Q3 2025 Worthington Enterprises Inc Earnings Call

Good morning, and welcome to the Worthington Enterprises' third quarter fiscal 'twenty 25 earnings conference call. All participants will be in listen only until the question and answer session of the call. This.

Operator: Good morning and welcome to the Worthington Enterprises 3rd Quarter Fiscal 2025 Earnings Conference. All participants. in listen only until the question and answer session is concluded.

This conference is being recorded at the request of Worthington enterprises.

Operator: This conference is being recorded at the request of Worthington. If anyone objects, you may disconnect.

If anyone objects you may disconnect at this time I would.

Marcus Rogier: I would now like to introduce Marcus Rogier. treasurer. and Investor Relations Officer, Mr. Rogier.

I'd now like to introduce Marcus Roby Treasurer and Investor.

Speaker Change: Investor Relations Officer, Mr. Rocha, you may begin.

Speaker Change: Thank you Sarah good morning, everyone and thank you for joining us for Worthington Enterprises' third quarter fiscal 2025 earnings call.

Marcus Rogier: Thank you, Sarah.

Marcus Rogier: Good morning, everyone, and thank you for joining us for Worthington Enterprises' third quarter fiscal 2025 earnings call. On our call today we have Joe Hayek, Worthington's President and Chief Executive Officer, and Colin Souza, Worthington's Chief Financial Officer.

Speaker Change: On our call today, we have Joe Hayek, Worthingtons, President and Chief Executive Officer, and Colin Sousa, where they can see chief financial officer.

Marcus Rogier: Before we get started, I'd like to note 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.

Before we get started to note that certain statements made today are forward looking within the meaning of the 1995 private Securities Litigation Reform Act.

Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ from those suggested.

Marcus Rogier: 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 different tier release.

Speaker Change: We issued our earnings release yesterday after the market close please refer to it for more detail on those factors that could cause actual results to differ materially.

Marcus Rogier: In addition, our discussion today will include non-GAAP financial measures. A reconciliation of these measures with the most appropriate comparable GAAP measure is included in the earnings press release, which is available on our Investor Relations website.

Speaker Change: In addition, our discussion today will include non-GAAP financial measures a reconciliation of these measures with the most appropriate comparable GAAP measure is included in the earnings press release, which is available on our Investor Relations website. Today's call is being recorded and a replay will be made available later on our Worthington enterprises Dot com website.

Marcus Rogier: Today's call is being recorded and a replay will be made available later on our WorthingtonEnterprises.com website.

Joe Hayek: At this point, I will turn the call over to Joe for opening remarks. Thank you, Marcus, and good morning, everyone. Welcome to Worthington Enterprises Fiscal 2025 3rd Quarter Earnings Call. I'd like to start by thanking our entire team. We had a great quarter and set Q3 records in production and shipments. That does not happen without our teams working safely, something we all commit to every single day. It also reflects the phenomenal work our teams have done in the past 12 months understanding and working with our customers to ensure that our solutions are the right solutions delivered on time.

Speaker Change: This point I'll turn the call over to Joe for opening remarks.

Joe Hayek: Thank you Marcus and good morning, everyone.

Speaker Change: Welcome to Washington, Enterprise's, physical 2025 third quarter earnings call.

Joe Hayek: I'd like to start by thanking our entire team.

Joe Hayek: We had a great quarter in Q3 records in production and shipments that does not happen without our teams working safely.

Joe Hayek: We all commit to every single day.

Joe Hayek: It also reflects the phenomenal work our teams have done in the past 12 months understanding and working with our customers to ensure that our solutions are the right solutions delivered on time.

Joe Hayek: We delivered year over year and sequential growth in both adjusted EBITDA and earnings per share adjusted.

Joe Hayek: We delivered year-over-year and sequential growth in both adjusted EBITDA and earnings per share. Adjusted EBITDA margin in the quarter was 24% vs. 21% in a very strong Q3 a year ago. Net sales were down $12 million, or 4%, from the prior year when SES contributed $35 million in sales. But excluding the impact of SES in both periods, our revenues grew by over 8% in Q3. That growth was driven by the inclusion of Rogasco, improved demand as we return to more seasonally normal trends across our value streams, an improved mix, and continued share gains in many end markets.

Joe Hayek: Adjusted EBITDA margin in the quarter was 24% versus 21% and a very strong Q3, a year ago.

Joe Hayek: Net sales were down $12 million or 4% from the prior year when SCS contributed $35 million in sales, but excluding the impact of SCS in both periods. Our revenues grew by over 8% in Q3.

Joe Hayek: That growth was driven by the inclusion of the Gasco improved demand as we return to more seasonally normal trends across our value streams unimproved mix and continued share gains in many end markets.

Joe Hayek: Our results in Q3 of the product that the great job. Our teams have continued to do as we optimize our current business and grow Worthington with.

Joe Hayek: Our resulting Q3 are the product of the great job our teams have continued to do as we optimize our current business and grow Worthington. We continue to leverage the Worthington business system and its three growth drivers, innovation, transformation, and M&A, to maximize both our near and long-term success. As I've said before, One of the key areas where we excel is our ability to understand and solve our customers' challenges and partner with them to help drive their success through innovation and by opening and expanding new markets.

Joe Hayek: We continue to leverage the Worthington business system and its three growth drivers innovation transformation and M&A to maximize both our near and long term success.

Joe Hayek: As I've said before.

Joe Hayek: One of the key areas, where we excel as our ability to understand and solve our customers' challenges and partner with them to help drive their success through innovation and by opening and expanding new markets.

Joe Hayek: Let me share a few examples. During Q3, our Building Products team launched our latest IoT-enabled product, SureSense, a wireless propane-level sensing technology. When it's inserted into a large-format heating tank, it provides extremely accurate and reliable digital fill readings that are sent directly to our customers. SureSense helps make these propane marketers more efficient and reduces costly customer runouts, ultimately helping them be more successful. Just last week, our Consumer Products team launched the Balloon Time Mini Helium Tank, which is now available at Target stores nationwide. The innovative design is easy to carry and store, making it convenient for at-home and on-the-go celebration.

Joe Hayek: Let me share a few examples.

Joe Hayek: During Q3, our building products team launched our latest Iot enabled products sure sets a wireless propane level sensing technology, whether it's inserted into a large format heating tanks. It provides extremely accurate and reliable digital still readings that are sent directly to our customer.

Joe Hayek: <unk> helps makes these propane marketers more efficient and reduces costly customer run outs ultimately helping them be more successful.

Joe Hayek: Just last week, our consumer products team launched the balloon time, many helium TEG, which is now available at target stores nationwide.

Joe Hayek: The innovative design is easy to carry in store, making it convenient for at home and on the go celebrations.

Joe Hayek: Its relatively small size also creates more opportunities for distribution in grocery and convenience stores that haven't been able to carry our traditional tanks because of their size. Our building and consumer products teams are also increasingly working together to bring innovative product offerings and solutions to customers. A great example of this is Tractor Supply, where we leveraged our commercial relationships to gain share and expand the breadth of our products available in the largest rural lifestyle retailer in the U.S. Now you can find Worthington products suitable for home, commercial, and agricultural applications in all Tractor Supply locations nationwide.

Joe Hayek: Its relatively small size also creates more opportunities for distribution in grocery and convenience stores that havent been able to carry our traditional tax because of their size.

Joe Hayek: Yeah.

Our building and consumer products teams are also increasingly working together to bring innovative product offerings and solutions to customers are.

Joe Hayek: A great example of this is tractor supply.

Joe Hayek: We leveraged our commercial relationships to gain share and expand the breadth of our products available in the largest rural lifestyle retailer in the U S. Now.

Joe Hayek: Now you can find willington products suitable for home commercial and agricultural applications in all tractor supply locations nationwide.

Joe Hayek: We continue to invest in transformational change as well.

Joe Hayek: We continue to invest in transformational change as well. Part of thinking like a startup is prioritizing speed and agility in our frontline manufacturing operations. We're investing in automations and have substantially completed one of our facility modernization projects and are on track with the other. We're also embracing AI across our facilities and in our back office function, and we're continuing to adopt new ways of thinking. For example, in early March, we launched an 80-20 project in our water business, which we believe will enable us to better prioritize our products and align our manufacturing to optimize the growth and the margins of that business.

Joe Hayek: Thinking like a startup is prioritizing speed and agility in our frontline manufacturing operations.

Joe Hayek: We're investing in automation and a substantially completed one of our facility modernization projects and are on track with the other.

Joe Hayek: We're also embracing AI across our facilities and in our back office function and we're continuing to adopt new ways of thinking for example in early March we launched an 80 20 project in our water business, which we believe will enable us to better prioritize our products and align our manufacturing to optimize the growth and the margins of that.

Joe Hayek: Business.

Joe Hayek: Last year, we talked about some of the awards are Halo grid Olson won.

Joe Hayek: Last year, we talked about some of the awards our Halo griddles have won. We're pleased to share that later this year, you'll be able to buy a Halo griddle at select Wal-Mart. an example of our strategy of acquiring innovative products with emerging brands and leveraging our capabilities and relationships to broaden the reach of those brands. In another example of adding value to our acquisitions, Level 5 just launched Destination Drywall with Sherwin-Williams. Our Level 5 drywall tools can now be found by contractors and DIYers in 3,500 Sherwin-Williams locations nationwide. As evidenced by those two examples, M&A, enhanced by the Worthington business system, is an important growth driver for us.

