PGT Innovations Inc (PGTI) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the PGT, Inc., third-quarter 2014 earnings conference call. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Brad West, Chief Financial Officer. Sir, you may begin.

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

This morning, we're pleased to provide an update on both our third-quarter results and the integration of CGI. Hopefully, everyone has had a chance to review our earnings release issued yesterday.

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 was 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 our 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 performance for the third quarter of 2014. After our prepared remarks, we will 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 morning, everyone. Third-quarter has been an exciting time for us at PGT as we finalize the acquisition of CGI Windows and Doors, a window and door manufacturer with operations based in Miami, Florida, and we opened our new glass facility at the end of the quarter.

The acquisition of CGI increases our leadership position in the impact-resistant window and door industry and strengthens our ability to compete against national suppliers by diversifying our product offering and increasing our reach to the high-end segment of the impact-resistant market.

CGI will remain a separate and distinct brand in the marketplace and we will continue to operate in Miami, Florida. The combined entity will leverage back=end synergies and best practices to provide incremental value to all stakeholders. The acquisition was funded by a $200 million term loan, which was used to fund the acquisition, pay off our existing debt, and pay fees associated with the acquisition.

We also completed the construction of our new state-of-the-art glass facility. The facility is approximately 96,000 square feet and currently includes equipment to increase our capacity for both tempering and cutting. We began operations near the end of the quarter and have additional equipment ordered to increase both insulating and laminating capacity in the first half of 2015.

During the quarter, sales came in at $77.3 million, up 19.2% over the third quarter of 2013. This improvement was fueled by continued focus in our core markets, as well as an improvement in the market conditions in new construction industry.

We continue to shift in mix as new construction sales grew 47% over prior year and represented 39% of our sales during the third quarter. This compares to 31% last year.

Our sales within the repair and remodeling market grew 5% over prior year. Within the quarter, R&R was flat in July and August, but up 13% in September. We continued to see our R&R sales grow as we entered into the fourth quarter, with October sales up over prior year as well.

Sales of impact product were up 19% over the third quarter of 2013 and represented 78% of our sales. In addition, sales of non-impact product grew 18% over prior year.

Our quarterly sales included the total for CGI sales for the last five days of the quarter ended September 27, 2014. During this period, CGI generated approximately $550,000 in sales with an EBITDA margin of 22.3%.

Gross margin dollars increased $2.6 million or 12.4% over the third quarter of 2013, after adjusting for costs related to the completion of the new glass facility. However, during the quarter, we did continue to experience pressure on our gross margin as a result of increased material costs, primarily related to purchasing finished glass units to support our sales in excess of glass capacity and increase aluminum costs. Our margins were also impacted by a shift in mix towards new construction.

To address our margin results in the fourth quarter, we expect to purchase less outside glass units, which we believe will have a favorable 80 basis points impact during the quarter.

Additionally, we have recently announced a price increase for PGT branded products, which will be effective for the first quarter of 2015. That price increase will range between 3% and 7%, based on the product type.

This increase helps to offset recent increases we have experienced in such areas as healthcare and materials, including aluminum mentioned above. During the quarter, our aluminum costs are running $0.91 per pound versus $0.90 per pound in the third quarter and 0.85 percent a pound a year ago.

We continue to leverage our selling, general, and administrative expenses. After adjusting for the costs related to the acquisition of CGI, SG&A decreased to 16.5% of sales, compared to 20.8% in the third quarter of 2013. We expect this leverage to continue as we selectively add costs to our structure to support our significant sales growth.

Net income for the quarter was $6.2 million after adjusting for costs related to the acquisition and related debt financing, as well as start-up costs related to our new glass facility. This compares to $6.4 million in the third quarter of 2013.

In this year's net income, the impact of income tax expense, adjusted for the same items discussed above, totaled $3.7 million in the quarter. We did not record significant tax expense a year ago in the third quarter.

Our adjusted EBITDA was $12.1 million or 15.6% of sales. This is a $1.8 million or 18% increase over the third quarter of 2013. Adjusted EBITDA for the first nine months was $34.2 million or 15.4% of sales, representing an increase of $5.9 million, largely resulting from higher sales.

