Worthington Enterprises, Inc.

Good afternoon and welcome to the Worthington Industries Fourth Quarter Fiscal 2021 Earnings Conference Call. All participants will be able to listen only until the question and answer session of the call. This conference is being recorded at the request of Worthington Industries. If anyone objects, you may disconnect at this time. And I'd like to introduce Marcus Roche, Treasurer and Investor Relations Officer. Mr. Roche, you may begin.

Thank you, Blue. Good morning, everyone, and welcome to Worthington Industries' fourth quarter and fiscal 2021 earnings call. On our call today, we have Andy Rose, Worthington's President and Chief Executive Officer, and Joe Hayek, Worthington's Chief Financial Officer. Before we get started, 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 risk 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 details on those factors that could cause actual results to differ materially. Today's call is being recorded, and a replay will be made available later on our WorthingtonIndustries.com website. At this point, I will turn the call over to Joe for a discussion of our financial results.

Thank you, Marcus, and good morning, everyone. Our team has delivered a record fourth quarter to close out our fiscal year, and yesterday we reported Q4 earnings of $2.15 a share versus $0.29 in the prior year quarter. During the quarter, we incurred net pre-tax charges of $16 million, or $0.18 a share, primarily related to the divestitures of our SCI business in California and our LP This compares to restructuring and impairment charges of $0.20 a share a year ago. Excluding these items, we generated $2.33 per share in Q4 compared to $0.49 in the prior year quarter. Consolidated net sales in the quarter of $978 million were up significantly compared to $612 million in Q4 of last year, which was negatively impacted by the COVID-related shutdowns. The improvement in sales came from increased volumes across most of our end markets and higher steel prices. Gross profit for the quarter increased to $226 million from $90 million in the prior quarter, and our gross margin increased to a record 23.1% from 14.7%. Our adjusted EBITDA on Q4 was a record $186 million, up from $67 million in Q4 of last year, and our adjusted EBITDA for fiscal 2021 was a record $483 million. In a very strong quarter, our results are starting to benefit from the recent strategic actions we've taken to both divest low-performing assets from our portfolio and acquire businesses with attractive cash flow profiles. Turning to the businesses... In steel processing, net sales of $655 million doubled from $328 million in Q4 of last year due to increased volumes and higher average selling prices. Total shipped tons were up 38% from last year's fourth quarter, which was negatively impacted by COVID-related shutdowns, particularly at our automotive customers. Direct tons increased by 47% over the prior year quarter, while total tons increased 31%. Direct tons in Q4 were 48% of the mix compared to 45% the year ago. We continue to see solid demand across nearly all of our major end markets, including automotive, heavy truck, and agriculture. Steel's record-setting performance actually could have been better. We saw some delays in orders from automotive customers because of semiconductor and other supply chain constraints. In addition, the U.S. steel market remains tight, and our teams and our customers continue to face unprecedented market conditions. Throughout, our steel processing team has done a great job managing through a fluid and constrained market to take care of our customers, and they generated operating income of $94 million in the quarter compared to a loss of $2 million in Q4 last year. The large year-over-year increase was primarily driven by strong demand relative to last year combined with increased spreads. In the quarter, we had inventory holding gains estimated to be $50 million or 71 cents per share compared to holding gains of a penny per share in Q4 last year. The current quarter also benefited from mark-to-market and arbitrage gains we were able to generate given the rise in steel prices. Based on current steel prices, we do expect that we will have meaningful inventory holding gains in Q1 of 22 as well, which will be partially offset by headwinds related to this frack gap, which continues to widen. In our pressure cylinders business, net sales in Q4 were $323 million, up 14% from the prior year, due to increased volumes and higher average selling prices for both consumer and industrial products. Net sales in the current quarter benefited by $19 million from the inclusion of General Tools and P-TECH, but this was more than offset by a $33 million reduction in sales related to our recent divestitures. Demand for our products in North America remains strong, and we continue to see a gradual recovery of our European business, which was significantly impacted by COVID-related shutdowns a year ago. Cylinders operating income, excluding impairment and restructuring charges, was $31 million, up $9 million from the prior year quarter, while operating margins increased to 9.6% from 7.7% in Q4 last year. The team in pressure cylinders continues to perform at a very high level. While navigating supply chain challenges, bringing new products to