Apogee Enterprises, Inc.

Good day, and welcome to the Q3 2024 Apogee Enterprises Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this call is being recorded. I would like to turn the call over to Jeff Hubschen, Vice President of Investor Relations. You may begin.

Thanks, Michelle. Good morning, everyone, and welcome to Apogee Enterprises Fiscal 2024 Third Quarter Earnings Call. With me today are Ty Silberhorn, Apogee's Chief Executive Officer, and Matt Osberg, Chief Financial Officer. I'd like to remind everyone that there are slides to accompany today's remarks. These 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 measures and a reconciliation to the nearest GAAP measures are provided in the earnings release and slide deck we issued this morning. I'd also like to remind everyone that our call will contain forward-looking statements. These reflect management's expectations 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 today's press release and in our SEC filings. With that, I'll turn the call over to you, Ty.

Thanks, Jeff. Good morning, and thank you for joining us today. Our team delivered another strong quarter with continued margin expansion, earnings growth, and improved cash flow. Today, I'll discuss those highlights from the quarter, how execution of our strategy continues to drive improved performance, provide some comments on our end markets, and discuss how we are positioning the company for the future. Then I'll turn it over to Matt for more details on the quarter and our outlook. Let's start with the highlights, which are on page four of our presentation. We delivered another quarter of strong earnings, margin expansion, and cash flow performance. This was the second highest quarterly adjusted EPS in Apogee's history and follows the record adjusted EPS we delivered last quarter. While we are focused on driving revenue growth, we continue to demonstrate that we can deliver profit dollar growth and margin expansion even in an environment with low volume growth. Year to date, operating income dollars have increased 12% and operating margin improved by 150 basis points to 10.6%, which is above our current strategic goal of 10%. Once again, Our improved results were led by exceptional performance in architectural glass. The glass segment has delivered double-digit sales growth every quarter this year, and they again achieved operating margins above their 10% to 15% target range. These terrific results reflect the strategic transformation of our glass segment over the past two years. They have significantly improved their cost structure delivered meaningful productivity gains and are driving their sales mix toward higher value-added premium products. Another highlight in the quarter was backlog growth in our services segment. We secured approximately $200 million of new project awards during the quarter. These awards reflect the continuing effort to diversify the types of projects that we support. New awards included projects in transportation, healthcare, medical labs, education, multifamily housing, and commercial office. We also secured our first major award in California as we've worked to expand further in the western states. Given the strength of our earnings performance for the quarter, we are increasing our guidance for full-year adjusted EPS. It's now been two years since our investor day where we introduced our three-pillar strategy highlighted on page five of today's presentation. At its core, we aim to deliver two primary objectives. build differentiated businesses that provide compelling value for our customers, and improve operational execution across our businesses to drive a more competitive cost structure. We've made great progress on both fronts, building a solid foundation, and we still have plenty of opportunity ahead of us. Architectural Glass was the lead business for our launch of the Apogee Management System, or AMS, and has made significant progress in their shift to premium strategy. This has helped the glass business to deliver record results and gives us confidence in our ability to sustain profitability levels should volumes slow. Framing Systems has more than doubled their margins since fiscal 21. we still see margin expansion opportunities through further stages of AMS deployment and portfolio management as parts of their long cycle business remain margin challenged compared to levels in the rest of the framing segment. Architectural services did take a step back in margin since fiscal 21 and saw revenue declines as we integrated the soda wall business. That integration is nearly complete, and with backlog growing again, we see favorable revenue and margin improvement as we move into fiscal 25. Large-scale optical has improved its already high margin profile since fiscal 21, and we are making investments which will allow them to expand into market adjacencies in late fiscal 25 and beyond. We are keeping a growth mindset and see further opportunities to strengthen margins and grow profit dollars. Two years in, we are very pleased with the results our team has achieved and I'm excited for the opportunities that are still ahead of us. Now let me offer some comments about our construction and markets. Overall, there has been strong growth in non-residential construction during calendar year 2023. While every subsector of the non-res market has grown the past year, manufacturing projects have accounted for approximately 60% of the total growth in non-residential construction this year. This is a subsector of the market where Apogee has very low participation given our current product offerings. Across the other sectors of non-res construction, much of that market growth has been driven by inflation-related pricing rather than volumes. This mirrors what we've seen in our own business over the past several quarters. In recent months, the rate of growth in non-res construction has begun to decelerate, and we've seen forward indicators like the Architectural Billings Index turn negative. Looking ahead to calendar 24, most industry forecasts call for further deceleration in non-REVs construction. Higher interest rates, tighter lending standards, and increased costs have been putting pressure on commercial construction. We have seen that slowing show up in our short cycle framing business this quarter and expect some pressure in parts of that However, we still expect commercial construction growth rates in the low single digits overall in calendar 24. On the positive side, we also see institutional and infrastructure projects continuing to benefit from government funding. And the recent Fed signaling of a hold and now a likely softening of interest rates could enable a shorter and shallower downturn for commercial construction. This should also loosen what has been a tight market for M&A, providing more opportunities for us to make strategic, financially accretive acquisitions to strengthen our portfolio and provide a catalyst for growth. Regardless of the macro environment, we are working to position Apogee for continued success. It's important to remember that non-residential construction is a very large and diverse end market. Within this large market, there are always opportunities for growth. We are approaching fiscal 25 with a growth mindset focused on seizing those opportunities to outperform the overall market. We believe our combination of leading brands, deep customer relationships, and differentiated offerings positions us well to gain share in a fragmented industry. We will also continue to diversify our project mix, focusing on higher growth segments of the market, such as transportation, education, and healthcare. And we will continue to evaluate investment opportunities that could accelerate our growth through both organic expansion and through acquisitions. Of course, we will maintain our focus on driving productivity, improving execution, and managing costs. These have been the foundation of our performance over the past two years. This has allowed us to grow profit dollars above our revenue growth rate, and we continue to see opportunities to further build on that success. Our strong cash flow and balance sheet provide us with significant flexibility to execute our strategy. Our entire team is focused on building upon the strong foundation we have established and continuing to deliver strong performance. With that, let me turn it over to Matt.