Good day, ladies and gentlemen and welcome to the Quanex 2015 Fiscal First Quarter Conference Call. At this time, all participants are in a listen-only mode. Later in the call, we will conduct a question-and-answer session and instructions will be given at that time. During today’s conference call, company management may make forward-looking statements about the future prospects of Quanex Building Products. Participants should refer to the company’s Form 10-K filed with the SEC for more complete forward-looking statement disclosures. Additionally, the company may refer to non-GAAP figures throughout today’s call. A reconciliation to the most comparable GAAP figure is included in the company’s most recent earnings release, which is available, along with the company’s Form 10-K and 10-Q document at the company’s website at www.quanex.com. Last, participants are reminded that today’s conference call is being recorded. I would now like to turn the call over to Mr. Bill Griffiths, Chairman, President and CEO of Quanex Building Products for opening comments. Please go ahead, sir.

Thank you. Good morning and thank you for joining us for our 2015 fiscal first quarter conference call. On the call with me this morning is Brent Korb, our Chief Financial Officer and Marty Ketelaar, our Vice President of Treasury and Investor Relations. Revenue grew in the first quarter by 1.2% slightly better than our expectations. When we guided toward a flat first quarter, it was with the expectation that we would see normal market growth in our spacer, screens and accessory product lines offset by a contraction in vinyl extrusion sales. In fact, the screens and accessory product lines performed better than anticipated driven mainly by continued strength in the south and west. The contraction in the vinyl business was expected as the customer utilized a competitor’s extrusions for two of their new window designs. We continue to provide extrusions for the balance of their product portfolio. In addition, most customers had a reduced inventory build heading into the spring compared to last year. Going forward, this loss business has already been replaced by new business from other customers. However, because of the timing of the overlap, overall growth rate in our vinyl business, while still positive will be below industry levels for the balance of the year. Net-net though, we are on track for our full year guidance of 5% to 7%, which is in line with current industry forecast, one caveat to our revenue forecast is the translation effect of foreign currency impacting our international spacer business. If the dollar maintains its current strength against the pound and euro, our revenue growth forecast for fiscal 2015 could be negatively impacted by as much as 1.5 percentage points. Operationally, our vinyl business performed as expected in the first quarter as the refurbishment project started to gain traction. We…

Thank you, Bill and good morning to everyone on today’s call. Consolidated first quarter net sales increased slightly more than 1% to $128 million, while first quarter EBITDA decreased $5.1 million to $2.6 million compared to the year ago quarterly results. Revenue growth was driven by higher sales in our spacer, screen and accessory products offset by lower sales in vinyl. The quarterly comparison of EBITDA was negatively impacted by the one-time $2.8 million warranty reserve credit in the first quarter of 2014. We also experienced margin pressure on our vinyl products due to increased labor associated with the heavy investment being undertaken and from the lingering compression associated with the price freeze and resin increases experienced in 2014. As of January 1, 2015, there are no price freezes in place. So, any future increases or decreases in resin prices will be passed through. Quanex’s North American fenestration sales for the last 12 months increased 3% lower than the 6.1% growth rate reported by Ducker for the period ended December 31, as a result of the contraction in vinyl business Bill mentioned earlier. Excluding vinyl products our other product sales increased by 8% over the past 12 months outpacing Ducker’s growth rate. We ended the quarter with a cash balance of $64 million and no outstanding borrowings on our revolving credit facility. The $75 million share repurchase program was completed in mid-February resulting in the repurchase of nearly 4 million shares at an average price of $18.77. Lastly, we had an unusually high tax rate this quarter. During the quarter, we reassessed an uncertain tax position that dates back to our 2008 spend resulting in an additional tax benefit generated from our first quarter loss. Absent any additional adjustments, we would expect our full year tax rate to remain closer to 34%. I will now turn the call back to Bill.

