Apogee (APOG) Q2 2027 Earnings Call Transcript

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DATE

Tuesday, Oct. 6, 2026

CALL PARTICIPANTS

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

TAKEAWAYS

• Net Sales -- $391.1 million, representing a 9.2% increase driven by inorganic growth from the Kalwall acquisition and favorable pricing.
• Adjusted Diluted EPS -- $1.17, representing 19.4% growth due to improved operating performance and lower interest expense.
• Architectural Services Backlog -- $833.0 million, representing a 5% increase year over year reflecting success with project awards.
• Fiscal 2027 Net Sales Guidance -- $1.46 billion to $1.50 billion, raised from the previous range of $1.38 billion to $1.43 billion.
• Fiscal 2027 Adjusted Diluted EPS Guidance -- $3.00 to $3.40, increased from the prior range of $2.70 to $3.25.
• Architectural Glass Net Sales -- $87.4 million, increasing 21.1% primarily due to a $16.4 million contribution from the Kalwall acquisition.
• Architectural Metals Net Sales -- $143.5 million, up 1.8% as pricing actions offset lower volume.
• Performance Surfaces Net Sales -- $55.3 million, rising 14.2% driven by higher volume and pricing.
• Adjusted EBITDA Margin -- 12.7%, up from 12.4% in the prior-year period reflecting productivity gains and cost savings.
• Capital Expenditures -- $35 million to $40 million for the full fiscal year.
• Operating Cash Flow -- $43.3 million year to date, compared to $37.3 million in the prior-year first half.
• Shareholder Returns -- $27.3 million returned to shareholders year to date, consisting of $16.1 million in share repurchases and $11.2 million in dividends.
• Groglass Acquisition Expectations -- $30 million in revenue and a 25% adjusted EBITDA margin anticipated in the first 12 months.
• Architectural Metals Adjusted EBITDA Margin -- 15.4%, expanding from 14.8% due to Fortify Phase 2 cost savings.
• Architectural Services Net Sales -- $108.5 million, marking the 10th consecutive quarter of growth driven by project volume.
• Consolidated Leverage Ratio -- 1.7 times at quarter end.
• Interest Expense Guidance -- approximately $15 million for the full fiscal year.
• Adjusted Effective Tax Rate -- approximately 26% for the fiscal year.
• Architectural Glass Adjusted EBITDA Margin -- 14.9%, a decrease from 16.1% due to higher manufacturing and freight costs.
• Gross Margin -- 24.6%, an increase of 150 basis points from 23.1% in the prior year.

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RISKS

• Augdahl stated, "This was partially offset by lower volume in metals and glass as challenging market conditions persisted during the quarter," indicating demand pressure in those segments.
• Nolan noted that while the company is making progress on an action plan for the legacy glass business, "market conditions remain challenging" and the broader market is currently pressured.

SUMMARY

Apogee Enterprises, Inc. (NASDAQ:APOG) reported second-quarter results featuring revenue growth and an increased full-year outlook. Management indicated that performance was supported by strategic acquisitions and pricing strategies despite volume challenges in specific segments. The company completed the acquisition of Kalwall and announced the purchase of Groglass to expand its portfolio of high-value product offerings. Management stated that the integration of acquisitions is proceeding according to internal targets, impacting profitability profiles across the business.

• Nolan stated, "The momentum we established in the first half of the year, combined with our confidence in the business, supports our decision to raise full-year guidance."
• The company is prioritizing investments in higher-value products and capabilities to increase exposure to more attractive end markets.
• Management reported that the Architectural Services segment achieved its 10th consecutive quarter of top-line growth.
• The acquisition of Groglass is expected to expand the company's technical capabilities and strengthen its presence in Europe and broader global markets.
• Pricing actions implemented earlier in the year were cited as a primary factor in offsetting increased material and manufacturing costs.
• Augdahl noted that interest expense decreased to $3.6 million in the quarter, primarily reflecting a lower average debt balance.

INDUSTRY GLOSSARY

• Architectural Metals: Aluminum window, curtainwall, storefront, and entrance systems for non-residential construction.
• Architectural Glass: Fabricated glass used in custom window and wall systems for buildings.
• Performance Surfaces: Coated materials used for applications like museums, wall decor, and industrial flooring.
• Project Fortify Phase 2: An internal company initiative focused on restructuring and cost reduction.
• Kalwall: A provider of translucent daylighting solutions acquired by Apogee.
• Groglass: A business specializing in high-performance coated glass products.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to Apogee Enterprises Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star-11 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 27 Second 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 and a reconciliation to the nearest GAAP measures are provided in the earnings release and slide deck. are available in the Investor Relations section of our website. As a reminder, today's call will contain forward looking statements. These 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 Don.

