Worthington Enterprises, Inc.

Good morning and welcome to the Worthington Industries third quarter fiscal 22 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. I'd like to introduce Marcus Roji, Treasurer and Investor Relations Officer. Mr. Roji, you may begin.

Thank you, Chris. Good morning, everyone, and welcome to Worthington Industries' third quarter fiscal 2022 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 detail 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.

Thank you, Marcus, and good morning, everyone. Our teams executed very well in the quarter, and the result was a strong financial performance. For Q3, we reported earnings of $1.11 per share versus $1.27 in the prior year quarter. Excluding a small restructuring and impairment charge, we generated $1.13 in the quarter versus $1.36 in the prior year, after adjusting for restructuring and a small gain on our investment in Nikolaus. In the quarter, we had inventory holding losses estimated to be $25 million, or $0.37 per share. In the prior quarter, we had inventory holding gains of $31 million, or $0.44 per share. Consolidated net sales in the quarter of $1.4 billion were up significantly compared to $759 million in Q3 of last year. Increase in sales was primarily due to higher steel prices, the inclusion of our most recent acquisitions, and higher average selling prices in both consumer and building products. Gross profit for the quarter decreased to $143 million from $164 million in the prior year quarter, and gross margin was 10.4% versus 21.6%, primarily due to the swing from inventory holding gains to losses, which were partially offset by increases in both consumer and building products. Our adjusted EBITDA in Q3 was $112 million, down slightly from $126 million in Q3 of last year, and our trailing 12-month adjusted EBITDA is now $662 million. I'll now spend a few minutes on each of the businesses. In steel processing, net sales of $1.1 billion more than doubled from $504 million in Q3 of last year, primarily due to the average selling prices being higher and the inclusion of both Temple Steel and Shiloh's blank light business. Total shipped tons were down 2% compared to last year's third quarter despite the recent acquisitions, which contributed 80,000 tons during the quarter. Excluding the impact of acquisitions, total shipped tons were down 9% year over year. Direct tons in Q3 were at 51% in the mix compared to 48% in the prior year. Despite the decrease in shipped tons, underlying demand during the quarter was healthy. Volumes were impacted by COVID-related production challenges, lost shipping days due to weather, U.S.-Canada bridge closings, and the ongoing semiconductor chip shortage that continues to impact automotive schedules. Our automotive volume increased from the prior year quarter, but demand was below seasonal norms, and it's still difficult to predict as production levels at the OEMs remains choppy. Construction demand continued to be solid, but our volumes decreased slightly from the prior year as we had reserved some capacity for automotive demand that did not materialize. End market demand is good, but the war in Ukraine and its impacts on the steel supply chain, pricing, and end market demand are difficult to predict. Our teams are best in class and continue to navigate market volatility and supply chain challenges exceptionally well as they remain focused on taking care of each other, their customers, and our partners. In Q3, steel generated adjusted EBIT of $7 million compared to $62 million last year. The large year-over-year decrease was driven by the inventory holding losses I mentioned earlier, estimated to be $25 million in the quarter compared to inventory holding gains of $31 million last year, an unfavorable swing of $56 million. The inventory holding losses for the current quarter included a $16 million charge to write inventory down to net realizable value due to the expected future decline of steel prices at quarter end. Steel prices have since risen, but based on current steel prices, we believe we will have higher inventory holding losses in Q4 than we did in Q3. In consumer products, net sales in Q3 were $162 million, up 41% from $115 million in the prior year. The increase was driven by higher average selling prices combined with higher volumes across the board and the inclusion of GTI. Adjusted EBIT for the consumer business was $27 million, and EBIT margin was 16.5% in Q3 compared to $15 million and 12.7% last year. Year-to-year growth in margin is a credit to the exceptional job our consumer team is doing managing through the current inflationary environment. In this quarter, we realized the price the benefit of price increases that were implemented late in Q2. Demand remains strong across the board for our consumer business, and while inflationary pressures, shipping, and supply chain issues will likely persist, we're confident in our team's ability to continue growing the business and delivering value to our customers with a focus on increasing production while developing new and innovative offerings. Voting products generated net sales of $133 million in Q3, which was up 38% from $96 million in the prior year. The increase was driven by higher average selling prices. Voting products adjusted EBIT was $50 million, and adjusted EBIT margin was 37.3%, up significantly from $27 million and 28.4% in Q3 last year. Our wholly-owned building products business generated a nearly five-fold year-over-year increase in EBIT during the quarter due to healthy demand combined with higher average selling prices. Bart Dietrich's results improved by $15 million year-over-year, while Wave was down slightly from a year ago. Bart Dietrich and Wave contributed equity earnings of $21 million and $19 million, respectively. The building products team has done a great job navigating a very challenging environment while continuing to focus on serving our customers. Going forward, we believe that strong demand in the commercial and residential building markets that we serve will persist, though inflationary conditions will also persist. In sustainable energy solutions, net sales in Q3 were $31 million, down slightly from $32 million in the prior year despite significantly lower volumes due to the divestiture of our LPG gas business. Excluding the divestiture, net sales were up 31% in Q3 versus last year. The business reported an adjusted EBIT loss of $3 million in the quarter compared to break-even results in the prior year, as higher average selling prices were more than offset by the impact of significantly increased input costs. This business is in the early stages of repositioning itself to serve the global hydrogen ecosystem and adjacent sustainable energies like compressed natural gas, and will benefit as those volumes ramp up. but the European market remains challenged, and the ongoing war in Ukraine has caused business conditions in Europe to deteriorate further with materially increased energy prices and demand uncertainty. However, longer term, the conflict may accelerate Europe's planned adoption of hydrogen and alternative fuels, and our plan is to be prepared to be a leader in serving that market. With respect to cash flows and our balance sheet, Cash flow from operations was $74 million in the quarter, with free cash flow totaling $51 million. We started to see our operating working capital levels decrease during the quarter, primarily due to lower steel prices, which added $49 million to cash flow. During the quarter, we received $29 million in dividends from our unconsolidated JVs, spent $270 million on the acquisition of Temple, invested $24 million in capital projects, paid $14 million in dividends, and spent $54 million to repurchase a million shares of our common stock at an average price of $54.26. Following the Q3 purchases, we have slightly over 7 million shares remaining under our share repurchase authorizations. Looking at our balance sheet and liquidity position, funded debt at quarter end of $813 million increased $111 million sequentially, primarily to fund the acquisition of Temple. Interest expense of $8 million was up slightly due to higher average debt levels, and we ended Q3 with $44 million in cash and $396 million available under our revolving credit facility. Yesterday, the Board declared a $0.28 per share dividend for the quarter, which is payable in June of 2022. At this point, I will turn it over to Andy.