fabricated steel for several decades.
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AZZ Precoat Metals — provides coil coating application of protective and decorative coatings and related value-added downstream processing for steel and aluminum coils. Primarily serving the construction, appliance, heating, ventilation, and air conditioning (HVAC), container, transportation, and other end markets, the coil coating process emphasizes sustainability and enhanced product lifecycles. It involves cleaning, treating, painting, and curing metal coils as a flat material before they are cut, formed, and fabricated into finished products. This highly efficient method optimizes waste through tight film control and improves final product performance by painting and curing the substrates under conditions unmatched by other application processes.
AZZ Infrastructure Solutions — consists of the equity in earnings of our 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 is a global provider of application-critical equipment, highly engineered technologies, and specialized services to the power generation, transmission, distribution, oil and gas, and industrial markets.
The following tables contain operating segment data for the three and nine months ended November 30, 2024 and 2023 by segment, for the Company's corporate operations and on a consolidated basis (in thousands):

| Three Months Ended November 30, 2024
| Metal Coatings |  | Precoat Metals |  | Infrastructure Solutions(1) |  | Corporate(2) |  | Total
Sales | $ | 168,599 |  |  | $ | 235,055 |  |  | $ | — |  |  | $ | — |  |  | $ | 403,654 |
Cost of sales | 116,542 |  |  | 189,334 |  |  | — |  |  | — |  |  | 305,876 |
Gross margin | 52,057 |  |  | 45,721 |  |  | — |  |  | — |  |  | 97,778 |
Selling, general and administrative | 5,684 |  |  | 8,641 |  |  | 29 |  |  | 24,889 |  |  | 39,243 |
Operating income (loss) | 46,373 |  |  | 37,080 |  |  | (29) |  |  | (24,889) |  |  | 58,535 |
Interest expense | — |  |  | — |  |  | — |  |  | (19,223) |  |  | (19,223) |
Equity in earnings of unconsolidated subsidiaries | — |  |  | — |  |  | 7,168 |  |  | — |  |  | 7,168 |
Other income (expense) | 116 |  |  | — |  |  | — |  |  | (879) |  |  | (763) |
Income (loss) before income tax | $ | 46,489 |  |  | $ | 37,080 |  |  | $ | 7,139 |  |  | (44,991) |  |  | 45,717 |
Income tax expense |  |  |  |  |  |  | 12,114 |  |  | 12,114 |
Net income (loss) |  |  |  |  |  |  | $ | (57,105) |  |  | $ | 33,603 |

See notes below tables.

| Nine Months Ended November 30, 2024
| Metal Coatings |  | Precoat Metals |  | Infrastructure Solutions(1) |  | Corporate(2) |  | Total
Sales | $ | 516,750 |  |  | $ | 709,119 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,225,869 |
Cost of sales | 357,471 |  |  | 564,436 |  |  | — |  |  | — |  |  | 921,907 |
Gross margin | 159,279 |  |  | 144,683 |  |  | — |  |  | — |  |  | 303,962 |
Selling, general and administrative | 17,286 |  |  | 24,980 |  |  | 67 |  |  | 65,699 |  |  | 108,032 |
Operating income (loss) | 141,993 |  |  | 119,703 |  |  | (67) |  |  | (65,699) |  |  | 195,930 |
Interest expense | — |  |  | — |  |  | — |  |  | (63,906) |  |  | (63,906) |
Equity in earnings of unconsolidated subsidiaries | — |  |  | — |  |  | 12,470 |  |  | — |  |  | 12,470 |
Other income (expense) | 165 |  |  | — |  |  | — |  |  | (307) |  |  | (142) |
Income (loss) before income tax | $ | 142,158 |  |  | $ | 119,703 |  |  | $ | 12,403 |  |  | (129,912) |  |  | 144,352 |
Income tax expense |  |  |  |  |  |  | 35,728 |  |  | 35,728 |
Net income (loss) |  |  |  |  |  |  | $ | (165,640) |  |  | $ | 108,624 |

See notes below tables.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

| Three Months Ended November 30, 2023
| Metal Coatings |  | Precoat Metals |  | Infrastructure Solutions(1) |  | Corporate(2) |  | 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) | 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) before income tax | $ | 37,813 |  |  | $ | 32,752 |  |  | $ | 8,452 |  |  | (43,347) |  |  | 35,670 |
Income tax expense |  |  |  |  |  |  | 8,780 |  |  | 8,780 |
Net income (loss) |  |  |  |  |  |  | $ | (52,127) |  |  | $ | 26,890 |

See notes below tables.

| Nine Months Ended November 30, 2023
| Metal Coatings |  | Precoat Metals |  | Infrastructure Solutions(1) |  | Corporate(2) |  | 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) | 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) before income tax | $ | 128,353 |  |  | $ | 109,449 |  |  | $ | 4,892 |  |  | (134,553) |  |  | 108,141 |
Income tax expense |  |  |  |  |  |  | 24,397 |  |  | 24,397 |
Net income (loss) |  |  |  |  |  |  | $ | (158,950) |  |  | $ | 83,744 |

(1) Infrastructure Solutions segment includes the equity in earnings from our investment in the AVAIL JV, as well as other expenses related to
receivables and liabilities that were retained following the sale of the AIS business.
(2) Interest expense and Income tax expense are included in the Corporate segment as these items are not allocated to the segments.
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Asset balances by operating segment for each period were as follows (in thousands):

|  | As of
|  | November 30, 2024 |  | February 29, 2024
Assets: |  |  |  |
Metal Coatings |  | $ | 551,379 |  |  | $ | 553,505 |
Precoat Metals |  | 1,559,262 |  |  | 1,500,122 |
Infrastructure Solutions - Investment in Joint Venture |  | 102,121 |  |  | 98,169 |
Corporate |  | 31,788 |  |  | 43,709 |
Total assets |  | $ | 2,244,550 |  |  | $ | 2,195,505 |

Financial Information About Geographical Areas
Financial information about geographical areas for the periods presented was as follows (in thousands). The geographic area is based on the location of the operating facility and no customer accounted for 10% or more of consolidated sales.

| Three Months Ended November 30, |  | Nine Months Ended November 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Sales: |  |  |  |  |  |  |
United States | $ | 392,503 |  |  | $ | 370,485 |  |  | $ | 1,194,212 |  |  | $ | 1,140,344 |
Canada | 11,151 |  |  | 11,120 |  |  | 31,657 |  |  | 30,676 |
Total | $ | 403,654 |  |  | $ | 381,605 |  |  | $ | 1,225,869 |  |  | $ | 1,171,020 |

|  | As of
|  | November 30, 2024 |  | February 29, 2024
Property, plant and equipment, net: |  |  |  |
United States |  | $ | 561,326 |  |  | $ | 522,693 |
Canada |  | 18,852 |  |  | 18,959 |
Total |  | $ | 580,178 |  |  | $ | 541,652 |

7. Investments in Unconsolidated Entity
AVAIL JV
We account for our 40% interest in the AVAIL JV under the equity method of accounting and include our equity in earnings as part of the AZZ Infrastructure Solutions segment. We record our equity in earnings in the AVAIL JV on a one-month lag, and we recorded $12.5 million in equity in earnings for the nine months ended November 30, 2024. As of November 30, 2024, our investment in the AVAIL JV was $102.1 million, which includes an excess of $10.2 million over the underlying value of the net assets of the AVAIL JV. The excess is accounted for as equity method goodwill.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summarized Balance Sheet
| As of
| November 30, 2024(1)
Current assets | $ | 321,035 |
Long-term assets | 180,001 |
Total assets | $ | 501,036 |
Current liabilities | 166,201 |
Long-term liabilities | 123,173 |
Total liabilities | $ | 289,374 |
Total partners' capital | 211,662 |
Total liabilities and partners' capital | $ | 501,036 |

Summarized Operating Data |  |
| Three Months Ended |  | Nine Months Ended
| November 30, 2024(1) |  | November 30, 2024(1)
Sales | $ | 150,998 |  |  | $ | 400,298 |
Gross profit | 42,842 |  |  | 101,928 |
Net income | 21,015 |  |  | 32,036 |
(1) We report our equity in earnings 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, 2024. Amounts in the table above exclude certain adjustments made by us to record equity in earnings of the AVAIL JV under U.S GAAP for public companies, primarily to reverse the amortization of goodwill.

8. Derivative Instruments
Interest Rate Swap Derivative
As a policy, we do not hold, issue or trade derivative instruments for speculative purposes. We periodically enter into forward sale contracts to purchase a specified volume of zinc and natural gas 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 Accounting Standards Codification ("ASC") 815, Derivatives and Hedging.
We manage our exposure to fluctuations in interest rates on our floating-rate debt by entering into interest rate swap agreements to convert a portion of our variable-rate debt to a fixed rate. On September 27, 2022, we entered into a fixed-rate interest rate swap agreement, which was subsequently amended on October 7, 2022 (the "2022 Swap"), with banks that are parties to the 2022 Credit Agreement, to change the SOFR-based component of the interest rate. The 2022 Swap converts the SOFR portion to 4.277%. On September 24, 2024, we repriced our Term Loan B to SOFR plus 2.50%, resulting in a total fixed rate of 6.777%. Th e 2022 Swap had an initial notional amount of $550.0 million and a maturity date of September 30, 2025. The notional amount of the interest rate swap decreases by a pro-rata portion of any quarterly principal payments made on the Term Loan B, and the current notional amount is $537.6 million as of November 30, 2024. 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 a portion 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 2022 Swap exactly offset changes in cash flows of the variable-rate debt. We designated the 2022 Swap as a cash flow hedge at inception. Cash payments or receipts to settle the 2022 Swap are recognized in interest expense.
At November 30, 2024, changes in fair value attributable to the effective portion of the 2022 Swap were included on the condensed consolidated balance sheets in "Accumulated other comprehensive income." For derivative instruments that qualify for hedge accounting treatment, the fair value is recognized on 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
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to as the ineffective portion, is immediately recognized in earnings. During the nine months ended November 30, 2024, we reclassified $3.8 million before income tax, or $2.9 million net of tax, from other comprehensive income to earnings.
9. Debt
Our long-term debt instruments and balances outstanding for each of the periods presented (in thousands):

|  | As of
|  | November 30, 2024 |  | February 29, 2024
Revolving Credit Facility |  | $ | 40,000 |  |  | $ | 30,000 |
Term Loan B |  | 890,250 |  |  | 980,250 |
Total debt, gross |  | 930,250 |  |  | 1,010,250 |
Unamortized debt issuance costs |  | (50,702) |  |  | (57,508) |
Long-term debt, net |  | $ | 879,548 |  |  | $ | 952,742 |

