Q3 2021 Apogee Enterprises Inc Earnings Call
For standing by.
Welcome to apogee, It's got 2021 third quarter earnings conference call. At this time, all participants are listen only mode.
After the speaker presentation, there will be a question and answer session.
Ask a question during the session you Wouldnt need the press star one on your telephone if you acquire anybody assistance. Please press star Zero I would now like to hand the conference Yes, we get today, Jeff had said please go ahead Sir.
Thank you, Jeff Good morning, and welcome to Apogee Enterprises fiscal 2021 third quarter earnings call.
With me today are Joe pushes apogee of Chief Executive Officer, and the sheet group Chief Financial Officer, I'd like to remind everyone that there are slides to accompany today's 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 and a reconciliation to the nearest GAAP measures.
Provided in the earnings release, we issued this morning, which is also available on our website.
I'd like to remind everyone that our call will contain forward for forward looking statements, reflecting managements 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.
With that I'll turn the call over to Jeff.
All right. Thank you, Jeff and a big Thank you to everyone for joining us this morning.
I'm very proud of our team and pleased to present, our strong results this quarter.
We delivered earnings growth and very strong cash flow. Despite the current operating environment in the non residential construction market.
Our results demonstrate the underlying strength and resilience of our company.
<unk> team and the counter measures, we have taken to reduce costs.
This morning, I will review a few highlights from the quarter and discuss the trends, we're seeing in the business and how we're positioned for the future.
I'll, then turn it over to mushy for additional details on the results our financial condition and our outlook.
After that I'll take your questions.
Let me start with the highlights from the quarter.
Overall this quarter was nicely similar to the second quarter with earnings per share growth and strong cash flow was spike reduced sales volumes.
Colby and end market conditions are still having a significant impact on our business.
We continue to see some project delays.
And note that the architectural billing index. This week reflected us for a 46. So we didn't in the mid to upper Fortys for a few months now.
Which is a modest decline in month to month.
The overall pace of activity in architectural end markets has continued to slow down.
And Colby that continue to impact our workforce and added stress for organization and management team that said, we have truly learned how to operate extremely efficiently in a cold environment I want to commend the entire apogee team for staying focused and doing a terrific job of managing through this situation.
In addition, while delivering for our customers.
These decisive actions we took in response to Cove. It earlier in the year and stabilize our business and contributing to strong operating results. These last two quarters Howard.
Our top focus remains the health and safety of our workforce and taking care of our customers.
Our team has done an excellent job of adapting in this current environment as I said the protocols. We put in place are working maintaining a safe work environment for our people, while allowing us to provide a high quality products and services our customers expect from apogee we have.
Also focused on execution and closely managing our cost structure.
These efforts have showed up in our results with higher operating margin and strong working capital management and delivery metrics such as on time and complete in quality, which have never been better.
A year ago, we announced our procurement savings initiative and efforts to drive synergies in our framing systems segment.
We've made excellent progress on both initiatives.
This quarter, we added another leg to our cost savings effort launching a companywide initiative to reduce our fixed cost base. We have initially targeted 10 to 20 million of savings from this effort and see significant long term opportunities beyond that and you'll hear more on this when the.
He gets on stage.
The performance of architectural services was once again, a highlight in the quarter.
The segment had double digit growth on both top.
Bottom line.
Operating margins improved to an impressive 11.2% driven by strong project execution and the fruits of our disciplined project selection process.
Over the past two years services has had great success in winning new business and building a record backlog to sustain us through downturns.
Over the prior five years fiscal 15 through 19.
Carmen Art services company average $260 million in annual awards over that five year period in fiscal 20 last year, we sold two times that with awards over $500 million.
That's what I mean by sustaining us for the coming future.
Orders in this segment are always lumpy.
And slowed this quarter, reflecting conditions in our end markets. However, I remain confident in the service segment long term trajectory our current backlog can sustain the business in the near term.
