Q1 2020 Earnings Call
Good day and welcome to the P.G.P. innovation.
First quarter 2020 earnings call.
Today's conference is being recorded after todays presentation, there will be an opportunity to ask questions.
Ask questions you May Press Star then one on your telephone keypad withdraw. Your question. Please press Star then too I would now like to turn the conference over to Sherry Baker, Senior Vice President and Chief Financial Officer.
Please go ahead.
Thank you operator, good morning, everyone. Thank you for joining us on call today.
On the Investor section of the company's website, you will find the earnings press release with our first quarter 2020 result, as well as the slide presentation. We have posted to accompany today's discussion. This webcast is being recorded and will be available for replay on the company's website.
Before we begin our prepared remarks, please direct your attention to the disclosure statement on anyway.
[laughter], including statements about our 2020 outlook and the impact of Carbonite team that may involve risks uncertainties and other factors that could cause actual results to differ.
Materially.
This disclaimer as a brief summary of the company's statutory forward looking statements disclaimer, which is included in the company's filings with the FCC.
Additionally on slide three you should also note that we report results using non-GAAP measures, which we believe provide additional information for investors to help facilitate comparisons prior and present the format.
A reconciliation to the most directly comparable GAAP measures is included in the table attached to the earnings release, and India Ondeck as a slide presentation I'm joined today by P.T. innovation, CEO and President Jeff Jackson. After our prepared remarks, he will be available to take your question I will now hand, the call but.
Jeff for opening remarks.
Thank you share and good morning, everyone and thank you for Jordan This morning.
We along with every other company are navigating through an incredible dynamic marketplace as a result, or the cold and not change and then.
I would like to start off the call. This morning by expressing how extremely proud I am on all our employees.
Continuing to deliver high quality products and service to our customers, while maintaining as a top priority the safety and fill of Archie numbers.
Customers in communities.
I also want to thank our customers suppliers as well as our employees for their support during these challenging times.
Next few words on how we're handling the cold and not chain pandemic at PGT elevation.
As providers and essential products and services, we are an important partner to our customers and suppliers and this is a responsibility we take seriously.
Early on we took measures to protect the health safety of our team members, while enabling our manufacturing operations to continue.
When the pandemic first appeared we formed a Kobin task force to immediately study the effects of children not team could have on our company.
Early on we implemented a comprehensive action plan.
Focused on the safety of our team members and customers. We also monitored and implemented changes that were in line with both federal state and local government mandates.
Some examples of our robust safety plan put in place are included on slide four and include enhanced sanitation at all our facility temperature checks for all our employees upon arrival at our facilities and limited external visitors.
For our first quarter, we achieved significant sales growth, reflecting the overall strength of our brands in both the offering or and new construction markets going into 2020.
I'm extremely proud of our employees for continued to deliver the high quality products and service our customers expect well operating within the new guidelines.
In addition to keeping employee say, we've taken several decisive actions in the first quarter intended to preserve cash and booster our balance sheet strength and liquidity given the uncertain times in the economy.
These include reducing discretionary cost and carefully prioritizing capital expenditures, while continuing to deliver the products needed by our customers.
Well the presentation today, we will provide additional details on the examples or our financial flexibility shown here on slide four.
I can summarize however by say what do you believe that given our current liquidity position.
Fine with our current expectations regarding our cash flow.
Expect to have the resources, we need to flex to potential changes in demand for our products brought on by the economic impact of Cowen 19, pandemic Sherry will take you through our balance sheet later on and call.
Next on slide five I'll briefly cover our four strategic pillars that we strive to execute against where the goal of creating long term value for our stakeholders as well as our customers are first pillar is maintaining our focus on our customers who are at the center of our business by delivering customer centric.
Innovation, we expect to drive brand loyalty recognition and ultimately growth.
For example, we have assisted several customers during this latest pandemic with the fogging their facilities to enable them to safely operate.
Our second pillar.
Recognizes that long term success requires maintaining the best employee challenge, which is why we must continually work to attract and retain the best people.
Our leadership quickly responded to the rapidly changing dynamics in this marketplace.
As a result of the pandemic and I'm very pleased with what our team has been able to accomplish to keep our business operating successfully throughout these uncertain times.
Our third pillar is investing in our business to manufacture the best products to meet customer demands in the markets we serve.
We accomplished this through ongoing investments and operational efficiency, which we achieved through continuous improvement initiatives.
