워딩턴 엔터프라이즈(WOR) 2027 회계연도 1분기 실적 컨퍼런스 콜: 데이터센터 탱크 성장 및 강력한 현금 흐름

워싱턴 엔터프라이즈(Worthington Enterprises, NYSE: WOR)는 2027 회계연도 1분기 매출, 조정 순이익, 잉여현금흐름이 모두 증가했다고 발표했다. 트레이드 및 스페셜티 솔루션(Trade and Specialty Solutions) 부문, 합작법인, 데이터센터 관련 ASME 탱크의 성장이 냉방 및 건설 부문의 역풍을 상쇄하는 데 기여했다.

핵심 요약

• 연결 매출은 전년 동기 대비 13% 증가한 3억 4,400만 달러를 기록했으며, 이 중 자체 사업 성장률(organic growth)은 약 7%였다. 인수합병(M&A)을 통한 매출 기여액은 1,900만 달러였다.
• 조정 EBITDA는 10% 증가한 7,400만 달러, 이익률은 21.5%를 기록했다. 조정 주당순이익(EPS)은 0.78달러에서 0.82달러로 증가했다.
• 잉여현금흐름은 2,800만 달러에서 5,400만 달러로 거의 두 배 증가했다. 최근 12개월(TTM) 기준 잉여현금흐름은 사상 최대치인 1억 9,600만 달러에 달했다.
• 1분기 데이터센터 관련 ASME 탱크 매출은 1,300만 달러를 기록하며 2026 회계연도 전체 매출과 맞먹는 수준을 달성했다. 경영진은 2027 회계연도 남은 기간 동안 하반기에 집중된 전분기 대비 성장세가 이어질 것으로 예상하고 있다.
• 트레이드 및 스페셜티 솔루션 부문의 조정 EBITDA는 1,600만 달러에서 2,400만 달러로 증가했으며, EBITDA 마진은 13.6%에서 18.6%로 개선되었다.
• 냉방 및 건설 부문은 A2L 관련 수요의 정상화, 신축 주택 판매 침체, 철강 수급 타이트 및 리드타임 연장 등으로 인해 계속해서 압박을 받았다.

주요 재무 데이터

워싱턴은 배당을 통해 900만 달러를 환원했고, 33만 5,000주를 매입하는 데 1,800만 달러를 지출했다. 합작법인은 지분법 이익의 88%에 해당하는 3,600만 달러의 배당금을 지급했다. 이사회는 또한 2026년 12월에 지급될 주당 0.20달러의 분기 배당금을 선언했다.

사업 및 영업 실적

빌딩 퍼포먼스 솔루션

순매출은 1억 8,500만 달러에서 2억 1,500만 달러로 16% 증가했다. 인수합병이 1,900만 달러를 기여했으며, 수처리 및 유럽 사업의 호조로 자체 매출은 6% 증가했다.

조정 EBITDA는 6,000만 달러로 거의 변동이 없었으며, 마진은 27.8%를 기록했다. 냉방 및 건설 매출 감소, 비호의적인 제품 믹스, 철강 공급 제약 및 리드타임 연장이 매출 성장을 상쇄했다.

수처리 사업은 데이터센터 액체 냉각 시스템에 사용되는 공학 설계 ASME 탱크 수요의 수혜를 입었다. 해당 용도의 매출은 1분기에 1,300만 달러를 기록해 2026 회계연도 전체 매출과 같은 수준에 달했다. 워싱턴은 엔지니어링 인재, 설비 및 생산능력에 투자하는 한편 적절한 경우 위탁 제조업체 파트너도 활용하고 있다.

WAVE는 전년 동기 대비 약 300만 달러 증가한 3,500만 달러의 사상 최대 지분법 이익을 기록했다. 교육, 의료, 운송 및 데이터센터 분야의 활발한 활동이 실적을 뒷받침한 반면, 리테일 및 오피스 시장은 상대적으로 침체되었다. 클라크디트리히(ClarkDietrich)의 지분법 이익은 데이터센터 외 상업용 건설 시장의 약세에도 불구하고 100만 달러 이상 증가한 700만 달러를 기록했다.

트레이드 및 스페셜티 솔루션

매출은 물량 증가와 평균 판매 단가 상승에 힘입어 1억 1,900만 달러에서 1억 2,900만 달러로 8% 증가했다. 휴대용 프로판 및 공구 제품군이 물량 성장, 유통망 확대, 가격 인상 정책을 통해 특히 견조한 실적을 냈다.

조정 EBITDA는 1,600만 달러에서 2,400만 달러로 증가했다. 마진은 매출 성장, 가격 인상, 제조 실적 개선, IEPA 관세 환급 등을 반영해 500bp 확대된 18.6%를 기록했다. 경영진은 관세 혜택을 제외하더라도 본업의 수익성이 개선되었다고 밝혔다.

풍선 관련 제품 물량은 전년 동기의 높은 기저 효과로 인해 감소했다. 워싱턴은 포트폴리오를 단순화하고 제품 믹스를 개선하며 마진을 뒷받침하기 위해 휴대용 연료 및 토치 제품으로 80/20 운영 방식을 확대 적용하고 있다.

