Pgem q2 2017 earnings slides final
- 1. Second Quarter & First Half 2017 Results Gary E. Robinette Chairman & Chief Executive Officer Shawn K. Poe Chief Financial Officer
- 2. PlyGem.com2 • Second Quarter Review & First Half Results Gary Robinette • Financial Results by Segment Shawn Poe • Margin and Growth Initiatives Gary Robinette • Economic Outlook Gary Robinette • Questions and Answers Gary Robinette & Shawn Poe • Closing Remarks Gary Robinette Agenda
- 3. PlyGem.com3 These slides and the accompanying oral discussion may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of Ply Gem Holdings, Inc. (the “Company”) to differ materially from the results expressed or implied, including: downturns or negative trends in the home repair and remodeling or the new construction end markets, or the U.S. and Canadian economies or the availability of consumer credit; competition from other building products manufacturers and alternative building materials; inability to successfully develop new products or improve existing products; changes in the costs and availability of raw materials; consolidation and further growth of our customers; loss of, or a reduction in orders from, any of our significant customers; inclement weather conditions; increases in union organizing activity and work stoppages at our facilities or the facilities of our suppliers; our ability to employ, train and retain qualified personnel at a competitive cost; claims arising from the operations of our various businesses prior to our acquisitions; product liability claims, including class action claims and warranties, relating to the products we manufacture; litigation outside of product liability claims; loss of certain key personnel; interruptions in deliveries of raw materials or finished goods; changes in building codes and standards could increase the cost of our products, lower the demand for our products, or otherwise adversely affect our business; environmental costs and liabilities; manufacturing or assembly realignments; threats to, or impairments of, our intellectual property rights; increases in transportation, freight and fuel costs; changes in foreign currency exchange and interest rates; material non-cash impairment charges; our significant amount of indebtedness; covenants in the ABL Facility, the credit agreement governing our Senior Secured Term Loan Facility and the indenture governing the 6.50% Senior Notes; limitations on our net operating losses and payments under the tax receivable agreement to our stockholders; failure to successfully consummate and integrate acquisitions; actual or perceived security vulnerabilities or cyberattacks on our networks; failure to effectively manage labor inefficiencies associated with increased production and new employees added to the Company; failure to generate sufficient cash to service all of our indebtedness and make capital expenditures; control by the CI Partnerships; and the risks set forth in the Company’s filings with the Securities and Exchange Commission. Consequently such forward-looking statements should be regarded as the Company’s current plans, estimates and beliefs. Except as required by law, the Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipatedor unanticipated events. In addition, these slides and the accompanying oral discussion reference financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”), such as adjusted EBITDA. The Company’s management uses these non-GAAP measures in its analysis of the Company’s performance. The Company believes that the presentation of certain non-GAAP measures provides useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core business. These non-GAAP measures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is provided in the appendix to the slides andis included in our press release issued onAugust 7, 2017 and postedon www.plygem.com. Legal Disclaimer
- 4. PlyGem.com4 Ply Gem Overview • Leading Manufacturer of Exterior Building Products • Comprehensive Product Portfolio with Strong Brand Recognition • Multi-Channel Distribution Network Servicing a Broad Customer Base • Balanced End Market Exposure Driven by Diversified Product Mix • Highly Efficient, Low Cost Operating Platform • Proven Track Record of Acquisition Integration & Cost Savings Realization • Strong Management Team with Significant Ownership Platform Built for Growth and Operating Leverage Repair and Remodel Leverage to New Housing Starts New Products and Innovation Drive Share Gains M&A Opportunities US 90% Canada 10% Siding 47% Windows 53% (*) LTM July 1, 2017 (*) (*)
- 5. PlyGem.com5 Second Quarter 2017 Highlights ($ in Millions) Q2 2017 Q2 2016 Net Sales Y-O-Y Change $544.8 6.7% $510.5 Gross Profit Gross Profit % $136.9 25.1% $135.3 26.5% Operating Earnings Y-O-Y Change $66.1 6.3% $62.2 Adj. EBITDA As % of Net Sales $81.1 14.9% $76.9 15.1% End Market Exposure – Q2 2017 New Construction 55% Home Repair & Remodel 45% Key Highlights • Sales increased $34.2M during the quarter. Our U.S. businesses experienced an organic growth rate of 6.4% which was primarily driven by increased demand for our products within our Siding, Fencing and Stone segment and our new construction windows and doors. Favorable price and product mix provided a sales increase of $13.6M within our segments. Including the impact of $1.9M in unfavorable currency exchange rates and favorable pricing product mix, Canadian sales increased $4.6M during the quarter. • Gross margin contracted 140 basis points primarily driven by unfavorable commodity costs, mainly PVC resin and aluminum, relative to Q2 2016 in our Siding, Fencing & Stone segment, partially offset by higher average selling prices in our Siding, Fencing & Stone and Windows and Doors segments. • Adjusted EBITDA margin decreased slightly by 20 basis points due to unfavorable commodity and material costs partially offset by higher average selling prices in both of our business segments. • Thirteenth consecutive year-over-year quarterly adjusted EBITDA improvement. Incremental year-over-year quarterly adjusted EBITDA growth of 5.4%. • Q2 2017 LTM adjusted EBITDA of $235.6M. Note: Certain amounts in this presentation have been subject to rounding adjustments. Accordingly, amounts shown as total may not be the arithmetic aggregation of the individual amounts that comprise or precede them.
