PGT Innovations Inc (PGTI) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the PGT, Incorporated Fourth Quarter 2015 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Brad West, Chief Financial Officer. Sir, you may begin.

Good morning, everyone. And welcome to PGT's fourth quarter financial results conference call. I am Brad West, CFO; and joined today by Rod Hershberger, our Chairman and CEO; and Jeff Jackson, President.

This morning we are pleased to provide an update on our fourth quarter results, as well as an outlook for 2016. We also have posted a presentation on the quarterly results in the Investor Relations portion of our website.

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 fact. Rather they are based on our current expectations and 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 sheet and statements of operations, prepared in accordance with GAAP, and adjusted information which is quantitatively reconciled to GAAP, and quarterly and full-year combined sales and adjusted EBITDA as though our recent acquisition of WinDoor occurred at the beginning of 2015.

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 today. 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.

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

Thank you, Brad. Good morning, everyone. As we celebrate our 35 years of being in business, we look back throughout the years, and are incredibly proud of our achievements in this timeframe, as our company is now the largest provider of impact-resistant windows and doors in the United States.

2015 marked a significant year of growth and expansion. And we are incredibly pleased with what our team has accomplished. Our revenue for the year was a company record, and our ERP system conversion is its final stages.

As we begin 2016, we foresee another year of growth for our Company. Our recent acquisition of WinDoor expanded our product footprint and geographic presence in our primary Florida market. We will continue to execute on our long-term strategy to drive organic growth and augment it with select acquisitions that will help us achieve our goals of improved quality of earnings and expansion of our product offerings and geographic footprint. We are also extremely focused on integrating WinDoor into our PGT family to immediately take advantage of the WinDoor brand of products.

The housing market continued to expand in 2015. Single-family housing starts in the US jumped to an annual rate of 768,000, a 10% gain from 2014. While in the South, single-family housing starts jumped 12%. In Florida, single-family housing starts experienced a 16% increase for the year, to more than 65,000, a very substantial improvement over the 4% increase recorded in 2014.

The underlying drivers of population expansion, rational pricing, low-interest rates and tight inventory is leading to a solid market recovery for both new construction and repair and remodeling activities, not just in Florida, but nationally as well. At PGT, we are well-positioned to take advantage of these market conditions to drive growth, expand our brand offerings, and enter new geographic markets and product categories.

Looking ahead, our capital allocation for 2016 and beyond will be focused on acquiring companies that fit within our long-term corporate strategy, and enhance our market position. We will also opportunistically continue to purchase shares under our $20 million share repurchase program.

Thank you, and I'll turn the call over to Jeff.

Good morning. As Rodney mentioned, 2015 was a landmark year for PGT. The record revenue for the year was indicative of the growth we are experiencing as we continue to benefit from the expansion of our product portfolio, our new geographic reach, and improvements in the housing market. Expanding our brand and presence geographically is a key goal for our team over the next five years.

Florida will continue to be our core market. However, we also have presence in 48 states, the Caribbean, Canada, Australia and South and Central America. Our geographic expansion will be driven by strategic acquisitions in markets where we see the most benefit for expansion.

Florida is experiencing growth that will continue to propel our business in 2016. Florida's economy is leading the nation in job growth and overall recovery, and is outpacing most states in terms of declining unemployment, job creation, and overall economic activity. Florida's GDP grew by more than 5% in 2015. And the latest census indicates that Florida has surpassed New York as the third-largest state in the US.

The single largest factor for economic improvement in Florida continue to be the recovering housing market. Single-family housing starts in Florida increased 21% in the third quarter, and 22% in the second quarter of 2015, compared to the same periods in 2014. Single-family housing starts in Florida have had a positive quarterly increase for the last 15 consecutive quarters.

Home-builder confidence has returned to near historic highs, measuring in the mid-60s in October 2015, and remaining above 60 in November and December. As a reminder, the home-builder confidence index reached a record high of 71 in late 2005, and bottomed out at 8 in early 2009. A score of the index above 50 indicated that the feeling amongst home builders is bullish regarding current and future sales of single-family homes.

As the leading manufacturer of impact-resistant products in Florida, this strong economic background bodes well for our business. Our broad product portfolio provides a solution to the entire market spectrum from niche premium custom to mass custom, giving us the ability to capture customers seeking different price points.

With the acquisition of CGI more than a year ago, our Company added to its substantial share of the market for impact-resistant products in Florida. Impact products are highly profitable, and are the primary profit driver for our Company.

Our recent acquisition of WinDoor increased our share of the impact market in Florida, which will instrumental in our growth in 2016. With this acquisition, we expanded our portfolio of exceptionally-designed impact windows and doors with new products not currently in our portfolio, and solidified our position as the leading manufacturer of impact-resistant products in the US.

