Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
See accompanying notes to consolidated financial statements.
On January 15, 2020, the Company purchased substantially all of the assets of Thermo Energy Systems Inc. ("Thermo"), a Canadian-based, privately held provider of commercial greenhouse solutions in North America supportingproviding growing infrastructure for the plant based organic food market. The results of Thermo Energy Systems have been included in the Company's consolidated financial results since the date of acquisition within the Company's Renewable Energy and Conservation segment. The preliminary purchase consideration for the acquisition of Thermo Energy Systems was $7.3 million.
The purchase price for the acquisition was preliminarily allocated to the assets acquired and liabilities assumed based upon their respective estimated fair values and the remaining consideration was recorded to goodwill. Goodwill of approximately $13.3$19.5 million was recorded, all of which is deductible for tax purposes. Goodwill represents future economic benefits arising from other assets acquired that could not be individually identified including workforce additions, growth opportunities, and increased presence in the commercial greenhouse markets.
The preliminary allocation of the purchase consideration to the estimated fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
The intangible assets acquired in this acquisition consisted of the following (in thousands):
On August 30, 2019, the Company acquired all of the outstanding membership interests of Apeks LLC ("Apeks"), a designer and manufacturer of botanical oil extraction systems and equipment. The results of Apeks have been included in the Company's consolidated financial results since the date of acquisition within the Company's Renewable Energy and Conservation segment. The aggregate purchase consideration for the acquisition of Apeks was $12.6 million, which includes a working capital adjustment and certain other adjustments provided for in the stockmembership interest purchase agreement.
In determining the allocation of the purchase price to the assets acquired and the liabilities assumed, the Company uses all available information to make fair value determinations using Level 3 unobservable inputs in which little or no market data exists, and therefore, engages independent valuation specialists to assist in the fair value determination of the acquired long-lived assets.
The Company incurred certain acquisition-related costs composed of legal and consulting fees. These costs were recognized as a component of selling, general, and administrative expenses in the consolidated statement of operations. The Company also recognized costs as a component of cost of sales related to the sale of inventory at fair value as a result of allocating the purchase price of recent acquisitions.
The Company conducts its annual goodwill impairment test as of October 31 each year. All of the Company’s ten10 reporting units had fair values exceeding their carrying values as of October 31, 2019. In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company considered the current and future macroeconomic and market conditions, along with its current market capitalization, projected cash flows and internal and external forecasts, and projections relating to the impact of the COVID-19 pandemic on each of its reporting units. The Company determined that a triggering event has not occurred which would require an interim impairment test to be performed.
The following table summarizes the acquired intangible asset amortization expense for the three and nine months ended March 31September 30 (in thousands):
Amortization expense related to acquired intangible assets for the remainder of fiscal 2020 and the next five years thereafter is estimated as follows (in thousands):
On January 24, 2019, the Company entered into a Sixth Amended and Restated Credit Agreement ("Senior Credit Agreement"), which amendsamended and restatesrestated the Company’s Fifth Amended and Restated Credit Agreement dated December 9, 2015, and provides for a revolving credit facility and letters of credit in an aggregate amount equal to $400 million. The Company can request additional financing from the lenders to increase the revolving credit facility to $700 million or enter into a term loan of up to $300 million subject to conditions set forth in the Senior Credit Agreement. The 2019 Senior Credit Agreement contains 3 financial covenants. As of March 31,September 30, 2020, the Company is in compliance with all 3 covenants.
Borrowings under the Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and general intangibles of the Company’s significant domestic subsidiaries.
Standby letters of credit of $5.9 million have been issued under the Senior Credit Agreement on behalf of the Company as of March 31,September 30, 2020. These letters of credit reduce the amount otherwise available under the revolving credit facility. As of March 31,September 30, 2020, the Company had $394.1 million of availability under the revolving credit facility. NaN borrowings were outstanding under the Company's revolving credit facility at March 31,September 30, 2020 and December 31, 2019.
The following tables summarize the cumulative balance of each component of accumulated other comprehensive loss, net of tax, for the three and nine months ended March 31,September 30, (in thousands):
The realized adjustments relating to the Company’s minimum pension liability and post retirement health care costs were reclassified from accumulated other comprehensive loss and included in other expense in the consolidated statements of income.
On May 4, 2018, the shareholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2018 Equity Incentive Plan (the "2018 Plan"). The 2018 Plan provides for the issuance of up to 1,000,000 shares of common stock and supplements the remaining shares available for issuance under the existing Gibraltar Industries, Inc. 2015 Equity Incentive Plan (the "2015 Plan"). Both the 2018 Plan and the 2015 Plan allow the Company to grant equity-based incentive compensation awards, in the form of non-qualified options, restricted shares, restricted stock units, performance shares, performance stock units, and stock rights to eligible participants.
In 2016, the shareholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2016 Stock Plan for Non-Employee Directors ("Non-Employee Directors Plan") which allows the Company to grant awards of shares of the Company's common stock to non-employee Directors of the Company and permits the Directors to defer receipt of such shares pursuant to the terms of the Non-Employee Directors Plan.
The following table sets forth the number of equity-based awards granted during the threenine months ended March 31,September 30, which will convert to shares upon vesting, along with the weighted average grant date fair values:
(1) The Company’s performance stock units (“PSUs”) represent shares granted for which the final number of shares earned depends on financial performance or market conditions. The number of shares to be issued may vary between 0% and 200% of the number of performance stock units granted depending on the relative achievement to targeted thresholds. The Company's PSUs with a financial performance
The Management Stock Purchase Plan ("MSPP") provides participants the ability to defer a portion of their compensation, convertible to unrestricted investments, restricted stock units, or a combination of both, or defer a portion of their Directors’directors’ fees, convertible to restricted stock units. Employees eligible to defer a portion of their compensation also receive a company-matching award in restricted stock units equal to a percentage of their compensation.
The following table provides the number of restricted stock units credited to active participant accounts and the payments made with respect to restricted stock units issued under the MSPP during the threenine months ended March 31,September 30,:
The Company has incurred exit activity costs and asset impairment charges as a result of its 80/20 simplification and portfolio management initiatives. These initiatives have resulted in the identification of low-volume, low margin, internally-produced products which have been or will be outsourced or discontinued, the simplification of processes, in the sale and exiting of less profitable businesses or productsproduct lines, and the reduction in our manufacturing footprint.
The following table summarizes the provision for income taxes for continuing operations (in thousands) for the three and nine months ended March 31,September 30, and the applicable effective tax rates:
Basic earnings and diluted weighted-average shares outstanding are as follows for the three and nine months ended March 31,September 30, (in thousands):
The weighted average number of diluted shares does not include potential anti-dilutive common shares issuable pursuant to equity based incentive compensation awards, aggregating to 18,0009,000 and 258,000346,000 for the three months ended March 31,September 30, 2020 and 2019, respectively, and 24,000 and 324,000 for the nine months ended September 30, 2020 and 2019, respectively.
The Company is organized into 3 reportable segments on the basis of the production process andprocesses, products and services provided by each segment, identified as follows:
When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics.
