Apogee Enterprises, Inc. (APOG) Q3 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2014 Apogee Enterprises Incorporated Earnings Conference Call. My name is Kim, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Mary Ann Jackson. Please proceed.

Thank you, Kim. Good morning, and welcome to the Apogee Enterprises Fiscal 2014 Third Quarter Conference Call on Thursday, December 19, 2013. With us on the line today are Joe Puishys, CEO; and Jim Porter, CFO. Their remarks will focus on our fiscal 2014 third quarter and our outlook for the fiscal 2014 full year. During the course of this conference call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment and are, of course, subject to risks and uncertainties, which are beyond the control of management. These statements are not guarantees of future performance, and actual results may differ materially. Important risk and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are described in the company's annual report on Form 10-K for the fiscal year ended March 2, 2013, and in our press release issued yesterday afternoon and filed on Form 8-K. 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 Ann, and good morning, everyone. Welcome to Apogee's conference call for our third quarter results. We recorded another solid quarter with growth in both revenues and earnings per share, and we had strong free cash flow in the quarter. Our earnings per share of $0.33 were up 18% in the quarter. Our net earnings that were up 20% year-over-year. Our year-to-date earnings per share of $0.68 is up 31% over the prior year. Revenues were up 5% in the third quarter compared to the prior year period and sequentially up 12% from the prior quarter. Year-to-date, all segments have grown and contributed to our revenue growth of 7%. At Apogee, our backlog held at $300 million, a level we've maintained for 6 quarters now while growing the top line over 7% in the same period in markets with only a slight growth. We have a very strong growing pipeline of project commitments and awards that we expect will soon enter the backlog. In addition, we continue to have a high level of bidding activity. Our outlook for the full year has improved to a range of $0.95 to $1 in earnings per share on revenue growth of 10% to 11%. That includes the 2 acquisitions we've completed this year. Without the acquisitions, we maintain our guidance for high-single digit growth. Late in the fiscal 2014 third quarter, we used approximately USD 52 million of our cash on hand to acquire Alumicor, a leader in the Canadian storefront and entrance market with annual revenues of approximately CAD 60 million. The acquisition supports our growth strategies, which include a focus on geographic expansion both domestic and international, and new product introductions. This is a business we understand well and all of the customers and revenues from Alumicor are incremental to Apogee. We are pleased to be entering the storefront and entrance market in Canada with an extremely well-run business and a great management team. In addition, we have synergy opportunities with our other Architectural Framing segment businesses. In spite of this strategic investment, we ended the third quarter with cash and short-term investments of over $22.5 million. I'd like to note that we had strong free cash flow performance in the quarter. Returning to the results for the quarter, Apogee's operating income growth was driven by improved mix and productivity in the Architectural Glass segment, our largest business and increasing margins and good project execution in the Architectural Services segment, which returned to profitability. In addition, the Architectural Framing Systems segment earnings increased slightly as the segment absorbed acquisition integration costs. Within the segment, I'd like to point out significant revenue and earnings growth in our U.S. storefront and entrance business, which has been our fastest-growing business as markets there can begin to recover. In the third quarter, Large-Scale Optical revenues grew in markets that were still somewhat soft. On the operating income line, good mix was offset by promotional activities and some manufacturing inefficiencies early in the quarter, which have since been resolved. In fact, our Q4 will see nice year-over-year margin expansion and with the holiday timing this year, our Q4 versus Q3 profile will have a similar profile this year. Our year-to-date conversion rate on revenue growth is 19% as we benefited from improvements in margins, pricing, productivity and operating leverage. In the third quarter, our conversion rate was 13%. However, excluding the Alumicor acquisition, the conversion rate in the quarter would have been 31%. Finally, I'd like to highlight, in the quarter, we continue to make progress against our growth strategies through U.S. geographic expansion and internationally in Brazil, in Architectural Glass business, in Europe for our Picture Framing glass and acrylic business, and in Canada with the recent acquisition of Alumicor. At the same time, capacity and productivity investment projects in the Architectural Glass and U.S. storefront entrance business are progressing nicely. Looking out, our outlook for fiscal '14, we expect a very strong performance in the fourth quarter and therefore, have narrowed our range to $0.95 to $1, up from $0.93 to $1 that I previously highlighted. We are anticipating 10% to 11% revenue growth, up from single digit -- high-single digit growth with the inclusion of our acquisitions, which are not contributing to our earnings in fiscal '14. This outlook includes year-over-year strong double-digit growth at operating margins in the fourth quarter. We expect to outperform our commercial construction markets by several percentage points this fiscal year. The outlook for U.S. commercial construction markets based on Apogee lag to McGraw-Hill forecast for the segments we serve is for modest market growth in fiscal '14 and improved growth in what will be our fiscal '15. We are now expecting capital expenditures for the year to be approximately $45 million based on investments underway in the current year. Our largest project, the new super coater at our Minnesota Architectural Glass facility, is on budget and on schedule. We expect to be free cash flow positive after this level of investment. Our anticipated fiscal 2014 performance in investments, our continued steps in achieving our 3-year target of revenues over $1 billion and double-digit operating margin. I believe that our focus on operational improvement, as well as our strategies to grow through new geographies, new products, new markets will allow Apogee to continue to deliver these improving results that will allow us to reach these projections by the end of fiscal 2016. Jim Porter now will take you through the details of the financials.

