APOGEE ENTERPRISES, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements This Quarterly Report on Form 10-Q, including the section, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain statements that are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” “will,” “continue” or similar words or expressions. All forecasts and projections in this document are “forward-looking statements,” and are based on management’s current expectations or beliefs of the Company's near-term results, based on current information available pertaining to the Company. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by the Company. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of the Company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other risk factors include, but are not limited to, the risks and uncertainties set forth under “Risk Factors” section of our Annual Report on Form 10-K for the year ended March 2, 2024 and in subsequent filings with the U.S. Securities and Exchange Commission, including this Quarterly Report on Form 10-Q. We also wish to caution investors that other factors might in the future prove to be important in affecting the Company’s results of operations. New factors emerge from time to time; it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Non-GAAP Measures We have included in this report measures of financial performance that are not defined by U.S. GAAP. We believe that these measures provide useful information and include these measures in other communications to investors. For each of these non-GAAP financial measures, we provide a reconciliation of the differences between the non-GAAP measure and the most directly comparable U.S. GAAP measure (see “Reconciliation of Non-GAAP Financial Measures” in this Item 2 below), and an explanation of why we believe the non-GAAP measure provides useful information to management and investors. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable U.S. GAAP measure. Overview We are a leading provider of architectural products and services for enclosing buildings, and high-performance coating products used in applications for preservation, protection and enhanced viewing. Our four reporting segments are: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical. Our enterprise strategy is based on the following three key elements: 1. Become the economic leader in our target markets. We are developing a deep understanding of our target markets and aligning our businesses with clear go-to-market strategies to drive value for our customers through differentiated product and service offerings. We are focused on operational execution, driving productivity improvements, and maintaining a competitive cost structure, so that we may bring more value to our customers and improve our own profitability. 2. Actively manage our portfolio to drive higher margins and returns. We are shifting our business mix toward higher operating margin offerings in order to improve our return on invested capital performance. We expect to accomplish this by allocating resources to grow our top performing businesses, actively addressing underperforming businesses, and investing to add new differentiated product and service offerings to accelerate our growth and increase margins. 3. Strengthen our core capabilities. We are shifting from our historical, decentralized operating model to one with center-led functional expertise that enables us to leverage the scale of the enterprise to better support the needs of the business. In fiscal 2022, we established a Company-wide operating system with common tools and processes based on the foundation of Lean and Continuous Improvement, which we call the “Apogee Management System.” Our strategy is supported by a robust talent management program and a commitment to strong governance to ensure compliance and drive sustainable performance. 22 Table of Contents We set this strategy by developing a deep knowledge of the markets we serve and by gaining extensive input from customers and industry influencers, along with detailed competitive benchmarking. We continually analyze our portfolio of products, services, and capabilities to identify the best areas for future profitable growth. We also evaluate our operating model to ensure we have the organizational structure and capabilities needed to deliver consistent profitable growth. Through this work, we validate strengths that we can leverage and identify opportunities to improve our performance. In fiscal 2024 and through the third quarter of fiscal 2025, we drove further progress toward our strategic goals and financial targets. We continued the deployment of the Apogee Management System across our business, supporting sustainable cost and productivity improvements. We have invested in inorganic and organic growth initiatives, including the acquisition of UW Interco, LLC (UW Solutions), capacity expansion in the Large-Scale Optical Segment and geographic growth in the Architectural Services Segment. We increased our focus on differentiated products and services, and