2022 Credit Agreement and Term Loan B
We have a credit agreement with a syndicate of financial institutions that was entered into on May 13, 2022, and was subsequently amended on August 17, 2023, December 20, 2023, March 20, 2024 and September 24, 2024 (collectively referred to herein as the "2022 Credit Agreement").
The 2022 Credit Agreement includes the following significant terms:
i.provides for a senior secured initial term loan in the aggregate principal amount of $1.3 billion (the "Term Loan B"), due May 13, 2029, which is secured by substantially all of the assets of the Company; as of November 30, 2024, the outstanding balance of the Term Loan B was $890.3 million;
ii.provides for a maximum senior secured Revolving Credit Facility in the aggregate principal amount of $400.0 million (the "Revolving Credit Facility"), which matures on May 13, 2027;
iii.includes a letter of credit sub-facility of up to $100.0 million, which is part of, and not in addition to, the Revolving Credit Facility;
iv.borrowings under the Term Loan B bear an interest rate of Secured Overnight Financing Rate ("SOFR") plus 2.50% (following the repricings on March 20, 2024 and September 24, 2024 as described below) and the Revolving Credit Facility bears a leverage-based rate with various tiers between 2.75% and 3.50%; as of November 30, 2024, the interest rate was SOFR plus 2.75%;
v.includes customary affirmative and negative covenants, and events of default; including restrictions on the incurrence of non-ordinary course debt, investment and dividends, subject to various exceptions; and,
vi.includes a maximum quarterly leverage ratio financial covenant, with reporting requirements to our banking group at each quarter-end.
On March 20, 2024, we entered the term loan market and repriced our existing Term Loan B. The repricing reduced the Term Loan B spread from a rate of SOFR plus 3.75% to SOFR plus 3.25%.
On September 24, 2024, we completed our third repricing of the Term Loan B. The repricing reduced the margin from SOFR plus 3.25% to SOFR plus 2.50%, for a total reduction of 75 basis points.
We primarily utilize proceeds from the Revolving Credit Facility to finance working capital needs, capital improvements, quarterly cash dividends, acquisitions and other general corporate purposes.
As defined in the 2022 Credit Agreement, quarterly prepayments were due against the outstanding principal of the Term Loan B and were payable on the last business day of each May, August, November and February, beginning August 31, 2022, in a quarterly aggregate principal amount of $3.25 million, with the entire remaining principal amount due on May 13, 2029, the maturity date. Additional prepayments made against the Term Loan B contribute to these required quarterly payments. Due to prepayments made against the Term Loan B since August 31, 2022, the quarterly mandatory principal payment requirement has been met, and the quarterly payments of $3.25 million are no longer required.
The weighted average interest rate for our outstanding debt, including the Revolving Credit Facility and the Term Loan B, was 7.77% and 8.54% for the nine months ended November 30, 2024 and 2023, respectively.
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Debt Compliance, Outstanding Borrowings and Letters of Credit
Our 2022 Credit Agreement requires us to maintain a maximum Total Net Leverage Ratio (as defined in the loan agreement) no greater than 4.5. As of November 30, 2024, we were in compliance with all covenants and other requirements set forth in the 2022 Credit Agreement.
As of November 30, 2024, we had $930.3 million of debt outstanding on the Revolving Credit Facility and the Term Loan B, with varying maturities through fiscal 2029. We had approximately $345.7 million of additional credit available as of November 30, 2024.
As of November 30, 2024, we had total outstanding letters of credit in the amount of $14.3 million. These letters of credit are most commonly issued in lieu of customer retention withholding payments covering warranty, performance periods and insurance collateral.
Other Disclosures
Interest expense is comprised as follows (in thousands):

|  | Three Months Ended November 30, |  | Nine Months Ended November 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Gross Interest expense |  | $ | 21,136 |  |  | $ | 26,633 |  |  | $ | 68,963 |  |  | $ | 83,893 |
Less: Capitalized interest |  | (1,913) |  |  | (778) |  |  | (5,057) |  |  | (1,562) |
Interest expense, net |  | $ | 19,223 |  |  | $ | 25,855 |  |  | $ | 63,906 |  |  | $ | 82,331 |

Capitalized interest for the three and nine months ended November 30, 2024 and 2023 relates to interest cost on the construction of the greenfield aluminum coil coating facility in Washington, Missouri. The increase for the nine months ended November 30, 2024 compared to the prior year period was due to the higher average construction work in process.
10. 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 Measurement ("ASC 820"), certain of our 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 corroborated by market data; or,
•Level 3: Unobservable inputs that are not corroborated by market data and reflect the Company’s own assumptions.
The carrying amount of our financial instruments (cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities) approximates the fair value of these instruments based upon either their short-term nature or their variable market rate of interest. We have not made an option to elect fair value accounting for any of our financial instruments.
Interest Rate Swap Agreement
Our derivative instrument consists of the 2022 Swap, which is considered a Level 2 of the fair value hierarchy and included in "Other long-term liabilities" in the condensed consolidated balance sheets as of November 30, 2024 and in "Other assets" as of February 29, 2024. The valuation of the 2022 Swap is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including swap rates, spread and/or index levels and interest rate curves. See Note 8 for more information about the 2022 Swap.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Our financial instruments that are measured at fair value on a recurring basis as of November 30, 2024 and February 29, 2024 are as follows (dollars in thousands):

|  |  | Fair Value Measurements Using |  |  |  | Fair Value Measurements Using
| Carrying Value |  |  |  |  |  |  |  | Carrying Value |  |  |  |  |  |
| November 30, 2024 |  | Level 1 |  | Level 2 |  | Level 3 |  | February 29, 2024 |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swap Agreement(1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 3,410 |  |  | $ | — |  |  | $ | 3,410 |  |  | $ | — |
Total Assets | $ | — |  |  |  |  |  |  |  |  | $ | 3,410 |  |  |  |  |  |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swap Agreement(1) | 195 |  |  | — |  |  | 195 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total Liabilities | $ | 195 |  |  |  |  |  |  |  |  | $ | — |  |  |  |  |  |  |
(1) The fair value of the Company's interest rate swap agreement was an asset at February 29, 2024 and a liability at November 30, 2024.

Non-recurring Fair Value Measurements
Investment in Joint Venture
The fair value of our investment in the unconsolidated AVAIL JV was determined using the income approach at the date on which we entered into the joint venture. 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 non-recurring fair value measurements.
We assess our investment in the unconsolidated AVAIL JV 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, the investment is written down to its fair value.
Long-Term Debt
The fair values of our long-term debt instruments are estimated based on market values for debt issued with similar characteristics or rates currently available for debt with similar terms. These valuations are Level 2 non-recurring fair value measurements.
The principal amount of our outstanding debt was $930.3 million and $1,010.3 million at November 30, 2024 and February 29, 2024, respectively. The estimated fair value of our outstanding debt was $934.9 million and $1,010.3 million at November 30, 2024 and February 29, 2024, excluding unamortized debt issuance costs. The estimated fair values of our outstanding debt were determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates and credit spreads.
11. Leases
We are a lessee under various leases for facilities and equipment. As of November 30, 2024, we were the lessee for 152 operating leases and 58 finance leases with terms of 12 months or more. These leases are reflected in "Right-of-use assets," "Lease liability - short-term" and "Lease liability - long-term" in our consolidated balance sheets.
Our leases are primarily for (i) operating facilities, (ii) vehicles and equipment used in operations, (iii) facilities used for back-office functions, (iv) equipment used for back-office functions, and (v) temporary storage. The majority of our vehicle and equipment leases 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 we recognize lease expense for these leases on a straight-line basis over the lease term. We have a significant number of short-term leases, including month-to-month agreements. Our short-term lease agreements include expenses incurred hourly, daily, monthly and
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for other durations of time of one year or less. Our future lease commitments as of November 30, 2024 do not reflect all of our short-term lease commitments.
The following table outlines the classification of right-of-use ("ROU") asset and lease liabilities in the consolidated balance sheets as of November 30, 2024 and February 29, 2024 (in thousands):

| Balance Sheet Classification |  | As of
|  | November 30, 2024 |  | February 29, 2024
Assets |  |  |  |  |
Operating right-of-use assets | Right-of-use assets |  | $ | 20,924 |  |  | $ | 19,808 |
Finance right-of-use assets | Right-of-use assets |  | 4,964 |  |  | 3,931 |
Liabilities |  |  |  |  |
Operating lease liabilities ― short-term | Lease liability - short-term |  | $ | 6,377 |  |  | $ | 5,893 |
Operating lease liabilities ― long-term | Lease liability - long-term |  | 15,202 |  |  | 14,606 |
Finance lease liabilities ― short-term | Lease liability - short-term |  | 1,057 |  |  | 766 |
Finance lease liabilities ― long-term | Lease liability - long-term |  | 4,053 |  |  | 3,221 |

Supplemental information related to our leases was as follows (in thousands, except years and percentages):

| Three Months Ended November 30, |  | Nine Months Ended November 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Operating cash flows from operating leases included in lease liabilities | $ | 1,867 |  |  | $ | 1,811 |  |  | $ | 5,426 |  |  | $ | 5,471 |
Lease liabilities obtained from new ROU assets - operating | 5,345 |  |  | 60 |  |  | 5,979 |  |  | 1,942 |
Decrease in ROU assets related to lease terminations | — |  |  | — |  |  | — |  |  | (1,294) |
Operating cash flows from finance leases included in lease liabilities | 86 |  |  | 24 |  |  | 237 |  |  | 61 |
Financing cash flows from finance leases included in lease liabilities | 257 |  |  | 106 |  |  | 689 |  |  | 269 |
Lease liabilities obtained from new ROU assets - finance leases | 394 |  |  | 173 |  |  | 1,813 |  |  | 773 |

| As of
| November 30, 2024 |  | February 29, 2024
Weighted-average remaining lease term - operating leases | 3.96 years |  | 4.12 years
Weighted-average discount rate - operating leases | 4.98 | % |  | 4.49 | %
Weighted-average remaining lease term - finance leases | 4.64 years |  | 5.21 years
Weighted-average discount rate - finance leases | 7.04 | % |  | 6.70 | %

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

| Three Months Ended November 30, |  | Nine Months Ended November 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Operating lease expense: |  |  |  |  |  |  |
Cost of sales | $ | 3,365 |  |  | $ | 2,882 |  |  | $ | 9,395 |  |  | $ | 8,942 |
Selling, general and administrative | 481 |  |  | 495 |  |  | 1,458 |  |  | 1,500 |
Total operating lease expense | 3,846 |  |  | 3,377 |  |  | $ | 10,853 |  |  | $ | 10,442 |
Financing lease expense: |  |  |  |  |  |  |
Cost of sales | 288 |  |  | 115 |  |  | 779 |  |  | 292 |
Interest expense | 86 |  |  | 24 |  |  | 237 |  |  | 61 |
Total financing lease expense | 374 |  |  | 139 |  |  | 1,016 |  |  | 353 |
Total lease expense | $ | 4,220 |  |  | $ | 3,516 |  |  | $ | 11,869 |  |  | $ | 10,795 |

As of November 30, 2024, maturities of our lease liabilities were as follows (in thousands):

