APOGEE ENTERPRISES, INC. (APOG) Q2 2025 Earnings Call Transcript

Thank you, Kevin. Good morning, everyone. And welcome to Apogee Enterprises fiscal 2025 second quarter earnings call. With me today are Ty Silberhorn, Apogee's Chief Executive Officer; and Matt Osberg, 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 and slide deck we issued this morning. 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. And with that, I will turn the call over to you, Ty.

Thanks, Jeff. Good morning, everyone. I'm very excited to share the highlights from another solid quarter and provide further insights into our recently announced acquisition of UW Solutions. I'll then hand it over to Matt, to provide more details on the quarter and our outlook. Let's start with the quarter highlights on Page 5 of our presentation. As we expected, revenue declined compared to last year. Similar to the first quarter, this was partly due to our strategic shift away from less differentiated lower-margin product lines and a reflection of the continued softness in some of the end markets that we serve, particularly non-residential construction. Even with the lower volume, our team continued to drive strong adjusted operating margin expansion and delivered adjusted EPS growth. Adjusted operating margin was 12.6%, our second consecutive quarter with margins above 12%. And we had exceptionally strong cash flow from operations in the quarter.

As you'll see on Page 7 of our presentation, results in the quarter were once again led by outperformance from Architectural Glass. The Glass team continues to exceed our expectations due to strong pricing and mix, despite pressure on volume. Architectural Services was also a meaningful contributor to our year-over-year profit gains. Services delivered double-digit sales growth and achieved their sixth consecutive quarter of sequential adjusted operating margin expansion, moving closer to the 7% to 9% target range. Framing Systems and Large-Scale Optical both continued to deliver solid profitability despite lower sales volume. And importantly, both segments made progress on key strategic initiatives. Framing Systems made further progress executing Project Fortify, keeping us on track to deliver our cost savings targets. They also continued to improve their service levels while positioning the business to outgrow the market.

In LSO, we made continued progress on our capacity expansion project, which we expect to come online during the second half of the fiscal year. Given the strong earnings results in the second quarter, we are increasing our adjusted EPS outlook for the full year as shown on Page 9, to a range of $4.90 to $5.20. Our results continue to demonstrate the sustainable operating improvements we've achieved through the execution of our three-pillar strategy. Following on the heels of this solid quarter, we were excited to announce our agreement to acquire UW Solutions, which we highlight starting on Page 11 of our presentation. Before I get into the specifics of the transaction, I'd like to recognize the team at Apogee that has been directly involved in this process to bring it across the finish line. UW Solutions is a strong strategic fit for Apogee, and this deal is an example of the focus, patience, and diligence of our M&A process and the supporting teams.

This is a business we identified some time ago as a potential fit with our strategy. Our team worked directly with the seller, Heartwood Partners, to find a win-win path that will benefit everyone involved, most importantly, UW's employees and their customers. This deal checks all the boxes we are looking for in an ideal acquisition. It brings differentiated solutions with leading positions in attractive markets. It complements our portfolio while expanding and diversifying our growth opportunities. And it is a strong performing business that will be accretive to our long-term financial profile. UW Solutions operates around three product lines: HD Printable Materials, which has many similarities to our LSO segment, applies high-performance coatings to create premium products for the graphic arts market; Industrial Flooring, which applies high-performance coatings to engineered wood used primarily in warehouses, distribution centers, and industrial facilities; and Engineered Coatings, which formulates and produces a variety of high-performance coatings that are used internally as well as sold to third-party customers for other applications.

This acquisition is very well aligned with our strategy to create peak value. UW Solutions is an economic leader in their target markets. They bring differentiated capabilities, well-established brands, and leading market positions. They also have an impressive record of execution and profitability with strong EBITDA margins. Adding UW Solutions will complement our current portfolio and expand our offerings into new segments. The ResinDEK brand expands our offerings for non-residential construction, providing a meaningful entry into manufacturing, warehousing, and distribution projects with significant exposure to R&R versus new construction. The HD Printable Materials business accelerates our efforts to grow and diversify LSO's core business. And RDC Coatings brings in R&D capability to drive new product development and enable expansion into new applications and markets. Importantly, the deal will leverage Apogee's core capabilities to drive value through the integration.

