Gibraltar Industries, Inc. Q3 FY2022 Earnings Call

Greetings, ladies and gentlemen, and welcome to Gibraltar Industries Quarter Three of 2022 Earnings Conference Call. As a reminder, this conference is being recorded. It is my pleasure to introduce your host, Carolyn Capaccio of LHA. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us today. With me on the call is Bill Bosway, Gibraltar Industries' Chairman, President and Chief Executive Officer; and Tim Murphy, Gibraltar's Chief Financial Officer. The earnings press release that was issued this morning as well as a slide presentation that management will use during the call are both available in the Investors section of the company's website, gibraltar1.com. As previously noted, Gibraltar classified the processing equipment business in the Agtech segment as held-for-sale with first quarter 2022 results and has removed the related revenues and expenses from the processing business from adjusted 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 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 be accessed through the company's website. Now I'll turn the call over to Bill Bosway. Bill?

Thanks, Carolyn. Hey, good morning, everybody, and thank you for joining today's call. We'll start with an overview of our third quarter results. Tim will take you through our financial performance, and then I'll come back and update you on our outlook for the rest of the year. And then we'll open the call for your questions. So let's get started by turning to Slide 3 titled Third Quarter 2022 Results. 2022 continues to unfold in line with our expectations. And we delivered a strong quarter with adjusted revenue up 6%, adjusted operating income up 16%, adjusted EBITDA up 14%, and adjusted EPS up 19% to $1.12 per share. All 4 of our segments delivered double-digit operating margin performance, and the Residential and Infrastructure businesses both generated solid revenue growth as well. In our Residential business, we acquired Quality Aluminum Products, which broadens our geographic channel and product footprint for the business. And Quality Aluminum Products added $0.02 to our adjusted EPS in the quarter. Our backlog decreased 7% during the quarter to $356 million driven by lower backlog in our Renewables and Agtech businesses. As we experienced during the second quarter, it remains challenging for our renewable customers to finalize contracts and schedule projects as the solar panel supply chain learns how to work through the new UFLPA importation requirements. UFLPA went into effect in June, and the industry expects to see more efficiency, reliability, and scale with the importation process in the first half of 2023. In our Agtech business, although project design and quote activity is robust, backlog was down at the end of the quarter when compared to last year's strong order inflow. But we anticipate new bookings to increase as we finish 2022. Focus on our five key performance initiatives has not changed. And given our year-to-date results and current demand profile, we are raising the lower end and narrowing the range of our GAAP and adjusted EPS outlook, and we're also reaffirming our outlook for consolidated revenue. Let's turn to Slide 4, and we'll talk a little bit about commodity prices, supply chain and general inflation. Hot-rolled coil steel and aluminum spot prices have corrected further as global and regional demand and supply becomes more aligned. And we've also seen slight improvement in structural and plate steel spot prices. In general, steel and aluminum spot prices remain above pre-pandemic levels. Other cost inputs, such as labor and transportation, remain inflated and are expected to continue in the near term. Our supply chain is performing better, and we continue to focus on reliability and consistency as we accelerate customer service levels and improve working capital performance. We also continue to work diligently to balance price actions and input costs in a timely manner, accelerate our 80/20 initiatives for productivity and cost reduction, and manage and optimize contract terms with our customers. Let's move to Slide 5 for an update on the panel supply for the solar industry. So the two trade issues impacting solar panel supply. The UFLPA enforcement continues to have the greatest near-term impact on customers' ability to move forward with projects. Just as a reminder, the UFLPA was implemented in late June and is enforced by the U.S. Customs & Border Protection. While customers continue to work with CBP to understand documentation requirements, panel import flow and availability has remained a challenge for customers. Our industry contacts are concerned that progress is being made, albeit slower than expected, and expect panel flow to improve in the first half of 2023. On the second issue, the Department of Commerce delayed its preliminary ruling on the AD/CVD investigation from late August to later this month, November 22, and with its final ruling now expected in April of 2023. We still expect the DOC's preliminary ruling will provide solid direction to the industry on what to expect in the final ruling. Keep in mind, the administration has instructed the DOC to implement a 2-year waiver on tariffs, and we expect the DOC will execute this in conjunction with or around the time of the DOC's preliminary ruling on the AD/CVD case. I'd say despite the near-term impact of these trade issues, given the role solar energy production continues to play in U.S. energy policy, the ongoing investment in the industry, the size and growth of the industry, and the substantial increase in incentives from the Inflation Reduction Act over the next 10 years, we remain very excited about our future in this industry and expect the U.S. solar industry to accelerate even faster. We're in a very good position to accelerate our business as well. So with that, I'll turn it over to Tim for a review of our results.