We maintain a pipeline of opportunities to win additional projects.
And our services segment is a leader in the industry well positioned to excel when construction markets turn for the better.
Another highlight in the quarter was large scale optical which continued its strong rebound from the cobot related shutdown earlier this year.
Our LSW old segment delivered year over year revenue growth and return to its typically strong operating margin above 25%.
Impressively the LSW So segment revenue increased sequentially by 50 per cent compared to the second quarter.
This strong rebound is a testament to our team and the reputation of and demand for our brand and products in the marketplace.
Architectural framing systems and architectural glass again saw more impact from the current situation for the end markets. Both segments had project delays and schedule changes, which impacted revenue. They did a great job managing costs in execution this quarter, which felt.
Offset the reduced volume and importantly, both segments made progress on key strategic initiatives that will position them for future growth and improved profitability.
Finally, we continue to take action to strengthen our financial position increased liquidity and provide dry powder to drive long term value.
Year to date cash flow from operations is more than double last year's level.
We have generated over $100 million of free cash flow. This year to date, which is a record for apogee.
In addition, we completed the sale leaseback of one of our properties, which brought in an additional $24 million of cash flow.
We also extended the maturity of our long term loan and now have no significant near term debt maturities.
With this financial strength, we resumed share repurchases during the quarter, which machine will touch on as well.
Going forward, we also look to increase investment in high return capital projects to position the company for accelerated growth.
As for architectural end markets recover.
Machine will provide more details on our outlook for the fourth quarter looking longer term I remain confident apogee is now positioned for the future.
Yes, we will continue to face uncertainty in the coming quarters non resi construction markets are clearly in a law for.
Forward indicators like employment growth architectural billing index in construction starts have rebounded, but remains below pre pandemic levels I am encouraged though by recent developments with vaccines and drugs to treat this virus.
And I am optimistic that these vaccines will help return to normalcy at some point in the coming year and that our end markets can recover from their previous strong levels.
Let me remind everyone that pre Colgate our end markets were very healthy there was strong demand for new construction with few signs of overbuilding, great tenant occupancy and readily available financing. We entered this crisis with strong market fundamentals, which.
I believe bodes well for a post cobot future.
Regardless of what lies ahead for our economy and our industry apogee is in a much stronger position and as a much stronger company today than it was during the last recession.
We are proving the resilience of our company during the pandemic, while laying the foundation for future growth.
We maintain our strong brands with leading market positions.
Improving execution across our company, we are moving aggressively aggressively optimize our cost structure and improve that productivity, we're challenging our operations to drive innovation and see promising growth in all of our segments and we are maintaining a very strong financial position that has always been a hallmark.
For this company.
Im very confident that apogee as the strength to navigate through the uncertain environment and we are taking the right steps to position the company for long term success.
With that I will now turn it over to the sheet to provide more details on the quarter and our outlook.
And I will before we take questions I'll return with a few additional comments.
On the sheet.
Thanks for the Con.
Thanks, Joe and good morning, everyone let.
Let me start for the consolidated reserves, which are on page five of our earnings presentation.
Total revenue was 340 million down 7% from last year's third quarter, primarily reflecting continued project delays and market related volume decline in architectural framing systems and architectural glass.
This was partially offset by year over year gross.
The other two segments.
Operating margin was 15.9%. This included a 19 million gain on the sale and leaseback transaction, we completed during the quarter and a $1.4 million of forward related costs.
Excluding these two items adjusted operating margin was 10.1% a nice improvement for the 6.4% in the last year's third quarter, despite the lower volume.
The improved margin was primarily driven by cost saving efforts improved execution and the benefit from a tax credit related to price investments in our architectural glass segment.
Adjusted EBITDA improved to 44.5 million compared to 33.37 million in last year's third quarter gross.
Operating the improved margin, which offset the impact from low revenue.
Net interest expense was 1.5 million down from 2 million last year due to both lower net tencent and lower borrowing costs.
