Q2 2022 Gibraltar Industries Inc Earnings Call
[music].
Greetings and welcome to Gibraltar Industries' Q2, 2022 earnings conference call.
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I would now like to turn the conference well what do your host gathering capacity of LHE Investor Relations. Please go ahead ma'am.
Thank you operator.
Everyone and thank you for joining us today with me on the call is bill by the way Gibraltar 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 a slide presentation that management will use during the call are both available in the investors section of the company.
Website, Gibraltar, one dot com.
It is in the earnings press release issued today Gibraltar has classified the processing equipment business in the AD Tech segment as held for sale with first quarter 2022 results and has removed the related revenues and expenses from the processing business from its adjusted results.
No problem its earnings press release and remarks contain non-GAAP financial measures. It was a 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 presentation.
Press release and slide presentation contain forward looking statements with respect to future financial results.
These statements are not guarantees of future performance and the company's actual results may differ materially from the anticipated events performance or results expressed or implied by these forward looking statements Gibraltar advises you to read the risk factors detailed in its SEC filings, which can also be accessed through the company's website now I'll turn the.
Call over to Bill by say Bill.
Okay.
Good morning, everyone and thank you for joining today's call will start with an overview of second quarter results and financial performance and we'll talk about our outlook for the rest of the year and then we'll open the call for your questions. So, let's turn to slide three we will start with second quarter 2022 results.
We generated solid revenue growth and margin expansion in the quarter with adjusted revenue up 7% adjusted operating income up 20%.
Adjusted EBITDA, 16% adjusted EPS grew 19% to 96 cents per share.
Renewables AG taken infrastructure margins improved sequentially as expected and our residential business delivered both strong revenue and margin performance.
Our order backlog increased 5% to $408 million the demand drivers remain relatively healthy across our end markets. Despite ongoing trade challenges impacting our renewables customers.
Continue to drive additional participation gains in our residential business and AG Tech and infrastructure bookings are accelerating renewables.
Renewables customers continue to wait for clarity on panel availability. So they can finalize projects and book additional orders for the second half of the year as well as in 2023.
Our performance reflects.
Our continued focus on execution.
Supply chain optimization accelerating the digitization of our operations, keeping our organization is healthy and flexible as possible and.
And continue to conduct business the right responsible way every day I'd say at the halfway point of the year, we are tracking to our full year performance objectives.
Let's turn to slide four for.
For an update on commodity price and supply just as a reminder, there are really three main core commodities, we use across the company steel aluminum and resin.
Focused on three drivers relative to each commodity first the absolute price of the commodity price variability of the commodity.
And then third obviously the availability of the commodity and general availability of each core commodities better than last year, but pricing continues to be dynamic due to the macro environment and the geopolitical situations.
Well coiled steel price fell from its high of $2000 a tonne in Q4, 2021 to.
<unk> 29 at quarter end and it continue to fall as we entered the current quarter structural and plate steel used in our renewables and infrastructure businesses increased during the first half of the year, but recently you structural steel prices have come down between three and 4%.
According to the June report from IHS Markit steel prices can is forecast to come down further over the next 12 to 18 months.
And we'll see how that happens and we will remain agile as steel prices move.
Aluminum rose to a peak level in Q1, 2022, and then came down slightly during the second quarter.
There are a number of variables impacting the minimum price, including the ongoing energy crisis in Europe, which actually started in 2021, the willing COVID-19 lockdowns in China, and the additional energy supply pressure in Europe stemming from the Russia, Ukraine conflict, we do expect aluminum prices to remain elevated and probably through 2023.
Given the current price cost environment, we're just going to continue to execute across our three core initiatives number one just trying to keep our price and input cost balanced.
Implement changes in a timely and efficient manner.
Secondly, just continue to actually execute and accelerate more a 'twenty initiatives to drive productivity and cost reduction and finally third.
We continue to optimize our contract terms and conditions with our customers to try to balance in share potential risk in the current environment.
Let's move to slide five for an update on the panel supply to the solar industry.
