Greetings. And welcome to the Q1 2021 Gibraltar Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Carolyn Capaccio of LHA. Please go ahead.

Thanks, Operator. Good morning, everyone, and thank you for joining us today. With me on the call this morning is Bill Bosway, Gibraltar Industries’ President and Chief Executive Officer; and Tim Murphy, Gibraltar’s Chief Financial Officer. The earnings press release that was issued this morning, as well as the slide presentation that management will use during the call are both available in the Investor Info section of the company’s website, gibraltar1.com. Please note that Gibraltar has classified the Industrial business, which was divested on February 23, 2021, as a discontinued operation with fourth quarter 2020 results. Results of TerraSmart, which was acquired at the end of December 2020, are included in first quarter 2021 results. Gibraltar’s earnings press release and remarks contain non-GAAP financial measures. Tables of reconciliation of GAAP to adjusted financial measures can be found in the earnings press release that was issued today. Additionally, Gibraltar has separated its Renewable Energy & Conservation segment into two, renamed the Renewables and Agtech segments. Gibraltar has provided historical Renewables and Agtech segment information for the four quarters of 2020 and full year 2019 on the quarterly results page of its website, which can be accessed through the Investor section by clicking on Reports & Presentations. Also as noted on slide two of the presentation, the earnings press release and slide presentation contain forward-looking statements with respect to future financial results. These statements are not guarantee of future performance and the company’s actual results may differ materially from the anticipated events, performance or results expressed or implied by these forward-looking statements. Gibraltar advises you to read the risk factors detailed in its SEC filings, which can also be accessed through the company’s website. Now, I will turn the call over to Bill Bosway. Bill?

Hi. Good morning, everybody, and thank you for joining our call today. Let’s start this morning with an overview of our first quarter results and then a review of the segment reporting change we announced earlier today. Then Tim will provide more detail regarding our Q1 financials. Then I will come back and I will review our strategic priorities and our guidance for 2021 and then we will open the call up for your questions. So, let’s turn to slide three to discuss Q1 results. So we delivered solid results that reflect ongoing execution, participation gains across our markets and healthy end market demand, while we continue to operate through the pandemic, managed some challenging weather across the country, worked through material inflation, and deal with material and labor availability shortages. For the quarter revenue increased 34%, of which 10% was organic, driven by strong growth in our Residential segment, growth in our Renewables business, which compared to good volume related to Safe Harbor in the first quarter of 2020. Our acquisitions performed as planned with TerraSmart and Sunfig starting their integration into our Renewables business. Architectural Mailboxes completed its second full quarter of integration activity into our Residential business and Thermo Energy Solutions completing its first full year of integration in our Agtech business. Our order backlog strengthened to record $355 million, up 27% on a pro forma basis and up 48% on an absolute basis versus last year, and we also generated good order bookings during the quarter as well. Adjusted earnings increased 30.8% to $17.4 million or $0.53 per share. The result of organic growth and continued margin expansion in the Renewables, Residential and Infrastructure segments, the TerraSmart acquisition, good products and services mix, good price cost management, and 80/20 productivity initiatives. Now let’s turn to slide…

Thanks, Bill, and good morning, everyone. I will take you through our consolidated segment results. And as a reminder my discussion will cover results from continuing operations. Consolidated revenue increased 33.5% to $287.6 million, driven by the Renewables and Residential segments. Organic revenue growth of 10% was driven by continued execution on strong demand and participation gains in the Residential segment, as well as continued demand and strong execution in the Renewables segment, which offset winter storm impact and shipping delays. We generated 23.5% growth from the 2020 acquisitions of Architectural Mailboxes, Sunfig, TerraSmart, Thermo Energy and Delta. The total backlog at quarter end was $355 million, up 27% over first quarter 2020 on a pro forma basis, driven by continued end market demand across our businesses. Adjusted operating income increased 33.1% in the first quarter, with adjusted EPS up 32.5%. The increase was the result of organic growth and continued margin expansion in the Residential and Renewables segments, along with the impact of our recent acquisitions, products and services mix, and ongoing benefits from operational excellence initiatives. As a result, we were effective in offsetting the impact of the pandemic, material inflation, labor and material availability, and increased performance-based compensation costs. Our teams have been working very hard to procure materials and obtain the labor and shipping services required to meet our customers’ needs and we expect this dynamic will continue for the foreseeable future. As Bill noted, we now report the four segments, Renewables, Residential, Agtech and Infrastructure, breaking out with this quarter’s reporting, the former Renewable Energy & Conservation segment into two, Renewables and Agtech. Now let’s review each segment starting with slide 10, Renewables segment. Segment revenues increased 80.8%, driven by the TerraSmart and Sunfig acquisitions, as well as 2.1% organic growth in our legacy business.…

Thanks. Let’s…

Hi, Bill, your line is open.