Thanks, Joe. Good morning. We had a solid third quarter performance in line with our expectations, with operating income of $12.7 million, up 11%; and the earnings per share of $0.33, up 18% over last year. Revenues of $199.4 million were up 5% compared to the prior year period. And we start to see more balanced growth across our segments. Gross margin was 21.8% for the quarter compared to 22.2% last year and up slightly from the second quarter. In the third quarter, Architectural Glass segment revenues were down 2% to $73.4 million, impacted by normal project timing associated with serving construction projects, while the segment revenues have grown 11% year-to-date. Operating income grew to $1.6 million, up from $0.5 million in the prior year period. On a year-to-date basis, the improvement in Architectural Glass segment is almost $8 million compared to a 9-month loss last year of $4 million to year-to-date earnings this year of $3.8 million. The Architectural Glass business results have benefited from an increase in mix of higher value-added projects with good market conditions in both North America and Brazil, as well as from improvements in pricing and productivity. The Architectural Services segment revenues were up 4% to $51.2 million, and are also up 4% year-to-date. The segment returned to profitability in the quarter with operating income of $0.4 million improved from a prior-year period loss of $0.2 million as our project margins continue to increase. This trend is consistent with what we expected and have previously communicated, as we continue to work through lower margin projects and flow better margin work from the backlog. We believe we have now essentially worked through the project margins from the bottom of the cycle. Architectural Framing Systems revenues of $59 million were up 14%, with 1/2 the growth from the inclusion of the Alumicor acquisition and the balance driven by the U.S. storefront business. Year-to-date growth of 5% was impacted by the gap in more complex window project volume, we had coming into the year and has discussed previously. Those headwinds are now behind us. Architectural Framing Systems' operating income was $5.8 million, up from $5.6 million due to good volume in the U.S. storefront business, somewhat offset by volume declines in the window business and integration costs in the segment. Acquisition and integration costs in the quarter were approximately $0.5 million. The 2 acquisitions we made this year are expected to be accretive to earnings in fiscal 2015. We feel good about the operating margin for the Architectural Framing Systems segment at 9.8% given these impacts. Third quarter capacity utilization across all architectural manufacturing businesses was up a little at approximately 68%, driven by volume growth at the storefront business, compared to approximately 65% in the second quarter and about 64% in the fiscal 2013 third quarter. Our Large-Scale Optical segment revenues were up 5% to $22.7 million in markets that are still fairly soft. Year-to-date growth is 2%. Operating income was $6.1 million compared to $6.6 million, a slight volume growth by positive mix were offset by some increased manufacturing cost from a short term impact to production yields, as well as promotional activities in selected channels. In our seasonally stronger third quarter, we ran some additional promotions to help drive mix of value-added products. The operating margin was 26.7% compared to 30.3% in the prior year period, with this decline from last year driven by the short-term operational efficiencies and promotions I've mentioned, which it means a great business with attractive margins. The consolidated third quarter backlog, primarily generated by our Architectural businesses, was $299.9 million, down slightly from $302.9 million in the prior year period. As I do each quarter, I want to again remind you 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, this was evident in our third quarter. As Joe noted, we have visibility of a strong growing pipeline of project commitments and awards, and continue to have considerable bidding activity. We believe we are seeing improving market conditions and leading to a trend of improving backlogs. Our backlog mix at the end of the third quarter reflects a slight decline in the institutional sector, offset by some growth in the multi-family residential sector. The institutional sector was between 40% and 45% of our backlog with health care and education projects continuing to be the majority. The office sector was 35% to 40% of the backlog. Hotel, entertainment and transportation was about 5% to 10% of the backlog, and multi-family residential including high-end condos and apartments was almost 10% of the backlog. Regarding the timing of the backlog, approximately $136 million or 