AZZ INC (AZZ)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with "Item 8. Financial Statements and Supplementary Data." This discussion contains forward-looking statements regarding our business and operations; see "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K. Our actual results may differ materially from those we currently anticipate as a result of the factors we describe under "Item 1A. Risk Factors" and elsewhere in this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations as well as our liquidity and capital resources for fiscal year 2024 compared to fiscal year 2023 can be found under "Item 7. Management's Discussion and Analysis" in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024, filed with the SEC on April 22, 2024, which such discussion is hereby incorporated by reference.

Overview

We are a provider of hot-dip galvanizing and coil coating solutions to a broad range of end-markets 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, which consists of the Company's 40% investment in a joint venture, AIS Investment Holdings LLC (the "AVAIL JV"). Our discussion and analysis of financial condition and results of operations is presented for each of our segments, along with corporate costs and other costs not specifically identifiable to a segment. For a reconciliation of segment operating income (loss) from continuing operations to consolidated operating income, see "Item 8. Financial Statements and Supplementary Data—Note 18". References herein to fiscal years are to the twelve-month periods that end in February of the relevant calendar year. For example, the twelve-month period ended February 28, 2025 is referred to as "fiscal 2025," "fiscal year 2025", "current year" or "current period", and the twelve-month period ended February 29, 2024 is referred to as "fiscal 2024," "fiscal year 2024," "prior year" or "prior year period."

Business Operations Update

Our results for the year ended February 28, 2025 were favorably impacted by the growth in demand for our manufactured solutions, primarily in the construction industry.

The demand for our manufactured solutions was the primary contributor to net income available to common shareholders of $52.4 million for the year ended February 28, 2025. Our operating results for fiscal 2025, 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 $249.9 million of cash in fiscal 2025. 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, we have noted several factors below that have impacted or may impact our results of operations during the first quarter of fiscal 2026.

•Sales prices in our AZZ Metal Coatings segment are expected to remain consistent with current levels.

•Sales prices in our AZZ Precoat Metals segment are expected to remain consistent with current levels, with expected seasonal fluctuations in mix due to an increase in construction business, which 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 historical levels, which should support the continued demand for our coil coating solutions.

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Results of Operations

Net income (loss) from continuing operations by segment for fiscal 2025 and 2024 were as follows (in thousands):

See notes on page 25.

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For the fiscal year ended February 28, 2025, we recorded sales of $1,577.7 million, compared to prior year’s sales of $1,537.6 million. Of total sales for fiscal 2025, 42.2% were generated from the AZZ Metal Coatings segment and 57.8% of sales were generated from the AZZ Precoat Metals segment. Net income from continuing operations for fiscal 2025 was $128.8 million, compared to $101.6 million for fiscal 2024. Net income from continuing operations as a percentage of sales was 8.2% for fiscal 2025 as compared to 6.6% for fiscal 2024. Diluted earnings per common share from continuing operations decreased by 48.3%, to $1.79 per share for fiscal 2025, compared to $3.46 per share for fiscal 2024. The decrease was primarily due to the redemption of the Series A Preferred Stock. See "Liquidity and Capital Resources—Series A Convertible Preferred Stock."

Sales

Sales for the AZZ Metal Coatings segment increased $8.9 million, or 1.4%, to $665.1 million, from the prior year’s sales of $656.2 million. The increase in sales was primarily due to a higher volume of steel processed which contributed $17.8 million, partially offset by a decrease in selling price, which decreased sales by $4.6 million. In addition, other sales decreased by $4.3 million.

Sales for the AZZ Precoat Metals segment increased $31.2 million, or 3.5%, to $912.6 million, from the prior year's sales of $881.4 million. The increase in sales was due to an increase in volume of metal coated during fiscal 2025 compared to the prior year, partially offset by a slight decrease in selling price, due to product mix.

Operating Income

Operating income for the AZZ Metal Coatings segment increased $13.7 million, or 8.3%, for fiscal 2025, to $178.5 million, as compared to $164.7 million for the prior year. The increase is due to net increase in sales as described above, lower cost of sales and lower selling, general and administrative expenses. Cost of sales decreased $0.9 million, primarily due to a decrease in zinc costs, offset by higher labor and overhead costs. The decrease in selling, general and administrative expense was primarily due to a legal accrual and related expenses of $5.5 million recognized in the prior year.

Operating income for the AZZ Precoat Metals segment increased $8.3 million, or 5.9%, for fiscal 2025, to $147.8 million, as compared to $139.6 million for the prior year. The increase is primarily due to the increase in sales as described above, partially offset by an increase in cost of sales, primarily driven by higher cost of labor and materials (mainly due to higher volume). Selling, general and administrative expense increased due to higher employee related costs, travel, other indirect costs.

Operating loss for the AZZ Infrastructure solutions segment increased $0.5 million, or 7.9%, for fiscal 2025, to $(6.7) million, as compared to $(6.2) million for the prior year. The increase is due to the recognition of $1.2 million in litigation fees and the write-off of $5.2 million for a disputed receivable that was retained following the sale of the AIS business, following an unfavorable resolution of the litigation matter. For additional detail, see "Item 8. Financial Statements and Supplementary Data—Note 22."

Corporate Expenses

Corporate expenses increased $6.7 million, to $83.2 million for fiscal 2025, compared to $76.5 million for fiscal 2024. The increase is 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 expenses related to the Company's employee stock purchase plan, due to the increase in AZZ's common stock price; a legal

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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, with no comparable receipt in the current year.

Interest Expense

Interest expense for fiscal 2025 decreased $25.8 million, to $81.3 million, as compared to $107.1 million in fiscal 2024. The decrease is primarily attributable to a decrease of $110.3 million in our weighted average debt outstanding and a decrease in the weighted average interest rate of 121 basis points. The decrease is also due to higher capitalized interest of $4.4 million in the current year period associated with the new facility under construction in Washington, Missouri. See "Liquidity and Capital Resources—Greenfield Aluminum Coil Coating Facility" below for more information.

Equity in Earnings of Unconsolidated Entities

Equity in earnings of unconsolidated subsidiaries for the current period increased $0.8 million, to $16.2 million, compared to $15.4 million in the prior year period. The increase is due to higher earnings from the AVAIL JV, primarily in their electrical business. See "Item 8. Financial Statements and Supplementary Data—Note 19" for more information about the AVAIL JV.

Other (Income) Expense, Net

Other expense, net was $0.6 million for fiscal 2025, compared to other income, net of $0.2 million for fiscal 2024. The increase in expense is primarily due to foreign currency losses primarily attributed to our operations in Canada, partially offset by interest income.

Income Taxes

The provision for income taxes from continuing operations was 24.5% for fiscal 2025 compared to 21.9% for fiscal 2024. The increase in the effective tax rate is primarily attributable to favorable adjustments for fiscal 2024 related to uncertain tax positions, partially offset by higher tax deductions for stock compensation in fiscal 2025. The increase is also attributable to non-deductible items such as compensation limited by IRC Sec. 162(m) and meals & entertainment subject to the 50% limitation under IRC Sec. 274(n). The increase also relates to higher state tax expense, net of federal benefit, and lower R&D tax credits following the divestiture of the AIS business.

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Liquidity and Capital Resources

We have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt. Our cash requirements generally include cash dividend payments, capital improvements, debt repayment and acquisitions. 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 next twelve months and beyond.

As of February 28, 2025, our total liquidity of $356.1 million consisted of available capacity on our Revolving Credit Facility of $354.6 million plus 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):

Net cash provided by operating activities of continuing operations for fiscal 2025 was $249.9 million, driven primarily by: net income from continuing operations of $128.8 million, adjusted to exclude non-cash charges, net of non-cash income of $96.5 million; a decrease in cash from changes in other long-term assets and long-term liabilities of $13.1 million; an increase in cash from deferred tax of $8.0 million; an increase in cash resulting from a decrease in working capital of $17.1 million; and cash distributions on the investment in the AVAIL JV of $12.6 million. The decrease in working capital is primarily due to an increase in accounts payable, accrued expenses and income taxes payable, as well as a decrease in inventories, other receivables and accounts receivable, due to improved management of collections of trade and other receivables, and due to improved management of inventory needs. These decreases were offset by an increase in contract assets, which increased working capital. Net cash provided by operating activities was used to fund $115.9 million of capital expenditures, make net payments on long term debt and finance leases liabilities of $111.0 million, make dividend payments of $23.1 million and make payments for taxes related to net share settlement of equity awards of $5.2 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 $13.3 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 of continuing operations for fiscal 2024 was $244.5 million, driven primarily by net income from continuing operations of $101.6 million, adjusted to exclude non-cash charges, net of non-cash income, of $85.7 million, an increase in cash resulting from a reduction in working capital of $54.0 million, and a cash distribution on the investment in the AVAIL JV of $3.1 million. The reduction in working capital is due primarily to a reduction in accounts receivable, other receivables and inventories due to improved management of collections of trade and other receivables, and due to improved management of inventory needs. Net cash provided by operating activities was used to fund $95.1 million of capital expenditures, make net payments on long term debt and finance leases liabilities of $115.4 million and make dividend payments of $31.4 million.

See "Financing and Capital" section below for additional information.

Financing and Capital

2022 Credit Agreement and Term Loan B

We have a credit agreement with a syndicate of financial institutions as lenders that was entered into on May 13, 2022 and was subsequently amended on August 17, 2023, December 20, 2023, March 20, 2024, September 24, 2024 and February 27, 2025 (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 February 28, 2025, the outstanding balance of the Term Loan B was $870.3 million;

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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 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 1.75% and 2.75%; following the repricing on February 27, 2025, as described below, the interest rate as of February 28, 2025, was SOFR plus 2.25%;

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.

During fiscal 2025, we repriced our Revolving Credit Facility and Term Loan B, which amended the 2022 Credit Agreement as follows:

i.On March 20, 2024, we repriced our Term Loan B. The repricing reduced the margin from SOFR plus 3.75% to SOFR plus 3.25%.

ii.On September 24, 2024, we repriced the Term Loan B. The repricing reduced the margin from SOFR plus 3.25% to SOFR plus 2.50%.

iii.On February 27, 2025, we repriced the Revolving Credit Facility, which has a leverage-based rate with various tiers. The repricing reduced the interest rate tiers from SOFR plus 2.75% to 3.50% to SOFR plus 1.75% to 2.75%.

During fiscal 2024, we repriced our Revolving Credit Facility and Term Loan B, which amended the 2022 Credit Agreement as follows:

i.On August 17, 2023, we repriced the Term Loan B. The repricing reduced the margin from SOFR plus 4.25% to SOFR 3.75% and removed the Credit Spread Adjustment, as defined in the 2022 Credit Agreement, of 10 basis points.

ii.On December 20, 2023, we repriced the Revolving Credit Facility. The repricing reduced the margin from 4.25% to a leverage-based rate with various tiers ranging from SOFR plus 2.75% to 3.50%.