The two trade issues. They withhold released order the W. R O, which has been succeeded by the U F. L. P E, which stands for the week or forced labor prevention at.
And the department of Commerce is anti dumping and countervailing tariffs investigation referred to as the 80 CVD both remain active and continue to limit visibility and clarity for panel supply.
First let's start with the U F. L. P. A which is which was signed into law last December . It was implemented here just recently in late June and is enforced by the U S customs and border protection.
Affectively law requires importers of record to prove via traceability processes and documentation that court site material mined in Xinjiang Province is not contained in payments deployed in the U S.
I'd say the industry is working with the U S customs and border protection understand importing traceability requirements for both successful efficient importation and Theres, a learning curve associated with that.
Second the department of Commerce is expected to issue its preliminary ruling in late August . So later this month with its final ruling in January 2023, if the department of Commerce bis in favor of the complaint and future apparently imports can be assessed duties and it is possible to do you'll see we'll make these duties retroactive to when a petition was accepted or are there.
Sure.
Now that being said, while the administration instructed the D O C to implement a two year waiver on tariffs the D. O C has not yet executed in order to do so.
And we believe this will be done in conjunction with or around the time of the doj's preliminary ruling on the 80 CVD case as a result, the industry is effectively continued its paws and executing finalizing many existing and future projects as we'd expected.
We do expect the two year tariff waiver to be implemented and provide much needed clarity on tariffs for the industry going forward.
Also in our view the D C. Its preliminary really will provide solid direction to the industry on what to expect in its final ruling again due in January .
We also believe the administration will continue to support the solar industry, given the importance of renewable energy production.
A balanced energy planning for the U S.
For our renewables business the scenarios, we planned coming into 2022 really do remain consistent given our experience in Q2, the first half and our current outlook for the second half.
I would say the industry really looks forward to the doj's preliminary decision and getting through the U F. L. P learning curve, so the industry and our customers can finalize project plans for 2020, three and 'twenty 'twenty four.
With that I'll turn it over to Tim for a review of our results.
Thanks, Bill and good morning, everyone.
I'll take you through our consolidated and segment results starting on slide six.
And as a reminder, my discussion will cover the results from continuing operation.
And exclude the related revenues and expenses from the AG Tech segments processing equipment business, which had been removed from adjusted for both 2021 and 2022.
As a result of the classification of this business as held for sale during the first quarter.
Adjusted second quarter revenue increased six 8% to $364 2 million. This growth was purely organic and was driven by price management and participation gains in residential partially offset by panel supply challenges renewables and project delays and high Tech.
Log at quarter end was $408 million up over 5% from second quarter 2021, driven by continued end market demand.
Adjusted operating income and adjusted EBITDA increased 19, 9% and 16, 3% respectively in the second quarter with adjusted EPS up 18, 5%.
Margin improvements in the quarter was driven by price management participation games business match.
And 80, 20 initiatives with residential and high tech margins, continuing to expand and renewables and infrastructure generating sequential improvement.
Weighted average diluted shares outstanding decreased one 2% to $32 7 million in the second quarter due to our share repurchase program.
Okay.
Now, let's review each segment, starting with slide seven the renewable segment.
Segment revenues decreased five 8%.
The decrease reflects movements in project schedules as customers work through trade issues affecting panel supply as bill outlined.
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.
End market demand in our commercial and industrial space continues to be very active with new project planning discussions despite the general industry pause related to panel issues.
The industry pause as expected slowed new bookings in the second quarter and our backlog was down 2% as a result.
As a reminder, we only include signed contracts with deposits as an actual order.
Purchase orders without a signed contract and deposit indoor verbal agreements with customers or not and never have been included in our bookings.
Our backlog results, we do expect the pace of signed orders to resume once the DRC issues. It's preliminary decision later this month.
As expected profitability improved from first quarter 2022, with stronger project execution. The completion of a handful of lower margin project impacted by price material cost misalignment and labor inefficiency related to severe weather.
Segment adjusted operating income was $7 1 million and EBITDA was $9 4 million.
