Good day, ladies and gentlemen, and welcome to the Apogee Enterprises’ Q4 Fiscal 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to Mary Ann Jackson. Please go ahead.

Thank you, Candace. Good morning, and welcome to the Apogee Enterprises’ fiscal 2016 fourth quarter and full-year conference call on Thursday, April 7, 2016. With us on the line today are Joe Puishys, CEO; and Jim Porter, CFO. Their remarks will focus on our fiscal 2016 fourth quarter and full-year and our outlook for fiscal 2017. During the call, we will discuss non-GAAP financial measures when talking about Apogee’s performance. You can find definitions for these Non-GAAP financial measures in our press release. Our call also contains forward-looking statements reflecting management’s expectations based on currently available information. Actual results may differ materially. For information about factors that could affect the Apogee’s business and financial results can be found in our SEC filings. Joe will now give you a brief overview of the results and Jim will cover the financials. After they conclude, Joe and Jim will answer your questions. Joe.

All right, thank you, Mary Ann. Good morning, everyone, and welcome to our year-end conference call. Our strong finish to fiscal 2016's fourth quarter showed strong revenue growth, in fact solid growth in all of our Architectural segments. Gross and operating margins up 150 and 300 basis points respectively and nearly a 50% increase in earnings, this was instrumental in Apogee achieving across-the-board, record-setting results for the full year. I note this is our 18th straight quarter with double-digit increase in operating income on a year-over-year comparison. Jim will provide quite a few details on the quarter in his comments. Allow me to focus on the year. On that, the full-year, we delivered record revenues of $981 million, up 5% as reported, 7% in constant currency. Number two, our operating income or operating margin of 9.9% far surpassed our previous high of 8.4%. Three, we essentially achieved the goal we set three years ago for fiscal 2016 of $1 billion in revenues at 10% operating margin. Over these three years we grew our revenue base by $280 million, 13% compound annual growth rate. Our operating income base increased by $70 million, a 53% CAGR and our operating margin improved 600 basis points in the short period of time. In fact, over a five-year period our operating margin increased 1,350 basis points. I'm darn proud that we were successful in doing what we said we would do three years ago and I'm even more pleased that we achieved our goal the way we said we would do it. Strategies we've executed against include implementing lean manufacturing in our factories which is paying off through operational performance that is better than it has ever been, giving us an average 75 basis points of margin improvement each year. Introducing many new products including…

Thanks, Joe. I'm also very pleased with our strong performance in the fourth quarter and for the full-year. I will provide an overview of the fourth quarter and then full-year results. Fourth quarter revenues dropped 6% and 8% in constant currency. The gross margin was 26.3%, up 150 basis points from the prior-year period and operating income was up 47% to an operating margin of 11% for the quarter. Top- and bottom-line improvement resulted from the strength in U.S. markets for our three Architectural segments. We earned $0.69 per share in the quarter, also up 47% over last year's fourth quarter. I will add a bit more color to the quarterly segment results. In Architectural Glass fourth quarter revenues dropped 7% and up 10% in constant currency from U.S. volume growth and improved pricing. Operating margin expanded an impressive 740 basis points to 12.3% with improved pricing, mix, operating performance and volume. In last year's fourth quarter we had called-up costs related to restarting the Utah factory which has been generating positive contributions starting in the first quarter of this fiscal year. I do want to mention that for Architectural Glass in the fourth quarter we kind of had all the stars aligned: good volume, favorable pricing and mix, very strong operational performance and lower spending due to timing. We don't see this alignment most quarters, so I do caution you not to expect this run rate as we go into fiscal 2017. Fourth quarter Architectural Services revenues grew 21% driven by the timing of product project activity. Operating income was up 9% on the volume growth at better margins and on good project execution. The operating margin of 7.3% was slightly lower than the prior year period really just based on the timing of expenses during the year. In…

Okay, thank you Jim. I appreciate that. Candace, if you would please open up the call for questions, we're ready.

Thank you. [Operator Instructions] Our first question comes from Samuel Eisner of Goldman Sachs. Your line is now open.

Yes, good morning everyone.

Good morning.

Hey, Sam. Good morning.

So I want to concentrate on the backlog and your comments on services. So if I do the math of the down 11% sequentially, it looks as though that your orders and services are down almost 55% year-on-year, your book-to-bill is at 0.5 just for the services business. And seeing as that's two-thirds of your backlog entering this print I want to better understand what you're seeing on the ground level for services, how we should think about that portion of your backlog going forward?