Thanks, Bill, and good morning, everyone. I'll take you through our consolidated segment results, starting on Slide 6. Adjusted third quarter revenue increased 6.4% to $389 million. Approximately half of this growth was organic and was driven by participation gains in price management in the Residential segment, partially offset by continuing end-market supply chain challenges and project delays in the Renewables and Agtech segments. The other half resulted from the inclusion of our acquisition of Quality Aluminum Products in the Residential segment, which we completed in August. Backlog at quarter end was $356 million, down approximately 7% from the third quarter 2021, driven by customers awaiting greater visibility on near-term solar panel availability and project timing in Agtech, partially offset by continued demand in Infrastructure. Adjusted operating income and adjusted EBITDA dollars increased 16.2% and 14.2%, respectively, in the third quarter with adjusted EPS up 19.1%. Margin improvements in the business were driven by participation gains, price management, business mix and 80/20 initiatives with Renewables, Agtech and Infrastructure margins continuing to expand and Residential margins down slightly. Weighted average diluted shares outstanding decreased 3.7% to 31.8 million in the third quarter through our share repurchase program, which I'll discuss in a moment. Now let's review the segments starting with Slide 7, the Renewable segment. Revenue decreased 14.7%, and our backlog was down 9% as customers remain in a holding pattern on existing and new projects as they look for improved visibility on solar panel availability. Our customer project planning activity is very strong and is accompanied by a robust pipeline of contracts in process. As a reminder, we only include actual orders with signed contracts and deposits in our backlog. Purchase orders without signed contracts and deposits and our verbal agreements with customers are not included in our new bookings or project backlog. Profitability continued to improve with adjusted operating margin of 12.9%, up 150 basis points over last year and 590 basis points sequentially, while adjusted EBITDA improved 190 basis points over last year and 570 basis points sequentially. Improvement was driven by project management, price/cost alignment and field operations efficiencies. We expect continued improved execution to drive margins throughout the remainder of the year. Our integration is on track and accelerating, and our common ERP system is providing better visibility and enabling us to accelerate implementation of best practices in our supply chain. Our in-sourcing initiatives are underway and expected to provide better flexibility to meet customer demand. Let's move to Slide 8 to review our Residential segment. Segment revenue increased 25.7% with 19% organic, representing our ninth consecutive quarter of double-digit growth. Quality Aluminum Products, which we acquired in August 2022, contributed an additional 6.7% of growth, and performance is expected to continue in the quarter. Organic revenue was driven by pricing carryover from prior quarters and participation gains, particularly in our roofing and related repair businesses. We are experiencing normal seasonal demand patterns and have begun to see some initial incremental repair demand from Hurricane Ian. As a reminder, 80% to 90% of our Residential business is driven by existing home repair, either because of aging or weather damage. Historically, home repair has not seen significant impacts from changing interest rates. Repairs, especially the roof, typically occur regardless. We remain engaged with customers about their plans and expectations over the next few quarters, keeping a keen eye on any changes in demand. Segment adjusted operating income and EBITDA grew 22.6% and 21.6%, respectively. Adjusted operating EBITDA margin contracted 40 and 60 basis points, respectively, due to the inclusion of our recent acquisition, QAP. On an organic basis, our margins were essentially flat with last year as operational improvements were offset by unfavorable product mix. Going forward, we expect QAP margins to improve as we execute our integration plan and implement 80/20 with the QAP team. Our initial integration work is progressing, and our new team members are very engaged in the process. Last quarter, we went live on SAP in our mail and package business, which will improve operations with more scalable and effective systems and processes. We will continue our SAP investment as we strengthen each operation with common systems and processes and data and analytics to leverage supply chain, 80/20 initiatives, material management, customer service and connectivity, and our brand. We are on track to achieve our objectives for top and bottom line growth for this business this year.

