Worthington Enterprises, Inc 8-K, filed Jun 30, 2025
Worthington Enterprises, Inc. (WOR)
About this 8-K
Worthington Enterprises, Inc filed this 8-K on June 30, 2025, reporting on events of June 25, 2025.
Items reported
- Item 2.02: Financial results
- Item 5.02: Director or officer change, or executive pay
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
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Trading |
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
Worthington Enterprises, Inc. (the “Registrant”) conducted a conference call on June 25, 2025, beginning at approximately 8:30 a.m., Eastern Time, to discuss the Registrant’s unaudited financial results for the fourth quarter and fiscal year ended May 31, 2025. Additionally, the Registrant addressed certain issues related to the outlook for the Registrant and its subsidiaries and their respective markets. A copy of the transcript of the conference call is furnished as Exhibit 99.1 to this Current Report on Form 8-K (this “Form 8-K”).
The information contained in this Item 2.02 and in Exhibit 99.1 is being furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, unless the Registrant specifically states that the information is to be considered “filed” under the Exchange Act or incorporates the information by reference into a filing under the Exchange Act or the Securities Act of 1933, as amended.
In the conference call, the Registrant discussed financial measures prepared and presented in accordance with accounting principles generally accepted in the United States (“GAAP”) as well as non-GAAP financial measures to provide investors with additional information that the Registrant believes allows for increased comparability of the performance of the Registrant’s ongoing operations from period to period. The Registrant referred to adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) from continuing operations and adjusted EBITDA from continuing operations margin on a trailing 12-months (“TTM”) basis. Adjusted EBITDA from continuing operations and adjusted EBITDA from continuing operations margin are non-GAAP financial measures used by management as measures of operating performance. EBITDA from continuing operations is calculated by adding or subtracting, as appropriate, interest expense, net, income tax expense and depreciation and amortization to/from net earnings from continuing operations attributable to controlling interest. Adjusted EBITDA from continuing operations is calculated by adding or subtracting, as appropriate, to/from EBITDA from continuing operations certain items that the Registrant believes are not necessarily indicative of its operating performance, such as those listed in the table below and previously described in Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on June 24, 2025. TTM adjusted EBITDA from continuing operations margin is calculated by dividing TTM adjusted EBITDA from continuing operations by net sales.
During the conference call, the Registrant also referred to the ratio of net debt to TTM adjusted EBITDA from continuing operations, which is a non-GAAP financial measure that is used by the Registrant as a measure of leverage. Net debt to TTM adjusted EBITDA from continuing operations is calculated by subtracting cash and cash equivalents from total debt (defined as the aggregate of short-term borrowings, current maturities of long-term debt and long-term debt) and dividing the sum by TTM adjusted EBITDA from continuing operations. The calculation of net debt to adjusted EBITDA from continuing operations for the TTM ended May 31, 2025, along with a reconciliation of net cash provided by operating activities (the most comparable GAAP financial measure) is outlined below.
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Fourth |
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Third |
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Second |
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First |
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Quarter |
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Quarter |
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Quarter |
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Quarter |
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2025 |
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2025 |
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2025 |
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2025 |
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Net cash provided by operating activities |
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$ |
62,414 |
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$ |
57,131 |
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$ |
49,053 |
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$ |
41,146 |
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Adjustments: |
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Changes in assets and liabilities, net of impact of acquisitions |
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4,151 |
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(6,738 |
) |
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5,329 |
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(3,493 |
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Interest expense (income), net |
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(60 |
) |
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628 |
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1,033 |
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489 |
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Income tax expense |
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4,717 |
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13,240 |
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9,100 |
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6,782 |
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Impairment of long-lived assets |
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(50,813 |
) |
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- |
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- |
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- |
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Benefit from (provision for) deferred income taxes |
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7,568 |
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8,016 |
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(2,682 |
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5,537 |
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Impairment of investment in note receivable |
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(5,000 |
) |
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- |
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- |
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- |
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Bad debt (expense) benefit |
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31 |
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(1,128 |
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(2,069 |
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8 |
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Equity in net income of unconsolidated affiliates, net of distributions |
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2,041 |
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(3,089 |
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(4,268 |
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(3,453 |
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Net gain (loss) on sale of assets |
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(824 |
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21 |
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508 |
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18 |
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Non-cash restructuring and other expense |
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- |
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- |
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(2,662 |
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- |
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Less: noncontrolling interest |
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263 |
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324 |
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251 |
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245 |
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EBITDA from continuing operations (1) |
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$ |
24,488 |
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$ |
68,405 |
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$ |
53,593 |
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$ |
47,279 |
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Adjustments: |
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Impairment of long-lived assets |
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50,813 |
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- |
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- |
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- |
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Restructuring and other expense, net |
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1,372 |
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5,374 |
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2,620 |
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1,158 |
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Impairment of investment in note receivable |
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5,000 |
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- |
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- |
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- |
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Non-recurring loss in equity income |
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3,387 |
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- |
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- |
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- |
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Adjusted EBITDA from continuing operations (1) |
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$ |
85,060 |
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$ |
73,779 |
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$ |
56,213 |
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$ |
48,437 |
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May 31, |
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(In thousands) |
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2025 |
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Long-term debt |
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$ |
302,868 |
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Less: cash and cash equivalents |
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250,075 |
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Net debt |
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$ |
52,793 |
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TTM adjusted EBITDA from continuing operations (non-GAAP) |
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$ |
263,489 |
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Net debt to TTM adjusted EBITDA from continuing operations (non-GAAP) |
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0.20 |
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Additional non-GAAP financial measures referred to by the Registrant on the conference call, including reconciliations to the most comparable GAAP financial measures, are included in Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on June 24, 2025. Such Exhibit 99.1 includes a copy of the Registrant’s news release issued on June 24, 2025 (the “Financial News Release”) reporting results for the three-month and 12-month periods ended June 24, 2025. The Financial News Release was made available on the Registrant’s website throughout the conference call and will remain available on the Registrant’s website for at least one year.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On June 30, 2025, the Compensation Committee (“Committee”) of the Board of Directors of the Registrant approved a special leadership retention performance share (“Performance Shares”) award for Colin J. Souza, the Registrant’s Vice President and Chief Financial Officer, Patrick J. Kennedy, the Registrant’s Vice President – General Counsel & Secretary, Steven M. Caravati, the President of the Registrant’s Consumer Products segment, and Sonya L. Higginbotham, the Registrant’s Senior Vice President & Chief of Corporate Affairs, Communications & Sustainability. This award is intended to facilitate executive retention and shareholder alignment. The award is subject to the terms of the Worthington Enterprises, Inc. 2024 Long-Term Incentive Plan (“2024 LTIP”) and the applicable Performance Share Award Agreement (“Award Agreement”). This award of Performance Shares gives the participant the right to receive the Registrant’s common shares if both the performance-based vesting condition (“Performance Condition”) and a time-based vesting condition (“Retention Condition”), as set forth in the applicable Award Agreement, are satisfied.