- 6. PlyGem.com6 Second Quarter 2017 Highlights Second Quarter Net Sales Performance Bridge ($ in Millions) $544.8 $510.5 13.6 17.6 3.1 $400.0 $450.0 $500.0 $550.0 $600.0 2Q 2016 Net Sales Price/Mix U.S. Volume CAD Volume & FX Impact 2Q 2017 Net Sales Net Sales Second Quarter Adjusted EBITDA Performance Bridge ($ in Millions) $81.1 16.3 2.8 $76.9 13.6 7.7 2.0 $- $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 2Q 2016 Adj EBITDA Price/Mix Volume SG&A / Other Material Costs / Freight Conversion / Fixed Costs 2Q 2017 Adj EBITDA Adj. EBITDA
- 7. PlyGem.com7 First Half 2017 Highlights ($ in Millions) H1 2017 H2 2016 Net Sales Y-O-Y Change $974.8 6.1% $919.2 Gross Profit Gross Profit % $226.4 23.2% $222.0 24.2% Operating Earnings Y-O-Y Change $77.9 8.6% $71.8 Adj. EBITDA As % of Net Sales $108.2 11.1% $101.7 11.1% End Market Exposure – H1 2017 New Construction 57% Home Repair & Remodel 43% Key Highlights • Sales increase of $55.6M during the first half of 2017 was primarily due to organic growth in our U.S. and Canadian businesses. Our U.S. and Canadian businesses experienced organic growth rates of 6.7% and 8.6%, respectively, which was primarily driven by increased demand for our products within our Siding, Fencing and Stone segment and our new construction windows and doors. Favorable price and product mix provided a sales increase of $24.6M within our segments. Including the impact of favorable currency exchange rates and favorable price and product mix, Canadian sales during the first half increased $6.6M. These sales drivers were partially offset by $6.2M resulting from 1 less shipping day in the first quarter compared to 2016 due to the Company’s fiscal calendar. • Gross margin contracted 100 basis points primarily driven by unfavorable commodity costs, mainly PVC resin and aluminum, in our Siding, Fencing & Stone segment, partially offset by higher average selling prices in our Siding, Fencing & Stone and Windows and Doors segments. • Adjusted EBITDA increased $6.5M or 6.4% due to higher sales levels within both of our segments. Adjusted EBITDA margin was consistent with the prior period.
- 8. PlyGem.com8 First Half 2017 Highlights First Half 2017 Net Sales Performance Bridge ($ in Millions) $974.8 6.2 $919.2 24.6 32.9 4.3 $800.0 $850.0 $900.0 $950.0 $1,000.0 H1 2016 Net Sales Price/Mix U.S. Volume CAD Volume & FX Impact Impact of Shipping Days H1 2017 Net Sales Net Sales First Half 2017 Adjusted EBITDA Performance Bridge ($ in Millions) $108.2 24.4 5.3 1.7 $101.7 24.6 12.7 0.6 $- $40.0 $80.0 $120.0 $160.0 H1 2016 Adj EBITDA Price/Mix Volume SG&A / Other Material Costs / Freight Conversion / Fixed Costs Impact of Shipping Days H1 2017 Adj EBITDA Adj. EBITDA
- 9. PlyGem.com9 Window & Doors (W&D) Segment – Second Quarter Second Quarter Results ($ in Millions) $254.9 $243.5 $26.3 $22.6 Q2 2017 Q2 2016 Net Sales U.S. Canada $266.1 $281.2 Q2 2017 Q2 2016 U.S. 22.8% 21.9% Canada 22.2% 19.0% W&D Segment 22.7% 21.6% Gross Margin % Key Highlights • Sales were favorable by $15.0M or 5.7% primarily driven by organic growth of our U.S. new construction products and Canadian business and favorable price and product mix. Our U.S. new construction business increased $12.3M or 7.4%, which was partially offset by a $1.0M decrease in our U.S. repair & remodeling products. Our Canadian business increased $3.7M or 16.6% which was partially offset by an unfavorable foreign