Good morning, ladies and gentlemen, and welcome to Gibraltar Industries Third Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a questions-and-answer session, and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Carolyn Capaccio.

Thank you, operator. Good morning, everyone, and thank you for joining us today. With me on the call is 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 on the Investor info section of the company's website. 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. Additionally, Gibraltar's earnings press release and remarks contain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP financial measures have been appended to the earnings release and slides. Now I will turn the call over to Bill Bosway. Bill?

Hey, good morning, everybody, and thank you for joining our call today. I hope everyone is doing as well as possible and remains safe and healthy. Let's begin today with an overview of the third quarter, and then Tim is going to provide a more in-depth review of our Q3 results, and then I'll wrap up with an update on our three strategic pillars and some thoughts on the rest of the year, and then we'll open the call for your questions. So if we can, let's turn to Slide 2, Q3 overview. We delivered solid performance as we execute our plans. We continue to invest in our business and really work on improving our positions in the markets we serve. Revenue increased 10.2%, driven by solid organic growth in our renewable energy and residential products, as well as growth from acquisitions made in our growing and processing business. GAAP EPS improved 36% to $1.02, and adjusted EPS improved 11.6% to $1.06. We also continue to make operating margin progress with GAAP margin up 280 basis points and adjusted operating margin up 40 basis points. I'm pleased with our revenue and operating margin performance, particularly despite the continued market slowdown we discussed last quarter, impacting our processing business, the cannabis portion of our growing business and our core industrial business. The good news is that consumer demand for cannabis and hemp-based products remains healthy. With the processing equipment market stabilized in the second half of 2020, as well as the improvement in bid and award activity for the cannabis growing solutions business, we expect a much better performance in 2021 and beyond. I'll let Tim provide more commentary regarding Q3 results during his review of the businesses. During the quarter, our backlog increased to $304 million, up 26%, driven by strength in our renewable energy and conservation group. Along with increased backlog, we experienced strong revenue growth within renewable energy, the result of good progress by the team, particularly at our fixed tilt and canopy racking solutions as well as in our electrical balance systems business, all of which have experienced year-to-date growth greater than 25%. We intentionally paused sales of our tracker solution over the last 12 months, so overall revenue and backlog growth this year in renewables really reflects a tremendous effort by our team. We are also excited to have launched our new tracker solution, Sunflower 2, at the end of last quarter, which we started to see generate backlog in Q3 and should convert to revenue in 2021. The strength in our conservation business is driven by positive order activity in our fruits and vegetables business as well as increased activity in the cannabis growing business. Our position in the market is much stronger than it was just nine months ago. Adding thermal energy systems to the portfolio earlier this year is a significant step toward building a leadership position in the North American market. With good progress to date integrating this business, I'm really looking forward to seeing the group in 2021. We recently completed a $27 million acquisition of Architectural Mailboxes, a complementary addition to our mail and package solutions business. This is an exciting addition for us that provides an entry into new segments and adds capability while creating synergy across digital marketing, innovation and engineering as well as supply chain. Architectural's full-year sales are anticipated to be around $26 million this year. Over the last nine months, our investments in the business have been meaningful, very targeted, and I think are beginning to generate some positive results. We are delivering more consistent execution, building stronger positions with our customers, and making ongoing investments in systems and technology, people, and probably most importantly, staying laser-focused on creating the safest work environment we can for our folks. We entered the fourth quarter with solid momentum and a very strong balance sheet, which supports the continued sign of many of our key initiatives. We are making progress, and I am excited about the opportunities that are still in front of us. I am truly grateful for everyone in the organization and how we've collectively navigated through this unique and ever-changing environment. I want to thank our entire team and their families for their resilience, dedication and support for the business, but also for each other during this time. So now let's turn to Slide 4, and Tim will review our consolidated financial results. Tim?

