Apogee Enterprises (NASDAQ:APOG) Q2 2021 Earnings Call

0:01 Thank you for standing by. And welcome to the Apogee Enterprises second quarter 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference to your speaker today, and Jeff Hishman. Please go next, sir. Thank you, Joelle. Good morning and welcome to Apogee Enterprises Fiscal 2021 Second Quarter Earnings Call. With me today are Joe Pushis, Apogee's Chief Executive Officer, and Nishit Gupta, Chief Financial Officer.

0:47 I'd like to remind everyone that there are slides to accompany today's remarks, which are available in the Investor Relations section of Apogee's website. During this call, we will reference certain non-GAAP financial measures. Definitions of these non-GAAP measures and a reconciliation to the nearest GAAP measures is provided in 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-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 Apogee's business and financial results can be found in our SEC filings. And with that, I'll turn the call over to you, Joe.

1:33 Okay, thank you, Jeff, and good morning, everyone. Thanks for joining the call today. I'm very, very proud of our team for the results we delivered this quarter. On our last earnings call, I said we expected second quarter sales and operating income to increase in each and every one of our four segments relative to the first quarter, and that is exactly what we delivered. We achieved adjusted earnings of 73 cents a share in the second quarter, rebounding nicely from the 15 cents per share in the first quarter and well above prior year. The decisive actions we've taken In response to COVID, I've stabilized our business and driven strong earnings and cash flow despite a still challenging operating environment.

2:26 This morning, I will review highlights from the quarter and discuss the trends we are seeing in the business and how we are positioned for the future. I'll then turn it over in the sheet for additional details on the results, our financial condition, and our outlook. After that, I'll take your questions, of course. So let's talk about the second quarter. Start with the highlights. First, we saw continued headwinds from COVID and economic conditions, which caused year-over-year revenue declines in three of our four segments. But margins and earnings rebounded strongly compared to the first quarter as our team did an impressive job of managing and controlling.

3:12 Our cost savings are tracking ahead of expectations. The sheet will provide more details on this when he remarks. Additionally, we had very strong execution across all four of our segments with improved factory productivity, particularly in architectural glass. And we are seeing orders begin to ramp up at our velocity small projects glass business. Our large-scale optical segment came back stronger than expected, returning to profitability in the quarter. Recall that in the first quarter, the LSO segment was essentially shut down for the entire month of April and May, as nearly all our retail customers were closed due to COVID and government regulations, and our factories were closed until late July, two-thirds of the way into the second quarter. Going into this shutdown, we built inventory and maintained close contact with our customers. Thank you for joining us.

4:46 A particularly significant improvement from the first quarter when we were at only 30% of the comparable prior year. The strong recovery is a testament to the resilience of our team and the reputation of the brand and product in the marketplace. My hats off to our large theological team. Architectural services continues to achieve premier performance. Not only did we see solid sequential growth, The segment also delivered double-digit year-over-year growth on both the top and bottom lines. Over the past year, services have had great success winning new business and building a record backlog.

5:31 We had a step function change in backlog growing from around $500 million last year to approximately $700 million in the first quarter of this year. We are now executing projects in our backlogs. with visibility out more than two years. Our services business is arguably the leader in the industry, and even as current market conditions have softened, we still have a strong pipeline of opportunities to win additional projects in the coming quarters. In architectural framing systems and architectural glass, we saw impact from the current disruptions in our end markets. These two segments saw many project delays and schedule changes which impacted revenue. Both segments did a terrific job managing their costs and execution in a quarter, which helped offset the volume reduction.

6:26 Finally, our team did a particularly extraordinary job of managing working capital and cash flow. Year-to-date, cash from operations is up more than 375%. We've generated more cash in the first half of fiscal 21 than we did in all of last year, with year-to-date free cash flow at $71 million and operating cash flow at over $85 million. With continued economic uncertainty, we are taking a conservative approach to capital deployment, focused on paying down debt and building liquidity. Over the past 12 months, We have reduced our total debt by $105 million.

