Good afternoon, and welcome to the Worthington Industries' Fourth Quarter Fiscal 2021 Earnings Conference Call. All participants will be able to listen only until the question-and-answer session of the call. This conference is being recorded at the request of the Worthington Industries. If anyone objects, you may disconnect at this time. And I would now like to introduce Marcus Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin.

Thank you, Blue. Good morning everyone and welcome to Worthington Industries' fourth quarter and fiscal 2021 earnings call. On our call today, we have Andy Rose, Worthington's President and Chief Executive Officer; and Joe Hayek, Worthington's Chief Financial Officer. Before we get started, I'd like to remind everyone 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 that for more details on those factors that could cause actual results to differ materially. Today's call is being recorded and a replay will be made available later on our worthingtonindustries.com website. At this point, I will turn the call over to Joe, for a discussion of our financial results.

Thank you, Marcus, and good morning everyone. Our teams delivered a record fourth quarter to close out our fiscal year. And yesterday, we reported Q4 earnings of $2.15 a share versus $0.29 in the prior year quarter. During the quarter, we incurred net pretax charges of $16 million or $0.18 a share, primarily related to the divestitures of our SCI business in California and our LPG storage business in Poland. This compares to restructuring and impairment charges of $0.20 a share a year ago. Excluding these items, we generated $2.33 per share in Q4 compared to $0.49 in the prior year quarter. Consolidated net sales in the quarter of $978 million were up significantly compared to $612 million in Q4 of last year, which was mainly impacted by the COVID-related shutdowns. The improvement in sales came from increased volumes across most of our end markets and higher steel prices. Gross profit for the quarter increased to $226 million from $90 million in the prior quarter and our gross margin increased to a record 23.1% from 14.7%. Our adjusted EBITDA in Q4 was a record $186 million, up from $67 million in Q4 of last year. And our adjusted EBITDA for fiscal 2021 was a record $483 million. A very strong quarter and our results are starting to benefit from recent strategic actions we've taken to both divest low performing assets from our portfolio and acquire businesses with attractive cash flow profiles. Turning to the businesses. In Steel Processing, net sales of $655 million doubled from $328 million in Q4 of last year, due to increased volumes and higher average selling prices. Total ship tons were up 38% from last year's fourth quarter, which was negatively impacted by COVID-related shutdowns, particularly at our automotive customers. Direct tons increased by 47% from…

Thank you, Joe, and good morning everyone. Our fourth quarter was a record, a strong finish to what has been the best fiscal year in Worthington's history. Of course, we never would have predicted this a year ago, when we were in the depths of the COVID pandemic. Automotive manufacturing was at a standstill and we were navigating a very uncertain business environment. We say all the time, that people are our most important asset and they proved that yet again this year by adapting quickly to keep each other safe, while continuing to deliver our products and services to customers in record fashion. Despite steel supply shortages, semiconductor slowdowns and labor availability, all of which impacted production schedules, our teams did a terrific job and they should be commended for their efforts. Supply chains continue to be constrained, but overall, our demand levels and backlogs are quite good across almost all of our major markets. We've also been proactively raising prices in our downstream manufacturing businesses to offset increased raw material costs. We are excited to begin reporting three new segments next quarter, Consumer Products, Building Products and Sustainable Energy Solutions. This change will better align our businesses around the attractive end markets we serve and provide investors with additional insights on performance. All of these segments have tested leaders, compelling strategies and the resources they need to grow. We will continue to leverage our transformation playbook, new product development and innovation and M&A to achieve above-market growth rates and increase our return on capital. We sold the last of our underperforming assets in the fourth quarter. So, our focus has shifted to accelerating our innovation and M&A growth initiatives across our portfolio. We have a strong balance sheet, recently supplemented by the exceptional returns generated on our investment in Nikola Corporation. We have always been an entrepreneurial company and the success of this investment allowed us not only to reward our shareholders, but also our employees and the communities we live and work. We are proud to have just completed our 65th year in business, a record one at that and we are all well -- and we are well positioned to continue creating value for our shareholders in fiscal '22 and beyond. Thanks again to all of our employees for their hard work, dedication to each other and perseverance over the past 15 months. We will now, take any questions.