Let's move to Slide 9 to review our Agtech segment. Adjusted revenue decreased 7.3% as project schedules primarily in produce continued to shift. The commercial business continues to be robust with good momentum, and the cannabis business is strengthening as we see progress on regulatory legislation in many states. After growing 30% last quarter, backlog decreased 7% against a strong comparison last year. Demand remains strong, and we continue to have a number of sizable projects in the final planning stages. We continue to expect accelerating momentum for the remainder of the year and into 2023. Segment adjusted operating and EBITDA margins improved 200 and 230 basis points, respectively, as the benefits of higher-margin backlog converted into a stronger business mix, improving price/cost management, and continued improvements in supply chain, 80/20 and lean initiatives. As a result of these improvements, we expect steady performance as we end the year. With respect to the process equipment sale, we are in active discussions, and we'll provide updates when we have them. Let's move to Slide 10 to review our Infrastructure segment. Segment revenue increased 9.1% on timing of project work and increased non-fabricated product demand. Order backlog increased 11%. We expect increased spending related to the Infrastructure Investment and Jobs Act to continue to impact us positively through the end of this year and into 2023. Segment adjusted operating income increased 62.5% and operating and EBITDA margin 380 and 370 basis points, respectively, driven by price material cost management, volume leverage, positive mix and improved operating execution. We expect margins to improve on a year-over-year basis for the remainder of 2022 as projects negatively impacted by plate steel inflation are completed. Let's move to Slide 11 to discuss our balance sheet and cash flow. At September 30, we had $273 million available on our revolver and cash on hand of $22 million. We generated $38 million in cash from continuing operations in the quarter. Excluding QAP, we invested $5.9 million in working capital during the quarter. This represents a decrease of $59.3 million from the $65.2 million we invested in the prior year quarter when we were managing for disruptive supply chain. Current quarter's investment was driven by reductions in receivables and inventory offset by decreases in payables and other liabilities. The disruption in supply chains has taken longer to moderate, causing a delay in our plans to further reduce inventory investment. The reduction in accounts payable was affected by the timing of inventory purchases during the quarter in terms of suppliers. The reduction in other liabilities was driven by a decline in billings of excess of costs, which results from the timing of billings based on contractual project billing schedules and customer deposits as we continue to work on projects in-house and backlog declined on lower levels of new project bookings. During the quarter, we made a net cash investment of $51.6 million for the purchase of QAP, largely by drawing on our revolver. QAP added $24 million of net working capital, $15 million in inventory, $20 million of receivables, and $11 million of payments. We expect to optimize QAP's working capital investment during integration. Our net leverage at quarter end remained approximately one turn. During 2021 and early 2022, we invested in inventory to ensure strong support for our customers' needs during the current supply chain challenges, which enabled us to increase our participation. However, ongoing extended lead times in the supply chain have required us to keep inventory levels higher than we expected. As a result, we've reduced our target for 2022 free cash flow generation to approximately 6% of revenue from 10% to account for the delay in inventory reduction. We continue to expect strong cash flow generation for the remainder of the year with continued improved earnings and reduction in working capital investment. As always, we expect to use generated cash flow to fund investments in organic and inorganic growth along with opportunistic stock repurchases, supplemented as needed by use of our revolver depending on timing of any M&A or repurchases during the remainder of the year. Let's move to Slide 12 to update you on our share repurchase program. During the third quarter, we repurchased 138,500 shares with a market value of $5.5 million or an average price of $40. We funded this repurchase through the revolver. Quarter end, we had 31.5 million shares outstanding with a weighted average of 31.8 million during the third quarter. Now I'll turn the call back to Bill. Thanks, Tim. Let's move to Slide 13 for an update on our key priorities. Simplify and