Q1 2022 Gibraltar Industries Inc Earnings Call
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Okay.
Greetings and welcome to the Gibraltar Industries Q1, 2022 earnings conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on yourself I'll keep that.
As a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host Carolyne capacity O L. A chair of Investor Relations.
Thanks, operator, good morning, everyone and thank you for joining us today with me on the call is Bill Bobweight, Gibraltar Industries', Chairman, President and Chief Executive Officer, and Tim Murphy, Gibraltar as Chief Financial Officer Earnings Press releases that were issued this morning as well as the slide presentation that management will use during the call or both.
Available in the investors section of the company's website Gibraltar, one dot com.
As noted in the earnings press release issued today Gibraltar has reclassified the processing equipment business and the objects upbeat as held for sale with the first quarter of 2022 results and has removed the related revenues and expenses from the processing business from adjusted results.
<unk> earnings press release and remarks contain non-GAAP financial measures tables, a reconciliation of GAAP to adjusted financial measures can be found in the earnings press release that was issued today.
So as noted on slide two of the presentation. The earnings press release and slide presentation contain forward looking statements with respect to future 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.
I advise you to read the risk factors detailed in its SEC filings, which can also be accessed through the company's website now I will turn the call over to bill by the way.
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Hey, good morning, everybody and thank you for joining today's call will start with an overview of the first quarter results. The current operating environment and Tim will review our financial performance. We'll then talk to our current trend some of their key initiatives and guidance for the year and then we'll open the call for questions. So, let's turn to slide three for a photo.
Results.
We got off to a solid start to the year and delivered double digit revenue and earnings growth in the quarter, especially given the headwinds from solar panel supply issues persistent inflation labor availability in general supply challenges facing our end markets.
Revenue reached $316 million up 10, 5% on a reported basis 11, 8% on an adjusted basis, all of which was organic growth.
Adjusted operating income grew 17% adjusted EBITDA grew 12, 1% and adjusted EPS grew 11, 1% to 60 cents per share.
Customer activity remains robust with total company backlog, reaching $433 million at quarter end over 23% versus prior year, driven really by a broad based end market demand across the globe.
As mentioned in our Q4 2021 earnings call 2021 was tremendous all albeit learning environment.
Variance really full forced us to challenge many of our internal and then market operating paradigms I think as a result, I believe we are.
Much stronger position today to deal with current market dynamics, and we were able to demonstrate some of that strike in the first quarter.
Let me share a few comments about our segments and then we'll start with renewables in renewables as I communicated during our Q4 2021 earnings call. We expected a challenging Q1 due to ongoing industry panel supply issues subsequent field project inefficiencies and additional structural steel inflation, but admittedly our results were less than favorable or less favorable than we.
We expected we had a substantial number of projects in process in the northeast during the quarter many of which were pushed from Q4 2021.
Our panel supply and these projects were further impacted by tough weather conditions in both January and February are challenged with execution.
I'll circle back in a few minutes and address the current status of the renewables market and our expectations for our business for 2022.
Let's switch residential where revenue grew 28% the seventh consecutive quarter of double digit growth adjusted operating margin reached 18, 8% up 240 basis points over last year.
Residential team has delivered back to back strong performance scores for both revenue and margin and we have solid momentum moving into the second quarter, our participation gains in 2021, and the carryover effect of these initiatives along with additional participation gains in 2020 to continue to drive the business as well as much as I am not a fan of investing in additional inventory to rent.
The business our strategy to invest in it last year and early this year has been beneficial.
It bolstered our position to support customer demand starting.
The year right out of the gate, we're able to use some production capacity in Q1 to start building inventory to meet customer demand in Q2.
Created better price cost alignment, while we continued to manage commodity price variability.
It also mitigate supply issues of key materials, particularly aluminum and finally, it helps provide better visibility for our customers suppliers.
And our business.
Switching to AG Tech and high Tech margin improved 160 basis points over last year, a two 9% lower volumes, while continuing to manage through and overcome inflation supply challenges. We continue to gain momentum from the teams work to build and integrate stronger processes and systems or the thermal energy acquisition, which if you recall is our main operation serving our produce business.
Relative to demand new bookings continue to accelerate in backlog for the business was up 18% at the end of the quarter driven by strength across all three for greenhouse growing businesses produce commercial in Canada.
As a result, we expect revenue to accelerate in 2022 and margin to redouble double digit performance for the year.
Also as mentioned at the beginning of today's call. We made a decision during the quarter to exit the processing equipment market and we've adjusted our revenues expenses account for its reclassification.
Despite the candidates retail market growing over 25% in 2021, the market for processing equipment used to extract oil from cannabis and hemp.
<unk> flat and more importantly, the market is 50% smaller than it was in 2019.
The market reduction is driven somewhat by the pandemic and growing pains of being a new market the latter which in retrospect contributed to that over buying of equipment to support hemp processing demand during 2018, 2019, and Oh gosh.
It's really came to an end in early 2020.
And although I would expect that the handful brushed impact the market, we did not anticipate the magnitude of the oversupply condition.
Essentially miss it.
I think the ownership of that.
In summary, the market has struggled to return to 2019 levels. The current protection for recovery no longer fits our timetable for growth and return generation.
So now our tech team is putting in a 100% of it's focused on accelerating our core faster growing and more profitable greenhouse solutions that support our growers and they produce commercial cannabis markets.
The infrastructure team continue to drive strong revenue growth in the quarter, but also continuing to five steel price inflation headwinds, particularly structural and plate steel as well during the quarter. The team experienced labor inefficiencies with the startup of the second shift capacity to support increasing demand.
Finding people in January and February while Covid was speaking along with general labor availability at that time added to the challenge.
Let's turn to slide four and we'll talk about today's market environment.
We remain focused on our people our supply chain transportation and the health of our team and relative to Q4 2021 I.
I think we've made solid progress, but we expect the macro environment remains very dynamic for the rest of the year.
I'm talking about are people, finding and retaining people continues to be a challenge, but we are in a better position today in 2021, we accelerated the conversion of temporary employees full time positions, which really helps with hiring and retention as we moved into this year.
Also we are also sharing resources across production facilities to help support our businesses with significant demand.
Our supply chain teams are managing well overall, we continue to deal with ongoing geopolitical issues in general disruption in the market.
Our main concern currently as panel supply U S solar industry and I'll address this in more detail a couple of slides.