7:13 As we move through the rest of the fiscal year, we will seek to further strengthen our financial position to provide dry powder so that we can invest to accelerate growth going into an economic recovery. So overall, it was a very strong quarter and we're pleased with the results given the current economic environment in the United States. Regarding the market conditions and outlooks, even as we are successfully managing what we can control, the economic and end market conditions are clearly top of mind for all of us. Let me share a few perspectives on what we are seeing. First, in all cases, projects in our backlog and pipeline are moving forward, although we are seeing some projects progressing slower than expected, particularly due to several large cities like Boston, New York, and San Francisco, to name a few, which shut down temporarily all construction due to government regulations.

8:17 All of these cities are back up and running again. Forward indicators like employment growth, the Architectural Billing Index, and the Dodge Momentum Index have rebounded from the April lows but are still well below pre-pandemic levels. It is obvious the U.S. is in an economic downturn. It's just unclear at this point how long or how severe. We are preparing for this decline by maintaining our focus on cost, execution, and cash flow. Pre-COVID, the fundamentals in our end markets were very healthy, with strong demand for new constructions and no signs of overbuilding. So we are optimistic that we will see a brief downturn followed by the return to end market growth sometime next fiscal year or calendar year 2022.

9:09 Regardless of what lies ahead for our end markets, Apogee is a much stronger and more resilient company today than when we entered the last recession. Over the past several years, we've pursued a purposeful strategy to diversify our business mix We've reduced our concentration in high-rise buildings, moving to a more balanced customer often with broader exposure to segments of the market which are historically less volatile. This includes our recent expansion into small projects for architectural glass and our growing renovation business. Let me emphasize a very critical point here regarding our transition.

9:56 When I joined Apogee in fiscal 2012, our glass segment under the Viracon brand was over 50% of our total company revenues. Of that, 60% of their revenues went toward monumental office towers. We define that roughly as buildings greater than 20 stories. Today, Viracon, our glass segment, is approximately 22% of our revenues. and only 20% of that is in this monumental category. This is a very important transition that will bode well for our future of being less dependent on these towers. We have pursued a growth strategy which included geographic expansion and new product innovation and today we have a portfolio of market leading brands and innovative products that are well positioned to take advantage of a market rebound.

10:54 As we move forward, I'm challenging my team to continue to drive innovation and keep Apogee at the forefront of our industry and unlock new growth opportunities. We have significantly improved productivity in our operations. We've invested in factory automation and built a continued improvement culture through all of Apogee via our lean enterprise system, which has taken root in our company and is contributing to our recent factory improvement across all our segments. Over the past few quarters, we've driven sustainable cost reductions through our procurement program and other projects. We are developing a pipeline of further initiatives to drive more productivity gains in all aspects of our business from selling, general administration, overhead functions, supply chain, and manufacturing COGS.

11:47 Nishit will put some numbers for this discussion in a few moments. Finally, we've maintained a very healthy financial position with modest debt, strong cash flow, and improved financial flexibility. Putting it all together, I'm confident Apogee has the strength to navigate this uncertain economic environment, and we are taking the right steps to position the company to emerge stronger when the economy turns. With that, let me turn it over to Nasheed to provide more details on the quarter and our outlook. and I'll be back to take your questions after the sheet. Thank you.

12:24 Thanks, Joe, and good morning, everyone. Let me start with the consolidated reserves for the quarter, which are on page six of our earnings presentation. Total revenue was $319 million, down 11% from last year's second quarter, reflecting continued COVID and market-related volume declines. Operating margin was 7.3%, and adjusted operating margin came in at 8% above the 7.7% in last year's second quarter as our cost savings and improved productivity offset the impact of lower volumes. Adjusted results in the quarter excluded $1.3 million of COVID-related expenses and $1 million of costs related to a past acquisition and acquired projects.

13:12 Full details can be found in the non-cap reconciliation tables in our earnings release. Adjusted EBITDA was $38.3 million compared to $39.2 million in last year's second quarter, reflecting the improved margins which largely offset the impact of lower revenue. Net interest expense was $1.3 million, down significantly from $2.6 million last year due to both our lower debt balances and lower borrowing costs. The tax rate of 23.7% was roughly in line with last year's level of 24%, and our diluted share count was 26.5 million, lower than 26.7 million last year due to our share repurchases over the past year.

