Q2 2019 Earnings Call
Good day and welcome to the PGT innovations Inc. second quarter 2019 earnings calls.
Today's conference is being recorded.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
Withdraw your question from the queue. Please press the Star then two.
I'd now like to turn the conference over to Sherri Baker Senior VP and Chief Financial Officer. Please go ahead.
Thank you Ashley good morning, everyone and thank you for joining us on the call today.
On the Investor section of the company's website, you will find the earnings press release with our second quarter 2019 results 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 comments please direct your attention to the disclosure statement on slide two of the presentation as well as the disclaimer included in the press release related to forward looking statements.
Today's remarks contain forward looking statements that may involve risks uncertainties and other factors that could cause actual results to differ materially.
This disclaimer is a brief summary of the company's statutory forward looking statements disclaimer, which is included in the Companys 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 comparison prior impressive performance.
A reconciliation to the most directly comparable GAAP measures is included in the table attached to the earnings release and in the appendix of the slide presentation.
I am joined today by PGT innovation, CEO , and President, Jeff Jackson, and Brad West Senior Vice President of corporate development and Treasury. After our prepared remarks, we will be available to take your questions I will now have to call over to Jeff for opening remarks.
Yeah.
Thank you Sherri and good morning, everyone.
Before I cover the highlights of our second quarter performance I'd like to provide you with an overview of our strategic plan for those of you using the vein be new to our story.
Our first pillar is based on putting the customer at the center of our business and building loyalty with our brand of products.
By delivering exceptional products with exceptional service before during and after the sale, we enhance brand recognition and won't see which in turn drive future growth.
Our second pillar emphasize is our belief that we need to attract and retain the top talent required to win in a competitive market over the long term.
Our ultimate success is achieved by having a capable and dedicated team of employees.
Which is why we strive to make our company an ideal place to have a career.
A third pillar is investing in our business to build the best products and meet increasing demand.
Our ongoing efforts to increase our operational efficiency have not only been key to maintaining our quality levels, but also have contributed to the improvement in margins we reported this quarter.
We continue to innovate through our eye lab with exciting new products, such as our recently launched impact resistant keyless entry door and continue to invest in marketing to drive consumer awareness.
This leads to our fourth pillar, we expect to see two strategic fit strategically allocate capital from our strong free cash flow to continue our growth, which may include expanding our national footprint with a focus on niche building products and brands that feel strong margins and significant cash flow.
We also consider debt reduction and share repurchases in our capital allocation process, and we will consistently assess our options to drive shareholder return.
Turning to slide five we have finished the first half of the year reporting solid results for the second quarter.
Growing revenue gross margin and profitability as compared to the prior year quarter.
To deliver a solid bottom line, achieving an adjusted EBITDA of 20.6%.
At Western window assistance, we continue to grow sales by double digits. Despite of California housing starts headwind.
Through our continued market penetration in indoor outdoor living space and increasing sales in the commercial and multifamily channels.
Turning to slide six I will discuss our macroeconomic factors affecting our business and overall performance in the geographic geography, we compete in.
And our legacy repair and remodeling business, we continue to overlap last year significant growth rates.
Predicting this year is our in our growth rate has been proving a challenge given the level of storm activity over the past two years.
Builder disaster building material spending in 2019 is down both domestically and internationally and is projected to remain well below last year levels.
In Q2, 2000, 2019, we saw a decline in our in our sales up 8% versus the prior year quarter that mainly reflects a tough comparison with a 30% growth year over year in Q2 2018.
Recall that last year's performance included a favorable sales impact of heightened awareness in the aftermath of hurricane aroma.
We are expecting similar or in our sales in Q3 as compared to Q2 of 2019.
I would like to add in the South east stage outside of our core Florida market, we're seeing double digit growth due to our strategic focus and selling impact products outside of Florida.
