Transcript: Worthington Enterprises Q1 2027 Earnings Conference Call

On Wednesday, Worthington Enterprises (NYSE: WOR ) discussed first-quarter financial results during its earnings call. The full transcript is provided below. This content is powered APIs. For comprehensive financial data and transcripts, visit The full earnings call is available at Summary Worthington Enterprises reported a 13% year-over-year increase in sales for Q1 fiscal 2027, with a 7% organic growth component.

Adjusted EBITDA rose 10% to $74 million, and free cash flow nearly doubled to $54 million. The company faced challenges in its Building Performance Solutions segment due to cooling and construction headwinds, steel availability issues, and lower demand for A2L refrigerant cylinders, but saw strong performance in Specialty Solutions and its water business. Worthington is leveraging the Worthington Business System transformation for growth, focusing on disciplined M&A, innovation, and 80/20 optimization to improve productivity and allocate resources effectively.

The company highlighted significant growth opportunities in the data center market, particularly with their ASME tanks for liquid cooling, projecting substantial market expansion in this area. Management expressed confidence in their strategy and future growth, citing a strong balance sheet, effective cash flow generation, and a healthy M&A pipeline, while acknowledging ongoing market uncertainties. Full Transcript OPERATOR The Worthington Enterprises Fiscal Year 2027 First Quarter Earnings Call. After today's prepared remarks, we will host a question and answer session.

If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Marcus Rogier, Treasurer and Investor Relations Officer. Marcus, please go ahead.

Marcus Rogier, Treasurer & Investor Relations Officer Thank you, Paige. Good morning everyone and thank you for joining us for Worthington Enterprises first quarter fiscal 2027 earnings call. On the call today are Joe Hayek, our President and Chief Executive Officer, and Colin Souza, our Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made during today's call are forward-looking in nature and subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied.

For more information on these risks and uncertainties, please refer to our earnings release issued yesterday after the market closed, which is available on the Investor Relations section of our website. Additionally, our remarks today will include references to non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures can also be found in the earnings release. com.

With that, I'll turn the call over to Joe for opening remarks. Joe Hayek, President and Chief Executive Officer Thank you, Marcus. Good morning everyone. Welcome to Worthington Enterprises fiscal 2027 first quarter earnings call.

We had a strong start to fiscal 2027. While we faced some market and operating headwinds, our team continued to execute, serve our customers and make progress on our strategic initiatives. I want to thank my colleagues around the world for the focus, creativity and grit they bring to Worthington every day. In Q1 we grew sales by 13% year over year, including 7% organically.

Adjusted EBITDA increased by 10% to $74 million, and we generated $54 million of free cash flow, nearly double the prior year quarter. 78 a year ago. We continued to deploy capital thoughtfully in the quarter, including the repurchase of 335,000 shares of our common stock. While we're pleased with our progress, the quarter was not without challenges.

Building Performance Solutions, as we anticipated, faced headwinds in our cooling and construction business as channel inventories are right-sized and new home sales are muted. Demand for newly mandated A2L refrigerant cylinders is lower than it was a year ago, creating a difficult comparison. Additionally, steel availability across the industry remains tight and lead times in the quarter were extended. That dynamic created some disruptions in production and scheduling for both cooling and construction and for our balloon business.

Our teams are actively working through these issues every day, prioritizing our customers and ensuring that we are the best partner that we can be. While we faced some headwinds in the quarter, our performance was a reflection of our businesses and our people: resilient, creative. Specialty Solutions delivered strong sales and EBITDA growth as that team continues executing at a high level. Our water business is performing very well as our 80/20 work matures and helps us focus resources on the products and opportunities that create the most value.

WAVE and ClarkDietrich also delivered higher equity earnings and were important contributors in the quarter. When we optimize and grow Worthington, our strategy is not complicated. We're leveraging the Worthington Business System transformation to improve our businesses, disciplined M&A to add capabilities and strengthen our portfolio, and innovation to grow organically where we have attractive opportunities. We continue to use 80/20 to optimize our businesses as we sharpen our focus, improve working capital and allocate resources where they matter most.

We've seen meaningful progress in our water business and are now extending that discipline into our portable fuel and torch businesses. We're also continuing to improve productivity through automation, AI-enabled tools and other transformation initiatives. We remain disciplined about growth through M&A and we're focused on opportunities where we believe we can bring unique advantages as an owner and create long-term value. Our integration of LSI continues to progress well and there we're focused on reaching more prospective customers and introducing them to LSI's compelling value proposition.

