Bradley West - Senior Vice President and Chief Financial Officer Rodney Hershberger - Chairman and Chief Executive Officer Jeffrey Jackson - President and Chief Operating Officer

Robert Wetenhall - RBC Capital Markets Joshua Waymire - Raymond James & Associates Kenneth Zener - KeyBanc Capital Markets Min Cho - FBR & Company Jeremy Hamblin - Dougherty & Company

Good day, ladies and gentlemen, and welcome to the PGT Innovations First Quarter 2017 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, this conference call is being recorded. Now, I’ll turn the conference over to your host Brad West, Senior VP and Chief Financial Officer. Please begin.

Thank you, Tyrone and good morning. Welcome to PGT Innovations’ 2017 first quarter conference call. I’m Brad West, the Company’s CFO and I’m joined today by Rod Hershberger, Chairman and CEO; and Jeff Jackson, President. This morning we are pleased to provide our 2017 first quarter results, as well as an outlook for the remainder of 2017. We also have posted a presentation on the quarterly results to the Investor Relations portion of our website. Before we begin our formal comments, I would like to remind you that today’s remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. These remarks involve a number of risks, uncertainties and other factors that could cause actual results to differ materially. These factors are detailed in the Company’s earnings press release and in the risk factors section of our 2015 annual report on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements. You should also note that we will report our results using non-GAAP measures which we believe provide additional information for investors to help facilitate the comparison of past and present performance. A reconciliation of these non-GAAP measures to their GAAP counterparts is available in the Investor Relations section of our website. Now, I’ll turn the call over to our CEO, Rod Hershberger.

Thank you, Brad. Good morning and thanks everyone for joining today’s call. We delivered a Company record for sales in the first quarter at a $113 million up 12% compared to last year. This compares to a 5% increase in single-family housing starts in the first quarter of 2017 compared to last year an indication that we continue to take share in our core markets. Although single-family housing starts in Florida were flat in January and February, starts strengthen in March and were up 17% compared to March 2016. We believe this bodes well for starts in Florida in the near-term and our top line has consistently demonstrated our ability to outperform the housing start market in Florida. The repair and remodeling market benefitted from Hurricane Matthew not because of actual damage but from the awareness driven from a close call. The last major storm to make land fall in the U.S. was Wilma in October of 2005 making this the longest recorded period of time with no storm impact. As a reminder, Wilma was the fourth major storm to make landfall in 2005. Florida’s population grew by over 330,000 in 2016 and is projected to grow by another 325,000 in 2017 by the Florida Office of Economic and Demographics. Nearly all from migration. This rate of population growth is more than at any point in the last six years. Florida’s population will soon approach 21 million people with migration gains continuing to be driven by the influx of retirees, foreign investors and the draw of working age people to Florida’s storm job market. We continue to execute on our strategic plans in the first quarter of 2017. Successfully driving several key initiatives our three brand go-to-market strategy has been well received by our customers and we believe it is a key success for us. At the 2017 National Association of Home Builders Show in Orlando in January, we unveiled the next generation of cutting-edge new products across all of our brands. The strength of our brands was evident as we showcase our remarkable new products like our WinDoor brand, lift-and-slide door and bi-fold door and provided a glimpse and prototypes of other new products all of which demonstrated our ability to leverage our intellectual property across our brands and to introduce innovative designs in the window and door space. We are focused on strengthening our position in Florida, one of the best markets over the past four years. During this period we have Great Lake standard operations of our flagship PGT product and acquired CGI and WinDoor the latter of which focuses on the high-end markets. While we are pleased with WinDoor's first quarter 2017 sales amount it is seasonally low first quarter sales makes it too early to gage the degree of any recovery from the softness in the luxury market we experienced in 2016. However, we remain confident that WinDoor is well positioned to capitalize on a recovery in the market for high-end luxury products due to our market leading position in this sector. Now, I would like to turn the call over to Jeff, who will review in more detail recent events, market dynamics and our operational performance. Jeff.