In part driven by the awareness from Hurricane Michael Who's past stretch from Florida, all the way north to Marilyn, placing some 30 million people under our hurricane our tropical storm watch farm warning along the way.
We are continuing our efforts to increase awareness of the benefits of our products in the Florida Panhandle and other markets that have not traditionally been core markets for us.
In our legacy New construction business, Florida single family starts through June are approximately 51000.
Which is tracking.
To be a full year total lower than the 105000, we initially forecasted in February .
Year over year starts were down 3% in Q2, following an 18% growth in Q1.
Our Q2 legacy new construction sales were up 1% versus prior year.
Overall, we are seeing growth from our strategic initiatives to grow corporate builder impact product adoption, which is being offset by decline in the custom projects versus prior year.
We expect overall trends to continue in Q3.
In our Western business unit, we saw sequential improvement in the California market versus Q1, when the region experienced a significant decline in housing starts.
Despite the continued decline in its core markets of California versus prior year Western delivered a 10% growth in sales in Q2 of 2019 as compared to the prior year period.
We are focused on expanding the footprint through increasing market penetration and product innovation.
We're seeing healthy growth in several of westerns, other core markets, including Texas, Arizona, Utah and Nevada.
The southwest in Texas regions are to the healthiest housing regions in the country.
Over 40% of western sales in the second quarter or in the Harley highly desirable market to the south West region and Texas.
We're also expanding westerns custom product footprint.
Into emerging markets, such as Maryland, and Illinois with dedicated sales teams focus on these growing markets. Additionally, as mentioned earlier, we are driving growth in both multifamily and commercial projects.
I will now turn the call back over to Sheri discussed the financial results in more detail Jerry.
Thank you, Jeff turning to slide seven for the second quarter, we reported net sales of 199 million, which included $162 million of legacy foot sales, reflecting a 5% decline in our legacy business versus the prior year quarter, driven by the decline in the repair and remodel channel.
Second quarter sales included the contribution of $37 million from western window system, reflecting 10% growth and sales for western versus the prior year quarter. This is a testament to the strong demand for our products in the Western business unit as this growth was achieved against the headwind of the California market.
Gross profit for the second quarter was $73 million, an increase of nearly $13 million versus the prior year quarter and gross margin increased to nearly 37% of sales a 1.3 percentage point increase from the prior year quarter.
This improvement is driven primarily by gross margin accretion from western Windows and strong operational execution at our PGT legacy business.
Selling general and administrative expenses increased by 11.4 million to $44 million in the second quarter adjusted EPS DNA increased by nearly $11 million to 42 million 8.4 with the majority of the increase attributable to the addition of western window.
Adjusted EBITDA for the second quarter of 2019 was $41 million or a margin of 20.6% versus adjusted EBITDA for the second quarter of 2018 of 34 million or 20%. This marks a 60 basis point improvement in adjusted EBITDA as a percentage of sales driven primarily by accretion from western window system.
Our tax rate for the quarter came in at an effective tax rate of 23%, which was below our guidance estimate of 26% driven primarily by excess tax benefit of $600000 our tax rate guidance for the full year remains 26% excluding discrete items.
In the quarter, we reported GAAP net income of $17 million or 29 cents per diluted share versus $22.5 million or 43 cents per diluted share in the second quarter of 2018 adjusted earnings per share for the second quarter of 2019 with 32 cents versus 41 cents in the same quarter last year with a reduction mainly driven by the significant excess tax benefits in the prior quarter and 7 million additional shares in the quarter as a result of our September 2018 equity issuance.
Next with respect to our aluminum coverage program, we have contracted approximately 80% of our estimated aluminum needs for 2019, our coverage is only for the LNG portion of the total cost and an average price of 96 cents per pound.
This does not include the delivery cost, which today is approximately 18 cents per pound.
Looking into 2020, we have contracted approximately 12% of our full year estimated aluminum needs and an average LNG price of 85 cents per pound as always we will continue to monitor tariffs and trade environment effect on aluminum pricing and as appropriate adjust our coverage program and pricing strategy.
