Mary Ann Jackson - Director, IR/Corporate Communications Joe Puishys - President, CEO Jim Porter - CFO.

Brent Thielman - D.A. Davidson Glenn Wortman - Sidoti & Company Colin Rusch - Northland Capital.

Good day ladies and gentlemen, and welcome to the Apogee Enterprises Q1 Fiscal Year 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference Ms. Mary Ann Jackson. Ma'am, you may begin..

Amanda, thank you. Good morning, and welcome to the Apogee Enterprises' fiscal 2016 first quarter conference call on Thursday, June 25, 2015. With us on the line today are Joe Puishys, CEO; and Jim Porter, CFO. Their remarks will focus on our fiscal 2016 first quarter and our outlook for the fiscal 2016 full year.

During the call, we will discuss Non-GAAP financial measures when talking about Apogee's performance. You can find definitions for these Non-GAAP financial measures in our press release. Our call also contains forward-looking statements reflecting managements expectations based on currently available information. Actual results may differ materially.

For information about factors that could affect Apogee's business and financial results can be found in our SEC filings. Joe will now give you a brief overview of the results and then Jim will cover the financials. After they conclude, Joe and Jim will answer your questions.

Joe?.

Thank you, Mary Anne. Good morning, everyone, and welcome to Apogee's Q1 conference call for fiscal 2016. As you've all seen, we had an outstanding start to the fiscal year.

In line with our guidance of 10% to 15% revenue growth, we grew 14% on the top line to $240 million, and you'll hear from Jim, the mix of sales is significantly higher in our architectural businesses. Our operating income grew 133% to $18.2 million and our earnings per share grew 98%, effectively doubling to $0.41 a share.

And frankly, we had one of our best first quarter cash performances ever in our history. Building on the strong first quarter earnings performance across Apogee we have increased our fiscal 2016 earnings per share outlook to $2.10 to $2.25 up from $2.05 to $2.20, maintaining a $0.15 range as we are still early in the year.

In every segment, we achieved top and bottom line growth, and delivered very, very strong rates of conversion on incremental first quarter revenues. Apogee's results reflect our success in leveraging volume, increasing pricing, improving productivity in all of our businesses as we manage things within our control to profitably grow our business.

The company's first quarter gross margin grew 360 basis points to 23.2%, and operating margin more than doubled to 7.6%, up 390 basis points. I'd like to talk on this topic the backlog now, a metric watched closely by all of you.

Our first quarter backlog, which grew 22% year-over-year, did declined slightly from year end by about 4% in a quarter where we grew revenues 14%. All segments grew backlog sequentially from the 2015 year end number, with the exception of architectural glass.

In our architectural glass business, we added capacity as you're well aware with our Utah startup and we improved productivity allowing us to drive customer order to shipment lead times down from more than 20 weeks in the middle of fiscal 2015 to less than 8 weeks now.

This is extremely favorable performance level for our customers, but it does bring a corresponding reduction in booked backlog in this segment. Our long lead time business, architectural services, which represents longer term growth grew backlog this quarter to more than $300 million. And this segment has grown backlog now in 6 consecutive quarters.

And although, as we've indicated, we expect top line growth in this segment to be moderate as we focused on margin expansion, as we previously indicated, we have a great visibility to not only our booked backlog but contracts about to enter backlog. These customer commitments lead me to expect continued growth in our long lead time backlog.

In fact as you likely notice from the earnings release, approximately $160 million of our backlog is for deliveries beyond the current fiscal year. That's more than double the same number this exact time a year ago.

For Apogee in total, including the glass segment, our booked backlog combined with project awards soon to enter backlog are up from 90 days ago. You've often heard me say that we have a good view beyond our booked backlog.

And we feel good about our backlog level based on our visibility from commitments, awards, bidding activity and the end market strength. It supports our outlook for continued growth this year and beyond. Turning to the segments, we achieved good margin growth, frankly outstanding margin growth across the board.

Architectural glass grew its operating margin 470 basis points to 8.2%. Our framing systems segment grew 430 basis points to 7.3%. Our large-scale optical segment grew operating margin 430 basis points to 24.1% on relatively flat sales. And our architectural services business grew 130 basis points to 1.7%.

