Q1 2021 Apogee Enterprises Inc Earnings Call

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Ladies and gentlemen, thank you for standing by welcome to the Apogees fiscal 2021 first quarter earnings Conference call. At this time all participants are in listen only mode. After the speaker presentation. There will be a question answer session asking question. During the session you will need to press star one on your telephone please be advised to today's conference maybe recorded.

Do require any further assistance please press star zero.

I would now like and the conference over to your speaker today to fiction. Please go ahead Sir.

Thank you Josh good morning, and welcome to Apogee Enterprises fiscal 2021 first quarter earnings call.

With me today, our joke push us Apogees, Chief Executive Officer, and the sheet go to Chief Financial Officer, We all where we are also joined by making Kirchhoff Apogees controller.

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 will reference certain non-GAAP financial measures.

Finishes up these non-GAAP measures and a reconciliation to the nearest GAAP measures is provided in the earnings release, we issued this morning, which is available on our website.

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 you Joe.

All right. Thank you and good morning, everyone. Appreciate that Jeff Thanks, everyone for joining our call. This morning.

Wow, what times, we live in today I'm, not aware anyone that add to fore sight and imagination to predict.

Global pandemic any impact on our country and in our case our industry this year.

That said our team did a terrific job managing through the challenges of cobot 19 during our first quarter.

We delivered positive earnings.

Not everyone will be able to do that this quarter strong cash flow in a quarter, where we always use cash and increased backlog all of which demonstrates the underlying health of our business.

This morning, I will provide more details on the impact of cobot 19 during the quarter and our response to the situation.

And I'll discuss the current trends, we're seeing in the business and how we are positioned for the future.

Then I'll introduce mushy Goofed up my new CFO in business partner for additional details on the results of our financial condition.

After that I'll certainly take your questions.

Let me start with the impact of Kobin 19 on our business during the quarter.

First I'd like to say, how proud I am of the entire apogee team.

Everyone truly rose to the occasion.

And just a few short weeks, we made fundamental changes to the way we operate our business.

We established a full time Colgate response team implemented a number of policies to maintain a healthy working environment and our factories.

And on our job sites, including health screening social distancing enhanced cleaning and the increased use of personal protection equipment.

For our employees, who normally work in the office, we transitioned nearly everyone to working from home in a matter of days.

We've had weekly and at times Daily Communications with all 7000 employees through voice written comps and video.

And we accomplished all this without missing a beat continuing to ship product and meet customer needs.

Even with the preventative actions to covert impact in the quarter were substantial most notably in our large scale optical segment, we saw a near complete shutdown of our customer base to comply with state and local government stay at home orders.

This drove a 70% year over year decline in revenue.

In response to this dramatic decrease in demand in large scale optic going to comply with stay at home orders, we closed our LSL manufacturing operations and furloughed most of our workforce.

We were able to continue shipping some product thanks to strategic inventory build leaving no stone unturned.

Our three architectural segments continued to operate as essential businesses.

However, a number of projects were temporarily halted for delayed.

Whether due to state and local government restrictions economic reasons or other disruptions.

The good news is that with few exceptions the projects in our backlog and pipeline are moving forward. So many are moving forward at a slower pace.

And projected due to delays and disruptions, which impacted our revenue.

We also saw cobot 19 outbreaks in some of the communities where our factories are located.

Which impacted our workforce, particularly at our primary architectural glass facility in southern Minnesota.

In our glass business. Many employees were placed on for cautionary quarantine or took voluntary leaf.

Which impacted productivity in revenue.

In fact at peak, we had nearly 25% of our glass workforce in southern Minnesota on foreign team.

Because of our aggressive response.

We now are nearly back to full employment at that facility.

Outside of these cobot related issues.

Last business performed quite well operationally with very strong customer service and quality metrics.

But this also brought added costs, including paid leaves and extensive personal protective equipment, both for our people and our production lines.

We have taken a number of proactive steps to manage our cost in capacity, which delivered over $5 million of savings in the quarter and contributed to keeping the company profitable despite the significant volume decline.

Our procurement savings initiatives started to deliver meaningful savings.

And we implemented several steps to temporarily align compensation costs with the current market environment.

And our framing systems segment made steady progress towards optimizing operations improving execution in removing costs.

The impact of these actions will continue to ramp up as we move into the second quarter and the sheet will provide more details on the financial impact in his remarks.

We also asked our team to focus on working capital management with an emphasis on receivables in collections.

Which led to strong cash flow well above last year's first quarter.

I'd also like to highlight the continued strong performance of our architectural services segment.

Segment operating income improved despite slightly lower revenue driven by solid execution project selection and cost management.

Also we were awarded several new projects during the quarter, increasing this segment's record backlog to $685 million.

Up over $200 million from this time last year.

So.

Given the challenges in the quarter. We are overall pleased with how our team responded in the results. We achieved we were profitable we managed to balance sheet, adding cash.

Pay down some debt paid our dividend.

All while adding to our backlog in our long lead time business.

As we look ahead to the rest of this fiscal year, there remains significant uncertainty around the impact of Copel 19.

And the overall economic situation and the impact to our end markets.

Accordingly at this time, we're not prepared to offer guidance.

We will strive to provide guidance in the coming quarters as the economic situation stabilizes it becomes more.

Realistic, but I can say that we are cautiously optimistic in our path to improved results in the coming quarters more on that at the moment.

In large scale optical our customers are beginning to return to reopen status in the trend line is orders in sales has been positive over the last month, our L.S. old manufacturing facilities, while remain closed will reap open this quarter.

In our architectural segments, our strong backlog of over $1.1 billion gives us good visibility in the longer lead time portions of our business. Additionally.

While we are still seeing some project delays in disruptions. We expect these will moderate in the coming quarter as the economy reopens.

Finally, we should see increased benefit from our cost reduction.

He moved through the second quarter and beyond.

We see the potential for each of our core segments to deliver improved results both on the top and bottom line in the second quarter compared to the first quarter.

Looking out longer term it seems likely that we will see some degree of downturn in our end markets, how severe and for how long no one knows.

In the queue in a session I'm sure all good questions about this and I'm prepared to answer what we're seeing from industry analysis.

Well, we also see many reasons to be optimistic about apogees long term outlook.

Unlike the last recession, the great recession of await no nine we entered this downturn with healthy end market fundamentals with strong demand for new construction and few signs of overbuilding.

Excellent tenant commitments to support new construction and very very low.

Office occupancy issues. We're also seeing some economic indicators, which gives us optimism such as the improved may on employment report, particularly versus expectations and measures like retail sales in industrial production, which had started to rebound in may off their low eight.

We'll numbers.

Also the various government stimulus measures provide some support for construction end markets.

Regardless of what lies ahead for our end markets apogee is a much stronger company and more resilient today than we entered last or a downturn over the past several years, we've pursued a purposeful strategy to diversify our business mix and the end markets we serve.

Today, we have a much broader exposure to a range of project types and sizes, including sectors like healthcare education, and government and multifamily housing as well as a growing renovation business.

These are historically less volatile.

Segments, it's within the market.

We've also reduced our resilience on monumental high rise projects, the most cyclical and violent part of the market fluctuations.

And increased our exposure to small and midsize projects, including our recent expansion into small projects for architectural glass, we have pursued a growth strategy, which included geographic expansion and new product innovation and today, we have a portfolio of market leading brands that are well positioned to take.

Advantage of a market rebound.

And we have significantly improved the productivity of our operations investing in automation in our factories building culture of continuous improvement through our lean enterprise system.

A wide range of cost saving efforts are underway, including procurements phases savings.

And if necessary, we have additional options available to manage costs in capacity.

Strong cash flow and a healthy financial position have long been hallmarks of Apogees business and that is no different today as we have significant financial flexibility to manage our business with substantial liquidity.

Finally, I strongly believe that we have the right team to manage through this situation.

Over the past year, we've added key talent across our organization. This includes new members of our board of directors.