Turning now to slide eight we will discuss our balance sheet highlights. We ended Q2 with net debt of $295 million down from $334 million in Q1 of 2019. This decrease was primarily facilitated by positive free cash flow in the quarter on an all cash netted basis, we maintain a net debt to trailing 12 month adjusted EBITDA ratio of two times pro forma for the Western window system acquisition as you can see on this slide we have a proven track record of delivery.
Turning to our capital allocation priorities on slide nine.
Our first priority for capital allocation internal investment in strategic projects that we expect to fuel our growth and that we believe are core to our ability to drive future shareholder value. We expect to continue to support our product portfolio by making investments in the advertising and marketing programs that have proven beneficial to our growth.
Our next priority for capital is strategic acquisitions that would allow us to expand into new geographies or other building products that will generate strong margins.
Our next priority is our commitment to debt reduction and maintaining a strong balance sheet. We finished the quarter with a cash position of 84 and a half a million dollars and our net debt was approximately two times trailing 12 month adjusted EBITDA pro forma for the Western Windows acquisition, we expect to maintain a conservative leverage profile with a range of two to four times net debt to EBITDA and the absence of any additional large acquisition.
Another priority is executing a share repurchase if and when we believe our stock price market conditions and other factors, we believe to be relevant make that a prudent use of capital we put an authorization in place and may of this year for the potential repurchase up to $30 million.
For the full year 2019, we are updating our financial guidance as shown on slide 10. This reduction in guidance is largely a result of legacy earn on market demand being lighter than expected in 2019 following significant full year growth of 34% in 2018, we remain focused on driving net sales in emerging markets and expanding our product portfolio to partially offset these recent market trends. In addition to continuing our strong focus on controlling costs as evidenced by our improvement in adjusted EBITDA margin.
For the full year 2019, PGT innovations now expects to finish and the following ranges net sales of 740 million to $765 million, an increase of 6% to 10% compared to 2018.
Adjusted EBITDA of 137 million to $145 million, an increase of 8% to 14% compared to 2018 and adjusted net income per diluted share of 90 cents to one dollar our assumptions for depreciation and amortization interest expense effective tax rate and stock compensation remain unchanged and now I would like to turn the call back over to Jeff for some closing thoughts.
Thanks Sherri.
Before we take your questions I would like to close by reviewing the elements of our investment thesis on slide 12.
First we are a national leader in have a strong brands in our growing categories of premium impact resistant products and indoor and outdoor windows and doors second we intend to maintain our advantage as an innovation leader in our industry by investing in research and product development as well as hiring and retaining top talent.
Third we plan to continue our focus on improving operational efficiency that is driving additional margin expansion.
Fourth we're excited and are executing on our strategy, which we believe will create long term value for our customers and shareholders and finally, we believe our diversified product portfolio and the broad geographic markets, we serve will better position us to capture future profitable growth in both the new construction and repair and remodeling channels.
I remain excited as ever before about the possibilities for our family of brands and employee team members.
At this time I would like to turn the call back over to the operator to begin our Q in a operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before for pressing the keys.
Withdraw your question. Please press the Star then two.
At this time, we will pause momentarily to assemble our roster.
Yes.
We will now take our first question from Keith Hughes of Suntrust. Please go ahead. Your line is open.
Thank you first question on Western.
<unk>.
Yeah, we've had a really strong start to the year.
There's a lot of background noise.
On the call.
But you start up really strong to the first half a year in your guidance what are you seeing western looks like both on the top.
We expect it to be very similar to what we've been seeing so far for.
First half so call it that that low double digit growth from a sales perspective.
Well the double digit growth, what what would that.
Make the.
Legacy, Florida business.
