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PGT, Inc (NASDAQ:PGTI)

Q3 2010 Earnings Call

November 04, 2010 10:30 a.m. ET

Executives

Brad West - Corporate Controller

Rod Hershberger - President & CEO

Jeff Jackson - EVP & CFO

Analysts

Robin Hansen - Deutsche Bank

Will Wong - JPMorgan

Sam Darkatsh - Raymond James

Jim Wilson - JMP Securities

Operator

Good day, ladies and gentlemen, and welcome to your PGT, Inc. Third Quarter 2010 Earnings Conference Call. (Operator instructions) As a reminder, today's conference call is being recorded.

And now I would like to introduce your host for today turn the conference over to your host Brad West.

Brad West

Good morning and thank you for joining us for PGT's third quarter 2010 conference call. I am Brad West, Corporate Controller and I am joined today by Rod Hershberger, President and CEO, as well as Jeff Jackson, Executive Vice President and CFO. Rod and Jeff will represent PGT on this morning's call.

Before we begin, let me remind everyone that today's conference call may contain statements concerning the company's future prospects, business strategies, and industry trends. Such statements are considered to be forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations and are subject to risk and uncertainty.

Actual results may vary materially from those contained in the forward-looking statements. Please refer to the November 3 press release, and 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 at our corporate Web site at www.pgtinc.com. Included in the press release are the unaudited consolidated balance sheet 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 Form 8-K filed November 3 with the SEC. These non-GAAP measurements are not intended to replace the presentation of financial results in accordance with GAAP. Rather, we believe these non-GAAP measurements provide additional information for investors to facilitate the comparison of past and present performance.

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

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

Rod Hershberger

Thanks Brad. Good morning, everyone. I am pleased to report that for the second straight quarter we recorded year-over-year sales growth as sales in the third quarter increased 13.4% compared to the third quarter of 2009. Our growth was driven by our Florida sales up 6 million or 18.5% compared to prior year. We experienced increased sales in our WinGuard aluminum and vinyl products, high end PremierVue line and in our non-impact vinyl products.

WinGuard sales increased by 3.7 million or 14%, due to both the success of our new aluminum door that was launched last fall and an increase in vinyl WinGuard sales where many replacement customers took advantage of tax credits offered.

Vinyl WinGuard sales in the Florida increased 1.3 million including 600,000 in sales into the Southern Part of Florida. Our new PremierVue of high end vinyl impact products contributed an additional 800,000 in sales compared to Q3 in 2009.

Finally, a version of our new vinyl non-impact products SpectraGuard specifically designed for the Florida market and launched last year contributed 700,000 in additional sales. This growth is partially offset by a decrease in our audit paid sales of 400,000 or 6% driven by decreases in curtain-wall sales and vinyl sales each down 200,000.

Our international sales were essentially flat for the quarter. Sales into the R&R market increased 19% over a year ago while sales under the new construction market were flat. As a percentage of total sales for the third quarter of 2010, R&R sales accounted for 75% and new construction sales accounted for 25% of sales.

Comparing our third quarter to the prior year third quarter, net sales increased 5.6 million or 13.4%, driven by an increase in our repair and new modeling markets in Florida. Gross margin increased 3.7 million from last year, due mainly to our increase in sales and a decrease in restructuring charges of 500,000.

As a percentage of sales, gross margin was 30.9% versus an adjusted gross margin of 27.4%. SG&A cost, adjusted for the 2009 restructuring charges increased 1.3 million due mainly to an increase of 618,000 in non cash stock compensation expense and other compensation expense of approximately 426,000.

EBITDA was 4.7 million in the third quarter of 2010, which is up from adjusted EBITDA of 3.2 million from prior year. The increase in adjusted EBITDA was driven mainly by the increase in sales. We recorded a net loss of 207,000 in the third quarter, compared to an adjusted net loss of 2.5 million in the third quarter 2009.

Within our core market, total housing starts were up 15%, driven by increases in multi family starts. Single family starts were essentially flat compared to a year ago. Market conditions remain difficult but overall housing starts and permits appear to have reached a bottom and are starting to show signs of life.

