Good day ladies and gentlemen. And welcome to Gibraltar Industries Third Quarter 2019 Earnings Conference Call. Today's call is being recorded and webcast. My name is Rob, and I will be your coordinator today. At this time all participants are in a listen-only mode.

We will be conducting a question-and-answer session towards the end of the conference call. [Operator Instructions] I would now like to turn over to Carolyn Capaccio from the company's Investor Relations firm, LHA Investor Relations. Please proceed, Carolyn..

Thanks, Rob. 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.

As noted on slide two of the presentation, the earnings press release and slide presentation contains 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. Additionally, Gibraltar's earnings press release and remarks contain non-GAAP adjusted financial measures. Reconciliations of GAAP to adjusted financial measures have been appended to the earnings release and slides.

Now, I'll turn the call over to Bill Bosway.

Bill?.

Thank you, Carolyn. Good morning, everyone and thank you for joining us today. Let me begin by sharing our third quarter highlights, and then Tim is going to review the results of each of our business segments. After Tim’s review, I’ll come back and update you on our key initiatives, our current guidance and then we’ll take your questions.

So, let’s start with -- start on slide three. Our third quarter results were consistent with our expectations from our Q2 earnings call.

As expected with our strong backlog coming into the quarter and our continued focus on top line execution we delivered solid revenue growth of 6.8%, nearly $300 million of which 4.3% was generated through organic growth.

The remaining 2.5% came from acquisitions in our Renewable Energy & Conservation segment, including our first strategic investment into extraction processing, part of our conservation business and I will introduce this acquisition in more detail shortly. We also delivered solid margin and cash performance during the quarter.

GAAP EPS grew 25%, adjusted EPS grew 34% and cash from operations grew 57% up to $66 million. Operationally, we delivered positive leverage in our incremental volumes, we executed our plan 80/20 and productivity initiatives n improved working capital performance, specifically inventory and payables.

We continue to focus on our top line performance, as we build stronger positions in our faster growing markets, as we optimize our product and service offering and frankly continue to execute better. Our backlog currently at $241 million remains robust and is up 45% over last year, which gives us solid momentum as we enter the fourth quarter.

Our backlog is driven mainly by three businesses, our Renewable Energy & Conservation businesses, both of which continue to accelerate and our infrastructure business. So in all for the quarter, we delivered solid performance in both growth in margin and although we have much work to do we are pleased with our progress and results.

So now, I’ll turn the call over to Tim for review of the results of each of our segments..

Thank you, Bill and good morning everyone. Let’s move to slide four in the presentation entitled Solid Consolidated Financial Performance.

Consolidated revenue increased 6.8% above our guidance, as Renewable Energy & Conservation segment revenues accelerated and Industrial and Infrastructure and Residential product segment revenues were essentially flat.

Of the 6.8% increase in revenue, 4.3% was driven by organic growth and 2.5% was driven by the prior year acquisition of SolarBOS and Apeks Supercritical which we acquired during the third quarter of 2019. As Bill noted backlog quarter end was $241 million, up 45% from the prior year, driven by Renewable Energy & Conservation business.

Consolidated GAAP operating margin of 10.5% was equal to the prior year and consolidated adjusted operating margin of 13.3% increased to 120 basis points, from 12.1% in the prior year.

Consolidated GAAP and adjusted EPS grew 25% and 33.8%, respectively, with GAAP EPS within and adjusted EPS exceeding the guidance provided on our second quarter earnings call.

This improvement was a result of increased profitability in Renewable Energy & Conservation and Industrial and Infrastructure product segment, continued benefit of operational excellence actions, as well as lower interest expense related to repaying of our outstanding debt in the first quarter.

Included in GAAP results our expenses were $6.7 million or $0.20 per share, associated with restructuring senior leadership transition and acquisitions. During the quarter we achieved $2.9 million in interest savings from the first quarter repayment of our outstanding debt.

