Q4 2020 PGT Innovations Inc Earnings Call
[music].
Fourth quarter and full year 2020 earnings conference call.
All participants will be in listen only mode.
Please note today's event is being recorded and.
Now I'd like to turn the conference over to P. J T innovations and Chief Financial Officer, Brad West.
Go ahead, Sir Thank you and good morning.
And welcome to PTT innovations fourth quarter and year end 2020 Investor Conference call.
And the investors section of the company's website, you will find the earnings press release, with our fourth quarter and full year, 'twenty and 'twenty results as well as the slide presentation, and 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 slide two of the presentation as well as the disclaimers included and the earnings press release, and our SEC filings related to forward looking statements.
Today's remarks contain forward looking statements, including statements about our 2021 financial performance outlook.
And the possible impact of the COVID-19, pandemic and our business going forward those statements involve risks uncertainties and other factors that could cause actual results to differ materially.
Additionally on slide three you should also note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of prior and present performance.
Reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation and.
I'm joined on this mornings call by Jeff Jackson, PTT innovations CEO and president after our prepared remarks, we will take your questions and I will now hand, the call over to Jeff for opening remarks.
Thank you Brad and good morning, everyone and thank you for joining us on today's call.
I'm very proud of what our team and PTT innovations accomplished in 2020, despite unprecedented challenges caused by the COVID-19 pandemic.
Our solid fourth quarter results topped off an extraordinary year for 2020.
We grew both organically taking market share and by key acquisitions.
We ended our year with a record sales number of $883 million and adjusted EBITDA of 150 million and driving our net leverage to two one.
We accomplished all of this while keeping the safety of our over 3000 team members at the forefront of our actions.
I'm humbled by their dedication to continue to deliver quality products and service to our dealer partners.
Turning to slide four I'll begin with key highlights for the quarter, we achieved strong sales growth illustrating the strength of demand in the markets. We currently serve and our ability to service that demand.
We continued our history of innovation and product designs and investing in advertising and marketing initiatives. We did all this while maintaining our focus on protecting the health and safety of our employees and their families our customers and our communities.
Last month, we completed the purchase of a 75% ownership stake and Echo enterprises, which will help us achieve our strategic objectives as we look forward to continued profitable growth.
We financed this transaction and an attractive rate of capital, while well within our targeted leverage ratios Richie.
We achieved solid fourth quarter and full year results. Despite the impact of the pandemic and strong demand for our products continued through year end and into 'twenty and 'twenty one.
And the fourth quarter sales improved 27% versus the fourth quarter of last year, driven by strong demand and our southeast business unit and sales contribution from new South, which we acquired in February 2020.
Overall legacy organic growth, excluding new south was 11%, reflecting continued strength for our products and the Florida markets and other southeastern coastal states.
We are well positioned for continued growth as we most recently announced an exclusive agreement with the villages and North Florida the.
And the villages is the largest real estate development and the U S and has over 125000 homes.
This deal is expected to increase our market share and north Central Florida as they are currently adding over 3000 homes a year.
There are several factors that drove the demand in 2020, and we have seen these trends continue into 2021.
We are seeing strong order entry growth, which is driven and backlog to a record high of 200 million as at the end of 2020.
We are optimistic this growth and order entry will continue throughout 2021 as the Covid vaccine is rolled out and the market's fully reopened for business.
As most folks know spend considerably more time at home and many have more disposable income because they are spending less on travel and leisure dining out and other costs Covid is driven higher investment and home upgrades.
We expect the trend of working from home and the shift and disposable income trends will continue for much of 2021.
Additionally, we will continue to see the benefit from the U S population shifts from colder high tax climates to more favorable regions, and our footprint, including Florida, Arizona and Texas.
While we did not have a direct hit.
On our core Florida market. We believe we also benefited from a record hurricane season.
This past season witnessed increased and media coverage, which increase consumer awareness of the need for our and pet products.
Our investments and marketing also continue to play a positive impact on our growth.
To further increase both awareness and demand.
We apply data driven approach to generate leads and use digital marketing capture the at home audience during 2020.
We also leveraged partnerships with the leaders and the building materials space across our broad network of dealers, we can attribute growing demand for our products to our portfolio of well known and trusted brands, which meet and customer needs.
The sales contribution from new shelf was $28 million and the fourth quarter of 2020.
Driven by strong growth and the direct to consumer Florida residential market.
