Brad West - CFO Rod Hershberger - Chairman and CEO Jeff Jackson - President

Josh Wilson - Raymond James Keith Hughes - SunTrust Rob Hansen - Deutsche Bank Jeremy Hamblin - Dougherty & Company Bob Wetenhall - RBC Capital Markets Ken Zener - KeyBanc Michael Conti - Sidoti

Good day, ladies and gentlemen. And welcome to the PGT, Inc. Third Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would like to introduce your host for today’s conference Mr. Brad West, CFO. Sir, please go ahead.

Good morning, everyone. And welcome to PGT’s quarterly investor conference call. I’m Brad West, CFO. And I’m joined today by Rod Hershberger, our Chairman and CEO; and Jeff Jackson, President. This morning, we are pleased to provide an update on our third quarter results as well as an outlook for the fourth quarter 2015. Hopefully everyone reviewed our earnings release issued yesterday. Before we begin, let me remind everyone that today’s conference call may contain statements concerning the Company’s future prospects, business strategies and market outlook. Such statements are considered to be forward-looking. These statements do not relate strictly to historical or current facts, rather they are based on our current expectations and subject to risks and uncertainties. Actual results may vary materially from those contained in the forward-looking statements. Please refer to our press release, our most recent Form 10-K and other documents filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements. A copy of our press release is posted on the Investor Relations section of our corporate website www.pgtindustries.com. Included in the press release are the unaudited, condensed, consolidated balance sheet and statement of operations prepared in accordance with GAAP and adjusted information which was quantitatively reconciled to GAAP. Our Company uses non-GAAP measurements as key metrics for evaluating performance internally. A detailed explanation of these non-GAAP measurements can be found in our press release which was included as an exhibit to our Form 8-K filed with the SEC. These non-GAAP measurements are not intended to replace the presentation of financial results in accordance with GAAP, rather we believe these non-GAAP measurements provide additional information for investors to facilitate the comparison of past and present performance. We will provide an overview of our performance for the third quarter ended October 3, 2015 and after our prepared remarks, we will have ample time to address any questions that you may have. With that let me turn the call over to our President, Jeff Jackson. Jeff?

Thanks, Brad. And good morning, everyone. Our third quarter results continued to show growth in both the PGT and CGI-branded products. Highlights include consolidate sales of $100.7 million, the second time this year we exceeded over a $100 million in quarterly sales; top line sales growth of 30.2% compared to last year’s 8.1% for PGT-branded products in 22.1% with the addition of CGI; solid demand for our new vinyl WinGuard and EnergyVue product lines and an increase in our workforce to over 2,200 employees. As we recently passed one year anniversary for our acquisition of CGI, we reflected on what a great combination this has proven to be. Reactions from the broader market in our customer base has been outstanding. The combined entity has exceeded and excelled in terms of both top line and growth in profit. Additionally, our organization is fully integrated culturally and our expectations for the future remain high. With this acquisition, we expanded our portfolio of exceptionally designed impact windows and doors and solidified our position as a leading manufacturer of impact-resistant products in the U.S. Our impact-resistant products continue to lead that way in our quarter-over-quarter sales increase and represented 83% of sales. Our sales increase of 30% over the last year led by sales of impact-resistant products which grew 39%. Sales of other window and door products represented 17% for the third quarter, basically flat versus last year. Also in the quarter, 59% of our sales were from the repair and remodeling market, up 25% over the third quarter last year. While sales in the new construction market represented 41%, growing 39%. Single-family housing starts in Florida in the third quarter were approximately 18,400, up 22% over the last year’s third quarter starts. We again outperformed the broader market as our new construction sales increased 24% when including CGI sales for the entire third quarter of 2014. Our current year starts estimates for single-family housing is around 65,000. And as a remainder, we believe the Florida economy and its growing population will support starts of over 110,000 annually. Additionally, based off our historic results, we believe we can continue to outperform the growth in the housing starts and capture additional market share. From a margin standpoint, our performance during the quarter was impacted by a combination of both positive and negative factors with adjusted gross margin coming in at the low end of our estimates. During the quarter, we went live with our new ERP system in our insulated glass departments. This led to certain operations -- operating challenges during the third quarter, which negatively impacted our gross margin. These challenges were seen primarily on production and scheduling issues for our insulated glass lines. The effect of these issues impacted our ability to produce our vinyl products, all of which held IG glass in them. This resulted in higher than anticipated labor cost and scrap levels. Additionally, these challenges temporarily decreased our vinyl manufacturing capacity and caused us to experience increased lead time, resulting in nearly 6 million or 24% increase in our sales backlog. Flow through from the main plant -- glass plant, processing centers to our IG facility and win to our window and door line, assembly has improved dramatically as we closed our October results. We are confident that the majority of our ERP issues which disrupted the form of our process through our IG facility, have been addressed. Recent improvements in both weekly sales and on-time deliveries support this belief. In the past two weeks, we shipped over $7 million each week and so far this week our on-time delivery performance is running at 96%. On-time delivery is a key major for our performance. We reached flows of 85% during the third quarter, as an example. However, given the nature of system issues, operational improvement, along will gradually work our way to the bottom line and gross margins in the near-term will continue to be pressured. In addition to these operating challenges, we experienced other factors that have negatively impacted our gross margins during the quarter as we continue to see a higher percentage of our sales composed of new construction sales as compared to last year and higher employee related overhead costs on lower -- on our increasing sales level. Demand for our products remained strong. The fourth quarter is typically our slowest quarter, given the impact of both Thanksgiving and Christmas holiday weeks, both labor and weather continue to be headwinds in the Florida markets. In the face of these facts, we estimate the consolidated sales will be between $88 million and $92 million, which represents the solid growth in the range of 4% to 9%. As a reminder, sales comparison between fourth quarter of 2015 and 2014 will include CGI sales for the entire quarters in both years. Our ability to affect the top-end of this range is dependent on our ability to decrease our lead-time, bringing in some of the 6 million increase in backlog we experienced. While we have made meaningful strides in improving operation in recent weeks, we do not anticipate any meaningful reduction in our backlog until the first quarter of 2016. With that, I’ll turn the call back over to Brad who’ll review the results in greater detail. Brad?

