Categories Earnings Call Transcripts, Industrials

Apogee Enterprises Inc (NASDAQ: APOG) Q1 2021 Earnings Call Transcript

APOG Earnings Call - Final Transcript

Apogee Enterprises Inc (APOG) Q1 2021 earnings call dated Jun. 26, 2020

Corporate Participants:

Jeff Huebschen — Vice President, Investor Relations and Communications

Joseph F. Puishys — Chief Executive Officer

Nisheet Gupta — Executive Vice President and Chief Financial Officer

Analysts:

Chris Moore — CJS Securities — Analyst

Eric Stine — Craig-Hallum Capital Group — Analyst

Julio Romero — Sidoti & Company — Analyst

Bill Dezellem — Tieton Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Apogee Fiscal 2021 First Quarter Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jeff Huebschen. Please go ahead, sir.

Jeff Huebschen — Vice President, Investor Relations and Communications

Thank you, Josh. Good morning and welcome to Apogee Enterprises’ fiscal 2021 first quarter earnings call. With me today are Joe Puishys, Apogee’s Chief Executive Officer and Nisheet Gupta, Chief Financial Officer. We are also joined by Maggie Kirchoff, Apogee’s Controller.

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 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.

Joseph F. Puishys — Chief Executive Officer

All right, thank you and good morning everyone. Appreciate that, Jeff. Thanks everyone for joining our call this morning. Wow! what times we live in today. I’m not aware of anyone that had the foresight and imagination to predict a global pandemic and the impact on our country and, in our case, our industry this year.

That said, our team did a terrific job managing through the challenges of COVID-19. During our first quarter, we delivered positive earnings, not everyone will be able to do that this quarter, strong cash flow in a quarter where we always use cash, and increased backlog, all of which demonstrates the underlying health of our business. This morning I will provide more details on the impact of COVID-19 during the quarter and our response to the situation. And I’ll discuss the current trends we’re seeing in the business and how we are positioned for the future. Then I’ll introduce Nisheet Gupta, my new CFO and business partner for additional details on the results of our financial condition. After that I’ll certainly take your questions.

Let me start with the impact of COVID-19 on our business during the quarter. First, I’d like to say how proud I am of the entire Apogee team. Everyone truly rose to the occasion. In just a few short weeks, we made fundamental changes to the way we operate our business. We established a full time COVID response team, implemented a number of policies to maintain a healthy working environment in our factories and on our job sites, including health screening, social distancing, enhanced cleaning, and the increased use of personal protection equipment. For our employees who normally work in the office, we transitioned nearly everyone to working from home in a matter of days. We’ve had weekly, and at times, daily communications with all 7,000 employees through voice, written comms and video. And we accomplished all this without missing a beat, continuing to ship product to meet customer needs.

Even with these preventative actions, the COVID impact in the quarter were substantial. Most notably, in our Large-Scale Optical segment, we saw a near complete shutdown of our customer base to comply with state and local government stay-at-home orders. This drove a 70% year-over-year decline in revenue. In response to this dramatic decrease in demand in Large-Scale Optical and to comply with stay-at-home orders, we closed our LSO manufacturing operations and furloughed most of our workforce. We were able to continue shipping some product, thanks to strategic inventory build, leaving no stone unturned.

Our three Architectural segments continue to operate as essential businesses. However, a number of projects were temporarily halted or delayed, whether due to state and local government restrictions, economic reasons or other disruptions. The good news is that with few exceptions, the projects in our backlog and pipeline are moving forward, though many are moving forward at a slower pace, and projected due to delays and disruptions which impacted our revenue.

We also saw COVID-19 outbreaks in some of the communities where our factories are located, which impacted our workforce, particularly at our primary Architectural Glass facility in Southern Minnesota. In our Glass business, many employees were placed on precautionary quarantine or took voluntary leave, which impacted productivity in revenue. In fact, at peak, we had nearly 25% of our Glass workforce in Southern Minnesota on quarantine. Because of our aggressive response, we now are nearly back to full employment at that facility.

Outside of these COVID-related issues, Glass business performed quite well operationally with very strong customer service and quality metrics. But this also brought added costs including paid leaves and extensive personal protective equipment, both for our people and our production lines. We have taken a number of proactive steps to manage our cost and capacity, which delivered over $5 million of savings in the quarter and contributed to keeping the company profitable despite the significant volume decline.