WinDoor will also expand our share in the high-end residential and commercial markets, and will allow us to expand our addressable markets into new geographies. We expect the WinDoor acquisition to contribute approximately $42 million of sales in 2016 from the date of the acquisition, with an EBITDA margin of approximately 20%.

Similar to our 2014 acquisition of CGI, we will be highly focused on capturing cost savings synergies and most importantly integrating WinDoor to ensure a smooth transition. We welcome the WinDoor team to the PGT family.

I will now turn the call back over to Brad to discuss financial results for the fourth quarter, and the outlook for 2016.

Thank you, Jeff. We reported sales for the fourth quarter of 2015 of $93.0 million, an increase of approximately 10% over the fourth quarter of last year. Notably, this is the first quarter CGI's results are included in both quarters for the entire period. For the year, net sales were $389.8 million, as compared to $306.4 million, an increase of 27%.

On slide 6 we give you a breakdown of net sales for the fourth quarter. As you can see, our growth continues to be fueled by our impact products, with the strongest growth in the vinyl impact products. Non-impact products were essentially flat year over year, with modest growth in vinyl lines offset by a modest decrease in aluminum.

Also in the quarter, 59% of our sales were from repair and remodeling, which was up 8% over the fourth quarter of last year. While sales in new construction represented 41%, and grew over 13%.

Now please turn to slide 7, and I will briefly cover a few income statement items. Gross margin dollars increased $2.0 million or 9% over the fourth quarter of 2014. Our gross margin of 27.7% decreased 30 basis points versus the fourth quarter of last year.

During the fourth quarter we brought our ERP system conversion to near completion, investing an additional $2.2 million in this major initiative. We also continued to invest in strategic initiatives through acquisition target due diligence, and increase production capabilities of our new vinyl products. After adjusting for these costs, our gross margin was 30.3%, an increase of 70 basis points over last year's fourth quarter adjusted gross margin.

To quantify these factors, the 70 basis point increase in our adjusted gross margin was a result of first quarter price increase, 100 basis points; lower aluminum costs, 90 basis points; and improved leverage from higher volume of 40 basis points. These positive factors were offset by an increase in overhead costs of 110 basis points, and a decrease due to the higher cost of glass at 50 basis points.

With regards to aluminum, our average delivered cost of aluminum was approximately $0.89 per pound during the quarter, compared to $1.13 per pound during the fourth quarter of 2014. To cover our aluminum needs in the near term, we have been entering into contracts for future purchases of aluminum with our two largest US suppliers of aluminum extrusion. As of today, we are covered for approximately 49% of our estimated needs during the remainder of 2016, at an average delivered price of $0.87 per pound. The current delivered cash price is approximately $0.79 per pound today. This delivered price per pound includes components for the LME and Midwest premium components. But that does exclude conversion costs.

Selling, general and administrative expenses as a percent of sales finished at 18.7%, essentially flat with the rate recorded in the fourth quarter of 2014. Included in selling, general and administrative expenses is approximately $900,000 of non-cash amortization expense relating to CGI's amortizable intangibles.

Interest expense was $2.9 million, a modest decrease as compared with $3.2 million in the fourth quarter of 2014. Going forward, we expect interest expense to increase as a result of our refinancing related to the WinDoor acquisition, which I will discuss in greater detail later in this call.

Depreciation and amortization recorded in the fourth quarter was $2.9 million, compared to $2.4 million last year. The fourth quarter amount was consistent with the annualized expectation of approximately $11 million per year that we discussed last quarter, as a result of the investments we have made in our glass facility, as well as $3.4 million of amortization expense for the year related to CGI's amortizable intangibles. We also expect an increase in depreciation and amortization as a result of the WinDoor acquisition, which will be discussed later.

Our tax expense in the fourth quarter was $1.6 million, and represents an effective income tax rate of 30.0%. This compares to $1.2 million and 29.7% for the fourth quarter of last year. The effective tax rate in the fourth quarter of 2015 is lower than our statutory rate of approximately 38.8%, due mainly to the beneficial impact of the recognition of the Florida EZ jobs credit we were recently awarded by the state of Florida in recognition of our increasing employment level in 2014, which decreased tax expense by $774,000, and the impact of the Section 199 Domestic Manufacturing deduction.

Tax expense for 2015 was $15.3 million, which includes the beneficial impact of the jobs credit I just mentioned, but also includes a non-recurring, non-cash accounting charge of $1.6 million relating to an intra-period income tax allocation on our effective aluminum hedges. This amount allocated to comprehensive income in a prior fiscal year, was reversed earlier in 2015.

Excluding these discrete items, our effective tax rate of 2015 was 37.3%. Going forward, we expect to record a tax expense at an effective rate of between 36% and 37%. Also from a cash perspective, our yearend 2015 estimate of our tax affected federal operating loss carryforwards is approximately $3.8 million, which were acquired in the CGI acquisition, of which we expect we'll be able to use $2.6 million in 2016 and the remainder in 2017.

