Q4 2022 Gibraltar Industries Inc Earnings Call
Greetings and welcome to the Gibraltar Industries fourth quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Carolyn capacity out of LH, a investor relations. Thank you you may begin.
Thanks, operator, good morning, everyone and thank you for joining us today with me on the call is bill Baas wage of all.
Strange 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 Gibraltar one dot com.
Obviously noted Gibraltar classified the processing equipment business and the AD Tech segment as held for sale with first quarter 'twenty 'twenty. Two results has removed the related revenues and expenses from the processing business from its adjusted results and it has taken a fourth quarter 2022 charge to write down the carrying value of related assets.
And for all sorts of earnings press release, and remarks contain non-GAAP financial measures and tables of the reconciliation of GAAP to adjusted financial measures can be found in the earnings press release that was issued today.
Also as noted on slide two of the presentation. The earnings press release and slide presentation contain forward looking statements with respect to 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 Buckley Bill.
Hi, Good morning, everybody and thank you for joining today's call will start with an overview of fourth quarter and full year 2022 results and Jim will take you through our financial performance and I'll walk you through our 2023 outlook and then we'll open the call for some questions. So let's turn to slide three titled 2022 year in review.
Yeah, the fourth quarter capped off a good year for Gibraltar as we stay focused on execution of our key initiatives, while operating in a very fluid and challenging external environment.
<unk> continue to demonstrate speed and agility and quickly pivoted in response to changes in dynamics in our end markets are.
Our focus on what we can control resulted in profitability and margin improvement in the fourth quarter and for the full year, where.
For the year, we improved adjusted operating income 18%.
And adjusted EPS, 19% on 5% revenue growth.
Generated 6% free cash flow with sequential improvement in both margins working capital and expect our cash performance momentum to continue into 2023.
As expected our backlog decreased 12% during the quarter to $299 million driven mainly by lower backlog in our renewables business.
The industry continues to be impacted by panel availability as panel suppliers go through the learning curve with U F. L. P. A importation requirements.
And while demand in solar remains very robust, which is reflected by project design activity customer verbal commitments and master supply agreement discussions.
We're still remain in a holding pattern with actual contract signing and project scheduling.
And as a reminder, our order backlog only includes signed purchase agreements with contracts and contracts with deposits.
Do you see some movement and signs that panel supply efficiency will strengthen as we move through 2023.
And we know our customers are working diligently every day to develop new indoor additional panels panel sourcing options to offset the impact of the U S. L. P. A.
While backlog was also down in our AD Tech business project design and quote activity and the project pipeline is very strong specifically for Proteus scores needing to expand capacity.
Any of these projects were originally targeted for.
Final released in Q4, 2022, but were delayed due to re scoping both for scale and technology requirements, we anticipate backlog to build as well as purchase agreements are finalized throughout the year.
Switching gears to discuss our five key initiatives. We stayed very focused on these initiatives throughout the year.
And we'll continue to build momentum on these same initiatives in 2023.
80, 20, and operations execution helped us expand margin drive service levels and increase participation. In this effort is even more important when operating in today's environment.
Which has an overall slower economy and one with unique headwinds facing some of our end markets.
As a result, we executed structural changes and right sizing actions across the company in the fourth quarter 2022 to better prepare for the macro environment in 2023.
We also improved our supply chain in the second half of the year as the economy began to slow.
Prices continue to shift downward in demand seasonality returned in our end markets, particularly in the residential market.
The supply chain reliability and consistency, improving we began to drive inventory levels down.
Combination of strong margin performance improved cash flow.
Free cash flow sequentially.
Our digital transformation continued in 2022 with another successful go lives ERP implementation. This one in our residential business over the last three years, we have been upgrading common areas in our ERP and CRM systems across our businesses and we'll continue to make additional investments in 2023 did.
Digitizing operations is helping scale, our businesses drive speed and agility and connect with our customers suppliers and our people more effectively.
Finally organization it continues to get stronger as more diverse and thought experience and capability through.
Through education and development and with the addition of new team members to the team.