We will enable cost synergies by leveraging areas like HR, Procurement, IT, and Finance, and we will deploy the Apogee Management System to further enhance the manufacturing operations. As shown on Page 17 of our presentation, UW Solutions brings unique capabilities and process technology that are a strong complement to what we do in our LSO segment. Both businesses have expertise in developing and applying high-performance coatings to a variety of substrates. LSO's current capabilities are centered around deposition and roll coating for glass and acrylic substrates. UW Solutions will add complementary capabilities in Roll Coating, Curtain Coating, and Spray Coating used on metals, wood, plastic, and other substrates. Together, these businesses will offer a broad range of manufacturing process capabilities that can provide a wide variety of coating types and high-performance substrates for a diverse set of market applications.

We plan to fully integrate the business into our LSO segment. The combined strength of these businesses will create a powerful new engine for growth. We will bring together a portfolio of leading brands that will serve a diverse set of customers and applications. The deal will also provide cross-selling opportunities and will accelerate growth drivers in both businesses. As I described earlier, we will leverage the Apogee Management System and our back-office capabilities to drive meaningful cost synergies. We expect the acquisition to close sometime in our fiscal third quarter, and we plan to move quickly to execute our rigorous and comprehensive integration plan. This is a great business that strongly complements our strategy. We are excited for the opportunity to welcome UW Solutions' employees to Apogee and look forward to working together to build a powerful new growth engine for the company. With that, I will turn it over to Matt to comment about the quarter, our outlook, and the acquisition.

Thanks, Ty, and good morning, everyone. Before I begin with the discussion of our second quarter results and outlook, I want to say how excited I am about the acquisition of UW Solutions. I want to reiterate Ty's comments on the strategic benefits of this deal and the opportunities for growth that it creates. This transaction also demonstrates our ability to deploy capital for assets with accretive financials that build on the momentum that we have created in our existing business. I will provide more information on the acquisition towards the end of my comments. Starting with our second quarter results. Net sales were down 3% year-over-year but improved sequentially compared to a decline of 8% in the first quarter. The sales decline in the quarter was primarily driven by lower volumes in Framing, Glass, and LSO. Similar to the first quarter, the volume decline was primarily driven by our strategic decision to exit some lower-margin product lines in Framing as part of Project Fortify and by softness in parts of our end markets.

The lower volumes were partially offset by improved pricing and product mix in Glass and favorable project mix in Services. Despite lower sales, we delivered another strong quarter of profitability. Adjusted operating margin improved 110 basis points to 12.6%, driven by improved pricing and mix, favorable material costs, and lower insurance-related costs. Adjusted diluted EPS grew 6% to $1.44, which equaled the record adjusted EPS we reported in the first quarter. Adjusted diluted EPS growth was primarily driven by higher adjusted operating income, along with lower interest expense. Turning to the segment results, Framing net sales declined 11%, primarily due to lower volume related to our strategic shift away from certain lower-margin product lines as part of Project Fortify. However, Framing sales did improve sequentially compared to the first quarter. Despite the lower volume, Framing continued to sustain adjusted operating margin within its 10% to 15% target range as the unfavorable leverage impact of lower volume and a less favorable mix were partially offset by favorable material costs.

Net sales in Glass declined 4%, primarily due to lower volume driven by softening end market demand. This was partially offset by strong pricing and mix. Once again, Glass operating margin exceeded our expectations, improving by 490 basis points to a record 23.4%. This margin overperformance was primarily driven by stronger-than-expected pricing and mix. Moving to Services, net sales grew 11% primarily due to a more favorable mix of projects and increased volume. Adjusted operating margin improved 250 basis points to 6.5%, making this the sixth consecutive quarter of sequential margin expansion for Services. Services backlog ended the quarter at $792 million, down from $867 million last quarter. Although backlog declined in the quarter, the overall trend remains positive with backlog up 17% compared to a year ago, as prior to this quarter, Services had experienced three consecutive quarters of sequential backlog growth.

