Aug 11, 2015
Executives
Brad West - CFO Jeff Jackson - President and COO Rod Hershberger - Chairman and CEO
Analysts
Josh Wilson - Raymond James Rob Hansen - Deutsche Bank Keith Hughes - SunTrust Bob Wetenhall - RBC Capital Markets Greg Palm - Craig-Hallum Capital Group Ken Zener - KeyBanc Capital Markets Jeremy Hamblin - Dougherty & Company
Operator
Good day ladies and gentlemen welcome to the PGT, Inc. second-quarter 2015 earnings conference call.
[Operator Instructions] As a reminder, this conference today is being recorded. I would now like to turn the call over to your first speaker for today, Brad West, Chief Financial Officer.
You have the floor, sir.
Brad West
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 and COO.
This morning we are pleased to provide an update on our second-quarter results as well as an outlook for the third-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 are subject to risk and uncertainty. 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 at www.PGTIndustries.com. Included in the press release are the unaudited, condensed, consolidated balance sheet and statements 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 second quarter ended July 4, 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 and Chief Operating Officer, Jeff Jackson. Jeff?
Jeff Jackson
Thanks, Brad, and good morning everyone. We were pleased with our second-quarter results which continue to grow especially in our CGI-branded products.
Highlights for the quarter include consolidated sales of $100.8 million, our highest quarterly sales levels since the second quarter of 2006 and the second time in our Company's history that we exceeded $100 million in quarterly sales; operational improvements, including a decrease in the cost of glass due to our increased glass processing capacity and labor and scrap improvements; solid demand for our new exceptionally designed WinGuard and EnergyVue vinyl product lines; and an increase in our workforce to nearly 2,200 employees. We have been the leading manufacturer of impact-resistant windows and doors in Florida for many years and we strengthened this position with the addition of CGI last year.
Our impact-resistant products continue to lead the way in our quarter-over-quarter sales increase and represented 81% of sales. Our sales increase of 23.5% over last year led by impact-resistant products which grew 29%, sales of non-impact windows and doors represented 19% of second-quarter sales growing at 5% over last year.
Also in the quarter 60% of our sales were from the repair and remodeling markets, up 15% over the second quarter last year, while sales into the new construction market represented 40% of sales, up 39%. Single-family housing starts in Florida in the second quarter were approximately 17,600, up 24% over last year's second quarter.
Our current full-year estimate is between 60,000 and 65,000 starts for the state of Florida and as a reminder we believe Florida's economy and population will support single-family starts over 110,000 annually. Additionally based on 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, this is the second consecutive quarter that we benefited from the impact of our new state-of-the-art glass processing facility through lower cost of glass. Gross margins also benefited from improved operational efficiencies.
These improvements demonstrate that our investment in the glass facility is and will continue to provide returns and our training programs for our new employees are gaining traction. We will continue to invest in both the glass facility and our employees during the rest of 2015 by bringing online additional glass processing lines, including our third laminating line which is now operational.
We are starting to run limited productions on this line during this month and expect it to be fully operational later in our third quarter. This will allow us to start supplying glass to CGI later in 2015 with the goal of being to lower CGI's overall glass cost as well.
Our next glass plant investment will be our new tempering oven scheduled to be installed in our first-quarter 2016. Over the last two years we've experienced a period of significant growth which has come from both a rebound in the housing market and our ability to capture market share through our marketing programs, our ability to innovate and our acquisition strategy.
This period of growth has been one of the most exciting and pleasing times in our Company's history. However, this period of growth at times has come at a cost due to factors including incremental material cost needed to purchase custom laminating glass units and inefficiencies in labor and scrap rates as a result of adding new employees.
In 2013 and 2014 these factors had a negative impact on our gross margins. We responded to these factors by building our new glass processing facility and implementing programs to train our newest members of the PGT family on our manufacturing processes.
These initiatives have driven margin improvements in the first six months of 2015 and we think will continue to drive us into the future. For the third quarter of 2015 we estimate that consolidated sales will range between $99 million and $101 million.
This growth of approximately 29% will be comprised of approximately 10% organic growth and 19% growth from our CGI acquisition. These sales combined with sustained operating performance we believe will result in gross margins on par with the first half of 2015.
With that I will turn the call back over to Brad who will review the results for the quarter in greater detail. Brad?
Brad West
Thank you, Jeff. As Jeff mentioned we reported sales of $100.8 million, up 23.5% over prior year.
Breaking down our sales drivers compared to 2014 second quarter we have impact sales of $81.6 million versus $63.3 million, an increase of $18.3 million or 29.0%. The vinyl non-impact sales of $12.3 million versus $11.2 million, up $1.1 million or 9.8% and aluminum non-impact sales of $6.9 million versus $7.1 million, down slightly by $200,000 or 3.0%.
Gross margin dollars increased $6.8 million or 26.0% over the second quarter of 2014. Our gross margin, up 32.7%, increased as a percent of sales by 0.7% compared to the same period last year.
