Gibraltar Industries, Inc.

Greetings, and welcome to the Gibraltar Industries fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Carolyn Capaccio of LHA Investor Relations. Thank you. You may begin.

Thanks, Operator. Good morning, everyone, and thank you for joining us today. With me on the call is Bill Bosway, Gibraltar's 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 Investors section of the company's website at GibraltarOne.com. As previously noted, Gibraltar classified the processing equipment business in the ag tech segment as held for sale with first quarter 2022 results, has removed the related revenues and expenses from the processing business from its adjusted results, and has taken a fourth quarter 2022 charge to write down the carrying value of related assets. Gibraltar's earnings press release and remarks contain non-GAAP financial measures Tables of the reconciliation of gaps 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 future financial results. These statements are not guaranteed the 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?

Good morning, everybody, and thank you for joining today's call. We'll start with an overview of fourth quarter and full year 2022 results, and Tim will take you through our financial performance, then I'll walk you through our 2023 outlook, and then we'll open the call for some questions. So let's Turn to slide three, titled 2022 Year in Review. The fourth quarter capped off a good year for Gibraltar as we stayed focused on execution of our key initiatives while operating in a very fluid and challenging external environment. Our team continued to demonstrate speed and agility and quickly pivoted in response to changes in dynamics in our end markets. Our focus on what we can control resulted in profitability and margin improvement in the fourth quarter and for the full year. For the year, we improved adjusted operating income 18% and adjusted EPS 19% on 5% revenue growth. We generated 6% free cash flow with sequential improvement in both marginal working capital and expect our cash performance momentum to continue into 2023. As expected, our backlog decreased 12% during the quarter to $299 million, driven mainly by lower backlog in our renewables business. The solar industry continues to be impacted by panel availability as panel suppliers go through the learning curve with UFLPA importation requirements. And while demand in solar remains very robust, which is reflected by project design activity, customer verbal commitments, and master supply agreement discussions, customers still remain in a holding pattern with actual contract signing and project scheduling. And as a reminder, our order backlog only includes signed purchase agreements and contracts with deposits. We do see some movement and signs that panel supply efficiency will strengthen as we move through 2023. And we know our customers are working diligently every day to develop new and or additional panel sourcing options to offset the impact of the UFLPA. While backlog was also down in our ag tech business, project design and quote activity and the project pipeline is very strong, specifically for produce growers needing to expand capacity. Many of these projects were originally targeted for final release in Q4 2022, but were delayed due to rescoping both for scale and technology requirements. We anticipate backlog to build as purchase agreements are finalized throughout the year. Switching gears to discuss our five key initiatives, we stayed very focused on these initiatives throughout the year and will continue to build momentum on these same initiatives in 2023. AD20 and operations execution helped us expand margin, drive service levels, and increase participation. and this effort is even more important when operating in today's environment, which has an overall slower economy and one with unique headwinds facing some of our end markets. As a result, we executed structural changes and right-sizing actions across the company in the fourth quarter of 2022 to better prepare for the macro environment in 2023. We also improved our supply chain in the second half of the year as the economy began to slow. Monetary prices continued to shift downward and demand seasonality returned in our end markets, particularly in the residential market. With supply chain reliability and consistency improving, we began to drive inventory levels down, and in combination with strong margin performance, improved cash flow, free cash flow sequentially. Our digital transformation continued in 2022 with another successful go-live ERP implementation, this one in our residential business. Over the last three years, we have been upgrading and commonizing our ERP and CRM systems across our businesses, and we'll continue to make additional investments in 2023. Digitizing our operations is helping scale our businesses, drive speed and agility, and connect with our customers, suppliers, and our people more effectively. And finally, our organization continues to get stronger. It is more diverse in thought, experience, and capability through education and development and with the addition of new team members to the team. Safety performance is improving as we continue to invest in dedicated resources, education, training, and better processes in both our facilities but also in the field. And finally, Nothing matters more than conducting business in the right and responsible way each day and doing it with discipline and focus. Let's turn to slide four. I'll give you a quick update on dynamics in today's operating environment. There have been five, I would say, very fluid core operating dynamics we've continuously had to address in real time over the last 24 months. Supply chain, commodities, labor, transportation, and in our solar business, solar panel supply situation. Each has created both a cost and an availability challenge, and each has moved or changed direction with incredible speed and pace more than once. So here's how I see things currently with each of these dynamics. Let's start with supply chain. There has been general improvement in reliability