Q3 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Apogee enterprises fiscal 2023rd quarter earnings Conference call.
At this time, all participants are in listen only mode.
After the speakers presentation, there will be a question answer session.
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I'd now like to handle conference over to your speaker today, Jeff Huebschen. Thank you. Please go ahead Sir.
Thank you Shannon good morning, and welcome to Apogee enterprises, Cisco 2023rd quarter earnings call.
With me today, or Joe pushes Apogees cheese, Chief Executive Officer, and Jim Porter, Chief Financial Officer.
I'd like to remind everyone that there are slides to accompany todays remarks, which are available in the investor Relations section of Apogees website.
During this call we reference certain non-GAAP financial measures definitions of these non-GAAP measures and a reconciliation to the nearest GAAP measures is provided in the earnings release, we issued this morning, which is also available on our website.
Also I'd like to remind everyone that our call will contain forward looking statements, reflecting management's expectations, which are based on currently available information actual results may differ materially.
More information about factors that could affect apogees business and financial results can be found in our SEC filings.
And with that I'll turn the call over to Joe. Thank you, Jeff and thank you everyone for joining us this morning.
Now you have seen our release clearly the results this quarter did not meet our expectations or yours.
The shortfall in a quarter was primarily driven by operational difficulties and sales shortfalls in a couple of our framing systems business units.
Jim and I will provide more detail in that throughout this morning.
We are taking actions to address these issues and I'll provide more information on that in a moment as well Jim.
Beyond these issues, our other businesses and our other business units are well positioned and have had a number of positives in the quarter first our architectural services segment continues to execute at high levels.
They are performing better than expected with strong project execution and operating margins approaching 10%.
Just as importantly, the segment continues to win in the marketplace, adding over $100 million to its already record backlog during the quarter, 20% increase from the last quarter.
And a 40% increase from year ago.
Based on our current pipeline, we expect to see even more backlog growth in the fourth quarter in our services segment.
With this backlog our services business is positioned for solid top and Bottomline growth for at least the next two years.
Large scale optical also continues to be a high performing business delivering on planned growth in the quarter along with its usual impressive operating margins of 28%.
In architectural glass, we continued to see improvement in operational performance in our factories absorbing the startup costs of our new factory.
And we successfully launched that new facility in Texas executing our strategy to grow in the small projects segment of the market.
Which is the largest part of the architectural glass market.
We shipped our first orders out of this factory in the quarter and we have seen at favorable response from the market to our offering.
This is critically important milestone in our strategy to diversify the glass segment, particularly as we see continued pricing pressure in our traditional core market from foreign competitors leveraging their weaker currencies to compete in the United States.
Additionally, our financial position remained strong and we had very solid operating in free cash flow during the quarter, which we used to pay down debt.
I'd also like to note that we continue to progress as expected toward completing the last of the legacy ethical projects and we did see some net favorable recovery during the quarter.
As we continue to pursue resolution of the remaining cost in claims related to this project.
Finally, our view of the end markets remains fairly positive I continue to view the market as bumping along the top.
Our strong backlog growth and pipeline in architectural services points to continued healthy construction activity across the United States for the foreseeable future.
And our other architectural businesses, it's more of a mix story with strong bidding and quoting activity in some segments of this market and higher levels of customer driven scheduled delays and others.
But overall, our view of the market has not changed and we still see conditions that support long term growth our businesses.
After a few months of concerns about us economy things have turned more upbeat over the last 90 days.
Turning back to framing systems, let me provide some detailed on the quarter in the actions we're taking.
The quarter was impacted by lower sales volumes and operational difficulties in a few of our framing businesses, Jim will provide more detail on the specific drivers, but they include revenue shortfalls and manufacturing issues in just a subset of our architectural framing systems businesses.
The results are disappointing and I and our entire leadership team are focused on resolving the underlying issues.
Last quarter, we announced that we had created a new overall segment leader for framing systems charge with driving integration synergies and improved financial performance.
Six operating businesses in this segment will be led as one by one leader who took the range in Q3.
Given this quarter's challenges we are accelerating these efforts moving quickly, but deliberately to drive positive change.