continued to diversify the mix of architectural projects that we serve while leaning more heavily into higher, value-added products. We also advanced several initiatives to strengthen our core capabilities, driving the standardization of key business processes and systems, and strengthening talent management and leadership development programs. Recent Developments In the third quarter of fiscal 2025, we acquired UW Solutions. UW Solutions is a U.S. based, vertically integrated manufacturer of high-performance coated substrates, differentiated by its proprietary formulations and coating application processes. The Company serves a broad range of customers in attractive end markets, including building products for distribution centers and manufacturing facilities, as well as premium products for the graphic arts market. See Note 13 for additional information on the terms and conditions of this transaction. The following selected financial data should be read in conjunction with the Company’s Form 10-K for the year ended March 2, 2024 and the consolidated financial statements, including the notes to consolidated financial statements, included therein. Results of Operations The following tables provide various components of operations as year over year U.S. dollar and percentage change, as well as a percentage of net sales. Three Months Ended % of Net Sales (in thousands, except percentages) November 30, 2024 November 25, 2023 November 30, 2024 November 25, 2023 Net sales $ 341,344 $ 339,714 100.0 % 100.0 % Cost of sales 252,195 249,409 73.9 73.4 Gross profit 89,149 90,305 26.1 26.6 Selling, general and administrative expenses 60,520 52,658 17.7 15.5 Operating income 28,629 37,647 8.4 11.1 Interest expense, net 1,044 1,454 0.3 0.4 Other (income) expense, net (60) 890 — 0.3 Earnings before income taxes 27,645 35,303 8.1 10.4 Income tax expense 6,656 8,329 1.9 2.5 Net earnings $ 20,989 $ 26,974 6.1 % 7.9 % Effective tax rate 24.1 % 23.6 % 23 Table of Contents Nine Months Ended % of Net Sales (in thousands, except percentages) November 30, 2024 November 25, 2023 November 30, 2024 November 25, 2023 Net sales $ 1,015,300 $ 1,055,102 100.0 % 100.0 % Cost of sales 729,975 776,440 71.9 73.6 Gross profit 285,325 278,662 28.1 26.4 Selling, general and administrative expenses 173,350 166,695 17.1 15.8 Operating income 111,975 111,967 11.0 10.6 Interest expense, net 2,634 5,720 0.3 0.5 Other (income) expense, net (493) (3,722) — (0.4) Earnings before income taxes 109,834 109,969 10.8 10.4 Income tax expense 27,268 26,092 2.7 2.5 Net earnings $ 82,566 $ 83,877 8.1 % 7.9 % Effective tax rate 24.8 % 23.7 % Comparison of Third Quarter Fiscal 2025 to Third Quarter Fiscal 2024 • Consolidated net sales increased 0.5%, to $341.3 million, driven by $8.8 million of inorganic sales contribution from the acquisition of UW Solutions and a more favorable mix of projects in Architectural Services, partially offset by less favorable mix in Architectural Framing Systems and lower volume in Architectural Glass. • Gross margin decreased to 26.1%, compared to 26.6%, primarily driven by the unfavorable sales leverage impact of lower volume, a less favorable product mix in the Architectural Framing Systems Segment, and higher incentive compensation and lease expenses, partially offset by a more favorable mix of projects in Architectural Services Segment, and lower quality and insurance-related costs. • SG&A expenses increased $7.9 million to 17.7% of net sales, compared to 15.5% of net sales. The increase in SG&A as a percentage of net sales was primarily due to acquisition-related expenses associated with the UW Solutions acquisition, restructuring expense related to Project Fortify, and the unfavorable sales leverage impact of lower volume. • Operating income declined to $28.6 million from $37.6 million, and operating margin decreased 270 basis points to 8.4%. The lower operating margin was primarily driven by acquisition-related expenses associated with the UW Solutions transaction, unfavorable sales leverage impact on lower volume, less favorable product mix, higher incentive compensation, higher lease expense, and $0.9 million of restructuring costs related to Project Fortify, partially offset by a more favorable mix of projects in Architectural Services and lower insurance-related costs. Adjusted operating income was lower by 5.9% t o $35.4 million, and adjusted operating margin was reduced to 10.4%. • Interest expense, net declined to $1.0 million, primarily driven by lower weighted-average interest rates and higher interest income. • Other income was $0.1 million compared to expense of $0.9 million. The change was driven by an increase in value of company-owned life insurance assets. • Income tax expense as a percentage of earnings before income tax was 24.1%, compared to 23.6% for the same period last year. The increase in the effective tax rate was primarily due to an increase in tax expense for discrete items. Comparison of First Nine Months of Fiscal 2025 to First Nine Months of Fiscal 2024 • Consolidated net sales