Joe Hayek: We're pleased to share that later this year, you'll be able to buy a halo griddle at select Walmart stores. An example of our strategy of acquiring innovative products with emerging brands and leveraging our capabilities and relationships to broaden the reach of those brands.

Joe Hayek: And another example of adding value to our acquisitions level five just launched destination drywall with Sherwin Williams our level five dry wall tools can now be found by contractors and DIY Ers and 3500, Sherwin Williams locations nationwide.

Joe Hayek: As evidenced by those two examples M&A enhanced by the Wellington business system is an important growth driver for us our strong balance sheet and liquidity give us the financial flexibility to pursue additional growth through acquisitions, and we continue to focus on acquiring market, leading businesses that we can add value to and that will.

Joe Hayek: Our strong balance sheet and liquidity give us the financial flexibility to pursue additional growth through acquisitions, and we continue to focus on acquiring market-leading businesses that we can add value to and that will be accretive to our margins-free cash flows and competitive positions.

Joe Hayek: Accretive to our margins free cash flows and competitive position.

Joe Hayek: As we head into the spring, our Q4, and ultimately into our fiscal 2026, we're very excited about the platform that we have built and the future that we have in front of us. We're confident that our market-leading brands and outstanding value propositions, anchored and supported by our unique and powerful people-first, performance-based culture, will enable us to accelerate the profitable growth of our business and create more long-term value for shareholders.

Joe Hayek: As we head into the spring, our Q4 and ultimately into our fiscal 2026, we're very excited about the platform that we have built and the future that we have in front of US we are confident that our market, leading brands and outstanding value propositions anchored and supported by our unique and powerful people first performance based culture will enable.

Joe Hayek: To accelerate the profitable growth of our business and create more long term value for shareholders.

Colin Souza: I will now turn it over to Colin, who will take you through some details related to our financial performance in the quarter. Thank you, Joe, and good morning, everyone. We delivered strong earnings growth in Q3, reporting gap earnings from continuing operations of $0.79 per share versus $0.44 in the prior year quarter.

Joe Hayek: I will now turn it over to Colin who will take you through some details related to our financial performance in the quarter.

Joe Hayek: Okay.

Speaker Change: Thank you Joe and good morning, everyone. We delivered strong earnings growth in Q3 reporting GAAP earnings from continuing operations of <unk> 79 per share versus <unk> 44 in the prior year quarter.

Colin Souza: There were a few unique items that impacted our quarterly results, including the following. The current quarter was negatively impacted by net pre-tax restructuring and other charges of $5 million or $0.12 per share, primarily due to an earn out associated with the Rogasco acquisition. Results in the prior year quarter were negatively impacted by $0.36 per share due to several items, the largest relating to the separation of our former steel processing business, along with a charge to annuitize a legacy defined benefit pension plan. Excluding these items, we generated adjusted earnings from continuing operations of $0.91 per share in the current quarter, marking a strong quarter for us as Worthington Enterprises.

Speaker Change: There were a few unique items that impacted our quarterly results, including the following.

Speaker Change: The current quarter was negatively impacted by net pre tax restructuring and other charges of $5 million or 12.

Per share primarily due to an earn out associated with the <unk> acquisition.

Speaker Change: Results in the prior year quarter were negatively impacted by 36 per share due to several items the largest relating to the separation of our former steel processing business, along with the charge to a new <unk> a legacy defined benefit pension plan.

Speaker Change: Excluding these items, we generated adjusted earnings from continuing operations of <unk> 91 per share in the current quarter, marking a strong quarter for us as Worthington enterprises.

Colin Souza: This represents an increase from 80 cents per share in Q3 of the prior year.

Speaker Change: This represents an increase from <unk> 80 per share in Q3 of the prior year.

Speaker Change: Consolidated net sales for the quarter were $305 million, a three 9% decrease from $317 million in the prior year quarter.

Colin Souza: Consolidated net sales for the quarter were $305 million, a 3.9% decrease from $317 million in the prior year quarter. This decline was primarily due to the deconsolidation of our former sustainable energy solution segment, which contributed $35 million in sales last year. However, this was partially offset by contributions from the Ragasco acquisition and higher overall volume. Excluding SES in both periods, sales grew over 8%. Gross profit increased significantly to $89 million, up from $73 million in the prior year quarter, reflecting an expansion in gross margin of approximately 620 basis points to 29.3%. Adjusted EBITDA for the quarter was $74 million up from $67 million in Q3 of last year and up sequentially from $56 million in Q2.

Speaker Change: This decline was primarily due to the deconsolidation of our former sustainable energy solutions segment, which contributed $35 million in sales last year.

Speaker Change: However, this was partially offset by contributions from the <unk> acquisition and higher overall volumes exclude.

Speaker Change: Excluding SCS in both periods sales grew over 8%.

Speaker Change: Gross profit increased significantly to $89 million up from $73 million in the prior year quarter, reflecting an expansion in gross margin of approximately 620 basis points to 29, 3% adjusted.

Speaker Change: EBITDA for the quarter was $74 million up from $67 million in Q3 of last year and up sequentially from $56 million in Q2.

Speaker Change: Our adjusted EBITDA margin in the quarter was over 24% compared to 21% last year and on a trailing 12 month basis. Adjusted EBITDA now stands at $242 million with the TTM adjusted EBITDA margin of 21%.

Colin Souza: Our adjusted EBITDA margin in the quarter was over 24% compared to 21% last year, and on a trailing 12-month basis, adjusted EBITDA now stands at $242 million, with a TTM adjusted EBITDA margin of 21%.

Speaker Change: Turning to our cash flow and balance sheet, we continue to invest in our operations, while maintaining a disciplined approach to capital allocation.

Colin Souza: Turning to our cash flow and balance sheet, we continue to invest in our operations while maintaining a disciplined approach to capital allocation. During the quarter, we invested $13 million in capital projects, including $8 million related to our ongoing facility modernization initiatives. We also return capital to shareholders, paying $8 million in dividends and repurchasing 150,000 shares of our common stock for $6 million. Our joint ventures remain strong contributors, generating $35 million in dividends during the quarter, a 110% cash conversion rate on that equity income. Cash flow from operations for the quarter was $57 million and we generated $44 million in free cash flow.

Speaker Change: During the quarter, we invested $13 million in capital projects, including $8 million related to our ongoing facility modernization initiatives.

Speaker Change: We also return capital to shareholders paying $8 million in dividends and repurchasing 150000 shares of our common stock for $6 million.

Speaker Change: Our joint ventures remains strong contributors generating $35 million in dividends during the quarter, a 110% cash conversion rate on that equity income.

Speaker Change: Cash flow from operations for the quarter was $57 million and we generated $44 million in free cash flow.

Colin Souza: On a trailing 12-month basis, free cash flow totaled $144 million, representing a 104% free cash flow conversion rate relative to our adjusted net earnings over the same period. Turning to our balance sheet and liquidity, we closed the quarter with $294 million in long-term funded debt, carrying an average interest rate of 3.6%, along with $223 million in cash. Our leverage remains extremely low, with ample liquidity supported by a $500 million undrawn bank credit facility, positioning us well for future growth and flexibility. Net debt at quarter end was $71 million, resulting in a net debt-to-trailing EBITDA leverage ratio of approximately a quarter turn.

Speaker Change: On a trailing 12 month basis free cash flow totaled $144 million.

Speaker Change: Representing a 104% free cash flow conversion rate relative to our adjusted net earnings over the same period.

Speaker Change: Turning to our balance sheet liquidity, we closed the quarter with $294 million in long term funded debt carrying an average interest rate of three 6% along with $223 million in cash or.

Speaker Change: Our leverage remains extremely low with ample liquidity supported by a $500 million Undrawn bank credit facility positioning us well for future growth and flexibility.

Speaker Change: Net debt at quarter end was $71 million, resulting in a net debt to trailing EBITDA leverage ratio of approximately a quarter turn.

Speaker Change: Yesterday, our board of directors declared a quarterly dividend of <unk> 17 per share payable in June 2025.

Colin Souza: Yesterday, our Board of Directors declared a quarterly dividend of $0.17 per share payable in June 2025.

Speaker Change: I'll now spend a few minutes on each of the businesses.

Colin Souza: I'll now spend a few minutes on each of the businesses. In consumer products, Q3 net sales grew 5% year over year to $140 million, driven by higher volumes. The adjusted EBITDA was $29 million with a 20.5% margin compared to $26 million and 19.3% in Q3 last year. The quarter benefited from higher gross profit dollars and improved gross margin percent, though these gains were partially offset by increased SG&A as we continue to invest in the business for future growth. Additionally, within SG&A, we recorded a $1 million charge related to a customer that filed for bankruptcy during the quarter.

Speaker Change: And consumer products Q3, net sales grew 5% year over year to $140 million driven by higher volumes.

Speaker Change: Adjusted EBITDA was $29 million with a 25% margin compared to $26 million and 19, 3% in Q3 last year.

Speaker Change: The quarter benefited from higher gross profit dollars and improved gross margin percent, though these gains were partially offset by increased SG&A as we continue to invest in the business for future growth.