First we have made significant changes to the individual business unit leadership of several of these businesses, particularly in the underperforming businesses. In addition to these leadership actions. The team is developing and integration in performance improvement plan, considering every available lever to plan as folks.
Is on three pillars, which are outlined on page five in our slide deck.
First reducing our cost structure through procurement savings overhead cost reductions and minimizing controllable costs.
Second commercial excellence, which is focused on integrated product management sales marketing and pricing strategies, along with applying the lessons learned from architectural services segment to improve project selection.
And third operational and supply chain integration optimizing our manufacturing capacity in footprint in buildings on our lean enterprise program to drive productivity in key value streams across these businesses in this segment.
Last quarter I also discussed our enterprise ride procurement savings program I'd like to provide an update on our progress in this initiative.
Earlier this year, we retained alixpartners, a leading global advisory firm to help us identified cost savings opportunities across our company over the past quarter, we have made significant progress.
Scope of the project includes all categories have spent.
Direct material indirect material in services and freight.
Counting for roughly half of Apogees total cost structure, we analyzed 32 categories of spend which have been divided in three ways. We're currently working through the three ways implementing various strategies to capture the identified savings opportunities and this will come over the next several quarters.
As part of the initiative, we are moving toward a centralized procurement model that better leverages, our scale and will drive synergies across our supply chain.
To lead this effort.
I have added a new role of Chief procurement officer.
We will report to me and will join our team in January .
Taken together, we expect the framing systems performance improvements and the procurement savings project to generate $30 million to $40 million of annual savings will begin to see some benefits immediately with the savings building as the projects mature over the next year, we plan to provide further de.
Detailed on the expected impact in fiscal 21, when we provide guidance in our year end call.
So we are reducing our outlook for the year I remain confident in our long term direction and see numerous opportunities to drive improvements going forward.
We are taking concrete actions to address near term performance issues and as I outlined earlier much of our business remains healthy with solid execution strong market positions robust backlog.
And supportive end markets.
Finally initiatives like our procurement savings project in our small projects architectural glass entry provide more reasons for optimism.
With that I'll pass it over to Jim who will provide more details on the quarter and our outlook.
Before I take questions I'll return with a few additional comments Jim.
Thanks, Joe and good morning.
I'll begin with our consolidated results, which you can see on page seven of our earnings presentation.
Total revenue came in at $338 million down from last year's third quarter, primarily due to lower sales in architectural framing systems and at architectural glass.
Operating margin of 6.4% was down from 8.8% in last year's third quarter, reflecting leverage on the lower sales volumes and the operational challenges in framing systems as Joe mentioned.
Adjusted EBITDA came in at $33.7 million compared to 42.7 million in last year's third quarter.
Net interest and other expense decreased to $1.8 million with lower effective interest rates, resulting from the debt refinancing actions, we announced last quarter.
The tax rate of 23.2% was down slightly from last years level and our diluted share count dropped to 26.8 million from 28.2 million shares last year due to our share repurchases over the past year.
Putting this all together earnings were 57 cents per diluted share compared to 78 cents in the prior year quarter.
Now I'll turn to segment results, which are on slide eight in the presentation.
Framing systems revenue was $166 million compared to $181 million in last year's third quarter.
This decrease was largely due to customer driven delays and operational difficulties in a couple of businesses.
Operating income was $6.3 million with an operating margin of 3.8% compared to adjusted operating margin of 7.5% in last year's third quarter.
Operating margins in the quarter impacted by leverage and the lower volumes.
Hi, higher than expected manufacturing cost and some operational challenges in a couple of businesses.
Specifically, we had higher than expected manufacturing costs on some project in one of our curtain wall businesses.
Requiring a revised total estimated project costs with resulting project to date margin write downs.
These projects remain profitable, but the margins had to be written down.
This true up had an approximately 300 basis point negative impact for this segment in the quarter.
Only partly offsetting this we did see nice operational progress and outcome and continued growth and solid margins in our legacy short lead time framing businesses.
Architectural glass revenue declined 9% to $89 million.
Merely due to lower volumes, resulting from increased competition from overseas competitors as well as some customer driven delays.
Operating margin decreased to 4.6% compared to 5.9% last year.
