Good day ladies and gentlemen. And welcome to Gibraltar Industries Second Quarter 2019 Earnings Conference Call. Today's call is being recorded and webcast. My name is Kevin, and I will be your coordinator today. [Operator Instructions] I will now turn the call over to David Calusdian from the Company's Investor Relations firm, Sharon Merrill Associates. Please proceed, David.

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 company's 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 contains 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 press release and its remarks this morning contain adjusted financial measures. Reconciliations of GAAP to adjusted financial measures have been appended to the earnings release and slides. On our call this morning are Gibraltar's President and Chief Executive Officer, Bill Bosway; and Chief Financial Officer, Tim Murphy. Please turn to Slide 3. And I'll turn the call over to Bill.

Thanks David and good morning, everybody. I want to thank everyone for joining us today. Let's get started. We had delivered a solid second quarter with earnings in line with our guidance despite revenue being below our expectations. Our revenue in Q2 of $262.7 million was essentially flat with last year, with positive growth in our renewable energy and conservation segment and in our infrastructure business. During the quarter, we continue to build our backlog to a record level of $242 million, up 30% over last year, which gives confidence to reaffirm our full year guidance and deliver second -- strong second half performance. We do have parts of the business where revenue was flat or down in the quarter, particularly in residential segment and our industrial business. Residential was impacted both, by both weather and labor shortages in our industrial business was impacted by the ongoing downward movement of steel prices. Our GAAP earnings of $0.61 and our non-GAAP earnings of $0.73 were in line with our guidance. And would have been stronger if not for an incremental expense of $2.3 million, or $0.05 per share related to a few modifications we began in Q1 of our existing tracker system in hindsight given the uniqueness of each solar field. We underestimated the incremental labor expense to complete our work as we entered Q2. Fortunately, our product enhancements are working quite well in the field and we've minimized or prevented disruptions for customers. We've completed the modifications of 80% of the installed systems. The remaining 20% of systems are currently undergoing modification. And we've accounted for the cost to complete these projects. Of the 80% we've completed 45% up and generating power 15% or in the process of starting up and 40% is awaiting startup. But that's not related to our modifications. In all, our customers are supportive of our proactive approach and our product modifications and we continue to see demand for our solution. Our tracker solution continues to provide better economics associated with lower land acquisition, land preparation and installation cost. And overall our solar backlog is currently at an all-time high. After Tim reviews our financial performance, I'll update you on our key initiatives and provide additional color around our expectations for the second half of the year. So with that, I'll turn it over to Tim.

Thank you, Bill and good morning, everyone. Let's move to slide 4 in the presentation entitled solid consolidated results. At 1.2% declining consolidated revenues came as result of lower volume in our industrial segment, mainly due to customers utilizing their on-hand inventories of expanded metal in anticipation of lower pricing as steel costs declined during the quarter. These lower volumes were partially offset by increased activity in our renewable energy segment and infrastructure business. Customer demand at our project based businesses is strong. We've built our backlog of projects to a record of $242 million, up 30% from the same period last year. On the bottom line while our revenues were less than we anticipated, our consolidated GAAP earnings were within guidance and as expected below last year. The decrease in GAAP earnings this quarter reflect volume leverage, higher restructuring costs, senior leadership transition costs and costs associated with our solar tracker solution. These increases were partially offset by benefits from interest savings from our debt repayment, lower performance based compensation and our simplification initiatives. Consolidated adjusting earnings were up 2.8% year-over-year and in line with our guidance. The increase was due to interest savings from the recent repayment of our notes, lower performance-based comp and continued benefits from 80/20 simplification initiatives. These benefits were partially offset by the impact of lower volumes and costs incurred to improve the durability and ensure performance of our innovative tracker solution. During the quarter, we achieved $2.9 million in interest savings from the repayment of our outstanding debt during the first quarter. We continued to anticipate annualized savings of $13 million in interest payments or a benefit of $0.22 per diluted earnings per share for full year 2019. Now let's review each of our three reporting segments starting with slide 5, the residential…

