UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022March 31, 2023
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File NumberNumber: 000-22462
GIBRALTAR INDUSTRIES, INC.
(Exact name of Registrantregistrant as specified in its charter)
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Delaware | | 16-1445150 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
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3556 Lake Shore Road | P.O. Box 2028 | Buffalo | New York | | 14219-0228 |
(Address of principal executive offices) | | (Zip Code) |
(716) 826-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | | ROCK | | NASDAQ Stock Market |
Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | |
| | | | Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 2, 2022,May 1, 2023, the number of common shares outstanding was: 30,970,972.30,410,872.
GIBRALTAR INDUSTRIES, INC.
INDEX
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| PAGE NUMBER |
PART I. | | | |
Item 1. | | | |
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Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
PART II. | | | |
Item 1. | | | |
Item 1A. | | | |
Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
Item 5. | | | |
Item 6. | | | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net sales | $ | 391,291 | | | $ | 369,353 | | | $ | 1,076,105 | | | $ | 1,005,334 | |
Cost of sales | 296,735 | | | 286,101 | | | 826,434 | | | 781,133 | |
Gross profit | 94,556 | | | 83,252 | | | 249,671 | | | 224,201 | |
Selling, general, and administrative expense | 47,160 | | | 45,274 | | | 140,941 | | | 141,999 | |
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Income from operations | 47,396 | | | 37,978 | | | 108,730 | | | 82,202 | |
Interest expense | 1,048 | | | 491 | | | 2,189 | | | 1,180 | |
Other expense (income) | 363 | | | 72 | | | 797 | | | (4,279) | |
Income before taxes | 45,985 | | | 37,415 | | | 105,744 | | | 85,301 | |
Provision for income taxes | 11,690 | | | 9,561 | | | 26,686 | | | 20,578 | |
Income from continuing operations | 34,295 | | | 27,854 | | | 79,058 | | | 64,723 | |
Discontinued operations: | | | | | | | |
(Loss) income before taxes | — | | | (201) | | | — | | | 1,867 | |
Provision for income taxes | — | | | 97 | | | — | | | 323 | |
(Loss) income from discontinued operations | — | | | (298) | | | — | | | 1,544 | |
Net income | $ | 34,295 | | | $ | 27,556 | | | $ | 79,058 | | | $ | 66,267 | |
Net earnings per share – Basic: | | | | | | | |
Income from continuing operations | $ | 1.08 | | | $ | 0.85 | | | $ | 2.44 | | | $ | 1.97 | |
(Loss) income from discontinued operations | — | | | (0.01) | | | — | | | 0.05 | |
Net income | $ | 1.08 | | | $ | 0.84 | | | $ | 2.44 | | | $ | 2.02 | |
Weighted average shares outstanding – Basic | 31,707 | | | 32,802 | | | 32,396 | | | 32,791 | |
Net earnings per share – Diluted: | | | | | | | |
Income from continuing operations | $ | 1.08 | | | $ | 0.84 | | | $ | 2.43 | | | $ | 1.96 | |
(Loss) income from discontinued operations | — | | | (0.01) | | | — | | | 0.05 | |
Net income | $ | 1.08 | | | $ | 0.83 | | | $ | 2.43 | | | $ | 2.01 | |
Weighted average shares outstanding – Diluted | 31,812 | | | 33,050 | | | 32,503 | | | 33,055 | |
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| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Net sales | $ | 293,267 | | | $ | 317,865 | | | | | |
Cost of sales | 216,338 | | | 253,021 | | | | | |
Gross profit | 76,929 | | | 64,844 | | | | | |
Selling, general, and administrative expense | 47,559 | | | 43,649 | | | | | |
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Income from operations | 29,370 | | | 21,195 | | | | | |
Interest expense | 1,491 | | | 485 | | | | | |
Other (income) expense | (397) | | | 153 | | | | | |
Income before taxes | 28,276 | | | 20,557 | | | | | |
Provision for income taxes | 7,177 | | | 5,101 | | | | | |
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Net income | $ | 21,099 | | | $ | 15,456 | | | | | |
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Net earnings per share: | | | | | | | |
Basic | $ | 0.68 | | | $ | 0.47 | | | | | |
Diluted | $ | 0.68 | | | $ | 0.47 | | | | | |
Weighted average shares outstanding: | | | | | | | |
Basic | 30,897 | | | 32,913 | | | | | |
Diluted | 31,024 | | | 33,022 | | | | | |
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
Net income | Net income | $ | 34,295 | | | $ | 27,556 | | | $ | 79,058 | | | $ | 66,267 | | Net income | $ | 21,099 | | | $ | 15,456 | | |
Other comprehensive (loss) income: | Other comprehensive (loss) income: | | Other comprehensive (loss) income: | | |
Foreign currency translation adjustment | Foreign currency translation adjustment | (3,568) | | | (1,057) | | | (6,993) | | | 2,902 | | Foreign currency translation adjustment | (115) | | | (227) | | |
| Minimum post retirement benefit plan adjustments, net of tax | Minimum post retirement benefit plan adjustments, net of tax | 12 | | | 27 | | | 37 | | | 81 | | Minimum post retirement benefit plan adjustments, net of tax | 8 | | | 24 | | |
| Other comprehensive (loss) income | (3,556) | | | (1,030) | | | (6,956) | | | 2,983 | | |
Other comprehensive loss | | Other comprehensive loss | (107) | | | (203) | | |
Total comprehensive income | Total comprehensive income | $ | 30,739 | | | $ | 26,526 | | | $ | 72,102 | | | $ | 69,250 | | Total comprehensive income | $ | 20,992 | | | $ | 15,253 | | |
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | (unaudited) | | | | (unaudited) | | |
Assets | Assets | | Assets | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 21,919 | | | $ | 12,849 | | Cash and cash equivalents | $ | 7,497 | | | $ | 17,608 | |
Accounts receivable, net of allowance of $3,847 and $3,738, respectively | 275,704 | | | 236,444 | | |
Accounts receivable, net of allowance of $4,164 and $3,746, respectively | | Accounts receivable, net of allowance of $4,164 and $3,746, respectively | 230,132 | | | 217,156 | |
Inventories, net | Inventories, net | 204,000 | | | 176,207 | | Inventories, net | 171,634 | | | 170,360 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 37,578 | | | 21,467 | | Prepaid expenses and other current assets | 19,015 | | | 18,813 | |
| Total current assets | Total current assets | 539,201 | | | 446,967 | | Total current assets | 428,278 | | | 423,937 | |
Property, plant, and equipment, net | Property, plant, and equipment, net | 105,097 | | | 96,885 | | Property, plant, and equipment, net | 107,701 | | | 109,584 | |
Operating lease assets | Operating lease assets | 24,850 | | | 18,120 | | Operating lease assets | 24,432 | | | 26,502 | |
Goodwill | Goodwill | 510,866 | | | 510,942 | | Goodwill | 512,639 | | | 512,363 | |
Acquired intangibles | Acquired intangibles | 145,374 | | | 141,504 | | Acquired intangibles | 134,735 | | | 137,526 | |
Other assets | Other assets | 875 | | | 483 | | Other assets | 707 | | | 701 | |
| | $ | 1,326,263 | | | $ | 1,214,901 | | | $ | 1,208,492 | | | $ | 1,210,613 | |
Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | | | Liabilities and Stockholders’ Equity | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 157,167 | | | $ | 172,286 | | Accounts payable | $ | 129,661 | | | $ | 106,582 | |
Accrued expenses and other current liabilities | 82,789 | | | 67,993 | | |
Accrued expenses | | Accrued expenses | 67,103 | | | 73,721 | |
Billings in excess of cost | Billings in excess of cost | 42,412 | | | 46,711 | | Billings in excess of cost | 42,929 | | | 35,017 | |
| Total current liabilities | Total current liabilities | 282,368 | | | 286,990 | | Total current liabilities | 239,693 | | | 215,320 | |
Long-term debt | Long-term debt | 121,840 | | | 23,781 | | Long-term debt | 49,876 | | | 88,762 | |
Deferred income taxes | Deferred income taxes | 40,257 | | | 40,278 | | Deferred income taxes | 47,030 | | | 47,088 | |
Non-current operating lease liabilities | Non-current operating lease liabilities | 17,956 | | | 11,390 | | Non-current operating lease liabilities | 17,488 | | | 19,041 | |
Other non-current liabilities | Other non-current liabilities | 20,351 | | | 27,204 | | Other non-current liabilities | 19,018 | | | 18,303 | |
Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
Preferred stock, $0.01 par value; authorized 10,000 shares; none outstanding | Preferred stock, $0.01 par value; authorized 10,000 shares; none outstanding | — | | | — | | Preferred stock, $0.01 par value; authorized 10,000 shares; none outstanding | — | | | — | |
Common stock, $0.01 par value; authorized 100,000 shares in 2022 and 2021; 34,034 shares and 33,799 shares issued and outstanding in 2022 and 2021 | 340 | | | 338 | | |
Common stock, $0.01 par value; authorized 100,000 shares; 34,148 and 34,060 shares issued and outstanding in 2023 and 2022 | | Common stock, $0.01 par value; authorized 100,000 shares; 34,148 and 34,060 shares issued and outstanding in 2023 and 2022 | 341 | | | 340 | |
Additional paid-in capital | Additional paid-in capital | 320,428 | | | 314,541 | | Additional paid-in capital | 324,466 | | | 322,873 | |
Retained earnings | Retained earnings | 624,630 | | | 545,572 | | Retained earnings | 649,077 | | | 627,978 | |
Accumulated other comprehensive (loss) income | (6,769) | | | 187 | | |
Treasury stock, at cost, 2,530 and 1,107 shares in 2022 and 2021 | (95,138) | | | (35,380) | | |
Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (3,539) | | | (3,432) | |
Cost of 3,389 and 3,199 common shares held in treasury in 2023 and 2022 | | Cost of 3,389 and 3,199 common shares held in treasury in 2023 and 2022 | (134,958) | | | (125,660) | |
Total stockholders’ equity | Total stockholders’ equity | 843,491 | | | 825,258 | | Total stockholders’ equity | 835,387 | | | 822,099 | |
| | $ | 1,326,263 | | | $ | 1,214,901 | | | $ | 1,208,492 | | | $ | 1,210,613 | |
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | Cash Flows from Operating Activities | | | |
Net income | Net income | $ | 79,058 | | | $ | 66,267 | | Net income | $ | 21,099 | | | $ | 15,456 | |
Income from discontinued operations | — | | | 1,544 | | |
Income from continuing operations | 79,058 | | | 64,723 | | |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 19,192 | | | 23,958 | | Depreciation and amortization | 6,834 | | | 6,336 | |
Stock compensation expense | Stock compensation expense | 5,889 | | | 6,769 | | Stock compensation expense | 1,594 | | | 1,352 | |
| Exit activity costs, non-cash | 1,427 | | | 1,193 | | |
Exit activity (recoveries) costs, non-cash | | Exit activity (recoveries) costs, non-cash | (63) | | | 1,198 | |
| Provision for (benefit of) deferred income taxes | 181 | | | (689) | | |
(Benefit of) provision for deferred income taxes | | (Benefit of) provision for deferred income taxes | (51) | | | 17 | |
| Other, net | Other, net | 3,620 | | | 1,274 | | Other, net | 1,023 | | | 1,395 | |
| Changes in operating assets and liabilities, excluding the effects of acquisitions: | Changes in operating assets and liabilities, excluding the effects of acquisitions: | | Changes in operating assets and liabilities, excluding the effects of acquisitions: | |
Accounts receivable | Accounts receivable | (25,538) | | | (65,297) | | Accounts receivable | (18,004) | | | (11,101) | |
Inventories | Inventories | (19,840) | | | (65,906) | | Inventories | (1,586) | | | (20,937) | |
Other current assets and other assets | Other current assets and other assets | 393 | | | (316) | | Other current assets and other assets | 2,536 | | | 731 | |
Accounts payable | Accounts payable | (24,756) | | | 32,029 | | Accounts payable | 23,077 | | | (11,962) | |
Accrued expenses and other non-current liabilities | Accrued expenses and other non-current liabilities | (1,065) | | | (12,261) | | Accrued expenses and other non-current liabilities | 1,586 | | | 9,761 | |
Net cash provided by (used in) operating activities of continuing operations | 38,561 | | | (14,523) | | |
Net cash used in operating activities of discontinued operations | — | | | (2,002) | | |
| Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | 38,561 | | | (16,525) | | Net cash provided by (used in) operating activities | 38,045 | | | (7,754) | |
Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | Cash Flows from Investing Activities | | | |
Acquisitions, net of cash acquired | Acquisitions, net of cash acquired | (51,621) | | | 4,143 | | Acquisitions, net of cash acquired | 554 | | | — | |
Purchases of property, plant, and equipment | (15,704) | | | (13,251) | | |
Net proceeds from sale of business | — | | | 38,062 | | |
Purchases of property, plant, and equipment, net | | Purchases of property, plant, and equipment, net | (2,190) | | | (4,402) | |
| Net cash (used in) provided by investing activities of continuing operations | (67,325) | | | 28,954 | | |
Net cash used in investing activities of discontinued operations | — | | | (176) | | |
Net cash (used in) provided by investing activities | (67,325) | | | 28,778 | | |
| Net cash used in investing activities | | Net cash used in investing activities | (1,636) | | | (4,402) | |
Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | Cash Flows from Financing Activities | | | |
Long-term debt payments | | Long-term debt payments | (50,000) | | | (29,000) | |
Proceeds from long-term debt | Proceeds from long-term debt | 197,800 | | | 58,500 | | Proceeds from long-term debt | 11,000 | | | 47,500 | |
Long-term debt payments | (100,000) | | | (83,636) | | |
| Purchase of common stock at market prices | Purchase of common stock at market prices | (58,125) | | | (6,161) | | Purchase of common stock at market prices | (7,509) | | | (3,461) | |
Net proceeds from issuance of common stock | — | | | 1,021 | | |
| Net cash provided by (used in) financing activities | 39,675 | | | (30,276) | | |
| Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (46,509) | | | 15,039 | |
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | (1,841) | | | (97) | | Effect of exchange rate changes on cash | (11) | | | (159) | |
Net increase (decrease) in cash and cash equivalents | 9,070 | | | (18,120) | | |
Net (decrease) increase in cash and cash equivalents | | Net (decrease) increase in cash and cash equivalents | (10,111) | | | 2,724 | |
Cash and cash equivalents at beginning of year | Cash and cash equivalents at beginning of year | 12,849 | | | 32,054 | | Cash and cash equivalents at beginning of year | 17,608 | | | 12,849 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 21,919 | | | $ | 13,934 | | Cash and cash equivalents at end of period | $ | 7,497 | | | $ | 15,573 | |
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
| | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | Total Stockholders’ Equity |
| | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | |
Balance at December 31, 2021 | 33,799 | | | $ | 338 | | | $ | 314,541 | | | $ | 545,572 | | | $ | 187 | | | 1,107 | | | $ | (35,380) | | | $ | 825,258 | | |
Balance at December 31, 2022 | | Balance at December 31, 2022 | 34,060 | | | $ | 340 | | | $ | 322,873 | | | $ | 627,978 | | | $ | (3,432) | | | 3,199 | | | $ | (125,660) | | | $ | 822,099 | |
Net income | Net income | — | | | — | | | — | | | 15,456 | | | — | | | — | | | — | | | 15,456 | | Net income | — | | | — | | | — | | | 21,099 | | | — | | | — | | | — | | | 21,099 | |
Foreign currency translation adjustment | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (227) | | | — | | | — | | | (227) | | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (115) | | | — | | | — | | | (115) | |
Minimum post retirement benefit plan adjustments, net of taxes of $10 | — | | | — | | | — | | | — | | | 24 | | | — | | | — | | | 24 | | |
Minimum post retirement benefit plan adjustments, net of taxes of $3 | | Minimum post retirement benefit plan adjustments, net of taxes of $3 | — | | | — | | | — | | | — | | | 8 | | | — | | | — | | | 8 | |
Stock compensation expense | Stock compensation expense | — | | | — | | | 1,352 | | | — | | | — | | | — | | | — | | | 1,352 | | Stock compensation expense | — | | | — | | | 1,594 | | | — | | | — | | | — | | | — | | | 1,594 | |