We recorded net income in the fourth quarter of $5.8 million or $0.12 per diluted share, after adjusting for the cost we incurred related to the ERP systems conversion, new product launches, and other corporate costs; versus $4.2 million or $0.08 per diluted share in the fourth quarter of 2014. Net income and cents per diluted share in the fourth quarter of 2014 were adjusted for expenses related to our glass processing facility startup, CGI acquisition costs, new product launch costs, and an accounting charge related to de-designating an interest swap. Adjusted net income in the fourth quarters of 2015 and 2014 includes the impact of $2.7 million and $2.3 million in tax expense from operations, respectively.

Adjusted EBITDA was $14.4 million for the fourth quarter of 2015, compared to adjusted EBITDA of $12.1 million for the fourth quarter of 2014, an increase of 19%. A reconciliation of net income and EBITDA, which I have just discussed, has been included in our earnings release for your reference.

Now please turn to slide 8 for a discussion of balance sheet items. We ended the quarter with a cash balance of $61.5 million. Our cash growth has been achieved despite spending $17.7 million in capital in 2015, all funded by cash from operations.

On February 16, 2016 we used $43 million of our cash, combined with proceeds under our new credit facility, to acquire WinDoor. Our net leverage was 2.0 times at the end of the quarter. Had the WinDoor acquisition occurred at the end of the fourth quarter, we estimate that our net leverage would have been 3.3 times. We continue to have a strong balance sheet with the ability to make further investments and fund future needs.

Turning to slide 9, our ERP system conversion continues on track, and all operating metrics are stable. We have informed customers that the new system is available, which is driving additional activity on the system. We project that the last order date for the old system will be in the second quarter of 2016.

Before I turn the call back over to Rod for closing comments, let's take a moment to discuss the 2016 outlook. Let's please turn to slide 10.

We expect the organic momentum in our business to carry into 2016, due both to underlying momentum in our markets, and the strong execution in our legacy businesses. This growth will be augmented by the addition of WinDoor.

For the first quarter of 2016, we expect sales will be approximately $99 million. And sales at this level will result in an EBITDA margin of approximately 14.5%. Our first quarter of 2016 sales estimate includes WinDoor sales from the date of acquisition, which we estimate will be approximately $3.5 million. Historically WinDoor's first quarter operating results are impacted by lower seasonal sales, usually beginning in December, and the need to cover fixed costs which results in downward pressure on WinDoor's first quarter EBITDA margins.

Rebounding sales, which typically begins late in the first quarter, usually results in improved quarterly EBITDA margins for the remainder of the year.

We expect 2016 net sales to be between $460 million and $475 million, representing an increase of between 18% and 22%, which we expect will generate consolidated EBITDA of between $80 million and $90 million. And as Jeff mentioned, WinDoor's sales contribution is expected to be approximately $42 million in 2016 from the date of acquisition.

The acquisition of WinDoor and the related refinancing of our old credit facility into our new larger facility will result in additional changes to our results of operations for 2016. The level of borrowings under the new credit facility is more than $70 million higher than our former credit facility, and carries a higher incremental borrowing rate. As a result of the new credit facility, we estimate that interest expense related to our long-term debt, including amortization of deferred financing costs and debt discount, will increase approximately $9 million on an annualized basis.

Regarding depreciation and amortization, we estimate that property, plant and equipment and amortizable intangible assets acquired with WinDoor will result in incremental depreciation and amortization of approximately $4 million on an annualized basis. Both the increased interest and increased depreciation and amortization will occur ratably during 2016, and will start from the February 16th acquisition date of WinDoor.

Including the impact on selling, general and administrative expenses related to incremental depreciation and amortization, we estimate that SG&A as a percentage of sales for 2016 will be approximately 18.5%.

At this time, we would like to turn the call over to the conference operator to begin the Q&A portion. Chelsea, could you give us the first question, please?

(Operator Instructions). Steve Dyer, Craig-Hallum

Good morning. Thanks for taking my questions. I was just wondering if you could give a little bit more color on Q1. I guess I would have thought it would have been a little bit stronger, particularly given the WinDoor contributions.

You talked about a little bit of weakness. I know single-family permits were very strong in November and December. Any color around Q1 you can give?

Well, we have seen a lot of strong quoting activity during the first quarter. But somewhat uncharacteristically, they haven't turned into orders or shipments as quickly as they typically do. This is actually something that we have seen across all the brands. So it's not necessarily just contributed to one brand.

But through our customer base and what we're hearing from our sales team, we do anticipate that those quotes are going to be turning into orders. So at this point, we feel it's just timing, and are very comfortable with the growth that we're expecting for the full year.

Okay. As you look at the full year, can you kind of break down what kind of growth you expect, maybe between R&R and new construction?