We have 4 segments, all grew triple digit basis points in this quarter. Looking at the outlook for 2016, we remain confident that Apogee will achieve, again, strong growth in fiscal 2016, which will allow us to achieve the highest revenues and earnings in the company's 60 plus year history.

Given the strength of our first quarter performance and earnings, we are increasing our 2016 earnings per share outlook to $2.10 to $2.25, up from $2.05 to $2.20. We continue to expect revenue growth of 10% to 15% enabling Apogee to surpass $1 billion in revenue this year. We are expecting to deliver an operating margin of at least 9% for fiscal 2016.

Our outlook is based on continued strength of our backlog, commitments and bidding award activity at better margins, combined with industry forecasts for low double-digit growth for the commercial construction market sectors we serve.

Our outlook and projections are of course, based on economic indicators, beyond our internal view of backlog, awards and commitments and bidding activity. Three key economic metrics that we also monitor, amongst many others, but that correlate to our businesses are the Architectural Billing Index, non-farm payroll growth and consumer sentiment.

The ABI has reflected growth in 18 of the last 24 months, and in 10 of the last 12, including the recent report this week on May, again, reflecting growth. Employment ads have been above 200,000, a number considered and we consider to be a key barometer of sustained growth in our segments in 11 of the prior 12 months.

We believe this to be a precursor to office and related construction. And the Consumer Sentiment Index from the University of Michigan has risen above 90% since December of 2014, a nice trend for our retail business. And a final note, vacancy rates are down 100 basis points in the United States to under 14% now.

This is 12 straight quarters of improvement in vacancy rate, another good forward indicator for us. At Apogee, growth strategies for the current year and within the framework of growing through new products, new geographies, new markets, build on this strong end market growth for three things. One, to win increased share with our quality and service.

Two, to expand penetration in newer geographic markets. And three, to grow geographically as established customers take us into new regions. Our longer term goal for Apogee, based on 2016 to 2018 strategic planning, is for fiscal 2018 revenues to be $1.3 billion with a 12% operating margin.

This plan continues to leverage our current strategies and margin enhancement initiatives. I'll let Jim go through the financials now in more detail and I'll come back with a few comments and take your questions.

Jim?.

Thanks, Joe. We had a great first quarter and I am also very pleased with our performance. First quarter revenues were up 14% to $240 million, and operating income grew 133% to $18.2 million. Our earnings per share grew 98% to $0.41 per share.

The strong growth rate for earnings per share is less than the growth rate in operating income because last year we had other income of $1.3 million related to settlement of an old discontinued European operation. We essentially doubled our EPS this quarter despite not having other income this year.

With a small percentage of our revenues in Canada and Brazil, the foreign exchange impact was minor in the quarter. We achieved a strong gross margin of 23.2% for the quarter compared to 19.6% in last year's first quarter with volume leverage, increased pricing, improved productivity and favorable product mix in our businesses.

Along with a lower healthcare costs as compared to last year. I'll add some color to the quarterly segment results. In architectural glass, operating margins improved significantly to 8.2%, with operating leverage, improved pricing and increased productivity. As we had expected, we had better than market top line growth of 27%.

I'd like to note that the Utah factory was effectively ramped up during the quarter with performance ahead of our expectations. These strong segment results included absorbing some headwinds from the softer performance at our Brazil operation due to the slowed economy there.

In the first quarter, the architectural services installation business performed well, increasing its year-on-year operating margin by 130 basis points to 1.7%. Revenue growth of 8% was in line with our expectations, which is for this segment to grow a little less than the end market.

Our focus at this time for this business is to manage our capacity with improving margins through project selection, which is allowing us to continue to have increased margins on new projects we're adding into backlog.

The architectural framing systems segment operating margin more than doubled to 7.3% on 12% revenue growth, in line with market growth as we had anticipated. The US businesses in this segment performed well, with good product and project mix and increased pricing.

Our Canadian storefront business saw an up-tick in activity beginning in the last month of the quarter ended despite generally slower commercial construction markets there. The large-scale optical segment operating margin improved to 24.1% as we experienced a higher value added product mix and strong productivity improvement.

Top line growth of 1% was in line with our full year expectation of low single digit growth for this segment. Our first quarter average capacity utilization across all architectural manufacturing businesses was approximately 80%, compared to approximately 65% in the prior year period.

