Apogee Enterprises, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Apogee Enterprises Fiscal 2020 Third Quarter Earnings Conference Call. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Jeff Hibson. Thank you. Please go ahead, sir.

Thank you, Shannon. Good morning and welcome to Apogee Enterprises Fiscal 2020 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 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, which is 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.

Thank you, Jeff, and thank you, everyone, for joining us this morning. By now, you have seen our release. Clearly, the results this quarter did not meet our expectations or yours. The shortfall in the quarter was primarily driven by operational difficulties and sales shortfalls in a couple of our framing systems business units. Jim and I will provide more detail on that throughout this morning. We are taking actions to address these issues and I'll provide more information on that in a moment, as will Jim. Beyond these issues, our other businesses and our other business units are well positioned and have had a number of positives in the quarter. Our architectural services segment continues to execute at high levels. They're performing better than expected with strong project execution and operating margins approaching 10%. Just as importantly, the segment continues to win in the marketplace, adding over $100 million to its already record backlog during the quarter, a 20% increase from the last quarter, and a 40% increase from a year ago. And based on our current pipeline, we expect to see even more backlog growth in the fourth quarter in our services segment. With this backlog, our services business is positioned for solid top and bottom line growth for at least the next two years. Large scale optical also continues to be a high performing business delivering on planned growth in the quarter. along with its usual impressive operating margins of 28%. In architectural glass, we continue to see improvement in operational performance in our factories, absorbing the startup costs of our new factory. And we successfully launched that new facility in Texas, executing our strategy to grow in the small project segment of the market. which is the largest part of the architectural glass market. We shipped our first orders out of this factory in the quarter and we have seen a favorable response from the market to our offering. This is critically important milestone in our strategy to diversify the glass segment, particularly as we see continued pricing pressure in our traditional core market from foreign competitors Thank you for joining us. as we continue to pursue resolution of the remaining costs and claims related to this project. Finally, our view of the end markets remains fairly positive. I continue to view the market as bumping along the top. Our strong backlog growth and pipeline in architectural services points to continued healthy construction activity across the United States for the foreseeable future. and our other architectural businesses, it's more of a mixed story with strong bidding and quoting activity in some segments of this market and higher levels of customer-driven schedule delays than others. But overall, our view of the market has not changed and we still see conditions that support long-term growth for our businesses. After a few months of concerns about the U.S. economy, things have turned more upbeat over the last 90 days. Turning back to framing systems, let me provide some details on the quarter and the actions we're taking. The quarter was impacted by lower sales volumes and operational difficulties in a few of our framing businesses. Jim will provide more detail on the specific drivers, but they include revenue shortfalls and manufacturing issues in just a subset of our architectural framing systems businesses. The results are disappointing, and I and our entire leadership team are focused on resolving the underlying issues. Last quarter, we announced that we had created a new overall segment leader for framing systems, charged with driving integration, synergies, and improved financial performance. The six operating businesses in this segment will be led as one by one leader who took the reins in Q3. Given this quarter's challenges, we are accelerating these efforts, moving quickly but deliberately to drive positive change. First, we have made significant changes to the individual business unit leadership of several of these businesses, particularly in the underperforming businesses. In addition to these leadership actions, the team is developing an integration and performance improvement plan, considering every available lever. The plan is focused on three pillars, which are outlined on page five in our slide deck. First, reducing our cost structure through procurement savings, overhead cost reductions, and minimizing controllable costs. Second, commercial excellence, which is focused on integrated product management, sales, marketing, and pricing strategies, along with applying the lessons learned from our architectural services segment to improve project selections. and third, operational and supply chain integration, optimizing our manufacturing capacity and footprint in buildings on our lean enterprise program to drive productivity and key value streams across these businesses in this segment. Last quarter, I also discussed our enterprise ride procurement savings program. I'd like to provide an update on our progress in this initiative. Earlier this year, we retained Alex Partners, a leading global advisory firm to help us identify cost savings opportunities across our company. Over the past quarter, we have made significant progress. The scope of the project includes all categories of spend, direct material, indirect material and services, and freight, accounting for roughly half of Apogee's total cost structure. We analyzed 32 categories of spend, which have been divided in three ways. We are currently working through the three ways, implementing various strategies to capture the identified savings opportunities and this will come over the next several quarters. As part of the initiative, we are moving toward a centralized procurement model that better leverages our scale and will drive synergies across our supply chain. To lead this effort, I have added a new role of Chief Procurement Officer. who will report to me and will join our team in January. Taken together, we expect the framing system's performance improvements and the procurement savings project to generate $30 to $40 million of annual savings. We'll begin to see some benefits immediately with the savings building as the projects mature over the next year. We plan to provide further details on the expected impact in fiscal 21 when we provide guidance in our year-end call. Though we are reducing our outlook for the year, I remain confident in our long-term direction and see numerous opportunities to drive improvements going forward. We are taking concrete actions to address near-term performance issues and as I outlined earlier, much of our business remains healthy with solid execution, strong market positions, robust backlogs, and supportive end markets. Finally, initiatives like our Procurement Savings Project and our Small Projects Architectural Glass entry provide more reasons for optimism. With that, I'll pass it over to Jim, who will provide more details on the quarter and our outlook. Before I take questions, I'll return with a few additional comments. Jim? Thanks, Joe, and good morning.