Fiscal year: | Operating Leases |  | Finance Leases |  | Total
2025 | $ | 1,897 |  |  | $ | 353 |  |  | $ | 2,250 |
2026 | 7,126 |  |  | 1,355 |  |  | 8,481 |
2027 | 5,813 |  |  | 1,316 |  |  | 7,129 |
2028 | 3,752 |  |  | 1,229 |  |  | 4,981 |
2029 | 3,117 |  |  | 1,009 |  |  | 4,126 |
2030 | 1,203 |  |  | 556 |  |  | 1,759 |
Thereafter | 903 |  |  | 170 |  |  | 1,073 |
Total lease payments | $ | 23,811 |  |  | $ | 5,988 |  |  | $ | 29,799 |
Less imputed interest | (2,232) |  |  | (878) |  |  | (3,110) |
Total | $ | 21,579 |  |  | $ | 5,110 |  |  | $ | 26,689 |

We sublease 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 as a reduction to "Cost of sales." Sublease income for the three and nine months ended November 30, 2024 and 2023 was as follows (in thousands):

| Three Months Ended November 30, |  | Nine Months Ended November 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Sublease income | $ | 266 |  |  | $ | 271 |  |  | $ | 789 |  |  | $ | 758 |

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12. Income Taxes
The provision for income taxes reflects an effective tax rate of 26.5% for the three months ended November 30, 2024, compared to 24.6% for the three months ended November 30, 2023. The increase in the effective tax rate is primarily attributable to higher non-deductible items such as compensation limited by IRC Sec. 162(m) and higher state income tax expense, net of federal benefit. The increase is also attributable to lower R&D tax credits related to our 40% investment in the AVAIL JV.
The provision for income taxes reflects an effective tax rate of 24.8% for the nine months ended November 30, 2024 compared to 22.6% for the prior year comparable period. The increase in the effective tax rate is primarily attributable to favorable adjustments for the prior year nine-month period related to uncertain tax positions, partially offset by higher discrete items driven by tax deductions for stock compensation in fiscal year 2025. The increase is also attributable to the increase in state tax expense, net of federal benefit.
13. Mezzanine Equity
Series A Convertible Preferred Stock
On May 9, 2024, we fully redeemed our 240,000 shares of 6.0% Series A Convertible Preferred Stock ("Series A Preferred Stock") for $308.9 million. The payment was calculated as the face value of the Series A Preferred Stock of $240.0 million, multiplied by the Return Factor (as defined below) of 1.4, less dividends paid to date of $27.1 million. The redemption premium of $75.2 million, which was calculated as the difference between the redemption amount and the book value of $233.7 million, was recorded as a deemed dividend, and reduces net income available to common shareholders. The Series A Preferred Stock was redeemed using proceeds from the April 2024 Secondary Public Offering. See Note 14.
On August 5, 2022, we exchanged our $240.0 million 6.00% convertible subordinated notes which were due June 30, 2030, for 240,000 shares of 6.0% Series A Preferred Stock, following the receipt of shareholder approval for the issuance of Series A Preferred Stock. The Series A Preferred Stock had a $1.00 par value per share, and ranked senior to the common stock of the Company, including with respect to both income and capital, but junior to our indebtedness. The Series A Preferred Stock is classified as "Mezzanine equity" in the consolidated balance sheets and, as noted above, was fully redeemed on May 9, 2024.
Liquidation Preference
If we undergo a change of control, bankruptcy, insolvency, liquidation or de-listing of AZZ’s common stock (a "Fundamental Change Event"), holders of Series A Preferred Stock may have elected to (i) receive the as-converted value of AZZ’s common stock at the then-current Conversion Price, (ii) require us to redeem the Series A Preferred Stock in cash for the Redemption Amount (as defined below) or (iii) retain their shares of Series A Preferred Stock if the Fundamental Change Event is a non-cash change of control.
The Series A Preferred Stock had a liquidation preference, as defined by U.S. GAAP, equal to the Redemption Amount. Under U.S. GAAP, the liquidation preference is defined as the amount that would be required to be paid to the shareholders upon liquidation or dissolution of the Company. As of February 29, 2024, the holders of the shares of Series A Preferred Stock were entitled to a liquidation preference of approximately $312.5 million in the event of any liquidation, dissolution or winding up of the Company as of such year end.
The Certificate of Designation for the Series A Preferred Stock defines "liquidation preference" as $1,000 per share plus any unpaid dividends, which we refer to herein as the "Series A Base Amount."
Dividends
The Series A Preferred Stock accumulated a 6.0% dividend per annum, or $15.00 per share per quarter. Dividends were payable in cash or in kind, by accreting and increasing the Series A Base Amount (“PIK Dividends”). Dividends were payable on the sum of (i) the aggregate liquidation preference amount of $240.0 million plus (ii) any PIK Dividends. Dividends were accrued daily and paid quarterly in arrears, on March 31, June 30, September 30 and December 31 of each year. Following the calendar quarter ending June 30, 2027, we were not able to elect PIK Dividends and dividends on the Series A Preferred Stock were required to be paid in cash. All dividends were paid in cash through November 30, 2024. The dividend would have increased annually by one percentage point, beginning with the dividend payable for the calendar quarter ending
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September 30, 2028. Dividends declared and paid for the nine months ended November 30, 2024 and November 30, 2023 were $3.6 million and $10.8 million, respectively.
Conversion Features
Subject to a minimum conversion threshold of 1,000 shares of Series A Preferred Stock per conversion and customary anti-dilution and dividend adjustments, the Series A Preferred Stock was convertible by the holder at any time into shares of AZZ's common stock for $58.30 per common share (the “Conversion Price”). In addition, after May 13, 2024, we were entitled to provide holders of Series A Preferred Stock with notice of a mandatory conversion of a portion of the Series A Preferred Stock (which may not have exceeded 25% of the amount of Series A Preferred Stock issued in any single quarter) at the Conversion Price if the closing price of our common stock exceeded 185% of the Conversion Price for 20 consecutive trading days prior to the date of such notice and so long as the shelf registration statement filed November 4, 2022 to cover resales of the converted common stock remained effective and available for use.
Participation Rights
Holders of Series A Preferred Stock participated equally and ratably with the holders of AZZ's common stock in any dividends paid on AZZ’s common stock in excess of our current $0.17 quarterly dividend when, as and if declared by the Board as if such shares of Series A Preferred Stock had been converted to shares of common stock immediately prior to the record date for the payment of such dividend.
Redemption Features
AZZ had the right to redeem the Series A Preferred Stock at a price equal to the greater of (i) the Series A Base Amount plus accrued but unpaid dividends; (ii) the initial Series A Base Amount (excluding any prior PIK dividends) multiplied by the Return Factor less all dividends paid through the redemption date; or (iii) the amount the holder of such share of convertible preferred stock would have received had such holder, immediately prior to such redemption date, converted such shares of convertible preferred stock into common shares (such greater amount, the "Redemption Amount").
The redemption price under option (ii) contained a "Return Factor," which was equal to 1.4 until May 13, 2024 and, (a) in each of the three years thereafter, would have increased by 0.15, (b) would have increased by an additional 0.15 after May 13, 2024 (the second anniversary of the issuance date of the Series A Preferred Stock) if (i) our ratio of net debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) (as defined in the 2022 Credit Agreement) on the second anniversary of the issuance date of the Series A Preferred Stock was greater than 3.5-to-1 and (ii) prior to May 13, 2024,we had not consummated dispositions of assets that, in the aggregate, resulted in proceeds in excess of $200.0 million and (c) would have increased by an additional 0.20 on May 13, 2028, (the sixth anniversary of the issuance date of the Series A Preferred Stock) and each anniversary thereafter.
The redemption price under option (iii) was subject to provisions of the Certificate of Designation that limited our right to redeem to the period following the two year anniversary of the initial issuance, limited the quarterly conversion to up to 25% of the number of shares of convertible preferred stock outstanding, and required our market price per share of common stock to exceed 185% of the conversion price.
As of February 29, 2024, the Redemption Amount for the Series A Preferred stock was $312.5 million.
Voting Rights
Holders of Series A Preferred Stock were entitled to a number of votes on all matters presented to holders of voting capital stock of AZZ equal to the number of shares of the AZZ’s common stock then issuable upon conversion of such holders’ Series A Preferred Stock. The vote or consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock would have been required for certain actions, including:
a.issuances by AZZ of equity securities that are senior to, or equal in priority with, the Series A Preferred Stock, including any additional shares of Series A Preferred Stock;
b.incurrence of any additional indebtedness (including refinancings of existing indebtedness) by the Company unless our ratio of net debt to EBITDA (as defined in the 2022 Credit Agreement) does not exceed 5.5x;
c.refinancings of the 2022 Credit Agreement, subject to certain exceptions;
d.dividends or distributions upon, or redemptions of, shares of AZZ’s common stock unless our ratio of net debt to EBITDA (as defined in the 2022 Credit Agreement) does not exceed 5.5x;
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e.any acquisition, investment, sale, disposition or similar transaction (whether of an entity, business, equity interests or assets) that has total consideration (including assumption of liabilities) of at least $250.0 million (or, when our market capitalization is $2.0 billion or greater, has total consideration (including assumption of liabilities) of at least $500.0 million);
f.amendments to our organizational documents that would have an adverse effect on the holders of Series A Preferred Stock;
g.any affiliate transaction except those on arms’-length terms; and
h.any voluntary dissolution, liquidation, bankruptcy, winding up or deregistration or delisting of AZZ’s common stock.
The holders of Series A Preferred Stock also had customary information and preemptive rights, and the Series A Preferred Stock was subject to customary anti-dilution provisions. The Series A Preferred Stock, and all shares of common stock issuable upon conversion of the Series A Preferred Stock, had customary demand and piggyback registration rights pursuant to the registration rights agreement, which was entered into on May 13, 2022 with BTO Pegasus Holdings DE L.P., a Delaware limited partnership (together with its assignees, "Blackstone"). Holders of Series A Preferred Stock were prohibited from transferring shares of Series A Preferred Stock to any competitor of AZZ or activist investors, subject to certain exceptions.
14. Equity
April 2024 Secondary Public Offering
On April 30, 2024, we completed a secondary public offering in which we sold 4.6 million shares of our common stock at $70.00 per share (the "April 2024 Secondary Public Offering"). We received gross proceeds of $322.0 million, and paid offering expenses of $13.3 million, for net proceeds of $308.7 million. The proceeds from the April 2024 Offering were used to redeem the Series A Preferred Stock. See Note 13.
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (loss) ("AOCI"), after tax, for the three and nine months ended November 30, 2024 and 2023 consisted of the following (in thousands):

|  | Three Months Ended November 30, 2024
|  | Foreign Currency Translation Gain (Loss) |  | Foreign Currency Translation Gain (Loss) for Unconsolidated Subsidiary, Net of Tax |  | Net Actuarial Gain (Loss), Net of Tax |  | Interest Rate Swap, Net of Tax |  | Interest Rate Swap, Net of Tax for Unconsolidated Subsidiary |  | Total
Balance as of beginning of period |  | $ | (7,189) |  |  | $ | 887 |  |  | $ | (184) |  |  | $ | (523) |  |  | $ | 114 |  |  | $ | (6,895) |
Other comprehensive income before reclassification |  | (1,943) |  |  | (730) |  |  | — |  |  | 1,037 |  |  | (188) |  |  | (1,824) |
Amounts reclassified from AOCI |  | — |  |  | — |  |  | — |  |  | (663) |  |  | — |  |  | (663) |
Net change in AOCI |  | (1,943) |  |  | (730) |  |  | — |  |  | 374 |  |  | (188) |  |  | (2,487) |
Balance as of end of period |  | $ | (9,132) |  |  | $ | 157 |  |  | $ | (184) |  |  | $ | (149) |  |  | $ | (74) |  |  | $ | (9,382) |