The first quarter backlog was $470.8 million, down slightly about 4% from $490.8 million in the fourth quarter. The backlog is up 22% from the prior year period. Joe explained the impact of shorter architectural glass lead times on the backlog level.

While we have said that we expected backlog growth based on the visibility of order and bidding activity, I'm satisfied with our backlog level, as a slight backlog decline from year end includes growth in three of four segments.

We continue to experience strong levels of commitment and bidding activity in today's growing commercial construction markets. Our visibility continues to indicate that we have more runway ahead. Finally, I'll provide my quarterly reminder that our business can have lumpy order intake activity.

So we don't require or necessarily expect sequential backlog growth each quarter to be consistent with the longer term trend and our expectations for top line growth.

Our backlog mix at the end of the first quarter continues to reflect strength in the office sector, with growth in institutional backlog as some large healthcare projects entered backlog. The office sector declined slightly to approximately 55% of the backlog from 60% to 65% of backlog last quarter.

The institutional sector grew to approximately 30% of backlog from a range of 15% to 20% last quarter, with healthcare projects continuing to be the majority of this sector. Multi-family residential, including high-end condos and apartments was 5% to 10% of the backlog, and the hotel entertainment transportation area was 5% to 10% of the backlog.

Regarding the timing of the backlog, approximately $311 million, or 66% of our backlog is expected to be delivered within fiscal 2016, and approximately $160 million, or 34%, in fiscal 2017 and beyond. As Joe indicated, this is already a strong position looking to next fiscal year.

In the quarter, we generated positive free cash flow of $12.1 million, compared to negative free cash flow of $7.5 million in the prior year period.

This improvement demonstrates Apogee's cash generation potential since historically we use cash in the first quarter which is when we have working capital uses such as annual accrued incentive tax and insurance obligation payments. Non-cash working capital was $98.3 million compared to $97.5 million at the end of fiscal 2015.

We continue to have strong day’s working capital management, with our days working capital improved to 49 days in the first quarter. The tax rate for the quarter was 33.9%, compared to 33.4% in the prior year period. Now I'll turn to our full year outlook. Our outlook for fiscal 2016 puts Apogee in a position to deliver record results.

We've increased our earnings per share outlook to $2.10 to $2.25 a share, building on the strong earnings performance in the first quarter. We continue to expect revenue growth of 10% to 15%. Regarding the timing of revenues for the year, we continue to expect the second half to be a little stronger than the first half.

Based on the visibility that we have from the timing of construction projects scheduled for the second quarter, we are expecting sequential revenue declines in architectural glass and architectural services in the second quarter from the first quarter, but increasing nicely for the third and fourth quarters.

Given the nature of construction projects we serve, we often have quarter-to-quarter variation of our revenues based on project timing.

We expect that fiscal 2016 full year growth rates will vary somewhat by segment, and we anticipate the architectural glass will grow approximately 20% for the year, architectural framing systems is expected to have mid double-digit full year growth and architectural services is expected to have mid single digit growth in fiscal 2016, while the large-scale optical segment we expect to see low to mid single digit growth.

With our increased outlook for earnings per share for fiscal 2016, we now expect that our operating margin will be at least 9%, with the second half of the year slightly stronger than the first half, consistent with our view of a trailing 12 month 10% operating margin into the first half of fiscal 2017.

For 2016, we expect depreciation and amortization of $33 million. We again expect strong free cash flow for full year fiscal 2016. As our performance continues to improve, we'll see increased cash generation. Our priorities for use of cash include investing back into the business, looking for M&A opportunities and maintaining our dividend.

We anticipate that our fiscal 2016 tax rate will be 34%. I feel good about our first quarter results and the performance trends in our businesses. We expect a fiscal 2016 with solid revenue growth and margin contribution and nice cash generation.

With our outlook of strong end markets and the strategies we have in place, we continue to believe we are positioned to deliver the longer term goals we've outlined.

Joe?.

Thank you, Jim. Well clearly, we performed well in Q1 as our results speak to that. But once again, I admit it could have been better. As well as our four segments performed, I still believe we haven't always operated on all eight cylinders flawlessly and we continue to pursue this perfection with disciplined reliable, repeatable business processes.