As Jeff mentioned, we reported sales of $100.7 million, up 30% over prior year. Breaking down our sales drivers compared to 2014 third quarter, we have impact sales of $83.6 million versus $60.0 million, an increase of $23.6 million or 39.2%; vinyl non-impact sales of $10.6 million versus $10.3 million, up $300,000 or 3.1% and aluminum non-impact sales of $6.5 million versus $7.0 million, down $500,000 or 6.9%. Gross margin dollars increased $6.2 million or 26.9% over the third quarter of 2014. Our gross margin of 22.9% decreased as a percent of sales by 0.8% compared to the same period last year. During the third quarter, we continued to focus on the future with three ongoing initiatives: We installed our new laminated glass line and increased production capabilities of our new vinyl products and we converted a large portion of our operations to the new ERP system. In total, we spent $2.0 million during the quarter on these initiatives. After adjusting for these costs, our gross margin was 31.2%, an increase of 80 basis points over last year’s third quarter adjusted gross margin. To quantify these factors, the 80 basis-point increase in our adjusted gross margin was a result of the price increase announced in the first quarter of this year of 130 basis points, lower aluminum cost 70 basis points, improved leverage from higher volume 20 basis points and the addition of CGI 130 basis points. These positive factors were offset by an increase in overhead cost of 230 basis points and a decrease due to product mix of 40 basis points. With regards to aluminum, our average delivered cost of aluminum was approximately $0.96 per pound during the quarter compared to a $1.09 per pound during the third quarter of 2014. The delivered cost of aluminum is comprised to 41% of stock purchases at $0.82 per pound and 59% of forward buys at $1.06 per pound. To cover our aluminum needs in the near-term, we’ve been entering into contracts for future purchases of aluminum with our two largest U.S. suppliers of aluminum extrusions. As of today, we’re covered for approximately 54% of our estimated needs to the end of 2015 at an average delivered price of approximately $0.95 per pound. Additionally, we’re covered for approximately 52% of our estimated needs during 2016 an average price of $0.88 per pound. The current delivered cash price is approximately $0.76 per pound. This delivered price per pound includes components for the LME and Midwest premium component but it does exclude conversion cost. Selling, general, and administrative expenses as a percent of sales benefited 16.3% compared to 18.5% in the third quarter of 2014. On a dollar basis, our selling, general, and administrative expenses were $16.4 million, an increase of $2.1 million from the third quarter 2014. Included in those expenses for the quarter our CGI expenses of $3.4 million which includes $865,000 non-cash amortization expense related to CGI’s amortizable tangibles. Selling, general, and administrative expenses for the third quarter of 2014 did include $1.5 million of cost related to the acquisition of CGI. Excluding CGI related expenses for both periods, results in an increase in selling, general, and administrative expenses of only $200,000, primarily due to higher variable SG&A consisting with higher sales. Interest expense was $2.9 million compared to $1.0 million in the third quarter of 2014. The increase from prior year related to higher outstanding debt levels as a result of refinancing in September 2014. Depreciation and amortization recorded in the third quarter was $2.6 million compared to $1.1 million last year. Going forward, as a result of the acquired intangibles and the incremental depreciation related to the new glass facility, depreciation and amortization expenses expected to be between $10 million and $11 million for the year. Our tax expense in the third quarter was $3.6 million and represents an effective income tax rate of 36.5%, this compares to $1.7 million and 42.1% in the third quarter of last year. Effective tax rate in the third quarter is lower than our statutory rate of approximately 38.8% due mainly to the impact of the Section 199 domestic manufacturing deduction. The effective tax rate in the third quarter of 2014 is impacted by an update to our full year estimated rate which resulted in the increase in estimated effective tax rate. Tax expense in the year-to-date period of 2015 was $13.7 million and includes a non-recurring non-cash accounting charge of $1.6 million related to an inter-period income tax allocation on our effective aluminum hedges. This amount allocated to comprehensive income in the prior fiscal year was reversed during 2015. Excluding this charge, our effective tax rate for the year to date period in 2015 was 36.1%. Going forward, we expect to report tax expense effective rate between 36% and 37%. Also from cash perspective, our year-end 2014 estimate of our tax effective federal operating loss carry-forward is approximately $6.1 million, mostly acquired in the CGI acquisition. We had net income in the third quarter of $7.9 million, or $0.16 per diluted share after adjusting for the cost recurred related to the ERP system’s conversion, new product launches, and laminated glass line installation versus $6.2 million or $0.12 per diluted share in the third quarter of 2014. Net income and cents per diluted share in the third quarter of 2014 is adjusted for debt extinguishment costs, interest swap de-designations, CGI acquisition costs and glass processing facility start up costs. Adjusted EBITDA was $17.9 million for the third quarter of 2015 compared to adjusted EBITDA of $12.1 million for the third quarter of 2014, an increase of 48%. A reconciliation of net income and EBITDA which I have just discussed have been included in our earnings release for your reference. We ended the quarter with a cash balance of $54.8 million. Our cash growth has been achieved despite capital spending of $13.6 million in the first nine months of the year, all funded by cash from operations. We anticipate consolidated capital spending requirements for 2015 to approximate $18 million as we fund additional glass facility and equipment cost needed to serve the increasing consolidated sales. With $54.8 million of cash on hand, our net leverage was 2.0 times at the end of the quarter. We have a strong balance sheet with the ability to make further acquisitions and fund future needs. At this time, I will turn the call over to our CEO, Rod Hershberger for summary remarks.

