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Apogee(APOG) - 2023 Q3 - Quarterly Report

PART I Financial Information Financial Statements The unaudited consolidated financial statements detail the company's financial position, operations, and cash flows Consolidated Balance Sheets Total assets increased to $918.4 million, driven by higher receivables and a rise in long-term debt | Balance Sheet Items (In thousands) | November 26, 2022 | February 26, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $21,746 | $37,583 | | Receivables, net | $222,554 | $168,592 | | Total current assets | $396,690 | $337,892 | | Total assets | $918,446 | $887,863 | | Long-term debt | $203,735 | $162,000 | | Total liabilities | $540,808 | $501,664 | | Total shareholders' equity | $377,638 | $386,199 | Consolidated Results of Operations The company reported significant year-over-year growth in net sales and profitability for Q3 and the nine-month period | Metric (In thousands, except EPS) | Q3 FY2023 (ended Nov 26, 2022) | Q3 FY2022 (ended Nov 27, 2021) | YoY Change | | :--- | :--- | :--- | :--- | | Net sales | $367,847 | $334,217 | +10.1% | | Gross profit | $86,608 | $64,680 | +34.0% | | Operating income | $34,761 | $17,710 | +96.3% | | Net earnings | $23,765 | $11,057 | +115.0% | | Diluted EPS | $1.07 | $0.44 | +143.2% | | Metric (In thousands, except EPS) | Nine Months FY2023 (ended Nov 26, 2022) | Nine Months FY2022 (ended Nov 27, 2021) | YoY Change | | :--- | :--- | :--- | :--- | | Net sales | $1,096,591 | $986,020 | +11.2% | | Gross profit | $257,161 | $180,393 | +42.6% | | Operating income | $100,049 | $30,684 | +226.0% | | Net earnings | $83,885 | $19,759 | +324.5% | | Diluted EPS | $3.74 | $0.78 | +379.5% | Consolidated Statements of Cash Flows Operating cash flow decreased due to working capital needs, while financing activities funded share repurchases and dividends | Cash Flow Activity (In thousands) | Nine Months Ended Nov 26, 2022 | Nine Months Ended Nov 27, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51,112 | $86,291 | | Net cash used by investing activities | ($11,984) | ($11,647) | | Net cash used by financing activities | ($51,597) | ($43,994) | | (Decrease) increase in cash | ($12,469) | $30,650 | - Financing activities included $74.3 million for share repurchases and $14.4 million for dividends paid during the first nine months of fiscal 202315 Notes to Consolidated Financial Statements Key disclosures include a segment reporting change, a backlog of $861.4 million, a significant tax benefit, and a pending legal award - Effective at the start of fiscal 2023, the Sotawall business was moved from the Architectural Framing Systems segment to the Architectural Services segment23 - As of November 26, 2022, the company had $861.4 million in unsatisfied performance obligations (backlog), with $493.3 million expected to be recognized as revenue within one year30 - In Q2 FY2023, the company claimed a worthless stock loss deduction related to its investment in Sotawall Limited, generating a net tax benefit of $13.7 million81 - In December 2022, a claimant in an arbitration was awarded $20 million against the company, which the company intends to appeal74 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses strong Q3 FY2023 sales growth driven by pricing, improved margins, segment performance, and an updated outlook Overview and Results of Operations A new enterprise strategy contributed to a 10.1% sales increase and significant margin expansion in the third quarter - The company's new enterprise strategy focuses on three key elements: becoming the economic leader in target markets, actively managing the portfolio to drive higher margins, and strengthening core capabilities9697 | Metric (% of Net Sales) | Q3 FY2023 | Q3 FY2022 | | :--- | :--- | :--- | | Gross profit | 23.5% | 19.4% | | Operating income | 9.4% | 5.3% | | Net earnings | 6.5% | 3.3% | Segment Analysis Segment performance varied, with strong growth in Architectural Framing Systems and a profit turnaround in Architectural Glass - Architectural Framing Systems: Q3 net sales increased 16.6% to $165.0 million, and operating margin expanded to 13.4% from 8.5% YoY, driven by inflation-related pricing actions105106 - Architectural Services: Q3 net sales decreased 3.2% to $102.0 million, with operating margin contracting to 5.9% from 7.4% YoY, reflecting lower profitability on legacy Sotawall projects108109 - Architectural Glass: Q3 net sales grew 9.8% to $81.5 million, and the segment reported operating income of $7.5 million compared to a loss of $1.3 million YoY, due to improved pricing and productivity110111112 - Large-Scale Optical (LSO): Q3 net sales decreased 2.5% to $26.7 million, but operating margin increased to 26.7% from 21.9% YoY, aided by a non-recurring property tax adjustment113114 Liquidity and Capital Resources The company maintains a solid liquidity position, having amended its credit facility while continuing share repurchases - Net cash from operations decreased to $51.1 million for the first nine months of FY2023 from $86.3 million in the prior year, due to increased working capital116 - The company repurchased 1,571,139 shares for $74.3 million in the first nine months of FY2023, with 1,253,399 shares remaining authorized for repurchase118 - During Q2, the company amended its revolving credit facility, increasing it to $385 million with a maturity of August 2027, and used borrowings to repay its $150 million term loan119 Outlook The company narrowed its full-year guidance, projecting adjusted EPS between $3.90 and $4.05 and revenue growth of approximately 10% | Full-Year FY2023 Guidance | Value | | :--- | :--- | | Adjusted EPS | $3.90 to $4.05 | | Revenue Growth | ~10% | | Capital Expenditures | ~$40 million | Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the company's market risk since the previous fiscal year-end - There have been no material changes in market risk since February 26, 2022131 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The Chief Executive Officer and Interim Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the evaluation date132 - No changes occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting132 PART II Other Information Legal Proceedings The company is appealing a $20 million arbitration award which it believes will not have a material adverse effect - In December 2022, an arbitration claimant was awarded $20 million related to a commercial sealant product claim133 - The Company plans to appeal the award and believes it will not have a material adverse effect on its financial condition, results of operations, or cash flows133 Risk Factors No material changes or additions to previously disclosed risk factors were reported for the quarter - No material changes or additions to risk factors were reported for the quarter134 Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased during the third quarter, with 1,253,399 shares remaining under the repurchase authorization - No shares were purchased pursuant to the publicly announced repurchase program during the third fiscal quarter135136 - As of November 26, 2022, the company has authorization to repurchase an additional 1,253,399 shares136 Exhibits This section lists exhibits filed with the Form 10-Q, including required CEO and CFO certifications and iXBRL data