AZZ Inc.

07/08/2026 | Press release | Distributed by Public on 07/08/2026 14:16

Quarterly Report for Quarter Ending May 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
Certain statements herein about our expectations of future events or results constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by terminology such as "may," "could," "should," "expects," "plans," "will," "might," "would," "projects," "currently," "intends," "outlook," "forecasts," "targets," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. Such forward-looking statements are based on currently available competitive, financial, and economic data and management's views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. Forward-looking statements speak only as of the date they are made and are subject to risks that could cause them to differ materially from actual results. Certain factors could affect the outcome of the matters described herein. This Quarterly Report may contain forward-looking statements that involve risks and uncertainties including, but not limited to, changes in customer demand for our manufactured solutions, including demand by the construction; infrastructure; transportation; HVAC & appliance; container; and the metal coatings end markets. We could also experience additional increases, including increases due to inflation, in labor costs, components and raw materials including zinc and natural gas, which are used in our hot-dip galvanizing process and paint used in our coil coating process; supply chain vendor delays; delays in additional acquisition opportunities; an increase in our debt leverage and/or interest rates on our debt, of which a significant portion is tied to variable interest rates; availability of experienced management and employees to implement AZZ's growth strategy; a downturn in market conditions in any industry relating to the manufactured solutions that we provide; economic volatility, including a prolonged economic downturn or macroeconomic conditions such as inflation or changes in the political stability in the United States or Canada; tariffs, acts of war or terrorism inside the United States or abroad; and other changes in economic and financial conditions. AZZ has provided additional information regarding risks associated with the business, including in Part I, Item 1A. Risk Factors, in AZZ's Annual Report on Form 10-K for the fiscal year ended February 28, 2026, and other filings with the SEC, available for viewing on AZZ's website at www.azz.com and on the SEC's website at www.sec.gov.
You are urged to consider these factors carefully when evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. These statements are based on information as of the date hereof and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
The following discussion should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the fiscal year ended February 28, 2026, 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 three months ended May 31, 2026 were impacted primarily by the growth in demand for our manufactured solutions in the construction, industrial and container end markets.
The demand for our manufacturing solutions was the primary contributor to net income of $52.0 million for the current three-month period. Our operating results for the current three-month period, including operating results by segment, are described in the summary on the following page, and detailed descriptions can be found below under "Results of Operations."
Our operations generated $37.1 million of cash for the current three-month period. The components of our liquidity and descriptions of our cash flows, capital investments, and other utilities, construction and matters impacting our liquidity and capital resources can be found below under "Liquidity and Capital Resources."
Outlook
While it is difficult to predict future North American economic activity and its impact on the demand for our galvanizing and coil coating solutions, as well the impact that political or regulatory developments may have on us, we have noted several factors below that have impacted or may impact our results of operations during the second quarter of fiscal 2027.
•Sales prices in our AZZ Metal Coatings segment are expected to modestly increase from current levels, supported by continued increases in input costs. Fluctuations in product mix, along with competitive market pressures, may impact selling price.
•Sales prices in our AZZ Precoat Metals segment are expected to increase on average from past levels, resulting from passing through higher pricing on specified materials, although fluctuations in mix may impact the average selling price.
•Demand in our AZZ Metal Coatings and AZZ Precoat Metals segments is expected to follow our typical seasonal patterns.
•Volumes for our AZZ Metal Coatings segment remain at normal seasonal levels, which should support the continued demand for our metal coatings solutions.
•Customer inventories for our AZZ Precoat Metals segment remain at normal seasonal levels, which should support the continued demand for our coil coating solutions.
RESULTS OF OPERATIONS
Overview
We are a provider of hot-dip galvanizing and coil coating solutions to a broad range of end-markets, predominantly in North America. We operate three distinct business segments, the AZZ Metal Coatings segment, the AZZ Precoat Metals segment, and the AZZ Infrastructure Solutions segment. Our discussion and analysis of financial condition and results of operations is divided by each of our segments, along with corporate costs and other costs not specifically identifiable to a segment. Management believes that the most meaningful analysis of our results of operations is to analyze our performance by segment. We use sales and operating income by segment to evaluate the performance of our segments. Segment operating income consists of sales less cost of sales and selling, general and administrative expenses that are specifically identifiable to a segment.
