Apogee (APOG) Q1 2027 Earnings Call Transcript

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DATE

Friday, June 26, 2026 at 9:00 a.m. ET

CALL PARTICIPANTS

• Vice President, Investor Relations and Communications - Jeremy Steffan
• Chief Executive Officer - Donald A. Nolan
• Chief Financial Officer - Mark Richard Augdahl

TAKEAWAYS

• Net Sales -- $342.7 million, a 1.1% decrease compared to the prior-year period, reflecting lower volumes in the metals and glass segments that were partially offset by favorable pricing and mix.
• Adjusted Diluted EPS -- $0.57, representing a 1.8% increase versus $0.56 in the prior-year quarter, primarily driven by lower interest expense.
• Operating Income -- $18.8 million, an increase from $6.9 million in the prior-year period, with operating margin expanding 350 basis points to 5.5%.
• Adjusted EBITDA Margin -- 9.4%, a decrease from 9.9% in the prior-year period, driven by higher material and freight costs and lower volume, partially offset by restructuring savings.
• Architectural Metals Revenue -- $122.4 million, declining 4.8% due to lower volume, which was partially offset by favorable price and product mix.
• Architectural Metals Adjusted EBITDA Margin -- 11.2%, expanding from 7.3% in the prior-year period, supported by productivity improvements and cost savings from Project Fortify Phase 2.
• Architectural Services Revenue -- $115.2 million, an 8.2% increase driven by higher volume, marking the segment's ninth consecutive quarter of growth.
• Architectural Services Backlog -- $734.5 million, up 8% year over year and 6% sequentially, reflecting steady project award wins.
• Architectural Glass Revenue -- $67.7 million, a 7.6% decrease resulting from lower price and volume due to end-market softness.
• Architectural Glass Adjusted EBITDA Margin -- 8.7%, down from 18.3% in the prior-year quarter, primarily impacted by lower pricing, decreased volume, and material cost inflation.
• Performance Surfaces Revenue -- $44.3 million, increasing 4.9% driven by higher volume and favorable pricing.
• Performance Surfaces Adjusted EBITDA Margin -- 14.8%, a decrease from 18.8% in the prior-year period, reflecting the net impact of higher material and freight costs.
• Full-Year Net Sales Guidance -- $1.43 billion-$1.48 billion including the anticipated Kalwall acquisition, or $1.38 billion-$1.43 billion on a standalone basis.
• Full-Year Adjusted EPS Guidance -- $2.70-$3.25, which the company maintained despite the expected accretion from the Kalwall acquisition due to higher anticipated interest costs.
• Kalwall Acquisition Financials -- $85 million in projected revenue over the first 12 months with an initial adjusted EBITDA margin of approximately 15%, targeting a long-term rate of 20%.
• Synergy Target -- $4 million in operational synergies from the Kalwall acquisition expected by fiscal 2029, primarily through input cost reductions.
• Interest Expense Guidance -- $14 million for the full year including the Kalwall acquisition, an increase from the previous estimate of $10 million.
• Capital Expenditures -- $35 million-$40 million projected for the full fiscal year.
• Operating Cash Flow -- $7.4 million provided by operations, compared to a $19.8 million use of cash in the prior-year first quarter.
• Consolidated Leverage Ratio -- 1.3 times at the end of the first quarter, with no near-term debt maturities.
• Shareholder Returns -- $15.3 million returned to shareholders in the quarter, comprising $9.7 million in stock repurchases and $5.6 million in dividends.

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RISKS

• Nolan stated, "In glass, results remain pressured by softer conditions in new construction and lower demand for premium product offerings," indicating persistent challenges in the architectural segment.
• Augdahl stated, "The decrease in adjusted EBITDA margin was primarily driven by the impact of lower price, volume, and inflation of material costs," highlighting multiple headwinds affecting profitability.
• Augdahl noted that "our primary input costs, especially in our metals segment, continued to be very volatile," specifically referencing fluctuating aluminum prices.

SUMMARY

Apogee Enterprises reported mixed fiscal 2027 first-quarter results as growth in services and performance surfaces was offset by volume-driven declines in metals and glass. Management highlighted the pending acquisition of Kalwall as a strategic priority intended to diversify the portfolio into higher-growth, specification-driven daylighting solutions. The company is managing ongoing volatility in material costs through a combination of pricing surcharges, productivity improvements, and cost savings realized from its Project Fortify Phase 2 restructuring. While the revenue outlook was raised to account for the acquisition, adjusted EPS guidance remains unchanged as management anticipates higher interest expenses related to the transaction.

