Q3 2024 Gibraltar Industries Inc Earnings Call
[music].
Greetings and welcome to Gibraltar Industries' third quarter, 'twenty 'twenty four financial results conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
<unk> directors for Gibraltar.
Jim brings significant experience to Gibraltar, giving his successful tenures as both a public company Chief Executive Officer, as well as a board member and we are excited to have Jim join our team and be part of a prosperous future.
Secondly, I'd like to introduce Joe <unk>, who joined our team in August as our new Chief Financial Officer, and Joe will present, our financial results today as we announced earlier this year after 20 years with Gibraltar, Tim Murphy will retire in early 2025.
Tim and Joe are working closely together to ensure a smooth transition and as Joe continues to accelerate through learning curve and spend time in the field with each of our businesses. Tim continues to lead a number of important initiative across the organization. We plan to complete prior to his retirement early next year.
So I will start with an overview of third quarter results and then Joe and I will provide both a financial and operating update and a closer look at what's happening in our markets. Then I will walk you through our 2020 for outlook and then we'll open the call for your questions. So, let's turn to slide three titled third quarter 2020 will review.
Our third quarter results were within the revised range, we announced on October 11, consolidated net sales on an adjusted basis were down 6% with revenue in the renewables and residential businesses down in the quarter, partly offset by significant growth in AG Tech, which was up 34%.
On an adjusted basis operating income decreased 13, 6%, EBITDA 11, 7% and EPS, 7% with the renewables business, having a sizeable impact on our overall margin performance and.
In fact during the quarter, excluding the renewables business the rest of our portfolio performed relatively well and collectively delivered operating income improvement of nine 3% or 170 basis points EBITDA.
EBITDA improvement of seven 8% or 170 basis points and EPS improvement of 18, 2%, while sales were down approximately 2%.
We generated $65 million in operating cash flow and $59 million in free cash flow during the quarter as well.
Backlog for the quarter was down approximately 15% again, driven by the solar industry challenges facing our renewables business, which I will discuss when I review the solar market situation.
<unk> backlog was down slightly from last year's level, which is related to the timing of signing contracts before quarter end, but the number and value of customer approved projects in the pipeline for signature remains very robust infrastructure backlog increase over last year and quoting activity also remains very active in this segment.
Overall, we're fighting through the ongoing solar industry challenges, we are managing the rest of the portfolio relatively well.
We carry this momentum into the fourth quarter. If you consider the midpoint of our full year guide and compare it with our year to date results Youll see planned in Q4 for us to deliver relatively flat sales and improved year over year margin performance. Despite anticipated ongoing challenges continuing the solar industry and with our renewables business.
Speaker Change: Let's dive into the business segments, and I'll hand, it over to Joe.
Joe: Thanks, Phil and good morning, everyone I'm excited to be here with the Gibraltar team.
Have been introduced to some of you and I look forward to working with all of you.
Joe: Let's start with residential on slide four.
Joe: Net sales for the residential segment decreased by $15 3 million or six 7% driven by residential market that continues to be soft both for repair and new construction markets.
Joe: Adjusted operating and EBITDA margins expanded 110, and 120 basis points respectively.
Joe: Driven by a healthy list of 80, 20 initiatives solid productivity improvements effective supply chain and price cost management.
Joe: We will continue to drive participation across both geographic and market expansion initiatives and execute well in today's market environment.
Joe: So let's move to slide five and we'll take a look at the residential market as well as our expansion initiatives and our recent new product launches starting with the market as we described in our earnings release in October 11th.
Joe: The end market remains soft as reflected by our big box retail customer point of sale sales data as well as our industry data.
Joe: Existing home sales continued to be slow in most markets home prices remain high and interest rates, which have recently ticked upward keeping some potential homebuyers on the sidelines <unk>.
Joe: Specific to the roofing market U S roofing shingles shipments decreased approximately 2%.
Joe: When you exclude the Texas market, which was up 20, almost 21% in the quarter and represented approximately 20% of the U S. Shingle market. The rest of the U S was down 6%.
Joe: Also impacted revenue in the quarter were delays in participation gain awards with customers as mentioned in our last call with a slower market the transition to new suppliers can be impacted by the speed at which incumbent inventory sold through the market.
Joe: As an example, we were impacted by approximately $4 million during the quarter, but we expect this to correct itself over the next couple of quarters.
Joe: Nonetheless, we continue to pursue market expansion and are launching new locations during the current quarter and in Q1 2025, and they will provide presence in the mountain west and mid Atlantic and West Coast regions.
Joe: We will reveal the specific locations in the markets. They serve once they are up and running.
Joe: On the new product front, we launched two new products in the third quarter and are set to launch a newly our newly designed patented pipe boot flashing in the in the current quarter.
Joe: Hi, boot flashing are typically fit it over pipe or furnished exhaust fence located on your roof.
Joe: And the purpose is to create a watertight seal to prevent moisture leaking through your roof.
