Worthington Steel, Inc.

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 reference non-GAAP financial measures which adjust for certain items included in our GAAP results and 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 available later today on WorthingtonSteel.com. Now I'll turn it over to Jeff Gilmore.

Good morning. Thank you for joining us. First, I want to thank our incredible Worthington Steel team. Once again, they demonstrated resilience, flexibility, and an unwavering commitment to safety and serving our customers. In the fourth quarter, we generated adjusted EBITDA of $87 million compared with $86.5 million in the prior year quarter. Earnings per share were $1.10, compared to $1.06 in the same period last year. While the macroeconomic environment remained mixed, Worthington Steel employees stayed focused on execution and we made important strategic progress. Let me begin with a look at what we saw across our end markets. In automotive, our volume strengthened in the fourth quarter. We continue to gain market share in the overall automotive market, and I commend our commercial teams and everyone involved for their commitment to fulfilling the needs of our automotive customers. The construction markets we serve, which include fencing, culvert, and metal buildings, were down slightly year over year. We saw an uptick in heavy truck because we have gained some share in that market. The agricultural market, however, continues to face pressure. Energy demand and the need for transformer cores continue to grow as the world relies more and more on artificial intelligence and electrified vehicles. Transformer core growth is also fueled by the need to replace aging electrical infrastructure as more than half of the transformers in use today reach the end of their useful life. Now let's talk about the progress we're making on our long-term strategy. We continue to execute against a roadmap that's built on three pillars. focus investments in the rapidly growing electrical steel market, margin accretive growth using a strong commercial focus combined with strategic CapEx and acquisitions, and base business improvements to improve margins, reduce working capital, and to add incremental capacity through our transformation. Starting with our capital investments, we continue to progress on our electrical steel expansions in Mexico and Canada. Testing is underway on the five presses in Mexico, and we are preparing for initial production later this calendar year. Electrified vehicle adoption continues to make gains globally, with current estimates projecting that hybrids and BEVs will make up more than two-thirds of global market share by 2030. Our candidate transformer core expansion project remains on track to begin production in early calendar year 2026. The transformer market in the U.S. is expected to double over the next 10 years to meet the growing demand for electrification. On the acquisition front, I'm pleased to share that we closed on our acquisition of a 52% ownership stake in Sedum on June 3rd. Sedum is a European electrical steel lamination manufacturer and electric motor die casting expert. This move marks a significant step in enhancing our position in the European electric motor lamination market and strengthening our ability to support global automotives and industrial motor customers. Sedum brings strong technical capabilities and expertise in tooling and automation systems for electric motor laminations that will benefit our electrical steel operations globally. Beyond those capabilities, what truly excites us is the cultural fit. Their people first values mirror our own Worthington philosophy. We are thrilled to welcome the Seatham team into the Worthington family. From a commercial perspective, we continue pursuing growth opportunities in select markets, and our team continues to gain market share, fill open capacity, and exceed customer expectations. Our team deserves high praise for their ability to collaborate with our suppliers and customers this quarter as they managed through potential supply chain disruptions due to the idling of several mill locations. They worked hard to ensure an uninterrupted supply for our customers. This quarter, Worthington Steel was named a 2024 Supplier of the Year by General Motors, marking our fourth time in the past five years achieving this distinction. And we were recognized as a partner level supplier in the John Deere Achieving Excellence Program for the 13th consecutive year. Deere and Company's highest supplier rating. These awards validate our commitment to quality, innovation, and service for our customers. Now looking at continuous improvement to our base business, which we call transformation. Looking for ways to get better is part of our DNA. Across the company, teams are reducing change over times optimizing working capital, improving safety, and streamlining operations. We have added another tool to our transformation tool belt, artificial intelligence. We kicked off our AI journey in earnest this quarter, and we see AI as a force multiplier that will elevate our work. AI will become an expectation at Worthington Steel, and we believe it will help us be more productive, improve quality, and unlock new value for our customers. Together, these actions strengthen our competitive advantage and give us a clear path to margin expansion, high returns on capital, and long-term value creation. I'm pleased with how well our team is executing on our strategy, despite some headwinds. We are focused on what we can control, what we can improve, and what we can do to serve our customers, all with an eye towards safety. On the governance front, we announced yesterday the addition of Mark Davis to our board of directors. Mark brings an extensive background in finance, mergers and acquisitions, and corporate governance. He will be a tremendous asset to Worthington Steel as we continue to grow. As I conclude my remarks, I want to reiterate the cautious optimism we mentioned last quarter. We still sense a bit of uncertainty around policy and the overall macroeconomy. but our team continues to find ways to win. We are improving our processes and gaining market share. We are embracing AI to unlock even more potential in our business. And I firmly believe we have the right strategy, strong customer relationships, and most importantly, the right people. Although we have only been a standalone company for 18 months, we are celebrating 70 years of heritage this year. And for me, That means celebrating the people who fuel our momentum. Our employees are the true strength behind Worthington Steel. Together, we are building the most innovative, customer-focused, and efficient steel processor in North America and beyond, one that's purpose-built for the next 70 years. Now I'll turn it over to Tim Adams to walk through the financials.