Speaker Change: Additionally, within SG&A, we recorded a $1 million charge related to a customer that filed for bankruptcy during the quarter.

Speaker Change: Our consumer team continued to execute well in Q3, delivering solid results despite ongoing macroeconomic uncertainty.

Colin Souza: Our consumer team continued to execute well in Q3, delivering solid results despite ongoing macroeconomic uncertainty. While we recognize that broader uncertainty could impact consumer sentiment and future demand, we remain optimistic heading into the spring and outdoor season. Our commitment to delivering essential products for outdoor living, celebrations, and tools combined with our diverse product portfolio, strong brand positioning, and deep retail relationships positions us well to navigate near-term challenges while we continue to focus on long-term growth opportunities.

Speaker Change: While we recognize that broader uncertainty could impact consumer sentiment and future demand, we remain optimistic heading into the spring and outdoor season.

Speaker Change: Our commitment to delivering a central products for outdoor living celebrations and tools combined with our diverse product portfolio strong brand positioning and deep retail relationships positions us well to navigate near term challenges, while we continue to focus on our long term growth opportunities.

Speaker Change: Okay.

Colin Souza: Building products Q3 net sales grew 11% year over year to $165 million, up from $148 million in the prior year quarter. This growth was primarily driven by the Ragasco acquisition, along with a more favorable product mix, particularly on our large format heating business, which has returned to seasonally normal levels following last year's de-stocking cycle. Adjusted EBITDA for the quarter was $53 million with a 32% margin compared to $53 million and 36% margin in the same quarter last year. Sequentially, the business continued to improve, with adjusted EBITDA and margin rising from $47 million and 30% in Q2.

Speaker Change: Building products Q3, net sales grew 11% year over year to $165 million up from $148 million in the prior year quarter.

Speaker Change: This growth was primarily driven by the <unk> acquisition, along with a more favorable product mix, particularly on our large format heating business, which is a return to seasonally normal levels. Following last year's Destocking cycle.

Speaker Change: Adjusted EBITDA for the quarter was $53 million with a 32% margin compared to $53 million, 36% margin in the same quarter last year.

Speaker Change: Sequentially the business continued to improve with adjusted EBITDA and margin rising from $47 million and 30% in Q2.

Colin Souza: The year-over-year increase in adjusted EBITDA was driven by strong performance within our heating, cooling, and water businesses. However, this was largely offset by a lower equity earnings from our joint ventures, particularly Clark-Dietrich, which declined $8 million year-over-year, but still contributed a solid $9 million in equity earnings for the quarter. Clark Dietrich's results were negatively impacted by the decline in steel prices, which led to margin compression. They also faced a slight headwind from unfavorable weather conditions, which temporarily disrupted some customer job sites during the quarter. WAVE continued to execute exceptionally well in a flat market, contributing $25 million in equity earnings, down slightly from $26 million in the prior year quarter.

The year over year increase in adjusted EBITDA was driven by strong performance within our heating cooling and water businesses.

Speaker Change: However, this was largely offset by a lower equity earnings from our joint ventures, particularly Clark Dietrich, which declined $8 million year over year, but still contributed a solid $9 million in equity earnings for the quarter.

Speaker Change: <unk> results were negatively impacted by the decline in steel prices, which led to margin compression.

Speaker Change: They also faced a slight headwind from unfavorable weather conditions, which temporarily disrupted some customer job sites during the quarter.

Wave continued to execute exceptionally well in a flat market contributing $25 million in equity earnings down slightly from $26 million in the prior year quarter.

Colin Souza: The Building Products team continues to navigate the current environment well, demonstrating resilience and adaptability in serving our customers. Our products are critical to heating, cooling, construction, and water infrastructure and we remain well positioned to meet customer needs and capture market share through new product innovations, reliable service, and a strong commitment to execution. Our joint ventures continue to provide steady contributions, and despite some current macroeconomic uncertainty, we are confident in the long-term opportunities in commercial construction and repair and remodel activities. As market conditions improve, we are well-positioned to drive long-term growth while supporting our customers and strengthening our competitive position.

Speaker Change: The building products team continues to navigate the current environment, well, demonstrating resilience and adaptability in serving our customers.

Speaker Change: Our products are critical to heating cooling construction and water infrastructure, and we remain well positioned to meet customer needs and capture market share through new product innovations reliable service and a strong commitment to execution.

Speaker Change: Our joint ventures continue to provide steady contributions and despite some current macroeconomic uncertainty we are confident in the long term opportunities in commercial construction and repair and remodel activity.

Speaker Change: As market conditions improve we are well positioned to drive long term growth, while supporting our customers and strengthening our competitive position.

Speaker Change: At this point, we're happy to take any questions.

Operator: At this point, we're happy to take any questions. If you would like to ask a question, please press star 1 on your telephone. If you would like to withdraw your question, simply press star 1.

Speaker Change: I would like to ask a question. Please press star one on your telephone keypad.

I would like to withdraw your question simply press Star one again please.

Speaker Change: Please ensure you are not on speaker phone and that your phone is not on mute when called upon thank you.

Speaker Change: Your first question comes from Kathryn Thompson of Thompson Research Group. Your line is open.

Operator: First question. Hi, thank you for the color today you gave them and prepared commentary. One thing, just one of the couple things I want to focus on.

Kathryn Thompson: Hi, Thank you for that color today, you gave and compared commentary.

Speaker Change: Thank you.

Speaker Change: One thing just wanted a couple of things one a focus on first kind of the Avi.

Operator: First, kind of the obvious in terms of tariffs. You had some commentary, but give more color in terms of... How tariffs are being navigated in today's market versus the ones that were implemented in the first Trump administration? And is this an opportunity for you in terms of pricing?

Speaker Change: <unk> parents.

Speaker Change: It had some commentary, but give more color in terms of.

Speaker Change: All tariffs have been navigated in today's market.

Speaker Change: First is the ones that were implemented in the Trump administration and is this an opportunity for you in terms of pricing or are you seeing any type of supply issues that are constructed to alter the business. Thank you.

Operator: Are you seeing any type of supply issues that are disruptive at all to the business? Thank you.

Speaker Change: Hey, good morning Catherine.

Joe Hayek: Hey, good morning, Kathryn. Thank you for the question. You know, it certainly Tariffs and trade-related uncertainty are certainly on a lot of people's minds. We talked about this a little bit in December on our call, but one of the things that we said then, it was just certainly still very true now, is that we think we're pretty well positioned in any scenario. It's also, as you know, a pretty fluid environment right now, so we'll tell you what we know and how we feel about it, but we understand, as I know you do, that things will potentially change tomorrow or next week.

Speaker Change: Thank you for the question it's certainly.

Speaker Change: <unk> tariffs and trade related trade related uncertainty or certainly in a lot of People's minds, we talked about this a little bit in December on our call.

Speaker Change: But one of the things that we said then it was certainly still very true now is that we think we're pretty well positioned in any scenario.

Speaker Change: It's also as you know a pretty fluid environment right now so I will tell you what we know and how we feel about it but we understand as I know you do that things will potentially change tomorrow or next week, but.

Joe Hayek: So we're primarily a domestic manufacturer, and that is a competitive strength for us. We've got diversified sourcing capabilities that provide us some flexibility, but we're also pretty focused on being good partners for our customers. And so we understand the potential impacts on us of various trade policies and what it means for our customers. You know, we also learned a lot in 2021 and 2022 to your question about kind of supply chains from from the supply chain related issues that happened post COVID. So where we do see increases in our cost perspectively or currently, we've got a few options in our toolkit.

Speaker Change: So we're primarily a domestic manufacturer and that is a competitive strength for us we've got diversified sourcing capabilities that provide us some flexibility, but we're also pretty focused on being good partners for our customers and so we understand the potential impacts on us of various trade policies and what it means for our customers.

Speaker Change: And we also learned a lot in.

Speaker Change: In 2021, and 2022 to your question about kind of supply chains from from the supply chain related issues that happened post COVID-19.

Speaker Change: So where we do see increases in our cost prospectively. We're currently we've got a few options in our toolkit.

Joe Hayek: One, we can work with some of our suppliers to offset some or all of those increases. Two, we were always trying to find other efficiencies to mitigate some of those increases. And three, I think, which is what you were asking about, price increase. And we have announced pending price increases on many of our products, but we're pretty confident in our strategy and our ability to manage cost pressures that might come our way. And then, since we are primarily a domestic manufacturer, we haven't yet seen a really material uptick in demand that we think is directly related to tariffs, but we have seen an increase in inquiries in some of our value streams where we compete against imports.

Speaker Change: One we can work with some of our suppliers to offset some or all of those increases too.

Speaker Change: We were always trying to find other efficiencies to mitigate some of those increases and three I think which is what you were asking about price increases and we have announced pending price increases on many of our products.

Speaker Change: But we're pretty confident in our strategy and our ability to manage cost pressures that might come our way.

Speaker Change: And then since we are primarily a domestic manufacturer.

Speaker Change: We haven't yet seen a really material uptick in demand that we think is directly related to tariffs, but we have seen an increase in inquiries and some of that value streams, where we compete against imports and so generally speaking.