[Operator Instructions] Your first question comes from the line of Seth Rosenfeld from Exane BNP. Your line is now open.

Good afternoon. Thank you for taking our questions. Congrats on the very good end of the year. If I can start out please -- If I can start out please with a question on inventory holding gains, please, obviously a huge driver of the strong margins in Q4. Can you just, you touched on this earlier in the prepared remarks, but maybe a bit more color on how you expect that to progress sequentially into Q1. On current market trends, would you expect that inventory gain up or down in a Q-over-Q-basis? You also touched on earlier, kind of derivative gains as well, can you please give a bit more color on that, both for Q4 and looking forward? And then strategically, steel pricing obviously incredibly robust for the time being, I think most of you are expecting an inflection inevitably at some point looking forward. Can you just walk us through inventory management and how Worthington is positioned to [eliminate] [ph] any inventory losses when prices probably dropped?

Yes, Seth. A lot in that question and appreciate it. The first one is probably the easiest. We do expect that in Q1, I mean we have -- we look at the same forward curve that you do and everybody else sees. But we do have reasonable visibility into Q1 and we think those inventory holding gains will be very material, probably a bit lower than they were in Q4. So we think about that sequentially. Relative to your second question on how we do things and ultimately how we manage our inventories. We feel like we have a very sort of sophisticated approach and a very talented team. We're certainly aware that there is some cyclicality in the steel markets and so at some point, steel prices will decline and so, we do a lot of things, to try and take care of our customers, while not overextending ourselves on inventories and things along those lines. And so, it's a little bit more muddled right now, just because demand is so strong and the market is so tight, that we've got a lot of things to try and balance, which is, being able to have access to steel, so that we can take care of our customers, while trying not to take on any sort of incremental inventory risk. As you know, we mirror what we promise to customers, with purchasing that steel or guaranteeing our price to ourselves for that steel. So we're going to continue to do that. We understand and realize that things will certainly not stay the way they have been for the last three or four months, for the next three or four years. But, we feel like we're pretty well positioned to do as well as we possibly can, to continue to take share as we're able to do things for our customers that others can't. And to be okay, regardless of the situation that we find ourselves in.

Thank you. Just a follow-up, please. I think you called out when inventory gain is $51 million, I think in the prepared remarks, you also touched on derivative gains as well, is that included in the $51 million or is that an additional figure we should keep in mind?

It's separate and it's just certain things that we believe that we can -- we can do along the way, when there is volatility in steel prices.

Okay, thank you. Maybe just a last question from my side, please. With regards to your downstream businesses, could you please touch on the pricing environment and your ability to pass on sharply rising metal input cost to customers, with Pressure Cylinders and also the JVs, to what extent is that going up on a like-for-like basis but sustainable margins or have you in fact been able to increase prices in anticipation of seeing the higher cost hit your P&L?

Hey Seth, this is Andy. Yes, I would say every business is a little bit different in terms of how we approach steel price inflation, but we have gotten a lot better across almost every business that we have, in terms of increasing price ahead of inflation. Sometimes it's contractual, an example there would be, like our Industrial Gas businesses around Cylinders, where the buyers are very sophisticated, the contracts sort of account for that. Outside of that, our Consumer Products business, for example, where those prices are not contractual, you have to go negotiate for price increases. But I would tell you, in this environment where steel prices have gone up 250% to 300% depending on where you peg the start there is no purchasing manager on the planet that doesn't expect some kind of price increase and I think is empathetic to that. So, we've gotten a lot more sophisticated over the last four or five years in terms of doing this in advance of that steel price flowing through our P&L. So, I think we're in really good shape there.

Thank you very much.

