PGT Innovations, Inc.

Good morning. Welcome to PGT Innovations Third Quarter Earnings Conference Call. All participants are in listen-only mode. I'd now like to turn the conference over to PGT Innovations Interim Chief Financial Officer, Brad West. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to the PGT Innovations Third Quarter 2021 Investor Conference Call. On the investor section of our company website, you will find the earnings press release issued earlier today, as well as the slide presentation we have posted to accompany today's discussion. This webcast is being recorded and will be available for replay on the company's website. Before we begin our prepared remarks, please direct your attention to the disclosure statement on slide two of the presentation, as well as the disclaimers included in the earnings press release and our SEC filings that discuss forward-looking statements. Today's remarks contain forward-looking statements, including statements about our 2021 financial performance outlook and the potential future impact of the COVID-19 pandemic on our business. 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 and 10-Qs. 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 am joined on this morning's call by Jeff Jackson, PGC Innovation 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. Let me first begin by welcoming our 460 new team members to PGT Innovation's family from our recently closed Anlin acquisition. Anlin Windows and Doors is a key part of the Western expansion. and represents an exciting addition to our growing Western Windows operations. During this call, we will discuss key points around the acquisition. Now let me continue with key takeaways from the third quarter. On slide four, sales grew 26% from the prior year period to a record $300 million. This includes organic growth of 14% and 25 million in sales from Echo Windows systems, which we acquired this past February. Third quarter sales benefited from solid growth across all our core markets, especially strong revenue growth in our western region as the order entries we reported in prior year quarters translated into higher third quarter product shipments. The California market has gained momentum since COVID restrictions were lifted, and the Texas and Arizona markets showed continued strength as well. Earlier this year, we opened up another Skywalls retail showroom in San Diego to support the repair and remodeling market. While relatively small, the traction gained by Skywalls in both Anaheim and our new location, San Diego, is representative of the overall growth in our western region. Overall, western sales were up 29%, mainly driven by the production builder, up 51%. We also continue to see strong demand in our Southeast region across both our new construction and repair and remodeling channels. Our recent New South acquisition also continued to see strong demand growth with sales up 92%. The price increases that we have communicated over the past couple of quarters began contributing additional top line in September as we continue to work through our backlog. While we only get a partial benefit in Q3, these price increases are expected to be fully in effect in Q4 and in future quarters, providing additional benefit to our fourth quarter margins. As you have likely seen, aluminum spot prices has dramatically increased throughout the year, including 16% during the third quarter alone. Approximately 60% of our sales are aluminum products. Our hedging program provided some relief but our uncovered portion continues to be impactful going into the fourth quarter, and we expect this to continue into 2022. As a result of the cost increases, as well as many other cost increases we have experienced in glass, hardware, vinyl, and supplier-based surcharges, we announced a 3% surcharge in our Florida operations that took effect at the beginning of November, which will help offset some of these expenses. Additionally, we announced another 6 to 12% price increase for new orders beginning November 1st that will impact our results in the beginning of February 2022. You'll also see that both labor and material cost headwinds were reflected in our Q3 results. For example, increased base wage rates and retention bonuses impacted this quarter as we prioritize retaining our experienced team members who have made our success possible throughout this pandemic. While these cost headings contributed to lower margins year over year, margins improved sequentially from Q2, reflecting price initiatives, our focus on cost management, and improvement in our operations. We anticipate more normalized operations and margins in Q4 and heading into 2022, where we will have capacities more in line with robust demand we continue to see and have seen over the past 15 months. I am proud of the ongoing dedication and resiliency of our employees, our dealers, and distributors who continue to do an outstanding job of servicing our customers despite ongoing challenges. In particular, we continue to increase output to meet customer demand by training the recently added employees, integrating new equipment, expanding new facilities, and diligently responding to COVID-19 related challenges, such as supply chain disruptions. In terms of new and expanded facilities, our new Fort Myers production facility began 24-7 operations in June and continues to increase output. Earlier this year, we leased a new warehouse facility in Southeast Florida to improve our fulfillment capabilities and free up capacity to accommodate increased production. This past quarter, we also invested in increased production capacity in our Venice, Miami, and Tampa facilities. As a result of these initiatives, average lead time in our southeast business unit has decreased several weeks, now ranging from 9 to 15 weeks depending on the product. Even with improved lead times, we continue to experience strong demand. Accordingly, Even though our shipping revenue has increased, our backlog today sits at $365 million, roughly in line with the $372 million in backlog at the end of June. We have also added cutting capacity at our Echo Glass operations during the quarter, which allows us to service more of our internal needs, reducing our reliance on our outside glass