As a reminder, we acquired new South and February one 2020.
Integration of new South into our operations has resulted in a record level of production capacity and we expect continued future growth from new south existing retail locations and additional store expansion outside of Florida. In 2021, we opened three new showrooms and 2020 and expect to open three.
Additional showrooms this year.
Since acquiring new south we've been further developing our presence and the direct to consumer channel in Florida, and and other coastal states.
We have also been growing and developing our internal creative teams to further enhance our ability to drive product and brand awareness through a mix of traditional advertising and digital channels.
This continued marketing efforts and additional new south store openings in 2021, we will enhance our ability to capture market share.
We drove solid gross profit improvement of 40% driven by leverage from strong sales growth accretion from new south and ongoing investments and operational efficiencies and improvements and direct labor and distribution and our western window systems facility. This year.
Adjusted EBITDA margins for the company increased 110 basis points. This improvement was the result of excellent operational performance across all our facilities and.
And by leveraging operational efficiencies achieved with increased sales and diligent cost control.
Looking ahead into 2021, while we still see margin pressures and our first quarter similar to our fourth quarter, we expect full year margins to again exceed prior year comparisons due to continued organic sales growth opening new markets and plans to exit less profitable lines of business at new South.
Now turning to slide five while 2020 had its share of challenges we continue to focus on our framework of profitable growth and execute our strategic plan to create long term value for shareholders, while servicing our customers and communities.
Our first pillar is maintaining our focus on customer centric innovation from bringing products to market and offer and the performance and value our customers desire.
We continue to improve upon our innovative market strategies that have enabled us to gain insight into further demand that is now and driving our sales and the R&R market as consumers are spending more time in their homes.
Our second pillar of attracting and retaining talent is particularly relevant in the current labor market, where the stresses of COVID-19 pandemic and other factors have increased hiring challenges across many industries throughout the U S.
Our long term success depends on attracting and retaining dedicated employees with the right skill set and we worked hard to maintain a safe workplace and culture, where employees no. They are appreciated and rewarded.
Our third pillar is investing and the business to grow our manufacturing capabilities continue to improve operations lower operating cost maintained high quality levels and meet the demand increases over the long term.
Over the past several quarters, we are focused on operational improvements at our western window systems facility.
This focus puts us in a good position to take advantage of improving demand and the markets. We serve by western as 2021 demand is up 17% for the first seven weeks.
We are also deploying systems and best practices and our newly acquired operations at New South and Echo enterprises.
Which leads me to our fourth pillar.
Allocating free cash flow to support profitable growth.
And could come in the form of acquisitions as we recently have done investing and growing the business or paying down debt.
All with the end goal of driving shareholder value and consistent with our past execution.
Turning to slide six I'm excited to say last month, we closed the acquisition of 75% ownership and Florida based and go window systems and its related companies, which we are calling echo enterprises.
We are very excited to have the team from Echo joined <unk> innovations as we believe this transaction will accomplish several objectives.
First the <unk> acquisition is expected to allow us to expand and diversify our product portfolio lines and the high growth commercial market.
And long term secular trends behind the strong growth and Florida multifamily market are expected to continue and together, we are better able to expand our presence in that market.
Second Echo produces all its value added glass in house and a significant production capacity sourced.
Sourcing glasses, and ongoing challenge and our industry and by vertically integrating more of our glass supply, we expect to lower our material cost.
Incrementally improve our production capacity.
And over the long term enhanced visibility into and control of the supply chain.
Third echo extends our residential footprint and southern Florida with a highly incremental dealer network that our legacy business generally has not served and we believe echoes aluminum impact resistant product line is very complementary to our existing product portfolio.
So in summary, Inc.
<unk> is a very good strategic fit for us and we expect the acquisition to be accretive in 2021.
Let's discuss backlog, excluding new sale, our total backlog increased by 131% versus the prior year driven primarily.
Similarly by strong order entry and our southeast business unit.
Production capacity impacts from social distancing and other measures implemented to protect the health and safety of our employees and glass and other supply chain disruptions related to the COVID-19 pandemic.
Backlog has been impacted by some extension of our lead times as our operations teams worked to meet rising demand.
To ramp up production capacity of our Florida based operations to meet the robust demand and to address the growing backlog. We've recently implemented a seven day schedule to continue to ramp production capacity, but to be clear, we will continue to do everything and our power to promote our employees health and safety is our top priority.