• CEO Nolan emphasized the strategic value of Kalwall, stating it "expands our presence in attractive faster growing areas of the building envelope market particularly in day lighting solutions that are engineered specification driven, and aligned with energy efficiency trends."
• Management announced the appointment of Chris Eid as the new president for the Architectural Glass segment to lead the unit's performance improvement plan.
• The company reported that the Architectural Services segment achieved its ninth consecutive quarter of top-line growth, with sequential backlog growth indicating steady project flow.
• CFO Augdahl noted that the Kalwall acquisition is expected to generate approximately $4 million in operational synergies by fiscal 2029, primarily driven by input cost savings.
• The Architectural Glass segment is implementing a performance improvement plan focused on increasing order rates and enhancing productivity to combat current end-market softness.
• Management confirmed that pricing actions and surcharges implemented during the quarter are expected to benefit results through the remainder of the fiscal year to offset rising material and freight costs.

INDUSTRY GLOSSARY

• Project Fortify Phase 2: An internal restructuring and cost-saving initiative aimed at improving operational efficiency and reducing structural costs across the enterprise.
• Daylighting solutions: Architectural systems designed to allow natural light into buildings to reduce energy consumption and improve occupant well-being.
• Specification-driven demand: A sales model where products are selected by architects or engineers during the design phase of a project, creating more durable demand.
• Building envelope: The physical separator between the interior and exterior environments of a building, including the walls, windows, and roof.
• Curtainwall: A non-structural outer covering of a building, typically made of aluminum and glass, designed to keep out the elements.

Full Conference Call Transcript

Operator: Day, and thank you for standing by. Welcome to the Apogee Enterprises First Quarter Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 1, 1 again. As a reminder, this conference is being recorded for replay purposes. I will now turn the conference over to Jeremy Steffan, Vice President, Investor Relations and Communications to begin Jeremy, please go ahead.

Jeremy Steffan: Thank you. Good morning, and welcome to Apogee Enterprises. Fiscal 2027 First Quarter Earnings Call. On the call today are Donald A. Nolan, Apogee's Chief Executive Officer and Mark Ogdahl, our Chief Financial Officer. During this call, the team will reference certain non GAAP financial measures. Definitions of these measures, a reconciliation to the nearest GAAP measures are provided in the earnings release and slide deck. Which are available in the Investor Relations section of our website. As a reminder, today's call will contain forward looking statements. Reflect management's expectations based on currently available information. Actual results may differ materially from those expressed today.

More information about factors that could affect Apogee's business and financial results can be found in our press release and in the company's SEC filings. With that, I will turn the call over to Donald.

Donald A. Nolan: Thanks, Jeremy, and good morning, everyone. We are glad you could join us for our first quarter earnings call. Our team delivered revenue of $343 million and adjusted diluted EPS of $0.57 in the quarter. Demonstrating strong execution across the business. Effectively navigated a challenging environment marked by rising aluminum costs, a dynamic macroeconomic backdrop, and elevated interest rates. These results were supported by a sustained focus on cost control, and thoughtful pricing actions in response to higher input costs. Across our segments, results reflected a mix of solid performance continued variability in end markets. In metals, pricing actions and cost savings from Fortify Phase 2 drove margin expansion supported by favorable mix and ongoing productivity improvements.

We also made continued progress in operational performance, improving quality and on time delivery while strengthening customer relationships. Services delivered its 9th consecutive quarter of top line growth and also increased backlog sequentially. Reflecting steady project award wins, and improving project flow. Performance services sustained its positive momentum with another quarter of growth supported by healthy demand across key end markets. Margins were impacted by rising input costs, which drove pricing actions during the quarter that we expect to benefit results through the remainder of the fiscal year. In glass, results remain pressured by softer conditions in new construction and lower demand for premium product offerings.

We are implementing an action plan to improve performance, prioritizing initiatives to drive order rates, enhance operational productivity, and strengthen cost management. I am proud of our team's performance in the quarter and the progress we are making across the business. The team's actions are aligned to improve results and we remain on track to deliver on our full year guidance. As we discussed last quarter, we are actively advancing our strategy executing on our enhanced 3 pillar framework, while improving the overall quality and durability of our portfolio. Kalwall is a strong example of this strategy in action. Demonstrating how we are building capabilities and expanding into areas that support long term profitable growth.

