Apogee Enterprises, Inc.

Good day, ladies and gentlemen, and welcome to the first quarter 2020 Apogee Enterprises, Inc. earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will be given at that time. If anyone should require assistance during the call, you may press star, then zero on your touchtone telephone. It is now my pleasure to turn the call over to Jeff Hibshon.

Please go ahead, sir. Thank you, Andrew. Good morning and welcome to Apogee Enterprises Fiscal 2020 First Quarter Earnings Call. With me today are Joe Puschis, 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 website. 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 that's also 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.

Good morning, everyone. Thanks for joining our call today. The first quarter was a solid start for our fiscal year. We hit on our commitments. The backlog is up. We're holding guidance, and we're progressing on strategic initiatives while launching new ones, which we'll touch on today. And finally, we're pursuing cost recovery on the charges from the prior quarter. We still have a lot of work ahead of us, but our progress is excellent. This morning, I'd like to share some perspectives on what we are seeing in the end markets and discuss the highlights from the quarter and progress on some of our key strategic initiatives. and then of course I'll turn it over to Jim for more specific details on the quarter and our full year guidance. First, the economy and market conditions. Let me start with some observations about the economy and the end markets we play in. I continue to describe the overall market conditions in our sector as bumping along the top. A healthy environment in which Apogee can continue to grow. Underlying economic conditions remain stable. While economic growth has slowed a bit, the U.S. still averaged over 150,000 new jobs per month over the past quarter, and we continue to see employment gains in the office-occupying sectors, education, and health care, the most important market segments for Apogee. Looking specifically at commercial office markets, Office vacancy rates are at decade-low levels and rents are moving higher, both of which point to continued demand for new office construction. Demand for multifamily housing also remains strong, with new unit construction forecasted to remain at historically high levels in 2019. Additionally, the recent downward trend in interest rates should be supportive for new building projects. Of course, there is some macro uncertainty, and the market often overreacts to bad news, but overall, the economic situation is positive. We monitor the industry indicators like the Architectural Billing Index, the ABI as we call it, the Dodge Momentum Index, and new construction starts. While these indicators have fluctuated a bit in recent months, the long-term trends have been favorable. The AVI has been positive 19 of the last 20 months, 40 of the last 48, without the peaks and valleys, and this is key to sustainable growth in end markets and stability. It's been flattish in recent months, but we're okay with flattish. It's at stable, healthy levels today. New construction starts also remain at a healthy level. I'd like to revisit a point I made last quarter. While new construction has improved over a relatively long period of time, the pace of activity has fallen short of previous up cycles. And on a square foot basis, construction activity in the non-resi sector still has a long way to go to reach prior peaks. And although the U.S. economic recovery is now approximately 10 years in the making, Commercial construction recovery is about half of that. Also, we're not seeing overbuilding or speculative building that might indicate top of market cycle. We continue to see a nice balance of new construction starts tied to tenant demand. The favorable economic and market environment is translating into solid demand for Apogee's products and services. We continue to build backlogs. We're winning business across our geographic footprint, and we're winning business in all of our key market subsectors. Based on customer commitments and our sales pipeline, we could see further backlog growth for services in the second quarter, certainly depending on the timing of contracts. In our shorter lead time businesses, customer activity remains healthy. We have good sales pipeline and we're seeing solid quoting and bidding activity. So overall, we believe the market backdrop supports top line growth for Apogee this year and into fiscal 21. Okay, let's turn to our highlights and strategic initiatives. Looking at the first quarter, I'll touch on a few key highlights. First, We made significant progress toward completing the legacy EFCO projects that we've been talking about in prior releases. The last remaining project proceeded as planned in the quarter, and we're now several steps closer to the finish line. On this last project, we are now more than 95% complete with manufacturing for the project, which is being led by EFCO. We are more than 70% complete with installation. which is being managed by our architectural services team. We expect to be largely finished with this project by the time we report our second quarter results and with some limited activity continuing into the fourth quarter typical of all commercial projects. We also continue to work on potential cost recoveries that could offset some portion of the charge we recorded last quarter. I'm also pleased with the operational progress we made at EFCO in the quarter. We're making headway on operational improvements and lean initiatives, which are driving steady increases in key quality and productivity metrics. Frankly, EFCO had an excellent quarter. In the second quarter, we expect to complete a facility upgrade project at EFCO, which will improve material flow out of our factory and allow further productivity inside the factory itself. This will positively impact results in the second half of the year. In addition, we continue to take steps to drive synergies in the framing system segment. Over the past several years, one of our strategic priorities has been diversifying Apigee's revenue base to unlock new growth and to make the company less dependent on the more cyclical large project segment of the non-resi construction market. Over five years ago, I set our growth strategy in motion around driving better than market growth in our framing systems businesses by way of new product introductions, new markets, and geographic expansion. And by focusing Apogee acquisition efforts in this segment, our legacy businesses achieved amazing growth and bottom line results. And we expect executed four acquisitions in this segment, including a very successful product line tuck-in. We focused on expanding framing systems segment, not at the expense of our other segments, but because framing systems had the biggest opportunity for long-term revenue growth and margin expansion. Framing operates in a more fragmented market with numerous opportunities for growth through share, geographic expansion, and new product innovations. The segment also offers substantial opportunity for margin expansion. We've executed our strategy through both organic growth and by making these key acquisitions to increase scale and add capabilities and framing. As we discussed on previous calls, we inherited some unexpected problems with the EFCO acquisition, which slowed our progress over the past two years. But we are putting these issues behind us now, and we're turning our full attention to realizing the margin and growth opportunities in framing systems with synergy efforts in both the revenue and cost parts of the P&L. We'll be taking concrete steps to drive synergies and reduce costs over the next several quarters. This will include increased supply chain integration among several of the framing businesses, insourcing some materials we currently purchase outside, and other purchasing synergies. These actions will drive long-term benefits but will carry some upfront costs, which will be likely incurred in the second quarter, and Jim will talk more about that in his guidance comments. In architectural glass, we had a very strong year-over-year sales growth and margin expansion. Over the past three quarters, the glass segment has averaged $100 million in revenue, which reflects steady demand and improved throughput. The new architectural glass growth initiative that I highlighted last quarter is also progressing as expected, and we plan to begin operations in our fiscal third quarter. I mentioned the strong order flow we saw in architectural services, adding another $39 million to the segment's record backlog. As has been the case in the past several years, our services segment is focused on Project Selection, Discipline Pricing, and Execution Excellence at the job site. And this business continues to demonstrate amazing discipline and results. We're concentrating on those projects that best fit our capabilities and offer the best opportunity for solid profitability. And the entire services team is focused on execution excellence through all phases of a project's life cycle. Based on the schedules for projects and backlog, we continue to believe the services segment is well-positioned for revenue growth and even higher margins in fiscal 2021. And finally, our large-scale optical segment is a well-run gem of a business that continues to deliver strong performance led by an amazing leadership team with a strong leadership position. This segment always has quarter-to-quarter variability, but on an annualized basis, it generates consistent profitability and cash flow. Through the first quarter, the LSO segment is on track to meet our full-year growth plan and margin targets. So overall, a good start to the fiscal year. We feel confident about how we're positioned for the remainder of the year. And with that, I'll pass the call over to Jim, who will provide more details on the quarter and our outlook and then I'll take questions from you and wrap up with some final comments. Jim, you have the time.