Apogee Enterprises Inc (APOG) 2015 Q2 法說會逐字稿

Welcome to the second quarter 2015 Apogee Enterprises Incorporated earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms Mary Ann Jackson. Please proceed.

Thank you, Janeata. Good morning. Welcome to the Apogee Enterprises FY15 second quarter conference call on Wednesday, September 17, 2014. With us on the line today are Joe Puishys, CEO; and Jim Porter, CFO. Their remarks will focus on our FY15 second quarter and our outlook for FY15.

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 1, 2014 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. Jim will cover the financials. After they conclude, Joe and Jim will answer your questions. Joe?

Thank you, Mary Ann. Good morning. Welcome, everyone. As you have read, we had exceptional revenue earnings and backlog growth in the quarter. Our architectural markets have strengthened. We continue to win share gains by executing our growth strategies.

All three architectural segments experienced significant double-digit growth in revenues and earnings. I'm particularly pleased that our architectural businesses are starting to deliver on their potential, even as we overcome some higher costs to expand our workforce and capacity in this segment.

In addition, our backlog growth to $480 million, up 58% or $176 million, is at its highest level in six years and positions us well for the future. Most of the work we're currently booking will be delivered in FY16.

Our backlog has been growing across the board at improved margins, with sequential growth in all four business segments, both quarters this year. Jim will take you into a lot more detail on the breakdown of that backlog.

In the second quarter, our revenues were up 30%, operating income up 66% and our earnings before taxes up 70%. Our earnings per share were $0.57 including the aforementioned $0.22 tax credit we earned in the quarter. Excluding that tax credit, our adjusted EPS for the quarter was up 67% to $0.35.

We earned the tax credit in August with the successful start-up and commercial production of coatings on our new $30 million architectural glass coater, which will provide new product capabilities and better productivity. It was a major project. It required massive effort from our Corporate and Viracon glass fabrication teams and flawless execution of the Viracon operations group. Trust me, this was not falling off a log.

I'm also pleased that our cash and short-term investments grew to $25 million in the quarter, up $18 million in the first quarter, despite the obvious working capital pressures that came with our significant growth. In addition to adding work shifts in most businesses to support this topline growth, we are going forward with two capacity investments to support, what I believe, is sustainable, commercial, construction market growth. We are pleased to have received state and local support for these investments, which will expand our workforces in the states of Utah and Wisconsin.

On this subject, we are reopening our architectural glass facility in Utah, which has been closed since April of 2013. We expect to have all processes operating by January 2015, if not sooner, to provide added capacity to help us meet our growing demand for architectural glass. This opening is happening sooner than we originally anticipated.

We also approved an expansion of our architectural finishing facility in Wausau, Wisconsin with the new capacity expected to be in place in the second half of FY16. This will add more than 50% capacity to a critical growth operation.

Work on both projects begins in the third quarter. The investments are included in our estimate of $40 million in CapEx for this current year.

Looking at segment results, our architectural glass revenues were up 20%. Operating income grew to $3.3 million, a 280 basis point improvement in operating margin.

Our Viracon architectural glass fabrication business is certainly benefiting as the US tall building sector, which is the sweet spot for this business, has reached its highest level since 2007. Our results reflected improved operating leverage and pricing, slightly offset by inefficiencies as our architectural glass business expanded its workforce to meet this growing demand.

Our architectural services business, which is our installation business, also had an impressive quarter. Revenue grew 41%. In the quarter, profit was improved by 490 basis points -- improvement in operating margin, from a loss to a nice profit. The segment saw strong project timing and revenue recognition as well as improved project margins. More on the margins later.

In architectural framing systems, revenues grew 55%, organically it was 28% excluding the Canadian acquisition we completed last November. Operating income in the framing systems segment was up 44%, but margins did declined slightly by 80 basis points as strong execution in the window and finishing businesses was offset partly by the impact of higher aluminum costs and soft Canadian markets in our two storefront businesses.

Moving ahead, the US storefront business will benefit from price increases that were just announced. Despite the slow Canadian markets, I am pleased that this storefront business was in the black in the quarter. We expect this business will continue to generate profits for Apogee moving ahead.

Although the large-scale optical revenues and operating income were down in the quarter, we are expecting strong demand in the third quarter for the holiday picture framing, glass and acrylic requirements, whereas this happened in August last year. This will lead us to expected favorable Q3 year-over-year comparisons. We anticipate that the full year for this segment will be comparable to the prior fiscal year.