This represents an $11 4 million and $11 3 million sequential improvement respectively. The sequential margin expansion of 240, and 1100 70 basis points with margins, reaching double digit levels in both May and June .
Versus last year, adjusted operating margin EBITA margins decreased 430, and 420 basis points, respectively. Due to the aforementioned project inefficiencies and delays due to panel supply along with price material cost misalignment, driven by structural steel inflation.
Our integration remains on track.
We went live with our common ERP system across the segment and we're on schedule to execute or in sourcing synergy plans during the second half of the year.
These investments will further simplify our business and increase service levels with our customers.
Let's move to slide eight to review our residential segment.
Segment revenue increased 21, 9% all organic and this quarter marks our eighth consecutive quarter of double digit growth.
Yeah.
Revenue was driven by price cost management and participation games, both new and carryover in the building products and mail and package businesses.
Our residential segment continues to see solid demand with 80%, 90% of its business driven by existing home repair.
Because home aging or weather damage historically home repairs has not seen significant impact from changing interest rates repairs, especially tour groups typically occur regardless.
Segment adjusted.
<unk> operating income and EBITDA grew 36% and 32, 2% respectively.
Adjusted operating and EBITDA margin improved 190, and 150 basis points, respectively through effective price cost management continued supply chain initiatives Labor management, and 80 20 activities.
We went live with a new ERP system in our mail and package business during the quarter and our system is designed to provide better visibility into the business and allow for greater automation as we work through change management and mature and use of the system.
We'll continue to implement this E. Our system across the remainder of our residential operations to create stronger customer connections drive speed and agility of service when participation games and increase productivity across the entire organization.
Yeah.
Let's move to slide nine to review our AG Tech segment.
Adjusted segment revenue decreased 11, 9% as the producing cannabis project shifted into the second half of the year.
The commercial business continues to be robust with good momentum as we head into the second half.
Despite second quarter demand shifting backlog is up 30% in the quarter and given the number and size of projects. Currently in final planning stages, we expect demand momentum to accelerate into the second half and for 2023.
Yeah.
Segment, adjusted operating and EBITDA margin improved 80, and 100 basis points, respectively, unimproved business mix effective price cost management benefits from continued supply chain initiatives optimization continue to 80, 20, and lean initiatives and our integration activities.
We're set up well for continued performance improvement in this business and expect positive margin momentum through the year as we convert our backlog make additional system improvements and benefits from improved business mix.
With respect to the potential processing equipment sale, we're in active discussions and we'll provide updates as appropriate.
Let's move to slide 10 to review our infrastructure segment.
Segment revenue decreased five 3% against a very strong Q2, 2021 which benefited from timing of projects.
Order backlog was essentially flat in the quarter versus last year due again to the timing of orders while engineering backlog activity was very strong.
Bookings accelerated early in the third quarter was beneficial mix and we continue to expect incremental government spending from it from the infrastructure build towards.
Towards the end of 2022.
Segment, adjusted operating and EBITDA margins improved sequentially, 690, and 600 basis points, respectively. As we worked through fixed price projects with state Department of Transportation's.
That were signed in 2020 in 2021 and have been affected by structural steel and plate steel inflation.
On a year over year basis, operating EBITDA margins were down due to unfavorable product mix.
And we continue to expect margins to improve through 2022 as lower merger projects are completed business mix improves and volume growth actual average.
Let's move to slide 11 to discuss our balance sheet and cash flow.
At June 30th we had 302 million available on our revolver and cash on hand of $17 million.
We generated $8 3 million in cash from continuing operations in the quarter.
And our working capital investment increased $31 4 million, primarily in receivables as a result of our normal seasonal build.
This increase normally reverses in the second half of the year as revenue peak and begin their seasonal decline.
We also continued to make small investments in inventories are season ramps to ensure strong customer support during the current challenging supply chain and inflationary environment.
And that's enabled us to continue to support our customers' needs.
Payables were affected by the timing of inventory purchases and growth in other liabilities was driven by an increase in billings in excess of costs, which results in the timing of billings based on contractual project billing schedules.
