# Worthington Enterprises, Inc.: Form 10-Q for the period ended Feb 29, 2024

- Company: [Worthington Enterprises, Inc.](/companies/wor.md) (CIK 108516)
- Form: 10-Q
- Filed: 2024-04-09
- Accepted by EDGAR: Apr 9, 2024, 16:06 ET
- Period: 2024-02-29
- Accession: 0000950170-24-042963
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/108516/000095017024042963/wor-20240229.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/108516/000095017024042963/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-02-29.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-12-01 to 2024-02-29 | $316.8m | us-gaap:Revenues |
| Revenue | 9 months, 2023-06-01 to 2024-02-29 | $926.9m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-12-01 to 2024-02-29 | $243.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-06-01 to 2024-02-29 | $720.9m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-12-01 to 2024-02-29 | $73.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-06-01 to 2024-02-29 | $206.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-12-01 to 2024-02-29 | $65.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-06-01 to 2024-02-29 | $210.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-12-01 to 2024-02-29 | $4.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-06-01 to 2024-02-29 | −$17.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-12-01 to 2024-02-29 | $50.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-06-01 to 2024-02-29 | $1.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-12-01 to 2024-02-29 | $18.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-06-01 to 2024-02-29 | $34.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-12-01 to 2024-02-29 | $22.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-06-01 to 2024-02-29 | $142.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-12-01 to 2024-02-29 | $0.44 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-06-01 to 2024-02-29 | $2.83 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-12-01 to 2024-02-29 | $0.45 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-06-01 to 2024-02-29 | $2.90 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-12-01 to 2024-02-29 | 50,417,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-06-01 to 2024-02-29 | 50,271,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-12-01 to 2024-02-29 | $50.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Operating cash flow | 9 months, 2023-06-01 to 2024-02-29 | $244.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-12-01 to 2024-02-29 | $10.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Capital expenditure | 9 months, 2023-06-01 to 2024-02-29 | $72.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-12-01 to 2024-02-29 | $15.8m | us-gaap:PaymentsOfDividendsCommonStock |
| Dividends paid | 9 months, 2023-06-01 to 2024-02-29 | $48.9m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2024-02-29 | $227.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-02-29 | $691.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-02-29 | $1.70bn | us-gaap:Assets |
| Current liabilities | at 2024-02-29 | $202.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-02-29 | $790.2m | us-gaap:Liabilities |
| Long-term debt | at 2024-02-29 | $297.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-02-29 | $267.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-02-29 | $912.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 43,534 characters.

*Selected statements contained in this MD&A constitute “forward-looking statements” as that term is used in the PSLRA. Such forward-looking statements are based, in whole or in part, on management’s beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the “Safe Harbor Statement” in the beginning of this Form 10-Q and “Part I – Item 1A. – Risk Factors” of the 2023 Form 10-K.*

*Unless otherwise indicated, all Note references contained in this MD&A refer to the Condensed Notes to Consolidated Financial Statements included in “Part I – Item 1. – Financial Statements” of this Form 10-Q.*

### Introduction

The following discussion and analysis of market and industry trends, business developments, and the results of our operations and financial position, should be read in conjunction with our consolidated financial statements and notes thereto included in “Part I – Item 1. – Financial Statements” of this Form 10-Q. The 2023 Form 10-K includes additional information about our business, operations and consolidated financial position and should be read in conjunction with this Form 10-Q. This MD&A is designed to provide a reader with material information relevant to an assessment of our financial condition and results of operations and to allow investors to view the Company from the perspective of management. The results of operations contained in this MD&A include all of our operations, including our former Steel Processing business. Beginning in the third quarter of fiscal 2024, our historical results have been restated to reflect the operations of Worthington Steel as a discontinued operation in periods prior to the December 1, 2023 Separation. This MD&A is divided into six main sections:

- Separation of the Steel Processing Business;
- Recent Business Developments;
- Trends and Factors Impacting our Performance;
- Results of Operations;
- Liquidity and Capital Resources; and
- Critical Accounting Estimates.

### Separation of the Steel Processing Business

On December 1, 2023, we completed the previously announced Separation of our Steel Processing business segment into a separate public company in a transaction intended to qualify as tax free to our shareholders, which was accomplished via the distribution of 100% of the outstanding common shares of Worthington Steel to holders of record of the Company’s common shares as of the Record Date. Worthington Steel is an independent public company trading under the symbol “WS” on the NYSE. Following the Separation, Worthington Industries, Inc. changed its name to Worthington Enterprises, Inc. and its common shares continue trading on the NYSE under the ticker symbol “WOR.” Worthington Enterprises is comprised of the Building Products, Consumer Products and Sustainable Energy Solutions businesses. In connection with the Separation, we received a one-time cash dividend of $150.0 million from Worthington Steel to finalize each company’s respective capital structure. The dividend was funded by cash drawn on Worthington Steel Credit Facility of $175.0 million immediately prior to the Distribution.

