GIBRALTAR INDUSTRIES, INC. 10-Q

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. 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 use certain operating performance measures, specifically consolidated gross margin, operating margin by segment and consolidated operating margin, to manage our businesses, set operational goals, and establish performance targets for incentive compensation for our employees. We define consolidated gross margin as a percentage of total consolidated gross profit to total consolidated net sales. We define operating margin by segment as a percentage of total income from operations by segment to total net sales by segment and consolidated operating margin as a percentage of total consolidated income from operations to total consolidated net sales. We believe consolidated gross margin, operating margin and consolidated operating margin may be useful to investors in evaluating the profitability of our segments and Company on a consolidated basis. Overview Gibraltar Industries, Inc. (the "Company") is a leading manufacturer and provider of products and services for the renewable energy, 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, we operated 36 facilities, comprised of 26 manufacturing facilities, two distribution centers, and eight offices, which are located in 15 states, Canada, China, and Japan. Our operational infrastructure provides the necessary scale to support regional and national customers in each of our markets. 23 Table of Contents Recent Trends The broader market dynamics over the past two years, which have included the impact of COVID-19, have resulted in impacts to our company, including material cost inflation, labor availability issues and logistics costs increases. We have also been impacted from supply constraints for materials and commodities used in our operations and used by our customers in conjunction with the goods and services we provide. In certain instances these constraints have resulted in project delays, cost inflation and logistical delays. We continue to work with our 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 expect these supply chain and labor availability pressures along with the impact of inflation on material cost, labor and logistics will continue throughout 2022. 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 of solar panels are being held at U.S. customs until the importer is able to prove where they have been sourced, and it is our understanding that these panels have not yet been released by U.S. customs. 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 to 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% available if the new labor standards are met or the project is less than one megawatt. 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 are Manufacturers Tax Credits available to suppliers of certain, specific solar tracker components, including mechanical parts and battery storage, that are made in the U.S. We expect the ITC to accrue to our downstream customers, solar investors, and expect Manufacturers Tax Credits to accrue to the Company's upstream suppliers. Both tax credits 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, we will work with our customers to maximize the tax credits available to them. Business Strategy The Company's mission is to create compounding and sustainable value for our 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 System is a critical enabler to grow, scale, and deliver our plans. Our 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. Our Business System challenges existing paradigms, drives day-to-day performance, forces prioritization of resources, tests our business models, and brings focus to 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 ensuring our financial capital and human resources are effectively and efficiently deployed to deliver sustainable, profitable growth while increasing our relevance with customers and 24 Table of Contents shaping our markets. For a description of recent portfolio management activities, see the actions described below in the Recent Developments section. 3. Organization Development drives the Company’s continuous focus on ensuring we have 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 our place of work the "Best Place to Work", where we focus 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 believe doing so helps us attract and retain the best people so we can execute our business plans. We believe the key elements of our strategy have, and will continue to, enable us to respond timely to changes in the end markets we serve, including the broader market dynamics experienced over the past two years. We have and expect to continue to examine the need for restructuring of our operations, including consolidation of facilities, reducing overhead costs, curtailing investments in working capital, and managing our business to generate incremental cash. We believe our strategy enables us to respond to volatility in commodity and other input costs and fluctuations in customer demand, along with striving to maintain and improve margins. We have used cash flows generated by these initiatives to minimize debt, improve our liquidity position, invest in growth initiatives and return capital to our shareholders through share repurchases. Overall, we continue to strive to achieve stronger financial results, make more efficient use of capital, and deliver higher stockholder returns. Recent Developments On August 22, 2022, the Company purchased all the issued and outstanding membership interest 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. The acquisition 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, the Company has repurchased 1,333,453 shares for an aggregate price of $55.5 million under this repurchase program. During the first quarter of 2022, the Company committed to a plan to sell its processing equipment business, which is a business within the Company's Agtech reportable segment, as a result of its portfolio management strategy in order to focus its resources on the higher growth and more profitable growing business within the Agtech segment. The processing equipment business was classified as held for sale as of March 31, 2022 and remains under such classification as of September 30, 2022. 