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Exclusive Interview: Arch CEO Jeff Leone Addresses Rumors Surrounding Business, UGC and Vitro

Over the past year many changes have occurred at Arch Aluminum and Glass and numerous rumors concerning the future of the company have circulated throughout the industry.

“Industries go through transitions. The construction industry was especially affected when demand dropped, forcing everyone to rethink,” said Jeff Leone, chief executive officer of Arch during an exclusive interview this morning with USGNN.com™. Leone was brought on last year to head the company after it was acquired by Sun Capital. “Even good operators at these companies have to think differently. The first [acquisition] platform added was Arch, Arch was a bankrupt company, and that’s the first part of the puzzle we started to put together. The second was United Glass Corp. (UGC), which is about 20–25 percent of Arch’s size. We’re now integrating that into a one–face–to–the–customer approach. And we still think there is room for further industry consolidation and we’re actively looking at other acquisitions, including Vitro America.”

But Leone points out that the bottom line is all of these companies had gone bankrupt and require change to get them profitable again.

“Just buying them is only part of the story. Getting them integrated and making sure there’s good cash flow and they’re profitable is the hard part. The new leadership team is ready to do that,” Leone says. “But it requires thinking and operating differently.”

Leone talked about some ways Arch is changing the way it thinks and operates during our interview this morning. The culmination of that conversation appears below.

USG: There have been many rumors circulating about the future of Arch; in particular that the Tamarac facility closing. Can you please tell me what’s happening with Tamarac-are you moving, closing or staying there?

JL: Arch was a bankrupt company and had run out of cash. When it was purchased, we could not keep doing more of the same, we had to do things differently. [Some in] the industry had gone to many small sites, and if you analyze some of our competitors with single–site locations were quite successful. They are what I call super centers tending to have a bit more, and handle a wider geography. If you look at the acquisition of UGC, the group in Atlanta, TGI, that’s how they operated. That got us thinking, Florida is certainly a big market, but it’s slowed. Is there another way to slice the pie? We have a very nice facility in Miami and a nice facility in Orlando and Tamarac as well. After a lot of thinking, we decided we could consolidate into two sites rather than three. We are going to have Orlando and Miami. Both are being expanded with equipment and people. Will there be some net reduction in people? Yes, but it’s not as significant as people want to think. As our lease comes due in Orlando we would like to move to a new, bigger building to create a super center. In Miami, we’re also expanding and we’re putting very modern metal fabrication equipment in a facility where we have our residential window business so that gives us a lot of synergy there because residential windows have a lot of metal fabrication in their processes. Perhaps at some point we will move to a new facility, but we think we’re okay there for now. Having multiple, little sites is sub–optimized in our opinion.

USG: What will happen to the equipment in Tamarac?

JL: Much of the equipment has already moved or is in the process of moving to Orlando or Miami. The equipment that is too big to move into Orlando today will be held until the new facility is ready.

USG: What’s the expected completion date?

JL: In the next few weeks, no later than the middle of June.

USG: What about customers currently served by Tamarac?

JL: All orders will go into Orlando; Orlando is control central, but both Miami and Orlando sites will be manufacturing. There will be no change in service from the glaziers’ prospective.

USG: And the staff in Tamarac?

JL: We of course wanted to retain our skilled workers. All were asked to transfer – some will move to new sites; it’s a bit far, Orlando from here, so some made a personal decision they did not want to go.

USG: There was a rumor that Tamarac was a rental and you didn’t expect to have to move?

JL: No, we own the building. At some point we’ll probably sell this building, as we’re not likely to come back to Tamarac. But that’s not why we made the decision. If you’re a manufacturing guy you say, “Do I need multiple facilities or can I consolidate?” And this decision was made around manufacturing excellence.

USG: What about other locations, such as Villa Rica, Ga. We’ve heard that’s closing. In total, how many braches have closed and which ones?

JL: The first [consolidation] was in the Pittsburgh facility [a UGC branch]. We’ve consolidated our Akron, Ohio, facility with the Pittsburgh facility. No other changes up North are expected. The next is Atlanta [UGC’s TGI branch and Arch’s Villa Rica branch]; we have two facilities and they are both within a drive of each other. We’re investigating whether we can move into one or the other existing facilities or do we move into a new location. What’s important is that Atlanta is a core market and we are not exiting. We’re looking at how we can better service Atlanta and create a super center there. Then we’d have the super center in Orlando and Atlanta and a bigger facility in Pittsburgh with more volume going through it. Villa Rica was a nice site for Arch, but the TGI guys ran a great site, too. They’ve got some great people and a benefit of the acquisition is we’re getting some very good additions into the family, making the whole network a lot stronger.

USG: With these changes, how do you plan to continue servicing customers that had been handled by those locations?