As Jeff previously mentioned we continued to benefit from lower glass cost as a result of increased internal glass processing capacity. We posted year-over-year improvements in scrap and efficiencies and our margin is also favorably impacted by the first-quarter price increase.
Increased volume resulted in higher contribution margin and the addition of CGI. Offsetting these beneficial factors were the negative impacts due to an investment in overhead to support higher sales and a decrease in gross margin due to a product mix shift towards new construction.
If you quantify these factors our increase in gross margin as a percentage of sales of 0.7% was driven by decreased glass cost due to an increase in internal glass processing capacity 130 basis points, the first-quarter price increase 100 basis points, improved scrap and labor efficiencies 50 basis points, improved leverage from higher volume 30 basis points and the addition of CGI 100 basis points. These positive factors were partially offset by an increase in overhead costs of 230 basis points and a decrease to product mix of 110 basis points.
With regards to aluminum, our average delivered cost of aluminum was approximately $1.01 per pound during the quarter which approximates the delivered cost during the second quarter of 2014. The delivered cost of aluminum was comprised of 59% of stock purchases at $0.97 per pound and 41% of forward bias at $1.06 per pound.
To cover our aluminum needs in the near term we have been entering into contracts for future purchases of aluminum with our two largest US suppliers of aluminum extrusion. As of today we are covered for approximately 52% of our estimated needs through the end of 2015 at an average delivered price of $0.99 per pound.
Additionally we are covered for approximately 35% of our estimated needs in 2016 at an average delivered price of $0.91 per pound. The current delivered cash price today is approximately $0.80 per pound.
This delivered price per pound does include the components for LME and Midwest premium but excludes conversion costs. Selling, general and administrative expenses as a percent of sales finished at 16.6% compared to 15.9% in the second quarter of 2014.
On a dollar basis our selling, general and administrative expenses were $16.8 million, an increase of $3.8 million from the second quarter of 2014. Included in these expenses for the quarter are CGI expenses of $3.0 million which includes $900,000 in non-cash amortization expense related to the CGI amortizable intangibles.
The remaining $800,000 increase in SG&A expenses is due mainly to higher warranty costs incurred in the quarter as well as higher variable costs consistent with higher sales. Interest expense was $2.9 million compared to $900,000 in the second-quarter 2014.
This increase from prior year relates to higher outstanding debt levels as a result of the refinancing in September of 2014. Depreciation and amortization recorded in the second quarter was $2.6 million compared to $1.0 million last year.
Going forward as a result of the acquired intangibles and depreciation related to the new glass facility we expect depreciation and amortization expense to be between $10 million and $11 million for the year. Our tax expense in the second quarter was $6.3 million and represents an effective income tax rate of 48.2% which compares to $4.8 million and 38% in the second quarter of last year.
Tax expense in the second quarter of 2015 includes a non-recurring non-cash accounting charge of $1.6 million relating 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 the second quarter.
Excluding this charge our effective tax rate for the second quarter of 2015 was 36.0%. This effective tax rate and a tax rate from the second quarter of 2014 are lower than our statutory rate of approximately 38.8% due mainly to the impact of the Section 199 domestic manufacturing deduction.
Going forward we expect to record tax expense at an effective rate of 36% to 37%. Also from a cash perspective our year-end 2014 estimate of our tax effective federal operating loss carryforwards is approximately $6.1 million, mostly acquired in the CGI acquisition.
We had net income in the second quarter of $8.6 million, or $0.17 per diluted share after adjusting for the non-recurring tax charge and certain new product launch costs and glass blind start-up costs versus $7.8 million or $0.16 per diluted share in the second quarter of 2014. Adjusted EBITDA was $18.9 million for the second quarter of 2015 compared to $14.5 million for the second quarter of 2014.
A reconciliation of net income and EBITDA which I have just discussed has been included in our earnings release for your reference. We ended the quarter with a cash balance of $47.5 million and cash has increased to over $50 million as of today.
Our cash growth has been achieved despite capital spending of $8.8 million in the first half 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 $47 million of cash on hand our net leverage was 2.3 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 Chairman and CEO Rod Hershberger for summary remarks.
Rod Hershberger
Thank you, Brad. This quarter makes 10 consecutive quarters that our new construction sales growth has exceeded 30% with five of those quarters exceeding 50% growth.
The acquisition of CGI continues to exceed our expectations and we look forward to additional synergies as we move towards 2016 including our glass capacity expansion which will allow us to bring our CGI glass needs into our own glass operations at an increasing rate during the remainder of 2015 and into 2016. Lastly, the PGT family continues to grow.
During the second quarter we reached nearly 2,200 employees for the first time since 2007 at which time we had approximately 2,600 employees with a sales run rate less than where we are at today. For the rest of 2015 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 were up 24% in the second quarter which we believe will result in solid sales growth in the third quarter. Looking ahead our priorities include satisfying the demand for our new WinGuard and EnergyVue vinyl products.