We expect to incrementally increase production and 2021 and address the strong organic sales growth, we anticipate and Florida and returned the current robust backlog to normal levels later this year.
Looking forward, we expect the momentum to continue we believe 2021, we will continue our strong new construction market and a robust repair and remodeling market we.
We have already begun to see sequential improvements and sales in our western Windows systems core markets, including California, and our pipeline into our south eastern markets continues to grow.
We expect continued benefits from our operational improvements, including our efforts to reduce shipping expenses increased capacities and expand into more vertical integration within our supply chain that we are currently implementing.
To wrap up while 2021 was certainly a challenging year. It also highlighting our company's earnings power and the strength of our core markets throughout and these uncertain times, our employees have shown a consistent determination to support our customers communities and each other which help make our 'twenty and 'twenty results possible.
In closing I would like to thank our employees for their extraordinary efforts.
We look forward to delivering growth and servicing our customers and the years ahead now.
Now with that I'll turn the call back over to Brad to review the results in greater detail Brad.
Thank you Jeff.
Turning to slide seven for the quarter, we reported net sales of $222 million to break this down and further sales rose 16% versus the prior year quarter, and our legacy Southeast business unit, primarily consisting of Florida, and our western business unit sales decreased 11% versus the prior year due.
And to pandemic related market softness and California, and the sales lift from several large commercial projects and the fourth quarter 2019, however, exiting the quarter, we saw year over year growth and westerns orders and we have seen that growth trend continue into 'twenty and 'twenty one.
Looking at fourth quarter sales by channel and repair and remodel we saw sales growth of 14% year over year, excluding new cell and we expect continued sales growth in the R&R channel and the first half of 2021.
And the new construction channel organic sales for the fourth quarter were 7% higher than the prior year period. This was largely driven by legacy Florida sales for our Q4 sales were up 16% as compared to the year ago period, due and prior to our improved sales and marketing strategy.
Selling general and administrative expenses for the fourth quarter increased by roughly $16 million compared to the prior year quarter, primarily reflecting the addition of new South SG&A. Following its acquisition on February one 2020.
And excluding new cell SG&A improved by 10 basis points versus the prior year.
Leverage from sales growth more than offset incremental investments and advertising and marketing.
Direct labor as a percentage of sales decreased by approximately 30 basis points as we continued to benefit from investments and operational enhancements and efficiencies at western.
We also realized savings from improvements to reporting and dashboard and systems, which boosted efficiencies and labor resources and production line workflows.
Additionally, we are on track to achieve projected cost savings at an annualized run rate of approximately $3 5 million as a result of the closure of our Orlando plant and a consolidation of its operations into our Venice and Tampa manufacturing facilities.
Gross profit for the quarter was $79 million, a 40% increase reflecting increased sales and reduced manufacturing costs and.
Adjusted EBITDA for the quarter increased 37% to $33 million compared to an adjusted EBITDA of 24 million from the prior year quarter.
Our effective tax rate for the quarter came in at 20%.
We reported adjusted net income of 11 million or <unk> 18 per diluted share and the fourth quarter of 2020 compared to $6 million or 10 cents per diluted share and the fourth quarter of 2019.
We are always striving to better manage costs, while balancing our goal are running lean operations with the need to provide a high level of customer service, including reasonable lead times.
And our backlog provides a degree of visibility. So we are constantly monitoring and order entries and evaluating sales trends. While we are currently working toward expanding production, we expect to maintain the flexibility to manage our cost structure and the event our demand outlook changes.
Turning now to slide eight for the full year, we reported sales of $883 million and 18% increase from full year 2019. This included $94 million of sales contribution from new sales.
Organic sales, excluding new south were up 6% driven by a 9% increase and our legacy southeast business, which is offset in part by 6% decrease and full year sales and our western business.
Gross margin for 2020 grew to 36% primarily as a result of operational efficiencies and leverage across our portfolio from western window systems, along with the accretion from new style.
Adjusted EBITDA for the year was $150 million or 17.0% of sales and adjusted earnings per diluted share was <unk> 97 per 2020 compared to 82 and the prior year.
Additionally, while not included and PDT innovations results Echo posted a strong year and 2020, including similar strong sales growth and finishing the year with sales of approximately $85 million.
Turning now to our balance sheet.
We ended the year with net debt of $319 million, our only significant near term debt maturity is our term loan of $54 million due in late 2022.