During the quarter, we grew $51 million on our revolver, primarily for share repurchases. Our net leverage at quarter end was approximately one half of a turn.
Given our first half performance customer activity levels and backlogs coming out of the second quarter. We continue to expect strong cash generation in the second half of this year with strong earnings and a reduction in our working capital investment.
Our target for free cash flow generation in 2022 remains approximately 10% of revenue.
We expect to use generated cash flow to fund repayments on our revolver and investments in organic and inorganic growth along with opportunistic stock repurchases supplemented as needed by the use of our revolver, depending on timing of any M&A or repurchases during the year.
So let's move to slide 12 to update you on our share repurchase program.
Last quarter, our board of directors granted our request to authorized common stock repurchase program for the first time in Gibraltar is history.
This program authorizes repurchases of $200 million over three years, ending may 2nd 2025.
During the quarter, we repurchased one 2 million shares with a market value of $50 million for an average price of $41.84.
We funded this repurchase through the revolver.
At quarter end, we had 31 6 million shares outstanding with a weighted average shares of $32 7 million during the quarter now ill turn the call back to Bill.
Thanks, Tim.
Move to slide 13, I just wanted to get a quick update on our five key priorities. This year has been for US a theme around simplifying focus it's been consistent since the beginning of the year.
It is common sense cool as this sounds I think the lessons learned and the challenges over the last two and a half years, they've really heightened need for us to simplify and focus on execution, even more in the things that we can control.
So as a reminder, our five priorities first execute 80 20.
Five higher service levels expand our margin and win new business with existing and new customers.
In each of our segments, secondly, managed supply chain to support customers minimize disruption across both manufacturing and field operations and to optimize our cost position and finally to reduce working capital.
Third really want to accelerate our digitization of our operations. We did complete two ERP implementations in the quarter. This is consistent what we've been doing the last couple of years, we did one in residential and one in renewables, we will continue to invest and Digitization and cyber security to support our customers as well as our suppliers and of course, our business strategy.
Our fourth support maintain organizational health remain agile and flexible in today's operating environment. It really continues to attract and retain the best talent. We can and then finally really work on the best environment, We can for our team and then finally <unk>.
<unk> business right responsible way every day not only for our teams, but for our customers and suppliers.
Let's move to slide 14.
We'll talk about 2022.
Guidance.
Yeah first half results were in line with our expectations and our current demand profile and focus on execution, including supply chain optimization price cost alignment labor management and simplification initiatives.
Can you give us confidence in delivering our full year performance commitments overall, the continued strength and durability of each of our businesses underlying fundamentals.
Part of our leadership positions in each of these markets as well as our long term partnerships with our customers remain intact and I think support this year's outlook and our long term strategy.
As a result, we reaffirm both revenue and earnings guidance for the full year 2022.
As a reminder, consolidated revenue is expected to range between 1.38 billion and $1 four 3 billion compared to 1.32 billion in 2021, GAAP EPS is expected to range between $2 80, and $3 compared to $2 25 and 2021.
Adjusted basis, adjusted EPS is expected to range between $3 20, and $3 40 compared to $2 86 in 2021.
Lastly, and most importantly, I'd like to think.
Every one of them did you call. It the team. Yeah. This is a team that is continuing to find great opportunities for our future and do so while plowing through.
The last two and half years, and today's challenges and market dynamics I'm very grateful for the team we have an end.
We remain super excited to.
To be on the journey that we're on as well so with that now let's open the call up and we will take your questions.
Thank you.
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One moment, please pause for questions.
Yeah.
Our first question comes from Dan Moore.
C. G S Securities. Please go ahead.
Good morning. This is stefanos crist, calling in for Dan Thanks for taking our questions.
Hmm.
First can we just start with the renewables, what's your visibility into 2023 and beyond and what would give you more clarity there.
Well the two big issues, you talked about Stefano one is.
It really does the U F. L. P. A which is went into went into play I think June 21st somewhere around there.
