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Reiterates Fiscal Year 2023 Guidance; Provides Comparative Fiscal Year 2023 Financials Aligned to Continuing Operations
FORT WORTH, Texas, Feb. 16, 2023 /PRNewswire/ -- AZZ Inc.(NYSE: AZZ), the leading independent provider of hot-dip galvanizing and coil coating solutions, today announced financial guidance for fiscal year 2024. Fiscal year 2024 refers to the 12-month period beginning March 1, 2023 and ending on February 29, 2024. The Company also provides fiscal year 2023 quarterly comparative financials from continuing operations. The quarterly comparative financials reclassify the operations of the AZZ Infrastructure Solutions ("AIS") to discontinued operations for the first nine months of fiscal year 2023. Note that on September 30, 2022, AZZ and Fernweh Group LLC ("Fernweh") closed on the transaction whereby AZZ contributed its AIS segment to AIS Investment Holdings LLC and sold a controlling interest in AIS to Fernweh ("AIS JV").
Financial OutlookAZZ reiterates fiscal year 2023 guidance issued on January 9, 2023. In addition, the Company has recast financial information and fiscal year 2023 guidance on a continuing operations basis consistent with the Company's fiscal year 2024 guidance issued herein, in order to provide comparable current year guidance with expected future operations.
Reiterates Previously Issued FY2023 Guidance | Comparative FY2023 Guidance (Continuing Operations) | FY2024 Guidance (ContinuingOperations)(1) | ||||
Sales(2) | $1.27—$1.35 billion | $1.27—$1.35 billion | $1.40—$1.55 billion | |||
Adjusted EBITDA(3) | $285—$305 million | $245—$275 million | $300—$325 million | |||
Adjusted Diluted EPS(3)(4) | $4.05—$4.25 | $3.20—$3.60 | $3.85—$4.35 | |||
(1) FY2024 guidance excludes equity income from AZZ's minority interest in the AIS JV, as the business transitions from a public company to a private company. The AIS JV comprises the Company's Infrastructure Solutions segment. FY2024 guidance does not include the impact of any potential future acquisitions. | ||||||
(2) Sales for all guidance presented includes continuing operations only. | ||||||
(3) Adjusted EBITDA and Adjusted Diluted EPS for previously issued FY2023 guidance includes both continuing operations and discontinued operations. | ||||||
(4) Adjusted Diluted EPS and adjusted EBITDA for previously issued FY2023 guidance has been adjusted to add back depreciation and amortization related to the Precoat acquisition, as well as acquisition and transaction related expenditures. Comparative FY2023 guidance has been adjusted to add back acquisition and transaction related expenditures. Comparative FY2023 and FY2024 guidance has been adjusted to add back amortization associated with the Company's intangible assets stemming from previous acquisitions. | ||||||
Tom Ferguson, President and Chief Executive Officer of AZZ, said, "We are optimistic about our business prospects as we conclude fiscal year 2023 and enter fiscal 2024. Our focus in the year ahead will be to drive organic growth and margin enhancements in our Metal Coatings and Precoat Metals segments, with continued focus on market penetration, customer service, quality, and operational excellence. Also, as contemplated in our strategic rationale for the Precoat acquisition, we are eager to increase capacity to meet specific customer demand with the previously announced new coil coating plant near St. Louis, Missouri. We expect capital expenditures for fiscal year 2024 to be in the $80 million range, 30-40% projected for the greenfield plant construction (completion expected in FY25), and the balance allocated to maintenance, productivity, and environmental health & safety. We anticipate strong cash flow generation from earnings to support deleveraging efforts, with a debt reduction target of approximately $100 million resulting in net leverage on trailing adjusted EBITDA of approximately 3.0x by end of fiscal year 2024. Finally, with our strategically aligned metal coatings business at scale, we expect to drive incremental operational productivity and efficiency improvements, while further optimizing our corporate structure. AZZ is the leading pure play hot-dip galvanizing and coil coating company with irreplaceable footprints in our served markets. We generate industry-leading margins, returns and free cash flow. We have access to the capital necessary to sustain our operations, while actively pursuing initiatives to drive future growth and enhance shareholder value. We are excited about the opportunities ahead."