Our procurement savings initiatives started to deliver meaningful savings and we implemented several steps to temporarily align compensation costs with the current market environment. And our Framing Systems segment made steady progress towards optimizing operations, improving execution, and removing costs. The impact of these actions will continue to ramp up as we move into the second quarter and Nisheet will provide more details on the financial impact in his remarks.

We also asked our team to focus on working capital management with an emphasis on receivables and collections, which led to strong cash flow, well above last year’s first quarter. I’d also like to highlight the continued strong performance of our Architectural Services segment. Segment operating income improved despite slightly lower revenue, driven by solid execution, project selection and cost management. Also, we were awarded several new projects during the quarter, increasing this segment’s record backlog to $685 million, up over $200 million from this time last year.

So, given the challenges in the quarter, we are overall pleased with how our team responded and the results we achieved. We were profitable, we managed the balance sheet adding cash, paid down some debt, paid our dividend, all while adding to our backlog in our long lead-time business.

As we look ahead to the rest of the fiscal year, there remains significant uncertainty around the impact of COVID-19 and the overall economic situation and the impact to our end markets. Accordingly, at this time, we are not prepared to offer guidance. We will strive to provide guidance in the coming quarters as the economic situation stabilizes and becomes more realistic, but I can say that we are cautiously optimistic in our path to improved results in the coming quarters. More on that in a moment.

In Large-Scale Optical, our customers are beginning to return to reopen status and the trend line in orders and sales has been positive over the last month. Our LSO manufacturing facilities, while remain closed, will reopen this quarter. In our Architectural segments, our strong backlog of over $1.1 billion gives us good visibility and a longer lead-time portions of our business. Additionally, while we are still seeing some project delays and disruptions, we expect these will moderate in the coming quarter, as the economy reopens.

Finally, we should see increased benefit from our cost reduction efforts as we move through the second quarter and beyond. We see the potential for each of our four segments to deliver improved results both on the top and bottom line in the second quarter compared to the first quarter. Looking out longer term, it seems likely that we will see some degree of downturn in our end markets. How severe and for how long, no one knows. In the Q&A session, I’m sure I’ll get some questions about this and I’m prepared to answer what we are seeing from industry analysis.

But we also see many reasons to be optimistic about Apogee’s long term outlook. Unlike the last recession — the Great Recession of ’08 and ’09, we introduced downturn with healthy and market fundamentals with strong demand for new construction and few signs of overbuilding, excellent tenant commitments to support new construction and very, very low office occupancy issues. We’re also seeing some economic indicators, which give us optimism such as the improved May unemployment report, particularly versus expectations and measures like retail sales and industrial production, which have started to rebound in May off their low April numbers. Also the various government stimulus measures provide some support for construction end markets.

Regardless of what lies ahead for our end markets, Apogee is a much stronger company and more resilient today than we entered the last downturn. Over the past several years, we pursued a purposeful strategy to diversify our business mix and the end markets we serve. Today, we have a much broader exposure to a range of project types and sizes, including sectors like healthcare, education, and government and multifamily housing, as well as a growing renovation business. These are historically less volatile segments within the market.

We have also reduced our resilience on monumental high rise projects, the most cyclical environment part of the market fluctuations and increased our exposure to small and mid-sized projects including our recent expansion in to small projects for Architectural Glass. We have pursued a growth strategy, which include a geographic expansion and new product innovation and today, we have a portfolio of market-leading brands that are well-positioned to take advantage of a market rebound. And we have significantly improved the productivity of our operations, investing in automation in our factories, building a culture of continuous improvement through our lean enterprise system. A wide range of cost saving efforts are underway including procurement savings and, if necessary, we have additional options available to manage cost and capacity.

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

Finally, I strongly believe that we have the right team to manage through this situation. Over the past year, we’ve added key talent across our organization. This includes new members of our Board of Directors, several new members of my executive leadership team, including a new General Counsel, a new Head of Human Resources, a proven procurement leader, and Nisheet Gupta, our new CFO. We’ve also added key talent in our segments and in our business unit level. With these talent additions, I sense tremendous energy and enthusiasm across our company and I’m confident that Apogee’s best days lie ahead.

With that, I’d like to introduce Nisheet. He started at Apogee on June 15, so throwing him into the fray with an earnings call less than two weeks into his job. He brings tremendous range of experience to Apogee, having led and transformed finance organizations at several high performing companies and I’m truly excited to have Nisheet as a part of the team and my business partner. I’d also, one more time, like to thank Jim Porter for his countless contributions to Apogee.