| Net settlement of restricted stock units | Net settlement of restricted stock units | 173 | | | 2 | | | (2) | | | — | | | — | | | 72 | | | (3,461) | | | (3,461) | | Net settlement of restricted stock units | 88 | | | 1 | | | (1) | | | — | | | — | | | 36 | | | (1,929) | | | (1,929) | |
Balance at March 31, 2022 | 33,972 | | | $ | 340 | | | $ | 315,891 | | | $ | 561,028 | | | $ | (16) | | | 1,179 | | | $ | (38,841) | | | $ | 838,402 | | |
Net income | — | | | — | | | — | | | 29,307 | | | — | | | — | | | — | | | 29,307 | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (3,198) | | | — | | | — | | | (3,198) | | |
Minimum post retirement benefit plan adjustments, net of taxes of $0 | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | | |
Stock compensation expense | — | | | — | | | 2,773 | | | — | | | — | | | — | | | — | | | 2,773 | | |
Awards of common stock | 16 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Net settlement of restricted stock units | 1 | | | — | | | — | | | — | | | — | | | — | | | (7) | | | (7) | | |
Common stock repurchased under stock repurchase program | Common stock repurchased under stock repurchase program | — | | | — | | | — | | | — | | | — | | | 1,195 | | | (50,000) | | | (50,000) | | Common stock repurchased under stock repurchase program | — | | | — | | | — | | | — | | | — | | | 154 | | | (7,369) | | | (7,369) | |
Balance at June 30, 2022 | 33,989 | | | $ | 340 | | | $ | 318,664 | | | $ | 590,335 | | | $ | (3,213) | | | 2,374 | | | $ | (88,848) | | | $ | 817,278 | | |
Net income | — | | | — | | | — | | | 34,295 | | | — | | | — | | | — | | | 34,295 | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (3,568) | | | — | | | — | | | (3,568) | | |
Minimum post retirement benefit plan adjustments, net of taxes of $5 | — | | | — | | | — | | | — | | | 12 | | | — | | | — | | | 12 | | |
Stock compensation expense | — | | | — | | | 1,764 | | | — | | | — | | | — | | | — | | | 1,764 | | |
Balance at March 31, 2023 | | Balance at March 31, 2023 | 34,148 | | | $ | 341 | | | $ | 324,466 | | | $ | 649,077 | | | $ | (3,539) | | | 3,389 | | | $ | (134,958) | | | $ | 835,387 | |
| Awards of common shares | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Net settlement of restricted stock units | 45 | | | — | | | — | | | — | | | — | | | 18 | | | (749) | | | (749) | | |
Common stock repurchased under stock repurchase program | — | | | — | | | — | | | — | | | — | | | 138 | | | (5,541) | | | (5,541) | | |
Balance at September 30, 2022 | 34,034 | | | $ | 340 | | | $ | 320,428 | | | $ | 624,630 | | | $ | (6,769) | | | 2,530 | | | $ | (95,138) | | | $ | 843,491 | | |
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Balance at December 31, 2021 | 33,799 | | | $ | 338 | | | $ | 314,541 | | | $ | 545,572 | | | $ | 187 | | | 1,107 | | | $ | (35,380) | | | $ | 825,258 | | |
Net income | — | | | — | | | — | | | 15,456 | | | — | | | — | | | — | | | 15,456 | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (227) | | | — | | | — | | | (227) | | |
Minimum post retirement benefit plan adjustments, net of taxes of $10 | — | | | — | | | — | | | — | | | 24 | | | — | | | — | | | 24 | | |
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Stock compensation expense | — | | | — | | | 1,352 | | | — | | | — | | | — | | | — | | | 1,352 | | |
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Net settlement of restricted stock units | 173 | | | 2 | | | (2) | | | — | | | — | | | 72 | | | (3,461) | | | (3,461) | | |
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Balance at March 31, 2022 | 33,972 | | | $ | 340 | | | $ | 315,891 | | | $ | 561,028 | | | $ | (16) | | | 1,179 | | | $ | (38,841) | | | $ | 838,402 | | |
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See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | Total Stockholders’ Equity | |
| Shares | | Amount | | | | | Shares | | Amount | | |
Balance at December 31, 2020 | 33,568 | | | $ | 336 | | | $ | 304,870 | | | $ | 469,943 | | | $ | (2,461) | | | 1,028 | | | $ | (28,883) | | | $ | 743,805 | | |
Net income | — | | | — | | | — | | | 12,762 | | | — | | | — | | | — | | | 12,762 | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 3,198 | | | — | | | — | | | 3,198 | | |
Minimum post retirement benefit plan adjustments, net of taxes of $10 | — | | | — | | | — | | | — | | | 27 | | | — | | | — | | | 27 | | |
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Stock compensation expense | — | | | — | | | 2,368 | | | — | | | — | | | — | | | — | | | 2,368 | | |
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Stock options exercised | 25 | | | — | | | 910 | | | — | | | — | | | — | | | — | | | 910 | | |
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Net settlement of restricted stock units | 118 | | | 1 | | | (1) | | | — | | | — | | | 54 | | | (4,662) | | | (4,662) | | |
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Balance at March 31, 2021 | 33,711 | | | $ | 337 | | | $ | 308,147 | | | $ | 482,705 | | | $ | 764 | | | 1,082 | | | $ | (33,545) | | | $ | 758,408 | | |
Net income | — | | | — | | | — | | | 25,949 | | | — | | | — | | | — | | | 25,949 | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 761 | | | — | | | — | | | 761 | | |
Minimum post retirement benefit plan adjustments, net of taxes of $10 | — | | | — | | | — | | | — | | | 27 | | | — | | | — | | | 27 | | |
Stock compensation expense | — | | | — | | | 2,567 | | | — | | | — | | | — | | | — | | | 2,567 | | |
Stock options exercised | 1 | | | — | | | 14 | | | — | | | — | | | — | | | — | | | 14 | | |
Awards of common shares | 3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Net settlement of restricted stock units | 3 | | | — | | | — | | | — | | | — | | | 1 | | | (118) | | | (118) | | |
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Balance at June 30, 2021 | 33,718 | | | $ | 337 | | | $ | 310,728 | | | $ | 508,654 | | | $ | 1,552 | | | 1,083 | | | $ | (33,663) | | | $ | 787,608 | | |
Net income | — | | | — | | | — | | | 27,556 | | | — | | | — | | | — | | | 27,556 | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (1,057) | | | — | | | — | | | (1,057) | | |
Minimum post retirement benefit plan adjustments, net of taxes of $9 | — | | | — | | | — | | | — | | | 27 | | | — | | | — | | | 27 | | |
Stock compensation expense | — | | | — | | | 1,834 | | | — | | | — | | | — | | | — | | | 1,834 | | |
Stock options exercised | 10 | | | — | | | 97 | | | — | | | — | | | — | | | — | | | 97 | | |
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Net settlement of restricted stock units | 54 | | | 1 | | | (1) | | | — | | | — | | | 19 | | | (1,381) | | | (1,381) | | |
Total other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Balance at September 30, 2021 | 33,782 | | | $ | 338 | | | $ | 312,658 | | | $ | 536,210 | | | $ | 522 | | | 1,102 | | | $ | (35,044) | | | $ | 814,684 | | |
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Gibraltar Industries, Inc. (the "Company") have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation of results for the interim period have been included. The Company's operations are seasonal; for this and other reasons financial results for any interim period are not necessarily indicative of the results expected for any subsequent interim period or for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in ourthe Company's annual report on Form 10-K for the year ended December 31, 2021.
2022.
The consolidated balance sheet at December 31, 20212022 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
The Company considers the applicability and impact of Accounting Standards Updates ("ASUs"), and ASUs effective in or after 2023, respectively, which were assessed and determined to be either not applicable, or had or are expected to have minimal impact on the Company's consolidated financial statements and related disclosures.
Recent Accounting Pronouncements Not Yet Adopted
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Standard | | Description | | Financial Statement Effect or Other Significant Matters |
ASU No. 2020-04 Reference Rate Reform (Topic 848), Facilitation of Effects of Reference Rate Reform on Financial Reporting, and ASU No. 2021-01 Reference Rate Reform (Topic 848), Scope
| | The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met, and apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued as a result of reference rate reform. The expedients and exceptions provided by the amendments in ASU 2020-04 do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in ASU 2021-01 clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. | | The amendments in these updates are effective as of March 12, 2020 through December 31, 2022, and may be applied retrospectively to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date the financial statements are available to be issued. The adoption of the amendments in these updates is not expected to have a material impact on the Company's financial statements. |
(3) ACCOUNTS RECEIVABLE, NET
Accounts receivable consistsconsisted of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Trade accounts receivable | $ | 222,368 | | | $ | 185,745 | |
Costs in excess of billings | 57,183 | | | 54,437 | |
Total accounts receivables | 279,551 | | | 240,182 | |
Less allowance for doubtful accounts and contract assets | (3,847) | | | (3,738) | |
Accounts receivable, net | $ | 275,704 | | | $ | 236,444 | |
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| March 31, 2023 | | December 31, 2022 |
Trade accounts receivable | $ | 189,281 | | | $ | 179,170 | |
Costs in excess of billings | 45,015 | | | 41,732 | |
Total accounts receivables | 234,296 | | | 220,902 | |
Less allowance for doubtful accounts and contract assets | (4,164) | | | (3,746) | |
Accounts receivable, net | $ | 230,132 | | | $ | 217,156 | |
Refer to Note 4 "Revenue" concerning the Company's costs in excess of billings.
The following table provides a roll-forward of the allowance for credit losses, for the ninethree month period ended September 30, 2022,March 31, 2023, that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.collected (in thousands):
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Beginning balance as of January 1, 20222023 | $ | 3,7383,746 | |
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Bad debt expense, net of recoveries | 960260 | |
Accounts written off against allowance and other adjustments | (851)158 | |
Ending balance as of September 30, 2022March 31, 2023 | $ | 3,8474,164 | |
(4) REVENUE
Sales includes revenue from contracts with customers for designing, engineering, manufacturing and installation of solar racking systems; electrical balance of systems; roof and foundation ventilation products; centralized mail systems and electronic package solutions; retractable awnings; gutter guards; rain dispersion products; trims and flashings and other accessories; designing, engineering, manufacturing and installation of greenhouses; structural bearings; expansion joints; pavement sealant; elastomeric concrete; and bridge cable protection systems.
Refer to Note 1514 "Segment Information" for additional information related to revenue recognized by timing of transfer of control by reportable segment.
As of September 30, 2022,March 31, 2023, the Company's remaining performance obligations are part of contracts that have an original expected duration of one year or less.
Contract assets consist of costs in excess of billings presented within accounts receivable in the Company's consolidated balance sheets. Contract liabilities consist of billings in excess of cost, classified as current liabilities, and unearned revenue, presented within accrued expenses, in the Company's consolidated balance sheets. Unearned revenue as of September 30, 2022March 31, 2023 and December 31, 20212022 was $3.4$7.8 million and $3.7$4.6 million, respectively. Revenue recognized during the ninethree months ended September 30,March 31, 2023 and 2022 and 2021 that was in contract liabilities at the beginning of the respective periods was $41.2$18.7 million and $52.6$27.4 million, respectively.
(5) INVENTORIES
Inventories consistconsisted of the following (in thousands):
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Raw material | Raw material | $ | 132,084 | | | $ | 135,558 | | Raw material | $ | 120,150 | | | $ | 111,187 | |
Work-in-process | Work-in-process | 21,642 | | | 5,858 | | Work-in-process | 12,824 | | | 17,944 | |
Finished goods | Finished goods | 56,955 | | | 39,256 | | Finished goods | 44,944 | | | 47,523 | |
Gross inventory | Gross inventory | 210,681 | | | 180,672 | | Gross inventory | 177,918 | | | 176,654 | |
Less reserves | Less reserves | (6,681) | | | (4,465) | | Less reserves | (6,284) | | | (6,294) | |
Total inventories, net | Total inventories, net | $ | 204,000 | | | $ | 176,207 | | Total inventories, net | $ | 171,634 | | | $ | 170,360 | |
(6) ACQUISITION
On August 22, 2022, the Company purchased all the issued and outstanding membership interests of Quality Aluminum Products ("QAP"), a manufacturer of aluminum and steel products including soffit, fascia, trim coil, rain carrying products and aluminum siding. The results of QAP have been included in the Company's consolidated financial results since the date of acquisition within the Company's Residential segment. The preliminary purchase consideration for the acquisition of QAP was $52.6$52.1 million, which includes a preliminary working capital adjustment and certain other adjustments provided for in the membership interest purchase agreement.
The purchase price for the acquisition was preliminarily allocated to the assets acquired and liabilities assumed based upon their respective fair values estimated as of the date of acquisition. The Company has commencedcompleted the process to confirm the existence, condition, and completeness of the assets acquired and liabilities assumed to establish fair value of such assets and liabilities and to determine the amount of goodwill to be recognized as of the date of acquisition. Due to the timing of the acquisition, we continue to gather information supporting the acquired assets and assumed liabilities. Accordingly, all amounts recorded are provisional. These provisional amounts are subject to change if new information is obtained concerning facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. The final determination of the fair value of certain assets and liabilities will behas been completed within a measurement period of up to one year from the date of acquisition. The final values may also result in changes to depreciation and amortization expense related to certain assets such as property, plant and equipment and acquired intangible assets. The preliminary excess consideration was recorded as goodwill and approximated $3.5$4.0 million, 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 domestic building products markets. The final purchase price allocation will be completed no later than the third quarter of fiscal year 2023.
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):
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Cash | $ | 1,018 | |
Working capital | 24,27923,372 | |
Property, plant and equipment | 3,4628,486 | |
Acquired intangible assets | 20,00014,700 | |
Other assets | 4041,813 | |
Other liabilities | (1,295) | |
Goodwill | 3,4763,991 | |
Fair value of purchase consideration | $ | 52,63952,085 | |
The intangible assets acquired in this acquisition consisted of the following (in thousands):
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| Fair Value | | Weighted-Average Amortization Period |
Trademarks | $ | 5,0002,800 | | | Indefinite |
| | | |
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Customer relationships | 15,00011,900 | | | 1512 years |
Total | $ | 20,00014,700 | | | |
In determining the preliminary allocation of the purchase price to the assets acquired and 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 acquisition of QAP was financed primarily through borrowings under the Company's revolving credit facility.
