Good morning, and welcome to the Worthington Enterprises Fourth Quarter Fiscal 2024 Earnings Conference Call. This conference is being recorded at the request of Worthington Enterprises. I'd like to introduce Marcus Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin.

Thank you, Krista. Good morning, everyone, and welcome to Worthington Enterprises fourth quarter fiscal 2024 earnings call. On our call today, we have Andy Rose, Worthington's President and Chief Executive Officer; and Joe Hayek, Worthington's Chief Financial and Operations Officer. Before we get started, I'd like to note that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. These statements are subject to risks and uncertainties that could cause actual results to differ from those suggested. We issued our earnings release yesterday after the market closed. Please refer to it for more detail on those factors that could cause actual results to differ materially. In addition, our discussion today will include non-GAAP financial measures. A reconciliation of these measures with the most appropriate comparable GAAP measure is included in the earnings press release, which is available on our Investor Relations website. Today's call is being recorded, and a replay will be made available later on our website. At this point, I will turn the call over to Andy for opening remarks.

Thank you, Marcus, and good morning. I want to welcome you to Worthington Enterprises' fiscal fourth quarter earnings call. We had a respectable quarter with adjusted EBITDA of $63 million and adjusted earnings per share of $0.74. We also had a busy quarter on the M&A front, further executing on our strategy and positioning our portfolio for long-term success. The last 1.5 years was a lot of work, positioning us as a stand-alone business, but our teams have transitioned well to driving towards above-market growth through innovation and M&A. I could not be more proud of the continued focus and hard work that our people carry out every day. We recently announced two transactions: the acquisition of Hexagon Ragasco and the formation of a joint venture of our Sustainable Energy Solutions business with Hexagon Composites. Both transactions are great examples of how we are good stewards of capital and create long-term value for our shareholders. First, we acquired Hexagon Ragasco, a global market leader in lightweight composite liquefied propane gas cylinders used for leisure, household, and industrial applications. Hexagon Ragasco pioneered composite technology for liquid gas cylinders in 2000 and, with its highly automated manufacturing facility in Norway, today makes the most efficiently produced and quality-consistent composite LPG cylinder in the world, selling into 100 countries. This acquisition is now part of our Building Products segment and complements our operations in Portugal, expands our product portfolio, and extends our global reach. Second, we also announced the formation of a joint venture of our Sustainable Energy Solutions business with Hexagon Composites, a global leader in the storage and transport of hydrogen and compressed natural gas. Worthington has a long history of establishing joint ventures with strong partners to make a business better and maximize long-term value creation. The hydrogen market has been slow to develop in the U.S. and Europe, and this partnership will provide a better platform to capitalize on opportunities as they emerge. Our remaining ownership interest will no longer be reported on a consolidated basis, but rather earnings will flow through equity income. This strategic move results in a reduction of invested capital, higher earnings, and the prospect of a brighter future for our SES business. I would like to welcome the entire Hexagon Ragasco team to Worthington Enterprises, and we are already working hard alongside the Hexagon Composites team to maximize the potential of our newly formed JV. The changes above mean our Consumer Products and Building Products businesses are now the primary pillars of Worthington Enterprises. We will continue to implement the Worthington business system of transformation, innovation, and M&A to enable us to achieve accelerated growth in earnings. We are particularly focused today on further enhancing our innovation capabilities, so we can bring more and better products to market faster and incorporate sustainable technologies that will deliver significant value to our customers and make us a more valuable partner. As evidenced in collaboration with our customer GALP, our NEXI IoT solutions series recently received a design award from the IF Design Foundation and won gold in the business-to-consumer household appliance category from the renowned German Innovation Awards. Additionally, our HALO Elite Series Griddle was recognized as the best grills of 2024 by CNET and one of the 10 best grills of the year by the Wall Street Journal. Our expertise in strategic M&A, which is showcased by the Hexagon transactions, will help us drive growth and higher returns as we add new products, new brands, and consolidate markets. We will continue to be disciplined stewards of capital, not only making new investments to deliver long-term value creation but also redeploying capital in situations where we can earn a better return. There is no better example of this than the transactions just completed. We're off to a good start as Worthington Enterprises, and Joe will now walk you through the numbers.