But I won't take away from what I believe would be – was outstanding performance that I'm very proud of. I'd like to ask Amanda, our operator now to remind folks how to get in the question queue and then we will take your questions.

So Amanda?.

Thank you. [Operator Instructions] Our first question comes from Brent Thielman with D.A. Davidson. Your line is open..

Hi, good morning..

Morning..

Morning..

Can you remind us to break down of backlog between services glass and the other businesses?.

Yes. Jim will give you the specific numbers and of course it will be in the Q that comes out soon. The – what I would say before Jim does that is our largest contributor to backlog is our services. I mentioned that in my commentary, long lead time businesses where things typically are in backlog for an average over 9 months, roughly a year.

Our time in backlog for our glass segment, which is our second largest, is right now we're down to 8 weeks between order to delivery. So it's a very quick turn business, hence my comments around the backlog, I didn't want you guys to be misled by the slight reduction. It's actually an increase in the long lead time business.

Jim, can give you some specifics..

Yes. I think the segment breakdown of backlog at the end of the quarter in kind of round numbers was, excuse me, architectural services about $300 million, then architectural glass about $90 million. The framing systems business is about $8 million and large-scale optical roughly $5 million..

Okay.

So your backlog in glass today is roughly what a quarter what you expect to do in that business this fiscal year, is that fair?.

That's about fair, yes..

Okay..

And where it is, where it should be. We certainly have book-to-bill business within a quarter but it is about a quarter, correct..

And is that typical historically?.

It is. We were at normally longer lead times last year with a strong demand and hence our aggressive effort to get our Utah facility back on line..

Okay. And Joe I know you touched on it a little bit and Jim as well in terms of what you are seeing out there, I'd love just a little bit more color.

I know you've got this unique visibility in the glass business, but what are you seeing in the pipeline, are things accelerating on the mid and high rise side?.

Yes. We continue to see strong activity in the channels we're most interested in starting with the office sector. Great vacancy rates are down as I said. We're seeing pockets of – there is some extremely low vacancy rates in Manhattan and Boston, upstate California, the DC area, abnormally low. So we've got strong business there.

The industry is very busy. Bidding activity is strong. We're more selective now as is everybody in the industry, hence some tailwinds on margin. Austin, Texas has been very strong. The Midwest, the Rust Belt, is seeing very strong activity. Our – we like what we're seeing. We think there's another wave of orders like we got last year.

We're – are hopefully better prepared now that we have our third factory in the US on line for glass. And we had our services segment, as Jim mentioned, we're looking for mid single digit growth. We had upper single digit growth. So slightly stronger revenues in the first quarter.

And I had a couple of projects that I expected would enter backlog in the quarter that did not that are now in my queue for Q2. I say it every time and Jim is cautionary to say our backlog can be lumpy. I do expect – my projections are based on what I see about to enter backlog.

I do in my heart project that we will have backlog increase in the second quarter for Apogee, which is reflective of the strong bidding we're seeing going on..

That's great. And if I could just get one more in before I get back in the queue.

You're thinking about guidance for the year, which business or businesses do you expect to see the biggest improvement in margins from kind of Q1 levels? Is it services or can glass and framing also get a lot better from here?.

Well services is the longest – the best tailwinds for margin enhancement and that is – like our large-scale optical business, can have quarterly comp fluctuations and we really do ask that you look at how we're doing over the long-term. We will definitely see the best margin enhancement in our services business going forward..

And then in architectural framing systems business as well we'll see strong improvement. The Q1 is probably a slower seasonal factor for a couple of businesses in that segment, as well as we see the Canadian business contribute better for the rest of this year. We'll see those factors driving improvement..

Okay. Thank you all. I'll turn it over to someone else..

Thanks, Brent..

Thank you. Our next question comes from Glenn Wortman with Sidoti & Company. Your line is open..

Yes. Good morning, everyone..

Hi, Glenn..

Hi, Glenn..

Yes, sticking with the op margin for the services business, what are you targeting this year? And then maybe just update us on your thoughts longer term on where that margin – where you think that margin can go?.

Yes I mean we'll - our goal to be double-digit operating margin as a company is solid in our plans and our forecast. The – that is the one segment that is going to be slightly lower than the other segments within architectural. We certainly expect to be at least mid single digits this year overall in the services segment.