The tax rate of 42.5% was roughly in line with last is 23.2% and we reduced our diluted share count to 26.2 million flow.
I think share repurchases during the quarter.
Moving it all together adjusted earnings grew to 90 cents per share up from 57 cents per share in the prior year quarter.
Now turning to segment results on page six.
Architectural framing systems revenue, a 137 million was down 17% from prior year, driven by combination of project delays and lower order volumes.
Despite this revenue decline framing systems operating income improved $7.2 million with an operating margin of 5.3% compared to 3.8% in the last year third quarter.
Framing system backlog increased slightly to 4.8 million from 4.4 million last quarter.
Architectural Das revenue was 85 million compared to 89 million in the last year third quarter.
Like framing systems revenue was impacted by project delays and lower order volume.
Architectural glass had operating income of 10.8 million, which included 7.4 million.
From new market got states as a reminder.
Could you has participated in this segment thanks for that program to support for expansion and capital investments.
This is an excellent program that incentivizes private investments in local economies.
Private investors for wake funding for these projects as loans in exchange for tax credits, then and then seven year transaction period. The loans are for a given and the proceeds that recognizes earnings.
As outlined in our previous SEC filings, we have entered into three similar transactions and expect to recognize income from those transaction in future years.
We will look forward to further opportunities.
To invest in seven of programs.
Support for local economies.
Architectural services outlined its strong performance with revenue growing 11% to 77 million as a segment executed projects from a substantial backlog.
Services operating income grew 31% to $8.6 million and margins improved to 11.2% compared to 9.5% last year, primarily driven by strong project execution.
Services backlog decreased to 597 million compared to 65 million last year and roughly in line with 607 million backlog level a year ago.
Page seven for earnings presentation shows our backlog trend for the past several years.
Well backlog degrees this quarter. It is still at historically high levels, which provides good visibility over the next two years and business services segment continues to pursue a pipeline of new project opportunities.
Moving onto large scale optical we continued this.
The strong performance sequentially recovery with revenue, increasing by 50 per cent compared to the second quarter.
On a year over year basis revenue grew 4%.
And then so sales have rebounded faster than we expected as its retail customers have reopened the strong third quarter revenue reflects a lot of hard work from our NSR UTI and the demand for products in the marketplace.
Third quarter revenue also benefited from sales incentive program that we ran during the quarter and favorable timing of customer orders.
And then so turn to a more normal level of profitability in this quarter with adjusted operating income of 6.8 million in line with last years third quarter.
Adjusted operating margin was 26.8%.
Now I would like to provide an update on our cost saving initiatives, which are outlined on page eight of our presentation.
We are on track to achieve the targets be outlined last quarter with more than 40 million savings in the current fiscal year. We've made progress in our procurement savings initiative and framing systems integration efforts, which together will contribute more than 20 minutes from cost savings this year.
All of which are sustainable.
We expect these initiatives and provide approximately 40 million of annual run rate savings when fully implemented.
The temporary cost actions, we announced in response to covert have contributed more than $20 million savings year to date.
During the third quarter, we began to reward for most of these temporary cost actions and we will see little benefit from these savings in the fourth quarter. These savings will not be in a run rate for the next fiscal year.
During the quarter as Joe mentioned, we launched and these net effort to reduce our fixed cost base with an initial target of $10 million to $20 million of annual savings by the end of White Twentyxthree Dude.
During the third quarter, the absorbed roughly 600000 for restructuring costs related to this initiative and expect additional restructuring costs in the fourth quarter.
As we move forward do evaluate opportunities to accelerate our cost transformation by making additional investments in our back office functions.
The overall goal of these initiatives is to give apogee of more flexible and efficient cost structure longer term, we see several opportunities to continue to drive productivity and optimize our costs.
Turning to slide nine.
Cash flow and balance sheet remains strong year to date, we have generated $141 million for the cash flow from operations more than double the $54 million at this point last year, primarily driven by strong working capital management.
