Q3 2022 Gibraltar Industries Inc Earnings Call
Okay.
Greetings, ladies penetration then it won't come to Chipotle industries conscious free off 2022 earnings conference call.
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<unk> space.
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It is my pleasure to introduce.
Kevin and propulsion.
Oh H eight Pease go ahead.
Thank you operator, good morning, everyone and thank you for joining us today with me on the call is still 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's website.
Dot com as previously noted the Gibraltar classified the processing equipment business and the AG Tech seven as held for sale with first quarter 2022 results and has removed a related revenues and expenses from the processing business from adjusted results.
<unk> earnings press release, and remarks contain non-GAAP financial measures tables, and reconciliation of GAAP to adjusted financial measures can be found in the earnings press release that was issued today.
Also as noted on slide two of the presentation.
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.
And its SEC filings, which can be accessed through the company's website.
Now I'll turn the call over to bill by the way Bill.
Thanks, Carolyn and good morning, everybody and thank you for joining today's call will start with an overview of our third quarter results. Tim will take you through our financial performance, then I'll come back and update you on our outlook for the rest of the year and we'll open the call for your questions. So let's get started by turning to slide three titled third quarter 2022 results.
[noise] 2022 continues to unfold in line with our expectations and we delivered a strong quarter with adjusted revenue up 6% adjusted operating income up 16% adjusted EBITDA up 14% and adjusted EPS up 19% to $1 12 per share all four of our segments delivered double digit.
Operating margin performance in the residential and infrastructure businesses, both generated solid revenue growth as well in our residential business, we acquired quality aluminum products, which broadens our geographic channel and product footprint for the business and quality of aluminum products added <unk> to our adjusted EPS in the quarter.
Our backlog decreased 7% during the quarter to $356 million driven by lower backlog in our renewable as an AG tech businesses as we experienced during the second quarter. It remains challenging for our renewables customers to finalize contracts and scheduled projects as a solar panel supply chain learns how to work through the new U F. L. P. A importation.
Acquirements U S. L. P. A went into effect in June and the industry expects to see more efficiency reliability and scale with the importation process in the first half of 2023.
Alright Tech business, although the project designing productivity is robust backlog was down at the end of the quarter when compared to last year's strong order inflow, but we anticipate new bookings to increase as we finished 2022.
Focus on our five key performance initiatives have not changed.
And given our year to date results and current demand profile, we are raising the lower end and narrowing the range of our GAAP and adjusted EPS outlook. We're also reaffirming our outlook for consolidated revenue.
Let's turn to slide four and we'll talk a little bit about commodity prices supply chain and general inflation.
Hot rolled coil steel and aluminum spot prices have corrected further as global and regional demand and supply becomes more aligned and we've also seen slight improvement in structural and plate steel spot prices in.
In general steel aluminum spot prices remain above pre pandemic levels and other cost inputs labor transportation et cetera remain inflated and I expect it to continue in the near term.
Our supply chain is performing better and we and we continue to focus on reliability consistency as we celebrate customer service levels and improved working capital performance.
We also continue to work diligently to balance price actions in input costs in a timely manner accelerate our 80 20 initiatives for productivity and cost reduction and managed and optimized contract terms with our customers.
Let's move to slide five for an update on our panel supply for the solar industry.
So the two trade issues impacting solar panel supply the U F. L. P. A enforcement continues to have the greatest near term impact.
On customers' ability to move forward with projects just as a reminder, the F. L. P. A was implemented in late June isn't enforce and has enforced by the U S customs and border protection, while customers continue to work with the C. V guaranteed understand documentation requirements panel input imports slow and availability has remained a challenge for customers.
Our industry contacts concern progress is being made albeit slower than expected.
We expect panel flow to improve in the first half of 2023 on the second issue. The department of Commerce delayed its preliminary ruling on AAV 80, CVD investigation from late August to later this month November 22nd.
And with its final ruling now expected in April of 2023.
We still expect the DOZ is preliminary ruling will provide solid direction to the industry and what to expect in the final ruling.
Keep in mind the administration has instructed the DSA to implement a two year waiver on tariffs.
And we expect that <unk> will execute in order to do so in conjunction with or around the time of the <unk> preliminary ruling on the 80 CVD case.
I'd say, despite the near term impact of these trade issues given the role of solar energy production continues to play in U S energy policy the ongoing investment in the industry the size and growth of the industry and a substantial increase in incentives from the inflation reduction at over the next 10 years.
We really remain very excited about our future in this industry and expect to use solar industry to accelerate even faster.
We're also very well we are also in a very good position to accelerate our business as well.