Joe: This is a highly competitive offering that addresses over $100 million of addressable market in U S. And we are very excited to bring it to the market.
Joe: Let's now shift over to renewables.
Joe: So on slide six adjusted net sales for renewables decreased $17 5 million or 17, 2% and the business continues to be impacted by the ongoing effects of trade and regulatory dynamics.
Joe: As a result, the peace and consistency of demand continues to be a challenge for the industry, but we expect demand to improve as the second Doj investigation comes to conclusion early in 2025.
Joe: Backlog was similarly impacted by these headwinds and was down approximately 24% in the third quarter adjusted.
Joe: Adjusted operating and EBITDA margins decreased.
Joe: 1040, and 970 basis points, respectively. As a result of lower volume trade and regulatory disruption and the launch and learning curve of our <unk> tracker.
Speaker Change: So you guys are like two sides I want to share with you on the on our renewable situation, let's move to slide seven and we will go through the <unk> tracker launch or.
Speaker Change: Our <unk> launch continues to gain traction across a widening range of customers and since Q4 of 2023, we booked over 340 megawatts across 64 different projects with 18 different customers.
Speaker Change: We're also engaged in designing or quoting over $100 or one six gigawatts of opportunities mostly for community solar applications, both medium and small sizes.
Speaker Change: Sorry, medium small and large sizes fixtures in the upper right hand corner of the chart as recently as the recently completed <unk> project for Fox Club, just under 100 megawatts in size as well as shown in the bottom right hand corner of the slide. We just started the first territory Peritrack project on pile foundations for Enersys, a three megawatt deal.
Speaker Change: So having a tracker solution available with either pile.
Speaker Change: <unk> foundations opens up more geographic markets for us as foundation preferences vary by region type of soil or in some cases general geography.
Speaker Change: Our launch learning curve continues to accelerate with additional improvement coming with our supply chain, our suppliers ramp volumes improve on time delivery and our internal processes scale to effectively support our field operations team and customers, while we navigate through the current industry dynamics, which brings me to our next slide an update on the U S solar market, So, let's turn to slide eight.
Speaker Change: Today I want to talk specifically.
Speaker Change: To the active ADC CVD investigations.
Speaker Change: First if you recall in conjunction with the first department of Commerce ADC. The investigation the administration issued a presidential proclamation.
Speaker Change: Growing solar panels to enter the U S duty free for a period of two years.
Speaker Change: This proclamation expired on June 3rd 2024, and the industry was effectively given six months or until December 3rd 2024 to install panels that were imported Wilder proclamation was in effect.
Speaker Change: Or be charged with additional duties as determined by the outcome of the first Doj investigation, which calls for both antidumping and countervailing duties.
Speaker Change: Additionally, this August.
Speaker Change: The American Alliance for Solar manufacturing Trade Committee filed critical circumstances allegations with U S Department of Commerce regarding surging solar imports during the two year presidential proclamation from Chinese based companies working through Vietnam and Thailand.
Speaker Change: Two of the five countries found to be attempting to avoid duties during the first boc investigation.
Speaker Change: The critical circumstances, finding can result in retroactive duties being imposed on panels that entered the country up to 90 days before the preliminary determinations were made in the first POC investigation.
Speaker Change: And the industry is still waiting the outcome of this process.
Speaker Change: Secondly, a second.
Speaker Change: CVD complaint was filed in April of this year, alleging illegal trade practices by Cambodia.
Malaysia, Thailand and Vietnam.
Speaker Change: Asking the department of Commerce, and the U S International Trade Commission to apply new tariffs, both for antidumping and countervailing duties to.
Speaker Change: To imported solar cells and modules imported from these countries.
Speaker Change: Department of Commerce made a preliminary determination for the antidumping on October one.
Speaker Change: And final determinations are expected by December 2016.
Or countervailing duties Department of Commerce made a preliminary determinant nation on July 18th and a final determination on October one.
Speaker Change: The U S International Trade Commission made preliminary determinations for Antidumping on June 10th and a final determination is expected January 30th for.
Speaker Change: Or countervailing duties a preliminary determination was also made on June 10, and a final determination is expected November 15th.
Speaker Change: Finally issuance of orders for the Antidumping investigations are expected February six 2025 and for the countervailing duty investigations November 22024.
Speaker Change: So as you might expect right now solar developers continue to deal with a pretty big unknowns and moving targets.
Speaker Change: Installation mandates investigation outcomes critical circumstances rulings accurate module cost availability and administrative and administrative requirements that come with <unk>.
Speaker Change: All of the above.
Speaker Change: These trade issues intended to protect the most of the domestic steel industry are serving to pull focus and make the business environment is more complex and frankly it needs to be that being said.
Speaker Change: Once the industry gets past the December 3rd 2020 deadline.
Speaker Change: And understand is the final rulings from the second 80, CVD investigation, which are due in Q1 2025.
Speaker Change: We expect customers will return to a more normal business cadence and pace and interim.