I remind you that quarterly comps in this business are quite lumpy. The business is very healthy.

As I look to the outlook, our fiscal year is shaping up to be an exceptional one for Apogee. We have raised our guidance for our revenue growth to approximately 20%, from 15% to 20% in our prior guidance. Our earnings per share range has been raised to $1.62 to $1.72, reflecting the tax credit we earned in the second quarter.

We are experiencing robust bidding and quoting activity and significant backlog growth as we gain market share. With regards to our commercial market sectors, the US commercial construction market based on Apogee' s lag to McGraw Hill forecasts for the segments we serve has increased to approximately 10% for the fiscal year. We will significantly over-achieve this with our share gains for new products and new geographies.

In addition, the architectural billing index, the ABI, has reached its highest level since 2007, with consistent monthly gains in the last 24 months. Despite the weak start to our year in Canada, commercial construction markets there are now expected to grow for the remainder of the year. Our backlog in our business in Canada is now at a historical high.

I am confident we are on a path to $1 billion in revenues and double-digit operating margin by the end of FY16. Our strategy is to grow through the US and International geographies.

New product introduction and new market sectors are delivering positive results. Our current high level of backlog bodes quite well for FY16.

Jim will now cover the financials in more detail. Jim?

Thanks, Joe. I'm also pleased with the strength of our second quarter performance. Our revenues grew 30% or approximately 23% organic growth excluding the impact of the acquisition made in third quarter of last year. Earnings per share were $0.57.

Excluding the impact of the tax credit, adjusted earnings per share were $0.35, a 67% increase over the second quarter last year. Each of our three architectural segments was a strong contributor to our revenue backlog and earnings growth in the quarter. The large-scale optical segment continues to deliver solid profitability.

Our second quarter results underscore the strength we are seeing in our core US architectural market. It's evident that Apogee's architectural businesses are gaining share, as we grew revenue for all our architectural businesses collectively by 34%, approximately 25% growth organically, which is well above the 10% market growth we are expecting this year. Although the operating income and adjusted earnings per share were up almost 70% compared to the second quarter of FY14, the gross margin of 21.3% was down slightly from the prior-year period gross margins of 21.6%.

On these higher revenues and volume, our gross margins were negatively impacted in the quarter in comparison to the second quarter last year by four items. First, was the mix of business in the quarter. Our highest margin large-scale optical business was a smaller percentage of total revenues this year.

Second, the two storefront businesses were impacted by higher aluminum costs in the quarter and the soft Canadian economy. Our US storefront business should start to benefit from price increases during the third quarter. Market conditions are continuing to improve in Canada.

Third, we experienced higher healthcare costs in the quarter. Lastly, we've had ramp-up costs to address volume increases primarily in architectural glass business as we add shop floor staff.

Combined, these four items impacted us by about 200 basis points compared to last year's gross margin. But it also impacted us negatively roughly 50 basis points compared to what our expectations were for the quarter. I'm encouraged though that the second quarter gross margins is sequentially up 170 basis points from the first quarter, as we gain operating leverage on higher volume and as the Canadian business improves.

The tax credit of $6.4 million or $0.22 per share recognized in the quarter was the culmination of our investment in the new architectural glass coater to enable production of coatings with higher levels of energy efficiency per commercial building. We were awarded this credit, known as Section 48C of the Internal Revenue Code, in 2010, by the IRS in cooperation with the Department of Energy as part of the stimulus bill to incent energy efficiency investments throughout the country.

Receipt of the credit required Apogee to be in production of these higher energy efficient products by the end of the FY15 second quarter, which we accomplished, triggering a recognition of the credit this quarter. This was also called out in our August 20 release. With the credit, we had a negative tax rate for the quarter compared to a positive tax rate of 33.6% in the prior-year period.

Second quarter average capacity utilization across all architectural manufacturing businesses was approximately 75%, up from approximately 65% in the first quarter and in the prior-year period. The second quarter backlog was $480.2 million, up 58% from $304.2 million in the prior-year period.

We're very pleased to see our third consecutive quarter of robust order activity and backlog growth. We continue to have solid bidding and quoting activity and expect to maintain strong backlog levels with a trend of growth even with our projected revenue growth.

As I do every quarter, I want to remind you that our business can have lumpy order intake activity, so we don't require or necessarily expect sequential backlog each quarter to be consistent with the longer-term trend. Our backlog mix at the end of the second quarter reflects growth in all sectors except institutional.

We experienced continued growth in the office sector, but also saw a strong growth in the hotel and entertainment and transportation projects as well as high-end multi-family work. The office mix held at about half of our backlog.

