Apogee Enterprises, Inc.: Form 10-Q for the period ended May 31, 2025

Forward-looking statements

This Quarterly Report on Form 10-Q, including the section, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain statements that are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” “will,” “continue” or similar words or expressions. All forecasts and projections in this document are “forward-looking statements,” and are based on management’s current expectations or beliefs of the Company's near-term results, based on current information available pertaining to the Company. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by the Company. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results.

Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of the Company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other risk factors include, but are not limited to, the risks and uncertainties set forth under “Risk Factors” section of our Annual Report on Form 10-K for the year ended March 1, 2025 and in subsequent filings with the U.S. Securities and Exchange Commission, including this Quarterly Report on Form 10-Q.

We also wish to caution investors that other factors might in the future prove to be important in affecting the Company’s results of operations. New factors emerge from time to time; it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Measures

We have included in this report measures of financial performance that are not defined by U.S. GAAP. We believe that these measures provide useful information and include these measures in other communications to investors. For each of these non-GAAP financial measures, we provide a reconciliation of the differences between the non-GAAP measure and the most directly comparable U.S. GAAP measure (see “Reconciliation of Non-GAAP Financial Measures” in this Item 2 below), and an explanation of why we believe the non-GAAP measure provides useful information to management and investors. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable U.S. GAAP measure.

Overview

We are a leading provider of architectural products and services for enclosing buildings, and high-performance coating products used in applications for preservation, protection and enhanced viewing. Our four reporting segments are: Architectural Metals, Architectural Services, Architectural Glass, and Performance Surfaces.

Our enterprise strategy is based on the following three key elements:

1. Become the economic leader in our target markets. We have developed a deep understanding of our target markets and aligned our businesses with clear go-to-market strategies to drive value for our customers through differentiated product and service offerings. We are focused on operational execution, driving productivity improvements, and maintaining a competitive cost structure, so that we may bring more value to our customers and improve our own profitability.

2. Actively manage our portfolio to drive higher margins and returns. We are shifting our business mix toward higher operating margin offerings in order to improve our return on invested capital performance. We accomplish this by allocating resources to grow our top performing businesses, actively addressing underperforming businesses, and investing to add new differentiated product and service offerings to accelerate our growth and increase margins. We continually analyze our current portfolio of products, services, and capabilities to identify the best areas for future profitable growth. We also evaluate inorganic opportunities where we can deploy capital to acquire businesses that will be accretive to our long-term growth rate and operating margins.

3. Strengthen our core capabilities. We are shifting from our historical, decentralized operating model to one with center-led functional expertise that enables us to leverage the scale of the enterprise to better support the needs of the business. We have established a Company-wide operating system with common tools and processes based on the foundation of Lean and Continuous Improvement, which we call the “Apogee Management System.” Our strategy is supported by a robust talent management program and a commitment to strong governance to ensure compliance and drive sustainable performance.

Recent Developments

On April 23, 2025, we announced an extension of Project Fortify ("Project Fortify Phase 2" or "Phase 2") to drive further cost efficiencies, primarily in the Architectural Metals and Architectural Services Segments. Phase 2 focuses on further optimizing our operating footprint and aligning resources to enable a more effective operating model. We expect the actions of Phase 2 to incur approximately $24 million to $26 million of pre-tax charges. Phase 2 is expected to deliver annualized pre-tax cost savings of approximately $13 million to $15 million. We expect the actions associated with Phase 2 to be substantially completed by the end of the fourth quarter of fiscal 2026. See Note 14 for additional information.

The following selected financial data should be read in conjunction with the Company’s Form 10-K for the year ended March 1, 2025 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.

Results of Operations

The following tables provide various components of operations as year over year U.S. dollar and percentage change, as well as a percentage of net sales.

