Q2 2023 Apogee Enterprises Inc Earnings Call

September 20, 2022

Okay.

Good day, and thank you for standing by and welcome to the a bogey enterprises fiscal 2023 second quarter earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question.

You will need to press star one on your telephone.

Please be advised that today's conference call is being recorded I would now like to turn the conference over to your speaker for today Jeff.

Please go ahead Sir.

Thank you Lisa good morning, and welcome to Apogee Enterprises fiscal 2023 second quarter earnings call with me today are tie silver Horn Apogees Chief Executive Officer.

And Marc talked our interim Chief Financial Officer.

I'd like to remind everyone that there are slides to accompany todays remarks.

These are available in the Investor Relations section of Apogees website.

During this call we will reference certain non-GAAP financial measures definitions of these measures and reconciliation to the nearest GAAP measures are provided in the earnings release and slide deck, we issued this morning.

As a reminder, the prior year results for the architectural framing systems and architectural services segments have been recast to reflect the mood soda wall from framing into services pro forma segment results, reflecting this change are included in our earnings slide deck.

I'd also like to remind everyone that our call will contain forward looking statements.

These reflect management expectations based on currently available information.

Actual results may differ materially more.

More information about factors that could affect apogees business and financial results can be found in today's press release and in our SEC filings and with that I'll call I'll turn the call over to Utah.

Thank you, Jeff and thanks, everyone for joining us today.

This was another strong quarter for apogee.

Execution of our strategy is clearly driving improved results with both revenue and earnings per share, reaching new quarterly records.

I'm incredibly proud of our team's execution this quarter and the progress they've delivered to date.

This morning I'll walk.

Offer insights into how our strategy drove our record results this quarter.

Some commentary on our end markets and review our outlook for the rest of the year.

Then I'll turn it over to Mark for more details on the quarter and our guidance after that we'll be ready to take your questions.

It's now been about a year since we began to execute our new enterprise strategy. As a reminder, our strategic framework as shown on page four of today's presentation.

Last year, we began to take actions to address each of the three pillars.

We announced the restructuring to align and simplify our portfolio.

Bring more clarity to our go to market approach and improve our cost structure.

These efforts were primarily focused on framing systems and glass the segments with the most opportunity to improve their margin performance.

We also relaunched our lean and continuous improvement program.

This is the foundation of our new operating model.

Our initial emphasis within the glass segment, and we are expanding it to other parts of the business.

Our focus in these early days is on the production floor with an approach of when the hour when the shift win the day.

Our goal is to drive near term improvements using short cycle feedback to make course corrections and drive repeatable results.

We work to build Controle plans to support a new baseline.

And then start the improvement efforts all over again.

We've made tremendous progress over the past year, which is especially evident in the glass segments results.

We also launched several important initiatives to strengthen core processes and systems.

We're building center led functional expertise and human resources procurement and finance.

This will enable more efficient operations with more capabilities and greater scalability, which will also support future M&A work.

Finally, we have added talent in key roles across the organization and brought new energy and content to our talent development programs.

The results of our efforts are evident in our performance this quarter.

It further strengthens our foundation for future quarters.

The highlights from Q2 are shown on page five in the presentation.

We had record revenue with 14% growth in the quarter.

Adjusted operating margin increased more than 300 basis points.

And adjusted earnings per share doubled compared to last year coming in at a record $1 <unk> per share.

In addition to the progress on our strategy. Our team has done a terrific job managing through cost inflation over the past several quarters, demonstrating stronger operational muscle across the company.

We've improved our discipline around cost management.

We've worked with our suppliers and customers to minimize the impact of inflation and supply chain disruptions.

And we've strengthened our approach to pricing.

We still have work ahead of us to reach the financial goals, we set at our Investor day.

But a year into our new strategy, we are proud of our progress and we're more confident than ever in the path ahead of us.

We are controlling what we can control with price productivity and cost management, while setting the stage for meaningful shifts in the coming years to further support our goal of being an economic leader.

Now as we've spoken with investors over the past few months the state of our end markets is top of mind for many of you.

So I would like to provide an update on what we are seeing.

Of course, we're closely monitoring inflation rising interest rates and overall economic conditions to understand how they might impact demand in our end markets.

At this point however, most indicators for nonresidential construction remain favorable.

