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Apogee Enterprises Reports Fiscal 2021 Third-quarter Results

Apogee Enterprises, Inc. (Nasdaq: APOG) today announced results for the third quarter of fiscal 2021. Third-quarter revenue was $313.6 million, compared to $337.9 million in the third quarter of fiscal year 2020, reflecting market-related volume declines in Architectural Framing Systems and Architectural Glass, partially offset by growth in Architectural Services and Large-Scale Optical. Earnings were $1.42 per diluted share, compared to $0.57 per diluted share in the prior-year period, which included a pre-tax gain of $19.3 million on the sale of a building and $1.4 million of pre-tax costs related to COVID. Excluding these items, adjusted earnings increased to $0.90 per diluted share, from $0.57 in the prior year1.

Commentary
“We delivered another strong quarter, with adjusted earnings growth and improved cash flow, despite continued challenges from COVID and soft conditions in our architectural end markets,” said Joseph F. Puishys, Chief Executive Officer. “We focused aggressively on managing costs and improving execution across our business and remain on track to achieve our full-year cost reduction goal of over $40 million. Architectural Services continued its strong performance, with double-digit revenue and profit growth, and Large-Scale Optical returned to growth, rebounding faster than expected from its shutdown earlier in the year.”

“During the quarter, we took several actions to further strengthen the company’s financial position and drive value,” continued Mr. Puishys. “We completed a sale-leaseback transaction for one of our facilities, generating a significant gain on the sale and $24 million in cash. We amended our term loan, extending the maturity by three years, and we resumed repurchases of our stock. We also initiated an effort to reduce our fixed cost base, which should add to the cost savings efforts we already had underway.”

Mr. Puishys concluded, “I want to commend the entire Apogee team for their efforts to manage through the past nine months. Our year-to-date results demonstrate the underlying strength and resilience of our company and our ability to produce solid results, even with difficult market conditions. Looking ahead, we will remain focused on managing what we can control, taking care of our employees and customers, while we execute strategic initiatives intended to position the company for long-term growth and improved profitability.”

Segment Results

Architectural Framing Systems
Architectural Framing Systems third-quarter revenue was $136.7 million, compared to $165.5 million in the prior-year period, primarily reflecting COVID and market-related project delays, and lower volume for short lead-time products. Operating income in the quarter increased to $7.2 million, with operating margin of 5.3 percent, from $6.3 million and 3.8 percent respectively in the prior-year quarter, primarily driven by cost reductions, which offset the impact of lower revenue. Segment backlog increased to $408 million, compared to $404 million at the end of the second quarter.

Architectural Glass
Architectural Glass revenue in the third quarter was $84.8 million, compared to $89.4 million in the prior-year quarter, primarily reflecting COVID and market-related project delays. The segment had operating income of $10.8 million and operating margin of 12.8 percent, compared to operating income of $4.0 million and margin of 4.6 percent in last year’s third quarter. Third quarter results included $7.4 million of operating income related to a New Markets Tax Credit transaction.

Architectural Services
Architectural Services revenue grew 11 percent to $76.7 million, from $69.0 million in the prior-year quarter, driven by increased volume from executing projects in backlog. Third-quarter operating income increased to $8.6 million with operating margin of 11.2 percent, up from $6.5 million and 9.5 percent respectively in the prior-year period, primarily driven by strong project execution. Segment backlog stood at $597 million, compared to $665 million at the end of the last quarter, and $607 million a year ago.

Large-Scale Optical
Large-Scale Optical revenue was $25.3 million, up from $24.4 million in the third quarter last year, driven by increased volume. Segment revenue grew sequentially by 50 percent compared to the second quarter, as customer demand increased significantly following the segment’s COVID-related shutdown earlier in the year. Segment operating income was $26.1 million with operating margin of 103.4 percent, which included a $19.3 million gain on the sale-leaseback of a building. Excluding this gain, adjusted operating income was $6.8 million, in-line with the prior-year quarter, with adjusted operating margin of 26.8 percent, compared to 27.7 percent last year.

Financial Condition
Fiscal year-to-date, net cash provided by operating activities is $121 million, more than double the $53.6 million for the same period last year, primarily driven by strong working capital management. Capital expenditures through the first nine months of the fiscal year were $17.1 million, down from $41.2 million in the prior-year period, as the company focused only on high return and essential capital projects. During the quarter, the company repurchased 621,000 shares of stock for $16.0 million. Fiscal year-to-date, the company has returned $35 million to shareholders through dividend payments and share repurchases.

As previously disclosed, the company amended its credit agreement during the quarter to extend the maturity of its unsecured $150 million term loan for three years to June 2024. This extension is expected to benefit annual interest expense by $0.5 million. Total debt at the end of the third quarter was $168 million with no outstanding borrowings on the company’s $235 million revolving credit facility.

Outlook
The company is not providing detailed financial guidance due to continued uncertainty driven by the impact of COVID and end-market conditions. The company expects that continued project delays and soft market conditions will negatively impact revenue in the fourth quarter.

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, 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 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 condition 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) departure of key personnel and ability to source sufficient labor; (G) product performance, reliability and quality issues; (H) project management and installation issues that could affect the profitability of 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 concerns; (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.