Several new management members of my executive leadership team, including a new General counsel, new head of human resources, a proven procurement leader in the sheet group to our new CFO. We've also added key talent in our segments in our business unit level.

With these talent additions I sensed tremendous energy and enthusiasm excuse me across our company and I'm confident that Apogees best days lie ahead.

With that I'd like to introduce mushy. He started apogee on June 15th so throwing him into the freight with an earnings call less than two weeks into his job.

He brings to mind this range of experienced apogee, having led and transform financial organizations at several high performing companies.

Truly excited to have the sheet as a part of the team and my business partner.

I'd also one more time like to thank Jim Porter for his countless contributions to atg with that let me turn it over to initiate to provide more details on the quarter and our financial positions and then I'll return and quarterback taking your calls and awesome additional comments machinery.

Thanks, Joe and good morning, everyone I'm very excited a giant apogee team and to participate in my first earnings call with the company.

Look forward to speaking with many of you in the coming quarters, and hopefully I'd be able to me that many of you as travel restrictions are lifted.

Looking at the reserves for the quarter, let me start with a consolidated reserves, which are on page five although earnings presentation.

Total revenue was $289 million down 19% from last year's fourth quarter, reflecting seven fluid related disruptions across the businesses.

Operating margin was 2.2%, which includes the impact of covert related expenses.

Excluding these costs adjusted operating margin was 2.7% compared to 6.5% in the last year's fourth quarter.

Reflecting the impact of lower volumes, partially offset by our efforts to manage constant capacity.

Adjusted EBITDA was $20.4 million compared to $34.41 million in the last year's first quarter, reflecting the lower revenue and lower margins.

Net interest and other expenses was $2.5 million roughly in line with $2.6 million in last year's first quarter.

The tax rate of 28.2% was above last years level and above our long term estimated tax rate of approximately 24.5% due to district discrete tax matters.

Finally, our diluted share count came down to 26.4 million from 26.8 million last year due to share repurchases over the past years.

Putting it all together we had adjusted earnings of 15 cents per share compared to 58 cents per share in the prior quarters.

Now turning to segment reserves on slide six.

Architectural framing systems revenue of $150 million was down 17% from Ryan.

We ended the quarter expecting lower revenue based on timing of projects. This was magnified by impact of fluid related project awards and delays, but ability in those regions with tighter restrictions on construction activities, such as New York, Pennsylvania and California.

Framing systems operating income was $7.2 million with an operating margin of 4.9% compared to 6.8% in last year's first quarter, reflecting negative leverage on the low revenue, which was partially offset by cost reduction actions.

Framing systems backlog decreased slightly to $422 million from $432 million at the end of last fiscal year.

We continue to win New awards and most projects in a pipeline and moving forward, but auto auto flow into segment was down about 15% compared to last years first quarter.

Architecture Das revenue was $77 million down 22% from last year's first quarter.

As an framing systems, we entered quarter expecting lower year over year.

Revenue due to timing of projects in our pipeline and then saw additional pressure from cord related project delays and a small number of project cancellations.

As Joe mentioned, the AOL Southern Minnesota Web primary glass fabrication facility is located became heart spark recorded 19, which impacted many members of for workforce and disrupted production, reducing revenue by approximately $4 million in the quarter.

Also saw increased cost associated with paper employees, encore and time and personal protective equipment.

The segment had an operating loss of $500000.

Compared to income of 6.4 million in the first Brian.

Reflecting leverage on the lower volume and added over 19 related costs.

Also.

We saw lower than expected revenue and an operating loss associated with our new small class sensitivity in Texas, while we remain confident in does ventures long term potential the market disruptions caused by Kuwait and current economic conditions will likely reserve in its lower than planned ramp up for this offers.

Patients in the current fiscal year.

Architectural services continued to deliver strong execution and saw the least impact the first segments from Cowen 19.

Services revenue of $64 million was slightly below the prior levels, reflecting a handful of delays on project sites.

Despite the lower revenue operating income increased to $5.3 million with operating margin of 8.4% up from 7% in the last year's first quarter, reflecting strong project execution project selection and good good cost management.

Services backlog increase again this quarter as a management booked seven New project Awards.

The segment's backlog now stands at a record $685 million with a project work that extends into fiscal 2023.

As Joe mentioned large scale optical saw more pivot impact from coal would as almost all of this segment's customers were close for most of the quarter to comply with the gum, instead, whom restrictions.

This drove a 70% year over year decline in revenue and an operating loss of $3.1 million.

In response to this situation, we closed or two manufacturing facilities and furloughed most of our workforce.

As the moved into June our customers have begun to reopen and we're seeing a gradual uptick in demand.

The first speaks as of June shipments have trending higher but still well below the historical levels. We expect sales will continue to gradually recover as the economy reopens.

Cost savings initiatives.

Even as there are even as three or four segments experienced significant volume declines due to covert 19, we took action to manager cost and capacity to keep the business profitable as we've discussed previously we ended the fiscal year with a number of cost saving initiatives already in place.

Our procurement savings program delivered $3 million of cost savings in the first quarter and we expect to see these savings ramp up through the year.

Also even with reduced volumes in a business, we remain committed to achieving their procurement savings goals.

We made further significant.

Efforts to integrate and optimize the framing systems segment, which we expect to deliver cost savings through the rest of the fiscal year.

During the first quarter, we announced several additional temporary cost saving measures primarily related to compensation.

These measures only in FX, but a portion of the first quarter contributed $2 million savings.

To summarize with all of these initiatives taken together, we have a now deliver $40 million or more of total savings during fiscal year 2021, and on annualized run rate savings north of $40 million in future years.

Turning onto cash ruined balance sheet turning to slide eight.

We had strong cash flow with $24 million of cash from operations in the quarter, which compares to a use of cash of 10 million in the last year's first quarter. They increase was driven by exceptionally strong working capital management and receivables collections across the business.

As we discussed last quarter, we've put a temporary gordon on non essential capital spending capital expenditure for the first quarter was $8.6 million compared to $11.2 million in last year.

We expect a capital spending decline further into second quarter as the first quarter spending included investments to complete some projects that were already underway.

Free cash flow was positive $15 million compared to a negative $41 million last year.

We used a portion of this free cash flow to pay down debt, reducing total debt to $211 million.

We have made significant progress in reducing our debt over the past year, but daughter, that's down $82 million compared to the end of first quarter of putting 20.

Also during the quarter, we've made our dividend payment of $4.9 million and repurchased 4.7 million versus stock early in the quarter.

Subsequently, we put a temporary gordon or share repurchase plan, which we will continue to evaluate as the year progresses.

As previously previously announced we successfully extended.

Our 150 million downloads during the quarter pushing the maturity out 12 months to April 2021.

Our liquidity positions remains strong with significant unused capacity in our revolving facilities.

Together with a strong free cash flow, we believe we have more than enough liquidity to fund operations and meet all other obligations.

To wrap up our team successfully managed through a very challenging quarter. As we look ahead, we're encouraged by signs of improvement in our end market as the economy reopened and we expect increased benefit from a cost saving actions as we move into the second quarter.

And importantly, our financial position continues to improve and a strong cash flow provides significant financial flexibility as a manager ways through the core which situation.

With that I'd turn the call back over to job.

Thank you initiate so as we discussed this was a particularly challenging quarter for most all companies and I'm happy to have it behind us I want to again acknowledge the entire apogee team for truly rising to the occasion during the quarter.

Everyone across our company has made real sacrifices over these past three months.

Through our teams collective efforts, we've adapted our operations to prioritize the health and safety of our workforce, while continuing to deliver industry, leading products and service to our customers that they come to expect.

Even in the face of these challenges our team's efforts kept the company profitable delivered strong cash flow, which speaks to all the strength of our business.

While remains uncertain the economic environment that is it is difficult to know what the future will hold but I remain optimistic about apogees direction. Both for the rest of this fiscal year in the long term.

Together with our substantial backlog strong financial condition in our team I remain confident in what holds for our future before I take your questions.