So guys as we move into next phase of our transformation, we are focused significantly enhancing long-term growth and margin profile of our company. And so to do so, we're going to continue to build on and evolve our four pillars strategy while focus on really five key initiatives. First, accelerating operations excellence with continued 80/20 focus on quality, cost, productivity, working capital performance and business model execution. Secondly, really working hard to create a stronger and more direct connection with our end customers to become their most relevant trusted partner. Third, bring new products innovation to market that solve inherent industry and customer problems and to do it with discipline some best practices and the best value proposition for our customers. Fourth, when optimize our portfolio we are deploying capital both people and dollar in markets and businesses that are most attractive, fit our strategic rubric and have the highest value creation opportunity for our shareholders. And finally fifth, execute acquisitions to strengthen our platforms particularly in attractive fast-growing markets that are driven by technology and engineered solutions, but also have sustainable end market demand for products and services. So let me update you on our first initiative the operations excellence and work that's being done. We continue to reduce the complexity of our business, simplify our product lines and drive productivity initiatives. We are advancing our in-lining market rate of demand and outsourcing initiatives. And during the quarter achieved 114 basis point improvements. We're also making good progress with our second initiative building a direct connection with our end customers. The folks that truly make -- that are truly making decisions about our products and services. In the second quarter, our direct end customer business reached 41% of our total sales. Driven by greenhouse, solar, infrastructure and perimeter…

[Operator Instructions] Our first question today is coming from Daniel Moore from CJS Securities. Your line is now live.

Good morning, Bill. Good morning, Tim. Thanks for taking the questions. Start with backlog, obviously a really nice ramp to $242 million. Maybe just a little bit more color. Can you break that down across each of the businesses? And if you don't want to get that granular maybe just a bit more color on where you're seeing the most success and increase in demand.

Yes. So, Dan, yes, it's been a good situation in the last quarter two as we built a backlog. I would say it's really we've seen a lot of that build in renewables and conservation. There's a lot to do with solar and in our greenhouse businesses that has a lot to do with our direct to end customer model. And I would say it also has a lot to do with the portfolio products and the services that we're now offering that maybe we weren't offering a year or so ago. So that's a substantial piece of the backlog grow but we've also seen good activity in our infrastructure business. Our perimeter security business continues to build as well. So it's a little broader than just the renewables, but it's, I would say it's more weighted towards that. And those are good end markets that we are well positioned in I think hopefully we'll continue to take advantage of.

Helpful and --

Sorry one other thought, just -- well, I'm sure, people are wondering inside the greenhouse world. That backlog is being built across all our sub segments within that space. It's not heavily weighted on one or the other. There are five kind of sub markets there that that we worked really hard on every day and that's the other thing we're happy to see it. It's not depending on one sub segment; it's happening across the board.

Good, saves me a question there. On the perimeter security side, can you give us a sense for how much revenue generating either the quarter -- either in the quarter or year-to-date? What does backlog growth look like? Just trying to get a sense of how meaningful that could look in 2020 and beyond?

So, Danny, it continues to grow what I would say is it can be lumpy because it's still pretty small. So from quarter-to-quarter I think if you look at this quarter to last year's quarter, backlog is up; it's up pretty significantly but I know we probably had a couple of jobs to lay this quarter. So the project based business is always not, you get the project, you think it's going to ship one month or one quarter and there's the ability so I think we continue to see strong broke there. The pipeline is up significantly, backlogs up quite a bit. But it is small and we continue to grow that piece of the business because it does have the attractive margin profile.

Yes, you got to remember Dan, something we started a couple years ago and I would say the percentage growth and backlog you see in total is probably consistent what you'd see in perimeter along with renewables on a percentage basis. It's just much smaller, but it's very active and kind of an exciting space.

