Apogee Enterprises, Inc. (APOG) Earnings Call Transcript

Good morning, everyone, and welcome to Apogee Enterprises 2021 Investor Day. It's great to have an in-person audience with us today. And I also want to welcome all of you who are joining us virtually. We think we've got a great agenda for you today. Apogee's CEO, Ty Silberhorn is going to start us off with the discussion of Apogee's new strategic direction. Then each of our segment presidents is going to provide more details on their business and some of their key strategies as we move forward. Then Nisheet Gupta, our Chief Financial Officer, will discuss our framework for value creation and our financial goals. Then we'll take a short break and come back and conduct a Q&A session to answer your questions. Before we begin, I'd like to make a few administrative remarks. First, today's presentation is available in the Investor Relations section of Apogee's website. During the presentation, we will reference certain non-GAAP financial measures. Definitions of these measures and a reconciliation to the nearest GAAP measures are provided in the appendix of our presentation. I'd also like to remind everyone that our presentation will contain forward-looking statements. These reflect our management's expectations, based on currently available information. Actual results may differ materially. We've included information about factors that could affect Apogee's business and financial results in today's presentation, and more information can be found in our SEC filings. And with that, before I turn it over to Ty, we'd like to share a video to kick off our event. [Presentation]

Well, good morning, again, everyone. As Jeff mentioned, my name is Ty Silberhorn, and I joined Apogee as CEO back in January, so not quite a year. A quick summary on my background. I spent most of my career at 3M Company, leading multibillion-dollar divisions for that business and President and General Manager roles and most recently was a senior executive leading the transformation technologies and services group for that company. I came to Apogee, really what attracted me is where I've defined my success as a business leader, and that's helping businesses redefine their strategies, to lift themselves to higher performance and drive strong operational execution. I'm really excited about the opportunity that Apogee presents for itself, and we are excited to be here today to share with you the new strategic direction we have laid out for the company. We're working to build a new Apogee. And as we do that, we're driving more focus in how we are managing our business and driving simplification around our structures, our products and our offerings to the marketplace to ensure that we can also drive stronger execution. As we went through our strategy work, we saw clear opportunities for improvement, not just in our financial performance but how we were managing our portfolios and how we are going to market with those offerings. So it was imperative that we chart a new course for the business, one that positions us to be an economic leader in the markets that we serve, bringing more value to our customers, delivering value for our employees and of course, delivering value for our stakeholders, our shareholders as well. Part of that strategy, we're shifting how we measure success. We put a much stronger lens on return on invested capital and driven those as incentives down through our management teams because we believe that's the best indicator to ensure that we will deliver improved and sustainable shareholder returns. I'm joined today by several members of our team. And one thing I'd like you to take away as you look at this chart is this is a new team. It's one that has individuals with decades of experience at Apogee and/or decades of experience in the industries in which we operate today. But over half of this team is new in the last 3 years. And only 2 individuals on this chart have been in their current role for more than 3 years. We've complemented the existing Apogee management team with people that have great functional expertise, unique business experiences and skill sets that can complement the existing team and align with the strategic direction that we're working to take the company. I'm really proud to be a part of this team, and I'm really excited about bringing our strategy to life with this team. As we put this together for everyone today, we thought about what are some of the key questions we want to make sure that we answer for all of you. And so we thought these 4 would be top of mind. What is our path to margin expansion? How are we going to continue to effectively deploy capital, especially as we start to step back into a growth mode. Speaking of growth, where will we deliver growth and when? And how are we going to position ourselves to outperform the cycle. To start answering those questions, I think it's important just to kind of ground us in where Apogee is today and what we have been doing to drive change. As many of you know, companies mostly focused in nonresidential construction, and it's also a very U.S.-centric focused business today. Most of our revenues come from the U.S., but we also have a footprint in Canada, and we've got a small operation down in South America, where we do have operations and good geographic penetration, even with some of the work that we've done to consolidate locations, we've got a great footprint of manufacturing and distribution in those key areas, but we're also underpenetrated, even in places like the United States where there's still geographic opportunity for us to expand as well as in Canada. Clearly, we offer a broad range of solutions for construction and we've got a lot of deep knowledge and capabilities here, but we also have technology and the company has been able to leverage that technology to enter new markets such as our large-scale optical, and that is an area we wanted to dig deeper on and probe and understand what our opportunities are to do that again as well. Our strategy work did validate we've got some really strong brands in the marketplace that resonate with our customers that line up with some of those capabilities. And if you look at our 4 segments today, 3 of those are really focused on the architectural markets. Our framing systems business, where we have tucked most of the recent acquisitions we recognize it's been underperforming. It's seen margin erosion over the past few years, and our execution around those acquisitions was not what we wanted it to be, and we saw significant opportunities to improve. Our Glass business also has seen margin erosions and really was starting to go down the path to go further down pyramid, if you will, in terms of applications and opportunities, and we had to rethink how are we going to get back to a stronger margin performance level for this business. Our Services business has really been outperforming and Troy will speak to you about that and how over the last few years, they've outperformed the market, both from a revenue and growth perspective as well as from a margin perspective. And then our large-scale optical is really a great example of taking technology platforms that we built in our Glass business and finding new markets and adjacencies that we can leverage those into to build a new business, and we've done a really great job with that. But the question for that business has been, where can it go next? How will it grow? So with that collective performance, we knew we needed to take Apogee in a new direction. And a reminder, this is a 70-year-old company. It's been around, and it knows how to innovate, and it's adapted to changing markets before. So we're confident that while we've reached this new inflection point, we know how to drive that change. We're confident that we will do that again. We spent most of this calendar year really doing a deep dive on a strategic review of the entire business, and that was a critical starting point for establishing that new direction. Let me walk through some of that. Big thing that we did is really make sure that we were taking an outside-in perspective. We wanted to make sure that we took a holistic view of our business, not from our lens, from our internal views but also from the external marketplace, starting with extensive input from our key customers. We talk to key customers. We ask them what they thought we did well, where we performed and where we didn't perform. Where could we do better? We did extensive competitive benchmarking. And because we compete with a lot of private companies, we engaged a third party to help build that data out to help us understand where our products really outperforming, where is our service outperforming, most importantly, are we getting top margins in those application or market segments? And if not, why? That allowed us to do a full analysis of everything in the portfolio. And then as we took that, we stepped back and we had to look at our operating model. Did we need to significantly change how we are going to operate the company going forward to lift that performance and most importantly, to sustain it over the long term. That work did validate a lot of strengths in our business that we can leverage, certainly strong collection of brands that came out loud and clear across our customer base. That broad set of capabilities really was defining and understanding the construction value chain, that we had an expertise and the level there that our customers relied upon and that separated us in many cases from the competition. We had some businesses that had really defined cores and focus that translated into strong value propositions for those customers and explained not only why they were growing at or above market, but we're also generating a leading returns in terms of margin in the marketplace. And I think most recently, through the pandemic and as we stepped into the changes we're making this year, we're proving that we're building the muscle to make substantive cost improvements and really drive stronger operational execution in the business, all of that on top of having a very strong financial foundation from which to build. That allowed us to set that strategic road map. We define those issues. Our market position, where we didn't have strong value propositions or weren't clear or maybe we are trying to be too many things to too many people, looking at our cost structures and then recognizing -- we had certain parts of our business that the execution around operations was going very well, but we had large parts of it, particularly in Framing and Glass, where it was not, and we needed to address that and do things differently. That allowed us to establish 3 priorities. How do we drive higher margins by being an economic leader, taking an active portfolio management approach, not just talking about M&A, but looking at our existing product lines and how are we investing and amplifying those or reallocating resources and then really continuing to strengthen the core capabilities at the center of the company to support and enable our businesses. That allowed us then to set clear expectations in terms of driving execution, making sure we're focused on delivering stronger returns and then aligning the incentives across not just the executive team, but down through the organization to these new goals. Our ambition going forward is clear. We intend to create peak value for all of our stakeholders by building differentiated businesses with strong operational execution to ensure that we not only improve our financial results, but those are sustainable over the long term. This really is a paradigm shift from where Apogee was before. This thought of being an economic leader instead of just focusing on trying to be #1 in the market from a revenue perspective in certain segments and applications, to really delivering value for those customers that allows us to drive to top margins in those specific applications. We had to change that operating model. We were a very decentralized business before. I've heard some of the analysts asked me questions in the first couple of months and even employees talk about Apogee as a holding company. We cannot operate that company that way going forward if we're going to grow and sustain and really take advantage of our scale. So building out these center-led capabilities is paramount to our success and taking this company to new heights. And then really being focused on driving above-market returns. That means we have to outgrow the markets that we're playing in, and we need to deliver higher margins as a result of that growth. And then this concept of being an active portfolio manager, not just acquiring businesses but looking at everything in our portfolio constantly to assess, is it still a good strategic fit? Is it a strong financial fit? And if not, what do we need to