Thank you, Rod and good morning, everyone. Sales in the first quarter of 2017 finished strong after a slow start to the year in our core market. With average weekly shipments in March higher than last year driving March results up 20% over the prior year. Sales growth in the first quarter of 2017 was led by 24% increase in our custom vinyl impact products. As demand in this product category continues to be strong. Home builder confidence continues to be at historic highs, the NAHB market index, a gauge of their home builder’s feelings towards current and future sales of single-family homes, reached 71 points in March of 2017. The highest level it has seen since peaking at 71 in late 2005. We believe builder confidence is on firm ground and consistent among our brands in the home building strong points to strong interest and increase traffic among potential home buyers. These indicators bode well for new home construction and for real estate construction projects in general for b2017, which we should have favorable impacts on the supply chain for all new home construction materials including windows and doors. Actually starting-off slow in 2017, single-family housing start in Florida strengthened in March. As Rod had mentioned, starts were up 5% quarter-over-quarter including a 17% increase in March. We believe that the momentum gained in March in single-family housing starts will continue as we move further into the stream, new home construction season. Our second quarter has started off strong with April sales up 8% compared to April of 2016. Single-family starts in Florida increased 15% in 2016 to approximately 78,000. The historical long-term phase starts in Florida is about 110,000 a year. We believe this gives us a solid runway for continued growth in new home construction builds over the next several years and beyond. Regarding our margins, as expected our margins compared to the first quarter of 2016, were unfavorable impacted full quarter of WinDoor’s fixed cost in our first quarter of 2017. The first six weeks are typically the lowest sales period of the year for WinDoor and we carry variable and fixed costs in preparation for future higher volumes typically seen during the remainder of the year. This impacted our gross margin volumes approximately 50 basis points. But our ability to consistently leverage and capitalize on our core competencies especially through our longstanding leadership position in the mass custom market help support all our initiatives in the first quarter of 2017. As previously discussed in response to a solid demand for our core customer vinyl impact products, we installed two new Thermal Plastic Spacer systems, which is an innovative and cutting-edge technology that enables us to better quality insulated glass units. Operations in the second TPS line gained significant traction in the third quarter of 2017 and is now up and running. While we incurred some additional startup costs in January and February, we are pleased with the results of our TPS line that are producing. This new technology should help us to improve our overall insulated glass quality and related warranty claims. The execution of our strategic initiatives in the first quarter include making certain plan changes in our management structure to align our organization to better capitalize on market opportunities. These changes were directed towards maximizing effectiveness and efficiency of our leadership team, which has strengthened our bench and improve our execution. These changes were also part of our planned goal to towards the cost savings, share service operating model among all our brands. We continue to realign in April by consolidating our HR and field service leadership teams. On the final note, the construction of our new leased location in Miami is progressing as planned. We are very excited about the opportunities this presents to us. This new facility in our core Florida market will enable us to increase our manufacturing capability and enhance operational effectiveness by combining parts of our production, distribution and marketing efforts across all of our brands. We expect to begin operating in the new facility during the first quarter of 2018. Now, I would like to turn the call over to Brad to discuss the financial results for the quarter in more detail. Brad.

