Apogee Enterprises Inc (APOG) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fiscal 2014 Apogee Enterprises, Inc. earnings conference call. My name is Sheena and I will be your operator today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

And now I'd like to turn the call over to your host, Mary Ann Jackson. Please proceed, ma'am.

Thank you, Sheena. Good morning and welcome to the Apogee Enterprises fiscal 2014 first-quarter conference call on Wednesday, June 26, 2013. With us on the line today are Joe Puishys, CEO; and Jim Porter, CFO. Their remarks will focus on our fiscal 2014 first-quarter and our outlook for fiscal 2014.

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 risks 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 Q1 conference call. In our fiscal 2014 first quarter, we delivered another strong quarter of growth, with revenues up 16%, and our operating income up over 2.5 times the prior period. Our operating margin increased by 190 basis points to 3.4%, driven by improvements in volume, mix, and productivity in certain segments.

We earned $0.14 a share, up from $0.06 a share in last year's first quarter. Our revenue and operating income growth primarily came from our Architectural Glass and our Architectural Services segments. We had expected good performance here, since these segments have more operating leverage than the other two segments. We benefited from improved volume, mix, productivity, and pricing in the Architectural Glass; and improved margins in the Architectural Services segment, where we are continuing to work off lower-margin work bid in the cycle trough.

Our average gross margins of projects in our Architectural Services backlog are more than 200 basis points higher than a year ago, reflecting improved project profitability as we exit the downturn, and as we have been explaining in the past.

Revenues grew in our other two reporting segments as well, Architectural Framing Systems and Large-Scale Optical. Our Architectural Framing Systems segment operating income was negatively impacted by a gap in timing of more complex window work, which we expected and planned. And Large-Scale Optical segment operating income was impacted by investments in promotion, and for growth in new geographies and new markets.

In our first quarter, we continued to execute our strategies to grow through new geographies, new products, and new markets. In both our Architectural Services and Architectural Framing Systems segment, we opened facilities to service new US geographies and focus sales efforts on targeted new regions. We continue to have significant push on new products, and introduced several new Architectural Glass and Framing Systems products in the first quarter.

Regarding new markets, we continue to make inroads; and as an example, selling picture framing glass in Europe, which Jim and I saw on a recent sweep through Europe with our sales team. We also continue to make progress with our architectural retrofit initiative, with energy performance contract work through the energy service companies, called ESCOs, which service the federal, state, and municipal governments, as well as the school and hospital markets. We are working with building owners and developers as well to retrofit older buildings.

I am pleased that Apogee's consolidated backlog grew to $302 million in conjunction with very strong revenue growth. The consolidated backlog, which reflects the backlog across all four reporting segments, is up 12% for the fiscal 2013 first quarter, at a time when revenues grew almost double-digit over the last 12 months. We continue to see improving margins in our backlog as we grow the business, as I noted earlier. And our balance sheet is also strong, with our cash and short-term investments position at $70 million, up from $58 million a year ago.

Before returning to our outlook for 2014, I'd like to provide more color on the growth drivers for each of our four reporting segments, the reporting structure in effect since our fiscal 2013 10-K was filed back in May. As you have noticed, we now have three architectural reporting segments, and the Large-Scale Optical segment remains unchanged. The three architectural segments are — number one, Architectural Glass, which consists of our Viracon Architectural Glass fabrication unit. Growth strategies for Viracon include new coatings, products, and capabilities, and increased international penetration. Our operating margin drivers for this, our largest business — which also has the greatest opportunity to leverage fixed costs — are a higher value-added mix, capacity utilization, and productivity.

Our Architectural Services segment consists of our Harmon building glass installation and renovation business. Harmon will grow by expanding into new US geographies. And operating margins will benefit from pursuing our best Harmon-type projects and improving commercial construction markets.

And our third segment, Architectural Framing Systems, includes our three businesses that design, engineer, fabricate, and finish aluminum frames for building facades. They are the Wausau window business, the Tubelite storefront business, and the Linetec finishing business. Growth strategies for the three businesses include a focus on targeted markets and project selection; United States geographic expansion; retrofit; and new products. Our operating margin drivers are project selection, capacity utilization, and productivity.