Safety performance is improving as we continue to invest in dedicated resources education training and better processes in both of our facilities, but also in the field.
Finally, nothing matters more than conducting business in the right responsible way each day and doing it with discipline and focus.
Let's turn to slide four.
A quick update on dynamics in today's operating environment.
Yeah, there have been five I would say very fluid core core operating dynamics, we've can change they had to address in real time over the last 24 months.
Supply chain commodities labor transportation.
In our solar business, the solar panel supply situation.
Each has had each has created both a cost and availability of challenge and each has moved or changed direction with incredible speed and pace more than once.
Here's how I see things currently with each of these dynamics, let's start with supply chain.
There has been general improvement in reliability and performance consistency. This has allowed our customers and markets suggest inventory levels to support reflect historical seasonal demand as an example, the residential market the fourth and first quarters have represented lower demand periods in the second and third quarters have tended to reflect peak demand periods in 2022 for the first time since.
2019, we returned to historical seasonal demand as we exited the third quarter and entered the fourth.
Secondly, commodities pricing, particularly for steel aluminum resin has been correcting since mid 2022, and although we're seeing more stability.
I want to emphasize it is it is really important we stay prepared for sudden or unexpected price movement.
Third labor it has improved over all of US economy has slowed and demand seasonality has returned to more normal patterns.
We also continue to drive productivity improvements to lessen our dependency on the amount of labor needed to support our businesses.
Its transportation freight rates have improved significantly, particularly ocean container rates and availability and reliability for over the road and Ocean transportation has improved as well.
Finally panel supply panel suppliers continued to slowly come up to the U F. L. P. A learning curve and we look for panel availability to improve later in the year at the same time customers are finding some panel supply through other sources not necessarily subjected to the U F. L. P. A requirements and the contracts, we finalized and signed in 2022 and in 2023 reflect this.
These panels are typically more expensive for customers, but the incremental investment tax credit benefits from the inflation reduction act and make the overall economics of sourcing higher cost panels more palatable for customers than prior to the I R. A being in place.
Let's turn to slide five we'll talk a little bit more about commodities.
Hot rolled coil steel plate steel and aluminum spot prices have shifted down, whereas true demand and supply are in better alignment that being said, we are prepared with better processes and tools to react to unexpected price moving if it occurs structures.
Structural steel spot prices have reduced slightly as well, but interesting enough prices for all of these commodities continue to remain above pre pandemic levels.
A lot of inflation accelerated over 50 consecutive weeks in 2021 we worked with our customers to implement price actions Accordingly, which took three quarters to read through in our margin performance in the case of residential or customer contracts also include price indexing for changes in commodity prices as commodity prices quickly shifted downward in 2022, we made some price.
Adjustments in the second half of the year in parallel we stayed focused on managing our overall cost and aggressively started reducing higher cost inventory on hand. This is a positive development for us and the industry and has driven healthier alignment of inventory and demand as we move into 2023.
In general the price cost alignment processes impacted most by the speed and magnitude of the change in commodity prices and his experience in 2020, one can take two to three quarters to achieve.
So we will continue to accelerate or a 20th material labor productivity initiatives as well as closely manage this process with our customers.
Let's move to slide six for a update on the panel supply issue in the solar industry.
Many of you are aware, we've talked about this a lot there to trade issues impacting the solar panel supply for the U S market.
See we are forced labor Prevention Act known as U S. L. P E and the department of Commerce is antidumping and countervailing duties investigation. So of the two the U F. L. P. A continues to materially impact panel suppliers ability to import their panels into the U S.
And as a result customers ability to move forward with some projects there.
Since June of 2022 when he F. L. P. A was implemented and enforcement by the U S. Customs border protection started and all suppliers have worked with the C V P to understand documentation requirements and the C b piece process.
15 suppliers served the U S market in three tiers and 80% of your solar panel demand is supported effectively by five tier one suppliers. The industry started seeing progress in January with one of the largest suppliers having success in a few shipments and we're looking for continued progress across additional suppliers in 2023.
