PGT Innovations Inc (PGTI) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the PGT, Inc. Second Quarter 2014 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 is being recorded.

I'd like to introduce your host for today's conference, Vice President and CFO, Mr. Brad West. Sir, you may begin.

Good afternoon, everyone, and welcome to PGT's quarterly investor conference call. I'm Brad West, Vice President and CFO, and I'm joined today by Rod Hershberger, our Chairman and CEO, and Jeff Jackson, President and COO.

This afternoon we are pleased to provide an update on our second quarter and discuss the progress we're making in 2014. Hopefully everyone has had a chance to review our earnings release issued yesterday as well as the release we issued in connection with our entry into a definitive agreement with CGI Window and Door Holdings pursuant to which CGI will become a wholly owned subsidiary of PGT.

Before we begin, let me remind everyone that today's conference call may contain statements concerning the Company's future prospects, business strategies and market outlook. Such statements are considered to be forward-looking. 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 our 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 www.pgtindustries.com.

Included in the press release are the unaudited, condensed, 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 for 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 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. We will provide an overview of our performance for the second quarter of 2014 and after our prepared remarks we'll have ample time to address any questions that you may have.

With that, let me turn the call over to our President and Chief Operating Officer, Jeff Jackson, Jeff.

Thanks, Brad, and good afternoon, everyone. I would like to start with some highlights about PGT, especially for our first-time listeners.

We are the leading US manufacturer of impact resistant windows and doors having pioneered the development of these products over two decades ago. 88% of our sales are from the Florida market, the nation's largest impact resistant window and door market.

Our customer base is highly diverse, made up of over 1,200 window and door distributors and dealers. We have a leadership team in place with extensive experience in both manufacturing and the window and door industry.

Our industry leading margins allow us to generate significant free cash flow, which we continue to invest in our infrastructure to support both our internal growth and into targeted acquisitions.

We are nearing the completion of a glass processing expansion project in which we are constructing a 96,000 square foot building and installing equipment to add cutting and tempering capacity, all of which will be brought on line at the beginning of our fourth quarter. The building is also large enough for further expansion into the future.

You may have seen in yesterday's acquisition announcement we have entered into a very attractive agreement to acquire CGI Windows and Doors. This acquisition is expected to close during the third quarter on or around September 22nd.

In terms of our second quarter results, we continue our momentum of strong top-line results with sales coming in at $81.6 million, up $18.8 million or 29.9% over the second quarter of 2013. This marks our highest quarterly sales since 2006 and the seventh straight quarter of at least 25% year-over-year sales growth.

Our growth is primarily driven by new construction sales, as well as marketing programs focused on driving WinGuard products into the repair and remodeling markets.

Although second quarter Florida housing starts were essentially flat compared to prior year, we have seen a steady increase in both the number of overall closed sales as well as the average closed price across the state. The overall increase in home values positions the market to be more in line with our high quality product offerings and provides positive outlook for growth in new construction and the repair and remodeling markets.

We were able to capitalize on improving market conditions as well as our pricing strategies targeting several large projects that we initiated during the first quarter and drove new constructions sales up $10 million or 52.4% over the second quarter of 2013. This sales growth led to a shift in our mix with new constructions sales now representing 36% of total sales. Additionally, during the second quarter we saw growth in the repair and remodeling markets with sales up $8.7 million or 20% over the same period last year.

Our gross margin dollars were $26.1 million in the second quarter of 2014, an increase of $5.1 million or 24.3% over the prior quarter. Gross margin as a percent of sales declined from 33.5% in the second quarter of 2013 to 32% this year.

Until our glass plant is fully operational, we will continue to experience pressures on our gross margin due primarily to an increase in material costs for purchased finished glass units. We have purchased finished glass since the middle of 2013 to support sales growth in excess of internal capacities. The addition of our new glass plant will address internal capacity shortages from a glass processing and reduce reliance on outsourced finished glass.

Also, impacting margins is the residual effects of our pricing strategies on several large projects initiated during the first quarter of 2014 to gain market share. While margins were impacted in the short term, these new customer relationships factored into our strong sales growth during the second quarter.