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With that, let me turn it over to Nisheet to provide more details on the quarter and our financial positions and then I’ll return in quarterback taking your calls and I’ll add some additional comments. Nisheet?

Nisheet Gupta — Executive Vice President and Chief Financial Officer

Thanks, Joe, and good morning everyone. I’m very excited to join Apogee team and to participate in my first earnings call with the company. I look forward to speaking with many of you in the coming quarters and hopefully I’ll be able to meet with many of you as travel restrictions are lifted.

Looking at the results for the quarter, let me start with the consolidated results, which are on Page 5 of the earnings presentation. Total revenue was $289 million, down 19% from last year’s first quarter, reflecting several COVID-related disruptions across the businesses. Operating margin was 2.2%, which includes the impact of COVID-related expenses. Excluding these costs, adjusted operating margin was 2.7% compared to 6.5% in the last year’s first quarter, reflecting the impact of lower volumes partially offset by our efforts to manage cost and capacity.

Adjusted EBITDA was $20.4 million compared to $34.1 million in the last year’s first quarter, reflecting the lower revenue and lower margins. Net interest and other expenses was $2.5 million roughly in line with $2.6 million in last year’s first quarter. The tax rate of 28.2% was above last year’s level and above our long term estimated tax rate of approximately 24.5% due to discrete tax matters. Finally, our diluted share count came down to 26.4 million from 26.8 million last year due to share repurchases over the past year. Putting it all together, we had adjusted earnings of $0.15 per share compared to $0.58 per share in the prior year quarter.

Now turning to segment results on Slide 6, Architectural Framing Systems revenue of $150 million was down 17% from prior year. We entered the quarter expecting lower revenue based on timing of projects. This was magnified by impact of COVID-related project halts and delays, particularly in those regions with tighter restrictions on construction activities such as New York, Pennsylvania, and California. Framing Systems’ operating income was $7.3 million with an operating margin of 4.9% compared to 6.8% in last year’s first quarter, reflecting negative leverage on the lower revenue, which was partially offset by cost reduction actions. Framing Systems’ backlog decreased slightly to $423 million from $432 million at the end of last fiscal year. We continue to win new awards and most projects in our pipeline are moving forward, but overall order flow in the segment was down about 15% compared to last year’s first quarter.

Architectural Glass revenue was $77 million down 23% from last year’s first quarter. As in Framing Systems, we entered quarter expecting lower year-over-year revenue due to timing of projects in our pipeline and then saw additional pressure from COVID-related project delays and a small number of project cancellations. As Joe mentioned, the area of Southern Minnesota, where our primary Glass fabrication facility is located, became a hotspot for COVID-19, which impacted many members of our workforce and disrupted production, reducing revenue by approximately $4 million in the quarter. We also saw increased costs associated with pay for employees on quarantine and personal protective equipment. The segment had an operating loss of $500,000 compared to income of $6.4 million in the prior-year, reflecting leverage on the lower volume and added COVID-19-related costs. Also, we saw lower than expected revenue and an operating loss associated with our new small glass facility in Texas. While we remain confident in this venture’s long term potential, the market disruptions caused by COVID and current economic conditions will likely result in a slower-than-planned ramp up for this operation in the current fiscal year.

Architectural Services continued to deliver strong execution and saw the least impact of our segments from COVID-19. Services revenue of $64 million was slightly below the prior year level, reflecting a handful of delays on project sites. Despite the lower revenue, operating income increased to $5.3 million with operating margin of 8.4%, up from 7% in the last year’s first quarter, reflecting strong project execution, project selection and good cost management. Services backlog increased again this quarter as the management booked several new project awards. The segment’s backlog now stands at a record $685 million with a project work that extends into fiscal 2023.

As Joe mentioned, Large-Scale Optical saw more severe impact from COVID as almost all of the segment’s customers were closed for most of the quarter to comply with the government’s stay-at-home restrictions. This drove a 70% year-over-year decline in revenue and an operating loss of $3.1 million. In response to this situation, we closed our two manufacturing facilities and furloughed most of our workforce. As we have moved into June, our customers have begun to reopen and we are seeing a gradual uptick in demand. Through the first weeks of June, shipments are trending higher, but still well below historical levels. We expect sales will continue to gradually recover as the economy reopens.