On the second issue the department of Commerce issued a preliminary ruling in December that a number of Chinese solar panel manufacturers had been circumventing 80, CVD orders by moving Assembly operations from China to Thailand, Cambodia, and Vietnam, and Malaysia final ruling is now expected in may of 2023.
Ministration hasn't stuck to the D O C to implement a two year waiver on tariffs, which went into effect shortly before the preliminary ruling was announced.
Yeah, we've been in the solar industry for eight years.
12, plus years when you take into account when the companies were acquired when the companies. We acquired actually started in this business. So we remain very excited and committed to this industry. There's strong demand both globally and in the U S. And so energy is and will continue to play a foundational role in the U S energy policy going forward as.
As well the new inflation reduction act provides even greater incentives, which will drive more investment and stronger financial returns for the industry in the next 10 years.
We see momentum accelerating everyday is existing customer share plans to expand to new investors are starting to enter the market again.
We are well positioned and we remain focused on the C&I segment, and I expect the industry and our business to flourish as panel supply improves our 2023 plan assumes customers continue to find creative ways to source panels were able to gain incremental benefits from their projects from the IRA.
And overall panel supply through the U F. L. P. A M crews in the second half of the year and with that I'll turn it over to Tim for a review of our financial results.
Thanks, Bill and good morning, everyone.
Take you through our consolidated and segment results starting on slide seven.
Adjusted fourth quarter revenue decreased five 2% to $312 9 million.
Organic revenue decreased nine 8%, partially offset by a full quarter of quality aluminum products revenue in the residential segment and revenue growth in the infrastructure business.
The organic decrease related to volume impacts from the markets returned to historically lower fourth quarter seasonal demand patterns and supply chain reliability improved along with market prices beginning to align with changes in commodity indexes and residential.
Along with continued impacts from project re scoping of rescheduling in our renewables and high Tech businesses.
Backlog at quarter end was $299 million down approximately 12% for fourth quarter of 2021 with continued impacts from renewables customers awaiting greater visibility on near term solar panel availability project re scoping of reschedule any lag Tac, partially offset by continued demand in infrastructure.
Adjusted operating income and adjusted EBITDA dollars increased 17, 8% and 16, 6% respectively in the fourth quarter with adjusted EPS up 28, 6%.
Quality of aluminum products added one set to our adjusted EPS in the quarter.
Margin improvement in the quarter was driven by material cost alignment additional field operations efficiency price management business mix and 80 20 initiatives in the renewables and infrastructure segments wait.
Weighted average shares outstanding decreased five 4% to 31 3 million shares in the fourth quarter and I'll review our share repurchase program in a moment.
Now, let's review each segment, starting with slide eight the renewable segment.
Revenues decreased 28% and backlog was down 17% as strong customer demand for solar products and services was impacted by solar panel suppliers navigation of panel the importation guidelines covered by the U F. L. P. A is enforced by the U S customs and border Protection Agency.
That's affecting scoping and scheduling projects.
With customers in a holding pattern until visibility on panel availability improves customer project planning and pipeline activity remains firm in our pool of contracts in process, but it's yet on signed continues to build.
As a reminder, our backlog consists only of signed contracts with deposits.
Do not include purchase orders without a signed contract and deposit Msas without specific work orders are verbal agreements with customers in our new bookings or backlog.
We further improved profitability despite importation issues impacting revenue with adjusted operating margin of 15, 2%, increasing 1390 basis points year over year, and 230 basis points sequentially.
Similarly, adjusted EBITDA margins increased 1440 basis points to 17, 9%.
Margins were driven by field operations productivity, 80, 20 project management business mix and materials productivity.
Our outlook for 2023 expects progressive revenue growth throughout the year based on our assumption that panel supply will improve in the second half of the year of suppliers move up the U F. L. P. A importation process learning curve.
And we expect margins will continue to show improvement through 2023.
We continue to improve efficiencies through further integration with common ERP systems by accelerating best practices and supply chain, allowing us to capitalize on material efficiency and realized lower cost rate and in sourcing initiatives as we continue to invest in manufacturing capabilities to improve our ability to meet our customers' needs.