and performance consistency. This has allowed our customers and markets to adjust inventory levels to support and reflect historical seasonal demand. As an example, in the residential market, the fourth and first quarters have represented lower demand periods. And the second and third quarters have tended to reflect peak demand periods. In 2022, for the first time since 2019, we returned to historical seasonal demand as we exited the third quarter and entered the fourth. Secondly, commodities. Pricing, particularly for steel, aluminum, resin, has been correcting since mid-2022. And although we're seeing more stability, I want to emphasize that it is really important we stay prepared for sudden or unexpected price movements. Third, labor. It has improved overall as the economy has slowed and demand seasonality has returned to more normal patterns. We also continue to drive productivity improvements to lessen our dependency on the amount of labor needed to support our businesses. Fourth, transportation. Freight rates have improved significantly, particularly ocean container rates and availability and reliability for over-the-road and ocean transportation has improved as well. And then finally, panel supply. Panel suppliers continue to slowly come up the UFLPA learning curve And we look for panel availability to improve later in the year. At the same time, customers are finding some panel supply through other sources not necessarily subjected to the UFLPA requirements. And the contracts we finalized and signed in 2022 and in 2023 reflect this. These panels are typically more expensive for customers, but the incremental investment tax credit benefits from the Inflation Reduction Act can make the overall economics of sourcing higher cost panels more palatable for customers than prior to the IRA being in place. Let's turn to slide five. We'll talk a little bit more about commodities. Hot-rolled coil steel, plate steel, and aluminum spot prices have shifted downward as true demand and supply are in better alignment. That being said, we are prepared with better processes and tools to react to unexpected price movement if it occurs. Structural steel spot prices have reduced slightly as well, but interestingly enough, prices for all these commodities continue to remain above pre-pandemic levels. When commodity inflation accelerated over 50 consecutive weeks in 2021, we worked with our customers to implement price actions accordingly, which took three quarters to read through in our margin performance. In the case of residential, our customer contracts often include price indexing for changes in commodity prices. And as commodity prices quickly shifted downward in 2022, we made some price adjustments in the second half of the year. In parallel, we stayed focused on managing our overall cost and aggressively started reducing higher cost inventory on hand. This is a positive development for us and the industry, and has driven healthier alignment of inventory and demand as we move into 2023. In general, the price-cost alignment process is impacted most by the speed and magnitude of the change in commodity prices, and as experienced in 2021, can take two to three quarters to achieve. So we will continue to accelerate our 80-20 and material labor productivity initiatives, as well as closely manage this process with our customers. Let's move to slide six. for an update on the panel supply issue in the solar industry. So as many of you are aware, we've talked about this a lot, there are two trade issues impacting the solar panel supply for the U.S. market. The Uyghur Forced Labor Prevention Act, known as the UFLPA, and the Department of Commerce's anti-dumping, countervailing duties investigation. So of the two, the UFLPA continues to materially impact panel suppliers' ability to import their panels into the U.S., and as a result, customers' ability to move forward with some projects. Since June of 2022, when the UFLPA was implemented and enforcement by the U.S. Custom Border Protection started, panel suppliers have worked with the CBP to understand documentation requirements in the CBP's process. Roughly 15 suppliers serve the U.S. market in three tiers, and 80% of U.S. solar panel demand is supported effectively by five Tier 1 suppliers. The industry started seeing progress in January with one of the largest suppliers having success on a few shipments. and we're looking for continued progress across additional suppliers in 2023. On the second issue, the Department of Commerce issued a preliminary ruling in December that a number of Chinese solar panel manufacturers have been circumventing ADCBD orders by moving assembly operations from China to Thailand, Cambodia, and Vietnam and Malaysia. The final ruling is now expected in May of 2023. The administration has instructed the DOC to implement a two-year waiver on tariffs, which went into effect shortly before the preliminary ruling was announced. We've been in the solar industry for eight years and 12 plus years when you take into account when the companies we acquired actually started in this business. And so we remain very excited and committed to this industry. There's strong demand both globally and in the U.S. And solar energy is and will continue to play a foundational role in the U.S. energy policy going forward. As well, the new Inflation Reduction Act provides even greater incentives which will drive more investment and stronger financial returns for the industry over the next 10 years. We see momentum accelerating every day as existing customers share plans to expand and new investors are starting into the market again. We are well positioned and we remain focused in the CNI segment. And I expect industry and our business to flourish as panel supply improves. Our 2023 plan assumes customers continue to find creative ways to source panels, are able to gain incremental benefits from their projects from the IRA, and overall panel supply through the UFLPA improves in the second half of the year. And with that, I'll turn it over to Tim for a review of our financial results. Thanks Bill and good morning everyone.