Thanks, Brent. As I said, our number one priority continues to be restoring the operating performance of our vinyl business and I am confident that this is on track. We are also encouraged that third-party window shipment forecast expectation for 2015 are in a realistic range of 6% to 8%. As you know, we have long said that this recovery will most likely take the form of 4 or 5 years of steady growth in the high single-digit range. We still believe this and still consider this as a positive and not a negative. Based on those forecasts and our first quarter performance, we continue to expect our fiscal 2015 to have 5% to 7% revenue growth and EBITDA of $57 million to $63 million. 4 years or 5 years from now as window shipments recovered to the mid-60 million range EBITDA levels will grow to $115 million to $130 million on revenues of $825 million to $875 million even without any acquisitions. The first quarter was a small step, but nonetheless an important one as it reaffirms that we are on the right track to a much brighter future. We will now be happy to take your questions. Operator?

[Operator Instructions] Our first question comes from the line of Kathryn Thompson from Thompson Research, your question please.

Hi. Thanks for taking my questions today. First is just on the impact of lower energy prices and how or if that has impacted you, Bill though you had said previously that resin prices aren’t really meaningfully directionally tied to oil prices, but given the drop in energy have resin prices increases slowed down and how has it affected you on other – with other raw materials? Thank you.

So in reality there has been no material effect to any of our input costs as a result of the drop in oil prices. So resin is tied more directly to natural gas prices than it is to oil. Having said that resin dropped from its peak level last year by $0.03, there was a price increase put through by the resin producers, which did not stick, but prices also did not fall any further. So they are flat now and are predicted to remain flat for the balance of this quarter and then in fact the forecast is they are likely to increase as demand picks up in mid-summer.

And along that same pricing line have you been able to gain pricing in spacers and screens given a little bit better outlook?

Yes. We have had modest price increases, I would say pretty much across the board on all product lines, not significant but certainly a step in the right direction.

And is it materially different than what you have been seeing or is it more – is it a step change given what you are seeing in the market?

Well, for the most part we have not had price increases for a couple of years now. So towards the back end of last year we put some increases through successfully. As I say they were modest and I think in line with what’s happening throughout the building products industry. I think most people are generally getting some form of a price realization including our customers.

Okay. And then final question if you could just talk about demand trends through February and obviously we are very early into March and maybe digging a little bit further are you seeing any areas of regional strength or weakness? Thank you.

Clearly February has been slower than we had originally anticipated. But it is not to the point that we are concerned about it. It is clearly tied to weather, as you know particularly in the Northeast and to a certain extent the Midwest weather really impacted. For the first time I think this winter in reality, so we are seeing some softness, particularly in those regions absent the recent ice storms in the Southeast. The South and West have still been pretty robust, generally speaking. So I think it’s fair to say that as we sit here today, we would say 4 months into a year it’s turning out to be pretty much as we expected both from a demand standpoint and from an operational standpoint.

Okay, great. Thanks very much.

Thank you. Our next question comes from the line of Daniel Moore from CJS Securities. Your question, please.

Yes, good morning.

Good morning, Dan.

Good morning.

Maybe just a little bit more color, Bill, on the progress with regard to capital improvements and equipment upgrades, I think last time you said you completed five extrusion lines. How many of you worked on since and where we are in that process?

So, we completed work on 17 in the first quarter we started work on a further 36. Two lines are in the process of moving from Kentucky to Texas to support continued expansion of that operation. We are about where we expected to be. The intent was to get as much of this completed as we possibly could during the slow period through the winter here and we are on track with the original plan pretty much across the Board, a) in terms of progress and b) in terms of some of the early results.

That’s helpful. And maybe just any additional color or quantification, if you look at gross margins year-on-year, how much of the decline in Q1 is lingering resin or input prices versus b) the impact of utilization being down and just that kind of repair – incremental repair and maintenance expense that you are incurring as well?

Yes, Brent is going to cover some details on this. But generally speaking, it’s the comparisons that hurt more than anything else, because of the way our fiscal year overlaps the calendar year, we had two months in the prior quarter, where we didn’t have the resin freeze issue and two months in this quarter, where it was still in place. So, that comparison clearly hurt us. On the G&A side, it was a positive, because during that period we still had the residual SG&A cost of the ERP program and it’s associated restructuring costs.

Yes. So, I mean in looking at the remaining balance, we did have the $2.8 million warranty benefit that took place last year. So, absent that then, it’s about when we are looking at the vinyl products, I call it half-and-half between what is the resin increase freeze issue and then half with some higher labor cost as we go through and touch all these lines that we expect to come down to more normal levels as we progressed through the year.

Very helpful. And then just couple of housekeeping, what was the share count and net cash pro forma for completing the share buybacks?