경영진 전망

경영진은 데이터센터 관련 ASME 탱크 매출이 2회계분기, 3회계분기, 4회계분기에 걸쳐 전분기 대비 계속 성장할 것으로 예상하며, 성장은 하반기에 더욱 집중될 것으로 보고 있다. 다만 프로젝트 시점이 달라질 수 있고 신규 데이터센터 발표 이후 실제 기회까지 18~24개월이 걸릴 수 있다고 조언했다.

회사는 전년 동기 분기가 높은 A2L 전환 수요의 수혜를 입었기 때문에 2회계분기에도 냉방 및 건설 부문의 전년 동기 대비 비교가 쉽지 않을 것으로 예상하고 있다. 경영진은 계절적 성수기인 3분기와 4분기가 속한 하반기에는 상황이 정상화될 것으로 기대하고 있다.

WAVE는 통상적인 계절성으로 인해 2분기에 전분기 대비 성장세가 둔화될 것으로 예상되지만, 경영진은 사업 자체가 건전하다고 평가했다. 잉여현금흐름 역시 2분기에 정기적인 추가 세금 납부의 영향을 받을 예정이다.

리스크 및 관전 포인트

• 침체된 주택 시장 여건 속에서 A2L 관련 유통 채널 재고의 정상화가 지연되고 있다. 회사는 1분기 조정 EBITDA에 미친 전년 동기 대비 영향이 당초 예상보다 큰 약 700만 달러 수준이라고 추정했다.
• 철강 수급 타이트와 리드타임 연장으로 인해 생산 일정과 출하 시점에 차질이 생겼다. 경영진은 이러한 제약 요소로 인해 이번 분기 동안 수백만 달러의 손실이 발생한 것으로 추정했다.
• 철강 및 기타 원자재 가격은 1년 전보다 높은 수준이다. 워싱턴은 적절한 경우 가격 인상을 실시했으나 2026년 연말 이후에 대해서는 가시성이 제한적인 상황이다.
• 데이터센터 사업 기회는 실제 매출 전환 및 시점이 불확실하다. 경영진은 파이프라인이 곧바로 매출을 의미하는 것은 아니라고 강조했다.
• 고금리, 인플레이션, 지정학적 불안정성, 공급 제약 및 영업상의 어려움이 경영 환경의 위험 요인으로 계속 작용하고 있다.

애널리스트 Q&A 주요 내용

철강 수급: 경영진은 워싱턴이 공급업체와의 관계, 구매력, 광범위한 제조 네트워크를 활용해 수급 제약 상황에 대응하고 있다고 밝혔다. 2026년 연말까지는 여건이 개선될 것으로 예상되지만, 그 이후 기간에 대한 가시성은 제한적이다.

데이터센터 전략: 회사는 ASME 탱크를 액체 냉각 및 열 관리 시스템의 핵심 부품으로 보고 있다. 자체 생산능력과 엔지니어링 자원을 확충하는 동시에 외부 파트너를 통해 생산을 보완하고 있다. 데이터센터 관련 사업은 WAVE, 클라크디트리히(ClarkDietrich), 엘젠(Elgen), LSI로도 확장되어 있으나, 경영진은 이를 완전한 패키지 제품군으로 설명하는 것은 과장이라고 언급했다.

소비자 및 시공업체 수요: 워싱턴은 트레이드 및 스페셜티 솔루션 부문에서 유의미한 수요 둔화 징후를 보지 못했다고 밝혔다. 경영진은 보수 및 리모델링 활동과 비교적 낮은 실업률에 힘입어 고객의 판매 시점(POS) 매출 추세가 안정적으로 유지되고 있다고 말했다.

인수합병(M&A): 이번 분기 인수합병을 통한 매출 1,900만 달러에는 엘젠(Elgen)과 LSI가 기여했다. 워싱턴은 엘젠의 통합 작업이 진행 중이며, LSI는 양호한 실적을 내며 상업적 확장 기회를 제공하고 있다고 밝혔다. 경영진은 M&A 파이프라인이 건전하며 최근 인수 활동이 소폭 증가했다고 설명했다.

현금 전환: 지난 1년간 현금전환주기(CCC)는 약 8~9일 개선되었으며, 매출액 대비 순운전자본 비율은 지난 2년간 거의 3%포인트 감소했다. 경영진은 이러한 진전을 고객 결제 조건, 공급업체 관리, 재고 효율성 및 80/20 전략 덕분으로 돌렸으며, 이러한 개선이 지속 가능하다고 판단하고 있다.

실적 발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Hello everyone, thank you for joining us and welcome to the Worthington Enterprises Fiscal Year 2027 First Quarter Earnings Call. After today's prepared remarks, we will host a question and answer session. [Operator Instructions] I will now hand the conference over to Marcus Rogier, Treasurer and Investor Relations Officer. Marcus, please go ahead.

Marcus Rogier

Thank you, Paige. Good morning, everyone, and thank you for joining us for Worthington Enterprises' First Quarter Fiscal 2027 Earnings Call. On call today are Joseph Hayek, our President and Chief Executive Officer, and Colin Souza, our Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made during today's call are forward-looking in nature and subject to risk and uncertainties that can cause actual results to differ materially from those expressed or implied. For more information on these risk and uncertainties, please refer to our earnings release issued yesterday after the market closed, which is available on the investor relations section of our website. Additionally, our remarks today will include references to non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures can also be found in the earnings release. Today's call is being recorded and a replay will be available later on our website at WorthingtonEnterprises.com.