We had less than 3 million of capital expenditures in the third quarter, bringing our year to date $217 million as compared to $41 million at at this point last year.
Earlier in the year with significant uncertainty from call. It we decided to scale back our capital spending plans.
With strong cash flow and balance sheet improvements, we achieved in the past two quarters, we tend to ramp up capital spending going forward to support high return investment opportunities.
As Joe mentioned we.
We do do other important actions during the quarter to strengthen our financial position the sale and leaseback transaction, we generated $24 million of cash and the long term extension.
And then the third quarter, our daughter.
Good day to day stood at $168 million and we have ordered $55 million of cash balance sheet for net debt of 130 million, which is less than one time or trailing 12 month adjusted EBITDA.
It is notable that our primary doing 35 million revolving credit facility is completely undrawn, which together with our cash balance puts the company in a very strong liquidity position.
For the strength of our financial position, we decided to resume share buybacks during the quarter and repurchase 641000 shares for $16 million.
Before I wrap up I would like to provide a few comments on our outlook.
As you've seen in our press release, we decided not to provide financial GAAP guidance again this quarter given the continued uncertainty in architectural end markets with that said, let me provide some detail on the trends we are seeing as we move forward into the fourth quarter.
We expect continued project delays and soft conditions in architectural markets, which will negatively impact revenue in framing systems and architectural glass.
In both segments. Some projects have moved out of the fourth quarter into next year also.
So without the benefit of new market tax rate in the fourth quarter operating income in the architectural glass will likely be much lower than the third quarter.
On the cost from will continue to closely monitor cost and project execution, but keep in mind that the temporary cost actions. We took in response to quoted for most new to reverse in the third quarter and will have limited impact in the fourth quarter.
To wrap up we delivered another strong quarter, despite the headwinds that continue to impact our business.
I am, particularly pleased with the continued progress in driving sustainable operating improvements and cost savings across the business.
In addition, our strong cash flow low debt and significant liquidity gives us tremendous flexibility to drive long term shareholder value.
With that.
I turn the call back over to Joe.
All right. Thank you initiate well.
Well this will be my last earnings call with apogee.
I look forward to welcoming Apogees next CEO as soon as that person is announced.
But I want to thank all of you on the call is apogee shareholders in all my team for support over these years.
I'm quite proud of what the apogee team has accomplished over the last decade and I.
I'm confident this company has a bright future ahead of it my confidence is bolstered by the team I will leave behind from the board room for the shop floor. We have added talent at all levels of the company I want to close by thanking every member of the apogee team past and present for you have done to support.
Me and more importantly, the company. Thank you.
Joel if you could open up the call for questions. Please.
Thank you as a reminder to ask a question you'll need to press star one on your tele from Swift.
Your question comes from from key teeth.
Please standby when we compare the current day roster.
Our first question comes from Chris Moore with CJS Securities. Your line is now open.
Hey, good morning, guys.
Hey, Chris.
Yeah Mig good.
Good morning, so it looks like on the framing backlog was up a little bit sequentially down a little bit year over year.
Can you maybe talk about the screening orders for for Q3, a little bit.
The you're correct it was.
On an average quarter day.
It is a cash.
A mix of shorter and longer lead time businesses, it's where we're seeing the biggest impact from the soft market conditions.
The order volume is down about 20%, it's been improving but it's down 20% year to date. It. It does have a solid backlog ended the longer lead time parts of day framing systems.
But we certainly need to book some additional project wins.
For the remainder of the year is it's pretty healthy considering the current environment in my opinion.
Please with a slight increase sequentially.
Got it thanks.
In terms of you I'm, just trying to get a better feel in terms of.
Geographic strength and weakness, it's as much disparity recognizing that the ABS is only one indicator was down in November.
Different pieces within that the Midwest was actually improve curse is very weak.
Northeast.
Can you talk about Q3 results in terms of how they line up with that.