Now, let’s review each of our three reporting segments, starting with slide five the Renewable Energy & Conservation segment. Segment revenue increased 18.6%, driven by organic growth of 11.3% and 7.3% growth from the third quarter acquisition of SolarBOS in 2018, and the third quarter 2019 acquisition of Apeks Supercritical.

Organic growth was driven by strong demand for our commercial greenhouse economy [ph] solutions, including design, structures, system integration, field project management and general contract and services.

Operating margins expanded over last year, with good operating leverage and increased volume and favorable mix, in both products and vertical markets, along with improved operating execution.

We continue to make good progress with field modification and our tracker installations with 90% of site modifications completed and 65% of these operating, with the remaining sites waiting to be turned on. Incoming order volumes are improving as customers experience good results from the field modifications.

We enter Q4 with solid backlog across the segment up 72% over the prior year, as we continue to gain participation and see strong customer activity in both end markets. Backlog from conservation more than doubled and renewables was up over 40% from the prior year quarter. Let's move to slide six to review our Residential Products segment.

Residential Products segment revenues increase slightly from last year as modest increases in value were partially offset by market pricing.

Operating margin declined as a result of selling price to material cost alignment as the prior year benefited from timing as well as an unfavorable shift in product and customer mix, partially offset by benefits from 80/20 simplification initiatives. Looking ahead we expect market demand to be similar to the prior year during the fourth quarter.

Let's move to slide seven to review our Industrial and Infrastructure Products segment. Segment revenues increased nearly 1% as higher volume in our infrastructure business was partially offset by lower industrial revenue as lower steel prices impacting core products.

The significant increase in operating margin was driven by stronger operating execution 80/20 initiatives and a better sales mix of higher margin product. As we enter the fourth quarter we expect to see solid margin performance continue. Let's move to slide eight, titled balance sheet continues to strengthen to discuss our liquidity position.

During the third quarter, we generated cash from operations of $66 million, up 57% over the prior year, and improved liquidity by $56 million or 12% from the second quarter, driven by improved working capital management.

We continue to optimize inventory levels and work with our suppliers to more closely match payment terms with those offered our customers. And while we use net cash of $8.7 million for acquisitions this year, at September 30th, we had cash on hand of $137.6 million, and an undrawn revolving credit facility of $400 million.

Our untapped liquidity supports the execution of both our organic and inorganic growth strategies. With that, I'll turn it over to Bill, please turn to slide nine five key initiatives. .

Hey, Tim. So as I mentioned during our last call, the next phase of our transformation is really focused on enhancing the growth and margin profile of our company. And although we're on a journey, we are making some progress across our five key initiatives. So let me start with accelerating operations excellence.

We are building a stronger business system across Gibraltar effectively institutionalizing our 80/20 initiative, but also adding more focus on customer experience, new product development, working capital, safety and organization development. We're starting to see some positive results.

Our third quarter adjusted operating income improved 120 basis points to 13.3%, which is really driven by better operational execution, with some good favorable product mix, and obviously volume leverage. On a full year basis, we expect to improve adjusted operating margin 50 to 70 basis points to take it 10.6% to 10.8%.

As well, we generated $66 million as of cash, that's up 57% over last year. And that's been driven by our improved margin and working capital performance. So I’d we're getting better, I'm excited with our progress. And I really believe that our team's ability to deliver improved consistent performance overtime.

Our second item, our second initiative is creating more direct relationship with our customers. For us, it's critical we have a strong direct relationship with all our customers, those that we actually sell to and all our channel partners.

Direct connection typically creates more clarity in identifying customer and market opportunities, while facilitate a little more efficient ideation and development of new solution sets. And in the quarter over half 51% of our revenue was direct-to-customer that's up from 41% in Q2 and up from 47% in Q3 2018.

The 10 point increase over Q2 is actually driven by growth in our renewable energy, conservation, infrastructure and perimeter security businesses, all which of supporting our customers through our direct-to-customer business model.

Where we're not deploying a direct-to-customer model, we are continuing to deploy resources for strategic focus -- for our trade focus initiatives. Again, it's really important we connect with the folks that use or apply our products.