Yes, thank you, Sam. So we've done exactly what we've been saying we would do which was business was focused on project selection and margin enhancement. I have no desire to be a $500 million breakeven projects business. We are in the mid - about $250 million range. We've got the bandwidth to be slightly larger than that. We did grow our backlog for the year on top of the revenue growth that Jim highlighted. That business typical orders come in, we have orders that exceed $30 million in that business and they come in one day, the backlog grows $30 million in one day. It revenues out at a more normalized pace but the orders are very, very lumpy in the installation business. We grew 11% year-over-year on our backlog in our installation business. And as Jim noted we had nice, strong revenue growth. Not as high as our products businesses but exactly where we said we would be, slightly higher frankly for the year. The bidding activity is terrific. The margins in backlog are up another 100 basis points and we certainly have more opportunity than we have capacity. And we're focused on leveraging that for higher margin. But I repeat an 11% increase in backlog over the year on top of strong revenue performance bodes well for the future of that business. You know, Sam, only 34% of our revenues come from our installation business and our large window business which is housed in the Framing Systems. Those are the long lead time businesses when you consider backlog. Our glass business, our largest business, is long lead time in that we have great visibility. We're working on work today that won't even enter backlog potentially for a year as we work with architects. But that work enters backlog with a six-week lead time from production, a great amount of that work goes in and out of backlog in the current period. So with 64% of our orders when you consider backlog perspective going through what I call short lead time book and bill you have to be very careful, you have to peel the onion back on backlog. As I said I'm very happy with our backlog position.

Is it your expectation that that backlog will be up again in fiscal 2017 given that you guys are expecting growth of at a minimum 10% for next year?

I do expect the backlog will be up for the year. As Jim points out every quarter, you can't overreact to a significant spike in one quarter and then we revenue some of that out in the next and then the next quarter is down and you conclude some things wrong. When the orders come in lumpy they come in lumpy. And if I could manage the way orders come in it would be easy. We'd have a steady increase. That's not how it works and we of course follow laws. So the long way around the barn, I do expect an increase in backlog for the year driven by growth in our installation and our windows business.

Got it. And then one more year, just on the competition comment that you made you're seeing increased international competition on large products. I was wondering if you could flush that out further, where is this competition is coming from, are you seeing it from your competitors down South America, is it the European competitors, maybe you can talk a bit about how the competition is ultimately going to affect pricing in your glass business given that that's been a substantial driver of profitability for you? Thanks.

Sure. Great question, Sam. Obviously our sweet spot for many of you that have met with me individually at conferences and at one of ones you know I have a pie chart. We break down the Architectural Glass segment into three components: large projects, midsize projects and the more than 50% of the market is what we call small regional quick turn projects. Traditionally our sweet spot has been the large, greater than 10-story buildings where our share has been between 70% and 80% on a given year, the next 15% to 20% where we’ve got a 25% to 30% share and then over 50% of the business where we have a low single-digit percent share of demand. The large projects that have very long lead times, our international competitors are capable of competing on those because of the said lead time. Being local helps, but the lead times work to everyone's advantage on a large project. The strength of the dollar like it is for all U.S. manufacturing companies is certainly providing tailwinds for international competitors that have a euro or a Latin American cost basis and then a U.S. dollar selling price. We're still the largest dog in the kennel in that segment, but clearly the international competitors have gotten some wins in that space. We've offset that with terrific success in moving our capabilities into the mid-market where we exist today, but we're doing more and more work on that. Our improved operations, our improved lead times, our quality has allowed us to be successful in that space and has allowed us to maintain our pricing and our margins in that business. As you've seen those headwinds existed all year, I think Jim's description of the success in that business for the year, the topline growth and the bottom line enhancement speaks for itself. We have significant amount of bidding activity in our glass business. But clearly Europe, Latin America and to a lesser degree Asia have a better chance of competing in the large project segment today because of the currency exchange than they have in the past.

Got it, that's helpful. I've got some more questions, but I will hop back in queue. Thanks, guys.

Okay, Sam. Thanks.

Thank you. And our next question comes from Brent Thielman of D.A. Davidson. Your line is now open.

Hi, good morning.

Hi, Brent. How are you doing.

Good morning.

Good. Joe, the comments on the market through kind of fiscal 2020, I know you guys have a pretty good line of sight internally, but you mentioned external measures as well and kind of just curious what you guys are looking at in that regard that gives you that confidence in that market strength?