Thank you, Brad. This quarter makes 11 consecutive quarters that our new construction sales growth has exceeded 30%, increasing 39% over last year with five of those quarters exceeding 50% growth. Our markets remain strong and we continue to experience growth in both our PGT and CGI branded product lines. Despite skilled labor constraints for some of our dealers and recent bad, particularly rainy weather, our primary market of Florida continues to exhibit strength in its growth of single-family housing start and within the repair and remodeling market. Additionally, demand for our new vinyl product has been excellent. On October 28th, we announced that our Board of Directors authorized our $20 million share buyback program which in addition to our history of profitable operations, provides us with another vehicle for increasing shareholder value. The confidence we have in our business and our markets, combined with our consistently strong cash generation and profitable operations, gives us the confidence to announce the buyback program at this time. We continue to actively evaluate acquisition opportunities into window and door space and we’re resolute in our goal to identify and close deals, which fit within our core values, culture and long-term growth strategy. Like CGI, we see candidates that will help us achieve our goals of earnings improvement and expansion, both in product offerings and geographies. In fact, thus far in 2015, we have actively analyzed numerous opportunities, passed on several and continue to aggressively pursue a select few. Lastly, the PGT family continues to grow. During the third quarter, we exceeded 2,200 employees for the first time since 2007, at which time we had approximately 2,600 employees with the sales run rate less than where we are at today. For the fourth quarter, we expect to continue to outpace our underlying markets in terms of top-line growth. After increasing only 4% in the first quarter, single-family housing starts in Florida have increased by more than 20% in consecutive quarters, which we believe will result in solid sales growth in the fourth quarter. Looking ahead, our priorities include improving our productions flows and reducing lead time. We also will continue with our glass capacity expansion with the addition of more glass cutting and tempering equipments. I am thankful for the dedication and efforts put forth by all of our team members who have worked hard to help us realize our strategic initiatives and execute on our value proposition every day. With that, I will conclude and we will be happy to answer your questions about our results. Michelle, if you could get the first question please.

Thank you. [Operator Instructions] Our first question comes from the line of Sam Darkatsh with Raymond James. Your line is open. Please go ahead.

This is Josh filling in for Sam. Thanks for taking my questions. Could you give us a little bit more color on what remains to be done with the ERP rollout, if there is any other lines that still are on the docket to be converted and that sort of thing?

Sure. So, we converted the vinyl line first basically over the summer, which represented about 30% of our business, so a large portion of our insulated glass lines. So, when this full integration is complete, we will then move forward sometime next year with converting the aluminum line.

I’ll add to that. The biggest part of the conversion was the IG department. Now that’s clearly behind us and we’ve experienced issues there and rectified those, the remaining part is assembly driven, assembly on the aluminum side of the business. The assembly on the vinyl side of the business, like Brad has said, was turned on in basically July and August. And all those issues have been resolved as well. And it really wasn’t the main issue. The main issue from the ERP standpoint and addition of all the cost is centered around the IG department in that glass. I’ll remind you that we turned this system on in stages over the last year and half. And the first stage is being the administrative function, the next stage is actually the glass plant. In the glass plant, both cutting, tempering, and laminating has been running on the system now very successfully for several quarters. As recently as results of the system, our lami IG yield -- our lami yields, excuse me, hit records. We’ve been doing better at laminating glass that we’ve done in the last six years. So, we’re getting benefit of the system in the glass plant. When we flip the switch to the IG side of the business that was the next biggest switch, if you will. So, it’s fair to say that 70% of the systems have been implemented. In terms of its impact on our business, we still have the aluminum side of the business to go on the assembly side.