decreased 3.8%, to $1,015.3 million, primarily driven by lower volume and mix, partially offset by a more favorable mix of projects in Architectural Services, improved pricing, and the $8.8 million inorganic sales contribution from the acquisition of UW Solutions. • Gross margin increased to 28.1%, compared to 26.4%, primarily driven by improved pricing and a more favorable mix of projects in Architectural Services, favorable material costs, and lower quality and insurance-related costs, partially 24 Table of Contents offset by the unfavorable sales leverage impact of lower volume, higher incentive compensation expense, higher lease costs, and $1.3 million of restructuring costs associated with Project Fortify. • SG&A expenses increased $6.7 million to 17.1% of net sales, compared to 15.8% of net sales. The increase in SG&A as a percentage of net sales was primarily due to the impact of acquisition-related expenses, and the unfavorable sales leverage impact of lower volume, partially offset by lower bad debt expense. • Operating income was $112.0 million and operating margin increased 40 basis points to 11.0%. The improvement in operating margin was primarily driven by improved pricing, a more favorable mix of projects in Architectural Services, favorable material costs, lower insurance-related costs, and lower bad debt expense, partially offset by the unfavorable sales leverage impact of lower volume, acquisition-related expenses, and $3.2 million of restructuring costs related to Project Fortify. Adjusted operating income grew 8.1% to $121.1 million, and adjusted operating margin improved to 11.9%. • Interest expense, net was $2.6 million, compared to $5.7 million, primarily driven by lower average debt levels and increased interest income from higher invested cash over the periods, partially offset by the impact of the write-off of unamortized financing fees related to our previous credit facility. • Other income was $0.5 million compared to $3.7 million. The higher amount of income in the prior year period was primarily due to $4.7 million of New Market Tax Credit income recognized in the prior year period. • Income tax expense as a percentage of earnings before income tax was 24.8%, compared to 23.7% for the same period last year. The increase in the effective tax rate was primarily due to an increase in tax expense for discrete items. Segment Analysis The following table presents net sales, operating income (loss) and operating margin by segment and consolidated total. Three Months Ended Nine Months Ended (In thousands, except percentages) November 30, 2024 November 25, 2023 % Change November 30, 2024 November 25, 2023 % Change Segment net sales Architectural Framing Systems $ 138,039 $ 139,585 (1.1) % $ 412,561 $ 462,548 (10.8) % Architectural Glass 70,236 90,964 (22.8) 247,040 282,262 (12.5) Architectural Services 104,921 94,662 10.8 301,966 272,144 11.0 Large-Scale Optical 33,196 26,009 27.6 74,232 72,110 2.9 Intersegment eliminations (5,048) (11,506) (56.1) (20,499) (33,962) (39.6) Net sales $ 341,344 $ 339,714 0.5 % $ 1,015,300 $ 1,055,102 (3.8) % Segment operating income (loss) Architectural Framing Systems $ 12,710 $ 16,981 (25.2) % $ 48,187 $ 57,986 (16.9) % Architectural Glass 10,118 15,164 (33.3) 48,277 49,119 (1.7) Architectural Services 9,730 5,288 84.0 21,483 8,211 161.6 Large-Scale Optical 4,842 7,100 (31.8) 13,481 17,288 (22.0) Corporate and Other (8,771) (6,886) 27.4 (19,453) (20,637) (5.7) Operating income $ 28,629 $ 37,647 (24.0) % $ 111,975 $ 111,967 — % Segment operating margin Architectural Framing Systems 9.2 % 12.2 % 11.7 % 12.5 % Architectural Glass 14.4 16.7 19.5 17.4 Architectural Services 9.3 5.6 7.1 3.0 Large-Scale Optical 14.6 27.3 18.2 24.0 Corporate and Other N/M N/M N/M N/M Operating income 8.4 % 11.1 % 11.0 % 10.6 % N/M Indicates calculation not meaningful. 25 Table of Contents Segment net sales is defined as net sales for a certain segment and includes revenue related to intersegment transactions. We report net sales intersegment eliminations separately to exclude these sales from our consolidated total. Segment operating income is equal to net sales, less cost of goods sold, SG&A, and any asset impairment charges associated with the segment. Segment operating income includes operating income related to intersegment sales transactions and excludes certain corporate costs that are not allocated at a segment level. We report these unallocated corporate costs in Corporate and Other. Operating income does not include other income or expense, interest expense or income tax expense. Architectural Framing Systems Comparison of Third Quarter Fiscal 2025 to Third Quarter Fiscal 2024 • Net sales were $138.0 million, compared to $139.6 million, primarily reflecting a less favorable product mix, partially offset by increased volume. • Operating income was $12.7 million, or 9.2% of net sales, compared to $17.0 million, or 12.2% of net sales. The decline in operating margin was primarily driven by the less favorable product mix as well as higher freight and compensation