The following table illustrates certain measurements used by management to assess performance of the segments described above for the three and nine months ended March 31,September 30, (in thousands):
The following tables illustrate revenue disaggregated by timing of transfer of control to the customer for the three and nine months ended March 31September 30 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
| Net sales: | | | | | | | |
| Point in Time | $ | 12,682 | | | $ | 125,350 | | | $ | 46,781 | | | $ | 184,813 | |
| Over Time | 104,089 | | | 925 | | | 9,409 | | | 114,423 | |
| Total net sales | $ | 116,771 | | | $ | 126,275 | | | $ | 56,190 | | | $ | 299,236 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
| Net sales: | | | | | | | |
| Point in Time | $ | 56,636 | | | $ | 391,227 | | | $ | 115,925 | | | $ | 563,788 | |
| Over Time | 266,378 | | | 3,382 | | | 31,370 | | | 301,130 | |
| Total net sales | $ | 323,014 | | | $ | 394,609 | | | $ | 147,295 | | | $ | 864,918 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
| Net sales: | | | | | | | |
| Point in Time | $ | 28,441 | | | $ | 357,808 | | | $ | 138,383 | | | $ | 524,632 | |
| Over Time | 233,171 | | | 2,609 | | | 28,896 | | | 264,676 | |
| Total net sales | $ | 261,612 | | | $ | 360,417 | | | $ | 167,279 | | | $ | 789,308 | |
(15) SUBSEQUENT EVENTS
On October 15, 2020, the Company acquired substantially all of the assets of Architectural Mailboxes, LLC ("Architectural Mailboxes") in an all cash transaction for approximately $27 million. Architectural Mailboxes was a privately-held company in the business of designing, developing, and selling decorative residential mailboxes and related products. A preliminary purchase price allocation for the Architectural Mailboxes business has not yet been determined. Architectural Mailboxes will be reported as a part of our Residential Products segment.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain information set forth herein includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and, therefore are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “anticipates,” "aspires," “expects,” “estimates,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, competition, strategies and the industries in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” disclosed in our Annual Report on Form 10-K along with Item 1A of this Form 10-Q. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition, liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition, liquidity, and the development of the industries in which we operate are consistent with the forward-looking statements contained in this quarterly report, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make herein speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
We use certain operating performance measures, specifically consolidated gross margin, operating margin by segment and consolidated operating margin, to manage our businesses, set operational goals, and establish performance targets for incentive compensation for our employees. We define consolidated gross margin as a percentage of total consolidated gross profit to total consolidated net sales. We define operating margin by segment as a percentage of total income from operations by segment to total net sales by segment and consolidated operating margin as a percentage of total consolidated income from operations to total consolidated net sales. We believe consolidated gross margin and operating margin may be useful to investors in evaluating the profitability of our segments and Company on a consolidated basis.
Overview
Gibraltar Industries, Inc. (the "Company") is a leading manufacturer and provider of products and services for the renewable energy, conservation, residential, industrial and infrastructure markets.
The Company operates and reports its results in the following three reporting segments:
•Renewable Energy and Conservation;
•Residential Products; and
•Industrial and Infrastructure Products.
The Company serves customers primarily in North America including renewable energy (solar) developers, institutional and commercial growers of food and plants, home improvement retailers, wholesalers, distributors, and contractors. As of March 31,September 30, 2020, we operated 45 facilities, which include 32 manufacturing facilities and five distribution centers, in 19 states, Canada, China and Japan which includes 33 manufacturing facilities and five distribution centers.Japan. Our operational infrastructure provides the necessary scale to support local, regional, and national customers in each of our markets.
COVID-19 Update
Our
While the Company continues to encounter challenges and uncertainty associated with COVID-19, the pandemic did not have a material adverse effect on our reported results for the three and nine months ended September 30, 2020. While most of our operations have been considered essential businesses and have remained open during the end markets thatpandemic, the decision to keep our team intact despite some pandemic related softness in demand in certain businesses serve are subjectenabled us to changes in economic conditions that are influenced by various factors that could cause actual resultsdeliver revenue and earnings growth during this period. Our top priorities continue to differ materially from current expectationsbe
. Such factors include, but are not limited to:
focused on our organization, keeping the impactsteam and their families as safe as possible, our supply chain operating well, and providing a high level of responsiveness to customer needs. We will continue to actively monitor the recent outbreakimpact of the COVID-19 pandemicoutbreak on operations for the global economy,remainder of 2020 and beyond, and make adjustments to our customers, suppliers, employees,operating protocols as necessary. The extent to which our operations business, liquidity and cash flows;
general economic conditions and conditions inwill be impacted by the particular markets inoutbreak will largely depend on future developments, which we operate;
changes in customer demand for residential construction, repair and remodeling, non-residential construction and infrastructure projects, botanical extraction equipment, and renewable energy sources;
capital spending, competitive factors and pricing pressures;
our ability to develop and launch new products in a cost-effective manner;
our ability to realize synergies from newly acquired businesses, and our ability to derive expected benefits from restructuring, productivity initiatives, liquidity enhancing actions, and other cost reduction actions;
changes in interest rates, exchange rates, commodity costs;
changes in governmental policies and funding, tax policies and incentives, tariffs, trade policies;
the need for protection of high value assets; and
climate change.
The impact of the recent outbreak of COVID-19 pandemic on our future consolidated results of operations isare highly uncertain and will depend oncannot be accurately predicted, including new information which may emerge concerning the durationseverity, or resurgence, of the outbreak and actions by government authorities to contain the outbreak or respond to its impact, on our customers, suppliers, employees and subcontractors.among other things. Refer to the Company's Outlook section in this management discussion and analysis for consideration relative to future periods. We are taking proactive measures to respond to the challenges to our business and are altering our operations accordingly to continue to serve our end markets and maintain the safety of our employees.
We believe the key elements of our strategy discussed below will allow us to respond timely to the challenges presented by the COVID-19 pandemic and changes in the other various factors that could cause our actual results to differ materially from current expectations.
Business Strategy
Gibraltar’sThe Company’s mission is to create compounding and sustainable value with strong leadership positions in higher growth and profitable end markets. At the beginning of 2019, after four years of steady improvement inThe Company's operational execution and financial results under the leadership of Frank Heard, the Company announced the appointment of Bill Bosway as Chief Executive Officer, with Frank Heard vacating the CEO role and being appointed Executive Vice Chair of the Board through his planned retirement in March 2020. Under Mr. Bosway’s leadership, management completed a thorough evaluation of the markets the Company participates in, as well as its position in each market. This work solidified the Company’s strategy and defined plans to accelerate growth and further improve the Company’s margin profile, both through organic and inorganic investment. It has also helped focus and prioritize the Company's key investments to delivers increasing returns and sustainable value for its shareholders.
The Company migrated from a Four-Pillar strategy tofoundation employs a Three-Pillar strategy with the operating foundation focusedfocusing on three core tenets: Business Systems, Portfolio Management, and Organizational Development.