Let me address a few of the economic indicators, we look at.

First off let me start with architectural billing index.

It is one of the metrics, we look at on a monthly basis.

And as you know over the last nearly 10 years, the Avi I in the billing index, which measures.

Month to month.

Not increase or decrease in architectural billings.

It's a very high level metrics what is one.

Through 10 years of mostly year to a month to month increases we started calendar 2020 with a strong January a strong February both over 50 50 to 53 in App, respectively. Then came March 33.

It's no surprise and of course April even worse 29, an app.

Indicating.

Dramatically lower billings not to be on expect not unexpected however, with most architects office is closed and people working from home may rebounded slightly to 32.

Inquiries increased to 38.

This is a small positive sign at least in a trend.

Earlier, this or in the month of June Dodge.

Dodge data and analytics issued their construction market forecasts and I'd like to point out a few of they're forecasting comments first off for non residential building stars they're expected to decline between 15 and 20% in Twentytwenty and now I'm talking calendar year.

Square footage would pull back between 13, and 15% dollars 15 to 20.

After an alarming downturn in 2020, however, non residential construction starts are expected to quickly turned the corner to show improvement.

In square footage Nonresi starts are expected to grow 5% in 2021 and 16% through the end of their forecast which is through 2024.

Drilling down.

No construction part of Nonresi will grow 6% in 2021, and 16% from 2020 through the end of their forecast period in 2024.

Another category key to losses institutional building and they expect institution, both buildings to grow more modestly up 3% in 2021 and up 15% over the three year period.

It is a forecast we all know our role this changing daily and we don't know what Colvin, we'll throw that in this.

Phase and perhaps future phases, but again, the Dodge construction data as another indication.

Of the fact that our industry add solid fundamentals before this unprecedented change to our global and us economy.

With that I'd like to turn it over and operator, if you could please open the call up for questions. Thank you.

Thank you as a reminder, asking question you'll need to press star one on your telephone to answer your question Keith Please stand by we've compiled kuni roster.

Our first question comes from Chris Moore with CJS Securities. You May proceed with your question.

Hey, good morning, guys.

Yes.

Good morning.

Obviously are recognized visibility is still not very high at this point in time.

When you look at the balance of.

Fiscal year 21.

Just trying to get a sense as to what some of the biggest wildcard SARM I'm thinking that the LSL ramp and the.

On the framing side, how quickly that some of the quick turn short lead time.

Business recoveries would be kind of two of the biggest ones is is that fair and maybe just talk sounds a little bit.

Sure Youre right visibility is itself a wildcard as the biggest wildcard across of course is the economy with.

Coded if we do not go into another shutdown likely the economy did in the month of March.

I do feel very confident that our future quarters that Q1 will be our worst quarter.

It again in all without something unusual happening I expect the all four segments to improve off of that sequentially in Q2, our large scale optical orders improved.

Every week in the month of June in fact last week, we are a little over 50% of a normal all weekend that bodes well of the team is planning on a slow recovery over the course of the rest of the fiscal year and LS. So.

Im seeing some indicators that make us feel good about that assumption.

We have as you've seen a strong backlog of than many of our workers are now back on the job arc flash business will be.

Improved in the second quarter with our Manning levels.

Our services segment.

Has a geographic footprint across the United States, but.

On a positive irony there not solve their focus has never been in some of the cities that have seen the most substantial.

Closures and downturn so.

That has worked to our favored we expect.

That one business to do extremely well this year, our renovation business, which I commented I will be off year over year, the sales flow through our framing systems in glass businesses. We are not in the we'll call business. So I think some people thought all with a lot of glass is being broken.

With the violence that was experienced in the country.

That that will inevitably lead to some glass sales, but we don't have a will fall business repair buildings. The overall.

If you will simply be how strong the U.S. comes back.

I mentioned the dots construction data indicates optimism and again it comes back to the fundamentals were solid positive wildcard will be what happens with office market, We believe stelvio.

Shift in offices from law of large towers to more satellite facilities, which bodes well for our.

Capabilities now in small medium and large projects.

Larger square footage required for office worker, we expect to bode well for the office segment as well and hopefully, we'll offset any work from home.

If that becomes more of the norm no. Most business leaders are unanimous in watching their employees back for collaborative efforts in the office put me at the top of that list. So while there may be more work from home in our future I think businesses will have their employees back in the offices.

The demand for office space will increase.

So.

Chris Thats.

The best visibility I can give you.

That's helpful. You covered a lot for sure.

Last one from me just with respect to that accordingly in a cost savings could maybe can you provide a little more detail on on that the cadence for the additional cost savings for the rest of a fiscal 21.

Yeah, Let me give some comments and into she can jump in first off.

We had announced last year, you know $30 million to $40 million of cost savings for this year as a measure that would be the run rate as we exited the year.

We are a little color, you're not providing a specific number for the flow through for the year. It was obviously you know in the middle of that Ranger, and maybe 25 $30 million.

Because of Cold we took some substantial actions both on.

Furloughs as I mentioned RF large scale optical business was virtually close with the exception of less than doesn't people every employee was unfortunately furloughed.

We've taken some salary actions, we've taken amped up our efforts on procurement and the sheet will tell you now the flow through numbers are pretty substantial for fiscal 21. Some of the actions. We took did not kick in until may or June.

So many of our actions will be at full force until the second quarter I will tell you I certainly hope to restore the salaries of my troops to their prior levels. When the time allows it but most of the actions we've taken.

We'll continue going forward into future quarters in next year initiate if you'd like to provide some more specifics on the dollars. Please do so sure.

So earlier guidance has been more working towards a 40 million number by ended the year to provide annualized run rate 40 million savings in the future years with all the efforts and the team has done I would put a savings into three buckets. The first being procurement with a new procurement officer be has.

On savings coming through already in quarter, one and they will be much higher in the rest of the year on that is in the range of $10 million to $15 million. The second is the cost actions that is temporary cost actions taken in response to cope with they are gaining the range of $10 million to $15 million and allow.

Asked in the bigger of work, which.

The architectural framing team is doing that it really working hard to align the cost structure with the business and Thats. Another now I would say $15 million overall, we are confident to deliver $40 million of in years savings. This year and it will go north of $40 million in the future.

Now that a chief procurement officer and stuff started looking at all opportunities in the company.

Got it very helpful. Appreciate it guys.

Thanks, Chris.

Thank you. Your next question comes from parents time current now you May proceed in your question.

Hi, Joe Welcome machine.

Thank you good morning Air.

Good morning, So I know the previous questions touched down a little bit but I'll.

I'll ask as well when you think about.

Yes, and obviously Cisco 21, a lot of operational issues project delays et cetera.

You like almost every other company dealing with that but as you look out a little bit longer I mean do you view this as in services, obviously, a great bookings quarter backlog in great shape.

But do you think of this is is that there's kind of up a pocket a temporary pocket in backlog that may be means.

It may impact quarter or two in fiscal 2002.

But because the underlying fundamentals of the industry are pretty good.

It's somewhat temporary.

Just any thoughts on that and I realize it's pretty tops and.

You know not many people have that visibility, but I'd love your thoughts English.

Yeah, Eric Thanks, I will talk about that first loss I just want to be perfectly clear here.

Are we Didnt, we had if you mentioned operational issues, we did not have any operational issues, we had volume issues.

We did not lose share we had volume issues due to Covidien project delays and unfortunately, the demanding issues, we had due to substantially high quarantines in one particular region. The actual factory performance was outstanding in all of our business in particularly in glass where.

They're on timing complete was remarkable they did have to push lost customer schedules. They worked with a number of customers to delay production into Q2, most customers work with them. Some didn't so we focused on getting through the quarter. They actually were able to pull in some of that but we had about $10 million.

Glass revenues slip out of the quarter, just due to production capacity in and push out from the customers due to project site issues plants operated extremely well across Africa APG, there were absolutely no snack food.

But as you mentioned the services backlog is strong they've got.