Giving you the breakout, the office sectors was 50% to 55% of the backlog. Institutional was approximately 15% to 20% of the backlog, with healthcare projects the majority. Multi-family residential including high-end condos and apartments was approximately 15%. Hotel and entertainment transportation was approximately 10% to 15% of the backlog.

Regarding the timing of the backlog, approximately $285 million or 59% of our backlog is expected to be delivered in FY15, approximately $195 million or 41% in FY16 and beyond. Our cash and short-term investments totaled $25 million, up from $17.7 million in the first quarter.

In the first half of this fiscal year, mostly in the second quarter, we repurchased approximately 205,000 shares for approximately $7 million. Our repurchase was consistent with our buyback philosophy to be anti-dilutive to compensation programs.

In the quarter, we had positive free cash flow of $11 million, compared to $8 million in the prior-year period. Non-cash working capital increased to $98.8 million as we significantly grow our business, up from $77.3 million at the end of FY14. This growth is primarily driven by the growth in receivables. We continue to have very strong days working capital management.

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 securities, short-term restricted investments and current portion of long-term debt less current liabilities.

Now I'll turn to our outlook. We've adjusted our revenue outlook for the full year to be at about a 20% growth, which is at the high-end of our previous range of 15% to 20%. We increased our full-year FY15 earnings per share guidance range to $1.62 to $1.72 per share to reflect the second quarter tax credit of $0.22 per share. We are maintaining our adjusted earnings per share guidance, excluding the tax credit, on the higher revenue range to reflect the headwinds in gross margins I called out for the second quarter.

Our architectural markets strengthened more quickly than we had anticipated. We're experiencing some costs in ramping-up to meet demand. I'd like to reiterate that the most difficult thing for us to predict is timing of project flow driven by normal variation and construction project timing.

This project flow timing impacts volume as well as the mix of business, projects and products all of which affects revenue and margins, providing that the committed workflows as we have anticipated in 2015. Then we have the expected book and bill activity -- we do have line of sight to the upper end of our earnings per share range.

We are expecting that our gross margin for the year will be 22% to 23%, down what somewhat from our previous outlook of 23%, due to the headwinds that we've discussed. For the balance of the year, we'll benefit from the stronger large-scale optical sales and price increases recently announced in the storefront business to offset the higher aluminum costs, as well as better efficiencies with the ramp-up. We anticipate a tax rate of approximately 34% for the second half of the year.

We expect to generate positive free cash flow for FY15 after we spend approximately $40 million for the full year on capital that remains balanced across investments for growth, productivity and new products, as well as for maintenance. Two capacity additions that we just announced are included in this level of CapEx.

We expect that the reopening of our Utah architectural glass facility in the fourth quarter will add around 15% to 20% to architectural glass capacity. At the time the facility shutdown in April of 2013, there were approximately 200 employees.

The second capacity expansion is for architectural finishing in Wisconsin, as Joe mentioned. This approximately $15 million, the majority of which will occur over the next 12 months, most of it next fiscal year, includes expanding the facility and purchasing new equipment. Groundbreaking on the building expansion is planned for this fall.

Depreciation and amortization for this year should be approximately $30 million. I feel really good about our second quarter performance and expect that we will continue to see strong growth, expanding margins and free cash flow generation for FY15.

I believe we're executing on the goals that we laid out and have communicated. I'm excited with the strong market growth we are now seeing.

Joe?

Thanks, Jim. So as you've heard today, our growth is significant and above our end markets. Our backlog has been growing across the board at improved margins, with sequential growth in all four segments in each quarter this year. We're incurring some costs this year to accommodate what I believe to be long-term growth.

We're focused on smartly capturing the sustained growth, with an eye on the future horizon at all times. Most of our added costs are variable. Our capital expenditure investments drive productivity as well as capacity.

I think the good news is, in the quarter and year-to-date, we had very solid results. The better news is, I believe there was room for improvement. I'm the first to admit that. But we had a great quarter.

I now look forward to your questions. So Janeata, if you could open the call up for questions from our guests? Thank you.

(Operator Instructions)

Samuel Eisner, Goldman Sachs.

Just on the new facility -- or I guess the Utah facility. So, this was a facility that was closed about a year ago. Now you're reopening it a year later? So, I'm just curious the decision-making process, I want to understand what exactly has happened with that facility and the internal discussions around that.