Selling, general and administrative expenses as a percent of sales declined to 15.9% compared to 20.3% in the second quarter of 2013. Our revenue growth led to strong leverage in this category. Additionally, we had a reduction of $1.6 million in amortization expense compared to 2013.

During the quarter we generated net income before taxes of $12.6 million compared to $7.7 million in the second quarter of 2013 after adjusting for expenses related to the secondary offering, our related debt refinancing and a discrete tax item.

EBITDA came in at $14.5 million or 17.8% of sales, up $3.6 million over prior year after adjusting for cost related to the secondary offering and debt refinancing.

This is an exciting time for PGT as we just closed one of our strongest quarters since 2006. Additionally, we are preparing for the opening of our new glass facility and announced our first major acquisition.

With that, let me turn the call back over to Brad who will review the results for the second quarter in greater detail. Brad?

Thank you, Jeff. As Jeff mentioned, we reported sales of $81.6 million, up 29.9% over prior year. We finished the quarter with EBITDA of $14.5 million representing 17.8% of sales which represents our best quarterly EBITDA since 2006.

Breaking down our sales drivers, compared to 2013 second quarter we have WinGuard sales at $58.2 million versus $45.0 million, which is an increase of $13.2 million or 29.3%; vinyl non-impact sales of $11.2 million versus $8.8 million, up 27.3% over prior year; aluminum non-impact sales of $7.1 million versus $6.3 million, up 12.7%; PremierVue sales were $2.6 million versus $1.6 million, an increase of 62.5%; and Architectural Systems sales of $2.5 million versus $1.1 million, which is an increase of 127.3%.

Gross margin dollars increased $5.1 million to $26.1 million for the second quarter 2014. However, as a percentage of sales gross margin was 32.0% versus 33.5% in the second quarter 2013. Our decrease in gross margin as a percentage of sales of 1.5% was driven by the cost of purchasing finished glass units from our third-party supplier to meet the demand from sales growth negatively impacted margins by 130 basis points and a shift in mix towards new construction reduced margins 90 basis points.

The residual effects of our pricing strategies targeting large projects, which we initiated during the first quarter to gain market share, also negatively impacted margins by 80 basis points.

And employee and other related costs in connection with higher sales negatively impacted margins by 130 basis points. These factors were offset by leveraging our fixed costs and higher sales and the impact of the price increase announced at the end of third quarter 2013, which improved margins by 180 basis points and improved year-over-year efficiencies achieved in labor and scrap, which positively impacted margins by 100 basis points.

The new glass facility that is nearing completion is specifically designed to address our internal capacity for finished glass units. Once the new plant is fully operational, we estimate that this initiative will improve our margins by approximately 2% to 3% based upon sales levels.

With regards to aluminum, our average cost of aluminum was approximately $0.87 per pound during the quarter and that comprised of spot purchases of 66% of our needs and hedge purchases of 34% of our needs. And this compares to second quarter last year of $0.88 per pound.

As of today, we're hedged at approximately 45% of our estimated needs to the second quarter 2015 and an average of $0.89 per pound. And the current cash price today is also $0.89 per pound.

During the quarter all of our aluminum hedge contracts became ineffective for accounting purposes.

We leveraged revenue growth during the quarter to reduce selling, general and administrative expenses as a percentage of sales to 15.9% compared to the adjusted 20.3% in the second quarter of 2013. Our selling, general and administrative expenses were $13.0 million, which is an increase of $200,000 from the second quarter of 2013 after adjusting for last year's secondary offering and debt refinancing fees.

Highlights within SG&A include an increase of $1.2 million in selling activities and distribution costs consistent with higher sales and an increase of $600,000 in employee related costs. These items were offset by a decrease in amortization expense of $1.6 million.

Interest expense was $900,000 compared to $700,000 in the second quarter of 2013 and our weighted average rate for the quarter was 3.15%. The slight increase in interest expense results from increased debt levels in connection with the credit agreement that we entered into in 2013. This increased expense was partially offset by decreased interest rates from the new agreement.