expenses and $0.8 million of restructuring charges related to Project Fortify. Adjusted operating income was $13.6 million, or 9.8% of net sales, compared to $17.0 million, or 12.2% of net sales. Comparison of First Nine Months of Fiscal 2025 to First Nine Months of Fiscal 2024 • Net sales were $412.6 million, compared to $462.5 million, primarily reflecting reduced volume due to exiting certain lower-margin product lines as part of Project Fortify and lower end market demand as well as a less favorable product mix. • Operating income was $48.2 million, or 11.7% of net sales, compared to $58.0 million, or 12.5% of net sales. The decline in operating margin was primarily driven by the unfavorable sales leverage impact of lower volume, higher compensation costs, and $2.8 million of restructuring charges as part of Project Fortify, partially offset by favorable material costs and lower bad debt expense. Adjusted operating income was $50.9 million, or 12.3% of net sales, compared to $58.0 million, or 12.5% of net sales. Architectural Glass Comparison of Third Quarter Fiscal 2025 to Third Quarter Fiscal 2024 • Net sales were $70.2 million, compared to $91.0 million, primarily reflecting reduced volume due to lower end-market demand. • Operating income decreased to $10.1 million, or 14.4% of net sales, compared to $15.2 million, or 16.7% of net sales. The lower operating margin was primarily driven by unfavorable sales leverage impact of lower volume partially offset by improved productivity, favorable freight costs, and lower quality-related expense. Comparison of First Nine Months of Fiscal 2025 to First Nine Months of Fiscal 2024 • Net sales were $247.0 million, compared to $282.3 million, reflecting lower volume due to lower end-market demand, partially offset by improved pricing. • Operating income decreased to $48.3 million, or 19.5% of net sales, compared to $49.1 million, or 17.4% of net sales. The improvement in operating margin was primarily driven by improved pricing, improved productivity, and lower quality-related costs, partially offset by the unfavorable sales leverage impact of lower volume. Architectural Services Comparison of Third Quarter Fiscal 2025 to Third Quarter Fiscal 2024 • Net sales were $104.9 million, compared to $94.7 million, primarily due to a more favorable mix of projects and increased volume. • Operating income increased to $9.7 million, or 9.3% of net sales, compared to $5.3 million, or 5.6% of net sales. The improvement in operating margin was primarily driven by a more favorable mix of projects partially offset by higher incentive compensation expense and higher lease costs. Comparison of First Nine Months of Fiscal 2025 to First Nine Months of Fiscal 2024 • Net sales were $302.0 million, compared to $272.1 million, primarily due increased volume and a more favorable mix of projects. 26 Table of Contents • Operating income increased to $21.5 million, or 7.1% of net sales, compared to $8.2 million, or 3.0% of net sales. The improvement in operating margin was primarily driven by a more favorable mix of projects, partially offset by higher incentive compensation expense and higher lease costs. Large-Scale Optical (LSO) Comparison of Third Quarter Fiscal 2025 to Third Quarter Fiscal 2024 • LSO net sales were $33.2 million, compared to $26.0 million, which included $8.8 million of inorganic sales contribution from the acquisition of UW Solutions, partially offset by lower volume in the retail channel. • Operating income was $4.8 million, or 14.6% of net sales, compared to $7.1 million, or 27.3% of net sales. The decline in operating margin was primarily driven by acquisition-related costs, the unfavorable sales leverage impact of lower volume, and the dilutive effect of lower operating margin from acquiring UW Solutions. Comparison of First Nine Months of Fiscal 2025 to First Nine Months of Fiscal 2024 • LSO net sales were $74.2 million, compared to $72.1 million, which included $8.8 million of sales from UW Solutions, partially offset by lower volume in the retail channel. • Operating income was $13.5 million, or 18.2% of net sales, compared to $17.3 million, or 24.0% of net sales. The decline in operating margin was primarily driven by acquisition-related costs and the sales leverage impact of lower volume. Corporate and Other Comparison of Third Quarter Fiscal 2025 to Third Quarter Fiscal 2024 • Corporate and Other expense was $8.8 million, compared to $6.9 million. The increase was primarily driven by acquisition-related costs, partially offset by lower incentive compensation and insurance-related costs. Comparison of First Nine Months of Fiscal 2025 to First Nine Months of Fiscal 2024 • Corporate and Other expense was $19.5 million, compared to $20.6 million. The decrease was primarily due to lower insurance-related and incentive compensation costs, partially offset by acquisition-related costs. Backlog Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which may be expected to be recognized as revenue in the future. Backlog is most meaningful for Architectural