Apogee Enterprises, Inc.

Q1 2022 Earnings Conference Call

6/25/2021

spk_0: food go ahead
spk_1: becky a good morning everyone and welcome to apogee enterprises cisco twenty twenty two first quarter earnings call with me today are high silver hard apogee chief executive officer officer and a seat tube that chief financial officer i'd like to remind everyone that there are supplied to accompany today's remarks he are available in the industry lace section of apogee his website during the paul we will reference certain non gap financial measures definitions of these measures and reconciliation to the nearest gap measures are provided in the earnings release we you this morning this is also available on our website i'd like to remind everyone that are called will contain forward looking statements reflect in management expectations which are based on currently available information actual results may differ materially more information about factors that could affect apogee his business and finance were involved can be found in our fcc filings and with that altering the call over to you tie
spk_2: think job and think there were one for joining us this morning
spk_1: the first quarter with the solid start to our fiscal year and i'm proud of the results are team delivered
spk_2: this morning i'll review the highlights from the quarter and the trends were seeing in our business i'll often given update anarchy initiatives then the she will provide more details on the quarter and are full your outlook after that will be happy to take your questions so let's start with the highlights from the quarter which can be found and page former slide deck our business rebounded strongly compared to last year's first quarter when the pandemic had a significant impact on our results i'm pleased to report that in this year's first quarter we grew bowl the top line and the bottom line let's start with revenue we grew sales and all for segments are biggest dollar girl came from large scale optical which is now fully recovered from last year's pandemic impacts architectural services also performed well delivering double digit sales growth as we continue to execute projects in our backlog let's turn to profitability
spk_1: compared to last year's first quarter profits improved significantly
spk_2: again lsl lead the way at think minutes now back at it's typical levels of profitability we also achieved year over year margin gains in both architectural glass and framing systems despite some inflation and material on free pass earnings per share nearly tripled coming in at forty two cents is compared to adjusted earnings the fifteen cents per share last year from a cash in a balance sheet perspective our financial position remains strong we have relatively low debt significantly lower than a year ago and we returned to eighteen million of cash to shareholders this quarter you share buybacks and dividends a pen the strength of our first quarter results and or outlook we are increasing are earning guidance for the full year to a range of two dollars and twenty cents to two dollars and forty cents per share that's up from our previous guidance of two dollars and ten cents to two dollars and thirty five cents per share now let's look at our and markets while non residential construction remains in a downturn we are encouraged by the positive trends were seen in the near term we remain cautious as we still face uncertainty especially in the shorter lead time parts of our business the latest data and construction spending from the us census bureau showed that non residential construction activity is down six point five percent compared to pre pandemic levels notably spending and every segment of non residential construction that apogee participates in his lower compared to a year ago however the trends in forward looking indicators like the architecture billings index and the dod momentum index are much more encouraging these indicators turn strongly positive in recent months and remain so that suggests we could see non residential construction returned to grow up at some point in the next twelve months in our own business we are seeing early signs that sales pipelines and bidding activity are improving also we are experiencing fewer project delays in a few cases we are actually seen projects schedules accelerate while some uncertainty remains both and how quickly the market recovers end in the supply and cause of key raw materials we do see increased reasons for optimism in addition to the up on the answer results we also made very good progress on our key initiatives during the quarter those initiatives are outline on page five of our earnings presentation let me touch on a couple of areas starting with enterprise transformation during the quarter we begin to work and several foundational projects to enable our enterprise transformation efforts we are working to strengthen core processors and systems and provide new digital and back office capabilities across several functional areas including finance human resources and supply chain our level of effort and the spending and these investments will pick up in the next couple of quarters these investments also support our cost saving efforts ensuring we sustain and build on the work already underway over the past year we started the long term work to build a more competitive costs model we are driving cost an operational improvement initiative that will provide near term benefits and we see an opportunity to drive further gains over the medium to long term primarily in our architectural glass and framing system segments
spk_1: the efforts to further improve our cost structure will remain at top focus for the rest of our fiscal twenty two and will be a key pillar of our strategic work going forward
spk_2: finally we made substantial progress on our new enterprise wide strategy last quarter i mention that we had just started to develop a strategic road map the better position the company for long term sustainable growth and to improve our overall financial performance we began by taking a systematic outside and approach we are using a third party together extensive input from dozens of t customers and to provide detailed competitive benchmarking this work is clearly identifying our strengths as well as areas where we can make marked improvement addressing these areas will allow us to consistently grow above market at better margins and deliver stronger value to our customers the pandemic and the subsequent downturn in non residential construction are bringing change our and markets we recognize the imperative to adapt our business so that we can succeed in the future we're now deep in the analyzing our current mix of products services and capabilities along with the markets and the customers that we serve
spk_1: our goal is to identify the best avenues for future growth with better margins
spk_3: we are also evaluating how we compete
spk_2: this one sure we have the right operating model and capabilities needed to deliver consistent profitable girl you are work so far we've gained valuable insights and were excited about the opportunities we as the ahead for apogee importantly our strategy work has validated the opportunity to achieve significant improvements and margins and raise returns on invested capital this work will continue to the summer and we look forward to sharing more details in the coming quarters but we will begin executing elements of our strategy as the work is completed the implementation will be well under way as we head into the fall the we anticipate hosting an investor day at the end of this calendar year to share more details on our strategy as well as our longer term financial goals look for more information on our investor day in the coming months with that i'll turn it over to initiate to provide more details on the quarter and are full year outlook
spk_4: anchor tie and good morning everyone as die mention the first quarter was sonic start to or fiscal year with strong growth on board the top line and the bottom line if gave us the confidence in greece a guide him for the full year just as important the what we have begun on a key initiative is laying the foundation for even stronger performance in the future let me start with the financial is as we can basics of her earnings presentation total revenue grew by thirty percent growth and all of our segments
spk_5: large get optical lead the way
spk_4: it rebounded from last year's first quarter
spk_6: architecture services go nineteen percent
spk_4: operating income more than doubled compared to the last year's first quarter
spk_6: operating margin improved to four point nine percent up from adjusted margin of two point seven percent last year
spk_4: this was mainly driven by the recovery in l a so and by margin improvements in both black and framing segment
spk_5: as i said a big margin game despite mature and freight cost inflation with him back at both laugh and framing