And that's really this importation process you know the industry has gone up the learning curve.
And how do we get those inefficiently and effectively is really important to the industry and secondly, the D O C decision.
End of this month will be very helpful.
And I think regardless of that decision because the administration has issued an executive order. The dose you will find a way to neutralize any tariffs. So therefore, I think terrorists expect are expected not to happen.
But it comes back to the U F. L. P E and importers being able to bring panels in an efficient effective way and I think that's what the industries.
Looking forward to see how that plays out and by the end of August we will have about six or seven weeks of experience with the U F. L. P. A.
Assuming tariffs don't impact the industry and I think customers will start.
Working on finalizing project for the end of this year as well as the next year or two.
As well so.
That's the current outlook, we'll know a lot more I think in the next three or four weeks is I guess is the short answer.
Got it perfect and then just staying on renewables. So could you just talk about the cadence of margins for Q3 and Q4 and then how we should think about margins in 2023.
Yeah. So we've mentioned this before that we feel like are.
This business has turned the corner, we ran double digit margins in May and June and we expect to run double digits in the second half as well yeah. That's barring any major shift in outlook on demand side that we're not anticipating but as I mentioned earlier I think the scenarios. We've painted we feel pretty good that we've got he got that understood but.
But you never know in this world right right now, but we feel pretty good about double digit margins in three and four and I think you know it.
If you assume then that that's eight months in a row of double digit margins that should carry into 'twenty.
2023 at a similar level that you see is finished 2022.
That's the way I would think about it for now.
Perfect. Thanks for taking my questions.
Sure.
Thank you Amit.
Our next question comes from tenants.
The Keybanc. Please go ahead.
Good morning, gentlemen.
Good morning, Ken.
So.
All this stuff.
Yeah.
Obviously, it's good to update on the margin hopefully, we'll get clarity here. So we can start getting visibility into next year I'm sure your customers and for you guys, but I wonder if we could just go back to kind of basics.
Residential which has been doing quite well.
In terms of margins, which was you know.
One of the first real businesses that turned around in the 80 20. So the reason I wanted to focus on this is the growth you are having.
You know the.
Could you in the 20% you saw in the first half could you be a little more clear I mean, you did lead with commodity costs.
In your presentation slide obviously hedging metal so how much of that is.
The price I mean are you doing a couple of points of volume.
Which could be you know share gains and demand in the rest of this price I just wanted to get a better baseline of how we think this growth you know the volume trends are going because most of the categories. We cover.
Very moderate unit growth and it's all price and I just want to get better clarity as we think about the end of 'twenty two into 'twenty three.
Yeah. So Ken we said last year, the second half last year, but first half last year was heavily driven on volume with a little bit of price in the second half was driven more by price and less volume coming into this year, we had projected volumes too.
Be relatively flat as you know on a market basis in <unk>.
And I would say that what we've seen on volumes is consistent from a market perspective.
Where our volumes have kind of come in a little bit higher than that as it relates to participation.
So we're winning more business and then of course, we get the benefit of the price on on the more business on top of the price off of the base business. So.
It's still more weighted towards price.
But I would say we have more volume coming into our business now than what we had thought originally and that's kind of connecting back to their participation games.
Right and then I guess I mean.
To level set that I'm, giving you a 22% in the quarter does that I mean, it sounds like that's perhaps a couple of very flat. You know you might have two years to 4% unit volume and I'm trying to I'm, asking because I'm trying to discern.
We're price kind of neutralizes as we exit the year right. So.
Are we going to basically be won't keep 23, where today price you'd be basically flat. So youre, just getting down to that core volume.
And that's in your residential.
Our residential business I'm, just trying to see how that curve is because it's such high growth and it seems like a lot of it would be price.
Yeah.
It's a good question I would say there's not a we.
We haven't we have not had a lot of incremental price.
Versus the start of the year.
That is for sure.
A price increase around aluminum based products, but effectively we've not had a lot of pricing incremental price increases this year. So.