do to make it so? We've gained some early momentum in our transformation with the announcements we made last August, we've realigned our Architectural Framing Systems business. We've refocused the Glass business, which Nick will talk about, and we created a unified offering around our custom facade business. We also launched a transformation office. As we look at building those center-led capabilities, there's initiatives that cut across the businesses and the corporate functions, and we wanted to make sure that we had resources that we're supporting and driving that across each of our segments, and then reinvesting in lean. The company had a great foundation in lean, and I have a background in Lean and Six Sigma from my time at 3M. But like most companies, at some point in time, you've got to reenergize, revitalize that. And we're doing that now when we brought in new leaders with specific experience in doing just that to help us start it, and you'll hear more about that early wins that we're seeing in Glass. So let's talk about the strategic pivot in more detail. So aligned to those priorities, there's 3 pillars to our strategy: the economic leader, actively manage the portfolio and strengthen the core. We're building those 3 pillars on a foundation of enablers, starting with really ensuring we have a results-driven culture across the company. And that's complemented and supported by what we're calling the Apogee management system, which has lean at its foundation. We'll also continue to invest in developing our talent, making sure that we've got the right skills to make our strategy work for the long run and continue to build on a best-in-class governance model. Let's go through each of those pillars. First one, Economic Leader. Some of those key building blocks -- to do that effectively, you need to really understand your markets, and we validated, we have that knowledge, and we strengthened that knowledge as we went through that strategic work. What we weren't doing well was this clear alignment in our go-to-market strategies and how we were leveraging the portfolio. And so you saw some of the moves we made in August started to get that alignment right. And then really understanding where do we have differentiated offerings in the portfolio and how do we build more of those, make it a larger share of what we have today, build more differentiated offerings or bring more differentiated offerings into the portfolio. We're also going to continue to be in a competitive market. So we can't lose focus on that execution and driving productivity constantly and consistently, making sure that we're maintaining a competitive cost structure. And doing these things will ensure that we become the top margin generators in the market segments in which we're focused, which, in turn, will help drive those higher returns. Now even as we drive this focus, reminder, we still play in very large markets. These numbers just represent the United States. And while most of our Architectural segment is focused in that glazing part of the industry, through our strategy work, we saw adjacent opportunities that would allow us to tap into that larger $450 billion pool. Reminder, too, again, this is just U.S. We've got businesses in Canada, and we have an opportunity to even expand further geographically within the United States, not to mention the opportunity to grow businesses like large-scale optical leveraging our technologies. The other good news is right now, we're aligning with what most of the forecasts are saying, this one being FMI spend, that the market for construction for nonresidential construction is likely bottom, and it is expected to start to show growth next calendar year in 2022. And then as we get to '23 and beyond, we return to high upper single-digit growth. And so the work that we're doing is putting us in a strong position to leverage that growth and accelerate the returns for our business as we go into calendar '23. That second pillar, actively managing the portfolio. Now this chart just gives you a pictorial representation of how we're evaluating all of our businesses. So those bubbles are looking at business segments, product platforms, different offerings that we have within the portfolio today. And like most companies, we've got some businesses that are high performers, and we've got some businesses that are underperforming. With our new lens and looking at where we're taking the business, we're going to drive more growth in those businesses that are in that upper right. And then we've put improvement plans in place to address the ones in the bottom left, and we'll continually to evaluate those. Are we making progress so that they will be accretive and contributors to our long-term goals, and we'll also look to reshape this portfolio over the next 3-plus years. So we know that there's a lot of work still to do here. We've got a good start on this, but we're looking at how do we amplify hundreds of millions in those high-performing businesses from a revenue perspective and reshape or add in hundreds of millions of stronger-performing businesses that push into that upper right quadrant. In the near term, we set clear strategic priorities for each of the segments. Framing and Glass are right now really still focused on maximizing value, and that's driving their margins up to what we've identified as high-performing levels in their spaces. Brent will talk about Framing and how we're fully integrating those businesses now, and that becomes a playbook for how we will do acquisitions in the future. We will look at getting integration, back-office systems and processes starting on day 1 and where we can fully leverage a business on the commercial front end to get those benefits and scale that we didn't get initially. Glass really has to refocus itself, and Nick will talk about that so that we can deliver more value to our customers, which will drive higher margins for us as a business. And then our services business, I really looked at it as it's an underappreciated asset because it hasn't been fully recognized for what it is, which is much more than an installation business. And the returns that they have been driving, they are a market leader and an economic leader in their space today already. And then opportunities to invest in large-scale optical, which Jane will talk -- their core market is actually showing signs of growth for the first time in years, some positive shifts coming out of the pandemic with buying behavior and opportunities to leverage technology capabilities into new adjacencies as well. As we do these things, we're not going to lose that discipline with how we're taking and managing those investments. So we're building a pipeline of opportunities for organic and inorganic growth. We'll take a strategic and that financial lens with an emphasis on return on invested capital, and doing things that are accretive to our long-term margin goals and then making sure that we're leveraging those centers of excellence across the enterprise. These first 2 pillars are about what we will do. This third pillar, strengthening the core is really about how we will do that. So building out that functional expertise at the center to support, enable businesses and allow us to scale and be more effective at integrations in the future, not losing sight of that investment rigor, keeping that near-term lens, a business like Glass. We're more interested in investments that are going to help immediately improve their margin and get them to the targets that we've set and have a shorter return on that investment versus an area like services or large-scale optical, we're more willing to take a longer-term horizon and are ready to invest in growth for those businesses. Building out our management system with Lean as its foundation, continuing to invest in the talent in our organization and build on that strong governance. Doing these things is going to help drive those efficiencies allow us to scale and sustain that growth over the long term. Let me just touch on 2 of these elements, and I'll start with the Apogee management system or some of you might be more familiar with terms like business system or operating system. We have the foundation with Lean, and we're reinvigorating that now across the enterprise, starting in our Glass business. At the same time, we've taken tool sets like 80/20, and we use that in that strategic planning process to look at everything we had in the portfolio, including the customers and the market segments we were serving, where could we get the most value with the most focused effort. That's an important lens to maintain as we start to expand our scope and pushing Lean out, reinvigorating across the entire enterprise as well as looking at the commercial front end but constantly evaluating, are we focused on the areas that are going to drive the most value for our customers, for Apogee and for our shareholders. And our objective here is really to embed this in the culture. It's a multiphase approach. It's a multiyear effort, but it becomes how we do things at Apogee and it is how we will develop talent at Apogee for the future. And then I'll touch on ESG. We've got a great history here of bringing products to market that help drive energy efficiencies, reduce greenhouse gases. We have really helped enable countless buildings here in New York City and around the world achieve Lead certification. And we've also got a good social track record. We've got a great safety program in place with some industry-leading metrics there, investing in our employees and our employees investing in the communities in which they serve. And from a governance perspective, we have a great Board of Directors, which also has seen some changes over the past few years. We've got great skill sets, great talent brought in and a very diverse Board. Our diversity metric for our Board is 56%, and they're challenging us as a management team to not only enable and achieve the strategy but drive these things more strongly across the full enterprise. So how are we going to measure success? Let's talk about that ROIC lens and our goals. So as some of you might have read already this morning, we've set our targets over the next 3 years to nearly double our return on invested capital and nearly double our operating margin back to an exceeding levels that we were 3 or 4 years ago. On top of that, we've also set a goal of outperforming the market. So growing 1.2x the construction index, particularly as we start to move into those higher mid-single-digit growth rates in '23 and '24. Now one thing that's not on this chart that I'll talk to, is, we're also taking a [ 15 and 15 ] mindset into the organization. What do I mean by that? Well, most of you have probably heard, we've already set a hurdle rate that we are only interested in making capital investments that have a 15% return or greater. That's accretive to our 12% goal. We're also challenging the teams that if we're going to really build a portfolio of differentiated offerings, we should be always be looking at our horizon of 15% margin. That's a far cry from where we are today, but it sets that arise and it opens up the thinking to be bolder in what we want to do, what we want to bring into the portfolio. Because if you can achieve those margins, it clearly means you are delivering value for those customers that they're willing to pay for that value because it's driving returns for them as well. Now charting this new course, we're kind of in these 3 phases. Through the middle of the pandemic last year and into our fiscal '22 right now, we've been in that stabilization mode. But as we close out fiscal '22 and move into '23, we're now in that middle section where we're beginning to pivot and start to execute on this new strategy and bring that new operating model to life. We'll continue to do that through fiscal '23. While we do see markets rebounding, reminder, our focus for our Glass and Framing business is to really ensure that they get to the new target margin levels that we set and then really turn them loose to grow so that they can drive those margins over the long haul. And then really be positioned our fiscal '24, which is most of calendar '23 to really accelerate and outperform the markets going forward. So in summary, this is a new team. It's a new strategy, one that we've got immense confidence in being able to execute and deliver, and we've got great momentum already in starting to execute the strategy. And most importantly, we've got that new lens for measuring success. And together, we are absolutely confident that we are going to deliver peak value for our customers, our employees and our shareholders. So with that, let's start with bringing up some of the segment presidents, and we're going to start with Brent Jewell, who will talk to you about Architectural Framing. Brent?

