Q1 2021 Gibraltar Industries Inc Earnings Call

Greetings and welcome to the Q1 2021 Gibraltar earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

But anyone require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Carolyn capacity of El Each day. Please go ahead.

Thanks, operator, good morning, everyone and thank you for joining us today with me on the call. This morning is Bill Baas way Gibraltar industries, President and Chief Executive Officer, and Tim Murphy, Gibraltar as Chief Financial Officer. The earnings press release that was issued this morning as well as a slide presentation that management will use during the call are both available.

And the Investor Info section of the company's website Gibraltar one dot com. Please note that Gibraltar has classified the industrial business, which was divested on February 23rd 2021, as a discontinued operation with fourth quarter 2020 results result of terrorist Smart, which was acquired at the end of December 2020 are included in first.

Quarter 2021 results.

<unk> earnings press release, and remarks contain non-GAAP financial measures tables, and reconciliation of GAAP to adjusted financial measures can be found on the earnings press release that was issued today. Additionally, Gibraltar has separated its renewable energy and conservation segment into two renamed the renewables and Ametek's segment do you for.

Ultra has provided historical on renewables and AG Tech segment information for the four quarters of 2020 and full year 2019 on the quarterly results page of its website, which can be accessed through the investors section by clicking on reports and presentations.

Also as noted on slide two of the presentation. The earnings press release and slide presentation contain forward looking statements with respect to future financial results. These statements are not guarantees of future performance and the company's actual results may differ materially from the anticipated events performance or results expressed or implied by these forward looking statements Gibraltar.

As you to read the risk factors detailed in its SEC filings can also be accessed through the company's website now I'll turn the call over to Bill Dunaway Bill.

Hey, good morning, everybody and thank you for joining our call today, let's start this morning with an overview of our first quarter results.

And then a review of the segment reporting change we announced earlier today, then Tim will provide more detail regarding our Q1 financials.

And then I'll come back on I will review, our strategic priorities and our guidance for 2020, One and then we'll open the call up for your questions. So, let's turn to slide three.

To discuss Q1 results, we delivered solid results that reflect ongoing execution participation gains across our markets and healthy end market demand.

While we continue to operate through the pandemic managed some challenging weather across the country.

Worked through material inflation and deal with material and labor availability shortages for.

For the quarter revenue increased 34% of which 10 per cent was organic driven by strong growth in our residential segment growth on our renewables business, which compared to good volume related to the safe Harbor in the first quarter of 2020, our acquisitions performed as planned with Terra smart and Sun starting their integration into our renewables business architectural mailboxes.

<unk> second full quarter of integration activity into our residential business in thermal energy solutions completing its first full year of integration in our AG Tech business.

Our order backlog strengthen to a record $355 million.

Up 27% on a pro forma basis and up 48% on an absolute basis versus last year and we also generated good order by order bookings during the quarter as well.

Adjusted earnings increased 38% for $17 $4 million for 53 per share. The result of organic growth and continued margin expansion in the renewables residential and infrastructure segments. The.

The terrorist smart acquisition, good product and services mix, good price cost management, and 80 20 productivity initiatives.

Now, let's turn to slide four and I want to discuss for new segment reporting now as we continue our transformation of the business I think it's really important going forward that we offer even greater transparency to our investors and stakeholders concerning our strategy as well as the performance of our core businesses.

As well providing insight into the markets. We participate in is also important to understand the unique and focused investments required in how we allocate our time talent and energy and accelerating our vision and performance. So beginning with this quarter, we separated our former renewable energy and conservation segment into two segments renewables in AG Tech.

And we will now report business results across four segments. So we have renewables residential AG tech and infrastructure.

The graph on this slide shows the composition of our revenue and adjusted operating income by segment before and after the segment change. If you look closely in the first quarter of 2021 renewables represented 30% of our revenue residential a 49% and 16% and infrastructure for the remaining five.

5% for.

For comparison on the first quarter 2020 residential business represented 41% of our business.

Renewables and AG segments collectively representing 38%. These three businesses accounted for 79% of our total business and this year at least three representing 95 per cent of our of the business. So the shift in revenue as a result of our portfolio actions. We started in 2020, you really start shifting the business to higher growth end markets and away from work monetized.

Offerings.

Let's move to slide five and we'll review our renewable segment, which as a reminder, reserves on the solar energy market, specifically the community commercial industrial and utility solar segments.

Slide should be familiar to those who were able to join us in early January when we announced the acquisitions of terrorists Martin SUNFISH, but beginning in 2015, we started our solar business.

Acquisition of RBI solar.

Through both organic growth and subsequent acquisitions, we more than doubled this business over the last five years and then in December of 2020, we added tourists Martin Suntech strengthening our position as the largest turnkey provider and the domestic solar energy market the day.