With that, I'll turn the call over to Joe for opening remarks.

Joseph Hayek

Thank you, Marcus. Good morning, everyone. Welcome to Worthington Enterprises' Fiscal 2027 First Quarter Earnings Call. We had a strong start to fiscal 2027. While we faced some market and operating headwinds, our team continued to execute, serve our customers, and make progress on our strategic initiatives. I want to thank my colleagues around the world for the focus, creativity, and grit they bring to Worthington every day. In Q1, we grew sales by 13% year-over-year, including 7% organically. Adjusted EBITDA increased by 10% to $74 million.

And we generated $54 million of free cash flow, nearly double the prior year quarter. Adjusted EPS was 82 cents compared with 78 cents a year ago. We continue to deploy capital thoughtfully in the quarter, including the repurchases of 335,000 shares of our common stock. While we were pleased with our progress, the quarter was not without challenges. Informance solutions, as we anticipated, face headwinds in our cooling and construction business. The channel inventories are right-sized and new home sales are muted, demand for newly mandated A2L refrigerant cylinders is lower than it was a year ago, creating a difficult comparison. Additionally, steel availability across the industry remains tight and lead times in the quarter were extended. FEMA had created some disruptions in production and scheduling for both cooling and construction and for our balloon technologies.

Our teams are actively working through these issues every day, prioritizing our customers and ensuring that we are the best partner that we can be. While we face some headwinds in the quarter, our performance was a reflection of our businesses and our people. Resilient. Creating specialty solutions delivers strong sales and even double-digit growth as that team continues executing at a high level. Our water business is performing very well as our 80-20 work matures and helps us focus on resources on the products and opportunities that create the most value. WAVE and ClarkDietrich also delivered higher equity earnings and were important contributors in the quarter. We optimize and grow Worthington. Our strategy is not complicated. Leveraging the Worthington business system, transformation to improve our businesses, disciplined M&A to add capabilities and strengthen our portfolio, and innovation to grow organically where we have attractive opportunities. We continue to use 80-20 to optimize our businesses.

As we sharpen our focus, improve working capital and allocate resources where they matter most. We've seen meaningful progress in our water business and are now extending that discipline into our portable fuel and torch businesses. We're also continuing to improve productivity through automation, AI-enabled tools, and other transformation initiatives. We remain disciplined about growth through M&A and we're focused on opportunities where we believe we can bring unique advantages as an owner and create long-term value. Our integration of LSI continues to progress well, and there we're focused on reaching more prospective customers and introducing them to LSI's compelling value proposition. I want to spend a little more time this morning on organic growth because we're increasingly seeing our innovation capabilities translate into meaningful commercial opportunities. One of the most topical examples of the kind of organic growth opportunities we're trying to create and develop at Worthington is our engineered ASME tanks.

These engineered tanks have played an important role in commercial buildings across the world for decades. Increasingly, as new chip sets generate significantly more heat, data center designers and operators are embracing liquid cooling. Engineered tanks like ours help manage the cooling fluids used in liquid cooling systems and as such are a critical component of those data centers and the cooling infrastructure. We've been a market leader in these engineered ASME tanks for years. The market we believe has consistently been plus or minus $200 million a year for some time. Given the projected growth in data centers and the increasing adoption of liquid cooling in those data centers, industry sources suggest the market for liquid cooling and thermal management ASME tanks alone could be more than 10 times the size of the legacy market in the next few years. To grow in and with this important end market, we took capabilities we already had, listened closely to our customers, leveraged our engineering and innovation expertise, and created an emerging suite of liquid cooling and thermal management solutions.

As a result, what started as a promising new application for us has quickly developed into an increasingly meaningful growth opportunity. As a reminder, in fiscal '26, we shipped roughly $13 million of ASME tanks for data centers. In the first quarter of fiscal '27, we generated an additional $13 million of revenue from that value stream, essentially matching what we did in the entire prior fiscal year. Near term, we believe that our ASME tank revenues will continue to grow sequentially quarter over quarter through the balance of this fiscal year. In addition, while this market is in the early stages of development, our pipeline suggests that one, our solutions can play a meaningful role in this evolving architecture, and two, the market's growth is continuing to accelerate. To be clear, a pipeline is not revenue, and there was always some uncertainty around the timing and conversion of these opportunities. But the size and the quality of the opportunities in front of us is encouraging.

And we are investing in equipment, engineering talent, and production capacity to support the customers we're sourcing today and the opportunities we see ahead. Solid financial results we're generating and the great opportunities ahead of us are a credit to our people. Hamilton has always believed that people are our most important asset, and that is as true today as it has ever been. As an example, we recently named one of America's most innovative businesses for 2027 by Business Insider. The criteria they used included the number and impact of companies' technological innovations, their reputation among peers for fostering innovation, and how a company's investment in R&D compares to others in their industries. We're also recognized in the quarter by USA Today and Points of Light as well as of America's most charitable companies. This honor reflects our deeply rooted commitment to communities where we live and work, including volunteerism and support from the Worthington Companies Foundation.

