Greetings and welcome to Gibraltar Industries' Third Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Carolyn Capaccio with Alliance Advisors IR. Thank you. You may begin.

Thanks, Rob. 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 Joe Lovechio, 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. 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. Further, please note that adjusted results exclude the net sales and operating results of the Japan Renewables business that was sold on December 1st, 2023. 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 these 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'll turn over the call to Bill Bosway. Bill?

Thanks, Carolyn. Good morning, everyone, and thank you for joining our call today. First this morning, we did issue a press release announcing that James Metcalf has joined the Board of Directors for Gibraltar. Jim brings significant experience to Gibraltar, given his successful tenure as both a public company Chief Executive Officer as well as a Board member, and we are excited to have Jim join our team and be part of Gibraltar's future. Secondly, I'd like to introduce Joe Lovechio, who joined our team in August as our new Chief Financial Officer. Joe will present our financial results today. As we announced earlier this year, after 20 years with Gibraltar, Tim Murphy will retire in early 2025. Tim and Joe are working closely together to ensure a smooth transition, and as Joe continues to accelerate through his learning curve and spend time in the field with each of our businesses, Tim continues to lead a number of important initiatives across the organization we plan to complete prior to his retirement early next year. So I will start with an overview of third quarter results, and then Joe and I will provide both financial and operating updates and a closer look at what's happening in our markets. Then I will walk you through our 2024 outlook, and then we'll open the call for your questions. So let's turn to slide 3, titled "Third Quarter 2024 Review." Our third quarter results were within the revised range we announced on October 11. Consolidated net sales on an adjusted basis were down 6%, with revenue in the Renewables and Residential businesses down in the quarter partly offset by significant growth in Agtech, which was up 34%. On an adjusted basis, operating income decreased 13.6%, EBITDA 11.7%, and EPS 7%, with the Renewables business having a sizable impact on our overall margin performance. In fact, during the quarter, excluding the Renewables business, the rest of our portfolio performed relatively well and collectively delivered operating income improvement of 9.3%, or 170 basis points, EBITDA improvement of 7.8%, or 170 basis points, and EPS improvement of 18.2%, while sales were down approximately 2%. We generated $65 million in operating cash flow and $59 million in free cash flow during the quarter as well. Backlog for the quarter was down approximately 15%, again driven by the solar industry challenges facing our Renewables business, which I will discuss when I review the solar market situation. Agtech backlog was down slightly from last year's level, which is related to the timing of signing contracts before quarter end. However, the number and value of customer-approved projects in the pipeline for signature remain very robust. The infrastructure backlog increased over last year, and quoting activity also remains very active in this segment. Overall, while fighting through the ongoing solar industry challenges we are managing the rest of the portfolio relatively well, and we carry this momentum into the fourth quarter. If you consider the midpoint of our full year guide and compare it with our year-to-date results, you'll see a plan in Q4 for us to deliver relatively flat sales and improve year-over-year margin performance, despite anticipated ongoing challenges continuing in the solar industry and with our Renewables business. So let's dive into the business segments, and I'll hand it over to Joe.

Thanks, Bill, and good morning, everyone. I'm excited to be here with the Gibraltar team. I've been introduced to some of you, and I look forward to working with all of you. Let's start with residential on slide 4. Net sales for the residential segment decreased by $15.3 million, or 6.7%, driven by a residential market that continues to be soft both for repair and new construction markets. Adjusted operating and EBITDA margins expanded 110 and 120 basis points, respectively, driven by a healthy list of 80/20 initiatives, solid productivity improvements, effective supply chain, and price/cost management. We'll continue to drive participation across both geographic and market expansion initiatives and execute well in today's market environment.

So let's move to slide 5, and we'll take a look at the residential market as well as our expansion initiatives and our recent new product launches. Starting with the market, as we described in our pre-earnings release on October 11, the end market remains soft as reflected by our big box retail customer point of sales data as well as our industry data. Existing home sales continue to be slow in most markets. Home prices remain high, and interest rates, which have recently picked up, are keeping some potential home buyers on the sidelines. Specific to the roofing market, US roofing shingle shipments decreased approximately 2%. When you exclude the Texas market which was up 20% — almost 21% for the quarter and represents approximately 20% of the U.S. shingle market, the rest of the U.S. was down 6%, also impacting revenue in the quarter where delays in participation gain awards with customers. As mentioned in our last call, with a slower market, the transition to new suppliers can be impacted by the speed at which incumbent inventory sold through the market. As an example, we were impacted by approximately $4 million during the quarter, but we expect this to correct itself for the next couple of quarters. Nonetheless, we continue to pursue market expansion and are launching new locations during the current quarter and in Q1 2025. And they will provide a presence in the Mountain West, Mid-Atlantic, and West Coast regions. We'll reveal these specific locations in the markets they serve once they are up and running. On the new product front, we launched two new products in the third quarter and are set to launch our newly designed patented pipe boot flashing in the current quarter. Pipe boot flashings are typically fitted over a pipe or first exhaust vent located on your roof, and the purpose is to create a watertight seal to prevent moisture from leaking through your roof. This is a highly competitive offering that addresses over $100 million of addressable market in the US, and we are very excited to bring it to the market. Let's now shift over to renewables.