The Company incurredrecognized costs related to the acquisitionrecent acquisitions comprised of QAP that have been recognized in the consolidated statements of income. Within cost of sales, the Company recognizes the amortization of the purchase price allocated to the step up of inventory to fair value. Legallegal and consulting fees incurred as a result of the acquisition were recognized as a component ofwithin selling, general, and administrative expenses.
The acquisition-related costs consisted("SG&A") expenses of the following$21.0 thousand and $7.0 thousand for the three and nine months ended September 30 (in thousands):March 31, 2023 and 2022, respectively.
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Cost of sales | $ | 476 | | | $ | — | | | $ | 476 | | | $ | — | |
Selling, general and administrative costs | 522 | | | 53 | | | 529 | | | 946 | |
Total acquisition related costs | $ | 998 | | | $ | 53 | | | $ | 1,005 | | | $ | 946 | |
(7) GOODWILL AND RELATED INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill for the ninethree months ended September 30, 2022March 31, 2023 are as follows (in thousands):
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| Renewables | | Residential | | Agtech | | Infrastructure | | Total |
Balance at December 31, 2021 | $ | 188,680 | | | $ | 205,452 | | | $ | 85,132 | | | $ | 31,678 | | | $ | 510,942 | |
Acquired goodwill | — | | | 3,476 | | | — | | | — | | | 3,476 | |
Adjustments to prior year acquisitions | 904 | | | — | | | — | | | — | | | 904 | |
Foreign currency translation | (2,545) | | | — | | | (1,911) | | | — | | | (4,456) | |
Balance at September 30, 2022 | $ | 187,039 | | | $ | 208,928 | | | $ | 83,221 | | | $ | 31,678 | | | $ | 510,866 | |
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| Renewables | | Residential | | Agtech | | Infrastructure | | Total |
Balance at December 31, 2022 | $ | 188,030 | | | $ | 209,056 | | | $ | 83,599 | | | $ | 31,678 | | | $ | 512,363 | |
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Adjustments to prior year acquisitions | — | | | 387 | | | — | | | — | | | 387 | |
Foreign currency translation | (141) | | | — | | | 30 | | | — | | | (111) | |
Balance at March 31, 2023 | $ | 187,889 | | | $ | 209,443 | | | $ | 83,629 | | | $ | 31,678 | | | $ | 512,639 | |
Goodwill is recognized net of accumulated impairment losses of $133.2 million as of March 31, 2023 and December 31, 2022, respectively.
The Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company determined that no triggering event had occurred as of September 30, 2022March 31, 2023 which would require an interim impairment test to be performed.
Acquired Intangible Assets
Acquired intangible assets consistconsisted of the following (in thousands):
| | | September 30, 2022 | | December 31, 2021 | | | March 31, 2023 | | December 31, 2022 | |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | |
Indefinite-lived intangible assets: | Indefinite-lived intangible assets: | | | | | | | | | Indefinite-lived intangible assets: | | | | | | | | |
Trademarks | Trademarks | $ | 57,700 | | | $ | — | | | $ | 52,700 | | | $ | — | | | Trademarks | $ | 55,500 | | | $ | — | | | $ | 55,500 | | | $ | — | | |
Finite-lived intangible assets: | Finite-lived intangible assets: | | | Finite-lived intangible assets: | | |
Trademarks | Trademarks | 5,432 | | | 4,337 | | | 5,521 | | | 4,011 | | | Trademarks | 5,449 | | | 4,516 | | | 5,448 | | | 4,481 | | |
Unpatented technology | Unpatented technology | 34,117 | | | 21,456 | | | 38,474 | | | 20,656 | | | Unpatented technology | 34,165 | | | 22,610 | | | 34,163 | | | 22,037 | | |
Customer relationships | Customer relationships | 117,429 | | | 43,914 | | | 108,591 | | | 39,832 | | | Customer relationships | 115,027 | | | 48,609 | | | 115,125 | | | 46,557 | | |
Non-compete agreements | Non-compete agreements | 2,368 | | | 1,965 | | | 2,686 | | | 1,969 | | | Non-compete agreements | 2,371 | | | 2,042 | | | 2,371 | | | 2,006 | | |
Backlog | 6,852 | | | 6,852 | | | 7,200 | | | 7,200 | | | |
| | | 166,198 | | | 78,524 | | | 162,472 | | | 73,668 | | | | 157,012 | | | 77,777 | | | 157,107 | | | 75,081 | | |
Total acquired intangible assets | Total acquired intangible assets | $ | 223,898 | | | $ | 78,524 | | | $ | 215,172 | | | $ | 73,668 | | | Total acquired intangible assets | $ | 212,512 | | | $ | 77,777 | | | $ | 212,607 | | | $ | 75,081 | | |
The following table summarizes the acquired intangible asset amortization expense for the three and nine months ended September 30March 31, (in thousands):
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Amortization expense | $ | 2,801 | | | $ | 4,646 | | | $ | 8,718 | | | $ | 14,125 | |
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| 2023 | | 2022 | | | | |
Amortization expense | $ | 2,766 | | | $ | 3,098 | | | | | |
Amortization expense related to acquired intangible assets for the remainder of fiscal 20222023 and the next five years thereafter is estimated as follows (in thousands):
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| 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 |
Amortization expense | $ | 2,905 | | | $ | 11,140 | | | $ | 10,960 | | | $ | 10,820 | | | $ | 9,397 | | | $ | 7,747 | |
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| 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 |
Amortization expense | $ | 8,297 | | | $ | 10,883 | | | $ | 10,745 | | | $ | 9,338 | | | $ | 7,699 | | | $ | 6,832 | |
(8) LONG-TERM DEBT
Long-term debt consistsconsisted of the following (in thousands):
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Revolving credit facility | Revolving credit facility | $ | 122,300 | | | $ | 24,500 | | Revolving credit facility | $ | 52,000 | | | $ | 91,000 | |
| Less unamortized debt issuance costs | Less unamortized debt issuance costs | (460) | | | (719) | | Less unamortized debt issuance costs | (2,124) | | | (2,238) | |
Total debt | Total debt | $ | 121,840 | | | $ | 23,781 | | Total debt | $ | 49,876 | | | $ | 88,762 | |
SeniorRevolving Credit Agreement
Facility
On January 24, 2019,December 8, 2022, the Company entered into a Credit Agreement (the "Credit Agreement"), and concurrently with entering into the Credit Agreement, the Company paid off all amounts owed under the Sixth Amended and Restated Credit Agreement ("Seniordated as of January 24, 2019. The Credit Agreement"), which amended and restated 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 Senior Credit Agreement contains threetwo financial covenants. As of September 30, 2022,March 31, 2023, the Company was in compliance with all threefinancial covenants. The Credit Agreement terminates on December 8, 2027.
Interest rates0.125% for base rate loans and 1.125% for SOFR and alternative currency loans. Thereafter, the applicable margin ranges from 0.125% to 1.00% for base rate loans and from 1.125% to 2.00% for SOFR and alternative currency loans based on the Company’s Total Net Leverage Ratio, as defined in the Credit Agreement. In addition, the Credit Agreement is subject to an annual commitment fee, payable quarterly, which is initially 0.20% of the daily average undrawn balance of the revolving credit facility are based on LIBOR plus an additional margin thatand, from and after April 1, 2023, ranges from 1.125% to 2.00%. In addition,between 0.20% and 0.25% of the daily average undrawn balance of the revolving credit facility is subject to an undrawn commitment fee ranging between 0.15% and 0.25% based on the Company’s Total Net Leverage Ratio (as defined in the Senior Credit Agreement) and the daily average undrawn balance. The Senior Credit Agreement terminates on January 23, 2024.
Ratio.
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. Capital distributions under the Senior Credit Agreement are subject to certain Total Net Leverage Ratio requirements and capped atby an annual aggregate limit of $75 million ifunder the Company's leverage ratio is over 3.0 times.Credit Agreement.
For the three months ended March 31, 2022, interest rates on the revolving credit facility under the Sixth Amended and Restated Credit Agreement were based on LIBOR plus an additional margin that ranges from 1.125% to 2.00%. In addition, the revolving credit facility under the Sixth Amended and Restated Credit Agreement was subject to an undrawn commitment fee ranging between 0.15% and 0.25% based on the Total Leverage Ratio and the daily average undrawn balance.
Standby letters of credit of $4.5$4.3 million have been issued under the Senior Credit Agreement to third parties on behalf of the Company as of September 30, 2022.March 31, 2023. These letters of credit reduce the amount otherwise available under the revolving credit facility. The Company had $273.2$343.7 million and $369.3$304.5 million of availability under the revolving credit facility at September 30, 2022as of March 31, 2023 and December 31, 2021,2022, respectively.
(9) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables summarize the cumulative balance of each component of accumulated other comprehensive (loss) income, (loss), net of tax, for the three and nine months ended September 30,March 31, (in thousands):
| | | Foreign Currency Translation Adjustment | | Minimum Post Retirement Benefit Plan Adjustments | | Total Pre-Tax Amount | | Tax Benefit (Expense) | | Accumulated Other Comprehensive Income (Loss) | | | Foreign Currency Translation Adjustment | | Minimum Post Retirement Benefit Plan Adjustments | | Total Pre-Tax Amount | | Tax Benefit (Expense) | | Accumulated Other Comprehensive (Loss) Income | |
Balance at December 31, 2021 | $ | 1,640 | | | $ | (2,247) | | | $ | (607) | | | $ | 794 | | | $ | 187 | | | |
Balance at December 31, 2022 | | Balance at December 31, 2022 | $ | (3,382) | | | $ | (395) | | | $ | (3,777) | | | $ | (345) | | | $ | (3,432) | | |
| Minimum post retirement health care plan adjustments | Minimum post retirement health care plan adjustments | — | | | 34 | | | 34 | | | (10) | | | 24 | | | Minimum post retirement health care plan adjustments | — | | | 11 | | | 11 | | | 3 | | | 8 | | |
Foreign currency translation adjustment | Foreign currency translation adjustment | (227) | | | — | | | (227) | | | — | | | (227) | | | Foreign currency translation adjustment | (115) | | | — | | | (115) | | | — | | | (115) | | |
Balance at March 31, 2022 | 1,413 | | | (2,213) | | | (800) | | | 784 | | | (16) | | | |
Balance at March 31, 2023 | | Balance at March 31, 2023 | $ | (3,497) | | | $ | (384) | | | $ | (3,881) | | | $ | (342) | | | $ | (3,539) | | |
| Minimum post retirement health care plan adjustments | — | | | 1 | | | 1 | | | — | | | 1 | | | |
Foreign currency translation adjustment | (3,198) | | | — | | | (3,198) | | | — | | | (3,198) | | | |
Balance at June 30, 2022 | (1,785) | | | (2,212) | | | (3,997) | | | 784 | | | (3,213) | | | |
Minimum post retirement health care plan adjustments | — | | | 17 | | | 17 | | | (5) | | | 12 | | | |
Foreign currency translation adjustment | (3,568) | | | — | | | (3,568) | | | — | | | (3,568) | | | |
Balance at September 30, 2022 | $ | (5,353) | | | $ | (2,195) | | | $ | (7,548) | | | $ | 779 | | | $ | (6,769) | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustment | | Minimum Post Retirement Benefit Plan Adjustments | | Total Pre-Tax Amount | | Tax Benefit (Expense) | | Accumulated Other Comprehensive (Loss) Income |
Balance at December 31, 2020 | $ | (872) | | | $ | (2,426) | | | $ | (3,298) | | | $ | 837 | | | $ | (2,461) | |
| | | | | | | | | |
Minimum post retirement health care plan adjustments | — | | | 37 | | | 37 | | | (10) | | | 27 | |
Foreign currency translation adjustment | 3,198 | | | — | | | 3,198 | | | — | | | 3,198 | |
Balance at March 31, 2021 | 2,326 | | | (2,389) | | | (63) | | | 827 | | | 764 | |
Minimum post retirement health care plan adjustments | — | | | 37 | | | 37 | | | (10) | | | 27 | |
Foreign currency translation adjustment | 761 | | | — | | | 761 | | | — | | | 761 | |
Balance at June 30, 2021 | 3,087 | | | (2,352) | | | 735 | | | 817 | | | 1,552 | |
Minimum post retirement health care plan adjustments | — | | | 36 | | | 36 | | | (9) | | | 27 | |
Foreign currency translation adjustment | (1,057) | | | — | | | (1,057) | | | — | | | (1,057) | |
Balance at September 30, 2021 | $ | 2,030 | | | $ | (2,316) | | | $ | (286) | | | $ | 808 | | | $ | 522 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2021 | $ | 1,640 | | | $ | (2,247) | | | $ | (607) | | | $ | 794 | | | $ | 187 | |
| | | | | | | | | |
Minimum post retirement health care plan adjustments | — | | | 34 | | | 34 | | | (10) | | | 24 | |
Foreign currency translation adjustment | (227) | | | — | | | (227) | | | — | | | (227) | |
Balance at March 31, 2022 | $ | 1,413 | | | $ | (2,213) | | | $ | (800) | | | $ | 784 | | | $ | (16) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
The realized adjustments relating to the Company’s minimum post retirement health care costs were reclassified from accumulated other comprehensive loss and included in other expense in the consolidated statements of income.
(10) EQUITY-BASED COMPENSATION
On May 4, 2022, the stockholders of the Company approved the adoption of the Gibraltar Industries, Inc. Amended and Restated 2016 Stock Plan for Non-Employee Directors ("Non-Employee Directors Plan") which increases the total number of shares for issuance by the Company thereunder from 100,000 shares to 200,000 shares, allows the Company to grant awards of shares of the Company's common stock to current 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.
On May 4, 2018, the stockholders 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 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.
Equity Based Awards - Settled in Stock
The following table sets forth the number of equity-based awards granted during the ninethree months ended September 30,March 31, which will convert to shares upon vesting, along with the weighted average grant date fair values:
| | | 2022 | | 2021 | | | 2023 | | 2022 |
Awards | Awards | Number of Awards | | Weighted Average Grant Date Fair Value | | Number of Awards (2) | | Weighted Average Grant Date Fair Value | Awards | | Number of Awards | | Weighted Average Grant Date Fair Value | | Number of Awards (2) | | Weighted Average Grant Date Fair Value |
Performance stock units (1) | Performance stock units (1) | 108,464 | | | $ | 47.00 | | | 62,778 | | | $ | 87.84 | | Performance stock units (1) | | 81,611 | | | $ | 53.44 | | | 108,464 | | | $ | 47.00 | |
Restricted stock units | Restricted stock units | 123,351 | | | $ | 43.42 | | | 62,873 | | | $ | 80.43 | | Restricted stock units | | 46,646 | | | $ | 53.44 | | | 58,958 | | | $ | 47.00 | |
Deferred stock units | 2,460 | | | $ | 42.69 | | | 7,536 | | | $ | 83.58 | | |
Common shares | 15,652 | | | $ | 42.49 | | | 2,512 | | | $ | 83.58 | | |
|
(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.performance. The number of shares to be issued may vary between 0% and 200% of the number of PSUs granted depending on the relative achievement to targeted thresholds. The Company's PSUs with a financial performance condition are based on the Company’s return on invested capital (“ROIC”) over a one-year performance period.