45% of our backlog is expected to be delivered in fiscal 2014 and approximately $164 million or 55% of the backlog in fiscal 2015 or beyond. Apogee's tax rate for the second quarter was 24.4%, down from 30.2% last year as we had resolution of certain tax position during the quarter. Our debt was $20.7 million at the end of the third quarter compared to $30.8 million at the end of fiscal 2013. And virtually, all our current debt is long-term, low-interest industrial revenue bond. Cash and short-term investments totaled $22.5 million compared to $73.7 million in the second quarter, after acquiring Alumicor for approximately $52 million in the third quarter as Joe discussed. We also entered into a new market tax credit transaction in the quarter to support the quarter investment in the Architectural Glass segment. The transaction provided cash proceeds, net of fees, of approximately $8 million, which were used in the quarter to pay for a portion of the related capital investment. This had no P&L impact in the quarter due to the 7-year tax credit recapture provisions related to this tax credit program. We also moved $21 million from short-term cash to long-term restricted cash as part of this transaction to set aside funds to be used for the additional capital to be incurred in the fourth quarter for this project. Year-to-date, our capital expenditures were $17.3 million compared to $21.3 million in the prior year period. As the majority of the spending for the strategic investments for growth and new product capabilities will fall in the fourth quarter of the current fiscal year. We had positive free cash flow of approximately $21 million in the third quarter compared to $6.9 million in the prior year period. Noncash working capital was $72.1 million, up from $59.9 million in the prior year period and $54.1 million at the end of fiscal 2013. Good cash collections in the quarter from existing businesses was more than offset by the addition of working capital from the addition of the Alumicor business. Our days working capital continues to show solid balance sheet management at 47 days, just up a little bit compared to 43 days in the prior year period, but this is still excellent performance. We defined free cash flow as net cash flow provided by operating activities minus capital expenditures. Noncash working capital is defined as current assets excluding cash and short-term available-for-sale securities, short-term restricted investment, and current portion of long-term debt less current liabilities. While days working capital, just computed looking at our controllable working capital assets and liabilities, accounts receivable, inventory and payables. Before I turn into our outlook, I'd like to point out that in the third quarter, we extended our credit agreement by 1-year out to November 2018 at favorable terms. We also maintained the feature for credit line expansion. Now I'll turn to our outlook. For full year fiscal 2014, we've narrowed our earnings per share range bringing up the bottom to $0.95 from $0.93 and holding the top at $1. Our revenue outlook has increased to 10% to 11% growth, with our acquisition, which are worth a couple points of the growth. Excluding the impacts of the acquisition of custom window and Alumicor, we continue to expect to achieve our outlook for high-single digit top line growth despite limited help from domestic, commercial construction markets this year. We are pleased with our strong and growing level of project commitments and awards, as well as bidding activity. The external metrics we watch, including job growth, Architectural Billings Index, McGraw-Hill Construction forecast, vacancy rates and consumer confidence, point to improving markets for Apogee consistent with what we see with our bidding activity. We expect full year gross margins of approximately 22%. We anticipate a full year tax rate of approximately 30%. We expect to generate positive free cash flow for fiscal 2014 after we spend approximately $45 million for the year and capital that is balanced across investments for growth, productivity and new products, as well as for maintenance. Depreciation and amortization should be about $27 million for the year. I feel good about our year-to-date performance with growth, expanding margins and free cash flow generation, and look forward to continued year-on-year growth for the balance of fiscal 2014. Making nice progress on our strategic initiatives, including productivity improvements, geographic expansion and development and introduction of new products. We see significant future opportunities that are going to leverage Apogee's strong financial position, leading products and services and operational and strategic initiatives that should allow us to achieve our strategic plan goals. I'll turn back to you, Joe.