spk_4: i would like to remind everyone that last year was quarter included four million dollars of benefit from every cost actions we talk in response to call it those actions have since been reverse and did not repeat this quarter
spk_6: also corporate costs were hired this quarter
spk_4: this was driven by enterprise transformation investment along with higher health care expenses
spk_5: why we leave that margin games in the quarter
spk_4: we recognize the have an opportunity to drive more stronger profitability or long term especially in plot and framing segments this will remain a top focus for a team as we take actions based on as bad as you work turning to the non operating line on a income statement net interest expense continues to trend lawyer it has one point two million dollars in this quarter compared to one point four million dollars a year ago that was mainly driven by lord that balances or tax rate was twenty five point three percent that's likely about are fully or expectation of twenty four point five percent or diluted share account declined to twenty five point eight million german by stop rape or jesus putting it all together owning increased to forty two cents per diluted share that's what about adjusted earnings of fifteen cents per share and last year's first quarter now let's dig into the individual second reserves
spk_5: which are on paid think like six of our presentation
spk_4: starting that architecture framing systems revenue grew slightly compared to last year's first quarter coming in at hundred and fifty two million dollars operating margin was five point three percent that up forty basis points compared to last year
spk_5: we're beginning to see the benefit from the past actions have taken over the past those dating that helping to off it cost inflation
spk_4: we like the progress we're making and framing system but certainly feet opportunity for further margin game
spk_5: finally if and backlog
spk_4: increase to four including two million dollars that up three percent compared to the last quarter
spk_5: dunning architecture of glad
spk_4: revenue grew eight percent to eighty two million dollars that was driven by increased volume and a more favorable cells makes operating income improved to two point one billion dollars that's compared with operating lot in last year's first quarter let me say a word about profitability and architecture of last segment a prude but three and twenty basis points
spk_5: see packers help increase buffer divinity
spk_4: the improve productivity in our blood spatter bashing facility in overtime minnesota
spk_5: we had a favour the product mix and volume for higher
spk_4: all don't help offset the higher cost of material and freight
spk_5: the i great by the profitability improvements in blast but we see an opportunity you drive larger games over the long term we can deter the minded a performance of velocity that either initiative for small glass projects
spk_4: volume remain well below are targeted level and they're looking at seven options to improve users
spk_7: architecture services
spk_4: revenue rule nineteen percent as the continued to execute project to the backlog operating income in margins degrees compared to the prior year this was due to isolated project performance impact and then that they were the product mix as a reminder that and seven and segment can vary from quarter to quarter that's because performance is given by a small number of large projects vehement confident in services or are execution and outlook for the full year but also encouraged by improving audit ran an architectural services net out of law as increase in the past two quarters and your theme more reading activity turning to large scale optical segment a bounce back strongly from the code shut down in last year's first quarter revenue was twenty four million dollars that's more than triple last year's revenue an editor return to it's normal level of profitability operating income was five point eight million dollar this quarter compared to a lot of three point one million dollars in the first quarter of last year
spk_8: going to pay seven
spk_4: our financial condition remain very strong castro from operations was six point nine million dollars i would like to remind everyone that apogee first quarter tends to a have victory low cash flow that you're the timing of and one incentive payments and insurance premiums capital a quarter was more point seven million dollars which was below last year level we continue to expect for your topics about forty five million dollars we slowed spending in the first quarter pending the outcome was proud of you work we expect more capital spending type of the enterprise transformation initiative in the back half of the fiscal year we continue to return cash to her shareholders seventeen point six million dollars and as quarter per share buyback and evidence that up from nine point six million daughter and the last year's first quarter
spk_9: or that issued remain very strong
spk_4: net that is hundred and twenty eight point five million dollars that down from that hundred and ninety nine million dollars a year ago we have no significant debt maturities until june up wait twenty four and we have no bearing on our torrent a bible and daughter revolving credit facility
spk_5: that's strong financial position gives a significant flexibility as you develop our new enterprise strategy
spk_4: in the near term we remain committed to maintaining strong balance sheet making hired on investment on a visit and regarding cat to a shareholders too timid and and opportunistic sherry perches now let's turn to or outlook for the rest of the fiscal twenty two dozen beat beat of our presentation based on the first quarter those living breathing full your earnings guidance to a range of two dollars and twenty cents
spk_6: due to rather than forty cents per share
spk_4: that's up from previous guidance of daughter than ten cents to two rather than thirty five cents per share as i mentioned were encouraged by the a growing trend we're seeing in our and market
spk_5: and then he had done the continued with he continued for softness or non residential construction markets
spk_4: we have limited visibility in a shot lead time parts of framing and architecture blast business that's good the some uncertainty about revenue in the second half of the year also as we get insight from a strategy work the may choose to step away from some of the less profitable products and customers this could impact revenue in the coming quarters make back to make continued progress on efforts to improve architecture and productivity the should benefit margin as a move to the you however we will continue to faith a when from the reversal of temporary past actions with took last year that had when is about twenty million dollars for the fully in the biggest impact will be in a second quarter a headwind of about ten million dollars a you because i didn't expect earlier because of seven to ten million dollars that a to do enterprise transformation the biggest impact from these investments will come in second and third quarters
spk_6: i would like to remind out a one more item joint quarter three a fiscal year twenty one the book games from new market tax credit in our blood segment of about seven million dollars that would not be repeated this year
spk_4: we also continue to see pressures from inflation for rest of his clear inflation and many impact framing system and architecture glad we will continue to take price factions to mitigate inflation impact as i mentioned earlier we can do to expect a fully or tax rate of about forty four point five percent and capital expenditures of about forty five million dollars or all we'll leave with our first quarter the and improve outlook i look forward to working together with tie and management team to continue this momentum for rest of the year with that i've done it back ordered time for some concluding remarks
spk_2: they proceed to wrap up the first quarter was a positive start to our year as our team delivered significant top and bottom line grow we are encouraged by the improving trends and our and markets in we are increasing our outlook for the full year a financial position remains strong giving us the flexibility to invest in our business and continue to return cast to shareholders we made good progress on our initiatives which are laying the foundation for long term profitable girl a strategy work will continue to the summer but we also begun to execute elements of it at certain portions of that plan or completed i look forward to sharing more detail than our progress in the coming quarters so with that will now open it up for your questions
spk_0: as a reminder to ask a question you'll need to press star one on your telephone to enjoy your question press the pound key with tell bottle with a barbecue in a roster