These products have gained wide acceptance with our customer base and order activity has been solid. We will continue to expand our leadership positions in our established markets including Southeast Florida where our mix of PGT and CGI branded products makes our presence stronger than ever.
We continue to actively evaluate acquisition opportunities in the window and door space but remain focused on not acquiring solely for the purpose of top-line extension. Rather we are confident in our ability to identify and close deals which fit with our culture and long-term growth strategy like CGI.
In fact, thus far in 2015 we have actively analyzed numerous opportunities and passed on several as we were not convinced they provided the right fit for where we are in the lifecycle of the Company. While we continue to assess many opportunities we also acknowledge that our multipronged acquisition strategy is clearly defined in terms of geography, product and earnings contributions.
I am thankful for the dedication and effort put forth by all of our team members who have worked hard to help us realize our strategic initiatives. I'm excited to be part of an enthusiastic leadership team whose commitment to unparalleled customer focus and quality are second to none.
With that I will conclude and we will be happy to answer your questions about our results. Andrew, if you would take the first question please.
Operator
Sure. [Operator Instructions] And we'll be taking our first question from the line of Sam Darkash from Raymond James, your line is open.
Josh Wilson
Yes, good morning, this is Josh Wilson filling in for Sam. Thanks for taking my questions then congratulations on the quarter.
Could you quantify the impact CGI had on sales in the second quarter?
Rod Hershberger
Josh, before Brad will talk a little bit about the numbers I just want to talk a little bit about our strategy with CGI. In the past they were our number one competitor and we actively competed price-wise and a project-wise against them.
So we've been able to negate that relationship with inside of our customers' facilities and make sure that we're competing on a more normal basis. So on a quarter-by-quarter basis, you'll see some swings in sales from CGI versus PGT because of projects that are being bid and how we're looking at the market.
But when you look at the entire year I think we're still on track to make sure that we hit our sales forecast by Company and by customer with both companies although there will be some swings in that as we go through quarters. So that kind of puts it in perspective about how we look at the market and then Brad can address the numbers.
Brad West
Yes, Josh, in the second quarter CGI sales finished at $16.5 million which contributed 20% of our 23.5% total growth.
Josh Wilson
Thanks. I appreciate that.
As it relates to capital allocation and M&A, could you go a little bit more into detail into how you think about M&A versus share repurchase and also you mentioned a focus on windows and doors in terms of products. Could you talk about regions and maybe clarify for sure that I heard you right as far as the type of products you're looking for in M&A?
Jeff Jackson
Josh, before I moved to that it want to give a little bit more color on that percentage Brad just threw out, the 3.5% organic growth. We have to remember that in the first quarter we had a price increase, so we had approximately $6 million of sales pulled from the second quarter into our first quarter results.
And then also in our second quarter, the Fourth of July holiday happened to fall this year into the second quarter, last year it was in the third quarter. And our daily sales at this current rate has been anywhere from $1.6 million a day to $2.3 million a day, so one day does have a good impact, a material impact in terms of year-over-year growth forest.
So if you combine those two things we estimate about $8 million of sales were affected in this quarter that we just closed second quarter, and adjusting for that we had an organic growth closer to 13.5%. So that should give you guys a little bit more color in terms of what we went through there in the second quarter organically.
In terms of capital allocation and acquisitions and how we look at that and share repurchase, those kind of questions, right now we're convinced especially with the successful acquisition we just had of CGI, it's been almost a year now that we acquired CGI and they've exceeded our internal targets in performance, both top line and bottom line. We think there's more targets out there very similar to CGI that we can acquire versus say a share rebuy or a dividend type use of cash.
So our efforts and focus is going to be on acquisitions. Like Rod had mentioned we've already looked at several this year and we're actually currently looking at some.
So we will be careful. We do realize we had a unique Company with higher margins.
At the same time we do also realize we have a Company that's really 87% of our sales.
Brad West
89%
Jeff Jackson
89% of our sales are in the Florida market. So we are going to also have diversity in terms of geography on our minds as well.
So if you look forward that's kind of where the cash is going to be allocated. It will be through probably through debt to be honest.
We currently have over $50 million of cash on the balance sheet as of today, so we want to use that cash to keep funding the business needs whether its glass plant expansion I mentioned earlier and other initiatives and the debt markets are still very attractive right now. So I hope that paints a decent picture of our cash and thought process there.
Josh Wilson
Does the desire to look at other regions imply anything about your assessment of the opportunities in Florida?
Jeff Jackson
No, we're still assessing opportunities in Florida, too, actually and we're just doing more actively both. What we've seen is over the last 12 months especially probably an increased pipeline of out-of-state opportunities coming our way.
And that's helped to lend some clarity in terms of outside the state of Florida what's available.
Josh Wilson
And if I could sneak in one more, if aluminum is flat from here what should we be thinking about for year 2016 gross margins?
