Worthington Enterprises, Inc. 2027 Q1 Earnings Call

Good morning, everyone, and thank you for joining us for Worthington Enterprises first quarter fiscal 2027 earnings call. On the call today are Joseph Hayek, our President and Chief Executive Officer, and Colin Souza, our Chief Financial Officer. Before we begin, I would like to remind everyone that certain statements made during today's call are forward-looking in nature and subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information on these risks and uncertainties, please refer to our earnings release issued yesterday after the market closed, which is available on the Investor Relations section of our website. Additionally, our remarks today will include references to non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures can also be found in the earnings release.

Today's call is being recorded, and a replay will be available later on our website at worthingtonenterprises.com. With that, I will turn the call over to Joe for opening remarks.

Thank you, Marcus. Good morning, everyone. Welcome to Worthington Enterprises Fiscal 2027 first quarter earnings call. We had a strong start to fiscal 2027. While we face some market and operating headwinds, our team continued to execute, serve our customers, and make progress on our strategic initiatives. I want to thank my colleagues around the world for the focus, creativity, and grit they bring to Worthington every day. In Q1, we grew sales by 13% year-over-year, including 7% organically. Adjusted EBITDA increased by 10% to $74 million, and we generated $54 million of free cash flow, nearly double the prior year quarter. The adjusted EPS was $0.82, compared with $0.78 a year ago. We continued to deploy capital thoughtfully in the quarter, including the repurchase of 335,000 shares of our common stock. While we are pleased with our progress, the quarter was not without challenges.

Building Performance Solutions, as we anticipated, faced headwinds in our cooling and construction business. As channel inventories are right-sized and new home sales are muted, demand for our newly mandated A2L refrigerant cylinders is lower than it was a year ago, creating a difficult comparison. Additionally, steel availability across the industry remains tight, and lead times in the quarter were extended. That dynamic created some disruptions in production and scheduling for both cooling and construction and for our Balloon Time. Our teams are actively working through these issues every day, prioritizing our customers and ensuring that we are the best partner that we can be. While we faced some headwinds in the quarter, our performance was a reflection of our businesses and our people. Resilient. Creative Specialty Solutions delivered strong sales and EBITDA growth as that team continues executing at a high level.

Our water business is performing very well as our 80/20 work matures and helps us focus on resources on the products and opportunities that create the most value. WAVE and ClarkDietrich also delivered higher equity earnings and were important contributors in the quarter. When we optimize and grow Worthington, our strategy is not complicated. We are leveraging the Worthington Business System. Transformation to improve our businesses. Disciplined M&A to add capabilities and strengthen our portfolio. Innovation to grow organically where we have attractive opportunities. We continue to use 80/20 to optimize our businesses. As we sharpen our focus, improve working capital, and allocate resources where they matter most. We have seen meaningful progress in our water business and are now extending that discipline into our portable propane and torch businesses. We are also continuing to improve productivity through automation, AI-enabled tools, and other transformation initiatives.

We remain disciplined about growth through M&A, and we are focused on opportunities where we believe we can bring unique advantages as an owner and create long-term value. Our integration of LSI Group continues to progress well, and there we are focused on reaching more prospective customers and introducing them to LSI Group's compelling value proposition. I want to spend a little more time this morning on organic growth because we are increasingly seeing our innovation capabilities translate into meaningful commercial opportunities. One of the most topical examples of the kind of organic growth opportunities we are trying to create and develop at Worthington is our engineered ASME tanks. These engineered tanks have played an important role in commercial buildings across the world for decades. Increasingly, as new chipsets generate significantly more heat, data center designers and operators are embracing liquid cooling.

Engineered tanks like ours help manage the cooling fluids used in liquid cooling systems, and as such, are a critical component of those data centers and the cooling infrastructure. We have been a market leader in these engineered ASME tanks for years. A market we believe has consistently been plus or minus $200 million a year for some time. Given the projected growth in data centers and the increasing adoption of liquid cooling in those data centers, industry sources suggest the market for liquid cooling and thermal management ASME tanks alone could be more than 10 times the size of the legacy market in the next few years. To grow in and with this important end market, we took capabilities we already had, listened closely to our customers, leveraged our engineering and innovation expertise, and created an emerging suite of liquid cooling and thermal management solutions.

As a result, what started as a promising new application for us has quickly developed into an increasingly meaningful growth opportunity. As a reminder, in fiscal 2026, we shipped roughly $13 million of ASME tanks for data centers. In the first quarter of fiscal 2027, we generated an additional $13 million of revenue from that value stream, essentially matching what we did in the entire prior fiscal year. Near term, we believe that our ASME tank revenues will continue to grow sequentially quarter-over-quarter through the balance of this fiscal year. In addition, while this market is in the early stages of development, our pipeline suggests that, one, our solutions can play a meaningful role in this evolving architecture, and two, the market's growth is continuing to accelerate.

To be clear, a pipeline is not revenue, and there is always some uncertainty around the timing and conversion of these opportunities. But the size and the quality of the opportunities in front of us is encouraging, and we are investing in equipment, engineering talent, and production capacity to support the customers we're serving today and the opportunities we see ahead. The solid financial results we're generating and the great opportunities ahead of us are a credit to our people. Worthington has always believed that people are our most important asset, and that is as true today as it has ever been. As an example, we were recently named one of America's Most Innovative Businesses for 2027 by Business Insider.

Criteria they used included the number and impact of companies' technological innovations, their reputation among peers for fostering innovation, and how a company's investment in R&D compares to others in their industries. We were also recognized in the quarter by USA Today and Points of Light as one of America's most charitable companies. This honor reflects our deeply rooted commitment to communities where we live and work, including volunteerism and support from The Worthington Companies Foundation. Much is being asked of our teams every day as we navigate volatile markets, geopolitical instability, inflation, elevated interest rates, supply constraints, and operational challenges. We're very grateful for the way our colleagues continue to prioritize our customers and one another. We're proud of how we started our fiscal year. There's more work to do, but we continue to see tangible evidence that our strategy is working.

We see it in organic growth driven by innovation, in productivity gains through transformation, in successful M&A integration, and ultimately, in cash generation. In addition, our end markets, brands, capabilities, and strategy position us exceptionally well to continue driving profitable growth. Most importantly, we have a talented team that cares deeply about each other, our customers, and our company. Before I turn it over to Colin, who will spend a few more minutes on our financial performance in the quarter, we would like to remind everyone that we'll be hosting our Investor Day in New York on November the 10th. We're looking forward to discussing our businesses, the opportunities we see for profitable growth, and how we're positioning Worthington Enterprises to create long-term value. We hope you'll join us.

Colin? Thank you, Joe, and good morning, everyone.

We delivered a strong start to fiscal 2027. 100% organic sales growth, record trailing 12-month free cash flow of $196 million, continued improvement across our Trade & Specialty Solutions businesses, strong performance from our joint ventures, and meaningful progress in several of our strategic growth platforms. GAAP earnings in Q1 were $0.87 per share, compared to $0.70 per share in the prior year period. The current quarter included a net benefit of $0.05 per share from non-recurring and restructuring items, primarily related to a gain realized from a contingent earn-out associated with the sale of our former oil and gas business, which was divested in January of 2021. The prior year quarter included $0.08 per share of restructuring and other expenses.