Good morning. Thank you, Ty. Thank you to everybody who's here in the room with us in New York City, and thank you for joining us online. I'm Brent Jewell. I lead our Architectural Framing segment. I will be one of those folks that is relatively new to the team. I joined Apogee in mid-2018 to Lead Corporate Strategy and Development. And in August of 2019, I moved into the role -- I'm currently leading the Framing segment. Prior to coming to Apogee, I spent 7 years in the industrial coatings markets as well as 14, 15 years in paper products businesses with general management and P&L responsibilities. So I'm excited to talk to you a bit about the transformation we have underway in the Framing segment. Very much aligned with the broader goals of the corporation that Ty just outlined for you. So we'll talk a bit about that transformation, where we're at, where we're going, some of the specific priorities and initiatives we have in place to ensure we deliver the results, and then specifically, how are we going to measure success going forward. So just to overview Framing. So our Framing business, we are vertically integrated. We are a provider of aluminum products, so aluminum windows, curtainwall, storefront and entrance systems. What integrated means in this business is we design, we engineer, we extrude, we finish, we fabricate and we assemble the products that make up these systems that generally serve projects for our customers and partners through the value chain. Framing is the largest segment of Apogee, and you can see the revenue numbers here. We have a collection of strong brands that we've reorganized, and I'll talk about that here in a few minutes of why and how we've done that. We operate across 11 primary manufacturing locations in both Canada and the United States. As Ty mentioned, this will be a part of Apogee where we have not lived up to our potential in the last several years. We have underperformed our past performance as well as the markets, and we are focused holistically and primarily on expanding operating margin in this segment. Despite some of the market downturns of the recent 1.5 years as well as some of the cost inflation that is real in our marketplace, we have begun to turn the corner from an operating margin perspective. The point is, we are -- we have been building momentum. We have been working on our fixed cost structure. We've been working on productivity. We've been working on the back-end consolidation, and we've been working on our commercial practices and how to really understand where do we deliver value, how do we make sure we capture that value from the products and services that we provide to our customers. So we're not starting flat-footed. With the announcements that Apogee made in August of this year with the restructuring, we've really utilized that opportunity to amplify and accelerate the realignment in the Framing business. Previously, prior to me coming into this role and previous to August, I think you could oversimplify it and Ty made the comment of holding company, in this segment, we generally operated as 6 independent brands in the past, and we had 6 of a lot of things as a result to that. With the restructuring and the realignment of this business, we are now -- we've now taken these brands, and we've organized them into 2 business units. Storefront and Finishing Solutions is our Alumicor, Linetec and Tubelite brands. The Window and Wall Systems business is the Wausau Window and Wall brand as well as the EFCO business. And then Sotawall, as we've previously announced, we'll be moving to our Services segment, and Troy will talk to you a bit about that in a few minutes. So it's not just about aligning the brands into 2 businesses. We've aligned the leadership teams. We've created clear accountability for P&L responsibility, the supply chains, our intercompany supply chains as well as our value propositions to the marketplace, very well aligned around how we have these businesses organized now. We are doing the integration arguably that could or should have been done over the last couple of years. Those commercial strategies and products, as I mentioned, aligned to the marketplace needs, we're centrally managing our operations now. So those 11 primary manufacturing locations, we're managing those from a center-led perspective. That is different than how we historically have done that. And it's really -- that move has allowed us to close a number of facilities, and those closures really haven't been driven by market demand, they've really been more an opportunity to optimize our existing network from a capacity and capability standpoint. Lastly, we've centralized back-end operations. So think Finance, HR, IT. Again, we used to have a number of independent back offices for those. We are now moving to -- we have moved to one organization, as important in one set of expectations, one set of tools, one set of metrics to allow us to put that all together and build an operating platform for leverage. When we're through this transformation, we will have these 2 platforms and businesses, and they do have differentiation in the marketplace. So Storefront and Finishing, again, this is Alumicor, Linetec and Tubelite. We have a proven value proposition in this space. This is really quite simple. It's about dependable short lead times in service. Our average order size in this space, think thousands or tens of thousands of dollars. We win. We win and lose by 1,000 cuts is one way I describe it to our organization. And our vertical integration allows us to deliver against that value proposition. With Window and Wall Systems, it's a bit different, but serving similar customers and the core of that value proposition is really around 2 things. It's the engineering capabilities for generally larger products -- projects, I should say, relative to Storefront and Finishing as well as having a breadth of product portfolio to meet the needs of that full project for our customers. We're confident that as we build on these specific capabilities in these 2 businesses with that enhanced market focus, clarity of our operations and driving Lean processes to a more definable, measurable, productivity-driven world is going to lead to significant margin improvement in these 2 businesses. So we have very clear priorities and they're pretty straightforward. Ty mentioned this already. Our #1 priority is to grow the margin profile of this business. We are not looking to take this to a place that is just aspirational, it's a place we've been before in the past, and we do see strategic focused growth opportunities in the marketplace as well. So number one, is that step change in margin performance. I showed you where we've been in the past. We have begun to turn the corner. We are targeting double-digit margins, operating margins in this business. We are going to get there through all the levers you can imagine. We've started that process already with the cost reductions and the realignment that I mentioned, the restructuring that we've taken earlier this year. Product rationalization is a real opportunity for us. In the short term and in the long term, that new enhanced focus on product management, frankly, I think is going to allow us to do a better job of identifying and understanding marketplace and customer needs earlier and faster that ultimately will enhance our ability to grow as well. With the back-office centralization, I mentioned those common expectations, common tools and common metrics, we've really gained some nice insight and there's still room to go and really understanding where we provide value to customers, what kind of commercial policies we should have in place to make sure we capture those things. And we've done a lot of work on pricing with more to go. The supply chain optimization is a big deal for us. I mentioned we closed a number of locations already. as importantly, if not more importantly, the focus on running those 11 locations as 1 network and really honing in on those key value streams that we execute within those. So I mentioned we extrude, we finish, we fabricate, we assemble. We do that across those 11 locations with centralized management with common expectations, with common metrics, we're now able to get more out of what we have. When you put all that together, I'm confident that we're building a platform that's going to allow us to not only grow margins but to sustain it and it has set up a platform for leverage. That said, we do not need growth. Ty mentioned this, I mentioned it earlier. We don't need growth to expand margins. I view it as the icing on the cake, and we do see specific opportunities to grow in the markets we play in today. So both the product markets, the project size markets as well as the geographic markets in U.S. and Canada. We showed earlier here some of the market forecasts over the next several years and the growth opportunities that exist in the market. I'd say there are other leading indicators that I was having a conversation earlier here this morning that give me confidence that even some of the indicators in front of put in place, in front of starts projections that the marketplace is going to grow. In that, we know there are markets where we are underrepresented, and we can grow from a geographic expansion standpoint. It's also not -- it shouldn't be lost on anyone and nor is it on me, the brand cross-selling opportunities that continue to exist in this business. We've done a nice job over the last couple of years with that. But I believe with this realignment and the way we have the brands focused and really understanding where they drive value, we can do an even better job of that cross-brand selling to really meet the needs of our marketplace. We do have a new focus on product management, which in the short term is really about simplification. But as importantly, I think this realignment and focus is going to allow us to do a better job of understanding those changing market needs and put the products and services out there that the marketplace will demand in the coming years and outpace the market growth. So how are we going to define success as we go forward? Very clearly, we need to deliver on the efficiency and the cost benefits of the realignment that we've already undertaken with our restructuring. They're obviously, across many parts of the industry, there's inflation that's occurring. We have taken a lot of commercial -- what I'll call commercial policy action as well as explicit price action, and you should continue to see our pricing improve over the coming 12 months. And lastly, while it may not be linear, you should expect to see visible progress in that margin expansion. To put all that together, our transformation is underway. We've been working on the fixed cost structure. We've been working on realignment of the business, focusing on market needs, simplifying the business and appropriately integrating operations in back office where it makes sense. And I am absolutely confident that we are going to both double the operating margins and be a double-digit operating margin business and outpace market growth over the coming years. With that, I'm going to turn it over to Nick to talk to you about Architectural Glass.

