Financial Performance Overview

Apogee Enterprises, Inc. has continued to make progress towards its strategic goals and financial targets in fiscal 2024 and the first three quarters of fiscal 2025. The company has driven sustainable cost and productivity improvements through the deployment of the Apogee Management System across its business. It has also invested in both organic and inorganic growth initiatives, including the acquisition of UW Interco, LLC (UW Solutions) and capacity expansion in the Large-Scale Optical Segment.

Apogee has increased its focus on differentiated products and services, diversifying the mix of architectural projects it serves while emphasizing higher value-added offerings. The company has also advanced several initiatives to strengthen its core capabilities, including the standardization of key business processes and systems, and the enhancement of talent management and leadership development programs.

Recent Developments

In the third quarter of fiscal 2025, Apogee acquired UW Solutions, a U.S. based manufacturer of high-performance coated substrates. UW Solutions is differentiated by its proprietary formulations and coating application processes, serving a broad range of customers in attractive end markets.

Financial Results

Apogee’s financial results for the third quarter of fiscal 2025 and the first nine months of fiscal 2025 are summarized in the tables below:

Third Quarter Fiscal 2025 vs. Third Quarter Fiscal 2024:

Metric	Q3 FY2025	Q3 FY2024	% Change
Net Sales	$341.3 million	$339.7 million	0.5%
Gross Profit	$89.1 million	$90.3 million	-1.3%
Gross Margin	26.1%	26.6%	-0.5 pts
Operating Income	$28.6 million	$37.6 million	-24.0%
Operating Margin	8.4%	11.1%	-2.7 pts
Net Earnings	$21.0 million	$27.0 million	-22.1%
Effective Tax Rate	24.1%	23.6%	0.5 pts

First Nine Months Fiscal 2025 vs. First Nine Months Fiscal 2024:

Metric	YTD FY2025	YTD FY2024	% Change
Net Sales	$1,015.3 million	$1,055.1 million	-3.8%
Gross Profit	$285.3 million	$278.7 million	2.4%
Gross Margin	28.1%	26.4%	1.7 pts
Operating Income	$112.0 million	$112.0 million	0.0%
Operating Margin	11.0%	10.6%	0.4 pts
Net Earnings	$82.6 million	$83.9 million	-1.6%
Effective Tax Rate	24.8%	23.7%	1.1 pts

Segment Analysis

Apogee operates in four business segments: Architectural Framing Systems, Architectural Glass, Architectural Services, and Large-Scale Optical (LSO).

Architectural Framing Systems

• Q3 FY2025 net sales decreased 1.1% due to less favorable product mix, partially offset by increased volume.
• Q3 FY2025 operating margin declined to 9.2% from 12.2% due to the less favorable product mix, higher freight and compensation expenses, and restructuring charges.
• YTD FY2025 net sales decreased 10.8% due to reduced volume from exiting lower-margin product lines and lower end-market demand, as well as less favorable product mix.
• YTD FY2025 operating margin declined to 11.7% from 12.5% due to the unfavorable sales leverage impact of lower volume, higher compensation costs, and restructuring charges.

Architectural Glass

• Q3 FY2025 net sales decreased 22.8% due to reduced volume from lower end-market demand.
• Q3 FY2025 operating margin declined to 14.4% from 16.7% due to the unfavorable sales leverage impact of lower volume, partially offset by improved productivity, favorable freight costs, and lower quality-related expenses.
• YTD FY2025 net sales decreased 12.5% due to lower volume from weaker end-market demand, partially offset by improved pricing.
• YTD FY2025 operating margin improved to 19.5% from 17.4% due to the benefits of improved pricing, productivity, and lower quality-related costs, partially offset by the unfavorable sales leverage impact of lower volume.

Architectural Services

• Q3 FY2025 net sales increased 10.8% due to a more favorable mix of projects and increased volume.
• Q3 FY2025 operating margin improved to 9.3% from 5.6% driven by the more favorable project mix, partially offset by higher incentive compensation and lease costs.
• YTD FY2025 net sales increased 11.0% due to increased volume and a more favorable mix of projects.
• YTD FY2025 operating margin improved to 7.1% from 3.0% primarily due to the more favorable project mix, partially offset by higher incentive compensation and lease costs.