In mid October we officially celebrated our 30th anniversary. We have a long history of providing superior customer service and high quality products over that time and we were recently recognized with Window & Door's 2010 Crystal Achievement Award for most innovative door. This award was for a new aluminum impact sliding glass door watched last fall. Our door was selected by a panel of judges representing all segments of the Window & Door industry.

It was the door's high performance and versatility that stood out for the judges. Many PGT employees were involved in this new product and this award is a testament to the ability and dedication of our employees during these difficult market conditions to address long term goals while achieving short term objectives.

With that I'll turn the call over to Jeff, who will review the results for the quarter in greater detail.

Jeff Jackson

Thank you Rodney. We are very encouraged by the continued growth in our Florida sales, up 3.8% year-to-date, driven by our latest third quarter Florida sales, up 18.5%. We reported net sales of 47.2 million, which is an overall increase of 13.4% versus the prior year's quarter. This increase continues to be driven by sales into the R&R market of 19% while sales into our new construction markets were essentially flat.

Sales into the R&R market represented 75% of our total sales and were driven mainly our WinGuard sales which were up 3.7 million. Our total sales dollar increase of 5.6 million was driven by sales within our core market of Florida which increased 6 million. Florida sales represented 81% of total sales compared to 78% last year. This 6 million in Florida sales includes increases in aluminum WinGuard of 2.8 million, Vinyl WinGuard of 1.3 million; non impact vinyl of 1.1 million and PremierVue was 700,000.

Keep in mind however we are getting into our fourth quarter which includes a number of holidays and we typically close between Christmas and New Year's.

Our mix of impact sales has historically declined during our fourth quarter. The increases were related to our vinyl products short commitment to sale into the challenging and changing Florida market. In total we have increased vinyl sales when compared to previous years by an average of 40% for the last seven quarters beginning in the first quarter of 2009 and we launched our SpectraGuard line including average 14% increase year-over-year for vinyl WinGuard.

Our WinGuard products continue to lead our sales representing approximately 63% of sales for the third quarter. Breaking down our sales drivers for the third quarter compared to 2009's third quarter, we have WinGuard impact sales at 29.9 million versus 26.2 million up 14%.

Aluminum non-impact product sales at 5.3 million versus 5.5 million down 4%, architectural system sales were 3.2 million versus 3 million up 8%, PremierVue sales were 900,000 versus 100,000 in the third quarter of 2009.

Vinyl non-impact and other product sales were 7.9 million versus 6.9 million up 13%. Our gross margin for the third quarter was 30.9% versus adjusted gross margin of 27.4% in the third quarter of 2009. Our increasing gross margin percentage of 350 basis points was driven by an overall increase in volume which improved margins by 280 basis points and savings generated from cost reduction initiatives taken back in 2009 which improved margins by 200 basis points.

Offsetting these improvements was a change in mix towards non-impact products which reduced our margin by 160 basis points. With respect to mix our vinyl non-impact products carry a contribution margin of approximately 21% while impact products carry a contribution margin ranging from 45 to 55%.

We are currently working on various initiatives to improve our overall vinyl non-impact margins. Our average cost of aluminum was approximately 258 per metric ton during the third quarter comprised of spot purchases averaging $2,007 per metric ton for approximately 41% of our needs and hedged purchases averaging $2,094 per metric ton for 59% of our needs. This compares to third quarter of 2009's average price of aluminum of $2,167 per metric ton. We hedged at approximately 64% of our estimated needs for the remainder of 2010 at an average cost of $2,130 per metric ton.

During June, we also began to place coverage for 2011. We are currently hedged at an average cost of $2,012 per metric ton for approximately 23% of our estimated needs for the first half of 2011.

Our selling, general and administrative expenses were $13.6 million, up $1.3 million when excluding restructuring charges from prior year. Driving this increase was non-cash stock compensation expense of $618,000, going forward, non-cash stock comp expense will be $651,000 for the remainder of 2010 and 1.7 million in 2011, 426,000 increase in other employee related expenses including quarterly accruals for annual incentive plan and partial return of salary reductions each salary employee took beginning in the second quarter of 2009. Lastly, overall hiring, spending in various other categories of approximately $249,000.