The Performance Condition applicable to the award is the Registrant’s annualized absolute total shareholder return (“Annualized ATSR”) during the three-year period beginning on June 30, 2025 and ending on June 30, 2028 (“Performance Period”), which Annualized ATSR must exceed a threshold level in order to be satisfied. If the Annualized ATSR Performance Condition is satisfied, the number of Performance Shares that become eligible to vest will correspond to the Registrant’s actual Annualized ATSR results, as measured from the threshold level of Annualized ATSR to a maximum level of Annualized ATSR. Achievement at the threshold level results in 50% of the target number of Performance Shares becoming eligible to vest, and achievement at the maximum level results in 150% of the target number of Performance Shares becoming eligible to vest (with results between the threshold and maximum levels determined by straight-line interpolation). The Committee shall review and certify the level of achievement of the Annualized ATSR Performance Condition on a date within 60 days following the end of the Performance Period (“Certification Date”).
The Retention Condition applicable to the award requires the participant to remain continuously employed by the Registrant or its subsidiaries through the applicable Certification Date. Any Performance Shares that become eligible to vest under the Performance Condition will vest in full on the Certification Date if the Retention Condition is satisfied.
Participants do not have the right to vote any Performance Shares and no dividends will accrue on or be paid with respect to the Performance Shares.
In limited circumstances, the Performance Shares may vest before the Performance Condition and/or Retention Condition is met. If the participant’s employment terminates due to death or disability before the Certification Date, the Performance Shares will vest on the Certification Date, if at all, based on the extent to which the Performance Condition is met. If there is a change in control, as defined in the 2024 LTIP, the Performance Shares will vest on the date of such change in control at the greater of the target level or at the level determined by actual performance through the date of such change in control. If the participant’s employment is terminated by the Registrant without cause after the Performance Condition is met, but before the Certification Date, any outstanding Performance Shares that were eligible to vest as a result of meeting the Performance Condition will vest.
The number of Performance Shares (at the target level) awarded to Mr. Souza was 10,000 (i.e., valued at $636,400 based on the $63.64 per common share closing price on June 30, 2025), to Mr. Kennedy was 10,000 (i.e., valued at $636,400) to Mr. Caravati was 10,000 (i.e., valued at $636,400) and Ms. Higginbotham was 7,500 (i.e., valued at $477,300).
This description of the Performance Shares and the Award Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the 2024 LTIP and the Award Agreement. A copy of the form of Award Agreement is attached hereto as Exhibit 10.1 and is incorporated into this report by reference in its entirety.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits: The following exhibits are included with this Form 8‑K:
Exhibit No. |
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Description |
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10.1 |
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99.1 |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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WORTHINGTON ENTERPRISES, INC. |
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Date: |
June 30, 2025 |
By: |
/s/Patrick J. Kennedy |
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Patrick J. Kennedy, Vice President - |
WORTHINGTON ENTERPRISES, INC.
2024 LONG-TERM INCENTIVE PLAN
PERFORMANCE SHARE AWARD AGREEMENT
(ABSOLUTE TOTAL SHAREHOLDER RETURN)
This Performance Share Award Agreement (this “Agreement”) is made effective as of ____________ (the “Grant Date”), by and between Worthington Enterprises, Inc. (“Worthington”) and _______________ (the “Participant”). Capitalized terms that are not defined in this Agreement have the same meaning as in the Worthington Enterprises, Inc. 2024 Long-Term Incentive Plan (the “Plan”).
Section 1. Award of Performance Shares.
Worthington hereby grants the Participant a Performance Award (the “Performance Shares”) determined based on a target number of _____________ Performance Shares (the “Target Performance Shares”) and as further described on the attached Appendix A. Each Performance Share granted pursuant to this Agreement gives the Participant an unfunded, unsecured right to receive payment, following the satisfaction of vesting conditions set forth in this Agreement, of one Share in the manner set forth in Section 6 below. The Performance Shares are subject to the terms and conditions described in the Plan and this Agreement.
Section 2. Vesting.
(a) General. Subject to Section 3, the Performance Shares will vest if both the Performance Condition and the Time-Based Vesting Condition are met.
(b) Performance Based Vesting Condition. Appendix A sets forth the Performance Condition that must be satisfied in order for the Performance Shares to be eligible for vesting. The Performance Condition is based on Worthington’s annualized absolute total shareholder return (“ATSR”) during the period beginning on the Grant Date and ending on the third anniversary of the Grant Date (the “Performance Period”), all as set forth on Appendix A. The Committee shall certify in writing the extent to which the Performance Condition has been achieved and the number of Performance Shares eligible for vesting based on the Performance Condition as soon as administratively practicable, but no later than 60 days, following the end of the Performance Period (the “Certification Date”). The Performance Shares that become eligible for vesting under this Section 2(b) are hereinafter referred to as the “Eligible Performance Shares.” Subject to Section 3, any unvested Performance Shares which are not eligible for vesting based on the Performance Condition shall be automatically forfeited, terminated and cancelled effective as of the Certification Date without payment of any consideration by the Company, and the Participant or the Participant’s beneficiary or representative, as the case may be, shall have no further rights with respect to such Performance Shares under this Agreement.
(c) Time Based Vesting Condition. Provided that the Participant has continuously remained employed by the Company from the Grant Date through the Certification Date, all of the Eligible Performance Shares shall vest on the Certification Date (the “Time Based Vesting Condition”).
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Section 3. Additional Vesting Events.
(a) Death or Disability. If the Participant’s employment terminates due to the Participant’s death or disability (as defined in Treasury Regulation Section 1.409A-3(i)(4)) before the Certification Date, the Performance Shares will vest on the Certification Date (if at all) based on the extent to which the Performance Condition has been actually achieved.
(b) Change in Control. If there is a Change in Control, any unvested, outstanding Performance Shares will become fully vested on the date of such Change in Control. For purposes of this Section 3(b), the Performance Condition will be treated as satisfied at the greater of (i) actual performance during the Performance Period through the date of the Change in Control and (ii) the performance necessary to earn the Target Performance Shares.
(c) Termination Without Cause. If the Company terminates the Participant’s employment without Cause after the Performance Period ends, any unvested, outstanding Eligible Performance Shares determined based on the attainment of the Performance Condition calculated through the end of the Performance Period, will fully vest as of the Certification Date. “Cause” means the Participant’s (i) willful and continued failure to substantially perform assigned duties; (ii) gross misconduct; (iii) material breach of any term of any material agreement with the Company, including this Agreement; (iv) conviction of (or plea of no contest or nolo contendere to) (A) a felony or (B) a crime other than a felony, which involves a breach of trust or fiduciary duty owned to the Company; or (v) material violation of Worthington’s code of conduct or any other policy of the Company that applies to the Participant.
The Performance Shares will be forfeited if the conditions for vesting set forth in Section 2 or Section 3 are not met.
Section 4. Restrictions on Transferability.
No Performance Shares, and no Shares underlying the Performance Shares which have not been issued, may be sold, assigned, transferred, pledged or otherwise encumbered, except by will or by the laws of descent and distribution or to the Participant’s beneficiary upon the death of the Participant.
Section 5. Rights Before Settlement.
