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Apogee Enterprises Inc (NASDAQ:APOG)
Q3 2021 Earnings Call
Dec 18, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Apogee's Fiscal 2021 Third Quarter Earnings Conference Call.

[Operator Instructions] I would now like to hand the conference to you speaker today, Jeff Huebschen. Please go ahead, sir.

Jeff Huebschen -- Vice President, Investor Relations and Corporate Communications

Thank you, Jewel. Good morning and welcome to Apogee Enterprises' Fiscal 2021 third quarter earnings call. With me today are Joe Puishys, Apogee's Chief Executive Officer and Nisheet Gupta, 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, 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.

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

Joseph F. Puishys -- Chief Executive Officer

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, and 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 are seeing in the business and how we're positioned for the future. I'll then turn it over to Nisheet 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 flows, despite reduced sales volumes. COVID and end market conditions are still having a significant impact on our business. We continue to see some project delays and note that the Architecture Billings Index this week reflected a score of 46. So we've been in the mid-to-upper 40s for a few months now, which is a modest decline in month to month.

The overall pace of activity in our Architectural end markets has continued to slow down and COVID has continued to impact our workforce and added stress for our organization and management team. That said, we have truly learned how to operate extremely efficiently in a COVID environment. I want to commend the entire Apogee team for staying focused and doing a terrific job of managing through this situation, while delivering for our customers.

These decisive actions we took in response to COVID earlier in the year has stabilized our business and contributed to strong operating results these last two quarters. 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 COVID environment. As I've said, the protocols we put in place are working, maintaining a safe work environment for our people, while allowing us to provide the 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 margins and strong working capital management and delivery metrics such as on time and complete and quality, which have never been better.

A year ago, we announced our procurement savings initiative in 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 million to $20 million of savings from this effort and see significant long-term opportunities beyond that and you'll hear more on this when Nisheet gets on stage.

The performance of Architectural Services was, once again, a highlight in the quarter. This segment has double-digit growth on both top and 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, Harmon, our services company, average $260 million in annual awards, over that five -year period. In fiscal '20, last year, we sold 2 times that with awards over $500 million and 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's 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 COVID related shutdown earlier this year. Our LSO segment delivered year-over-year revenue growth and returned to its typically strong operating margins, above 25%.

Impressively, the LSO segment revenue increased sequentially by 50% 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 impacts from the current situation of the end markets. Both segments had project delays and schedule changes, which impacted revenue. They did a great job managing costs and execution this quarter, which helped 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, increase 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 [Phonetic]. 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 Nisheet will touch on as well. Going forward, we also look to increase investments in high return capital projects to position the Company for accelerated growth as architectural end markets recover.

Nisheet will provide more details on our outlook for the fourth quarter. Looking longer term, I remain confident how 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 low.

Forward indicators like employment growth, Architecture Billings Index and construction starts have rebounded but remain below pre-pandemic levels. I am encouraged, though, by recent developments with vaccines and drugs to treat this virus and I'm 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-COVID, our end markets were very healthy. There were 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 COVID-future. Regardless of what lies ahead for our economy and our industry, Apogee is in a much stronger position and is 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. We're improving execution across our company. We're moving aggressively to 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 of this company.

I am very confident that Apogee has 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 Nisheet 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, Nisheet [Speech Overlap].

Nisheet Gupta -- Executive Vice President and Chief Financial Officer

Thank you. Thanks, Joe, and good morning everyone. Let me start with our consolidated results, which are on Page 5 of our earnings presentation. Total revenue was $314 million, down 7% from last year's third quarter, primarily reflecting continued project delays and market related volume declines in Architectural Framing Systems and Architectural Glass. This was partially offset by year-over-year growth in our 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 COVID related costs. Excluding these two items, adjusted operating margin was 10.1%, a nice improvement over the 6.4% in the last year's third quarter, despite the lower volume. The improved margin was primarily driven by our cost saving efforts, improved execution, and the benefit from a tax credit related to prior investments in our Architectural Glass segment.

Adjusted EBITDA improved to $44.5 million compared to $33.7 million in last year's third quarter, reflecting the improved margins, which offset the impact of lower revenue. Net interest expense was $1.5 million, down from $2 million last year, due to both lower debt balances and lower borrowing costs. The tax rate of 23.5% was roughly in line with last year's 23.2% and we reduced our diluted share count to 26.2 million, reflecting share repurchases during the quarter. Putting it altogether, adjusted earnings grew to $0.90 per share, up from $0.57 per share in the prior year quarter.

