Gibraltar Industries, Inc.

Greetings. Welcome to the Q4 2021 Gibraltar Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Carolyn Capaccio of LHA. You may begin.

Thanks, operator. Good morning, everyone, and thank you for joining us today. With me on the line is Bill Bosway, Gibraltar Industries Chairman, President, and Chief Executive Officer, and Tim Murphy, Gibraltar's Chief Financial Officer. The earnings press release that was issued this morning, as well as the slide presentation that management will use during the call, are both available in the investor info section of the company's website, GibraltarOne.com. Results of TerraSmart, which was acquired at the end of December 2020, are included in year-to-date 2021 results. Gibraltar's earnings press release and remarks contain non-GAAP financial measures. Tables of reconciliation of GAAP to adjusted financial measures can be found in the earnings press release that was issued today. Also, as noted on slide two of the presentation, the earnings press release and slide presentation contain forward-looking statements with respect to financial results. These statements are not guarantees of future performance, and the company's actual results may differ materially from the anticipated events, performance, or results expressed or implied by these forward-looking statements. Gibraltar advises you to read the risk factors detailed in its SEC filings, which can also be accessed through the company's website. Now I'll turn the call over to Bill Bosway. Bill?

Thanks, Carolyn. Hey, good morning, everyone, and thank you for joining us today. We'll start with an overview of the fourth quarter as well as full-year results, and then Tim will review our financial performance. We'll then pivot and discuss 2022, discuss our plans and guidance for the year, and then we'll open the call for your questions. So let's turn to slide three, titled 2021 Year in Review. So our fourth quarter results were within the range that we previewed on January 27th, capping off a year of good top-line growth as we continue to build leadership positions in markets. The overall business grew 29.8% with organic growth contributing 9% driven by market price and participation gains across the businesses. Our acquisitions contributed growth of 21% and continue to support our demand momentum as we enter 2022. Customer order activity remained robust during the year, with order backlog up 16%, reaching $344 million at the end of the year, or at year end, sorry. While margins were lower than expected, we generated positive growth in adjusted operating income, adjusted EBITDA, and adjusted EPS, despite headwinds throughout the year from accelerated inflation and availability of materials, labor, and transportation. As well, we worked diligently to manage and to minimize disruptions from COVID and keep our team safe, particularly in the first and fourth quarters when COVID infection rates were at their highest. Adjusted operating income grew 7% to $124 million. Adjusted EBITDA increased 9.1% to $157 million, and adjusted net income grew 2.5% to $92 million, or $2.78 per share. Although our profitability improved modestly during the year, it was well below our expectations. and reflects an environment that in hindsight really pressure tested our systems and processes, our organization, and some of our operating paradigms, all of which we have had to modify and improve to drive better performance as we move into 2022. In the fourth quarter, we turned the margin corner in our residential business. Margin improved 70 basis points over last year, and we delivered revenue growth of 24.4%. In ag tech, margin again improved sequentially, and versus last year, we held margin effectively flat on 17% lower volume while managing through inflation and supply chain challenges. We also made significant progress integrating our business, improving systems, and just general execution. In infrastructure, we delivered strong growth in the quarter and for the year, while improving operating margin for the year as well. And in renewables, despite a difficult fourth quarter, we really fought hard to offset industry supply chain issues and significant