Q3 2024 Apogee Enterprises Inc Earnings Call

December 21, 2023

Yeah.

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 Hubshin, Vice President of Rest Relations. You may begin.

Good day and welcome to the Q3 2020 for Apogee Enterprises earnings Conference call. At this time, all participants are in a listen only mode.

Later, we will conduct a question 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 Hutchins, Vice President 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 Silverhorn, Apogee's Chief Executive Officer, and Matt Osberg, Chief Financial Officer.

Jeff Hutchins: Thanks, Michelle good morning, everyone and welcome to Apogee Enterprises fiscal 2024 third quarter earnings call with me today are tie silver Horn, Apogees, Chief Executive Officer, and Matt Osborne 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.

Jeff Hutchins: 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.

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.

Jeff Hutchins: 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.

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 Apigee'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.

Jeff Hutchins: 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.

Jeff Hutchins: Actual results may differ materially.

Jeff Hutchins: 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.

Speaker Change: With that I will turn the call over to Utah.

Thanks, Jeff. Good morning, and thank you for joining us today.

Utah: 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.

Utah: 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 confidence.

Speaker Change: Today I'll discuss those highlights from the quarter, how execution of our strategy continues to drive improved performance.

Speaker Change: Provide some comments on our end markets.

and discuss how we are positioning the company for the future.

Speaker Change: 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 arrow.

Speaker Change: Now 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 4 of our presentation.

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.

Speaker Change: 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.

Speaker Change: This was the second highest quarterly adjusted EPS in <unk> 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.

Speaker Change: 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%.

Speaker Change: 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.

Speaker Change: 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 achieve operating margins above their 10% to 15% target ratio.

Speaker Change: 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.

Speaker Change: 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,

Speaker Change: They are significantly improve their cost structure.

Speaker Change: Delivered meaningful productivity gains.

and are driving their sales mix toward higher value added premium products.

Speaker Change: And are driving their sales mix toward higher value added premium products.

Another highlight in the quarter was backlog growth in our services sector.

Speaker Change: Another highlight in the quarter was backlog growth in our services segment.

we secured approximately 200 million of new project awards during the quarter.

Speaker Change: 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.

Speaker Change: These awards reflect the continuing effort to diversify the types of projects that we support.

New awards included projects in transportation, health care, medical labs, and

Speaker Change: New awards included projects in transportation.

Speaker Change: <unk> care medical labs.

Speaker Change: Education.

multi-family housing, and commercial office.

Speaker Change: Multifamily housing and commercial office.

We also secured our first major award in California as we've worked to expand further into Western State.

Speaker Change: We also secured our first major award in California, as we work 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: At its core we aim to deliver two primary objectives.

build differentiated businesses that provide compelling value for our customers.

Speaker Change: Build differentiated businesses that provide compelling value for our customers.

and improve operational execution across our businesses to drive a more competitive cost structure.

Speaker Change: 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.

building a solid foundation, and we still have plenty of opportunity ahead of us.

Speaker Change: 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.

Speaker Change: Architectural glass was the lead business for our launch of the apogee management system or Ams and has made significant progress and 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 volume slow.

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.

Speaker Change: Framing systems has more than doubled their margins since fiscal 'twenty one.

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 cycle.

Speaker Change: We still see margin expansion opportunities to further stages of Ams deployment.

In portfolio management as part of their long cycle business remain margin challenge 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.

Speaker Change: Architectural services did take a step back in margin since fiscal 'twenty, one 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.

Speaker Change: That integration is nearly complete and with backlog growing again, we see favorable revenue and margin improvement.

Speaker Change: As we move into fiscal 'twenty five.

Large-scale optical has improved its already high margin profile since fiscal 21 and

Speaker Change: Large scale optical has improved its already high margin profile since fiscal 'twenty one.

We are making investments which will allow them to expand into market adjacencies in late fiscal 25 and beyond.

Speaker Change: Ed.

We are making investments, which will allow them to expand into market adjacencies in late fiscal 'twenty five and beyond.

We are keeping a growth mindset and see further opportunities to strengthen margins and grow profit dollars.

Speaker Change: We are keeping a growth mindset and see further opportunities to strengthen margins and gross 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.

Speaker Change: 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 market.

Speaker Change: Now, let me offer some comments about our construction end markets.

Overall, there has been strong growth in non-residential construction during calendar year 2023.

Speaker Change: Overall, there has been strong growth in nonresidential 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.

While every sub sector of the non res market has grown in the past year manufacturing projects have accounted for approximately 60% of the total growth in nonresidential construction this year.

This is a sub-sector of the market where Apigee has very low participation given our current product offer.

Speaker Change: This is a sub sector 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 volume.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: In recent months the rate of growth in non res construction has begun to decelerate and.

and we've seen forward indicators like the Architectural Billings Index turn negative.

Speaker Change: And we've seen forward indicators like the architectural billings index turned negative.

Looking ahead to calendar 24, most industry forecasts call for further deceleration in non-RED's construction.

Looking ahead to calendar 'twenty for most industry forecast call for further deceleration in non res construction.

Higher interest rates, tighter lending standards, and increased costs have been putting pressure on commercial 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 business as we go into fiscal 25.

Speaker Change: We have seen that slowing show up in our short cycle framing business this quarter and expect some pressure in parts of that business as we go into fiscal 'twenty five.

Speaker Change: However.

still expect commercial construction growth rates in the low single digits overall in calendar 24.

Speaker Change: We still expect commercial construction growth rates in the low single digits overall in calendar 'twenty four.

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.

And the recent fed signaling of a hold and now I'll 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.

Speaker Change: 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.

strengthen our portfolio and provide a catalyst for growth.

Regardless of the macro environment, we are working to position Apogee for continued success.

Speaker Change: 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 and market.

Speaker Change: It is important to remember that nonresidential construction is a very large and diverse end market.

Within this large market, there are always opportunities for growth.

Speaker Change: 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.

Speaker Change: We are approaching fiscal 'twenty five 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,

Speaker Change: 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.

Speaker Change: We will also continue to diversify our project mix focusing on higher growth segments of the market such as transportation education and health care.

focusing on higher growth segments of the market, such as transportation, education, and health.

and we will continue to evaluate investment opportunities that could accelerate our growth through both organic expansion and through acquisitions.

Speaker Change: And we will continue to evaluate investment opportunities that could accelerate our growth.

Speaker Change: Both organic expansion and through acquisitions.

Speaker Change: Of course, we will maintain our focus on driving productivity improving execution and managing costs.

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.

Speaker Change: 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.

Speaker Change: 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.

Finally, our strong cash flow and balance sheet provide us with significant flexibility to execute our strategy.

Speaker Change: Finally, 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 in continuing to deliver strong performance. With that,

Speaker Change: Our entire team is focused on building upon the strong foundation, we have established and continuing to deliver strong performance.

Speaker Change: With that let me turn.

Speaker Change: Turn it over to Matt.

Thanks, Ty, and good morning, everyone. First, I'll begin with a review of our results in the quarter. Then I'll discuss our updated outlook for the fiscal year. And finally, I will wrap up with some preliminary thoughts on fiscal 25.

Matt Osborne: Thanks, Todd and good morning, everyone.

Matt Osborne: First I'll begin with a review of our results in the quarter, then I'll discuss our updated outlook for the fiscal year and finally, I will wrap up with some preliminary thoughts on fiscal 'twenty five.

The third quarter delivered strong results with significant operating margin expansion, double-digit earnings per share growth, and very strong cash flow despite lower revenue.

Matt Osborne: The third quarter delivered strong results with significant operating margin expansion double digit earnings per share growth and very strong cash flow despite lower revenue.

Net sales were $340 million compared to $368 million in the prior year period.

Matt Osborne: Net sales were $340 million compared to $368 million in the prior year period.