Donald A. Nolan: Thanks, Jeremy, and good morning, everyone. We appreciate you joining us today. I am pleased to report strong second quarter results that exceeded our expectations and continued the momentum we established in the first quarter. Revenue was $391 million up more than 9% and adjusted EPS was $1.17. Reflecting disciplined execution across the business. We benefited from swift pricing actions, productivity improvements and the favorable contribution from our recent acquisition of Kalwall. Based on our stronger than expected first half performance, we are raising our fiscal 2027 outlook for both net sales and adjusted diluted earnings per share.

Across our segments, we continue to make meaningful progress on pricing disciplines, productivity, and operating improvements demonstrating our ability to execute effectively despite evolving macroeconomic conditions. We are advancing our strategic priorities through the acquisitions of Kalwall and GrowGlass, expanding our differentiated product offerings and technical capabilities while increasing our exposure to attractive end markets. We are also building on the successful integration of UW Solutions and the first year performance as Apogee delivered on our deal model targets. This proven execution strengthens our confidence in successfully integrating these businesses and achieving their first year financial objectives.

In metals, revenue and profitability improved year over year as pricing actions, productivity initiatives, and Fortify Phase 2 cost savings continued to gain traction. Also continued to enhance operational execution through improvements in quality, on-time delivery, and customer engagement. Services delivered their tenth consecutive quarter of top line growth while increasing their backlog again this fiscal year. Strong award activity resulting in continued backlog expansion demonstrates our ability to consistently win new business. and support our confidence In the segment's long-term growth potential. Performance services delivered another strong quarter of revenue growth, reflecting continued demand for our differentiated products and reflects positively in our strategic initiative to acquire businesses that have a greater growth profile.

As material inflation increased, we maintain pricing discipline and realized the benefits of pricing actions implemented earlier this year. We will continue to actively manage pricing to preserve margins and offset inflationary pressures. Legacy glass business, while market conditions remain challenging, we made meaningful progress during the quarter against the action plan we outlined previously. Have advanced several commercial initiatives aimed at increasing demand implemented productivity improvements across our operations and remain disciplined on costs. While we still have work to do and the broader market remains pressured, we are encouraged by the progress achieved to date and believe the actions underway are helping position the business for improved performance and stronger profitability over time.

Across the company, we are seeing the benefits of the actions we have taken over the last year reflected in our results. Market conditions remain mixed. Our focus on pricing, productivity, operational execution, and disciplined cost management continues to strengthen the business and supports our confidence in the increased outlook we announced today. In September, we announced our second acquisition of the fiscal year as we continue our growth strategy while maintaining a disciplined approach to capital allocation. With Grow Glass, we are adding a highly differentiated business with leading technology strong customer relationships, and compelling growth opportunities. The acquisition supports our strategy of investing in higher-value product and capabilities that improve the quality and durability of our portfolio.

And we are excited about the opportunities ahead as we welcome the GrowGlass team to Apogee. As part of performance services, GrowGlass will expand our technical capabilities and further increase our exposure to attractive, higher-value end markets. This will strengthen our presence in Europe while supporting broader global opportunities. We believe the business will enhance our profitability profile and accelerate value creation over time. As we begin integrating GrowGlass, our focus will be on disciplined execution and delivering the strategic and financial benefits that supported our investment thesis. Turning to Kalwall. I continue to be pleased with our progress following the acquisition.

As discussed last quarter, our focus has been on preserving the strengths that made Kalwall successful while thoughtfully integrating the business into Apogee. Integration activities across finance, human resources, sales and marketing, and other key functions are progressing as planned and collaboration between Kalwall and Apogee teams has been very strong. Importantly, our confidence in the strategic and financial rationale remains high. Kalwall continues to perform in line with our expectations, and we remain on track to achieve the first 12-month financial targets. We Continue to see the opportunities to leverage Kalwall's differentiated daylighting solution and specification driven business model while expanding relationships with architects, designers, and glazing contractors across the broader Apogee portfolio.

Overall, I am encouraged by the progress we are making across the organization. Strong execution, continued advancement of our strategic priorities, and disciplined capital allocation are strengthening Apogee's growth and profitability profile and positioning us well to create long term shareholder value. With that, I will turn the call over to Mark to provide additional detail on our financial results and outlook.