To mitigate the risk of rising interest rates, we hedged a portion of our debt. This includes a forward starting swap which will set the LIBOR portion of our interest rate calculation on $40 million of our debt at 2.15% from September of 2014 until May of 2018.

Our tax expense for the second quarter was $4.8 million and represents an effective income tax rate of 38.0%, which is slightly lower than the statutory rate of 38.8% and the rate is lower than the statutory rate due mainly to the estimated impact of the Section 199 manufacturing deduction.

We currently estimate our full-year tax rate between 37.5% and 38%. We had net income in the second quarter of $7.8 million or $0.16 per diluted share versus $7.7 million or $0.14 per diluted share in the second quarter 2013 after adjusting for the tax benefits and expenses related to the secondary offering and debt refinancing.

As a reminder, this year's net income includes income tax expense based on the fact that we released our valuation allowance on deferred assets last year.

EBITDA was $14.5 million for the second quarter of 2014 versus adjusted EBITDA of $10.9 million in the second quarter of 2013. This increase in EBITDA of $3.6 million is due primarily to $5.3 million attributable to higher volume, $700,000 related to operational efficiencies in both scrap and labor rates and $400,000 resulting from the combined impact of our price increase offset by a shift in mix towards new constriction, as well as the residual effects of our pricing strategies initiated during the first quarter.

Offsetting these factors was an increase of $1.8 million for employee related costs and increase in material costs of $1.0 million due to purchase of finished glass units.

A reconciliation of net income and EBITDA, which I've just discussed, has been included in our earnings release for your reference.

Turning to our balance sheet, as of June 28th, 2014, our net working capital excluding cash, deferred income taxes and current debt was $30.0 million, which increased $4.9 million in the quarter driven mainly by increases in AR and inventory to support sales growth.

Our cash ending balance for the quarter was $33.4 million, which included the impact of spending $1.9 million in the quarter on our new glass plant. We generated $4.6 million in cash from operations.

To our value proposition we have developed strong relationships with our customers. Our DSOs decreased to 31 days for the end of the second quarter compared to 32 days at the end of the first quarter and also down from 33 days at the end of the second quarter of last year.

Additionally, we have focused on managing our lead times for raw materials purchased from our suppliers and holding raw materials in check as sales have grown. This initiative has driven an improvement in inventory turns to 12.4 from 11.8 at the end of the first quarter and from 10.4 at the end of second quarter of last year.

Our free cash flow for the quarter was $3.6 million, mainly driven by EBITDA excluding non-cash items such as stock compensation of $14.7 million offset by an increase in working capital of $4.9 million due to higher sales, capital additions of $4.6 million mainly associated with our glass plant expansion and a scheduled debt payment of $1.0 million, lastly, cash paid for interest and taxes of $700,000.

At this time, I will turn the call over to our CEO, Rod Hershberger, for some summary remarks.

Thank you, Brad. Our ability to generate cash flow allows us to continue to invest in our customer relationships and the PGT brand. Our strategic initiatives over the past several years have positioned us well to capitalize on improving market trends.

We have seen remarkable year-over-year growth each quarter since the end of 2012 and we expect the construction of our new glass facility will further strengthen our presence in Florida as the leader in the impact resistant window and door industry.

Lastly, the recently announced agreement to acquire CGI presents an exceptional opportunity for all of our various stakeholders. We believe this acquisition will diversify and broaden our product portfolio, expand our manufacturing footprint and provide synergies by maximizing efficiencies and scale. Ultimately this acquisition will strengthen our leadership position in the impact resistant window and door industry and better position us to compete against the national manufacturers.

We have also invested in our employees as we have implemented specific initiatives to enhance our training practices targeting both production quality and consistency. We are starting to see the impact of these initiatives as we had improvements in both our scrap and labor rates. We believe additional opportunities exist to lower our operational costs and leverage them with incremental sales.

Looking into the third quarter, we expect our strong top-line sales to increase as we expect double-digit growth. In fact, sales in July represented an increase of approximately 17% over the same period a year ago. We are forecasting third quarter sales to range between $74 million to $77 million, up over last -- up over sales for last year's third quarter of $64.9 million.

The next several months will be an exciting time for PGT, as our strategic initiative of increasing our footprint in this market is realized through our recent acquisition and facility expansion. We have invested resources in further developing and training our employees. Our headcount is up 410 employees from the second quarter of last year and we have hired 257 net new employees since the start of 2014. I am thankful for the dedication and effort put forth by all of our employees.

With that, I'll conclude and we'll be happy to answer your questions about our results or the pending acquisition. Vincent, if you could take the first question please.

Yes, sir. (Operator Instructions). Our first question comes from Sam Darkatsh of Raymond James.

Regarding CGI, I mean what can you tell us from a quantification standpoint? What multiple did you pay? What are the estimated sales, growth rates, accretion? Anything you can tell us would be helpful.

Sure. Just to remind everyone, as you know, we're still in the closing process so I can give you very high level results and then once we finally close on this deal we will most likely issue some kind of release and maybe even have a follow-up call on that release.

So but right now sales, if you look at the trailing 12, you're looking at sales in the range of $40 million to $45 million in top-line sales. Pre-synergy EBITDA percentages are in the low 20s. Historical sales growth over the past couple of years has been very similar to that of PGT so obviously they're in Florida so experiencing the same upside we are.

In terms of a multiple, you know there's various ways to calculate that, Sam. If you have a synergy applied multiple, you can get to like an eight times. Without synergies it could be as high as 10 times. It just depends on how you want to look at that.

Would there be capital outlay to reach those synergies that you are highlighting here, Jeff?

Long-term yes we're going to have some capital outlay assuming this transaction goes through. It mainly surrounds our current glass facility. It will -- obviously upon completion of this deal our current glass facility will be close to being full on a couple of our other processes. So we will be adding laminating capacity to that facility which, Brad, correct me if I am wrong but it's in the neighborhood of $3.5 million if I recall?

That's correct.

So there will be some capital that you could say we'd do it anyway but it will be associated also with it. We'll be able to leverage that capital given this deal.

And the think -- I mean the 10 times no synergies, at least prior to today's action, would be somewhat similar -- or at least as of yesterday was somewhat similar to your existing multiple. So the thinking as to paying a similar multiple for CGI as opposed to buying stock back, could you help us look at that decision tree?

Sure. If you really look at it from our perspective, acquisitions of this nature are limited. The margins I mentioned, the pre-synergy EBITDA margins in the low 20s, we just don't see these come around very often. And to target our core market, one of our core markets in the southeast as well against all the larger players that we sometimes go up against, the Andersons and the Pellas of the world, to have more of a stronghold against some of the larger players and also take a defensive posture in a sense against some of those guys is very attractive to us and I think we did a release.

It is going to be accretive for sure in 2015. We're still doing the purchase accounting or we'll start rather after this thing is closed doing the purchase accounting. And so once the amortization and whatnot is figured out and the balance sheet is settled, in all likelihood it will be at least break even in the fourth quarter if not potentially accretive in the fourth quarter.

So I think long-term it's an extraordinary opportunity for us to acquire a good player very similar to us in the market, high quality product, solid work force. And again long-term we think combined companies we're a much stronger competitor in the market.

You mentioned that some of -- a bit of the imperative to make the deal was defensive from some of the strategics that you compete against. Were there other strategics that were bidding on CGI to your knowledge?

We haven't been advised of that, Sam, so I don't have any color on that I can share, so not to my knowledge.

Okay I'll shift to the core business now if I could. Directionally in July where is that growth coming from where you look at Florida versus non-Florida or construction versus R&R? Where -- obviously it's moderated a little bit sequentially. Where have you seen that moderation and where have you seen the growth maintain itself through July?

Oh our -- we don't -- we're not able to hone in on exact new construction R&R numbers till the end of the quarter. But based upon what we've seen we estimate that our mix in July had actually moved up to 39% new construction.

Okay and then your non-Florida versus Florida, I think this is the second quarter in a row that non-Florida has outpaced the rate of Florida. Is that something structural? Is that an initiative that is taking hold? What do we attribute that to and how sustainable is that trend?