(in thousands, except percentages)

Comparison of First Quarter Fiscal 2026 to First Quarter Fiscal 2025

• Consolidated net sales increased 4.6%, to $346.6 million, driven by $22.0 million of inorganic sales contribution from the acquisition of UW Solutions. Growth from inorganic sales was partially offset by lower volume in Architectural Glass and a less favorable mix in Architectural Metals.
• Gross margin decreased to 21.7%, compared to 29.8%, primarily due to restructuring charges of $6.9 million, a less favorable mix and higher aluminum costs in Architectural Metals, and higher tariff expense in Architectural Services.
• SG&A expenses increased $10.7 million to 19.7% of net sales, compared to 17.3% of net sales. The increase in SG&A as a percentage of net sales was primarily due to restructuring charges of $8.4 million and increased amortization expense associated with the UW Solutions transaction, partially offset by lower long-term incentive expense.
• Operating income declined to $6.9 million from $41.4 million, and operating margin decreased 1,050 basis points to 2.0%. The decline in operating margin was primarily driven by restructuring charges of $15.3 million, a less favorable mix and higher aluminum costs in Architectural Metals, higher tariff expense in Architectural Services, and increased amortization expense associated with the UW Solutions transaction, partially offset by lower long-term incentive expense.
• Adjusted EBITDA decreased to $34.4 million compared to $52.6 million and adjusted EBITDA margin decreased to 9.9% compared to 15.9%. The decrease in adjusted EBITDA margin was primarily driven by a less favorable mix and higher aluminum costs in Architectural Metals, as well as higher tariff expense in Architectural Services, partially offset by lower long-term incentive expense.
• Interest expense, net increased to $3.8 million, primarily due to increased debt resulting from the acquisition of UW Solutions.
• Other income was $0.7 million compared to expense of $0.1 million. The change was driven by an increase in value of company-owned life insurance assets.
• Income tax expense as a percentage of earnings before income tax was 211.9%, compared to 24.5% for the same period last year. The increase in the effective tax rate was primarily due to lower earnings before income taxes.
• Net loss of $2.7 million compared to net earnings of $31.0 million.

Segment Analysis

We have four operating segments which are also reportable segments. Each of our four segments have distinct economic characteristics, including products and services provided, production processes and varying ranges in performance and results.

We evaluate the performance of our segments based on segment net sales and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). Our CEO is our chief operating decision maker (CODM). The CODM uses these measurements to assess segment performance and make decisions about the allocation of operating and capital resources by analyzing recent results, trends, and variances of each segment in relation to forecasts and historical performance.

The segment measurements provided to, and evaluated by, the CODM are described in Note 12 of our unaudited condensed consolidated financial statements.

The following table presents net sales, adjusted EBITDA and adjusted EBITDA margin by segment and the consolidated total.

(In thousands, except percentages)

The following table summarizes the impact that different items had on our net sales for the first quarter fiscal 2026. All net sales for the first quarter of fiscal 2025 were organic.

(In thousands, except percentages)

(1) Organic business includes net sales associated with acquired product lines or businesses that occur after the first twelve months from the date the product line or business is acquired and net sales from internally developed product lines or businesses.

(2) On November 4, 2024, we completed the acquisition of UW Solutions. For additional information, see Note 13 to the accompanying consolidated financial statements.

26

Architectural Metals

Comparison of First Quarter Fiscal 2026 to First Quarter Fiscal 2025

• Net sales were $128.6 million, compared to $133.2 million, primarily reflecting a less favorable mix, partially offset by increased volume.
• Adjusted EBITDA was $9.4 million, or 7.3% of net sales, compared to $23.8 million, or 17.9% of net sales. The decline in adjusted EBITDA margin was primarily driven by a less favorable mix, higher aluminum costs, unfavorable productivity, and unfavorable sales leverage, partially offset by the impact from higher volume.