Hey, Josh, just one more note, we turned on our Eze-Breeze our fortune closure product in this new system virtually two years ago and it was a smooth transition. And that’s one of our manufacturing lines. So, it’s a manufacturing line that didn’t take any type of glass, particularly didn’t take any type of IG class; it stood alone. So hence the confidence in our manufacturing lines ability and the system to handle our manufacturing lines because some of those lines have been running on it for two years now. It was the integration of the IG glass.

And then, you talked about some gross margin pressure, things worked through the system. Could you give us a sense of quantification of how much pressure we might see in the fourth quarter or 2016 and what kind of timeline you’re looking at for that to work its way through?

Josh, as we mentioned in the press release in the third quarter, we’re going to continue to see pressures on those margins. We’re not going to give guidance for the fourth quarter number. Suffice it to say, we’re still experiencing some of those issues in October and this last couple of weeks we have seen some great results. But at this point because of the system issues and nature of them, we do expect them to continue to be pressured.

And in the 2016 as well?

Not as much, definitely. We felt it in October; on the last two weeks, we felt less. I’ll give you an example. Direct labor, during the third quarter at times hit 14 plus percent, centered again around IG and the vinyl side of the business. The last two weeks that same number’s been 11.5. In the first part of the year that number was close to 10.5. So just to frame the magnitude of the issue we faced, the positive fixes we’ve done and then -- but we do still have some work to go. So there will be some indirect -- sorry direct labor add backs. We still are outsourcing some IG glass that we want to obviously do internally. And we’ve decreased the amount of IG glass about 35% from what we were doing, and the goal was to obviously bring that back in over the fourth quarter as well. And actually we do that weekly. So, those are some of the areas. You’ll see some labor issues still and some scrap material issues as well.

And lastly, for me, could you talk about what your sales growth was by month in the third quarter and in October?

Yes. And this is going to be for the PGT brand only. The July growth was 23% and then August and September were 1% and 4% respectively.

And October?

We’ve not given our October sales numbers.

Our next question comes from the line of Keith Hughes with SunTrust. Your line is open. Please go ahead.

So, going back to the last question, the October, assuming the August and September of 1% and 4% growth, I made that internal issues in terms of servicing; is that an order number or sales number?

Those are sales numbers, Keith and they were definitely impacted by the orders of backlog, but that happened during August and September absolutely.

What kind of -- you have an order number, what does it look like?

We don’t at this time, but we did mention that $6 million was the increase in backlog during that time period, so you might be able to back into something.

And you’ve talked about how it’s going to take a little bit of time to sort these issues out. I guess the question is with -- you talked about acquisitions, does this change your time horizon of when you would pull the trigger on an acquisition as you work through these issues?

No, not really. Because Keith, just to give you an example, CGI stands alone; it has its own system. Their results have not been impacted at all related to our IG glass and our system issues we faced during the third quarter. So, as we look at acquisitions, they stand on their own merits and we evaluate them accordingly.

We typically don’t look for an acquisition that would take our management team going in and replacing somebody else’s management team and putting a whole new structure in place. That’s not something that really fits our model quite as well, especially with our leadership structure that we have here. So, because of that it doesn’t affect near as much. We would expect an acquisition to pretty much stand on its own with a little bit of benefit from as we say big brother.

You referred to your share repurchase authorization that you announced several days ago, if that’s completed and the stock is [indiscernible] today for example with the Board, do you think that Board would be opened towards authorizing another repurchase?

Yes, it’s something that we definitely talk at the Board level about. And the blackout period will be listed sometime next week and we will have to evaluate it at that time.

And final question on the gross margin for fourth quarter. You’ve highlighted you’re going to have some pressure as aluminum is going to be lower. Are you going to be able to deliver some level of increased gross margin in the fourth as we saw here in the third?

Well, I think the two factors that we’re dealing within the fourth quarter compared to third, it is a lower sales volume quarter, so there would be negative impact that would come from leverage as typical. And then the price of aluminum is definitely up. So, at this point, like we said, we have continued to put thoughts on -- I am sorry. I misunderstood the question. You were talking about…

The gross margin in fourth quarter versus the fourth quarter of 2014, given what you now have as you’re fixing issues, would that gross margin be down year-over-year, would you expect it to be up?

No, it would be up year-over-year. I’m sorry. I misunderstood the question.

Thank you. And our next question comes from the line of Rob Hansen with Deutsche Bank. Your line is open. Please go ahead.