The Participant shall not be, and shall not have any of the rights or privileges of, a shareholder of Worthington, including, without limitation, voting rights and rights to dividends and other distributions, in respect of the Performance Shares and any Shares underlying the Performance Shares unless and until such Shares shall have been issued by Worthington.
Section 6. Settlement.
As soon as administratively practicable following the vesting of any Performance Shares pursuant to this Agreement, but in no event later than 60 days following such vesting date, Worthington shall deliver to the Participant a number of Shares equal to the number of Performance Shares that vested on the applicable vesting date, less, to the extent applicable, the
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number of Shares withheld in accordance with Section 7. Any fractional Performance Shares will be settled in cash based upon the Fair Market Value of a Share on the settlement date.
The issuance of Shares will be subject to the satisfaction of Worthington’s counsel that such issuance shall be in compliance with applicable federal and state securities laws. Any Shares delivered under the Plan will be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any certificates evidencing such Shares to make appropriate reference to such restrictions.
Section 7. Withholding.
Consistent with Section 12(i) of the Plan, the Company is authorized to withhold in respect of the Performance Shares, the amount of withholding taxes due in respect of vesting or settlement of such Performance Shares and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes.
Section 8. Non-Competition.
In the event that the Participant terminates employment with the Company for any reason whatsoever, and within 18 months after the date thereof becomes associated with, employed by, renders services to, or owns any interest in (other than any non-substantial interest, as determined by the Committee), any business that is in competition with the Company or with any business in which the Company has a substantial interest as determined by the Committee, the Committee, in its sole discretion, may require the Participant to return to Worthington the economic value of the Performance Shares which is realized or obtained (measured as of the date on which the Performance Shares vested) by the Participant at any time during the period beginning on that date which is six months prior to the date of the Participant’s termination of employment with the Company.
Section 9. Other Terms and Conditions.
(a) Beneficiaries. The Participant may designate a beneficiary to receive any Performance Shares that are outstanding but unsettled in the event of the Participant’s death. If no beneficiary is designated, the Participant’s beneficiary will be the Participant’s surviving spouse and, if there is no surviving spouse, the Participant’s estate.
(b) No Guarantee of Employment. The granting of Performance Shares will not confer upon the Participant any right to continued employment with any Company, nor will it interfere in any way with the right of any Company to terminate the employment of the Participant at any time, with or without Cause.
(c) Governing Law. The validity, construction and effect of this Agreement shall be determined in accordance with the laws of the State of Ohio (other than laws governing conflicts of laws) and applicable Federal law.
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(d) Rights and Remedies Cumulative. All rights and remedies of the Company and of the Participant enumerated in this Agreement will be cumulative and, except as expressly provided otherwise in this Agreement, none will exclude any other rights or remedies allowed at law or in equity, and each of said rights or remedies may be exercised and enforced concurrently.
(e) Captions. The captions contained in this Agreement are included only for convenience of reference and do not define, limit, explain or modify this Agreement or its interpretation, construction or meaning and are in no way to be construed as a part of this Agreement.
(f) Severability. If any provision of this Agreement or the application of any provision hereof to any Person or any circumstance will be determined to be invalid or unenforceable, then such determination will not affect any other provision of this Agreement or the application of said provision to any other Person or circumstance, all of which other provisions will remain in full force and in effect.
(g) Entire Agreement. This Agreement, together with the Plan, which is incorporated herein by reference, constitutes the entire agreement between the Company and the Participant in respect of the subject matter of this Agreement. No officer, director, employee or other servant or agent of the Company, and no servant or agent of the Participant, is authorized to make any representation, warranty or other promise not contained in this Agreement. All representations of any type relied upon by the Participant and the Company in making this Agreement are specifically set forth herein, and the Participant and the Company each acknowledge that they have relied on no other representation in entering into this Agreement. No change, termination or attempted waiver of any of the provisions of this Agreement will be binding upon any party hereto unless contained in a writing signed by the party to be charged.
(h) Performance Shares Subject to the Plan. The Performance Shares are subject to the terms and conditions described in this Agreement and the Plan. In the event of a conflict between the terms of the Plan and the terms of this Agreement, the terms of the Plan will govern except as specifically provided in this Agreement. The Committee has the sole responsibility for interpreting the Plan and this Agreement, and the Committee’s determination of the meaning of any provision in the Plan or this Agreement will be binding on the Participant.
(i) Section 409A of the Code. This Agreement and the Performance Shares granted hereunder are intended to be exempt from, or otherwise comply with, Section 409A of the Code and the Treasury Regulations promulgated thereunder (collectively, “Section 409A”), and shall be interpreted, administered and operated accordingly. For purposes of this Agreement, termination of employment means a “separation from service” within the meaning of Treasury Regulations Section 1.409A-1(h). If the Participant is a “specified employee” within the meaning of Section 409A at the time of the Participant’s separation from service, then any payment otherwise required to be made to the Participant under this Agreement on account of the Participant’s separation from service, to the extent such payment (after taking into account all exclusions applicable to such payment under Section 409A) is properly treated as deferred compensation subject to Section 409A, shall not be made until the first business day after (i) the expiration of six months from the date of the Participant’s separation from service or (ii) if earlier, the date of the Participant’s death. Nothing in this Agreement should be construed as a guarantee or entitlement of any particular tax
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treatment to the Participant. None of the Company, the Board, the Committee or any other Person shall have liability with respect to the Participant in the event this Agreement or the Performance Shares granted hereunder fail to comply with the requirements of Section 409A.
(j) Clawback. The Performance Shares and any Shares issued in connection with this Agreement is subject to any clawback policy adopted by the Company from time to time.
(k) Signature in Counterparts. This Agreement may be signed in counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument. Furthermore, delivery of a copy of a counterpart signature by facsimile or electronic transmission shall constitute a valid and binding execution and delivery of this Agreement, and such copy shall constitute an enforceable original document.
This Agreement may be executed and exchanged by facsimile or electronic mail transmission and the facsimile or electronic mail copies of each party’s respective signature will be binding as if the same were an original signature. This Agreement may also be executed through the use of electronic signature, which each party acknowledges is a lawful means of obtaining signatures in the United States. Each party agrees that its electronic signature is the legal equivalent of its manual signature on this Agreement. Each party further agrees that its use of a key pad, mouse or other device to select an item, button, icon or similar act/action, regarding any agreement, acknowledgement, consent terms, disclosures or conditions constitutes its signature, acceptance and agreement as if actually signed by such party in writing. Furthermore, to the extent applicable, all references to signatures in this Agreement may be satisfied by procedures that the Company or a third party designated by the Company has established or may establish for an electronic signature system, and the Participant’s electronic signature shall be the same as, and shall have the same force and effect as, such Participant’s written signature.
(l) Effect of Termination of Employment. In partial consideration for the Award made pursuant to this Agreement, the Participant hereby irrevocably agrees that the termination of the Participant’s employment with the Company for any reason will constitute the Participant’s contemporaneous resignation from (i) any director, manager, officer or employee position the Participant has with the Company (including all direct and indirect subsidiaries of Worthington and all joint ventures affiliated with Worthington) and (ii) any fiduciary positions (including as a trustee) the Participant holds with respect to any employee benefit plan or trust established or sponsored by the Company (including all direct and indirect subsidiaries of Worthington and all joint ventures affiliated with Worthington). The Participant further irrevocably agrees that this paragraph shall serve as written notice of resignation in any such circumstance, unless otherwise required by any applicable plan, regulation or law.