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

|  | Nine Months Ended November 30, 2024
|  | Foreign Currency Translation Gain (Loss) |  | Foreign Currency Translation Gain (Loss) for Unconsolidated Subsidiary, Net of Tax |  | Net Actuarial Gain (Loss), Net of Tax |  | Interest Rate Swap, Net of Tax |  | Interest Rate Swap, Net of Tax for Unconsolidated Subsidiary |  | Total
Balance as of beginning of period |  | $ | (7,628) |  |  | $ | 1,418 |  |  | $ | (184) |  |  | $ | 2,533 |  |  | $ | (33) |  |  | $ | (3,894) |
Other comprehensive income before reclassification |  | (1,504) |  |  | (1,261) |  |  | — |  |  | 194 |  |  | (41) |  |  | (2,612) |
Amounts reclassified from AOCI |  | — |  |  | — |  |  | — |  |  | (2,876) |  |  | — |  |  | (2,876) |
Net change in AOCI |  | (1,504) |  |  | (1,261) |  |  | — |  |  | (2,682) |  |  | (41) |  |  | (5,488) |
Balance as of end of period |  | $ | (9,132) |  |  | $ | 157 |  |  | $ | (184) |  |  | $ | (149) |  |  | $ | (74) |  |  | $ | (9,382) |

|  | Three Months Ended November 30, 2023
|  | Foreign Currency Translation Gain (Loss) |  | Foreign Currency Translation Gain (Loss) for Unconsolidated Subsidiary, Net of Tax |  | Net Actuarial Gain (Loss), Net of Tax |  | Interest Rate Swap, Net of Tax |  | Interest Rate Swap, Net of Tax for Unconsolidated Subsidiary |  | Total
Balance as of beginning of period |  | $ | (7,534) |  |  | $ | (1,773) |  |  | $ | 119 |  |  | $ | 3,261 |  |  | $ | 113 |  |  | $ | (5,814) |
Other comprehensive income before reclassification |  | (59) |  |  | 3,088 |  |  | — |  |  | (22) |  |  | (93) |  |  | 2,914 |
Amounts reclassified from AOCI |  | — |  |  | — |  |  | — |  |  | (1,057) |  |  | — |  |  | (1,057) |
Net change in AOCI |  | (59) |  |  | 3,088 |  |  | — |  |  | (1,079) |  |  | (93) |  |  | 1,857 |
Balance as of end of period |  | $ | (7,593) |  |  | $ | 1,315 |  |  | $ | 119 |  |  | $ | 2,182 |  |  | $ | 20 |  |  | $ | (3,957) |

|  | Nine Months Ended November 30, 2023
|  | Foreign Currency Translation Gain (Loss) |  | Foreign Currency Translation Gain (Loss) for Unconsolidated Subsidiary, Net of Tax |  | Net Actuarial Gain (Loss), Net of Tax |  | Interest Rate Swap, Net of Tax |  | Interest Rate Swap, Net of Tax for Unconsolidated Subsidiary |  | Total
Balance as of beginning of period |  | $ | (7,571) |  |  | $ | — |  |  | $ | 119 |  |  | $ | 2,879 |  |  | $ | — |  |  | $ | (4,573) |
Other comprehensive income before reclassification |  | (22) |  |  | 1,315 |  |  | — |  |  | 1,847 |  |  | 20 |  |  | 3,160 |
Amounts reclassified from AOCI |  | — |  |  | — |  |  | — |  |  | (2,544) |  |  | — |  |  | (2,544) |
Net change in AOCI |  | (22) |  |  | 1,315 |  |  | — |  |  | (697) |  |  | 20 |  |  | 616 |
Balance as of end of period |  | $ | (7,593) |  |  | $ | 1,315 |  |  | $ | 119 |  |  | $ | 2,182 |  |  | $ | 20 |  |  | $ | (3,957) |

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Defined Benefit Pension Plan
Pension and Employee Benefit Obligations
In our Precoat Metals segment, certain current or past employees participate in a defined benefit pension plan (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 new hires of AZZ Precoat Metals are not eligible to participate in the Plan. As of November 30, 2024, the Plan was underfunded, and we have a net pension obligation of $25.1 million, which is included in "Other long-term liabilities" in the consolidated balance sheets and represents the underfunded portion of the Plan.
The components of net benefit cost other than the employer service cost are included in "Selling, general and administrative" expense. The following table outlines the net benefit cost and its components (in thousands):

| Three Months Ended November 30, |  | Nine Months Ended November 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Interest cost | $ | 1,711 |  |  | $ | 1,759 |  |  | $ | 5,124 |  |  | $ | 5,276 |
Expected return on plan assets | (1,491) |  |  | (1,488) |  |  | (4,465) |  |  | (4,463) |
Net benefit cost | $ | 220 |  |  | $ | 271 |  |  | $ | 659 |  |  | $ | 813 |

We paid employer contributions of $6.7 million into the Plan during the nine months ended November 30, 2024. We expect to pay $1.3 million of contributions into the Plan during the remainder of fiscal 2025.
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16. Commitments and Contingencies
Legal
The Company and its subsidiaries are named defendants and plaintiffs in various routine lawsuits incidental to our business. These proceedings include labor and employment claims, various commercial disputes, worker’s compensation and environmental matters, all arising in the normal course of business. As discovery progresses on all outstanding legal matters, the Company continuously evaluates opportunities to either mediate the cases or settle the disputes for nuisance value or the cost of litigation as a way to resolve the disputes prior to trial. As the pending cases progress through additional discovery and potential mediation, our assessment of the likelihood of a favorable or an unfavorable outcome on the pending lawsuits may change. Although the actual outcome of these lawsuits or other proceedings cannot be predicted with any 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 claims or defenses to all of its legal 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.
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, we filed a counter suit against STI for amounts due to AZZ for work performed. 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 $5.5 million in damages for breach of contract and breach of express warranty. A final judgment amount was entered by the Court on February 14, 2024. We filed our Notice of Appeal on May 14, 2024, and purchased our supersedeas bond on May 23, 2024. We are still waiting on the trial transcript from the court reporter and the appellate process is tolled until the transcript is delivered to the parties. We believe we have strong grounds for an appeal, and will pursue all available appellate options. The appeal process is expected to take two years. As of November 30, 2024, we have recorded a legal accrual of $5.5 million, which is included in "Other accrued liabilities" on our consolidated balance sheets, reflecting our best estimate of the probable loss. Our estimate of the probable loss may change throughout the appellate process. Our supersedeas bond was purchased to cover the final judgment amount throughout the duration of the appellate process.
A litigation matter between AZZ, as Plaintiff, 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 in January 2025. As of November 30, 2024, we have a receivable due from the Defendant, net of allowance, of $5.2 million, which is included in "Trade accounts receivable, net of allowance for credit losses" in the consolidated balance sheets. This receivable balance represents our best estimate of the amount we expect to collect, which may change depending upon the outcome of the trial.
Prior to AZZ's acquisition of Precoat Metals on May 13, 2022, Precoat Metals sold its Armorel Arkansas facility to Nucor Coatings Corporation ("Nucor") via a purchase agreement dated October 27, 2020 ("2020 Agreement"). On December 14, 2022, Nucor subsequently filed a lawsuit against Precoat Metals for indemnification for breach of environmental representations and warranties made in the 2020 Agreement. In the lawsuit, Nucor asserted that it has sustained certain damages resulting from Precoat Metal’s breach of its indemnification obligations that were set forth in the 2020 Agreement. The parties attended a mediation on March 18, 2024, and although the Company believed Nucor’s case was deficient and it had very strong defenses to the allegations asserted by Nucor, management determined that it was still in the best interest of the Company to settle all matters for the estimated cost of defense in an effort to retain and fortify its current commercial relationships with Nucor, who is both a customer and supplier to the Company. The parties mutually agreed to resolve all disputed matters for $5.25 million. The $5.25 million settlement amount was included in "Other accrued liabilities" in the consolidated balance sheet as of February 29, 2024. The settlement amount was paid by the Company to Nucor on September 9, 2024.
On July 29, 2024, Gainesville Associates, LLC ("Gainesville Associates") filed a complaint (the "Complaint") in the Circuit Court of Prince William County, Virginia against AZZ, Atlantic Research, LLC ("ARC"), Precoat Metals Corporation, and Chromalloy Corporation (collectively "Defendants"), asserting claims for breach of contract against ARC and unjust enrichment against all Defendants. The Complaint arose out of a lease, dated January 1, 1976, between Gainesville Associates as landlord and ARC as tenant (as subsequently amended in 1982, 2012, 2013 and 2017, the "Lease") for property in Gainesville, Virginia (the "Property"). ARC ceased using the property in 2005 after which point ARC remained in the Lease to complete its obligations on the property pursuant to a consent decree entered into between the U.S. Environmental Protection Agency ("EPA") and ARC in 1992. ARC satisfied its obligations under the consent decree in 2018 (other than ongoing well water monitoring and testing) and terminated the Lease in 2019. In its Complaint, Gainesville Associates alleged that ARC breached certain provisions of the Lease. On September 3, 2024, Defendants removed the action to the United States District Court of the Eastern District of Virginia. On September 24, 2024, Defendants filed a motion to dismiss the Complaint. On
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AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 30, 2024, the claim was denied and the court ordered the parties to mediate. The parties attended the court ordered mediation on December 3, 2024, and although the Company believed the Gainesville Associates' case was deficient and it had very strong defenses to the allegations asserted by Gainesville Associates, management determined that it was still in the best financial interest of the Company to settle all matters for the estimated cost of defense. The parties mutually agreed to resolve all disputed matters for $6.0 million, of which our portion was $1.9 million. We have recognized $0.5 million of legal expenses and have accrued an additional $3.0 million related to this matter. The accrual consists of estimated legal expenses of $1.1 million, as well as the settlement amount of $1.9 million, and is included in "Other accrued liabilities" in the consolidated balance sheet as of November 30, 2024. The settlement payment is expected to be made during the fourth quarter of fiscal year 2025.
Environmental
As of November 30, 2024, t he reserve balance for our environmental liabilities was $19.6 million, of which $2.2 million is classified as current. Environmental remediation liabilities include costs directly associated with site investigation and site remediation, such as materials, external contractor costs, legal and consulting expenses and incremental internal costs directly related to ongoing remediation plans. 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 these estimates and they 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 potentially 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 calendar year 2025 (the Company's fiscal year 2026). The new greenfield 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 $124.0 million in capital payments over the life of the project, of which $60.8 million was paid prior to fiscal 2025 and $46.8 million was paid during the nine months ended November 30, 2024. The remaining balance of $16.4 million is on schedule to occur by the first quarter of fiscal 2026, of which we have capital commitments of $9.7 million.
Commodity pricing
As of November 30, 2024, we had non-cancelable forward contracts to purchase approximately $4.7 million of zinc at various volumes and delivery prices for December 2024. We also had non-cancelable forward contracts to purchase approximately $8.6 million of natural gas at various volumes and commodity plus delivery prices between December 2024 and November 2025. All such contracts expire by the third quarter of fiscal 2026. We had no other contracted commitments for any other commodities including steel, aluminum, copper, zinc, nickel-based alloys, natural gas, except for those entered into under the normal course of business.
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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," "should," "expects," "plans," "will," "might," "would," "projects," "currently," "intends," "outlook," "forecasts," "targets," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. Such forward-looking statements are based on currently available competitive, financial, and economic data and management’s views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. Forward-looking statements speak only as of the date they are made and are subject to risks that could cause them to differ materially from actual results. Certain factors could affect the outcome of the matters described herein. This Quarterly Report may contain forward-looking statements that involve risks and uncertainties including, but not limited to, changes in customer demand for our manufactured solutions, including demand by the construction markets, the industrial markets, and the metal coatings markets. We could also experience additional increases in labor costs, components and raw materials including zinc and natural gas, which are used in our hot-dip galvanizing process, paint used in our c oil coating process; supply-chain vendor delays; customer requested delays of our manufactured solutions; del ays in additional acquisition opportunities; an increase in our debt leverage and/or interest rates on our debt, of which a significant portion is tied to variable interest rates; availability of experienced management and employees to implement AZZ’s growth strategy; a downturn in market conditions in any industry relating to the manufactured solutions that we provide; economic volatility, including a prolonged economic downturn or macroeconomic conditions such as inflation or changes in the political stability in the United States and other foreign markets in which we operate; 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 29, 2024 and other filings with the SEC, available for viewing on AZZ's website at www.azz.com and on the SEC's website at www.sec.gov.
You are urged to consider these factors carefully when evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. These statements are based on information as of the date hereof and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
The following discussion should be read in conjunction with "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024, and with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
Business Operations Update
Our results for the nine months ended November 30, 2024 (the "current nine-month period") were favorably impacted by the growth in demand for our manufactured solutions in the construction and utilities industries.
The demand for our manufactured solutions was the primary contributor to net income of $108.6 million for the nine months ended November 30, 2024. Our operating results for the three and nine months ended November 30, 2024, including operating results by segment, are described in the summary on the following page, and detailed descriptions can be found below under "Results of Operations."
Our operations generated $185.6 million of cash for the current nine-month period. The components of our liquidity and descriptions of our cash flows, capital investments, and other matters impacting our liquidity and capital resources can be found below under "Liquidity and Capital Resources."
Outlook
While it is difficult to predict future North American economic activity and its impact on the demand for our galvanizing and coil coating solutions, as well the impact that political or regulatory developments may have on us, several factors are outlined below that may impact our results of operations during the fourth quarter of fiscal 2025.
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•Sales prices in our AZZ Metal Coatings segment are expected to remain consistent with current levels. Fluctuations in product mix, along with competitive market pressures, may impact selling price.
•Sales prices in our AZZ Precoat Metals segment are expected to remain consistent with current levels, although fluctuations in mix may impact the average selling price.
•Demand in our AZZ Metal Coatings and AZZ Precoat Metals segments is expected to follow our typical seasonal patterns.
•Customer inventories for our AZZ Metal Coatings segment remain consistent, which should support the continued demand for our metal coatings solutions.
•Customer inventories for our AZZ Precoat Metals segment remain at normal seasonal levels, which should support the continued demand for our coil coating solutions.
RESULTS OF OPERATIONS