14:02 Putting it all together, we had adjusted earnings of 73 cents per share up from 72 cents per share in the prior year quarter. Notably, Adjusted earnings were more than four times the 15 cents we delivered in the first quarter, which demonstrates the success we have had in stabilizing our business in response to COVID and the economic situation and in driving the sustainable operating improvements across our businesses. Now turning to segment results on slide seven. Architectural Faring Systems revenue was 153 million was down 18% from prior year, driven by a combination of project delays and lower order volumes.

14:52 Framing Systems' operating income was $11.7 million, with an operating margin of 7.6% compared to 8.3% in last year's second quarter, reflecting lower revenue, which was partially offset by our cost reduction actions and improved execution in our factories. Framing Systems' backlog decreased slightly to $404 million from $423 million last year. We continue to win new awards and have a pipeline of opportunities ahead of us, but year-to-date order flow in this segment is running about 20% below last year's level. Architectural Glass' revenue was $87 million, down 13% from last year's second quarter, like Framing Systems'.

15:43 Revenue was impacted by COVID-related project delays and lower order volume. The segment had operating income of $5 million and operating margin of 5.7% compared to income of $6.4 million and margin of 6.5% in prior years, reflecting lower volume, which was offset by strong performance in our factories and good cost management. Architectural Glass Profitability rebounded nicely sequentially, returning to profitability after recording an operating loss in the first quarter. Architectural Services turned in another strong quarter, with revenue growing 20% to $74 million as the segment executed projects from its last record backlog.

16:37 Services Operating income grew 65% to $6.6 million, and margins improved 8.9% compared to 6.5% last year, driven by strong project execution and cost management. Services backlog decreased to $665 million compared to a record level of $685 million last quarter, but remains 32% higher than a year ago. As Joe mentioned, Large-scale opticals saw a strong sequential recovery, with revenue more than doubling compared to the first quarter. On a year-over-year basis, revenue was down 19% compared to last quarter.

17:25 LSO returned to profitability this quarter with an operating income of $2.1 million and a margin of 12.7%, but was still below last year's 22.3% margin, Thank you for joining us today. Operational improvements in framing systems and temporary cost reductions in response to COVID.

18:14 For second half of the fiscal year, we plan to start reversing some of these temporary cost reductions, which will be slight headwind. At the same time, we will accelerate savings from procurement as well as savings from consolidation in framing segments. Looking beyond the current year, we see structural run rate savings of around $40 million. We will continue to challenge our teams to identify and capture additional opportunities to improve productivity and permanently reduce our cost structure. Turning to slide 10, our cash flow and balance sheet remains strong. Year-to-date, we have generated $85 million of cash flow from operations, Up significantly from $18 million in last year's first half, primarily driven by strong working capital management. Big kudos to our teams in all of our businesses in managing our working capital.

19:17 Capital expenditures in the second quarter declined to $5.6 million, putting us at $14 million year-to-date as we have restricted capital spending to only essential capital projects. We expect capital spending in the second half will remain below the prior year levels, although we will evaluate investments in high return growth and productivity initiatives. Our focus for capital deployment in the quarter was debt reduction. We paid down $43 million of debt, paying off the entire balance on our primary revolving credit facility. In the second half of the fiscal year, we expect to build our cash balance, Thank you for joining us. which are summarized on page 11 of our presentation.

20:31 At this point, given the continued economic uncertainty caused by COVID, we have decided not to provide detailed financial guidance. As Joe mentioned, we are seeing some signs of stabilization in our end markets, but considerable risks and uncertainty remain. In our architectural segments, we expect to see continued project delays and soft market conditions. In our large-scale optical business, conditions will likely continue to improve, but we expect volumes to remain below the last year's level as the impact of COVID will continue to mute the recovery in retail. Overall, we expect the dynamic in the rest of the fiscal year will be similar to what we saw in the second quarter, with pressure on our top line offset by continued focus on cost management and productivity.

21:24 While we are not providing full financial guidance, we do expect revenue and earnings in the second half of the fiscal year will be higher than the first half. To wrap up, our team delivered impressive performance this quarter, stabilizing our business and rebounding strongly from the first quarter. In the near term, we are preparing for continued economic uncertainty, maintaining our focus on cost, execution and cash flow. Looking to the long term, we will continue to drive sustainable operating improvements across our business to position our company for growth and improve profitability in the future. With that, I'll turn the call back over to Joe.

