Good morning and welcome to Worthington Steel's First Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] I will now turn the call over to Melissa Dykstra, Vice President of Corporate Communications and Investor Relations. Please go ahead.

Thank you, operator. Good morning and welcome to Worthington Steel's First Quarter Fiscal Year 2026 Earnings Call. On our call today we have Geoff Gilmore, Worthington Steel's President and Chief Executive Officer; and Tim Adams, Vice President and Chief Financial Officer. Before we begin, 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 it for more detail on the factors that could have caused actual results to differ materially. Unless noted as reported, today's discussion will reference non-GAAP financial measures which adjust for certain items included in our GAAP results and which are presented on a stand-alone basis. You can find definitions of each non-GAAP measure and GAAP to non-GAAP reconciliations within our earnings release. Today's call is being recorded, and a replay will be made available later today on worthingtonsteel.com. Now I'll turn it over to Geoff Gilmore.

Good morning and thank you for joining Worthington Steel's First Quarter Fiscal Year 2026 Earnings Call. As always, I'll begin by thanking the people of Worthington Steel. I'm incredibly proud of our team's commitment to safety, quality and our customers throughout the quarter. I want to extend a warm welcome to the Sitem team. We completed our acquisition of 52% of Sitem in June. To our Sitem teammates who may be on the call, we are thrilled to have you join the Worthington family, and I'm excited about what we'll accomplish together. We're off to a strong start in fiscal year 2026, driven by disciplined execution in a soft market, resulting in year-over-year volume growth. Adjusted EBITDA came in at $75.2 million. Earnings per share were $0.72 and net sales were $872.9 million. This performance reflects the strength of our base business, the advantages of our commercial and operational agility and the benefits of our ongoing transformation. An important highlight of our quarter was safety. Through training, continuous improvement and the commitment of every Worthington Steel employee, we achieved our safest quarter on record, but there is still work to do to ensure every employee goes home safely, and we meet our goal of 0 injuries. Congratulations to our environmental health and safety team, our operations team and all Worthington Steel employees on this vitally important achievement. Looking at our key end markets and business trends. The macro environments remain mixed. Visibility is limited in several sectors, and we expect this to persist for the near term. That said, we are cautiously optimistic despite continued uncertainty in the market. At Worthington Steel, we are not waiting for clarity to act. We are focused on what we can control and we are positioning ourselves to win in any environment. Uncertainty can…

Thank you, Geoff, and good morning, everyone. For the first quarter, we are reporting earnings of $36.8 million or $0.72 per share as compared with earnings of $28.4 million or $0.56 per share in the prior year quarter. We closed on the Sitem acquisition on June 3. Sitem is reported on a 1-month lag, and as such, our first quarter includes 2 months of Sitem results. The minority interest associated with Sitem is reported as redeemable noncontrolling interest in a new mezzanine equity section of our consolidated balance sheet as the Sitem purchase agreement includes put and call options, which are exercisable in euros several years from now. Mezzanine equity is presented at redeemable value in U.S. dollars. Our earnings per share include a $0.01 negative impact shown as a deemed dividend on the redeemable noncontrolling interest due to a change in the redeemable value primarily associated with the dollar to euro exchange rate. There were several other unique items that impacted our quarterly results. First, the current quarter results include $1 million or $0.01 per share of pretax restructuring related to a gain on sale of an asset associated with our previously announced closure of the Worthington Samuel Coil Processing toll pickling facility in Cleveland. Additionally, in the current quarter, we recognized $4.6 million or $0.04 per share of compensation expense within SG&A related to a onetime bonus paid to certain key Sitem employees upon closing of the Sitem acquisition. Finally, the current quarter included an $800,000 or $0.01 per share tax expense associated with the disallowance of certain tax assets due to the contribution of Nagold as part of the Sitem acquisition. The prior year quarter included the recognition of a tax court ruling related to a Tempel preacquisition matter for which we were indemnified by the former…

[Operator Instructions] Our first question comes from the line of Phil Gibbs with KeyBanc Capital Markets.

Geoff and Tim, can you maybe give us a little bit more color on the Sitem transaction, particularly in terms of the mezzanine financing structure. It's certainly something pretty unique, particularly when foreign currency is involved. So I think we're just trying to get a feel for how much you actually paid for Sitem, the 52% stake this go around and maybe what could be the residual, unclear to us how much cash went out the door initially here.

Yes. I understand, Phil, it's Tim. Why don't we start with how we financed the acquisition, and then I'll pivot to this concept of mezzanine equity. So the Sitem purchase price was composed of $60 million in cash, and we disclosed that in the 10-K. So $60 million of cash combined with the contribution of the German facility. That was the Nagold facility we purchased a couple of years ago. So we financed the Sitem acquisition using the ABL. You can see that on last quarter's balance sheet. You may remember that we had a category called restricted cash, and that was the cash that was earmarked for the cash portion of the transaction. When it comes to the mezzanine equity piece of this, so typically, minority interest of a majority-owned joint venture sits in equity as permanent capital. So in Sitem's case, our partners have a put option that's outside of our control, so we can't classify it as minority interest on a -- as part of permanent equity. So according to the accounting guidance, it's not truly really a liability either. So it sits between liabilities and equity in its own category. The minority interest is denominated in euros, so we have to adjust it for changes in exchange rates. The EPS adjustments this quarter reflect the change in FX between the euros and the dollars. So it's not mezzanine debt, it's mezzanine equity.

And regarding automotive, certainly some very strong share gains with the big 3, as you mentioned, Geoff, in your prepared remarks. What do you see moving forward for automotive? And is there more opportunity to layer in more business or share in '26?