Speaker Change: We'll continue to support customers accelerate tear track.
Speaker Change: Launch further stay focused on optimizing our profitability operating performance.
Speaker Change: With that let's move on to AG Tech.
Speaker Change: So moving to slide nine AG Tech adjusted net sales increased $10 6 million.
Speaker Change: Up 34% driven by the acceleration of project starts and our produce segment, where we have designed and constructed growing facilities for strawberries and lettuce production.
Speaker Change: Third quarter backlog decreased 3%, which is related to the timing of anticipated project bookings for which design work has been completed.
Speaker Change: Segment, adjusted operating and EBITDA margins expanded $450 and 410 basis points, respectively, driven by volume solid project management execution favorable.
Speaker Change: Product mix shift and 80 20 initiatives.
Speaker Change: We expect margins to continue to improve through the end of the year.
Alright, let's move to slide 10.
Speaker Change: As expected momentum in the AG Tech business is accelerating as new projects, particularly in our produce business have started and are in process. We expect this momentum to continue as we secure additional projects in both 24 and 2025.
And consumer demand for locally grown high quality fresh fruits and vegetables continues to drive investment and grow capacity, which is really needed to keep pace with requirements for both food retailers and foodservice providers and I'll tell you what the most exciting thing is about is about this industry.
Speaker Change: Both today and in future. It is effectively sold out and the produce grown in these facilities in North America represents only 2% to 3% of the total produce grown whether grown indoor or outdoor in North America. So the industry has significant growth run rate and its future.
Speaker Change: And obviously, we're very excited to be part of it.
Speaker Change: Can you give me two currently project examples on the left.
Speaker Change: We are just completing the fifth phase of seven phases with boom very farms.
Speaker Change: Which grow strawberries blueberries effectively the largest CA strawberry facility in the world spanning 120 acres and designed to grow $12 5 million pounds of strawberries annually.
Speaker Change: This is a turnkey operation with the structure and 20, plus sub systems design and our integrated manufacturer constructed installed by prospects our brand in the market.
Speaker Change: Contract value of phase five is approximately $25 million and we will start and complete phase six in 2026, and <unk> 7 million in 2020, sorry phase six and 2025 and page seven in 2026.
Speaker Change: On the right is a new $35 million plus.
Speaker Change: Project with King's one farms, where we are designing manufacturing and constructing the first fully automated purpose built facility for lettuce phase.
Speaker Change: Phase, one which starts this quarter and phase two spanned 13 acres for a planned annual production of 21 million heads of lettuce.
Speaker Change: The site when additional phases are completed we will spend at least 40 acres within an additional production of over 60 million heads of lettuce.
We have a number of producing commercial projects in the active design phase and expect additional signings this quarter and flowing into 2025 as well we continue to apply 80 20, and further optimize our operating systems and facilities with the intent with <unk>.
Speaker Change: Distantly deliver higher margins going forward.
Speaker Change: Now, let's move onto our infrastructure business.
Speaker Change: Moving to slide 11 infrastructure segment sales decreased $1 8 million or seven 2%, reflecting the comparison against the timing of a large project last year.
Speaker Change: Backlog increased 3% with demand and quoting it robust at robust levels supported by continued investment at the federal and state levels participation games and new products, we have introduced.
Speaker Change: Segment, adjusted operating and EBITDA margins, each improved 230 basis points driven by product line mix, New products 80, 20 initiatives and continued strong execution.
Speaker Change: We expect continued strength in orders and sales and margin expansion in 2024.
Let's move to slide 12 to discuss our balance sheet and cash flow at.
Speaker Change: At September 30, we had cash on hand of $229 million and $395 million available on our revolver.
Speaker Change: During the quarter, we generated $65 million in cash from operations from net income plus cash generated from working capital of approximately $20 million.
Speaker Change: Our free cash flow generation for the quarter was 16, 4% of sales and we continue to expect 2020 for free cash flow to be approximately 10% of sales for the year.
Speaker Change: Also during the quarter, we used $9 million to repurchase approximately 139000 shares of common stock at an average price of $64 45 per share.
Speaker Change: At quarter end, we had approximately $80 million or roughly 40% remaining under our $200 million stock repurchase authorization.
Speaker Change: Our revolving credit facility remains untapped and we remain debt free.
Speaker Change: We expect to generate strong solid cash flow for the remainder of the year.
Speaker Change: Our capital allocation priorities for 2024 are to continue to invest in our organic growth and operating systems for scale with capital expenditures between 1% to 2% of sales.
Speaker Change: We continue to be active in our pipeline of high quality M&A opportunities, we have discussions in process and our strong balance sheet provides flexibility.
Speaker Change: We think there is a higher probability in the near term in the residential and AG Tech segments.
Speaker Change: Finally, we plan to continue to Opportunistically return value to shareholders through the approximately $80 million remaining authorized under our repurchase program.
Speaker Change: Funded by cash generated from operations and the use of our revolver, depending on timing of any M&A for repurchases.