Transportation trucking availability stabilized as more capacity has come online. However price continues to fluctuate with fuel prices and overall demand, which remains pretty solid.
And finally Covid infection rates increased in January and February similar to the general increase was experienced across the country, which is somewhat disrupted where suppliers some of our production facilities in a number of solar projects in the field.
Most importantly, our people had recovered relatively well currently our number of active cases are very low across the company.
Let's turn to slide five for a quick snapshot of what is happening with our core material costs. As a reminder, there are three core materials we use.
For us the company steel aluminum and resin and in Q1. These materials moved in different directions, driven by some unique circumstances.
Oh coil steel prices began to fall into Q4, 2021 from a peak of approximately $2000 a ton.
It continued into Q1 with the average price at a little over $1400 a ton at quarter end with.
But inside Q1, there was quite a bit of price stability, all steel, which caused a short term pause as the industry search for more clarity on direction of prices on the other hand structural steel structural and plate steel used in both our renewables and infrastructure businesses continued increase setting new highs.
Already in April the April report from IHS Markit average steel prices are expected to rise to the end of <unk>.
Q3, 2022, and then start to level off and decline.
I think given today's environment going forward, we will remain agile and flexible as we see steel prices move.
Aluminum prices have been very erratic since Q4 2021 with prices initially moving downward and then quickly increasing substantially as we entered Q1 2022 and the initial price increase was really driven by the European energy crisis, both availability of supply as well as cost, causing some of the aluminum smelting capacity in the region to go offline.
This has been further accelerated with the Russia, Ukraine conflict began.
Given the rest of his role in the global aluminum supply chain.
And prices are expected to increase at least through Q3 and remained high throughout the year to.
So given that backdrop, here's what we're doing in this environment number one keeping our price and cost inputs and balanced timely price management actions second labor accelerating more 80 20 initiatives.
Typically product line and customer simplification to drive more productivity and cost reduction.
Third changing indoor adding terms and conditions to customer contracts in our renewables and AD tech businesses balanced risk reward better manage their place and drivers and support the dynamics in today's environment.
And fourth continuing our new product introductions that are driving more value for customers, while improving our margins and profitability.
Let's move to slide six and give you an update on the panels or supply of panels for the solar industry.
Coming into 2021, the solar industry was already dealing with general supply shortages as global demand continues to outpace supply.
The industry was also dealing with the impact of Covid across the broad supply chain, specifically in China, where 80% of the key materials and components for panels are produced to add early in the fourth quarter of 2020 industry began to see inflation, which the sole illustrated never experienced in January 2021 inflation again accelerate at unprecedented rate.
Yes, the industry by surprise and effectively pressure testing every business process and knowing the industry had grown up with.
Two additional major events occurred also occurred in 2021 first in June the U S customs and border protection issued with old release order and Silicon based products made by hoe Shine silicon industry located in Xinjiang province, as a reaction to allegations of companies in the region using forced labor.
80% of global Polysilicon comes from some from China with approximately 50% coming from Syngenta products the <unk>.
W. R. O currently banned any solar panel products containing whole chain materials from entering the U S. But the W. R. O will allow a solar panel products to be imported if the importer and verify husain materials are not contained in the product.
The second major event was a petition filed with the department of Commerce, claiming Chinese solar panel manufacturers were using assembly operations in Cambodia, Malaysia, Thailand, and Vietnam to avoid or circumvent duties applied to solar panels imported directly from China.
Titian was dismissed in November 2021, but a second petition was filed in 2022, which the department of Commerce has sense excepted and subsequently launched the anti circumvention investigation to determine where the Chinese solar cell and module manufacturers in these four countries are avoiding existing anti dumping.
And countervailing tariffs.
Fly to imported solar sales and module from China.
Approximately 80% of panels used in U S used in the U S in utility scale projects our shift from these four countries.
The department of Commerce bis in favor of the complaint future panel imports for at least four countries can be assessed in his duties up to 250% and it is possible. The department of Commerce will make these duties or penalties retroactive to March 'twenty.
When the petition was accepted or even earlier.
As a result, it makes it difficult today for developer or utility to move forward with the solar projects until there is a really from the DRC.
Ordinary really is expected in late August with a final ruling in January of 2023.
So what does all this mean for our renewables business in 2022 first.
Before the DSC decided to accept the latest petition we had been holding discussions with customers to understand their panel supply situation.
As we are concerned with power supply challenges that we've been seeing over the last three quarters. The recent DSC announcement, we've gone back to our customers for daily weekly discussions to understand their current and future supply situation and their plans going forward.
We've had discussions we've discussed the situation of <unk> 95 of our customers, which represented 83% of our 2021 bookings.
And are a good proxy for at least 80% of our 2022 bookings.
These customers approximately 70% fairly are fairly confident in the current supply situation.
Assessing potential project impacts for later in the year.
Our largest customer is secured and has in possession of 100% of the panels needed for the 2022 projects. It is moving forward as planned.
It seems to be other panel sources available to fill in the near term supply requirements.
Panels available via Safe Harbor inventory panels for sale from developers that youre not projects scheduled in 2022, and there are panel manufacturers willing to mitigate potential retroactive duty risks for customers by sharing the cost of a duty if applied in the future panels they supply.
Currently we do not expect an impact to our business in Q2, given the current status of customer projects and process.
Had three projects canceled since the DSC began its investigation, representing approximately $1 3 million of our planned 2022 revenue.
We are monitoring the situation with our customers daily and we'll stay nimble to adjust as necessary.
Confident in the strength of your relative position of the renewables market.
So what is the potential impact to the industry beyond 2022.
And here are my thoughts.
I expected a situation will get resolved in 2022 and the solar industry will have another strong year in 2023 and I also remain very confident the strength of soldiers long term growth potential.
The solar industry is working diligently with the administration to help us understand the immediate and long and long term impact of the GSE invested.
The DSC investigation under $30 billion U S solar industry, which employs over 230000 people.
And as important the impact to the administration's climate agenda over the next three to five years, if the solar industry is paused and lose a significant momentum in the next 12 to 18 months.
One should remember that solar energy production has been the fastest growing and largest source of renewable energy production in the U S. Over the last five years and it is really really important for the U S economy going forward.
The entire administration is now aware of the recent developments and is working with industry and other constituents to bring a resolution that I expect a positive outcome later this year.