Much is being asked of our teams every day as we navigate volatile markets, geopolitical instability, inflation, elevated interest rates, supply constraints, and operational challenges. We're very grateful for the way our colleagues continue to prioritize our customers and one another. We're proud of how we started our fiscal year. There's more work to do, but we continue to see tangible evidence that our strategy is working. We see it in organic growth driven by innovation and productivity gains through transformation, successful M&A integration and ultimately in cash generation. In addition, our end markets, brands, capabilities, and strategy position us exceptionally well to continue driving profitable growth. Most importantly, we have a talented team that cares deeply about each other, our customers, and our company.

Before I turn it over to Colin, who will spend a few more minutes on our financial performance in the quarter, we would like to remind everyone that we will be hosting our Investor Day in New York on November 10th. We're looking forward to discussing our businesses, the opportunities we see for profitable growth, and how we're positioning Worthington Enterprises to create long-term value.

Colin Souza

We hope you'll join us. Thank you, Joe, and good morning, everyone. We delivered a strong start to fiscal 2027, 1% organic sales growth, record trailing 12-month free cash flow of $196 million, continued improvement across our trade and specialty solutions businesses, strong performance from our joint ventures, and meaningful progress in several of our strategic growth platforms. GAAP earnings in Q1 were 87 cents per share compared to 70 cents per share in the prior year period. The current quarter included a net benefit of $0.05 per share from non-recurring and restructuring items, primarily related to a gain realized from a contingent earn-out associated with the sale of our former oil and gas business, which was divested in January of 2021. The prior year quarter included $0.08 per share of restructuring and other expenses. Excluding these items in both periods, adjusted earnings were 82 cents per share, up from 78 cents per share in the prior year quarter. Included in adjusted earnings for Q1 was a net pre-tax benefit of approximately $4 million or 6 cents per share related to IEPA tariff refunds.

Consolidated sales increased 13% to $344 million, demonstrating continued momentum across the underlying portfolio in addition to the contribution from our recent acquisitions, which added $19 million in net sales for Q1. Gross profit increased by nearly 11% in the quarter, while gross margin was 26.4% versus 27.1% a year ago, primarily reflecting lower volumes and less favorable mix in Building Performance Solutions where cooling and construction faced a particularly difficult prior year comparison. Adjusted EBITDA was $74 million compared to $67 million in the prior year quarter, while adjusted EBITDA margin was 21.5%. Importantly, even excluding the net tariff refunds, adjusted EBITDA increased year over year, reflecting underlying improvement across several of our businesses. On a trailing 12-month basis, adjusted EBITDA increased to $303 million. Turning to our capital allocation, we remain focused on reinvesting in our businesses and pursuing strategic acquisitions while returning excess cash to shareholders via dividends and share repurchases. Free cash flow remains one of our most important operating metrics, and Q1 demonstrated the strength of our cash generation.

Operating cash flow was $67 million, up from $41 million a year ago, while free cash flow increased to $54 million from $28 million, which is our second strongest quarter since becoming Worthington Enterprises, behind Q4 of fiscal 2026. This level of cash flow provides us with the flexibility to reinvest in our businesses, pursue additional growth opportunities and return capital to shareholders, supporting our ability to create value over time. Capital expenditures total $13 million in the quarter, and we return capital to shareholders through $9 million in dividends and spent $18 million to repurchase 335,000 shares of our common stock. Our joint ventures continue to deliver strong cash generation, providing $36 million in dividends during the quarter, representing 88% of equity income. Turning to our balance sheet and liquidity, we close the quarter with TTM adjusted EBITDA of $303 million and net debt of $250 million.

We continue to maintain a strong balance sheet with significant financial flexibility to execute our strategy. Yesterday, our board of directors declared a quarterly dividend of 20 cents per share payable in December 2026. Before I turn to segment performance, and as a reminder, we recently renamed our two business segments to better reflect the markets they serve, the solutions they provide to customers, and the continued evolution of our portfolio. Building products is now Building Performance Solutions, and consumer products is now Trade and Specialty Solutions. The names have changed the composition of the segments and our historical financial results remain unchanged. In Building Performance Solutions, Q1 net sales grew 16% year over year to $215 million, up from $185 million in the prior year quarter. Acquisitions contributed $19 million of net sales in the quarter, while organic sales increased 6% driven primarily by strength in our water and European businesses, partially offset by lower revenue in our cooling and construction business. Adjusted EBITDA was essentially flat at $60 million compared to the prior year quarter, with an adjusted EBITDA margin of 27.8%.

As Joe mentioned, the year-over-year comparison for Building Performance Solutions was impacted by the normalization of demand in cooling and construction following the A2L refrigerant transition, as well as less favorable product mix. Tight steel availability and extended lead times also created production scheduling and shipment timing challenges during the quarter. We continue to view the A2L impact as a timing and comparison issue rather than a structural change in the business. Importantly, adoption remains strong and continued installation of A2L equipment supports current demand for our product, while also building an installed base that we believe will create an attractive long-term service and replacement opportunity. Our teams have worked diligently and prioritized customer needs throughout this period, while positioning the business to benefit as these temporary headwinds normalize. We are particularly encouraged by the accelerating opportunity in our water business, where demand for engineered ASME tanks supporting liquid cooling applications for data centers continues to grow. As Joe discussed, this is becoming an increasingly meaningful organic growth platform for Worthington.