LSO sales declined 16%, primarily due to lower volume in our retail channel, partially offset by a more favorable mix. The volume decline was primarily driven by the impact of lower distribution at one of our retail channel customers. Operating margin declined 60 basis points to 19.1%, reflecting the impact of lower volume, partially offset by improved mix and cost savings. Corporate and other expenses were flat compared to the prior year with higher compensation and benefit costs offset by lower insurance-related expenses. Turning to cash flow and the balance sheet. Cash from operations in the quarter was very strong at $59 million, up 42% compared to last year's second quarter. This brings our year-to-date cash from operations to $64 million, which is in line with the strong cash flow we generated in the first half of the prior year. Our balance sheet remains in a very strong position with low debt and no near-term maturities.

Additionally, during the quarter, we refinanced our credit facility. The new credit facility significantly expanded our borrowing capacity at favorable terms. The new facility provides up to $700 million of capacity through a $450 million revolving credit facility and a $250 million delayed draw term loan. The increase in this facility gives us additional committed capacity to support our growth strategy. We expect to utilize the $250 million delayed draw term loan as well as cash on hand to finance our acquisition of UW Solutions. Moving to our outlook for the full fiscal year. We continue to expect net sales to decline 4% to 7%. This range continues to include approximately 2 percentage points of decline related to fiscal '25 reverting to a 52-week year and approximately 1 percentage point of decline related to the actions of Project Fortify to eliminate certain lower-margin product and service offerings.

We expect sales declines in Framing, Glass, and LSO to be partially offset by growth in Services as we execute a strong pipeline of projects in our backlog. We now expect full-year consolidated adjusted operating margin will improve to approximately 11%, primarily driven by the strong margin performance in the first half of the year. We continue to expect adjusted operating margin to decline sequentially in the second half of the year, primarily due to lower volume and pricing pressure in Glass. As I mentioned, Glass operating margin exceeded our expectations in the first half of the year, primarily driven by stronger-than-expected pricing and mix. Due to the high variable contribution margin in our Glass business, operating margin is highly sensitive to changes in assumptions of price and mix. Our forecasts are based on price and mix data in our pipeline as well as assumptions on when work will flow through production.

During the first half of the fiscal year, we saw workflow with favorable pricing and mix, which drove the margin improvement. Based on current visibility into our pipeline and end-market trends, we expect Glass margins will moderate in the second half, moving into the top half of the 10% to 15% target range with full-year operating margin in the high teens. We continue to expect full-year Framing adjusted operating margin to improve compared to fiscal '24 and be within the target range of 10% to 15%. For Services, we continue to expect sequential adjusted operating margin improvement in the second half with full-year adjusted operating margin approaching the 7% to 9% target range. We continue to expect LSO operating margin will decline compared to last year, primarily due to lower volume. Finally, we expect corporate and other expenses to be approximately $8 million per quarter in the second half of the year.

We are increasing our full-year outlook for adjusted diluted EPS to a range of $4.90 to $5.20, reflecting our stronger-than-expected second-quarter performance. As a reminder, we anticipate the reversion to a 52-week year will reduce adjusted diluted EPS by approximately $0.20. We continue to expect an effective tax rate of approximately 24.5% and full-year capital expenditures of $40 million to $50 million. We expect another strong year for cash flow, with cash from operations higher than our historical averages, but below last year's record level. Let me wrap up with some additional comments about the acquisition of UW Solutions. We are very excited to acquire a growth business and expect that the transaction will be accretive to our long-term financial profile, including revenue growth rate and adjusted EBITDA margin. We expect to achieve $5 million in annual run rate synergies by the end of fiscal '27.

