Q4 2021 Gibraltar Industries Inc Earnings Call
[music].
Greetings and welcome to the Q4 2021 Gibraltar earnings Conference call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Now I'll turn the conference over to your host Carolyn <unk> a L. H you may begin.
Thanks, operator, good morning, everyone and thank you for joining us today with me on the line is Billboard wage of Baltar Industries, Chairman, 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 the slide presentation that management will use during the call are both available.
All in the Investor section of the company's website Gibraltar, one dot com results of terrorist smart.
At the end of December 2020 are included in year to date 2021 results.
Gibraltar is earnings press release and remarks contain non-GAAP financial measures tables, and reconciliation of GAAP to adjusted financial measures can be found in the earnings press release that was issued today.
Also as noted on slide two of the presentation. The earnings press release and slide presentation contain forward looking statements with respect to 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.
Gibraltar advises you to read the risk factors detailed in its SEC filings, which can also be accessed through the Companys website now I will turn the call over to bill by the way Bill.
Thanks, Carolyn good morning, everyone and thank you for joining us today will start with an overview of the fourth quarter as well as full year results and then Tim.
Our financial performance.
Well, then pivot and discuss 2022.
Our plans and guidance for the year and then we'll open the call for your questions. So, let's turn to slide three titled 2021, a year end review.
So our fourth quarter results were within the range that we previewed on January 27th.
Capping off a year of good top line growth as we continue to build leadership positions in our end markets.
We're all business grew 29, 8% with organic growth contributing 9% driven by market price and participation gains across the business.
Our acquisitions contributed growth of 21% and continue to support our demand momentum as we enter 2022 customer order activity remained robust during the year, the order backlog up 16%, reaching $344 million at the end.
Alright, you're I'm sorry.
While margins were lower than expected, we generated positive growth and adjusted operating income adjusted EBITDA and adjusted EPS, Despite headwinds right throughout the year from accelerating inflation and availability of materials labor and transportation.
As well, we worked diligently to manage and to minimize disruptions from Covid and keep our team safe, particularly in the first and fourth quarters when COVID-19 infection rates were at their highest.
Adjusted operating income grew 7% to $124 million adjusted EBITDA increased five 1% to $157 million and adjusted net income grew two 5% to $92 million or $2 78 per share.
Although our property profitability improved modestly during the year it was well below our expectation.
And reflects an environment that in hindsight really pressure tested our systems and processes. Our organization some of our operating paradigms all of which we've had to modify and improve to drive better performance as we move into 2022.
In the fourth quarter, we turned the margin corn in our residential business margin improved 70 basis points over last year. When we delivered revenue growth of 24, 4% and AG Tech margin again improved sequentially and versus last year, we held margin effectively effectively flat from 17% lower volume, while managing through inflation and supply chain challenges.
We also made significant progress integrating our business improving systems and just general execution.
In infrastructure, we delivered strong growth in the quarter and for the year, while improving operating margin for the year as well and then renewables despite a difficult fourth quarter.
Really fought hard offset industry supply chain issues and significant inflation, the entire year and executed customer demand and delivered adjusted EBITDA of $44 million, an increase of 31% over 2020.
Let's switch gears, turning to slide four and talk a little bit more about inflation the current operating environment.
Yes, the fourth quarter marked the fifth consecutive quarter of high commodity prices.
Market also experienced price moving across our seven core commodities, although still at elevated prices versus the beginning of 2021.
We started to see market price reductions in hot rolled coil steel aluminum polypropylene resin and ocean freight rates during the quarter. Unfortunately aluminum pricing reversed its course increased again in January .
Structural and plate still continued to rise during the fourth quarter.
And both are currently forecasted to remain elevated or rights rather than Q1 2022 over the road transportation prices also increased during the quarter and we anticipate these will remain later in 2022.
Despite an elevated price situation today's commodity environment is somewhat different.
First we are not currently seen in nor do we expect to see severe and rapid price increases like we experienced throughout 2021 for example.
Starting back in Q4, 2020 hot rolled coil steel increased $25 per ton per week over 12 month period.
Trading really incredibly challenging and record setting situation that we really don't expect to repeat.
Second we expect better supply consistency and have made investments to minimize this type the type of supply chain disruption we experienced in 2021.