Yes, sure, Sam. This is Joe. It's one of our three US facilities for our glass fabrication business known as Viracon. When I first came here I thought we should have addressed capacity. We made some investments in our other facilities, namely in our Georgia facility. Once we completed that, it allowed us to successfully shutter the factory in Utah, which is near the Las Vegas area.

We announced at that time that we believed, based on our view of the end markets, that it would be approximately two years before we'd be reopening it. We are going to come in under that timeframe. We are all pleased at what's going on in our end markets, our share gains -- we've pulled up that timeline.

So we will spend $2 million to invest in that factory as we reopen it. I think we've proven we know how to address capacity in that business. So it's all part of the master plan. It's just happening a little faster than we planned.

Understood. So, with the addition of this facility, as well as the new one that you're making in Wisconsin, I want to understand a bit better the 10% margin goal for FY16. Obviously, there's some incremental costs that when you first gave that target are being added on here. So I want to understand, your feelings behind that 10% margin goal for FY16.

Yes, I'm very confident in the goal, Sam. The factory in Utah really is unrelated to whether or not I would hit that number. I would tell you it would have been easier on us if we had 12% growth each year.

It is frankly relatively easy to hit entitlement conversion when you're growing 5%, 6%, 7%, 8%, 9% consistently. In our three-year horizon, the markets did nothing for us in the first 18 months. It started to grow. Now it's been explosive. So at 30% growth it's a little harder to convert your entitlement as I mentioned. I believe all seven of my businesses had an opportunity to perform even better, but it is a lot of work to address growth.

You have some incremental or step increases in costs as you add shifts. You add people. When we initially add people, we added over 400 production people in our architectural business, businesses. We have the highest attrition rate in that group. So you run into many inefficiencies.

I do believe by the end of FY16 we'll be at that rate. As I mentioned in the last couple of reports, I admit it might be into the first half of FY17 before our TTM reflects the 10%, but I do believe we'll be at that rate by the end of FY16 and hopefully on a trailing 12 months sometime early in FY17.

That's very helpful. Then just lastly, regarding project timing, it sounded as though this quarter, I believe the services segment, had some benefits from project timing at least on the revenue basis. Just curious how much of that benefit occurred and then also to Jim's comments regarding project timing, is the expectation that backlog is going to decline sequentially into the third quarter? Thanks so much.

Yes, sure, Sam. Jim can chime in as well. I do believe at some point the large increase in the backlog from our services business will level off. I, frankly, believe we'll have a good third quarter before that begins to happen. Our timing -- frankly, that business is performing extremely well but pretty much on forecast. Earlier in the quarter, I thought we might have a little bit of a timing slippage. It didn't happen. We had good project execution at better margins.

You all asked me about margins and backlog. In the last three years, we've improved margins and backlog about 400 basis points. We're in that 100 to 200 a year improvement. We've worked off most of the projects that were booked in the most lean periods. But we continue to see improved margins through smart project selection and excellent project execution. Jim, if I missed anything, please jump in.

No, I'll just elaborate. But you're right, Samuel, which is our architectural services segment is probably the lumpiest, if you will, based on project timing. So I think Q2 revenue was a little bit larger relative to the rest of the year based on just that kind of timing. So we don't expect similar growth rates year-on-year for the second half of the year. Then also, as Joe said, while we continue to expect a trend of increasing backlog, probably the rate of increase in backlog was larger in the second quarter than at least we have line of sight to in the third quarter.

That's helpful. I'll hop back in queue. Thanks.

Thanks, Sam.

Brent Thielman, D. A. Davidson.

Just looking at how the second half can play out. Traditionally, Q3 has been your strongest quarter but with -- maybe some higher costs for ramping-up in architectural. Should we assume Q4 is likely a stronger quarter as your absorbing some more of those costs here in the current quarter?

No. I would not assume that, Sam, in fact, I would say this has been an unusual year. We probably picked up an architectural side ramp-up cost earlier than expected for the reasons I mentioned. Secondly, in my comments although they were brief, our large-scale optical business, which is a gem of a business. The unfortunate truth is when you have such a high-margin business like that, when they have a quarterly comp like they've had it, it's certainly impacted our quarter results. We'll see a strong contribution from LSO in Q3, even more so than usual. So I expect Q3 to continue to be our strongest quarter this year.

Yes, I think similar to what we just happened to see last year, is I think Q3 and Q4 will be relatively balanced but Q3 we do expect to be a bit stronger than Q4.

Got it. That's helpful. Then -- within your backlog is there a higher proportion of larger projects than what you've typically seen in the past?

