Apogee Enterprises Reports Fiscal 2025 First Quarter Results

About this update from Apogee Enterprises, Inc.

Net sales decrease of 8%, to $332 million Operating margin improves to 12.5%; adjusted operating margin of 12.8% Diluted EPS grows to $1.41 ; adjusted diluted EPS increases 37% to $1.44 Raising full-year EPS outlook MINNEAPOLIS --(BUSINESS WIRE)-- Apogee Enterprises, Inc. (Nasdaq: APOG) today reported its results for the first quarter of fiscal 2025. The Company reported the following selected financial results: Three Months Ended (Unaudited, $ in thousands, except per share amounts) June 1, 2024 May 27, 2023 % Change Net Sales $ 331,516 $ 361,713 (8.3 )% Operating income $ 41,381 $ 33,767 22.5 % Operating margin 12.5 % 9.3 % 34.4 % Diluted earnings per share $ 1.41 $ 1.05 34.3 % Additional Non-GAAP Measures1 Adjusted operating income $ 42,503 $ 33,767 25.9 % Adjusted operating margin 12.8 % 9.3 % 37.6 % Adjusted diluted earnings per share $ 1.44 $ 1.05 37.1 % Adjusted EBITDA $ 52,622 $ 43,761 20.2 % Adjusted EBITDA margin 15.9 % 12.1 % 31.4 % “Our team continued to drive operational execution across the business, delivering significant operating income growth and record adjusted EPS, despite continued volume pressure,” said Ty R. Silberhorn , Chief Executive Officer. “As we look ahead, we continue to expect pressure on volume and pricing through the remainder of the fiscal year, due to softening end markets. We are focused on continuing to deliver results in this environment, while investing to position the Company for long-term growth.” First-Quarter Consolidated Results (First Quarter Fiscal 2025 compared to First Quarter Fiscal 2024) Net sales decreased 8.3% to $331.5 million , primarily driven by lower volume. Gross margin improved by 410 basis points to 29.8%, primarily driven by a more favorable mix of projects in Architectural Services, favorable material costs, lower insurance-related costs, and productivity gains, partially offset by the impact of lower volume. Selling, general and administrative (SG&A) expenses as a percent of net sales increased 90 basis points to 17.3%, primarily due to unfavorable sales leverage, partially offset by lower bad debt expense. Operating income increased to $41.4 million , and operating margin was 12.5%. Adjusted operating income grew 25.9% to $42.5 million and adjusted operating margin improved to 12.8%. The 350 basis point improvement in adjusted operating margin was primarily driven by a more favorable mix of projects in Architectural Services, favorable material costs, lower insurance-related costs, productivity gains, and lower bad debt expense, which more than offset the impact of lower volume and unfavorable segment mix. Interest expense was $0.5 million , compared to $2.0 million , primarily driven by lower average debt levels. Diluted earnings per share (EPS) increased to $1.41 compared to $1.05 . Adjusted diluted EPS grew 37.1% to $1.44 , primarily driven by higher adjusted operating income and lower interest expense. First Quarter Segment Results (First Quarter Fiscal 2025 Compared to First Quarter Fiscal 2024) Architectural Framing Systems Architectural Framing Systems net sales were $133.2 million , compared to $164.2 million , primarily reflecting reduced volume due to lower end-market demand and the exit of certain lower-margin product lines as part of Project Fortify. Operating income was $18.3 million , which included $1.0 million of restructuring charges. Adjusted operating income was $19.3 million , or 14.5% of net sales, compared to $19.9 million , or 12.1% of net sales. The 240 basis point improvement in adjusted operating margin was primarily driven by favorable material costs, favorable mix, productivity gains, and lower bad debt expense, partially offset by the impact of lower volume. Architectural Glass Architectural Glass net sales were $86.7 million , compared to $97.2 million , reflecting lower volume due to lower end-market demand, partially offset by improved pricing. Operating income increased to $17.1 million , or 19.7% of net sales, compared to $16.5 million , or 17.0% of net sales. The 270 basis point improvement in operating margin was primarily driven by productivity gains, and