Focus. The journey continues for us, and we are staying the course and really trying to focus on what we can control. The last 24 months have been a tremendous learning experience for our team. Given the ever-changing end market macro environment, it's really forced us to assess and challenge many of our operating paradigms. I believe we've made solid progress with change management in each of our businesses, and we have plenty more opportunity in front of us. Our priorities have not changed. First and foremost, driving 80-20 at service speed, winning new business, productivity and costs, expanding margins and good cash performance; secondly, managing the supply chain to minimize disruption but also optimize cost and reduce our working capital; third, accelerate our digitization in our operations. It's quote to cash, it's customer service levels, it's supplier connectivity and it's cybersecurity; fourth, improving organizational health, agility and flexibility to operate in this current environment and create the best environment we can; and finally, just continue to conduct business the right and responsible way every day. Let's turn to Slide 14 and we'll review our 2022 guidance. Given our performance to date and our current demand profile going into the fourth quarter, we are raising the lower end and narrowing the range of our GAAP and adjusted EPS outlook. Our outlook for consolidated revenue remains $1.38 billion to $1.43 billion compared to $1.32 billion in 2021. We now expect GAAP EPS to range between $2.90 and $3 compared to $2.25 in 2021. Adjusted EPS is expected to range between $3.30 and $3.40 compared to $2.86 in 2021. Now I want to switch gears and talk briefly about 2023. We're currently engaged in our annual budget planning process, and we will finalize our plan in December. I'd say the macro environment continues to be dynamic. Our end markets are evolving, and our customers are working through their respective plans as well. With general market and customer input, let me share some of my initial observations on our end markets. Let's start with renewables. The market is expected to grow with a slower first half, accelerating in the second half as panel supply improves. Inherent end-market demand remains strong as customer planning activity is high with a robust project pipeline. Key commodity prices are coming down, and the Inflation Reduction Act should provide a positive impact in 2023 once the final guidelines are published. Switching to Residential, I think the market is returning to its normal seasonality and moving toward traditional normal growth rates. As a result, the level of business in the fourth and first quarter will be lower than what has been experienced in recent years. Interest rates and inflation will continue to impact new housing construction, while housing repair activity should remain relatively solid. Improved supply chain reliability will help optimize channel inventory, and market prices will begin to shift downward as input costs decline and inflation is less impactful. In Agtech, similar to Renewables, there's strong customer planning activity and a robust project pipeline evolving. Consumer demand for fruits and vegetables remains solid and will drive produce growers to invest in more growing capacity. The momentum in the commercial market will continue, and investment in cannabis growing capacity will increase as we see progress in regulatory legislation in many states. Finally, Infrastructure. The infrastructure bill will continue to drive market demand as state DOTs have better visibility of and access to funding over the next 5 years. Airport authorities are also in a stronger position to fund general runway maintenance similar to pre-pandemic levels. For us, it's going to continue to be about simplify and focus, focusing on what we can control. Our strategy is solid. Our priorities have not changed. We have a lot of work to do as markets evolve, and we have plenty of opportunity in front of us. I also want to take a moment to acknowledge our teams in Florida and their families, many of whom live and work in the Fort Myers area where Hurricane Ian made landfall. Everyone on our team was impacted in some way by Hurricane Ian, but fortunately, everyone was able to remain safe during the storm. A month after the storm hit, our folks continue to deal with damage to their homes and communities, and they have spent countless hours helping others recover and find support. Despite all of this, our teams continue to manage the business and take care of our customers. I am incredibly proud to have this dedicated and resilient group of people on our team. So I just want to give them a shout-out. Now, let's open up the call, and we'll take your questions.