Yes. We do anticipate approximately a-- call it, high single-- teens' number like 15% to 20% for new construction, kind of commensurate with housing starts. And then R&R growth would be somewhat more single-digit to kind of give us the net number for the total. So we do expect new construction to grow faster than R&R, like we've seen recently.

Got it. And then one question; I mean you're obviously getting a lot of benefit from raw materials, still struggling with high glass prices. But is the aluminum and some of those things, are they just so hedged that you don't really see the flow-through to the margin line? Or how should we think about that?

Well we did report a-- in the fourth quarter, we did report a 90 basis point improvement for aluminum. So we are seeing some impact. We are hedged somewhat in 2016 at about 50%. So it is somewhat of a mitigating factor, our hedges. But we do see, definitely see aluminum favorability in our margins this year.

It is being somewhat mitigated by higher glass prices, as you mentioned. And as we also are adding fixed costs as we grow as well. So those factors kind of create the margins that we're projecting.

Okay. I'll hop back in queue. Thanks, guys.

Rob Hansen, Deutsche Bank

Thanks. I just wanted to-- you know, you just guys mentioned the geographic expansion, and your focus on further acquisitions in 2016. So what type of products are you looking for? And where are you going to go in the US? Have you kind of thought about that? And if you could kind of contrast it to the experience you had with the manufacturing in the Carolinas; what would be different about it this time?

Your question's got a lot of moving parts to it. So I'll jump in. And I'm sure Jeff will probably want to jump in and say a few things also. When we look at acquisitions and we look at expansion, we don't necessarily narrow that down to one product or one location. We look at the states that are growing, the areas that are growing; the desirable points. We say sometimes destination states. We're not limiting it to that. But we do look at those states a little closer, and look at companies that serve those states.

We also look at company culture that fits our culture a little bit. They have a niche product, or they have a high-margin product. They understand what drives the benefits of those margins and the benefits of those products. And we want to make sure that that's sustainable, and that we can continue to grow it.

So we've got a list of-- we actually have a list of companies that we keep in contact with. And then we have a list of attributes that we look at that makes sense for us to look at someone. We kind of measure against those attributes any time a company comes in, or the availability is out there.

So it's not necessarily we're going to go to X state next. It's these areas are really attractive to us. And we want to look at companies that serve these areas.

Yes. And I guess I'll just add just a couple of points to that. Internally when we look at something, we always want it to be margin accretive. And when I say margin, I mean EBITDA margin accretive, and preferably gross margin accretive.

We look at the product mix they have, the offerings that they have relative to ours, how that can layer not only within our core market of Florida, which that's where our expertise is-- we know that-- but how their products can potentially layer into our distribution network, and then how our products can maybe get outside of Florida into theirs.

So we'll be looking at distribution networks. We've often thought, how do we join-- how do we get to Texas in a more efficient manner, for instance. We have sales in Texas now, and with transportation and distribution cost it's difficult to make that a very profitable route. So we've always looked at how do we improve that profitability of that particular route. And we'd look at companies that participate in those areas.

We're not in any hurry. We want to make sure it's the right acquisition. And we do have minimum thresholds that they have to achieve in terms of both growth, products and operational accretive.

Yes. And then maybe to jump into that last part of your question about North Carolina. You know, this is an acquisition versus a greenfield or brownfield, and a way to expand. We were out of space in Florida. We needed to go to North Carolina to get more space. That's not exactly what we're looking for out there. So I think the comparisons are completely different.

I do too. And also in terms of timing, I mean North Carolina, we expanded there at the end of 2006. And we all know what happened in 2007, 2008, 2009 and 2010. So I think every window and door company experienced what we did in North Carolina in terms of difficulties in the market at that time.

Got it. Thanks. That's really good color. And in terms of leverage, I guess, what's the max you'd be willing to kind of take that up to?

You know, we've always said 4 times is probably what we'd be comfortable negotiating in. And I would probably stick to that kind of 4 times or less top leverage. Again, it would depend on the deal. But I think 4 times would be a maximum on that.

Yes. We've talked in the past. We've been leveraged higher than that in the past. But as a public company, probably not real comfortable. And we also look at our ability to deleverage quickly. That's been something that's been pretty important to us. And you saw that from the CGI acquisition. At the end of the year, I'm sure we'll talk about how well we're doing with the WinDoor acquisition. But we would anticipate doing a good job there also.

Yes. With the CGI acquisition, if you all recall, we deleveraged an entire turn in basically based off operational results during the first year.

Okay. And then just on your growth assumptions, you talked about the 10% volume gains and you gave a good new construction and R&R breakout. I think you also mentioned that you expect to outperform the market. So is that going to come from market share gains or pricing or-- are there going to be some new product launches that you're looking at? I guess how do you drive the outperformance there?