Got it. And last for me and I'll jump back. In the industrial side, anyway to quantify the impact of the lower steel prices, and customers may be utilizing existing inventory in Q2 and have you seen an uptick in Q3 or customers to date still pulling from existing inventory? Thanks for the color.

So more than the drop, Dan, in industrial was caused by this sort of volume reduction. So there's a $5 million decline in revenue. It's a little bit more than that in that core industrial product, partially offset by some increased infrastructure activity and just to be very clear on what happens that product generally goes through a distribution channel, and the customers, the service centres as prices are coming down and they look out two weeks and see a projection or lower price, they will hold back on ordering and deplete their in stock inventories figure and they can buy a cheaper two weeks later. And when that happens they go through a destocking period. You did see prices turn and the expectation in the market as they continue to climb through the third quarter and we have seen increased activity in that business as we would expect once that sort of market dislocation cleared itself.

It's pretty immediate when the prices move as well. I'd say the markets are really efficient and managing that as Tim described. So when you see things turn within days, you start to see activities shift and unfortunate in the quarter going down, it happened quite quickly and as we said earlier, it's --prices are starting to change and we're starting to see change accordingly. So we'll see how it tracks but hopefully be better than probably steel pricing will be more beneficial in the third quarter than it was in second.

Our next question is coming from Kenn Zener from KeyBanc Capital Markets. Your line is now live.

Good morning, gentlemen. So you talked about the $5 million hit I believe you just said in industrial. Obviously, it was like I think the wettest second quarter in the record. Can you talk about the impact weather had on the residential space, recognizing it's probably not impacting mailboxes, but I think it's impacting your roofing products? Could you kind of talk about what that means?

Yes. That's very accurate the mailbox business isn't impacted at all but two thirds of the residential segment is either the ventilation or roofing accessories product. And so as various regions experience cold weather, it just delays roofing projects and that's really when our projects that use, you think about 80% to 85% of these products go to the repair and remodel side of the business. And the remaining goes to rebuild. So new build housing isn't a big driver here, it's really that repair, remodel and it's just the ability to get out and get on the roof and do the work. The other challenge that this end market has is labor availability were some 4% unemployment and I think all contractors are -- have labor issues where there's more work to do than they can get to because of labor. So it can tend to flatten the season a little bit if the weather stays good later into the year and we've seen that in the last couple of years activity continued strong.

Right. How could steel impact you? I mean because you're talking about bending right for the gutters, for the vents, did the steel dynamic you talked about industrial impact the top liners that can impact pricing in the second half or how should we think about that?

So this market moves slower. So when we look to second quarter of last year to the second quarter this year pricing was up. And it’s a function of price increases that we got in the second half of last year or later in the quarter last year that were in place for the full quarter. So that helps offset some of that volume decline that's why the decline is a little, maybe a little less than otherwise would have been.

Fair. Renewable, obviously, so you talk about 80% being done and then you did I think a very a job breaking out like did that impact people's running business? Was the project just getting up so it's not impacting them? The 2.3 in the quarter what was it in first quarter of a dollar drag associated with that. I forget.

3.4

Okay. So if I add two, three, plus three, four I get 5.7. Am I to assume 5.7 divided by 0.8? I mean there's still another third quarter component coming. Is that how I should apply that 80% to the existing charges incurred?

Well, you should consider that we've taken all the costs that we are expecting into account already.

Okay. Good. So [Multiple Speakers]

I mean the margin, yes, we've came out of Q1 and as I refer to, I think we underestimated what we thought come out of Q1 for Q2 and that's really related to the uniqueness of each of the fields. And so we went back in and we've gone through every field, every project in each field and what's going to be required to finalize things. And that's covered in the expense of the charges you've seen taken in Q2 for the remaining 20% as well as the existing 80% that's been done.

Got it, excellent. I mean that margins would be quite impressive. Correct my math but I mean you get, I added in two, three, but you'd be at 15.6% margin in that segment versus the 13 last year adjusted for that charge, is that correct?

