Q2 2021 PGT Innovations Inc Earnings Call
Good morning, and welcome to the P. G P <unk> innovation second quarter conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by Bresnan Starkey followed by zero.
After today's presentation there'll be opportunity to ask questions. Please note that this event is being recorded.
I'd like to turn the conference over to Mr. Brad West Interim Chief Financial Officer. Please go ahead.
Thank you and good morning, everyone and welcome to the <unk> innovations second quarter 2021 Investor Conference call.
On the investors section of our company website, you'll find the earnings press release issued earlier today as well as the slide presentation, we have posted to accompany today's discussion.
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 disclosure statement on slide two of the presentation.
As well as the disclaimers included in 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 potential impact of the Covid 19 pandemic on our business going forward.
Those statements involve risks uncertainties and other factors that could cause actual results to differ materially.
Additional information on factors that could cause actual results to differ from expected results is available in the company's most recent form 10-K.
Additionally on slide three note that we report results using non-GAAP financial measures, which we believe provide additional information to help investors compare prior and present performance.
A 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.
I'm joined on this mornings call by Jeff Jackson, PDK innovations CEO and president.
We will take your questions after delivering our prepared remarks, I will now hand, the call over to Jeff.
Thank you Brad and good morning, everyone and thank you for joining us on today's call.
We continue to see impressive growth in demand during the second quarter across all our geographies, but particularly in Florida and across both our new construction and repair and remodeling channels.
But that growth in perspective for the first half of 2021, excluding EKO annualized unit order entry has grown by approximately 40% versus 2019.
We are large custom window and door manufacturer. Therefore, we require a strong and experienced direct labor force to produce the quality products our customers need.
Additionally, we require equipment to produce the materials and for space to make in store finished goods.
During the back half of the second quarter, we made exceptional progress in all three of these categories.
To upscale our business to meet the growth in customer demand.
This was accomplished during a unique period in which our industry and others have faced labor shortages and supply chain problems due to the strength of the economy combined with the worst thing than we've seen in our lifetime.
While we faced our share of challenges I'm very proud of our team members our employees dealers distributors, everyone have consistently gone above and beyond to serve our customers.
The availability of vaccines has helped us on many fronts, including enabling an increasing number of employees to work safely in person in our facilities. However, we continue to monitor and prepare to respond to the potential effects of Covid Marriott one of our business customers and employees.
Turning to slide four second quarter sales grew 41% versus the prior year period, establishing a new quarterly record.
In our southeast business unit sales were up 40%, including 24 million of sales contributed from our Echo Windows systems acquisition, which we acquired in February of this year.
Our western business unit sales increased 44% due in part to continued economic recovery in both Arizona, and California, where orders an increase year over year, 47, and 31% respectively for the first six months old.
Overall organic growth was 29%.
To take advantage of growth trends in our Western region and May we acquired Cri Socal me, a California based window and door design and installation contractor.
This was a 10 million tuck in acquisition that will enable us to better serve large commercial builders and the new construction and strengthened our position with key customers in that region.
Our strong revenue growth drove a meaningful increase in gross profit during the quarter, although several factors, including the investments made in scaling up the business contributed to higher costs negatively impacting margins.
We experienced material cost and wage inflation on products that were shipped against older backlog sold before price increases have taken effect. Additionally.
Additionally, product mix in our legacy south eastern markets shifted slightly towards less profitable non impact products, which represented 31% of our business in the quarter compared to 28% in the second quarter of 2020.
Some of our recent pricing actions were done to improve the profit in our non impact sales in the southeastern business unit.
Despite the challenges of the pandemic and historically tight labor market and supply chain disruptions, we have been able to add people equipment and manufacturing and warehouse space to facilitate operations at higher run rates required to meet demand growth.
These actions while necessary for long term growth drove higher costs in the second quarter and into our third quarter and a number of areas.
First the second quarter, we were very successful at recruiting new hires.
For example, in a tight labor market in Florida, we significantly increased head count by 600 people or 17%.
However, in our custom manufacturing facilities. It can take up to six months to train a new team member to reach the level of efficiency Mcguire.
Therefore during the quarter, we incurred recruiting training labor and overhead expenses without the benefit of increased production capacity that we expect will flow in the back half of 2021 and into 'twenty and 'twenty two as our new associates will enable us to ship more products to customers and continue to be.
<unk> our lead times.
Okay.
We incurred expenses of adding a new Fort Myers production facility, which began 24 seven operations in June.