And finally, our fourth segment, Large-Scale Optical, consists of our Tru Vue picture framing glass and acrylic business. Tru Vue growth drivers are new products, new markets, and increased international penetration. And our operating margins will benefit from an increased mix of higher value-added products, productivity, and volume growth.

This expanded segmentation provides better visibility for our investors. During the last cycle, all three of the new architectural segments peaked at over 9% or greater operating margin, although at different times in the cycle.

This performance in the cycle illustrates why we are confident that Apogee can achieve double-digit operating margins during the current cycle. With our comprehensive growth strategies, combined with our productivity initiatives, we are well positioned to achieve our goals of being a $1 billion company with double-digit operating margins by the end of fiscal 2016.

Now I'll cover the outlook for fiscal 2014. We continue to expect strong top- and bottom-line improvement in fiscal 2014 as we implement growth and productivity initiatives. For the top line, we are maintaining our forecast for high-single-digit growth, for a performance that is about 5 or 6 points better than what we see in our end markets. We anticipate that our revenue growth will come from geographic growth and new products, as well as improvement in our end markets.

The outlook for the United States commercial construction markets in our fiscal 2014, based on Apogee's lag to McGraw-Hill forecast for these segments, is for low-single-digit market growth. The American Institute of Architects, the ABI Billing Index, has been above 50 for nine of the last 10 months, indicating modest growth for architects. This correlates to the growth we are seeing in bidding activity. On the bottom line, we continue to expect earnings per share for fiscal 2014 to be in the $0.90 to $1 range, with growth coming from improvements in volume, mix, project margins, and with an improving backlog.

Margins on our new architectural work continue to be added to our backlog are improving, as I noted earlier. We also expect to gain 50 to 100 basis points of margin enhancement from our productivity initiatives. We are continuing to anticipate capital expenditures of $40 million to $45 million as we continue to invest for growth, productivity, and product development capabilities. Our largest expenditure here will be for the new architectural glass coater at Viracon, which will give us new aesthetic and energy-efficient coating capabilities that will enhance our competitive position. The new coater will also provide production efficiencies through increased speed, increased run rate, and faster product changeovers.

We once again expect to be free cash flow positive after these significant investments in our future growth. Our anticipated 2014 performance and investments are the first steps in achieving our three-year target of $1 billion in revenues and at least 10% operating margin. I believe that our focus on operational improvements, as well as our strategies to grow through new geographies, new markets and new products, will allow Apogee to continue to deliver the improving results that will allow us to reach these goals by fiscal 2016.

Now Jim is going to take you through the details of the financials.

Thanks, Joe. I'm really happy with our fiscal 2014 first-quarter performance. We're making significant progress in commercial construction markets that are beginning to show signs of improvement. Earnings per share were $0.14 for the quarter compared to $0.06 per share last year, on revenues of $179.3 million, which grew 16% from the prior-year period.

The first-quarter gross margin was 20.3%, with improved volume, pricing, and productivity in our Architectural Glass and Architectural Services businesses. This improvement was somewhat offset by expected lower revenues in the window business of the Architectural Framing Systems segment, along with the impact of investments in Large-Scale Optical.

As Joe highlighted, we recently moved to four reporting segments. I'll walk through the results of each segment. In the first quarter, Architectural Glass segment revenues grew 27% to $74.8 million, as the segment moved to operating income of $1.4 million from a loss of $2.4 million in the prior-year period. Top- and bottom-line increases resulted from improved volume, a strong mix of value-added products, productivity, and pricing.

The Architectural Services segment revenues increased 19% to $46.5 million, on volume growth and the timing of project cost flow. The operating loss of $1 million improved 63% from the prior-year period, with volume increases in project margins improving from the cycle trough. We have talked about the long lag with this segment, and that we would be working through trough project margins through the first half of this fiscal year.

Architectural Framing Systems revenues were up 5% to $44.4 million, while operating income was $2.1 million, compared to $3.1 million last year. Top- and bottom-line growth in the storefront and finishing businesses was offset by the window business results, where revenues and operating income declined with an anticipated gap in the schedule for longer lead time, more complex projects.