Thanks, Jim. Kim, if you could open the call up for questions, I would appreciate it.

[Operator Instructions] Your first question comes from the line of Samuel Eisner from Goldman Sachs.

Can we talk a little bit about the tax rate this quarter, obviously, the 24.4% was a little bit less than, than we were expecting. Just curious, what kind of items were actually in there? If you can give some actual dollar amounts, that will be great too.

So it was a little bit favorable, and I think we have given, but we were expecting some favorable performance and it's really about kind of in the range of a little more than $0.5 million and really just has to do with reserves from prior positions that we had taken that got resolved during the quarter.

Understood. And then with the integration of Alumicor, as well as the other transaction, can you maybe talk about what the benefit was to both your orders and backlog, you certainly, gave the revenue benefit. Just curious how much your -- I guess, forward-looking indicators would benefit from the integration of this business?

Backlog picked up a little bit more than $6 million associated with the acquisitions.

Then the outlook -- this is Joe. The outlook, as we've highlighted, was about 2 points of revenue growth, bringing this up to the 11% we've highlighted for the full year.

And I think, Samuel, we've talked about it -- the Alumicor business has annual revenues of about CAD 60 million, and then the assets that we acquired from the custom window business, we hope to see $10 million of annual revenues out at there.

Great. That's really helpful. If I can ask -- just ask 2 more, within LSO, obviously, there were some manufacturing inefficiencies that happened at the beginning of the quarter. If you could just give us a little bit more color, obviously, there are 400 basis points of year-on-year decline in margins, so with the inefficiencies, 300 basis points or was it 200 basis points, just trying to understand how much of an impact that really was on the profitability?

Yes, Sam, this is Joe. The business, about 1/2 of the deterioration from your expectation was the manufacturing. The rest was promotional activities as we're continuing to grow that business internationally, as well as domestically. The issue we had was in September. We did have a manufacturing issue, it's behind us. You do highlight the change in operating margin. As I've mentioned in my comment, this year will be significantly different in the Q3 to Q4 walk. And I would expect to have similar margin expansion in the fourth quarter year-over-year that you saw in a deterioration this quarter. So last year, we had -- from our best quarter to our worst quarter, we had a 10-point movement. This year, it's much flatter and almost every quarter is in that, mid-20s operating margin range. So the business is performing extremely well and the manufacturing issue was addressed in our October, November manufacturing performance was outstanding.

That's great. I really appreciate that, and just lastly, you gave some color regarding, I guess, the front log or awards that you've been given and as that might move into the backlog. Just trying to understand the timing of when you guys would expect some of those awarded businesses to actually start being moved into the backlog. Obviously, this has been something that we've been talking about for a few quarters now. So just curious on that timing mechanism going forward?

Yes, I expect a strong fourth quarter. I expected some orders that are being contracted today as we speak literally to have hit in the third quarter. So I was surprised by the timing myself. We -- I would've expected a growth in the quarter, we will see it in the fourth quarter. We do have -- we, obviously, have visibility to the things we're working on that become contracted commitments. That's when they enter our backlog, and our largest contributor to backlog, which is our services business, Architectural Services, we had several orders that are falling into the fourth quarter versus the third quarter. We didn't lose a single order that we had in our original projections for the third quarter, but we did have some timing movements. So, frankly, I'm expecting a strong fourth quarter.

Yes, we've been seeing others -- this is Jim. We've been talking about seeing just a longer time period between project awards and getting them into the backlog. And, frankly, what we are seeing and I think what we're seeing in our industry, in general, is finally that maintaining with even a lengthen interest in terms of how long it's taking from projects to get into backlog. The projects continue to move forward, they're just continuing to be dragging out a little bit longer.

Your next question comes from the line of Colin Rusch from Northland Capital Markets.