I want to spend a little more time this morning on organic growth because we're increasingly seeing our innovation capabilities translate into meaningful commercial opportunities. One of the most topical examples of the kind of organic growth opportunities we're trying to create and develop at Worthington is our engineered ASME tanks. These engineered tanks have played an important role in commercial buildings across the world for decades. Increasingly, as new ship sets generate significantly more heat, data center designers and operators are embracing liquid cooling.

Engineered tanks like ours help manage the cooling fluids used in liquid cooling systems and, as such, are a critical component of those data centers and the cooling infrastructure. We've been a market leader in these engineered ASME tanks for years, a market we believe has consistently been plus or minus $200 million a year for some time. Given the projected growth in data centers and the increasing adoption of liquid cooling in those data centers, industry sources suggest the market for liquid cooling and thermal management in ASME tanks alone could be more than 10 times the size of the legacy market in the next few years.

To grow in and with this important end market, we took capabilities we already had, listened closely to our customers, leveraged our engineering and innovation expertise, and created an emerging suite of liquid cooling and thermal management solutions. As a result, what started as a promising new application for us has quickly developed into an increasingly meaningful growth opportunity. As a reminder, in fiscal 26 we shipped roughly $13 million of ASME tanks for data centers. In the first quarter of fiscal 27, we generated an additional $13 million of revenue from that value stream, essentially matching what we did in the entire prior fiscal year.

Near term, we believe that our ASME tank revenues will continue to grow sequentially quarter over quarter through the balance of this fiscal year. In addition, while this market is in the early stages of development, our pipeline suggests that (1) our solutions can play a meaningful role in this evolving architecture and (2) the market's growth is continuing to accelerate. To be clear, a pipeline is not revenue, and there is always some uncertainty around the timing and conversion of these opportunities.

But the size and the quality of the opportunities in front of us is encouraging, and we are investing in equipment, engineering talent and production capacity to support the customers we're servicing today and the opportunities we see ahead. Solid financial results we're generating and the great opportunities ahead of us are a credit to our people. Worthington has always believed that people are our most important asset. That is as true today as it has ever been.

As an example, we were recently named one of America's Most Innovative Businesses for 2027 by Business Insider. Criteria included the number and impact of companies' technological innovations, the reputation among peers for fostering innovation, and how a company's investment in R&D compares to others in their industries. We were also recognized in the quarter by USA Today and Points of Light as one of America's most charitable companies. This honor reflects our deeply rooted commitment to communities where we live and work, including volunteerism and support from the Worthington Companies Foundation.

Much is being asked of our teams every day as we navigate volatile markets, geopolitical instability, inflation, elevated interest rates, supply constraints and operational challenges. We're very grateful for the way our colleagues continue to prioritize our customers and one another. We're proud of how we started our fiscal year. There's more work to do, but we continue to see tangible evidence that our strategy is working.

We see it in organic growth driven by innovation, in productivity gains through transformation and successful M&A integration, and ultimately in cash generation. In addition, our end markets, brands, capabilities and strategy position us exceptionally well to continue driving profitable growth. Most importantly, we have a talented team that cares deeply about each other, our customers and our company. Before I turn it over to Colin, who will spend a few more minutes on our financial performance in the quarter, we'd like to remind everyone that we'll be hosting our Investor Day in New York on November 10th.

We're looking forward to discussing our businesses, the opportunities we see for profitable growth, and how we're positioning Worthington Enterprises to create long-term value. We hope you'll join us. OPERATOR We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand.

To withdraw your question, press star one again. We ask that you pick up your handset when asking a question, and to allow for optimum sound quality, if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian Biros with Thompson Research Group.

Your line is open. Please go ahead. Brian Biros, Analyst at Thompson Research Group Hey, good morning, everyone. Thanks for taking my questions today.

Joe Hayek, President and Chief Executive Officer Morning, Brian. Brian Biros, Analyst at Thompson Research Group Brian, I want to—morning. I want to start with a question just about the steel market overall. You know, you mentioned it's tight, lead times extended, not the ideal supply chain setup, but Worthington should be in a position to, I guess, navigate that better than almost every other competitor you guys have.

So maybe help us understand kind of where things stand today in the field and kind of what Worthington can do that others can't to navigate that. Joe Hayek, President and Chief Executive Officer Sure, Brian, it's a very topical, good question. And the steel market has absolutely tightened. You know, we are seeing longer lead times and certainly, you know, the price of steel has come up in certain areas.

