Greetings, and welcome to the Gibraltar Industries Fourth Quarter 2023 Financial Results 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. It is now my pleasure to introduce Carolyn Capaccio, LHA Investor Relations. Thank you. You may begin.

Thanks, 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 Chief Financial Officer. The earnings press release that was issued this morning, as well as a slide presentation that management will use during the call are both available in the Investors section of the company’s website gibraltar1.com. 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 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 also be accessed through the company’s website. Now, I’ll turn the call over to Bill Bosway. Bill?

Thanks, Carolyn. Good morning, everyone, and thank you for joining today’s call. We’ll start with an overview of fourth quarter and full year 2023 results, and Tim will take you through our financial performance and I’ll walk you through our 2024 outlook and then we’ll open the call for your questions. So let’s turn to Slide 3, titled 2023 year in review. We delivered a strong finish to a very good year for Gibraltar and I like our momentum as we moved forward. In 2023, we expanded our market leadership positions. We continued to improve our quality of earnings and generate strong cash flow. Our Residential and Infrastructure businesses delivered solid growth and strong margin expansion, and Renewables delivered excellent margin expansion despite ongoing industry headwinds impacting revenue. For the year adjusted operating income grew 16%, adjusted EBITDA grew 15%, and adjusted EPS grew 21% on essentially flat sales. Through solid margin expansion and improvement in working capital, we generated $218 million of operating cash flow and a free cash flow rate to sales of 15%. In the fourth quarter, all four segments contributed net sales growth, demonstrating solid momentum going forward and booking strength resulted in the backlog being up 10% as we closed out the year. As well our recent acquisitions in residential executed to plan and during the fourth quarter we further optimized our portfolio by divesting our small, non-strategic solar business located in Japan. In all, we had a very productive year and I’m incredibly proud of our entire organization for staying focused on what matters most, doing things the right way and building a stronger foundation for the future. We enter the New Year with solid end market fundamentals, improving market conditions in Renewables and Agtech end markets, and a more scalable and efficient operating…

Thanks, Bill, and good morning everyone. I’ll take you through our consolidated and segment results starting on Slide 5. Adjusted fourth quarter sales increased 5% to $329 million. All segments contributed to the growth in the quarter as Renewables and Agtech businesses converted backlog to sales at higher rates than in previous quarters, and we grew market participation. These drivers were partially offset by pricing adjustments related to prior year commodity deflation in the Residential business. Backlog at quarter end was $330 million, up approximately 10% versus the fourth quarter of 2022. Demand and order flow remains strong heading into the first quarter of 2024. Adjusted operating income and adjusted EBITDA dollars increased 10% and 9% respectively, in the fourth quarter, with adjusted EPS up 18%. A recent acquisition in the Residential segment added about a $0.01 to adjusted EPS. Margin improvement in the quarter was driven by solid execution, price cost management, higher volumes, operational improvements and additional 80/20 benefits. Weighted average shares outstanding decreased 1.7% from the fourth quarter of 2022 to 30.7 million shares in the fourth quarter of 2023, and there were no share repurchases in the quarter. Now, let’s review each segment, starting with Slide 6, the Renewables segment. Segment net sales increased 1.9%, with backlog converting to sales at higher rates than in the previous quarters as customers continue to work through scheduling challenges related to permitting delays and await final tax credit guidance for the Inflation Reduction Act. Module availability continues to improve as module importers advance up the UFLPA enforcement learning curve and permitting delays are gradually improving at the local level. Bookings of new orders were robust, with year-over-year growth again accelerating to 20.9% versus last year. And as Bill mentioned, while some customers are waiting to sign contracts until Department…

