Good afternoon and welcome to the Worthington Enterprises Second Quarter Fiscal 2024 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 like to introduce Marcus Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin.

Thank you, Joe. Good morning, everyone, and welcome to Worthington Enterprises second quarter fiscal 2024 earnings call. Results for our second quarter reflect the performance of the pre separation consolidated Worthington Industries, including the Worthington Steel business, which became a standalone publicly traded company on December 1. Given the recent separation, today's prepared remarks will primarily focus on the consolidated results, as well as the performance of the remaining business segments within Worthington Enterprises including building products, consumer products, and sustainable energy solutions. Worthington Steel will be hosting their second quarter earnings call separately on Friday morning of this week at 8:30 AM. So, we'd please ask that you hold any questions about the steel processing business until then. On our call today, we have Andy Rose, Worthington's President and Chief Executive Officer; and Joe Hayek, Worthington's Chief Financial and Operations Officer. Before we get started, I'd like to note that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. These statements are subject to risk and uncertainties that could cause actual results to differ from those suggested. We issued our earnings release yesterday after the market close, please refer to it for more detail on those factors that could cause actual results to differ materially. In addition, our discussion today will include non-GAAP financial measures. A reconciliation of these measures with the most appropriate comparable GAAP measure is included in the earnings press release, which is available on our Investor Relations website. Lastly, today's call is being recorded and a replay will be made available later on our website. At this point, I will turn the call over to Andy for opening remarks.

Thank you, Marcus, and good morning, everyone. What a year it has been. I want to start the call by thanking our employees who have gone above and beyond to make this separation successful. Our people have stayed positive in the face of change and worked tirelessly to set both companies up for success. I am confident that the work done by our teams to create Worthington Steel and Worthington Enterprises was best-in-class. I also want to thank our customers for continuing to have confidence in Worthington Steel and Worthington Enterprises throughout this process. Both businesses performed well over the past 15 months and I know these two companies are better positioned for success today as two separate entities than when we began this journey back in 2022. And finally, I'd like to thank our Board of Directors for having confidence in our leadership team to not only make the decision to separate the companies, but to dig in and help navigate the journey. This was truly a team effort across many constituencies. December 1st marks the end of Worthington Industries, but it really represents a new beginning. We've taken one great company and created two great companies, our both of which are well capitalized market leading businesses poised for growth and value creation. We will maintain the best of what has made us great over 68 years, our philosophy, written down over 50 years ago by our founder will continue to shape our culture, decision-making and performance. The philosophy is based on the Golden Rule, we treat our customers, employees, investors, and suppliers as we would like to be treated. The philosophy's first corporate goal for Worthington is to earn money for our shareholders and increase the value of their investment. This is underpinned by our performance based culture and above all, our belief in our most important asset, our people. We are excited about our future in Worthington Enterprises and wish our friends at Worthington Steel best of luck in their future endeavors. Joe, you want to take us through the numbers?

Sure. Thank you, Andy, and good morning everybody. This is a unique quarter for us and as Marcus mentioned, we'll be reporting the earnings of Worthington Industries as consolidated entity. I'll go over those results, then focus a bit more on the business units that now make up Worthington Enterprises, and we would ask that any questions related to Worthington Steel be held for that team teams will have their earnings call scheduled for Friday morning. In Q2, we reported consolidated earnings of $0.49 a share versus $0.33 per share in the prior year quarter. Were a few unique items that impacted our quarterly results including the following. We incurred pre-tax expense of $22 million or $0.33 per share related to the separation of our steel processing business into a new public company, which was completed on December 1st. This compares to separation expenses of $0.14 a share incurred in the prior year quarter. We may have some minor expenses related to the separation in Q3, we believe that the majority of those expenses are behind us. We recognized a pre-tax gain of $3 million or $0.04 a share related to the divestiture of the Brazilian business of our cabs joint venture. In the prior year, the quarter benefited by $0.03 per share primarily due to a gain on the divestiture of our WSP joint venture, which was partially offset by expenses related to an earn out at Level5. Excluding these items, we generated earnings of $0.78 per share in the current quarter compared to $0.44 a share in Q2 of last year. Furthermore, in Q2 estimated inventory holding losses in the steel processing business were $0.52 per share compared to inventory holding losses of $0.81 a share in Q2 of fiscal '23. Finally, our consumer business recorded a charge…

Thanks, Joe. Now that the separation is complete at Worthington Enterprises, we are laser focused on maximizing the long-term growth potential of our consumer products, building products, and sustainable energy businesses. We have more focused strategic priorities as a designer and manufacturer of market leading products and brands that enable people to live safer, healthier, and more expressive lives. We are a growth company with transformation, acquisitions, and innovation as our strategic enablers. We believe in innovation in everything we do. We expect to launch more new and enhanced products every year to better serve our customers. We are a disciplined acquirer of market leading niche businesses that will bolster our consumer and building products brands. We transform our operations and use technology both in our operations and increasingly in the products we deliver to our customers. We believe in a balanced approach to profitably improving our ESG performance to benefit all stakeholders, and we are enabling a lower carbon economy with our products and services. As evidence, we recently released our 4th annual sustainability report and in conjunction were awarded Newsweek America's Most Responsible Companies and Greatest Workplaces for Diversity for 2024. And finally, we are good stewards of capital, investing thoughtfully to deliver higher margins, more free cash flow, and higher returns. We are proud of our history and who we are today, but we know we will be defined in the future by our ability to leverage these capabilities to reward our employees, our customers, our suppliers, and our shareholders. Thanks for your time today. We'll now take any questions related to the separation or Worthington Enterprises.