Almost $700 million in backlog that is more than two years of revenue it bodes well over all will there be a revenue whole.

Our next fiscal year due to the delays.

We don't know yet, but clearly if if things don't start coming back or if the return that we're seeing.

Oh reverses due to covert I mean in the last several days were obviously hearing a little bit more about pockets in the United States that are seeing a substantial return.

If things get worse, we will have all revenue hole in some of the short lead time businesses not so much in our long lead time business. They have the backlog to support the growth and we're making the operational improvements to offset any relatively small revenue delayed so poland the revenue pattern.

Our next year due to these delays to be determined right now I believe it to be modest it depends on the.

On what happens in the U.S. as far as the transit reopening.

And that is a wildcard I cannot address yep yep. Thanks, a lot and I was I guess I misspoke I was referring more to the project delays rather than internal been helpful, but to get that update.

I know I know for Eric, but I know you were so thank you.

Yep.

And just on just on the cancellation good to hear that they've been minimal.

And again this is a processed on the spot that there's not a return or in terms of coal that coming back and and having to shutdown et cetera.

But do you feel like it's things start to gradually open up that you're kind of out of the what's on the cancellation front or the risk of cancellations of projects that you see.

Yeah cancellation, let me address that were cancellation.

If you're the one some things in backlog booked backlog.

We are in mind nine years I've not seen I've seen one cancellation in our services segment and then the project came back into backlog about a year later so we.

We will we rarely see cancellations once something's in backlog in our shorter lead time.

As far as glass it goes in and out of backlog rapidly because we don't entered into backlog until we have a purchase order to deliver.

We also added scene.

Any cancellations there we actually had an increase in glass backlog of about $10 million. In Q1 can you say well that I don't like that that's $10 million, we wanted to shift.

Five or that was due to capacity capacity constraints on the people issue another five because customers delaying their projects. So the issue has been more delays and cancellations, we have seen some cancellations in glass.

We've had a handful of cancellations out of out of the year, but they were not in our backlog, but they were in our wind column. So while the full year revenue will be it at our original expectations. We felt most of that in the first quarter and we'll begin to feel sequential.

But in glass looking forward.

Okay, that's great I'll turn over thanks.

Thanks there.

Thank you Sir our next question comes from two Merrill.

So with Sidoti <unk> procedures a year.

Hey, good morning, everyone.

Hello.

So I wanted to ask about the services segment I'm sure you had outlined some of the drivers of that segment profit increase execution mix cost can you maybe.

Kind of rank order those and just given the expectation for for the topline next quarter.

Do you kind of expect that that margin, 8.5% to kind of continue.

First off since they improve their margins on slightly lower revenue there, obviously performing well we break that business into two categories. It starts with project selection and I've been talking for 10 years now that team is embarked on using big data.

Data analytics to study every project age executed over the last couple of decades, they use that information to determine what kind of projects. They will change to have a higher degree of.

Improve their win rate cost money to bid on every project keeping the ones you lose cost you money.

They've done an outstanding job on project selection and that has led to consistent execution on the both the fabrication and the installation and a I would say.

The quarter's performance was driven by project execution in both our manufacturing plant or fabrication plant and at the installation at the site, but it was.

Allowed or approved you know the if you put it was a possible because of the project selections. They made two years ago remember I'd like to say. Unfortunately. This is a two year business you have to look into year cycle. The work there working feverously on now that they booked into backlog this quarter.

Increased our backlog by another $26 million.

We'll be work that won't start in the field for 12 months and then we'll revenue over a year. So.

That heavy lifting that's done two years ago is why they had projects in our pipeline that when they revenue this quarter at better than expected margins.

I expect that kind of performance to continue in Q2, I don't want to provide margin guidelines, but I expect continued very solid margins in that business and for the foreseeable future.

Thank you for the comprehensive answer that that was really helpful and I guess that kinda dove tail. My follow up there is on the orders are kind of taking into services now and given that two year timeframe I mean.

I.

I guess.

Can you give us a sense of the projects, who you are kind of taking into backlog now I guess.

The implication is the margins is kind of at that same strong level or maybe better than the projects are working on today.

Yeah. We there is no nothing to mention on margins business continues to operate at the same.

Pricing.

The levels, the our business, it's called Harman, though services segment.

As.

A premier laser in the United States I personally believe they're the best plays in the United States.

They are continuing to bid work at normal margins.

There's really nothing to comment on that.

Got it and then just last one for me is on the sheet, Joe mentioned your strengths and procurement in transforming businesses.

Can you maybe discuss here kind of first impressions of apogee.

Given your when we can't I guess and if theres any areas, where maybe you feel you can improve upon the transformation initiatives. Thank you.

Sure early days. So this question next quarter would have looked more meat into it but the great companies are made us to two things the first is.

Great and the second is good set of customers and whereas the new last two weeks is we got both of those ingredients in plenty and available.

To make this transformation happen in the coming years. So we I look at a significant value creation opportunity for everyone. Here in terms of optimization transformation and making sure that are great brands are known.

In the country and even outside the country.

Helpful. Thanks, very much.

Thank you ill.

Thank you. Our next question comes from Bill Dezellem Lynn Tieton capital You May proceed with your question.

Thank you I have two questions. The first one is relative to the.

To the services business are they expanding into new cities and that is part of plays is helping drive the backlog and then secondarily.

Relative to the L.S. so business.

We're hearing in an awful lot about consumers nesting and and doing all sorts of things in their home from buying new homes to buying furniture et cetera.

He is that creating any sort of another interesting dynamic for the outlet so businesses as people choose to hang pictures or other art.

Yeah, Bill Thanks first off for the questions out let me take them up services.

Hey, Dave had a some movement into new regions over the last few years very selectively but their growth is really not come from any new regions. We operate across the U.S.. We're not in every city. They have the footprint to get to most every city a few an example, we use.

Dark Cleveland Office operating unit about six years ago, when we saw upstate New York exploding.

Lot of investment going up there we took on a lot of work in upstate New York and executed it out of that office, we do that all the time, but their their growth in the last year that 200 million dollar increase is coming from our core geographic segments that existed again I attributed to excellent project execution.

In their performance on the construction site leads to repeat business from those same general contractors. So generally answer no due to its not due to expanding into new geography, that's still remains an opportunity for us frankly.

On the outlets. So great question I wish our products was or something like puzzles and toys and play molding that people can occupy themselves during.

The work from home.

Reality as a matter is our product is an in store purchase it's a bit of a touch and feel people are bringing in their art work.

There there are some diploma from the Naval Academy, they want to get it frame they want to look at the brains on that board they get wanting to get our glass.

It really is an in store purchase.

I think your question or your implication that the there is a lot of people spending time in their homes improving their home setting that will I believe be a nice tailwind for our product, but it requires the stores and the independent mom and pop framers to be.

Open for business that is happening.

Some of our largest retail our have gone from being completely shut down to being virtually 100% opened just in the last week or two the last of all the stores have a major retailer opened in New York, just last week or the week before so I believe the macro trend of improving.

Homes is going to bode well for our product and now that the stores are open I believe in my heart that will be positive tailwind for this business going forward, but unfortunately, it was not helping when a bit stores were closed if you understand one same bill I do so and it sounds like at to really know the true answer.

Her to that question, a it'll be better asked in a quarter. After you. After your customers have been opening and you're able to actually see what consumer behavior is in the store.

Absolutely and initiate went to one of our retail stores by our office. The other day to get something frame and he said, while we're talking to the counter person the eight aligned form behind them and to the point, where some people looked a little frustrated that they were in line and I love to hear that we certainly will.

Work with the stores them and make sure they're fully staffed but I think up I think the demand is out there for certain for this product.

And you're right. They bill will talk to you about it we're talking about it in September.

Thank you for the time.

Awesome. Thank you.

Operator are there any further questions.

I'm not showing any further questions at this time.

All right I want to thank everyone for joining our call and Oh. Thank you all to stay safety service solution at the problem, where your math.

