Good morning, and welcome to the Worthington Enterprises Second Quarter Fiscal 2026 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, Regina. Good morning, everyone, and thank you for joining us for Worthington Enterprises Second Quarter Fiscal 2026 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 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. This 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 comparable GAAP measures can also be found in the earnings release. Today's call is being recorded, and a replay will be made available later on our website at www.WorthingtonEnterprises.com. 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 2026 Second Quarter Earnings Call. We had a strong Q2, which is a credit to our teams who continue refining and executing our strategies. I want to thank all of my colleagues for their efforts, focus, growth mindset and for having an unwavering commitment to each other, our company, our customers and our shareholders. In the quarter, despite market conditions that continue to be mixed, we again delivered strong year-over-year growth in revenue, adjusted EBITDA and earnings per share. Our revenue in Q2 was up over 19% from last year. Excluding revenues from recently acquired Elgen, revenues increased by over 10% year-over-year. Our adjusted EBITDA grew by 8% year-over-year. And in the last 12 months, our adjusted EBITDA is now $284 million, up $49 million from where it was a year ago, despite a $15 million negative swing in our equity earnings from ClarkDietrich in that same period. In the last 12 months, our adjusted EBITDA margin is now almost 23% versus 20% a year ago. This strong performance gives us confidence that we are successfully navigating the current environment, gaining share and positioning ourselves for long-term outsized growth when end markets improve. Our strategy is to optimize our business by growing both organically and through strategic acquisitions while increasing our margins. We're making progress on each of these strategic pillars. We achieved 19% revenue growth in Q2, while our SG&A expenditures declined by 320 basis points as a percentage of sales. Excluding Elgen, we grew revenues by 10% and held SG&A flat. Our EBITDA grew by $4.3 million as we continue driving value for our customers through innovative products and solutions. We continue to focus on acquiring companies in niche markets with sustainable competitive advantages. Yesterday, we…

Thank you, Joe, and good morning, everyone. We delivered solid financial results in Q2, reporting GAAP earnings of $0.55 per share compared to $0.56 per share in the prior year period. The current quarter included $0.10 per share of unique items, primarily losses related to a divestiture that occurred within our SES JV and the related revaluation of the marketable securities received as consideration, both of which are included in miscellaneous expense. The prior year quarter included $0.04 per share of restructuring and other expenses. Excluding these items in both periods, adjusted earnings were $0.65 per share, up from $0.60 per share in the prior year quarter. As a reminder, Q2 is typically our seasonally weakest quarter, and we are pleased to deliver year-over-year growth in adjusted earnings per share, adjusted EBITDA and free cash flow as our teams continue to execute well, leveraging the Worthington Business System to navigate the current environment. Consolidated net sales for the quarter were $327 million, up over 19% compared to $274 million in the prior year quarter. The increase was primarily driven by higher volumes in Building Products and the inclusion of Elgen following our acquisition of that business in June. Gross profit increased to $85 million, up from $74 million last year, with gross margin at 25.8% compared to 27% in the prior year quarter. Adjusted EBITDA was $60 million, up from $56 million in Q2 of last year, and adjusted EBITDA margin was 18.5%. On a trailing 12-month basis, adjusted EBITDA now stands at $284 million. This performance reflects the resilience of our differentiated portfolio and our continued focus on the things we can control, even in a softer macro environment characterized by mixed consumer sentiment and subdued commercial construction activity. Turning to our cash flow and capital allocation. We continue…

[Operator Instructions] Our first question will come from the line of Kathryn Thompson with Thompson Research.

First, I wanted to circle back on your acquisition of LSI, a similar strategy to Elgen. I wanted to just once again see if you can expand on the strategy for growth from here as you integrate both into the Worthington network. Also importantly, how this -- how you see growth over these from a complementary standpoint, but also not just cost opportunities, but top line opportunities as you expand into the system.

Sure, Kathryn, thank you. So a handful of things to unpack there, and we'll try and tag team it. Generally speaking, when we think about M&A, one of the unique aspects of the Worthington Business System is really the complementary nature of how those pillars work together. So specifically for us, M&A goes beyond identifying and acquiring market leaders in niche markets that have sustainable competitive advantages. As you know, for us, things that start with a coil of steel and then that steel is stamped or roll formed gives us real advantages from a manufacturing expertise perspective. So companies that we acquire whose supply chain and manufacturing capabilities mirror our own really create additional opportunities for us. And so we'll always look to leverage our transformation playbook for companies across our portfolio, no different with companies that we acquire. And so when you think about the actions that we took at Elgen, those are right out of that playbook in terms of safety, machine guarding, adding new equipment and tweaking the flow of some of those cells. That's really a force multiplier for us. And the third pillar of the Willington Business System is innovation. And at Elgen, and we're pretty convinced that LSI, obviously, there's -- that we're limited in what we can say there because the transaction hasn't actually closed, but we're convinced that innovation is a core part of who they are as well. So we're very excited about accelerating innovation at Elgen. And clearly, as we've learned more about LSI, we're excited about their innovation capabilities as well.