As of year end, and we had a total liquidity of $176 million, including a cash balance of $100 million and $76 million of unused capacity on our revolver.
Subsequent to the year, and we issued $60 million of 675% senior notes due in 2026.
This debt was issued at a premium of 105 five.
Our pro forma net debt to trailing 12 month adjusted EBITDA ratio as of the full year 2020 was approximately two five times.
Next on Slide 10, we show our historical net debt and leverage ratio to highlight our track record of deleveraging following the completion of acquisitions.
As you review slide 11, I'd like to discuss PDT innovations capital allocation priorities.
One important priority is to find internal investment opportunities and projects, we expect to drive margin growth by reducing expenses.
We also look for opportunities to increase revenues, whether that is by product enhancements or higher production.
Another important priority is our commitment to maintaining a strong balance sheet and conservative capital structure by paying down debt after acquisitions our.
Our goal of generally is to maintain a conservative leverage profile within a target range of $2 <unk> to three <unk> times net debt to EBITDA absent any large acquisitions.
Finally, we used capital for strategic acquisitions that are expected to be accretive generate strong returns or allow us to expand into new regions channels or products.
We believe that our recent new styles and EKO acquisition net these criteria and we will continue to evaluate other possible acquisition opportunities as part of our strategic plan.
Moving on to slide 12 for full year 2021 guidance, we expect net sales and a range of 1 billion to 1.0 75 billion and adjusted EBITDA of $175 million to a $194 million.
This guidance includes a full year of the contributions of new south and a partial year period estimate for Echo which closed on February one.
For your reference we have included additional modeling assumptions on the left hand column on slide 12, with our embedded in our 2021 guidance estimates and they can assist you with your calculation of our estimated results.
Let me also update you on our aluminum coverage program as of today, we have contracted approximately 65% of our estimated aluminum needs for 2021, our current coverage inclusive of Midwest premium is 94 per pound, whereas current micro pricing is near $1 14.
We have seen a steady rise and aluminum prices following a period of depressed pricing that was due in part to the Covid pandemic.
Our coverage program helps to mitigate these aluminum cost pressures.
Otherwise we are not currently seeing any meaningful inflationary pressure on material costs.
I'll conclude with a summary of why I'm excited about the future PTT innovations and how we believe we can create long term value for our shareholders.
We are national leader and growing categories with strong brands, which have been further bolstered by recent acquisitions.
We have a history of delivering innovative products and and we intend to maintain our industry leadership through R&D, and making the right acquisitions and hiring and retaining the best talent.
We have significantly improved our operational efficiencies with a continuous improvement mindset that can help us drive long term margin expansion.
We are striving to execute a comprehensive strategy to create long term value for our shareholders and customers.
And finally, we believe our outstanding product portfolio will help us continue growing profitably.
At this time, let us begin the Q&A session.
Thank you we will now begin the question and answer session.
It's a good question and maybe I'll start and.
And one of them and Touchtone phone.
We are using a speaker phone please pick up per handset before pressing the keys.
The majority of question please post COVID-19.
True.
Today's first question comes from flow.
Please go ahead.
Hey, guys. Good morning, this is Maggie on for Phil.
Good morning.
Yeah, I just wanted just stellar.
On the full year guide I guess backing out eco and a month or so of new styles and getting into kind of that mid to high single digit organic growth can you talk about the different assumptions baked in there between the segments and and maybe by end market.
Sure, Yes and.
And math makes sense.
And really do you look at western which is experiencing strong organic growth as I've mentioned and my comment.
Year to date up 17% so far.
And also.
<unk>.
And we're definitely up here at our local vendors.
Ability and our Florida base brands, our backlog actually has increased to $250 million as of today. So we are experiencing strong organic growth now that mix is probably more slated to the R&R and new construction market.
Which can have.
Some margin impact to a certain degree.
But if you look across our brands.
We do see that.
Upper mid you know per growth that you suggest if you back out the acquisitions and.
We're pretty comfortable and what we've seen so far.
Okay, and just to clarify that 17% and growth you mentioned and western is that order rates or sale.
And that's order rate at this point, but like Jeff mentioned and the backlog the backlog is strong and crossed all of our.
Portfolio of brands New self included.
So our confidence in and their growth.
And as it comes from very strong demand.
Right right.
And then the past few quarters, you talked about some of those bottlenecks extending lead times and.