SG&A as a percent of sales was 28.8% in the third quarter of 2010, compared to 29.5% in prior year's third quarter, excluding restructuring charges. Excluding non-cash stock compensation, SG&A as a percent of sales was 27.5% and 29.4% respectively.

Interest expense was 1.2 million, compared to 1.7 million in the third quarter of 2009. The decrease primarily relates to lower debt compared to prior year as we made 17 million in prepayments in December 2009. At the end of Q3, our interest rate on bank debt was 7.25% based on our credit agreement and its tiered integrated structure.

During the third quarter we did not incur tax expense. We had an effective tax rate of 0% due to the full valuation allowance that we apply on our deferred tax assets. We had net loss in the third quarter of $207,000 or essentially breakeven per diluted share versus a net loss of 3.4 million or $0.09 per diluted share in the third quarter of our prior year. The net loss in the third quarter of 2009 included 90,300 of restructuring cost.

As a result of our rights offering completed near the end of the first quarter, weighted average outstanding diluted shares were $53.7 million in the third quarter versus prior year's weighted average outstanding diluted shares of 36.3 million.

EBITDA was 4.7 million or 9.9% of sales for the third quarter versus adjusted EBITDA of 3.2 million or 7.6% of sales for the third quarter of 2009. The 2009's EBITDA was adjusted for prior year's restructuring charge of $903,000.

The increase in EBITDA of 1.5 million is due mainly to increase unit sales, partially offset by previously mentioned increases in non cash stock compensation expense and other employee related expenses. As additional information, our third quarter depreciation and amortization totaled 3.7 million. A reconciliation of the net income and EBITDA is included in our earnings release for your reference.

Turning to our balance sheet; at quarter end our net working capital excluding cash decreased by $600,000 compared to the end of the second quarter. In reviewing free cash flow for the third quarter, we had EBITDA excluding non-cash stock compensation expense of 5.3 million, capital additions of 1.4 million, cash paid for interest of 1 million and we received 600,000 from working capital.

Additionally we used 300,000 in cash for other items including aluminum contract settlements, giving us free cash flow of 3.2 million and cash on hand of 25.2 million at the end of the third quarter. Our net debt and corresponding leverage ratio's at the end of the third quarter of 2010 was approximately 27.8 million or 1.6 times. This compares to net debt of 31 million at the end of the second quarter 2010.

Our 13% sales growth was the highest we've seen since 2006. However uncertainty in the housing market with the oversupply of housing and Florida foreclosures as well as access to credit markets continue to be an issue for our industry.

In our core market of Florida we anticipate that sustainable recovery will take longer than the rest of nation. When the Florida market does return we expect vinyl products to obtain a larger share of market than in the past and we have taken steps necessary to work towards domination of the Florida vinyl market just as we currently dominate the aluminum market.

With that, let me turn the call back over to Rod.

Rod Hershberger

Thanks Jeffery. Our third quarter results confirmed that vinyl sales are gaining market share in Florida. Through our product initiatives we have seen an increase in our vinyl sales both in impact and non-impact including into Southern Florida which has always been dominated by aluminum frame windows. Firmly efficient windows allowed to decrease the cost of construction and provide energy savings to the consumer for the life of the home.

Going forward we will use these new products to strengthen our position with existing customers as well as to gain new one. I thank all our employees and our customers for continuing to believe in us and to our strategy and outperform our expectations. With that I will conclude and Jeff and I will be happy to answer your questions. John you get the first question please.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is coming from Nishu Sood from Deutsche Bank. Please go ahead.

Robin Hansen - Deutsche Bank

This is actually Robin and on for Nishu.

Rod Hershberger

Hey, Rob.

Robin Hansen - Deutsche Bank

In the past you have kind of mentioned the scenario during hurricanes as you are aware, hurricane comes in it kind of maybe almost touches land and it doesn't hit and you get a lot of bit inbound cost and people would protect their homes. So just wanted to see if you got any type of benefit this last quarter from that.