### Recent Business Developments

- On July 28, 2023, we redeemed the 2026 Notes, which resulted in a non-cash loss of approximately $1.5 million related primarily to unamortized issuance costs and the remaining loss associated with an interest rate swap deferred in AOCI at redemption. See “Note I – Debt and Receivables Securitization” for additional information.
- On December 6, 2023, we used the proceeds received from Worthington Steel in connection with the Separation to pay off in full the 2024 Notes. The payoff amount consisted of $150.0 million in principal plus accrued interest of $0.5 million. See “Note I – Debt and Receivables Securitization” for additional information.
- On February 1, 2024, we acquired an 80% ownership stake in Halo, an asset-light business with technology-enabled solutions in the outdoor cooking space. The total purchase price was approximately $9.4 million. Refer to “Note P – Acquisitions” for additional information.

### Trends and Factors Impacting our Performance

### End Markets and Competition

We sell our products and services to a diverse customer base and a broad range of end markets. These end markets include residential construction, nonresidential construction, and repair and remodel, which drives demand in our Building Products operating segment, including WAVE and ClarkDietrich, our unconsolidated joint ventures; general consumer and outdoor recreation, which drives demand in our Consumer Products operating segment; and renewable energy, which drives demand in our Sustainable Energy Solutions operating segment. Given the broad base of products and services offered, specific competitors vary based on the target industry, product type, service type, size of program and geography. Competition is primarily on the basis of price, product quality and the ability to meet delivery requirements. Our products are priced competitively, primarily based on market factors, including, among other things, market pricing, the cost and availability of raw materials, transportation and shipping costs, and overall economic conditions in the U.S. and abroad. Sales to one customer within Consumer Products represented 12.4% of consolidated net sales during the third quarter of fiscal 2024.

### General Economic and Market Conditions

U.S. GDP growth rate trends are generally indicative of the strength in demand and, in many cases, pricing for our products. A year-over-year increase in U.S. GDP growth rates is generally indicative of a stronger economy, which generally increases demand and pricing for our products. Conversely, declining U.S. GDP growth rates generally indicate a weaker economy, which decreases demand and pricing for our products. Changes in U.S. GDP growth rates can also signal changes in conversion costs related to production and in SG&A.

We also closely monitor other publicly available macroeconomic trends that provide insight into the activity in our end markets, including, but not limited to the ABI, the Dodge Momentum Index, the HMI, steel prices, retail sales, state and local government spending, interest rate environment and inflation metrics. Current macro-economic trends within our end markets are described in additional detail below.

*Residential Construction:* The residential construction sector has demonstrated positive year-over-year growth, with an overall increase in spending since its relative low in the spring of 2023. New housing starts and housing permits issued have also increased during the current year period. The HMI for February 2024 was up for the fourth consecutive month and was at its highest level since August 2023, suggesting improving builder sentiment. Fixed mortgage rates remain too high for many buyers to enter the market; however, data gathered from the Federal Reserve Economic Database, shows a recent decline in the 30-year fixed rate mortgage from 7.22% at November 30, 2023 to 6.94% at February 29, 2024, which may allow more buyers to enter the market.

*Non-residential Construction:* Non-residential construction spending has shown consistent year-over-year growth. However, the near-term outlook appears to be mixed due to a rise in on-hold projects and delayed bids. Commercial real estate remains generally weak, with notable softness for office buildings, partially offset by strong demand for data centers and manufacturing facilities. The ABI continued to decline in February 2024. However, the decline was the most modest easing in billings since July 2023, suggesting that the recent slowdown may be receding.

*Repair and Remodel:* Spending on home improvement is expected to decline in the near term, as existing home sales are at multi-decade lows; however, the long-term outlook remains strong due to the aging housing stock, higher interest rates, and tightening of lending policies.

*General Consumer*: Consumer income and debt-to-income ratios are gradually returning to pre-pandemic levels and inflation has moderated recently. However, consumer spending on discretionary items is expected to continue to be under pressure as a higher proportion of income is spent on essential purchases and mortgage payments.

*Outdoor:* Participation in outdoor recreation is beginning to normalize to pre-pandemic levels as new U.S. camping households, a measure of first time campers, has steadily declined from a high in 2020. The long-term fundamentals in the outdoor category remain strong as outdoor recreation and camping participation continue to grow despite broader economic headwinds.

*Renewable Energy*: The impact of unprecedented investment in renewable infrastructure will likely become more apparent over the next several years as many jurisdictions around the world have mandated clean energy standards and policies. While regulation could lay the foundation for strong long-term fundamentals, the near-term outlook is mixed, especially in Europe as economies continue to be challenged by the conflict in Ukraine.

### Seasonality

Historically, sales tend to be stronger in the third and fourth quarters of our fiscal year for our Consumer Products operating segment when our facilities perform at seasonal peaks, matching consumer demand. Sales in our Building Products operating segment are generally stronger in the first and fourth quarters of our fiscal year due to weather conditions, customer business cycles, and the timing of renovation and new construction projects. Sustainable Energy sales are typically at greater levels during our fiscal fourth quarter due to customer business cycles.

