Gowshi Sri

Gowshi Sri with Singular Research inquired about the behavior of Hamilton Beach Brands' big box retail partners in early 2026, specifically looking for signs of trade-down, category contraction, or promotional pressure compared to 2025. She also asked for clarification on whether the Lotus brand's premium growth was incremental or cannibalistic to existing offerings, and if the premium consumer was distinct.

Answer

President and CEO Scott Tidey indicated that big box retailers were returning to 'business as normal' in early 2026, with typical promotions and stable inventory levels, suggesting a normalized period. Regarding the Lotus brand, Mr. Tidey confirmed it was 'completely incremental' due to its distinct positioning, retailers, and significantly higher price points in the premium segment, avoiding cannibalization of core brands.

Gowshi Sri with Singular Research inquired about the behavior of big box retail partners in early 2026, specifically asking if price increases had led to trade-down, category contraction, or unusual promotional pressure compared to 2025. She also asked if the Lotus brand's premium growth was incremental or cannibalizing existing offerings, and if the premium consumer was distinct.

Answer

President and CEO Scott Tidey responded that big box retailers are returning to normal operations, with typical promotions and inventory levels, though tariff rate uncertainty persists. He confirmed that Lotus brand growth is entirely incremental, not cannibalizing existing products, as it targets distinct premium segments, higher price points, and different retailers.

Gowshi Sri from Singular Research asked about evidence of the revamped go-to-market strategy impacting the Commercial Segment's 2026 performance, particularly concerning a lagging client. She also questioned Conduent's healthcare strategy, specifically whether to deepen relationships with existing payers/health plans or acquire more logos, and how AI offerings scale. Additionally, she inquired about the Government segment's margin expansion from AI-driven fraud reduction, asking if Conduent leans towards gainshare economics or fixed payments, and its impact on 2026 margins/revenue. Finally, she sought clarity on confidence in 2025 ACV conversion to revenue by segment and a realistic sustainable EBITDA margin for 2026.

Answer

CFO Giles Goodburn noted strong momentum in Government and Transportation segments for 2026, while the Commercial Segment requires more work, with a reshaped go-to-market strategy aiming for trajectory improvement by 2027. CEO Harsha Agadi added that he is actively involved in examining commercial leadership, client engagement, and implementing weekly revenue-focused meetings, potentially concentrating on strong sectors. For healthcare, Harsha emphasized deepening relationships within existing sectors with significant market share rather than just adding more logos, especially given the vast U.S. healthcare spending. Regarding AI in government, Harsha explained a strategy of partnering with nimble AI disruptors to enhance accuracy and lower costs, potentially sharing savings with clients, rather than developing solutions from scratch. For margins, Harsha projected a minimum 8%-10% EBITDA margin in the medium term, seeing 'low hanging fruit' for cost reduction and a strong focus on converting EBITDA to free cash flow.

Gowshi Sri asked if Apogee's businesses have observed a shift towards smaller or non-traditional engineering-only projects due to increased competition and slower activity, and if these projects carry different marginal deltas. She also questioned the realistic downside for FY2026 EPS given continued end-market softness, slower Fortify realization, and no additional tariff relief, and what levers could be pulled to mitigate this. Additionally, Sri sought clarification on modeling the tax rate for Q3 and Q4, given the full-year guidance. Finally, she inquired about the Performance Services segment's sensitivity to a potential slowdown or inventory correction in channel partners in the coming year.

Answer

Matt Osberg, CFO, confirmed that increased competition has led to expanding reach into smaller, typically lower-margin projects, particularly in the glass business, to strategically gain volume. Ty Silberhorn, President and CEO, added that average project sizes in glass and services have decreased, leading to more price pressure. Regarding EPS downside, Osberg stated the current range is $3.60-$3.90, with continued upward aluminum cost pressure being a key risk, which Project Fortify II actions aim to offset. For the tax rate, Osberg clarified that after a higher Q1 rate, Q3 is expected to be near 27%, with Q4 dipping slightly to achieve the full-year average. Silberhorn noted that any significant slowdown for Performance Services' retail side would likely occur in Q4 or Q1 (post-holiday inventory reset), but the business's focus on upper-middle-class households makes it less susceptible to broad consumer spending downturns.