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 7.54% and 8.58% as of February 28, 2025 and February 29, 2024, respectively. We are also obligated to pay a leverage-based commitment fee with various tiers between 0.20% and 0.30% per year for unused amounts under the Revolving Credit Facility. As of February 28, 2025, the commitment fee rate was 0.225%.

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 February 28, 2025, we were in compliance with all covenants and other requirements set forth in the 2022 Credit Agreement.

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 for $308.9 million. The payment was calculated as the face value of the Series A Preferred Stock of $240.0 million, multiplied by

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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.

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 May 9, 2024, at which time the Series A Preferred Stock was redeemed. The dividend would have increased annually by one percentage point, beginning with the dividend payable for the calendar quarter ending September 30, 2028. Dividends declared and paid for the fiscal years ended February 28, 2025 and February 29, 2024 were $3.6 million and $14.4 million, respectively.

Letters of Credit

As of February 28, 2025, we had total outstanding letters of credit in the amount of $15.4 million. These letters of credit are issued for a number of reasons, but are most commonly issued in lieu of customer retention withholding payments covering warranty, performance periods and insurance collateral.

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%. The 2022 Swap had an initial notional amount of $550.0 million and a maturity date of September 30, 2025. The notional amount of the interest rate swap decreases by a pro-rata portion of any quarterly principal payments made on the Term Loan B, and the notional amount is $536.3 million as of February 28, 2025. 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. 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 2022 Swap as a cash flow hedge at inception. Cash settlements, in the form of cash payments or cash receipts, of the 2022 Swap are recognized in interest expense.

Other

We plan to contribute $6.0 million to our pension plan during fiscal 2026. See "Item 8. Financial Statements and Supplementary Data—Note 16" for a discussion of our employee benefit plans.

As of February 28, 2025, we had $900.3 million of debt outstanding on the Revolving Credit Facility and the Term Loan B, with varying maturities through fiscal 2029. We had approximately $354.6 million of additional credit available as of February 28, 2025.

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 $121.8 million in capital payments over the life of the project, of which $60.8 million was paid prior to fiscal 2025 and $52.8 million was paid during fiscal 2025. The remaining balance of $8.2 million is on schedule to occur by the first quarter of fiscal 2026, of which we have capital commitments of $7.5 million. The remaining payments through fiscal 2026 are expected to be funded through cash flows from operations.

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Share Repurchase Program

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.

During fiscal 2025, to prioritize repayments of debt, we did not repurchase shares of common stock under the 2020 Share Authorization. As of February 28, 2025, there was $53.2 million remaining to repurchase shares under the 2020 Authorization.

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, as well as 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 Commitments

As of February 28, 2025, 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.

As of February 28, 2025, we had non-cancelable forward contracts to purchase approximately $98.7 million of zinc at various volumes and prices. We also had non-cancelable forward contracts to purchase approximately $6.7 million of natural gas at various volumes and prices. All such contracts expire in 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.

As of February 28, 2025, we had outstanding letters of credit in the amount of $15.4 million. These letters of credit are issued for a number of reasons, but are most commonly issued to support collateral requirements with insurance companies.

As of February 28, 2025, we have contractual commitments related to the construction of the coil coating facility in Washington, Missouri of $7.5 million that are expected to be paid in the next 12 months. See "Greenfield Aluminum Coil Coating Facility" section above. See "Item 8. Consolidated Financial Statements and Supplementary Data—Note 22" for a discussion of our contractual commitments related to our leases.

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. Actual results may differ from these estimates under different assumptions or conditions. The SEC defines critical accounting estimates as those made in accordance with U.S. GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on a company's financial condition or results of operations. We consider the following accounting estimates to meet this definition because they are dependent on our judgement and assumptions about matters that are inherently uncertain and represent our more critical estimates.

Impairment of Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination and is not amortized. We test goodwill for potential impairment annually as of December 31, or more frequently, if an event occurs or circumstances change that would more-likely-than-not reduce the reporting unit's fair value below its carrying amount.

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If no impairment indicators are present, we may first perform a qualitative assessment of goodwill to determine whether a quantitative assessment is necessary. If we perform a quantitative assessment for the annual goodwill impairment test, then we use the income approach. The income approach uses Level 3 fair value inputs, such as future cash flows and estimated terminal values for our reporting units that are discounted using a market participant perspective to determine the fair value of the reporting unit, which is then compared to the carrying value of that reporting unit to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates, discounted by an estimated weighted-average cost of capital derived from other publicly traded companies that are similar but not identical from an operational and economic standpoint. A significant change in events, circumstances or any of these assumptions could result in an impairment of long-lived assets, including identifiable intangible assets. Variables impacting future cash flows include, but are not limited to, the level of customer demand for and response to manufactured solutions we offer to the construction, industrial, consumer, transportation, electrical, and utility markets, changes in economic conditions of these various markets, assumptions about future sales, zinc and natural gas prices, operating costs, margins and the availability of experienced labor and management to implement our growth strategies.

Long-lived assets and Intangible assets

Long-lived assets, including property and equipment and intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Indefinite-lived intangible assets are evaluated for impairment on an annual basis, as of December 31. Impairment is measured by a comparison of the carrying amount to the estimated undiscounted cash flows to be generated by those assets. If the undiscounted cash flows are less than the carrying amount, we record impairment losses for the excess of their carrying value over the estimated fair value.

We make estimates of projected cash flows when performing our impairment evaluation. These estimates include, but are not limited to, assumptions about future sales, zinc and natural gas prices, operating costs, margins, the use or disposition of the asset, the asset's estimated remaining useful life, and future expenditures necessary to maintain the asset's existing service potential. Due to the significant subjectivity of the assumptions used to test for recoverability, changes in market conditions could result in significant impairment charges in the future, which would impact our net income.

Accruals for Contingent Liabilities

We are subject to the possibility of various loss contingencies arising in the normal course of business. The amounts we may record for estimated claims, such as self-insurance programs, warranty, environmental, legal, and other contingent liabilities, requires us to make judgments regarding the amount of expenses that will ultimately be incurred. We use past history and experience as well as other specific circumstances surrounding these claims in evaluating the amount of liability that should be recorded. Due to the inherent limitations in estimating future events, actual amounts paid or transferred may differ from those estimates.

Business Combinations

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

Recent Accounting Pronouncements

See "Part II. Item 8. Financial Statements and Supplementary Data—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

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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, certain legal settlements and accruals, and certain expenses related to non-recurring events from the reported GAAP measure. Management defines Adjusted EBITDA as adjusted net income excluding depreciation, amortization, interest, provision for income taxes and Series A Preferred Stock dividends. 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 years ended February 28, 2025 and February 29, 2024 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 from Continuing Operations

See notes on page 35.

Adjusted EBITDA from Continuing Operations

See notes on page 35.

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Adjusted EBITDA from Continuing Operations by Segment

See notes on page 35.

See notes on page 35.

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Debt Leverage Ratio Reconciliation

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with "Item 8. Financial Statements and Supplementary Data." This discussion contains forward-looking statements regarding our business and operations; see "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K. Our actual results may differ materially from those we currently anticipate as a result of the factors we describe under "Item 1A. Risk Factors" and elsewhere in this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations as well as our liquidity and capital resources for fiscal year 2023 compared to fiscal year 2022 can be found under "Item 7. Management's Discussion and Analysis" in our Annual Report on Form 10-K for the fiscal year ended February 28, 2023, filed with the SEC on April 25, 2023, which such discussion is hereby incorporated by reference.

Overview

We are a provider of hot-dip galvanizing and coil coating solutions to a broad range of end-markets 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, which consists of the Company's 40% investment in a joint venture, AIS Investment Holdings LLC (the "AVAIL JV"). On September 30, 2022, we contributed our AZZ Infrastructure Solutions business (the "AIS business"), excluding AZZ Crowley Tubing, to the AVAIL JV and sold a 60% interest to Fernweh AIS Acquisition LP. Following the transaction on September 30, 2022, we account for our retained investment in the AVAIL JV as an equity method investment, and our equity in the earnings of the AVAIL JV are included in continuing operations. Therefore, the results of operations for the AIS business for the period from March 1, 2022 through September 30, 2022 were reported as discontinued operations, and financial data was segregated and presented as discontinued operations for this period. Our discussion and analysis of financial condition and results of operations is presented for each of our segments, along with corporate costs and other costs not specifically identifiable to a segment. For a reconciliation of segment operating income (loss) from continuing operations to consolidated operating income, see "Item 8. Financial Statements and Supplementary Data—Note 18". References herein to fiscal years are to the twelve-month periods that end in February of the relevant calendar year. For example, the twelve-month period ended February 29, 2024 is referred to as "fiscal 2024," "fiscal year 2024", "current year" or "current period", and the twelve-month period ended February 28, 2023 is referred to as "fiscal 2023," "fiscal year 2023," "prior year" or "prior period."

Business Operations Update

Our results for the year ended February 29, 2024 were favorably impacted by the continued demand for our manufactured solutions in the construction, industrial, consumer and transportation industries, coupled with our value driven pricing strategy.

The demand for our manufactured solutions and continued strength in pricing were the primary contributors to us reporting $87.2 million of net income attributable to common shareholders for the year ended February 29, 2024. Our operating results for fiscal 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 $244.5 million of cash in fiscal 2024, which includes $54.0 million generated from reduction in working capital. The cash flows were used to make $95.1 million of capital investments in our business and return $31.4 million to our common and preferred shareholders through dividend payments. In addition, we reduced our outstanding debt through $115.0 million in net payments on our Term Loan B and revolving credit facility. As a result of this and other activity, our cash and cash equivalents were $4.3 million as of February 29, 2024, an increase of $1.5 million from February 28, 2023. As of February 29, 2024, we had $355.5 million available under the revolving credit facility. 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, we have noted several factors below that have impacted or may impact our results of operations during the first quarter of fiscal 2025.

•Sales prices in our AZZ Metal Coatings segment are expected to remain consistent with current levels.

•Sales prices in our AZZ Precoat Metals segment are expected to remain consistent with current levels, with expected seasonal fluctuations in mix due to an increase in construction business, which may impact the average selling price.

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•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 constant, which should support the continued demand for our metal coatings solutions.

•Customer inventories for our AZZ Precoat Metals segment remain at historical levels, which should support the continued demand for our coil coating solutions.