They'll get something up custom frame and asked for anti reflective ultraviolet protection glass. When you do it have a great day. They say thank you.

Thank you ladies and gentlemen, this concludes todays conference call. Thank you for participation you may now disconnect.

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Thank you for standing by welcome to the Apogees fiscal 2021 first quarter earnings Conference call.

All participants are not listen only mode.

Presentation, there will be a question answer session asking question during the session.

One of your tone.

Today's conference maybe recorded.

Or any further systems. Please press star zero I.

I would now like.

Your speaker today.

Please go ahead Sir.

Thank you Josh good morning, and welcome to Apogee Enterprises fiscal 2021 first quarter earnings call.

Today, our George Bush Apogee, Chief Executive Officer.

She could <unk> Chief Financial Officer, we all where we are also joined by making her crop Apogees controller.

I'd like to remind everyone that their slides to accompany todays remarks, which are available in the investor Relations section of Apogees website.

During this call we will reference certain non-GAAP financial measures definitions of these non-GAAP measures at a reconciliation to the nearest GAAP measure is provided in the earnings release, we issued this morning, which is available on our website.

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 FCC filings.

With that I'll turn the call over to you Joe.

Alright, Thank you and good morning, everyone appreciate that Jeff Thanks, everyone for joining our call. This morning.

Wow, what I, we live in today I'm not aware anyone that had the foresight and imagination to predict.

All of a pandemic any impact on our country and in our case our industry. This year.

That said our team did a terrific job managing through the challenge is October 19 during our first quarter.

We delivered positive earnings.

Not everyone will be able to do that this quarter strong cash flow.

The quarter, where we always use cash and increase back why all of which demonstrates the underlying health of our business.

This morning, I will provide more detailed on the impact of cobot 19 during the quarter.

And our response to the situation.

And I'll discuss the current trends, we're seeing in the business and how we are positioned for the future.

I'll introduce mushy Goofed up my new CFO in business partner for additional details are the result of our financial condition.

After that I'll certainly take your questions.

Let me start with impacted over 19 on our business during the quarter.

First I'd like to say, how proud I am of the entire apogee team.

Everyone truly rose to the occasion.

And just a few short weeks, we made fundamental changes to the way we operate our business.

We established a full time Colby response team implement a number of policies to maintain a healthy working environment in our factories.

And on our job sites.

Putting health screening social distancing enhanced cleaning and the increased use of personal protection equipment.

For our employees, who normally work in the office, we transitioned nearly everyone to working from home in a matter of days.

We've had weekly and at times Daily Communications with Oh, 7000 employees through voice written comps and video.

And we accomplished all this without missing a beat continuing to ship product to meet customer needs.

Even with the preventative actions to cope with impact in the quarter worst substantial most notably in our large scale optical segment, we saw a near complete shutdown of our customer base to comply with state and local government stay at home orders.

This drove a 70% year over year decline in revenue.

In response to this dramatic decrease in demand in large deal optic going to comply with stay at home orders, we closed our LSL manufacturing operations and furloughed most of our workforce.

We were able to continue shipping some product thanks, do strategic inventory Bill, leaving no stone unturned.

Our three architectural segments continued to operate as essential businesses.

However, a number of projects work temporarily halted or delayed whether due to state and local government restrictions economic reasons or other disruptions.

The good news is that with few exceptions the projects in our backlog and pipeline are moving forward. So many are moving forward at a slower pace.

And projected due to delays in disruptions, which impacted our revenue.

We also saw Kobin 19 outbreaks in some of the communities work factories are located.

Which impacted our workforce, particularly at our primary architectural glass facility in southern Minnesota.

And our glass business. Many employees were placed on for cautionary quarantine or took voluntary leave.

Which impacted productivity in revenue.

In fact at peak, we had nearly 25% of our glass workforce in southern Minnesota odd quarantine.

Because of our aggressive response.

We now are nearly back to full employment at that facility.

Outside of these cobot related issues.

Business performed quite well operationally with very strong customer service and quality metrics.

But this also brought added costs, including paid leave and extensive personal protective equipment, both for our people and our production lines.

We have taken a number of proactive steps to manage our costing capacity, which delivered over $5 million the savings in the quarter and contributed to keeping the company profitable despite the significant volume decline.

Our procurement savings initiatives started to deliver meaningful savings.

And we implemented several steps to temporarily align compensation costs with the current market environment.

And our framing systems segment made steady progress towards optimizing operations improving execution in removing costs.

The impact of these actions will continue to ramp up as we move into the second quarter and the sheet will provide more details on the financial impact in his remarks.

We also ask Dart team to focus on working capital management with an emphasis on receivables in collections.

Which led to strong cash flow well above last year's first quarter.

I'd also like to highlight the continued strong performance of our architectural services segment.

Segment operating income improved despite slightly lower revenue driven by solid execution project selection and cost management.

Also we were awarded several new projects during the quarter, increasing this segment record backlog to $685 billion.

Over $200 million from this time last year.

So.

Given the challenges in the quarter.

We are overall pleased with how our team responded and the results. We achieved we were profitable we manage the balance sheet, adding cash.

Pay down some debt paid our dividend.

All while adding to our backlog in our long lead time business.

As we look ahead to the rest of fiscal year, there remains significant uncertainty around the impact of Copel 19.

And the overall economic situation and the impact to our end markets.

Accordingly at this time, we're not prepared offer guidance, we will strive to provide guidance in the coming quarters as the economic situation stabilizes it becomes more.

Our realistic, but I can say that we are cautiously optimistic in our path to improved results in coming quarters more on that moment.

In large scale optical our customers are beginning to return to reopen status in the trend line orders and sales has been positive over the last one.

Our El EFO manufacturing facility, while remain closed will reopen this quarter.

Our architectural segments, our strong backlog of over $1.1 billion gives us good visibility in the longer lead time portions of our business.

Additionally.

While we are still seeing some project delays in disruptions. We expect these will moderate in the coming quarter as the economy reopens.

Finally, we should see increased benefit from our cost reduction.

He moved through the second quarter and beyond.

We see the potential for each of our core segments to deliver improved results bolt on the top and bottom line in the second quarter compared to the first quarter.

Looking out longer term it seems likely that we will see some degree of downturn in our end markets.

As of year and for how long no one knows.

In the queue in a session I'm sure I'll get questions about this and I'm prepared to answer what we're seeing from industry analysis.

Well, we also see many reasons to be optimistic about apogees long term outlook. Unlike the last recession, the great recession of await no nine we entered this downturn with healthy end market fundamentals with strong demand for new construction in few signs of overbuilding.

Excellent tenant commitments to support new construction and very very low.

Office occupancy issues, we're also seeing some economic indicators, which gave us optimism.

Such as the improved may on employment report, particularly versus expectations and measures like retail sales in industrial production, which had started to rebound in bay off their low April numbers.

Also the various government stimulus measures provide some support for construction end markets.

Regardless of what lies ahead for our end markets apogee is a much stronger company and more resilient today than we entered last or a downturn over the past several years, we've pursued a purposeful strategy to diversify our business mix and the end markets we serve.

Today, we have a much broader exposure to a range of project types and sizes, including sectors like healthcare education, and government and multifamily housing as well as a growing renovation business.

These are historically less volatile.

Segments within the market.

We've also reduced our resilience.

Monumental high rise projects, the most cyclical and violent part of the market fluctuations.

And increased our exposure to small and midsize projects, including our recent expansion into small projects for architectural glass.

We have pursued a growth strategy, which included geographic expansion and new product innovation and today, we have a portfolio of market leading brands that are well positioned to take advantage of a market rebound.

And we have significantly improved the productivity of our operations investing in automation in our factories building culture of continuous improvement through our lean enterprise system.

A wide range of cost saving efforts are underway, including procurement space saving.

And if necessary, we have additional options available to manage costing capacity.

Strong cash flow and a healthy financial position have long been hallmarks of Apogees business and that is no different today as we have significant financial flexibility to manage our business with substantial liquidity.

