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#Thanks, <UNK>.
Good morning, everyone, and thank you for joining us today.
2016 was another successful year for Gibraltar.
We achieved excellent financial results and executed well on all four pillars underpinning our strategy, and we are continuing to drive the sustainable transformation of the business.
Since we laid out our strategy two years ago, we\
Thank you, <UNK>, and good morning, everyone.
Let\
Thank you, <UNK>.
Two years ago, during our Investor Day in March 2015, we presented this slide projecting the five-year path of financial improvement using the dotted and solid lines that we could deliver, based on the combination of actions resulting from each of the four pillars of our strategy.
On slide 9, we\
Well this is <UNK>.
I'll start on that multi-part question, <UNK>.
To start with, we finished very strong in the segment and for the full year 2016 it was a 17% operating margin, well above what we had imagined, but still in line where we were at the end of the first three quarters of 2016.
So that high performance certainly extended through the full year.
And what we expect in our 2017 guidance for this segment is going to be in the neighborhood of 15% operating margins.
So we're not anticipating a meaningful sharing of those gains as we try to accelerate the top-line growth.
So it's still going to be a high performing unit inside Gibraltar, just not the outsized proportions that it had in last year.
Does that help at least one part of your question.
Well let me put a little finer point on the 15% statistic.
Only 5 percentage points of those 15 percentage points are attributable to RBI's top-line change this quarter a year ago.
So the vast majority of the balance, the vast majority of the 15% is coming from product lines that we've exited, that we had reported sales in the year-ago's first quarter.
So that's a strong fine point that I'd like us all to appreciate.
Let me give some context.
I think <UNK> did a good job around discerning the difference in the numbers, and the materiality of some of the portfolio issues that create some tough comparables for the first quarter versus the prior year.
And also, at the end of the day, you're right, the one core operating component ongoing that shows the shift in revenue is tied to the Renewable Energy piece which is the most significant acquisition we've made.
So, let me start first and foremost, the market dynamic out there hasn't changed.
There's still a market that's going to grow today and long term based on our original research that we continue to validate that is going to have a 9% to 10% CAGR.
So, we have no reservations that if we buy into the right space and do we have a belief that renewable energy and specifically solar is going to continue to play an ever-increasing role, regardless of policy and shifts in tax credits.
So that's our opening on this.
So now it's a question of how are we affected in ---+ from quarter to quarter ---+ activity relative to the market dynamics as it relates to policies, procedures, and the related tax credits.
So as we commented in the last quarter, we expected underperformance in this segment relative to its prior-year comparable 2015 where there was a forecasted end of the ITC tax credit, and there was a material drag forward of business into that fourth quarter 2015, that we expected would create a very defined and a material disadvantage from a comparable on a year-over-year basis.
That didn't materialize to the extent that we expected, and as a result we got closer.
We had a better fourth quarter in 2016 than we expected, and that was primarily driven by an overperformance in our RBI Renewable Energy segment.
What also happened though was half of that, approximately, lagged of restarting of projects.
It created a window of a lag that stretched from half the materiality in the fourth quarter of 2016 to drift into the first quarter of 2017.
So I would say that's a very material aspect of the downturn and short term in terms of our backlog.
The pricing reference is during the same period in 2016, when we used to ---+ we bought a private business that used to have a philosophy of pretty much competing and wanting to win on just about every job in their ground mount space.
And we thought, in addition to all the cost improvements in terms of the investments, the rolling out of new systems, the resourcing of raw material in a more cost-effective way as well as freight management, that we wanted to refocus the core talent in our organization through projects that we really thought leveraged our higher-value value proposition.
So, we've tempered the top line a little bit so that we didn't stretch out into less predictable aspects of our value proposition in terms of its delivery.
So what we're doing now, if you look ---+ and I'm going to turn it back to <UNK> because he's going to talk about backlog and what we see in a real quantifiable way coming out of the fourth quarter into the first month January, and then subsequently the balance of the quarter and going forward.
And to be quite honest, it's a very short-term issue for us.
And it's less about pricing and it's more about making sure that we're focused on the right projects going forward.
And we're going to release the teams a little bit to take on more volume, now that we've got the capacity additions in house in terms of the additional roll forming equipment that we didn't have for the first two-thirds of the operating year and the back end of the year.
Despite the margin enhancement, we were really just running in some of those new roll formers and in two of the three cases in new facilities with new staff.
So there is a method to the madness, so to speak, in making sure that we're aligned in terms of our resources.
If we were going to take that new and incremental revenue opportunity, we didn't want to do it in an inefficient way that stretched our people and our equipment.
Today, I think we're coming through that.
So that's the order of events.