So with that I'll turn it over to Tim for a review of our of our results.
Thanks, Bill and good morning, everyone.
Through our consolidated and segment results starting on slide six.
Adjusted third quarter revenue increased six 4% to $389 million approximately half of this growth was organic and was driven by participation games and price management and the residential segment, partially offset by continuing end market supply chain challenges from project delays and the renewables nasdaq's eight seconds.
Other half resulted from the inclusion of our acquisition of quality when their products in the residential segment, which we completed in August .
Backlog at quarter end was 356 million down approximately 7% from third quarter 2021, driven by customers waiting greater visibility on near term solar panel availability and project timing in AG check partially offset by continued demand in infrastructure.
Adjusted operating income and adjusted EBITDA dollars increased 16, 2% in 2014, 2%, respectively in the third quarter with adjusted EPS up 19, 1%.
Margin improvements in the business were driven by participation games price management business makes an 80 20 initiatives with renewables.
Infrastructure margins, continuing to expand and residential margins down slightly.
Weighted average diluted shares outstanding decreased three 7% to $31 8 million in the third quarter through our share repurchase program, which I'll discuss in a moment.
Now, let's review each segment, starting with slide seven the renewable sector.
Yeah.
Okay.
Revenue decreased 14, 7% and our backlog was down 9% with customers remained in a holding pattern on existing and new projects as they look for improved visibility on solar panel availability.
Our customer project planning activity is very strong and is accompanied by a robust pipeline of contracts in process.
As a reminder, we only include actual orders with signed contracts and deposits in our backlog of purchase orders without a signed contract and deposit and or verbal agreements with customers or not and have never been included in our new bookings or project backlog.
Profitability continued to improve with adjusted operating margin of 12, 9% up 150 basis points over last year, and 590 basis points sequentially, while adjusted EBITDA improved 190 basis points over last year, and 570 basis points sequentially.
Improvement was driven by project management price cost alignment and field operations efficiencies.
We expect continued improvement we expect continued improved execution to drive margins throughout the remainder of the year.
Our integration is on track and accelerating in our economy ERP system is providing better visibility and enabling us to accelerate implementation of best practices in our supply chain.
Our in sourcing initiatives are underway and expected to provide better flexibility to meet customer demand.
Let's move to slide eight to review our residential segment.
Segment revenue increased 25, 7% with 19% organic representing our ninth consecutive quarter of double digit growth.
Quality aluminum products, which we acquired in August 2022 contributed an additional six 7% of growth and performed as expected in a corner.
Organic revenue was driven by pricing carryover from prior quarters and participation games, particularly in our roofing related repair businesses.
We are experiencing normal seasonal demand patterns.
And have begun to see some initial incremental repair demand from hurricane Ian.
As a reminder, 80, 90% of our residential business is driven by existing home repair either because of aging or weather damage. Historically home repair is not seeing significant impacts from changes in interest rates repairs, especially the roof typically occur regardless.
We remain engaged with customers about their plans and expectations over the next few quarters, keeping a keen eye on any changes in demand.
Segment, adjusted operating income and EBITDA grew 22, 6% and 21, 6%, respectively, adjusted operating and EBITDA margin contracted 40 to 60 basis points, respectively. Due to the inclusion of our recent acquisition of QEP.
On an organic basis, our margins were essentially flat with last year as operational improvements were offset by unfavorable product mix.
Going forward, we expect QEP margins to improve as we execute our integration plan and implement 80 20 with the Humana team.
Our initial integration work is progressing and our new team members are very engaged in the process.
Last quarter, we went live on SAP, PNR mail and package business, which will improve operations with more scalable and effective systems and processes.
We will continue our safety investment as we strengthen each operation with common systems and processes and data and analytics to leverage supply chain 80, 20 initiatives material management customer service and connectivity and our brand.
We are on track to achieve our objectives for top and bottom line growth for this business this year.
Let's move to slide nine to review our test segment.
Yeah.
Adjusted revenue decreased seven 3% as project schedules, primarily in produce continued to shift.
The commercial business continues to be robust with good momentum in the cannabis business is strengthening as we see progress on regulatory legislation in many states.
After growing 30% last quarter backlog decreased 7% against a strong comparison last year.
<unk> remains strong and we continue to have a number of sizable projects in the final planning stages.
We continue to expect accelerating momentum for the remainder of the year and into 2023.
[laughter] segment, adjusted operating and EBITDA margins improved 202 hundred 30 basis points, respectively. As the benefits of higher margin backlog converted into a stronger business mix improving price cost management continued improvements in supply chain 80 20 initiatives.