spk_10: our first question on the line of chris more crime scene junior security your line of now open
spk_11: good morning i think protecting few questions yeah maybe i will release you're not providing specific guidance on revenue but when you look it at to to to keep for and fiscal twenty two it you expect your of your growth vs fiscal twenty one
spk_4: great good mine ah this is a sheet of we definitely are see positive trends in the and markets but we are cautiously optimistic about the the the near term and you think about a bit as we have long lead time and many of for businesses and we have one and sure that
spk_12: we see the positive trends coming through architecture believe bags and dodge in the coming months to see how our revenues gonna get impacted in the future quarters
spk_4: and you know we're working to a strategy and as mentioned in earnings release we are working through certain the number of projects customers which they they removed ep away from businesses that are not profitable
spk_5: that should drive a revenue challenge this year and therefore we're not providing any revenue guidance
spk_13: gotta leave it there
spk_11: services margins six percent universe has ten point five lesser you talked about can isolated performance impact and less favorable project masks and you you separate those two little bit of just you know to understand if if that level of margin is likely to continue you know the next quarter to
spk_4: yeah breezes you know this is a a services business where we have very small number of customers the large projects and that drive that drive the variability in margins over the quarters it's got uneven returns to the thing about these do isolated project said that be a reference to those are the though are likely to get even out or the rest of the year and in terms of project makes with feet up the uneven that's in these projects as a starting securing the good news is that we answer number of a large projects been executing on and we booking are backlog volumes are higher in the services business and we remain very optimistic about
spk_2: does business or rest of the year and fuji is yeah did add to that you know we have we committed in the last quarter call we did expects the margin pressure in that business and and that openly carry through for loud given the downturn but the business is executing where where we expected it to be in and so we feared being in good shape and and meeting art
spk_14: vacations at the the rest of our fiscal year
spk_11: current as help of i'll jump back in line thanks has a queue and que
spk_0: thank our our next question answer the line of aired steinfeld crank harlem your line and south and
spk_15: morning iran
spk_2: good morning
spk_16: i'm just wondering if you can give a little more detail or a color on your comment just about ah you know looking at your business and potentially stepping away from some areas that maybe or sub optimal from our profitability perspective is that is that more customer specific or is that something that we should view as know certain parts of the market whether it's a you know and what part of the market or different geography is ah i'm you know maybe if you can break that down a little then
spk_2: yeah i think so the question this is time i made from a the strategic work that were doing so far we're deep into going through the detail right now looking at just what you touched on geography is products and project types a really understanding where are we differentiate it in terms of the value that we can provide customer irish and how does that translate and us to generating higher margins around those businesses and product offerings going forward sores were going through that work where assessing that next a and it is likely that there are certain portions of as they just certain product types are certain types of projects occur ross are primarily in our framing and are glass business that it may not make sense for us to continue to pursue those are going forward so as we get through that strategy work will will start to shape build activities and i would think of it more right now it's kind of a pruning of what we have and are offering today as we look to raise their financial performance overall going forward we want to generate that you for the customers and an and then earned the value ourselves for for providing that in that in the form of higher margins as we go forward
spk_16: gotta understand and me being insanely than the velocity and it sounds like that is one where rather than looking to tone that back you are looking at ways to accelerate that and how better to approach the market just curious you know what that may look like if you're able to answer and i mean i would assume on the cause side you're somewhat limited because of the level of automation ah but any details and be helpful
spk_2: yeah i would tell you that in a we continue to monitor the performance there and and we were making a shift in how we been trying to drive improvements we started that are during the quarter so revenue volumes although they have improved sequentially they're still well below our targets in and they're actually continue to be well below our our breakeven numbers so we started to once again look at types of projects that were pursuing through that what is the value that we can deliver in can we achieve in a reasonable margins with respect to that business so the teens tip than taking some actions you the quarter now including looking at pricing beyond just raw material inflation that there's certain parts of that business that it's clear to us and it's come out through some of the strategy work that we will have to be able to generate higher price is in order to get to acceptable margin models so that the that the work and process and it'll be evaluated with the rest of our product lines as we complete the strategy
spk_16: where okay i'm i guess last for me is the your commentary on projects
spk_2: you know that some of those are actually moving faster ah you know just curious them in the view that more as a cat campus as things start to improve here i'm or is it something that you actually viewers more sustainable going forward okay early on signals are in other there's certainly some catch up some things that are getting accelerated projects that were in que though that we saw that as a driver as part of our cue one results and then as we look going forward on a medium and longer term perspective bidding and quoting activities picking up been on that's consistent what were what we're seeing what the longer term indicators like the architectural billing index a were starting to see that activity in our sales pipeline and are quoting activities
spk_17: across their construction businesses and started to pick up
spk_18: okay think one
spk_0: thank you
spk_10: thank you as a reminder to ask a question you need to press star one on your telephone to withdraw your question back the town hall
spk_19: our next pressing concern the line on prank feel numb from deal david said your line of south them great thanks good morning tie the heat yeah i guess first two part question on framing what was that negative impact of gonna hire raw material costs and freight and margins and then as a follow up to that when we think about the business of are all are against framing and glass specifically the the the inflationary headwinds get worse this quarter
spk_4: just given threat i mean and been to a turns and and then move up and cost of her
spk_5: yep rent good morning up the i was like reminded we have been working for the last two years and of procurement journey and have a strong pregame and organization that is doing their best off said the the inflation as much as possible
spk_12: ah they are they are a bit at most of it's or drowsy a specific question we had that that roughly about thirty min and eyes of total inflation or the course of this quarter and that was much higher than previous quarter that b c or we have begun a lot of actions and in terms of rice and creepy of brigham and initiative and the net impact is of
spk_2: four million dollars that there was impact in this quarter but after all the actions taken in prices and procurement
spk_14: and framing with the big part of that it in terms of that net negative impact and they have been more aggressive at going after priced with respect to that so we expect to see that gap close to some extent but they're still going to be significant headwinds as as i'm sure you're seeing and hearing across as just
spk_19: construction but many the markets right now
spk_20: yeah absolutely on august second question with that again on a framing segment on just wanted to see jake and looks like you youths are stabilize the backlog bear and things are getting a little bit better many top through yes them into businesses or exposures with that segment yeah well