Section 10. Application of Section 280G of the Code.
If Worthington determines that any payment or benefit, including any accelerated vesting, due to the Participant under this Agreement in connection with a Change in Control, when combined with any other payment or benefit due to the Participant from the Company or any other entity in connection with such Change in Control, would be considered an “excess parachute payment” within the meaning of Section 280G of the Code, the payments and benefits due to the Participant under this Agreement may be reduced by the Company to the minimum extent
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necessary to avoid the imposition of an excise tax under Section 4999 of the Code or a loss of deduction under Section 280G of the Code, in accordance with rules and procedures which may be established by the Committee and, to the extent applicable, in compliance with Section 409A.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the Grant Date set forth above.
PARTICIPANT WORTHINGTON ENTERPRISES, INC.
__________________________________ By: ______________________________
[Printed Name] [Printed Name]
Its: [Title]
Dated: ____________________________ Dated: ____________________________
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Appendix A
Performance Condition — Absolute Total Shareholder Return
This Appendix A sets forth the Performance Condition for the Performance Shares and shall determine the extent to which the Performance Condition is achieved and the extent to which the Performance Shares will be eligible for vesting under the Agreement. The Performance Condition shall be based on Worthington’s Annualized ATSR (as defined below).
Calculation to Determine Performance Shares Eligible for Vesting
The Participant will be eligible to vest in a number of Shares underlying the corresponding number of Performance Shares (at a rate of one Share for each Performance Share), ranging from 0% to 150% of the Target Performance Shares granted to the Participant, based on Worthington’s Annualized ATSR and determined based on the table below. For Annualized ATSR performance between the values listed in the table below, the number of Performance Shares that become eligible for vesting shall be determined by straight-line interpolation:
Annualized ATSR |
Percentage of Target Performance Shares Eligible for Vesting |
Below ___% |
0% |
% |
% |
% |
% |
% |
% |
In no event shall more than 150% of the Target Performance Shares become eligible for vesting.
Determination of Annualized ATSR
For purposes of this Agreement:
(i) “Annualized ATSR” means: Total Performance Period ATSR to the 1/3 power, minus one.
(ii) “Total Performance Period ATSR” shall be calculated as follows and expressed as a percentage:
(Ending Price) + (Cumulative Value of All Dividends Paid Over the Performance Period)
(Starting Price)
(iii) “Starting Price” means the volume weighted average price (the “VWAP”) of the Shares for the 20 consecutive trading days ending on the Grant Date.
(iv) “Ending Price” means the VWAP of the Shares for the 20 consecutive trading days ending on the third anniversary of the Grant Date.
A 7
TRANSCRIPT
06 – 25 – 2025
Worthington Enterprises
Q4 2025 Earnings
TOTAL PAGES: 20
CORPORATE SPEAKERS:
Marcus Rogier
Worthington Enterprises; Treasurer and Investor Relations Officer
Joseph Hayek
Worthington Enterprises; President and Chief Executive Officer
Colin Souza
Worthington Enterprises
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Worthington Enterprises; Chief Financial Officer
PARTICIPANTS:
Kathryn Thompson
Thompson Research Group; Analyst
Dan Moore
CJS Securities; Analyst
Susan Maklari
Goldman Sachs; Analyst
Brian McNamara
Canaccord Genuity; Analyst
Walter Liptak
Seaport Research; Analyst
PRESENTATION:
Operator: Good morning and welcome to the Worthington Enterprises Fourth Quarter Fiscal 2025 Earnings Conference Call. (Operator Instructions) This conference is being recorded at the request of Worthington Enterprises. If anyone objects, you may disconnect at this time.
I'd now like to introduce Marcus Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin.
Marcus Rogier: Thank you, Rob. Good morning, everyone, and thank you for joining us for Worthington Enterprises’ Fourth Quarter Fiscal 2025 Earnings Call. On the call today are Joe Hayek, our President and Chief Executive Officer, and Colin Souza, our Chief Financial Officer.
Before we begin, I'd like to remind everyone that certain statements made during today's call are forward-looking in the nature and subject to risks 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.
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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.
With that, I'll turn the call over to Joe for opening remarks.
Joseph Hayek: Thank you, Marcus. And good morning, everyone. Welcome to Worthington Enterprises Fiscal 2025 Fourth Quarter Earnings Call. It's been a great fiscal 2025 for us on several fronts. We're exceptionally proud of and grateful for our people, who continue to work safely, taking care of each other and our customers. We're a people-first company, and our culture powers our success. So, to all my colleagues, thank you.
In the quarter, we delivered year-over-year and sequential growth in revenue, adjusted EBITDA and earnings per share, driven by great work across our teams in building products and consumer products, our revenue in Q4 was up 14% from last year, excluding the deconsolidation of SES and was up 8%, excluding both SES and revenues at Ragasco. Gross margin was 29.3% versus 24.8% and adjusted EBITDA margin in the quarter was 26.8% versus 19.8% in Q4 a year ago.
Our results in Q4 reflect our strategy and action. We are delivering on the commitments we make to each other and to our customers every day as we optimize our current businesses and grow Worthington, and we continue to leverage the Worthington business system in its three growth drivers, innovation, transformation, and M&A, to maximize both our near and long-term success.
On the innovation front, we've made great strides this year. The success of our new Balloon Time Mini has created opportunities for us in new channels and we recently began partnering with CBS. You'll soon be able to buy our suite of Balloon Time products in their stores nationwide. HALO griddles continue to receive accolades from various publications and in Q4, Men's Journal and CNET, both named HALO as among the best griddles of 2025.
Finally, our PowerCore cylinder was part of the solution 3M leverage to develop their 3M fast bond water-based adhesives, which in April won the Adhesives and Sealants Council's 2025 Innovation Award.
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Our teams continue to focus on productivity improvements across our network by leveraging transformation. These efficiency gains, driven by automation and technology, continue to contribute to our success. Our team in the water business has made good progress as they embrace 80/20 as a way of thinking differently. While it's early, we're confident that 80/20 will have a positive impact on that business and eventually across more of our value streams.
Strategic M&A that leverages our core capabilities is the third vital leg of the Worthington business system that powers our growth. Last week, we were in New Jersey with our new colleagues at Elgen Manufacturing announcing that acquisition. Elgen is a leader in HVAC components and structural framing for commercial buildings and is a strong strategic and cultural fit that complements our existing building products business. It's a great example of how we apply our investment criteria to identify and acquire companies with leading positions in niche markets that we believe will be accretive to our margins and cash flows.
The Elgen team has much to be proud of. Above and beyond over $115 million in LTM revenue and $13 million in adjusted EBITDA, they’re positioned for growth, and we think we can help them accelerate that growth. Elgen roll forms coiled steel, something with which we have deep experience. Their processes, go-to-market strategies and end markets mirror ours, creating meaningful opportunities for synergies and growth. We are thrilled to welcome their 250 employees to Worthington and move forward their contribution to our collective success.