So on slide 6, adjusted net sales for renewables decreased $17.5 million, or 17.2%. The business continues to be impacted by the ongoing effects of trade and regulatory dynamics. As a result, the pace and consistency of demand continue to be a challenge for the industry, but we expect demand to improve as the second Department of Commerce investigation comes to conclusion early in 2025. Backlog was similarly impacted by these headwinds and was down approximately 24% in the third quarter. Adjusted operating and EBITDA margins decreased 1040 and 970 basis points, respectively, as a result of lower volume, trade and regulatory disruption, and the launch and learning curve of our 1P tracker.

So, guys, we have two slides I want to share with you on a renewal situation. Let's move to slide 7, and we'll go through the 1P tracker launch. Our 1P tracker launch continues to gain traction across a widening range of customers. Since Q4 of 2023, we've booked over 340 megawatts across 64 different projects with 18 different customers. We're also engaged in designing or quoting over 100 — 1.6 gigawatts of opportunities, mostly for community and solar applications of medium, small, and large sizes. The pictures in the upper right-hand corner of the chart are recently completed TerraTrak for Foxglove just under 100 megawatts in size. As shown in the bottom-right hand corner of the slide, we just started the first TerraTrak project on pile foundations for Enersys, a three megawatt field. Having a tracker solution available with either pile or traditional foundations opens up more geographic markets for us as foundation preferences vary by region, soil type, or in some cases, general topography. Our launch learning curve continues to accelerate with additional improvement coming with our supply chain as suppliers ramp volumes, improve on-time delivery, and our internal processes scale to effectively support our field operations team and customers while we navigate through the current industry dynamics, which brings me to our next slide, an update on the US solar market. So let's turn to slide 8.