Furthermore, post-pandemic market dynamics, including the impact of pent-up demand as COVID restrictions were eased, resulted in higher-than-normal inventory levels at some of our larger retail and wholesale customers, which has temporarily impacted demand for some of our products in the form of destocking.

### Results of Operations

### Third Quarter – Fiscal 2024 Compared to Fiscal 2023

The following discussion provides a review of results for the three months ended February 29, 2024 and February 28, 2023:

*(In millions, except per common share amounts)*

|  | Three Months Ended February, 29 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Net sales | $316.8 | $346.3 | $(29.5) |
| Operating income | 4.3 | 4.0 | 0.3 |
| Equity Income | 43.2 | 37.1 | 6.1 |
| Net earnings from continuing operations | 22.0 | 29.8 | (7.8) |
| EPS from continuing operations - diluted | $0.44 | $0.60 | $(0.16) |

### Net Sales and Volume

The following table provides a breakdown of our consolidated net sales by operating segment for the periods indicated:

*(In millions)*

|  | Three Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) | % Inc/(Dec) |
| --- | ---: | ---: | ---: | ---: |
| Consumer Products | $133.2 | $130.7 | $2.5 | 1.9% |
| Building Products | 148.2 | 183.8 | (35.6) | (19.4%) |
| Sustainable Energy Solutions | 35.4 | 31.8 | 3.6 | 11.3% |
| **Consolidated Net Sales** | $316.8 | $346.3 | $(29.5) | (8.5%) |

28

The following table provides volume (in units) by operating segment for the periods presented:

|  | Three Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Consumer Products | 19,009,883 | 18,154,053 | 855,830 |
| Building Products | 3,422,475 | 3,498,992 | (76,517) |
| Sustainable Energy Solutions | 142,878 | 122,139 | 20,739 |

- *Consumer Products –* Net sales totaled $133.2 million in the third quarter of fiscal 2024, up $2.5 million, or 1.9% over the third quarter of fiscal 2023 on higher volume, partially offset by lower average selling prices.
- *Building Products –* Net sales totaled $148.2 million in the third quarter of fiscal 2024, down $35.6 million, or 19.4%, from the third quarter of fiscal 2023, primarily due to an unfavorable shift in product mix.
- *Sustainable Energy Solutions –* Net sales totaled $35.4 million in the third quarter of fiscal 2024, up $3.6 million, or 11.3%, over the third quarter of fiscal 2023, due to higher volume.

### Gross profit

*(In millions)*

|  | Three Months Ended February 29, 2024 | % of Net sales | February 28, 2023 | % of Net sales | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Gross profit | $73.1 | 23.1% | $79.0 | 22.8% | $(5.9) |

- Gross profit was $73.1 million for the third quarter of fiscal 2024, a decrease of $5.9 million compared to the third quarter of fiscal 2023, due to lower contributions at Building Products, down $10.2 million on the combined impact of unfavorable mix and slightly lower volume, and Sustainable Energy Solutions, down $3.3 million on higher fixed cost absorption, partially offset by improvements within Consumer Products, up $5.4 million on higher volume.

### SG&A

*(In millions)*

|  | Three Months Ended February 29, 2024 | % of Net sales | February 28, 2023 | % of Net sales | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| SG&A | $65.1 | 20.5% | $71.4 | 20.6% | $(6.3) |

- SG&A was $65.1 million for the third quarter of fiscal 2024, down $6.3 million, or 8.8%, from the third quarter of fiscal 2023, driven primarily by the impact of $10.4 million of corporate costs in the prior year quarter that were eliminated at Separation, partially offset by higher healthcare and other benefit-related costs on a per employee basis.

### Other operating items

*(In millions)*

|  | Three Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Impairment of long-lived assets | $- | $0.5 | $(0.5) |
| Restructuring and other expense, net | 0.7 | 0.8 | (0.1) |
| Separation costs | $3.0 | $2.3 | $0.7 |

- Impairment of long-lived assets in the third quarter of fiscal 2023 was due to changes in the intended use of certain fixed assets at our Building Products facility in Jefferson, Ohio. Refer to “Note E – Impairment of Long-Lived Assets” for additional information.
- Restructuring activity during the third quarter of fiscal 2024 was the result of severance costs within Unallocated Corporate and Other. Restructuring activity during the third quarter of fiscal 2023 related primarily to a reduction in workforce at our Columbus, Ohio manufacturing facility and organizational realignment within Building Products.
- Separation costs reflect direct and incremental costs incurred in connection with the Separation as discussed in “Note A – Basis of Presentation.”

### Miscellaneous expense (income), net

*(In millions)*

|  | Three Months Ended February, 29 2024 | 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Miscellaneous expense (income), net | $7.0 | $(0.2) | $7.2 |

- Miscellaneous expense, net was $7.0 million in the third quarter of fiscal 2024, unfavorable $7.2 million to the third quarter of fiscal 2023, primarily due to an $8.1 million pension settlement charge to annuitize, in full, the remaining projected benefit obligation of The Gerstenslager Company Bargaining Unit Employees’ Pension Plan to third-party insurance companies.

