Apogee Enterprises, Inc. (APOG) Earnings

Management highlights

- Overall Quarterly Results • Delivered consolidated net sales of $342.7 million (1.1% year-over-year decline) and adjusted diluted EPS of $0.57, which beat internal expectations and increased year-over-year driven by lower interest expense. Adjusted EBITDA margin was 9.4%, down 50 basis points year-over-year due to higher input costs and lower volume, partially offset by cost savings, productivity gains, and pricing actions. • Executed effectively amid headwinds of rising aluminum costs, macroeconomic uncertainty, and elevated interest rates, with a sustained focus on cost control and strategic pricing to offset input cost increases. • Generated $7.4 million in net operating cash flow; returned $15.3 million to shareholders via $9.7 million in share repurchases and $5.6 million in dividends. Ended the quarter with a strong balance sheet, leverage ratio of 1.3x, and no near-term debt maturities. - Strategic M&A and CalWall Acquisition • The CalWall acquisition is a highly strategic addition aligned with the company's long-term strategy of building a more differentiated, higher-margin, specification-driven portfolio. • CalWall expands Apogee's presence in the fast-growing building envelope market, specifically in high-performance daylighting solutions aligned with energy efficiency trends, and strengthens relationships with architects and specifiers. • CalWall serves attractive end markets including education, healthcare, institutional, and museum projects, is complementary to Apogee's existing architectural product lines, and has margins accretive to Apogee's current profile, reducing the cyclicality of the glass segment. • Integration planning is structured across finance, HR, and sales and marketing, with priorities on preserving CalWall's existing strengths, aligning financial controls, maintaining talent and culture, and identifying cross-selling and synergy opportunities. The transaction is expected to close in early July 2026. - Operational Initiatives • The Fortify Phase II cost savings program continues to deliver margin benefits across all segments. • For the pressured glass segment, management has implemented a performance improvement plan focused on increasing order rates, improving operational productivity, and strengthening cost management; a new segment president (internal hire Chris Eade) has been appointed to lead these efforts and CalWall integration. • M&A pipeline remains active, with management continuing to evaluate opportunities aligned with its growth and financial criteria.

Guidance

- Full fiscal 2027 guidance is maintained from prior updates, with an expected base net sales range of $1.38 billion to $1.43 billion, and adjusted EPS range of $2.70 to $3.25. - If the CalWall acquisition closes in early July as expected, the updated full-year net sales guidance range becomes $1.43 billion to $1.48 billion, while adjusted EPS guidance is maintained at $2.70 to $3.25. Full-year interest expense is revised up to approximately $14 million from the prior $10 million expectation. - Full-year adjusted effective tax rate is expected to be 26% to 27%, and capital expenditures are projected to be $35 million to $40 million. These figures do not include any potential impact from CalWall. - Full-year results are expected to be weighted more heavily toward the second half, as management anticipates underlying market conditions will improve throughout the year. The CalWall acquisition will contribute meaningfully to results in the second half of fiscal 2027. - For the second quarter of fiscal 2027, management expects net sales and adjusted EPS to be slightly lower on a year-over-year basis, with minimal impact from the anticipated early July closing of CalWall. - The company maintains a strong balance sheet with sufficient capacity for additional M&A, share repurchases, and other capital deployments aligned with its allocation framework.

Segment performance

1. Metals: Net sales of $122 million, representing a 4.8% year-over-year decline, accounting for ~35.6% of total consolidated net sales. Adjusted EBITDA margin expanded to 11.2%, driven by favorable product mix, productivity improvements, and cost savings from Fortify Phase II, partially offset by lower volume and elevated aluminum costs. 2. Services: Net sales increased 8.2% year-over-year, marking the ninth consecutive quarter of top-line growth. Adjusted EBITDA margin decreased slightly to 5.3% due to unfavorable project mix, partially offset by Fortify Phase II savings and higher volume benefits. Ending backlog was $735 million, up 8% year-over-year and 6% sequentially. This segment contributes ~33% of total consolidated net sales based on overall results. 3. Glass: Net sales of $67.7 million, a 7.6% year-over-year decline, accounting for ~19.8% of total consolidated net sales. Adjusted EBITDA margin declined to 8.7%, pressured by lower volume and pricing, plus material cost inflation, due to soft new construction end market demand. 4. Performance Surfaces: Net sales increased ~5% year-over-year, driven by higher volume and favorable pricing. Adjusted EBITDA margin decreased due to higher material and freight costs, partially offset by productivity improvements. It accounts for ~11.6% of total consolidated net sales. 5. Upcoming CalWall acquisition: Expected to generate ~$85 million in revenue over its first 12 months post-acquisition, with an initial 15% adjusted EBITDA margin, targeting 20% long-term.

Risks & headwinds

- Persistent softness in new construction end markets continues to pressure the glass segment's volume, pricing, and margins. - Input costs (including aluminum, petrochemical/ polymer products, and freight) remain volatile and elevated, creating ongoing margin pressure that may not be fully offset by pricing actions in the near term. - Macroeconomic uncertainty and elevated interest rates create a challenging operating environment and contribute to end market variability. - Integration of the CalWall acquisition carries execution risk, though management has taken a structured approach to mitigate this.

Analyst Q&A

• Q: What is the current state of pricing realization across Apogee's segments, and does Q1 performance increase confidence in offsetting ongoing cost pressure especially in metals? /

  A: CFO Mark Augdahl confirms that the company implemented new pricing and surcharges during Q1 to offset volatile aluminum and other input cost increases across all segments, not just metals. Management will continue to maintain pricing discipline to pass along input cost changes to customers to the greatest extent possible, as costs evolve.

• Q: Can you expand on strategic fit and synergy opportunities between CalWall and Apogee's legacy glass segment, including what new end markets it opens? /

  A: CEO Don Nolan explains CalWall's high-performance, specification-driven daylighting products are highly complementary to Apogee's existing architectural glass (Virocon) and other portfolio brands, creating clear cross-selling opportunities across the business. Management identifies $4 million in annual cost synergies (primarily from input cost reductions) by fiscal 2029, and expects CalWall's EBITDA margin to grow from 15% to 20% over 2.5 years. CFO Mark Augdahl adds CalWall diversifies the glass segment into new sectors including education, museums, and institutional projects that Virocon has not historically focused on.

• Q: What share of CalWall's end market demand comes from government-funded construction, and how exposed is it to public budget constraints? /

  A: Management confirms CalWall does serve government-funded projects at the municipal, state, and federal level, plus a large volume of work for public educational institutions, but government demand is not expected to be a significant majority of CalWall's revenue. No meaningful near-term budget risk was highlighted by management.

• Q: Beyond macro softness, is the glass segment facing aggressive pricing from competitors, and what actions are you taking to improve performance? /

  A: CEO Don Nolan notes glass segment softness is primarily macro-driven, stemming from lower overall job volumes, but the team is executing well, with improving win rates on pursued projects. A formal performance improvement plan is in place to boost order rates, productivity, and cost management, and an experienced internal leader (Chris Eade) has been appointed as the new glass segment president to lead these efforts and CalWall integration.