Thanks, Tim. Let’s move to Slide 11 to review our 2024 strategy and key priorities. There are really five core initiatives we continue to focus on as we enter 2024. First, drive growth, margin improvement, strong cash performance, and execute M&A to expand our leadership positions across our core businesses. Secondly, execute our 80/20 initiatives, expand our participation and drive service levels higher with speed and agility. Third, continue to invest in our digital transformation to scale our businesses, connect with our customers, suppliers in our organization and optimize their operating systems. Fourth, continue to strengthen the team, add the right experience and competency, drive diversity of thought across the businesses and optimize our structure to drive focus, scalability and accountability. And finally, as always, conduct business in the right way every day. Let’s move to Slides 12 and 13 and we’ll review expectations for each of our segments as we move into 2024. On Slide 12, we’ll start with Renewables and current market conditions. The industry is expecting final Treasury IRA guidelines on tax credits in the first half of 2024, which, as mentioned earlier, should have a positive effect for customers. We expect module supply to be more consistent, reliable and we also expect local permitting challenges to improve. We are excited with our new products in the market. We launched our 1P tracker in 2023 and along with our 2P tracker technology launched in 2022, customer reception has been very positive and new bookings are helping build our order backlog. As well, in 2023 we experienced significant growth in our SolarBOS solution for utility-scale applications and our combined and optimized offering of Racking and eBos is gaining momentum with more and more customers. We are the only company in the world that manufactures and offers Racking, Foundations…

Thank you. [Operator Instructions] Our first question comes from the line of Dan Moore with CJS Securities. Please proceed with your question.

Yes. Hi, good morning. It’s Pete Lucas for Dan. First, congratulations, Tim. And then would just like to see if you could drill down a little bit more on your guidance for 2024 in terms of what that implies from a segment perspective. What are your expectations for organic growth and margins across Residential, Renewables and Agtech, and what’s the cadence? Do you expect growth to be stronger in the first or second half? Or do you think relatively uniform across the year?

Yes, Pete, this is Bill. I would say for Residential in particular we – as Tim had mentioned in his comments, we are back to our normal seasonality. So you’ll see, first and foremost, the business will build with the slowest quarter being in Q1. It builds in Q2 and Q3, and then Q4 is always a little bit of a question mark, depending on weather patterns, but I would think that would be consistent what you saw in 2023 in total. I think overall, we’re expecting growth in the business. It’s consistent with last year in terms of end market demand, I think is going to be pretty consistent. I think our growth hopefully be a little bit faster than in market demand through our participation opportunities and some of the things we’re working on. And we expect margins to improve accordingly as we do every year across each of the businesses. So that’s overall the general plan with Q2 and Q3 being the strongest of the four quarters.

And then I guess going to Renewables. Can you talk a little bit about your two-year outlook today relative to where you started the year previously in previous years? How much of an impediment the tax credit you did touch on that uncertainty is in the near term? And really just trying to get a sense for your confidence in the growth over the next few years compared to where it’s been over the last two or three years. Any major changes?

Yes, a couple of things play into that. Obviously we have some of the end market stuff that we’ve been dealing with the last couple of years that is improving. The last leg of the stool on the IRA, ITC credits has to do with, as I mentioned earlier, domestic content bonus, which is substantial, it’s 10%. So, I do think customers are, it’ll free up some projects and they’ll create some demand going forward than what we’ve seen in the past. I just think that’s been one of the issues with customers pulling the trigger. I do think the permitting has gotten a little bit better, but again, that gets down to each individual project so for a particular customer, depending on where they are in the country. Modules, I don’t think are as near a big issue. At least that’s what we hear from our customers. So, I would say that the ability to grow going forward should be getting back on pace with what we saw prior to a lot of this happening. And that was at a pretty good clip before a lot of this stuff hit the industry. So we are excited with what we see evolving in 2024. Our backlog being up 21% in the quarter is a good indication of that. That’s the kind of pace that I think would be something that’s a little bit better than we’ve seen the last year and a half. So based on that, that’s where we see growth starting to pick back up. So we’ll see how things evolve over the next quarter or two with getting the final IRA piece of the puzzle in place. But assuming that happens, we expect the next couple of years to be back on the growth train as we had seen before.

Great, thanks. And the last one for me, can you just drill down a little bit more into the landscape for Agtech, where you’re seeing the biggest opportunity and where is funding coming for these projects and how interest rate sensitive are they? And also just who are you competing with? Really just trying to get a sense for whether the space is becoming more competitive or remaining stable.