Yeah. I am sorry. Let’s turn to slide 15 for an update on our key priorities as we continue to accelerate our transformation in 2021, really through our three pillars portfolio management efforts, improving our business system and strengthening our organization. Our key priorities remain consistent with our last earnings call and we remain a very focused on them accordingly. Top priority is, number one, scale our Renewables and Agtech business. We have to continue integrator acquisitions per plan and execute our record and growing customer backlog, as well as apply our 80/20 operating model to scale our field operations and project management delivery system. We also continue to build organization capabilities, invest further in digital systems, processes and tools. In parallel, we are strengthening our solar energy portfolio with additional technology in IP, software development and defining our position in strategy in the operations and maintenance services segment of the market. Our priority number two, improving our execution costs at Gibraltar, with continued focus in health and safety, our 80/20 productivity initiatives, new product development, capability and enhanced quality control systems. And third, proactively managing optimizing our supply chain, material inflation, availability of material, whether it’s steel, aluminum or resin, transportation and logistics, and really diligently managing our price cost opportunities and lead-time dynamics with our customers. We must also stay laser focused on managing labor availability in the near-term, while we assess automation solutions in our facilities for the medium and longer term. And fourth, continue to conduct business in the right responsible way every day and our effort to drive environmentally sound solutions via solar energy production, growing food and residential efficiency is progressing with 90% plus of our portfolio now focused in these areas. On slide 16, I have summarized the list of initiatives supporting our…

[Operator Instructions] The first question is from Ken Zener of KeyBanc Capital Markets. Please go ahead.

Good morning, gentlemen.

Hey, Ken. How are you?

Good. Caught me off guard here. I want to stop here. Can we go -- how do you say Agtech again, pro -- out here pros -- pro -- can you say that word again for me, prosphate?

Prospiant.

Prospiant. Okay. Two second to refer to it correctly. Appreciate the disclosures. Trying to think about the annual data you gave us in 2019, the run rate in 2020 the comments. Now, let me just start with Agtech, margins 2019, you had about 17%. It looks like you are just under 7% in 2020 and then, Tim, I believe you said that you are expecting, you are not giving quarterly guidance. It sounded like you were being descriptive about which segment margins you expect to be up in the years, is that correct, so you expect the Agtech to be positive margin growth this year?

Yeah. I think of all.

Okay.

We expect all to go up.

Okay. The reason I ask that is, I am trying to understand the decline in margin, which in 2019 was 17%, is 7% today, 7% plus in 2021. Can you maybe walk us through -- when you bought Delta, Apeks and all these companies, you are obviously spending a lot of money on investments, right? I seem to IT systems and safety, its sales investments and then there’s volatile end market. Can you maybe give us a sense of lower margin, is that really just a function of volume leverage or their investments that are happening and do you think the margin that you acquire these at is attainable over time, just to start. Really appreciate the breakout.

Let me take that.

Yeah. So -- yeah. Go ahead, Tim, and I will follow-up.

Yeah. So, Ken, two separate property pieces in there. One is the cannabis and hemp market which impacted the processing businesses that we purchased along with our core cannabis and hemp market business in the historic business. And that really took a downturn, certainly, towards the, I guess, the end of the first quarter, but certainly the remainder of the year and the volume in processing was way off. We actually had some losses in those businesses in a couple of quarters.

Right.

And the core produce business that we acquired in January. We acquired a series of projects that were either underway or were to start and they were at lower margins than we would normally be doing work at. But we had to…

Right.

… honor our customer’s requirements. And so that the combination of those two items pulled margin down and as we move through this year and refill the pipeline with more maybe normalized project levels and profitability along with seeing some recovery in cannabis and hemp markets in both our core and the processing businesses and/or restructuring we did in the processing business to reduce facility and lower cost, all of those are expected to help. So, yes, volume is part of it, but there is other pieces.