As a result of these improvements we expect steady performance as we end of the year.
With respect to the process and equipment sales, we remain in active discussions and we'll provide updates when we have them.
Let's move to slide 10 to review our infrastructure segment.
Segment revenue increased nine 1% on timing of project work and increased non fabricated product demand.
Order backlog increased 11%.
We expect increased spending related to the infrastructure investment and jobs Act to continue to impact us positively due at the end of this year and into 2023.
Segment, adjusted operating income increased 62, 5% and operating and EBITDA margin $380 and 370 basis points, respectively, driven by price material cost management.
Volume leverage positive mix and improved operating execution.
We expect margins to improve on a year over year basis for the remainder of 2022 as projects negatively impacted by plate steel inflation are completed.
Let's move to slide 11 to discuss our balance sheet and cash flow.
At September 30, we had $273 million available on our revolver and cash on hand of 22 million.
We generated $38 million of cash from continuing operations in the quarter.
And excluding <unk>, we invested $5 9 million in working capital during the quarter.
This represents a decrease of $59 3 million from the $65 2 million, we invested in the prior year quarter.
Managing for the disrupted supply chains.
Current quarter's investment was driven by reductions in receivables and inventory were offset by decreases in payables and other liabilities.
The disruption in supply chain has taken longer to moderate, causing a delay in our plans to further reduce inventory investment.
The reduction in accounts payable was affected by the timing of inventory purchases during the quarter in terms of suppliers.
And the reduction in other liabilities was driven by a decline in billings in excess of costs, which results from the timing of billings based on contractual project billing schedules and customer deposits as we continue to work on projects in house backlog declined on lower levels of new project bookings.
During the quarter, we made a net cash investment of $51 6 million for the purchase of QEP largely by drawing on our revolver.
<unk> added $24 million of networking capital was $15 million of inventory 20 million of receivables and 11 million of payments.
We expect to optimize <unk> working capital investment during integration.
Our net leverage at quarter end remained approximately one half the time.
During 2021 in early 2022, we invested in inventory to our stores.
Ensured strong support for our customers' needs during the current supply chain challenges, which enabled us to increase our participation.
However, ongoing extended lead times and the supply chain have required us to keep inventory levels higher than we expected and the result, we've reduced our target for 2020 free.
Free cash flow generation.
Two approximately 6% of revenue from 10% to account for the delay and inventory reduction.
We continue to expect strong cash flow generation for the remainder of the year with continued improved earnings and reduction of working capital investment.
And as always we expect to use generated cash flow to fund investments in organic and inorganic growth.
Along with opportunistic stock repurchase supplemented as needed by use of our revolver, depending on timing of any M&A or repurchases during the remainder of the year.
Now, let's move to slide 12 to update you on our share repurchase program.
During the third quarter, we repurchased 138000 shares with a market value of $5 5 million for an average price of $40.
Funded this repurchase through the revolver.
Right, we had $31 5 million shares outstanding with a weighted average of $31 8 million during the third quarter.
Now I'll turn the call back to Bill.
Thanks, Tim let's move to slide 13 for an update on our key priorities.
You know simplifying focus the journey continues for us and we are staying the course and.
I'm really trying to focus on what we can control last 24 months have been a tremendous learning experience for our team given the ever changing end market macro environment, Theres really forced us to assess and challenge many of our operating paradigms I believe we've made solid progress would change management in each of our businesses and we have plenty more opportunity in front of us.
Relative to our parties as I said, they have not changed first and foremost driving 80 20 at service speed, winning new business productivity and costs expanding margins and good cash performance secondly, managing supply chain demand and minimize disruption, but also optimize cost and reduce our working capital.
<unk> accelerated digitization in our operations Thats quote to cash its customer service levels that supplier connectivity and cyber security.
Improving organizational health agility and flexibility to operate in this current environment and create the best environment. We can and then finally, just continuing to conduct business the right and responsible way every.
Every day.
Let's turn to slide 14, and we'll review our 2022 guidance.
So as mentioned at the beginning of today's call given our performance to date and our current demand profile going into the fourth quarter, we are raising the lower end and narrowing the range of our GAAP and adjusted EPS outlook.
Our outlook for consolidated revenue remains 133 8 billion to $1 four 3 billion.
Two at 1.32 billion in 2021, we now expect GAAP EPS to range between $2 90 and $3.
Compared to $2 25, and 2021 and adjusted EPS is expected to range between $3 30 to $3 40 compared to $2 86 in 2021.
I want to switch gears and talk briefly about 2023.
Currently engaged our annual budget planning process.
We'll finalize our plan in December .