### Interest expense, net

*(In millions)*

|  | Three Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Interest expense, net | $0.1 | $4.2 | $(4.1) |

- Interest expense, net was nominal in the third quarter of fiscal 2024 compared to $4.2 million in the third quarter of fiscal 2023 due to lower average debt levels driven by the July 28, 2023, redemption of the 2026 Notes and higher interest income, up $1.3 million. Refer to “Note I – Debt and Receivables Securitization” for additional information.

### Equity Income

*(In millions)*

|  | Three Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| WAVE | $26.0 | $18.9 | $7.1 |
| ClarkDietrich | 17.8 | 18.9 | (1.1) |
| ArtiFlex | - | (0.3) | 0.3 |
| Workhorse | (0.6) | (0.4) | (0.2) |
| **Total Equity Income** | $43.2 | $37.1 | $6.1 |

- Equity Income increased $6.1 million over the third quarter of fiscal 2023, primarily due to higher profitability at WAVE on higher volume and gross margin improvement.

### Income Taxes

*(In millions)*

|  | Three Months Ended February 29, 2024 | Estimated Effective Tax Rate | February 28, 2023 | Estimated Effective Tax Rate | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Income tax expense | $18.5 | 30.8% | $7.4 | 22.6% | $11.1 |

- Income tax expense was $18.5 million in the third quarter of fiscal 2024 compared to income tax expense of $7.4 million in the third quarter of fiscal 2023. The increase was primarily driven by $9.2 million of one-time discrete tax charges related to the Separation. Income tax expense in the third quarter of fiscal 2024 reflected an estimated annual effective rate of 30.8% up from 22.6% in the third quarter of fiscal 2023 primarily due to the effect of current quarter discrete tax items.

### Adjusted EBITDA

The following table provides a reconciliation of net earnings from continuing operations (the most comparable GAAP financial measure) to the non-GAAP financial measure of adjusted EBITDA for the periods presented. For additional information regarding our use of non-GAAP financial measures, refer to the “Use of Non-GAAP Financial Measures and Definitions” section preceding Part I, Item 1 of this Form 10-Q.

*(In millions)*

|  | Three Months Ended February 29, 2024 | February 28, 2023 |
| --- | ---: | ---: |
| **Net earnings from continuing operations (GAAP)** | **$22.0** | **$29.8** |
| Interest expense, net | 0.1 | 4.2 |
| Income tax expense | 18.5 | 7.4 |
| EBIT (subtotal) | 40.6 | 41.4 |
| Impairment of long-lived assets | - | 0.5 |
| Restructuring and other income, net | 0.7 | 0.8 |
| Separation costs | 3.0 | 2.3 |
| True-up of Level5 earnout accrual (1) | - | (1.1) |
| Pension settlement charge (2) | 8.1 |  |
| Loss on investment in ArtiFlex (3) | - | 0.3 |
| Corporate costs eliminated at Separation (4) | - | 10.3 |
| Adjusted EBIT (subtotal) | 52.4 | 54.5 |
| Depreciation and amortization | 11.9 | 11.9 |
| Stock-based compensation | 2.6 | 3.8 |
| **Adjusted EBITDA (non-GAAP)** | **$66.9** | **$70.2** |

(1) Reflects a pre-tax benefit of $1.0 million within SG&A expense to reverse the compensation expense accrued during the first six months of fiscal 2023 for anticipated payout under the first annual earnout opportunity associated with the Level5 acquisition.

(2) Reflects a pre-tax charge of $8.1 million from a pension lift-out transaction to transfer, in full, the remaining projected benefit obligation of The Gerstenslager Company Bargaining Unit Employees’ Pension Plan to third-party insurance companies.

(3) On August 3, 2022, we sold our 50% noncontrolling equity investment in ArtiFlex, resulting in a pre-tax loss of $16.1 million in Equity Income related to the sale, including a loss of $0.3 million for the settlement of final transaction costs related to the sale during the three months ended February 28, 2023.

(4) Reflects reductions in certain indirect and/or shared corporate overhead costs that were eliminated at Separation. These costs were included in continuing operations as they represent general corporate overhead that was historically allocated to Worthington Steel but did not meet the requirements to be presented as discontinued operations.

The following table provides a summary of adjusted EBITDA by reportable segment, along with the respective percentage of consolidated net sales of each, for the periods presented.

