Greetings. And welcome to the Q2 2021 Gibraltar Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my please to introduce your host, Carolyn Capaccio of LHA. Thank you, Carolyn, you may begin.

Thanks, Paul. Good morning, everyone, and thank you for joining us today. With me on the call are 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 half 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. Also as noted on slide 2 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 today's call. Let's start this morning with an overview of the second quarter results and then we'll discuss the ongoing market environment we continue to manage in. Tim will then provide a detailed financial review of the quarter, and then I'll give you an update on our 2021 strategic priorities and our guidance for the year. Then we'll open up the call for your questions. So let's start. Let's turn to slide 3. We delivered a solid quarter with revenue up 36.5%, 14% of which was organic and 22.5% came from acquisitions. We got off to a good start in the first quarter with 34% growth and the momentum accelerated into the second quarter. Growth was driven by healthy end market demand, further participation gains and the realization of multiple price actions implemented in the first and second quarters. In total, our order backlog, which reflects signed contracts grew 54% to over $400 million, a record level really for Gibraltar. And on a pro forma basis order backlog grew 32%, again reflecting accelerating order momentum as we exited a strong first half of 2021. The integration of TerraSmart is on track and we continue to evolve into one organization. We're six months into the process and have combined sales marketing, supply chain finance, HR and have a strong leadership team in place. TerraSmart's operating margin nearly doubled versus the first quarter and demand remains robust as we enter the second half of the year. Historically, the strongest quarters for this business and for the solar market. In our residential business, Architectural Mailboxes completed its third full quarter of integration activity and is delivering to plan as well. Adjusted operating income increased 8.2% and adjusted EPS expanded 6.7% to $0.80 per share.…

Thanks, Bill and good morning everyone. I'll take you through our consolidated segment results and as a reminder my discussion will cover results from continuing operations. Consolidated revenue increased 36.5% to $348.4 million. Organic revenue growth of 14% was driven by continued execution on strong demand participation gains and pricing in all four segments despite some supply chain dynamics and materials and labor availability particularly in the renewables, residential and agtech segments. We generated 22.5% growth from the 2020 acquisitions of Architectural Mailboxes, Sunfig and TerraSmart. Total backlog at quarter end exceeded $400 million up 32% over second quarter 2020 on a pro forma basis driven by continued end market demand across our business. Adjusted operating income increased 8.2% in the second quarter, with adjusted EPS up 6.7%. The increase was the result of continued execution on solid demand across the business segments that drove organic growth as well as TerraSmart's acquisition and 80/20 productivity initiatives, partially offset by the timing and alignment of higher input costs and price increases, supply chain disruptions and in the agtech and renewable segment shifts in project timing. As Bill commented, we continue to work with suppliers to manage materials transportation procurement and with customers to manage pricing. We expect margins to recover as inflation subsides with a one to two quarter lag. Now let's review each segment starting with Slide 6 the Renewables segment. Segment revenue increased 92.5% driven by the TerraSmart acquisition as well as organic revenue growth of 4%. On a pro forma basis, including the TerraSmart transaction, revenue grew 25%. Revenue growth accelerated sequentially from 80.8% last quarter and we achieved this growth through solid execution and converting strong backlog in the revenue despite solar industry headwinds of significant input cost inflation, supply chain challenges particularly with panels that impact…

Thanks Tim. Let's turn to slide 11 for and I'll give you a quick update on our key priorities for the year. At the start of the year, we communicated really four key priorities important to executing the business in 2021. Our four business priorities remain very aligned with today's environment. And obviously we're very active and focused on all four. As a reminder, our priorities, first and foremost, scale our renewables and agtech businesses as mentioned earlier we are making good progress integrating TerraSmart, while executing a very high demand environment with a dynamic supply chain situation. We continue to build processes, drive scalability, and integrate our key functional areas. Our broad and evolving solar portfolio, which really is the broadest turnkey offering in the market is resonating well in the market and with six months into the acquisition our results relative to our expectations and acquisition plan demonstrate I think our strategy is working. The agtech business is also making progress and demonstrating the sequential improvement we expected as we move through 2021. As we exit 2021, we expect the agtech revenue growth and margin run rate performance to surpass 10%. The integration of thermo is expected to drive positive results in the second half, along with the market recovery of our cannabis and processing equipment businesses and steady growth in our legacy business. Our agtech presence is strengthening and our M&A strategy is working here as well. Second-party was to manage inflation optimize our supply chain. We already discussed the environment and how we've managed to-date and our continued focus going forward. I do want to mention we are accelerating our additional 80/20 projects focused really on developing and implementing automation solutions to better optimize labor management for key facilities in 2022. Thirdly, focus on improving our…

Thank you. We'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Ken Zener with KeyBanc Capital Markets. Please proceed with your question.