Our M&A process remains active as we continue to evaluate additional opportunities that align with our growth priorities and financial criteria. Turning to the Kalwall acquisition, this is a highly strategic addition that aligns with the M&A priorities we have outlined over the past several quarters. Kalwall expands our presence in attractive faster growing areas of the building envelope market particularly in day lighting solutions that are engineered specification driven, and aligned with energy efficiency trends. It strengthens our position with architects and specifiers and enhances our ability to deliver differentiated high performance solutions across key end markets such as education, health care, and other institutional applications. From a financial perspective, Kalwall is an attractive addition to our portfolio.

The business operates with margins that are accretive to Apogee's current profile and is supported by specification driven demand. It also is expected to enhance the durability of our earnings which should offset the more cyclical elements of our Glass segment. Overall, the acquisition enhances the quality and resilience of our earnings profile over time. From an integration perspective, our priority is to preserve what has made Kalwall successful while identifying opportunities to collaborate and create value across the broader Apogee portfolio. Will pursue synergies over time along with opportunities to drive revenue by leveraging our relationships with architects, designers, and glazing contractors.

As we begin integration planning, we are taking a structured approach across key functions, including finance, human resources, and sales and marketing. Our efforts are focused on aligning financial reporting and controls maintaining stability and talent and culture, and strengthening our go to market approach over time while ensuring strong day to day execution and continued customer engagement. As we look ahead, we remain focused on strong near term execution while positioning Apogee for long term value creation. Kalwall represents an important step in advancing our strategy to build a more differentiated higher margin, and specification driven portfolio while maintaining the operational discipline that has long defined this company.

We are managing the business for the environment we see today while taking deliberate actions to improve the quality and durability of our earnings over time. We believe that combination near term discipline paired with long term strategic progress, positions Apogee well to deliver sustainable value. With that, I will turn it over to Mark to cover the financials.

Mark Richard Augdahl: Thanks, Donald, and good morning, everyone. I will begin with a review of our 1st quarter results, and then discuss our outlook for the remainder of fiscal 27. Beginning with our consolidated results, net sales decreased 1.1% to 343 million primarily reflecting lower volume in metals and glass as expected. This was partially offset by favorable pricing actions to recover higher material and freight costs. As well as positive mix. Adjusted EBITDA margin decreased to 9.4% compared to 9.9% a year ago, driven by higher material and freight costs, and the impact of lower volume. These headwinds were partially offset by cost savings from Fortify phase 2. Productivity improvements, and favorable pricing.

Adjusted diluted EPS was $0.57, ahead of our expectations and up year over year primarily driven by lower interest expense. Turning to our segment results. Metals net sales declined 4.8% to 122 million reflecting continued challenging market conditions. The decrease was primarily due to lower volume partially offset by favorable price and product mix. Adjusted EBITDA margin expanded to 11.2% driven by favorable mix increased productivity, and cost savings from Fortify Phase 2, partially offset by the impact from lower volume and the net impact from higher aluminum costs. The services segment continued its positive momentum and delivered their 9th consecutive quarter of net sales growth. Improve improving by 8.2% primarily driven by volume.

Adjusted EBITDA margin slightly decreased to 5.3% due to project mix partially offset by benefits from Project Fortify Phase 2 to reduce the impact of tariffs and the impact from increased volume. Backlog ended the quarter at $735 million up 8% year over year and 6% sequentially. Glass net sales declined 7.6% to 67.7 million primarily driven by lower price and volume due to the continued end market demand softness. Adjusted EBITDA margin also declined to 8.7% due to the impact of lower price and volume and inflation on material costs. Performance Surfaces net sales increased approximately 5% driven by increased volume and favorable price.

Adjusted EBITDA margin decreased due to the net impact of higher material and freight costs, partially offset by productivity. Turning to our cash flow and the balance sheet. Net cash provided by operating activities was $7.4 million in the quarter, compared to $19.8 million net use of cash a year ago. In the first quarter, we repurchased $9.7 million of stock and returned $5.6 million to shareholders through dividends. Our balance sheet at the end of the quarter was strong, with consolidated leverage ratio at 1.3 times no near term debt maturities and significant capital available for future deployment. Overall, Q1 profit exceeded our internal expectations and I am pleased with our team's ability to deliver in this environment.