Thanks, Bill, and good morning, everyone. I'll take you through our consolidated and segment results. Consolidated revenue increased 10.2% as growth in the residential products and renewable energy and conservation segments offset the revenue decline in our industrial and infrastructure segment. Continued execution drove organic revenue growth of 2.1% in the residential and renewable energy businesses. We generated 8.1% growth from our third-quarter 2019 acquisition of Apeks Supercritical and our first-quarter 2020 acquisitions of Thermo Energy Solutions and Delta Separations. Backlog at quarter end was $304 million, up 26% from the prior year and 9% from the prior quarter, driven by continued end market demand in our renewable energy and conservation segment and, to a lesser extent, demand in the infrastructure business. Consolidated GAAP operating income was up 39.8%, and adjusted operating income increased 13.9% in the third quarter. Third-quarter 2020 operating income included approximately $1 million of ongoing net direct investments in the safety and financial security of our people directly related to COVID-19. Consolidated GAAP and adjusted EPS grew 36% and 11.6%, respectively. The increase was the result of organic growth and margin expansion in our residential products segment, product and services mix, effective pricing to material cost management, and ongoing benefits from operational excellence initiatives. Now let's review each of our three reporting segments, starting with Slide 5, with renewable energy and conservation segment. Segment revenue increased 9.8%. Organic growth in the renewables business was more than offset by an expected decline in our core conservation business due to the current year's weakness in the cannabis and hemp markets, combined with tough comparisons in last year's third quarter, which saw strength in the cannabis end market, resulting in an organic decline of 10.8%. Our recent acquisitions of Apeks Supercritical, Thermo Energy Solutions and Delta Separations drove 20.6% growth. Continued strong demand in the renewable energy market for our fixed tilt and canopy solutions more than compensated for a substantial gap in tracker sales compared to the third quarter of 2019, resulting from our decision to pause sales of our tracker product last year as we worked through some field modifications. We recently relaunched our tracker and have begun to build backlog for this product. The renewable energy business's margin performance was solid in the quarter, driven by strong action, participation gains and product and service mix. Near-term market challenges negatively impacted margin in the core conservation business, particularly related to the cannabis and hemp markets. The acquisitions in the conservation business delivered negative margins consistent with expectations, and these margins are expected to improve as we move forward with the integration of these businesses. Backlog growth accelerated going into the fourth quarter, with total segment backlog up 28%, with both renewable energy and conservation businesses contributing roughly equally to the increase. Strong demand from our customers in the renewable energy business continues, and demand for customers in our conservation business is driven by strength in the fruits and vegetables market and increasing activity in the cannabis market. We anticipate continued strength in our renewables business and challenging comparisons in our core conservation business related to the timing of the cannabis projects during the remainder of the year. We believe we've hit the bottom of the margin impact from our recent acquisitions and anticipate the operating margin profile in this segment to improve sequentially as we move through the remainder of the year. Let's move to Slide 6 to review our residential products segment. Segment revenues increased 20.1% from last year, a result of continued strength in the repair and remodel markets as well as participation gains across our distribution channels. Adjusted operating margin increased 530 basis points, a result of consistent execution on higher volumes, continued focus on 80/20 initiatives, supply chain optimization, process improvements, increasing organizational competency, and effective pricing and material cost management. Now let's move to Slide 7 to discuss our recent acquisition. As Bill mentioned, in early October, we completed the acquisition of Architectural Mailboxes, a supplier of innovative, highly engineered USPS-approved mailboxes and package delivery solutions for $27 million or roughly one time’s annual revenue. This is a very complementary addition to our existing mail and package solutions business in our residential products segment. It broadens our product offering, strengthens our position in the single-family home and mail package market, and improves our digital marketing, engineering, and supply chain capabilities. We're excited to have the architectural team join ours and look forward to continuing to drive value for our customers in this space. Based on current customer activities and taking into account the seasonal nature of this segment, we expect continued strength on both the top and bottom line during the remainder of the year in our residential products segment compared to the prior year quarter. Let's move on to Slide 8 to review our industrial and infrastructure products segment. Segment revenues decreased 11.6%, driven by lower demand for core industrial products. The infrastructure business was down slightly as the pandemic affected spending on infrastructure products in certain end markets. Infrastructure backlog grew slightly. Adjusted operating margin was up 80 basis points through continued improvement in execution in the industrial business and effective pricing material cost management. Let's move to Slide 9 to discuss our liquidity position. We continue to produce strong cash flows, with $63 million of cash generated from operations during the third quarter, driven by higher earnings and reduced investment in working capital. Our strong operating cash flow, coupled with our modest capital expenditures, drove free cash flow of 18% of revenues during the quarter. At September 30, our revolver remains undrawn. We ended the quarter with $180 million of cash on the balance sheet. Subsequent to quarter-end, we invested $27 million of cash in architectural mailboxes. Given our strong cash position and our undrawn $400 million revolving credit facility, we continue to have ample liquidity to invest in operational excellence, growth initiatives, and the development of our organization. We remain active in the M&A discussions and focused on managing our working capital. Now I'll turn the call back to Bill.