Q3 glass segment margins were negatively impacted by about 160 basis points from startup costs related to the new manufacturing facility for the small projects growth initiatives.
Year to date, we have incurred $2.9 million of our estimated $4 million to $5 million of startup cost for this initiative.
The impact.
Has been partially offset by improved operational performance in our factories.
Architectural services continued to have great success with several new project wins during the quarter.
Increasing the segment's backlog to a record $607 million.
As anticipated architectural services revenue decreased to $69 million from $73 million in last year's third quarter due to the timing of projects schedules.
Operating income was $6.5 million with operating margin of 9.5% down from 11.9% in last years very strong third quarter with reduced operating leverage on the lower revenue base and a bit less favorable project maturity.
Finally, large scale optical grew its revenue by 4% to $24 million with good product mix in the quarter.
Segment operating margin was 27.7% compared to 28.4% in last year's third quarter.
I'll cover cash flow in the balance sheet on slide 10.
We had positive cash flow with $36 million of cash from operations in the quarter.
Fiscal year to date, we have now generated $54 million of cash from operations.
We are still below last years level, primarily due to increased working capital related to completion of the legacy ESCO project, which has reduced year to date cash flow by approximately $28 million.
Overall, we expect continued positive cash flow in the fourth quarter.
Year to date capital expenditures are $41 million up from $34 million at this point last year, primarily driven by our investments in the new architectural glass fabrication facility and facility improvements at ASCO. There were completed earlier in fiscal year.
We now expect full year capex of approximately $55 million, which we've tightened from our previous guidance of $60 million to $65 million.
During the quarter, we use our excess free cash flow to pay down 21, and a half million dollars of debt, reducing our total debt to $251 million from $273 million at the end of the second quarter.
As we move through the balance of the fiscal year, we'll continue to deploy free cash flow to reduce debt along with opportunistic share buybacks.
I'll cover our outlook on page 11.
We are adjusting our full year outlook due to the lower than expected revenue and margins in the third quarter and softer expected results in the fourth quarter.
In the fourth quarter, we expect operational improvements in framing systems offset by lower revenues from increased customer driven schedule delays lower orders in some seasonality.
We now expect full year revenue will be flat to down 1% compared to fiscal 2019.
Down from our previous guidance of 1% to 3% growth.
We now expect full year earnings per diluted share between $2.15 in $2.30 compared to our previous guidance of three to $3 in 20 cents.
And we continue to forecast a full year effective tax rate of approximately 24.5%.
We've also adjusted our segment guidance, which is on slide 12.
Our outlook for framing systems has declined from the last guidance.
Revenue is now projected to be down mid single digits compared to our prior guidance for growth.
This decline is from the revenue shortfalls in the third quarter.
In addition look into the fourth quarter, we experienced higher than normal customers schedule delays moving revenue out of fiscal 20.
And lower orders with some share loss in our us window and wall business.
Operating margin is projected to be between five and 5.5%.
Down from the prior guidance due to the third quarter manufacturing cost issues.
And the lower expected volumes in the fourth quarter.
As you heard from Joe we are taking the shortfall seriously and we're taking strong actions to turn these great businesses around.
In architectural glass our outlook is changed slightly we now expect full year revenue growth in the mid to upper single digits down slightly from our previous guidance due to higher customer schedule delays and the continuing impact of increased international competition for large projects.
We do continue to see good success in the mid sized project market.
We are lowering our full year margin outlook for architectural glass to approximately 6% compared to our previous forecast of approximately 7%.
Primarily due to reduced leverage on the lower volume.
We continue to expect approximately $4 million to $5 million, a full year startup costs for the new architectural glass growth initiative, which reduces full year architectural glass margins by 100 to 150 basis points, which is included in the guidance provided.
We are expecting limited revenue in the fourth quarter from this facility as we wrap it for effective short lead time deliveries and we expect this initiative will continue to ramp up in fiscal 2021, making positive contributions to both revenue and operating income.
Our outlook for architectural services revenue is unchanged forecasting a decline for the full year of approximately 10%.
We now see full year operating margins of 7% to 8% above our previous forecast of approximately 7% due to strong project execution.
The project wins and backlog bode well for the services segment as we look ahead to fiscal 21 and fiscal 2002.