Including these synergies and net of the $27 million tax step-up benefit, the purchase price represents approximately 8.5 times fiscal '26 estimated adjusted EBITDA. We expect to finance the transaction with cash on hand and borrowings under our current credit facility. At the close of the transaction, we expect our consolidated leverage ratio as defined in our credit agreement will be approximately 1.5 times. This leverage ratio still provides further capacity for us to continue to deploy capital for growth. In fiscal '26, we expect the acquisition to contribute approximately $100 million in revenue at an adjusted EBITDA margin of approximately 20%, and to be accretive to our adjusted diluted EPS. For fiscal '25, assuming the acquisition closes on November 1, we expect approximately $30 million of incremental net sales and we expect adjusted diluted EPS will be reduced by approximately $0.10 due to increased interest cost and amortization expense.

These potential fiscal '25 impacts are not included in the outlook we provided today. In conclusion, this is a very exciting time for Apogee. Our team continued to execute at a high level in the first half of the year, delivering strong earnings results and positioning the company for improved long-term growth. Our healthy financial position and expanded credit facility provided us the opportunity to make an accretive acquisition, while also investing in the business and returning cash to shareholders. And we are positioned to acquire a business that we expect will create new growth opportunities for us in the future. We believe these outcomes are the results of tremendous efforts by the entire Apogee team to execute our strategy, and we intend to build on this momentum in the future.

Thanks, Matt. To wrap up, our team delivered another strong quarter. We are continuing to build positive momentum as we execute our strategy, achieving significant margin expansion and adjusted earnings growth despite some softness in our end markets. We can do so given the stronger operating foundation we've built over the past three years. The acquisition of UW Solutions is an important milestone for our company, as we point to both organic and inorganic growth, positioning the company for continued success as we move ahead. With that, we are ready to take your questions.

Our first question comes from Brent Thielman with D.A. Davidson. Your line is open.

Hi, thanks. Good morning. Congrats on the transaction.

Good morning, Brent. Thank you.

Yes, maybe just to start on that, Ty, I was curious just on the cross-selling opportunities, maybe what you see there and how quickly do you think you can leverage that?

Yes. If we look at the HD Printable Materials, I would say the good news is there is not a significant customer overlap. We actually saw that as a positive. There are commonalities in the market, particularly in that HD Printable Materials side of the UW Solutions business. So as we dug into that, both our team within LSO and the UW Solutions team see some really nice opportunities, and we've actually already had some outreach from customers with respect to that. So that's a complementary offering to what we already provide into that custom framing and museum art business. So that's where I think we see the biggest opportunities. The flooring side of the business, which goes to market under the ResinDEK brand and is really recognized as a leader in that industrial flooring where you're going to put robotics automated solutions into those distribution centers, manufacturing facilities, it is a different go-to-market. So I think we're being cautious in terms of how much crossover we see in some of our building products channels. But we do see the opportunity to continue to build on the momentum within that business where they've built a strong partnership with some of those robotics companies and have some good inroads with some of the larger retailers as well as online and brick-and-mortar retailers in the market to drive that business growth.

I appreciate that, Ty. Since many of these areas are new, could you discuss some of the categories that UW brings to the company, particularly regarding the market share of these different businesses? Would it be reasonable to think that these might be areas you're considering for further consolidation?

As we analyze the business in terms of overall market percentage, we won't discuss shares broadly, but the focus is very much on premium segments. This includes HD Printable Materials, which we market under the ChromaLuxe and Unisub brands, as well as the ResinDEK side, which is also centered on premium segments. Although both markets are substantial, they become more specialized as we concentrate on selling differentiated solutions. Regarding our M&A pipeline, we are still focused on incorporating additional differentiated products into our portfolio. While building materials remain a core driver of our business, we are also exploring opportunities that enhance our capabilities within the LSO segment. Both areas will continue to be priorities for our M&A efforts.