Good morning, everyone. I'm Nick Longman. I'm the President of Architectural Glass. Really look forward to talking to you about the journey that we're on in Architectural Glass today and giving you that overview. A little bit about myself, like Ty, I joined this year as well. Before that, I was CEO of Harvey Building Products, a manufacturer of residential windows and doors. And then also, I've had a lot of [indiscernible] industry experience, notably Danaher, Rexnord, Colfax and with different business systems. What I really enjoy is driving operational improvements and deploying strategy to get breakthrough results. And I think we've got an excellent opportunity to do that with Architectural Glass. So this morning, thinking about the foundation that we're going to build on, we're on a journey, right? We want to get to that 15 and 15 as well, and we're not there. So how we're going to get there is going to be part of our discussion. Second, I want to give you an overview of our business and help you understand how we can be an excellent contributor to the Apogee portfolio. And then finally, I want to walk you through how we're going to find success going forward and just keeping score. So looking at the Architectural Glass today, we operate under the brand named Viracon. Some of you may know Viracon, a lot of you may not. But we are the leading Architectural Glass business in North America and it's obviously why. We provide excellent breadth and depth, great quality and service. You can think of us as like the John Deere of Architectural Glass. Any time you drive by a farm, you see a tractor out there and combine outfitted with all sorts of opportunities and always running, never broken down. It's the same thing with our business and our products. A lot of you probably walked here today. If you think about any of these buildings that are 10 stories are higher, some of you in Chicago, San Francisco, Boston or such, our glasses in these buildings are for a good reason. It's dependable. It could be customized and it's very reliable, providing outstanding cost of ownership experiences to our operators. So we are positioned to win to take share profitably for some key reasons. First of all, we talked about it, great quality service and delivery. That's the ante that we bring to this game. But second, we have excellent relationships in terms of driving right specifications with key associates, that being the architects and the developers who drive great purchasing decisions. Third, we develop proprietary products and solutions that allow these decision makers to customize and provide outstanding opportunities. But lastly, and I think what's really become more important is, we have an excellent operational model that our competitors don't. We're able to conduct more of our manufacturing inside our 4 walls with less operational risk. This positions us to do more specialization and drive more returns with less risk, which is becoming even more important in a world where supply chains are interrupted commonly. So excellent business, growing forward, but we weren't where we wanted to be. We talked about at 5% EBIT and we want to get to 15%, we realized we headed the change financially. So we've embarked on a key strategy. And there are 2 drivers to this. First of all, shift to premium. What we want to do is continue to accelerate our targeting of those customers that we can tip to more premium solutions. A lot of these folks want more premium solutions. It's what they do well. It's how they drive value, and we can give it to them better than anyone else. Second, driving executable, sustainable cost and productivity improvements. Obviously, it's excellent for the margin expansion that we want to drive going from a 5% to a 15% type of world. But second, when you think about our Apogee management system, it's critical that you're able to use your operations to drive specialization and proprietary solutions so you can drive those offerings to our customers. Looking at the industry, why is there this demand for premium solutions? It comes down to 3 key items: First of all, Design Considerations, developers, architects, they want to develop more complex facades. You think about using more jumbo glass, more proprietary coatings, a lot of opportunities to provide better aesthetics and management for operators. That's the first pillar. The second is Safety and Peace of Mind, thinking about all those securities that we have around the weather. We can't predict the weather, but we can build products and solutions that can protect us better. Even electronic interference, which is becoming a key consideration in a lot of our opportunities with both private and government accounts. Finally, Sustainability. Green opportunities are key. But there is a large opportunity to provide better profit/loss opportunities for building outcome by using heat management systems, and that's what we provide. But what's most important at Viracon is that we can provide all 3 of these and unique solutions, and we do this every day. Just taking a look at our product offerings, I'll highlight 3 keys. First of all, jumbo glass. This used to be 8 to 10 foot, you're thinking about going from your floor to your ceiling on a lot of these buildings that we see around here. They're now 12 to 20 feet. It provides better aesthetics and better management control for your thermal solutions. Second, we have hurricane-resistant glass. And what that means is you can take a 2 x 4 shoot it out of the Canada at 100 miles per hour or higher and still withstand fractures, and we do that for testing on-site in fact. Third, we have Smart Glass, where we've leveraged outside expertise to develop glass that uses artificial intelligence to dim itself automatically. This minimizes the heat intrusion but provides excellent ambient lighting for those folks who are inside. So as we position Apogee to be a leader in these premium solutions, here's how we're going to drive it. One, continue to accelerate and tip the market for more customized solutions, especially with architects and developers. We know this is what they want and will accelerate. Second, by beginning to provide more differentiated innovation and strategic partnerships. This is our focus, is driving more of this to the market and accelerating this. So we can have more commercialization of technology and take that leadership role. Finally, continuing to outperform customers' expectations, in terms of both quality, service and delivery. What it comes down to is this. We need to ensure that when our products go into a building, they're there and doing as well 10 years from now as they are today, and that's our commitment. But why it's outstanding for shareholders is, it's allowing us to drive more profitability, better pricing, better mix and then better share. Looking at our cost side, what's really exciting is the following: we've been able to take our operations and actually increase the amount of specialization while decreasing our cost to serve. And I want to make sure everybody understands that. In manufacturing, it's usually the opposite. You reduce your cost to serve by reducing what you offer to customers, and we're inverting that. And how we're doing it is really amazing. First of all, we've reduced our footprint from 3 facilities to 1 with no increase in labor and driving productivity. Second we have relaunched Lean and continuous improvement using the Apogee Management System. But finally, we've continued to provide great focus on delivery and service, making sure that our products, as they leave the factory are just as solid when they get there. All this provides margin expansion, and we're going to talk a little bit about how we're doing that on the next slide. Using our lean reinvigoration, we've been able to take the best of the Danaher's, the Toyota production systems and put it together for Apogee Management System. And we chose Glass for one simple reason: we needed to get better faster, and what better place to do it. So with that in mind, we picked a couple of production cells in our flagship Owatonna in Minnesota facility. We experimented on those cells. We used the process approach and used a lot of the manufacturing labor and their knowhow to get a lot of creativity and drive a lot of results quickly, a lot of experimentation. There are some failures, and that's possible. That happens with any type of Lean transformation. But I think you'll agree the results are outstanding already. We're hitting over $5 million and labor productivity at run rate, we'll blow past that number. I'm sure as long as we keep using the process approach and leveraging those associates and their creativity. We're just getting started now in manufacturing at Owatonna, but we're moving into engineering as well. And if you think about this in terms of a baseball game, we're in the second inning for Apogee right now. Think about what turns we can drive to the other businesses, which will starting up right now over the next 12, 24 months. So defining success going forward, we are confident that we will capitalize as we go towards 15 and 15. We're seeing outstanding results in our shift to premium. We're getting just as strong results as we drive operational improvements to lever margin expansion. What you can expect in the next 12 months are the following: continued execution on the facility consolidation plan, we're on track, and we plan to stay on track; second, cost savings and productivity improvements to drive margin expansion we've seen early returns like we've talked about with labor productivity, and we're going to see even better returns as we drive more price through more targeting of those customers; and then finally, what's most important with our shift to premium is driving mix in pricing and being in those right segments, so we can outperform the market as the market pivots. We don't know where the market is going to be. But as long as we're at the higher value segments and capitalizing with those customers, we're going to be in a good place. So putting it all together, I want to sum it up with this. We realized we needed to change. It's a great business, but it lost its footing. We're at 5%. We got to get to [ 15 in 15 ]. We've got a good way to get there. We're giving a good steady progress. We'll keep updating you as we go forward. but we think we've got the right strategies with shift to premium and driving our operational improvement as we lever the Apogee Management System. With that in mind, I'm going to turn it over to Troy Johnson, who's going to give you an overview of the Architectural Services.