Results of Operations

Net income (loss) from continuing operations by segment for fiscal 2024 and 2023 were as follows (in thousands):

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For the fiscal year ended February 29, 2024, we recorded sales of $1,537.6 million, compared to prior year’s sales of $1,323.6 million. Of total sales for fiscal 2024, 42.7% were generated from the AZZ Metal Coatings segment and 57.3% of sales were generated from the AZZ Precoat Metals segment. Net income from continuing operations for fiscal 2024 was $101.6 million, compared to $66.3 million for fiscal 2023. Net income from continuing operations as a percentage of sales was 6.6% for fiscal 2024 as compared to 5.0% for fiscal 2023. Diluted earnings per common share from continuing operations increased by 48.5%, to $3.46 per share for fiscal 2024, compared to $2.33 per share for fiscal 2023.

On May 13, 2022, we completed the Precoat Acquisition.

Sales

Sales for the AZZ Metal Coatings segment increased $19.2 million, or 3.0%, to $656.2 million, from the prior year’s sales of $637.0 million. The increase in sales was primarily due to an increase in selling price, which contributed $13.3 million and a higher volume of steel processed, which contributed $9.5 million. This increase was partially offset by a net decrease of $3.6 million in sales of other products.

Sales for the AZZ Precoat Metals segment increased $194.7 million, or 28.4%, to $881.4 million, from the prior year's sales of $686.7 million, due primarily to a full twelve-month period in the current year, compared to the period from May 13, 2022 through February 28, 2023 for the prior year. This additional period contributed incremental sales of $178.4 million. The remaining increase was primarily due to an increase in sales price due to product mix.

Operating Income

Operating income for the AZZ Metal Coatings segment increased $8.7 million, or 5.6%, for fiscal 2024, to $164.7 million, as compared to $156.0 million for the prior year. The increase was due to improved sales as described above, partially offset by higher cost of sales and higher selling, general and administrative expenses. Cost of sales increased $2.7 million, primarily due to higher labor and overhead costs, partially offset by a decrease in zinc costs and a change in classification of amortization of intangible assets of $7.1 million to the Corporate segment, from the AZZ Metal Coatings segment. Selling, general and administrative expense increased due to the recognition of $5.5 million for a legal accrual and related expenses, and the change in classification of certain compensation and information technology costs of $2.7 million to the AZZ Metal Coatings segment, from the Corporate segment.

Operating income for the AZZ Precoat Metals segment, which was acquired on May 13, 2022, increased $60.1 million, or 75.6%, for fiscal 2024, to $139.6 million, as compared to $79.5 million for the prior year. The increase is primarily due to the inclusion of a full first quarter of fiscal 2024 compared to a partial fiscal quarter of 2023, which contributed $31.0 million to operating income. The increases in the remaining quarters were due to: an increase in sales, as described above, lower

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freight costs and lower selling, general and administrative expense, primarily due to the change in classification of amortization of intangible assets of $15.5 million. These increases to operating income were partially offset by an increase in cost of sales, primarily driven by higher cost of labor and materials (primarily due to higher volume), higher employee related costs, travel, other indirect costs and the change in classification of certain compensation costs to the AZZ Precoat Metals segment, from the Corporate segment.

Operating loss for the AZZ Infrastructure solutions segment for fiscal 2024 was $6.2 million, due to legal and other expenses related to receivables that were retained following the sale of the AIS business, including $5.8 million related to a legal settlement.

Corporate Expenses

Corporate expenses increased $14.7 million, to $76.5 million for fiscal 2024, compared to $61.8 million for fiscal 2023. The increase is primarily due to amortization expense of $24.0 million related to intangible assets, which is included in corporate expense in the current year period and allocated to the segments in the prior year period; an increase due to a legal settlement in the current year period of $5.8 million; a decrease in transition services agreement fees associated with the AVAIL JV; and employee-related costs. These increases were offset by a decrease in acquisition costs of $15.3 million incurred in the prior year period and the allocation of certain compensation and information technology costs to the segments in the current year period, that were previously included in corporate expenses. See also "Item 8. Financial Statements and Supplementary Data—Note 7".

Interest Expense

Interest expense for fiscal 2024 increased $18.3 million, to $107.1 million, as compared to $88.8 million in fiscal 2023. The increase is primarily attributable a full year of interest expense on the debt we obtained in conjunction with the Precoat Acquisition, partially offset by a decrease due to $2.1 million of higher capitalized interest in the current period associated with the new facility under construction in Washington, MO. See "Liquidity and Capital Resources—Greenfield Aluminum Coil Coating Facility" below for more information.

Equity in Earnings of Unconsolidated Entities

Equity in earnings of unconsolidated subsidiaries for the current period increased $12.8 million, to $15.4 million, compared to $2.6 million in the prior year period. The increase is primarily due to higher earnings from the AVAIL JV, and a full year of equity in earnings in the current period, compared to one month in the prior year period. See "Item 8. Financial Statements and Supplementary Data—Note 19" for more information about the AVAIL JV.

Other (Income) Expense, Net

For fiscal 2024, other income, net decreased $1.1 million, to $0.2 million for fiscal 2024 compared to $1.2 million for fiscal 2023. The decrease is primarily due to the reclassification in the current year of sublease income earned through the Company's sublease agreements in the Precoat Metals segment, which is netted against lease expense in the current year, as well as foreign currency losses resulting from unfavorable movements in exchange rates.

Income Taxes

The provision for income taxes from continuing operations was 21.9% for fiscal 2024 compared to 25.2% for fiscal 2023. The decrease in the effective tax rate is the result of favorable changes to our state footprint following the divestiture of the AIS business, as well as an increase in tax credits that were generated in the current year compared to the prior year.

Income from Discontinued Operations, net of tax

The results of our AZZ Infrastructure Solutions segment are classified as discontinued operations in our condensed consolidated statements of operations and excluded from continuing operations for all periods presented. The results of operations from discontinued operations for fiscal 2023 consist of the following (in thousands):

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See "Item 8. Financial Statements and Supplementary Data—Note 9" for more information.

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Liquidity and Capital Resources

We have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt. Our cash requirements generally include cash dividend payments, capital improvements, debt repayment and acquisitions. 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 next twelve months and beyond.

Cash Flows

The following table summarizes our cash flows by category for the periods presented (in thousands):

Net cash provided by operating activities of continuing operations for fiscal 2024 was $244.5 million, driven primarily by net income from continuing operations of $101.6 million, adjusted to exclude non-cash charges, net of non-cash income of $90.4 million, an increase in cash resulting from a reduction in working capital of $54.0 million, and a cash distribution on the investment in the AVAIL JV of $3.1 million. The reduction in working capital is due primarily to a reduction in accounts receivable, other receivables and inventories due to improved management of collections of trade and other receivables, and due to improved management of inventory needs. Net cash provided by operating activities was used to fund $95.1 million of capital expenditures, make net payments on long term debt and finance leases liabilities of $115.4 million and make dividend payments of $31.4 million.

Net cash provided by operating activities of continuing operations for fiscal 2023 was $91.4 million, driven primarily by net income from continuing operations of $66.3 million, adjusted to exclude non-cash charges, net of non-cash income, of $97.7 million, and a decrease in cash resulting from an increase in working capital of $67.1 million and a decrease in cash from changes in other long-term assets and liabilities of $5.5 million. The increase in working capital is due primarily to an increase in accounts receivable, other receivables and inventories and a decrease in accounts payable and accrued expenses. Net cash provided by operating activities was used to fund $57.1 million of capital expenditures, and make dividend payments of $22.7 million. The Company obtained proceeds from long-term debt of $1.6 billion, of which $1.3 billion was used to fund the Precoat Acquisition during fiscal 2023. The divestiture of the AIS business provided $106.8 million of cash. The proceeds were also used to repay $419.8 million of long-term debt.

See "Financing and Capital" section below for additional information.

Financing and Capital

2022 Credit Agreement and Term Loan B

We have a credit agreement with a syndicate of financial institutions as lenders that was entered into on May 13, 2022 (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;

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;

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iv.borrowings under the Term Loan B bear a rate of Secured Overnight Financing Rate ("SOFR") plus 3.75% (following the repricing on August 17, 2023 as described below) and the Revolving Credit Facility bears a leverage-based rate between 2.75% and 3.50%; as of February 29, 2024, the rate was SOFR plus 3.50% (following the repricing on December 20, 2023, as described below);

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.

During fiscal 2024, we repriced our Revolving Credit Facility and Term Loan B, which amended the 2022 Credit Agreement as follows:

i.On August 17, 2023, we repriced the Term Loan B. The repricing reduced the interest rate margin by 50 basis points to an interest rate of SOFR plus 3.75% and removed the Credit Spread Adjustment, as defined in the 2022 Credit Agreement, of 10 basis points.

ii.On December 20, 2023, we repriced its $400.0 million Revolving Credit Facility. The repricing reduced the interest rate margin on all leveraged-based pricing tiers, to a range of SOFR plus 2.75% to 3.50% and removed the Credit Spread Adjustment, as defined in the 2022 Credit Agreement, of 10 basis points.

On March 20, 2024, the Company repriced the Term Loan B, for which $980.3 million was outstanding as of February 29, 2024 under the 2022 Credit Agreement. The repricing converted from a rate of SOFR plus 3.75% to SOFR plus 3.25%.

We utilize proceeds from the Revolving Credit Facility primarily to finance working capital needs, capital improvements, dividends, acquisitions and for general corporate purposes.

As defined in the 2022 Credit Agreement, quarterly prepayments are due against the outstanding principal of the Term Loan B and are payable on the last business day of each May, August, November and February, beginning August 31, 2022, in a quarterly aggregate principal amount of $3.25 million, with the entire remaining principal amount due on May 13, 2029, the maturity date. Additional prepayments made against the Term Loan B contribute to these required quarterly payments. Due to a prepayment of $210.0 million that we made on the Term Loan B during fiscal year 2023 in connection with the sale of the AIS business, the quarterly mandatory principal payment requirement has been met, and the quarterly payments of $3.25 million are not required at this time.

The weighted average interest rate for our outstanding debt, including the Revolving Credit Facility and the Term Loan B, was 8.58% at February 29, 2024. Our credit agreement required us to maintain a maximum Total Net Leverage Ratio (as defined in the loan agreement) no greater than 6.25 through November 2022. For each subsequent quarter, the maximum ratio decreases by 25 basis points through May 31, 2024, when the maximum Total Net Leverage Ratio reaches 4.50. As of February 29, 2024, we were in compliance with all covenants and other requirements set forth in the debt agreement.