Thank you, Andy, and good morning, everybody. On a GAAP basis, in Q4, we reported a loss from continuing operations of $0.64 a share, compared to earnings of $1.01 per share in the prior year. There were several unique items that impacted our quarterly results, including the following: we incurred pretax restructuring, impairment, and one-time charges of $74 million, or $1.38 per share during the current quarter. These charges were primarily related to the sale of 51% of our Sustainable Energy Solutions segment as part of the formation of a joint venture with Hexagon Composites, a global leader in the clean energy space. Results in the prior year quarter were negatively impacted by $0.18 per share due to several items, the largest being corporate costs that were eliminated at the time of separation, along with costs related to the separation of our steel processing business and other smaller nonrecurring items. Excluding these items, we generated adjusted earnings from continuing operations of $0.74 per share in the current quarter compared to $1.19 per share in Q4 of last year. Consolidated net sales in the quarter of $319 million decreased 13.6% from $369 million in the prior year due to lower volumes across all of our segments compared to a very strong Q4 last year. Gross profit for the quarter decreased to $79 million from $94 million in Q4 a year ago. Despite the lower volumes, gross margin decreased only slightly to 24.8% from 25.5% and was up sequentially. Adjusted EBITDA in Q4 was $63 million, down from $94 million in Q4 of last year, and our trailing 12-month adjusted EBITDA is now $251 million with a trailing 12-month adjusted EBITDA margin of 20.1%. With respect to cash flows and our balance sheet, cash flows from operations was $45 million in the quarter and free cash flow was $34 million. During the quarter, we invested $11 million on capital projects, which included $5 million related to the previously mentioned facility modernization projects. We spent $12 million on acquisitions, which was primarily a deposit for the Hexagon Ragasco acquisition, which closed on June 3, and we paid $8 million in dividends. We also received $43 million in dividends from our unconsolidated JVs during the quarter, a 106% cash conversion rate on net equity income. For the full fiscal year, we spent approximately $19 million in CapEx related to the facility modernization projects, and we have about $60 million remaining to spend on those projects, which will be spread out over the next two years, and they're expected to be completed by early fiscal 2027. Looking at our balance sheet and liquidity positions, we ended the quarter with an exceptionally strong balance sheet, $298 million of long-term funded debt carrying at an average interest rate of 3.6%, combined with $244 million of cash, yielding around 5%. We used approximately $84 million of this cash in early June to complete the Hexagon Ragasco acquisition, net of proceeds that we received from Hexagon related to the JV's formation. We continue to operate with extremely low leverage, ending the quarter with a net debt to trailing EBITDA leverage ratio of less than 2.5 times, and we are well-positioned with ample liquidity, including a $500 million undrawn bank credit facility. Yesterday, the Worthington Enterprises Board declared a dividend of $0.17 per share for the quarter, which is payable in September of 2024; that's a 6% increase relative to the dividend last quarter, and we're very pleased to be able to continue rewarding our shareholders as we balance growth in our market-leading businesses with capital returns to shareholders. We'll now spend a few minutes on each of the businesses. In Consumer Products, net sales in Q4 were $125 million, down from $149 million a year ago. The decrease was a result of lower volumes, which were down 17.9% compared to Q4 of last year. Adjusted EBITDA for the Consumer business was $17 million and adjusted EBITDA margin was 13.6% in Q4 compared to $30 million and 19.8% in the prior year. The decline in adjusted EBITDA compared to the prior year quarter was primarily a result of lower volumes in our outdoor living products and slightly higher SG&A related to our tools business as we are investing in that business for future growth. We had a tough comparison relative to the prior year when that business generated record results, but we also believe that consumers have pulled back on discretionary purchases, and as we discussed last quarter, Q4 was also negatively impacted by volume that was pulled forward into Q3. While there are indications that consumers continue to be challenged by inflation and are spending less on nonessentials, the median age of a home in the U.S. is now over 40 years, and long-term trends favor companies with innovative tools and solutions used to repair and maintain those homes. In addition, our outdoor living products continue to win praise from publications and consumers, and we believe destocking has run its course, and demand for those products moving forward will be more correlated with point-of-sale results. We have a solid lineup of market-leading brands that are an important and affordable part of outdoor living activities, celebrations and home improvement projects, and we remain optimistic heading into our new fiscal year. Building Products generated net sales of $154 million in Q4, down 12% from $175 million a year ago. The decrease was driven by a less favorable product mix and lower volumes, especially in the large format heating end market, which continued to see some destocking. We are optimistic that this destocking cycle will run its course this summer and demand will return to a more normal seasonal level in time for the fall heating season. Our water business continued to improve on the top and bottom lines, and our cooling and construction products have returned to seasonally normal volumes as well. Building Products generated adjusted EBITDA of $52 million in the quarter, and adjusted EBITDA margin was 33.6% compared to $65 million and 37.1% in Q4 of last year. The decrease was largely driven by lower equity earnings at ClarkDietrich. The team continues to do a great job taking care of its customers, but slightly lower volumes and pricing competition from regional players have created some margin compression for them. ClarkDietrich contributed $12 million for the quarter compared to a near record $25 million in the prior year quarter. WAVE continued to deliver very strong results, seeing relative strength in volumes across multiple end markets and contributed equity earnings of $28 million in the quarter, up from $24 million a year ago. For the year, WAVE generated record equity earnings of $103 million for us. The Building Products team has done a very good job managing through the destocking that occurred in fiscal 2024, while enhancing its value proposition for customers, and they are very well positioned as demand trends normalize. In Q4, Sustainable Energy Solutions generated net sales and adjusted EBITDA of $40 million and $1 million compared to $45 million and $4 million a year ago. As I mentioned earlier, during the quarter, we sold an interest in our sustainable energy solutions business to Hexagon Composites, effectively turning that business into an unconsolidated JV, of which we own 49%. This occurred on May 29. So Q4 and historical results for SES are being reported in other, along with unallocated corporate expenses. Going forward, starting with our fiscal 2025 Q1 any profits or loss related to SES will flow through equity income within corporate and other. At this point, we are happy to take any questions that people might have.