Thank you. As you just heard, my name is Troy Johnson. I'm the President of the Architectural Services segment. I've been in this role just under 2 years. I've got about 20 years in the glass and glazing industry, including the last 10, here, with Apogee working in this segment, really excited to share some insights into this segment and what our plans are as we move forward. I'm going to start with just getting to know the segment a little better, how we operate and exactly what we do in this segment. I'm going to start with our name Services that actually refers to project management services in the construction industry. We're going to talk about how we leverage that as a value driver through our people, our operating platform, and ultimately, kind of how our market strategy is deployed. The brand name in Services segment is Harmon, a business that's been around since 1949, one of the founding businesses in the Apogee portfolio. As I mentioned, we're a projects based business with a focus on custom high-performance curtainwall. We're currently the largest glass and glazing subcontractor in the United States. We're also a top 100 specialty contractor as well. We operate in 5 regional businesses supported by 4 manufacturing centers. We have a couple of engineering locations and then our corporate team out of Bloomington, Minnesota. We often refer to this segment as the installation business. And though that's a very important part of what we do. It's actually only a very small part of what we do. Our focus is on the delivery of the entire project life cycle from concept all the way to completion. For us, that starts with preconstruction services, which is in-depth project support that we provide during the sales process. And you can see some of the bigger buckets here. We then move into engineering and design, manufacturing and then ultimately, the field work that happens at the construction site. This process is led by dedicated project teams. The process is very integrated. And that really helps us drive better risk management, execution overall and really productivity across the entire project life cycle. And that really -- the operating system supports a very holistic sort of view on how we do that, and it's really helped us develop a nice balance between capability and cost effectiveness. It turns out that, that balance of the 2 -- of capability and cost effectiveness really is what ends up being our value driver in the market. And to understand why, you have to understand how our clients procure our services. Because a lot of what we do is custom in nature. A lot of our clients use the marketplace to determine the price of a project. And they do that by setting a hurdle rate for capability, based on the project needs as well as their view of risk. And then once they've set that hurdle rate to sort of limit the bid list to who they want, they always buy on price generally. And so the way we play there is we're very disciplined about pursuing projects that really match what our strengths are and our capabilities. That tends to eliminate a lot of the lower cost, lower capability players who we don't even really try to compete against. And then the remaining high capability players is we really -- we beat them on price. And that sounds obvious, but it's taken a lot of discipline and investment to build out that market position, and we found that it's very hard for our competitors to replicate. So that's led to great preference by our core clients because we've really been a great value in the marketplace. So as we found success with that model, our goal is initially were profit optimization. And it wasn't until about 2019, as we were starting to hit some of the margins we wanted that we realized we might be able to create some value with some incremental volume as well. Part of the reason for that was we were feeling like we were stable and risk management was very good and consistent. But also, we knew the market expansion we were in was becoming very mature, obviously, one of the longest on record at the time. And we wanted to enter any potential downturn in a position of strength. So in 2019, we look to take about $30 million to $50 million of incremental volume, which is not something we've normally pursued. And we were extremely pleased with the results. Obviously, we went through the downturn really strongly. But fiscal '21 for us was a record year. Revenue and profit-wise, we're having a similar year this year with very strong results. And what I'm most proud of is how we've handled the downturn. So traditionally, this business has not fared very well at the end of a construction cycle, and we not only outperformed the nonresidential market, we did really well against our peers from both a revenue and operating income standpoint. So that gave us a lot of confidence to start imagining what's next for us as a team. And but it also was a good education on what we're going to need to continue to drive value, particularly through volume. So we have 2 strategic investments that we're making, that we're really excited about. One is we're investing in our people assets. I'm going to talk about kind of why we're doing that and how we're going to do that. And then as you heard from the announcement in August, we're also bringing the Sotawall business in with Harmon into the Services segment, and we think that's really going to unlock some value. So if you're in the project management business, you're largely in the people business, and I think a lot of our recent success has come from taking what was a very individually based experiential-type learning to a collective experience that was more owned by the enterprise, which allowed us to evolve our operating system in a way to really drive the outcomes we wanted, and we've been very successful with that. But we also realized that a lot of our traditional roles were very broad and very demanding and required a lot of talent. And so for us to go where we want to go and now that we're starting to build some real scale in the business, we're looking at needing narrower but deeper roles compared to our traditional ecosystem. So we're making a large investment in this right now. It starts with another look at what's -- like I said, I really love our operating system, but we want to evolve it in order to be better fit for that type of environment to help us redefine our roles, like I said. With the scale we have, we can be deeper with more narrow focus. That's going to help us build out our systems better for bringing people in and accelerating the learning they need to gain both the skills but also the experience to drive the way our operating systems work. That's going to have a ton of value for us. It's going to broaden the candidate pool. And frankly, it's going to take the development time, which we often measure in years down to months. And for us, this is a strategic pillar that's going to continue to help us fuel where we want to go as a business. So very excited, some very intentional goals within this initiative that we know are going to drive value long term. The other is, as part of the strategic work we did over the last year is just taking a really hard look at the Sotawall business. It became apparent that with the similarities it has with Sota that these 2 businesses are better together than separate. And we see that there's definitely some opportunity in the go-to-market strategy, but the real value here is in the operating system. We've got great people in the Sotawall business and a great infrastructure there, but they're not converting to the bottom line dollars like we would want. And so we know that the operating system that we're using at Harmon has proven to do that. And so we're -- we know that deploying it here is going to add some margin optimization. And so the more we've dug into this, the more excited we are about the opportunity here, and so we'll be doing some heavy lifting on this in fiscal '23 to help unlock some value there in the Sotawall business. So where does that leave us, as we look to the next 12 months and beyond? Obviously, these 2 big initiatives have a lot of heavy lifting in fiscal '23. So we'll be looking to bring those to fruition and to start to get the results from those. And ultimately, though we're excited about some of the margin optimization in the Sotawall business, our goal is to continue to take some volume. And we're going to do that in a similar fashion to how we did in 2019. We're going to take it in chunks managing our risk and wanting to maintain our margin profile. But we're extremely excited of what we think is available in the marketplace. So you asked how much volume are we thinking about taking? We're targeting $100 million. I'm extremely confident that with what we're doing, we're going to be able to take an incremental step up with what the market has to offer based on our recent track record. And what we've learned from that as well as the investments we're making to shore up some areas that we know are going to be a gateway to more effective opportunity in the marketplace. So one of the things I've enjoyed listening to all the earnings calls the last couple of years is the questions about services, hey, this business is seems to be doing better, why not more from Services. And so I want you to know we've been listening, we've been working on it and hopefully today gives you some insight as to where we want to take this business to create more value as we move forward. So thank you for your support and for listening today. And with that, I will turn it over to Jane Boyce and the Large-Scale Optical Group.

Morning. My name is Jane Boyce, and I am President of the Large-Scale Optical segment, and I'm excited to be here and talk to you about the business today. I've been with Apogee since 2006. And since 2006, my team and I have delivered category leadership, innovation in new products, new markets and technologies as well as a strong record of profitability. Prior to 2006, I was in this consumer packaged goods industries and marketing and general management positions. So today, we're going to talk about the aspects of today's business, what differentiates the Large-Scale Optical segment. We're also going to talk about what some of our growth plans are and what you can expect from us going forward. But before we get started, I'm going to show you a very brief video that we developed for the museum market, one of the markets that we participate in. And it will give you a little flavor for our technologies, you'll get to see a little bit of our plan, and you'll see the passion that we have for our customers and our industries and how we deliver every single day. So with that, let's roll video. [Presentation]

Thank you. So here's a snapshot of the business. The brand name that we go to market with is Tru Vue. The business is about $95 million in sales, delivering a 25.5% operating margin. Our core business is custom framing and museums and collectors. Most of our business is in the U.S., although we do have a global distribution network, and we're growing nicely in our international markets. We've taken the core technologies that we employ in custom framing and museums. We've taken the learnings that we've gotten in go-to-market as well as products, and we've started to apply them into a new market, which we call Technical Glass. Technical Glass and Acrylic market is utilizing our technologies, our products where in markets where you don't want to see glare or where you want to protect the product. So we are looking at display cases. We're looking at digital signage. We're looking at lighting. We are looking at all sorts -- there's all sorts of applications. So we're super excited about I'll talk about it a little bit later. Innovation is core to our DNA. It's in everything that we do. It's pervasive throughout our company. We are super excited. Every day we wake up and say, how can we do it differently, how can we do it better, how can we make this, how can we make this a better company with better results? So we -- in our operations, we have a highly automated manufacturing model. Most of our equipment is customized for our business to deliver on cost and quality needs. We also have in our go-to-market side, we also have unique coated glass and acrylic products and services. Globally, there is no one that compete with the large-scale optical segment with the products and the services that we deliver to our markets. We're very differentiated. And we have strong relationships with our customers and an excellent retention rate. Now all of that would be meaningless without the team that drives this business. We have an experienced team who has a lot of passion for the industry and knows how to innovate. And this is the result, we have delivered a consistent record of strong profitability. So you can see that we're in the mid-2020, in terms of our operating margin. We did have a blip during COVID when retailers were closed between 3 and 5 months depending on the market that you're in. But we've recovered nicely, and that says a lot for the dedication of our customers, our consumers and our team. So we're going to talk a little bit about how we expect to grow. We have organic growth opportunities in every part of our market. So here the markets that we participate in, U.S. custom framing, global, museums and fine art, international custom framing, technical glass and display applications. And as you can see, we've shown what's to our more core markets versus those that are more adjacencies. Every single one of these markets is healthy right now. And what's really exciting is our most mature market, U.S. custom framing is showing some great growth. We have just conducted some proprietary research that shows that more consumers have entered this category in the last year and they're younger. Millennials have bought their first house, they're 40 years old, they're buying frames. So we're really excited about the opportunities that we have with U.S.-custom framing as well as with every one of these areas. What are the growth vehicles that we're going to employ against these? We've got mix shift opportunities, so selling more value-added products into these areas; geographic expansion, particularly with the focus in Asia, we just opened up a sales office in Singapore this year; new product introductions and new use cases. All 4 of these tactical elements can be placed against every 1 of these markets. So we're very excited about our core markets and the organic growth potential within them. What do we expect? We expect mid- to upper single-digit growth coming out of these markets for the LSO segment, and we want to continue to diversify. We want to continue to diversify in markets. So our process for doing that is to really understand our core competencies what value we drive and apply them to different markets. We want to make sure there's a return on those markets. So we want to make sure that when we apply the value, we can extract the value. So we want to make sure we get an excellent return on investment from everywhere we invest. Some example of some adjacencies and where we're starting to do this is the technical glass category as well as the display case category. In both of these markets, we have just started to penetrate these areas with products that offer antireflective properties, and we're seeing quite a bit of usage applications apply. For example, outdoor digital signage, whether it's menu boards, whether it's street furniture, we have placement in those markets now; whether it's refrigerated display cases. We have placement in that market now; whether it's medical monitors, same thing. So we're excited about some of the opportunities that we see for growth in technical glass as well as display cases. Just have started to enter this market. And whether it's organic or inorganic, we're going to get a return. So how do we define success going forward? This is what you can expect: we're going to deliver growth in value-added products. We are going to deliver momentum in adjacencies. So we are going to continue to diversify our end markets and our offerings and our services. And we're going to deliver mid- to upper single-digit revenue growth. So I want to thank you today for your time. I want to confirm that we have a very strong defensible market position. that we are growing in core markets, and we have abilities to expand and grow in more adjacency markets. We have a passion for our business, a passion for our customers. We innovate every day, and you can help us on our journey. So within the next week or so, if you could all go out and buy a custom frame, it'd be greatly appreciated. With that, I would like to introduce Nisheet Gupta, who is our Chief Financial Officer.