inflation the entire year, The executed customer demand delivered adjusted EBITDA of $44 million, an increase of 31% over 2020. Let's switch gears, turn to slide four, and talk a little bit more about inflation in the current operating environment. You know, the fourth quarter marked the fifth consecutive quarter of high commodity prices, and the market also experienced price movement across our seven core commodities. Although still at elevated prices versus the beginning of 2021, we started to see market price reductions in hot-rolled coil steel, aluminum, polypropylene resin, and ocean freight rates during the quarter. Unfortunately, aluminum pricing reversed its course and increased again in January. Structural and plate steel continue to rise during the fourth quarter, and both are currently forecasted to remain elevated or rise further in Q1 2022. Over-the-road transportation prices also increased during the quarter, and we anticipate these will remain high during 2022. Despite an elevated price situation, today's commodity environment is somewhat different. First, we are not currently seeing, nor do we expect to see, severe and rapid price increases like we experienced throughout 2021. For example, starting back in Q4 2020, hot-rolled-coil steel increased $25 per ton per week over a 12-month period, creating really an incredibly challenging and record-setting situation that we really don't expect to repeat. We expect better supply consistency and have made investments to minimize the type of supply chain disruption we experienced in 2021. So given our learning in 2021, we've had to evolve our operating playbook to manage through a much different market environment. And we continue to focus on five key initiatives, all of which were active or activated during 2021. First, keeping price and cost in balance and continue to manage in a timely and effective manner. As demonstrated in Q4, the residential business was able to balance price cost and generate both revenue growth and margin improvement over last year. Our project-based businesses, that's renewables, ag tech, and infrastructure, continue to improve their ability to better align project pricing and cost throughout the project lifecycle. Our teams have implemented various pricing approaches, whether it be increases, surcharges, et cetera, and demand shaping strategies for better alignment with customers and projects. Secondly, Really have to continue 80-20 with focus on product line and customer simplification initiatives, as well as lean enterprise and system optimization support our project-based businesses and field operations. Third, introduce new products with enhanced value propositions and cost-reduced products through design modification, alternate materials development, supply chain optimization. Fourth, implement more automation for labor optimization, specifically during times of the year where our markets experience higher seasonal demand. We're launching initiatives in our residential business and investing in more autonomous installation vehicles to support our renewable skilled operations business. And lastly, fifth, invest in inventory of key components where we believe there is ongoing availability and price inflation risk. But 2021 was a challenging year, a year with multiple headwinds converging simultaneously with both speed and magnitude, something I think many in business just have never experienced, including our team. i am proud of our team throughout the year we enhanced our leadership position across our end markets we generate significant revenue growth we remain steadfast and focused on macroeconomic and various industry headwinds as well the long-term fundamentals of our end markets haven't changed they remain very attractive and although we expect some short-term industry headwinds particularly in the solar energy market investments and improvements made in both 2020 and 2021 we're going to drive better performance starting in 2022. And really, that is demonstrated by our progress in residential ag tech and infrastructure businesses in the second half of 2021. With that, let me turn it over to Tim for a more detailed review of our results. Tim?