Hi, geographic breakdown, where they consistent there.
Yeah. The VI as to is broken down two ways. One is regionally in one is sector or segment Bob at first let me for handled by say most people don't know what the I actually the calculation. It's a survey of architects and basically it's a question of or your billings increased or decreased from last month. So it's.
Binary answer, yes or no.
If the same number of people answer my bills are higher that say my goals are lower the index. We 50, it does not account for.
10 say, they're up 10% in and sales are down 1%. It will still be 50, so it's indicative and you watch it overtime.
I would state that Chris in the last downturn lemon years ago. The I was in.
The low thirtys for sustained period of time, so I'm not too nervous I see it coming back.
It's been hovering in the mid to upper Fortys and hopefully.
Hopefully you know I think the end markets were sound. When we entered this it will come back I believe most Ceos like me believe at work from work not work from all you are right in the regional breakdown. The mid West was the strongest it was slightly over 50 the.
The northeast weakest under 40, and we are certainly dependent on the Midwest, It's a big part of our geographic footprint.
Net sector breakdown was the strongest was multi family residential you know that the acquisition of the recent acquisitions we've done.
Jeff go is strong in that segment traditionally we had not been in.
Institutional is the weakest segment and most of that is government.
No.
Public institutional I think private institutional health care will continue to rebound and we have a good presence there, but we certainly need office to rebound.
And I do believe it will recover as people start to come back project inquiries were over 50 again.
That's a healthy sign we just need more trigger pulling we are definitely seeing folks for animal in the barrel. We just need to have some triggers Paul I hope that helps Chris.
Very very helpful. Almost done obviously, no nobody has a crystal ball, but.
Looking at.
What the Bull case would be for the second half for our fiscal 22.
On the framing side.
Steve just a quick time framing that would likely be that they see.
Yes, the earliest beneficiary or perhaps you're looking for I guess yeah.
Yes, the shorter lead time businesses and in our framing systems. It's got a very healthy mix of small and mid sized projects that does have some dependency on the large buildings.
Less than the other sectors I, just mentioned glass as moving nicely down into mid markets and of course, the launch of our velocity brand has given us a footprint in the small projects, but smaller shorter lead times to three week lead time businesses that velocity and in free.
Being systems will recover first.
And then the larger projects will follow I think for second half for the year next year, it's likely to see.
End market activity improve which will bode well for our fiscal 23.
Got it thanks, much I'll jump back in line.
Thanks, Chris.
Thank you for our next question comes from Brent Thielman with D.A. Davidson. Your line is now open.
Hey, great. Thanks, Good morning, Hey.
Hey, Brian.
Hey, Joe on the downlink glass facility.
For you from being at a level for current operating performance do you expect from the new asset.
No for like you can get there even in this.
Sort of environment.
Yeah, we're not quite at a breakeven yet I expect this business to be up.
Accretive to operating results in fiscal 22, our revenues and orders grew again in Q3.
Business continue it we're still operating a slight loss, but a slightly lower revenues I'd say a healthy indication is the business. It has had to deal with more ramp up issues than expected, they're getting through that I'm happy that the demand for that small price is healthy the customer.
Retention rate is amazingly high because of the amazing quiet <unk> highly automated factory I'm very confident in the long term for committed today expansion in this part of our of the market and our long term growth and diversification strategy, but I expect it to be accretive next year.
Yes.
Okay and then.
Thanks for the details on for you I guess any color on LSW. So I mean every day recovery here, we think that business kind of going back to its normal cadence in the fourth quarter kind of that you know that post holiday low downturn for some pent up demand here.
Yeah, So, let's say, it's definitely coming back to normal and in these times as you can imagine where people are still not done at home. They want to do things and they are going out there to these stores and and buying things for DIY stuff and as they go there. They also look at custom framing opportunities. So definitely it's coming back to normalcy it'd be exposed.