Architectural Services

Comparison of First Quarter Fiscal 2026 to First Quarter Fiscal 2025

• Net sales were $106.5 million, compared to $99.0 million, primarily due to increased volume.
• Adjusted EBITDA decreased to $6.1 million, or 5.7% of net sales, compared to $6.6 million, or 6.6% of net sales. The decrease in adjusted EBITDA margin was primarily driven by higher tariff expense, partially offset by a more favorable mix of projects and favorable sales leverage.
• For the three months ended May 31, 2025 and June 1, 2024, cumulative catch-up adjustments on our longer-term contracts for changes in estimates were as follows:

(in thousands)

Architectural Glass

Comparison of First Quarter Fiscal 2026 to First Quarter Fiscal 2025

• Net sales were $73.3 million, compared to $86.7 million, primarily reflecting reduced volume due to lower end-market demand.
• Adjusted EBITDA decreased to $13.4 million, or 18.3% of net sales, compared to $20.2 million, or 23.3% of net sales. The decline in adjusted EBITDA margin was primarily driven by unfavorable sales leverage.

Performance Surfaces

Comparison of First Quarter Fiscal 2026 to First Quarter Fiscal 2025

• Net sales were $42.3 million, compared to $21.2 million, which included $22.0 million of inorganic sales contribution from the acquisition of UW Solutions.
• Adjusted EBITDA was $8.0 million, or 18.8% of net sales, compared to $5.6 million, or 26.6% of net sales. The decline in adjusted EBITDA margin was primarily driven by the dilutive effect of lower adjusted EBITDA margin from UW Solutions, unfavorable mix, and increased corporate allocation expense.

Corporate and Other

Comparison of First Quarter Fiscal 2026 to First Quarter Fiscal 2025

• Corporate and Other adjusted EBITDA expense was $2.4 million, compared to $3.7 million, primarily driven by lower long-term incentive expense.

Backlog

Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which may be expected to be recognized as revenue in the future. Backlog is most meaningful for Architectural Services due to the longer-term nature of their projects. Backlog is not a term defined under U.S. GAAP and is not a measure of contract profitability. We view backlog as one indicator of future revenues, particularly in our longer-lead time businesses. In addition to backlog, we have a substantial amount of projects with short lead times that book-and-bill within the same reporting period and are not included in backlog.

Architectural Services

As of May 31, 2025, segment backlog was approximately $682.9 million, compared to approximately $720.3 million at the end of the fourth quarter of fiscal 2025.

Reconciliation of Non-GAAP Financial Measures

Adjusted net earnings, adjusted diluted earnings per share (adjusted diluted EPS), adjusted net earnings before interest, taxes, depreciation and amortization (adjusted EBITDA), and adjusted EBITDA margin are supplemental non-GAAP financial measures provided by the Company to assess performance on a more comparable basis from period-to-period by excluding amounts that management does not consider part of core operating results. Management uses these non-GAAP measures as noted below:

• We use adjusted net earnings, and adjusted diluted EPS to provide meaningful supplemental information about our operating performance by excluding amounts that are not considered part of core operating results to enhance comparability of results from period to period.
• We believe adjusted EBITDA and adjusted EBITDA margin metrics provide useful information to investors and analysts about our core operating performance. In addition, adjusted EBITDA is among the primary measures used by management for the planning and forecasting of future period, as well as for measuring performance for compensation of executives and other members of management.

These non-GAAP measures should be viewed in addition to, and not as an alternative to, the reported financial results of the Company prepared in accordance with U.S. GAAP. Other companies may calculate these measures differently, thereby limiting the usefulness of the measures for comparison with other companies.

Apogee Enterprises, Inc.

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

(Unaudited)

(In thousands)

(1) Costs related to the acquisition of UW Solutions.

(2) Restructuring charges related to Project Fortify Phase 2.

(In thousands)

(3) Restructuring charges related to Project Fortify Phase 1.

Reconciliation of Non-GAAP Financial Measures

Adjusted Net Earnings and Adjusted Diluted Earnings Per Share

(Unaudited)

(In thousands)

(1) Acquisition-related costs include costs related to one-time expenses incurred to integrate the UW Solutions acquisition.

(2) Restructuring charges related to Project Fortify Phase 2.