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

Congratulations. We're here.

Yes, sir. Thank you. Lots to be proud of, lots to look forward to and as Andy said, lots of people in the building that we're in and all over our company deserve all the credit.

Awesome. Congratulations. The construction markets last quarter you had bifurcated between aftermarket and retrofit with WAVE hanging in there being solid and ClarkDietrich tapering off. Any update on that thought, any further weakness in ClarkDietrich's backlog per se versus WAVE's? Any color you can provide there?

Well, just sticking with Q2, WAVE was up a couple of million dollars, ClarkDietrich was down a couple of million dollars. Bear in mind, both of those companies are doing really well. WAVE is 65%, 70% repair and remodel. ClarkDietrich is a little bit more focused on new. But if you look at, there are lots of different kind of construction market trackers and analysts that are out there, some of them that we've looked at said that in November, commercial was still down a bit, but most of the other end markets and both of these companies play in a variety of different end markets. We're actually up year-over-year. So, not at all a market prognosticator, but with interest rates and possibly being at a peak and people getting a bit more optimistic about what 24 might look like relative to the fears that were out there in 6 months, 6 months ago, we're pretty optimistic.

Thank you. And I'm not asking a direct question on Worthington Steel, but how is the Relationship between the companies going to be moving forward just in terms of steel procurement? I know that was obviously something that was important to you all with the cylinders portfolio and some of the other businesses?

Yes. We have a long-term purchasing agreement with Worthington Steel, so we will be one of their larger customers Phil and we obviously they have to make money on the steel that we buy, but we've been able to preserve a lot of the benefit that we get from having them, having a close customer supplier relationship with them.

Thank you. And then just lastly, I know on the kind of investor presentations from a couple of months ago, you had talked about a decent amount of growth, the CapEx the next couple of years for the business post separation. Can you update us on what CapEx looks like over the next year or two on these growth projects and really what you're targeting to accomplish with those investments? Thanks.

Sure. So, we have talked about, what we call kind of a onetime facility modernization CapEx, it's two different facilities. It's roughly $80 million and it's intended to modernize, automate and make those facilities kind of ready and able to continue to grow and do exceptionally well for the next 20 to 30 years. The way that that will roll out in the CapEx, our run rate CapEx for the business excluding those two projects is going to be in kind of the mid 30s, roughly, we think about it as about 3% of sales. Those different, and then we I think we called it out this quarter about $3 million in the quarter was related to that. And so, if you exclude that $3 million, that gives us at enterprises roughly $9 million in the quarter, $8 million in Q1, so that's $17 million for the first 6 months tracking right on that kind of mid-30s number. That $80 million depending on supply chains and other factors will be underway in the next sort of several months in earnest, but it'll probably take 18 months to 24 months to flush all the way through. And what we will do is we'll keep everybody posted on the spending on those projects and then the spending on all the other parts of the business in the same way.

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

You gave a lot of color on the segments, but maybe we can drill down a little bit, consumer to start. Revenue in Q1 was down 20%, but only down 4% this quarter and flat sequentially. So, maybe just talk about to what extent that business is impacted by inventory destocking? Is that now largely behind us and what are your expectations? It sounds like you expect to get back to growth with some share gains. Is that the case for the next two quarters or maybe take a little bit longer to inflect positively?

Yes, I think it'll it's definitely, that's calendar 2024 business for us, Dan, but you're right. And I know that we're not kind of unique right with outdoor living focused and consumer focused brands and companies had some real headwinds over the summer. We've talked about that with the consumer being a bit more careful, spending more time and money on experiences versus things and outdoor activities, but then also the summer weather didn't help matters. We did absolutely see that kind of moderate. We talked about September. September really, we think was the trough for that leg of the real pronounced headwinds. So, October and November got better for us. We're not totally through the woods. The consumer is not back to spending the way that they were in 2021 and 2022, but we do expect to see more seasonally normal trends. And for us in Q3 and into Q4 that typically means sequential growth. So, we're looking forward to that. And as we said, the team did a nice job of kind of being there and being real thought partners with their customers, and so that led to some incremental share gains and some placement wins, which we think will be helpful as well.

And then switching gears to building products, revenue for still remains pressured when you obviously excluding the JVs, because we don't count that revenue. And then excluding JVs profitability was a little bit softer. So maybe your outlook there, we talked about ClarkDietrich and WAVE, but kind of the core fully consolidated building products. Just talk about your visibility that you have in that business over the next couple of quarters and when you'd expect to maybe get back to sort of positive year-over-year growth?

