Gibraltar Industries Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Gibraltar Industries Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Carolyn Capacios with Alex J.

Operator

Thank you. You may begin. Thanks, Christine. Good morning, everyone, and thank you for joining us today. With me on the call is Bill Bosway, Gibraltar Industries' Drew's Chairman, President and Chief Executive Officer and Tim Murphy, Gibraltar's Chief Financial Officer.

Operator

The press release that was issued this morning as well as a slide presentation that management will use during the call are both available in the Investors section of the company's website, gibraltarone.com. Gibraltar's earnings press release and remarks contain non GAAP financial measures. Tables of reconciliation of GAAP to adjusted financial measures can be found in the earnings press release was issued today. Also as noted on slide 2 of the presentation, the earnings press release and slide presentation contain forward looking statements with respect to future results. These statements are not guarantees of future performance and the company's actual results may differ materially from the anticipated events, which can also be accessed through the company's website.

Operator

Now, I'll turn the call over to Bill Bosway. Bill?

Speaker 1

Thanks, Carolyn. Good morning, everyone, and thank you for joining today's call. We'll start with an overview of the Q3 results, and Tim's going to take you through our financial performance, and then I'll walk you through our 2023 outlook, then we'll open the call for your questions. So let's start by turning to slide 3 titled 3rd quarter results Q3 2023 results, sorry. Our focus on driving quality of earnings in 2023 continues to pay off in our delivery of higher profitability and strong cash flow generation, we executed well in the quarter, continuing our momentum from the first half of the year.

Speaker 1

We continue to experience solid end market demand and we also expanded our market participation, particularly across our residential and infrastructure businesses. In both our Renewables and AgTech businesses, we did experience some delays in start dates of contracted and active projects. Those projects have since begun or shifted to either the Q4 or into early 2024. As well during the quarter, on an adjusted basis, we increased operating income 19 EPS 23% and free cash flow increased to 23% of net sales. We continue to accelerate our eightytwenty initiatives across product lines and operations and also optimize our supply chain management with market price actions.

Speaker 1

Our improvement in operating margin and working capital continue to drive solid cash generation performance. In all, our results We expect our momentum to continue in the Q4 and support strong full year performance in 2023. As a result, we are changing our guidance for 2023. We are narrowing our net sales outlook and raising our outlook for both profitability and EPS, which we will review shortly. Now let's turn to slide 4 for an update on the solar market.

Speaker 1

Our demand pipeline in renewables is very And bookings continue to grow as the industry continues to navigate through 3 basic issues module supply, permitting delays And clarity on the final rules governing IRA tax benefits. First, let's start with module supply. It is improving as additional module suppliers are Also related to module supply, the Department of Commerce issued its final ruling in August on its AD CBD investigation. The DOC final report indicated 3 of the 8 module suppliers were found not to be circumventing and as a result are able to export to the U. S.

Speaker 1

Without duty. The report also confirmed that module suppliers using non China wafer supply are also not subject to duty. The DOC also implemented the administration's tariff waiver, which is in effect until early 2024 and may be reevaluated at that time. Because of the administration's waiver, the DOC investigation results are a little less concerning relative to the UFLPA importation process. Secondly, delays in obtaining permits for projects Remains an issue.

Speaker 1

Although customers find permitting a challenge in the near term, they are confident the situation will continue to improve as local government agencies ramp capacity To improve the approval process for permit applications. And finally, customers are anxiously awaiting final guidelines from the Department of Treasury on to secure additional tax incentives under the Inflation Reduction Act. Tax credits directly affect project economics and returns We are seeing some customers with projects in process pause and or defer additional projects until they have a clear understanding of how to realize incremental tax benefits. We expect the industry to work through these challenges and as they ease or improve, our customers will be in a better position to execute current demand We really properly plan to support robust demand pipelines expected going forward. With that, I'll turn over to Tim for a review of our results.