For seven years, we have championed the idea that people are our most important asset. That conviction makes it particularly gratifying for us in Q4 to have been named a top workplace in Central Ohio for the 13th consecutive year and in our first year as Worthington Enterprises. In the quarter, we also announced the U.S. Army Partnership for Your Success at our facility in Wisconsin. We're very proud to be part of this unique program, partnering with the U.S. Army as they integrate veterans into the workforce after their service to our country.
Our powerful people first, performance-based culture continues to serve us exceptionally well and we leverage that strength every day as we focus on both the near term, executing our strategy and managing tariff and economic uncertainty, and on our long-term growth aspirations and performance. While we're happy to be here today discussing our Q4 results, we are constantly thinking about and investing in our future.
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Leveraging our culture, Worthington business system and our strong balance sheet, we believe we are very well positioned going forward. Our focus is on our people, our customers, our value propositions, and the opportunities we have to continue to improve everyday life by elevating spaces and experiences, which will ultimately enable us to create long-term value for shareholders.
We'll now turn the call over to Colin, who will take you through some details related to our financial performance in the quarter.
Colin Souza: Thank you, Joe. And good morning, everyone. We delivered strong financial results in Q4 to close out our fiscal year, even with a few unique items impacting comparability. On a GAAP basis, we reported earnings from continuing operations of $0.08 per share compared to a loss of $0.64 per share in the prior year quarter.
Our quarterly results included the following unique items: a negative impact from net pretax restructuring, impairment and other one-time charges of $61 million or $0.98 per share. These charges were primarily related to a noncash impairment associated with our General Tools & Instruments business, or GTI, and consumer products, along with a noncash impairment charge related to our equity investment in the Sustainable Energy Solutions joint venture and related investments.
Both GTI and SES represent relatively small portions of our overall business, and these actions reflect updated long-term assumptions for these assets, inclusive of the changing tariff landscape. The prior year quarter included pretax charges of $74 million or $1.38 per share, primarily related to the deconsolidation of SES. Excluding these items, adjusted earnings from continuing operations was $1.06 per share, marking another strong quarter for us at Worthington Enterprises. This compares to adjusted earnings from continuing operations of $0.74 per share in the prior year quarter.
Consolidated net sales for the quarter were $318 million, essentially flat compared to the prior year period. This reflects the deconsolidation of our former Sustainable Energy Solutions segment, which contributed $40 million in sales last year. Excluding SES in both periods, net sales grew nearly 14% driven by higher overall volumes and contributions from the Ragasco acquisition. Gross profit increased significantly to $93 million, up from $79 million in the prior year quarter, reflecting
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an approximately 450 basis point expansion in gross margin to 29.3%, consistent with the levels we reported in Q3.
Adjusted EBITDA for the quarter was $85 million, up from $63 million in Q4 of last year and sequentially higher from $74 million in Q3. Adjusted EBITDA margin was 26.8%, up from 19.8% last year. For the full fiscal year, adjusted EBITDA was $263 million with a TTM adjusted EBITDA margin of 22.8%.
The second half of our fiscal year tends to be seasonally stronger, and this year follows that pattern, suggesting a return to normalized seasonal trends. We've been adding capacity in our heating, cooling, construction, and celebrations product lines in response to our customers, who have in some cases seen significant increases in demand and value of domestic manufacturing partner.
Turning to our cash flow and capital allocation. We continue to invest in our operations while maintaining a disciplined and balanced approach. During the quarter, we invested $13 million in capital expenditures, including $8 million related to our facility modernization projects. We also returned capital to shareholders, paying $8 million in dividends and repurchasing 200,000 shares of our common stock for $10 million at an average price of $49.16 per share. Our joint ventures generated $41 million in dividends during the quarter, representing a 95% cash conversion rate on equity income.
For the full fiscal year, we invested approximately $51 million in CapEx, including $25 million related to our facility modernization projects. We have approximately $40 million remaining to spend on these projects, and we expect the majority of this to be spent over fiscal year '26, with completion anticipated in early fiscal year '27. Cash flow from operations for the quarter was $62 million and free cash flow was $49 million. For the full fiscal year, free cash flow totaled $159 million, representing a 103% free cash flow conversion rate relative to our adjusted net earnings.
Turning to our balance sheet and liquidity. We closed the quarter with $303 million in long-term funded debt during an average interest rate of 3.6%, along with $250 million in cash. Subsequent to quarter end, in mid-June, we used approximately $93 million of that cash to complete the recently announced acquisition of Elgen Manufacturing.
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Our leverage remains extremely low with ample liquidity supported by a $500 million undrawn bank credit facility. Net debt at quarter end was $53 million, resulting in a net debt to trailing adjusted EBITDA leverage ratio of less than 1/4 turn. Yesterday our Board of Directors declared a quarterly dividend of $0.19 per share, an increase of $0.02 or 12% relative to the dividend paid last quarter, payable in September 2025. We are very pleased to continue rewarding shareholders as we deliver strong earnings while prioritizing and investing in long-term growth.
I will now briefly walk through our segment performance where both businesses delivered excellent results to close out the fiscal year. In Consumer Products, Q4 net sales were $126 million, essentially flat compared to the prior year quarter, with a slight increase in volume. Adjusted EBITDA was $21 million with a 16.6% margin, up from $17 million or 13.6% in Q4 last year.
The improvement was driven by lower SG&A expenses and a more favorable product mix. The consumer team continued to execute well in Q4, delivering higher profitability despite uncertainty in the broader consumer environment. As we have seen throughout the year, volumes remain closely tied to point-of-sale activity, and while consumers remain cautious, our market-leading brands and strong retail partnerships position us well. Our products remain highly relevant and valued by consumers as they elevate everyday experiences around outdoor living, celebrations, and home improvement. With a solid foundation in place, we believe we are poised for long-term growth as market conditions normalize and consumer confidence and repair and remodel activity improved.
In Building Products, Q4 net sales grew 25% year-over-year to $192 million, up from $154 million in the prior year quarter. This growth was driven by higher overall volumes, along with the contributions from the Ragasco acquisition completed in Q1. Q4 is typically our strongest seasonal quarter for building products, and this year was no exception, with volumes up 19%, both sequentially and year-over-year. Adjusted EBITDA for the quarter was $71 million, 37% of sales compared to $52 million and 33.6% in the prior year quarter.
Year-over-year increase in adjusted EBITDA was driven by volume growth and a combined $6 million increase in equity income from WAVE and ClarkDietrich. WAVE delivered another solid performance, while ClarkDietrich continues to navigate a mixed demand environment and competitive pressures exceptionally well.
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Overall, the Building Products team had a strong finish to the fiscal year and continues to win with customers by providing reliable service, product innovation, and value-added solutions. Our portfolio of market-leading products and solutions support critical building systems and components that elevate the spaces where people live, work and gather.
As we look ahead, we remain confident in the long-term outlook for our building products business and the recent addition of Elgen Manufacturing strengthens our offerings and further supports our growth strategy.