We had -- in the second quarter actually we did have one relatively large international project that shipped. That was probably the main driver of that. So international sales do have a tendency to have some project timing with them, some large projects that ship at times that will give a nice bump in a given quarter. That's what was the main driver of the last year -- last second quarter. Otherwise I don't think there's anything really worth noting in that trend.

Hey, Sam, if I could also just add a little color on some third quarter thoughts and even July, seasonality does play a factor for us. Third quarter has historically been a little bit slower of a quarter than say our second quarter. That didn't happen last year given the significant growth in the market and kind of the housing recovery and turnaround was very robust at that time.

We do expect ultimately to get back more to a second quarter being our strongest quarter, third our next strongest, et cetera, type business. And as you close out the third quarter, September being a prime example of a month where school starts back, families are moving in, et cetera, it has historically slowed down somewhat for us.

Very helpful and terrific quarter, very encouraging. Thank you, gentlemen.

Bob Wetenhall, RBC Capital Markets.

Hey, good morning and nice quarter. Your guidance shows sequential decline in sales in 3Q and I wanted to understand if gross margin will also contract with lower sales?

The sales in the third quarter decline will actually come with less outside glass as well. So like we saw in the second quarter where we did not see substantial margin increase when sales exceeded expectations, the margins will not be affected on the leverage side going down a little bit because it will also come with less outside glass. So from the volume standpoint I would not expect an impact on gross margin for that.

We have talked about some of the other things that will affect gross margin in the third quarter such as we had mentioned that the large project pricing strategy would not be as prevalent in the third quarter as they were in Q1 and Q2. But we've seen some improvements in labor and scrap. All those, all the things considered, I would suggest third quarter gross margins will be a slight improvement over Q2 but not substantial until that glass plant gets up on line.

Great and could you just talk to us about 4Q and thereafter once you're fully ramped on the new facility? How much gross margin benefit is that going to provide?

Bob, I would just say we should probably plan for that in Q1 more so than Q4 because it will be some -- there will be some ramp up time to really get that facility up and running. And as far as gross margins go, you want to --?

Yes if you look at -- let's look at 2015 once the glass plant is fully operational, basically when sales are, as they have been for several quarters in a row, running in the mid 60s, it averaged about a 2% increase, a bit higher than that this past quarter because sales were $81 million. So that's why I quoted 2% to 3%. But using 2% is a relatively safe assumption and it could potentially be a little bit even higher on higher sales starting in 2015.

Got it, great color. One final question. If this acquisition goes through are you taking any of the acquired management team with you? And what's your view on the Broward/Dade market, which is where CGI is? Thanks and good luck.

Yes in terms of the acquisition, we're still too early in the process to comment on the management team in and of themselves. We have assured employees in general at CGI we will remain operational in Miami -- in Miami, Florida. We are going to keep a plant here. We're going to keep manufacturing here and 95% of the operations will remain here.

In terms of top-level management, we're current going through that process now and it would be too early to comment on that. Obviously management has done a great job to get the company to where it's at so we are -- we'll be interested in certain members.

And one final question, any more acquisitions planned this year? Thanks a lot.

This year? I don't think so. This will be the only one this year.

All right, thank you.

Rob Hansen, Deutsche Bank.

Thanks. I just wanted to find out a little more color on CGI in terms of what percentage of the business is windows versus doors? And I guess this is all impact products and what type of international presence do they have some kind of color there?

Yes I don't -- commenting in more detail on that, given where we're at in the process, Rob, is just not what we're wanting to do right now. So we're going to hold that for when this deal is closed and we make an announcement and related call associated with that.

Okay and I guess one other question regarding CGI is just have you looked at any of the market share stats or kind of is there any potential antitrust issues, anything like that with the deal?

We got the standard required filing like any other acquisition but we don't anticipate any issues.

Okay and then just in terms of the quarter, how do the -- I guess once the -- I'm sorry. When you're looking at the monthly sales trends over last year, like what are the comps you're looking at on a year-over-year basis?

For Q2, the way that our --?

Yes.

Well, Rob, was 24% in April, then 26% in May and then 39% in June.

Oh wow, so some significant ramp up in June, okay. All right that's all the questions I have for right now. Thank you.

