PGT's (PGTI) CEO Rodney Hershberger on Q2 2016 Results - Earnings Call Transcript

| About: PGT, Inc. (PGTI)

PGT, Inc. (NASDAQ:PGTI)

Q2 2016 Results Earnings Conference Call

August 04, 2016, 08:30 AM ET

Executives

Rodney Hershberger - Chairman and Chief Executive Officer

Bradley West - Senior Vice President and Chief Financial Officer

Jeffrey Jackson - President and Chief Operating Officer

Analysts

Bob Wetenhall - RBC Capital

Rob Hansen - Deutsche Bank

Sam Darkatsh - Raymond James

Keith Hughes - SunTrust

Jeremy Hamblin - Dougherty Incorporated

Ken Zener - KeyBanc

Operator

Good morning, ladies and gentlemen, and welcome to the PGT Incorporated. Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Brad West, Senior Vice President and Chief Financial Officer.

Bradley West

Thank you, Emily and good morning. Welcome to PGTI's second quarter conference call. I am Brad West and I'm joined today by Rod Hershberger, Chairman and CEO; and Jeff Jackson, President.

Before we begin our formal comments, I like to remind you that today's remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. These remarks involve a number of risks, uncertainties and other factors that could cause actual results to differ materially. These factors are detailed in the Company’s financial reports.

We undertake no obligation to publicly update or revise any forward-looking statements. You should also note that we will report our results using non-GAAP measures which we believe provide additional information for investors to help facilitate the comparison of past and present performance. A reconciliation of these non-GAAP measures to the GAAP counterparts is available in the investor relations section of our website.

Now I’d like to turn the call over to our CEO, Rod Hershberger.

Rodney Hershberger

Thank you, Brad. Good morning and thanks everyone for joining today’s call. I am pleased to report our teams delivered strong sales and operation of results in the second quarter, with each of our brands making meaningful contributions to our overall performance. The quarter had record breaking sales of $119 million and our highest EBITDA performance of $20.8 million since the second quarter of 2006.

As we expected, the market continues to be strong and our brands are experiencing solid demand across all market segments. As we have previously shared, part of our long term strategy has been to position our company to serve a broad spectrum of the impact resistant market with brands strategically positioned to serve various segments of that market and to continuously expand our market leading offerings and capitalize on the predicted market growth.

We are already seeing the combined power of our three brands since they are performing well, strengthening our capabilities and furthering our market reach. Now I’d like to turn the call over to Jeff, who will review in more details the dynamics of our market and our operational performance that will lead us into the remainder of the year. Jeff?

Jeffrey Jackson

Thanks Rod and good morning everyone. As Rod mentioned the market continues to be strong and is showing solid signs of growth after a sluggish start to the year. Our core market of Florida continues to lead the nation in terms of declining unemployment, job creation and overall economic activity. As the third August [ph] state in the U.S. and the single largest factor for economic improvement in Florida continues to be the recovering housing markets.

Single-family starts in Florida were up 20% in the second quarter compared to the same period in 2015, which represents a positive, quarterly increase of 19 of the last 22 consecutive quarters. We believe Florida will likely finish at approximately 75,000 single-family housing starts in 2016, which represents a 15% increase over 2015.

Still the Florida single-family housing market has yet to return to its historical long-term pace [ph] of approximately 110,000 a year. To summarize, we are encouraged by the market conditions and continue to see demand across all our brands and market segments.

Our backlog reflects this demand and recently top [ph] $60,000 million including a 45% in backlog in our legacy brands compared to a year ago. This dynamic environment positions us well for a strong second half as we continue to increase capacity to meet growing demand.

Now, I’d like to review specific details discussing our performance for the quarter. As Rod mentioned, our top line increased 18% to $119 million versus prior year and we generated EBITDA of $20.8 million, our highest since the second quarter of 2006.

This is particularly impressive when you consider that our current year results were impacted by shortage in the construction labor market and internal and external glass supply constraints. Pressure within the construction labor market is being felt naturally and in Florida and our dealer base across all our three brands.

Across our brands, the demand for energy efficient products continues to grow, thereby increasing the demand for insulated glass. To clarify, insulated glass represents an additional glass and processing time to produce which group has created a constraint that has been felt both internally and at our external glass suppliers.

Despite these industry challenges, we believe we will continue through the remainder of the year, we were able to deliver excellent operating profits during the second quarter and continue to improve our output capabilities.

In fact, looking forward into the third quarter, July’s organic growth was approximately 10% compared to 8% in the second quarter. Additionally, across the entire company, we shipped more units per week in July than in any other point in this year.