All right. Good morning, everybody, and welcome -- thanks for those of you who joined us in New York, and thanks to all of you who are there virtually attending the event. My name is Nisheet Gupta, and I'm the CFO of the company. I joined the company in June 2020, and we have been transforming. And we have been transforming Apogee over the last 1.5 years, and this journey is going to continue. As Nick was mentioning about baseball, I was saying about cricket, we have been taking our singles in baseball and cricket. And this journey is going to continue, and we'll be hitting some out-of-the-park hit soon. A lot of transformation work is happening in the company. I come with experience in operational rigor, M&A and integration. And that's what Apogee has put together for all of us here, a very strong management team that has experience in driving operational rigor, that are experienced in driving M&A and integration and driving value out of the synergies. I'm proud to be part of this team, and these are very exciting times to be in the company. Today, our business leaders talked about all of the opportunities on margin expansion and profitability we have as a company. I'm going to put it all together with a value creation framework that we have going forward. And I also talk about our financial goals that we'll continue to measure ourselves on. Our value creation framework has got 4 components. The first close to my heart is enterprise transformation. We have been transforming this company and their new systems processes that we're implementing across the company that allow us to achieve scale, flexibility and also integrate new businesses as we go for them. The second and important pillar, as Ty mentioned, is driving continuous profitability. Profitability improvements are happening, and we'll continue with them over the course of next many years. With all the profits that we'll generate, the third and important pillar for us is a strong balance sheet and cash generation. We'll continue to work and make our balance sheet even stronger than today. And finally, the fourth and important pillar for us, where we are making a change, as Ty mentioned, we are going to be adopting a new lens in evaluating our investments and giving highest returns, only those investments will go through at a highest ROIC for the company. All of these 4 pillars together will help us achieve the over 12% ROIC by fiscal '25. Let me spend some time on each of these and provide more details. As I mentioned, a very strong management team has been put together that can drive transformation across all of our businesses. Last summer, we started off with our transformation journey, where we looked at our fixed cost base and identified opportunities where we can reduce our cost and make us more scalable. We have been on that journey since then and many functions in many parts of our fixed cost, we have been optimizing our back-end functions. There are center-led capabilities that we have already established in many of our functions, and we'll continue that journey to optimize our SG&A cost. We are building flexible processes. They will allow us to integrate new businesses in a much more value-added way as we move forward. And finally, our SG&A cost will be brought in line with benchmarks and we'll continue to drive a lot of value for our shareholders. As we have gone through this journey over the last year, we are implementing in each of our functions, think about finance, think about IT, think about procurement, think about supply chain, all of these functions had opportunities to standardize our processes, to organize ourselves as functions that are serving the businesses and also to implement tools and technologies that drive scale. We have been implementing those, and there are 2 important enablers for that. The first is a newly established transformation management office. This team drives operational rigor that allows us to measure whether we are really adding value to the business and also hold ourselves accountable if we are adding value into the projects that we are executing on because we are investing a large amount of infrastructure right now. We are investing $7 million to $10 million this year on creating these backbone up for the company. And as Ty mentioned, we are also working on Apogee Management System. This system will allow us to be more Lean, allow us to expand our margins, and we'll be a lot more effective in our operations. Putting this all together, we have significant opportunity to improve our SG&A as we move forward. Let me make this real for you with 1 example. Our HR function, like many other functions of the company, has been decentralized for many years. We used to do things in different ways and different business units, and that meant a lot of extra overhead across the company. We had different processes, different payroll systems, all of that led to a high cost in this function as we discovered during our SG&A study last year. Since then, we have been working on standardizing our processes, putting in centers of excellence and a shared service environment so that we have one standard process, and we are implementing a very large HR system as we move forward. We believe our HR function is in line with the benchmarks, and we also believe that similar journey in finance, HR, procurement, IT-type of functions will drive significant value in reducing our fixed cost base. As Ty mentioned, we want to be the economic profit leader for the company. We want to be driving profits. The journey has already begun, but there's a long way, and we think margin expansion opportunities are out there, and we're working towards it. There are multiple drivers for sustained margin expansion. We -- Glass and Framing segment, as you heard from the leaders here, they have significant opportunity to improve margins in Glass and Framing. They're working on centralized operations. If you think about supply chain, different manufacturing plants, we are putting it all together as one supply chain for the company. SG&A across the company has got significant opportunity, and that will allow us to expand our margins. And improving productivity, as you saw Glass segment has made significant changes in footprint, that will improve productivity and supply chain function is coming together as one function. We have a strong new procurement organization that will allow us to drive further synergies. And finally, managing pricing and mix. This is a new shift for us where we are really looking at profitable products and customers where we add most value. And those that do not meet financial hurdles for us, we are making sure, they are not part of our portfolio in due course of time. All of this together will get us comfortably over 10% operating margin by fiscal '25. With all the profits we would have generated, we have a strong balance sheet already, and we are looking to see how best to allocate those funds. I'm really proud of what Apogee team has done in the last 2 years in creating a very strong balance sheet for the company. Over the last 5 years, we have generated over $120 million and on an average as cash from operations, and this journey is going to continue and get better. The cash flow will increase as we drive more profit from our operations. We have a strong working capital management discipline, and we are also working on disciplined capital spending. I'll talk a little bit more about disciplined capital spending in the coming slides. Our balance sheet is very strong. We have a low leverage ratio of 0.7 versus our target of 1.5. We had no near-term debt maturities, and that puts us in a very strong position to pursue strategic opportunities for the company. With all the cash we have generated and we are going to be generating, it is very important for us and our management team to allocate the funds in the highest ROIC opportunities. This is frankly, an opportunity for Apogee to get better, and we have spent a lot of time as a team in the last 6 months to evaluate how we are going to be looking at new investments. We had a balanced capital deployment approach so far. In the last 3 years, we have paid dividends. We have done opportunistic share repurchases. We have reduced our debt and we are spending our business on capital and maintenance. We aim to continue on this balanced capital deployment approach going forward. Thinking about how do we allocate our capital as we move forward, we will invest, first of all, in our organic growth and inorganic growth as we move forward. M&A being an active portfolio manager is going to be an important part of our capital allocation strategy. We will continue on share buybacks, and we aim to increase our dividends over the years as we have done in the past 8 years. We maintain a very strong balance sheet with a target leverage ratio of 1.5, and we have capacity to go further. We have shown in the last 2 years that our teams have the ability to delever quickly, and we'll continue on that journey for the right opportunity that comes for us. This is the new lens that Ty mentioned for evaluating every investment we do. Of course, every business has got a pipeline of investment opportunities. All of our business leaders have great ideas on investing. We did a lot of work in this summer, and we identified the places, the markets, the portfolios that we would really like to invest in. And we agreed as a leadership team that, that will be our first strategic business split assessment for any investment opportunity that comes our way. We'll continue to evaluate any opportunity on that strategic lens as our first stage gate on an opportunity. After that, we are looking at financial criteria, and ROIC is a new theme that 15% ROIC that 15 in 15 that Ty mentioned, we are following that religiously. Any opportunity with all the stress test and volumes that we will do, if it does not meet the 15%, we are not going to move forward with that. After we have made a decision on any of our opportunities to move forward, we have created the Transformation Management Office, which will drive rigor in integration and capturing value. Some of the small projects, all the restructuring that we have announced on August 11, Transformation Management Office is already showing excellent results on delivering and exceeding the targets we had laid out on August 11. For example, our restructuring cost is much lower than what was expected on August 11. This team will also allow us to measure and assess success in our transformation. And finally, we have refreshed our post-completion review process for any capital investment, which means that at the end of 1 year, and 3 years, from any investment, we do a formal post-completion review, within our teams and for bigger projects, we even go to the Board and share what we learned from those investments. It drives rigor and it also drives accountability for leadership on the investment we've already made. We believe that this new lens on evaluating investments will allow us to invest only in value-adding opportunities for our shareholders. I've just laid out the 4 components of our value creation framework. I'll now move into what does it mean for financial goals. I believe our financial goals are aggressive but achievable. As Ty laid out, 3 KPIs that we will measure ourselves for and you should be measuring us as we move forward. ROIC, over 12% ROIC is what we would deliver by fiscal 2025, over 10% operating margin and 1.2x the construction market index. This means a step change from where we are today. We are at 5.2%, and we are looking to double our operating margin to 10%. That's an important shift and all of the measures and initiatives that have been talked about by our segment leaders will drive us from this 5% to the 10%. With these increased margins, our ROIC will reach 12% and over that's well above our cost of capital. This is my favorite slide of the deck. How are we going to make it happen? As I think about so many things in a business and cycle. There are parts of things that we can do here that are just in our control, as a management team, as a company. We'll be focusing on those which are marked in blue. The first is a cost optimization and productivity opportunity with all of the measures that our Glass and Framing segments are taking already, we believe there's a 200 to 300 basis point opportunity in improving our margins. SG&A, as I mentioned, we are on a transformation journey with central-led systems, shared services, centers of excellence, that will drive an additional 100 basis point on improving our SG&A and improving our margin. And last but not the least, pricing and mix, we will continue to evaluate the products, the services that do not make money and do not meet our financial hurdles, and we'll continue to change ourselves. We'll continue to transform our portfolio to get to the 10% and over operating margin. On top of that, we have further upside from being an active portfolio manager. We would want -- we also have our markets growing, as Ty mentioned, FMI and other external indexes are showing that the market is growing, and we have an opportunity to participate in that growth, and that will allow us operating leverage as we move forward. With this favorite slide, I believe we have a very good opportunity ahead of us to double our operating margins with things that are well within the control of our company and management team. Each of the segments have a very important role to play as they move forward in this transformation journey. As Brent laid out, Framing Systems is already on a path of integrating the businesses, integrating the brands within Framing segment. The cost opportunities is immense within Framing segment, and we are already seeing early signs of improvement. We will also look at Storefront solutions and focused growth in the Framing system so that we continue to add to the top line. Glass segment, with the recent announcement of optimization of footprint will continue to drive productivity and they are pivoting towards premium market that will drive them towards more profitable solutions as a company. Services and LSO segments will remain a profitability driver for the company going forward. Each of these segments have significant potential to contribute towards a 10% operating margin target we have. And finally, summarizing this and wrapping up, I believe Apogee is in a very strong position to drive high returns and profitable growth across our portfolio. Enterprise transformation journey has begun, and we will be hitting it more out-of-the-park as we move forward in this transformation. We are positioned to deliver with a very strong balance sheet, and we have a long runway ahead to continue to improve our ROIC and operating margins. With that, I'll turn it over to Ty for some closing remarks.