Now turning to segment results on Page 6. Architectural Framing Systems revenue of $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's third quarter. Framing Systems backlog increased slightly to $408 million from $404 million last quarter.

Architectural Glass revenue was $85 million compared to $89 million in the last year's 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 Markets Tax Credits. As a reminder, Apogee has participated in this federal tax credit program to support our expansion and capital investments. This is an excellent program that incentivizes private investments in local economies.

Private investors provide funding for these projects as loans in exchange for tax credits. Then, at the end of seven-year transaction period, the loans are forgiven and the proceeds are recognized as earnings. As outlined in our previous SEC filings, we have entered into three similar transactions and expect to recognize the income from those transaction in future years. We will look forward to further our opportunities to invest in similar programs to support our local economies.

Architectural Services outlined its strong performance with revenue growing 11% to $77 million as the 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 with $665 million last year and roughly in line with $607 million backlog level a year ago.

Page 7 of our earnings presentation shows our backlog trend over the past several years. While backlog decreased this quarter, it is still at historically high levels, which provides good visibility over the next two years and the Services segment continues to pursue a pipeline of new project opportunities.

Coming on to Large-Scale Optical, we continued the strong performance of sequential recovery with revenue increasing by 50% compared to the second quarter. On a year-over-year basis, revenue grew 4%. LSO sales have rebounded faster than we expected as its retail customers and reopened. The strong third quarter revenue reflects a lot of hard work from our LSO team and the demand for our products in the marketplace.

Third quarter revenue also benefited from sales incentive programs that we ran during the quarter and favorable timing of customer orders. LSO turned to a more normal level of profitability in this quarter with adjusted operating income of $6.8 million, in line with last year's 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 8 of our presentation. We are on track to achieve the targets we outlined last quarter with more than $40 million savings in the current fiscal year, we made progress on our procurement savings initiative and Framing Systems integration efforts, which together will contribute more than $20 million of cost savings this year, all of which are sustainable.

We expect these initiatives will provide approximately $40 million of annual run rate savings when fully implemented. The temporary cost actions we announced in response to COVID have contributed more than $20 million of savings year-to-date.

During the third quarter, we began to reverse 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 our run rate for the next fiscal year. During the quarter, as Joe mentioned, we launched an additional effort to reduce our fixed cost base with an initial target of $10 million to $20 million of annual savings by end of FY'23.

During the third quarter, we absorbed roughly $600,000 of restructuring costs related to this initiative and expect additional restructuring costs in the fourth quarter. As we move forward, we'll 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 a more flexible and efficient cost structure. Longer term, we see several opportunities to continue to drive productivity and optimize our costs.

Turning to Slide 9, our cash flow and balance sheet remains strong. Year-to-date, we have generated $121 million of 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 total to $17 million as compared to $41 million at the -- at this point last year.

Earlier in the year, with significant uncertainty from COVID. 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 intend to ramp up capital spending going forward to support high return investment opportunities. As Joe mentioned, we took two other important actions during the quarter to strengthen our financial position; the sale and leaseback transaction which generated $24 million of cash and the long-term extension.

At the end of third quarter, our total debt stood at $168 million and we have over $55 million of cash in our balance sheet for net debt of $113 million, which is less than 1 time our trailing 12 months adjusted EBITDA. It is notable that our primary $235 million revolving credit facility is completely undrawn, which together with our cash balance, puts the company in a very strong liquidity position. With the strength of our financial position, we decided to resume share buybacks during the quarter and repurchased 621,000 shares for $16 million.

Before I wrap up, I would like to provide few comments on our outlook. As you've seen in our press release, we decided not to provide financial guidance again this quarter, given the continued uncertainty in our 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 our 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 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 front, we'll continue to closely manage our cost and project execution, but keep in mind that the temporary cost actions we took in response to COVID were mostly reversed 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'll turn the call back over to Joe.

Joseph F. Puishys -- Chief Executive Officer

All right, thank you Nisheet. Well, this will be my last earnings call with Apogee. I look forward to welcoming Apogee's next CEO as soon as that person is announced. But I want to thank all of you on the call, all of Apogee's shareholders and all of my team for support over these years. I am quite proud of what the Apogee team has accomplished over the last decade and 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 boardroom to 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, what you've done to support me, and more importantly, to company. Thank you.