The fundamental drivers of our business continue to align to our advantage and we are diligently working to capitalize on this momentum. Our performance this quarter demonstrates our focus on achieving financial and operational objectives.

In the near term, our primary goal is to continue to increase capacity across all three brands. We will remain focussed on the continued integration of our two acquisitions, which together with our PDT core brand and our strong balance sheet will continue to create shareholder value in 2016 and beyond.

Now I’d like to turn the call over to Brad to discuss the financial results for the second quarter in more detail. Brad?

Bradley West

Thank you, Jeff. We reported sales for second quarter of $119.0 million, an increase of 18% over the second quarter of last year. Second quarter 2016 sales include $10.4 million from WinDoor.

On Slide seven we give you a breakdown of net sales for the second quarter. Our growth continues to be fueled by our impact products, which grew 22%. This growth came in both our aluminium and vinyl impact products with the strong 47% growth in our vinyl impact products.

Non-impact products had a 2% sales growth quarter-over-quarter with growth in the non-impact vinyl lines partially offset by a decrease in non-impact aluminum. Also in the second quarter, 58% of our sales were from repair and remodelling and 42% from new reconstructions, which were consistent with the second quarter of last year.

Now please turn to Slide eight and I'll briefly cover a few income statement items. Gross margin dollars in the second quarter increased $4.5 million over the second quarter of 2015. Our gross margin of 31.5% decreased 120 basis points from 32.7% for the comparable period.

The decrease in gross margin was a result of running parallel systems as we finalized our ERP cutover during the quarter which reduced margin by 70 basis points.

Depreciation expenses were also higher in the quarter as a result of higher capital spending which impacted gross margin by 50 basis points. Gross margin was further impacted by 70 basis points due to change in mix towards lower margin products. These negative impacts are partially offset by favourable material costs which benefitted gross margin by 40 basis points. The addition of WinDoor add a 30 basis points of gross margin in the second quarter of 2016.

With regards to aluminum, our average delivered cost of aluminum was approximately $0.86 per pound during the quarter compared to $1.01 per pound during the second quarter of 2015. We are currently covered at 37% of our needs through the second quarter of 2017 at an average price of $0.87 per pound.

Selling, general and administrative expenses as a percent of sales in the second quarter of 2016 finished at 17.3%, increasing 70 basis points from 16.6% in the second quarter of 2015. SG&A expense in the second quarter includes $746,000 of increased amortization expense due to the amortizable and tangible assets from the WinDoor acquisition. Excluding these expenses, SG&A as a percentage of sales was 16.6% in both periods.

Interest expense was $5. 3 million, an increase of $2.4 million as compared to $2.9 million in the second quarter 2015. Interest expense in the second quarter of 2016 increased as a result of a higher level of debt from the refinancing which also carries a higher initial interest rate as well as higher amortization of financing costs which reported [Indiscernible] or $700,00 of the quarter-over-quarter increase.

Depreciation and amortization reported in the first quarter was $4.0 million compared to $2.6 million last year. Consistent with our expectations, second quarter depreciation and amortization expense was higher than the prior year period due to an increase in amortization expense from the acquired WinDoor intangibles as well as higher depreciation from both WinDoor and increased capital spending.

Our tax expense in the second quarter was $4.2 million and represents an effective income tax rate of 36.5%. This compares to $6.3 million and 48.2% in the second quarter of last year. The second quarter 2015 includes a $1.6 million non-recurring, non-cash accounting charge related to our aluminium hedges, excluding this charge our tax rate in last year’s second quarter would have been 36%.

We reported net income in the second quarter of $7.4 million or $0.15 per diluted share compared to $6.8 million or $0.13 per diluted share last year. Adjusted net income in last year’s second quarter was $8.6 million or $0.17 per diluted share.

EBITDA was $20.8 million for the second quarter of 2016 or 17.5% of sales compared to adjusted EBITDA of $18.9 million for the second quarter of 2015 or 18.8%.

Now please turn to Slide nine for some balance sheet items. We ended the second quarter of 2016 with a cash balance of $29.5million up $12.8 million from our cash balance at the end of the first quarter. And during the quarter we invested $4.5 million in capital expenditures.

Our net leverage was 3.2 times at the end of the quarter and we continue to have a strong balance sheet with the ability to make further investments and fund future needs.

In conclusion, our outlook for the remainder of the year is in line with the market consensus for the back half. Other factors and assumptions in our outlook are also provided on slide 10 for your reference.

At this time, we would like to turn the call over to the conference operator, Emily to begin the Q&A portion. Emily?

Question-and-Answer Session

Operator

[Operator Instructions] Bob Wetenhall from RBC Capital, your line is open.