improved pricing, partially offset by the impact of lower volume. Architectural Services Architectural Services net sales grew 10.7% to $99.0 million , compared to $89.4 million , primarily due to a more favorable mix of projects and increased volume. Operating income increased to $5.6 million , or 5.7% of net sales, compared to an operating loss of $0.6 million , primarily driven by a more favorable mix of projects. Segment backlog2 at the end of the quarter increased by 7.3% to $866.9 million , compared to $807.8 million at the end of the fourth quarter of fiscal 2024. Large-Scale Optical Large-Scale Optical net sales were $21.2 million , compared to $22.5 million , primarily reflecting lower volume in the retail channel, partially offset by a more favorable mix. Operating income was $4.8 million , or 22.9% of net sales, compared to $5.5 million , or 24.6% of net sales. The 170 basis point decline in operating margin primarily reflects the impact of lower volume, partially offset by cost savings and improved mix. Corporate and Other Corporate and other expense was $4.5 million , compared to $7.6 million , primarily due to lower insurance-related costs. Financial Condition Net cash provided by operating activities was $5.5 million , compared to $21.3 million in last year’s first quarter, primarily driven by increased cash used for working capital. Capital expenditures were $7.2 million , compared to $7.4 million last year. During the quarter, the Company repurchased $15.1 million of stock. Quarter-end long-term debt was $77.0 million , compared to $62.0 million at the end of fiscal 2024. The net leverage ratio3 as of the end of the quarter was 0.2x compared to 0.1x at the end of fiscal 2024. Fiscal 2025 Outlook The Company continues to expect a full-year net sales decline in the range of 4% to 7%. This range includes approximately 2 percentage points of decline related to fiscal 2025 reverting to a 52-week year, and approximately 1 percentage point of decline related to the actions of Project Fortify to eliminate certain lower-margin product and service offerings. The Company is increasing its outlook for full-year diluted EPS to a range of $4.56 to $4.88 and adjusted diluted EPS to a range of $4.65 to $5.00 4. The Company continues to expect the impact of the reversion to a 52-week year will reduce adjusted diluted EPS by approximately $0.20 compared to fiscal 2024 and that there will be no material impact to adjusted diluted EPS related to the adverse net sales impact of Project Fortify. The Company now expects a total of $15 million to $16 million of pre-tax charges in connection with Project Fortify leading to annualized cost savings of $12 million to $14 million . The Company continues to expect approximately 60% of these savings will be realized in fiscal 2025, and the remainder in fiscal 2026, with approximately 70% of the savings to be realized in Architectural Framing Systems, 20% in Architectural Services, and 10% in Corporate and Other, with the plan to be substantially complete in the third quarter of fiscal 2025. The Company continues to expect an effective tax rate of approximately 24.5%, and capital expenditures between $40 to $50 million . Conference Call Information The Company will host a conference call today at 8:00 a.m. Central Time to discuss this earnings release. This call will be webcast and is available in the Investor Relations section of the Company’s website, along with presentation slides, at https://www.apog.com/events-and-presentations . A replay and transcript of the webcast will be available on the Company’s website for one year from the date of the conference call. About Apogee Enterprises Apogee Enterprises, Inc. (Nasdaq: APOG) is a leading provider of architectural products and services for enclosing buildings, and high-performance glass and acrylic products used for preservation, energy conservation, and enhanced viewing. Headquartered in Minneapolis, MN , our portfolio of industry-leading products and services includes high-performance architectural glass, windows, curtainwall, storefront and entrance systems, integrated project management and installation services, as well as value-added glass and acrylic for custom picture framing