Gibraltar Industries, Inc. Q2 FY2021 Earnings Call

Greetings, and welcome to the Q2 2021 Gibraltar Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Carolyn Capaccio of LHA. Thank you, Carolyn, you may begin.

Thanks, Paul. 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. Please note that Gibraltar has classified the Industrial business, which was divested on February 23, 2021, as a discontinued operation with fourth quarter 2020 results. Results of TerraSmart, which was acquired at the end of December 2020, are included in first half 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 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 a guarantee of future performance and the company’s actual results may differ materially from the anticipated events, performance or results expressed or implied by these forward-looking statements. Gibraltar advises you to read the risk factors detailed in its SEC filings, which can also be accessed through the company’s website. Now, I will turn the call over to Bill Bosway. Bill?

Hi, good morning everybody and thank you for joining today's call. Let's start this morning with an overview of the second quarter results and then we'll discuss the ongoing market environment we continue to manage in. Tim will then provide a detailed financial review of the quarter, and then I'll give you an update on our 2021 strategic priorities and our guidance for the year. Then we'll open up the call for your questions. So let's start. Let's turn to slide 3. We delivered a solid quarter with revenue up 36.5%, 14% of which was organic and 22.5% came from acquisitions. We got off to a good start in the first quarter with 34% growth and the momentum accelerated into the second quarter. Growth was driven by healthy end market demand, further participation gains and the realization of multiple price actions implemented in the first and second quarters. In total, our order backlog, which reflects signed contracts, grew 54% to over $400 million, a record level for Gibraltar. And on a pro forma basis order backlog grew 32%, again reflecting accelerating order momentum as we exited a strong first half of 2021. The integration of TerraSmart is on track and we continue to evolve into one organization. We're six months into the process and have combined sales, marketing, supply chain, finance, HR and have a strong leadership team in place. TerraSmart's operating margin nearly doubled versus the first quarter and demand remains robust as we enter the second half of the year, historically the strongest quarters for this business and for the solar market. In our residential business, Architectural Mailboxes completed its third full quarter of integration activity and is delivering to plan as well. Adjusted operating income increased 8.2% and adjusted EPS expanded 6.7% to $0.80 per share. Although our margin contracted during the quarter, our success in implementing various price actions and productivity initiatives helped offset a large portion of the macro headwinds that accelerated during the quarter and drove positive growth in operating income. Our macro headwinds included ongoing inflation in materials, labor and freight and the supply and availability of materials, labor and transportation. As it relates to the reemergence of COVID, we maintained our operating protocols through the quarter and were able to minimize disruption accordingly. So let's turn to slide 4, and I'll share with you a little bit about inflation and supply chain dynamics. Let me provide some context concerning the macro headwinds and the environment we continue to operate in. I realize there is plenty of debate and opinion regarding inflation going forward, but regardless, June was the ninth month in a row with a significant market increase for core input costs and inflation continued to accelerate in July as well. The magnitude of the increase combined with the speed in which it has occurred is really unprecedented, and I think it's been surprising for many industries. For example, in January 2020, in a good economy and prior to the pandemic, the CRU price for hot rolled steel was $570 per ton. Over the next nine months by September 30, 2020, the price had increased 5.1% to $599 per ton. In contrast, between September 30, 2020 and June 30, 2021, another nine-month period, the CRU price for hot rolled steel increased 188% to $1,723 per ton. During July it increased another 4.8%, surpassing $1,800 per ton. The net result: hot rolled steel pricing is more than three times higher in a market where demand levels today are actually less than they were prior to the pandemic. Pricing for other input costs and materials has risen as well, with aluminum up 50%, resins up 97%, and transportation rates up 29% over the same time frame. There are a number of reasons for today's situation: capacity reductions during the pandemic, labor shortages, tariffs, import duties, supply capacity management strategies and other macroeconomic questions. Our expectations are these issues will continue in 2021. So yes, it has been a tough and fast-moving environment, and we expect it will continue; we will remain proactive in attacking our inflation and supply chain challenges. As discussed in our first quarter earnings call, we started engaging customers and suppliers in the fourth quarter of 2020 and also started implementing our first round of price increases with subsequent price actions as inflation accelerated. Our supply agreements with our customers, specifically within our residential customers, include commodity index clauses that support price changes and also a well-defined process and timing for approval and implementation of changes. This does create an actual lag for price realization relative to commodity increases and in the second quarter resulted in margin contraction for us, especially given the sharp and substantial cost increases in steel, aluminum and resin. Historically, though, the price realization lag has been anywhere between one to two quarters. Until inflation turns down, we will continue to implement necessary price actions, and really focus on maximizing operating profit dollars. When input costs do start to fall, we'll manage price accordingly to facilitate margin recovery. We've also continued to execute on our 80/20 initiatives that we had planned going into the year and we're staying very close to our suppliers and trying to stay in sync with our customers at the same time. I think all of these efforts have helped us manage relatively well in the current environment and deliver this quarter's results. With that, let me turn it back over to Tim and we'll give you a more detailed review of our results. Tim?