WAVE delivered another record quarter with equity income increasing approximately $3 million year over year to $35 million. ClarkDietrich also improved with equity income increasing more than $1 million year over year to $7 million despite commercial construction activity outside of data centers remaining relatively soft. We are pleased with the performance of LSI and continue to see attractive opportunities to expand the scale, profitability, and diversification of our Building Performance Solutions platform. In Trade and Specialty Solutions, Q1 net sales grew 8% year-over-year to $129 million, up from $119 million in the prior year quarter, driven by a combination of higher overall volumes and average selling prices. Adjusted EBITDA increased to $24 million from $16 million in the prior year quarter, while adjusted EBITDA margin expanded to 18.6% from 13.6%. The improvement in profitability reflected higher sales, pricing, and improved manufacturing performance, along with the net benefit from IEPA tariff refunds we discussed earlier. Importantly, underlying profitability improved, excluding the tariff benefit, particularly in our tools and portable fuel businesses.

We were pleased with the performance of the segment, which continues to demonstrate the resilience of our portfolio of market-leading brands. Looking ahead, we remain focused on driving profitable organic growth through the Worthington business system, including continued innovation and transformation across the segment, along with opportunities to expand distribution. We've seen good results from 80-20 in our water business, and we're now applying those same principles to portable fuel and torch to simplify the portfolio, improve mix, and drive sustainable margin improvement. Overall, we are encouraged by our start to fiscal 2027. We are driving continued organic growth with innovation and solid execution, improving performance across several of our wholly owned businesses, strong contributions from our joint ventures, and growing and attractive end markets like data centers, all while still GENERATING NEAR RECORD CASH FLOWS. These results provide further evidence that our strategy is working. Looking ahead, we see multiple opportunities to strengthen earnings through continued execution, maturing 80-20, normalization and cooling and construction, growth and higher value applications, continued progress integrating recent acquisitions and continued progress productivity improvements through the Worthington business system.

We believe these initiatives are improving the quality, sustainability, and trajectory of our earnings and cash flows, strengthening our ability to invest for growth and create long-term value for our shareholders. With that, we're happy to take your questions.

Operator

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to turn off your audio to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian Beros with Thompson Research Group.

Your line is open. Please go ahead.

Unknown Speaker

Hey, good morning, everyone. Thanks for taking my questions today. I want to start with a question about the steel market overall. You mentioned it's tight, lead times extended, not the ideal supply chain setup, but Worthington should be in a position to navigate that better than almost every other competitor you guys. So maybe help us understand kind of where things stand today in the field and kind of what Worthington can do that others can't to navigate that.

Joseph Hayek

Sure, Brian, it's a very topical good question and steel market has absolutely tightened. We are seeing longer lead times and certainly the price of steel has come up in certain areas. You probably, well, it did start last fall, and then 232 tariffs on imported raw steel doubled. That really chilled imports and since then, we've seen the price of steel creep steadily up and the market started to see some lead times get extended. That was certainly the case in Q1. But as you say, tight markets can create challenges, but there are also environments where we think some of our capabilities really do matter. We're a pretty sophisticated buyer of steel.

We have very strong supply chain and we have a broad manufacturing footprint, it gives us additional options to manage through periods of compliance, and the strain supply. So we've been actively managing in that environment by looking across suppliers, products, and our network to be sure that we're serving customers maintain when it's been appropriate. We have taken pricing actions as well, since input costs have increased the way that they did. So, you know, the availability was a headwind for us in Q1, particularly as we mentioned in going in construction and balloon time. I think that we're better positioned going forward certainly through the end of the calendar year. Beyond that, we have limited visibility. It doesn't mean we don't necessarily think that it'll get worse again beyond that, but as I said, we just don't have a lot of great visibility kind of into the new calendar year. We ultimately think about that as it probably cost us, you know, a few million dollars in the quarter. Yes.

Unknown Speaker

Okay, thank you. And follow up I guess would be on the JV WAVE, up 8%. Great to see on a already pretty strong comp anyway. So maybe some more clarity on kind of what the the driving factor for that was if that's data center demand starting to flow through distribution yet? Is that pricing just from steel, or just strong core end markets? And kind of the demand for that would be helpful. Thank you.

Colin Souza

Yep, sure, Brian. So WAVE, as you mentioned, another really excellent quarter delivering record equity income of $35 million and we continue to be very pleased with the performance of that business and the team there. The end markets, at WAVE, they remain generally stable, although performance varies by sector. So education, health care, transportation and as you mentioned, data centers continue to remain healthy and in drive volume while channels like retail and office are a little more muted. So WAVE also does benefit from meaningful exposure to repair and remodel activity, which tends to be more resilient than the new commercial construction space. So they're a little insulated there, which is good. The team continues to really innovate around solutions that help contractors reduce labor and improve installation efficiency and that's always going to be valuable in the market and they continue to create meaningful value for their customers that way and that supports the attractive economics of the business. And so, more broadly, WAVE is just a great example of the types of businesses that we like to own. They're a market leader, an attractive niche with strong customer relationships, differentiated products, and the ability to perform very well across different different market environments. As we look into Q2, you know, there is normal seasonality to the business.