Okay. Okay. And maybe just one on the core business. I mean, Architectural Glass just continues the extraordinary contributions here from a profitability perspective. Now that caught your comments about the expectations into the second half of the fiscal year maybe just you could talk around what the inbound orders tell you, inform you and as you are starting to see maybe some normalization or pressure on pricing, are you also seeing any indications that maybe that's leveling off at this point?

Yes, Brent. I enjoy being wrong in a positive way, and I've had a few misconceptions about Glass. Fortunately, those have been in a good direction. As I mentioned, the business has a very high variable contribution margin. When we analyze our pipeline and how that work will flow, it has the potential to make a considerable difference. The encouraging news is that we've experienced a prolonged stabilization in pricing and mix, which has supported those margin rates over the last few quarters. Looking at our current pipeline, while it's limited, we have some insights, but we still can't predict the rest of the year. There is always unpredictability regarding what work will come through that pipeline and its pricing and mix. Expectations concerning the type of work that may flow in and its margin can lead to significant changes. However, we do observe a more consistent profile of lower pricing and lower margin mix in the pipeline compared to the first half of the year. Therefore, our outlook for the second half of the year is much lower than that of the first half. Although we have some visibility, it’s not comprehensive for the entire year. We anticipate that margins will moderate, likely fitting within the upper range of a 10% to 15% margin rate for the latter half of the year, potentially finishing in the high teens based on our current observations.

Okay. All right. Very good. I'll pass it on. Congrats again on the transaction in the quarter.

Thanks, Brent.

Thanks, Brent.

One moment for our next question. Our next question comes from Julio Romero with Sidoti & Company. Your line is open.

Thanks. Hi, good morning, Ty, Matt, and Jeff. Congrats again on the UW Solutions deal.

Thanks, Julio.

Thank you.

Hi, I was hoping maybe also staying on the deal a little bit, just if you could give us a sense of kind of the historical growth rate. I know you said in the press release that it was accretive to legacy Apogee, but just if you could give us maybe better granularity into maybe the historical growth rate that UW Solutions had in the years prior?

Well, I think the key driver to that business over the last couple of years has been the Industrial Flooring segment. And just to give you a rough idea, we don't really want to break out the details, but that's about half, call it, approximately half of their revenue base. So that has seen some strong growth over the last few years; certainly had some significant growth as we came out of COVID, or going into COVID and all the online increase. But then they've been able to kind of build upon that and then continue to have some very strong growth approaching double-digit. So we look at that part of the business, we see good momentum in that business going forward, little lower growth rates in the rest of the business. And I would look at the coatings as being mostly internally consumed. They do sell to third-party for different applications, and so they have had some growth there, but most of that coatings business is consumed internally. So they're doing formulations that are then used on the other products that UW Solutions produces in the flooring and the HD Printable Materials.

Yes. I would just add that, as Ty mentioned, this acquisition is about combining forces effectively. We discussed the additional capacity we have in LSO, the research and development capabilities that come with this type of acquisition, and the potential for entering some new markets alongside existing ones. I believe there is an opportunity to enhance what they have achieved with the combined solution in LSO.

Got it. That's really helpful. I appreciate that guys. And that flooring business does seem pretty interesting just given the exposure to some good secular growth themes like onshoring, e-commerce, et cetera. Can you maybe just talk about that piece a little bit more? How the product offering is a bit differentiated? And then secondly, can you maybe speak to how the go-to-market strategy or the sales strategy, I guess, is a little bit different than your legacy business?

Sure. I'll begin, and Matt can chime in if I overlook anything. When you examine that business, its uniqueness comes from the coating applied to the wood substrate. It is an engineered wood product sourced from a third-party supplier, but UW Solutions has developed and applies its own proprietary coating to enhance the durability and ensure a smooth, consistent thickness. This consistency is crucial when using various robots and automated machines on that flooring. A smoother and flatter surface facilitates easier movement for the robots and simplifies the necessary software development for effective operation. Additionally, the product is mostly sold in panels, making installation straightforward. A significant portion of the business is directed towards mezzanine flooring, particularly for distribution centers looking to expand inventory capacity, which has become increasingly relevant with the rise of micro fulfillment centers in recent years.