currency exchange of $1.0M. • Gross margin expanded by 110 basis points primarily driven by improved pricing and product mix for our U.S. new construction products and Canadian business, partially offset by increased commodity costs, mainly PVC resin, aluminum and glass, increased freight costs and a slight deterioration of gross margins in our U.S. repair and remodel products. • SG&A expense decreased $0.4M during the quarter. As a percent of sales, SG&A expense decreased 90 basis points from 13.7% to 12.8% as a result of improved leverage on the fixed component of SG&A expense. End Market Exposure – Q2 2017 New constructio n 70% Home repair & remodel 30%
- 10. PlyGem.com10 W&D Segment Gross Margin – Second Quarter 21.6% 22.7% 1.9% 2.… 0.4% 15.0% 17.0% 19.0% 21.0% 23.0% 25.0% 2Q16 Gross Margin Selling Price / Product Mix Conversion Costs & Other Commodity Costs / Freight 2Q17 Gross Margin Quarterly Gross Margin Performance • Selling price/product mix reflect favorable product mix and impact of selling price increases implemented in 2017 for the U.S. and Canada. • Commodity costs unfavorable due mainly to increasing PVC resin, aluminum and glass costs. 20.9% 15.4% 14.0% 15.4% 13.1% 13.8% 9.7% 12.9% 18.1% 19.8% 20.3% 1,046 622 445 471 431 535 618 648 715 782 812 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2Q17 LTM Historical Gross Margin Performance Annual Gross Profit % U.S. SFHS - in thousands (*)
- 11. PlyGem.com11 Window & Doors (W&D) Segment – First Half 2017 First Half 2017 Results ($ in Millions) $472.8 $455.4 $47.6 $43.0 H1 2017 H1 2016 Net Sales U.S. Canada $498.4 $520.4 H1 2017 H1 2016 U.S. 20.8% 20.0% Canada 19.2% 15.8% W&D Segment 20.6% 19.7% Gross Margin % Key Highlights • Sales were favorable by $22.0M or 4.4% primarily driven by organic growth of our U.S. new construction products and Canadian business, and favorable price and product mix, partially offset by $3.6M resulting from 1 less shipping day in the first half of 2017 compared to 2016 due to the Company’s fiscal calendar. Our U.S. new construction business increased $24.6M, or 7.7%, which was partially offset by a $7.2M, or 5.3%, decrease in our repair & remodeling products. Our Canadian business increased $4.6M, or 10.7%, which was partially offset by an unfavorable foreign currency exchange of $0.3M. • Gross margin expanded by 90 basis points primarily driven by improved pricing and product mix for our U.S. new construction products and Canadian business, partially offset by increased commodity costs, mainly PVC resin, aluminum and glass, increased freight costs, and a deterioration of gross margins in our U.S. repair and remodel products. • SG&A expense increased slightly, however as a percent of sales, SG&A expense decreased 70 basis points from 15.1% to 14.4% as a result of improved leverage on the fixed component of SG&A expense. End Market Exposure – H1 2017 New constructio n 73% Home repair & remodel 27%
- 12. PlyGem.com12 W&D Segment Gross Margin – First Half 2017 19.7% 20.6% 2.0% 2.… 15.0% 17.0% 19.0% 21.0% 23.0% 25.0% 1H16 Gross Margin Selling Price / Product Mix Material Costs / Freight 1H17 Gross Margin First Half 2017 Gross Margin Performance • Selling price/product mix reflect favorable product mix and impact of selling price increases implemented in 2017 for the U.S. and Canada. • Commodity costs unfavorable due mainly to increasing PVC resin, aluminum and glass costs.