Cost savings initiatives. Even as three of our segments experienced significant volume declines due to COVID-19, we took action to manage our cost and capacity to keep the business profitable. As we’ve discussed previously, we entered the fiscal year with a number of cost saving initiatives already in place. Our procurement savings program delivered $3 million of cost savings in the first quarter and we expect to see these savings ramp up through the year. Also, even with reduced volumes in our business, we remain committed to achieving our procurement savings goals. We made further significant efforts to integrate and optimize our Framing Systems segment, which we expect to deliver cost savings through the rest of the fiscal year.

During the first quarter, we announced several additional temporary cost saving measures, primarily related to compensation. These measures, only in effect for a portion of the first quarter, contributed $2 million of savings. To summarize, with all of these initiatives taken together, we will now deliver $40 million or more of total savings during fiscal year 2021 and an annualized run rate savings north of $40 million in future years.

Going on to cash flow and balance sheet, turning to Slide 8, we had strong cash flow with $24 million of cash from operations in the quarter, which compares to a use of cash of $10 million in the last year’s first quarter. The increase was driven by exceptionally strong working capital management and receivables collections across the business. As we discussed last quarter, we have put a temporary hold on all non-essential capital spending. Capital expenditure for the first quarter was $8.6 million compared to $11.2 million in last year. We expect the capital spending to decline further in the second quarter as the first quarter spending included investments to complete some projects that were already underway.

Free cash flow was positive $15 million compared to a negative $21 million last year. We used a portion of this free cash flow to pay down debt, reducing total debt to $211 million. We have made significant progress in reducing our debt over the past year with total debt down $82 million compared to the end of first quarter of 2020.

Also, during the quarter, we have made a dividend payment of $4.9 million and repurchased $4.7 million worth of stock early in the quarter. Subsequently, we put a temporary hold on our share repurchase plan, which we will continue to evaluate as the year progresses.

As previously announced, we successfully extended our $150 million term loan during the quarter, pushing the maturity out 12 months to April 2021. Our liquidity position remains strong, with significant unused capacity in our revolving facilities. Together with a strong free cash flow, we believe we have more than enough liquidity to fund our operations and meet all our obligations.

To wrap up, our team successfully managed through a very challenging quarter. As we look ahead, we are encouraged by signs of improvement in our end markets as the economy reopens and we expect increased benefit from our cost saving actions as we move into the second quarter. And importantly, our financial position continues to improve and our strong cash flow provides significant financial flexibility as we manage our way through the COVID situation. With that, I’ll turn the call back over to Joe.

Joseph F. Puishys — Chief Executive Officer

Thank you, Nisheet. So, as we discussed, this was a particularly challenging quarter for most of all companies and I’m happy to have it behind us. I want to again acknowledge the entire Apogee team for truly rising to the occasion during the quarter. Everyone across our company has made real sacrifices over these past three months. Through our team’s collective efforts, we’ve adapted our operations to prioritize the health and safety of our workforce, while continuing to deliver industry-leading products and service to our customers that they’ve come to expect. Even in the face of these challenges, our team’s efforts kept the company profitable, delivered strong cash flow, which speaks to all the strength of our business.

While it remains uncertain, the economic environment that is, it is difficult to know what the future will hold, but I remain optimistic about Apogee’s direction, both for the rest of this fiscal year and the long term. Together with our substantial backlog, strong financial condition and our team, I remain confident in what holds for our future.

Before I take your question slot, let me address a few of the economic indicators we look at. First off, let me start with the Architectural Billing Index. It is one of the metrics we look at on a monthly basis. And as you know, over the last nearly 10 years, the ABI – the billing index, which measures month-to-month increase or decrease in Architectural Billings. It’s a very high-level metric but it’s one. Through 10 years of mostly month-to-month increases, we started calendar 2020 with a strong January, a strong February, both over 50, 52, and 53.5, respectively, then came March, 33. It was no surprise and of course April, even worse, 29.5, indicating dramatically lower billings, not to be unexpected — not unexpected, however, with most architect’s offices closed and people working from home. May rebounded slightly to 32. Inquiries increased to 38. This is a small positive sign at least in the trend.

