Good day, ladies and gentlemen, and welcome to the Gibraltar Industries' Second Quarter 2017 Earnings Conference Call. Today's call is being recorded and webcasted. My name is Donna and I will be your conference coordinator today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of the conference call. I will now turn the call over to David Calusdian, from the Company's Investor Relations firm Sharon Merrill Associates. Please proceed.

Good morning, everyone, and thank you for joining us. If you have not received a copy of the earnings press release that was issued this morning, you can find it in the investor info section of the Gibraltar website, gibraltar1.com. During the prepared remarks today, management will be referring to presentation slides that summarize the company's second quarter performance. These slides are also posted to the company's website. Please turn to Slide 2 in the presentation. The company's earnings press release and slide presentation contain forward-looking statements about future financial results. 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. Additionally, Gibraltar's earnings release and remarks this morning contain adjusted financial measures. Reconciliations of GAAP to adjusted financial measures have been appended to the earnings release. On our call this morning are Gibraltar's Chief Executive Officer, Frank Heard; and Chief Financial Officer, Tim Murphy. At this point, I will turn the call over to Frank. And please turn it Slide 3.

Thanks, David. Good morning, everyone, and thank you for joining us today. Gibraltar delivered another quarter of solid results exceeding both our GAAP and adjusted earnings guidance. This was driven primarily by strong revenues in our residential segment and the continued benefits of our four pillar value creation strategy. Consolidated revenues of $248 million were down 7% essentially in line with our expectations. The decrease was due mainly to difficult year-over-year comparison as we sold the European industrial and solar businesses, exited the U.S. bar grating market and experience low activity levels in our industrial and infrastructure segments. Despite this, we delivered GAAP earnings of $0.41 and adjusted earnings of $0.43 per share compared to our guidance of GAAP EPS between $0.35 and $0.40, and adjusted EPS between $0.37 and $0.42 respectfully. Our return on invested capital in Q2 on a trailing 12-month basis increased to 11% from 10.7% last year and our balance sheet continues to improve. During the quarter, we continued to advance our four-pillar strategy, with several notable achievements: this included delivering 150 basis points of operating margin enhancement through our 80/20 operational initiatives, improving our competitive position and financial results by effectively integrating our recent Package Concierge and Nexus acquisitions, and advancing our innovation strategy with new product development initiatives across all our segments. In fact, we expect increased activity in revenues in the second half of the year as our innovation efforts begin yielding results across the organization. I will expand on these strategic initiatives in more detail later in the call. While we are very pleased with our performance so far this year and our ability to execute on our plan, the uncertainty in the steel market and resulting raw material pricing dynamic are expected to continue to pressure our result. Taken in total we're maintaining our full year guidance. And I will speak more about our guidance and our progress on each pillar after Tim reviews our financial. Tim?

Thank you, Frank, and good morning everyone. Let’s move to Slide 4 in the presentation entitled solid consolidated results versus headwinds. We reported a solid second quarter with earnings exceeding our expectations. Strong results in our residential products segment and the full benefit of our recent acquisitions offset challenging comp on the top and bottom lines for our industrial and infrastructure and renewable and energy conservation segment. As we did last quarter, we want to highlight Gibraltar’s performance on an apples-to-apples basis. Excluding divestiture and other non-repeating factors, our base revenues were down 1%, essentially in line with expectation. In addition to the anticipated lower backlog, our bottom line was negatively affected by uncertainty in the steel markets as Frank noted which impacted earnings by $0.11 during the quarter. While our proactive portfolio management actions created difficult year-over-year revenue comparison, we continue to make good progress towards realizing the benefits of our divestiture, including reduced investments in working capital, fixed assets in overhead and an improved total return on capital. We continue to see increased spending activity and growing backlogs in both our renewable energy and conservation and industrial and infrastructure segment, which gives us confidence for the second half of the year. Next let's talk about each of our three reporting segments starting with Slide 5, the residential product segment. The continued improvement in new housing construction and repair and remodeling activity and growing demand for commercial package solutions drove the increase in sales for the quarter. We continue to make very positive progress in centralized mailboxes and electronic package lockers and the integration of Package Concierge has contributed incremental revenues. On the bottom line, we benefited from increased revenues from growing demand for repair and remodeling, new build housing and electronic parcel lockers along with operational efficiencies from…