Jeremy Hamblin, Dougherty & Company.

Good afternoon, congratulations and thanks for taking my questions. I wanted to ask about -- CGI I believe uses the same third-party glass supplier that you do when you need to outsource. In thinking about the transaction moving forward, would you -- would PGTI presumably become the supplier of glass to the Company?

Well, again, you're right. We both use the same third-party supplier, good partner for both companies and we are in the process. We've called that company on our side and talked to them about the acquisition. They're excited.

We will look to make our own glass inside depending on our capabilities and we do plan on still buying outside glass with Cardinal. We don't know the percentages at this moment because again, we've got product portfolio to review. We've got manufacturing to go through. We've got a lot of work integrating -- integration work ahead of us before we can give more concrete information on what we do from the supply side.

Okay great. And then just thinking about the portfolio of products that CGI sells and I think historically they've been almost exclusively an aluminum vendor. Given your agreement with Royal, is this something that can potentially be leveraged on the CGI portfolio of products that you could work with Royal to potentially do extrusion for their products as well moving forward? And again, I realize this isn't like a January 2015 thing but looking forward.

Again, all great questions. And I can assure you there's an integration team actively working on that at the Company and we're just not prepared to answer that kind of question yet. We, like I said earlier, we will have a conference call once we close this deal and once we can put out some more definitive information out there to the analysts and to the investment community.

Fair enough. Brad, just in terms of thinking about the increased interest expense and thinking about what the cost might be given the additional debt that's being brought on, what would we be looking at in 2015, assuming that the deal closes?

Well, Jeremy, there's a -- if you look at our current interest rate now, it's about 3.15%, as I mentioned, but it was going to be -- it's going to be increasing beginning September because we have that swap in place that's going to put about half of our debt up basically 200 basis points. So if you think of an average of 100 basis points higher than now that suggests that in 2015 without the deal we would have been paying slightly over 4%.

I think the way the deal is currently constructed you've got to have the flex in the pricing and all that on the term loan B and it will probably be 100 to 150 basis points higher depending upon how the pricing comes out.

Okay and then just a couple other items. 2014 CapEx, what are we looking at in terms of now that we're pretty far along in building out the plant?

Yes we've been -- it's still coming in at about $18 million to $20 million, in that range, Jeremy.

Okay and then the last question, can you just -- I think I missed it, but in terms of outside glass purchases and the negative drag that had on Q2 gross margins?

Let me just pull that up to make sure I quote you the right number. I believe it was 180 basis points but that was compared to last year. And last year we -- I think we quoted 100 basis points compared to the year before. So it was 180 compared year-over-year.

Great. Thanks so much and good luck.

(Operator Instructions). Steve Dyer, Craig-Hallum.

Congratulations. Thanks for taking my question. As you think back kind of the CGI, I was just kind of curious. Is this something that was presented to you or is this, these discussions that have been going on for a while? You clearly know each other well but maybe a little bit of background as to kind of how this thing came to fruition?

Yes we have known CGI. CGI was a customer of ours back in the 1990s so it's a long-term relationship that we've had. Obviously as a customer we valued them highly. As a competitor we respected them a lot. So knowing the owner of the company from that time and occasionally touching base --.

I think what we did with CGI or what we do with any company that we really respect in the marketplace is you do touch base with them on -- when I say a regular basis maybe that's a couple times a year. You run into them at industry meetings and you talk about what's going on and you kind of always float that if you're interested let's make sure we talk conversation.

They were bought by private equity back in 2007 and fortunately we kind of knew that private equity, we stayed in touch with them. So when time came private equity by definition buys companies and sells them sometime later, so we knew that that would happen. And as we kind of stayed in touch with that and just said we'd like to be exclusive. We realize that's probably not going to happen. Just please make sure we know and that's the way the deal really kicked off is they made sure we knew.

Great that's helpful color. And then it sounds like no more acquisitions this year but certainly something you'd potentially be open to in the future. How do you think about that in terms of criteria? Is it -- does it have to be kind of a complimentary product? Would you go with something totally different? Would you go a different geographic area? Just maybe your framework for how you think about that?