Rod Hershberger

We really didn't see much of a benefit. It was a an extremely active season from the number of storms and even the number of major storms that are out there but there was only really one or two storms that kind of threatened and none of the storms were majors that really flattened the curve sign. So, because of that I think we didn't see quite as much phone calls come in. I think the activity kind of strengthened the thought of because it's right and it's everything that is in places is accurate but not quite the same amount of awareness that they had in mind.

Robin Hansen - Deutsche Bank

All right and then in terms of your sales strength as far as October becoming better than involved they would, I realize you are not going better give too much of relation there but any commentary would be fair.

Rod Hershberger

Your accurate, we are not going to give too commentary on the existing quarter that we are in. We traditionally don't give forward-looking statements and don't talk about what our sales are going to do. I think he updated that in his comments, I think it's pretty accurately that there was a lot of holidays in Q4 and we generally close between Christmas and New Year so that effects the quarter also.

Jeff Jackson

I think we are obviously into three quarters now we tried to have prior year. So, it's accessing time little base for you.

Robin Hansen - Deutsche Bank

All right that's good to know, one last one, just looking at your cash balance you got a nice increase here. How do you think about cash balance now versus any potential debt repayments?

Jeff Jackson

Well we will be looking at using excess cash to repay debt. We've historically done that and we have given guidance as such. We'll be looking at that actually into the fourth quarter here. I would like to keep a certain amount of cash on hand 15 to 20 million or so hand and we are up to 25 now so we will be looking to make a debt paying.

Rod Hershberger

We have always talked in the talk about opportunistically looking at acquisition Canada that would help us growth either in the market that we're in or an adjacent geography and its always worthwhile keeping a little bit of cash on hand in case something like that popped up. We probably wouldn't be looking at anything really large but something that would have kind of a niche market that we could jump into might be worthwhile.

Robin Hansen - Deutsche Bank

Okay, that's great. Thanks guys.

Operator

Okay, thank you. And we'll take our next question coming from Michael Rehaut from JPMorgan. Michael, go ahead.

Will Wong - JPMorgan

Hi guys, this is actually Will Wong calling in for Michael. How are you guys doing?

Rod Hershberger

Good.

Will Wong - JPMorgan

I had a quick question. I know you guys have 81% of sales in Florida but I was wondering if you could talk a little bit about maybe some of the initiatives for growing outside of the state. Like have you guys seen anything new or any new initiative where you're looking to maybe grow in like areas where you have historically been operating in.

Rod Hershberger

I thought the State of Florida; I think -- we've introduced a couple of different product lines. Our SpectraGuard product lines has severed and we have won the search in construction market, won the search in the R&R market pretty well. And we look at -- and really talking that area close to the plant that we're in and the coastline area and kind of capitalizing on our ability to move impact's product and then have an adjacent product that will serve the customers needs. But what we found with most customers is even though we specialize a lot in the impact product; the customer that uses impact product doesn't sell 100% into the impact market and needs the other products also to be able to serve that market. So want to make sure that we're serving that, kind of that code driven market and servicing it very well. We also are working on some doors that will be a little bit better product for that -- for that thermally efficient -- thermally improved market. So I think those number of things will help us as we grow.

Jeff Jackson

And we just have been trying to line up our products, obviously with that changing code, we try to get ahead. Thermals are being pushed pretty heavily. So our vinyl initiatives are trying to line up accordingly and we see changes in code both within and outside the state of Florida, and enforcement outside the state has been lax. We're hoping that will improve over time. We've been hoping that for several years. We've seen inspiring improvement in some areas but again there is a lot of room to grow there.

Rod Hershberger

Yeah, its kind of hard to see the improvement because there's just not much new construction going on and codes don't really try remodeling much -- insurance price remodeling. Codes drive new construction.

Will Wong - JPMorgan

And then just a quick to you. I know you guys mentioned some new products that you started to allow. Could you share with us maybe some of the costs associated with that? Have there been any incremental costs like marketing or just switching things out through the channels?

Jeff Jackson

Internal development cost, there isn't cost associated with that. Most of that is part of the capital additions. In terms of the market side, there will be. The particular product we're both thinking of is a new door we have that will coming to market, a new vinyl impact door. Marketing associated with that marketing fund and it will be hitting, probably not till we've actually launched that door. We will be developing obviously literature before that.