QUARTER ENDED MAY 31, 2026 COMPARED TO THE QUARTER ENDED MAY 31, 2025
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 May 31, 2026
Metal Coatings Precoat Metals
Infrastructure Solutions(1)
Corporate(2)
Total
Sales $ 210,305 $ 238,225 $ - $ - $ 448,530
Cost of sales 147,452 188,909 - - 336,361
Gross margin 62,853 49,316 - - 112,169
Selling, general and administrative 6,302 7,781 - 21,053 35,136
Operating income (loss) 56,551 41,535 - (21,053) 77,033
Interest expense - - - (11,264) (11,264)
Equity in earnings of unconsolidated subsidiary - - 509 - 509
Other expense (2) - - (258) (260)
Income (loss) before income tax $ 56,549 $ 41,535 $ 509 (32,575) 66,018
Income tax expense 14,012 14,012
Net income (loss) $ (46,587) $ 52,006
See notes below tables.
Three Months Ended May 31, 2025
Metal Coatings Precoat Metals
Infrastructure Solutions(1)
Corporate(2)
Total
Sales $ 187,215 $ 234,747 $ - $ - $ 421,962
Cost of sales(3)
130,356 187,476 - - 317,832
Gross margin 56,859 47,271 - - 104,130
Selling, general and administrative(4)
6,127 7,917 80 20,457 34,581
Operating income (loss) 50,732 39,354 (80) (20,457) 69,549
Interest expense - - - (18,563) (18,563)
Equity in earnings of unconsolidated subsidiary(5)
- - 173,523 - 173,523
Other income (expense) (61) - - 1,388 1,327
Income (loss) before income tax $ 50,671 $ 39,354 $ 173,443 (37,632) 225,836
Income tax expense 54,928 54,928
Net income (loss) $ (92,560) $ 170,908
(1)
The AZZ Infrastructure Solutions segment includes the equity in earnings from our investment in the AVAIL JV.
(2)
Interest expense and Income tax expense are included in the Corporate segment as these items are not allocated to the segments.
(3)
For the three months ended May 31, 2025, the AZZ Metal Coatings segment includes restructuring charges of $3.8 million. See "Item 1. Financial Statements-Note 17."
(4)
Includes stock-based compensation expense of $2.2 million, of which $0.4 million and $1.8 million are included in the AZZ Metal Coatings segment and the Corporate segment, respectively. See "Item 1. Financial Statements-Note 15."
(5)
During the first quarter of fiscal 2026, AVAIL completed the sale of the Electrical Products Group ("EPG") to nVent Electric plc. Following the completion of the sale, we received a distribution of $273.2 million during the three months ended May 31, 2025, which was $107.4 million as of May 31, 2025. The excess distribution of $165.8 million was recorded as equity in earnings of unconsolidated subsidiary during three months ended May 31, 2025. See "Item 1. Financial Statements-Note 8."
For the current quarter, we recorded sales of $448.5 million, compared to the prior year quarter of $422.0 million. Of total sales for the current quarter, 46.9% were generated from the AZZ Metal Coatings segment and 53.1% of sales were generated from the AZZ Precoat Metals segment. Net income for the current quarter was $52.0 million, compared to $170.9 million for the prior year quarter. Net income as a percentage of sales was 11.6% for the current quarter as compared to 40.5% for the prior year quarter. Diluted earnings per common share decreased by 69.6%, to $1.72 per share for the current quarter, compared to $5.66 per share for the prior year quarter. The decrease was primarily due to the recognition of equity in earnings for the excess distribution from the AVAIL JV in the prior year quarter.
Sales
Sales for the AZZ Metal Coatings segment increased $23.1 million, or 12.3%, for the current quarter compared to the prior year quarter. The increase was primarily due to $22.2 million resulting from a higher volume of steel processed, mainly due to increases in the construction and industrial end markets, and an increase of $1.5 million in other sales, partially offset by a decrease in the average selling price of $0.6 million, due to product mix.
Sales for the AZZ Precoat Metals segment increased $3.5 million, or 1.5% for the current quarter compared to the prior year quarter. The increase was due to an increase in the average price of coils coated, as well as revenue related to the ramp-up of the Washington, Missouri facility, partially offset by lower volume, mainly due to decreases in construction, infrastructure, HVAC and appliance end markets.
