PGT, Inc. (PGTI)

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PGT, Inc. (PGTI)

Q3 2012 Earnings Conference Call

November 1, 2012 10:30 AM ET


Brad West – Director, Finance and Corporate Controller

Rod Hershberger – President and CEO

Jeff Jackson – Executive Vice President and CFO


Sam Darkatsh - Raymond James

Richard Paget – Imperial Capital



Good day ladies and gentlemen and welcome to the PGT, Inc. third Quarter 2012 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder this conference call is being recorded.

I would now like to turn over the call to Brad West. You may begin, sir.

Brad West

Good morning and thank you for joining us for PGT's third quarter 2011 conference call. I’m Brad West, Corporate Controller, and I'm joined today by Rod Hershberger, President and CEO; and Jeff Jackson, Executive Vice President and CFO. Rod and Jeff will represent PGT in this morning's call.

Before we begin, let me remind everyone that today's conference call may contain statements concerning the company's future prospects, business strategies, and industry trends. Such statements are considered to be forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements do not relate strictly to historical or current facts. Rather, they are based on our current expectations and are subject to risk and uncertainty.

Actual results may vary materially from those contained in the forward-looking statements. Please refer to the October 31st press release, our most recent Form 10-K, and other documents filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements.

A copy of our press release is posted on the Investor Relations section of our corporate website at Included in the press release are the unaudited consolidated balance sheets and statements of operations prepared in accordance with GAAP and adjusted information, which is quantitatively reconciled to GAAP. Our company uses non-GAAP measurements as key metrics to evaluating performance internally.

A detailed explanation of these non-GAAP measurements can be found in our press release, which was included as an exhibit to our Form 8-K filed October 31st, with the SEC. These non-GAAP measurements are not intended to replace the presentation of financial results in accordance with GAAP. Rather, we believe these non-GAAP measurements provide additional information for investors to facilitate the comparison of past and present performance.

For today's call, Rod will provide an overview of our performance for the third quarter and the nine months ended September 29th, 2012 then Jeff will discuss our results in more detail. After their prepared remarks they will take your questions.

With that, let me turn the call over to our CEO, Rod Hershberger. Rod.

Rod Hershberger

Thanks, Brad. Good morning, everyone. During the third quarter, WinGuard sales which generate our best margins grew 9% in units and 4% in dollars due in part to promotions we ran to capture additional market share in targeted geographic markets as well as improved new construction market conditions. Accordingly WinGuard sales represented 73% of total sales compared to 68% in the prior year.

Total company sales in the third quarter were down $1 million or 2%. Major factors contributing to the decline include lower sales of $1.1 million in our premier view products due to our reduction in low margin sales to one particular customer and lower sales in architectural systems products which decreased by 600,000 from the prior year, driven by the completion of a large retrofit project in 2011.

The improved product mix, combined with continued improvement in operational efficiencies and the hard work and dedication of our employees, resulted in the highest net income since third quarter 2006. We posted net income of $2.7 million compared to $241,000 a year ago, generated cash from operations of $7.5 million and made an optional $3 million payment on our debt.

EBITDA in the third quarter was $6.7 million or 15% of sales. This is an $800,000 or 14% increase over the third quarter of 2011 EBITDA after adjusting 2011 for consolidation charges and manufacturing inefficiencies caused by the consolidation.

Within our core markets, total housing stats were up 37% for the third quarter of 2012 when compared to 2011. Single-family stats were up 28% compared to a year ago. Our growth in housing stats has improved every month this year, as reminder this growth is off a low base and primarily in price point homes that have not historically included impact windows. However, the positive momentum evident in this segment of the new construction market is a welcome and promising sign.

Our gross margin was 34.1% compared to 28.2% for the third quarter of 2011, which after adding back consolidation charges and manufacturing inefficiencies would have been 29.8%. The increase of 4.3% in gross margin in 2012 was driven by both mixed improvements and operational efficiencies and was offset by targeted promotional activities to drive share gains in certain highly profitable markets. SG&A costs for the third quarter of 2012 increased $100,000 or 0.6%. This was driven by $700,000 increase in employee bonus compensation and 401K expenses and a $300,000 increase in advertising expense to help capture market share, offset by $400,000 reduction in other employer related expenses, a decrease of $300,000 and warranty costs driven by improved quality and $200,000 in reduced bad debt expense.

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