For example, we announced our intention to consolidate the manufacturing products from the Orlando facility into our Venice, and Tampa locations to further improve our network operating efficiency.
Although as part of our actions to preserve cash and liquidity, we expect to reduce the amount of capital expenditures and other investments in our business in 2020.
Our overall long term strategy.
It is to continue to invest in our business to further improve our operations in products and.
And our fourth pillar is to strategically allocate capital.
We continually assess our capital allocation parties, which may include reinvesting in the business, making acquisitions are paying down debt.
With all the goal to ultimately driving shareholder value.
The recent acquisition of new South, which enables us to enter the direct to consumer channel with a recognized brand and is currently seeing over 50% order growth versus prior year is one example of this cheap pillar next turning to slide six as previously mentioned, we had an outstanding.
Quarter as the market momentum distressed last quarter carry forward into 2020 with a strong organic growth in both our south east and western segments. Additionally, after completing the acquisition of new shelf window solutions on February Onest, our newest brand contributed $16 million to Q1 sales.
Which met our internal expectations.
Our adjusted EBITDA grew by 39% driven by the leverage from higher sales and lower direct labor and material cost.
On prior calls we have discussed our investment in.
Process improvements at western window systems to reduce direct costs associated with a mix challenges of custom and commercial products. These projects have come online and we're now seeing impact and improved direct labor costs.
Additionally, in last year's fourth quarter, we took a series of actions to reduce costs across the organization to optimize our capacity based upon our ongoing efforts to continuously improve our efficiencies in margin and due to our demand outlook going into 2020.
Sales in Q1 was stronger than we expected and we were able to manage that demand without growing our fixed cost base.
Because of our earlier efforts to control costs. We believe we are in a strong position to navigate impact a cold enough teen pandemic impacting our second quarter.
Now turning to slide seven.
We started off 2020 with strong sales and order growth across the board posting growth across our entire portfolio.
In our southeast business unit, which we will refer to throughout this call as our legacy Florida operations, excluding nisa sales improved 18% versus the prior quarter, reflecting strong organic growth both repair remodeling and new construction sales saw significant swing to growth.
Compared to the first quarter of last year.
And our legacy repair remodeling.
Our first quarter sales increased 16% versus the prior year, reflecting improvement in the overall market and successful implementation of a number of key strategic initiatives.
We continue to increase our sales outside of Florida with other states sales growing 30% in the first quarter as compared to prior year.
Within the commercial channel, we have seen signs of strength and growth in condominium hospitality and mixed use projects.
We invested in product development resources to accelerate growth in this area and we're currently evaluating opportunities to grow in the segment with our new self brands. In addition to our current PGT legacy brands.
For new construction, our southeast business unit sales increased 21% driven by our corporate builder program, which grew by 30% year over year in the first quarter.
Our legacy, Florida business continues to benefit from the overall increase in builder activity as well as exclusive agreements we have developed with large builders.
Western window system sales increased by 14% versus the prior year quarter, reflecting continued expansion in core and emerging markets.
We saw signs of market improvement in key western markets, such as California, which contributed to an overall production builder sales increased 39% versus prior year.
Custom sales were essentially flat compared to last year strong Q1 comparison.
To help you understand the underlying demand.
We show our level of customer orders as well as our sales backlog year over year.
As you can see we experienced a 21% increase in legacy ordering activity in Q1 of 2020.
And this has resulted in a 30% increase in art order backlog versus a year ago.
The backlog has not gone away as a result of coding.
And has actually grown through April as our orders have outpaced our reduction in manufacturing capacity, resulting from the pandemic.
Which we are working to steadily grow through the summer months, while we still follow guidelines. We put in place. We believe that are necessary to protect the health and safety of our team members.
Drilling down in our backlog at the end of Q1, our southeast business unit backlog was up 39% year over year.
Our western window systems backlog was down 5% year over year.
But that reduction in backlog was primarily a result of our efforts to improve production output not a decrease in overall sales activity.
Together on a weighted average basis. This resulted in a 30% overall increase in backlog for Q1 of 2020.
In addition, order entry was up over 50% when you sell which underscores our belief that this is a great acquisition for the long term growth and complimentary to PDG innovation existing business model.
Obviously, the cobot pandemic has changed in macro environment and our overall outlook for the remainder of the year.
Similar to the industry, we began to see a slowdown in orders entering the second quarter.