About AZZ Inc.AZZ Inc. is the leading independent provider of hot-dip galvanizing and coil coating solutions to a broad range of end-markets. Collectively, our business segments provide sustainable, unmatched metal coating solutions that enhance the longevity and appearance of buildings, products and infrastructure that are essential to everyday life.
Safe Harbor StatementCertain 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 press release may contain forward-looking statements that involve risks and uncertainties including, but not limited to, changes in customer demand for our products and services, including demand by the construction markets, industrial markets, and the metal coatings markets. In addition, within each of the markets we serve, our customers and our operations could potentially continue to be adversely impacted by the continuing impact of the COVID-19 pandemic, including governmental issued mandates regarding the same in the jurisdictions in which we operate, sell to or from whom we purchase. We could also experience additional increases in labor costs, components and raw materials, including zinc and natural gas, which are used in our hot-dip galvanizing process; supply-chain vendor delays; customer requested delays of our products or services; delays in additional acquisition opportunities; currency exchange rates; adequacy of financing, availability of experienced management and employees to implement AZZ's growth strategy; a downturn in market conditions in any industry relating to the products we inventory or sell or the services that we provide; economic volatility, including a prolonged economic downturn or macroeconomic conditions such as inflation or changes in the political stability in the United States and other foreign markets in which we operate; acts of war or terrorism inside the United States or abroad; and other changes in economic and financial conditions. AZZ has provided additional information regarding risks associated with the business, in Part I, Item 1A. Risk Factors, in AZZ's Annual Report on Form 10-K for the fiscal year ended February 28, 2022, and other filings with the Securities and Exchange Commission ("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 in 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.
Company Contact: David Nark, Senior Vice President of Marketing, Communications and Investor RelationsAZZ Inc.(817) 810-0095www.azz.com
Investor Contacts:Sandy Martin, Phillip KupperThree Part Advisors(214) 616-2207www.threepa.com
AZZ INC.ADJUSTED COMPARATIVE BALANCE SHEETS(1)(dollars in thousands, except per share data)(Unaudited)
| |||||||
February 28, | May 31, | August 31, | November 30, | ||||
2022 | 2022 | 2022 | 2022 | ||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ 12,082 | $ 97,998 | $ 11,340 | $ 3,290 | |||
Accounts receivable (net of allowance for credit losses of $4,716, $4,886, $5,801 and $5,763 as of February 28, 2022, May 31, 2022, August 31, 2022 and November 30, 2022, respectively) | 85,106 | 183,969 | 193,647 | 173,341 | |||
Inventories: | |||||||
Raw material | 81,022 | 133,113 | 137,841 | 137,100 | |||
Work-in-process | 840 | 1,103 | 1,716 | 1,763 | |||
Finished goods | 1,135 | 3,649 | 2,887 | 2,583 | |||
Contract assets | 2,866 | 79,484 | 82,897 | 78,560 | |||
Prepaid expenses and other | 1,583 | 12,205 | 13,044 | 9,997 | |||
Assets held for sale | 235 | 235 | — | — | |||
Current assets of discontinued operations | 201,664 | 208,641 | 215,068 | — | |||
Total current assets | 386,533 | 720,397 | 658,440 | 406,634 | |||
Property, plant and equipment, net | 193,358 | 454,873 | 496,125 | 491,367 | |||
