APOG - NASDAQ

Good day and thank you for standing by. Welcome to the Apogee Enterprises Fiscal 2023 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your host today, Jeff Huebschen. Please go ahead.

Thank you, Michelle. Good morning, everyone, and welcome to Apogee Enterprises’ fiscal 2023 first quarter earnings call. With me today are Ty Silberhorn, Apogee’s Chief Executive Officer; and Nisheet Gupta, Chief Financial Officer. I’d like to remind everyone that there are slides to accompany today’s remarks. These are available in the Investor Relations section of Apogee’s website. During this call, we will reference certain non-GAAP financial measures. Definitions of these measures and a reconciliation to the nearest GAAP measures are provided in the earnings release we issued this morning. As a reminder, beginning this quarter the Sotawall business is included in the Architectural [Services] [ph] Segment unit, moving from Architectural Framing Systems. Our earnings presentation include the table of pro forma segment results for the prior year that reflect this change. I’d also like to remind everyone that our call will contain forward-looking statements. These reflect management’s expectations based on currently available information. Actual results may differ materially. More information about factors that could affect Apogee’s business and financial results can be found in today's press release and in our SEC filings. With that, I'll turn the call over to you, Ty.

Thank you, Jeff. Thanks everyone for joining us this morning. This was a strong quarter for Apogee, an encouraging start to our fiscal year. I am extremely proud of the progress that our team is making as we execute our strategy. This morning, I will discuss the highlights from the quarter? How our strategy is driving our improved results? What we're seeing in our end markets? And our outlook for the rest of the year. Then Nisheet will provide more details on the quarter and the increase in our full-year guidance. After that, we'll take your questions. Let's start with the highlights from the quarter on Page 4 in our presentation. We achieved very strong top and bottom line growth this quarter. Revenue grew 9% to 357 million. Operating margins improved significantly to 9.3% and earnings more than doubled to $1 a share. These strong results were led by our Framing Systems business. Framing delivered 19% revenue growth and nearly tripled operating income, compared to the prior year. We also achieved strong profitability growth in Architectural Glass. Glass operating income more than doubled and margins improved to 6.8% up from 2.6% last year. A key part of this success was effectively managing costs and pricing, especially in Framing Systems. Last quarter, we said we expected inflation to remain a challenge in fiscal 2023, but that we were improving on our ability to mitigate its impact. That's exactly what played out this quarter. Inflation was a $22 million year-over-year headwind in the quarter. Costs for commodities like aluminum, energy, and freight all reached historically high levels with significant volatility, but we were able to more than offset this to pricing, cost actions, and the early benefits of a better product mix in both our Framing and Glass segments. We also achieved improved productivity and yields through our lean efforts. This was especially evident in the Glass segment and we are now expanding our lean efforts within Framing Systems. As a reminder, the framework [of our] [ph] enterprise strategy is shown on Page 5 of our presentation. The first pillar of our strategy is to become the economic leader in our target markets. Our initial focus has been to improve the performance of theFraming Systems and Architectural Glass. These two [Technical Difficulty] had been underperforming their potential. Last year, we began to execute several actions to improve the competitive position and operational execution in Framing and Glass. We completed restructuring actions designed to enable a more competitive cost structure, bring a stronger focus to differentiated products and services where we provide the most value for customers, and better position them for future profitable growth. We also took action to improve execution in both segments by our revitalized