The architectural billing index has been positive for 18 consecutive months.

New construction starts.

Sean.

And the federal government has passed several bills that provide significant support for infrastructure and construction spending.

These indicators suggest that our industry is building a strong pipeline of new projects.

Nearly every industry forecast for nonresidential construction calls for continued growth through calendar 2022 and calendar 2023.

This corresponds to what we're seeing in our own business we.

We continue to see solid quoting and bidding activity and this quarter, we won several new projects, especially in the services segment.

Looking at all the data we have a positive view of our markets well into next year.

More importantly, our strategy is better positioning the company to outperform regardless of the state of our end markets.

We're diversifying our business mix shifting to align with changes in the market.

We've won new transportation and infrastructure related projects expanding our backlog in these and other non office segments like healthcare and education.

And we're aligning our product and service offerings to take advantage of continued demand for premium office space and more energy efficient buildings.

Across our business, we're focused on those parts of the market, where we have differentiated offerings that provide the most value for customers.

Overtime. This will build a more resilient business model with more sustainable profitability.

We have meaningful organic growth opportunities in several of our businesses.

These include investments to scale and grow the services segment.

Capacity investments in large scale optical which will enable more diversification of their revenues.

Geographic expansion opportunities in both framing systems and architectural services.

In addition.

We are working to strengthen our M&A capabilities.

We're building a pipeline of potential acquisitions to accelerate our strategy and we are developing a stronger approach to integration to ensure that we captured meaningful cost synergies in future deals.

With this set of opportunities we're confident that we can deliver on our goal of growing faster than the overall nonresidential construction market.

Let me wrap up with some comments about our outlook.

Generally we see the trends from the first half of the year continuing into the second half. This has led us to increase our earnings guidance for the full year.

We expect continued top line growth primarily from framing systems.

And we anticipate continued year over year margin gains led by framing systems and architectural glass.

The biggest variables will continue to be the overall impact of inflation and how we manage cost and pricing.

But we have demonstrated stronger operational execution around pricing cost management and productivity.

Stepping back and looking beyond this year, we are driving sustainable improvements in our business.

Our priorities for the year have not changed and are listed on page six in our presentation.

Making progress in these areas will enable profitable growth in this and in future years.

We are only beginning to scratch the surface of the productivity improvements from our lean program.

We are increasing our mix of differentiated products and services, which will be a driver in fiscal 'twenty four in fiscal 'twenty five.

We're investing to develop talent across the company.

We're driving further progress on our transformation initiatives.

Through this work I'm increasingly confident that we will achieve or exceed the financial goals, we have set for ourselves with that let.

Let me turn the call over to Mark for more details on the quarter and our guidance. Thank.

Thank you Ty and good morning, everyone.

I'm happy to be joining you this morning.

This was another strong quarter for apogee with continued positive momentum in our business. Let me provide some details starting with consolidated results on page seven of our presentation.

Second quarter revenue grew 14% to a record $372 million.

This was led by double digit growth in both framing systems and architectural services large scale optical also grew seven 7%.

Operating income increased to $32 million, driven primarily by pricing and productivity gains that.

That more than offset inflation.

Operating margins improved to eight 6%.

This was 320 basis points higher than the adjusted margin of five 4% last year and notably this was our third consecutive quarter with adjusted operating margin greater than 8%.

Interest expense increased by $600000, primarily due to a higher debt balance.

Our GAAP earnings and EPS included a $13 7 million deduction on the yen.

Income tax line for worthless stock loss.

Absent this deduction our tax rate in the quarter would have been 21, 6%. This was slightly lower than our long term rate of 24, 5% due to several discrete tax items.

Finally, our diluted share count was $22 2 million down from $25 1 million a year ago due to our share repurchases over the past year.

Putting it altogether adjusted earnings grew to $1 six per diluted share.

This was double last year's adjusted earnings and a new record for apogee.

Let's move onto the segment results on slide eight.

Starting with architectural framing systems framing had another exceptionally strong quarter.

Revenue grew 26%.

This was primarily driven by pricing actions taken to offset inflation.

Operating income was $2.

5 million nearly double adjusted operating income in last year's second quarter.

Last quarter, we said that framing profits benefited by an.

$4 million due to volatility in aluminum pricing and the timing of inventory flows.