spk_2: what you're seen in particular that looks a little more positive in this environment yet you know as we normally do we won't give any specific guidance or talk specifically about business units within the segments her arm but i can tell you that eat remember architectural framing about half of that business is longer lead time and roughly approximately half is shorter lead time so now we saw some benefits and que wine were some of that shortly time business picked up some of that was tied to projects restarting and excel or
spk_5: rating trying to finish out projects and then in general worse there like the other businesses were seeing a left in quote activity and abetting bidding requests but for that business the shortly time part of that is it difficult to forecasts the shit out of the of something else that yeah one would thing to think about here the as we are consolidating the
spk_19: framing segment more and more we're not looking into individual pieces we're looking at what is a value we offered through about products to customers so as we got to the performance v re look at a consolidated framing segment on as we move forward rent understood many last one he about the glass and in pretty pretty good return and growth this quarter margins obviously moving out by and for sure not where you want them to the yet i'm to setting aside some of the initiatives your luck an ad in turn away he just talk you what wait you feel like you need to see pronounced margins to get back yeah i pad back toward that upper single digits
spk_2: range that yeah that that segments historically been accustomed to yeah we're looking at that business you that strategic work and at that thing both the product offerings the type of projects they pursue and looking at and in addition the cost structure overall that that business has and how can we strengthen that so we're not giving at this point in or margin guidance or are communicating it target will will actually get through that view the strategy work but certainly we see an opportunity to improve significantly from where they are and our strategy work has really pointed both from an external benchmarking standpoint to significant opportunities to raise that large and as well as take king another look at our product mix what types of projects we proceed through that business and how we can release leverage where they have strong differentiation in the marketplace
spk_19: that delivers value for customers that in turn generate better price and and therefore better margin for us going forward
spk_18: okay appreciate you taking the question thank you
spk_10: thank you
spk_21: thank you i'm not on some concern the line from pouliot a marathon fidelity and company your line of now from
spk_22: and good one time my machine
spk_19: good morning line
spk_20: so really exciting news regarding the enterprise like strategy and the upcoming investor day and i really appreciate the comments earlier you gave on you know you get some good granularity on areas in the portfolio which you might step away from and i certainly appreciate that are allied ask about
spk_2: you know can you speak to some of the positives you found as you're evaluating the portfolio and and be provide an example of an area where you are differentiated and were maybe you can play some office yeah just say in others it really opportunities are crossed off or about business segments
spk_3: you know clearly services continues to outperform from an overall market perspective
spk_2: one of the things that were doing to that strategy work is how can we leverage that model that they've implemented that that only allow them to win business execute well and and deliver above market margins but how can they then leverage that in the other areas and continue to grow that business our lfl business we've actually validated we've got some some very good technology and process capabilities with and that business so that pointing us to start to think about you know how can we leverage that into other adjacent sees whether it's construction or nine construction market opportunities and then glass and framing and i've talked about we need to be a much more active portfolio manager and that was all the way down at at the product and service level and so that's one thing that we're driving in this analysis is just looking at the products that we offered today that we did and hold on for for different types of raj x know some of those it's coming out clear that we can differentiate better in terms of the product in how we perform do we've got certain strengths in our service capabilities which certainly customers in certain markets in applications value immensely and so that pointing the areas where we can better amplify that message to our customer base and put some additional emphasis on those attributes of our offerings so that we can win more business and drive higher value as we go forward so their their pockets of opportunity across the all for segments to drive growth and and help us
spk_20: with margin just would be more effective and managing our product mix
spk_23: axel appreciate the color there
spk_20: on your on your change in leadership incentive structure
spk_2: can you may be speak to how that's been received by the team and any benefits you start to see year to date either in terms of their the bela tarr the building out your enterprise like strategy or just that an overall feedback on the organization yeah with data it is then very well received obviously for my leadership team that we're providing very clear objective than expectations starting on that we need to improve i return on invested capital if if we're going to invest money we have to get stronger returns for our shareholders as part of that and so will that being an overriding mart metric from all of a long term incentive perspective and then near term putting the emphasis on a bit on profit dollar generation and that's been critically important for them to use that in communicating with their teams as we're going through the strategy work that you know it it to steal an old and allergy gm in revenues nat king profits king and if if we can't generate profit it means we're not generating value for our customers and when at generating value for our shareholders so that been very good and helping the team's work the this strategy work and really thinking about how can they manage and ship their own max within
spk_24: their respective businesses that they can let that profit overall and you know we panic taken up off the the guard rail of it's okay if there's some revenue that maybe goes away in the short term because we're not going to chase those types of projects with those types of products going forward because we know we can't make the right margin levels and lavrov
spk_5: very positive but but we're on a journey like everything else yeah one more dangerous encouraging signs already we don't talk about our oh i see numbers and a godly basis it's more an annual kp eyebrows but the avidly calculated dearnley and we're seeing positive signs and grains already coming to on our way zero years so the demon getting it and there are a
spk_21: figuring faster bigger the north stars clear it's are oh i see
spk_2: understood that i could sneak one more in here i'm you know as you evaluate avenues her grow the in markets products geography like cetera are you looking at any areas where you can see either a direct or indirect benefit from a federal infrastructure bill letting aiming that is pointed at infrastructures is gonna drive some benefit for the overall markets certainly some of the areas for transportation if you think about institutional or types of projects education market know those are all things that look like are gonna have some benefit do this latest infrastructure bill and while like everything out of the long cycle business you know that i'll take time to float through in terms of projects and than the opportunity to turn those in revenue for apogee
spk_20: he but you know those are positive signs as we look out over the medium and long term as well
spk_25: got it thanks for taking the questions and look forward to the invested a lot earlier
spk_0: thank you
spk_2: thank you are this timeline showing no further questions our like to turn the call back to tie silver more for closing remarks well thanks for joining us today you know as as we've highlighted we had a good start to the year but we've got more work to do to fully realized the stronger returns for our business we're seeing good sign that operational execution but we're at the very beginning of that journey and and i expect to see that to continue to improve as we go through the year and like we highlighted or enterprise strategy work is progressing very well and we look forward to sharing more insights on that in the coming quarters