This past quarter. We also continued to invest in increasing capacity at our Venice, Miami and Tampa facilities.
Third earlier this year, we leased a new facility to increase warehouse capacity in South East, Florida.
This improved our fulfillment capabilities and freed up warehouse capacity to increase production.
And finally like the first quarter. We also had the labor cost inflation related to increase base wage rates and retention bonuses.
In this competitive labor market, we prioritize.
Retaining our experienced team members, who have made our success possible throughout this pandemic.
These initiatives were not easy and challenges remain however, I'm very proud of the progress. Thus far we are confident these steps will help us increase our output, which will allow us to decrease our lead times and put us in a better position to meet expected strong growth in demand for the remainder of this year and into 2022.
Despite the short term initial drags on margin in the second quarter, which will continue into the third quarter. These actions were necessary to meet the significant growth, we see and to better serve our customers.
Our previously announced price increases are beginning to take effect.
And our recently added team members are already starting to make positive impacts on our lead times.
We expect to see some margin improvement in Q3, although we will experience pressures similar to Q2 as our training of new team members and expansion costs continue.
We anticipate a more normalized operations and margin results in the fourth quarter and heading into 2022, where we will have capabilities more in line to meet robust demand we've seen over the past 15 months.
The impact of the increasing prices and shipments in the back half of 2021 allows us to increase our annual guidance range and sales to one one to $1.2 billion, representing a growth of 25% to 36%.
Based on the substantial investment previously discussed the need to increase capacity to meet this demand. This is driving a reduction in our EBITDA guidance range to $160 million to $190 million.
The range continues to be wide given the uncertainties around the unique supply chain challenges training new team members and how our workforce continues to be affected by Covid.
Turning to slide five we have more detail on order entry.
We again saw strong order entry in our southeast business unit up 33% driven by continued strength in both the new construction of 57% and the repair and remodeling market up 21%.
At Western order entry was up 52% as we saw continued momentum in recoveries in states like California, Arizona and Texas.
Our recent acquisitions, new South and Echo continued to see impressive demand growth for the second quarter retail sales at Newsouth window solutions totaled $40 million, an increase of 36% year over year.
Echo achieved order entry growth of 32%.
We are optimistic that we will continue to see growth into 2022 as regions within our key footprint, including Florida, Arizona, and Texas continue to see net migration of residents from states with colder climates and higher taxes.
We have made significant strides in the quarter and will continue to invest to position PDT innovations to be able to meet this demand.
Slide six summarizes the framework gods or execution as we seek to create long term value for our shareholders, while servicing our customers and communities.
Our first pillar is a customer centric innovation to stay in front of them changing builder and consumer preferences by bringing products to market that off of performance and value they demand.
We were always looking ahead to drive future sales to customer preference insights.
I previously addressed our second pillar, which is recruiting and retaining talent, we need to continue growth across our entire organization. We have increased head count by approximately 1000 people in 2021.
We have always placed an emphasis on being an employer of choice, but during the pandemic, we placed a greater emphasis on proactive communication to expand our team of dedicated employees with the right skill set.
We work hard to maintain a safe workplace and our culture, where employees know their appreciated. In addition, this year, we have implemented a long term incentive plan to help retention.
As previously mentioned, we've been able to meaningfully increase our head count in the past few months.
Our third pillar is investing in the business to scale, our operations to capture anticipated increase in long term demand.
This year, we've been especially focused on increasing manufacturing capacity and capabilities.
These actions will help us meet growing demand critical equipment for vinyl and glass capacities, which had been delayed from covid challenges are beginning to arrive and will allow us to increase capacity throughout the back half and into 2022.
Our fourth pillar is allocating free cash flow to achieve profitable growth through one investing for growth through new product development and production capacity.
To paying down debt and three finding the right acquisition.
Now I'd like to turn the call back over to Brad to review our results in greater detail Brad.
Thank you Jeff.
Turning to slide seven we.
We reported net sales of $286 million for the quarter, a 41% increase over the prior year quarter.
This includes 29% organic growth from all of our legacy businesses, including substantial growth within our new South business, which continues to increase orders and installation.
From a channel perspective, our repair and remodel sales benefited from our last two acquisitions, both of which focus mainly on Florida's R&R market.
In the second quarter, our sales breakdown finished at 56% R&R and 44% new construction our.
Organic sales grew 26% during the quarter and organic new construction sales grew 32% from the strength of our legacy brands.
Gross profit for the quarter was 97 million, a 30% increase reflecting the increased sales.
Offset by the items, Jeff previously discussed.