Take you through our consolidated and segment results starting on slide seven. Adjusted fourth quarter revenue decreased 5.2% to 312.9 million. Organic revenue decreased 9.8% partially offset by a full quarter of quality aluminum products revenue in the residential segment and revenue growth in the infrastructure business. The organic decrease related to volume impacts from the market's return to historically lower fourth quarter seasonal demand patterns as supply chain reliability improved, along with market prices beginning to align with changes in commodity indexes and residential, along with continued impacts from project rescoping and rescheduling in our renewables and ag tech businesses. Backlog at quarter end was $299 million, down approximately 12% from fourth quarter 2021, with continued impacts for renewables customers awaiting greater visibility on near-term solar panel availability and project re-scoping and rescheduling at AgTech, partially offset by continued demand in infrastructure. Adjusted operating income and adjusted EBITDA dollars increased 17.8% and 16.6% respectively in the fourth quarter, with adjusted EPS up 28.6%. Quality aluminum products added one cent to our adjusted EPS in the quarter. Margin improvement in the quarter was driven by material cost alignment, additional field operations efficiency, price management, business mix, and 80-20 initiatives in the renewables and infrastructure segments. Weighted average shares outstanding decreased 5.4% to 31.3 million shares in the fourth quarter, and I'll review our share repurchase program in a moment. Now let's review each segment, starting with slide eight, the renewables segment. Revenues decreased 20.8%, and backlog was down 17%. A strong customer demand for solar products and services was impacted by solar panel suppliers' navigation of panel importation guidelines covered by the UFLPA as enforced by the U.S. Customs and Border Protection Agency. That's affecting scoping and scheduling projects. With customers in a holding pattern until visibility on panel availability improves, customer project planning and pipeline activity remains firm, and our pool of contracts in process but is yet unsigned continues to build. And as a reminder, our backlog consists only of signed contracts with deposits. Do not include purchase orders without a signed contract and deposit, MSAs without specific work orders or verbal agreements with customers in our new bookings or backlog. We further improve profitability despite importation issues impacting revenue with adjusted operating margin of 15.2%, increasing 1,390 basis points year over year and 230 basis points sequentially. Similarly, adjusted EBITDA margins increased 1,440 basis points to 17.9%. Margins were driven by field operations productivity, 80-20 project management, business mix, and materials productivity. Our outlook for 2023 expects progressive revenue growth throughout the year based on our assumption that panel supply will improve in the second half of the year as suppliers move up the UFLPA importation process learning curve. And we expect margins will continue to show improvement through 2023. We continue to improve efficiencies through further integration with common ERP systems by accelerating best practices and supply chain, allowing us to capitalize on material efficiency and realize lower cost rate and insourcing initiatives as we continue to invest in manufacturing capabilities to improve our ability to meet our customers' needs. Let's move to slide nine to review our residential segment. Segment revenue increased 7.8%, with a full quarter QAP revenue contributing 9.4%, and organic revenue down 1.6. As I mentioned, organic revenue is impacted by the market's return to its usual lower fourth quarter seasonal demand patterns with supply chain reliability improving and market prices beginning to align with commodity indexes. UAP, which was acquired in August, performed as expected. As a reminder, about 75% to 85% of our residential business is driven by existing home repair, either because of aging or weather damage. Historically, home repair, particularly to the roof, has not seen significant impacts from changing interest rates. And while market expectations indicate a slowdown in new home building, we expect repair markets that we serve to remain solid. Segment adjusted operating income and adjusted EBITDA decreased 13.2% to 10.1% respectively, and adjusted operating and EBITDA margin contracted 320 basis points and 300 basis points respectively. The inclusion of a full quarter of QAP contributed about 110 basis points with a decrease. And on an