<unk> technology portfolio, including ground on canopy infrastructure track from technology and design software solutions really focused on serving customers across all three solar segments that are investing in solar fields of any size.

And on each range.

So let me probably just quick update on integration progress with terrorist smart the team driving our integration process has focused its initial efforts on optimizing really key organizational functions with emphasis in sales and marketing finance business systems Human resources engineering product management.

Yes, I think we're making pretty good progress on each area and over the last 120 days.

Consolidate both our sales and marketing organizations.

And we are moving towards a single face for customers. We're also putting the entire business on a common ERP and CRM system.

Our engineering product management teams completed their assessment of our trucker technology portfolio.

That's tariffs March charged for our tariff smarts per track and our legacy sunflower.

The teams were challenged to select the best performing most flexible and most reliable platform with a proven software based operating on remote management system. We also challenge the team simplify our tracker offerings. So we can focus feature engineering investments on expand bank ability with the financing community.

As a result, the terror track technology has been selected as I go for tracker platform.

For both existing and future customers. We have started transitioning everyone to tire tracks and we will continue to support customers with existing sunflower installations accordingly.

So theres much more integration work to do but we're off to a good start we're making progress and remain on plan.

Now, let's turn to slide six.

To look at our New AG Tech segment.

So Rob brothers was supporting two core markets. When we acquired the business in 2015, the solar energy market, which we just discussed and the controlled environment commercial growing market, which it had been president for over 80 years. The RBI greenhouse business was approximately $66 million in revenue in 2015 and provided a design engineering manufacturing.

On <unk>.

Distribution and installation of multi purpose greenhouse structures really focused on six market segments.

For the last five years, we've more than tripled the size of the AG business through good organic growth and subsequent acquisitions, adding best in class capabilities in cannabis and hemp growing and processing as well as in fruits and vegetables produce growing.

In 2016, we required Nexus based in Denver, Colorado, a provider multipurpose greenhouse structures and the lead on North America cannabis greenhouse structures in 2019 and in 2020, we added apex supercritical and Delta separations sales leaders and processing equipment used in botanical oil extraction and refining solutions for both cannabis and.

Pam.

Then in 2020.

Looking to build a strong presence in the fast growing north American produce growing market, we acquired thermal energy.

Leading provider of large scale turnkey greenhouse operations for controlled environment growing this is an exciting market growing 7% per year, and it's attracting significant investment as consumer demand for pesticide free produce grown locally year round.

More environmentally responsible ways continues to accelerate.

Let's turn to slide seven and I'll take you through a brief overview of the AG Tech portfolio of technology and services on the key markets. We serve the left side of the chart really describes our services and domain knowledge all of which are critical to providing managing a successful growing environment.

And the right side illustrates the six core segments, we serve the per.

Total segment is actually our largest and you can see the size of the growing facilities with design build and install to help grow our scale and deliver successful results. The cannabis segment, which involves growing structures and extraction equipment for processing is also an exciting segment with strong end market demand for the many consumable products produced for the oil on.

Extracts, we process, whether for medicinal or recreational purposes.

This industry is still relatively immature, but as more states legalize and improve licenses the consistency and balance of supply and demand will improve along with predictability and scalability the market.

The remaining for segments reflect our legacy business and we continue to hold leadership positions in each accordingly.

Now, let's turn to slide eight to discuss our new go to market brand for the AG segment.

We launched yesterday called Prosper yet.

Which reflects our leadership portfolio for controlled environment solutions and Leverages, our six heritage brands, representing a combined 187 years of experience supporting over 2500 acres of installed controlled environment operating solutions in North America.

<unk> really represents by far the broadest portfolio of AG Tech solutions for controlled environment, agriculture, and soil for oil cannabis ecosystem. Our markets are relatively new and are moving quickly toward their next phase of maturation and we're now positioned well to help them accelerate our vision is to help build and shape our market with the best set of technologies products and services.

And really do so with partner customers, one growing and processing environment at a time, we believe it is important our customers have a single solution. They know and trust that's great the opportunities and solve the problems. They have for success and really that is prostate.

So now let me stop there I'll turn it over to Tim to take you through our overall results.

Total and by segment.

So, let's turn to slide nine.

Thanks, Bill and good morning, everyone I'll take you through our consolidated and segment results.

Binder My discussion will cover our results from continuing operations.

Solid hated revenue increased 33, five per cent to 287 6 million driven by the renewable and residential segments.

<unk> revenue growth of 10% was driven by continued execution on strong demand and participation games on the residential segment as well as continued demand and strong execution on the renewable segment.

It drops that winter storm impact and shipping delays.

We generated 23, 5% growth from the 2020 acquisitions of architectural mailboxes sundry terrorist smart thermal energy and Delta.

Total backlog at quarter end was $355 million up 27% over first quarter 2020 on a pro forma basis, driven by continued end market demand across our businesses.