So as an example, connecting with roofing contractors is really helping us identify and prioritize our new product development plans in our residential business. Our third initiative really revolves around new products and innovation. During the quarter, our patented products represented 11.1% of our sales that's up from 10.4% 2018.

And with the recent launch of our next generation tracker product line, percent of patented product sales will reach higher levels as we move forward. As well in 2020, we're going to start measuring the percentage of sales related to new products and services, which will include our patented products.

And we believe this metric illustrates a -- better illustrates the company's ability to successfully bring new solution sets to market and it also tends to correlate quite strongly with both growth and margin performance.

Our fourth initiative portfolio optimization, we continue to deploy our strategic rubric model and process to evaluate the markets, but also our businesses, business models, product lines and customers. I'm excited with the attractiveness of many of our end markets.

And frankly, the leadership positions we continue to build, particularly in our renewable energy conservation, residential and infrastructure businesses. I'm also confident, we have opportunity to create additional by across Gibraltar in each of our businesses and our teams are focused in doing so.

And we're going to continue to evaluate our portfolio as we strive to enhance, as we mentioned earlier, the growth and margin profile of the overall business.

And lastly, our fifth initiative acquisitions as a strategic accelerator, we continue to be very active in the end markets, we believe the most attractive to strengthen our platforms, build relevance with our customers and establish a strong industry leading position. Acquisitions are an important part of our strategy.

And they remain the primary focus of the capital allocation. The acquisition of Apeks Supercritical I mentioned earlier is a good example how we're trying to strengthen our conservation platform. So with that, let's move to slide 10. And I'll share with you a little bit more on Apeks Supercritical.

So Gibraltar has established a strong leadership position in the commercial greenhouse growing and cultivation space. We got, I believe the industry's best portfolio of products and services focused on designing and building, as well as optimizing growing and cultivation operations.

Once the plan is finished growing, it simply goes through a processing stage to create a variety of end products for consumers. And as with growing and cultivation, processing uses multiple technologies, intelligent integrated systems, highly controlled processes, and it really requires scalable, efficient and reliable operations.

That's our experience and strength. As well many of our customers are growers and processors. So making entering the processing market a good fit for us.

So in Q3, we took our first step with the acquisition of Apeks Supercritical a leading extraction processing company with a strong leadership team, patented technology and leading edge, clean extraction technology. Apeks Supercritical is a designer and manufacturer of botanical oil extraction technologies, utilizing subcritical and supercritical CO2.

Its trailing 12 months revenues as of June 30, 2019 were $17.7 million, selling mostly to customers primarily in the cannabis industry. Growing and processing are both high growth markets and we're going to continue to broaden our capabilities and invest in this space. So finally, let's move to slide 11 and discuss our guidance.

So given our year-to-date performance, we're narrowing our guidance with full year revenues and earnings to the upper end of our previous ranges.

We now expect 2019 consolidate revenues in the range of $1,040 million to $1,050 million, GAAP EPS between $2.03 and $2.10, or $2.48 to $2.55 on an adjusted basis compared with $1.96 and $2.14 respectively in 2018.

For the fourth quarter, we expect revenue between $251 million to $261 million, and that compares with $241 billion in the fourth quarter of 2018 and GAAP EPS between $0.48 and $0.55, or $0.52 to $0.59 on an adjusted basis and that's compared with $0.40 and $0.47, respectively. So this time, let's open it up for questions..

Thank you. We will now be conducting the question-and-answer session. [Operator Instructions] Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your questions. .

Good morning, thanks for taking the questions. Appreciate the time.

I'll start with renewables where margins are pretty exceptionally strong, how -- talking about the sustainability of those levels is there anything unusual in the quarter other than the strong execution? And whether SolarBOS was meaningfully accretive or just generally sort of in line with the overall? And a quick follow up..

Dan, I would say strong execution, you've got pretty high volumes that's helping and quite honestly, the conservation business, that side of the business really had a great quarter.