Good morning, everybody.

Hey, Ken.

Good morning, Ken.

Just if we could spend a little time on renewable. Appreciate the slide 4 guys in terms of the steel cost inflation. But I wonder if you could put 2Q in context of some of the comments you made in 1Q just so we can understand where the margin differences are coming, because I think that's obviously an appropriate focus for investors. So, in the first quarter slide on renewable you talked about a 50 basis point lift in the legacy business. Could you -- if appropriate could you please update us if that -- how that organic moved? And I'm asking Tim, so you could kind of force rank what the other cost pressures are? So it sounded like the TerraSmart obviously steel there was a credit timing, but I just want to see how the legacy business did and then the other drivers please.

So Ken, the TerraSmart was just its sort of planned operating margin, was the biggest impact. And next in line was this -- than these other two items are really on the core business. So we got -- in the second quarter last year, we got the benefit of a one-time tariff credit that had built up over -- it wasn't just related to that quarter. It was just when we were able to get it back. And then, third and less impactful than the tariff credit was the just timing of price material.

Interesting. So, I guess it does sound though just to stick on the legacy, the legacy was down year-over-year led by the tax credit and then steel cost. So, it's not -- steel cost was only -- it wasn't the main driver here in the operating margins.

Not the main driver, but there is an impact.

Yes. But I don't think it's as great as perhaps the industry would have thought. Given that steel costs are so incredibly robust despite the spread in U. and international prices, I think scrap rolled over 60 days ago. Is there any -- I think you guys have been better buyers of steel than others perhaps would have expected. But is there increase -- could you talk to these price indexes? I guess Bill is what I'm talking about. And how customers are responding to such robust pricing, which seems necessary in order to maintain your margins?

So, there's a number of variables that customers are thinking through depending on which business. But in the solar world, go back and remember the 4% benefit or elimination of the reduction that was expected going into the year was a plus for everybody right? So you've got that that's 4% on the total project. So that was towards the good. And then, you have these other headwinds that developers and such have been facing. I think the economics as we've talked for the year have not been as good as they would have been for projects maybe a year ago, but they're still attractive. So I think customers continue to move forward. And I would characterize kind of three buckets of customers if you will, not necessarily equally spread but you have a group that is hey send me everything you can. Let's keep going go hard and you see that in our demand profile. You have a group of customers that are just struggling getting say panels or what have you and that's the bucket that still wants to move, but they're just being disrupted a little bit by other -- some of their supply chain challenges and you see some movement flow through on that. And then, you have I'd say smaller group and these are typically the newer folks into the marketplace that are more in a wait and see mode because of inflationary environment. So it's -- you've got three different scenarios there. What I would say is the returns on these projects seem to be still relatively attractive and that's showing up in our demand as we've seen in the first half of the year in our backlog. So, we're trying to help them find ways to make those project economics a little bit better. There's ways we can do that through the design upfront of the project itself and help them avoid maybe some of those planning costs, etcetera. But it's a tough environment in terms of every project is what it is, but we're staying very engaged with them trying to help them navigate through each project across all the variables that they're dealing with. So yes, it's -- as we said early, late last year and early this year, it's -- we are out in front engaging folks. I don't think people anticipated this. I can't say I did not to the extreme. But walking hand-in-hand through this together has been I think, very helpful with us our customers. No one likes it at the end of the day in terms of the impact but we're learning how to manage it.

Right. It seems like the industry is getting more rational, perhaps around pricing given pressure on other competitors you face. The last question I have is could you talk to the sequential nature of margins in specifically renewable, but also Tim the company in the second half. For example, do you think renewable margins will be up year-over-year in the second half where you basically have a high 12 handle in renewable? And then, just comment if you could on any 3Q or 4Q waiting overall that would help consensus so we avoid surprises. Thank you.

Yes. I guess a little hesitant to tell you what I think margins are going to do, because I don't know what inflation is going to do and that will impact it. So we see opportunity to improve. But if material costs don't moderate with both the speed and the rate of change, I don't know that we would get ahead. So we're set to make higher margin across the business I think or improving margins, but that's with a scenario that there is not rampant continued inflation that we have to go on.