lean program. We still have a lot of work to do to fully capitalize on the opportunities in these areas, but this quarter demonstrates the progress that we are making. We are strengthening execution. We are improving our ability to manage costs and pricing. and we are driving productivity gains. Last year, we also established target margin ranges for each of our segments. We saw Framing Systems with the potential to achieve 9% to 12% margins and 7% to 10% margins in Architectural Glass. The Glass segment is approaching that range, delivering 6.8% margin this quarter. Framing Systems exceeded their target range in the first quarter. This was driven by the operational improvements that I discussed along with the benefits from the timing of pricing actions and inventory flows as we manage through unprecedented volatility in aluminum prices. Nisheet will provide more details on this during his remarks. Framing's 14.5% margin this quarter is likely not sustainable in the near-term, but we are clearly driving improved performance that should keep Framing margins within our target range for this fiscal year. Page 6 in our presentation outlines this year’s priorities as we continue to execute our strategy. Those items highlighted in the bold text are areas where our efforts visibly impacted our first quarter results. In addition to lean and pricing, we also made investments to strengthen our M&A capabilities and investments in our services segment to fully integrate Sotawall. We invested in our people launching new talent development programs. We continue to work on standardizing processes and we leveraged our transformation management office to strengthen core systems and drive our corporate initiatives. These will remain our focus areas as we move through the rest of the fiscal year. Let me move on to some comments on the overall market and our outlook for the year. First, the challenges we faced over the past several quarters from inflation and supply chain disruptions show no signs of abating. We expect these will remain headwinds throughout the year. We continue to see significant cost pressure and volatility in aluminum, glass, freight, energy, and other categories. Accordingly, we will continue to focus on cost management, productivity, and pricing. I'd like to recognize our team once again for managing through this challenging situation while doing their best to minimize the impact on our customers. We are closely monitoring how inflation, rising interest rates, and overall economic conditions might impact demand in our end markets. However, most metrics continue to point to a favorable outlook for non-residential construction. Forward indicators like the Architectural Billing Index and new construction starts have been positive for the past 16 months. This suggests the industry is building a solid pipeline of projects that has the potential to drive market growth. This was reflected in what we saw in our own business this quarter. Our backlog increased and we saw solid order and bidding activity across our [Architectural Billing Index] [ph]. While overall non-residential construction has not [Technical Difficulty] pandemic levels, we are seeing good demand for premium office projects. This plays to the strengths of our Services and Glass segments. We are also seeing a shift in the overall market with more demand for institutional projects like healthcare, education, and transportation centers. Our teams are capitalizing on this shift as our backlog mix is increasing for these project types. Other factors also support a favorable outlook for construction. These include federal government investments in infrastructure and long-term trends toward more energy efficient buildings. We will continue to closely monitor the market and economic conditions. At this point, we still expect full-year revenue growth, primarily driven by Framing Systems. We also expect to deliver meaningful year-over-year margin expansion. This will continue to be driven by the improved performance in Framing Systems and Glass. Based on [that] [ph], we are increasing our guidance for full-year earnings per share by about 20% at the midpoint of our range. With that, let me turn it over to Nisheet to provide more details on the quarter, as well as our guidance.