Joe Hayek: And so, generally speaking, we would be a net beneficiary from tariffs, although we do obviously have some things that we would need to continue to work through. And so, the specifics are pretty fluid, and they're certainly subject to change with what's coming out of D.C., but we did see this coming, and we feel like our approach is the right one. We're also pretty confident that the administration is focused on creating a more level playing field for U.S. manufacturers like us, but I think it's also true that they really want to avoid reigniting inflationary pressures, which is certainly a sentiment that we would agree with.

Speaker Change: We would be a net beneficiary from tariffs, although we do obviously have some things that we would need to continue to work through.

Speaker Change: And so.

Speaker Change: The specifics are pretty fluid and there is certainly subject to change with what's coming out of D C, but and we did see this coming.

Speaker Change: And we feel like our approach is the right one.

Speaker Change: Also pretty confident that the administration is focused on creating a more level playing field for U S manufacturers like us, but I think it's also true that they really want to avoid reigniting inflationary pressures, which is certainly a sentiment that we would agreements.

Okay perfect.

Colin Souza: perfect thanks very much for that also to just any puts and takes in terms of the core products EBITDA margin and the contributing factors for for progress in that segment and then as a follow-on just with your JVs just kind of sequentially know year-over-year comps year-over-year optics pretty tough but sequentially flattish and also any type of outlook and what you're seeing with Thanks very much. Sure, Kathryn, I'll let Colin talk through the building products. I think which is what you were asking about, and then I'll hit the JVs. Yes. Kathryn, so I think we were very pleased with on the building product side, in particular, the wholly owned business margin.

Speaker Change: So much for that.

Speaker Change: Also too just.

Speaker Change: And any puts and takes in terms of <unk>.

<unk>.

Speaker Change: Products EBITDA margin and the contributing factors for progress in that segment and then as a follow on.

Speaker Change: Just for Q <unk>.

Speaker Change: Just kind of sequentially.

Speaker Change: Year over year comps and the ear to ear optics pretty tough, but sequentially flattish and also any type of outlook and what youre seeing dwayne from clarity trick thanks very much.

Speaker Change: Sure Catherine I'll, let I'll, let Colin talk through the.

Speaker Change: Building products.

Speaker Change: I think which is what you were asking about and then I'll hit the Jv's, yes.

Speaker Change: Yes.

Speaker Change: Katherine So I think we were very pleased with on the building products side in particular, the wholly owned business margin, so heating cooling and construction water.

Colin Souza: So heating, cooling, construction, water, year over year, that business, if you exclude the JVs, is up from an EBITDA margin perspective from 6% to 11%. That's a really good performance there. We're seeing a positive mix shift and return to seasonally normal demand levels in a number of our markets and products there. So that team continues to execute very well and has done a really good job to help offset the big headwind in the quarter, which was Clark Dietrich's year over year results down pretty big from last year. They contributed $9 million in the quarter, but that was still an $8 million headwind for us, which the heating, cooling, construction, and water business helped overcome.

Speaker Change: Year over year that business. If you exclude the Jv's is up from an EBITDA margin perspective from.

Speaker Change: From 6% to 11% so really good performance there, we're seeing a positive mix shift and return to seasonally normal demand levels in a number of our markets and products. There. So that team continues to execute very well and has done a really good job to help offset the big head.

Speaker Change: Wind in the quarter, which was Clark theatrics year over year results.

Speaker Change: Down down pretty big from last year.

Speaker Change: They did they contributed $9 million in the quarter, but that was still up $8 million headwind for us, which the heating cooling construction and water business helped overcome so very pleased with results there.

Colin Souza: So very pleased with the results there. And then with respect to Wave and Clark Dietrich, Wave had a pretty tough comp as to how some of the months laid out, but we think kind of a flattish market for them, but very steady. Their strategy is very sound. One of the big growths Markets for them going forward is data centers. You know, they've been selling into data centers with their traditional products, but post the acquisition of DCR for them, they've really sort of trained their NPD sites on data center and have some pretty exciting things that they're working on, and so we're pleased with that.

Speaker Change: And then with respect to two wave and Clark Dietrich our wave had tried a pretty at a pretty tough comp as to how some of the the months laid out but.

Speaker Change: We think kind of a flattish market for them, but very steady.

Speaker Change: Their strategy is very sound and one of the big growth.

Speaker Change: Markets for them going forward is data centers, they have been selling into data centers with their traditional products, but.

Speaker Change: Post the acquisition of TCR for them, they've really sort of trained there empty.

Speaker Change: <unk> sites on data center and have some pretty exciting things that they're working about and working on and so we're pleased with that and and wave ultimately.

Colin Souza: And Wave ultimately is always there for its customers. They have world-class on-time delivery. They have six-sigma quality, and so... They're going to be... find, I think, in any kind of a flat market.

Speaker Change: As always there for its customers they have a world class on time delivery they have six sigma quality.

Speaker Change: And so.

Speaker Change: They're going to be.

Speaker Change: Fine I think in any kind of a flat market.

Colin Souza: You know, Clark Dietrich, we talked about a little bit of the headwinds there. They had an amazing Q3 a year ago. We obviously knew that wasn't going to be the same. And so they're executing really well. And one of the things that we've seen is a little more increase in volatility in steel prices. And that is an advantage for Clark Dietrich going forward. It hasn't been massive the way that it was a few years ago. When there are volatile steel prices and markets out there, that benefits Clark Dietrich because they are nationwide and very sophisticated.

Speaker Change: Fort Dietrich.

Speaker Change: No.

Speaker Change: We talked about a little bit of the headwinds there they had a they had a had an amazing Q3.

Speaker Change: A year ago, we obviously knew that wasn't going to be.

Speaker Change: The same and so they're they're executing really well and one of the things that we've seen is a little more increase in volatility in steel prices and that is an advantage for car T trick.

Speaker Change: Going forward it hasnt been massive the way that it was a few years ago, but.

Speaker Change: When.

Speaker Change: When there are volatile steel prices and markets out there that that benefits card Dietrich because they are nationwide and been very sophisticated.

Colin Souza: They're a proven supplier and partner to a lot of their customers, and so we see increases in volatility and slight upticks in steel prices as, relatively speaking, a good guy for them.

Speaker Change: They are a proven supplier and partner to a lot of their customers and so.

Speaker Change: We see increases in volatility and slight upticks in steel prices as relatively speaking a good guy for them.

Speaker Change: Okay, great. Thank you so much.

Operator: Thank you so much. You're welcome.

Speaker Change: Youre welcome.

Operator: The next question comes from Daniel Moore of CJS Securities. Your line is open.

Daniel Moore: Thank you Joanna and Markus good morning, Thanks for taking the questions.

Operator: Thank you, Joe, Colin, Marcus.

Operator: Good morning. Thanks for taking the time to join us. I wanted to start with margins, you know, gross margins. about the puts and takes, any unusual good guys in the quarter, and how should we think about Q4?

Daniel Moore: I wanted to start with margins gross margin.

Daniel Moore: Don't talk a lot about the consolidated but spiked about 29% clearly some favorable seasonality there just talk about the puts and takes any unusual good guys in the quarter.

Daniel Moore: And how do you how should we think about sort of Q4 and more importantly annualized range or run rate as we look into 'twenty six.

Speaker Change: Yeah, Hey, Dan. Thanks for the question just some of the highlights obviously, we did see 620 basis points of gross margin expansion year over year, which is great.

Colin Souza: Yeah, hey Dan, thanks for the question. Just some of the highlights. Obviously, we did see 620 basis points of gross margin expansion year over year, which is great. You know, last year consisted of, we had our SES business unit contributing revenue and margin as well, so we deconsolidated that as we put that business unit into a joint venture. That led to roughly 300 basis points of the margin expansion. And then in the building products and consumer products business, we have some good positive makeshift there with some higher demand in some of the categories that we called out.

Speaker Change: Last year consisted of we had our SCS business unit contributing revenue and margin as well. So we deconsolidation of that as we put that business unit into a joint venture that led to a roughly 300 basis points of the margin expansion.

Speaker Change: And then in the building products and consumer products business.

Speaker Change: We have some good positive mix shift there with some higher demand in some of the categories that we called out.

Colin Souza: And then more of a unique item in the building products business, we had a LCM adjustment last year that didn't repeat due to a product we sourced and brought in. So that helped expand some margins year over year from that perspective. So, you know, 29% gross margins we feel are pretty good. Q3 and Q4 are typically our seasonably strongest quarters of the year. And over time, I think our goal, as you know, is to try to sustain margins in the high 20s. And we think we have a good plan in place to try to execute that over time.

Speaker Change: And then more of a unique item in the building products business.

Speaker Change: Business, we had a LCM adjustment last year that didn't repeat due to a product we sourced and brought in.

Speaker Change: So that helped to expand the margins year over year from from that perspective, So 29% gross margins. We feel are pretty good Q3, and Q4 are typically our seasonally strongest quarters of the year.

Speaker Change: And over time I think our goal as you know is to try to sustain margins in the high <unk>.

Speaker Change: And we think we have a good plan in place to try to execute that over time.

Speaker Change: Very helpful. Appreciate it shifting gears.

Operator: That was very helpful.

Operator: Appreciate it.

Speaker Change: Consumer segment.

Operator: Clearly, it's tough to know with precision, but any sense for how much of the volume growth in the quarter? Uh, yeah.