And you know.
That's definitely been a topic of discussion across the industry and.
But how are you thinking about the timing.
And then the labor and material bottlenecks anything and getting back to more normalized free time.
Well as you look across again all organization, we continue to have that ebb and flow from Covid impact are operational.
Efficient sees.
We continue to do what's right on the lines during the social distancing spreading out and Thats limited.
Our capacity is to a certain degree but demand like Brad said demand is.
Yeah.
Strong 30% year over year, so far this year and then.
We see that trend kind of continuing.
So those are you know COVID-19 has presented challenges here PDT. It's also presented challenges at our suppliers.
<unk> performance in Q4 was similar to that of Q3.
I'm, hoping that's going to improve in Q1, we've already seen from glass supply and improvements in Q1. They have some ways to go but definitely have made a and improvement in their trend.
But many of our critical suppliers.
Continue to cite labor constraints share.
<unk> demand across the industry is the main factor.
They are slow to delivery or they or their performance to us and we've even had some allocate capacities. So what we're doing to kind of come back that if you will if you look at black glass for instance, glass is about 40% of our direct material spend.
We brought on Echo and we think the glass capacity, we're adding internally via vertical integration is going to help alleviate or eliminate some of the other.
Needs there and if you look at say aluminum, which is about call it 30% and direct materials. We've added some additional extruders, we've onboard and some additional and <unk> tried to make up and the allocation issues or any shortfalls. There. So we're looking across our supply chain to add.
Onboard more support to it and obviously, we're looking and.
As we've demonstrated and vertical integration to try to shore up some of our other needs in the supply chain itself. So we feel that we will have a benefit.
Definitely as we move into 2021.
Yes and I.
And would add that generally speaking, we're making a lot of adjustments as we try to navigate this COVID-19 situation, but I would also add to the fact that just generally speaking we feel that demand is increasing for products and Florida for impact resistant products. A lot of these things are just general long term increases and.
And capacity to support what we think will be continued growth, including adding some vinyl manufacturing capacity because vinyl growth has been very very strong force. So.
These are all things that we're doing to be able to keep up with the demand.
Got it thanks, guys and congrats on a good momentum.
You.
Unfortunately today comes from Josh Rosen.
And James Please go ahead.
Good morning, Jeff Brad Thanks for taking my questions.
And good morning.
First on the topic of the backlog could you give us a sense of where your lead times stand today versus last quarter and versus what you would call normal.
Yeah, that's going to change based off location.
Western is normal lead times are you know, they're two weeks for their corporate builder program and their custom is anywhere from six to 10, depending on the product ordered so western is actually from operational standpoint in line.
It's really the lead times are have and extended here and the Venice.
Location, and mainly just because of the share demand.
<unk> reported a lot of new corporate builders and as I mentioned, we signed up the villages, which is a significant win for us and so as a result, we've.
Brad alluded to earlier, we're adding currently adding vinyl capacity, we've got equipment on order and Theres been some extended lead times on that equipment quite frankly as the industry in general is experiencing.
Net.
But we do have.
Plans in place to increase capacity, especially on our vinyl lines, but we're literally going to move our onsite and warehouses for those who have been here at PGE now we store all our finished goods here and the center of the manufacturing facility, we're going to turn that into production space and you'll see that change happen over the next I'd say call it two quarters.
<unk>.
As we extend our warehousing.
We will have a warehouse and the east coast by April and we will start shipping finished goods directly from the line.
To that warehouse and we will take that warehouse space and we're going to start adding capacity. So those are the some of the things we're doing to improve those lead times, but lead times here and Venice, I would say again, depending on what bucket you're in and we have corporate builders, we have the R&R buckets and different categories, even among those buckets.
But in general our lead times are anywhere from seven to 10 weeks.
For the corporate builder and the R&R side is can be 15 up to twin depending on what youre looking at and location and product. So.
We are.
Like I said, we're not comfortable those lead times.
Backlogs and now $250 million, but we are shipping out more product than we ever have out of this facility and we've got actions in place to continue that ramp up.
As we see demand continuing to stay strong.
Got it.
And there's a variety of cross currents in terms of.
Cost per inflation and bringing in the acquisitions.
So could you give us a sense of what youre, assuming for gross margin year on year as the year progresses, how much maybe up or down year on year and each of the quarters.
So Josh.
Great point there.