We have a pretty good balance of large and small projects. Frankly, our largest contributor to backlog is our services business. However, this year the largest growth in backlog has been our glass fabrication business, which is a compilation of a lot smaller projects. So I think the services business has booked some larger projects. But in the total scheme of the Apogee backlog, we're seeing a much more balanced -- within our end markets, the largest growth has been the large Class A office commercial buildings for the office sectors. So within Viracon, our glass fab business, the backlog is seeing larger projects but there's certainly much smaller than the services. So it's a combination. I wouldn't say there's a big theme there, Brent.

Okay. Then you commented on the end market mix there. It sounds like most things are looking pretty good. Any signs of bottoming in the institutional side? Or has that remained pretty soft?

We've certainly seen a shift within institutional from government to non-government, healthcare, et cetera. That's certainly healthy. Jim and I have been -- I'd like to pat ourselves on the back. We've been pretty good about gauging the McGraw Hill data, discounting it two years ago. I think we were right on that.

I believe we're on the mark with, now, comfortable that we're at a period of sustained growth through FY18, so for three years. Of course, in this global economy, geopolitical events, anything can happen but we're feeling pretty robust for the next three years. So we do not see a cliff in the near future.

But trust me, we're watching it like a hawk. I think institutional is certainly not growing. The business has moved more to what we like, which is the office sector.

Okay. Thanks, guys.

You're welcome, Brent.

Jon Braatz, Kansas City Capital.

Jim, just a clarification. The Utah expansion and the Wisconsin expansion, really will not entail much in terms of start-up costs?

The Utah expansion, I think Joe just mentioned, is going to require about $2 million of capital.

Right.

Then there will be just some normal startup costs in terms of ramping in terms of hiring. The one real benefit that we have with that facility because when we closed it, we intended to reopen it. So for really, a majority of the critical positions, we actually had people that were willing to relocate to our other architectural glass businesses. They are now teed up to go back to Utah and reopen that. So that will really accelerate.

Then we'll just have a normal ramp-up. So there will be a little bit of headwind for the initial ramp-up. Then in the architectural finishing business -- that's a bigger capital investment, as it's an expansion. So that's going to be about $15 million, probably two-thirds of that will actually occur in FY16, a third of it this fiscal year. But we expect to be up and running in that facility by next summer.

Okay. Joe, speaking of CapEx, we've had three years -- consecutive years of pretty heavy CapEx. You've added a lot this year. When you look into 2016, will we see some leveling off -- or not leveling off, some decline in CapEx?

No. I don't think so, Jon. We probably will be looking at levels similar to this year. We're really not through our planning process yet. We just wrapped up our strategic planning process this week. I would say -- I would remind you though, every capital project we're launching has productivity in it, so even capacity investments.

We've talked about, what we call the super coater for our architectural glass business. The largest single investment we've made since I joined the Company was certainly not done at the time for capacity needs. Not one iota. It was all for productivity and product capability.

That's the case with all these capital, even the capacity investment Jim just referenced in Wausau, the finishing. That will be a new line. It will be more than 50% add to a particular process that's stressed right now because of volume. It will operate more productively. If the day comes I have to take down one of my other lines, it certainly would not be the new line and we'd continue to gain.

So I'm comfortable with a ramp-up level of CapEx. It's not extremely higher than D&A, but it is running higher and frankly making up for some lean years where I think we could have continued focusing on productivity.

Sure. One last question, Joe, you talked a little bit about LSO being comparable for the full year. Two things: Number One, are you talking about referring to both revenue and profits? Then secondly, what do you see out there that gives you the confidence that the second half is going to pick up and get to that comparable level year-over-year?

Yes. The first part of your question, yes, I do believe comparable both on revenues and income. It's a small business. $1 million in sales can move the bottom line pretty far. So -- but in general, we have good radar. We've got -- it's a business that has incredible stickiness with its customer base. I would say we've got good radar on what we expect for orders in the second half.

I remind you all, I think Q4 we were up 660 basis points in margin year-over-year. So that was just two quarters ago, three quarters ago. I expect margin basis point enhancement in Q3. For the full year, it will be directionally close.

Unfortunately, the end markets for that consumer product are still relatively flat. We're doing some great things with new products we've just launched that are going to start to take traction this year, not a lot of sales but we're excited about it. Our efforts to grow in Europe continue to be successful.

So we don't need -- when architectural was plummeting and that business was growing 5%, of course the mix looks looked wonderful, conversion looked fantastic. When that business is relatively flat and architectural is growing 30 it does hurt my conversion mix. But it's still, as I said, it's a very healthy business. I think it's where they need a couple more quarters of strong consumer confidence before we see the end markets get much better.