Right-of-use assets | 13,954 | 23,937 | 25,550 | 24,248 | |||
Goodwill | 190,391 | 723,655 | 736,218 | 710,246 | |||
Intangibles and other assets, net | 39,115 | 553,407 | 478,284 | 481,121 | |||
Deferred tax assets | 3,464 | 3,144 | 3,622 | 3,438 | |||
Investment in joint venture | — | — | — | 82,420 | |||
Non-current assets of discontinued operations | 306,212 | 302,880 | 186,508 | — | |||
Total assets | $ 1,133,027 | $ 2,782,293 | $ 2,584,747 | $ 2,199,474 | |||
Liabilities and Shareholders' Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ 24,840 | $ 163,143 | $ 158,085 | $ 108,935 | |||
Income tax payable | 3,828 | 2,008 | 11,135 | — | |||
Accrued salaries and wages | 17,123 | 19,725 | 27,294 | 35,821 | |||
Accrued dividends on Series A Preferred Stock | — | — | 1,040 | 4,640 | |||
Other accrued liabilities | 12,873 | 46,538 | 52,512 | 51,402 | |||
Customer deposits | 294 | 393 | 323 | 536 | |||
Contract liabilities | — | — | 1,553 | 1,022 | |||
Lease liability, short-term | 3,289 | 4,972 | 5,386 | 5,399 | |||
Debt due within one year | — | 13,000 | 13,000 | 13,000 | |||
Current liabilities of discontinued operations | 88,283 | 84,635 | 79,932 | — | |||
Total current liabilities | 150,530 | 334,414 | 350,260 | 220,755 | |||
Debt due after one year, net | 226,484 | 1,594,777 | 1,238,170 | 1,010,648 | |||
Lease liability, long-term | 11,403 | 19,626 | 20,941 | 19,673 | |||
Deferred income taxes | 47,672 | 48,137 | 29,044 | 31,879 | |||
Other long-term liabilities | 5,366 | 74,803 | 65,090 | 64,006 | |||
Long-term liabilities of discontinued operations | 24,207 | 22,977 | 21,621 | — | |||
Total liabilities | 465,662 | 2,094,734 | 1,725,126 | 1,346,961 | |||
Commitments and contingencies | |||||||
Shareholders' equity: | |||||||
Series A Convertible Preferred Stock, $1 par, shares authorized 240; 0 shares issued and outstanding at February 28, 2022 and May 31, 2022, 240 shares issued and outstanding at August 31, 2022 and November 30, 2022 | — | — | 240 | 240 | |||
Common stock, $1 par, shares authorized 100,000; 24,688, 24,788, 24,862 and 24,876 shares issued and outstanding at February 28, 2022, May 31, 2022, August 31, 2022 and November 30, 2022, respectively | 24,688 | 24,788 | 24,862 | 24,876 | |||
Capital in excess of par value | 85,847 | 85,432 | 323,386 | 325,433 | |||
Retained earnings | 584,154 | 604,039 | 541,203 | 512,815 | |||
Accumulated other comprehensive loss | (27,324) | (26,700) | (30,070) | (10,851) | |||
Total shareholders' equity | 667,365 | 687,559 | 859,621 | 852,513 | |||
Total liabilities and shareholders' equity | $ 1,133,027 | $ 2,782,293 | $ 2,584,747 | $ 2,199,474 | |||
(1) The assets and liabilities of AIS have been classified as discontinued operations for all periods presented above to provide historical non-GAAP comparable financial results. | |||||||
AZZ INC.ADJUSTED COMPARATIVE STATEMENTS OF OPERATIONS(1)(dollars in thousands, except per share data)(Unaudited)
| |||||||
Three Months Ended | Nine Months Ended | ||||||
May 31, | August 31, | November 30, | November 30, | ||||
2022(2) | 2022 | 2022 | 2022 | ||||
Sales | $ 207,134 | $ 406,710 | $ 373,301 | $ 987,145 | |||
Cost of sales | 147,081 | 305,155 | 300,219 | 752,455 | |||
Gross margin | 60,053 | 101,555 | 73,082 | 234,690 | |||
Selling, general and administrative | 32,144 | 37,414 | 27,689 | 97,247 | |||
Operating income from continuing operations | 27,909 | 64,141 | 45,393 | 137,443 | |||
Interest expense | 7,472 | 28,144 | 26,123 | 61,739 | |||
Equity in (earnings) loss of unconsolidated subsidiaries | — | — | (1,006) | (1,006) | |||
Other (income) expense, net | (27) | 55 | (610) | (582) | |||