Yes, from a market perspective, we’re really the only ones in North America, particularly in the produce space, which is a big piece of what we do. All the folks that participate in this industry tend to be European, and so it’s really kind of our home turf versus the rest of the world, if you will. That’s the competitive landscape. The funding for many of our commercial growers is consistent with their sources that they’ve been using for the last 30 years, 40 years. And I think that’s what most people may not understand is this industry has been around for a long, long time. What’s actually starting to accelerate it is the success that growers have had the last five or six years with introducing new, what they call varieties, so different types, colors, sizes, et cetera, of a variety of not just vegetables, but now its fruits. So strawberries as an example. Now raspberries is the next nut to crack, so to speak, cantaloupe, et cetera. All of that stuff is starting to move more in an indoor environment where, again, for what I said earlier, you’re eliminating all this risk associated with outdoor farming. It doesn’t mean outdoor farming is going to go away. But if you think about the simplicity of being able to grow something local, do it more than one time a year and get it to your stores without having to use lengthy supply chains. All the other things you need when you have a lengthy supply chain, like chemicals to keep things ripe, picking things when they’re unripe, and hoping that they end up being ripe at the right time, all that stuff starts to go away. And I think retailers, as an example, give you one example. The strawberry production that’s going on from an indoor grow perspective is literally sold out and has been for the last couple of years. So, we have a lot of growers that how do we expand and how do we add that capacity? And their business models are such that getting funding, I think, is relatively consistent for them. In the interest rate environment because these guys have been around so long, they dealt in the world of double digit interest rates than they’ve been in the world of 2%. So they understand and how to manage through that. And I think anytime you see an interest rate change, there’s always a pause. We saw that the last year, thinking, hoping to see if it comes down or not. But now that people understand that, hey, it’s elevated, it’s probably going to stay here for a while, then people are starting to move forward and accordingly. So, I don’t expect that to be a deterrent here going forward based on all the things that we’re actually designing right now.

Extremely helpful. Thanks. I’ll jump back in the queue.

Yep.

Our next question comes from the line of Julio Romero with Sidoti & Company. Please proceed with your question.

Thanks. Good morning, Bill, and congratulations, Tim.

Hey, Julio, how are you?

Hey. I’m good. So maybe to start on Renewables. When the Department of Treasury does finally issue final guidance for the IRA tax credit, how do you expect orders to trend as that bottleneck is lifted? Would it look more like a shorter term surge with folks kind of just waiting to sign on the dotted line? Or would you expect a more gradual uptick at that point?

Julio, it’s a good question. It’s probably going to be a bit of a combination of both. So they’ve got projects that are probably right on the finish line, that come through, get signed. How they actually get convert and putting in to the ground will be driven by A, customer schedule itself now that they have something finished, and B, if there’s any permitting challenge at that time. But I think what you’ll find is more of a gradual pickup, which is preferred, if you will, I think, for the industry, just because you’ve got to line up – line up the delivery base, if you will. So I don’t think it’ll be a flash in the pan overnight. All of a sudden, you get a big slug of orders, as much as it’ll be not trickling out, but I think it’ll pick up demand. But I think that’ll really manifest itself over the next six months, nine months, 12 months, it won’t all come in a short period of time.

Got it. That’s helpful there. And then you said you started to see the permitting situation improve a bit in the fourth quarter. Have you kind of continued to see that improve throughout the first few months of the first quarter?

