PGEM Ply Gem Holdings, Inc.

• Net sales increased 6.7% to $544.8 million for the second quarter.
• Operating earnings increased $3.9 million to $66.1 million for the second quarter.
• Net income was $29.9 million for the second quarter.
• Adjusted EBITDA increased to $81.1 million or 5.4% for the second quarter.

Ply Gem Holdings, Inc. (“Ply Gem” or the “Company”) (NYSE: PGEM), a leading manufacturer of exterior building products in North America, today announced financial results for the quarter ended July 1, 2017.

Second Quarter 2017 Highlights:

• Total net sales for the second quarter increased 6.7% to $544.8 million.
• Operating earnings increased $3.9 million to $66.1 million compared to the second quarter of 2016.
• Net income for the second quarter decreased $11.8 million to $29.9 million from the second quarter of 2016 due to a $17.5 million increase in income tax expense from a normalized tax rate.
• Adjusted EBITDA increased 5.4% to $81.1 million compared to $76.9 million for the second quarter of 2016 achieving an LTM Adjusted EBITDA of $235.6 million.
• Basic earnings per share was $0.44 for the second quarter of 2017 compared to $0.61 for the 2016 period.
• Adjusted basic earnings per share was $0.45 for the second quarter of 2017 compared to $0.62 for the second quarter of 2016.

Six Month 2017 Highlights:

• Total net sales for the six months ended July 1, 2017 increased 6.1% to $974.8 million.
• Operating earnings increased $6.2 million to $77.9 million compared to $71.8 million for the comparable 2016 period.
• Net income increased $12.2 million to $26.2 million for the six month 2017 period from $14.1 million for the 2016 period due to the lack of a tax receivable adjustment partially offset by higher income tax expense.
• Adjusted EBITDA increased to $108.2 million or 6.4%.
• Basic earnings per share was $0.38 for the 2017 six month period compared to $0.21 for the 2016 six month period.
• Adjusted basic earnings per share was $0.41 for the 2017 six month period compared to $0.41 for the 2016 six month period.

“For the second quarter, we continued to experience improved demand for our products within our business segments, which allowed Ply Gem to achieve record sales and adjusted EBITDA. In addition, we delivered the thirteenth consecutive year-over-year growth of adjusted EBITDA,” said Gary E. Robinette, Ply Gem’s Chairman and CEO. “We delivered a strong second quarter result despite somewhat of a pullback in market demand and significant commodity cost headwinds, namely PVC resin and aluminum costs. Our businesses have implemented additional price increases, which should be realized during the remainder of 2017, to help offset these rising raw material costs. In addition, we are embarking upon a significant profit improvement initiative across our business through operational excellence, cost rationalization, SG&A efficiency and cost maximization that will enhance the profitability of the overall business during the next few years.”

Commenting on the Company’s results, Shawn K. Poe, Ply Gem’s Chief Financial Officer added, “In the second quarter, we continued to see overall strong unit demand for our products, which allowed us to achieve an incremental year-over-year quarterly adjusted EBITDA growth of 5.4% and a record second quarter adjusted EBITDA of $81.1 million. As a result of our strong performance during the second quarter of 2017, we achieved a LTM adjusted EBITDA of $235.6 million.”

Second Quarter 2017 Financial Results

Net sales increased $34.2 million or 6.7% to $544.8 million compared to $510.5 million for the second quarter of 2016. The net sales increase was primarily driven by improved U.S. market demand, higher Canadian net sales, new business wins and higher average selling prices.

Gross profit margin was 25.1%, which represented a decrease of 140 basis points from the second quarter of 2016. The decrease in gross profit margin resulted from higher raw material input costs for aluminum, PVC resin, and glass that were not fully offset with higher selling prices.

Operating earnings were $66.1 million, an improvement of $3.9 million from the second quarter of 2016 from lower SG&A expense as a percentage of net sales and lower amortization expense in 2017.