So hence our response to Brent about that one will have the most improvement for the rest of the year. It should approach double-digits as we continue to see the revenue stream from these higher margin projects we're booking. But it is a very low investment base. It's a people business, so it has a tremendous return on invested capital business.

So it's always going to be slightly lower ROS but will typically be our highest ROI business. So long way around the barn, and mid single digits this year, long-term we expect as we go through this 2018 period I talked about, we're trying to get to double-digit, but we'll be knocking on the door..

Yes.

And then qualitatively, how are you feeling about the direction of the business today versus say three months ago, has anything changed, are you feeling better, are you feeling worse?.

I feel great. I would say Q1 ended a little stronger than I anticipated which was great. I thought 90 days ago we would - we said for the year, we'd have at least 50% operating margin enhancement, we actually doubled it this quarter. So it was a little bit better than I had expected 90 days ago.

Our view of the end markets hasn't changed at all in 90 days. We continue to have good feelings about the end markets and I - the economy is the economy. I think our view with a McGraw-Hill construction data, with the bidding activity, the architectural feedback we get is we feel our end markets will grow in through fiscal 2019 at some levels.

Will it be double – mid double digit like it should be this year? Perhaps not. But we do expect growth at least for the next three fiscal years. But you're smart people as well. The global issues that are out there, the geopolitical things, but we believe our end markets in non-resi construction are very solid..

All right. Thanks a lot for taking my questions..

Thanks, Glenn..

Thank you. Our next question comes from Colin Rusch with Northland Capital. Your line is open..

Thanks so much.

As you look at the gross margin improvement year-over-year, can you talk a little bit about your contracting practices versus operational efficiencies and what's driving that gross margin improvement?.

Our gross margin, like I said we – by the way, thanks, Colin. We grew triple digit operating margin in all of our businesses when you do a year-over-year comp. But more importantly, how do we feel about the long term? We're leveraging volume across our businesses, and equally, we're out leveraging our production efficiencies.

I like – I'm very happy with the lean, the operational excellence we call lean initiatives here at Apogee. But we're clearly early in our journey and we've got a long way to go, but we are more productive in our businesses. You saw our LSO business had very slight growth, but significant margin enhancement.

We made many operational improvements in that business. It's running extremely well on the shop floor. All of our businesses have made nice improvements on the shop floor by adding capacity and then converting that capacity productively. We're getting – we've had some pricing tailwinds. Our teams have done a nice job with pricing excellence.

And we continue to have cost controls and cost management in place just in case. The products [ph] business continues to add new work at about 100 basis points better than the work that's currently in backlog..

Okay. So I think that's what I wanted to get you that last comment.

So as you look forward, the OpEx investment that you need to grow the business at that $1.3 billion level, where do you see those investments happening, and can you just give us a sense of magnitude there?.

Well first off, we're both investing in CapEx and we don't necessarily take a lot of questions on CapEx, but you can see we continue to forecast a significant investment in CapEx. That is really all around new capability and productivity. So some automation investment and particularly some focus in our glass business.

All of our businesses are investing in CapEx. And then the non-CapEx, which is equally important and frankly much more cost effective is our OpEx or our lean initiative where we're investing a lot of money to take waste out of the system.

And we target and are achieving between 70 and 100 basis points of annual margin expansion from non-CapEx initiatives around kaizen events and other lean initiatives that don't require capital. They require smarter - you'll hear me use the term discipline, reliable, repeatable business processes.

And Jim and I - Jim is very diligent about making sure on the cost side we are investing in the Fs [ph] and not the G&A and SG&A. So we've got a lot of efforts to drive our sales..

Great.

And one final question, can you just give us the utilization rate on the Brazilian facility for the last quarter?.

I'm sorry, Brent - Colin, could you say that again?.

Yes, sure.

The utilization rate on the Brazilian facility for the last quarter?.

Probably - it's probably in the neighborhood at 50% to 60%..

Yes, the economy certainly not – what's happening, you asked the question or somebody did 90 days. What has not improved in 90 days is the Brazilian economy. You all can read the paper. It's an incredibly positive strong business. We are in the black. It's a small piece of our glass business. I do think we're looking at a couple years.