Overview
We are a provider of hot-dip galvanizing and coil coating solutions to a broad range of end-markets, predominantly in North America. We operate three distinct business segments, the AZZ Metal Coatings segment, the AZZ Precoat Metals segment, and the AZZ Infrastructure Solutions segment. Our discussion and analysis of financial condition and results of operations is divided by each of our segments, along with corporate costs and other costs not specifically identifiable to a segment. For a reconciliation of segment operating income to consolidated operating income, see "Item I. Financial Statements—Note 6". 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.
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QUARTER ENDED NOVEMBER 30, 2024 COMPARED TO THE QUARTER ENDED NOVEMBER 30, 2023

Segment Sales and Operating Income
The following tables contain operating segment data by segment, for the Company's corporate operations and on a consolidated basis (in thousands):

| Three Months Ended November 30, 2024
| Metal Coatings |  | Precoat Metals |  | Infrastructure Solutions(1) |  | Corporate(2) |  | Total
Sales | $ | 168,599 |  |  | $ | 235,055 |  |  | $ | — |  |  | $ | — |  |  | $ | 403,654 |
Cost of sales | 116,542 |  |  | 189,334 |  |  | — |  |  | — |  |  | 305,876 |
Gross margin | 52,057 |  |  | 45,721 |  |  | — |  |  | — |  |  | 97,778 |
Selling, general and administrative | 5,684 |  |  | 8,641 |  |  | 29 |  |  | 24,889 |  |  | 39,243 |
Operating income (loss) | 46,373 |  |  | 37,080 |  |  | (29) |  |  | (24,889) |  |  | 58,535 |
Interest expense | — |  |  | — |  |  | — |  |  | (19,223) |  |  | (19,223) |
Equity in earnings of unconsolidated subsidiaries | — |  |  | — |  |  | 7,168 |  |  | — |  |  | 7,168 |
Other income (expense) | 116 |  |  | — |  |  | — |  |  | (879) |  |  | (763) |
Income (loss) before income tax | $ | 46,489 |  |  | $ | 37,080 |  |  | $ | 7,139 |  |  | (44,991) |  |  | 45,717 |
Income tax expense |  |  |  |  |  |  | 12,114 |  |  | 12,114 |
Net income (loss) |  |  |  |  |  |  | $ | (57,105) |  |  | $ | 33,603 |

See notes below.

| Three Months Ended November 30, 2023
| Metal Coatings |  | Precoat Metals |  | Infrastructure Solutions(1) |  | Corporate(2) |  | 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) | 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) before income tax | $ | 37,813 |  |  | $ | 32,752 |  |  | $ | 8,452 |  |  | (43,347) |  |  | 35,670 |
Income tax expense |  |  |  |  |  |  | 8,780 |  |  | 8,780 |
Net income (loss) |  |  |  |  |  |  | $ | (52,127) |  |  | $ | 26,890 |

(1) Infrastructure Solutions segment includes our equity in earnings from our investment in the AVAIL JV as well as other expenses related to
receivables and liabilities that were retained following the sale of the AIS business.
(2) Interest expense and Income tax expense are included in the Corporate segment as these items are not allocated to the segments.
Sales
For the three months ended November 30, 2024 (the "current quarter"), consolidated sales increased $22.0 million, or 5.8%, compared to the three months ended November 30, 2023 (the "prior year quarter").
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Sales for the AZZ Metal Coatings segment increased $5.4 million, or 3.3%, for the current quarter, compared to the prior year quarter. The increase was primarily due to $9.9 million resulting from a higher volume of steel processed, partially offset by a decrease in selling price of $2.5 million, due to product mix. Other sales decreased $2.0 million.
Sales for the AZZ Precoat Metals segment increased $16.6 million, or 7.6% for the current quarter. The increase is due to a higher volume of coil coated in the current quarter, compared to the prior year quarter, and an increase in the average price due to product mix.
Operating Income
For the current quarter, consolidated operating income was $58.5 million, an increase of $5.7 million, or 10.8%, compared to the prior year quarter.
Operating income for the AZZ Metal Coatings segment increased $8.5 million, or 22.5%, for the current quarter, compared to the prior year quarter. The increase was due to increased sales as described above, partially offset by an increase in cost of sales. The increase in cost of sales of $0.6 million was primarily due to a $3.1 million increase in overhead costs and a $0.8 million increase in labor costs, partially offset by a $3.4 million decrease in zinc cost. Selling, general and administrative expense decreased $3.7 million, due to a legal reserve in the prior year, partially offset by an increase in compensation costs.
Operating income for the AZZ Precoat Metals segment increased $4.3 million, or 13.2% for the current quarter. The increase is primarily due to increased sales as described above, offset by higher cost of sales. Cost of sales increased $11.8 million, primarily due to variable costs related to the increased volume of coil coated and an increase in fixed costs. Selling, general and administrative expense increased $0.5 million.
Corporate Expenses
Corporate selling, general and administrative expenses increased $7.4 million, or 42.4%, for the current quarter, compared to the prior year quarter. The increase was primarily due to: an increase in salaries and wages, due to retirement and other severance expense for certain executive management employees; increased incentive expense, due to improved performance of the Company; an increase in stock-based compensation related to the Company's employee stock purchase plan, due to the increase in AZZ's common stock price; a legal settlement and other legal expenses related to a non-operating entity of $3.5 million; and transition services agreement fees associated with the AVAIL JV, which were received in the prior year quarter, with no comparable receipt in the current quarter.
Interest Expense
Interest expense for the current quarter decreased $6.6 million, to $19.2 million, compared to $25.9 million for the prior year quarter. The decrease in interest expense is primarily attributable to a decrease in the weighted average debt outstanding of $111.2 million and a decrease in the weighted average interest rate of 1.3% in the current quarter compared to the prior year quarter, coupled with higher capitalized interest of $1.1 million associated with the construction of the new plant in Washington, Missouri.
Equity in Earnings of Unconsolidated Entities
Equity in earnings of unconsolidated subsidiaries for the current quarter decreased $1.6 million, to $7.2 million, compared to $8.7 million in the prior year quarter. The decrease is due to lower earnings from the AVAIL JV in the current quarter compared to the prior year quarter.
See Note 7 of our consolidated financial statements for more information about the AVAIL JV.
Income Taxes
The provision for income taxes reflects an effective tax rate of 26.5% for the current quarter, compared to 24.6% for the prior year quarter. The increase in the effective tax rate is primarily attributable to higher non-deductible items such as compensation limited by IRC Sec. 162(m) and higher state income tax expense, net of federal benefit. The increase is also attributable to lower research and development tax credits related to our 40% investment in the AVAIL JV.
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NINE MONTHS ENDED NOVEMBER 30, 2024 COMPARED TO THE NINE MONTHS ENDED NOVEMBER 30, 2023

Segment Sales and Operating Income
The following tables contain operating segment data by segment, for the Company's corporate operations and on a consolidated basis (in thousands):

| Nine Months Ended November 30, 2024
| Metal Coatings |  | Precoat Metals |  | Infrastructure Solutions(1) |  | Corporate(2) |  | Total
Sales | $ | 516,750 |  |  | $ | 709,119 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,225,869 |
Cost of sales | 357,471 |  |  | 564,436 |  |  | — |  |  | — |  |  | 921,907 |
Gross margin | 159,279 |  |  | 144,683 |  |  | — |  |  | — |  |  | 303,962 |
Selling, general and administrative | 17,286 |  |  | 24,980 |  |  | 67 |  |  | 65,699 |  |  | 108,032 |
Operating income (loss) | 141,993 |  |  | 119,703 |  |  | (67) |  |  | (65,699) |  |  | 195,930 |
Interest expense | — |  |  | — |  |  | — |  |  | (63,906) |  |  | (63,906) |
Equity in earnings of unconsolidated subsidiaries | — |  |  | — |  |  | 12,470 |  |  | — |  |  | 12,470 |
Other income (expense) | 165 |  |  | — |  |  | — |  |  | (307) |  |  | (142) |
Income (loss) before income tax | $ | 142,158 |  |  | $ | 119,703 |  |  | $ | 12,403 |  |  | (129,912) |  |  | 144,352 |
Income tax expense |  |  |  |  |  |  | 35,728 |  |  | 35,728 |
Net income (loss) |  |  |  |  |  |  | $ | (165,640) |  |  | $ | 108,624 |

