Ladies and gentlemen, thank you for standing by, and welcome to the Apogee fiscal 2020 fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you need to press star, one on your telephone. If you require any further assistance, please press star then zero. I would now like to turn over the conference to Jeff Huebschen. You may begin.

Thank you Kevin. Good morning and welcome to Apogee Enterprises’ fiscal 2020 fourth quarter earnings call. With me today are Joe Puishys, Apogee’s Chief Executive Officer, and Jim Porter, Chief Financial Officer. I’d like to remind everyone that there are slides to accompany today’s remarks, which are available in the Investor Relations section of Apogee’s website. During this call, we will reference certain non-GAAP financial measures. Definitions of these non-GAAP measures and a reconciliation to the nearest GAAP measures is provided in the earnings release we issued this morning, which is also available on our website. I’d like to remind everyone that our call will contain forward-looking statements, reflecting management’s expectations which are based on currently available information. Actual results may differ materially. More information about factors that could affect Apogee’s business and financial results can be found in our SEC filings. With that, I’ll turn the call over to you, Joe.

All right, thanks Jeff, and thank you everyone for joining us this morning. I hope all of you, your families, and your colleagues are safe and healthy during these challenging times. I’m going to make a few comments about our fourth quarter and how we closed fiscal 2020, and then I’ll spend some time updating you about the events that have happened since the end of our fourth quarter and how Apogee is responding to the COVID-19 crisis and its potential impact on our business. Jim will provide some additional details around the results and our financial condition, and then I will take your questions. Let me start with the fourth quarter results. We ended the fiscal year with a solid quarter with earnings above our guidance range, led by continued strong performance in architectural services segment, yet all of our businesses met or exceeded expectations, and we also benefited from some favorable discrete tax items in the quarter. We continued to win new business and expand our backlog. Architectural services grew its backlog by over $50 million to a new record of $660 million to end the year. Backlog also increased 14% in architectural framing systems, and order flow in our short lead time U.S. framing businesses remained strong as well. Cash flow was particularly strong in the quarter. Jim will provide more details on our financial condition, yet I’d like to highlight the year-over-year increase in cash flow from operations and free cash flow, where we delivered over $50 million of operating cash flow in the quarter. We use this cash to continue our balanced capital deployment approach, investing in our business, returning cash to shareholders, and very importantly reducing our debt. I’d also like to point out that we took action to provide further financial flexibility by…

Thanks Joe, and good morning everyone. To start, I’d like to echo Joe in extending my sincere gratitude to all of Apogee’s employees as we’ve come together to deal with the effects of the COVID-19 epidemic. All of you should be proud of what we have accomplished to keep our facilities safe and operational, so that we can continue to serve our customers and support critical construction projects. Turning to the quarter, our consolidated results are on Page 7 of our earnings presentation. Total revenue came in at $337 million, down from last year’s fourth quarter as we had expected, primarily due to lower sales in architectural framing systems and architectural glass, partially offset by increased revenue in architectural services. Operating margin was 4.6% compared to negative 4.3% in last year’s fourth quarter. The prior year quarter included project-related charges and an impairment charge. On an adjusted basis, fourth quarter operating margin was 5.2% compared to 9% in the prior year. Adjusted EBITDA was $29.8 million compared to $42.4 million in last year’s fourth quarter, primarily reflecting the lower revenue and lower margins in architectural framing systems and architectural glass. Net interest in other expense decreased to $1.5 million with lower debt balances and the lower effective interest rate resulting from the debt refinancing we completed earlier in the fiscal year. The tax rate of 15.3% was down from last year’s level as we benefited from the reduction in state tax reserves and some discrete tax matters. Finally, our diluted share count came down to 26.7 million shares from 27.1 million last year, primarily due to our share repurchases over the past year. Putting this all together, earnings were $0.45 per diluted share in the quarter and $2.32 for the full year. On an adjusted basis, fourth quarter earnings were…

All right, thanks Jim. Even as the last several weeks have presented challenges that none of us anticipated, I’ve been encouraged by what I have seen, both here at Apogee and across the markets where we operate in the U.S., Canada and Brazil. People are coming together to find their way through this COVID-19 crisis, and I am certainly proud that Apogee has been able to play a key role in supporting these efforts. Again, I want to emphasize that ensuring the health and safety of our employees is our top priority during this time, and I am grateful for everything our team is doing to serve our customers in that environment. We’re certainly dealing with a period of unprecedented uncertainty, but there will be light ahead and I am very confident that together we will emerge from this situation poised for great success. As soon as we have more clarity about how the COVID-19 pandemic will play out and how it will impact our business, we will look forward to providing updated guidance and financial targets for fiscal 2021 as rapidly as possible. Thank you again to all our employees, customers, suppliers, and other business partners for your contributions at this time. With that, I’d like to open up for your questions, so Kevin, if you could inform the audience how to ask questions. Thank you.

