Azz Inc. · NYSE:AZZ
Azz — Debt Investor Presentation (April 2022)
67 slides from Azz's debt investor presentation, Apr 26, 2022
Slide 1: Public Lender Presentation April 26, 2022
Public Lender Presentation April 26, 2022
Slide 2: Disclosure Notice
PUBLIC LENDER PRESENTATION DISCLOSURE NOTICE 2 SPECIAL NOTICE REGARDING PUBLICLY AVAILABLE INFORMATION AZZ INC. (THE “COMPANY”) HAS REPRESENTED THAT THE INFORMATION CONTAINED IN THIS LENDER PRESENTATION IS EITHER PUBLICLY AVAILABLE OR DOES NOT CONSTITUTE MATERIAL NON-PUBLIC INFORMATION WITH RESPECT
Slide 3: Disclaimers
PUBLIC LENDER PRESENTATION DISCLAIMERS 3 Certain statements herein about our expectations of future events or results constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995, including the statements regarding our strat
Slide 4: Disclaimers (non-GAAP)
PUBLIC LENDER PRESENTATION DISCLAIMERS 4 Some of the financial information and data contained in this presentation, such as adjusted EBITDA and adjusted earnings per share, have not been prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”). The Company’s
Slide 5: Notice to and Undertaking by Recipients
PUBLIC LENDER PRESENTATION NOTICE TO AND UNDERTAKING BY RECIPIENTS 5 This Lender Presentation (the “Lender Presentation") has been prepared solely for informational purposes from information supplied by or on behalf of AZZ Inc. (the "Company"), and is being furnished by Citigroup Global Markets Inc.
Slide 6: Notice to and Undertaking by Recipients II. Information
PUBLIC LENDER PRESENTATION NOTICE TO AND UNDERTAKING BY RECIPIENTS 6 II. Information The Recipient acknowledges and agrees that (i) the Arrangers received the Evaluation Material from third party sources (including the Company) and it is provided to the Recipient for informational purposes, (ii) the
Slide 7: Notice to and Undertaking by Recipients III. General
PUBLIC LENDER PRESENTATION NOTICE TO AND UNDERTAKING BY RECIPIENTS 7 III. General It is understood that unless and until a definitive agreement regarding the Facility between the parties thereto has been executed, the Recipient will be under no legal obligation of any kind whatsoever with respect to
Slide 8: Company Authorization Letter
PUBLIC LENDER PRESENTATION COMPANY AUTHORIZATION LETTER 8 Citigroup Global Markets Inc. Wells Fargo Securities, LLC Barclays Bank PLC U.S. Bank National Association, Inc. CIBC World Markets Corp. Ladies and Gentlemen: We refer to the proposed $1,300 million 7-year Senior Secured Term Loan B Credit F
Slide 9: Today's Presenters
PUBLIC LENDER PRESENTATION 9 Today’s Presenters Tom Ferguson President and Chief Executive Officer Philip Schlom Chief Financial Officer David Nark SVP of Marketing, Communications and Investor Relations
Slide 10: Executive Summary
PUBLIC LENDER PRESENTATION 10 Executive Summary ■ On March 7, 2022, AZZ Inc. (“AZZ” or the “Company”) (NYSE: AZZ) entered into a definitive agreement to acquire Precoat Metals (“Precoat”) from Sequa Corporation, a portfolio company of Carlyle – Purchase price of $1.283 billion comprised of $1.25 bil
Slide 11: Sources & Uses and Pro Forma Capitalization
PUBLIC LENDER PRESENTATION Sources & Uses and Pro Forma Capitalization Sources of Funds 11 Pro Forma Capitalization Uses of Funds ($ in millions) Standalone 2/28/2022 Adjustments Pro Forma 2/28/2022 Cash & Cash Equivalents $15 ($4) $12 Debt: Existing $400mm Unsecured RCF $77 ($77) -- New $400mm Secu
Slide 12: Summary of Indicative Terms – Senior Secured Credit Facilities