Adjusted operating income increased $33 one per cent in the first quarter for adjusted EPS up 32 five per cent.

The increase was the result of organic growth and continued margin expansion on the residential and renewable segments, along with the impact of our recent acquisitions product and services mix and ongoing benefits from operational excellence initiatives.

As a result, we were effective in offsetting the impact of the pandemic material inflation labor and material availability and increased performance based compensation costs.

Our teams have been working very hard to procure materials and obtain the labor and shipping services required to meet our customers' needs and we expect this dynamic will continue for the foreseeable future.

As Bill noted we now report in four segments renewables residential AG tech and infrastructure breaking out with this quarter's reporting form of renewable energy and conservation segment into two renewables on AG Tech.

Now, let's review each segment starting on slide 10, the renewable segment.

Segment revenues increased 88% driven by the terrorists Martin centric acquisitions as well as two 1% organic growth in our legacy business.

As experienced during the fourth quarter of 2020 project schedule movement and timing remain dynamic in the quarter given record infection rates some unique weather events.

Moving supply chain challenges.

The current investment tax credit of 26%, which was scheduled for stepped down to 22% at the end of 2020 was instead extended in December for two additional years through 2022.

The ITC helps our customers finance their projects and its extension to remove the safe harbor incentives to invest five per cent or more of a project's cost prior to the end of 2020 to attain the higher credit amount.

In the first quarter of 2020, a portion of revenues were related to projects that were initiated under safe Harbor rules to maintain in 2019 ITC benefit of 30 per cent.

Despite not having ITC safe Harbor benefit in 2021, we grew revenues, reflecting continuing customer activity levels.

Strong demand was also evident in the quarter with significant increase in new business booked backlog ended the quarter up 51% on a pro forma basis across the entire solar business.

Adjusted operating margin performance in our legacy solar business improved 50 basis points through continued 80, 20 productivity and execution and terrorist smart performed as anticipated.

Integration is proceeding on schedule and we have started implementing our 80 20 operating system and we expect her smart to drive growth and be margin accretive in 2021.

Let's move to slide 11 to review our residential segment.

Segment revenues increased 35, 6% from last year with strong organic growth in participation games.

Across all for residential businesses, despite the impact from challenging weather in February and dynamics related to material and labor availability and logistics.

Organic revenue grew almost 27 per cent.

And the acquired architectural mailboxes business contributed 9% growth with the integration of this business on track.

Segment, adjusted operating margin increased with higher volume execution of 80, 20 productivity initiatives and solid price cost management.

Which offset ongoing pandemic concerns higher input cost labor and material availability and logistics management challenges.

Now, let's move to slide 12 to review our AG Tech segment.

Yeah.

Segment revenue was down five 1% as the pandemic challenging weather and supply chain dynamics during the quarter impacted existing and new project schedules.

The produce market continued to gain momentum and offset slower, but improving market conditions in the cannabis and hemp markets.

We're encouraged by the increasing activity, we see from our customers in the cannabis and hemp markets and expect this activity to convert to increasing demand as we progress through the year.

Segment, adjusted operating margin was impacted by the overall mix and timing of projects and volumes in the processing equipment business.

The integration of Thermo energy solutions AG Teck's core proteins for market business is progressing well. Despite the continued pandemic related closure in the U S Canadian border.

We've worked through the majority of the lower margin projects, we inherited through the thermo acquisition and margins are expected to expand in 2021 through execution of newer higher margin projects in backlog and the benefits of the implementation of our 80 20 operating systems.

We also completed the consolidation of facilities from the processing business, which will provide a better cost structure going forward.

Segment backlog increased 5% sequentially to $96 million driven by an active produce market and this trend is expected to continue and drive positive results from 2021.

Now, let's move to slide 13 to review our infrastructure segment.

As we discussed on our fourth quarter call. We completed the sale of the industrial business on February 23, and have included its historical results as discontinued operations.

My comments today will cover the continuing infrastructure operations.

Segment revenue decreased 400000, or two 6% as the pandemic continued to impact existing a new project schedules driven by state and Federal D O T funding.

Order backlog grew 14, 8% for $52 million on the first quarter, reflecting positive momentum as the economy continues to recover.

Segment, adjusted operating margin improved 330 basis points, driven by ongoing investment in operating systems and technology.

20 productivity initiatives and strong execution and fabricated products.

No matter, who has helped the business offset the slow recovery market for higher margin non fabricated products and solutions.

Let's move to slide 14 to discuss our liquidity position.

We used $1 2 million of cash from continuing operations from the quarter driven by an increase in inventory to meet growing customer demand and rising raw material prices.

We generated $22 6 million in cash from investing activities with $27 million in cash from the industrial divestiture, partially offset by capital expenditures of $4 4 million cash.

Cash used in financing of $30 million was mainly result from debt repayment of approximately $27 million of outstanding borrowings.