market, and growing the market share, our team has recently completed several divestitures and two strategic acquisitions that we believe position us well for additional growth and profitability moving forward. Earlier this month, we announced that we were dividing our pressure cylinder segment into three new reporting segments, consumer products, building products, and sustainable energy solutions, Effective with the start of our new fiscal year, which began on June 1st. On our fiscal 2022 Q1 call in September, we will begin reporting and discussing our results in those new segments. With respect to our JVs, equity income during the current quarter was $42 million compared to $17 million last year. We saw strong year-over-year improvements from Wave and Clark-Dietrich due to continued strength in the commercial construction market and from Serbia-Sara, where increased spreads and inventory holding gains drove the upside. During the quarter, we received $26 million in dividends from unconsolidated GVs. Turning to the cash flow statement and the balance sheet, cash flow from operations was $40 million in the quarter and $274 million for the full fiscal year. free cash flow totaling $192 million in that same period. Free cash flow for the quarter was $23 million, despite headwinds from a $118 million increase in working capital, primarily associated with higher steel prices. During the quarter, we completed two divestitures generating $25 million, invested $17 million on capital projects, paid $13 million in dividends, and spent $47 million to repurchase 700,000 shares of our common stock. Looking at our balance sheet and our liquidity position, funded debt at quarter end of $710 million was relatively flat sequentially, and interest expense of $8 million was in line with the prior year quarter. We hit Q4 with $640 million in cash as we continue to take a balanced approach to capital allocation, focused on growth and on rewarding shareholders. Earlier this month, we announced the acquisition of Shiloh's U.S. Blank Light business for $105 million. That business generated adjusted EBITDA of $20 million in calendar 2020, and we believe it will be a valuable and strategic addition to our steel processing segment, enabling us to expand our higher-margin laser-welded and blanking offerings, both of which play an important role in lightweighting efforts in the automotive market. Yesterday, the Board declared a $0.28 per share dividend for the quarter, which is payable in September 2021. At this point, I will turn it over to Amy. Thank you, Joe. Good morning, everyone. Our fourth quarter was a record, a strong finish to what has been the best fiscal year in Worthington's history. Of course, we never would have predicted this a year ago when we were in the depths of the COVID pandemic. Automotive manufacturing was at a standstill, and we were navigating a very uncertain business environment. We say all the time that people are our most important asset, and they proved that yet again this year by adapting quickly to keep each other safe while continuing to deliver our products and services to customers in record fashion. Despite steel supply shortages, semiconductor slowdowns, and labor availability, all of which impacted production schedules, our teams did a terrific job and should be commended for their efforts. Supply chains continue to be constrained, but overall, our demand levels and backlogs are quite good across almost all of our major markets. We have also been proactively raising prices in our downstream manufacturing businesses to offset increased raw material costs. We are excited to begin reporting three new segments next quarter, consumer products, building products, and sustainable energy solutions. This change will better align our businesses around the attractive end markets we serve and provide investors with additional insights on performance. All of these segments have tested leaders' compelling strategies and the resources they need to grow. We will continue to leverage our transformation playbook, new product development and innovation, and M&A to achieve above-market growth rates and increase our return on capital. We sold the last of our underperforming assets in the fourth quarter, so our focus has shifted to accelerating our innovation and M&A growth initiatives across our portfolio. We have a strong balance sheet recently supplemented by the exceptional return generated on our investment in Nikola Corporation. We have always been an entrepreneurial company, and the success of this investment allowed us not only to reward our shareholders, but also our employees and the communities we live and work. We are proud to have just completed our 65th year in business, a record one at that, and we are well positioned to continue creating value for our shareholders in fiscal 22 and beyond. Thanks again to all of our employees for their hard work, dedication to each other, and perseverance over the past 15 months. We will now take any questions. At this time, to ask a question, you will need to press star 1 on your telephone. Again, that is star one to ask a question. To withdraw your question, just press the pound key. Please stand by while we compile the Q&A roster. Your first question comes to the line of Seth Rosenthal from Exane BMC. Your line is now open.