Thank you, Nisheet. Mic is good? All right. Well, that was a quick 90 minutes, at least for me. And then hopefully, you learned a lot more about where we're headed as a company and how we're going to execute the strategy. Remember those 4 questions, I put up at the front? I just want to quickly highlight these and kind of walk through and check up where we thought we've worked to address each of these. And then I'm sure you've got more questions for us as well. So we'll be sure to take that break and come back to delve deeper into these or other areas. So as you just heard from Nisheet, and hopefully, as you heard from the businesses we have a solid path to achieve that 10% margin goal. In fact, it's within our control. We can do those things. And even if we don't see material revenue growth in our fiscal '23 we can start moving in that direction in a material way in driving that margin improvement. That growth coming from the market is going to help bring leverage to that volume that assures that we do get to that 10% and above and actually provides some opportunity to move above that, that whole concept of deploying capital more effectively and efficiently, we've done a really nice job of that in the last couple of years. We want to continue to build on that. But we also want to make sure that we're deploying that capital now to drive that long-term growth, build out a more differentiated overall product and services portfolio for our business so that we can sustain that growth in the long term, outperforming the market, both from a revenue perspective and from a margin perspective. Where are we going to deliver that growth? Well, as you heard from the businesses, they see that growth already coming back in their core markets. It may not be linear. We expect there's going to be some ups and downs with COVID variants and as we work through supply chain disruptions and tightness of raw materials, but we see a positive trend line going forward as we step into our fiscal '23 and then moving in accelerating that into fiscal '24. And then that outperforming in the cycle, well, again, it comes back to that differentiated portfolio. We've got to have value offerings to our customers that make them want to do business with Apogee above all others because we are delivering value for them and then the opportunities that we've identified to start to move into adjacencies that will also bring incremental additional growth outside of our core markets today. So with that, we are actually going to move and take about a 6- to 8-minute break here. We're going to reset up and bring the business leaders back up, and we're going to be able to take questions from those of you online as well as for those that are in the room. [Break]

Welcome back, everybody, and thanks for sticking with us. So let's go ahead and move into our Q&A session. For those of you here in the room, if you'd like to ask a question, just please raise your hand, and we'll bring a microphone to you, and for those of you who are joining us virtually, if you'd like to ask a question, you can type your questions into the Ask a Question box in the webcast viewer. And while we gather some questions from our virtual audience, is there anyone here in the room who'd like to start us off?

Sure. So I guess on the glass side, how does your shift to premium occur without getting too dependent on monumental office towers, which is what you kind of wanted to get away from last cycle?

Nick, why don't you take that?

Sure. Yes. What's critical is that we continue the opportune and drive with medium range and even some of the lower projects. So when you think about those office towers that you cited, that's over 250,000 square feet. We've looked at the market over the last 6 months. There's plenty of opportunity for an addressable market between that 20,000 to 100,000 square feet projects where we can grow amply and take share profitably. If anything, we probably will reduce our focus. We'll still entertain those opportunities on large scale, but we think there's plenty of addressable scale in the medium and lower project opportunities.

So you laid out what seems like a probably like someone exceeding guidance, too straightforward and easy plan to execute. What's one of the biggest hurdles or the hurdle to having success? Maybe this question is answered by each of the segments. Can you help me...

Yes. Maybe I'll start, and we'll see if a couple of business presidents can chime in on that, but it's a great question. Part of that is really driving and maintaining this focus on where we can add value and how we drive that value in the long term. There's a lot of opportunities in that market, especially when you look at the whole market from a U.S. perspective that $450 billion plus. So a key part of this is that discipline of understanding where can we deliver value in terms of differentiated offerings and service and then staying focused, not getting distracted, not to say the glass business, there won't be a monumental-type project that is a nice fit and that we would go after, but to not get caught up on that and chasing those completely. Where we see the move in the marketplace as well as where we can differentiate more strongly is staying focused on that mid-premium portion of the market in glass for one example. So it kind of comes back to that discipline of really understanding what we want to be long term and keeping that focus and discipline in how we're offering our markets into the marketplace. Now maybe, Brent, if you want to add something.

Yes. I think just to continue on the theme I mentioned and Ty's comment, having a streamlined leadership team focused in 2 businesses rather than across 6 brands, right? So we have clear P&L responsibility, clear, clean brands and value propositions to take the marketplace and staying focused on the change management aspects of that as well as having now a center-led back office and center-led operations, I think that simplification and alignment of the organization is a big key, and obviously, there's a lot of change going on. So managing through the change management processes as they are having some operational execution and rigor.

And I'll add to that. You just remind me one other thing, and Nick's executing this in glass, too, is we looked at not just external metrics and what's happened in the market or our financial metrics, but with our new strategic goals, what are we seeing happening just even in our coating process? So glass has tried to focus in this mid-market in the last couple of years and really wasn't seeing that flow through, and so they're building a stronger database of how they're managing their customer relationship management tools that gives them insights of where is the activity really showing up, where are we driving those quotes and winning those projects so that we actually see that mix shift come through.

Yes. A quick question, I think, on the framing segment. You talked about growth opportunities via geographic expansion. Can you tease that out a little bit more on how that works? Is that M&A? Is it additional bricks on the ground to expand the business? How does that work?

Yes. So if you start -- I mean from a geographic expansion, we still have opportunities in the United States, particularly West, Southwest, and those are markets that we're looking at. I've said since I've gotten here, M&A is still going to be a lever that we will pull as part of our growth strategy. So there certainly could be opportunities that we'll identify that help give us that accelerated step into expanding that geography, but we've also learned a lot from the acquisitions that we've done and that we are more confident in our ability to do some organic investments, driving some of that expansion organically and really being focused about certain parts of the business, storefront and finishing, and Brent's business is a great example where there's significant geographic expansion opportunities and things that we could do organically and not have to solely rely on an acquisition as a catalyst for that.

Nisheet, you mentioned that you would consider these goals aggressive but achievable, and looking back at Apogee's long history, it looks like the company has, in years past, accomplish mid-single to high single-digit top line growth and 10%-plus operating margins. So with all these changes that you're putting in place that make a ton of sense, can you just talk about maybe the margin of safety you're allowing yourself and how you think that translates to the financial goals?

Sure. Each of these transformation initiatives that we're on right now, they have a certain level of opportunity that we are keeping as a kind of a safety net. If you think about each of the functional transformation that's happening, they are -- as we did a study with our external benchmarking, the opportunity was, as we had laid out in an external press release, a $10 million to $20 million opportunity for SG&A improvement. We are counting on that but not entirely in that chart because we just show a 1% of SG&A in that blue mark. We see clearly a $10 million to $20 million opportunity in SG&A, and that accelerated with the August 11 announcement to $20 million to $30 million opportunity. So we're clearly maintaining a safety net that we will reach the 10% at a minimum.

I would add to some of the productivities we're seeing, I mean, just in the glass business, as Nick highlighted as well that showing the power of lean and part of that reinvigoration of lean for us is I think -- which is typical for companies that have been on that journey for several years. I mean I've been at companies where you had to hit the reset button, but it became more of an activity and kind of a checking the box and the questions I had coming in and Nick certainly had stepping into glass is what is this doing this week, this month to deliver to the bottom line and refocusing and reshaping how we were applying lean to drive that bottom line, and it's really opened up the productivity opportunities that we have in different parts of the businesses, and so that will be a key driver, too, to get us to that 10% and beyond.

And also, one more thing, if you see the far right side of my favorite slide, there are 2 blocks there, which we have not counted on the 10%. With active portfolio manager as well as increased volumes coming with the market growing, we will definitely exceed that 10% margin.