Siding, Fencing and Stone

Siding, Fencing and Stone's net sales totaled $263.6 million, up $19.2 million, or 7.8%, compared to $244.4 million in the second quarter of 2016. The net sales increase resulted primarily from improved U.S. market conditions, new business wins and higher average selling prices. Gross profit margin for the quarter ended July 1, 2017 was 27.7%, a decrease of 410 basis points from the 31.8% for the quarter ended July 2, 2016. The decrease in gross margin percentage resulted from higher raw material input costs that fully offset the 7.8% net sales increase and a 1.7% net increase in average selling prices.

Windows and Doors

Windows and Doors' net sales totaled $281.2 million, up $15.0 million, or 5.7%, compared to $266.1 million in the second quarter of 2016. The net sales increase for the quarter ended July 1, 2017 can be attributed to improved U.S. market demand conditions which favorably impacted our new construction business. For the quarter ended July 1, 2017 compared to the quarter ended July 2, 2016, our U.S. new construction business increased $12.3 million or 7.4% while our U.S. repair and remodeling business decreased $1.0 million or 1.3% as a result of lower unit volume sales of 4.2%.

Gross profit margin was 22.7% for the quarter ended July 1, 2017, increasing from 21.6% for the quarter ended July 2, 2016. Our gross profit increase of 110 basis points resulted from the continued improvement in our new construction business and the sustained profitable performance for our repair and remodeling business within the U.S. while our Canadian business experienced improved gross profit of $1.5 million relative to the prior year period. The gross profit improvement for our U.S. businesses was primarily driven by increased selling prices of 2.9% and favorable product mix, which increased gross profit $4.8 million while our repair and remodeling business remained flat during the quarter ended July 1, 2017 compared to the quarter ended July 2, 2016.

Outlook

The Company’s 2017 annual outlook is based on a U.S. single family housing starts market growth assumption of 5% to 10% in our markets and an assumption of approximately 3% growth in the U.S. big ticket repair and remodel market.

“As we enter into the seasonally important third quarter, we look forward to capitalizing on the momentum we’ve built during the first half of 2017,” said Mr. Robinette. “As the housing market in the U.S. continues to recover and we get on the positive side of commodities, Ply Gem is well positioned to drive profitable growth and generate meaningful operating leverage, earnings and cash flow. For the remainder of 2017, we expect our full year 2017 adjusted EBITDA to be in the range of $250 to $255 million and our third quarter adjusted EBITDA to be in the $82.5 million range.”

Webcast

Ply Gem management will host a webcast today, Monday, August 7, 2017 at 10:00 a.m. Eastern to discuss second quarter results. To access the webcast, visit www.plygem.com and click on Investor Relations. The webcast link will be available under “Upcoming Events” as well as "Events & Presentations." If internet access is not available, please dial 833-227-5844, participant passcode 54718989. International participants, please dial 647-788-4901, participant passcode 54718989. A replay of the call will be available on our website through September 7th.

About Ply Gem

Ply Gem is a leading manufacturer of exterior building products in North America. Ply Gem produces a comprehensive product line of windows and patio doors, vinyl and aluminum siding and accessories, designer accents, cellular PVC trim and mouldings, vinyl fencing and railing, stone veneer, engineered slate and shake roofing and gutterware, used in both new construction and home repair and remodeling in the United States and Canada. Ply Gem siding brands include Mastic Home Exteriors®, Variform®, NAPCO®, Mitten®, Cellwood®, Georgia-Pacific Vinyl Siding and Accessories, Durabuilt®, Ply Gem® Stone, Canyon Stone, Ply Gem® Trim and Mouldings, Ply Gem® Fence and Railing, Ply Gem® Shutters and Accents, Leaf Relief®, Leaf Logic®, and Monticello® Columns. Ply Gem windows and patio door brands include Ply Gem® Windows, Simonton® Windows, Mastic® Replacement Windows, Ply Gem® Canada, and Great Lakes® Window. The Company’s brands are sold through short-line and two-step distributors, pro dealers, home improvement dealers and big box retailers. Additionally, Ply Gem distributes a wide-variety of exterior building products including stone veneer, fencing, railing, windows, doors and architectural accents via export globally and offers installation services in western Canada under the Gienow® Renovations by Ply Gem brand. Ply Gem employs approximately 9,000 associates across North America. Visit www.plygem.com for more information.

Note: As used herein, the term “Ply Gem” refers to Ply Gem Holdings, Inc. and all its subsidiaries, including Ply Gem Industries, Inc., unless the context indicates otherwise. This term is used for convenience only and is not intended as a precise description of any of the separate corporations.

Forward-Looking Statements

This press release and oral statements made from time to time by our representatives may contain certain statements that are not historical facts, including information concerning possible or assumed future results of our operations. Those statements constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results expressed in or implied by our forward-looking statements, including the availability and cost of raw materials and purchased components, the level of construction and remodeling activity, changes in general economic and business conditions, conditions affecting the industries we serve and our customers, the rate of sales growth, availability of labor force and efficiencies, product liability claims, our degree of leverage and other factors discussed in our news releases, public statements and/or filings with the Securities and Exchange Commission, including our most recent Annual and Quarterly Reports on Form 10-K and Form 10-Q. Many of these factors are outside of our control and all of these factors are difficult or impossible to predict accurately. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

     

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

  For the three months ended (Amounts in thousands, except share and per share data) July 1, 2017 July 2, 2016   Net sales $ 544,767 $ 510,545 Cost of products sold   407,879   375,256   Gross profit 136,888 135,289 Operating expenses: Selling, general and administrative expenses 65,531 66,648 Amortization of intangible assets   5,258   6,459   Total operating expenses   70,789   73,107   Operating earnings 66,099 62,182 Foreign currency gain 617 255 Interest expense (17,399 ) (18,534 ) Interest income 19 9 Tax receivable agreement liability adjustment   —   (241 ) Income before provision for income taxes 49,336 43,671 Provision for income taxes   19,477   2,025   Net income $ 29,859 $ 41,646   Net income attributable to common shareholders per share: Basic $ 0.44 $ 0.61 Diluted 0.43 $ 0.61 Weighted average shares outstanding: Basic 68,435,315 68,159,907 Diluted 69,019,692 68,370,548     For the six months ended (Amounts in thousands, except share and per share data) July 1, 2017   July 2, 2016   Net sales $ 974,782 $ 919,159 Cost of products sold   748,369     697,169   Gross profit 226,413 221,990 Operating expenses: Selling, general and administrative expenses 137,886 137,383 Amortization of intangible assets   10,602     12,849   Total operating expenses   148,488     150,232   Operating earnings 77,925 71,758 Foreign currency gain 772 839 Interest expense (34,285 ) (37,226 ) Interest income 33 19 Loss on modification or extinguishment of debt — (2,399 ) Tax receivable agreement liability adjustment   —     (18,391 ) Income before provision for income taxes 44,445 14,600 Provision for income taxes   18,223     531   Net income $ 26,222   $ 14,069   Net income attributable to common shareholders per share: Basic $ 0.38 $ 0.21 Diluted $ 0.38 $ 0.21 Weighted average shares outstanding: Basic 68,417,602 68,143,523 Diluted 68,988,527 68,219,762  

The accompanying notes are an integral part of these unaudited condensed consolidated statements of operations.

1. The accompanying unaudited condensed consolidated statements of operations of Ply Gem Holdings, Inc. (the “Company”) do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The selected balance sheet data for the periods presented in Note 5 has been derived from the December 31, 2016 audited consolidated financial statements of the Company and the unaudited condensed consolidated financial statements of the Company as of July 1, 2017, and does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The Company’s fiscal quarters are based on periods ending on the Saturday of the last week in the quarter. Therefore, the financial results of certain fiscal quarters will not be exactly comparable to the prior and subsequent fiscal quarters.

2. We define adjusted EBITDA as net income plus interest expense (net of interest income), provision (benefit) for income taxes, depreciation and amortization, non-cash foreign currency loss (gain), non-cash loss on modification or extinguishment of debt, restructuring and integration expenses, customer inventory buybacks, litigation class action charges, and tax receivable liability adjustments. Other companies may define adjusted EBITDA differently and, as a result, our measure of adjusted EBITDA may not be directly comparable to adjusted EBITDA of other companies. Management believes that the presentation of adjusted EBITDA included in this press release provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. The Company has included adjusted EBITDA because it is a key financial measure used by management to (i) internally measure our operating performance and (ii) determine our incentive compensation programs. In addition, the Company's senior secured asset-based revolving credit facility has certain covenants that apply ratios utilizing this measure of adjusted EBITDA.

Adjusted EPS represents basic and diluted net loss per share attributed to common shareholders adjusted to exclude the estimated per share impact of the specifically identified items used to calculate adjusted EBITDA described above, adjusted at the statutory tax rate of 35%.

Although we use adjusted EBITDA and adjusted EPS as financial measures to assess the performance of our business, the use of adjusted EBITDA and adjusted EPS is limited because it does not include certain material costs, such as interest and taxes, necessary to operate our business. Adjusted EBITDA and adjusted EPS included in this press release should be considered in addition to, and not as a substitute for, net earnings and earnings per share in accordance with GAAP as a performance measure. You are cautioned not to place undue reliance on adjusted EBITDA or adjusted EPS.

Certain amounts in this release have been subject to rounding adjustments. Accordingly, amounts shown as totals may not be the arithmetic aggregation of the individual amounts that comprise or precede them.

    Ply Gem Holdings, Inc. (Amounts in thousands) For the three months ended July 1, 2017     July 2, 2016 Net income $ 29,859 $ 41,646 Interest expense, net 17,380 18,525 Provision for income taxes 19,477 2,025 Depreciation and amortization 13,102   14,313   EBITDA 79,818 76,509 Non cash gain on foreign currency transactions (617 ) (255 ) Customer inventory buybacks 632 596 Restructuring/integration expense 455 (156 ) Litigation - class action charges, net 825 — Tax receivable agreement liability adjustment —   241   Adjusted EBITDA $ 81,113   $ 76,935       Ply Gem Holdings, Inc. For the three months ended July 1, 2017 July 2, 2016 Basic net income per share attributable to common shareholders $ 0.44 $ 0.61 Non cash gain on foreign currency transactions (0.01 ) — Customer inventory buybacks 0.01 0.01 Restructuring/integration expense — — Litigation - class action charges, net 0.01 — Tax receivable agreement liability adjustment —   —   Adjusted Basic EPS $ 0.45   $ 0.62     Basic weighted average shares outstanding 68,435,315   68,159,907     Diluted net income per share attributable to common shareholders $ 0.43 $ 0.61 Non cash gain on foreign currency transactions (0.01 ) — Customer inventory buybacks 0.01 0.01 Restructuring/integration expense — — Litigation - class action charges, net 0.01 — Tax receivable agreement liability adjustment —   —   Adjusted Diluted EPS $ 0.44   $ 0.61     Diluted weighted average shares outstanding 69,019,692   68,370,548       Ply Gem Holdings, Inc. (Amounts in thousands) For the six months ended July 1, 2017     July 2, 2016 Net income $ 26,222 $ 14,069 Interest expense, net 34,252 37,207 Provision for income taxes 18,223 531 Depreciation and amortization 26,555   28,343   EBITDA 105,252 80,150 Non cash gain on foreign currency transactions (772 ) (839 ) Customer inventory buybacks 1,198 1,067 Restructuring/integration expense 1,412 497 Litigation - class action charges, net 1,113 — Tax receivable agreement liability adjustment — 18,391 Loss on modification or extinguishment of debt —   2,399   Adjusted EBITDA $ 108,203   $ 101,665       Ply Gem Holdings, Inc. For the six months ended July 1, 2017 July 2, 2016 Basic net income per share attributable to common shareholders $ 0.38 $ 0.21 Non cash gain on foreign currency transactions (0.01 ) (0.01 ) Customer inventory buybacks 0.01 0.01 Restructuring/integration expense 0.01 — Litigation - class action charges, net 0.01 — Tax receivable agreement liability adjustment — 0.18 Loss on modification or extinguishment of debt —   0.02   Adjusted Basic EPS $ 0.41   $ 0.41     Basic weighted average shares outstanding 68,417,602   68,143,523     Diluted net income per share attributable to common shareholders $ 0.38 $ 0.21 Non cash gain on foreign currency transactions (0.01 ) (0.01 ) Customer inventory buybacks 0.01 0.01 Restructuring/integration expense 0.01 — Litigation - class action charges, net 0.01 — Tax receivable agreement liability adjustment — 0.18 Loss on modification or extinguishment of debt —   0.02   Adjusted Diluted EPS $ 0.41   $ 0.41     Diluted weighted average shares outstanding 68,988,527   68,219,762    

3. Operating segment results for the three and six months ended July 1, 2017 and July 2, 2016 are as follows:

    For the three months ended (Amounts in thousands) July 1, 2017         July 2, 2016   Net sales Siding, Fencing and Stone $ 263,593 48 % $ 244,411 48 % Windows and Doors 281,174   52 % 266,134   52 % $ 544,767   100 % $ 510,545   100 % Gross profit Siding, Fencing and Stone $ 73,032 28 % $ 77,747 32 % Windows and Doors 63,856   23 % 57,542   22 % $ 136,888   25 % $ 135,289   26 %   Operating earnings (loss) Siding, Fencing and Stone $ 47,580 18 % $ 51,305 21 % Windows and Doors 24,725 9 % 18,001 7 % Unallocated (6,206 ) (1 )% (7,124 ) (1 )% $ 66,099   12 % $ 62,182   12 %     For the six months ended (Amounts in thousands) July 1, 2017       July 2, 2016   Net sales Siding, Fencing and Stone $ 454,430 47 % $ 420,787 46 % Windows and Doors 520,352   53 % 498,372   54 % $ 974,782   100 % $ 919,159   100 % Gross profit Siding, Fencing and Stone $ 118,995 26 % $ 124,011 29 % Windows and Doors 107,418   21 % 97,979   20 % $ 226,413   23 % $ 221,990   24 %   Operating earnings (loss) Siding, Fencing and Stone $ 67,403 15 % $ 71,678 17 % Windows and Doors 26,154 5 % 16,751 3 % Unallocated (15,632 ) (2 )% (16,671 ) (2 )% $ 77,925   8 % $ 71,758   8 %  

4. Long-term debt amounts in the selected balance sheets at July 1, 2017 and December 31, 2016 consisted of the following:

        (Amounts in thousands) July 1, 2017 December 31, 2016   Senior secured asset based revolving credit facility $ — $ —

6.50% Senior notes due 2022, net of unamortized early tender premium, discount and debt issuance costs of $45,893 and $49,935, respectively

604,107 600,065

Term Loan Facility due 2021, net of unamortized early tender premium, discount and debt issuance costs of $15,200 and $17,854, respectively

240,825   240,321   $ 844,932 $ 840,386 Less current portion of long-term debt (4,300 ) (4,300 ) $ 840,632   $ 836,086  

5. The following is a summary of selected balance sheet amounts at July 1, 2017 and December 31, 2016:

        (Amounts in thousands) July 1, 2017 December 31, 2016   Cash and cash equivalents $ 7,172 $ 51,597 Accounts receivable, less allowances 296,133 209,919 Inventories 194,886 161,956 Prepaid expenses and other current assets 28,123 26,850 Property and equipment, net 167,587 165,556 Intangible assets, net 93,955 104,159 Goodwill 479,525 478,514 Accounts payable 102,587 75,398 Payable to related parties pursuant to tax receivable agreement-current 25,383 25,383 Payable to related parties pursuant to tax receivable agreement-non-current 54,336 54,336 Long-term debt 840,632 836,086 Stockholders' equity 35,782 4,106  

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Ply Gem Holdings, Inc.Investor Relations:Shawn K. Poe, 919-677-3901investors@plygem.com