So, but we have a carryover where you have some carryover pricing from last year, because there were multiple price increases so you're getting the effect of that so it does carry into this year and youre getting this participation volume full year effect from last year and new participation. This year. So right now we feel.
Pretty solid with where the volume position is on the demand side going into the second half, we'll see how the fourth quarter of balls, but you know right.
Right now, we're holding relatively steady on on volume demand relative to where we thought we would be.
I appreciate your patience with Craig's question, I guess I'd make renewable you know you said, obviously you know end of August .
The next <unk>.
Weeks, Okay that would be really important is there any kind of perspective that you're getting from people in the industry about.
This I don't want to call it a hiccup or a bar because it's.
It's getting it's pretty impactful.
Obviously, there's a long term demand are you seeing any capital stress you know from.
Dollars are developers that took that land I mean are you starting to see this slow demand and uncertainty really start to squeeze the industry.
No, we really haven't and viability.
Yeah, It's a good question inflation.
Inflation in general it was money.
<unk> points cost points are much different today than they were two years ago.
But I would tell you.
We look at the number of projects that we have.
Calling the Red line a lot of people throw that into backlog, we don't those or pose that have been issued to us but there in red line. So that red line activity was kind of a leading indicator and that's remained very robust. The issue that you have at this stage for everybody's everybody's waiting if you think about whether you had financing already lined up.
Were you still had to get financing youre not going to pull that final final trigger until you get the most expensive component understood as to when Youre going to have it and what the what the price point is going to be which is the first one is U S. L. P. A when am I going to get it in and can I get it in and the second one is at what price and is it going to have a tariff or not.
And so those are the two elements that people aren't.
Thinking about but in terms of planning.
And what's on the docket that remains.
Robust another way to think about this too can and for everybody on the phone when when the department of Commerce investigation in March or end of April everybody placed orders for panels.
Because the demand is out there, it's just a matter of knowing when youre going to get them. So they can plan accordingly for the next.
Six months year or two depending if you're in utility where C&I space. So.
That's ultimately the end of the day the way to think about it I will add to what other thought I mean this is not one of those things where you flip a switch and everything is back to where it was overnight.
Actually shut down a portion of the industry for six months by the time August end of August rolls around and it takes some time for people to re energize them flex their muscles in and start running again.
But it's not a demand issue.
The issue is frankly supply so whether you're talking about.
Inflation reduction act or whatever we're going to call that if you talk about the executive order from.
The administration, that's all demand, which is great and that'll help us long term for sure, but it's it's not an issue of demand it's an issue of.
You know supply coming in in a consistent basis. So our industry can actually continue to work on a cadence in.
So that will come.
And I think the next three or four weeks, you'll get a better much better feel for that I wish I could tell you something different but but no that's to me.
What I'm looking for.
Thank you.
Yep.
Yeah.
Yeah.
Thank you. Our next question comes from Julio Romero with Sidoti and co. Please go ahead.
Hey, good morning, Bill and Tim.
Hey, there.
Just to start on residential you know very nice performance in the quarter.
What are you seeing or hearing from your customers regarding inventory levels and just speak about any potential destocking risk that you may or may not occur.
Yes, we haven't seen a lot of that who they are we.
As you know from our discussions in the past we have access to the point of sale information every week.
With our big box customers so.
We know what our outgoing sales are from those stores and we can see the inventories building.
We saw an adjustment of inventory levels.
Excuse me.
Probably six to nine months ago coming into the year and then subsequent to that.
So it's been I'd say been happening, but at the same time.
You know that's been a bit offset for us by additional participation games. So you know right.
Right now it feels like.
<unk> levels have been adjusting consistently for a period of time as we've been seeing I don't think there's a.
A shock and all kinds of situation in front of us on that front I think we have pretty decent visibility to anticipate that but we've not seen a lot of that at this stage. We've just seen a continuous slowing let's say right sizing is a better way to say it as opposed to slowing.
And that's related to just.
Change has been so dynamic the last two years across the world, but in your <unk>.
Think about that in the residential world.