I think you've guessed all three of them. So I mean, a little bit of all of the above that you were talking about. There are new products that we're not ready to talk about yet. Every year, I think, since the downturn-- during the downturn we were pretty cautious about pricing and pricing increases and what we did there. But since that time, we've been opportunistically looking at where we need to price, whether it's across the board, or whether it's particular product lines. And then WinDoor gives us some great opportunities with their thermal broke product, with their product that goes into high rises, and some of the new products that they have to geographically expand also. So those are definitely three areas that we'll be looking at and being somewhat aggressive in in 2016.

Yes. I think our new vinyl Winguard, obviously we've demonstrated the ability to take market share with that particular product, given its features and enhancements. And as we ramp up capacity on that product line and bring down our lead times that will be industry-leading; we think we'll definitely be able to take market share with that product. It's already been demonstrated that we can. It's just a matter of us controlling internally to make sure operationally we can perform.

Now we're up to about 500 units a day. We want to get up to 800 or 900, for example. And so we're almost-- we're a little bit over halfway there in terms of our internal capacity. And we definitely think we can take market share with that.

All right. Thanks, guys.

Bob Wetenhall, RBC Capital Markets

Hey, good morning. Nice finish to the year. Hey, just wanted to get a little color on WinDoor and have a little bit of detail on how you think the acquisition adds value to PGTI. And maybe you could kind of remind everyone what the focus is. I know you guys had mentioned there's some high-end residential commercial. And also it gives you entrance into some of the thermally broken markets. Maybe you could detail kind of for layman's terms, in terms of capabilities on the product line, what this gives to you.

Yes. I mean I think WinDoor gives us several things, Bob. Just to point out in terms of the product line, it definitely reaches into higher-end homes and has a better door commercial application than we currently have. They have historically been spec'd in projects. So we will gain that advantage as well.

In terms of product expansion, the thermally broken capabilities they developed and are currently expanding within the portfolio. We definitely think we can leverage that even across platforms. And we're very excited about that. If you really look at their space and where they're located, we didn't have a presence kind of in that Northeast Orlando-Jacksonville area, which is a highly-growing area for the state of Florida. And this gives us that presence as well as extra room in terms of plant expansion.

Our plant here at PGT is full. And we're looking for more space. So this actually adds to that capabilities there as well. It's a brand name known in the industry. And now we have both WinDoor, CGI, PGT; those are the three Florida brand names. And we think our dealers will be armed better than any other dealer or distributor out there to take market share and to expand their businesses as well.

That's some of the things that come to top of mind. You guys want to--?

Yes. I think one thing that people don't maybe realize quite as much is there's a big push for energy efficiency. And we talk about the thermally broken aluminum product, and we kind of say it quickly. But we've introduced a complete new vinyl line that's much more energy efficient than the previous lines that we've had. And that's driving towards that energy efficiency.

The thermally broken product, particularly in the light commercial, really the high-end residential light commercial and commercial market, is much more acceptable than vinyl because some of the strength that it brings in. And that may change over time. But I don't think we can over-emphasize how important it is to have the most thermally-efficient product you can, as you're going into the light commercial market, the high-end residential market and the heavier commercial market.

Yes. And I would just add that, Jeff talked about the space up in Orlando that the WinDoor acquisition provides. It also provides access to a whole new labor market for us, being the Orlando area. With the acquisition we've acquired 200 great new team members to add to the family, giving us a total of about 2,500 now company-wide. And we're certainly excited about being able to grow the workforce in that area.

Good. That's a lot of color, very helpful. And congrats on that. It sounds like it really gives you a lot of capabilities in multiple areas. Maybe you guys can touch on kind of how we should be modeling out the impact of just really two things. One, it looks like you can meet demand for IG glass with internal capacity now. That production capacity is in house. And it sounds like you're on track to get fully loaded on the new ERP system. I know you guys have spoken about this in the past. It sounds like you're kind of getting towards the finish line.

How should we be thinking about first what the margin benefit is from both of these developments? And two, what's the upside? I know Jeff's talked a lot about accretive benefit from M&A. How should we be thinking about margin progression between those three things, ERP, IG production capacity and the new WinDoor business?

Well, Bob, I'll start with the ERP side of it. Right now some of-- since we're still running parallel on both systems, and we expect to continue to do so at some varying degree as we go through this quarter and the second quarter. We are seeing a little bit of a pressure on our margins. You see that some in our first quarter guidance that we've given. And that's coming from just the impact of the somewhat inefficiency of running in parallel, and running two systems at once.

As we'd mentioned before, we are doing that as we cut over, just trying to minimize the customer impact, and that's going very well. And so far everything is on track.