Finally, I strongly believe that we have the right team to manage through this situation.

Over the past year, we've added key talent across our organization. This includes new members of our board of directors.

Several new management members of my executive leadership team, including a new General counsel, new head of human resources, a proven procurement leader in the seek to our new CFO. We've also added key talent in our segments in our business unit level.

With these talent additions I sensed tremendous energy and enthusiasm.

Across our company and I'm confident that apogee best days lie ahead.

With that I'd like to introduce machine you started apogee on June 15, so throng him into the freight within earnings call less than two weeks into his job.

He brings to mind this range of experienced apogee, having led and transform finance organization that several high performing companies.

Truly excited to add mushy as a part of the team and my business partner.

I'd also one more time like to thank Jim Porter for his countless contributions to apogee with that let me turn it over to machine to provide more details on the quarter and our financial positions and then I'll return and cornerback taking your calls and off some additional comments machinery.

Thanks, Joe and good morning, everyone.

Im very excited a giant apogee team and to participate in my first earnings call with the company.

I look forward to speaking with many of you in the coming quarters, and hopefully I'd be able to me that many of you as travel restrictions are lifted.

Looking at the results for the quarter, let me start with a consolidated reserves, which are on page five although earnings presentation.

Total revenue was $289 million down 19% from last year's fourth quarter, reflecting seven forward related disruptions across the businesses.

Operating margin was 2.2% between builds the impact of government related expenses.

Excluding these Scott adjusted operating margin was 2.7% compared to 6.5% in the last year's fourth quarter.

Reflecting the impact of lower volumes.

Actually offset by our efforts to manage cost and capacity.

Adjusted EBITDA was $20.4 million.

Bear to $34.1 million in the last year's first quarter, reflecting the lower revenue and lower margins.

Net interest and other expenses was $2.5 million roughly in line with $2.6 million in last year's fourth quarter.

Tax rate of 28.2% above last years level and above our long term estimated tax rate approximately 24.5% due to district discrete tax matters.

Finally, our diluted share count came down to 26.4 million from 26.8 million last year due to share repurchases over the past year.

Putting it all together, we had adjusted earnings of 15 cents per share.

Fair to 58 cents per share in the prior quarters.

Now turning to segment results on slide six.

Architectural framing systems revenue of $150 million was down 17% from Ryan.

We ended the quarter expecting lower revenue based on timing of projects. This was magnified by impact of corporate related project hard and delays.

Particularly in those regions with tighter restrictions on construction activities, such as New York, Pennsylvania, and California.

Framing systems operating income was $7.2 million with an operating margin of 4.9% compared to 6.8% in last year's fourth quarter, reflecting negative leverage on the low revenue, which was partially offset by cost reduction actions.

Framing systems backlog decreased slightly to $422 million.

$432 million.

The end of last fiscal year.

We continue to win New awards and most projects in a pipeline are moving forward, but overall order flow into segment was down about 15% compared to last years first quarter.

Architecture Das revenue was $77 million down 22% from last years fourth quarter.

As an framing systems, we entered order expecting lower year over year.

Revenue due to timing of projects in our pipeline and then so additional pressure from corporate related project delays and it's more number of project cancellations.

As Joe mentioned, the southern Minnesota, where primary glass fabrication facilities located became at heart Spark recorded 19, which impacted many members upper workforce and disrupted production, reducing revenue by approximately $4 million in the quarter.

We also saw increased cost associated with paper employees on quarter in time and personal protective equipment.

The segment had an operating loss of $500000 compared to income of 6.4 million in the first Brian.

Reflecting leverage on the lower volume and added over 19 related costs.

Also.

We saw lower than expected revenue and an operating loss associated with our new smart glass facility in Texas, where we remain confident and as ventures long term potential the market disruptions caused by Kuwait and current economic conditions will likely result in its lower than planned ramp up for this offer.

Ration in the current fiscal year.

Architectural services continue to deliver strong execution and saw the least impact of first segment from over 19.

Services revenue of $64 million was slightly below the prior levels, reflecting a handful of delays on project sites.

Despite the lower revenue operating income increased to $5.3 million with operating margin of 8.4% up from 7% in the last year's first quarter.

I think strong project execution project selection and good good cost management.

Services backlog increase again this quarter as a management booked several new project awards.

Segment backlog now stands at a record $685 million for the project work that extends into fiscal 2023.

Thanks.

As Joe mentioned large scale optical saw more dividends back from call. It as almost all of this segment's customers were close for most of the order to comply with the government stared room restrictions.

This drove a 70% year over year decline in revenue and an operating loss of $3.1 million.

In response to this situation.

Those are two manufacturing facilities and furloughed most of our workforce.

As you moved into June our customers have begun to reopen and we're seeing a gradual uptick in demand.

Through the first speaks as of June shipments are trending higher but still well below the historical levels. We expect sales will continue to gradually recover as the economy reopens.

Cost savings initiatives.

Even as there are even at three or four segments experienced significant volume declined due to colder 19, we took action to manager cost and capacity to keep the business profitable as we've discussed previously we ended the fiscal year with a number of cost saving initiatives already in place.

Our procurement savings program delivered $3 million of cost savings in the fourth quarter and we expect to see these savings ramp up through the year.

Also even with reduced volumes in a business, we remain committed to achieving their procurement savings goals.

We made further significant.

Efforts to integrate and optimize the framing systems segment, which we expect to deliver cost savings through the rest of the fiscal year.

During the first quarter, they announced several additional temporary cost saving measures primarily related to compensation.

These measures.

Only in FX put a portion of the first quarter contributed $2 million savings.

To summarize with all of these initiatives taken together, we will now deliver $40 million or more of total savings during fiscal year 2021, and then on annualized run rate savings north of $40 million in future years.

Turning onto cash flow and balance sheet turning to slide eight.

We had strong cash flow with $24 million of cash from operations in the quarter, which compares to a use of cash of 10 million in the last years first quarter.

Increase was driven by exceptionally strong working capital management and receivables collections across the business.

We discussed last quarter, we've put a temporary or all non essential capital spending capital expenditure for the first quarter was $8.6 million compared to $11.2 million in last year.

We expect capital spending decline further in the second quarter as the first quarter spending included investments to complete some projects that already underway.

Free cash flow was positive $15 million compared to a negative $21 million last year.

We use a portion of this free cash flow to pay down debt, reducing total debt to doron $11 million.

We have made significant progress in reducing our debt over the past year, but builder that down $82 million compared to the end of first quarter of putting 20.

Also during the quarter, we've made our dividend payment of $4.9 million and repurchased 4.7 million worth of stop early in the quarter.

Subsequently they put a temporary ordinary share repurchase plan, which we will continue to OLED as it progresses.

As previously previously announced we successfully extended.

Oh 150 million downloads during the quarter pushing the maturity out 12 months to April 2021.

Liquidity positions remains strong with significant unused capacity in our revolving facilities.

Together with a strong free cash flow, we believe we have more than enough liquidity to fund operations and meet all other obligations.

To wrap up our team successfully managed through a very challenging quarter as we look ahead.

By signs of improvement in our end market as the economy reopened and we expect increased benefit from a cost saving actions as we move into the second quarter.

And importantly financial position continues to improve and as strong cash flow provides significant financial flexibility as we manage your way through the forward situation.

With that I'd turn the call back over to job.

Thank you machine. So as we discussed this was a particularly challenging quarter for most all companies and I'm happy to have it behind us I want to get acknowledge the entire APG team for truly rising to the occasion during the quarter.

Everyone across our company has made real sacrifices over these past three months.

Through our teams collective efforts, we've adapted our operations to prioritize the health and safety of our workforce, while continuing to deliver industry, leading products and service to our customers that come to expect.

Even in the face of these challenges our team's effort kept the company profitable delivered strong cash flow, which speaks to all the strength of our business while remains uncertain. The economic environment that is it is difficult to know what the future will hold but I remain optimistic about apogee direction. Both for the rest of this fiscal year in the long term.