Yes. And Kathryn, I'll just touch on LSI a little more. I think the -- we've shared our acquisition criteria with you before, and Joe touched on a little bit, it's market-leading positions in niche markets. It's higher growth, higher-margin opportunities, lower capital intensity and companies that can demonstrate they have a sustainable competitive advantage. And LSI checked a lot of those boxes or all those boxes for us and makes us really excited about this opportunity. They are a leading player in the commercial metal roofing clip space. It's an attractive end market, a very niche market, but it's led by resilient demand in commercial and the reroofing cycle there for metal roofs, really strong margins and financial profile. Joe touched on it, with EBITDA of $22 million and revenue of $51 million. And the more we spent time on the company, the more we thought there's some meaningful value creation opportunities by plugging them into the Worthington Business System. And then lastly, we felt they were just a really strong cultural fit the more we got to know their people and look forward to working with them once the transaction closes.

And then a follow-up question. I appreciated the color on water tanks and it's something that you have mentioned before on earnings calls and public commentary just as areas that you benefit from data center and broadly reindustrialization. What are other areas that -- or just maybe help us further understand the opportunities that you're involved in that are data center centric.

Sure. So Kathryn, it's Colin. I'll take a shot at that one. And I know Joe shared a little bit with our water tanks and how they solve or provide solutions for liquid cooling in data centers. And we're excited about that opportunity. That's one example across our portfolio. And it's probably not well understood where all we play and have exposure to data centers, like you suggested, WAVE and ClarkDietrich both provide products that end up in data centers, WAVE with its structural grid and then the DCR acquisition that they did previously, ClarkDietrich with some of their products end up in data centers as well. Elgen, the business we acquired in June, serves data centers with their HVAC components and struck products. And then the acquisition we announced the signing of yesterday, LSI also serves data centers as there's a number of data centers that have metal roofing and require clips and components there. So in data centers overall demand, it's not a significant portion of any of our businesses. But in the aggregate, across our portfolio, it is meaningful and is an opportunity of growth for us.

And in terms of meaningful, is it percentage of sales that you can estimate that it may contribute?

It would probably be less than 10% of kind of the businesses that I mentioned, but it is one of the faster-growing areas within those businesses.

Our next question will come from the line of Daniel Moore with CJS Securities.

I want to dovetail on Kathryn's question on LSI. Just looking at the margin profile, obviously, extremely healthy and over 40% adjusted EBITDA margin trailing 12 months. Just help us understand what drives that, how sustainable? And then maybe talk a little bit about kind of the -- what are the key drivers behind 3% to 5% growth in the market? And a follow-up there.

Sure. And Dan, again, it's Joe. Thank you. We're a little bit limited. Obviously, the transaction is expected to close in January. But as Colin mentioned, LSI is a terrific company. They are in a business that really is driven by kind of, I'll call it, resilient retrofit. They don't count on new construction for a lot of their growth. They're a market leader. They've been at it for a long time. They have a great reputation with their customers. They're very reliable. They're very creative. And they have really three kind of go-to-market buckets. The first is what Colin has been talking about, which is the standing steam metal roofing clips. They do some work around transportation, but then they also have a business that is really retrofit where you can actually put a new metal roof on top of an existing metal roof that has a lot of great attributes from a cost and value perspective and also from a structural integrity perspective. Metal roofs a long time ago, people figured out that drilling holes and using screws in the different kinds of fasteners was a pretty bad idea from a long-term leap perspective. And so LSI is a market leader. They have a great culture, and we're really excited about the prospects of them becoming part of Worthington in the next few weeks.

The switching gears, Building Products, really solid growth, mid-teens on an organic basis. Maybe just talk about how much of that is pricing versus volume? And then you mentioned some of the end markets that obviously are driving that growth maybe as we get into the seasonally stronger period, your confidence that those demand drivers will continue here in the near to midterm.