Yes, as we’ve talked in the past, it really comes down to there’s not a permitting issue for the country. There’s a permitting issue for each individual project that happens to be in the country. So it really comes down to where you’re putting your field and what’s going on in that local community in terms of backlog and how they’re processing and any other issues they’re dealing with. So if you’re positioned well – if you’re positioned with customers that aren’t seeing those problems, then you can see that become less of an issue. And we started to see that in Q4 of last year, where that became less of an issue than it was in the first – the last three quarters prior to that. So we believe it’s going to continue to get a little bit better. As I mentioned in my comments, the amount of revenue shifting from one quarter to the next is tightening up, which is something good to see. And then the other thing that ultimately, at the end of the day is, look, if you’ve experienced a shift in revenue consistent in the year before, you should be able to plan on that going forward. Right. So you don’t get surprised. So it’s unless it shifts well beyond 25% where it did this year fundamentally, that shouldn’t be new news. So therefore your plan should be reflective of what you thought going in the quarter, just because you’re going off of a different base. So there’s a number of things that I think are going to play into that, but in general, I think permitting is getting better and that’s what we’re hearing from customers and hopefully that will continue.

Got it. That’s helpful. And you talked about that new 1P tracker that’s making up a larger portion of your Renewables backlog. Can you maybe give us some flavor as to the margin profile of that? And is the backlog you called out for manufactured orders or also installation of the tracker?

Both. The backlog reflects both. We’re in the ramp up phase, so we’re going to have a margin mix. The challenge initially, as you always do when you ramp up something, but we expect the margin profile based on the cost reduction efforts that are going in ramping up our supply chain that’ll land. We’re happy with the margin profile that we expect. The good news here is the uptake of this product came quicker than we originally thought. So we thought it would be more of a 2024 and where it start building momentum in the second half of the year. We had 30 or so developers that down in Florida at our main location there and showed them a lot of this technology last year and I just think it’s resonated and the uptake has been quicker than we had thought. So, we’ve had to move quite quickly to get our supply chain ramped up sooner. That’s caused Tim mentioned, hey, we’re going to be off. We’ll be a little slower in the first quarter. That’s nothing more than lead times are a little bit longer because of the ramp that we’re going through as we speak, but it’ll catch up as we start building the base.

Understood. And then just last one for me would be just on the guidance. Would it be fair to say that the puts and takes of the $50 million sales range of the guidance is kind of largely dependent on what Renewables does this year.

Well, I think it’s a combination of all four, but our plan going into this year, obviously, with Renewables and Agtech, where they landed, they have to be positive. Right. They have to show growth this year. So, I’d say both need to contribute more than they did last year, and we expect that to happen based on a backlog that we’re seeing in the businesses and all the design work we’re doing on projects. So, we feel pretty confident in those two segments driving more in the top-line than they did last year.

Very helpful. I’ll pass it on. And congratulations again to Tim.

Thank you, Julio.

[Operator Instructions] Our next question comes from the line of Walt Liptak with Seaport Global Securities. Please proceed with your question.

Hi. Thanks. Good morning, guys, and congratulations to Tim. Tim, wanted to ask first about the Renewables backlog up 21%. Is it up because of delays in shipping in the fourth quarter? Or is it up because the orders are starting to come in a little bit better?

We were up in the fourth quarter on sales. Our orders have increased. So that’s what’s driving the backlog.

Okay, can you give us an idea of the magnitude? How much were orders up for Renewables in the fourth quarter?

I don’t have, off the top of my head.

I’m guessing. Well, without having it in front of me, they had to be directionally similar to the backlog growth because revenue was up. Right.

So it’s got to be in that range double digit. We’ll come – circle back with a number for you, but it has to be because, like I said, like Tim said, revenue is up.

Okay. All right. That sounds good.

Double digit.

Okay. All right. Fair enough. And then just wanted to check in on a couple of the charges in the quarter. So the renewables charge goes back to 2022. It sounds like that’s one timing. Was that just one customer, one project? How should we think about this happening again?

Yes, so Tim talked about this, but effectively, when you have all this disruption in the end market, the timing of how projects flow and all that, we’ve effectively delivered material to a customer, to a site per schedule. In that particular case, other things happen, permitting, et cetera, for that customer, there was rust that formed on the material that we put out there, which can happen if it’s out there, exposed. And in the way our contracts historically have been written, that was on us. And so going forward, we’ve made those changes in our T’s and C’s a year ago and or so because that contract was actually from 2021 and so that will be eliminated going forward. And we have a much better process working with our customers to ensure that when we deliver, it’s when they’re ready to roll, so we don’t have collectively materials sitting out on site. That’s why it’s a onetime kind of situation.