That benefit continued into this quarter, but at a much lower amount of about $1 million as our average cost of aluminum increased compared to the first quarter. Nonetheless.

Quarter margin came in at 11, 9%.

This is near the top end of our target margin range for framing systems of 9% to 12%.

The improved margins were driven by <unk>.

Pricing to offset inflation.

<unk> mix and the benefits from last year's restructuring.

Turning to the architectural services segment.

Revenues grew 11% to 107 million. This was driven by higher volume as we executed projects in our backlog operating margins came in at five 1%.

As expected this was nice sequential improvement from the first quarter, but below our seven 4% in last year's second quarter.

The year over year change was primarily due to investments, we're making to enable future scale and growth in services.

Also the integration of soda, while continued disapproves overall market excuse me overall segment margins.

Over time, we expect this transition will drive operational improvements and stronger profitability for the combined operations.

Looking at orders and backlog services had a strong quarter backlog increased 15% to $785 million.

We had several new project awards, including notable wins in transportation.

And health care segments.

Our sales pipeline remains healthy quoting activity is strong and we're optimistic about the opportunities ahead of us.

As a reminder, services orders and backlog are typically on a small number of large orders.

So backlog amounts can vary significantly from one quarter to the next.

In architectural glass the team continued to make impressive progress in its strategic shift like.

Like the past few quarters revenue was down compared to the prior year. This reflects the closure of the velocity business and our strategic shift away from some lower margin sales.

Operating margin continued to trend higher reaching eight 3%.

Adjusted operating margins.

Have now improved sequentially each quarter since we announced our new strategy.

Margins benefited from pricing that more than offset inflation productivity gains from our lean program and cost savings from the restructuring we completed last year.

Finally, lso continues to deliver steady performance gains.

Revenue grew 7%, primarily driven by higher volume and the operating margin was 23, 8% up 50 basis points from a year ago.

Let's turn to the cash flow and the balance sheet on page nine.

In the second quarter, we had positive cash flow from margins of 28 million rebounding nicely from the first quarter.

Year to date, our cash flow remains negative and below last year's level. This was primarily due to increased working capital to support our growth and the impact of inflation on working capital.

We also had higher than normal tax payment in the first half.

We expect cash flow will continue to improve as we move through the year.

Year to date capital spend was $9 million.

This will ramp up the rest of the year as we put capital to work on high return projects and evaluate opportunities to further invest in our business.

We now expect full year capex to be approximately $40 million.

During the quarter, we reduced net debt by $17 million.

We also refinanced our primary credit facility during the quarter. This extended the maturity out to 2027.

Increased our revolver capacity and lowered our borrowing costs.

Let me wrap up by discussing our outlook, which is found on page 10.

Based on our year to date results and increased confidence in our outlook. We are raising full year earnings guidance to a range of $3 75.

The $4 five per share at the midpoint that is up 57% growth over last year's adjusted EPS.

For the year, we expect 8% to 10% revenue growth.

This will primarily be driven by framing systems, and then and as a reminder, framing normally has lower revenue in the fourth quarter due to seasonality and we expect that same trend to continue this year.

And the other three segments, we anticipate second half revenue to be similar to that of the first half.

We expect to drive continued year over year margin expansion, primarily in framing systems and glass.

We will continue to benefit from the productivity.

Cost reductions that we've seen.

We also expect continued volatility in the aluminum and glass and other commodities. This volatility does make it more challenging to forecast our business, particularly in the fragrance segment.

Interest expense in the third and fourth quarter should be similar to that of the second quarter and.

And we continue to expect long term average tax rate of approximately 24, 5%.

With that I'll turn it back over to Ty for some concluding remarks.

Thanks Mark.

Our results this quarter continued to demonstrate how we are executing our strategy.

We're improving operational execution through sustainable productivity improvements effective cost and price management and navigating supply chain challenges.

Our team continues to do a terrific job managing through these challenges staying focused on serving our customers and driving the execution of our strategy.

Our bidding and award activity is also positioning us for a stronger mix shift in the years ahead.

Which we also hope to accelerate with M&A work as well.

Let me close by congratulating the entire apogee team on our record results this quarter.

And I know they are already working to continue our momentum through the rest of our fiscal year.

With that we're ready to take your questions.