First-quarter capacity utilization across all architectural manufacturing businesses was approximately 57% compared to approximately 52% in the prior-year period, driven by higher capacity utilization in Architectural Glass. There was minimal impact on capacity utilization from the temporary closure of the Utah Architectural Glass facility, which was effective late in the quarter.

Our Large-Scale Optical segment revenues were up 1% to $19.5 million, while operating income was $4.7 million compared to $5.3 million last year. The impact of volume growth and a positive mix of higher value-added products, including in new markets, was offset by investments in promotion and growth as we introduced new products and work to expand this business. The operating margin was still strong at 24.1%, though down compared to 27.4% last year.

Keep in mind that on a smaller revenue base, modest incremental spend has a big margin percent impact.

Regarding backlog, we report consolidated backlog for the entire Company, which includes backlog for the short lead time Large-Scale Optical segment, which historically runs about $1.5 million to $2 million. To remind you, the largest part of our backlog is generated by the Architectural Services segment, which makes up generally about two-thirds of the total. We capture the full contract value of a project once that contract is signed. The Architectural Glass segment and the Architectural Framing Systems segment roughly split the balance of the backlog.

I also want to again note 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 of growth. The consolidated first-quarter backlog was $301.8 million compared to $298.3 million at the end of fiscal 2013, and $269.1 million in the prior-year period. We have maintained a backlog of approximately $300 million over the last year, a period that experienced 9% Company growth.

As we have grown our business during the year, we have replaced these revenues in the backlog with a good level of new orders. Our backlog remains at the highest level in three years, and we continue to see good bidding activity and improving margins. Our backlog mix at the end of the first quarter changed slightly from the fiscal 2013 fourth quarter, as we continue to see a move from the institutional sector with some growth in the hotel, entertainment, and transportation sector.

The institutional sector declined slightly to 45% to 50% of the backlog, with healthcare projects continuing to be a much larger portion than education and government work. The office sector held at just over 35% of the backlog. Hotel, entertainment, and transportation grew to 10% to 15% of the backlog. And multifamily residential, including high-end condos and apartments, is less than 5%.

Regarding the timing of the backlog, approximately $238 million, or 79% of our backlog, is expected to be delivered in fiscal 2014; and approximately $64 million, or 21%, in fiscal 2015.

Apogee's tax rate for the first quarter was 29% compared to 28% last year. Debt was $20.8 million at the end of the first quarter compared to $30.8 million at the end of fiscal 2013. Debt declined from year-end as we redeemed the approximately $10 million of outstanding recovery zone facility bonds related to the closure of the Viracon facility in Utah. Virtually all our remaining debt is long-term, low-interest, industrial revenue bonds.

Cash and short-term investments totaled $69.7 million compared to $85.6 million at the end of fiscal 2013, and $57.5 million in the prior-year period. The decline from year-end was due to the redemption of the recovery zone bonds that I just mentioned, as well as funding of normal seasonal working capital requirements. First-quarter capital expenditures were $1.5 million, with the timing of planned investments for growth, productivity improvements, and new products, falling in the last three quarters of the current fiscal year.

Last first-quarter expenditures were $9.5 million, which included some opportunistic investments for capacity in the Architectural Framing Systems storefront business and Architectural Services business. We had negative free cash flow of $3.7 million in the first quarter, greatly improved from the prior-year period negative free cash flow of $17.1 million. Non-cash working capital was $68.2 million, up from $61.2 million in the prior-year period, and $54.1 million at the end of fiscal 2013.

We generally use cash in the first quarter as we pay our accrued annual incentive and insurance payments. Our team continues to effectively manage working capital, with our days working capital at 45 days compared to 47 days in the prior-year period. We define free cash flow as net cash flow provided by operating activities, minus CapEx. Non-cash working capital is defined as current assets excluding cash and short-term available-for-sale, short-term restricted investments and current portion of long-term debt, less current liabilities. While days working capital is computed looking at our controllable working capital, assets and liabilities, AR, inventory and Accounts Payable.