22:09 All right. Thanks, Nasheed. I close by once again recognizing the entire Apogee family for what we've accomplished together over the last six months. Our employees have truly gone above and beyond to help our company, deal with the impact of COVID and economic turmoil. We've made significant changes to our business to prioritize the health and safety of our team and to ensure that we can continue to operate and meet our customer needs. I am particularly proud to be part of the Apogee team. Looking ahead, the environment remains uncertain, but I'm optimistic about Apogee's direction for both the second half of the fiscal year, which will improve over the first half, and for the long term. Over the past several years, we've successfully executed a strategy to build a stronger, more resilient company.

22:59 Our substantial backlog and strong financial condition, together with our talented team, gives us the resources to continue to manage through the current situation. And we will continue to push ourselves to drive better performance in our current business and develop new opportunities for growth. I look forward to sharing more details with you in the coming quarter. Okay, today's a big day. I announced my retirement from Apogee at the end of February 2021. Ten years at the helm, I'll be 63 years old. We've built a new management team that is a terrific combination of experienced fenestration industry executives and new leaders with fresh eyes and ideas.

23:45 We've launched aggressive cost and growth initiatives to substantially lower Our thought base and grow. We've dealt with some problem projects and they are now behind us. And we've added some very new, strong leaders to our board of directors. I wanted to see this through. It's now my time. Until February, I will bleed company blood. With that, I'd like to open up for your questions. Joelle, if you could open up for questions, please. Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster.

24:31 The first question comes from Chris Moore with CJS Securities. Your line is now open.

24:37 Hey, good morning, guys. Joe, congratulations. You certainly earned it.

24:42 Thanks, Chris.

24:43 Sure. Yeah, maybe we'll just start with LSO, just trying to get a sense in terms of, you know, looking at Q2. You know, some of that is probably a little bit of catch-up, just trying to get a feel for whether the second half of the year will be, you know, kind of more normal compared to what you've seen historically or, you know, how much visibility you have there.

25:09 Yeah, Chris, thanks. So, first off, don't really attribute the Q2 to catch up. Good news is the products we sell are in demand right now, as you're well aware, people cooped up in home. Home products, everything from carpet flooring to arts and trinkets and trash, so to speak, and people wanting to reframe art that's in their house. People have had a lot of time to look at what's in their home, and I expect strong demand in that business going forward, plus they're launching new products at a pretty good clip in that business. We did ramp up 85%. Our retailers came online late in the quarter. A lot of our pickup came from our independent distributors for what we call the independent channel, and we expect our retailers to have a strong Q3.

26:06 We're not projecting to get back to 100% this year, but we will continue to ramp up and improve. So we feel very, very good about that business. And as you saw, mid-teens operating margins in a quarter where our factories were down for two-thirds of the quarter is extremely impressive. So we obviously have some upside in LSO. I think the demand is repetitive, and we feel – We feel we'll continue to recover in the second half.

26:39 Got it. That's helpful.

26:41 Chris, I'm obligated to point out, obviously, we don't expect the United States to go into another shutdown, but that business is clearly dependent. It doesn't fall into the critical infrastructure category that our architectural segments did that we were allowed to at least keep running mostly. We don't expect any shutdown of retail in the United States again, but You know, we'd be dependent on that. We feel really good about that business led by a terrific team.

27:12 Got it. Maybe I'll just jump over to the framing. I mean, framing back down slightly year over year, but not terrible. Can you provide maybe some more details there? Are there certain types, certain areas, certain types of business that are stronger or have more visibility at this point in time?

27:32 Listen, half the framing systems businesses are longer lead time, larger project category, contributing to backlog. It tends to be lumpy, just like our services segment is lumpy, which that segment has been kind of on a tear for the last few years. But I expect the framing systems will continue to be lumpy on that half. The shorter lead time businesses certainly saw it. and push out the schedules. I think there's an opportunity for us to grow that backlog with some of the winds we're chasing down right now. So I wouldn't overread into the modest backlog reduction in the quarter.