[Operator instructions] Our first question comes from Chris Moore with CJS.

Hey, good morning guys. Maybe just start on framing. You had talked about the short lead time framing orders still look like they’re relatively strong. Can you just maybe remind us in terms of the breakdown on framing from kind of short lead time to the more longer lead time curtainwall, window stuff?

Yes, it’s about 50/50, Chris, between book and bill in the quarter and quarters that take longer than that, so about 50/50.

Got you. From where you’re sitting today, if you look at the three architectural segments, which of those probably has the most uncertainty near term?

Well, all of them have uncertainty, like everyone, but I mentioned the CISA guidelines - you all know what CISA is nowadays. I’d just give you one example - Viracon, our glass business, alone has orders in the current pipeline. Those orders, firm orders to be shipped over the next eight weeks for 56 hospitals in 20 different states. We have an equal number of healthcare projects in the future, and that’s just Viracon. Our other businesses support hospitals and healthcare as well. We are feeling really good about the architectural businesses right now, but of course as a nation, we all worry about what’s next, but so far, so good.

Got it, appreciate that. In terms of the $30 million to $40 million annual cost savings, just trying to get a little better sense of timing. Is the goal to be at that run rate by the end of fiscal ’21? Trying to understand that--

Absolutely. Our team is working on contingency plans, how to even amp that up in the event that if volume does contract this year for our industry, how we can continue to drive additional savings. But we still very, very good about--you know, the procurement savings are identified. Our outside partner has completed their work. As Jim highlighted, I hired a new Chief Procurement Officer who fully owns the execution of the project, and this is not blue sky. We have identified by part number across our company where the savings are, so we feel very good about it. That is the end of the year run rate, but again this year there is substantial impact in the fiscal year as well.

Got it. Last question from me on LSO, so it sounds like you only probably had 15 days worth of business so far in the quarter. Are the LSO orders, do they tend to be kind of back half loaded in the quarter? Is there any pattern there?

First quarter is always a low quarter because it follows the holiday buy-out in Q4, so that’s the good news. The facilities are in states that have--one facility closure is until the end of April, the other one, the closure is only until April 10 - that’s one in Minnesota, and the one that possible could open sooner. But the reality is it’s my expectation that the month of April will be--both facilities will be closed. We have inventory to ship for our customers. I expect that market to rebound nicely; in fact, many of the arts and crafts stores in that industry are seeing a booming business right now as people are looking for things to in their house, realizing the things they could cover with our amazing product for custom framing, so I’m confident of a strong rebound. As you know, that is an amazing marketing juggernaut, our LSO business, and they know how to address costs, so they are working on substantial cost actions as we speak.

And Chris, you were asking a bit about order trends. In the last 10 days as many of our retail customers have had to close, we have seen a significant drop-off in the order activity.

Got it, makes sense. I appreciate it guys. I’ll jump back in line.

Thanks Chris, talk to you later.

Our next question comes from Eric Stine with Craig Hallum.

Hi Joe, hi Jim. Good morning. Just would love your thoughts, you touched on this a little bit, but in terms of nationwide in construction, it seems like it’s pretty hit or miss. Some areas that have said no construction can move forward, but the vast majority, it’s as much as it can be business as usual. So, would love to just get your thoughts on where your businesses are strongest, most exposed to, and in those markets what are you seeing in terms of projects being able to move forward or where they’re just putting a moratorium on any construction activity.

Eric, thanks, good question. In most states, construction and the related activities have been deemed essential. Overall, the situation is surprisingly normal. All of Apogee’s architectural businesses are operating and shipping product under the prime directive of taking the precautions to ensure health and safety of our workforce. In a few markets, there are more limitations on construction activity. They, frankly, happen to be where we’re not that strong, and there has been some project slowing down or put on temporary hold, and we’re working closely with those customers. Sure, we’ll see some negative impact in the near future, but the word I would use is construction activity is surprisingly normal right now. In fact, at the end of the day, I’m hoping that this crisis will make folks realize that long logistic supply chains can be dangerous and there’s nothing like home cooking.