Finally, our full year revenue outlook for large scale optical is down just slightly expecting low to mid single digit growth. We continue to expect operating margins of approximately 25%.
With that I'll turn the call back over to you Joe right. Thanks, Jim Let me close by reiterating.
We're not satisfied and I'm not satisfied with this quarter's results, we know where the issues are and we know what they are we are moving quickly taking actions that will drive improved results.
Performance and much of our business remains strong.
We have a solid financial position with attractive leverage.
We have a substantial number of nonrecurring costs in fiscal 20.
Additionally, our end markets remain supportive with indicators like the new.
New construction starts and employment gains all trending upward in the recent months.
We like our business is positioned for fiscal 21 and beyond as we work to resolve the near term issues.
Finally, before we open up for questions I'd like to acknowledge gems decision to retire from apogee as his role as CFO . Jim has been a key part of Apogees leadership team for over 22 years and I want to thank him for his dedication in many contributions over those years and primarily for being my friend.
We are beginning a search for his successor and Jim has agreed to stay on in his current role through the process to facilitate a smooth transition.
Jim we thank you I. Thank you for everything you've done for us and for me with that I'd like to ask Shannon to open up the call for your questions.
Shannon Thank you.
Thank you as a reminder to ask the question you will need to press star one of your telephone to withdraw your question press. The pound key please stand by always from Hall, the county roster.
Our first question comes from Chris Moore with CJS. Your line is open.
Hey, good morning, guys, maybe we could start with Chris with framing.
Yes, so the the customer driven delays is there any common denominator in terms of kind of what was what was driving that.
Yes, Chris This is Jeff excuse me as you know, there's a variety of it and say if we did it for radio at the top driver is the number one is that schedule on the job sites themselves and in a number of cases, our customers or kind of as we go further out.
Kind of value chain, if you want to construction project availability of labor. It has resulted in the projects just not progressing as fast and just the schedules on those projects move out.
Similarly, we've.
In these arent kind of normal issues that we just saw higher rate of it is that projects that were scheduled to start the general contractor was too optimistic about ability to get the project started in the start timeline of those projects has moved out. So those those are that the top two reasons as I said as kind of our industry in those.
Happen all the time, but we've seen.
Higher level of those types of schedule delays.
Gotcha.
In terms of the that framing challenges that were perhaps a little bit more.
Self inflicted it it can you kind of breakout and it sounds like some of the some of the projects, perhaps where mispriced splits and some where there were operational issues that you Didnt anticipate say quarter goes something like tacky, just talk to that a little bit more.
Yes, Chris was a Joe.
And one of our curtain wall businesses manufacturing business not our installation services.
We're pretty darn fall in the factory, we've had some complex projects at a time, where the factory is very full.
In the third quarter.
We became apparent to the business that the margin expectations.
We're not going to be Matt the challenges were.
Pretty pretty significant we had to take a project the adjustment for the revenues to date.
And then the rest of the project is that the new margin phase or not there to two primary projects. They are not losses or low losing money project, but they are substantially below the original booked in margin rate.
The team has learned from this.
We are bidding our we have gleave we're on.
About to win some more business thats very similar to this that's been priced.
Substantially higher to reflect.
The learnings of the business, but this is really two primary projects and one of our curtain wall manufacturing businesses and.
I believe we've learned our the businesses learned a lesson as pricing accordingly, going forward and I'll just add.
Hi, specifically is.
There are a couple of project at a higher degree of manufacturing complexity.
That.
You know just became more of a challenge than was originally estimated and as Joe mentioned that win win that started happening in a kind of add capacity manufacturing environment in that facility.
It became difficult to overcome and offset.
Beginning manufacturing costs for those projects, Chris one of the organization changes we made was.
We've installed a new leader of our two curtain wall manufacturing businesses, who is.
Who frankly grew up in the services segment.
Doing large complex projects for companies like our Harman services segment business.
He's been a direct reports to me for last year and a half running our.
Global operations and this gentleman has moved into the leadership position of our two curtain wall businesses and launched and I'm expecting.
They have a huge impact on.
Addressing issues like we just talked about.
And those two primary projects I mean, how big are they do they extend well well into fiscal 21 or give any sense there.