I was there recently. There is a ton of opportunity, but until the impact of the problems that happened with Petrobras and that industry gets behind us, things are going to be tough down there. But we batten down the hatches, we got a great team.

We continue to chase business and I'm pleased with the performance of our business although it's not going to be a major contributor to profitability and it hasn't been for the last year..

Great. Thanks so much..

You bet..

[Operator Instructions] Our next question comes from Samuel Eisner with Goldman Sachs. Your line is open..

Hey, guys. This is Nick on for Sam. Thanks for taking my questions..

You bet, Nick..

Morning, Nick..

Morning.

So could we just revisit order growth briefly? Can you talk maybe provide a little bit more color on the lumpy orders particularly in the glass business and what was driving that this quarter?.

Yes. Orders have not been lumpy in the glass business. We like – the glass business consists of much more consistent ordering process. Last year as our lead times grew our backlog grew with it. We made great progress in Q1. I would admit that we probably made more progress than I expected. This is good news scenario.

Our customers are delighted with - they weren't to delighted last year in the fall when our lead times were long. Our ordering pattern at Viracon is strong, Jim highlighted this short lead time business is going to grow approximately 20% this year. So it's extremely healthy and orders are not lumpy.

Where we do have lumpy orders is our services business, our Harmon [ph] and I mentioned there, I thought Sam would be on first, so I lost a bet here, but maybe that he is not on the call is why. But Nick, our book-to-bill ratio is been no less than 1.22 in the last six quarters in our services business.

This is the business that – and it grew this quarter, but it was very modest growth. I do go out on a limb by saying I expect Q2s order to be lumpier on the positive side. We've got a lot of orders that are being processed to go in the backlog.

I could get burned in a couple slip, one thing we will not compromise on is pushing a bad project over the finish line just to hit this metric. We are very diligent in our terms and conditions legwork, so that we are comfortable and that we're smiling the day after and orders put in the backlog as much as we are when it goes in.

So I do expect a little bit more lumpy on the positive side in our services in the second quarter and I do believe our glass - the impact of our improved lead times in our glass and impact that's had on backlog is now behind us.

We are where we need to be on lead time and the process, our manufacturing process really does not allow for any more significant reduction in order to shipment lead time in glass. So I believe that backlog will remain more constant.

With one – a ratio of one which is more typical for that business and our services, our large lead time business will continue to exceed one..

Let me just provide a little bit of a reminder to everybody that in terms of how we capture backlog, for our architectural services and our architectural framing systems when we are awarded a project the full value of the project, the contractor or the purchase order becomes part of our backlog.

In architectural glass, the way that industry has evolved over time is we're essentially committed a project, a building and that building gets broken down into production phases. And then, as those phases are required at the job site, those are purchase orders are issued for architectural glass and we enter those into the backlog.

So we only have a portion of that building in our backlog. As Joe described as the market picked up and our lead times grew, then that kind of drove the portion of the business that we had and increased that and as we improved our capacities and were able to kind of gradually bring that back down..

Got it. Got it. That's helpful. Thank you. And then, can we just talk about geographic exposure briefly, you mentioned that Texas was strong.

Did you notice any changes to the demand environment in Texas at all or was it still just positive across the board?.

For the last couple of quarters, we've seen business be slow in Houston. There is no question there has been headwinds to Houston related projects which we all anticipated. It's been off – I mean, the business is equally the other way strong in Dallas and Austin. And we're seeing substantial bidding activity there.

So it's been somewhat balanced in Texas. And I don't have the number off the top of my head, but our – the amount of projects in our backlog I think upper single digits for Houston are higher. But its - or for Texas and - but it's been pretty balanced as headwinds in Houston, tailwinds in Dallas and Austin.

And as I mentioned earlier in the call, there are pockets of strength continuing in various regions across the US..

Yes. I'll give you the data, about 10% of our revenues were Texas. And then, actually the amount that was in Houston actually held about the same because we have projects that are underway in we'll continue to recognize the revenues for that. Backlog overall Texas is kind of roughly a little less than 20% of our total backlog.

And that's actually stayed consistent though as Joe said we've seen a shift where backlog has declined some in Houston, but it's been replaced by work in Austin and as well as Dallas..