Income from continuing operations before income taxes | 20,464 | 35,942 | 20,886 | 77,292 | |||
Income tax expense | 5,111 | 10,822 | 2,447 | 18,380 | |||
Net income from continuing operations | 15,353 | 25,120 | 18,439 | 58,912 | |||
Income from discontinued operations, net of tax(3) | 8,724 | 6,737 | 1,665 | 17,126 | |||
Loss on disposal of discontinued operations, net of tax(3) | — | (89,427) | (40,646) | (130,073) | |||
Net income (loss) from discontinued operations | 8,724 | (82,690) | (38,981) | (112,947) | |||
Net income (loss) | 24,077 | (57,570) | (20,542) | (54,035) | |||
Dividends on Series A Preferred Stock | — | (1,040) | (3,600) | (4,640) | |||
Net income (loss) available to common shareholders | $ 24,077 | $ (58,610) | $ (24,142) | $ (58,675) | |||
Earnings per share: | |||||||
Basic earnings (loss) per share | |||||||
Earnings per common share from continuing operations | $ 0.62 | $ 0.97 | $ 0.60 | $ 2.19 | |||
Earnings per common share from discontinued operations | $ 0.35 | $ (3.33) | $ (1.57) | $ (4.55) | |||
Earnings per common share | $ 0.97 | $ (2.36) | $ (0.97) | $ (2.37) | |||
Diluted earnings (loss) per share | |||||||
Earnings per common share from continuing operations | $ 0.62 | $ 0.93 | $ 0.59 | $ 2.17 | |||
Earnings per common share from discontinued operations | $ 0.34 | $ (2.85) | $ (1.56) | $ (4.52) | |||
Earnings per common share | $ 0.96 | $ (1.91) | $ (0.97) | $ (2.35) | |||
Weighted average common shares outstanding | |||||||
Basic | 24,709 | 24,836 | 24,867 | 24,804 | |||
Diluted | 25,675 | 29,059 | 24,995 | 24,984 | |||
(1) The results of operations of AIS have been classified as discontinued operations for all periods presented above to provide historical non-GAAP comparable financial results. (2) Precoat Metals was acquired on May 13, 2022 and includes results of operations as of and for the period from May 13, 2022 through May 31, 2022 and for all subsequent periods in the table above. (3) For the three months ended November 30, 2022, a tax reclass of $596 was subsequently made between "Income from discontinued operations, net of tax" and "Loss on disposal of discontinued operations, net of tax," that is reflected prospectively in the statements of operations. | |||||||
AZZ INC.ADJUSTED SEGMENT REPORTING(1)(dollars in thousands)(Unaudited)
| |||||||
Three Months Ended | Nine Months Ended | ||||||
May 31, | August 31, | November 30, | November 30, | ||||
2022 | 2022 | 2022 | 2022 | ||||
Sales: | |||||||
Metal Coatings | $ 163,443 | $ 165,850 | $ 158,274 | $ 487,567 | |||
Precoat Metals | 43,691 | 240,860 | 215,027 | 499,578 | |||
Total sales | $ 207,134 | $ 406,710 | $ 373,301 | $ 987,145 | |||
Adjusted EBITDA(2): | |||||||
Metal Coatings | 53,668 | 53,028 | 41,895 | 148,591 | |||
Precoat Metals | 9,829 | 49,583 | 34,434 | 93,846 | |||
Total segment adjusted EBITDA | $ 63,497 | $ 102,611 | $ 76,329 | $ 242,437 | |||
(1) The sales and adjusted EBITDA related to the AIS segment have been classified as discontinued operations for all periods presented above to provide historical non-GAAP comparable financial results, and therefore, are excluded from the table above. (2) See the Non-GAAP disclosure section below for a reconciliation between income from continuing operations calculated in accordance with GAAP to adjusted EBITDA. | |||||||
Non-GAAP Disclosure
In addition to reporting financial results in accordance with Generally Accepted Accounting Principles in the United States ("GAAP"), we provided adjusted earnings and adjusted earnings per share, (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 earnings and adjusted earnings per share, to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP.