Thank you, Ty, and good morning, everyone. The first quarter was a terrific start to our fiscal year with continued positive momentum in our businesses. We achieved strong top and bottom line growth. Our pricing and cost actions offset the impact of inflation and our strategy is driving improved performance. Let me provide some more details starting with consolidated results on Page 7 of our presentation. First quarter revenue grew 9%. This was led by double-digit growth in both Framing Systems and Architectural Services. Large-Scale Optical also grew by 4%. Gross margins improved 320 basis points to 24%. Operating income more than doubled compared to the prior year. And operating margin improved to 9.3%. This was 440 basis points higher than 4.9% last year. Interest expense and tax rates were approximately in-line with last year's first quarter. Finally, our diluted share count was 22.7 million, down from 25.8 million a year ago, due to your recent share repurchases. Putting it all together, earnings grew to $1 per diluted share. This is a 138% increase compared to last year, driven primarily by stronger operating performance in our businesses. Let's move to segment results on Slide 8 to better understand the key performance drivers in the business. Starting with architectural framing systems, a lot went right for Framing this quarter. Revenue grew 19%. This was primarily driven by pricing actions taken to offset inflation. Operating income grew to $23.7 million with operating margin of 14.5%. These were both records for Framing segment. This strong profitability was driven by improved pricing, [cost reductions from] [ph] last year restructuring actions, and increased productivity. As I mentioned, Framing margins also benefited from timing of inventory flows and volatility in aluminum prices. This is illustrated on Page 9 of our presentation. Aluminum is the largest cost category for Framing Systems. For longer lead time projects, we typically hedge our aluminum exposure. This shorter lead time store print solution business is more subject to market volatility. This quarter we benefited as we worked through order inventory that was purchased at lower costs. This added approximately $4 million to Framing profits in the quarter, leading to a 250 basis points margin gain. This benefit is unlikely to repeat in future periods as we use a [Technical Difficulty] that was purchased at higher costs. But our pricing models and cost management have put framing in a stronger position to manage commodity swings as we move forward. Wrapping up with Framing Systems, backlog increased to $10 million. This is up from $281 million last quarter as order and bidding activities remained solid. As a reminder, the backlog associated with Sotawall has moved to architectural services beginning this quarter. Turning to Architectural Services, revenue grew 14% to $103 million. This was driven by higher volume as they executed projects in backlog. Operating margin was 2.8% compared to 4.7% last year. This was driven by performance write-downs on a few projects along with higher costs related investments we are making to enable future scale and growth in the Services Segment. Services is also a less favorable mix with higher volume on lower margin jobs. Without these project write-downs, margins would have been in-line with last year. Work to integrate Sotawall into services is well underway. As we mentioned last quarter, Sotawall has been an underperforming business in the last-term. In the near term, Sotawall will suppress overall services margin. Overtime, we expect this transition will drive operational improvement and strong profitability. Looking at orders and backlog, Services won several project awards during the quarter. This increased the backlog to $681 million, up from $665 million last quarter as order and bidding activity remained solid. Our sales pipeline is healthy and we see opportunities to build further backlog as the year progresses. In Architectural Glass, revenue was down 8%. This was primarily driven by lower volumes. This reflects the closure of Velocity business, and our strategic shifted away from some lower margin sales. Volume also continues to be impacted by lower project awards over the past 18 months when non-residential construction was in a downturn. Operating margin [Technical Difficulty] 6.8%. This was 420 basis points better than last year. We are achieving the cost savings from our restructuring and driving meaningful productivity gains from our lean program. The priority for Glass is margin improvement and stronger return on capital. The team has made impressive progress over the past several quarters, driving strong profitability gains, despite lower volumes. Turning to Large-Scale Optical, LSO continues to deliver steady performance gains. Revenue grew 4%, driven primarily by improved pricing and mix. Margins increased to 25.8%. This was 170 basis points better than last year's first quarter. Margin gains were primarily driven by productivity improvements, which offset the impact of inflation. Moving to the corporate line, corporate costs were $5 million, up from $4.5 million last year. Let's turn to cash flow and the balance sheet on Page 10. This quarter we used $30 million of cash for our operations primarily due to increased working capital. The first quarter typically has the lowest cash flow of the year. This is due to timing of incentive, insurance, and other payments. This quarter, we also had increased receivables tied to our revenue growth. As we increase our inventory, both to support growth and also to mitigate supply chain risks. We expect cash flow will improve as we move through the year. Capital spending in the quarter was $5 million. This is likely to ramp up the rest of the year. We are putting capital to work on high return projects in our businesses. And we are evaluating opportunities for further investments in our business. We expect full-year CapEx of $35 million to $40 million. We also continue to repurchase stock during the quarter. We bought back 1.6 million shares for $74 million. The lower cash flow and our share buybacks did increase debt this quarter. As a reminder, we are targeting a leverage ratio of [one point times] [ph] adjusted EBITDA. Even with the increased debt, our financial position remains healthy with ample capacity to invest in our businesses. Let me wrap up by discussing the outlook, which is on Page 11. Based on the first quarter results and increased confidence in our outlook, we are raising full-year earnings guidance to a range of 3.50 to 3.90 per share. At the midpoint, this is approximately 50% growth over last year’s adjusted EPS. We continue to expect revenue growth for the full-year, primarily driven by Framing Systems. We expect revenue in the other three segments to be relatively flat given that services backlog declined last year and Glass is focused on profitability, not volume. We expect to drive continued year-over-year margin expansion, primarily in Framing Systems in Glass, where we’ll benefit from last year's restructuring actions and will continue to drive operational improvements. Interest expense will likely increase the rest of the year due to higher rates and a higher debt balance. As we continue to expect a long-term average tax rate of approximately 24.5%. In summary, this was a strong quarter for Apogee and a good start to our fiscal year. Our enterprise transformation is progressing. and we're improving execution and driving sustainable profitability improvements. Our financial position remains very strong, and we are deploying capital to drive shareholder value. I would like to recognize the entire Apogee team for delivering a strong quarter. With that, I'll turn it back over to Ty for some concluding remarks.