Rod Hershberger

Yeah, I think we probably have a little bit of an advantage over your typical launch. We have a great relationship with our dealers and distributors and customers and so a lot of the launch time is -- and a lot of the spend is on samples and corner samples and making sure that customers have the product in hand. It's kind of the technical driven market more so than a flashy brochure driven market.

Will Wong - JPMorgan

Okay is there like a specific dollar amount in terms of you can allocate to that product, you can show us that.

Rod Hershberger

In terms of advertising launch type?

Will Wong - JPMorgan

It's like for a typical launch what is sort of the incremental cost that we would see from that, if you could share it with us.

Rod Hershberger

It's difficult, we will give you a pretty big range I think because depending what market we are launching into, we have talked a little bit about, we have a 30 year history in Florida and we have a relationship with customers there where a lot of times it's almost as simple talking to them about it making sure they have catalogues or brochures or just a little sales skill versus the launch of the completely new product into the geographic area that we are not quite as strong. So, I think the range would probably be from a marketing side 200 to 500,000 depending on which markets you are going into.

Will Wong - JPMorgan

Okay just a final question. If you guys can talk about any impact you have seen from the energy related tax credit?

Rod Hershberger

I don't know that we can put exact number on it; we have seen as they extended the tax credit we have seen some advantage from the tax credits. I think the one that's probably most obvious is that we saw a decrease in new construction when decrease in the construction when at the end of April when the new whole buyer tax credit went away.

So, I don't know that we were fully aware of how much that was driving until time frame been 20-20 you can kind of look what dropped off on the new construction side, on the construction side from there. So, we know that we are selling quite bit into the and people are taking advantage of a $1500 tax credit. I am not sure that we can justify how much of it is going way.

In our core market, we actually don't think it's a ton because spending -- the money you have to spend to get that tax credit is more money than you get back from the tax credit so people are replacing the product with impact resistant and getting savings from insurance that is more than their driving the tax credit dollar.

Will Wong - JPMorgan

Okay. Thank you guys.

Operator

Thank you. We'll take our question coming from Sam Darkatsh from Raymond James.

Sam Darkatsh - Raymond James

Good morning Rodney and Jeffrey. How are you?

Rod Hershberger

Hey Sam, how are you?

Jeff Jackson

Sam we are doing good.

Sam Darkatsh - Raymond James

I am doing fine, thank you and well congratulations on your 30th anniversary. Couple of quick questions here, first off I guess with respect to Florida housing I mean you mentioned and clearly near and dear to my heart as well. The market is going to take a while for it to come out but you aren't seeing some pretty or at least healthier results now.

It is share gains, it's something that the market, is it maybe some R&R that deferred earlier, housing turnover earlier this year or what do you attribute to the recent improvement in Florida demand. Is that something specific to you guys or is it more industry wide?

Rod Hershberger

Sam I think it's probably more industry wide, I don't know that the business has really picked up dramatically. Well what we see in the field is we see a dramatically improved this mind set. People are talking a little more positive, customers have kind of weathered three years of down turn and they have seen housing starts not drop the last couple of quarters, sequentially maybe it will vary a little bit but things aren't dropping like they were before and I think everyone is kind of taking a deep breath and saying might make it really good right away but it doesn't look like it's going to get a whole lot of worse right away either and so if you are going to do the improvement on your house, maybe prices are going to drop a little bit more but I don't think so and I think people are thinking that way. So I think it's just more of a mindset than it is an actual, there is something we can pinpoint and say the economy is really getting better.

Jeff Jackson

Yeah, I would say a little bit of consumer confidence probably, you're seeing and people really sit on repair and modeling. They sit on cash for the last couple of years and I think what you're seeing is like Rod said before, starting to go out and replace their windows, starting to get a little bit more aggressive in that. Because keep in the mind, our new construction was basically flat. So the growth we did experience in the third quarter came from R&R.