Okay. It seems like when I look to next year, how crazy this year is, now that you have broken this out. I think it’s really good that you did that. The renewable piece can continue to grind it seems. But would -- I mean 7% isn’t necessarily what you would be bidding projects at, right, whether it was you know on the Ag side, I assume on the flowers and vegetable stuff. You are just kind of working through a acquire backlog is what I hear you say. There is a drag on this year’s margin level than last year as well? I am just trying to think about operating leverage I guess is another…

Yeah.

… way to say it. I mean do you think operating leverage in that business is…

Yeah.

… generally going to be in that 25% range consistent with kind of your broad business, 25% EBIT operating leverage?

It’s going to depend on project mix. So it’s hard to call out given that there’s a whole host of new businesses in there. So I wouldn’t -- the processing business...

Yeah.

...has a different leverage than the produce than the cannabis. But, in general, Ken, yeah, the 7% last year, 6.9% is not our target margin for that business.

Right.

You will see it improve over time as we integrate these businesses and put the operating systems in place and then get some value back from a couple of the key markets.

Great. And I guess -- and my last question I am just going to stick with Agtech, since it’s the, I think, to me the most interesting and known category now that you have started breaking it out. As states go through, we continue to have legalization in states. How does the federal involvement, for example, last year you talked about cash payments state transfers were an issue in the cannabis business because of that. If the fed gets involved at a national level and allows this stuff to happen, I mean how does that change the business? Does that actually elevate the business or does it just move instead of taking cash within state lines you can take credit across state lines or accept the credit who knows? I mean, how much is that actually impacting the business demand or stability of that and that’s my final question? Thank you.

I think what would happening Ken is, so as more and more states come on Board, which is what you see happening and even more considering it now. The legalization process is one thing and then you get into this licensing process and that creates all this choppiness we have been dealing with and talk just part of the immaturely of the market. In the states wanted to remain, I suspect state-to-state if possible, because the revenue associated with that for themselves, which a lot of states are probably interested in having going forward. I think it depends on the involvement at the federal level and there could be a couple different angles that could be played. I think each of those has a little different scenario. So at federal level there’s maybe there’s an FDA kind of angle, there’s a banking angle, those are the two that most people think about. But regardless of that, I think, over time as the industry matures, you have multi-state operators right now that are trying to snap up licenses and buy licenses across state. So effectively that’s starting to happen and I think that will continue, and you will have pairing of hundreds of companies that existed some time ago to something less. And whether that happens -- how that happens over the next two or three or four years, I think will depend on what kind of things come out of Washington. But in the meantime, I think, states can continue to move forward they as they do that, you will see multi-state operators trying to extend and those are the folks you are trying to partner with. And so, I would characterize it more as a natural evolution of the marketplace as the way I think about it. Access to banking funding will be helpful, but it’s been a challenge for a lot of small players up to this point. But as these multi-state operations who come bigger, their ability to finance their expansion gets a little bit easier too. So that’s the balance I think you will see over time on that front.

Thank you.

Yeah.

The next question is from Walter Liptak of Seaport Global. Please go ahead.

Hi. Thanks. Yeah. Thanks for the description in the last question. I guess, I know that 80/20 is not a silver bullet for higher profits. But can you tell us Agtech or each of the different business units running their 80/20 numbers and doing 80/20?

Yeah. In fact, Walt, good question. We just finished a week long effort in our solar business. So as part of our integration with our traditional -- our legacy business and TerraSmart, there’s a teaching education on 80/20. But we just spent a week long mapping, moved to cash for that business. And what we are helping people understand is there’s 80/20 that most people are used to using in the world of I’d say more traditional manufacturing. But there’s also 80/20 as it relates to the other half of our business model, which is the field operations delivery and that’s half of our revenue and profitability if you think about it. So, we have to really excel there well as well. So that’s really driven on you think about product line simplification and enlightening applied to that piece of the business model, as well as it is applied to our traditional piece of manufacturing inside of four walls. So, yeah, that we are pretty aggressive in that area and working pretty hard, we are doing the same thing in our Agtech business. Splitting these two businesses out over the last year we have split the organization. We brought in leadership for each of the respective businesses. We have been implementing systems and processes accordingly common ERPs, common CRMs, all that stuff was over a period of time difference over the last five years and we have been consolidated into kind of a single framework, trying to leverage across the businesses but have focus on both. If you think about the business models for each, they are very similar in terms of what we do and putting things in the ground. So 80/20 going into solar is very active. We are going to kick that off in Agtech as well…

Okay. Great. Yeah. It sounds like the entire business is doing and there’s maybe some uniqueness to doing 80/20 around project work. So that’s great.