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1. | Business Systems, which combines two of the Company's previous strategic pillars - operational excellence and product innovation is supported by an execution review of the Company's monthly business performance, implementation of key investments, information technology operating and digital systems performance, and new product and services innovation. |
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2. | Portfolio Management, which combines the two other previous strategic pillars - acquisitions and portfolio management is focused on optimizing the Company’s business portfolio and ensuring our human and financial capital are invested to provide sustainable, profitable growth while expanding our relevance with customers and shaping our markets. The recent acquisitions of Apeks, LLC ("Apeks") in August 2019, Thermo Energy Systems, Inc. ("Thermo") in January 2020, and Delta Separations LLC and Teaching Tech LLC (collectively “Delta Separations”) in February 2020 were the direct result of our portfolio management strategy. |
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3. | Organizational Development is the third pillar of our strategy. In order to execute Business Systems and Portfolio Management, the Company must have a strong organization to execute, and the organization must continuously develop and improve. The Company aspires to make our workplace the "Best Place to Work", by focusing on creating the best development and learning environment for our people, proactively operate businesses that mitigate environmental and climate related impacts, and engage and support the communities in which we are located. We believe doing so helps us attract and retain the best people, enhancing our ability to execute our business plans. |
In addition1.Business Systems - operational excellence and product innovation supported by an execution review of the Company's monthly business performance, implementation of key investments, information technology operating and digital systems performance, and new product and services innovation.
2.Portfolio Management - acquisitions and portfolio management is focused on optimizing the Company’s business portfolio and ensuring our human and financial capital are invested to migrating fromprovide sustainable, profitable growth while expanding our relevance to customers and shaping our markets. The acquisitions of Apeks, LLC ("Apeks") in August 2019, Thermo Energy Systems Inc. ("Thermo") in January 2020, Delta Separations LLC and Teaching Tech LLC (collectively, “Delta Separations”) in February 2020 and, most recently, the acquisition of Architectural Mailboxes, LLC ("Architectural Mailboxes") in October 2020, were the direct result of executing our Portfolio Management strategy.
3.Organizational Development - execution of the Business Systems and Portfolio Management pillars of our strategy requires a Four-Pillar strategystrong organization that must continuously develop and improve. The Company aspires to make our workplace the "Best Place to Work", by focusing on creating the best development and learning environment for our people, proactively operating businesses that mitigate environmental and climate related impacts, and engaging with and supporting the communities in which we are located. We believe doing so helps us attract and retain the best people, enhancing our ability to execute our business plans.
As a part of our on-going Three-Pillar strategy, the Company:
Implemented•implemented new management tools to complement our core 80/20 toolkit and drive improvements in our operating margins;
Increasedincreased the percentage of our sales that are direct to end customers, allowing us to have a more meaningful connection with our end customers, providing the opportunity to better understand the challenges our customers face, and developing solutions to these challenges; and
Continued•continued to shift the focus of our portfolio to take advantage of rising tides in the renewable energy and conservation markets.
We believe the key elements of our strategy have, and will continue to, enable us to respond timely to changes in the end markets we serve, including evolving changes due to the outbreak of COVID-19. We have and expect to continue to examine the need for restructuring of our operations, including consolidation of facilities, reducing overhead costs, curtailing investments in inventory, and managing our business to generate incremental cash. We believe our enhanced strategy has enabled us to better react to volatility in commodity costs and fluctuations in customer demand, along with helping to improve margins. We have used the improved cash flows generated by these initiatives to pay down debt, improve our liquidity position, and invest in growth initiatives. Overall, we continue to strive to achieve stronger financial results, make more efficient use of capital, and deliver higher shareholder returns.
Recent Developments
On October 15, 2020, the Company acquired substantially all of the assets of Architectural Mailboxes, a privately-held company in the business of designing, developing, and selling decorative residential mailboxes and related products in an all cash transaction for approximately $27 million. The results of operations for Architectural
Mailboxes will be reported as a part of our Residential Products segment and are expected to contribute annual revenues of approximately $26 million.
On February 13, 2020, the Company acquired the assets of California-based Delta Separations, and Teaching Tech ("Delta Separations"), a privately held ethanol-based extraction systems manufacturer and training and laboratory design and operations consultative partner for $50 million in an all cash transaction. Delta Separations had revenue of approximately $46 million in 2019.
On January 15, 2020, the Company acquired the assets of Canadian-based Thermo, Energy Systems ("Thermo"), a privately held provider of commercial greenhouse solutions in North America supportingproviding growing infrastructure for the biologically grownplant based organic food market, in an all cash transaction for approximately $7 million. The Company also expects to invest approximately $25$42 million into Thermo to provide an appropriate level of working capital. Thermo is expected to contribute annual revenue at a run rate of approximately $75 million.
On August 30, 2019, the Company acquired all of the outstanding membership interests of Apeks, LLC ("Apeks"), a designer and manufacturer of botanical oil extraction systems utilizing subcritical and supercritical carbon dioxide ("CO2").dioxide. The acquisition was financed through cash on hand of $12 million. Apeks had trailing twelve months
The financial results from the acquisitions of revenues as of June 30, 2019 of $17.7 million. The results of operations ofThermo, Delta, and Apeks have been included in the Renewablereported as a part of our Renewables Energy and Conservation segment of the Company's consolidated financial statements from the datesince their respective dates of acquisition.
On March 18, 2019, the Company appointed Patrick M. Burns as Chief Operating Officer. In his position as Chief Operating Officer, Mr. Burns is responsible for all aspects of Gibraltar’s day-to-day operations across its businesses and such other executive duties as he is assigned from time to time by the Board of Directors and the Chief Executive Officer.
On January 24, 2019, we entered into the Company's Sixth Amended and Restated Credit Agreement (the "Senior Credit Agreement") which includes a 5-year, $400 million revolving credit facility. The Senior Credit Agreement also provides the Company the opportunity, upon request, to increase the amount of the revolving credit facility to $700 million. In conjunction with entering into the Senior Credit Agreement, on February 1, 2019, the Company redeemed all $210 million of its outstanding 6.25% Senior Subordinated Bonds. The amended Senior Credit Agreement provides the Company with access to capital and improves our financial flexibility.
On January 2, 2019, the Company appointed William T. Bosway as President and Chief Executive Officer of the Company and a member of the Board of Directors. Over the past 29 years, Mr. Bosway has worked for two Fortune 500 industrial companies and brings to the Company strong leadership skills and significant experience in acquisitions, driving organic growth, lean manufacturing and continuous improvement techniques. In connection with Mr. Bosway’s appointment, then Chief Executive Officer Frank Heard was appointed Executive Vice Chair of the Board and he announced his intention to retire on March 3, 2020.
Results of Operations
Three Months Ended March 31,September 30, 2020 Compared to the Three Months Ended March 31,September 30, 2019
The Company did not experience any significant impact on its operations from the COVID-19 pandemic during the quarter ended March 31, 2020, as stay at home and shelter in place orders were not issued until the later days of March 2020. Our businesses are deemed essential and therefore we generally continued to operate after these orders were issued. Refer to the Company's Outlook section in the MD&A for consideration relative to future periods.