And our Florida market, we have seen order entry declines of approximately 10% for the month of April as compared to prior year with a sequential decline of over 30% versus the first quarter growth rate.
We quickly adjusted our operations to meet the changes in demand, but because we are seeing it increased pipeline of orders in our Florida markets. In May we are beginning to build backup or capacity to meet that recovering demand.
In some areas that had early end or more stringent building restrictions related to the pandemic, such as California, and Nevada, we are seeing softer order patterns down 20% to 30% from April as compared to prior year with a sequential decline over 40% versus the first quarter growth rate.
Despite a great start to the year, there remains quite a bit of uncertainty around the impact of this global pandemic we are facing.
This uncertainty of the duration and extended the pandemic and the unfavorable economic environment has created has limited our ability to forecast the remainder of the year and as a result last month, we withdrew our 2020 guidance.
Assuming our markets do not experienced any significant increases in kobin nothing cases in their economies continue to reopen we do however expect to see a modest recovery in order trends and related sales as we move throughout the year more heavily weighted in the fourth quarter.
We expect our Florida markets to achieved year over year growth by year end.
In addition, we expect that our EBITDA for the year will be burdened by incremental cost weve insured and expect to continue.
To ensure related to covert 19 vendetta.
And now I'll turn the call over to Sherry to review our quarter in greater detail Sherry.
Thank you Jeff.
Now turning to slide eight to give more detail on our results.
For the quarter, we reported net sales of 220 million, which as Jeff mentioned includes 16 million from the back when does the luncheon also I should note the quarter included an extra week sales versus the prior year quarter.
Q1 sales in our southeast Virgina increased by 18% organically versus the prior year quarter with strong growth in both new construction and repair and remodel sale.
Weapon window system sales for the quarter increased by 14% versus the first quarter of last year, reflecting a strong return to growth in our production builder sale.
Gross profit for the quarter was 81 million a 32% increase over the prior year quarter, driven by higher volume operational efficiency improvements and effective cost control. Additionally, we saw favorable aluminum pricing that resulted in approximately 800 basis point improvement in gross margin.
From the prior year quarter.
Selling general and administrative expenses increased over $10 million compared to the prior year quarter, primarily driven by a DNA for new South following our acquisition higher selling and distribution costs from higher sales, an increase marketing spend versus prior year.
Adjusted EBITDA for the quarter was 39.4 million compared to adjusted EBITDA for the prior year quarter of 28.3 million or an increase of 39% the improvement EBITDA reflect the benefit of higher sales lower direct labor and material expense, resulting from diligent cost control.
Operating efficiency.
Our effective tax rate for the quarter came in at 21%, which was below our full year estimate.
This quarter included an excess tax benefit of $800000, excluding discrete items the effective tax rate for the first quarter is 24.8%.
We reported adjusted net income for the quarter of 16.4 million or 28 cents per diluted share compared to 9.2 million or 16 cents per diluted share in the first quarter of 2019.
Now turning to our balance sheet.
One of our top priorities is making the strength of our balance sheet to ensure the company is well positioned as the economy seek a new normal over the course of the year.
We ended the quarter with net debt of 361 million an increase from $282 million at year end, which includes 50 million of senior notes issued earlier in the air to help on the purchase of meat, though.
Recall that these added onto the 315 million aggregate principal amount of the company's senior notes due twentytwenty SEC.
We have no other significant debt maturity with only a term loan at 64 million maturing in late 2022.
As at quarter end, we had total liquidity as 144 million, including a cash balance 68 million plus 76 million of unused capacity on our revolver as of May 1st our total liquidity with 145 million.
An all cash minute basis, we maintained a net debt to trailing 12 month adjusted EBITDA ratio of approximately 2.4 times pro forma for the new South acquisition.
We are closely monitoring our accounts receivable and have not yet seen any material change in days sales outstanding or significant increase in bad debt expense.
In terms of financial Covenant, the 2016 credit agreement do and 2022 can take a springleaf financial covenant that would apply if we draw an excess of 35% of the revolving facility commitment, excluding 7.5 million Undrawn letters of credit.
Now turning to slide 10. This chart should be familiar to many of you we like to point out our proven track record and reducing leverage after completion of significant acquisition and this will continue to be our priority for us going forward. Once we transitioned out of our capital preservation mode that we believe as necessary and so we have more visible.
At the effects of the Coven 19 pandemic on our business.