Speaker Change: Now I will turn the call back to Bill.
Bill: So let's move to slide 13.
Bill: I'll review, our 2024 guidance as mentioned earlier, we are Reconfirming. Our recently updated outlook, while we are dealing with some end market challenges, particularly in the solar industry, we expect to deliver solid performance in Q4 and earnings growth for the year. We expect consolidated net sales to range between 1.31 billion and $1 33 billion compared to one.
Bill: Three 6 billion on an adjusted basis.
GAAP operating margin is expected to range between 10, 8% and 11% and up and adjusted operating margin is expected to range between 12, 4% and 12, 6% flattish against last year.
Bill: Adjusted operating adjusted EBITDA margin is expected to range between $15 3 million and 15, 5%.
Bill: <unk> expectations are on a GAAP basis between $3 57, and $3 71.
Bill: At the midpoint of this range up modestly compared to $3 59 in 2023.
Bill: And adjusted between $4 11, and $4 25.
Bill: 1% to 4% compared to 409 in 2023.
Bill: We continue to expect free cash 2020 for free cash flow of approximately 10% of sales.
Bill: As for an update on our 2025 objectives, our long range planning and budgeting processes are now in process and we will share. Our 2025 plan early next year during our Q4 earnings call.
Bill: In closing as I mentioned earlier in the call. We're not we were not able to overcome all the solar industry challenges in Q3, but the rest of the portfolio execute well improvement in <unk> adjusted operating income nine 3% EBITDA, seven 8% and EPS 18, 2%.
Bill: Our teams are going to continue to remain proactive we're going to work through the respective headwinds and continue to drive performance and expand our participation with existing and new customers and I do want to express my appreciation to everyone in each of our operating businesses into our corporate team for remaining resilient and focused on executing our playbook.
Bill: Now, let's open up the call and we will take your questions.
Speaker Change: Thank you at this time well be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Speaker Change: Press Star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Speaker Change: Our first question comes from Dan Moore with CJS Securities. Please proceed with your question.
Dan Moore: Hey, Good morning, Bill Good morning, Joe first of all quickly.
Dan Moore: Welcome to Joe and then a quick thanks to Tim for.
Dan Moore: All the efforts obviously over the last multiple years greatly appreciate it.
Speaker Change: Thanks, Dan.
Speaker Change: Start with Rajiv maybe can you break down the 7% decline in revenue between price and volume and further whats your sense of how much of the volume decline represents kind of true end market demand versus perhaps customers destocking inventories as we head into year end with election uncertainty et cetera.
Rajiv: Yeah, Dan I'd say, it's all volume there really wasn't a lot of price impact in the quarter for <unk>.
Speaker Change: Overall business.
Speaker Change: When you look at it by you break it down by MSA by region. It really does vary a lot. So you kind of build up from that perspective, as I mentioned, Texas was up 20% and trends in <unk>, that's not a big market for us.
Speaker Change: Let's say, but.
States like Florida were down, 20%, where you find a lot of shingle usage say over 1 million squares in the quarter those states.
Speaker Change: For the most part were negative with exception of taxes. So it's a regional thing and I think it's holywell your position in each of those states without given time period now.
Speaker Change: So I think it's flowing consistently with what we see from the end market from the point of sales perspective that we get from that immediate feedback again those point of sales that data does also vary regionally as you might expect.
Where stores in certain states or.
Speaker Change: Having different experiences than they are in other states.
Speaker Change: I don't think it's been a destocking.
Speaker Change: Effort at all from Q2.
Speaker Change: <unk> through Q3, I think that settled in it corrected itself as we enter Q4, we are going into a normal seasonal pattern. So youll see volumes shift down as they normally would.
I just think.
Speaker Change: Once it got corrected it's kind of stayed where it is and thats.
Reflected in the point of sales information or data that we're seeing.
Speaker Change: As I shared earlier.
Speaker Change: Helpful.
Speaker Change: <unk> performance and Rajiv obviously continues to remain impressive given the topline softness was there any benefit from mix in the quarter or is it all pretty much reflective of operating efficiencies cost controls et cetera.
Speaker Change: Yeah, a lot of 80 20.
Speaker Change: People ask US every day, you know when you're going to run out of that and we just don't because it's a combination of.
Speaker Change: Your expectations go up yet.
Speaker Change: Got to get a little bit better and our teams continue to find 80 20 initiatives.
Speaker Change: And those result in better operating performance through productivity and general execution. So.
Speaker Change: It's mostly that we've stayed laser focused on price.
Speaker Change: Price cost management and supply chain is doing a really good job.
Doing a lot of interesting things I think on that front.
Speaker Change: Get it stayed in the businesses that makes sense for us.
Speaker Change: Got out of some business.
Last year in <unk>.
Speaker Change: Regions that didn't make sense for us. So I would just say the playbooks continued that we've demonstrated the last few years will continue to do that.