At March 31st we had 335 million available on our revolver cash on hand of $21 million and our net leverage was approximately a quarter turn.

We continue to expect to repay our remaining balance on our revolver and within a year using our cash flow generated from operations.

Our strong operating cash flow on relatively modest capital expenditure model offers us ample liquidity to invest in operational excellence organic and inorganic growth initiatives and the development of our organization and the repayment of debt.

We remain active in M&A discussions and continue to remain focused on managing our working capital now I'll turn the call back to Bill.

Yeah.

Your line is.

Uh huh.

Yeah, I'm, sorry, let's turn to slide 15.

For an update on our key priorities as we continue to accelerate our transformation in 2021 really through our three pillars of portfolio management efforts on improving our business system and strengthening our organization for our Q priorities remain consistent with our last earnings call and we remain very focused on them accordingly.

Priority is number one scale on renewables and other tech business we have.

To continue to integrate our acquisitions per plan and execute a record in growing customer backlog as well as apply our 80 20 operating model to scale, our field operations and project management delivery system.

We also continue to build the organization capabilities invest further in digital systems processes and tools in parallel we are strengthening our sole energy portfolio with additional technology, and IP software development and defining our position and strategy and the operations and maintenance services segment.

The market.

Probably the number two improving our execution across the balter with continued focus on health and safety.

Our 80 20 productivity initiatives.

Product development capability and enhance quality control systems, Inc.

Third proactively managing and optimizing our supply chain material inflation availability of material, whether it's steel or aluminum or resin transportation and logistics and really diligently managing on a price cost opportunities on lead time dynamics with our customers.

We must also stay laser focused on managing labor availability in the near term, while we assess automation solutions in our facilities for the medium and longer term.

And fourth continue to conduct business the REIT in a responsible way every day.

Our effort to drive environmentally sound solutions via solar energy production growing food and residential are efficiency is progressing with 90% plus of our portfolio now focused on these areas on <unk>.

Slide 16, I've summarized a list of initiatives supporting our effort to continue conducting business the right and responsible way I, absolutely believe in the manner in which we build and support our ongoing relationships with our customers on our suppliers our people on the communities, where we do business is foundational.

To both our culture and it is important to our to all our stakeholders.

So just wanted to touch on a few.

All of our key initiatives. So let me give you a brief update on five of them that we currently have in flight.

We continue with our employee education initiative, requiring each employee and our board members to complete 12 on a half hours per year of online training with our curriculum focused on compliance and ethics with the intent of creating the best culture and environment, where people feel included.

And can realize success in Q1, our team completed a 100 per cent of their assignments representing over 5000 hours of education.

Secondly, we continued our diversity and inclusion mapping process for each of the 40 plus communities, where we operate this.

This entails understanding our level of diversity in each location as it compares to the diversity of the community itself. It's really important we understand this to determine the appropriate initiatives to support each location and.

In parallel we've been requiring diverse candidate slates win filling.

Our new positions over the last 12 months 50 per cent of our new hires have been diverse.

Number three we launched our partnership.

With the department of Energy's better plants programs and have partnered with local universities to help us with facility energy assessments.

Starting on the Daily program. We've also selected an outside energy management firm to help us assess our energy usage and spend and the opportunity to source energy for our facilities from renewable sources.

Our partnership with the D O.

Is also contributing to the development of our companywide sustainability report base.

Based on our scientific base.

Carbon reduction plan for each of our locations, we'll have that ready by the end of 2022.

Yeah.

And finally, we will we have evolved our board of directors over the last 15 months with for new members, adding competencies and experience in digital transformation information technology, Cyber security renewable energy ESG management marketing and legal.

Our board is a very diverse.

And more importantly brings a tremendous diversity of thought to the management team as well.

We also recently restated all our committee names and expanded our missions on charters for each committee.

So let's move to slide 17, and we'll discuss our outlook for 2021, Yeah. We're off to a good start and we continue to see solid end market demand supported by a strong customer order backlog, while challenges remain in terms of the pandemic general inflation labor availability.

Supply chain dynamics, we do have confidence on our business going into the second quarter, we will continue to manage through the current operating environment.

And focus on executing well maintain a safe environment for our people.

[laughter].

Given today's environment reiterate.

Reiterate our previous guidance of revenue and earnings for the full year 2021, and we will continue to refrain from providing quarterly guidance until we have more clarity as we move through the year.

As a reminder, consolidated revenue is expected to range between $1 3 billion on 1.35 billion.

GAAP EPS is expected to range between $2 78, and $2 95 compared to $2 on 53 cents in 2020, and adjusted EPS is expected to range between $3 30, and $3 47 compared to $2 73 in 2020.

Yeah, I'd say, regardless of the quarter to quarter cadence, we we have confidence in overall 2021 outlook and we will continue to remain focused on executing our plans and delivering our full year plan. So with that we'll open the call for questions.

