Greetings, and welcome to the Gibraltar Industries Second Quarter 2023 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Carolyn Capaccio with LHA. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us today. With me on the call is Bill Bosway, Gibraltar Industries Chairman, President and Chief Executive Officer; and Tim Murphy, Gibraltar’s 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 Investors section of the company’s website to gibraltar1.com. Gibraltar 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 guarantees 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 be accessed through the company’s website. Now I’ll turn over to -- turn the call over to Bill Bosway. Bill?

Thank you, Carolyn. Good morning, everyone, and thank you for joining today’s call. We’ll start with an overview of our second quarter results. Tim will then take you through our financial performance, and I’ll walk you through our 2023 outlook, and then we’ll open the call up for some questions. So let’s start on Slide 3, titled Second Quarter 2023 Results. We executed well in the quarter and building on solid performance momentum we created coming out of the first quarter. New bookings continued to improve and our backlog increased 15% sequentially and also turned positive versus prior year, up 1% at the end of the quarter. For the quarter, on an adjusted basis, operating income increased 18%, EPS increased 23% and free cash flow reached 20% of net sales. We continue to improve execution across the business as we accelerate more 80/20 and productivity initiatives, improve our service levels, launch new products, manage our price cost and optimize working capital. Our full year revenue plan for modest growth remains intact. And as mentioned in our last earnings call, assumes revenue increasing in the second half. Our end markets have also evolved as expected and, in general, have solid momentum going into the second half. And here’s just the current situation for each end market segment. Let me start with renewables. Customer demand and project development activity continue to be strong. The industry is making steady progress with solar module importing through the UFLPA, and we expect this to continue in the second half as well. The industry still requires more module manufacturers to demonstrate consistency and success importing their panels. And our revenue plan assumes our customers will continue to see improvement with module supply. Customers have also been recently dealing with the permitting approval process. This seems to…

Thanks, bill, and good morning, everyone. I’ll take you through our consolidated and segment results, starting on Slide 5. Adjusted net sales were flat at $364 million, with organic growth in residential and infrastructure and the acquisition of Quality Aluminum Products, offsetting slower sales in the renewables and AgTech segments. Overall, sales were in line with expectations going into the quarter and our first half sales results are also consistent with full year sales plan. Backlog at quarter end was $412 million, up 1% versus the second quarter of 2022 and up 15% sequentially as the pace of business accelerated through the first half of the year as expected. Adjusted operating income and adjusted EBITDA dollars each increased 18% second quarter with adjusted EPS up 23%. Margin improvement in the quarter was driven by strong execution, price cost alignment in all segments, solid field operations, implementation of additional 80/20 initiatives, along with favorable business and product mix. Weighted average shares outstanding decreased 6% for the second quarter of 2022 to 30.7 million shares in the second quarter of 2022. I’ll review our share repurchase program in a moment. Now let’s read each segment starting with Slide 6, the Renewable segment. The decline in sales was driven by schedule changes, which impacted the timing of revenue recognition of active projects during the quarter. Scheduled changes were mainly related to module supply and local permitting delays. The permitting process is expected to improve as local government offices ramp capacity to meet increasing demand. The pace of new order and contracting activity continued to accelerate and new bookings more than doubled in the quarter. As a result, backlog increased 17% sequentially and is up 6% year-over-year. As a reminder, our backlog consists only as signed contracts with deposits. We do not include purchase…