PUBLIC LENDER PRESENTATION Summary of Indicative Terms – Senior Secured Credit Facilities 12 This Summary of Indicative Terms is not exhaustive as to all of the terms and conditions which would govern the transactions described herein. Definitive documentation with respect to the Senior Secured Cred
Slide 13: $240 Million Strategic Investment From Blackstone
PUBLIC LENDER PRESENTATION 4.2x 4.2x Subordinated Convertible Notes Series A Convertible Preferred Shares $240 Million Strategic Investment From Blackstone Overview Net Leverage ■ On April 25, 2022, AZZ announced that funds managed by Blackstone Tactical Opportunities (“Blackstone”) would make a $24
Slide 14: Transaction Timeline
PUBLIC LENDER PRESENTATION Key Event: Date: Launch Term Loan B Tuesday, April 26th Lender Commitments Due Thursday, May 5th (5:00 pm ET) Close Precoat Metals Acquisition Thereafter April 2022 May 2022 S M T W T F S S M T W T F S 1 2 1 2 3 4 5 6 7 3 4 5 6 7 8 9 8 9 10 11 12 13 14 10 11 12 13 14 15 16
Slide 15: Agenda
PUBLIC LENDER PRESENTATION Agenda 15 ■ Strategic Rationale and Macro / Business Update ■ AZZ Overview ■ Precoat Metals Overview ■ Industry Overview ■ Key Credit Highlights ■ Financial Overview ■ Appendix 1 2 3 5 6 4
Slide 16: 1. Strategic Rationale and Macro / Business Update
1. Strategic Rationale and Macro / Business Update
Slide 17: Strategic Rationale
PUBLIC LENDER PRESENTATION 17 Strategic Rationale Leading industry positions across a broad and diverse set of customers Highly complementary acquisition extends AZZ’s position across the metal coating value chain Advances AZZ’s strategy of becoming predominantly a metal coatings company Attractive
Slide 18: Precoat Metals Advances AZZ's Strategy of Becoming a Metal Coatings Company
PUBLIC LENDER PRESENTATION 18 Precoat Metals Advances AZZ’s Strategy of Becoming Predominantly a Metal Coatings Company While Significantly Enhancing Scale and Margins Highly Complementary Acquisition With Strong Strategic Fit Precoat Metals Sales $551 million $699 million Substrate Steel Steel, Alu
Slide 19: Closely Aligned With Our Previously Communicated Strategic Objectives
PUBLIC LENDER PRESENTATION Closely Aligned With Our Previously Communicated Strategic Objectives AZZ Acquisition Strategy North American Coatings Focus ✓ Strategic Fit ✓ Accretive Within the First Year ✓ Leading independent provider of value- added solutions for pre-painted metal coil coating in Nor
Slide 20: Integration-Lite Combination With Significant Upside Potential
PUBLIC LENDER PRESENTATION Integration-Lite Combination With Significant Upside Potential 20 Greater investment and increased support to the Precoat team to drive improvements in the organization and accelerate growth✓ Ability to capitalize on shared vision of value-added metal coating solutions and
Slide 21: Current Situation / Macro Update
PUBLIC LENDER PRESENTATION Current Situation / Macro Update Geopolitical Supply Chain / Inflation / Commodity Prices ■ AZZ’s Metal Coatings segment and Precoat are both 100% North America-based, resulting in minimal current disruption from the Russia / Ukraine war and insulation from broader global
Slide 22: Current Situation / Macro Update (Cont'd)
PUBLIC LENDER PRESENTATION Current Situation / Macro Update (Cont’d) COVID-19 ESG ■ AZZ and Precoat are both considered providers of critical infrastructure, so both companies remained open throughout the COVID-19 pandemic ■ AZZ’s Metal Coatings segment was impacted by lower volumes of steel process
Slide 23: AZZ Q4 FY2022 Performance Update