So given our learning in 2021, we've had to evolve our operating playbook to manage through a much different market environment than we.
We continue to focus on five key initiatives all of which were active were activated during 2021.
First keeping pricing costs and balancing continuing to manage any timely and effective manner as demonstrated in Q4, the residential business was able to balanced price cost and generate both revenue growth and margin improvement over last year.
Base businesses, that's renewables AG tech and infrastructure continue to improve their ability to better align project pricing and cost throughout the project lifecycle.
And implemented various pricing approaches.
The increase in surcharges et cetera, and demand shaping strategies for better alignment with customers and projects.
Secondly, really have to continue to 80 20 with focus on product line and customer simplification initiatives as well as lean enterprise and system optimization support our project based businesses and field operations.
Excuse me third introduce new products.
With enhanced value propositions and cost reduced products through design modification alternate materials development and supply chain optimization.
Fourth implementing more automation for labor optimization, specifically during times for the year of the year, where markets are markets experienced higher seasonal demand, we're launching initiatives in our residential business and investing in more autonomous installation vehicles to support renewables field operations business.
And lastly, fifth invest inventory of key components, where we believe there is ongoing availability and price inflation risk.
The 2021 was a challenging year on year with multiple headwinds converging simultaneously with the speech.
And magnitude.
I think many in business just have never experienced in cleaning our team.
But I am proud of our team throughout the year, we enhanced our leadership position across our end markets. We generate significant revenue growth, we remain steadfast and focused on macroeconomic and various industry headwinds as well as the long term fundamentals of our end markets haven't changed they remain very attractive and although we expect some short term industry headwinds, particularly in the solar.
The energy market.
Investments and improvements made in 2020 and 2021 we're going to do.
Better performance starting 2022.
Really that's as demonstrated by our progress in residential AG Tech and infrastructure businesses in the second half of 2021 .
With that let me turn it over to Tim for a more detailed review of our results.
Thanks, Bill and good morning, everyone.
I'll take you through our consolidated and segment results starting on slide five.
As a reminder, my discussion will cover the results from continuing operations.
Also we've added adjusted EBITDA and adjusted EBITDA margin to our non-GAAP disclosure metrics at these measures afford greater comparability of our segment performance across our sectors.
Again, you can find reconciliations of GAAP to non-GAAP measures in our press release issued today.
Consolidated fourth quarter revenue increased 26, 1% to $334 $4 million.
Organic growth of eight 6% was driven by pricing volume and participation games in the residential and infrastructure segments. Despite continued supply chain challenges in the quarter.
We generated 17, 5% growth from the 2020 acquisitions of Taro smart and architectural mailboxes.
Total backlog at quarter end approximated $344 million up over 16% from fourth quarter 2020, driven by continued end market demand across our business.
Adjusted operating income and adjusted EBITDA increased one, 5% and four 7% respectively in the fourth quarter with adjusted EPS down eight 5%.
Adjusted operating margin and adjusted EBITA margin in the quarter were impacted as previously announced by compression in the renewable segment as well as higher materials transportation and labor costs more than offset by pricing actions volume of participation gains in residential.
Lean productivity initiatives initiatives and favorable product line mix in infrastructure, and lean enterprise initiatives and supply chain improvements in AG Tech.
Our income tax rate in the fourth quarter increased over the prior year rate due to a difference in the allocation of income to states, where we generated revenues.
Lower excess tax benefits from stock compensation and certain return to provision adjustments.
Consolidated revenue grew 29, 8% to 1.34 billion with organic growth contributing eight 9% and acquisitions, adding 29% as.
As we executed on market demand with growth limited by macro challenges and supply chain disruption.
Adjusted operating margin and EBITDA margin contracted 200 basis points, and 220 basis points, respectively as labor transportation costs in accelerated during the year.
Residential.
Achieved positive price cost balance in the fourth quarter.
Renewables as an industry struggling with panel and key component availability and consistent project schedules.
AG tech margin improving sequentially through the year and infrastructure delivering margin improvement.
Our income tax rate increased over the 2020 rate due mainly to a difference in the allocation of income to states, where we generate revenues and.
In 2021, we generated more income in higher tax states, mostly the result of the acquisition of terrorists, Mark which was strong in the northeast this year, and that's where taxes tend to be higher.