Speaker Change: Clearly, it's tough to know with precision, but any sense for how much of the volume growth in the quarter as restocking restocking at new customers versus more true end market demand.

Speaker Change: Yes, Hey, Dan it's Joe.

Joe Hayek: Hey Dan, it's Joe. You know, 2-3 for consumer last year was a really strong quarter. It was even stronger this year. One of the things that we worked really hard on was preparing our customers, our retailers, for potential surge demand. It obviously happened a little bit in the fall with some of the hurricanes, and then in the winter with some of the cold weather and some of the storms that we saw. So it was really important to us to... make sure that we didn't have a situation where people weren't prepared and so bought way ahead because, you know, last year what you then saw was that Q4 there was some destocking and so we were helpful to our customers in that regard.

Speaker Change: Q3 for consumer last year was a really strong quarter.

Speaker Change: It was even stronger this year.

Speaker Change: One of the things that we worked really hard on was preparing our customers our retailers for potential surge demands, obviously happened a little bit in the fall with some of the Hurricanes and then in the winter with some of the cold weather and some of the storms that we saw.

Speaker Change: So it was really important to us too.

Speaker Change: Make sure that we didn't have.

Speaker Change: Situation, where people werent prepared and so.

Speaker Change: Ahead, because last year. What you then saw was that Q4, there was some destocking and so we.

We were.

Speaker Change: Helpful to our customers in that regard and so what we saw towards the tail end of Q3 and into Q4 is that.

Joe Hayek: And so what we saw towards the tail end of Q3 and into Q4 is that supply is fine. Orders are tracking kind of point of sale details. And so we feel like we were pretty successful there. And I know that our retail partners and customers very much appreciated that. We do think that there was probably a little bit of a positive impact from the storms and from the weather. It helped. drive some demand in consumer, help drive a little bit of demand in our heating business within building products, but ultimately it actually was a little bit of a headwind for Clark Dietrich because their customers couldn't be on job sites for several days because of the cold.

Speaker Change: Supply is fine.

Speaker Change: Orders are tracking kind of point of sale details and so we feel like we were pretty successful there.

And I know that our retail partners and customers very much appreciated that and.

Speaker Change: And we do think that there was probably a little bit of a positive impact from the storms and from the weather.

Speaker Change: It helps drive some demand in consumer helped drive a little bit of demand in our heating business within building products.

Speaker Change: Ultimately it actually was a little bit of a headwind for Clark Dietrich because they they are customers couldn't be on job sites for several days because of the cold so.

Joe Hayek: So we would probably estimate that as a good guy of about 5 cents a share, EPS-wise. Great, Joe. Very helpful.

Speaker Change: We would probably estimate that as a good guy of about <unk> a share EPS wise.

Joe Hayek: Great Joe very helpful.

Colin Souza: And then last... Cash Flow Conversion has been really strong on a trailing basis.

Speaker Change: And then last is just.

Free cash flow conversion has been really strong on a trailing basis.

Speaker Change: How should we kind of think about the sustainability of that and.

Speaker Change: Looking at free cash flow conversion as we think about maybe fiscal 'twenty six versus what we've seen year to date here and then bought back 150000 shares in the quarter would you expect to maintain similar cadence of shares remain at or near current levels. Thanks again.

Colin Souza: Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com Yeah, thanks, Dan.

Speaker Change: Yes, Thanks, Dan.

Colin Souza: Maybe I'll hit the last question first with just, you know, capital allocation will continue to be balanced across that with a bias towards growth. As you know, we've talked about that from time to time, so we will always monitor our shares and buy back at a minimum to offset dilution. But also, you know, more opportunistically, if we see fit our bias towards growth, we're always monitoring from an M&A standpoint. That's a key part of our growth strategy. And we always have opportunities that we're looking at and assessing and assessing for fit and with our strategy, and we'll pull the trigger on those when it makes sense.

Speaker Change: Maybe I'll hit the last question first with just capital allocation.

Speaker Change: We'll continue to.

Speaker Change: The balance across that with a bias towards growth as you know we've talked about that from time to time, So we will.

Speaker Change: Always monitor our.

Speaker Change: Shares and buyback at a minimum to offset dilution.

Speaker Change: But also more opportunistically, if we see fit.

Speaker Change: Our bias towards growth, we're always monitoring from an M&A standpoint, that's a key part of our growth strategy and we always have opportunities that we're looking at and assessing.

Speaker Change: Assessing for fit in with our strategy and we'll pull the trigger on those when it makes sense.

Colin Souza: And then from a CapEx standpoint. As you know, we're going through some facility modernization projects. We've completed one on the building product side, and on the consumer product side, that one's been ramping up over the past few quarters. We still have another six to eight quarters to go, and $50 million or so of spend on that project over the next six to eight quarters. The bulk of that will be in fiscal year 26. So, from a free cash flow conversion perspective, I think we were pleased at $144 million of free cash flow and a conversion over 100%.

Speaker Change: And then from a capex standpoint.

Speaker Change: As you know we're going through some facility modernization projects, we've completed one on the building product side.

Speaker Change: On the consumer product side that one has been ramping up over the past few quarters, we still have another six to eight quarters to go and $50 million or so of spend on that project over the next six to eight quarters. The bulk of that will be in fiscal year 2006.

Speaker Change: So from a free cash flow conversion perspective.

Speaker Change: I think we were we're pleased at a $144 million of free cash flow.

Speaker Change: And our conversion over 100% I think we would try to target that and do better over time.

Colin Souza: I think we would try to target that and do better over time, notwithstanding some of the CapEx I talked about earlier. Very good.

Speaker Change: Notwithstanding some of the Capex I talked about earlier.

Speaker Change: Very good thank you again for the color.

Operator: Thank you again for the call. Thank you, Dan.

Speaker Change: Thanks, Dan.

Operator: The next question comes from Susan Maklari.

Speaker Change: The next question comes from Susan Mcclary with Goldman Sachs. Your line is open.

Charles Brennan: Good morning. This is actually Charles Brennan from Susan This morning, Thanks for taking my question.

Charles Perron: Good morning, this is actually Charles Perron for Susan this morning. Thanks for taking my question. Here. Charles, come on in. Good morning.

Speaker Change: Sure Charles.

Good morning, first I wanted to go back on the revenue and the volume initiatives for consumer building products you highlighted several several initiatives around product launches in your prepared remarks to drive organic growth over time can you maybe unpack how much these initiatives contributed to the growth this quarter and how much. They can allow you maybe to outperform the other.

Joe Hayek: First, I want to go back on the revenue and the volume initiatives for consumer building products. You highlighted several initiatives around product launches in your prepared remark to drive organic growth over time. Can you maybe unpack how much these initiatives contributed to the growth this quarter and how much they can allow you maybe to outperform the underlying market growth when you're Yeah, it's a good question. The launches and the things that I specifically mentioned actually contributed next to nothing in the quarter because they're all happening right now. Now we have initiatives all over the place all the time, right, and so some of those are in fact kind of contributing to revenue growth and margin uplift, et cetera, Charles.

Speaker Change: Your line market growth when you think about calendar 2025.

Speaker Change: Yes, it's a good question.

Speaker Change: The launches and the things that I, specifically mentioned.

Speaker Change: Actually contributed next to nothing in the quarter because they are all happening right now now we have initiatives all over the place all the time right and so some of those are.

Speaker Change: In fact kind of contributing to revenue growth and margin uplift et cetera barrels, but ultimately when we think about kind of where we are in a lot of our businesses. We have a lot of our value streams, we have pretty good market share and so we're going to we're going to grow and hopefully.

Joe Hayek: But ultimately when we think about kind of where we are, in a lot of our businesses we have, a lot of our value streams, we have pretty good market share and so we're gonna grow and hopefully outgrow our markets there. But in a lot of our other value streams, I'll give you an example on the tools business and on the grills business, we're a little newer there and so we've got great brands and we've got great products but as we work and leverage our relationship and leverage really the Worthington business system, those products and those value streams have significant growth potential over time because they're ultimately taking share in the markets that they're in, whereas some of our other markets, I'll call them more of our legacy markets, we already have that share and so we're focused in those markets on new products and things that we think are where the market should be going as opposed to entering those markets.

Speaker Change: They outgrow our markets there, but in a lot of our other value streams I'll give you. An example on the tools business and on the Grilles business were a little newer there and so we've got great brands and we've got great products.

Speaker Change: But as we worked and leverage our relationship and leverage really the Willington business system.

Speaker Change: Those products and those value streams have.

Speaker Change: Significant growth potential over time, because theyre ultimately.

Speaker Change: Taking share in the markets that they're in we're in some of the broader market smart home or more of our legacy markets.

Speaker Change: We already have that share and so we're focused in those markets on new products and things that we think are.

Speaker Change: Where the market should be going as opposed to entering those markets. So.

Joe Hayek: So that answer to your question is not a lot in their current quarter from those new products I mentioned but should be contributing both margin and revenues as we go forward. All right, that's helpful.

Speaker Change: Net net answer to your question is not a lot.

Speaker Change: In the current quarter from those new products I mentioned, but should be.

Speaker Change: Contributing both margin and revenues as we go forward.

Joe Hayek: That's helpful color Joe next.