PUBLIC LENDER PRESENTATION AZZ Q4 FY2022 Performance Update Metal Coatings Infrastructure Solutions Consolidated ■ Sales of $225 million, reflecting an increase YoY of $29 million or 14.8%, primarily due to continued strength in the Metal Coatings segment as well as improvements in the Infrastructur
Slide 24: 2. AZZ Overview
2. AZZ Overview
Slide 25: AZZ at a Glance
PUBLIC LENDER PRESENTATION $77 $96 $84 $121 FY19 FY20 FY21 FY22 $856 $987 $819 $935 FY19 FY20 FY21 FY22 AZZ at a Glance Headquarters Facilities Total Employees Note: Financials pro forma for one-time expenses. FY2022 financials pro forma for acquisitions of Steel Creek and DAAM Galvanizing. AZZ grow
Slide 26: Our Current Portfolio
PUBLIC LENDER PRESENTATION 26 Our Current Portfolio Metal Coatings (PF FY22 Sales: $551 million) Infrastructure Solutions (PF FY22 Sales: $384 million) Galvanizing Surface Technologies Electrical Products Industrial Solutions ■ Protects, extends lives and enhances a variety of critical infrastructur
Slide 27: Our Leading Metal Coatings Business
PUBLIC LENDER PRESENTATION 27 Our Leading Metal Coatings Business Pro Forma FY22 Sales (% of Total) $551 Million 59% of Total Note: Financials pro forma for acquisitions of Steel Creek and DAAM Galvanizing. (1) Segment adjusted operating income not burdened by corporate costs. (2) Other includes agr
Slide 28: Hot-Dip Galvanizing Market Position in North America
PUBLIC LENDER PRESENTATION 28 # 1 Hot-Dip Galvanizing Market Position in North America ■ Expansive footprint with 41 galvanizing locations throughout North America ▪ Proximity to customers offers competitive advantage ▪ Strong back-office and logistics network drive sales and operational efficiencie
Slide 29: Metal Coatings Segment Continues Strong Year-Over-Year Performance
PUBLIC LENDER PRESENTATION Metal Coatings Segment Continues Strong Year-Over-Year Performance Note: Financials pro forma for divestiture of Galvabar. FY2022 financials pro forma for acquisitions of Steel Creek and DAAM Galvanizing. Segment adjusted operating income not burdened by corporate costs. G
Slide 30: Considerations for Maximizing Value of Infrastructure Solutions
PUBLIC LENDER PRESENTATION $238 million (25% of Total) High single digit ~57% T&D ~15% Industrial ~28% Power >95% North America $146 million (16% of Total) Low double digit ~65% Refining ~35% WTE(1) and Other ~65% North America ~17% Netherlands ~11% Poland ~7% Brazil Considerations for Maximizing Va
Slide 31: Infrastructure Solutions is a Portfolio of Diverse Businesses
PUBLIC LENDER PRESENTATION Infrastructure Solutions is a Portfolio of Diverse Businesses (1) Proportion of FY2022 segment sales of $384 million. Enclosures Switchgear Bus Duct Tubular and Lighting Specialty Weld Overlay High Voltage Medium Voltage % Segment(1) ■ Manufacturer of custom modular enclos
Slide 32: AZZ's Continued Strategic Transformation Into a Focused Coatings Provider
PUBLIC LENDER PRESENTATION ■ Diverse collection of lower margin electrical and industrial businesses with minimal overlap or synergies ■ Evaluating opportunities consistent with becoming a more focused coatings company ■ 5-Year Average Adjusted EBITDA Margin: ~10% ■ Strong portfolio of complementary
Slide 33: 3. Precoat Metals Overview
3. Precoat Metals Overview
Slide 34: Precoat Metals Overview
PUBLIC LENDER PRESENTATION ■ Leader in the advanced application of protective and decorative coatings and related value-added services for steel and aluminum coil in North America ■ Leading positions and strong track record servicing the fastest growing segments of the most demanding and highest val