Thanks, Tim. Let’s move to Slide 12 to review our 2023 strategy and priorities. At the midpoint of this -- of the year, we have better clarity in regard to our end markets. I think we’re executing relatively well, and we are confident in raising our outlook for 2023. Our priorities and focus are unchanged and we will continue with our 5 key initiatives. First, drive growth, quality of earnings and margin improvement and strong cash performance; secondly, execute 80/20 initiatives and accelerate our participation initiatives. Third, stay the course of our investments in our digital transformation. Fourth, continued to strengthen the organization, add experience and competency and also continue to optimize the operating structure. And fifth conduct business in the right and responsible way with discipline and focus. Now let’s move to Slide 13 to review our revised 2023 guidance. Given our first half results and current outlook for our end markets, we expect to deliver a strong second half of the year. And as a result, we are increasing our full year guidance as follows: Consolidated net sales ranged between $1.36 billion to $1.41 billion, compared to $1.38 billion in 2022. This is unchanged from our prior outlook. GAAP operating margin will expand to between 11.1% and 11.3%, up approximately 12% versus prior guide. And adjusted operating margin expansion will range between 12.3% and 12.5%, up approximately 11% versus prior guide. GAAP EPS will range between $3.46 and $3.66, up approximately 13% versus prior guide and adjusted EPS will range between $3.90 and $4.10, up approximately 12% versus prior guide. Free cash flow as a percent of net sales will remain in excess of 10% compared to 6% in 2022. We delivered a relatively strong first half, and we look forward to a good second half as well. Our team is focused on the things that matter most. And coupled with ongoing execution and 80/20 momentum, we are confident we will continue to deliver positive results. Finally, I am grateful to everyone on the Gibraltar team for the progress that we’ve made and also the opportunities we’ve identified going forward. Now let’s open the call up and we’ll take your questions.

[Operator Instructions] Our first question comes from the line of Dan Moore with CJS Securities.

It’s Pete Lukas for Dan. Congratulations on a great quarter. Just wanted to start with Residential. You touched on it in your prepared remarks, talking about volumes improving and margins improving in the second half. Just, I guess, in terms of remodel and repair, how is that holding up more broadly? And what are your expectations for continued participation gains over the next 12 to 24 months? Kind of how do you think about that? And also, you mentioned M&A in the space. How do you think about that going forward?

Okay. Pete, we’ll break that down a little bit. So first and foremost, the industry has gone through -- this change getting back to seasonality. So that is playing out like we thought. So Q2 and Q3 is back to the highest quarters. And so the volume is increasing commensurate with that. I think the other thing that was interesting when you started to hear rumblings of recession back last year, a lot of folks in the industry started to slowdown in short balance sheets and probably overcorrected relative to what end market demand was really doing. And so we started to see a little bit of that restocking come back into play as we got into the season as well. So I think that’s going to continue carrying forward both of those as we move into the rest of the year. And on the front of -- when you think about remodel repair, we’re really more repair as opposed to less on the remodel piece with what we do in residential, and that’s been relatively steady from our point of sale results where we see every week, what our products are selling out to end customers. That really has stayed positive. It came down, as I mentioned in our remarks [indiscernible] versus the previous year as the industry shifted down, and you had a couple of headwinds with market pricing coming down. But in general, demand has stayed relatively solid, and we expect that to continue going forward this year. And as it relates to participation gains, it’s just something that we’ve employed as a strategy the last 4 years of just trying to increase our service levels and be agile and responsive to our customers, expand into some geographies that we traditionally haven’t been in as well as invest in resources where we didn’t have presence. And as a result, it’s just continue to chip away and those opportunities continue to present themselves. And as they do, we’re trying to act swiftly and be that supplier of choice. So we still feel really good about the opportunities in front of us on a participation front.

And then shifting to AgTech. You kind of touched on -- you did touch on it in the prepared remarks. And sorry, if I missed some of it here. But in terms of when would you expect recent growth in the pipeline backlog to translate into faster growth just over the next, call it, 12 months. I know you talked about improving sales in the second half and some projects coming on then in terms of the first phase. But how do we think about that?

Yes. So the project I referenced in the remarks that we just signed will actually start generating revenue in the third -- late in the third and into the fourth quarter and carry into next year. And it really depends on the size of these projects. This is a relatively large one. So once they are signed, they tend to start having an impact for us relatively soon, typically the next quarter or so as things ramp up. So I think as the backlog continues to build, you’ll start seeing more of a steady stream of growth come from that backlog on a consistent basis in subsequent quarters that are in front of us. .

And last one for me on renewables. Margins have historically been quite lumpy. What are the keys to driving margin expansion going forward? Is it the module of supply? Or how do we kind of think about that?