At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is from the question queue.

You May press Star two if you would like to remove your question from the queue for those using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

The first question is from Ken Zenner from Keybanc capital markets. Please go ahead.

Good morning, gentlemen.

Hey, Ken how are you.

Good day.

Caught me off guard here.

[laughter] stuff here.

Can we go on your how do you say AG check again.

To your price can you say that word again for me per state.

<unk>.

Okay.

If I can refer to it correctly.

I appreciate the disclosures trying to think about you know the annual data you gave us a 19 the run rate in 'twenty.

The comments now.

Let me just start with the AG Tech.

Margins in 2019, you had about 17% it looks like you're just under.

7% in 'twenty and on Tim I believe you said that you expected, but you're not giving quarterly guidance. It sounded like you were being descriptive about which segment margins you expect to be up in the year is that correct. So you expect the AG tech to be positive.

<unk> growth this year.

Yeah, I think all okay, Jeff we expect all to go up.

Okay.

The reason I ask that is I'm trying to understand the decline in margin, which 19 was 17% for 7% today, 7% plus from 'twenty one.

Can you maybe walk us through when you know when you bought delta apex on all of these companies.

You're obviously spending a lot of money on.

Investments right I seem to I T systems its safety its sales investments.

And then Theres a volatile end market can you maybe give us a sense of the lower margin is that really just a function of.

Volume leverage or there are investments that are happening and do you think the.

The margin that you acquire these at is attainable over time.

Just to start really appreciate the breakout.

Let me take a stab.

Yeah go ahead, Tim on I'll follow up.

So.

<unk> two separate.

Probably pieces in there one is the cannabis and hemp market, which impacted the processing businesses that we purchased along with our core cannabis and hemp.

Market share.

And in the historic business.

And that really.

Took a downturn.

Certainly towards the I guess the end of the first quarter, but certainly there for the remainder of the year.

And the volume.

In processing was way off we actually had some some losses in those businesses in a couple of quarters.

And I had the the core produce business that we acquired in January.

We acquired.

A series of projects that were either underway or for where to start and they were.

At lower margins than we would normally be doing work out.

But we had on our customers' requirements and so.

It's a combination of those two.

Items pulled margin down.

And as we move through this year.

Refill the pipeline with.

More on maybe normalized.

Project levels and profitability along with.

Seeing some recovery in Canada shouldn't have markets in both our core and the processing businesses.

The other restructuring we did in the processing business to reduce facility and lower cost all of those are expected to help so.

<unk> volume.

As part of it but there's other pieces.

Yeah.

Okay, because it seems like when I look to next year, you know crazy this year as you know.

Now that you've broken this out I think it's you know.

It's a really good day, you did that take the renewable piece you know continue to grind it seems but.

Wood.

I mean, 7% isn't necessarily what you would be bidding projects at right. Whether it was you know on on the AG side I would see them wearing on the flowers and vegetables stuff Youre just kind of working through acquired backlog is what I hear you, saying is a drag.

On this year's margin level than last year as well.

I'm just trying to get on the operating leverage I guess, there's an other I can say it I mean do you think operating leverage in that business is generally going to be on that 25 per cent range consistent with kind of your broad business.

<unk> 25 per cent EBIT operating leverage.

You know, it's going to depend on project mix.

So it's hard to it's hard to call out given that it's there's a whole host of new businesses in there. So I wouldn't you know.

The processing business with different leverage that are produced in the cannabis.

But in general Ken.

Yes.

The 7% last year $6 nine.

It is not our target margin for that business right.

You know you you will see it improve over time as we integrate these businesses and put the operating systems in place.

Get some volume back from a couple of other key markets.

Great and I guess my last question I'm, just going to stick with this AG tech since it's the I think.

To me the most interesting and no category now that you've started breaking it out.

As states go through.

Do you have a legalization and states.

How does the federal role.

Involvement for example for the last year, you talked about the cash payments you know state transfers were an issue in the candidates because of that.

That if the fed gets involved at a national level and allows for this stuff to happen I mean, how does that change the.

The business does that actually elevate the business or does it just move instead of taking cash within state lines you can take.

Credit across state lines or accept bitcoin or who knows.

How much is actually impact the business demand or stability on that and that's my final question. Thank you.

I think what wound up happening Ken is so as more and more states come on board, which is what you see happening in even more considering it now.

On the legalization process is one thing and then you get into the licensing <unk>.

Process and that creates all of this choppiness, we've been dealing with and talk to you in interest.

Part of the immaturity of the market and the state's wanted to remain I suspect state to state if possible because the revenue associated with.

That.

For themselves, which a lot of states are probably interested in having going forward.

I think it depends on the involvement at the federal level and there could be a couple of different angles that can be played I think each of those has a little different scenarios. So.