See notes below.

| Nine Months Ended November 30, 2023
| Metal Coatings |  | Precoat Metals(4) |  | Infrastructure Solutions(1) |  | Corporate(2) |  | 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) | 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) before income tax | $ | 128,353 |  |  | $ | 109,449 |  |  | $ | 4,892 |  |  | (134,553) |  |  | 108,141 |
Income tax expense |  |  |  |  |  |  | 24,397 |  |  | 24,397 |
Net income (loss) |  |  |  |  |  |  | $ | (158,950) |  |  | $ | 83,744 |

(1) Infrastructure Solutions segment includes our equity in earnings from our investment in the AVAIL JV as well as other expenses related to
receivables and liabilities that were retained following the sale of the AIS business.
(2) Interest expense and Income tax expense are included in the Corporate segment as these items are not allocated to the segments.
Sales
For the current nine-month period, consolidated sales increased $54.8 million, or 4.7%, compared to the nine months ended November 30, 2023 (the "prior year nine-month period").
Sales for the AZZ Metal Coatings segment increased $14.9 million, or 3.0%, for the current nine-month period, compared to the prior year nine-month period. The increase in sales was primarily due to an increase of $23.0 million resulting
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from a higher volume of steel processed during the period, partially offset by a decrease of $4.4 million in selling price, due to product mix. Other sales decreased $3.7 million.
Sales for the AZZ Precoat Metals segment increased $39.9 million, or 6.0% for the current nine-month period, primarily due to a higher volume of coil coated, partially offset by a decrease in selling price due to product mix.
Operating Income
For the current nine-month period, consolidated operating income increased $16.6 million, or 9.3%, to $195.9 million, compared to the prior year nine-month period.
Operating income for the AZZ Metal Coatings segment increased $13.6 million, or 10.6% for the current nine-month period, compared to the prior year nine-month period. The increase was due to improved sales as described above, and lower selling, general and administrative expenses, partially offset by higher cost of sales. Cost of sales increased $4.2 million, prim arily due to higher labor and overhead costs of $13.8 million, partially offset by a decrease in zinc costs of $9.6 million. Selling, general and administrative expense decreased $2.9 million primarily due to a legal reserve in the prior year, partially offset by an increase in compensation costs.
Operating income for the AZZ Precoat Metals segment increased $10.3 million, or 9.4%. The increase is primarily due to the increase in sales as described above, offset by higher cost of sales. Cost of sales increased $29.0 million, prima rily due to variable costs related to the increased volume of coil coated.
Operating income for the AZZ Infrastructure Solutions segment increased $6.2 million, primarily due to a legal settlement of $5.75 million and legal expenses associated with the settlement in the prior year nine-month period.
Corporate Expenses
Corporate selling, general and administrative expenses increased $13.4 million, or 25.7%, for the current nine-month period, compared to the prior year nine-month period. The increase was primarily due to: an increase in salaries and wages, due to the retirement and other severance expense for certain executive management employees; increased incentive expense due to improved performance of the Company; an increase in stock-based compensation related to our employee stock purchase plan, due to the increase in AZZ's common stock price; a legal settlement and other legal expenses related to a non-operating entity of $3.5 million; and transition services agreement fees associated with the AVAIL JV, which were received in the prior year nine-month period, with no comparable receipt in the current nine-month period.
Interest Expense
Interest expense for the current nine-month period decreased $18.4 million, to $63.9 million, compared to $82.3 million for the prior year nine-month period. The decrease in interest expense is primarily attributable to a decrease in the weighted average debt outstanding of $109.4 million and a decrease in the weighted average interest rate of 1.05% in the current nine-month period compared to the prior year nine-month period, coupled with higher capitalized interest of $3.5 million associated with the construction of the new plant in Washington, MO.
Equity in Earnings of Unconsolidated Entities
Equity in earnings of unconsolidated subsidiaries for the current nine-month period increased $1.3 million, to $12.5 million, compared to $11.1 million in the prior year nine-month period. The increase is due to higher earnings from the AVAIL JV, primarily driven by AVAIL's enclosure business.
See Note 7 of our consolidated financial statements for more information about the AVAIL JV.
Income Taxes
The provision for income taxes reflects an effective tax rate of 24.8% for the current nine-month period compared to 22.6% for the prior year nine-month period. The increase in the effective tax rate is primarily attributable to favorable adjustments for the prior year nine-month period related to uncertain tax positions, partially offset by higher discrete items driven by tax deductions for stock compensation in fiscal year 2025. The increase is also attributable to the increase in state tax expense, net of federal benefit.
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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 equity from capital markets and from bank and bond market debt. Our cash requirements generally include quarterly cash dividend payments, capital improvements and debt repayment. We believe that our cash position, cash flows from operating activities, access to capital markets and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future.
As of November 30, 2024, our total liquidity of $347.2 million consisted of available capacity on our Revolving Credit Facility of $345.7 million and cash and cash equivalents of $1.5 million.
Cash Flows
The following table summarizes our cash flows by category for the periods presented (in thousands):

|  | Nine Months Ended November 30,
|  | 2024 |  | 2023
Net cash provided by operating activities |  | $ | 185,597 |  |  | $ | 180,928 |
Net cash used in investing activities |  | (85,100) |  |  | (66,853) |
Net cash used in financing activities |  | (103,912) |  |  | (109,444) |