Thanks, Bill, and good morning, everyone. I'll take you through our consolidated segment results starting on slide five. As a reminder, my discussion will cover results from continuing operations. Also, we've added adjusted EBITDA and adjusted EBITDA margin to our non-GAAP disclosure metric set, as these measures afford greater comparability of our segment performance across our sectors. Again, you can find reconciliations of GAAP to non-GAAP measures in our press release issued today. Consolidated fourth quarter revenue increased 26.1% to $334.4 million. Organic growth of 8.6% was driven by pricing, volume, and participation gains in the residential and infrastructure segments, despite continued supply chain challenges in the quarter. We generated 17.5% growth from the 2020 acquisitions of TerraSmart and Architectural Mailboxes. Total backlog at quarter end approximated $344 million, up over 16% from fourth quarter 2020, driven by continued end market demand across our business. Adjusted operating income and adjusted EBITDA increased 1.5%, and 4.7% respectively in the fourth quarter, with adjusted EPS down 8.5%. Adjusted operating margin and adjusted EBITDA margin in the quarter were impacted, as previously announced, by compression in the renewable segment, as well as higher material, transportation, and labor costs, more than offset by pricing actions, volume of participation gains in residential, lean productivity initiatives, and favorable product line mix in infrastructure, and lean enterprise initiatives and supply chain improvements in ag tech. Our income tax rate in the fourth quarter increased over the prior year rate due to a difference in the allocation of income to states where we generated revenues, lower excess tax benefits from stock compensation, and certain return to provision adjustments. Consolidated revenue grew 29.8% to $1.34 billion, with organic growth contributing 8.9% and acquisitions adding 20.9%. as we executed on market demand with growth limited by macro challenges and supply chain disruption. Adjusted operating margin and EBITDA margin contracted 200 basis points and 220 basis points, respectively, as labor transportation costs accelerated during the year. Residential achieved positive price-cost balance in the fourth quarter. Renewables as an industry struggling with panel and key component availability and consistent project schedules. Ag tech margin improving sequentially through the year and infrastructure delivering margin improvement. Our income tax rate increased over the 2020 rate due mainly to a difference in the allocation of income to states where we generated revenues. And in 2021, we generated more income in higher tax states, mostly the result of the acquisition of TerraSmart, which was strong in the Northeast this year. And that's where taxes tend to be higher. 2021 adjusted net income increased 2.5% to 92 million and adjusted EPS increased 1.8% to 278 per share with adjusted EBITDA increasing 9.1% from 144.3 million to 157.4 million. These results are in line with the preliminary results we issued in January. And as I mentioned, demand remains strong in sustainable end markets with double-digit backlog growth. Now let's review each segment, starting with slide six, the renewable segment. Segment revenues are up 68.3%, driven by the TerraSmart acquisition. Organic revenue decreased 2.3%, and pro forma revenue contracted 5.7%, driven by product slippage on supply chain challenges continued to impact field operation schedules. disrupting solar projects. On a pro forma basis, we grew over 9% for the full year. Despite the slippage we experienced, we saw significant growth from our TerraTrac tracker in both fourth quarter and full year, and saw over a 450% increase in subscribers to our Sunfig solar field design optimization tool in 2021. Underlying demand remained strong in the quarter, despite the market headwinds I mentioned, with backlog up 27% from prior year period to $167 million on continued strong market demand. Segment adjusted operating income decreased to $1.4 million and adjusted EBITDA decreased to $3.8 million. Adjusted operating and EBITDA margins contracted to 1.3% and 3.5% respectively, impacted by the two factors we previously disclosed. First, by field operation inefficiencies created by panel availability and scheduling management, resulting in significant project rescheduling that drove higher costs per unit of revenue and redeployment of install crews to racking field modifications to support panel type and option changes. And second, unanticipated and additional inflation in structural steel, which impacted canopy racking projects. We expect the margin impacts from affected canopy projects to roll off in the first half of 2022. Our product margin mix was also impacted in the quarter by additional installations of our new TerraTrack tracker product. And margins for this product should improve as we build experience and scale. On a full year basis, we grew revenue 81% or 9.3% on a pro forma basis and delivered adjusted operating margin and adjusted EBITDA margin of 8% and 10.2% respectively. Our integration of TerraSmart into the renewables business remains on track with organization, process development, information systems, supply