Thanks, Bill, and good morning everyone. I'll take you through our consolidated segment results and as a reminder my discussion will cover results from continuing operations. Consolidated revenue increased 36.5% to $348.4 million. Organic revenue growth of 14% was driven by continued execution on strong demand, participation gains and pricing in all four segments despite some supply chain dynamics and materials and labor availability, particularly in the renewables, residential and agtech segments. We generated 22.5% growth from the 2020 acquisitions of Architectural Mailboxes, Sunfig and TerraSmart. Total backlog at quarter end exceeded $400 million, up 32% over second quarter 2020 on a pro forma basis, driven by continued end market demand across our business. Adjusted operating income increased 8.2% in the second quarter, with adjusted EPS up 6.7%. The increase was the result of continued execution on solid demand across the business segments that drove organic growth, as well as TerraSmart's acquisition and 80/20 productivity initiatives, partially offset by the timing and alignment of higher input costs and price increases, supply chain disruptions and, in the agtech and renewable segments, shifts in project timing. As Bill commented, we continue to work with suppliers to manage materials, transportation and procurement, and with customers to manage pricing. We expect margins to recover as inflation subsides with a one- to two-quarter lag. Now let's review each segment, starting with Slide 6, the Renewables segment. Segment revenue increased 92.5% driven by the TerraSmart acquisition as well as organic revenue growth of 4%. On a pro forma basis, including the TerraSmart transaction, revenue grew 25%. Revenue growth accelerated sequentially from 80.8% last quarter and we achieved this growth through solid execution and converting strong backlog despite solar industry headwinds of significant input cost inflation and supply chain challenges, particularly with panels that impact our customers' ability to finalize design and cause project timing delays, and the impact of the safe harbor ITC extension announced in December 2020, which served to remove incentives for developers to build early in 2021. Demand continues to be strong across our broad offering of fixed tilt, tracker, canopy and eBos product solutions serving community, commercial and industrial market segments. Backlog ended the quarter over $218 million, up 54% on a pro forma basis across our entire solar business. Adjusted operating income improved 45.2% while adjusted operating margin contracted 380 basis points, the majority of which was expected from the integration of TerraSmart. Of the remaining margin contraction, approximately half was related to a one-time tariff credit received in the second quarter of 2020, with the remainder the result of timing and alignment of price actions with input cost inflation and project movement related to supply chain schedule and logistics challenges. The TerraSmart integration is delivering the results as expected with adjusted operating margins nearly doubling sequentially as demand continued to accelerate and we began to implement simplification initiatives. TerraSmart remains on track with its full-year margin plan. Let's move to Slide 7 and review our Residential segment. Segment revenues increased 17.7% driven by increased pricing and volume despite supply chain dynamics related to material, labor and logistics. Organic revenue grew 12% and the acquired Architectural Mailboxes business contributed 6% growth with the integration of this business on track. Segment adjusted operating margin decreased versus last year driven by the impact of accelerated inflation, material and labor availability and the timing and alignment of price actions with input costs. As we anticipated this inflationary environment, we have implemented multiple price increases since the beginning of the year. The timing of these adjustments is not in lockstep with accelerating inflation. Going forward, as inflation begins to moderate, we expect alignment between pricing and cost to improve and the operating margin to recover, which historically occurs one to two quarters past the inflation peak. During this transition, we'll continue to maximize operating profit dollars with a focus on continued alignment of selling prices with input costs, execution and 80/20 initiatives. Let's move to Slide 8 to review our Agtech segment. Segment revenue increased 27% with solid activity across the produce, commercial, car wash, retail and processing equipment segments, a sequential improvement despite the rescheduling or delays in expected projects — in a number of projects from the second quarter into the second half of 2021 because of permit delays, rescoping of projects and supply chain disruptions. For example, on one of our larger produce projects, imported glass for our greenhouse roofing system was delayed in a West Coast port for more than 11 weeks waiting for the port authority to move the containers to a carrier for delivery to our job site. Like many other companies, the port authority is challenged in finding labor to increase capacity to support increasing demand. Segment adjusted operating income was flat year-over-year, with adjusted operating margin contracting year-over-year due to business mix, the movement of projects into the second half of the year, higher input costs and logistics challenges. These headwinds, which we view as temporary, were partially offset by improvements in legacy greenhouse structures, cannabis greenhouse structures, and cannabis and hemp processing equipment businesses, which are encouraging. On a sequential basis, adjusted operating margin expanded 180 basis points as the processing equipment business continued to improve along with continuing benefits of the integration of the produce business. Agtech order backlog experienced a temporary contraction during the quarter followed by July customer order activity that is accelerating backlog momentum, and the segment remains on track with expectations for the year. Now let's move to Slide 9 to review our Infrastructure segment. Segment revenue increased 29.7% driven by demand for fabricated and non-fabricated products that increased as State DOT project funding improved with the strengthening of the U.S. economy. Order backlog increased 11% to over $46 million during the quarter, indicating growing strength across the business. Segment adjusted operating income and margin expanded from last year driven by favorable mix of higher-margin non-fabricated products and solutions, strong execution on higher volumes overall, and continued investment in 80/20 productivity initiatives. We also continued to improve our manufacturing processes during the quarter allowing the team to shift labor between production processes and combined with better material flow reduced lead times significantly. Let's move to Slide 10 to discuss our liquidity position. We generated $14 million of cash from continuing operations in the quarter, driven by higher net income and increased accounts payable, partially offset by increased inventories and accounts receivable as we enter the seasonally strongest quarter. We generated $8 million in cash from investing activities with $13 million in cash collected on the note related to the sale of the industrial business, partially offset by capital expenditures of $5 million. Cash used in financing activities of $25 million was mainly the result of net repayment of $25.8 million of outstanding borrowings. At June 30, we had $360 million available on our revolver, cash on hand of $17 million, and our net leverage was slightly less than a quarter turn. We continue to expect to pay the remaining $33.2 million balance on our revolver prior to year-end using cash flow generated from operations. Our operating model generates high cash flow with relatively modest capital expenditures offering us ample liquidity to invest in operational excellence, organic and inorganic growth initiatives, organizational development, and to repay debt. We remain in active M&A discussions and remain focused on managing working capital. Now, I'll turn the call back to Bill.