Services due to the longer-term nature of their projects. Backlog is not a term defined under U.S. GAAP and is not a measure of contract profitability. We view backlog as one indicator of future revenues, particularly in our longer-lead time businesses. In addition to backlog, we have a substantial amount of projects with short lead times that book-and-bill within the same reporting period and are not included in backlog. Architectural Services As of November 30, 2024, segment backlog was approximately $742.2 million, compared to approximately $792.1 million at the end of the prior quarter. The decrease in backlog compared to the prior quarter was primarily driven by executing more project work in the quarter than securing new project awards that were added to backlog. Our backlog in this segment tends to vary significantly given the variable timing and relatively large size of projects awarded. Reconciliation of Non-GAAP Financial Measures Adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted diluted earnings per share (adjusted diluted EPS), adjusted net earnings before interest, taxes, depreciation and amortization (adjusted EBITDA), and adjusted EBITDA margin are supplemental non-GAAP financial measures provided by the Company to assess performance on a more comparable basis from period-to-period by excluding amounts that management does not consider part of core operating results. Management uses these non-GAAP measures as noted below: • We use adjusted operating income, adjusted operating margin, adjusted net earnings, and adjusted diluted EPS to provide meaningful supplemental information about our operating performance by excluding amounts that are not considered part of core operating results to enhance comparability of results from period to period. • We believe adjusted EBITDA and adjusted EBITDA margin metrics provide useful information to investors and analysts about our core operating performance. 27 Table of Contents These non-GAAP measures should be viewed in addition to, and not as an alternative to, the reported financial results of the Company prepared in accordance with U.S. GAAP. Other companies may calculate these measures differently, thereby limiting the usefulness of the measures for comparison with other companies. Reconciliation of Non-GAAP Financial Measures Adjusted Operating Income and Adjusted Operating Margin (Unaudited) Three Months Ended November 30, 2024 (In thousands, except percentages) Architectural Framing Systems Architectural Glass Architectural Services LSO Corporate and Other Consolidated Operating income $ 12,710 $ 10,118 $ 9,730 $ 4,842 $ (8,771) $ 28,629 Acquisition-related costs (1) Transaction — — — — 3,748 3,748 Integration — — — 147 794 941 Backlog amortization — — — 805 — 805 Inventory step-up — — — 379 — 379 Total Acquisition-related costs — — — 1,331 4,542 5,873 Restructuring charges (2) 842 — (717) — 787 912 Adjusted operating income $ 13,552 $ 10,118 $ 9,013 $ 6,173 $ (3,442) $ 35,414 Operating margin 9.2 % 14.4 % 9.3 % 14.6 % N/M 8.4 % Acquisition-related costs (1) Transaction — % — % — % — % N/M 1.1 % Integration — % — % — % 0.4 % N/M 0.3 % Backlog amortization — % — % — % 2.4 % N/M 0.2 % Inventory step-up — % — % — % 1.1 % N/M 0.1 % Total Acquisition-related costs — % — % — % 4.0 % N/M 1.7 % Restructuring charges (2) 0.6 % — % (0.7) % — % N/M 0.3 % Adjusted operating margin 9.8 % 14.4 % 8.6 % 18.6 % N/M 10.4 % Three Months Ended November 25, 2023 Architectural Framing Systems Architectural Glass Architectural Services LSO Corporate and Other Consolidated Operating income $ 16,981 $ 15,164 $ 5,288 $ 7,100 $ (6,886) $ 37,647 Operating margin 12.2 % 16.7 % 5.6 % 27.3 % N/M 11.1 % (1) Acquisition-related costs include: • Transaction costs related to the UW Solutions acquisition. • Integration costs related to one-time expenses incurred to integrate the UW Solutions acquisition. • Backlog amortization is related to the value attributed to contracting the backlog purchased in the UW Solutions acquisition. These costs will be amortized in SG&A over the period that the contracted backlog is shipped. • Inventory step-up is related to the incremental cost to value inventory acquired as part of the UW Solutions acquisition at fair value. These costs will be expensed to cost of goods sold over the period the inventory is sold. (2) Restructuring charges related to Project Fortify, including $0.4 million of employee termination costs and $0.5 million of other costs incurred in the third quarter of fiscal 2025. 