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, 2022 Compared to the Three Months Ended September 30, 2021 The following table sets forth selected results of operations data and its percentage of net sales for the three months ended September 30 (in thousands): 25 Table of Contents 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 % The following table sets forth the Company’s net sales by reportable segment for the three months ended September 30, (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 Consolidated net sales increased by $21.9 million, or 5.9%, to $391.3 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The 5.9% increase in revenue was driven by a 3.2% or $12.0 million increase in organic revenue and 3.1% increase or $11.5 million generated from the acquisition of QAP, acquired in the third quarter of 2022 and reported as part of our 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% to $358 million down from $385 million at the end of the prior year quarter. Net sales in our Renewables segment decreased $19.0 million, or 14.7%, to $111.1 million for the three months ended September 30, 2022 compared to $130.2 million for the three months ended September 30, 2021. Revenue decreased in line with our expectations during the quarter 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 anti-dumping / countervailing duties ("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. 26 Table of Contents Net sales in our Residential segment increased 25.7%, or $44.0 million, to $215.6 million for the three months ended September 30, 2022 compared to $171.5 million for the three months ended September 30, 2021. The increase from the prior year quarter, the ninth consecutive quarter of double-digit growth, was driven by price management, participation gains and market demand. Sales generated from QAP, acquired in the third quarter of 2022, also contributed $11.5 million or 6.7% to the increase. Net sales in our Agtech segment decreased 9.8%, or $4.8 million, to $44.2 million for the three months ended September 30, 2022 compared to $49.0 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, revenue declined in our produce and cannabis businesses as projects shifted into the fourth quarter and 2023, the result of continued licensing and permit delays. The commercial greenhouse business was relatively flat compared to the prior year quarter. While quote activity remains robust, backlog decreased 7% year over year. Net sales in our Infrastructure segment increased 9.1%, or $1.7 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. The increase in revenue was due to solid market demand for non-fabricated products, and timing of project work. The business has strong bidding activity which resulted in an 11% increase in backlog year over year. Management expects continued positive impact from 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 24.2% for the three months ended September 30, 2022 compared to 22.5% for the three months ended September 30, 2021. The increase was largely the result of favorable price / cost management, business mix, and improved operating execution from lean enterprise initiatives, along with the impact of participation gains in our residential segment. Selling, general, and administrative ("SG&A") expenses increased by $1.9 million, or 4.2% to $47.2 million for the three months ended September 30, 2022 compared to $45.3 million for the three months ended September 30, 2021. The $1.9 million increase was the net 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 lower 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 Despite the above increases, SG&A expenses as a percentage of net sales modestly decreased to 12.1% for the three months ended September 30, 2022 compared to 12.2% for the three months ended September 30, 2021. 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, (in thousands): Impact of 2022 2021 Total Change Portfolio Management Ongoing Operations Income from operations: Renewables $ 14,216 12.8 % $ 12,206 9.4 % $ 2,010 $ — $ 2,010 Residential 35,802 16.6 % 29,482 17.2 % 6,320 — 6,320 Agtech 3,777 8.5 % 2,227 4.5 % 1,550 906 644 Infrastructure 2,572 12.6 % 1,640 8.8 % 932 — 932 Unallocated Corporate Expenses (8,971) (2.3) % (7,577) (2.1) % (1,394) — (1,394) Consolidated income from operations $ 47,396 12.1 % $ 37,978 10.3 % $ 9,418 $ 906 $ 8,512 The Renewables segment generated an operating margin of 12.8% in the current year quarter compared to 9.4% 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. During 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. 27 Table of Contents The Residential segment generated an operating margin of 16.6% in the current year quarter compared to 17.2% in the prior year quarter. While operating profit increased $6.3 million as compared to the prior year quarter, margin decreased due to the anticipated lower margins from our recent acquisition of QAP. We expect QAP margins to improve as we continue to integrate it operationally through 80/20 initiatives. Our Agtech segment generated an operating margin of 8.5% in the current year quarter compared to 4.5% in the prior year quarter. Operating margin improved year over year, the result of business mix, price / cost management, supply chain improvement and 80/20 initiatives. Our Infrastructure segment generated an operating margin of 12.6% during the three months ended September 30, 2022 compared to 8.8% during the three months ended September 30, 2021. The margin improved year over year driven by favorable alignment of material costs to pricing, volume leverage, positive mix and improved operating execution. Unallocated corporate expenses increased $1.4 million from $7.6 million during the three months ended September 30, 2021 to $9.0 million during the three months ended September 30, 2022. 