That by end of Q for the business will be back up and running anomaly barring any new coal, which surprises there are some obviously risks that come with current uncertain retail markets being shut down, but if that doesn't happen, we should be back up and running as a normal business similar to fytwenty in Europe by 22.
Okay, I apologize that net.
The new markets tax credit transaction, it sounds like you're moving from additional benefit from in any sense on the cash.
I mean is that going forward.
Yes. It is.
Filings in due time, we have a benefit coming from new market. Thanks for added three more coming up in EPS by 24, and it's like when you think they are about a $12 million additional benefit.
Benefit net income in those years and it is a five projects did out in various SEC filings.
Okay, and Joe I, just I guess for when it come back to the framing business I mean that the trend in backlog just did for so much from what you're seeing on the top line I'm just curious.
No the backlog contains sort of more of that cost them.
Roger project stuff, what do you what do you think is.
Then the difference maker in terms of in sectors that.
You know this is causing that different from topline vs.
Backlog trend in framing.
You mean that increase backlog trend.
Correct.
Listen, it's a mix of small projects, which really don't impact backlog, our storefront and entrance businesses.
That I don't have that ran into two white normal core is very quick turn little hard very very hard to forecast frankly, a lot of.
Delays and then Russ Russ rush on those orders, but ordering delivery within a two to four week cycle. So its a book to bill fast turn with a medium and larger price, which have much longer lead time, we do have some curtain wall business and our wausau sotawall entities and to a small degree at ASCO and we.
Are those are the businesses that are seeing some some slowness in the projects in the field, but we haven't seen any projects Brent cancel we're just seeing delays I mean all the.
Even though the construction sites for open you read the news there are a lot of people on quarantine from Covance. So progress at construction sites is going slow that slows down orders it slows down the startup of the next project, but theres still pent up demand out there and I think post vaccine we'll see.
Net turns but.
The business does have a large backlog its a healthy backlog that.
They can use to sustain themselves, but we still need to see we still need to see some improvement in the covance situation before we'll see topline revenue return.
Okay. Okay. Thank you and all the best Jeff.
Thanks Brent.
Thank you for our next question comes from Delta's, along with Tieton capital. Your line is now open.
Thank you I have a couple of questions first of all the glass revenues were only down 5%, whereas the framing revenues were down 717%.
Would you please.
Help us understand why those two segments had had such a wide dispersion of results.
Well I'll give you at higher altitude, maybe she might want to jump in but were seeing growth in our velocity small projects business that revenue growth is helping offset a higher.
Contraction in the core branded business, that's been our stalwart and we also have had a pretty good strength in a very small piece of that segment, but it's our Brazilian or South American operation has seen growth.
Thankfully.
Our Brazilian business has returned to growth and it's had great operating results when I arrived 10 years ago.
Viacom is losing money or glass sales, losing money the Brazilian business was double digit operating margins it.
It is subsequently gone into an economic downturn that made the previous crisis in U.S. pace.
Payable by comparison, so that economy is returning.
Financing is strong so those two smaller businesses have helped offset what would have been probably low low double digit low teens.
And traction in markets and its just also up it's it's a more of a lumpy business as well and so we're pleased with the results considering.
Yeah, I have nothing for that wed.
All right. Thank you may I can dive further into Brazil, just given how weak yet.
And this has been frankly, it's it's fallen off the radar.
Is that a business that we should be thinking about.
No more nor front and center.
No.
We're pleased with the business, it's got run by the team we'd like to grow the business. It's a very small and in consequential piece of the whole segment. So the answer is no.
Okay, great. Thanks, Joe and then one additional question please.
Did you see your customers' behavior improve at all.
And.
Well before the recent surge in a in net case count again.
Our I'm not quite with you Bill can.
Can you.
Foundry interest me our customers' behavior.
Yes in terms of decision, making where they were making decisions starting to have a more favourable mindset may be inquiries going up.
And then I guess the converse is that question is as the case count rose here in the last.
While did you see them become more conservative with their mindset.