The macro environment continues to be dynamic our end markets are evolving and our customers are working through their respective plans as well with general market and customer input now let me share. Some of my initial observations on our end markets, let's start with renewables I think the market is expected to grow with a slower first half accelerating in the second half as panel supply improves.
Inherent end market demand remained strongest customer planning activity is high with a robust project pipeline E commodity prices are coming down and the inflation reduction Act should provide positive impact in 2023 once the final guidelines are published.
Switching to residential I think the market is returning to its normal seasonality.
Moving toward traditional normal growth rates as a result, the level of business in the fourth and first quarter will be lower than what has been experienced in recent years.
Interest rates and inflation will continue to impact new housing construction, while housing repair activity should remain relatively solid.
<unk> supply chain reliability will help optimize channel inventory and market prices will begin to shift downward as input costs declined and inflation is less impactful.
And AG Tech similar to renewables, there's a strong customer planning activity and robust project pipeline evolving consumer demand for fruits and vegetables remains solid and will drive produce growers to invest in more growing capacity the momentum in the commercial market will continue investment in cannabis growing capacity increase as we see progress and regulatory legislation in many stay.
And then finally infrastructure infrastructure Bill will continue to drive market demand as state Dot's had better visibility of and.
And access to funding over the next five years Airport authorities are also in a stronger position to fund general runway maintenance similar to pre pandemic levels.
As mentioned earlier for us, it's going to continue to be about simplifying focus and focusing on what we can control are our strategy is solid.
Our priorities have not changed we have a lot of work to do as markets evolve a lot of opportunity in front of us as well and I think we also have a lot to be proud of proud of and thankful for and lastly, I just I really do want to mention our teams in Florida and their families many of which live and work in the Fort Myers area, where hurricane Ian made landfall I'd.
I would say everyone on our team was impacted in some way by hurricane in and everybody. Fortunately was able to remain safe during the storm.
There are a ton of stories to tell but I will say this group of special a month after the storm hit our folks do.
They continue to deal with damage to their homes and communities.
Countless hours, helping others recovered and find support and in the midst of all this our teams continue to manage the business and take care of our customers.
It really does make me incredibly proud to have this group of folks in our team.
It's the kind of folks that makes your brother, who we are so.
Just wanted to give them a shot up now.
Hey, let's open up the call we'll take your questions.
Thank you, Sir ladies and gentlemen, we will now be conducting a question and answer session.
My follow up question, please with targeted one on your telephone keypad.
A confirmation tangible indicate they turned on is in the question queue.
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The first question comes from Daniel Moore.
J S Securities.
Tim Good morning, Thanks for taking the questions.
Maybe I'll start with the resi side of the business.
If you said this I I was a little late to the call. So I apologize that the 19% organic growth what was pricing versus volume during the quarter.
Yes, I'd say mixed and as we've been experiencing where it's a combo with.
Price still being in.
The main driver, but but volume hanging in there as well and the volumes coming through again participation games that we've been.
Winning over the last year or so that are kind of continuing to read through at this stage.
Helpful and.
What are you hearing from your resi customers in real time, including Big box retailers.
Any inventory reductions given incremental uncertainty and just kind of sequential order trends monthly can through Q3 and into Q4.
Yeah on a volume basis I don't think we've seen at the big box level of change in volume over the last few months, that's our take based on what we see a P. O S. I think.
What what I mentioned during the call was you know the last couple of years, we have really not seen the normal seasonality in our residential business. As you would have seen the last 50 years. The patterns. If you will mainly because of the supply chain was such a challenge around the world. So we never got a break in Q4 and Q1 the last two years.
I think the as they as the economy has started to slow that seasonality will come back into play which is fully expected. We thought that was going to be the case coming into this year.
So that's part of this.
And then I think things will ramp back up as they normally would as we get into next year, but in general I would say.
The volumes at the big box level have stayed relatively.
Consistent with what we've seen the last couple of months and then you know when you start getting into things like Hurricanes and and so forth. There's a lot of puts and takes as we see it in our business as well.
Yeah.
Got it and as a corollary to that.
Just margins your ability to maintain the strong margins you've had as let's say seasonality endured men normalize it to some degree.
Yes.
We fully expect to be able to maintain the margin performance that we've been generating.
This.
This particular quarter relatively flat year over year, we had some product mix play in <unk> as we mentioned when we acquired the company is accretive to Gibraltar, but less margin than our core residential business to start with that will change as we integrate and and drive that performance.
So.
As we always say you know, we we expect to continue to to drive top and bottom line as we move forward in our thoughts haven't changed on that front as.