Rod Hershberger

Yeah, and I think we have a little bit of an advantage also because people have sat on cash for -- or sat on money for a long time before they remodel and with prices down like they are right now, its little hard to go out and remodel your kitchen or remodel a bathroom. Because you're just not getting the payback, you are not going to be able to sell your house but its pretty easy to put in new windows and the roofing industry I would think would be doing a little bit better also because you're getting insurance savings. Yeah; energy efficiency and insurance savings, when you're doing that kind of remodeling we're seeing a little bit more of that movement.

Sam Darkatsh - Raymond James

And on the flipside I guess the math would suggest that outside the state of Florida that sales were down in the quarter. The comparison got more difficult on a year-on-year basis but anything you are seeing there in terms of a trend that is more sobering?

Jeff Jackson

No trend. You're right. Out of state sales were down about $400,000, Sam if you look at it we're like 6.5 in out of state sales versus last year's 6.9. We did have curtain wall in that mix as well that goes out of state and we finished the job there. So there is nothing other than just lack of curtain wall sales driving that. There is no seasonal change or anything like.

Rod Hershberger

Yeah, distribution in the new construction is hurting them. That's a really though market and dealer and distribution into the R&R market, we're seeing some of the larger distributors still pairing back a little bit number of stores and aggressiveness out there. So it still -- it still will take a little bit of time for this market to come back.

Sam Darkatsh - Raymond James

A couple other quick questions if I might. Jeff you have either ASP or what units were in the quarter and can you give a sense of those trends?

Jeff Jackson

The average sales price per unit?

Sam Darkatsh - Raymond James

Yeah, or if you just have what units were on a year-on-year basis we can back into it I kind of think.

Jeff Jackson

Overall our average cost premium I would say has increased give n the mix improvement to WinGuard. I don't have the actual unit numbers, if your hanging with me, Sam but I can tell you given the mix change, I do expect the average price actually -- price per unit increase -- we also implemented some pricing changes in our vinyl -- non impact vinyl on some of the upgrades that we do. The percentages range from 5% to 20% based off different upgrades and features that people order. So that also had a positive impact on PPU but I don't have a exactly number.

Sam Darkatsh - Raymond James

On the aluminum side, did you issue price increases? Are you anticipating doing so based on the change in the input cost?

Jeff Jackson

We have not increased our aluminum prices for, someone would say its been two years. It's been a while. So when its starting to go up, cash was roughly 2,400 -- 2,350 or so metric ton, if prices stay where their at, yeah we will have to look at some kind of a cost increase to cover input cost that's for 2011 event, it won't be this year.

Sam Darkatsh - Raymond James

Last question if I could, it looks like you took your CapEx expectations down for the year. Is that a shift of a project into 2011 or what should we look at Jeff on a ongoing basis for spending on an annual basis?

Jeff Jackson

Annual spend on CapEx in this market, we are still going to keep it tight just because the cash flow. We want to make sure that we are making the right investment; it's hard to justify returns on the sales side of the project just because of the tight market we are in.

So it's new that this new will probably is going to come in around $4 million to shop, 4 million CapEx for the year. Next year I would expect it to be much more maybe 4.5 and a lot of that to be honest with you, some of that is maintenance related, stuff we have done in the plan we are going to do some maintenance related CapEx spending in the plan. This past year we added an automated IG line fit to the plan and given the demand on the thermal side of the business IG is coming almost as a standard versus an option and the volume there is just increasing dramatically.

So we did automate out of line for that and it will be really to spot ad, we also obviously we talked about we are going to introducing a new door, will be some capital associated with that we are looking 0.5 million to a 1 million associated with that new door launch.

So, it's kind of hard to space we got not really a laundry list but we got a list of products, projects that we would like to complete but they are going to be driven by the market. So, I think it's a good question to kind of ask and listen for in every quarters call because as we see the market comeback we will be able to talk a little bit more about what our plans are for product and projects that makes we are capitalizing on those markets correctly.

Sam Darkatsh - Raymond James

I guess I don't know ask that question on one hand you had a really nice quarter from a sales perspective at least versus what we were looking for I suspect versus your plan. You took the CapEx budget down a little down, I am trying to figure out if there was a signaling issue there if it's just a timing issue or how should we look at that.

