Good day, ladies and gentlemen, and welcome to the Fiscal 2014 Apogee Enterprises, Inc. Earnings Conference Call. My name is Sheena, and I will be your operator today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now, I'd like to turn the call over to your host, Mary Ann Jackson. Please proceed, ma'am.

Thank you, Sheena. Good morning, and welcome to the Apogee Enterprises Fiscal 2014 First Quarter Conference Call on Wednesday, June 26, 2013. With us on the line today are Joe Puishys, CEO; and Jim Porter, CFO. Their remarks will focus on our fiscal 2014 first quarter and our outlook for fiscal 2014. During the course of this conference call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment and are, of course, subject to risks and uncertainties which are beyond the control of management. These statements are not guarantees of future performance, and actual results may differ materially. Important risks and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are described in the company's annual report on Form 10-K for the fiscal year ended March 2, 2013, and in our press release issued yesterday afternoon and filed on Form 8-K. Joe will now give you a brief overview of the results, and then Jim will cover the financials. After they conclude, Joe and Jim will answer your questions. Joe?

Thank you, Mary Ann. Good morning, everyone. Welcome to Apogee's Q1 conference call. In our fiscal 2014 first quarter, we delivered another strong quarter of growth, with revenues up 16% and our operating income up over 2.5x the prior period. Our operating margin increased by 190 basis points, to 3.4%, driven by improvements in volume, mix and productivity in certain segments. We earned $0.14 a share, up from $0.06 per share in last year's first quarter. Our revenue and operating income growth primarily came from our Architectural Glass and our Architectural Services segments. We had expected good performance here, since these segments have more operating leverage than the other 2 segments. We benefited from improved volume, mix, productivity and pricing in the Architectural Glass, and improved margins in the Architectural Services segment, where we are continuing to work off lower margin work bid in the cycle trough. Our average gross margins of projects in our Architectural Services backlog are more than 200 basis points higher than a year ago, reflecting improved project profitability as we exit the downturn and as we have been explaining in the past. Revenues grew on our other 2 reporting segments as well, Architectural Framing Systems and Large-Scale Optical. Our Architectural Framing Systems segment operating income was negatively impacted by a gap in timing of more complex window work, which we expected and planned. And Large-Scale Optical segment operating income was impacted by investments in promotion and for growth in new geographies and new markets. In our first quarter, we continued to execute our strategies to grow through new geographies, new products and new markets. In both our Architectural Services and Architectural Framing Systems segment, we opened facilities to service new U.S. geographies and focus sales effort on targeted new regions. We continued to have significant…

Thanks, Joe. I'm really happy with our fiscal 2014 first quarter performance. We're making significant progress in commercial construction markets that are beginning to show signs of improvement. Earnings per share were $0.14 for the quarter, compared to $0.06 per share last year, on revenues of $179.3 million, which grew 16% from the prior-year period. The first quarter gross margin was 20.3%, with improved volume, pricing and productivity in our Architectural Glass and Architectural Services businesses. This improvement was somewhat offset by expected lower revenues in the Window business of the Architectural Framing Systems segment, along with the impact of investments in Large-Scale Optical. As Joe highlighted, we recently moved to 4 reporting segments. I'll walk through the results of each segment. In the first quarter, Architectural Glass segment revenues grew 27%, to $74.8 million, as the segment moved to operating income of $1.4 million from a loss of $2.4 million in the prior-year period. Top and bottom line increases resulted from improved volume, a strong mix of value-added products, productivity and pricing. The Architectural Services segment revenues increased 19% to $46.5 million on volume growth and the timing of project cost flow. The operating loss of $1 million improved 63% from the prior-year period, with volume increases and project margins improving from the cycle trough. We have talked about the long lag with this segment and that we would be working through trough project margins through the first half of this fiscal year. Architectural Framing Systems revenues were up 5% to $44.4 million, while operating income was $2.1 million, compared to $3.1 million last year. Top and bottom line growth in the storefront and finishing businesses was offset by the window business results, where revenues and operating income declined with an anticipated gap in the schedule for longer lead…

Thank you, Jim. Sheena, if you could please open the call up for questions, we look forward to taking them.

[Operator Instructions] Our first question is from Robert Kelly, Sidito (sic) [Sidoti]. Robert J. Kelly - Sidoti & Company, LLC: Just a -- I had a question on one of Jim's last comments about kind of the phasing of the year, second quarter growth being slower, ramping up in 3Q. Should we expect normal seasonality for Architectural and LSO as far as on a sequential basis? Or would that be also subdued?

We would expect normal seasonality for Q3. Robert J. Kelly - Sidoti & Company, LLC: Normal seasonality for 2Q and 3Q?