*(In millions)*

|  | Three Months Ended February 29, 2024 | % of Net sales | February 28, 2023 | % of Net sales | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Consumer Products | $25.6 | 8.1% | $21.1 | 6.1% | $4.5 |
| Building Products | 53.1 | 16.8% | 58.1 | 16.8% | (5.0) |
| Sustainable Energy Solutions | (2.7) | (0.9%) | 0.2 | 0.1% | (2.9) |
| Unallocated Corporate and Other | (9.1) | (2.9%) | (9.2) | (2.7%) | 0.1 |
| **Total Adjusted EBITDA** | $66.9 | 21.1% | $70.2 | 20.3% | $(3.3) |

- *Consumer Products –* Adjusted EBITDA was $25.6 million in the third quarter of fiscal 2024, an increase of $4.5 million over the third quarter of fiscal 2023, driven by higher volumes, partially offset by slightly higher SG&A before corporate allocations.
- *Building Products –* Adjusted EBITDA decreased $5.0 million from the third quarter of fiscal 2023 from $58.1 million to $53.1 million, as unfavorable mix compressed gross profit. Higher contributions of Equity Income, driven by a $7.1 million increase at WAVE, partially offset the impact of lower gross profit.
- *Sustainable Energy Solutions –* Adjusted EBITDA was a loss of $2.7 million in the third quarter of fiscal 2024, unfavorable $2.9 million to the third quarter of fiscal 2023, as volumes remained too low to absorb the fixed costs in the business.

### Nine Months Year-to-Date - Fiscal 2024 compared to Fiscal 2023

The following discussion provides a review of results for the nine months ended February 29, 2024 and February 28, 2023.

*(In millions, except per common share amounts)*

|  | Nine Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Net sales | $926.9 | $1,049.7 | $(122.8) |
| Operating income (loss) | (17.4) | 14.5 | (31.9) |
| Equity Income | 127.3 | 102.0 | 25.3 |
| Net earnings from continuing operations | 66.8 | 75.6 | (8.8) |
| EPS from continuing operations - diluted | $1.33 | $1.53 | $(0.20) |

### Net Sales and Volume

The following table provides a breakdown of our consolidated net sales by operating segment for the periods indicated:

*(In millions)*

|  | Nine Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) | % Inc/(Dec) |
| --- | ---: | ---: | ---: | ---: |
| Consumer Products | $369.9 | $406.5 | $(36.6) | (9.0%) |
| Building Products | 465.4 | 542.5 | (77.1) | (14.2%) |
| Sustainable Energy Solutions | 91.6 | 100.7 | (9.1) | (9.0%) |
| **Consolidated Net Sales** | $926.9 | $1,049.7 | $(122.8) | (11.7%) |

The following table provides volume by operating segment for the periods presented:

|  | Nine Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Consumer Products | 50,972,515 | 55,067,624 | (4,095,109) |
| Building Products | 10,578,278 | 10,842,022 | (263,744) |
| Sustainable Energy Solutions | 363,247 | 410,959 | (47,712) |

- *Consumer Products –* Net sales totaled $369.9 million in the current year period, down $36.6 million, or 9.0%, from the prior year period, due primarily to lower volumes driven largely by destocking at some of our retail customers that continued into the first quarter of fiscal 2024.
- *Building Products –* Net sales totaled $465.4 million in the current year period, down $77.1 million, or 14.2%, from the prior year period, due to an unfavorable shift in product mix, and to a lesser extent, lower volumes.
- *Sustainable Energy Solutions –* Net sales totaled $91.6 million in the current year period, down $9.1 million, or 9.0%, from the prior year period on an unfavorable shift in product mix and lower volumes.

### Gross Profit

*(In millions)*

|  | Nine Months Ended February 29, 2024 | % of Net sales | February 28, 2023 | % of Net sales | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Gross profit | $206.0 | 22.2% | $229.4 | 21.9% | $(23.4) |

- Gross profit was $206.0 million in the current year period, a decrease of $23.4 million compared to the prior year period, driven primarily by the impact of lower overall volume and an unfavorable shift in product mix.

### SG&A

*(In millions)*

|  | Nine Months Ended February 29, 2024 | % of Net sales | February 28, 2023 | % of Net sales | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| SG&A | $210.3 | 22.7% | $211.2 | 20.1% | $(0.9) |

- SG&A was $210.3 million in the current year period, down $0.9 million, or 0.4%, from the prior year period. Excluding the impact of corporate costs in the prior year period that were eliminated post-Separation, SG&A was up $10.9 million, primarily due to higher healthcare and other benefit-related costs, and to a lesser extent, higher wages.

*(In millions)*

|  | Nine Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Impairment of long-lived assets | $- | $0.5 | $(0.5) |
| Restructuring and other expense (income), net | 0.7 | (0.4) | 1.1 |
| Separation costs | $12.5 | $3.6 | $8.9 |

- Impairment of long-lived assets in the prior year period was driven by changes in the intended use of certain fixed assets at our Building Products facility in Jefferson, Ohio. Refer to “Note E – Impairment of Long-Lived Assets” for additional information.
- Restructuring activity during the current year period related primarily to severance costs within Unallocated Corporate and Other. Restructuring activity in the prior year period was related primarily to a reduction in workforce at our Columbus, Ohio facility, organizational realignment within Building Products and a pretax gain of $1.2 million from the sale of real property in Tulsa Oklahoma.
- Separation costs reflect direct and incremental costs incurred in connection with the Separation as discussed in “Note A – Basis of Presentation.”