For each each year, 2020 'twenty, one interesting kind of got caught for different reasons and I think people were making sure that that didn't happen in 'twenty, two and then and I think inventories had been beam size and adjust accordingly, as the years gone on but nothing too extreme one way or the other.
Yeah.
Okay. That's very helpful and then.
Thank you guys made a good point in the prepared remarks it.
Residential you're most of the R&R versus new construction and even within R&R, you're most you're more repair than you are remodel. It is there a way to quantify that like how much.
Within your R&R exposure to residential how much is repair versus how much is remodel.
Well, if you think about remodel for us, it's mainly our HIV business the earnings in the budget.
And I would say hunting is only so it's a very small percentage of our total.
R&R I'd say, we're at 95 plus percent within residential if you think about that way now you could say well what about mailboxes.
And then there's a debate on that internally, but I would say.
Within repair and remodel where were very high percentages repair.
I'd say, 80% to 90% of the minimum.
That's 80 to 90 in mailboxes or or within our in general with it.
Within R&R, so if between R&R for residential it's 80% to 90% is R&R within R&R, there's a high percentage its repair.
The way, we think about that.
Perfect. Thanks, so much for for segmenting that for Us and then.
Maybe just last one for me is on on the AD tech side or any of your end markets.
This produce maybe your legacy performing better or worse than the other and can you maybe expand on the positive margin momentum you expect for a check in the back half yeah. So our commercial business, which is our traditional business and you guys know if you go back to 19, that's a business that it's always run double digit continues to.
To run well on both top and bottom line, there's a lot of activity in that business is spread across a number.
And the applications, so that one's been running well for some time and produce.
Where our backlog is starting to build we've got some backlog building candidates as well, but ultimate 10, a day is produce.
<unk> continues to drive backlog and accelerate on the demand side. That's that's what's really going to drive the top line of the overall business. Those are large projects and if you look at our pipeline of projects that are in those final stages. It's a substantial amount that we don't include in backlog, but that will as those come across the finish line it really sets us up for.
Uh huh.
A strong end of the year as well as a good start into next year. So.
Produce is a big engine for us that's starting to really improve both top and bottom line. That's part of what you've seen a sequential improvement.
Commercial has been steady and rock solid for US and then cannabis it's been lumpy, mainly due to the demand side of that business.
But does that backlog continues to stabilize and grow we think that we will generate.
The double digit mark the double digit margins, we've seen in the past as well so that's how I break those three out.
Okay. That's very helpful. Thanks, very much taking the questions.
Yep.
Thank you.
It comes from Walter Liptak.
Please go ahead.
Hi, Thanks, Good morning, guys.
Well, let me let me.
Probably went on the residential side and maybe you've already talked about this but I.
Just for clarity sake, so in residential let's say that the volumes.
As you know are stable.
You know over the next year and some of these mature all these industrial metals prices the HRC come down.
Mhm.
With the things that you're doing with the participation games.
You know 80 20.
And the other thing would you be able to maintain the same profit level or improve the profit level from where you are.
Yeah. It's a good question and frankly, you know at the forefront of our discussion coming into this year with the residential group. So well you know how our our as we've talked in the past our customer contracts work with indexing around inflation.
Inflation, so as they go up we lag with price covering that cost and catch up and you saw that last year, where the first three quarters. We were running behind on margin then we flip the switch in Q4 and that's continued as we've come into this year and we are we have planned on and are planning on pricing coming down.
As those indexes.
And with commodity costs coming down so how are you managing your way down is really.
And I do have a potential to it.
Expand margins, if you manage your input cost and a more proactive or timely manner. Then obviously when you have to drive your prices or change prices accordingly, so yeah.
On the way up you you'll get hurt by it in a way down.
Can you can expand if he if he manage your supply chain appropriately and your input costs. So we're laser focused on that I'm not saying, we're perfect at it but we haven't we.
We have got it.
It's been on the table and people were managing to that appropriately and we do expect and have planned for.
Rice's to come down over time, it just has to happen in our contracts call for that so.