But at today's net pricing it sounds like you -- which understandably you don't want to comment about the spot or the commodity market. But in today's environment given net price in, it seems like it would be a favorable trend at today's known variables, correct?

Yes. I think a fair way to think about it is at any given time we are either working price to get to the current market where we've gotten there just depends on a given day across the businesses, and so if we stayed at the current price, definitely.

Thank you.

Yes.

Thank you. Our next question comes from Dan Moore with CJS Securities. Please proceed with your question.

Good morning. This is Stef calling in for Dan.

Good morning.

Good morning.

So on agtech, what is your confidence that increases in the backlog will translate to revenue in the second half? And are you seeing that happen already in a more material way in Q3?

Yes, I think our plan for agtech has been sequentially get better throughout the year and the backlog that we have today reflects that. The temporary contraction that Tim mentioned is really a shift from June to July and the first three weeks of July. Those projects we thought were coming in June just they've come through the process. So they're on board now, and they'll start being executed. And when you think about the length of executing project or when those start to flow through it does vary by end market, but our backlog is shaping up where they're going to be contributing -- it will be contributing to the second half. So that's what gives us confidence that our plan to again continue to sequentially improve is on track.

Got it. Thank you. And then in terms of residential you have some tough comps coming up. If you look forward to the next four quarters, do you still expect to continue to generate positive growth? And then also how should we think about margin?

I think the growth profile that is going to be consistent, I think with what we see happening in the industry. And so obviously, I don't think we're going to grow at the rates we did last year just because the comps to your point are pretty robust. We had record quarters last year in history of the company for residential. I think a lot depends on what happens with this inflationary environment. At some point in time consumers are going to vote with their pocketbook relative to pushing forward or not. And all these variables that we've talked about which we've assumed will stay in place for the next six months across all our businesses. They're still out there. And if they remain then not get worse, but remain, then we'll see margin recovery go forward. If things continue to move up on inflation then we'll have a -- we'll continue to chase those up and just maximize operating profit dollars. So that is the question. We think our margins will get better. And the assumption is that the environment we have today on inflation front kind of holds where it is. It doesn't get markedly worse, meaning things continue to go up. But if it does go up further and further then we will maximize operating profit dollars and margins will be delayed in terms of recovery. That's how that will work just like it has in the second quarter.

Great. Thank you for taking my questions.

Yep.

Thank you. Our next question -- Julio Romero with Sidoti & Company. Please proceed with your question.

Hi. Good morning everyone.

Hi, Julio.

Hello.

Yes. So I wanted to just, I guess, first stay on resi. Can you maybe rank order some of the headwinds you're facing there? I know you mentioned price lagging inflation, but also some availability issues with material and labor?

Yes. So, inflation is still very high as we all know. And as I mentioned July wasn't any better than the previous nine months in terms of increase. But I would say that availability of some of the materials that we were struggling with resin and aluminum in particular are starting to work themselves out. We started to see that in the latter half of second quarter. So we feel like that one is heading in a positive direction. Labor availability is something that, I think, everyone's going to continue to struggle with for some period of time. And depending on what happens with -- continues to happen with COVID that could cause some challenges for folks, but we're managing through that pretty well. So that's just going to be a continuous battle as we move through the next couple of quarters. So, inflation number one, material availability is starting to improve, but still there a bit, and we still have strong demand. We're trying to support it, but we got to have the material coming in, that's getting a little bit better and then the third is any other disruption associated with COVID, which I think, like I said to this point we've been managing relatively well.

Got it. So it sounds like the material shortages would be focused on non-steel, right? Steel you didn't really have issue.

Yes.

Okay.

No, steel has not been an issue. It's really been aluminum. And frankly, if you go back in time when the February weather hit the Midwest, it hurt a lot of suppliers particularly those that are doing some value-add in the area of aluminum. Resin then impacted by a number of things. So, those things have kind of worked themselves out, but that gives you an idea of the magnitude of that weather disruption for eight or -- eight days or 10 days, it's just now kind of getting itself worked out, but I feel like that's gotten better.

Understood. And is there any way to think about, once steel starts to not stay on this upward trajectory. Just trying to think about how to quantify the impact of price lagging inflation, either from an operating and dollar standpoint or a margin standpoint?