(2) All PSUs granted in the first quarter of 20212022 includes 5,653 units that were forfeited in the first quarter of 2022 as2023 and 62,201 units that will be converted to shares and issued to recipients in the threshold levelfirst quarter of achievement was not met2025 at 60.5% of the target amount granted, based on the Company's actual ROIC achievement levelcompared to ROIC target for the performance period ended December 31, 2021.2022.
Equity Based Awards - Settled in Cash
The Company's equity-based awards that are settled in cash are the awards under the Management Stock Purchase Plan (the “MSPP”) which is authorized under the Company's equity incentive plans. The 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’ 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 deferrals and related company match are credited to an account that represents a share-based liability. The portion of the account deferred to unrestricted investments is measured at fair market value of the unrestricted investments, and the portion of the account deferred to restricted stock units and company-matching restricted stock units is measured at a 200-day average of the Company’s stock price. The account will be converted to and settled in cash payable to participants upon retirement or a termination of their service to the Company.
Total MSPP liabilities recorded on the consolidated balance sheet as of September 30, 2022March 31, 2023 was $16.2$15.9 million, of which $2.8$2.0 million was included in current accrued expenses and $13.4$13.9 million was included in non-current liabilities. Total MSPP liabilities recorded on the consolidated balance sheet as of December 31, 20212022 was $22.6$15.4 million, of which $2.9$2.3 million was included in current accrued expenses and $19.7$13.1 million was included in non-current liabilities. The value of the restricted stock units within the MSPP liabillityliability were $14.2$13.7 million and $20.7$13.4 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
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 liabilities during the ninethree months ended September 30,March 31,:
| | | | | | | | | | | |
| 2022 | | 2021 |
Restricted stock units credited | 9,564 | | | 28,230 | |
Share-based liabilities paid (in thousands) | $ | 2,961 | | | $ | 4,022 | |
| | | | | | | | | | | |
| 2023 | | 2022 |
Restricted stock units credited | 41,743 | | | 2,876 | |
MSPP liabilities paid (in thousands) | $ | 2,147 | | | $ | 2,545 | |
(11) HELD FOR SALE AND DISCONTINUED OPERATIONS
Held for Sale
During the first quarter of 2022, the Company committed to a plan to sell its Processing business (the "disposal group") which is a business within the Company's Agtech reportable segment. The planned sale does not meet the criteria to be classified as a discontinued operation. As a result, the Company will continue reporting the operating results of the disposal group in the Company's consolidated operating results from continuing operations until the sale of the business is completed.
The Company classifies assets and related liabilities as held for sale when: (i) management has committed to a plan to sell the assets, (ii) the net assets are available for immediate sale, (iii) there is an active program to locate a buyer and (iv) the sale and transfer of the net assets is probable within one year. Assets and liabilities held for sale are presented separately on our consolidated balance sheets with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less costs to sell.
As of September 30, 2022, the assets and liabilities of the disposal group have been classified as held for sale. The following table summarizes these assets and liabilities which have been measured at the lower of (i) the carrying value when classified as held for sale and (ii) the fair value of the business less costs to sell.
| | | | | | | | |
(in thousands) | | September 30, 2022 |
Assets held for sale | | |
Accounts receivable, net of allowance | | $ | 89 | |
Inventories, net of reserves | | 8,498 | |
Other current assets | | 1,609 | |
Property, plant, and equipment, net | | 331 | |
Operating lease asset | | 603 | |
Goodwill (1)
| | — | |
Acquired intangibles, net | | 6,213 | |
Total assets held for sale | | $ | 17,343 | |
Liabilities held for sale | | |
Accounts payable | | $ | 803 | |
Accrued expenses | | 74 | |
Non-current operating lease liabilities | | 165 | |
Total liabilities held for sale | | $ | 1,042 | |
(1) The assignment of goodwill was based on the relative fair value of the disposal group compared to the fair value of the total reporting unit it was included in prior to being reclassified as held for sale.
Net sales and operating loss for held for sale operations for the three and nine months ended September 30 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net sales | $ | 2,326 | | | $ | 3,825 | | | $ | 6,897 | | | $ | 16,062 | |
Operating loss | $ | (481) | | | $ | (1,387) | | | $ | (4,115) | | | $ | (2,689) | |
Effective with the classification of the disposal group as held for sale, depreciation of property, plant, and equipment and amortization of finite-lived intangible assets and right-of-use assets are not recorded while these assets are classified as held for sale. As a result of our evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to an estimated sales price, adjusted for costs to sell, no losses were recorded during the nine months ended September 30, 2022. The recoverability of the disposal group will be evaluated each reporting period until the sale of the business is completed.
Discontinued Operations
On February 23, 2021, the Company sold the stock of its Industrial business which had been classified as held for sale and reported as a discontinued operation in the Company’s consolidated financial statements for the year ended December 31, 2021. Net proceeds of $38 million, consisting of cash and a $13 million seller note, resulted in an estimated pre-tax loss of $30 million, subject to working capital and other adjustments, of which $29.6 million was recorded when the assets of the Industrial business were written down to fair market value during the fourth quarter of 2020. The seller note was paid in full to the Company during the second quarter of 2021.
The results of operations and financial position of the Industrial business have been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented. The Company allocates interest to its discontinued operations in accordance with ASC Subtopic 205-20, “Presentation of Financial Statements – Discontinued Operations.” Interest was allocated based on the amount of net assets held by the discontinued operation in comparison to consolidated net assets.
Components of income from discontinued operations before taxes, including the interest allocated to discontinued operations, for the three and nine months ended September 30 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, | | | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | | |
Net sales | $ | — | | | $ | — | | | $ | — | | | $ | 20,391 | | | | | |
Operating expenses | — | | | — | | | — | | | 17,493 | | | | | |
Adjustment to loss on disposal | — | | | 201 | | | — | | | 1,031 | | | | | |
| | | | | | | | | | | |
(Loss) Income from discontinued operations before taxes | $ | — | | | $ | (201) | | | $ | — | | | $ | 1,867 | | | | | |
(12) EXIT ACTIVITY COSTS AND ASSET IMPAIRMENTS
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, the sale and exiting of less profitable businesses or product lines, and a reduction in ourthe Company's manufacturing footprint.
Exit activity costs (recoveries) were incurred during the ninethree months ended September 30,March 31, 2023 and 2022 and 2021 which related to moving and closing costs, severance, and contract terminations,severance, along with asset impairment charges (recoveries) related to the write-down of inventory and impairment of machinery and equipment associated with discontinued product lines, as a result of process simplification initiatives. In conjunction with these initiatives, the Company exitedrecorded costs during the three months ended March 31, 2023 associated with the final closure and sale of a facility relocating to a new one, and separately, closed one other facility during the nine months ended September 30,fourth quarter of 2022. During the ninethree months ended September 30, 2021,March 31, 2022, the Company closed two facilitiesone facility as a result of these initiatives.
The following tables set forth the exit activity costs (recoveries) and asset impairment charges (recoveries) incurred by segment during the three and nine months ended September 30,March 31, related to the restructuring activities described above (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, |
| 2022 | | 2021 |
| Exit activity (recoveries) costs, net | | Asset impairment charges | | Total | | Exit activity costs | | Asset impairment charges | | Total |
Renewables | $ | (44) | | | $ | — | | | $ | (44) | | | $ | 131 | | | $ | — | | | $ | 131 | |
Residential | — | | | 12 | | | 12 | | | 83 | | | — | | | 83 | |
Agtech | 15 | | | 217 | | | 232 | | | 293 | | | — | | | 293 | |
Infrastructure | — | | | — | | | — | | | — | | | — | | | — | |
Corporate | 11 | | | — | | | 11 | | | 37 | | | — | | | 37 | |
Total exit activity (recoveries) costs & asset impairments | $ | (18) | | | $ | 229 | | | $ | 211 | | | $ | 544 | | | $ | — | | | $ | 544 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| 2022 | | 2021 |
| Exit activity costs (recoveries), net | | Asset impairment charges | | Total | | Exit activity costs | | Asset impairment charges | | Total |
Renewables | $ | 1,359 | | | $ | 1,198 | | | $ | 2,557 | | | $ | 4,695 | | | $ | 1,193 | | | $ | 5,888 | |
Residential | 1,298 | | | 12 | | | 1,310 | | | 177 | | | — | | | 177 | |
Agtech | 103 | | | 217 | | | 320 | | | 1,784 | | | — | | | 1,784 | |
Infrastructure | (63) | | | — | | | (63) | | | — | | | — | | | — | |
Corporate | 93 | | | — | | | 93 | | | 96 | | | — | | | 96 | |
Total exit activity costs & asset impairments | $ | 2,790 | | | $ | 1,427 | | | $ | 4,217 | | | $ | 6,752 | | | $ | 1,193 | | | $ | 7,945 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| 2023 | | 2022 |
| Exit activity costs | | Asset impairment recovery | | Total | | Exit activity costs (recoveries), net | | Asset impairment charges | | Total |
Renewables | $ | — | | | $ | (63) | | | $ | (63) | | | $ | 1,328 | | | $ | 1,198 | | | $ | 2,526 | |
Residential | 114 | | | — | | | 114 | | | 3 | | | — | | | 3 | |
Agtech | 561 | | | — | | | 561 | | | (9) | | | — | | | (9) | |
Infrastructure | — | | | — | | | — | | | (63) | | | — | | | (63) | |
Corporate | — | | | — | | | — | | | 20 | | | — | | | 20 | |
Total | $ | 675 | | | $ | (63) | | | $ | 612 | | | $ | 1,279 | | | $ | 1,198 | | | $ | 2,477 | |
The following table provides a summary of where the exit activity costs and asset impairment charges were recorded in the consolidated statements of income for the three and nine months ended September 30,March 31, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Cost of sales | $ | (39) | | | $ | 194 | | | $ | 2,249 | | | $ | 5,959 | |
Selling, general, and administrative expense | 250 | | | 350 | | | 1,968 | | | 1,986 | |
Total exit activity and asset impairment charges | $ | 211 | | | $ | 544 | | | $ | 4,217 | | | $ | 7,945 | |
| | | | | | | | | | | | | | | |
| | | |
| 2023 | | 2022 | | | | |
Cost of sales | $ | 513 | | | $ | 2,208 | | | | | |
Selling, general, and administrative expense | 99 | | | 269 | | | | | |
Total exit activity and asset impairment charges | $ | 612 | | | $ | 2,477 | | | | | |
The following table reconciles the beginning and ending liability for exit activity costs relating to the Company’s facility consolidation efforts (in thousands):
| | | | | | | | | | | |
| 2022 | | 2021 |
Balance at January 1 | $ | 272 | | | $ | 1,030 | |
Exit activity costs recognized | 2,790 | | | 6,752 | |
Cash payments | (2,782) | | | (5,970) | |
Balance at September 30 | $ | 280 | | | $ | 1,812 | |
| | | | | | | | | | | |
| 2023 | | 2022 |
Balance at January 1 | $ | 2,417 | | | $ | 272 | |
Exit activity costs recognized | 675 | | | 1,279 | |
Cash payments | (1,321) | | | (116) | |
Balance at March 31 | $ | 1,771 | | | $ | 1,435 | |
(13)(12) INCOME TAXES
The following table summarizes the provision for income taxes for continuing operations (in thousands) for the three and nine months ended September 30,March 31, and the applicable effective tax rates:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
Provision for income taxes | Provision for income taxes | $ | 11,690 | | | $ | 9,561 | | | $ | 26,686 | | | $ | 20,578 | | Provision for income taxes | $ | 7,177 | | | $ | 5,101 | | |
Effective tax rate | Effective tax rate | 25.4 | % | | 25.6 | % | | 25.2 | % | | 24.1 | % | Effective tax rate | 25.4 | % | | 24.8 | % | |
The effective tax rate for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, was greater than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences. Furthermore, the three months ended September 30, 2021 period was partially offset by favorable discrete items due to an excess tax benefit on stock-based compensation. The effective tax rate for the nine months ended September 30, 2022 and 2021, respectively, was greater than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items due to an excess tax benefit on stock-based compensation.items.
(14)(13) EARNINGS PER SHARE
Earnings per share and the weighted average shares outstanding used in calculating basic and diluted earnings per share are as follows for the three and nine months ended September 30,March 31, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Numerator: | | | | | | | |
Income from continuing operations | $ | 34,295 | | | $ | 27,854 | | | $ | 79,058 | | | $ | 64,723 | |
(Loss) income from discontinued operations | — | | | (298) | | | — | | | 1,544 | |
Net income available to common stockholders | $ | 34,295 | | | $ | 27,556 | | | $ | 79,058 | | | $ | 66,267 | |
Denominator for basic earnings per share: | | | | | | | |
Weighted average shares outstanding | 31,707 | | | 32,802 | | | 32,396 | | | 32,791 | |
Denominator for diluted earnings per share: | | | | | | | |
Weighted average shares outstanding | 31,707 | | | 32,802 | | | 32,396 | | | 32,791 | |
Common stock options and stock units | 105 | | | 248 | | | 107 | | | 264 | |
Weighted average shares and conversions | 31,812 | | | 33,050 | | | 32,503 | | | 33,055 | |
| | | | | | | | | | | | | | | |
| | | |
| 2023 | | 2022 | | | | |
Numerator: | | | | | | | |
| | | | | | | |
| | | | | | | |
Net income available to common stockholders | $ | 21,099 | | | $ | 15,456 | | | | | |
Denominator for basic earnings per share: | | | | | | | |
Weighted average shares outstanding | 30,897 | | | 32,913 | | | | | |
Denominator for diluted earnings per share: | | | | | | | |
Weighted average shares outstanding | 30,897 | | | 32,913 | | | | | |
Common stock units | 127 | | | 109 | | | | | |
Weighted average shares and conversions | 31,024 | | | 33,022 | | | | | |
The weighted average number of diluted shares does not include potential anti-dilutive common shares issuable pursuant to equity based incentive compensation awards. The following table provides the potential anti-dilutive common stock options and stock units for the three and nine months ended September 30,March 31, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Common stock options and stock units | 51 | | | 30 | | | 48 | | | — | |
| | | | | | | | | | | | | | | |
| | | |
| 2023 | | 2022 | | | | |
Common stock units | 64 | | | 54 | | | | | |
(15)(14) SEGMENT INFORMATION
The Company is organized into four reportable segments on the basis of the production processes, products and services provided by each segment, identified as follows:
(i)Renewables, which primarily includes designing, engineering, manufacturing and installation of solar racking and electrical balance of systems;
(ii)Residential, which primarily includes roof and foundation ventilation products, centralized mail systems and electronic package solutions, retractable awnings and gutter guards, and rain dispersion products, trims and flashings and other accessories;
(iii)Agtech, which provides growing and processing solutions including the designing, engineering, manufacturing and installation of greenhouses; and
(iv)Infrastructure, which primarily includes structural bearings, expansion joints and pavement sealant for bridges, airport runways and roadways, elastomeric concrete, and bridge cable protection systems.