Clearly some of the expansion initiatives I referenced that will be coming here shortly will help us grow into next year to drive.
Speaker Change: And growth on top of the market, regardless of what whatever the market does so we're excited about the things that we're doing.
Speaker Change: And expect that to read through more and more is.
Speaker Change: As we get through the end of this year and into next year in our residential business.
Speaker Change: Excellent, maybe one more and ill jump back in queue.
Speaker Change: With a couple of parts on AG Tech, maybe just talk about what impacted the timing of orders as we exited the quarter and then bigger picture. We're now at a $40 million plus quarterly run rate you mentioned some of the big projects that are coming.
Speaker Change: Given the increases in backlogs and orders, we've seen where can that get to over the next four to six quarters and we are trending towards 50 million plus in and maybe just talk about your capacity there to handle.
Speaker Change: You know potential more significant growth in that business. Thank you again.
Speaker Change: Yes, no I think directionally you're right.
Speaker Change: And.
Speaker Change: Going more in that direction towards a bigger number than what were showing right now with the projects that we have in the projects that we anticipate signing I think it'll be.
Speaker Change: Good momentum through 2025.
Speaker Change: As it relates to just the projects themselves. If you recall last quarter, we did.
Speaker Change: At $90 million of new signings.
Speaker Change: 40 of that was supposed to happen in the previous quarter got pushed 30 days just for.
Speaker Change: These things move around because of the size of the projects a little bit going on right now, but we really feel good about.
Speaker Change: With all the work that we've been.
Speaker Change: But we've done the design contracts that had been approved.
Speaker Change: The projects, we expect to sign more of those in Q4 and continued in Q1 next year. So that's going to drive our momentum and our run rates better than what you'll see.
Speaker Change: Where we'll land in 2020 for 2025 will be.
Higher run rates across the board for the year.
Speaker Change: As a result.
Speaker Change: Thanks ill jump back with any follow ups.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Julio Romero with Sidoti <unk> Company. Please proceed with your question.
Speaker Change: Thanks, Hey, good morning, everyone.
Speaker Change: They really are holding up on hence hey, good morning, just following up on dance.
Speaker Change: About residential it sounds like some of the volume declines you saw in the quarter were across some broader geographies except for Texas.
Speaker Change: If you could speak to where you're seeing some of the participation games that are being delayed because of customers pushing out existing inventory and then secondly, how much of a dollar impact have you seen from that issue in October to date.
Speaker Change: Yeah, So I mentioned in Nepal, and the quarter is about $4 million of revenue.
Speaker Change: It's with a couple of customers.
Speaker Change: I don't necessarily want to say that out loud because I'm not entirely sure it's been communicated with the incumbent yet so.
Speaker Change: Uh huh.
Speaker Change: But those are specific to two initiatives that one is I would say more of a national initiative.
Speaker Change: And one is more of a regional initiatives.
Speaker Change: But.
Speaker Change: They are in the core business of <unk>.
Speaker Change: Ventilation.
Speaker Change: And sometimes in Washington.
Speaker Change: Got it and just to clarify the 4 million that was for the third quarter or is that.
Quarter to date Q4.
Speaker Change: For the third quarter sorry.
Speaker Change: Yes, you'd asked did you ask a year to date through for.
For the first I wanted to ask.
Speaker Change: I would no I was asking if if quarter to date in October you've seen.
Speaker Change: Some kind of dollar impact.
Speaker Change: Oh, sorry, you are asking in Q4, if Brian is that starting to yeah. Yeah. So we expect to see some of that again, it's timing as we roll out each of the individual locations. So you as you know.
Speaker Change: Theres branches involved so as those branches each rollout it will start to we'll start to see that flow through and it'll be branch by branch and it will accelerate.
Speaker Change: Out of Q4 into Q1 as well so.
Speaker Change: Yes, we're starting to see some of that pick up a little bit.
Speaker Change: <unk>.
Speaker Change: So we're excited to finally get that going.
Speaker Change: Okay, that's helpful and just as a refresher.
Speaker Change: How do you guys define participation games.
Speaker Change: For all of US here like do you find it find it is just kind of.
Winning shelf space.
Speaker Change:
Speaker Change: And your words, I guess, how would you define participation games.
Speaker Change: A couple of ways to think about it if you have an existing customer you are actually taken on business from an existing product line that that you did not necessarily have that region or that MSA and now you've won that.
Speaker Change: That business from somebody else.
Speaker Change: Tends to be what most people look at participations on existing product line basis.
Speaker Change: And Thats thats could be a customer that youre working with and you had a portion of their business in a certain region and you've been awarded another region or another set of stores.
Speaker Change: Also with existing customers it may be that youre getting into a product line that you haven't historically been in.
Speaker Change: And that's another way to drive participation of third is.
Speaker Change: Just expanding into geographies and we do that either through organic or inorganic activities. So as an example, if you recall when we acquired.
Speaker Change: All of the aluminum products it brought us into.