Yes, Dan, it's a good question. On the Building Products, on the wholly owned portfolio, really good volume contributions across the board, across the portfolio there within that business segment. A number of value streams were up year-over-year. I mentioned a few of them earlier, heating and cooking, water, cooling, construction. The one that was a little softer is just -- we've talked about it before on the European side, and that's just more challenging economy there. So we continue to be excited and optimistic on some of the demand and the drivers across that portfolio. And what we're seeing is that trickling through to the margins of that business as well. So EBITDA margins for the wholly owned business up almost 300 basis points year-over-year. And we believe, and we've shared this before, just in a -- the targets there are still intact for us, which we think this is a low teens EBITDA margin business over time.

Yes. And Dan, it's really a credit to our teams because it is more volume than anything else. And it's because we've been gaining share. We've done a really nice job with innovation, and we've done a really nice job commercially and from an operational manufacturing perspective. So it's a really great story that we continue to see that kind of momentum in really broad swaths across that business.

Very helpful. Maybe 1 or 2 more. ClarkDietrich. Obviously, contribution hit kind of a new post-pandemic low for the quarter. Talk about what you're seeing there? How much of it was just top line versus maybe costs? And what steps can be taken to kind of protect margins from here, so we don't see that dip further?

Sure. ClarkDietrich's a great business. They are a market leader and they're operating in a pretty tough environment, but it's an environment that will improve over time as market conditions allow. I mean, Colin, I think, has a bit more of the details.

Yes. In ClarkDietrich, Joe is right, led by a really great team there, they've seen some margin compression as a result of the challenging new construction environment, and that's led to some increased competition in their spaces, particularly from smaller players. So they continue to be a market leader in that space and continue to focus as well on cost savings initiatives. They've -- their mix has shifted over the last year, 1.5 years because of their breadth and scale of their offering, they can compete better on larger projects. If you think about stadiums, data centers, hospitals, where some of the smaller competitors can't do that. So the mix has shifted, but the profitability levels in those areas are less than their traditional drywall studs space. So they're doing the right things to take care of their customers. We do expect no worse than flat sequential performance moving forward there. And despite the tough environment, they're performing at pre-COVID levels. And as we see green shoots in construction in the future, they're very well positioned to benefit.

Maybe last, just in terms of capital allocation that bought back some stock in the quarter at levels a little higher than where the stock has indicated this morning, still only a turn of leverage on a pro forma basis following LSI. So from here, would you prefer to delever? Or are you comfortable continuing to opportunistically return cash to shareholders and continue to explore tuck-in M&A?

Yes, great question. And I would say yes, yes and yes, Dan. We'll continue to think about our capital structure. We'll continue to opportunistically look at strategic M&A and returns of capital to shareholders. But our formula is such that we talk about it on a regular basis. And so we'll continue to be balanced with a bias toward growth.

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

My first question is talking about the momentum that you are seeing on the consumer side of the business. You mentioned that Balloon Time is now going to be available in Costco. Can you just give us a bit more color on some of these new partnerships that you're getting into that you're having success with? How much more maybe there is to go there? And then how we should think about the upside from all of this as we do get into the busier spring and summer next year?

Susan, thank you. So yes, you're right. There is a lot of focus on health of the consumer generally right now. And there's certainly no doubt that consumers are cautious and they're being impacted by economic conditions and prices. I do a couple of things that are unique about our consumer business, for one, some of our Consumer Products end up being used by the pro or contractors. And so that user base is proving to be less impacted than by economic conditions than consumers overall. But relative to consumers generally, remember, our products that are geared toward consumers are pretty affordable. We do not traffic in consumer durables, for instance. And our products are used in a wide swath of activities and experiences. Sometimes those experiences are instead of or are replacing more expensive experiences. And so demand tends to be a bit more resilient than in other categories. But to your question specifically, our innovation engines are really opening new doors for us, and we think that we're gaining share. I think about the Costco win, additional placement for Sherwin-Williams and Home Depot. We've talked in previous quarters about CVS, Staples, Walgreens. Our store count is actually up overall 63%. And so that innovation is really what's driving that growth and the placement. And so it's helping us navigate the current environment really well. And we think it also positions us for additional growth as conditions improve and people have a bit more disposable income. And then maybe finally, if you look at the last couple of years in consumer, our revenues and EBITDA are relatively flat in what many would describe as a pretty down market and in the face of some modest tariff headwinds. And so that gives us confidence that we're doing a lot of the right things there.