Thanks, Nisheet. Our results demonstrate we are executing our strategy and creating peak value for all of our stakeholders. We're driving improved execution. We're building a more competitive cost structure, and we're achieving sustainable productivity improvements. Yes, inflation and other macroeconomic factors remain challenges and we are demonstrating our ability to respond to those. Our team is doing a terrific job managing through these headwinds and delivering for our customers. We'll continue to advance our strategy as we move through the year, and I'm confident that we are building an enterprise that can outperform the market regardless of how the economy might shift. This confidence is reflected in our increased earnings guidance for the year. With that, we are ready to take your questions.

Thank you. [Operator Instructions] And our first question comes from the line of Chris Moore with CJS Securities. Your line is open. Please go ahead.

Hey, good morning guys. It was a great quarter. Yes. Maybe we could start with Framing margins. So, if I heard you right, sounds like there was about a 4 million benefit with respect to inventory, kind of the timing of the inventory flow, is that correct?

That's correct. Yes, Chris.

Okay. So that would – [indiscernible] would have been roughly 12% without that. So, just how are you looking at pricing versus inflation for the balance of the year? Do you still have the ability to continue raising pricing all the way through or just kind of what's that pricing environment look like?

Yes, Chris. So, as you're well aware, it is a very competitive market. So, we have gotten ahead of that raw material cost curve and we've done that in two ways. One, through the pricing actions and the price models that the teams have put in place to manage that, but we're also driving cost out so that we can stay competitive in the market and not simply take all of that cost and have to pass it all the way through to our customers. We turned the corner in Q4 where we actually started to see some net benefit on price to raw material inflation. That continued in Q1. We expect right now and what's reflected in our guidance is we'll continue to be able to manage that through the course of the year, but it is something that we expect a fair amount of volatility on as we move ahead.

Yes. And if I can just add, our margins last year were 7.3%, and in our guidance for AFS [over] [ph] long-term is 9% to 12%. We expect that we'll be solidly in that range of 9% to 12% in this fiscal year.

Got it. Very helpful. So, staying with margin theme, if I look at Services, it sounds like without the write down, you would have been around 6%, how long do you think it's going to take to integrate Sotawall and can you get back to your target service margins later on this year or is it – will it take a little bit longer than that?

Well, there's two things with services, Chris. So, in addition to the Sotawall business, which was underperforming and if you look at that pro forma, you can see it actually lost money last year. Moving into services as a whole, pulled those margins down. The other thing to remember with our services, the Harmon branded business, they are now executing jobs that were won in calendar 2020 and calendar 2021 when the market was kind of at the bottom of that pandemic trough. So, margins were squeezed somewhat as those jobs were won as it was across the whole market. So, we did expect some softness in Services for the year that is playing out. That 7% to 9% is our goal – as part of our three year vision for what we want to achieve as a business. What we expect is services will sequentially improve from here. Whether or not it gets into that 7% to 9% range for the full-year, we're not quite expecting that fully at this point, but I think as we move ahead and into our fiscal 2024 and beyond, we expect that they will be able to get into that range.

Got it. Helpful. Very helpful. Last one for me. From a geographic standpoint, it sounds like there is more demand on the institutional side, etcetera. Are there specific areas that you performed better in Q1 or that you expect to perform better this year versus fiscal 2022?

No, I would say from a geographic standpoint, not one geographic area stood out over the other. So, there were puts and takes across the board. We commented about the office. Premium office projects continue to come out for quotes and bidding. We have one, some Premium office space both in our services and our Glass business, but as we alluded to in my comments, we're also seeing demand pickup for some of those institutional type projects. And the good news is, we factored that into our assumptions and our strategy, and our services business in particular, as well as our Glass and Framing business are positioned to capitalize on that shift as well.

