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.