I'll turn to our outlook. In fiscal 2014, we've maintained our outlook as we expect to continue to grow despite limited help from domestic commercial construction markets. We have a nice backlog level and are seeing good bidding activity. The external metrics we watch — including job growth, the Architectural Billings Index, the McGraw-Hill construction forecast and consumer confidence — point to improving markets for Apogee, consistent with what we see with our bidding activity.

We continue to expect high-single-digit revenue growth for the year, with earnings of $0.90 to $1 per share. We're expecting the second half to be stronger than the first half based on our anticipated flow from backlog. Our business is largely subject to timing of construction projects. And the schedule of visibility we have looks for lower growth in the second quarter, ramping up in the third quarter, which is normally strongest for us. We expect full-year gross margins of at least 22%, and we anticipate a tax rate of approximately 33% for the full year.

We expect to generate positive free cash flow for fiscal 2013 after spending $40 million to $45 million for the full year on capital that has balanced across investments for growth, productivity, and new products, as well as for maintenance. In addition, we'll look for acquisition opportunities that fit our strategic goals. Depreciation and amortization should be approximately $27 million.

I'm encouraged by our strong first-quarter performance, and look forward to a great year of growth in earnings improvement for fiscal 2014. We're making nice progress in our strategic initiatives, including geographic expansion, development and introduction of new products, and continuing productivity improvements. We see significant future opportunities that will leverage Apogee's strong financial position, leading products and services, and operational and strategic initiatives.

Joe?

Thank you, Jim. Sheena, if you could please open the call up for questions, we look forward to taking them.

(Operator Instructions). Robert Kelly, Sidoti & Company.

Good morning. I had a question on one of Jim's last comments about the phasing of the year, second-quarter growth being slower, ramping up in 3Q. Should we expect normal seasonality for Architectural and LSO, as far as on a sequential basis? Or would that be also subdued?

We would expect normal seasonality for Q3.

Normal seasonality for 2Q and 3Q?

I'm sorry. So, yes, we're looking at Q2 probably being a little bit softer in gross sales, at least based on the schedule that we see in front of us; and then going back to kind of the normal level for Q3 and Q4.

Okay. And then just as far as the margin phasing, you talked about gross margins being at least 22% for the full year; far south of that in 1Q. How do we think about the build up throughout the year for gross margin and profitability?

Based on the backlog flow, we will still have a little bit of the impact of the lower project margins in Q2. And then we're not going to see the revenue growth as strong as we'll see in Q3 and Q4. We'll see continuous improvement in gross margins, but we should see a little bit of a step-up in Q3.

Okay. So, as far as incremental margins or conversion rates, you are kind of below where you were in F13, and where you target being in that 40% range. Do we get over that metric in the second half? Is that the bogey for the second half, 40% profit conversion? Just maybe some help there.

Yes, Bob, this is Joe. We had really good conversion in most of our businesses, at or better than their planned targets for the quarter. I definitely had headwinds on mix. Two of our most profitable business were — this was a soft quarter. In particular, obviously our Large-Scale Optical, our first-quarter comps are the hardest for us for the year in that business. And we'll see improved mix going forward on that metric. And our windows business still has a hole to fill in their backlog.

But our two big dogs in the kennel, our Viracon and Harmon businesses, have really performed well with regards to conversion. My goal to be at least 30% conversion, 30% to 40%, it still stands on an annual basis. On a given quarter, it was tough. But I was really pleased with the conversion by business. I just got cross-business mix that made the overall metric in the mid-teens.

Sure, sure. (Multiple speakers). As far as the gap in window, which kind of hurt you and depressed that conversion rate in 1Q, does that close up in 2Q? Or is that more, also, a second-half event?

Half. We have made some changes in that business, as well, to drive the — get the growth engine going again; so, second half.

Okay. And then just one final one on the retrofit opportunity. How big are we in that business at this point? I know you're in the testing and planning phase. But do you have a number you could put around either 1Q or your goal for F14?