Well, one way to think about it is, we don't need -- we don't necessarily, relative to the rest of the year, need inflation to start going down. We just need it to moderate. We just need it to flatten out. Our assumption in our plan is that, everything stays elevated for the next six months in terms of input cost. So if they -- if our input costs, things like these major commodities issues just subside, that would be very helpful going forward. And then our pricing will start to read through and catch up. What we don't know today, what I can't tell you today is, if that is going to happen with inflation, because again for 10 months in a row we've been wrong. Everybody has been wrong. And that's the piece that's kind of the open card right now. So we're assuming that everything stays elevated in our second half. We're assuming our price increases that we've actually put in place -- we implemented our fourth one yesterday across the residential businesses. Those will start to catch up. But if inflation continues to move up, then we'll continue to focus on, like I said earlier, maximizing the operating dollars and then margin will recover as things subside and start to move down.

Okay. Understood. And I guess, just switching gears to Agtech. Can you just talk about how the cannabis-related businesses within Agtech are performing? And are your customers on the cannabis side seeing better access to working capital, better financing, etcetera?

Yes, they are. And we've seen that in the backlog. Cannabis backlog has started to grow in Q2. And that's one of the reasons that Agtech will start to see improvement -- sequential improvement in Q3 and Q4. So that backlog for growing structures, as well as process and equipment has been steadily increasing. And we mentioned earlier this rescoping effect. So when -- we had a couple of projects in cannabis that have gone through a couple of iterations, where a customer has changed the scope of their project a couple of times. So it goes in and out of our backlog. We don't let it sit in our backlog if it's actually not confirmed contracts. So we'll take it out. In our scenario, we had a pretty large project that went in. We took it back out. That was the temporary contraction associated with the backlog. They’ve since come back in and finalize the scope, so we put it back in, because we don't want to have a false sense of backlog, but that's all cannabis oriented. So that market, I think, is gaining momentum, which is what we anticipated in the second half and our backlog is reflecting that. So you'll start to see those projects read through in early -- first three weeks of July, was also very positive in bringing more of that in specific to cannabis.

Okay. Okay. And then, I guess just staying on Agtech, a quick refresher on the thermo business within Agtech. Did you see any impact from those projects that you had acquired when you first took on that business, I think, 18 months ago? And are you completely worked through those acquired projects?

Yes. I think, as we came out of the first quarter, we've kind of got most of -- I'd say, very, very high percentage of that behind us. What we had -- happened in -- for the produce business was more related just to some permitting delays that are being worked out. But fundamentally the drag that was created with the projects that came with the initial acquisition, I think, are through the system. And now we're adding into that backlog projects now that we're managing.

Great. That’s if for me.

And again, that will drive a positive second half as well.

Great. Thanks very much for taking the questions.

Yes. Thank you.

[Operator Instructions] Our next question comes from Walter Liptak with Seaport Global. Please proceed with your question.

Hi. Thanks. Good morning, guys.

Hey, Walt.

Good morning, Walt.

So I wanted to ask about TerraSmart, maybe a little bit more detail. Can you help us understand a little bit more about some of the integration that's going on? And maybe help us with some of the details about how those integrations play through to getting to the planned margins. And is that at the end of the year or is that in 2022?

Yes. So, well, a lot of the synergy that we put into our acquisition plan really starts to flow through in 2022. A lot of the work we're doing now, which is 80/20 link efforts, I think I mentioned in a previous call, we started working on a couple of months ago, is stuff we're working on now to put in place. And that will be -- I think, those are things that will help drive the margin beyond that weren't necessarily an original plan. But like anything, we continue to go back in each of our businesses, whether it's the legacy core business or TerraSmart, they both went through the same exercise most recently around 80/20 refresh. And we want to do that collectively, because as we're integrating the businesses we want to see where our best processes are and where our gaps are and where the opportunities exist, etcetera. So that's identify some additional opportunity for us that we'll be able to read through, as we get things implemented. But as it relates to this year in the margin, what drives TerraSmart, if you've looked at the first quarter, second quarter, I mean, they doubled -- effectively doubled their operating margin. Their model is a little bit different than RBI's to start with and so, as you get into the busier season, Q3 and Q4. Their field services or field operations portion of the business is a fixed cost model, whereas RBI is historical and then variable costs. So when the quarters are lower in volume in terms of activity in the field, they run a different margin profile. And then, as they leverage up with the volume in Q3 and Q4, that's when they accelerate. And that's really historically what's been the case there for them. And you'll continue to see them drive four with margin in Q3 and Q4, because of that phenomenon, just with the way that they go-to-market with their field ops. It's not right or wrong, it's just different. And it's the way they've always done it. And we'll continue with both models, because it really is project dependent. But that's a core piece of how their margins flow through the year, weaker upfront or lower upfront, and stronger in the second half. And it's because of the construction cycle, because more and more of our revenue and margin comes from those field ops, not just the design and manufacturer of the materials that we put out for the field itself. Does that make sense?