So with the backlog flattish year-over-year and the expectation still for some growth, can you talk a little bit about that the sales cycle for the products and what you're seeing in terms of turn time from the time you get an order to the time you actually deliver it?

Well, I think in the last year or 2 years, frankly, we've seen longer period between awards and commitments. Nothing is falling out of the queue. We picked very, very rarely have an award that does not end up in backlog. So I would say there's nothing significant going on. We did have -- as Jim likes to point out, a quarter-by-quarter measurement can be hard because we have a lot of revenue coming out of the backlog every quarter, and we're replenishing it. We're pretty proud that it's still at $300 million. But as I said, our second largest business is the services business, and they are going to be a large contributor to our backlog going forward. So in the long term, we will see that backlog continue to grow.

Okay. So -- I guess, thinking about the $300 million numbers, we've been kind of flattish around that for about what, 6 quarters now? And is that something that you're expecting to grow pretty materially? You talked about these orders. As we go forward, do you need to be booking those orders in advance? Or are we seeing the time from the actual booking to the actual shipment shorten a little bit as we go forward?

Yes, the trend, Colin, the trend will increase and, frankly, I'm saying in the short term, I expect an increase in the backlog in Q4. I was bullish on that for Q3. We had a little bit of slippage into the fourth quarter, so I am very confident in what I've already seen in the month of December for awards and contracts, we've inked leads me to be very confident and having double-digit growth in the backlog in the fourth quarter, and the trend in fiscal '15 will continue to reflect growth in that backlog.

And every project is different with a lot of variations. I'd say on average, we're not seeing a change in the timeframe from when the project enters into backlog and when we're delivering projects and services against that.

Okay, perfect. And then the ASCOs offering that you guys have been working on, can you give us an update on where you're at with some of those projects in terms of being able to have third-party financing for window replacement?

This is Jim. We continue to be quite excited about the activity related to the renovation market. And as we've talked about, we're pursuing that on a couple of ways, both working through the energy service companies or ASCOs, as well as working directly with building owners and both the institutional and the private sector. And it's -- as we've talked in the past, it's a -- it's frankly, a very long selling cycle, probably longer than we anticipated as we got into it. But I'd say the visibility of potential projects that we're working on is growing nicely, and it's going to take a little while before we see it come through. We do have a few million dollars in our backlog and some other projects that we've been granted that we expect to be entering into the backlog in the next couple of quarters. But good momentum in that and we continue to be very optimistic about that potential.

Yes, this is Joe now. I would tell you I am still very bullish, as this being a real big deal for Apogee and we set a modest goal for awards this year, more than $10 million but modest, and we are on track to do that. Most of that will get into the backlog between now and the first quarter, and the headlights going forward are extremely positive. We've got a lot of activity in this initiative. So I'm as bullish as I am when I started here and I brought this initiative, frankly.

Okay, perfect. Just one final question, so obviously, there's a significant amount of operational efficiency that you're going to get with the buildout in Minnesota on the manufacturing. But can you talk a little bit about efficiencies or best practices that you're getting from the Alumicor folks? And how you see that flowing through that business?

Yes, we continue to mature on our journey to implement lean in our factories. We now have about 14 major factories in Apogee. We are progressing nicely. We are, in fact, achieving the 50 to 100 basis points of improvement on our operating line, and the Alumicor business is a very well-run business. We have synergies in both directions. Our teams have already been meeting both within across the Architectural Framing Systems businesses, not just supply-side synergies, but also operating. So we've got 2 business that are very similar, one in U.S. and one in Canada. I can assure you, we're already leveraging best practices from both sides.

Can you put just a little bit of hard numbers around, what you think you can achieve with that business in terms of operational efficiencies?

Well, we -- I can tell you, as Jim mentioned, the impact to our bottom line in this fiscal year will be de minimis, close to breakeven. We -- I'm pretty pleased that we could do a deal of this size and have it not be dilutive in the first 4 months. Our fiscal '15 will reflect accretion from that deal, and part of that will come from operational excellence. I'm not sure if we're ready to put a number out there, but Jim, if you want to comment on the accretion?

