Leases

9 Months Ended

Nov. 30, 2024

11. Leases

We are a lessee under various leases for facilities and equipment. As of November 30, 2024, we were the lessee for 152 operating leases and 58 finance leases with terms of 12 months or more. These leases are reflected in "Right-of-use assets," "Lease liability - short-term" and "Lease liability - long-term" in our consolidated balance sheets.

Our leases are primarily for (i) operating facilities, (ii) vehicles and equipment used in operations, (iii) facilities used for back-office functions, (iv) equipment used for back-office functions, and (v) temporary storage. The majority of our vehicle and equipment leases have both a fixed and variable component.

Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets and we recognize lease expense for these leases on a straight-line basis over the lease term. We have a significant number of short-term leases, including month-to-month agreements. Our short-term lease agreements include expenses incurred hourly, daily, monthly and

for other durations of time of one year or less. Our future lease commitments as of November 30, 2024 do not reflect all of our short-term lease commitments.

The following table outlines the classification of right-of-use ("ROU") asset and lease liabilities in the consolidated balance sheets as of November 30, 2024 and February 29, 2024 (in thousands):


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

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


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


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

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


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

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


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

We sublease multiple buildings in Columbia, South Carolina to multiple subtenants. The Columbia sublease agreements are by and between AZZ Precoat Metals and multiple subtenants. Sublease income is recognized over the term of the sublease on a straight-line basis and is reported in the consolidated statement of operations as a reduction to "Cost of sales." Sublease income for the three and nine months ended November 30, 2024 and 2023 was as follows (in thousands):


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