chain, and insourcing activities gaining momentum per plan. And we expect to deliver double-digit margins for 2022, with margin recovering as we move throughout the year. Let's move to slide 7 to review our residential segment. Segment revenues increased 24.4%, our sixth consecutive quarter of double-digit growth. Organic revenue grew 23.7% driven by increased pricing to combat continued materials, transportation, and labor cost inflation. Participation gains driven by expanding share of wallet with existing customers and new customer additions. Geographic expansion in the Midwest and product wins on both new and existing platforms. For example, an expansion of our metal roofing products with both new and existing customers. The timing of the architectural mailboxes acquisition contributed slightly less than 1% of the growth with integration of this business on track. Segment adjusted operating income and adjusted EBITDA grew 29.9% and 26% respectively. Adjusted operating and EBITDA margin expanded 70 basis points and 30 basis points respectively as price costs better aligned through pricing actions and slowing inflation for some commodities. We experienced less supply chain disruptions in Q4 versus the prior two quarters, and the success of additional 80-20 initiatives, as well as market and product line mixed benefits, along with better productivity as labor management improved. We continue to work with our supply chain partners to support our customers' needs and are maintaining focus on price-cost management, simplification, inlining, and automation. We expect continued top and bottom line growth in this business during 2022. Let's move to slide eight to review our ag tech segment. Segment revenue decreased 16.9% as a result of timing of revenue for produce projects was impacted by supply chain disruption and continued delays in Canadian permitting related to water rights. And as the timing of cannabis projects continued to be impacted by delayed permitting at the state and local level. The commercial greenhouse business, however, continues to experience solid growth across core product lines serving the retail, institutional, and car wash markets. Order backlog increased modestly in the quarter, with January 2022 bookings driving backlog as of January 31st up 22% over year-end and up 34% over last January. Segment-adjusted operating and EBITDA margin improved 120 and 90 basis points respectively over the third quarter, despite revenue delays and additional inflation in key input materials through continued execution from lean enterprise initiatives, ongoing integration activities, successful efforts to optimize the supply chain, particularly in the sourcing of roofing systems and glass, business mix benefits, and improvement in produce margins. The margins were essentially flat year over year despite the 16.9% reduction in revenues, which demonstrates the work we've done during 2021 to improve the operating performance of this business. Going forward, we expect positive margin momentum to continue as we convert strong backlog and make additional system improvements and benefit from improved mix. And let's move to slide nine to review our infrastructure segment. Segment revenue increased 33.1% driven by solid demand for fabricated products, given additional availability of funding, and by acceleration in demand for non-fabricated products as customers caught up on projects deferred from 2020. We expect to see the impact of incremental government spending on infrastructure towards the end of 2022. Order backlog increased 12% to 47 million, with solid demand moving into 2022. Segment-adjusted operating margin was up 10 basis points, as the benefits of 80-20 and favorable mix offset Q4 headwinds of structural and plate steel inflation and labor availability challenges in the manufactured products along with the closure for over 100 days of a supplier due to Hurricane Ida, which affected higher margin non-fabricated products. Adjusted EBITDA margin decreased 130 basis points as relatively fixed depreciation and amortization was a smaller percentage of higher revenues. We expect continued improvement in both the top and bottom line for this business in 2022 and expect to begin to see the impact of the Federal Infrastructure Investment Jobs Act towards the end of 2022. Now let's move to slide 10 to discuss our liquidity position. 40 million of cash in continuing operations in the quarter, which was lower than our original expectation as margin compression impacted net income, and we expanded our investment in inventory to guard against continuing supply chain disruptions and ensure we have material to meet our customers' requirements. Working capital benefited from a substantial reduction in accounts receivable through cash collected, and we paid down $37 million on the revolver during the quarter. At December 31st, we had $369 million available on our revolver, cash on hand of $13 million, and our net leverage was approximately one-tenth of a turn. We expect to pay the outstanding balance on our revolver during 2022 using cash flow generated from operations. We expect to return to more normal levels of free cash flow during 2022, driving strong liquidity for growth. Now, I'll turn the call back to Bill.