Oh, I'm sorry. Yes. So yes, we're looking at 2Q probably a little bit softer in gross sale, at least based on the schedule that we see in front of us, and then going back to kind of the normal level for Q3 and 4. Robert J. Kelly - Sidoti & Company, LLC: Okay. And then just as far as like the margin phasing, you talked about gross margins being at least 22% for the full year. Far south of that in 1Q, I mean, how do we think about the buildup throughout the year for gross margin and profitability?

So based on the backlog flow, we'll still have a little bit of the impact of the lower project margins in Q2, and then we're not going to see the revenue growth as strong as we'll see in Q3 and Q4. So we'll see continuous improvement in gross margins but we should see a little bit of a step up in Q3. Robert J. Kelly - Sidoti & Company, LLC: Okay. So as far as incremental margins or conversion rates, I mean, you're kind of below where you were in F12 -- F13 and where you kind of target being in that 40% range. Do we get over that metric in the second half? Is that the bogey for the second half, 40%, the profit conversion? Just maybe some help there.

Yes. Bob, this is Joe. We had really good conversion in most of our businesses at or better than their planned targets for the quarter. I definitely had headwinds on mix, our -- 2 of our most profitable business were -- this was a soft quarter -- in particular, obviously, our Large-Scale Optical. Our first quarter comps are the hardest for us for the year in that business. And we'll see improved mix going forward on that metric. And our Windows business still has a hole to fill in their backlog, but our 2 big dogs in the kennel, our Viracon and Harmon businesses, have really performed well with regards to conversion. My goal to be at least 30% conversion, 30% to 40%, is -- still stands on an annual basis on a given quarter. It was tough, but I was really pleased with the conversion by business. I just got cross business mix that may be overall metric in the mid-teens. Robert J. Kelly - Sidoti & Company, LLC: Sure. As far as the gap in Window which kind of hurt you and depressed that conversion rate in 1Q, does that close up in 2Q? Or is that more also a second half event?

We've made some changes in that business as well to drive the -- get the growth engine going again. So, second half. Robert J. Kelly - Sidoti & Company, LLC: Okay. And then just one final one on the retrofit opportunity, how big are we in that business at this point? I know you're in the testing and planning phase, but do you have a number you can put around either 1Q or your goal for F14?

Sure, yes. We've had a handful of wins in this category already. Virtually nothing entered our backlog, so the $302 million, anything in that is de minimis. We have low single-digit million of dollars of wins that will enter the backlog very soon and we've got double-digit millions in work right now that we expect we should win. So we're on track to hit our low-double-digit millions of awards in this first year of effort. It's going well. It's a lot of work, though, and it is a lot selling cycle, but our team is doing a great job on this and my confidence continues to be strong on that growth initiative.

Our next question is from Brent Thielman, D.A. Davidson. Brent Thielman - D.A. Davidson & Co., Research Division: Yes. In LSO, are any of the growth promotional investments you've been making having an impact on the top line performance of the segment?

Sure. One of the growth initiatives that we've made a big investment in is our international operations, which is really distribution and people. So logistics capability and feet on the street, and we're achieving growth from that initiative. As I said in my comments, Jim and I just spent a week over there looking at the opportunity, visiting existing customers and prospective customers, and we're getting good success from that. Our promotional activities with our existing customers continue to help us convert to more value-added glass and acrylic. And one of the more positive things I've seen was the recent Consumer Confidence Index, which I think you saw bounced up, most of us probably saw this in the last few days, up over 84, which is a significant increase from the mid-60s it had been running at, and substantially higher than anything in the last half a decade nearly. So that business does tend to be a -- a leading indicator for that business is consumer confidence. And that most recent index bodes well for that business. And we have a lot of exciting new products and potentially new segments going on in that market that we're spending some upfront capital on our expense, I should say, to reap the benefits at or over the next couple of years.

So we are -- Brent, we are seeing some of that top line benefit. But I think the majority of the benefit relative to our investments is still to come. Brent Thielman - D.A. Davidson & Co., Research Division: Okay. And then with your guidance, are you expecting some margin improvement in LSO in the second half compared to last year?

My hesitation on that a little bit is, I mean, part of that business fluctuates just kind of quarter-to-quarter. But I'd say for a full second half perspective, yes. Q3 tends to be pretty strong. I'm not going to predict that will beat last year's Q3. But for the total second half, I think there's that opportunity.

Brent, I'll chime in. I think last year -- we've kind of have a flip-flop here. Last year in that business. Our first 2 quarter comps were easier and our last 2 quarter comps were more challenging. This year, it's just the opposite. Our first half comps in the Large-Scale Optical, and particularly the first quarter were going to be our tough ones. We got that behind us. And our second half we'll have a little bit more manageable comps in that business. I think you'll see nice year-over-year. Brent Thielman - D.A. Davidson & Co., Research Division: Sure, okay. And then the backlog definitely looks better year-over-year but has been kind of flattish with the last 3 quarters and I know it can be lumpy. But it is more of a function of the pace of the recovery in the market? Or you're walking away from more lower margin business? Maybe just a little bit more color there.