Management also provides Adjusted EBITDA, which is a non-GAAP measure. Management defines Adjusted EBITDA as earnings excluding depreciation, amortization, interest, provision for income taxes and acquisition and transaction related expenses. 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. Adjusted EBITDA is also useful to investors to help assess the Company's estimated enterprise value. In addition, management believes that the adjustments shown below are useful to investors in order to allow them to compare the Company's financial results during the periods shown without the effect of each of these adjustments.
Management provides non-GAAP financial measures for informational purposes and to enhance understanding of the Company's GAAP consolidated financial statements. Readers should consider these measures in addition to, but not instead of or superior to, the Company's financial statements prepared in accordance with GAAP. These non-GAAP financial measures may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.
Adjusted Earnings and Adjusted Earnings Per ShareThe following tables provide a reconciliation for the three months ended May 31, 2022, August 31, 2022 and November 30, 2022 and for the nine months ended November 30, 2022 between the various measures calculated in accordance with GAAP to the Adjusted Earnings Measures (in thousands, except per share data):
AZZ INC.RECAST RECONCILIATION OF NON-GAAP DISCLOSURES(1)
| ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
May 31, 2022 | August 31, 2022 | November 30, 2022 | November 30, 2022 | |||||||||||||
Amount | Per Diluted Share(2) | Amount | Per Diluted Share(2) | Amount | Per Diluted Share(2) | Amount | PerDiluted Share(2) | |||||||||
Net income from continuing operations | $ 15,353 | $ 25,120 | $ 18,439 | $ 58,912 | ||||||||||||
Less: Series A Preferred Stock dividends | — | (1,040) | (3,600) | (4,640) | ||||||||||||
Net income (loss) from continuing operations available to common shareholders | 15,353 | 24,080 | 14,839 | 54,272 | ||||||||||||
Impact of after-tax interest expense for Convertible Notes | 547 | 2,006 | — | — | ||||||||||||
Impact of Series A Preferred Stock dividends | — | 1,040 | — | — | ||||||||||||
Net income available to common shareholders and diluted earnings per share from continuing operations | $ 15,900 | $ 0.62 | $ 27,126 | $ 0.93 | $ 14,839 | $ 0.59 | $ 54,272 | $ 2.17 | ||||||||
Adjustments: | ||||||||||||||||
Acquisition and transaction related expenditures(3) | 12,614 | 0.49 | 2,706 | 0.09 | — | — | 15,320 | 0.61 | ||||||||
Amortization of intangible assets | 3,541 | 0.14 | 7,941 | 0.27 | 6,133 | 0.25 | 17,615 | 0.70 | ||||||||
Subtotal | 16,155 | 0.63 | 10,647 | 0.37 | 6,133 | 0.25 | 32,935 | 1.32 | ||||||||
Tax impact(4) | (3,877) | (0.15) | (2,555) | (0.09) | (1,472) | (0.06) | (7,904) | (0.32) | ||||||||
Total adjustments | 12,278 | 0.48 | 8,092 | 0.28 | 4,661 | 0.19 | 25,031 | 1.00 | ||||||||
Adjusted earnings and adjusted earnings per share from continuing operations | $ 28,178 | $ 1.10 | $ 35,218 | $ 1.21 | $ 19,500 | $ 0.78 | $ 79,303 | $ 3.17 | ||||||||