Thank you.

If your question please.

Our one one on your telephone.

Compile the Q&A roster.

The first question I have is coming from.

Seymour.

Hey.

The Securities. Please go ahead.

Good morning.

Yes.

Yes, I'm sorry.

I got cut off.

Morning, Thanks, guys.

So the.

The guidance.

Increase is that more a function of better than expected Q2 or that the second half of the year is now looking better than perhaps three months ago.

Yes, good morning, Chris This is Ty.

If you look at our performance in Q2, I mean that was a very strong performance. So looking at how that how the first half has performed we've factored that into our guidance for the rest of the year.

And you can do the math I think it kind of looking at the second half, we do still see upside opportunity in that second half thats reflected in our range, but we also know the questions and concerns around the broader economy and so we're trying to factor that in as well that we could see some softness although like I said in my opening comments, we're just not seeing.

That right now on our order run rate and especially in our bidding activity.

Got it that makes sense.

The 14% growth in Q2 of Kenny can you give a little sense in terms of what.

Volume growth look like there was there any volume growth.

Sure Chris This is mark.

We did see nominal volume growth, although it was mixed across our segments.

And mix also played a part of it but it was primarily driven by really nice pricing, specifically that pricing to offset the inflationary costs that we were seeing.

Yes, and I think that is.

If you look at where we did see negative volume Chris It was in the areas that we expected and wanted to see that negative volumes, so glass still posted negative volume in.

Flattish if you will revenue and that is a result of us walking away from some of the lower margin offerings that they were selling and they still had this last quarter a velocity history.

And then within framing our window and wall business unit, where we saw an opportunity and still do to see some significant improvement in margins. They have purposely stopped quoting in a number of different project types and product offerings that we just looked at and said even if we are best in margin doesn't get us to where we want to be.

From a profitability standpoint, so they've seen some negative volume year to date as a result of that as well when you look across the rest of the business volume has been positive even if it's low single single digit positive volume growth.

Got it no that's interesting and then last one for me just the framing backlog so it's.

It's down a little bit, but I just was trying to get your thoughts here.

Just said there are some projects that maybe you're not putting that you would have.

And then the other piece of that question is before so I'll move to services used to talk roughly half frame and much quicker turn have longer lead time.

What is that ratio look like now.

Well so let me answer the first question in terms of that backlog and framing so where we saw a drop in backlog in framing that was primarily driven by our storefront and finishing solutions.

And that is a shorter cycle business and frankly with some of the demand that they have seen as well as managing through some of the continued supply chain and labor conditions. They actually were building our backlog and pushing out some of their lead times, which is something that they do not want to see so we actually saw that as good news the drop in <unk>.

Framing was driven by storefront and finishing and that was reflective of them starting to catch up on some of those orders that we're starting to push out a number a number of their lead times.

Maybe to give you some point of references there Chris storefront still represents about 60% of our overall <unk>.

Yes.

Business and 40% then would be the windows and walls. So again the shorter lead time would have a shorter lead time business would have a greater rate.

The fact that it didn't have a backlog.

<unk>.

That makes sense.

I'll leave it there I appreciate it guys.

Thanks, Chris.

Thank you. The next question is coming from Eric Stine.

Well Craig helium.

Yes, good morning time markets Aaron's mahalo on for Eric Thanks for taking the questions.

Good morning Erin.

First Hello, Yes, first maybe on services nice job on the backlog growth. There can you just talk about how the margins are on that new backlog and any update on how youre thinking about the right split between growth for that business, while trying to maintain the profitability targets.

Yes, really good question Erin So reminder, that services, we moved soda wall out of framing into services that wasn't underperforming business.

Both our Harmon branded project backlog and sort of what backlog, what they are executing and job flowing in revenue recognizing right. Now is work that was mostly one at the bottom of the pandemic period. That's when demand was very weak there was pressure on margins he saw more comps.

Titian chasing fewer jobs. So they are working through that now in this fiscal year and some of that will trail into next fiscal year.

In addition to that we saw an opportunity to significantly improve the operational execution within soda law by applying architectural services operating system and that work is underway as they fully integrate that business into architectural services.

Just as we saw sequentially an improvement in margin, we think that each quarter going forward, we will start to see sequential margin improvement as they address some of those challenges in the former Sotalol business.