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 September 30,March 31, (in thousands):
| | | | | | | | | | | | | | | |
| | | |
| 2023 | | 2022 | | | | |
Net sales: | | | | | | | |
Renewables | $ | 59,205 | | | $ | 78,783 | | | | | |
Residential | 179,495 | | | 179,485 | | | | | |
Agtech | 35,852 | | | 42,428 | | | | | |
Infrastructure | 18,715 | | | 17,169 | | | | | |
Total net sales | $ | 293,267 | | | $ | 317,865 | | | | | |
| | | | | | | |
Income from operations: | | | | | | | |
Renewables | $ | 2,269 | | | $ | (6,984) | | | | | |
Residential | 29,509 | | | 33,435 | | | | | |
Agtech | 2,330 | | | 31 | | | | | |
Infrastructure | 2,714 | | | 1,181 | | | | | |
Unallocated Corporate Expenses | (7,452) | | | (6,468) | | | | | |
Total income from operations | $ | 29,370 | | | $ | 21,195 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net sales: | | | | | | | |
Renewables | $ | 111,119 | | | $ | 130,162 | | | $ | 291,451 | | | $ | 323,425 | |
Residential | 215,592 | | | 171,545 | | | 595,322 | | | 475,971 | |
Agtech | 44,217 | | | 48,975 | | | 130,325 | | | 149,410 | |
Infrastructure | 20,363 | | | 18,671 | | | 59,007 | | | 56,528 | |
Total net sales | $ | 391,291 | | | $ | 369,353 | | | $ | 1,076,105 | | | $ | 1,005,334 | |
| | | | | | | |
Income from operations: | | | | | | | |
Renewables | $ | 14,216 | | | $ | 12,206 | | | $ | 14,061 | | | $ | 21,195 | |
Residential | 35,802 | | | 29,482 | | | 104,901 | | | 79,571 | |
Agtech | 3,777 | | | 2,227 | | | 5,350 | | | 4,133 | |
Infrastructure | 2,572 | | | 1,640 | | | 6,640 | | | 7,863 | |
Unallocated Corporate Expenses | (8,971) | | | (7,577) | | | (22,222) | | | (30,560) | |
Total income from operations | $ | 47,396 | | | $ | 37,978 | | | $ | 108,730 | | | $ | 82,202 | |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Total assets: | | | |
Renewables | $ | 419,214 | | | $ | 445,486 | |
Residential | 581,167 | | | 453,469 | |
Agtech | 219,800 | | | 212,038 | |
Infrastructure | 84,626 | | | 82,662 | |
Unallocated corporate assets | 21,456 | | | 21,246 | |
| | | |
| $ | 1,326,263 | | | $ | 1,214,901 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Total assets: | | | |
Renewables | $ | 393,088 | | | $ | 392,368 | |
Residential | 535,423 | | | 519,567 | |
Agtech | 180,688 | | | 193,966 | |
Infrastructure | 82,795 | | | 80,264 | |
Unallocated corporate assets | 16,498 | | | 24,448 | |
| | | |
| $ | 1,208,492 | | | $ | 1,210,613 | |
The following tables illustrate segment revenue disaggregated by timing of transfer of control to the customer for the three and nine months ended September 30March 31 (in thousands):
| | | Three Months Ended September 30, 2022 | | Three Months Ended March 31, 2023 |
| | Renewables | | Residential | | Agtech | | Infrastructure | | Total | | Renewables | | Residential | | Agtech | | Infrastructure | | Total |
Net sales: | Net sales: | | | | | | | | | | Net sales: | | | | | | | | | |
Point in Time | Point in Time | $ | 7,660 | | | $ | 214,175 | | | $ | 3,510 | | | $ | 9,938 | | | $ | 235,283 | | Point in Time | $ | 9,094 | | | $ | 177,942 | | | $ | 5,107 | | | $ | 6,061 | | | $ | 198,204 | |
Over Time | Over Time | 103,459 | | | 1,417 | | | 40,707 | | | 10,425 | | | 156,008 | | Over Time | 50,111 | | | 1,553 | | | 30,745 | | | 12,654 | | | 95,063 | |
Total net sales | Total net sales | $ | 111,119 | | | $ | 215,592 | | | $ | 44,217 | | | $ | 20,363 | | | $ | 391,291 | | Total net sales | $ | 59,205 | | | $ | 179,495 | | | $ | 35,852 | | | $ | 18,715 | | | $ | 293,267 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Renewables | | Residential | | Agtech | | Infrastructure | | Total |
Net sales: | | | | | | | | | |
Point in Time | $ | 8,835 | | | $ | 170,280 | | | $ | 4,010 | | | $ | 8,194 | | | $ | 191,319 | |
Over Time | 121,327 | | | 1,265 | | | 44,965 | | | 10,477 | | | 178,034 | |
Total net sales | $ | 130,162 | | | $ | 171,545 | | | $ | 48,975 | | | $ | 18,671 | | | $ | 369,353 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| Renewables | | Residential | | Agtech | | Infrastructure | | Total |
Net sales: | | | | | | | | | |
Point in Time | $ | 18,569 | | | $ | 591,160 | | | $ | 9,152 | | | $ | 25,177 | | | $ | 644,058 | |
Over Time | 272,882 | | | 4,162 | | | 121,173 | | | 33,830 | | | 432,047 | |
Total net sales | $ | 291,451 | | | $ | 595,322 | | | $ | 130,325 | | | $ | 59,007 | | | $ | 1,076,105 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| Renewables | | Residential | | Agtech | | Infrastructure | | Total |
Net sales: | | | | | | | | | |
Point in Time | $ | 21,855 | | | $ | 472,277 | | | $ | 16,541 | | | $ | 25,301 | | | $ | 535,974 | |
Over Time | 301,570 | | | 3,694 | | | 132,869 | | | 31,227 | | | 469,360 | |
Total net sales | $ | 323,425 | | | $ | 475,971 | | | $ | 149,410 | | | $ | 56,528 | | | $ | 1,005,334 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Renewables | | Residential | | Agtech | | Infrastructure | | Total |
Net sales: | | | | | | | | | |
Point in Time | $ | 5,650 | | | $ | 178,131 | | | $ | 1,613 | | | $ | 6,303 | | | $ | 191,697 | |
Over Time | 73,133 | | | 1,354 | | | 40,815 | | | 10,866 | | | 126,168 | |
Total net sales | $ | 78,783 | | | $ | 179,485 | | | $ | 42,428 | | | $ | 17,169 | | | $ | 317,865 | |
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, margins, integration of acquired businesses, the industries in which we operate and the expected impact of evolving laws and regulation. 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” disclosures in our most recent Annual Report on Form 10-K as updated in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, along with Item 1A of this Quarterly Report on Form 10-Q.10-K. 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 on Form 10-Q, 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 useThe Company uses certain operating performance measures, specifically consolidated gross margin, operating margin by segment and consolidated operating margin, to manage ourthe Company's businesses, set operational goals, and establish performance targets for incentive compensation for ourthe Company's employees. We defineThe Company defines consolidated gross margin as a percentage of total consolidated gross profit to total consolidated net sales. We defineThe Company defines 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 believeThe Company believes consolidated gross margin, operating margin and consolidated operating margin may be useful to investors in evaluating the profitability of ourthe Company's segments and the 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, residential, agtech, and infrastructure markets.
The Company operates and reports its results in the following four reporting segments:
•Renewables;
•Residential;
•Agtech; and
•Infrastructure.
The Company serves customers primarily in North America including renewable energy (solar) developers, home improvement retailers, wholesalers, distributors, institutional and commercial growers of food and plants, and contractors. At September 30, 2022, weMarch 31, 2023, the Company operated 3633 facilities, comprised of 2625 manufacturing facilities, twoone distribution centers,center, and eightseven offices, which are located in 15 states, Canada, China, and Japan. OurThe Company's operational infrastructure provides the necessary scale to support regional and national customers in each of ourthe Company's markets.
Recent Trends
The broader market dynamics over the past twofew years, which have included the impact of COVID-19, have resulted in impacts to our company,the Company, including material cost inflation, labor availability issues and logistics costs increases. We haveThe Company has also been impacted from supply constraints for materials and commodities used in ourits operations and from shortages in solar panels used by our
the Company's customers in conjunction with the goods and services we provide.the Company provides. In certain instances these constraints have resulted in project delays, cost inflation and logistical delays. We continueThe Company continues to work with ourits customers and suppliers in this dynamic environment to better align pricing, understand the existing and potential future impacts to the supply chain, and make efforts to mitigate such impacts as we expectimpacts. The Company expects that some of these supply chaindynamics will continue in 2023 and labor availability pressures along with thecould continue to have an impact of inflation on demand, material cost,costs, labor and logistics will continue throughout 2022.
logistics.
In early 2022, the U.S. Department of Commerce ("USDOC") was petitioned to investigate alleged circumvention of antidumping and countervailing duties on Chinese imports of solar panels produced in other countries in Southeast Asia. In March 2022, the USDOC announced that it would investigate the circumvention alleged in the petition. In June 2022, the President of the United States issued an Executive Order to suspend any tariffs that result from this investigation for two years. The USDOC has not yet issued a ruling to implement this order and the preliminary ruling, including any preliminary duty rates, which was initially expected in August 2022, but is currently delayed until November 2022. Furthermore, in June 2022, the Uyghur Forced Labor Prevention Act ("UFLPA") was enacted. The UFLPA requires traceability of components of imported goods to validate that the components are not sourced from areas in the Xinjiang region of China. There are reports that up to three-gigawatts ofThis has caused solar panels are beingto be held at U.S. customs until the importerborder awaiting a determination that the panels do not contain components from Xinjiang. While a few of the historically significant suppliers have begun to have panels cleared for importation, the clearance is able to prove where they have been sourced,still on a shipment-by-shipment basis, and it is our understanding that these panelsformal documentation requirements have not yet been released bypublished. Some of the Company's larger customers have continued to shift sourcing to modules manufactured outside of China in efforts to clear U.S. customs.customs more efficiently and ramp up the execution of solar projects.
In December 2022, the U.S. Department of Commerce ("USDOC") announced its preliminary ruling regarding the circumvention of antidumping and countervailing duties (“AD/CVD”) on Chinese imports of solar panels produced in four other countries in Southeast Asia. Four of eight major manufacturers across the four countries investigated were found to have been circumventing the AD/CVD orders. The findings are preliminary and further investigation is occurring with a final determination scheduled for August 17, 2023. Independent of the DOC’s final determination, the Presidential Proclamation issued in June 2022 provides that duties will not be collected on the imports from the impacted countries until June 2024. This provides U.S. solar importers time to adjust supply chains to ensure compliance with U.S. law. As the timing and progress of many of our customers’ projects depend upon the supply of solar panels, our operating results have been and could be impacted by these actions. We continue to work with customers who are assessing their ability to source panels needed to complete projects.
On August 16, 2022, the Inflation Reduction Act ("IRA") was signed into law. Among other things, the IRA provides for Investment Tax Credits ("ITC") for renewable energy. The IRA provides a 30% ITC for projects started prior January 29, 2023. Projects started on or after this date have the opportunity to claim the forthcoming issuance of guidance by the Department of the Treasury regarding new wage and apprenticeship standards. Sixty days after the issuance of such guidance the base ITC will be 6%, with an additional 24% available30% rate only if the new labor standards are met or the project is less than one megawatt.megawatt or adheres to the new prevailing wage and apprenticeship requirements. Otherwise, these projects will default to a base rate of 6%. The IRA also provides the option to earn an additional 10% credit for domestic content, and separately, an additional 10% credit for siting a project in an “energy community.” Lastly, there areunder the IRA, Manufacturers Tax Credits ("MTC") that support clean energy manufacturing were established and expanded, and are available to suppliers of certain, specific solar tracker components, including mechanical parts and battery storage, that are made in the U.S. We expectFinal guidance is pending and expected to be issued by the ITC to accrue to our downstream customers, solar investors,Department of Treasury over the course of 2023 for the domestic content, energy community, and expect Manufacturers Tax Credits to accrue toMTC credits. The Company believes that these enhanced tax credits under the Company's upstream suppliers. Both tax creditsIRA will provide long-term certainty for the industry and should reduce policy driven demand swings for our products. As provided for in the issued guidance relative to prevailing wage and sourcing provisions, weWe will work with our customers to maximize the tax credits available to them.
Business Strategy
The Company's mission is to make life better for people and the planet, fueled by advancing the disciplines of engineering, science, and technology. The Company is innovating to reshape critical markets in sustainable power, comfortable and efficient living, and productive growing throughout North America. Furthermore, the Company strives to create compounding and sustainable value for ourits stockholders and other stakeholders with strong and relevant leadership positions in higher growth, profitable end markets focused on addressing some of the world's most challenging opportunities. The foundation of the Company's strategy is built on three core pillars: Business System, Portfolio Management, and Organization Development.
1.Business System reflects the necessary systems, processes, and management tools required to deliver consistent and continuous performance improvement, every day. Our Business SystemThe Company's business system is a critical enabler to grow, scale, and deliver ourits plans. OurThe Company's focus is on deploying effective tools to drive growth, improve operating performance, and develop the organization utilizing 80/20 and lean quote-to-cash initiatives along with digital systems for speed, agility and responsiveness. OurThe Business System pillar challenges existing operating paradigms, drives day-to-day performance, forces prioritization of resources, tests ourthe Company's business models, and brings focus todrives new product and services development and innovation.
2.Portfolio Management is focused on optimizing the Company’s business portfolio in higher growth markets with leadership positions while ensuring ourits financial capital and human resources are effectively and
efficiently deployed to deliver sustainable, profitable growth while increasing ourits relevance with customers and
shaping ourits markets. For a description of recent portfolio management activities, seeIn 2022, the actions described belowCompany acquired Quality Aluminum Products ("QAP") in the Recent Developments section.
Residential segment and made the decision to divest its non-core Processing business within the Agtech segment to help achieve these objectives.
3.Organization Development drives the Company’s continuous focus on ensuring we haveit has the right design and structure to scale the organization in order to execute the Company’s plans and meet commitments. The Company aspires to make ourits place of work the "Best Place to Work", where we focus is on creating an environment for our people to have the best opportunity for success, continue to develop, grow and learn. At core of this pillar is the Company’s development process focused on helping employees reach their potential, improve performance, develop career roadmaps, identify ongoing education requirements, and respective succession plans. We believeThe Company believes doing so helps usit attract and retain the best people so we canto execute ourits business plans.
We believeThe Company believes the key elements of ourthe Company's strategy have, and will continue to, enable usthe Company to respond timely to changes in the end markets we serve,the Company serves, including the broader market dynamics experienced over the past two years. We haveThe Company has and expectexpects to continue to examine the need for restructuring of ourthe Company's operations, including consolidation of facilities, reducing overhead costs, curtailing investments in working capital, and managing ourthe Company's business to generate incremental cash. We believe ourThe Company believes its strategy enables usthe Company to respond to volatility in commodity and other input costs and fluctuations in customer demand, along with striving to maintain and improve margins. We haveThe Company has used cash flows generated by these initiatives to minimize debt, improve ourthe Company's liquidity position, invest in growth initiatives and return capital to ourthe Company's shareholders through share repurchases. Overall, we continuethe Company continues to strive to achieve stronger financial results, make more efficient use of capital, and deliver higher stockholder returns.
Recent Developments
On December 8, 2022, the Company entered into a Credit Agreement (the "Credit Agreement"), and concurrently with entering into the Credit Agreement, the Company paid off all amounts owed under the Sixth Amended and Restated Credit Agreement dated as of January 24, 2019, which was terminated with no prepayment penalties. The Credit Agreement provides for a revolving credit facility and letters of credit in an aggregate amount equal to $400 million. The Company can request additional financing 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 Credit Agreement. The Credit Agreement contains two financial covenants. As of March 31, 2023, the Company was in compliance with both financial covenants. The Credit Agreement terminates on December 8, 2027.