Mark Richard Augdahl: Thanks, Donald, and good morning, everyone. Let me begin with a review of our second quarter performance and then discuss our updated outlook for the remainder of fiscal 27. Which reflects our strong first half performance and confidence in the business. Beginning with our consolidated results, net sales increased 9.2% to $391.1 million. The improvement was primarily driven by inorganic growth from the Kalwall acquisition favorable pricing across most segments and positive mix. This was partially offset by lower volume in metals and glass as challenging market conditions persisted during the quarter. Adjusted EBITDA margin increased to 12.7% from 12.4% a year ago.

Driven by favorable pricing, productivity improvements, Fortify Phase 2 cost savings, and the accretive impact of the Kalwall acquisition, Those were partially offset by higher material and manufacturing costs and the impacts from lower volume. Adjusted diluted EPS improved over 19% to $1.17. Exceeding our own expectations and reflecting improved operating performance across the business along with lower interest expense. Turning to our segment results. Metals net sales increased 1.8% to approximately $144 million. Largely due to favorable pricing, partially offset by lower volume. Adjusted EBITDA margin expanded to 15.4%. Driven by favorable pricing, increased productivity, cost savings from Fortify Phase 2 and favorable mix. Partially offsetting these benefits were higher aluminum costs and lower volume.

The services segment delivered its tenth consecutive quarter of net sales growth. Improving by almost 8% primarily driven by volume. Adjusted EBITDA margin increased to 5.8% due to project mix and higher volume. Backlog ended the quarter at $833 million up 5% year over year and 13% sequentially. Reflecting continued success with project awards in a highly competitive environment. Glass net sales increased over 21% to $87.4 million primarily driven by a $16.4 million contribution from the Kalwall acquisition and favorable mix. That was partially offset by lower volume and pricing as end market demand softness persisted. Adjusted EBITDA margin declined to 14.9% but greatly improved sequentially from 8.7% in the first quarter.

The year over year change was due to lower pricing, higher manufacturing, and freight costs, and lower volume. Partially offset by the accretive contribution of the Kalwall acquisition and favorable mix. As Don mentioned, we are pleased with the progress of the Kalwall integration and the business continues to perform in line with our acquisition expectations. We remain on track to deliver the first 12-month financial targets of approximately $85 million in revenue and a 15% adjusted EBITDA margin. Turning to Performance Surfaces, the segment delivered another strong quarter with net sales increasing by over 14% to approximately $55 million driven by higher volume and favorable pricing.

Adjusted EBITDA margin decreased to 22.5% due to higher material costs, partially offset by pricing and higher volume. Looking at cash flow on the balance sheet. Year to date net cash provided by operating activities was $43.3 million compared to $37.3 million a year ago. In the second quarter, we repurchased $6.4 million of stock and returned $5.5 million to shareholders through dividends. Our balance sheet at the end of the quarter was strong, with consolidated leverage ratio of 1.7 times no near term debt maturities, and significant capital available for the GrowGlass acquisition and other future deployments. Before turning to the outlook, I would like to briefly comment on our recent acquisition of GrowGlass.

We are excited about the opportunities this acquisition creates for Apogee. Adding highly differentiated technology, broadening our reach into attractive end markets and further expanding the capabilities of our Performance Surfaces segment. Based on our current expectations, we anticipate approximately $30 million in revenue and a 25% adjusted EBITDA margin in the first 12-months. We believe GrowGlass is a highly complementary addition that will enhance our long term growth and profitability profile for both Performance Surfaces and Apogee as a whole. Turning to our outlook. We are raising our fiscal 2027 net sales and adjusted diluted EPS guidance.

These revised expectations reflect our strong first half performance continued execution across the business, the anticipated contributions from Kalwall and GrowGlass, and current market conditions. We now expect net sales between $1.46 billion and $1.5 billion and adjusted diluted EPS in the range of $3.00 to $3.40. Kalwall and GrowGlass are expected to contribute meaningful to revenue growth, While their impact on adjusted diluted EPS is expected to be modest in fiscal 2027. We anticipate both businesses will further strengthen Apogee's strong cash flow generation profile this year and beyond. Additionally, we now expect interest expense of approximately $15 million. And adjusted effective tax rate of approximately 26% with capital expenditures between $35 million and $40 million.

Looking ahead to the second half, we expect both net sales and adjusted diluted EPS to be relatively balanced across the third and fourth quarters. Overall, we are pleased with our first half performance. And the progress we continue to make across the business. The momentum we have built, together with the continued execution of our strategic priorities, reinforces our confidence in the increased fiscal 27 outlook we are providing today. We will now open the call to questions. Operator, please go ahead.

Operator: Thank you. As a reminder, to ask a question, To withdraw your question, simply press star-11 again. Please standby while we compile the Q and A roster. Our first question is from the line of Julio Romero with Sidoti and Company. Your line is now open.