Speaker 2

Thanks, Bill, and good morning, everyone. I'll take you through our consolidated and segment results starting on Slide 5. Adjusted Quarter sales were flat at $390,000,000 Timing shifts of the active projects in Renewables and AgTech business as well as price management initiatives in the residential business were were positively offset by revenue from recent acquisitions and market participation gains across the business.

Speaker 1

Backlog at

Speaker 2

Demand and order flow remained strong heading into the 4th quarter. Adjusted operating income and adjusted EBITDA dollars increased 19% 18%, respectively, in the Q3 with adjusted EPS up 23%. Margin improvement in the quarter was driven by solid execution, additional eightytwenty initiatives, Productivity and Price Cost Management. Weighted average shares outstanding decreased 3.4% from the Q3 of 2022 30,700,000 shares in the Q3 of 2023 and there were no share repurchases in the quarter. Now let's review each segment starting with Slide 6, the Renewables segment.

Speaker 2

Segment net sales decreased 4.2% as customer start dates Contracting and active projects were impacted by delays in both local permitting and final inflation reduction act tax credit guidelines. The rate of decline is slowing compared to prior quarters as module availability continues to improve as the module importers climb up the UFLPA enforcement learning curve. Bookings of new orders remain robust with year over year backlog growing 13.3%. And as Bill mentioned, some customers are waiting to sign contracts until Department of Treasury issues IRA tax credit guidance. Our pipeline remains really strong.

Speaker 2

As a reminder, our backlog consists only of signed contracts with deposits. We do not include purchase orders without a signed contract and deposit, MSAs without specific work orders or verbal agreements with customers and our new bookings and backlog. Segment profitability again improved With adjusted operating and EBITDA margins of 16.7% and 18.9%, respectively, increasing 380 390 basis points from last year. Our team executed well with supply chain productivity, field operations efficiency and solid price cost management. Assuming industry dynamics remain constant with improving module importation and continued delays in local permitting, We expect relatively flat sales in the 4th quarter, with net sales in the second half accelerating from the first half.

Speaker 2

Let's move to Slide 7 to review our Residential segment. Segment sales increased 5.6% from last year. Recent acquisitions added 8.8 percent growth and organic sales decreased 3.2%, driven by prior quarter price adjustments in response to decreasing commodity prices we benefited from increased participation with new and existing customers and from having expanded into new regions. Both of our recent acquisitions are performing to our expectations. Demand remains at normal levels in 4th quarter with an expectation of normal seasonal inventory reductions at our customers, and we expect to continue to grow participation.

Speaker 2

Adjusted operating and EBITDA margin of 18.8% and 20.2%, respectively, Expanded 202120 basis points through increased volume, improved price cost alignment, implementation of additional eightytwenty initiatives Favorable product line mix. Quality aluminum products margin performance continues to improve towards Gibraltar levels as the integration continues. We expect continued year over year margin improvement in the 4th quarter through improved price management, increasing participation gains mix and the contribution of the 2 acquisitions we made over Let's move to Slide 8 to review our AgTech segment. Adjusted net sales decreased 26 percent as new product construction starts were delayed in the quarter. We began a large project, which continued to drive improving results beginning in September.

Speaker 2

New orders continued to accelerate in the quarter, driving backlog up 9.4% sequentially. On a year over year Basis backlog decreased as a few customers work through project redesigns. We expect increasing activity to drive revenue acceleration in the 4th quarter. Segment adjusted operating and EBITDA margins of 5.6% and 8.1%, respectively decreased 510 and 540 basis points On lower volumes, the timing of net sales shifted into the 4th quarter from the 3rd quarter. Margins improved project starts and are continuing into the 4th quarter, and we expect volumes from new project execution underway to drive to improve results in the 4th quarter.

Speaker 2

Let's move to Slide 9 to review our Infrastructure segment. Segment sales increased 22.5%, driven by solid market demand and market participation gains. Backlog increased 6.2% year over year. Market activity remains strong, including from commercial And the infrastructure bill continues to provide strong tailwinds. Our momentum continues into the Q4 and we expect to leverage these strong trends adjusted operating and EBITDA margins of 25.6% and 29.1%, respectively, improved 131230 basis points, Driven by strong execution, price cost alignment, eightytwenty initiatives, additional productivity investments, Supply chain efficiency and product line mix.