organic basis, the alignment of price and material costs and timing of changes in commodity indexes impacted margin of the quarter. The integration of QAP is proceeding well, and our combined team is finding additional opportunities to integrate and improve the business. We expect segment margins to expand this year as price-cost alignment improves and QAP integration benefits are realized. We also plan on two additional ERP implementations this year as we continue to migrate to a common solution in our residential business. Let's move to slide 10 to review our ag tech segment. Adjusted revenue decreased 17.4% due to project re-scoping and rescheduling of large produce growing projects into 2023. Our commercial greenhouse business remains strong with a solid mix of business. While backlog decreased 13%, quote activity remains robust, and we expect produce projects that have been delayed with our key customers to move forward. Segment adjusted operating and EBITDA margin decreased 420 and 350 basis points, respectively, as project rescheduling delayed project revenue recognition, partially offset by better project execution. We expect margin to recover as we execute during 2023. And as announced in January, recorded a $14 million pre-tax charge to write down assets associated with our processing equipment business, which was classified as held for sale last March to estimate a fair market value. We expect to pursue the sale of business and we'll provide updates as we have them. Let's move to slide 11 to review our infrastructure segment. Segment revenue increased 4.8%, driven primarily by increased demand for non-fabricated products. Border backlog increased 23% as State Department's transportation gained visibility on federal funding, bidding activity increases. For Entering 2023 with solid momentum, expect to see spending increases as the states take advantage of the additional funding available through the Infrastructure Investment and Jobs Act. Segment adjusted operating income more than doubled and adjusted operating and even on margin increased 720 and 700 basis points respectively. Driven by improved price material cost alignment, particularly from plate steel pricing, improved operating execution, product mix, and volume leverage. We expect continued margin improvements in 2023. Let's move to slide 12 to discuss our balance sheet to cash flow. At December 31st, we had $305 million available on our revolver and cash on hand of $18 million. During the quarter, we generated $64 million in cash from continuing operations, including $32 million generated from reductions in working capital. This represents a reversal of the use of cash for working capital that we experienced over the past few quarters that resulted from supply chain disruptions and our drive to remain in stock for our customers. Fourth quarter saw a return to historical seasonality and accounts receivable. We reduced material orders during the third quarter as supply chains began to recover and lead times normalized. And these actions provided an accelerated reduction of inventory levels during the fourth quarter Accounts payable also came down as we limited purchase of inventory and other liabilities came down, in line really with progress on projects and the decline in backlog. As a result, we improved our free cash flow generation during the fourth quarter to 19% of revenue, ending the year at our updated target of 6% of revenue. We paid down $38 million on our revolver during the quarter, and we also renewed and extended our $400 million revolver with favorable terms and conditions during the quarter. At quarter end, we had $91 million outstanding on our revolver for net leverage of under one half of it. We're focused on driving continued improvement in our operating cash generation in 2023 with lower investment and working capital as we work down inventory further. We're targeting free cash flow of 10% of revenue for the year. We continue to expect to use generated cash flow to fund investments in organic and inorganic growth along with opportunistic stock repurchases, supplemented as needed by the use of our revolver, depending on timing of any M&A or repurchases. Let's move to slide 13. I'll give you an update on our share repurchase program. During the fourth quarter, we repurchased 664,000 shares with a market value of $30.3 million for an average price of $45.69. We funded this repurchase through our revolver. In 2022, we expended approximately 43% of our $200 million authorization. And at quarter end, we had 30.9 million shares outstanding with a weighted average shares of $31.3 million during the quarter.