spk_0: that have a great rest of your day and a fantastic weekend and i look forward to talking to you on our next earnings concert temper we'll conquer ninth conference call thank you for participating you may now to connect it's
spk_1: saturday and think of her standing by welcome to the kill one two thousand and twenty two apogee enterprises and earnings conference call at this time ah participants are not listen only mode after the speakers presentation they will be a question and answer session check the question during the such a newly depressed dar one on your telephone please be advised that today's conference is being recorded if you're applying for their assistance lose for a star zero our knowledge and the comments or with your speaker today just have some please go ahead thank you good morning everyone and welcome to apogee enterprises that go twenty twenty two first quarter earnings call with me today are high silver hard apogee chief executive officer officer and a seat tube that chief financial officer i'd like to remind everyone that there are supplied to accompany today's remarks he had are available in the industry relations section of apogee his website during the paul we will reference certain non gap financial measures definitions of these measures and reconciliation to the nearest gap measures are provided in earnings release we issued this morning this is also available on our website i'd like to remind everyone that are called will contain forward looking statements reflect in management expectations
spk_2: which are based on currently available information
spk_1: actual results may differ materially more information about factors that could affect apogee his business and finance or resolved you can be found in our fcc filings and with that altering the call over to you type
spk_2: think job and think there were one for joining us this morning the first quarter with the solid start to our fiscal year and i'm proud of the results are team delivered this morning i'll review the highlights from the quarter and the trends were seeing in our business i'll often given update energy initiatives then the she'd will provide more details on the quarter and are full your outlook after that will be happy to take your questions so let's start with the highlights from the quarter which can be found and page for my slide deck our business rebounded strongly compared to last year's first quarter when the pandemic had a significant impact on our results i'm pleased to report that in this year's first quarter we grew bowl the top line and the bottom line let's start with revenue we grew sales and all for segments are biggest dollar girl came from large scale optical which has now fully recovered from last year's pandemic impacts architectural services also performed well delivering double digit sales growth as we continue to execute projects in our backlog let's turn to profitability compared to last year's first quarter profit improved significantly again lsl lead the way at think minutes now back at it's typical levels of profitability we to achieve year over year margin games in both architectural glass and framing systems despite some inflation and material on free pass earnings per share nearly tripled coming in at forty two cents as compared to adjusted earnings of fifteen cents per share last year from a cash in a balance sheet perspective our financial position remains strong we have relatively low debt significantly lower than a year ago and we returned to eighteen million of cash to shareholders this quarter you share buybacks and dividends a found the strength of our first quarter results and our outlook we are increasing our earnings guidance for the full year to a range of two dollars and twenty cents to two dollars and forty cents per share that's up from our previous guidance of two dollars and ten cents to two dollars and thirty five cents per share now let's look at our and markets while non residential construction remains in a downturn we are encouraged by the positive trends were seen
spk_3: in the near term we remain cautious as we still face uncertainty especially in the shorter lead time parts of our business
spk_2: the latest data and construction spending from the us census bureau showed that non residential construction activity is down six point five percent compared to pre pandemic levels notably spending and every segment of non residential construction that apogee participates in in his lower compared to a year ago however the trend and forward looking indicators like the architecture billings index and the dad momentum index are much more encouraging these indicators turned strongly positive in recent months and remain so that suggests we could see non residential construction return to growth at some point in the next twelve months in our own business we are seeing early signs that sales pipelines and bidding activity are improving also we're experiencing fewer project delays in a few cases we are actually seen projects schedules accelerate while some uncertainty remains both in how quickly the market recovers end in the supply and costs of key raw materials we do see increased reasons for optimism in addition to the south answer results we also made very good progress on our key initiatives during the quarter those initiatives are outlined on page five of our earnings presentation let me touch on a couple of areas starting with enterprise transformation during the quarter we begin to work and several foundational projects to enable our enterprise transformation efforts
spk_1: we are working to strengthen core processors and systems and provide new digital and back office capabilities across several functional areas including finance human resources and supply chain
spk_2: our level of effort and the spending on these investments will pick up in the next couple of quarters these investments also support our cost saving efforts ensuring we sustain and build on the work already underway
spk_1: over the past year we started the long term work to build a more competitive cost model
spk_2: we are driving cost and operational improvement initiative that will provide near term benefits and we see an opportunity to drive further gains over the medium to long term primarily in our architectural glass and framing system segments the efforts to further improve our cost structure will remain at top focus for the rest of our fiscal twenty two and will be a key pillar of our strategic work going forward finally we made substantial progress on our new enterprise wide strategy last quarter i mention that we had just started to develop a strategic road map the better position the company for long term sustainable growth and to improve our overall financial performance we began making taking a systematic outside and approach we are using a third party together extensive input from dozens of t customers and to provide detailed competitive benchmarking this work is clearly identifying our strengths as well as areas where we can make marked improvement addressing these areas will allow us to consistently grow above market at better margins and deliver stronger value to our customers the pandemic and the subsequent downturn in non residential construction are bringing change to our and markets we recognize the imperative to adapt our business so that we can succeed in the future we're now deep in the analyzing our current mix of products services and capabilities along with the markets and the customers that we serve our goal is to identify the best avenues for future growth with better margins we are also evaluating how we compete this one sure we have the right operating model and capabilities needed to deliver consistent profitable girl you are worked so far we've gained valuable insights and we're excited about the opportunities we as the ahead for apogee importantly our strategy work has validated the opportunity to achieve significant improvements and margins and raise returns on invested capital this work will continue to the summer and we look forward to sharing more details in the coming quarters but we will begin executing elements of our strategy as the work is completed the implementation will be well under way as we head into the fall the we anticipate hosting an investor day at the end of this calendar year to share more details on our strategy as well as or longer term financial goals
spk_4: look for more information on our ambassador day in the coming months with that i'll turn it over than a sheet to provide more details on the quarter and are full year outlook thank you tie and good morning everyone as die mention the first quarter was sonic start to or fiscal year with strong growth on board the top line and the bottom line it gave us the confidence to increase a guide and for the full year just as important the what we have begun on a key initiative is laying the foundation for even stronger performance in the future
spk_5: let me start with the financial reserves we learn basics of her earnings presentation
