Good day, ladies and gentlemen, and welcome to the Apogee Enterprises' Fiscal 2018 Full Year and Q4 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call maybe recorded. I'd now like to turn the conference over to Ms. Mary Ann Jackson. Ma'am, you may begin.

Thank you. Good morning and welcome to the Apogee Enterprises' fiscal 2018 full year and fourth quarter conference call on Thursday, April 12, 2018. With us on the line today are Joe Puishys, CEO; and Jim Porter, CFO. Their remarks will focus on our fiscal 2018 full year and fourth quarter results and our outlook for fiscal 2019 and beyond. During the call, we will discuss non-GAAP financial measures when talking about Apogee’s performance. You can find definitions for these non-GAAP financial measures in our press release. We called out adjusted earnings related to our recent acquisition and restructuring, and tables reconciling non-GAAP financial measures are included in the release. Our call also contains forward-looking statements reflecting management's expectations based on currently available information. Actual results may differ materially. More information about factors that could affect the Apogee's business and financial results can be found in our SEC filings. Joe will discuss Apogee's progress against the strategic transformation in fiscal 2018 and plans for fiscal 2019 and then Jim will cover the results. After they conclude, Joe and Jim will answer your questions. Joe?

Thank you. Good morning, and welcome to Apogee's conference call. Today, after I provide commentary on fiscal 2018 and outlook for fiscal 2019 and beyond, Jim will provide his usual financial detail. Then before I take your questions, I will share my longer-term view of Apogee in the context of the difference in our company today versus the last cycle. Please stay on the call. We finished fiscal 2018 with performance in the fourth quarter that met our expectations, as all four segments delivered on their forecast. In addition in the quarter, we reported higher than projected benefits from the tax reform and active tax planning as usual. For the full year we achieved record revenues, record adjusted earnings per share and generated $127 million in operating cash flow and significantly expanded our backlog in our longer lead time businesses to build momentum as we enter 2019 and beyond. Against this backdrop, in fiscal 2018 we advanced our strategies to diversify revenue streams and strengthen our business in order to deliver shareholder value. Our strategies are centered on growing through new geographies, new products and new markets while improving margins through productivity and project selection initiatives. We've been positioning each of our four segments to achieve new levels of performance. We've strategically focused on Architectural Framing Systems, which is our largest and most profitable architectural segment. The segment now serves more of North America with a broad range of products through our acquisitions and numerous new product introductions in every business unit and we are driving organic expansion into underserved geographies in the United States and Western Canada. Beyond current plans, the Architectural Framing Systems has plenty of runway to continue to grow through new geographies and products into improved margins through ongoing lean event initiatives. We continue to penetrate…

Thanks Joe. Good morning. I’ll start with additional discussion of full year results and then review fourth quarter results in our fiscal 2019 outlook. Fiscal 2018 saw a record revenues for Apogee of 19% to $1.3 billion but down 4% excluding the Sotawall and EFCO framing systems acquisition. We had a decline in architectural services revenues which was largely as expected and driven by timing of project activity which we knew coming into fiscal 2018. Despite growth in midsize projects, architectural glass revenues were down due to lower volume of larger projects and a hurricane related delays. Revenue in our smallest segment Large-Scale Optical were down slightly. Offsetting these declines was 75% revenue growth in architectural framing systems with 9% segment growth excluding the EFCO and Sotawall acquisitions from increased pricing and continued share gains and geographic growth. Gross margin was 25.1% compared to 26.2% in fiscal 2017. The full year operating margin of 8.6% and adjusted operating margin of 10% were down from 11% and 11.2% respectively in the prior-year. Both growth and operating margins were down with reduced volume leverage in architectural services and architectural glass, inclusion of EFCO currently on lower margins, and glasses for shutdown of the architectural glass factory in Utah, all somewhat offset by improved productivity across all segments. Fiscal 2018 earnings per diluted share were $2.76 and adjusted earnings per share were up 7% to record of $3.23. Full-year and fourth-quarter earnings per share reflect net tax benefits of $0.13 per share or $3.7 million resulting from enactment of the Tax Cuts and Jobs Act of December 2017 primarily from a reduction in deferred income tax liabilities. Included in our operating margin and earnings per share adjustments, our acquisition related costs and amortization of short-lived acquired intangibles associated with the acquired backlogs of…