I just wanted to ask about the aluminum business and the next phase of the ERP implementation. So, this is a much larger part of your sales. So, I think I’d imagine investors are probably worried about the next transition here. And so I guess, if you could just give an example or why you think you should be better off in this implementation? Whether it’s structural just the nature of the business and how you plan to attack what you’ve learned from the most recent situation?

Again, the biggest issue we faced was the IG side, not the assembly of aluminum windows. And so now that we’ve got IG fixed, 80% fixed, again it will get the remaining percentage of that as the quarter works its way through. Now that IG is on its way to recovery, that same IG unit will not be an issue when it comes to the aluminum line. The assembly part of the system, we’ve tested very thoroughly the actual processor, the BOMs, [ph] the building materials, how the windows put together no issues there at all. And so even on the vinyl side, which we’ve already turned on, the assembly side for the vinyl, we’re finding no issues on the assembly side there at all. So, I do not anticipate when we put the switch for the aluminum side for it to be an issue. Again, because the same IG that we’ve fixed for our practice [ph] purposes, we’ll see that aluminum assembly side.

And then you mentioned obviously the direct labor efficiencies, is this from employee turnover or new hiring, just the kind of as you grow here; what’s the impact there?

The impact there is a combination of things but mainly surrounded adding additional resources to sort glass and process glass to the IG side of the business. Again, if you can imagine, glass coming over, wasn’t order; in the past it was. So we may close to over 3,000 IG units a day. So you can imagine 3,000 pieces of glass everyday coming at you that’s not sorted, we had to put in -- just as an example, we had to put in labor to help manually sort that. And so we worked out the programming within the system to do it. So that’s an example of the types of labor we’re considering in terms of one time in nature or add backs.

So that labor impact as you mentioned was primarily kind of one time, it shouldn’t be -- it’s not like you’re investing into the future there and adding a piece -- a fixed component there that’s going to stay?

Just to clarify that there is a slight amount of that. We think we’re bullish on what the Florida market is. We’ve talked a lot about starts and where we think starts are going to go. The forecast for next year by the experts that we don’t necessarily agree with entirely are really strong in the state of Florida. So, we will maintain -- I don’t know that I can quantify it for you, we’ll maintain a few extra employees making sure that we’re able to grow the business as the starts pick up and as remodeling space grow strong.

Thank you. And our next question comes from the line of Jeremy Hamblin with Dougherty & Company. Your line is open. Please go ahead.

I wanted to ask about -- just a follow-up on that sales guidance. So, I think what’s implied here is that maybe it would have been a little bit higher, had it not been for the manufacturing issues. Is that a correct assumption?

Yes, that’s a correct assumption.

And then on the gross margin, sequentially Brad, you’re not giving guidance here but is there a possibility that it could actually be down from the level that you just produced at in Q3?

We’re seeing that it’s going to be continue to be pressured. The range is somewhat large because of the amount of sales that we could get. And Jeff mentioned that whether we could get through the backlog. And I think the situation is it’s going to be similar to we saw in Q3.

I will add to that though, obviously there is volume involved. We just finished the $100 million a quarter. If we have a $90 million quarter or whatever, $92 million, top end of the range, then there are $8 million of sales subsequent quarter that we’ll have a labor impact. It’s loss leverage in essence. So, there could be issues around that, just from a top-line perspective.

And there is some lost days in there. When you hit Thanksgiving week, you’ve got Thanksgiving and the day after and you’ve got Christmas week, productivity and sales is affected in weeks like that. It’s not going to be the same as you would see. We don’t get a true 13-week period.

No, understood. It’s just if I go back to 2012, 2013 timeframe, you saw sequentially results up on gross margin compared to Q3. So, I just wasn’t sure if that was necessarily going to be the case.

But if you go back to 2012 and 2013, we saw a sales growth sequentially as well. So, you had leverage. And 2012 in particular, we had 980 employees at the end of the year. So, a lot of leverage when the market first started turning. And obviously, as you invest in the market over time from an employee standpoint, that leverage percentage is going to decrease.

Let me come to CGI for a second which has had outstanding performance. In terms of the EBITDA margins, are you still generating in that 22% to 25% range in terms of the EBITDA margins on that business?

We talked about the fact that when we acquired CGI, being an impact only company. They do generate margins north of 20% and we have started implementing some synergies there which continued to drive that north of 20%. We’re not going to get specific numbers on that, but yes, we’re seeing very favorable north of 20% EBITDA margin for CGI.

And then in terms of -- you talked about supply -- the potential to supply them with some of the glass by the end of this year. My assumption is obviously things have changed a little bit and that’s not going to happen this year, because you’ve got other issues to resolve. Is that a correct assumption? And then, is that still something that’s part of the plan as we head into 2016 and the potential timing of when that possibly could happen?

From a timing standpoint, it will be delayed. We’ll eventually supply them glass but it’s not until we get through the fourth quarter and workout internally every issue that’s on the table. Again, of which majority, vast majority 75 plus percent have been worked out. But the goal will be to obviously start supplying our sales glass again, like I had mentioned earlier. We did outsource during the third quarter and the beginning of October, first two weeks of October. We have outsourced glass, IG glass and we want to get that back internally first. But we’ll look to supply CGI glass 2016. I don’t think anyone here is comfortable in saying exactly when that will be but when it is, we’ll tell you.

