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Apogee Enterprises Reports Fiscal 2021 Second-Quarter Results

Apogee Enterprises, Inc. (Nasdaq: APOG) today announced results for the second quarter of fiscal 2021 and provided a business update. Second-quarter revenue was $319.5 million, compared to $357.1 million in the second quarter of fiscal year 2020, reflecting COVID-19 and market related volume declines in three of the company’s segments. Earnings were $0.67 per diluted share, compared to $0.72 per diluted share in the prior year period, reflecting the lower revenue, partially offset by cost savings and improved productivity. Adjusted earnings were $0.73 per diluted share, compared to $0.72 in the prior year. Adjusted results excluded $2.3 million of pre-tax costs related to COVID-19 and acquired project matters.

Commentary

“Our team turned in impressive results in the second quarter, delivering adjusted earnings growth despite a challenging economic situation,” said Joseph F. Puishys, Chief Executive Officer. “As we forecasted last quarter, each of our four segments delivered increased revenue and profitability in the second quarter compared to the first quarter. Large-Scale Optical recovered sharply from the first quarter, returning to profitability, and we benefited from strong execution and effective cost and cash management across our business.”

Mr. Puishys continued, “While conditions in our end markets remain uncertain, Apogee is well positioned to navigate the current environment. Over the past several years, we have successfully diversified our business to enable more stable performance, moving from a concentration in high-rise buildings toward a more balanced customer offering across project types and building sizes. We’ve built a robust backlog, providing visibility in the long lead-time parts of our business. We’ve driven sustainable cost reductions and improved productivity, with additional opportunities for further gains. Finally, our strong balance sheet and cash flow provide significant financial flexibility to drive future growth and shareholder value.”

Mr. Puishys concluded, “I want to once again thank all of Apogee’s employees for their tremendous efforts and sacrifices over the past several months. Our team has taken decisive action to stabilize our business in response to COVID-19. Looking ahead, we will remain focused on the health and safety of our employees and supporting our customers, as we position the company to emerge stronger when the economy recovers.”

Segment Results

Architectural Framing Systems

Architectural Framing Systems second-quarter revenue was $152.9 million, compared to $187.4 million in the prior year period, primarily reflecting COVID-19 related project delays and lower order volume. Operating income in the quarter was $11.7 million, with operating margin of 7.6 percent, compared to $15.5 million and 8.3 percent respectively in the prior year quarter, reflecting the lower revenue, partially offset by cost reductions and improved productivity. Segment backlog stands at $404 million, compared to $423 million a quarter ago.

Architectural Glass

Architectural Glass revenue in the second quarter was $86.6 million, compared to $99.1 million in the prior year quarter, primarily reflecting lower volumes due to COVID-19 related project delays and lower order volume. The segment had operating income of $5.0 million and operating margin of 5.7 percent, compared to operating income of $6.5 million and margin of 6.5 percent in last year’s second quarter, reflecting the lower volume, partially offset by strong factory productivity and effective cost management.

Architectural Services

Architectural Services revenue grew 20 percent to $73.7 million, compared to $61.6 million in the prior-year quarter, as the segment executed projects in its substantial backlog. Second-quarter operating income increased to $6.6 million with operating margin of 8.9 percent, up from $4.0 million and 6.5 percent respectively in the prior-year period, primarily driven by strong project execution, and effective cost management. Segment backlog decreased to $665 million, compared to the record level of $685 million last quarter, but remains 32 percent above last year’s level of $502 million.

Large-Scale Optical

Large-Scale Optical revenue was $16.9 million, down from $20.8 million in the second quarter last year, on lower volume. By the end of the second quarter, the segment’s customers had largely reopened, after having been closed for most of the first quarter due to COVID-19 related restrictions. In addition, the segment’s two primary manufacturing locations resumed normal operations during the quarter, after being closed for most of the first and second quarters. Segment operating income was $2.1 million with operating margin of 12.7 percent, compared to $4.6 million and 22.3 percent respectively in last year’s second quarter, reflecting reduced leverage on the lower revenue, partially offset by effective cost management.

Financial Condition

Fiscal year-to-date, net cash provided by operating activities is $85.3 million, up $68 million compared to $17.8 million in the first half of fiscal 2020, primarily driven by strong working capital management. Capital expenditures through the first half of the fiscal year were $14.2 million, down from $22.6 million in the prior-year period, as the company focused only on high return and essential capital projects. Fiscal year-to-date, the company has returned $14.5 million to shareholders through dividend payments and share repurchases. The company did not repurchase any stock in the second quarter.

During the quarter, the company reduced its total debt by $43 million, to $168 million. Over the past year, the company has reduced its total debt by $105 million.