Thank you, Jeff. We reported net sales for the first quarter of 2017 of $112.7 million, an increase of 12% over the first quarter of last year. First quarter of 2017 sales includes $7.7 million from WinDoor compared to first quarter of post acquisition sales last year of $4.1 million. On Slide8, we give you a breakdown of net sales for the first quarter. Our growth continues to be fueled by our impact products, which grew 16%. This growth came from our vinyl impact products which had solid growth of 24% compared to the first quarter of last year driven by solid demand for our mass customer vinyl WinGuard products. Non-impact products sales were down slightly quarter-over-quarter. We saw growth in both new construction and our parent remodeling of 11% and 14% respectively. For the quarter, 60% of our sales were from repair and remodeling by sales of new construction represented 40%. Now, please turn to Slide 9, now I’ll briefly cover a few income statement items. Gross margin dollars increased $1.8 million or 6% over the first quarter of 2016. Our gross margin of 28.2% decreased 170 basis points versus the first quarter of last year. Adjusting for costs relating to the TPS glass line startup totaling 517,000. Gross margin was 28.6% in the first quarter of 2017 compared to 29.9% in the first quarter of 2016, a decrease of 130 basis points. Our margins in the first quarter of 2017 compared to first quarter of 2016 were unfavorably impacted by the incremental six weeks of WinDoor’s fixed costs, as well as incremental non-cash depreciation expense both of which were approximately $700,000. With regards to aluminum, we have seen a meaningful increase in the per pound cash price of aluminum during the first quarter of 2017 from $0.87 per pound at the beginning of the quarter to $0.99 per pound at the end. The current effect of change in aluminum prices, we have an active program to stabilize our pricing through forward contracts with our major aluminum material vendors that fixes our pricing proportions of our aluminum needs. As of today, we are covered for approximately 70% of our estimated needs during the remainder of 2017, and an average delivered price of $0.91 per pound. The current delivered cash price is approximately $0.98 per pound. This delivered price per pound includes components for the LME and Midwest premium, but excludes conversion cost. Selling, general and administrative expenses as a percent of sales finished at 20.2%. SG&A expense in the first quarter of 2017 includes $922,000 in coast relating to the roll-out of our branding unification at the International Builder Show in Orlando in January, as well as $715,000 in cost relating to actions we took to reorganize our management leadership. SG&A expense in the first quarter of 2016 includes $902,000 of WinDoor transaction and refinancing related expenses and $275,000 of certain products wind down cost. Excluding these non-recurring cost SG&A as a percentage of sales were unchanged at 18.8% from both the first quarter for 2017 and 2016. Interest expense in the first quarter of 2017 was $4.9 million an increase of $27 million compared to the first quarter of 2016. Interest expense increased as a result of a higher level of average debt in the first quarter of 2017 compared to last year, resulting from the February 2016 refinancing, which occurred at the midpoint of the first quarter of 2016. The increase in interest expense was partially offset by a decrease as a result of the re-pricing of our term debt on February 17, 2017 which resulted in full one percentage point reduction in the stated interest rate and was accomplished with no additional lender fees and minimal third-party cost. We estimate that the re-pricing of our term loan facility will us $2.3 million debt service cost in 2017 and approximately $13 million cash over the term of the facility. Depreciation and amortization recorded in the first quarter of 2017, was $4.6 million compared to $3.5 million in the first quarter of last year. Consistent with our expectations first quarter depreciation and amortization expense was higher due to an increase in amortization expense in WinDoor intangibles as well as higher depreciation from increased capital spending. Our tax expense in the first quarter was $1.0 million and represents an effective income tax rate of 25.8% this compares to $0.9 million or 36.6% in the first quarter of last year. In the first quarter of 2017, we adopted the new accounting guidance regarding recognition of excess tax benefits on equity rewards. This has required excess benefits to be recognized as a reduction of income tax expense or previously recognized as additional paid in capital. Tax expense in the first quarter 2017 has been reduced $388,000 of excess tax benefits, excluding these benefits our effective tax rate in the first quarter of 5.4%. Going forward, we expect to record tax expense at an effective rate of approximately 36% absent any change in tax rate by Congress. Also from a cash perspective our year-end 2016 estimates of our tax effected federal operating loss carry forwards is approximately $1.2 million which are acquired in the CGI acquisition and we expect, we will use in this year. We recorded net income in the first quarter of $3.0 million or $0.06 per diluted share versus which is $1.5 million or $0.03 per diluted share in the first quarter of 2016. We recorded net income in the first quarter of $3.8 million or $0.07 per diluted share versus $4.5 million or $0.09 per diluted share in the first quarter of 2016. After adjusting the cost of previously mentioned as well as $3.4 million debt extinguishment cost in the first quarter of 2015 from the refinancing willing to the WinDoor acquisition. Adjusted net income in the first quarter of 2017 and 2016 include the impact of $1.9 million and $2.5 million in tax expense from operations respectively. The new accounting guidance, I mentioned earlier also changed the calculation of diluted share outstanding to exclude the presumption that common stock equivalence can by reduced by repurchasing shares using excess tax benefits. For the first quarter of 2017, diluted shares outstanding include 730,000 shares that prior to the adoption of the new guidance would have been presumed to be bought back and therefore not outstanding using the proceeds of excess tax benefits. The equivalent share totaled for the first quarter of 2016 would have increased by 815,000 shares using the same methodology. Adjusted EBITDA was $14.8 million for the first quarter of 2017 or 13.1% 2017 first quarter sales compared to adjusted EBITDA of $14.6 million for the first quarter of 2016 of 14.5%. As we have mentioned in the comments on our outlook for 2017 last quarter. The first quarter 2017 included $923,000 of marketing related expenses invested in our PGT Innovations three brand rollout and approximately $1.4 million of fixed cost and expenses from inclusion of our acquisitions for the entire first quarter. Therefore, on a comparable basis adjusted EBITDA margins for the first quarter of 2017 improved by 70 basis points. A reconciliation of net income, EBITDA and adjusted EBITDA, which I have just discussed, has been included in our earnings release for your reference. Now please turn to Slide 10 for a discussion of balance sheet items. We ended the first quarter with a cash balance of $38.9 million down slightly from the end of the year despite funding our first quarter networking capital increase which typically occurs near the end of the quarter due to strengthening sales of increases inventory advance to the second quarter repairment modeling season. We also funded $3.1 million of capital spending in the first quarter all funded by cash from operations. Our net leverage was 2.9 times at the end of the first quarter of 2017 and we believe we continue to have a strong balance sheet with the ability to make further investments and fund future needs. Now let’s take a moment to discuss our 2017 outlook. Please turn to Slide 11. We remain confident in the long-term strength of our core market of Florida and continue to see demand increased across all of our brands. Our backlog at the end of the first quarter of 2017 stood at over $56 million compared to $44 million at the end of the first quarter of 2016 up 27%. This dynamic environment sets us up for a solid second quarter with sales in April finishing up approximately 8% over the last year and we look forward to the spring 2017 home buying remodeling season. We continue to expect 2017 net sales to be between $490 million and $500 million representing an increase of between of 7% and 9% versus last year and we expect sales at this level will generate consolidated EBITDA between $83 million and $87 million. As I mentioned earlier, we estimate that the newly priced term loan will save us approximately $2.3 million in debt service costs in 2017 and as such we estimate total interest expense related to our long-term debt will be approximately $18.6 million in 2017 depending upon future LIBOR rates. Regarding depreciation amortization, over the last three years we have been making significant capital investments to increase and modernize our manufacturing capabilities and capacity, including our glass plant facility and several new glass lines, including the two new TPS system lines. We have also acquired amortizable and intangible assets as part of the acquisitions we have completed and as a result, we estimate that depreciation and amortization expense will be nearly $20 million in 2017 an increase of more than $4 million from 2016. At this time, we would like to turn the call over to the conference operator to begin the Q&A portion. Tyrone.