With that I'll turn it over to Tim for a detailed review of our results.
Thanks, Bill and good morning, everyone I'll take you through our consolidated and segment results starting on slide seven.
As a reminder, my discussion will cover the results from continuing operations and also excludes the related revenues and expenses from an AG tech segments processing equipment business.
Which has been removed from the adjusted results for both 2021 and 2022 as we classify this business as held for sale with this quarter's results.
A summary of the 2021 adjusted results recast to reflect the removal of the results of the processing business is available on the Investor Relations portion of our website at Www Dot Gibraltar, one dot com.
Adjusted first quarter revenue increased 11, 8% to $316 million.
And this growth was purely organic and was driven by participation gains and price management in the residential segment, partially offset by continued supply chain challenges in the renewable segment.
Backlog at quarter end approximated $433 million up over 23% from first quarter 2021, driven by solid end market demand.
Adjusted operating income and adjusted EBITDA increased 17, 2% and 12, 1% respectively in the first quarter with adjusted EPS up 11, 1%.
Margins for the quarter were driven primarily by profitability expansion in the residential segment through participation games price management, and 80 20 initiatives and in the AG Tech statement segment through 2020, and lean enterprise initiatives supply chain optimization activities and favorable business mix.
Renewable margins were pressured as we had expected by the carryover supply chain challenges that affected the industry in 2021.
And also by the project inefficiencies, resulting from severe weather winter weather in January and February .
Infrastructure margin was impacted by steel inflation labor availability and second shifts startup inefficiencies to support demand in the fabrication business.
Our income tax rate in the first quarter increased over the prior year rate due to lower excess tax benefits from stock compensation and a difference in the allocation of income to states, where we generated revenues.
Now, let's review each segment, starting with slide eight the renewable segment.
Segment revenue decreased seven 8% all of which was organic.
As we communicated on our fourth quarter call the industry wide supply chain challenges that affected the solar industry throughout 2021 continue to delay and disrupt project schedules in the first quarter.
And severe weather in the northeast in January and February also contributed to project delays and disruptions.
These pressures began to abate in March when we saw an improvement in project margins.
We continue to work with our customers to ensure panels are in hand, before we begin to manufacture racking and mobilized our field installation crews.
Regardless of the revenue decrease and market demand to remain robust with new bookings up 22% over the first quarter last year, resulting in backlog about 41% compared to the prior year.
To date as Bill mentioned, we have three orders canceled as a result of the guidance anti circumvention investigation and our team is in constant.
Contact with all customers to ensure panels are secured for projects.
We've talked to customers that make up over 80% of our 2022 planned backlog and bookings and the vast majority are not currently anticipating impacts existing projects.
Segment adjusted operating loss was $4 3 million in the EBITDA loss was $1 9 million.
Adjusted operating and EBITDA margins contracted to a negative five 4% and a negative two 4% on project and field management inefficiencies related to project delays and disruptions as I described.
Again. These factors began to abate March and we expect significant sequential margin improvement in the second quarter driven by stronger revenues as construction season begins improve field efficiencies as the severe weather impact has ended and we have less project disruption from customer supply chain issues.
Our integration of the renewables business remains on track with information systems supply chain and in sourcing activities gaining momentum per plan.
And as Bill mentioned, we continue to monitor the impact on our solar customers of the department of Commerce has panel anti circumvention investigation.
Let's move to slide nine to review our residential segment.
Segment revenues increased 28% organically, our seventh consecutive quarter of double digit growth.
Revenue was driven by market price and participation gains in building products and mail and package businesses.
We're seeing strong traction in participation gains with new customers additional product offerings and expanded geographies.
There was an impact from participation excuse me there was an impact from the participation gains we achieved in 2021 as well as new wins benefiting first quarter 2022.
We expect the momentum in this segment will result in strong growth continuing in the second quarter.
Segment, adjusted operating income and EBITDA grew 46, 5% and 41, 4% respectively.
Adjusted operating and EBITDA margins improved 240 of 190 basis points, respectively. As we achieved improved price cost alignment.
Enjoyed the benefits of favorable business product and customer mix and as our 80 20 and product redesign initiatives continued to drive year over year margin improvement.
We continue to work with our supply chain partners to support our customers' needs and are maintaining our focus on price cost management effective staffing management simplification in lining and automation.
As we've previously mentioned finding temporary employees continues to be a challenge and we took advantage of the seasons seasonally slower first quarter to increase production to ensure we're able to meet our customer demand as we move into the seasonally stronger period of the year for these businesses.
We're also making additional investments in information technology to increase internal efficiency and support our customers' efficiency.
We continued we expect continued top and bottom line growth for this business this year.
Now, let's move to slide 10 to review our egg type segment.
As I mentioned earlier in the call we've classified the processing equipment business, which accounted for 10% of the AG Tech segments 2021 revenue as held for sale of the first quarter 'twenty two results and remove the related revenues and expenses of this business from adjusted segment results.
Adjusted segment revenue decreased two 9% through project delays as states and local agencies continue to work their respective permit backlogs and the scheduled timing of projects. Despite near term project schedules, causing revenue delays market demand across produce commercial in Canada continues to grow.
With our order backlog, increasing 18% in the quarter.
Segment, adjusted operating and EBITDA margin improved 160, and 140 basis points, respectively. An improved business mix continued execution, 80, 20, and lean enterprise initiatives and integration activities.
We are investing this year in supply chain optimization projects with a new dedicated supply chain leader.
Closer relationships with key suppliers improved material planning management and transportation logistics and schedule.
We expect positive margin momentum to continue this year as we convert strong backlog make additional system improvements and benefit from an improved business mix.
Let's move to slide 11 to review our infrastructure segment.
Segment revenue increased 13, 9% driven by growth in fabricated products.
While order backlog declined a few million dollars from last year on timing of orders and revenues pipeline and bidding activity remains strong.
We continue to expect the positive impact of incremental government spending on the infrastructure business towards the end of 2022.
Segment, adjusted operating and EBITDA margin decreased year over year, but remained flat sequentially as steel inflation impacted fixed price projects that were booked in 2020 and early 2021.
Margins were also affected by the fabrication business experiencing a challenge with flu.
Labor availability and inefficiencies related to adding second shift capacity to support increased demand.
We expect margins to improve through 2020, twos incremental capacity becomes more efficient and orders for higher margin non fabricated products increase as we move into the construction season.
