Good morning, and welcome to Worthington Steel's Second Quarter Fiscal Year 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during that time, simply press star then the number one on your telephone keypad. I will now turn the call over to Melissa Dykstra, Vice President of Communications and Investor Relations. Please go ahead.

Thank you, operator. Morning, and welcome to Worthington Steel's Second Quarter Fiscal Year 2026 Earnings Call. On our call today, we have Jeff 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 cause actual results to differ materially. Unless noted as reported, today's discussion will include non-GAAP financial measures which adjust for certain items included in our GAAP results which are presented on a standalone 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 Jeff Gilmore.

Good morning, and thank you for joining Worthington Steel's Second Quarter Fiscal Year 2026 Earnings Call. Before we discuss our second quarter results, I want to thank our more than 6,000 employees across North America and Europe. Your commitment to safety, quality, and service every shift, every plant, continues to set the standard. I'm proud of the work you're doing and grateful for it. On December 6, we issued a statement regarding potential M&A activity. Consistent with that statement, we will not be providing additional detail or addressing related questions on this call. With that, let's turn to the second quarter. Net sales were $871.9 million, Adjusted EBITDA was $48.3 million, and adjusted earnings per share was 38¢. We delivered these results in a market that remains mixed, combined with compressed galvanized spreads. Even with those headwinds, our execution remains strong where it matters most: safety, shareholder value, customer service, and transformation. On the commercial front, our team continues to win and capture high-margin business, particularly in Cold Rolled Strip. This quarter, we gained market share with new and existing customers. We saw all-time high shipments during the month of October to a key D3 automotive customer and won new business with a large Japanese OEM. While these programs will take some time to ramp up, this momentum fuels cautious optimism for early 2026. Our sales to the automotive market were strong this quarter. Looking ahead, North American light vehicle output is expected to hold. Consumer demand is also expected to continue to drive growth in the electrified vehicle market, particularly hybrids, which suits our strategy and product mix very well. Construction is stable but subdued. We are seeing pockets of strength in areas related to power and infrastructure. In agriculture, we have been able to capitalize on our diverse…

Thank you, Jeff, and good morning, everyone. Before diving into the details, I want to start with the headline. This was a solid quarter operationally and financially, particularly given a mixed demand environment and continued volatility in steel pricing. We expanded adjusted EBIT meaningfully year over year, generated strong free cash flow, and continued to gain share in our most important markets while maintaining balance sheet strength and financial flexibility. For the second quarter, we are reporting earnings of $18.8 million or 37¢ per share as compared with earnings of $12.8 million or 25¢ per share in the prior year quarter. There were a handful of nonrecurring items in both periods. Excluding those, adjusted earnings were 38¢ per share this quarter compared with 19¢ per share last year, reflecting improved underlying performance. In the second quarter, we reported adjusted EBIT of $26.6 million, which was up $12.3 million from the prior year quarter adjusted EBIT of $14.3 million. That improvement was driven primarily by higher direct volumes, including continued share gains, improved direct spreads, and higher equity earnings from Serviacero, partially offset by lower toll processing volumes and higher SG&A, largely related to compensation, benefits, and professional fees. Total shipments were approximately 902,000 tons, down modestly year over year as lower toll volumes more than offset volume growth in direct sales. Importantly, direct sale volume made up 65% of our mix in the current year quarter compared with 55% in the prior year quarter. Direct volumes increased 13% compared with the prior year quarter, with the vast majority of the volume increase coming from our existing facilities complemented by the addition of CEDA. Our increased shipments in the automotive market continue to be a standout. Direct shipments to automotive increased 26% year over year. This reflects both share gains from…

We will now begin the question and answer session. Our first question will come from the line of Philip Gibbs with KeyBanc Capital Markets. Please go ahead.

Hey, good morning.

Hey, Phil.

You'd mentioned in the SG&A increase in your remarks, Tim, that compensation and benefits were up $5.9 million and higher professional fees were up $2.3 million. So I'm wondering what out of that larger increase is more one-time in nature because I know you had called out a CEDIM fee. You know, I also know that some of this is related to some of the M&A that you're potentially working on. So just trying to think about what may be core because clearly, it was elevated this quarter.

It was. If you look at it from a year-over-year perspective, we now have CEDIM in there. That's one thing we pointed out during my opening remarks. But if you're talking about one-time, it's those professional fees of $2.3 million. I think that's how we had it quantified. That is related to the strategic projects.

What about the $2.5 million that you had called out from the just the CEDIM, I believe it was, an earn-out. It's just CEDIM was not in the results.

Yeah. CEDIM was not in the results last year. And now they're in the results this year. That's the

Oh, okay. So that wasn't a one-time payment. That was their underlying result?

No. The one-time payment was related last quarter to the bonus. It was a transaction bonus that happened. I think it was $4.6 million. That's all done. And now what you're seeing is just adding CEDIM to the mix, adding them to the financials.

Okay. So the higher professional fees of $2.3 million, that's largely related to the M&A, and that could obviously be somewhat more volatile and unpredictable.

Correct.

And then in the just the automotive momentum that you had on the direct side, pretty impressive, Jeff, was the primary catalyst behind that the cold rolled strip piece? I thought I heard you mention that early in the call.

Yeah. So, Phil, actually not. Most of what you saw this quarter was the market share gains that we had talked about in previous quarters. And really those programs working to 100% of the market shares that we gained. We have been fortunate, and the market share gains have continued. And a lot of those recent wins are automotive, and they are specifically cold rolled strip specific. And those are programs that we will look forward to starting really in the first quarter of the calendar year. Would probably that third month of the first quarter and then starting to reach full potential in the second quarter of the calendar year.

