Greetings. Welcome to the Q4 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. You may begin.

Thanks operator. Good morning, everyone, and thank you for joining us today. With me on the line is Bill Bosway, Gibraltar Industries' Chairman, 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. Results of TerraSmart, which was acquired at the end of December 2020 are included in year-to-date 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 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 the 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?

Thanks Carolyn. Hey, good morning, everybody, and thank you for joining us today. We will start with an overview of the fourth quarter as well as full year results, and then Tim will review our financial performance. We'll then pivot and discuss 2022, discuss our plans and guidance for the year, and then we'll open the call for your questions. So let's turn to slide three, titled 2021 year-end review. So, our fourth quarter results were within the range that we previewed on January 27 and capping off a year of good top line growth as we continue to build leadership positions in our end markets. The overall business grew 29.8% with organic growth contributing 9%, driven by market price and participation gains across the business. Our acquisitions contributed growth of 21% and continue to support our demand momentum as we enter 2022. Customer order activity remained robust during the year with order backlog up 16%, reaching $344 million at the end of the year -- or at year-end, sorry. While margins were lower than expected, we generated positive growth in adjusted operating income, adjusted EBITDA and adjusted EPS despite headwinds throughout the year from accelerating inflation and availability of materials, labor and transportation. As well, we worked diligently to manage and to minimize disruptions from COVID and keep our teams safe, particularly in the first and fourth quarters when COVID infection rates were at their highest. Adjusted operating income grew 7% to $124 million. Adjusted EBITDA increased 9.1% to $157 million, and adjusted net income grew 2.5% to $92 million or $2.78 per share. Although, our profitability improved modestly during the year, it was well below our expectations and reflects an environment that in hindsight really pressure-tested our systems and processes, our organization and some of our operating paradigms,…

Thanks Bill, and good morning, everyone. I'll take you through our consolidated segment results, starting on slide five. As a reminder, my discussion will cover results from continuing operations. Also, we've added adjusted EBITDA and adjusted EBITDA margin to our non-GAAP disclosure metrics set, as these measures afford greater comparability of our segment performance across our sectors. Again, you can find reconciliations of GAAP to non-GAAP measures in our press release issued today. Consolidated fourth quarter revenue increased 26.1% to $334.4 million. Organic growth of 8.6% was driven by pricing, volume and participation gains in the Residential and Infrastructure segments, despite continued supply chain challenges in the quarter. We generated 17.5% growth from the 2020 acquisitions of TerraSmart and Architectural Mailboxes. Total backlog at quarter-end approximately $344 million, up over 16% from fourth quarter 2020, driven by continued end market demand across our business. Adjusted operating income and adjusted EBITDA increased 1.5% and 4.7%, respectively in the fourth quarter, with adjusted EPS down 8.5%. Adjusted operating margin and adjusted EBITDA margin in the quarter were impacted, as previously announced, by compression in the Renewable segment as well as higher material, transportation and labor costs, more than offset by pricing actions, volume and participation gains in Residential, lean productivity initiatives and favorable product line mix in Infrastructure and lean enterprise initiatives and supply chain improvements in Agtech. Our income tax rate in the fourth quarter increased over the prior year rate due to a difference in the allocation of income to states where we generated revenues. Lower excess tax benefits from stock compensation and certain return to provision adjustments. Consolidated revenue grew 29.8% to $1.34 billion, with organic growth contributing 8.9% and acquisitions adding 20.9%, as we executed our market demand with growth limited by macro challenges and supply chain disruption.…

Thanks, Tim. Let's move to slide 11, and we'll give an update on our portfolio and our focus for 2022. So, as I mentioned earlier, the fundamentals supporting our end markets remain robust, and we continue to build and strengthen our leadership position in each of our markets. Over the last two years, we have grown revenue in each business faster than the respective market growth rates. It accomplishes through investment in organic growth initiatives and/or key acquisitions. Our growth is a result of solid market drivers, participation gains, price management and adding faster growing business to our portfolio. Since 2019, we've also simplified our Residential, Renewables and Agtech platforms, taking 18 different operating units and organizing them to five businesses going forward. Our simplification and focused effort, covered building and strengthening the organization, consolidating legacy companies, integrating acquisitions, new brand launches and executing day-to-day business during a challenging operating environment. A lot of good work has been completed to strengthen the portfolio, our business systems and our organization. Our Residential and Infrastructure businesses delivered solid adjusted operating margin performance in 2021, while our Renewables and Agtech adjusted operating margins were short of plan. These two businesses experienced industry-specific headwinds in 2021, but we continue to make investments and improvements during the year necessary to help us scale and deliver double-digit margin performance in 2022. So, let's move to slide 12, and we'll discuss our key trends and initiatives for each business, and let's start with Renewables. General market activity remains robust in the commercial and industrial market segment, as developers anticipate industry supply chain disruption and inflationary concerns to subside as we move further into 2022. The industry and our customers continue to address panel supply in a variety of ways with the intent of lessening disruption to their…