Thank you. [Operator Instructions] Our first question is from Bob Wetenhall of RBC Capital. Your line is open.

Hey good morning. Good top line beat Jeff. Hey Jeff I was hoping you could spend a minute and just talk me through kind of what you are seeing through the quarter by months and how it looks like April. It sounds like do you have a lot of momentum and maybe anymore color you could just provide on terms of what is driving the momentum. I know in Rod's prepared remarks you said you weren’t sure if this was just kind of like recovery of softer demand in the Luxury segment or is this something more sustained.

Yes, thanks Bob and I think if you look at the beginning of the year, we just start out flat on January and February housing starts were actually down to flat and March they came back roaring and we were able to capitalize on that, obviously we were ready for it and executed well and actually if you look at a March on a standalone we would have an upper team EBITDA for March. So as we move forward into the second quarter, I mean April again strong month up 8% year-over-year from an operational standpoint we have continued that kind of improvement, I would say April EBITDA if you looked at year-over-year we are probably beating it by about 50 bps or so. So both volume leverage as well as continued operational execution is helping drive some good tailwinds right now. In terms of the luxury market, like Rod said, it’s too early to tell if that’s really come back roaring. WinDoor in general, our orders are up about 20% year-over-year. If you look at our backlog at WinDoor, so we are actually cautiously optimistic I guess is the word I could use there, because order volume has increased and they are longer process. So that’s spread out all way through July at this point. But if you look year-over-year, order volume at WinDoor is up about 20%.

Yes, we are seeing good project work there, the reason we are cautiously optimistic as we want to see the single-family or the one-offs, we want to see that market get a little bit stronger, also in that market we don’t get as much, we don’t get to see quite as far into the future in that market is to due on the project side. But overall, it looks like a better market and that’s why we are optimistic about it.

Yes, that make sense. That’s helpful. Could you maybe speak for a moment, your gross margin light versus what we are expecting, but it also sounds like WinDoor really didn’t start to get the volume leverage that you were expecting till later in the quarter. What is the right way to think about the trajectory or gross margin performance in the context of the adjusted EBITDA guidance you reiterated?

Yes, we did see that Bob, as we went to the quarter, obviously as Jeff mentioned our March margins were definitely improved over prior year and if you look at the guidance for the rest of the year, we expect a margin improvement and that does come we will see from the operational improvement that we discuss that kind of that 50 bps trend is what we are seeing. No at gross margin we will have an incremental depreciation expense, which is non-cash obviously if it does the does gross margin expense. So that would be one of the headwinds that will affect growth, that doesn’t affect EBITDA, but we are seeing the gross margin improvement in the second quarter in our estimates and that’s something that I think continue throughout the rest of the year. As some of these happened that way in March and into April.

You are talking about year-over-year gross margin improvement in your comments?

Right.