28 Table of Contents Nine Months Ended November 30, 2024 (In thousands, except percentages) Architectural Framing Systems Architectural Glass Architectural Services LSO Corporate and Other Consolidated Operating income $ 48,187 $ 48,277 $ 21,483 $ 13,481 $ (19,453) $ 111,975 Acquisition-related costs (1) Transaction — — — — 3,748 $ 3,748 Integration — — — 147 794 $ 941 Backlog amortization — — — 805 — $ 805 Inventory step-up — — — 379 — $ 379 Total Acquisition-related costs — — — 1,331 4.542 $ 5,873 Restructuring charges (2) 2,755 — (459) — 917 3,213 Adjusted operating income $ 50,942 $ 48,277 $ 21,024 $ 14,812 $ (13,994) $ 121,061 Operating margin 11.7 % 19.5 % 7.1 % 18.2 % N/M 11.0 % Acquisition-related costs (1) Transaction — % — % — % — % N/M 0.4 % Integration — % — % — % 0.2 % N/M 0.1 % Backlog amortization — % — % — % 1.1 % N/M 0.1 % Inventory step-up — % — % — % 0.5 % N/M — % Total Acquisition-related costs — % — % — % 1.8 % N/M 0.6 % Restructuring charges (2) 0.7 % — % (0.2) % — % N/M 0.3 % Adjusted operating margin 12.3 % 19.5 % 7.0 % 20.0 % N/M 11.9 % Nine Months Ended November 25, 2023 Architectural Framing Systems Architectural Glass Architectural Services LSO Corporate and Other Consolidated Operating income $ 57,986 $ 49,119 $ 8,211 $ 17,288 $ (20,637) $ 111,967 Operating margin 12.5 % 17.4 % 3.0 % 24.0 % N/M 10.6 % (1) Acquisition-related costs include: • Transaction costs related to the UW Solutions acquisition. • Integration costs related to one-time expenses incurred to integrate the UW Solutions acquisition. • Backlog amortization is related to the value attributed to contracting the backlog purchased in the UW Solutions acquisition. These costs will be amortized in SG&A over the period that the contracted backlog is shipped. • Inventory step-up is related to the incremental cost to value inventory acquired as part of the UW Solutions acquisition at fair value. These costs will be expensed to cost of goods sold over the period the inventory is sold. (2) Restructuring charges related to Project Fortify, including $1.3 million of employee termination costs, $0.1 million of contract termination costs and $1.8 million of other costs incurred in the first nine months of fiscal 2025. 29 Table of Contents Reconciliation of Non-GAAP Financial Measures Adjusted Net Earnings and Adjusted Diluted Earnings Per Share (Unaudited) Three Months Ended Nine Months Ended (In thousands, except per share amounts) November 30, 2024 November 25, 2023 November 30, 2024 November 25, 2023 Net earnings $ 20,989 $ 26,974 $ 82,566 $ 83,877 Acquisition-related costs (1) Transaction 3,748 — 3,748 — Integration 941 — 941 — Backlog amortization 805 — 805 — Inventory step-up 379 — 379 — Total Acquisition-related costs 5,873 — 5,873 — Restructuring charges (2) 912 — 3,213 — NMTC settlement gain (3) — — — (4,687) Income tax impact on above adjustments (4) (1,662) — (2,226) 1,148 Adjusted net earnings $ 26,112 $ 26,974 $ 89,426 $ 80,338 Three Months Ended Nine Months Ended November 30, 2024 November 25, 2023 November 30, 2024 November 25, 2023 Diluted EPS $ 0.96 $ 1.23 $ 3.76 $ 3.80 Acquisition-related costs (1) Transaction 0.17 — 0.17 — Integration 0.04 — 0.04 — Backlog amortization 0.04 — 0.04 — Inventory step-up 0.02 — 0.02 — Total Acquisition-related costs 0.27 — 0.27 — Restructuring charges (2) 0.04 — 0.15 — NMTC settlement gain (3) — — — (0.21) Income tax impact on above adjustments (4) (0.08) — (0.10) 0.05 Adjusted diluted EPS $ 1.19 $ 1.23 $ 4.08 $ 3.64 Shares outstanding for EPS 21,917 22,013 21,937 22,093 (1) Acquisition-related costs include: • Transaction costs related to the UW Solutions acquisition. • Integration costs related to one-time expenses incurred to integrate the UW Solutions acquisition. • Backlog amortization is related to the value attributed to contracting the backlog purchased in the UW Solutions acquisition. These costs will be amortized in SG&A over the period that the contracted backlog is shipped. • Inventory step-up is related to the incremental cost to value inventory acquired as part of the UW Solutions acquisition at fair value. These costs will be expensed to cost of goods sold over the period the inventory is sold. (2) Restructuring charges related to Project Fortify, including $0.4 million of employee termination costs and $0.5 million of other costs incurred in the third quarter of fiscal 2025, and $1.3 million of employee termination costs, $0.1 million of contract termination costs and $1.8 million of other costs incurred in the first nine months of fiscal 2025. (3) Realization of a New Markets Tax Credit (NMTC) benefit during the second quarter of fiscal 2024, which was recorded in other expense (income), net. (4) Income tax impact calculated using an estimated statutory tax rate of 24.5%, which reflects the estimated blended statutory tax rate for the jurisdictions in which the charge or income occurred. 