So let us say, Florida business in Q2 was down 5% I think what we are seeing both from a repair and remodel perspective, a new construction, we are saying that we expect very similar performance in the back half with with I'd say with maybe one exception you have to also keep in mind that Q3 for US is is the tough comp from a repair remodel perspective, and you saw that on the slide that we have in or you're comping, 56%. So you will see a tougher comp in Q3 with a slight decrease from matter or major decreases from Q4, but we're expecting very similar overall mix in the back half that we saw in Q2.
Okay, and then within western.
If you look at that.
Double digit growth.
How much of that would be coming out of existing markets, specifically, California, and how much out of.
Markets, what would be the relative growth rates.
So right now we saw in the quarter. So let let's let's back up so in Q1, you saw a 20% decline year over year.
In California in Q2, it was down 4% so from what we're seeing from a housing start perspective from a permit we expect something similar and that we still expect a decline in California, So call it somewhere in the 5% to 10% range for the balance of the year and with the offset getting up to that you know call. It 10% growth in the back half being offset in those other markets specifically areas like Texas, Arizona, Nevada, We're seeing really really strong double digit growth in those areas and we will continue to focus on that.
Okay. Thank you.
Yes.
We will now take our next question from Mike.
Oh JP Morgan. Please go ahead your line is open.
Hi, This is actually Matt on for Mike My first question.
Just on the expected cost synergies from Western I think in prior quarters, you had pointed to $8 million and try to get you could start seeing benefits by the end of 2019.
The beginning of 2020 I was wondering.
Given that all the updated guidance into this number still tracking and when do you expect to see the benefits.
Hey, Ashley Yeah, those numbers are actually still tracking as guided.
Even in the second quarter, we did receive some of those cost benefits almost 2 million in our second quarter here. So everything is on track and in line.
To produce the synergies we previously guided to.
Okay, Great and second you pointed to strength and the corporate builder.
Program in Florida, and I was just wondering if you could kind of quantify that grows to give us an idea of.
How that's doing a little bit more specifically.
Yeah, what we found as we we've been able to expand on the contracts we already the relationships. We already had an actually opening up a few more on the corporate builders standpoint.
The slowdown in new construction has been more in that special project.
Regional builder.
There's not as many high end homes that those individuals are doing now, but the other builders.
More like to toll brothers.
And and whatnot, they are expanding and our relationships there.
Had one over in both the impact penetration and having them adopt impact window versus standard window and that's the positive mix, we actually saw our increase in new construction sales we saw in the quarter versus overall, Florida housing market was actually down in the quarter.
Okay. Thank you so much.
We will now take our next question from filling of Jefferies. Please go ahead. Your line is now open.
Good morning, guys. This is maggie on fulfill [laughter] I'm going back to Western I think you called out some commercial and multifamily and markets are seeing growth could you just talk about some of the moving pieces. There I know that's traditionally been.
More of a new construction <unk>.
Single family environments, and then maybe touch on the roll out of the 3700 series and then what the customer response there has been.
Yeah, just a couple of those.
First of all who are less lead a 3700 series has been an incredible hit obviously wants to address a little bit different or the market more that the the mid range to lower in homes and we've had some great pickup in great reception for the 3700 series in terms of commercial we actually we're very limited in commercial when we initially purchased western the index they'd just hired a director to run that.
That channel and since then.
They've added over $2 million in sales this year alone.
In commercial related projects and there are typically the hotel or restaurant type projects.
That you're looking at that the product fits really well in.
Got it and and in light of the 3700 curious kind of targeting that lower price point is there any mix impact within western that we should be mindful of going forward.
Not really within products. The 3700 series from a margin perspective is just as robust as their other product lines.
Mix within channels maybe.
Commercial tends to be actually the commercial areas were playing in actually tends to be a bit more healthy. So it is a positive mix from from that end, but the volume program is if you look within they basically have two channels. They participate in the custom and let's call. It volume pro channels and the custom channels up for them, but the volume channel is down and we can typically leveraged nicely in the volume channel. So thats I would say the mix is maybe slightly negative for that.