and displays. For more information, visit www.apog.com . Use of Non-GAAP Financial Measures Management uses non-GAAP measures to evaluate the Company’s historical and prospective financial performance, measure operational profitability on a consistent basis, as a factor in determining executive compensation, and to provide enhanced transparency to the investment community. Non-GAAP measures should be viewed in addition to, and not as a substitute for, the reported financial results of the Company prepared in accordance with GAAP. Other companies may calculate these measures differently, limiting the usefulness of the measures for comparison with other companies. This release and other financial communications may contain the following non-GAAP measures: Adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted effective tax rate, and adjusted diluted EPS are used by the Company to provide meaningful supplemental information about its operating performance by excluding amounts that are not considered part of core operating results to enhance comparability of results from period to period. Adjusted EBITDA represents adjusted net earnings before interest, taxes, depreciation, and amortization. The Company believes adjusted EBITDA and adjusted EBITDA margin metrics provide useful information to investors and analysts about the Company’s core operating performance. Free cash flow is defined as net cash provided by operating activities, minus capital expenditures. The Company considers this measure an indication of its financial strength. However, free cash flow does not fully reflect the Company’s ability to freely deploy generated cash, as it does not reflect, for example, required payments on indebtedness and other fixed obligations. Net debt is a non-GAAP measure defined as total debt (current debt plus long-term debt) on our consolidated balance sheet, less cash and cash equivalents. The Company considers this measure helpful to evaluate our capital structure and financial leverage, and our ability to fund investing and financing activities. Net leverage ratio is a non-GAAP ratio defined as net debt divided by trailing twelve months adjusted EBITDA. The Company considers this measure helpful to evaluate our capital structure and financial leverage, and our ability to fund investing and financing activities. Backlog is an operating measure used by management to assess future potential sales revenue. Backlog is defined as the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which is expected to be recognized as revenue and is most meaningful for the Architectural Services Segment due to the longer-term nature of their projects. Backlog is not a term defined under U.S. GAAP and is not a measure of contract profitability. Backlog should not be used as the sole indicator of future revenue because the Company has a substantial number of projects with short lead times that book-and-bill within the same reporting period that are not included in backlog. Forward-Looking Statements This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should” and similar expressions are intended to identify “forward-looking statements”. These statements reflect Apogee management’s expectations or beliefs as of the date of this release. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements are qualified by factors that may affect the results, performance, financial condition, prospects and opportunities of the Company, including the following: (A) North American and global economic conditions, including the cyclical nature of the North American and Latin American non-residential construction industries and the potential impact of an economic downturn or recession; (B) U.S. and global instability and uncertainty arising from events outside of our control; (C) actions of new and existing competitors; (D) departure of key personnel and ability to source sufficient labor; (E) product performance, reliability and quality issues; (F) project management and installation issues that could affect the profitability of individual contracts; (G) dependence on a relatively small number of customers in one operating segment; (H) financial and operating results that could differ from market