30 Table of Contents Reconciliation of Non-GAAP Financial Measures Adjusted EBITDA and Adjusted EBITDA Margin (Earnings before interest, taxes, depreciation and amortization) (Unaudited) Three Months Ended Nine Months Ended (In thousands) November 30, 2024 November 25, 2023 November 30, 2024 November 25, 2023 Net earnings $ 20,989 $ 26,974 $ 82,566 $ 83,877 Income tax expense 6,656 8,329 27,268 26,092 Interest expense, net 1,044 1,454 2,634 5,720 Depreciation and amortization 11,134 10,524 30,798 31,185 EBITDA $ 39,823 $ 47,281 $ 143,266 $ 146,874 Acquisition-related costs (1) Transaction 3,748 — 3,748 — Integration 941 — 941 — Inventory step-up 379 — 379 — Total Acquisition-related costs 5,068 — 5,068 — Restructuring charges (2) 912 — 3,213 — NMTC settlement gain (3) — — — (4,687) Adjusted EBITDA $ 45,803 $ 47,281 $ 151,547 $ 142,187 EBITDA Margin 11.7 % 13.9 % 14.1 % 13.9 % Adjusted EBITDA Margin 13.4 % 13.9 % 14.9 % 13.5 % (1) Acquisition-related costs include: • Transaction costs related to the UW Solutions acquisition. • Integration costs related to one-time expenses incurred to integrate the UW Solutions acquisition. • Inventory step-up is related to the incremental cost to value inventory acquired as part of the UW Solutions acquisition at fair value. These costs will be expensed to cost of goods sold over the period the inventory is sold. (2) Restructuring charges related to Project Fortify, including $0.4 million of employee termination costs and $0.5 million of other costs incurred in the third quarter of fiscal 2025, and $1.3 million of employee termination costs, $0.1 million of contract termination costs and $1.8 million of other costs incurred in the first nine months of fiscal 2025. (3) Realization of a New Markets Tax Credit (NMTC) benefit during the second quarter of fiscal 2024, which was recorded in other expense (income), net. Liquidity and Capital Resources We rely on cash provided by operations for our material cash requirements, including working capital needs, capital expenditures, satisfaction of contractual commitments (including principal and interest payments on our outstanding indebtedness) and shareholder return through dividend payments and share repurchases. Operating Activities. Net cash provided by operating activities was $95.1 million for the first nine months of fiscal 2025, compared to $129.3 million in the prior year period. The decrease in net cash provided by operating activities was primarily driven by cash used for working capital. Investing Activities. Net cash used by investing activities was $257.1 million for the first nine months of fiscal 2025, compared to $26.3 million in the prior year period. The increase in net cash used by investing activities was primarily related to $233.1 million of cash used for the acquisition of UW Solutions. Financing Activities. Net cash provided by financing activities was $169.0 million for the first nine months of fiscal 2025, compared to $100.4 million of net cash used by financing activities in the prior year period. The increase in net cash provided by financing activities was primarily driven by the proceeds of $250.0 million from the delayed draw term loan utilized to finance the UW Solutions acquisition. Additional Liquidity Considerations. We periodically evaluate our liquidity requirements, cash needs and availability of debt resources relative to acquisition plans, significant capital plans, and other working capital needs. 31 Table of Contents On July 19, 2024, we entered into a Credit Agreement (the Credit Agreement) with Bank of America, N.A., as administrative agent, and other lenders. The Credit Agreement provides for an unsecured senior credit facility in an aggregate principal amount of up to $700.0 million, in which commitments were made through a $450.0 million, five-year revolving credit facility and a committed $250.0 million delayed draw term loan facility. Borrowings under the revolving credit facility can be in Canadian dollars (CAD) limited to $25.0 million USD. The term loan facility may be utilized in up to two drawdowns, which are available to be made within one year after the closing date. The senior credit facility has a term of five years with a maturity date of July 19, 2029. The Credit Agreement replaces the previous revolving credit facility with Wells Fargo Bank, N.A., as administrative agent, and other lenders, with maximum borrowings up to $385.0 million, and the two Canadian credit facilities with Bank of Montreal totaling $25.0 million USD. Outstanding borrowings under the previous revolving credit facility were $50.0 million as of March 2, 2024. We had no outstanding borrowings under the Canadian facilities as of March 2, 2024. As a result of the execution of the Credit Agreement, in the second quarter of fiscal 2025, we recognized a loss on extinguishment of debt within interest expense of $0.5 million for the write-off of unamortized financing fees related to the previous revolving credit facility. Additionally, we capitalized $3.0 million of lender fees and $0.8 million of third-party fees incurred in connection with the Credit Agreement, which were recorded as other non-current assets and will be amortized over the term of the credit facility as interest expense. The Credit Agreement contains two maintenance financial covenants that require our Consolidated Leverage Ratio (as defined in the Credit Agreement) to be less than 3.50 and our Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) to exceed 3.00. At November 30, 2024, we were in compliance with all covenants as defined under the terms of the Credit Agreement. The Credit Agreement also contains an acquisition “holiday.” In the event we make an acquisition for which the purchase price is greater than $75 million, we