Earlier this — in the month of June, Dodge Data and Analytics issued their construction market forecast and I’d like to point out a few of their forecast and comments. First off, for non-residential building starts. They are expected to decline between 15% and 20% in 2020. And now I’m talking for calendar year. Square footage would pullback back between 13% and 15%, dollars 15 to 20. After an alarming downturn in 2020, however, non-residential construction starts are expected to quickly turn the corner and show improvement. In square footage, non-resi starts are expected to grow 5% in 2021 and 16% through the end of their forecast, which is through 2024.

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Drilling down, [Technical Issues] construction part of non-resi will grow 6% in 2021 and 16% from 2020 through the end of their forecast period in 2024. Another category key to us is institutional building and they expect institution buildings to grow more modestly up 3% in 2021 and up 15% over the three-year period. It is a forecast. We all know our role is changing daily and we don’t know what COVID will throw at us in this phase and perhaps future phases. But again, the Dodge construction data is another indication of the fact that our industry had solid fundamentals before this unprecedented change to our global and U.S. economy.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Chris Moore with CJS Securities. You may proceed with your question.

Chris Moore — CJS Securities — Analyst

Hey, good morning guys.

Joseph F. Puishys — Chief Executive Officer

Good morning, Chris.

Chris Moore — CJS Securities — Analyst

Good morning. Obviously, recognize visibility is still not very high at this point in time. When you look at the balance of fiscal year ’21, just trying to get a sense as to what some of the biggest wildcards are. I’m thinking that the LSO ramp and the — on the Framing side, how quickly some of the quick turn short lead time business recoveries would be — kind of two of the biggest ones. Is that fair? And maybe you could just talk to us a little bit.

Joseph F. Puishys — Chief Executive Officer

Sure, you’re right. Visibility is itself a wildcard. The biggest wildcard for us of course is the economy with COVID if we do not go into another shutdown like we — the economy did in the month of March. I do feel very confident that our future quarters — that Q1 will be our worst quarter. It — again without something unusual happening, I expect all four segments to improve off of that sequentially in Q2.

Our Large-Scale Optical orders improved every week in the month of June. In fact, last week, we were a little over 50% of a normal week and that bodes well. The team is planning on a slow recovery over the course of the rest of the fiscal year in LSO. I’m seeing some indicators that make us feel good about that assumption. We have, as you’ve seen, a strong backlog. Many of our workers are now back on the job, our Glass business will be improved in the second quarter with our manning levels.

Our Services segment has a geographic footprint across the United States, but on a positive irony, their focus has never been in some of the cities that have seen the most substantial closures and downturn. So that has worked to our favor and we expect that one business to do extremely well this year.

Our renovation business, which I commented, will be up year over year, the sales flow through our Framing Systems and Glass businesses. We are not in the ‘we’ll call’ [Phonetic] business. So I think some people thought, oh, with lot of glasses being broken with the violence that was experienced in the country that, that will inevitably lead to some glass sales, but we don’t have a ‘we’ll call’ business to repair buildings. The overall, if you will, simply be how strong the U.S. comes back. I mentioned the Dodge construction data indicates optimism. And again, it comes back to the fundamentals were solid.

The wildcard will be what happens with office market. We believe there’ll be a shift in offices from large towers to more satellite facilities, which bodes well for our capabilities now in small, medium and large projects, larger square footage required per office worker. We expect to bode well for the office segment as well, and hopefully will offset any work-from-home if that becomes more of the norm. Most business leaders are unanimous in watching their employees back for collaborative efforts in the office, put me at the top of that list. So while there may be more work-from-home in our future, I think businesses will have their employees back in the offices and the demand for office space will increase. So, Chris, that’s the best visibility I can give you.

Chris Moore — CJS Securities — Analyst

Now that’s helpful. You covered a lot for sure. Last one from me, just with respect to the $40 million in cost savings. Maybe, can you provide a little more detail on the cadence for the additional cost savings for the rest of fiscal ’21?

Joseph F. Puishys — Chief Executive Officer

Yeah, let me give some comments and then Nisheet can jump in. First off, we had announced last year, $30 million to $40 million of cost savings for this year as a measure that would be the run rate as we exited the year. We are a little coy in not providing a specific number for the flow through for the year, it was obviously in the middle of that range or maybe $25 million, $30 million. Because of COVID, we took some substantial actions both on furloughs, as I mentioned, our Large-Scale Optical business was virtually closed with the exception of less than a dozen people, every employee was unfortunately furloughed. We’ve taken some salary actions. We’ve taken — amped up our efforts on procurement and Nisheet will tell you, now the flow-through numbers are pretty substantial for fiscal ’21. Some of the actions we took did not kick in until May or June. So many of our actions will be at full force until the second quarter. I will tell you, I certainly hope to restore the salaries of my troops to their prior levels when the time allows it, but most of the actions we’ve taken will continue going forward in the future quarters and next year. And Nisheet if you’d like to provide some more specifics on the dollars, please do so.