The following table sets forth selected results of operations data (in thousands) and its percentage of net sales for the three months ended March 31:September 30 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 |
| Net sales | $ | 329,665 | | | 100.0 | % | | $ | 299,236 | | | 100.0 | % |
| Cost of sales | 244,222 | | | 74.1 | % | | 222,658 | | | 74.4 | % |
| Gross profit | 85,443 | | | 25.9 | % | | 76,578 | | | 25.6 | % |
| Selling, general, and administrative expense | 41,584 | | | 12.6 | % | | 45,158 | | | 15.1 | % |
| | | | | | | |
| Income from operations | 43,859 | | | 13.3 | % | | 31,420 | | | 10.5 | % |
| Interest expense | 218 | | | 0.1 | % | | 17 | | | 0.0 | % |
| Other expense | 53 | | | 0.0 | % | | 84 | | | 0.0 | % |
| Income before taxes | 43,588 | | | 13.2 | % | | 31,319 | | | 10.5 | % |
| Provision for income taxes | 9,828 | | | 3.0 | % | | 6,843 | | | 2.3 | % |
| | | | | | | |
| | | | | | | |
| Net income | $ | 33,760 | | | 10.2 | % | | $ | 24,476 | | | 8.2 | % |
|
| | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Net sales | $ | 249,439 |
| | 100.0 | % | | $ | 227,417 |
| | 100.0 | % |
| Cost of sales | 193,052 |
| | 77.4 | % | | 183,517 |
| | 80.7 | % |
| Gross profit | 56,387 |
| | 22.6 | % | | 43,900 |
| | 19.3 | % |
| Selling, general, and administrative expense | 41,197 |
| | 16.5 | % | | 33,334 |
| | 14.7 | % |
| Income from operations | 15,190 |
| | 6.1 | % | | 10,566 |
| | 4.6 | % |
| Interest (income) expense | (47 | ) | | 0.0 | % | | 2,061 |
| | 0.9 | % |
| Other expense | 192 |
| | 0.1 | % | | 589 |
| | 0.2 | % |
| Income before taxes | 15,045 |
| | 6.0 | % | | 7,916 |
| | 3.5 | % |
| Provision for income taxes | 2,986 |
| | 1.2 | % | | 1,571 |
| | 0.7 | % |
| Net income | $ | 12,059 |
| | 4.8 | % | | $ | 6,345 |
| | 2.8 | % |
The following table sets forth the Company’s net sales by reportable segment for the three months ended March 31,September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change due to |
| 2020 | | 2019 | | Total
Change | | | | Acquisitions | | Operations |
| Net sales: | | | | | | | | | | | |
| Renewable Energy and Conservation | $ | 128,258 | | | $ | 116,771 | | | $ | 11,487 | | | | | $ | 24,061 | | | $ | (12,574) | |
| Residential Products | 151,718 | | | 126,275 | | | 25,443 | | | | | — | | | 25,443 | |
| Industrial and Infrastructure Products | 49,767 | | | 56,361 | | | (6,594) | | | | | — | | | (6,594) | |
| Less: Intersegment sales | (78) | | | (171) | | | 93 | | | | | — | | | 93 | |
| Net Industrial and Infrastructure Products | 49,689 | | | 56,190 | | | (6,501) | | | | | — | | | (6,501) | |
| Consolidated | $ | 329,665 | | | $ | 299,236 | | | $ | 30,429 | | | | | $ | 24,061 | | | $ | 6,368 | |
|
| | | | | | | | | | | |
| | 2020 | | 2019 | | Total Change |
| Net sales: | | | | | |
| Renewable Energy and Conservation | $ | 96,497 |
| | $ | 68,837 |
| | $ | 27,660 |
|
| Residential Products | 103,419 |
| | 103,709 |
| | (290 | ) |
| Industrial and Infrastructure Products | 49,801 |
| | 55,188 |
| | (5,387 | ) |
| Less: Intersegment sales | (278 | ) | | (317 | ) | | 39 |
|
| Net Industrial and Infrastructure Products | 49,523 |
| | 54,871 |
| | (5,348 | ) |
| Consolidated | $ | 249,439 |
| | $ | 227,417 |
| | $ | 22,022 |
|
Consolidated net sales increased by $22.0$30.4 million, or 9.7%10.2%, to $249.4$329.7 million for the three months ended March 31,September 30, 2020 compared to the three months ended March 31,September 30, 2019. The 9.7%10.2% increase in revenue was driven by $15.7the Residential Products and Renewable Energy and Conservation segments. Organic growth accounted for 2.1%, or $6.4 million, the result of salesincreased volume in our Residential Products segment, which more than offset the organic volume declines in both our Renewable Energy and Conservation and our Industrial and Infrastructure Products segments. Sales generated from our first quarter 2020 acquisitions of Thermo and Delta Separations, and Thermo during the current year quarter and the prior year acquisition of Apeks. The organicApeks, contributed 8.1% or $24.1 million to the growth in the quarter stemmed from a 2.8% increase in volume, primarily from our Renewable Energy and Conservation segment, which more than offset the volume decline in our Industrial and Infrastructure Products segment. Revenue in our Residential Products segment was essentially flat as compared to the prior year quarter.
Net sales in our Renewable Energy and Conservation segment increased 40.3%9.8%, or $27.7$11.5 million, to $96.5$128.3 million for the three months ended March 31,September 30, 2020 compared to $68.8$116.8 million for the three months ended March 31,September 30, 2019. Sales generated from the current year quarter acquisitions of Thermo and Delta Separations, and Thermo, along with the prior year acquisition of Apeks, contributed $15.7$24.1 million to the increase in the current year. In addition, strong organic growthyear quarter. Organic revenue decreased $12.6 million, or 10.8%, driven by a decline in our core conservation business related to a slowdown in the cannabis and hemp markets, partially offset by participation gains in our renewable energy related business. Backlog improved 28% year over year for this segment, which was the result of healthystrong end market dynamicsdemand in renewable energy, and participation gains as evidencedin conservation, driven by our 58% improvementstrength in backlog year over year, or 13% on an organic basis.the fruit and vegetable market and increasing activity in the cannabis market.
Net sales in our Residential Products segment decreased 0.3%increased 20.1%, or $0.3$25.4 million, to $103.4$151.7 million for the three months ended March 31,September 30, 2020 compared to $103.7$126.3 million for the three months ended March 31,September 30, 2019.
The slight decreaseincrease from the prior year quarter was largely due to continued solid activity in the result of product line simplification actions taken in 2019repair and from lower volume for products sold directly to homeowners.remodel market, along with participation gains across our various distribution channels.
Net sales in our Industrial and Infrastructure Products segment decreased 9.7%11.6%, or $5.3$6.5 million, to $49.5$49.7 million for the three months ended March 31,September 30, 2020 compared to $54.9$56.2 million for the three months ended March 31,September 30, 2019. Increased volumeLower demand for its core industrial products resulted in a decrease in revenue in the Industrial businesses. While revenue in the Infrastructure business was more than offset by lower revenuedown modestly, as the pandemic affected spending on infrastructure projects in certain end markets, infrastructure backlog grew slightly compared to the Industrial businesses, driven by lower demand and lower steel prices impacting its core industrial products.prior year quarter.