Jewel, if you could open up the call for questions, please.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Chris Moore with CJS Securities. Your line is now open.

Chris Moore -- CJS Securities -- Analyst

Hey, good morning guys.

Joseph F. Puishys -- Chief Executive Officer

Hey, Chris. Good morning.

Chris Moore -- CJS Securities -- Analyst

Yeah, maybe -- good morning. So it looks like on the Framing backlog, it was up a little bit sequentially down a little bit year-over-year. Can you maybe talk about the Framing orders for Q3 a little bit?

Joseph F. Puishys -- Chief Executive Officer

You're correct, it was an average quarter. It is 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 and it does have a solid backlog and it's -- the longer the lead time parts of AF -- Framing Systems, but we certainly need to book some additional project wins in the remainder of the year. It's pretty healthy considering the COVID environment, in my opinion. I'm pleased with the slight increase sequentially.

Chris Moore -- CJS Securities -- Analyst

Got it, thanks. And in terms of -- I'm just trying to get a better feel in terms of geographic strength and weakness, it's as much disparity [Phonetic]. Recognizing that the ABI is only one indicator, was down in November different pieces within that. You know the Midwest was actually improved versus a very weak Northeast. Can you talk about Q3 results in terms of how they line up with that ABI geographic breakdown? Were they consistent there?

Joseph F. Puishys -- Chief Executive Officer

Yeah, the ABI is broken down in two ways; one is regionally and one is sector or segment. And first, let me preamble by saying most people don't know what the ABI actually -- the calculation. It's a survey of architects and basically, it's a question of, are your billings increased or decreased in last month. So it's a binary answer, yes or no.

If the same number of people answer my bills are higher, that say my bills are lower, the index would be 50. It does not account for 10 say they're up 10% and 10 say they're down 1%. It will still be 50. So it's indicative and you watch it over time. I wouldn't state that, Chris, in the last downturn, 11 years ago, the ABI was in the 30s, the low 30s for a sustained period of time. So I'm not too nervous. I see it coming back. It's been hovering in the mid-to-upper 40s, and hopefully, I think the end markets were sound when we entered it. It will come back.

I believe most CEOs like me believe in work-from-work not work-from-home. You are right, in the regional breakdown, the Midwest was the strongest. It was slightly over 50. The Northeast is the weakest under 40. And we are certainly dependent on the Midwest, it's a big part of our geographic footprint.

The sector breakdown was; the strongest was multi-family residential. You know that -- the acquisition of -- or the recent acquisitions we've done, EFCO, is strong in that segment. Traditionally, we had not been. Institutional is the weakest segment and most of that is government, you know public institutional. I think private institutional, healthcare 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 put ammo in the barrel. We just need to have some triggers pulled. Hope that helps, Chris.

Chris Moore -- CJS Securities -- Analyst

Very, very helpful. Almost done. Obviously nobody has a crystal ball, but kind of looking at what the bull case would be for the second half of fiscal '22. Would it be -- on the Framing side, would it be that the quick turn framing that would likely be the biggest and earliest beneficiary or how should I look at that?

Joseph F. Puishys -- Chief Executive Officer

Yes. Yes, the shorter lead time businesses and in our Framing Systems, it's got a very healthy mix of small and mid-sized projects. It does have some dependency on the large buildings, less than the other sectors, I just mentioned. Glass has moved nicely down in the mid-markets and of course the launch of our Velocity brand has given us this footprint in the small projects.

But this smaller shorter lead time, you know two, three week lead time businesses at Velocity and in Framing Systems will recover first and then the larger projects will follow. I think the second half of the year, next year, it's likely to see end market activity improve which will bode well for our fiscal '23.

Chris Moore -- CJS Securities -- Analyst

Got it. Thanks much. I'll jump back in line.

Joseph F. Puishys -- Chief Executive Officer

Thanks, Chris.

Operator

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

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Hey. Great. Thanks. Good morning.

Joseph F. Puishys -- Chief Executive Officer

Hey, Brent.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Hey, Joe. On the Dallas Velocity facility, how far is you from being at a level of sort of operating performance you expect from the new asset and do you still feel like you can get there even in this sort of environment?

Joseph F. Puishys -- Chief Executive Officer

Yeah, we're not quite at breakeven yet. I expect this business to be accretive to operating results in fiscal '22. Revenues and orders grew again in Q3. Business continue -- we're still operating at a slight loss, but slightly lower revenues. I'd say a healthy indication is the businesses had to deal with more ramp-up issues that expected. They're getting through that.