expectations; (I) self-insurance risk related to a material product liability or other events for which the Company is liable; (J) maintaining our information technology systems and potential cybersecurity threats; (K) cost of regulatory compliance, including environmental regulations; (L) supply chain disruptions, including fluctuations in the availability and cost of materials used in our products and the impact of trade policies and regulations, including potential future tariffs; (M) integration of acquisitions and management of acquired contracts; (N) impairment of goodwill or indefinite-lived intangible assets; (O) our ability to successfully manage and implement our enterprise strategy; (P) our ability to maintain effective internal controls over financial reporting; (Q) our judgements regarding the accounting for tax positions and the resolution of tax disputes; (R) the impact of cost inflation and interest rates; and (S) the impact of changes in capital and credit markets on our liquidity and cost of capital. The Company cautions investors that actual future results could differ materially from those described in the forward-looking statements and that other factors may in the future prove to be important in affecting the Company’s results, performance, prospects, or opportunities. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can it assess the impact of each factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. More information concerning potential factors that could affect future financial results is included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 2, 2024 , and in subsequent filings with the U.S. Securities and Exchange Commission . ______________________________ 1 Adjusted operating income, adjusted operating margin, adjusted diluted earnings per share (EPS), adjusted EBITDA, and adjusted EBITDA margin are non-GAAP financial measures. See Use of Non-GAAP Financial Measures and reconciliations to the most directly comparable GAAP measures later in this press release. 2 Backlog is a non-GAAP financial measure. See Use of Non-GAAP Financial Measures later in this press release for more information. 3 Net leverage ratio is a non-GAAP financial measure. See Use of Non-GAAP Financial Measures later in this press release for more information. 4 See reconciliation of Fiscal 2025 estimated adjusted diluted earnings per share to GAAP diluted earnings per share later in this press release. Apogee Enterprises, Inc. Consolidated Condensed Statements of Income (Unaudited) Three Months Ended (In thousands, except per share amounts) June 1, 2024 May 27, 2023 % Change Net sales $ 331,516 $ 361,713 (8.3 )% Cost of sales 232,661 268,727 (13.4 )% Gross profit 98,855 92,986 6.3 % Selling, general and administrative expenses 57,474 59,219 (2.9 )% Operating income 41,381 33,767 22.5 % Interest expense, net 450 2,036 (77.9 )% Other expense (income), net (143 ) 288 N/M Earnings before income taxes 41,074 31,443 30.6 % Income tax expense 10,063 7,867 27.9 % Net earnings $ 31,011 $ 23,576 31.5 % Basic earnings per share $ 1.42 $ 1.08 31.5 % Diluted earnings per share $ 1.41 $ 1.05 34.3 % Weighted average basic shares outstanding 21,823 21,883 (0.3 )% Weighted average diluted shares outstanding 22,061 22,386 (1.5 )% Cash dividends per common share $ 0.25 $ 0.24 4.2 % Apogee Enterprises, Inc. Business Segment Information (Unaudited) Three Months Ended (In thousands) June 1, 2024 May 27, 2023 % Change Segment net sales Architectural Framing Systems $ 133,172 $ 164,162 (18.9 )% Architectural Glass 86,703 97,202 (10.8 )% Architectural Services 99,027 89,418 10.7 % Large-Scale Optical 21,204 22,456 (5.6 )% Intersegment eliminations (8,590 ) (11,525 ) (25.5 )% Net sales $ 331,516 $ 361,713 (8.3 )% Segment operating income (loss) Architectural Framing Systems $ 18,336 $ 19,945 (8.1 )% Architectural Glass 17,091 16,521 3.5 % Architectural Services 5,623 (596 ) N/M Large-Scale Optical 4,846 5,525 (12.3 )% Corporate and other (4,515 ) (7,628 ) (40.8 )% Operating income $ 41,381 $ 33,767 22.5 % Segment operating margin Architectural Framing Systems 13.8 % 12.1 % Architectural Glass 19.7 % 17.0 % Architectural Services 5.7 % (0.7 )% Large-Scale Optical 22.9 % 24.6 % Corporate