Coupled with that Theres also a mix between big box and wholesale and and so there's some business mix things there and levers that are available for us to cool and worked through and so we're fairly confident that we can.
One continuing to grow in a in a down cycle I'm not saying, we can grow 20% a quarter like we have the last eight.
So, but but I think we can grow and I think we can manage our margins too.
Two for improvement as we go through that as well. So we have work to do but I think we're in a better position today, where we're a few years ago to make that happen.
Okay, great. Okay. Thank you for that I'll ask.
One on the infrastructure you talked about orders picking up in the third quarter are around the infrastructure build in and maybe getting better in the fourth quarter is a small segment, but is that going to be enough to maybe.
What does that do for the visibility in 2023.
That'd be very helpful.
I think Tim mentioned.
In his remarks, we are.
The new orders that have recently come in and just at the start of the quarter are quite substantial. So the backlog is growing I think that'll be impactful in the second half of this year, but it's the start is the momentum going into next year, the leading indicator for infrastructure. When you think about backlog as we capture kind of too.
We measure two things actual order backlog, new bookings, which we traditionally talk about externally and then internally. There is an engineering backlog that is at peak right now that is probably higher than we've ever seen and I think that's a reflection of the investments a lot of state and federal D. A teaser for the federal duty and state Dot's Youre planning on starting to ink projects.
Or get those projects and focused so we're definitely starting to see that activity accelerate.
And that should bode well for 2023.
Yeah.
Okay, Great and then.
Maybe last one for me around.
The renewables segment is that you guys did the a press release a few days ago.
About the Connecticut solar plant that was utility scale. It looked like it was a little bit larger I wonder if you could give us an update on <unk>.
On the two different markets on the community solar as well as the utility scale and then he participation games.
We might be able to look forward to the utility part.
Yes so.
The C&I space, which we've traditionally been in which is really community.
You look at our industry. So you should know Trac III.
Buckets within C&I will call community.
Alright.
Community industrial.
And commercial so those are the three kind of week referred to as C&I, We think of it as you got into but it's really measured as three and the distinction between community in it and it's there's a lot of gray there, but I'd say in general.
Most of my comments earlier about activity.
Project planning and so forth is all round C&I and and that's where we continue to spend 95 plus percent of our effort.
And we do have some customers that are expanding into larger size projects.
Like utility, but we just don't play in that space a whole lot.
In terms of market status I can't speak to two clearly about utility as I say, because we're not in it but just from reading and listening to others.
With today's market situation, it's kind of a challenge with this panel issue and once I get cleared cleared up I think things will accelerate for utility as they will for C&I, but.
But what we see in the forefront going forward with C&I.
C&I is a.
A lot of activity and we're excited about that and we we always say, how you think about where the population exists.
And the country and think about where renewables will land in the think of the type of solar solution sets that will go in those spaces and that's a very very heavy mix towards C&I and that's kind of right, where we're set up to to run with so I do think that <unk>.
C&I will have as a market a good runway in front of it I think all the incentives that are being talked about now if they do get pass will help it even further over the next 10 years.
But we're well positioned to activate around that one thing that we are working.
Diligently on is expanding our tracker platform.
And really to get into utility space, you need what we call a one P configuration, which is a single panel.
In portrait mode.
That's what the majority of utility scale projects use we will have that in Q4.
We're ready to go in Q1, so we'll have the option to expand into or pick and choose where we want to play in utility if a customer or to want to go down that path, but but.
That's how I would characterize long answer to your question, sorry, but that's kind of how I think about it.
Great. Thanks, Okay. Thank you very much.
Yep.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session.
And I would like to run the claw back to Bill.
The law suite for closing remarks.
So guys. Thanks again for joining us we're gonna be presenting at the Seaport Global Summer Conference later, this month as well as our upcoming conferences and non deal road shows.
I will speak to you again in a few months and when we reported third quarter progress I hope, everyone stays safe and healthy and look forward to catching you up have a good rest of the day. Thank you.
Thank you.
Today's conference you may disconnect your lines at this time, thank you for your participation.
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