At the federal level, there isn't maybe there's an FDA kind of angle, there's a banking.

Angledozer two that most people think about but regardless of that I think over time as the industry matures you have multistate operators right now that are trying to staff up licenses and buy licenses across state so effectively.

Effectively.

You know that's starting to happen.

And I think that will continue and you'll have a.

A pairing of hundreds of companies that existed some time ago to something less.

And whether that happens you know how that happens over the next two or three or four years I think will will depend on what kind of things come out of Washington, but in the meantime, I think states are going to continue to move forward.

They do that you'll see multistate operators trying to extend it knows that the folks are trying to partner with and.

So you know I would characterize it more as a natural evolution of the marketplace.

The way to think about it access to banking.

Funding.

Will be helpful. But it's been a challenge for a lot of small players up to this point, but as these multi state operators, who come bigger their ability to finance their expansion gets a little bit easier to so that's the balance I think you'll see over time on that front.

Thank you.

Yep.

The next question is from Walter Liptak of Seaport Global. Please go ahead.

Hi, thank.

Yeah. Thanks for the description in the the.

Last question I guess.

I know that.

2000, twenty's not a silver bullet for higher profits, but.

Can you tell us exact tick or each of the different business units. You know runs on their 80 20 numbers and do an 80 20.

Yeah in fact, well good question, we just finished a weeklong.

<unk>.

Our effort in our solar business, so as part of our integration with.

Our traditional our legacy business and terrorist smart.

Ah Theres, a teaching and education on <unk> 'twenty, but we just spent a week long mapping quote to cash.

For that business and what we're helping people understand as Theres 80, 20, but most people are used to using in the world.

I'd say more traditional manufacturing, but theres also 80 20 as it relates to the other half of our business model, which is the <unk>.

Field operations delivery and that's half of our.

Revenue and profitability. If you think about it so we have to really excel there well as well. So that's really driven on you're thinking thinking about product line simplification and in lining applied to that piece of the business model as well as it is applied to our traditional piece of manufacturing insider for walls.

So yes that we're we're pretty pretty aggressive.

Aggressive in that area and working on it pretty hard we're doing the same thing in our AG business.

Putting these two businesses out over the last year, we have split the organization we brought in.

<unk> for each of their respective businesses.

We've been implementing systems and processes Accordingly, common ERP is common CRM.

All of that stuff was was over a period of time difference.

Last five years, and we've been consolidate into kind of a single framework trying to leverage across the businesses, but focus on both if.

If you think about the business models for each they're very similar in terms of what we do and putting things in the ground. So 80 'twenty going into solar is very active.

We're going to kick that off.

In AG Tech.

As well here shortly.

So that's happening and I would say in our residential business, we've been doing a lot of work there and 80 20.

And a couple of our businesses that were.

Still had a lot of runway and still still yet to go there. So I think it's very active there and then where do you see a lot of the improvement over the last three or four years is that our infrastructure business, where there's been a tremendous amount of 80 20 work done there again, new new some new leadership in that facility and our ability to convert dollars today is much better than it.

It was three years ago, and as importantly, our ability to scale up and utilize the capacity more effective way is much better. So what do we think about 80 20 now.

Ross each of our businesses, there's a there's a different angle as to why and what still needs to be done, but the consistent theme is.

Effective execution scalability to meet this record demand that we're seeing.

Seen in front of us so and it's really across each of our businesses are on that.

Demand profile side so.

Yeah we're.

The question is perfect because we just finished a very intense week of.

Mapping everything re mapping everything in and are now implementing some of the work that needs to be done.

Okay, great yeah. It sounds like the entire business is doing that and there's some maybe some uniqueness to doing 80 20 around project work. So that's great.

You know what it is but it's it's a it's if you replace the words.

There, whether it's a service or a product.

Whether in lining or or or pls, and it's really not a whole lot different.

What we're trying to show people and help them understand and so it just drilling down into that as debt.

As important piece for us because you know half of our business is in project management, if you think about it.

So we've got to apply that.

Consistent.

An accelerated way going forward as well so.

Alright, sorry go ahead, okay, no that's great. Thank you.

I wanted to ask two last quarter.

You know you guys were talking about five or six large projects that were having some issues with.

Oh, there's some components and a line as well right permitting and and then this quarter, we're hearing about the safe Harbor.

And and I want to make sure I understood what the Safe Harbor comments were about you know is that related to a difficult comp in solar because of the safe Harbor from 2019, yeah.

And maybe on the large.

For large projects.

Yes, so first the projects, we had a four or five for projects about 50 or 60 megawatts that got delayed.

Those are.

Still in flight.

Will be spread out between Q1 and Q2.

The solar panel, which was the big issue for those specific projects.

That's working itself through its still a bit of a challenge.

But it's getting better.