As we go into this next phase of the.
The economy moving.
Alright, one more I'll jump back in queue, but switching to renewables. Thank you for the color obviously as it relates to the U F. L. P a and the D O C.
It sounds like you'd still expect full year growth next year net net once we have let's say a little bit more clarity how long do you expect it to take.
Take for the supply to ramp back up and work its way through the channel.
Once your customers.
Fueling more comfortable as it takes a quarter or two to kind of for that that supply to flow through in and then into your business. Thanks.
Yes.
It does vary a little bit Dan on that front, but I would expect that you'll see based on the readiness that we we no customers have now with where projects are in the planning phase.
Buttoning up the last of the last five yards in the Red zone to get the project up and running is going to move relatively quickly.
I think theres a lot of panels that are waiting to come in and so I would expect that.
Within a quarter, you'll start to see things.
Ill start I think you'll start to see flow come back to more normal levels. Once that starts happening I don't think it will take six or nine months for for that to occur I think people are very anxious to.
You get on with it and that'll happen sooner than later once the pain will start to flow in.
Alright, I guess I've said I'll jump back with any follow ups. Thank you.
Yep.
Thank you Sir the next question comes from Ken <unk> of Keybanc.
Good morning, gentlemen.
Good morning, Ken how are you.
Very well could you talk to.
Inventory seems to have had an impact on your free cash flow and you talked about building inventory.
To make sure you can service your customers.
But as you highlighted your slide for <unk>.
Input costs are rolling over so can you talk to how you're managing the risk that you didn't acquire inventory that is above market value and there'll be a drag.
On your margins.
Right. So two two points on inventory when we went into the quarter we expected.
Some of the supply chain issues that were coming to an end in Q2 to help us as we went into Q3 I think they took a little bit longer too.
Get worked out better than we anticipated so that forces to keep a little more inventory on the books than we thought we were going into the third quarter. So that's that impact and that's just a timing element of the supply chain. That's starting to work itself out and then you know we've talked in the past about Mt.
This cost alignment how do you.
<unk> managed the Flushing out of your current input cost while market prices start to move and change and we anticipated coming into this year that that would be the case with prices market prices starting to shift.
We assumed a little bit sooner than what probably happened this year, but as that happens, but it's just a matter of working with our customers and driving.
Down our AR inventory costs that we have on the books.
In conjunction with our prices move accordingly.
And that's how we're managing and it's really just customer to customer but.
In terms of how we go through this I wouldn't suggest that we have a gigantic risk in front of us.
Our customers are are partnering with us and trying to navigate through remember a lot of that.
We brought in was about driving service for our folks and so they've been very very positive and working with us because they know we brought this in for them specifically to work help us work through it so.
Our hope is that we'll be able to manage that relatively relatively.
Relatively well.
And we're starting to see that in Q4, and and try to get ourselves really well positioned as we go into 2023.
Good.
I appreciate the comments around the residential.
Focus you've gotta renewable which at least for me is the more.
Difficult for me to understand the business.
The fact, you're at you know.
One 9% margin.
Big difference from where you are in the first quarter.
In the second quarter, you talked about that kind of sustaining earlier in the year could you talk to first.
You talked about renewable the market not guidance being stronger than the first half versus second half I believe was your commentary.
And the operating entity by 'twenty three.
Yeah, So I think as it relates to 'twenty three renewables as a market will have a I think we will grow year over year.
The growth in total for the year will be dependent on the ramp between the first and second half the first half will be slower as people work for the U F. L. P. A importation process got it.
Okay right. So that's how that's slower.
That mean your margins.
Second half 'twenty two.
Versus the first half of 'twenty, two I mean is there.
A way to think about that because that's created so much I think volatility around you know your company and with your margins coming back in does that mean your run rate in the second half.
It's kind of.
Not.
A good way to think about the first half of 'twenty three.
I mean, I don't want you to actually get guidance, but just trying to understand the operating costs of the business.
Yeah, no. So one always remember there is seasonality in this business in the first quarter is always the lowest because of construction around.
And the toughest weather months right. So that's always been the case for the immuno was industry and it's always been the case for our business.
So that's one thing to think about secondly, if you recall the first quarter of 2022 was a very difficult quarter for us related to a lot of project movement that occurred the previous year and flowed into Q1, so from a comp perspective.
I think we're in a much better position going into next year than we were this past year.
With regards to the topline situation so.
We're set up I think to.
As we said going into the second half of this year, we expect to generate double digit margins in this business, we expect that momentum to carry into next year.
Those margins, obviously will be stronger in Q2, three and four where you have more volume Q1 seasonally is the lowest is the slowest, but we're coming off also against a <unk>.