2021, adjusted net income increased two 5% to $92 million and adjusted EPS increased one 8% to $2 78 per share with adjusted EBITDA, increasing nine 1% from $144 3 million to $157 4 million.
These results were in line with the preliminary results we issued in January .
And as I mentioned demand remains strong and sustainable end markets with double digit backlog growth.
Now, let's review each segment, starting with slide six the renewable segment.
Segment revenues were up 68, 3% driven by the tariff smart acquisition.
Organic revenue decreased two 3% and pro forma revenue contracted five 7% driven by product slippage at supply chain challenges continued to impact field operation schedules disrupting solar projects.
A pro forma basis, we grew over 9% for the full year.
Despite the slippage we experience we saw significant growth from our territory tracker in both fourth quarter and full year and saw over a 450% increase in subscribers to our son, Craig Solar field design optimization tool in 2021.
Underlying demand remained strong in the quarter. Despite the market headwinds I mentioned with backlog up 27% from prior year period to $167 million on continued strong market demand.
Segment, adjusted operating income decreased to $1 4 million and adjusted EBITDA decreased to $3 8 million.
Adjusted operating and EBITDA margins contracted to 1.3, and three 5% respectively impacted by the two factors we previously disclosed.
First by field operational inefficiencies created by panel availability and scheduling management.
And significant project rescheduling that drove higher cost per unit of revenue and redeployment of install crews to racking field modifications to support panel type of option changes.
Second unanticipated and additional inflation in structural steel, which impacted canopy racking projects.
We expect the margin impacts from affected cannot be projects to roll off in the first half of 2022.
Our product margin mix was also impacted in the quarter by additional installations of our new territory tracker product margins for this product should improve as we build experience and scale.
On a full year basis, we grew revenue, 81% or nine 3% on a pro forma basis and delivered adjusted operating margin and adjusted EBITDA margin of 8% and 10, 2% respectively.
Our integration of terrorist smartly into the renewables business remains on track with organization process development information systems supply chain and in sourcing activities gaining momentum per plan and we expect to deliver double digit margins for 2022 margins recovering as we move throughout the year.
Let's move to slide seven to review our residential segment.
Segment revenues increased 24, 4%, our sixth consecutive quarter of double digit growth.
<unk> revenue grew 23, 7% driven by increased pricing to combat continued materials transportation and labor cost inflation participation.
Participation gains driven by expanding share of wallet with existing customers and new customer additions geographic expansion in the Midwest and product wins on both new and existing platforms. For example, and expansion of our metal roofing products with both new and existing customers.
The timing of the architectural mailboxes acquisition contributed slightly less than 1% of the growth with the integration of this business on track.
Segment, adjusted operating income and adjusted EBITDA grew 29, 9% and 26% respectively.
Adjusted operating and EBITDA margin expanded 70 basis points and 30 basis points respectively.
Price cost better aligns through pricing actions and slowing inflation for some commodities we.
We experienced supply chain disruptions in Q4 versus the prior two quarters.
And the success of additional 80 20 initiatives.
As well as market and product line mix benefits, along with better productivity as labor management improved.
We continue to work with our supply chain partners to support our customers' needs and are maintaining focus on price cost management simplification in lining and automation.
We expect continued top and bottom line growth in this business during 2022.
Let's move to slide eight to review our AG Tech segment.
Segment revenue decreased 16, 9% as a result of timing of revenue for Proteus projects was impacted by supply chain disruption and continued delays in Canadian permitting related to water rights.
And is the timing of product candidate projects continued to be impacted by delayed permitting at the state and local level.
The commercial greenhouse business. However continues to experience solid growth across core product lines, serving the retail institutional and car wash markets.
Backlog increased modestly in the quarter with January 2022 bookings driving backlog as of January 31st up 22% over year end and up 34% over last January .
Segment, adjusted operating and EBITDA margin improved 120, and 90 basis points, respectively over the third quarter, despite revenue delays and additional inflation in key input materials through continued execution from lean enterprise initiatives ongoing integration activities successful efforts to optimize the supply chain, particularly.
Early in the sourcing of roofing systems, and glass business mix benefits and improvement in product margins.
The margins were essentially flat year over year. Despite the 16, 9% reduction in revenues, which demonstrates the work we've done during 2021 to improve the operating performance of this business.