Got it. Okay.

And then, last one and I'll hop back in the queue, with cash flow in the quarter as strong as it was and with Alumicor essentially integrated or nearly so, does this change your outlook for capital deployment through M&A or through dividends at all?.

Does not change our strategies at all. We obviously have strategies for both of those fields. We are very clear and consistent that our shareholder base wants the dividend. We continue to evaluate every quarter, our position on that.

But we like the dividend policy, and we have a very active pipeline of things in every business that we're looking at for M&A. I like the fact that we often – you learn a lot about your competitors in your marketplace when you're scouring the world for opportunities out there and you never know when they'll come. We're open to it.

We've got the balance sheet to support it. But I'll walk away from 10 good deals before I do a bad one. So we're very disciplined about M&A activity, but we certainly have a lot of work going on in that arena..

And we'll continually – we'll continually to aggressively look for ways to reinvest in our businesses in both organic growth, but as well as to drive automation and productivity improvements..

Great. Thanks very much..

You know, Nick, one of the obvious precipitants of good operating performance is improved working capital which we're seeing.

And so when we – we're seeing great working capital which is leading to that cash performance which is really driven, frankly, not just by good discipline at the businesses, but really good operations on the shop floor it helps us – we're driving more and more revenue with not so much more inventory, which has been very impressive.

I'm very happy with the working capital performances of the businesses under Apogee..

Great. Thank you..

Thanks, Nick..

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

Hi, thanks. Joe, there's some news out there that some of the issues related to the West Coast ports held up Chinese classic designated for building project and was causing some delays for contractors.

Do you think this is providing you some market share opportunity or I guess have you seen anything developing for Apogee on the West Coast that might suggest some shifts in favor….

We - I would say nothing new has developed. We have – the Chinese our competitors, Europeans our competitors, the landscape hasn't changed. In our target markets, we continue to win business and Viracon has – our glass business has, you know, a share strategies in some of the segments where we're not necessarily as strong.

But our focus on quality and delivery continue to set us apart from some of the competitors that you are mentioning. Is the opportunity grown in the last 90 days? In the last six months because of the port issues? Not really.

Those – the delivery issues from that region have been a problem for many years and that's only been exacerbated, but we continue to do fine. I wouldn't suggest that there is a bigger opportunity because of the port issues..

Okay.

But with the Utah facility now up and going, is that significantly changed your ability to address the market?.

It's allowed us to get more productive in our Glass factories where you've seen the results. So number one, we reduced our lead times which is positive for our customers, which was becoming an issue that's behind us. We're not working as much overtime as frankly important for our employees and frankly important for our input costs.

So it's good news all around and that factory has done a darn [ph] good job of coming up online and with some initial tailwinds in the first couple of months, it was back to being accretive for us by the end of first quarter..

Okay..

First fiscal quarter..

And then shifting over to LSO, you had a couple prior quarters of really nice growth there, but that decelerated this quarter quite a bit.

What led to the slowdown and anything that suggest you know, order trends might be kind of re-accelerating in that business?.

We've got a lot of initiatives in that business. We obviously can afford to invest in that business with a lot of marketing and new product strategies. We made significant investments in our factories here which has helped deliver that higher operating margin in the quarter-to-quarter comparison on, well, I'd say it grew, it did, it was 1% growth.

We had - it's a very small business. If orders are placed come in very lumpy sizes, and you can have quarter-to-quarter comparisons, good guys and bad guys, but frankly last year, if you remember, we were explaining kind of week results in that business. But hang, don't worry about it. The year is going to be great. It was we did what we said.

So we're benefiting from a weaker comp in that business. But everything is looking very solid in that business. I like our sales plan and new products, our international growth, there is a long way that business can still go..

And we have some very exciting new products in that business..

Okay. Great. Well, best of luck this quarter..

Yes. Thanks, Brent..

Thank you. I'm showing no further questions. I would like to turn the call back to Joe Puishys for closing remarks..

Okay, Amanda, thank you. I – we've been long-winded today and so I won't go much further other than say, thank you, I look forward to continued success stories for you. Will be back on with you in 90 days to talk about some impressive Q2 results and look forward to talking to you soon. Thank you all very much..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day..