It would be, we'd be significantly better that is correct.

I would say operating wise; the team has done a nice job in the solar business. You've got this one time effect and look there's no moral victory here, I, we get that but if you look at a various sub segments within solar the teams actually executed quite well in Q2. It was just kind of masked by this carry over on the tracker. So I'm happy with the work that's been done. The team has worked their tails off. Just to remind everybody, we, most of the field that we implemented actually wasn't even up and running. So we weren’t impacting our customers in a big way by any means. And it's still an issue and but go out and telling our customers we want to get this fixed and now these fields are kind of coming up and they're working well. The ones that aren't started yet, they're more related to just getting connected to power grid and such nothing related to us, but I feel like a team's done a good job. I think they're operating the business as we expected going into the air from an ongoing performance, we going to finish up getting through the tracker initiative and that gives us a little confidence going in the second half. But should be better than the first half.

Right. So I guess I'm looking at your EBIT guidance for the year and there's a midpoint there. So I'm going to just say, let's say 10.8%. My question is can you guys offer a little more clarity in terms of which is up, your EBIT margin is up. I just did a quick calculation year-to-date. You're 9% so you are down 60 basis points versus last year's 96, so there's obviously going to be a lot of left. I mean can you talk to the cadence a little bit and margins just the industrial steel is still hurting you perhaps or is that all done? Residential margins which were pretty good last year. I mean where should we really, Tim, see the margin lifting. Can you give us some degree of clarity there to just, is it going to be coming through renewable? Because you're running down here year-over-year EBIT margins right now and you are guiding us to up. So there's obviously a big swing. Thank you.

Yes. So I think second half you'd expect renewable right, we've got that significant backlog coming through and I would not add these couple of tracker related costs is already be running up. So expectation is that runs higher in certainly in the second half and full year. So -

How much for the year if you could -- is that like a 50 basis points for the year including these charges or is it --go ahead.

Yes. We didn't give -- I am giving you directional right. We don't give guidance by segments but I'm trying to help you without giving the keys to the kingdom that per se. But that should be up if you think about industrial and infrastructure pretty good performance relative to the last couple of years this past quarter with a little bit of headwinds from the steel markets. We don't expect that. So I'd expect expansion there for the remainder of the year. And you should end up a little bit up for the full year. The infrastructure business continues to perform very well. And that helps pull it off. And then residential, it's, there's a little bit of uncertainty in that end market about what volumes will be. We saw an uptick in July, and this is the third week of July. So we talk on the roofing side depending on who we talk to. It continues to look the same up three down three depending on who you talk to. I think we saw OC yesterday changed from down three to maybe flat. They had a pretty strong second quarter on what they calling share games and some regional pickup. So I think there you see improvement. Do we get back to where we were last year? I think that one is a little, little less clear to us.

Our next question is coming from Walter Liptak from Seaport Global Securities. Your line is now live.

Hi, thanks. Good morning, guys. Speaking with the residential business, Tim in your prepared remarks you talked about the profits and the year-over-year decline. I wondered if you could just kind of review those again and talk about how those may change. I think you talked about volume having some price cost in there et cetera.

So the first half of the year what we've seen is volumes off and carry over pricing offsetting that generally, right. So when we think about the margins there, they should mix right, we have more profitable and less profitable products. And we've been growing a little bit more sometimes in the less specialized less than engineered non patented product families have been grown a little bit faster the last couple years. So it was a little bit of mix going on. As we went through last year, steel prices sort of peaked at year end and we carried those inventories into the first half of this year. As that works through the system, you'd expect that to catch up. So for the full year barring any price increases, we expect pretty much sustain, even on material like we always do. It's just the timing of when price change is occurring when the actual cost comes through. And then there's still a fair amount of 80/20 work to do in those businesses. So we've got a bunch of projects going on and we expect to see more come up probably more in the fourth quarter. So question will be how much impact they had in 2018, I'm sorry 2019 versus sort of carryover impacts into 2020.