1 Adjusted earnings and adjusted earnings per share are non-GAAP financial measures. See Use and Reconciliation of Non-GAAP Financial Measures later in this press release for more information and a reconciliation to the most directly comparable GAAP measures.

Apogee Enterprises, Inc.

Consolidated Condensed Statements of Income

(Unaudited)

Three Months Ended

Nine Months Ended

(In thousands, except per share amounts)

November 28,
2020

November 30,
2019

% Change

November 28,
2020

November 30,
2019

% Change

Net sales

$

313,583

$

337,916

(7

)%

$

922,162

$

1,050,340

(12

)%

Cost of sales

243,998

263,606

(7

)%

716,139

808,856

(11

)%

Gross profit

69,585

74,310

(6

)%

206,023

241,484

(15

)%

Selling, general and administrative expenses

19,835

52,716

(62

)%

126,590

169,274

(25

)%

Operating income

49,750

21,594

130

%

79,433

72,210

10

%

Interest expense, net

1,502

1,995

(25

)%

4,240

7,176

(41

)%

Other income, net

472

231

104

%

684

599

14

%

Earnings before income taxes

48,720

19,830

146

%

75,877

65,633

16

%

Income tax expense

11,447

4,596

149

%

18,070

15,677

15

%

Net earnings

$

37,273

$

15,234

145

%

$

57,807

$

49,956

16

%

Earnings per share - basic

$

1.44

$

0.58

148

%

$

2.22

$

1.89

17

%

Weighted average basic shares outstanding

25,883

26,432

(2

)%

26,068

26,481

(2

)%

Earnings per share - diluted

$

1.42

$

0.57

149

%

$

2.19

$

1.87

17

%

Weighted average diluted shares outstanding

26,225

26,750

(2

)%

26,350

26,776

(2

)%

Cash dividends per common share

$

0.1875

$

0.1750

7

%

$

0.5625

$

0.5250

7

%

Business Segment Information

(Unaudited)

Three Months Ended

Nine Months Ended

(In thousands)

November 28,
2020

November 30,
2019

% Change

November 28,
2020

November 30,
2019

% Change

Net sales

Architectural Framing Systems

$

136,688

$

165,517

(17

)%

$

439,779

$

533,432

(18

)%

Architectural Glass

84,779

89,433

(5

)%

248,274

288,862

(14

)%

Architectural Services

76,690

69,043

11

%

213,911

195,787

9

%

Large-Scale Optical

25,267

24,405

4

%

48,438

66,449

(27

)%

Intersegment eliminations

(9,841

)

(10,482

)

(6

)%

(28,240

)

(34,190

)

(17

)%

Net sales

$

313,583

$

337,916

(7

)%

$

922,162

$

1,050,340

(12

)%

Operating income (loss)

Architectural Framing Systems

$

7,218

$

6,345

14

%

$

26,211

$

34,141

(23

)%

Architectural Glass

10,825

4,092

165

%

15,306

16,951

(10

)%

Architectural Services

8,558

6,533

31

%

20,470

15,082

36

%

Large-Scale Optical

26,114

6,754

287

%

25,131

15,561

61

%

Corporate and other

(2,965

)

(2,130

)

(39

)%

(7,685

)

(9,525

)

19

%

Operating income

$

49,750

$

21,594

130

%

$

79,433

$

72,210

10

%

Apogee Enterprises, Inc.

Consolidated Condensed Balance Sheets

(Unaudited)

(In thousands)

November 28, 2020

February 29, 2020

Assets

Cash and cash equivalents

$

55,413

$

14,952

Current assets

290,222

366,958

Net property, plant and equipment

302,082

324,386

Other assets

438,265

422,695

Total assets

$

1,085,982

$

1,128,991

Liabilities and shareholders' equity

Current liabilities

209,700

271,457

Current debt

2,000

5,400

Long-term debt

166,463

212,500

Other liabilities

160,476

122,856

Shareholders' equity

547,343

516,778

Total liabilities and shareholders' equity

$

1,085,982

$

1,128,991

Apogee Enterprises, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

Nine Months Ended

(In thousands)

November 28, 2020

November 30, 2019

Net earnings

$

57,807

$

49,956

Depreciation and amortization

38,000

34,681

Share-based compensation

6,163

4,617

Gain on disposal of assets

(19,346

)

(623

)

Other, net

14,474

17,074

Changes in operating assets and liabilities:

Receivables

24,153

(5,288

)

Inventories

(2,722

)

2,474

Costs and earnings on contracts in excess of billings

44,501

(17,156

)

Accounts payable and accrued expenses

(43,915

)

(22,457

)

Billings on contracts in excess of costs and earnings

(6,981

)

4,901

Refundable and accrued income taxes

12,424

(6,159

)

Operating lease liability

(9,168

)

(7,468

)

Other

5,122

(951

)

Net cash provided by operating activities

120,512

53,601

Capital expenditures

(17,116

)

(41,176

)

Proceeds from sales of property, plant and equipment

23,724

591

Other

(1,090

)

(857

)

Net cash provided (used) by investing activities

5,518

(41,442

)

Borrowings on line of credit

193,332

108,000

(Repayment) borrowings on debt

(5,400

)

150,000

Payments on line of credit

(237,500

)

(252,500

)

Repurchase and retirement of common stock

(20,732

)

(20,010

)

Dividends paid

(14,546

)

(13,808

)

Other

(852

)

(2,584

)

Net cash used by financing activities

(85,698

)

(30,902

)

Increase (decrease) in cash and cash equivalents

40,332

(18,743

)

Effect of exchange rates on cash

129

32

Cash, cash equivalents and restricted cash at beginning of year

14,952

29,241

Cash, cash equivalents and restricted cash at end of period

$

55,413

$

10,530

Apogee Enterprises, Inc.