I'm happy that the demand for that small projects is healthy. The customer retention rate is amazingly high because of the amazing quality. It's a highly automated factory. I'm very confident in the long term. We're committed to the 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.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Yeah, OK. And then, Nisheet, thanks for the details on 4Q. I guess, any color on LSO. I mean a really nice recovery here. Should we think that business kind of goes back to its normal cadence in the fourth quarter kind of that post-holiday slowdown or is there some pent-up demand here?

Nisheet Gupta -- Executive Vice President and Chief Financial Officer

Yeah. So LSO is definitely coming back to normal and in these times, as you can imagine, where people are still locked down at home. They want to do things and they're going out there to these stores 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 a normalcy. And we expect that by end of Q4 the business will be back up and running in a normal way, barring any new COVID surprises. There are some, obviously, risks that come with COVID and certain retail markets being shut down, but if that doesn't happen, we should be back up and running as a normal business, similar to FY'20 in year FY'22.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Okay. And I apologize that I missed this. But the New Markets Tax Credit transaction, it sounds like you may see some additional benefits. I mean, any sense on the timing of that going forward?

Nisheet Gupta -- Executive Vice President and Chief Financial Officer

Yes. So as we look at our filings that we have done, we have benefits coming from New Market Tax Credit, three more coming up in FY'24 and FY'26, they are about a $12 million additional benefit that will come in those years. And it is, by project, detailed out in our SEC filings.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Okay. And Joe, I just -- I guess I want to come back to the Framing business. I mean the trend in backlog just differ so much from, I mean, what you're seeing on the topline. I'm just curious, I know the backlog contains sort of more of that custom larger project stuff. What do you think has been the difference maker in terms end sectors that is causing that difference in top line versus backlog trend in Framing?

Joseph F. Puishys -- Chief Executive Officer

You mean the increased backlog trend?

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Correct.

Joseph F. Puishys -- Chief Executive Officer

Listen, it's a mix of small projects which really don't impact backlog, our storefront and entrance businesses that go under the brand names of Tubelite and Alumicor, it's very quick turn a little hard -- very hard to forecast frankly. You have lot of delays, and then rush, rush, rush on those orders. But order and delivery within a two to four week cycle, so it's book to bill fast turn.

With medium and larger projects, which have much longer lead time, we do have some curtainwall business in our Wausau and Sotawall entities and to a small degree in EFCO and we are -- those are the businesses that are seeing some slowness in the projects in the field. But we haven't seen any projects, Brent, cancel. We're just seeing delays.

I mean, even though the construction sites are open, you read the news, there are a lot of people on quarantine from COVID. So progress at construction sites is going slow. That slows down orders. It slows down the start-up of the next project. But there is still pent up demand out there and I think post vaccine we'll see that turn.

But the business does have a large backlog. It's 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 COVID situation before we'll see topline revenue return.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Okay. Okay, thank you and all the best. Joe.

Joseph F. Puishys -- Chief Executive Officer

Thanks, Brent.

Operator

Thank you. Our next question comes from Bill Dezellem with Tieton Capital. Your line is now open.

William Dezellem -- Tieton Capital Management -- Analyst

Thank you. I have a couple of questions. First of all, the Glass revenues were only down 5% whereas the Framing revenues were down 17%. Would you please kind of help us understand why those two segments had such a wide dispersion of results?

Joseph F. Puishys -- Chief Executive Officer

Well, I'll give you a higher altitude, maybe Nisheet might want to jump in. But we're 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 smaller [Phonetic] and we also have had a pretty good strength in a very small piece of that segment, but it's our Brazilian, our 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, Viracon was losing money, our Glass segment was losing money. The Brazilian business was double-digit operating margins. It has subsequently gone into an economic downturn that made the previous crisis in the U.S. pale by comparison. So that economy is returning. Financing is strong. So those two smaller businesses have helped offset what would have been probably low-double digit, low teens contraction in the end markets. And it's just also, it's more of a lumpy business as well. And so we're pleased with the results considering.

Nisheet Gupta -- Executive Vice President and Chief Financial Officer

Yeah, I have nothing further to add.

William Dezellem -- Tieton Capital Management -- Analyst

All right, thank you. May I dive further into Brazil? Just given how weak that business has been, frankly it's fallen off of our radar. Is that a business that we should be thinking about more front and center?