Slide 35: A One-Stop-Shop for Coil Coating Solutions and Value-Added Processing
PUBLIC LENDER PRESENTATION 35 A “One-Stop-Shop” for Coil Coating Solutions and Value-Added Processing Overview of the Coil Coating Process ■ Coil coating is a continuous, highly automated process whereby coatings and film laminates are applied to coils of metal before fabrication into end products ■
Slide 36: Comprehensive Value-Added Processing and Service Capabilities
PUBLIC LENDER PRESENTATION 36 Comprehensive Value-Added Processing and Service Capabilities Slitting / Cut to Length ■ Slit master coils into multiple narrower coils / cut master coil into prescribed blank lengths ■ Off-line process completed following coating ■ Customers receive product ready for i
Slide 37: Differentiated Business Model as Service-Oriented Independent Toll Processor
PUBLIC LENDER PRESENTATION Commercial Independence • No direct metal or coating source affiliations • Customers can multi-source metal and coatings Transparency • No conflicts of interest between internal needs and customer orders Service Orientation • Unparalleled product and processing capabilitie
Slide 38: Leading Positions in Key End Markets
PUBLIC LENDER PRESENTATION 38 Leading Positions in Key End Markets Construction Appliance HVAC Container Transportation Market Position(1)Representative Product Applications Broad product offering across major end markets solidifies Precoat’s leading position (1) Estimated coil coating market positi
Slide 39: Unique Competitive Advantage Supported by Best-in-Class Service
PUBLIC LENDER PRESENTATION 39 Unique Competitive Advantage Supported by Best-in-Class Service Precoat’s Positioning within the Prepainted Coil Coating Competitive Landscape Size reflects tonnage Limited Comprehensive Narrow Diverse P ro d u ct a n d M ar ke t A p p lic at io n F o cu s Service Offer
Slide 40: 4. Industry Overview
4. Industry Overview
Slide 41: U.S. Prepainted Coil Industry
PUBLIC LENDER PRESENTATION 41 U.S. Prepainted Coil Industry Prepainted coil is a subsegment of the overall metal materials market which adds valuable performance, durability, texture and aesthetics Commentary Prepaint Subsegment with Broader Metal Materials U.S. End Market Breakdown(1) U.S. Prepaint
Slide 42: Demand for Coil Coating Expected to Outpace Market Capacity
PUBLIC LENDER PRESENTATION 42 Demand for Coil Coating Is Expected to Significantly Outpace Market Capacity Rebound in Demand Conditions Shift to Prepaint Coating Tight Supply With New Lines Needed to Meet Projected Demand Precoat’s Coil Coating Volume (in millions tons) 2021E Prepaint Subsegment by
Slide 43: U.S. Prepainted Coil Coating End Market Trends
PUBLIC LENDER PRESENTATION ■ Precoat’s broad and diverse range of capabilities across substrates, sizes and gauges provide ability to support applications spanning all end markets ■ Highest level of volume growth of steel in the market is expected to come from the construction segment – Tailwinds in
Slide 44: 5. Key Credit Highlights
5. Key Credit Highlights
Slide 45: Key Credit Highlights
PUBLIC LENDER PRESENTATION 45 Key Credit Highlights Sustainable Competitive Advantage from Highly Strategic Facilities Footprint Significantly Enhanced Scale and Attractive Margin Profile Nearly Pure-Play Metal Coatings Company with Leading Positions Across the Value Chain Diverse Blue-Chip Customer
Slide 46: Nearly Pure-Play Metal Coatings Company with Leading Positions