Net cash provided by operating activities for the current nine-month period was $185.6 million, driven primarily by net income from continuing operations of $108.6 million, adjusted to exclude non-cash charges, net of non-cash income of $69.1 million, an increase in cash resulting from a reduction in working capital of $2.9 million, a decrease in cash resulting from changes in other long-term assets and liabilities, including deferred taxes, of $1.8 million and a cash distribution received on the investment in the AVAIL JV of $6.8 million. The reduction in working capital is due primarily to increases in accounts payable, other accrued liabilities and income taxes payable, as well as a reduction in inventories and accounts receivable; partially offset by increases in other receivables, prepaid expenses and contract assets due to higher sales. Net cash provided by operating activities was used to fund $85.9 million of capital expenditures, make net payments on long-term debt and finance leases liabilities of $82.2 million, make dividend payments of $18.0 million and make payments for taxes related to net share settlement of equity awards of $5.0 million. We also completed a secondary public offering of 4.6 million shares of our common stock, which provided cash, net of offering costs, of $310.2 million, which was used to redeem our 240,000 shares of Series A Preferred Stock for $308.9 million.
Net cash provided by operating activities for the prior year nine-month period was $180.9 million, driven primarily by net income of $83.7 million, adjusted to exclude non-cash charges, net of non-cash income of $63.3 million and an increase in cash resulting from an decrease in working capital of $38.8 million, partially offset by a decrease in cash resulting from other long-term assets and liabilities, including deferred taxes, of $4.9 million. Net cash provided by operating activities was used to fund $66.9 million of capital expenditures, make net payments on long-term debt and finance leases liabilities of $86.6 million, make dividend payments of $23.6 million and make payments for taxes related to net share settlement of equity awards of $0.8 million.
Financing and Capital
2022 Credit Agreement and Term Loan B
We have a credit agreement with a syndicate of financial institutions that was entered into on May 13, 2022, and was subsequently amended on August 17, 2023, December 20, 2023, March 20, 2024 and September 24, 2024 (collectively referred to herein as the "2022 Credit Agreement").
The 2022 Credit Agreement includes the following significant terms:
i.provides for a senior secured initial term loan in the aggregate principal amount of $1.3 billion (the "Term Loan B"), due May 13, 2029, which is secured by substantially all of the assets of the Company; as of November 30, 2024, the outstanding balance of the Term Loan B was $890.3 million;
ii.provides for a maximum senior secured Revolving Credit Facility in the aggregate principal amount of $400.0 million (the "Revolving Credit Facility"), which matures on May 13, 2027;
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iii.includes a letter of credit sub-facility of up to $100.0 million, which is part of, and not in addition to, the Revolving Credit Facility;
iv.borrowings under the Term Loan B bear an interest rate of Secured Overnight Financing Rate ("SOFR") plus 2.50%, which is part of, and not in addition to, the Revolving Credit Facility;
v.borrowings under the Term Loan B bear an interest rate of Secured Overnight Financing Rate ("SOFR") plus 2.50% (following the repricings on March 20, 2024 and September 24, 2024 as described below) and the Revolving Credit Facility bears a leverage-based rate with various tiers between 2.75% and 3.50%; as of November 30, 2024, the interest rate was SOFR plus 2.75%;
vi.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,
vii.includes a maximum quarterly leverage ratio financial covenant, with reporting requirements to our banking group at each quarter-end.
On March 20, 2024, we entered the term loan market and repriced our existing Term Loan B. The repricing reduced the Term Loan B spread from a rate of SOFR plus 3.75% to SOFR plus 3.25%.
On September 24, 2024, we completed our third repricing of the Term Loan B. The repricing reduced the margin from SOFR plus 3.25% to SOFR plus 2.50%, for a total reduction of 75 basis points.
We primarily utilize proceeds from the Revolving Credit Facility to finance working capital needs, capital improvements, quarterly cash dividends, acquisitions and other general corporate purposes.
As defined in the 2022 Credit Agreement, quarterly prepayments were due against the outstanding principal of the Term Loan B and were payable on the last business day of each May, August, November and February, beginning August 31, 2022, in a quarterly aggregate principal amount of $3.25 million, with the entire remaining principal amount due on May 13, 2029, the maturity date. Additional prepayments made against the Term Loan B contribute to these required quarterly payments. Due to prepayments made against the Term Loan B since August 31, 2022, the quarterly mandatory principal payment requirement has been met, and the quarterly payments of $3.25 million are no longer required.
The weighted average interest rate for our outstanding debt, including the Revolving Credit Facility and the Term Loan B, was 7.77% and 8.54% for the nine months ended November 30, 2024 and 2023, respectively.
Debt Compliance and Outstanding Borrowings
Our 2022 Credit Agreement requires us to maintain a maximum Total Net Leverage Ratio (as defined in the loan agreement) no greater than 4.5. As of November 30, 2024, we were in compliance with all covenants and other requirements set forth in the 2022 Credit Agreement.
As of November 30, 2024, we had $930.3 million of debt outstanding on the Revolving Credit Facility and the Term Loan B, with varying maturities through fiscal 2029. We had approximately $345.7 million of additional credit available as of November 30, 2024.
Letters of Credit
As of November 30, 2024, we had total outstanding letters of credit in the amount of $14.3 million. These letters of credit are most commonly issued in lieu of customer retention withholding payments covering warranty, performance periods and insurance collateral.
Interest Rate Swap
We manage our exposure to fluctuations in interest rates on our floating-rate debt by entering into interest rate swap agreements to convert a portion of our variable-rate debt to a fixed rate. On September 27, 2022, we entered into a fixed-rate interest rate swap agreement, which was subsequently amended on October 7, 2022 (the "2022 Swap"), with banks that are parties to the 2022 Credit Agreement, to change the SOFR-based component of the interest rate. The 2022 Swap converts the SOFR portion to 4.277%. On September 24, 2024, we repriced our Term Loan B to SOFR plus 2.50%, resulting in a total fixed rate of 6.777%. See "2022 Credit Agreement and Term Loan B" section above for information related to the repricing of the Company's Term Loan B on September 24, 2024. Th e 2022 Swap had an initial notional amount of $550.0 million and a maturity date of September 30, 2025. The notional amount of the interest rate swap decreases by a pro-rata portion of any
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quarterly principal payments made on the Term Loan B, and the current notional amount is $537.6 million as of November 30, 2024. 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 a portion 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 2022 Swap exactly offset changes in cash flows of the variable-rate debt. We designated the 2022 Swap as a cash flow hedge at inception. Cash payments or receipts to settle the 2022 Swap are recognized in interest expense.
April 2024 Secondary Public Offering
On April 30, 2024, we completed a secondary public offering in which we sold 4.6 million shares of our common stock at $70.00 per share (the "April 2024 Secondary Public Offering"). We received gross proceeds of $322.0 million, and paid offering expenses of $13.3 million, for net proceeds of $308.7 million. The proceeds from the April 2024 Offering were used to redeem the Series A Preferred Stock.
Series A Convertible Preferred Stock
On May 9, 2024, we fully redeemed our 240,000 shares of 6.0% Series A Convertible Preferred Stock ("Series A Preferred Stock") for $308.9 million. The payment was calculated as the face value of the Series A Preferred Stock of $240.0 million, multiplied by the Return Factor (as defined below) of 1.4, less dividends paid to date of $27.1 million. The redemption premium of $75.2 million, which was calculated as the difference between the redemption amount and the book value of $233.7 million, was recorded as a deemed dividend, and reduces net income available to common shareholders. The Series A Preferred Stock was redeemed using proceeds from the April 2024 Secondary Public Offering.
On August 5, 2022, we exchanged our $240.0 million 6.00% convertible subordinated notes due June 30, 2030 for 240,000 shares of 6.0% Series A Preferred Stock, following the receipt of shareholder approval for the issuance of Series A Preferred Stock. The Series A Preferred Stock had a $1.00 par value per share, and ranked senior to the common stock of the Company, including with respect to both income and capital, but junior to our indebtedness. The Series A Preferred Stock is classified as "Mezzanine equity" in the consolidated balance sheets and, as noted above, was fully redeemed on May 9, 2024.
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 calendar year 2025 (the Company's fiscal year 2026). The new greenfield 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 $124.0 million in capital payments over the life of the project, of which $60.8 million was paid prior to fiscal 2025 and $46.8 million was paid during the nine months ended November 30, 2024. The remaining balance of $16.4 million is on schedule to occur by the first quarter of fiscal 2026, of which we have capital commitments of $9.7 million. The remaining payments through fiscal 2026 are expected to be funded through cash flows from operations.
Share Repurchase Program
During the nine months ended November 30, 2024 and 2023, we did not repurchase shares of common stock under the 2020 Share Authorization. As of November 30, 2024, we had $53.2 million available under the 2020 Share Authorization that may be used to purchase shares in the future. 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 by entering into agreements with our zinc suppliers and such agreements generally include fixed premiums, and by entering into agreements with our natural gas suppliers to fix a portion of our purchase cost. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing process, supply chain management, and through increases in prices to match inflationary increases where competitively feasible. We have indirect exposure to copper, aluminum, steel and nickel-based alloys in the AZZ Infrastructure Solutions segment through our 40% investment in the AVAIL JV.
As of November 30, 2024, we had non-cancelable forward contracts to purchase approximately $4.7 million of zinc at various volumes and delivery prices for December 2024. We also had non-cancelable forward contracts to purchase approximately $8.6 million of natural gas at various volumes and commodity plus delivery prices between December 2024 and
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November 2025. All such contracts expire by the third quarter of fiscal 2026. We had no other contracted commitments for any other commodities including steel, aluminum, copper, zinc, nickel-based alloys, natural gas, except for those entered into under the normal course of business.
Off Balance Sheet Arrangements and Contractual Obligations
As of November 30, 2024, we did not have any off-balance sheet arrangements as defined under SEC rules. Specifically, there were no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on the financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes.
There were no significant changes to our critical accounting policies and estimates compared to the critical accounting policies and estimates disclosed in "Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations", of our Annual Report on Form 10-K for the year ended February 29, 2024.
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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"), we provide adjusted net income, adjusted earnings per share and Adjusted EBITDA (collectively, the "Adjusted Earnings Measures"), which are non-GAAP measures. Management believes that the presentation of these measures provides investors with greater transparency when comparing operating results across a broad spectrum of companies, which provides a more complete understanding of our financial performance, competitive position and prospects for future capital investment and debt reduction. Management also believes that investors regularly rely on non-GAAP financial measures, such as adjusted net income, adjusted earnings per share and Adjusted EBITDA to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP.
Management defines adjusted net income and adjusted earnings per share to exclude intangible asset amortization, acquisition expenses, transaction related expenses, certain legal settlements and accruals, and certain expenses related to non-recurring events from the reported GAAP measure. Management defines Adjusted EBITDA as adjusted earnings excluding depreciation, amortization, interest and provision for income taxes. Management believes Adjusted EBITDA is 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.
Management provides non-GAAP financial measures for informational purposes and to enhance understanding of the Company’s GAAP consolidated financial statements. Readers should consider these measures in addition to, but not instead of or superior to, the Company's financial statements prepared in accordance with GAAP, and undue reliance should not be placed on these non-GAAP financial measures. Additionally, these non-GAAP financial measures may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.
The following tables provide a reconciliation for the three and nine months ended November 30, 2024 and 2023 between the non-GAAP Adjusted Earnings Measures to the most comparable measures, calculated in accordance with GAAP (dollars in thousands, except per share data):
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Adjusted Net Income and Adjusted Earnings Per Share

| Three Months Ended November 30, |  | Nine Months Ended November 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
| Amount |  | Per Diluted Share(1) |  | Amount |  | Per Diluted Share(1) |  | Amount |  | Per Diluted Share(1) |  | Amount |  | Per Diluted Share(1)
Net income | $ | 33,603 |  |  |  |  | $ | 26,890 |  |  |  |  | $ | 108,624 |  |  |  |  | $ | 83,744 |  |  |
Less: Series A Preferred Stock dividends | — |  |  |  |  | (3,600) |  |  |  |  | (1,200) |  |  |  |  | (10,800) |  |  |
Less: Redemption premium on Series A Preferred Stock | — |  |  |  |  | — |  |  |  |  | (75,198) |  |  |  |  | — |  |  |
Net income available to common shareholders(2) | 33,603 |  |  |  |  | 23,290 |  |  |  |  | 32,226 |  |  |  |  | 72,944 |  |  |
Impact of Series A Preferred Stock dividends(2) | — |  |  |  |  | 3,600 |  |  |  |  | 1,200 |  |  |  |  | 10,800 |  |  |
Net income and diluted earnings per share for Adjusted net income calculation(2) | 33,603 |  |  | 1.12 |  |  | 26,890 |  |  | 0.92 |  |  | 33,426 |  |  | 1.11 |  |  | 83,744 |  |  | 2.86 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amortization of intangible assets | 5,773 |  |  | 0.19 |  |  | 5,872 |  |  | 0.20 |  |  | 17,353 |  |  | 0.58 |  |  | 18,108 |  |  | 0.62 |
Legal settlement and accrual(3) | 3,483 |  |  | 0.12 |  |  | 4,500 |  |  | 0.15 |  |  | 3,483 |  |  | 0.12 |  |  | 10,250 |  |  | 0.35 |
Retirement and other severance expense(4) | 1,666 |  |  | 0.06 |  |  | — |  |  | — |  |  | 3,554 |  |  | 0.12 |  |  | — |  |  | — |
Redemption premium on Series A Preferred Stock(5) | — |  |  | — |  |  | — |  |  | — |  |  | 75,198 |  |  | 2.50 |  |  | — |  |  | — |
Subtotal | 10,922 |  |  | 0.37 |  |  | 10,372 |  |  | 0.35 |  |  | 99,588 |  |  | 3.31 |  |  | 28,358 |  |  | 0.97 |
Tax impact(6) | (2,621) |  |  | (0.09) |  |  | (2,489) |  |  | (0.08) |  |  | (5,854) |  |  | (0.19) |  |  | (6,806) |  |  | (0.23) |
Total adjustments | 8,301 |  |  | 0.28 |  |  | 7,883 |  |  | 0.27 |  |  | 93,734 |  |  | 3.11 |  |  | 21,552 |  |  | 0.74 |
Adjusted net income and adjusted earnings per share (non-GAAP) | $ | 41,904 |  |  | $ | 1.39 |  |  | $ | 34,773 |  |  | $ | 1.19 |  |  | $ | 127,160 |  |  | $ | 4.22 |  |  | $ | 105,296 |  |  | $ | 3.60 |
Weighted average shares outstanding - Diluted for Adjusted earnings per share(2) |  |  | 30,118 |  |  |  |  | 29,330 |  |  |  |  | 30,123 |  |  |  |  | 29,278 |

See notes on page 43.
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Adjusted EBITDA

| Three Months Ended November 30, |  | Nine Months Ended November 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Net income | $ | 33,603 |  |  | $ | 26,890 |  |  | $ | 108,624 |  |  | $ | 83,744 |
Interest expense | 19,223 |  |  | 25,855 |  |  | 63,906 |  |  | 82,331 |
Income tax expense | 12,114 |  |  | 8,780 |  |  | 35,728 |  |  | 24,397 |
Depreciation and amortization | 20,633 |  |  | 20,357 |  |  | 61,383 |  |  | 59,034 |
Adjustments: |  |  |  |  |  |  |
Legal settlement and accrual(3) | 3,483 |  |  | 4,500 |  |  | 3,483 |  |  | 10,250 |
Retirement and other severance expense(4) | 1,666 |  |  | — |  |  | 3,554 |  |  | — |
Adjusted EBITDA (non-GAAP) | $ | 90,722 |  |  | $ | 86,382 |  |  | $ | 276,678 |  |  | $ | 259,756 |