All right, Joe. Thanks so much.

You bet, Jon.

(Operator Instructions)

Colin Rusch, Northland Capital Markets.

With the new investments in capacity and as you go through this ramp and considering the mix that you have pretty good visibility to, could you just talk a little bit about incremental operating margins for the growth that you're looking at in the back half this year and as we look out over the next year or two?

So, Colin, I think this year, we've been talking about our conversion or incremental margin at a 20% rate for the year. We talked about some of the things in terms of mix of faster growth in some of our lower margin businesses and those types of things. Then we've experienced some of the headwinds that we talked about. As we look to next year, I think our goals are back in the 20% to 25% incremental margin and conversion rate.

Yes, Colin, Joe here. Even though our Q2 -- I said our results were impressive with the income growth, conversion certainly isn't going to satisfy everyone. However, you peel back the onion, we have seven businesses, six in the architectural sector and LSO. We already know LSO was an off quarter, we're expecting that to turnaround in Q3.

Within the architectural business, four of those six businesses had very solid conversion. But we mentioned the storefront businesses, both had issues in the quarter with regards to aluminum costs and end markets in Canada.

So it's not fair to look at the conversion in total and address it. It is fair to say, why was your conversion low in these two businesses? I hope we've explained that. We do feel better about second half pricing in the US business. We do feel better about the end markets in Canada. So -- but I do believe we should be in a 20% to 25% conversion for those businesses in the architectural segments. While everyone might not fire on all cylinders, my expectation is that it should.

Okay. Then just about capital efficiency, you guys have obviously got a lot of infrastructure to work from. These big incremental CapEx investments seem like there is potentially an awful lot of leverage. Can you just talk about internal expectations on returns? What your benchmarks are in terms of adding those basic capacity and making those investments?

Colin, we use internal return on invested capital of 15% in evaluating capital projects.

What's your expectation on these projects? Because it looks to me like there's potentially a significant amount of upside to these investments that you're making to that 50% hurdle rate?

Well, they all depend on capacity utilization, but our outlook for these businesses is that they'll be very attractive investments.

Okay. I'll take this off-line a little bit and try to get a little bit more detail. But thanks so much, guys.

Thanks, Colin.

Samuel Eisner, Goldman Sachs.

Just a few quick follow ups here. Just on the gross margin headwind in the quarter, you said it was about 200 basis points year-on-year. Just curious how you parse out the four items? Was it about 50 bips per item? Or were some larger than others in that year-on-year headwind?

When you look at year-on-year, actually, just the business mix -- the large-scale optical being a smaller percentage of our overall revenues probably has the largest impact. Then the others are equally impacted.

It's close to that, Sam.

Yes. That's helpful. Then in terms of long-term capital allocation, I think last cycle towards the end of the cycle, you guys looked at making green field investments internationally. Does these roughly $17 million of CapEx investments that you're making in the new facilities, does that basically limit you going forward in your ability to look internationally for green field opportunities? Or how do you think about long-term CapEx plans?

I'm glad you asked that, Sam. No, it certainly does not limit us. We have a ton of capacity. You've heard me use the term -- I have no plans to get drunk and disorderly, but we do have a lot of capacity.

I told my people when they come here don't waste a good recession. Let's step on the accelerator before we come out of the curve as long as you think you're coming out of the curve. Right now, it's time to turn. We -- I want to make sure we don't overrun the growth curve and drive into the ditch. So we're constantly looking at that.

But we also do not want to fall victim to missing our stated growth potential just because our end markets are very strong right now. We're growing and addressing capacity. All those opportunities are still out there. We make sure we don't spread ourselves too thin with management execution capability. But capital resource is certainly not a barrier for us at this time.

We continue -- we generate significant amounts of cash in the up cycle but that said, we will evaluate all exciting opportunities. But we also are really closely watching the markets. It's picked up quickly. We'll be sensitive to investments that we make and where we believe we are in the cycle.

Great. Thanks.

Thanks again, Sam.

At this time, we have no further questions. I would now like to turn the call back over to Joe Puishys for any closing remarks.

Okay. Thank you, Janeata and everyone for joining in today, thanks. Just one last time, I thought it was an exceptional quarter. I remain extremely optimistic about our long-term and look forward to reporting another great quarter for you in about 90 days. You all have a great day. We'll talk to you soon. Thank you, all.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.