At this point, we're happy to take any questions.
QUESTIONS:
Operator: (Operator Instructions) And your first question comes from the line of Kathryn Thompson from Thompson Research Group.
Kathryn Thompson: The theme this quarter is pretty similar to the prior quarter, which was a pretty solid margin expansion for your wholly owned margins. Part of this is we acknowledge is lapping some easier comps, but also a large portion is company initiatives. Can you break down or break out what margin growth is, what is it more onetime? And how much of it is more company-specific initiatives?
Colin Souza: Yes. Thanks, Kathryn. So, I think we had a good gross margin expansion in the quarter, 450 basis points. Similar to last quarter, we did have in Q4 last year, we completed the transaction for our SES business. So deconsolidated that from our financials -- that led to roughly half of the 450-basis point margin expansion in the quarter. Then the balance of that was really driven by in the wholly owned building products business, significant volume growth, which translated to good conversion costs and good product mix improvements. As that business in the end markets there really returned to seasonally normal demand pattern, in particular, some of the higher-margin products like the large-format heating tanks there.
So ultimately, those things combined led to the operating margin improvement. And this will be the last quarter for the SES flat.
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Joseph Hayek: Yes. And Kathryn, Colin is absolutely right. We have a couple of other things. When you talk about company-specific initiatives, you're absolutely right. We've talked about this in the last couple of quarters. When you see gross margin go up by $14 million in SG&A go down by $2 million year-over-year, that's not an accident and our teams have been doing a fantastic job of optimizing our businesses and certainly growing our businesses, as Colin said, because our conversion costs come down. But our goals over the next couple of years, which we've talked about is to get gross margin over 30% and to have our SG&A as a sales at 20 or less. So, we're not there yet, and we know that we have work to do, but we feel like we have plans in place and people are really leaning in and we're pretty convicted and excited about where we can go in the next couple of years.
Kathryn Thompson: Okay. That's helpful. I wanted to shift to WAVE, contributions were above $30 million this quarter, it’s the first time we've seen that. Can you talk about the drivers for this is timing of projects, price or the true uptick in volume demand? And is this level achievable going forward? Or maybe help us to think about how to frame WAVE based on what you're seeing in the market right now?
Joseph Hayek: Great question. It's a mix, Kathryn of all the things that you mentioned, a little bit on the volume side. Certainly, it's a great business, and they do a really good job taking care of their customers and understanding how customers can make more money using their products, and that allows them to generate returns that they're entitled to. But I would say from an end market perspective, they continue to see relative strength in healthcare and education, transportation, and retail was okay. Office is still a little soft, obviously, not a lot different than it would have been when we were together in March.
So more it’s I think steady as she goes there, I think as the rest of the year lays out, that will have a lot to do with both WAVE and ClarkDietrich and our businesses on the Building Products side. So, we’ll get a little bit dependent on markets, but we kind of feel like steady as she goes for WAVE.
Kathryn Thompson: Okay. And tying into that for ClarkDietrich, which could that I mean that's very heavily tied to just traditional commercial construction. But you saw a nice uplift at $13 million, which is higher than the sub-$10 million range you've had in the past few quarters. Is that a signaling that we're -- we've hit more of a trough, but -- or is it more and you have some demand? Or is it more kind of like what we talked about with WAVE timing, price, true volume demand?
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Joseph Hayek: Other very fair question. On ClarkDietrich, what we know and what you point out is there are a couple of differences. It is much more new construction centric versus R&R on some of our core businesses and on WAVE. So, it's a bit more exposed to higher interest rates, and it is a bit more exposed to that commercial construction, which is a bit more challenged and has been challenged, and we think in the next several months will be more challenged. So, we actually view Q4 for us as a reflection of ClarkDietrich being a market leader and having a great value proposition, but probably a little more of, at least in the near term, an aberration. And so we would look for ClarkDietrich to be in Q1 at least, probably closer to flat with Q1 of last year.
Operator: Your next question comes from the line of Daniel Moore from CJS Securities.
Dan Moore: If I missed it, forgive me, what were the revenue and EBITDA contributions from Ragasco in the quarter if you break those out? And what are your expectations for organic wholly owned top-line growth, both consumer and building products for Q1 and the balance of the year? I know you don't like to give specific guidance. But just wondering if you expect to generate positive organic growth in fiscal '26 or were thinking closer to flat, given all the current macro uncertainty?
Colin Souza: Thanks, Dan. I'll take the first part of your question, and then we'll attack the latter part. So, on Ragasco, specifically, very, very happy with that acquisition. They continue to perform well. Within the quarter, they contributed roughly $16.5 million in revenue and a couple of million dollars, roughly $2 million in EBITDA to the Building Products business. So, it's adding to the year-over-year growth in Building Products, in addition to the base business is operating very well, as I mentioned earlier, where those end markets are and products are returning to seasonally normal demand patterns there. So very pleased with Ragasco so far and excited of what's to come as well.
Joseph Hayek: Yeah, Dan, relative to Q1 and beyond, you're right, we don't talk a lot about sort of the specific guidance. I would tie back to -- the market outlook is not terribly different than it was in March, which is to say it's a little bit murky. You've got unemployment relatively low, you've got interest rates suddenly high, consumer confidence is okay, getting better. You've got a lot of tariff uncertainty,
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and you continue to have a lot of things happening in the world and certainly in the economy for consumers and in building products that cause, I think, everybody cannot have phenomenal visibility.
When we were together in March, 1.5 weeks later was April 2, and all the tariff announcements and all the things that happen pursuant to that, we're sitting here chatting now in early July, there'll potentially be another set of data points that come out relative to what the trade policy and the interior environment is likely to look like.
And so, what we're focused on is really taking care of our customers, and I look at maybe the next few months as a reflection of the last quarter. When we think about the quarter, maybe take consumer and building products, but consumer, we [peddle-surfed) in Q4. If you remember last year, Q3 was a very strong quarter for the consumer business because of some of the storms and the weather phenomenon that was there. Then Q4 wasn't as good as we hoped it was going to be in this year in 2025, it was another excellent Q3, and Q4 was significantly better.
There are two things going on there. We've gotten better at supporting our retailers and making sure that, that demand for product is met with consistent supply, and our helium business has also showed a really good improvement in part because of some of the things that we've been doing with our new products and with our supply chain. But also remember the Party City bankruptcy and those stores closing has created more demand for our customers that are selling our products, and we're happy to support them. We think that's going to kind of continue to take place and be incremental.
On the building product side, there's probably a little more visibility in the next several months based on some of the trends that we've seen in our cooling and construction business, in our heating business, and in our water business. And obviously we'll now have certainly for a little bit of June and then the balance of fiscal 2026 the inclusion of Elgen results.
So yes, we feel good about all the things that we can control and are pretty cautiously optimistic, I would say about what will unfold in the next six months. But a lot of that won't always be totally in our control.
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Dan Moore: Understood. Appreciate it, Joe. Maybe just provide a little bit more detail on Elgen, how it came about, how their HVAC components fit into the rest of your wholly owned building products and any potential revenue or cost synergies?