Yes, great question, Brent. Thanks. Listen, we have a lot of external metrics. The Dodge construction market data is one key metric they are projecting commercial building rebound again of after, okay, but less than planned growth in fiscal, or let's talk calendar year now 2015. Commercial buildings are expected to climb at 10% in 2016. That really bodes well for us for our revenues in fiscal 2018 and beyond. Institutional building is expected to see renewed life in 2016 as starts should increase in the 11% range, again very strong. So overall construction growth is expected to pick up speed again in 2016 according to the Dodge data, we do believe with the absence of any massive economic global event we all are aware that terrorism, things like that can change the world in a hurry. Short of that we expect very, very strong end market. We also look at employment gains. Jim, I think it's been what, 73 or 74 months of significant job growth in our primary sector for office space. We meet with building owners. Our business people are in the offices of architects and developers all the time. Jim and I and my leadership team meet with these folks. The bidding activity is favorable right now. So, frankly, I feel that the end market activity in calendar 2016 will be slightly better than it was in calendar 2015 and that bodes well for us. We look at the Architectural Billing Index. It's been at or around 50%, 51%, 52% with an occasional dip below 50%. I like it. I do not want to see ABIs in the mid-60s like it did when we were overbuilding the U.S. economy eight, nine years ago and it kind of contributed to overbuild. We do not see that happening. I like the steady 50%, 51%, 52%, we're very well aware of what's going on out there as we are in the architectural office every day with our lead time business, our glass business as I mentioned earlier. So jobs, unemployment rate, the vacancy rate in office buildings and the rental rates are all moving in the right direction right now. So it's not just one metric that we look at.

That's great. And then as far as what you see internally, Joe, any comments or observations on how the pipeline of projects you're tracking might differ from last cycle? Are there fewer speculative projects or some other trend or trends beyond just the size of the pipeline that gives you some confidence the market has legs?

I would say there's nothing dramatically different with one exception, you said it, I think there was a lot of speculative building going on in the last peak or last race to the top. It was part of the contribution to the net massive fall. We're not seeing that. The largest share of buildings going up are they pretty much won't build the hole in the ground until they've got tenant occupancy of at least 70%. The projects we're working on are strong. They are financed with lower interest rates. I think the Fed is going to continue to be very, very careful. Everybody's waiting for when the next increase will happen. We do know it will obviously be very, very low quarter point, et cetera. I think favorable interest rates are here for a long time and that bodes well. But as Jim and I like to say, we're not going to put another non-GAAP number out there beyond backlog. But when we make our forecast projections we have a lot more information than just backlog internally. We know what I’d like to say, I'll repeat it, we have four levels of visibility: our backlog, projects we've been awarded that will be going into backlog soon, projects that we've been given a verbal or we know that our customer has won and they will be entering backlog in an even longer timeframe, maybe anywhere from three to six months and then work we're bidding on. Every one of those metrics is up, every one, not just backlog. So internally I feel as good as I do looking at the external metrics.

And Brent, this is Jim. I will just add to it. We continue to see a trend of the increased usage of value-added building materials really across all categories and as you know realize all we do is value-added products. And they do also, we've seen over the years the continued adoption of higher code requirements in terms of energy performance whether it's in the windows system or actually thermal performance in the metal systems themselves. And again that really lends to what we do every day.

Sure, okay. And then on LSO I think you guys mentioned some order timing was an issue last quarter as well. Can you kind of clarify what's happening there and when we might expect to see some turn in that business?

Yes, look at the annual results. Jim and I are always, listen, that business is very lumpy, significant amount of sales are driven by the holiday period. Our quarter ends, our third quarter ends at the end of November, so we have every year we have third and fourth-quarter anomalies depending on when the big retail orders come in. Half that business is retail, half is through custom picture framers, the many thousand independent framers out there through our distribution channel that you've got to look at that business on a year-over-year basis. I think the fact that year after year we continue to hold very, very strong operating margins in that business is a testament to the long-term health of the business. And we are working very, very hard to become less dependent on that one segment. We are taking our incredible technology of anti-reflective and ultraviolet protective product and putting on a substrate for other display products other than just custom picture framing glass and acrylic. We've invested a lot in our operations to maintain a superior cost structure. There's a high cost to entry into that business. We continue to amp up that gap by investing heavily in that business. By its nature it’s going to be a GDP type of growth product. So when the commercial construction markets cratered eight years ago that business was holding its own and kind of holding us, giving us some growth. But when commercial construction markets are growing nicely like they are now and we expect for several years that business will be the laggard when it comes to growth. But it's the steady Eddie business we have for low single-digit growth. We're looking to change that profile so we have more opportunities outside of custom picture framing and we're growing internationally in that business. We have a lot of capabilities in spite of any currency issues, we're doing very, very well in that business. And I do expect to continue to see - you heard Jim say mid-single-digit growth in a business that's dependent on GDP and consumer spending. We feel very good about it. So I'm confident that premier business will remain such.