Let's move to slide nine to review our residential segment.
Segment revenue increased seven 8% for the full quarter QEP revenue contributing nine 4% and organic revenue down 1.6.
As I mentioned organic revenue was impacted by the markets returned to its usual lower fourth quarter seasonal demand patterns with supply chain reliability, improving and market prices beginning to align with commodity indexes.
You a P which was acquired in August performed as expected.
As a reminder, about 75% to 85% of our residential business is driven by existing home repair either because of aging or weather damage historically home repair, particularly didn't roof has not seen significant impact from changing interest rates.
While market expectations indicate a slowdown in new built new homebuilding, we expect repair markets that we serve to remain solid.
Segment, adjusted operating income and adjusted EBITDA decreased 13, 2% 10, 1% respectively and.
And adjusted operating and EBITDA margin contracted 320 basis points or 300 basis points respectively.
The inclusion of a full quarter of QEP contributed about 110 basis points of the decrease.
And on an organic basis, the alignment of pricing material costs and timing of changes in commodity indexes impacted margin in the quarter.
The integration of QEP is proceeding well and our combined team is finding additional opportunities to integrate and improve the business we.
We expect segment margins to expand this year as price cost alignment improves QA P integration benefits are realized.
We also plan on two additional ERP implementations. This year as we continue to migrate to a common solution in our residential business.
Let's move to slide 10 to review our AG Tech segment.
Adjusted revenue decreased 17, 4% due to project re scoping of rescheduling of large produce growing projects into 2023.
Our commercial greenhouse business remained strong with a solid mix of business.
While backlog decreased 13% quote activity remains robust and we expect protos projects that had been delayed with our key customers to move forward.
Segment, adjusted operating and EBITDA margin decreased 420, and 350 basis points respectively.
Rescheduling delayed project revenue recognition, partially offset by better project execution.
We expect margin or cover as we execute during 2023.
And as announced in January recorded a $14 million pre tax charge to write down assets associated with our processing equipment business, which was classified as held for sale last March.
To estimated fair market value, we expect to pursue the sale of the business and we'll provide updates as we have them.
Yeah.
Let's move to slide 11 to review our infrastructure segment.
Revenues increased four 8% driven primarily by increased demand for non fabricated products.
Order backlog increased 23% of state departments of transportation gain visibility on federal funding bidding activity increases.
We're entering 2023 with solid momentum expect to see spending increases as the states take advantage of the additional funding available through the infrastructure investment and jobs Act.
Segment, adjusted operating income more than doubled and adjusted operating and EBITDA margin increased 700 2700 basis points respectively.
Driven by improved price material cost alignment, particularly for plate steel pricing improved operating execution product mix and volume leverage we expect continued margin improvements in 2023.
Let's move to slide 12 to discuss our balance sheet cash flow.
At December 31, we had $305 million available on our revolver and cash on hand of $18 million.
During the quarter, we generated $64 million in cash from continuing operations, including 32 million generated from reductions in working capital.
This represents a reversal of the use of cash for working capital that we experienced over the past few quarters that resulted from supply chain disruptions in our drive to remain in stock for our customers.
Fourth quarter saw a return to historical seasonality in accounts receivable.
We reduced material orders during the third quarter as supply chain began to recover in lead times normalized and these actions provided an accelerated reduction of inventory levels. During the fourth quarter accounts payable also came down as we limited purchase of inventory and other liabilities came down in line really with progress on projects and the decline in backlog.
As a result, we improved our free cash flow generation during the fourth quarter to 19% of revenue ending the year at our updated target of 6% of revenue.
We paid down $38 million on our revolver during the quarter and we also renewed and extended our $400 million revolver with favorable terms and conditions during the quarter.
Quarter end, we had $91 million outstanding on our revolver for net leverage of under one happened.
We're focused on driving continued improvement in our operating cash generation in 2023 with lower investment in working capital as we worked down inventory further and we're targeting free cash flow above 10% for the year.