Bob Wetenhall

Hey good morning and thanks for taking my question. Hey, you guys called out a very robust backlog figure of $60 million which is twice as much of your backlog at the end of the fourth quarter. Can you give us a little guidance, I’m thinking about the second half of the year, you did not raise your guidance and you look like you are in line with consensus, but the backlog as huge. And I just was hoping you could step us through what that backlog does for profitability as you move into the second part of the year?

Rodney Hershberger

Well, the vinyl is very strong which is obviously would help us generate that backlog that we saw in the second quarter. But as we did mention that we do have some constraints both on the supply side and for labor and glass, so as a result of that, that’s why we feel comfortable with what consensus is for the back half, which is a higher sales level in the second half of the year than we saw in the first half of the year. But the demand is strong and the backlog is up they are going to support it.

Jeffrey Jackson

Yes, Bob I would just add our dealer base is extremely busy. We’ve just gotten back from two week’s worth of dealer partnership counts from leading [Indiscernible] top dealers across all three brands and the consistent theme was you know a tight labor market installation, installers are few and far between, you know they are the markets there is robust, but we are shipping them as much product as they can handle at times.

Even in July, I mean we had at July, we had a $8.2 million ship [ph] week whose prior record was $7.6 million. So we are having spike in the ship weeks based off demand and their ability to move that products into the channels, but we do think in the back half, we’ll continue to hear that same message from our dealer base.

Bob Wetenhall

And Jeff, just on that it sounds that you had an explosive July in terms of the organic growth, and you also came in later on WinDoor and sales, which is a very high margin profit. Just trying to understand if WinDoor comes back to normal and is a bigger part of your mix, and it sounds like the ERP issues are now kind of behind the Company, how should we be thinking about gross margin, are you -- is that something that some of the headwinds that impacted the first half of the year are fully addressed and are packed up and behind this and now we can think about a step forward to a higher level of profitability especially if WinDoor kicks in or am I not getting this right?

Jeffrey Jackson

I think you are right. I think from an EBITDA perspective you can’t expect the higher level of profitability in the back half and we’ve already experienced it in July. Internally, we still were working on our glass internal glass supply and we are actively getting efficiencies in production better there. If you look at WinDoor, incredible flow through on that brand, 50% Brad is I think the flow through, but roughly it is right.

Just in the last week alone, the last week of the second quarter, WinDoor missed about $1 million for the shipment because they didn’t get the glass. The frames were built; you know they are sitting in the plant, that we just didn’t get the glass shipped in, so that’s a 50% flow through on that approximately $1 million or so.

So, I think we are still going to see those kind of hic-ups in the second half just because of glass supply constraints and this is nationwide excuse me, we are hearing that from our suppliers, Cardno you know internal we are seeing it. We will work through it and work diligently through that to increase our output, but we do expect margins to improve in the back half as we continue to reap the benefits of leverage and the various work we have done operationally.

You know I’d say 90% of the operational challenges we’ve had in the past are behind us.

Rodney Hershberger

Hey Bob, just a little bit more -- a little bit more color on the WinDoor side to because the flow through there is incredible and it’s great when we get those sales. They are project driven, a lot of their sales are project driven, so at the end of the month, we get to the end of the month or the end of the quarter when they have got a project at the [Indiscernible] they ship and they are missing a couple pieces of glass. We generally don’t ship that project, they tell us to complete.

And that’s why when Jeff talked about $1 million worth of sales in that last week, it’s because you might be missing a truckload of glass but you might be missing two or three pieces but it keeps the project from shipping.

So there is a little bit of concern when we look at the back half but how that’s going to affect a quarter sales or the back half sales because we are not exactly sure when those projects are going to ship until that glass supply is under control. And it’s not just U.S. glass supply; some of that glass comes in internationally. It’s a problem that’s pretty much across the globe right now.

Bob Wetenhall

So one final question then I'll hand it over. It sounds like demand is great and glass supply is tight. And I know that you would talk about potential for a price increase in the third quarter. How should we be thinking about the potential to realize higher selling prices given the fact that demand is incredibly robust right now, and you're seeing tight supply? Thanks and good luck next quarter.

Rodney Hershberger

Thanks Bob. Yes, we both the GCI and PGT had announced price increases in the second quarter that have different impacts. The PGT price increase obviously being the post impactable. It was announces to 3% to %7% price increase depending upon the product. And that price increase will go in effect basically in September based upon shipments in lead time and will bleed in over time just because we have new construction prices that don't necessarily take as quick as this effect this R&R, but we do expect to have a strong realization of that price increase than we've seen in past because of those supply constraints that you refer to and the strong demand.