A tough.
Q1 in 2022% compared with as well.
Right.
And then I apologize just one last one on.
Renewable could you talk to your understanding or conversations with your clients with your developers which themselves.
Right try to get cost until they get their own returns with the yield curve.
Moving so well have a yield curve as well as the absolute yield how is that affecting it.
Developers ability.
To understand their cost of capital is that headwind separate from.
All of these other issues you've been facing this year.
Yeah, I don't know if it's a new headwinds so to speak I mean this this environment has been ongoing for some time, if you think about the industry in 2021 before you started to see impact on.
On you'll see.
And overall cost of capital relative to interest rates and so forth.
Unbelievable amount of inflation that hit this industry in such a large way we talked a lot about that think about hot rolled coil steel as an example was a thousand dollars more per ton year over year at the same period in Q3 right.
That's one of your biggest components that go into.
Customers are.
Set of economics that they're looking at so yeah <unk> had interest rates go up and so cost of these projects on one hand are seeing some some headwinds there but on the flip side, you've seen a significant amount of.
Cost come down on operating costs come down.
As well so theres a balance I think that each of our customers are looking at everyone has a different profile in terms of their return.
Looking for but I would say just based on the amount of activity that we're engaged in now designing developing and getting projects into the Red zone, it's as active as it's ever been.
And if you take that separate further and look at the land that's out there that's been acquired what it's earmarked for.
I think it's still relatively robust and then finally, the last thing I think developers and others are thinking about is the I R. E can be very impactful in 2023, so effectively without getting into the details. There's two sets of guidelines that.
Well hopefully we finalized here relatively soon one from the department of Treasury, one from department of Labor.
As it relates to the.
The guidelines such that you can go drive incremental.
Benefits.
Even more so above than where we had been historically so I think customers are now using that.
Factoring that into the equation as well when making these decisions, but that's a substantial upside.
Upside opportunity on top of inflation coming down so interest rates are still high but at the end of the day. There's some tail winds that are starting to kick in.
People excited as well also had 10 a day what really matters is we've got to get panels flowing in number one.
And then I think the rest of it will start to balance itself out at least that's our impression as we talk with many of our top customers, they're not slowing down.
Thank you very much.
Yep.
Yes.
The next question comes from Elia when they ran off of Sidoti.
Okay.
Hello.
And where are you there yes.
Yes, we can hear you all right.
Hi, This is <unk> on for Julio Romero how are you.
Good.
I guess my first question is.
On the renewable renewable segment, what do you foresee as the key variables.
In 2023.
Well number one as panel supply for the industry again, that's not what we buy is when our customers do and that's been a problem or challenge for really the last four or five quarters, and we're hoping that the industry now that it has.
A quarter or so behind it with dealing with the new U F. L. P E.
And another quarter or so working through that.
Panels will start to flow into the country.
In a way that our customers are able to move forward with a lot of projects that they've been planning on that is probably the number one.
Number two I think as you know how does inflation or things that have been highly inflated really impact the returns on their business and incent them to move faster.
Some of the major components as I, just mentioned earlier coming down significantly versus where were a year ago. That's helpful cost cap was up a little bit obviously with interest rates, but then the inflation reduction act as something that could be incrementally.
Very beneficial for a lot of customers in there.
Hoping to be able to take advantage of that in 2023 as well. So there's a lot of moving parts in a couple of different levers there that could be pulled by customers, but those are the things I'd say the three things that are you know from our perspective that matter most.
For the industry as we move into 2023 and that will be a reflection of our business as well.
Thank you that was helpful.
My second question is on the residential segment.
Can you talk a little bit about the cap deal and its threat strategy Con rationale.
I'm, sorry, I didn't hear the first part talk a little bit about the what can you talk about the cap deal.
QEP and strategic Oh go ahead.
Yeah, so sorry.
Alright, QEP and the second part of your question.
The strategic rationale behind it.
So.
Acquired two <unk> during the quarter there are based in in Hastings, Michigan.
Company, we've known for quite a while spent the last nine or 10 months, you know having discussions with them.
The rationale for us moving forward.
One it's a.
Opens up the door, what relative to some channel opportunities, they're very big in residential wholesale and that really helps balance our portfolio in terms of channels wholesale versus big box.
Get a sense of some geographic locations that we haven't been in historically, so we got a geographic expansion that is very important to US and then you bring a new set of products and additional set of products that will help us with our customers.
Which is kind of interesting so theres a lot of cross selling opportunities whether its core Gibraltar business selling through the QEP network to its set of customers in the wholesale channel or vice versa coming back through Gibraltar. So those are the the three core.