We continue to expect huge generated cash flow to fund 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.
Let's move to slide 13.
I'll give you an update on our share repurchase program.
During the fourth quarter, we repurchased 664000 shares with a market value of $30 3 million for an average price of $45.69. We funded this repurchase through our revolver in 2022, we expanded approximately 43% of our 200 million authorization.
And at quarter end, we had $30 9 million shares outstanding with a weighted average shares of $31 $3 million during the quarter.
Now I'll turn the call back to Bill.
Thanks, Tim let's move to slide 14, and we'll talk about our 2023 priorities.
You know in the past three years and certainly in 2022.
I'd say, we successfully managed through a number of external challenges by focusing on what we can control and and simplifying our business external environment continues to be very fluid.
Requiring we stay this course and so as I mentioned earlier, our priorities and focus are unchanged, we have plenty of opportunity in front of us to generate growth to drive quality burden earnings further enhance our margin and generate good cash performance.
Performance.
So let's move to slide 15, and then we'll move on to <unk> to discuss key trends and initiatives that support their 2023 outlook for each of the businesses, let's start with renewables you know our outlook overall assumes panel supply does improve in the second half of the year.
To support the robust demand pipeline of projects waiting to finalize sign and execute.
Had a good bookings month in January some of our customers continue to source panels through additional sources.
We also expect the I R. A guidelines for new and additional incentives to be finalized in the first half of 2023.
So it takes us to our key initiatives for renewables.
First the launch and ramp of our new one P tracker product, which really complements our two P offering giving us a broad tracker solution portfolio for customers are E. Bos growth initiative with C&I and utility customers is gaining momentum supported by good and growing order backlog and our 80 20 initiatives.
Your line simplification product line simplification and project estimated management are improving our ability to efficiently scale and drive better margin performance as we execute on demand.
Switching to residential.
We expect the repair and market to remain relatively consistent with 2022, we expect the continuation of downward pressure on new housing construction and we expect demand seasonality to return to historical levels, given the general performance improvement.
The improvement of the supply chain.
Our key initiatives are really to execute on our participation playbook like we have over the last two years.
Execute 80, 20 and productivity initiatives.
And integrate QA fee according to our acquisition plan.
On slide 16.
For AG Tech, we expect a number of our produce growers to move forward with capacity expansion projects that were previously earmarked for 2022.
We also expect the momentum in our commercial business to continued investments in cannabis growing to restart at facilities in states where license approvals are now moving forward.
Our initiatives in this business first support Proteus customers with our capacity expansions executes a rollout of retail greenhouse additions.
And deliver our 80 20 CLS in Pls projects, and finally drive margin performance at 10% plus for the year.
And finally infrastructure. This business has strong momentum entering the year with both engineering and order backlog growing at a strong pace.
It is executing one of the largest customer projects in the history of the company.
Which recently was awarded in Q4 of 2022.
We see the infrastructure investment and jobs acts driving demand in 2023 and beyond bolstered by state and Federal D. O T funding now in place as well airport authorities are also funding runway surface repair and maintenance initiatives.
So our key initiatives for this business are expanding in engineering capacity to support our growing order backlog leveraged 80, 20 investments made in 2022 and the new initiatives currently in process in 2023 and deliver growth and margin expansion for the year.
So, let's now turn to slide 17, and we'll discuss our 2023 guidance.
Our outlook for 2023 assumes modest growth continued margin expansion and strong cash performance.
Outlook for consolidated revenues in the range of 1.3 dollars 6 billion to $1 four 1 billion compared to 1.38 billion in 2022 given.
Given the continued fluidity of our end markets. This range assumes a down organic scenario at the low end and modest growth at the high end.
GAAP operating margin should range between nine 9% and 10, 1% compared to nine 4% in 2022, and adjusted operating margins should range between 11 per.
Percent, an 11, 2% compared to 10, 9% in 2022.
GAAP EPS should range between $3, <unk> and $3 24, compared to $2.56 in 2022, and adjusted EPS should range between $3.46 and $3 66 compared to $3 40 in 2022.