Mainly because.
From a customer standpoint, just to work custom everything you produce there is is to order and to spec and so it takes a little bit more time operationally to produce a custom made product versus whats sold into that volume channels. So so there is a little bit of a negative mix.
Within those channels.
Okay got it and then moving to the legacy markets I know in the past you've talked about.
Our in our gross margins are pretty significantly higher than new construction. So.
On.
The margin performance.
In the quarter was pretty strong considering the mix down and.
Our in our so could you talk about the magnitude of that headwind then what some of the offsets and the court over and how we should think about that going forward.
Yes, a couple of comment on that but I do want to say.
You know that kind of goes to the fact that from an operational standpoint, our company's never ran better.
Our on time delivery metrics, our direct labor percentages, our scrap any.
All operational and quality metrics are tracking.
Better than they ever have so even though.
The sales Miss on topline, we were able to margin down and not let that in that mid mix impact us as much as historically it would have so across all our plants from hialeah here at Ventas to Orlando to Arizona.
All the plants are operating exceptionally well right now from a performance standpoint, which has helped actually drive the increase in the 60 Bips of EBITDA, We reported you want to add.
Just to give you a little bit of numerical support on that so that they are in our two new construction mix on a gross margin basis is about a full percentage point. So that's really what what Jeff is articulating issue have a combination of the operating efficiencies that we're seeing that Jeff just talked about and pricing that we're seeing and then obviously the western windows accretion is really what's what's driving that 1.5%.
Gross margin increase year over year, yes from a unit standpoint again, there has been a little bit of a mix headwind.
In our in our channel and our impact versus non impact so but from a unit standpoint, we're tracking roughly the same amount of units companywide and we're doing it with about 200 less folks so.
Our operations is really humming right now.
Got it great color thanks, guys.
We will now take our next question from Josh.
None of Raymond James. Please go ahead your line is open.
Good morning, Thanks for taking my questions.
Good morning.
Good morning.
I wanted to ask about the legacy business more.
Besides looking up a tough comp last year. It looks like growth has also slowed on a two year basis are there any other dynamics in the market for quite a tough comparison that might be driving that.
I guess, if you look back like we had on slide what six.
Yes or is this you can see the quarterly legacy if you will growth rates.
You can see the spike from Hurricane aroma.
So our our in our business basically pull then 18 pulled in some of the 19 growth is as we get into 19 now see that.
So I don't.
Negative 8% in the second quarter were going to see similar trends in the back half, we do think it will stabilize.
And ultimately our in our business in particular from a from a growth rate will once again.
Meet the.
Historical norms of that 10% to 12% growth.
Yes, the only other thing I might call out is is something that Jeff highlighted earlier on the call and that's just what you're seeing from an overall market perspective, it's just that pretty significant decline in disaster recovery spend it's actually down over 40% year over year. So that would be the only other thing that I might highlight from a macro perspective.
And what sort of pricing trends are you seeing in the legacy business.
So we took two pricing actions last year, we took one in April and one in August and we have not executed anything incremental this year. So I'd say, you're seeing price flat versus what you would have seen.
After those two price increases and please note that with that pricing increase in August and we talked about this on our last call. We do see some acceleration of orders prior to those price increases so that will be another factor that is playing into the Q3 overlap.
And as the market deals with these leased tougher comparisons in the pull forward or your competitors is getting more aggressive with price.
You know, we had really necessarily seen that in the marketplace.
You know I'm going to be honest with you.
Obviously, theres different brands and our dealers and so you hear different things within the market and in the main area. This down has been vinyl if you look at our mixed our and our mix is geared towards the vinyl arena and our new impact Winguard vinyl line is really what's down year over year. Our aluminum line is busy in solid the aluminum products or are growing.
So our competitors that participate in those kind of products are also down and really no pricing pressures has been.