Thanks, Tim. Let's move to Slide 10 for a quick update on our three strategic pillars. First, let's talk about our business system. We continue to invest in and optimize our operating playbook to keep this as agile and aggressive as possible in today's dynamic environment. We also remain very focused on maintaining the best and safest work environment for our team, executing consistently every day. We are focused on supporting our customers and supply chain while further building our digital systems capability. In regard to portfolio management, after a temporary pause in Q2, discussions have accelerated across a robust pipeline of strategic assets that we believe will further strengthen our position in the markets we're in. As mentioned earlier, we did recently complete the acquisition of architectural mailboxes. I think that's a good example of building our presence and creating access to new market segments for our mail and package business. We're also making progress with our organization development initiative. Throughout 2020, we've added key positions, filled organizational gaps, and upgraded talent as part of our development effort. Through an initiative started in 2019, we launched our digital education initiatives requiring all Gibraltar employees, both salaried and hourly, to complete approximately 12 hours per year of online education across a broad curriculum of topics. This requirement also includes our online cybersecurity education, which started in 2019, and has become even more important in today's work-from-home environment. Let's move to Slide 11, where we'll discuss our outlook for the fourth quarter. Through the first three quarters, we've been able to deliver solid revenue and earnings growth relative to 2019. I believe our market trends and our momentum remain positive. However, there is still a significant amount of uncertainty today due to the ongoing pandemic and the upcoming election, and the potential impact of both on the economy and its recovery going forward. As a result, we'll offer a qualitative outlook for the rest of the year based on trends we're seeing today in our markets as well as our businesses. So let me start with some thoughts about the renewable energy and conservation segment. As I mentioned earlier, we expect demand to continue in our renewable energy business, and we continue to grow and build our backlog accordingly. With momentum in our fixed tilt and canopy racking business and our electrical balance and system business, coupled with the relaunch of Sunflower 2, we're expecting to see progress in Q4 as well as strength as we enter 2021. Our conservation business continues to deal with an interesting set of market dynamics. The growing business should see growth in fruits and vegetables backlog and revenue as we move forward. Significant investment in this market continues, as does demand for greenhouse structures and growing solutions. We expect thermal energy systems to benefit accordingly. The cannabis market's project bid and award activity increased in Q3, and we expect that to continue in the fourth quarter and into 2021. We are well-positioned to support this. Our processing business and the processing equipment market have stabilized and are starting to improve, with further recovery anticipated in Q4 and 2021. The market has also continued to self-correct the supply-demand imbalance for process equipment, and the market for hemp processing continues to mature. In our residential building products business, we expect solid demand in Q4 on a seasonally adjusted market basis, as the new construction and repair and remodel markets remain active. We are focusing on consistent execution, serving our customers as best we can, while finding opportunities to drive participation gains with them. We expect our industrial business to continue experiencing consistent demand for core products, and remain focused on execution and selling higher value-add product families to deliver solid margin operating income dollars. Our infrastructure business is expected to remain steady, with solid growth in our fabricated products offsetting some of the slower demand in non-fabricated products, namely sealants and coatings, which are currently impacted by reduced investment in airport runways and structural maintenance. Project bidding activities are rising, and our backlog remains solid. In summary, we have significant changes in today's environment, which is interesting in itself. We are confident we'll deliver solid fourth-quarter performance compared to last year. We will revisit the question of quantitative guidance again when we report our Q4 results. So with that, let's open the call for questions.