PUBLIC LENDER PRESENTATION 46 Precoat Metals Advances AZZ’s Strategy of Becoming Predominantly a Metal Coatings Company Highly Complementary Acquisition With Strong Strategic Fit Precoat Metals Sales $551 million $699 million Substrate Steel Steel, Aluminum Value Chain Post-Fabrication Pre-Fabricati
Slide 47: Precoat is the Leading Independent Coil Coating Solutions Provider
PUBLIC LENDER PRESENTATION 47 Precoat is the Leading Independent Coil Coating Solutions Provider in North America Highly differentiated coil coating solutions provider participating in every market with the most diverse range of capabilities and service offerings Precoat is the Clear Industry Leader
Slide 48: Significantly Enhanced Scale and Attractive Margin Profile
PUBLIC LENDER PRESENTATION $699 Revenue Adjusted EBITDA and Margin Pro Forma Pro Forma 17.6% 19.7% 18.5% Note: Based on financials as of LTM 2/28/2022 for AZZ and LTM 12/31/2021 for Precoat. AZZ financials pro forma for acquisitions of Steel Creek and DAAM Galvanizing. (1) Does not include any estim
Slide 49: Sustainable Competitive Advantage from Highly Strategic Facilities Footprint
PUBLIC LENDER PRESENTATION 49 3 Sustainable competitive advantage from irreplicable facilities footprint with high barriers to entry ✓ Highly strategic footprint with close proximity to customers and internal network of site adjacencies Strong, centralized back-office and logistics network driving s
Slide 50: State-of-the-Art Coating Lines and Largest Facility Footprint
PUBLIC LENDER PRESENTATION ■ State-of-the-art coating lines at all of Precoat’s facilities ■ Largest facility footprint and capacity in the industry provides a highly efficient supply chain and creates sustainable competitive advantage – $75mm+ investment would be required to replicate a Precoat coa
Slide 51: Representative Customers
PUBLIC LENDER PRESENTATION Representative Customers 51 4 ~3,000 Total Customers Diverse Customer Base With No Customer Accounting For >5% of Sales 85% of Top 25 Customer Relationships 10+ Years 600+ Total Customers Diverse Customer Base With No Customer Accounting For >7% of Sales 25+ Years Average
Slide 52: Long-Standing Primary-Source Customer Relationships
PUBLIC LENDER PRESENTATION 52 Long-standing, primary-source customer relationships with leading end use industry players Proven track record of winning new business and retaining customers across end markets ■ Sticky customer relationships underpinned by multi-year agreements with top customers ■ Cu
Slide 53: Resilient Financial Performance Through the Cycle
PUBLIC LENDER PRESENTATION AZZ Precoat Metals(1) 53 5 (1) Reflects Precoat historical adjusted EBITDA figures as disclosed by Precoat. ($ in millions) ($ in millions) $54 $86 $85 $85 $100 16.7% 20.9% 23.7% 22.3% 21.4% FY2008 FY2009 FY2010 FY2011 FY2012 Adjusted EBITDA Margin (%) $51 $59 $42 $57 $71
Slide 54: Highly Resilient Business During Great Recession
PUBLIC LENDER PRESENTATION 54 Highly Resilient Business During Great Recession Highly Variable & Flexible Cost Structure Precoat’s tolling model and highly variable cost structure provide a highly sustainable growth, profitability and free cash flow trajectory Demonstrated resilient performance thro
Slide 55: Highly Variable Cost Structure
PUBLIC LENDER PRESENTATION 73% 8% 7% 5% 2% Material Costs Labor Supplies Utilities Other 87% 8% 5% Variable Costs Fixed SG&A Cost Breakdown (2021) 55 Note: Based on unadjusted financials and excludes D&A. Due to high material cost mix and flexible labor arrangements, Precoat enjoys a highly variable
Slide 56: Strong Free Cash Flow Generation