Okay, great. And then on the resi side, you said there was a price adjustment. I don’t remember hearing about those maybe these have been more behind the scenes. But I wonder if you just talked about the Resi price adjustment that happened.

Yes, late 2022, early 2023 is when there were some pricing adjustments. But we’re lapping it now. Right. So there’s just a mix of – we were some of the price adjustments went out in the fourth quarter, first quarter, and I think a little bit in the second quarter. If you’ll recall, commodity price on steel really sort of started dropping pretty significantly in the third quarter of 2022. So when we look at the end of 2023 sales against the end of 2022 sales on average, prices were higher at the end of 2022 than they are at the end of 2023.

Okay, great. And then maybe a last one for me is just the Tim, you talked about the slow start to the year. I wonder if you can give us kind of directionally from the fourth quarter year-over-year or maybe as a percentage of sales. How are you thinking the first quarter sales are going to look?

Well, it’s Renewable specifically that I called out.

Okay.

And we’re still working supply chain, but we expect a slower start than we would have seen than what we saw last quarter just because of the sort of the time it takes to get material available to even go out into the field and do an install versus some of our other products where we could take an order and be in production within 30 days and be in the field in 45. The tracker product right now is more than 12 weeks. So orders that we’re taking at the end of last year, we just can’t get started in the quarter at all and some of the stuff that came in a little earlier will get started it’ll be late in the quarter.

Okay. So are we thinking Renewables will be down from the fourth quarter?

Yes, it’s year-over-year. I didn’t look at quarter-over-quarter, but we’ll be down against last year’s first quarter is really what the comment was.

But well, just to clarify, Gibraltar, we’re not expecting that.

Okay, got it.

That’s a Renewable.

Yes. That’s a Renewable situation told Gibraltar we’re not expecting that.

Okay, got it. Okay, thank you.

Our next question is a follow-up question from the line of Julio Romero. Please proceed with your question.

Hey, guys, thanks for taking a couple of follow ups here. Just on the CapEx. Can you maybe expand on some of the opportunities to in source some manufacturing, just any color on product lines or segments that’s targeted towards?

Yes, it’s really renewable.

No.

Tim, go ahead.

Yes, I was going to say it’s not any one segment that we’ve got opportunities in, but additional opportunities probably are around Renewables, depending on how some of that IRA guidance comes out for domestic manufacturing and for domestic content. It may, we’ve identified opportunities to do things, and sometimes we’re down to the math of does it make sense and can we do it in others? It’s, hey, when this guidance comes out, here’s five ideas, but we got to wait till the guidance before to make the investment.

Okay. Got it.

If you think about our CapEx, call it $15 million to $20 million over the past few years, we could be in the high 20s. So it’s not huge dollars, but I wanted to call it out because it would be a little different than what you guys are used to.

Yes, for sure. And you have a very nice balance sheet at this point. And you talked a little bit about M&A pipeline, some short term ops in resi. But beyond that are maybe some of the challenges with regards to M&A more about valuation or a lack of available opportunities at this point.

I think it’s timing, Julio. Just when these opportunities are going to present themselves, there’s more activity today than there was a year ago and even six months ago. So we’re starting to see that percolate. So it’s more of a timing issue, and we’ll be engaged and involved as a few of these opportunities get a little bit more clarity around them. But we’re ready to roll. It’s just a matter of when the processes start.

Very helpful. Thanks so much.

There are no further questions. I’d like to hand it back to Mr. Bosway for closing remarks.

Great. Thank you. Hey again, thank you everybody, for joining us today. Coming up, we are presenting tomorrow at the Gabelli 34th Annual Pump, Valve, and Water Symposium, and in March at the BofA Power, Utilities Clean Energy Leaders Conference, the Sidoti Spring Conference, and the ROTH MKM Annual Growth Conference, in addition to a number of other marketing activities. So thank you again for your ongoing support of Gibraltar and have a great day and a great rest of the week.

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.