can elect to increase the maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) to 4.00 for a period of four consecutive fiscal quarters, commencing with the fiscal quarter in which a qualifying acquisition occurs. No more than two acquisition holidays can occur during the term of the Credit Agreement, and at least two fiscal quarters must separate qualifying acquisitions. Borrowings under the Credit Agreement bear floating interest at either the Base Rate or Term Secured Overnight Financing Rate (SOFR), or for CAD borrowings, Canadian Overnight Repo Rate Average (CORRA) plus, in each a margin based on the Consolidated Leverage Ratio (as defined in the Credit Agreement). For Base Rate borrowings, the margin ranges from 0.25% to 0.75%. For Term SOFR and CORRA borrowings, the margin ranges from 1.25% to 1.75%, with an incremental Term SOFR and CORRA adjustment of 0.10% and 0.29547% respectively. The Credit Agreement also contains an “accordion” provision. Under this provision, we can request that the senior credit facility be increased by unlimited additional amounts. Any lender may elect or decline to participate in the requested increase at their sole discretion. On November 4, 2024, as part of the acquisition of UW Solutions, and for working capital and general corporate purposes, we executed a drawdown against the delayed draw term loan facility for $250.0 million. Outstanding borrowings under the term loan facility were $230.0 million as of November 30, 2024. Outstanding borrowings under the revolving credit facility were $30.0 million as of November 30, 2024. At November 30, 2024, we had a total of $27.3 million of ongoing letters of credit related to the senior credit facility and industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal years 2026 through 2032 and reduce borrowing capacity under the revolving credit facility. As of November 30, 2024, the amount available for revolving borrowings was $405.0 million. We acquire the use of certain assets through operating leases, such as property, manufacturing equipment, vehicles and other equipment. Future payments for such leases, excluding leases with initial terms of one year or less, were $73.9 million at November 30, 2024, with $4.3 million payable during the remainder of fiscal 2025. As of November 30, 2024, we had $20.0 million of open purchase obligations, of which payments totaling $14.5 million are expected to become due during the remainder of fiscal 2025. These purchase obligations primarily relate to raw material commitments and capital expenditures and are not expected to impact future liquidity, as amounts should be recovered through customer billings. We expect to make contributions of $0.4 million to our defined-benefit pension plans in fiscal 2025, which will equal or exceed our minimum funding requirements. 32 Table of Contents As of November 30, 2024, we had reserves of $5.7 million for unrecognized tax benefits. We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits will ultimately be settled. We are required, in the ordinary course of business, to provide surety or performance bonds that commit payments to our customers for any non-performance. At November 30, 2024, $1.2 billion of these types of bonds were outstanding, of which $307.2 million is in our backlog. These bonds have expiration dates that align with completion of the purchase order or contract. We have not been required to make any payments under these bonds with respect to our existing businesses. Due to our ability to generate strong cash from operations and our borrowing capability under our committed revolving credit facility, we believe that our sources of liquidity will be adequate to meet our short-term and long-term liquidity and capital expenditure needs. In addition, we believe we have the ability to obtain both short-term and long-term debt to meet our financing needs, including additional sources of debt to finance potential acquisitions, for the foreseeable future. We also believe we will be able to operate our business so as to continue to be in compliance with our existing debt covenants over the next fiscal year. We continually review our portfolio of businesses and their assets and how they support our business strategy and performance objectives. As part of this review, we may acquire other businesses, pursue geographic expansion, take actions to manage capacity and further invest in, divest and/or sell parts of our current businesses. Related Party Transactions No material changes have occurred in the disclosure with respect to our related party transactions set forth in our Annual Report on Form 10-K for the fiscal year ended March 2, 2024. Critical Accounting Policies There have been no material changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended March 2, 2024. Item 3. Quantitative and Qualitative Disclosures About Market Risk Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended March 2, 2024 for a discussion of the Company’s market risk. There have been no material changes in market risk since March 2, 2024.