### Miscellaneous expense, net

*(In millions)*

|  | Nine Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Miscellaneous expense, net | $6.0 | $4.5 | $1.5 |

- Miscellaneous expense in both the current and prior year periods was driven primarily by separate pension lift-out transactions completed in February 2024 and August 2022, respectively, to transfer the pension benefit obligation under The Gerstenslager Company Bargaining Unit Employees’ Pension Plan to third-party insurance companies. These transactions resulted in an $8.1 million pre-tax non-cash charge in the current year period and a 4.8 million pre-tax charge in the prior year period, respectively.

### Loss on extinguishment of debt

*(In millions)*

|  | Nine Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Loss on extinguishment of debt | $1.5 | $- | $1.5 |

- Loss on extinguishment of debt of $1.5 million resulted from the July 28, 2023 early redemption of the 2026 Notes and consisted primarily of unamortized debt issuance costs and the remaining loss deferred in AOCI associated with an interest rate swap executed prior to the issuance of the 2026 Notes.

### Interest Expense, net

*(In millions)*

|  | Nine Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Interest expense, net | $1.6 | $15.7 | $(14.1) |

- Interest expense, net of $1.6 million in the current year period was favorable compared to the prior year period by $15.7 million, driven primarily by lower average debt levels as a result of the redemption of the 2024 Notes and 2026 Notes in the current fiscal year and, to a lesser extent, higher interest income. Refer to “Note I – Debt and Receivables Securitization” for additional information.

### Equity Income

*(In millions)*

|  | Nine Months Ended February 29, 2024 | February 28, 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| WAVE | $75.8 | $61.7 | $14.1 |
| ClarkDietrich | 48.3 | 55.1 | (6.8) |
| ArtiFlex | - | (13.7) | 13.7 |
| Workhorse | 3.3 | (1.1) | 4.4 |
| **Total Equity Income** | $127.4 | $102.0 | $25.4 |

- Equity Income increased $25.4 million over the prior year period, as the nine months ended February 28, 2023 included a $16.1 million loss from the sale of our noncontrolling interest in ArtiFlex. Additionally, higher contributions from WAVE were partially offset by a decline at ClarkDietrich, which was down $6.8 million from the near-record equity earnings contributed in the prior year period.

### Income Taxes

*(In millions)*

|  | Nine Months Ended February 29, 2024 | Estimated Effective Tax Rate | February 28, 2023 | Estimated Effective Tax Rate | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Income tax expense | $34.0 | 30.8% | $20.7 | 22.6% | $13.3 |

- Income tax expense was $34.0 million in the current year period compared to income tax expense of $20.7 million in the prior year period. The increase was primarily driven by $9.2 million of one-time discrete tax charges related to the Separation. Income tax expense in the current year period reflected an estimated annual effective rate of 30.8% up from 22.6% in the prior year period, primarily due to the effect of current quarter discrete tax items, including those related to the Separation.

### Adjusted EBITDA

The following table provides a reconciliation of net earnings from continuing operations (the most comparable GAAP financial measure) to adjusted EBITDA for the periods presented. For additional information regarding our use of non-GAAP financial measures refer to the “Use of Non-GAAP Financial Measures and Definitions” section preceding Part I, Item 1 of this Form 10-Q.

*(In millions)*

|  | Nine Months Ended February 29, 2024 | February 28, 2023 |
| --- | ---: | ---: |
| **Net earnings from continuing operations (GAAP)** | **$66.8** | **$75.6** |
| Interest expense, net | 1.6 | 15.7 |
| Income tax expense | 34.0 | 20.7 |
| EBIT (subtotal) | 102.4 | 112.0 |
| Impairment of long-lived assets | - | 0.5 |
| Restructuring and other income, net | 0.7 | (0.4) |
| Separation costs | 12.5 | 3.6 |
| Pension settlement charge (1) | 8.1 | 4.8 |
| Loss on sale of investment in ArtiFlex (2) | - | 16.1 |
| Loss on extinguishment of debt (3) | 1.5 | - |
| Corporate costs eliminated at Separation (4) | 19.4 | 31.1 |
| Gain on sale of assets in Equity Income (5) | (2.8) | - |
| Adjusted EBIT (Subtotal) | 141.8 | 167.7 |
| Depreciation and amortization | 36.2 | 34.2 |
| Stock-based compensation | 9.8 | 10.4 |
| **Adjusted EBITDA (non-GAAP)** | **$187.8** | **$212.3** |

(1) Reflects pre-tax charges of $8.1 million and $4.8 million from separate pension lift-out transaction completed in February 2024 and August 2022, respectively, to transfer the pension benefit obligation under The Gerstenslager Company Bargaining Unit Employees’ Pension Plan to third-party insurance companies.

(2) Reflects the loss realized in connection with the August 3, 2022 sale of our 50% noncontrolling equity investment in ArtiFlex.

(3) Reflects a $1.5 million loss realized in connection with the July 28, 2023 early redemption of the 2026 Notes.