Thanks Jim. Before I take your questions, I'd like to reiterate my positive view of the longer-term outlook for Apogee that is no small part a result of the transformation as a company over the last half decade plus. Seven years ago, Apogee was less than $600 million in revenue and glass was 40% of Apogee and a dominant percent of glass was 12 towers and hence approximately one-third of Apogee was tied in most volatile segment with a non-residential construction. When the end markets crashed, so did we, no surprise and we chased limited work with price, a mistake will never make again. We had weak operations excellence prophecies and no-lean strategies in place. We embarked on an effort to completely reprofile Apogee to focus on more fragmented and higher margin architectural framing systems segment, where we were underserved. To focus our acquisitions in this segment, to gain share, improve our cost structure and build the retrofit selling model and staff it. None of this was at the expense of investing for capability and productivity in our other segments. Today framing systems is more than 50% of Apogee with triple digit operating margin improvement since this journey began - well tripling the operating margin actually. Our acquisitions are smart ones and while inorganic growth comes with challenges, the opportunities are huge and the framing systems runway is significant. At that time, our glass business was up pricing for the technologies we provided, we immediately addressed pricing and began long overdue investments in our factories. As the largest glass fabricator in the United States we were not acting like it. As we had a massive foreign exchange hurdle thrown at us. We loss substantial share in our traditional core markets as well as losing our export base in spite of…

[Operator Instructions] Our first question comes from the line of Sam Eisner with Goldman Sachs. Your line is now open.

So can we just start out with EFCO obviously the guidance for I want to make sure I got this right, I think breakeven for EFCO in fiscal 2019, kind of when you guys are now in the business what's going on maybe you can just give some greater clarity and color on why I guess profit expectation are not kind of matching up to what was originally thought?

Sam primarily the large projects they embarked on a couple of years prior to or during the couple of years before they divested the company they got out from their skies in areas that they weren't familiar with on large curtainwall projects. They in hindsight underestimated the cost and execution complexities of that as we've got more involved in the business in the second half of calendar year 2017. We realized that the problems were more substantial than we learned in due diligence that's our fault. We put the resources in place as these projects revenue throughout fiscal 2019 we’re going to feel the force the force of a lot of no margin work. The most complex work we have moved to our services’ segment to execute and we feel good about that and we’ve put resources into EFCO to help them migrate to the kind of business they should be and to have them focused on what they've always been good at which is window work. And as I mentioned in my comments, I put it a new President in. He has been one of our named executive officers at Apogee in running our operational program. He is just what the doctor ordered and I like the turnaround I’m seeing. You heard it before but Sam I feel we've uncovered all the surprises and I'm confident now from a new starting point our journey can begin. I think the work we’ve seen a real uptick in work in the last few months. There is definitely a downward slope to their order - their inbound order work. These large projects that we’re contributing to poor financial performance we’re contributing to lack of attention to their core business. We've rectified that after several months we began to see the work return. We’ve improved our quality and delivery and continue to do so and I'm confident that the second half of the year will be better. We’ll have most of these large projects behind us after the end of fiscal 2019.

And maybe going to kind of bridging that over to the guidance for fiscal 2019. So I think the implied midpoint of your EBIT margin or operating profit margin let’s call it 9.3/9.4. You did 10 this year so down about 60/70 basis points. You know three months ago you guys were saying triple digit basis point margin expansion so there is swing there in a three month period of roughly 160 basis points and so I’m curious is there way to breakdown what has changed in the guidance over the last three months, how much is related to EFCO of the 160 how much is related to inflation, how much is related to competition if there is kind of large buckets that you can provide us I think that will be helpful?

The primary bucket is a change from an expectation that we are having of improving EFCO to be mid single-digit operating margin to be in breakeven. And really from the visibility of the initiative that we identified the time that it is going to take for those to flow into the business and the ability to ramp that up is really the top and most important difference between that ability to get that improvement.

And maybe if I can just sneak one more in. Jim you mentioned the comment about inflationary environments and competition and that could be a risk. When you guys look back and perhaps audit what you guys have seen over the last cycle, when you see intense inflation that you guys are experiencing now across all those various cost buckets. Do you see competitive dynamics I guess why provide that commentary about the risk I guess have you seen it in the past or is that just something that you have to highlight?