And then as we look forward.

What we've talked about we have seen strong demand strong bid activity and so as that is building in our backlog too early to guide on that I would say that we're seeing as we build that backlog margin improvement from where we are today and we expect that as that flows in our fiscal 'twenty four 'twenty five.

By that that will provide some tailwind, particularly as we get into 'twenty five 'twenty six at that project, where it starts to fully execute as well.

Alright, thanks for the color there and then maybe second for me on the M&A I know actively managing the portfolio as part of the three pillars that you are focusing on and you talked about the pipeline building there.

Can you just maybe give an update there on the process and the opportunity valuations any areas that youre kind of looking to fill in.

Yes ill give you just kind of at a high level of Aaron's. So we've invested in that year to date.

We've added resources and terminal.

And working with third parties to support that work our goal is to be strategic here. So we're strategically looking for the right fit in terms of product or services that complements what we have today in our portfolio and maybe moves us out maybe one adjacency.

From the market segments and applications that we're serving today. So that work right. Now is really focused on building that pipeline and identifying those targets. That's not to say, we will be opportunistic as things come to market that we think makes sense, we will definitely jump in and look at those but I would say there is a bigger emphasis on being strategic.

<unk> May mean, we see this process still play out for another year or so.

When we look at the types of targets. We are looking for businesses that fit strategically that are accretive to our long term financial goals.

And that fit also should allow us to drive meaningful cost synergies in that first year.

And the fact that we're going to take an aggressive integration approach on those new acquisitions will help drive those cost synergies and that's a big shift from how we manage acquisitions in the past.

Alright, thanks for the color I'll turn it over.

Thank you.

Our next question will be coming from Brent Thielman.

D a davidson.

Hi, Thanks, and good morning.

Good morning, Brent.

Yeah.

Hey, guys. Thanks for taking the questions just on the framing tied I mean, it looks like aluminum prices some of the other input cost component to the business and pulled back at least.

Are you seeing that reset in terms of quoted prices in the market now or things still pretty strong.

Well I think theres two things to remember there. So one if you look at our Q1, we did note that framing saw benefit on cost flow that helped boost those margins. So there was about roughly $4 million of benefit on lower cost aluminum that was working its way through our <unk> and while we had already moved to adjust price.

To reflect the higher aluminum costs.

There was still a slight benefit in Q2, but it was approximately maybe a $1 million. So we saw that as good news right that they work through that and we expected margins to come down, but they still performed double digit margin for the quarter in terms of market pricing.

As you know, it's a competitive market. So we need to stay on top of that we want to grow our business and particularly one storefront and finishing solutions business, so where we need to.

He will make pricing adjustments, we do anticipate some of that will start to show maybe in our Q4 and that's why as we looked at our guidance and looking at how we performed in the second half while they are working through that they are going to be focused on working to maintain margins in that long term goal of 9% to 12% and I think.

They are on track there, they're probably going to be in the middle of that as they closed out the year.

But while we've seen some adjustments on pricing, we haven't seen a wholesale drop across the market with respect to pricing, but that can change and we're staying on top of it.

Yes, understood and then on the glass business. It looks like some of the margin improvement also comes from the high velocity business shut down can you help us understand where sort of the core business stand in terms of the initiatives, we put in place to drive better profitability.

Brent This is mark.

Sure I can give a little bit of color as it relates to what we're doing in our core business.

We are really trying to drive as our strategic plan had highlighted.

Highlighted we're trying to drive to higher higher priced higher complex type products.

Products not projects.

And it's really core to the overall <unk>.

<unk> business.

They have.

We have products that are a little bit more proprietary in that space and there are plenty of opportunities for us to explore in that area. So that's that's the primary emphasis as it relates to that I also want to point out the margin improvement in the quarter was also highly contributed or I should say productivity contributed.

<unk> highly to the quarterly results so not only we.

Moving from a <unk>.

Mix perspective, but.

We've also taken cost out of the business and that includes the costs associated with that lawsuit.

Yes, I'll just reinforce granted.

<unk> has been a big driver on the margin expansion, obviously, we've captured the restructuring benefits, that's showing up but then productivity on the production floor is showing us lean and as mark alluded to that mix shift, we're seeing that showing up in the bid and award activity.