As Joe said, generally things are moving forward. We don’t have any geographic concentration across our total company. We’ll see individual businesses that maybe have some aspects, like the Boston market has been a little bit more significant in terms of its impact, and San Francisco on a more spotty basis, but overall we don’t have any geographic concentration in any of those areas.

Okay, got it. Maybe just turning to backlog, it doesn’t sound like it but just to confirm, so no cancellations in backlog - I mean, maybe some shifting in timing. It goes way back, but using the past as a guide, is this something that you would expect it to have to go on for quite some time before you start to see cancellations, or what’s your thought process on that?

We’ve had a very small number of cancellations. I don’t think anything out of backlog. It was out of our awards. One was a Carnival Cruise Line project, if I’m not mistaken - is that right, Jim? No surprise there. Some delays, but the pipeline remains robust and our longest lead time business, our services segment is having another strong quarter. I forecast and expect that backlog will increase in Q1 in services, which is our longest lead time.

Got it, okay. Last one from me, you mentioned just capex, that you are doing whatever--only what is deemed absolutely necessary. Can you just frame that or remind us on maintenance capex--

Capex is frozen except for safety and maintenance right at this time. Even good productivity projects, we’ll wait and see.

Yes, and that level of maintenance capital is in the $15 million to $20 million range for the year.

Okay, very helpful. Thanks a lot.

Our next question comes from Brent Thielman with DA Davidson.

Thanks, good morning.

Hey Brent.

I just wanted to come back to LSO. You mentioned it sounds like you are shipping a little bit here from inventory. I understand the fact that the facilities and retailers are set. Can you guys give us any sort of feel for the gravity of the decline in March? Just trying to kind of bake in the short-term sales impact here or some expectation around it.

Again, March we had, I think Eric or Chris mentioned, probably 15 days of traditional order volumes. It’s dropping off precipitously because most of the customers for that segment, retailers and independent custom framers are shut down at this time, so we’re not going to do March results on the phone but that business is being hit pretty heavily. I expect April will be an equally soft month, and we’re hoping to come back online for the month of May, but again that’s--and I’m hoping and projecting that when we do come back and the stores open, they’ll see robust business. But, it will definitely be the most impacted business in Q1.

Yes, okay. Sure, understood.

Brent, I would also say that we’re obviously taking cost actions, not just in LSO but across the company. It’s surprising how much money you save when you’re not traveling, you’re not in hotels, you’re not having food at restaurants, etc. As a business, some day when the world comes back to some sense of normalcy, I don’t want a business where we’re never visiting our customers, but the favorable cost implications of this situation is fairly substantial.

Joe, to that point, the margins were really high here in the February quarter, even for that business. Was there some component of that to the quarter?

Yes. Cost? Yes.

Okay. Joe, we’ve heard a lot from other contractors, costs were up to keep people safe in the field, which is obviously critical. I suspect that’s true for your services business here kind of going forward. How do we think about that impact? The margins have been fantastic in that business, but how do we think of that impact to margins here in the near term, as I’m sure you’re doing the same?

Brent, it’s Jim. At this point, it’s still evolving as we speak. On the services side of the business, out in the field there is a pretty fair degree of social distancing by its nature that already takes place on these job sites. There’s a little bit of inefficiency in terms of managing how many people can go up the construction elevator at a time, some different aspects like that, but at this point we don’t see it to be a material impact. But it evolves day by day in terms of what specific job site or general contractor requirements are in terms of the workplace environment, so it’s not material at this time.

Construction workers are just as worried about the health of themselves and their families as every other citizen, but they’re a pretty tough lot and if you’re hanging off the side of a building 50 stories up, you know how to handle fear and toughness, so we’re making sure these folks are wearing proper face masks when they’re in an elevator, if needed, but so far--again, the workers have been pretty amazing.

Okay. Joe, just on the backlog for either segment, but I guess thinking about the longer lead times in services, can you remind me or talk about how much of that gets awarded prior to a job starting construction altogether?

Meaning awarded to us before there’s a hole in the ground?

That’s right.

Well, that would be more our glass segment, where we get specified before even a GC has been selected. Again, our orders in our glass business and awards remain normal. Our services segment, our installation business sees an order, there’s already a hole in the ground, and as we said, we’re seeing those projects continue. I think inevitable as this crisis drags on, projects that haven’t started construction will probably see a 30 to 90-day delay, but that hasn’t impacted our business yet.

Okay, that’s helpful. Maybe this one is for you, Jim. I saw you were able to push the maturity on the $150 million in term debt out a year. You get $15 million in cash today, I’m sure you’ll generate some cash this year. Maybe just discuss your options for addressing that. It’s a year away, but not that long away.