Sure. So that business, and we talked about this, there was the large format propane tanks, which is things that would sit outside buildings or be used for construction projects or be used to heat homes. That's when we talk about mix, those are more expensive products, which is why we talk about a negative mix in the revenue side of things. Saw some destocking there. It started in first quarter, it continued in Q2. We expect that will moderate a bit and we should be, we think, we'll be through that by the end of Q4. We'll certainly see some of it in Q3, but it ought to get to where it has historically been. We think by the time we get into the summer months. And so, feel good about that business, just need to get through some of the inventory rightsizing that our customers are going through. The upside in building products really was being down less than $1 million all in, some really good work on expense management side in addition to the gross margin side. The other end markets that were in there really picked up a lot of slack and we expect and certainly hope that type of activity will continue, which gives us cause for optimism as we head into 2024.

Maybe just one more and I'll jump back out and it's more of a longer term sort of question on ClarkDietrich specifically. Obviously, as we talked about the last 2 years of that business, exceptionally strong relative to kind of historic levels of profitability and started to normalize a little bit, but just talk about what's changed in that business over the past few years that gives you confidence that the contribution will remain well above the sort of pre-pandemic levels?

Sure. Clearly, that business has changed in terms of its equity income contribution for us. They've done a terrific job of understanding who their customers are, understanding what their customers really value, and that's being full service, it's being thoughtful about the entire kind of ecosystem that their customers participate in, not just delivering a load of steel, but helping think about how those connectors and how the other accessories that they sell are important, how they can save contractors' time, and so, yes, and we've talked about this, right. We don't expect that those results will stay forever or grow forever from where they were in 2022. They moderated some in 2023. We've talked about them moderating some in 2024, but long-term, we're very bullish on that business. They've got a great management team. We're very happy to be a part of that JV.

[Operator Instructions] Your next question comes from the line of John Tumazos, Very Independent Research.

Congratulations on the $90 combined value of the two companies with enterprises trading at more than the old Worthington before you announced it. Well done.

Thank you, John.

Thanks, John.

I have a question on quarterly dividend set at $0.16 or half of the old company dividend. I thought that was very low. I was in the context of the balance sheet allocation between the two companies where there is almost no net debt in enterprises and you explained how there isn't very much capital spending need relative to your cash flow where the other company has the preponderance of the net debt and the imminent capital need to find working capital, because steel prices just rose. So in that context, why isn't the dividend payment larger since the balance sheet is so good? And could you, some people might be concerned, Andy, that you're not confident in earnings. That's not really my worry. My worry if you could address is that the balance sheet is super strong and the dividend is low, to save up a half a $0.5 billion or more firepower for a transformational acquisition, we're above average pot for future acquisitions since you don't have reinvestment needs.

I think there's a question in there somewhere, John, but I'm going to take an attempt here.

I want to be more blunt. Are you going to make a corporate exchange acquisition? Are you going to transform the company and that's why the dividend is so low and the balance sheet is so good?

Well, let me start by saying the past year or so, year and a half has been about working towards the separation and you've seen us very purposefully delever the business. We were very focused on maintaining our investment grade credit rating. And you're correct in that we certainly could pay a larger dividend. I would tell you that, historically we've kind of revisited our dividend payout ratio in the June timeframe around that board meeting. And s we go through strategic planning in the spring. We do our operating plans and kind of look at cash flow forecast and those types of things, and that's where we make those decisions. I will tell you, we do believe that M&A is going to be important part of our growth strategy. I don't expect that anytime soon we're going to do some transformational acquisition that's going to double the size of the business. That's not historically what we've done. We've very much pursued kind of smaller tuck-in acquisitions that we can get our arms around pretty easily and plug them into our Worthington business system and which includes transformation, innovation. And I think that's likely to be the strategy going forward. We look at a lot of different types of companies. We look at a lot of different sizes of companies, but we've had a lot more success buying smaller tuck-ins and really accelerating their growth. So, that's kind of the plan right now and so I do think as the company continues to grow, we have very high free cash flow for the business, so we can support higher dividends or potentially share buybacks. But right now, our focus is let's get the company separated, that's complete. Let the dust settle and let's refocus and then kind of figure out what makes the most sense in terms of capital allocation.

If I could follow-up. With the very successful separation and the stock price Event Enterprise is more than the old stock price of the old Worthington, which maybe in hindsight was really discounted because of the steel volatility contained. Should we expect that buybacks are going to be less of a use of capital going forward, stock price is so successful?

As Andy said, we'll ultimately determine the best capital allocation strategies for the business going forward. We've been balanced before. We've since been opportunistic when it comes to buyback, but, it will be an arrow in our quiver. And ultimately the board and the management team will decide how best to deploy that.

There are no further questions at this time. I will now turn the call over back to Andy Rose for some closing remarks.

Well, thank you everyone for joining us today. It's exciting time for us and appreciate everybody's interest in Worthington Enterprises. We wish everybody a terrific holiday season; a safe and happy New Year and we'll look forward to speaking to you in 2024. Thanks everybody.

That concludes today's conference call. You may now disconnect.