Okay. And I'll switch gears to the tracker product. And I just want to ask in the press releases you talked about how you're not taking any -- you're not bidding on new jobs. I wondered kind of as a post-mortem on the issues that you had with the tracker. What do you think the outlook is for that product? And when do you start up again with bidding on projects?

So, well, I mean I would say this way, we, when we were going through this modification process in the field we, as we went out and talked our customers. We said, look, let's get this right and so doing sat down said look let's pause on taking additional, or you want to make sure we get this right. And you see it and you feel good about it and so forth. Remember, most of these fields were not up and running. So it was early in the process and so then you have this kind of natural pause, coordinated with your customers to get the fields up and running so they can see the modifications, and that's kind of where we've been. And that's 45% of all the projects are now up, the fields are been running and as a result of that we're starting to see activity, and we're accepting those orders to come back in as collectively we both feel good about what we're saying. So the tracker orders are now flowing in as we get the rest of the customer fields up and running. And you see the good results there. You'll see more those orders start to flow in, on top of that. So we're not turning away business. We just agreed with our customers let's get this done, let's get your fields up and running and then feel good about our solution and then let's start moving for. And that's kind of where we are at this stage. So I would expect as these fields all kind of get up and running. I think three of our six large customers are active ordering and the other three in the process is starting up. And that works through the system in the next 30-60 days. You'll start seeing orders materialized. So despite all that we mentioned, I mentioned that, hey, our backlog is still up 20 plus percent in the solar world that's --we're having a lot of activity in the rest of our solar business. So fixed tilt or fixed amount has been very positive this year probably greater than we thought. And that's kind of help whether the proverbial storm so to speak on the tracker that work, we've been doing and now we are starting to see tracker orders took to flow in as well. So we think it gives us some pretty good confidence in the second half.

Okay. Is it fair to say that the backlog growth that you're seeing out of the solar business that's coming from the smaller fixed-tilt projects and not yet from the tracker that's in the backlog, Bill?

Yes. Yes that's what you said. Yes and as I mentioned earlier, it's probably unanticipated going into the year with the strength fixed-tilt versus what we thought. So that's -- it's been a pleasant surprise and gives it a strong foundation to add, start adding back to that tracker as it comes back online. So I think you'll see the backlog growth will be made up of more of both going forward than it has in the last quarter as we went through this pause on the tracker. So it'll be a little bit broader based.

Okay, great. And then I want to ask the M&A question and just get your view of the pipeline have you, have you changed the pipeline at all? Is there-- are you having meetings with potential targets and just a sense of anything that they may have changed either with your process or the sector's that you're going after or any kind of, I guess philosophy about trying to get M&A deals done.

Yes. So another good question. Yes, one, I will start with where we're very active. We have a variety of processes in flight. And I would say that with our strategic rubric which is really a thought process we've introduced into the organization, it's really helped us I think verify the markets we want to go a little bit faster in on that front. And those are the markets that we see good end market demand not just short but long term. That has some attractiveness to it. And we think we can play a really important role that also tends to be direct to in customer business models. So it gives you some idea of kind of where we're spending a lot of time right now. But I would say activity is increased substantially and looking forward to getting through that process here the next couple quarters as well.

Our next question is coming from Julio Romero from Sidoti& Company. Your line is now live.

Good morning, everyone. I just wanted to ask about residential maybe in a different way. So are my industry shipments were up about 4% in 2Q, and if I look at your second half of last year maybe lighter year-over-year volume but not necessarily that benefit on pricing. And you mentioned July has trended a little bit better just thinking about that backdrop as a whole like how should volumes maybe what could go wrong on the volume side because I, it sounds like we should be cautiously optimistic I guess a little bit of second half on volumes but just trying to reconcile that backdrop as a whole. And any thoughts there?