Yeah. It is, Walt, but it’s -- if you replace the words there, whether it’s a service or a product, whether you are enlightening or PLS, it’s really not a whole lot different. That’s what we are trying to show people and help understand. So we are just drilling down into that is important piece for us, because half of our business is in project management, if you think about it. So we have got to apply that in a consistent and accelerated way going forward as well. So, anyway, sorry, go ahead.

Okay. No. That’s great. Thank you. I want to ask to last quarter you guys were talking about five or six large projects that were having some issues with some components NOI, as well as...

Right.

...permitting and then this quarter we are hearing about the Safe Harbor. And I wonder make sure I understood what the Safe Harbor comments were about. Is that related to the difficult comp in solar because of that Safe Harbor from 2019…

Yeah.

…and maybe an update on the large projects? Thanks.

Yeah. So, first the projects, we had four, five -- four projects about 50-megawatt or 60-megawatt that got delayed. Those are still inside. They will be spread out between Q1 and Q2. The solar panel which was the big issue for those specific projects that’s working itself through, it’s still a bit of a challenge but it’s getting better. And I think if you recall we were talking about there was a particular component that goes into a panel manufacturing or there’s a facility in Asia that went offline for a bit and it was coming back online. So I think that’s working itself through. So those projects will get across the finish line in the first half of this year. So that’s that piece of that. I think the permitting stuff we deal with all the time. We just had if you recall when we talked about permitting, we do a lot of smaller projects, those four projects were 60-megawatt. Those are big projects for us. So when we had a big project move, it was pretty substantial whereas having one project in the past wasn’t a big deal, because we were typically doing with an average sized 3-megawatt. As we have gotten bigger and we have gotten -- developers have gotten more confident in themselves wanting to do more in bigger projects, we are getting pulled into bigger stuff which we like. But when those things get delayed, which it’s a little bit differently or did in the quarter. So that was the permitting side of that. But the permitting stuff I will -- we have been dealing with that for years. It’s just something that you learn to deal with and stop and start. You are flexible and so forth. The Safe Harbor thing is kind of…

Yes. Yeah. Thank you.

So I don’t think you will see a Safe Harbor impact going into next year either. There’s no incentive to do it, because of the extension of two years. So we won’t have this discussion next year Q1 as it relates to Safe Harbor, because there’s no incentive to do it.

Okay. Is there a second quarter impact that happened last year?

Yeah.

From September or…

Yeah. You can have a little bit of it. Yeah, you always have to go back for the industry you look project-by-project, because you have really four or five months. I think its four months up through like April. So you could have a little bleed over into Q2. I don’t think that’s going to be a big deal for us I don’t know about the rest of the industry. Again, it depends what kind of project-by-project and what developers decided to do. And as you know, we have in flight around -- we will do over 500 projects this year, so across a lot of different developers. So it’s kind of hard to track each one, but I don’t anticipate it being a big deal in Q2 for us.

Okay. Great. Thanks. I will get back into queue.

Okay.

The next question is from Julio Romero of Sidoti & Company. Please go ahead.

Hey. Good morning, Bill. Good morning, Tim.

Hi.

Good morning, Julio. How are you?

I am good. Thanks. So I wanted to ask about the Residential segment. It looks like the organic growth rate in the segment is 27% this quarter is actually accelerating sequentially, I think, at 21% in 4Q and 20% in 3Q. So I was just hoping if you can…

Yeah.

… give us a little more maybe granularity on what product lines or channels are kind of driving that strong organic growth rate?

Yeah. Julio, I would say, across the Board. We have been fortunate and I think part of it has to do with some of the work that’s been done the last couple years. We have made some good progress across each of our channels with participation gains. I think that’s a result of a lot of things that we have been able to fix relative to 80/20 initiatives, our ability to deliver more consistently. Frankly, we have really focused on trying to take cost out of the -- cost -- reduce costs of doing business with us. So you think about logistics and transportation, and how do you plan and help our customers of all of their strategies around distribution of product. So there’s been a lot of work done, I think, that’s just helped us gain participation. So I’d say that. The market obviously continues to be robust. And frankly, in Q1, we were quite a good chunk of our Residential business that was shut down for over a week, because of the weather in February we were told to stand down by a lot of utilities looking to operate from our facility. So we had to make up as much as we could using overtime and other things, but that kind of whipsaw into the whole industry having issues with material availability and so on and so forth, which I think you hear a lot of people doing with. But, in general, I think, its participation gains, strong market, we have made investments in regions with having people in place who didn’t have a year ago and those things are starting to pay off for us. So it’s just expansion geographically, expansion with end customers, it’s a good strong market and just our ability to execute has helped us gain some additional business. I’d say overall that’s kind of where we are.