Now I'll turn the call back to Bill. Thanks, Tim. Let's move to slide 14, and we'll talk about our 2023 priorities. In the past three years, and certainly in 2022, I'd say we successfully managed through a number of external challenges by focusing on what we can control and simplifying our business. The external environment continues to be very fluid, requiring we stay this course. And so, as I mentioned earlier, our priorities and focus are unchanged. We have plenty of opportunity in front of us to generate growth, to drive quality of earnings further, enhance our margin, and generate good cash performance. So let's move to slide 15, and then we'll move on to 16 to discuss key trends and initiatives that support their 2023 outlook for each of the businesses. Let's start with renewables. Our outlook overall assumes panel supply does improve in the second half of the year to support the robust demand pipeline of projects waiting to finalize, sign, and execute. We had a good bookings month in January as some of our customers continue to source panels through additional sources. We also expect the IRA guidelines for new and additional incentives to be finalized in the first half of 2023. So that takes us to our key initiatives for renewables. First, the launch and ramp of our new 1P tracker product, which really complements our 2P offering, giving us a broad tracker solution portfolio for customers. Our EBOS growth initiative with CNI and utility customers is gaining momentum, supported by a good and growing order backlog. And our 80-20 initiatives, Customer line simplification, product line simplification, and project estimating management are improving our ability to efficiently scale and drive better margin performance as we execute on demand. Switching to residential, we expect the repair in market to remain relatively consistent with 2022. We expect the continuation of downward pressure on new housing construction, and we expect demand seasonality to return to historical levels given the general performance improvement of the supply chain. Our key initiatives are really to execute on our participation playbook like we have over the last two years, continue to execute AD20 and productivity initiatives, and integrate QAP according to our acquisition plan. On slide 16, for ag tech, we expect a number of our produce growers to move forward with capacity expansion projects that were previously earmarked for 2022. We also expect the momentum in our commercial business to continue and investments in cannabis growing to restart at facilities and states where license approvals are now moving forward. Our initiatives in this business first support produce customers with their capacity expansions, execute the rollout of retail greenhouse additions, and deliver our 80-20 CLS and PLS projects, and finally drive margin performance 10% plus for the year. And finally, infrastructure. This business has strong momentum entering the year with both engineering and order backlog growing at a strong pace. And it is executing one of the largest customer projects in the history of the company, which recently was awarded in Q4 of 2022. We see the Infrastructure Investment and Jobs Act driving demand in 2023 and beyond, bolstered by state and federal DOT funding now in place. As well, airport authorities are also funding runway surface repair and maintenance initiatives. So our key initiatives for this business are expanding engineering capacity to support our growing order backlog, leverage the 80-20 investments made in 2022 and the new initiatives currently in process in 2023, and deliver growth and margin expansion for the year. So let's now turn to slide 17 and we'll discuss our 2023 guidance. Our outlook for 2023 assumes modest growth, continued margin expansion, and strong cash performance. Our outlook for consolidated revenue is in the range of $1.36 billion to $1.41 billion compared to $1.38 billion in 2022. Given the continued fluidity in markets, this range assumes a down organic scenario at the low end and modest growth at the high end. Gap operating margins should range between 9.9% and 10.1% compared to 9.4% in 2022. And adjusted operating margins should range between 11% and 11.2% compared to 10.9% in 2022. Gap EPS should range between $3.04 and $3.24 compared to $2.56 in 2022. And adjusted EPS should range between $3.46 and $3.66 compared to $3.40 in 2022. Free cash flows and percent of revenue will reach 10% compared to 6% in 2022. We are confident we will execute and deliver solid performance despite the fluid environment impacting some of our end markets. And our confidence is bolstered by the progress made in our market positioning, our new product introductions, our systems and process improvements, our ability to drive participation and margin expansion, and the strength of our organization. We have proven our ability to manage constant change and adjust our operating paradigms as needed to drive results. And we expect to get off to a solid start in the first quarter. I want to thank our entire team for good performance in 2022. I'm proud of what we have accomplished, the challenges we have overcome, and the agility and resiliency of the organization. The entire team looks forward to another good year in 2023. And with that, let's open the call for your questions.