One of the things that’s interesting is this has been more of an -- this has been primarily an IG problem. Our laminated line is running well. And CGI, although they are using more insulated glass, IG glass than they did in the past, majority of their business is not IG. So, it’s tough to answer that question because it’s not necessarily flowing through our IG plant; it’s going through our cutting, tempering, laminating facility which we do have -- has been performing well. Now as we produce more IG glass internally and don’t buy as much from the outside, we need to produce more laminated glass to see that IG line also. So, that’s the balance that we’ll look at. Everything on the CGI side is tested, proved and ready and ways are in place. So, we can pull that trigger at any time that we think we’re ready to do that.

Just one more CGI question. I think by my calculation, you grew the CGI business at somewhere between 35% and 40% in the third quarter which is still pretty phenomenal. What’s happening in terms of -- obviously the PGTI brand is bigger, it’s got bigger numbers, you’re not growing at that kind of rate. But is this -- some of these issues -- it’s just disruption in your business is causing problems of orders and particularly on R&R side of your markets. I’m assuming that you can’t keep growing CGI quite at that rate, but is this something where you think that could grow 15%, 20% maybe for an extended period of time because of the synergy?

From a CGI perspective?

Yes.

Yes, most definitely.

And then what about -- I’ll jump back in the queue. I appreciate you taking my questions.

Thank you. And our next question comes from the line of Bob Wetenhall with RBC Capital Markets. Your line is open. Please go ahead.

Your stock is up 15% today which is a lot and over the last three months was down 34%. And I’m getting calls from investors saying what’s the reason now to be in PGTI, what should we be telling investors, why the stock is going to recover lost ground?

We’re still -- as you probably know and as you could probably tell from this call, we’re still pretty bullish on Florida and the Florida market. We’re actually a little surprised, all the forecasts for this year were higher than 65,000 single-family starts. The forecasts for next year are up considerably. We have an ERP system that will allow us to do things that I don’t believe -- and I don’t want to say this as a fact but I don’t believe any other window and door company can do with their customers, granted. We’ve had a hiccup in the IG portion of the implementation but it doesn’t change the fact before we -- what we believe that system can do for us and can do for our customers. And I think that’s a pretty significant fact. Our customers have a lot of confidence in PGT. We’ve seen pressure in third quarter from all performance but we’ve also seen pressure because it was one of the range of third quarters that we’ve seen in Florida. So the weather affected us. And the ability of not just our customers but our customers’ customers to get the labor that they needed is a little bit of a headwind. We think that headwind is going to be there. It’s not going to completely go away next year. But that doesn’t change the fact that we think we can continue to grow our business. We’ve seen CGI’s business; we’ve pushed it through select dealers that’s what grow well. It’s allowed them to grow extremely fast. And PGT’s sales growth is also strong, granted a strong dollar sales growth on big numbers. As a percentage isn’t as much as a little bit smaller dollar sales growth on a smaller number but we’re still seeing good sales growth. We’ve got a backlog that we wish wasn’t quite as large but it makes you feel good that you have a bigger backlog than normal and we’ll work through that backlog. And we’re still working actively and working hard on potential acquisitions. So, in spite of -- when I look at it, I say, okay, there is the ERP implementation, it’s a little bit of hiccup. Everything else we feel is in our favor.

Yes, Bob. I’ll just add couple of things there. The fundamentals of this business have not changed. We have an ERP system implementation that basically you do once every 20 years and we’re through it for the most part. We just introduced a state of the new vinyl impacting line that has better design pressures than aluminum; it’s feature rich. No other competitor in the market can match it. And the demand in essence outpaced our capacity. And we’re catching up to that. So, the housing starts of 65,000 this year, they’re going to get back up to 110. It’s just a matter of time. The Florida market in its entirety is labor shortage. So, there is a pent up building if you will just due to labor. I’m personally building a house and it’s probably two -- almost two months behind schedule because of either labor or weather. So, there is a lot of good pent up demand. We haven’t had a hurricane in ten years. We had a couple of good scares this year. We think there’s still awareness that needs to happen in the market. And we think we’re on top of that with our brand and our marketing. So, the fundamental of this has not changed. We’re generating incredible amount of cash flow. Our cash flow is now -- our cash is now to over $54 million, as an example. That hasn’t changed. We’re still doing that.

And we have a product pipeline. As we look out into the next couple of years, we’ve already got the product pipeline just kind of marching toward the finish line, so that we can continue to introduce products that the consumer’s either asking for or that we’re seeing in the marketplace that will make it different.

So, it sounds like this quarter was a misfire, would that be a fair characterization?