Thank you, Jeff, and good morning, everyone. For the fourth quarter, we are reporting earnings of $55.7 million, or $1.10 per share, as compared with earnings of $53.2 million, or $1.06 per share in the prior year quarter. There were several unique items that impacted our quarterly results. First, the current quarter results include $1.7 million, or one cent per share, of pre-tax restructuring charges related to two discrete items. The first was $800,000 of severance expense associated with our previously announced closure of Woodmington Samuel Coil Processing's Toll Pickling Facility in Cleveland. Production at the Cleveland Pickling Facility effectively ended in May. The second discrete item was a restructuring expense of $900,000 associated with the previously announced early retirement program at our Taylor Welded Blank Joint Venture. Additionally, in the current quarter, we recognized a $4 million gain in miscellaneous income associated with a currency hedge on the CDEM purchase price. Finally, the prior year quarter results included recognition of the final unfavorable tax court ruling related to a Temple pre-acquisition matter for which we were indemnified by the former owners of Temple. The net impact to earnings is zero. However, we recognized $2.8 million of miscellaneous income related to the indemnity receivable and an additional $2.8 million of tax expense. Excluding these unique items, we generated earnings of $1.05 per share in the current quarter, compared with $1.06 per share in the prior year quarter. In the fourth quarter, we had estimated pre-tax inventory holding gains of $20.8 million, or $0.31 per share compared to estimated pre-tax inventory holding losses of $3.4 million, or $0.05 per share in the prior year quarter, a favorable pre-tax swing of $24.2 million, or $0.36 per share. In the fourth quarter, we reported adjusted EBIT of $70.1 million, which was down $300,000 from the prior year quarter adjusted EBIT of $70.4 million. This decrease in adjusted EBIT is primarily due to lower gross margin and lower equity earnings at Servicero, partially offset by a year-over-year decrease in SG&A expense. Gross margin was $4 million lower than the prior year quarter, primarily due to unfavorable tolling margins, offset by increased direct spreads. Toll processing margins were down $8.1 million, impacted by lower toll volumes, and an unfavorable toll processing mix. Direct volume was flat year-over-year, while direct spreads were up $3.4 million, primarily due to the impact of year-over-year pre-tax inventory holding gains. Direct spreads, excluding the impact of estimated holding gains, were down primarily due to a shift in direct product mix to lower value-added products and market compression in the spread between hot load products and higher value-added products. SG&A decreased $4.8 million over the prior year fourth quarter, primarily due to a $3.3 million decrease in compensation and benefit costs, as well as lower bad debt expense. In the prior year, we recognized $1.7 million of bad debt expense due to an isolated matter, as compared with $100,000 of income in the current year quarter. Equity earnings from Servicero decreased due to lower direct volumes and spreads, as well as the impact of exchange rate movements. Next, I will provide some perspective on our market and our shipments. The market pricing for hot roll coil began the calendar year at just under $700 per ton. Once steel tariffs of 25% were implemented, the price of hot roll jumped to $950 per ton in March and April, but dropped back to approximately $850 per ton in June. With the recent announcement of 50% tariffs on imported steel, we may see additional upward pressure on steel prices. Given that many of our contracts use lagging index-based pricing mechanisms, we expect to generate inventory holding gains in the first quarter of fiscal 2026. We estimate those gains could be approximately $5 to $10 million as compared with the $20.8 million of estimated holding gains in the fourth quarter of 2025. Net sales in the quarter were $833 million, down $78 million, or 9% from the prior year quarter, primarily due to lower direct selling prices and, to a lesser extent, lower toll volumes and an unfavorable toll processing mix. We shipped approximately 982,000 tons during the quarter, which was down 5% compared with the prior year quarter. Direct sales volume made up 60% of our mix in the current year quarter as compared with 58% in the prior year quarter. Direct sale volume was flat compared with the prior year quarter, and we experienced pluses and minuses across various markets as customers continued to navigate uncertainty during the quarter. Automotive was a bright spot during the current quarter. Our shipments to the automotive market were up 5% compared to the prior year quarter. As we noted in prior quarters, We have one share in the automotive market. The new programs have begun to