Our consolidated gross margin increased to 22.6%25.9% for the three months ended March 31,September 30, 2020 compared to 19.3%25.6% for the three months ended March 31,September 30, 2019. This modest increase was the result of improved operating execution in all our core businesses compared to the prior year quarter, which included $3.4 million of incremental costs for design refinementeffective price and field improvements for our solar tracking solution. Favorable alignment of material costs to customer selling prices, volume leveragecost management, and benefits from our 80/20 simplification initiatives also contributed to the improved gross margin year over year.initiatives. Partially offsetting the above improvements were expected lower gross margins generated from our recent acquisitions.acquisitions as we continue to integrate them operationally.
Selling, general, and administrative (SG&A)("SG&A") expenses increaseddecreased by $7.9$3.6 million, or 23.6%7.9%, to $41.2$41.6 million for the three months ended March 31,September 30, 2020 from $33.3$45.2 million for the three months ended March 31,September 30, 2019. The $7.9$3.6 million increasedecrease was largely the result of $3.7a decrease in costs of approximately $7.2 million ofrelated to exit activities, senior leadership transition and completing acquisitions, partially offset by $3.8 million in incremental SG&A expenses recorded quarter over quarter for our recent acquisitions, along with costs incurred to effect the acquisitions closed during the quarter.acquisitions. SG&A expenses as a percentage of net sales increaseddecreased to 16.5%12.6% for the three months ended March 31,September 30, 2020 compared to 14.7%15.1% for the three months ended March 31,September 30, 2019.
The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the three months ended March 31,September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| 2020 | | 2019 | | Total
Change | | | | | | | | |
| Income from operations: | | | | | | | | | | | | | | | | | |
| Renewable Energy and Conservation | $ | 14,195 | | | 11.1 | % | | $ | 19,633 | | | 16.8 | % | | $ | (5,438) | | | | | | | | | |
| Residential Products | 32,454 | | | 21.4 | % | | 17,012 | | | 13.5 | % | | 15,442 | | | | | | | | | |
| Industrial and Infrastructure Products | 5,199 | | | 10.5 | % | | 5,462 | | | 9.7 | % | | (263) | | | | | | | | | |
| Unallocated Corporate Expenses | (7,989) | | | (2.4) | % | | (10,687) | | | (3.6) | % | | 2,698 | | | | | | | | | |
| Consolidated income from operations | $ | 43,859 | | | 13.3 | % | | $ | 31,420 | | | 10.5 | % | | $ | 12,439 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | Total
Change |
| Income from operations: | | | | | | | | | |
| Renewable Energy and Conservation | $ | 5,699 |
| | 5.9 | % | | $ | 1,632 |
| | 2.4 | % | | $ | 4,067 |
|
| Residential Products | 13,725 |
| | 13.3 | % | | 12,090 |
| | 11.7 | % | | 1,635 |
|
| Industrial and Infrastructure Products | 3,989 |
| | 8.1 | % | | 4,129 |
| | 7.5 | % | | (140 | ) |
| Unallocated Corporate Expenses | (8,223 | ) | | (3.3 | )% | | (7,285 | ) | | (3.2 | )% | | (938 | ) |
| Consolidated income from operations | $ | 15,190 |
| | 6.1 | % | | $ | 10,566 |
| | 4.6 | % | | $ | 4,624 |
|
TheOur Renewable Energy and Conservation segment generated an operating margin of 5.9%11.1% in the current year quarter compared to 2.4%16.8% in the prior year quarter. The increasedecrease in operating margin was largely the combined result of $3.4 million of incremental costs incurred during the prior year quarter for design refinement and field improvements for our solar tracking solution. Volume leverage, improved operating execution and favorable alignment of material costs to customer selling prices also contributed to the improved margin year over year. Partially offsetting the above improvements were lossesexpected lower margins generated fromby our recent acquisitions which incurred seasonally lower volumesas we continue to integrate them operationally and include lower margin projects as comparednear-term market challenges impacting the conservation business related to a slowdown in the cannabis and hemp markets. Partially offsetting this decrease was favorable product and services mix and strong execution in our organic margin profile.renewable energy business.
OurThe Residential Products segment generated an operating margin of 13.3%21.4% during the three months ended March 31,September 30, 2020 compared to 11.7%13.5% during the three months ended March 31,September 30, 2019. The increase resulted from a favorable alignmentin operating margin was the result of volume leverage, effective price and material costs to customer selling prices along withcost management, and continued benefits from 80/20 simplification initiatives. initiatives, along with a $3.2 million decrease in exit activity costs compared to the prior year quarter.
Our Industrial and Infrastructure Products segment generated an operating margin of 8.1%10.5% during the three months ended March 31,September 30, 2020 compared to 7.5%9.7% during the three months ended March 31,September 30, 2019. The increase resulted from continued improvement in execution in our industrial business, and effective price and material cost management.
Unallocated corporate expenses decreased $2.7 million from $10.7 million during the three months ended September 30, 2019 to $8.0 million during the three months ended September 30, 2020. A decline in costs related to senior leadership transition, restructuring and completing acquisitions of approximately $3.2 million resulted in the current year quarter decrease as compared to the prior year quarter.
Interest expense was negligible for both the three months ended September 30, 2020 and September 30, 2019. No amounts were outstanding under our revolving credit facility during the three months ended September 30, 2020 and 2019.
We recognized a provision for income taxes of $9.8 million and $6.8 million, with effective tax rates of 22.5% and 21.8% for the three months ended September 30, 2020, and 2019, respectively. The effective tax rates for the three months ended September 30, 2020 and 2019, respectively, were greater than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items.
Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
The following table sets forth selected results of operations data and its percentage of net sales for the nine months ended September 30 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 |
| Net sales | $ | 864,918 | | | 100.0 | % | | $ | 789,308 | | | 100.0 | % |
| Cost of sales | 650,830 | | | 75.2 | % | | 605,272 | | | 76.7 | % |
| Gross profit | 214,088 | | | 24.8 | % | | 184,036 | | | 23.3 | % |
| Selling, general, and administrative expense | 120,448 | | | 14.0 | % | | 115,444 | | | 14.6 | % |
| | | | | | | |
| Income from operations | 93,640 | | | 10.8 | % | | 68,592 | | | 8.7 | % |
| Interest expense | 385 | | | 0.0 | % | | 2,297 | | | 0.3 | % |
| Other (income) expense | (1,542) | | | (0.2) | % | | 660 | | | 0.1 | % |
| Income before taxes | 94,797 | | | 11.0 | % | | 65,635 | | | 8.3 | % |
| Provision for income taxes | 21,686 | | | 2.5 | % | | 14,901 | | | 1.9 | % |
| | | | | | | |
| | | | | | | |
| Net income | $ | 73,111 | | | 8.5 | % | | $ | 50,734 | | | 6.4 | % |
The following table sets forth the Company’s net sales by reportable segment for the nine months ended September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change due to |
| 2020 | | 2019 | | Total
Change | | | | Acquisitions | | Operations |
| Net sales: | | | | | | | | | | | |
| Renewable Energy and Conservation | $ | 323,014 | | | $ | 261,612 | | | $ | 61,402 | | | | | $ | 58,858 | | | $ | 2,544 | |
| Residential Products | 394,609 | | | 360,417 | | | 34,192 | | | | | — | | | 34,192 | |
| Industrial and Infrastructure Products | 147,831 | | | 168,096 | | | (20,265) | | | | | — | | | (20,265) | |
| Less: Intersegment sales | (536) | | | (817) | | | 281 | | | | | — | | | 281 | |
| Net Industrial and Infrastructure Products | 147,295 | | | 167,279 | | | (19,984) | | | | | — | | | (19,984) | |
| Consolidated | $ | 864,918 | | | $ | 789,308 | | | $ | 75,610 | | | | | $ | 58,858 | | | $ | 16,752 | |
Consolidated net sales increased by $75.6 million, or 9.6%, to $864.9 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Sales generated from our current year acquisitions of Thermo and Delta Separations and the prior year acquisition of Apeks contributed 7.5%, or $58.9 million to the growth from the prior year. The $16.8 million, or 2.1% increase, in organic growth during the current year was primarily the result of increased volume in both our Residential Products and Renewable Energy and Conservation segments, which more than offset the volume decline in our Industrial and Infrastructure Products segment.
Net sales in our Renewable Energy and Conservation segment increased 23.5%, or $61.4 million, to $323.0 million for the nine months ended September 30, 2020 compared to $261.6 million for the nine months ended September 30, 2019. Sales generated by the current year acquisitions of Thermo and Delta Separations, along with the prior year acquisition of Apeks, contributed $58.9 million, or 22.5%, to the increase in the current year.
Organic growth of $2.5 million, or 1.0%, was driven by participation gains in our renewable energy related businesses, partially offset by a decline in our core conservation business related to a slowdown in the cannabis and hemp markets. Backlog improved 28% year over year for this segment, which was the result of strong end market demand in renewable energy, and in conservation, driven by strength in the fruit and vegetable market and increasing activity in the cannabis market.
Net sales in our Residential Products segment increased 9.5%, or $34.2 million, to $394.6 million for the nine months ended September 30, 2020 compared to $360.4 million for the nine months ended September 30, 2019. The increase from the prior year was largely due to continued solid activity in the repair and remodel market, along with participation gains across our various distribution channels.
Net sales in our Industrial and Infrastructure Products segment decreased 12.0%, or $20.0 million, to $147.3 million for the nine months ended September 30, 2020 compared to $167.3 million for the nine months ended September 30, 2019. Lower demand and lower steel prices impacting its core industrial products resulted in a decrease in revenue in the Industrial businesses. Revenue in the Infrastructure business was essentially flat year over year, while its ending backlog improved slightly from the prior year.
Our consolidated gross margin increased to 24.8% for the nine months ended September 30, 2020 compared to 23.3% for the nine months ended September 30, 2019. This increase was due to improved operating execution in all of our core businesses compared to the prior year period that included incremental costs for design refinement and field improvements for our solar tracking solution, effective price and material cost management and benefits from our 80/20 simplification initiatives. Partially offsetting the above improvements were lower gross margins generated from our recent acquisitions.
SG&A expenses increased by $5.0 million, or 4.3%, to $120.4 million for the nine months ended September 30, 2020 from $115.4 million for the nine months ended September 30, 2019. The $5.0 million increase was largely the result of $11.0 million of incremental SG&A expenses recorded year over year for our recent acquisitions and costs to complete those acquisitions closed during the year, along with investments in the development of our organization and safety of our team by reallocating SG&A spending. Partially offsetting these increases was decreased spending for exit activity costs of approximately $4.6 million. SG&A expenses as a percentage of net sales decreased to 14.0% for the nine months ended September 30, 2020 compared to 14.6% for the nine months ended September 30, 2019.
The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the nine months ended September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| 2020 | | 2019 | | Total
Change | | | | | | | | |
| Income from operations: | | | | | | | | | | | | | | | | | |
| Renewable Energy and Conservation | $ | 29,082 | | | 9.0 | % | | $ | 30,914 | | | 11.8 | % | | $ | (1,832) | | | | | | | | | |
| Residential Products | 74,143 | | | 18.8 | % | | 49,880 | | | 13.8 | % | | 24,263 | | | | | | | | | |
| Industrial and Infrastructure Products | 15,832 | | | 10.7 | % | | 13,660 | | | 8.2 | % | | 2,172 | | | | | | | | | |
| Unallocated Corporate Expenses | (25,417) | | | (2.9) | % | | (25,862) | | | (3.3) | % | | 445 | | | | | | | | | |
| Consolidated income from operations | $ | 93,640 | | | 10.8 | % | | $ | 68,592 | | | 8.7 | % | | $ | 25,048 | | | | | | | | | |
Our Renewable Energy and Conservation segment generated an operating margin of 9.0% during the nine months ended September 30, 2020 compared to 11.8% during the nine months ended September 30, 2019. The decrease in operating margin was the net result of the expected lower margins generated from our recent acquisitions, as we continue to integrate them operationally, largely offset by favorable product and services mix and strong execution in our renewable energy businesses, as well as, the absence of incremental costs incurred during the prior year for design refinement and field improvements for our solar tracking solution.
Our Residential Products segment generated an operating margin of 18.8% during the nine months ended September 30, 2020 compared to 13.8% during the nine months ended September 30, 2019. The increase in operating margin was largely the result of volume leverage, effective price and material cost management and continued benefits from 80/20 simplification initiatives, along with a $3.1 million decrease in exit activity costs compared to the prior year.
The Industrial and Infrastructure Products segment generated an operating margin of 10.7% during the nine months ended September 30, 2020 compared to 8.2% during the nine months ended September 30, 2019. The increase in operating margin was the result of a more favorable alignment ofcontinued improvement in execution in our industrial business, effective price and material costs to customer selling prices, higher margin product mixcost management and ongoing benefit from the Company's 80/20 initiatives.
Unallocated corporate expenses increased $0.9decreased $0.4 million from $7.3$25.9 million during the threenine months ended March 31,September 30, 2019 to $8.2$25.4 million during the threenine months ended March 31,September 30, 2020. This increase from the prior year quarterThe slight decrease was largely the result of costs incurredprimarily due to effect the acquisitions closed during the quarter.lower performance based compensation expense.
Interest income realizedexpense decreased by $1.9 million to $0.4 million for the threenine months ended March 31,September 30, 2020 was negligible. The change from $2.1compared to $2.3 million of interest expense incurred for the threenine months ended March 31, 2019September 30, 2019. The decrease in expense resulted from the redemption of the Company's outstanding $210 million of 6.25% Senior Subordinated Notes during the first quarter of 2019. No amounts were outstanding under our revolving credit facility during the threenine months ended March 31,September 30, 2020 and 2019.