And I think thats, a tailwind for that business as we go into fiscal 'twenty four because a lot of that isn't going to flow through the plant and revenue rec until the very end of this year and it's more of a 24 story.

<unk> tailwind for that business.

Okay. Thanks, and then just the last one on the services business I mean, I think you said.

<unk> sequential margin improvement through the fiscal year. That's typically what you tend to see seasonally are you I guess with some of these growth initiatives cost per growth initiatives paid should we see some year on year margin improvement as well as we move into the back half.

Well I think as you look at that they have a goal that we set out at Investor day of being at seven to nine.

I think as we get into.

Our Q4, if you look at Q4 stand alone, we see them as probably getting into the bottom of that range, but for the full year right now it looks like there'll be outside of that range and Thats a combination of the integration costs related to soda wall.

Shoring up some of the execution on some large projects that total wall has is driving right now from its backlog and then as you alluded to yes, we're putting a few million dollars of investment to help scale and grow that business and that will continue through the rest of the year and probably a little bit into the beginning of next year as well.

Okay. Thanks, guys look forward to seeing the suite.

Thank you Brent.

Thank you our next question.

We will be coming from Julio Romero of Sidoti.

Hey, good morning.

Could you just talk about the award mix Youre seeing.

You called out you've won some new transportation and infrastructure related projects. If you could give any additional detail on those projects won during the quarter and maybe how much runway do you have there to further diversify the business.

Yes, good morning, Julio so that has been an effort of ours.

Everyone's had a lot of questions about the future of office I think I would be remiss if I didnt reiterate we continue to see strong demand for premium office space.

And so that continues to be a driver in our backlog that being said.

As we are focused to make sure that we're going after other opportunities in that space. What we saw in our backlog growth. This this quarter was really non office. So there were some office projects that were won.

We saw a significant increase due to some wins in the transportation segments will think airports airport terminal new construction.

And we saw additional project wins in health care and education.

And again, there was some office space, but when we looked at that in total the drivers was non office and at least in this quarter that significantly reduce the percent of our backlog that is that is office in there and so we see that at both of those as good things its great that were seeing a diversification of the mix we.

Think there's some tailwind in that transportation government healthcare and education space because some of the federal funding funding that's come through we think some of the funding and tax rebates that are coming through for energy efficiencies bodes well.

For our glass business and even for our services business because those are more complex or higher value products that would go into curtain wall. So those those are positives for us as well as we look at that backlog that we're building.

Got it I appreciate the commentary there and I guess on the framing segue.

And then specifically on the storefront and finishing side.

You mentioned that the short lead time business and the lead time, shortening and that kind of drove the framing backlog number.

Just to clarify.

Lead times normalizing.

The view is kind of a good side and more of a normalization off a high base and not necessarily as a as an indicator of any slowing activity there.

Correct, and we still see very solid order volume on that again across all the businesses the trend lines up it adds it is choppy month to month, but the trend line continues to be up they were seeing early.

Our demand in Q1 and as we went into Q2 and then just working through some supply chain issues and this is happening across that that market in that space lead times started to push out again and so they've been working to get those lead times back under control and that drove a reduction in their backlog and I think.

We expect that they're going to continue to improve on those lead times this quarter as well because that short lead time. The service component is a very strong part of their value proposition in the marketplace. So they are very focused on driving improvements there.

Got it that's helpful and I guess, what are you seeing on the <unk> side in regards to the state of the consumer is that.

Giving you any kind of indicator one way or the other.

Well, we are watching it right.

Right now, it's still healthy condition. So our leader for Lso sees the news in the CPI headlines et cetera. They are not seeing a falloff in their demand at this point.

We've probably been a little conservative and anticipating maybe some of that will start to show in Q4, but right now as they finished the second quarter and as they look at their order rates into Q3 that it is holding up very well.

Got it thanks very much for taking the questions.

Thanks Julio.

Thank you I would now like to call turn the call back over to.

Hi, silver horn for closing remarks.

Well. Thank you again for everyone joining us today and I just want to reiterate and thank our team again for really strong execution in this quarter, but more importantly, as we alluded to earlier in the call and through this Q&A, we see really strong momentum in driving our long.

Term strategy of really building, a strong business being the economic leader in driving those margin improvements and setting ourselves up to outperform the market regardless of that outlook, both from a revenue and an income basis as we go forward.