and other N/M N/M Operating margin 12.5 % 9.3 % N/M - Indicates calculation is not meaningful Segment net sales is defined as net sales for a certain segment and includes revenue related to intersegment transactions. Net sales intersegment eliminations are reported separately to exclude these sales from our consolidated total. Segment operating income is equal to net sales, less cost of goods sold, SG&A, and any asset impairment charges associated with the segment. Segment operating income includes operating income related to intersegment sales transactions and excludes certain corporate costs that are not allocated at a segment level. We report these unallocated corporate costs separately in Corporate and Other. Operating income does not include any other income or expense, interest expense or a provision for income taxes. Apogee Enterprises, Inc. Consolidated Condensed Balance Sheets (Unaudited) (In thousands) June 1, 2024 March 2, 2024 Assets Current assets Cash and cash equivalents $ 30,363 $ 37,216 Receivables, net 183,270 173,557 Inventories, net 80,495 69,240 Contract assets 43,957 49,502 Other current assets 34,417 29,124 Total current assets 372,502 358,639 Property, plant and equipment, net 242,292 244,216 Operating lease right-of-use assets 38,726 40,221 Goodwill 129,042 129,182 Intangible assets, net 64,981 66,114 Other non-current assets 41,436 45,692 Total assets $ 888,979 $ 884,064 Liabilities and shareholders' equity Current liabilities Accounts payable 82,841 84,755 Accrued compensation and benefits 28,900 53,801 Contract liabilities 36,377 34,755 Operating lease liabilities 12,090 12,286 Other current liabilities 66,895 59,108 Total current liabilities 227,103 244,705 Long-term debt 77,000 62,000 Non-current operating lease liabilities 30,462 31,907 Non-current self-insurance reserves 30,859 30,552 Other non-current liabilities 43,600 43,875 Total shareholders’ equity 479,955 471,025 Total liabilities and shareholders’ equity $ 888,979 $ 884,064 Apogee Enterprises, Inc. Consolidated Statement of Cash Flows (Unaudited) Three Months Ended (In thousands) June 1, 2024 May 27, 2023 Operating Activities Net earnings $ 31,011 $ 23,576 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 9,976 10,282 Share-based compensation 2,704 2,178 Deferred income taxes 3,466 (165 ) Loss (gain) on disposal of assets 22 (27 ) Non-cash lease expense 2,895 2,714 Other, net (925 ) (432 ) Changes in operating assets and liabilities: Receivables (9,845 ) (13,476 ) Inventories (11,337 ) (2,068 ) Contract assets 5,511 14,368 Accounts payable (1,871 ) (8,390 ) Accrued compensation and benefits (24,850 ) (13,312 ) Contract liabilities 1,648 8,158 Operating lease liability (3,007 ) (3,101 ) Accrued income taxes 6,535 7,590 Other current assets and liabilities (6,480 ) (6,608 ) Net cash provided by operating activities 5,453 21,287 Investing Activities Capital expenditures (7,229 ) (7,398 ) Proceeds from sales of property, plant and equipment 40 66 Purchases of marketable securities (740 ) — Sales/maturities of marketable securities 600 400 Net cash used by investing activities (7,329 ) (6,932 ) Financing Activities Proceeds from revolving credit facilities 30,000 105,852 Repayments on revolving credit facilities (15,000 ) (105,000 ) Repurchase of common stock (15,061 ) (5,193 ) Dividends paid — (5,245 ) Other, net (4,865 ) (1,677 ) Net cash used by financing activities (4,926 ) (11,263 ) Effect of exchange rates on cash (51 ) 77 (Decrease) increase in cash and cash equivalents (6,853 ) 3,169 Cash and cash equivalents at beginning of period 37,216 21,473 Cash and cash equivalents at end of period $ 30,363 $ 24,642 Non-cash Activity Dividends declared but not yet paid $ 5,409 $ — Apogee Enterprises, Inc. Reconciliation of Non-GAAP Financial Measures Adjusted Net Earnings and Adjusted Diluted Earnings per Share (Unaudited) Three Months Ended (In thousands) June 1, 2024 May 27, 2023 Net earnings $ 31,011 $ 23,576 Restructuring charges (1) 1,122 — Income tax impact on above adjustments (2) (275 ) — Adjusted net earnings $ 31,858 $ 23,576 Three Months Ended June 1, 2024 May 27, 2023 Diluted earnings per share $ 1.41 $ 1.05 Restructuring charges (1) 0.05 — Income tax impact on above