Bob Wetenhall

Anything we could put down as magnitude that you could help us from the model?

Rodney Hershberger

I would say that like I said in September we would start to see in the PGT side of some of that price increase, but at this point I think it's kind of early to say.

Bob Wetenhall

Got it. Thanks a lot. Got luck.

Rodney Hershberger

Thanks Bob.

Operator

Your next question comes from Rob Hansen from Deutsche Bank. Your line is open. Rob Hansen your line is open.

Rob Hansen

Thanks. I just wanted to ask about the capacity increase that you mentioned, so is that's specifically in the IG production? And I think you know last quarter you guys mentioned that you had plenty of capacity at WinDoor and I know you were running out of space in Venice and you could start kind of shifting some of the capacity over there. So, how is that kind of playing out?

Rodney Hershberger

Yes. The capacity increased during the second quarter was mainly production around our vinyl product lines. If you recall, we introduced our new vinyl WinGuard. We had that product launched last year and very successful launch and immediately demand was on that line. We've been able to increase that capacity to that line between anywhere on a given day anywhere 0.6 and 700 units. With the end goal being Q1 of 2017 with about I think 1400 units…

Bradley West

1500.

Rodney Hershberger

1500.

Bradley West

1500 units a day.

Rodney Hershberger

Is the end goal. So, we're increasing assembly side capacity for vinyl, the vinyl WinGuard line. And that's ongoing. We have equipment coming in the fourth quarter, while there is extra [ph] machines that do that. From the glass side capacity, we have the – lot of the equipment in place. We are installing a new IG line, it’s called TPS, its new type of IG spacer. We're installing which will add to throughput and capacity. That will happen in this back of this year and into the first quarter of 2017.

Rob Hansen

Got it. And the CapEx, which we kind of expect in the back half of the year and any kind of should 2017 to be a little higher than normal as you're kind of increasing capacity?

Bradley West

No. At the back half of this year we're still looking at $18 million to $20 million which does includes the higher spend in the back half of this year because of those lines that Jeff referred to than what we did in the first half of this year.

Going into next year, I would actually expect to see maybe as this slightly lower capacity spending because we spend a lot of capital this year on glass operations, so we obviously haven't gone into our budgets to know exactly for sure. But when you look at total non-growth related capital spending, you're talking $8 million to $10 million, so anything that we do above that would be obviously with a growth project in line.

Rodney Hershberger

So, just to clarify, this year's annual CapEx was anywhere between $18 million and $20 million annually. And today we probably spend about half of that?

Bradley West

Just little bit over $8 million.

Rodney Hershberger

Yes. Little bit over $8 million, so we probably have another 12-ish maybe to go this year. So that can be timing of when you get the project going and get to actual equipment in terms of actual spend. And we don't see that increasing next year. We see maintenance CapEx at $5 million to $6 million plus and then project CapEx at 10 million-ish level. So we'll strive for a $15 million to $18 million CapEx next year in 2017.

Rob Hansen

Got it. And then last question just on gross margins, so I guess if you look at like 12 months gross margins, that's somewhere around 30%, I know this quarter you improved to here at 30 to 31.5 or so. What's kind of like that the blueprint back to 34% right, like, I'm just kind of thinking maybe you're going to get X amount on leverage, certain amount on improving efficiencies and how does that – how do you kind of get back to that kind of bridge back to 34?

Bradley West

Well, I think the gross margin that you'd refer to leverage and improved operational efficiencies, as well as the capitalizing on the three brands that we have and the great margins of those brands can bring the table are going to improve our margins from here. And we like to think about EBITDA margins from that standpoint and we did a 17.5% the second quarter and we're expecting an improvement in the back half. So we were going to keep executing to get those margins to the levels that we want them to be.

Rodney Hershberger

I think mix probably plays the biggest part in gross margin from here on now. You got WinDoor with the 50% flow through, so obviously the more WinDoor or bigger project sales we have the higher there, our overall margins are going to be whether its gross or EBITDA, that's going to flow through. So, mix is a bigger contributor to margins in general than it ever has been.

Bradley West

Yes. And we saw 47% growth in the vinyl side of impact market which is really explosive growth in that. And we announced ultimately vinyl a year ago. We talked a lot about it over the last couple of quarters and Jeff just talked about the ability to grow that line to 1500 units a day as we get into next year's and to first time frame. And it will take that time frame to get that kind of volume flowing through to really start bringing the gross margin side up on the vinyl side.

So, I wouldn't expect an immediate change in Q4, but once the vinyl lines are running a little bit more efficiently and are at full capacity and have full blow on lines I think you'll start seeing that number would go up also.