Thank you. We will now be conducting a question and answer session. If you would 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 would 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. Thank you. Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Thank you. Good morning, Bill. Good morning, Tim. I apologize for the background noise here. Maybe start with residential margins a little lower than we've seen. Can you kind of break that out? I think you said QAP was about 110 bps. Is that right? How much was absorption versus misalignment of input costs and what's your outlook for Q1 and how quickly we can get back to those kind of mid to high teams margins we've seen over the last couple of years?

Yeah, I can. So you're right on the 110 of decline due to the QAP. That's just blending in a lower margin business before we complete the integration. Dan, it's mainly, I mean, there's a bit of absorption, right? Volumes are lower. You always have that. But it was mainly really the material cost alignment as prices declined. And we had to give price in some places. And then just getting the right cost material back in. Expectations are, you know, first quarter is going to be seasonally impacted again, but we expect for a full year that we'll be higher than we were.

Sorry, Tim, you said you expect for the full year to be higher than, I missed the last one, than Q4 or than last year?

Than last year, right? So year over year we'll be up.

Got it.

Okay.

Perfect. Switching to renewables, just talk a little bit more about activity. I thought I heard you say a solid booking in January. I know it's early, and the expectation is obviously for much more improvement in H2, but anything you can talk to in terms of what discussions have looked like year-to-date and what your visibility looks like when you expect backlog to start to improve? that would support the fiscal, you know, overall 2023 guide. Thank you.

Yeah, so Dan, we, you know, our renewables business is not projected to go a lot in 2023 just because the way the plant is built due to the UFLPA and the ramp in the second half. What's been good news around this front is customers are finding ways to source panels that are not necessarily governed by the UFLPA. Panels coming from different countries or different sources that are not, you know, sourcing raw material that is the subject of the entire import process in the first place. But what that means is the spigot still isn't turned all the way on for the industry, but if you're aligned with the right customers, you have the potential to, you know, continue to drive backlog improvement. And I would expect that to start – picking back up as we go forward in the year. I can't tell you how robust the activity is. It's as if we don't have a panel supply issue in the industry. It's just a lot of pent-up demand, but I think our backlog will continue to build, and you'll start to see it turn as we move later into the first quarter, into the second quarter, first half of the year. I think you'll start to see improvement. As UFLPA opens up, And hopefully you'll see that really start to take off. Backlog is one thing. And then the question is, you know, when the panels start to flow in, how quick can industry respond to that opportunity? And it won't be flip the switch because, you know, you've got to get the engine going again across the industry. But I do think, you know, second half will build as we have built in a plan. So backlog should start improving in the first half to some degree, and then hopefully the We'll continue to build in the second half as we build the plan around that.

Perfect. And maybe last, just talk a little bit about, you know, obviously the guide's a little bit more weighted toward the back half given, you know, the probably near-term softness in renewables as well as the seasonality and residential. Any guidance in terms of, you know, either revenue growth or kind of EPS Q1 and H1 relative to H2. Thanks.

