Gibraltar Industries, Inc. (ROCK) Q1 2021 Earnings Report, Transcript and Summary

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 four and I want to discuss a new segment reporting. As we continue our transformation of the business, I think, it’s really important going forward that we offer even greater transparency to our investors and stakeholders concerning our strategy, as well as the performance of our core businesses. As well providing insight into the markets we participate is also important to understand the unique and focused investments required and how we allocate our time, talent and energy in accelerating our vision and performance. So beginning with this quarter, we separated the former Renewable Energy & Conservation segment into two segments Renewables and Agtech, and will now report business results across four segments. So we have Renewables, Residential, Agtech and Infrastructure. So, the graph on this slide shows the composition of our revenue and adjusted operating income by segment before and after the segment change. If you look closely in the first quarter of 2021, Renewables represented 30% of our revenue, Residential 49%, Agtech 16% and Infrastructure the remaining 5%. For comparison in the first quarter of 2020, the Residential business represented 41% of our business, while Renewables and Agtech segments collectively represented 38%. These three businesses accounted for 79% of our total business and this year these three represent 95% of the business. So the shift in revenue is the result of our portfolio actions we started in 2020 to really start shifting the business to higher growth end markets in a way for more monetized offerings. Let’s move to slide five and we will review our Renewables segment, which as a reminder, which serves us the solar energy market, specifically the community, commercial industrial and utility solar segments. The slide should be similar to those who were able to join us in early January when we announced acquisitions of TerraSmart and Sunfig, but beginning in 2015, we started our solar business through the acquisition of RBI Solar and through both organic growth and subsequent acquisitions we more than doubled this business over the last five years and then in December of 2020 we added TerraSmart and Sunfig strengthening our position as the largest turnkey provider in the domestic solar energy market, with the broadest technology portfolio including ground mount canopy Infrastructure, tracker technology and design software solutions, really focused on serving customers across all three solar segments that are investing solar fields of any size and on any terrain. So let me provide you a quick update on integration progress with TerraSmart. The team driving our integration process has focused its initial efforts on optimizing really key organization functions with emphasis in sales and marketing, finance, business systems, human resources, engineering product management. I think we are making pretty good progress in each area and over the last 120 days we have consolidated both our sales and marketing organizations. We are -- and we are moving toward a single phase for customers. We are also putting the entire business a common ERP and CRM system. Our engineering product management teams complete their assessment of our tracker technology portfolio that’s TerraSmart’s TerraTrack and our legacy Sunflower. The teams were challenged to select the best performing most flexible and most reliable platform with a proven software based operating remote management system. We also challenged the team, simplify our tracker offering so we can focus feature engineering investments and expand bankability with the financial community. As a result, the TerraTrack technology has been selected as our go-forward tracker platform. For both existing and future customers, we have started transitioning everyone to TerraTrack and we will continue to support customers with existing Sunfig installations accordingly. So there’s much more integration work to do, but we are off to a good start, we are making progress and remain on plan. Now let’s turn to slide six to look at our new Agtech segment. So Rough Brothers were supporting two core markets when we acquired the business in 2015, the solar energy market which we just discussed and a controlled environment commercial growing market, which it had been precedent for over 80 years. The RBI Greenhouse business was approximately $66 million in revenue in 2015 and provided design, engineering, manufacturing, distribution and installation of multi-purpose greenhouse structures, really focused on six market segments. Over the last five years we have more than tripled the size of Agtech business through good organic growth and subsequent acquisitions adding best-in-class capabilities and cannabis and hemp growing and processing, as well as in fruits and vegetables produce growing. In 2016, we acquired Nexus based in Denver, Colorado a provider of multi-purpose greenhouse structures and the leader of North America cannabis greenhouse structures. In 2019 and in 2020 we added Apeks Supercritical and Delta Separations, both leaders in processing equipment used in the tactical oil extraction and refining solutions for both cannabis and hemp. Then in 2020, I am looking to build a strong presence in the fast growing North America produce