Speaker Change: The upper Midwest or Great Lakes region, with Michigan, where we didn't really have much presence in so being able to serve that business from our distances as the most optimal thing, but that brought us two things that brought us expansion into Michigan, Pennsylvania, et cetera, where we werent necessarily serving because of transportation costs.
Speaker Change: But it also helped balances with bringing more wholesale business to the business, which also can be a positive mix for us in some cases as well so it's a.
Speaker Change: There is a multi front effort going on in terms of how we think about attacking each of these opportunities at the MSA level.
Speaker Change: And so its geographic expansion this existing customer expansion and new customer expansion, it's channel mix expansion and all wound up together and it's a combination of do it organically as well as through acquisitions.
Speaker Change: Super that's really helpful. There I appreciate that guys and then maybe just last one for me is just on the renewables segment in the past you guys have done a.
Speaker Change: A little bit better segment margins there in the past, even if even in quarters, where you've had.
Speaker Change: <unk> declines in volume challenges continue maybe just talking about this quarter and maybe why margins kind of odd.
Speaker Change: We're hindered a little bit aside from volume deleverage.
Speaker Change: Yes.
Speaker Change: It's a good question.
Speaker Change: The reality is we are in the middle of launching a brand new product.
Speaker Change: At a time that took off quicker than we thought and this is not an excuse but I mean, so please don't take it that way, but we're launching new products.
Speaker Change: The delivery mechanism around that product the operating system for that.
Speaker Change: Operations aspects of launching that new product are a little different than what we.
Speaker Change: Grew up with when we did fixed tilt racking system. So.
Speaker Change: Going through that learning curve.
Speaker Change: It's been more challenging than we thought because when you launch a new product.
Speaker Change: You go through your standard things in and you check list and you get it out there when you launch a new product and you've got a December 3rd deadline with a customer that's pulling projects and are pushing projects out or doesn't know exactly what they're going to do versus.
Speaker Change: A bit of a normal environment, it gets a little bit more challenging for us.
Speaker Change: Basically.
Speaker Change: Had to cut our teeth in it for the new product launch in a tough market situation that has.
Speaker Change: Kristin dynamics, so I thought it was a perfect storm, but the team is really fought through that quite well and.
Speaker Change: <unk>.
That's a big piece of that is the drag on margins has a lot to do with the launch of.
Speaker Change: Tracker and a less efficient way than we expected it to be.
Speaker Change: A lot because of ramping up suppliers quicker then we asked our suppliers to do initially as well as trying to navigate through the dynamics of.
Speaker Change: Schedule changes et cetera, et cetera, with our customers that are dealing with things I described earlier, so it's kind of a combination of all of that but.
Speaker Change: Like I said, we have more work to do in the launch we're getting better we feel good about.
Speaker Change: Honestly, we feel really good about what we put in place how we're taking tracker to market.
Speaker Change: The operating delivery model is I think much more.
Speaker Change: More well baked now than it was nine months ago. When we first started so there's a lot of things that we've done I think the shore up so as we come out of this year.
We're ready to.
Speaker Change: To accelerate accordingly, with all the infrastructure things to put in place for this launch and hopefully we get a little bit better cadence and pace.
Speaker Change: In this industry so.
Speaker Change: It always makes it a little bit easier when you are.
Speaker Change: Trying to launch something but also put it in the in the ground right. So you can remember half of what we do are 40% of what we do is installing this new product launch though.
Speaker Change: That disruption can be a little bit impactful on the margin side and obviously it has been and we're working hard to rectify that.
Speaker Change: And Thats.
Speaker Change: That's kind of what we've been dealing with.
Speaker Change: Really helpful I'll pass it along thanks guys.
Speaker Change: Thanks Neil.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Speaker Change: Our next question comes from Walter Liptak with Seaport Research. Please proceed with your question.
Speaker Change: Hey, good morning, everyone.
Speaker Change: Well I wonder I wanted to ask about.
Speaker Change: The renewables business and thank you for Purdue in slide eight.
Speaker Change: And I'm wondering if you could.
Speaker Change: I think you made a comment in there that.
Speaker Change: The solar business. He thought it was going to return to normal in early December and I Wonder if you could just talk a little bit about.
Speaker Change: Your confidence level on that because I.
Speaker Change: I think our experience the last couple of two or three years nor.
Speaker Change: Normal has been this volatility around.
Speaker Change: The the duties and tariffs.
Speaker Change: Customs regulations.
Speaker Change: So.
Speaker Change: The confidence.
Things can be.
Speaker Change: Now back to normal what are you hearing from your customers.
Speaker Change: Yeah, well I actually think it's <unk> it's.
Speaker Change: It's a combination of two things when you think about the next two quarters. One is the December 3rd day deadlines. So.
Speaker Change: Most simplest way to think about it everyone's trying to.
Speaker Change: Figure out how to navigate through this December 3rd deadline, and if you get done before that great.