See notes on page 43.
Adjusted EBITDA by Segment
A reconciliation of Adjusted EBITDA by segment to net income is as follows (in thousands):

| Three Months Ended November 30, 2024
| Metal Coatings |  | Precoat Metals |  | Infra- structure Solutions |  | Corporate |  | Total
Net income (loss) | $ | 46,489 |  |  | $ | 37,080 |  |  | $ | 7,139 |  |  | $ | (57,105) |  |  | $ | 33,603 |
Interest expense | — |  |  | — |  |  | — |  |  | 19,223 |  |  | 19,223 |
Income tax expense | — |  |  | — |  |  | — |  |  | 12,114 |  |  | 12,114 |
Depreciation and amortization | 6,614 |  |  | 7,903 |  |  | — |  |  | 6,116 |  |  | 20,633 |
Adjustments: |  |  |  |  |  |  |  |  |
Legal settlement and accrual(3) | — |  |  | — |  |  | — |  |  | 3,483 |  |  | 3,483 |
Retirement and other severance expense(4) | — |  |  | — |  |  | — |  |  | 1,666 |  |  | 1,666 |
Adjusted EBITDA (non-GAAP) | $ | 53,103 |  |  | $ | 44,983 |  |  | $ | 7,139 |  |  | $ | (14,503) |  |  | $ | 90,722 |

See notes on page 43.

| Three Months Ended November 30, 2023
| Metal Coatings |  | Precoat Metals |  | Infra- structure Solutions |  | Corporate |  | Total
Net income (loss) | $ | 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 settlement and accrual(3) | 4,500 |  |  | — |  |  | — |  |  | — |  |  | 4,500 |
Adjusted EBITDA (non-GAAP) | $ | 48,991 |  |  | $ | 40,253 |  |  | $ | 8,452 |  |  | $ | (11,314) |  |  | $ | 86,382 |

See notes on page 43.
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| Nine Months Ended November 30, 2024
| Metal Coatings |  | Precoat Metals |  | Infra- structure Solutions |  | Corporate |  | Total
Net income (loss) | $ | 142,158 |  |  | $ | 119,703 |  |  | $ | 12,403 |  |  | $ | (165,640) |  |  | $ | 108,624 |
Interest expense | — |  |  | — |  |  | — |  |  | 63,906 |  |  | 63,906 |
Income tax expense | — |  |  | — |  |  | — |  |  | 35,728 |  |  | 35,728 |
Depreciation and amortization | 19,955 |  |  | 23,134 |  |  | — |  |  | 18,294 |  |  | 61,383 |
Adjustments: |  |  |  |  |  |  |  |  |
Legal settlement and accrual(3) | — |  |  | — |  |  | — |  |  | 3,483 |  |  | 3,483 |
Retirement and other severance expense(4) | — |  |  | — |  |  | — |  |  | 3,554 |  |  | 3,554 |
Adjusted EBITDA (non-GAAP) | $ | 162,113 |  |  | $ | 142,837 |  |  | $ | 12,403 |  |  | $ | (40,675) |  |  | $ | 276,678 |

See notes on page 43.

| Nine Months Ended November 30, 2023
| Metal Coatings |  | Precoat Metals |  | Infra- structure Solutions |  | Corporate |  | Total
Net income (loss) | $ | 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(3) | 4,500 |  |  | — |  |  | 5,750 |  |  | — |  |  | 10,250 |
Adjusted EBITDA (non-GAAP) | $ | 152,500 |  |  | $ | 129,856 |  |  | $ | 10,642 |  |  | $ | (33,242) |  |  | $ | 259,756 |

See notes on page 43.
Debt Leverage Ratio Reconciliation

|  | Trailing Twelve Months Ended
|  | November 30, |  | February 29, |  |
|  | 2024 |  | 2024 |  |
Gross debt |  | $ | 930,250 |  |  | $ | 1,010,250 |  |  |
Less: Cash per bank statement |  | (10,233) |  |  | (24,807) |  |  |
Add: Finance lease liability |  | 5,110 |  |  | 3,987 |  |  |
Consolidated indebtedness |  | $ | 925,127 |  |  | $ | 989,430 |  |  |
Net income |  | $ | 126,487 |  |  | $ | 108,624 |  |  |
Depreciation and amortization |  | 81,771 |  |  | 61,383 |  |  |
Interest expense |  | 88,641 |  |  | 63,907 |  |  |
Income tax expense |  | 39,827 |  |  | 35,728 |  |  |
EBITDA per Credit Agreement |  | 336,726 |  |  | 269,642 |  |  |
Cash items(7) |  | 15,230 |  |  | 25,443 |  |  |
Non-cash items(8) |  | 12,634 |  |  | 9,510 |  |  |
Equity in earnings, net of distributions |  | (6,863) |  |  | (12,294) |  |  |
Adjusted EBITDA per Credit Agreement |  | $ | 357,727 |  |  | $ | 292,301 |  |  |
Net leverage ratio |  | 2.6x |  | 3.4x |  |

(1) Earnings per share amounts included in the "Adjusted net income and Adjusted Earnings Per Share" table above may not sum due to rounding
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differences.
(2) For the nine months ended November 30, 2024, diluted earnings per share is based on weighted average shares outstanding of 29,076, as the
Series A Preferred Stock that was redeemed May 9, 2024 is anti-dilutive. The calculation of adjusted diluted earnings per share is based on
weighted average shares outstanding of 30,123, as the Series A Preferred Stock is dilutive to adjusted diluted earnings per share. Adjusted net
income for adjusted earnings per share also includes the addback of Series A Preferred Stock dividends for the periods noted above. For further
information regarding the calculation of earnings per share, see "Item I. Financial Statements—Note 3."
(3) For the three and nine months ended November 30, 2024, represents a legal settlement and accrual related to a non-operating entity, and is
classified as “Corporate” in our operating segment disclosure. 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 30, 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 "Item I. Financial Statements—Note 16."
(4) Related to retention and transition of certain executive management employees.
(5) On May 9, 2024, we redeemed the Series A Preferred Stock. The redemption premium represents the difference between the redemption amount
paid and the book value of the Series A Preferred Stock.
(6) The non-GAAP effective tax rate for each of the periods presented is estimated at 24.0%.
(7) Cash items includes certain legal settlements, accruals, and retirement and other severance expense, and costs associated with the AVAIL JV
transition services agreement.
(8) Non-cash items include stock-based compensation expense and other non-cash expenses.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market risk disclosures during the three and nine months ended November 30, 2024. For a discussion of our exposure to market risk, refer to our 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 29, 2024.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Company’s principal executive officer and principal financial officer have concluded that our Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934) are effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no 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, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Gainesville Associates LLC v. Atlantic Research LLC et al (a legacy entity lawsuit that arose out of the Precoat acquisition, which is unrelated to our current operations or operating entities).
On July 29, 2024, Gainesville Associates, LLC ("Gainesville Associates") filed a complaint (the "Complaint") in the Circuit Court of Prince William County, Virginia against AZZ, Atlantic Research, LLC ("ARC"), Precoat Metals Corporation, and Chromalloy Corporation (collectively "Defendants"), asserting claims for breach of contract against ARC and unjust enrichment against all Defendants. The Complaint arose out of a lease, dated January 1, 1976, between Gainesville Associates as landlord and ARC as tenant (as subsequently amended in 1982, 2012, 2013 and 2017, the "Lease") for property in Gainesville, Virginia (the "Property"). ARC ceased using the property in 2005 after which point ARC remained in the Lease to complete its obligations on the property pursuant to a consent decree entered into between the U.S. Environmental Protection Agency ("EPA") and ARC in 1992. ARC satisfied its obligations under the consent decree in 2018 (other than ongoing well water monitoring and testing) and terminated the Lease in 2019. In its Complaint, Gainesville Associates alleged that ARC breached certain provisions of the Lease. On September 3, 2024, Defendants removed the action to the United States District Court of the Eastern District of Virginia. On September 24, 2024, Defendants filed a motion to dismiss the Complaint. On October 30, 2024, the claim was denied and the court ordered the parties to mediate. The parties attended the court ordered mediation on December 3, 2024, and although the Company believed the Gainesville Associates' case was deficient and it had very strong defenses to the allegations asserted by Gainesville Associates, management determined that it was still in the best financial interest of the Company to settle all matters for the estimated cost of defense. The parties mutually agreed to resolve all disputed matters for $6.0 million, of which our portion was $1.9 million. We have recognized $0.5 million of legal expenses and have accrued an additional $3.0 million related to this matter. The accrual consists of estimated legal expenses of $1.1 million, as well as the settlement amount of $1.9 million, and is included in "Other accrued liabilities" in the consolidated balance sheet as of November 30, 2024.
In addition to the foregoing, the Company and its subsidiaries are named defendants and plaintiffs in various routine lawsuits incidental to our business. These proceedings include labor and employment claims, various commercial disputes, worker’s compensation and environmental matters, all arising in the normal course of business. As discovery progresses on all outstanding legal matters, the Company continuously evaluates opportunities to either mediate the cases or settle the disputes for nuisance value or the cost of litigation as a way to resolve the disputes prior to trial. As the pending cases progress through additional discovery and potential mediation, our assessment of the likelihood of a favorable or an unfavorable outcome on the pending lawsuits may change. Although the actual outcome of these lawsuits or other proceedings cannot be predicted with any 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 claims or defenses to all of its legal matters and does not expect liabilities, if any, from these claims or proceedings, either individually or in the aggregate, to
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have a material effect on the Company’s financial position, results of operations or cash flows. For further discussion of the Company's legal proceedings, see "Part 1. Item 1. Financial Statements—Note 16."
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 "Part I. Item 1A. Risk Factors" and "Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report for the fiscal year ended February 29, 2024, 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. Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 10, 2020, our Board of Directors authorized a $100 million share repurchase program pursuant to which we may repurchase our common stock (the "2020 Authorization"). Repurchases under the 2020 Authorization will be made through open market 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 we might otherwise be precluded from doing so. Currently, share repurchases may not exceed 6% of our market capitalization per fiscal year.
The Company did not purchase any shares of common stock under the 2020 Share Authorization during the nine months ended November 30, 2024. As of November 30, 2024, we had $53.2 million remaining under the 2020 Share Authorization that may be used to repurchase outstanding shares of common stock in the future.
Item 5. Other Information.
During the three months ended November 30, 2024, 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 |  | Contribution and Purchase Agreement, dated as of June 23, 2022, by and between AZZ Inc., AIS investment Holdings LLC and Fernweh AIS Acquisition L.P. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the SEC on June 27, 2022.)
3.1 |  | Amended and Restated Bylaws dated April 24, 2023 (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the SEC on April 25, 2023.)
3.2 |  | Amended and Restated Certificate of Formation (with Certificate of Correction dated May 15, 2023) (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on October 10, 2023.)
4.1 |  | Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on October 13, 2000.)
4.2 |  | Indenture, dated as of May 13, 2022, by and between AZZ Inc. and UMB Bank, N.A. (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the SEC on May 16, 2022.
10.1 |  | Fourth Amendment to Credit Agreement, dated as of September 24, 2024, by and among AZZ Inc., the Guarantors, the Lenders, and Citibank, N.A., as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on September 24, 2024.)
31.1+ |  | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+ |  | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+ |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+ |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS+ |  | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH+ |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL+ |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+ |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB+ |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE+ |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Date File (embedded with the Inline XBRL document).

+ Indicates filed herewith.
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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 7, 2025 |  | By: | /s/ Jason Crawford
|  |  |  | Jason Crawford Senior Vice President, Chief Financial Officer and Principal Accounting Officer

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