You know, it probably did start last fall when 232 tariffs on imported raw steel doubled. That really chilled imports. And since then, you've seen the price of steel creep steadily up, and the market started to see some lead times get extended. That was certainly the case in Q1.

But as you say, tight markets can create challenges, but they are also environments where we think some of our capabilities really do matter. We're a pretty sophisticated buyer of steel. We have very strong supplier relationships, and we have a broad manufacturing footprint that gives us additional options to manage through periods of constrained supply. So we've been actively managing in that environment by looking across suppliers, products, and our network to be sure that we're serving customers and maintaining access to materials.

When it's been appropriate, we have taken pricing actions as well, since input costs have increased the way that they did. So the availability was a headwind for us in Q1, particularly, as we mentioned, in cooling and construction and lead time. We do think that we're better positioned going forward, certainly through the end of the calendar year. Beyond that, we have limited visibility.

That doesn't mean we necessarily think that it'll get worse again beyond that, but as I said, we just don't have a lot of great visibility kind of into the new calendar year. We ultimately think about that as it probably cost us a few million dollars in the quarter. Brian Biros, Analyst at Thompson Research Group Okay, thank you. And then follow-up, I guess, would be on maybe on the JV.

WAVE up 8%—great to see on an already pretty strong comp anyway. So maybe some more clarity on kind of what the driving factor for that was. If that's data center demand starting to flow through distribution yet, is that pricing just from steel, just strong core end markets? More commentary on kind of the demand for that would be helpful.

Thank you. Joe Hayek, President and Chief Executive Officer Sure, Brian. So Wave, as you mentioned, another really excellent quarter, delivering record equity income of $35 million. And we continue to be very pleased with the performance of that business and the team there.

The end markets at Wave remain generally stable, although performance varies by sector. So education, healthcare, transportation, and, as you mentioned, data centers continue to remain healthy and drive volume, while channels like retail and office are a little more muted. Wave also does benefit from meaningful exposure to repair and remodel activity, which tends to be more resilient than the new commercial construction space. So they're a little insulated there, which is good.

The team continues to really innovate around solutions that help contractors reduce labor and improve installation efficiency, and that's always going to be valuable in the market. They continue to create meaningful value for their customers that way, and that supports the attractive economics of the business. More broadly, Wave is just a great example of the types of businesses that we like to own. They're a market leader in an attractive niche with strong customer relationships, differentiated products, and the ability to perform very well across different market environments.

As we look into Q2, there is normal seasonality to the business. Q1's a strong quarter for them, always during the year, but we would expect, as we look into Q2, some sequential moderation. Overall, they remain very healthy and we're very confident in the team there. Brian Biros, Analyst at Thompson Research Group Great, thank you.

OPERATOR Your next question comes from the line of Walt Liptak with Seaport Research. Your line is open. Please go ahead. Walt Liptak, Analyst at Seaport Research Hi, thanks.

Good morning, guys, and good quarter. I wanted to ask about the data center product, and it sounds like you hit the targets that you set out to get the 13 million. I wonder if you can talk about just the experience during the quarter, any ramp costs or productivity that you're working through, and as you've been able to maintain and come out with new ASME products, are you able to get more visibility beyond what you've talked about in the past, which is getting to that run rate of $13 million in revenue per quarter? Joe Hayek, President and Chief Executive Officer Sure, Walt.

Good morning. We're talking here about ASME tanks. ASME stands for the American Society of Mechanical Engineers. It's a certain code and approval process.

These are tanks that are used in liquid cooling systems that support next-gen computing infrastructure. They're purpose-built vessels used for liquid cooling and thermal management. We've actually been in this business for a long time. We've been innovating in pressure and hydronic systems for 80 years.

In fact, Amtrol invented the first pre-pressurized, not to get too technical on you, diaphragm expansion tank seventy years ago. So this isn't new to us. But as we listened to customers and understood what they needed to accomplish, we knew we could be helpful. So we leveraged our core competency, our engineering and innovation expertise, and created this emerging suite of solutions that really do help our customers solve problems they're trying to solve.

You said it: $13 million last year, $13 million in Q1. We do think that we should grow sequentially in Q2, Q3, and Q4, with more of that growth being weighted to the back half of the year. Keep in mind that this market is still developing, and these opportunities are sometimes 18 to 24 months removed from an announcement that you might hear about a data center being greenlit.