Some customers even opt to place metal strips between the panels, allowing the robots to charge as they navigate across the floor, thus increasing productivity and efficiency. The approach to market differs primarily in terms of the channels and the selection process. UW has forged solid partnerships with robotics companies, which specify ResinDEK as the preferred flooring solution when selling their robotic equipment. They also engage directly with system integrators and contractors involved in flooring replacement or mezzanine installations. We believe there is potential to leverage some of our relationships in the building products sector here. This represents a shift in our go-to-market strategy; while we previously sold entrance systems and commercial windows for new manufacturing or distribution plants, those sales were relatively minor. This new focus allows our teams to concentrate on manufacturing, distribution centers, warehouses, and even data centers. Although there’s work needed on the flooring regarding fire ratings, data centers offer a promising long-term opportunity.

Very cool business. I'll be interested to dig into it a little bit more. And then maybe just last one for me is just on Project Fortify, can you just make it easy for us and let us know how much restructuring is left for the next two quarters?

Yes, I would like to mention two things. Regarding charges, we currently have project-to-date charges of about $14.7 million, and we estimate that will be between $15 million and $16 million. So we don’t expect much more in Q3. On the savings side, we have increased our range; we were initially looking at an annual run rate of $12 million to $14 million, but we have adjusted it to a range of $13 million to $14 million. We anticipate being closer to the high end of that savings range and remain on track. We indicated that we would deliver 60% of that in fiscal '25 and the remainder in '26. So things are progressing as expected, showing a slightly better outcome in how we are executing Project Fortify.

Excellent. I'll pass it on. Thanks very much.

Thanks, Julio.

Thanks, Julio.

One moment for our next question. Our next question comes from Jon Braatz with KCCA. Your line is open.

Good morning, everyone.

Good morning, Jon.

Hi, Jon.

Ty, going back to UW, would it be fair to say that most of their coatings are proprietary or custom solutions?

Yes, I would describe it this way, Jon. RDC Coatings has significant research and development capacity and deep expertise in coatings, including some PhDs on their team. They focus on finding the right blends of various materials to enhance both the performance of the coating and to collaborate closely with UW Solutions and the manufacturing engineering team. This collaboration aims to maximize the quality of the coating during manufacturing while also improving throughput and yield. Historically, the business has functioned primarily on a trade secret basis, being very cautious about revealing any details regarding the specific recipes for the coatings or the precise methods used in blending them. They are similarly discreet about the steps involved in their manufacturing process, which are crucial for achieving optimal coating durability and performance quality.

So they enjoy higher margins compared to some kinds of commodity coatings.

Absolutely, for sure. Yes.

Okay. The -

And again, Jon, I would point to what I had said earlier. They do sell coatings externally. Our RDC Coatings was a standalone business and Heartwood had worked to acquire and bring that into the fold because the significant volume for them was coming through UW Solutions, but the majority of what the work they do is consumed internally now.

Do you anticipate or was there any indication that when you look at the performance of UW, they were capital constrained at all? Was there a hindrance to their growth and could your balance sheet help enhance that a little bit further?

Well, I think the good news is Heartwood Partners, the private equity firm that had acquired them, was really focused on positioning that business for long-term growth. So they've made some significant capital investments. So they saw the double-digit growth being driven in that flooring business. And in the last 18 months, they had done a significant capacity expansion. So we actually have a lot of runway to grow that business.

Can you provide some insights on the performance of UW over the cycle? There have been various developments over the last few years that might have influenced the outcomes more than usual. Could you share your perspective on how revenues and profitability have evolved across the cycle?