Operating Income
For the current quarter, consolidated operating income was $77.0 million, an increase of $7.5 million, or 10.8%, compared to the prior year quarter.
Operating income for the AZZ Metal Coatings segment increased $5.8 million, or 11.5%, 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 $17.1 million was primarily due to a $6.2 million increase in zinc cost, a $3.6 million increase in labor costs and an increase in other overhead costs of $7.3 million. Selling, general and administrative expense increased $0.2 million.
Operating income for the AZZ Precoat Metals segment increased $2.2 million, or 5.5% for the current quarter, compared to the prior year quarter. The increase was primarily due to increased sales as described above, partially offset by an increase in cost of sales of $1.4 million, primarily due to higher materials cost.
Corporate Expenses
Corporate selling, general and administrative expenses increased $0.6 million, or 2.9%, for the current quarter, compared to the prior year quarter. The increase was primarily due to increased professional fees and personnel costs, partially offset by a decrease in stock-based compensation, primarily due to the adoption of the Executive Retiree LTI Program and the acceleration of expense for the related stock awards in the prior year.
Interest Expense
Interest expense for the current quarter decreased $7.3 million, to $11.3 million, compared to $18.6 million for the prior year quarter. The decrease in interest expense was primarily attributable to a decrease of $364.2 million in the weighted average debt outstanding and a decrease in the weighted average interest rate of 1.54% in the current quarter, compared to the prior year quarter. The decrease in interest expense is partially offset by lower capitalized interest, primarily associated with the construction of the new plant in Washington, Missouri, for the current quarter, compared to the prior year quarter.
Equity in Earnings of Unconsolidated Subsidiary
Equity in earnings of unconsolidated subsidiary for the current quarter decreased $173.0 million to $0.5 million, compared to $173.5 million in the prior year quarter. The decrease was due to recognition in the prior year quarter of a gain for a distribution in excess of our investment balance of $165.8 million. See "Item I. Financial Statements-Note 8" for more information about the AVAIL JV.
Income Taxes
The provision for income taxes reflects an effective tax rate of 21.2% for the three months ended May 31, 2026, compared to 24.3% for the three months ended May 31, 2025. The decrease in the effective tax rate is driven by higher tax deductions for stock compensation in the current year, coupled with higher tax expense in the prior year related to equity in earnings from the AVAIL JV.
LIQUIDITY AND CAPITAL RESOURCES
We have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt. Our cash requirements generally include working capital needs, capital improvements, quarterly cash dividends, acquisitions and other general corporate purposes. Based on our current financial condition and current operations, we believe that our cash position, cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future.
As of May 31, 2026, our total liquidity of $360.5 million consisted of available capacity under our Revolving Credit Facility of $359.4 million and cash and cash equivalents of $1.1 million.
Cash Flows
The following table summarizes our cash flows by category for the periods presented (in thousands):
Three Months Ended May 31,
2026 2025
Net cash provided by operating activities $ 37,149 $ 314,782
Net cash used in investing activities (18,698) (17,122)
Net cash used in financing activities (18,174) (295,512)
Net cash provided by operating activities for the three months ended May 31, 2026 decreased by $277.6 million compared to the three months ended May 31, 2025 primarily due to:
•a decrease in cash distributions from the AVAIL JV of $273.2 million, following AVAIL's sale of its EPG business,
•a decrease in net income of $118.9 million, primarily due to a decrease in equity in earnings from the AVAIL JV,
•a decrease in cash flows from long-term assets and liabilities of $1.5 million, primarily due to decreases in long-term lease liabilities and other long-term liabilities,
•a decrease in non-cash expenses of $0.4 million, primarily due to restructuring expenses recognized in the prior year, as well as share-based compensation expense and bad debt expense, partially offset by a decrease in gain on sale of property, plant and equipment, an increase in depreciation expense, partly due to the new aluminum coil coating facility in Washington, Missouri and an increase in amortization of debt financing costs due to the write-off following the refinancing of the 2022 Credit Agreement,
•a decrease in cash from working capital of $64.3 million, related to decreases in income tax payable and accrued expenses, coupled with an increase in inventories, accounts receivable, and contract assets, partially offset by an increase in accounts payable, partially offset by
•a decrease in non-cash equity in earnings from the AVAIL JV of $173.0 million, primarily due to equity in earnings related to the AVAIL JV's sale of its EPG business in the prior year, and
•an increase in cash flows from deferred income taxes of $7.6 million, primarily due to a decrease in deferred taxes related to the AVAIL JV in the prior year.