Going forward, we expect positive positive margin momentum to continue as we convert strong backlog and make additional system improvements and benefit from improved mix.
And let's move to slide nine to review our infrastructure segment.
Segment revenue increased 33, 1% driven by solid demand for fabricated products, given additional availability of funding and by acceleration in demand for fabricated products as customers caught up on projects deferred from 2020.
We expect to see the impact of incremental government spending on infrastructure towards the end of 2022.
Order backlog increased 12% to 47 million with solid demand moving into 2022.
Segment adjusted operating margin was up 10 basis points as the benefits of 80, 20, and favorable mix offset Q4 headwinds are structural and plate steel inflation and labor availability challenges in the manufactured products along with the closure for over 100 days of a supplier due to hurricane Ida, which affected higher margin non fabricated.
Products.
Adjusted EBITDA margin decreased 130 basis points as relatively fixed depreciation and amortization was a smaller percentage of higher revenues.
We expect continued improvement in both the top and bottom line for this business in 2022 unexpected to begin to see the impact of the federal infrastructure investment jobs Act towards the end of 2022.
Now, let's move to slide 10 to discuss our liquidity position.
It's $40 million of cash from continuing operations in the quarter, which was lower than our original expectation is margin compression impacted net income and we expanded our investment in inventory to guard against continuing supply chain disruptions and ensure we have material to meet our customers' requirements.
Working capital benefited from a substantial reduction in accounts receivable through cash collected and we paid down $37 million on our revolver during the quarter.
At December 31st we had 369 million available on our revolver cash on hand of $13 million and our net leverage was approximately 110th of a turn.
We expect to pay the outstanding balance on our revolver during 2022 using cash flow generated from operations.
We expect to return to more normal levels of free cash flow during 2022, driving strong liquidity for growth.
Now I'll turn the call back to Bill.
Thanks, Tim let's move to slide 11, and I will give an update on our portfolio and our focus for 2022.
So as I mentioned earlier, the fundamentals supporting our end markets remain robust and we continue to build and strengthen our leadership position in each of our markets over the last two years, we have grown revenue in each business faster than their respective market growth rates.
It accomplishes through investment in organic growth initiatives and to work he acquisitions our growth as a result of solid market drivers participation gains price management, and adding faster growing business to our portfolio.
Since 2019, we've also simplified our residential renewables in AG Tech platforms, taking 18 different operating units and organizing into five businesses going forward, our simplification focus effort.
Covered building and strengthening the organization consolidated legacy companies integrating acquisitions, new brand launches and executing day to day business during a challenging operating environment. A lot of good work has been completed to strengthen the portfolio our business systems and our organization.
Our residential and infrastructure businesses delivered solid adjusted operating margin performance in 2021 while our renewables and AD Tech adjusted operating margins were short of plan. These.
These two businesses experienced industry specific headwinds in 2021 , but we continue to make investments and improvements during the year necessary to help us scale and deliver double digit margin performance in 2022.
So let's move to slide 12, and we'll discuss our key trends and initiatives for each business and let's start with renewables.
General market activity remains robust in the commercial and industrial market segment as developers anticipate industry supply chain disruption and inflationary concerns to subside as we move further into 2022.
The industry and our customers continue to address panel supply in a variety of ways with the intent of lessening disruption to their projects.
Customer order backlog remains strong and is up 27% to $167 million, reflecting general demand shrank in the market.
Here's a quick summary of what is driving our ongoing panel supply concerns for the industry first the withhold release order W. R. O on silicon based products made by hoe shying, so the cotton industry.
Which is located in Xinjiang province, the W. A R. O was issued by U S customs and border protection.
Back in June of 'twenty, and 'twenty, one as a reaction to allegations of companies in the province, using forced labor goes shines silicon industry is a large producer of industrial silicon that other Chinese polysilicon companies use to make solar grade polysilicon.
We are currently bands any solar panel products containing o'shea materials from entering the U S. But it W. R. O is also starting to allow solar panel products to be imported at the border can verify who shied materials are not contained in the product.
Second the anti circumvention of trade case recently filed with the department of Commerce focused on preventing focused on preventing importers from circumventing import duties on solar panels. This is the second petition filed with the first petition being dismissed and November 2021 .