Sure. We've had a handful of wins in this category already. Virtually nothing entered our backlog, so the $302 million — anything in that is de minimis. We have low-single-digit millions of dollars of wins that will enter the backlog very soon. And we've got double-digit millions in work right now that we expect we should win. So, we're on track to hit our low-double-digit millions of awards in this first year of effort.

Excellent. Thanks, guys.

It's going well. It's a lot of work, though, and it is a long selling cycle. But our team is doing a great job on this. And my confidence continues to be strong on that growth initiative.

Excellent, thank you.

Brent Thielman, D.A. Davidson.

Hi, good morning. In LSO, are any of the growth promotional investments you've been making having an impact on the topline performance of the segment?

Sure. One of the growth initiatives that we've made a big investment in is our international operations, which is really distribution and people; so, logistics capability, and feet on the street. And we're achieving growth from that initiative, as I said in my comments. Jim and I just spent a week over there looking at the opportunity, visiting existing customers and prospective customers, and we're getting good success from that.

Our promotional activities with our existing customers continue to help us convert to more value-added glass and acrylic. And one of the more positive things I've seen was the recent Consumer Confidence Index, which I think you saw, bounced up. Most of us probably saw this in the last few days — up over 84, which is a significant increase from the mid-60s it had been running at, and substantially higher than anything in the last half a decade, nearly.

So, that business does tend to be — a leading indicator for that business is consumer confidence, and that most recent index bodes well for that business. And we have a lot of exciting new products, potentially new segments, going on in that market that we're spending some upfront capital on — or expense, I should say — to reap the benefits of that over the next couple of years.

So we are — Brent, we are seeing some of that topline benefit. But I think a majority of the benefit, relative to our investments, is still to come.

Okay. And then with your guidance, are you expecting some margin improvement in LSO in the second half compared to last year?

My hesitation on that a little bit is — part of that business fluctuates quarter to quarter. But I'd say for a full second-half perspective, yes. Q3 tends to be pretty strong; I'm not going to predict that we'll beat last year's Q3. But for the total second half, I think there's that opportunity.

Brent, I'll chime in. I think last year, we have kind of had a flip-flop here. Last year in that business, our first two quarter comps were easier, and our last two quarter comps were more challenging. This year, it's just the opposite — our first half comps in the Large-Scale Optical, in particularly the first quarter, were going to be tough ones. We've got that behind us. And our second half, we'll have a little bit more manageable comps in that business. I think you'll see nice year-over-year.

Sure. Okay. And then the backlog definitely looks better year-over-year, but has been kind of flattish with the last three quarters. And I know it can be lumpy, but is this more of a function of the pace of the recovery in the market? Or you are walking away from more lower-margin business? Maybe just a little bit more color there.

No, it's just the pace of the recovery. Frankly, the recovery continues to push out. Geographically, within the US, there are some terrific regions — upstate New York, Silicon Valley, southern Texas — that are very strong markets. But, overall, the pace of the recovery continues to be delayed. And I was actually very pleased that our backlog was where it was, considering the revenue growth.

The pipeline of bidding that we're working on is up significantly. No question, the time to award is growing. And then the time from award to revenue shrinks a little bit. So the cycle itself, the selling cycle, is not necessarily different; but there is continued delays, as the end markets don't want to take any chances. So everyone continues to wait.

But the amount of activity — so, the amount of projects we bid on that are pending our award, or pending an award, or on hold — is significantly increased, which is why I feel good about our backlog.

Okay. Sure. And one last one, if I could. One of the concerns is this decline in public, government-funded building projects. Is that leading to tougher competition in the private category, which seems to be doing at least relatively better? Or would you say the competitive bidding environment is similar to where it has been?

I think the competitive situation is very similar. And it just kind of moves on to where the real targets growth is. And within the institutional segment, the business has moved from the public sector to the private sector.

We actually have, oftentimes, better opportunities in private. In the public, all the projects require multiple bid. Where we can really differentiate in this business — where we are involved up front in the design phase with projects — and private projects oftentimes give us an opportunity to have better differentiation, relative to the competition.

Makes sense. Thanks, guys.

Colin Rusch, Northland Securities.