Cash flows used in investing activities for the three months ended May 31, 2026 increased by $1.6 million compared to the prior three months ended May 31, 2025 primarily due to:
•a decrease of $3.7 million in proceeds from the sale of property, plant and equipment, partially offset by
•an increase in cash due to a decrease of $2.1 million in the purchase of property, plant and equipment, primarily due to costs in the prior year associated with the new aluminum coil coating facility in Washington, Missouri, which became operational during fiscal 2026.
Cash flows used in financing activities for the three months ended May 31, 2026 decreased by $277.3 million compared to the prior three months ended May 31, 2025 primarily due to:
•a decrease in net payments on long-term debt and finance leases of $284.9 million, partially offset by
•an increase in tax payments related to common stock issued under stock-based plans of $5.9 million,
•an increase in debt financing costs paid of $0.8 million, and
•an increase in dividend payments of $0.9 million, reflecting an increase in the quarterly cash dividend per share compared to the prior year quarter.
Financing and Capital
2022 Credit Agreement and Term Loan B
We have a credit agreement with a syndicate of financial institutions as lenders, entered into on May 13, 2022 and amended from time to time (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 May 31, 2026, the outstanding balance of the Term Loan B was $335.0 million;
ii.provides for a maximum senior secured Revolving Credit Facility in the aggregate principal amount of $400.0 million (the "Revolving Credit Facility"), due May 13, 2027;
iii.includes a letter of credit sub-facility of up to $100.0 million, which is part of, and not in addition to, the Revolving Credit Facility;
iv.borrowings under the Term Loan B bear an interest rate of Secured Overnight Financing Rate ("SOFR") plus 1.75% and the Revolving Credit Facility bears a leverage-based rate with various tiers between 1.25% and 2.25%; as of May 31, 2026, the interest rate was SOFR plus 1.25%;
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 May 7, 2026, we amended our 2022 Credit Agreement to change the following terms of the Revolving Credit Facility:
i.extended the maturity date of our Revolving Credit Facility from May 31, 2026 to May 7, 2029;
ii.added JP Morgan Chase Bank, N.A. and PNC Capital Markets LLC as additional lenders, and removed Citibank N.A. and Barclays Bank PLC as lenders;
iii.reduced the interest rate tiers from a range of SOFR plus 1.75% to 2.75% to a range of SOFR plus 1.25% to 2.25%; and
iv.reduced the leverage-based commitment fee tiers from a range of 0.20% to 0.30% to a range of 0.15% to 0.25%.
In connection with the amendment, approximately 37.50% of the aggregate principal amount was reallocated to the new lenders. We evaluated the amendment under the guidance in ASC 470-50, Debt-Modifications and Extinguishments and concluded that the amendment represented a modification at the instrument level, as the quantitative 10% cash flow test was not met. However, the lender reallocation resulted in a partial extinguishment at the lender level. As a result, for the three months ended May 31, 2026, we recognized a write-off of approximately $0.6 million of unamortized debt financing costs, which is included in "Interest expense, net" on our consolidated statement of operations and in "Amortization of debt financing costs" on our consolidated statement of cash flows.
We primarily utilize proceeds from the Revolving Credit Facility to finance timing fluctuations of working capital needs, capital improvements, quarterly cash dividends, acquisitions and other general corporate purposes.
As defined in the 2022 Credit Agreement, quarterly prepayments were due against the outstanding principal of the Term Loan B and were payable on the last business day of each May, August, November and February, beginning August 31, 2022, in a quarterly aggregate principal amount of $3.25 million, with the entire remaining principal amount due on May 13, 2029, the maturity date. Additional prepayments made against the Term Loan B contributed to these required quarterly payments. Due to prepayments made against the Term Loan B since August 31, 2022, the quarterly mandatory principal payment requirement has been met, and the quarterly payments of $3.25 million are no longer required.