So I don't know that I would say, expect this level of margin every quarter going forward, I think it's probably something we can achieve when conditions are right, and what we strive to achieve over time as we continue to improve the business. And then I wouldn't say SolarBOS was the driver of that..

Helpful. And switching gears to Apeks, you talked a little bit about what organic revenue growth has looked like over the last few years margin profile. And really, you started to touch on it, Bill, but really what differentiates them in terms of technology, patents, customer relationships, et cetera? Thanks..

So, thanks, Dan. A couple things inside the processing market, when you do extraction, there's really three technologies that are deployed today and CO2 -- using CO2 is one of those and they are the leading company in CO2 extraction, number one. And they are -- they have developed technology and our patents with that technology in that space.

So number one, I think we have the best and the leader in the space using CO2 technology. We continue to look at that marketplace more to come there. There are other technologies to consider, but we thought that was a good start for us; very strong team, as I mentioned earlier, very well respected and known in the industry.

So that's a good fit for what we're trying to do as we build relevance with our platform, particularly as we're doing more and more direct work with customers, helping them not only build out their growing sites, but actually trying to help them with processing, which tends to happen on site as well, and then optimizing those operations..

And Dan, the growth has been strong. .

Yes, and I think it's consistent with what we're seeing in the industry and reflect very similar to what we're seeing in our traditional core growing business growing solutions business. .

And margins, generally comparable with the renewable segment, a little better, a little worse.

How do we think about that?.

They're comfortable and what we're -- as I mentioned earlier, and we've talked before one of the things we're trying to do is enhance those growth and margin profile of overall Gibraltar and I would say this fits in our approachability. So we're -- we feel good about margin opportunity of this business and what it brings to the table..

And lastly, along the same lines, should we think about this as a beachhead for additional acquisitions in the space. How I assume that’s a pretty fragmented industry.

Just help us think about this as a maybe first step, if you will?.

Yes, I think it is a first step, as we said and as I also mentioned, we're going to continue to invest in building out our platform. So we have both organic and inorganic opportunities that are in front of us in this area. So we're going to remain active, as I mentioned in these markets and so more to come..

Perfect. I'll jump back with any follow up. Thank you..

Thanks, Dan..

Thank you. The next question comes from the line of Ken Zener with KeyBanc Capital Markets. Please proceed with your question. .

Good morning, gentlemen. .

Good morning, Ken. .

So, Bill, first acquisition here really after spending some time with you earlier in the quarter, it kind of feels like this is almost the beginning of the third iteration of Gibraltar as a company, because Ace Guard [ph] is still a metal bending company.

Obviously, under the prior CEO margins got righted generated a lot of cash, which you still have on your balance sheet yet now. You're talking about things like backlog, you're talking about renewable, and specifically, you're deploying capital and renewable and that's where your highest growth rates are.

I assume I think and time will give us a broader view of the company, I assume within a more formal setting, like an Analysts Day or something.

But the implied growth rates in renewable if you look out a couple years, I mean, it seems like you're going to be potentially much more of a renewable company than you are a metal vendor and industrial and residential.

Can you just take a second to comment on your kind of vision there because the math implies you're going to be much more of a renewable company than what you are today? And I'm not sure investors really understand that. And I just want you to see if you would agree with that..

Yes, that's a good observation, Ken, and as we’ve discussed with you as well, things are evolving.

We've talked about one of our four pillars being this ongoing assessment of the portfolio, portfolio management, and just to remind everybody, if you think back -- going back three years ago, we made our first step into the renewable space, which gave us the renewables as well as the conservation business and there's some foresight there.

And I think now that we're seeing the markets evolve we can take advantage of that and build that out. And during that time we -- just to remind everybody, we actually exited some of our traditional metal oriented businesses. So I would say that there's a trend and there's a movement here towards evolving the portfolio.

And it so happens that it's because of some good end market dynamics right now, and we anticipate continuing as we see more and more of that in the renewables and conservation space. That doesn't mean necessarily, though, that we're not happy with some of the other pieces that are in the portfolio still, and we're working pretty hard on that as well.

