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, all of which we have had to modify and improve to drive better performance as we move into 2022.

In the fourth quarter, we turned the margin corner in our residential business. Margin improved 70 basis points over last year, and we delivered revenue growth of 24.4%. In Agtech, margin again improved sequentially and versus last year. We held margin effectively flat on 17% lower volume, while managing through inflation and supply chain challenges.

We also made significant progress integrating our business, improving systems and just general execution. In Infrastructure, we delivered strong growth in the quarter and for the year, while improving operating margin for the year as well.

And in Renewables, despite a difficult fourth quarter, we really fought hard to offset industry supply chain issues and significant inflation in the entire year and executed customer demand delivered adjusted EBITDA of $44 million, an increase of 31% over 2020.

Let's switch gears turn to slide four and talk a little bit more about inflation in the current operating environment. The fourth quarter marked the fifth consecutive quarter of high commodity prices. The market also experienced price movement across our seven core commodities.

While though still at elevated prices versus the beginning of 2021, we started to see market price reductions in hot-rolled coil steel, aluminum, polypropylene resin and ocean freight rates during the quarter. Unfortunately, aluminum pricing reversed its course, and increased again in January.

Structural and plate steel continued to rise during the fourth quarter, and both are currently forecasted to remain elevated or rise further in Q1, 2022. Over-the-road transportation prices also increased during the quarter, and we anticipate these will remain higher in 2022.

Despite an elevated price situation, today's commodity environment is somewhat different. First, we are not currently seeing and nor do we expect to see severe and rapid price increases like we experienced throughout 2021.

For example, starting back in Q4, 2020, hot-rolled coil steel increased $25 per ton per week over 12-month period, creating really an incredibly challenging and record-setting situation that we really don't expect to repeat.

Second, we expect better supply consistency and have made investments to minimize the type of supply chain disruption we experienced in 2021. So, given our learning in 2021, we've had to evolve our operating playbook to manage through a much different market environment.

And we continue to focus on five key initiatives, all of which were active or activated during 2021. First, keeping price and cost and balance and continue to manage in a time and effective manner. So as demonstrated in Q4, the residential business was able to balance price cost and generate both revenue growth and margin improvement over last year.

Our project based businesses, that's Renewables, Agtech and Infrastructure, continue to improve their ability to better align project pricing and cost throughout the project life cycle.

The teams have implemented various pricing approaches, whether it be increases, surcharges, et cetera, and demand shaping strategies for better alignment with customers and projects.

Secondly, we really have to continue 80/20, with focus on product line and customer simplification initiatives as well as land enterprise and system optimization to support our project based businesses and field operations.

Third, introduce new products, with enhanced value propositions and cost reduced products through design modification, alternate materials development, supply chain optimization.

Fourth, implement more automation for labor optimization, specifically during times for the year the year where markets -- where our markets experienced higher seasonal demand. We're launching initiatives in our residential business and investing in more autonomous installation vehicles to support our renewable skilled operations business.

And lastly, fifth, invested inventory of key components where we believe there is ongoing availability and price inflation risk. So, 2021 was a challenging year, a year with multiple headwinds converging simultaneously with both speed and magnitude, something I think many in businesses have never experienced, including our team.

But I am proud of our team. Throughout the year, we enhanced our leadership position across our end markets. We generate significant revenue growth. We remain steadfast and focused on macroeconomic and various industry headwinds as well. The long-term fundamentals of our end markets haven't changed. They remain very attractive.

And although, we expect some short-term industry headwinds, particularly in the solar energy market, the investments and improvements made in both 2020 and 2021, we're going to drive better performance starting in 2022. And really, that's as demonstrated by our progress in Residential, Agtech and Infrastructure businesses in the second half of 2021.

With that, let me turn it over to Tim for a more detailed review of our results.

Tim?.

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.

Adjusted operating margin and EBITDA margin contracted 200 basis points and 220 basis points, respectively as labor, transportation costs accelerated during the year. Residential achieved positive price cost balance in the fourth quarter. Renewables as an industry struggling with panel and key component availability and consistent project schedules.

Agtech margin improving sequentially through the year and Infrastructure delivering margin improvement. Our income tax rate increased over the 2020 rate due mainly to a difference in the allocation of income to states where we generate revenues.

And in 2021, we generated more income in higher tax states, mostly the result of the acquisition of TerraSmart, which was strong in the Northeast this year and that's where taxes tend to be higher.

2021 adjusted net income increased 2.5% to $92 million, and adjusted EPS increased 1.8% to $2.78 per share, with adjusted EBITDA increasing 9.1% from $144.3 million to $157.4 million. These results are in line with the preliminary results we issued in January.

And as I mentioned, demand remains strong in sustainable end markets with double-digit backlog growth. Now let's review each segment, starting with slide six, the Renewable segment. Segment revenues were up 68.3%, driven by the TerraSmart acquisition.

Organic revenue decreased 2.3% and pro forma revenue contracted 5.7%, driven by product slippage on supply chain challenges continue to impact field operation schedules, disrupting solar projects. On a pro forma basis, we grew over 9% for the full year.

Despite the slippage we experienced, we saw significant growth from our TerraTrak tracker in both fourth quarter and full year and saw over 450% increase in subscribers to our Sunfig solar field design optimization tool in 2021.

Underlying demand remained strong in the quarter despite the market headwinds I mentioned, with backlog up 27% from prior year period to $167 million on continued strong market demand. Segment adjusted operating income decreased to $1.4 million and adjusted EBITDA decreased to $3.8 million.

Adjusted operating and EBITDA margins contracted to 1.3% and 3.5%, respectively impacted by the two factors we previously disclosed.

First, by field operational efficiencies created by panel availability and scheduling management, resulting in significant project rescheduling that drove higher cost per unit of revenue and redeployment of install crews to racking field modifications to support panel type and option changes.

And second, unanticipated and additional inflation in structural steel, which impacted canopy racking projects. We expect the margin impacts from affected canopy projects to roll off in the first half of 2022.

Our product margin mix was also impacted in the quarter by additional installations of our new TerraTrak tracker product, and margins for this product should improve as we build experience and scale.

On a full year basis, we grew revenue 81% or 9.3% on a pro forma basis and delivered adjusted operating margin and adjusted EBITDA margin of 8% and 10.2%, respectively.

Our integration of TerraSmart into the renewables business remains on track with organization, process development, information systems, supply chain and in-sourcing activities gaining momentum per plan. And we expect to deliver double-digit margins for 2022, with margin recovering as we move throughout the year.

Let's move to slide seven to review our Residential segment. Segment revenues increased 24.4%, our sixth consecutive quarter of double-digit growth.

Organic revenue grew 23.7%, driven by increased pricing to combat continued materials, transportation and labor cost inflation, participation gains driven by expanding share of wallet with existing customers and new customer additions, geographic expansion in the Midwest and product wins on both new and existing platforms.

For example, an expansion of our metal roofing products with both new and existing customers. The timing of the Architectural Mailboxes acquisition contributed slightly less than 1% of the growth, with integration of this business on track. Segment adjusted operating income and adjusted EBITDA grew 29.9% and 26%, respectively.

Adjusted operating and EBITDA margin expanded 70 basis points and 30 basis points, respectively as price costs better aligned through pricing actions and slowing inflation for some commodities.

We experienced less supply chain disruptions in Q4 versus the prior two quarters and the success of additional 80/20 initiatives as well as market and product line mix benefits, along with better productivity as labor management improved.

We continue to work with our supply chain partners to support our customers' needs and are maintaining focus on price/cost management, simplification, in-lining and automation. We expect continued top and bottom line growth in this business during 2022. Let's move to slide eight to review our Agtech segment.

Segment revenue decreased 16.9% as a result of timing of revenue for produce projects was impacted by supply chain disruption and continued delays in Canadian permitting related to water rights. And as the timing of cannabis projects continue to be impacted by delayed permitting at the state and local level.

The commercial greenhouse business, however, continues to experience solid growth across core product lines serving the retail, institutional and carwash markets. Order backlog increased modestly in the quarter, with January 2022 bookings driving backlog as of January 31, up 22% over year-end and up 34% over last January.

Segment adjusted operating and EBITDA margin improved 120 and 90 basis points, respectively over the third quarter despite revenue delays and additional inflation in key input materials through continued execution from lean enterprise initiatives, ongoing integration activities, successful efforts to optimize the supply chain, particularly in sourcing of roofing systems and glass, business mix benefits and improvement in produce margins.

The margins were essentially flat year-over-year despite the 16.9% reduction in revenues, which demonstrates the work we've done during 2021 to improve the operating performance of this business.

Going forward, we expect positive margin momentum to continue as we convert strong backlog and make additional system improvements and benefit from improved mix. And let's move to slide nine to review our Infrastructure segment.

Segment revenue increased 33.1%, driven by solid demand for fabricated products, given additional availability of funding and by acceleration in demand for non-fabricated products as customers caught up on projects deferred from 2020. We expect to see the impact of incremental government spending on infrastructure towards the end of 2022.

Order backlog increased 12% to $47 million with solid demand moving into 2022.

Segment adjusted operating margin was up 10 basis points as the benefits of 80/20 and favorable mix offset Q4 headwinds of structural and plate steel inflation and labor availability challenges in the manufactured products, along with the closure for over 100 days of a supplier due to Hurricane Ita, which affected higher margin non-fabricated products.

Adjusted EBITDA margin decreased 130 basis points as relatively fixed depreciation and amortization was a smaller percentage of higher revenues. We expect continued improvement in both the top and bottom line for this business in 2022 and expect to begin to see the impact of the federal infrastructure investment JOBS Act towards the end of 2022..

Working capital benefited from a substantial reduction in accounts receivable through cash collected, and we paid down $37 million on the revolver during the quarter. At December 31, we had $369 million available on our revolver, cash on hand of $13 million and our net leverage was approximately one tenth of a turn.

We expect to pay the outstanding balance on our revolver during 2022 using cash flow generated from operations. We expect to return to more normal levels of free cash flow during 2022, driving strong liquidity for growth. Now, I'll turn the call back to Bill..

Working capital benefited from a substantial reduction in accounts receivable through cash collected, and we paid down $37 million on the revolver during the quarter. At December 31, we had $369 million available on our revolver, cash on hand of $13 million and our net leverage was approximately one tenth of a turn.

We expect to pay the outstanding balance on our revolver during 2022 using cash flow generated from operations. We expect to return to more normal levels of free cash flow during 2022, driving strong liquidity for growth. Now, I'll turn the call back to Bill..

Consolidated revenue is expected to range between $1.38 billion and $1.43 billion compared to $1.34 billion in 2021. GAAP EPS is expected to range between $2.80 and $3 compared to $2.25 in 2021. And adjusted EPS is expected to range between $3.20 and $3.40 compared to $2.78 in 2021.

Finally, I just want to say thank you again to everyone on the Gibraltar team for their effort and resiliency in 2021. Frankly, a year unlike any -- most of us have ever experienced. Our learning in 2021 has created tremendous opportunities for us in 2022, and we really look forward to getting after it.

So, with that, let's open the call up and take your questions..

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 itself out.

There'll be some additional choppiness and disruption, but we're starting to see some things percolate in a more positive way than what we've all had to deal with. And really Q3 and Q4 of 2021 was probably the most disruptive the industry has ever -- most disruption in industries that we're seeing as it relates to supply chain.

People modifying -- having to modify projects on the run in the field based on the panels that they were able to get or not get. And that really has the tail wag in the dog for the industry.

And I think that will start to settle and then you'll start to hear more and more optimism about that, but it's still going to take some time to work through that. When the WRO situation gets rectified, we don't know, but let's assume it stays in play for a while.

There's a lot of polysilicon that -- or polysilicon that is sourced in other parts of China that's not covered by the WRO which is important and people are starting to tap into that in a much more effective way than before.

And then the anti-circumvention cases we'll know here in the next 30 days, whether or not the Department of Commerce takes this next one up or not. And if they do, they don't -- the industry will deal with it accordingly. But people are -- have been anticipating these things to stay out there for a while, and everyone's been working on work around.

So, that's where some of that optimism comes. It's the way we thought about it in terms of building our plan. But for us to sit down, go through with each customer, what do you have in hand on the projects we have and how do we mitigate some of the disruption. That's kind of the base of the plan going into 2022..

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..