And an initial response and initial response to this claim is expected.
Time in March.
As both issues continue we expect company sourcing panels to continue to evolve supply chain strategy is to stay in compliance while finding more consistent sources of supply.
General inflation has been substantial in the solar industry over the last 12 months effectively 'twenty 'twenty. One was the first year and the industry has experienced inflation since its inception.
Creating quite a shockwave for everyone to absorb it.
Industry has struggled with a rapid and continuous acceleration of input costs. The entire year that being said, we have recently seen price declines in hot rolled coil steel, which is a positive for <unk>.
We've also seen the rate of price increases for structural steel begin to slow, although we expect commodity prices to remain elevated the price stability. We are seeing today allows the industry to plan to execute across projects more effectively.
Finally, as it relates to ITC benefits, we do not expect any change in the current minimum structure during 2022.
We will follow a policy discussions as they evolve so to summarize the solar industry continues to experience headwinds as we move into 2022, mainly payroll supply and elevated input cost.
While our customers are optimistic these headwinds will start to subside during the year challenges similar to those we faced in the fourth quarter persisting in early months of 2022.
We expect margins to step up considerably starting in Q2.
And to continue for the full year, given the customer quoting activity is robust backlog is solid and assuming more commodities are more commodity price stability.
So it is critical we maintain our focus on flexibility and agility and those market and execute on our top five initiatives for the renewables business.
First we must work closer with customers to understand potential supply chain disruptions earlier in the process and collaborate on supply chain solutions to optimize project management.
We must continue to upgrade and scale, our systems and process capability to deal with today's market and customer dynamics.
Inherently support the growth momentum we have.
Third we must continue the growth momentum of our Terra track tracker technology and drive margin improvement as we scale and gain experience.
Fourth we also must be it.
Implement the terror Smart acquisition cost synergies planned for 2022 specific they are in sourcing and supply chain initiatives and then finally fifth we must continue to optimize our go to market strategy engaging customers earlier in the process, helping them to find the right solution set that delivers the best returns for their solar project investments.
Staying on slide 12, let's now discuss the residential trends our assumptions and key initiatives for 2022 as with our other end markets inflation has significantly increased input cost in the residential market new home pricing has increased substantially.
As a result, we had a relatively hot market, but inflation is not the only driver of the current situation. We also continue to see a supply shortage for single family homes, driven driving a favorable demand dynamic for new and existing homes as well, there's a relatively large inventory of homes AG now they need a fundamental repair and upgrades over the next few years, while we expect multi.
One straight increases to have some impact on future investments the fundamentals supporting a solid housing market.
Main positive.
We exited 2021 with solid customer backlog in order activity in line with supporting a good start for the year. Our demand is supported by market growth price management participation games and customer inventory management to mitigate potential supply chain disruption going into the second and third quarter is traditionally the peak demand quarters for the industry. We believe the industry is focused on for them.
Getting the type of supply chain challenges of experience both in 2020 in 2021.
So there are four core core initiatives for the residential business.
One continue to gain participation through new products and services for new and existing market segments, and geographic expansion with customers and regions.
Secondly must continue our price management initiatives and proactively part with customers as market dynamics evolve.
Third execute our ERP system upgrade to further advance our digital capabilities customers to support collaborative business system optimization.
For us driving efficiency and improving the cost of doing business with us is an important differentiator for our business and for our customers.
And finally fourth accelerate 80, 20 and automation projects to lower our labor input per dollar of revenue generated particularly during our peak demand periods. When we require additional labor in our facilities.
Let's move to slide 13 to review the trends in our assumptions and key initiatives for both AG Tech and infrastructure segments.
Start with the AG Tech and AD Tech, we expect investment in the produce industry to grow up 7% to 8% in 2022 similar to the annual growth rate over the last five years commercial growers continued invest in controlled environment agriculture for a number of reasons.
First the economics of large scale high tech controlled environment agriculture.
Which has been around for 30 plus years continues to be very attractive secondly, the ability to supply produce across a larger selection of fruits and vegetables, you round via multiple road cycles is also inherently attractive to retailers.
Third the environmental footprint for controlled environment growing operations significantly reduces the land and water requirements versus traditional outdoor foreign pardon me and <unk>.
Sure.