Your next question comes from the line of Phil Gibbs from KeyBanc Capital. Your line is now open.

Hey, good morning.

Good morning, Phil.

So, on the side of WAVE, I know in previous cycles when steel inflation starts to pick up in earnest like it's doing now, you've got customers that will do all they can, to try to get ahead of it, bring in more material than they perhaps need. Obviously, WAVE had a good quarter. Was that something that you saw this time around as well?

Not as much as you might think, Phil, because of the scarcity of steel generally and our products, that is the dynamic that will always exist, but in a lot of our business, WAVE included we are shipping everything that we can, just trying to take care of customers.

What were WAVE's volumes relative to last year, if you have an idea of that?

They were -- they were higher. I mean, they had -- they had higher volumes, obviously and a lot of what we talk about relative to last Q4, the comparisons are not as relevant as you'd like them to be, because last year was the depths of the COVID shutdowns and so this year was significantly better. But relatively speaking, we're looking at things as much sequentially right now, as we are year-over-year and sequentially things continue to improve in Commercial Construction, not just relative to last year, but relative to earlier this year.

That's helpful, Joe. Thank you. And then on the scrap gap, you mentioned in your prepared remarks, what -- can you remind people what that -- what that means and how that -- how that may impact you in this coming quarter?

So, the scrap gap if you will, for us, very simply stated, is the difference in the hot-rolled coil band of steel versus what a ton of scrap is worth and that gap is historically been in a range and when steel prices run really, really -- are really fast, that gap gets larger and there are some lags and things that happen pricing wise. But in our Steel Processing business, around 10% of those tons end up as scrap in some way, shape or form. That's predominantly in our Blanking businesses and in our cold roll or our strip businesses, we're always going to have a little bit of head and tails perhaps at the beginning at the end of a given coil. And so, as that gap widens, there obviously is a bit of a headwind for us that gets created relative to what the normalized or historical average is for that gap.

What does that -- what does that mean numerically for you guys? Is it substantial? Is a minor? Just trying to understand it.

Yes, it's -- I mean I think, a couple of years ago, we had this happen as well as the 232 tariffs were coming off. I mean, I think it will -- it's a pretty substantial number for us. I mean it's not catastrophic, it won't offset the FIFO gains for instance, in Q1, but it's a real number.

I mean it's millions of dollars, Phil. And the issue is that, when we price the steel, the scrap was one number and now scrap is a very different number, so, but the spread between what you're selling and what you're -- what you're getting for the scrap is much higher. So.

I appreciate that. And then, on the -- on the net working capital side, obviously big pick up in working capital because of the pricing environment, how should we think about that evolving next quarter? Because obviously prices continue to rise, but maybe not at the same level that you're inbounds came in at the end of May. So trying to understand that too.

It's Andy -- it's two things. If you look at how working capital unfolded during the year, we had actually -- we saw reductions in working capital in Q1 and Q2 of around $100 million and then we built $180 million in working capital collectively in Q3 and Q4. And so, probably a bit more of that to come in Q1 certainly. But for us, it's almost like we're building a bank of source and so, assuming and when steel prices decline, that, that cash flow comes back to us and so, we certainly expect to build in working capital in Q1, but then beyond that, we feel like as things stabilize or come down, some of that will start to come back to us.

Thanks. And then, last one from me is just on Cylinders in terms of what you see across each of your -- your business units. Does this -- does this volume momentum that you've seen in Consumer and Industrial continue or is there -- was there a pent-up demand in seasonal effect that you saw that was just really pronounced, because I don't know if I see your volumes are strong in a while and I know things can shift around from timing, but maybe just speak about the short term and then the strategic term for pressure cylinders, and if you could break that up a little bit. Thanks.