- 13. PlyGem.com13 Siding, Fencing & Stone (SFS) Segment – Second Quarter Second Quarter Results ($ in Millions) $241.8 $223.4 $21.8 $21.0 Q2 2017 Q2 2016 Net Sales U.S. Canada $244.4 $263.6 Gross Margin % Q2 2017 Q2 2016 U.S. 27.6% 32.6% Canada 28.8% 26.4% SFS Segment 27.7% 31.8% Key Highlights • Sales increase of $19.2M or 7.8% primarily driven by organic unit growth of 7.0% and 2.6% in the U.S. and Canadian businesses, respectively, and $4.3M of price and product mix, including unfavorable foreign currency which negatively impacted sales by $0.9M. • Gross margin contracted by 410 basis points, primarily driven by unfavorable commodity cost due mainly from PVC resin, unfavorable by 9.6%, and aluminum, unfavorable by 21.0%, partially offset by realized selling price increases. • SG&A expense increased slightly by $0.2M during the quarter due to increased sales, however as a percent of sales, SG&A expense decreased 60 basis points from 9.4% to 8.8% as a result of improved leverage on the fixed component of SG&A expense. End Market Exposure – Q2 2017 New construction 39% Home repair & remodel 61%
- 14. PlyGem.com14 SFS Segment Gross Margin – Second Quarter 31.8% 27.7%3.… 1.7% 1.2 % 15.0% 20.0% 25.0% 30.0% 35.0% 2Q16 Gross Margin Selling Price / Product Mix Commodity Costs / Freight Conversion Costs & Other 2Q17 Gross Margin Quarterly Gross Margin Performance • Selling price/product mix reflects selling price increases announced during 1Q17 which began to be realized during the quarter. Additional selling price increases announced in 2Q17. • Commodity costs unfavorable due mainly to increasing PVC resin, unfavorable by 9.6%, and aluminum costs, unfavorable by 21.0%. 20.4% 18.4% 25.9% 25.7% 24.8% 27.4% 26.8% 26.1% 28.4% 29.3% 27.6% .5208 .6200 .5288 .6458 .6971 .6975 .7134 .7534 .7250 .7617 .8050 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2Q17 LTM Historical Gross Margin Performance Annual Gross Profit % PVC Resin Price/lbs (*)
- 15. PlyGem.com15 Siding, Fencing & Stone (SFS) Segment – First Half 2017 First Half 2017 Results ($ in Millions) $419.4 $387.2 $35.0 $33.6 H1 2017 H1 2016 Net Sales U.S. Canada $420.8 $454.4 Gross Margin % H1 2017 H1 2016 U.S. 26.1% 30.0% Canada 27.2% 25.6% SFS Segment 26.2% 29.5% Key Highlights • Sales increase of $33.6M or 8.0% primarily driven by organic unit growth of 7.0% and 4.6% in the U.S. and Canadian businesses, respectively, and $5.7M of price and product mix, including the impact of unfavorable foreign currency which negatively impacted sales by $0.2M, partially offset by $2.6M resulting from 1 less shipping day in the first half of 2017 compared to 2016 due to the Company’s fiscal calendar. • Gross margin contracted by 330 basis points, primarily driven by unfavorable commodity costs due mainly from PVC resin, unfavorable by 11.7%, and aluminum, unfavorable by 20.9%, partially offset by realized selling price increases. • SG&A expense increased $1.5M during the first half of 2017 due to increased sales and marketing from the 8.0% sales increase, however as a percent of sales, SG&A expense decreased 50 basis points from 10.9% to 10.4%. End Market Exposure – H1 2017 New construction 40% Home repair & remodel 60%
- 16. PlyGem.com16 SFS Segment Gross Margin – First Half 2017 29.5% 26.2% 3.… 1.0% 1.0 % 15.0% 20.0% 25.0% 30.0% 35.0% 1H16 Gross Margin Selling Price / Product Mix Commodity Costs / Freight Conversion Costs & Other 1H17 Gross Margin First Half 2017 Gross Margin Performance • Selling price/product mix reflects selling price increases announced during 1Q17 which began to be realized during the quarter. Additional selling price increases announced in 2Q17. • Commodity costs unfavorable due mainly to increasing PVC resin, unfavorable by 11.7%, and aluminum costs, unfavorable by 20.9%.