Yes, just in terms of our capital structure, as you can imagine, actually we were actively working with our bank group on an extension of the term loan and were actually, up until about three weeks ago, working on a three-year extension to that term loan before the credit markets really got disrupted. But that said, we really do believe--I mean, we generally--receivables is our key working capital component. Generally even if things do slow down, we harvest a significant amount of cash, we have lien rights on all of our projects, so we feel good about our liquidity and our cash flow. But that said, as things calm down in the credit markets, we’ll continue to evaluate capital structure options and looking at how we might want to structure things for the longer term.

Okay guys, thanks for taking the questions.

Our next question comes from Julio Romero with Sidoti & Company.

Hey, good morning everyone.

Morning Julio.

Just taking a step back, what are your thoughts on how this environment could potentially drive a structural change to office construction demand in the long term, given the acceleration in maybe folks working from home?

Unknown. I feel it’s too early to understand if there will be a, as you say, structural change in our end markets. Will the office sector slow down under work from home? I don’t think so. I think ultimately people to need to do their jobs. I want my people back in the office as soon as possible. We’re more effective, leaders are more effective, so I think that will continue. We continue to evolve as a service economy, and I think that bodes well for the office sector as well, and of course healthcare and education, I believe will continue to boom. I also hope that this situation leads to a little bit more resiliency or reliance on U.S.-based partners in this country and we’re able to respond faster than anyone else, and I’m hoping that turns the tide a little bit for us.

We entered this period, Julio, and where we’ve been really through this cycle, is a very balanced environment in office sector, in terms of the balance between employment growth and new square footage coming online, so that’s really important, and very little spec building . Even as of today, the professional business services employment levels have pretty much maintained. Then in terms of the longer term trends, as Joe said, it’s really uncertain whether you’re going to see any structural change in terms of increased work from home. I don’t expect that. The sector that has already been maybe under a little pressure is that co-working space, but just a reminder, that’s a very small, like 2% of total office utilization. In the current environment, we don’t expect a significant structural change.

Understood. I really appreciate the color you gave there. In fiscal ’20, I know you had a step-up in corporate costs that you did call out around the time last year that it happened. I know there was a lot of uncertainty, but is there any way to maybe think about what a fair estimate for that dollar amount in fiscal ’21 would be?

In terms of the corporate costs?

Correct.

You know, we would expect that to come down a bit. We had a few million dollars of higher legal and consulting fees in fiscal ’20 that we would expect to largely go away.

Helpful. Appreciate the color, and stay safe and healthy. Thank you.

Thanks Julio.

Our next question comes from Barry Haimes with Sage Asset Management.

Good morning, thanks for taking my questions. I had just a couple of questions around working capital--sorry, free cash flow. You mentioned the $15 million to $20 million for maintenance capex. Just curious if before this whole COVID situation hit, if you had what your normal capex budget would have been, just to get a flavor for what a normal year capex number for this year might have been. Second question, working capital I’m guessing was a source in the last fiscal year, if so, how much? And again ex the virus, if we were just looking at your normal budget, would working capital be a source use or a neutral for the new fiscal year? Thanks.

I’ll answer the capex number, Jim will answer your source F20. We would have been guiding in the $55 million range, probably $50 million to $60 million range for capex in fiscal ’20, trying to work towards the lower end of that range. We’ve made some pretty big investments in glass recently and other segments, so let’s just say in the $50 million to $55 million range, it would have been.

From a working capital perspective, I guess the key answer for fiscal ’20 and fiscal ’19, we actually had a favorable working capital environment but it was somewhat offset by negative working capital required to service the acquired projects work that was happening. As we look to fiscal ’21, our expectations were to see a favorable trend line in working capital, and as I mentioned, if we were in a situation where we would see a slowdown, traditionally we would see a real contributor to cash from working capital as we would harvest receivables.

Thanks. Maybe just one more. The $30 million to $40 million cost saves, you mentioned run rate by the end of the year, but any feel for the range of how much would actually hit in this fiscal year and then therefore, by definition, the balance would probably be in next fiscal year? Just to get a feel for the split. Thanks.

Yes, so we’re starting to see the savings on that right now, and we will see more of the material savings are going to be from procurement as they ramp up through this year and start to on the procurement savings, probably by the middle of fiscal ’21, we should ramp up to that annualized level. Then on our other cost-out initiatives, we’ve got a number of steps throughout the year, some of which actually have some cost to execute and put in place in fiscal ’21 to deliver the savings from that, so we’ll see some nice contributors. We haven’t given specific guidance and quantified the specific amount in fiscal ’21, but we’ll see some really solid contributions during the fiscal year.