Speaker 2

The infrastructure team continues to execute very well and we expect To report a strong year of growth and expanding profitability for the segment. Let's move to Slide 10 to discuss our balance sheet and cash flow. At September 30, we had cash on hand of $86,000,000 $396,000,000 available on our revolver. During the quarter, we generated 93 of cash from operations through a combination of margin improvement and $43,000,000 generated from reductions in working capital. We collected cash from accounts receivable and inventory reductions and benefited from increases in accounts payable and other liabilities.

Speaker 2

Inventory is getting closer to normal levels as in stock positions and supply come into balance. As a result, our free cash flow generation During the Q3, it was again exceptionally strong at 23% of sales. Free cash flow in the 9 months of the year benefited from $84,000,000 of reduction in investment and working capital, reversing the prior 2 years' impact from the increased working capital investments we managed through the pandemic We expect strong cash flow for the remainder of the year. There were no share repurchases in the quarter and we paid down the outstanding balance on a revolver. Therefore, we ended the quarter with an unlevered balance sheet.

Speaker 2

We'll continue to focus on we'll continue to focus our capital allocation on organic growth, We funded through generated cash and supplemented as needed by use of our revolver depending on the timing of any M and A or repurchases. Now I'll turn the call back to Bill.

Speaker 1

Thanks, Tan. Let's move to slide 11 to review our 2023 strategy and priorities. Our focus on 5 basic initiatives is driving solid performance and we'll continue to do so as we finish 2023. 1st, Focus on driving growth, quality of earnings and margin improvement and strong cash performance. Secondly, continue to execute Eightytwenty initiatives, win more participation and drive service levels higher.

Speaker 1

3rd, stay the course with investments in our digital transformation to help scale our businesses with both speed and agility. 4th, strengthen our organization with the addition of experience and competency and a structure that drives more focus, scalability and accountability. And 5th, conduct business in the right and responsible way every day. Now let's turn to slide 12 and review our revised 2023 guidance. Given our results to date and momentum heading into the 4th quarter, we are adjusting our guidance as follows.

Speaker 1

We are narrowing our consolidated net sales range to between $1,370,000,000 $1,400,000,000 compared to $1,380,000,000 in 2022. We expect GAAP operating margin to be between 11.2% and 11.4% compared to 9.4% in 2022 And adjusted operating margin to be between 12.6% 12.7% compared to 10.9% in 2022. We expect GAAP EPS to be between $3.51 $3.71 compared to $2.56 in 2022 And adjusted EPS to be between $4.05 $4.15 compared to $3.40 in 2022. And finally, we expect free cash flow to exceed 14% of sales for the year. This compares to 6% in 2022, driven by higher margins and working capital performance.

Speaker 1

We expect to execute well in the 4th quarter and are relatively well Going into 2024, our team continues to execute, remain focused and is really excited for what we do and how we do it. And they deserve all the credit for our results. And the team is also very proud we're able to raise our profitability and EPS guidance for the 2nd time this year. So big thank you to our team and we look forward to delivering a strong finish to a good year. Now let's open the call and we'll take your questions.

Operator

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

Speaker 3

Thank you. Good morning, Bill. Good morning, Tim. And congrats on another really solid quarter. Maybe start with resi.

Speaker 3

As we kind of look beyond Q4, are you seeing any change in tone in the overall market up or down? And second, Your performance and participation gains, obviously very impressive year to date. How do we think about that going forward? Does it create tough comps? Or conversely, Is that momentum you've created kind of easier to continue to drive participation in share gains?

Speaker 3

Thanks.

Speaker 1

Yes. So Dan, we haven't really seen a major shift. As you know, we've talked in the past, we get visibility for the out sales from our Big box retailers in particular. And I think we continue to see the growth that we've been seeing all year. It's everything is adjusted obviously seasonality that's back in the marketplace.