Series A Convertible Preferred Stock

In connection with the Precoat Acquisition, on May 13, 2022, we completed the issuance of $240.0 million aggregate principal amount of 6.00% convertible subordinated notes due June 30, 2030 (the "Convertible Notes") pursuant to the Securities Purchase Agreement (the "Securities Purchase Agreement") with BTO Pegasus Holdings DE L.P., a Delaware limited partnership (together with its assignees, "Blackstone"), an investment vehicle of funds affiliated with Blackstone Inc. Interest on the Convertible Notes was payable on June 30 and December 31. 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 Convertible Preferred Stock ("Series A Preferred Stock"), following the receipt of shareholder approval for the issuance of preferred stock. The Series A Preferred Stock has a $1.00 par value per share and ranks 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.

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 elect 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.

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The Series A Preferred Stock has a liquidation preference, as defined by GAAP, equal to the Redemption Amount. Under 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 and February 28, 2023, the holders of the shares of Series A Preferred Stock were entitled to a liquidation preference of approximately $312.5 million and $326.9 million, respectively, 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 accumulates a 6.0% dividend per annum, or $15.00 per share per quarter. Dividends are payable in cash or in kind, by accreting and increasing the Series A Base Amount (“PIK Dividends”). Dividends are payable on the sum of (i) the aggregate liquidation preference amount of $240.0 million plus (ii) any PIK Dividends. Dividends are 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 may not elect PIK Dividends and dividends on the Series A Preferred Stock must be paid in cash. All dividends have been paid in cash through February 29, 2024. The dividend will increase annually by one percentage point, beginning with the dividend payable for the calendar quarter ending September 30, 2028. Dividends declared and paid for the year ended February 29, 2024 and February 28, 2023 were $14.4 million and $8.1 million, respectively. As of February 29, 2024, the 240,000 shares of outstanding Series A Convertible Preferred Stock had accrued dividends of $2.4 million. We currently intend to pay such dividends in cash when due.

Redemption Features

AZZ will have 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) contains a "Return Factor," which will be equal to 1.4 until May 13, 2024 and, (a) in each of the three years thereafter, will increase by 0.15, (b) will increase 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 is greater than 3.5-to-1 and (ii) prior to May 13, 2024,we have not consummated dispositions of assets that, in the aggregate, resulted in proceeds in excess of $200.0 million and (c) will increase 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) is subject to provisions of the Certificate of Designation that limits the Company’s right to redeem to the period following the two year anniversary of the initial issuance, limits the quarterly conversion to up to 25% of the number of shares of convertible preferred stock outstanding, and requires the Company’s market price per share of common stock to exceed 185% of the conversion price.

As of February 29, 2024 and February 28, 2023, the Redemption Amount for the Series A Preferred stock was $312.5 million and $326.9 million, respectively.

At February 29, 2024, the outstanding shares of Series A Preferred Stock were not redeemable at the election of the holder, and we determined that the events outside of our control that would trigger the holders' right to redemption were not probable.

Letters of Credit

As of February 29, 2024, we had total outstanding letters of credit in the amount of $14.5 million. These letters of credit are issued for a number of reasons but are most commonly issued in lieu of customer retention withholding payments covering warranty, performance periods and insurance collateral.

Interest Rate Swap

We manage our exposure to fluctuations in interest rates by utilizing interest rate swaps to convert the variable interest rate to a fixed rate on approximately one-half of our variable-rate debt.

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On September 27, 2022, we entered into a fixed-rate interest rate swap agreement with banks that are parties to the 2022 Credit Agreement, which was subsequently amended on October 7, 2022, to change the SOFR-based component of the interest rate. The interest rate swap fixes the SOFR portion of our variable-rate debt to a fixed rate of 4.277% (the "2022 Swap"). On August 17, 2023, the Company repriced its Term Loan B to SOFR plus 3.75%, resulting in a total fixed rate of 8.027%. The 2022 Swap had an initial notional amount of $550.0 million and a maturity date of September 30, 2025. The notional amount of the interest rate swap decreases by a pro-rata portion of any quarterly principal payments made on the Term Loan B. 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. 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 2022 Swap as a cash flow hedge at inception. Cash settlements, in the form of cash payments or cash receipts, of the 2022 Swap are recognized in interest expense.

Other

We plan to contribute $8.0 million to our pension plan during fiscal 2025. See "Item 8. Financial Statements and Supplementary Data—Note 16" for a discussion of our employee benefit plan.

As of February 29, 2024, we had $1.01 billion of floating-rate and fixed-rate debt outstanding on the Revolving Credit Facility and the Term Loan B, with varying maturities through fiscal 2029. We had approximately $355.5 million of additional credit available for future draws or letters of credit as of February 29, 2024.

Greenfield Aluminum Coil Coating Facility

We are expanding our coatings capabilities through the construction of a 215,000 square foot aluminum coil coating facility in Washington, Missouri that is expected to be operational in fourth quarter of fiscal 2025. The new facility will be included in the AZZ Precoat Metals segment and is supported by a contractual commitment for approximately 75% of the output from the new plant. We expect to spend approximately $125.8 million for the land building and equipment. As of February 29, 2024, we have capital commitments of approximately $43.2 million, which are expected to be funded through cash flows from operations and borrowings under the Revolving Credit Facility. The project is expected to result in an increase to our earnings and cash flows.

Share Repurchase Program

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.

During fiscal 2024 and 2023, to prioritize repayments of debt, including debt incurred to finance the Precoat Acquisition, we did not repurchase shares of common stock under the 2020 Share Authorization. As of February 29, 2024, there was $53.2 million remaining to repurchase shares under the 2020 Authorization.

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 through fixed cost contract purchases on natural gas. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing process, supply chain management, and through increases in prices where competitively feasible. We have indirect exposure to copper, aluminum, steel and nickel-based alloys in the AZZ Infrastructure Solutions segment through our 40% investment in the AVAIL JV.

Off Balance Sheet Arrangements and Contractual Commitments

As of February 29, 2024, the Company did not have any off-balance sheet arrangements as defined under SEC rules. Specifically, there were no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on the financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.

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As of February 29, 2024, the Company had non-cancelable forward contracts to purchase approximately $47.4 million of zinc at fixed premiums, and $8.2 million of natural gas. All such contracts expire in fiscal 2025. The Company had no other contracted commitments for any other commodities including steel, aluminum, copper, zinc, nickel based alloys, except for those entered into under the normal course of business.

As of February 29, 2024, we had outstanding letters of credit in the amount of $14.5 million. These letters of credit are issued for a number of reasons, but are most commonly issued to support collateral requirements with insurance companies.

As of February 29, 2024, we have contractual commitments related to the construction of the coil coating facility in Washington, Missouri of $43.2 million that are expected to be paid in the next 12 months. See "Greenfield Aluminum Coil Coating Facility" section above. See "Item 8. Consolidated Financial Statements and Supplementary Data—Note 22" for a discussion of our contractual commitments related to our leases.

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. Actual results may differ from these estimates under different assumptions or conditions. The SEC defines critical accounting estimates as those made in accordance with U.S. GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on a company's financial condition or results of operations. We consider the following accounting estimates to meet this definition because they are dependent on our judgement and assumptions about matters that are inherently uncertain and represent our more critical estimates.

Impairment of Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination and is not amortized. We test goodwill for potential impairment annually as of December 31 and between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the reporting unit below its carrying amount.

An entity may first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more-likely-than-not that the fair value is less than the carrying amount. If no impairment indicators are present, we may first perform a qualitative assessment of goodwill to determine whether a quantitative assessment is necessary. If we perform a quantitative assessment for our annual goodwill impairment test, we use the income approach. The income approach uses Level 3 fair value inputs, such as future cash flows and estimated terminal values for our reporting units that are discounted using a market participant perspective to determine the fair value of the reporting unit, which is then compared to the carrying value of that reporting unit to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates, discounted by an estimated weighted-average cost of capital derived from other publicly traded companies that are similar but not identical from an operational and economic standpoint. A significant change in events, circumstances or any of these assumptions could result in an impairment of long-lived assets, including identifiable intangible assets. Variables impacting future cash flows include, but are not limited to, the level of customer demand for and response to manufactured solutions we offer to the construction, industrial, consumer, transportation, electrical, and utility markets, changes in economic conditions of these various markets, changes in costs of raw material and natural gas, and the availability of experienced labor and management to implement our growth strategies.

Long-lived assets and Intangible assets

Long-lived assets, including property and equipment and intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Indefinite-lived intangible assets are evaluated for impairment on an annual basis, as of December 31. Impairment is measured by a comparison of the carrying amount to the estimated undiscounted cash flows to be generated by those assets. If the undiscounted cash flows are less than the carrying amount, we record impairment losses for the excess of their carrying value over the estimated fair value.

We make estimates of projected cash flows when performing our impairment evaluation. These estimates include, but are not limited to, assumptions about future sales, zinc and natural gas prices, operating costs, margins, the use or disposition of the asset, the asset's estimated remaining useful life, and future expenditures necessary to maintain the asset's existing service potential. Due to the significant subjectivity of the assumptions used to test for recoverability, changes in market conditions could result in significant impairment charges in the future, which would impact our earnings.

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Accruals for Contingent Liabilities

We are subject to the possibility of various loss contingencies arising in the normal course of business. The amounts we may record for estimated claims, such as self-insurance programs, warranty, environmental, legal, and other contingent liabilities, requires us to make judgments regarding the amount of expenses that will ultimately be incurred. We use past history and experience and other specific circumstances surrounding these claims in evaluating the amount of liability that should be recorded. Due to the inherent limitations in estimating future events, actual amounts paid or transferred may differ from those estimates.

Income taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. We recognize a valuation allowance against net deferred tax assets to the extent that we believe those net assets are not more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

As applicable, we record uncertain tax positions on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information becomes available.

Business Combinations

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

Recent Accounting Pronouncements

See Part II, "Item 8. Consolidated Financial Statements and Supplementary Data, Note 1," Summary of Significant Account Policies, of the Notes to the consolidated financial statements of this Annual Report on Form 10-K, 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 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 and certain legal settlements and accruals, from the reported GAAP measure. Management defines Adjusted EBITDA as earnings excluding depreciation, amortization, interest, provision for income taxes, acquisition expenses, transaction related expenses and certain legal settlements and accruals. 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.

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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 provides a reconciliation for the years ended February 29, 2024 and February 28, 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 from Continuing Operations

See notes on page 37.

Adjusted EBITDA from Continuing Operations

See notes on page 37.

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Adjusted EBITDA by Segment

See notes on page 37.

(1) Earnings per share amounts included in the table above may not sum due to rounding differences.

(2) For the year ended February 29, 2024 and February 28, 2023, the calculation of diluted earnings per share is based on weighted average shares outstanding of

25,209 and 24,978, respectively, as the preferred shares are anti-dilutive for these calculations. The calculation of adjusted diluted earnings per share is based

on weighted average shares outstanding of 29,326 and 28,283, respectively, as the preferred shares are dilutive for these calculations. Adjusted net income

for adjusted earnings per share also includes the addback of preferred dividends for the periods noted above.