First of all if I tell you right now the last 60 days the spread between our price and material cost in our shorter lead time aluminum business is actually better than a year ago. So, so far we've been able to offset there has been a lot of movement recently on the primary risk factors aluminum and the London Metal Exchange has been down. The Midwest premium has been up there has been a lot of noise it was somewhat the de minimis. The recent conversations around the Russian oligarchs really did turn a little more turmoil but we've been able to continue to price to offset the inflation in our aluminum site. It would be foolish to not highlight risk, we do not intend to turn our tax reform benefit into lower pricing but Sam we had lot of competitors that aren’t public company. So that's always a risk that folks don't follow the pricing model Jim mentioned it. There has been greater industry intelligence in addressing input costs in the form of price decisions. So this is not been the historical case, it has been for the last couple years. We feel the risk is not significant, but we felt we had to point it out. I think the trend has been pricing keeping up with it and we built our plan around some of that happening.

And I’ll just echo one of the points that Joe made. The risk is primarily that the framing system segment and primarily of aluminum more so than the other factors. And as Joe said, over the last two years we’ve seen the industry be quite disciplined in terms of pricing and we continue to from what we can manage or expect that. As Joe said if you look historically the industry tended to be a bit slow to adjust pricing to inflationary pressures but our expectation would be that what we’ve seen in the last two years continued.

And Sam I’ll add for you and the rest of the audience, most of the aluminum we buy is from exempt countries. So when the tariffs were first announced there is alarm for everyone we all expected it to be actually directed at one country that's primarily coming to fruition. The only countries in our supply chain that had not been exempted we expect to be exempted very soon. So from the tariff perspective, we feel very limited risks. I’m more concerned about the global supply I think you're all well aware how much the United States imports. So I think that some folks would try take advantage of the rhetoric that's going on, but the reality of matter is the tariffs do not affect most of our of our supplying countries Sam.

Our next question comes from the line of Chris Moore of CJS Securities. Your line is now open.

Maybe we could start on the services. So the - I think the target operating margin was 6.5%. Is that being impacted at all by the EFCO 70 million in EFCO business that's coming into services?

Yes, a little bit so they do they will have a relatively small amount of revenues may be 10% of their revenues are going to be lower margins than their overall exhibited.

If you look at the backlog just kind of on a - put into two buckets between fiscal 2019 and fiscal 2020, can you give a kind of rough split?

Are you talking about in terms of how much of the backlog is expected to go fiscal 2019 versus 2020?

Correct.

Yes, I think about two-thirds of it is fiscal 2019 and about one-third is fiscal 2020 and beyond.

Chris, a fourth point I’ll add is virtually all of fiscal 2019 plan revenues in that segment are in hand. Now this is the first year in a long time where we literally don't have book and bill requirements to achieve our plan in that business it’s quite de minimis usually every year you enter with some blue sky where you have to win work and revenue some of it in the year. The business is for the most part fully revenued for fiscal 2019 so it really does bode well for that business. And in the glass business even though the recent quarters have been down as Jim mentioned second, third and fourth quarter we’ll see year-over-year revenue growth. And I mentioned in my comment that in glass where the percentage of work we have in hand to support 20, the current year revenues is 25% higher than where we stood last year. So once again we’re far less dependent on book and bill in the same year in the glass business as well.

That 25% - that just this four or five levels that you’ve talked about overall in terms of from back…

We’ve always shied away from adding more non-GAAP metrics but if you add the book backlog to awards we’re up about 25% over the prior year. We also have work we have verbally been given or we feel we’ve won the projects going forward with somebody we’re the sole glass bidder and we have work we’re bidding those four levels of visibility often talk about. The first two are the most concrete and that's when I’m talking about when I say we’re 25% ahead of last year.

And on the glass side you’re talking about one of the things expanding into broader architectural glass markets. Can you just talk about little bit further?

Yes, a bit more work in the interiors world where we’ve been underserved. There’s the outside skin of the building. And then today's, most modern building is going up. There's a lot more interior glass and years ago glass partition, glass railing, glass walls versus the traditional cubicles and we believe we can have larger share of that. And being more competitive in the - as we move downstream in the mid and smaller projects world.

And would you anticipate the margins there or relatively the same as on the outside or is …?

The margins on the interiors versus margins on the outside, yes, I don’t see, there’s no margins difference there. The smaller projects as you move downstream obviously the complexity the glass that may only have a single silver coating may not be heat treated. They are at lower price point and - but we believe we can achieve similar margins with our continued productivity and efficiency in automation investments.