Brought to market as a result.
From aluminum standpoint, theres actually been some price increases.
Got it thanks.
Yep.
We will now take our next question from Truman Patterson of Wells Fargo. Please go ahead. Your line is open.
Hi, Good morning, guys. Thanks for taking my question.
So it sounds like.
Hey, so it sounds like despite some of the horn our revenue outlook.
Being lower than higher margin you guys are really offsetting it with.
Improved productivity, but.
Jumping onto your sales guidance it implies.
A couple of percent revenue decline in the back half the year seems like Florida repair and remodel will remain pretty challenging in the back half of the year.
Could you just further elaborate on the market is it truly a hangover from hurricane Afirma.
For your impact resistant products or are you seeing just a general longhorn or market.
And then can you just give us an update of your full year expectation.
Yes, no I drew and I truly believe is just to hang over from from a lot of growth during hurricane period.
A lot of awareness was created landing people in Florida over the last few years and all of a sudden in 18, we were swapped and and producing product.
We did increased capacity as a result of that and we're bidding fitting from that increased capacity that technology and in our labor rates are down and our margins have actually improved.
Year over year. So so if you look at the core market itself.
Yes.
From an order standpoint, I do think is solely just pull through from that that hurricane.
Okay, Okay, and then also with minimal.
It's a little.
The pricing has been nice to hear that despite aluminum coming down your competitors arent really cutting pricing at all.
Yes, we really we really and so any pressure on the pricing.
I will tell you even as a as a point of reference our top 50 customers.
And with exception of one in our top 50, although all those individuals are up most some double digits. So it's the bottom layer customers that aren't as busy as they work and what was that told us internally is.
Demand was so high.
Last year, all of our major dealers and distributors. There were there were slammed they were full and so the lead times are out so the customer the end user had to go down a layer to smaller dealers.
You know in the market, who also carry our product. So you had a year for not only our largest 50 top customers were just slam the busy so the the lower level of sales volume customers were also busy you're just not seeing that this year you still see the top 50 busy and they're carrying the load I mean, they were up 9% on average our top 50. So it's all coming from kind of the lower tier dealers, who again got a lot of pull through from the hurricane to keep them busy.
Okay and then.
Final one from me is just on M&A.
A healthy balance sheet.
I guess, how are you guys thinking about this are you looking to digest, the western window system acquisition, a little bit longer.
And then you also brought up.
For expansion into the new niche products.
I guess how how.
As far down the rabbit hole. If you will are you looking at some of these other products outside of Windows and doors Youre systems.
You know where I know, we're still focused on windows and doors systems in terms of that next acquisition.
We are probably more focused out of state for that next acquisition as well and we've looked at several different opportunities.
Integration of Western is actually.
In my opinion ahead of schedule.
Sales are growing synergy cost synergies are there the management teams in place and actually we've added to it we kicked off the honoring our initiative by hiring a leader for that drive more developing marketing materials and identifying targeted markets will then to start within California to expand into the on our market questions. All that given its been not even year is really ahead of schedule with that said we are wanting to continue to integration process will begin to get on consist of platforms and and were looking across mixes to get some sales synergies all that still going.
And underway.
But if the right opportunity came up from a leverage standpoint from an internal resource standpoint, we're ready for it.
I'm just going to be extremely picky on whatever we do end up.
Bye.
Okay. Thank you.
Again as a reminder, if you have a question. Please press. The Star then one we will now take our next question from Alvaro Lacayo of GE Research. Please go ahead. Your line is open.
Good morning, Jeff and Sherry and thanks for all the detail provided.
On the presentation.
So morning, but the question the question regarding the the legacy business than the repair remodel piece.
I tend to agree that it's a hangover from the shear strength of demand that you had.
Last year, but my my question for you Jeff.
In terms of when you would see that normalizing with that normalize into next year or just because of the amount of demand that you saw quit that oak because that overhang continue into.