Brad West
Aluminum right now is cash price of $0.80. We have coverage in 30%-plus in the next year at $0.91.
It's hard to say what aluminum is going to do, it has fluctuated so much in the past few months. But we do typically buy on our current sales fund of about 25 million pounds of aluminum a year.
So that could be used as a good model on which to base the margin improvement on. Certainly if aluminum does stay where it's at today it represents a nice opportunity for us going into 2016.
Jeff Jackson
Yes I think personally I think based off what we see in the market I think aluminum is going to stay where it's at today. I don't see anything given what's happening in China and elsewhere around the world that's going to drive aluminum prices higher.
Midwest premiums significantly decreased and the fundamentals supporting that would support a lower price as well. So we are anticipating pretty much aluminum holding flat.
And like Brad said we're 35% covered into 2016 at this point, not looking necessarily to ad anymore because we think the spot buy is going to be there for us.
Operator
Thank you. Our next question comes from the line of Rob Hansen of Deutsche Bank.
Your line is now open.
Rob Hansen
Thanks. I just wanted to ask just about on your gross margins you've got some nice tailwinds in place and part of that's going to be I guess aluminum which I guess mostly that hits next year rather than this year.
But what about the lower PVC prices and then you've got increasing sales prices as well and then you've got the new plant that you're opening the laminating side? So I think maybe people were looking for a little bit quicker of a margin increase here, especially in the back half of the year.
So can you just walk us through what's going on? You mentioned a little bit of the product mix I think was a hit there and then I think you also mentioned some G&A increases.
So if you could just walk us through what's going on there and yes.
Brad West
Sure, Rob. Going into this year we anticipated gross margins to be about 33% in the back half of the year and in the first half of the year it wasn't going to be as high.
But we saw some substantial improvement in scrap and labor at the beginning of the year which helped us get to our targets for the year faster than we had thought. So that's why we finished the first and second quarter in the higher end of the 32% range, almost a 33% range.
Looking forward we still have those same thoughts in mind. With the opening of the laminating line and beginning to make glass for CGI there is absolutely an incremental opportunity for us to improve margins in the back half which is what we had thought so that thought hasn't changed.
And the price of aluminum also gives us an opportunity to improve margins in the back half as our coverage in the back half is at $0.99 at 50% but we are still uncovered on some portion. But the one thing that you always have to remember is sequentially in the fourth quarter our sales are typically a little bit lower than they are in the third quarter, so you get a little bit of a negative impact there for leverage.
In terms of our mix, our product mix and the cost of vinyl extrusion we've seen most of that I think oil pricing has somewhat rebounded a little bit, so I think on the price of vinyl I think we've seen that in place here and we did finish the second quarter at 60/40 from new construction in R&R mix which is what we saw in the first quarter. We do think that the likelihood of that to move towards 50/50 as new construction will go faster than R&R still exists.
Jeff Jackson
I would just add a little bit to that. As Rod had mentioned in his comment we're about 400 employees less than we were back in 2006 when we were at similar run rates.
And as we mentioned based off our guidance in the third quarter and what we've done in the first half this should be our record year in terms of top-line growth. The additions we have had this year has been more along the lines of support: dock operations, maintenance, field service, those type of areas.
And our variable labor has remained fairly consistent because of the change in the various manufacturing processes and our mix that's going through the plant. So we did make I would call it an investment in almost like a step investment to support the volume we are seeing and will see in the future.
I don't anticipate that continuing. I think we've been layering in a good support layer and if you look going forward the higher will be more on the variable labor side as we open up the new lami line on the glass side and as well as fully staff our new vinyl WinGuard.
In terms of pricing, you did mention pricing in your comment as well, obviously we had a price increase announced formally to the market since the beginning of the year. Indirectly we have had pricing favorability in the fact we're not competing in our core market against our number one competitor because we own them now, CGI.
So promotional pricing, etc., targeted pricing against that CGI initiatives, that doesn't take place. I think Rod alluded to that in his comments so indirectly we have enjoyed a little bit of pricing.
We expect that to continue but the market currently is strong. New home prices are up just in our area over 10% in the Sarasota-Bradenton area and I know across Florida it's even more.
So in terms of pricing I think the power is going to be there.
Rob Hansen
Great. And you mentioned --
Rod Hershberger
Let me add one more thing. Let me add one more thing on the pricing.
We have pricing for our corporate builders, our large construction guys. And some of that pricing is locked in for a period of time.
So when we announced our price increase two or three of our larger builders had some pretty much locked-in pricing for most of the first half of the year. And so we haven't seen that price increase to them, so we will start seeing that come in in the back half of the year also.
So that will make a little bit of difference also.
Rob Hansen
Okay. Two follow-ups to that, I guess what percentage of your sales there are within the new construction piece, to the production builders versus the smaller private guys where you're probably not going to have large contracts in place?
Jeff Jackson
We don't really break that out. We have the corporate builder program Rod was referring to.
We have approximately 50 different corporate builders in that program and that's constantly changing in terms of qualifications to be in that program, certain volume levels, etc. So we've never really talked about that.
We don't want to go down that path again, that's one of our initiatives to gain market share that we don't want to provide too much details to.
Rob Hansen
I completely understand. The other follow-up is just on you mentioned the step investment and I guess I wanted to get a little more detail.
Is that basically the plant start-up cost and that's what we're seeing in that 210 basis points investment that you mentioned that was impacting COGS?
Jeff Jackson
No, when I mentioned step investment in terms of people it's more in terms of field service, dock ops, maintenance, marketing. We've got marketing initiatives now that's actually helping gain market share but that department in and of itself we've added resources to.
So those type resources we're sprinkling in again to support marching towards a $400 million annual sales company we just didn't have in the past. But even with those investments we're still going to be 350 people short of where we were in terms of labor needs when we were back in 2006.
Rob Hansen
Okay, got it. And the last question I have is for your 2,200 employees now, I think 1Q 2016 is when you have a little bit of a pause in terms of building out the facilities and everything?
So what's the target employee level for 1Q 2016?
Jeff Jackson
I think it will be somewhere in the neighborhood of 2,250 to 2,300. Again that's going to be more variable driven versus the support costs we've already added.
Operator
Thank you. Our next question comes from Keith Hughs from SunTrust.
Your line is open.
Keith Hughes
Yes, thank you. I know in Florida there were some new energy efficiency regulations that came in July 1 and still very early.
But are you seeing any sort of change in behavior and if not how long do you think it will before it starts to have an impact on the window market?
Rod Hershberger
We're seeing it did go in place on July 1. It's variably enforced I think would be the easiest or kindest way to say it.
There's some areas, some counties and some municipalities that are enforcing it to the letter of the law, maybe going almost a little bit more than the letter of the law and there are some places that are just waiting for a declaratory statement from the state to tell them what they're supposed to be doing with it. So it is driving, it's driving more energy efficient sales, it's driving more sales towards vinyl and to IG glass and low E glasses, so some value-added products.
But it's not I think it's going to take us another six months probably plus, probably inside of six months to really see some consistent enforcement and make sure that people know what they're doing. It's going to depend a little bit on the energy commission and the technical advisory committee and their deck statements.
Jeff Jackson
And we're actually okay with that because again we've got the product to serve that need and it's new in the market and we're ramping it up and customers are out pitching it. So the fact that enforcement is kind of sketchy right now but we all know it's going to happen because this is Florida.
It may be six months out and it also gives us enough time also to train our dealers which we're actively out doing through our dealer ed in terms of the code and implications.
Keith Hughes
And I have a question, back to aluminum, with an $0.80 spot price would you not consider moving that 35% locked-in for 2016 up a little bit higher? It seems like historically a pretty good price.
Rod Hershberger
It is a good price. The three of us look at it all the time.
It is a good price. Would we consider it?
Yes, we would. But right now we're comfortable with where we're at.
We do have some aggressive what we call good to councils that we put out and at times they hit. That's actually one hit for instance within our current coverage.
So we do have some of those out at aggressive numbers and if we happen to hit and cover we may be covering more.
Brad West
And there's two things that really affect that. We either take delivery of the billet and then you've got to store it and you're paying storage fees which don't save you quite as much money.
Or you do a forward buy and the forward buy always has a couple of cents. And it varies a little bit whether it's a couple percentage points or a couple of cents more.
So you can't really go out there a year from now and buy aluminum at $0.80.
Operator
Thank you. Our next question comes from the line of Bob Wetenhall from RBC Capital Markets.
Your line is open.
Bob Wetenhall
Good morning. Jeff, I wanted to ask you about the $8 million in 2Q that got lost due to timing.
Does that come into 3Q because we were thinking that you are third quarter top line would be around $100 million but does that go up? And I was also thinking maybe get like $14 million of CGI in 3Q.
How should we think about top-line trends in the next quarter coming up?
Jeff Jackson
The next quarter coming up, the guidance range I gave which was $0.99 to $1.01 in terms of top dollars would include any kind of impact on timing for Q3. July, however, again July itself was up, Brad, what over last year 50%?
Brad West
Yes including CGI.
Jeff Jackson
Yes, July including acquisition was up 50% over last year, 22% organic but I don't want to paint that ahead of the market. That's why we gave the guidance we did.
August and September have historically slowed down as back-to-school comes on. So we had a very strong July.
We're into August and based off what we see in August we're comfortable with the guidance we gave of roughly 10% organic growth.
Bob Wetenhall
Cool. That's helpful.
On your gross margin guide is that based off the adjusted gross margin which has the cost add-backs for the new product launch and the opening of the glass line or does it strip it out?
Jeff Jackson
No, the 32.7% that we compared against is actually unadjusted. I believe it's 32.9% if you add both costs into it.