Our next question comes from the line of Eric Stine of Craig Hallum. Your line is now open.

So, just wanted to start with glass, I know especially last call you called out increased competition in midsize projects. In your commentary here, really does not discuss that it all. So, I mean, just curious, have you seen that ease it all or do you feel like, I mean is that just a nod to you know that's going to be the current environment and you expect that to persist going forward and you factor that in your outlook?

Yes. Eric, I’ll try to address today. I admit, I did a poor job last quarter, I guess, it came out more price competition. That was not true. But today what I’m explaining, as we move to offset the losses on our larger projects and had a substantial growth in our share in the mid market segment, the margins were equally attracted as the large projects. And that was the case for all of F 2017 and halfway into F 2018 and we made the largest gain in our share in the mid market, meaning smaller projects in fiscal 2017 where we had record earnings and record operating margin. That trend continued into 2018. It's the middle of the year we started to kind of hit a wall on share gain. We weren’t losing any share in the mid market, but we ran into a wall of gaining more. We were tapped into a lot of the market. So we moved downstream even further to the less complex project. It doesn't mean we had lower prices, but we are now playing in a world where the glass content was less value-added. The competitors has been necessarily lower price either but it’s more competitive space. We continue to win share in that space, but it came at lower margins and we ramped up our efforts to be more cost competitive to get back to the same kinds of margin in that business. Unfortunately we continue to lose revenues in the large projects. Frankly it was revenues that were loss to the award a few years earlier, but that trend has turned around so we feel good. So, Eric, I hope I explain it better today with regards to - it wasn’t so much more competition as us continuing to step downstream in the less complex projects.

I mean, just sticking there, obviously - well in the past in terms of the euro you've talked about 120 is kind of being a key level, and I know it's fairly recent you know the situation now, you’re starting to see some regaining of share there. Is that something that you feel like has some legs?

I do.

Okay.

I do. You know, some of the largest installers in the country were the first to try to save a dollar by going offshore fatigue definitely set in. We had great competitors around the world along logistics supply chain on one percent of the construction cost of the building is a very risky model and it comes with unanticipated cost downsides that aren’t easily attributed back to the glass per se. But as our valued customers experienced all the efficacies of that long logistics supply chain, they started coming backward, frankly, even before the currency move to our favor. So, the same people I didn’t give up work for a few years have been bidding with us again and avoiding this work. And we won some projects against international players recently where we just couldn't be competitive at $1.05 per euro just two and a half years ago. So yes, I do feel there are legs on this and - but we’re running our business model will not be dependent on things beyond our control like currencies and hence our continued investments in our - to bring our cost structure down in our glass factories.

Last question from me just on framing, I know you’re talking about expanding that - well, from a product perspective also geographic perspective, I mean how do you - as we think about that going forward I mean, how do you see that breaking down organically versus by acquisition?

Yes. Let me be clear. We’re not looking to do acquisitions. Our focus is on EFCO. Our focus is on improving all of our businesses. Jim and I will continue to keep our eyes out there. We’ll keep irons in the fire. But there we will not be looking at inorganic growth in our framing system business for the foreseeable future. I’m not going to tip my hands to my competitors. Where we’re going, but let me just say we have a lot of runway in the United States with geographic opportunities in framing systems as well as in Canada.

[Operator Instructions] Our next question comes from the line of Brent Thielman with D.A. Davidson. Your line is now open.

Maybe on the glass side, Joe, do you still expect to grow in the midsize market in fiscal 2019 or is that going to take a backseat kind of topline headwind as you shift more towards kind of large project?

No. We have capacity to grow. We expect to continue to see upward movement in the midsize segment. We don’t feel that we’re tapped out. And frankly, if you went back to the last downturn which we don’t ever expect to see prices like that, but our glass business, Viracon tried, because the large project evaporated. There was one large project in the United States back then it was World Trade Center. Our business - the company tried to penetrate that market and failed miserably because they didn’t have the operational footprint to deliver in the four to five weeks that that segment requires. Our DNA was 15-week lead times for large projects. Today and for the last several years we virtually ship every single order in five weeks today consistently, because we put the automation in place and some of you have visited our factories. There’s a lot more automation and less material handling and it’s become our core model. So we’re capable of competing in that market. We’re also capable of continuing to fix our cost structure, so that our margins can continue to be at high levels they’ve been.