Yes. I think the industry has been really lumpy the last 2.5 years with all these trade issues that we’ve been dealing with. I think as some of this settles in to a consistent pattern, it gives everybody a chance to operate in a much more consistent way. And from our perspective, as volume gets a little bit more predictable, that’s always helpful. But really where we’ve been focused is trying to find ways to improve and challenge some of the paradigms around how we traditionally operate the business. And I think that’s what’s paying off for us now. So for us to generate EBITDA margins close to 15% on down volume gives you some indication of some of the operating performance changes that we’ve been able to make. And so we don’t want to be volume dependent, obviously, on margins, we will like that to be incremental as the volume comes back. So I think as panel supply becomes a little more consistent, that’s really the thing that matters most. That will help us be more consistent as well and continue to grow our margins. The permitting process, we mentioned is really more, we think, related to just the increasing demand that’s come back online for a lot of local government offices now has created a backlog of permits that have to be flushed through the system after a 2-year sort of a hiatus of much slower demand. So it’s just flexing that muscle, building that muscle again. But it’s not a structural issue per se as much as it is just ramping back up.

Our next question comes from the line of Alex Hanneman [ph] with Sidoti & Company.

This is Alex Hanneman [ph] on for Julio Romero. Congrats on a nice quarter. First question -- yes, of course. My first question is on renewables. Could you speak to the pace of activity and bookings you saw during the quarter? And was that trending upward as you ended the quarter?

Yes. Good question. So if you recall from our last quarter, our bookings coming out in Q1 were substantially better than we thought they would be going into the quarter. So we were up sequentially almost 100% and getting close to getting our bookings and backlog ahead of actual last year. In the second quarter, we were up off of that strong quarter, up another 17%. And with our sequential bookings. And that actually put us over the top on a year-over-year basis, which was, from our perspective, really positive because it’s -- I think what it has demonstrated is maybe the industry has kind of hit that bottom and now starting to recover, and now we’re in that second quarter where you’re starting to see year-over-year backlog and therefore, I think that will translate into growth getting back on plan for the industry as well as for our business. So -- and we see that momentum turning into the third quarter as well.

Very helpful. I have 2 more questions. The second on residential. Could you talk about where we are in terms of price costs? Would you say that’s complete or close to complete?

Yes, I think it is. We had said, if I state it back, Q3 of last year, that Q4 and Q1 of this year would be correction quarters for the industry as commodity prices came down swiftly. There was a lot of inventory on hand for everybody in the industry because the supply chain challenges the previous 2 years, and it’s taken -- would take about 2 quarters for that inventory to flush itself out and therefore, a price of -- new pricing to be aligned with better input costs. And I think we’ve done a good job managing that, and we said we would flip the tide in Q2, and we would generate better margins year-over-year in Q2, and that’s kind of what happened. And I wouldn’t say it’s 100%, but we’ve done a good job of getting ourselves in a much better position in Q2 and leading into the rest of the year and onwards. So a lot of hard work, but the team has done a great job getting us in this position.

Got it. And last question from me is on infrastructure. The margin that you posted there was pretty impressive. And in the press release, you noted execution 80-20 productivity, supply chain and product mix as being the main drivers. Could you help rank those or kind of help us understand which is the most significant there?

Yes. Honestly, it’s really relatively equivalent across the board, and it’s not something new, per se. The team has been making progress on the margin front and the growth front, really over the last 3 years. And the build has really -- we said last year that the build would start to be impactful towards the end of ‘22 and help us start accelerating into 2023, which has really been the case on the top line, which is -- we’re pleased with the backlog increasing significantly, et cetera. But really, the margin story has been a combination of 80/20, done a lot of work on product line simplification, customer simplification. And we’ve made investments in some of our process and equipment, I think, has just made us much more productive and lower our cost. And then on top of that, we’ve had -- as we’ve broken into some new opportunities, we’ve been able to mix to higher-margin products and top of making those products higher margin through all the 80/20 work and productivity initiatives. So it really has been a multifaceted front towards getting the business where it is today, and it’s really been a journey over the last 3 years. So I wouldn’t say it was anything unique those 4 or 5 items in the quarter, I’d say it’s pretty consistent with the work that’s been going on for some time.

And 1 quick follow-up. How do you expect that margin to trend into the third and fourth quarters?

Well, the business has performed well. I think like some of our other businesses, you’ll see some differences as we get into the later parts of the year, there’s a little bit of seasonality there, but we continue to expects to see strong margin performance.

[Operator Instructions] Our next question comes from the line of Walter Liptak with Seaport Global Securities.