Second quarter gross margin was 34.0% a 270 basis point decrease from the prior year quarter. The decline was impacted by an increase in direct labor expense.
Mainly caused by the increased head count and corresponding training costs and increased wage rates and overtime within our operations as we continue to compete for labor in a tight market.
In our western markets, we continue to see labor improvements, which partially offset this impact.
Inflationary pressure on materials also impacted our margins negatively during the quarter.
This was mainly a result of the cost of aluminum, which from a cash perspective was up 61% in Q2 compared to prior year.
We were hedged at only a 12% increase for 64% of our needs during the quarter, which mitigated this impact.
Going forward, we are hedged at similar amounts for 70% of our needs for the remainder of 2021.
Due to the initiatives discussed by Jeff and pricing actions already taken we expect gross margins to improve approximately 50 basis points in Q3 and further improve in Q4 as price increases and further efficiencies to take hold.
Selling general and administrative expenses for the second quarter increased by 40% compared to the prior year quarter, primarily reflecting higher selling costs. As a result of increased sales and increased amortization expense related to recent acquisition.
We did also see an increase in distribution costs as we work to expand our south eastern operations.
Which will begin to normalize as efficiencies are gained.
Additionally, we made some marketing related investments in our three newsouth locations that have opened over the past 12 months.
Our adjusted EBITDA was 36 million, a 3% increase versus the $35 million in the prior year quarter.
Our effective tax rate for the quarter came in at 23% lower than our normal expected full year modeling assumption of 25% due to certain discrete tax benefits realized during the quarter.
We reported adjusted net income of $10.7 million or <unk> 18 per diluted share in the second quarter of 2021 compared to $12.5 million or 21 cents per diluted share in the second quarter of 2020.
Turning now to our balance sheet on slide eight.
We ended the quarter with net debt of $431 million, our only significant near term debt maturity is our term loan of $54 million due in late 2022.
As of quarter end, we had total liquidity of $123 million, including the cash balance of $48 million and $75 million of unused capacity on our revolver.
We finished the quarter with net debt to trailing 12 month adjusted EBITDA ratio of approximately two seven times.
Next on slide nine we have updated historical net debt and leverage ratio to highlight our progress towards deleveraging. Following the completion of acquisition as well as shows our track record.
On slide 10, I would like to discuss <unk> innovations anticipated capital allocation priorities. Our first priority is to find internal investment opportunities and projects, we expect to increase capacity drive margin growth by reducing expenses or by increasing revenue through product enhancements.
Another important priority is our commitment to maintaining a strong balance sheet and conservative capital structure by paying down debt after acquisitions.
Our goal generally to maintain a conservative leverage profile within a target range of two to three times net debt to EBITDA absent any large acquisitions.
Finally, we use capital for strategic acquisitions that are expected to be accretive and generate strong returns over the long term.
We look for opportunities that would allow us to expand into new regions channels or products, such as cri or that would give us access to technologies enhanced manufacturing or supply chain capabilities such as echo.
We will continue to carefully evaluate other possible acquisition opportunities as part of our overall strategic plan.
And now I would like to turn the call back over to Jeff for some closing comments Jeff.
Thanks, Brad I'll conclude today with a summary of why I'm excited about our future and while I believe PTT innovations creates long term value for our shareholders.
We are a national leader with strong brands, which has been further boosted by recent acquisitions our products are in growing categories and the fastest growing regions in the U S.
We have a long history of providing our customers with innovative products to meet their changing needs and intend to maintain our industry leadership through ongoing R&D hiring and retaining the best talent and making the right acquisition.
Continuous improvement of our operations is how over time, we can drive long term margin expansion.
Although recent challenges have surfaced as we emerge from our historical pandemic and experienced record demand growth in the second quarter. We took many steps to make improvements necessary to gain this required capacity.
Lastly, we have a comprehensive strategy that we are striving to execute to create long term value for our shareholders and customers at.
At this time, let me begin to Q&A.
Operator.
Well now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speakerphone, please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then two.
This time, we'll pause momentarily to assemble the roster.
First question comes from Phil <unk> of Jefferies. Please go ahead.
Good morning, Jeff and Brad This is John Dunigan on for Phil.
I just wanted to start by asking.
About.
Some of your.
Cost and inefficiencies given that price increases flowing through.
Offset by some of the lingering costs that you outlined when do you think the EBITDA margins will inflect positively on a year over year basis and can you also quantify the cost inefficiency that you experienced in <unk>.
Yeah, So I'm going to ask your second question first.
