Apogee Enterprises, Inc. — Form 10-Q Summary
Reporting period: Fiscal 2021 third quarter ended November 28, 2020; comparisons are with the quarter and nine months ended November 30, 2019. Apogee supplies architectural glass, framing systems and services, and large-scale optical products.
Financial performance
| Metric | Three months | Nine months |
|---|---|---|
| Net sales | $313.6 million, down 7.2% | $922.2 million, down 12.2% |
| Gross profit / margin | $69.6 million / 22.2% (prior: 22.0%) | $206.0 million / 22.3% (prior: 23.0%) |
| Operating income / margin | $49.8 million / 15.9% (prior: $21.6 million / 6.4%) | $79.4 million / 8.6% (prior: $72.2 million / 6.9%) |
| Net earnings | $37.3 million; diluted EPS $1.42 (prior: $15.2 million; $0.57) | $57.8 million; diluted EPS $2.19 (prior: $50.0 million; $1.87) |
| Operating cash flow | Not reported separately for the quarter | $120.5 million (prior: $53.6 million) |
Quarterly revenue declines were concentrated in Architectural Framing Systems and Architectural Glass, reflecting softer end markets and COVID-19-related project and order delays. Architectural Services grew on execution of backlog. LSO sales recovered in the quarter after earlier customer and facility shutdowns.
Reported operating income included significant favorable items: a $19.3 million gain on a sale-leaseback of an LSO building, $7.4 million of New Markets Tax Credit income, and a $4.2 million Canadian wage subsidy benefit in the quarter. Management said these items together improved the quarterly SG&A ratio by 9.9 percentage points. The nine-month SG&A ratio also benefited from these items and $5.5 million of wage subsidies, with a combined favorable impact of 3.5 percentage points.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $55.4 million at November 28, 2020, versus $15.0 million at February 29, 2020. Nine-month operating cash flow was $120.5 million; capital expenditures were $17.1 million.
- Total debt was $168.5 million, down from $217.9 million at fiscal year-end. There were no borrowings on the $235 million revolving facility; $3.5 million was outstanding under Canadian facilities. The term loan maturity was extended to June 2024. The company reported compliance with debt covenants.
- Nine-month financing included $20.7 million of share repurchases and $14.5 million of dividends. Management said it expects liquidity sources to cover working capital, planned capital expenditures and dividends for at least 12 months.
Outlook, risks and other material matters
- No specific earnings or revenue guidance is provided in the filing. Management expects COVID-19 to continue affecting revenue and results, but cannot estimate the magnitude or duration; it did not expect a significant liquidity effect at the time of filing.
- COVID-19 risks include delayed or canceled construction projects, site closures, labor constraints and absenteeism, supply interruptions, customer payment delays, and added health and safety costs.
- Goodwill impairment was not indicated in the May 2020 interim assessment, but EFCO and Sotawall had limited valuation headroom. Management noted that a 100-basis-point increase in discount rates, or revenue or profitability below forecasts, could indicate impairment. No third-quarter interim impairment test was triggered.
- Outstanding surety and performance bonds totaled $1.1 billion, including $527.8 million in backlog; the company reported no prior payments under these bonds. Purchase obligations were $207.5 million. Management said existing litigation was not expected to cause a material adverse effect.
- After quarter-end, Ty R. Silberhorn became CEO effective January 4, 2021, succeeding Joseph F. Puishys, who retired.
Important facts for investors to verify
- How much of reported earnings growth is sustainable after excluding the sale-leaseback gain, tax-credit income and wage subsidies.
- Whether order trends and backlog convert to revenue as expected, particularly in Architectural Framing Systems and Architectural Services.
- COVID-19 effects on project timing, labor availability, customer credit and supplier access, and whether liquidity remains adequate.
- Whether EFCO and Sotawall meet forecast assumptions and retain goodwill valuation headroom.
- Debt covenant capacity, the significant bond commitments, and capital allocation decisions including future repurchases and dividends.