Got it. And I guess maybe within the four Residential businesses that make up that segment, you mentioned the price cost management is going to be requiring continuous effort going forward. Just -- I don’t if you could speak to…

Right.

… do any of those four businesses within Residential doing those kind of stand out in terms of the effort required for price cost there?

No. I think the -- our biggest businesses, if you think about ventilation, roofing accessories and mail -- mailboxes and lockers. Those are for the most part being sold through the same channels. So the challenge there is working with that same group of customers and they are just ongoing discussions that we have with them. So I think the challenge is pretty much the same across the Board. And our HIG business, our Home Improvement business is a little bit different. We are going through dealers and it’s really direct to homeowner. So that’s probably been less challenging to actually implement. But I’d say, in general, we have been relatively successful managing price costs in a timely manner and the discussion through each customer are one-off, the discussions and some are more challenging than others, but eventually, we have been able to get there. And I think it’s just going to continue to be an ongoing discussion until we see more clarity and that’s part of the reason why I mentioned earlier, hey, we are not giving quarterly guidance. There’s just a lot of variables right now. If you really think about the overall environment relative to last year throughout the year, one, our infection rate is still higher today and the last seven day average than it was for 11 months out of all of that -- for all 11 month of the 12 months last year. We just kind of forget that. But it’s still something that we are very much paying close attention to in our supply chain and everything else. And then you throw into this huge spike in material inflation that drives price cost management activities and then you get into labor availability and material availability. We have a lot of that stuff as an issue last year or set of circumstances and so the team has done a really great job working through it. And I just think that’s going to continue to have to be our focus going forward. I don’t see a lot of that changing in the near-term. So whether its price cost or some of these other things you just talked about I think the level of intensity that will continue to approach these things is going to have to remain high.

Got it. That’s helpful. And I guess, maybe just switching gears to the Infrastructure segment, you mentioned you the backlog improvement there. Is that order backlog improvement weighted more towards fabricated or non-fabricated products or...

Mainly…

Some additional color there.

Maybe fabricated. Yeah. Maybe fabricated, I think, we are starting to see more activity in non-fabricated. So last year team did a great job and had to offset the fact that airports and a lot of investments and coatings and sealants that go on parking garages and runways just stopped. So team did a great job making improvement last year and it was on 80/20 execution around fabricated product which to go back three years we really struggled and so that has really put us in a good position going forward. And I think part of the reason the backlog continues to grow is, A, the economy’s recovering. So some of the DOD budgets that are heavily funded by gas tax start to pick up and that’s been helpful. So we start to see more projects really late Q4 last year and Q1 this year start to come to fruition and get across the goal line and I think that that’s really important for us. And then, B, I think, we are starting to see, because of the economy as well, some of the non-fabricated order start to kick in. So it’s a combination of both of those things that are starting to happen. We are not seeing -- everyone talks about their restructure bill that doesn’t exist yet. We all know that. So what we are seeing I think is just a general recovery of the economy. We are just in a better position to deal with it and I think as a result of being in a better position to execute we are able to go out and get projects that we would have not been able to take three years ago from either a margin or delivery perspective. So our ability to go expand our market during the market that’s been flat is starting to show up and I think I am excited about that. So as the topline goes get supported by the economy recovery and other things that may drive the topline, we are actually able to go after a bigger piece of the market than we were few years ago. So I think that’s also contributing to the backlog that we are starting to see. That makes sense.

It does. Thanks for taking the questions. Appreciate it.

Yeah.

This concludes the question-and-answer session. I would like to turn the call back to Bill Bosway for our closing remarks.

Well, again, thanks everybody for joining us today. We will be participating in a number of U.S. and European marketing dates. And we are going to attend the KeyBanc Industrials and Basic Materials Conference on June 4th and then really looking forward to giving an update and the progress in our second quarter earnings release as well. So thank you and have a great day.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.