- 17. PlyGem.com17 ($ in Millions) 2011 2012 2013 2014 2015 2016 2Q16 LTM 2Q17 LTM Senior Notes $950.0 $1,000.0 $852.0 $650.0 $650.0 $650.0 $650.0 $650.0 Term Loan Facility - - - 426.8 422.5 258.2 390.3 256.0 ABL 55.0 15.0 - - - - - - Total Debt $1,005.0 $1,015.0 $852.0 $1,076.8 $1,072.5 $908.2 $1,040.3 $906.0 Cash 11.7 27.2 69.8 33.2 109.4 52.0 64.5 7.2 Net Debt $993.3 $987.8 $782.2 $1,043.6 $963.1 $856.2 $975.8 $898.8 Adj. EBITDA $112.2 $126.8 $117.5 $124.2 $184.6 $229.0 $221.4 $235.6 Interest Coverage 1.2 1.3 1.4 1.9 3.1 3.9 3.7 4.1 Leverage Ratio 8.9 7.8 6.7 8.4 5.2 3.7 4.4 3.8 Historical Leverage Ratio 4.4 3.8 8.9 7.8 6.7 8.4 5.2 3.7 - 2.0 4.0 6.0 8.0 10.0 2011 2012 2013 2014 2015 2016 2Q16 LTM 2Q17 LTM Leverage Ratio
- 18. PlyGem.com18 Margin Enhancements & Growth Initiatives Selling Price Increases ü W&D Q1 2017 price increases were announced in October 2016. Selling price increases range from 6% to 8% ü SFS December 2016 price increases were announced in November 2016 for the U.S. siding products due to rising material costs. Selling price increases range from 6% to 8% ü SFS April 2017 additional price increase for all metal and metal accessory products due to rising aluminum costs. Selling price increases range from 5% to 6% ü SFS June 2017 additional price increase for all vinyl and injected molded products in the U.S. due to rising PVC resin costs. Selling price increases range from 6% to 8% Growth Initiatives ü Cross Selling Opportunities – Continue to integrate our extensive product categories across our legacy customer base and acquired Simonton customer base ü Expand market penetration of Ply Gem’s adjacent products such as PVC trim, engineered roofing and engineered stone ü Continued new product innovation through the Ply Gem Insight Center and Foundation Labs
- 19. PlyGem.com19 Economic Outlook & Guidance Expect Continued Steady Growth in U.S. Housing Starts ü Expect a 2017 U.S. housing recovery growth of 5% to 10% in our markets ü Expect an overall moderate growth rate for big ticket R&R spend of approximately 3% in 2017 ü Overall Canadian housing starts expected to be relatively flat compared to 2016 2017 EBITDA Guidance ü Based on the forecasted growth of the U.S. housing market and R&R spend, the impact of our enacted selling price increases and other margin enhancing initiatives, we expect our adjusted EBITDA 2017 to be in the range of $250M to $255M and our Q3 2017 adjusted EBITDA to be in the range of $82.5M
- 20. PlyGem.com20 Appendix Non-GAAP Adjusted EBITDA Reconciliation
- 21. PlyGem.com21 Second Quarter Adjusted EBITDA Reconciliation (amounts in thousands) For the three months ended July 1, 2017 For the three months ended July 2, 2016 Net income $29,859 $41,646 Interest expense, net 17,380 18,525 Provision for income taxes 19,477 2,025 Depreciation and amortization 13,102 14,313 EBITDA $79,818 $76,509 Non cash gain on foreign currency transactions (617) (255) Customer inventory buybacks 632 596 Restructuring/integrationexpense 455 (156) Litigation – class action charges, net 825 - Tax receivable agreement liability adjustment - 241 Adjusted EBITDA $81,113 $76,935
- 22. PlyGem.com22 Second Quarter EBITDA Adjustments By Segment (*) (amounts in thousands) For the three months ended July 1, 2017 For the three months ended July 2, 2016 SFS Segment W&D Segment Total SFS Segment W&D Segment Total Non cash gain on foreign currency transactions ($224) ($393) ($617) ($129) ($126) ($255) Customer inventory buybacks 632 - 632 596 - 596 Restructuring/integrationexpense 295 - 295 48 (204) (156) Litigation – class action charges, net - 17 17 - - - $703 ($376) $327 $515 ($330) $185 (*) Does not reflect unallocated and corporate EBITDA adjustments
- 23. PlyGem.com23 Six Months Adjusted EBITDA Reconciliation (amounts in thousands) For the six months ended July 1, 2017 For the six months ended July 2, 2016 Net income $26,222 $14,069 Interest expense, net 34,252 37,207 Provision for income taxes 18,223 531 Depreciation and amortization 26,555 28,343 EBITDA $105,252 $80,150 Non cash gain on foreign currency transactions (772) (839) Customer inventory buybacks 1,198 1,067 Restructuring/integrationexpense 1,412 497 Litigation – class action charges, net 1,113 - Tax receivable agreement liability adjustment - 18,391 Loss on modification or extinguishment of debt - 2,399 Adjusted EBITDA $108,203 $101,665
- 24. PlyGem.com24 Six Months EBITDA Adjustments By Segment (*) (amounts in thousands) For the six months ended July 1, 2017 For the six months ended July 2, 2016 SFS Segment W&D Segment Total SFS Segment W&D Segment Total Non cash gain on foreign currency transactions ($243) ($529) ($772) ($203) ($636) ($839) Customer inventory buybacks 1,198 - 1,198 1,080 (13) 1,067 Restructuring/integrationexpense 348 - 348 179 318 497 Litigation – class action charges, net - 40 40 - - - $1,303 ($489) $814 $1,056 ($331) $725 (*) Does not reflect unallocated and corporate EBITDA adjustments