Okay, thanks a lot. Appreciate the help.

Thank you, Barry.

Again ladies and gentlemen, if you have a question or a comment at this time, please press the star and the one key on your touchtone telephone. Our next question comes from Bill Dezellem with Tieton Capital.

Thank you. I have a group of questions. First of all, would you help us understand the hospital orders that you had? I think you mentioned you had something in the neighborhood of 56 of them. My perception would be that there are not 56 new hospitals being built, but talk to us about that if you would, please.

Yes, that’s just a snapshot in time. We have glass orders, I mentioned, for over 50 hospitals in 20 states that are actually in our current backlog to ship, and then beyond the backlog we’ve got awards throughout the healthcare sector. Not every building is new construction. There is renovation and there is additions and expansions of facilities. Bill, I’d have to do legwork to find out how many are new buildings versus extensions. It’s absolutely normal course for us. This is not new news. This is a typical profile of that business.

Yes, I’m just going to add, as Joe said, it really is a mix of new hospitals as well as expansions to hospitals, and really diverse geographically.

That is helpful, thank you. Then you’d mentioned that future orders at some point or activity may be pushed out 60, 90 days. When would you anticipate from your business perspective and bookings or backlog, when would you see the impact from that order slippage or gap, however we would want to term it?

Don’t know yet. Again, this is a waiting game. Right now as we speak, construction remains robust across most of the country. There are a couple pockets that have put more restrictive guidelines in place at the state level. If that expands, then I would expect some delays. Right now, a month to three-month delay in a couple of pockets across the U.S. are logical. We’re not seeing that. Again, our current activity is robust, very normal, I’m just looking at the obvious trends across the U.S. if the stay-at-home orders continue to expand, if states start to take a more aggressive approach to commercial construction. We’re not seeing that. The National Association of Manufacturers, which I’m a member of, is working very hard to make sure we keep the engine running and taking care of our employees, and business partners we have, public-private partnerships have a heavy influence as well. So the answer is, Bill, we can’t predict that.

Great, thanks Joe. From a capex perspective, given that you’ve said the full year safety maintenance level would be $15 million to $20 million, would it be appropriate to think of the first quarter as somewhere in the $3 million to $5 million for capex, or will it be different for some reason?

It could be probably more like $5 million to $7 million. We had a couple of projects that were in process as we came into the quarter.

Okay, thank you. Go ahead, Jim?

I was just going to say, I’ll be managing capex with a tight fist and try to be on the low end of traditional maintenance level. Right now, my focus is safety; second, maintenance; and then third, everything else that we’ll keep the spigot turned off on for the time being.

Great, thank you. Lastly, what update do you have for us relative to the acquired EFCO project and any remediation or compensation coming back to you all?

We continue to wrap up the--well, all the projects we acquired have been closed. The big one we talked about, that we took a fairly substantial charge on a year ago, is getting close to completion. I believe we are properly accrued for that project and we continue to--our accountants and lawyers continue to work to resolve financial matters. But our quarter--you know, if we were providing guidance, I mentioned where my guidance was going before this crisis included all the assumptions on cost to complete, and I really don’t bank on recoveries, but we continue to try and see recovery. It’s not substantial at this point. We’re almost done with the big project.

Thank you both, and good luck with everything that’s coming at you.

Yes, thank you, Bill. Appreciate it.

Ladies and gentlemen, this concludes the Q&A portion of today’s call. I’d like to turn the call back to Joe Puishys for closing remarks.

Okay, thank you Operator and everyone for attending. Many of you, we will talk to over the coming days and weeks. We’ll be doing it obviously remotely and safely, as you are as well. We’re fighting a war on two fronts as individuals and as leaders, a personal front and a business front, and as I like to tell people, while personal is far more important, business is more imperative at the moment if your family is safe, so we will operate under the condition that every decision we made during this time, when we look back, we will be proud of the decisions we made both for our customers, mostly our employees, and our other constituents in the communities, and of course our shareholders as well. We understand the balance, and I can assure you I plan to be proud of every decision I make when we come out the other end of this. I do believe, as I said, we entered in a very strong position and feel we have certainly righted our ship well, and look forward to getting through this crisis. Thank you. I look forward to talking to some of you offline. Have a great day. Be safe.

Thank you.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.