How do we tease out think about how much of that, which is on the that you just mentioned, is related to the tariffs from just imported foreign steel, but also you know, how much eventually is related to onshoring of just OE platforms overall? So I'm trying to Great. Trying to kinda tease I'm trying to tease out the short term versus the long term. Thanks.

Yeah. That's a great question. So the recent market share gains, I would tell you, a pretty significant amount of that is coming due to the onshoring of supply chains. We definitely had some customers bringing material over from Europe or elsewhere, and they are now localizing that supply chain. So certainly was favorable to us. We have not seen any market share gains due to any announcements of onshoring manufacturing. So you know, to your point, that is something that would be more in the future for us to look forward to.

Thank you.

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

Thank you very much. Could you walk us through the deductions for your minority interest partners? They were a little smaller this quarter than last year.

Yeah. Compared to year over year, I think what you're seeing is there's definitely some slowness in demand. Right? And I think we're seeing some of that. So also, what you have to keep in mind is last year, at this time, we had the Samuel Worthington Samuel coil processing joint venture in there. And we've removed that this year. So you know, we've had some differences in profitability year over year. Really due to demand.

With the disappearance of the Cleveland facility in the Samuel JV, what happens to the machinery? Do you move it to other Worthington plants? Does it get sold for scrap? Just what happens to the equipment?

Sure. So just to be clear, we had several facilities up there. So the business that we could, we moved to Twinsburg. Your question's a good one. We typically sell the real estate. And we've got that underway already. I think it depends on the type of equipment. If we think it's high value add equipment, we won't sell it, or we'll try to sell it offshore. If it's something that's a little more generic, like a footer or cut to length line, we'll find a home for it. If we can use it I mean, the first question you ask is, can you use it internally somewhere? And we try to do that first. And then if we don't have a need for it internally, then we'll look to sell it if it's low value added equipment.

Our next question will come from the line of Martin Englert with Seaport Research Partners. Please go ahead.

Hello. Good morning, everyone. Quick question. The compressed galvanized spreads in recent history do you think is contributing to that, and what may prompt it to normalize?

Yeah. I mean, question. I mean, I think the first thing you're gonna point to is certainly just decreased demand, Martin, and specifically construction. And so, you know, with decreased demand, it just creates certainly a lot more competitive rivalry. And certainly, that's what we have been facing Martin, we feel like we hit the trough and we'll start to see some margin expansion going forward. We saw a little of that in CRU here. On Wednesday. And the reason for the expansion and then potentially normalizing, hopefully, in the second quarter of the calendar year, it has much to do with the February. So, I mean, there is obviously limited galvanized product coming into the US at this point. I think it was down Tim, correct me if I'm wrong, 35% and probably will continue to increase. That has to do with antidumping as well. So I'd expect we continue to see that. It expand and then normalize somewhere around the second quarter. I think there's a ceiling because there certainly has been added capacity in the US as well, but we're certainly looking forward to that, Martin. Good question.

Have prime scrap spreads relative to obsolete had any negative impact on your business? Recently?

No. Nothing material. Nothing meaningful to our margins, Martin.

Okay. And last one that I have is, calendar year 2026. What are your top transformation initiatives that you're focused on?

Yeah. So we have we mentioned in prior quarters everything in our facilities, we have transformation events ongoing. You're very familiar with that. That's just how we do business. We really turned our focus after separation was transformation through our back office. And that's been certainly a big priority of ours. We just had our fourth report out with the back office teams. And the progress has been nothing less than amazing. The team has embraced it. We are seeing certainly savings and the hours saved have been significant as well. And in addition to that, Martin, that group has fully embraced artificial intelligence and we have had some great success stories with automation. And have launched our first two agents. So we've now moved to agentik.ai with much on deck there. And then the second, which is a key priority, is Temple. Transformation is not an area where we got too deep into it while we were getting integrated and familiar with their business. We have really started to double down on those efforts as we just think whether it's the income statement or the balance sheet there's gonna be a lot of good meaningful opportunities for the shareholders. And in addition to that, I say Temple is CEDIM. You know, we have mentioned they are world-class at tool and die making as well as world-class in automation. And so we have been excited to learn their best practices and embrace them because they're all scalable across that footprint. But back office and Temple would be the priorities.

We are working towards a scorecard. I for our next call. We want to do a better job of quantifying surely hope to have that available the savings that we're seeing through transformation, as well as the launch of artificial intelligence. We have seen savings. We're gonna continue to see a lot more. We have five pretty robust pilots that I think will have certainly a positive impact on the income statement as well as the balance sheet. So we're gonna start quantifying those savings for you, specifically transformation and artificial intelligence. And then in line with that, we want to quantify and share with you the hours saved in the workplaces as well. We're seeing significant hours saved now, which is allowing us to redeploy all of our employees to more meaningful work. So we're excited about that as well. But that's certainly a commitment that I'm making to you right now, Martin.

Okay. Appreciate it. Look forward to the update on that front. Thank you.

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

Just want to thank everybody for joining us this morning and showing interest in Worthington Steel. Clearly, we're quite pleased with the quarter results. And excited over our strategy and the opportunities we have to continue to execute on it. Clearly, the story today was gained market share. And we've talked quite a bit about the market share gains in automotive. But even more exciting, we've started to see market share gains in other markets as well, whether it's agriculture, energy, or transformers, transformer core specifically, as well. So look forward to start seeing those shipments, you know, probably early second quarter of the calendar year, and so a lot for us to look forward along with transformation and artificial intelligence. So with that, we wish everybody happy holidays, and we very much look forward to talking to you again following the current quarter. Thank you.

This concludes today's call. Thanks for joining. You may now disconnect.