On August 22, 2022, the Company purchased all the issued and outstanding membership interestinterests of Quality Aluminum Products ("QAP"), a manufacturer of aluminum and steel products including soffit, fascia, trim coil, rain carrying products and aluminum siding for an aggregate purchase price of $52.6 million, which may be adjusted for working capital adjustments and certain other adjustments provided for in the membership interest purchase agreement.$52.1 million. The acquisition of QAP was financed primarily through borrowings under the Company's revolving credit facility. The results of operations of QAP have been included in the Residential segment of the Company's consolidated financial statements from the date of acquisition.
In May 2022, the Company's Board of Directors authorized a share repurchase program of up to $200 million of the Company's issued and outstanding common stock. The program has a duration of three years, ending May 2, 2025. Repurchases may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. Any such repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The repurchase program may be suspended or discontinued at any time at the Company's discretion. As of September 30, 2022,March 31, 2023, the Company has repurchased 1,333,4532,150,903 shares for an aggregate price of $55.5$93.2 million under this repurchase program.
Contents
During the first quarter of 2021, the Company sold its Industrial business which was previously included in the Company's Industrial and Infrastructure Products segment, now the Infrastructure segment, and was reported as discontinued operations as of December 31, 2020.
Results of Operations
Three Months Ended September 30, 2022March 31, 2023 Compared to the Three Months Ended September 30, 2021March 31, 2022
The following table sets forth selected results of operations data and its percentage of net sales for the three months ended September 30March 31 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
Net sales | $ | 391,291 | | | 100.0 | % | | $ | 369,353 | | | 100.0 | % |
Cost of sales | 296,735 | | | 75.8 | % | | 286,101 | | | 77.5 | % |
Gross profit | 94,556 | | | 24.2 | % | | 83,252 | | | 22.5 | % |
Selling, general, and administrative expense | 47,160 | | | 12.1 | % | | 45,274 | | | 12.2 | % |
| | | | | | | |
Income from operations | 47,396 | | | 12.1 | % | | 37,978 | | | 10.3 | % |
Interest expense | 1,048 | | | 0.2 | % | | 491 | | | 0.2 | % |
Other expense | 363 | | | 0.1 | % | | 72 | | | 0.0 | % |
Income before taxes | 45,985 | | | 11.8 | % | | 37,415 | | | 10.1 | % |
Provision for income taxes | 11,690 | | | 3.0 | % | | 9,561 | | | 2.6 | % |
Income from continuing operations | 34,295 | | | 8.8 | % | | 27,854 | | | 7.5 | % |
Loss from discontinued operations | — | | | 0.0 | % | | (298) | | | 0.0 | % |
Net income | $ | 34,295 | | | 8.8 | % | | $ | 27,556 | | | 7.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
Net sales | $ | 293,267 | | | 100.0 | % | | $ | 317,865 | | | 100.0 | % |
Cost of sales | 216,338 | | | 73.8 | % | | 253,021 | | | 79.6 | % |
Gross profit | 76,929 | | | 26.2 | % | | 64,844 | | | 20.4 | % |
Selling, general, and administrative expense | 47,559 | | | 16.2 | % | | 43,649 | | | 13.7 | % |
| | | | | | | |
Income from operations | 29,370 | | | 10.0 | % | | 21,195 | | | 6.7 | % |
Interest expense | 1,491 | | | 0.5 | % | | 485 | | | 0.2 | % |
Other (income) expense | (397) | | | (0.1) | % | | 153 | | | 0.0 | % |
Income before taxes | 28,276 | | | 9.6 | % | | 20,557 | | | 6.5 | % |
Provision for income taxes | 7,177 | | | 2.4 | % | | 5,101 | | | 1.6 | % |
| | | | | | | |
| | | | | | | |
Net income | $ | 21,099 | | | 7.2 | % | | $ | 15,456 | | | 4.9 | % |
The following table sets forth the Company’s net sales by reportable segment for the three months ended September 30,March 31, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Impact of |
| 2022 | | 2021 | | Total Change | | Acquisitions | | Portfolio Management | | Ongoing Operations |
Net sales: | | | | | | | | | | | |
Renewables | $ | 111,119 | | | $ | 130,162 | | | $ | (19,043) | | | $ | — | | | $ | — | | | $ | (19,043) | |
Residential | 215,592 | | | 171,545 | | | 44,047 | | | 11,461 | | | — | | | 32,586 | |
Agtech | 44,217 | | | 48,975 | | | (4,758) | | | — | | | (1,499) | | | (3,259) | |
Infrastructure | 20,363 | | | 18,671 | | | 1,692 | | | — | | | — | | | 1,692 | |
Consolidated | $ | 391,291 | | | $ | 369,353 | | | $ | 21,938 | | | $ | 11,461 | | | $ | (1,499) | | | $ | 11,976 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Impact of |
| 2023 | | 2022 | | Total Change | | Acquisitions | | Portfolio Management | | Ongoing Operations |
Net sales: | | | | | | | | | | | |
Renewables | $ | 59,205 | | | $ | 78,783 | | | $ | (19,578) | | | $ | — | | | $ | — | | | $ | (19,578) | |
Residential | 179,495 | | | 179,485 | | | 10 | | | 14,266 | | | — | | | (14,256) | |
Agtech | 35,852 | | | 42,428 | | | (6,576) | | | — | | | 691 | | | (7,267) | |
Infrastructure | 18,715 | | | 17,169 | | | 1,546 | | | — | | | — | | | 1,546 | |
Consolidated | $ | 293,267 | | | $ | 317,865 | | | $ | (24,598) | | | $ | 14,266 | | | $ | 691 | | | $ | (39,555) | |
Consolidated net sales increaseddecreased by $21.9$24.6 million, or 5.9%7.7%, to $391.3$293.3 million for the three months ended September 30, 2022March 31, 2023 compared to the three months ended September 30, 2021.March 31, 2022. The 5.9% increase7.7% decrease in revenue was driven by a 3.2%$39.6 million or $12.0 million increase12.4% decrease in organic revenue, and 3.1%largely the result of a 14% volume decline, partially offset by a 1% increase or $11.5in pricing to customers. Partially offsetting the year over year decrease were $14.3 million of revenues generated from the acquisition ofby QAP, which was acquired induring the third quarter of 2022 and reported as part of ourthe Company's Residential segment. This increase was partially offset by a decline in revenues in the Company's processing business which was reclassified as held-for-sale as of March 31, 2022. The organic revenue growth in the Residential and Infrastructure segments more than offset volume declines in both our Renewables and Agtech segments. The improvement year over year was driven by a 11% increase in pricing to customers, partially offset by a net volume decline of 8%. The increase during the current year quarter was also driven by participation gains and price management in our Residential segment, partially offset by project delays caused by continuing end market supply chain challenges in the Agtech and Renewables segments. While the Company committed to a plan of sale of its Processing business within the Agtech segment, and has reclassified the assets and liabilities as held-for-sale as of March 31, 2022, the Company will continue reporting its operating results in the Company's consolidated operating results from continuing operations until the sale of the business is completed. Consolidated backlog decreased 7%18% to $358$360 million down from $385$437 million at the end of the prior year quarter.
Net sales in ourthe Company's Renewables segment decreased $19.0$19.6 million, or 14.7%24.9%, to $111.1$59.2 million for the three months ended September 30, 2022March 31, 2023 compared to $130.2$78.8 million for the three months ended September 30, 2021.March 31, 2022. Revenue decreased in line with our expectations during the quarterdeclined as the market demand for solar panel installation continues to be impacted by panel importation challenges resulting from the UFLPA, which was implemented in June 2022, and a three-month delay by2022. Additionally, adverse winter weather conditions experienced in the Departmentcurrent year quarter impacted the scheduling of Commerce for its preliminary ruling on its solar panel anti-dumping / countervailing duties ("AD/CVD") anti-circumvention investigation.projects. As a result, backlog decreased 9% year over20% from the prior year, however, given the current conversations with our customers, we expectCompany expects backlog to improve once the DOC issues preliminary and then final order and there is better understanding of enforcement anddocumentary compliance requirements relative to the UFLPA.
Net sales in ourthe Company's Residential segment increased 25.7%, or $44.0were flat at $179.5 million to $215.6 million for both the three months ended September 30,March 31, 2023 and 2022, compared to $171.5 million for the three months ended September 30, 2021.respectively. The increase from the prior year quarter, the ninth consecutive quarterpositive impact of double-digit growth, was driven by price management, participation gains and market demand. Salesalong with $14.3 million of sales generated fromby QAP, acquired in the third quarter of 2022, also contributed $11.5 million or 6.7%offset headwinds of channel inventory correction, the market's return to normal seasonal demand, and adverse winter weather in key regions of the increase.
U.S.
Net sales in ourthe Company's Agtech segment decreased 9.8%15.3%, or $4.8$6.6 million, to $44.2$35.9 million for the three months ended September 30, 2022March 31, 2023 compared to $49.0$42.4 million for the three months ended September 30, 2021. Excluding the impact of the processing equipment business which has been classified as held for sale as of March 31, 2022, revenue2022. Revenue declined in our
the Company's produce and cannabis businesses as projects shifted intocustomers re-scope and re-prioritize project launch of fruit and vegetable growing facilities. While the fourth quarter and 2023, the result of continued licensing and permit delays. The commercial greenhouse business was relatively flat comparedactive project pipeline continues to the prior year quarter. While quote activity remains robust,grow, backlog decreased 7%32% year over year.
Net sales in ourthe Company's Infrastructure segment increased 9.1%8.7%, or $1.7$1.5 million, to $20.4 million for the three months ended September 30, 2022 compared to $18.7 million for the three months ended September 30, 2021.March 31, 2023 compared to $17.2 million for the three months ended March 31, 2022. The increase in revenue was due to continued solid market demand, for non-fabricated products, and timing of project work. The business has strong bidding activity which also resulted in an 11%38% increase in backlog year over year. Management expects continued positive impactmomentum from increased infrastructure spending related to the Infrastructure Investment and Jobs Act, through the end of this year and into 2023.ongoing efforts to increase market participation.
OurThe Company's consolidated gross margin increased to 24.2%26.2% for the three months ended September 30, 2022March 31, 2023 compared to 22.5%20.4% for the three months ended September 30, 2021.March 31, 2022. The increase was largely the result of favorable price / cost management,driven by business mix, field operations productivity and improved operating execution from lean enterprise initiatives,improvement in supply chain management and efficiencies along with continuing progress in the impact of participation gains in our residential segment.Company's business operating system.
Selling, general, and administrative ("SG&A") expenses increased by $1.9$3.9 million, or 4.2%9.0% to $47.2$47.6 million for the three months ended September 30, 2022March 31, 2023 compared to $45.3$43.6 million for the three months ended September 30, 2021.March 31, 2022. The $1.9$3.9 million increase was the netcombined result of expenses associated with investing in our enterprise resource planning ("ERP") systems to simplify and digitize our businesses, along with transaction costs to complete the acquisition of QAP which closed during the quarter, partially offset by lowerhigher performance-based compensation expense as compared to the prior year, quarter, largely the result of equity-based awards in the Company's deferred compensation plan that are valued based on its 200-day average stock price, Despitealong with incremental SG&A expenses incurred by QAP, acquired in the above increases,third quarter of 2022. SG&A expenses as a percentage of net sales modestly decreasedincreased to 12.1%16.2% for the three months ended September 30, 2022March 31, 2023 compared to 12.2%13.7% for the three months ended September 30, 2021.March 31, 2022.
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 September 30,March 31, (in thousands):
| | | | Impact of | | | Impact of |
| | 2022 | | 2021 | | Total Change | | | Portfolio Management | | Ongoing Operations | | 2023 | | 2022 | | Total Change | | | Portfolio Management | | Ongoing Operations |
Income from operations: | Income from operations: | | | | | | | | | | | Income from operations: | | | | | | | | | | |
Renewables | Renewables | $ | 14,216 | | | 12.8 | % | | $ | 12,206 | | | 9.4 | % | | $ | 2,010 | | | | $ | — | | | $ | 2,010 | | Renewables | $ | 2,269 | | | 3.8 | % | | $ | (6,984) | | | (8.9) | % | | $ | 9,253 | | | | $ | — | | | $ | 9,253 | |
Residential | Residential | 35,802 | | | 16.6 | % | | 29,482 | | | 17.2 | % | | 6,320 | | | | — | | | 6,320 | | Residential | 29,509 | | | 16.4 | % | | 33,435 | | | 18.6 | % | | (3,926) | | | | — | | | (3,926) | |
Agtech | Agtech | 3,777 | | | 8.5 | % | | 2,227 | | | 4.5 | % | | 1,550 | | | | 906 | | | 644 | | Agtech | 2,330 | | | 6.5 | % | | 31 | | | 0.1 | % | | 2,299 | | | | 1,890 | | | 409 | |
Infrastructure | Infrastructure | 2,572 | | | 12.6 | % | | 1,640 | | | 8.8 | % | | 932 | | | | — | | | 932 | | Infrastructure | 2,714 | | | 14.5 | % | | 1,181 | | | 6.9 | % | | 1,533 | | | | — | | | 1,533 | |
Unallocated Corporate Expenses | Unallocated Corporate Expenses | (8,971) | | | (2.3) | % | | (7,577) | | | (2.1) | % | | (1,394) | | | | — | | | (1,394) | | Unallocated Corporate Expenses | (7,452) | | | (2.5) | % | | (6,468) | | | (2.0) | % | | (984) | | | | — | | | (984) | |
Consolidated income from operations | Consolidated income from operations | $ | 47,396 | | | 12.1 | % | | $ | 37,978 | | | 10.3 | % | | $ | 9,418 | | | | $ | 906 | | | $ | 8,512 | | Consolidated income from operations | $ | 29,370 | | | 10.0 | % | | $ | 21,195 | | | 6.7 | % | | $ | 8,175 | | | | $ | 1,890 | | | $ | 6,285 | |
The Renewables segment generated an operating margin of 12.8%3.8% in the current year quarter compared to 9.4%(8.9)% in the prior year quarter. The increase in operating margin was driven by improved project management, favorable alignment of material costs to customer selling prices and field operations efficiencies. Duringproductivity and improved supply chain management that offset lower volumes, along with restructuring costs recorded in the quarter, the segment completed the implementation of a common platform for its ERP system. Execution of other integration plans, such as in-sourcing production, remain on track.
The Residential segment generated an operating margin of 16.6%16.4% in the current year quarter compared to 17.2%18.6% in the prior year quarter. WhileThe decrease in operating profit increased $6.3 million as comparedmargin was the result of expected compression in price to the prior year quarter, margin decreased due tomaterial cost alignment and the anticipated lower margins from ourthe Company's recent acquisition of QAP. We expect QAPThe Company expects margins to improve as we continue to integrate it operationally through 80/20 initiatives.seasonal volume accelerates, price / material cost are better aligned, and QAP integration benefits are realized.
OurThe Agtech segment generated an operating margin of 8.5%6.5% in the current year quarter compared to 4.5%0.1% in the prior year quarter. Operating margin improved year over year, the result of business mix, price / cost management,improvement in its business operating system, along with supply chain improvementproductivity and 80/20 initiatives.efficiency improvement.