Joseph F. Puishys -- Chief Executive Officer

No. We're pleased with the business. It's got run by a good team. We'd like to grow the business. It's a very small and inconsequential piece of the whole segment. So the answer is, no.

William Dezellem -- Tieton Capital Management -- Analyst

Okay, great. Thanks, Joe. And then one additional question please. Did you see your customers' behavior improve at all well before the recent surge in case count again?

Joseph F. Puishys -- Chief Executive Officer

I'm not quite with you, Bill. Can you expand and address [Phonetic] me, our customers' behavior?

William Dezellem -- Tieton Capital Management -- Analyst

Yes, in terms of decision-making, where they were making decisions starting to have a more favorable mind-set, maybe inquiries going up? And then I guess the converse of that question is, as the case count rose here in the last while, did you see them become more conservative with their mind-set?

Joseph F. Puishys -- Chief Executive Officer

I would say, in general, the answer is affirmative, yes. I think it mirrors what we're seeing in the United States. But like our company -- I'll tell you what, the amount of people we quarantined due to contact tracing in the third quarter, would've crippled us in March. We have learned how to operate that way.

We haven't called out productivity problems, which -- so we've learned, 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 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 started to feel better in the summer, the turn for the worse with COVID had everyone pause. But I'll repeat, Bill, we have not seen any projects canceled. The only project that I can recall, off the top of my head, that canceled was a -- the headquarters for one of the large cruise lines, early in the crisis canceled an order we had. I think it had to come out of our glass backlog, and no surprise that a cruise line would do that. Other than that, I can't name one in the hundreds and thousands of orders we had in backlog.

William Dezellem -- Tieton Capital Management -- Analyst

Great, thank you. And happy retirement and Merry Christmas.

Joseph F. Puishys -- Chief Executive Officer

Thank you very much, and thank you, Bill.

Operator

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

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Hi Joe and Nisheet.

Joseph F. Puishys -- Chief Executive Officer

Hello.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Hey, so a couple of quarters in, just curious how you're thinking the -- well, whether there's a structural change in the market, the large office versus the decentralized office? And I know that certainly, Velocity plays into that. But what are some of your kind of high-level thoughts now that we're a couple of quarters removed when everything hit?

Joseph F. Puishys -- Chief Executive Officer

I believe that -- Eric, this is Joe here. I believe that trend will happen. It's still pretty early. But I do believe 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, eight to ten storeys. We've always been able to play in that market. And in the past decade, Viracon has become very proficient at servicing that shorter lead time business, not as short as 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 large buildings as well. We -- a one trend that will continue to drive large buildings is a multifamily housing. We don't see that trend turning around for -- we see that maintaining its growth trajectory. And with some of the acquisitions we've 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 spike better than we handled the last spike, and that's what my replacement will be challenged to do.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Got it. Well -- and I'll ask this question, and maybe this will be a question for whoever may be in that seat going forward. But in terms of the service business, obviously, some headwinds or more headwinds in Framing and Glass. Services has been fantastic.

Given where you brought that to in the execution, is that something where potentially you think about expanding that? And maybe -- because obviously, you can grow that substantially, but it would impact margins or maybe you grow that a little bit more, maybe margins hurt a little bit, but as a way to offset Glass and Framing here, just given the uncertainty going forward a little bit?

Joseph F. Puishys -- Chief Executive Officer

It's a -- the answer is balanced. Yes, the leader of that segment is a phenomenal leader. He has got an amazing team. We are leveraging our disciplined project selection process and field execution and want to take that -- to increase our revenue profile. We want to be careful we are in a business that is very cyclical, and it is a heavy investment on engineers and program managers that takes time to train and develop.

You've got to be careful you don't overrun the growth curve, and then you do have very compressed margins. 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 drunk-and-disorderly, we're not suggesting we're 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, winning share, executing flawlessly and that kind of track record can help them not look lumpy during the ups and downs of lumpy order cycles. So I would say it's a balanced answer, but we will look at growing that business.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Okay. Good. And maybe last one for me. Just on the cost reductions. And I know you've kind of laid out which ones are permanent, which ones are temporary. But when I look at the SG&A, for instance, in this quarter, I mean, it was a fantastic number. Just curious, I mean some of the gains -- the one-time gains in the quarter, I mean, did that impact the SG&A number? And what is a more reasonable number or a range that we should think about on the opex line going forward?