But clearly, I think we're going to become a little more oriented towards some of the market -- some of the end markets that we believe give us the best opportunity for growth, which hopefully also will translate into a different growth and margin profile for us as a company.

And I think over time, you'll see more and more of that as the portfolio evolves. So -- and I think it's a fair observation. But it's not the only thing we're going to be doing. But clearly right now it's a pretty interesting space..

Okay, do appreciate that understand your constraints. So like when you're looking at this recent acquisition, can you help us think about I mean, this wasn't huge in terms of the revenue side which though I think you've implied these acquisitions are more likely to be bolt-on not transformative.

But how should we think about what your targeted returns on capital are? I mean, and are these dilutive to margins and you’ll kind of be up towards where you are today, after two or three years or how should we think about the capital going out and the potential impact on the segment margins and your two or three year return on capital targets?.

So we always target 60% in year three, and then larger technology based acquisitions, you might stretch that a little bit. But generally we're looking strong -- I would say, this Ken the size of this business, the day of acquisition doesn't have much of an impact on margins either way, it's just not -- it's not big enough to make a difference.

So, in this instance, I think it's going to be market positive over time as we continue to improve both what we acquire and that business continues to grow. And then our core portfolio increases..

Understood. So….

Yes, and I think it's you said it wasn't large more of a bolt-on but it is moving us across this value chain. We've historically focused first just on structures. We expanded that to do this general contracting project management services for our customers where we really give them a turnkey growing environment.

And after they finish growing, they have to process whatever it is they grew. And this is an area that value chain that we thought was pretty attractive. So, it expands our service offering to that group of customers that we find very active right now..

And the renewable energy conservation, what is that split between solar and greenhouse again?.

It's about a third conservation, two thirds renewable energy..

Okay. And my last question I'll get back in queue.

But the industrial top-line 3Q versus 2Q, I mean, how much of the sales change was price versus volume? Because obviously there's a big swing in 2Q and people didn't take in volume just because of the falling steel prices, but could you kind of break that out for 3 and 2Q just so we could understand the dynamics?.

Yes, I think it's more volume than price..

Price neutral year-over-year?.

What's that? Are you talking….

Neutral in industrial?.

Ken, are you talking sequential or quarter-over-quarter?.

Well, year-over-year basically flat sales you had in industrial, was that flat price flat volume whereas 2Q was flat price down volume..

Yes, so year-over-year, it's generally -- it’s infrastructure up. That's volume. And then really on the industrial side, it’s price. Because again, steel price was sort of peaking second, third quarter last year into the fourth. And this year, it's down a lot. So this is on a core products the price adjusts regularly..

Thank you. .

Our next question is from the line of Julio Romero with Sidoti. Please proceed with your question..

Hey, good morning. .

Good morning Julio, how are you?.

Wanted to ask about raw material costs, just what's your outlook on maybe the commodity side going forward understanding steel was kind of continue to maybe trend down directionally.

When do you expect to maybe cycle through some of the higher priced inventory and when does that maybe start to become a tailwind for you?.

We don't have much in the way of high priced inventory in hand. I mean not -- I wouldn't say that's a drag right now. When we look out at steel, every time we look at it the future look is it's going to come down a little bit more. It's not abnormal for steel in the fourth quarter to decline a little bit, if you just look at the normal seasonal curves.

So, it's going to end -- I know some of the bills have taken capacity out. So we, it's hard to predict where steel is going to go for us. I mean, we look at everything we look at it. We really manage it by just staying pretty close to flow through. So we don't carry a ton of raw material.

And then we tend to work with our customers to adjust price as needed. So on a yearly basis, it doesn't usually have much of an impact. There will be -- if it moves a lot in one quarter. You can see an impact in that quarter, the next quarter. But generally, we just managed through it.

And you can see that and remember last year when it really moved around a lot didn't have much of an impact on us on a full year basis..

Okay, understood. And on the residential side, can you talking about volumes there. I had seen the national armor [ph] numbers were pretty strong. And understanding that I have a national number and you guys have a different geographic exposure.

Can you just maybe talk about volumes in the quarter and if labor availability or anything on that side kind of impacted you there?.

Yes, I mean, we saw a modest volume increase. And I think it's not direct to us labor availability. So it's a market condition for roofers that impacts that, we believe that that continues where roofers can’t have enough roofs [ph] to do all the work that’s available.

So, I think as we head into the fourth quarter, we simply are thinking there’s good end market demand for our work and we’ll have to see how the weather plays out.

I’d agree with you armor, I think is a modest -- I think depending on which of the [indiscernible] guys we look at, there’s some participation, changes going on, there is some regional strength in some of the markets.

But overall I think, it’s pretty consistent with last year across the country and that’s more or less what we’ve been seeing is relatively consistent markets we saw like you said a little volume we gave a little price..

Okay, very good. Thanks for taking the questions, and best of luck in 4Q. .

Thanks..

[Operator Instructions] The next question is from the line of Walter Liptak with Seaport Global. Please proceed with your question..

Hi, thanks. Good morning guys and good quarter..

Thanks. .

So I wanted to ask -- I came into the call a little bit late, but I want to ask about the commentary that you made that third quarter was in line and beat the consensus numbers our numbers and for the fourth quarter, your guidance looks fine for revenue with a little bit lower profit.

So, I wonder what is it about the fourth quarter profit mix or product mix or timing of projects that we should be thinking about.

And with the backlog up significantly what does that mean for you 2020 incorporates?.

Yes, well I think given that we have a fair amount of the business that’s this project based stuff we came into the high end of revenue, closed to, we had some pretty profitable work completed.

So, I think it’s not necessarily we see something different in the fourth quarter versus the third, more of that, the mix of work that we have in the second half of the year, but the timing of it might have shifted a little bit. But, we’re going into the fourth quarter with strong backlog across the business.

Again into seasonally slower periods depending on weather, it’s -- some of it is dependent on construction season, but feeling pretty good..

Okay.

Your fourth quarter guidance did you expect any normal weather time or [Technical Difficulty] for work because interruptions for weather?.

Walt, I struggled to hear the details that you ended well..

Yes Walt, you’re little muffled can you repeat that please?.

Okay, yeah, sorry about that.

What kind of seasonality and weather assumptions that you made for the fourth quarter, were you conservative about the kind of work days that you’d have because of weather?.

Yes, I think normal is the way I would put it, I mean, it’s hard to predict. We’re not good at weather prediction..

I’ll answer that. My reaction is we plan whatever normal is, we don’t have any exceptions made to the plan based on a weather forecast or whatever, we’re hoping that the weather stays reasonable so much of the work that we have in front of us we have a shot at.

So, we’ll see how it goes, but nothing in our forecast for some exception to weather or what have you..

Okay, great.

Okay, I’ll switch gear from that with the backlog up significantly presumably part of that is because if the renewables business, I wonder if you could talk about utility project backlog versus community backlog, are they both up, is one up but not the other and timing of those projects?.

Yes, Walt, so the backlog we called out that conservation backlog is almost -- it’s more than doubled from last year and the renewables up over 40%. In renewable, we’re not utility focused so what we’re going to see in there is a lot opportunity, the smaller size projects that’s just -- that's our real assets where we play.

It's a very good base right now..

Okay.

And why is that community solar market doing so well right now?.

I think, it's just the combination of -- there's a market demand, the price of solar generating energy continues to decline. There is a ITC step down at the end of this year goes from 30% to 26%.

But you have to have a percentage of the project invested to take advantage of that and I can't imagine that we will start all of these projects it’s not necessarily planned. So hard to say it’s just there is a lot of interest, our guys continue to really do a good job executing..

And I think, I was just at the annual solar show a few weeks ago. And, I think there's a participation gain opportunity for us if we continue to execute well. So we’ve got a good in market, we've got a good array of products, if you will from both tracker and fixed tilt and we're excited with d activity we're seeing and we'll see about the ITC.

I mean, it's not clear yet I don't think an industry of how people going to actually deal with that. I think as you find in most situations like this, industries tend to wait and wait and wait till the last moment. So we don't have clarity on that yet.

But we're starting to see more -- have more and more discussions with customers and how to transition through that. But putting that aside, it's been again, continued I'd say consistent growth in the industry and we're doing our best to participate as much as we can and make money..

Okay, sounds good.

And just the last one for me with Apeks acquisition, just with 80/20, do you started 80/20, right away with companies or do you leave them alone for a little while and then start introducing them to the company culture?.

So, it's a great question and for us, an immediate integration process. And so there's various pieces of integration and there's certain different levels depending on the company you're acquiring and what they do. This is very complimentary business to us. So that's good.

So the initial efforts are back end, which that would include operating cadences and processes, as well as financial and then its front end how are we actually going out and talking to the industry. Because, as I mentioned earlier, a lot of our customers are doing both growing, cultivation and processing at the same site.

So being able to go to a customer and have a broader discussion has been very helpful. Frankly, a lot of our customers had been pushing and pulling on us to help them in that part of the world, that's part of the process. But most of our integration well up front right now with Apeks as the back end.

So we have dedicated people that are responsible for making that happen and then on the front end, where we're going to market and having discussions a little differently. So roundabout question, but the answer is, yes. We would like to go more immediate than then otherwise. Otherwise, if you'd let it sit for time on in you never get there, right..

Okay, all right. Thank you, guys..

Thank you. We have a follow up question from the line of Kenneth Zener with KeyBanc Capital Markets. Please proceed with your question. .

Hello, again. Tim, Bill, could you just comment generically, I know you give guidance by segment for the year, but I mean, how should someone think about certain growth rate there for EBIT leverage in your company. Obviously, with 80/20 you guys got a lot of lift there.

But I mean, to the extent someone wanted to forecast, 2% or 5% growth rates, should we be thinking about your EBIT leverage in the 25% range or 30% range consistent with your gross margin or there is going to be excess investment costs as you work out some of these investments that you're doing? Thank you very much..

I would say, if the growth came across the same product mix that we have today, you would see a flow through higher than gross margin. It's modest because we are not capacity constrained generally. So any investments we would have to make would be pretty modest if we needed to for growth.

So when you look at our CapEx portion of that is maintenance, a portion of that is cost production and a portion of that’s capacity and we've been spending $12 million, $13 million a year for the last three or four. So I'd expect to flow through better than gross margin..

Ken, I'd say one other thing to add to that. I think internally it's team has clarity around our expectations. And as you described, anytime that you are headed for [ph] volume you should be targeting delivering that at levels consistent your existing or better than your gross margin, right.

So I think everybody knows that that's what we expect, I think how we are institutionalizing our operating business system I mentioned earlier is really important to us, and that kind of gets at that.

So, if you get a variable that, Tim, mentioned that you got to manage through, but ultimately at the end of the day the incremental volumes comes for where our expectation is, we perform better on that incremental dollar than we would otherwise.

So we're working out really hard, we're making some progress I've referenced earlier, more work to be done. But what a good problem to have, if we can be in some good solid end markets that afford us the growth, and we hope to see then boy we’re looking forward executing on it better in the future than we have in the past. So that's our objective. .

Thank you. .

Thank you. We've reached the end of the question-answer-session, and I'll now turn the call over to Bill Bosway for closing remarks..

End of Q&A:.

So guys, thanks again for joining us today. Just to let you know we do plan on attending the Baird Global Industrials Conference in Chicago that's in November. We're going to be at the SunTrust Industrial Summit in New York in December, and the CGS Winter Conference in New York in January. And we look forward to seeing many of you at these events.

I would say also there we’re thinking about Investor Day, we did not have it on the calendar, but that will probably be sometime early in the year 2020 looking forward to hopefully hosting you and many others there as well. So thanks again and have a great day..

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