The speed of innovation in both C development and optimal growing solutions is moving at a rapid pace and expanding the market accordingly.
We also expect our commercial business momentum to continue in both retail and car wash segments in retail, we're expanding with a new customer and our exclusive partner for car wash structures continues to expand nationally cannabis. We expect after a year of delays and limited progress licensing processes will accelerate for states that legalized cannabis.
In 2020, this should start to benefit the sector in these states in the second half of this year.
So we have three core initiatives for that type of business first but now that we have worked through the lower margin customer backlog inherited with thermal acquisition, we must execute our new higher margin programs projects and deliver margin improvement as planned.
We must execute the rollout of our greenhouse structures with our new retail customer and continue to scale and ramp expansion plans with our car wash partner and third strengthen our supply chain for roofing structures on glass to eliminate indoor minimize project disruption that field and reduce overall project cost.
Switching infrastructure at our infrastructure business wasn't economy has improved we expect state D O T budget funding to become more consistent and supported more predictable cadence. This in turn should also drive solid investment in surface protection for bridges run rate runways and structures.
We started to experience in the second half of 2020 one.
Legislature's implementation of the infrastructure Bill and.
Readiness funding should drive additional demand starting later in the year. We also expect prices for structural and plate steel both key commodities used in fabricating are joining some bearing products to remain elevated.
We have three core initiatives for this business first we must mitigate structural steel plate inflation by improving our quote to cash process with customers accelerating 'twenty and optimizing our manufacturing footprint.
<unk> expanded our engineering capacity to support growing demand as the core market continues to recover and additional funding for an infrastructure Bill. It makes its way to state D O T budgets.
And then third we need to continue to upgrade our systems improve core processes and manufacturing operations to maintain strong profitability of the business.
So now let's move to slide 14, and we'll review our 2022 guidance. So as we enter 2022, our demand and order backlog is solid across the business and the rope and and the robust long term fundamentals supporting our end markets remain intact.
We expect the market environment to be dynamic as we move into the year as input costs remain elevated labor transportation and pandemic challenges remain.
I'm confident given our learning experience in 2021 and the investments we made in our organization systems and processes, we have enhanced our ability to deliver full year growth margin expansion in 2022, as we continued to execute toward our 2025 objectives.
Our guidance for.
For revenue and earnings for the full year 2022 is as follows consolidated revenue is expected to range between 1.38 billion and 1.43 billion compared to 1.34 billion in 'twenty 'twenty. One GAAP EPS is expected to range between $2 80, and $3 compared to $2 25, and 2021 .
And adjusted EPS is expected to range between $3 and $23 40, compared to the $2 78 and 2021.
Finally, I want to say, thank you again to everyone on the Gibraltar team for their effort and resiliency in 2020 , one frankly a year unlike any.
Most of us have ever experienced.
<unk> and 2021 it's created tremendous tremendous opportunities for us in 2022.
And we really look forward to getting after it.
So with that.
Let's open the call up and take your questions.
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One moment, please while we poll for questions.
Our first question is from Daniel Moore with CJS Securities. Please proceed with your question.
Good morning, Bill Good morning, Tim Thanks for taking the questions.
Maybe just to start with renewables with pro forma revenue declined about 6% of mobile as a volume impact and what was the impact from pricing.
And then we'll get into the details a little bit more.
Yeah.
Yes, Dan there's there's obviously some pricing in there.
Hum.
It's not as large as some of the other businesses just because of the timing but.
The volume push.
Was really on just schedule slip.
Not on.
Ah.
A reduction in demand from the market, it's just getting the projects queued up and going.
Okay.
And when I look at the margin impact out of year over year basis, how much of it was supply chain solar panel availability schedule slip as you described versus price cost timing.
Uh huh.
Raw materials.
Yes.
I sort of split 60 40.
60.
The incremental cost we experienced related to the sort of scheduled disruption in supply chain.
40% of it.
Related to the material costs really specifically.
The structural steel inflation.
And the 40 do we when do we expect to get that back.
Oh, we've adjusted all the projects, we have and so there'll be some hangover as we worked through the rest of those projects. We think all of it's gone by the end of the second quarter.
Got it.
And then.
The.
Maybe same question quickly for <unk> envelope, just a kind of a general breakdown of price versus volume and strong growth, there and as well as participation games.