The first question comes from Daniel Moore of CJS Securities.

Maybe we'll start with the residential side of the business. If you mentioned this, I was a little late to the call, so I apologize. The 19% organic growth, what was pricing versus volume during the quarter?

Yes. Same mix, Dan, as we've been experiencing where it's a combination of price still being the main driver, but volume hanging in there as well. That volume is coming through, again, participation gains that we've been winning over the last year or so that continue to be reflected at this stage.

Helpful. And what are you hearing from your residential customers in real-time, including big-box retailers? Any inventory reductions given incremental uncertainty and just kind of sequential order trends monthly into Q3 and into Q4?

On a volume basis, I don't think we've seen a change at the big-box level over the last few months. That's our take based on what we see at POS. As I mentioned during the call, the last couple of years, we have really not seen the normal seasonality in Residential business as we would have experienced over the last 50 years, mainly because the supply chain was such a challenge around the world. We didn't get a break in Q4 and Q1 the last two years. As the economy has started to slow, that seasonality will come back into play, which is fully expected. We thought that was going to be the case coming into this year. As a result, things will ramp back up as they normally would as we get into next year. But in general, volumes at the big-box level have stayed relatively consistent with what we've seen in the last couple of months. When you start getting into situations like Hurricane Ian and so forth, there are a lot of variables in our business as well.

Got it. And the corollary to that, just margins, your ability to maintain the strong margins you've had as, let's say, seasonality in demand normalizes to some degree?

Yes. We fully expect to be able to maintain the margin performance that we've been generating. This particular quarter, we were relatively flat year-over-year. There was some product mix play in. QAP, as we mentioned when we acquired the company, is accretive to Gibraltar but has a lower margin than our core Residential business initially. That will change as we integrate and drive that performance upwards. So as we always say, we expect to continue to drive top and bottom-line results as we move forward, and our thoughts haven't changed on that front as we go into this next phase of the economy.

All right. One more and I'll jump back in queue. But switching to Renewables. Thank you for the color, obviously, as it relates to the UFLPA and the DOC. It sounds like you still expect full year growth next year, net-net. Once we have, let's say, a little more clarity on the supply chain, how long do you expect it to take for the supply to ramp back up and work its way through the channel? I mean once your customers are feeling more comfortable, does it take a quarter or two for that supply to flow through and into your business?

Yes. It does vary a little bit, Dan, on that front. But I would expect that you'll see, based on the readiness that we know customers have now with their projects in the planning phase, the last stages to get the projects up and running are going to progress relatively quickly. I think there's a lot of panels that are waiting to come in. Therefore, I would expect that within a quarter, you'll start to see things coming back to more normal levels once that starts happening. I don't think it will take 6 or 9 months for that to occur. There is a strong desire to move forward, and it will happen sooner rather than later once the panels start to flow in.

The next question comes from Ken Zener of KeyBanc.

Could you talk to inventory? It seems to have had an impact on your free cash flow, and you talked about building inventory to make sure you could service your customers. But as you highlighted on Slide 4, input costs are rolling over. Can you talk to how you're managing the risk that you didn't acquire inventory that is above market value and that it will be a drag on your margins?

Right. So two points on inventory. When we went into the quarter, we expected some of the supply chain issues that were expected to resolve in Q2 to help us as we went into Q3. I think they took a little longer to get worked out than we anticipated, which forced us to maintain a little more inventory on the books than we thought going into the third quarter. That has had an impact, and that is just a timing element of the supply chain, which has started to work itself out. We've talked in the past about price/cost alignment and how we manage the flushing out of our current input costs while market prices start to move and change. We anticipated coming into this year that this would be the case with market prices starting to shift. We assumed that to happen sooner than what has probably occurred this year. But as that happens, it's about working with our customers while gradually driving down our inventory costs on the books as prices move correspondingly. We manage this on a customer-specific basis. I wouldn't suggest that we have a gigantic risk in front of us. Our customers are partnering with us to navigate through this. A lot of that inventory was brought in to ensure strong service for our folks. Customers have been very supportive as they know we managed this for their needs. We hope to manage that relatively well, and we're starting to see that in Q4 as we strive to position ourselves for 2023.

Good. I appreciate the comments about the Residential trends. However, I'd like to focus on renewables, which I find to be a more complex business. Achieving a margin of 12.9% is significantly better compared to the first and second quarters. You mentioned earlier in the year that you were sustaining that performance. Could you clarify if the renewable market is stronger in the first half compared to the second half?

Yes. So I believe as it relates to 2023, Renewables will grow year-over-year. The growth in total for the year will depend on the ramp between the first and second half. The first half will likely be slower as people work through the UFLPA importation process.

Got it. Okay.