Yes, so I mean these projects will be.
Largely.
Complete.
By really probably at first quarter fiscal 2001, I mean smaller and smaller portion of it will carry into probably the second quarter, but but a majority of it will carry into fiscal 2001. So as we talked about we had to do a true off which really was a charge in the third quarter.
In the fourth quarter now, we'll see margin on these projects, but just at lower margin than was originally.
Forecasted for these and kind of wrap it up early next fiscal year.
Got you appreciate I'll jump back in line. Thanks, guys.
Thanks, Chris.
Our next question comes from Eric Stine with Craig Hallum. Your line is open.
Good morning, everyone.
All right.
So just just coming back to these two projects quickly. So I mean, just maybe talk about your confidence level that.
That the write downs, you've taken on them that that fully captures kind of where they should be going forward and and then.
So you just laid out that you expect maybe a little bit into fiscal 21, but.
I mean.
Confidence that on new business that may be fits this complexity profile.
Those will be priced appropriately with the appropriate margins going forward.
Yes, Eric I'm confident that.
We obviously want to desk on five on these projects and put our top people at apogee involved in this we believe.
We have taken the margin write downs to the level, we can perform for the completion of the projects as I mentioned, they are not lost projects, but at substantially less margin should add and as I mentioned.
We're going forward or pricing.
Substantially higher on similar business going forward, we can make the product it is complex, but it it is certainly in our wheelhouse.
So I am confident of both the charges.
Are behind Us and that we can finish these projects as is with the current margin assumptions in that we're going into backlog will be at normal margins.
Okay got it and then maybe on.
The cost reductions the $30 million to $40 million I might've missed it but did you call.
Call on a timeframe.
Whether its later in fiscal 21, when you think you'll be at that run rate.
Yes, Thats right.
All certainly by the end of fiscal 21 were not providing guidance for fiscal 2001, now I can say that there'll be a substantial up favorable impact in fiscal 2001 over fiscal 20, some of the savings begin.
Relatively immediately and through the first and second quarter, we'll get.
Some some a decent sized piece of that but we're just not going to provide a full impact of 21, but it will be it will be fairly substantial okay. No. That's great. Thanks.
And then lastly, I mean, it actually sounds like.
You know kind of nice that ESCO doesn't sound like Thats really part of the missteps in framing so I guess can.
Yes, confirming that with you but also.
I know that the last problem project.
Kind of talked about a few quarters of residual work.
So just any thoughts about are there.
Are there any risks associated with wrapping that project up and kind of putting that behind you.
Well Ensco has been performing well this year and meeting my expectation is they are the building is primarily in closed which means the windows and.
And our doors are almost all installed there on any project. There is whats called leave out where the elevator shaft that go up the tower have to be removed and then we complete the work that's.
Always standard practice in the construction world for the most far F. goes complete with that project.
They have some small number of units to make and.
You know listen it's been a it's been a terrible project for us it's been.
Financial below and I won't say that it's completely risk free but we we believe we've got.
A good cost to complete estimates in our forecast.
We continue to as I mentioned in the call we did have.
A modest bought a net gain on some of the things we've been going after and recoveries.
We will continue to work on claims against US and claims we have.
I believe our forecast is balanced.
A project has never risk free until you've completed the project, which won't be until you know.
The first half of calendar 2020, but we're kind of on the 10 yard line in and things have gone according to plan.
And then Eric just.
You are opening comment and question about kind of the core AFCO business.
As Joe said, they are performing to our expectations we are seeing the.
Proved productivity that we've been looking out in that business and operationally, we're seeing improvements into our focus now.
The emphasis from the operation side of the business really driving.
Okay, and the topline opportunities in that business.
Okay. Thanks.
Thanks, Sir.
Our next question comes from Brent Thielman.
And your line is open.
Thanks, Good morning.
Morning.
Joe.
Process to trying to integrate all be subsidiaries within minutes, the framing business I guess I wanted to take a step back into that.
The results year to some degree or consequence of trying to do that and it's a good any pause in terms of what you're trying to do there are changed the game plan at all for that.
Well, a boost and Brian first off the performance for the segment was up was not acceptable. It is not a consequence of our effort to integrate and consolidate this.