Colin Souza: Next, I want to circle back on the margin performance this quarter, dig a little deeper. Can you talk a little bit more about the drivers between the volume leverage that you got across the core building products and consumer products, and the success of operating initiatives? How do those inform your ability to expand margins? So, sure, pretty. Pretty sorry, I think Colin talked to a lot of this, but... You know, 29.3%, you know, SG&A was, I think, a little less than 21%, 20.7% in the quarter. You know, we like where our trends are going. We're not sort of content and satisfied with that.

Speaker Change: Next I want to circle back on the margin performance this quarter and dig a little deeper can you talk a little bit more about the drivers between the volume leverage that you got across the core building products and consumer products and the success of operating initiatives and how detailed inform your ability to expand margins in the coming quarters, even if the end market.

Joe Hayek: Where are you on end market demand worth moderate across those verticals.

Joe Hayek: So sure pretty.

Joe Hayek: Teresa I think Colin talk to a lot of this but.

Joe Hayek: 29, 3%.

Joe Hayek: SG&A was.

Joe Hayek: I think a little less than 21%, 27% in the quarter.

Joe Hayek: We like where our trends are going we're not sort of content and satisfied with that our our goal right. Our algorithm ultimately is to continue to drive gross margin higher certainly volumes and high revenue helps there because your utilization goes up and our conversion.

Colin Souza: Our goal, right, our algorithm ultimately is to continue to drive gross margin higher. Certainly, volumes and high revenue helps there because your utilization goes up and our conversion costs go down. But SG&A adds a percentage of sales. You know, our SG&A is kind of flattish, you know, in the mid-60s in a quarter. We've got lots of things that we're doing to try and make sure we're as tight as we possibly can be on that front. But then we're in a flat market, and if we take share and we take care of our customers, and we certainly take care of each other by working safely, growth returns and revenue goes up, you know, those things accelerate.

Joe Hayek: Costs go down.

But SG&A as a percentage of sales our SG&A as kind of flattish.

Joe Hayek: In the mid <unk> in a quarter.

Joe Hayek: But we.

Joe Hayek: And we got lots of things that we're doing to try and make sure were as tight as we possibly can be on that front.

Joe Hayek: But then we're in a flat market.

Joe Hayek: If we take share and we take care of our customers and we certainly take care of each other by working safely.

Joe Hayek: Gross returns and revenue goes up those things accelerate.

Colin Souza: We'd love to, over the course of time, you know, certainly our goal over the next couple of years to get, you know, growth margins, you know, kind of to 30 or above, and to have SG&A be 20% or no more of SG&A. And then certainly you lop on, you know, DNA and then the contribution that we think we'll continue to get from our world-class JVs. And that makes us sort of feel pretty good about what's possible.

Joe Hayek: Would love to over the course of time.

Joe Hayek: Certainly our goal over the next couple of years to get gross margins.

Joe Hayek: Kind of to 30 or above and to have SG&A would be.

Joe Hayek: 20%.

Joe Hayek: No more of SG&A, and then certainly <unk>.

Joe Hayek: DNA and then the contribution that we think will continue to get from our world class <unk> and that makes us feel pretty good about what's possible.

Joe Hayek: Okay.

Operator: Okay, no, that's helpful.

Joe Hayek: And maybe last can you provide an update on the M&A pipeline and your willingness to do deals despite the ongoing macroeconomic uncertainty.

Operator: And maybe last, can you provide an update on the M&A pipeline and your willingness to do deals despite the ongoing... Yeah, Charles, thanks for the question. The M&A pipeline, as part of our process, you know, we're constantly looking at opportunities, both from a proprietary standpoint and from a, you know, market process standpoint. So, we continue to assess opportunities. You know, I think our pipeline is pretty good at this point. You know, in the M&A markets are obviously a little slower and there's some uncertainty in the outlook. However, that doesn't really change our perspective. We're long-term holders of businesses.

Speaker Change: Yes, Charles Thanks for the question the M&A pipeline as part of our process. We're constantly looking at opportunities both from a proprietary standpoint and from a market.

Joe Hayek: Market process standpoint, so we continue to assess opportunities.

Joe Hayek: I think our pipeline is pretty good at this point.

Joe Hayek: In the M&A markets are obviously, a little slower and there is some uncertainty in the outlook. However that doesn't really change our perspective, we're long term holders of businesses. We're assessing opportunities that we think are a good fit and that we can add value to over the long term.

Colin Souza: You know, we're assessing opportunities that we think are a good fit and that we can add value to over the long term. So, you know, as I said, I think our pipeline is pretty healthy and we continue to monitor and assess opportunities on a regular basis.

Joe Hayek: So.

Joe Hayek: As I said I think our pipeline is pretty healthy and we continue.

Joe Hayek: To monitor and assess opportunities on a regular basis.

Speaker Change: Okay. Thanks, Colin and good luck for everything guys.

Charles Perron: Okay, thanks, Collin, and good luck for everyone. Thanks, Charles.

Joe Hayek: Thanks, Charles Thanks.

Operator: Thanks.

Joe Hayek: Once again, ladies and gentlemen, if you have a question. It is star one on your telephone keypad.

Operator: Once again, ladies and gentlemen, if you have a question, it is star...

Speaker Change: Your next question comes from Brian Mcnamara of Canaccord Genuity. Your line is open.

Brian McNamara: Good morning, guys. Thanks for taking my questions.

Operator: Good morning, guys. Thanks for taking the question. Good thing, Brian, good morning. I was hoping you guys could quantify organic sales growth in Q3. I think you mentioned the ex-SES, but I don't think you quantified the regassi. Excluding Rigasco and SCS, it was 4%. Okay, and then any color on kind of what we're seeing quarter to date here, just given the, we'll call it on uncertain consumer macro. Yeah, we're, you know, three weeks into our Q4, Brian, you know, we would say, without any visibility, you know, things haven't dropped off a cliff or anything. Okay, and I know Dan touched on this point, but gross margin is a pretty difficult line item to model for you guys.

Seth: Sure thing, Brian Good morning, Seth.

Speaker Change: I was hoping you guys could quantify organic sales growth in Q3, I think you mentioned.

Speaker Change: In ex Ses, but I don't think you quantified the <unk> contribution.

Speaker Change: Excluding <unk> and FCS it was 4%.

Okay, and then any color on kind of what we're seeing quarter to date here just given the I'll call. It an.

Speaker Change: Uncertain consumer macro.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Three weeks into our Q4, Brian.

Speaker Change: We would say.

Speaker Change: Without any kind of visibility.

Speaker Change: Things haven't dropped off a cliff or anything.

Speaker Change: Okay.

Speaker Change: And I know Dan touched on this point, but gross margins are pretty difficult line item to model for you guys.

Brian McNamara: And I guess the point of my question is, are they kind of structurally higher here now? I know last year you had large heating tanks. They're typically higher margin. They weren't doing great. Assuming they're doing better. Anything else we should be considering there? I think Ragasco has also been additive to margin there. Consumer products doing better. I think they're higher margin. Anything else investors should be thinking about on that line item? I think it's just, you know, Brian, I mentioned it earlier, you know, we felt pretty good about our execution this quarter and have had some good positive makeshift and it's a lot of initiatives playing out, as we hope, over time, and a lot of our process improvements and cost savings initiatives.

Speaker Change: And I guess with all the point of my question is are they kind of structurally higher here now I know last year you had <unk>.

Speaker Change: Large heating tanks are typically higher margin they werent doing great.

Speaker Change: Assuming are doing better.

Speaker Change: Anything else, we should be considering there I think <unk> has also been additive to margin there consumer products doing better I think there are higher margin anything else investors should be thinking about on that line item.

Speaker Change: Yes.

Brian McNamara: I think it's just Brian I mentioned it earlier.

Brian McNamara: Yes, we felt pretty good about our our execution this quarter and have had some good positive mix shift and it's a lot of initiatives playing out as we both over time and a lot of our process improvements and cost savings initiatives.

Colin Souza: I think if we can sustain levels in the high 20s, you know, that's what our target is over time, as Joe mentioned. And then you just got to keep in mind Q3 and Q4 are typically our seasonably stronger quarters. That's how to think about from our perspective. Yeah, and Brian, your question's well taken. I think we were at 27% in Q2. You know, we're at 29%. And so structurally, obviously, with the deconsolidation of SCS, our margin profile has improved. That is certainly sustainable. And mix is important. You called it exactly right. When those larger heating tanks were...

Brian McNamara: I think if.

Brian McNamara: If we can sustain levels in the high <unk> and Thats, what our target is over time as Joe mentioned.

Brian McNamara: And then you just got to keep in mind Q3, and Q4 are typically our seasonally stronger quarters.

Brian McNamara: And.

Brian McNamara: That's how to think about from our perspective, yes, and Brian your questions well taken I think we were at 27% in Q2, we were at 29% and so structurally obviously with the deconsolidation of SCS.

Brian McNamara: Our margin profile has improved that is certainly sustainable in <unk>.

Brian McNamara: Mix is important you called it exactly right when those.

Brian McNamara: Larger heating tanks were.