Thanks, Tim. Our four pillar value creation strategy continues to gain traction and deliver results. Our first pillar of operational excellence is focused on reducing complexity, adjusting costs and simplifying our product offerings through our 80/20 initiatives across the organization. As I noted earlier, in Q2 our 80/20 projects contribute to 150 basis points of operating margin improvement. And as a result, we now have delivered saving of $7 million or $0.14 per share from simplification projects through the first half of this year and we're well on our way to delivering the expected $0.23 cents per share increase from these projects in 2017. We're currently finalizing our plans for in-lining activities and it begun to take advantage of opportunities to outsource our B product. Training new teams in 80/20 presents further opportunity to enhance our margins. Most recently we trained the teams from our newly acquired Nexus and Package Concierge businesses on the 80/20 process. Package Concierge has historically focused on one segment, the multifamily residential end market, and it has now developed significant complexity. So the opportunity there is in using the trade folks and target selling tools and using the other tools to avoid complexity as they grow. Nexus business provides an opportunity to apply the complete toolkit and the team is focusing on data analysis in identifying projects that would provide meaningful improvement to its results. Our portfolio management pillar is focused on evaluating product lines, customers and end markets to best allocate leadership time and resources to the highest potential platforms and businesses. In 2016, we exited two industrial platforms as well as our European solar racking business serving the residential rooftop market. At this point, the industrial asset sale was complete and the European solar operations are closed. We'll continue to evaluate end markets…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question will be coming from Ken Zener of KeyBanc Capital Markets. Please go ahead.

Good morning, gentlemen.

Good morning, Ken. How are you?

Doing well. This might be more than a two part question, so I apologize in advance. Just on the first thing, as it relates to guidance, it seems as though the corporate line declined quite a bit, could you go into that, certainly versus what we had expected, so maybe we are bad modelers, but could you go into why that decline sequentially and what the bogie is for the full year on that line item?

Yeah, Ken, if you think about we talk about performance comp going down, not all of that, but a fair amount of it will come through the corporate lines so, full year we’re seeing $0.20, most of that’s going to show up in corporate.

When you say $0.20, let see…

That would equate to about – that’s worth about $10 million.

Okay. So lower than last year is what you are saying on a delta basis?

Yeah.

And then how – could you give us sensitivity, I expect - the performance comp, is that related to the equity price and then what’s in sensitivity there for whatever $3 change if that’s the case?

So, it’s – there’s components to it right, so you’ve got a piece of it that’s related to our current year performance against targets and another piece that is current year ROIC generated against the targets we set. And last year and year before that as we came out of sort of our historical low levels of performance, we saw significant improvements in operating results in ROIC each year and we’ve set aggressive targets each year and we were able to exceed those. This year we set aggressive targets again, we are really coming at the bottom end of those ranges and so there is not a lot of performance comp coming through and that’s probably half of the cost and then the other half is share price appreciation. Again, last year significant share price appreciation, this year it looks like it’s flattening out.

Okay, that’s interesting. Taking a step up in the income statement, because there is that offset of roughly $10 million, could you kind of give us, I guess that – and I apologize if I missed it, I was looking – I thought I was looking in the slide, but – because there is $10 million less in corporate, could you kind of give us the new bogie for EBIT? Most of my questions are going to revolve around solar, so segment EBIT for the year just so we can get a sense of the first, second half cadence because that $10 million out. Well, we are in corporate, it seems like it would an impact in your segment EBIT expectation, so if you could clarify that, that would be useful.

So, I think, it will mainly impact the industrial infrastructure and the renewables business and it will be relatively spread across those two based on revenues and it’s not – there’s some offset within there because of a little bit of that performance comp shows up in the business unit.

Okay. Again driving right into solar then, I think that remains the biggest element that people are trying to understand and I – it’s not – I know you guys hosted a very nice sell site event for solar, but because that – not all that stuff was necessarily out there in the public domain from you, I wonder if you might be able to help us out, because your execution on 80/20 in your portfolio management, I think everything is very good there, so given some comments that have been made around solar in general, it remains complex. So I wonder if you might be able to bookmark a few points just so people can be clear, I don’t know if you wouldn’t talk about last year’s megawatts installed and the reason I say that is that there is certainly a cause I fielded point to you guys being in some rather large projects. So I don’t know if you can kind of book in, if your top 10 projects with that 20% of your megawatts or a third because some people are under the impression, let’s say, your top 10 projects would be a very large percentage of your portfolio, not just the 1 megawatt to 2 megawatt installation?