Now, let's move to slide 12 to discuss our balance sheet and cash flow.
At March 31, we had $352 million available on our revolver cash on hand of $16 million and our net leverage was approximately <unk>.
Two times.
We used $7 8 million in cash from continuing operations in the quarter, primarily in working capital investments.
<unk> as is typical in the first quarters were affected by seasonal timing of revenue during the quarter with strongest revenues in March the.
The investment in receivables normally reverses in the second half of the year as revenues peak and begin their seasonal decline.
And as Bill mentioned, we invested in inventory to ensure strong customer support during a challenging supply chain, an inflationary environment and shift some production into the first quarter from later in the year in anticipation of the possibility of temporary employee challenges during the seasonal peak.
We don't typically like inventory builds and we've been heavily invested over the past few quarters to allow us to navigate through the current top supply chain environment.
We have been able to gain participation precisely because of having product.
We are winning business because among other reasons, we've maintained the ability to deliver high levels.
We're also carrying more finished goods during the seasonally slower first quarter, because we built more to avoid having to hire as many temporary employees to ramp production as we haven't historically.
Payables were affected by timing of inventory purchases, both in Q4, and Q1 and the growth in other liabilities was driven by an increase in billings in excess of cost, which is the result of timing of billing based on contractual project drilling schedules.
If you look back in time, our free cash flow as a percentage of revenues has typically run in the high single digits and we expect to return to more normal levels of positive free cash flow during 2022 with a target of generating approximately 10% in 2022 on improved profitability and lower working capital investment.
We expect to use generated cash flow and repayments on our revolver investments in growth, including opportunistic M&A and on our newly announced stock repurchase authorization with the latter two items supplemented by opportunistic use of our revolver, depending on the timing of any M&A or repurchases during the year.
Now, let's move to slide 13 to discuss our new share repurchase program.
Our operating plan anticipates that we will generate significant cash flow this year and through 2025, and we have an unlevered balance sheet.
Because we believe Gibraltar its intrinsic value is not properly reflected in the current valuation and that we have we will have sufficient cash to deploy into operations to both strengthen our leadership position in our markets and offer incremental returns to shareholders. We asked our board of directors authorized a stock repurchase program for the first time in Gibraltar.
Sorry.
Our board approved a $200 million common stock share repurchase plan ending may 20 at May 2nd 2025, and the amount and timing of any share repurchases will depend on market conditions, and we may make the limited use of the revolver to capture opportunities to generate incremental returns for shareholders now I'll call I'll turn the.
Back to Bill.
Thanks, Tim Let's turn to slide 14 for an update on.
E trends as well as our initiatives for each of the businesses.
We'll start with renewables that despite the current challenges facing the solyndra share customers remain very active new bookings are on plan and backlog increased 41% by quarter end, we have four key initiatives for the business first as discussed we are working diligently with customers on annual availability of project execution plans second lien, we're upgrading to operating systems.
<unk> and process to support growth and improve execution performance third we're supporting the ramp up of <unk>.
Its air track tracker platform as well as the development of our new <unk> product line for launch in Q4 and fourth we are implementing the tariffs more acquisition in sourcing and supply chain cost synergies originally planned for 2022 in both Q3 and Q4.
Switching to residential the market remains relatively strong both remodel and repair as well as new construction demand for single family homes continues to outpace supply and there is a large inventory of existing homes that are aging out and in need of repair and upgrades.
While we expect multiple interest rate increases to have some impact going forward, we've not seen a material impact to date. We also continue to gain participation of focused initiatives. We've had success with over the last five quarters.
<unk> strong revenue and margin performance in Q1 customer backlog and order activity was solid as we enter the second quarter and our outlook is positive for growth and margin expansion in 2022.
Our four initiatives for the residential business are also also remain on track one expand participation gains further through new products and services key customer expansion and geographic expansion Secondly, continue our price management discipline and proactively partner with customers as market dynamics evolve third execute our ERP.
Implementation and system upgrades.
Or accelerating 80, 20, and automation projects to help offset labor supply chain disruption, especially in our peak season quarters Q2 and Q3.
Let's move to slide 15.
In <unk>, our commercial segment continues to see solid growth across all businesses with Floraculture research facilities retail carwash, leading the charge. We also see solid investments that produce growing segment that should drive market growth of 7% to 8% similar to the annual growth rate over the last five years and we expect the cannabis growing segment demand.
And to accelerate as licensing approvals are implemented for states that legalized in 2020.
Our four initiatives in AG AG business are number one execute our order backlog, an order backlog of higher margin products projects and deliver margin improvement as planned.
Well, our participation games with our new retail customer in scale and support accelerating expansion plans with our large partner.
And our supply chain or roofing structures and glass to eliminate <unk> minimized project disruption in the field and finally exit the process equipment business by year end.
And our infrastructure business, we see state and federal Department of transportation budget funding, becoming more consistent and providing a more predictable cadence as cadence is driving solid investment and bridges as well as surface protection for bridges run rates and structures. We also expect the implementation of the infrastructure built to drive additional demand starting lay.
During the year.
Our four initiatives for the infrastructure business are one mitigate structural and plate still inflation through 2020 and price management initiatives.
And then secondly, expand our engineering design capacity to support accelerating demand third AD and optimize production capacity to support demand and fourth continued process and system upgrades from manufacturing operations.
Now, let's move to slide 16, and we'll review our 2022 guidance.
We reaffirmed both revenue and earnings guidance for the full year 2022 consolidated revenue is expected to range between $1 38 billion and $1 four 3 billion compared to $132 billion in 2021.
GAAP EPS is expected to range between $2 80, and $3 compared to $2 25 in 2021, and adjusted EPS is expected to range between $3 and $23 40.
Third to $2 86 in 2000, 2021, sorry 2021.
Given our solid start in the first quarter of the current demand and outlets across the Walter we're confident in our revenue margin guidance for the year.
Renewables is on track to improve in the second quarter and we have taken into consideration the industry panel supply situation and our current outlook for the year.
As well, we see strength and momentum in the residential business with good performance continuing.
<unk> performance, improving delivering solid growth and double digit margin for the year and infrastructure, having a solid year with favorable business mix, good volume and improved operating efficiencies.
<unk> strength of Gibraltar is absolutely, helping us navigate through the current solar industry headwinds in a relatively effective way.