We are just getting started in that effort were being careful at our goal is not to alienate customers or mess up the business the performance issues.
We believe the leadership changes we've made in that we were adding by creating this segment leader. Our role is is going to help us avoid.
These kinds of Miss is going forward.
It's a big company. These six businesses are in the same.
Operating segment, we have the opportunity to do a better job leveraging our manufacturing footprint.
Leveraging our product offerings, so that we don't launch new products and one business. If we can leverage the same.
Baseline products in another all these things are in front of us not behind us and.
There was no causal factor on this quarter's performance because of our efforts to create this one operating segment.
Okay, and sort of parsing out.
The businesses have been perform your expectations and the rest of the business kind of been that target low double digits margin range that you wanted to be at.
Yes.
Okay.
And then I guess on on glass and the commentary about the foreign competition I know they've been kind of in and out of the market, but I guess what markets that you're primarily fee in that and I think in the past.
Principally been on the eastern seaboard that that kind of the northeast is picking up for you. So maybe any comments there.
The northeast in the Midwest, it's primarily the large projects the large towers.
You know I've been pleased that the leader of that business and I and.
Jim We spent a lot of time going over.
What kind of margins were prepared to take we of course will look at lower margin projects. If we believe it strategically a good move but we are also prepared to walk away and not chase low margin work that company did that it glass business back 10.
11 years ago, and that's why apogee was losing money back in fiscal 11, we're not going to do that it. It is a it is a challenge on a large monumental towers lead time is not an issue and product can come from virtually anywhere in the world and meet the lead times, we have good competitor.
There is around the world and with the dollar.
Euro exchange rate at 111, it's.
It is open up the door for foreign competition to markets are pretty poor in our end markets in Europe and.
This has become a good landing spot for that competition worried we except competition Thats the world We all live in.
Hence our strategy to move into the mid market and most recently in to the small project segment. The small project segment is actually larger.
Square footage than the combination of the large in the mid market. So it's a strategic imperative for us, but we we feel this competition in the large projects is here to us here for the foreseeable future until we start to see recovery in their markets and hopefully more balanced exchange rate and.
Maybe I can return to favor someday.
Okay, maybe at and on the small projects facility congratulations on getting that I've been going against that.
Any early thoughts on.
Yeah, I expect from that business in fiscal 2021, I know, it's ramping up.
Then kind of when you think that three against the optimal.
Capacity and the margin do you expect from the business.
I can't provide guidance for fiscal 2001, I can tell you is the orders the inbound inquiries and orders bode well for us achieving or beating our investment.
Thesis for that that investment that we made and.
They're producing excellent product gets highly automated it's amazing quality and.
We will provide more on that but it will be a contributor in fiscal 21, we won't have the.
5 million dollar a startup costs.
It all.
It will have revenue in operating income in fiscal 2001, so it will provide some upside and help us balance to the risk. We noted in the large projects, we have talked about that operation having.
Potential capacity of a range of $30 million to $50 million of annual revenue.
The big range, we'll have it depends upon mix in those types of things and in with expected to take a couple of years to ramp up to those levels.
Okay customer feedback.
Customer feedback we've received Brent on our initial shipments has been.
Phenomenally over the top positive we're pleased with the performance.
Okay. Thank you I'll leave it there.
Thanks, I didn't mean you off if you have another.
Okay go ahead, thanks, Jeff Thanks, Brent yet thank you.
Our next question comes from Helion marrow with Sidoti Your line is open.
Hey, good morning, everyone.
Hey, first off congratulations on the retirement and all of your success at apogee.
Thank you Leo.
I guess.
The overall guidance.
Did I hear you narrow your your your guidance range for the consolidated up margin I mean, you gave us plenty on the segment guidance, but.
Just I'm sure if I missed anything on the consolidated margin there.
Yes.
No I mean, we didnt call that out.
Okay fair enough.
I guess, maybe on the glass segment, you talked about the on large scale projects and does that impact, but you also mentioned the customer driven delays.
Can you just elaborate on that at all and if those are expected to persist into the next fiscal year.
So this is Joe Leo I'll talk about last engine to talk about the project delays or reiterate what he said the project delays was within our framing systems segment in glass that has not been.