Joseph Hayek: Sure. As we mentioned, yes, that acquisition is a great example of our strategy in action, Dan. They're a leader in a niche market. They roll formed steel. We can help them with that. They purchased coils of steel. We'd like to think that we're pretty good at that. They have a good operational footprint. We think that we're pretty good at that and can be helpful there. They sell into, not the exact same customers that we have, but several overlapping customers and the same types of customers, which is really building products distribution. So we think that creates meaningful opportunities for us for synergies, both on the top line and on the efficiency side.
We're one week in. So, it's really hard to quantify anything right now but we're pretty excited, and we've got the folks up there right now helping to get people more integrated into Worthington. So again, it's early, but we're optimistic and excited.
Dan Moore: And just out of curiosity, the purchase price is pretty attractive at, I think around 7x EBITDA. Anything with the word HVAC and it generally trading at much higher levels. So just talk about maybe the customer base they serve and kind of growth outlook organically would be really helpful.
Colin Souza: Yes. So, it is -- Dan, on -- for Elgen in particular, their channels they're serving is primarily building products, distribution, but also contractors as well. We've -- through our M&A process, where we've talked about it before with you and others, just we continue to have a pipeline of attractive areas and adjacencies and niche areas within building products and consumer products. On HVAC components, we've identified as one of those attractive areas and the M&A markets are what they are a little softer than they've been historically. But we're able to fortunately get this transaction done and are excited to invest in this attractive niche area and excited, as Joe mentioned, of what's to come with that business and what we can do together.
Operator: Your next question comes from the line of Susan Maklari from Goldman Sachs.
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Susan Maklari: My first question is on steel. Can you talk a bit about what you're seeing in terms of input costs across the business? And maybe how you're also approaching pricing relative to any inflation that you're seeing there, just given the softness that we are seeing across both the consumer and perhaps some of that building products space?
Colin Souza: Yes. Thanks, Susan. So just on the steel market, in particular, it is the big input costs to our products, the steel market, as you've seen, there's a run-up in pricing in April and it's come back down and at low range now recently, but our teams are really working hard just around price risk mitigation, and we're hedging as necessary to support our customers and offer prices that are locked in. And ultimately, for us, it's about mitigating any volatility of those costs within our results. And we continue to do that. We've been working through that for a long time with our price mitigation and price risk teams, and we don't anticipate any volatility as a result of that coming through here.
Then just on the price and mix piece, we've talked about it a little bit just around as our building products, in particular, a good story around margin expansion in the wholly owned business with the increased volume there. We saw some good improvement from a conversion cost perspective that has trickled to the results as well.
Susan Maklari: Okay. That's helpful. Then turning to the modernization efforts, it's good to hear that spend is coming through, and it seems like it's been a really good effort there. Can you talk about the benefits that we should expect as we look to fiscal 2026? Anything that you're especially focused on how we should think about perhaps some of that flow through across the various segments?
Joseph Hayek: Sure, Susan. So, some of that is in '26. But if you remember that there were two specific facilities. One is in Columbus and the other is in Wisconsin. We spent $16 million, $17 million, $18 million over the last couple of years in our gas grill, aluminum forklift and other refillable tanks here in Columbus automating and really investing in that business to be able to increase throughput and ultimately increase our efficiencies that's served us well and I think we'll serve our customers well, since a lot of them have seen an increase in demand and as a domestic manufacturer, our supply chain is pretty tight. And so, we talked about some of the things that we're able to do in cases of natural disasters and things like that.
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The other piece, which is really in the camping gas business and some of our torch businesses up in Wisconsin, that will run through probably another 15 months from now. So, the benefits from that won't really manifest themselves until maybe later in fiscal 2027.
Susan Maklari: Okay. Then just one last question. You mentioned in a response to a prior question that the M&A pipeline has perhaps softened a bit, just given the backdrop that we're in. Can you talk a bit more about capital allocation, how you're thinking about the potential for deals in this environment? And it's nice to see the dividend raise come through yesterday. Any thoughts on how you're balancing M&A versus shareholder return?
Joseph Hayek: Yes, great question. I'll maybe talk for 30 seconds and let Colin kind of go into some of his thoughts. But capital allocation for us has long been balanced when we're buying back shares, not super aggressively, because we have a bias towards growth and not grow at any price. But as we just -- as Dan just alluded to, we found an acquisition that we thought made a lot of sense for us and was a reasonable value. And so, we increased our dividend by 12%. The Board of Directors did that yesterday.
So, we're still pretty committed to a balanced approach, but from an M&A pipeline perspective, I'll let Colin give you his thoughts.
Colin Souza: Yes. So Susan, the M&A market, I would say are softer. Our pipeline on process, what our team is focused on is really identifying targets. Both could be private equity owned, could be family-owned, private companies and progressing those through the pipeline, having a number of conversations, and ultimately, it takes buyer and seller to come together to agree on something that we were fortunate to get that something done on Elgen Manufacturing.
So, we're continuing to focus there as a key part of our growth strategy. As Joe mentioned, the Elgen acquisition is our strategy in action, and our capital allocation focus will definitely include M&A in the future. With that being said, we do feel like we've got good free cash flow generation in the business, $159 million this year, this fiscal year, and are mindful as well about the facility modernization spend that we talked about earlier, which will be elevated from a CapEx standpoint here for the next 15 months or so.
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Joseph Hayek: Yes. I mean bottom line is uncertainty with tariffs and interest rates and things like that tends to be a little chilling for the M&A market generally. But I would tell you that our teams are engaged in strategic conversations today, talking to folks and where it makes sense, we'll continue to have those conversations and would look to continue to grow, certainly both organically but also through M&A.
Operator: Your next question comes from the line of Brian McNamara from Canaccord Genuity.
Brian McNamara: Congrats on the strong results. So, I'm curious what you're seeing in the marketplace as it relates to tariffs being a domestic manufacturer, presumably your advantage. But a lot of has changed as you mentioned on China tariffs since your Q3 report in late March. What specifically are your China source competitors doing that you're observing? Are they running down inventories on head? Have they already taken price on the shelf? Are they doing something else? That would be helpful.
Colin Souza: I don't know the answer to your question is yes, yes, yes, yes and yes. But related to tariffs, we first talked about this I think in December, and we talked about it again in March, and we will certainly -- it's appropriate to talk about it now. But it's been an interesting sort of six months as people continue to plan and continue to react and ultimately, will have to continue to do those things.
But yes, only 7% or 8% of our revenues are sourced from overseas, predominantly in Asia. Eighty percent-ish (80%’ish) -- of our revenue is source produced and sold in North America and then another 12% to 13%, looks like that only it's in Europe. And so, on the businesses, our Tools businesses, so predominantly, that's GTI and Level5 and certainly HALO, our mitigation efforts along the way have included and will include asking our suppliers to help us to try to find cost savings everywhere we can, when it's appropriate, resourcing the locations where those products are made. If it's necessary, it would include price increases.
I think people have taken a variety of approaches and some of those things are already in place, and others, I think people are still trying to suss out or ascertain what the longer-term plan will be. And so, we'll stay flexible and we'll stay close with our customers.