With that I want to thank everyone on the Gibraltar team for their continued effort agility and resiliency in this environment, we are executing well in 2022 and are focused on delivering a great year.
Now, let's hope all and we will take your questions.
Ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, where confirmation tone will indicate your line is in the queue.
You May press Star two if you would like to remove your question from the queue.
All participants using speaker equipment, they may be necessary to pick up your handset before pressing the star keys.
One moment, please when we poll for questions.
Our first question is from Daniel Moore with CJS Securities. Please proceed.
Thank you and good morning, Bill Good morning, Tim Thanks for taking the questions and all the color.
Let's start with renewables you.
You mentioned, obviously, you expect significant sequential margin improvement in Q2.
Can you provide a little more specificity or maybe a range you're targeting and maybe a bridge of the key factors that are changing are abating.
I'm, giving you that confidence whether it's revenue less of it.
How much from what less severe weather supply chain customer supply chain disruptions, just sort of how does how does the math add up and what does it add up to from your perspective. Thanks.
Yeah, Thanks, Dan so.
If you remember going into the year.
And the plan for renewables to run double digit margin.
And we still feel solid about that plan. Despite will start in Q1 and a lot of it has to do with our confidence in what we started to see in March as things abated, but this Doj investigation has actually driven everyone to be much more in depth had much better in depth understanding of what panels are available which ones are not.
Actually provides a benefit in terms of having a little bit more straightforward planning associated with how we execute our projects.
So as tough as the investigation has been on the industry in the short term for a lot of folks for us, it's actually creating more visibility as to what we do and do not have such that we don't deploy.
An inefficient way if you will.
So we.
We expect and see pretty good momentum going into Q2 and.
Significant improvement.
Based off what we saw in March and what we're seeing now and we think that will continue to accelerate into Q3 and Q4 as well.
And so not to.
Get too precise but should we think about you know double digit margins in the back half of the year versus sort of the full year.
Relative to what we saw in Q1.
Yeah.
We're still planning on and we still have a target to hit double digit margins for the year, which implies that Q2, three and four obviously.
We have improvement that we're expecting to read through.
Got it.
So overall the guide obviously hasnt changed.
So what I'm hearing is.
Coming out of Q1, I would've expected, maybe a little bit more strength out of resi in the plan and a little less out of renewables.
Is that it doesn't sound like that's the right takeaway from what you're saying.
Well, it's on the renewable side, it's kind of interesting because as I mentioned, we've had three projects.
That have been delayed that that customers are telling us about $1 million impact.
And I think a lot of our customers.
Talked about we talked to 95, plus customers and said look what are you seeing what you have on hand in possession and Theres, a very large percentage of those that feel pretty good about the projects. They have planned for 2022 do you think about if you're in a project right. Now you have to have a panel in Q2.
Alright.
We'll have to be here sometime ago, you would think so I think as you get further out of the year there may be some some news, but at the same time I think.
The administration is GSE and everybody involved in this will bring this thing to a conclusion, one way or the other and that.
That'll be helpful as well, but right now our outlook for the business hasn't changed a whole lot relative to the DLC investigation, we do think there'll be some impact in what we've done is and thinking about our guide for the year taken that into consideration that there are some scenarios that could occur.
We feel pretty strongly we can offset with different scenarios, accordingly, and still deliver our full year due to the strength of the rest of the business residential AG Tech and.
Infrastructure.
That's helpful.
Maybe one more and ill jump back in queue.
In terms of participation games.
Which seem to have been accelerating through the back half of last year talking about specific product solutions for you.
Kind of taking that debt.
Sure and what your confidence that those gains are permanent versus.
Temporary over the longer term. Thanks again for the color yeah, well market share gains there is permanent as you prove them to be right. I mean, it's based on your performing in satisfying and.
And delivering valued customer and we don't get a chance to lose them, but in general I think they are pretty sticky as long as we continue to perform in the proof of that is the fact that they continue to grow but in terms of what types of gains I will give you a couple of different examples.
Heidi things, whether it's been through geographic expansion.
New products that have come out we've actually.
Broadened our base with existing customers and frankly, a lot of that is related to earn that right to have that conversation because we've been able to deliver.
In a pretty tough 2021 supply chain environment. In fact, just last week, we were awarded Cisco amount of business to us.
We stepped up in 2021.
And that was verbalize in front of a large team from our customers. So it's those types of things that I think are really important I think the other thing that we've invested a lot in digitizing the front in connectivity with our customers. So.
Taking out that cost of doing business with us.
Not talking about pricing of that product that taken out the business costs.
Our low in that business cost has been pretty impactful and that's why we've been so adamant about investing in our digital systems to kind of.
The game in this traditional more commodity like marketplace. So.
Those investments we started making in early 2020.
Continue I think are also paying off on top of the things I mentioned.
Very helpful I'll jump back with any follow ups. Thanks.
Yep. Thank you.
Our next question comes from Julio Romero with Sidoti and company. Please proceed.
Hi, guys. This is Noah on for Julio Thanks for taking the questions.
I had one on the AD tech.
Yes.
Could you speak to how you view the business going forward and talk about some of the organic and inorganic opportunities for the segment.
Yes on the organic side, if you think about the process equipment coming out of the portfolio. We're kind of back focused on their routes we've been in for 80 years.
The last couple of years, we've added more emphasis on produce in particular, which is a relatively fast growing end market with a lot of investments going in North America, particularly in the U S. Here in the last year, but continues in Canada as well and we're in a really good position to take advantage of that and we've made an acquisitions et cetera.
Sales and acquisition that was thermo acquisition, a couple of years ago that we've integrated in the demand profile of that business continues to grow.
Number of projects in flight the backlog et cetera. So we're really excited about the investment dollars going into the end market to build out these structures, but we feel like we're in a much better position to support that today.
Going forward. So we're very bullish about that with the trends going on in market all the way through our ability to now support that.
Pretty second way.
Our commercial business was actually as our historical business today is actually our biggest segment. So if you look at our three segments commercial is number one in produce as a close second in cannabis is our smallest but an important segment as well.
That commercial segment cover seeing everything from Floraculture to retail too.
Research facilities with universities to Carwash initiatives botanical gardens, and so forth.
Primarily that business remains very strong and very active and theres a lot more funding flowing there as well and so we're quite excited about that and that's a business that has historically performed very well both top and bottom line and if you go back to our 2019.