Thanks, Tim. Let's move to slide 11, and we'll give an update on our portfolio and our focus for 2022. So as I mentioned earlier, the fundamentals supporting our end markets remain robust, and we continue to build and strengthen our leadership position in each of our markets. Over the last two years, we have grown revenue in each business faster than the respective market growth rates. It accomplishes through investment in organic growth initiatives and or key acquisitions. Our growth is a result of solid market drivers, participation gains, price management, and adding faster-growing business to our portfolio. Since 2019, we've also simplified our residential, renewables, and ag tech platforms, taking 18 different operating units and organizing them into five businesses going forward. Our simplification and focus effort covered building and strengthening the organization, consolidating legacy companies, integrating acquisitions, new brand launches, and executing day-to-day business during a challenging operating environment. A lot of good work. has been completed to strengthen the portfolio, our business systems, and our organization. Our residential and infrastructure businesses delivered solid adjusted operating margin performance in 2021, while our renewables and ag tech adjusted operating margins were short of plan. These two businesses experienced industry-specific headwinds in 2021, but we continue to make investments and improvements during the year necessary to help us scale and deliver double-digit margin performance in 2022. So let's move to slide 12 and we'll discuss our key trends and initiatives for each business. And let's start with renewables. General market activity remains robust in the commercial and industrial market segment as developers anticipate industry supply chain disruption and inflationary concerns to subside as we move further into 2022. The industry and our customers continue to address panel supply in a variety of ways with the intent of lessening disruption to their projects. Custom order backlog remains strong and is up 27% to $167 million, reflecting general demand strength in the market. Here's a quick summary of what is driving our ongoing panel supply concerns for the industry. First, the Withhold Release Order, WRO, on silicon-based products made by Hoshine Silicon Industry, which is located in Xinjiang province. The WRO was issued by U.S. Customs and Border Protection back in June of 2021 as a reaction to allegations of companies in the province using forced labor. Hoshine silicon industry is a large producer of industrial silicon that other Chinese polysilicon companies use to make solar-grade polysilicon. The WRO currently bans any solar panel products containing Hoshine materials from entering the U.S., but the WRO is also starting to allow solar panel products to be imported if the importer can verify Hoshine materials are not contained in the product. Second, the anti-circumvention trade case recently filed with the Department of Commerce focused on preventing importers from circumventing import duties on solar panels. This is the second petition filed, with the first petition being dismissed in November 2021. An initial response to this claim is expected sometime in March. As both issues continue, we expect companies sourcing panels to continue to evolve supply chain strategies to stay in compliance while finding more consistent sources of supply. General inflation has been substantial in the solar industry over the last 12 months. Effectively, 2021 was the first year the industry has experienced inflation since its inception, creating quite a shockwave for everyone to absorb. The industry has struggled with the rapid and continuous acceleration of input costs the entire year. That being said, we have recently seen price declines in hot-rolled coil steel, which is a positive development for the industry. We've also seen the rate of price increases for structural steel begin to slow. Although we expect commodity prices to remain elevated, the price stability we are seeing today allows the industry to plan and execute across projects more effectively. Finally, as it relates to ITC benefits, we do not expect any change in the current benefit structure during 2022, and we will follow policy discussions as they evolve. So to summarize, the solar industry continues to experience headwinds as we move into 2022, mainly panel supply and elevated input costs. And while our customers are optimistic these headwinds will start to subside during the year, Challenges similar to those we faced in the fourth quarter persisting in early months of 2022. We expect margins to step up considerably starting in Q2 and to continue for the full year given the customer quoting activity is robust, backlog is solid, and assuming more commodity price stability. So it's critical we maintain our focus and flexibility and agility in this market and execute on our top five initiatives for the renewables business. First, we must work closer with customers to understand potential supply chain disruptions earlier in the process and collaborate on supply chain solutions to optimize project management. We must continue to upgrade and scale our systems and process capability to deal with today's market and customer dynamics and inherently support the growth momentum we have. Third, we must continue the growth momentum of our TerraTracker technology and drive margin improvement as we scale and gain experience. Fourth, We also must implement the TerraSmart acquisition cost synergies plan for 2022, specifically our insourcing supply chain initiatives. And then finally, fifth, we must continue to optimize our go-to-market strategy, engaging customers early in the process, helping them to find the right solution set that delivers the best returns for their solar project investment. Staying on slide 12, let's now discuss the residential trends. our assumptions and some key initiatives for 2022. As with our other end markets, inflation has significantly increased input costs in the residential market, and new home pricing has increased substantially. As a result, we have a relatively hot market, but inflation is not the only driver of the current situation. We also continue to see a supply shortage for single-family homes driving a favorable demand dynamic for new and existing homes. As well, there's a relatively large inventory of homes aging out in need of fundamental repair and upgrades over the next few years. While we expect multiple straight increases to have some impact on future investments, the fundamentals supporting a solid housing market remain positive. We exited 2021 with solid customer backlog and order activity in line with supporting a good start for the year. Our demand is supported by market growth, price management, participation gains, and customer inventory management to mitigate potential supply chain disruption going into the second and third quarters, traditionally the peak demand quarters for the industry. We believe the industry is focused on preventing the type of supply chain challenges it experienced both in 2020 and 2021. So there are four core initiatives for the residential business. One, continue to gain participation through new products and services for new and existing market segments and geographic expansion with customers and in regions. Secondly, we must continue our price management initiatives and proactively partner with customers as market dynamics evolve. Third, execute our ERP system upgrade to further advance our digital capability with customers to support collaborative business system optimization. For us, driving efficiency and improving the cost of doing business with us is an important differentiator for our business and for our customers. And finally, fourth, accelerate 80-20 in automation projects to lower our labor input per dollar of revenue generated, particularly during our peak demand periods when we require additional labor in our facilities. Let's move to slide 13. to review the trends and our assumptions and key initiatives for both ag tech and infrastructure segments. We'll start with ag tech. In ag tech, we expect investment in the produce industry to grow 7% to 8% in 2022, similar to the annual growth rate over the last five years. Commercial growers continue to invest in controlled environment agriculture for a number of reasons. First, the economics of large-scale, high-tech controlled environment agriculture, which has been around for 30-plus years, continues to be very attractive. Secondly, the ability to supply produce across a larger selection of fruits and vegetables year-round via multiple growth cycles is also inherently attractive to retailers. Third, the environmental footprint for controlled environment growing operations significantly reduces the land and water requirements versus traditional outdoor farming. And fourth, the speed of innovation in both seed development and optimal growing solutions is moving at a rapid pace and expanding the market accordingly. We also expect our commercial business momentum to continue in both retail and car wash segments. In retail, we're expanding with a new customer, and our exclusive partner for car wash structures continues to expand nationally. In cannabis, we expect after a year of delays and limited progress, licensing processes will accelerate for states that legalized cannabis back in 2020. And this should start to benefit the sector in these states in the second half of this year. So we have three core initiatives for the ag tech business. First, Now that we have worked through the lower margin customer backlog inherited with thermal acquisition, we must execute our new higher margin produce projects and deliver margin improvement as planned. Secondly, we must execute the rollout of our greenhouse structures with our new retail customer and continue to scale and ramp expansion plans with our car wash partner. And third, strengthen our supply chain for roofing structures and glass to eliminate and or minimize project disruption in the field and reduce overall project costs. Switching to infrastructure and our infrastructure business as the economy has improved, we expect state DOT budget funding to become more consistent and support a more predictable cadence. This, in turn, should also drive solid investment in surface protection for bridges, runways, and structures, which we started to experience in the second half of 2021. Legislature's implementation of the infrastructure bill and directing its funding should drive additional demand starting later in the year. We also expect prices for structural and plate steel, both key commodities used in fabricating our joints and bearing products, to remain elevated. We have three core initiatives for this business. First, we must mitigate structural steel plate inflation by improving our quote-to-cash process with customers, accelerating 80-20 and optimizing our manufacturing footprint. Secondly, we expand our engineering capacity to support growing demand as the core market continues to recover, and additional funding from the infrastructure bill makes its way to state DOT budgets. And then third, we need to continue to upgrade our systems, improve forward processes and manufacturing operations to maintain strong profitability in the business. So now let's move to slide 14 and we'll review our 2022 guidance. So as we enter 2022, our demand and order backlog is solid across the business and the robust long-term fundamentals supporting our end markets remain intact. We expect the market environment to be dynamic. As we move into the year, as input costs remain elevated, labor, transportation, and pandemic challenges remain. I'm confident, given our learning experience in 2021 and the investments we made in our organization systems and processes, we have enhanced our ability to deliver full-year growth and margin expansion in 2022 as we continue to execute toward our 2025 objectives. Our guidance for revenue and earnings for the full year 2022 is as follows. Consolidated revenue is expected to range between $1.38 billion and $1.43 billion compared to $1.34 billion in 2021. Gap EPS is expected to range between $2.80 and $3 compared to $2.25 in 2021. And adjusted EPS is expected to range between $3.20 and $3.40 compared to $2.78 in 2021. Finally, I want to say thank you again to everyone on the Gibraltar team for their effort and resiliency in 2021. Frankly, a year unlike most of us have ever experienced. Our learning in 2021 has created tremendous opportunities for us in 2022, and we really look forward to getting after it. So with that, let's open the call up and take your questions.