Speaker Change: And then after December 3rd there is an additional cost to the panels to.
Speaker Change: To somebody whether it's the importer of record or the developer or whomever.
Speaker Change: That is tied to the Doj investigation number one as well as the Doj investigation number two final findings.
Speaker Change: As I as I was trying to describe earlier is if you get if you get your panels installed and you avoid having to pay any duties that were the result of the first Doj investigation.
Speaker Change: If you don't get your panels installed by December 3rd then youre going to be subjected to a higher cost because there'll be some type of duty, whether it's for antidumping or countervailing duties applied to that panel that was imported into the U S. Over the last two years and so the reason that the final determinations are important.
Speaker Change: The issuance of these orders, which are going to be out in February March timeframe is that will give our customers.
Speaker Change: Clarity as to what the actual cost are or what they're going to have to pay for for the panels that are that they're using.
Speaker Change: And so thats why theres two elements to this so December 3rd isn't a panacea is hey, things are going to get better.
Speaker Change: A step that our customers have to go through and then the second step is they need these final determinations from.
Speaker Change: The department of Commerce and U S.
Speaker Change: ITC to understand what the cost will be for the panels that are here in the country that they can deploy.
Speaker Change: Then the third element of this is tied up in this is we will have a final ruling on critical circumstances.
Speaker Change: You referenced earlier in that same timeframe so.
Speaker Change: The thought is that unless there is some other legal challenge somewhere from somebody the industry should be through the ADC CVD impacts.
Speaker Change: Impacts of both investigations, the critical circumstances et cetera.
Speaker Change: In the first quarter and so really there's a couple of quarters ahead of us still that we're dealing with and Thats. How we plan the business going forward. So we will continue to navigate through it.
Speaker Change: Work on the things I mentioned earlier, but it's not going to be cleared up in December.
Speaker Change: One step the second step is getting the final rulings in place and that will be.
Speaker Change: I think a breath of fresh air so my confidence level on that happening.
Speaker Change: These are dates that are published by the government. They are supposed to have to.
Speaker Change: Hit these dates.
Speaker Change: Their mandate so.
Speaker Change: There should be clarity around the dates that we referenced in the last one that's out there really is that February six 2025 as of date I just added 30 days to it because.
Speaker Change: All right.
Speaker Change: I'm sure, there's a little bit unknown here, but those are the two things to think about relative to the next two quarters for the industry.
Speaker Change: Okay, great and a couple of questions after that one.
Speaker Change: The renewables business the community solar markets have grown at a.
Speaker Change: A nice double digit rates when they weren't all these obstacles.
Speaker Change: Regulatory obstacles in the industry.
Speaker Change: Or are we thinking that we get back to that.
Speaker Change: What's what's the addressable market do you think.
Speaker Change: Yeah.
Speaker Change: We're going to talk more about that in our 2025 plan, but in general.
Speaker Change: The enthusiasm for the market is still very positive I think there.
Speaker Change: There are a lot of folks that are.
Speaker Change: You think about the industry Association the folks that have gathered the data working with manufacturers and publishing data around market projections for the last 10 years, how do they feel about the next couple of years.
Speaker Change: I think still very positive and there's a huge backlog of interconnection agreements that exist in the U S that totals about $1 five.
Speaker Change: Terawatts worth it.
Speaker Change: Energy production, most of which is earmarked for solar production.
Speaker Change: That's equivalent to today's existing production grid in the U S across the entire U S. So clearly people are buying land and or they are applying for these interconnection agreements for solar and led.
Speaker Change: Bit of wind as well, but mainly solar so it tells you that people still have great optimism.
Speaker Change: Need for electrifying the country and the capacity required to do that is still out there and there is all kinds of as you know electrification initiatives going on so the grids got to catch up the interconnect shaping their connectivity agreements have to be approved that all is about connection to the utility and the transmission lines that.
Speaker Change: That stuff has to catch up and I think people feel like look theres, a couple years of of slowing because of that and you'll see some of the other folks in the industry that have talked a lot about that where project schedules are moving to the right.
Speaker Change: A bit and Thats a lot associated with these things that we think really cleared up so as 80 CVD kind of clears itself.
Speaker Change: And then you start working on these interconnectivity agreements and some other supply chain issues that things like large transformers as those things start to get a little better youre going to see the industry I think start to accelerate.
Speaker Change: Maybe not at the 15 or 20% growth rates, we saw but at a healthy clip for.
For sure.
Speaker Change: So we expect that as well.
Speaker Change: But we're going through that same analysis now to see is there anything that is structurally different in the in the end market itself.
Our initial conclusion is we still think it's a healthy healthy.
Speaker Change: And market opportunity so.
Speaker Change: More to come on that but it's a I'd say, it's a real time.
Speaker Change: Analysis.
We're trying to navigate through everything we just talked about just like everyone else in the industry. You are trying to project things for 'twenty five 'twenty six from an end market perspective, there is a timing element for some of these things that I don't think anyone has a specific.