Uh She wants a strong quarter for them always during the year. What we would expect as we look into Q2, some sequential moderation, but overall they remain very healthy and we're very confident in the team there. Great, thank you.

Operator

Your next question comes from the line of Walter Liptak with Seaport Research. Your line is open. Please go ahead.

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Walter Liptak

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

Joseph Hayek

Sure, Walt. Good morning. We're talking here about, you know, ASME tanks and if people aren't sure it's it's that stands for the American Society of Mechanical Engineers, it's a it's a certain code and approval process, but you know these are these are tanks that are used in liquid cooling systems that support next gen computing infrastructure. Their purpose is to build vessels used for liquid cooling and thermal management. And we've actually been in this business for a long time. We've been innovating in pressure and hydronic systems for 80 years. In fact, Amtrol invented the first pre-pressurized, not to get too technical on you, diaphragm. expansion tank seven years ago. So this isn't new to us, but as we listened to customers and understood what they were trying and needed to accomplish, we knew we could be helpful. So we leveraged the core competency, our engineering and innovation expertise, and created this emerging suite of solutions that we think really do help our customers solve problems that they're they're trying to solve.

And so you said it, $13 million last year, $13 million in Q1. I do think that we should grow sequentially in Q2, Q3, and Q4. More of that growth being weighted on the back half of the year, the back part of the year. But keep in mind that this market is still developing, and these opportunities are sometimes 18 to 24 months removed from a quote-unquote announcement that you might hear about a data center being greenlit. We do think that we'll have some variability from quarter to quarter, but this is a multi-year opportunity. We think it's accelerating. And as I mentioned before, we think that the liquid cooling and thermal management market just for data centers, you know could be 10X what the legacy market was in the next few years and so, We absolutely have invested and are continuing to invest in engineering talent, in new equipment and in production capacity as we're really trying to be and believe that we're very well positioned to be part of the solution. And so if you think about the way people describe this market, they talk about hyperscalers, data center builders, and then ultimately, they get into the picks and shovels that make data centers work.

You know, it's oversimplifying, but you can think of our solutions as types of picks and shovels. And so, you know, we make various kinds of tanks and separators, but what really sets us apart is the services that we can provide around these solutions, our engineering expertise, our design expertise. Ultimately helping our customers design or refine their designs for these fluid management solutions. We're good, you know, we get sort of spec'd in, thought about by things like the basis of design, but we like to get spec'd in to some of these designs as as we go forward. And I think we'll be able to grow in and grow with this market pretty nicely.

Walter Liptak

Okay, thanks for that. Appreciate it. And yeah, good luck with that rapidly expanding market. I wonder if you could talk about, you know, the strategy that you guys are going after. I think you've talked about some capacity expansions. You just mentioned engineering and, you know, and production. I wonder if you can talk about what you're doing there. Uh, sure. So it is it is is it is a pretty.

Joseph Hayek

I think it's a pretty fulsome approach, heavy on, engineering and process. A lot of capacity expansion and investments in our own facilities. But in cases where it makes sense for somebody else to manufacture these, we've got a group of partners that we are relying on and that we are partnering with to help us essentially expand our own capacity and ultimately do the design work, do the commercial work, do all the things that need to happen, but ultimately take advantage of some capacity that's already in the ground.

Walter Liptak

Okay, great. Okay, thanks. I'll get back in queue. Thank you.

Operator

Your next question comes from the line of Susan Maklari with Goldman Sachs. Your line is open. Please go ahead.

Susan Maklari

Good morning, everyone. My first question is around the broader state of the, good morning, the broader state of the consumer and what you're seeing there. It sounds like from what we're hearing from the homebuilders, things certainly moderated in the quarter as rates rose and the geopolitical environment. Can you just talk a bit about what you're seeing now and what that implies as we think about the growth in the next couple quarters?

Joseph Hayek

Sure. So, you know, within Trade and Specialty, one of the reasons, obviously, that we decided to realign and rename those businesses, as you know, is an awful lot. A lot of our products that were sold through what's historically been consumer end up in the hands of contractors. They're working on commercial buildings or in residential buildings. But for us, it's really around that team continuing to execute exceptionally well. They've got good pricing discipline. They've done a really good job commercially. There's a lot of energy around NPD and new products that we expect kind of to see in the back half of our fiscal year. But, you know, I would say generally, yeah, you're right. Interesting. Rates are still high but people are still repairing remodeling unemployment is still pretty low and we've always used unemployment as a pretty good kind of indicator for us.

And so we haven't seen any material weakness and our customers' point of sale is hanging in there. And so, you know, we think that, our products are awfully resilient and have typically shown that way. And it's not as though the market is worse than it was in the past three years. So it's been relatively steady from that perspective.

Susan Maklari

Okay. That's helpful. And then can you also give us an update on the integration of the recent acquisitions that you've done? And any comments on the M&A pipeline in general given the operating conditions and the move-in rate?