Specifically as it relates to the customer order timing, that was primarily a function within fiscal 2016. In the second quarter just based on year-on-year comparisons we called out that our customers took more activity in their second quarter whereas the prior year they had taken it in the third quarter. So we had a stronger first half versus second half in fiscal 2016 than we did in fiscal 2015.

Okay, and then just a quick one if I could. It looks like your inner segment sales jumped this quarter, was that something unusual or have you shifted to doing something more in-house?

No, there's been no - it's just a mix of projects in a particular quarter and where they sit in the delivery cycle. Nothing has changed as far as in-house versus same profile.

Got it, okay. All right, thanks a lot guys.

Thanks, Brent.

Thank you. [Operator Instructions] And our next question comes from Michael Conti of Sidoti. Your line is now open.

Hey, good morning.

Hey, good morning, Mike.

Good morning.

Yes, so with the comment on the midsize building, I guess what's the margin profile within that particular end market compared to the larger size buildings? And then do you expect the midsize to gain a bigger portion of glass output over the next couple of years just given the competition?

The margin profile is similar. Again our target projects as Jim mentioned are high value-added buildings, folks that are willing to pay for the quality, delivery, how we back up our product on-time delivery. The glass is 1% of the construction cost of the building and approximately 10% of the curtainwall of buildings. So save a nickel on a square foot of glass and risk the largest cost of any construction building are the labor at the construction site. And when things aren't delivered on time or at quality you back up the subcontractors and when the subs are backed up you loss a fortune in labor cost. So the total delivered cost of our product can be substantially favorable to less quality suppliers. And so the margin profile is very, very similar, especially what we're chasing. I would expect our mix to move slightly more into the mid, but we will continue to have our largest sales will always be the greater than 10-story buildings where we have a very significant share.

And our key differentiator to service the mid-market has been our ability to drive productivity in that business to have predictable and shorter lead times. We talked about the impact on backlog, but that's really been critical for us to be able to pursue and penetrate the mid-market which we anticipate and plan to do going forward.

Okay. And then what stuck out to me was obviously the services business. Nice growth, but with the margin decline. Was there a particular project surprise that skewed that downward? I mean I get it's a people's business, but are you finding it more difficult to find quality workers in that side of the business? I guess how should we think about the margin profile on the services side going forward?

Well, you saw a significant uptick in margins this year. Jim and I have been saying repeatedly that our work going into backlog and when we talk about that this business services is a major contributor. When I make those statements all of our businesses have some backlog, but our install business, our services has the largest impact to backlog. We've been stating more than 100 basis point improvement in margin work going into backlog. What you're seeing revenue this year and a 160 basis point improvement in margin from that business is a reflection of those comments. We grew that business, we grew margin in backlog which was evidenced in our revenue outflow. And I'm stating the work that's currently in backlog that will revenue next year is also at a higher margin. And I certainly expect to have triple-digit improvement in operating margin in our services business which is a reflection of our strategy on project selection. There is certainly no one project that drove any movement in the revenue or profit stream for the year. Certainly individual projects can impact the lumpiness to the order intake and hence the backlog. If we had a lot of projects enter backlog in third quarter, if they had just waited three weeks to book those they would have – we would've had a more steady slope to $508 million than an up-and-down. And that's why Jim and I are very careful to say don't overread the movement in backlog. Listen to what we have to say, listen and watch the trend.

And the services segment as a projects business, that's the business also that we really encourage you to look on the full-year basis. The quarter-to-quarter activity in that is really driven by project schedules, so we do see this uneven quarter-to-quarter whether it be revenue growth or even margin percent just based on the mix of margin activity as well as the expenses as they flow through. But we did have good execution across all our projects.

Yes, Jim, thanks for emphasizing that. Projects business there are rules on how you do percentage of completion accounting of course. We book projects at very, very well thought through margin expectations. We don't take good guys until we're substantially along the project. So if we have a bad guy we take it immediately. Those are the rules. Depending on when projects close out if you have several projects closing out in one quarter you can have margin movement in one quarter. So Jim said you have to look at it over a full-year and the trend. And I'm delighted with the trend in that business.

Right, okay. Now my last question just on the gross margin guidance, have you guys anniversaried yet on the consumption of the lower-price aluminum? I guess what are the primary drivers to get that 26% margin for next year?