You know, typically, and we talk about this on almost every call. Typically we look at them almost the same way. They need to have some nice margins because we run some nice margins. We don't want to be dilutive to our margins. And then we look at adjacent product that will serve the market really well. Maybe a product that serves a portion of the market that we're not heavily in, there's some parts of the commercial market that we don't do a lot or we look at an adjacent geography that we can jump into.

Naturally we're in Florida, there's some great product in California. It's not nearly attractive as product in Northern Florida or product in the islands that we can get to real quick. So we look at adjacent geographies, adjacent product lines, some pretty good margins as kind of the driving criteria.

In the past we did a small acquisition with a product line that didn't really have a marketplace but it was a great design. That's our PremierVue line. So depending where it is in its product life and can make some changes, so we'd look at product. But generally we look at those three criteria and we want to make sure two of the three at least are really strong.

Great okay. And then lastly I guess, as most of mine have been answered, a lot of building products, I guess comp so to speak, have given pretty tepid outlooks, pretty tepid numbers in Q2, especially those that are sort of R&R related. What are you seeing that's maybe a bit different or that's keeping things strong for you guys? Is it just that Florida continues to be or was so depressed that it's still the snap back there? Or is it that windows tend to be higher on the spend list in most cases on a remodel or how do you think about that?

We just saw a lot of really pent-up demand. I mean Florida was dormant for such a long period of time. And given this, I don't know, population growth again that we're seeing, given the -- we did reach bottom, people come, prices start going up and then there's that kind of set in of people rushing in now.

I mean we're seeing good growth and obviously with home prices increasing, that bodes very well for the R&R market here and it's just prime. We were kind of the first almost in, almost last out and we're just experiencing some good results unlike maybe the rest of the country.

Yes, Steve, the other thing that we see too is, we talked about it in the past. that when this -- when the kind of resurgence in building and remodeling kicked off in 2012 we didn't participate in a lot of it. Our sales went up a little bit but it didn't really grow rapidly.

And then as things heated up a little bit more -- we talk a lot about our value proposition and how important it is to have complete on-time delivery and treat your customer amazingly well. And people started really appreciating complete on-time delivery and filling in every hole and some shorter lead times and making sure that now the value was there.

And we continue to see that. So even if the market doesn't pick up as much, kind of that shift back toward appreciating what value, what good quality, what complete on-time delivery can do, drives a lot of that additional sales also.

Great, that's very helpful. Thanks again.

Sam Darkatsh, Raymond James.

Just a couple of follow-ups, I didn't want to monopolize the meeting early on.

Welcome back, Sam.

Back to CGI, two questions; is there any meaningful overlap in their distribution versus yours, meaning is there a risk that one or both of you may get a bit disintermediated at distribution with the combination, post combination?

Well, they do share similar -- we do share similar customer base if that's what you're asking. There is some overlap. There's customers that obviously carry both product. Again, all of that I am really hesitant to say much about it out of respect for the team here and the integration team that's working on this and the sensitivity around this. So we are actively looking at that distribution network and anticipate and it's our goal to minimize any kind of loss or disruption in that channel.

Got you and the last question, obviously when you're growing 30% each of the last few quarters or so this continues to be important. How many shifts are you running and then how many shifts at CGI's Miami facility are they running at present?

Well, we're -- PGT, we're running three shifts still in the manufacturing side of the business, the assembly side of the business. Really a full first shift, maybe an 80% full second and partial third so we've still got some capacity on the assembly side.

On the glass it's a little different. Obviously we're at capacity in a couple of areas in the glass so that's running 24/7. And therefore the coming plant is going to be on line in the fourth quarter will help on that end. So from a capacity side we've still got room to grow ourselves.

In terms of CGI, it's just too early to comment on CGI's capacity because we really, again, we really have work to do in working with the team and we don't want to get too direct involvement in day-to-day operations yet of that company.

Got you. Thank you very much, gentlemen.

Thank you and at this time I see no further questions. I'd like to turn the call back over to you, Mr. West.

Thank you for joining us today. We look forward to speaking to everyone next quarter and if you have any further questions, please feel free to give me a call. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect.