PGT Innovations Inc. (NYSE:PGTI ) Q1 2022 Earnings Conference Call May 12, 2022 10:30 AM ET

Brad West - Senior Vice President of Corporate Development and Treasurer

Jeff Jackson - President, CEO and Director

John Kunz - Senior VP and CFO

Keith Hughes - Truist Securities

Kenneth Zener - KeyBanc Capital Markets

Good day, and welcome to the PGT Innovations Inc., First Quarter 2022 Earnings Conference Call. All participants will be in a listen only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Brad West, Senior Vice President of Corporate Development and Treasurer. Please go ahead.

Thank you. Good morning, and welcome to the PGT Innovations First Quarter 2022 Investor Conference Call. With me on the call today are President and CEO, Jeff Jackson and our Chief Financial Officer, John Kunz. On the Investors section of our company website, you will find the earnings press release issued earlier today as well as the slide presentation we have posted to accompany today's discussion. This webcast is being recorded and will be available for replay on the company's website.

Before we begin our prepared remarks, please direct your attention to the disclosure statement on Slide 2 of the presentation as well as the disclaimers included in the earnings press release and our SEC filings that discuss forward-looking statements. Today's remarks contain forward-looking statements, including statements about our 2022 financial performance outlook. Those statements involve risks, uncertainties and other factors that could cause actual results to differ materially. Additional information on factors that could cause actual results to differ from expected results is available in the company's most recent SEC filings.

Additionally, on Slide 3, note that we report results using non-GAAP financial measures, which we believe provide additional information to help investors compare prior and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation.

At this time, I will now hand over the call to our company's CEO and President, Jeff Jackson.

Thank you, Brad, and good morning, everyone, and thank you for joining us on today's call. We started off the year by delivering a record quarter. I'm very proud of the PGT Innovations team and everyone's efforts to go above and beyond to service our customers. Our growth each quarter is the result of our steady efforts to improve PGT Innovations from our hiring and training, supply chain management, manufacturing and automation processes, we have done this while never losing sight of safety for our team members as our Number 1 goal.

Turning to the key messages for the quarter on Slide 4. We hit the ground running in 2022, carrying forward this strong growth momentum from the past year. Our net sales increased 32% to a record $359 million in the first quarter compared to the prior year. This includes organic growth of 17%, reflecting the strength of our existing brands, while our latest acquisition, Anlin Windows & Doors, added another $32 million and closed a record quarter, performing above our internal acquisition model estimates. Despite inflationary pressures on material and labor costs and overall supply chain challenges, we were able to expand adjusted EBITDA margins by 90 basis points compared to the first quarter of 2021. The main drivers of our improvement include a series of pricing actions taken throughout 2021, including 6% to 12% price increases for new orders that originated after November 1 of last year.

Our operating performance improved substantially during the quarter with a 25% reduction in lead times for certain brands. As always, we work to control costs whenever possible through our consistent focus on marketing spend, quality and our manufacturing processes. Additionally, our ability to increase production while improving margins would not have been possible without the successful management of our supply chain. We have worked hard to obtain required volumes of aluminum and our hedging programs help minimize the impacts of pricing on an extremely volatile market. Our teams continue to monitor this closely and will take pricing actions to offset any sharp increases in spot prices.

Additionally, our Eco acquisition has provided additional glass manufacturing capacity, minimizing the impact of the shortages of glass we've seen in our industry. We ended the first quarter with a cash balance of $104 million and an adjusted run rate net leverage of 2.7x. Our balance sheet strength gives us the flexibility to effectively allocate capital as we look to continue to grow both organically and through strategic acquisitions. We are well positioned to meet strong demand across our key markets, and we'll continue our growth over the balance of 2022 and beyond.

Slide 5 presents our first quarter sales trends. Organic sales for the quarter grew 14% in our Southeast region, while organic sales in our Western region grew 39% versus the prior year quarter. NewSouth continues to perform very well with sales growth of 17%. Our three new stores opened in 2021 helped contribute to this growth. We are currently in various stages of opening new stores in Atlanta, Dallas, Fort Worth and San Antonio. This will bring total store count at the end of the year to 17. For both our Dallas and Fort Worth stores, leases have been signed and store operators are finishing up their training. Our Atlanta store has already taken orders of $2.7 million, and we are planning our official rooming cutting in July.

While our focus on improving manufacturing performance has allowed us to decrease our average lead times and improve our on-time in full metrics, continued strong demand has resulted in a backlog of $347 million, down slightly from our $356 million backlog at the end of the fourth quarter. Our backlog decline during the quarter is mostly a result of continued improved operations, resulting in shorter lead times.

In the Florida region, we did see a reduction in order growth rate during Q1, primarily due to the impact of a prior year price increase pulling forward demand into Q1 of 2021. We are seeing strong recovery in Q2 of 2022, ahead of our most recent price increase. Our Q2 quarter-to-date orders are up 30%. Perhaps one of the most exciting pieces of information I would like to share with you today is last week, Florida Governor Ron DeSantis signed House Bill 7071. This bill provides tax relief in Florida for a number of building product categories. For the first time ever, Floridians will receive a two-year sales tax exemption for impact-resistant windows and doors and garage doors, among other items.

This important home hardening initiative provides tax relief to homeowners, allowing them to harden their homes against the devastating storms by installing impact-resistant products. I want to also thank Florida's CFO, Jimmy Patronis. I first mentioned this concept to him over two years ago. He worked with us to get this approved in both the Florida Senate and House. This is a great benefit for homeowners in Florida to improve the safety and value of their homes, and we think this program will be incremental positive for impact-resistant building products in the Florida R&R market.

Slide 6 summarizes our strategic and operational framework for profitable growth as we seek to create long-term value for shareholders while servicing our customers and communities. Our first pillar is customer-centric innovation, which allows us to offer products with the features, performance and value our builders and customer?s demand. Our second pillar is investing in talent. And since the beginning of 2021, we have invested heavily in bringing new team members on board. We support our new hires by providing the training to enable them to be successful by working safely and meeting our high-quality standards. Having the right team members in the right manufacturing locations is a consistent focus in today's tight labor market. We continue to attract and retain talent while offering competitive benefits and maintaining our culture where employees know they are valued.

Over the past 12 months, we have increased our average starting hourly rate by 14%. Given the significant inflation our country is experiencing, this helps our team members maintain a good quality of life. During the quarter, we launched a new training location for our Venice team, which provides a controlled learning environment for our team members. All new Venice team members will start their PGT Innovations carriers at Coopey World, named for George Coopey, a long-time leader who started our first training programs back in the 1990s. We believe this facility will result in a higher level of job satisfaction, improved quality and greater safety.

In addition, we expanded our partnership with our local Venice high school. Our Pathway to PGTI program provides an opportunity for students to explore potential career paths and gain skilled trade experiences in the manufacturing environment by partnering with PGTI mentors. We are excited about the program's potential to help our high school students, and we are in the process of rolling out this program at all our locations.

Our third pillar is scaling our business. For several quarters, we have been intently focused on improving our manufacturing processes, so that we can reduce our lead times and meet growing demand. Just this quarter, this has resulted in lower lead times, more efficient warehousing operations and less back orders, where we experienced a 50% improvement in our Venice sites. Our fourth pillar is allocating free cash flow to achieve profitable growth. We are consistently evaluating opportunities to grow through new product development, improve production processes or the right strategic acquisitions. We will continue to be disciplined in our capital deployment this year as we look for accretive opportunities to grow our business while delivering above-market results. Currently, we are evaluating a number of possible acquisitions. All our acquisition targets have come from relationships built over time as part of our strategic planning processes.

Now I'd like to turn the call over to John to review our first quarter results in greater detail. John?

Thank you, Jeff. As reflected on Slide 7, we were able to generate $359 million in revenue for the quarter, a 32% increase over the prior year quarter. This increase was driven by 17% organic growth from our legacy businesses, including NewSouth and continued growth from our recent Anlin acquisition. The pricing strategy actions and process improvements implemented during 2021 have been successful and allowed us to offset rising costs.

In the first quarter, our sales breakdown was 58% R&R and 42% new construction. Our organic R&R sales grew 12% compared to the first quarter of 2021, and organic new construction sales grew 25% due to the strength of our legacy brand. Gross profit for the quarter was $134.6 million, a 43% increase from the prior year quarter, reflecting increased volume and pricing, partially offset by labor and input material cost headwind.

First quarter gross margin was 37.5%, 280 basis points higher than the prior year quarter, driven by price increases, manufacturing process improvements and continued unit growth. Recent investments in our talent helped generate improved operational efficiencies across the portfolio, and we believe those actions will continue to benefit our gross margins through the balance of the year. We will continue to strive to be an employer of choice and grow our company with high-quality talent.

We were hedged at 60% of our aluminum needs during the quarter, which helped mitigate overall cost pressures. As of today, we have contracted approximately 77% of our estimated aluminum needs for 2022. We continue to see considerable volatility for aluminum, and we'll continue to monitor aluminum and other input costs and take actions as appropriate. Selling, general and administrative expenses increased in the first quarter compared to the prior year, driven by the SG&A from our recent acquisitions, the expansion of our NewSouth operation and the increase in our revenue. We will look to leverage these costs in the coming quarters as our revenue continues to grow.

Our adjusted EBITDA was $59.1 million, 40% higher than the prior year quarter. Our tax expense in the quarter came in at 25%, in line with our expectations. We reported adjusted net income of $25.1 million or $0.42 per diluted share compared to $16.5 million or $0.27 per diluted share in the first quarter of 2021, an increase of 56%.

Turning now to our balance sheet on Slide 8. We ended the quarter with net debt of $531 million. We had total liquidity of $178 million, including a cash balance of $104 million and $74 million of unused capacity on our revolver. Our trailing 12-month run rate net debt to adjusted EBITDA ratio was approximately 2.7x at the end of the quarter. Next, on Slide 9, you can see that we have grown EBITDA both through acquisitions and organically, while maintaining a conservative leverage profile. With our historically conservative financial policies, we have used our strong cash flows to reduce leverage after significant acquisitions. Our long-term leverage target remains within 2 to 3x.

On Slide 10, you can see our long-term capital allocation priorities at a glance. Our first priority is to reinvest in our business, which includes allocating capital to projects that we expect will drive margin and revenue for growth. For example, we have invested in strategic selling initiatives to improve efficiency and operational metrics and to reduce costs. These investments will allow us to enhance our margins and continue to grow our revenue. Our CapEx target range is 3% to 4% of sales. While we are committed to maintaining a strong balance sheet and conservative capital structure, we would expect acquisitions to play a role in our future growth. We will continue to target strategic acquisitions that are aligned with our growth priorities and are expected to grow shareholder value over the long term. We will look for opportunities that will enable us to expand into new regions, channels or products. Anlin is a great example of this.

In addition, we will continue to seek out strategic acquisitions that will give us access to technologies, enhance our manufacturing capabilities or to strengthen our supply chain as we did with Eco. We expect to integrate our acquisitions and delever while carefully evaluating other possible acquisition opportunities as part of our overall strategic plan.

And now I would like to turn the call back over to Jeff.

Thanks, John. Next, I will review our outlook for 2022 on Slide 11. Given our strong performance during the first four months, we are narrowing our EBITDA range to $225 million to $250 million. We believe that our recent results, coupled with a strong order book, gives us optimism that we can land in the upper end of the range for both sales and EBITDA. Based on the results through April, initial indications for the second quarter show continued operational improvements, along with increased sales and profitability. We expect to continue our recent trends of improving our sequential EBITDA margins. The modeling assumptions are reflected on Slide 11.

Turning to Slide 12. To close our prepared remarks, I would like to reiterate why I believe that PGT Innovations has never been better positioned to execute our strategy for creating long-term value for our shareholders. First, we are a national leader with strong brands that have been further boosted by recent acquisitions. Our products continue to gain penetration, both in impact-resistant and in the indoor/outdoor living markets. Additionally, we serve geographies which continue to show strong population growth. Second, our product portfolio is diversified and poised to capture profitable growth in both the new construction and the R&R channels. From the Southeast through Texas and to the West Coast, including our growing direct-to-builder business out West, which has seen a nice growth in 2022. We remain focused on continually improving our operations, which drives efficiency and margin expansion over the long term. We have a long history of innovation and new product developments that provide customers with innovative premium products to meet their changing needs, and we plan to continue investing in both R&D and talent.

Last on the list but certainly not an afterthought, sustainability has long been a part of our company culture. We will seek to further elevate our commitment to conducting business in a socially and environmentally responsible manner. And as we have demonstrated, we are always focused on the health and welfare of our team members. In fact, for the first time ever, PGT Innovations was named by Forbes as a Best Place to Work.

I will close my prepared remarks how I started, and that is by thanking our entire 5,500 strong team member family for what they do day in and day out. At this time, let us begin the Q&A. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] At this time, we will pause momentarily to assemble our roster. And our first question will come from Keith Hughes with Truist.

Wondering if you could talk more about pricing units in the quarter? What was the makeup on how you got to the organic growth?

Sure. The breakdown, we had meaningful price increase or price improvements. I think you remember in our call, we said we had a 6% to 12% overall price improvement that we had. And then we also had some volume growth in there, but that was in the single, call it, in the mid-single-digit range. So that's sort of the breakdown of what we have between pricing and units.

Okay. And the -- you talked about how -- what you were hedged on aluminum. I guess you could talk more on your plastics. Obviously, you've seen increases. Are they starting to plateau out? Or do you think you'll see more sequential increase in inputs in the second?

No. What we're seeing on the vinyl side is really a flattening. And it's really occurred since Q3 of last year, late Q3 into Q4. It's really steady around that $1 a pound that range. So, we haven't seen much volatility, and that's been relatively flat for us.

Okay. And I guess final question, the -- if you could just talk just anecdotally on the pace of business as you head into the quarter and specifically around your ability to serve that. Have your lead times, they come down versus some of the struggles you had last year?

Yes. Yes, Keith, this is Jeff. Definitely, our lead times have come down versus last year, and we've cut some of our products in half on lead times. So, it depends on which brand that certain brands actually have a four-week lead time and impact some of our aluminum brands. We still have some pressures on the vinyl side in terms of lead times. They stretch out up to 12 weeks still. So, we've got more capacity we're adding there to address that.

But as we ended the year, we ended the year on a strong note. So, I think first quarter didn't surprise us, quite frankly, with the volume we saw and the increases we saw. And like I mentioned, if you compare it to last year's first quarter, we had a big price increase. So, we're actually comparing ourselves against a pretty tough comp. And we've -- as we entered the second quarter, as I also mentioned, April, it was a solid month of another 30%. So, we're feeling good about the second quarter volume as well.

Our next question will come from Phil Ng with Jefferies.

It's [Maggie] on for Phil. Yes. I guess first, Jeff, thanks for the color on the April order trends. Could you give any type of breakout between end markets and regions, if anything is seeing outsized strength there? And then again on the lead times, I guess, it varies by product, but can you give us a sense of how far off you are from getting all your products back to more normalized lead times?

Sure. If you look across our brands, I think the most robust volume we've seen is out West. The Western product portfolio has grown tremendously. And like I also mentioned, our Anlin acquisition, the first quarter of Anlin, they had solid growth at Anlin as well. PGT's growth not only is obviously driven more so towards our ability to service the market better. Our on-time and in full metrics are above 80%. And last year, they creeped down into the 40% level. So, we way improved on-time in full metrics. We've organized the warehouse. And if you recall, the investments we made last year in order to pull off the volume levels we're seeing this quarter, this coming quarter, we made the investments in the warehousing. We opened up Fort Myers. We hired over 800 people. And as I've also mentioned, we increased our average hourly rates and starting pay in general for our hourly folks up to 14% on average.

So, we've made a ton of investments in our folks. We?ve made a ton of investments in infrastructure. And quite frankly, all that is paying off with our lead times coming down. It's still, I would say, around vinyl, we should see better vinyl lead times as we enter into the third quarter with all the different initiatives we have on tap. We've resolved our glass issue, quite frankly. With the acquisition of Eco that doubled our glass capacity internally and Cardinal has performed very well for us this year as well. So, from a supply chain standpoint, we're seeing very favorable indicators there as well. So, if you really look at the performance sheerly in Venice, the turnaround we've seen over the last four months is really driving a lot of that volume because again, the backlog is still there, but our lead times are down and our average sales per week is up probably almost 25%.

Okay. Great. That's really helpful. And then my next question, the new tax exemption sounds pretty exciting. How are you thinking about the incremental demand opportunity there and maybe the timing of that coming through? And should we expect a step-up in marketing or anything to try to really get the word out about that benefit?

Yes. I mean if you look at Florida, roughly half our business is R&R. I think if you look at our total mix, this is what are we 58% R&R. But of that, we also have Anlin?s all R&R. So, if you just called out Florida alone, which this impact is a significant portion of our business, let's call it half of our business in Florida. And basically, that's a 6% savings to the homeowner. So, it's -- the State of Florida is always, I'd say, been cutting edge when it comes to code development and enforcement. And this is just another example of the state's official proactively thinking, how do we help our Floridians to harden their homes and save on insurance. And I think you'll see a tremendous push to harden homes because of this initiative. Again, it's 6% savings right off the bat. It?s almost like a 6% price decrease in a sense to the customer.

So, if you look at our business, we're incredibly well positioned, look across our brands. We have R&R obviously here at PGT, but the whole NewSouth is R&R, the whole NewSouth brand. So NewSouth is a great position, PGT and its mix is positioned very well as well as our South Florida brands with CGI and Eco.

I think it's going to have a tremendous potential. It's a two-year program. So, I don't see this big rush to get it all in, in the first couple of months. I think people will be able to stage that out. And so, I think from a capacity standpoint, we're going to be in great shape to meet that demand. But I do think it will be a significant demand for us over the next couple of years and help offset some of the, quite frankly, some of the headwinds that the building industry has had, whether it's interest rate or inflation or various other issues that we're facing. This is a nice breadth of relief for us.

Our next question will come from Kenneth Zener with KeyBanc Capital Markets.

Good morning, everybody. Lead times going down, not for the R&R, but for the new side, Windows have been cited as a point of delay or a bottleneck. Do you feel -- obviously, with lead times going down, that indicates it?s moving in the right direction. But do you -- is your product going to those homebuilders also a bottleneck would you say for their construction cycle times? I know that they're out there. We hear the homebuilders talk about it. I'm just interested as the manufacturer do you feel like where you are in the new market that that would apply to you? Or has your lead times gone down to such an extent that you're able to manage that sequencing in your factories.

Yes. Ken, that's a great question. I would say, in 2021, yes, I think every window and door company was the problem and the main problem in the construction cycle. That's not the case for us now. If you look at our new construction business, it's growing, and we actually are now -- what our dealer base is telling us they've ordered product, and now they're waiting to install that product for other portions of a home that needs to be installed first, where there's trusses, which I've heard is the biggest issue in new construction right now is actually getting the trusses, block concrete, cement, all those are much more prevalent now, at least for our builders that we serve here in Florida.

I would say the majority of -- actually, the majority of our dealers that deal in new construction are sitting on some finished orders waiting to install those for the builder to be at a point to accept windows. So, we are no longer, I can officially say, the issue when it comes to the construction side.

Yes, for all our -- Just as an FYI, again, we have various lead time buckets. And if you look at our lead time for our production builders, they're three to five weeks. And we take care of them and the lead times are three to five weeks.

Excellent. I do appreciate that. Maybe if you could give us a little context related to -- obviously, you've been very good about pushing price through and we can see that. If you talk about low single digits in volume, 13% price in the quarter on 17% organic growth, that would imply 4% volume. Is that --

That's about right, yes. Yes, that's good math, correct.

Could you maybe give us a little -- and I don't know if you have this in front of you, but could you give us like just kind of an LTM just so we know how much of that -- how that volume trend has moved because in the past, the high volume growth created, i.e., last year, a big need for you to hire people, which you integrated very well. You didn't have really the cost tick-up that you had perhaps in 2013, etc., etc. But I'm trying to get a handle on the volume. And then within that context, because that obviously, well you have to ask for price, the volume isn't challenging you. Do we see a lot of volume swings if we think about Western Windows because that's more focused on new out West and obviously at Anlin? Could you give us a little sense of how that volume might be different by region if you're comfortable with that? The context of the volume, LTM, if you have it and then how that volume is kind of different, if you rip up the extreme price contribution?

Yes. I'll try to take a piece of that, and John will take a piece of that question. But in terms of how we see it based off geographic location, I can tell you, Western has started off their strongest year ever. We've averaged over $1 million a day in sales in Western. So, if that trend continues it would be north of $250 million just in the Western. We don't think that trend will continue necessarily. But hey, if it does, we're ready. And we're actually, from a production value standpoint, we're hitting about $1 million of production value out of Western now, again, due to technology, expanding capacities and hiring folks. So, Western's growing very nicely from a volume standpoint.

And like I mentioned earlier on the call, Anlin just finished its most -- its best quarter ever in the company's history, the first quarter of Anlin. So that's more volume driven as well. So, the volume growth out West is probably a little bit more robust, if you will, than the Southeast. With that said, NewSouth their volume has been taking off. Again, we're opening up new stores. We just signed the Dallas and Fort Worth lease. And so, we'll be actively into Dallas and Fort Worth in the next, I'd say, three months. The operators are already trained, and they'll be going out to those locations.

So, from a volume standpoint, NewSouth is growing tremendously well. Here in Florida, I think we have started given our performance, we've actually started taking back market share. And that really has started in the corporate builder market, as I've mentioned to you, our lead times in corporate builder are from three to five weeks. And so, we literally -- some accounts we lost in 2021, quite frankly, due to our performance, we've got those accounts back. And so, we've been able to get more volume on the new construction side on that end.

The R&R market, again, is stable for us, and we think with this new initiative to harden homes and the incentive the State of Florida?s given with the sales tax break, we think the volume there is about to take off in the R&R side as well. Do you want to add anything to that?

Yes. No, I think you hit it pretty well. The only other point I mentioned is if you're looking at LTM, I know you're trying to look at LTM, when you look at our top line revenue, the growth in the most recent quarters, I guess, last two quarters has been influenced, obviously, by price because we took price last year, it took price again this year. But our volume, we've seen that -- continue to see that volume growth. So that volume growth has been in there. Like I said, it's that mid-single-digit range. For where we are in Q1, we would expect that type of growth to continue. I could probably get you an LTM volume number, but I don't have that right off hand.

[Operator Instructions] Our next question will come from Michael Rehaut with JPMorgan.

First, I wanted to kind of delve a little bit into NewSouth and Western in terms of just organic growth over the past couple of years? And how much of -- if you can kind of give us a sense how they've been growing. You kind of alluded to the $250 million run rate which implies roughly a double, although you said that it might not kind of continue at that rate for the rest of the year. But how do you see the growth in those businesses over the next couple of years and relative to what you've seen over the past couple of years, particularly as you kind of continue to execute your strategy in those segments.

Yes. If you look at -- let's call it our Western business unit. The goal there was basically to duplicate what we've done here in Florida. That is both new construction R&R markets, more platforms of choice, vinyl and aluminum, for instance, more heavy concentration on doors because that's where more of the margin resides. So, by adding Anlin, we think we've done that. So, in the future, what you'll see with Western, the other thing we did was to buy one of our distributors and installers called CRI. We did that last year. And so, what we're now doing is rolling out and actually controlling that whole process for certain of our corporate accounts, for instance, Toll Brothers. We actually have the window door and we actually install it through our CRI division.

So, there's going to -- we think there's tremendous growth potential there to take that Western brand and have a portion that's, call it, direct to the builder that we install. And then also with the acquisition of Anlin, the goal there was to be able to get Western's product portfolio in an R&R market. Well, Anlin's provided that. And we think there's tremendous upside as we start pushing the Western product through that Anlin distribution, R&R distribution. So those are probably the two biggest initiatives, if you will, for, I'd say, our Western business unit. So hopefully that helps.

Yes. I mean it certainly helps. I guess maybe just to drive a little deeper there. Any thoughts around how you think about these different initiatives resulting in organic growth rates over the next couple of years as well as, like I said, for NewSouth, -- just kind of curious as you continue to execute the new store strategy, what that might represent in terms of growth for that unit as well.

Yes. I mean, for instance, those two initiatives, it's hard to say a growth over the next couple of years for Western -- just -- I mean Q1 order growth rate was 35% guys. So, I mean that in and of itself, and they're not an R&R channel yet. So, we think there's tremendous execution, our growth possibilities in the execution of those two strategies I just laid out for Western. It's going to be hard to call that out this early in the game. Again, we just bought CRI last year, and we're implementing that kind of new model, if you will.

In terms of NewSouth, we've been opening up stores. By the end of this year, we'll have 17 stores open. When we bought NewSouth, there were roughly, call it, 90-ish, brand $90 million in retail? I'm sorry, $70 million in retail. And last year, their retail business was $140 million. So, we've almost doubled, call it, that business. And that's both the -- what we call legacy stores executing well in the R&R environment we're currently in, in Florida, which, again, that tax credit is going to help that to continue. And that's also opening up new stores. So, Atlanta, for instance, Atlanta has taken off for us. Already this year, we wrote up to almost $3 million in sales in Atlanta alone. So -- and that's just in the first four months of being open.

So, we think as we go into Texas, we were basically going to concentrate in that where most of the population is that triangle between Dallas, Fort Worth and Houston. And you have almost, what, 23 million people that live in that kind of triangle area of Texas. So, our plan is to open up the NewSouth store locations within that area. And we started off with Houston last year. This year, obviously, it will be Dallas and Fort Worth, and it will be closely followed by other locations in Texas.

So based off the growth we've seen, we think NewSouth will continue to be one of our top performers as we expand into new geographic markets with that model. And again, that model is a direct-to-consumer, direct manufacturing, we install heavy advertising. You'll see us on TV, and we've seen success in other companies that I won't necessarily name on the call, but we've seen other success with that similar model for some of our competitors, and we're kind of following that road map.

No, that's great. I guess one last one, just to think about -- and just to think about gross margins and SG&A, you've been operating in around 25%, 26% SG&A rate and trying to push the gross margins to the high 30s over the last few years. Is that the right way to think about the -- those two metrics going forward? Or as you continue to grow, could you see a little bit of leverage on the SG&A side and a little further improvement on gross margin?

Well, I'll start with the SG&A side. We definitely could see a little bit of leverage on the SG&A side this year, and particularly even in the first quarter, by the way. We invested heavily in marketing on the new sales side of the business. That business unit alone is going to be close to $8 million-plus in marketing. So that's basically doubled our marketing historically since we bought NewSouth. But that's how they go to market. So, you will see as those markets mature, that leverage will come in the marketing with a mature market, for instance, in Texas. Once we start getting sales there, we start leveraging that SG&A investment in marketing. So, there's various other triggers, I think, within SG&A, we'll start to leverage, whether it's consolidating our call centers to leveraging our field service across all brands, which is currently an initiative we have going underway.

In terms of gross margin. Gross margin, we need to -- we're trying to reset that base. Again, we at PGT last year had a tough go of it with inefficiencies, with warehousing issues. So, what we've done so far in the last four months is level set that and gain back the traction we've lost. From that point, we're going to try to improve margins. And we're going to not rely on pricing even though we've demonstrated we got pricing power. Every pricing increase we've had, has taken in stock. So that's been demonstrated. But what we want to do now is more concentrated on how do we take cost out long term? And whether that's innovative glass technology that we're looking at to how we -- more technology in terms of labor, the labor side of the equation, adding in more machinery into and making this more automated plant. There's various initiatives we have underway on the operational side of things to drive enhancements in gross margin. If you look at share mix, I think we also try to do that, quite frankly, by keeping that balance of new construction versus R&R. We've seen way too many window and door companies tilt towards that new construction. And when that goes down, the margins are tanking. We like to keep that balanced mix between the two. And so, as you see changes in the economy, we will focus more on one or the other. For instance, right now, we tried to win back that share we gained. We lost probably -- we lost last year. We're winning back that share in the new construction market here in Florida substantially. And that's what we're concentrating on here with our lead times by doing that. We will -- we can do that either in R&R or new construction as the market shifts.

Okay. One last one, if I could. I really appreciate all the detail, Jeff. Just how to think about SG&A on a full year basis versus 2021. Would you expect there to be a little bit of -- on a net basis, deleveraging or an increase on a percentage basis due to the marketing investments? Or should that straighten itself out over the rest of the year and maybe you are flattish year-over-year for the full year on a percent basis?

Yes, on a percent basis, I think we're in that 25%, 26% range. And I think for a full year, that's probably about right. We are going to try and leverage it as Jeff mentioned, all the programs that we're doing that drive it up with respect to it. We do anticipate leveraging it a little bit more in the coming quarters, but we are continuing to make those investments. So that range that you have about 25% or so makes sense. We're [267], I think, in Q1. So, we should see some leverage off of that.

Yes. I would just add to that, the [267] was a little heavier. Like I said, we did invest in a lot in marketing -- especially on the NewSouth side with the opening, or laying the groundwork for the opening up the stores in Texas and continuing to invest in Atlanta in that market as well. But even with that, we still produced 16.5% EBITDA, I mean, or $59 million. And I will remind you that -- and you know this, you've been tracking us a long time. Q1 is not our strongest quarter. Q1 -- I would say Q1 and Q4, arguably are usually around the same and Q2 and Q3 are our strongest quarter. So, you can just do the math. So, if we had $59 million in Q1, you can imagine the potential this year as long as things keep going the way they're going. So -- and that's leveraging the marketing. That's a combination of improvement we?re seeing in gross margin and continue to drive that top line.

This concludes our question-and-answer session. I would like to turn the conference back to John Kunz, CFO, for any closing remarks.

Yes. Thank you for joining us on the call today to review our first quarter earnings. We look forward to your participation in early August to review our second quarter call. Thank you again, and you may disconnect, operator.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.