Got it. And hey, Jeff, what is your take on capacity and maybe you could flush out a little bit more of the strategy behind the new plants Miami, it looks like very large scale production. How does this change from an operational standpoint capacity constraints and kind of what you’re trying to do with the business. You had a lot of acquisitions and now you are kind of adding even more space, what is the rationale behind this and what can this deliver PGTI in the next two three years?

As you look at that particular build-out in Miami, there are several things driving it Bob, one is our current lease which is about a 130,000 square feet that lease is due this year and we are slammed to the wall there, actually during this year we've went on additional 30,000 square feet to store some raw materials. So lot of way the current building we're in we have grown out of it, and so we're looking to expand obviously that particular production. And then obviously we bought CGIC, which is our store front commercial line that continues to show very strong growth in potential and they too are up against space constraints. So we will be moving out and negating the CGI lease obviously, so moving 130,000 square foot of equipment material et cetera puts another 30 off sites. So lot of way we are taking up about a 160,000 square feet of that and then overtime as we move some with CGICs equipment in their so we can increase production there as well. The other issue we're facing quite frankly is labor. Here in this Venice area we are passed out in labor, and were continuing to grow. I mean WinGuard vinyl is up 24% year-over-year so that's continuing to feel a lot of growth in labor requirements. So aluminum is mainly a South Florida material and so overtime we will shift some of our aluminum lines here at PGT down to Miami. That will save both in transportation and then also would tap a much stronger labor market in Miami. Probably 10,000 pounds strong as it is here in South Florida. So that will give us more labor here for vinyl and so we can expand the production here at PGT. That's the thought, we have leases coming due, we know we got a tight labor market and we know from a transportation standpoint aluminums basically South Florida and we needed to get it closer to the market so we can avoid some cost there long-term.

Lot of industrial logic. One question for me and I'll pass it on, but such a great answer. I guess Brad previously you have provided the WinDoor contribution in the quarter? And I was looking for that number. And Jeff could you maybe comment or Rod on the idea of expanding WinDoor sales outside of the Florida market because you had mentioned that last year and any progress with that and what is your expectations? Thanks and good luck. Nice quarter.

Thanks Bob, if you are referring to sales WinDoor sales contribution in the quarter was $7.7 million.

And then also just a little bit to touch on top line growth, we did consolidate our sales teams putting CGI WinDoor in PGT. In January that was kind of the kick-off at the IBS show that was the over $900,000 we invested in the first quarter in IBS to kind of launch that brand initiatives and that did involve bringing the sales teams together. So we are starting to get some better attraction for the WinDoor product line within our distribution channel, when I say our, I mean across all three brands of distribution channel within Florida. Outside the state we've got various initiatives going on with both our current national customers as well as through some of brokers that we use outside the states to drive more volume. And that’s the goal, the goal is to this time next year we are not saying the first six weeks of WinDoor hurt margins, because we've got volume in those first six weeks to offset that.

We talked the last time Bob about the thermal growth product that we had at WinDoor and so that product works really well for projects and again when you look at projects outside the state of Florida, there’s too little hurdles that we cover that the name is somewhat well-known but as well-known as everybody traffic has we haven’t been there as long. So we got to make sure that people outside the State of Florida understand the WinDoor brand name and that we now have product that fits their market. And then the projects got to be bit and I mean we were bidding projects right now that might happen in 2017 and might happen in 2018. So it takes a little bit of time for those projects to kick-in. So we are pretty optimistic about what we can do outside the State of Florida, but it’s not going to happen next month.

Cool, good luck.

Thank you.

Our next question is from Sam Darkatsh of Raymond James. Your line is open.

Good morning. This Josh filling in for Sam. Congratulations on the record sales results. Another question on the new plant Miami. Can you quantify first CapEx and the sales capacity?

It’s going to be a lease facility Josh. So you know from a capital standpoint we currently own all the equipment we are going to be moving into that plant, both here whatever equipment PGT as well as current CGI equipments, CGIC stock. So there is not been CapEx spend on our part. In terms of capacity, I think is going to be open up doors from a labor market like as I mentioned earlier in my answer and allow us to really increase that capacity on our aluminum lines, which is much needed throughout our brands. So not sure, I could quantify that at this point until we get moved in and kind of see what ends up happening.