Yes, year-over-year comps on aluminum will be normalized. I think we'll have – the expectation is we have I don't expect aluminum to move in the wrong direction this year but it's been at a pretty constant number now for quite some time. I don’t think we have much year-over-year.

Yes, we should continue to see a little bit of year-over-year benefit going into Q1 and maybe a little bit into Q2 next year.

So comps normalize fairly quickly.

Okay great. Thank you.

Okay, Mike.

Thank you. And our next question comes from Samuel Eisner of Goldman Sachs. Your line is now open.

Hey guys, yes, just a few follow-ups here, maybe I missed it. The comment on glass being lower in the first quarter, did you comment about what the reason for that, is that project timing? If you can just give a little bit more color there that would be great?

Yes, it's really it's primarily project timing, a little bit of it is the year-over-year comparison relative to our business down in Brazil. We feel actually had pretty, good strong quarter as work was completed in Q1 last year, but so it's not material but it's small decline year-on-year based on our projection out of the Brazil business and then also just based on the schedules that we see in front of us.

Yes, the Brazil business is housed in our Viracon glass business. Its 2% of our overall revenues but – and it frankly I will be honest with you guys, it’s been operating extremely well. We have a great team down there. We're not bleeding red blood down there. We're operating it virtually close to breakeven and expect to remain such. It's well-managed. We expect that market to come back at some point. We all know what's going on down there. We're poised – when I arrived here four years ago, 4.5 years ago, that was our best performing business. And that will come back again, I like my position there. In an individual quarter as Jim said the comps there have been challenging. And that will also start to normalize itself after the first quarter where we don't expect any more deterioration in the currency but who knows with that country.

Got it. Two more quick ones. Weather, obviously, was very supportive I would argue for most people working outside in this quarter. Did you guys have any impact or tailwind from weather this quarter that is [callout able], if you will?

No, not in the rearview mirror note. Listen, glaziers and ironworkers at construction sites are a hardy lot. We don’t see them, unless you have a blizzard or something you're right, weather was not an issue but even when weather is an issue it doesn't really move our needle. We have never blamed weather for any of our issues. You know that. And so we're not going to claim it. What I will tell you though, Sam, is we have definitely seen - we traditionally start to see order activity in our quick lead time businesses pick up in the May, June timeframe. Just that's the way it works in a calendar. The weather, we've actually seen enhanced bidding activity earlier than we normally do. I'm feeling good about that in some of the businesses that are housed within Framing Systems that don't get a lot of airtime on these calls. Our finishing business, our storefront business, where we're actually seeing some healthy pickup that we normally get a couple of six weeks later. I will also tell you while Canada we’ve been very vocal that Canada has certainly been headwinds to our performance, operationally we've really done a great job. In the last two months we've seen very strong activity in Canada. I feel the economy has definitely turned around for the better in Canada. And I will be surprised if we don't have really nice performance out of that business which is housed in our Framing Systems segment this year. We're out of the gate with really strong performance in Canada.

Got it. That's helpful. And lastly just on glass pricing, is there any way to parse out how much that was a tailwind either from the topline or from an EBIT standpoint last year and how do you see that looking into fiscal 2017? I know that you mentioned that obviously competition has increased on the high-end. But specifically just on the pricing comments I was wondering if you can just dive into that a little bit further? Thanks.

Yes, we forward buy glass. As you know we're working on projects at our Viracon glass business, we're providing quotes. We have glass supply secured at known prices as we accept and sign on for project contracts. I would say our people have done a good job. In the last 18 months there have been pricing increases in the end market and we have managed to move that through to the end project. Traditionally when that happens you do get leveraging on that. I don't want to get into more details, but we are very good at Viracon making sure increased commodity prices gets passed through. I thought when I came here 4.5 years ago we were not getting price for the value we added, the complexity. Sam, you have been to our factory. It's massively complex what we do. I didn't think we were getting paid for it. I think our new leaders down there make sure we get the proper price for the complexity we add. But the commodity pricing itself has not been a headwind nor has it been a tailwind.

All right, great. Thanks.

Thank you, Sam. Candace, do we have anymore in the queue. End of Q&A

I am showing no further questions. At this time I'd like to turn the conference back over to you Mr. Puishys

All right, Candace, thank you. And to everyone on the call I appreciate you taking time out of your busy life to hear our story. As you can tell from Jim and I we love talking about Apogee and our success. I look forward to continuing that trajectory and as we go through this fiscal year and fiscal 2018 as well. Look forward to talking to you all as we go into our meetings with you all over the quarter. Thank you. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day, everyone.