Experienced year over year decline in margin of 270 bps all along.
A portion of that was a direct labor inefficiency that Jeff referred to just as we hired quite a few employees to help get the get us up to the capacity that we need so that was probably.
From a year over year perspective, 200 to 230 bps of difference.
We will start to see that improve in the back half of the year, but like Jeff mentioned there is there is a six month training a window. So it will take some time, but we're starting to see some of that already and we're starting to increase our output already so we feel confident in the path. We're taking there on the pricing side, we kind of got the pricing that we were expecting in Q2.
<unk>.
So kind of the mix. If you will was the was the labor getting the extra labor cost, but the pricing.
They'd come in pretty good and we expect an additional probably 100 bps of pricing in Q3, and then even.
Even more pricing in Q4 year over year margins.
In Q4 are going to be very favorable because Q4 of 2020 was was a was one of our you know we're still in the Covid period for the most part so our Q4. This year is going to be pretty strong year over year, but ultimately you know you sell what.
We have for the entire guidance range for EBITDA I think that's a pretty good reflection of where we think margins are going to come in for the back half.
Excellent and then just one more.
And any impact on demand in operations with Covid.
Case is spiking in Florida, and similarly have you had any material availability issues related to either covid or transportation bottlenecks.
Yeah, I think this latest bout of Covid.
Impact.
I'd say about roughly 50 people right now are out are related to covid.
The issue is it affects certain line. So if one person goes out of line or in a warehouse for instance that whole group generally impacted and is out that's probably the biggest operational impact. Because then we have to cover for that that group.
In terms of the supply chain challenges, we are still facing supply chain challenges.
Our major glass supplier. Just this morning were 1400 unit on back order or a short and that impacts us quite frankly, we have to reschedule is 1400 units because we were scheduled to build them. So we are still having material impact.
There are hurting us, but what I want to make sure I point out we began the second quarter actually.
We made a strategic decision to add.
600 people in the.
Basically a two month period.
So if you looked at April or April EBITDA margins were fine.
Teens mid Pat say call it 15 ish percent, but.
But when we added all those individuals' when we opened up Fort Myers and once we've got fully spun up our warehouse on the east coast.
All of those all of those investments.
Are there to help capacity, we get we got to drive more capacity into our system. So we can quite frankly bring down our lead times and better serve our customers because we did see that significant increase in demand you put that on top of Covid. It does create its share of challenges.
<unk>, we went back and we get to go back to wearing masks.
Mandatory in our facilities here in Florida.
Again, we are out of abundance of precaution for our folks who want to keep them safe as possible and we still have all our covid procedures in place cleaning sanitizing.
Social distancing working from home all of that still on the forefront for folks.
Excellent. Thank you very much I'll turn it over.
Thanks.
Thank you. The next question is from Ken Zenner of Keybanc. Please go ahead.
Good morning, everybody.
Good morning, Ken.
Hi.
You guys have expanded your footprint enormously if we look at today's current housing demand.
Relative to housing demand and collecting at the end of.
Yeah, the great financial crisis, or whatever you want to call it.
The industry window industry in general I think I'd say some of the same issues right because windows are.
They are highly variable cost in terms of you'd need.
Teams of people.
So if you just kind of highlighted obviously, if one person goes down it takes out a team in terms of the covid.
Could you maybe give us some context to the 600 people you hired cause your footprint is a lot wider.
You're in southern Florida, and Arizona.
Arizona can you give us a perspective about how that 600 labor Pool addition compares perhaps to be.
<unk> expansion last cycle, when we kind of have the same I don't want to say growing pains, but just staffing up issues just to put it in context, because you obviously did recover.
As those costs and people came online.
Right Yeah, Ken that's a very good question and again, that's where we kind of get our six months estimate on training folks because that last cycle I think it was back in 13, when the housing market kind of took off from it.
Downturn.
Period.
Yeah, We did we had to staff up again, because the demand took about six months.
But folks are trained and we're hitting back we're hitting our margins again.
If I compare the two it's probably the size and scale now versus then.
You know then we're coming off a base of sales of <unk>.
All that 300 to 275 million 371, Im sorry, $175 million and you know.
Now, we're coming off a much bigger.
<unk> growth.
Percent after an even bigger base. So so CDI for instance, they've been a stellar.
Facility in terms of performance the team here has done a phenomenal job.
But their orders are up 90 plus percent.
So it's just hard to scale up that kind of order growth efficiently and that's what you've seen.
<unk>.