Nisheet Gupta — Executive Vice President and Chief Financial Officer

Sure. So, earlier guidance has been more working towards a $40 million number by end of the year to provide annualized run rate $40 million savings in the future years. With all the efforts that the team have done, I would put our savings into three buckets. The first being procurement, with a new procurement officer. We have savings coming through already in quarter one and they will be much higher in the rest of the year. That is in the range of $10 million to $15 million. The second is the cost actions, that is temporary cost actions taken in response to COVID. They are again in the range of $10 million to $15 million. And the last and the bigger work, which the Architectural Framing team is doing. They’re really working hard to align the cost structure with the business, and that’s another, I would say, $15 million. Overall, we are confident to deliver $40 million of in-year savings this year and it will go north of $40 million in the future years now that our Chief Procurement Officer has started looking at all opportunities in the company.

Chris Moore — CJS Securities — Analyst

Got it. Very helpful. I appreciate it guys.

Joseph F. Puishys — Chief Executive Officer

Thanks, Chris.

Operator

Thank you. Our next question comes from Eric Stine with Craig-Hallum. You may proceed with your question.

Eric Stine — Craig-Hallum Capital Group — Analyst

Hi, Joe. Welcome Nisheet.

Nisheet Gupta — Executive Vice President and Chief Financial Officer

Thank you.

Joseph F. Puishys — Chief Executive Officer

Good morning, Eric.

Eric Stine — Craig-Hallum Capital Group — Analyst

Good morning. So I know the previous questions touched on a little bit, but I’ll ask as well. When you think about this and obviously fiscal ’21, a lot of operational issues, project delays, etc, you, like most every other company, dealing with that. But if you look out a little bit longer, I mean, do you view this as — in Services, obviously, a great bookings quarter, backlog in great shape, but do you think of this as that there is kind of a pocket, a temporary pocket in backlog that maybe means it may impact a quarter or two in fiscal ’22, but because the underlying fundamentals of the industry are pretty good, it’s somewhat temporary? Just any thoughts on that. And I realize it’s pretty tough and not many people have that visibility. But I’d love your thoughts anyways.

Joseph F. Puishys — Chief Executive Officer

Yeah, Eric. Thanks. I will talk about that. First of all, I just want to be perfectly clear here. We did not — we are — you mentioned operational issues. We did not have any operational issues, we had volume issues. We did not lose share, we had volume issues due to COVID and project delays and unfortunately the manning issues we had due to substantially high quarantines in one particular region. The actual factory performance was outstanding in all of our business and particularly in Glass where their on-time and complete was remarkable. They did have to push off customer schedules. They worked with a number of customers to delay production into Q2. Most customers worked with them, some didn’t. So, we focused on getting through the quarter. They actually were able to pull in some of that, but we had about $10 million of Glass revenues slip out of the quarter just due to production capacity and push-out from the customers due to project site issues. Plants operated extremely well for us at Apogee. There were absolutely no snafus.

But — and as you mentioned, the Services backlog is strong. They’ve got almost $700 million in backlog, that is more than two years of revenue. It bodes well. Overall, will there be a revenue hold next fiscal year due to the delays, we don’t know yet, but clearly, if things don’t start coming back or if the return that we’re seeing reverses due to COVID, I mean, in the last several days, we’re obviously hearing a little bit more about pockets of the United States that they’re seeing a substantial return. If things get worse, we will have our revenue hold in some of the short lead-time businesses. Not so much in our long lead-time business. They have the backlog to support the growth and we’re making the operational improvements to offset any relatively small revenue delays.

So, holding the revenue pattern next year due to this delays, to be determined. Right now, I believe it to be modest. It depends on the — on what happens in the U.S. as far as the trends of reopening. And that is a wildcard I cannot address.

Eric Stine — Craig-Hallum Capital Group — Analyst

Yeah, thanks a lot. And I was — I guess, I misspoke. I was referring more to the project delays rather than internal but helpful to get that update.