28:18 A couple of our longer lead time businesses chewed up backlog as we're waiting to put some new projects into backlog. Not a substantial issue for us at this time.

28:29 Got it. And last for me, just on the small glass, it sounds like it's going quite well. Can you provide a little more detail there?

28:38 Yeah, listen, I mentioned, you know, the world wants to put a dagger or a wooden stake in the heart of office. I think that's completely invalid. Clearly, tall office towers, people are concerned right now, folks like you, investors and analysts like you, often work in large towers and cities and haven't been in the office in six months. Office segment is not dead. We've removed and substantially lowered our dependence on towers. I expect to see an increase in demand in smaller buildings, smaller remote offices, maybe rather than Manhattan, people will be in Westchester or Jersey City. But people are coming back.

29:23 You saw the news this week, J.P. Morgan and Goldman, are beginning to open their offices. I look in my office. We've got more people here. We're managing it appropriately given distancing and things, but I think office segment will return. I think we'll see stronger growth in the smaller office buildings, and that's what our Velocity small projects business is all about. We're winning share. We produce an amazing product. and we've been waiting for this business to take off and we're starting to see that. I believe we will break the break-even point here soon and this will be a profit contributor for us in fiscal year fiscal 22 and I expect to achieve that point before the end of this fiscal year.

30:12 So we are we've added capacity to that factory meaning ship and feel this is a very successful move we've made.

30:21 And just to add one more thing, Chris, we have doubled our revenue in that philosophy business in quarter two versus quarter one. So we're in the right track there.

30:31 And the decision to potentially add another facility is probably a year or so away at this stage?

30:39 Yeah, I won't get into my future plans on that on this call, Chris. Sorry.

30:44 Sounds good.

30:45 Thanks, Chris. I'll just say I'm happy with what we've done so far.

30:50 Good try, Chris. That's right. I'll jump back in line. All right. Thank you, sir. Thank you. Thank you. Our next question comes from Eric Stein with Craig Hallam. Your line is now open.

31:03 Good morning, everyone. Eric. Thank you, and congrats, Joe. That's exciting. Since, I mean, a lot of the questions that I have on the Velocity Initiative sounds like not to be shared on this call. But I'm just curious, could you talk about the margins on that compared to the rest of the glass business, given the level of automation, but also just that it's a different setup, shorter lead times versus the other parts of that business?

31:38 Sure. Listen, it's not a lower margin product. It's actually a slightly higher margin. Our cost basis is lower. Our automation is a very, very high automation in that business. It does have the overhead of the startup, some depreciation, but at full run rate, and I don't mean running 24 hours a day, three shifts, but at normal run rate, a couple shifts of production five days a week, the margins will be accretive to the overall glass segment. It's a good margin business.

32:15 Got it. John, if that's helpful. And maybe just turn to the retrofit business. You know, maybe an update on where that stands. I know you've long had that $100 million goal. And just curious, as you think about that business in the context of the current environment where, you know, maybe that's an area that people look at now, just given some uncertainty related to COVID and the economy. I mean, is that an area that you think potentially sees an uptick?

32:48 I think it has even more amazing upside now than it did when I launched it several years ago. We are above $50 million on our way to $100. The industry paused. Frankly, right now, Eric, most buildings move their attention to the inside of the building, spacing, floor layouts, directional settings for floors, just like we have in our company. reconfiguring cubicles to ensure spacing due to COVID. When we get out from under COVID, the real growth is going to come as businesses try to attract talent into perhaps older offices that are outside the metropolitan cities. People will want to go into nice buildings. We believe the curtain wall and window renovation focus that exists will amp up. So I believe the future is actually brighter.

33:49 There's strong potential for the focus on sustainability in green. The investment community and the folks that are tracking companies are putting pressure on management for sustainability in green, as you're well aware. And I think the opportunity is even stronger and will be stronger after we get out from COVID. I would say this summer, you know, we've seen a pause as people have Totally focused on the inside of buildings. I think that will change here in the coming two quarters.

34:19 Okay. Got it. Maybe last one, it would be for Nasheed. You know, now you're, I guess, a little over a quarter in. At Apogee, you know, just curious what you see. I mean, I know you're talking about, you know, cost cuts ahead of schedule and that you've upped the target in the near term. But as you look at it long-term, I mean, where are some of the areas that, you know, you with some fresh eyes see as the opportunity for Apogee?