The Company recorded other income of $1.5 million for the nine months ended September 30, 2020 and other expense of $0.7 million for the nine months ended September 30, 2019. The change from the prior year was the result of the $1.9 million pre-tax gain on the sale of the Company's self-guided apartment tour application business within the Residential Products segment.
We recognized a provision for income taxes of $3.0$21.7 million and $1.6$14.9 million, with an effective tax raterates of 19.8%22.9% and 22.7%, for both the threenine months ended March 31,September 30, 2020, and 2019, respectively. The effective tax raterates for the threenine months ended March 31,September 30, 2020 and 2019, respectively, was less thanexceeded the U.S. federal statutory rate of 21% due to favorable discrete items partially offset by state taxes and nondeductible permanent differences.differences partially offset by favorable discrete items.
Outlook
Gibraltar continuesThe Company delivered solid revenue and growth in earnings per share to accelerate growthdate in 2020, and margin improvement through organic and inorganic investment in inherently attractive end markets that are vitalexpects fourth quarter performance to surpass 2019 results. Given the ongoing level of uncertainty related to the economy’s core needspandemic and less impacted by economic variables. the economy Gibraltar is maintaining the practice of providing qualitative guidance.
Our higher growth businesses - renewable energy, commercial greenhouse growing,momentum and processing - represented 39% of first quarter revenue and generated 58% growth in backlog as these marketsend market trends continue to accelerate. The infrastructure business is also experiencing solid market growthbe positive, and participation gains as reflected in backlog that has grown 13% over the prior year quarter.
The core residential building products businesses - ventilation, building accessories, and postal - delivered modest growth in the first quarter, but did see demand begin to slow after the end of the first quarter. The home improvement and industrial businesses have been the most impacted in today’s environment. Overall, the we expects demand in the immediate future to lag prior year until consumer confidence and spending improves. We have not seen a disruption from our suppliers. Our supply chain team remains in close contact with key suppliers and alternate supply sources to mitigate the risk of potential supply disruption.
We will continue to enhancemonitor the pandemic's impact on our revenuebusinesses and income streamspotential impact on the U.S. and backed by the strength of our balance sheet, willglobal economy. We remain focused on executing our strategy, workingoperating protocols, maintaining a safe environment for our people, and meeting our customers’ needs every day. We will also continue with key organic and inorganic investments to improvestrengthen our business and helping our team, customers, suppliers, and partners successfully navigate through today’s environment. We are leveraging our operating system - Business Systems, Portfolio Management, and Organization Development - to refine our business, strengthen the organization, and execute critical initiatives that will accelerate growth, profitability, asset utilization, and further improve return on invested capital.
Given the current economic environment and reduced visibility, it is difficult to provide guidanceplatforms for the second quarter and full-year 2020. Therefore,markets we are going to rescind our previous guidance. However, we do expect to deliver positive earnings and generate cash from operations throughout 2020. We will revisit the practice of providing guidance as we complete the second quarter.serve.
Liquidity and Capital Resources
Our principal capital requirements are to fund our operations' working capital and capital improvements and to provide capital for acquisitions. The following table sets forth our liquidity position as of:
| | | | | | | | | | | | | | |
| (in thousands) | | September 30, 2020 | | December 31, 2019 |
| Cash and cash equivalents | | $ | 179,816 | | | $ | 191,363 | |
| Availability on revolving credit facility | | 394,100 | | | 393,991 | |
| | $ | 573,916 | | | $ | 585,354 | |
|
| | | | | | | | |
| (in thousands) | | March 31, 2020 | | December 31, 2019 |
| Cash and cash equivalents | | $ | 85,966 |
| | $ | 191,363 |
|
| Availability on revolving credit facility | | 394,100 |
| | 393,991 |
|
| | | $ | 480,066 |
| | $ | 585,354 |
|
We believe that our cash on hand, lack of outstanding debt, and available borrowing capacity provided under the Senior Credit Agreement provide us with ample liquidity and capital resources to weather the economic impacts of the COVID-19 pandemic while continuing to invest in operational excellence, growth initiatives and the development of our organization. GivenAfter pausing earlier in the economic uncertainty caused byyear as the COVID-19 pandemic and federal, state and local governments response to it,unfolded, we have currently paused ourbegun to cautiously re-engage in acquisition activities. We remain in contact with the companiesprocesses that are aligned with our strategic initiatives and expectinvest in opportunities that strengthen our business platforms for the markets we serve, while being mindful of the continued impact of the COVID-19 pandemic on our economic outlook. We continue to re-engage in these acquisition processes when the economic impact becomes clearer. In the interim, we remain highly focused on managing our working capital, which may include adjusting scheduled deliveries of inventory to match current demand levels, closely monitoring customer credit and collection activities, and working to extend payment terms.
Our Senior Credit Agreement provides us with the liquidity and capital resources for use by our U.S. operations. Historically, our foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements. As of March 31,September 30, 2020, our foreign subsidiaries held $29.6$38.8 million of cash in U.S. dollars, of which $12.9 million is available to be repatriated to the U.S., net of $0.6 million of withholding tax. Subsequent cash generated by our foreign subsidiaries will be reinvested into their operations.dollars.
We are taking advantage of the option to defer remittance of the employer portion of Social Security tax as provided in the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act"), and estimate that this deferral will allow us to retain approximately $4 million in cash during the remainder of 2020 that would have otherwise been remitted to the federal government. The deferred tax payments will be repaid equally in 2021 and 2022. The CARES Act, along with other foreign government initiatives, also provides for job retention programs, which have allowed some of our businesses to receive payroll tax credits or subsidies during 2020.
Over the long-term, we expect that future investments, including strategic business opportunities such as acquisitions, may be financed through a number of sources, including internally available cash, availability under our revolving credit facility, new debt financing, the issuance of equity securities, or any combination of the above. All potential acquisitions are evaluated based on our acquisition strategy, which includes the enhancement of our existing products, operations, or capabilities, expanding our access to new products, markets, and customers, with the goal of creating compounding and sustainable shareholder value.
These expectations are forward-looking statements based upon currently available plans and information and may change if conditions in the credit and equity markets deteriorate or other circumstances change. To the extent that operating cash flows are lower than current or expected levels, or sources of financing are not available or not available at acceptable terms, our future liquidity may be adversely affected.