On slide 11, I'd like to review our capital allocation priority. Please note that with the business uncertainties related to the Kevin pandemic. Our primary focus for 2020 is to preserve cash and we're taking steps to minimise capital expenditures were possible once we gain better visibility into the impact of the pay.
Then on the company for the balance of the year and assuming we have adequate capital and liquidity to pursue our traditional capital allocation priority I want to share how we're thinking about capital allocation.
Our first priority remains internal investment in project expected to drive revenue reduce cost and generate future shareholder value.
As you can see from our Q1 results we've been active on this front, making incremental improvements as part of our continuous improvement culture.
Our second priority would be our commitment to debt reduction and maintaining a strong balance sheet, we expect to maintain a conservative leverage profile with a range of two times said three times net debt to EBITDA with a preference for staying at the low end at that range. Our third priority for capital use would be strategic acquisitions that allow us six.
Span entering new geographies in market other building products or new channel to expand our footprint and that we expect to generate strong margin.
Given the uncertainty around the economic outlook as well as our recent acquisition and lease out we expect that our primary focus for 2020 will be preserving liquidity and optimization of our manufacturing assets, we expect that any future potential acquisitions will most likely occur and 2021 or beyond.
Finally, you may note that we ever lose share repurchase as a priority no stock repurchases were made during the quarter and we plan to remain committed to maintaining liquidity as well as the priorities I've just described for the foreseeable future.
Well, we have withdrawn our full year financial guidance for 2020, I want to share what our current assumptions are for Q2 and the key indicators, we're closely monitoring for the back half of 2020.
We expect Q2 sales to be lower by 7% to 10% as compared to the same period last year, driven primarily by over 19 related reduction in orders, which started in April.
We expect our margins and EBITDA for Q2 to be in the mid teens due to a combination of those lower Q2 sales and unexpected negative product mix and both our Florida business and western market and ongoing incremental cost incurred in response to the Kevin 19 pandemic, we expect guard.
Decision to maintain a cost structure that reflecting some cost reduction assumes that sales were return in Q3 and Q4 to levels that will require the resource is funded by that cost structure to properly manufacturer and deliver products to our customers and a reasonably timely manner and service.
Customers need.
As Jeff mentioned earlier, assuming our market did not experience any significant increases in October 19 cases, and their economies continue to reopen we expect to see a modest recovery in order trends and related sales as we move throughout the year with our Florida markets expected to achieved year over year growth by.
At year end.
We are constantly monitoring in evaluating order entry in sales trends and protection and economic factors that may impact the demand for our products through the remainder of the year and we made further reduce our cost structure. This year. If we believe those factors indicate they need to do so as we get further visibility into the remainder of 2020.
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As stated earlier, we are minimizing our capital expenditures to those better business critical.
We will invest in capital to complete the closure of our Orlando facility as we reported in April once completed which we expect to occur in June of this year, we expect to deliver 3.5 to 3.8 million annualized cost savings.
Now I'd like to turn the call back over to Jeff for some closing thoughts Jeff.
Thanks Sherri.
Today I'll conclude my prepared remarks by reiterating PGT innovations investment thesis, which has not changed despite the economic uncertainty head of us.
We are a national leader with strong brands and the growing categories. We compete.
Second we will product innovators.
We intend to maintain our advantage as leaders in our industry by investing in R&D acquiring brands in hiring and retaining the best talent.
Third we plan to continue our focus on improving operational efficiencies that drive margin expansion over the long term.
Fourth.
We are striving to execute on a strategy that we believe will create long term value for our shareholders and customers and finally, we believe our product portfolio positions us to capture profitable growth in the markets we serve.
I would like to close by expressing my deep appreciation for all the essential workers, who had been on the front lines of this crashes from healthcare professionals and first responders to the grocery store employees delivery drivers and all essential workers, who has been working harder for the benefit but others at this time I'd like to turn.
In the call over to the operator can begin today.
Operator.
We will now begin a question and answer session to ask a question you might press Star then one on your Touchtone phone if using the speakerphone. Please pick up your handset before pressing the keys to.
To withdraw your question. Please press Star then queue at this time, we will pause momentarily to assemble our roster.
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And we'll take our first question from still live with Jefferies. Please go ahead.
Hey, good morning, everyone and congrats on a very strong quarter.
Good morning.