Bob Wetenhall
Got it. And are those basically transitory costs that are going to move out and how long before you cycle out against those?
Jeff Jackson
Well, for the laminating line those costs will be moved out after the third quarter. We will have it up and running in the fourth.
So we shouldn't have any more costs associated with that. But I guess more to your point we are at that point we will turn on the burners for our tempering oven and we will start allocating some cost or resources around that.
And we only called those out, again they are not material, I think they were what $300 --
Brad West
$230,000.
Jeff Jackson
$230,000 in the quarter. So it's not a material number but it is something that goes away.
We demonstrated when we called these things out they go away. So we just want the market to know that.
So the tempering oven will be in the first quarter of next year. Can't really speak to plans past that that are firm but a lot of it's based on demand for glass but we do have a couple of cutters also coming in over the next six months.
That will be sprinkled in there.
Bob Wetenhall
So you've got a couple of moving pieces. I wanted to think about next year because you're going to comp -- the CGI will be out of the numbers.
Maybe this is to some of the comments that Rod was making, do you think you can do top-line growth of in excess of 10% next year realistically on an organic basis given what you're seeing in the market today? And my other question was compliments on margin expansion, you've gone from any but the margin of 15% last year, you're on track to get 18%, that's 300 basis points.
Is it realistic to think you could hit 20% in 2016?
Jeff Jackson
Top-line growth I think the answer is yes. I think we can do assuming the market continues its pace in terms of growth as I mentioned earlier single-family starts are roughly going to be 60,000, 65,000 this year.
If starts go up to 80,000 or 85,000, yes I think we'll continue to enjoy outperforming and taking share there. I don't see the R&R market going below 5% or 6% annual growth anytime soon.
I know the condo markets, a lot of the condos in Southeast Miami are coming up to the 40-year rule which is going to be a lot of good R&R business for us and CGI business. So I am comfortable at this point where we sit assuming the market continues to grow at saying we're going to grow at 10% organically.
Rod Hershberger
Yes, I think the only scary part to us when the market grows is finding enough labor. And it's not just a labor for us, it's labor for our customers to install the product.
And there's a little bit of a shortage of labor in Florida right now and we're hearing that from customers and some of their leadtimes for them to be able to install product is out a little bit but the market is coming back. Fortunately it's not coming back as strong as some people thought it might.
So there's time to bring labor in and train labor and more people are coming back to Florida. But the labor component of that is the one thing that we'll keep watching real close.
Bob Wetenhall
And on the margin side as well?
Jeff Jackson
Yes, on the margin side, Bob, you know a couple of major factors that affect our margins right now obviously the price of aluminum as well as how quickly our new product, our new vinyl product transitions over. We had it estimated at six to nine months, so if you assume both of those factors work towards our favor then yes, we can absolutely get to that kind of vivid out-performance next year.
The question is does it annualize for the whole year or do we get there at the back half of the year and leave 2016 with that kind of percent? That's what aluminum will affect.
That's what vinyl cutover will affect and also the synergies that we can do for the CGI and our glass needs.
Bob Wetenhall
Got it. So just to recap that, it's realistic to think even though no one has a crystal ball, 10% plus top-line growth and a 20% EBITDA margin for 2016?
Jeff Jackson
Again I would say that on the EBITDA margin maybe exiting for 2016. It would be higher in the summer months when our sales are higher and then lower in the winter months.
Bob Wetenhall
All in all that's a nice growth trajectory and congrats on the execution. Good luck, guys.
Operator
Thank you. Our next question comes from the line of Steve Dyer from Craig-Hallum Capital.
Your line is open.
Greg Palm
Hey, good morning guys. It's Greg Palm on for Steve today.
You've obviously done a very good job at outpacing housing starts in new construction segment by a pretty substantial magnitude. It seems like that out-performance lessened a bit here in Q2 and into Q3.
So the question is was there any negative impact from that pull-forward of the $6 million sales into Q1 or were those mostly in R&R? And if it's not is it just a function of tougher comps in the segment or what's going on there?
Jeff Jackson
Actually it's hard to pinpoint exactly but we do feel that it impacted both new construction and R&R, Greg. My best guess would be we're pretty close in line with our sales which are 60/40 so somewhere around that even split of that $6 million probably affected both new construction and R&R.
Greg Palm
Okay. Are you willing to break out new construction sales so far in Q3 or don't you have that detail?
Jeff Jackson
We don't. It takes a little bit of research on our part to pinpoint those numbers and we don't have that yet through July.
Greg Palm
Okay. And you touched on this earlier, but how is your new energy efficiency line performance since the launch earlier this year?
And can you remind us the margin impact going forward on that new vinyl line that you talked about?
Jeff Jackson
We flipped the switch on that line this quarter. We had our launch with our customers back in March and it was very well received.
The window, the options, the different colors available, etc., very well received, probably more so than we had thought to be honest with you. So the demand on that line has been more as a result.