growing market. We acquired Thermo Energy, the leading provider of large scale turnkey greenhouse operations for controlled environment growing. This is an exciting market growing 7% per year and it’s attracting significant investment as consumer demand for pesticide free produce grown locally year round and in more environmentally responsible ways continues to accelerate. Let’s turn to slide seven and I will take you through a brief overview of Agtech portfolio of technology and services in key markets we serve. The left sided chart really describes our services and domain knowledge, all of which are critical to providing managing the successful grown environment. And the right side illustrates the six course segments we serve. The produce segment is actually our largest and you can see the size of the growing facilities we design, build and installed. How grower scale and deliver successful results. The cannabis segment which involves growing structures and extraction equipment for processing is also an exciting segment was strong end market demand for the many consumable products produced for the oil extracts we process, whether for medicinal or recreational purposes. This industry is still relatively immature, but as more states legalize and approve licenses the consistency and balance of supply and demand will improve along with predictability and scalability of the market. The remaining four segments reflect our legacy business and we continue to hold leadership positions in each accordingly. Now let’s turn to slide eight to discuss our new go-to-market brand for the Agtech segment, we launched yesterday called Prospiant, which reflects our leadership portfolio for controlled environment solutions and leverages our six heritage brands representing by 187 years of experience supporting over 2,500 acres of installed controlled environment operating solutions in North America. Prospiant really represents by far the broadest portfolio of Agtech solutions for controlled environment agriculture and soil to oil cannabis ecosystem. Our markets are relatively new and are moving quickly toward their next phase of maturation and we are now position well to help them accelerate. Our vision is to help build and shape our market with the best set of technologies products and services and really do so with partner customers one growing in process environment at a time. We believe it’s important. Our customers have a single solution, they would know and trust, that create the opportunities and solve the problems they have for success and really that is Prospiant. So now let me stop there, I will turn it over to Tim to take you through the overall results in total and by segment. So let’s turn to slide nine.

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. As experienced during the fourth quarter of 2020, project schedule movement and timing remain dynamic in the quarter given record infection rates, some unique weather events and ongoing supply chain challenges. The current investment tax credit of 26%, which was scheduled to step down to 22% at the end of 2020, was instead extended in December for two additional years through 2022. The ITC helps our customers finance their projects and its extension to remove the Safe Harbor incentive to invest 5% or more of the project’s costs prior to the end of 2020 to retain the higher credit amount. In the first quarter of 2020, a portion of revenues were related to projects that were initiated under Safe Harbor rules to maintain the 2019 ITC benefit of 30%. Despite not having ITC Safe Harbor benefit in 2021, we grew revenues, reflecting continuing customer activity levels. Strong demand was also evident in the quarter with significant increase in new business booked and backlog end of the quarter up 51% at a pro forma basis across the entire solar business. Adjusted operating margin performance in our legacy solar business improved 50 basis points, through continued 80/20 productivity and execution, and TerraSmart performed as anticipated. Integration is proceeding on schedule and we have started implementing our 80/20 operating system and we expect TerraSmart to drive growth and be margin accretive in 2021. Let’s move to slide 11 to review our Residential segment. Segment revenues increased 35.6% from last year with strong organic growth and participation gains across all four Residential businesses, despite the impact from challenging weather in February and dynamics related to material and labor availability and logistics. Organic revenue grew almost 27% and the acquired Architectural Mailboxes business contributed 9% growth, with the integration of this business on track. Segment adjusted operating margin increased with higher volume, execution of 80/20 productivity initiatives and solid price cost management, which offset ongoing pandemic concerns, higher input costs, labor and material availability, and logistics management challenges. Now let’s move to slide 12 to review our Agtech segment. Segment revenue was down 5.1% as the pandemic, challenging weather and supply chain dynamics during the quarter impacted existing and new project schedules. The produce market continued to gain momentum and offset slower than improving market conditions in the cannabis and hemp markets. We are encouraged by the increasing activity we see from our customers in the cannabis and hemp markets, and expect this activity to convert to increasing demand as we progress through the year. Segment adjusted operating margin was impacted by the overall mix and timing of projects and volumes in the processing equipment business. The integration of Thermo Energy Solution, Agtech’s core produce market business is progressing well despite the continued pandemic-related closure of the U.S.