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

Adjusted Net Earnings and Adjusted Earnings per Diluted Common Share

Three Months Ended

Nine Months Ended

(In thousands)

November 28,
2020

November 30, 2019

November 28,
2020

November 30, 2019

Net earnings

$

37,273

$

15,234

$

57,807

$

49,956

Gain on sale of building

(19,346

)

(19,346

)

COVID-19 (1)

1,372

4,068

Post-acquisition and acquired project matters

(2,635

)

1,000

(2,635

)

Cooperation agreement advisory costs

2,776

2,776

Income tax impact on above adjustments

4,224

(33

)

3,398

(34

)

Adjusted net earnings

$

23,523

$

15,342

$

46,927

$

50,063

Three Months Ended

Nine Months Ended

November 28,
2020

November 30, 2019

November 28,
2020

November 30, 2019

Earnings per diluted common share

$

1.42

$

0.57

$

2.19

$

1.87

Gain on sale of building

(0.74

)

(0.73

)

COVID-19 (1)

0.05

0.15

Post-acquisition and acquired project matters

(0.10

)

0.04

(0.10

)

Cooperation agreement advisory costs

0.10

0.10

Income tax impact on above adjustments

0.16

0.13

Adjusted earnings per diluted common share

$

0.90

$

0.57

$

1.78

$

1.87

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 November 28, 2020

LSO Segment

Corporate

Consolidated

(In thousands)

Operating
income

Operating margin

Operating loss

Operating
income

Operating margin

Operating (loss) income

$

26,114

103.4

%

$

(2,965

)

$

49,750

15.9

%

Gain on sale of building

(19,346

)

(76.6

)

(19,346

)

(6.2

)

COVID-19 (1)

1,372

1,372

0.4

Adjusted operating income

$

6,768

26.8

%

$

(1,593

)

$

31,776

10.1

%

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

Three Months Ended November 30, 2019

LSO Segment

Corporate

Consolidated

(In thousands)

Operating
income

Operating margin

Operating loss

Operating
income

Operating margin

Operating income (loss)

$

6,754

27.7

%

$

(2,130

)

$

21,594

6.4

%

Cooperation agreement advisory costs

2,776

2,776

0.8

Acquired project matters

(2,635

)

(2,635

)

(0.8

)

Adjusted operating income (loss)

$

6,754

27.7

%

$

(1,989

)

$

21,735

6.4

%

Nine Months Ended November 28, 2020

LSO Segment

Corporate

Consolidated

(In thousands)

Operating income

Operating margin

Operating loss

Operating income

Operating margin

Operating (loss) income

$

25,131

51.9

%

$

(7,685

)

$

79,433

8.6

%

Gain on sale of building

(19,346

)

(39.9

)

(19,346

)

(2.1

)

COVID-19 (1)

4,068

4,068

0.4

Post-acquisition and acquired project matters

1,000

1,000

0.1

Adjusted operating (loss) income

$

5,785

11.9

%

$

(2,617

)

$

65,155

7.1

%

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

Nine Months Ended November 30, 2019

LSO Segment

Corporate

Consolidated

(In thousands)

Operating income

Operating margin

Operating loss

Operating income

Operating margin

Operating income (loss)

$

15,561

23.4

%

$

(9,525

)

$

72,210

6.9

%

Cooperation agreement advisory costs

2,776

2,776

0.3

Acquired project matters

(2,635

)

(2,635

)

(0.3

)

Adjusted operating income (loss)

$

15,561

23.4

%

$

(9,384

)

$

72,351

6.9

%

EBITDA and Adjusted EBITDA

(Unaudited)

Three Months Ended

Nine Months Ended

November 28, 2020

November 30, 2019

November 28, 2020

November 30, 2019

Net earnings

$

37,273

$

15,234

57,807

49,956

Income tax expense

11,447

4,596

18,070

15,677

Interest expense, net

1,502

1,995

4,240

7,176

Other income, net

472

231

684

599

Depreciation and amortization

12,716

11,922

38,000

34,681

EBITDA

$

62,466

$

33,516

117,433

106,891

Gain on sale of building

(19,346

(19,346

COVID-19 (1)

1,372

4,068

Post-acquisition and acquired project matters

(2,635)

1,000

(2,635

Cooperation agreement advisory costs

2,776

2,776

Adjusted EBITDA

$

44,492

$

33,657

$

103,155

$

107,032

(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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