(1) The table above presents adjusted earnings and earnings per share for continuing operations; the operations of AIS have been classified as discontinued operations for all periods presented above to provide historical non-GAAP comparable financial results, and therefore, are excluded from the table above. | ||||||||||||||||
(2) Earnings per share amounts included in the table above may not sum due to rounding differences. Earnings per share for each quarter do not sum to the year-to-date earnings per share amounts due to the impact of the Convertible Notes and the Series A Preferred Stock, which were dilutive for the three months ended May 31, 2022 and August 31, 2022, but were anti-dilutive for the three and nine months ended November 30, 2022. | ||||||||||||||||
(3) Includes Corporate expenses related to the Precoat Metals acquisition, as well as the divestiture of the AZZ Infrastructure Solutions business into the AIS JV. | ||||||||||||||||
(4) Tax expense consists of: 21% federal statutory rate and 3% blended state tax rate for all adjustments. | ||||||||||||||||
Adjusted EBITDA
The following tables provide a reconciliation for the three months ended May 31, 2022, August 31, 2022 and November 30, 2022 and for the nine months ended November 30, 2022 between the various measures calculated in accordance with GAAP to Adjusted EBITDA (in thousands):
AZZ INC.RECAST RECONCILIATION OF NON-GAAP DISCLOSURES(1)
| |||||||
Three Months Ended | Nine Months Ended | ||||||
May 31, | August 31, | November 30, | November 30, | ||||
2022 | 2022 | 2022 | 2022 | ||||
Net income from continuing operations | $ 15,353 | $ 25,120 | $ 18,439 | $ 58,912 | |||
Interest expense | 7,472 | 28,144 | 26,123 | 61,739 | |||
Income tax (benefit) expense | 5,111 | 10,822 | 2,447 | 18,380 | |||
Depreciation and amortization | 11,973 | 21,902 | 21,938 | 55,813 | |||
Acquisition and transaction-related expenditures | 12,614 | 2,706 | — | 15,320 | |||
Adjusted EBITDA from continuing operations | $ 52,523 | $ 88,694 | $ 68,947 | $ 210,164 | |||
(1) The table above presents Adjusted EBITDA for continuing operations; the operations of AIS have been classified as discontinued operations for all periods presented above to provide historical non-GAAP comparable financial results, and therefore, are excluded from the table above. | |||||||
Adjusted EBITDA by Segment
| ||||||||
Three Months Ended | Nine Months Ended | |||||||
May 31, | August 31, | November 30, | November 30, | |||||
2022 | 2022 | 2022 | 2022 | |||||
Metal Coatings | ||||||||
Net income (loss) | $ 45,274 | $ 43,586 | $ 32,972 | $ 121,832 | ||||
Interest Expense | 5 | 7 | 9 | 21 | ||||
Income Tax Expense | — | 1,264 | 689 | 1,953 | ||||
Depreciation and Amortization Expense | 8,389 | 8,171 | 8,225 | 24,785 | ||||
Adjusted EBITDA | 53,668 | 53,028 | 41,895 | 148,591 | ||||
Precoat Metals | ||||||||
Net income (loss) | $ 6,662 | $ 36,324 | $ 21,235 | $ 64,221 | ||||
Interest Expense | (14) | (70) | (182) | (266) | ||||
Income Tax Expense | — | — | — | — | ||||
Depreciation and Amortization Expense | 3,181 | 13,329 | 13,381 | 29,891 | ||||
Adjusted EBITDA | 9,829 | 49,583 | 34,434 | 93,846 | ||||
Corporate | ||||||||
Net income (loss) | $ (36,583) | $ (54,790) | $ (35,768) | $ (127,141) | ||||
Net income from continuing operations | $ 15,353 | $ 25,120 | $ 18,439 | $ 58,912 | ||||
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SOURCE AZZ Inc.