Very helpful. One last one. From an interest rate perspective, are there any end markets that are less sensitive than others, you know institutional versus the premium etcetera?

What was the first part of your question Chris?

Yes. So, as interest rates continue to go up, I'm just wondering, are there any end markets that would be less interest rate sensitive, you know demand is shifting, you said on the institutional side, just trying to understand from an end market perspective if some areas are a little less interest rate sensitive than others?

Yes, Chris. Good question. If you think about the commercial market, I would say the interest rate will impact them most, but if you think about the institutional market where also there is investment coming from the infrastructure spending with the current government. We expect us to be doing well. And therefore, the shift in focus, as Ty mentioned is more towards how to fit more into the infrastructure space. So that would be a high level take on this even though it's a bit of a crystal ball.

Yes. And I think the – even for office, the mid-and-low tier office, which we haven't seen that demand really pick back up, that's likely to be impacted just given likely tenants for those types of project sizes, et cetera. So, we haven't seen that impact on the premium office space side.

Got it. Thank you very much.

Thank you. And our next question comes from the line of Eric Stine with Craig Hallum. Your line is open. Please go ahead.

Good morning, everyone.

Good morning, Eric.

Hey, so I know you just talked about kind of pricing ability for the remainder of the year, but just curious on the aluminum prices, given you had the big benefit in the first quarter, and there has been a move in the other direction, I mean, is that something that you expected to kind of go the other way in the second quarter before things normalize or how should we think about that here in the near-term?

Yes. So, as Ty was mentioning, there is a significant volatility right now on aluminum. It has been there for the last 12 months. Our teams are doing a fantastic job in understanding what are the short lead time projects versus long lead time projects? For the longer lead time projects, we are doing forward buys and hedging as much as possible. For the shorter lead time projects, that's where the biggest challenge comes. Are we able to do pricing and incorporate the changes in aluminum pricing? So, I would say, we expect the upside that we got in the first quarter not to continue in the future quarters. However, our teams are very well geared up to at least charge out to the customers to the extent of inflation. So, the volatility will continue. We have risk in this space and that's why you see the wide range that we have given on our guidance is driven by some of these commodities including aluminum, but I'm confident that our teams will be able to offset inflation with pricing not to this extent of Q1, but to an extent that we can be at least break-even on those costs.

Okay. That's helpful. Thank you. And then maybe just on the overall market, I mean obviously non-risk construction, the ABI have been some pretty positive readings. However, I've heard some talk that more movement from new construction to more retrofit projects, would love your thoughts on that. And then that just comes back to, I know that in the past retrofits, that's been an initiative for the company, just maybe where that stands today?

Yes, I would say in general, I mean, we have seen some of that demand for retrofits on buildings that is part of our business. It is not a huge part of our business, but that has been positive. Framing has seen some benefit from that. Interestingly, we are seeing in a number of geographic areas where projects were looked at complete retrofits, and as they got into that, the cost of doing that versus doing a teardown and rebuild, which also brings the benefits of getting to energy compliance, etcetera, etcetera, actually has played out better. So, I would say, we're seeing a mix across the board and overall, we're seeing a net positive in demand right now for new construction.

Got it. Okay. Maybe last one for me just on Sotawall. Curious early returns there on that. On that being part of services, is the integration done? And if not, how much further do you think you have to go there?

I mean the integration work started in earnest. The preparation for that during our Q4, they started earnest on that beginning in Q1. There is a fair amount of work to do with that because our services business under the Harman brand has a specific operating system that they use to bid and then manage those projects that they win. They're instituting that process into the Sotawall business now and they're also making investments to support the systems that are necessary to manage that process. So, there's a fair amount of work that they will be doing throughout this fiscal year. We factored that into their plan, as well as have considered that in our guidance. As much as we don't like to see a net negative write-down in projects, I would tell you what we saw as a positive from that is because of the system that they started to implement with the team and the combined businesses that gave them some visibility so that they could account for that as we move forward.

Got it. Thank you.

Thank you. And our next question comes from the line of Brent Thielman with D.A. Davidson. Your line is open. Please go ahead.