Jeff kind of kick things off what's the typical lag from your pipeline and new orders to sales is based on the backlog do you have in the trends, you're calling out and orders in recent months does seem like implied mid to high teen organic sales decline into Q3 potentially conservative, but appreciate and there's lot of puts and takes.
Help us understand so these dynamics.
Yes, typically what we like it is our lead times to be anywhere from non NPAC lead times, a week or two weeks to impact lead times from two to say four weeks at the most.
We had distress those lead times out due to the in part due to the pandemic some of the operational changes we've made to both social business on the lines for instance, spreading lines out staggering shares.
Staggering once rates et cetera, all that has served in pad capacity. So.
And early on actually.
Getting a march I initiated a hiring freeze and so that hiring freeze we also.
I think three weeks later with the no overtime. So we can stretch that pipeline out to keep folks busy might like to quite frankly other than the safety of our close on my other priority was to keep busy unemployed and a job. So we've had no layoffs as a result of this pandemic. Unlike other companies.
I've had to do so we basement stress that pipeline out so right now those lead times, even though they are improving because we added starting back adding capacity based off.
Back half a second quarters order volume.
Right now those lead times are probably in the seven seven to eight week lead time area.
Got it okay, that's helpful and perhaps.
Can you give more color on May I know appreciating things, we have bottomed out and earlier mid April.
Given some of these states that have reopened like a Texas and California can you give us sense, how orders may be performing in those markets and certainly scored as a big market for you.
Has that started inflect positively yet urea.
You know it for as far as May goes no I'd say would stick to our we're still going to be down.
In may it's going to be better mainly because of Florida. We are entering hurricane season June 1st as Hurricane season notice read. This morning, we're at a low pressure is being monitored over the Bahamas, so that could be the first time tropical storm and its first in active hurricane season as well so so that will be a.
Actual.
Also potentially lift for the Florida market, but in terms of markets reopening I. Just read also heard last night, California lay counties extended their stay at home Warner's for another three months.
So so markets are coming back online, but I'd say, it's definitely different by by area. So I think in Western has got to continue to 'cause southern Cal Germain market.
Production builder for instance is making southern Cal and they were up 39% in the first quarter versus last year.
Mark is all the shutdown.
The permits in California, we're in the negative 20, 20% to 22% or something like that Thats correct for April we expect similar not worse for May. So so I think what we're going to end up having and again may is going to be tough comps were going to be down mainly in our western business unit.
We're hope that current patterns, we're seeing in Florida, we're striving to be flat year over year, Florida by the end of the quarter entity I am sorry about it.
Got it Okay and just one last one for me.
Your news of business seems to.
Homered acquisition for the order growth was actually very strong in April I would've thought given the BDC nature of the business it could be more impacted by social distancing can you kind of flags and the things that are driving the strength and Youssef and thanks a lot.
Yes, thanks, Thanks, and Thats Great question, Yes, it has been a great acquisition.
It gives us a brand and the new channel quite frankly, we weren't in that consumer direct channel and.
With the ability out to also to expand and aggressively upside of state of Florida with opening up a new stores.
What's happened in new South is basically has been impacted by Covance. It's more the install side. So while quotes are up quite frankly sales are up like we said orders are up the pipeline has built for new south So right now based off our lead times, we have three months worth of pipeline ourselves.
Available for new South the orders are the installation of those orders as what was pushed basically out of April may starting to come back. Some in terms of people letting us back into their homes to two due to installs products and we held by the end of the quarter by June July will be back in.
Installing in those homes in our market will stabilize in Florida.
Okay.
No I I'd like to add just one thing and because this is a direct to consumer model, we believe that keeping ample level of marketing investment is really important because.
The opportunities are actually reach both.
Through our advertising as they are home. So you will see the impact of some of that when we're looking at our TTM margins, but we believe that that's going to pay it forward in Turkey for sale.
Okay excellent year.
Again, if you have a question. Please press Star then one.
We'll take our next question from Keith Hughes with Suntrust. Please go ahead.
Thank you. Thanks for your commentary on EBITDA margins in the second quarter and the revenue discussion of approximately six Mark your contribution margin will be down negative 30 something percent.
Second quarter I guess my question is if the third quarter looks the same.
Well that.
I guess in this case decremental margin looks similar world I get better with some of the cost saving lives.
Yes, we would expect it to get better and decremental margin you would typically see as around call. It 30% to 35%. There's a couple of things that are going on in Q2. So one you're also seeing with everything that Jeff was just talking about from a market perspective, we are seeing.
