Worthington Enterprises, Inc.

Good morning and welcome to the Worthington Industries second quarter fiscal 2023 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 now like to introduce Marcus Roge, Treasurer and Investor Relations Officer. Marcus Roge, you may begin.

Thank you, Chris. Good morning, everyone, and welcome to Worthington Industries' second quarter fiscal 2023 earnings call. On our call today, we have Andy Rose, Worthington's president and chief executive officer, Joe Hayek, Worthington's chief financial officer, and Jeff Gilmore, Worthington's chief operating 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 to kick things off.

Thank you, Marcus, and good morning, everyone. I'll go over the consolidated results and provide some additional color on the building products, consumer products, and sustainable energy solutions businesses, and then Jeff Gilmore will go through Steel's results. Jeff, as many of you know, is our current Chief Operating Officer and will be the CEO of the Steel business when we complete the planned separation of our businesses. In Q2, we reported earnings of $0.33 a share versus $2.15 a share in the prior year quarter. There were some unique items that impacted the quarterly results, including the following. We incurred pre-tax expenses of $9 million or 14 cents a share related to the plant separation of our steel processing business, which we expect to complete by early calendar 2024. We will quantify those costs each quarter going forward until the contemplated separation is complete. We also recognized incremental expenses of a penny per share related to our recent acquisition of Level 5 tools and the earn-out associated with that acquisition. And finally, we benefited by 4 cents a share due to restructuring gains associated with the divestiture of our WSP Joint Ventures' last remaining steel processing facility. This compared to restructuring gains of 3 cents a share in the prior year quarter. Excluding these unique items, we generated earnings of 44 cents a share in the current quarter compared to $2.12 a share in the prior year. In addition, In Q2, we had inventory holding losses estimated to be $53 million, or $0.81 a share, compared to inventory holding gains of $42 million, or $0.61 a share in the prior year quarter. An unfavorable swing of $95 million, which is $1.42 a share. Consolidated net sales in the quarter of $1.2 billion decreased 5% from the prior year, primarily due to the lower average selling prices in steel processing, combined with lower volumes partially offset by the inclusion of Temple Steel. Our gross profit for the quarter decreased to $106 million from $185 million in the prior year, and gross margin was 9% versus 15%, primarily due to the swing from inventory holding gains to losses in steel processing. Our adjusted EBITDA on Q2 was $64 million, down from $168 million in Q2 of last year, and our trailing 12-month adjusted EBITDA is now $455 million. With respect to cash flows and our balance sheet, cash flow from operations was $133 million in the quarter, and free cash flow was $108 million. We've generated over $360 million in free cash flows in the last 12 months. During the quarter, we invested $24 million on capital projects, made $15 million in dividends, received $24 million in proceeds from asset sales, and received $55 million in dividends from our unconsolidated JVs. Like in Q1, the dividends we received from our unconsolidated JVs exceeded their equity earnings during the quarter, as their working capital levels have normalized, allowing them to pay out earnings that were not distributed in the prior fiscal year. Looking at our balance sheet and liquidity position, Funded debt at quarter end of $699 million decreased $7 million sequentially and interest expense was down $1 million also on a sequential basis. We are operating with low leverage and our net debt to trailing EBITDA leverage ratio is roughly 1.25 times. We also have ample liquidity and ended Q2 with $130 million in cash and $675 million in availability under our revolving credit facilities. Yesterday, the board declared a dividend of $0.31 per share for the quarter, which is payable in March of 2023. We'll now spend a few minutes on each of the businesses. In consumer products, net sales in Q2 were $154 million, up 9% from $141 million in the prior year quarter. The increase was driven by higher average selling prices, which were partially offset by lower volumes. Adjusted EBIT for the consumer business was $13 million in the quarter, and EBIT margin was just under 9% compared to $18 million and 12.5% last year. There were two primary drivers for the decline in consumers' profitability. First, retail sales slowed. Not materially, but it is clear that consumers are watching their discretionary spending. In addition, and more impactfully, our retail customers reduced their inventory levels during the quarter. The result was a significant decline in customer orders, which led to lower volumes and lower fixed cost absorption. In addition, the quarter was negatively impacted by $1 million of expenses related to our acquisition of Level 5, including the write-up of inventory to fair market value. While the quarterly results for the consumer business were not as strong as we would have liked, that team continues to do an excellent job managing through a challenging environment. Additionally, we have started to see customer inventory levels stabilize, which we believe will lead to more seasonally normal volumes going forward. Building products generated net sales of 142 million in Q2, up 17% from 121 million in the prior year quarter. The increase was driven by higher average selling prices, which were partially offset by slightly lower volumes. Adjusted EBIT for building products was $41 million in the quarter, and adjusted EBIT margin was 29%, compared to $55 million and 45% in Q2 of last year. The decrease in EBIT and margin was primarily driven by lower equity earnings in our psychiatric and wave joint ventures, which were down $11.4 million and $3.4 million, respectively, compared to very strong results in the prior year quarter. This softness was partially offset by improvements in our wholly-owned businesses, which saw operating income increase 1.4 million or 31% year over year due to higher average selling prices and a favorable product mix. Similar to what we saw in consumer, many of our product lines and building products saw customers decrease their orders due to higher than optimal inventory levels. In 2021 and early 2022, when supply chains were uncertain and tight and demand from end users continued to grow, many of our customers ordered at or above their expected demand levels and those same customers are now rationalizing their on-hand inventories while demand has moderated with the economy. While the demand outlook is unique by end market and will be impacted by the broader economy, our team continues to execute at a very high level, and we believe that as customer inventory levels stabilize, we will see a return to more than seasonally normal demand trends. In sustainable energy solutions, Net sales in Q2 of $38 million were up 15% compared to $33 million in the prior year quarter due to increased volumes and higher average selling prices. The business generated adjusted EBIT of $1 million in the current quarter, which was up slightly from the prior year, as the favorable impact of higher average selling prices was partially offset by higher production costs. Despite a continued challenging operating environment in Europe, Net Team continues to do an excellent job executing, we remain very optimistic about the hydrogen and alt fuels ecosystems and our SCS business. At this point, I will turn it over to Jeff.