So, at the end of the day, and then <UNK> will speak to the rising backlog numbers that we have, we feel very confident that we're going to get back to at least the 9% to 10% CAGR that the industry provides us.
Recognizing that in ground mount which is one of the four end markets we've gone from zero share, to 22% share, to touching into 30% share with opportunities to expand into the adjacencies as well.
So no lack of confidence on our part that we're in the right space with the right company and the right team of people.
<UNK>.
And to supplement <UNK>'s points, <UNK>, our orders through the month ---+ the quarter-to-date orders thus far here in the first quarter of 2017, RBI has already booked more orders and dollar value through half of a quarter than they did in all of the fourth quarter.
And the expectation is, what they've got planned for quotes out and securing wins on projects for the balance of the quarter, they feel very confident that they're going to be back to a normalized order intake.
So we've over performed and will over perform the shortfall that we had in the orders here in the fourth quarter, and that's why we continue to believe it's going to be just a short-term one-quarter effect.
Thank, you, <UNK>.
Well we're anticipating for the full year 2017 that this segment is going to have a 15% operating margin.
And each of these next three quarters Q's 2, 3 and 4 would be favorable comparisons to its prior-year quarter as a result.
Because this is not only a return to normalized order intakes, but we've also got improvements coming from their continuing programs on their cost structure and the effects of new product launches that will be coming forth after the first quarter.
Let me draw ---+ if everybody who has got access to the presentation slides, I\
It is, but you can see the top of 2016, the 2016 chart, we've tried to normalize in arriving at base revenues, so that 8% rise is really their base revenues, RBI only, excluding Nexus.
So Nexus is going to be incremental, but we're looking ---+ RBI itself has got an 8% rise coming.
I'm just scanning one of my aides here.
We're going to continue to - actually, the short answer is, there will be margin expansion out of our Residential segment that we are expecting.
We're going to be, and now it's already at a healthy level, so its rate of expansion won't be as significant, but is still going to be climbing higher than 2016.
Industrial & Infrastructure, I'm pleased to say that we're expecting a margin expansion there.
The rate is going to be substantial because we're exiting lines that we've announced that had ---+ they were drags in 2016.
So their rate of improvement is the greatest in 2017 over last year but as it climbs to 10%.
And in Renewable Energy, I need to correct an answer that I gave to <UNK> <UNK>, but I'll do so with answering you, <UNK>.
We finished up with our [Renewable] segment at 17% for 2016, and we're planning 2017 to be at a 15% annual margin.
So after we get past the first quarter, we'll still have margin comps against 2016 that will be not as strong but we're hoping to put more money on the top line and more absolute operating income on its bottom line.
I'll start by ringing the bell on what our businesses have already done.
So as you know, there are step changes in working capital.
It's not one of these P&L sustaining year-after-year sustainment themes of cash generation sources.
And in inventory specifically, if I dialed back I think it's ---+ if I dialed back 21 months, just as we were getting underway in March of 2015 with our 80/20.
And if I adjust our inventories and took our acquisition's inventories of Nexus and RBI's inventories at the date of acquisition, and we added it to Gibraltar's inventories then and compare it to Gibraltar's inventories including Nexus and RBI at the end of December 31, 2016, our inventories are down $50 million.
On a starting base of $140 million.
I've been in accounting for a long time with manufacturers.
That's an astounding drop and source of cash in such a short period of time, but it talks to the power of 80/20 simplification.
So it's a long-winded part answer to your question.
That from inventory, I think there's likely more to go, particularly as we in line and only manufacture internally our highest-volume products.
And turn those faster and faster through higher utilization throughout the course of a manufacturing day, a week, month, and year, and we outsource the product SKUs and inventory holdings for our smaller volume products that would be produced and held by our third parties.
So I think there's more to go in inventory, but I think the lion's share of inventory, that $50 million ---+ it's gone from $140 million pro forma 21 months ago down to $90 million.
I don't think there's another $50 million coming out of inventory in the next 24 months, but I do think there is additional working capital improvement I think that we'll get out of the combined receivables payables action that will be beneficial and could further improve a source of cash, again step downs in the next couple years.
And besides that, I think we're also going to get some meaningful reductions in our fixed-asset base, which will, again, be one timers but it's outside the working capital element of sources of cash.
So a long-winded answer, there's more to come but it may not be ---+ it certainly isn't the same degree of what inventories generated for us.
And, Dan, if you step back even further and look at the in the same context the working capital, the invested capital that we're working on prior to the two acquisitions.
If I recall, the numbers in 2014 were somewhere in, total invested capital was mid $600 millions, $640 million.
At the end of the day today, I think we finished somewhere in the $530 million range, $530 million-$540 million, so were down $100 million in terms of invested capital, which includes the acquisitions being rolled in there.