Colin Souza

Yes, so thanks Susan. So I'll take the pipeline question first and we continue to see a healthy pipeline of opportunities you know a slight uptick if anything you know more recently with just activity there which is good uh and And as you know, we're focused on businesses where we see strong strategic and cultural fit. These are in attractive niches and where Worthington has a clear opportunity to create some additional value. And we've got a strong balance sheet. We've got really good free cashflow generation, like we talked about earlier. Low leverage and that creates significant financial flexibility for us to pursue these opportunities when they make sense. Our capital allocation framework is balanced, as you know, with a bias towards growth. And we're actively evaluating opportunities and we feel good about what we're seeing there. Just on the recent acquisition, so we also, we continue to feel pretty good about Our most recent acquisition, both Elgen and LSI. In the quarter, the acquisitions contributed approximately $19 million of sales, uh just in Q1.

With Elgen specifically, we've made good progress on that integration. It's been over a year at this point. focused heavily on the operations and deploying the Worthington business system to really realize the full potential of the business. The commercial HVAC end markets that they serve remain pretty healthy, and we continue to believe Elgen has significant opportunity over time. On LSI, that's our most recent acquisition. We closed in January. It's earlier in the integration process, but we are very pleased with performance there. It's a high quality business, really attractive margins, a strong position in a very specialized niche. There are critical components of the overall kind of metal system, which is an attractive market to be in.

So we're increasingly focused on LSI with how we can deploy Worthington's capabilities to accelerate growth. We think that's the real unlock for LSI and most importantly kind of both of those businesses Elgen and LSI are great cultural fits so people are our most important asset and with the acquisitions where we'd much rather spend our time improving operations expanding commercial opportunities than trying to change the culture and in both cases we feel pretty good about the teams there and the culture.

Joseph Hayek

At those businesses. Yes, and Susan, the only thing I would add comes, when you talk about the increase in rates and the rate environment, you know, that's actually a good thing for us. We, as you know, have a pretty good balance sheet and have a fair amount of liquidity if competitive situations arise for acquisition that are far more borrowing base and our borrowing basis is probably going to be better than a lot of folks that we might be in competition with. So environments like this are actually better for us, relatively speaking, than when interest rates are very, very low and capital is everywhere.

Susan Maklari

Yes, okay. That's very helpful. Thank you both for the color and good luck with the quarter.

Operator

Your next question comes from the line of Walter Liptak with Seaport Research. Your line is open. Please go ahead.

Walter Liptak

Okay, thanks. I've got a couple of follow-ups. One on the um the free cash flow, as you guys pointed out, was very strong. I wonder if you could talk about uh some of the some of the programs that you guys are doing to improve working capital? And is that sort of a one-time inflow of cash from working capital accounts, or is this going to be a – can you continue to generate high levels of free cash flow?

Colin Souza

Yes, so thanks Walt. It's been, this has been an important point for us and we're really pleased with the cash flow generation. As you mentioned, as we talked about earlier, up $26 million year over year from operating IN AND THAT'S THE UNDERESTIMED IN AND THAT'S THE UNDERESTIMED QUESTION. QUESTION. QUESTION. I HAVE SOME THANKS, I HAVE SOME THANKS, I HAVE SOME THANKS, IT'S AN EXCITING, IT'S AN EXCITING, IT'S AN EXCITING, UNDERSTANDING, UNDERSTANDING, UNDERSTANDING, MINIMUM DOLLARS TO FIND MINIMUM DOLLARS TO FIND MINIMUM DOLLARS TO FIND SOME NEW CASH. The working capital measures we've been very intentional about, which has been helping us drive that free cash flow generation, and we believe it is sustainable. We've been working hard with our teams to continue to pull levers to really compound our cash flow and in particular it's showing up as we talked about in our working capital. And so just, you know, from a cash conversion cycle standpoint, just over the last year, I think we're down about eight or nine days, which we're really pleased with, over that period. And then just from a networking capital as a percent of sales, we're down, I think almost 3% just over the last couple of years. And so, that's a lot of incremental things, working around customer terms, working around our supply base, and then just more efficiently and effectively managing inventory.

Things like 80-20 always play a role in that as well. And so, we're really pleased with the performance and do view it as sustainable. As we move forward, you know, we're going to continue to drive that free cash flow generation and, you know, there is some normal kind of cyclicality or seasonality to it. We do have an extra tax payment in Q2, which is normal, of course, but outside of that, uh, we feel pretty good from a free cash flow standpoint.

Walter Liptak

Okay, all right, thanks for that insight. And then just the last one for me, the A2L tough comparison. You know, we saw that last quarter. You know, it's here again. How you know that inventory correction that's going on, how long do you think it'll take to clear you know, do you expect more, especially in the second quarter going into the end of the calendar year? And at what point do you think we start getting onto a positive comp?

Colin Souza

Yes, so Walt, so it is that transition, it did have an impact in the quarter. The unfavorable mix was primarily driven by the pooling construction business and the difficult comparison there related to A2L. Um, just a little more background there, the prior year benefited from this unusually strong demand as manufacturers, distributors, contractors simultaneously established inventory ahead of this regulated transition. And that included kind of heavy demand on our products, obviously. And we estimate the year-over-year impact to adjusted EBITDA this quarter was approximately $7 million, which is more than we anticipated a quarter ago. And Joe mentioned this earlier. Channel inventories are taking a little longer to normalize, and particularly against the the backdrop of the muted housing environment. We expect Q2 to remain a difficult comparison because of that prior year, quarter benefited from the H2L related volumes.