The decrease was primarily driven by lower volume and framing, partially offset by growth in glass.

Matt Osborne: The decrease was primarily driven by lower volume in framing partially offset by growth in glass.

Gross profit increased 4.3% and gross margin improved by 310 basis points, primarily driven by higher pricing, improved product mix, lower short-term incentive compensation expense, and lower insurance-related expense.

Matt Osborne: Gross profit increased four 3% and gross margin improved by 310 basis points, primarily driven by higher pricing improved product mix lower short term incentive compensation expense and lower insurance related expense.

These items were partially offset by the impact of lower volume and a less favorable mix of projects in service.

These items were partially offset by the impact of lower volume and a less favorable mix of projects and services.

SG&A expense increased $0.8 million to 15.5 percent of net sales.

Matt Osborne: SG&A expense increased <unk> 8 million to 15, 5% of net sales.

The increase was primarily due to higher salary and benefit costs, partially offset by lower short-term incentive compensation.

Matt Osborne: The increase was primarily due to higher salary and benefit costs, partially offset by lower short term incentive compensation expense.

Operating income grew 8.3 percent and operating margin increased 170 basis points to 11.1 percent.

Matt Osborne: Operating income grew eight 3% and operating margin increased 170 basis points to 11, 1%.

primarily driven by improved segment operating margin in glass, as well as a higher mix of glass segment results in our consolidated results.

Matt Osborne: Primarily driven by improved segment operating margin in glass as well as a higher mix of glass segment results in our consolidated results.

This was partially offset by lower segment operating margin and framing.

Matt Osborne: This was partially offset by lower segment operating margin in framing.

Looking at our segment results, framing revenue declined 15.4%. As a reminder, our framing business is a mix of short and long-cycle business.

Looking at our segment results framing revenue declined 15, 4% as a reminder, framing our framing business is <unk>.

Matt Osborne: Mix of short and long cycle businesses the.

The majority of the business is shorter cycle and primarily provides solutions for storefront and entrance systems and commercial windows.

Matt Osborne: The majority of the business is shorter cycle, and primarily provides solutions for storefront and entrance systems and commercial windows.

The longer cycle part of framing provides custom engineered window and curtain wall solutions for mid-size and larger projects.

Matt Osborne: The longer cycle part of framing provides custom engineered window and curtain wall solutions for mid size and larger projects.

The lower sales this quarter were primarily driven by lower volume in the shorter cycle parts of the business, reflecting the deceleration and non residential construction activity that Ty described earlier.

Matt Osborne: The lower sales this quarter were primarily driven by lower volume in the shorter cycle parts of the business, reflecting the deceleration in nonresidential construction activity that tie described earlier.

Segment operating margin for framing contracted 120 basis points to 12.2 percent, primarily due to the impact of low

Matt Osborne: Segment operating margin for framing contracted 120 basis points to 12, 2%.

Matt Osborne: Similarly, due to the impact of lower sales volume.

This was partially offset by improved mix, cost savings initiatives, improved productivity, and lower short-term incentive compensation.

Matt Osborne: This was partially offset by improved mix cost savings initiatives improved productivity and lower short term incentive compensation expense.

Despite the lower volumes, framing margins continue to be above the 9-12% target range for the segment for both the quarter and year today.

Despite the lower volumes framing margins continue to be above the 9% to 12% target range for this segment for both the quarter and year to date.

Glass revenue grew 11.6% and segment operating income more than doubled to $15.2 million.

Matt Osborne: Glass revenue grew 11, 6% and segment operating income more than doubled to $15 $2 million.

Segment operating margin expanded 760 basis points to 16.7 percent.

Matt Osborne: Segment operating margin expanded 760 basis points to 16, 7%.

This was primarily driven by improved pricing and mix, partially offset by the impact of lower volume and continued cost inflation.

Services revenue and segment operating margin declined, primarily due to a less favorable mix of projects, partially offset by lower short-term incentive compensation expense. However,

Matt Osborne: Services revenue and segment operating margin declined primarily due to a less favorable mix of projects, partially offset by lower short term incentive compensation expense.

Matt Osborne: However services margins.

Services improve margins sequentially from the second quarter and we expect margins to improve again in the fourth quarter.

Matt Osborne: Services improved margins sequentially from the second quarter, and we expect margins to improve again in the fourth quarter.

In LSO, despite lower revenue, operating margin improved by 60 basis points to 27.3%, with favorable mix offsetting lower volume.

Matt Osborne: In lso, despite lower revenue operating margin improved by 60 basis points to 27, 3% with favorable mix offsetting lower volume.

Corporate expenses of $6.9 million declined by $1 million, primarily due to lower insurance related costs.

Matt Osborne: Corporate expenses of $6 $9 million declined by $1 million, primarily due to lower insurance related costs.

Looking at backlog trends for the quarter on a sequential basis, backlog for framing was $184 million compared to $197 million in the second quarter.

Matt Osborne: Looking at backlog trends for the quarter on a sequential basis backlog for framing was $184 million compared to $197 million in the second quarter.

The decline was driven primarily by our longer cycle business reflecting slower award activity and a continued strategic shift towards projects that allow for more attractive markets.

Matt Osborne: The decline was driven primarily by our longer cycle business, reflecting slower award activity and a continued strategic shift towards projects that allow for more attractive margins.

Services finished the quarter with $777 million in backlog, up 15% from the second quarter.

Matt Osborne: Services finished the quarter with $777 million in backlog.

Matt Osborne: Up 15% from the second quarter.

Project Backlog and Services is typically driven by a small number of relatively large projects.

Matt Osborne: Project backlog in services is typically driven by a small number of relatively large projects. This makes backlog changes inherently variable from quarter to quarter, depending on the timing of project Awards.

This makes backlog changes inherently variable from quarter to quarter depending on the timing of project awards.

In the first half of the fiscal year, services backlog declined as we saw delays in projects moving from bid to award.

In the first half of the fiscal year services backlog declined as we saw delays in projects moving from bid to award.

This quarter, several of those delayed projects move forward, contributing to the backlog growth in the quarter.

Matt Osborne: This quarter several of those delayed projects move forward contributing to the backlog growth in the quarter.

Turning to cash flow, we had another strong result, with cash from operations in the quarter improving $12.9 million.

Matt Osborne: Turning to cash flow, we had another strong result, with cash from operations in the quarter, improving $12 $9 million.

This brings year-to-date operating cash flow to $129.3 million, an improvement of $78.2 million compared to the same period last year.

Matt Osborne: This brings year to date operating cash flow to $129 3 million, an improvement of $78 $2 million compared to the same period last year.

The year-to-date improvement has primarily been driven by favorable working capital changes.

Matt Osborne: The year to date improvement has primarily been driven by favorable working capital changes.

Through three quarters of the fiscal year, we have already achieved the second highest year of operating cash flow in the company.

Matt Osborne: Through three quarters of the fiscal year, we have already achieved the second highest year of operating cash flow in the company's history.

Our primary use of cash in the quarter was debt reduction, as we paid down 45 million dollars of debt on our revolving credit facility.

Matt Osborne: Our primary use of cash in the quarter was debt reduction as we paid down $45 million of debt on our revolving credit facility.

Fiscal year to date, we have reduced our net debt by $72.7 million, bringing our net leverage ratio down to 0.4 times trailing 12-month adjusted EBITDA compared to 0.9 times at the beginning of the year.

Matt Osborne: Fiscal year to date, we have reduced our net debt by $72 $7 million, bringing our net leverage ratio down to 0.4 times trailing 12 month adjusted EBITDA compared to 0.9 times at the beginning of the year.

We had $11.9 million of capital expenditures in the quarter, primarily relating to investments to expand capacity in our higher margin business and enhance productivity.

Matt Osborne: We had $11 9 million of capital expenditures in the quarter, primarily relating to investments to expand capacity in our higher margin business.