Very successful, adding 600 people I'm very proud of the team and the efforts that took place to do that but like I said it come into cost.
That decision and I think it's the right one long term because again they will.
And we've seen members will get efficient they will become part of the.
PDT family.
And.
There will be productive.
Thank you very much and then it sounds obviously you talked about that the growth you know the 300 basis point margin pressure two thirds of that plus.
Is labor.
So with the pricing going through it sounds I mean, obviously, if you're on backlog from glass manufacturers, it's hard for you too.
Meet your demand would you say or quantify.
Perhaps lost sales.
You too.
Lack of material coming through the supply chain to you is that something that.
Or is it just how do you consider that I don't know if we can quantify it here you know to be honest. When you have we have ourselves I asked that question and the answer is yes.
But I can tell you the sales that were lost.
Toward lower margin.
Sales, mainly in the say call it in the corporate builder.
Arena, where the lead times got extended to a point, where they had to get someone else.
Which quite frankly, if you're going to lose sales that's the area, we wanted to lose them.
Lower margin sales. So we have had lost sales due to performance.
Yeah, we are not and have not for the last few months operated at a you know.
Historical PBT level.
We're still not again, we've got to get to our folks up in train.
<unk> seen some signs of improvement.
Quite frankly, and I'm going to go back to lead times as an example lead times for our vinyl lines at the end of June were 38 weeks.
Now they are running anywhere from 22 to 26 weeks.
So again, that's a substantial improvement in just call. It a five going on six week period.
So we're starting to see improvements our back orders are coming down.
At the end of <unk>.
June our back orders were $21 million now they're closer to 15 heading to 12.
We've seen already some movement in performance, although I don't want to underestimate, we we've got a long way to go given the robust demand we are seeing.
Do you see.
Appreciate if I could just ask one more since it's been raised with me.
Within your core impact market.
Would you say that your market share has been fairly steady just generally not.
Has there been any shift in that market that.
You had comment on thank you very much.
Yeah, I would say it is.
Been steady the market's grown tremendously.
And obviously with our sales up and order entry up in total for PDP or 47%, but that includes our EKO acquisition, but we are growing faster than the market.
If you will in certain areas, especially I would say in our new construction area, but although R&R still very robust growth there as well.
I, it's hard to quantify or are we losing share.
We are maintaining I just think.
Again, I'm centering on Florida, the market is just growing so dramatically.
All boats are floating.
We'll show so other companies are growing in sales, but we are too and we're growing our share some estimates have exactly.
And people moving into Florida over the next.
Two two years. So obviously the market is growing and I also think impact products are continuing to gain in penetration.
Generally so both of those things are creating large growth in the market overall.
Thank you gentlemen.
You bet. Thank you Keith.
Okay.
Thank you. The next question comes from Joshua Wilson of Raymond James. Please go ahead.
Good morning, Jeff and Brad Thanks for taking my questions. Good morning, Josh.
Kind of a related question there was a pretty big disparity between your new construction order growth and your R&R order growth.
To what extent was that due to different competitive sets and how do you think for your mix evolves in the coming quarters.
Well, we actually <unk>.
Gain some new customers some relatively large new customers new construction. So some of that was share gain but we have seen I'd say this year I think we're projecting overall growth in new construction single family starts to be somewhere in the neighborhood of 30% based upon where we're training. So it's kind of a combination of pretty sizable.
Growth in the new housing starts as well as the fact that we gained a couple of large customers.
Those customers for example, I mentioned on the last call like for instance, the villages they came on and Thats pretty much all new construction, but that was a significant.
A win for our team and.
New construction growth.
Do you feel so you think the difference is just share gains in new construction and I feel like you lost some share in R&R.
I wouldn't say, we had loss share in R&R, because some of the smaller dealers when lead times get extended to what they were in the second quarter like I mentioned in vinyl 38 weeks, although now we're down between 22 and 26 weeks slotting.
Sliding glass doors, they got up to 30 weeks now were down at 22 weeks. So when your lead times do get out to 38 weeks I know, we lost some R&R business, obviously, it's hard to quantify given the significant growth. We've seen yeah. I think just keep in mind, though when you look at our actual shipments.
Lead times are a little bit more protected than new construction. So you could see a circumstance where our order entries are relatively consistent growth that new construction just grew a little bit faster than the shipments because of the slightly reduced lead times there.
Got it and then as we look to 'twenty two can you give us a sense of what your capex plans might be there.
It is early to tell we typically try to stick to 3%, 335% say of sales on Capex.