(3) Includes Corporate expenses related to the Precoat Acquisition and the divestiture of AZZ Infrastructure Solutions business into the AVAIL JV.

(4) For the year ended February 29, 2024, represents a legal accrual related to the Metal Coatings segment of $5.5 million, $5.8 million for the settlement of a

litigation matter related to the AIS segment that was retained following the sale of the AIS business, and $5.8 million for the settlement of a litigation matter

that was acquired as part of the Precoat Acquisition and relates to the business activities that were discontinued prior to our acquisition. See "Item 8.

Financial Statements and Supplementary Data—Note 22."

(5) The non-GAAP effective tax rate for each of the periods presented is estimated at 24.0%.

(6) For fiscal year 2024, amortization expense for acquired intangible assets of $24.0 million is included in Corporate expenses in "Selling, general and

administrative" expense as these expenses are not allocated to the segments. For fiscal year 2023, amortization expense for acquired intangible assets of

$7.1 million and $15.5 million are included in AZZ Metal Coatings expenses in "Cost of sales" and in AZZ Precoat Metals in "Selling, general and administrative"

expense, respectively.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements regarding our business and operations. Our actual results may differ materially from those we currently anticipate as a result of the factors we describe under "Risk Factors" and elsewhere in this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations as well as our liquidity and capital resources for fiscal year 2022 compared to fiscal year 2021 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at www.azz.com/investor-relations.

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, which is now reported as discontinued operations, and financial data for this segment has been segregated and presented as discontinued operations for all periods presented. Our discussion and analysis of financial condition and results of operations is divided by each of our segments, along with corporate costs and other costs not specifically identifiable to a segment. For a reconciliation of segment operating income to consolidated operating income, see Note 14 to the consolidated financial statements. References herein to fiscal years are to the twelve-month periods that end in February of the relevant calendar year. For example, the twelve-month period ended February 28, 2023 is referred to as "fiscal 2023," "fiscal year 2023", "current year" or "current period", and the period ended February 28, 2022 is referred to as "fiscal 2022," "fiscal year 2022," "prior year" or "prior period."

Results of Operations

For the fiscal year ended February 28, 2023, we recorded sales of $1,323.6 million, compared to prior year’s sales of $525.6 million. Of total sales for fiscal 2023, approximately 48.1% were generated from the AZZ Metal Coatings segment and approximately 51.9% of sales were generated from the AZZ Precoat Metals segment. Net income (loss) for fiscal 2023 was $(61.2) million, compared to $84.0 million for fiscal 2022. Net income (loss) as a percentage of sales was (4.6)% for fiscal 2023 as compared to 16.0% for fiscal 2022. Diluted earnings (loss) per share from continuing operations increased by 17.1%, to $2.33 per share for fiscal 2023, compared to $1.99 per share for fiscal 2022.

During fiscal 2023, we completed the acquisition of Precoat Metals (the "Precoat Acquisition"). During fiscal 2022, we completed two acquisitions, both in our AZZ Metal Coatings segment.

Sales

Our total sales from continuing operations, for fiscal 2023 increased by $798.1 million, or 151.8%, as compared to fiscal 2022.

The following table reflects the breakdown of revenue from continuing operations by segment (in thousands):

Sales for the AZZ Metal Coatings segment increased $111.4 million, or 21.2%, to $637.0 million, from the prior year’s sales of $525.6 million. The increase in sales was primarily due to improved price realization for our superior quality and service. The volume of steel processed also increased in the current period, compared to the prior year period.

Sales for the AZZ Precoat Metals segment, which was acquired on May 13, 2022, were $686.7 million for the current year.

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Operating Income

The following table reflects the breakdown of operating income (loss) from continuing operations by segment (in thousands):

Operating income for the AZZ Metal Coatings segment increased $27.2 million, or 21.1%, for fiscal 2023, to $156.0 million, as compared to $128.8 million for the prior year. Operating margins remained flat at 24.5% for fiscal 2023, as compared to fiscal 2022.

Operating income for the AZZ Precoat Metals segment, which was acquired on May 13, 2022, was $79.5 million for fiscal 2023.

Corporate expenses increased $12.3 million, to $61.8 million for fiscal 2023, compared to $49.5 million for fiscal 2022. The increase is primarily due to increases in acquisition costs related to the Precoat Acquisition, costs related to the AIS joint venture, and increased payroll and employee-related compensation costs related to both of these transactions , partially offset by income earned from a transition services agreement related to the AIS joint venture. See also Note 5 in Item 8.

Interest Expense

Interest expense for fiscal 2023 increased $82.4 million, to $88.8 million, as compared to $6.4 million in fiscal 2022. The significant increase in interest expense is primarily attributable to the additional debt that was obtained in conjunction with the Precoat Acquisition, including the Term Loan B of $1.3 billion and the Convertible Notes of $240.0 million. The Convertible Notes transitioned from subordinated debt (e.g., interest) to Preferred Equity (e.g., dividends) on August 5, 2022. As of February 28, 2023, we had gross outstanding debt of $1,125.3 million, compared to $227.0 million at the end of fiscal 2022. AZZ's debt to equity ratio was 1.24 to 1 at the end of fiscal 2023, compared to 0.34 to 1 at the end of fiscal 2022. For additional information on outstanding debt, see Note 8 in Item 8.

Equity in Earnings of Unconsolidated Entities

Equity in earnings of unconsolidated subsidiaries of $2.6 million represents our proportionate share of net income or loss from our investment in the AIS JV. We have a 40% equity interest in the AIS JV.

Other (Income) Expense, Net

For fiscal 2023, other income, net increased $1.0 million, to $1.2 million for fiscal 2023 compared to $0.2 million for fiscal 2022. The activity for fiscal 2023 consisted primarily of sublease income earned through the Company's sublease agreements in the Precoat Metals segment, as well as foreign currency losses resulting from unfavorable movements in exchange rates.

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Income Taxes

The provision for income taxes from continuing operations was 25.2% for fiscal 2023 compared to 31.8% for fiscal 2022. The decrease in the effective tax rate is the result of higher unfavorable adjustments related to management fees, recorded as a result of continuing operations versus discontinued operations reporting, in the prior year comparable period.

Income from Discontinued Operations, net of tax

Following the AIS JV agreement with Fernweh, the results of our AZZ Infrastructure Solutions segment were classified as discontinued operations in our condensed consolidated statements of operations and excluded from continuing operations for all periods presented. The results of operations from discontinued operations for fiscal 2023 and 2022 consist of the following (in thousands):

Sales for the AZZ Infrastructure Solutions segment decreased $120.8 million, or 32.0%, to $256.2 million for fiscal 2023, compared to $377.1 million for fiscal 2022. The decrease is primarily due to the divestiture of our AZZ Infrastructure Solutions segment on September 30, 2022, resulting in the inclusion of seven months of sales for the current year period, compared to a full year for the prior year period.

Operating income (loss) for the AZZ Infrastructure Solutions segment decreased $166.7 million, or 488.6% to a loss of $132.6 million, as compared to income of $34.1 million for the prior year. During fiscal 2023, the Company recognized a pre-tax non-cash loss on disposal of approximately $159.9 million, which included the derecognition of the cumulative translation adjustment related to its investment in foreign entities within the AIS segment, and is included in "Loss on disposal of discontinued operations" above. During the third quarter of fiscal 2023, the Company completed the sale of its 60% majority interest in AIS.

The provision for income taxes from discontinued operations reflects an effective tax rate of 14.1% for fiscal year 2023, compared to (2.7)% for fiscal year 2022. The increase is mainly attributable to a book loss with a tax benefit in the current year, compared to book income with a research and development credit in the prior year which more than offset the prior year tax expense. The current year effective tax rate also includes the impact of recognizing deferred taxes on the outside basis difference of foreign subsidiaries involved in the divestiture.

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Liquidity and Capital Resources

We have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt. Our cash requirements are generally for operating activities, cash dividend payments, capital improvements, debt repayment and acquisitions. We believe that our cash position, cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future.

Cash Flows

The following table summarizes our cash flows by category for the periods presented (in thousands):

Net cash provided by operating activities of continuing operations for fiscal 2023 was $91.4 million, compared to $60.6 million for fiscal 2022. The increase in cash provided by operating activities for fiscal 2023 is primarily attributable to increases in net income from continuing operations and non-cash expenses, including depreciation and amortization and amortization of debt financing costs, partially offset by the impact of decreases in working capital, primarily due to changes in accounts payable, accounts receivable, prepaid expenses, contract assets and liabilities and other accrued liabilities. Net cash used in operating activities of discontinued operations for fiscal 2023 was $21.3 million, compared to cash provided by operating activities of $25.4 million for fiscal 2022.

Net cash used in investing activities of continuing operations for fiscal 2023 was $1,228.9 million, compared to $82.1 million for fiscal 2022. The increase in cash used during fiscal 2023 was primarily attributable to the Precoat Acquisition completed in the first quarter of fiscal 2023. Net cash used in investing activities of discontinued operations for fiscal 2023 was $1.3 million, compared to $4.7 million for fiscal 2022.

Net cash provided by financing activities of continuing operations for fiscal 2023 was $1,027.3 million, compared to $0.9 million for fiscal 2022. The increase in cash provided by financing activities during fiscal 2023 was primarily attributable to an increase in proceeds from long-term debt, as well as a decrease in repurchases of Company common stock, partially offset by an increase in net payments for long-term debt and payments of debt financing costs. Net cash provided by financing activities of discontinued operations for fiscal 2023 was $120.0 million, compared to zero for fiscal 2022.

See "Financing and Capital" sections below for additional information.

Financing and Capital

2021 Credit Agreement

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

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

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

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

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

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

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

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

2020 Senior Notes

On October 9, 2020, the Company completed a private placement transaction and entered into a Note Purchase Agreement, whereby the Company agreed to borrow $150.0 million of senior unsecured notes (the "2020 Senior Notes"), consisting of two separate tranches:

•7-year borrowing: $70.0 million priced at 2.77% coupon; and

•12-year borrowing: $80.0 million priced at 3.17% coupon.

The $80.0 million tranche was funded on December 17, 2020. The $70.0 million tranche was funded in January 2021. The Company used the proceeds to repay the existing $125.0 million 5.42% Senior Notes that matured on January 20, 2021, as well as for general corporate purposes. Interest on the 2020 Senior Notes was paid semi-annually. In connection with the 2020 Senior Notes, the Company incurred debt issuance costs of approximately $0.6 million. These costs were allocated between the two tranches and were amortized over periods of seven and 12 years.

On May 13, 2022, the 2020 Senior Notes were repaid with proceeds from the 2022 Credit Agreement, which is described below.