Receivables Securitization Facility
On July 10, 2025, we entered into a credit agreement secured by our trade accounts receivable and contract assets (the "Receivables Securitization Facility.") Under this arrangement, we transferred our trade receivables to a special purpose entity ("SPE"), which in turn pledged those receivables as collateral for borrowings under the facility. The transaction does not qualify as a sale under ASC 860, Transfers and Servicing; as a result, the arrangement is accounted for as a secured borrowing.
Accordingly, the receivables transferred to the SPE will remain on our consolidated balance sheet within trade accounts receivable and contract assets, and the Receivables Securitization Facility is included in "Long-term debt, net." The Receivables Securitization Facility has a limit of $150.0 million and is due July 10, 2028. As of May 31, 2026, the total amount of receivables pledged under the facility was $268.1 million, consisting of $153.8 million in trade accounts receivable and $114.3 million in contract assets, with outstanding borrowings of $150.0 million. The interest rate on the Receivables Securitization Facility is one-month SOFR plus 0.95%.
We remain exposed to the credit risk associated with the underlying receivables and are responsible for their collection. The Receivables Securitization Facility includes provisions that allow the SPE to take control of the assets only in the event of bankruptcy or violation of servicing the secured accounts receivable. We will monitor these provisions to ensure ongoing compliance and availability under the facility.
The proceeds from the Receivables Securitization Facility were used to pay down the Term Loan B.
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. We are also required to maintain certain covenants under the Receivables Securitization Facility. As of May 31, 2026, we were in compliance with all covenants and other requirements set forth in the 2022 Credit Agreement and the Receivables Securitization Facility.
The weighted-average interest rate for our outstanding debt, including the Revolving Credit Facility, the Term Loan B, and the Receivables Securitization Facility was 5.24% and 5.94% as of May 31, 2026 and February 28, 2026, respectively. We are also obligated to pay a leverage-based commitment fee with various tiers between 0.15% and 0.25% per year for unused amounts under the Revolving Credit Facility. As of May 31, 2026, the commitment fee rate was 0.175%.
As of May 31, 2026, we had $515.0 million of debt outstanding, with varying maturities through fiscal 2030. We had approximately $359.4 million of additional credit available as of May 31, 2026.
Letters of Credit
As of May 31, 2026, we had outstanding letters of credit in the amount of $10.6 million. These standby letters of credit are primarily issued to support insurance deductibles and other collateral requirements.
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 June 30, 2025, we entered into a new fixed-rate interest rate swap agreement (the "2025 Swap"). The 2025 Swap converts the SOFR-based component of the interest rate to 3.759%. As of May 31, 2026, the 2025 Swap resulted in a total fixed rate of 5.509%. The 2025 Swap has a notional amount of $290.0 million and a maturity date of June 30, 2027. The objective of the 2025 Swap is to eliminate the variability of cash flows in interest payments attributable to changes in benchmark one-month SOFR interest rates. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month SOFR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable-rate debt. We designated the 2025 Swap as a cash flow hedge at inception. Cash settlements, in the form of cash payments or cash receipts, of the 2025 Swap are recognized in interest expense.
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.
We classify cash flows from distributions using the cumulative earnings method. Cash received is classified as return on investment in operating cash flows to the extent that cumulative earnings exceed cumulative distributions, less distributions received in prior periods that were deemed returns of investment. We did not receive cash distributions from the AVAIL JV during the three months ended May 31, 2026. During the three months ended May 31, 2025, we received cash distributions from the AVAIL JV of $273.2 million.
Share Repurchase Program
During the three months ended May 31, 2026, we did not repurchase any shares of common stock under the 2020 Share Authorization or the 2026 Share Repurchase Program. As of May 31, 2026, there was $33.2 million and $100.0 million remaining to repurchase shares under the 2020 Authorization and the 2026 Share Repurchase Program, respectively. See "Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds."