Your first question comes from Kathryn Thompson with Thompson Research Group. Please go ahead.

Hi. Good morning. This is actually Brian Biros on for Kathryn. Thank you for taking my questions. On ClarkDietrich, you touched on it in the prepared remarks; you saw a big drop in the quarter. You mentioned margin compression and competition. I guess first off, can you parse out how much in that drop was price versus volume there? And I know it was facing a tough comp overall anyway. And then maybe to touch on the outlook for that part as we kind of settle into this new level after coming off the COVID highs?

Sure, Brian. So it wasn't all that related to volumes. Volumes were slightly down, but they hung in pretty well. It was, in fact, the margin compression story. Remember, they're two-thirds new and steel prices fluctuating. There are competitors that do different things. And so they've done a great job of kind of maintaining share and taking care of their customers. We look at this quarter and their performance as kind of feeling pretty troughy. If you annualize that, that should be reasonable.

Got it. And then maybe on the Building Products segment, margins were down, again, mostly on ClarkDietrich, as you mentioned. But if you back out the JVs, it looks like the core margins there for the Building Products segment done pretty well given the headwinds of everything you mentioned. Can you touch on the puts and takes there for the core building product margins?

Yes. It feels where we are right now. I think it was 7.5% EBITDA margins ex JVs. That also feels troughy. The higher-margin products that we have are really where the destocking has been the most acute. The large format heating market is where we think that this destocking runs its course. When the fall heating season ramps back up, we anticipate some more growth there and a return to normalcy, which will help their margins along with continued improvements in the water business and then in the cooling business.

Yes. I think, Brian, Joe has talked about in the past some of the opportunities, particularly in the water segment, and we're starting to see the results of a lot of good work by the team in terms of improving the profitability of that segment. So that probably helped during the quarter as well.

Understood. Thank you. I'll pass it on.

Sure.

Your next question comes from the line of Susan Maklari with Goldman Sachs. Please go ahead.

Good morning, everyone. This is Charles Perron in for Susan. Thanks for taking my question.

Sure. Good morning, Charles.

Good morning. Maybe first, can you expand on the Hexagon Ragasco acquisition? Maybe how you found this deal, the rationale behind the transaction, and the synergies you think you can generate from both revenue and cost? I think you noted that it extends your portfolio and geographic footprint. Any details you can provide on that?

Yes. Joe can maybe give you some details about where the transaction came from, but the Hexagon announced publicly they were going to put the business up for sale last year. So we were aware of it. Honestly, it's a perfect strategic fit for us because, one, we're already in the business in Europe, and Hexagon is the clear market leader in Type 4 for this type of product. There are, and will be, synergies for us. I don't think we've stated publicly because we have to understand the business better first. One thing I will tell you is happening; this is probably the most automated cylinder manufacturing plant in the world. It might be hard to measure a synergy here, but they're going to be able to help us with some of our existing operations in terms of bringing technologies and processes that they already have. So not only is it a great product, and they're a market leader in the product set that they have, but there should be some benefits to us as well.