Speaker 1

So we feel like there's a relatively solid continuation of what we've been seeing going forward. As it relates to participation, it's a combination of working with existing customers and again a little bit bigger piece of the pie and some things that we're in today, it's also the other big push there is picking up new customers that We traditionally haven't had as much with and I think we're hitting both of those pretty well and I think that will carry us into 2024 with some decent momentum. So like I said, we're on solid footing, I think entering the year. We're in the middle of putting our plans Together as we speak. In fact, we'll be at the teams all next week to get our first really hard look at 2024.

Speaker 1

But From a residential perspective, we feel pretty solid about going into next

Speaker 3

year. And similar question and maybe a little bit more focus on Margin on AgTech. Maybe talk about, Tim, the opportunities you have And the cadence for continuing to improve margins as we look out and maybe kind of your expectations in terms of the timeframe of getting back to those more low double digit, low teens margins that we've seen previously.

Speaker 2

Yes. So we had a project that we thought was going to start pretty much at the beginning of the second quarter and it got delayed a few months. And so I'm sorry, beginning of Q3. And so it got delayed a few months, started up in September, Running as expected. So we know headed into the Q4, we've got more normalized volume.

Speaker 2

And so you should see margins begin to recover there. And then there's a lot of stuff in the pipeline That we're pretty excited about. Not in hand yet though, so hard to say when we'll know more Over the course of the next few months, get ready for our plan here. But Dan, our plan, we don't really have 4th quarter or Next year in front of us. But in general, our expectation is always grow top line, expand margins.

Speaker 2

That would be my expectation For each of the business every year.

Speaker 3

Helpful. And given the obviously strong free cash flow and liquidity position, Maybe just talk about your priorities for capital allocation over the next several quarters. And specifically in this market, are you seeing more opportunities in the M and A funnel?

Speaker 2

Yes. I think that maybe

Speaker 1

the M and A funnel will Begin

Speaker 2

to open up a little bit more, although we made acquisitions, we made 2 in the last sort of 14 months from here. So but I think, yes, it's active. We're always pretty active in that space and we're really selective. So there's a combination of things that are available, things that make sense for us. But I think we'll continue to focus there.

Speaker 2

Certainly, when we can invest in safety or productivity internally, although that's not a huge use of capital, I don't see any real change to that. And then the share repurchase program when I also remind everyone, right, this year's we're outperforming on free cash flow sort of making up I've tried to be very clear of that. A part of it is making up for that big investment working capital we had to make in 2021 2022 as we dealt with that supply chain. So I think we pulled I think I said $84,000,000 of our cash flow Was really pulling the investment that we made in working capital out. But our margin is much better than it was a year ago, and so that's going to obviously increase cash flow.

Speaker 3

Very good. Thank you again. I'll jump back with any follow ups.

Operator

Our next question comes from the line of Walt Liptak with Seaport Global. Please proceed with your question.

Speaker 4

Hey, good morning guys.

Speaker 5

Good quarter. I wanted to ask of The Renewables segment, you called out a number of different issues. I wonder if you could do those in rank order. And if any of them got worse or if they are all getting better, just how things change during the quarter like The permitting delays, you guys talked about that last quarter. I don't know that this how long that takes or How long we'll be talking about that as an issue?

Speaker 5

But I wonder if you can go through and rank and then if things got better or worse?

Speaker 1

Yes. Well, I'd say the sorry, excuse me, the panel supply, the module supply Yes, still a little bit of a challenge, but it's getting better literally month to month. So we continue to see progress and we've seen that all year and I think If you think about our business, it's you don't really sign contracts, if you will, if you have if you don't have a panel. So fact, when our backlog continues to grow, I think customers are getting more confident they can get their hands on panels. And that's just a function of the panel manufacturers having More consistent success getting things through the UFLP process.

Speaker 1

So that's getting better. Permitting, I think, is holding With kind of where we said the last quarter, it's still an issue and it's really down to the individual projects. So it's hard To tell you

Speaker 3

This

Speaker 1

one is starting to free up is I think put a few of these Government offices behind the 8 ball trying to catch up. And that's what we hear from our customers And they're working it every day and it's frustrating for them. So I'd say that's probably similar to what we saw last quarter. But that's probably the number one thing right now. So number one would be that.