Hi, this is Brennan. I'm actually filling in for Colin today. And just of couple quick questions for you guys. Are you able to give us any granularity around the relative scale of quotation activity to bookings?

Our win rate?

Yes.

Yes, I've mentioned this in the past, Brennan. We have increased our win rate. It's not a number we publish. But I think you might have heard; I used the term Harmon-type projects. Our projects business, which is Harmon — we call it the Architectural Services — has done an excellent job of spending more time understanding what kind of projects they are more successful at.

We have targeted our bid activity towards those projects. We have had a significant increase in our win rate in that business, which leads to better margins and better cost management, as every project you bid does cost something. So our win rate in several of our businesses continues to increase.

Okay, great. And then my other question for you is, within the Architectural Services segment, can you discuss any contingency plans, as some of the older members of the team may be moving towards retirement?

We do not have an issue of retirement within that business, so it's not an issue for me. We have a very comprehensive management review process, something I amped up here. We call it the MRR, that we go through every organization — in fact, we just completed it, and I'm going to be presenting to the Board shortly on our latest round through the MRR.

So, we have aggressive and rigorous succession planning in place; retention in place; and development — people development in place. So I have no issue with that, the way you worded your question. We don't have a retirement issue at Harmon.

Okay, awesome. Thank you so much.

And, Brennan, I would highlight that the Harmon business has done a terrific job of beefing up their organization with an influx of talent and geographic talent, as well.

Okay, thank you. I really appreciate it.

(Operator Instructions). Jon Braatz, Kansas City Capital.

Joe, good morning. I apologize; I got on the call late, and this question may have been asked — but, two questions. Number one, have you seen any impact on your business as a result of the government sequestration? And, secondly, as I was driving around Kansas City the other day, I just saw a lot more commercial construction activity. Not big projects, by any means; but, nonetheless, things that I haven't seen for a while.

And can you talk a little bit about the size of the projects that you're seeing? Are you seeing more business in maybe the smaller end than maybe the larger end? Or can you talk a little bit about that, Joe?

Yes, that's a good question, Jon. Regarding sequestration and government spend, we did mention briefly that we are seeing a movement within the institutional sector, more from the public spend to private. So the bubble has simply moved. And so we haven't seen any negative impact of that. There are clearly — there's clearly evidence, as you wisely note, that the business in the United States seems to be more robust than any metric that comes out of an agency like McGraw-Hill or ABI.

So, we see it in our bidding; our awards that are pending us; our awards that we are waiting for a decision to see if it is going to come to us. There's no question there as an increased and amped up level of activity. And particularly in certain regions that I mentioned — upstate New York; Texas; Kansas City has some pockets; Baltimore; Washington is still very strong because of the movement to the private sector; and upstate California, even Southern California.

Vacancy rates continue to come down; they're still too high, in the 15% range. But all indications are it will continue to come down all year. And rental rates continue to inch upwards. So, we talked about low-single-digit growth in our end markets. I won't lie to you — it feels like it could be better than that. And we maintain that we will continue to be 5 or 6 points better than whatever shakes out in our end markets.

You also asked about size of projects. We have focused on slightly larger projects in our business because they really fit the mold where we can perform well. Our size and capabilities give us a better opportunity to succeed, so we're seeing slightly larger projects come in front of us, versus smaller.

Okay. All right, Joe, thank you very much.

Robert Kelly, Sidoti & Company.

Hi, just a follow-up on the cash balance; sitting on, basically, net cash of almost $70 million. This is going to be your biggest CapEx year. And hopefully the next decade, you're going to be positive free cash flow. What is the targeted use for all this excess cash?

Well, I'll go in first, and then Jim can jump in. Obviously we're making a substantial investment this year in something that I felt was long overdue for our largest business, which was Viracon. We clearly did not add this investment for capacity. As you are well aware, we made some steps this year to take capacity out until we need it; again, another move I think was overdue.

This is a big bet for us for our long-term capabilities and productivity in that business. Jim and I continue to have a very rigorous and, frankly, deep pipeline of potential acquisitions that are targeted at productivity and capability, and geographic and product line extensions. We have an aggressive NPI pipeline, new product introduction. And if we have an opportunity to do an acquisition that can shorten that by years, we will jump on that.