<unk> four AG Tech win that was our core focus which is what we're now back to where were running margins in excess of 15%. So we know how to do this and do it well and now the top line. The backlog continues to build we feel really good about the demand in the commercial and the Proteus segments.
You need to accelerate.
So that brings you to cannabis and cannabis from a growing structures perspective, we've actually been in since 2018, when we acquired a company called Nexis.
<unk> is based in the Denver area and they were really one of the first folks that learn how to build structure is appropriately to to help grow cannabis in an indoor settings and controlled environment.
We had a very strong year in 2019 and.
All the things we talk about relative to permit ATM expansion in the last years for that industry has slowed but we're really starting to see activity pick up in our backlog has grown in there as well so you'll see a stronger animas growing structures. This year for us as well and that's why our confidence in AG Tech. This year as we continue to make progress starting last year.
Sure.
You are going to get better every quarter on margin and we have noticed as fast as I would've liked but we've continued to improve and youll see us generate double digit margin performance for the year and the AG Tech business this year and you'll see us grow as well and that's one of the theories.
Strength of the team that helps us this year, particularly if there is something that happens in the solar industry that we're not anticipating today. So I would it's a long answer to your question about the AG Tech business relative to other bolt on opportunities. Yes. There are key value proposition, though has a lot to do with our domain expertise with <unk>.
All of the systems that we help customers select and integrate as we design and build and construct.
The facilities that we do across our growing sites.
Okay perfect. Thank you for that color and I just had one more.
Circling back around to renewables.
You kind of touched on it a little bit some of the challenges you had in the quarter would you say that weather supply chain was a bigger factor and do you see supply chain getting better or worse.
Well weather.
Well it was a big impact in January and February and we've got we have a.
If you think about the population you asked and you think about where C&I solar installations are heavily oriented traditionally its been in northeast is highly populated and unfortunately, the projects that were supposed to be done.
In Q4 of 2021 because of animal supply and other splicing things got pushed into January February timeframe, and then we got hit with some unfortunate weather and that was a problem.
And that can be very impactful.
We have a price for that and typically projects that go into.
Heavy winter months like that.
Our price differently than they would be for those that we know are in land and other quarters, where the weather is so extreme and we just didn't have that advantage because that was it was a delayed projects. So we gotta get double whammy there if you will so.
So I think that was the that was a big incremental impact in Q1 that was unfortunate the supply chain relative to panels, which has been an issue for three quarters now.
He has gotten a little bit better, but I don't think it's because it just got better I think it's because frankly, there's been so much emphasis on it that we as well as I'm sure others have.
Had to sit down with customers and talk through what they actually have in hand.
In possession versus what they think they may be able to get in.
That's been a challenge the last three quarters now that we have this new development in the industry with Boc investigation, it's actually forced us and our customers for every project that's in flight or in plan to under.
<unk> is already in hand, because if you haven't if you don't have your panel before March 20 seconds.
And then depending on the outcome of the investigation that goes in favor of the complain. When you bought your panel. After March 22nd you have risk of these retroactive duties.
So everybody in the industry last four weeks is really trying to hone in on what they have and that makes it actually easier for us to execute around knowing what is there versus.
What may or may not be there and that's really been the last three quarters and a lot of waste in the industry that we're dealing with it we're not unique to that but.
That's kind of more of an industry situation. So we're actually a little more confidence knowing what's out there that we were the last three quarters. Despite the supply chain for payoffs not actually being a whole lot better that makes any sense.
Yeah that makes sense. Thank you very much I'll go ahead and hop back in queue.
Yes.
Our next question comes from Ken Zenner with Keybanc capital markets. Please proceed.
Good morning.
Good morning.
Quite the quarter. So I have some broad questions just a quick.
The actions of the quarter and the choices you are making kind of within the context or a bridge from the analyst day, if that's okay with you.
Just to kind of you obviously shifted given the landscape.
So just looking at AG Tech.
Your analyst day.
Presentation candidates is kind of about 30% I was supposed to grow to about 30% you mentioned, it's about 10% of sales.
Youre divesting a day.
But that was a large piece of that growth platform. When you think about that the 'twenty two targets could you maybe just give us a little sense of how this.
Sure.
<unk> had kind of impacts that.
25 goals that you laid out just so we could have a.
No.
A better interpretation of that.
Of that presentation.
Yeah, So Ken good question.
10% of 2021 sales.
Call that $19 million.
The what you saw the Investor day was still heavily oriented on cannabis with growing the structure's piece thats. The bigger piece is always has been of that business.
So we don't really gone into that.
Impactful in 2025, and the other and the other thing I'd say is the produce business.
Over the last six months, we're seeing accelerated a faster clip than we probably thought then.
And we will more than offset the $19 million that we're talking about today.
Good let me just keep drilling down and I apologize I just think it's this is actually.
A very interesting quarter for you guys that I highlight the details of your business for sure.
But easily understood that vegetable and last quarter. This came up in conversations I had.
Okay.
I had really had a prior to last quarter approval of vegetable.
The greenhouse could you go into that a whole approval process because on the residential side that I cover we hear about approvals and that type of stuff, but can you.
Last quarter was really the first time I heard about delays due to approvals and stuff could you give us a little more.
Understanding of that given the increasing importance of this business given the divestiture.
Yeah.
Kevin.
A lot of the permit delays that we're seeing in one region.
Just across the border and it's around.
Water rights.
There is an area in Canada, where a lot of these greenhouses go.
They have.
A significant amount of water committed to people who.
Applied for the right to use water and are using them using that water and so the.
Locality is working on saying, hey use it or lose it.
And we have.
Customers that need water and or need to move so they're a little bit in a different location, where they have access to water and so that.
<unk> been going on for probably three quarters ish.
And so it's it's being.
It's just it moves at a slower pace.
And then I think the other impact on sort of.
Scheduling permits is really still around the states that legalized cannabis like New York State.
So New York State in the last.
I'm going to save money, but its pretty recent.
Allow I think 46 people who had.
A license to do.
It might have been 10 two.
To grow cannabis for the recreational market they still havent selected the.
Licensees for dispensary side, nor have.
Any of the licenses that they just granted permanent theyre sort of.
For a year I think it goes through next December so still some of that legislation delay.
From the states that legalize.
It's starting to move but it's just a little slower so we've got some.
Projects that are people won't vest until they have a permanent license and.
New York State being an example, it could be another three to six months before we see some activity there.