Joseph F. Puishys — Chief Executive Officer

I know, you were, Eric. I know you were. So thank you.

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Eric Stine — Craig-Hallum Capital Group — Analyst

Yeah. And just on the cancellation. Good to hear that they’ve been minimal and again this is processed on the thought that there is not a return in terms of COVID coming back and having to shutdown, etc, but do you feel like, if things start to gradually open up, that you’re kind of out of the woods on the cancellation front or the risks of cancellation of projects that you see?

Joseph F. Puishys — Chief Executive Officer

Yeah, cancellation, let me address that word cancellation — if you’re — when something’s in backlog, booked backlog, in my nine years, I’ve not seen — I’ve seen one cancellation in our Services segment and then the project came back in the backlog about a year later. So, we rarely see cancellations once something’s in backlog. In our shorter lead-time, as far as Glass, it goes in and out of backlog rapidly because we don’t enter it into backlog until we have a purchase order to deliver. We also haven’t seen any cancellations there. We actually had an increase in Glass backlog of about $10 million in Q1. And we said, well, I don’t like that. Because that’s $10 million we wanted to shift. $5 million of that was due to capacity constraints and the people as you know, the $5 million was customers delaying their projects. So, the issue has been more delays than cancellations. We have seen some cancellations in Glass. We’ve had a handful of cancellations out of the year but they were not in our backlog but they were in our win column. So, while the full year revenue won’t be at our original expectations, we felt most of that in the first quarter and we’ll begin to feel sequential improvement in Glass looking forward.

Eric Stine — Craig-Hallum Capital Group — Analyst

Okay, that’s great. I’ll turn it over. Thanks.

Joseph F. Puishys — Chief Executive Officer

Thanks, Eric.

Operator

Thank you. Our next question comes from Julio Romero with Sidoti & Co. You may proceed with your question.

Julio Romero — Sidoti & Company — Analyst

Hey, good morning everyone.

Joseph F. Puishys — Chief Executive Officer

Hey, Julio.

Julio Romero — Sidoti & Company — Analyst

Just wanted to ask about the Services segment. Joe, you had outlined some of the drivers of that segment’s profit increase, execution, mixed cost. Can you maybe kind of rank what are those and just given the expectation for the top-line next quarter? Do you kind of expect that margin, that 8.5% to kind of continue?

Joseph F. Puishys — Chief Executive Officer

First off, since they improved their margins on slightly lower revenue, they’re obviously performing well. We break that business into two categories. It starts with project selection and I’ve been talking for 10 years now, that team has embarked on using big data and data analytics. They study every project they’ve executed over the last couple of decades, they’ve used that information to determine what kinds of projects they will chase. They have a higher degree of — improve their win rates. It costs money to bid on every project, even the ones you lose, costs you money. They’ve done an outstanding job on project selection. And that has led to consistent execution on both the fabrication and the installation. And I would say, the quarter’s performance was driven by project execution in both our manufacturing plant or fabrication plants and at the installation at the site. But it was allowed or it was possible because of the project selections they made two years ago.

Remember, I like to say, unfortunately, this is a two-year business, you have to look at a two-year cycle. The work they’re working feverishly on, now that they’ve booked in the backlog this quarter and increased our backlog by another $26 million, will be work that won’t start in the field for 12 months, and then we’ll revenue over a year. So that heavy lifting that’s done two years ago, is why they had projects in our pipeline that were — they revenue this quarter at better than expected margins. I expect that kind of performance to continue in Q2. I don’t want to provide margin guidelines but I expect continued very solid margins in that business for the foreseeable future.

Julio Romero — Sidoti & Company — Analyst

Thank you for the comprehensive answer there. That was really helpful. And I guess that kind of dovetails, my follow up there is the orders you’re kind of taking into Services now and given that two-year timeframe, I mean, I guess, can you give us a sense of the projects you are kind of taking into backlog now? I guess, the implication is the margins is kind of at that same strong level or maybe better than the projects you’re working on today.

Joseph F. Puishys — Chief Executive Officer

Yeah, we — there is no — nothing to mention on margins. Business continues to operate at the same pricing levels. Our business, it’s called Harmon. The Services segment is a premier laser in the United States. I personally believe they’re the best laser in the United States. They’re continuing to bid work at normal margins. There’s really nothing to comment on that.

