RBC Capital Markets Global Industrials...

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RBC Capital Markets Global Industrials Conference September 2014

Transcript of RBC Capital Markets Global Industrials...

Page 1: RBC Capital Markets Global Industrials Conferenceir.pgtinnovations.com/~/media/Files/P/PGT-Innovations-IR/document… · PGT’s primary manufacturing materials include aluminum and

RBC Capital Markets

Global Industrials Conference September 2014

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Forward-Looking Statements

This presentation includes forward-looking statements. These statements do not relate strictly to historical or current facts. Forward-looking statements usually can be identified by the use of words such as “goal,” “objective,” “plan,” “expect,” “anticipate,” “intend,” “project,” “believe,” “estimate,” “may,” “could,” or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, results, circumstances or aspirations. Forward-looking statements are based on assumptions and by their nature are subject to risks and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements. There is no assurance that any list of risks and uncertainties or risk factors is complete. Factors that could cause actual results to differ materially from those described in our forward-looking statements include, but are not limited to those described in our filings with the Securities and Exchange Commission.

Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.

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Management Presenters

PGT is led by a strong and experienced management team

8 Executive Team Members – combined have over 100 years window experience

Joined PGT in 2006

16 years of corporate experience including 8 years leading the Strategic Planning Process

Responsible for PGT’s Corporate Governance and Compliance as well as its Engineering, Information Systems and Code Compliance Departments

Joined PGT in 2005 as CFO and led the Company’s IPO Appointed to EVP of Operations in 2008 and subsequently appointed President and COO in 2014

25 years of operational and financial experience with various Fortune 500 companies

Responsible for PGT’s strategic and operational results

Jeff Jackson President

and Chief Operating Officer

Mick Ferrucci Vice President, General Counsel,

and Secretary

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Introduction to PGT and the Impact-Resistant Window and Door Market

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Nation’s Leader for Impact Resistant Window and Doors

(1) LTM as of Q2 2014

$271M Annual

Revenue(1)

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Market Leader

34-year History of Quality & Innovation

Nationally Recognized Brands

Pioneered Impact-Resistant Market

Strong Presence in Both New Construction and Repair and Remodel

Superior Value Proposition

Customer First − 360-Degree Service Model

Premium Positioning

Highest Quality

In-House Glass Processing

Deliveries made by our trucks and drivers

Proven Management Team

Over 100 collective years in Fenestration Industry − 46 years of financial, sales & operations with various

Fortune 500 companies

Positive EBITDA every quarter through Great Recession

Paid down $290M of debt over last seven years

− February 2006: $320M

− May 2013: $30M

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Aluminum11.0% Vinyl

7.0% Arch. Systems1.0%

Eze-Breeze/Other7.0%

WinGuard (Impact Resistant)71.0%

PremierVue3%

LTM Sales

$191.3 million

Revenue by Product Type & Geography

PGT Inc. (PGT) manufactures and supplies products to the residential impact-resistant windows and doors market

Also manufactures non-impact-resistant products in both aluminum and vinyl frames including its SpectraGuard™ line of products

Caters to residential new construction and repair & remodeling end markets

Key brands include: WinGuard®, PremierVue™, Architectural Systems, SpectraGuard™ and Eze-Breeze®

Distributes products through multiple channels, including approximately 1,200 window distributors, building supply distributors, window replacement dealers and enclosure contractors

Headquartered in North Venice, FL

The Company sells and delivers product into Florida (88%) as well as Canada, Central America, Coastal mid-Atlantic, Gulf Coast, the Caribbean and the Southeastern U.S.