Rob Hansen

Great. Just one quick one, what is the 1500 units a day imply from the top line perspective in vinyl?

Rodney Hershberger

There's so much product mix that goes in that because 15000 units today also drives a lot of doors and I don't know off the top of my head, it would be hard, it would be hard for me to say, because there's a mix of impact and non-impact.

Bradley West

We in the second quarter of this -- the quarter that we just have, we had $26 million in vinyl sales.

Rodney Hershberger

In between the two lines though.

Bradley West

The vinyl impacts there.

Rodney Hershberger

So, but that sport the new vinyl and the old vinyl.

Bradley West

Right.

Rob Hansen

So, how many units was that?

Rodney Hershberger

You know you're probably looking getting this up to 1500 units a day, the one thing it will start moving closer to 50% vinyl as oppose to the current 35% to 40% vinyl we announced.

Bradley West

Typically it's double.

Rob Hansen

All right. Well, I appreciate the commentary guys. Thank you.

Bradley West

Thanks, Rob.

Rodney Hershberger

Thanks a lot, Rob.

Operator

Your next question comes from Sam Darkatsh from Raymond James. Your line is open.

Sam Darkatsh

Good morning, Rod, Jeff, Brad, how are you?

Rodney Hershberger

Right, Sam, how are you doing?

Sam Darkatsh

I'm well. Thank you. Three, four questions here if I could. First off, you talk about when the internal glass capacity is added. What's about external? What are you hearing from your glass vendors be it Cardno or whomever in terms of when they might be able to have much better lead times for you?

Rodney Hershberger

Yes. I mean, I talked to our main glass suppliers, which were PGT and CGI, is Cardno. I talk to the President of LG yesterday and we're meeting mid-August to talk about that very subject. They do plan on adding capacity and I need to provide them to start on future growth from my end too.

So that process is ongoing. I definitely see it happening on their end. In terms of WinDoor, WinDoor is kind of mixture. They're getting majority of their glass from overseas, Technoglass. We visited that location as well and that supplier. And they are also in the process of opening up a new line in Columbia as well.

Bradley West

Yes. That line is going to be fairly exclusive to WinDoor. We expect improved performance, but we're not going to predict it until we see it. And then internally then, Jeff talk a little bit about some of the new lines we're putting in particularly on IG because we're seeing such a huge increase in IG, so we'll start seeing some internal improvement as we get through the third and fourth quarter of this year.

Sam Darkatsh

Do you suspect that Cardno can add capacity in 2016 or is that more of a long term thing?

Rodney Hershberger

I'm going to talk to on both fronts, both short term Q3 and 2016 and beyond. So they can add capacity, it’s a matter of adding people, and they've been doing that. They ramped up when we requested that we got a relationship there. They are great supplier. And when we requested more over last date, they added more people and started training. It is just a process.

So I think they can add more capacity just for the long term. If you just think about us growing next year type numbers even if there's some modest 10% top line growth, you're talking a lot more IG glass. And between the two of those or maybe of three of its here with our third supplier we have to figure out what that's look like.

Bradley West

Yes. 10% overall growth which is and it’s a great year, probably means 15% to 18% growth in IG. So it's not a one-to-one ratio because IG is becoming more and more popular with energy codes changing.

Sam Darkatsh

So, this is a bit of a touchy feely question I suppose but you'll calling out to specific constraints, one being glass and one being labor and I also understand that they're not necessarily all that different, but is it a bigger deal right now or bigger constraint for you getting product out the door or is it a bigger deal that you're dealers are struggling, receiving and installing the product?

Rodney Hershberger

I would say equally. That's a 50-50, Sam, if we could get more out at times we won't have any place to ship it, because our dealers are busy. So if we can get more glass in the back end, so we'll get more out, yes, but again the crews, installation crews, the numbers of projects that are going on and we have the biggest network in Florida, people are extremely busy.

Sam Darkatsh

Next couple of questions are more housekeeping if I could. Do you have, Brad, the gross margin of impact versus non-impact? And then, how much of a drag was the vinyl mix to gross margin if you had said it in your prepared remark, I missed, but I apologize.

Bradley West

Yes. The gross margin impact was 35% and non-impact was 17%. And then I did say in the prepared remarks that we had a 0.7 year-over-year, so 70 bps year-over-year affect for mix. Some of that was vinyl, but some of that was also that are GCI brand. We saw higher sales of [Indiscernible] which is there, lower margin pipe relative to a state. So, I'm not sure of the exact rate down between those two, but that's total 70 bps.