This quarter we implemented an ERP system that has issues that we’ve worked through and…

I’m just trying to understand, we’re into October, you’ve got two months left, and I think we’re hearing a lot of investor concern around profitability and gross margins. So, I’m just trying to get some comfort, given the fact that, I think Jeff, you’re saying, hey, these issues are in the rear view mirror, we’re moving forward into year-end. We’ve got a good view on visibility and demand. Can we get a little bit of comfort on the gross margin line and just how to think of it. You obviously have some bottlenecks at the same time you have some lower aluminum costs. Just help us to reconcile this?

Yes, the only thing -- you’ve to remember. We’re in the fourth quarter, we’re in November. We have three weeks of this remaining two months that are going to be holiday related weeks. And we sell mainly into an R&R market that doesn’t have R&R work going that timeframe. So our ability -- I firmly believe, if we’re sitting in the second quarter, the next eight weeks, the backlog back in and we’re back on track. The fact we’re in the fourth quarter is going to hinder us getting our volumes in the backlog back down surely because of time. I think I mentioned to you or on the call, the last two weeks have been $7 million week. We just have so many of those left. In terms of margin, it is going to be hard to give range because again we’re going to have an add back in the fourth quarter for the costs associated with the systems implementation and the glass impact. It won’t be to the magnitude we don’t feel it was in the third because everything is going in the right direction. That’s really all I could say at this point. Again look at the last three weeks, my indicators are all back in line. So things are definitely rear view mirror, to your point.

And you guys can’t just give us kind of a bookmark range like, hey here is the wide; here is the low, the high?

I think Brad, he mentioned earlier, it’s going to beat last year and it should meet -- say it’s going to meet or be right in line…

It will be near the third quarter.

Near the third quarter number.

And to your point, lot of cash flow. And I think you guys are also touching on acquisitions. What do you do with the cash flow if you don’t find good M&A? You’ve done a great job of consolidating Florida market; you’ve got CGI. What’s the plan with that.

We did announce the share repo that we’re going to do, initially 20 million. I think it was Keith that might have asked, would we go back if we burn through that. The answer is yes, we’ll go back and talk to the board about how to best invest cash; is it another share repurchase or is it other opportunities. But we are still definitely aware that we produce great cash flow and somehow work its way back to the shareholders in terms of either a share repo or an acquisition like CGI has been incredibly successful.

Hey Bob, I think our internal acquisition strategy is well thought out. It’s defined and we’ve executed well, although there haven’t been a lot, I’ll grant you that. But it’s because the criteria is pretty tight on how we do it, but that doesn’t mean we’re not continuing to look. So, we will keep some cash to make sure that we can achieve what we want to achieve internally.

Our next question comes from the line of Ken Zener with KeyBanc. Your line is open. Please go ahead.

I think the volatility here versus last year, at least from when I started associating -- covering your company is that it seemed structural last year, we had a buy outside glass and that was an understandable dilution that occurred and made still a fundamentally solid top-line demand. And I’m fine with that. To me though, I think helping us understand this ERP, like Hersey’s had ERP issues in Easter. So, it’s not unique to you guys. But why do you think you underestimated the risk in the system, and why did you guys choose to implement it then on the IG side? And it sounds like all the labor -- not all but the vast majority of the labor is associated with getting the glass to the right spot. Because it seems to me that within your 35% long-term gross margin target and in FY16 you supposed to maybe get upwards of 200 basis points lift tied to just the vinyl if those operating 600 basis points 700 basis points below your average you are supposed to roll it out. So, in a full year you’re supposed to get that 200 basis-point lift FY16 versus FY15. But this seems a lot more related to your guys’ execution now versus structure. And so I think that’s why people are very concerned. And I understand 4Q, Brad, you are talking about gross margins being flattish. There is going to be a volume issue. But can you guys help us resolve this? I mean it’s just I know you’re thinking it was a one-time issue and it happens. But why didn’t you guys risk tested better on the IG side and how are you going to go ahead and test this as you bring it out on the aluminum which is obviously the majority of your business in terms of that process?

Okay, I’m going to -- we’re all probably going to comment to a certain degree and I’m going to attempt to clarify couple of things in terms of the testing side of the implementation. We did test certain areas. We test them and they worked. Certain areas we didn’t emphasize as much. That was the scheduling and capacity areas that also ended up being a tip of an iceberg. But underneath, we did a lot of testing over the guts of the system, like I said earlier the BOMs [ph] that configurator that configurator itself. But in our glass operations which before was run on basically an antiquated system and needed to be upgraded and based off our success we did have with the glass plant, as I’ve mentioned earlier, the glass plant itself, tempering, cutting and laminating has been on the system and working well. We thought the next phase likely so should be IG. And I think the areas we did not test enough, once you applied volume to those areas, you really saw the impact. And that’s what happened. It is as simple as that. And once we solved that and some things that we did, we increased the vendor on-site staff, there is a board room literally dedicated to answering issues daily that come up. We hired an additional Project Manager, very experienced individual to help lead the remaining part of this project in conjunction with our current IT team. We switched out executive leadership roles on the whole implementation process. There’s been several internal moves we’ve done to attack this problem. And as a result, we’re seeing better outcomes. We’re past this. It did and from a top line, I’m going to try to answer the top line question you asked…

I think that’s fine. Just on the ERP, I mean to the extent you might have overlooked some of the risk issues, as you leverage the system and higher volume, how are you guys assessing the risk relative to the aluminum with your boardroom, how are you guys exploring that next set of unknowns?