Your first question is from Mr. Daniel Moore from CJS Securities. Sir, your line is now open.

Bill, Tim, good morning, thanks for taking my questions. I'll start with the renewables and conservation, specifically process equipment. It sounds like the market is stabilizing there and cannabis bidding activity is increasing. How would you characterize activity in the processing side compared to pre-COVID levels? You mentioned you expect much better performance in general for the overall segment in '21 given the backlogs. Is double-digit growth achievable? I know you don't want to get into guidance, but how should we be thinking about the type of growth rates we might be able to see going forward when we get past this year, especially given the easy comps from early in the first half?

Yes. Well, Dan, we like this marketplace because of the inherent long runway we think it has. I do think the industry itself, while going through this correction dealing with COVID, will come back, and we will see growth rates as we had hoped. We've always said this market seems to be growing at high single-digit type of growth in the past, and we hope to see that return next year. We got a little bit more of a market flush happening in Q4 and into Q1, and then you'll start to see that return. A lot of that has a lot to do with the imbalance I mentioned earlier with the hemp market. Remember, the Farm Bill Act came about and made hemp more legally accessible, and then you had a lot of people rushing into the space and artificially pumped up the market a bit. We saw that, and we knew that it would take more time with COVID for that to rebalance due to access to capital and other issues that many participants in the industry have dealt with over the last nine months. All that is getting flushed out, albeit it's been taking longer than anticipated. Based on our understanding of what we've been working on with the market, we think you'll start to see that recovery next year. We hope to see the business start generating the type of growth we expected at the onset of the year. There is a margin drag that has come with the reduction in the market, which we've shared with you guys over the last two quarters, and hopefully, we'll start to see that turn in a positive direction as well.

Very helpful. I missed the revenue contribution from Apeks and Delta. What were those in the quarter? And what was organic growth in renewables and conservation?

So again, renewables were up, and conservation was off the core business based on the cannabis market, which is down. When you combine, it was down in the 10% range. The acquisitions added 20%, which offsets the 10%.

$20 million. Great.

Those are percentages. Sorry.

Okay, got it. The cannabis is down 10%, and the acquisitions added 20%.

Basically, right.

Got it. Architectural mailbox. What's the margin profile today? What's the opportunity set? And do you see a big opportunity in kind of residential parcel boxes reflecting the growth in e-commerce? Is that part of the thought process here?

Yes. Well, there's a couple of things. As I mentioned before, it's complementary. So how is that? There's a core mailbox business that we've built out over time. Architectural's focus is in the single-family world, with innovative, architectural design-type mailboxes. That complements our existing products. Both us and they have been working on finding the best solutions for residential homes in package delivery. There are some exciting developments happening that we think we can leverage as that end market continues to expand. Our existing business also includes a lot of cluster boxes and large lockers for both commercial and new neighborhoods where centralized mail delivery is becoming common. When you add it all up, it gives us access to multiple markets and adds to the strategies for solving home delivery challenges that a lot of people are looking into.

Very helpful. I'll jump back with any follow-ups. Thank you.

Yes, thank you.

Thanks, Dan.

Good morning, everybody.

Good morning, Ken, how are you?

Good morning, Ken.

Oh, I have electricity. So that's good.

The basics in life...

Most important.

Yes.

So I'm hoping you guys could be as transparent as possible because I don't want to interpret this quarter as a miss. But I think one of the concerns for investors is clarity in the renewable sector because many of your investors come from the building products world and solar have vegetables. So let me rephrase what you've said, I believe, so I can get some clarity. The 20% growth that you had in renewable is from acquisitions. You mentioned hemp margins were negative. Were you referring to these acquisitions collectively, which would include the Canadian greenhouse? Or how should we think about parsing out your negative margins in hemp to start with processing?