Outlook

The company is not providing detailed financial guidance due to the continued impact of COVID-19 and related economic uncertainty. The company expects continued project delays and soft market conditions but expects revenue and earnings in the second half of fiscal 2021 to improve compared to the first half of the fiscal year.

Conference Call Information

The company will host a conference call today at 8:00 a.m. Central Time to discuss its financial results and provide a business update. This call will be webcast and is available in the Investor Relations section of the company’s website, along with presentation slides, at https://www.apog.com/events-and-presentations. The webcast also will be archived for replay on the company’s website.

About Apogee Enterprises

Apogee Enterprises, Inc. (Nasdaq: APOG) delivers distinctive solutions for enclosing commercial buildings and framing art. Headquartered in Minneapolis, MN, we are a leader in architectural products and services, providing architectural glass, aluminum framing systems and installation services for buildings, as well as value-added glass and acrylic for custom picture framing and displays. For more information, visit www.apog.com.

Use of Non-GAAP Financial Measures

This release and other financial communications may contain the following non-GAAP measures:

  • Adjusted operating income, adjusted operating margin, adjusted net earnings and adjusted earnings per diluted share (“adjusted earnings per share” or “adjusted EPS”) are used by the company to provide meaningful supplemental information about its operating performance by excluding amounts that are not considered part of core operating results to enhance comparability of results from period to period. Examples of items excluded to arrive at this adjusted measure in recent reporting periods include: restructuring costs, non-cash goodwill and other intangible impairment costs, acquired project-related charges, and COVID-19 related expenditures.
  • Free cash flow is defined as net cash provided by operating activities, minus capital expenditures. The company considers this measure an indication of its financial strength. However, free cash flow does not fully reflect the company’s ability to freely deploy generated cash, as it does not reflect, for example, required payments on indebtedness and other fixed obligations.
  • Adjusted EBITDA represents net income before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items. We believe this metric provides useful information to investors and analysts about the company's performance because it eliminates the effects of certain items that are unusual in nature or whose fluctuation from period to period do not necessarily correspond to changes in the operations of the company.

Another important non-GAAP operational measure that management uses is backlog. Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which is expected to be recognized as revenue. Backlog is not a term defined under U.S. GAAP and is not a measure of contract profitability. Backlog should not be used as the sole indicator of future segment revenue because we have a substantial amount of projects with short lead times that book-and-bill within the same reporting period and are not included in backlog.

Management uses these non-GAAP measures to evaluate the company’s historical and prospective financial performance and liquidity, measure operational profitability on a consistent basis, and provide enhanced transparency to the investment community. These non-GAAP measures should be viewed in addition to, and not as a substitute for, the reported financial results of the company prepared in accordance with GAAP. Other companies may calculate these measures differently, limiting the usefulness of the measures for comparison with other companies.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should” and similar expressions are intended to identify “forward-looking statements”. These statements reflect Apogee management’s expectations or beliefs as of the date of this release. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements are qualified by factors that may affect the results, performance, prospects and opportunities of the company, including the following: (A) potential continuing negative impacts from pandemic health issues, such as the coronavirus / COVID-19, along with the impact of government stay-at-home orders or other similar directives on our future financial results of operations, our future financial condition, and our ability to continue business activities in affected regions; (B) global economic conditions and the cyclical nature of the North American and Latin American commercial construction industries, which impact our three architectural segments, and consumer confidence and the conditions of the U.S. economy, which impact our large-scale optical segment; (C) fluctuations in foreign currency exchange rates; (D) actions of new and existing competitors; (E) ability to effectively utilize and increase production capacity; (F) loss of key personnel and inability to source sufficient labor; (G) product performance, reliability and quality issues; (H) project management and installation issues that could result in losses on individual contracts; (I) changes in consumer and customer preference, or architectural trends and building codes; (J) dependence on a relatively small number of customers in certain business segments; (K) revenue and operating results that could differ from market expectations; (L) self-insurance risk related to a material product liability or other event for which the company is liable; (M) dependence on information technology systems and information security threats; (N) cost of compliance with and changes in environmental regulations; (O) commodity price fluctuations, trade policy impacts, and supply availability; (P) integration of recent acquisitions and management of acquired contracts; and (Q) impairment of goodwill or indefinite-lived intangible assets. The company cautions investors that actual future results could differ materially from those described in the forward-looking statements, and that other factors may in the future prove to be important in affecting the company’s results, performance, prospects or opportunities. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of each factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. More information concerning potential factors that could affect future financial results is included in the company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2020 and in subsequent filings with the U.S. Securities and Exchange Commission.