A negative impacts from the sales perspective, so we are heavier on the new construction aside and legacy business and the Florida market and we are heavier on the custom mix.
To some of those production builder declines at a faster paced than what we're seeing on the custom side. So you've got the impact of that negative mix that's hitting in Q2.
And also the impact of the reduced capacity such that was just talking about so as we're ramping up capacity up and we're expecting our sales to continue to increase as we're moving throughout the year, you'll start to see the benefit in the lever to that as you're living sequentially.
Okay.
You had talked.
Previously about.
Goal being flat here in Florida in the second quarter make sure I understand is that orders is that revenue does that include new Salford bond detailing that would be great.
Yes. So the flat is his legacy so we will try at least particularly for the first year to separate out new South from your your core legacy Florida market. So.
That that is really intended to talk about your your legacy Florida.
You are seeing roughly down 10% currently we are expecting that to sequentially improve and hopefully get back to growth by the time, we get to yearend, but we do is there's a new so we think we're going to continue see those growth rates. We've seen you south is still taking orders aggressively absolutely.
Okay I your final question.
The.
In the first quarter.
What was the revenue change in the southeast and what wasn't and Western I heard a number earlier I'm not sure if that was orders or revenue.
Yes, so your legacy, Florida, excluding it needs south was up 18%.
Roughly 16% on our 921% on new construction and year Western organic growth was 14% versus prior year.
Okay. Thank you very much.
You bet.
And our next question is from two men Patterson with Wells Fargo. Please go ahead.
Hi, good morning, everyone and a great quarter.
Thanks for taking orders.
Yeah, I'm glad to hear that you two or a safe and healthy as well.
First question on your Florida markets. You know you suggested that they started to recover in may.
This out on whether this is on the new residential side or the repair and remodel side and I'm really hoping to dig in a little bit on the hard or side I figured that homeowners.
I would likely be pretty cautious, having contractors and or their home could you just give us any update of what you're hearing and seeing on that front as well.
Yes. It is new construction has held up quite frankly.
We are or national builders are and our regional builders. They are basically finishing out who is currently in the pipeline and.
So thats held up nicely arent are obviously with the in home installation that has slowed down so.
Mainly also our big box kind of pipeline, the big Bucks centers that slow down as well.
Again anything you can pick up where people would do it themselves or have to go out or have somebody coming home has been impacted in is continually impacted.
It's especially if you look at our first quarter growth rates, we were seeing so.
We do expect in are starting to see.
Some some some yes.
People letting us in the homes.
We are aggressively marketing our program to be safe and clean and.
Sterile we're in their homes.
Our employees, we get temperature check they a sign of waivers that they're medically. Good. So we have processes in place to try to assure the homeowners that we're taking their safety into account as well and we're starting to see that is also quite frankly, you've gotten back in April as everybody experience.
Maze, Okay, and let me say by June we hope that we're hoping people will be back more close to normal.
Okay, Yeah, the only on the thing I would add particularly on their new construction side as you do have the benefit of probably a three to four months backlog not only on our side, but also on the dealer side as well so.
What we're seeing from an order entry pattern perspective will really start to show up probably closer to Q3.
Okay. Okay. Thanks for that.
And then on the EBITDA margins came in well ahead of expectations in the first quarter.
You, all mentioned cost management, and operating efficiencies and including the western window side.
Could you just go into a bit more steps.
About how sustainable these are.
And then also maybe give an update on the timing of when you think Orlando plant consolidation will be complete.
Be running close to you know that three and a half with $3.8 million run rate.
Sure and and I'll start with the Florida business, which candidly I think had just a phenomenal quarter from an operations perspective would be the operating leverage that we saw and the cost control what the amount of growth that we were seeing organically was was incredible.
Some of Western perspective, I will say that where we are starting to see that benefits is particularly on your direct labor side. So recall that we talked on our last call that there were some operational challenges that we were working through from a process improvement perspective, we've put on new procedures in place from an ordering perspective or order.
Others, and leveling and that's benefiting not only are direct labor, but also your shipping costs as well so a lot of those programs and processes that we put into place in Q1 are starting to really come to fruition as we were exiting the first quarter and really coming into the second quarter and then I'd also say remember we also took that restructuring so.
Charge in Q4 last year, when we took cost out.
Business, and we were able to leverage that is well, reducing our fixed cost.
Okay. Thank you all.
But.