And a price increase at the beginning of the year.
Roughly to 7% and 9%, but because of the lead times that Jeff just mentioned.
So those price increases will not started positively affecting our margins until we get to.
Basically the and the middle of the second quarter until the back half of the year. So we are expecting to see some margin pressure and the first quarter as we navigate these changes year over year will probably be down a good a good amount even potentially 200 bps.
Most margin I think we will make that up and SG&A.
So our EBITDA per cent will probably be.
Pretty close to in line on the <unk>.
Fourth quarter.
But down year over year.
The rest of the year.
We will see gross margin improve as the price increase kicks in and as these.
Changes that Jeff talked about start to kick into place and that's how we get to the guidance for the full year.
Yes, I'll just add to that and then.
To that.
We are comfortable and in and knowing our EBITDA margins are going in and improved year over year, we have already.
We've got action plans in place and and we can see that coming.
What we have is cost that we hadn't offset by the price increase quite frankly and that pricing like Brad said starts roughly in June.
Of this year.
Inflation wage pressures, we put in a substantial increase in wages during the fourth quarter, we're probably going to even have some more of that and the first quarter of this year.
As we fight the labor market and try to add talent tenured talent.
We feel that the operational efficiencies, we've achieved and in the past it was based off of tenured workforce and we've been able to deliver substantial improvements in gross margin and the path, we will get back to that and we got to get us stabilized workforce from the demand, we're seeing and that puts pressure on wages.
But we will be able to cover those like like Brad said and and pricing later on and the year.
Thanks, So much good luck with the next quarter.
Thank you.
And our next question today comes from Keith Hughes The Truest. Please go ahead.
Thank you I just wanted to talk about the acquisition.
Close.
Our commercial initiatives and just talk about how big of their business that is and what's sort of the plan.
Two to get that ramped up.
Yes.
Keith.
Commercial side is not a very big component of Echo at this time.
Hi, there.
They have a lot of products that.
Are actually approved and developing currently and then a lot of products that are currently waiting for approval. So so the pipeline of potential.
Robust portfolio and the commercial side is there we signed a couple of large jobs quite frankly over the last several weeks and we.
We do expect good growth and that commercial.
Multifamily commercial segment with Echo, but other sales of Echo we bought in 2020.
Small very small and material piece was commercial is mostly <unk>.
Residential it was and different dealer network.
As we said it was a very incremental dealer network to our current one that net.
So <unk> sales through and.
So the big upside for 2021 and your win is to launch all of these products and start landing. Some some good commercial jobs I think we're in great shape to do.
Okay.
And.
Sure outlook on mix.
For the year is it.
You know given how strong demand is at this point.
Are you seeing a shift.
And that's what we've seen and other businesses as you shift towards the lower and.
From a housing and that's really not your market per se what does your per.
You're spot on there.
Well okay.
Brad give you the detailed numbers only give you what's happening what we're seeing here and especially in Florida is we're seeing both markets come to a peak.
R&R is up 14% force new constructions up 16, and the Florida market itself is up that much. So we're taking share.
And which is a great problem and the opportunity I should say to have.
So that mix has been skewed more towards new construction at this point, but as we add capacity to our.
Our facility here as I said earlier, those capacities will be more dedicated to R&R business. So I think youll see that that mix shift during 2021 back to more R&R and more even between R&R and new construction, but right now yes, new construction has been more of the dominant growth and more and the dominant mix.
As we speak for the whole year of 2020, new construction was 46% and R&R was 54%. So we've seen as high as 60, R&R and periods and the past we've seen 50 50, and when you go back even before the downturn of 2008, but I will say.
We've seen very meaningful growth in both sectors and.
Our opportunity to grow.
As in both sectors and the acquisition of moving the acquisition of Newsouth.
And R&R play right and then.
And our Venice facility and some of our CGI.
Brands have been focus some on the new construction as well so I think we're set up well to grow and both categories. So right now it's harder to predict because we're kind of playing in both markets and doing well and both so but I do know that right now new construction as it has been very very strong and growing faster in the past maybe R&R was the stronger the two and now Theyre voltages.
Very strong and we got to navigate both those channels and the south to do well.
Okay. Thank you.
And our next question today comes from Michael Rehaut with Jpmorgan. Please go ahead.
Hi, This is Maggie on for Mike.
Maggie.
First question is on new South.
Obviously you saw.