Other Exposures
We have exposure to commodity price increases in all three of our operating segments, primarily zinc and natural gas in the AZZ Metal Coatings segment, and natural gas, steel, and aluminum scrap in the AZZ Precoat Metals segment. We attempt to minimize these increases by entering into agreements with our zinc suppliers and such agreements generally include fixed premiums, and by entering into agreements with our natural gas suppliers to fix a portion of our purchase cost. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing process, supply chain management, and through increases in prices to match inflationary increases where competitively feasible. We have indirect exposure to copper, aluminum, steel and nickel-based alloys in the AZZ Infrastructure Solutions segment through our 40% investment in the AVAIL JV.
Off Balance Sheet Arrangements and Contractual Obligations
As of May 31, 2026, we did not have any off-balance sheet arrangements as defined under SEC rules. Specifically, there were no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on the financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes.
There were no significant changes to our critical accounting policies and estimates compared to the critical accounting policies and estimates disclosed in "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations", of our Annual Report on Form 10-K for the year ended February 28, 2026.
Recent Accounting Pronouncements
See "Item I. Financial Statements-Note 1" for a full description of recent accounting pronouncements, including the actual and expected dates of adoption and estimated effects on our consolidated results of operations and financial condition, which is incorporated herein by reference.
Non-GAAP Disclosures
In addition to reporting financial results in accordance with Generally Accepted Accounting Principles in the United States ("GAAP"), we provide Adjusted Net Income, Adjusted Earnings per Share and Adjusted EBITDA (collectively, the "Adjusted Earnings Measures"), which are non-GAAP measures. Management believes that the presentation of these measures provides investors with greater transparency when comparing operating results across a broad spectrum of companies, which provides a more complete understanding of our financial performance, competitive position, prospects for future capital investment and debt reduction. Management also believes that investors regularly rely on non-GAAP financial measures, such as Adjusted Net Income, Adjusted Earnings per Share and Adjusted EBITDA to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP.
In calculating adjusted net income and adjusted earnings per share, management excludes the following items from the reported GAAP measure: 1) intangible asset amortization, 2) restructuring charges, 3) certain legal settlements and accruals, 4) retirement and other severance expenses, 5) redemption premium on Series A Preferred Stock, 6) additional stock compensation expense related to the adoption of our executive retiree long-term incentive program, 7) certain adjustments related to the Company's unconsolidated joint venture, and 8) the write-off of debt financing costs. Management defines Adjusted EBITDA as adjusted net income 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, as well as its capacity for making capital expenditures in the future.
Management provides non-GAAP financial measures for informational purposes and to enhance understanding of the Company's GAAP consolidated financial statements. Readers should consider these measures in addition to, but not instead of or superior to, the Company's financial statements prepared in accordance with GAAP, and undue reliance should not be placed on these non-GAAP financial measures. Additionally, these non-GAAP financial measures may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.
The following tables provide a reconciliation for the three months ended May 31, 2026 and 2025 between the non-GAAP Adjusted Earnings Measures to the most comparable measures, calculated in accordance with GAAP (in thousands, except per share data):
Adjusted Net Income and Adjusted Earnings Per Share
Three Months Ended May 31,
2026 2025
Amount
Per
Diluted Share(1)
Amount
Per
Diluted Share(1)
Net income $ 52,006 $ 1.72 $ 170,908 $ 5.66
Adjustments:
Amortization of intangible assets 5,726 0.19 5,734 0.19
Restructuring charges(2)
- - 3,827 0.13
Executive retiree long-term incentive program(3)
- - 2,185 0.07
AVAIL JV equity in earnings adjustment(4)
(1,348) (0.04) (165,826) (5.49)
Write-off of debt financing costs(5)
572 0.02 - -
Subtotal 4,950 0.16 (154,080) (5.10)
Tax impact(6)
(1,188) (0.04) 36,979 1.22
Total adjustments 3,762 0.12 (117,101) (3.88)
Adjusted net income and adjusted earnings per share (non-GAAP) $ 55,768 $ 1.85 $ 53,807 $ 1.78
Weighted average shares outstanding-Diluted for Adjusted earnings per share 30,159 30,217
See notes on page 38.
Adjusted EBITDA
Three Months Ended May 31,
2026 2025
Net income $ 52,006 $ 170,908
Interest expense 11,264 18,563
Income tax expense 14,012 54,928
Depreciation and amortization 23,519 21,827
Adjustments:
Restructuring charges(2)
- 3,827
Executive retiree long-term incentive program(3)
- 2,185
AVAIL JV equity in earnings adjustment(4)
(1,348) (165,826)
Adjusted EBITDA (non-GAAP) $ 99,453 $ 106,412
See notes on page 38.