(3) Income tax impact reflects the estimated blended statutory tax rate for the jurisdictions in which the charge or income occurred.

Liquidity and Capital Resources

We rely on cash provided by operations for our material cash requirements, including working capital needs, capital expenditures, satisfaction of contractual commitments (including principal and interest payments on our outstanding indebtedness) and shareholder return through dividend payments and share repurchases.

Operating Activities. Net cash used in operating activities was $19.8 million for the first three months of fiscal 2026, compared to cash provided by operating activities of $5.5 million in the prior year period. The increase of cash used in operating activities was primarily driven by lower net earnings and an increased cash used for working capital, including a payment of $24.7 million for the settlement of an arbitration award.

Investing Activities. Net cash used in investing activities was $7.0 million for the first three months of fiscal 2026, compared to $7.3 million in the prior year period. The net cash used in investing activities was primarily related to capital expenditures in both periods.

Financing Activities. Net cash provided by financing activities was $17.6 million for the first three months of fiscal 2026, compared to $4.9 million of net cash used in financing activities in the prior year period. The increase in net cash provided by financing activities was primarily driven by differences in cash requirements to support the change in operating cash flows between periods.

Additional Liquidity Considerations. We periodically evaluate our liquidity requirements, cash needs and availability of debt resources relative to acquisition plans, significant capital plans, and other working capital needs.

On July 19, 2024, we entered into a Credit Agreement (the Credit Agreement) with Bank of America, N.A., as administrative agent, and other lenders. The Credit Agreement provides for an unsecured senior credit facility in an aggregate principal amount of up to $700.0 million, in which commitments were made through a $450.0 million, five-year revolving credit facility and a committed $250.0 million delayed draw term loan facility. Borrowings under the revolving credit facility can be in Canadian dollars (CAD) limited to $25.0 million USD. The term loan facility may be utilized in up to two drawdowns, which are available to be ma de within one year after the closing date. The senior credit facility has a term of five years with a maturity date of July 19, 2029.

The Credit Agreement replaced the previous revolving credit facility with Wells Fargo Bank, N.A., as administrative agent, and other lenders, with maximum borrowings up to $385.0 million, and the two Canadian credit facilities with Bank of Montreal totaling $25.0 million USD.

As a result of the execution of the Credit Agreement, in the second quarter of fiscal 2025, we recognized a loss on extinguishment of debt within interest expense of $0.5 million for the write-off of unamortized financing fees related to the previous revolving credit facility. Additionally, we capitalized $3.0 million of lender fees and $0.8 million of third-party fees incurred in connection with the Credit Agreement, which were recorded as other non-current assets and are being amortized over the term of the credit facility as interest expense.

The Credit Agreement contains two maintenance financial covenants that require our Consolidated Leverage Ratio (as defined in the Credit Agreement) to be less than 3.50 and our Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) to exceed 3.00. At May 31, 2025, we were in compliance with all covenants as defined under the terms of the Credit Agreement.

The Credit Agreement also contains an acquisition “holiday.” In the event we make an acquisition for which the purchase price is greater than $75 million, we can elect to increase the maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) to 4.00 for a period of four consecutive fiscal quarters, commencing with the fiscal quarter in which a qualifying acquisition occurs. No more than two acquisition holidays can occur during the term of the Credit Agreement, and at least two fiscal quarters must separate qualifying acquisitions.

Borrowings under the Credit Agreement bear floating interest at either the Base Rate or Term Secured Overnight Financing Rate (SOFR), or for CAD borrowings, Canadian Overnight Repo Rate Average (CORRA) plus, in each a margin based on the Consolidated Leverage Ratio (as defined in the Credit Agreement). For Base Rate borrowings, the margin ranges from 0.25% to 0.75%. For Term SOFR and CORRA borrowings, the margin ranges from 1.25% to 1.75%, with an incremental Term SOFR and CORRA adjustment of 0.10% and 0.29547% respectively.

The Credit Agreement also contains an “accordion” provision. Under this provision, we can request that the senior credit facility be increased by unlimited additional amounts. Any lender may elect or decline to participate in the requested increase at their sole discretion.