Well, when we don't see an acquisition, I think we characterize the business as having similar operating margin profiles to our Architectural Framing Systems business, and that's what we anticipate. It'll take a little while to get there, I mean not long, and that as Joe articulated longer-term, we hope there is some incremental synergy opportunity.

Your next question comes from the line of Robert Kelly from Sidoti. Robert J. Kelly - Sidoti & Company, LLC: Question on the implied fourth quarter guidance. Based on the revenue and the EPS, you gave us for the full year, high-teens revenue growth rate, kind of hit the midpoint, and almost earning in op income maybe needing to earn or perhaps exceeding what you did in 3Q? Just to kind of hit the midpoint in the winter quarter. I just -- could you just put a little color around the benefits of rolling off the low-margin work and getting into some of the higher mix awards that you've seen over the past couple of quarters?

Yes, sure, Bob, we -- you're correct. We even -- without the Alumicor acquisition, our fourth quarter will grow in the mid-teens. The Alumicor deal brings it back closer to 20 as you mentioned. So it will be a strong quarter for us. I mentioned one of the reasons is our Large-Scale Optical business is much flatter Q3 to Q4 than it traditionally is. The holiday season this year was quite delayed, so we're having a much stronger December in that business, so that helps. Our Installation business is, in fact, seeing triple digit operating margin enhanced -- coming out of the backlog. I would tell you that we were talking 2 years ago and a year ago, low-margin work. I don't think we were talking about low-margin work still in the backlog, but the work that we're putting in the backlog continues to be at improved margins, and it's a reflection of an improving economy. There's no question, our end markets are starting to see improvement. We're looking at good growth in our end industries next year. Last year at this time, the McGraw-Hill forecast were for stronger growth and actually happened this year, but we are, no question about it, seeing strength in the end markets. We're getting good mix in our largest business, which is the Glass business. And if you look at our 4 segments, obviously, our LSO margins are very attractive. And as I mentioned, our fourth quarter will be nice year-over-year. Our Framing Systems segment is near our double-digit goal. I expect that to continue to improve. An example is the Alumicor acquisition will be accretive to us, that segment will continue to improve. The 2 big dogs in the kennel are our services and our Glass business, are continuing on a trajectory that will get them to double-digit margins and I think, as reflected by the roughly 200 basis point improvement in their bottom line in this most recent quarter. So not every cylinder fires well at the same time, but all 4 businesses are performing well. The Windows business within the framing system had, as we mentioned earlier in the year, there've been some headwinds. They turned the quarter, in the third quarter, so we've got a lot of things going in our direction and if we continue to get a little help from the end markets, I'm very confident in our F '16 projections that we put out there. Robert J. Kelly - Sidoti & Company, LLC: Sure. As far as the -- you talked about the 200 to 300 basis points improvement, is that on a year-over-year basis? I assume that you're referring to the Services Installation division.

Yes, in the year-over-year, quarter-versus-quarter, we were up approximately 200% in both businesses, one slightly above, one slightly below in our operating results. Robert J. Kelly - Sidoti & Company, LLC: Well, I mean just because the Architectural Services last year did like a 5% operating margin, so I mean should we build in 200 to 300 basis points on that?

Well, I think we have the potential again depending on mix and project flow of a couple hundred basis points, and that's -- that is the reflection of both continued improvement in that margin coming from backlog and we've tried to be clear that, that's going to be kind of a trendline of gradual improvement, every quarter, we'll continue to see a little bit of improvement, plus we see a little bit of bigger quarter just from the timing of the work which we'll benefit. Robert J. Kelly - Sidoti & Company, LLC: Okay, that's helpful. And just as -- this is kind of nitpicky, you had talked in the past about conversion rate being 30% on every incremental dollar of sales, and even if you do your F '14 goal -- sorry guidance, you're going to be south of that. So what has to change to get that incremental margin up? Is it the productivity initiatives kick in, is it mix related? Is it absorbing the coater builds? Or any help on that front.