adjustments (2) (0.01 ) — Adjusted diluted earnings per share $ 1.44 $ 1.05 Weighted average diluted shares outstanding 22,061 22,386 (1) Restructuring charges related to Project Fortify, including $0.4 million of employee termination costs and $0.7 million of other costs. (2) Income tax impact calculated using an estimated statutory tax rate of 24.5%, which reflects the estimated blended statutory tax rate for the jurisdictions in which the charge or income occurred. Apogee Enterprises, Inc. Reconciliation of Non-GAAP Financial Measures Adjusted Operating Income (Loss) and Adjusted Operating Margin (Unaudited) Three Months Ended June 1, 2024 (In thousands) Architectural Framing Systems Architectural Glass Architectural Services LSO Corporate and Other Consolidated Operating income (loss) $ 18,336 $ 17,091 $ 5,623 $ 4,846 $ (4,515 ) $ 41,381 Restructuring charges (1) 998 — — — 124 1,122 Adjusted operating income (loss) $ 19,334 $ 17,091 $ 5,623 $ 4,846 $ (4,391 ) $ 42,503 Operating margin 13.8 % 19.7 % 5.7 % 22.9 % N/M 12.5 % Restructuring charges (1) 0.7 — — — N/M 0.3 Adjusted operating margin 14.5 % 19.7 % 5.7 % 22.9 % N/M 12.8 % Three Months Ended May 27, 2023 (In thousands) Architectural Framing Systems Architectural Glass Architectural Services LSO Corporate and Other Consolidated Operating income (loss) $ 19,945 $ 16,521 $ (596 ) $ 5,525 $ (7,628 ) $ 33,767 Operating margin 12.1 % 17.0 % (0.7 )% 24.6 % N/M 9.3 % (1) Restructuring charges related to Project Fortify, including $0.4 million of employee termination costs and $0.7 million of other costs. Apogee Enterprises, Inc. Reconciliation of Non-GAAP Financial Measures Adjusted EBITDA and Adjusted EBITDA Margin (Earnings before interest, taxes, depreciation and amortization) (Unaudited) Three Months Ended (In thousands) June 1, 2024 May 27, 2023 Net earnings $ 31,011 $ 23,576 Income tax expense 10,063 7,867 Interest expense, net 450 2,036 Depreciation and amortization 9,976 10,282 EBITDA $ 51,500 $ 43,761 Restructuring charges (1) 1,122 — Adjusted EBITDA $ 52,622 $ 43,761 EBITDA Margin 15.5 % 12.1 % Adjusted EBITDA Margin 15.9 % 12.1 % (1) Restructuring charges related to Project Fortify, including $0.4 million of employee termination costs and $0.7 million of other costs. Apogee Enterprises, Inc. Reconciliation of Non-GAAP Measure - Net Leverage Ratio (Unaudited) Net Debt (In thousands) June 1, 2024 March 2, 2024 Total debt $ 77,000 $ 62,000 Less: Cash and cash equivalents 30,363 37,216 Net Debt $ 46,637 $ 24,784 Trailing twelve months ending Adjusted EBITDA June 1, 2024 March 2, 2024 Net earnings $ 107,048 $ 99,613 Income tax expense 31,836 29,640 Interest expense, net 5,083 6,669 Depreciation and amortization 41,282 41,588 EBITDA $ 185,249 $ 177,510 Restructuring charges (1) 13,525 12,403 NMTC settlement gain (2) (4,687 ) (4,687 ) Adjusted EBITDA $ 194,087 $ 185,226 Net Leverage June 1, 2024 March 2, 2024 Net Debt $ 46,637 $ 24,784 Adjusted EBITDA 194,087 185,226 Net Leverage Ratio 0.2 x 0.1 x (1) Restructuring charges related to Project Fortify, including $6.2 million of asset impairment charges, $5.9 million of employee termination costs and $0.3 million of other costs incurred in fiscal 2024 and $0.4 million of employee termination costs and $0.7 million of other costs incurred in the first quarter of fiscal 2025. (2) Realization of a New Market Tax Credit (NMTC) benefit during the second quarter of fiscal 2024, which was recorded in other expense (income), net. Apogee Enterprises, Inc. Fiscal 2025 Outlook Reconciliation of Fiscal 2025 outlook of estimated Diluted Earnings per Share to Adjusted Diluted Earnings per Share (Unaudited) Fiscal Year Ending March 1, 2025 Low Range High Range Diluted earnings per share $ 4.56 $ 4.88 Restructuring charges (1) 0.12 0.16 Income tax impact on above adjustments per share (0.03 ) (0.04 ) Adjusted diluted earnings per share $ 4.65 $ 5.00 (1) Restructuring charges related to Project Fortify. View source version on businesswire.com : https://www.businesswire.com/news/home/20240627316996/en/ Jeff Huebschen Vice President, Investor Relations & Communications 952.487.7538 [email protected] Source: Apogee Enterprises, Inc.

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