Our next question is from Ken designer with Keybanc. Please go ahead.
Good morning, everybody.
Morning, Ken.
Good to hear you able to manage the backlog to keep the employees engaged.
Lot of different maybe parts here, if we could start with new sales I know, it's about $90 million sales.
Excuse me.
But the guidance would be subscribing to Ted in Twoq, you read that organic or was that including new south I wasn't clear on that.
That includes the itself.
Your your organic decline year over year is more in the high teens and right with the segregation of Florida being better than not and western being slightly worse than not on a weighted average basis, it's about high teens organically.
Excellent. Thank you now and then the EBITDA you mentioned mid teens is that correct I just I couldn't hear it clearly.
That's correct.
Great now.
Could you go into yourself a little bit.
Nine plus the show centers and you guys do the installation.
Do you guys is the installation as our those fixed costs or they per job and what insights that given you too.
The market would you say versus going through dealers historically.
Yes.
Hey, every jobs different new sales targets, what I would say a different customer base than our historical PGT dealer base targeted.
And they are more smaller jobs quite frankly and more one offs.
Person wants to just switch outdoors for instance, they may start with a door and then ultimately go to the Windows you South fits that model very well.
And again as we open up stores, which we opened the Pensacola store as well as the Charleston store and we have Houston scheduled to open up.
At the end of this year. So as we start to open up stores will start leveraging some of the marketing costs year end mentioned earlier.
Which is an investment not necessarily cost in how we go to market with new so.
What we what weve been able to learn.
Is.
So our price.
Both from a product standpoint, the installation standpoint is very similar to our dealer based product. So we're not we're not under cutting each other.
We're both in the market and are both therefore able to make make make money quite frankly, and it's very complimentary.
The other thing we've learned from a lead generation standpoint is we've been able to take new sales technology in their innovation in lead generation and implement our start implementing that for our dealer base as we call. It project coffee as soon as an initiative, we have going with our PGT dealer base. So we've learned a lot about lead generation.
Following up on those leads in the cost of those leads.
But again in terms the install install is variable.
And most of that labor quite frankly, even though we have some in house most of that outsourced. So will we will go into a home we will sell that product.
Local store that they'll go into home sale the product with the labor included and we'll have that labor preah range or pre priced with the related installer as we're quoting that that job.
Thank you very much.
Your last quarter, we talked about the west and Jeff you mentioned obviously.
Getting direct labor.
Lower.
Because of the shift from production builder to more custom could you update us perhaps.
Okay. Obviously, you have the segment EBIT data, which showed that 5%.
Margin difference between the southeast in the West I mean are we still kind of in that range and then specifically in the west.
The cost them sales process.
A big working a lot better than.
You know, perhaps you would have thoughts.
Three or five months ago as that really is your growth opportunity for that region.
Yeah, Yeah, I'll I'll take back so from a western perspective, we are starting to see the benefits of the process improvements in direct labor, but they were really put in place towards the end of Q1 and into Q2. So you are seeing fell a bit higher direct labor on a year over year basis.
But we are sequentially starting to see that normalized and get back to tell where we will be expecting to I'd say, you're going to see more of that benefit.
Coming in in Q2 on an EBITDA basis. You also do you have just an overall product mix shift a from a production builder and a cost some perspective, but that will play into effect and not in Q2, we will see more of a negative mix just due to all of the macro factors that.
That Jeff talked about all market driven non.
The health of the this is driven by all market related to co. Then so you'll see more of a negative product mix that will show up there as well, but you are at least starting to see I'd say more on a normalized cost structure going into Q2 that would be similar to what we're seeing last quarter.
Yeah, we've implemented we've implemented various changes at western it's an incredible brand and we're going to two obviously being more aggressive in establishing the or in our market. There. We did open up sky walls, which is our first retail.
Outlet, if you will in California, although again cobot not chain, California, not the best place to be at this moment, but it's an incredible opportunity to keep leveraging.
That brand in that kind of that open indoor outdoor window wall demand. This out there in the market. So we've got several initiatives like that and shared already mentioning internally level loading the plant.
You know synchronizing material purchases the scheduling increasing accuracy of the building materials.
The workforce, we had last year, we had about a 50 50 split between tail in permanent employees that best on way basically us about a 90 10 split now 90% employees are permanent we're training them, we're maintaining that knowledge base that.
That is important to have and we only have about a 10%.