Hi, great. Thank you. Yes, maybe on the Glass business, I mean costs for Glass have moved up pretty materially here. I guess the question I have is just, the margin improvement this quarter, which I know is a function of the actions you've taken internally, but is that reflective of the higher costs that are flowing through the P&L just in terms of purchasing Glass?

So, you're right. We have seen some significant increase in costs most recently up to 40% in some of the [Floor Glass] [ph] coming. If you think about a strategy that we laid last year, it was all about shifting our focus on premium market. So, the margins that are coming through versus last year are two drivers for it. One is, we don't have the velocity business anymore, but the second and more important sustainable driver is the business is now shifting towards premium segment where we're able to charge a margin that we were not able to charge earlier on high rise buildings. So, I would say this is a sustainable performance of this business. And as you know, the long-term outlook of this business is 7% to 10% that we laid out in our Investors Day and this team is well underway in getting to that number.

Okay. And then on the services business, I think within that you have the benefits of some longer lead times and sort of visibility into opportunities a little further out. It seems like this year is pretty well stored up, I mean what do you see in the channel or bidding activities for projects that should get moving next year? Are owners taking a step back? Is it taking longer to turn into a bid? I guess, any sort of thoughts around that would be helpful?

Yes, I would say from a services standpoint, so they were able to grow backlog this quarter. They continue to see solid bidding activity and continue to see solid award activity. So, as we're looking out into fiscal 2024 and 2025, I mean there's a lot of work to do to fill in both of those years as you might expect at this point, but they continue to see good demand. In general, in some instances, they would probably say that bidding activity has picked up. Some of that is getting requotes on jobs that got pulled, one, two, even three years ago. So, they've had some months where bidding activity is very strong, but net overall the trend line on bidding activity remains on an upward scale and then we are seeing a benefit in terms of awards that that continues to trend upward as well.

Okay. Thank you.

Thank you. And our next question comes from the line of Julio Romero with Sidoti & Company. Your line is open. Please go ahead.

Hey, good morning. Thanks for taking my questions.

Good morning.

Good morning, Julio.

Hey, so I appreciate your commentary on the end markets and the shifts and trends you're seeing there. What would you maybe expect would be the first sign of the impact of rising rates on your businesses?

Well, I think the first piece in what we're watching is what’s happening with that bidding activity. So that's something that we're reviewing with the teams on a monthly basis because that is an indicator. And as I said, we continue to see that, while it's choppy, it continues to be on an upward trend. So that's something that we'll continue to monitor, obviously how that flows into [awards] [ph]. You look at some of the external market metrics, ABI continues to be positive, still hovering around in the low 50s, still net positive. That's another indicator for us in terms of how the market’s performing. So, we're looking both internally and externally around activity that's driving that to give us an indication.

Okay, got it. And I guess maybe a broader question. Your overarching strategy across Glass Framing really all your businesses is a pivot to premium, you know with rates increasing as rapidly as they have been, has that impacted your thinking in regards to strategy or at least the implementation of that if it's a premium?

Yes. So, of course, we're watching just on the broader market how that might play out and impact this. We haven't seen that and when you think about premium, you really need to think about it as what is the value and the features that we are adding and bringing into those products and services to that market. So, there has to be a value component. So, this isn't just charging an extra 10% or 20% for what is in essence the same product. The customer and take that all the way through the value stream, the architect, the developer, the general contractor, we're focused on delivering products that are going to bring value in terms of the total performance of how that product or service helps them achieve their goals and objectives. So, a lot of those in addition just to energy and other factors, there's things such as service, lead times, simplicity, building multiple features into a single component, whether it's an [IGU glass unit] [ph] or the curtain wall construction unit itself. Those are things that we're driving as part of that storyline and that value proposition and we're focused on the types of projects that recognize that value and look at it in terms of how it can help them get to where they need to be either from a total cost of ownership or in terms of what they're trying to deliver in the final product in terms of how it performs.

Okay. That's helpful. And I guess just one more for me is, you touched on – you started the integration work of integrating services – Sotawall into services, if you could just talk about any early takeaways you've had as you start to apply that Harmon operating process to Sotawall?