Speaker 1

What's crept into the equation is the 3rd item, which is the IRA incremental tax benefits or the additional tax benefits that you can get from the IRA. And that's really Department of Treasury finalizing the rules. And so what's really clear today is Prior to the IRA, you had a certain investment tax credit Level, you have to do a couple of things and that's very clear. That's prevailing wage and apprenticeship program and people are moving in that direction. So that allows you to maintain your tax credit.

Speaker 1

To get the incremental ones above that, that's when you start getting into a couple of other things Like local manufacturing, made in America, etcetera. And we're I think the industry is still waiting for the final rules of actually what that means and how to keep score and all that good stuff From treasury, and that will give you the extra benefits on top. Treasury, I think Treasury even thought would be out sooner and that's probably coming late this year or early And Q1 is the latest we've heard from the industry. So number 1 is permitting, The incremental tax credit opportunity just being delayed and number 3 Is module supply. That's how I would rank them today.

Speaker 5

Okay, great. You broke up a little bit as we were talking, I think I got most of it. And so as we're thinking about that IRA And that the final rulings, should we have an expectation that at some point, maybe going to the Spring construction season that the IRA rulings are behind us and some of that benefit from the IRAs Showing up in terms of more orders in the industry getting back on its feet?

Speaker 1

Yes, I think As soon as that you get clarity there, what that does for everybody that's investing is boost your returns On that investment because you get the incremental benefit. So if you think about that really helps deal with some of the inflationary issues that the industry dealt with the last couple of years. It offsets that. Didn't keep plowing ground, but you have a lot of customers right now that I think we're in a bit of a holding pattern because they felt like that was coming. So go ahead with the project and then Some of them paused because they just don't quite have the clarity and they don't want to actually miss out on the opportunity.

Speaker 1

And so that's where you get a little bit of delay. But if those things come into play as has been somewhat communicated to the industry early next year, January, February, it's going to Make a difference obviously going into the construction season in Q2, 3 and 4 for Renewables as an industry for sure and for us.

Speaker 5

Okay, great. And then maybe the last one for me on renewables is just the thought a lot has changed In the last couple of years, I guess, returns for community Solar, you've had the supply chain issues, you've had rising inflation, labor costs, rising interest rates. And now you have offsets to that like with the IRA benefits that will happen. Are these how has the return changed do you think On community solar projects. Is it better

Speaker 1

or worse? Yes, I don't first of all, whether it's community or utility, I think it's the Same question. So I'll try to answer this in the best way that covers both. But the levers that you would pull if you're investing to do with, okay, how do you negotiate the right PPA, so the power agreement that you're discussing and at what level can you get that? And I think Developers, in particular, have worked that pretty hard.

Speaker 1

And so as inflation has come into the fray, they've been able To get higher price points on their PPAs. And that's effectively what this all means at the end of the day is as the Price of energy, any type of energy has gone up. It's all relative. Solar has been able to go up with it in terms of the cost of That generation. So it's going to be passed on to consumers, but that's happening regardless of how you're generating the energy.

Speaker 1

So they have a relief valve there To offset the other inflationary things you just talked about, now the IRA kicks in and that's where those incremental tax benefits can make a big difference. So Those two levers on the plus side really do kind of neutralize the cost issues on the negative side. And as a result, I think that's why you continue to see interest new entrants into the industry and demand continue to stay where it is And continue to grow. So I feel like the economics are and listen project to project, It could swing a bit, but in general, the folks that have been in this business for a long time understand that. I will stay on the balance sheet and people are continuing to move forward.

Speaker 1

I would say on the other side of that, so that's the kind of return side. Where it's gotten more challenging and frustrating for folks is just navigating through some of the things, whether it's importation process or permitting process. And I do think that is easing and will get better. So those are the 2 buckets that I think about relative to the experience that a lot of our customers have had.