The launch itself is going to plan, although the demand is higher so we want the launch to be better, our capacity to ramp up faster. And those efforts are clearly underway here to try to improve the capacity on that line ahead of plan given the demand.
Brad, do you want to speak a little bit to the margin?
Brad West
Sure. As a reminder we have that vinyl to aluminum margin difference of about 500, 700 bps.
Part of the purpose of the new product launch was to eliminate that gap. That's coming mainly from the cost side, both the cost of material and the cost of labor.
The cost of material was something that we pretty much see immediately as the sales cut over. But we do expect the cost of labor improvements to take a good 12 to 18 months as volume grows and as training new employees happens.
So that's how you think about the margin improvement for the new product.
Rod Hershberger
Yes, one of the things that happened with that product with additional demand as the energy code went in place is that we're still running the old product line in the same plant, so we've got additional demand on the new product line. We still have demand on the old product line and it's really crowded, a little more crowded than what we planned for so training becomes a little more difficult and so we're having to work hard to bring that line up to speed and our guys are doing a great job of that.
Jeff Jackson
Also again tied to the energy code Rod just mentioned, a lot of our competitors were not and still are not ready to meet that code, at least with a full array of products which we are. So we're experiencing an extra high demand as a result of that taking that share.
Greg Palm
Okay, last one for us as it relates to OpEx, is this a good run rate going forward for the rest of the year? Are there any sort of one-time incrementals, anything that we should be thinking about for the second half?
Brad West
I'm sorry, did you say capital spending?
Greg Palm
No, OpEx, so SG&A.
Brad West
No, I think the only real quarter of unusual SG&A spend for us is the first quarter with our customer event. Other than that it's a pretty predictable number.
Greg Palm
That's what we thought. That sounds good.
Okay, thanks. I will hop back in the queue.
Operator
Thank you. Our next question comes from the line of Ken Zener from KeyBanc.
Your line is open.
Ken Zener
Good morning, gentlemen. So margins and timing.
Just a matter of timing it seems to me, but I do want to ask a structural question related to the margins which is as you move new sales up as a percent, realizing you don't want to talk about your corporate initiatives from a sales perspective, could you give us a sense of the mix, margin mix headwind you're facing as you sell to new construction? Obviously you get utilization in your plants and that's equally important but what type of margin headwind are we facing as your mix to new has gone from 30 to 40 and it sounds like on the way to 50?
Brad West
The best way to answer that Ken is generally speaking we've seen about a 5% difference between new construction and R&R, maybe 7% at times. But to Rod's point as we've seen our new construction grow and our corporate builders grow, we've had a lot of factors in place as volume increases.
With those very same size type production you see in new construction there are definitely things you can do to help eliminate that gap. So it's really hard to answer that question because it is a moving target and as new construction grows we think we can do better on the margin side with the new construction.
Jeff Jackson
That gap has narrowed over the last 12 months because of pricing and both from the corporate builder's standpoint and it will even get narrower as the larger corporate builders roll off contracts we entered into and they experience the price increase.
Ken Zener
But simplistically if you have a 10% shift in your portfolio, take the low-end if you said 5% to 7% that would be 50 bps mechanically?
Brad West
That sounds close.
Ken Zener
Okay. Just wanted to get a concept there.
Also going away from margins M&A, obviously CGI is successful, I know in conversations you guys have talked, in your opening remarks specifically, you talked about product and/or regional consistency. Could you -- but it sounds like there's more talk of this M&A and given that CGI was such a large competitor in the served markets you are now it almost seems as though you'd be broader.
I know in the past you've talked about there's been lots of quality companies in terms of good relationships to dealers. You had been up in the Carolinas before.
Could you just flesh that out a little bit? I know everyone's focused on margin but to me given your success with CGI and it sounds like your increasing appetite to be perhaps outside of Florida again that warrants some further color.
Thank you very much.
Jeff Jackson
I think if you look outside of Florida in the past I wouldn't look necessarily to that same model that we did. If or when we make an acquisition outside of Florida it will be brand based and we'll acquire that distribution network will have certain margin targets that that Company needs to be already achieving.
And then to those margin targets we will need to be able to add synergies to achieve a certain level internally that we want to have for the Company. And within those target markets what we'll look for is a player or a company that's either one or two in their space.
We're not going to buy somebody five layers down on the totem pole and try to change marketing strategy or try to take share. We want to look for somebody that's fairly successful but is just good timing on a sale.
And we have seen a couple of those. Internally within Florida there's still some good companies to look at, although smaller in nature but still opportunities within Florida that we can look at.
And probably margins would be similar to ours because if you're in Florida and you're going to be dealing in impact if you're at all successful. So in terms of being a product if you look at share products where we're 81% impact right now, our margins and success and our EBITDA reflect that, we don't want to necessarily change that pattern.
But we do realize to grow we're going to have to basically take our expertise, apply it to another company and achieve those same margins.