Julio Romero: Brent. Thanks. Hey. Good morning, Donald, Mark, and Jeremy.

Donald A. Nolan: Morning.

Mark Richard Augdahl: Morning.

Julio Romero: To start maybe on the glass segment, held up a little better than we expected. The organic sales declined to a much lesser degree than the previous 2 quarters. Can you speak to how that segment is performing? Some of that related to the new segment president that I believe you installed a couple of months ago. How much is into related to improving mix or any other segment initiatives there?

Donald A. Nolan: Yeah. Sure. Yes. The conditions have not changed quite frankly in the marketplace. We continue to see soft conditions out there and, you know, there is fewer jobs at lower volumes, to chase. So and we are also seeing some delay in projects, but, you know, I would attribute this to significantly improved execution. That the end of Q1, we talked a little bit about an action plan that we put in place. Well, as a result of that, we are seeing increased order rates, enhanced operational productivity, and certainly strengthened cost management. And all of those contributed to the improved performance in the segment. I mean, do not get me wrong.

We have some work to do yet, but making progress. Happy with that progress.

Julio Romero: Excellent. Very helpful there. And on the metal segment, can you help us think about the split between structural price increases and the surcharges you have implemented to date? And then how much of the--or does the updated adjusted guidance range embed any giveback as some of those surcharges unwind?

Mark Richard Augdahl: Julio, I will start off. So first of all, within the metal segment, the impact of surcharges is probably a little bit less. What we typically do from a pricing perspective is as aluminum prices go up, we build those actually into our pricing structure. not as surcharges. So it is built into the overall price. I would tell you that, you know, metals performed well in the quarter. We were really pleased with their operational performance. And then if you kind of look at it from a year over year perspective, certainly, the impact of project Fortify Phase 2 has had a significant impact on its overall on the overall cost structure.

Donald A. Nolan: Yeah. I mean, just to emphasize, Julio, look. Very happy with the pricing actions that they took. Contributed significantly in the quarter. Productivity improvement, though, was also a big part of the story and as Mark mentioned, Fortify Phase 2 cost actions The other thing we think we had as a result of the pricing actions, we think we pulled ahead some of the volume. So, you know, that is also a contributor.

Julio Romero: Brent. that is helpful there. And then last 1 for me before I pass it on is, you know, just thinking about where you are on the leverage here, a little bit above I think, your historical 1.5 times target, and you have been active with the portfolio here. You have repurchased some shares I believe, $16 million year to date. Just help us think about how you rank capital allocation priorities and does the M&A pipeline remain active here?

Mark Richard Augdahl: Yeah. A couple of points there, Julio. I will start off. You know, first and foremost, we feel we feel really confident about where we are at from a leverage perspective. I do not think there is any issues there. We might be a little bit higher, but, obviously, that came with a couple of acquisitions in the quarter. We are confident in the amount of cash that we are going to be able to derive over the remainder of the year. So to the extent that to the extent that we do not identify another acquisition, we feel like that is going to be coming down throughout the remainder of the year.

To the M&A point, you know, our pipeline remains active and we believe there is still a very full funnel to do any kind of acquisition. But obviously, we are going to be very selective at this point. If the right if the right acquisition comes around at the right price, you know, we will have to consider executing on that. But as of right now, we are really focused on delivering our results and delivering that cash flow.

Julio Romero: Excellent. I will turn it over. Thanks very much.

Operator: Thank you. Our next question comes from the line of Gaurav with Singlet Research. Your line is now open.

Analyst: Hi. Can you hear me?

Donald A. Nolan: Yes. Hi.

Mark Richard Augdahl: Morning.

Analyst: Hi. This is Gaurav. I am here for Gowshi. First question on the surface segment. So just trying to understand the margin trajectory here. Are you are you seeing the margins recover as you increase prices or as input costs get passed through or are customers sort of pushing back? [Crosstalk] Understood. I got it. Thank you.

Operator: And I am showing no further questions in the queue at this time. I will now turn the call back over to Mr. Nolan for any closing comments.

Donald A. Nolan: Thank you, everybody. In closing, I continue to be encouraged by the progress we are making across the business. Our strong first half performance reflects the dedication of our employees' commitment to our customers and the operational excellence that drives our success every day. Delivering strong results in the current environment while continuing to strengthen our business, disciplined capital allocation, and strategic investments. The progress we have made this year, including the acquisitions of Kalwall and GrowGlass, and the continued execution of our strategic priorities, reinforces our confidence in the path ahead and our ability to create sustainable long term value for shareholders. Thank you for your continued interest and support.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

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