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Ply Gem Holdings, Inc (PGEM)
Q2 2013 Results Earnings Call
August 13, 2013 10:00 AM ET
Shawn Poe - Chief Financial Officer
Gary Robinette - President and CEO
Michael Rehaut - J.P. Morgan
Mike Dahl - Credit Suisse
David Goldberg - UBS
Trey Grooms - Stephens
Nishu Sood - Deutsche Bank
Dennis McGill - Zelman & Associates
David William - Williams Financial
Jack Kasprzak - BB&T
Yilma Abebe - J.P. Morgan
Philip Volpicelli - Deutsche Bank
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As a reminder, this conference is being recorded for replay purposes. I will now like to turn the conference over to Mr. Shawn Poe, Chief Financial Officer. Please proceed.
Thank you, Derek. Good morning. I would like to welcome everybody to today's webcast. Today's announcements and our comments may contain forward-looking statements and words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements.
These statements are based on the company's current plans and expectations, and they involve risks and uncertainties that could cause future activities and results to be materially different than those set forth in the forward-looking statements.
The company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. For further information, I’d like to refer you to the company's reports and filings with the Securities and Exchange Commission.
During today's webcast, in addition to discussing results that are calculated in accordance with Generally Accepted Accounting Principles, GAAP, we will refer to Ply Gem’s adjusted EBITDA which is a non-GAAP financial measure.
A reconciliation of GAAP to non-GAAP information is included in our earnings press release, which was issued earlier this morning. Management believes that this non-GAAP information is important to investors understanding of our business.
Now I would like to turn the call over to Gary Robinette, Ply Gem's President and Chief Executive Officer. Gary?
Thanks, Shawn. Good morning and thanks for your interest in Ply Gem. Following my remarks, Shawn Poe, Ply Gem’s CFO will review our financial results. Before discussing the results, I want to summarize several significant transactions that occurred and impacted our financials during the second quarter.
We -- as you can tell, we had a pretty busy quarter in projects like on May 23, 2013, the company successfully completed initial public offering and issued $18 million, a 57,895 shares of common stock and received net proceeds of approximately $354.4 million, which were primarily utilized to redeem our outstanding debt. PLY Gem is now traded on the New York Stock Exchange under the symbol, PGEM.
Also on April 9, 2013, we acquired Gienow, a manufacturer of window and doors in Western Canada for cash consideration of across approximately $20 million. And on May 31, 2013, we acquired Mitten, a leading manufacturer and distributor of vinyl siding and accessories in Canada for cash consideration of approximately $79 million.
The acquisitions of Gienow and Mitten complement Ply Gem's existing portfolio of products, while expanding our North American footprint. We would expect each of these strategic acquisitions to yield meaningful synergies and growth opportunities, while enhancing Ply Gem's future sales and earnings performance.
So now for the quarter, Ply Gem’s net sales for the quarter were $368.1 million, which was a 19.8% increase from the second quarter of 2012, and of course in that number, we have some of Gienow and about a month of Mitten in those sales numbers.
Excluding a $23.5 million one-time initial public offering costs which incurred in the second quarter, our operating earnings were $24.2 million, which was down approximately $6 million from the prior year and our adjusted EBITDA for the quarter was $41.1 million, compared to $45 million in the second quarter 2012.
Our second quarter sales continue to benefit from the recovery of the new construction markets. However, demand for big ticket repair and remodeling items remained sluggish and were further compressed by the unfavorable weather conditions in our trading areas that drove higher inventory levels within distribution channels, which then of course resulted in a lower demand for our -- in our products during April and May.
The expected recovery in the U.S. housing market will still represent a significant growth opportunity for Ply Gem is demonstrated by our window units being up the first half of 2013 by nearly 50%.
However, as we have mentioned in the past that also brings near-term challenges primarily in the form of labor resource requirements to meet the increasing market demand, as well as a lower and mix of products in this early stage of the recovery. Both of these have an unusual effect on our profit performance because of the abnormal inefficiencies due to the ramp up cost to produce the substantial increase.
Recognizing this challenge late last year, we launched our enterprise lean initiative that when completed will provide greater manufacturing flexibility thus abiding some of a current ramp up inefficiencies we are experiencing. While also migrating our customers to more substantial value-added product, which should also improve our overall mix.
It is clear that housing market is trying to pull out of this six-year demise. However, the recovery will remain choppy with big ticket remodeling, expenditures lagging as the overall economic factors that drive that sector remain tepid.
Accordingly, Ply Gem will continue to focus on maintaining a lean overall cost structure, while striving to outperform the markets across all our product categories, while pursuing our strategic initiatives that will build a stronger and more profitable company.