Matt Osborne: And enhanced productivity through automation.

Moving to our updated outlook for the fiscal year, we are increasing our full-year adjusted diluted EPS outlook to a range of $4.55 to $4.70 primarily reflecting our strong

Matt Osborne: Moving to our updated outlook for the fiscal year, we are increasing our full year adjusted diluted EPS outlook to a range of $4 55.

Matt Osborne: To $4 70.

Matt Osborne: Primarily reflecting our strong third quarter earnings.

This updated outlook implies full year growth between 14% to 18% compared to last year's adjusted diluted EPS of $3.

Matt Osborne: This updated outlook implies full year growth between 14% to 18% compared to last year's adjusted diluted EPS of $3 98.

Additionally, we now expect net sales will decline approximately 3% for the fiscal year.

Matt Osborne: Additionally, we now expect net sales will decline approximately 3% for the fiscal year.

As a reminder, fiscal 24 is a 53-week year with an extra week of operations in the fourth quarter.

Matt Osborne: As a reminder, fiscal 'twenty four is a 53 week year with an extra week of operations in the fourth quarter.

We expect our consolidated fourth-quarter operating margin to decline sequentially but improve compared to prior year, as we expect sequential margin moderation in framing, glass, and LSO to be partially offset by an improvement in services margin.

Matt Osborne: We expect our consolidated fourth quarter operating margin to decline sequentially, but improved compared to prior year as we expect sequential margin moderation in framing glass and lso to be partially offset by an improvement in services margin.

We continue to expect an average tax rate of approximately 24.5 percent. And we now expect full year capital expenditures between 40 to 50 million dollars down from our previous estimate of 50 to 60 million dollars.

Matt Osborne: We continue to expect an average tax rate of approximately 24, 5% and.

Matt Osborne: And we now expect full year capital expenditures between $40 million to $50 million down from our previous estimate of $50 million to $60 million.

Looking ahead to fiscal 25, we are currently working through our budgeting process and expect to provide financial guidance for the new fiscal year in April . As we work through this process, we would like to share a few preliminary thoughts about the coming fiscal year.

Matt Osborne: Looking ahead to fiscal 'twenty five we are currently working through our budgeting process and expect to provide financial guidance for the new fiscal year in April.

Matt Osborne: As we work through this process, we would like to share a few preliminary thoughts about the coming fiscal year.

We continue to monitor macroeconomic trends and industry data to assess the potential impacts on our business.

As Ty described, most industry forecasts called for decelerating growth for non-residential construction with low single-digit growth expected for calendar 24.

Matt Osborne: As Ty described most industry forecasts called for decelerating growth for nonresidential construction with low single digit growth expected for calendar 'twenty four.

Growth expectations in non-resi construction are impacted by interest rates and financing markets.

Matt Osborne: Growth expectations in non <unk> construction are impacted by interest rates and financing markets.

If interest rate outlooks begin to improve in calendar 24, that could favorably impact our business.

Matt Osborne: If interest rate outlooks begin to improve in calendar 'twenty four.

Matt Osborne: That could favorably impact our business how's.

However, with the longer cycle nature of the construction industry, we would not expect a significant impact on our fiscal 25 results.

Matt Osborne: However, with the longer cycle nature of the construction industry, we would not expect a significant impact on our fiscal 'twenty five results.

Within the prevailing market environment, we will strive to outperform our industry as we continue to drive strategic changes across our business.

Matt Osborne: Within the prevailing market environment, we will strive to outperform our industry as we continue to drive strategic changes across our business.

Regardless of market conditions, we are approaching the new year with a growth mindset.

Matt Osborne: Regardless of market conditions, we are approaching the new year with a growth mindset and.

and to focus on driving further productivity gains and improvements in our cost structure.

Matt Osborne: And our focus on driving further productivity gains and improvements in our cost structure.

Matt Osborne: Okay.

If we do see slower market growth in fiscal 25, this will primarily impact our framing and glass segment.

Matt Osborne: If we do see slower market growth in fiscal 'twenty five this will primarily impact our framing and glass segments.

strong backlog growth and services this quarter positions that segment well for top-line growth next year.

Matt Osborne: The strong backlog growth in services this quarter positions at segment well for top line growth next year.

We also see an opportunity for growth in LSO as that business continues to expand into new adjacencies and begins to benefit from additional capacity.

Matt Osborne: We also see an opportunity for growth in lso as that business continues to expand into new Adjacencies and begins to benefit from additional capacity.

We also believe we have further positive margin building blocks yet to realize in fiscal 25. Margins should benefit from further productivity, AMS initiatives, and a favorable project backlog and services.

Matt Osborne: We also believe we have further positive margin building blocks, yet to realize in fiscal 'twenty five margin should benefit from further productivity initiatives.

Matt Osborne: Initiatives and a favorable project backlog in services.

Fiscal 24 has been an incredible year for our last segment, which has benefited from volume pricing and mix, leading to sales growth of 20 percent and operating income growth of 157 percent on a year-to-date basis.

Fiscal 'twenty four has been an incredible year for our glass segment, which has benefited from volume pricing and mix leading to sales growth of 20% and operating income growth of 157% on a year to date basis.

In fiscal 25, we expect glass segment margin rates to moderate compared to what we've achieved this year, as market demand will likely have a negative impact on volume and pricing, and as we begin to lapse mixed benefits from our shift to premium strategy.

In fiscal 'twenty, five we expect glass segment margin rates to moderate compared to what we've achieved this year as market demand will likely have a negative impact on volume and pricing and as we begin to lap mix benefits from our shift to premium strategy.

For fiscal 25, we are focused on maximizing margin dollars in the glass segment while delivering margin rates within our target range of 10 to 15%.

Matt Osborne: For fiscal 'twenty five we are focused on maximizing margin dollars in the glass segment, while delivering margin rates within our target range of 10% to 15%.

As a reminder, fiscal 25 will revert to a normal 52-week year, which will create a headwind for year-over-year comparisons of approximately 2 percentage points on revenue.

Matt Osborne: As a reminder, fiscal 'twenty five will revert to a normal 52 week year, which will create a headwind for year over year comparisons of approximately two percentage points on revenue.

Finally, we expect our priorities for capital development in fiscal 25 to continue to be investing in organic growth, accretive M&A, and returning capital to shareholders through share repurchases and dividends.

Matt Osborne: Finally, we expect our priorities for capital development capital deployment in fiscal 'twenty five to continue to be investing in organic growth accretive M&A and returning capital to shareholders through share repurchases and dividends.

To close, this was another strong quarter as we continue to advance our strategic objectives and drive improved profitability in cash flow. We are on track to deliver a strong full-year result in fiscal 24 and see opportunities for further progress in the year ahead.

Matt Osborne: To close this was another strong quarter as we continued to advance our strategic objectives and drive improved profitability and cash flow. We are on track to deliver a strong full year results in fiscal 'twenty, four and see opportunities for further progress in the year ahead.

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

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

Ty: Thanks, Matt to wrap up I wish to thank our team for delivering yet another strong quarter in the two years since we introduced our new strategic direction, we have driven sustainable operating improvements across our business, allowing us to exceed the financial targets, we set out at our Investor day in <unk>.

To wrap up, I wish to thank our team for delivering yet another strong quarter. In the two years since we introduced our new strategic direction, we have driven sustainable operating improvements across our business.

allowing us to exceed the financial targets we set out at our investor day in November of 2021.

Matt Osborne: November of 2021.

Our team is focused on delivering a successful fourth quarter to close out this fiscal year and as we look ahead, we continue to see significant opportunities for long term profitable growth across our business to both organic and inorganic investment.

Matt Osborne: Our team is focused on delivering a successful fourth quarter to close out this fiscal year and as we look ahead, we continue to see significant opportunities for long term profitable growth across our business through both organic and inorganic investment.