Yeah, I would just say we feel like we're going to get off to a solid start. We expect to get off to a solid start in Q1, and we'll have more and more visibility on timing of how things will flow by quarter as we go into the year versus kind of how we built a plan. So, you know, as we said up front for the full year, we feel in both – Top line and bottom line, we can grow a little bit, and we can drive margin expansion and EPS improvement. How that flows in the year, I think we'll learn a little bit more as we go through each quarter, but we feel like we'll get off to a good start or a solid start, and we'll take it from there.

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

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Julio Romero with Sedoti. Please proceed with your question.

Thanks. Hey, good morning, Bill and Tim. Hey, Julio. Maybe to start off on the renewable segment, if you could maybe talk about the revenue mix you saw in the fourth quarter, just the 15% top margin seemed really impressive there and just curious, you know, what kind of mixed changes you saw.

I wouldn't say it was a whole lot of mixed changes, Julio, as much as it was just the continuation of the effort the team was putting forth and driving execution. So if you recall going back to the beginning of the year where we were struggling with when the panel situation really hit the industry and we had a lot of field operational inefficiency associated with project movement and so forth, that starts to settle down as the year goes on. You get your arms around the projects that actually have panels associated with them. You're working directly with customers. And we've just done a tremendous amount of work on our ability to execute in this environment differently than we would have a year prior. So a lot of 80-20 associated with starting from estimating all the way through project management down into the field, working the supply chain and working on material productivity. It's a combination of a lot of things that started to build over the last eight months that just drove better productivity and better performance on the margin side. We did all that in a down environment the second half, which we expected, if you guys recall, we expected revenue to slow in the second half of the year as bookings did because of panel availability. We shifted our focus to make sure that we could drive better performance even in a down environment, but it had really nothing to do with sales mix, if you will.

Okay. No, that's really helpful, and I appreciate the color, you know, the alleviation of the field op inefficiencies there. I guess when you talked about how you're thinking about the segment for 23, I think you mentioned in the prepared remarks you expect progressive revenue growth in the renewable segment throughout the year. How about on the margin front? I mean, can you maybe speak to the cadence of margins expected and how that should flow throughout the year.

Yeah, our plan is built on margin improvement in that segment for the year, and it'll correspond somewhat with as the revenue flows as well. So our hope at the end of the day is that our plan at the end of the day is as the volume starts to come back, the top line starts to accelerate, we'll be able to leverage that incremental or leverage that growth in a better way than we could have a year or so ago because of what I just described in terms of improvements that are being made. But I think that will build in the course of the year just as the – it will correlate with, I think, the sales growth that comes throughout the course of the year as well.

Okay, that's helpful. And I guess just last one for me, you saw some very solid – free cash flow in the fourth quarter, I guess the 10% guide for 23 is based on additional reduction of inventory, or are there any moving parts expected with receivables or payables as well?

Two things that drive for us. One, just margin expansion. That's the core. And then two, just with supply chain situation much different than it was, it enables us, along with some things we've done internally, to just drive down the amount of inventory that we've had to invest in the last two years. So those two things really are what's going to drive cash performance. And frankly, we expected the supply chain to get a little bit better sooner than it did in 2022. It didn't. It took probably an extra quarter or two, again, as we're going through yet another shift in the macro world. But we see that much more stable, and that's going to drive, as we mentioned in the prepared remarks, the ability to align inventory and demand to seasonal demand in a different way. And so we've been working that for the last six months. We have more work to do, but that's where the cash performance comes from, those two.

Makes sense. Thanks a lot, guys. Yep.

Thank you. We have reached the end of the question and answer session. Mr. Bosway, I would now like to turn the floor back over to you for closing comments.

Well, thanks, everyone, again, for joining us today. We will attend the Bank of America Clean Energy Leaders Conference next week in Boston. And we also expect to present at the Sedoti Small Cap Conference in late March. And, of course, we look forward to updating you again when we report our first quarter results. So with that, I wanted to say thank you once again and have a great rest of your day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.