Yes. And Charles, Andy is absolutely right. The conversation started honestly around the Ragasco business, but Hexagon Composites is a great company in the clean energy space. The conversation morphed and grew into ultimately one that included the JV. We couldn't be happier with the team and the people, and the cultural similarities between Hexagon and Worthington. This was really kind of the only company on the planet that we could have done these transactions with; it's early, right? It's only about 3.5 weeks in, but so far so good on both fronts.

Got it. And maybe can you talk a little bit more about what you're seeing in the consumer segment? I was a little surprised by the volume decrease this quarter, I think, 16%. But what are you hearing from your customers and demand for your consumer product entering the summer months?

Yes, it's a great question. We talked about this some in Q3, but the folks that we follow and I know that you guys keep track of have all suggested that there is some softness in consumer spending, particularly in kind of the outdoor living spaces, which is mainly where the decrease in volumes were. In December, January, and February, we almost became a victim of our own success because there were the storms and that very cold weather, and our retail customers needed additional supply and required surge volumes. We were in a position to provide those additional camping gas cylinders and other products to them. Then they were effectively full; what normally would have seen a little bit of a slower Q3 and a stronger Q4 was flipped on its head this year. As soft as those sales were in Q4, they were far softer than they normally are. We didn't lose market share—nothing happened in that regard. And so far, again, it's only been 3.5 weeks, but volumes there in the outdoor living space have bounced back to pretty close to normal.

Got it. That's very good color, Joe. Thank you very much for the time.

Sure. Thanks, Charles.

Your next question comes from the line of Daniel Moore with CJS Securities. Please go ahead.

Thanks. Good morning. I appreciate you taking questions. Maybe just talk a little bit about demand and activity levels at both WAVE and ClarkDietrich on a forward-looking basis. And then for ClarkDietrich, you mentioned this feels like it's troughing here. How do we think about your expectations for profitability for WAVE over the next several quarters as well?

Yes. We've talked about this in past quarters. These businesses, even though they're both sort of commercial construction-related, are a little bit different, a little bit different places in the cycle. ClarkDietrich is more on the front end of construction. WAVE is a little bit more on the back end of construction. It's a bit confusing in terms of the demand profile for these businesses. But I would say, overall, right now, demand is basically steady. Quarter to quarter, it may be up or down in each of these businesses. However, there is some change in the steel price market. Right now, it's declining. Both of these businesses are currently selling higher-priced steel, which will benefit from lower-priced steel flowing through in the coming months. That's what happened for ClarkDietrich this quarter. When steel prices start to decline, the market for metal framing declines quite quickly. For WAVE, it's a little bit stickier. Both teams are doing a good job of trying to maintain price in that environment. We feel, you heard Joe mention earlier, we feel pretty good about both these businesses and their ability to maintain profit levels going forward.

Got it. Really helpful. And then you gave great color around kind of the state of the market for both consumer and building products. Do we think about the first quarter or two being a little softer on a year-over-year basis before starting to kind of tick up in the fall? Is that the right way to think about the cadence as we look out for the first half of fiscal '25 and into the balance of the year?

Yes. I think that probably depends a little bit, Dan. Certain product lines or value streams may fit that narrative, while others are on a slightly different trajectory. It's a mixed bag. Generally speaking, the headwinds that have been present haven't gotten worse, nor have they materially improved. We feel comfortable operating in the environment that we're in, and our teams are working hard to be nimble and continue to enhance their value propositions and take share when they can. As demand trends normalize, we feel like we're in pretty good shape.

Yes. It's hard to forecast what the economy is going to do. But there are pluses and minuses impacting our businesses in material ways. We have a lot of government infrastructure spending coming through—the positive. We have interest rates, which are impacting the housing market and slowing repair and remodel—negative. Employment is holding up pretty well, but consumers are dialing back some discretionary spending. Financial markets remain strong, so there are various factors impacting the economy. Overall, it feels somewhat steady with a bit of noise here and there in different products and markets.

Really helpful. And last one for me. Just in terms of the JV or the agreement with Hexagon for your Sustainable Energy Solutions business, how does that enhance your competitive position and the kind of organic growth and maybe margin potential on a longer-term basis? Thanks again for the questions.

Sure. I think you're asking about the margin profiles for SES. What happens immediately is the revenue from SES drops out of our P&L; it's an unconsolidated JV, and their profits or losses will roll through equity income. That was around $130 million to $140 million in revenue in 2024, which will now operate just through equity income. The business became better the day we formed the JV. We've picked a fantastic partner in Hexagon, a leader in that space. They have terrific knowledge around Type 4 and are aware of many trends globally. The company will be managed to maximize its own potential. The markets remain attractive long-term, but it will take three-plus years for them to develop enough and mature enough to create a scalable, very profitable business. With Hexagon as a 49% partner along with us at 49%, and the local management team owning 2%, we feel good about our ability to drive share gains for the venture going forward.