Yes. Again, each market is a little bit different, Phil. But I would tell you that across most of the Cylinder end markets, demand is pretty good to really good. Some of products particularly around consumer products, think gas, grill, cylinders, propane, camping cylinder, those products really benefited from COVID, people were doing things outdoors and restaurants were heating things. So, the demand has been very strong, people have bought and booked demand for longer periods of time, than maybe they historically have. So it's hard -- it's hard to know exactly where we're going to be, you know nine or 12 months from now, but right now, it feels like it's pretty steady.

And Phil, one thing to add to that is, still feel and sequentially this will be true, the GTI acquisition, have a lot of SKUs and have -- so we ship a lot of products too. So, you're seeing some of the effects there when you look at the raw volumes.

Thanks, gents. Have a good one.

Thanks, Phil.

Likewise.

Your next question comes from the line of John Tumazos from John Tumazos Very Independent Research. Your line is now open.

Congratulations on all the great work. If someone would have told us a couple of years ago, you were $13 a share. You would have thought we were nuts, right?

Thank you, John.

So, let me ask a few questions about incoming steel first. There is four specific mini-mill new capacities senton in the doubling of Big River in Arkansas, Delta and Toledo and Gallatin in Kentucky, should we interpret that the senton in Big River expansions, basically don't provide more steel for Worthington, because too much in Arkansas or Texas, maybe Delta, when they are up, would be an important supplier close to your center of gravity or maybe Gallatin?

I might answer that question a little differently than maybe what you're expecting, John. I think, when -- when capacity comes online, I think it's generally good for the market, because it provides additional steel, but it also provides some relief, hopefully on pricing. Just because we may not be buying that steel in few of those facilities, it still should help with the overall market. So it would be a little difficult I think for Joe or I to sit here and say exactly which supply chains we might be able to incorporate those mills into us, that are obviously not ideally situated for where the majority of our facilities are. But there's probably some opportunity there. So -- but I understand, kind of where you're thinking, I know where your question is headed.

There is a couple of inconspicuous suppliers, JSW in Ohio, NLMK says they're bringing a lot more slabs in from Russia to go to Portage in Vienna or Farrell PA, are those more in your center of gravity that might -- might incorporate or are those people you never did business with?

No, I just -- I mean, similar thought that Andy just gave you John. The honest answer is that, we talk to everybody and then we try and deal with as many people as it makes sense, based on what steel is required, where it needs to go and what needs to happen to it. And so, we chat with everybody and try and make the best decisions we possibly can, relative to availability and needs.

Did you benefit from more incoming steel in recent months? Because the other companies cut back lacking chips and with US Steel and Cliffs refusing to restart blast furnaces, is there a risk 6 months from now, that you have less inbound steel, because the auto companies come first and Cliffs and US steel won't restart furnaces?

Yes. I mean, I guess there's always that risk. You know we are a pretty large buyer of steel, John. And we have worked very hard over the years to build strong relationships with our mill partners and I think we have a symbiotic relationship where we help them when they need help and they help us when we need help. So I feel like the last year has been a really difficult operating environment, on a number of fronts, one of them has been the supply of steel, but we've done pretty well on that front. It hasn't been perfect by any means. But -- and so you know 6 months if the auto companies ramp back up again, is there some risk that things get really tight again, of course there is. But we also sell to the auto companies, a fair amount of steel as well. So, they need our product as well. So, it's a complex equation there is -- there is no doubt, but I feel like we're pretty well positioned on that front.

You disclosed $565 million of consolidated inventory, how much is the inventory not consolidated from the JVs?

Meaning what? How much did they have on their balance sheet, that's not?

How many tons of steel or dollars would 100% or your pro rata share of the JVs be?

I don't think we can answer that question without doing a little work there, John. The lion's share -- I mean, most of it, with the exception of probably Serviacero, who carries a fair amount of tons. ClarkDietrich and WAVE, they are small relatively speaking, compared to the overall Worthington Industries total, they're just -- what they make is not a huge -- huge percentage of the volume that we buy as a Company.

Would the JVs be closer collectively to 10% of your 4 plus million tons of steel processing consolidated volume or would they be more like 30%?