So one, always remember there's seasonality in this business, and the first quarter is always the lowest because of construction during the toughest weather months. That's always been the case for the renewables industry. It's always been the case for our business. So that's one factor to consider. Secondly, if you recall, the first quarter of 2022 was a very challenging quarter for us due to a lot of project movements that occurred the previous year flowing into Q1. From a comparison perspective, I believe we're in a much better position going into next year than we were in this past year in terms of our top line situation. We are set up to continue with double-digit margins in this business, and we expect that momentum to carry into next year. Those margins, obviously, will be stronger in Q2, three, and four, which are historically our busiest quarters, generating the highest margins. So we expect a solid year in renewables going into next year as well.

Right. And I apologize, just one last one on Renewables. Could you talk to your understanding or conversations with your clients, who are developers, and their ability to manage costs and returns, especially with the yield curve moving so significantly? Is that a headwind separate from all the issues you've faced this year?

I don't know if it's a new headwind, so to speak. I mean this environment has been ongoing for some time. If you think about the industry in 2021, before the impacts of yields and overall cost of capital relative to interest rates and so forth, we experienced significant inflation that hit this industry in a major way. We talked a lot about that. For example, hot-rolled coil steel was $1,000 more per ton year-over-year at the same period in Q3. That's one of the biggest components influencing our customers' economics. Yes, you've had interest rates rise, and that has created some headwinds in the projects. But on the flip side, you've seen a significant decline in operating costs too. Therefore, there's a balance our customers must consider. Each customer has a different profile regarding required returns. But based on the level of activity we're currently engaged in regarding design, development, and project realization, it's as active as it's ever been. The amount of land acquired and earmarked for projects remains robust. Finally, the Inflation Reduction Act can provide substantial benefits in 2023. The guidelines from the Department of Treasury and Department of Labor are anticipated soon, which will unlock additional benefits for customers when evaluating their decisions. However, ultimately, customer projects hinge on the flow of solar panels, and once we see more of them, things should normalize and that will positively impact our business.

The next question comes from Julio Romero of Sidoti.

Hello? Can you hear me there?

Julio, are you there? Yes, we can hear you.

This is Stefan Gil on for Julio Romero. I guess the question is on the Renewable segment, what do you foresee as the key variables for succeeding in 2023?

Well, number one is the panel supply for the industry. Again, that's not what we buy. It's what our customers do, and that's been a challenge for the last 4 or 5 quarters. We hope the industry will gain its footing after dealing with the new UFLPA regulations. Those panels must begin to flow into the country to advance the projects our customers have been planning. That's probably the number one factor. Number two is how inflation impacts their returns and encourages faster actions. The major components we discussed earlier are coming down significantly compared to last year. Cost of capital has increased due to rising interest rates; however, the Inflation Reduction Act is extremely promising for many customers, and they hope to take advantage of it in 2023. Thus, there are multiple moving parts and levers to consider, but those are the top three that matter most for the industry as we head into 2023, and that will reflect our business as well.

That was helpful. My second question is on the Residential segment. Can you talk a little bit about the QAP deal and the strategic rationale?

I'm sorry, I didn't hear the first part. Talk a little bit about the what?

Can you talk about the QAP deal?

Oh, QAP, sorry. Yes, and the second part of your question?

The strategic rationale behind it?

So we acquired QAP during the quarter. They are based in Hastings, Michigan, which is a company we've known for quite a while. I had discussions with them for about the last 9 or 10 months. The rationale for us moving forward includes an opening of channel opportunities, as they are significant in residential wholesale, which helps balance our portfolio in terms of channels. They also introduce us to geographic locations that we haven't traditionally operated in. Additionally, QAP brings a new set of products that will assist us in serving our customers better, creating cross-selling opportunities that will be beneficial for both our core Gibraltar business and their customers. We felt we acquired this business at a good price and the right multiple. We're excited to have them on board and look forward to our integration and driving the anticipated synergies.

All right. So can you please speak to the margin profile of QAP? It appears to be below that of the legacy Residential segment. So maybe you can talk about the....

Yes, it is. As we mentioned, the plan is to drive the margins more in line with our historical performance in our core business. It will take some time, but we see good synergies getting realized starting in 2023. The integration of their supply chain to harmonize with our operations will initiate an improved margin performance. We expect those margins to align more closely with our core margins as we approach and move through 2023. There will be a constructive trajectory in margin improvements ahead.