So earlier in the presentation, you talked about the 3-point approach to the management of the portfolio, right, scale and expansion, addressing the underperforming products and services and investing in differentiated offerings. How do you say you're going to allocate the time and capital to these different segments or options?

Yes. That's a great question. I mean it starts by -- we highlighted 2 of our segments, in particular, our services in our large-scale optical. They are certainly leading the markets that they're in now with respect to margin and absolutely from a return on invested capital. Those are 2 areas we haven't directed much investment in over the last few years, and we see the opportunities to allocate, not just capital dollars, but more time and resources and people to support that. So we want to amplify the growth of those businesses as we move forward, and they've got some nice opportunities that they've identified to do that. And then as you look at framing and glass, there's parts of framings that -- like storefront and finishing that I think is positioned to do some expansion on the growth side, but there, we're going to focus more on that near-term investment and helping make sure we're upping that margin profile so that as they do start to get on a growth path, we have a higher degree of confidence that we'll see leverage from that growth fall through to the bottom line.

We'll take a few from the virtual audience. So Ty, the next one will be for you. This comes from Walt Liptak at Seaport Global, and Walt asks, "To what extent is Apogee currently doing 80-20? And could you expand on how we're thinking about 80-20?"

Yes. We use that tool at the -- as we started to embark on that strategy work and really looking at across the portfolio and using it, looking at our product offerings as well as even our customer base. Like we had parts of the business in framing that was really trying to be all things to all customers, and so that tool really helped the business step back and say, "Where are we really driving most of our margin dollars even if our margin percentage is not where we want it to be? Where are the margin dollars being generated from?" And then using that tool again and applying it to looking at the customers. Where are the customers that see the value in what we have to offer, and we're able to extract that value as well by providing them the product or service that we do. So that tool set is one that we'll use at points in time through our process because a lot of our businesses are driven from projects. So it's not the perfect tool when you look at our architectural businesses, but it is a lens that we can apply to different snapshots in time to look at our customer base, to look at our product offerings. We're doing some of that work and looking at SKUs and raw material SKUs that go into parts of our business such as framing that's helping them rethink how they can drive some standardization even where we do have a lot of project-driven businesses that we can ensure that we get the value out of lean. Without calling it that, I would tell you that the services segment that Troy and their team, that's exactly what they do. They've built an operating system that has them constantly look at the types of projects, the types of customers where they can extract the most value from, and they pass on a lot of opportunities. They don't go after things because they use that lens, and they know that it does not fit or it's going to drive and cause them to expand too much that they're not going to be able to generate the margins that they want to achieve.

Another one from the virtual audience. Troy, I'll give this one to you. It comes from Eric Stine at Craig-Hallum. Eric asks, "In light of everything going on in our services business, how confident are you in the sustainability of the margin performance and in the outlook to add the $100 million of incremental revenue?"

I'm very confident or I wouldn't put it out there, number one. I was talking to some of my team. Our business has evolved over the last 7 to 10 years, and I'd say it's like a flywheel or a tipping point. The better we get operationally, the easier it is to assess, analyze and implement new changes, and the team even sees that, right? So we're in a very strong position where we're able to adapt much faster than we have. Our analytics allow us much further foresight than we've ever had before, and to the point in time made, we're very, very good at aligning our resources to the best opportunities in the marketplace, and that's driven much better returns than we've seen historically. And so I have a lot of confidence in their ability for that to continue kind of based on that foundation.

Thank you. In the presentation, you talked a lot about portfolio management in various presenter slides. I guess my question on the 2 lower-margin divisions, architectural framing and architectural glass. Talked about a lot of divisions. Is there a substantial margin performance variation within these units? And how separatable is that business if that's ultimately what needs to be done?

Well, so first off, we don't give any details beyond those 4 segment levels, but I'll tell you, as we look at, those bubbles are representing not just business units but even product platforms within that. So there are some differences, and if you think about where do we want to maximize our investments right now to accelerate growth, so we talked about services. We talked about large-scale optical. So just looking at the segment financials on those, you can see that they're already at or above or near that 10%, and they're both our highest return on invested capital businesses. Within framing, you could deduce, right, that window and wall has some work to do to get their margin profile and ROIC up, and our storefront and finishing is either on that track or is already accretive to those goals, which is why we're willing to put some more growth investments in that particular business. As we set that 10% goal, we're going to have variation, not just in the 4 segments, but as you click down below those segments. So part of that being an active portfolio manager is making sure that we may have parts of the business that, to your question, are a good strategic fit or maybe an opener for certain customer types, but we want -- if it's dilutive to our margin goals, then we want to really control how much that business drives it from a revenue perspective. So we use it strategically where we need to, but we amplify the higher-margin businesses to make sure that we're exceeding our goal of 10% margin.

I'm just trying to understand glass revenue growth a little bit better. You have the 1.2x nonres revenue growth target for the 3 architectural segments. How does glass fit in there if you're -- are you phasing out certain products and markets? And is the glass revenue growth -- should we expect that to be below that 1.2?

Yes. Maybe I'll just kind of to clarify that, and then Nick, if you could dive into that. So that 1.2 is really looking at Apogee as a whole. So we do expect some of our adjacencies and even large-scale optical that is part of our way of outperforming the cycle, if you will, from a construction index perspective, and as we identify other adjacencies, that helps us outperform. So that 1.2 measuring stick is really Apogee revenues as a whole, and Nick, you want to talk specifically to glass?

Yes. I'd say there are 2 points to that. The first piece is as we shift to premium, work in those more premium customers, be it smaller projects, medium projects or even larger projects, we think they're going to continue to outgrow, and that will be a source of that piece. But what's most important to this business right now is margin expansion. So we're absolutely going to go for growth, but our first piece is to get the margins up, and that's the course we're on. That's the next 12 months.

We got another one from our virtual audience. This one is for you, Jane, coming from Jon Braatz at Kansas City Capital. "Jane, could you size the technical glass market opportunity and some of the other adjacencies that we're thinking about moving into?"

So we -- that's probably the -- when we look at adjacencies, that's probably the #1 question is what kind of insights can you get about the opportunity that exists. So we have done some work around the technical glass markets. It's very diverse. We're talking about -- as we've said, we were talking about outdoor signage where you want to see the information instead of your reflection. We are talking about refrigerated display cases, talking about medical monitors, super important to be able to tell the information on those medical monitors. We're talking about lighting. So there's a lot of little markets within the technical glass area, and we have done some work that said that if we can -- we believe we can penetrate these markets. We believe that we cannot only grow category in addition to stealing share, and it could be substantial to the LSO category. Don't have a specific answer, but I think it would be in the -- I think it would be relevant to our category. Again, we're a relatively small dollar figure, but our margins are significant, and we also believe that these categories would offer good margins, and we've seen that so far.

Yes. I think I'd just add to that. As we looked at Jane's business, again, leveraging that technology, I mean, they're using the strategy work, and they're still going deep to identify some of those additional adjacencies and how large the opportunities might be. But it's really looking at the business in terms of that optical coating capabilities that they can put on various substrates and the value that derives, and that's helped her team start to look at those market opportunities differently and kind of opens up a much broader view even beyond potentially some of the markets that she's spoken to. So there's still more work for us to do there to identify that, but it's not only material for her business, but we wouldn't be making investments there if we didn't see the long-term materiality in benefiting Apogee even just from a margin dollar perspective, and you noted, we put 20-plus percent for the long-term margin goals for large-scale optical because we expect some of these markets might be dilutive to where LSO is today at 25%, but it's going to be significantly accretive as being kind of in the mid- and high teens from a margin perspective as she starts to grow other elements of her business.

Yes. And the reason we're a little cagey is we're currently conducting a study to answer the question that you asked. So we know we've done a lot of quant research. We've done a lot of market studies, but we're actually doing a quantitative study.

So actually, I'd like to follow up on the medical glass and tying that in, Ty, with your comment. On the surface, I wonder if medical glass would have a higher margin than LSO's current average just because of the importance, and then after you've answered that, I have a follow-up.

We -- this is more questions than LSO usually gets.

That's good.

So we -- within the category, yes, medical can be -- it depends. The answer is it depends. It depends on the particular manufacturer and how much they value it. Yes, we can see margins within technical glass. We can see margins that exceed LSO margins, in general, because it's more custom products. The margins are slightly lower but very, very attractive.

Okay. And then the follow-up was thinking about medical glass, there must be producers out there already since there are monitors in hospitals around the world. What does the competitive landscape look like? And what is the opportunity for you to provide something that's not already there?

So one of our differentiated products, we do -- our specifications that we have, and we've got them because we need them for the framing in our market. We have a -- we can deliver anti-reflective products to some of the tightest specifications in the world, and obviously, you do not want a defect when you're looking at a medical monitor. So A, that really helps that we can develop products to that specification, and it's something that really distinguishes us as a supplier. So I think we have that as a differentiator. We also produce an anti-reflective acrylic. So a lot of medical monitors are -- would be made with the glass product, and we have an antireflective acrylic that also could be differentiated and would be great in the health care environment for shatterproof and safety.