That's great color. Good to hear all that. And then maybe switching to the COGS side of the business, you've done a really nice job on SG&A in the last several quarters. Can you talk a bit about the further opportunities there, where we are just as it relates to the Worthington Business Systems and any other upside either in SG&A or actually even in the COGS side of the business as well?

Sure. So I'll probably -- I'll take maybe the gross margin side of the question, Susan. And -- but you're right, and thanks for noticing. Yes, we were down 320 basis points from an SG&A perspective from a percent of sales. But our gross margin was down 120 basis points from a year ago. Now the majority of that decline is attributable to Elgen and the dynamics that I mentioned earlier. That said, a little bit of the decline was actually related to investments that we're making in growth. So specifically, we've added roughly 40 heads in a few of our facilities to meet increased demand. And it just takes some time for those colleagues of ours to ramp up from a productivity perspective. But we're really pleased that we've been able to identify and onboard those resources that we think are going to be great colleagues of ours for a while to come. We had some volumes that were down slightly in a couple of our value streams from a seasonal perspective. Winter started a bit later this year than it did last year and so conversion costs in those business were a bit higher. But I think on the SG&A side, which is, as you said, a really good story for us, Colin?

Yes. So in -- as Joe said, SG&A down 320 basis points year-over-year. We've -- as we've talked about before, we continue to focus on cost controls, leveraging technology where we can. Transformation is a part of our business system. It's not just in the front of the house. It's also in the back office as well. So we're trying to maintain as best we can our cost and really create that operating leverage to grow from an SG&A standpoint. And our targets that we put out there from a gross margin standpoint, we've been running in the high 20s from a gross margin, and we think we can get to 30% gross margin over time consistently while driving our SG&A down to 20% as well over time. So we're still -- we feel good about those goals. There's some temporary cost impact in the quarter on the gross margin side, as Joe talked about, but we've been helping offset that from an SG&A standpoint and more of that to come.

And then maybe I'm going to squeeze one more in, which is -- it's really nice to see how well WAVE continues to do in this environment. Can you talk a bit about what they're seeing in that business? And anything in terms of the outlook that we should be aware of there?

Yes, Susan. So WAVE up $2 million year-over-year from a contribution standpoint. Their end markets remain generally stable, though performance varies by sector within there. And as you know, they're driven a little more by repair and remodel activity as well. So education, healthcare, transportation and data centers have all been strong for them, while retail and office markets have been weaker, but steady. So they continue to find ways to really enhance margin by ultimately recognizing pain points of their end consumers, so contractors and ultimately delivering enhanced value to those contractors. And that's really valued by those contractors in the market. And looking ahead, as commercial construction volumes could benefit over time, either as rates decline or just as the market adjusts to current levels, the team at WAVE just continues to do a terrific job and are very well positioned moving forward. So we're not surprised. They're up another quarter from a contribution standpoint and are pleased with kind of where they're at and where they're going.

Our next question comes from the line of Walt Liptak with Seaport Research.

And looks like a good quarter with just a couple of things outside of your control. So Colin, I think you mentioned just at a high level, mix and construction being weaker. And I think on the construction side, you're referring more to ClarkDietrich, but what were you referring to on the mix side?

Yes. So on the construction side, Walt, ClarkDietrich specifically driven by new construction. They're on the very front end, and they're getting intense competition there just as the volumes declined a bit. So that's really what I was referring to, how it was subdued and trickling through to our earnings.

Yes. And Walt, that's actually a bit of a contrast to the other parts of our business within construction that are more geared on repair, remodel maintenance. Our cooling and construction business continued to have really strong results and really good growth prospects. And so it's a bit of a tale of two construction markets right now. New is still a little slow, but the repair and remodel is -- we would consider it's pretty healthy.

I just wanted to make sure I wasn't missing something there. And then on the mix, too, I'm not totally sure I understand the pluses and minuses there because the mix sounds, especially in Building Products, like it was pretty good.

Yes. I think from a mix perspective, if you're talking specifically about ClarkDietrich, their mix has tended to be more towards the large, large projects, stadium infrastructure projects, which is good business, but maybe a bit lower margin profile than more of the traditional slightly smaller drywall stud business. That's, I think, what Colin was referring to around ClarkDietrich.

And then just a follow-up on a previous question about ClarkDietrich. Are they getting into like a seasonally stronger period like these EBITDA levels? I think I heard you say is kind of stable. But then if it's seasonally stronger, do you get a lift going into the back half of the year for ClarkDietrich?