Can you pretty strong order growth and <unk>.
And I was wondering if you could give us an idea of how the three new stores that you opened and 2020 are performing versus the existing stores and also as you look to 2021.
What is the timing on the three additional stores.
And that Youre planning on opening.
Yes, Maggie base.
Basically when new South opens up a store I'd say theres, probably roughly a year of.
Getting the marketing and place getting the sales force in place and really kind of establishing a presence and that in that space. So so I'll answer the second part of your question first the timing of the new stores and in 2021 are basically probably one and the second quarter, one and the third quarter, one and the force something and something like that I would not expect to see and.
A meaningful increase and the sales.
For those stores this year, just because there'll be and their first year for the stores that opened last year.
We had some some good results as we got towards the back half of the year as you would expect.
Some of the stores were affected a little bit by obviously COVID-19 had it has its impact on any stores ability to open robustly, but but our store and Pensacola started seeing some nice demand towards the end of the year, our store and Charleston, which was the first open source and really nice demand and the end of the year and then Houston was the last store to open up.
And starting to see some.
Some nice.
Momentum here and the first part of this year, So I guess I would argue that.
And the new sales growth that we saw in 'twenty and 'twenty growth, obviously, mostly from the legacy stores and the Florida stores and we saw very strong meaningful growth across the original stores and we started seeing some momentum and the new stores and 2020 and.
And we'll see even more in 2021 from those stores.
Okay. Thank you.
And so again another question on Echo.
As you think about growth.
Could you talk about the potential to expand.
It goes through the rest of your south eastern footprint, maybe outside of just the southern Florida market.
Where it's a stronger right now.
And the other end markets I'm kind of.
Throughout the rest of your footprint.
Yeah, and we look at Echo and several different ways, one the commercial side of the business.
Got and develop that and more obviously I mentioned and the various products that are going to be coming out some already out some and the pipeline.
And we got to develop relationships and.
Both the from the install as well so that whole piece can be leveraged and outside of southern Florida. We plan on leveraging the commercial side of the business over the entire state and were.
Currently actually bidding projects are in the process and bidding projects and <unk>.
Northern Florida for instance.
On the residential side, that's going to probably remain a southern Florida South Florida.
Residential window, just because of the.
Dealer base is sold through.
And Theres a lot of growth potential.
And that dealer base and the population that that serves and then on the glass side I mean, that's going to be incredible for us in terms of shoring up supply there on the impact market and on the AIG insulated glass side as well, so we kind of view.
Echo and three different buckets.
Probably to your your question and most leverage and will.
Statewide we would definitely be the commercial and we think ultimately and with AK EBIT, even can take the commercial outside of the state of Florida.
Okay, great. Thank you.
Thank you.
And ladies and gentlemen, and I was a reminder.
Please close doors and one.
Your next question comes from Ken Zaslow.
Please go ahead.
Good morning, everybody Hey, Ken.
Lot of stuff going on.
And what strikes me just echo glass and.
Hockey glass capacity vertical integration and it just brings me back a few years.
What do you glass was a big part of your strategy in terms of how you communicated around gross margin because cost inflation, you've got the glass costs down and your gross margin would go up is this.
So small and I shouldn't worry about it in terms of the echo glasses that kind of a side comment or is this really you know between the two large glass suppliers is really.
What you see is as needed given where that high fixed cost business. It has supply today.
And Kevin Great question, and I'd say, maybe a little bit of both.
If you look at the.
And the actual adding this capacity is going to be significant for us, especially on the impacts out of the equation.
We were severely strained with impact glass and I don't want to underestimate that.
For the nine months in 2020, I mean, it was it was tough.
And so to have that ability in house to do that yourself if needed.
And is an incredible asset.
Now if you recall the reason we sold some of our glass equipment back in 2017.
Right, yes, because we needed production.
Capacity, we needed production labor, Okay. We're still we're not adding glass capacity here and Miss is in Miami and Miami is just a different labor market. So theyre right and add production labor. We can add glass labor is not as big of an issue. So we view it both geographically and strategic as well as.
Long term.
A benefit to margins.
Fascinating.
It's like squeezing a balloon here can you maybe talk about I mean to the extent you feel comfortable like what type of capacity.
You know within the larger perspective, this could help you because I mean that.
It really was an interesting dialogue and narrative and the past so vivek.