Something we called out here.
I just repeat I see our glass businesses performed well they have their margins absorb the startup costs in Q3, and there'll be more startup costs in Q4 as we wrap this.
Program up with.
The entry into the small projects.
Very pleased with the performance volumes were off a little bit due to the share loss at the top.
Not not dramatic.
We will continue to fight that battle in F 21, as we enjoy some more revenue and margin pickup on the smaller and mid segment project work, but the project delay issue was in a couple of our curtain wall projects.
In framing systems in the mix of their projects.
Got it I thought I heard you called the same out the same LCD glass business.
I guess, maybe just staying on that glass business.
On the new facility in Texas can you just to elaborate on.
Yes, I assume you'd have an ability to sell supply more glass to say ESCO and maybe some of your other businesses that can you talk about how that goes hand in hand, with how you're thinking about framing integration opportunities next year.
Yes, you're correct that.
That business.
Has the capability of supplying glass to our intercompany businesses and that will be part of the $30 million to $50 million revenue profile that Jim talked about that we believe can come from that factory.
We have great partners in our supply base for that business and our supporting them well with this new new volume that we're bringing in.
But there will be.
Part and parcel to our growth going forward, we as I mentioned, we have.
Several new leaders in many of our framing systems businesses that are.
Folks that are coming from the apogee ranks and businesses. So I've got more and more a mix of leaders that have.
Come from other business segments, and I believe it promotes continued cross apogee leveraging of our capabilities and I'm looking forward to more and more.
Cross business unit across the segments.
Working cooperation.
Understood all back into queue. Thank you.
Thanks Leo.
Thank you once again, ladies gentlemen, if you wish to ask a question at this time. Please press Star then one are you touched on telephone.
Our next question comes from John Brad, Kansas City Capital Your line is open.
Good morning, Joe Jim.
Good morning, Joe.
The strategy behind the architectural framing business has been was that it's a simpler business.
It will help protect you more and when when the cycle turns down.
Yes. This business is the one that's causing the most difficulty.
Is.
As the business changed at all or.
Is it not is it more complex and more.
Susceptible to two disruptions than maybe you were thinking originally.
Is there something.
Consequence that has changed and thats in that and that market segment that is.
Creating the current difficulties.
That's a very fair question challenge John .
Answer is no the business is profile as we have always had it we do certainly add.
A couple of businesses in that segment that are focused on larger projects little bit of complexity and are susceptible to schedule issues on the project site. We do have a nice balance of very small project focus.
Our store front in entrants business.
Reliable less lumpy.
Doesnt move you know substantially in from one quarter to next they've been performing consistently and then we all the way up to some large curtain wall projects and those are the ones that.
Had been a concerned this quarter.
You know.
We have good.
Experience and large curtain wall projects a lot of that experienced comes out of our service segment I mentioned that our new leader of our two curtain wall businesses and framing systems.
Basically comes from our installation services segment and with Great experience and I believe weekend.
Eliminate some of the surprises with more consistent manufacturing performance in those two businesses, we have a good mix.
We don't fire at all six cylinders at every quarter. This was a tough quarter for two of the larger businesses.
That we could offset with performance in the other for but.
The mixes is is a good mix for us in the long term and I believe we needed to make some changes with some of our leadership team. Okay. So the revenue got kind of majority of the revenues in the framing systems.
Segment is on the smaller projects, whereas Weve type, we do continue to see growth and good margin performance in is the focus for growth in that segment going forward.
Jim or Joe would would you imagine as you.
Look ahead.
Given these current difficulties at the mix may change.
Or will you.
You liked where the ratio where it stands today.
I don't think the mix will change substantially we will do a better job of.
Having our growth focus tied to what we are better at I mentioned, a subtle point in.
My commentary and.
It's it's no surprise that our services segment has performed so well in the last few years, because they embarked on a journey five or six years ago on understanding project selection and understanding complexity understanding.
We had a history of forensics on where we performed well in where we didnt.
On large projects that I mentioned in this call that we are going to leverage the learnings from that business to do a better job of project selection inside of our framing systems segment, we have our strategy to growth strategy focused on better project selection. So we start.
With the.
A better platform for success than we have shown in the last quarter. Okay.