In terms of the glass and IG getting back up to speed in the glass operations; when we first started seeing a lot of growth in 2013 that kind of put some pressure on us to buy outside glass. And we've added this glass capacity to really bring that back in house. And to this point, we've been able to do that for the PGT side of the business. So the next step is being able to do that for CGI, as an example. And we are starting to do that in this quarter. And we've talked about some of the margin benefit in the past.

I think we expected, once we got CGI fully up and running, about a $2 million to $2.5 million gain on that. And as it relates to WinDoor, time will tell.

Hey Bob, just one thing to add to that; I talked a little bit before on this about the push for energy efficiency. And we're seeing more and more of that. So we're seeing the growth of IG pick up. So we will be cautious about how much IG we produce for our other platforms, since that's right here on the PGT window and door campus.

We will make some changes in our IG lines as the year goes on, to make them more efficient, and to be able to produce a little more product off of it. But it will be something that we'll have to watch closely and take advantage of. And for us it's value-added. So anytime that line grows, even though we'd like to be able to produce all of our own glass internally, all our IG internally; if we can't it's because the market is growing faster than maybe anticipated. And we'll make the changes that we need to do to make sure that we keep up with it.

Cool. Just final question; it sounds like you got the WinDoor. You've got to integrate it. How close are you-- how should we be thinking about the timeline for M&A? Like are you first going to just integrate WinDoor during the next six months or year, and then kind of look externally for new candidates out of state to purchase? Or should we be more prepared like that you guys might buy something in the next 6 months to 12 months? Good luck. Thanks.

That's a quick answer. We're really going to focus on integration of WinDoor, with an incredible asset we've been able to purchase. And we know there's lots of opportunity and upside there to integrate WinDoor into our product family here with our employees and the product line itself. I wouldn't expect an acquisition, to be honest, until probably next year. We're in no hurry to do that.

Got it. Nice year and good luck. Thanks very much.

Keith Hughes, SunTrust

Thank you. Last year the first half of the year was really skewed by (inaudible) for a price increase. So if we look at the shape of this year in terms of growth rate, are we going to see a really large ramp-up under your plan in the second quarter in terms of growth, and then flattening out just as the [comp's] plan? Does that sound correct, or how do you think it's going to play out for the year?

Yes. Last year, you're right, Keith. Last year did have that anomaly in the first quarter when we announced our price increase. We do anticipate an announcement of a price increase sometime this year. I don't think we've officially decided upon a date. But when that does happen, we would expect a similar result. And if you go back to years prior to this most recent 2015, the flow has been a little bit more first quarter and fourth quarter were somewhat down, and then Q2 and Q3 were the quarters that were up.

So I think we're actually going to see kind of more of a return to normal kind of growth patterns, where 2015 was more the anomaly. So yes, we do expect to see Q2 and Q3 to both be sales numbers quite a bit higher than Q1. And then you also add to the full quarter of the WinDoor acquisition, which would also help that number.

And that's also, Keith, in part why you see a little pressure on EBITDA margins in the first quarter. We are having to invest in advance the second and third quarter type volumes in order to meet that demand. And given training, et cetera it takes to get a production person up to speed, it does require hiring in the first quarter. So that's pressured the EBITDA margins we've given guidance on.

Final question; it seems like there's a disconnect, as you were saying, between the orders and the shipments here in the first quarter. As you talk to contractors, builders is there any indication of why? Is there a labor issue? We've heard that, less lately, but in the past. Any sort of indication of what they're seeing at this point?

Most of the people I've talked to, Keith, it's just been more of a timing issue. And January started off slow. They've seen a pickup in February. It won't be enough of a pickup to make up for quarter-over-quarter strength. But January just literally started off slow for the majority of our dealers.

Now with that said, single-family housing in January grew in Florida. But it was more skewed towards lower-end homes. So we did see a shift in mix from the high-end homes that we would typically dominate in, to a shift in January to the lower-end homes. They actually grew quite well in January. So we do expect the year to level out. And then there will be growth across platforms.

Okay. Thank you.

Andrew Casella, Deutsche Bank

Hi, guys. Thanks for taking the question, I guess just a few housekeeping items. How should we think about CapEx for the year and also for modeling purposes cash taxes and any other kind of investment or restructuring you have [to take at] WinDoor in 2016.

From a CapEx standpoint, we expect a similar year to what we had in 2015. That would be kind of the upper teens, call it $18 million to $20 million. We're still adding glass equipment. Obviously we have additional CapEx coming online with the WinDoor acquisition. So we are still in growth mode, and still adding capacity, adding tempering capacity this year, adding insulated capacity this year. So I would expect about $18 million to $20 million.

In terms of any kind of charges, we're still in the process of determining that. So I do expect we will have some kind of charge related to the refinancing. And in terms of cash taxes, even though our effective tax rate of 36% to 37%, I think that's from an expense side; we do expect to get a cash tax shield from the WinDoor acquisition. At this point in time I think we're estimating about $6 million. That won't be obviously all in one year. But that will have a nice impact on the cash side of our taxes.

