Apogee(US:APOG)2025-10-10 14:00Financial Data and Key Metrics Changes - Net sales increased by 4.6% to $358.2 million, driven by $24.9 million of inorganic sales from the acquisition of UW Solutions [9][11] - Adjusted EBITDA margin decreased to 12.4%, primarily due to lower price and volume, unfavorable mix, and higher material, tariff, and health insurance costs [9][11] - Adjusted diluted EPS declined to $0.98, primarily driven by lower adjusted EBITDA and higher interest expense [9][11] Business Line Data and Key Metrics Changes - Performance Services net sales increased, driven by inorganic sales from UW Solutions and strong organic growth of 18.6% [10][11] - Architectural Services recorded net sales growth and a sequential backlog increase of over $100 million [4][10] - Glass segment net sales declined, with adjusted EBITDA margin moderating due to reduced volume and price from lower end-market demand [10][11] - Metals segment net sales declined slightly, reflecting a less favorable mix, partially offset by higher volume and price [10][11] Market Data and Key Metrics Changes - The competitive environment for glass has not improved, leading to lowered expectations for glass volume and price [5][12] - Higher aluminum costs are expected to pressure pricing and volume in the Metals segment [5][12] - Bid activity for glass business remains up versus last year, but price pressures are impacting volume [5][12] Company Strategy and Development Direction - The company is focused on acquisitions that fit strategic and financial objectives, aiming to add differentiated products and expand geographic reach [7][8] - Project Fortify II actions and tariff mitigation efforts are in place to enhance organizational agility [6][7] - The company aims to drive year-over-year net sales and adjusted EPS growth in the second half of the fiscal year, primarily through Performance Services [6][12] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment over changes impacting guidance but remains optimistic about year-over-year growth in the second half [5][6] - The company is navigating a challenging macroeconomic environment while building a stronger foundation for future growth [6][17] - Management highlighted the importance of maintaining premium product pricing to protect margins despite competitive pressures [34][35] Other Important Information - The One Big Beautiful Bill Act is expected to provide a cash tax benefit primarily impacting fiscal 2026 [12] - The company has a consolidated leverage ratio of 1.5 and no near-term debt maturities, providing flexibility for future opportunities [11] Q&A Session Summary Question: Can you expand on the organic growth in Performance Services? - The strongest growth was seen in UW Solutions, regaining distribution and leveraging cross-selling opportunities [22][23] Question: What is driving the growth in the flooring side of the business? - Demand for flooring products is driven by automation in distribution centers, with significant interest from a global e-commerce retailer [24][25] Question: What is the reason for the increase in services backlog? - The backlog growth was driven by projects in the Northeast and efforts to expand into new markets [26][27] Question: What are the expectations for glass margins in the next two quarters? - Management expects mid-teens EBITDA margins despite competitive pressures [32][33] Question: How much of the lowered guide for metals is due to cost pressure? - The pressure is mainly from higher aluminum costs, impacting pricing and volume [36][37] Question: What is the realistic downside for FY2026 if market conditions worsen? - Continued upward cost pressure on aluminum could impact the EPS guidance range of $3.60 to $3.90 [50][51] Question: How sensitive is the surfaces segment to a potential slowdown? - Any significant slowdown is more likely to impact Q1 rather than Q3, with visibility into retail demand remaining stable [52][53]