spk_4: total revenue grew by thirty percent with growth and all of our segments large get up to go to lead the way it rebounded from last year's first quarter
spk_5: architecture services goon nineteen percent
spk_4: operating income more than doubled compared to the last year's first quarter
spk_5: operating margin improved to four point nine percent up from adjusted margin of two point seven percent last year
spk_4: this was mainly driven by the recovery in l a so and by margin improvements in both black and framing segments as i said bgp margin game despite mature and freight cost inflation with back and both laugh and framing
spk_6: i would like to remind everyone that last year's was quarter included four million dollars of benefit from every cost actions we talk in response to call it
spk_4: those actions have since been reverse and did not repeat this quarter
spk_5: also corporate costs were hired this quarter
spk_4: this was driven by enterprise transformation investment along with higher health care expenses why we leave that margin games in the quarter we recognize the have an opportunity to drive more stronger profitability or long term especially in black and framing segments this will remain a top focus for a team as we take actions based on as bad as you work turning to the not operating line on a income statement net interest expense continues to trend lawyer it is one point two million dollars in this quarter compared to one point four million dollars a year ago that was mainly driven by lord that balances a tax rate was twenty five point three percent that's likely about are fully your expectation of twenty four point five percent or diluted share declined to twenty five point eight million given by stop rape or jesus putting it all together owning increased to forty two cents per diluted share that's what about adjusted earnings of fifteen cents per share and last year's first quarter now let's dig into the individual segment of those which are on paid think like six of a presentation
spk_5: starting that architecture framing systems revenue grew slightly compared to last year's first quarter coming in at hundred and fifty two million dollars operating margin was five point three percent that up forty basis points compared to last year
spk_4: we're beginning to see the benefit from the past actions have taken over the past those dating the helping to off it cost inflation
spk_5: we like the progress we're making and framing system but certainly feet opportunity for further margin games
spk_4: finally if and backlog increase to four a quality minute daughters that up three percent compared to the last quarter dining architecture of glad revenue grew eight percent to eighty million dollars that was driven by increased volume and a more favorable cells makes operating income improved to two point one billion dollars
spk_5: that's compared with operating lot in last year's first quarter
spk_4: let me say a word about profitability and architecture of last segment a prude but three and twenty basis points see factors help increase buffer divinity the improve productivity in our blood spatter bashing facility in overtime minnesota
spk_5: we had a of product mix and volume for higher
spk_4: all of don't help offset the higher cost of material and freight vi i by the profitability improvements in blast but we see an opportunity you drive larger games over the long term
spk_7: we can deter to minded a performance of velocity that either initiative for small glass projects
spk_4: volume remain well below are targeted level and they're looking at seven options to improve users architecture services revenue rule nineteen percent as the continued to execute project to the backlog
spk_5: operating income in margins degrees compared to the prior year
spk_4: this was due to isolated project performance impact and then let they were the product mix and then my though that and seven segment can vary from quarter to quarter that's because performance performances given by a small number of large projects vehement confident and services or are execution and outlook for the full year but also encouraged by improving audit ran an architectural services net out of law as increase in the past two quarters and your theme more bidding activity turning to large scale optical segment alice of bonds back strongly from the code shut down in last year's first quarter
spk_8: revenue was twenty four million dollars that's more than triple last year's revenue and editor returned to it's normal level of profitability
spk_4: operating income was five point eight million dollar this quarter compared to a lot of three point one million dollars in the first quarter of last year going to pay seven our financial condition remain very strong castro from operations was six point nine million dollars i would like to remind everyone that apogee first quarter tends to a have victory low cash flow that you're the timing of up and one incentive payments and insurance premiums capital a quarter was more point seven million dollars which was below last year level we continue to expect for your topics about forty five million dollars we slowed spending in the first quarter pending outcomes of was proud of you work with like more capital spending type of the enterprise transformation initiative in the back half of the fiscal year
spk_9: we continue to return cash to our shareholders
spk_4: thirteen point six million dollars and as quarter per share buybacks and evidence that up from nine point six million dollars and the last year's first quarter or bad as sheet remain very strong
spk_5: net that is hundred and twenty eight point five million dollars that's down from that part and ninety nine million dollars a year ago
spk_4: we have no significant debt maturities until june up wait twenty four and we have no bearing on our door and thirty five million daughter revolving credit facility that's strong financial position give a significant flexibility as you develop or new enterprise strategy in the near term we remain committed to maintaining strong balance sheet making hired on investment on a visit and returning cat to a shareholders for dividend and opportunistic sherry purchases now let's turn to or outlook for the rest of the fiscal way to learn a bit of her presentation based on the first quarter those living breathing full you're earning guidance to a range of two dollar than twenty cents to do rather than forty cents per share that's up from previous guidance of do rather than ten cents to to rather than thirty five cents per share
spk_5: as i mentioned were encouraged but a growing trend we're seeing in our and market
spk_4: and then he had done the continued with he continued for softness or non residential construction markets we have limited visibility in a shot lead time parts of framing and architecture glass business that's good the some uncertainty about revenue in the second half of the year also as we get insights from a strategy work the may choose to step away from some of the less profitable products and customers this could impact revenue in the coming quarters we expect to make continued progress on efforts to improve or contact your and productivity the should benefit margin as a moved to the you however we will continue to faith a when from the reversal of every past actions we took last year that had when is about twenty million dollars for the full you the biggest impact will be in a second quarter a headwind of about ten million dollars a year earlier
spk_5: because can expect pulling it cause of seven to ten million dollars that to do enterprise transformation
spk_4: the biggest impact from these investments will come in second and third quarters i would like to remind a a one more item doing quarter three a fiscal year twenty one the book games from new market tax credit in our last segment of about seven million dollars that would not be repeated this year we also continue to see pressures from inflation for rest of his clear inflation and many impact framing system and architecture glad we will continue to take pride factions to mitigate inflation impact
spk_26: and i mentioned earlier we can do to expect a fully or tax rate of about forty four point five percent and capital expenditures of about forty five million dollars or all we'll be with our first quarter the and improve outlook
spk_2: i look forward to working together with tie and management team to continue this momentum for rest of the year with that i've done it back ordered time for some concluding remarks they proceed to wrap up the first quarter was a positive start to our year and thirteen delivered significant top and bottom line grow we are encouraged by the improving trends and our and markets in we are increasing our outlook for the full year a financial position remains strong giving us the flexibility to invest in our business and continue to return cast to shareholders we made good progress on our initiatives which are laying the foundation for long term profitable girl