Yeah I think.
Again, you know the the second half of the year was more flights.
Hmm.
Volume in the resin.
But we can put it.
We continue to get.
Expansion I called out both geographically.
Picked up some additional customers in the Midwest and that's based on some work we started over a year ago.
When we sort of expanded our wholesale team.
To broader regions that we usually do hadn't historically covered.
And also just some wins.
With both new and existing customers around in this instance, steel roofing products.
You know a bit of that is driven by the fact that we have supply.
We can actually you know turning order in however, many days and not everybody in the industry can do that that's part of the reason we're carrying more inventory today.
Then on a days basis.
We would have like.
Got it and maybe one more and I can jump back, but the in terms of the guidance E.
P. S. In EBITDA are generally in line.
The topline implies about 5% growth at the midpoint.
Sorry for the redundancy in the questions, but how much of that is price given the rapid raw material inflation.
Reising actions, we've seen and how much was volume it just seems to imply a relatively low volume growth given that that dynamic relative certainly to your longer term expectations.
Any comments about the cadence of kind of volume growth throughout the year. Thanks.
Yeah, I think Dan if you look at your.
Your bill laid out on the sky sort of the inflationary environment.
And called down sort of our outlook for 2020.
To.
Material costs.
To me, most notably cold rolled hot rolled.
Which is the we use that as the commodity we use the most of.
And that has.
Declined a bit.
Since it peaked during the fourth quarter and so.
Our plan anticipates some pricing adjustment.
Recognize that as that cost flows through our system and it's not a one for one because obviously.
Transportation.
Hum.
Costs labor costs are up.
But you know, we usually do adjust pricing when the raw materials move significantly and so we baked some of that in the plan. So I think overall, you've got probably a little price reduction.
On the on the whole business along with growth.
It's really how you get to the sort of 5%.
So mid single digit or higher volume growth implied at the midpoint is that that correct yes.
Yeah, that's fair.
Okay, alright, they'll jump back with any follow ups. Thank you.
Our next question is from Julio Romero with Sidoti <unk> Co. Please proceed with your question.
Hey, good morning, Bill and Sam Thanks for taking the questions.
Good morning, Julio so.
Regarding the renewable segment I appreciate the guidance and your expectation for double digit segment operating margin of 22.
What does that assume in terms of the field operation inefficiencies Youre seeing now and I know you've mentioned the assumption that renewable supply chain disruptions related to the W. R. O should continue through two Q I think one of your slides mentioned, but if you could talk about maybe the range of outcomes for that W. R O issue and what's kind of baked into that assumption.
So Hulu the way that we've built our plan is more really around our discussions with our current customers and what they have in hand as it relates to solar panel availability.
And they don't have everything.
And but we spent the last six months kind of working closely with them on projects, Florida into this year do you have those panels in country are they in a warehouse somewhere do you have access to them et cetera. So we're trying to take some of that gets work out.
I think reflects you know in our backlog and some of the quarter.
Water activity.
Things are kind of built around trying to mitigate project disruption not only for them, but also for us so.
That's one kind of input to think about the broader industry stuff I mentioned is going to go on for some time and you know whether that's three months or six months.
So things can change pretty quickly as an example, just last week. There was a there were a number of panels that were released that were being held.
So the industry is finding ways to navigate through some of these are nuances that we've been dealing with the last year.
And so supply chain hasn't been evolving it's taken time for that to happen and effectively to get panels through you have to improve that you don't have those materials from osha.
Included in your panels and people are adjusting where theyre getting their poly silicon for those panels. So that's starting to pick up and that's why I think theres some optimism from.
The folks in the field that are they have a better way to navigate through that now than they did last six months or so.
Because they are finding other options. So it's not perfect it'll take some time to work itself out there'll be some.
Some additional choppiness in disruption.
But we're starting to see some things percolate in a more positive way than than what we've all had to deal with and really Q3 and Q4 of 2021 was probably the most disruptive the industry's ever.
Most disruption the industry's ever seen as it relates to supply chain.
And people you know modifying having to modify projects on the run in the field based on the panels that they were able to get or not get and that really has the tail wagging. The dog for the industry and I think that will start to settle that you'll start to hear more and more optimism about that but it's still going to take some time to work through that.