So thanks, everyone for joining us today, and we'll talk to you again in a few months.

Thank you everyone for joining.

The rest of your day, everyone may disconnect.

[music].

Good day and thank you for standing by welcome to the a bogey enterprises fiscal 2023 second quarter earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question on the session you will need to press star one on your telephone please.

Please be advised that today's conference call is being recorded I would now like to turn the conference over to your speaker for today, Jeff If he please go ahead Sir.

Thank you Lisa good morning, and welcome to Apogee Enterprises fiscal 2023 second quarter earnings call with me today are tied silver Horn, Apogees, Chief Executive Officer, and Mark Hog, Dol interim 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 Apogees website.

During this call we will reference certain non-GAAP financial measures.

Our clinicians of these measures and reconciliation to the nearest GAAP measures are provided in the earnings release and slide deck. We issued this morning as a reminder, the prior year results for the architectural framing systems and architectural services segments have been recast to reflect the move.

Total wall from framing into services pro forma segment results, reflecting this change are included in our earnings slide deck.

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.

Thank you, Jeff and thanks, everyone for joining us today.

This was another strong quarter for apogee.

Execution of our strategy is clearly driving improved results with both revenue and earnings per share, reaching new quarterly records.

I am incredibly proud of our team's execution this quarter and the progress they've delivered to date.

This morning I'll walk.

Offer insights into how our strategy drove our record results this quarter.

<unk> some commentary on our end markets and review our outlook for the rest of the year.

Then I'll turn it over to Mark for more details on the quarter and our guidance.

After that we'll be ready to take your questions.

It's now been about a year since we began to execute our new enterprise strategy. As a reminder, our strategic framework as shown on page four of today's presentation.

Last year, we began to take actions to address each of the three pillars.

We announced the restructuring to align and simplify our portfolio.

Bring more clarity to our go to market approach.

And improve our cost structure.

These efforts were primarily focused on framing systems and glass the segments with the most opportunity to improve their margin performance.

We also relaunched our lean and continuous improvement program.

This is the foundation of our new operating model.

Our initial emphasis within the glass segment, and we are expanding it to other parts of the business.

Our focus in these early days is on the production floor with an approach of when the hour when the shift win the day.

Our goal is to drive near term improvements using short cycle feedback to make course corrections and drive repeatable results.

We work to build Controle plans to support a new baseline.

And then start the improvement efforts all over again.

We've made tremendous progress over the past year, which is especially evident in the glass segments results.

We also launched several important initiatives to strengthen core processes and systems.

We're building center led functional expertise and human resources procurement and finance.

This will enable more efficient operations with more capabilities and greater scalability, which will also support future M&A work.

Finally, we have added talent in key roles across the organization and brought new energy and content to our talent development programs.

The results of our efforts are evident in our performance this quarter.

And further strengthened our foundation for future quarters.

The highlights from Q2 are shown on page five in the presentation.

We had record revenue with 14% growth in the quarter.

Adjusted operating margin increased more than 300 basis points.

And adjusted earnings per share doubled compared to last year coming in at a record $1 <unk> per share.

We've improved our discipline around cost management.

We've worked with our suppliers and customers to minimize the impact of inflation and supply chain disruptions.

And we've strengthened our approach to pricing.

We still have work ahead of us to reach the financial goals, we set at our Investor day.

But a year into our new strategy, we are proud of our progress and we're more confident than ever in the path ahead of us.

Now as we've spoken with investors over the past few months the state of our end markets is top of mind for many of you.

So I would like to provide an update on what we are seeing.

Of course, we're closely monitoring inflation rising interest rates and overall economic conditions to understand how they might impact demand in our end markets.

At this point however, most indicators for nonresidential construction remain favorable.

The architectural billing index has been positive for 18 consecutive months.

Construction starts.

Sean.

And the federal government has passed several bills that provide significant support for infrastructure and construction spending.

These indicators suggest that our industry is building a strong pipeline of new projects.

Nearly every industry forecast for nonresidential construction calls for continued growth through calendar 2022 and calendar 2023.

This corresponds to what we're seeing in our own business.

We continue to see solid quoting and bidding activity in this quarter, we won several new projects, especially in the services segment.