沃辛頓企業 (WOR) 2027 會計年度第一季法說會：資料中心儲罐成長與強勁現金流

Worthington Enterprises (NYSE: WOR) 公布 2027 財年第一季營收、調整後盈餘與自由現金流均有所成長。貿易與特種解決方案部門、合資企業以及資料中心相關 ASME 壓力容器的成長，有助於抵銷製冷與建築市場帶來的逆風。

重點摘要

• 合併營收年增 13% 至 3.44 億美元，其中包括約 7% 的有機成長。收購項目貢獻了 1,900 萬美元。
• 調整後 EBITDA 成長 10% 至 7,400 萬美元，利潤率為 21.5%。調整後每股盈餘從 0.78 美元增至 0.82 美元。
• 自由現金流從 2,800 萬美元近乎翻倍至 5,400 萬美元。近 12 個月自由現金流達到創紀錄的 1.96 億美元。
• 第一季資料中心相關 ASME 壓力容器營收達 1,300 萬美元，追平 2026 財年全年的總額。管理層預計 2027 財年剩餘時間將實現季度環比成長，且成長主要集中在下半年。
• 貿易與特種解決方案部門的調整後 EBITDA 從 1,600 萬美元擴增至 2,400 萬美元，利潤率則從 13.6% 提升至 18.6%。
• 由於 A2L 冷媒轉型需求正常化、新屋銷售低迷、鋼材供應緊張以及交貨週期延長，製冷與建築業務持續承壓。

核心財務數據

Worthington 透過發放股利回饋股東 900 萬美元，並花費 1,800 萬美元實施庫藏股買回 33.5 萬股。其合資企業發放了 3,600 萬美元股利，相當於權益法收益的 88%。董事會還宣布每股發放 0.20 美元的季度股利，將於 2026 年 12 月發放。

業務與營運績效

建築性能解決方案

淨營收從 1.85 億美元成長 16% 至 2.15 億美元。收購挹注 1,900 萬美元，而水處理與歐洲業務帶動有機營收成長 6%。

調整後 EBITDA 近乎持平，為 6,000 萬美元，利潤率為 27.8%。製冷與建築營收下降、不利的產品組合、鋼材供應受限以及交貨週期延長抵銷了營收成長。

水處理業務受惠於用於資料中心液冷系統工程化 ASME 壓力容器的需求。第一季來自此應用的營收達 1,300 萬美元，相當於 2026 財年全年的總額。Worthington 正積極投資工程人才、設備與生產產能，同時也在適當時機尋求製造夥伴合作。

WAVE 創下 3,500 萬美元的紀錄性權益法收益，年增約 300 萬美元。教育、醫療、交通及資料中心領域的穩健活動支撐了業績，而零售與辦公室市場則相對低迷。儘管資料中心以外的商業建築市場疲軟，ClarkDietrich 的權益法收益仍增加逾 100 萬美元至 700 萬美元。

貿易與特種解決方案

在出貨量與平均售價提升的支撐下，營收從 1.19 億美元成長 8% 至 1.29 億美元。可攜式丙烷與工具產品透過銷量成長、擴展分銷通路及產品定價策略展現強勁表現。

調整後 EBITDA 從 1,600 萬美元增至 2,400 萬美元。利潤率擴增 500 個基點至 18.6%，反映出銷售成長、定價改善、製造績效提升以及 IEPA 關稅退款。管理層表示，即使扣除關稅收益，基礎獲利能力亦有所改善。

氣球相關產品出貨量在去年高基期下有所下滑。Worthington 正將其 80-20 營運法則延伸至可攜式燃料與噴燈產品，以簡化產品組合、改善組合結構並支撐利潤率。

管理層展望

管理層預計資料中心相關 ASME 壓力容器營收將在 2027 財年第二季、第三季和第四季實現季度環比成長，且更多成長將集中在下半年。管理層提醒，專案進度時程可能有所變動，相關商機從宣佈建置新資料中心到實現收益可能需要 18 至 24 個月的時間。

公司預計第二財季製冷與建築業務年增比較仍面臨挑戰，因為去年同期受惠於 A2L 冷媒轉型需求的激增。管理層預期下半年狀況將回歸正常化，屆時第三季與第四季將進入季節性旺季。

受正常季節性因素影響，WAVE 第二季表現預計將呈現季度環比趨緩，但管理層強調該業務依舊健全。此外，自由現金流在第二季也將面臨正常的額外稅款支付。

風險與關注焦點

• 在房市低迷的情況下，A2L 相關通路庫存的正常化花費了更長時間。公司估計第一季對調整後 EBITDA 的年減影響約為 700 萬美元，高於原先預期。
• 鋼材供應緊張及交貨週期延長打亂了生產排程與出貨時間。管理層估計這些限制在本季度給公司造成了數百萬美元的損失。
• 鋼材與其他原料成本均高於去年同期。Worthington 已在適當時機實施定價調整措施，但對於 2026 日曆年結束之後的前景可見度有限。
• 資料中心商機的取得時機與轉換率仍具不確定性。管理層強調，潛在專案管道並不等於實際營收。
• 高利率、通膨、地緣政治不穩定、供應限制及營運挑戰依然是整體營運環境的一部分。

分析師問答亮點

鋼材供應：管理層表示，Worthington 正善用其供應商關係、採購能力及廣泛的製造網路來應對供應緊張。預計狀況將在 2026 日曆年底前有所改善，但對該時期之後的可見度依然有限。

資料中心策略：公司將 ASME 壓力容器視為液冷與熱管理系統中的關鍵組件。公司正在擴充內部產能與工程資源，同時透過外部合作夥伴補充產能。資料中心業務也延伸至 WAVE、ClarkDietrich、Elgen 及 LSI，不過管理層表示，將產品描述為完全打包組合銷售屬於誇大。

消費者與承包商需求：Worthington 在貿易與特種解決方案部門未發現重大疲軟跡象。管理層表示，在維修翻新活動與相對較低的失業率支撐下，客戶零售端趨勢保持穩定。

併購：Elgen 與 LSI 為本季增加了 1,900 萬美元的收購營收。Worthington 表示 Elgen 的整合進展順利，而 LSI 表現良好並提供商業擴展契機。管理層形容併購管道 (M&A pipeline) 非常健康，近期活動略有增加。

現金轉化：過去一年現金轉化週期改善了約 8 至 9 天，而過去兩年中淨營運資金占營收比率下降了近 3 個百分點。管理層將此進展歸因於客戶條款優化、供應商管理、庫存效率以及 80-20 營運法則，並認為此改善是可持續的。

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管理層陳述

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.

分析師問答

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.