Cash Flows
The following table sets forth selected cash flow data for the threenine months ended March 31,September 30, (in thousands):
| | | | | | | | | | | |
| 2020 | | 2019 |
| Cash provided by (used in): | | | |
| Operating activities of operations | $ | 56,194 | | | $ | 72,494 | |
| Investing activities of operations | (61,152) | | | (16,281) | |
| Financing activities of operations | (6,031) | | | (216,330) | |
| | | |
| Effect of foreign exchange rate changes | (558) | | | 729 | |
| Net decrease in cash and cash equivalents | $ | (11,547) | | | $ | (159,388) | |
|
| | | | | | | |
| | 2020 | | 2019 |
| Cash (used in) provided by: | | | |
| Operating activities of continuing operations | $ | (43,012 | ) | | $ | (37,488 | ) |
| Investing activities of continuing operations | (57,309 | ) | | (3,374 | ) |
| Financing activities of continuing operations | (4,160 | ) | | (213,247 | ) |
| Effect of foreign exchange rate changes | (916 | ) | | 612 |
|
| Net decrease in cash and cash equivalents | $ | (105,397 | ) | | $ | (253,497 | ) |
Operating Activities
Net cash used inprovided by operating activities for the threenine months ended March 31,September 30, 2020 of $43.0$56.2 million consisted of net income of $12.1$73.1 million and non-cash net charges totaling $7.2$24.2 million, which include depreciation, amortization, stock compensation, and other non-cash charges, and anoffset by a $41.1 million investment in working capital and other net assets. The investment in net working capital and other net assets of $62.3 million. In addition to seasonal increases in inventory and trade receivables and payables,was driven by the investment in net working capital and other net assets was largely driven by an investment of $37.5$42.4 million in Thermo, one of our recent acquisitions, which was undercapitalized at purchase, along with an increase in accounts receivable due to strong demand in our Residential Products segment and a decrease in accrued expenses and other non-current liabilities correlated to the payments made during the quarter for the Company's performance based incentive plans,timing of customer rebates,billings and settlements of multi-employer pension plans terminated during 2019.payments.
Net cash used inprovided by operating activities of $37.5$72.5 million during the threenine months ended March 31,September 30, 2019 consisted of net income of $50.7 million and $28.3 million of non-cash charges including depreciation, amortization, stock compensation, exit activity and other charges, offset by an investment in working capital and other net assets of $54.0 million offset by $10.2 million from non-cash charges including depreciation, amortization, stock compensation and other net charges as well as net income of $6.3$6.6 million.
Investing Activities
Net cash used in investing activities for the threenine months ended March 31,September 30, 2020 of $57.3$61.2 million primarily consisted of net cash paid for the acquisitions of Delta Separations of $47.2$47.1 million and Thermo Energy Systems of $7.3 million and
capital expenditures of $2.8 million.$9.3 million, offset by $2.0 million in proceeds from the sale of a business within the Residential Products segment and $0.6 million in proceeds from the sale of property and equipment.
Net cash used in investing activities for the threenine months ended March 31,September 30, 2019 of $3.4$16.3 million consisted of $8.7 million net cash paid for the acquisition of Apeks and capital expenditures of $3.1 million and a payment of $0.3 million related to the acquisition of SolarBOS.$7.7 million.
Financing Activities
Net cash used in financing activities for the threenine months ended March 31,September 30, 2020 of $4.2$6.0 million was primarily the result of $6.4 million of purchases of treasury stock related to the net settlement of tax obligations for participants in the Company's equity incentive plans.plans, offset by $0.4 million in proceeds from the issuance of common stock from stock option exercises during the period.
Net cash used in financing activities for the threenine months ended March 31,September 30, 2019 of $213.2$216.3 million consisted of the repayment of $210.0 million of 6.25% Senior Subordinated Notes on February 1, 2019,along with $2.0 million in other debt repayments, purchases of treasury stock of $2.1$3.5 million related to the net settlement of tax obligations for participants in the Company's equity incentive plans, and the payment of debt issuance costs of $1.2 million.million, partially offset by proceeds received from the issuance of common stock of $0.4 million from stock options exercised.
See Note 8 to the Company's consolidated financial statements in Part I, Item 1, Financial Statements, of this Form 10-Q for further information on the Company’s Senior Credit Agreement.
Off Balance Sheet Financing Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Contractual Obligations
Our contractual obligations have not changed materially from the disclosures included in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Critical Accounting Estimates
In the current year, there have been no changes to our critical accounting estimates from those disclosed in the consolidated financial statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
Recent Accounting Pronouncements
See Note 2 to the Company's consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information on recent accounting pronouncements.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
In the ordinary course of business, the Company is exposed to various market risk factors, including changes in general economic conditions, competition, foreign exchange rates, and raw materials pricing and availability. In addition, the Company is exposed to other financial market risks, primarily related to its foreign operations. Refer to Item 7A in the Company's Form 10-K for the year ended December 31, 2019 for more information about the Company's exposure to market risk.
Item 4. Controls and Procedures
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(a) | Evaluation of Disclosure Controls and Procedures |
(a)Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). The Company’s Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls as of the end of the period covered in this report. Based upon that evaluation and the definition of disclosure controls and procedures contained in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of the end of such period the Company’s disclosure controls and procedures were effective.
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(b) | Changes in Internal Control over Financial Reporting |
(b)Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined by Rule 13a-15(f) or 15d-15(f)) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risks discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operation, cash flows, and future prospects. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may materially adversely impact our business, financial condition, or operating results. We believe there have been no material changes from the risk factors previously disclosed in our Form 10-K. During the quarternine months ended March 31,September 30, 2020, there have been no material changes to the risk factors previously disclosed under Part I, Item 1A. “Risk Factors” in our 2019 Annual Report, except as follows:other than the addition of the risk factor set forth below, which was included in Part II, Item 1A of our Form 10-Q reports for the quarters ended March 31, 2020 and June 30, 2020.
The COVID-19 pandemic has significantly impacted worldwide economic conditions and could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
The COVID-19 or coronavirus, pandemic began to impact our operations late in the first quarter of 2020 and is likely to continue to affect our business as government authorities impose mandatory closures, work-from-home orders and social distancing protocols, seek voluntary facility closures or impose other restrictions to help control the spread of COVID-19. Although we cannot predict the duration or scope of the COVID-19 pandemic, current actions to control the spread of COVID-19 may adversely impact our business, including limiting our ability to implement our strategic growth initiatives, causing delays in our receipt of raw materials and other product components due to disruptions in our supply chain, limiting access to our distribution channels, reducing the availability of our workforce and subcontractors and increased threats of cyber attacks on our information technology infrastructure. The instability in global financial markets and unpredictable changes in our supply chain or our production capacity and customer demand resulting from the COVID-19 pandemic may pose material risk to our results of operations, financial condition, and cash flows. We are continuously monitoring the impact to our business and operations and taking action to mitigate the risks involved. However, prolonged disruption to the economy and the end markets we serve may have a material adverse impact our business, results of operations, financial condition, and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
(a) Exhibits
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| | Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. |
| | Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. |
| | Certification of the President and Chief Executive Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002. |
| | Certification of the Senior Vice President and Chief Financial Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002. |
| 101.INS | XBRL Instance Document * |
| 101.SCH | XBRL Taxonomy Extension Schema Document * |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document * |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document * |
| 101.PRA | XBRL Taxonomy Extension Presentation Linkbase Document * |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document * |
|
| | | | |
| * | Submitted electronically with this Quarterly Report on Form 10-Q. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GIBRALTAR INDUSTRIES, INC.
(Registrant)
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| /s/ William T. Bosway |
| William T. Bosway |
| President and Chief Executive Officer |
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| /s/ Timothy F. Murphy |
| Timothy F. Murphy |
Senior Vice President and
Chief Financial Officer
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Date: May 6,October 29, 2020