Thanks, Tim. Let's turn to slide 11 and I'll give you a quick update on our key priorities for the year. At the start of the year, we communicated four key priorities important to executing the business in 2021. Our four business priorities remain very aligned with today's environment and we're very active and focused on all four. First and foremost, scale our renewables and agtech businesses; as mentioned earlier we are making good progress integrating TerraSmart while executing in a very high demand environment with a dynamic supply chain situation. We continue to build processes, drive scalability, and integrate our key functional areas. Our broad and evolving solar portfolio, which is the broadest turnkey offering in the market, is resonating well and six months into the acquisition our results relative to our expectations and acquisition plan demonstrate our strategy is working. The agtech business is also making progress and demonstrating the sequential improvement we expected as we move through 2021. As we exit 2021, we expect the agtech revenue growth and margin run rate performance to surpass 10%. The integration of Thermo is expected to drive positive results in the second half, along with the market recovery of our cannabis and processing equipment businesses and steady growth in our legacy business. Our agtech presence is strengthening and our M&A strategy is working there as well. Second, to manage inflation and optimize our supply chain. We already discussed the environment and how we've managed to date and our continued focus going forward. I do want to mention we are accelerating additional 80/20 projects focused on developing and implementing automation solutions to better optimize labor management for key facilities in 2022. Third, focus on improving our execution with continued emphasis on health and safety, 80/20 productivity initiatives, new product development capability, and quality control systems. In today's environment, our ability to consistently execute is helping us navigate through the year and deliver our plan. We must also stay diligent in driving our health and safety progress as we move into our busiest quarters, continue to manage supply chain and labor challenges, and deal with the reemergence of COVID. Finally, we have continued our investment in business systems — ERP, CRM, HRIS, and quality system implementations — which I believe will drive additional productivity and scalability across our businesses. And lastly, particularly in this environment, we will continue to conduct business the right and responsible way each and every day. Regardless of how challenging or complex the operating environment, we've got to continue to focus our efforts on driving environmentally sound solutions for solar energy production, food growing, and residential efficiency while acting responsibly and helping to support our people, customers, and suppliers. Let's move to slide 12 and discuss our outlook for 2021. We remain confident in our existing full-year 2021 guidance for both revenue and earnings, which we are reaffirming today. Although we expect the current business environment to continue through the second half of the year, our first half performance with revenue up 35%, adjusted operating income up 17%, adjusted diluted EPS up 15% reflects our ability to operate in this environment. Our first half performance is also consistent with our historical first-half pattern. We are well-positioned with good demand in end markets where the second half is seasonally the strongest. We have record order backlog and a very healthy balance sheet. Our outlook includes profitability improvement in each business, a continued focus on daily execution, driving our acquisition integrations, and further strengthening our organization and operating systems. We continue to expect consolidated revenue in the range between $1.3 billion and $1.35 billion. GAAP EPS from continuing operations in the range between $2.78 and $2.95 compared to $2.53 in 2020, and adjusted EPS from continuing operations in the range between $3.30 and $3.47 compared to $2.33 in 2020. Finally, I want to thank our entire team and our Board of Directors, our suppliers and customers for their support, focus and diligence in executing in today's environment. The past 18 months have been extraordinary and our team has and continues to perform in an extraordinary way and I'm really excited about what's in front of us. With that, we'll open the call up for questions.