PUBLIC LENDER PRESENTATION 56 6 ■ AZZ and Precoat exhibit strong cash conversion and working capital management ■ Limited working capital and capex requirements ■ Historical investments driving continued profitable growth and margin performance Cumulative 3-Year Adjusted Free Cash Flow(1) 102% 76% N
Slide 57: Near-Term Focus on Rapid Deleveraging
PUBLIC LENDER PRESENTATION Net Leverage Near-Term Focus on Rapid Deleveraging ■ Pro forma net leverage of 5.0x (4.2x following conversion of Subordinated Convertible Notes into Series A Convertible Preferred Shares) as of 2/28/2022 with goal of returning to <3.0x by the end of FY2024, in line with A
Slide 58: Hot-Dip Galvanizing Market Demand Outlook
PUBLIC LENDER PRESENTATION 58 7 AZZ’s Post-Fabrication Hot-Dip Galvanizing business is focused on the subset of the overall metal coatings materials market which protects post-fabricated steel structures from corrosion, using zinc, a environmentally friendly infinitely reusable material Strong deman
Slide 59: Precoat Well-Positioned in Highly Stable End Markets
PUBLIC LENDER PRESENTATION 59 Precoat is well-positioned in highly stable end markets with secular tailwinds and “new norms” in prepainted segment driving above end market growth Diverse, Growing Markets Foundation for Robust Market Growth Across End Markets Precoat 2021A Revenue by End Market Metal
Slide 60: Experienced Management Team
PUBLIC LENDER PRESENTATION 60 Tom Ferguson President and Chief Executive Officer Kurt Russell President & COO Precoat Bryan Stovall President & COO Metal Coatings Gary Hill President & COO AIS Philip Schlom Chief Financial Officer David Nark SVP of Marketing, Communications and Investor Relations Si
Slide 61: 6. Financial Overview
6. Financial Overview
Slide 62: Pro Forma Historical Financial Performance (FY2020 – FY2022)
PUBLIC LENDER PRESENTATION 62 Pro Forma Historical Financial Performance (FY2020 – FY2022) Revenue Adjusted EBITDA ($ in millions) ($ in millions) Capex Adjusted EBITDA – Capex ($ in millions) ($ in millions) Note: Reflects fiscal year ending February 28 for AZZ and fiscal year ending December 31 fo
Slide 63: Precoat Historical Financial Performance (CY2019 - CY2021)
PUBLIC LENDER PRESENTATION 63 ($ in millions) CY2019 CY2020 CY2021 ‘19A – ‘21A CAGR Revenue $561 $572 $699 11.6% % Growth (0.3%) 1.8% 22.3% Cost of Sales (455) (456) (536) Gross Profit $106 $115 $163 24.0% % Margin 18.9% 20.2% 23.4% SG&A & Other (11) (13) (12) EBITDA $95 $102 $152 26.1% % Margin 17.
Slide 64: Non-GAAP Pro Forma Adjusted EBITDA Reconciliation
PUBLIC LENDER PRESENTATION Non-GAAP Pro Forma Adjusted EBITDA Reconciliation 64 ($ in millions) AZZ Precoat Pro Forma (Excl. Synergies) Estimated Synergies (50% Credit)(2) Pro Forma (Incl. Synergies) Net Income $84 Interest 6 Taxes 22 Depreciation & Amortization 45 EBITDA 157 Restructuring & Impairm
Slide 65: Preliminary Estimated Synergies Overview
PUBLIC LENDER PRESENTATION 65 Preliminary Estimated Synergies Overview Bucket Amount Commentary Corporate Procurement Other SG&A $4 million 0.6% of Precoat’s CY2021A Sales 14.4% of Precoat’s CY2021A SG&A $2 million - $3 million 0.3% - 0.4% of Precoat’s CY2021A Sales 0.4% - 0.6% of Precoat’s CY2021A
Slide 66: Appendix
Appendix
Slide 67: Pro Forma Organizational Structure
PUBLIC LENDER PRESENTATION Pro Forma Organizational Structure 67 AZZ New $400 million Secured Revolving Credit Facility New $1,300 million First Lien Term Loan Arbor Crowley, LLC Sequa Mezzanine Holdings LLC Borrower Guarantors* AZZ Metal Coatings Subsidiaries* AZZ Infrastructure Solutions Subsidiar