Adjusted EBITDA by Segment
A reconciliation of Adjusted EBITDA by segment to net income is as follows (in thousands):
Three Months Ended May 31, 2026
Metal Coatings Precoat Metals Infra-
structure Solutions 		Corporate Total
Net income (loss) $ 56,549 $ 41,535 $ 509 $ (46,587) $ 52,006
Interest expense - - - 11,264 11,264
Income tax expense - - - 14,012 14,012
Depreciation and amortization 7,266 10,222 - 6,031 23,519
Adjustments:
AVAIL JV equity in earnings adjustment(4)
- - (1,348) - (1,348)
Adjusted EBITDA (non-GAAP) $ 63,815 $ 51,757 $ (839) $ (15,280) $ 99,453
See notes on page 38.
Three Months Ended May 31, 2025
Metal Coatings Precoat Metals Infra-
structure Solutions 		Corporate Total
Net income (loss) $ 50,671 $ 39,354 $ 173,443 $ (92,560) $ 170,908
Interest expense - - - 18,563 18,563
Income tax expense - - - 54,928 54,928
Depreciation and amortization 6,660 9,123 - 6,044 21,827
Adjustments:
Restructuring charges(2)
3,827 - - - 3,827
Executive retiree long-term incentive program(3)
358 - - 1,827 2,185
AVAIL JV equity in earnings adjustment(4)
- - (165,826) - (165,826)
Adjusted EBITDA (non-GAAP) $ 61,516 $ 48,477 $ 7,617 $ (11,198) $ 106,412
See notes on page 38.
Debt Leverage Ratio Reconciliation
Trailing Twelve Months Ended
May 31, 2026 February 28, 2026
Gross debt $ 515,000 $ 515,000
Less: Cash per bank statement (5,500) (13,227)
Add: Finance lease liability 15,256 13,746
Consolidated indebtedness $ 524,756 $ 515,519
Net income $ 198,357 $ 317,260
Depreciation and amortization 91,747 90,056
Interest expense 48,350 55,650
Income tax expense 62,140 103,055
EBITDA $ 400,594 $ 566,021
Cash items(7)
349 5,426
Non-cash items(8)
13,530 14,832
Equity in earnings, net of distributions (36,720) (209,733)
Adjusted EBITDA per Credit Agreement $ 377,753 $ 376,546
Net leverage ratio 1.4x 1.4x
(1)
Earnings per share amounts included in the "Adjusted Net Income and Adjusted Earnings Per Share" table above may not sum due to rounding differences.
(2)
Includes restructuring charges related to the closure of two surface technology facilities in our AZZ Metal Coatings segment. See "Item 1. Financial Statements-Note 17."
(3)
During the three months ended May 31, 2025, we recognized additional stock-based compensation expense of $2.2 million upon the adoption of the Executive Retiree Long-term Incentive Program. For further information regarding the adoption of the ERP, see "Item 1. Financial Statements-Note 15."
(4)
For the three months ended May 31, 2026, represents adjustments related to the loss recognized in fiscal year 2026 for the sale of AVAIL's Welding Services Business. During the first quarter of fiscal 2026, AVAIL completed the sale of the Electrical Products Group ("EPG") to nVent Electric plc. Following the completion of the sale, we received a distribution of $273.2 million during the three months ended May 31, 2025, exceeding the investment in the AVAIL JV of $107.4 million as of May 31, 2025. The excess distribution of $165.8 million was recorded as equity in earnings of unconsolidated subsidiary during the three months ended May 31, 2025. See "Item 1. Financial Statements-Note 8."
(5)
The write-off of $0.6 million of unamortized debt financing costs relates to the refinancing of our Revolving Credit Facility on May 7, 2026, which resulted in a partial extinguishment at the lender level. For further information, see "Item 1. Financial Statements-Note 10."
(6)
The non-GAAP effective tax rate for each of the periods presented is estimated at 24.0%.
(7)
Cash items include restructuring charges associated with the AZZ Metal Coatings segment and other accruals.
(8)
Non-cash items include stock-based compensation expense.
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