Pieces, a rationale behind it and we felt we brought the business into the family at a good price at the right multiple.
Yeah, we're excited to have him in and we're looking forward to.
Getting through our integration and driving the synergies that we expect to see.
Alright, thank you.
So can you please speak to their margin profile of QEP, Greg It seems to be below that of the legacy residential segment. So it is about there.
Yeah. It is it is a big opportunity if any.
Yeah.
We.
To bring the margins up.
More in line with where our historical performances in our core business, it's going to take little time, we've got some pretty good synergies that we.
We see starting to flow in that will be impactful in 2023 their supply chain in particular, getting our <unk> 'twenty operating system into the organization, which.
They've actually already started even before we finish the acquisition so.
This is a good business that has inherently a better margin profile than what we acquired but there are some things that we can bring to the table to help them get them, there, but I would expect them to start creeping more towards our core.
Margin profile performance.
As we are as we move into 2023 or exit 'twenty 'twenty three so it'll take a little time, but but we will get there.
Alright, Thank you for taking my questions.
Yes.
No.
Our labor contracts named her three minded keeping a close a question you're welcome took place at the time.
And then one.
The next question comes from cause Liptak of Seaport Global.
Hi, good morning, guys.
Good morning Walt.
I wanted to ask thanks for the 2023 outlook that you gave.
At the end of your remarks and.
If we kind of look at all those things together.
I wonder if you're thinking about 2023 being a revenue growth year.
And where do you think the you know I guess with 80 20, and some of the other things that you're doing.
Could it be an EPS growth there as well.
Yeah, I would say you know well I mean, you know us as well as anybody our view is this is we expect to grow in both top and bottom line each year end.
I think that's a reasonable expectation as we go into next year, well have a better view of that as we finish up the planning process.
I'm trying to understand each of the quarters end and with a full year's can look like over the next really a month and a half is where our focus is right now.
But our expectation going into the year based on participation opportunities that involved in now and that we're working on in our residential business I think will be very helpful.
We got to get the panel situation for the solar industry to open up and when it does we're in a great position to really execute on that our infrastructure businesses.
Going along.
And then <unk> got some really large projects that as they come across the finish line well.
That should get us off to a good start next year as well. So if you think about the things that drive renewable you know thinking about things that drive renewables AG Tech and infrastructure that's half of Gibraltar.
It really.
<unk> is probably going to be a little bit more recession resilient in other words, the things that are holding back renewables have nothing to do with the overall economy so to speak.
There's trade issues, they gotta get worked out so well.
Given the I R. A out there pushing even incremental benefits. There I think we think that will accelerate as the panel situation gets worked out that's a good news story not just next year, but going forward infrastructure has got a five year.
Support plan in place with the infrastructure.
Infrastructure Bill that's out there now and we're starting to see the impact of that X.
It's just really about peoples demand for fruits and vegetables and.
And in our commercial business, which are the two pieces that really drive that those arent necessarily.
Related to some of the broader macro things and a lot of ways and then the residential for us it's about repair.
New housing has been a drag for 10 months now so I think we enter this coming year, knowing that that was going to be the case and so again it gets back to how do you drive participation.
It gives us some incremental growth.
And then you know managing your price cost and in doing that through 80, 20 initiatives and other productivity efforts I think.
We're set up for them to.
To have a solid year in 2023, and we'll give you more.
<unk> will shed more light on that here early next year, when we come out with the plan.
Okay.
And in the residential.
Residential segment specifically.
The comments that you made about hurricanes and it sounded a little bit mixed.
And I Wonder you know.
Why that was or if that was the case.
And if you have any.
Damage data.
Roof replacement.
So that from that.
That hurricane and then and then gone.
Going back up to like the 50000 foot level on residential.
2023 be a growth year in in dollars or organics, because you've got you know some of your raw material costs moving around as you talked about earlier.
Yeah, I'm sorry, the second question.
<unk> be a growth year in dollars or or what what did you what was the second hole.
I mean, if you've got.
Some deflationary metal prices.
Yeah Yeah.
Residential will be down.
Because of that as opposed to organic growth.
Chris.
Yeah, So first one hurricane.
Sorry, I Didnt mean, it wasn't it didn't mean to be unclear that has.
We're seeing the impact of that we start to see that almost immediately.
The degree of the impact.
Next time to evolve because you know the first month or two or six is all about clean up and then understand the magnitude of the damage and then the repair and then how quick can that repair based on just having the labor available et cetera, et cetera to kind of work through these things.