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Daniel Moore with CJS Securities. Please proceed with your question.

Good morning, Bill. Good morning, Tim. Thanks for taking the questions. Maybe start with Renewables. Pro forma revenue declined about 6%. What was the volume impact -- and what was the impact from pricing? And then, we'll get into the details a little bit more.

Yeah. Dan, there's obviously some pricing in there. It's not as large as some of the other businesses just because of the timing. But the volume push was really on just schedule slip, not on a reduction in demand from the market. It's just getting the projects teed up and going.

And when I look at the margin impact on a year-over-year basis, how much of it was supply chains, solar panel availability schedule slip as you described versus price/cost timing of raw materials?

Yeah. I sort of split at 60/40. 60% of the incremental costs we experienced related to the sort of schedule disruption in supply chain and 40% of it related to the material cost and really specifically the structural steel inflation.

And the 40% when do we expect to get that back?

We've adjusted all the projects we have, and so, there will be some hangover as we work through the rest of those projects. We think all of it's gone by the end of the second quarter.

Got it. And then, the -- maybe same question quickly for resi. And what was the kind of general breakdown of price versus volume and strong growth there, as well as participation gains.

Yeah. I think, again, the second half of the year was more price than volume in the resi. But we continue to get expansion, I called out, both geographically, we picked up some additional customers in the Midwest, and that's based on some work we started over a year ago when we sort of expanded our wholesale team to broader regions that we usually hadn't historically covered. And also, just some wins with both and existing customers around -- in this instance, steel roofing products. And a bit of that is driven -- by the fact that we have supply. We can actually turning order in however many days and not everybody in the industry can do that. That's part of the reason we're carrying more inventory today than on a days basis, we would have.

Got it. And maybe one more, and I can jump back. But the -- in terms of the guidance, the EPS and EBITDA generally in line. The top line implies about 5% growth at the midpoint -- sorry -- for the redundancy and the questions, but how much of that is price given the ramp in raw material inflation and pricing actions we've seen? And how much is volume? It just seems to imply a relatively low volume growth, given that dynamic relative certainly to your longer term expectations? And any comments about the cadence of kind of volume growth throughout the year. Thanks.

Yeah. I think, Dan, if you look at -- Bill laid out on one of the slides, sort of the inflationary environment and called down sort of our outlook for 2022 material costs. And most -- to me, most notably cold-rolled, hot-rolled, which is the -- we use -- that's the commodity we use the most of. And that has declined a bit since it peaked during the fourth quarter. And so, our plan anticipates some pricing investment to recognize that as that cost flows through our system. And it's not a one for one because obviously, transportation costs, labor costs are up, but we usually do adjust pricing when the raw materials moved significantly. And so, we baked some of that into the plan. So, I think overall, you've got probably a little price reduction on the whole business, along with growth is really how you get to the sort of 5%.

So mid single digit or higher volume growth implied at the midpoint. Is that correct?

Yeah. That's fair.

Okay. All right. I will jump back for any follow-ups. Thank you.

Our next question is from Julio Romero with Sidoti & Co. Please proceed with your question.

Okay. Good morning, Bill and Tim. Thanks for taking the questions.

Good morning, Julio.

So, regarding the Renewable segment, I appreciate the guidance and your expectation for double-digit segment operating margin to 22%. What does that assume in terms of the field operation inefficiencies you're seeing now? And I know you mentioned the assumption that renewable supply chain disruptions related to the WRO should continue through 2Q. I think one of your slides mentioned, but if you could talk about maybe the range of outcomes for that WRO issue and what's kind of baked into that assumption?