2022 Credit Agreement and Term Loan B

On May 13, 2022, the Company replaced the 2021 Credit Agreement with a new Credit Agreement (the "2022 Credit Agreement") by and among the Company, borrower, Citibank, N.A., as administrative and collateral agent, and the other agents and lender parties thereto 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;

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 and the Revolving Credit Facility each bear an interest rate of Secured Overnight Financing Rate ("SOFR") plus 4.25%;

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 at each quarter-end;

The Company utilizes proceeds from the Revolving Credit Facility primarily to finance working capital needs, capital improvements, dividends, acquisitions and for general corporate purposes. The proceeds of the Term Loan B were used to finance a portion of the Precoat Acquisition, pay transaction-related costs owed under the Securities Purchase Agreement (defined below) and refinance certain prior indebtedness, including the repayment of outstanding borrowings under the 2021 Credit Agreement. The proceeds were also utilized to redeem 100% of the Company’s 2020 Senior Notes on June 6, 2022.

As defined in the credit agreement, quarterly prepayments will be made against the outstanding principal of the Term Loan B and are 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. On September 30, 2022, $240.0 million was applied to the Term Loan B in connection with the sale of AIS. As a result of this

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prepayment, the quarterly mandatory principal payment requirement has been met, and the quarterly payments of $3.25 million are no longer required.

The effective interest rate for the Revolving Credit Facility and the Term Loan B was 8.81% at February 28, 2023.

The Company's credit agreement requires the Company to maintain a maximum Total Net Leverage Ratio (as defined in the loan agreement) no greater than 6.25 through November 2022. For each subsequent quarter, the maximum ratio decreases by 25 basis points through May 31, 2024, when the maximum Total Net Leverage Ratio reaches 4.5. The leverage ratio as of February 28, 2023 was 5.75.

Convertible Subordinated Notes

On May 13, 2022, the Company completed the issuance of $240.0 million aggregate principal amount of 6.00% convertible subordinated notes due June 30, 2030 (the "Convertible Notes") pursuant to the Securities Purchase Agreement (the "Securities Purchase Agreement") with BTO Pegasus Holdings DE L.P., a Delaware limited partnership (together with its assignees, "Blackstone"), an investment vehicle of funds affiliated with Blackstone Inc. Interest on the Convertible Notes was payable on June 30 and December 31. The Convertible Notes were exchanged for 240,000 shares of the Company's 6.0% Series A Convertible Preferred Stock on August 5, 2022, following the receipt of shareholder approval for the issuance of preferred shares. See Note 10 for a description of the Series A Convertible Preferred Stock.

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

Letters of Credit

As of February 28, 2023, we had total outstanding letters of credit in the amount of $16.7 million. These letters of credit are issued for a number of reasons, but are most commonly issued in lieu of customer retention withholding payments covering warranty, performance periods and insurance collateral.

Interest Rate Swap

We manage our exposure to fluctuations in interest rates using a mix of fixed and variable-rate debt. We utilize fixed-rate interest rate swap agreements to change the variable interest rate to a fixed rate on a portion of our variable-rate debt.

On September 27, 2022, the Company entered into a fixed-rate interest rate swap agreement with banks that are parties to the 2022 Credit Agreement. On October 7, 2022, the agreement was amended to change the SOFR-based component of the interest rate on a portion of our variable-rate debt to a fixed rate of 4.277%, resulting in a total fixed rate of 8.627% (the "2022 Swap"). The 2022 Swap had an initial notional amount of $550.0 million and a maturity date of September 30, 2025. The notional amount of the interest rate swap decreases by a pro-rata portion of any quarterly principal payments made on the Term Loan B. The objective of the 2022 Swap is to eliminate the variability of cash flows in interest payments attributable to changes in benchmark one-month SOFR interest rates, for approximately one-half of the total amount of our variable-rate debt. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month SOFR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable-rate debt. We designated the 2022 Swap as a cash flow hedge at inception. Cash settlements, in the form of cash payments or cash receipts, of the 2022 Swap are recognized in interest expense.

AZZ Infrastructure Solutions (AIS) Joint Venture

On September 30, 2022, the Company completed the joint venture between the Company and Fernweh Group LLC ("Fernweh"). Under the agreement with Fernweh, AZZ contributed its AZZ Infrastructure Solutions segment ("AIS") to AIS Investment Holdings LLC (the "AIS JV"), and sold a 60% interest in the AIS JV to Fernweh at an implied enterprise value of AIS of $300.0 million. The AIS JV operates under the name "Avail Infrastructure Solutions" ("AVAIL"). The Company received proceeds from the sale of approximately $108.0 million, as well as $120.0 million that was funded by committed debt financing taken on by the AVAIL joint venture immediately prior to the closing of the divestiture of AZZ’s controlling interest. As a result of the transaction, AIS is deconsolidated and the Company's retained 40% interest in the AVAIL joint venture is accounted for under the equity method of accounting. See Note 6 of Item 8 for further information about the AIS segment. The Company used the cash received from the transaction to repay $210.0 million on the Term Loan B, $15.0 million on the Revolving Credit Facility and $3.0 million for working capital purposes.

Other

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As of February 28, 2023, we had $1,125.3 million of floating- and fixed-rate notes outstanding with varying maturities through fiscal 2029 and we were in compliance with all of the covenants related to these outstanding borrowings. As of February 28, 2023, we had approximately $288.5 million of additional credit available for future draws or letters of credit.

During the year ended February 28, 2023, the Company utilized a significant portion of the cash received from the AIS JV to reduce the Term Loan B, and utilized the remaining cash received to reduce the Revolving Credit Facility and for general corporate purposes.

The Company's debt agreements require the Company to maintain certain financial ratios. As of February 28, 2023, the Company was in compliance with all covenants or other requirements set forth in the debt agreements.

Share Repurchase Program

On November 10, 2020, our Board of Directors authorized a $100 million share repurchase program pursuant to which the Company 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 the Company might otherwise be precluded from doing so. Currently, share repurchases may not exceed 6% of the Company's market capitalization per fiscal year.

During fiscal 2023, to prioritize repayments of debt, including debt incurred to finance the Precoat Acquisition, the Company did not repurchase shares of common stock under the 2020 Share Authorization. During fiscal 2022, the Company repurchased 601,822 shares of common stock for $30.8 million, or $51.20 per share.

Other Exposures

We have exposure to commodity price increases in our operating segments, primarily zinc, natural gas in the AZZ Metal Coatings segment, and natural gas, steel and aluminum in the AZZ Precoat Metals segment. We attempt to minimize these increases through fixed cost contract purchases on zinc and natural gas. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing process, supply chain management, and through increases in prices where competitively feasible. We have indirect exposure to copper, aluminum, steel and nickel-based alloys in the AZZ Infrastructure Solutions segment through our 40% investment in the AIS JV.

Off Balance Sheet Arrangements and Contractual Commitments

As of February 28, 2023, the Company did not have any off-balance sheet arrangements as defined under SEC rules. Specifically, there were no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on the financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.

As of February 28, 2023, the Company had non-cancelable forward contracts to purchase approximately $115.0 million of zinc at various volumes and prices. All such contracts expire in fiscal 2024. The Company had no other contracted commitments for any other commodities including steel, aluminum, natural gas, copper, zinc, nickel based alloys, except for those entered into under the normal course of business.

Critical Accounting Policies and Estimates

The preparation of the consolidated financial statements requires us to make estimates that affect the reported value of assets, liabilities, sales and expenses. Our estimates are based on historical experience and various other factors that we believe are reasonable under the circumstances and form the basis for our conclusions. We continually evaluate the information used to make these estimates. Actual results may differ from these estimates under different assumptions or conditions. The following accounting policies involve critical accounting estimates because they are dependent on our judgement and assumptions about matters that are inherently uncertain.

Allowance for Credit Losses

The carrying value of our accounts receivable is periodically evaluated based on the likelihood of collection. An allowance is maintained for estimated credit losses resulting from our customers’ inability to make contracted payments. The allowance is determined by historical experience of uncollected accounts, the level of past due accounts, overall level of outstanding accounts receivable, information about specific customers with respect to their inability to make payments and future expectations of conditions that might impact the collectability of accounts receivable. If the financial condition of our

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customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required.

Impairment of Long-Lived Assets, Identifiable Intangible Assets and Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination and is not amortized. We test goodwill and intangible assets with an indefinite life for potential impairment annually during the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount, which would result in impairment.

An entity may first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more-likely-than-not that goodwill's fair value is less than the carrying amount. If no impairment indicators are present, we may first perform a qualitative assessment of goodwill to determine whether a quantitative assessment is necessary. If we perform a quantitative assessment for our annual goodwill impairment test, then we use the income approach. The income approach uses future cash flows and estimated terminal values for our reporting units that are discounted using a market participant perspective to determine the fair value of the reporting unit, which is then compared to the carrying value of that reporting unit to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates, discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. A significant change in events, circumstances or any of these assumptions could result in an impairment of long-lived assets, including identifiable intangible assets. Variables impacting future cash flows include, but are not limited to, the level of customer demand for and response to products and services we offer to the power generation market, the electrical transmission and distribution markets, the general industrial market and the hot-dip galvanizing market, changes in economic conditions of these various markets, changes in costs of raw material and natural gas, and the availability of experienced labor and management to implement our growth strategies.

Joint Venture

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

The Company accounts for its investment in a joint venture under the equity method of accounting, as we exercise significant influence over, but do not control the joint venture. Investments in unconsolidated joint ventures are initially recorded at fair value, and subsequently increased or decreased for allocations of net income and changes in cumulative translation adjustments. Equity in net income (loss) from the AIS JV is allocated based on our current 40% economic interest. We record our interest in the joint venture on a one-month lag to allow sufficient time to review and assess the joint venture’s effect on our reported results. We assess our investment in unconsolidated joint venture for recoverability when events and circumstances are present that suggest there has been a decline in value, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value.

Business Combinations

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

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Interest Rate Swap

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

Recent Accounting Pronouncements

See Part II, Item 8. Consolidated Financial Statements and Supplementary Data, Note 1, Summary of Significant Account Policies, of the Notes to the consolidated financial statements of this Annual Report on Form 10-K, 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 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.

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The following tables provides a reconciliation for the years ended February 28, 2023 and February 28, 2022 between the various measures calculated in accordance with GAAP to the Adjusted Earnings Measures (dollars in thousands, except per share data):

Adjusted Earnings and Adjusted Earnings Per Share from Continuing Operations

(1) Earnings per share amounts included in the table above may not sum due to rounding differences.

(2) Includes Corporate expenses related to the Precoat Metals acquisition, as well as the divestiture of AZZ Infrastructure Solutions business into the AIS JV.