Speaker 5

Okay, great. I appreciate that answer. And then just one for me on residential. You talked about how you're going to have normal seasonality where I guess your box stores bring down inventory levels. I wonder if you could maybe help us gauge that.

Speaker 5

Like is this going to be a bigger than normal inventory correction Because of we're coming to an end of the supply chain inventory buildup Or has that happened already because some of your customers may have had to work so hard this year to reduce their inventories?

Speaker 1

Yes. No, I think it actually happened last year same time. This year is just a reflection of what you typically would see in a normal Demand environment supply and demand environment. So our point isn't that, hey, this is a correction because everyone's overloaded. Our point is construction cycle Starts to slow this time of the year and people traditionally have always slowed down here and they'll start to ramp up towards the end of Q1 to get ready for the construction cycle next year.

Speaker 1

So we're just back to normal seasonality, but the real correction occurred a year ago. That's when we started to see it. If you recall, When supply chain started getting better and commodities came down, people really started to flush out in the channel. That started really Q3 last year, Q4 and Q1. So this year, we're back to what we would consider to be normal prior to the pandemic.

Speaker 1

If you go back and look at The data historically that's what you would see actually. They're pretty normal seasonality Play in the residential business over the last really 50 years.

Speaker 5

Okay, great. Thank you.

Operator

Our next question comes from the line of Julio Romero with Sidoti. Please proceed with your question.

Speaker 4

Good morning. How are you guys doing? Good. How are you? Good.

Speaker 4

I guess my question is, can you on renewables, can you talk about efforts, The efforts that you've made to make the Renewables segment less volume dependent and one way for further improvement operationally to that end?

Speaker 1

Yes. It's a good question. We've talked about this a lot the last year or so. We made a decision a couple of years ago when things really started to demand down in an industry that take advantage of this opportunity to figure out how to scale your business in a much different way such that You can you have more levers to drive the profitability of this business. And then when volume comes back, you should be in a better position to convert at a higher rate.

Speaker 1

It's pretty commonsensical stuff, obviously. But ultimately for us, when you think about a quote to cash process, it's everything we do From making sure that business systems are tied together and in a much tighter way than they had been in the past from estimating All the way through release to fab to install in the field. And tightening out that was a big effort for us and That's where I talked earlier about, hey, keeping our investments going into digitizing our businesses, this is really critical in our construction oriented businesses like Renewables, because we weren't as tied there, therefore, we weren't as scalable. And if you're not scalable with good systems, You have a chance of making more mistakes in a construction business where you're doing 400, 500 fields a year. So we've really tightened that up.

Speaker 1

The team has done a fantastic job of bringing the systems in, tying them together such that we're much more scalable And we're less mistake driven on these construction projects. And that's really critical, number 1, Because you can't afford to do that. Secondly, when you have this type of business, you also have to be very much linked in with supply chain and manufacturing. I know it sounds very commonsensical, I think about a project that may have been quoted in January of 1 year and finalized in January of the next year. So making sure you don't get it out of whack with In an inflationary environment, such that it really impacts your P and L, tightening up that quote process, When you release the fabs, so you lock down the actual input cost you have today than it was before, so we don't have near as much exposure.

Speaker 1

Thirdly, it's really product lines And how you mix sales and the impact of that has on margin. So if you recall, our portfolio is pretty broad. So we have an EBOS solution that has been growing quite well. We have fixed tilt, we have tracker, we have a new tracker that was 1.5 years ago that really started to take off. So you mix well on your margins and on your product lines As you drive your cost reduction and these new products are being very impactful for us.

Speaker 1

And then thirdly or lastly, when you think about in the field, so we like the fact that we install a lot of things because it opens up another revenue and profit stream for us, but It is construction. And so just like buttoning up inside your 4 walls with estimating and manufacturing, etcetera, you've

Speaker 3

got to be world class in the field as well

Speaker 1

and you've got to be And you got to be efficient and so forth. So we've done a lot of work in all four buckets and we've done that in an environment where volumes have been down. And so my point to everybody is if at the end of the day you believe or feel like the only lever you have is volume to drive your margin, then that's a tough We feel like we're we have multiple levers to now pull in a much more effective way than we did before. So it's really those 4 buckets Over the last 2 years that we worked really hard on to be in today's position. So as some of these headwinds ease This industry and the volume starts to come back, yes, we should be in a better position to convert accordingly than we would have been 2 years ago.