In fact, you're jumping back and giving a wider production footprint, where there's more labor capacity I mean, it all makes sense, but is this like 10% and 20% or.
You don't need to give an answer but I mean.
Give us a sense of the material input costs or capacity.
It's probably in terms of added capacity is probably up.
Capacity about 50%.
And we'll be able to basically service CGI.
Out of that facility.
Majority of CGI CGI C. R storefront operations as well as echo echos and growing we and correlate growth great. Yet we will next quarter, we're going to give more color around echo, but I can assure you. They are seeing similar trends that we've quoted here for PTC. So so.
So and and.
And this is not what we're in business and do but but they also sell glass II other parties and so.
That's a piece of it as well.
And margins on that.
Utilized.
Great Extruder.
Memory was.
This also gets and I I apologize to kind of go into these bigger pictures amid all the good execution and you're doing but it's I think it's kind of cash tactic strategic and the sets that you're a much larger company now.
Extruding you guys. When you redid your whole vinyl you switched over to I believe do a solo supplier on that extrusion that youre buying on your now unique profiles.
And I heard the word extrusion a couple of times could you expand on that and it sounds like when you were saying right I wasn't sure you Havent bought Extruders have you and and at what are we seeing in terms of the extrusion.
Profiles or is there any issue capacity pricing issues that you'd like to talk to you.
And I'll speak in general and Brad comment.
And we haven't bought any.
Vertically integrated and the extrusion.
There's basically two types right aluminum and vinyl.
And where we get our profile so.
And what we've done because aluminum got kind of got squeezed. During this whole COVID-19 thing we've on boarded some more suppliers.
It's just as simple as that we've increased our base of supply options, which is a good thing. Okay vinyl. We don't use just one we've never just used one now we do have a majority relationship with a particular final and sugar, but western times and vinyl extrusion and that they use a new south.
And one has one we have one we mean the PBT and legacy brands has one so we have multiple options on the vinyl side as well and.
And when.
And I said earlier that we're adding additional of annual manufacturing capacity I was referring to capacity to make vinyl windows and extrusion capacity yeah.
Could have been like.
Interesting.
Wes you know out west the initiatives, you've taken to get into R&R, which is a huge untapped market for you out there and not untapped, but large upside.
As you know and.
'twenty you pay right production Windows, which were.
That stock, but highly efficient versus more custom could you talk about the initiatives that you know given COVID-19 to grow that business I know you guys talked about opening some storefronts.
And as well as where we are on the production.
Transformation of our Phoenix to handle production and windows versus more customized R&R stuff. Thank you very much.
Well I'll speak and general Bowers from growth initiatives, and I'll, let Brad comment earlier and kind of.
Turnaround and margins and.
And whatnot and which has been incredible.
In terms of growing the business, we are trying to expand the R&R presence.
Within our western brands and.
And historically western has been and new construction.
<unk> platform.
Having multiple national contracts with toll brothers and the like.
We're going to.
Expand on that national contract.
By adding a full product offering.
As a means to have the whole house package.
We've also opened up Skye walls, which is a retail store concept are targeted to the R&R market again.
Getting to expand and the R&R market, we opened up our first store and Anaheim, We open up our second store in San Diego and as California has.
These restrictions and come onboard again the business those stores are starting to experience and so.
Some good traction so those are a couple of it.
And the initiatives.
That we have going on from a growth sales standpoint.
Coming on yes.
Yes, so so western and really started making some major improvements in their focus and basically on their manufacturing labor and distribution.
And basically how they got the product to their customers and.
And all.
All of that and what we really saw is over the course of the year they started making.
Quite a bit of large improvements on their gross margin and EBITDA flow and pleasing from fourth quarter alone.
The Western business was up 400 bps, and direct labor and distribution costs compared to where they were at fourth quarter of last year.
So the western team did a fantastic job and has made a obviously a pretty material impact on <unk> as well by doing that so we're excited about what they're able to do going forward and obviously it means they now have the base and which to grow.
As they get more demand and things start to recover and return out west there and a great position to handle that growth.
Thank you very much gentlemen.
Good hearing from you.
And ladies and gentlemen. This concludes the question and answer the first one I'd like to turn the conference back over to the management team for any final remarks.
Hello, and thanks, everyone for joining us on our call today, and we look forward to talking to you next quarter take care.
And thank you Sir.
Today's presentation you may now disconnect your lines and have a wonderful day.
And then.
Okay.
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