I think cautiously optimistic is a fair view, right. We were -- this market has been a little bit muted the first half from the volume perspective in the areas that we serve, which is the smile in the Midwest, we're not in the Northeast. So depending on the armor data that you have if more pieces up more that can skew it. But we've seen increased activity in the last couple weeks in some of the businesses. But it's not a quarter. They have their forecast. They talk to their customers, everybody, so they decided at the beginning of the year and we're still here and the market going to be up three or down three. And we're seeing it first half that's been on the downside. There's certainly demand. I mean if the economy is good, unemployment slow, people are working. There's no reason that shouldn't at least get work last year, but it's hard to say that it will. So I guess if that answer your question, it's just we have about beyond what we've already shipped. We have conversations with customers and we have orders that we usually turn within 3 to 8 days depending on whatever agreement with our customers. That's generally our visibility beyond looking at regional sales forecasts and a bunch of other information that we see.

Yes. Julio, we don't get a lot of -- this is not an industry as you know probably better than me but it's -- there's not a lot of visibility beyond the probably a 30 day period. What I would say is probably for the first time this year and the first few weeks of July, we saw more activity than we had been seen. So we feel good about that and hope that continues. And if it does then, yes, I think you're right. We should be cautiously optimistic about the second half relative to the first. For the year, it probably lends itself to probably being a roughly flat year just because pent-up demand is pent up because of things like the ability to find people to get work done. And you start getting into different parts of the season and all that good stuff. But I hope what we're seeing in the first three or four weeks continues. And that will give us some -- it gives us some reason to be cautious and optimistic specifically in that space the second half.

That's helpful. And that's fair and I absolutely appreciate the detail there. Just on that last point about labor being tight. Is that -- is there any particular or the value chain that may be seeing an outsized impact of the labor shortage? Would it be maybe a customer side or any additional color you could go on that would be help?

Yes. When we talk about labor we're talking about the guys on the roof swinging hammers. It's that roofing contractor can you get three crews out or can you staff five crews.

Okay and then just lastly, apologies if you mentioned in the prepared remarks, but was there any-- can you talk about the earnings contribution from patented products and what you're doing in the near to medium-term to maybe drive that a little bit going forward? Thank you.

Well, we did have over 30% of sales from patented products. And, yes, I mean we continued to like broaden a little bit historically. We focused strictly on patented but we have some innovative products and services that you don't get a lot of benefit from patenting other than maybe giving somebody -- they might not be patentable or you might just be getting your competitors a roadmap to what you're doing. So we've expanded the scope of products and services that we're offering to customers and very honestly that's we're doing to try and drive the growth. Bill talked about the innovation piece.

So it went for the group on the phone, one thing to think about that gets us really excited are, we have parts of our business that have done a really good job the last six to nine months expanding the service offering that we frankly didn't provide a year or two ago. In a direct to end customer business model particularly given the structure of some of the markets that are we're in that are in their infancy or they have structured by nature would have our ability to play a much larger role. And to drive value associated that role. We're starting to recognize and that's a big piece of what I'll call new to our portfolio of products and services. And as I said in our prepared remarks, I think is having -- have been relatively positive impact on our ability to build our backlog. But also put us in a position in some of these markets that really get us excited which lends itself to a number of other questions that were asked today. And where we might be heading. So I just --I'm really excited for what our teams are doing and you can see where it is and that's a good thing for us so. End of Q&A

Thank you. We reached end of our question-and-answer session. I'd like to turn the floor back over to Bill for any further or closing comments.

So guys just again, I want to thank everyone for taking the time to spend with us this morning. And learn a little bit about our Q2 and some other things going on. And I also want to thank for your support for Gibraltar. So I think this is it for today. It concludes our earnings call. I hope everyone has a great weekend. And look forward to catching up with you after today as well. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time. And have a wonderful day. We thank you for your participation today.