But as we move to the second half of the year, Q3 and Q4 are seasonally stronger in this market, including in construction. So we do expect normalization there. Importantly, we continue to view this primarily as more of a timing and comparison issue rather than a change in the long-term fundamentals of the business. Nearly all the new residential equipment now utilizes A2L refrigerants, and so every new installation expands the installed base for our service business. Products and over time that should create a growing service and repair opportunity for the products that we sell in the space. All right. Thanks very much.

Operator

Your next question comes from the line of Brian McNamara with Canaccord Genuity. Your line is open. Please go ahead.

Brian McNamara

Hey, good morning, guys. Thanks for taking the question. Just one for me as all my other questions have been addressed. Can you characterize or quantify the growth you're seeing in data centers outside of ASME tanks, whether it be WAVE, Elgen, or LSI? And specifically, are you bundling your solutions there to win business, or has it largely been kind of out of the box? All cars to this point.

Joseph Hayek

It's a great question, Brian. Good morning, it's Joe. The way that we think about data centers, we talked a lot about the ASME tanks, but yes, absolutely. Every data center is a commercial building and a number of our value streams provide Building Performance Solutions that are integral to the way those buildings function and setting up to do what they're supposed to do. That certainly includes WAVE and ClarkDietrich. It's Elgen and LSI. Across those value streams, data centers are a very important part of the growth that we're seeing. And I would say our revenues are growing commensurate, maybe a bit better or a bit worse, depending on the application with the proliferation of data centers. Because of the market and data centers operate the way that they do, it's relatively decentralized from a construction and from a guts perspective.

So the bundling would be an overstatement, but we are increasingly collaborating across value streams and talking about opportunities and prioritizing and ultimately kind of making the case that we can refer or otherwise make warm introductions for other pieces of our business that we probably couldn't a couple years ago.

Brian McNamara

Maybe just a quick follow up on that. I think in Q3 last year you said that your data business, data center business was expected to triple in fiscal '26. Well, it sounds like the ASME tanks are about to quadruple at least if they sequentially grow each quarter this year. How would we, can we at least characterize the other businesses exposed to data centers that you guys own kind of multiplying this year? Is that a fair way to characterize the growth you're seeing there?

Joseph Hayek

So, now your question, Brian, the non-ASME tanks, Yes. Can I ask that again? I just somehow misunderstood it, maybe. Say that again. I think I misunderstood your question. Can you ask it again?

Brian McNamara

Yes, so I think in Q3, I think you said your data center business overall last year was expected to triple. I don't know where that landed. Are we expecting that kind of same maybe doubling, tripling kind of this year? It sounds like the ASME tanks are going to at least quadruple if you grow sequentially quarter after quarter this year.

Joseph Hayek

Yes, yes, right. So yes, we have $13 million was effectively 3x what it had been the year before. We did that in Q1, which on a run rate, you know, so it would have it being 4x, but we think that, and we said this much, that we're going to grow sequentially. So yes, it's the, we We do absolutely believe that this market is accelerating.

Brian McNamara

All right, apologize for the confusion, Joe. Thanks for taking the question.

Joseph Hayek

No, no, it's my fault. Thank you.

Operator

Your next question comes from the line of Will Gildea with CJS Securities. Your line is open. Please go ahead.

Will Gildea

Good morning. Can you add some more color on the really solid growth in trade and specialty solutions? I think you described as volume and price-driven just wondering are there any product lines or customers where you saw more strength in the quarter.

Colin Souza

Yes, so thanks Will. So the Trade and Specialty Solution segment, really good performance in the quarter. Sales increased approximately 8% driven by a combination of higher overall volumes and selling prices. We saw some good broad-based growth uh across most of the portfolio, particularly portable propane and tools. Those were driven by higher volumes, expanded distribution, and then both of those segments had some pricing actions as well, which was helpful. The balloon time business was the primary exception, volumes were down, but that was more a function of a really strong prior year comparison. Which impacted in the current quarter. So more broadly really pleased with the performance of the segment and they had good margin expansion even excluding the tariff kind of positive in the quarter as well.

Will Gildea

That is very helpful, thank you. And then just one more, you know, I think you described, uh, increasing raw material prices, the headwind of a few million dollars, you know, how quickly can you mitigate that? And how are you thinking about mitigating that? And does that headwind, uh, get worse throughout the to the end of the calendar year uh does it improve.

Joseph Hayek

I'm just making sure I clarify, Will, My comment on a few million dollars was around steel being late and ultimately us needing to prioritize and think about shipments and manufacturing and things like that. We do think that near term we'll be in better shape there. Steel is more expensive. It was a year ago but also as we mentioned that's not ideal but we have taken price actions where we thought we needed to but But these are environments where we ultimately can separate ourselves from others. And so with our relationships and our capabilities and our optionality, it's something that will continue to address. I think we'll address it successfully. With the caveat, obviously, that things are certainly more expensive than they were a year ago from a raw material perspective. And that's true across the board.

Will Gildea

All right, thank you very much.

Operator

There are no further questions at this time. I will now turn the call back to Joe for any closing remarks.

Joseph Hayek

Big thank you. And thank you all for joining us this morning. Look forward to potentially seeing some of you at our Investor Day in November. Hope you have a great day.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.