34:49 Yeah, so, Eric, there are opportunities everywhere, and we've just started, right? So, if you think about the cost structure, there's one, let's say, let's call it the SG&H structure, which we are looking at very carefully now. This is an industry that goes through a cycle and We are not prepared to flex our costs in the way we should be, so we're looking at how we can look at our SG&A structure to flex ourselves more as the cycle goes through. So we will see some significant actions coming from our side in the coming quarters around our SG&A structure as a company. That's one leg. The second is the COGS, and that's another big area where we will, first of all, we've done the work with procurement, and that's already showing up in our P&L. The second is non-procurement related COGS, which is a pretty large portion also of our COGS. We will be focusing on that substantially in the coming six months. And Joe and I have thought about certain plans on the COGS that we will lay out in the coming months with all of you. So I see significant opportunity in improving our cost structure while we go through the headwinds in the next six months to 18 months in this industry.

36:03 Okay, thanks a lot. Thank you. Thank you. Our next question comes from Brent Diemlin with DA Davidson. Can you line this up open?

36:14 Great. Thanks. Good morning, Joe. Congrats as well. A lot to be proud of here over the last decade.

36:20 Thanks, Brent.

36:22 A question on the services segment. You're putting up solid margins. I'm wondering... It's some of these additional precautions to keep people safe in the field is still having an effect on productivity and therefore margins. It's hard for me to imagine a year ago you forced off some of this in terms of building that into the bids.

36:45 No, we're not seeing impact from COVID on this segment as far as productivity is concerned.

36:52 Yeah, people are back in the factories and we are fully up and running in most of our plants So we don't see any impact right now on COVID. It's all kind of looking like normal, even though volumes are not normal.

37:05 But your question was around the services segment itself?

37:09 Correct.

37:10 Yeah. No, we're not seeing productivity issues. You know, when COVID first hit the construction, you know, some construction sites, you know, you have a little bit of productivity headwind. Only a few people in a construction elevator going up the side of the building. but it's back to normal now. We're good. Nothing to call out.

37:30 Okay. And then, so the $1.3 million COVID-related adjustment, is that predominantly for the glass business then and just those productivity issues you had with the outbreak?

37:42 Half of that would be for the glass business and half of that is for other businesses.

37:48 Yeah, the glass segment is by far where we have the largest number of employees, so it but that is most everyone back to work. We did have in Q1 we had a substantial number of people quarantined through social contact tracing and that has come down substantially in Q2 and today we're close to normal operations as far as people out of the building. But that's all about now.

38:21 Yep. Okay, and Joe, in any of your businesses, are you seeing any competition starting to make, we'll call it sort of distressed decisions at the bid table, just trying to fill the coffers at sort of any price that are concerned for the future, or has it been pretty rational?

38:40 I think it's been pretty rational in general. I'm sure my segment leaders could call out... You know, the occasional drunken disorderly bid action, but I would say it's been what I would call normal. There's always the project where somebody must be bidding to the wrong spec and you think they're drunken disorderly, but nothing beyond what we're used to.

39:08 Okay. All right. Good to hear they stand between the lines. That's it for me. Thank you, guys.

39:14 Thanks, Brian. Thank you. Our next question comes from Aero with Sidoti and Company. Your line is now open. Hey, good morning, everybody. Hey, good morning, Julio. First off, Joe, congrats on the retirement and your success in lessening the cyclicality over your tenure. Thank you. I guess my first question is just on the cost savings initiatives. The $50 million in savings you expect this year, so that would be roughly a 60-40 split between

39:47 I would say it is more a half and half. Half is related to COVID-related response and cost actions and half is in procurement as well as in AFS consolidation-related savings.

40:06 Okay. You know, lumber has been something that's risen pretty meaningfully. You to date, can you maybe discuss the effects of of lumber on your last business. I know you're a user there and maybe the timing of when that hits your P&L.