I appreciate it.
<unk> related to the water in Canada, why do you see that as a.
Perhaps near term cycle issue as opposed to a secular issue given.
Something else.
Okay.
Yes, it's one region, where we operate if if you will get land 15 miles away.
You're not stuck with that.
Sure.
If youre close enough to the Lake where you have water rights directly from the Lake and Youre not dependent on the municipality so.
What we've seen as brokers that we work with shifting their location a little bit.
Indeed.
$30 40 acres or whatever youre going to need.
Land is available.
But it just the process, but yes, so it's not.
It's a very specific.
Yeah.
It's important to remember too is our expansion and produce the vegetable fruit side.
<unk> has traditionally been inside that region, we've talked about a lot of our growth in backlog going forward as expansion into the U S, where theres a lot of investment going in as well so we're not as.
Dependent on a single pill the foundation, where the industry is not is expanding in the U S where you don't have some of the stipulations are.
There are challenges.
Really appreciate that detail because.
That was below the surface a second.
Second and build this is more for you and I guess discussions with the board give it.
No.
You're making a call on the divestiture, obviously that will.
We'll have to see how that clears out.
At least that's a clear decision that you've made but given the buyback in conjunction with that given the right here in our high growth Mason industries.
The residential.
Well look there's a lot of hiccups that <unk> been facing.
Maybe some of the self created but more so as the designs in this event and it seems as though.
The broader goals that you might have discussed at the analyst day as well given the <unk>.
Activities.
As you are facing.
Or has that shifted it seems like you're much more comfortable taking a look.
We have a lot of cash we have an unlevered balance sheet, we're going to put some of this capital back to work in the company.
You've created these growth platforms that you invested in some worked out some haven't so far.
Really just.
And this idea of organic growth.
Share buyback has that.
Because you have a platform now that seems to offer sufficient activity does that really reflect.
A shift in terms of your discussions with the board about what you control and what you guys know.
Organic platform is so strong now that you think you can be spinning out the cash as you execute around these 25 goals.
No I don't I don't.
That that.
Oh, let's say black will I don't think it's that black and white.
Suggest that yes.
Think about we're going to generate a lot of cash this year as well as the next.
Through 2025 through the plan.
Got it.
And industry is solar right now that's that's working through some big issue. So in the short term, we want to have flexibility to try to drive incremental returns for our investors.
While we are waiting to see how some of these industries are going to evolve in the near term because of some of these unique circumstances, we're going to get cleared out youre going to get dealt with.
But I don't want we have.
An opportunity here to help with our shareholders.
So we want to have that flexibility to do that.
And it doesn't mean that our plan overall has changed we feel like.
To work over the next three years and the combination of <unk>.
M&A like we have to build out platforms further is that organic growth.
You saw this first quarter that grew double digits, that's going to continue to drive the platforms and I think we have some other opportunities for capital.
In the near term as well so.
I don't think it's a wholesale change by any way by any means I. Just think it has demonstrated some flexibility on behalf of our shareholders to react to a situation at a couple of our markets that we want to take advantage of it.
Near term.
As much as anything else.
Thank you very much.
Okay.
As a reminder, if you'd like to ask a question. Please press star one on your that's helpful feedback.
Our next question is from Walter Liptak with Seaport. Please proceed.
Hi, Thanks, Good morning, guys.
Hey, Walt.
Alright.
I wanted to ask about.
The processing divestiture.
What do you envision for the timing.
And I think you said it was $19 million of sales.
Should we be thinking about for.
For cash in flow from it or is it immaterial.
Yeah, I would say well.
Both timing and value are a little bit TBD right.
We publicly announced today we've had.
Some conversations and we're going to continue that so we will keep you updated as it moves it's not going to be years.
But I don't think it's also a month right. So it's somewhere between those two brackets.
And.
More to come.
Okay.
When you were thinking about that divestiture, you know I understand some of the growth came out of it but I I had thought about.
All of the cannabis businesses as sort of.
<unk> package.
System.
And having a broad range of products.
Why keep.
The growth part of the business why not put them all together.
As one business.
And exit that one completely because certainly there is.
That one seems to be.
One that.
It's been lumpy in terms of.
Timing on revenue et cetera.
Yes.
Clarify for everybody just a little bit when you get into the growing business.
We fundamentally it is fundamentally one business if you think about our history.
We've been in these growing structures and they serve so many different end applications.
From a go to market perspective, as we've talked to customers will be salaries segments, a little bit differently. If you look at the back end, how you support a.
Canvas, earning side of tomato growing site carwash.
Carwash Si.
A retail site.
The business has very common processes across the backend from estimating to design to manufacturing to.
Sticking them in the ground and field execution so it.
I would characterize this move is getting back.
Two are growing structures core that we've been in for 80 years. We just now have an opportunity where there is some market segments at a revolver at unique customer sets. So it's kind of coming out of one group, it's just selling to the three or four different buckets. If I gave you the commercial market. As example, there's six or seven segments that have always been there so think of.
This is a commercial growing structures business with nine segments.
Instead of seven.
Are you seeing.
One and candidates being one and so we've been in the candidates growing business for.
Three or four years that was the next step.
Acquisitions at Nexus also makes structures for.
Our culture and other types of greenhouse structures. It just happened that they were had more domain experience in how to do a structure for cannabis that's all they do other stuff as well.
It's not as separate in the backend as maybe we kind of.
Okay, Alright fair enough.
Yes.
Okay, great. Thank you.
And then it.
I wanted to.
You don't try and drill down a little bit about the solar comments and I understand that your customers are telling you that hey, we got the panels for the second quarter. Some of these projects should be on track.
I Wonder if you could tell us how deep you go down into the conversations you know did you talk to us.
Yes.
Yes.
The audited.
I mean were you able to physically see ore.
Because we've heard some of the stuff before where customers were saying Hey, we got all our permits or who we're going to be able to get these panels and then they then they werent there.
How do you did you drill down with some of your top customers to understand that they weren't going to be able to get these projects moving in the second quarter.
Yeah, so the second quarter projects.
Obviously, we're in flight.
Remember, we're kind of POC accounting so.
Those projects were started in Q1, youre getting some of that revenue.
That are flowing through Q2 so.
Sitting down with every customer a lot of it's been face to face obviously lots of it on the phone.
But being able to audit warehouses and things of that nature are these folks I think that we've not been able to do.