Before I turn to the Outlook, I will address Kalwall a financial perspective. The acquisition is consistent with our capital allocation framework. Prioritizing investment in business, value accretive m&a, and returning capital to shareholders. And adds a business with margins above our current company average. We expect Kalwall to generate approximately $85 million of revenue at roughly a 15% adjusted EBITDA margin over the first 12 months, with a long term margin rate. of 20%. The transaction is expected to be accretive in the first year and is anticipated to close in early July. Following completion, we expect to maintain a strong balance sheet with capacity to support future M and A.

Now for fiscal 27, continue to expect full year net sales between $1.38 billion and $1.43 billion and adjusted EPS in the range of $2.70 to $3.25. We expect results to be weighed more heavily towards the second half of the year reflecting anticipated improvement in underlying market conditions as the year progresses. We continue to expect interest expense of approximately $10 million and adjusted effective tax rate of 26% to 27% and capital expenditures between $35 and $40 million. This guidance is based on current market conditions and does not include any impact from Kalwall.

Incorporating the potential impact from Kalwall assuming closure in early July, our net sales range would be 1.43 billion to $1.48 billion and EPS continuing to be in a range of $2.70 to $3.25. Interest expense would increase to approximately $14 million. Looking ahead to the 2nd quarter, we expect net sales to be slightly lower and adjusted EPS to be lower on a year over year basis. These assumptions are minimally impacted by the anticipated early Julio close of Kalwall. With a more meaningful contribution expected in the second half. We remain focused on what we can control executing our business, controlling costs, and maintaining pricing discipline in a variable demand environment.

Our strong balance sheet and cash flow provide flexibility to invest in the business advancing integration of Kalwall and deploying capital effectively. Including evaluating share repurchases as part of our broader capital allocation strategy. This positions us well to manage near term dynamics while continuing to build long term value. We will now open the call to questions. Operator, please go ahead.

Operator: Thank you. Our first question comes from Julio Romero with Sidoti and Company. Your line is open.

Julio Romero: Donald, Mark, Jeremy. Can you update us on where you stand in terms of pricing realization across the portfolio? And does the Q1 results give you more confidence in your ability to offset cost pressure both in metals and across the broader portfolio?

Mark Richard Augdahl: Hi, Julio. This is Mark. I will start off here. Yeah. In the quarter, you know, our primary input costs, especially in our metals segment, continued to be very volatile, obviously, with aluminum doing what it was doing. So we did implement in the quarter. Both pricing and surcharges to offset those costs. In the metals in the metals seg segment. We also made additional, changes in our in our pricing structures and surcharges in our other segments as well to kinda follow along with those input cost changes.

We expect that to continue, you know, as our input costs change, we will be we will have pricing discipline to make sure that we are passing those along to the to the best of our ability.

Julio Romero: Okay. Very helpful there. And then, you know, on Kalwall, can you maybe expand on your comments about the Callwall's revenue synergy opportunity with the legacy glass segment? You know, just help us think about how it might accelerate growth of the end markets that you outlined. I believe it was education, health care, and other institutional Is there other end markets that may provide entry to and just help us think about the strategic fit legacy glass there.

Donald A. Nolan: Hi, Julio. This is Donald. Hey. Brent question. looks, we are really excited about Kalwall. It brings a leading provider of high performance translucent daylighting solutions in into the company. And you are right. It definitely strengthens our core. And advances our strategy. it is differentiated products. Specification driven, you know, right up our alley. And these products are highly complementary to Viracon, our architectural glass business. And we clearly see cross selling opportunities over in other brands. Across the metals business. So, you know, I would say pretty much across our entire Apogee architectural portfolio, we will see opportunities to cross sell.

The other thing I might add is we also see operational across synergy opportunities here of about $4 million by fiscal year 29. So primarily driven by input cost synergies. So it will also it will also we also see margins will be growing over the next 2.5 years from 15% EBITDA to up to 20%. So very exciting for us.

Jeremy Steffan: And then maybe, Julio, just to add on, you know, Kalwall certainly plays in different markets than our traditional Viracon business, so it does help diversify our glass segment into some other sectors like, you know, education and museums and whatnot. So yeah, we feel like this is a great addition to the to the segment and certainly to the enterprise overall.

Julio Romero: Very helpful. And then 1 more for me is just staying on Callwall for a bit. It Is there a retrofit opportunity embedded within that acquisition?