Ken, I would say that’s inconsistent with our historical distribution of revenues and profits. We’ve consistently stated that we’re really focused on the small end of the market, it’s not that we don’t have any, but it’s not where we focus our business. There is a small percentage.

Okay. So, I would say, under 20%, I mean just from a magnitude is that a fair bookmark?

I’m not going to give a specific percentage but that’s directionally correct.

Good. I’m not trying to put you guys on the spot there, I’m just trying to – it’s hard for me to respond to investors comment, so I just kind of want you guys to directionally, not specifically. And the next thing is with that change in corporate, could you kind of talk about the margins that you are seeing right now into 3Q and I realized there’s been backlog shift, but the backlog – generally you guys have talked about that being about a quarter out. So if that is the case, what is 3Q kind of looking at, I know one of you talked about 2Q versus 1Q, you said it was going to be up and it was down and kind of highlighted these installations issues, so could you give us a sense of what the cadence looks like 3Q and what you are thinking about 4Q, because this is obviously where this has been tug-of-war as well around where you are going to be normalized?

Yeah, so, I’m not sure if this will answer it, but why don’t I walk you from – try to walk through from 2Q to 3Q on the company. And I think we’ve got a pretty big increase in earnings quarter to quarter and so I would describe that as mainly driven by volume as we head into the seasonally stronger period for our renewables and conservation. Their third quarter and fourth quarter are significantly higher both because the greenhouse side of the business is really a second half business seasonality wise and the solar business maybe less extent than the greenhouse side, but still picks up more on the second half and we see that. On our industrial and infrastructure business, the industrial is coming out of – we went through a process domestically where they exited half of their business at the end of the year first quarter and there were some disruption in that business and distraction that is now behind us and our sales teams are already focused on customers. And then I would say some of that noise in the system is gone. And so we are seeing improving order rates as we move through the year, we are seeing them now. So I’d say those two are the big volume drivers. The residential business, second, third quarter are peak in there. So we don’t really expect to drop off here, but really the other two are going to come up with volume through seasonality, so we see incremental improvement.

Yeah, and Ken, it’s Frank, the only thing I would add to that comment is that the growing backlog that we experienced in the second quarter is reflective of how that would translate into real work and revenue opportunities that’s built into our guidance and the third as it relates businesses like renewable energy and specifically solar. So when you reference kind of the 90 days or so one quarter out, that’s consistent with what we’ve seen in our backlog rising as it compares to prior year comparables as well, so just to come back to your question on renewable.

Right. And I guess just and then I will be quite. Basically it sounds like that $10 million lower corporate is coming out, obviously, it’s segment income given that your annual EBIT, your annual earnings [indiscernible]?

Correct. Ken, maybe if you go to the bridge on the slides.

Yeah.

Increased material cost component by the same amount as we see the performance comp coming down. We think they are just going to offset each other.

Thank you very much.

Thanks, Ken.

Thank you. Our next is coming from Daniel Moore of CJS Securities. Please go ahead.

Good morning.

Good morning, Dan.

Frank, I appreciate it. Tim just a sort of follow up on some of those things, but in renewable last quarter you mentioned customers pushing out projects, activity was there, but things were just getting stretched a bit, backlogs and activity up once again. Just provide a little bit more color on your confidence. What you’re seeing into - this far in July in terms of bidding activity actually translating into more installed? Any changes in the landscape there you can describe would be really helpful.

I would say that, we were at the end of the year, we knew the first quarter was going to be below the prior year. At the year of the first quarter, we expected the second quarter domestically equal the prior year with growth in the back half. And in the second quarter, our domestic business was essentially equal to what we were last year and higher backlog forecasting our expectations both in the second half.

Yes. Dan, growth in the second half and maybe an incremental tailwind with the new product launch that will gain traction as we see fit over the balance of the year.