Jeff Jackson

Really not, what we have done and again executed pretty nicely here is that the capital that we have invested over the last four years it lined up with the market and so as we increase in sales we are not going to increase correspondingly capital. We are just going to utilize plant bar. We got lines that we are running one shift on, as sales increase you are going to run two shifts and that's not more capital that maybe a flip tape or sometimes safety capital or make efficiency will drop cost down but in terms of large capital expenditures we just hoped, unless we are introducing new product like our (inaudible) door we don't plan on and are not for staying any big expenditures coming down.

Rod Hershberger

One the earlier questions was on a little bit more on the introduction of a new product and I think maybe people don't realize that when we introduce a new product our engineering is in-house. We have two tool and dye shop in-house, so almost everything to do with the new product. We are capable of designing building and we have a test lab announced in testing. So, we can do almost all that stuff internally which does have capital cost and doesn't have the same type of capital cost that you will contracting that out like you are typical manufacturer would be doing.

So, we can control that pretty well internally.

Sam Darkatsh - Raymond James

Thanks so much.

Operator

Okay. Thank you. We will take our next question coming from (inaudible).

Unidentified Analyst

Good morning. I was just wondering how much of your Florida sales is driven by the multi panel market?

Rod Hershberger

It's probably a little harder for us to tell because we kind of -- we kind of split it up for us between residential and commercial and I know when you talk multi family, anytime we get into a condo or even a town house project, for that's still -- that's still residential because there's people living in it. Its operational windows as opposed to the commercial side of the business and I don't know that we track everything going into that quite as closely as we do split between residential and commercial.

Jeff Jackson

What we call our high rise commercial if you will, are AS product mainly. Sales for the quarter in the third quarter were 3.2 million as I mentioned on my intro. So I guess that -- if you want to look at something close to anything other than single family, that maybe ---

Rod Hershberger

Yeah, but even multi family -- we do condos. So I don't know that I could tell you what that exact split is because we don't really track that number is still residential.

Unidentified Analyst

Okay. And I'm not sure if you gave it and I missed it but did you give WinGuard margins yet?

Jeff Jackson

No, WinGuard margins were 40% for the quarter and then all other -- this is what we typically do -- it was 15%.

Unidentified Analyst

And then lastly can you remind me when the tax credits expire?

Jeff Jackson

I wish I could off the top of my head. I don't know exactly when those expire. You mean our NOLs we've recorded I'm assuming?

Unidentified Analyst

No, no. I'm just actually asking about the ones that are helping can drive your sales.

Rod Hershberger

Oh you're talking about the energy tax credits?

Unidentified Analyst

Yes.

Rod Hershberger

They were submitted till the end of the year. And we don't anticipate that being expended again based on the deficit facing our country right now but all debts are off.

Unidentified Analyst

Okay, that's all. Thank you very much.

Operator

Okay, thank you. And our next question is coming from Jim Wilson from JMP Securities.

Jim Wilson - JMP Securities

Oh thanks. I just had one follow up to send you guys. With a little bit starter sales in obviously WinGuard, are you seeing a shift -- can you -- I don't know if you know enough background information, bigger homes moving or particular part of the state seeing better sales and maybe you can give a color kind of where -- what part of the margin demand is picking up?

Rod Hershberger

I don't think we can see a shift in any part of the state or something picking up. I think if there is one thing that seems to be getting a little more activity again as we went through about a two year period where every project was basically put on hold and a lot of them were cancelled or withdrawn completely but not all of them and I think one of the things that we saw a little bit off is some of those projects resurrected again and we saw some project activity. Most of that project activity was some type of multi family activity or a number of single homes going out, not any specific large homes or something like that.

Jim Wilson - JMP Securities

All right, great. Good job. Thanks.

Rod Hershberger

Thanks Jim.

Operator

(Operator Instructions). Okay and at the moment I'm showing no questions. I'd like to turn the conference back to Jeff Jackson for any concluding remarks.

Jeff Jackson

Thanks John. Thank you for joining us today. We look forward to speaking with you all again next quarter and if you have any further questions, please call me. Have a good day.

Operator

Okay ladies and gentlemen, this does conclude your conference. You may now disconnect and have a great day.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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