(4) Reflects reductions in certain corporate overhead costs that no longer exist post-Separation. These costs were included in continuing operations as they represent general corporate overhead that was historically allocated to Worthington Steel but did not meet the requirements to be presented as discontinued operations.

(5) Reflects a $2.8 million gain associated with the divestiture of the Brazilian operations of Workhorse.

The following table provides a summary of adjusted EBITDA by reportable segment, along with the respective percentage of consolidated net sales of each, for the periods presented.

*(In millions)*

|  | Nine Months Ended February 29, 2024 | % of Net sales | February 28, 2023 | % of Net sales | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Consumer Products | $52.5 | 5.7% | $67.8 | 6.5% | $(15.3) |
| Building Products | 158.5 | 17.1% | 157.5 | 15.0% | 1.0 |
| Sustainable Energy Solutions | (6.4) | (0.7%) | 2.9 | 0.3% | (9.3) |
| Unallocated Corporate and Other | (16.8) | (1.8%) | (15.9) | (1.5%) | (0.9) |
| **Total Adjusted EBITDA** | $187.8 | 20.3% | $212.3 | 20.2% | $(24.5) |

- *Consumer Products –* Adjusted EBITDA was down $15.3 million from the prior year period to $52.5 million, driven by lower volumes, partially offset by higher selling prices, as increases implemented in fiscal 2023 held steady through February 29, 2024.
- *Building Products –* Adjusted EBITDA was $158.5 million in the current year period, an increase of $1.0 million over the prior year period, as higher equity income, up $7.3 million, more than offset lower gross profit, driven by an unfavorable product mix.
- *Sustainable Energy Solutions –* Adjusted EBITDA was a loss of $6.4 million for the current year period, a decline of $9.3 million compared to the prior year period, as volumes remained too low to absorb the fixed costs in the business.

### Liquidity and Capital Resources

During the nine months ended February 29, 2024, we generated $244.8 million of cash from operating activities, invested $72.2 million in property, plant and equipment, and spent $29.7 million on acquisitions, which included Worthington Steel’s purchase of Voestalpine for $21.0 million. In connection with the Separation, we distributed $68.0 million to Worthington Steel, net of the $150.0 million one-time special dividend received from Worthington Steel at Separation and funded by the Worthington Steel Credit Facility. Additionally, we redeemed, in full, the 2024 Notes and the 2026 Notes for an aggregate of $393.9 million and paid dividends of $48.9 million on our common shares.

The following table summarizes our consolidated cash flows for the periods presented:

*(In millions)*

|  | Nine Months Ended 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $244.8 | $396.1 |
| Net cash used by investing activities | (116.5) | (53.7) |
| Net cash used by financing activities | (355.9) | (109.6) |
| Increase (decrease) in cash and cash equivalents | (227.6) | 232.8 |
| Cash and cash equivalents at beginning of period | 454.9 | 34.4 |
| **Cash and cash equivalents at end of period** | $227.3 | $267.2 |

We believe that the available borrowing capacity of the Credit Facility is sufficient to meet the needs of our existing businesses for normal operating costs, mandatory capital expenditures, debt redemptions, dividend payments, working capital, to the extent not funded by cash provided by operating activities, for at least 12 months and for the foreseeable future thereafter. Our resources include cash and cash equivalents and unused committed lines of credit. There were no borrowings outstanding under the Credit Facility at February 29, 2024, leaving up to $500.0 million available for future use.

Although we do not currently anticipate a need, we believe that we could access the financial markets to be in a position to sell long-term debt or equity securities. However, the continuation of soft economic conditions and an uncertain interest rate environment could create volatility in the financial markets, which may impact our ability to access capital and the terms under which we can do so.

We routinely monitor current operational requirements, financial market conditions, and credit relationships and we may choose to seek additional capital by issuing new debt and/or equity securities to strengthen our liquidity or capital structure. Should we seek additional capital, there can be no assurance that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing shareholders and/or increase our interest costs. We may also from time to time seek to retire or repurchase our outstanding debt through cash purchases, in open-market purchases, privately-negotiated transactions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transaction may or may not be material. To facilitate our post-Separation capital structure, during the first quarter of fiscal 2024, we redeemed in full our 2026 Notes for $243.8 million followed by the early redemption of the 2024 Notes for $150.0 million on December 6, 2023, as further discussed in “Note I – Debt and Receivables Securitization.”

### Operating Activities

Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic and industry conditions. We rely on cash and short-term borrowings to meet cyclical increases in working capital needs. These needs generally arise during periods of increased economic activity or increasing raw material prices, requiring higher levels of inventory and accounts receivable. During economic slowdowns, or periods of decreasing raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable.

Net cash provided by operating activities was $244.8 million during the nine months ended February 29, 2024, compared to $396.1 million during the prior year period. This change was primarily due to an $86.7 million increase in net operating working capital (accounts receivable, inventories, and accounts payable) requirements over the prior year period and a decrease in dividends received from our unconsolidated affiliates, down $21.9 million from the prior year period on lower equity earnings.