ship and we expect to show incremental volume from the new programs over the next few quarters. This additional automotive volume more than offset the continued year-over-year challenges faced by one of our Detroit 3 OEM customers. We continue to be optimistic the OEM is making progress towards optimizing their commercial strategy, leading to a more normal build schedule later in calendar 2025. Similar to last quarter, Our year-over-year shipments to the remaining D3 grew despite a small drop in OEM unit production. Our teams continue to work collaboratively with our automotive customers to deliver mutually beneficial solutions. We look forward to expanding our long-term relationships with our automotive customers. We also saw volume increases in the heavy truck market due to market share gains despite an apparent slowdown in the truck and trailer market. These results reflect our successful execution in targeted markets. particularly where we pursue a strategy to support key customers. Volume increases in the automotive and heavy truck markets were offset by reductions in the construction and ag markets. Construction volume was down 5% year over year, but consistent with historic fourth quarter levels. Our ag volumes were down 40% compared with the prior year quarter, primarily due to the expected softness in the agricultural equipment market, as well as increased competition in the grain bin sector. resulting in spread compression. While tariffs have introduced additional uncertainty and competition has intensified in the ag market, we responded with strategic pricing discipline and remain well positioned to adapt quickly as conditions evolve. Toll processing times were down 11% year over year for several reasons. First, we saw slowness in some automotive tolling programs that are platform specific. Second, We began to show a reduction in volume associated with the wind down of Wardington Samuel Coil Processing's toll pickling facility in Cleveland, which we idled in Q4. Finally, we were impacted by several customer decisions. For example, one customer changed the program from toll processing to direct sale, while another customer elected to resource the toll processing program to capture freight savings. When end market demand picks up, we expect our toll processing volumes to increase. However, as we discussed last quarter, we expect to see a decrease of approximately 100,000 annual toll processing tons, primarily as a result of the WSCP consolidation from Cleveland to Twinsburg. Turning to cash flows and the balance sheet, cash flow from operations was $54 million and free cash flow was $8 million. During the quarter, we spent $46 million on capital expenditures related to a variety of projects, including the previously announced electrical steel expansions. In addition, we purchased a building for our Columbus, Ohio headquarters and expect to move into the building next summer when renovations are complete. Capital expenditures for fiscal 2025 totaled $130.4 million, and we expect CapEx for fiscal 2026 to be approximately $100 million. Our disciplined capital investments are aligned with long-term priorities, particularly in electrical steel and maintaining our key equipment in market-ready condition to support growth and customer needs, even in uncertain markets. On a trailing 12-month basis, we generated $100 million of free cash flow. Wednesday, we announced a quarterly dividend of 16 cents per share, payable on September 26, 2025. We ended the quarter with $38 million of cash, and our outstanding debt as of May 31st was $152 million, resulting in net debt of $114 million. The increase in net debt over the third quarter of fiscal 2025 is primarily the result of our funding of the CETM acquisition, with the funds held in restricted cash as of May 31. We closed on the CETM acquisition on June 3rd, acquiring a 52% controlling ownership interest. With this addition, we broaden our electrical steel capabilities and customer base in Europe. CETM will be consolidated in our results going forward. Integration is already underway with joint teams identifying commercial and operational synergies. We are confident the integration is progressing as planned and view CDEM as a natural extension of our electrification growth strategy. Thank you to both the CDEM and Worthington teams for their hard work to finalize the transaction. Finally, I would like to say thank you to everyone at Worthington Steel for making safety the highest priority at every facility and for driving results in a dynamic market. With a strong balance sheet, a focused strategy and an agile team, Worthington Steel is well equipped to create value and act decisively as opportunities arise. I want to thank our entire team for their hard work during our first full year as an independent company and for their dedication to our philosophy and our shareholders. At this point, we will be happy to take your questions.