Sam Darkatsh

And then, the last question I have or series of questions would be around monthly progression of sales as Q2 transpire, I think you said July was up 10. Do you the April May and June organic numbers?

Bradley West

Yes. So, this would be 8% in April, 6% May and then 9% growth in June. So definitely June was the strongest.

Sam Darkatsh

I think last year you called out a 5% to 10% benefit from the July 4th holiday time, was there any issue around the timing of the holiday that might have impacted plus 10 in July positively or negatively?

Bradley West

This year July 4th, fell into the third quarter, so if anything that would have been negative. So that 10% was positive, we'll retain that.

Sam Darkatsh

Got you. Thank you very much.

Operator

Your next question comes from Keith Hughes from SunTrust. Your line is open.

Keith Hughes

Yes. Question just real quick on SG&A was $21 million in the quarter. Is it roughly what we'll see as we rush through the second half of the year?

Bradley West

Yes. We did have a full quarter of expense relate to WinDoor, so the second quarter had that going forward. We did also however a one-time spend in the second quarter roughly $0.5 million related to a customer event that we did in the second quarter by comparison purposes last year we did in the first quarter. As we will see an increase in dollars as sales goes, because there are some variable components to it. But for the most part that is probably about an 85% fixed category.

Keith Hughes

Okay. It appears as a percentage of sales will be higher in the second half of the year, is that correct – SG&A?

Bradley West

Yes.

Keith Hughes

Further reasons you mentioned. Okay. So you seem to be [Indiscernible] your stores that EBITDA margin should improve in the second half of the year. So that means you're going to have the big step up in gross margin. Is that step-up just from the better throughput through facilities?

Bradley West

Yes. Basically leverage, we expect the higher sales across the brands to generate the higher leverage and improve margins, absolutely.

Keith Hughes

In mix.

Bradley West

Yes.

Keith Hughes

Final question, you traditionally give us kind of discrete guidance range is really specific. I know you kind of step toward and talk about the consensus number. Is that something that – are we kind of changing how we do this in the future?

Bradley West

The thought process is gave the annual guidance that we gave at the beginning of the year and within that range we're still ahead in there. We do see that the second half numbers based what's on the street is a pretty representation of where we feel it should be. So that's probably we gave that kind of color.

Keith Hughes

Thank you.

Operator

Your next question comes from Alex [Indiscernible] from SBR & Company. Your line is open.

Unidentified Analyst

Great. Good morning. This is Lin Cho [ph] for Alex. I have a couple of housekeeping questions left as well. Was there any weather impact in the quarter?

Rodney Hershberger

The weather impact that we in Florida really consist in lot of rain in January, so I think in the second quarter in Florida there wasn't really any meaningful weather impact.

Unidentified Analyst

Got you.

Rodney Hershberger

And nothing we would call out again, Florida had an extremely wet season, you know the lakes are pretty full and it was rain in this morning when we came in. So, I would say, if anything weather had a meaningful impact but it has a rained a lot.

Jeffrey Jackson

Yes. First quarter is generally really dry, second quarter we start getting into our rainy season. So, I mean, it's wet but it's almost all was wet as we get into the second quarter. So I think labor is the big factor not weather.

Unidentified Analyst

Okay. Also sounds like the WinDoor acquisitions progressing well. Is there any change to guidance in terms of the revenue impact from WinDoor in 2016?

Rodney Hershberger

Yes. To degree that the glass constraints and effect WinDoor, we could end up seeing them be at the lower end of the range that is essentially out there. But they are still continuing to grow and we're developing some strong relationships with the customers. So, at this point I would say, I don't want to give specific guidance number for sales, but the glass could go down to the level.

Jeffrey Jackson

Yes. Product demand there was good. It’s a matter of supply to get product out the door. So we're not concerned necessarily about the demand but we're more concerned about being able to ship at the high end or middle end of the range.

Unidentified Analyst

Got you. And one of the prior questions, you talked about Tecnoglass potentially opening up a new line in Columbia, do you know when that could happen?

Rodney Hershberger

It's in the process. It's in the process right now being setup and ramped up and then IG line doesn't take it – once the lines in it doesn't take a tremendous amount of time, there's little bit of training time involved in it. So, we would anticipate seeing better results from that as we get through this Q3.

Bradley West

It will be this third quarter.

Unidentified Analyst

Okay. Okay, good to know. Also in the past I believe you've provided at least revenue guidance for the next quarter out. Do you have any guidance for the third quarter?

Bradley West

No. We talked about the reasons why some of those things are hard to predict, so that's why we're just comfortable with kind of what's out there right now for the third quarter. Jeff mentioned that July sales were higher than what we would seen any point of the year from a per week standpoint, so we are increasing the shipping and that's good.