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One of the things about our products is they tend to be pretty differentiated. As you mentioned, as a domestic manufacturer, we've added capacity in a number of places to try and help our customers who are seeing an increase in the demand for theirs. So, it's hard to give a really definitive answer because things could change next week or in a couple of weeks relative to the trade environment. But we feel reasonably good about where we sit.
Brian McNamara: Great. Then secondly, on gross margins, obviously a big improvement in H2. I think you said Q3 is typically a little stronger than Q4, and they are kind of in line-ish. So, like is it reasonable to assume kind of 29%-plus sustains next year? I guess the medium-term target is 30%? I'm just trying to figure out the nuances, I know I think H1 is typically a bit weaker than H2. But any help there on the gross margin line for next year would be helpful.
Colin Souza: Yes. Thanks, Brian. So just on the margin, we've had a couple of quarters in a row here of 29%. You're right, Q3 and Q4 actually are seasonally stronger quarters here. We're -- we don't think things will revert to significantly less than that over time but we're going to be working hard to get those up to 30%, as Joe talked about earlier. So that's all the initiatives in place here around whether it's price risk, whether it's emerging costs, and a lot of where we're investing as well in our -- some of our facilities. So, over the near term, right, medium term, we'll be working towards to get that higher as best we can.
Brian McNamara: Okay. Then finally, on Elgen, just three quick ones. One, in terms of modeling, any seasonality on revenues? Two, I think the trailing 12-month EBITDA margin was a bit south of 12%. Is there a path to get that to 20% just in line with your M&A framework? And if so, how do you get there? Then three, is there any China sourcing there?
Colin Souza: So good questions, Brian. On Elgen, roughly $115 million of revenue, $13 million was their trailing EBITDA. Seasonally, the second half of the calendar year tends to be a little stronger for them and where they play. From a margin standpoint, we feel, as Joe mentioned, this is attractive business for us to really deploy our business system, Worthington Business System, and what we feel like we can bring to them is a lot of operational experience, know-how, efficiencies, some benefits from a purchasing standpoint and price risk. Then complement that with where we play from a channel perspective and serving a number of areas across the building product space and overlap with customers.
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So that's on top of a strong leadership team and the cultural fit that they have. So, we're excited to get to work together and we'll absolutely be focused on improving the margins there.
Joseph Hayek: Yeah. They don't have any sourcing from China.
Colin Souza: Yeah.
Operator: (Operator Instructions) Your next question comes from the line of Walt Liptak from Seaport Research.
Walter Liptak: I'm Walter Liptak. But great quarter, and I wanted to ask about Building Products. You've gone into some detail already about the tariff impact, but I wonder if we could talk a little bit kind of specifically about building products and any -- just your thoughts on how tariffs impacted pricing, supply, demand, those kind of issues?
Colin Souza: Yes. We didn’t really -- it's very hard for us to quantify any of that because it continues to be a little bit of a moving target. I think the teams, certainly in consumer but also in Building Products, have done a nice job. We're through the destocking and some of those phenomenon that we had to deal with, and we're seeing some real strength in our cooling and construction business as a lot of those things are kind of rolling out throughout the North American building products landscape and just done a really good job increasing volumes, which gets conversion costs lower and ultimately margins higher.
Walter Liptak: Okay. Great. And kind of along those lines, I think you're talking about a little bit of this question here, but in building products, in your prepared remarks, it sounded like you're gaining some market share? Or is there a share opportunity? I wonder if you could talk about that?
Colin Souza: So yes, we're pretty focused. And as you know, we are zeroed in on having leadership in niche markets. We do that effectively leveraging Worthington Business System Innovation, Transformation and M&A. But that gives us a seat at the table with our customers when they're thinking through things and when they're understanding their own markets, and we're trying really hard to work with them and understand their pain points.
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So, in a couple of different areas in -- I think on the heating and cooking side, but also on the refrigeration side and in the celebrations side, there's been increases in demand from our customers. And so, we’ve responded there both in the investments we've historically made and certainly adding capacity and adding shifts. Is some of that related to us being a domestic manufacturer? It’s certainly probable, but we can't really quantify it relative to tariffs, but is some of it related to what we think we do pretty well and having a great tight supply chain? Very likely.
Walter Liptak: Okay. That sounds great. Then in your prepared remarks, also, Colin, I think you talked about consumer mix. Was that consumer mix the Balloon Time? Or is there some other consumer mix that was positive for you guys?
Colin Souza: Yes. So good mix and Balloon Time, yes, performing very well. Joe mentioned it earlier, we make inroads on new product development there with the mini tank as well as channel expansion that we're seeing there. So absolutely the Balloon Time and the other products contributing well as well and demand is holding up similar to what we saw last quarter.
Walter Liptak: Okay. Good. You guys -- you gave some idea about the stability of the market, but no guidance. I wonder, Joe, if you could help us just by talking about the year ahead as a new-ish CEO, what are your objectives? What would you like to see happen over the next four quarters?
Joseph Hayek: So, you're giving me one more chance to give guidance, huh? Well okay. Just teasin’.
Walter Liptak: Don’t recap…whatever you do.
Joseph Hayek: We have a lot to be proud of, and I said it at the beginning of my remarks. Our culture is such a massive advantage for us and it leads to us being able to attract and retain the best and brightest for extended periods of time and people just get better the more they're in a role. We have so many fantastic people that have been working hard on that, not just for the last 90 days, but for the last 6 months and the last 12 months and the last 18 months.
So, when we think about what is possible for us, again, we're very happy to be talking about our Q4 results. But we've always had the luxury and a focus on
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thinking not just about the near term, but about the long term. So, we continue to invest. So, we're spending a lot of time, but when we talk about this with our people, we talk about why we win today but then how we'll win tomorrow. So that's going to continue investments in connected culture and automation and AI and additional leadership in these niche markets and impactful, strategic M&A.
And so, I think as we sit here today, we think we're really well positioned for the long term. We have to manage through some tariff uncertainty and some economic uncertainty. But our value propositions are really good. If you think about going back to really our -- sort of our vision, right, is to elevate spaces and experiences, sometimes that's making a room or part of the building more comfortable or more aesthetically pleasing. Other times, it's giving somebody the ability to have that experience, and in a recession, sometimes it's harder for somebody to get on an airplane or stay in a hotel. And so, they might want to be barbecuing or on a camping trip. And in other times, those spaces and experiences are in a time of need, where there's a natural disaster or a storm that can create hardships for somebody, and our products can be there to make things maybe just a little better or a little less bad.
So, what I want us to accomplish, what we all want us to accomplish, is to continue to take care of our customers, continue to work our strategies, which are really, really good. And ultimately, we do those things, and there might be some bumps in the road, but we see a lot of growth opportunities for us ahead. Our aspirations are kind of -- we just talked about them a little bit ago, but we feel really good about what the future can look like for our teams.
Operator: And that concludes our question-and-answer session. I will now turn the call back over to Joe Hayek for closing comments.
Joseph Hayek: Thank you, everybody, for joining us this morning. Have a wonderful 4th of July holiday and a great summer. We look forward to speaking to everybody again soon.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.