Large-Scale Optical (LSO)

• Q3 FY2025 net sales increased 27.6% due to $8.8 million of inorganic sales contribution from the UW Solutions acquisition, partially offset by lower volume in the retail channel.
• Q3 FY2025 operating margin declined to 14.6% from 27.3% primarily due to acquisition-related costs, the unfavorable sales leverage impact of lower volume, and the dilutive effect of the lower operating margin from UW Solutions.
• YTD FY2025 net sales increased 2.9% due to the $8.8 million of sales from UW Solutions, partially offset by lower volume in the retail channel.
• YTD FY2025 operating margin declined to 18.2% from 24.0% primarily due to acquisition-related costs and the sales leverage impact of lower volume.

Backlog

Apogee’s backlog, which is most meaningful for the Architectural Services segment due to the longer-term nature of its projects, was approximately $742.2 million as of November 30, 2024, compared to $792.1 million at the end of the prior quarter. The decrease in backlog was primarily driven by executing more project work in the quarter than securing new project awards.

Non-GAAP Financial Measures

Apogee provides several non-GAAP financial measures to assess its performance on a more comparable basis from period to period. These include adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted diluted earnings per share (EPS), adjusted net earnings before interest, taxes, depreciation and amortization (EBITDA), and adjusted EBITDA margin.

The adjustments to these measures primarily relate to acquisition-related costs associated with the UW Solutions acquisition, as well as restructuring charges. A reconciliation of these non-GAAP measures to the corresponding GAAP measures is provided in the financial report.

Liquidity and Capital Resources

Apogee relies on cash provided by operations to fund its material cash requirements, including working capital needs, capital expenditures, debt service, and shareholder returns through dividends and share repurchases.

In the first nine months of fiscal 2025, net cash provided by operating activities was $95.1 million, compared to $129.3 million in the prior year period. The decrease was primarily driven by higher cash used for working capital.

Net cash used by investing activities was $257.1 million, compared to $26.3 million in the prior year, primarily due to $233.1 million of cash used for the UW Solutions acquisition.

Net cash provided by financing activities was $169.0 million, compared to $100.4 million of net cash used in the prior year period. This increase was primarily driven by $250.0 million in proceeds from a delayed draw term loan used to finance the UW Solutions acquisition.

Apogee has a new $700.0 million senior credit facility, which includes a $450.0 million revolving credit facility and a $250.0 million delayed draw term loan facility. The credit facility has a five-year term and replaced the company’s previous $385.0 million revolving credit facility and $25.0 million Canadian credit facilities.

As of November 30, 2024, Apogee had $230.0 million outstanding on the term loan facility and $30.0 million outstanding on the revolving credit facility, with $405.0 million available for revolving borrowings.

Apogee believes its sources of liquidity, including cash flow from operations and its committed credit facility, will be adequate to meet its short-term and long-term liquidity and capital expenditure needs. The company also believes it will be able to operate in compliance with its debt covenants over the next fiscal year.

Strengths and Weaknesses

Apogee’s key strengths include:

• Deployment of the Apogee Management System to drive sustainable cost and productivity improvements
• Investments in organic and inorganic growth initiatives, including the UW Solutions acquisition
• Increased focus on differentiated products and services, and diversification of the architectural project mix
• Initiatives to strengthen core capabilities, including process/system standardization and talent management

Apogee’s key weaknesses include:

• Unfavorable sales leverage impact from lower volume in certain segments
• Less favorable product mix in the Architectural Framing Systems segment
• Higher acquisition-related and restructuring expenses

Outlook and Future Prospects

Apogee believes its sources of liquidity, operational initiatives, and strategic investments position the company well for the future. However, the company continues to face headwinds from lower volume and less favorable product mix in certain segments, as well as acquisition and restructuring-related costs.

Overall, Apogee has made progress on its strategic goals, but must continue to navigate market challenges and integrate recent acquisitions effectively to drive consistent profitable growth going forward.