Jim the $30 million to $40 million and cost savings over the next year or so.
Well you retain that are you will you in room reinvest some of those savings and in.
And maybe the net savings won't be.
As much as 30 to 40 million.
You know I mean that that will be evaluated as we develop our plans for next year our intention at this point.
At least for fiscal 2001 is to hang on to the majority of that.
Okay all right. Thank you.
Yeah, and John as you break off I'll, just say that add to that it we obviously look at.
Short return investments into the degree we can drive further cost out of the business.
If that take some investment we will apply some of the savings to that.
To that opportunity. So thank you. Thank you too.
Do you have any more call Shannon.
Next question comes from Bill does along with Titan Capital. Your line is open.
Thank you I actually wanted to follow up on that cost savings question.
Would you characterize or break out if you would get 30 to 40 million.
In terms of where you are anticipating the savings coming from number one and then secondarily.
What component of it are you just rock solid on and then.
How much potential up side is there to that.
30 to 40 million number.
So.
I'll provide a little color.
As we as I said.
We're not providing guidance for up 21, but I can tell you that of the 30 to 40 million the larger larger piece of that pie is our procurement initiative.
I am not going to say, it's easy because it's certainly not but a lot of heavy lifting has been going on for the last three months with our.
With our.
Partner.
The global.
From that's helping us that I mentioned.
We have identified a substantial portion of that and have more to go and will be implementing procurement savings.
Effectively immediately so I feel really good about the component of that 30 to 40, that's on the procurement side.
There is a little more heavy lifting to do on the framing systems synergies.
But.
We feel really good about the opportunities.
And let's face it we we have up.
A low basis, we used to operate framing systems that substantially higher margins I didn't getting back to those margins is certainly not unrealistic expectation to get to.
Back to where we should be and then drive synergies. So I feel good about the $30 million to $40 million or we wouldn't and put it in our guidance.
I feel good that a big chunk of that is coming from procurement, which is a little bit easier to identify and.
And there are also some savings that will have to come from some really hard work within framing systems.
A substantial portion will be impact will be felt in fiscal 21, and bill that's about as far as I can take it on todays call.
Okay ill see if maybe just a little bit for.
Even though I heard which you just said.
What.
What aspect beyond 30 to 40 million is there in terms of the potential but but frankly today you are simply the less clear on and therefore aren't able to.
Discuss quantitatively is there a is there a meaningful component that would fall into that category or has it been pretty well vetted and and so you don't have a lot of.
If I may call it murky future opportunity.
The range that we've put in this.
Discussion today is not murky, it's it's fairly well identified there is obviously a goal to drive.
Much higher cost savings beyond that through continued hard work on product line management.
Continued procurement savings. This is this effort with Alixpartners is the beginning not a one shot deal I mentioned on hiring.
Chief procurement officer could make sure we deliver on these savings and then drive phase two in phase three going forward, meaning it's just the beginning for procurement.
Im not going to tip might play hand to playbook to our competitors with regards to the commercial.
Opportunities that I expect my framing sister system leader in business unit leaders to drive.
Those are not quantified in that 30 to 40 million. So yes, I expect to have long term gain from operating that segment as one operating unit or one operating segment with different brands and our discrete factories that we have today.
Thank you.
Thank you Bill.
Thank you and I'm showing no further questions at this time I'll turn the call back over to Joe push us closing remarks.
Alright, Thank you Shannon Okay I.
Well and where I started which as we get it I know we disappointed I feel.
A strong commitment to seeing this improvement turnaround happened I believe it will lap and rapidly and as I mentioned I think we will enter fiscal 21, which some substantial tailwinds on our side both from the nonrecurring cost and project costs. We've had this year.
The elimination of the performance of prices and the substantial backlog increase you see it apogee, primarily driven by framing systems, but also I'm sorry by our services segment, but also.
What we're seeing in future orders for framing.
And our new project in glass I believe fiscal 21 will be a return to excellence for us and.
You have my commitment to.
Two worked tirelessly to achieve that so I. Thank you for your attention today once again I'd like to congratulate and thank Jim for service to our company.
His tireless service and I wish you all are happy holiday Inn after year end in a safe on thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect.