Jeff Huebschen - Vice President, Investor Relations and Communications Joe Puishys - Chief Executive Officer Jim Porter - Chief Financial Officer

Doug Clark - Goldman Sachs Chris Moore - CJS Securities Eric Stine - Craig-Hallum Brent Thielman - D.A. Davidson Julio Romero - Sidoti & Company Bill Desellum - Titan Capital

Good day, ladies and gentlemen. And welcome to the Apogee Enterprises’ Third Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today’s conference maybe recorded. I’d now like to introduce your host for today’s conference, Mr. Jeff Huebschen. Sir, please go ahead.

Thank you. Good morning. And welcome to Apogee Enterprises fiscal 2019 third quarter earnings call. With me today are Joe Puishys, Apogee’s Chief Executive Officer; and Jim Porter, 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 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 the earnings release we issued this morning and is also available on our website. Also, I’d like to remind everyone that our call will contain forward-looking statements reflecting management’s expectations, which are based on currently available information. Actual results may differ materially. More information about factors that could affect Apogee’s business and financial results can be found in our SEC filings. And with that, I will turn the call over to you, Joe.

All right. Thanks, Jeff, and thank you everyone for joining us. This morning I’d like to discuss some of the trends we are seeing in our end markets, review the quarter’s highlights across our business segments, look at the quarter in the context of our long-term strategy and I will turn it over to Jim for more details on the quarter and the outlook. So for end market trends overall conditions continue to be positive. Market indicators such as the Architectural Billing Index, new construction starts, employment growth and office vacancy rates remained favorable. In fact, the most recent ABI, which was released just Tuesday of this week reflected one of the highest scores of growth in many years at almost 35% it reflected regional growth in most regions in the U.S. and in all sectors, largest being commercial, which is our primary market as you know. So it’s a great indicator for long-term help of future projects and future hold in the ground. Specific to Apogee, bidding and quoting activity remains solid across our segments. Orders in the Glass segment remained strong in Q3 following the historical record levels we saw in the second quarter and Architectural Services continued to increase its backlog in spite of a huge revenue quarter. These trends are encouraging and bode well for Apogees’s future. In Framing Systems, however, we were experiencing some near-term revenue issues. In the third quarter we saw timing delays in some of our markets we serve. This slowed Framing Systems order flow in Q3, as customers made less progress and expected at their job site and pushed out project schedules. These are delays and we are not seeing project cancellation nor have we lost work that we thought we had won. At this point, we expect these timing delays to impact the year. Looking at the longer term, we are confident in our strong market position and see numerous opportunities drive growth in our Framing System segment. Let me turn to highlight across our four segments. Our results were led by another terrific quarter for Architectural Services. This segment is certainly firing on all cylinders, impressive organic revenue growth, strong margin gains, and several new project wins which contributed been adding to the backlog. With the strong orders during the quarter, services backlog now stretches well into fiscal 2021. In fact, our backlog for the second year out is heavier than usual. I couldn’t be more proud of what this team has accomplished. Our strategy to optimize project selection, drive efficiency in manufacturing operations and improve execution at the construction site are all showing up in their results. There will always be quarter-to-quarter variability in the segment and due to the nature of the large project based business that it is, but there is no question, this is a stronger and better performing business than it was a few years ago. We will continue to manage this business for profitability, overgrow as we work to optimize our project management capacity. In Architectural Glass, the plans we put in place last quarter are delivering results, despite continued tight labor markets. We have been having good success adding new employees and ramping up production. In fact, we have now successfully added 400 new jobs in our large factory since the second quarter started. Our revised training programs and focused operational improvement efforts drove better result in key operational metrics in Q3. We saw higher throughput in our factories, improved labor efficiency, gains in on-time and complete shipments, and we had better quality with lower scrap rates and rework rates. These improvements showed up in the segment’s financial results. Revenue increased 12% compared to the second quarter. The segment returned to year-over-year revenue growth for the first time since the first quarter of fiscal 2018 and margins were up 390 basis points sequentially. We have a good roadmap to further topline margin improvements in Q4 and beyond. Just as importantly, customer commitments in order flow remain strong with good pricing. We continue to win in mid-sized markets and have regained share in large projects. As a reminder, we do not report backlog for the Glass segment. We often engage with customers however on potential projects well in advance of construction. This offers our Glass business added long-term potential revenue visibility. Based on awards in hand, at this point we are encouraged with the outlook for this segment and expect revenue growth to continue in the fourth quarter and extend into next fiscal year. With that said, we still have work ahead of us to continue improving our operational performance. We have productivity initiatives underway to return this segment to double-digit operating margins achieved in recent period. We believe this margin improvement opportunity is largely under control and represents a significant driver of potential earnings and cash flow growth. We now expect our efforts to return Architectural Glass to targeted margin level will likely extend into the first part of fiscal ‘20. We anticipate showing continued progress however in Q4. In Framing Systems, revenue and profit were down year-over-year, largely due to timing delays I mentioned earlier. We continue to make progress in our initiatives to improve operational performance and drive synergies across this Framing segment. Unfortunately, this progress was offset by the impact of lower volumes. Based on a more cautious outlook for Framing Systems and remaining work to be done in Glass, we have updated our full year guidance, which Jim will go over in great detail. Longer term, we continue to be optimistic about Framing Systems’ competitive position and organic growth potential. We remain confident that there is substantial opportunity to improve Framing Systems profitability including the recently acquired EFCO business. We believe successfully executing against this opportunity will allow for long-term earnings growth for Apogee. And lastly, our Large-Scale Optical segment turned in another impressive quarter. Operating margin exceeding 28% and we expect this segment will deliver topline growth in the fourth quarter. While we are focused on delivering near-term results, I think it’s important to step back and put the quarter in the context of our long-term strategy. In fiscal 2012, we set out on a strategic growth and diversify our business and to strengthen our operations and better position Apogee for more stable growth and profitability throughout the economic cycles. We have made excellent progress executing this strategy. We are on track record revenue this year. This will be our eighth consecutive year of topline growth despite many ups and downs in the markets we serve. This is a great testament to the efforts we have made to strengthen and diversify our company. We continue to see numerous opportunities to drive further organic growth. As I stated earlier, overall market indicators remain favorable. Our backlog and customer commitments provide good visibility in the longer lead time portions of our business and we are pursuing opportunities to expand the new geographies and new market segments and on top of that we have a very healthy pipeline of new products. We are now over five years into our journey to drive Apogee’s lean enterprise approach into our businesses. While we have had some near-term profitability challenges, we stand on a much stronger foundation today than we did just a few years ago and this year will be the second highest year in earnings for Apogee in our 70-year history. Finally, strong cash flow and a healthy financial position have long been hallmarks of our company. This solid financial position has enabled Apogee to pursue a balanced capital deployment strategy, investing in our businesses to drive growth, improve productivity and return cash to shareholders. We have continued this approach for the first three quarters of fiscal 2019, our balance sheet is extremely strong, year-to-date cash flow is up compared to last year, we are making high return capital investments and year-to-date we have returned $13 million to our shareholders and dividend and over $23 million to our shareholders through share buybacks, a 60% increase compared to this point last fiscal year. And I can assure you that we are laser focused internally on improving operations and acting with a tremendous sense of urgency. Let me now turn it over to Jim who will provide more details on the quarter and the outlook. And before we take questions, I will come back on line for a few more comments. Jim?

Thanks, Joe, and good morning, everyone. I will begin with our consolidated results, which you can see on slide five of our earnings presentation. Total revenue is $357.7 million, up from $356.5 million in last year’s third quarter. Total company operating income decreased to $31.4 million, driven by lower margins in Architectural Framing Systems along with lower year-over-year margins in Architectural Glass, which offset margin gains in Architectural Services. Adjusted operating income was $32.1 million, which backs out the amortization of short-lived intangibles from the Sotawall and EFCO acquisitions. Adjusted EBITDA came in at $44 million, compared to $52.6 million in last year’s third quarter. Earnings per diluted share were $0.78 versus $0.82 in the prior year period and adjusted earnings per share was $0.80. Now, I will cover segment results, which are recap on slide six. Architectural Framing Systems revenue was $181.3 million, down from $194.2 million last year, primarily driven by the timing delays that Joe mentioned. Adjusted operating income decreased to $13.6 million for an adjusted operating margin of 7.5%, compared to 11% last year. The lower margin was primarily due to negative operating leverage on the reduced volumes along with less favorable sales mix. Framing Systems ended the quarter with $408 million in backlog. Looking at the recently acquired businesses within the Framing Systems segment, Sotawall saw an uptick in both sales and operating income as they ramp up production on projects that were booked in recent quarters. EFCO’s results were down from the prior year, primarily due to lower volumes and less favorable mix that I mentioned. But EFCO continues to make steady progress on its initiatives to drive long-term operational improvements and growth. We remain confident that over time, EFCO can achieve performance levels similar to our legacy Framing Systems businesses. As Joe described, Architectural Glass made solid sequential improvements compared to the second quarter, with revenue increasing 12% and operating margin increasing sequentially by 390 basis points. The segment made solid progress improving productivity, but it is still below prior year levels. Relative to the prior year, revenue grew 2% and operating margin was lower at 5.9%. Architectural Services turned in another great quarter. Revenue increased to 48% to $72.8 million and operating income grew to $8.7 million more than tripled last year’s level and operating margin improved to 11.9%, driven by leverage on volume and strong execution. In addition, the segment as strong order flow again in the quarter, which increased backlog to $419 million, well above the $346 million a year ago. This increased backlog bodes well for the segment’s future. However, I’d like to repeat Joe’s comments about the inherent lumpiness in the segments results that are driven by project timing. Although, we are still really in our planning process for fiscal 2020, based on the visibility of anticipated projects schedules, we currently expect a modest dip in Architectural Services revenue next year, but our sizable backlog provides a good long-term visibility and at this point supports growth in fiscal 2021. The Large-Scale Optical segment continued to deliver a solid performance. Revenue of $23.3 million was lower than last year’s third quarter, but segment operating margin improved nicely to 28.4%, compared to 25.9% last year. Turning to slide seven, the company’s financial position remains strong. Total debt stands at $233 million or roughly 1.4 times trailing 12-month EBITDA. We continue to generate solid cash flow with year-to-date cash from operations of $70.6 million, which is 7% above last year’s level. Free cash flow stands at $36.8 million, compared to $27.3 million through the third quarter last year. During the third quarter, we repurchased 600,000 shares of stock for $23.3 million and year-to-date, we have now returned over $36 million of cash to our shareholders through share buybacks and dividend payments. Looking ahead, we now expect our full year capital expenditures to be approximately $60 million as we invest in a number of good return projects to drive strategic growth and capacity and improve productivity. In the fourth quarter specifically, we will be continuing work underway on our investments to improve operations at EFCO, along with other strategic projects to enable growth. We also plan to buyback more shares in the fourth quarter using free cash flow and what we view as attractive current valuation levels. Finally, let me turn to our outlook for the remainder of the fiscal year. Slide eight presents an updated look at our full-year guidance. We now expect full year revenue growth between 6% and 7%, compared to our previous guidance of 8% to 10%. From our Glasses outlook, due to the timing delays in Framing Systems, which we expect to carry over into the fourth quarter and we are now projecting a slightly slower than previously forecast volume ramp up in Architectural Glass, though we expect to see nice sequential growth in the fourth quarter. We now expect total company operating margin of approximately 8.4% and adjusted operating margin of approximately 8.7%, with lower than previously forecast margins in Architectural Glass and Architectural Framing Systems offsetting continued strong performance in Architectural Services. We continue to forecast our tax rate at approximately 24%. And putting it all together, we now expect earnings per share of approximately $3 at the low end of our previous guidance range and adjusted earnings per share of approximately $3.13. With that, I will turn the call back over to Joe for some concluding remarks.

All right. Thanks, Jim. To wrap up, I’d like to reiterate our optimism about Apogee’s long-term direction. We are still on pace for another year of topline growth and near record earnings per share, as I mentioned. We have a roadmap in place to continue to improve our operations, our strong balance sheet, our very big backlog and our cash flow position allow us to deliver long-term shareholder value. With that, I’d like to open up the call for your questions. And Liz, if you could please tell the team how to get into the queue please. Thank you.

Certainly. [Operator Instructions] Our first question comes from the line of Doug Clark with Goldman Sachs. Your line is open.

Hey. Great. Thanks for taking my question and good morning.

Hi.

My first one is can you just help us kind of providing a little bit more detail on the Framing business, the cause of the delays kind of the commentary that you are getting and reconcile that with some of your earlier comments Joe that you made at the beginning in terms of overall trends conditions and everything remaining an expansion and kind of growth in territory?

Yeah. So we have got six businesses in that segment. So in general terms we are seeing delays at the construction site. I think the general contracting community is a little bit oversubscribed with work. As I said we have not seen a loss in any awards or any projects cancelled, but the time between award and actual purchase order that allows us to build and ship product has extended, and in several of the businesses our awards and customer commitments are at substantially high levels than just a year ago. But, unfortunately, we are just seeing slowness and we are not experiencing that in Glass, because we have such a pent up demand to fulfill for them the obvious issues we talked about in the second quarter. And of course in our other Architectural business installation, which is our services we are very, very project specifically of a very small share demand in the installation world and we have done extremely well with project selection. So as I mentioned, while the United States may be trying to talk itself into a recession. We are not seeing it, the bidding and award activity continued to be very high. We just are seeing some timing issues as far as the conversion of awards to actual bookable purchase orders. But I reiterate we have not lost anything.

Okay. That’s helpful. And then, I am wondering if it’s connected or if you can just tell me understand on the services piece the comment on services revenue, perhaps, being down next year. Why is that again and secondarily with double-digit margins in the services, is that a type of margin level that we should expect to see on the go-forward basis?

Yeah. It’s been my long-term goal since I arrived here to get this to be a 10% operating margin business. It’s a very high ROI business. The investment is very low, our investment are in people. We don’t have -- while we do have fabrication facilities to help us put the final parts of the curtain wall together that we install in the building, very low investment pays, very high ROI. I am not interested in being a $500 million, 2% operating margin business, but our average project size is approaching $20 million. We have got a handful of projects coming in backlog every quarter. It’s impossible if you are in the construction business to have a perfect cadence of when one project finishes, your next project you won a year ago that’s a while to go and the installation picks up on the same the next day. So it is very lumpy as Jim and I like to point out. There is absolutely nothing wrong with that business. In fact, the performance at the assembly and at the construction sites are as solid as they have ever been. Their backlog is up. It’s just challenging to have the backlog represents smooth quarter-to-quarter revenue streams. And while that can be frustrating as a public company, we manage to control this business to become more profitable. I certainly expect it to have consistent profitability in the double digits, but next year right now is got a little bit a low, but not because of lack of orders, we actually have our fiscal 2021 backlog is substantially higher than that same metric for fiscal ‘20, one year ago. So we will try to fill in that with winning some orders that we can actually book and bill in that fiscal year and we traditionally do that. So it’s a lot of time ahead of us to close that gap. There’s absolutely nothing wrong with that business. We expect to see continued trend we are -- trends up in services at excellent margins due to our disciplines at the job site.

Okay. Great. Thanks for taking my questions. I will turn it over.

All right. Thanks, Doug.

Our next question comes from Chris Moore with CJS Securities. Your line is now open.

Hey. Good morning, guys. Yeah, just on the…

Hi, Chris.

… on -- good morning. On the Framing, the timing delays, any certain geographic markets that are -- that’s more concentrated in or not necessarily?

Chris, this is Jim. I think generally the answer is no. For some of our shortage in time Framing Systems business, we have a bit more concentration in the Midwest and the Northeast. But that’s more a function of footprint than it is market conditions. It’s pretty broad base.

Chris, no -- like there is no products that come off the table, obviously, the ABI indication for those of you who don’t know what it is, it’s a metric that measures the architectural -- the architect buildings in the month of November versus the prior year same period. These are -- this is for work that may become a whole underground a year from now and revenue for us 18 months from now and beyond. Things continue to move forward. There is no question there is a level of trepidation. I think people continue to be concerned about trade wars and while we have managed to offset any impact on tariffs from our input costs, we didn’t mention that as a reason for anything and it hasn’t been. There is clearly concern out there and folks in our sector are seeing construction projects move a little bit slower. But I attribute it more to the strength of our market over the last couple of years has led to an oversubscription of assumptions at the general contracting community and we are just not as far along in the maturity of projects as we would have been when we won the awards and I don’t want people to overcook that, because we are seeing continued awards that’s just been pushing out a little bit every quarter.

Okay. Can we talk a little bit more about the EFCO progression? Just trying to get a sense in terms of is it -- is that business close to marginally profitable or kind of how you are seeing it flow over the next six to 12 months?

Yeah. I will just -- operationally we are seeing substantial improvement in the business. We definitely need to see an increase in orders. We have added some executive support on the sales side. I am confident with what I have been seeing of recent that the new leader I put in place is operationally focused and the heart of our issues have been historically weak. Operating performance, we are seeing that improve dramatically in the facility. I think we have mentioned, we stepped up to a fairly substantial capital investment that is going in as we speak, which will drive we believe substantial many hundred basis points of margin improvement from our factory productivity, something that was desperately needed. That was very clear to us. During the due diligence we are aware of the need, we have funded that, we go online and at about the end of the first quarter early in the second quarter of fiscal ‘20 meaning next May, June timeframe, and we believe that will help us take some substantial steps forward on profitability.

And Chris, I will just speak to the financial performance of the business. As Joe said, we are seeing continuous improvement in that productivity in the operational metrics of that business. But volume leverage is a key driver in that business and so we have seen more volumes in the third quarter and with visibility you expect in the fourth quarter. So the business will be a little bit negative in earnings for this fiscal year, but we really see a continuous progression in the performance in that business. And importantly, we put a new Vice President of Sales and Marketing in that business in the beginning of the second quarter. One of our top guys from within the company and we are seeing really a nice progression on activity and we expect to see that order rate improve, the volume pickup and be able to see the leverage and positive performance in fiscal ‘20.

Chris, well that certainly echo results and you know given the headwinds in panes and we have been penalized for it, there is a really good new story. This is a business that will be just like the rest of our Framing Systems segment in the double-digit operating margin. So I don’t mean to make light of the current performance it provides us over a 1000 basis point of margin expansion over the next few years and it’s a tough starting point, but it’s everything we are familiar with working on and have proven in our legacy businesses that we can have the kind of margins that you expect.

Got it. That’s helpful. Let me jump back in queue. Thanks guys.

Thank you, Chris.

Our next question comes from Eric Stine with Craig-Hallum. Your line is now open.

Good morning, everyone.

Hi, Eric.

Good morning.

So maybe just on your thoughts just on acquisitions, I mean, you made the comment that you are looking to expand into other geographies and I know you would kind of had the acquisition plans on hold as you were trying to integrate EFCO and get through those issues and sort of all as well. I mean has that changed at all given that there’s obviously lot of confidence on your end that you have or will soon turn the corner there or that expansion, I mean is that something that you feel like you can do organically?

Yeah. No. I am -- I was thought, I repeat this word organic for a reason. We are not looking to do acquisitions at this time. We certainly keep our pipeline and we do analysis, and we are keeping our eyes on properties that are out there, and particularly ones that are publicly noted for sale. But our focus -- we are not planning acquisitions at this time and our focus for the time being is on improving our internal operations of the business we most recently purchased.

Got it.

And the potential synergies across that entire segment, we have been certainly occupied over the last year and a half on some of the startup issues with the EFCO acquisition. I am happy to say we now have pretty amped up focus on driving synergies across the entire Framing System segment, not just with EFCO, but across the Board and I brought in some executive talent to help me with that.

Right. Okay. Thanks for that. And then maybe just turning to services and I know that the backlog level and there are some, it’s possible that it gets filled in for fiscal ‘20 and your commentary about fiscal ‘21. But I mean as you look at that and given some of the operational things on the profitability side that you have put in place, is that a business that that you can sustain at this level or potentially there is some growth. Again this is probably at the top end of maybe a year ago where you kind of had targeted this business, but it does seem like it potentially could be bigger while maintaining things?

Yeah. When I say we are managing that business for profitability versus growth, it frankly when you are chasing large projects if you want to go low on price you can pile on a fairly large backlog and companies often do that when they are looking to sell and you end up with a very marginal business and that is not our strategy. We are trying to manage our resources. The most key resource in a project business is your project managers. It is a skill that is critical, but we are trying to work with our capacities. Are we willing to grow? Absolutely. But our focus is on profit and I don’t want to imply problems ahead certainly. If you look at how that business is performing this year, as Jim mentioned, last year on this call, that backlog was $346 million for that segment services, it’s $419 million now and we are performing the way we are from that starting point of $346 million, so you can understand that the future looks very bright for that business. It’s challenge though to track that business on a quarter-to-quarter basis. We will have lower quarters, we will have higher quarters. Our margins will always be over 11% or over 10%. But if you look at the long-term trend over four to six to eight quarters, you are going to continue to see good news from that segment.

And just to emphasize Joe’s point which is, we have been focused on project selection and looking at geographic growth, optimizing our existing project management capacities. And the drivers for growth in that business are going to be the development of project management talent that allows us to kind of pursue more work. In the lead times in that business, while we do have some line of sight for some work that fill into fiscal ‘20, the types of projects which are more value-added for us is, probably, we probably have about one quarter to go before we can still affect fiscal ‘20, from that point, it really is fiscal ‘21 and beyond.

And Eric, you mentioned to me about -- when you asked about acquisitions, about geographic growth and I reiterate we are talking about with our existing businesses. We are -- we have plans in place that I am not willing to announce now for competitive reasons that will help us expand our footprint in some of our businesses. I have walked and said we don’t have all four walls of the U.S. covered in all of our businesses. We think we have opportunities and when we are ready to launch those efforts, they will become more public. But we believe we have got continued opportunities not with just new products and 10 gentle products in some of our offerings, but also geographically more to come.

Okay. Thanks a lot.

Thank you. Take care.

Our next question comes from Brent Thielman with D.A. Davidson. Your line is now open.

Thanks. Good morning.

Hey, Brent.

Good morning.

Good morning.

Joe, a little confused, and just want to come back to a Glass and kind of what’s transpired in that segment that pushed the margin recovery expectations further to the right?

It’s not substantial bigger issue was the Framing Systems volumes, but they have done a great job. They improved basically 400 basis points of margin expansion. I would like to see more. They are already off to a great start in the month of December, which is our first month of the fourth quarter. They -- I expect they will keep up this improvement pace. I mentioned they hired 400 new people. We have 100 people more we are adding. I think we actually had to hire something over 900 heads that net that it’s been a pretty substantial challenge. It really impacted us in Q2, obviously. But to grow 12% with a new workforce or substantially increase in workforce, to grow 400 basis points, I am committing to additional hundreds of basis points of expansion in Q4. It’s just taking bit longer to get to it. It’s a very complicated business. It’s a very challenging business and the complexity with new hires is just a real. But this is substantial improvement in the third quarter and we are committing to further expansion in the fourth quarter.

Okay. And then, given everything you said around EFCO and in kind of presuming, you get some volumes back, how optimistic are you that you can get Framing to kind of a double-digit margin run rate next year, like what’s preventing you at this point, I guess beyond the end markets?

Our volume -- the volume leveraging obviously place key, we will continue to make improvements in productivity. I am not willing to give guidance on F20 by any given segment we haven’t even completed our annual operating plan process which happens in January and February with a report to my Board in February. So I am not going to get the cart in front of the horse here Brent. But I will tell you the, the things we can control will be improved. That is operations and not just our recently acquired business, but also at our legacy businesses from our lean initiatives. Our new products, our geographic expansion, but left volume leveraging is the biggest impact in several of the businesses. And Framing Systems are extremely short lead time businesses, orders going to backlog in our shipped within a two week period. So it’s quite a bit more challenging to forecast. But we will provide more guidance on that the long-term future of Framing Systems is extremely attractive, partly because of the starting point on EFCO, but also because of the synergy opportunities we have, but I am not going to provide guidance on F20.

Okay. Well, and then, I guess, come back to Glass, I mean, it sounds like you are winning work in mid…

Yeah.

… and regaining share in large.

Yeah.

Can you talk about the large market though and does that sector had the same momentum overall that you saw a few years ago?

Yeah. We are not seeing a left down in a large project segment, whatsoever. I think, as evidenced by the bidding activity that we are seeing from our installation business, which it’s interesting, right? Our Glass people have probably the longest term visibility because they are in the offices of the architects and so they are dealing with opportunities that may become a bid package to general contractors in the future, maybe a hole in the ground in a year or two, maybe revenue for us in three years. Activity is very strong even in the large projects, large campuses, Google or the Amazon. There’s a lot of business out there. Our Harmon business, which has the longest amount of time that work is in backlog from is actually much shorter from when they actually win an award from when it’s been out on the Street. So we then have a good view about, I have often said we have four levels of visibility. The most concrete is our book backlog, which is where we have a purchase order, a contractual commitment to deliver goods and services, hence $900 million of work that will go into revenue and in my entire seven plus years here I have never seen in -- within a fiscal year to have work come out of backlog. I think we have had a project for a mile and come back in kind of a deal. But it’s very rare. That’s great visibility, our second level is work we have been awarded that’s about to enter backlog, that it’s in contract negotiations with our legal teams and that’s pretty solid and beyond that, we have work that we believe we have been verbally awarded or we believe we are the only bidder with the capabilities perhaps we had the architectural spec. So if a project goes forward, we think that’s in the wind tunnel for us. And then, lastly, in the least concrete is work we are bidding with our contractors in for some of our businesses with glazers and the pipeline of the amount of work that’s in that last four category is in the billions and it’s substantial. Some projects have a very low probability of being won. Some have a very high. We look at all of that when we give our comments about the long-term health of what we are seeing. I -- my caveat to all this is, in this economy, in this new world we live in, the world reacts -- overreacts to good news and bad news, and it -- while it seems the U.S. is like, say, trying to talk itself into a recession, we are not seeing it nor our architects, nor our general contractors.

Okay. Thanks for the color, Jeff. Appreciate it.

You bet.

Our next question comes from Julio Romero with Sidoti & Company. Your line is now open.

Hey. Good morning, everyone.

Julio, good morning.

So I just wanted to ask on the Framing segment, I know you talked about EFCO but you also called out a less favorable mix. Can you just give some color on the mix for the legacy portion of the Framing business and do you see that, that mix kind of rebounding going forward or is that kind of the new normal here?

No. I mean we see the mixed rebounding going forward. It’s some ways just kind of overall mix across the different businesses Framing Systems, we go from some standards, storefront products to highly engineered complex projects and so you have some level of normal variation associated with it. The mixed commentary was primarily within EFCO, but some way just kind of more generic where they had kind of two dynamics going on. One is that you know they are starting to -- they are producing products for one of those large troubled projects that we acquired in the business and that’s basically kind of a no margin activity. And then they also just had a different mix of kind of a shorter lead time Standard Products this quarter. So unlike it’s tied into rebuild the momentum in the sales pipeline in order activity and in the mix of work that we see in the bids that are out there waiting for award, we see it returning to a better mix.

Yeah. And one month as a negative trend, but we have had -- we have seen some nice improvement in orders in that business in the last few weeks.

Understood. And just staying on that segment, the pending USMCA kind of left tariffs like Canadian aluminum as is. Just any color there on the how that affects maybe you and your competitors and what’s the confidence in continuing to pass along price increases there?

Yeah. We have done a nice job. You haven’t heard us called out, I mentioned that we expect headwinds from that in fiscal ‘20. There are still a lot of moving parts. IMCA, I am involved with the National Association of Manufacturers and Jay Simmons [ph] and his team continue to work very, very hard to represent the hardworking manufacturers to be fairly treated. I think we have a lot of potential. But we have managed to maintain an attractive spread, which is a metric of price versus minus material cost only. So when we look at our material input cost, we have been able to offset that with price. I believe we can continue to do so and I -- at this time, I am anticipating that we should not have any discussion on this in fiscal ‘20. But as I mentioned, there’s a lot of moving parts and there’s a lot of emotion in Washington D.C. on this.

As you know, we are talking primarily about aluminum and we really are in the same position as essentially all of our competitors.

Yeah.

When they first went into effect, the industry moved pricing up, and as Joe said, kind of help that time difference between price and material cost.

And some of the London Metal Exchange, the Midwest market premium have actually moved in the other direction. And so it’s almost like a gasoline tax when oil prices are going down, sometimes the overall impact is de minimis and that’s what we have seen.

Understood. And then, maybe just on capital allocation, just you called out, you expect further buybacks in the fourth quarter. Just given the price levels, would you maybe consider accelerating buybacks further than to offset dilution or just any color on the thoughts there?

Yeah. We have been -- so dilution, I will say dilution has just been kind of one of our approaches. But over the past year we have taken a more aggressive opportunistic approach looking at our free cash flow as a source to more aggressively buyback shares. So as you saw we bought back 600,000 shares in the quarter more than offsetting dilution and so we will continue to evaluate that on an ongoing basis.

Okay. I will hop back in queue. Thank you.

Thanks, Julio.

[Operator Instructions] Our next question comes from the line of Bill Desellum with Titan Capital. Your line is now open.

Thank you. I have a group of questions. First of all, you have referenced some strong Framing orders. Would you discuss where those orders are coming from, whether that’s more geographic expansion, whether it’s product expansion, how is that unfolding, please?

Framing or are you asking about services, I mean?

Framing.