I would say in general the answer is affirmative, yes, I think it Mary mirrors, what we're seeing in the United States.
Like our company I'll tell you what the amount of people, we quarantine due to contact tracing in the third quarter, what a triple loss in March we have learned how to operate that way, we haven't called out productivity problems.
Which so we've learned that that's true for the I think a good part of the U.S. economy people have learned how to get people on quarantine bring them back we've all learned how to be efficient in this new model and and frankly as I said, our on time and complete and our first pass.
Quality yields have never been better at this time I would say, yes, the end markets.
We starting to feel better in the summer day, the turn for the worse with Cove. It had everyone pause, but I'll repeat bill we have not seen any projects canceled the only the only project I can recall dominated cancelled was a.
The headquarters for one of the large cruise.
Cruise lines rolling in the crisis cancelled an order we had I think had come out of our glass backlog and no surprise that accrues line I would do that other than that I can't name of one in the hundreds and thousands of orders we had backlog.
Great. Thank you and happy retirement and Merry Christmas.
Thank you very much and thank you bill.
Thank you for our next question comes from Eric Stine with Craig Hallum. Your line is now open.
Hi, Jonathan.
Hello.
So couple of quarters, then you know just curious.
How you're thinking.
The.
Well, whether there's a structural change in the market.
You know the large office versus the de centralized office and and I know that certainly velocity plays into that.
But what what are some of your kind of high level thoughts now that we're a couple couple of quarters removed when when everything.
I believe that Eric Joe here, I believe that trend will happen, it's still pretty early.
But I do believe our.
Remote offices do have a strong future, but it's not just velocity, we're not talking about storefront operations here, we may be talking about buildings that are five to eight to 10 stories, we've always been able to play in that market and in the past decade, Biocon has become very proficient at servicing that shorter.
Lead time business not as short as the.
The velocity lead time, I believe that is going to be tailwinds for us in our industry I do not believe we're seeing the demise of floor large buildings.
Buildings as well we have one trend that will continue to drive large buildings is a multifamily housing we.
We don't see that trend turning around per day, we see that maintaining its growth trajectory and with some of the acquisitions. We made we play in that market not only in glass, but in the framing systems segment. So I think and again I still believe.
When the economy improves we will see a return to the office and I would expect a very rapid increase and I think apogee needs to be prepared to handle the next flight better.
Better than we have in glass flying and that's what my.
Replacement will be challenged to do.
Got it well and I know that.
This question and maybe this will be a question for whoever.
Maybe in that see going forward, but in terms of the service business. You. Obviously, some headwinds are more headwinds in framing glass services has been fans.
Fantastic.
Given where you brought that to and the execution is that something for potentially you think about.
Expanding that and maybe.
So you can grow that substantially.
It would impact margins.
Or maybe you you grow that a little bit more.
Maybe mark.
Margins hurt a little bit, but as a way to offset glass and framing here just given the uncertainty going forward a little bit.
It's a balance for the answers down yes, the leader for that segment.
Is a phenomenal leader he's got an amazing team, we are leveraging our disciplined project selection process and field execution and want to take that.
To add to increase our revenue profile, we want to be careful.
We are in a site a business that is very cyclical and it is a heavy investment on engineers and program managers.
That take time to train and develop.
You got to be careful you don't over run the growth per and then you do add from very compressed margin. They have managed to thread that needle, but in the last couple of years, the new leader of that segment and I have agreed to increase our.
Let's call it our vision for how big that business can be not drunken disorderly, we're not suggesting were going to double down, but we believe we can increase that business and maintain our margin profile.
I think as evidenced as I mentioned, they booked over $500 million in orders in fiscal 20 of winning share executing flawlessly and that kind of track record can help them.
Not look lumpy during the ups and downs of lumpy order cycle. So I would say, it's a balance to answer, but we will look at growing that business.
Okay, Good and maybe last one for me just on the cost reductions and I know youve kind of laid out.