I think if you recall, we were talking about there was a particular component that goes into the panel manufacturing or there's a facility in Asia that went offline for a bit and it was coming back online. So I think that's working itself through.

So those projects will will.

We get across the finish line.

In the first half of this year.

So that's that piece of that I think the.

The permitting stuff we deal with all the time.

We just had if you recall.

When we talk about permitting we do a lot of smaller projects those for projects for 60 megawatts. Those are big projects for us. So when we had a big project move it was pretty substantial whereas having one project in the past, but it wasn't a big deal because we were typically dealing with an average size three megawatt, whereas we've gotten bigger.

And we've gotten developers have gotten more confident in themselves wanting to do more on bigger projects, we're getting pulled into bigger stuff, which we like but when those things get delayed it with us a little bit differently or it did in the quarter.

So that was the permitting side of that but the permitting stuff I won't yeah. We we've been deal with that for years. It's just something that you learn to deal with and stop and start your flexible and so forth.

The Safe Harbor thing is kind of interesting. This is an industry thing.

If you think about the step down to the ITC benefit the last three years as Tim kind of describe about every November December.

And people can take different approaches to how they do this knowing that youre going to step down on the benefit.

Usually in the fourth quarter towards the end of it you will place an order and you can you can buy racking and you can buy inverters you can buy panels, but you have to buy at least up to five per cent of that value of that project for you to maintain that ITC beta effect going into next year, well, we've had three years of that step down so.

When that happens the first quarter for the industry on the following year.

Tends to be overly inflated from a seasonality perspective, those projects happen, but its just more of a shift out of Q1. Since there was no really benefit to do anything for safe Harbor this year.

In 2020 in December a lot of people didn't place those orders there for that.

Demand doesn't show up in Q1.

Because once you put some of that money down you commit to that project you've got to ask.

Actually start using that material.

Uh huh.

Within the next four months of the following year and Thats, where it starts to show up as revenue.

On the industry itself I think for the next couple of years is not going to have is going to have a more replicated seasonality that you would normally see and it makes sense because you know January and February it's tough to put stuff on the ground.

Around the country because of weather.

So a lot of that debt revenue you see is this material that was bought forward because of the benefits stepped down in industries not seen doesn't have it this year and wont have it next year. So you probably won't see a Q1, that's typically reflective of the previous years, that's an industry kind of situation.

Situation in for US Yeah, we were impacted.

By that as well. So if you think about our demand had an offset not having safe harbor in Q1. It was such a late <unk>.

Pension decision by the administration to extend it.

We didn't understand the real impact of what it was made in Q1 at the time, but.

Yeah people decided not to at the end of the day to day didn't have to so they didn't.

So we effectively had to offset that and we did and still generated growth.

In Q1, this year year over year, so it's actually a good.

Pretty good quarter, reflecting good solid end market demand and I think thats, having bookings that are reflected net as well.

So support.

Ongoing good demand so does that help with the safe Harbor East.

Yes, yes. Thank you.

So I don't think you'll see the safe harbor impact going into next year, either there's no incentive to do it because of the extension of two years. So we won't have this discussion next year Q1, as it relates to safe Harbor, because there's no incentive to do it.

Okay is there a second quarter impact that.

Last year yeah.

Yeah, you got it you can have a little bit of it.

Yeah, you almost have to go back for the industry. You look project by project because you have really for five months I think it's for months to up to like April. So you could have a little bleed over into Q2, I don't think that's going to be a.

A big deal for Us I don't know about the rest of the industry and again it depends.

Kind of project by project developers decided to do.

And as you know we you.

We have in flight around three well, we'll do over 500 projects. This year so across a lot of different developers. So it's.

Uh huh.

Yeah, it's kind of hard to track each one but I don't I don't think I don't anticipate it being a big deal in Q2 for us.

Okay, great. Thanks, I'll get back into true.

Okay.

The next question is from Julio Romero Sidoti and company. Please go ahead.

Net.

Hey, good morning, Bill Good morning, Tim.

Well I agree on how are you.

I'm. Good. Thanks, So wanted to ask about the residential segment.

It looks like the organic growth rate in the segment and a 27%. This quarter is actually accelerating sequentially. I think you had 21% and for Q and 20 per cent and <unk>. So.

So I was just hoping if you could give us a little more maybe granularity on what product lines or channels are kind of driving that strong organic growth rate.

Yeah.

Well I would say across the board.

[laughter], we've been fortunate and I think part of it has to do with some of the work that's been done the last couple of years.

<unk> made some good progress across each of our channels with participation games.

And I think that's a result of a lot of things that we've been able to fix relative to 80 20 initiatives our ability to.

To deliver more consistently.

Frankly, we've really focused on trying to take cost out of the cost.

Reduce cost of doing business with us.

You think about logistics and transportation in and how you plan and help our customers.