40:22 Yeah, we've absorbed lumber increases. Overall, our procurement costs have been reduced based on the effort, the Apogee-wide effort we did last year bringing in an outside firm to help us. I have a new chief procurement officer that joined our company at the beginning of this calendar year. So we are absorbing the modest increases in lumber. You're absolutely correct. We are a big user of lumber for shipping our product. We have good contracts, and it's more than covered with all the actions we're taking. In fact, in this quarter, as Nasheed called out, we increased our outlook for cost savings from procurement from what we talked about in Q1.

41:08 It's all in there, but it's one of the few items that are providing headwinds, but not substantial. Got it. Is your Velocity business a similar user as ViberCon was or is? It's similar, yes. Okay. I guess on LSO, you did see a nice top-line rebound compared to the first quarter, but Can you maybe discuss maybe an exit rate for how LSO was tracking on the top line in August? Was it up year over year or maybe close to up year over year?

41:43 I don't have August in front of me, but it was close to prior year, maybe in that 85% to 90% range of the prior year. It's a very seasonal business. I did mention that... Our independent customers, the independent custom framers in the United States came on very strong in the quarter. Our retailers will probably be stronger in Q3. So it's just a very lumpy business when it comes – and it's such a small business, under $100 million, that it can be up and down in any given month.

42:31 Got it. That's helpful. That's all I have.

42:35 Thanks for your time. Yeah, it was pretty close to last year, in August. Great. Thank you.

42:44 Thank you, Leo. Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. Our next question comes from Bill DeZellum with Teton Capital. Your line is now open.

42:58 Thank you. What are you seeing, where are we at in the process of returning to a normal order pattern in terms of behavior of customers? Would you talk to that, please?

43:11 Well, you're asking about a specific segment or in general across Apogee?

43:16 No, I was really looking in general.

43:20 Well, it's different by segment, but we're certainly, you know, the economy is – is pretty bad. I think where projects in backlog and pipeline are moving forward with very few exceptions. In our services segment, you know, we're operating at historically record levels. There's clearly some slowing in activity, but we have such little total share of demand in the United States, and it's a very diversified segment. We can win and grow even in a down market. and we see reasonably good bidding activity but it's clearly not at pre-COVID levels yet. In glass, we've seen project delays but they're moving forward and as we mentioned, we're seeing a ramp up in orders in our small projects business.

44:15 It's nice to be a new entrant in a segment like we are with the small project glass business because you're growing no matter how good or bad the economy is. In framing systems, We're seeing the most impact from soft market conditions. As you've noted, we're down about 18% year-over-year in that segment, but we had improved profitability because of the cost actions we've taken. I think we'll probably book some, hopefully increase our backlog in that segment before the year is out, as we've been working on some nice projects. And also, we're already seeing customers largely reopen, and I expect Back to Normalcy on inbound orders in that segment by the end of the year.

45:00 So it's a mixed bag, but until COVID subsides, I think we're all in for a big question mark right now.

45:10 Right. So taking that a step further, you've referenced the ongoing project delays, and yet you also did say in the larger cities, the construction that had been shut down, it's now reopened. Some of the... kind of stringent work rules have been returned to a bit of normal. I'm having trouble reconciling that versus the project delays. Can you help fill in the blanks there?

45:40 Well, like I said, the construction is permitted in almost all locations and most projects in our backlog are moving forward. They're just moving slightly slower than expected due to economic and the COVID-related friction creating absences at the job site, some minor supply disruptions, not ours, and this is what mostly impacted framing systems and glass. But as every week goes by, We're seeing more and more workers back at the construction site, and the progress in the building goes up. Nishit, do you want to add anything?

46:20 Yeah, I just wanted to add to that to say, you know, there are industries which have not really picked up based on the recovery of the economy. For example, hospitality industry. We have customers who are buying things in the hospitality industry, and those projects are getting delayed. Similarly, there are other industries where you see they have not picked up, and therefore they have deferred their decisions on buying things. until things come back. None of those projects we're seeing cancellations as such, but we are seeing a delay. Thank you both. Thank you, Bill. Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Joe Pushins for closing remarks.

47:02 Okay, Joel. Thank you. All right, folks. I won't torture you anymore. Thank you all. I'll be talking to many of you next week in a couple of conferences at and Jeff and I will be participating in and we'll look forward to further connection to many of you that are on this phone and have a safe week and be good. Thank you all. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.