Date that they can count on but generally speaking it feels like.
Speaker Change: We come out of second quarter first quarter next year 80, CVD will be behind US and then some of these other issues we've talked about.
Speaker Change: I know people are working diligently on them as well so.
Speaker Change: That was a long answer to your question I apologize okay.
Speaker Change: Yes.
Speaker Change: I appreciate that.
Speaker Change: The answer maybe just one more follow on to it during the fourth quarter and first quarter for renewables it sounds like we're going to be.
Speaker Change: Operating at sort of below at this lower level of revenue and an.
Speaker Change: Operating margin margin is that right, yes, I think thats, a fair assessment and I remember too. We go into Q1, it's always our lowest volume quarter anyway, because of seasonality, but but generally speaking, yes, I think what we've assumed and built into our guide is that our renewables business continues to deal with what is dealing with.
Speaker Change: So you're going to work hard to improve as best we can on that but.
Speaker Change: We feel good about our ability to continue to make money and so forth, but I do think it is going to be a bit suppressed until we get through.
Speaker Change: These final issuance of orders from the 80 CVD investigations.
Speaker Change: Okay. Okay. Thanks, so much.
Speaker Change: Our next question comes from Dan Moore with CJS Securities. Please proceed with your question.
Speaker Change: Alright, Thanks, again, maybe one more renewables.
Dan Moore: It might be just longer term when you think about the path back to sustained and consistent sort of double digit operating margins. You know once we get through these things is there anything you can do in terms of nature.
The nature of the contracts.
Dan Moore: The share of some of the pain of customers from projects are delayed or is it just kind of the nature of the business that will be bouncing between.
Dan Moore: Now mid to high single digit and mid teens margins, depending on where we are in the period of demand going forward. Thanks again.
Speaker Change: Yes, Dan I think it's.
Speaker Change: A couple of years ago, maybe four years ago. When this journey started with U F. L. P. A there was a lot around contracts that were unfavorable to.
Different parts of folks in the value chain I think that's.
Speaker Change: Less of an issue today.
It's not an issue that we're taking all of it and our customers are not seeing a similar.
Type results. They are also going through.
A similar challenge I suspect that most of them are private companies. So I don't have good insight into exactly how they are feeling but but it has been.
Speaker Change: It very.
Speaker Change: Inefficient complex situation for everyone to deal with and I don't think we're taking on the burden.
Speaker Change: We buy ourselves showed up in our financials.
Speaker Change: Listen some of what I described earlier is a little bit self inflicted we gotta be better at what we're doing and how we're launching and the team's working diligently at that and that'll help us get better in this volume environment.
Speaker Change: If you think about the second half of last year, I think we generated margins 13% 14%.
Speaker Change: So we absolutely have the capability and I think we're in a much better position believe it or not to do it today.
Speaker Change: Deliver that today than we would've been four years ago. The difference I think now is.
We've launched a new product in a pretty difficult market situation, which I think.
<unk> made things a little more complex for us so well.
Speaker Change: We will work through that I think we've been pretty good at demonstrating we can operate in some pretty tough environments.
Speaker Change: But it's probably at this this is probably the most challenging time I think in the industry with.
Speaker Change: The series of unknowns.
Speaker Change: Across these various things we've talked about and I didnt throw anything in there about an election.
Speaker Change: Election of it.
Speaker Change: So it hasn't had any impact on the industry up to this point per se, but I do think there are people wondering what thats going to mean and theres a little bit of pause associated that but most of what we've described today has nothing to do for the coming election has everything to do with.
Speaker Change: The unknowns.
Speaker Change: Moving targets that people are dealing with so yes. So I think this is a business that can run 15% consistently absolutely.
Speaker Change:
Speaker Change: And I think we'll demonstrate that you can think of the size of the business today versus where we thought it would be.
Speaker Change: It's not.
Speaker Change: As large.
Speaker Change: And even last year. It was not yet we were able to demonstrate pretty good margin performance. So I have confidence in our team to be able to do that.
Speaker Change: For sure going forward, we just need some cadence and pace are customers need cadence pace.
Speaker Change: And I think everyone can perform.
Speaker Change: Form a little bit differently that is huge for us.
I would tell you that.
Someone else's fault.
Speaker Change: It's still our responsibility to other day to get it done so.
Speaker Change: That's how I'd think about it.
Speaker Change: We have reached the end of the question and answer session I'd now like to turn the call back over to Mr boss away for closing comments.
Speaker Change: Well listen I appreciate.
Speaker Change: Well, Dan and Julio for joining us today and asking the questions spot on I appreciate that.
Speaker Change: Coming up we do plan to present, the Bofa clean energy symposium and the CGS C. J S Winter conference as well.
Speaker Change: And we have a number of other investor events planned. So thanks, Thanks again for joining us today as well as your support and look forward to catching up with you after a full year report.
Speaker Change: Take care. Thank you.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Speaker Change: Okay.