Yes, Josh, when we look at our strategic initiatives one of them is to really maximize the footprint of the plants that we have and that’s going to involve moving some product lines around. And as we look at the demand and we talked a lot about vinyl and the demand for vinyl in the center part of the state and northern and even southeast to a certain extent. Making sure that we manufacture that at the right place and understand what that capacity is manufacture aluminum at the right place. And mainly even put some of the brand together a little differently than they are right now. So we are working pretty hard on what that overall capacity for PGT is as opposed to individual capacity of each plant. Because each plant right now even though the equipment maybe maximizing the plant, we’ve got shifts available and by expanding a little bit more of our footprint, we will be able to move some things around and increase capacity quite a bit.

Got it. And then regarding the monthly sales trends, do you think the shift in the timing of Easter benefited March and maybe hurt April?

No, actually Josh, I think it’s more related to last year and the cost that came out last year. I think this year has been a relatively typical trend and so I think I would say that April and March have the same kind of feel in terms of the way this year is progressing. It’s just that March last year was a little bit lower, so the comp made it look like March was a big growth, stepping up slowing in that trend.

Got it. And then lastly, could you elaborate a little bit more on the management changes you made in the quarter?

Yes, what we did was we consolidated leadership roles at CGI and WinDoor that’s now ran by one individual. we also consolidate leadership roles, putting our glass operations in PGT assembly, the window and door assembly plant and then as I mentioned earlier, we consolidated the sales team. There are some various changes within the sales organization structure that occurred in January, so those are kind of the changes in March and as I had mentioned also in April we also from a shared services standpoint consolidated leadership with the filled service group as well as the HR departments.

Good luck with the next quarter.

Our next question is from the Ken Zener of KeyBanc. Your line is open.

Good morning gentlemen. This quarter obviously you have all these brands coming together you showcased those well at the Builders show. Working on the facilities to make sure those growth rates are handled different in a more appropriate manner. I wondered what on the macro side in the past two to three months we've seen an acceleration and overall in our price depreciation and I think Florida's an exception for that and that's really interesting because tight supply accelerating while Miami's had some tough comps it's seems to be not declining as much. So when we talk about too early to say softness in the luxury side of the market, could you help perhaps quantify what that would mean to your business if that didn’t pick up both from a sales and I do believe there is a those are better margin sales as well, what type of movement could we see there or exposure do you have because it is still soft?

Yes, I think we have several brands that really touch that luxury market. Obviously all of WinDoor's product portfolio touches that luxury market as well as what I would call the state series of CGI it's a high-end, they are aluminum WinDoor and they have a very nice front entry door. So those are the three main brands that touch luxury and to a certain degree, they are seeing to a certain degree our vinyl WinGuard with all its benefit and features is now considered pretty much broader a lining about three products as well but those main three they have mentioned the EBITDA margins are flow through are higher than the rest of our product portfolio by I don’t know Brad how much?

Probably 10 bps to 15 bps.

Probably 15 bps higher. So from a upside potential as to look where market does take some fire again and continues to grow at least the minimum we get very nice fall through, because it's not a lot - that's almost hardly any fixed cost or variable cost. It's all variable cost driven at this point for those products. So fall through is very nice.

And to the extent slowed down in tandem, I think kind of volume led by the Miami market. I mean what are the contractors that you talked you said they are not just getting the calls, or they are getting calls but people aren’t sure if they are going to spend the money. I mean what is the more anecdotal comments around that market, because it seems like if that was 5% of sales that were to come back on line that would obviously be very beneficial because it does seem like the degradation is slowing down?

I'm not quite sure how to answer that question, what we see is we see the project portion of that market definitely strengthening from what it was last year, what we are not vas confident yet in seeing and were hearing were hearing about it but we're not seeing the orders actually come in are the single-family when you really start talking about that really high-end single-family $3 million or $4 million or $5 million house that we will get that package on many times. But the lead times on those are much shorter than are. when you looking projects, it’s going to breakdown in June and mid windows and mainly December or January of next year. That’s the portion of the market that we are waiting to see the strength and we are hearing about it, architectures are talking about it, engineers are talking about it. But we’ve got to see those orders start coming in before we start talking a lot about it on this calls and saying that market is really bad and we’ve got that portion of the market. So before we say, we are pretty cautiously optimistic what we are hearing and what we are seeing out there. But we’ve got it the order flow.

Yes, and I’ll just add to that. If you look at permit data, - if you look at permit data is okay, it’s actually grown a little bit. It’s not all of the charge but it’s definitely grown in permit that doesn’t mean start, right. So there is a time lag between the two. And then obviously a permit necessarily equally started the same exchange down the line. So from a permit side, we are optimistic from what we see. And that’s what we are hearing in the market as well from our dealer and distributor based, a lot of quoting actually, necessarily closing, but a lot of quoting activity.