Which ones are permit which ones are temporary but when I look at the EPS DNA for instance in this quarter I mean, it was it was a fantastic number.
Curious.
Some of the some of the the GAAP.
And the one time gains in the quarter I mean did that impact the EPS community number and.
What is a more reasonable number right.
That we should we should think about on the Opex line going forward.
Yes. So the first is of course, the two big Big ticket items in sitting in EPS CNN that are causing this quarter to look really nice that's not sustainable and we should not factored them for the next two years on one or two years force Newmont tax rate will come in as per day, CZ findings, but beyond that Mexico is not going to.
Happened summit group being about $24 million, Brent even in our non profits and new market tax free to seven vincelette back them out.
If you if you back them out and look at a number of trends are as Ginny.
A range of about it is I would say 250 $350 million per quarter is what we're looking at right. Now is it is enormous number we are working really hard to reduce that so as you mentioned to the dentist went 20 minute I initiative that we're working on right now that your take that $50 million to do a kind of for.
Anytime in another trend book quarter by the end of fiscal 23 so.
More upside than downside and 50 million is a continued trend 45 is a quite quickly three you're in kind of a run rate we're looking for.
Got it okay.
I guess, that's it for me best of luck Phil.
Thank you very much I appreciate that thank you.
Thank you for our next question comes from Julio Romero with Sidoti. Your line is now open.
Hey, good morning, everyone. Good.
Morning Julio.
Hey machine I think you touched on this but on the glass business do you expect revenue pushed out of Q for due to project delays. So does your does your op margins in the glass business look closer to.
Maybe at 4% margin you would have seen this quarter ex tax credit.
Yes, the number sounds about right a force the if you look at it by 22, the velocity business is starting to come into a breakeven position and then it would be accretive for us and by end of that by going into so that should help us in improving this 4% margin.
But but in the current state.
You're right.
Okay, and I guess.
You are creating more flexibility across the business, both operationally and financially, but yes, I mean can you talk about.
And you also talked about accelerating kind of reinvestment into the business. So can you just talk about the projects.
Without getting too specific I guess, maybe how do you weigh.
Capital projects in terms of flexibility versus rate of return.
Yeah. So I think the first thing is the dimension on investments is more about our fixed cost base. So we talked about.
Getting a top tier from to advise us on what kind of cost base, we have and what is the benchmark, suggesting and we've discovered we have an opportunity as a company to improve for fixed cost base.
We have a.
Taking that analysis and study and we are starting to execute on the quick hits actions.
In Q3 Q for this year that would benefit in the next two years, that's a $10 million to $20 million for you mentioned the investments needed to make that happen would be more around automation back office consolidation where possible for the consumer business is better and also optimizer cost looking at our interest struck.
Sure. It's a board on cloud servers, and so on and how we can do that but those kind of investments restructuring type of investments that are being looked at there.
To answer your other question about Capex up we have a pretty disciplined processes and capex were in.
We evaluate every project on a kind of a hurdle rate about 15% drove like that that capital projects should provide to us. So we've been looking at new investment ideas coming from each of for segment leaders and there are a lot of interesting things that we will be executing on as we move forward in the next one or two years.
Great appreciate the color thanks for taking the questions.
Thank you Andrew.
Thank you for I'm not showing any further questions. At this time I would now like to turn the call back over to Jeff pushes for closing remarks.
Hi, Thank you Jon I'll listen everybody, it's been a pleasure I want to thank you all for your.
Focus on our company as one of the top 20 shareholder.
Shareholders in apogee I can assure you I look forward to the next earnings call I'll be on the sidelines the sheet, Jeff and team and looking forward to a supporting you and I'm looking forward to future quarters I feel terrific about my investment.
Look forward to seeing you confirm that so thank you everybody have a wonderful holiday and whats all look forward to hopefully a much better at U.S. and 2021.
Lets you all thank you bye bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Yeah.
[music].