Free cash flow as a percent of revenue will reach 10% compared to 6% in 2022.
We are confident we will execute and deliver solid performance. Despite the fluid environment impacted some of our end markets and our confidence is bolstered by the progress made in our market positioning our new product introductions, our systems and process improvements our ability to drive participation in margin expansion and the strength of our organization.
<unk> proven our ability to manage constant change and adjust our operating paradigms as needed to drive results and we expect to get off to a solid start in the first quarter.
I want to thank our entire team for good performance in 2022 I'm proud of what we have accomplished the challenges we have overcome an agility and resiliency of the organization.
Tire team looks forward to another good year in 2023 and with that let's open the call for your questions.
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One moment, please while we poll for questions.
Thank you. Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Thank you good morning, Bill Moring, Jim I apologize for the background noise here.
Maybe start with residential margins a little lower than we've seen can you kind of break that out I think you said Q E. P was about 110 bps is that right. How much is absorption versus misalignment of input costs and you know what's your outlook for Q1, and how quickly we can get back to those kind of mid to high teens margins.
We've seen over the last couple of years.
Yeah, I can so you're right on the <unk> of <unk>.
Declined due to the QEP, that's just blending in.
Our lower margin business before we complete the integration.
Dan It's mainly I mean, there's a there's a bit of absorption rate volumes are lower you always have that but it was mainly really that material cost alignment.
As prices decline.
We got to get price in some places.
And then just getting the right cost material back yet.
Expectations are.
You know first quarter is going to be seasonally impacted again.
What we expect for a full year that will be higher than we were.
Sorry, Tim you said that you expect for the full year to be higher than I missed the last one and then Q4 it or than last year.
And then last year right, so year over year will be up.
Got it all plays out quarter.
Perfect switching to renewables, Yeah, just talk a little bit more about activity I thought I thought I heard you say a solid booking in January I know, it's early and expectations, obviously for much more improvement in H two but.
Anything you can talk to in terms of you know what discussions have looked like year to date and what your visibility looks like into you know when you expect backlog to start to improve that would support the physical overall 2023 got it. Thank you.
Yeah, so sedan.
Our our renewables business has not projected.
<unk> to grow a lot in 2023, just because the way the plan is built.
Due to the U F L P E and the ramp in the second half what's been good news around this front is key.
Customers are finding ways to source panels that are not necessarily.
Governed by the U F. L. P panels coming from different countries are different sources that are not you know sourcing raw material that is the subject of the entire import.
Process in the first place so.
But what that means is the SPIC it still isn't turned all the way on for the industry, but if you're aligned with the right customers. Your you are have the potential to two <unk>.
To drive backlog improvement and I would expect that.
To start.
Picking back up as we go forward in the year end and a lot of it.
Can't tell you how robust activity as if we don't have a panel supply issue in the industry. There's just a lot of pent up demand, but I think our backlog.
We'll continue to bill and you'll start to see it turn.
As we move our you know.
Later into the first quarter into.
Into the second quarter first half of the year I think you'll start to see improving as U F. L. P. A opens up hopefully you'll see that really start to take off.
Backlog is one thing and then the question is you know when the payments start to flow in how quick can industry respond to that opportunity and it won't be flipped the switch because you got to get the engine going again across the industry, but but I do think our second half will build as we have built in our plan. So.
Backlog shouldn't start improving in the first half are to some degree and then hopefully that will continue to build in the second half as we build the plan around that.
Yeah.
Perfect and maybe last just talk a little bit about you know obviously the guidance a little bit more weighted toward the back half given.
You know the Kid probably near term.
Softness in.
And renewables as well as the seasonality in residential.
Any guidance in terms of either revenue growth or on an E. P. S. Q.
Q1, and an H one relative to H two.
Yeah, I would just say we're you know we're getting we feel like we can get off to a solid start and we expect to get off to a solid start in Q1 and.
More and more visibility on timing of how things will flow by quarter as we go into the year versus kind of how we built the plan. So.
You know as we said upfront for the full year.