Together with our substantial backlog strong financial condition in our team I remain confident.

Holds for our future before I take your questions.

Let me address a few of the economic indicators, we look at.

First off let me start with architectural billing index.

It is one of the metrics, we look at on a monthly basis.

And as you know over the last nearly 10 years the.

Yes, hi, the billing index, which measures.

Month to month.

Increase or decrease in architectural billings.

It's a very high level metric, but it's one.

After 10 years of mostly yearly month to month increases we started calendar 2020 with a strong January a strong February both over 50 50 to 53. The App respectively. Then came March 33.

There was no surprise and of course April even worse 29 in half.

Indicating.

Dramatically lower billing not to be honest that not unexpected however, with most architect office is closed and people working from home may rebounded slightly to 32.

Inquiries increased to 38.

This is a small positive sign at least into Trent.

Earlier, this or in the month of June.

Gosh.

Dodge data and analytics issued their construction market forecast and I'd like to point out a few of they're forecasting comments first off for non residential building starts they are expected to decline between 15 and 20% in Twentytwenty and now I'm talking calendar year.

Square footage would pull back between 13, and 15% dollars 15 to 20.

After an alarming downturn in 2020, however, non residential construction starts are expected to quickly turned the corner to show improvement.

In square footage Nonresi starts are expected to grow 5% 2021, and 16% through the end of their forecast which is through 2024.

Drilling down.

So construction part of Nonresi will grow 6% in 2021 in 16% from 2020 through the end of their forecast period in 2024.

Another category key to us is institutional building and they expect institution or buildings to grow more modestly up 3% in 2021.

And up 15% over the three year period.

It is a forecast we all know our role that changing daily and we don't know what Ovid, we'll throw that in this.

Phase and perhaps future phases, but again the Dodge construction data is another indication.

Of the fact that our industry at solid fundamentals before this unprecedented change to our global and us economy.

With that I'd like to turn it over and operator, if you could please open the call up for questions. Thank you.

Thank you as a reminder, asking question you will need to press star one on your telephone to answer your question first upon Keith Please standby we've compiled junior roster.

Your first question comes from Chris Moore with CJS Securities.

And with your question.

Hey, good morning, guys.

Chris.

Good morning.

Obviously are recognized visibility still not very high at this point in time.

When you look at the balance of power.

Fiscal year 21.

Just trying to get a sense as to what some of the biggest wildcard sorry, I'm thinking that the LSL ramp and the.

On the framing side, how quickly that some of the quick turn short lead time.

Business recoveries would be kind of two of the biggest ones is is that fair and maybe just talk to us a little bit.

Sure you're right visibility is itself a wildcard the biggest wildcard across of course as the economy with.

Hi, good if we do not go into another shutdown likely the economy did in the month of March.

Do feel very confident that our future quarters that Q1 will be our worst order.

It again, all without something unusual happening I expect the all four segments to improve off of that sequentially in Q2, our large scale out that goal orders improved.

Every week in the month of June in fact last week, we are a little over 50% of a normal.

Weekend that bodes well of the team is planning on slow recovery over the course of the rest of the fiscal year and LS. So.

Seeing some indicators that make us feel good about that assumption.

We have as you've seen a strong backlog.

Many of our workers are now back on the job our glass business will be.

Improved in the second quarter with our Manning levels.

Our services segment.

As a geographic footprint across the United States, but.

Positive irony, there not solve their focus has never been in some of the cities that has seen the most substantial closures and downturn. So.

That has worked to our favor and we expect.

That one business to do extremely well this year, our renovation business, which I commented I will be up year over year, the sales flow through our framing systems in glass businesses, we are not in.

I will call business. So I think some people thought all with a lot of glass is being broken with the violence that was experienced in the country.

That that will inevitably lead to some glass sales, but we don't have a will fall business to repair buildings. The overall.

If you will simply be how strong the U.S. comes back.

I mentioned, the Dodge construction data indicate optimism and again it comes back to the fundamentals were solid positive wildcard will be what happens with office market, We believe Selby.

Shift in.

Offices from law of large towers to more satellite facilities, which bodes well for our.

Capabilities now in small medium and large projects.

Larger square footage required per office worker, we expect to bode well for the office segment as well and hopefully, we'll offset any work from home.

If that becomes more of the door.

Most business leaders are unanimous and watching their employees back for collaborative efforts in the office.

Put me at the top of that list. So while there may be more work from home in our future I think businesses will have their employees back in the offices in the demand for office space will increase.

So.

Yes thats.

The best visibility I can give you.

That's helpful. You covered a lot for sure.

Last one from me just.

With respect to that $40 million cost savings, maybe can you provide a little more detail on on that the cadence for the additional cost savings for the rest of.

Fiscal 21.

Yeah, Let me give some comments and into she can jump in first off.

We had announced last year.

$30 million to $40 million of cost savings for this year as a measure that would be the run rate as we exited the year.

We are low cost you're not providing a specific number for the flow through for the year. It was obviously you know in middle of that Ranger, and maybe 25 $30 million.

Because of all of it we took some substantial actions both on.

Furloughs as I mentioned, our large scale optical business was virtually close with the exception of less than doesn't people every employee was unfortunately furloughed.

We've taken some salary actions, we've taken amped up our efforts on procurement and machine will tell you now the flow through numbers are pretty substantial for fiscal 2001. Some of the actions. We took did not kick in until may or June.

So many of our actions will be at full force until the second quarter.

We'll tell you I certainly hope to restore the salaries up my troops to their prior level when the time allows it but most of the actions we've taken.

We'll continue going forward into future quarters in next year initiate if you'd like to provide some more specifics on the dollars. Please do so sure.

So earlier guidance has been more working towards a 40 million number by end of the year to provide annualized run rate 40 million savings in the future years with all the efforts of the team have done I would put or savings into three buckets. The first being procurement with a new procurement officer, we have.

Savings coming through already in quarter, one and they will be much higher in the rest of the year.

That is in the range of $10 million to $15 million. The second is the cost actions that is temporary cost actions taken in response to go with they are gaining the range of $10 million to $15 million and the last into bigger work, which.

The architectural framing team is doing that it really working hard to align the cost structure with the business and that's another now I would say $15 million overall, we are confident to deliver $40 million of India's savings this year and it will go north of $40 million in the future.

Now that a chief procurement officer into that in looking at all opportunities in the company.

Got it very helpful. Appreciate it guys.

Thanks, Chris.

Thank you. Your next question comes from parents time, Craig now you May proceed in your question.

Hi, Joe Welcome machine.

Thank you good morning were.

Good morning.

So I know the previous questions touched down a little bit but I'll.

Ill ask as well when you think about.

And obviously Cisco 21, a lot of operational issues project delays et cetera.

You like most every other company dealing with that but as you look out a little bit longer.

Do you view this as in services, obviously, great bookings quarter backlog in great shape.

But do you think of this is is that there's kind of a pocket a temporary pocket and backlog that may be means.

It may impact quarter, two in fiscal 2002.

But because the underlying fundamentals of the industry are pretty good.

It's somewhat temporary.

[music].

Just any thoughts on that and I realize it's pretty tough and.

You know not many people have that visibility, but I'd love your thoughts anyways.

Yeah, Eric Thanks, I will talk about that first off I, just want to be perfectly clear here.

Are we Didnt, we have you mentioned operational issues, we did not have any operational issues, we had volume issues.

We did not lose share we had become issues due to Coleman and project delays and unfortunately, the demanding issues, we had due to substantially high quarantines in one particular region that actual factory performance was outstanding in all of our business in particularly in glass where.

They're on timing complete was remarkable they did have to push you off customer schedules. They work with a number of customers to delay production into Q2, most customers work with them. Some didn't so we focused on getting through the quarter. They actually were able to pull in some of that but we had about $10 million.