If you remember the history here, SES really started out as an industrial gas business. We've invested in Type 4, where Hexagon is a market leader, but we haven't been able to optimize those investments. That's where they will help with the transition. The hydrogen economy is slowly emerging, and the Type 1 market is also slow, particularly in Europe due to the war in Russia and Ukraine. We're excited to have a partner who will bring expertise and extra support to the JV.

Your next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Please go ahead.

Thank you. Could you explain a little more about the Hexagon Composite business that you've acquired? Are they carbon fiber composites, are they fiber-reinforced plastics? How does it go to market? How will Worthington make it better?

Yes. It's a Type 4 cylinder, John, that's essentially in the propane market, made from 100% carbon fiber with plastic wrapping. They sell into customized markets where customers often have very specific product requirements. They have their own sales force and global coverage; however, they don't sell much into the U.S. today. That presents an opportunity for us to leverage what they have globally.

John, the thing I would add is it's a nicely profitable business, with around 20% EBITDA margins in calendar 2023. We can improve it through our channels and relationships. They're going to complement our operations very well in Europe and bring valuable expertise, which will help us globally.

What is Type 4? Is this something that might be preferred by mainstream consumers because it isn't as heavy when we pick it up at the grocery store?

Type 4 cylinders are primarily used in the propane market, serving as the main source of heating and cooking fuel in households, particularly in regions without natural gas lines. These composite cylinders are lighter than their steel equivalents. While they are more expensive, they are worth it for many customers and consumers, making them preferable in many markets.

Thank you for that explanation.

Your next question comes from Brian McNamara with Canaccord Genuity. Please go ahead.

Hi. Good morning, guys. Thanks for taking the question. I guess I'll try to ask about consumer products differently given the decline in volumes and sales. I know you flagged the pull forward last quarter; then there's been destocking as well. Were each kind of worse than you thought? Should volumes be up this year? Or are you expecting a drag similar to what we see in other outdoor businesses, which you have felt quite a bit of pain over the last couple of years? Any color there would be helpful.

Yes. I think we've gone through unique years in this business. We had a huge bump from COVID as people were camping and cooking at home, then we had the destocking year after that. The expectation is this year, we're starting to get back to normal demand patterns, which should be slightly better than last year. The last two quarters have been a bit odd seasonally, partially due to our ability to service retailers with additional inventory ahead of storms. Overall, we feel like we're returning to a normalized demand level.

That's helpful. I appreciate the color on the steel price declines impacting ClarkDietrich. I'm curious if that's just a timing issue? If so, how long does it typically take to catch up historically for ClarkDietrich?

Yes, the steel prices declined, and things can get kind of murky from a competitive perspective because you have to buy forward based on your demand plan. So yes, there's probably a lag of a few months.

Got it. That's helpful. And finally, maybe another one for Joe. I'm curious about the true earnings power of the business. This is a question I've received a lot since you guys split from the steel company. You came in around $250 million in adjusted EBITDA; is that a good starting run rate? Are you underearning? If so, what are the primary near-term drivers of margin expansion?

Sure. For us to reach our target, which is higher than $251 million on an annualized EBITDA basis, we need base business improvements. Not every business is at full speed. We've talked about ways to make these businesses better. The water business's recovery is a good example of that. We also need a normalized operating environment, where we no longer face headwinds that could become tailwinds, driving growth. When we execute on strategic growth drivers, including innovation and thoughtful strategic M&A decisions, we should grow from here.

Our goal is to grow 6% to 8% top-line per year. I'd be disappointed if within the next three to five years, we don't exceed that. We certainly believe we can achieve double-digit growth. Our goal is to get to 24% EBITDA margins. There are several tools in our toolkit, including our transformation playbook, launching innovative new products for higher margins, and executing accretive M&A transactions. We have strategies and great teams, and if we execute properly, we should achieve these goals.

Great. Thanks for the color, guys.

Sure.

This concludes the question-and-answer session, and I will now turn the call back over to Andy Rose, Chief Executive Officer for closing remarks.

Great. Thanks, everyone. As I said last quarter, we are very proud of our history and who we are today, but we are excited about beginning the first full fiscal year as Worthington Enterprises. We have excellent strategies driven by an experienced and highly motivated team of professionals, and significant available capital to drive returns for our shareholders. So we're excited about our future and appreciate you being here with us today.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.