With that summary, I'll turn the call back over to Brad, who will review the quarter in greater detail. Brad?

Thank you, Jeff.

As Jeff mentioned, we reported sales of $77.3 million, up 19.2% over prior year, which represented our highest third-quarter sales since 2006. We finished the quarter with adjusted EBITDA of $12.1 million, representing 15.6% of sales.

Breaking down our sales drivers compared to 2013's third quarter, we have WinGuard sales of $55.4 million versus $47.1 million, an increase of $8.3 million, or 17.6%; vinyl nonimpact sales of $10.3 million versus $8.3 million, up 24.1% over prior year; aluminum nonimpact sales of $7 million versus $6.3 million, up 11.1%; PremierVue sales were $2.0 million versus $1.6 million, an increase of 25.0%; architectural systems sales of $2.1 million versus $1.6 million, an increase of 31.3%; and CGI sales were $552,000 between September 23 and September 27.

Gross margin dollars increased $2.6 million or 12.4% for the third quarter of 2014, after adjusting for costs related to the completion of the new glass facility. However, as a percent of sales, adjusted gross margin was 30.4% versus 32.3% in the third quarter of 2013.

Our decrease in gross margin as a percentage of sales of 1.9% was driven by a shift in mix towards new construction reducing margins 120 basis points. The cost of purchasing finished glass units from our third-party supplier to meet the demand from sales growth negatively impacted margin by [110] basis points. Employee and other related costs in connection with the higher sales base negatively impacted margin by 70 basis points and the cost of aluminum extrusion and other materials, which negatively impacted margins by 40 basis points.

These factors were offset by the impact of the price increase announced at the end of the third quarter of 2013 and leveraging our fixed costs and higher sales, which improved margins by 100 basis points and 50 basis points, respectively.

Our new glass facility is specifically designed to increase our internal capacities for finished glass units. We estimate that this initiative will improve our margins by approximately 1% in the fourth quarter and 2% in 2015, on average. However, the actual impact will vary from quarter to quarter, based on topline sales and our internal capacities, which increase with the installation of our laminating and insulating equipment in the first half of 2015.

With regards to aluminum, our average cost of aluminum was approximately $0.90 per pound during the quarter. That comprised of both stock purchases for approximately 66% of our needs and hedge purchases for 34% of our needs. This compared to third quarter's weighted average of $0.85 per pound in 2013.

As of today, we are hedged at approximately 34% of our estimated needs through the fourth quarter of 2015 at an average price of $0.90 per pound. Current cash price is $0.91 per pound.

Our aluminum forward contracts have been entered into to manage our cash flows. However, these contracts did not qualify as effective, and as such, the impact of these hedges are recorded in other expense on our income statement, rather than a component of gross margin.

We leverage revenue growth during the quarter to reduce adjusted selling, general, and administrative expenses as a percent of sales to 16.5%, compared to 20.7% in the third quarter of 2013. Our selling, general, and administrative expenses were $12.8 million after adjusting for the acquisition costs, a decrease of $600,000 from the third quarter of 2013, after adjusting for last year's secondary offering.

Highlights within our SG&A include a decrease in amortization expense of $1.6 million as our amortizable intangibles were fully amortized during the first quarter of 2014. This was offset by an increase of $900,000 in selling and distribution costs consistent with our sales and an increase of $100,000 in employee-related costs.

Interest expense was $1.0 million compared to $1.1 million in the third quarter of 2013. This decrease from prior year relates to the lower outstanding debt level prior to the debt refinancing near the end of the third quarter. Going forward, we anticipate annual interest expense to range between $11 million and $11.5 million. This includes the impact of our new outstanding term loan of $200 million and its interest rate of LIBOR plus 425 basis points with a 100 basis point floor.

Depreciation and amortization recorded in third quarter was $1.2 million compared to $2.8 million last year. Going forward, as a result of the acquired intangibles and depreciation related to the new glass facility, quarterly depreciation and amortization expense in the fourth quarter, as well as 2015, is expected to be approximately $2.6 million.

Our tax expense in the third quarter was $1.7 million, which represents an effective income tax rate of 42.1%, which is higher than the statutory rate of 38.8%. The rate is higher than the statutory rate due mainly to the impact of acquisition costs and acquired net operating losses, which reduce the estimated favorable impact of the Section 199 manufacturing deduction in 2014.

We recorded minimal tax expense in the third quarter of 2013 and we currently estimate our going-forward tax rate to be between 38% and 39%.

We had net income in the third quarter of $6.2 million or $0.12 per diluted share versus $6.4 million or $0.13 per diluted share in the third quarter of 2013, after adjusting for the expenses related to the acquisition, debt refinancing, and the new glass facility. This adjusted net income in third quarter also includes the impact of $3.7 million in tax expense from operations. As a reminder, we recorded minimal tax expense in the third quarter of 2013.

Adjusted EBITDA was $12.1 million for the third quarter of 2014 compared to adjusted EBITDA of $10.2 million in the third quarter of 2013. The increase in adjusted EBITDA of $1.9 million is due primarily to $2.8 million attributable to increased volume and $1.1 million from our price increase announced last year.

Offsetting these increases was an increase in material costs of $1.1 million due to the increase of cost of materials, including the purchase of finished glass units related to certain capacity constraints; an increase of $600,000 for employee-related costs; and then $300,000 from increased costs of aluminum and other materials.

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

Turning to the balance sheet, through our value proposition we have developed strong relationships with our customers. Our DSOs were 31 days at the end of the third quarter of 2014, which is a decrease from 32 days at the end of the third quarter of 2013.

Our inventory turns, excluding the impact of acquired inventory, are 12.8 in the third quarter of 2014. That's an improvement from 10.9 at the end of the third quarter of last year. We have been able to keep inventory levels in check as we grow.

In connection with the acquisition of CGI, the following items were acquired, totaling the purchase price of approximately $110.4 million. Amortizable intangibles of $26.3 million; indefinite live intangibles, specifically trade names, of $19.0 million; net working capital of $3.2 million; property, plant, and equipment totaling $1.7 million; deferred tax assets of $7.2 million, relating to the acquired NOLs; and a deferred income tax liability of $13.5 million, relating to the nondeductible portion of acquired intangibles. The remaining unallocated purchase price of $66.7 million was recorded as goodwill.

Our free cash flow for the quarter was $4.3 million, mainly driven by EBITDA, excluding non-cash items such as stock compensation, of $12.3 million; decrease in working capital of $1.5 million; capital additions of $6.6 million mainly associated with our glass plant expansion; costs related to the acquisition of $1.5 million; and start-up costs related to the new glass plant of $300,000; and finally, cash paid for interest and taxes, which was $1.0 million.

Our cash-ending balance for the quarter was $43.7 million, which included the impact of the items mentioned before, as well as net proceeds from the refinancing of $5.3 million.

Capital expenditures in 2014 are expected to be approximately $19 million to $20 million, of which $12 million relates to our new glass facility. Next year, consolidated capital spending will range between $15 million and $20 million, including regular maintenance capital spending of $5 million to $7 million and spending related to additional glass capacity yet to be finalized and other growth-related items.

Economic conditions in the Florida market should remain strong, which will continue to drive year-over-year sales growth in the fourth quarter. We anticipate this growth will continue both organically and as a result of the CGI acquisition.

Sales from PGT products will range between $70 million and $72 million, which represents an increase of 13% to 16% over prior-year sales of $62 million, and sales from the newly acquired CGI products will range between $11 million and $12 million, resulting in consolidated sales between $81 million and $84 million.

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

Thanks, Brad.

Third quarter of 2014 was both an exciting and eventful one. New construction sales have grown over 47% for the sixth straight quarter, this despite a flat single-family start environment now projected to finish at 54,000, which is in line with the previous year.

Our acquisition of CGI combines two companies with long histories of success in the impact-resistant window and door industry. We're off to a great start welcoming the CGI employees into our family and we have been impressed with their dedication to quality and commitment.

Looking ahead, our new glass facility is operational and we expect to capitalize on the efficiencies that it will provide. We have continued to invest in our employees as we have implemented strategic initiatives in training and development. We have also hired strong industry talent externally to help lead us into 2015. We are eager to see the impact of these initiatives and believe additional opportunities exist to lower our operational costs and leverage them with incremental sales.

With regards to CGI, opportunities exist to both diversify and broaden our product portfolio as a result of the acquisition. We also expect to realize significant cost savings related to materials, operating expenses, and other items. These synergies should reach a total annual amount of approximately $4 million to $5 million when fully realized, ramping up in 2015, and reaching full potential in 2016. This will strengthen our industry-leading margins and will position us to aggressively drive topline sales and take additional market share.

I am thankful for the dedication and effort put forth by all of our employees who have worked hard to help us realize our strategic initiatives.

With that, I will conclude and we will be happy to answer your questions about our results or the recent acquisition. Amanda, if you could get the first question, please.

(Operator Instructions). Robert Wetenhall, RBC Capital.

Good morning and thanks for taking the question. I was hoping that, Rod, maybe you can just -- you have been in the business a long time. Could you just tell us how you are thinking about the recovery now, and if you're breaking it down between new construction in Florida, repair/remodel, and the code-driven opportunities, just speaking to that both into the year-end and what you are thinking about 2015 with CGI? Just trying to get a better understanding of how you are thinking about topline growth for the business in the next couple years.

I don't know if I can really express my excitement through the phone as well as I would like to. It's fun being in this market again.

And we're -- from a Company perspective, I guess I will hit a couple different points. New construction, we are taking significant share in the new construction market, because new construction starts aren't up that much, but where we are right now at 54,000 starts is about one-half of where we should be, maybe even not quite one-half of where we should be to really have a good recovering market.

I am not going to predict that we are going to get there next year, so we've got a couple years to run on the new construction side. We have seen a little bit of flatness in the R&R side of the market, but we have got initiatives in place, so we are taking some share there. Even though the market has been flat, we grew substantially in September and we have got initiatives in place to continue growing at 5% to 7% for the remainder of the year on the R&R side.

CGI has got a great product mix. They fit into our portfolio well. Our customers are excited. Their customers are excited. I think we can serve the market much better by hitting that.

We look at it as the -- we call it the upper right-hand side of the market, great product and lots of features and a lot of touch points, and we both hit that market really well, so we think that is going to grow. We are investing a lot in making sure that we are ready for that growth.

We have come through that long down period where it was tough for us, after really going through about 25 years of growth, to have to deal with about five or six years of just downturn and trying to make sure we are running things correctly. And now we are back to those growth ideas again.

So we're pretty excited. We have put a substantial investment in our glass plant. We will continue to invest in the glass plant, making sure that the capabilities are there to produce glass, because we have substantial savings.

As an organization looking at the future and not looking at Q4, and even necessarily the first half of next year, we're really excited about where the state is going and where we are going as a Company.

That's actually really helpful color. I was hoping, Jeff, maybe you could expand on just profitability in the EBITDA margin line. You are tracking 15%. You have invested a lot expanding glass production capacity. It sounds like sourcing externally will diminish.

Given Rod's outlook in terms of growth opportunities and the ability to leverage some fixed costs, where can that 15% EBITDA margin go in the next year, in the next two years? Thanks very much.

As you look into next year and two years, we're going to fully realize the benefit of all the investment we are doing in the third quarter and we're going to continue to do in the fourth and first quarter of next year, in terms of the glass-producing capacities.

We are expanding that because we want to make our own glass internally as much as possible, especially given the upside in the margins.

With that said, we hired over 170 people just in the quarter alone to start up this new facility. As we continue to leverage that, leverage the top-end brands Rod is mentioning, CGI margins alone are in the upper mid-20s, we expect that to expand. We expect our own internal margins to expand, and even the third-quarter results, I'll remind you that our sales and margins are still industry -- pretty much industry leading.

So we definitely view the ability to get EBITDA margins up starting as early as mid -- I would say mid-2015 into the upper teens, and then ending out the year at that target 20%, like we've put out there.

So you're saying you could potentially hit a 20% EBITDA margin by the fourth quarter of 2015?

Yes.

Great, guys. Nice quarter. Thanks very much.

Jeremy Hamblin, Dougherty & Company.

Good morning, guys, and thanks for taking my question. I wanted to just get into the gross margins a little bit deeper in terms of thinking about some of the dislocation between where expectations were and where you guys came out.

Was there something that shifted? Besides the spike in aluminum costs, which is understandable and completely out of your control, coming in at 30.4%, was there something else that occurred either in the production facility during Q3 that caused the margins to fall to the levels they did?

If I understand it, you got about 120 basis points or so on mix shift. We know that you were buying a lot of outside glass in the quarter. We know about the aluminum, but it feels like there maybe was also something in addition to that that would have caused the level to be down to where it is? And then -- I'll start with that and then I will ask a follow-up.

I think, just to clarify that, probably that mix shift, we had mix shift both in vinyl mix shift and new construction mix shift, and I'd peg that closer to 200 bps in that area.

But outside that, the remaining miss, if you will, I would take it related to mainly glass. We did buy more glass externally than we had planned or wanted to, based off the volumes. That was -- several reasons drove that. Most notably, we did have some equipment downtime, both on our tempering and our cutters were down, I would say, two to three days during the quarter. That impacted us tremendously.

We also, unfortunately, had some supplier material related issues that we received some bad supply, and once you receive that, it's hard to work it through the system. It throws a tizzy factor, if you will, through the manufacturing process, so we had to work through that as well.

Then I would say, thirdly, we did have the glass plant, the new glass facility, ramping up. While we tried to capture the cost, material cost, associated with that, there is training. There is onboarding. Like I mentioned earlier, we had over 170 people during the quarter added to that glass facility, so we've got a lot of inefficiencies associated with that.

We also, just as a reminder, closed the CGI deal and acquisitions associated with that, so we had a lot going on during the quarter that indirectly and directly would have impacted our margins.

Right, okay. Maybe just some of that wasn't -- when you guys had had your July call, some of that wasn't anticipated at that time. Are you able to quantify some of the supplier disruption in that equipment downtime? Is that 70, 80, 90 basis points, 100 basis points?

I think if you would have compared where we were at and where we were tracking through the second quarter and into July, I would say that I think our operational impact that Jeff referred to sequentially was about an 80-basis-points hit.

As we look forward, I think it is going to take a couple of quarters to get that back into play, so the steps that we are taking, they help us, call it, 40 basis points the first quarter and the next 40 basis points -- I'm sorry -- 40 basis points in the fourth quarter and the next 40 basis points in the first quarter.

Jeremy, I would just add to that. I think this is pretty consistent with what we have said in almost every call that we've had that when we have to make choices between this quarter and the future, and particularly with the new glass plant ramping up and closing the deal with CGI, that took a little more energy maybe than we anticipated going into the quarter.

But again, looking into 2015 and 2016, it was the right thing for the Company to do and we're pretty excited about it.

Okay, and then let me think about this, then, as -- and just reconcile what you guys have said about 2015 and the opportunities to improve.

So we have some leverage that you're going to get from not having to purchase as much outside glass. But should -- given the capacity constraint on lamination, should we be thinking that in the first half of the year that that opportunity is a little bit lower, because certainly by the time you get into the second quarter, if not at least a little bit in the first, but certainly in the second quarter when you are seasonally higher, you're going to be running into capacity constraints again and still have to purchase outside glass?

That's a great way to think of it. Cardinal, who is our outside glass supplier, they are going to continue to be a partner with us, especially during the peak months. We're actually currently going through that negotiation process now.

Obviously, Cardinal supplied all of CGI's class and a portion, roughly 15%, of our needs this year so far. So it's a big business for them. It's not going to be add us, add CGI, and that's their new volume. It will be something far less than that, but at the same time, we are going to still utilize Cardinal for those peak months, and they have been a solid partner with us in the past and will be on a go-forward basis.

In terms of actual -- just to give you an idea in fourth quarter, for instance, in October we did still buy external glass because, again, we got our glass plant up and running. It is going well now, but in November and December, based off current volumes, we are not going to buy any external glass on the outside. So that will fluctuate based off volumes.

We will be adding that laminating capacity. It will not be in play until probably the second quarter -- end of the second quarter of 2015.

Yes, end of second quarter.

So that will necessitate probably more glass outside needs than we would like. But, again, you get the volume, so we would much rather have the volume coming at us and try to meet those needs in the future with additional capacity expansions.

Okay, great. Just one other quick thing and I will jump back in the queue. Brad, on the amortization -- depreciation and amortization that we should be thinking about going forward here, what was -- I missed the number.

$2.6 million, Jeremy.

Per quarter?

Yes.

Okay.

That's combined.

How much of that is amortization?

Amortization would be --

Like $1.2 million?

-- $1 million of that and the rest would be depreciation.

Okay, and that will flow through into next year as well?

Yes.

Okay, all right. Thanks so much.

Keith Hughes, SunTrust.

You had referred to the new construction sales in the quarter and they have just been outstanding the entire year. Is there any way to tell how much of the share gain is driven by taking share from other similar producers or how much is coming from old customers that would use mechanical type or manual type protection on the windows?

That's a tough question, Keith.

I know (multiple speakers)

I don't -- we think that (multiple speakers)

(multiple speakers) reason I'm asking you.

We think that more of it is coming from taking share from our competition than from a switch back from active and passive protection. But I don't know that I can give you an actual number.

Especially on the new construction side, which was -- you opened up, Keith, with our growth, which you are right. It is 47% up in new construction. We continue to really take share in that market. That we definitely view as taking share from competition versus an active versus passive solution.

However, the new construction has been geared more towards impact protection because it's just a better-known product now than it was back in 2006 when the latest kind of new construction boom was taking off. The impact product was relatively still new in its lifecycle. Now that people know about it this next go-round of new construction, we do see a little bit more demand for that upfront.

The other thing, too, that might be interesting to note is new construction starts have been flat, but in the southern counties that are our strongest counties, southeast/southwest, they are actually up about 7%. So they are up a small amount.

And I don't know that I can say this for a fact yet, but it looks like some of those new starts are maybe a little bit larger construction than what we had seen for quite a few years, so we are seeing a little bit larger house built and then we are just -- we are taking share away.

Second question, you referred in the capital spending plans for next year another glass plant coming online. Is that correct?

Not another glass plant. The 96,000-square-foot facility we have got now will house the additional equipment. That's what we are -- we are going to be installing a new -- some additional equipment within the current bricks and mortar.

Okay, so it's within the bricks and mortar, but it is in addition to the capacity you just bought online here recently, correct?

Yes, it is.

Is that there for future growth, as well as for potentially an integration with CGI, or what is your feelings there?

Yes, if you took CGI's business and our business and add them together, we can't meet that demand or that need with the current expansion.

The current expansion was anticipated only our needs. The acquisition opportunity came up subsequent to us building our facility. Now we built the facility big enough for our growth as well, so with the acquisition, we are just going to probably be a year earlier, maybe a year and a half earlier, in expanding equipment in that plant than we had previously thought.

Yes, just for reference, from time that you identify that you need the equipment, you really spec it out and get the footprint and lay it out and place the order, and install it, it is about a year. So it's not something that you can react to next month and put it in play.

All right, thank you.

Sam Darkatsh, Raymond James.

This is Josh filling in for Sam. Thanks for taking my questions. I wanted to follow up on some of the project pricing issues that we discussed in the first quarter when you were getting your foot in the door on some larger projects. Could you talk about whether you are seeing any benefits or additional wins coming through as a result of that pricing strategy? And what are pricing trends in general among your project business?

We did see the -- as you mentioned, the large project pricing was a Q1 and Q2 kind of strategy, and that strategy was employed to help gain some additional, I guess, relationships and sales within the multi-story and commercial markets.

I do think it's still a little bit too early, Josh, to say whether we have seen some favorable results from that. As you know, we, towards the back half of the second quarter, stopped that as an aggressive strategy and went back to what we think is our appropriate pricing. We have seen some new construction growth and I am sure some of that growth is within those areas, but I think it's a little bit too soon at this point to be able to quantify and determine payback.

Those projects generally take a while to complete, and then, therefore, also take a while to spec the second time around. So I do think we will be able to talk about that a little bit more in the future, but right now, I think it's a little too early.

Okay, and how many shifts is CGI running right now?

They run one full shift and a partial second on just a couple of the product lines.