So in addition to the inventory component of it, the fixed assets and all the other aspects of an acquisition whether it's intangibles and so on and so forth.
So very impressive progress in terms of making more money and using less from an invested capital to ultimately drive the kind of returns we're getting.
So is there more.
Yes, absolutely.
To <UNK>'s point, in inventory there probably isn't another $50 million, but certainly as we structurally change some of our footprints to focus on manufacturing the A items for our largest customers, and to some degree outsource some of the B items.
<UNK>l that is going to lower our inventory levels, both at raw material and the elimination of work in process, which by and large still exists, because we still to some degree make in batch-based processes by and large.
And then there is going to be a reduction in finished goods inventories on the highest new products without compromising service.
Simply because the ongoing flow through of those dedicated lines will ensure that we can react in a more timely way to the marketplace, instead of pre-building three months-worth of inventory in order to guarantee a level of service.
So the corresponding part of that is that as we focus on only making A items, we're probably not going to need the same degree of fixed assets.
So yes, I think if we dropped $50 million in inventory, which had originally the equal weight to fixed assets on our balance sheet, we probably only dropped just over $10 million in fixed assets.
So I would expect ---+ you put those two together, we're not going to total $50 million, but I would be disappointed over 2017 into 2018 that we wouldn't get half the distance again.
And that is more difficult work, it's structural work.
You've got to move equipment, you've got to train people in different methodologies.
We've got to physically connect machines, create some automation aspects to it that maybe didn't exist in the past, and then reeducate a supply line and a series of people to ensure that we've got the raw material in the right place at the right time.
So we're not done yet, but half the opportunity maybe, at over twice the period of time to get there.
Well I'll just frame it, and then maybe <UNK> can provide some details.
Certainly, the new product development areas that we're investing in is the byproduct of end-market research where we think that the markets we're targeting those new products organically to help enter are large enough and there are rising tides in terms of the types of trends that are going on in the marketplace.
And that's certainly the basis for the organic new product development is the byproduct of that end-market research.
But it is also, to your point, from a strategic accelerated perspective, if we see opportunities to get there quicker than just through organic initiatives then those are the companies we're going to buy.
<UNK>.
And tactically, on the aggregate of these new products that <UNK> noted, baked into these, that's slide 19, and our incremental base revenues in 2017 increasing, it's approximately, I think it's close to $20 million.
It's about $20 million across the sum of all those new products having an impact on our top line in 2017.
So it can certainly be a meaningful improvement from across the security perimeters, the adjacencies that were planning on for Residential and the solar segments as well.
It does include an element of the Xpress Lockers, yes, which is off to a really good start.
You're welcome.
Thanks, Walt.
Let me quickly, Walt, this is <UNK>.
Let me quickly get to slide 20, because I believe what we depict on slide 20 is cash flow from operations, and that's one of four or five categories on the cash flow statement as you understand.
In a different category of the cash flow statements, we would report cash from sales of assets.
So, for example, we put a press release out a week or so ago about our bar grating product line and selling that to a third party with an improvement in the cash positions to exit that.
That would not be reported on slide 20.
That's an approximate $10 million.
No that's the primary source.
The bar grating set of assets here in the US is of significance.
It's 20% of that segment's revenue, so the asset base that goes with it is meaningful, compared to the small German solar business that we exited.
So the lion's share of $10 million is really coming from the proceeds that we are advantaged by a successful sale of the bar grating assets.
Yes.
Walt, this is <UNK>.
Let me just frame a couple things in our bridge and elevated highway business, the D.
S Brown business.
It's an important segment for us, and we're not unlike others.
We've always been waiting for the manifestation of the Fast Act bill that would give some confidence to the individual states and the related DOT's within them to invest in longer-term projects and more structurally meaningful projects than what was going on with just one-year extensions.
And certainly D.
S Brown revenue base and skill sets relate to the larger more complicated projects of bridges and elevated highways.
So in that downturn of short-term extensions, we went through a series of downsizings and operational initiatives through the 80/20 process to ensure that we aligned our cost base and our ability to serve our customers proportionately.
So we get a Fast Act bill that comes out and everybody has high expectations that within a 6 month to a 12 month period of time, that money was going to quickly flow into those larger, more complicated structural projects.
And ultimately that would start to show up in elevated bidding activities and release projects, and ultimately 12 months down the road because there longer cycle projects, we'd start to see that in the following year.
A year ago, we would've expected all that to start to flow in a meaningful way in terms of top-line revenue in 2017.
And I think across the board and it's not unique to us, the inability of the states to match the federal dollars within the fast act I think has created some problems in terms of the expectations.
Because a lot of these states have other priorities relative to balancing their budgets and providing services to their individual residents.
So I think in effect, it's been the implementation and the value of that money has been pushed out a year.
We're certainly starting to see an elevated bid activity.
We're certainly starting to win more of those bids.
And we expect at the back end of this year to start to see some meaningful revenue opportunities flow out of that.
But I think in the end, through our planning process and what our people know, it appears that the materiality of it is really going to start to show up in 2018.
With a pleasant surprise that may or may not occur, depending on some of the business in the back end of the year over and above our current planning.
<UNK>, do you want to add any color to that.
No, I thought <UNK> gave the right answer.
I didn't have anything additional to add.
Well I haven't retallied it, but it's going to be quite small.
For that segment, let's say they've got $200 million of revenue on our $1 billion of consolidated revenue.
I don't know maybe, it's I'm going to guess it's $10 million at the most.
Well I think it's a lot.
It's a big number, it's an ample number.
In one of <UNK>'s slides that I'm having a tough time with my lousy fingers here to find, but one of the slides we had this morning talked about accelerating our strategic growth opportunities, slide 14.
So on 14 we penciled out our current cash balance, plus our availability on current credit facilities, and what we think they could be at the end of 2017 if we didn't have any M&A activity.
So it's essentially a $500 million amount of money with existing facilities.
So it's a lot to go after, hopefully meaningfully sized, more meaningfully sized prospects this year that we can successfully close.
And I think we had the balance sheet and EBITDA performance, platform and runway, that if we needed additional resources we could get into those without over leveraging the Company.
So hopefully 14, the numbers on it, slide 14, helped frame an answer for you, <UNK>.
About $500 million, of which $200 million is cash.
I'll take the first question.
One of the things ---+ we've certainly continued to prospect in all the markets we identified, and we track about 70 different companies.
And on a given day, that gets narrowed down into the 20, 25 range, and then we're constantly reviewing a short list of 4 or 5 and we're always in some form of discussions with the hope that one is going to get through the filter for all the right reasons.
In addition to that process, and that's where we stand today.
In addition to that process, <UNK> and I, just by the nature of the improvements in our balance sheet from when we started a couple years ago, which to some degree was limiting, but even within those limits we were able to execute on RBI which has turned out very nicely for us in a variety of ways.
We're now in a position to look at companies instead of $25 million of EBITDA and below as part of our filter, we're now in a position to be able to look $50 million into towards $100 million.
We've never really set our sights on those types of targets in the past, either with ourselves or working with third-party banking organizations as partners.
And over the last couple months, we've certainly started that process and that has opened up a whole other series of candidates for us that would be more material in size.
Not to suggest that we just want to do one big deal, but we're not ---+ we wouldn't be hesitant to do it.
Doing a couple deals that total up to those numbers would also be ---+ and being able to check a couple boxes in one or two or three of the target end markets would also fall in line.
So it's our expectation and our desire to be able to work through some meaningful prospect in the first half of the year, so that we can start working on the onboarding process throughout the balance of the year and ultimately get a full-year benefit in 2018.
We're confident we can do that, and that's where we spend most of our time.
And on your question, <UNK>, about share repurchase.
It just so happens that in our most recent Board meeting, which happened to be 24 hours ago, at which we gave an updated view of our book financial plan for 2017, in the context of our LRP report out to them in the fall.
This very topic came up around using our liquidity, continuing to fund the growth particularly with meaningful M&A to, as <UNK> described, and using a substantial portion of that liquidity on the right strategic acquisition and further solidify the markets that the Company participates in.
That said, with that being our first priority for capital allocation, it's going to be a continuing question by our Directors of the Company led by <UNK>'s recommendations on how do we use our resources.
And particularly, what would be the timing and what would be the form of other uses of capital back to shareholders, including share repurchases or other means.
So it is a very recent conversation again by the Board, and its among their top-of-mind items as we continue to ---+ as they continue to monitor our performance and engage with <UNK> and the Leadership Team on how the Company is performing and filling out its ambitions on this five-year transformation.
So no decisions yet, I guess is the punchline of my second answer here for share purchases.
But it is top of mind.
Just to close that topic out, Walt, certainly not only is it top of mind, we're conscious about making progress on an acquisition perspective.
We think that's the most meaningful and most valuable way we can use shareholder's money from a long-term sustainability perspective in terms of guaranteeing returns.
That being said, there certainly... we'll be at a crossroads towards the end of 2017 if we haven't been able to accomplish that.
To <UNK>'s point, we'd certainly reflect hard on whether or not we'd want to go into 2018 without providing other opportunities for shareholders, in terms of the other alternatives he highlighted.
Thank you, everyone, for joining us today and this concludes our call.
Talk to you soon.