Donald A. Nolan: Yeah. I mean, that is an interesting question. There is some. As the product ages, you know, occasionally. But it is it is not a primary market for us. You know, usually, it is new construction, a lot of institutional opportunities here. it is a little bit different market than we typically would go in with American. And but the retrofit market is not as much. Usually, it is it is a specified, you know, architectural spec product. So did I answer your question, Julio?

Julio Romero: It does. Thanks very much, guys. I will pass it on.

Operator: 1 moment for our next question. Our next question our next question comes from Gashi sir with Singular Research. Your line is open.

Gowshihan Sriharan: Good morning, gentlemen. Can you hear me? Loud and clear. Thank you. My first question is on Caldwell. Just I know you guys have said that the end markets are civic buildings, health care. Any of that is that exposed to government sending institute construction as that how much of that is actually, being revenue tested against the municipal and federal construction budgets?

Mark Richard Augdahl: I Got you. This is Mark. Yeah. We would expect know, a certain amount of government projects in our future as it relates to Kalwall. I do not know if it is gonna be a significant driver, but it is certainly in play. I would say and I would say all 3 levels. You have municipal, state, and federal. And I would also add in there educational. Institutions. Quite a bit there.

Gowshihan Sriharan: So does Kalwall come in at 15% or where specifically are the are the oh, is that $4 million adding up to that 15% margin?

Mark Richard Augdahl: So it comes in close to that 15%. So our ability to our ability to take on synergies and know, hopefully, execute some additional cost input reductions across the overall portfolio, will drive the EBITDA growth there.

Gowshihan Sriharan: Gotcha. So with so just to be clear, so with the $4 million in synergy, we expect the business to get to 20% EBITDA margins.

Mark Richard Augdahl: that is Gotcha.

Gowshihan Sriharan: Okay. On the glass side, are you is it all purely macro driven softness, or are you seeing any competitors moving being on price?

Donald A. Nolan: Yeah. I mean, look, glass business has been a few quarters here and we have definitely seen softer conditions. there is fewer jobs. And many of those jobs are at a lower volume. And, you know, we must say, though, that the team is executing. You know, we are our hit rate is improving on the jobs we pursue. And we have we have put together a performance improvement challenge, I will call it, to increase order rates, enhance productivity, and strengthen our cost management. The other the other piece I might mention here is yesterday, we actually announced a new president for the glass segment.

And Chris Eid, who is he is been with the company for 4 years, so it enables us to leverage our bench strength in this in this really important role. I am really happy for Chris, and he is got a 20 year background spanning strategy, m&a, p and l responsibility. And he was with the guy that was responsible for the UW Solutions acquisition. So he made that happen and was also running the integration activities, which as you remember, it really hit 1st year expectations. So he will be he will also be leading the integration efforts with Caldwell. Leveraging all that knowledge and experience that we have with UW. So Yeah.

Gowshihan Sriharan: Awesome. And on the performance side, I will make this my last question. On the performance side, I know it is been compressed around 20% to around 14% in Q1. Help us understand how much of that direct oil polymer input cost sensitivity is that for the segment? So roughly, you know, what if a $10 move in oil needs to what does that mean to performance EBITDA margins?

Donald A. Nolan: About if I just, I am gonna go this direction. So first of all, I am we are really pleased the growth that segment has displayed over the past quarters. You know, but UW integration was very successful. Yes. In the in the current quarter, we saw input costs rise quite a bit and, you know, specifically related to the petrochemical derived products like you suggested, as well as aluminum costs impact that segment. You know, we implemented some both pricing and some price increases as well as surcharges. In the quarter, but we are expecting that to impact later on in the year.

And, you know, to the extent that those input costs continue to increase, we will continue those activities.

Gowshihan Sriharan: Awesome. Thank you, guys. Appreciate you taking my time. I will pass it on.

Operator: I am not showing any further questions at this time. I would like to turn the call back over to Donald for any further remarks.

Donald A. Nolan: In closing, I continue to be encouraged by the progress we are making and the actions we are taking across the business. I wanna thank our employees for their hard work and commitment. They play a critical role in supporting our customers and strengthening our company every day. We are building Apogee with discipline and ambition, improving performance today while positioning the company for stronger, more durable growth over time. I am grateful for our employees, confident in our strategy, and energized by what lies ahead. Thank you for your continued interest and support.

Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your You may now disconnect, and have a wonderful day.

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