OurThe Infrastructure segment generated an operating margin of 12.6%14.5% during the three months ended September 30, 2022March 31, 2023 compared to 8.8%6.9% during the three months ended September 30, 2021.March 31, 2022. The margin improved year over year driven by favorable alignment of material costs to pricing,strong operating execution, volume leverage, positive mix and improved operating execution.
supply chain productivity.
Unallocated corporate expenses increased $1.4$1.0 million from $7.6$6.5 million during the three months ended September 30, 2021March 31, 2022 to $9.0$7.5 million during the three months ended September 30, 2022.March 31, 2023. The increase in expense was primarily the
result of expenses associated with investing in our ERP systems to simplify and digitize our businesses as compared to the prior year quarter along with transaction costs to complete the acquisition of QAP which closed during the quarter. These increases were partially offset by lowerhigher performance-based compensation expense for equity-based awards in the Company's deferred compensation plan that are valued based on its 200-day average stock price as compared to the prior year quarter.
Interest expense increased year over year with $1.0$1.5 million for the three months ended September 30, 2022March 31, 2023 compared to $0.5 million for the three months ended September 30, 2021.March 31, 2022. The increase in expense was due to both higher interest rates compared to the prior year quarter along with higher outstanding balances on the Company's revolving credit facility during the quarter along with higher interest rates compared to the prior year quarter. The outstanding balances on the Company's revolving credit facility were $121.8$49.9 million and $59.7$42.4 million as of September 30,March 31, 2023, and 2022, and 2021, respectively.
The Company recorded other expenseincome of $0.4 million for the three months ended September 30, 2022,March 31, 2023, compared to the $0.1other expense of $0.2 million recorded for the three months ended September 30, 2021.March 31, 2022. The increase in expense from the priorchange year quarter wasover year is primarily the result of foreign currency translation fluctuations.
WeThe Company recognized a provision for income taxes of $11.7$7.2 million and $9.6$5.1 million, with effective tax rates of 25.4% and 25.6%24.8% for the three months ended September 30,March 31, 2023, and 2022, and 2021, respectively. The effective tax rate for the three months ended September 30, 2022, and 2021, respectively, was greater than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences. Furthermore, the increase in provision during the three months ended September 30, 2021 period was partially offset by an excess tax benefit on stock-based compensation.
Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
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):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
Net sales | $ | 1,076,105 | | | 100.0 | % | | $ | 1,005,334 | | | 100.0 | % |
Cost of sales | 826,434 | | | 76.8 | % | | 781,133 | | | 77.7 | % |
Gross profit | 249,671 | | | 23.2 | % | | 224,201 | | | 22.3 | % |
Selling, general, and administrative expense | 140,941 | | | 13.1 | % | | 141,999 | | | 14.1 | % |
| | | | | | | |
Income from operations | 108,730 | | | 10.1 | % | | 82,202 | | | 8.2 | % |
Interest expense | 2,189 | | | 0.2 | % | | 1,180 | | | 0.1 | % |
Other expense (income) | 797 | | | 0.1 | % | | (4,279) | | | (0.4) | % |
Income before taxes | 105,744 | | | 9.8 | % | | 85,301 | | | 8.5 | % |
Provision for income taxes | 26,686 | | | 2.5 | % | | 20,578 | | | 2.1 | % |
Income from continuing operations | 79,058 | | | 7.3 | % | | 64,723 | | | 6.4 | % |
Income from discontinued operations | — | | | 0.0 | % | | 1,544 | | | 0.2 | % |
Net income | $ | 79,058 | | | 7.3 | % | | $ | 66,267 | | | 6.6 | % |
The following table sets forth the Company’s net sales by reportable segment for the nine months ended September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Impact of |
| 2022 | | 2021 | | Total Change | | Acquisitions | | Portfolio Management | | Ongoing Operations |
Net sales: | | | | | | | | | | | |
Renewables | $ | 291,451 | | | $ | 323,425 | | | $ | (31,974) | | | $ | — | | | $ | — | | | $ | (31,974) | |
Residential | 595,322 | | | 475,971 | | | 119,351 | | | 11,461 | | | — | | | 107,890 | |
Agtech | 130,325 | | | 149,410 | | | (19,085) | | | — | | | (9,165) | | | (9,920) | |
Infrastructure | 59,007 | | | 56,528 | | | 2,479 | | | — | | | — | | | 2,479 | |
Consolidated | $ | 1,076,105 | | | $ | 1,005,334 | | | $ | 70,771 | | | $ | 11,461 | | | $ | (9,165) | | | $ | 68,475 | |
Consolidated net sales increased by $70.8 million, or 7.0%, to $1.1 billion for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The 7.0% increase in revenue was driven by a 6.8% or $68.5 million increase in organic revenue along with a 1.1% or $11.5 million generated from the acquisition of QAP this quarter in the Residential segment. The increase was partially offset by a decline in revenue in the Company's processing business which was reclassified as held-for-sale as of March 31, 2022. The organic revenue growth in the Residential2023, and Infrastructure segments more than offset volume declines in both our Renewables and Agtech segments. This net improvement year over year was driven by a 13% increase in pricing to customers, partially offset by a net volume decline of 7%. The increase in net sales during the current year was also driven by price management and participation gains in our Residential segment, partially offset by continued project delays caused by supply chain challenges in the Agtech and Renewables segments. While the Company committed to a plan of sale of its Processing business within the Agtech segment, and has reclassified the assets and liabilities as held-for-sale as of March 31, 2022, the Company will continue reporting its operating results in the Company's consolidated operating results from continuing operations until the sale of the business is completed. Consolidated backlog decreased 7% to $358 million down from $385 million at the end of the prior year period.
Net sales in our Renewables segment decreased $32.0 million, or 9.9%, to $291.5 million for the nine months ended September 30, 2022 compared to $323.4 million for the nine months ended September 30, 2021. Revenue decreased as anticipated by 9.9% during the current year as the market demand for solar panel installation continues to be impacted by the UFLPA, which was implemented in June 2022, and a three-month delay by the Department of Commerce for its preliminary ruling on its solar panel AD/CVD anti-circumvention investigation. As a result, backlog decreased 9% year over year, however, given the current conversations with our customers, we
expect backlog to improve once the DOC issues preliminary and then final order and there is better understanding of enforcement and compliance relative to the UFLPA.
Net sales in our Residential segment increased 25.1%, or $119.4 million, to $595.3 million for the nine months ended September 30, 2022 compared to $476.0 million for the nine months ended September 30, 2021. The increase from the prior year was primarily driven by pricing actions, along with participation gains and increased market demand. Sales generated from QAP, acquired in the third quarter of 2022, also contributed $11.5 million or 2.4% to the increase.
Net sales in our Agtech segment decreased 12.8%, or $19.1 million, to $130.3 million for the nine months ended September 30, 2022 compared to $149.4 million for the nine months ended September 30, 2021. Excluding the impact of the processing equipment business which has been classified as held for sale as of March 31, 2022, revenue declined $9.9 million as our produce and cannabis businesses due to project delays, the result of continued licensing and permit delays. Despite these headwinds, the commercial greenhouse business continued solid growth across its core product lines. While quote activity remains robust, backlog decreased 7% year over year.
Net sales in our Infrastructure segment increased 4.4%, or $2.5 million, to $59.0 million for the nine months ended September 30, 2022 compared to $56.5 million for nine months ended September 30, 2021. The increase in revenue was driven by growth in demand for fabricated products with strong bidding activity which resulted in an 11% increase in backlog year over year. Management expects continued positive impact from the increased infrastructure spending related to the Infrastructure Investment and Jobs Act through the end of this year and into 2023.
Our consolidated gross margin increased to 23.2% for the nine months ended September 30, 2022 compared to 22.3% for the nine months ended September 30, 2021. The increase was primarily the result of favorable price / cost management and favorable revenue mix and improved operating execution from lean enterprise initiatives along with participation gains in our residential segment. These actions more than offset the impacts of supply chain challenges and severe weather which were experienced in the early part of the year that resulted in increased costs due to project disruptions.
SG&A expenses as a percentage of net sales decreased to 13.1% for the nine months ended September 30, 2022 compared to 14.1% for the nine months ended September 30, 2021. The decrease of $1.1 million, or 0.7%, to $140.9 million for the current year period compared to $142.0 million for the prior year period was primarily due to lower performance-based compensation expense for equity-based awards in the Company's deferred compensation plan that are valued based on its 200-day average stock price. This increase was partially offset by higher expenses associated with investing in our ERP systems to simplify and digitize our businesses as compared to the prior year.
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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Impact of |
| 2022 | | 2021 | | Total Change | | | | | | Portfolio Management | | Ongoing Operations |
Income from operations: | | | | | | | | | | | | | | | | | |
Renewables | $ | 14,061 | | | 4.8 | % | | $ | 21,195 | | | 6.6 | % | | $ | (7,134) | | | | | | | $ | — | | | $ | (7,134) | |
Residential | 104,901 | | | 17.6 | % | | 79,571 | | | 16.7 | % | | 25,330 | | | | | | | — | | | 25,330 | |
Agtech | 5,350 | | | 4.1 | % | | 4,133 | | | 2.8 | % | | 1,217 | | | | | | | (1,426) | | | 2,643 | |
Infrastructure | 6,640 | | | 11.3 | % | | 7,863 | | | 13.9 | % | | (1,223) | | | | | | | — | | | (1,223) | |
Unallocated Corporate Expenses | (22,222) | | | (2.1) | % | | (30,560) | | | (3.0) | % | | 8,338 | | | | | | | — | | | 8,338 | |
Consolidated income from operations | $ | 108,730 | | | 10.1 | % | | $ | 82,202 | | | 8.2 | % | | $ | 26,528 | | | | | | | $ | (1,426) | | | $ | 27,954 | |
The Renewables segment generated an operating margin of 4.8% in the current year period compared to 6.6% in the prior year period. The decrease in operating margin on lower volume was the result of project management
inefficiencies related to project delays and disruptions associated with market supply chain challenges and prolonged inflation on structural steel used in solar canopy projects in the earlier part of the year. Improved project management, favorable alignment of material costs to customer selling prices and field operations efficiencies beginning in May and sustained through the current period is largely offsetting the challenges experienced at the beginning of the year. Execution of integration plans, such as in-sourcing production, remain on track.
The Residential segment generated an operating margin of 17.6% in the current year period compared to 16.7% in the prior year period. The increase in operating margin was the result of favorable price / cost management, segment mix, labor management, volume leverage and 80/20 initiatives. During the year, we completed the implementation a new ERP system in the mail and package business.
Our Agtech segment generated an operating margin of 4.1% in the current year period compared to 2.8% in the prior year period. Excluding the impact of the Processing business which has been classified as held for sale as of March 31, 2022, operating profit and margin improved year over year as a result of improved business mix, price / cost management, continued execution from 80/20 and lean enterprise initiatives and ongoing integration activities.
Our Infrastructure segment generated an operating margin of 11.3% in the current year period compared to 13.9% during the prior year period. The margin declined year over year due to the impact of plate steel inflation on fixed price and was partially offset by improving operating execution.
Unallocated corporate expenses decreased $8.3 million from $30.6 million during the nine months ended September 30, 2021 to $22.2 million during the nine months ended September 30, 2022. The decrease in expense was largely the result of lower performance-based compensation expense for equity-based awards in the Company's deferred compensation plan that are valued based on its 200-day average stock price as compared to the prior year.
Interest expense increased year over year with $2.2 million for the nine months ended September 30, 2022 compared to $1.2 million for the nine months ended September 30, 2021. The increase in expense was primarily due to higher outstanding balances on the Company's revolving credit facility during the current year along with higher interest rates compared to the prior year period. The outstanding balances on the Company's revolving credit facility were $121.8 million and $59.7 million as of September 30, 2022, and 2021, respectively.
The Company recorded other expense of $0.8 million for the nine months ended September 30, 2022, compared to other income of $4.3 million for the nine months ended September 30, 2021. The change from income in the prior year to expense in the current year was primarily the result of the $4.7 million gain recognized on the sale of securities received from the sellers of Thermo Energy Systems, Inc. ("Thermo") to settle indemnification claims recorded in the prior year.
We recognized a provision for income taxes of $26.7 million and $20.6 million, with effective tax rates of 25.2% and 24.1% for the nine months ended September 30, 2022, and 2021, respectively. The effective tax rate for the nine months ended September 30, 2022, and 2021, respectively, was greater than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by an excess tax benefit on stock-based compensation.favorable discrete items.
Liquidity and Capital Resources
The following table sets forth ourthe Company's liquidity position as of:of (in thousands):
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2022 | | December 31, 2021 |
Cash and cash equivalents | | $ | 21,919 | | | $ | 12,849 | |
Availability on revolving credit facility | | 273,205 | | | 369,305 | |
| | $ | 295,124 | | | $ | 382,154 | |
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
Cash and cash equivalents | | $ | 7,497 | | | $ | 17,608 | |
Availability on revolving credit facility | | 343,655 | | | 304,505 | |
| | $ | 351,152 | | | $ | 322,113 | |
Sources of Liquidity
We believe that ourThe Company's sources of liquidity are comprised of cash on hand and available borrowing capacity provided under ourthe Company's Credit Agreement (the "Credit Agreement"), entered into on December 8, 2022. This Credit Agreement replaced and paid off all amounts owed under the Sixth Amended and Restated Credit Agreement (the "Seniordated as of January 24, 2019. The Credit Agreement")Agreement maintains similar capacity as the prior agreement in which it provides for a revolving credit facility and letters of credit in an aggregate amount equal to $400 million. The Company can request additional financing 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 Credit Agreement. The Company believes that these sources provide usthe Company with ample liquidity and capital resources to invest in key business strategies that drive our mission. We haveoperational excellence, growth initiatives and the development of the organization.
The Company has been able to weather the economic impacts of the broader market dynamics, including the current inflationary cost environment, while continuing to make investments that support ourthe Company's strategy. We continueThe Company continues to remain focused on managing ourits working capital, closely monitoring customer credit and collection activities, and working to extend payment terms. We believe ourterms with its vendors. The Company believes its liquidity, together with the cash expected to be generated from operations, should be sufficient to fund working capital needs and to invest in operational excellence, growth initiatives and stock repurchases for the foreseeable future.
We use our SeniorThe Company uses the Credit Agreement to provide liquidity and capital resources primarily for ourthe Company's U.S. operations. Historically, ourGenerally, the Company's foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements. As of September 30,March 31, 2023 and December 31, 2022, ourthe Company's foreign subsidiaries held $15.7$7.5 million and $15.2 million of cash.cash, respectively.
Outstanding balances on ourthe Company's revolving credit facility under our Seniorthe Company's Credit Agreement accrue interest at a rate, based on LIBORat the Company's option, equal to the applicable margin plus an additional margin. We do not expect(a) a material change in interest expense asbase rate, (b) a result of transitioning fromdaily simple secured overnight financing rate ("SOFR"), (c) a LIBORterm SOFR rate, toor (d) for certain foreign currencies, a new referenceforeign currency rate. See Note 8 to the Company's consolidated financial statements in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for further information on the Company’s Senior Credit Agreement.
Agreement.