### Investing Activities

Net cash used by investing activities was $116.5 million during the nine months ended February 29, 2024, compared to $53.7 million during the prior year period. Net cash used by investing activities in the current year period resulted primarily from capital expenditures of $72.2 million, investment in notes receivable of $14.9 million, and the acquisitions of Halo and Voestalpine for cash consideration of $8.7 million and $21.0 million, respectively. Net cash used by investing activities in the prior year period resulted from the purchase of the Level5 business on June 2, 2022, for $56.1 million, and capital expenditures of $68.7 million, partially offset by combined cash proceeds of $71.3 million from the sale of our 50% noncontrolling equity investment in ArtiFlex, and the sale of the remaining net assets of our former WSP Jackson, Michigan facility and other long-lived assets.

Investment activities are largely discretionary, and future investment activities could be reduced significantly, or eliminated, as economic conditions warrant. We assess acquisition opportunities as they arise, and such opportunities may require additional financing. There can be no assurance, however, that any such opportunities will arise, that any such acquisition opportunities will be consummated, or that any needed additional financing will be available on satisfactory terms if required.

### Financing Activities

Net cash used by financing activities was $355.9 million during the nine months ended February 29, 2024, compared to $109.6 million in the prior year period. The change was primarily due to activity related to the Separation transaction including the net distribution of $68.0 million to Worthington Steel and net proceeds of $172.2 million under Worthington Steel’s short-term credit facilities, which were assumed by Worthington Steel. To facilitate our post-Separation capital structure, we redeemed in full our 2026 Notes for $243.8 million and our 2024 Notes for $150.0 million, as further discussed in “Note I - Debt and Receivables Securitization.”

*Common shares –* On March 20, 2024, the Board declared a quarterly dividend of $0.16 per common share payable on June 28, 2024, to shareholders of record at the close of business on June 14, 2024.

On March 20, 2019, the Board authorized the repurchase of up to 6.6 million common shares.

On March 24, 2021, the Board authorized the repurchase of up to an additional 5.6 million common shares, increasing the total number of common shares then authorized for repurchase to 10.0 million. As of February 29, 2024, 6.1 million common shares remained available for repurchase under these two authorizations.

The common shares may be repurchased under these authorizations from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or through privately negotiated transactions.

*Long-term debt and short-term borrowings –* As of February 29, 2024, we were in compliance with the financial covenants of our short-term and long-term debt agreements. Our debt agreements do not include credit rating triggers or material adverse change provisions. There were no outstanding borrowings drawn against the Credit Facility at February 29, 2024, leaving the full borrowing capacity of $500.0 million available for future use.

### Dividend Policy

We currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Board. The Board reviews the dividend quarterly and establishes the dividend rate based upon our consolidated financial condition, results of operations, capital requirements, current and projected cash flows, business prospects, and other relevant factors. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments of dividends will continue in the future.

### Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates, including those related to our valuation of receivables, inventories, intangible assets, accrued liabilities, income and other tax accruals, contingencies and litigation, and business combinations. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Critical accounting policies are defined as those that reflect our significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. Although actual results historically have not deviated significantly from those determined using our estimates, our consolidated financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such policies. Our critical accounting policies have not significantly changed from those discussed in “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” of the 2023 Form 10-K.

## Market risk

As filed, 169 characters.

Market risks have not materially changed from those disclosed in “Part II – Item 7A. – Quantitative and Qualitative Disclosures About Market Risk” of the 2023 Form 10-K.

## Controls and procedures

As filed, 1,753 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports that Worthington Enterprises files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including Worthington Enterprises’ principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management, under the supervision of and with the participation of Worthington Enterprises’ principal executive officer and principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q (the quarterly period ended February 29, 2024). Based on that evaluation, Worthington Enterprises’ principal executive officer and principal financial officer have concluded that such disclosure controls and procedures were effective at a reasonable assurance level as of the end of the quarterly period covered by this Form 10-Q.

### Changes in Internal Control Over Financial Reporting

There were no changes that occurred during the period covered by this Form 10-Q (the quarterly period ended February 29, 2024) in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,291 characters.

There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. In “PART I – Item 1A. – Risk Factors” of the 2023 Form 10-K, as filed with the SEC on July 31, 2023, and available at www.sec.gov or at www.worthingtonenterprises.com, we included a detailed discussion of our risk factors. Other than as noted below, our risk factors have not changed significantly from those disclosed in the 2023 Form 10-K. These risk factors should be read carefully in connection with evaluating our business and investments in the common shares and in connection with the forward-looking statements and other information contained in this Form 10-Q. Any of the risks described in the 2023 Form 10-K, as well as the risk described below, could materially affect our business, consolidated financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. The risk factors described in the 2023 Form 10-K and the risk described below are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, consolidated financial condition and/or future results.

Filed Apr 9, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-042963. Last ingested by Listed: Nov 2, 2026, 11:47 ET. No prices; not investment advice.