Nisheet Gupta -- Executive Vice President and Chief Financial Officer

Yes. So the first is, of course, there are two big ticket items sitting in SG&A that are causing this quarter to look really nice. That's not sustainable, and we should not factor them for the next years, one or two years, of course. The New Market Tax Rate will come in as per the SEC filings. But beyond that, McCook is not going to happen. So McCook being about kind of $24 million -- or $20 million in profits and New Market Tax Rate is $7 million. So let's back them out.

If you back them out and look at our normal trends on our SG&A, a range of about, I would say, $53 million -- $50 million a quarter is what we are looking at right now as a normal number. We are working really hard to reduce that. So as we mentioned, the $10 million to $20 million initiative that we're working on right now, that should take that $50 million to kind of a $45 million trend per quarter by end of fiscal '23. So more upside there than downside. And $50 million is the current trend, $45 million is FY'23 year-end kind of a run rate we're looking for.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Got it. Okay. I guess that's it for me. Best of luck, Joe.

Joseph F. Puishys -- Chief Executive Officer

Thank you very much. I appreciate that, Eric. Thank you.

Operator

Thank you. Our next question comes from Julio Romero with Sidoti. Your line is now open.

Julio Romero -- Sidoti & Company, LLC -- Analyst

Hey good morning everyone.

Joseph F. Puishys -- Chief Executive Officer

Good morning Julio.

Julio Romero -- Sidoti & Company, LLC -- Analyst

Hey, Nisheet, I think you touched on this, but on the glass business, you expect revenue pushed out of Q4 due to project delays. So does your op margins in the Glass business look closer to maybe that 4% margin you would have seen this quarter ex-tax credit?

Nisheet Gupta -- Executive Vice President and Chief Financial Officer

Yes, that number sounds about right. Of course, if you look at FY'22, the Velocity business has started to come into a breakeven position, and then it will be accretive for us by end of FY'22. So that should help us in improving this 4% margin. But in the current state, you're right.

Julio Romero -- Sidoti & Company, LLC -- Analyst

Okay. And I guess, you are creating more flexibility across the business, both operationally and financially. But -- 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?

Nisheet Gupta -- Executive Vice President and Chief Financial Officer

Yes. So I think the first thing is the mention on investment is more about our fixed cost base. So we talked about kind of getting a top-tier firm 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 our fixed cost base. We have taken that analysis and study, and we are starting to execute on the quick hits actions in Q3, Q4 this year. That will benefit in the next two years. That's a $10 million to $20 million we have mentioned.

The investments that are needed to make that happen would be more around automation, back office consolidation where possible, so we can serve businesses better and also optimize our cost, looking at our infrastructure and support on cloud, servers and so on and how we can do that better. Those kind of investments, restructuring type of investments are being looked at there.

To answer your other question about capex, we have a pretty disciplined process on capex, wherein we evaluate every project on a kind of a hurdle rate of about 15% ROIC that that capital project should provide to us. So we've been looking at new investment ideas coming from each of our segment leaders, and there are a lot of interesting things that we'll be executing on as we move forward in the next one or two years.

Julio Romero -- Sidoti & Company, LLC -- Analyst

Great, appreciate the color. Thanks for taking the questions.

Nisheet Gupta -- Executive Vice President and Chief Financial Officer

Thank you.

Joseph F. Puishys -- Chief Executive Officer

Thanks Julio.

Operator

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Joe Puishys for closing remarks.

Joseph F. Puishys -- Chief Executive Officer

Alright. Thank you, Jewel. 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 shareholders in Apogee, I can assure you, I look forward to the next earnings call. I'll be on the side-lines with Nisheet. Jeff and team, I'm looking forward to supporting you, and I'm looking forward to future quarters.

I feel terrific about my investment and look forward to seeing you confirm that. So thank you, everybody. Have a wonderful holiday, and let's all look forward to, hopefully, a much better U.S. in 2021. Bless you all. Thank you. Bye, bye.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Jeff Huebschen -- Vice President, Investor Relations and Corporate Communications

Joseph F. Puishys -- Chief Executive Officer

Nisheet Gupta -- Executive Vice President and Chief Financial Officer

Chris Moore -- CJS Securities -- Analyst

Brent Thielman -- D.A. Davidson & Co. -- Analyst

William Dezellem -- Tieton Capital Management -- Analyst

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Julio Romero -- Sidoti & Company, LLC -- Analyst

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