Apogee Enterprises, Inc.

Consolidated Condensed Statements of Income

(Unaudited)

Three Months Ended

Six Months Ended

(In thousands, except per share amounts)

August 29,
2020

August 31,
2019

%
Change

August 29,
2020

August 31,
2019

%
Change

Net sales

$

319,483

$

357,058

(11

)%

$

608,578

$

712,424

(15

)%

Cost of sales

243,296

270,851

(10

)%

472,141

545,250

(13

)%

Gross profit

76,187

86,207

(12

)%

136,437

167,174

(18

)%

Selling, general and administrative expenses

52,972

58,631

(10

)%

106,754

116,558

(8

)%

Operating income

23,215

27,576

(16

)%

29,683

50,616

(41

)%

Interest expense, net

1,324

2,566

(48

)%

2,739

5,181

(47

)%

Other income, net

1,260

363

247

%

213

368

(42

)%

Earnings before income taxes

23,151

25,373

(9

)%

27,157

45,803

(41

)%

Income tax expense

5,493

6,094

(10

)%

6,623

11,081

(40

)%

Net earnings

$

17,658

$

19,279

(8

)%

$

20,534

$

34,722

(41

)%

Earnings per share - basic

$

0.68

$

0.73

(7

)%

$

0.78

$

1.31

(40

)%

Weighted average basic shares outstanding

26,156

26,413

(1

)%

26,162

26,505

(1

)%

Earnings per share - diluted

$

0.67

$

0.72

(7

)%

$

0.77

$

1.30

(41

)%

Weighted average diluted shares outstanding

26,525

26,736

(1

)%

26,507

26,789

(1

)%

Cash dividends per common share

$

0.1875

$

0.1750

7

%

$

0.3750

$

0.3500

7

%

Business Segment Information

(Unaudited)

Three Months Ended

Six Months Ended

(In thousands)

August 29,
2020

August 31,
2019

%
Change

August 29,
2020

August 31,
2019

%
Change

Net sales

Architectural Framing Systems

$

152,927

$

187,394

(18

)%

$

303,091

$

367,916

(18

)%

Architectural Glass

86,584

99,138

(13

)%

163,495

199,429

(18

)%

Architectural Services

73,670

61,597

20

%

137,221

126,744

8

%

Large-Scale Optical

16,860

20,785

(19

)%

23,171

42,045

(45

)%

Intersegment eliminations

(10,558

)

(11,856

)

(11

)%

(18,400

)

(23,710

)

(22

)%

Net sales

$

319,483

$

357,058

(11

)%

$

608,578

$

712,424

(15

)%

Operating income (loss)

Architectural Framing Systems

$

11,697

$

15,523

(25

)%

$

18,993

$

27,796

(32

)%

Architectural Glass

4,976

6,460

(23

)%

4,482

12,859

(65

)%

Architectural Services

6,569

3,976

65

%

11,912

8,549

39

%

Large-Scale Optical

2,149

4,630

(54

)%

(984

)

8,807

(111

)%

Corporate and other

(2,176

)

(3,013

)

28

%

(4,720

)

(7,395

)

36

%

Operating income

$

23,215

$

27,576

(16

)%

$

29,683

$

50,616

(41

)%

Apogee Enterprises, Inc.

Consolidated Condensed Balance Sheets

(Unaudited)

(In thousands)

August 29, 2020

February 29, 2020

Assets

Current assets

311,732

381,910

Net property, plant and equipment

314,323

324,386

Other assets

428,443

422,695

Total assets

$

1,054,498

$

1,128,991

Liabilities and shareholders' equity

Current liabilities

209,786

271,457

Current debt

152,000

5,400

Long-term debt

15,672

212,500

Other liabilities

150,872

122,856

Shareholders' equity

526,168

516,778

Total liabilities and shareholders' equity

$

1,054,498

$

1,128,991

 

Consolidated Statement of Cash Flows

(Unaudited)

Six Months Ended

(In thousands)

August 29, 2020

August 31, 2019

Net earnings

$

20,534

$

34,722

Depreciation and amortization

25,284

22,759

Share-based compensation

3,662

3,200

Other, net

14,016

13,364

Changes in operating assets and liabilities:

Receivables

31,212

(9,215

)

Inventories

846

4,054

Costs and earnings on contracts in excess of billings

43,091

(19,865

)

Accounts payable and accrued expenses

(36,922

)

(19,044

)

Billings on contracts in excess of costs and earnings

(9,105

)

(2,001

)

Refundable and accrued income taxes

(1,793

)

(5,641

)

Operating lease liability

(5,857

)