Temporary force there so there's been a lot of changes at western the it will show up.
Later on during the year as Sheri mentioned in terms of actual EBITDA improvements.
But from a topline I would I don't know Riverside, California is a significant market for Texas are I mean for western and.
We are still seeing some.
Holding related impacts from California at this point.
Thank you.
Our next question is from Michael Rehaut with JP Morgan.
Hi, guys dishes Maggie on for Mike.
First dynamics sort of.
First a follow up question.
Question earlier than you previously talked about in the several expansion initiatives across the business opening new stores in south the new skywalk setback.
Thank you mentioned that you've still got due south.
Openings planned for later this year and that you did opening skywalk store in California, but I was hoping you could talk about how the Golden 19 situation has impacted these plants and.
If it has pushed them out to any extent.
Yes, yes, and thus the it's a great question and answer is yes.
Obviously long term is not going to impact us we still laid out our investment thesis and we're going to March to it.
And create the results we did for the quarter first quarter.
Overtime.
But from an execution on certain uncertain initiatives, yes, we've had two.
Lets say I'd say delay.
Would be a better word.
We will go to open up a second skoll expansion in northern Cal.
Frankly, we may look to do that in Las Vegas, or some other market that we had targeted into next year. We may change that market dynamics of where we go and it will probably be instead of the second third quarter, probably be a fourth quarter were trying to again assess environment that we're currently in and the duration of.
Any potential impacts to demand. So we have delayed certain initiatives. However, we are still fit the.
Screen Pensacola.
Store opening we do still plan on the Houston store opening was identified several locations.
I would say I would appreciate them to do it sooner and now we're talking more towards fourth quarter timeframe.
Versus you know say mid year.
So there have been some of those types of initiatives, we've cut our capex.
Spending quite frankly.
Sherri I don't know about how much roughly 30% I would say.
From what we were initially forecast and spent on Capex, we've tried to cut down on on those expenditures.
And we've taken an overall approach of.
We've got an incredible pipeline.
Built up $124 million and orders are stable.
Obviously down in certain markets this but stable for the most part and the goal is to see how long are this impact last.
30 million plus people out of work, they're going to come back to work is businesses start opening last I read about 50% of the states are starting our have.
At some form of unlock our opening of their economies.
We just got to see how how much that how long that chase and will flex our capacity in our plans to demand basically.
This is different than the last downturn quite frankly, we went into this thing strong.
The last downturn took a while to get here and it's more liquidity crisis with banks were not feeling that at all our worst case cash flow analysis with Sherry and her team are constantly on.
It has thus far and Thats why you know liquidity wise, we think we're in great shape.
To.
Go through the current.
And then it so I'd say, yes. That's overall, we are taking a cautious approach, but we're still following our strategy that got us here.
Okay. Thank you.
Hi, guys second on capacity.
Could you give us an idea of how much capacity you caught and when you mentioned that started to come back in Florida, maybe give an idea of where you are now.
Versus pre type of 90 miles.
Yeah, I mean, we're probably running at about 60% capacity by the put a percent on it roughly.
And.
Again.
Thats no overtime, just started back working overtime for assets and pay on a Saturday so that immediately add capacity into the system without any kind of really.
Thats, the having better cost in the dark labor so.
Yeah, we're running about 60% capacity.
I think we bring that back as quickly as we need to again based on demand.
If you if you think about it will be different at each location.
Here in Florida, we expect to spending much sooner.
Western we're still.
Having a LLC a hiring freeze we're not adding people.
People through attrition, we're losing folks anatomical, replacing through attrition if necessary, but but overall the labor pools. There again, unlike the past times labor pools, there and so when we put on that are put on the gas and internal capacity I'm, none of this easy but.
Definitely easier than it was in the past and we've we've already flex lead times down and certain lines based off demand for instance, you in Florida.
Sure you haven't.
Yeah, I would just say that as we're we're working through the quarters I would say that we're going to be I'm getting back to what I would call a normalized backlog as we get into the Q3 timeframe. So we're ramping up capacity as we're moving to the quarter and we have a get back to something more normal by the indicate rate.
Okay. Thank you.
This concludes our question and answer session I would now like to turn the conference back over to Sherry Baker for any closing remarks.
Thank you all for joining US today. We appreciate your continued interest in PBC innovations, we look forward to talking to you all next quarter and stay healthy impact.
Yeah.
The conference has now concluded thank you for including today's presentation.
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