(3) The non-GAAP effective tax rates for fiscal 2023 and 2022 were 24.0% and 22.9%, respectively.

Adjusted EBITDA from Continuing Operations

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Adjusted EBITDA by Segment

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements regarding our business and operations. Our actual results may differ materially from those we currently anticipate as a result of the factors we describe under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations as well as our liquidity and capital resources for fiscal year 2021 compared to fiscal year 2020 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended February 28, 2021, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at www.azz.com/investor-relations.

Overview

We are a global provider of galvanizing and a variety of metal coating solutions, welding solutions, specialty electrical equipment and highly engineered services to the power generation, transmission, distribution, refining and industrial markets. We operate two distinct business segments, the Metal Coatings segment and the 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 Note 12 to the consolidated financial statements. References herein to fiscal years are to the twelve-month periods that end in February of the relevant calendar year. For example, the twelve-month period ended February 28, 2022 is referred to as “fiscal 2022” or “fiscal year 2022.”

Coronavirus (COVID-19)

The continued uncertainty associated with COVID-19, and any of the ongoing variants, did not have a material adverse effect on our results of operations for the year ended February 28, 2022. While we continue to support our customers, there remain uncertainties regarding the duration and, to what extent, if any, that the COVID-19 pandemic, or newly identified variants, or additional regulatory requirements, will ultimately have on the demand for our products and services or with our supply chain or our employees.

The impact of COVID-19 to the Company's personnel and operations has been limited. During fiscal 2022, the Company continued to see improvement in sales and operating income in both of its operating segments. However, labor market and supply chain challenges increased during the third and fourth quarters, resulting in increased operating expenses as the constrained labor market and supply chain disruptions impacted the availability and cost of labor and materials.

Results of Operations

For the fiscal year ended February 28, 2022, we recorded sales of $902.7 million, compared to prior year’s sales of $838.9 million. Of total sales for fiscal 2022, approximately 57.5% were generated from the Metal Coatings segment and approximately 42.5% of sales were generated from the Infrastructure Solutions segment. Net income for fiscal 2022 was $84.0 million, compared to $39.6 million for fiscal 2021. Net income as a percentage of sales was 9.3% for fiscal 2022 as compared to 4.7% for fiscal 2021. Diluted earnings per share increased by 120.4%, to $3.35 per share for fiscal 2022, compared to $1.52 per share for fiscal 2021.

During fiscal 2022, we completed two acquisitions, both in our Metal Coatings segment.

Backlog

Our backlog relates entirely to our Infrastructure Solutions segment, consisting of our Electrical platform and Industrial platform, and is inclusive of transaction taxes for certain foreign subsidiaries. As of February 28, 2022, our backlog was $304.5 million, an increase of $118.4 million, or 63.6%, compared to fiscal 2021. The increase in backlog is due to an increase in orders in the Electrical platform, partially offset by the continued reduction of international backlog, including China, related to several non-recurring contracts and cancelled contracts, and, to a lesser extent, divestitures that occurred in fiscal year 2021. For the year ended February 28, 2022, net bookings increased $235.8 million, or 30.0%, to $1.02 billion, compared to same period of fiscal 2021, as a result of very strong bookings in our Electrical platform and continued strength within the Metal Coatings segment. The book to sales ratio increased in fiscal 2022 as compared to fiscal 2021, to 1.13 to 1.00 for fiscal 2022, compared to 0.94 to 1.00 for fiscal 2021.

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The following table reflects bookings and sales for fiscal 2022 and 2021 (in thousands, except ratios).

Sales

Our total sales for fiscal 2022 increased by $63.7 million, or 7.6%, as compared to fiscal 2021.

The following table reflects the breakdown of revenue by segment (in thousands):

Sales for the Metal Coatings segment increased $61.2 million, or 13.4%, to $519.0 million, from the prior year’s sales of $457.8 million. The increase in sales was primarily due to improved price realization for our superior quality and service and to a lesser extent, the acquisition of a metal coatings business during the fourth quarter of fiscal 2021. The acquisition of a galvanizing plant in the fourth quarter of fiscal 2022 did not materially impact sales for fiscal 2022.

Sales for the Infrastructure Solutions segment increased $2.5 million, or 0.7%, to $383.7 million for fiscal 2022, compared to $381.1 million for fiscal 2021. The increase in sales for fiscal 2022 was primarily due to sales increases in both domestic and international operations (as the prior year was significantly impacted by COVID-19) in the Industrial platform, partially offset by the divestiture of the low-margin SMS business in the third quarter of fiscal year 2021. The increase was partially offset by a decrease in the Electrical platform, which was primarily attributable to lower sales in China as several large projects were completed. In addition, the decrease was, to a lesser extent, due to delays in material receipts due to supply chain disruptions within our customer-base and the constrained labor market at several of our enclosure plants in our domestic operations. The decrease in our enclosure plants was partially offset by increases in our domestic high- and medium-bus duct, switchgear, lighting and tubing businesses.

Operating Income

The following table reflects the breakdown of operating income (loss) by segment (in thousands):

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Operating income for the Metal Coatings segment increased $31.4 million, or 32.7%, for fiscal 2022, to $127.3 million, as compared to $95.9 million for the prior year. Operating margins increased to 24.5% for fiscal 2022, as compared to 21.0% for fiscal 2021. The increase was primarily due to impairment and restructuring charges recognized in fiscal 2021 of $10.8 million, the increase in sales as described above and the achievement of operational efficiencies in our surface technologies platform.

Operating income for the Infrastructure Solutions segment increased $29.1 million for fiscal 2022, to $35.5 million, as compared to $6.5 million for the prior year. Operating margins for this segment were 9.3% for fiscal 2022, as compared to 1.7% for fiscal 2021. Gross margins improved on operating leverage within both the Industrial and Electrical platforms compared to prior year, as well as a divestiture of an under-performing business in the Industrial platform in the third quarter of fiscal year 2021. In addition, in fiscal 2021, operating income was impacted by impairment charges of $9.2 million, See "Restructuring and Impairment charges" below. Selling, general and administrative costs decreased due to cost containment measures that were implemented due to COVID-19.

Corporate expenses increased $8.7 million, to $49.5 million for fiscal 2022, compared to $40.8 million for fiscal 2021. The increase is primarily due to increased payroll and benefits costs (see Note 10 in Item 8), acquisition costs and other administrative costs.

Restructuring and Impairment Charges

During fiscal 2022, the Company continued to execute on its plan to strategically review our business portfolio, continue to acquire metal coatings businesses, and divest certain non-core business. During the fourth quarter of fiscal 2022, the Company had a change to the plan of sale for one of its businesses in the Infrastructure Solutions segment. The Company recognized $3.9 million of impairment charges during fiscal 2021, which is included in in "Restructuring and impairment charges" in the consolidated statements of income. During fiscal 2022, in accordance with applicable accounting guidance, the Company reclassified a business previously held for sale to assets held and used. When there is a change to a plan of sale and the assets are reclassified from held for sale to held and used, the long-lived assets are reported at the lower of (i) the carrying amount before held for sale designation, adjusted for depreciation that would have been recognized if the assets had not been classified as held for sale, or (ii) the fair value at the date the assets no longer satisfy the criteria for classification as held for sale. Following an analysis of the long-lived assets for the business, the Company reversed a portion of the previously recognized impairment charges, and recognized income of $1.8 million in fiscal 2022 as a result of the change to the plan of sale, which is included in "Restructuring and Impairment charges" in the consolidated statements of operations.

As of February 28, 2022, one non-operating location in the Metal Coatings segment is classified as held for sale. The assets of the business expected to be disposed of within the next twelve months are included in "Assets held for sale" in the accompanying consolidated balance sheets.

During fiscal 2021, we closed on the sale of two businesses, one in each of our Metal Coatings and Infrastructure Solutions segments. We also sold one non-operating location in our Metal Coatings segment. In addition, we closed a small number of Metal Coatings locations that were in underperforming and lower growth geographies.

During fiscal 2021, we recorded certain charges related to these restructuring activities, which are summarized in the table below:

Interest Expense

Interest expense for fiscal 2022 decreased $3.3 million, or 33.7%, to $6.4 million, as compared to $9.6 million in fiscal 2021. This decrease is primarily attributable to the Company's 2020 Senior Notes, which were funded in late fiscal 2021 and carried a much lower interest rate than the previously outstanding Senior Notes. While the borrowings under the 2020 Senior Notes increased $25.0 million to $150.0 million, they carry lower interest rates than the Company's previous senior notes. As of February 28, 2022, we had gross outstanding debt of $227.0 million, compared to $179.0 million at the end of fiscal 2021. AZZ's debt to equity ratio was 0.34 to 1 at the end of fiscal 2022, compared to 0.29 to 1 at the end of fiscal 2021, as we reduced

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debt during the year and refinanced our existing senior notes. For additional information on outstanding debt, see Note 6 to the consolidated financial statements.

Other (Income) Expense, Net

For fiscal 2022, other expense, net decreased $0.4 million, to $0.6 million for fiscal 2022 compared to $1.0 million for fiscal 2021. The activity for both years consisted primarily of foreign currency losses resulting from unfavorable movements in exchange rates.

Provision for Income Taxes

The provision for income taxes reflected an effective tax rate of 21.0% for fiscal 2022 and 22.3% for fiscal 2021. The decrease is due primarily to certain nonrecurring state income tax items in the prior year.

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Liquidity and Capital Resources

We have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt. Our cash requirements are generally for operating activities, cash dividend payments, capital improvements, debt repayment and acquisitions. We believe that our cash position, cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future.

Cash Flows

The following table summarizes our cash flows by category for the periods presented (in thousands):

Net cash provided by operating activities for fiscal 2022 was $86.0 million, compared to $92.0 million for fiscal 2021. The decrease in cash provided by operating activities for fiscal 2022 is primarily attributable to the impact of decreases in working capital, primarily due to changes in accounts receivable and inventories, partially offset by accounts payable and other accrued liabilities. Cash flow from operations also decreased due to the loss on disposal of businesses and other impairment charges in the prior year. These net decreases were partially offset by an increase in net income in the current year.

Net cash used in investing activities for fiscal 2022 was $86.8 million, compared to $28.6 million for fiscal 2021. The increase in cash used during fiscal 2022 was primarily attributable to the acquisition of two businesses in our Metal Coatings segment during the fourth quarter, partially offset by lower capital expenditures. The breakdown of capital spending by segment for fiscal 2022, 2021 and 2020 can be found in Note 12 to the consolidated financial statements.

Net cash provided by financing activities for fiscal 2022 was $0.9 million, compared to net cash used in financing activities of $88.4 million for fiscal 2021. The decrease in cash used in financing activities during fiscal 2022 was primarily attributable to an increase in net proceeds from the revolver, as well as a decrease in repurchases of Company common stock, partially offset by a decrease in net proceeds for long term debt. See "Financing and Capital" and “Share Repurchases” sections below for additional information.