Approximately 1,700 employees as of July 29, 2014

Founded in 1980 and is listed on NASDAQ (Ticker: PGTI)

Business Description

Company Overview

$122

$87

$54

$8

$0

$20

$40

$60

$80

$100

$120

$140

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Impact Non-impact

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Industry Leadership

Overview of Industry Participants

Expertise in highly technical, time consuming and expensive regulatory

approval process

Entrenched relationship with dealers, architects and homebuilders

Embedded industry, product, and manufacturing expertise

Superior product performance, quality, features and customer service

Existing foothold within the largest U.S. impact-resistant window and door market

PGT’s leading position in the U.S. impact-resistant window and door market and its unrivaled designs and products enable the Company to consistently

deliver best-in-class solutions

Significant Barriers to Entry

Florida Fabricators

National Fabricators

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Customers, Suppliers and End Market Breakdown

Aluminum11.0% Vinyl

7.0% Arch. Systems1.0%

Eze-Breeze/Other7.0%

WinGuard (Impact Resistant)71.0%

PremierVue3%

LTM Sales

$191.3 million

Highly diversified customer base that is comprised of approximately 1,200 window distributors, building supply distributors, window replacement dealers and enclosure contractors

Largest customer accounts for approximately 3.2% of net sales, and top ten customers account for approximately 19.5% of net sales

Sales are comprised of residential new construction and repair and remodeling end markets, which represented approximately 32% and 68% of PGT’s sales, respectively, during 2013. This compares to 28% and 72% in 2012

The Company does not supply its products directly to homebuilders, but demand for its products is also a function of relationships with a number of national homebuilders, which are strong

PGT’s primary manufacturing materials include aluminum and vinyl extrusions, glass, and polyvinyl butyral. Although in many instances PGT has agreements with its suppliers, these agreements are generally terminable by either party on limited notice

All of the Company’s needed materials are typically readily available from other sources

Customers and Suppliers

PGT End Market Breakdown

54%

63%

73% 75% 76%72%

68%64%

46%

37%

27% 25% 24%28%

32%36%

0%

20%

40%

60%

80%

2007 2008 2009 2010 2011 2012 2013 2014 YTD

Repair and remodeling New construction

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Comprehensive Product Offering

Windows and Doors Porch

Enclosures

Product Category WinGuard Architectural

Systems PremierVue Vinyl Aluminum Eze-Breeze

PGT Branding

Product Description Impact-resistant windows and doors Combine heavy-duty frames (aluminum and vinyl) with special laminated glass

Heavy duty aluminum frame construction Designed for increased wind and water loads required for taller buildings

Newest product offering; heavy duty vinyl frame impact window for high end residential and commercial First R-5 impact window in the industry

Vinyl frame windows and doors Energy efficient product for any climate; meets 30/30 requirement of 09 ARRA

Aluminum frame windows and doors Target markets with warmer/humid climates due to strength and durability

Lighter-weight non-glass porch enclosure products Used for repair/remodel additions and enclosures

% of 2014 Q2 TTM Sales 71% 2% 3% 8% 10% 6%

TTM Gross Margin Impact – 37% Non-Impact – 15% Eze-Breeze – 37%

PGT offers premium brands across a diverse and comprehensive line of products

Impact-resistant sales increased as a percentage of total sales from 61% in 2005 to 76% in Q2 2014

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WinGuard offers multiple benefits versus active storm protection including:

Superior performance

Ease of use

Improved aesthetics

Insurance benefits

Noise reduction

Better safety and security

Full egress

Better visibility with UV protection

Energy efficiency

PGT WinGuard® vs. the “Competition”

WinGuard The “Competition”

Over 3.5 Million WinGuard Units Have Been Installed with Zero Reported Impact Failures

Heavy-duty multi-chambered

frame

Impact-resistant laminated glass

Optional third piece of glass for

insulation

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Flexible and Vertically-Integrated Manufacturing Capabilities and Technical Expertise

Vertically integrated manufacturing

In-house glass cutting, tempering, and laminating lowers costs / reduces lead-time

Synchronous flow manufacturing enables efficient production

Custom made-to-order products can be delivered in as little as 1-2 days

Consistent focus on continuous improvement drives manufacturing efficiencies

Recognized as industry expert / pioneer of impact-resistant windows

Actively involved in creation of standards / building codes

More Miami-Dade County Notice of Acceptances than any competitor

Complete in-house product design and testing

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Investment Highlights

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Why Invest in PGT?

Market leader in attractive impact-resistant window and door market

Public peer-leading growth and margins

Diversified and loyal customer base

Superior customer service and support

Well positioned for Florida market recovery

Competitive advantages

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Market Leader in Attractive Impact-Resistant Window and Door Market

PGT is the leader in the impact-resistant window and door market

− Significantly greater market share than any competitors in our core Florida market

We believe there is significant opportunity in the impact-resistant window market

− Target market in hurricane-prone coastal states

− Increasingly stringent building codes and protocols

Florida is PGT’s largest market accounting for approximately 88% of sales in FY 2013

* Impact protection required in Florida.

Impact-Resistant Market

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Customer Intimate Company

Highly loyal customer base with over 1,200 partners

Brand Recognition

PGT WinGuard® is synonymous with impact-resistant windows & doors

Industry Leading Service Model

World Class Capabilities & Services

Unprecedented Quality

Over 3.5 Million WinGuard® Units have been installed

− Zero (0) Reported Impact Failures

Technical Leadership

More Miami-Dade Notice of Acceptances (NOA) than any company in fenestration (the Nation’s toughest criteria)

Actively involved in creation of building standards / codes

Superior Product Portfolio

Ranging from Niche to Commercial

More Impact SKUs than any other manufacturer

Key Competitive Advantages

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1993 1994 2995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Florida Single-Family Housing Starts (‘000s)

Well Positioned for Florida Housing Market Recovery

Growth in single-family housing starts from 2012 – 2015 expected to be higher than U.S. as a whole

Growth driven by recovery in Florida economy; improved housing market fundamentals and continued population growth driven by migration from other parts of the U.S.

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20-year(1) average: 114

(1) 20-year average represents 1988 – 2007 Source: Moody’s

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Aluminum11.0% Vinyl

7.0% Arch. Systems1.0%

Eze-Breeze/Other7.0%

WinGuard (Impact Resistant)71.0%

PremierVue3%

LTM Sales

$191.3 million

LTM Q2 2014 EBITDA Margin LTM Q2 2014 Gross Margin

Public Peer(1) Leading Growth and Margins

(1) Peer group includes Fortune Brands Home and Security, Masco, Masonite and Ply Gem Holdings

Peer median Peer median

LTM Q2 2014 Revenue Growth

Peer median

32%

28%

34%

13%

16%

11%

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Attractive Cash Flow Characteristics…

Aluminum11.0% Vinyl

7.0% Arch. Systems1.0%

Eze-Breeze/Other7.0%

WinGuard (Impact Resistant)71.0%

PremierVue3%

LTM Sales

$191.3 million

Capex as % of Sales Free Cash Flow Conversion: (EBITDA – Capex) / EBITDA

68.0%

82.0% 84.5%

80.0% 75.0%

85.4%

80.5%

0%

10%

20%

30%

40%

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2007 2008 2009 2010 2011 2012 2013

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F c

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Average: 79.4%

3.8%

2.1%

1.4%

1.8%

2.1% 2.2%

3.2%

0%

1%

2%

3%

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2007 2008 2009 2010 2011 2012 2013

% o

f sa

les

Average: 2.4%

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Superior Customer Service and Support Our expertise and differentiated capabilities allow us to provide superior customer service and

support

− Vertically integrated manufacturing delivers best-in-class lead time

− Cross-functional workforce and owned truck fleet ensure on-time delivery

− Extensive points of contact with customers via customer service department, and both inside

and outside sales team

History of pioneering new products allows us to address continually evolving customer needs

Training and accredited courses offered at PGT University educate all constituents in the

industry

− Trained more than 40,000 customers, installers,

architects and building code officials

Highly trained and knowledgeable sales team works

closely alongside customers

Zero reported impact failures on more than 3.5 million

installed units

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Diversified and Loyal Customer Base Across Multiple Distribution Channels

Top 10 customers represented 19.5% of 2013

sales

Largest customer represented only 3.2% of 2013

sales

Highly loyal distribution base

Little turnover in top 10 customers despite challenging home construction market over past several years

A broad, diversified distribution network allows PGT to both effectively serve its large customer base and maintain a significant barrier to entry

Recent new customer wins in homebuilder and retail channel (Menards)

Continued focus on expanding customer relationships with recent hirings as follows:

– Increased Sales headcount from 26 to 34

– Director of Marketing

New vinyl product platform launch in Q1 2015 to expand share in strong vinyl areas

Diversified Loyal

Expansion

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Acquisition Strategy

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Strategic Rationale for CGI Acquisition

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Accretive to PGT in 2015 with significant operating and cost synergies

Product line integration Effective brand positioning, differentiated service offering by price point, and lower than expected dealer fall out due to single supplier will mitigate

cannibalization

Significantly expands presence in high-end market

Extends CGI product reach to currently underserved geographies by leveraging PGT’s widespread footprint

Broadens manufacturing platform and capabilities

Defends core market and prevents access to dealer base

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Financial Summary

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Historical Financial Summary Fiscal year

($ in millions)

2006 2007 2008 2009 2010 2011 2012 2013

TTM

6/29

FL Single Family

Housing Starts (000s)(1) 152 73 39 26 32 32 42 54 54

Total revenue $372 $278 $219 $166 $176 $167 $175 $239 $271

% growth 11.7% (25.1%) (21.5%) (24.0%) 5.9% (4.8%) 4.3% 37.1% 34.0%

Gross profit 142 91 68 44 50 39 60 80 87

% margin 38.1% 32.5% 31.1% 26.6% 28.5% 23.4% 34.2% 33.5% 32.2%

SG&A 86 77 63 52 54 49 47 55 54

% of sales 23.2% 27.5% 28.7% 31.1% 30.7% 29.0% 27.0% 22.8% 19.8%

Adjusted EBITDA(2) 73 33 25 15 16 14 26 38.8 42.7

% margin 19.6% 11.9% 11.5% 8.8% 9.0% 8.6% 14.9% 16.2% 15.8%

New construction and repair & remodeling accounted for 67% and 33% of FY2005 sales as compared to 36% and 64% of Q2 2014 sales

(1) Independent third party source (2) See GAAP reconciliation in appendix 23

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Adjusted EBITDA Reconciliation

Fiscal year TTM TTM

($ in millions)

2005 2006 2007 2008 2009 2010 2011 2012 2013

Q2

2013

Q2

2014

Net Income/(Loss) $8 ($1) $1 ($163) ($9) ($15) ($17) $9 $27 $21 $23

Depreciation and Amortization 16 16 16 17 16 15 14 12 11 12 8

Interest Expense 14 29 11 9 7 5 4 3 3 3 4

Income Tax Expense/(Benefit) 4 0 1 (29) (6) 0 (2) 0 (3) (4) 7

EBITDA 41 43 29 (165) 8 6 (1) 25 38 32 42

Cash payment to Option Holders 7 27 - - - - - - - - -

Impairment Charges 7 1 1 188 1 6 6 - - - -

Management Fees 2 1 - - - - - - - - -

Consolidation Charges - - - - - 2 4 - - - -

Manufacturing Inefficiencies - - - - - - 4 - - - -

Restructuring Charges - - 2 2 5 - - - - - -

Gain on Asset Sales - - - - - - (1) - (2) (2) -

Exit Costs 1 - - - - - - - - - -

Write-off Deferred Financing Costs 0 - - - - - 0 - - - -

Secondary Offering & Debt

Refinancing related expenses - - - - - - - - 2 2 -

Non-Cash Stock Compensation - 0 2 1 1 2 2 1 1 1 1

Adjusted EBITDA 58 73 33 25 15 16 14 26 39 33 43

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