-Canadian border. We have worked through the majority of the lower margin projects we inherited through the Thermo acquisition and margins are expected to expand in 2021 through execution of newer higher margin projects and backlog and the benefits of the implementation of our 80/20 operating systems. We also completed the consolidation of facilities in the processing business, which will provide a better cost structure going forward. Segment backlog increased 5% sequentially to $96 million driven by an active produce market and this trend is expected to continue and drive positive results in 2021. Now let’s move to slide 13 to review our Infrastructure segment. As we discussed in our fourth quarter call, we completed the sale of the Industrial business on February 23rd and have included its historic results as discontinued operations. My comments today will cover the continuing Infrastructure operations. Segment revenue decreased $400,000 or 2.6% as the pandemic continued to impact existing and new project schedules driven by state and federal DLT funding. Order backlog grew 14.8% to $52 million in the first quarter, reflecting positive momentum as the economy continues to recover. Segment adjusted operating margin improved 330 basis points driven by ongoing investment in operating systems and technology, 80/20 productivity initiatives and strong execution in fabricated products. This momentum has helped the business offset the slower recovery market for higher margin non-fabricated products and solutions. Let’s move to slide 14 to discuss our liquidity position. We used $1.2 million of cash for continuing operations in the quarter, given by an increase in inventory to meet growing customer demand and rising raw material prices. We generated $22.6 million in cash from investing activities with $27 million in cash from the industrial divestiture, partially offset by capital expenditures of $4,4 million. Cash used in financing of $30 million was mainly a result of net repayment of approximately $27 million of outstanding borrowings. On March 31st, we had $335 million available on a revolver, cash on hand of $21 million and our net leverage was approximately a quarter turn. We continue to expect to repay our remaining balance on a revolver within the year using our cash flow generated from operations. Our strong operating cash flow and relatively modest capital expenditure model offers us ample liquidity to invest in operational excellence, organic and inorganic growth initiatives, and the development of our organization and the repayment of debt. We remain active in M&A discussions and continue to remain focused on managing our working capital. Now, I will turn the call back to Bill.

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 effort to continue conducting business the right and responsible way. I absolutely believe in the manner in which we build and support our ongoing relationships with our customers and our suppliers, our people and the communities where we do business is foundational to both our culture and is important to all our stakeholders. So, I just want to touch on a few of our key initiatives. So let me give you a brief update on five of them that we currently have in play. First, we continue with our employee education initiative requiring each employee and our Board members to complete 12.5 hours per year of online training with our curriculum focused on compliance and ethics with the intent of creating the best culture and environment where people feel included and can realize success. In Q1, our team completed 100% of their assignment representing over 5,000 hours of education. Secondly, we continued our diversity and inclusion mapping process for each of the 40 plus communities where we operate. This entails understanding our level of diversity in each location as a comparison of the diversity of the community itself. It’s really important we understand this to determine appropriate initiatives to support each location. In parallel, we have been requiring diverse candidate’s slates when filling our new positions, over the last 12 months 50% of our new hires have been diverse. And number three, we launched our partnership with the Department of Energy’s Better Plants Programs and have partnered with local universities to help us with facility energy assessments and started the DOE program. We have also selected an outside energy management firm to help us assess our energy usage and spend, and the opportunity to source energy for our facilities from Renewables sources. Our partnership with the DOE is also contributing to the development of our company-wide sustainability report based on a scientific-based carbon reduction plan for each of our locations. We will have that ready by the end of 2022. And finally, we have evolved our Board of Directors over the last 15 months with four new members adding competency and experience and digital transformation, information technology, cybersecurity, renewable