I feel like this is a pop quiz. We'll get back to you on that one, John.

Thank you. Let me continue, comparing May 31 to a year ago, the total dollar inventories rose 40%, but raw materials rose only about 10%, finished goods 20%, where work-in-process rose about 120%, should we interpret that work-in-process is sort of involuntary, you have to process the steel to get sales and that's up almost as much as the percentage change in steel prices, but raw materials and finished goods dollars up so much less means that you're trying to carry less unprocessed steel inventory and you're getting the finished goods out the door fast as lightning, twice as exciting?

Yes, I mean that's a reasonable step through it. We don't -- we're not holding any finished goods, because we know that our customers need it and we're trying to get filled as quickly as we can. So after we finish it, doesn't behoove us to leave it sitting around.

When we analyze the steel processing margins, the profit per ton was $51 of EBIT for the fiscal year, which is a pretty good year. The revenues are $506 and the EBIT-based costs are $4.55, should we interpret, because of the tolling ratio, that if you weren't tolling, the revenues would be closer to $1000 or twice as much cost closer to -- that minus $51 and we shouldn't take the revenues and cost per ton literally, because of the tolling?

I definitely think it's fair that you think about the Direct business and the Tolling business differently. We do.

Is there a limit to how much you can increase the toll ratio to move the steel price risk to the customer?

Well, we make more money on the Direct business, John. So, while tolling customers are important to our business and we do book profits. I think the steel -- the lion's share of the steel company is the Direct business in terms of profitability. So, all things being equal, I think that makes more sense.

Thank you.

But not all customers want.

That's all my questions. And sorry for the pop quiz.

Don't worry. Thank you.

[Operator Instructions] We have a follow-up question from the line of Seth Rosenfeld from Exane BNP. Your line is now open.

Thank you. One more, please, on the Pressure Cylinder business. Actually stripping out one-offs, Q4 margins were particularly robust in this business. But there's a lot changing in the business however, you've had some disposals of lagging operations and then we already touched on the strength in metals pricing and your ability to pass it on to customers, very rapidly. Can you give us a bit more color on the sustainability of margins or that level of EBIT going forward, is that kind of a new normal for this business, post disposals or rather were there some one-off with regards to the metal spread expansion and that we should consider reversing in due course?

I think it is a number of factors, that you hit on a couple of them. One, is that we have eliminated some underperforming operations in Cylinders. So obviously just the math there will raise the operating margins. We also have been pushing price, although I don't -- I don't think this is an example of where we're suddenly rapidly expanding margins, because we've been raising price. I mean a lot of our efforts are around recovering the price that or the cost inflation that we have on primarily steel, but some other costs as well. There are certain products where we do have a little more pricing power, where we will obviously have some margin expansion. But then, the other thing that's really helping us now is, our innovation efforts are really developing, really good momentum. And so, we're starting to launch products into the market that are contributing millions of dollars to the bottom line. So to the extent that we can continue that momentum, which I feel really good about, I mean the pipeline is very robust in Cylinders. And typically when you launch new products, because the development cost and other things, they are higher margin contributors to what's going on there. So the confluence of all those factors, make me feel pretty good about where we are with respect to Cylinders and pretty bullish on where things could head in the future. Now quarter-over-quarter, can I tell you it's going to be the same? Probably not. But, I feel really good over the long term in terms of where we're headed with respect to the profitability of the Pressure Cylinder business.

Thank you. Just a follow-up. The underperforming businesses that were disposed, were they either loss-making or were they just lower margin that's terms versus the new cost?

Probably a little bit of both. But I would tell you, that the lion's share of them were loss making.

Okay, understood. Thank you very much. That's all from me.

I'm showing no further questions at this time. I would now like to turn the conference back to the Company.

Great. Thanks everyone for joining us today. I hope everyone continues to stay safe and we'll look forward to speaking to you again in September and talking more about our new segment. So, thanks again.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.