Yes, that refers to processing, specifically for the two in processing, which are Apeks and Delta, serving that market that has slowed significantly, and that's where the bulk of the negative margin drag has come from this year, as it also did in Q2 and Q3.

Right. My recollection is you had $75 million at the time of acquired sales in the vegetable business and $46 million in '17, so about 60 in those two businesses. Is that correct for sales?

That was trailing numbers, yes.

So how should - I added up the M&A line in renewable, and it looks like it's on track for about $80 million this year and your acquired sales were about $140 million. So it fell 40%. Obviously, timing and COVID are beyond your control. But is the hemp down more than that 40%? Is it down by around 80% and are vegetables okay? The reason I'm asking these questions is, in essence, your core renewable, so legacy solar and greenhouse, are those margins up organically year-over-year? The central question is whether you are facing COVID issues or execution issues, and that's got to be on investors' minds today. The question is, what's going to grow at?

Let me parse it. Renewables, we had growth in revenue despite the fact that we created a headwind by stopping tracker last year, where we had decent tracker revenues in the third quarter. The other components in that segment, which are the fixed tilt, the canopy and the electrical balance of systems accounted for revenue growth of those pieces of the business were greater than 25% each.

Okay. So those categories grew 25%. Your organic growth in those categories grew 25% year-over-year.

You are right; we generated growth from renewables in total. Margins are solid in renewables. Moving to core conservation, the core conservation business had a fair amount of cannabis in the third quarter of last year's projects.

Right. It was up, yes.

And it's down this year. The cannabis market was tough from the start of the year regarding contracts. The backlog decline creates a hole, and we're starting to see cannabis activity pick up in backlog build. That core business has timing issues, but no real concerns. But that impacted margins negatively due to missing that volume of revenue.

Is it fair to say then - sorry to focus on this? I think this is a great opportunity for you guys to expand investors' understanding of this emerging business. The conservative sector, which is both led by hemp in terms of the downside, but that would also be greenhouses and everything else, correct?

So we are not talking about core conservation specifically. When I refer to core conservation, that encompasses the entire greenhouse business. However, the driver of its performance this quarter is really the cannabis market, which was tough.

Yes.

And then the acquisitions in total generated decent revenues, particularly contributing to 20% sales growth. These acquisitions have made up some of the shortfalls in the conservation business. But in total, there's been no negative revenue.

Yes, I want to clarify something as well, maybe for the audience. Hemp and cannabis are two distinctly different drivers of the market stuff we talked about today. Hemp is really focused on processing, impacting the processing aspects of our business, not the growing; because people grow hemp outside. The core growing business, or conservation business, is associated with cannabis that's grown inside in a greenhouse. In processing, the cannabis and hemp market has really driven a slowdown, influencing processing business, but these two aspects of the business are distinct. Does that make sense?

It does.

On the resi business, I think you mentioned in your prepared remarks you expect a better top-line and bottom-line year-over-year. Would you expect the margins to be up in the same range that you've seen in the last two quarters because you've seen very good strength year-over-year in the second and third quarter? Is it fair to say that could be in the range of 300-400 basis points for Q4 of '19?

Yes. I think we'll see improvements year-over-year on both our top and bottom lines. Seasonally adjusted, we won't be sequential since that's driven by seasonality of the business, but we've been performing better than previous quarters, and I would expect that to continue in Q4. It's difficult to provide specific margins now as we are in a very dynamic environment, but we are confident we are moving in the right direction.

Got it. Staying on that segment, on the architectural mailbox acquisition, you mentioned it's more of a single-family offering than the cluster boxes that you traditionally offer. Is that sold through the same channels as your legacy mailbox offering?