Speaker 1

So that's A long answer to your question, but it's a pretty short answer relative to all the work that's actually been done, but that's how we characterize it for you.

Speaker 4

Thank you for the call. That makes sense. The second question I have is, have permitting delays abated at all? And what are you Hearing from your customers in terms of where the local government offices are ramping up capacity to alleviate the permitting bottleneck.

Speaker 1

Yes. I would say it's still it's probably similar to what it was last quarter. And when you think about our customers are Projects all over the country. So it really comes down to each experience they're having based on where the field is that they're working on. So It's hard for me to give you a specific answer across each project.

Speaker 1

But what I would tell you in general is, it's the number one challenge right now for our customers. I think the only the positive in that is they don't feel like that's a structural issue that is a big change. It's just a ramp up capacity issue. And I think we're optimistic that that's going to get it's going to continue to improve, but it really comes down to each And that's where it gets it's case by case. It's real and it has been and it needs to get better.

Speaker 1

I don't think Preventing people from signing new projects with us or signing contracts and giving us deposits, it's just a frustration I think they have As to when they can actually get started, because you can imagine you're trying to line up what you need to line up to actually go to work, right? And so when Get pushed 30 days or 60 days or what have you. It's more of a frustration than it is a structural issue that It's not like the UFLPA was and it's not like waiting for the IRA tax incentives to be finalized. Those are structural things that when they flip, it will be very positive. This is frankly a local Localized capacity issue that's got to ramp up and I think that it will happen and our customers feel like the near term issue.

Speaker 4

Thank you. On AgTech, where are we on the $30,000,000 produce project you signed last quarter? And secondly, any preliminary thoughts as to how big Phase 2 can be?

Speaker 1

I'm sorry, the last part of that, any preliminary So can you repeat that?

Speaker 4

So as to how big any preliminary thoughts as to how big Phase 2 can be?

Speaker 1

Yes. So sorry. Yes. So that was the project that Tim referenced we thought would start at the beginning of the quarter. It started in September.

Speaker 1

So that's off and running. If you recall, it's a $30,000,000 project, I believe. And so you'll start you'll see that start to read through in Q4 And they really started to accelerate in September, but it just pushed. And again, that can happen. Phase 2 will probably be a little bit bigger than Phase 1.

Speaker 1

It's actually the 7th phase Of a very large complex that we've built the entirety of over the last 5 years. But this is really to confuse everybody. This is the last two phases. And I think the second phase is probably going to be anywhere from $10,000,000 to $20,000,000 bigger than the phase that we just started. And I think we'll have that come we'll start working on that Halfway through next year and hope we get that across the finish line.

Speaker 1

It's not an issue of not getting the business we have. It's just a matter of the timing when it enters with our books. That will be the second half of next year. We'll see that sometime. What's been exciting about this business is, yes, we have this project that's kicked in, but Subsequent to last quarter, we started to see the backlog build on other projects as we started the 4th quarter.

Speaker 1

So we're yes, we like what we're seeing. We like what we see evolving, and we'll talk more about that next earnings release as we go through Some of these developments that we've been working on.

Speaker 4

Thank you for taking my questions.

Operator

Thank you. Mr. Bosway, It appears we have no further questions at this time. I'd like to turn the floor back over to you for closing comments.

Speaker 1

Okay. Thank you. And thank you everyone today for joining us. Coming up, we expect to present in November at the UBS Industrials Conference as well as the BOA Clean Energy Conference and in January At the CGS Winter Conference in addition to some other market activity. So we look forward to updating you on our progress when we report our full year results.

Speaker 1

Thank you again. Have a great day. Thank you very much.

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Gibraltar Industries Q3 2023
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