spk_0: a strategy work will continue to the summer but we also begun to execute elements of it at certain portions of that plan or completed
spk_10: i look forward to sharing more detail than our progress in the coming quarters so with that will now open it up your questions
spk_11: as a reminder to ask a question you'll need to press star one on your telephone to enjoy your question press the pound key we a bottle with a barbecue when a roster
spk_4: our first question on the line of chris more crime scene junior security your line of now open
spk_12: good morning i think for taking few questions yeah maybe i will release you're not providing specific guidance on revenue but when you look at at cute to to keep for in fiscal twenty two did you expect your of year growth vs fiscal twenty one
spk_6: great good mine ah this is a sheet of we definitely are see positive trend in the and markets but we are cautiously optimistic about the the the near term and you think about a bit as we have long lead times and many of for businesses and we have one and sure
spk_13: that we see the positive trends coming through architecture believe bags and dodge in the coming months to see how revenues gonna get impacted in the future quarters
spk_11: and you know we're working to a strategy and as mentioned in their earnings release we are working through certain the number of projects customers which they they remade step away from businesses that are not profitable that should drive a revenue challenge this year and therefore we're not providing any revenue guidance
spk_4: can leave it there it's services margins six percent universe has ten point five last year you talked about you know can isolated performance impact and less favorable project masks and you he separate those two little bit of just trying to understand if if that level of margin is likely to continue you know the next quarter to
spk_2: yeah breezes you know this is a a services business where we have very small number of customers the large projects and that drive that drive the variability in margins over the quarters it's got uneven returns to the think about these do isolated project said that be a reference to those are
spk_14: other those are likely to get even out or the rest of the year and in terms of project makes feet up the uneven that's in these projects as you start executing the good news is that we have certain number of a large projects been executing on and we booking are backlog volumes are higher in the services business and we remain very optimistic about
spk_11: his business or rest of the year and fuji is yeah did add to that you know we have we come in and in the last quarter call we did expect the margin pressure in that business and and now i carry through for allow given the downturn but the business is executing where where we expected it to be in and so we feared being in good shape and and meeting our
spk_18: expectations of the the rest of our fiscal year
spk_0: current as help of i'll jump back in line thanks has
spk_15: thank you and que
spk_27: thank our our next question down the line of eric time crank harlem your line and south and
spk_16: maria ron good morning i'm just wondering if you can give a little more detail or a color on your comment just about ah you know looking at your business and potentially stepping away from some areas that maybe or sub optimal from our profitability perspective is that is that more customer specific or is that something that we should view as know certain parts of the market whether it's
spk_2: a you know what part of the market or different geography is ah you know maybe if you can break that down a little then yeah i think so the question this is time i made from on the strategic work that were doing so far we're deep into going through the detail right now looking at guess what you touched on geography is products and project types a really understanding where are we differentiate it in terms of the value that we can provide customers shh and how does that translate and us to generating higher margins around those businesses and product offerings going forward sores were going through that work where assessing that next a and it is likely that there are certain portions of as they just certain product types are certain types of projects across
spk_16: us are primarily in our framing and are glass business that it may not make sense for us to continue to pursue those going forward so as we get through that strategy work will will start to shape build activities and i would think of it more right now it's kind of a pruning of what we have and are offering today as we love to raise their financial performance over all going forward in we want to generate value for the customers and an and then earned the value ourselves for for providing that in that in the form of higher margins as we go forward
spk_2: gotta understand and me being and same way than the velocity and it sounds like that is one where in a rather than looking to tone that back you are looking at ways to accelerate that and how better to approach the market just curious you know what that may look like agreeable to answer and i mean i would assume on the cause side you're somewhat limited because of the level of automation ah but any details and be helpful yeah i would tell you that in a we continue to monitor the performance there and and we were making a shift in how we been trying to drive improvements we started that are during the quarter so revenue volumes although they have improved sequentially they're still well below our targets in and they're actually continue to be
spk_16: well below our our breakeven numbers so we started to once again look at types of projects that were pursuing through that what is the value that we can deliver in can we achieve in a reasonable margins with respect to that business so the teams tip than taking some actions you the quarter now including looking at racing beyond just raw material inflation that there certain parts of that business that it's clear to us and it's come out through some of the strategy work that we will have to be able to generate higher price is in order to get to acceptable margin levels so that the that the work and process and it'll be evaluated with the rest of our product lines as we complete the strategy were
spk_2: air okay i guess lesson for me and the your commentary on projects
spk_17: in on that some of those are actually moving faster ah you know just curious seventy of view that more as a cat sentenced as things start to improve here i'm or is it something that you actually viewers more sustainable going forward
spk_18: okay early on signals are in other there's certainly some catch up some things that are getting accelerated projects that were in q so that we saw that as a driver as part of our cue one results and then as we look going forward
spk_0: anna medium and longer term perspective bidding and quoting activities picking up been on that consistent what were what we're seeing what the longer term indicators like the architectural billing index a were starting to see that activity in our sales pipeline and are quoting activities
spk_10: across their construction businesses and started to pick up
spk_19: okay thanks one thank you thank you as a reminder to ask a question you need to press star one on your telephone to withdraw your question pack the town hall
spk_4: our next pressing concern a line on prank feel numb from deal david said your line is now them
spk_5: great thanks good morning tie the heat
spk_28: yeah i guess first two part question on framing what was that negative impact is gonna hire raw material costs and freight to margins and then as a follow up to that when we think about the business of are all are against framing and glass specifically the the the inflationary headwinds get worse this quarter
spk_2: just given threat i mean and been to a turns and and then move up and cost abroad
spk_14: yep rent good morning up with the i was like reminded we have been working for the last two years and up rookie i'm journey and have a strong pregame government organization that is doing their best off said the that inflation as much as possible on they are they are a big dogs at most of it's or to as a specific question we had
spk_19: the roughly about thirty min and i a total inflation or or the course of this quarter and that was much higher than previous quarter that we have seen a we have taken a lot of actions and in terms of price increase at brigham and initiatives and the net impact is about a four million dollars that there was impact and as of but after all actions day bacon and prices and procurement