We feel in both topline and bottom line, we can grow a little bit and we can drive margin expansion and EPS improvement how that flows in our in the in the year I think we'll learn a little bit more as we go through each quarter, but we feel like we'll get off to a good start.
While it started and we will take it from there.
Yeah.
Alright, I'll jump back with any follow ups. Thank you.
As a reminder, if you would like to ask a question press star one on your telephone keypad.
Our next question comes from the line of Julio Romero with Sidoti. Please proceed with your question.
Thanks, Hey, good morning, Bill and Tim.
Maybe to start off on the renewable segment. If you could maybe talk about the revenue mix you saw in the fourth quarter.
Just the 15% op margin was seemed really impressive there and just curious you know what kind of mix changes you saw.
I wouldn't say it was a whole lot of mix changes here as much as it was just a continuation of the efforts the team is putting forth and driving execution. So if you recall going back to the beginning of the year, where we're struggling with when the panel situation really hit the industry and we had a lot of field.
Operational inefficiency associated with project movements, and so forth that starts to settle down as the year goes on you get your arms around the projects that are actually have panels associated with them, you're working direct with customers. I mean, we've just done a tremendous amount of work on.
Our ability to execute in this environment differently than we would have a year. Prior so a lot of 80 20 associated with starting from estimating all the way through project management down into the field.
Working the supply chain and are working on material productivity. It's a combination of a lot of things that started to build over the last eight months that just drove better project productivity and better performance on the margin side I don't think it had and we did all that and down environment in the second half, which we expected you guys recall, we expected revenue to slow in the second half of the.
Year as bookings are dead because of panel availability and are we shifted our focus to make sure that we can drive a better performance even in a down environment, but it had really nothing to do with that.
Mix, if you will.
Okay. No that's very helpful and I appreciate the color or the alleviation of the field up inefficiencies there.
I guess when you talk about how you're how you're thinking about the segment for 'twenty three I think.
You mentioned in the prepared remarks are do you expect progressive revenue growth in the renewable segment throughout the year.
How about on the margin front I mean can you maybe speak to the cadence of margins expected and.
How that should flow throughout the year.
Yeah I would.
Our plan is built on margin improvement in that segment.
For the year end.
You know it'll it'll correspond somewhat with as as the revenue flows.
As well so you know our hope at the end of the day is that our plan at the end of the day is as the volume starts to come back on the top line starts to accelerate.
We had a leverage leverage that incremental or leverage that growth and a better way than we could have you know a year or so ago because of what I. Just described in terms of improvements are being made but.
I think that'll build and of course of the year just as as the it'll correlate with the I think the sales growth that comes.
Throughout the course of here as well.
Okay. That's helpful and I guess just last one for me you know you saw some very solid.
Free cash flow in the fourth quarter I guess, the 10% guide for 'twenty Threes is based on additional reduction of inventory or are there.
Are there any moving parts as.
Well two receivables okay.
Two things that drive for US one just margin expansion. That's the core and then two just with supply chain situation is much different than it was it enables us along with some things we've done internally to just drive down.
The amount of inventory that we've had to invest in the last two years. So.
Those two things really are what's going to drive cash performance and frankly, we expected the supply chain to get a little bit better sooner than it did in 2022. It didn't it took probably an extra quarter or two.
Again, as we're going through yet another shift in the macro world.
We see that much more stable and that's going to drive as we mentioned in our prepared remarks.
Only to.
To align inventory and demand.
Seasonal demand in a different way and so we've been working that for last six months, we have more work to do but.
That's where the cash performance comes from those two.
Yeah.
Makes sense.
Thanks, a lot guys.
Yep.
Thank you we have reached the end of the question and answer session. Mr. Boswell have now like to turn the floor back over to you for closing comments.
Well, thanks, everyone again for joining US today, we will attend the bank of America Clean Energy leaders Conference next week.
In Boston.
And we also expect to present at the Sidoti small cap conference in late March and of course, we look forward to updating you again, when we report our first quarter results. So with that I want to say thank you once again and have a great rest of your day.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.