Financing and Capital

2017 Revolving Credit Facility

On March 21, 2017, the Company executed the Amended and Restated Credit Agreement (the “2017 Credit Agreement”) with Bank of America and other lenders, which amended its previous credit agreement. The 2017 Credit Agreement was scheduled to mature on March 21, 2022, and included the following provisions: (i) providing for a senior revolving credit facility in a principal amount of up to $450 million, with an additional $150 million accordion, (ii) including a $75 million sublimit for the issuance of standby and commercial letters of credit, (iii) including a $30 million sublimit for swing line loans, (iv) restricting indebtedness incurred with respect to capital leases, synthetic lease obligations and purchase money obligations not to exceed $20 million, (v) restricting investments in any foreign subsidiaries not to exceed $50 million in the aggregate, and (vi) including various financial covenants and certain restricted payments relating to dividends and share repurchases as specifically set forth in the 2017 Credit Agreement. The balance due on the $75.0 million term facility under the previous Credit Agreement was paid in full as a result of the execution of the 2017 Credit Agreement.

The financial covenants, as defined in the 2017 Credit Agreement, require the Company to maintain on a consolidated basis a Leverage Ratio not to exceed 3.25:1.0 and an Interest Coverage Ratio of at least 3.00:1.0. The Line of Credit will be used to finance working capital needs, capital improvements, dividends, future acquisitions, letter of credit needs and share repurchases.

Interest rates for borrowings under the 2017 Credit Agreement are based on either a Eurodollar Rate or a Base Rate plus a margin ranging from 0.875% to 1.875% depending on our Leverage Ratio (as defined in the 2017 Credit Agreement). The Eurodollar Rate is defined as LIBOR for a term equivalent to the borrowing term (or other similar interbank rates if LIBOR is unavailable). The Base Rate is defined as the highest of the applicable Fed Funds rate plus 0.50%, the Prime rate, or the

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Eurodollar Rate plus 1.0% at the time of borrowing. The 2017 Credit Agreement also carries a Commitment Fee for the unfunded portion ranging from 0.175% to 0.30% per annum, depending on our Leverage Ratio. On July 8, 2021, the 2017 Credit Agreement was replaced with the 2021 Credit Agreement, which is described below.

2021 Credit Agreement

On July 8, 2021, the Company refinanced the 2017 Credit Agreement, which was scheduled to mature in March 2022, with a new five-year unsecured revolving credit facility under a credit agreement, dated July 8, 2021 by and among the Company, borrower, Citibank, N.A., as administrative agent and the other agents and lender parties thereto (the “2021 Credit Agreement”). The 2021 Credit Agreement matures in July 2026 and includes the following significant terms;

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

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

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

iv.includes a $50.0 million sublimit for swing line loans,

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

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

The effective interest rate for the 2021 Credit Agreement was 2.49% as of February 28, 2022.

The proceeds of the loans under the 2021 Credit Agreement are used primarily to finance working capital needs, capital improvements, dividends, future acquisitions and general corporate purposes.

As of February 28, 2022, we had $77.0 million of outstanding debt against the 2021 Credit Agreement and letters of credit outstanding under the 2021 Credit Agreement in the amount of $9.7 million, which left approximately $313.3 million of additional credit available.

2020 Senior Notes

On October 9, 2020, the Company completed a private placement transaction and entered into a Note Purchase Agreement, whereby the Company agreed to borrow $150.0 million of senior unsecured notes (the “2020 Senior Notes”), consisting of two separate tranches:

•7-year borrowing: $70.0 million priced at 2.77% coupon, and

•12-year borrowing: $80.0 million priced at 3.17% coupon.

The $80.0 million tranche was funded on December 17, 2020. The $70.0 million tranche was funded in January 2021. The Company used the proceeds to repay the existing $125.0 million 5.42% Senior Notes maturing on January 20, 2021, as well as for general corporate purposes. Interest on the 2020 Senior Notes is paid semi-annually.

The Company's debt agreements require the Company to maintain certain financial ratios. As of February 28, 2022, the Company was in compliance with all covenants or other requirements set forth in the debt agreements.

Precoat Acquisition

On March 7, 2022, the Company and Sequa, a portfolio company of global investment firm Carlyle, jointly announced the signing of a definitive agreement whereby the Company intends to acquire Sequa's Precoat Metals business division ("Precoat") for a net purchase price of approximately $1.3 billion (the "Precoat Acquisition"). The Precoat Acquisition, which is subject to certain normal and customary closing conditions, is expected to close during the first quarter of the Company's fiscal year 2023. The Company has obtained financing commitments required to complete the transaction, consisting of a $400.0 million revolving credit facility, and a $1.525 billion senior secured term loan facility. As part of the transaction, we also expect to repay our current 2020 Senior Notes, which will include an early termination premium. Our new financing will have interest rates that are higher than our current notes, resulting in higher interest expense.

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Share Repurchases

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

The Company purchased 601,822 of its common shares in the amount of $30.8 million at an average purchase price of $51.20 under the 2020 Authorization during fiscal 2022.

Other Exposures

We have exposure to commodity price increases in both segments of our business, primarily copper, aluminum, steel and nickel-based alloys in the Infrastructure Solutions segment and zinc and natural gas in the Metal Coatings segment. We attempt to minimize these increases through escalation clauses in customer contracts for copper, aluminum, steel and nickel-based alloys, when market conditions allow and through fixed cost contract purchases on zinc. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing process, supply chain management, and through increases in prices where competitively feasible.

Letters of Credit

As of February 28, 2022, we had total outstanding letters of credit in the amount of $22.0 million. These letters of credit are issued for a number of reasons, but are most commonly issued in lieu of customer retention withholding payments covering warranty or performance periods.

Off Balance Sheet Arrangements and Contractual Commitments

As of February 28, 2022, the Company did not have any off-balance sheet arrangements as defined under SEC rules. Specifically, there were no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on the financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.

Critical Accounting Policies and Estimates

The preparation of the consolidated financial statements requires us to make estimates that affect the reported value of assets, liabilities, sales and expenses. Our estimates are based on historical experience and various other factors that we believe are reasonable under the circumstances and form the basis for our conclusions. We continually evaluate the information used to make these estimates. Accounting policies and estimates considered most critical are allowances for doubtful accounts, revenue recognition, impairment of long-lived assets, identifiable intangible assets and goodwill, including purchase accounting and accounting for income taxes. Actual results may differ from these estimates under different assumptions or conditions. The following accounting policies involve critical accounting estimates because they are dependent on our judgement and assumptions about matters that are inherently uncertain.

Allowance for Credit Losses

The carrying value of our accounts receivable is periodically evaluated based on the likelihood of collection. An allowance is maintained for estimated credit losses resulting from our customers’ inability to make contracted payments. The allowance is determined by historical experience of uncollected accounts, the level of past due accounts, overall level of outstanding accounts receivable, information about specific customers with respect to their inability to make payments and future expectations of conditions that might impact the collectability of accounts receivable. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required.

Revenue recognition - Infrastructure Solutions segment

Our Infrastructure Solutions segment is a provider of specialized products and services designed to support industrial, electrical and other industrial applications. For custom built products, we recognize sales over time. For custom services, which consist of specialized welding and other professional services, we recognize sales over time as the services are rendered due to the fact that the services enhance a customer owned asset. For off-the-shelf products, which consist of tubing and lighting products, we recognize sales upon the transfer of the goods to the customer.

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For sales recognized over time, we generally use the cost-to-cost method of revenue recognition. Under this approach, the extent of progress towards completion is measured based on the ratio of costs incurred to date compared with the total estimated costs upon completion of the project. This method requires the estimation of total contract sales, project costs and margin, which involves significant management judgment. As a significant change in one or more of these estimates could affect the profitability of our contracts, management reviews and updates its contract related estimates regularly.

Total contract cost estimates are based on current contract specifications and expected engineering requirements and require us to make estimates on expected profit. The estimates for profit margin are based on judgments we make to project the outcome of future events, and can sometimes span more than one year. We estimate labor productivity and availability, the complexity of the work to be performed, change orders issued by our customers, and other specialized engineering and production related activities. Our cost estimation process is based on historical data, including historical actuals to original estimates, and the application of the professional knowledge and experience of engineers, general managers and finance professionals to these historical results. We review and update our estimates of costs regularly, or more frequently when circumstances significantly change, which can affect the profitability of our contracts.

In addition to fixed consideration, the contracts within our Infrastructure Solutions segment can include variable consideration, including claims, incentive fees, liquidated damages or other penalties. We recognize revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We estimate the amount of revenue to be recognized on variable consideration using the expected value or the most likely amount method, whichever is expected to better predict the amount. Management’s estimates of variable consideration and the determination of whether to include estimated amounts in transaction prices are based largely on historical experience, professional knowledge and experience, and all other relevant information that is reasonably available at the time of the estimate.

Impairment of Long-Lived Assets, Identifiable Intangible Assets and Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination and is not amortized. We test goodwill and intangible assets with an indefinite life for potential impairment annually during the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount, which would result in impairment.

We use the income approach to complete our annual goodwill assessment. The income approach uses future cash flows and estimated terminal values for our reporting units that are discounted using a market participant perspective to determine the fair value of the reporting unit, which is then compared to the carrying value of that reporting unit to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates, discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. A significant change in events, circumstances or any of these assumptions could result in an impairment of long-lived assets, including identifiable intangible assets. Variables impacting future cash flows include, but are not limited to, the level of customer demand for and response to products and services we offer to the power generation market, the electrical transmission and distribution markets, the general industrial market and the hot-dip galvanizing market, changes in economic conditions of these various markets, changes in costs of raw material and natural gas, and the availability of experienced labor and management to implement our growth strategies.

Recent Accounting Pronouncements

See Part II, Item 8. Consolidated Financial Statements and Supplementary Data, Note 1, Summary of Significant Account Policies, of the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K, 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 Disclosure

In addition to reporting financial results in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”), the Company has provided adjusted operating income, 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 a greater transparency comparison of operating results across a broad spectrum of companies, which provides a more complete understanding of the Company’s financial performance, competitive position and prospects for the future. Management also believes that investors regularly rely on non-GAAP financial measures, such as adjusted operating income, adjusted earnings and adjusted earnings per share, to assess operating performance and that such

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measures may highlight trends in the Company’s business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP.

The following tables provides a reconciliation for the years ended February 28, 2022 and February 28, 2021 between the various measures calculated in accordance with GAAP to the Adjusted Earnings Measures (dollars in thousands, except per share data):