energy, ESG management, marketing and legal. Our Board is very diverse, and more importantly, brings a tremendous diversity of thought to the management team as well. We also recently restated all our committee names and expanded our missions and charters for each committee. So, let’s move to slide 17 and we will discuss our outlook for 2021. We are off to a good start and we continue to see solid end market demand supported by a strong customer order backlog. While challenges remain in terms of the pandemic, general inflation, labor availability and supply chain dynamics, we do have confidence in our business going into the second quarter. We will continue to manage through the current operate environment and focus on executing well maintain a safe environment for our people. Given today’s environment reiterate -- we reiterate our previous guidance of revenue and earnings for the full year 2021 and we will continue to refrain from providing quarterly guidance until we have more clarity as we move through the year. As a reminder, consolidated revenue is expected to range between $1.3 billion and $1.35 billion, GAAP EPS is expected to range between $2.78 and $2.95, compared to $2.53 in 2020 and adjusted EPS is expected to range between $3.30 and $3.47, compared to $2.73 in 2020. That said, regardless to the quarter-to-quarter cadence, we have confidence in overall 2021 outlook and we will continue to remain focused on executing our plans and delivering our full year plan. So, with that, we will open the call for questions.

[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 here shortly. So that’s happening. And I would say in our Residential business we have been doing a lot of work there in 80/20 and a couple of our businesses that were still had a lot of runway and still yet to go there. So I think it’s very active there. And then where you see a lot of improvement over the last three years, four years is in our Infrastructure business. There’s been a tremendous amount of 80/20 work done there. Again, new leadership in the facility and our ability to convert dollars today is much better than it was three years ago, and as importantly, our ability to scale up and utilize our capacity more effective ways much better. So, when we think about 80/20 now across each of our businesses, there’s a different angle as to why and what still needs to be done. But the consistent theme is, effective execution, scalability to meet this record demand that we are seeing in front of us. So -- and it’s really across each of our businesses on the demand profile side. So, yeah, we are -- the question is perfect because we just finished a very intense week of mapping everything -- remapping everything and now implementing some of the work that needs to be done.

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 interesting. This is an industry thing which if you think about the step down with the ITC benefit the last three years, as Tim kind of described, about every November, December and people can take different approaches to how they do this, knowing that you are going to step down on the benefit, using the fourth quarter towards the end of it, you place an order and you can buy racking, you can buy inverters, you can buy panels. But you have to buy at least up to 5% of that value of that project for you to maintain that ITC benefit going into next year. Well, we have had three years of that step down. So, when that happens, the first quarter for the industry, the following year tends to be overly inflated from a seasonality perspective. Those projects happen. But it’s just more of a shift out of Q1 since there was no really benefit to do anything to Safe Harbor this year or in 2020 in December, a lot of people didn’t place those orders. Therefore, the demand doesn’t show up in Q1. But once you put some of that money down, you commit to that project you have got to actually start using that material within the next four months of the following year and that’s where it starts to show up as revenue. So the industry itself I think for the next couple of years is not going to have -- is going to have a more replicated seasonality that you would normally see. And it makes sense because January and February it’s tough to put stuff in the ground around the country because of weather. So a lot of that revenue you see is just material that was bought forward, because the benefits stepped down and industry has not seen -- doesn’t have it this year and won’t have it next year. So you probably won’t see a Q1 that’s typically reflective of the previous years. That’s an industry kind of situation, and for us, yeah, we were impacted by it as well. So if you think about our demand have an offset, not having Safe Harbor in Q1, it was such a late extension decision by the administration to extend it. We do understand the real impact of what it would mean in Q1 at the time. But people decided not to attend the day, they didn’t have to, so they didn’t. So we effectively had to offset that and we did and still generate growth in Q1 this year year-over-year. So it’s actually a good -- pretty good quarter reflecting good solid end market demand and I think that’s having bookings that are reflecting that as well, also supports again ongoing good demand. So that helps within the Safe Harbor.

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.