Uses of Cash / Cash Requirements
OurThe Company's material short-term cash requirements primarily include accounts payable, certain employee and retiree benefit-related obligations, operating lease obligations, interest payments on outstanding debt, repayments
of borrowing on ourits revolving credit facility, capital expenditures, and other purchase obligations originating in the normal course of business for inventory purchase orders and contractual service agreements. OurThe Company's principal capital requirements are to fund ourits operations' working capital and capital improvements, toas well as provide capital for acquisitions and to strategically allocate capital through repurchases of Company stock. WeThe Company will continue to invest in growth opportunities as appropriate while focusing on working capital efficiency and profit improvement opportunities to minimize the cash invested to operate ourits business. We intendThe Company intends to fund ourits cash requirements through cash generated from operations and, as necessary, from the availability on ourits revolving credit facility.
In May 2022, the Company's Board of Directors authorized a share repurchase program of up to $200 million of the Company's issued and outstanding common stock. The program has a duration of three years, ending May 2, 2025. Repurchases may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. Any such repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The repurchase program may be suspended or discontinued at any time at the Company's discretion. As of September 30, 2022,March 31, 2023, the Company has repurchased 1,333,4532,150,903 shares for an aggregate price of $55.5$93.2 million under this repurchase program.
During 2020, we opted to defer remittanceprogram, including 153,537 shares repurchased for an aggregate price of $7.4 million during the employer portion of Social Security tax as provided in the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act"), which allowed us to retain $4.4 million in cash during 2020 that would have otherwise been remitted to the federal government. The deferred tax payments were required to be repaid in two installments occurring near the end of each year 2021 and 2022, of which $1.9 million was repaid in 2021 and the remaining $2.5 million will be repaid by the end of 2022.
three months ended March 31, 2023.
Over the long-term, we expectthe Company expects 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 Seniorthe Credit Agreement, new debt financing, the issuance of equity securities, or any combination of the above. The $52.6 million preliminary purchase price for the acquisition of QAP was financed primarily through borrowing on our revolving credit facility. Additional cash payments may be required for customary adjustments related to QAP's net working capital and certain other adjustments as provided for in the membership interest purchase agreement.aforementioned. All potential acquisitions are evaluated based on ourthe Company's acquisition strategy, which includes the enhancement of ourthe Company's existing products, operations, and/or capabilities, as well as expanding ourthe Company's access to new products, markets, and customers, with the goal of creating compounding and sustainable stockholder value.
These expectations are forward-looking statements based upon currently available 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 expectedcurrent levels, or sources of financing are not available or not available at acceptable terms, ourthe Company's future liquidity may be adversely affected.
Except as disclosed above, there have been no material changes in ourthe Company's cash requirements since December 31, 2021,2022, the end of fiscal year 2021.2022. See Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2021.
2022.
Cash Flows
The following table sets forth selected cash flow data for the ninethree months ended September 30,March 31, (in thousands):
| | | | | | | | | | | |
| 2022 | | 2021 |
Cash provided by (used in): | | | |
Operating activities of continuing operations | $ | 38,561 | | | $ | (14,523) | |
Investing activities of continuing operations | (67,325) | | | 28,954 | |
Financing activities of continuing operations | 39,675 | | | (30,276) | |
Discontinued operations | — | | | (2,178) | |
Effect of foreign exchange rate changes | (1,841) | | | (97) | |
Net increase (decrease) in cash and cash equivalents | $ | 9,070 | | | $ | (18,120) | |
| | | | | | | | | | | |
| 2023 | | 2022 |
Cash provided by (used in): | | | |
Operating activities | $ | 38,045 | | | $ | (7,754) | |
Investing activities | (1,636) | | | (4,402) | |
Financing activities | (46,509) | | | 15,039 | |
| | | |
Effect of foreign exchange rate changes | (11) | | | (159) | |
Net (decrease) increase in cash and cash equivalents | $ | (10,111) | | | $ | 2,724 | |
Operating Activities
Net cash provided by operating activities of continuing operations for the ninethree months ended September 30,March 31, 2023 of $38.0 million consisted of net income of $21.1 million, non-cash net charges totaling $9.3 million, which include depreciation, amortization, stock-based compensation, exit activity recoveries and other non-cash charges, and $7.6 million of cash generated from working capital and other net assets. The cash generated from working capital and other net assets was due to an increase in accounts payable as a result of the timing of purchases and vendor payments, offset by an increase in accounts receivable as revenues increased in the latter part of the quarter.
Net cash used in operating activities for the three months ended March 31, 2022 of $38.6$7.7 million consisted of income from continuing operations of $79.1$15.5 million and non-cash net charges totaling $30.3$10.3 million, which include
depreciation, amortization, stock-basedstock compensation, exit activity costs and other non-cash charges, offset by a $70.8$33.5 million investment in working capital and other net assets. The investment in working capital and other net assets was due to increases in inventory as a result of provisioning for potential supply chain disruptions and raw material and freight costs, along with an increase in accounts receivable and inventory, largelyas the result of seasonal increases in demand holding increased quantities due to general supply chain disruption, along with increased raw material and freight costs impacting inventory. Aa decrease in accounts payable as a result of the correlation between the timing of inventory receipts and vendor payments also contributed to the increase.
Net cash used in operating activities of continuing operations for the nine months ended September 30, 2021 of $14.5 million consisted of income from continuing operations of $64.7 million and non-cash net charges totaling $32.6 million, which include depreciation, amortization, stock-based compensation, exit activity costs and other non-cash charges, offset by a $111.8 million investment in working capital and other net assets. The investment in net working capital and other net assets was largely driven by an increase in inventory due to rising material costs and provisioning for potential supply chain disruptions along with accounts receivable due to seasonal increases in demand, offset by an increase in accounts payable as the result of seasonal increasestiming of vendor payments. This was offset by an increase in manufacturing activity.
accrued expenses and other non-current liabilities due to an increase in unbilled project revenues.
Investing Activities
Net cash used in investing activities of continuing operations for the ninethree months ended September 30, 2022March 31, 2023 of $67.3 million consisted of net cash paid of $51.6 million for the acquisition of QAP and capital expenditures of $15.7 million.
Net cash provided by investing activities of continuing operations for the nine months ended September 30, 2021 of $29.0$1.6 million was primarily due to $38.1capital expenditures of $2.2 million, in net proceeds received from the sale of the Company's Industrial business andoffset by receipt of the $4.1$0.6 million final working capital settlement resulting from the 20202022 acquisition of TerraSmart, offset byQAP.
Net cash used in investing activities for the three months ended March 31, 2022 of $4.4 million was primarily due to capital expenditures of $13.3$4.4 million.
Financing Activities
Net cash provided byused in financing activities of continuing operations for the ninethree months ended September 30,March 31, 2022 of $39.7$46.5 million was the resultconsisted of $197.8net long-term debt payments of $39.0 million and $7.5 million of common stock repurchases. Net long-term debt payments consisted of $50.0 million in long-term debt payments, offset by $11.0 million in proceeds from borrowing on our long-term credit facility, offset by $100.0 million in payments onthe Company's long-term debt and $58.1 million of common stock repurchases. Share repurchases of 1,333,453credit facility. The Company repurchased 153,537 shares under the Company’s recentlyCompany's authorized share repurchase program which totaled $55.5$5.6 million paid during the three months ended March 31, 2023 with the balance repurchased forcommon stock of $1.9 million related to the net settlement of tax obligations for participants in the Company's equity incentive plans.
Net cash used inprovided by financing activities of continuing operations for the ninethree months ended September 30, 2021March 31, 2022 of $30.3$15.0 million was primarily the result of $83.6$47.5 million in proceeds from borrowing on the Company's long-term credit facility, offset by $29.0 million in payments on long-term debt and $6.2$3.5 million of common stock repurchases related to the net settlement of tax obligations for participants in the Company's equity incentive plans, offset by $58.5 million in proceeds from borrowing on our long-term credit facility and $1.0 million from the issuance of common stock from stock option exercises during the period.plans.
Critical Accounting Estimates
There have been no material changes to ourthe Company's critical accounting estimates during the ninethree months ended September 30, 2022March 31, 2023 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, 2021.2022.
Recent Accounting Pronouncements
See Note 2 to the Company's consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on recent accounting pronouncements.
Item 3. Quantitative and Qualitative 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, interest rates, 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. In the current year, there have been no material changes in the information provided under Item 7A in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
2022.
Item 4. 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, as amended). Management of the Company, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures 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, as amended, 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.
(b)Changes in Internal Control over Financial Reporting
We implemented a new Enterprise Resource Planning (“ERP”) system for one of our operating units in our Renewables segment during the quarter ended September 30, 2022. The implementation of this ERP system is expected to, among other things, improve user access security and automate a number of accounting and reporting processes and activities, thereby decreasing the amount of manual processes previously required. Also, the Company acquired Quality Aluminum Products ("QAP") on August 22, 2022. This completed acquisition will be excluded from management's annual report on internal control over financial reporting for the year ending December 31, 2022.
Except for the implementation of the new ERP system and the acquisition of QAP, thereThere have been no changes in the Company’s internal control over financial reporting (as defined by Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to litigation fromFrom time to time the Company has been and may in the future become involved in litigation, as well as other legal proceedings in the ordinary course of business, however, there is no current material pending litigation to which we are a party and no material legal proceedings were terminated, settled, or otherwise resolved during the three months ended September 30, 2022, other than ordinary, routine litigation incidental to itsCompany's business. The Company maintains liability insurance against risks arising out of the normal course of business. While the outcome of these legal proceedings cannot be predicted with certainty, the Company's management, based on currently available facts, does not believe that the ultimate outcome of any pending litigation will have a material effect on the Company's consolidated financial condition, results of operations, or liquidity.
There were no material legal proceedings terminated, settled, or otherwise resolved during the three months ended March 31, 2023.
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 ourthe Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and in our Form 10-Q for the quarterly period ended March 31, 2022. These risks and uncertainties have the potential to materially affect ourthe Company's business, financial condition, results of operation, cash flows, and future prospects. Additional risks and uncertainties not currently known to usthe Company or that wethe Company currently deemdeems immaterial may materially adversely impact ourthe Company's business, financial condition, or operating results. During the quarter ended September 30, 2022,March 31, 2023, there have been no material changes from the risk factors previously disclosed in ourthe Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as amended by the risk factors disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, respectively, except as follows.
Macroeconomic factors outside of our control may adversely affect our business, our industry, and the businesses and industries of many of our customer and suppliers.
Macroeconomic factors have a significant impact on our business, customer demand and the availability of credit and other capital, affecting our ability to generate profitable margins. Our operations are subject to the effects of domestic and international economic conditions, including global industrial production rates, inflation, deflation, interest rates, availability of capital, debt levels, consumer spending, energy availability, commodity prices, and the effects of governmental initiatives to manage economic conditions, including government monetary and trade policies, tax laws and regulations. Tariffs placed on imported products used by our customers, such as solar panels, could impact cost and availability of these products to our customers which could impact the demand for our products or services. In addition, fluctuations in the U.S. dollar impact the prices we charge and costs we incur to export and import products. We are unable to predict the impact on our business of changes in domestic and international economic conditions. We currently face challenging market conditions, and domestic or global economies, or certain industry sectors of those economies that are key to our sales, may further deteriorate, which could result in a corresponding decrease in demand for our products and negatively impact our results of operations and financial condition.
In addition, the United States currently imposes antidumping and countervailing duties on certain imported solar panels and components from certain countries in Southeast Asia. The antidumping and countervailing duties can change over time pursuant to annual reviews conducted by the U.S. Department of Commerce ("USDOC"), and a change in duty rates could have an adverse impact on our operating results. In early 2022, the USDOC was petitioned to investigate alleged circumvention of antidumping and countervailing duties on Chinese imports of solar panels and components produced in other countries in Southeast Asia. In March 2022, the USDOC announced that it would investigate the circumvention alleged in the petition which is still ongoing at this time. Furthermore, in June 2022, the Uyghur Forced Labor Prevention Act ("UFLPA") was enacted. The UFLPA requires traceability of components of imported goods to validate that the components are not sourced from areas in the Xinjiang region of China, which may be held at U.S. customs until the importer is able to prove where they have been sourced. As the timing and progress of many of our customers’ projects depend upon the supply of solar panels and components, our operating results could be adversely impacted by any negative circumvention determinations made by the USDOC and timing of review by U.S. customs.2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In May 2022, the Company's Board of Directors authorized a share repurchase program of up to $200 million of the Company's issued and outstanding common stock. The program was publicly announced on May 4, 2022 and has a duration of three years, ending May 2, 2025. Repurchases may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. Any such repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The repurchase program may be suspended or discontinued at any time at the Company's discretion.
The following table sets forth purchases made by or on behalf of the Company during the quarter ended September 30, 2022.March 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Issuer Purchases of Equity Securities |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program |
July 1 - 31, 2022 | | — | | | $ | — | | | — | | | $ | 150,000,002 | |
August 1 - 31, 2022 | | — | | | $ | — | | | — | | | $ | 150,000,002 | |
September 1 - 30, 2022 | | 138,528 | | | $ | 40.00 | | | 138,528 | | | $ | 144,459,470 | |
Total | | 138,528 | | | $ | 40.00 | | | 138,528 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Issuer Purchases of Equity Securities |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program |
January 1 - 31, 2023 | | 76,937 | | | $ | 47.98 | | | 76,937 | | | $ | 110,432,987 | |
February 1 - 28, 2023 | | 2,200 | | | $ | 48.56 | | | 2,200 | | | $ | 110,326,147 | |
March 1 - 31, 2023 | | 74,400 | | | $ | 47.98 | | | 74,400 | | | $ | 106,756,068 | |
Total | | 153,537 | | | $ | 47.99 | | | 153,537 | | | |
The Company did not sell unregistered equity securities during the period covered by this report.
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
| | | | | | | | |
| | Certificate of Incorporation of Gibraltar Industries, Inc., as amended by: (i) Certificate of Amendment of Certificate of Incorporation of Gibraltar Industries, Inc. filed on October 27, 2004, (ii) Certificate of Change of Registered Agent and Registered Office of Gibraltar Industries, Inc. filed on May 11, 2005, (iii) Certificate of Amendment of Certificate of Incorporation of Gibraltar Industries, Inc. filed on May 22, 2012, (iv) Certificate of Amendment of Certificate of Incorporation of Gibraltar Industries, Inc. filed on May 11, 2015, (v) Certificate of Change of Registered Agent and/or Registered Office filed on January 10, 2019, and (vi) Certificate of Amendment of Certificate of Incorporation of Gibraltar Industries, Inc. filed on May 6, 2021 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on August 3, 2021) |
| | Second Amended and Restated By LawsBy-Laws of Gibraltar Industries, Inc., effective January 1, 2015as of December 7, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K8-K/A filed on January 5, 2015)December 9, 2022) |
| | Certification of Chairman of the Board, 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 Chairman of the Board, 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.INS101.INS* | Inline XBRL Instance Document * |
| 101.SCH101.SCH* | Inline XBRL Taxonomy Extension Schema Document * |
| 101.CAL101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document * |
| 101.LAB101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document * |
| 101.PRA101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document * |
| 101.DEF101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document * |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| | | | | |
* | Submitted electronically with this Quarterly Report on Form 10-Q. |
** | Documents are furnished not filed.filed herewith. |
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, INCINC. |
(Registrant) |
| | |
/s/ William T. Bosway |
William T. Bosway |
Chairman of the Board, President and Chief Executive Officer |
| | |
/s/ Timothy F. Murphy |
Timothy F. Murphy |
Senior Vice President and Chief Financial Officer |
Date: NovemberMay 3, 20222023