Okay. Yeah. That makes sense. So, as we start thinking about 2024 or just how TerraSmart fits into the picture. Do we see that same seasonality to profits in the future too, or was there more to the integration costs that, we don't have to worry about lower profitability in the first half and then a pickup in the second?

Well, I think the seasonality and profitability may not change dramatically. But I think the overall absolute level for each portion of the year will go up. And that will come through the integration and the synergy work that we're doing. So Q1 is always going to be seasonally less -- lower margins just, because of volume in Q1 due to weather and all that good stuff is going to be less than it would be in your summer months and so forth, but the ability to move up margins in each quarter relative to where they historically been is absolutely our intent.

Okay. And where do we think the planned margins can get to?

Yeah. So when we talked in --- so when TerraSmart came out of 2020, I'm going to hopefully get this right about $147 million in sales. And I think they ran 10% -- 13% 14%.

I think it was more around 12%, Bill. We said the combined business was around 12%.

Sorry. Yeah. That's right. Sorry. So that's the starting part Walt, starting point. And then, we said in the next five years the business will reach $750 million. This is kind of all organic $700-plus million and 15-plus percent operating income. And we're quite confident that we'll get there and hopefully will be a little bit ahead of schedule sooner than we thought, but that we have a clear path to. And then, I think some of the additional work that, I just mentioned earlier, just some things that we'll be able to secure that or maybe take it up a little bit better as well, or a little bit more as we figure a few things out. But that's the plan. And we feel good about that.

Okay, all right, great. And then just one on the backlog for renewables, the 54% growth is there an organic backlog that you can talk about?

Yeah. So the …

And so –Okay go ahead.

So we say pro forma, well actually I think that 54% Tim is pro forma for the renewable...

… for the renewables business, correct. Yeah.

And what that means simply is that, that is the organic number if you will for the two businesses. So if I took last year's actual backlog for each business and this year's backlog for each business it's up 54%.

Okay.

They both have contributed and both have backlog coming in. So it's a very robust demand profile for the business right now. And it's frankly pretty consistent with what we saw in the first quarter as well. So, the first half for renewables has been very good on organic backlog and frankly organic sales.

Okay.

It's just -- it's a very busy, busy environment right now for renewables.

Okay, yeah, right. And so it sounds like based on the way you answered other questions too and I've been talking about it but it's not demand that there's any problem with there's not any kind of trends with supply chain or price costs that are impacting demand. It's …

No.

…the demand environment is fine.

The only exception that I would say in residential where we had some availability issues with material in Q -- early in Q2 aluminum specifically in resin. That impacted demand a little bit. But in general the rest of residential the renewables ag-tech we haven't really had a big impacts on demand because of supply chain stuff. We've had a couple of events. I mean, Tim mentioned in his comments, we had one of our bigger produce projects in the quarter get moved because we had 11 weeks delay in glass. And that's just -- it happened but it's not -- that was a unique event that we think we -- hopefully we're through but it was just -- it wasn't a supplier couldn't get the glass to us. And it was a demand issue. It just -- we literally didn't have labor at the port to pick the container off the ship and put it on a truck. And it took 11 weeks to figure that out. And you think that's crazy. Well these labor shortages around the country are real. And so we had a couple of events like that. But in General Walt yeah, you're right. We -- it's not been a demand issue.

Okay. Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Bill Bosway for any closing comments.

Well, thanks again everybody for joining us today. We do have a busy investor marketing schedule for Q3, including the Jefferies Industrial Conference tomorrow. And then, the Seaport Global Summer Conference on August 24, as well as some other marketing dates. And we're looking forward to reporting our progress in the third quarter earnings release. And keep your calendar open. We're planning on a Shareholder Day or Investor Day in November hopefully in person in New York. Stay tuned on that. So thank you. Have a great day. And everyone, take care and stay safe. Bye-bye.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.