Valuations right now, Bob, are an issue. A lot of folks in our industry obviously don't want to sell in the trough. So EBITDA multiples can be challenging right now. But I would tell you, we have some interesting things we're working on right now. You've heard me say it before — I'll walk away from a bad deal. I'll walk away from a good deal before I do a bad deal. But we are aggressive in studying the market for that.

So our focus will continue to be on new product capabilities; new regions — like we're moving two of our businesses this year — opening up new locations; and acquisitions. I don't expect we'll be doing the type of CapEx as we have this year. I think we'll be more in a normalized level of the $30 million range. This is an unusual year because of the one-time investment in a major coater.

Sure, sure. And then just the two new markets that you're entering — can you just remind us, those markets? And is it Harmon markets that you're expanding?

Yes. Both. In our Harmon market, we expanded into south-central United States. And in our storefront business, which has been one of our best-performing businesses, we also announced that we recently — we just opened up a new facility, fabrication capabilities in Texas. And that just happened late in May — actually in June. And we expect to enjoy revenues from that business. Our customers in that business want us down there, and we're moving into that region.

Thank you.

You're welcome. Appreciate the question.

Alan Brochstein, ABA Services.

Thanks for taking my call, and congratulations on your two-year anniversary coming up, Joe.

Yes, thanks, Alan.

My first two are really easy. And that is, when you talk about a $1 billion by fiscal 2016, is that exclusive of acquisitions? Or do you have in mind that that would include acquisitions?

That is exclusive of acquisitions. I also point out, it is exclusive of any significant success in the retrofit initiative that I talk about each quarter, and that I answered a question earlier in the call about the retrofit. So, that — what I consider a potential next big thing for us as a Company is not included in that number — $1 billion; nor is acquisitions. That would be upside.

Okay. And then secondly, I appreciate the additional breakdown in terms of the four units now. Are you able to say how much of the — if there was anything that wasn't organic? I remember you all did some small acquisitions, I thought, about a year ago. But was this all organic this quarter?

It was 100% organic. The last acquisition we did was before I came here; the South American addition to our Viracon business. We've had that in our numbers now for comparable purposes. It's been going on two years now, so this is 100% organic.

Okay. I thought the Dallas thing was considered an acquisition. But that was really a greenfield, from your perspective?

For all intent and purposes, yes. We were moving into the region. We picked up some people and some assets, but we did not acquire anything. We didn't pay any blue sky.

Got it. Okay. Then in my last question is in terms of — and I've asked you this before — the major impact that you had on the Company coming, was really to improve the operational performance. And clearly that's already happening, and you have given some examples of that in the past. But I'm curious if today you could update us on how, in the last two years, you have maybe changed the sales part of the organization, if at all.

Yes. Operationally, all I did was continue what had begun before I came here. I tried to amp it up a bit. With regards to sales, I have a saying — sales eats first. I grew up in a culture where you could not have a conversation about how you were going to achieve your earnings three years from now. So we try to cap all our dialogues around growth; of course, profitable growth.

And so I would say, we continue to invest in our selling organization. We have a mix of internal sales representation as well as external reps. We will maintain that approach, having dual — but we have made investments in adding — I try not to add much to the SG&A line, but I'm happy to add more to the S portion of that formula. And we have amped up the number of people we have selling; the training of them, including annual meetings where they get together and hear from me.

And they always hear, I want to make sure we hit our numbers in the second quarter of fiscal 2017, and what are we doing about that? And I think it's just an attitude and hopefully — and it takes a long time to sink in — hopefully, we continue to migrate to being a sales-first organization.

All right, thank you.

Thank you for your questions. We have no further questions at this time. Therefore, I would now like to turn the call over to Joe Puishys for closing remarks.

Okay, Sheena. Thank you very much. And, Jim, thank you for helping with everything today. To our investors and analysts on the call, I appreciate your attention. I look forward to talking to you in about 90 days with our second-quarter results. Have a great day. Take care.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Enjoy the rest of your day.