Thank you. We'll be conducting a question-and-answer session. Our first question comes from Ken Zener with KeyBanc Capital Markets. Please proceed with your question.

Good morning, everybody.

Hey, Ken.

Good morning, Ken.

Just if we could spend a little time on renewables. Appreciate the slide 4, guys, in terms of the steel cost inflation. But I wonder if you could put 2Q in context of some of the comments you made in 1Q just so we can understand where the margin differences are coming, because I think that's obviously an appropriate focus for investors. So, in the first quarter slide on renewables you talked about a 50 basis point lift in the legacy business. Could you — if appropriate could you please update us how that organic moved? And I'm asking Tim, so you could kind of force rank what the other cost pressures are? It sounded like TerraSmart obviously had steel there was a credit timing, but I just want to see how the legacy business did and then the other drivers please.

So Ken, the TerraSmart planned operating margin was the biggest impact. Next in line were the other two items on the core business. In the second quarter last year, we got the benefit of a one-time tariff credit that had built up over time and was realized then. Third, and less impactful than the tariff credit, was the timing of pricing versus material cost increases.

Interesting. So, I guess it does sound though to stick on the legacy, the legacy was down year-over-year led by the tax credit and then steel cost. So, it's not — steel cost was only — it wasn't the main driver here in the operating margins.

Not the main driver, but there is an impact.

Yes. But I don't think it's as great as perhaps the industry would have thought. Given that steel costs are so incredibly robust despite the spread in U.S. and international prices, I think scrap rolled over 60 days ago. Is there any — I think you guys have been better buyers of steel than others perhaps would have expected. But could you talk to these price indexes? Bill, is what I'm talking about. And how customers are responding to such robust pricing, which seems necessary in order to maintain your margins?

So there's a number of variables that customers are thinking through depending on which business. In the solar world, remember the 4% benefit or elimination of the reduction that was expected going into the year was a plus for everybody. So you had that 4% on the total project. Then you have other headwinds that developers and customers have been facing. I think the economics for the year are not as good as they would have been a year ago, but they're still attractive. Customers continue to move forward. I would characterize three buckets of customers: one group that wants everything as soon as possible and is pushing hard; a second group that is struggling to get panels or other inputs and is being disrupted by supply chain challenges but still wants to move; and a smaller group, typically newer to the marketplace, that's in a wait-and-see mode because of the inflationary environment. The returns on these projects seem still relatively attractive and that's showing up in our demand and backlog in the first half of the year. We're trying to help customers find ways to make project economics better through upfront design work to avoid planning costs, etc. It's a tough environment; every project has its own variables, but we're staying engaged and working with customers to navigate each project.

Right. It seems like the industry is getting more rational perhaps around pricing given pressure on other competitors you face. The last question I have is could you talk to the sequential nature of margins specifically in renewables, but also, Tim, the company in the second half. For example, do you think renewable margins will be up year-over-year in the second half where you basically have a high-12 handle in renewables? And then, just comment if you could on any Q3 or Q4 weighting overall that would help consensus so we avoid surprises. Thank you.