supplier who continues to struggle to meet our needs, and providing margin improvement from the vertical integration. Our year-to-date accomplishments and investments are expected to position PGT Innovations to drive continued growth and margin improvement by helping us to increase our output, decrease our lead times, and meet expected strong demand for the remainder of the year and through 2022. Turning to slide five, we have more detail on order entry. During the third quarter, our order entry in the Southeast Business Unit was solid and consistent with the demand we saw all year. However, it was down 8% when compared to the third quarter of 2020. In October, we saw an increase in orders both sequentially and compared to prior year. At Western, order entry was up 31% as we saw continued momentum in recoveries in California, Arizona, and Texas. Our recent acquisitions, New South and Echo, continue to achieve impressive demand growth. For the third quarter, retail orders at New South Window Solutions totaled $37 million, an increase of 46% year-over-year. We are nearing the completion of our second year with New South. We believe that the acquisition would allow us to expand into the direct-to-consumer channel and improve our marketing environment for our business as well. The order growth we have seen over the past 18 months has proven that to be true. Additionally, the returns from a financial perspective have also been realized. In 2019, just prior to closing the acquisition, New South had four legacy stores generating approximately $55 million in sales and an EBITDA of about 15%, and three stores that they just opened up in 2018 and in 2019. New South has seven legacy stores projected to generate 120 million in revenue and an 18% EBITDA. In addition, we have opened up three stores in 2020, which will generate 18 million in revenue in 2021 with EBITDA margins beginning to consistently hit in the teens. In 2021, we have opened stores in New Orleans, Charlotte, and Raleigh. As a reminder, It generally takes about 12 months to consistently turn a profit at a store, and a total of 18 months to start to see the high team's EBITDA that legacy stores enjoy. We have made significant strides in the quarter and will continue to grow our capacity to position PGT Innovations to be able to meet this robust demand. On slide six, we have provided information on our newest acquisition, Anlin Windows and Doors, which closed in late October. This acquisition supports our strategic framework for profitable growth by expanding our market presence in the high growth West Coast region. We have seen very strong growth trends in this part of the country, similar to the trends we continue to see in our Southeast region. In fact, Anlin experienced sales growth above 30% in the trailing 12-month period ended Q3 2021 compared to Q3 2020. Hamlin is a top regional brand for vinyl replacement windows and doors and is a great fit for our existing Western Window Systems brand, which is a leading provider of aluminum products for the new home construction market. This acquisition allows us to better serve both markets with a broad product portfolio and expanded sales network. Since we acquired Western in 2018, we have been working on ways to get their innovative indoor-outdoor living products into the R&R channel. Anlin's existing R&R customers should provide an immediate boost to the Western products within that channel. Additionally, between Western's high-end vinyl sliding glass door and Anlin's complete vinyl window offering, we believe we now have a very strong and complete and robust vinyl platform offering that can service both the new construction and R&R markets out West. Anlin will operate under PGT Innovations Western Business Unit, and I'm very pleased that Anlin's top leadership will remain with the company. Anlin's experienced leadership will help ensure seamless integration of our capabilities, which is now underway. Slide 7 summarizes our strategic operational framework as we seek to create long-term value for shareholders while servicing our customers and communities. Our first pillar is consumer-centric innovation, bringing products to market that offer the features, the performance, and value demanded by builders and customers for today's market. Driving innovation and future sales requires us to keep our finger on the pulse of consumer preference insights. This is highlighted by our acquisition of Anlan, bringing a new complete vinyl platform to our Western Region customers. Our second pillar is recruiting and retaining talent in a tight labor market. We have increased headcount by approximately 1,500 team members in 2021 to date. This is more than a numbers game. We need employees in specific geographic areas with the right skill sets who want to excel who want to work for us as an employer of choice and grow their careers. We attract and retain such talent through proactive communications, appropriate compensation packages, including long-term incentive programs, and emphasis on workplace safety and a culture where employees know they're appreciated. To that end, we have seen improvement in retention numbers in our organization over the past several months, and we are seeing areas of improved capabilities as well. Work still needs to be done since demand continues to be strong, but progress is apparent as illustrated by September being our best month of the quarter in terms of both sales and margin. Our third pillar is investing in the business. This year, we have been especially focused on increasing our manufacturing capacity and capabilities to scale our operations to meet the anticipated growth in demand over the long term. For example, procuring critical vinyl and glass equipment has been an ongoing challenge, but our multi-pronged strategy to manage materials has minimized disruptions. This has allowed us to increase capacity through the back half and into 2022. Our fourth pillar is allocating free cash flow to achieve profitable growth. This has included finding the right strategic accretive acquisitions, investing in new products and development, and production capacities, and paying down debt. Now, I'd like to turn the call back over to Brad to review our results in greater detail. Brad?