Got it. And any additional color you mentioned the unusual field conditions maybe it’s kind of the first time we’ve heard about that, just any color you might add there and confidence that was sort of a one-off.

Yes. So, it’s a project based business and each side is different, and as you know, we go out to the sites and we do testing beforehand. And in few specific projects this quarter and as unusual form and we’re doing install. They ran into unexpected subsurface conditions around areas of the site and so it drives up labor cost and sometimes you have to switch out components as something work or maybe there is rocks underneath where we didn’t expect them.

We’ve always over the two years we’ve learned that there is always these types of things in terms of puts and takes, and they tend to be offsetting. Some projects come through with lower installation labor cost because it manages on site conditions and other times they come in the other way around. Overtime, they tend to offset. It’s the view of our management team in that business that needs particular examples were quite unusual in terms of their history in the market and they don’t see it repeating.

Got it, helpful. And then switching gears to industrial, an area where you talked about some incremental activity and backlog growth as well, just remind us what percentage of the segment is tied specifically to highway bridge repair et cetera and what are your expectations? Obviously it’s early to give 2018 guidance but given the highway bill, expectations for the potential for incremental growth as we look out to 2018 and beyond. Thanks.

Dan, so, it’s about a third of the segment with the infrastructure side and we’re seeing growing backlog in there. We’re seeing activity in some of our key states that we participate in historically, fixed funding activity in the last six to eight months. So [indiscernible] federal matching funds available but the states didn’t necessarily have the funds to match. That seems to be generally behind them. There is mechanisms in place now that the funding in place and so they are doing - the bidding activity is going on, they are writing contracts and we’re seeing that in our bidding activity and the contracts but because our products going at the end of the bridge and rebuilt or built. We have longer lead-time share. So what we see coming in now is going to shift in 2018 and 2019. So too early to give guidance but our indications from what we see today is that revenues will grow in that business as we move over the next few years.

Yes. And I think Tim’s commentary represents a consistent theme over the last year or two as we’ve been referencing this market and its related business within it. I think the one thing that is really encouraged is that, different is that, want to talk about funding, the matching some of things being resolved. It’s not only translated into more bidding activity which has been a historical story line. We’re actually starting to see us win more jobs are being crystallized, not just the bidding aspect of it and we’re winning our fair share, which for the first time, we’re starting to see a rising backlog in the business which is a real positive trend because that’s going to drive our future revenues and ultimately some pretty significant leverage in terms of profitability because obviously over the last couple of years, we’ve taken a lot of cost out of the business through the 80:20 process, so incremental revenues are going to be great attractive to this business going forward.

Got it, perfect. And then lastly and I’ll jump back. Just in terms of new product development, maybe any updated comments around perimeter security and any other – obviously you mentioned the tracker. I guess too early to tell what percentage of your renewable or of your solar revenue that might turn into, but any thoughts around that would be helpful. Thank you.

Yes. It’s early days with the product. I think what we really see with the product is we have customers today that do both fixed tilt and tracking solutions, and we don’t have a product – historically we didn’t have a product to participate on the tracking side. Tracking market is a big market. We are entering with zero share, so we think there is opportunity for incremental revenue growth from a market that we don’t participate today.

Yes and I think just a little bit more color on that. This has been – we have strong relationships with the fixed tilt in the space we participate within fixed tilt. And this has been a product that many of our customers have asked over the last few years because lot of times depending on the – this is all site specific as to whether or not use fixed tilt or tracker in site specific match just in terms of the land and the geography and where it’s positioned relative to the sun, but it’s also which state and what power purchase agreement the particular job is attached to drives the particular choice by the developer or the utility. So not having both choices we restricted our addressable market so the guys have resolved that and they’ve tried to resolve it with on a – from a solutions perspective that would provide a little bit more flexibility as to how the product could be applied to a given set of circumstances geographically and it’s a very cost effective solution. So I think sometimes you have a great idea, you can develop a great product, solve a lot of problems but if you don’t have a channel to the market, it’s just a great idea sitting on a shelf. In this particular case, they haven’t established route to market with long term relationship. So I think that gives us some optimism as to maybe they can move into the space with similar kinds of progress that they did six or seven years ago when they moved from the greenhouse base into the initial fixed tilt space. So we’ll see, we’re trying to be conservative in terms of our approach to get the product right, work with select group of customers…

Yes. The metal roofing initiative, our team is doing some trade focused and doing some training with certified installers in one state to late launch throughout the year. I think it will probably take because of the channel to market, so this will take a little bit longer to get significant growth out of it. And I think we’re really seeing volume in that area in the second set, in 2018 and beyond. And perimeter security [indiscernible] occurs, there is longer lead times on those projects. It’s not a product sale. So you’re [indiscernible] a couple of times before contracts get [indiscernible]? We’re encouraged by the activity we see and the interest that our customers will demonstrate.