The next question comes from Walt Liptak of Seaport Global.

I wanted to ask, thanks for the 2023 outlook you provided at the end of your remarks. If we look at all those factors, is 2023 expected to be a revenue growth year, and what are your thoughts on the potential for EPS growth as well?

Yes. I would say, Walt, you know as well as anybody, we expect to grow both top and bottom lines each year. I think that's a reasonable expectation as we approach next year. We will have a better view as we finish planning. Understanding the details of each quarter over the next one and a half months is where our focus will be. Our intent going into next year is based on participation opportunities we are currently validating, especially in the residential business, which I think will be helpful. We need the panel situation in the solar industry to progress, and when it does, we're well-positioned to execute effectively. Our Infrastructure business is strong, and Agtech is also boosting our pipeline with larger projects that will aid in starting next year positively. In summary, Renewables, Agtech, and Infrastructure contribute to half of Gibraltar, and we believe this segment will be relatively resilient to recessionary impacts. The challenges facing Renewables are largely unrelated to the general economy; they stem from trade issues needing resolution. There are several tailwinds, including the IRA providing accelerative benefits. Infrastructure has a 5-year support plan in place, and Agtech thrives on demand in consumer markets for produce. In Residential, we rely on repair services where new housing has experienced a drag for some time now. Overall, we intend to drive participation through QAP to further bolster our growth in 2023.

Okay. And in the Residential segment specifically, the comments you made about Hurricane Ian sounded mixed. Could you elaborate on this or share any damage data or roof replacement data from that hurricane?

Yes. I'm sorry if I was unclear regarding Hurricane Ian; we are indeed observing its impact. We began seeing results almost immediately. The severity of impact takes time to understand and analyze because the initial weeks are often spent on cleanup, followed by evaluating damage magnitude and accessing available labor for repairs post-storm. We've been working vigorously with our wholesalers and retailers to quickly respond to customer needs. The extent of impacts might last months or even a year, depending on cleanup speed and magnitude of damage. We are already witnessing heightened demand for repairs, and we're staying agile to address this situation. Our teams are supplying water and essentials for our operations in areas needing assistance. Now we're seeing projects where deliveries are targeted to parking lots due to store damages or limited space inside. Consequently, we’ll gain more clarity with time on the scope of demand, but we do recognize the current orders being influenced by these circumstances.

Okay. Sounds great. Then, switching over to Renewables, your earlier comments on the expectation of double-digit margins in 2023 suggest this would apply to the second half of the year rather than the first quarter. Is that correct?

Yes. From what we said at the outset of the second half, we intend to run double-digit margins. It also depends on the momentum we maintain into next year. As we've noted, there is seasonality inherent in this business: Q1 is typically the lowest revenue quarter due to construction activity in the colder months. Our margins in Q1 aren't fully reflective of expectations for the entire year, but we do have a positive outlook for 2023. As we saw in Q2, three, and four historically, they are our busiest quarters that typically generate our strongest margins. We anticipate a solid year in renewables next year.

Yes, that sounds great. We noticed that revenues were down in Renewables, but there was strong operating performance. It seems to suggest that your business will have a solid run in terms of operating efficiency even when revenues dip, right?

Yes. As we conclude our planning, we will have a clearer understanding of our objectives. As indicated earlier, our performance will be markedly different from Q1 of 2022 as our comps were particularly difficult. During Q2, three, and four, we generally see higher margins as a function of increased volume at those times. Exciting developments lie ahead for our business as we anticipate more consistent panel supply flowing through the channel.

Ladies and gentlemen, this concludes our question-and-answer session. I will now turn the call over to Mr. Bosway for closing remarks.

Thank you again for joining us today. We do expect to present at the BofA Virtual Global Energy Conference as well as participate in the CGS New Ideas Conference in the first quarter of 2023. I just want to wish everyone a safe, healthy, and happy holiday season, and we look forward to updating you again when we report our fourth quarter results. So thank you and have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and you can now disconnect your lines.