WORTHINGTON ENTERPRISES, INC. Q1 FY2027 earnings call

• Strong Financial Start: Reported 13% consolidated sales growth ($344 million) and 10% Adjusted EBITDA growth ($74 million). Generated $54 million in free cash flow, nearly double the prior year, with a trailing 12-month free cash flow of $196 million.
• Strategic Growth in Data Centers: Engineered ASME tanks for data center liquid cooling generated $13 million in Q1 revenue, matching the full fiscal 2026 total. Management anticipates sequential quarterly growth through the remainder of the fiscal year, viewing this as a multi-year opportunity where the market could grow 10x the legacy size.
• Operational Transformation: Continued deployment of the '80-20' optimization framework, initially successful in the water business, is now being extended to portable fuel and torch businesses to simplify portfolios and improve margins.
• Joint Venture Performance: WAVE delivered record equity income of $35 million, driven by healthy data center and repair/remodel markets. Clark Dietrich improved equity income to $7 million despite soft commercial construction outside of data centers.
• M&A Integration: Progress continues on the Elgin acquisition (over a year post-close) and the recent LSI acquisition (closed January). Both are viewed as strong cultural fits with opportunities for operational improvement and commercial expansion.
• Workforce Recognition: Named one of America's most innovative businesses by Business Insider and recognized by USA Today and Points of Light for charitable contributions.

Building Performance Solutions: Net sales increased 16% year-over-year to $215 million (including $19 million from acquisitions), with organic sales growing 6%. Adjusted EBITDA was essentially flat at $60 million, resulting in an adjusted EBITDA margin of 27.8%. Headwinds included normalized demand in cooling and construction due to A2L refrigerant transition inventory corrections and tight steel availability.

Trade and Specialty Solutions: Net sales grew 8% year-over-year to $129 million, driven by higher volumes and average selling prices. Adjusted EBITDA increased significantly to $24 million from $16 million in the prior year quarter, with the margin expanding to 18.6% from 13.6%. Profitability improvements were supported by pricing, manufacturing performance, and net benefits from IEPA tariff refunds.

• Organic Growth Expectations: Management expects engineered ASME tank revenues to continue growing sequentially quarter-over-quarter through the balance of fiscal 2027, with more growth weighted toward the back half of the year.
• Normalization of Headwinds: The A2L refrigerant transition impact on Building Performance Solutions is viewed as a timing and comparison issue rather than a structural change. While Q2 remains a difficult comparison due to favorable prior-year volumes, normalization is expected in Q3 and Q4 as seasonality improves.
• Steel Market Outlook: While steel supply remains tight with extended lead times in Q1, management believes they are better positioned to navigate constraints through supplier relationships and manufacturing footprint flexibility. They estimate the impact cost a few million dollars in the quarter but see limited visibility beyond the current calendar year.
• Free Cash Flow Sustainability: Management views the strong free cash flow generation (TTM FCF of $196 million) as sustainable, driven by intentional working capital improvements, including a reduction in the cash conversion cycle by 8-9 days and net working capital as a percent of sales down nearly 3% over two years.

• Supply Chain Constraints: Tight steel availability and extended lead times have disrupted production scheduling and shipment timing, particularly impacting cooling, construction, and balloon time businesses. Input costs have risen, requiring pricing actions.
• Inventory Corrections: Channel inventories for A2L refrigerant cylinders are taking longer to normalize against a backdrop of muted new home sales, creating unfavorable volume comparisons for Building Performance Solutions.
• Macro Economic Factors: Elevated interest rates and geopolitical instability present ongoing headwinds, although management notes resilience in repair/remodel activity and low unemployment supporting consumer-facing segments.
• Execution Uncertainty: While the data center pipeline is encouraging, there is inherent uncertainty regarding the timing and conversion of these opportunities, which can be 18-24 months removed from project announcements.

Q: Analyst asked about the drivers behind WAVE's record equity income of $35 million, specifically whether it was driven by data center demand flowing through distribution or pricing/steel effects. / A: CFO clarified that WAVE's end markets are generally stable with performance varying by sector. Data centers remain healthy and drive volume, while retail and office channels are muted. WAVE benefits from exposure to resilient repair and remodel activity and innovation in labor-saving solutions. Q2 is expected to show normal seasonal moderation but remains healthy.

Q: Analyst sought clarity on the ramp-up experience for the new ASME liquid cooling tanks, asking if productivity issues prevented achieving a run rate beyond $13 million per quarter and what capacity expansions were underway. / A: CEO explained that the $13 million Q1 result matched the prior fiscal year total. Sequential growth is expected through Q4, though variability is likely due to the developing nature of the market (18-24 month sales cycles). The company is investing in engineering talent, equipment, and production capacity, leveraging both internal facilities and external partners to scale.

Q: Analyst inquired about the broader consumer state affecting Trade & Specialty Solutions, noting moderation in homebuilding, and asked for updates on M&A integration and pipeline given high rates. / A: CEO noted that while rates are high, repair/remodel activity remains resilient due to low unemployment. On M&A, CFO highlighted a healthy pipeline and strong balance sheet flexibility. Elgin integration is progressing well operationally, while LSI (closed Jan) is showing attractive margins in specialized metal roofing niches. CEO added that high rates may actually aid acquisitions by reducing competition.

Q: Analyst asked how quickly raw material price increases could be mitigated and if the headwind would worsen or improve by year-end. / A: CEO clarified his previous comment referred to the steel impact cost, not general raw materials. He stated that while input costs are higher across the board, Worthington utilizes its sophisticated buying power, supplier relationships, and broad manufacturing footprint to manage constraints. Pricing actions have been taken where appropriate, and management is confident in their ability to separate themselves from competitors in navigating these environments.

Q: Analyst asked if non-ASME tank businesses (Wave, Elgin, LSI) exposed to data centers were seeing similar multiplicative growth as the tanks, and if solutions are being bundled. / A: CEO confirmed that data centers are a critical growth driver across multiple value streams, with revenues growing commensurately. He described the approach as collaborative rather than strict bundling; teams are increasingly referring leads and making introductions across business units to capture a larger share of the data center infrastructure spend.