Call you again. Thank you.

Thanks.

Thanks, Dan.

Our next question is coming from Walter Liptak of Seaport Global Securities. Please go ahead.

Hi, thanks. Good morning guys.

Good morning, Wal. How are you?

Good, thanks. I’m just going to circle up on some questions that have already been asked and hope to get a little bit more color on the answers. But raw material cost, you call that as a headwind, I wonder and you said that you’re going to be working on projects in the back half of the year to improve margins. I understand the bonus compensation [indiscernible] is an offset but are there other things that you can do on pricing or on supply chain that can mitigate some of that price cost or raw material cost problem that you’re having?

Yes. We are certainly working on a number of actions but as we speak here today having gone through another quarter in this environment current outlook reflects what we know today. So where our certainly actions being looked at customers all the time, we try to fairly allocate cost and value. There is just a lot of uncertainty in the raw material materials on what the future holds and so that’s only prices may be higher than we would have probably like to anticipate.

Okay. Have you gone to the market with any price increases during the quarter and can you talk about any success or push back you’ve gotten?

I would say, yes, and we’ve had some success. If we would have had complete success, we wouldn’t have this cost there, right. So every customer conversation is unique.

Okay. Just going to the renewable segment, can you tell us about, in your comments I think you mentioned that there was a larger job with the new product that you worked on during the second quarter. If I heard that right or that there was one maybe there you would be working on the second half. So wonder about the size now of these new product jobs and tracker jobs, and maybe if there is anything that’s factored into the 2017 revenue guidance for the renewable?

I would say we did a small job, this is our first one. We did in the second quarter which is a small job. We’ve got a handful of other certainly call them small jobs or not larger than what we normally will be doing in our tracker space anyway. And the jobs are in backlog?

Are in our forecast.

Now we have some anticipated opportunities for growth.

Okay. All right. Fair enough. And then on the last quarter conference call you talked about mid-teens margins for the renewable segment. And language changed a little bit, you said significant improvement in margins and I wonder if you can talk about just where you think the mid-teens for the full year margin, is it still something that doable or is it with the second quarter margin where it is – it’s going to be a step back from your previous thoughts?

So what we had anticipated was margins approaching the mid-teens as we move through the year. So we expected them in the second half and this material cost impact on this business [indiscernible] 1.5%, 2% from what our previous expectations were depending on how the rest of the year plays out.

Okay. All right. Great. And then the last one from me is, Page 13 in the slide has the acquisitions I guess the revenue contribution from Package Concierge and Nexus. And is there – I wonder about seasonality of the revenue, so for Package Concierge, what are you expecting for contribution in the second half, it’s $2 million for the quarter, and for Nexus too, it looks like $4 million for the quarter. What do you expect for the back half?

So I would say Package Concierge is a very small business when we bought it and is growing. I don’t know that there is seasonality in that business as much as just growth, but I think first half, second half isn’t widely different from that business other than [indiscernible] growth in the business.

Okay.

And on the Nexus side, this we bought it in the fourth quarter of last year, the beginning of the fourth quarter, mid-fourth quarter. So third quarter incremental sales and [indiscernible] so expect a bump from that.

Okay. And was there any purchase accounting during the quarter that was not part of the non-GAAP? Any purchase accounting that was remained in the expense line on the quarter?

No expense. We trued up a couple of the balance sheet accounts as we finalize valuation but no unusual expenses.

Okay, great. All right. Thank you guys.

Thanks, Walter.

Thank you.

Thank you. At this time, I would like to turn the floor back over to management for any additional or closing comments.

Thank you everyone for joining us on our call today, and we look forward to talking to you next quarter.