spk_2: and framing with the big part of that in terms of that net negative impact and they have then i'm more aggressive at going after priced with respect to that so we expect to see that gap close to some extent but they're still going to be significant headwinds as as i'm sure you're seeing and hearing across as construction but many the markets right now
spk_5: yeah absolutely on august second question with that again on a framing segment on just wanted to see cheated
spk_12: and it looks like you youths are stabilize the backlog bear and things are getting a little bit better many talk through yes them the businesses or exposures with in that segment yeah wet what your seen in particular that looks a little more positive in this environment
spk_29: yet you know as we normally do we won't give any specific guidance or talk specifically about business units within the segments on but i can tell you that eat remember architectural framing about half of that business is longer lead time and roughly approximately half as shorter
spk_19: lead time so now we saw some benefits and que wine were some of that shortly time business picked up some of that was tied to projects restarting and accelerating trying to finish out projects and then in general worse there like the other businesses were seeing a left in quote activity and abetting bidding requests but for that business the shortly time part of that is it difficult to forecasts the shit out of the of something else that yeah one would thing to think about here is as we are consolidating the framing segment more and more we're not looking and build individual pieces we're looking at what is a value we offered through or products to customers so as we thought to the performance v re look at a consolidated framing segment on as we move forward rent
spk_2: understood many last one he about the glass and in pretty pretty good return and grout this quarter margins obviously moving up by and sure not where you want them to the yet i'm just setting aside some of the initiatives your luck an ad in turn away you just talk you what were you feel like you need to see pronounced margins to get back yeah pad back toward that upper single digits range that yeah that that segments historically been accustomed to
spk_19: yeah we're looking at that business you that strategic work and at that thing both the product offerings the type of projects they pursue and looking at and in addition the cost structure overall that that business has and how can we strengthen that so we're not giving at this point in or margin guidance or are communicating it's
spk_18: target will will actually get through that view the strategy work but certainly we see an opportunity to improve significantly from where they are and our strategy work has really pointed both from an external benchmarking standpoint to significant opportunities to raise that margin as well as taking
spk_10: another look at our product mix what types of projects we proceed to that business and how we can release leverage where they have strong differentiation in the marketplace
spk_21: that delivers value for customers that in turn generate better price and and therefore better margin for us going forward
spk_22: okay appreciate you taking the question thank you
spk_14: thank you
spk_16: thank you i'm not are some concern the line from pouliot a marathon fidelity and company your line of now on
spk_2: and good one time my machine good morning line
spk_3: so exciting news regarding the enterprise like strategy and the upcoming investor day and i really appreciate the comments earlier you gave on you know you get some good granularity on areas in the portfolio which you might step away from arm and i certainly appreciate that are allied ask about you know can you speak to some of the positives you found as you're evaluating the
spk_2: a portfolio and and be provide an example of an area where you are differentiated and were maybe you can play some office yeah just say in others it really opportunities across all four of our business segments you know clearly services continues to outperform from an overall market perspective one of the things that were doing to that strategy work is how can we leverage that model that they've implemented that that only allow them to win business execute well and and deliver above market margins but how can they then leverage that into other areas and continue to grow that business our lfl business we've actually validated we've got some some very good technology and process capabilities with a net business so that pointing us to start to think about you know how can we leverage that into other adjacent is whether it's construction or nine construction market opportunities
spk_21: and then glass and framing and i've talked about we need to be a much more active portfolio manager and that was all the way down at at the product and service level and for that one thing that we're driving in this analysis is just looking at the products that we offered today that we didn't hold on for for different types of projects
spk_20: x know some of those it's coming up clear that we can differentiate better in terms of the product in how we perform do we've got certain strengths in our service capabilities which certainly customers in certain markets in applications value immensely and so that pointing the areas where we can better amp
spk_2: lo fi that message to our customer base and put some additional emphasis on those attributes of our offerings so that we can win more business and drive higher value as we go forward so their their pockets of opportunity across the all for segments to drive growth and and help us with margin just would be more effective and managing our product mix axel appreciate the color their i'm on your on your change in leadership incentive structure can you may be speak to how that's been received by the team and any benefits you started as the year to date either in terms of the their the bela tarr the building out your enterprise like strategy or just that an overall feedback on the organization
spk_12: yeah with data it is then very well received obviously for my leadership team that we're providing very clear objective than expectations starting on that we need to improve our return on invested capital if if we're going to invest money we have to get stronger returns for our shareholders as part of that and
spk_5: feel that being an overriding mart metric from all of a long term incentive senate perspective and then near term putting the emphasis on a bit on profit dollar generation and that's been critically important for them to use that in communicating with their teams as we're going through the strategy work that you know it it to steal and
spk_21: old analogy i'm in revenues nat king profits king and if if we can't generate profit it means we're not generating value for our customers and when at generating value for our shareholders so that been very good and helping the team's work the this strategy work and really thinking about how can they manage and ship to their own max with
spk_20: in their respective businesses that they can let that profit overall in you know we panic taken up off the the guard rail of it's okay if there's some revenue that maybe goes away in the short term because we're not going to chase those types of projects with those types of products going forward because we know we can't make the right margin levels and lover
spk_2: all very positive but but we're on a journey like everything else yeah one more dangerous encouraging signs already we don't talk about our oh i see numbers and a godly bases it's more an annual kp eyebrows but the avidly calculated dudley and we're seeing positive signs and grains already coming to on our way zero years so the demon getting it and era executing faster bigger the north stars clear it's are oh i see understood that i could sneak one more in here arm you know as you evaluate avenues her grow the in markets products geography cetera
spk_20: are you looking at any areas where you can see either a direct or indirect benefit from a federal infrastructure bill
spk_25: when aiming that is pointed at infrastructures is gonna drive some benefit for the overall markets certainly some of the areas for transportation if you think about
spk_0: institutional or types of projects education market know those are all things that look like are gonna have some benefit
spk_2: do this latest infrastructure bill and while like everything out of the long cycle business you know that i'll take time to float through in terms of projects than than the opportunity to turn those in revenue for apogee but you know those are positive signs as we look out over the medium and long term as well got it thanks for taking the questions and look forward to the invested a lot earlier thank you
spk_0: thank you are this timeline showing know further the question our like to turn the call back over to tie silver more for closing remarks
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