You know when the W. R O a situation gets rectified, we don't know, but let's assume it stays in play for a while.
There's a lot of polysilicon, that's our polysilicon that is sourced in other parts of China, that's not covered by the W. R O which is important.
And people are starting to tap into that in a much more effective way than before.
And then the anti Circumvention cases, you know we'll know here in the next 30 days, whether or not the department of Commerce takes this next one up or not.
And you know.
Do they don't you know the industry will deal with it accordingly, but people or had been.
Anticipating these things to stay out there for a while and.
Everyone has been working on work around so.
No that's a that's where some of that optimism comes it's it's a well that's the way we thought about it in terms of building their playing across the sit down.
Crew with each customer what do you have in hand from the projects, we have inked and how do we mitigate some of the disruption.
That's kind of the base of the plan going into 2022.
Got it that's really helpful to understand kind of what's baked into your assumption. There is it's more of what's in hand now with regards to the panel supply and then really you, making a call on what.
W. R O get kind of resolved.
Yeah. So I can't we can't rely on I don't think we can't control in that regard.
To your point so that's the way we've tried to sit down and go through with every project and see what's there and what's not.
So yeah, it's a constant constant no. It's just a constant battle with making sure that those things are aligned and this is something that as I mentioned industry has never had to deal with.
And so <unk>.
Processes and systems across the entire industry really had to tighten up and and that's what we've been working hard to try to do the last six months.
Just kind of chasing this thing.
My second question just staying on the renewable segment is are you or your customers seeing any shortage of material inputs other than poly silicon.
Okay.
Uh huh.
Panels I always say the number one issue I mean, there have been there's been inflation across everything that's come in.
That's used in the field I think our panels are by far the number one issue on the availability.
I think there were some some issues in 'twenty 'twenty. One buried on particular components I think those have been more apt to be worked out more so than the panel.
What's happening to the panel suppliers does not just the basic supply demand issue. It's it's got these other things going on with it but I think those are other items or items.
Then easier to navigate through.
Don't see those as being near our near as impactful as the payables.
Okay understood and maybe my last one here is just on the guidance.
Expecting free cash flow to normalize to back to about 10% of sales could you just talk about what that assumes from a working capital perspective does that assume for capital to be neutral for the year.
There is a slight improvement.
A day or two days not a huge improvement.
Think what.
What we would expect again as we built our plan.
You'll actually see investment in the first half.
As we continue to build inventory for our busy season, and the residential side of the business and we're doing that maybe a little bit more than we have in the past.
Because we've historically used a fair amount of temp labor and that's harder to get hands on so we've got larger fulltime staff in those business were working.
To build a little earlier.
And then just making sure we have enough to supply our customers.
And with the thought that.
There'll be some normalization as we move through the year and will be to improve.
Reduce our days on hand, I wouldn't say back to levels that we had pre pandemic.
He means yet, but maybe just.
Understand what the operating environment is an adjust to that.
I would say we're conservative today, because we do not want to not meet our customers' needs.
And that's important to us.
But I'd add one other thing who knows what that is.
If you look at our commodities. The one we have most concerned with and a bail ability perspective as aluminum.
So the last a few.
A few months, we are particularly in Q4 and actually as we went into this year and this excludes any impact from the current issue with Russia, and Ukraine and given the amount of influence Russia has on the aluminum industry, but there's been an ongoing energy crisis in Europe that has really impacted smelting capacity of aluminum. So that's been offline for some time.
And that's why you see aluminum started to come down a bounce back up.
And so we've locked that in which is good for us and but we as a result, as Tim said, we've brought that in earlier to ensure that.
That we have the supply of that so that's.
That's it.
Sure.
Last year, we had multiple commodities that you were dealing with them both inflation and availability. This year, it's more around aluminum less so much unavailable less so much on on steel.
Got it I'll pass it on thanks very much.
Yeah.
We have reached the end of the question and answer session and I will now turn the call over to CEO Bill balls away for closing remarks.
Again, I want to thank everyone for joining us today will be presenting at the Sidoti Spring conference in March and.
We'll be able to speak with you again in a few months when we report our first quarter progress so.
I appreciate everyone, calling in stay safe and healthy and look forward to our follow up calls. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
Yeah.
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