So, we bought – it was just under 4 million shares, 3,992,000 shares at $75 million.

Okay. I will take those offline. Thank you again.

Thank you. Our next question comes from the line of Al Kaschalk from Wedbush Securities. Your question, please.

Thank you. Good morning.

Good morning, Al.

I want to go back and focus on this gross margin and I know there is some puts and takes here, but probably more importantly as you come out of these investments and the pricing environment that you talk to, are you – where should we be thinking about the gross margin perspective on the operation?

Well, we haven’t talked about it from an actual percentage level, but clearly where we sit here in the first quarter, this would be our – a more difficult. When you look at how this quarter unfolded versus last quarter, last first quarter was a very strong winter quarter, it was one of our best ever quite frankly. So, as we progress and we finish the projects that Bill talked about on the vinyl lines, our labor cost should come back into line and we will see some improvements from some of the price increases that Bill talked about. So we would expect to see some margin improvement quarter-over-quarter as we progress through the year.

And now, let me just reiterate that there were no surprises in the first quarter operationally. We are sort of where we expected to be, in fact that’s really volumes were a little better than we anticipated. And all of this has been factored into our guidance.

Okay, that’s helpful. And again I am not trying to get out a percentage point of gross margin, but directionally would this mean given the investments you are undertaking in the size of those $20 million, I would surmise that at an unchanged volume level or the volume level that you sort of laid out there on shipments, we should be back into the low-20s over time. And I guess what you are implying is that directionally you are heading in that?

Yes, exactly. I think its fair I mean there is – it has the benefit on both labor costs and repair and maintenance as we move forward.

Okay. And then excellent job on the share repurchase I would maybe it’s a question that’s kind of built into this, but I guess with the comments of fenestration and the adjacencies, are you suggesting that near-term we should be looking for potentially another authorization from the Board. I know you said later this year, but is there any reason to wait till later this year or?

Yes, there is a couple of reasons. One is as you know historically right because of the way our fiscal year unfolds at this point in the year it’s always very difficult to predict how the year is going to unfold. By the time we get through our second quarter at the end of May the picture is much, much clearer. So from a cash standpoint we will have much greater clarity on where the recovery in our vinyl business stands. We will have much greater clarity on the early stages of the construction season, is it going to be as predicted stronger or weaker. And as I have said in my comments we continue to work on some opportunities within our fenestration space. So there is a lot of moving parts. We did not work on adjacencies, primarily because that’s a bigger step and there was no point in advancing that too far until we are more certain of where the vinyl business will end up and until we exhaust some other possibilities. So, a longwinded answer I realized, but there are good reasons for us to wait at least for another quarter before we decide on whether there is a potential deal to be had in the fenestration space, whether there is another tranche of share buybacks or whether we just stand pat. But all of those are being actively discussed with our Board. So, it’s not as though it’s being forgotten.

Great. And finally, if I may, just that was very clear, in terms of the demand trends, your comment though and not one that’s ever pulled a punch here, but you said you are not concerned about it, but would that also imply that given the broader economic data points that you are positively inclined on demand trends that should be picking up given what I think is arguably a little bit healthier consumer?

Yes, I mean, what was encouraging to us is both Ducker and Hanley Wood, first of all, their data points are beginning to converge. So, they are both in the same ZIP code now in terms of R&R, new construction and both of them have for them conservative forecast for 2015, one is at 6.6%. The other is at 8.1% in terms of year-over-year growth in window shipments. Now if you look at housing starts and some of the predictions for R&R you would expect a much higher growth rate in window shipments. So our belief is they are closer to the truth than some of the early prognostications and that’s in line with our thinking as well. Now if housing starts really are going to approach 20% this year, which I know some of the early forecasts call for and there are some people talking about a significant uplift in R&R this year, which I know they have seen in cabinets and appliances and so on Depot and Lowe’s had very strong early indications. We are still not really seeing that in Windows yet. But if that happens, we could see a stronger second half of the year than we are expecting. But I think right now we are confident that the prudent level of 6% to 8% for window shipments 5% to 7% all in for our revenue it is that’s where we are comfortable right now.

Got it. Very helpful, Bill. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Scott Levine from Imperial Capital, your question please.