Yes. So I mentioned, Walt, just no worse than sequentially flat is the expectation there. Seasonality, it's not too pronounced in ClarkDietrich. Obviously, if it's colder out and they can't get to job sites, that has an impact. But the earnings contribution are impacted by some of the other factors that we've been talking about, whether it's steel pricing or mix of projects as well.

And then third quarter last year, I remember that there was like some smaller gas containers that are used for heating that were strong. Is there a comp -- a tougher comp that we should be thinking about and the weather seems like it's been colder in the last month or so. Are those small containers enough to be a plus or minus in the third quarter?

Sure. So when we think about that, Walt, it's really around seasonality. Yes. And if you live in the Midwest or the Northeast, you know it's been a pretty cold December. But the strongest seasonal quarters for us are always Q3 and Q4, and that's -- dovetails with a handful of things: one, the winter and some of that temporary or backup heat that our products provide to people when it's exceptionally cold or when their pipes burst or when they need other things and ways of creating ways to cook or to produce heat. And then you also get into people thinking about the spring, the spring construction season and other things that are there. So seasonally speaking, Q3 last year was strong and I think we don't see a lot of differences in seasonality this year versus last year.

[Operator Instructions] And our next question will come from the line of Brian McNamara with Canaccord Genuity.

My first one on gross margin, you pretty much answered already, but I'm curious what the gross margin would have looked like ex Elgen. And then when you would expect to see the benefit from the recent headcount additions on the gross margin line?

So it was -- the impacts from Elgen, Brian, if you're talking about 120 basis points, that was the majority of that. There were a couple of other puts and takes. But we would expect for the investments that we made in headcount and certainly the investments that we made in the operations at Elgen to start to produce results in Q3 and certainly beyond.

And then there's a lot of, obviously, noise in the gross margin lines, very seasonal, very lumpy. So how should investors think about that line item in the back half of the year?

Sure. I don't think it should be seasonally that different than it's been from a trend perspective in, call it, in our fiscal 2025. One of the things that's a little unique this year versus last year has been tariffs. And there's a lot that continues to be discussed around tariffs. But from our perspective, we still think that we're a net beneficiary of the tariffs that are announced and in place out there. So because the level playing field is a good thing for us. We believe we've gained share in multiple of our value streams. I mentioned the 40 or so heads that we've hired since the beginning of June to ramp up demand. But more when it comes to the tariff mitigation, what we've talked about this, but I think it's worth revisiting, there are three primary levers that we can pull to mitigate some of those negative impacts on us. The first is asking our suppliers to help us offset some of that additional cost. We've certainly done that. The second is taking cost out of our own supply chains everywhere that we can, and we've certainly done that. But the third is pricing actions. And so those mitigants can take time to implement and to finalize, but we are pleased that as of early December, we've gotten to a point where we feel like we are where we need to be in all three of those areas as we balance our own profitability goals with being a good long-term partner to our customers. But we do feel good about where we are now.

You read my mind on the tariff front. That was my next question. Obviously, you're predominantly a domestic manufacturer. Theoretically, that should provide a cost advantage as it relates to tariffs relative to some of your peers that have significant kind of China sourcing. It doesn't appear overall that -- I know you mentioned share gains, but it doesn't appear that, that advantage has played out yet. And I'm curious what you're seeing in the market as it relates to competitive pricing and the relative value your products are providing.

Yes. I think so it depends on the markets that we're participating in. In some markets, it's a bit more evident that imported products are just simply more expensive. And in other markets, it's a bit more nuanced. There are people, I mean, look at Europe, for instance, the European economy is struggling more than maybe the domestic economy. I think it's in part because of the tariff situation here, a lot of those products are landing in Europe and so the European manufacturers are effectively facing more of that competition. But from us, from our perspective, we feel really good about where our value is. We focus really hard on innovation and on doing things that aren't just a price increase for a price increases' sake, but we're adding value and we're partnering with our customers, be they distributors, contractors or retailers understanding where they're at. I mean, it's been a tough row for these retailers since the spring to really understand all these things. And so we try really hard to add value and lead with data and lead with value. And as you can see in some of our increased placements and are gaining market share, that's paying off. It doesn't manifest itself over a 2-week period. But from our perspective, and keep in mind that we're a long-term focused company, we feel really good about our ability to continue doing what we need to while being a good partner in the long term for our customers.

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

Regina, thank you, and thank you, everyone, for joining us this morning. Have a great week, and have a wonderful holiday season. Hope you're surrounded by friends and family and people that you love. We look forward to speaking to everybody soon.

This concludes today's conference call. Thank you all for joining. You may now disconnect.