Rodney Hershberger

Yes. Overall Q3 is going to be better than Q2 and Q4 is going to be a little bit slower. Q4 is always been our…

Jeffrey Jackson

Yes, Q4 has a lot of holidays.

Rodney Hershberger

Slowest quarter. So if you look Q2 we will increased top line in Q3 versus Q2 and you can see that tail off because Thanksgiving, Christmas are in our business kind of slows downs the second quarter.

Unidentified Analyst

Okay.

Rodney Hershberger

I'm sorry, fourth quarter.

Unidentified Analyst

In the fourth quarter, right. Then final question has to do with your ERP system, sounds like everything has been shifted over. Have you actually shut down the old ERP system, such that the second half, right, the second half gross margin impact should be 140 bps better than the first half just tied to the ERP system excluding any other impacts?

Bradley West

We are 99% invoiced on the new system right now. So there are some products and some orders that are still stagnant in the old system, but shutting down the old system in that sense is not – the key thing that needs to happen. We just need to have that new system, get used to it and be able to adjust to the great efficiencies we can get from it.

So, I do think we'll see improving year-over-year in Q3, because obviously we struggle last year Q3 as we had that tough quarter from an implementation standpoint in terms of sequentially we've talked about what we would do in the back half after the ERPs been implemented.

And you know I call out 70 bps in the second quarter. I think we're going to see some improvement as we go into the back half as we become more efficient and just how quickly we realized it.

Jeffrey Jackson

And to put it perspective I think there is 50 windows left to ship out of the old system.

Unidentified Analyst

Okay, great. Thanks a lot.

Operator

Your next question comes from Jeremy Hamblin from Dougherty Incorporated. Your line is open.

Jeremy Hamblin

Thanks. Good morning, guys. Wanting to ask just I think I miss this on the prepared remarks, but what was the total growth in Q2 on a year-over-year basis in R&R versus new construction from the impact lines? Total growth in Q2 in R&R.

Rodney Hershberger

Okay. So growth in R&R was for PGT, that's 50%, that includes WinDoor though. From an impact standpoint we saw that it's an 18% growth, again including WinDoor.

Jeremy Hamblin

And what about impact new construction?

Rodney Hershberger

Well, I don't know that it's substantially different but you know basically for the total company we saw 23% growth in new construction and a 15% growth in R&R, which equates to 18% that we saw. And I don't that it would be meaningful different in impact and non-impact.

Jeremy Hamblin

Okay. And then, I think the way it calculate sort of kind of the implied sales number right for WinDoor about $10 million in Q2. In terms of thinking of the second half of the year for WinDoor, you mentioned that there is a shift in a $1 million project that probably you expected to hit Q2, that's going to hit Q3. Do you expect the company in terms of Q3 and Q4 to see sales growth and WinDoor, I mean, you limited in terms of your supplier there from the aspect of not being able to grow sales in that particularly segment?

Bradley West

I think we're limited in the overall -- the supply limits kind of what's can happen on monthly and weekly basis. But I think overall we do expect to see more sales in WinDoor on the back half of the year than we saw in the first half of year because the markets and just because of the timing of the projects.

You know Jeff mentioned that $1 million project that could happen again, so but I do think the overall concepts of the second half of the year for WinDoor should be stronger than the first half of the year just because of the market and their pipeline.

Jeremy Hamblin

Right. But year-over-year for WinDoor specifically they did 22 million in the second half of last year, do you expect that to be up?

Bradley West

Yes. But how much, we'll have to wait and see.

Jeremy Hamblin

Okay. And then just again a more specific kind of call out here on, you know, so I can understand the guidance. I think what's implied by your commentary around consensus would be for 242 million in sales combined between Q3 and Q4. That's the number that you feel comfortable, with those combined numbers.

Bradley West

Yes.

Jeremy Hamblin

Now get in specific Q3. Okay.

Bradley West

Yes.

Jeremy Hamblin

Okay. And if those -- if you weren't meet that you would expect that it’s more of an issue related to suppliers couldn't get us glass rather than demand?

Bradley West

Right. Because I think the backlog and the growth in the backlog kind of confirms that.

Jeremy Hamblin

Okay. And then just refining that even further, is it more specific to the vinyl side or would you say this is more of our traditional legacy you know PGT, CGI business where you know if we were to not meet that expectation it would be related to that as opposed to the new vinyl product?