Per se, but the difference is this.
Our incentives before was we need to understand if you had panels or not and if the answer was yes. The answer could be couched around the perspective, yes, we had a panel that orders are coming.
Here in the next 30 days.
We have submitted a tier four.
Now it's different now.
Now you physically have to have the panel.
In hand, because if you don't if you haven't bought it.
Now you have this risk it's a huge risk so I think yes.
Mentality industry.
US, including our customers when we talk about panels.
Physically do you have your hands on panels, it's in their best interest to verify that a much different way there was just five weeks ago.
And that's the difference.
And that's why you hear if you are listening to the press or Youre seeing a lot of information flowing this there is some.
There's a lot of disruption right now because people are happy to go back in and see what they physically having to verify to determine whether that they can move the project forward because thats been determined.
At the business the next nine months and.
And so it's a much different set of circumstances that it was over the last three quarters in terms of verification of panel and I'm not saying industries perfect look we're four weeks into this it's a shock to the to the industry.
But over the last four weeks, we've talked a lot of customers face to face and.
And that's the difference so.
Right now we are out in the field and we see the panels.
And the projects that we're involved in I think the question is going to be what does Q3 late Q3 Q4 look like.
And that's what a lot of I think our customers are trying to figure out.
At this stage, but like I said earlier, we've factored in some disruption in the second half relative to our full year performance guide.
And looked at a couple of different scenarios.
But.
Yes, it's going to be ongoing.
Situation for sure and I think we feel good about Q2 and we're working on.
On everything for Q3 before as we speak.
Okay.
Okay. Thank you for that.
Really appreciate the explanation.
Maybe one last one on Ah and solar the launch that you did this quarter.
Of $7 million.
Wonder if you could help us understand.
Where was that under absorption.
You know your installation teams or.
Why was that was there was there extra costs in the quarter related to some of these project delays.
And how.
I guess I'm looking for some confidence that.
Yes, the first quarter is a onetime thing in there is not kind of lingering costs that are going to.
<unk> second quarter or the full year.
Yes.
The GAAP loss is seven adjusted is $4 three just to be clear.
Yes, so look the.
The big.
Two things.
In the quarter.
Or the.
The cost let's say.
It's not necessarily a huge fixed cost issue its more of project inefficiencies. So.
We have people when we talk about the severe winter weather.
Imagine going in putting foundations in the ground.
That's just that's the first step of our field.
And then weather comes through and you get ice on the ground.
You have teams in the field chipping isolate from the foundation. So that you can attach the racking system to that.
<unk>.
We bought that work was going to be done in October November December .
And if you don't run into that normally.
We don't schedule nearly as much work in the northeast in the middle of the winter and when we do there's a different cost to our customers to account for this kind of stuff.
That was taught me that that drove a fair amount of our of our loss.
A little volume right impacted it and then.
Always.
<unk>.
Material cost alignment.
Less impactful, but it's there.
Do those three things so the weather Thorn.
Because of this POC, but also because for the last two quarters, we've been working with our customers.
We start all forming a racking system and schedule our projects in the field we.
We make sure we know what channels are going to show up and when because you can't really manufacture the racking system efficiently.
Until you know what panel is going to be on that job and.
If we manufacture for one panel and a different panel shows up.
We have to charge our customers to drill holes on each.
Early in the field. So it's just we don't we don't want to ever happen to do that because of all the delays we ran into last year.
Our process got tighter around ensuring we knew what it was before it goes to production.
Hey.
One other thing I'll mention what's different today versus just five weeks ago the financial risks.
For a customer developer in the field by not knowing what's going on for panels is much greater today than it was.
They cannot.
Afford to take the risk of buying something they don't have it.
I don't have it then they know they can't get it right now without taking that risk. So when you get down to the conversation do you have it in possession, yes, or no. It wasn't bought before March 'twenty, yes or no.
It's in their best interest and they are telling us that and that makes sense right. So so that just kind of its forces.
A different discussion than over the last three quarters on panel supply.
Because of the risks has shifted significantly to them on the potential penalties that come with doing the wrong thing.
So if you don't have it youre not doing a project. If you have it you need to verify what we actually move forward with each other and they're not going to move forward unless they know they have it bought and enhance and bought prior to reduce debt.
Destination beginning.
Okay, great that makes a lot of sense.
Appreciate those answers.
The three solar projects that got canceled small amount, but it sounds like that was the reason that they didn't want it.
Is it fair that they didn't want to take on that risk.
Oh, yeah. They didn't have they didn't have panels in the panel to have order theyre not going to take the risk of receiving those and put them in the field because.
The risk of potential retroactive penalties.
So that's the challenge with the with the COC case is the penalties. If the decision is not made until August . The penalties are said to be retroactive back to March so between March and August and kind of stymies folks that don't have panels.
And if you've got a potential penalty of 250% of the economics that we assumed on your on your developments.
And the bank ability that you want to get your financing on absolutely could be much different if you get charged an extra 250% on panels nine months later so the returns there is just not worth the risk and frankly youre financing second lineup with yet until you have clarity on what your crew.
Investment thesis is right. So that's the dilemma I think a lot of folks who don't have panels are dealing with and that's the.
Point of trying to make sure. The integration is you've got 230000 people who work in this industry.
We generate over $30 billion a year.
And effectively this thing with a large portion of industry on pause if they don't have panels.
And more importantly, it puts the climate agenda that the administration has serious jeopardy for the commitments that we've made.
And then finally I don't people don't even realize that solar has been the fastest growing and makes up the most.
For the most renewable energy that's been put into the last five years or so.
So it's going to get resolved, it's just right now.
It's got a lot of people on edge, obviously because of the Doj investigations away.
Those things work so.
That's a forcing function right now.
A panel yesterday, that's different in the last three quarters absolutely.
Okay. Okay. Thank you appreciate it.
Yes.
Okay.
Thank you ladies and gentlemen, this does conclude the question and answer session I would like to turn the call back to Mr. Boswell for any closing remarks.
Well again, everyone. Thanks again for joining us today, we will be presenting at the Keybanc conference in Boston in June and the CGS Summer ideas conference in July as well as owning a few non deal roadshows.
We'll speak to you again in a few months and look forward to.
Follow up conversations and look forward to talking to you at the end of second quarter as well, thanks and have a great day.
Thank you. This does conclude today's conference. Thank you for your participation you may now disconnect.