Joe Hayek: And really, in their de-stocking phase, it was penalizing for us from a margin perspective. We're through that. And then, as Colin said, we've got a number of initiatives, you know, 80-20 comes to mind, right, in our water business. That's an initiative or a discipline that's going to let us sort of refocus kind of our offerings and the way that we manufacture. And so there are a number of things that we continue to do. I mean, we wish our gross margins were 100 percent, right? That's obviously not very possible or likely, but we've got a lot of things going on that we think will continue to help us, you know, offset any softness and hopefully grow those margins.

Brian McNamara: So really in their Destocking phase. It was it was penalizing for us from a margin perspective, we're through that.

Brian McNamara: As Colin said, we've got a number of initiatives <unk> comes to mind right in our water business. That's that's an initiative or a discipline, that's going to let us sort of refocus kind of our offerings and the way that we manufacturer and so there are a number of things that we're continuing.

Brian McNamara: To do I mean look we wish.

Our gross margins were 100% right that's obviously not.

Brian McNamara: Very.

Brian McNamara: Possible or likely but we've got a lot of things going on that we think will continue to.

Help us.

Brian McNamara: Offset any softness and hopefully grow those margins.

Speaker Change: Got it and then on the SG&A front, obviously, you guys separated from a $5 billion company. So I think there is.

Colin Souza: And then on the SG&A front, obviously, you guys separated from a $5 billion company. So I think there was, I guess there was probably just kind of getting used to being a public company, maybe getting a little more efficient with spend there. Kind of where are we? What are we there in terms of kind of truing up that line? So, yeah, Brian, just from an SG&A perspective, I mean, Joe touched on it a little bit earlier. You know, we're, we were 20.7% of sales, you know, over the past quarter, this quarter in Q2. I would point out, you know, SG&A was a little elevated due to the bad debts and bankruptcies that we had in both those quarters.

Brian McNamara: I guess first just.

Brian McNamara: Kind of getting used to being a public company, maybe getting a little more efficient with spend there kind of where are we what inning are we there in terms of.

Brian McNamara: Kind of Truing up that line item.

Brian McNamara: So.

Speaker Change: Yes, Brian just from an SG&A perspective, let me Joe touched on it a little bit earlier.

Brian McNamara: <unk>.

Brian McNamara: We're we were 27% of sales.

Brian McNamara: Over the past quarter.

Brian McNamara: This quarter in Q2, I would point out SG&A was a little elevated due to the <unk>.

Brian McNamara: Bad debt from bankruptcies that we had in both those quarters.

Colin Souza: But, you know, we're going to be in the mid-60s. And as consistent with the prior question, we're constantly working on initiatives to improve and become more efficient and look for opportunities to save costs along the way as well, so that we can really drive our gross margins higher without increasing our SG&A. Yeah, and Brian, the... I'll call it the unconsolidated piece, right, that isn't in consumer products or building products. We still think that is, it ought to be between, you know, $25 and $30 million. This quarter, you know, we had, you know, that other is embedded in that as well, and we had about a million dollars of equity income losses in the SES business, and about a million dollars on, for our engineered cabs gave me, so those are blended together, but the core SG&A piece of that, you know, it ought to be between $25 and $30 million.

Brian McNamara: But we're going to be in the mid Sixty's and.

Brian McNamara: Consistent with the prior question, we're constantly working on initiatives to improve and become more efficient.

Brian McNamara: And look for opportunities to save costs, along the way as well so that we can really drive our gross margins higher without increasing our SG&A.

Brian McNamara: Yeah and Brian.

Brian McNamara: I'll call. It the unconsolidated piece right that is in consumer products or building products. We still think that is ought to be between 25 and $30 million.

Brian McNamara: This this quarter.

Brian McNamara: We have that.

Brian McNamara: Other is embedded in that as well and we had about $1 million.

Brian McNamara: Of equity income losses in the SCS business and in about $1 million on for our engineered cabs JV. So those are blended together, but the core SG&A piece of that.

Brian McNamara: It ought to be between 25 to 30.

Brian McNamara: Great and then finally I'm just curious.

Operator: Great.

Operator: And then finally, I'm just curious. What are you seeing on the M&A front? I'm assuming a good number of targets in consumer, for example, have some decent production in China and things like that. Is that helping deals get to the finish line or more likely hurting? I would, you asked a really good question and I think anybody right now that is importing a substantial amount of their product, if they are also trying to, you know, explore their strategic alternatives, it's, there are questions, right, mostly uncertainty. And so, hard to say whether they help or those specific.

Brian McNamara: What are you seeing on the M&A front.

Brian McNamara: I'm, assuming a good number of targets in consumer for example have some decent production in China and things like that is that helping deals get to the finish line or more likely hurting them.

Brian McNamara: I would you asked a really good question and I think anybody right now that is importing a substantial amount of their products. If they are also trying to explore their strategic alternatives.

Brian McNamara: There are questions red mostly uncertainty and so.

Brian McNamara: Hard to say, whether they help or hurt those specific.

Joe Hayek: companies that might be doing that. But I think from our perspective with M&A generally, uncertainty is never good in M&A. If you take a long-term view, I think, you know, and you're thinking about things that have... Good track record historically, and you can get comfortable with what you think, over time, is possible. I think that makes potential acquirers feel better. Now you still have to agree with a seller, right, on valuation, on terms, et cetera. But yeah, uncertainty is not good, but I don't think it's completely chilled the market. Great.

Brian McNamara: Companies that that might be doing that.

Brian McNamara: But I think from our perspective with M&A generally.

Brian McNamara: Uncertainty is never good in M&A.

Brian McNamara: But.

Brian McNamara: If you take a long term view I think.

Brian McNamara: You're thinking about things that.

Brian McNamara: Have.

Brian McNamara: A good track record historically and you can get comfortable with what you think over time as possible.

Brian McNamara: I think that makes potential acquirers feel better now you still have to agree with a seller alright on valuation on terms et cetera.

Brian McNamara: Yes uncertainty is not good but I don't think it's completely chilled the market.

Speaker Change: Great. Thanks, a lot for the color guys I appreciate it best of luck.

Operator: Thanks a lot for the call, guys. Appreciate it.

Brian McNamara: Sure. Thanks.

Walt Lipscomb: The next question comes from Walt Lipscomb. Hi, good morning guys. Thanks for the great quarter. Hey, so yeah, let's been talked about.

Speaker Change: The next question comes from Walter Liptak with Seaport. Your line is open.

Walter Liptak: Hi, good morning, guys. Thanks.

Speaker Change: Thanks for the kind of order.

Speaker Change: Okay. So.

Speaker Change: Yes, that's been talked about I'll start with <unk>.

Joe Hayek: I'll start with maybe a maybe it'll be a tough one. But, you know, I was really impressed with Joe's comments about solving customers problems. And then he had, you know, those, you know, four or five, six things that he called out, including like the party time tanks and things. Is it possible for you to, you know, kind of quantify that for us in a way like, Addition to growth rate or you know how much the TAM is on all those projects added up or what the profit Improvement could be You know just to give us an idea because some of them sounds very important I'll give it a shot.

Speaker Change: Maybe.

Speaker Change: And maybe it will be a tough one but I was really impressed with.

Speaker Change: Joe's comments about solving customers problems and then you had.

Speaker Change: Four or five things that you called out including like the party time tanks and things is.

Speaker Change: It possible for you to.

Speaker Change: Kind of quantify that for us in a way like.

Speaker Change: In addition to growth rate or how much. The Tam is on all of those projects added offer with the profit improvement could be.

Speaker Change: Just to give us an idea some of them sounded very impressive.

Speaker Change: I'll give it a shot.

Joe Hayek: Well, you know, again, nothing, nothing, nothing really material in, in the quarter. But we talk a lot about really championing. being in kind of niche markets where we have a reasonable share, market share wise. Where that really helps is that our Worthington business system, the WPS, is really tailor-made for markets like that, specifically with transformation, continuous improvement, trying to be lean. But on the innovation side, Us having good market share is really helpful because we have ongoing dialogues with our customers and they're willing to share things with us and partner with us. So I mentioned the SureSense.

Speaker Change: Again, nothing nothing nothing really.

Speaker Change: Material in in the quarter.

Speaker Change: But we talk a lot about really.

Speaker Change: <unk>.

Speaker Change: Being in kind of niche markets, where we have a reasonable share market share wise.

Speaker Change: Where that really helps is that our worthington business system. The WPS is really tailor made for markets like that specifically with.

Speaker Change: Transformation will continuous improvement trying to be lean, but on the innovation side.

Speaker Change: US having good market share is really helpful. Because we have ongoing dialogues with our customers and they are willing to share things with us and partner with us and so I mentioned the <unk> that was in partnership with our customers I mentioned the balloon time many.

Joe Hayek: That was in partnership with our customers. I mentioned the Balloon Time Mini, 100% in collaboration with our partners, a lot of whom have always wanted to carry that product, but they don't have the shelf space. And so there's a lot of real discipline that's been institutionalized through the WBS over the years at Worthington. And so we think that those initiatives will obviously be incremental to us. We also realize that there are headwinds, right, that we face. And so sometimes I don't think that The things that I talked about today are going to double the revenues of the business.

Speaker Change: Hundred percent in.

Speaker Change: Collaboration with our partners a lot of whom have always wanted to carry that product, but they don't have the shelf space and so there is a lot of real discipline, that's been institutionalized through the WPS over the years at Worthington and so.