The year after him any conjecture that you're seeing in the market would be helpful. There.
Yes, again based on what we're seeing in some other initiatives that we do have in place to address.
Growth.
I do not see the our in our market.
Continuing if you will is decrease in to 2020.
I think this year, we had all hoped it would just be flat quite quite honest.
Honestly you had two years of really robust growth to your two hurricanes hit Florida first on 15 years.
So we've learned a lot from from this.
Season, if you will a hurricane activity, but I as we go through 19, I think we're going to fine we're going to draw a base year and have have a good base year to then grow off of.
We just had our board meeting yesterday, and we reviewed initiatives really targeted with our in our vinyl area and those initiatives generating sales anywhere between for the low of 44 million to a high of roughly 9 million.
Again in different initiatives, whether it's setting up distribution.
New ways to get to market our new.
Enhancements, our tools to help our team sell the product. So so I am very optimistic about 2020 in terms of 19 stabilizing and then 2020, we will get back onto us growth into the Arne Our channel I don't know how robust that's going to make us obviously, we're going to have a bigger base, we're growing off of but I do think anywhere between you know say five percentage points growth in our in our market and 2020 would be.
Something we would strive to achieve and see.
All right, thanks, and congrats to eschew and eight.
To be clear.
You benefited 2 million from from synergies out of the eight and you intend to be at a run rate of eight by the end of the year and then secondly, I remember last year, you spoke about stepping up marketing spend to take advantage of awareness.
From the from recent Hurricane activity does that AD spend stay elevated or has that come in and how much was that specifically.
Yes, the one thing to clarify that 2 million of cost synergies is actually in Cogs, not NSG and so you're really looking more on the direct material side, so thats, where youre going to see that benefit.
From a marketing spend is we will continue to invest in marketing spend for the most part from a legacy business is essentially flat versus year ago, but then we do have incremental spend in western so that would be on top of that and we will continue to invest in that because we think thats staying in the marketplace and reaching those end consumers and how we reach them I'm, particularly really starting to look at things even on a digital platform perspective are really important for us and that then.
All right. Thanks.
We will now take our next question from Ken Zener. Please go ahead. Your line is open.
Good morning, Jeff Sorry, Brad.
Hi, good morning.
I'm going to add more than one question here, because I want us to take a step back it really seems to me like the big picture here is.
Obviously, you had a lot of growth, which you guys revised your guidance and to be explicit cherry it sounds like you're saying 8% down.
For remodeling versus the up 34% last year and if you can be explicit around your new construction forecast.
But the big picture as you had a lot of growth last year.
Makes up your margins.
And you actually.
We executed very well, which was in contrast to some of the hiccups you guys had in prior years and now you're guiding down Rev.
Yeah, you're holding margin again operating very well.
And I think Thats really the big picture here.
As I think but could you just talk about those top line comps that you're giving specific for our NR and new Raz. Just so everybody is clear about what you are saying yes.
You bet and thank you for the question. So we actually think for our in our in particular, it's probably more in the 10% to 15% range and I'm I'm doing a range intentionally because obviously, it's coming in a little different than we initially expected so I'm I'm ranging it but a big chunk of that is literally because if you look on that bar graph, we're overlapping in Q3, 56% growth from the prior year. In addition to some incremental backlog that we had that year. So call our in our 10% to 15%. We believe new construction is going to be probably flat to a year ago and for a lot of the things that that Jeff had talked about so those would be the two metrics that I'm that I'm considering in the guidance.
Excellent.
And then again you are guys that margins have been excellent and you're still holding them. Despite these revisions. So I think thats really the big picture as far as I'm concerned, but now looking at western Windows I know, there's been you're calling out California starts, but just so everybody is clear can you comment on tax you realize how much California is I mean is it about a third.