No. It's just the pace of the recovery. Frankly, the recovery continues to push out. Geographically within the U.S., there are some terrific regions, Upstate New York, Silicon Valley, Southern Texas, they're very strong markets. But overall, the pace of recovery continues to be delayed. And I was actually very pleased that our backlog was where it was considering the revenue growth. The pipeline of bidding that we're working on is up significantly. No question the time to award is growing, and then the time from award to revenue shrinks a little bit. So the cycle itself, the selling cycle, is not necessarily different but there is continued delays as the end markets don't want to take any chances, so everyone continues to wait. But the amount of activities -- so the amount of projects we bid on that are pending our award -- or pending an award or on hold is significantly increased. That's why I feel good about our backlog. Brent Thielman - D.A. Davidson & Co., Research Division: Sure. And one last one, if I could. One of the concerns, I guess, is kind of this decline in public government-funded building projects. Is that leading to tougher competition in the private category, which seems to be doing at least relatively better? Or would you say sort of the competitive bidding environment is similar to where it has been?

I think the competitive situation is very similar, and it just kind of moves on to where the real target growth is. And within the institutional segment, the business has moved from the public sector to the private sector.

We actually have, oftentimes, better opportunities in private. In the public, all the projects require multiple bid. Where we can really differentiate in this business where we're involved upfront in the design phase with projects and private projects oftentimes give us an opportunity to have a better differentiation relative to competition.

Our next question comes from Colin Rusch, Northland Securities.

This is Brennan [ph], I'm actually filling in for Colin today. And just a couple of quick questions for you guys. Are you able to give us any granularity around the relative scale of quotation activity to bookings?

Our win rate?

Yes.

Yes. I've mentioned this in the past, Brennan [ph]. We have increased our win rate. It's not a number we publish, but we -- I think you might have heard I use the term Harmon-type projects. Our projects business, which is Harmon, we call it the Architectural Services, has done an excellent job of spending more time understanding what kind of projects they are more successful at. We've targeted our bid activity towards those projects. We've had a significant increase in our win rate in that business, which leads to better margins and better cost management as every project you bid does cost something. So our win rate in several of our businesses continues to increase.

Okay, great. And then my other question for you is, within the Architectural Services segment, can you discuss any contingency plans, as some of the older members of team may be moving towards retirement?

We do not have an issue of retirement within that business. So it's not an issue for me. We have a very comprehensive management review process, something I amped up here, we call it the MRR, that we go through every organization. In fact, we just completed it, and I'm going to be presenting to the board shortly on our latest round through the MRR. So we have aggressive and rigorous succession planning in place, retention in place and development -- people development in place. So I have no issue with that the way you worded your question. We don't have a retirement issue with Harmon. And, Brennan [ph], I would highlight that the Harmon business has done a terrific job of beefing up their organization with an influx of talent and geographic talent as well.

[Operator Instructions] This comes from Jon Braatz, Kansas City Capital.

I apologize I got on the call late, this question may have been asked, but 2 questions. Number one, have you seen any impact on your business as a result of the government's sequestration? And secondly, as I was driving around Kansas City the other way day, I just saw a lot more commercial construction activity, not big projects by any means, but, nonetheless, things that I haven't seen for a while. And can you talk a little bit about the size of the projects that you're seeing? Are we seeing -- are you seeing more business in maybe the smaller end than maybe the larger end? And can you talk a little bit about that, Joe?

Yes. It's a good question, Jon. Regarding sequestration and government spend, we did mention briefly that we are seeing a movement within the institutional sector more from the public spend to the private. So the bubble has simply moved and so we haven't seen any negative impact of that. The -- there are clearly -- there's clearly evidence, as you wisely note, that the business in the United States seems to be more robust than any metric that comes out of an agency like McGraw-Hill or ABI. So we see it in our bidding, our awards that are pending us, our awards that we're waiting for a decision to see if it is going to come to us. There's no question there is an increase in amped-up level of activity. In particular -- particularly in certain regions that I mentioned, Upstate New York, Texas, Kansas City has some pockets. Baltimore, Washington is still very strong because of the movement to the private sector. In Upstate California, even Southern California, vacancy rates continue to come down. They're still too high in that 15% range, but all indications are able to continue to come down all year. And rental rates continue to inch upward. So we talk about low-single-digit growth in our end markets. I won't lie to you, it feels like it could be better than that, and we maintain that we will continue to be 5 or 6 points better than whatever shakes out in our end markets. You also asked about size of projects. We have focused on slightly larger projects in our business, because they really fit the mold where we can perform well. Our size and capabilities give us a better opportunity to succeed, so we're seeing slightly larger projects come in front of us versus smaller.