And yourselves?

We are currently running three shifts, probably, I would say, 100% full in the first, maybe 90% full on the second, and 70% full on the third on the assembly side. On the glass side, we are running 24/7 up until the opening up of the new facility. That will take some pressure off our current facility.

You got to keep in mind when we were running that current facility pretty much 24/7, we were running to fail. So in my example earlier, when a machine -- when we have an equipment issue, it's really hard on the plant because we cannot recover from that very quickly.

So with the added capacity that has come online at the end of the third quarter, we will be able to not run as much of a demand on what we had in the past.

Thanks. Good luck with the next quarter.

Jeremy Hamblin, Dougherty & Company.

I just wanted to ask a little bit more on the R&R business. It sounds like it was flat in July and August and picked back up in September. Is there anything in particular that you are seeing that would be causing that kind of fluctuation? We all expected it to moderate to some extent, but are you guys using some different promotional programs moving forward? Or how should we be thinking about that business also as it pertains to next year? I think you said that you expect 5% to 7% growth in that channel this year, in Q4, but how should we be thinking about that in 2015?

I guess as you look at the third quarter, those months that were essentially flat, that was more of an industry kind of result, if you will.

We saw that in other building product companies where their R&R business was flat for those couple of months, and then in September, I think it picked up for a lot of us. I have talked to several different building product CEOs and they experienced almost the same thing.

Within Florida, I think we have a little bit different of anomaly in terms of our potential growth in R&R because we still have a lot of people, obviously, moving down and fixing up old homes. As you look into 2015, I do think you're going to continue to see a solid growth, more than industry norm, in Florida and I think we will continue to take share.

We do run programs -- various promotional programs through our marketing department to incent sales of -- in the R&R sector with our dealers. We typically will run those during certain times of the year. We're going to be running one in the fourth quarter, as an example. We will run one before the spring selling season, as another example. You have to think timing of when people actually move to Florida and live here.

Now is that time of year. They are here, so we want to get out in front of them with the potential business to redo their house or condo or whatever it may be, and usually those programs run, we get the business, and that business is booked when they are no longer here and they're up North again. So there is timing of those programs. They are ran and we have taken share in that R&R market.

You guys have always run that Q1 program. Is the Q4 an incremental program?

We ran programs last year in Q4. It wasn't necessarily just targeted to R&R. We ran a broad program both in new construction and R&R, and it was more targeted towards certain dealers.

This year, I think we have targeted it to R&R dealers only. So it is more targeted this year than it was last year, but we did run a program in Q4 last year.

We will typically have a program or two, as we say, on the shelf, so if we need to pull it out and run a program -- if we see something changing in the market that we think we should address, we will generally have a program that we can put in place pretty quickly to address those changes in the market. That really hasn't changed in the last couple years.

Great, and then just one last one on CGI. What was CGI's Q4 sales last year? And then as we look at the opportunity, that seems like something where you could meaningfully grow that probably faster than the rest of your business, just by getting some synergies and expanding their distribution into your broader network. Can you give me that Q4 number from last year, Brad, and then as I think about 2015, is that a fair assumption for me to think that will grow at a rate that is probably quite a bit faster than the rest of your business?

The Q4 number last year was about $8.8 million, so the guidance that we have provided for CGI for Q4 of $11 million to $12 million represents about a 25% to 35% increase over prior year.

Okay, and then as we think about it into next year, I am sure we shouldn't be assuming those same kind of growth rates you are seeing in Q4, but is it something that we would expect it to be meaningfully higher than the rest of your business?

I think the answer to that is yes. We think, given the relatively small base and the potential expansion of that dealer distributor network throughout Florida, the answer to that is yes. You will see it meaningfully higher than the main part of the PGT business.

Great. Thanks so much and best of luck, guys.

Thank you. I am showing no further questions at this time. I would now like to turn the call back over to Mr. Bradley West for any closing remarks.

Thank you for joining us today. We look forward to speaking to you again next quarter, and if you have any further questions, don't hesitate to give me a call. Have a good day.

Thank you. Ladies and gentlemen, at this time this does conclude today's program. You may all now disconnect. Everyone, have a great day.