I am a little hesitant to forecast exactly what margins will do because it depends on what inflation does. We see opportunity to improve margins, but if material costs don't moderate in speed and rate of change, we may not get ahead. We're set to improve margins across the business, but that assumes there is not rampant continued inflation that we must chase.

But at today's net pricing — and I understand you don't want to comment on the spot commodity market — at today's environment given net pricing, it seems like it would be a favorable trend at today's known variables, correct?

Yes. A fair way to think about it is at any given time we are either working price to get to the current market — and we've gotten there, it just depends on the day and the business. If we stayed at today's prices, definitely we'd see improvement.

Thank you.

Thank you. Our next question comes from Dan Moore with CJS Securities. Please proceed with your question.

Good morning. This is Stef calling in for Dan.

Good morning.

Good morning.

So on agtech, what is your confidence that increases in the backlog will translate to revenue in the second half? And are you seeing that happen already in a more material way in Q3?

Yes, I think our plan for agtech has been to sequentially get better throughout the year and the backlog we have today reflects that. The temporary contraction Tim mentioned was really a shift from June to July in the first three weeks of July. Those projects we expected in June have come through and are now on board and will start being executed. The length of execution and when they flow through varies by end market, but our backlog is shaping up to contribute to the second half. That gives us confidence our plan to continue to sequentially improve is on track.

Got it. Thank you. And then in terms of residential you have some tough comps coming up. If you look forward to the next four quarters, do you still expect to continue to generate positive growth? And then also how should we think about margin?

I think the growth profile will be consistent with the industry. We won't grow at the rates we did last year because comps are robust — we had record quarters last year for residential. A lot depends on what happens with inflation. At some point consumers will decide based on their pocketbook whether they push forward. All these variables we've discussed are assumed to stay in place for the next six months. If they remain and do not get worse, we'll see margin recovery going forward. If inflation continues to move up, we'll continue to chase those increases and focus on maximizing operating profit dollars, which may delay margin recovery. We think margins will get better assuming the environment holds; if inflation rises further, margin recovery will be delayed.

Great. Thank you for taking my questions.

Thank you. Our next question is Julio Romero with Sidoti & Company. Please proceed with your question.

Hi. Good morning everyone.

Hi, Julio.

Hello.

So I wanted to stay on residential. Can you maybe rank order some of the headwinds you're facing there? I know you mentioned price lagging inflation, but also some availability issues with material and labor?

Yes. Inflation is still very high; July wasn't any better than the previous nine months in terms of increase. Availability of some materials we were struggling with — resin and aluminum in particular — are starting to work themselves out and we started to see that in the latter half of the second quarter. Labor availability is something we expect to continue to struggle with for some period of time, and depending on COVID developments that could cause challenges, but we're managing through that pretty well. So the main items: (1) inflation; (2) material availability, which is improving but still present; and (3) COVID-related disruptions, which we've been managing relatively well so far.

Got it. So it sounds like the material shortages would be focused on non-steel, right? Steel you didn't really have an issue.

No, steel has not been an issue. It's really been aluminum. When the February weather hit the Midwest, it hurt a lot of suppliers particularly those that do value-add in aluminum. Resin was then impacted by a number of things. Those issues have kind of worked themselves out, but that gives you an idea of the magnitude of that weather disruption — eight to ten days — and it's just now getting worked out, so I feel like that's gotten better.

Understood. Is there any way to think about, once steel starts to not stay on this upward trajectory — trying to quantify the impact of price lagging inflation, either from an operating dollar standpoint or a margin standpoint?

Well, one way to think about it is we don't necessarily need inflation to start going down to improve results; we just need it to moderate, to flatten out. Our assumption in our plan is that everything stays elevated for the next six months in input costs. If input costs, like major commodity issues, subside, that would be very helpful. Our pricing actions that we've put in place — we implemented our fourth one yesterday across the residential businesses — will start to catch up. What we don't know is if inflation will moderate; for ten months in a row we've been surprised. We're assuming everything stays elevated in the second half and our price increases will catch up. If inflation continues to move up, we'll continue to focus on maximizing operating profit dollars and margin recovery will be delayed, similar to what happened in the second quarter.

Okay. Understood. And I guess switching to agtech, can you just talk about how the cannabis-related businesses within agtech are performing? Are your customers on the cannabis side seeing better access to working capital and financing?