You know the major storm like this so we've been helping our wholesalers and retailers.
Quickly respond to the needs and that's that has started how long that last that could be.
Nine months could be year, it really depends a storm by storm and magnitude of damage but.
We've already started to see.
Impact from it and we're responding accordingly, and I will say just to.
Again, a shoutout to our.
Teams that are supporting right now.
We're sending water and other supplies to wherever our shipments are going for whoever needs. It on the back of every truck what we're seeing.
So you know you've got situations, where you're delivering trucks two parking lots because the stores don't have either the storage damage or they don't have enough space inside because theyre gearing up for all the work that has to be done. So we will get more clarity as time goes on it's really hard to predict and tell you what the damage or magnitude is in time.
It's just the nature of this but we're a month or so into this and there's still a lot of cleanup.
That's going on.
But it is having or having an impact on our orders.
At this stage.
From a question about 2023.
You would expect.
If you remember as we went through this inflationary.
Upward cycle, we had this constant conversation around.
Our pricing catching up with.
The inflationary cost and we drag on margins on the way up and then finally, we flipped the switch.
Once our pricing caught up and then that's govern oftentimes with our big box in our in our large.
Retail customers through our contracts so as things come down you have the same type of discussion so market prices will bring down revenue on the top line as they subside.
We've got that baked in to our thought process like I said earlier, we thought that was going to happen earlier this year than it did but we fully expect that in our plan going into next year, we offset that through things like QEP and other participation gains. So I do think we can continue to grow into next year. Despite a.
Market prices coming down hitting the top line.
We'll offset that through volume pick up through participation gains and a full year effect of QEP. So yeah, we feel like Theres an opportunity to grow in 2023, we've got some work to do but it's absolutely.
Intend to.
To get there.
Okay. It sounds great and then switching over to renewables.
You know the the Q&A.
A Q&A that we already have about the double digit 2023 operating margin.
It sounds it sounded to me like you were saying that.
That's what you were expecting the double digit operating margin for 2023, but not in the first quarter.
Now later on in the year like second quarter second half is that right.
So think of it this way, we said coming into this second half that we would run double digit second half.
And so that gives us the momentum going into next year next year, our intention is to run double digit for the year.
No.
We got to finalize those plans, but if you if you kept that momentum going into next year, that's great. But there is seasonality in this business right. In Q1 has always been the lowest revenue quarter for the industry because of construction in January and February , particularly for US we do a lot in the northeast and East coast. So it's all.
He has been our lowest quarter so the margin in Q1.
We will not be necessarily reflective of the full year I think the full year. We have line of sight would have continued the momentum that we've had in 2022.
And drive that forward. If we do so then we'll get back to that performance that you saw in 2020, which you'll recall was.
13% operating income so.
We think thats very reasonable.
Just to remind everybody. If you think about this quarter revenue was down 14 almost 15%.
Versus last year, and we drove an operating performance that was much better than we had last year and a lot has to do with just getting into the systems and aligning price cost in our field operations and field efficiency work that the team has been doing over last.
For the year.
If you can generate that type of operating performance when you're down 15% in particular quarter I think that gives you some confidence that.
We're in a good position to power through whatever comes our way in and now and and as panel supply starts to open up.
That flowing through them with some haynesville really we're set up to do really well in that environment. So.
Yeah, we expect to have a <unk>.
A solid year in renewables next year as well.
Okay, Yeah. It sounds great. Yeah, we did notice that the revenues were down in renewables and there was a nice operating margin.
And I guess, that's why I was thinking about double digit score in the first quarter.
You can flex cause or be productive even on lower revenue in the first quarter.
Maybe you can get to the double digits as well.
Yeah, well listen well.
As we finish up our plans and we'll have a better idea of what that's going to look like.
I talked earlier recall this year was a tough Q1, so I think you'll see.
A marked difference in performance operating performance in Q1 versus Q1, but that's mainly because we had a very difficult Q1 this year.
But I think as we've always saying Q2, three and four with two and three being you're you're most busy quarters, that's where typically the business generates its highest margins during the year.
And that's more volume.
Okay.
Okay. Thank you.
Ladies and gentlemen, this concludes our question and answer session.
I'll now turn the call over to Mr. Tholen screen for closing remarks.
Well.
Thank you again for joining us today we.
We do expect to present at the Bofa virtual Goldman Energy conference as well as participate in the CGS, New ideas conference and the first quarter 2023.
Want to wish everyone, a safe and healthy and happy holiday season, and we look forward to updating you again, when we report our fourth quarter results. So thank you and have a great day.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation and you may now disconnect your lines.
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