Today, I want to talk specifically to the active AD/CVD investigations. First, if you recall, in conjunction with the first Department of Commerce AD/CVD investigation, the administration issued a Presidential Proclamation allowing solar panels to enter the US duty-free for a period of two years. This proclamation expired on June 3, 2024, and the industry was effectively given six months or until December 3, 2024, to install panels that were imported while the proclamation was in effect or be charged with additional duties as determined by the outcome of the first DOC investigation which calls for both anti-dumping and countervailing duties. Additionally, this August, the American Alliance for Solar Manufacturing Trade Committee filed critical circumstances allegations with the US Department of Commerce regarding surging solar imports during the two-year Presidential Proclamation from Chinese-based companies working through Vietnam and Thailand. Two of the five countries were found to be attempting to avoid duties during the first DOC investigation. A critical circumstances finding can result in retroactive duties being imposed on panels that entered the country up to 90 days before the preliminary determinations were made in the first DOC investigation, and the industry is still awaiting the outcome of this process. Secondly, a second AD/CVD complaint was filed in April of this year alleging illegal trade practices by Cambodia, Malaysia, Thailand, and Vietnam, asking the Department of Commerce and the US International Trade Commission to apply new tariffs for both anti-dumping and countervailing duties to imported solar cells and modules imported from these countries. The Department of Commerce made a preliminary determination for the anti-dumping on October 1, and final determinations are expected by December 16. For countervailing duties, the Department of Commerce made a preliminary determination on July 18, and a final determination was made on October 1. The US International Trade Commission made preliminary determinations for anti-dumping on June 10, and a final determination is expected January 30. For countervailing duties, a preliminary determination was also made on June 10, and a final determination is expected November 15. Finally, issuance of orders for the anti-dumping investigations is expected February 6, 2025, and for the countervailing duty investigations November 22, 2024. So as you might expect right now, solar developers continue to deal with the pretty big unknowns and moving targets: installation mandates, investigation outcomes, critical circumstances rulings, accurate module cost availability, and administrative requirements that come with all the above. These trade issues intended to protect the domestic solar industry are serving to pull focus and make the business environment much more complex. That being said, once the industry gets past the December 3, 2024 deadline and understands the final rulings from the second AD/CVD investigation which is due in Q1 2025, we expect customers will return to a more normal business cadence and pace. In the interim, we will continue to support customers, accelerate TerraTrak launch, and stay focused on optimizing our profitability and operating performance. With that, let's move on to Agtech. Moving to slide 9, Agtech adjusted net sales increased $10.6 million, up 34%, driven by the acceleration of project starts in our produce segment where we have designed and constructed growing facilities for strawberries and lettuce production. Third quarter backlog decreased 3%, which is related to the timing of anticipated project bookings for which design work has been completed. Segment adjusted operating and EBITDA margins expanded 450 basis points and 410 basis points, respectively, driven by volume, solid project management execution, favorable product mix shift, and 80/20 initiatives. We expect margins to continue to improve through the end of the year. Let's move to slide 10. As expected, momentum in the Agtech business is accelerating as new projects, particularly in our produce business, have started and are in process. We expect this momentum to continue as we secure additional projects in both 2024 and 2025. Consumer demand for locally grown high-quality fresh fruits and vegetables continues to drive investment and grow capacity which is really needed to keep pace with requirements from both food retailers and food service providers. The most exciting thing about this industry for both today and its future is that it is effectively sold out. The produce grown in these facilities in North America represents only 2% to 3% of the total produce grown, whether grown indoor or outdoor in North America. Thus, the industry has significant growth runway in its future. We have two current project examples: on the left, we are just completing the fifth phase of seven phases with Boem Berry Farms, which grows strawberries. Boem Berry is effectively the largest CEA strawberry facility in the world, spanning 120 acres and designed to grow 12.5 million pounds of strawberries annually. This is a turnkey operation with the structure and 20-plus subsystems designed and/or integrated, manufactured, constructed, and installed by Prostin, a brand in the market. The contract value of Phase 5 is approximately $25 million, and we will start and complete Phase 6 in 2025 and Phase 7 in 2026. On the right is a new $35 million-plus project with Kingsone Farms, where we are designing, manufacturing, and constructing the first fully automated purpose-built facility for lettuce. Phase 1 starts this quarter and Phase 2 spans 13 acres for a planned annual production of 21 million heads of lettuce. The site, when additional phases are completed, will span at least 40 acres with an additional production of over 60 million heads of lettuce. We have a number of producing commercial projects in the active design phase and expect additional signings this quarter flowing into 2025. We continue to apply 80/20 and further optimize our operating systems and facilities with the intent to consistently deliver higher margins going forward. Now let's move on to our infrastructure business. Moving to slide 11, infrastructure segment sales decreased $1.8 million, or 7.2%, reflecting the comparison against the timing of a large project last year. Backlog increased 3% with demand and quoting at robust levels supported by continued investment at the federal and state levels, participation gains, and new products we have introduced. Segment adjusted operating and EBITDA margins each improved 230 basis points, driven by product line mix, new products, 80/20 initiatives, and continued strong execution. We expect continued strength in orders, sales, and margin expansion in 2024. Let's move to slide 12 to discuss our balance sheet and cash flow. At September 30, we had cash on hand of $229 million and $395 million available on our revolver. During the quarter, we generated $65 million in cash from operations from net income plus cash generated from working capital of approximately $20 million. Our free cash flow generation for the quarter was 16.4% of sales, and we continue to expect 2024 free cash flow to be approximately 10% of sales for the year. Also during the quarter, we used $9 million to repurchase approximately 139,000 shares of common stock at an average price of $64.45 per share. At quarter end, we had approximately $80 million or roughly 40% remaining under our $200 million stock repurchase authorization. Our revolving credit facility remains untapped, and we remain debt-free. We expect to generate strong solid cash flow for the remainder of the year. Our capital allocation priorities for 2024 are to continue to invest in our organic growth and operating systems for scale, with capital expenditures between 1% to 2% of sales. We continue to be active in our pipeline of high-quality M&A opportunities. We have discussions in process, and our strong balance sheet provides flexibility. We think there is a higher probability in the near term in the residential and agtech segments. Finally, we plan to continue to opportunistically return value to shareholders through the approximately $80 million remaining authorized under our repurchase program, funded by cash generated from operations and the use of our revolver depending on the timing of any M&A or repurchases.