We are going to expand our manufacturing footprint.
In Miami, we did acquire 75% of Echo.
This year and we are looking to expand that glass producing capability by adding into more insulating equipment down there. So there's a couple of big projects like that that we're going to be doing but it's really too early to put a put a firm number but I think if you stick in that three and a half it would be a conservative.
Three 5% of sales is what we typically run and Geoff I'll add to that obviously this year, we're going to end up spending more than what we planned at the beginning of the year, but a lot of that just stays within the three 9% just because of our order entry is up so much it still ends up being about three and after that exactly.
Got it good luck with the next quarter.
Thank you.
Thank you and our next question from Michael Rehaut J P. Morgan. Please go ahead.
Hi, This is Maggie on for Mike Thanks for taking my questions.
First question on your capacity expansion.
I believe you said that some pieces of it had been delayed due to equipment delays.
Cross your vinyl and glass capacity.
I was wondering if you could give.
Bit more granular of a timeline of when you think.
That that capacity is going to come online and begin benefiting operations across your different product lines.
Yes, there has been some delays that's a great question I think even in the.
The first quarter earnings call, we had mentioned growth in our vinyl adding capacity there that got delayed quite frankly that that is still not all the way in a portion of that lines and we now have another a third UV line.
And.
But it's still not whole, we're still missing one piece of that line.
For instance, we added we've been adding cutting and loading capacity at echo for that glass plant. So we can produce more glass that got delayed and it just came in this week.
There's various components that have been delayed scream, making ability.
We are trying to ramp up our ability to make internal screens as well.
Associated with that most of that should be in place by the fourth quarter.
Again, it's coming in this quarter piecemeal.
So there's a little bit hard to answer because that's just out of our control.
I definitely have.
Discussions with the team the ops team weekly if not daily on the timing of some of that in their hands are tied to a certain degree because it's either tied up in <unk> coming from overseas and various other reasons.
And it's typically covid related in terms of what's happening in our supplier our.
Equipment, So I would say by the fourth quarter, we should be in good shape, hopefully again, knowing the equipments literally coming in as.
As we speak for instance.
Cut hurricane and so.
It's coming in this quarter.
Got it that's helpful.
And second on.
Price cost.
Recognizing that you've already contracted.
Sir a good amount of your aluminum needs for the rest of the year can.
Can you talk about your inflation outlook and any potential that you might see for the need.
Sure.
Further price increases.
Yes, the pricing that we've put in place was kind of calculated and designed to deal with the inflation that we had seen basically through maybe call. It the midpoint of the second quarter, but just when we kind of Atlanta announced our last big price increase and the major inflationary factors as a reminder to every.
One again is the cost of aluminum and then also our wage rates for the most part those have remained relatively steady since that point and when we do our analysis of our pricing, we're still confident that our pricing can cover those inflationary pressures.
And the demand obviously such that the pricing has been accepted and not really an issue. So when you think about Q4, we're going to be in a position, where we will start getting past the back log that we traded pre price increase and start seeing those margins and then at that point, what will be kind of left to get us to that.
Margins, we have historically seen will be just getting on the efficiency side, making the final steps in that regard with our six months and our team members are trained.
Got it thank you.
Yeah.
Can it be able to question. Please press Star then one.
That's question comes from Keith Hughes of Suntrust. Please go ahead.
Oh, Yeah, just a little longer term question.
A couple of deals to be done.
Then, Florida, South East centric.
As you look forward is that just is that going to be the area given how robust the growth is but we will see more deals or will you still consider stuff in other parts of the country like a western which sits your margin profile.
No that's a good question Keith.
Yes, I think what you'll see now in Florida versus deals is going to be expansion and investment.
Both in technology and innovation.
And warehousing and distribution.
Florida is incredible market and I think we've got enough brands and exposure here and we just need to basically service, what we have and growing and it's growing rapidly.
So so the next acquisition, we will be out of the state.
We're targeting something out west.
Maybe to join the western facility and that team did a phenomenal quarter has had a great quarter and theres certain targets. We're looking at certain geographic areas, we're looking at and quite frankly product mix.
Vinyl sliding glass door, so we need to expand their product portfolio as well, so we're targeting product mix slash.
Geography in that acquisition.
Next one.
Okay. Thank you.
Thank you.
This concludes our question and answer session I would like to turn the call back over to Mr. Brad West for closing remarks. Please go ahead.
Thank you everyone for joining us on today's call and if you have any further questions don't hesitate to give me a call and we'll look forward to talking to everyone next quarter.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.