So, Julio, the way that we've built our plan is more really around discussions with our current customers and what they have in hand as it relates to solar panel availability. And they don't have everything locked in, but we spent the last 6 months kind of working closely with them on projects flowing into this year. Do you have those panels in country? Are they in a warehouse somewhere, do you have access to them, et cetera. So, we're trying to take some of that guesswork out, which I think reflects in our backlog and some of the order activity, those things are kind of built around trying to mitigate project disruption, not only for them, but also for us. So that's one kind of input to think about. The broader industry stuff, I mentioned, is going to go on for some time. And whether that's three months or six months, things can change pretty quickly. As an example, just last week, there were a number of panels that were released that were being held. So, the industry is finding ways to navigate through some of these nuances that we've been dealing with the last year. And so supply chains have been evolving. It's taken time for that to happen. And effectively to get panels through, you have to improve that you don't have those materials from Hoshine included in your panels and people adjusting where they're getting their polysilicon for those panels. So, that's starting to pick up, and that's why I think there's some optimism from folks in the field that they have a better way to navigate through that now than they did in the last six months or so, because they're finding other options. So, it's not perfect. It will take some time to work…

Got it. That's really helpful to understand kind of what's baked into your assumption there is, it's more of was in hand now with regards to panel supply then really you making a call on when WRO gets kind of resolved?

Yeah. We can't rely on something we can't control in that regard to your point. So that's the way we've tried to sit down and go through with every project and see what's there and what's not. So it's a constant -- it's just a constant battle of making sure that those things are line. And this is something -- as I mentioned, the industry has never had to deal with. And so, processes and systems across the entire industry really had to tighten up. And that's what we've been working hard to try to do in the last six months. Just kind of chasing this.

My second question just staying on the Renewable segment is, are you -- are your customers seeing any shortage of material inputs other than polysilicon?

Panel is obviously the number one issue. I mean, there have been -- there's been inflation across everything that's come in that's used in the field. I think panels are by far, the number one issue on availability. I think there were some issues in 2021, it buried on particular components. I think, those have been more apt be worked out more so than the panel, because what's happening to the panel supply is not just a basic supply/demand issue, it's got these other things going on with it. But I think those other items have been easier to navigate through. We don't see those as being near as impactful as the payables.

Okay. Understood. And maybe my last one here is just on the guidance. Expecting free cash flow to normalize to -- back to about 10% of sales. Could you just talk about what that assumes from a working capital perspective? Does that assume working capital will be neutral for the year?

There is a slight improvement, a day or two days, not a huge improvement. And I think what we'd expect, again, as we built our plan, you'll actually see investment in the first half as we continue to build inventory for our busy season in the residential side of the business, and we're doing that maybe a little bit more than we have in the past, because we've historically used a fair amount of temp labor, and that's harder to get hands on. So, we've got larger full-time staff in those business. We're working to build a little earlier. And then just making sure we have enough to supply our customers. And with the thought that there'll be some normalization as we move through the year, and we'll be able to improve -- reduce our days on hand. I wouldn't say back to levels that we had pre-pandemic by any means yet, but maybe just understand what the operating environment is and adjust to that. We're -- I would say we're conservative today because we do not want to not meet our customers' needs, and that's important to us.

Make sense.

I'd add -- one of the things to that is if you look at our commodities, the one we have most concerned with on an availability perspective is aluminum. So, the last few months, we -- particularly in Q4 and actually as we went into this year, and this excludes any impact from the current issue with Russian, Ukraine given the amount of influence Russia has on the aluminum industry. But there's been an ongoing energy prices in Europe that has really impacted smelting capacity of aluminum. So that's been off-line for some time. And that's why you see aluminum start to come down and bounce back up. And so, we've locked that in, which is good for us. And -- but we -- as a result, as Tim said, we brought that in earlier to ensure that we have the supply of that. So that's [technical difficulty]. Last year, we had multiple commodities that we were dealing with on both inflation and availability. This year, it's more around aluminum, less so much unavailable, less so much on steel.

Got it. I will pass it on. Thanks very much.

We have reached the end of the question-and-answer session. And I will now turn the call over to CEO, Bill Bosway, for closing remarks.

Again, I want to thank everyone for joining us today. We'll be presenting at Vicinity Spring Conference in March, and we'll be able to speak with you again in a few months when we report our first quarter progress. So, I appreciate everyone calling in. Stay safe and healthy and look forward to our follow-up calls. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.