Glass revenues slip out of the quarter, just due to production capacity in and push out from the customers due to project site issued plants operated extremely well across Africa ASCII there were absolutely no snack food.

But as you mentioned the services backlog is strong they've got.

Almost $700 million in backlog that is more than two years of revenue. It bodes well overall will there be a revenue whole next fiscal year due to the delays.

We don't know yet, but clearly if if things don't start coming back or.

If the return that we're seeing.

Reverses due to covert I mean in last several days were obviously hearing a little bit more about pockets in the United States that are seeing a substantial return.

If things get worse, we will have our revenue hole in some of the short lead time businesses not so much in our long lead time business. They have the backlog to support the growth and we're making the operational improvements to offset any relatively small revenue delay so poland.

Revenue pattern next year due to these delays to be determined right now I believe it to be modest it depends on the.

On.

And just on just on the cancellation is good to hear that they've been minimal.

And again this is Ah prefaced on the thoughts that there's not a return or in terms of covid coming back in and having to shut down et cetera.

But do you feel like if things start to gradually open up that you're kind of out of the woods on the cancellation front or the risk of cancellation of projects that you see.

Yeah and cancellation not let me address that we're cancellation, if you're when some things and backlog books back lawn.

And my nine years I've not seen I've seen one cancellation and our service segment and then the project came back into backlog about a year later so.

We we rarely see cancellations wants some things and backlog in our shorter lead time.

As far as glass it goes in N out a backlog rapidly because we don't entered into backlog until we have a purchase order to deliver.

We also haven't seen it.

Any cancellations there we actually had an increase in glass backlog of about $10 million in Q1, and you said well that I don't like that because that's $10 million. We wanted to ship five of that was due to a <unk> capacity constraints on the people issue. Another five was customers doing their fraud.

So the issue has been more delays and cancellations, we have seen some cancellations in glass.

Had a handful of cancellations out of out of the year, but they were not in our backlog, but they were in our wind column. So.

While the full year revenue won't be it at our original expectations. We felt most of that in the first quarter and will begin to feel sequential improvement in glass looking forward.

Okay, that's great I'll turn it over thanks.

Thank you Sir.

Thank you. Our next question comes from Judy Romero.

To go to.

Proceed root beer a Christian.

Okay. Good morning, everyone.

So I wanted to ask about the services segment.

Show you had outlined some of the drivers of that segments profit increase execution mixed cost can you maybe.

Kind of rank order those.

Just giving the expectation for for the topline next quarter.

Do you kind of expect that that margin eight 5% to kind of continue.

First off since they improve their margins on slightly lower revenue, they're obviously performing well, we break that business into two categories. It starts with projects selection and I've been talking for 10 years now that team has embarked on using big data.

And data analytics. This study every project aimed executed over the last couple of decades, they've used that information to determine what kind of projects. They will chase to have a higher degree of and improve their when right.

Money to bid on every project, even the ones you lose your money.

They've done an outstanding job on projects selection and that has led to consistent execution on both of fabrication and the installation and I would say.

The quarters performance was driven by projects the execution in both of our manufacturing plant or fabrication plant and at the installation at the site, but it was.

Louder.

The.

It was possible because of the projects selections. They made two years ago remember I'd like to say. Unfortunately. This is a two year business you have to look into your cycle. The work, they're working feverishly on now that they booked into backlog this quarter increase our backlog by another $26 million yeah.

Will be work that won't start in the field for 12 months and then we'll revenue over a year. So.

That heavy lifting that's gone two years ago is why they had project and our pipeline. They revenue this quarter at better than expected margins I expect that kind of performance to continue in Q too I don't want to provide margin guidelines, but I expect continued.

Very solid margins in that business.

For the foreseeable future.

Thank you for the comprehensive answer that that was really helpful and I guess that kind of sales my follow up there is.

The orders are kind of taking into the services now and given that two year timeframe.

I guess.

Can you give us a sense of the projects, who you are kind of taking a tobacco lock now I guess.

<unk> is the margins is kind of at.

That same strong level or maybe better in the projects are working on today.

Yes.

No nothing to mention on margins business continues to operate at the same.

Pricing.

Levels.

Our business, it's called Harmon services segment.

Is.

A premier laser in the United States I personally believe they're the best blazer in the United States.

They're continuing to bid work at normal margins.

There's really nothing to come in on that.

Got it and then just lost one for me is.

She Joe mentioned, your strengths and procurement and transforming businesses.

Can you maybe discuss your first impressions of apogee.

Keeping your when weekend I guess and if there's any areas, where maybe you feel you can improve upon the transformation initiatives. Thank you.

Sure early days. So this question next quarter would have a lot more meat into it but Greg countries are made of two things. The first is.

Great and if they can is good set of customers and whereas seen in the last two weeks as we got both of those ingredients in plenty in available.

Make this transformation happen in the coming years, so we I look at.

Different value creation opportunity for everyone here in terms of optimization transformation and making sure that great Brian are known.

In the country and even outside the country.

Helpful. Thanks, very much.

Well.

Thank you. Our next question comes from Bill <unk> T Capital E. Mail proceed with your question.

Thank you I have two questions. The first one is relative to the.

To the service is business alright, they expanding into new cities and that is part of what is is helping drive the backlog and then secondarily.

Relative to the <unk> business.

Hearing an awful lot about consumers nesting and and doing all sorts of things in their home from buying new homes to buying furniture et cetera.

Is that creating any sort of.

Interesting dynamic for the <unk> business as people choose to hang pictures or other art.

Yeah, a bill thanks first off for the questions out let me take them up services.

<unk>.

They have had.

Some movement into new regions over the last few years very selectively but their growth is really not come from any new regions, we operate across the U S.

Every city they have the footprint to get to most every city a few an example, we used our Cleveland office.

Operating unit about six years ago, when we saw upstate New York exploding.

A lot of investment going up there we took on a lot of work in upstate New York and executed it out of that office, we do that all the time, but they're they're growth and the last year that $200 million increase is coming from our core geographic segments that existed.

Again, I attributed to excellent project execution their performance onto construction site leads to repeat business from those same general contractor. So generally answer no due to it's not due to expanding and a new geography, that's still remains an opportunity for us frankly.

<unk> Great question I wish our product.

Was.

Something like puzzles and poison play molding that people could occupy themselves during the.

Work from home.

Reality of the matter is our product is in in store purchase it's a bit of a touch and feel people are bringing in their artwork.

Their their sons diploma from Naval Academy, they want to get it framed they want to look at the frame the Matt Board they are going to get our glass.

Really as in in store purchase.

I think your question or your implication that the there is a lot of people spending time in their homes improving their home that that will I believe the ninth tailwind for our product, but it requires the stores and independent mom and pop creamer.

To be open for business that is happening.

Some of our largest retail are at gone from being completely shut down to being virtually 100% opened just in the last week or two the last of all the stores are a major retail are open to New York, just last week or the week before so I believe the macro trend of <unk>.

<unk> homes is going to bode well for our products and now that the stores are open I believe in my heart that will be positive tailwind for this business going forward, but unfortunately, it was not helping when a bit stores were closed if you understand what I'm, saying bill.

And it sounds like to really know the true answer to that question it'll be better asked and a quarter. After you. After your customers have been open and you're able to actually see what consumer behavior is in the store.

Absolutely.

She went to one of our retail stores by our office the other day to get something frame and he said, while I was talking to the counter person alive for behind them.

And to the point, where some people looked a little frustrated that they run a line and I love to hear that and we certainly will work with historic and make sure. They are fully staffed but I think I think the demand is out there for certain for this product.

And you are right. They bill will talk to you about it will talk to you about it in September.

Thank you for the time.

Awesome. Thank you.

Operator are there any further questions.

I'm not showing any further questions at this time.

Alright, I want to thank everyone for joining our call in.

Thank you all the state safety, because a solution that the problem where your math.

Go get something.

Custom frame and ask for anti reflective ultraviolet protecting glass when you do it have a great day Stacey thank you.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may know disconnect.

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