And nice work on the margins. Congratulations. So that last question, which segment were you guys referring to? I missed that.

Infrastructure. The combination of all that has been driving the journey of margin improvement and in this case, growth as well.

Yes, that’s great. Okay. Yes. So maybe in a similar way, renewables with the margin improvement, are these sustainable, you think, in the back half of the year with a better kind of fundamental supply chain...

Yes. We think so. And I would encourage reference Q3 and Q4 of last year on down volume, we ran margins very similar to what we just posted in the second quarter -- actually maybe a little bit stronger. So as the volume returns starts to be more consistent, I think we should expect these margins to continue and improve as well.

Okay. All right. Great. And maybe just a couple of follow-ups here. The -- I thought I heard you say that you’re going to do an ERP system in Resi.

Yes. We actually started on that journey a 4 year ago. So just for context, 4 years ago we started this journey with our renewables business as we integrated across the businesses, we got to a single ERP business. Then we did the same thing for AgTech business. And then we started a year ago with our residential business. So we got our first one in a year ago. We’re in the process of putting our second one in [indiscernible] , and then we’ll hopefully get the group finished up by the end of next year. And so each of our large -- and our infrastructure has already been on a common system on time. So we’ll have all 4 of our segments operating on ERP systems that are latest and greatest and will -- in the case where we have multiple locations, get everybody on the same operating system. So that’s the journey we’ve been on now for 4 years.

Okay. Great. I don’t remember that there’s any disruption. So you guys must be good at it.

Yes, we’ve been pretty -- been walking, I want to say, slow walking. This requires a lot of change management, involves a lot of people, obviously, and effectively, which is mapping every process and every piece of data flow you can think of that impacts your business from quote to cash. And so it takes time, you got to get that right. If you get that right, then the implementation when you turn a switch on inherently a much easier and much more effective. So we’re walking through the process, trying not to be disruptive and frankly, trying to do all this in the middle of the pretty chaotic macro environment the last 4 years. But for us, we thought it was really critical for us to be able to scale and to get to the next level of performance to have these systems in place. So it’s really been a necessary investment over the last 4 years, and we’ll continue to drive that. This foundation, by the way, that we’re just talking about will allow us to the next level. When you start thinking about -- and I don’t throw AI out because everyone wants to talk about it, but the fundamentals of how you take system integration and engage your business going forward, I think we’ll be in a much better position to do that than we would have otherwise.

Okay. Great. And then maybe the last 1 for me is, I wonder if you could just give us some more details about the deal that you got in AgTech. I think you said it was $40 million, and it was relatively small. That sounds like a pretty good deal to me. I wonder how much bigger is the Phase II portion to it. And is this something where you can grow -- keep growing with that customer? How should we think about future orders?

Yes. This is one of our long-standing customers to start with. So they’re expanding, adding capacity around this particular product that they’re growing, which they’ve been growing in other facilities that we’ve built for them in the past. So as that demand continues from -- think about all the demand for produce in your supermarket space, this is where a lot of that is impacting end consumers. So typically, this is going to be a large site. And when it’s all said and done, it’s -- I don’t know the exact number of acres, but it’s 50-plus acres under roof growing different types of fruits and/or vegetables. So projects tend to be done in phases. So you’ll do the civil for the entire thing, you do the first phase and then you’ll do the second phase. The second phase in this case is actually a little bit bigger than the first. And as we get done with the first phase, that second one will come into final design, and then we’ll get moving on that. And that should be very helpful going into next year, depending on the completion of the first phase and when that gets done. But there tends to be a little bit overlap between when you finish a phase and you send a contract for the next phase that comes with it. And that’s I would say it’s typical in a sense when you have a multiphase project. That’s how it works, but none of your project is multiphase. It depends on the size that you have, the water rights that you secured, the bunch of permitting things that go with it. So in this case, it’s going to be a relatively large production facility that will be done between now and the end of next year.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I’ll turn the floor back to Mr. Bosway for any final comments.

Well, I want to thank everyone again for joining us today. Coming up, we expect to present at the Seaport Global Summer Conference in August and the Sidoti Fall Conference in September as well as a number of other marketing activities. Look forward to updating you on our progress when we report our third quarter results as well. So thank you, and have a great day.

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