And just to emphasize Brent, along those lines which is with the improvement that we've made in the operating model in that business, it isn’t a poor situation of large projects or midsize or adjacencies. We really have the capabilities and continue work on the cost structure to do all of those.

And then the order activity you’re seeing in large project, is it back at through the pricing or margin level as you’d expect from this? This sort of job you were seeing at least few years ago?

Yes. The bidding activity is that - at good margins. There’s nothing going on. We haven’t seen any downward track in pricing or margins. I would tell you, I think in the large project, the term I would use is the end market continues to bump along the top. There’s no question - the large price are up there. I do not believe they are peaking. I think we’re going to continue to bump along the top for the foreseeable future. I think the mid, small, upper mid market will continue to grow on a reasonably small slope, but they will grow, but I think the large projects. I feel good that we’ll continue to bump along this high level of work in the large project for the foreseeable future. And what doesn’t always get captured in nonresidential is the continued strength in the multifamily high-rise buildings which for all intent and purposes is non-resi from our workload. Apartments and condos which we have a much bigger play in now with our business model as we continue to see the generation of new home buyers moving into cities instead of the countryside this bodes well for our company frankly and we’re seeing that trend help to offset any other potential downturn. So I see it bumping along the top for sometime in large projects and continue growth in the mid and small projects.

On EFCO, Joe obviously the transaction hasn’t played out as you initially planned and that was I mean since we’re looking at additional delays and kind of get into the targeted margin. So I guess, yes I'm looking for any sort of additional color that you’ve got that helped us feel like the risk is appropriately reflected here?

I feel the risk is appropriate reflected here for EFCO. We definitely had more surprises then we wanted and you expected that’s on us we said it today. We’ll believe we've now identified everything that we could with the business - it was a challenge. I got a new leader down there who is doing a phenomenal job. I'll be with the entire selling organization of EFCO tonight and tomorrow. And like I said, I'm pleased with the turnaround and order profile. We’ve got the right leaders in place. We’ve taken the problems and put them in the hands of talented people in our company that have been managing large massive projects for a long time. They get out in front of their skies we didn't pick up how far out they were. We now know I believe we are our F '19 guidance reflects the full risk that business had.

Brent, I’ll just give you a couple of perspectives I mean since we put our - the current leader down there a little over 60 days ago. Some of the learnings for example, we’ve talked about low hanging fruit in procurement and we've got meaningful savings identified. What we underestimated was in some cases maybe a spec change needed to be made to be able to flow that material in or finishing existing projects that have been started. And so delay in terms we’ve been able to see those and some of that process improvements on the shop floor we identified some modest cost equipment that was needed. We placed orders for equipment and those types of things. So we have a tangible great list of initiative as I articulated it just going to be put into place later than we really anticipated.

And lastly and similar of follow on to that I mean, I think if you go back over time and I think about your guidance practices and trying to be transparent with where you want to be from a financial perspective. You’ve done a great job, I think it easy for folks to kind of look recent history of guidance and be a bit skeptical about what we're talking about today. So I guess a two-part question be one, have you changed any processes in terms of how you're approaching and thinking about guidance. And two, quite frankly I mean sub 5% EBIT growth based on adjusted basis seems pretty conservative to me. I mean can you comment on that at least?

I’ll comment on it Brent, it’s we put - we’re not going to get out in front of our skis, I believe we've got a plan that we will hit and I can assure you we will continue to work our backside loft to not disappoint. I’m not going to go through another fiscal 2018.

We always look at risk and opportunities in the business as we come up with our outlook and I think we're taking a probably letting their risk aspect to approach guidance a little bit more.

Thank you. Ladies and gentlemen, this concludes today’s question-and-answer session. I would like to turn the conference back over to Joe Puishys for closing remarks.

Yes, Takia thank you. And I apologize if you were in the queue to ask a question, I will not ignore you please reach out to Mary Ann, Jim or myself. You know how to reach us. We will talk to you - apologize a lot of questions today and I certainly talk a lot more than normal. So I am going to wrap up now and just tell you, we look forward to a very solid year. I hope we got a message across more clearly today and now we’ll talk you all soon. Thank you very much.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes today’s program. You may now disconnect. Everyone have a great day.