We’re volume testing related to the assembly of our aluminum side of the business. I spoke to the project lead this morning. And we’re confident that now we can run volume parallel before we flip the switch on the assembling side of the aluminum. But again, I want to emphasize that the vinyl assembly side wasn’t really an issue. Okay? It work the BOM, [ph] the building material, it worked; we built some windows. It was the theme of that line with IG glass. Now that we’re over the IG glass side, the assembly of aluminum should not be as impactful. However, we are testing it at volume. Hopefully that makes sense.

It does. I mean I think it’s your guys ability to -- I guess it’s [indiscernible] folks that identify the unknown known. On the vinyl side, if that’s working relative to the IG flow, are you guys still on track to close that 600 basis points by the end of -- when are we looking to close that gap if you’re moving production all over to that new -- IG system going into the new vinyl line? I mean have you closed 500 to 600 basis points? And should we really see that exceed production issues and volume?

We’re still producing products in our old vinyl lines, in part because of this cut over and its impacted. So that did have a delay from our initial expectations were. So as we go through 2016, we will continue to cut over. And sometime in the middle of next year we will be on the all the new products. In terms of the margin expectations, once we’re on the new product that has not changed. The demand range is really for the product. The feedback we’re getting is great. And in terms of the cost metrics that we use for labor materials, all those are coming in line. The product that we’re selling we’re very happy with. And as soon as we get cut over, we will be very pleased with the results.

I just wanted to ask or add about the top line, okay. You mentioned last year and how the top line wouldn’t impact it, this year has been. That’s literally solely related again to IG. We’ve never outsourced IG before. And so once we got into this process of implementing the system on IG we had issues, we cannot pull a lever to go and simply order IG from a third-party; that had to be set up. And so that was a three, almost four week process to enable us to order outside IG glass, whereas last year we cut order lami. We picked up the phone, we had a production issue, we really picked up the phone, we called our third-party supplier and we said, we need lami glass in IG. And they would give it to us. This year that wasn’t option. So, the sales impact, the top line guidance that we’ve given its impact, which is reflecting in the backlog, was there simply because we couldn’t pick up and order third party IG in time enough to present.

Right.

So the market still hasn’t changed. Florida market is solid, it’s robust, it’s growing. It was our execution only and only related to IG, our aluminum lines were fine. The impact side has been fine. And now that we’ve got the IG business, ERP system behind it, I think here in the fourth quarter, you are going to see the remaining issues flow out and this is done.

Good. I do appreciate, you guys trying to flush out these obviously opaque issues. But the one comment, I’d leave you guys with as you guys are considering how you frame FY16 is if you guys could kind of go back to that longer term outlook, so you could put this up and down, turn left, right issues within a broader framework, I certainly think the financial community will kind of appreciate your guys broader view when you get to FY16 versus just the quarter-to-quarter which I think is undermining your guys longer-term story and cadence relative to how you’re actually positioned in the market. Thank you gentlemen.

[Operator Instructions]. Our next question comes from the line of Michael Conti with Sidoti. Your line is open. Please go ahead.

Just relating to the production issues, wondering if I guess what impact that have on your customer’s buying ability; do they have to buy their product needs from other competitors then, is that fair to assume?

Yes, some. Is that fair, yes, it’s probably fair to assume. But you got to remember some went into our backlog. We’re the branded products for impact. People PGT. So to the extent they had to have them, and again only vinyl related, let’s just make sure we understand that. Yes, they probably went to a competitor or they could have also went to our sister company CGI. So, again, we have some ground to make up in terms of bringing back down the lead times and therefore reducing that backlog. But we do not at all anticipate it being an issue to win back any kind of lost share which we don’t think there is been that much of a material impact.

And then I wanted to ask if you’re seeing maybe any of your competitors’ also increasing capacity just given the level of demand over there in Florida? And if so, how should that impact your premium pricing, or maybe your ability to raise prices in future?

We’ve had a price program in place, where we have a little bit of a price increase every year as opposed to a large big one and the timing of that price increase has a lot of factors including the performance operationally that we’re dealing with now as well as just other factors and other strategic initiatives. That being said, I don’t think anything that we’re dealing with is going to affect pricing going forward, maybe the timing but certainly not the concept of a price increase annually.

Our pricing will be based off what the market will bear. And we typically and we probably always will be get 15% to 20% premium on that. And again, we did that when we deliver the 96% rates that we’re now back to.

I am showing no further questions at this time. And I would like to turn the conference back over to Mr. Brad West for any closing remarks.

Thank you for the time today. And look forward to talking to you everyone next quarter.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Everyone have a great day.