(2,812

)

Other

362

(1,719

)

Net cash provided by operating activities

85,330

17,802

Capital expenditures

(14,224

)

(22,559

)

Other

(993

)

(451

)

Net cash used by investing activities

(15,217

)

(23,010

)

Borrowings on line of credit

192,581

184,500

(Repayment) borrowings on debt

(5,400

)

150,000

Payments on line of credit

(237,500

)

(307,500

)

Repurchase and retirement of common stock

(4,731

)

(20,010

)

Dividends paid

(9,751

)

(9,203

)

Other

(1,261

)

(2,493

)

Net cash used by financing activities

(66,062

)

(4,706

)

Increase (decrease) in cash and cash equivalents

4,051

(9,914

)

Effect of exchange rates on cash

(2

)

118

Cash, cash equivalents and restricted cash at beginning of year

14,952

29,241

Cash, cash equivalents and restricted cash at end of period

$

19,001

$

19,445

Apogee Enterprises, Inc.

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

Adjusted Net Earnings and Adjusted Earnings per Diluted Common Share

Three Months Ended

Six Months Ended

(In thousands)

August 29, 2020

August 31, 2019

August 29, 2020

August 31, 2019

Net earnings

$

17,658

$

19,279

$

20,534

$

34,722

COVID-19 (1)

1,316

2,696

Post-acquisition and acquired project matters

1,000

1,000

Income tax impact on above adjustments

(549

)

(902

)

Adjusted net earnings

$

19,425

$

19,279

$

23,328

$

34,722

Three Months Ended

Six Months Ended

August 29, 2020

August 31, 2019

August 29, 2020

August 31, 2019

Earnings per diluted common share

$

0.67

$

0.72

$

0.77

$

1.30

COVID-19 (1)

0.05

0.10

Post-acquisition and acquired project matters

0.04

0.04

Income tax impact on above adjustments

(0.02

)

(0.03

)

Adjusted earnings per diluted common share

$

0.73

$

0.72

$

0.88

$

1.30

Per share amounts are computed independently for each of the items presented so the sum of the items may not equal the total amount.

(1) Adjustment for COVID-19-related costs, primarily incremental labor costs due to quarantine-related absenteeism and personal protective equipment for employees.

Adjusted Operating Income and Adjusted Operating Margin

(Unaudited)

Three Months Ended August 29, 2020

Corporate

Consolidated

(In thousands)

Operating loss

Operating income

Operating margin

Operating (loss) income

$

(2,176

)

$

23,215

7.3%

COVID-19 (1)

1,316

1,316

0.4%

Post-acquisition and acquired project matters

1,000

1,000

0.3%

Adjusted operating income

$

140

$

25,531

8.0%

Three Months Ended August 31, 2019

Corporate

Consolidated

(In thousands)

Operating loss

Operating income

Operating margin

Operating (loss) income

$

(3,013

)

$

27,576

7.7%

Six Months Ended August 29, 2020

Corporate

Consolidated

(In thousands)

Operating loss

Operating income

Operating margin

Operating (loss) income

$

(4,720

)

$

29,683

4.9%

COVID-19 (1)

2,696

2,696

0.4%

Post-acquisition and acquired project matters

1,000

1,000

0.2%

Adjusted operating (loss) income

$

(1,024

)

$

33,379

5.5%

Six Months Ended August 31, 2019

Corporate

Consolidated

(In thousands)

Operating loss

Operating income

Operating margin

Operating (loss) income

$

(7,395

)

$

50,616

7.1%

(1) Adjustment for COVID-19-related costs, primarily incremental labor costs due to quarantine-related absenteeism and personal protective equipment for employees.

EBITDA and Adjusted EBITDA

(Unaudited)

Three Months Ended

Six Months Ended

August 29, 2020

August 31, 2019

August 29, 2020

August 31, 2019

Net earnings

$

17,658

$

19,279

20,534

34,722

Income tax expense

5,493

6,094

6,623

11,081

Interest expense, net

1,324

2,566

2,739

5,181

Other income, net

1,260

363

213

368

Depreciation and amortization

12,744

11,657

25,284

22,759

EBITDA

$

35,959

$

39,233

54,967

73,375

COVID-19 (1)

1,316

2,696

Post-acquisition and acquired project matters

1,000

1,000

Adjusted EBITDA

$

38,275

$

39,233

$

58,663

$

73,375

(1) Adjustment for COVID-19-related costs, primarily incremental labor costs due to quarantine-related absenteeism and personal protective equipment for employees.

Contacts:

Jeff Huebschen
Vice President, Investor Relations & Communications
952.487.7538
ir@apog.com

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