So let's move to slide 13 and we'll review our 2024 guidance. As mentioned earlier, we are reconfirming our recently updated outlook. While we are dealing with some in-market challenges, particularly in the solar industry, we expect to deliver solid performance in Q4 and earnings growth for the year. We expect consolidated net sales to range between $1.31 billion to $1.33 billion compared to $1.36 billion on an adjusted basis. GAAP operating margin is expected to range between 10.8% and 11%, and adjusted operating margin is expected to range between 12.4% and 12.6%, flat against last year. Adjusted EBITDA margin is expected to range between 15.3% and 15.5%. EPS expectations are on a GAAP basis between $3.57 and $3.71 at the midpoint of this range, up compared to $3.59 in 2023. And adjusted between $4.11 and $4.25, up 1% to 4% compared to $4.09 in 2023. We continue to expect 2024 free cash flow of approximately 10% of sales. As for an update on our 2025 objectives, our long-range planning and budgeting processes are now in process, and we will share our 2025 plan early next year during our Q4 earnings call. In closing, as I mentioned earlier in the call, we were not able to overcome all the solar industry challenges in Q3, but the rest of the portfolio executed well, improving adjusted operating income 9.3%, EBITDA 7.8%, and EPS 18.2%. Our teams are going to continue to remain proactive. We're going to work through these respective headwinds. We continue to drive performance and expand our participation, with existing and new customers. I do want to express my appreciation to everyone in each of our operating businesses and to our corporate team for remaining resilient and focused on executing our playbook. Now, let's open up the call and we'll take your questions.

Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from Dan Moore with CJS Securities. Please proceed with your question.

Hi. Good morning, Bill. Good morning, Joe. First of all, quickly,...

Hi, Dan.

Welcome to Joe and a quick thanks to Tim for all the efforts. Obviously, over the last multiple years, greatly appreciated. Start with RESI maybe, can you break down the 7% decline in revenue between price and volume and further, what's your sense of how much of the volume decline represents kind of true end market demand versus perhaps, customers destocking inventories as we head into year end with election uncertainty, etcetera.

It's primarily about volume. This quarter experienced significant price impacts across the business. The variations by region are noticeable. For instance, Texas saw a 20% increase, while Florida faced a 20% decrease, influenced by high shingle usage in that market. Most states reflected negative trends, except Texas. The performance appears to be closely tied to regional positioning at this point in time. Observations from point-of-sale data also show regional variations, with stores in different states experiencing various conditions. I don't believe there has been any destocking from Q2 to Q3; rather, it seems to have stabilized. As we move into Q4, we can expect a return to typical seasonal patterns, so volumes will likely decline as they usually do. Once the corrections occurred, they have remained steady, which is evident in the point-of-sale data we've been gathering.

Helpful. And the margin performance in RESI obviously continues to remain impressive given the top line softness. Was there any benefit from mix in the quarter? Is it all pretty much reflective of operating efficiencies, cost controls, etcetera?

Yes, a lot of 80/20. People ask us every day, when are you going to run out of that? And we just don't, because it's a combination of your expectations go up, and you have to get a little bit better. Our team continues to find 80/20 initiatives, and those result in better operating performance through productivity and execution. We stayed laser-focused on price/cost management, and our supply chain is doing a really good job. I think on that front, we're staying in the business, if that makes sense for us. We got out of some business last year in certain regions that didn't make sense for us. So I would just say the playbooks we've demonstrated over the last few years will continue to do that. Clearly, some of the expansion initiatives I referenced that will be coming shortly will help us drive growth on top of the market as whatever the market does. We're excited about the things that we're doing, and expect it to read through more and more as we get through the end of this year and into next year in our residential business.

Excellent. Maybe one more and I'll come back in queue with a couple of parts on Agtech. Maybe just talk about what impacted the timing of orders as we exited the quarter, and then bigger picture, we're now at a $40 million-plus quarterly run rate. You mentioned some of the big projects that are coming, given the increases in backlogs and orders we've seen. Where can that get to over the next four to six quarters? Are we trending toward $50 million-plus, and maybe just talk about your capacity to handle potential more significant growth in that business? Thank you again.

Yes. No, I think directly you're right in us going more in that direction toward a bigger number than what we're showing right now. The projects we anticipate signing will drive our momentum and our run rates better than what you'll see. Where we'll land in 2024, 2025 will be higher run rates across the board for the year as a result. As it relates to just the projects themselves, last quarter, we did $90 million of new signings. $40 million of that was supposed to happen in the previous quarter but got pushed 30 days just for stuff that these things move around because of the size of the projects and a little bit of what’s going on right now. We feel good about all the work we’ve done, and the design contracts that have been improved. We expect to sign more of those in Q4 and continue into Q1 next year, driving our momentum.

Our next question comes from Julio Romero with Sidoti & Company. Please proceed with your question.

Thanks. Hey, good morning, everyone.

Hey, Julio.

Just following up on Dan's question about residential. It sounds like some of the volume declines you saw in the quarter were across some broader geographies except for Texas. Maybe if you could speak to where you're seeing some of the participation gains that are being delayed because of customers flushing out existing inventory? And then secondly, how much of a dollar impact have you seen from that issue in October to date?

Yes. So I mentioned in the quarter about $4 million of revenue impacted with a couple of customers. However, I don't want to disclose the specifics yet as I’m not sure it’s been communicated with the incumbents. Those are specific to two initiatives that one is more of a national initiative and one is more of a regional initiative. But they affect our core business of ventilation and some trims and flashing.

And just to clarify the $4 million if that was for the third quarter or is that a quarter to date Q4?

For the third quarter. Sorry. Yes, you’d asked if you asked what year to date for Q4? Yes, we're starting to see some of that pick up a bit as we roll out each of the individual locations. As you know, there's branches involved. So as those branches roll out, we'll start to see that flow through and it will accelerate out of Q4 into Q1 as well.

Okay. That's helpful. And then just as a refresher, how do you guys define participation gains just as a refresher for all of us here? Like do you find it as just kind of winning shelf space? In your words, I guess, how would you define participation gains?

So a couple of ways to think about it: if you have an existing customer, you're actually taking on business from an existing product line that you did not necessarily have in that region or that MSA, and now you've won that business from somebody else. That tends to be how most people look at participation on an existing product line basis. And that could be a customer that you're working with and you have a portion of their business in a certain region, and you've been awarded another region or another set of stores. Also with existing customers, it may be that you're getting into a product line that you haven't historically been in. And that's another way to assess participation. The third is just expanding into geographies, and we do that through both organic and inorganic activities. For instance, when we acquired Quality Aluminum Products, it brought us into the Upper Midwest or Great Lakes region with Michigan, where we didn't really have much presence. That provided us two things: expansion into Michigan, Pennsylvania, etc., which we weren't serving because of transportation costs. But it also helped balance us with bringing more wholesale business to the business, which can be a positive mix for us.

Super. That's really helpful there. I appreciate that, guys. And then maybe just the last one for me is just on the Renewables segment. In the past, you guys have done better in segment margins even in quarters with volume declines and challenges. Can you talk about this quarter and why margins were hindered a little bit aside from volume deleverage?

It's a good question. The reality is we are in the middle of launching a brand-new product at a time that took off quicker than we thought. This is not an excuse, but launching a new product has been more challenging due to a tougher market situation. We’ve had to cut our teeth on this new product launch while navigating these dynamics, which has impacted our margins. We are working hard to rectify that.

Really helpful. I’ll pass it along. Thanks, guys.

Thanks, Julio.

Our next question comes from Walt Liptak with Seaport Research. Please go ahead with your question.

Hey, good morning everyone.

Hi, Walt.

I wanted to ask about the renewables business and thank you for doing slide 8. I wonder if you could, I think you made a comment in there that the solar business you thought was going to return to normal in early December. I wonder if you could just talk a bit about your confidence level in that, because from our experience over the last two to three years normal has been this volatility around duties and tariffs and customs and regulations. What gives us confidence that things can be back to normal, and what are you hearing from your customers?

Well, I actually think it's a combination of two things when you think about the next two quarters. One is the December 3rd deadline; everyone's trying to navigate through this date, so the sooner they get done, the better. After December 3rd, there will be added costs related to the panels because of the DOC investigation. These final determinations will give customers clarity on the costs for the panels they will deploy. Now, December 3rd isn't a panacea; it's a step that everyone has to get through, and alongside it, we need to work on these determinations. We expect things to start to normalize once we're through these investigations. The confidence derives from published dates that the government is supposed to hit. Those final rulings will offer a breath of fresh air, allowing the business environment to stabilize.

Okay, great. A couple of questions off of that: one, your renewables business, the community solar markets have grown at nice double-digit rates when obstacles are removed. Are we thinking we can get back to that? What’s the addressable market?

We'll have more details in our 2025 plan. However, we think there's still positive enthusiasm in the market. There's a significant backlog of interconnection agreements totaling about 1.5 terawatts in solar production across the US, equivalent to the entire existing production grid. People are still buying land and applying for these agreements, indicating optimism. Once we get through the delays, we expect growth rates to pick up again.

Thanks so much.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Mr. Bosway for closing comments.

I appreciate Walt, Dan, and Julio for joining us today and for asking very relevant questions. Coming up, we plan to present at the Clean Energy Symposium and the CJS Winter Conference, among other investor events planned. Thank you again for joining us today, as well as your continued support, and we look forward to catching up with you after the full-year report. Take care. Thank you.

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