At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Daniel Moore with CJS Securities. Please proceed with your questions.

Morning, Bill. Morning, Tim. Thanks for taking the questions. Let me start with renewables. Pro forma revenue declined about 6%. What was the volume impact and what was the impact from pricing? And then we'll get into the details a little bit more.

Yeah, Dan, there's obviously some pricing in there. It's not as large as some of the other businesses just because of the timing, but... The volume push was really on just schedule slip, not on a reduction in demand from the market. It's just getting the projects queued up and going.

And when I look at the margin impact on a year-over-year basis, how much of it was supply chains, solar panel availability, schedule slip, as you described, versus... price-cost timing of raw materials?

Yeah, I sort of split it 60-40. 60 of the incremental costs we experienced related to the sort of scheduled disruption in supply chain and 40% of it related to the material costs and really specifically the structural steel inflation.

And the 40, when do we expect to get that back?

We've adjusted all the projects we have, and so there'll be some hangover as we work through the rest of those projects. We think all of it's gone by the end of the second quarter.

Got it. And then the... Maybe same question quickly for Rezzy. What was the kind of general breakdown of price versus volume and strong growth there as well as participation gains?

Yeah, I think, again, you know, the second half of the year was more price than volume in the Rezzy. But we continue to get expansion I called out both geographically you know we picked up some additional customers in the Midwest and that's based on some work we started over a year ago when we sort of expanded our wholesale team to broader regions that we usually hadn't historically covered and also just some wins with both new and existing customers around in this instance you know steel roofing products and A bit of that is driven by the fact that we have supply. We can actually turn an order in however many days, and not everybody in the industry can do that. That's part of the reason we're carrying more inventory today than on a day's basis.

Got it. Maybe one more, and I can jump back. In terms of the guidance... EPS and EBITDA generally in line. The top line implies about 5% growth at the midpoint. Sorry for the redundancy in the questions, but how much of that is price given the rampant raw material inflation and pricing actions we've seen and how much is volume just seems to imply a relatively low volume growth given that dynamic relative certainly to your longer term expectations and Any comments about the cadence of kind of volume growth throughout the year? Thanks.

Yeah, I think, Dan, if you look at your bill laid out on one of the slides, sort of the inflationary environment and called down sort of our outlook for 2022 on material costs, and to me most notably cold rolled, hot rolled, which is the – that's the commodity we use the most of. and that has declined a bit since it peaked during the fourth quarter. And so our plan anticipates some pricing adjustment to recognize that as that cost flows through our system. And it's not a one-for-one because obviously transportation costs, labor costs are up, but we usually do adjust pricing when the raw materials move significantly, and so we baked some of that into the plan. So I think overall you've got probably a little price reduction on the whole business along with growth is really how you get to the sort of 5%.

So mid-single-digit or higher volume growth implied at the midpoint. Is that correct?

Yeah, that's fair. Okay.

All right. I'll jump back to any follow-ups. Thank you.

Our next question is from Julio Romero with Sedoti & Co. Please proceed with your question.

Hey, good morning, Bill and Tim. Thanks for taking the questions. Good morning, Julio. So, regarding the renewable segment, you know, appreciate the guidance and your expectation for double-digit segment operating margins at 22. What does that assume in terms of the field operation inefficiencies you're seeing now? And I know you mentioned the assumption that renewable supply chain disruptions related to the WRO should continue through 2Q, I think one of your slides mentioned. But if you could talk about maybe the range of outcomes for that WRO issue and what's kind of baked into that assumption.

So, Julio, the way that we've built our plan is more really around discussions with our current customers and what they have in hand as it relates to solar panel availability. And they don't have everything. locked in, but we spent the last six months kind of working closely with them on projects flowing into this year. Do you have those panels in country? Are they in a warehouse somewhere? Do you have access to them, et cetera? So we're trying to take some of that guesswork out, which I think reflects in our backlog and some of the order activity, those things are kind of built around trying to mitigate project destruction, not only for them, but also for us. So that's one kind of input to think about. The broader industry stuff I mentioned is going to go on for some time. And, you know, whether that's three months or six months, you know, things can change pretty quickly. As an example, just last week, there was a, there were a number of panels that were released that were being held. So the industry is finding ways to navigate through some of these nuances that we've been dealing with the last year. And so supply chains have been evolving. It's taken time for that to happen. And effectively, to get panels through, you have to improve that you don't have those materials from Hoshine included in your panels. And people are adjusting where they're getting their polysilicon for those panels. So that's starting to pick up. And that's why I think there's some optimism from folks in the field that they have a better way to navigate through that now than they did the last six months or so. because they're finding other options so it's not perfect it'll take some time to work itself out there'll be some some additional choppiness and disruption but we're starting to see some things percolate in a more positive way than than what we've all had to deal with and really q3 and q4 of 2021 was probably the most disruptive the industry's ever most disruption the industry's ever seen as it relates to supply chain and People, you know, modifying, having to modify projects on the run in the field based on the panels that they were able to get or not get. And that really has the tail wagging the dog for the industry. And I think that will start to settle and that you start to hear more and more optimism about that, but it's still going to take some time to work through that. You know, when the WRO situation gets rectified, we don't know, but let's assume it stays in play for a while. There's a lot of polysilicon that is sourced in other parts of China that's not covered by the WRO, which is important. And people are starting to tap into that in a much more effective way than before. And then these anti-circumvention cases, we'll know here in the next 30 days whether or not the Department of Commerce takes this next one up or not. And if they do or they don't, the industry will deal with it accordingly. But people have been you know, anticipating these things to stay out there for a while. And everyone's been working on work around. So, you know, that's, uh, that's where some of that optimism comes. It's, it's, uh, and that's the way we thought about it in terms of building our plan. But for us, it's sit down, go through with each customer. What do you have in hand and the projects we have inked and how do we mitigate some of the disruption? That's, that's kind of the base of the plan going into 2022.