Thanks. Good morning, guys.

Good morning Scott.

So maybe just a push on that last question further on demand and focusing on the R&R side, would you say that you are more encouraged regarding that side of the business and the demand trends focusing more on what you are seeing within the business rather than the prognostication, have you seen strengthening in the higher end line. And can you remind us what percentage of your business those lines account for and is there any real reason to be more optimistic that trends are accelerating there based on what you see – based on what you expect for this year and should that have any positive impact on margins in a meaningful extent?

I think the only thing we can say definitively is that we have certain customers that clearly are outperforming the market in the R&R space. We have not seen a general positive significant increase in R&R, but the reality is as we have tried to articulate before we truly do not know where our product ends up. We can make some educated guesses and the very high end of our product range accounts for about 25% of our total shipments and our view is that primarily goes into R&R. But I also believe that – and this may be reflected somewhat in Home Depot and Lowe’s with the numbers. I think the days of a complete replacement of a house full of windows which I think historically utilized home equity loans to finance that those days and those opportunities may be somewhat limited. We believe more and more we are going to see replacement of windows on a room by room basis, on a window by window basis and potentially at a lower price point window such as you would buy it in Home Depot and Lowe’s and maybe have them installed it rather than what we saw in the last boom which was this complete replacement. So I think the markets changed and it becomes more difficult to be able to ascertain does any components go into a window that’s going to end up in R&R, does it end up in new construction, much more difficult to track now.

Got it and that’s helpful. Thank you. And then just two quick kind of housekeeping, number one could you say where estimate – what percentage your total revenue base the vinyl business is?

It’s about a third.

Yes.

A third, okay.

Yes, order of magnitude.

Got it. Roughly similar on profit or meaningfully lower?

We don’t disclose or track – we don’t disclose publicly the profitability on each of our product lines for obvious reasons.

Got it. Fair enough. And then one last one, I think Brent, you said tax for the year at 34% inclusive of the high number for Q1 or do I have that wrong?

No, that’s correct. We expect the full year in the range of 34%.

With the same number for each of the remaining three quarters?

Yes, I mean, generally, yes.

Got it. Good enough. Thank you.

Thank you. Our next question comes from the line of Rich Glass from Deutsche Bank. Your question please.

My questions were answered. Thanks. Good quarter guys.

Thanks, Rich.

Thank you. Our next question comes from the line of Ken Zener from KeyBanc. Your question please.

Good morning, gentlemen.

Good morning.

Realizing you don’t disclose the profit by business segment, I believe in the last quarter you have talked about your spacer business having near record profits I believe in 2014, which would imply….

I think so.

Yes, some dispersion of EBIT obviously between your businesses. Obviously, vinyl fenestration is very critical to you. Can you talk about the strategic connection between your, the screen business, the vinyl business and the spacer business given that you have some pretty wide EBIT margins between those businesses and how you think those businesses are locked in and help each other when you are out in the marketplace?

First of all, let me be clear, we have never disclosed the profitability of our product lines and we did not say at any point in time that our spacer business is more profitable than any other lines. Now, that said, the strategic fit of the products is simply this, our customer base are the window, assemblers and manufacturers and those three are three of the major components that go into window assembly. The two other major components that we do not manufacture are hardware for Windows and obviously the glass. There is still a continued opportunity to cross-sell those products to existing customers. So, while we sell almost every single window manufacturer in the United States, one component at least we don’t necessarily sell all of them all components. So, there is a continued opportunity there that we are working on very hard with some success. It is actually easier to take our existing customer base and potentially sell them screens and accessories and we have had some early success in that arena. Harder to convert vinyl and spacer because of the capital investment required, but it is a continued opportunity for us to cross-sell. And that’s why they will fit together. And from an acquisition standpoint, we have talked in the past our hardware business would make an awful lot of sense for us, because same customer buys that hardware just buys it from a different vendor.

Thank you. [Operator Instructions] And this does conclude the question-and-answer session of today’s program. I would like to hand the program back to management for any further remarks.

Thank you everyone for joining us today on today’s call. We look forward to updating you on our second quarter results in early June. When as I said earlier, we will have a much clearer picture of how the year is shaping up and I look forward to seeing many of you in person as the conference season kicks off. Thank you and goodbye.

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.