Sure, appreciate that. Thank you.

Our next question is from Alex Rygiel of FBR & Company. Your line is open.

Great. Good morning. Thank you. This is Min Cho in for Alex Rygiel. I have a couple of questions. Can you talk a little bit about the glass supply situation? Are there any potential constraints going into 2017 or is that no longer an issue?

I don’t think that’s no longer an issue, I think the capacity we put online in the last two years, two plus years, as well as the extension of capacity that our main glass supplier Cardinal has done. Where also, the plants are currently doing, I think from a glass supply and impact glass, I don’t see that necessary again an issue and we’ve entered actually couple of other relationships with other suppliers that we also use now just in case. So we had, is an issue in 2017.

Okay. That’s great. Can you also talk about what the pricing impact was in the quarter and if you had any additional price increases in the third quarter of 2016?

Yes. So the price increase in the first quarter that we actually announced in the first quarter. So I guess, I’ll answer the second question first. We announce the price increase in the first quarter for both PDT and CGI. That actually doesn’t go effective until the quarter there and right now. So that price increase is similar to last year and that 3% to 7% range product specific. So we do feel, like the market is a little bit more receipted for the price increase this year and we will stick with a little bit better than last year. Going back to the first question, the price increase that was basically in the summer last year. Did have an impact in the first quarter of this year, but I was just kind of off that by the glass cost increases we would seeing. So I didn’t call it specifically, this is offset by material increases.

Got you. Also can you talk a little bit about your competitive environment for the impact position windows in Florida and especially given the increased awareness from Hurricane Matt? Have you seen any changes in the competitive environment?

I don’t necessary think changes probably more activity. There is local players that are always around, they seem to we’ve got much more aggressive in their pricing. Especially in that Miami area, there is a couple of players there - just that’s all they go and surprise, they can be a time 30% less than us to try to win jobs. So from that end, I think that’s a negative. Form the bigger players and now the main players no more activity in normal most of them go through big boxes and no activity. We do big box but not in the actual box itself we were special order and I know that activity is strong with us and I'm assuming the strong with them in the box itself. So I think overall competition is here, it’s a great market the market is obviously still coming back as we had mentioned earlier but the only I guess negative would be unfortunately some [indiscernible].

The advantage we have too, in our market it's a little different market than the rest of the country and it's a dealer distributor driven market where there is a value adds it's a dealer and distributor brings to the market because of the co-driven nature of it. So the installation of the product is so critical, those are the relationships that we've been and we will fight really hard to make sure that we maintain those relationships, that we strengthen those relationships as we say we like to go walls around our customers. And to do business in Florida and to really grow you got to have those types of relationships in place and when you look at some of the cost that even Brad talked about it in the first quarter, some of those cost are driven by some of the things that we do with our customers every single year and we did it again in the first quarter. So having those relationships and making sure that we fight for those and maintain those and lot of those are 30 year old relationships makes a big difference in the competitive nature of our market.

Got you. And then the final question has to do with the you mentioned the additional management team is in a churn filed services this quarter, what are the addition and kind of SG&A expenses expected for that in the quarter?

Yes, I mean I would say just because of the level of changes that were made or level management manufactured there are not really materially. I can see more in the first quarter.

Okay, great. Thank you very much and good luck.

[Operator Instructions] Our next question is from Jeremy Hamblin of Dougherty & Company. Your line is open.

Just a follow-ups on the management reorganization cos. $715,000 in Q1, can you just be more specific about what that was in terms of was it severance or what was that 715?

it's a combination, its mainly severance yes our severance payments and then also just in realignment in bringing on new leadership cost?

Okay, so severance plus some hiring cost as well.

Yes.

And then I wanted to ask a question on aluminum prices, you mentioned that they have quick to higher here that you have I believe 70% of needs covered I think Brad you said at $0.91 of pound. As we compare that to last year, it looks like the run rate of things kind of stayed this level would be maybe about $0.10 a pound higher than where it was three quarters, Q2 through Q4 from last year. I guess I would estimate that's about a $2 million difference in terms of impact. But could you quantify for us, what the potential impact is on margins, we are looking at kind of 40 basis points to 50 basis points?

Well, I think Jeremy you might be comparing to cash last year to our hedge position this year, I think if you look at the year-over-year, I don’t think it’s going to quite end up being $0.10 assuming the phase of our debt today on our uncovered portion. I think it would be little bit less than that. I think the average price last year that we paid ultimately was more in the mid-80 area. So as a result to I do there’s definitely an aluminum price increase, and I don’t was to get specific to the margin impact because that could certainly change from this point, but I will say this that when we had in our thoughts at the beginning of the year we were kind of expecting aluminum to go up that’s why we increased our coverage and we have a price increase that’s out there. So both of those two factors has not changed materially in my mind in the last three months and that’s why I’m still very confident in our guidance that we have for the full year.