Yes, sure. That is my internal target, Bob. And certainly, when we're coming off breakeven type business, slight loss, growth should come at that kind of conversion. As we're making growth investments, 30% is going to be harder to achieve but it's still realizable for us in the fourth quarter will be a better metric on that. We've had some cross segment mix headwinds, of course. The timing of our Large-Scale Optical business, which is our -- by far our highest margin business has given us year-over-year headwinds as far as overall Apogee conversion rate. As I mentioned, that will turn into tailwinds for the fourth quarter, so I'm pleased with that. Our Windows business is an attractive business. That provided me headwinds in the first 2/3 of the year, and so I've had some mix but again, all businesses are growing. My highest margin businesses were not growing as high as the other one. So I think the fourth quarter will see a little bit better conversion and as we showed in third quarter, Bob, the conversion was 30% without Alumicor.

Yes and Bob, I'll just add that because on a full year basis, they'll probably be in the neighborhood of $20 million of revenue with essentially no contribution because of the acquisition. And so the way we're managing the business I think we're in the range of the goal that we've set out for the kind of ongoing operating business. Robert J. Kelly - Sidoti & Company, LLC: Yes, so the acquisition integration drive sort of drop off in F '15 and the leverage will increase a little bit?

Yes. Robert J. Kelly - Sidoti & Company, LLC: Okay, fair enough. And then just as far as you talked about the bid -- bidding and quoting activity improving. The -- I mean, I know the data and the leading indicators have been running positive for some time now, but there seems to be a lack of conviction that the markets are improving. I mean could you just kind of talk to your experience when you're working through the channels to sell, whether the sentiment are getting better amongst the people, your key customers?

Yes, we have good visibility to what's going on in the marketplace. One of the reasons, our services margins are going up is there is more business being booked now-a-days. The competitive positions are getting better, frankly, in some segments -- in some regions of the U.S. and I have been using the words bumping along the bottom, less conviction out there. You've heard my tone today. We are feeling better the second half of this year, we're definitely seeing improved conditions in the marketplace. And I believe -- I feel a lot better about believing McGraw-Hill's forecast for the next calendar year or next fiscal year than I did at this time last year. We are starting to feel it, and I would say we've come off the bottom and I think by the time this year is over, we'll be looking at low-single digit growth in our end markets. And that will only improve next year. So no question, we're seeing it. It's modest right now. I -- is it thin ice? Sure. The economy is still pretty jittery. Obviously, with employment gains in the last few months, people are feeling better of unemployment rates dropping. It looks like Washington is not fighting as much as they were. So things are looking up. But, unfortunately, you're all well aware the fragile environment in the United States right now. And we're always cognizant of that. So we plan for the worst and we're prepared to support growth. Robert J. Kelly - Sidoti & Company, LLC: Right, you're certainly, executing in a tough environment. One final one, just the Alumicor acquisition was a big one relative to what you guys have done historically, does it change your appetite to do more deals near-term? Or do you kind of put any potential M&A on the back burner until that's fully integrated into the overall system?

No, I'm proud that we've got a great integration process here, and we've got Tiger teams working on the integration and the synergies. We certainly have bandwidth to do another big deal like that. As you heard me say I'll walk away from 10 bad deals before -- I'd rather lose some deals that are -- we have no desire -- our goal are a well-run company with a good management team in the spaces we know. And they're hard to find. I think Alumicor was an incredibly good find for us, and we have the appetite to do continued work in this arena. I'm not ready to put anything on the back burner at this time. We continue to have strong balance sheet management. We continued to have 46, 47 days of working capital which is incredibly positive for our manufacturing company and it allows us to keep delivering strong cash flow, even when we make investments like that. As Jim mentioned, we have -- we extended our line of credit, which we haven't tapped into. We're driving good cash flow, so we certainly can do more strategic deals.

[Operator Instructions] Your next question comes from the line of Brent Thielman from D.A. Davidson. Brent Thielman - D.A. Davidson & Co., Research Division: You've answered questions on margins pretty extensively here, but I'll ask it another way. You worked through a lot of this legacy lower margin work, sounds like the bidding environments certainly getting better. I guess my question is, are you at the point where you're comfortable? All these businesses should be profitable on a go-forward basis or is there a part of you that still thinks there might be some lumpiness ahead that can work against you?