Yes, they are, and we've seen that in the backlog. Cannabis backlog started to grow in Q2 and that's one reason agtech will see sequential improvement in Q3 and Q4. The backlog for growing structures and process equipment has been steadily increasing. We had some projects rescoping and that can cause projects to go in and out of backlog; we don't leave unconfirmed scope in backlog. We had a large project that was taken out while scope was adjusted, which created the temporary contraction, but they have since finalized the scope and it is back in the backlog. So that market is gaining momentum and our backlog is reflecting that. You'll see those projects read through starting in early July activity.

Okay. And a quick refresher on the Thermo business within Agtech: did you see any impact from projects you acquired when you first took on that business, and are you completely worked through those acquired projects?

As we exited the first quarter, we've got a very high percentage of that behind us. The issues in the produce business were more related to permitting delays that are being worked out. The drag created by projects that came with the initial acquisition is largely through the system now, and we're adding new projects into the backlog that we're managing.

Great. That's it for me.

Thank you.

Our next question comes from Walter Liptak with Seaport Global. Please proceed with your question.

Hi. Thanks. Good morning, guys.

Hey, Walt.

Good morning, Walt.

I wanted to ask about TerraSmart, maybe a little more detail. Can you help us understand the integration that's going on and how those integrations play through to getting to the planned margins? Is that by the end of the year or in 2022?

A lot of the synergy we put into our acquisition plan starts to flow through in 2022. A lot of the work we're doing now — the 80/20 efforts I mentioned — we're implementing a few months into the integration and that will help drive margin beyond what we originally planned. We're refreshing 80/20 across both TerraSmart and our legacy business to find best processes and gaps. In the first and second quarters TerraSmart nearly doubled margin sequentially. Their model is a little different than Gibraltar's; their field services or field operations portion is more fixed cost, whereas Gibraltar historically has larger variable costs. When quarters are lower in field activity, TerraSmart runs a different margin profile, and as they leverage up with volume in Q3 and Q4 their margins accelerate. Historically, Q3 and Q4 are stronger because of the construction cycle, and you'll continue to see them drive higher margins in those quarters because more revenue and margin comes from field operations than just design and manufacturing.

Okay. So as we think about 2022 and beyond, do we see that same seasonality to profits for TerraSmart, or was there more to the integration costs we don't have to worry about lower profitability in the first half and then a pickup in the second?

The seasonality and profitability may not change dramatically, but the absolute level for each portion of the year will go up due to integration and synergies. Q1 will always be seasonally lower margin due to weather and lower volume, but the ability to move margins up in each quarter relative to historical levels is our intent.

Where do we think the planned margins can get to?

When TerraSmart came out of 2020, it was around $147 million in sales and ran roughly a 12% operating margin. We said in the next five years the combined business will reach roughly $700 to $750 million and 15% plus operating income. We're confident we will get there and perhaps sooner than originally thought. The integration and additional initiatives could push that a bit higher as we identify more opportunities.

And the backlog for renewables — the 54% growth — is that an organic backlog that you can talk about?

Yes. That 54% for renewables is pro forma, which effectively is the organic increase when you take last year's backlog and this year's backlog for each business. Both TerraSmart and our legacy renewables business have contributed; both have backlog coming in. It's a very robust demand profile and consistent with what we saw in the first quarter. The first half for renewables has been very good on organic backlog and organic sales. It's a very busy environment right now for renewables.

So it sounds like demand is fine, and any trends with supply chain or price costs are not impacting demand materially?

Yes, with the exception of residential where we had some availability issues with material in early Q2 — aluminum and resin — that impacted demand a little. But in renewables and agtech we haven't had a big impact on demand because of supply chain. We had isolated events, like one produce project delayed by 11 weeks because glass was stuck at a West Coast port due to labor shortages at the port; that's an example of how labor shortages can create unique events. But in general, it's not been a demand issue.

Okay, thank you.

There are no further questions at this time. I would like to turn the floor back over to Mr. Bill Bosway for any closing comments.

Thanks again everybody for joining us today. We do have a busy investor marketing schedule for Q3, including the Jefferies Industrial Conference tomorrow and the Seaport Global Summer Conference on August 24, as well as some other marketing dates. We're looking forward to reporting our progress in the third quarter earnings release. Keep your calendar open: we're planning a Shareholder Day or Investor Day in November, hopefully in person in New York — stay tuned on that. Thank you. Have a great day. Everyone, take care and stay safe. Goodbye.

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