On November 4, 2024, as part of the acquisition of UW Solutions, and for working capital and general corporate purposes, we executed a drawdown against the delayed draw term loan facility for $250.0 million. Outstanding borrowings under the term loan facility were $215.0 million as of May 31, 2025. Outstanding borrowings under the revolving credit facility were $96.0 million as of May 31, 2025.

At May 31, 2025, we had a total of $2.6 million of ongoing letters of credit related to the senior credit facility, construction contracts and insurance collateral that expire in fiscal year 2026 and reduce borrowing capacity under the revolving credit facility. As of May 31, 2025, the amount available for revolving borrowings was $351.4 million.

We acquire the use of certain assets through operating leases, such as property, manufacturing equipment, vehicles and other equipment. Future payments for such leases, excluding leases with initial terms of one year or less, were $71.8 million at May 31, 2025, with $12.5 million payable during the remainder of fiscal 2026.

As of May 31, 2025, we had $16.0 million of open purchase obligations, of which payments totaling $7.8 million are expected to become due during the remainder of fiscal 2026. These purchase obligations primarily relate to raw material commitments and capital expenditures and are not expected to impact future liquidity, as amounts should be recovered through customer billings.

We expect to make contributions of $0.4 million to our defined-benefit pension plans in fiscal 2026, which will equal or exceed our minimum funding requirements.

As of May 31, 2025, we had reserves of $6.1 million for unrecognized tax benefits. We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits will ultimately be settled.

We are required, in the ordinary course of business, to provide surety or performance bonds that commit payments to our customers for any non-performance. At May 31, 2025, $1.2 billion of these types of bonds were outstanding, of which $339.2 milli on is in our backlog. These bonds have expiration dates that align with completion of the purchase order or contract. We have not been required to make any payments under these bonds with respect to our existing businesses.

Due to our ability to generate strong cash from operations and our borrowing capability under our committed revolving credit facility, we believe that our sources of liquidity will be adequate to meet our short-term and long-term liquidity and capital expenditure needs. In addition, we believe we have the ability to obtain both short-term and long-term debt to meet our financing needs, including additional sources of debt to finance potential acquisitions, for the foreseeable future. We also believe we will be able to operate our business so as to continue to be in compliance with our existing debt covenants over the next fiscal year.

We continually review our portfolio of businesses and their assets and how they support our business strategy and performance objectives. As part of this review, we may acquire other businesses, pursue geographic expansion, take actions to manage capacity and further invest in, divest and/or sell parts of our current businesses.

Related Party Transactions

No material changes have occurred in the disclosure with respect to our related party transactions set forth in our Annual Report on Form 10-K for the fiscal year ended March 1, 2025.

Critical Accounting Policies

There have been no material changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended March 1, 2025.

Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended March 1, 2025 for a discussion of the Company’s market risk. There have been no material changes in market risk since March 1, 2025.

a) Evaluation of disclosure controls and procedures: As of the end of the period covered by this report (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

b) On November 4, 2024, we completed our acquisition of UW Solutions. In accordance with Securities Exchange Commission guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, we have excluded UW Solutions from our assessment of the effectiveness of internal control over financial reporting as of May 31, 2025. The assets and net sales of UW Solutions that were excluded from our assessment constituted approximately 22.0% and 6.4%, respectively, of the related consolidated financial statement amounts as of and for the three months ended May 31, 2025. The scope of management’s assessment of the effectiveness of the design and operation of our disclosure controls and procedures as May 31, 2025 includes all of our consolidated operations except for those disclosure controls and procedures of UW Solutions. See Note 13 for additional information regarding the UW Solutions acquisition. Based on our assessment, the Company's management believes that, as of May 31, 2025, the Company's internal control over financial reporting was effective based on those criteria.

c) Changes in internal controls: There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended May 31, 2025, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes or additions to our risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended March 1, 2025.