JL: We’re a data–driven organization. We have metrics and the way we measure customer service is pretty digital. We have two metrics we measure every day. Any complaint received or credit we give a customer is tracked in great detail and we do a review of those on a weekly and monthly basis to see the need for a credit. If a customer is not getting many credits you’re handling their expectations correctly the first time. The second is our on–time delivery performance. We have an integrated software platform so every order is tracked very carefully and we can see exactly how we’re doing. Finally the customers call and tell us how we’re doing. So at the end of the day we’d like to be known in the industry as the best at this. � You earn that respect in pennies and when you don’t do it right you spend it in dollars.

USG: Arch also closed two mirror lines; what is your involvement now with the mirror industry? How are you serving customers with mirror?

JL: We are a full–service supplier of glass and metal, as well as interior products. Mirror fits that interior piece. We have found after thorough analysis that we can procure mirror from a third party at the same quality and better cost than producing it ourselves. We have rigorous standards on the mirror we accept and it’s checked very carefully. We do still fabricate mirror for customers, but we found that the basic mirror manufacture was probably best for those who have a better integrated cost structure – the companies that make the glass have a better integrated cost structure and can do it more cost–effectively than a down–stream player. It’s still a big part of our business and I can’t say we’ve lost any business, but we now have the ability to be more competitive and reliable to customers from a cost standpoint

USG: With so many changes, what would you say is now Arch’s core area of focus as far as products?

JL: I think there are two from the Arch–UGC integration. We’re now into more medium and larger projects that include metal and glass. The company is becoming more aligned to manage more serious projects. The second is our interior glass, all–glass entries, shower systems, has increased in its frequency and we’re doing better at getting to the interior glass in the building.

USG: How will Sun’s acquisition of UGC affect Arch? What synergies do the companies have?

JL: Any time you acquire multiple companies in the same industry space you get the opportunity to find the best players and your team quality goes up. The challenge is that you have to harmonize around the processes. No matter who we talk to in these acquisitions, people in the industry know what it takes to be competitive. The customer wants a quality product that is delivered on time.

USG: As far as the pending sale of Vitro, if that were to go through for Sun, same question, what would that mean for Arch and its customers and what could you combine with them that would be a benefit?

JL: The strategic plan is to be the number one or two player in this industry. We want to have a solid glass product line, a solid metal line and we want the company to be solid financially so it can ride through the industry peaks and valleys. Our acquisitions are all directed at that direction.

Vitro has now gone bankrupt and we have an opportunity to look at them, but if it does not work out, we have others on the list we’re going to look to acquire.

USG: What characteristics does Sun look for when acquiring companies in this industry?

JL: When investors likes Sun Capital acquire a company, they are looking for a return on their investment. This is not a short–term venture for Sun. The average time Sun owns a company is over seven years. When Sun looks at an industry there is a strategic discussion; is there fundamentally a good platform here? Is there an industry space we want to invest in? Also, do the companies we’re looking at have good people and equipment that, with a bit of work and integrating the back offices, you can make a viable operation? We go through a thorough analysis. You have to look and fish in a lot of ponds to be able to find the right companies to pull together.

USG: At one time there was talk that Apogee was acquiring Arch. How do you respond to something like that and was it something ever considered?

JL: No discussions at all. Viracon is owned by the Apogee group and is a viable company on its own. There have been no discussions between Arch and Apogee.

USG: How do you think the U.S. Aluminum bankruptcy will affect Arch?

JL: Arch has a vibrant, metal business. what it means immediately is that we’re getting a lot more phone calls. We’re in a good position throughout the U.S. to pick up and supply those customers. We continue to invest in our metal business by improving our metal operation in Texas, revitalizing the Pittsburgh location and expansion of the metal facility in Florida. We’re ripe and ready to handle growth in metal. We have a great team here, led by Jeff Ziesche. It’s not just about volume in metal; you must have the right engineering team to get it right. We think we do and we’re building onto it now.

USG: There are people out there who say Arch will not survive; can you give us an update on the health of the company?

JL: The vibrancy of Arch is based upon us improving the system. The reason Arch survives financially is that it’s growing in sales, improving its quality and improving bottom line cash flow because of better management of all the things you do to manage cash. So I would say the Arch platform was in good shape to absorb the UGC platform. Financially we’re just fine. The owners at Sun Capital would not let Arch get into financial distress again as it would not be in their financial interest to let that occur.

USG: Anything else you’d like the industry to know about the future of Arch?

JL: [Speaking from a construction industry standpoint] no one in the [construction] industry is feeling very good right now. The construction industry is still pretty abysmal. However, there is light at the end of the tunnel and I believe we’re at the bottom. It will only get better from here. It’s not the time to give up on getting your company tuned up and ready to handle growth. Now is the time to make sure your processes [are right], you’ve invested in training and you’re ready to handle the growth. I believe Arch, and now Arch combined with UGC, is poised to do that. When you get up in the morning you have to worry about the customer. Our customers are also feeling the pain of the poor market. So the more we can get the product to them quicker, the more we can make them competitive, the better they will be and that will bring us more business. It’s about delighting the customer and clearly measuring that by [providing them with quality] and delivering on time. We have to keep measuring that every single day. If we do, we will be very successful at this.