Gowshi Sri asked if Apogee's businesses are experiencing a shift towards smaller or non-traditional engineering-only projects due to market conditions, and the marginal differences in profitability for such projects. She also inquired about the realistic downside for FY2026 EPS given continued end-market softness, slower Fortify realization, and no additional tariff relief, and what levers could be pulled to defend the floor. Additionally, she sought clarification on modeling the tax rate for Q3 and Q4, and the sensitivity of Performance Services' 25-23% adjusted EBITDA margins to a potential slowdown or inventory correction in channel partners next year.

Answer

CFO Matt Osberg confirmed that increased competition and slower activity have led to expanding reach into smaller, typically lower-margin projects, particularly in the glass business, where they strategically pick up volume dollars while protecting premium product margins. President and CEO Ty Silberhorn added that average project sizes in glass and services have decreased, opening up to smaller regional players and increasing price pressure. For the FY2026 EPS outlook, Mr. Osberg reiterated the $3.60-$3.90 range, noting that continued upward aluminum cost pressure beyond current levels would be a key impact, with Project Fortify II cost actions serving as a lever. Regarding the tax rate, Mr. Osberg clarified that after a higher Q1 rate due to lower operating income, Q3 would be close to the guided 27% for the year, with Q4 dipping slightly. For Performance Services, Mr. Silberhorn stated that any dramatic slowdown on the retail side is more likely a Q4/Q1 event, primarily Q1 for inventory resets, and that the business targets upper-middle/upper-income households, which are less susceptible to spending slowdowns.

Goshi Sri from Singular Research asked for a breakdown of the reduced tariff impact between operational shifts and commodity pricing. He also questioned if the lower Services backlog reflected a strategy of rejecting low-margin projects, inquired about the ability to pass on tariff costs in existing contracts, and asked if M&A valuation multiples have been adjusted.

Answer

CFO Matt Osberg explained that the reduced tariff impact is due to a combination of more effective operational execution and favorable input cost management. CEO Ty Silberhorn clarified that the lower Services backlog is more a reflection of general market softness than a change in project selectivity, noting the team is pursuing smaller jobs and new service models. He confirmed it is very difficult to pass on tariff costs for existing projects. Regarding M&A, Silberhorn stated that target valuation multiples have not seen a significant step-down, but Apogee, as a strategic buyer, may have an advantage in the current interest rate environment.

Inquired about the company's military strategy, including drivers for market share gains, management of long sales cycles, and the target revenue mix. He also asked about technology synergies between military and commercial products and the potential impact of Boeing's production issues on the retrofit market.

Answer

The company's military growth is a result of a strategic shift started three years ago. They are managing longer sales cycles by investing in infrastructure like a new ERP system and enhanced facility security. While they aim for a balanced one-third mix across military, business aviation, and air transport, recent acquisitions will temporarily skew revenue towards military. Their strategy is to develop core technology (like the UMS2 with AI) adaptable for all sectors. They confirmed that issues with new aircraft production are beneficial for their retrofit and maintenance business.

Goshi Sri from Singular Research asked for insight into the drivers of the significant reduction in customer acquisition costs (CAC) and the primary factors determining the range of the 2025 adjusted EPS forecast.

Answer

CEO Raul Vazquez explained that the record low CAC of $118 was a product of reduced sales and marketing expenses combined with strong loan growth. However, he noted that the company plans to increase marketing investment to fuel future growth rather than focusing on keeping CAC at its lowest level. For the 2025 adjusted EPS forecast of $1.00 to $1.25, Vazquez cited three key drivers: a return to originations growth to boost revenue, a continued decline in net charge-offs to the 11-12% range, and sustained discipline in operating expenses.