Got it. And then if I could ask a follow-up, just from a market perspective I think you had said that within the Florida market there is a decent amount of, I guess, foreign buyers that have been coming in and buying up real estate. What are you kind of seeing on the ground? I think some of those foreign buyers were from Canada and whatnot. If there's been any indication if they've let up with demand, just given some of the currency headwinds or macroeconomic factors.

Yes. I mean we think again, things that have kind of affected the beginning of the year has been one of the issues with currency in Canada. Canada is our largest foreign buyer of real estate in Florida. And Florida is the number-one state in the nation for foreign purchases. We do expect that to mitigate over time, obviously. But we do think that's had an impact somewhat with what we've seen in the beginning of January.

Got it. That's helpful. I'll get back in the queue. Thanks.

Jeremy Hamblin, Dougherty & Company

Good morning, guys. I wanted to ask a question about the vinyl, the new vinyl Winguard product production, and just get a sense of where you stand on kind of unit output on that, where it stands today, where you expect it to be by the middle of the year, and where you expect it to be by the end of the year.

Yes. In terms of our new vinyl line, we're hitting all our internal goals that we set for January. We set a target of 500 a day. And that's what we're currently doing. We do expect that to ramp up. The goal is ultimately, like I'd mentioned earlier in the call, to be at that 800-900 unit a day. A lot of that will be driven by demand and lead times. In other words, if we want to keep a 3-week lead time, we need to be able to produce that many windows.

If lead time goes out, that would-- obviously we could produce less. But our goal is to provide a lead time that would be able to allow us to capture market share; so in other words, industry-leading. So we're ramping up. We think we'll be there by the middle of the year. And it also has to do with a phasing out of the Micron line. And that's going on as well. All that's slated and kind of going parallel together, and should be done by the middle of the year.

Okay. And then after you get to that 800 per day, I mean is there an opportunity at some point here to have kind of two lines running parallel if you are seeing demand as strong as you're expecting? I mean is this something where eventually we could be looking at 1500 units a day?

You know, it's maybe not quite as simple as just running two lines parallel. Because what we have right now is a bunch of different product lines running down that product line. For instance, we have hung windows, encasement windows, the different types of windows that are running down that line. So we'll split those out so that we'll have a number of different lines running the different products.

And then as we need to expand, there's always a couple different types of windows that sell more than others. And as that expands, we'll figure out which lines need to have an additional line or additional shifts on those lines to make sure that they're running.

Okay. A follow-up question; Brad, when can we expect-- I mean there's been a long awaited, I think, expectation that the new vinyl Winguard product would be a nice contributor longer term to Company margins. When do we think that realistically you're going to start to see some of that benefit flowing through to the financials?

Well there is two components of that, Jeremy. The first was the material side, and the other was at the labor side. So as Jeff talked about ramping up and getting fully cut over from the old product to the new product that's kind of the material side. So at this point you could make the argument that they're halfway ramped up. That only half of the material side has been realized.

Once we get fully ramped up and we're all on the new product that's when we'll start to be able to work on the labor side. We are expecting to be able to get down to somewhere north of 1 man hour in that line. Right now we're still running a little north of 2, which was consistent with the old line. And that improvement from 2 down to 1, is something that is able to begin once we get fully cut over. And then from there it probably takes a good 12 to 18 months.

So we had talked about kind of a slow ramp up for that margin improvement once we're fully on that line. But it's still something that we expect.

So meaningful gains; my interpretation is meaningful gains really are not until 2017 for that particular product?

Yes. I think that's true.

Okay. And then just a follow-up on capital allocation. So I may have missed this part of the comment on-- it sounds like you are deploying the buyback, and expect to continue to do that. In terms of thinking about actual debt pay-down, I don't know that I heard that mentioned as one of the uses of capital. Is that something that is on the table? Or you feel like we're going to grow into the debt level that we had, and so we don't need to pay it down. How should I be thinking about that?

No. Yes, we would deploy cash in paying down debt. We actually assess that as well. And it's been one of our top priorities to de-lever. And obviously two of the ways to do that is earnings and paying down the debt. So we're going to concentrate on both those items.

Okay. And when do you have an ability--I think the finance charge associated with the deal is probably reflective of the market environment that it was occurring in. But when do you have an opportunity to potentially reduce that interest rate?

There is a-- with this agreement, there's a 12-month 101 call provision.

Okay. So potentially by Q1 next year, if all goes well and you see meaningful improvement in earnings and you think maybe you could get a reduction in that interest rate?

That's correct.

Okay. Great. Thanks, guys. Best of luck.