Operator
Thank you. Our next question comes from the line of Jeremy Hamblin from Dougherty & Company.
Your line is now open.
Jeremy Hamblin
Good morning, guys. I wanted to see if I could ask an additional question on CGI.
What was the EBITDA or the EBITDA margin that you generated on that $16.5 million in sales in the quarter?
Jeff Jackson
We're not going to be disclosing that number at this time. Suffice it to say the expectations that we had with CGI have been met.
Both top and bottom line as I had alluded to. Again we're sensitive to pricing around those products because we're in the same customer and dealer network.
We have competitors out in the market that are probably actively listening to the call, we're told. So we are really sensitive to breaking down a margin between the brands.
Rod Hershberger
Yes, what we really think about is we've got an impact business and a non-impact business. And our impact business has great margins and we've talked about that in the past and our non-impact business is probably equal to or better than the general non-impact businesses out there.
And we've talked about that in the past and we see that same thing with PGT and CGI individually or combined.
Jeremy Hamblin
Okay. And then in terms of clarifying on the gross margin guide for Q3, so in terms of thinking about I think to your first half of the year reported gross margins were 32.6%, closer to 33% if you back out the start-up costs.
Are you pointing us more towards the reported number or the adjusted number when you think about it? The second part to that question is do you have anything factored in based on these more favorable aluminum prices that you're seeing more recently?
Brad West
So let me answer the second question first. From an aluminum standpoint we are 52% covered in the back half at basically $0.99 or $1 which is very similar to what we saw in the second quarter.
The cash price has improved a little bit but from a conservative standpoint that isn't really factored in. On the second half of your question about where we're guiding and pointing to, I think from an adjustment standpoint probably towards the higher end the adjusted number, the 33%, I would adjust we are starting the laminating line in this quarter.
So we're likely to have some kind of adjusted in there when we report for the third quarter.
Jeremy Hamblin
Okay, understood. And then in terms of the vinyl product launch and follow-up question to one that was asked previously, in terms of the total impact we think a little bit longer term here and closing that gap, that 500 to 700 basis point gap on margins, what do you think the total benefit to the Company could be if we get this thing right, we get it staffed and we get some efficiencies in that?
Is this something where it can be 100 to maybe even closer to 200 basis point total opportunity on total Company gross margins moving forward or is the 200 maybe thinking a little bit too aggressively?
Brad West
I think the 200 is probably a little aggressively. Just straight up math you're looking at something more in the neighborhood of 100 to 150 which we've mentioned in the past.
I think the question that you're basically asking is a little bit more long term as vinyl as a whole takes over aluminum in certain markets is that an opportunity for margin expansion. We've always obviously done well on the aluminum sided.
And there is a certain part of the state that will continue to be a strong aluminum market for us for the perceivable future. So I would tend to say closer to 150 and 100 is the better range.
Jeremy Hamblin
Right. Embedded within that question is in many markets throughout the country vinyl is actually at a higher price point than aluminum but that's not necessarily the case in Florida.
I'm wondering if there's any reason longer term why you would think that that dynamic that is expressed throughout the rest of the country wouldn't change as people become more receptive to vinyl.
Rod Hershberger
That's probably a little harder question to answer because of the dynamics in Florida. We're playing primarily in an impact market where the framing material has a lot of structural strength that's not there in the rest of the country.
And that applies to aluminum and it applies to vinyl and the way you make vinyl stronger is you put more aluminum in it or you put more steel in it or you put something in it to make it stronger. So it's hard to answer that question because we're not in the same type of market as the rest of the country.
We're in a market that really appreciates the structural strength and now has an energy code that goes with that.
Jeff Jackson
And I will just add if you look at our new vinyl WinGuard and what we design we designed it to command a premium price. It's got features, benefits, our old impact line does not have and it will really be up to us, and obviously other window and door companies, but up to us to really shift that market and that mindset for vinyl.
And we think we've got a product that we can deliver to our customers, put it in their hands where they can be extremely successful. And if they're successful then you're going to see a shift in that price point aluminum versus vinyl, that historical issue you've had in Florida, you're going to see that shift and we think we can do that.
We think our dealers, distributors and our new product will facilitate that.
Jeremy Hamblin
Great. And I think I might have missed this but what did you say was the quarter-to-date growth figure?
Brad West
Through July?
Jeremy Hamblin
Yes.
Brad West
July consolidated was 50% year over year which was 22% organic and 28% through CGI acquisition.
Jeff Jackson
But we gave more color --
Brad West
We gave more color on the third quarter as a whole because of August and September and our expectations there.
Operator
That's all the time that we have for questions today. So I'd like to turn the call back over to management for closing remarks.
Brad West
Well, thank you for joining us today. We look forward to speaking to you again next quarter and if you have any further questions please give me a call.
Have a great day.
Operator
Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may all disconnect your telephone lines.
Everyone have a great day.