Framing. Yeah. What I mentioned is we have a strong pipeline of awards and commitments that we are waiting to convert into order that’s kind of been the short-term issue that we have experienced. The strength in those metrics is really across the segment. There is no specific region or product line. We continue to offer new products every year. We have a new product vitality index, different in each of our businesses, approximately 20% of our revenues come from products launched in last five years that’s contributing. But there’s no -- there’s no isolation in this -- isolation issue on where the awards are coming from in that segment.

And Bill, we are also seeing kind of nice diversity across the end market segment. So we are seeing office work, we are seeing healthcare-related work and continued multi-family activity for that segment.

Great. Thank you. And then relative to the Glass business, given the operational challenges that you had last quarter, how that really came as a result of orders that these are my words that overwhelmed you? How have orders been this quarter? What I am trying to grasp is how your customers have reacted and whether they have put you in the penalty box temporarily or whether or with your improved productivity they are circling right back with more orders? How is that unfolding please?

Yeah. So first the numbers, I mentioned that in the second quarter, we had about a 50% increase in orders from the run rate of Q3 and Q4 of the prior year. So roughly about $80 million in orders in those quarters at the end of last year, it picked up in Q1, but it grew to over $120 million in the second quarter. That was the highest quarterly input that business has ever experienced in its history. So to put in perspective, we were over $102 million or $103 million in this quarter in orders, allowing us to increase our backlog on a high 90s revenue quarter, both very attractive. We feel fourth quarter is going to continue to be strong. Our core -- our customers are certainly rallied around us our lead times on our standard product line, meaning traditional blast is back to, let’s call, normal levels. We still think we can carve another four weeks out of our order to delivery lead time. So, Bill, do you have the numbers over $100 million which is a nice improvement. We expect continued growth or continued strong orders in the fourth quarter in the first few weeks of the quarter reflect that and our customers are with us.

And as we have been successful in that business growing in the mid-size and smaller project market with shorter lead times, as our lead time did stretch out, there were some projects that we lost, because we couldn’t hit the lead time. But it’s really important to understand is we might have lost those projects but we might have didn’t lose those customers and those customers are anxious to continue to doing work with us.

Thank you and congratulations. That’s really fantastic. You are able to maintain those relationships so well. Lastly, relative to EFCO, you have made reference to the capital project that will have over, over 10 percentage points of margin enhancement that that will lead to, when you complete that project, presumably it will also increase your ability on deliveries, the sales growth then become the focus for EFCO, and does that circle back to the that sales individual that you brought over, would you kind of complete that picture for us and help us to understand…

Yeah.

… that issue please?

Yeah. Bill, let me correct, if I -- if my words let you to believe that that capital project was going to drive the 1000 plus basis points in margin expansion. That’s not my statement. The capital project will be a tremendous enabler to our productivity improvements in that business. What I was saying is, our Framing Systems legacy businesses that look exactly like EFCO with different brands, similar in markets, of course, are in the operating margins and the double-digit well above 10%. And we know we will have EFCO in that same position in the next five years. So it provides a nice tailwind. It’s just a low starting point as we fix that business. So this capital investment we are making to improve the layout of our factory will help us achieve some of that improvement over the next several years. That is an investment north of $10 million. It is to help us operate this factory like the rest of our factories in Apogee. The leader that I now have running that business identify this opportunity doing due diligence -- during due diligence, he was a direct report to me, was one of our named executive officer in charge of all operations of Apogee. I moved him down here to run that business, because our issues were primarily operations. You are right. The focus now is to drive topline orders improvement. There’s no question. The customers lost faith in EFCO during the sales process. After the acquisition, we believe we won them back. They know Apogee and they know we are capable of. It’s been slow going. We did add one of my top sales leaders in Apogee, is now down there full time in-charge off sales and I expect to see dramatic improvement in the customer relationships and the order intake going forward.

Great. Thank you. Appreciate the time and the help with correcting my perspective.

Thanks, Bill. Anyone?

And I am showing no further questions in queue at this time. I’d like to turn the call back to Mr. Puishys for closing remarks.

All right, Liz. Thank you. I won’t torture anyone anymore. Thank you for everyone’s attention today in joining us. Of course we have many follow-up calls to this. I look forward to those. I’d like to wish everyone a real happy holiday season, Merry Christmas for those who that celebrate and we look forward to updating you on our yearend results in April. Thank you. Have a great day.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone have a great day.