Julio Romero — Sidoti & Company — Analyst

Got it. And then just last one for me. Nisheet, Joe mentioned your strength’s in procurement and transforming businesses. Can you maybe discuss your kind of first impressions of Apogee, given you’re one week in, I guess, and if there’s any areas where maybe you feel you can improve upon the transformation initiatives? Thank you.

Nisheet Gupta — Executive Vice President and Chief Financial Officer

Sure. Early days, so this question next quarter would have a lot more meat into it. But great companies are made of two things. The first is great people [Phonetic] and the second is a good set of customers. And what I’ve seen in the last two weeks is we’ve got both of those ingredients in plenty and available to make this transformation happen in the coming years. So we — I look at the significant value creation opportunity for everyone here in terms of optimization, transformation, and making sure that our great brands are known in the country and even outside the country.

Julio Romero — Sidoti & Company — Analyst

Helpful. Thanks very much.

Joseph F. Puishys — Chief Executive Officer

Thanks, Julio.

Operator

Thank you. Our next question comes from Bill Dezellem with Tieton Capital. You may proceed with your question.

Bill Dezellem — Tieton Capital — Analyst

Hi. Thank you. I have two questions. The first one is relative to the Services business. Are they expanding into new cities, and that is part of what is helping drive the backlog? And then secondarily, relative to the LSO business, we’re hearing an awful lot about consumers nesting and doing all sorts of things in their home, from buying new homes, to buying furniture, etc. Is that creating any sort of interesting dynamic for the LSO business as people choose to hang pictures or other art?

Joseph F. Puishys — Chief Executive Officer

Yeah, Bill, thanks, first off for the questions. Let me take them up. Services, they have had a — some movement into new regions over the last few years very selectively, but their growth has really not come from any new regions. We operate across the U.S. We’re not in every city. They have the footprints to get to most every city, a few — an example, we used our Cleveland office operating unit about six years ago when we saw upstate New York exploding. Lot of investment going up there. We took on a lot of work in upstate New York and executed it out of that office. We do that all the time. But their growth in the last year, that $200 million increase is coming from our core geographic segments that existed. Again, I attribute it to excellent project execution. Their performance on the construction site leads to repeat business from those same general contractor. So, generally, answer, no. It’s not due to expanding into new geographies. That still remains an opportunity for us, frankly.

On the LSO, great question. I wish our product was something like puzzles and toys and clay molding that people could occupy themselves during the work-from-home. The reality of the matter is our product is an in-store purchase. It’s a bit of a touch and feel. People are bringing in their artwork, their son’s diploma from Naval Academy, they want to get it framed. They want to look at the frames on that board. They’re gearing to get our glass. It really is an in-store purchase.

I think your question or your implication that the — there is a lot of people spending time in their homes, improving their homes, that will, I believe, be a nice tailwind for our product. But it requires the stores and the independent mom and pop framers to be open for business. that is happening. Some of our largest retails are — have gone from being completely shut down to being virtually 100% open, just in the last week or two. The last of the stores of a major retailer opened in New York just last week or the week before. So I believe the macro trend of improving homes is going to bode well for our product. And now that the stores are open, I believe in my heart, that will be a positive tailwind for this business going forward. But unfortunately, it was not helping when the stores were closed, if you understand what I’m saying, Bill.

Bill Dezellem — Tieton Capital — Analyst

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

Joseph F. Puishys — Chief Executive Officer

Absolutely. And Nisheet went to one of our retail stores by our office the other day to get something framed. And he said, while he was talking to the counter person, he aligned for him behind him. And to the point where some people looked a little frustrated that they were in a line, and I love to hear that, and we certainly will work with the stores and make sure they’re fully staffed. But I think the demand is out there for certain for this product. And you’re right, Bill, we’ll talk to you about it in September.

Bill Dezellem — Tieton Capital — Analyst

Thank you for the time.

Joseph F. Puishys — Chief Executive Officer

Welcome, thank you. Operator, are there any further questions?

Operator

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

Joseph F. Puishys — Chief Executive Officer

All right. I want to thank everyone for joining our call, and I beg you all to stay safe. Be the solution, not the problem. Wear your masks, go get something, cut some frames and ask for anti-reflective ultraviolet protection glass when you do it. Have a great day. Stay safe. Thank you.

Operator

[Operator Closing Remarks]

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