Yes. In terms of distribution channels, there’s a lot of overlap. Architectural has a good online presence. So if you think about sharing distribution channels, it broadens our breadth across all those. There are multiple channels such as big box, small box, and online shopping, etc. The new team will help address additional subsegments within our customer base that we haven't been in, so that's advantageous for us.

Yes. Is your total mailbox offering now about a fifth of your total residential segment? Would there be more acquisitions to target in the pipeline?

Not in the near term. I think we have strong foundations for the opportunities that exist, whether it’s home delivery or multi-family developments where home delivery solutions apply. We have combined our engineering strengths and are looking forward to enhancing our organic opportunities. We will monitor the market closely, but there is nothing immediate right now for us to pursue.

Thanks. Good morning, guys.

Hey, Walt.

I wanted to go back to the previous discussion and ask about organic growth. What was the organic growth or decline in the renewable and conservation business?

The organic growth in renewable and conservation combined was a little over 10% at 10.8%. Renewables were up, and the conservation was down, due to the cannabis market declines.

10.8% organic growth or 10.8% for all?

That's 10.8% organic, because we've got almost 10% growth in the segment, and that difference is the impact of the acquisitions.

Great. And then on the backlog, could you talk about its composition? You mentioned the growth in backlog from fruits, vegetables, greenhouse, and solar. How much of that is Sunflower 2? And how much of it is from traditional fixed tilt?

Both sides of the business had backlog growth of over 28%, which is excellent. On the solar side, most of that backlog growth is still in our core business, concentrated on community solar. It remains heavily oriented toward fixed tilt and canopy solutions, as well as our electrical balance of systems business. The launch of Sunflower 2 at the end of Q2 generated some backlog, but it's still a smaller portion. We have begun discussions for various projects, which will convert and add to the backlog once finalized. I believe we'll have a stronger 2021 due to these upcoming sales, driven by the current backlog.

Understood. I appreciate that detail. I realize it was a late second-quarter launch, but it sounds like you secured some orders consistent with the launch.

Yes, we did secure projects that were confirmed in Q3, alongside active bidding as we speak. Conversion time is typically nine to 12 months once the project is finalized. So while the backlog is building, it will take some time to show up as revenue.

Great. On the fruits and veggies side, it seems that 2021 will see shipments start earlier compared to previous years, correct?

Correct. We'll see shipments in Q4, Q1, and Q2, leading to a steady flow due to the increasing backlog. However, this year faced disruptions due to permitting and crew availability which made operations more challenging, but we aim for consistency moving forward.

Okay, great. And on industrial, it seems the margins are holding strong, although recovery appears to be slow. What timelines do you foresee? Can we expect improvement in the first or second half of 2021?

Yes. I believe we will see better performance in the second half than the first. There's uncertainty regarding the economy, particularly considering the upcoming election and other factors impacting recovery. We have been focused on permitting security and architectural initiatives, and it's challenging to determine how COVID has affected timelines. Therefore, the second half seems more promising for revenue improvements.

Understood. Lastly, could you provide details about the M&A mailbox acquisition's sales, EBITDA, and other financial metrics associated with it?

We mentioned we paid a little under $27 million for it, and its sales for 2020 should be approximately $26 million. Effectively one-time sales measured up against the price, and the margin profile should be similar to our current operations.

Could you remind us where you expect margins on the processing side to get once the market recovers? What's a reasonable timeframe?

Yes, Dan, when we acquired, we were optimistic regarding their accretion to Gibraltar. We are working toward mid-teens margins, which we view as reasonable, aiming for these levels by the second half of next year as market recovery continues. The integration efforts have been successful, and once the market steadies, we believe margins will follow. Our expectations are clear, and I envision us reaching these targets toward the latter half of 2021.

I am showing no further questions at this time. I would now like to turn over the conference back to Mr. Bill Bosway.

Thanks for joining us. We'll be participating in Baird's 2020 Global Industrial Conference coming up, and we look forward to connecting with you there, along with our follow-up calls scheduled. Stay safe, have a great day, and we'll talk soon. Don't forget to vote. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.