Rodney Hershberger

No I think the issue that we are seeing were two kind of effect all the whole gamit [ph] of aluminium and vinyl, now we obviously have a specific situation where we are trying to increase our vinyl capacity to meet the strong demand on that. But that being said, you know the glasses used and the labor constraints that we have you know they affect both aluminium and vinyl

Jeremy Hamblin

Good high [ph] glass problem. Just to clarify on the SG&A, so if I strip out the $0.5 million or so from the customer event that would imply I guess a run rate at 190 million in revenues of about $20 million in SG&A. You know I think your variable rate is about 12% or something like that. Does that sound about right as we look into the back half of the year that there isn’t anything else that’s funky about Q2 in terms of incentive comp that would make let’s say Q4 which get consensus is at $116 million, you wouldn’t suddenly see SG&A at $21.5?

Bradley West

Well we do have typical spend in the back half of the year -- some marking type spend as we look forward to next year. I think it’s a relatively good bet to assume a 12% variable rate but you know we do have reasons for SG&A to be a little bit higher I think like Keith had mentioned in the back half of the year, but you know still not to the point where it would offset our ability to improve our margins overall.

Rodney Hershberger

Yes, I think if you look in the back half of the year we have spent in advertising really around season, it’s hurricane season, so we are out pretty heavy in the market advertising in June, July, August timeframe.

Jeremy Hamblin

Okay. I think that just about wraps it up from me guys. Appreciate you taking the questions and best of luck in the second half of the year.

Rodney Hershberger

Thank you.

Operator

Your next question comes from Ken Zener from KeyBanc. Your line is open.

Ken Zener

Good morning gentlemen.

Rodney Hershberger

Good morning, Ken.

Bradley West

Good morning, Ken.

Ken Zener

So Barry you know the growth rates you gave into July from April, 8, 6, 9, 10 very solid growth rate. One of the things that we have spoken to you about is the slowing existent sales which is occurring due to lower unit volume at the low price points and high price points. Clearly you are not seeing any of that impacting lower existing home sales you [Indiscernible].

The new side is the new side, can you kind of talk about you know that strength that strength that you see in R&R is it -- they are using more constraints so that your dealer channel absorbs all of your volume. So do you sense that the labor constraints are greater on the new side or the R&R side because it doesn’t seem to be any relationship? I mean, there is certain lag that it doesn’t seem as though only that slower activity is impacting you at all, which is a good thing.

Bradley West

Yes, I would say it’s a across both. Again, we see it across both and actually we probably have the bigger new homes guys trying to still labor from the smaller players, by attracting them literally by paying them more for an hour, we constantly hear that. So I see it across both.

And you got to remember; in our pipeline our ability to look into the future really is our backlog, which we said it is upright now into the 60 million range. With our lead times, we can’t see past whatever October. So you know that change in the future have no idea, but right now we know its still type 4 on a labor side for both new construction and R&R.

Ken Zener

Well, it’s very good to see that sustained demand. When you guys highlight WinDoor and the flow through there is very impressive as well as the project value, I guess this is how we would describe it.

You know versus the past when you were taking in high cost glass before you brought it on the IG side, you know is there any -- I mean are you guys on the allocation yet or is it just slow, I mean how is that dynamic working because it seems as though that is the perhaps one of the bigger constraints that you are facing in terms of the demand.

I mean, it seems like the back half is 53% of sales versus the front half 47% it’s actually what you guys have been doing in recent years, so no surprise there, but if there was some lumpiness it really sounds like you guys are throwing down the [Indiscernible] with that, ERP is done, you are going to get obviously some sequential lift, mix is going to be happening as you get more into that vinyl. I mean, how much could that WinDoor component from a volume basis impact your thoughts, as well as perhaps inflation on that input cost.

Rodney Hershberger

Yes, I would add that we are not aware of an allocation. To your point there that I’m aware of I’d had to talk to our suppliers we have been told we are on an allocation. In terms of just running that kind of volume our sales is something we don’t want to do. Those are big panels, they take up a lot of capacity in our tempering ovens and to be honest we got rather one smaller stuff that I can feed PGT and/or CGI with versus the bigger stuff like for WinDoor.

So I think capacity there I’m hoping, and we’ve got discussions with the supplier that that’s more of a short term issue. You know they are increasing capacity and we are going to get our share I think, because we are a great customer and they make money on us. So, I think I’m comfortable with that.

Ken Zener

Thank you very much gentlemen.

Rodney Hershberger

Thank you, Ken.

Operator

And I’m showing no further questions at this time. I would now like to turn the conference back to Brad West, Senior Vice President and Chief Financial Officer.

Bradley West

Well, thank you everyone today for participating in the call and if you have any further questions, don’t hesitate to give me a call. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.

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