Got it. That's really helpful to understand kind of what's baked into your assumption there. It's more of what's in hand now with regards to panel supply than really you making a call on when WRO gets kind of resolved.

Yeah. We can't rely on something we can't control in that regard, to your point. So that's the way we've tried to sit down and go through with every project and see what's there and what's not. You know, it's a constant, you know, it's just a constant battle with making sure that those things are aligned. And this is something, as I mentioned, the industry's never had to deal with. And so processes and systems across the entire industry have really had to tighten up. And that's what we've been working hard to try to do the last six months and just kind of chasing this.

My second question, just staying on that renewable segment, is are you or your customers seeing any shortage of material inputs other than polysilicon?

Panel's obviously the number one issue. I mean, there have been, there's been inflation across everything that's come in that's used in the field. I think panels are by far the number one issue on availability. I think there were some issues in 2021. It varied on particular components. I think those have been more apt to be worked out. more so than the panel. Because what's happening to the panel supply is not just a basic supply-demand issue. It's got these other things going on with it. But I think those other items have been easier to navigate through. We don't see those as being near as impactful as the panels.

Okay, understood. And maybe my last one here is just on the guidance. Expecting free cash flow to normalize back to about 10% of sales. Could you just talk about what that assumes from a working capital perspective? Does that assume working capital will be neutral for the year?

There is a slight improvement, you know, a date or two days, not a huge improvement. And I think what we'd expect, again, as we built our plan, you'll actually see investment in the first half as we continue to Build inventory for our busy season in the residential side of the business. And we're doing that maybe a little bit more than we have in the past because we've historically used a fair amount of temp labor and that's harder to get hands on. So we've got larger full-time staff in those business. We're working to build a little earlier. And then just making sure we have enough to supply our customers. And with the thought that There'll be some normalization as we move through the year, and we'll be able to improve, reduce our days on hand. I wouldn't say back to levels that we had pre-pandemic by any means yet, but maybe just understand what the operating environment is and adjust to that. I would say we're conservative today because we do not want to not meet our customers' needs, and that's important to us.

If you look at our commodities, the one we have most concern with an availability perspective is aluminum. So the last few months, particularly in Q4 and actually as we went into this year, and this excludes any impact from the current issue with Russia and Ukraine given the amount of influence Russia has on the aluminum industry, but there's been an ongoing energy crisis in Europe that has really impacted smelting capacity of aluminum. So that's been offline for some time. And that's why you see aluminum started to come down and bounce back up. And so we've locked that in, uh, which is good for us. And, but we, as a result, as Tim said, we brought that in earlier to ensure that, that, uh, we have the supply of that. So, uh, that's the last year we had multiple commodities that you were dealing with on both inflation and availability this year. It's more around, aluminum less so much unavailable less so much on on steel got it i'll pass it on thanks very much we have reached the end of the question and answer session and i will now turn the call over to ceo bill bosway for closing remarks again i want to thank everyone for joining us today uh we'll be presenting at the city spring conference in march and uh We'll be able to speak with you again in a few months when we report our first quarter progress. So appreciate everyone calling in. Stay safe and healthy, and look forward to our follow-up calls. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.