Yes. Looking at the financials, it’s clear that in 2020 and 2021, there was a notable increase as everything shifted online, necessitating the expansion of distribution center capacity. This led to a significant surge, prompting the need for additional capacity as it became apparent that this would be required in the future. After that peak, things stabilized, but they managed to return to a double-digit growth rate. This growth is substantial. While we won't disclose specific percentages due to competitive reasons, there is considerable exposure to renovation and replacement. They are not depending on new manufacturing or distribution centers being set up, although they have certainly sold into new constructions. We appreciate that a large portion of their sales over the past three years has been directed towards renovation and replacement, such as upgrades in older facilities where customers are installing mezzanine flooring or transitioning to robotics and need appropriate flooring to facilitate that.

Okay. All right, Ty. Thank you very much. Appreciate it.

Thanks, Jon.

One moment for our next question. Our next question comes from Gowshi Sriharan with Singular Research. Your line is open.

Good morning, guys. Can you hear me?

Yes, we can. Good morning.

Good morning. Congratulations on the acquisition. Just a question on the $100 million forecast for 2026 on the UW solutions. Does this projection primarily reflect the existing product offerings or does it include the product potential revenue from new products, cross-selling? If you could just give us some color on that?

Yes, I think the $100 million is what we can see today with the current product offerings. We are still in a phase of learning more about that business and what we can do. We've conducted thorough due diligence during the acquisition process. This $100 million represents what we can achieve with the business as it stands now. We plan to enter that business and look for additional opportunities, but developing new products, building new relationships, and identifying cross-selling opportunities takes time. While we will pursue these avenues, there isn’t much of that potential included in the fiscal '26 number.

Okay. And the CapEx guidance for $40 million to $50 million for this, does that include any kind of additional CapEx for UW, or is that additional on top of that?

No, it doesn't, but I wouldn't expect that to be very significant. As Ty mentioned, I believe they are approaching this acquisition in a strong position. We will continue to assess their capital expenditure needs as we move into fiscal '26, but I don't anticipate our capital expenditures for this year being significantly affected by the acquisition.

Okay. And do you have any color on the kind of CapEx that will be required to fully leverage the UW acquisition beyond '25?

I think that's something we can get into as we start looking into fiscal '26. As we look at, we have to balance those investments against the other priorities in our business and just make sure we're striking the right returns on our investments. So something, as we get into fiscal '26, we'll be looking at.

Yes, I would just add what I said earlier that Heartwood Partners had made a significant investment in coating capacity and that was our question going in double-digit growth on flooring; what's capacity look like? And the good news is brand new coater that's been running for over a year with really great yields and productivity and plenty of runway to add volume.

Okay. I think you've mentioned that the $30 million is not reflected in your sales forecast or is that because you're still forecasting a decline of 4% to 7%? Are you seeing additional softness in the market, or is it just not included in the sales forecast?

So the sales forecast that we gave does not include any fiscal '25 impact for the UW Solutions acquisition, just because at this point, it's not closed, right. And we have to think about, it has to get closed and the timing of it. But I wanted to provide kind of an order of magnitude of what might happen if that acquisition was to close on November 21st. So that, from an EPS or revenue perspective, our current guidance does not include any fiscal '25 impact from UW Solutions acquisition.

Okay. In your last call, you mentioned that you'll be moving beyond the West of the Rockies. How much of the backlog reflects that transition into the West of the Rockies?

Yes. I would say it's promising. We're seeing a lot more activity west of the Rockies. We obviously don't break-out our backlog into that amount of detail, but I would say the team is making progress and we're seeing a lot more activity in the west side of the U.S.

Yes, particularly for services, they've won some stuff out there. They have some nice projects that are in queue that they're waiting to get greenlighted to move them into their backlog that would boost their revenue for western states as well.

Okay. Thanks. That's it for me. Thank you.

All right. Thank you.

Thank you.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Ty for any closing remarks.

All right. Well, great. Thank you very much for joining us today, and I look forward to providing another update in January. Have a great weekend.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.