Our next question comes from Robert Kelly, Sidoti. Robert J. Kelly - Sidoti & Company, LLC: Just a follow-up on the cash balance. Sitting on basically net cash of almost $70 million, this is going to be your biggest CapEx year and hopefully the next decade, yet you're going to be positive free cash flow. What is the targeted use for all this excess cash?

Well, I'll go in first and Jim can jump in. Obviously, we -- we're making a substantial investment this year in something that I felt was long overdue for our largest business, which is Viracon. We clearly did not add this investment for capacity. As you're well aware, we made some steps this year to take capacity out until we need it. Again, another move, I think, that was overdue. This is a big bet for us for our long-term capabilities and productivity in that business. Jim and I continue to have a very rigorous and, frankly, a deep pipeline of potential acquisitions that are targeted at productivity and capability and geographic and product line extensions. We have an aggressive NPI pipeline, new product introduction. And if we have an opportunity to do an acquisition that can shorten that by years, we will jump on that. Valuations right now, Bob, are an issue. A lot of folks in our industry, obviously, don't want to sell in the trough, so EBITDA multiples can be challenging right now. But I would tell you, we have some interesting things we're working on right now. You've heard me say it before, I'll walk away from a bad deal -- or I'll walk away from a good day before I do a bad deal, but we are aggressive and studying the market for that. So our focus will continue to be on new product capabilities, new regions like we're moving in 2 of our businesses this year, opening up new locations and acquisitions. I don't expect we'll be doing the type of CapEx as we have this year. I think we'll be more in the normalized level of the $30 million range. This is an unusual year because of the onetime investment in a major coater. Robert J. Kelly - Sidoti & Company, LLC: Sure, sure. And then just the 2 new markets that you're entering, can you just remind us of those markets and with -- is it a Harmon markets that you're expanding?

Yes. In our -- both, Harmon market, we expanded into South Central United States, and in our storefront business, which has been one of our best performing businesses, we also announced that we recently -- we just opened up a new facility, fabrication capabilities in Texas, and that just happened late in May, actually in June. And we expect to enjoy revenues from that business. Our customers in that segment -- in that business want us down there and we're moving into that region.

Our next question comes from Alan Brochstein, ABA Services.

My first 2 are really easy, and that is, when you talk about $1 billion by fiscal '16, is that exclusive of acquisitions? Or do you have in mind that, that would include the acquisitions?

That is exclusive of acquisitions. I also point out it is exclusive of any significant success in the retrofit initiative that I talk about each quarter, and that I answered a question earlier in the call about the retrofit. So that -- what I consider a potential next big thing for us as a company is not included in that, that number $1 billion nor is acquisitions. That would be upside.

Okay. And then secondwise, I appreciate the additional break down in terms of the 4 units now. How much -- are you able to say how much of the -- if there was anything that wasn't organic? I remember you all did some small acquisitions, I thought, about a year ago, but was this all organic this quarter?

It's 100% organic. We -- the last acquisition we did was before I came here, the South American addition to our Viracon business. We've had that in our numbers now for comparable purposes going on 2 years now. So this is 100% organic.

Okay. I thought the Dallas thing was considered an acquisition, but that was really a greenfield from your perspective?

For all intents and purposes, yes. We just -- we were moving into the region. We picked up some people and some assets, but we do not acquire anything. We didn't pay any blue sky.

Got it. Okay. And then my last question is, just in terms of -- I've asked you this before, the major impact that you have on the company coming was really to improve the operational performance, and, clearly, that's already happening and you've given some examples of that in the past. But I'm curious if today you can update us how in the last 2 years you've may be changed the sales part of the organization, if at all?

Yes. Operationally, all I did was continue what had begun before I came here. I tried to amp it up a bit. With regard to sales, I have a saying, "Sales eats first." I grew up in a culture where you could not have a conversation about how you were going to achieve your earnings 3 years from now, so we try to cap all our dialogues around growth of, of course, profitable growth. And so I would say, we continue to invest in our selling organization. We have a mix of internal sales representation, as well as external reps. We'll maintain that approach, having dual. But we have made investments in adding -- I try not to add much to the SG&A line, but I'm happy to add more to the S portion of that formula, and we've amped up our -- the number of people we have selling, the training of them, including annual meetings where we they get together and hear from me and they always hear, "I want to make sure we hit our numbers in the second quarter of fiscal '17. And what are we doing about that?" And I think it's just an attitude and hopefully -- and it takes a long time to sink in. Hopefully, we continue to migrate to being a sales first organization.

We have no further questions at this time. Therefore, I would now like to turn the call over to Joe Puishys for closing remarks.

Okay, Sheena, thank you very much. And, Jim, thank you for helping with everything today. To our investors and analysts on the call. I appreciate your attention. I look forward to talking to you in about 90 days with our second quarter results. Have a great day. Take care.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Enjoy the rest of your day.