Okay. And then I just wanted to clarify that in comments on the gross margins as it relates to Q2, did you say that they are running up 50 basis points year-over-year versus the 31.5 you had in Q2 of last year?

No, what I said was that we are expecting an EBITDA margin improvement that would run about 50 basis points and I think that’s going to happened in the full year and we have seen that so far in the second quarter. Now that doesn’t necessarily equates an exact 50% improvement gross margin that’s in the EBITDA margin concept. We do however think that gross margins will be better in the second quarter year-over-year than we are last year and that’s so far what we are seeing in April.

The gross margins would be better year-over-year then they were in Q2 last year?

Yes, I didn’t say specific number on how much.

Okay. Understood. That’s helpful. And then I just wanted to come back to the new facility again and just understand you know I think back to the 2013, 2014 expansion 100,000 square foot expansion in Venice facility, just in thinking about this in planning for potential impact of training costs and so forth, we would bring in on new personnel. That was one of the things that I recall created some drag on margins. How should we be thinking about that as we look forward to 2018. Do you have a sense of what the drag on margins or the benefit on margins for next year would be of moving into the facility just given that the sheer size of it?

Yes, it’s a little different than we expanded our glass operations. We actually added people almost 300 people to the overall headcount. This is actually a shift of employees, employees still within 10 miles of the current facility. So from a training standpoint initially there will be because I would say 99% of the employees were just going to different location. Some is actually closer some is not but I think the average the 10 mile radius we are covering 99% of our current employee base. So there will be no training. Now when we do shift product down to Miami, it’s once we do and that’s in 2018 sometime probably mid 2018 depending on sales. When we shift some aluminum product in Miami, we will have to hire, but you are talking one line and you’re talking 30 people or maybe 40 people at the most versus an entire glass plant, so we have the staff it like I said over 300 people.

Yes and manufacturing glass is a lot different than running a production line technical ability to run those product lines it’s different, so I think it's quite a bit different than what we were talking about here. The other advantage too that Jeff didn’t mentioned is the ability to consolidate our commercial portion with our residential portion in the same building. It doesn’t necessarily have to have happened an overnight, but when that does happen you don’t have to move product quite as far, some of those products can be run on the same pieces of equipment and if there is a problem with the piece of equipment right now we are shifting between factories as oppose to just moving it to another piece of equipment in the same factory. So I think there is some benefits that we will get from that also.

Okay, great. That's really helpful color. Last question just in terms of the backlog increased $12 million year-over-year. In terms of thinking about that and how that flows through not sure of the split on that between WinDoor projects that could be longer tailed in kind of your traditional PGT and CGI business. When do we consider working off some of that backlog is that something that the catch-up can happen hearing all in Q2 or maybe 50% of it in Q2. How do I think about backlog and working some of that down?

Well, and we typically see an increase in backlog and an increase in lead time is just when we get to the summer season there is just at that demand for the RNR project that comes in so some of the increase in backlog is actually just typical with the sales force. So we're up 27% in PGTI backlog Jeff mentioned that sales growth in April was 8%. So no, we would not expect to get through that backlog in the second quarter all of that I would think that we will see that higher backlog not only through the second quarter but even potentially beyond the third quarter and typically when we get our backlog down most effectively in Q4, but what I think it does is allows us to say hey we had a really strong season coming up here and we are confident about all things coming and do the execute that make it happened.

Yes, and I would also add you also have to look at the mix of that backlog, so I know that mix of that backlog is slated towards our vinyl products because they are growing so fast, and the lead times on those products are six weeks. So we are not going to take them down until we increase capacity and that will happen overtime as we shuffle stuff within the plan and we allocate resources. So from that standpoint I mean our vinyl lines are booked up the rest of the second quarter at this point all the way through July. so increased capacity there will also bring them at that backlog but I think [indiscernible] healthy backlog that's a good thing as long as we are executing it operatically.

Sound encouraging. Thanks for taking the questions guys and good luck.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the conference over to Brad West for any closing remarks.

Well, thank you for taking the time with us today. And we look forward to talking next quarter, if you have any other questions so please contact me. Thank you.

Ladies and gentleman, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Have a wonderful day.