Yes. Phil cautiously optimistic. I know you're very used to me saying that at this point. But we project we'll probably finish the year at like 15 million unit build rate, which honestly, we're pleased with. If you recall, just a couple of calls ago, forecasts were all over, they were as low as 13.5 million. So it's been a bit more resilient than we thought, and we would certainly hope into '26, there's an opportunity for a little bit more market recovery there, hopefully, with some tailwinds from a couple more interest rate cuts. However, regardless of the direction of the overall automotive market, yes, we've -- the commercial group has continued to do an excellent job gaining market share. You saw that layered in quite nicely last quarter and again this quarter. And to answer your question specifically, are there further opportunities to gain market share? The answer to that question is yes. The group continues to find opportunities. I think you'll continue to see some of that market share layered in, and we'll be coming up on contract season soon and I think we have some very good prospects there. So that would be looking at market share that could be filtering in next calendar year. So we continue to see very good momentum there from our commercial team working with those customers.

And the last question I have is just because I've been getting it from investors is the derivative Section 232 tariffs on electrical steel laminations. Certainly know you've got operations north and south of the border. And I think the crux of the question is how do you manage through that environment and continue to try to achieve your profitability goals and volume aspirations?

Thanks, Phil. Still bullish on electrification and on both of those projects that you referenced in Canada and Mexico. As far as electrical steel laminations and transformer cores being included in the 232 derivatives, Phil, we've seen little impact. We don't think we're going to see any material impact going forward. The customers are paying or are willing to pay the tariffs. And then, Phil, we also have a pretty significant chunk of our customer base that is USMCA compliant. So it would not affect them. But we're in a good position. I mean those are -- they're robust markets. The demand is extremely strong. And just sticking to the facts, there's not the capacity or efficient enough supply chains in the U.S. to be able to supply those customers. So we're positioned well even with those being included as derivatives -- as part of the derivative products, of 232.

Our next question comes from the line of John Tumazos with John Tumazos Very Independent Research.

The August 11 U.S. Steel coke accident took out 1.7 million tons of coke capacity for them, which I guess equates to 3 million to 4 million tons of slabs. Presumably, my first question is Worthington is a preferred customer and you've had no disruption or interruption. The second question, should we interpret that as taking 3 million to 4 million tons of crude capacity out of the market until fixed? Or would you expect U.S. Steel to pay extra to buy third-party coke to buy prime scrap $450, $500 a ton or buy slabs, which with tariffs are harder to get by to.

John, the first part of that question, I can easily answer, and it's not going to have any impact on our business. Certainly, we have a great relationship with U.S. Steel, but we have equally good relationships with several other mill sources. So we're not seeing -- would not anticipate any interruptions in our supply chains. As far as the second question, I just honestly would have to say I don't know. I would rule out buying slabs for the very reason that you referenced. As far as the other 2 options, I'm not sure. I don't have an answer to that question.

Our final question will come from the line of Martin Englert with Seaport Research Partners.

Question on -- the direct volumes were 63% of the mix, toll volumes down 22% year-on-year. How much of the toll decline was related to the closure of Worthington Samuel versus mill and other customers? Is that just that 100,000 tons that you cited earlier as far as the Worthington Samuel portion? Or is there something different going on there?

There's a couple of things. So half of that reduction is due to market conditions, right? So the mills and service centers are a little bit slower. And then the vast majority of the other piece of that is related to the Worthington Samuel Coil Processing shutdown. There's some other things going on there. For example, we had a customer ask us to change their program from toll to direct. So that's in that number as well as we had a customer decide to move a program because they could generate some freight savings. But those are relatively small in comparison to the Worthington Samuel Coil Processing shutdown.

Okay. Would you generally expect to remain above that 60% level that we've been at for the past couple of quarters?

Yes. I think going forward, Mark, I think our direct sale volume is probably going to be in that 60% to 65% range and toll will then be 35% to 40%.

Okay. Can you discuss what you're seeing so far with volumes in fiscal 2Q, including seasonal factors that we should be taking into consideration? I guess, kind of what I'm getting at [indiscernible] things continue to trend like down overall around mid-single digits year-on-year.

Well, I mean, from a seasonality perspective, Martin, remember that -- so Q1 is typically the average quarter and Q2 is usually 3% or 4% below that, and Q3 is usually 3% or 4% below Q1 as well. I think we would expect normal seasonality because Thanksgiving is not going away, right? You've got the holidays in there that typically don't go away. So we'll see that. And I think we talked a couple of weeks ago where we said demand was okay. And I think we don't see any big motivator or any big event that's going to trigger a giant increase in demand. So I think you're going to see markets kind of -- until there's more clarity and some of this uncertainty goes away on tariffs and other things, I think you're going to see these markets just kind of move along as they have been.

With recent orders, are you seeing any change in upstream mill order books and lead times?

No. Martin, we haven't seen any changes there at all at this point.

And I will now turn the call back over to Geoff Gilmore, President and CEO, for closing remarks.

Thanks again for listening in. Again, very good quarter in a tough environment. And I think if you look at what we are able to control, it was a great quarter. The group is managing costs at a very high level. We are gaining market share, and we look forward to more interest rate cuts. We look forward to getting a continental agreement put in place. And I think if we're able to see those with how we've positioned the company, we can start to move our barometer from cautiously optimistic to optimistic. But right now, we're very focused on executing our strategy, and we will look forward to talking to you all next quarter and sharing our success. Thank you.

That concludes our call today. Thank you all for joining. You may now disconnect.