I absolutely believe we're turned the corner on profitability in all the businesses and obviously, the ones that we are not have turned the corner. I project that going forward. So no, I don't see any lumpiness that would change that statement. Brent Thielman - D.A. Davidson & Co., Research Division: Okay. And then kind of on the Alumicor acquisition, and certainly understand the expansion into new market sounds like a good business. Is there something in the Canadian market that's more appealing to you than in the core domestic market where this is sort of simply a way for you guys to kind of expand your geographic focus?

The only -- it was done for exactly that, to expand our geographic focus. There was nothing magical about Canada, but I will tell you, the Canadian market -- our end markets in Canada did not have the significant falloff that happened in 2009 in the U.S. It was a much flatter depression so to speak, or recession in, wouldn't even use that term. So it's been quite stable, and that business has been out -- like the Apogee business had been outperforming its end markets. It's one of the large players in the Canadian marketplace, and so I do like the fact that the recent 5 years have shown more stable end market condition versus the 'v' [ph] -- that we're dealing with in the U.S. The massive drop-off and what will probably be a massive recovery. I like the fact that it was more stable, but that's not why we did the deal.

Another positive about the Canadian market is there seems to be similar opportunities in the retrofit side of the business as well. Alumicor had a nice position in there and as we continue to focus on ramping up that initiative, we'll be doing that in Canada as well.

I have to say, Jim, is right on that. We -- I am very, very pleased with the cooperation and the aggressive nature of which our U.S. team and the Canadian team are working on, attacking these kind of opportunities like retrofit and operational efficiencies. Brent Thielman - D.A. Davidson & Co., Research Division: That's helpful. And then just lastly, you mentioned $45 million, a good number for CapEx this year. Should we kind of be thinking about that number for next year as you're looking at some of these growth initiatives in other areas?

It won't be that high next year. This is certainly an anomaly for us. This is a significant investment. Jim, obviously, highlighted, we've made some very wise moves that have a long-term benefit for Apogee with the new markets tax credit. But the CapEx this year is clearly higher than it will be next year, but we continue to amp up investments in productivity and new products. So it won't be as low as it was before I came here, so it will be in the range of probably $30 million to $45 million, but it certainly won't be at the $45 million or above.

The next question comes from the line of Jon Braatz from Kansas capital.

I think all my questions have been answered, but Jim, one question on the new markets tax credit. You said there was no P&L impact this quarter. Will there be an impact -- P&L impact going forward?

Potentially, there will be a P&L impact in 7 years after the kind of expiration of this. Other than that, it's kind of de minimis and will flow through in the interim periods.

Your next question comes from the line of Mark Rogers from Gagnon Securities.

I had a question on Alumicor. I see they are Toronto-based. If you could get a little granular on the revenues of $60 million, what percentage of those were either in Toronto or in the province of Ontario, and there are certain cities in Canada that are growing exponentially with GDP rates north of 5%, approaching 6%. Gets me excited about getting you into Canada. What's your exposure to some of these faster growing cities such as, Regina or Saskatoon?

They have the headquarters in Toronto, but they have 4 operating locations with operations. They basically, go from East to West, so they’re in Nova Scotia and Winnipeg, Toronto and Québec, and we service the entire country from those locations and obviously, you know the Canadian border quite well, almost everything is within that 50-mile line across the United States. We have that covered quite well. We have an opportunity to participate in any growth region in the country, so I don't have the breakdown off the top of my head and by region. But we are getting our fair share in every one of those regions.

I'll say, Mark, they're strongest market and share demand is in the Ontario market and they already had their biggest growth opportunities on the 2 coasts. I think on the East Coast they’re really under serving that market and in Western part of Canada where there's just really significant growth opportunities. We're starting to participate in that, but see a lot of growth potential there.

Are they doing any work on the New Canary district project in Toronto, just for the Pan Am games?

I do not have that -- I do not know.

I don't know.

This concludes our question-and-answer session. I will now turn the call back to Joe Puishys.

All right, Kim. Thank you, and I appreciate all of you staying on the call. This was a long call. We appreciate the questions. Hopefully, Jim and I have given you great perspective on our year and we really look forward to talking to you about our fourth quarter as we wrap that up. So thank you for your attention today, and have a great holiday season. Bye-bye.

This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.