Yes, I would say that the team is generally very positive in upbeat of what they see. You know, Sotawall had it in the backlog just like the Harmon branded business did within services. So, they're executing projects that have been won in the last year, two, and three years ago. So, to some extent what they've inherited for projects that are being executed this year, they are what they are. They see opportunities to execute a bit more strongly as they work through the year on those projects. So, as we're looking at this. We're looking at what does year two and year three look like for the services business in total, knowing that they're going to work through what they have in that backlog and how that is executing now. We see some great benefits in leveraging the talent that we had in our Sotawall business across the services segment more broadly. And that's something that the team has factored in now to their integration as well. And they actually have jumped on our lean initiative as well. We had kind of had them later in our Q for our lean rollout, but they saw some opportunities to leverage that both in what had been Harmon branded sites, as well as the Sotawall site and we're seeing some early positive signs with respect to that that's going to help them on the productivity side as well.

Very helpful. Thanks very much.

Thank you.

Thank you. [Operator Instructions] And our next question comes from the line of John Braatz with Kansas City Capital. Your line is open. Please go ahead.

Good morning, everyone. Todd, I'd like to go back to maybe Architectural Glass and you're near the margin range that you've set out, yet it's been a very difficult environment. Volumes are down and so on. And I guess my question is, will it take much volume improvement to move that margin up to that upper end of the range because you've been reshaping that business and making it more profitable, but will it take much volume improvement to get to that top end?

They will need some volume to get to the top end of that range, but to get into that as you saw this quarter, I mean, they had volume decline on a year-over-year basis. Now, they were getting benefit of some of the restructuring and some of the costs out, but the productivity that they have been driving in our Owatonna facility frankly has been phenomenal. And I just spent half a day down there yesterday with the team. So, we expect that they're going to be able to get into that range even at the volume run rate that they are in. To get up to the upper end of that, you know that 9%, 10%, they will need to see some volume. And the good news is, they're looking at, they have a bit shorter window than say our segment, but they are seeing positive activity both in bidding and awards. So, as they work through this fiscal year and as we start to look at F24, we are seeing positive signs of that, both from a volume and more importantly the mix shift that we were looking for in the premium value products. We are seeing that showing up in [their awards] [ph] now and we'll continue to monitor that as we go forward. So, it’ll be a combination of volume, but then also getting to that mix target that they were shooting for that pushes them up into that, let's say 10%.

Okay. Nisheet, during the quarter, you borrowed $100 million and repurchased $75 million worth of stock. Number one, is the share repurchase completed? And number two, how are you looking at in terms of your guidance and so on? Looking at the likelihood of higher rates and what you may have to pay on that debt?

Sure. So, the first is, yes, we did a significant share repurchase. As we've laid out, our strategy is to continue to – in terms of capital allocation is to continue to invest in our business. That's our first priority and we have been investing in our businesses in growth capital projects. The second one of course is share repurchases. As we’ve done a lot of asset sales over the last two years, sale and leaseback transaction, we have built a very strong balance sheet. Our leverage ratio was always something we're focusing on to get it to 1.5. So, this strategy on share repurchases is exactly in-line with how we wanted to allocate the capital. As we go for the rest of the year, we would look at opportunities to see where [Technical Difficulty] best user of our capital is, and share purchase may be part of that. Given the significant purchase we have done right now, and all of the priorities we have in our business, we will have to carefully evaluate if at all we need more share repurchases in the year or not, but we have authorization from the Board, as you might have seen from this morning, of another million shares that we could go after, but it will all depend on the priorities that we have in investing in our business for the rest of the year.

Okay. And the cost of the debt?

Yes. So, on the cost of debt, we did some simulations and we don't think it's a material number on the cost of debt for rest of the year, and that has been factored in the range that we have provided you.

Okay. All right. Thank you very much.

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Ty Silberhorn for any further remarks.

All right. Well, thank you very much for joining us today. I just want to reinforce the fact that we are executing our strategy, which is showing up in driving improved results for the business. Q1 was a very encouraging start to the year. It actually demonstrates that our strategy is paying off and we've got increased confidence in our team and our business, which drove us to raise guidance for the year. Thank you very much for joining us today and have a good rest of your week.