Speaker Change: We think that those things those initiatives will obviously be incremental.

Speaker Change: To us we also realize that there are headwinds that we face and so sometimes.

Speaker Change: Yes, I don't think that.

Speaker Change: The things that I talked about today are going to double the revenues of the business they are incremental.

Joe Hayek: You know, they're incremental, and a lot of times they're in markets where we don't have the high share that we do in some of our other markets, but they're absolutely, you know, going to help us further penetrate those markets. And ultimately, it's just a great reflection of, you know, the work that our teams do on the innovation side, on the transformation side, and certainly, as we think about M&A, because there are... A couple of those examples that were companies that we bought and that we've helped, you know, expand and extend the reach of the brands that we acquired.

Speaker Change: Lot of times they are in markets, where we don't have the high share that we do in some of our other markets, but theyre absolutely.

Speaker Change: Going to help us.

Speaker Change: Further penetrate those markets.

Speaker Change: And ultimately it's just a great reflection of the work that our teams do on the innovation side on the transformation side and certainly as we think about M&A because there are.

Speaker Change: A couple of those examples that were companies that we bought and that we've hoped.

Speaker Change: Expand and extend the reach of the brands that we acquired so.

Joe Hayek: So it all sort of dovetails nicely, but it's really centered around that Worthington business system. And it's part of our philosophy, right, to do those things. So it doesn't always work as well as we'd like it to. It's nice when it does.

Speaker Change: It all sort of dovetails nicely, but it's really centered around that Wilmington business system.

Speaker Change: And it's and it's part of our philosophy to do those things so.

It doesn't always work as well as we'd like it to its nice when it does.

Speaker Change: Okay, Yes that sounds great, yes, I think everyone's start for growth.

Walt Lipscomb: Okay, yeah, that sounds great. Yeah, you know, I think everyone's starved for growth. you know, in the US, but it sounds like you've got some things that could really happen, you know, including like the balloon time, many, you know, short term and other things that will help your growth and offset those headwinds. I wanted to ask about, you know, the consumer looked better than I was expecting. I wonder, and, you know, you kind of talked about that already, but what's the next, you know, positive thing that could happen, you know, with the large changes? you know, sell-through that you'll be looking for is like a key metric or You know, given the headwinds that are out there, you know, what's next?

Speaker Change: But it sounds like you've got some things that could really happen.

Speaker Change: Moving like a balloon time many.

Speaker Change: Short term and other things that will help your growth.

Speaker Change: Absent those headwinds got it.

Speaker Change: Wanted to ask about the consumer look better than.

Speaker Change: I was expecting I wonder and you kind of talked about that already but what's the next.

Speaker Change: Positive thing that could happen with the large chains.

Speaker Change: Sell through that youll be looking towards like a key metric or.

Speaker Change: Given the headwinds that are out there.

Speaker Change: What's next.

Colin Souza: And, you know, you guys are a U.S.-based manufacturer, which, you know, in a lot of ways makes you unique. You know, what are the conversations like with the large... Yeah, it's a good question. And we try to constantly, I mean, Joe talked about it earlier, we're constantly in communication, working with those retail partners on inventory levels, and being proactive where we can in our supply chain to make sure they can get the right product, the right stores at the right time, in areas of whether a tightened demand or softer demand. So the consumer is definitely uncertain, and we'll see how that plays out and navigate that as we move forward.

Speaker Change: And you guys are U S based manufacturer.

Speaker Change: It always makes you unique.

Speaker Change: What are the conversations like with the large chains.

Speaker Change: Yes, it's good question and we try to constantly Joe talked about earlier, we're constantly in communication working with those retail partners on inventory levels and being proactive where we can in our supply chain to make sure. They can get the right product.

Speaker Change: Stores at the right time.

Speaker Change: In areas of whether its heightened demand or softer demand. So the consumer is definitely.

Speaker Change: Uncertain, and we will see how that plays out and navigate that as we move forward but.

Colin Souza: But demand is healthy for us. And from a year over year perspective, we saw good, good improvement in volumes on the consumer side. And, you know, our retail partners have a healthy amount of inventory that we're not seeing any stocking like we did last year. So, you know, all we can say is we're going to, we feel good about what we can control and our teams are executing well against our playbooks to that end. Yeah, and I would add two quick things because Colin is spot on. Well, but first of all, right, seasonally speaking, In our consumer business, and to an extent in our building products business, our products are used and are pretty essential for emergency heat, right?

Speaker Change: Demand is healthy for us and from a year over year perspective.

Speaker Change: We saw good improvement in volumes on the consumer side and.

Speaker Change: Our retail partners have a healthy amount of inventory.

Speaker Change: We're not seeing any destocking like we did last year or so.

Speaker Change: All we can say is we're going to we feel good about what we can control and our teams are executing well against our playbooks to that end.

Speaker Change: And I would add two quick things because Colin this is spot on.

Speaker Change: First of all seasonally speaking.

Speaker Change: Yes.

Speaker Change: In our consumer business and to an extent in our building products business our products are used.

Speaker Change: And are pretty essential for emergency heat right and so when people lose power and it's very cold and there are storms.

Joe Hayek: And so when people lose power and it's very cold and there are storms, they need those products. And so that's why you see, certainly for consumer, that's the seasonally strongest piece for that part of the business. Colin's right, point of sale is tracking where it should be relative to shipment. The other piece, and Colin mentioned, you know, Party City was a customer and that was a million dollar headwind for us because of the bankruptcy. But one of the things that Party City did a lot of is fill balloons in the front of their store that never took advantage of our products.

Speaker Change: They they need those products and so that's why you see certainly for consumer that's the seasonally strongest piece for that part of the business.

Speaker Change: The columns right point of sale is tracking well.

Speaker Change: It should be relative to shipments the other the other piece you can Colin mentioned party city was a customer and that was $1 million headwind for us because of the.

Speaker Change: The bankruptcy, but one of the things that party city did a lot of us still.

Speaker Change: Balloons and the front of their store that never took advantage of our products and so customers that we're looking for things like that can no longer find it there. It's actually had more of them migrating to retailers that don't have that front of store fill but do carry our.

Joe Hayek: And so customers that were looking for things like that can no longer find it there. It's actually had more of them migrating to retailers that don't have that front of store fill but do carry our products. And so we think that's a little bit more of a kind of a sustainable change in that market.

Speaker Change: <unk> and so we think thats, a little bit more of a kind of a sustainable change in that market.

Speaker Change: Oh thats, great thanks for that insight.

Operator: Oh, that's great. Yeah, thanks for that.

Speaker Change: Okay last one for me is it sounds like you were early days with your 2020 work.

Operator: Okay, the last one for me is, you know, it sounds like your early days with your 80-20 work. And so I just wanted to ask, how are you feeling about, you know, the work that you're doing there? And yeah, I guess just how are you feeling? So we're excited on 8020. As you know, it's, you know, it's an important tool and our tool kit from a transformation perspective, and we just kicked it off in Q3. You know, we're excited about progress and updates along the way. Like Joe mentioned, it started in our water business and we're anticipating some good improvement there that we would like to roll out over time and replicate in other areas.

Speaker Change: And so I just wanted to ask how you're feeling about.

Speaker Change: The work that Youre doing there and I guess, just how are you feeling better.

Speaker Change: So we're excited on 80 20.

Speaker Change: As you know.

Speaker Change: It's an important tool in our tool kit from a transformation perspective.

Speaker Change: And we just kicked it off in Q3.

Speaker Change: We're excited about our progress and updates along the way like Joe mentioned, it's started in our water business.

Speaker Change: And we're anticipating some good improvement there and that we would like to roll out over time and replicate in other areas, but early days as he said excited to see what comes in what we just kicked it off a couple of weeks ago. So it was actually in Q4, when we kicked.

Joe Hayek: But early days, as you said, excited to see what comes. Yeah, and well, we just kicked it off a couple weeks ago, so it was actually in Q4 when we kicked it off. And as you know, they're not, some of our businesses and our value streams don't lend themselves to something like 8020 because we only make one or two products and we only have a handful of customers. But for the businesses that we have that are really likely beneficiaries of that discipline, we're very excited about it. Okay, sounds great. Okay.

Speaker Change: Often as you know there are not some of our businesses and our value streams don't lend themselves to.

Speaker Change: Something like 80, 20, because we only make one or two products and we only have a handful of customers, but for the businesses that we have.

Speaker Change: That are.

Speaker Change: Really likely beneficiaries of that discipline, we're very excited about it.

Speaker Change: Okay sounds great. Okay. Thanks, guys.

Operator: Thanks, guys. Thank you.

Speaker Change: Thank you.

Joe Hayek: This concludes the question and answer session.

Joe Hayek: This concludes the question and answer session I'll turn the call to Joe <unk> for closing remarks.

Joe Hayek: I'll turn the call to Joe Hayek. Sarah, thank you very much and thanks everybody for joining us this morning. We look forward to speaking to everybody again soon.

Joe Hayek: Sarah Thank you very much and thanks, everybody for joining us. This morning, we look forward to speaking to everybody again soon have a wonderful rest of your week.

Operator: Have a wonderful rest of your week.

Joe Hayek: This concludes today's conference call. Thank you for joining you may now disconnect.

Joe Hayek: [music].