Apogee Enterprises, Inc.

Good day, ladies and gentlemen, and welcome to the Apogee Enterprises third quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode, so if anyone should require assistance during the call, please press star, then zero on your touch-tone telephone to reach an operator. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, today's conference may be recorded. I'd now like to introduce your host for today's conference, Mr. Jeff Hibson. Sir, please go ahead.

Thank you. Good morning and welcome to Apogee Enterprises' fiscal 2019 third quarter earnings call. With me today are Joe Pushis, Apogee's chief executive officer, and Jim Porter, chief financial officer. I'd like to remind everyone that there are slides to accompany today's remarks, which are available in the investor relations section of Apogee's websites. During this call, we will reference certain non-GAAP financial measures. Definitions of these non-GAAP measures and a reconciliation to the nearest GAAP measures is provided in the earnings release we issued this morning and is available on our website. Also, I'd like to remind everyone that our call will contain forward-looking statements reflecting management's expectations, which are based on currently available information. Actual results may differ materially. More information about factors that could affect Apogee's business and financial results can be found in our SEC filings. And with that, I'll turn the call over to you, Joe. All right.

Thanks, Jeff, and thank you, everyone, for joining us. This morning, I'd like to discuss some of the trends we're seeing in our end markets, review the quarter's highlights across our business segments, look at the quarter in the context of our long-term strategy, and I'll turn it over to Jim for more details on the quarter and the outlook. So for in-market trends, overall conditions continue to be positive. Market indicators such as the architectural billing index, new construction starts, employment growth and office vacancy rates remain favorable. In fact, the most recent ABI, which was released just Tuesday of this week, reflected one of the highest scores of growth and many years. At almost 55, it reflected regional growth in most regions in the U.S. and in all sectors, largest being in commercial, which is our primary market as you know. So it's a great indicator for the long-term health of future projects and future holes in the ground. Specific to Apogee, bidding and quoting activity remain solid across our segments. Orders in the glass segment remain strong in Q3 following the historical record levels we saw in the second quarter. And architectural services continue to increase its backlog in spite of a huge revenue quarter. These trends are encouraging and bode well for Apogee's future. In framing systems, however, we were experiencing some near-term revenue issues. In the third quarter, we saw timing delays in some of our markets we serve. This slowed framing systems order flow in Q3 as customers made less progress than expected at their job sites and pushed out project schedules. These are delays and we are not seeing project cancellations, nor have we lost work that we thought we had won. At this point, we expect these timing delays to impact the year. Looking at the longer term, we're confident in our strong market position and see numerous opportunities to drive growth in our framing system segment. Let me turn to highlights across our four segments. Our results were led by another terrific quarter for architectural services. This segment is certainly firing on all cylinders. Impressive organic revenue growth, strong margin gains, and several new project wins which contributed to an adding to the backlog. With the strong orders during the quarter, services backlogged now stretches well into fiscal 2021. In fact, our backlog for the second year out is heavier than usual. I couldn't be more proud of what this team has accomplished. Our strategies to optimize project selection, drive efficiency in manufacturing operations and improve are all showing up in their results. There will always be quarter-to-quarter variability in this segment, and due to the nature of the large project-based business that it is, but there is no question this is a stronger and better-performing business than it was a few years ago. We will continue to manage this business for profitability over growth as we work to optimize our project management capacities. In architectural glass, the plans we put in place last quarter are delivering results. Despite continued tight labor markets, we've been having good success adding new employees and ramping up production. In fact, we've now successfully added 400 new jobs in our large factory since the second quarter started. Our revised training programs and focused operational improvement efforts drove better results in key operational metrics in Q3. We saw higher throughput in our factories, improved labor efficiency, gains in on-time and complete shipments, and we had better quality with lower scrap rates and rework rates. These improvements showed up in the segment's financial results. Revenue increased 12% compared to the second quarter. The segment returned to year-over-year revenue growth for the first time since the first quarter of fiscal 2018. and margins were up 390 basis points sequentially. We have a good roadmap to further top-line margin improvements in Q4 and beyond. Just as importantly, customer commitments and order flow remain strong with good pricing. We continue to win in mid-size markets and have regained share in large projects. As a reminder, we do not report backlog for the glass segment. We often engage with customers however on potential projects well in advance of construction. This offers our glass business added long-term potential revenue visibility. Based on awards in hand, at this point we are encouraged with the outlook for this segment and expect revenue growth to continue in the fourth quarter and extend into next fiscal year. With that said, we still have work ahead of us to continue improving Our operational performance. We have productivity initiatives underway to return this segment to double-digit operating margins achieved in recent periods. We believe this margin improvement opportunity is largely under control and represents a significant driver of potential earnings and cash flow growth. We now expect our efforts to return architectural glass to targeted margin levels will likely extend into the first part of fiscal 2020. We anticipate showing continued progress, however, in Q4. In framing systems, revenue and profit were down year over year largely due to timing delays I mentioned earlier. We continue to make progress in our initiatives to improve operational performance and drive synergies across this framing segment. Unfortunately, this progress was offset by the impact of lower volumes. Based on a more cautious outlook for framing systems and remaining work to be done in glass, we have updated our full-year guidance, which Jim will go over in great detail. Longer term, we continue to be optimistic about framing systems' competitive position and organic growth potential. We remain confident that there is substantial opportunity to improve framing systems' profitability, including the recently acquired EFCO business. Thank you for joining us. Thank you for joining us. to strengthen and diversify our company. We continue to see numerous opportunities to drive further organic growth. As I stated earlier, overall market indicators remain favorable. Our backlog and customer commitments provide good visibility in the longer lead time portions of our business. And we're pursuing opportunities to expand in new geographies and new market segments. And on top of that, we have a very healthy pipeline of new products. We're now over five years into our journey to drive Apogee's lean enterprise approach into our businesses. While we've had some near-term profitability challenges, we stand on a much stronger foundation today than we did just a few years ago. And this year will be the second highest year in earnings for Apogee in our 70-year history. Finally, strong cash flow and a healthy financial position have long been hallmarks of our company. This solid financial position has enabled Apogee to pursue a balanced capital deployment strategy, investing in our businesses to drive growth, improve productivity, and return cash to shareholders. We've continued this approach for the first three quarters of fiscal 2019. Our balance sheet is extremely strong. Year-to-date cash flow is up compared to last year. We're making high return capital investments, and year-to-date we've returned and over $23 million to our shareholders through share buybacks, a 60% increase compared to this point last fiscal year. And I can assure you that we are laser focused internally on improving operations and acting with a tremendous sense of urgency. Let me now turn it over to Jim who will provide more details on the quarter and the outlook. and before we take questions, I'll come back online for a few more comments. Jim.