W. Western Windows, I mean, just to give some magnitude here and Jeff you might have said it if I missed it.
Now I'll I'll take that so, California is call it roughly 40% it does change a little bit percentagewise, depending on what you're seeing at Q1 versus Q2, but in Q2, it was roughly 40% of the business.
That you then quickly have on Texas, and Arizona that are really number two and number three and thats substantially probably call it 60% to 70% of the business just in those three states.
Excellent clarification.
Now.
Hey, Paul a jive.
The last piece you know as we look at what the our in our story legacy will look like not only in 2020, but beyond that I think in your slides in the past you've talked about.
Up near 20% penetration in Florida, and that clients tend to ask me well what does that for southern California, 'cause your excluded.
Southern Florida, because you're excluding places like Orlando could you talk to the penetration into served.
Markets. If you will so we can get a better sense of that aren't aren't.
The certain markets within Florida is that what you're talking about yeah.
Yes, I think you guys have 20% penetration in Florida Windows, which obviously suggests there is a long ramp.
For Yeah. No here is what we said is more.
Yeah, what we've said historically is basically if you look at the impact market or the market in Florida, roughly 2020, 5% had impact protection.
The entire market the another.
18% to 20% had.
Shuttered protection and really roughly 50% of the market had no protection and was that potential opportunity.
We internally have always said, our kind of market share the impact market within those windows and doors was you know in that 60% range 65%.
Market share so much.
Penetration of that amount so does that add some color to what you're you're asking you guys. It guys and then maybe and then I apologize for all these questions, but I think this is a very interesting time.
The aluminum versus vinyl you mentioned to me are in our.
Jeff can you is that price I mean metal more expensive homes vinyl less expensive aluminum vinyl more new can you talk to what that is telling you about the consumers.
Appetite or purchasing power or something I'm not sure what that means thank you very much.
No no not really theres, not a dramatic price difference between vinyl aluminum.
Theres some benefit differences between the two obviously vinyl being more thermal driven and having better ratings, but but it's really.
Segment, driven istar in our segment when people come in to Florida, and repair remodel their homes. They will typically take out old.
Aluminum non impact window, because Florida at one time was.
90% aluminum market, if not more so or in our gears naturally towards vinyl as people move and to Florida and they are replacing the old.
Aluminum non impact or impact products. So there's not really a price differential between the two yes. This is Brad can I'll just add to that I think the areas that were most affected by the.
We're irma came of onshore last year were a more vinyl driven market. So I think the acceleration last year that we saw the results are but wasn't surprised that it was a little bit more on our vinyl driven our miami market, which tend to have on our little bit towards aluminum I do not have quite the acceleration that let's say, our tampa or Naples markets were right or the storm hit.
Thank you very much.
You will.
We will now take our next question from Josh Wilson of Raymond James. Please go ahead. Your line is open.
Thanks, just a couple follow ups here.
First in the past you've given your backlog in both the legacy business.
Western Windows could you provide us that number again as it was at the end of the quarter.
Sure.
Yes, David so the backlog in Q2.
Was 76 million if I back out the laughter piece I'll call. It the core legacy PGT is $63 million in the quarter.
Got it and then we've talked around pricing and a few other trends, but could you talk about where your market share has been trending there's just been several moving parts and then some new entrants as well so what your outlook is for your market share would be helpful as well.
Yes, I think our market share.
I think based off again, our top 50 dealers being up year over year, our market share continues to.
To gain share gain we are definitely not losing.
Our market share in our best estimates of the Florida market.
In Western we obviously are penetrating into that that mark those new markets and gaining share but.
Considering our market being down our top 50 still being up we think they dominate that market and we still think our market share is is.
Robust and healthy.
Thanks, Good luck with the next quarter.
You bet. Thank you.
This concludes our question and answer session I would now like to turn the conference back over to Sherri Baker for any closing remarks.
Thank you everyone. We really appreciate you joining us on the call today, we look forward to talk me next quarter have a great day.
The conference has now concluded thank you for attending today's presentation.