Ken Zener, KeyBanc

Good morning, gentlemen. First I think it's very good that you guys issued fiscal guidance. It helps moderate a lot of the quarter-to-quarter noise. I wasn't sure I got all the numbers. So I just wanted to go through it a little bit. It sounded like the midpoint of your EBITDA was around 18% margin. If it's around 3%-ish, D&A gets you to 15%. And you said your SG&A was about 18%. So it looks like it's kind of a 33%, give or take plus, gross margin for the year. Is that correct?

Well, what I said was 18.5% SG&A, so just a little bit of clarification there.

Okay. That would kind of put you right at that 33% gross margin, it sounds like, for the year. Is there a certain cadence that we should be sensitive to, given your either input cost or product mix?

Well I think the cadence that is the most critical on any of our margin categories is just the leverage we get from the sales. So generally, all of our margin categories will be better in Q2 and in Q3 than they typically are in Q1 and Q4.

I mean we get margin obviously leverage across the P&L. That's why our main target is EBITDA improvement. We improve in transportation, which is below gross. We have leverage there. We have leverage in our SG&A. And obviously with the new ERP system, once it's online, we'll have leverage in the back office too, and throughout the P&L. That's why we figure, in our opinion, EBITDA capture is the best margin to capture all that leverage.

Okay. This is a follow-up off the earlier question. But if that gross margin-- it sounds because the vinyl product effort was supposed to-- you guys commented on it like to 600 to 700 basis points in the past, below. It sounds like the labor and the material obviously, maybe half the benefit will be this year. But that seems to be around that 200 basis point that kind of points to this year's gross margin, 33% give or take, and that longer-term 35%. Is that an accurate interpretation?

And then is it accurate to assume what we know today that that would all fall into 2017? Or would you put up any flags one way or another?

Well, just as a clarification, that 600 to 700 bps difference you're talking about is on 30% of the business, just as a clarifying point.

Correct.

Right. So we expect to see half of that when the material side comes up, which comes with the cut-over. And we would get the rest as the labor side comes up. I do think that it's a 2017 event to see it fully up and running; as Jeff mentioned, the timing of the cut-over.

In terms of total margin goals, we have some, our internal margin goals. But we're kind of more focused on our EBITDA margins. We know we do have additional depreciation expense on the gross side that comes from the glass equipment. So I think we'll be able to achieve our EBITDA margins goals quicker than we can our gross margin goals for that factor. So that's what we're targeting.

Thank you.

Michael Conti, Sidoti

Hey, good morning. Yes. So you mentioned revenue synergies with WinDoor in the past. But now I guess the focus is on the cost synergies there. Can you give us an idea on where you can realize that synergy and maybe a timeframe on when that can increase WinDoor's EBITDA?

Are you referring to the revenue synergies, Michael?

Yes. Revenue synergies, and now the focus you mentioned in the press release in on the cost side, the cost synergies.

Well, I'll speak to the cost side, at this point in time, you know we have our pretty standard typical cost synergies that you would see within SG&A. We actually were able to experience some meaningful synergies with CGI in transportation and other categories as well. Some of those things you're not able to determine until you actually get into there. So we do have some expected goals there. Obviously your standard kind of purchasing power that you have when you consolidate suppliers and extrusion size, whatever. So there's some good opportunities on the cost side. And we will be able to look into them as we get into the acquisition.

Jeff, do you want to speak to the revenue side?

Yes. I think more on the revenue side, I mean we're currently mapping out all the distribution networks between all three brands, PGT, CGI and WinDoor. And obviously WinDoor didn't have the footprint, say, a PGT has in terms of distribution network. So we will be aggressively adding dealers to their network, and expanding their revenue base.

Also the other thing is development of the thermally broken product, and its efforts to get pushed not only within Florida, but up the East Coast. There's efforts ongoing to push that initiative as well.

Okay. So then with the additional sales coming online and with the cost synergies, is that 20% EBITDA on that business a bit conservative for-- I mean I guess looking forward, I mean, we should assume that to go higher?

I think 20% is conservative.

Okay. And I guess just my last question, just given the increase in interest expense; does that change your timeline, and would you expect that acquisition to be accretive to earnings per share?

Absolutely. So we do expect the deal to be earnings accretive in 2017. With the additional interest expense and amortization expense from the deal, it will probably have a dilutive impact in 2016. But we would expect to be accretive in 2017.

Okay, great. Thanks.

(Operator Instructions). And I'm showing no further questions at this time. I would now like to turn the call back to Mr. Jeff Jackson, President and Chief Operating Officer, for closing remarks.

Thank you, everyone, for your time today. I also want to say a special thanks to our employees for closing out a great 2015. And we look forward to 2016 working together. We sincerely hope that we have provided you with a meaningful update on the status of our Company this morning. And we look ahead, and we know that we'll be able to execute a fully confident year as we march into 2016.

Thanks to the PGT folks, the family. We welcome the WinDoor family into the fold. And we're very excited at what the future holds. Have a pleasant day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.