Matt Osborne: With that we're ready to take your questions.

Thank you. If you'd like to ask a question, please press star 11. If your question hasn't answered and you'd like to remove yourself in the queue, please press star 11 again. Our first question comes from Chris Moore with CGS Securities. Your line is open. Good morning, guys.

Speaker Change: Thank you if you'd like to ask a question. Please press star one one.

Speaker Change: Your question has been answered and you'd like to remove yourself from the queue.

Speaker Change: Alright, one again.

Speaker Change: First question comes from Chris Moore with CJS Securities. Your line is open.

Chris Moore: Good morning, guys. Thanks for taking a couple of questions.

Good morning. Yeah, maybe we just start with...

Speaker Change: Good morning, Chris Chris Good morning, Yeah, maybe.

Speaker Change: Maybe we just start with.

The visibility within services backlog, you know, 776 million, that's up 15 percent sequentially.

The visibility within services backlog 776 million, that's up 50% sequentially.

Roughly, you know, what percentage of that still has some of the lower margin work in there and is that lower mark work likely to, we'll see that in calendar 24?

Speaker Change: Roughly what percentage of that still has some of the lower margin.

Work in there and is that lower Mark you can work.

Speaker Change: Likely that we'll see that in.

Speaker Change: Calendar 'twenty four.

So if you look at, Chris, if you recall when we announced the Soda Wall integration, that Soda Wall, if we had it as a standalone business, was losing money. So they were in a negative e-bit.

Speaker Change: So if you look at Chris if you recall, when we announced the <unk> integration. The soda law, we added as a standalone business was losing money. So they were in a negative EBIT.

state at that point in time, and so it's a combination of managing our cause.

Speaker Change: Stayed at that point in time, and so it was a combination of managing our costs as well as.

as well as looking at how we improve productivity and then kind of shift that business model from a supply side to a true integrated project services business model.

Speaker Change: Looking at how we improve productivity and then kind of shifting that business model from a supply side to a true integrated.

Speaker Change: <unk> services business model.

Um, they have worked down a significant portion of that amount. So we won't break out those percentages, but I would say as we move through for fourth quarter and we get through maybe first quarter of next year that that would become.

Speaker Change: They have worked down a significant portion of that amount. So we won't break out those percentages, but I would say as we move through.

Speaker Change: Fourth quarter, and we get through maybe first quarter of next year that would become.

really immaterial to that backlog as they go forward. Part of that revenue dip we saw was them transitioning out of that business model, because of the different customer set, the way SOTA was, SOTA law was.

Speaker Change: Really immaterial to that backlog as we go forward part of that revenue that we saw was them transitioning out of that business model because it is a different customer set the way. So it was sort of what I was going to market before.

So that should provide some additional heroin for them on the margin side.

So that should provide some additional tailwind for them on the margin side is as they go into fiscal 'twenty five.

Perfect that's helpful and maybe just same with service remote the the project that you talked about in California Is that is there a big, you know growth potential here? And are there any challenges finding employees? You know to work on these?

Speaker Change: Perfect that's helpful.

Speaker Change: And maybe just staying with services.

Speaker Change: The project that you talked about in California.

Speaker Change: Is that is there a big.

Speaker Change: Potential here and are there any challenges finding employees.

Speaker Change: Work on these.

We have established, we established a regional office in California of almost a year ago now and then we have been deploying some of the project managers and kind of the key personnel if you will to manage that business from other parts of the U.S. to support that.

Speaker Change: Alright, we have established we established a regional office in California, almost a year ago now and then we have been deploying some of the project managers and kind of the key personnel. If you will to manage that business from other parts of the U S to support that so we feel we're in a very good position we actually.

So we feel we're in a very good position. We actually were pulled out there by one of the large contractors that we've worked with in other parts of the country. So we feel really good about not only landing that first project, but as we're looking at projects in the western part of the United States.

Speaker Change: We were pulled out there by one of the large contractors that we've worked with in other parts of the country. So we feel really good about not only landing that first project, but as we're looking at projects in the western part of the United States. We've got a couple of good partnerships and.

We've got a couple of good partnerships and, you know, with a little bit of the softness that we have been seeing, we're also, as we did in calendar 20 and 21 during COVID, there's a little bit of a flight to quality, what we're seeing here too. And our services segment, which operates under the Harman brand is known in the industry as a high quality integrated project services business.

Speaker Change: With a little bit of softness that we haven't seen we're also as we did in calendar 2020. One during COVID-19 is a little bit of a flight to quality, what we're seeing here too.

Speaker Change: In our services segment, which operates under the Harman brand is known in the industry as a high quality integrated project services business. So we're seeing some benefits from there not just in the west but throughout other parts of the region.

So we're seeing some benefits from there, not just in the West, but throughout other parts of the region.

Speaker Change: Of the U S.

Got it. Perfect. And maybe just the last one is on glass margins. Obviously, 16.7%, you know, Matt kind of talked about that, not necessarily being repeatable in fiscal 25, but just trying to get a census to, you know, the range is up to 15%. Is the bias, you know, kind of towards the high end of the range at this stage moving forward?

Got it perfect and maybe just last one.

Speaker Change: In glass margins, obviously 16, 7%.

Speaker Change: Matt talked about that not necessarily being a rip.

Speaker Change: A repeatable in fiscal 'twenty, five, but just trying to get a sense as to.

Speaker Change: Okay.

Speaker Change: Our range is up to 15% is the bias towards the high end of the range at this stage moving forward.

Yeah, Chris, you know, it's a great question and the glass like he's pointing out the glass segment had phenomenal results this year. And, you know, as we said, they're hitting on all cylinders. And, you know, as we talked about in my remark.

Speaker Change: Yes, Chris it's a great question.

The glass like is pointing out the glass segment had phenomenal results this year.

As we've said they are hitting on all cylinders and as we talked about in my remarks, if theres volume pressure.

If there's volume pressure, they'll look at pricing and titrate pricing to the volume, and we're trying to maximize

Speaker Change: They will look at pricing and titrate pricing to the volume and we're trying to maximize margin dollars for next year in that segment within that 10% to 15% range. So I think we're within that range depends on the volume pressure that they get and what happens in pricing, but we're very confident that we'll be able to remain in that range next year.

margin dollars for next year in that segment within that 10 to 15 percent range. So I think where within that range depends on the volume pressure that they get and what happens in pricing, but we're very confident that we'll be able to remain in that range next year as we look to maximize EBIT dollars. Got it. I appreciate that.

Speaker Change: As we look to maximize EBIT dollars.

Speaker Change: Got it I appreciate that and I'll jump back in line. Thanks, guys.

Speaker Change: Thanks, Chris.

Thank you. Our next question comes from Julio Romero, with the Dodian Company. Your line is open.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Julio Romero with Sidoti <unk> Company. Your line is open.

Thanks. Hey, good morning, Ty and Matt. Maybe to start on... Hey, good morning. Maybe to start on the framing segment. How does that...

Julio Romero: Thanks, Hey, good morning, Todd and Matt.

Julio Romero: Maybe just start on.

Hey, good morning, maybe to start on the framing segment.

Julio Romero: How does that.

at expected pressure on the shorter cycle business which which I believe is generally generally higher margin than the project related portion of the segment. How does that demand pressure affect expected margins in fiscal 25 and are the margins

Unexpected pressure on the shorter cycle business, which I believe is generally.

Julio Romero: Generally higher margin than the project related portion of the segment.

Julio Romero: How does that demand pressure.

As expected margins in fiscal 'twenty, five and the margins.

you know, still expected within the 9 to 12 percent target range.

Julio Romero: Still expected within 9% to 12% target range.

Yeah, I think that's a great, I think that's a good assumption, Julio, for next year. And, you know, it'll be somewhat similar to what's happening in glass, right? As we look at the volume pressure they might get and adjusting pricing, but we still feel good about our long range target in that segment. And even this year, like we said, I mean, this quarter, they were, they declined, but they're still ahead of their.

Speaker Change: Yes, I think Thats, our greatest I think that's a good assumption Julio for next year and it'll be somewhat similar to what's happening in glass right. As we look at the volume pressure they might get and adjusting pricing, but we still feel good about our long range target in that segment and even this year like we said this quarter.

Speaker Change: <unk> they were a decline, but they are still well ahead of their <unk>.

Long range targets for the quarter and year to date period. So there's still some opportunities for us in that segment with some other margin building blocks as we, you know, look into the future.

Speaker Change: Long range targets for the quarter and year to date period. So there is still some opportunities for us in that segment with some other margin building blocks as we look into the future.

Yeah, and I would just add to that Julio. I mean, we've talked about choppiness and order rate and volume, and we have short, short,

Speaker Change: Yeah, and I would just add to that Julio I mean, we've talked about choppiness in order rate and volumes and we have short short.

Well, we have low visibility to that short cycle business as we've talked about, but we did see all three months of the quarter for them be negative.

Julio Romero: Well, we have low visibility to that short cycle business as we've talked about but we did see all three months of the quarter for them the negative and so we didn't get that one month of balance where we had some some.

So we didn't get that one month of bounce where we had some nice bounce back growth. So that's a sign for us and we do our competitive reconnaissance.

Julio Romero: Nice bounce back growth. So that's a sign for us and we do our competitive reconnaissance.

The other large players that we compete with in the market, from what we have been able to gather, they all saw similar declines in the same period.

Julio Romero: Other large players that we compete within the market from what we have been able to gather they all saw similar declines in the same period.

that said November was better than October so we kind of are looking back how does this play out fourth quarter and then using that fourth quarter to really build our assumption.

Julio Romero: <unk>.

That said in November was better than October. So we kind of are looking back how does this play out fourth quarter, and then using that fourth quarter to really build our assumptions for fiscal 'twenty five but as Matt said, even if there's there's continued revenue pressure on that business that extends into our fiscal <unk>.

fiscal 25. But as Matt said, even if there's continued revenue pressure on that business that extends into our fiscal 25 for some part of fiscal 25, we still feel really good about the operating levers we have to pull still on margin from a productivity and a cost of goods sold. And then as you highlighted, we have part of that business while it has been coming down as a percent of our revenues.

Julio Romero: 25 for some some part of fiscal 'twenty five we still feel really good about the operating levers we have to pull still on margin from our productivity and our cost of goods sold and then as you highlighted we have part of that business. While it has been coming down as a percent of our revenues.

the larger project supply side of that business, it remains margin challenge. So that's an area that we also have some leverage.

Julio Romero: The larger projects supply side of that business. It remains margin challenge. So that's an area that we also have some levers too.

kind of further accelerate the higher margin parts of that business and deal with our costs and some of the margin challenges on the project side of that business.

Julio Romero: And a further accelerates the higher margin parts of that business and deal with our cost and some of the margin challenges on the project side of that.

got it. That's very helpful there. Maybe turning to the services segment, you obviously saw some strong orders there in the book to bill above two times.

Speaker Change: Got it that's very helpful. There, maybe turning to the services segment. Obviously you saw some strong orders there in the book to Bill above two times.

You know, what kind of level of inquiries are you seeing today within the segment? And then secondly, I think, Matt, you addressed this in your prepared remarks, but, you know, there's a lumpy nature to borders within that segment. You know, I guess we shouldn't expect that.

Speaker Change: What kind of level of inquiries or are you seeing today within the segment and then secondly.

Speaker Change: Matt you addressed this in your prepared remarks, but.

There is a lumpy nature to borders within that segment.

Speaker Change: I guess, we shouldn't expect that type of level of orders in the fourth quarter and if so how should we kind of think about underlying demand for the segment.

that type of level of orders in the fourth quarter, and if that's so, you know, how should we kind of think about underlying demand for the segment?

Yeah, I mean, I would say just because of the questions on the market.

Speaker Change: Yes, Julio I would say just because of the questions on the market. When we look at research firms forecasting calendar 'twenty for non res construction, there's a little bit wider.

You know, when we look at research firms forecasting calendar 24 non res construction, there's a little bit wider spread than what we have seen in the last few years. So we're, we're seeing anywhere from minus one minus 2% to plus 5%.

Julio Romero: Spread than what we have seen in the last few years. So we're seeing anywhere from minus one minus 2% plus 5%. So that's still says that there is some cloudiness there and I think until people really get grounded on interest rates not only thank everyone fuels the ceilings there.

So that still says that there's some cloudiness there. And I think until people really get grounded on interest rates, not only think everyone feels the ceiling's there,

But until they see that first rate cut, I think it's going to still cause some delays in project award.

Julio Romero: But until we can see that first rate cut I think its going to still caused some delays in project awards.

So that the developers contractors feel more confident about walking in lacking in their cost structure for that project

Julio Romero: So that the developers contractors feel more confident about locking and locking in their cost structure for that projects.

I think we'll still see some lumpiness, so I wouldn't assume that Q4 is going to look like Q3 in terms of awards and that.

Julio Romero: So I think we'll still see some lumpiness.

So I wouldn't assume that Q4 is going to look like Q3 in terms of awards and net.

booking numbers in relation to that but like I said before we we are seeing a little bit of a flight to quality so we have seen some nice projects come into our services segment for bids and quotes so that that continues to be a positive

Julio Romero: Booking numbers in relation to that but like I said before we are seeing a little bit of a flight to quality. So we have seen.

Julio Romero: Some nice projects come into our services segment for bids and quotes so that that continues to be a positive sign.

And the only thing I would add, Julio, you know, really encouraging to see the diversity of project wins that we had in the quarter. So I think that reinforces that if people are looking for quality and we can provide that as we have in the past and to have a more diverse set of project wins come in, that's, that's encouraging.

Speaker Change: One thing I would add Julio really encouraging to see the diversity of project wins that we had in the quarter. So I think that reinforces that if people are looking for quality and we can provide that as we have in the past and to have a more diverse set of <unk>.

Speaker Change: Project wins come in that's that's encouraging to me.

That's helpful. If I could just ask one more here is just on the cash flow is really impressive here in the quarter. Just how much more runway do you have for working capital improvement and do you foresee working capital being neutral in fiscal 25?

Speaker Change: Got it that's helpful. If I could just ask one more here just on.

Speaker Change: The cash flow was really impressive.

Speaker Change: Here in the quarter, just how much more runway do you have for working capital improvement and.

Speaker Change: Do you foresee working capital.

Speaker Change: Being neutral in fiscal 'twenty five.

Yeah, a great question, Julio. So if you recall back in fiscal 23, I think what's there's a couple of things benefiting us. One is we're doing some good things in fiscal 24 and you know, strong earnings growth helps that cash flow.

Speaker Change: Yes, a great question <unk>. So if you recall back in fiscal 'twenty three I think there's a couple of things benefiting US one is we're doing some good things in fiscal 'twenty four and strong earnings growth helps that cash flow. The second just from a comparability perspective fiscal 'twenty three I think our we just some of the <unk>.

The second, just from a comparability perspective, fiscal 23, I think are

just some of the nature of what happened in the marketplace that year, our working capital went backwards a little bit, so I think you're seeing a really strong recovery on a year-over-year basis compared to 23 because of just some abnormal bad guys that happened in 23. So if you're thinking about year-over-year improvement, I wouldn't assume we're going to do that same type of improvement as I look ahead to fiscal 25.

Speaker Change: Nature of what happened in the marketplace that year, our working cash flow or working capital went backwards a little bit. So I think youre seeing a really strong recovery on a year over year basis compared to 23 because of just some abnormal bad guys that happened in 2003, so if youre thinking about year over year improvement I think.

Speaker Change: There is I wouldn't assume we're going to do that same type of improvement as I look ahead to fiscal 'twenty five if youre thinking about just sustaining and being able to kind of deliver at relatively high levels of cash flow I think theres, a good possibility of us doing that.

If you're thinking about just sustaining and being able to kind of deliver at relatively high levels of cash flow, I think there's a good possibility of us doing that. I think we've got some opportunity in working capital, but I think being able to sustain where we are at this high level is also a good outcome.

Speaker Change: I think we've got some opportunity in working capital, but I think being able to sustain where we are at this high of a level is also a good outcome from a from a cash flow, but we'll get into more of that as we get through our budget cycle and look into fiscal 'twenty five.

from a cash flow, but we'll get into more of that as we get through our budget cycle and look into fiscal 25.

Really helpful. I'll pass it along. Thanks very much. Thanks Julio.

Speaker Change: Very helpful. I'll pass it along thanks very much.

Speaker Change: Thanks Neil.

As a reminder, to ask a question, please press star one-one. Our next question comes from Brent Dillman with TA Davidson. Your line is open.

Speaker Change: As a reminder to ask a question. Please press star one one our next question comes from Brent Thielman with D. A Davidson your line is open.

Hey, thanks. Good morning. Congrats on a great quarter. You're really just one for me. Lots have been answered here, but Ty, your balance sheet's in great shape. You're throwing off a lot of cash.

Speaker Change: Hey, thanks.

Brent Thielman: Good morning, Congrats on a great quarter.

Really just one for me.

Brent Thielman: Been answered here.

Brent Thielman: Your balance sheet is in great shape, you're throwing off a lot of cash.

you're obviously focused on, you know, growth prospects, organic and potentially inorganic. I guess my question is, you know, as you're starting to look at those opportunities out there, is it all entirely within the non-residential market? Are you intrigued by some other opportunities? Because you've got this great LSO business producing great margins.

Brent Thielman: You're obviously focused on them.

Perhaps box organic and potential inorganic I guess my question is as you're starting to look at those opportunities out there is it all entirely within the nonresidential market our U intrigued by some other opportunities because we've got this great lso business producing great margins.

Yeah, I've seen me some good things there. I just be curious, you know, where we see this go.

Yes, we made some good things there I'd just be curious where we see those go.

Yeah, Brent, great, great question. And, you know, we've talked before, we built the process, we've got resources, we've been, we have an active pipeline, you know, we'll never talk specifics on companies, etc. It has remained tight, even things that that we're coming into a process and just, you know, get they get a sense that there's not maybe as many buyers yet as they would like. And so we've seen some processes pulled as a result of that. When you step back and think about it, we are primarily an architectural products and services.

Speaker Change: Yes, Brent great Great question, and we've talked before we built the process. We've got resources. We've been we have an active pipeline, we'll never talk specifics on companies et cetera. It has remained tight even things that were coming into our process and just get a sense that there is not maybe as many.

Speaker Change: Buyers yet as they would like and so we've seen some processes pulled as a result of that when you step back and think about it we are primarily an architectural products and services company. So we will look to diversify our product portfolio via acquisitions in part to allow us to play into more of those project types.

So we will look to diversify our product portfolio via acquisitions in part to allow us to play into more of those project types. And we won't get into specifics, but I'd say if you think about it that way from our products related business and probably

Speaker Change: And we won't get into specifics, but I would say if you think about it that way from our products related business and probably.

things that are more related to or an extension of what we're doing in framing but different product sets. And then, yes, you hit on a really solid point with large scale optical. We've got some really great technology and know-how and understanding about performance coding.

Speaker Change: Things that are more related to you are an extension of what we're doing in framing but different product sets and then yes, you hit on a really solid point with large scale optical we've got some really great technology, and knowhow and understanding about performance coatings on both glass.

on both glass and acrylic or polymer substrates and as we now have invested in an additional coding capacity for that business and we work to accelerate their diversification, we are being opportunistic as if there's some acquisitions that can accelerate that diversification of that business.

<unk> and acrylic or polymer substrates and as we now have invested in additional coating capacity for that business and we work to accelerate their diversification, we are being opportunistic as if theres. Some acquisitions that can accelerate that diversification of that business that we see both a.

that we see both a strategic fit from a technology and business standpoint and again are a creative to our margin goals as a company. So, you know, as we look at that space,

Speaker Change: T J fit from a technology and business standpoint, and again are accretive to our our margin goals as a company. So as we look at that space.

It's likely we're not acquiring something that's at 25, greater than 25% EBIT, but we're certainly interested in things that accelerate the first case in that business that are even in the teens from an EBIT perspective that help us build that business as well.

Speaker Change: It's likely we're not acquiring something that's at 25 greater than 25% EBIT it but.

Speaker Change: We're certainly interested in things that accelerate diversification of that business that are even in the teens from an EBIT perspective that help us grow that business as well.

Speaker Change: Okay very good thank you.

Speaker Change: Thank you.

Thank you. There are no further questions. I'd like to turn the call over to Pat Silverhorn for closure remarks.

Speaker Change: Thank you there are no further questions I'd like to turn the call over to Pascal Brookman for closing remarks.

Well, I'd just like to thank everyone for joining us today. And I know we're right up against the holiday season, so I'd just like to wish you and your families happy holidays and looking forward to a prosperous new year for all of us. Have a great day.

Pascal Brookman: Well I'd just like to thank everyone for joining us today and I know, we're right up against the holiday season. So I'd just like to wish you and your families happy holidays, and looking forward to a prosperous new year for all of us have a great day.

Thank you for your participation. This does include the program you may now disconnect.

Speaker Change: Thank you for your participation. This does conclude the program you may now disconnect.

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Speaker Change: Good day and welcome to the Q3 2020 for Apogee Enterprises earnings Conference call. At this time, all participants are in a listen only mode.

Speaker Change: Later, we will conduct a question and answer session and instructions will be given at that time.

Speaker Change: As a reminder, this call is being recorded.

Speaker Change: I would now like to turn the call over to Jeff Hudson, Vice President Investor Relations you may begin.

Thanks, Michele good morning, everyone and welcome to Apogee Enterprises fiscal 2024 third quarter earnings call with me today are tie silver Horn, Apogees, Chief Executive Officer, and Matt Osborne 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.

Speaker Change: I would 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. 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.

Speaker Change: 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.

Speaker Change: Actual results may differ materially.

Speaker Change: 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.

Speaker Change: With that I'll turn the call over to Utah.

Thanks, Jeff. Good morning, and thank you for joining us today.

Utah: 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.

Utah: 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 confidence.

Speaker Change: Today I'll discuss those highlights from the quarter, how execution of our strategy continues to drive improved performance.

Speaker Change: Some comments on our end markets.

and discuss how we are positioning the company for the future.

Speaker Change: And discuss how we are positioning the company for the future.

I'll turn it over to Matt for more details on the quarter and our out.

Speaker Change: Now 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 4 of our presentation.

Matt Osborne: Let's start with the highlights which are on page four of our presentation.

He delivered another quarter of strong earnings, margin expansion, and cash flow performance.

Matt Osborne: 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.

Matt Osborne: This was the second highest quarterly adjusted EPS in <unk> 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.

Matt Osborne: 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%.

Matt Osborne: 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 up 10%.

Once again, our improved results were led by exceptional performance in architectural glass.

Matt Osborne: 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 achieve operating margins above their 10% to 15% target revenue.

Matt Osborne: 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.

Matt Osborne: 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

Matt Osborne: They are significantly improve their cost structure.

Matt Osborne: Delivered meaningful productivity gains.

and are driving their sales mix toward higher value added premium products.

Matt Osborne: And are driving their sales mix toward higher value added premium products.

Another highlight in the quarter was backlog growth in our services sector.

Matt Osborne: Another highlight in the quarter was backlog growth in our services segment.

We secured approximately 200 million of new project awards during the quarter.

Matt Osborne: 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.

Matt Osborne: These awards reflect the continuing effort to diversify the types of projects that we support.

New awards included Projects in Transportation, Health Care, Medical Labs,

Matt Osborne: New awards included projects in transportation.

Matt Osborne: <unk> care medical labs.

Matt Osborne: Education.

multi-family housing, and commercial office.

Matt Osborne: Multifamily housing and commercial office.

We also secured our first major award in California as we've worked to expand further into Western State.

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.

Matt Osborne: 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.

Matt Osborne: 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.

Matt Osborne: At its core we aim to deliver two primary objectives.

Build differentiated businesses that provide compelling value for our customers.

Matt Osborne: 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 a great deal of money.

Matt Osborne: And improve operational execution across our businesses to drive a more competitive cost structure.

Matt Osborne: We've made great progress on both fronts building a solid foundation.

building a solid foundation, and we still have plenty of opportunity ahead of us.

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.

Matt Osborne: Architectural glass was the lead business for our launch of the apogee management system or Ams and.

Matt Osborne: And has made significant progress in their shift to premium strategy.

Business helps the glass business to deliver record results and gives us confidence in our ability to sustain profitability levels should volume slow.

Matt Osborne: 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.

Matt Osborne: Framing systems has more than doubled their margins since fiscal 'twenty one.

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 sector.

Matt Osborne: We still see margin expansion opportunities to further stages of Ams deployment.

Matt Osborne: In portfolio management as part of their long cycle business remain margin challenge 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 SOTA law.

Matt Osborne: Architectural services did take a step back in margin since fiscal 'twenty, one 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.

Matt Osborne: That integration is nearly complete and with backlog growing again, we see favorable revenue.

Matt Osborne: And margin improvement as we move into fiscal 'twenty five.

Large scale optical has improved its already high margin profile since fiscal 21.

Matt Osborne: Large scale optical has improved its already high margin profile since fiscal 'twenty, one and we're making investments which will allow them to expand into market adjacencies in late fiscal 'twenty five and beyond.

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.

Matt Osborne: We are keeping a growth mindset and see further opportunities to strengthen margins and gross 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.

Matt Osborne: 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 market.

Now, let me offer some comments about our construction end markets.

Overall, there has been strong growth in non-residential construction during calendar year 2023.

Matt Osborne: Overall, there has been strong growth in nonresidential construction during calendar year 2023.

While every sub-sector of the non-res market has grown the past year, manufacturing projects have accounted for approximately 60 percent of the total growth in non-residential construction this year.

Matt Osborne: While every sub sector of the non res market has grown in the past year.

Matt Osborne: Any factoring projects have accounted for approximately 60% of the total growth in nonresidential construction this year.

This is a sub-sector of the market where Apigee has very low participation given our current product options.

Matt Osborne: This is a sub sector 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 volume.

Matt Osborne: 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.

Matt Osborne: 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.

Matt Osborne: 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.

Matt Osborne: And we've seen forward indicators like the architectural billings index turned negative.

Looking ahead to calendar 24, most industry forecasts call for further deceleration in non-REVs construction.

Matt Osborne: Looking ahead to calendar 'twenty for most industry forecast call for further deceleration in non res construction.

Higher interest rates, tighter lending standards, and increased costs have been putting pressure on commercial construction.

Matt Osborne: 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 business as we go into fiscal 25.

We have seen that slowing show up in our short cycle framing business this quarter and expect some pressure in parts of that business as we go into fiscal 'twenty five.

However.

We still expect commercial construction growth rates in the low single digits overall in calendar 24.

Matt Osborne: We still expect commercial construction growth rates in the low single digits overall in calendar 'twenty four.

On the positive side, we also see institutional and infrastructure projects continuing to benefit from government funding.

Matt Osborne: 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 that now a likely softening of interest rates could enable a shorter and shallower downturn for commercial construction.

Matt Osborne: And the recent fed signaling of a hold and now I'll 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.

Matt Osborne: 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.

Strengthen our portfolio and provide a catalyst for growth.

Regardless of the macro environment, we are working to position Apogee for continued success.

Matt Osborne: 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 market.

It is important to remember that nonresidential construction is a very large and diverse end market.

Within this large market, there are always opportunities for growth.

Matt Osborne: 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.

Matt Osborne: We are approaching fiscal 'twenty five 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

Matt Osborne: 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.

Matt Osborne: We will also continue to diversify our project mix focusing on higher growth segments of the market such as transportation education and healthcare.

focusing on higher growth segments of the market, such as transportation, education, and health.

and we will continue to evaluate investment opportunities that could accelerate our growth through both organic expansion and through acquisitions.

Matt Osborne: And we will continue to evaluate investment opportunities that could accelerate our growth.

Matt Osborne: Both organic expansion and through acquisitions.

Matt Osborne: Of course, we will maintain our focus on driving productivity improving execution and managing costs.

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.

These have been the foundation of our performance over the past few 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 same.

Matt Osborne: 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.

Finally, our strong cash flow and balance sheet provide us with significant flexibility to execute our strategy.

Matt Osborne: Finally, 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 in continuing to deliver strong performance. With that,

Matt Osborne: Our entire team is focused on building upon the strong foundation, we have established and continuing to deliver strong performance.

With that.

Matt Osborne: Turn it over to Matt.

Matt Osborne: Thanks, Todd and good morning, everyone.

The third quarter delivered strong results with significant operating margin expansion, double-digit earnings per share growth, and very strong cash flow despite lower revenue.

The third quarter delivered strong results with significant operating margin expansion double digit earnings per share growth and very strong cash flow despite lower revenue.

Net sales were $340 million compared to $368 million in the prior year period.

Matt Osborne: Net sales were $340 million compared to $368 million in the prior year period.

The decrease was primarily driven by lower volume and framing, partially offset by growth in glass.

Matt Osborne: The decrease was primarily driven by lower volume in framing partially offset by growth in glass.

These items were partially offset by the impact of lower volume and a less favorable mix of projects in service.

Matt Osborne: These items were partially offset by the impact of lower volume and a less favorable mix of projects and services.

SG&A expense increased $0.8 million to 15.5 percent of net sales.

Matt Osborne: SG&A expense increased 0.8 million to 15, 5% of net sales.

The increase was primarily due to higher salary and benefit costs, partially offset by lower short-term incentive compensation.

Matt Osborne: The increase was primarily due to higher salary and benefit costs, partially offset by lower short term incentive compensation expense.

Operating income grew 8.3% and operating margin increased 170 basis points to 11.1%.

Matt Osborne: Operating income grew eight 3% and operating margin increased 170 basis points to 11, 1%.

primarily driven by improved segment operating margin in glass, as well as a higher mix of glass segment results in our consolidated results.

Matt Osborne: Primarily driven by improved segment operating margin in glass as well as a higher mix of glass segment results in our consolidated results.

This was partially offset by lower segment operating margin and frame.

This was partially offset by lower segment operating margin in framing.

Looking at our segment results, framing revenue declined 15.4%. As a reminder, our framing business is a mix of short and long-cycle business.

Matt Osborne: Looking at our segment results framing revenue declined 15, 4% as a reminder, framing our framing business is <unk>.

Matt Osborne: Mix of short and long cycle businesses the.

The majority of the business is shorter cycle and primarily provides solutions for storefront and entrance systems and commercial windows.

The majority of the business is shorter cycle, and primarily provide solutions for storefront and entrance systems and commercial windows.

The longer cycle part of framing provides custom engineered window and curtain wall solutions for mid-size and larger projects.

