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.

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. 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.

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 of 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 and its 3 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 CVS. 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 Fastbond water-based adhesives,…

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 onetime 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 portion 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 an approximately 450 basis point expansion in gross margin to 29.3% consistent with the…

[Operator Instructions] And your first question comes from the line of Kathryn Thompson from Thompson Research Group.

For this quarter you reported -- the theme this quarter is pretty similar to the prior quarter, which was a pretty solid margin expansion for your wholly-owned margins. So 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?

Yes. Thanks, Kathryn. So as you said, we had a good gross margin expansion in the quarter, a 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. And 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 patterns, 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.

Yes. And Kathryn, Colin is absolutely right. We have a couple of other things. And when you talk about company-specific initiatives, you're absolutely right. And we've talked about this in the last couple of quarters. When you see gross margin go up by $14 million and 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 percentage of sales at 20 or less. And 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.

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 -- is this 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?

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 health care, education, transportation, 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, I think, steady as she goes there, I think as the rest of the year plays out, that will have a lot to do with both WAVE and ClarkDietrich and our businesses on the Building Products side. So it's a little bit dependent on markets, but we kind of feel like steady as she goes for WAVE.

Okay. And tying into that for ClarkDietrich, for that JV, 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'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?

Another 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's 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. And 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.

Your next question comes from the line of Daniel Moore from CJS Securities.

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 are we thinking closer to flat given all the current macro uncertainty?

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.

Yes. And Dan, relative to Q1 and beyond, you're right, we don't talk a lot about sort of the specific guidance. I would tie it back to the market outlook is not terribly different than it was in March, which is to say it's a little bit murky. And you've got unemployment relatively low, you've got interest rates stubbornly high, consumer confidence is okay, getting better. You've got a lot of tariff uncertainty 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 caused, I think everybody to not 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 tariff 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. And when we think about the quarter, I would say, maybe take Consumer and Building Products, but Consumer, we held surf 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 were there. And 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 Products 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's results. But -- 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 6 months. But a lot of that won't always be totally in our control.

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?

Sure. It's -- 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 form 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. And they sell into, I think, 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 1-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.

And just out of curiosity, the purchase price is pretty attractive. It's, I think, around 7x EBITDA. Anything with the word HVAC in 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.

Yes. So it is -- Dan, on Elgen in particular, their channels they're serving is primarily Building Products distribution but also contractors as well. And 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. And 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.

Your next question comes from the line of Susan Maklari from Goldman Sachs.

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 base.

Yes. Thanks, Susan. So just on the steel market, in particular, it is a 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 a little range bound 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. And then just on the price and mix piece, we've talked about it a little bit just around as our Building Products, in particular, is 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 through the results as well.

Okay. That's helpful. And then turning to the modernization efforts. It's good to hear that, 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? And how we should think about perhaps some of that flow through across the various segments?

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 will 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've talked about some of the things that we're able to do in cases of natural disasters and things like that. 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. And so the benefits from that won't really manifest themselves until maybe later in fiscal 2027.

Okay. And 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 was nice to see the dividend raise come through yesterday.

Yes, great question. And 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. And 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.

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 from 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.

Yes. I mean, bottom line, Susan, 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.

Your next question comes from the line of Brian McNamara from Canaccord Genuity.

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 has changed as you mentioned on China tariffs since your Q3 report in late March. What specifically are your China-sourced competitors doing that you're observing? Are they running down inventories on hand? Have they already taken price on the shelf? Are they doing something else? That would be helpful.

I don't know, if the answer to your question is 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 6 months as people continue to plan and continue to react. And ultimately, we'll have to continue to do those things. But yes, only 7% or 8% of our revenues are sourced from overseas predominantly in Asia. 80% of our -- ish, of our revenue is sourced produced and sold in North America and then another 12% to 13% looks like that only is in Europe. And so on the businesses, on our tools businesses, so predominantly, that's GTI and that's Level5 and certainly HALO. Our mitigation efforts along the way have included it and will include asking our suppliers to help us trying to find cost savings everywhere we can, when it's appropriate, resourcing the locations where those products are made. And if it's necessary, it would include price increases. And 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 sort out or ascertain what the longer-term plan will be. And so we'll stay flexible and we'll stay close with our customers. 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 increase in the demand for there. 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.

Great. And 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 percent sustains next year? I know that -- I guess, the medium-term target is 30%. I'm just trying to figure out the nuances here. 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.

Yes. Thanks, Brian. So just on the margin, we've had a couple of quarters in a row here of 29%. And you're right, Q3 and Q4 absolutely are seasonally stronger quarters here. And 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 conversion costs and a lot of where we're investing as well in 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.

Okay. And then finally, on Elgen, just 3 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? And then three, is there any China sourcing there?

So good question, Brian. On Elgen, roughly $115 million in 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, the 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. And then complement that with where we play from a channel perspective and serving a number of areas across the Building Products space and overlap with Customers. 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.

Yes. They don't have any sourcing from China.

Yes.

[Operator Instructions] Your next question comes from the line of Walt Lipsak (sic) [ Walter Liptak ] from Seaport Research.

This is Walter Liptak. Great quarter, and I wanted to ask about Building Products. And 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?

Yes. We didn't really -- it's very hard for us, Walter, 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.

Okay. Great. And kind of along those lines, and I think you're talking about a little bit of this question here, but in Building Products, it's out -- 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.

So yes, we're pretty focused. And as you know, we are zeroed in on having leadership in niche markets. And we do that effectively leveraging the 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. And 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 the investments we've historically made and certainly adding capacity and adding shifts. Is some of that related to us being a domestic manufacturer? Certainly probable, but we can't really quantify it relative to tariffs, but some of it related to what we think we do pretty well and having a great tight supply chain, very likely.

Okay. That sounds great. And 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?

Yes. So good mix in 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.

Okay. Good. And 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 4 quarters?

So you're giving me one more chance to give guidance. Well, okay.

[indiscernible] whatever you do...

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. And we have so kind of many fantastic people that have been working hard on this, not just for the last 90 days, but for the last 6 months and the last 12 months and the last 18 months. And 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 thinking not just about the near term, but about the long term. And so we continue to invest. And 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 kind of 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. And if you think about going back to really 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. And 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.

And that concludes our question-and-answer session. I will now turn the call back over to Joe Hayek for closing comments.

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.

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