Of all of their strategies around distribution of product. So theres been a lot of work done I think that's just helped us.

Gain participation, so I'd say that the market, obviously tends to be robust.

And frankly, Inc.

Q1, we.

We were.

We had a good chunk of our residential business that that was shut down for over a week.

Because of the weather in February we were told to stay on down by a lot of utilities with putting on operate some of our facilities. So we had to make up as much as we could.

Using overtime and other things, but that kind of whipsaw it into the whole industry are having issues with material availability and so on and so forth, which you know everything you hear a lot of people are doing with but in general I think its participation games you know strong strong market. We've made investments in regions with with having people in place you didnt have year ago and those things.

On the pay off for us. So it's just expansion geographically its expansion within customers. It's a good strong market and just.

Our ability to execute has helped us.

Some additional business.

I'd say overall, that's kind of kind of where we are.

Got it.

Maybe within the for residential businesses that make up that segment.

No.

You mentioned yeah.

Price cost management is going to be requiring.

Requiring continuous effort going forward just I don't know if you could speak to right, but you don't do any of those for businesses within residential.

Do any of those kind of stand out in terms of.

On the effort required for price cost there.

No I think that.

The <unk>.

Biggest businesses.

If you think about ventilation.

Roofing accessories and in mail.

Mailboxes and lockers those are for the most part being sold through the same channel. So the challenge there is working with that same.

A group of customers and you know there there are just ongoing discussions at Reed, we have with them and so I think the challenge is pretty much the same across the board in our H I G business, our home improvement business is little bit different you're going through dealers and it's really direct a homeowner so.

That's probably been less challenging to actually implement.

But I'd say in general.

We've been relatively successful managing price cost in a timely manner.

And the discussions for each customer or one off discussions and some are more challenging than others, but eventually.

We've been able to get there and.

And I think it's just going to continue to be an ongoing discussion.

Until we see more clarity and that's part of the reason why I mentioned earlier, Hey, we're not getting.

Quarterly guidance, there's just a lot of variables right now if you really think about the overall environment.

Relative to last year throughout the year one.

For our infection rate is still higher today in the last seven day average than it was for 11 months out of all of that for for all 11 11 of the 12 months last year. We were just kind of forget that but it's still something that we're very much paying close attention to on our supply chain and everything else and then you throw into this huge bike and material inflation.

And that drives price cost management activities, and then you get into labor.

Availability and material availability.

We have a lot of that stuff is an issue last year or set of circumstances and so the team has done a really great job working through it but I just think that's going to continue to have to be our focus going forward because I don't see a lot of that changing in the near term.

So whether it's price cost or some of these other things you just talked about I think the level of intensity that will continue to.

Approach. These things is going to have to remain high.

Got it that's helpful and I guess, maybe just switching gears to the infrastructure segment.

You mentioned that you.

The backlog improvement there.

Uh-huh does that order backlog improvement weighted more towards fabricated or non fabricated products or mainly.

Mainly Asia, mainly fabricated.

Yes, maybe fabricated I think.

We're starting to see more activity in non fabricated for last year team did a great job and they had to offset the fact that airports and a lot of investments in our coatings and sealants that go on parking garages and runways just stopped.

The team did a great job, making improvement last year. It was on an 80 20 execution around fabricated.

Product, which if you go back three years, we really struggled.

And so that has really put us on a good position going forward and I think part of the reason the backlog continues to grow as a.

The other economies recovering so some of the D. O T budgets that are heavily funded by gas tax starting to pick up and that's been helpful. So we start to see more projects really.

Late Q4 last year in Q1, this year, starting to come to fruition and get across the goal line.

And I think that that's.

Really important for.

For Us and then B I think we're starting to see because of the economy as well some of the non fabricated orders start to kick in.

So it's a combination of both of those things that are starting to happen we're not seeing.

You know everyone talks about the infrastructure bill that doesn't exist yet we all know that so what we're seeing I think it was just a general recovery in the economy. We're just in a better position to deal with it and I think as a result of being in a better position to execute we're able to go out and get.

Projects that we would have not been able debt to take on three years ago from either a margin or delivery perspective, so our ability to go expand our market.

During the market that's been flat is starting to show up but I think I'm excited about that so as the top line goes get.

Supported by the current recovery and other things. It later on at the top line.

We're actually able to go after a bigger piece of the market that we worked for years ago. So I think that's also.

Contributing to.

The backlog that's that we're starting to see.

That makes sense.

It does thanks for taking my questions I appreciate it.

Yep.

This concludes the question and answer session I would like to turn the call back to Bill times for you for closing remarks.

Well again, thanks, everybody for joining us today.

We'll be participating in a number of U S and European marketing dates and we're gonna tend to Keybank industrials and basic materials conference on June 4th.

And really looking for it to giving an update on our progress in our second quarter earnings release as well so thank.

Thank you and have a great day.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

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