Matt Osborne: The longer cycle part of framing provides custom engineered window and curtain wall solutions for mid size and larger projects.

The lower sales this quarter were primarily driven by lower volume in the shorter cycle parts of the business, reflecting the deceleration and non-residential construction activity that Ty described earlier.

Segment operating margin for framing contracted 120 basis points to 12.2 percent, primarily due to the impact of lower sales volume.

Matt Osborne: Segment operating margin for framing contracted 120 basis points to 12, 2%.

Matt Osborne: Primarily due to the impact of lower sales volume.

This was partially offset by improved mix, cost savings initiatives, improved productivity, and lower short-term incentive compensation.

Matt Osborne: This was partially offset by improved mix and cost savings initiatives improved productivity and lower short term incentive compensation expense.

Despite the lower volumes, framing margins continue to be above the 9-12% target range for the segment for both the quarter and year today.

Despite the lower volumes framing margins continue to be above the 9% to 12% target range for this segment for both the quarter and year to date.

Glass revenue grew 11.6% and segment operating income more than doubled to $15.2 million.

Matt Osborne: Glass revenue grew 11, 6% and segment operating income more than doubled to $15 $2 million.

Segment operating margin expanded 760 basis points to 16.7 percent.

Matt Osborne: Segment operating margin expanded 760 basis points to 16, 7%.

This was primarily driven by improved pricing and mix, partially offset by the impact of lower volume and continued cost inflation.

Matt Osborne: This was primarily driven by improved pricing and mix, partially offset by the impact of lower volume and continued cost inflation.

Services revenue and segment operating margin declined, primarily due to a less favorable mix of projects, partially offset by lower short-term incentive compensation expense. However,

Matt Osborne: Services revenue and segment operating margin declined primarily due to a less favorable mix of projects.

Matt Osborne: We offset by lower short term incentive compensation expense.

Matt Osborne: However services margins.

Services improve margins sequentially from the second quarter and we expect margins to improve again in the fourth quarter.

Matt Osborne: Services improved margins sequentially from the second quarter, and we expect margins to improve again in the fourth quarter.

In LSO, despite lower revenue, operating margin improved by 60 basis points to 27.3%, with favorable mix offsetting lower volume.

Matt Osborne: In lso, despite lower revenue operating margin improved by 60 basis points to 27, 3% with favorable mix offsetting lower volume.

Corporate expenses of $6.9 million declined by $1 million, primarily due to lower insurance related costs.

Matt Osborne: Corporate expenses of $6 $9 million declined by $1 million.

Matt Osborne: Primarily due to lower insurance related costs.

Looking at backlog trends for the quarter, on a sequential basis, backlog for framing was $184 million compared to $197 million in the second quarter.

Matt Osborne: Looking at backlog trends for the quarter on a sequential basis backlog for framing was $184 million compared to $197 million in the second quarter.

The decline was driven primarily by our longer cycle business reflecting slower award activity and a continued strategic shift towards projects that allow for more attractive margins.

Services finished the quarter with $777 million in backlog, up 15% from the second quarter.

Matt Osborne: Services finished the quarter with $777 million in backlog up 15% from the second quarter.

Project Backlog and Services is typically driven by a small number of relatively large projects.

This makes backlog changes inherently variable from quarter to quarter depending on the timing of project awards.

In the first half of the fiscal year, services backlog declined as we saw delays in projects moving from bid to award.

Matt Osborne: In the first half of the fiscal year services backlog declined as we saw delays in projects moving from bid to award.

This quarter, several of those delayed projects move forward, contributing to the backlog growth in the quarter.

Matt Osborne: This quarter several of those delayed projects in forward contributing to the backlog growth in the quarter.

Turning to cash flow, we had another strong result, with cash from operations in the quarter improving $12.9 million.

Matt Osborne: Turning to cash flow, we had another strong result, with cash from operations in the quarter, improving $12 $9 million.

This brings year-to-date operating cash flow to $129.3 million, an improvement of $78.2 million compared to the same period last year.

Matt Osborne: This brings year to date operating cash flow to $129 3 million, an improvement of $78 2 million compared to the same period last year.

The year-to-date improvement has primarily been driven by favorable working capital changes.

The year to date improvement has primarily been driven by favorable working capital changes.

Through three quarters of the fiscal year, we have already achieved the second highest year of operating cash flow in the company.

Matt Osborne: Through three quarters of the fiscal year, we have already achieved the second highest year of operating cash flow in the Companys history.

Our primary use of cash in the quarter was debt reduction, as we paid down 45 million dollars of debt on our revolving credit facility.

Matt Osborne: Our primary use of cash in the quarter was debt reduction as we paid down $45 million of debt on our revolving credit facility.

Fiscal year to date, we have reduced our net debt by $72.7 million, bringing our net leverage ratio down to 0.4 times trailing 12 months adjusted EBITDA compared to 0.9 times at the beginning of the year.

Matt Osborne: Fiscal year to date, we have reduced our net debt by $72 $7 million, bringing our net leverage ratio down to 0.4 times trailing 12 months adjusted EBITDA compared to 0.9 times at the beginning of the year.

We had $11.9 million of capital expenditures in the quarter, primarily relating to investments to expand capacity in our higher margin business and enhance productivity.

Matt Osborne: We had $11 9 million of capital expenditures in the quarter, primarily relating to investments to expand capacity in our higher margin business.

And enhanced productivity through automation.

Moving to our updated outlook for the fiscal year, we are increasing our full-year adjusted diluted EPS outlook to a range of $4.55 to $4.70 primarily reflecting our strong

Matt Osborne: Moving to our updated outlook for the fiscal year, we are increasing our full year adjusted diluted EPS outlook to a range of $4 55.

Matt Osborne: To $4 70.

Matt Osborne: Primarily reflecting our strong third quarter earnings.

This updated outlook implies full year growth between 14% to 18% compared to last year's adjusted diluted EPS of $3.

Matt Osborne: This updated outlook implies full year growth between 14% to 18% compared to last year's adjusted diluted EPS of $3 98.

Additionally, we now expect net sales will decline approximately 3% for the fiscal year.

Matt Osborne: Additionally, we now expect net sales will decline approximately 3% for the fiscal year.

As a reminder, fiscal 24 is a 53-week year with an extra week of operations in the fourth quarter.

Matt Osborne: As a reminder, fiscal 'twenty four is a 53 week year with an extra week of operations in the fourth quarter.

We expect our consolidated fourth quarter operating margin to decline sequentially, but improve compared to prior year as we expect sequential margin moderation in framing glass and LSO to be partially offset by an improvement in services margin.

Matt Osborne: We continue to expect an average tax rate of approximately 24, 5% and.

Matt Osborne: And we now expect full year capital expenditures between $40 million to $50 million down from our previous estimate of $50 million to $60 million.

Matt Osborne: Looking ahead to fiscal 'twenty five we are currently working through our budgeting process and expect to provide financial guidance for the new fiscal year in April.

As we work through this process, we would like to share a few preliminary thoughts about the coming fiscal year.

We continue to monitor macroeconomic trends and industry data to assess the potential impacts on our business.

Matt Osborne: We continue to monitor macroeconomic trends and industry data to assess the potential impacts on our business.

As Ty described, most industry forecasts called for decelerating growth for non-residential construction with low single-digit growth expected for calendar 24.

Matt Osborne: As Todd described most industry forecast call for decelerating growth for nonresidential construction with low single digit growth expected for calendar 'twenty four.

Growth expectations in non-resi construction are impacted by interest rates and financing markets.

Matt Osborne: Growth expectations in non <unk> construction are impacted by interest rates and financing markets.

If interest rate outlooks begin to improve in calendar 24, that could favorably impact our business.

Matt Osborne: If interest rate outlook began to improve in calendar 'twenty four.