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 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 quarter. Interest expense increased year over year with $1.0 million for the three months ended September 30, 2022 compared to $0.5 million for the three months ended September 30, 2021. The increase in expense was due to both 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 million and $59.7 million as of September 30, 2022, and 2021, respectively. The Company recorded other expense of $0.4 million for the three months ended September 30, 2022, compared to the $0.1 million recorded for the three months ended September 30, 2021. The increase in expense from the prior year quarter was primarily the result of foreign currency translation fluctuations. We recognized a provision for income taxes of $11.7 million and $9.6 million, with effective tax rates of 25.4% and 25.6% for the three months ended September 30, 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. 28 Table of Contents 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 Residential 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 29 Table of Contents 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 30 Table of Contents 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. Liquidity and Capital Resources The following table sets forth our liquidity position as of: (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 31 Table of Contents Sources of Liquidity We believe that our cash on hand and available borrowing capacity provided under our Sixth Amended and Restated Credit Agreement (the "Senior Credit Agreement") provide us with ample liquidity and capital resources to invest in key business strategies that drive our mission. We have 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 our strategy. We continue to remain focused on managing our working capital, closely monitoring customer credit and collection activities, and working to extend payment terms. We believe our 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 Senior Credit Agreement to provide liquidity and capital resources primarily for our U.S. operations. Historically, our foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements. As of September 30, 2022, our foreign subsidiaries held $15.7 million of cash. Outstanding balances on our revolving credit facility under our Senior Credit Agreement accrue interest at a rate based on LIBOR plus an additional margin. We do not expect a material change in interest expense as a result of transitioning from a LIBOR rate to a new reference 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 . Uses of Cash / Cash Requirements Our 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 our revolving credit facility, capital expenditures, and other purchase obligations originating in the normal course of business for inventory purchase orders and contractual service agreements. Our principal capital requirements are to fund our operations' working capital and capital improvements, to provide capital for acquisitions and to strategically allocate capital through repurchases of Company stock. We 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 our business. We intend to fund our cash requirements through cash generated from operations and, as necessary, from the availability on our 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, the Company has repurchased 1,333,453 shares for an aggregate price of $55.5 million under this repurchase program. During 2020, we opted to defer remittance of 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. Over the long-term, we expect that future investments, including strategic business opportunities such as acquisitions, may be financed through a number of sources, including internally available cash, availability under our Senior 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. All potential acquisitions are evaluated based on our acquisition strategy, which includes the enhancement of our existing products, operations, or capabilities, expanding our access to new products, markets, and customers, with the goal of creating compounding and sustainable stockholder value. 32 Table of Contents 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 expected levels, or sources of financing are not available or not available at acceptable terms, our future liquidity may be adversely affected. Except as disclosed above, there have been no material changes in our cash requirements since December 31, 2021, the end of fiscal year 2021. See Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021. Cash Flows The following table sets forth selected cash flow data for the nine months ended September 30, (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) Operating Activities Net cash provided by operating activities of continuing operations for the nine months ended September 30, 2022 of $38.6 million consisted of income from continuing operations of $79.1 million and non-cash net charges totaling $30.3 million, which include depreciation, amortization, stock-based compensation, exit activity costs and other non-cash charges, offset by a $70.8 million investment in working capital and other net assets. The investment in working capital and other net assets was due to increases in accounts receivable and inventory, largely 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. A 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 increases in manufacturing activity. Investing Activities Net cash used in investing activities of continuing operations for the nine months ended September 30, 2022 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 million was primarily due to $38.1 million in net proceeds received from the sale of the Company's Industrial business and receipt of the $4.1 million final working capital settlement resulting from the 2020 acquisition of TerraSmart, offset by capital expenditures of $13.3 million. 33 Table of Contents Financing Activities Net cash provided by financing activities of continuing operations for the nine months ended September 30, 2022 of $39.7 million was the result of $197.8 million in proceeds from borrowing on our long-term credit facility, offset by $100.0 million in payments on long-term debt and $58.1 million of common stock repurchases. Share repurchases of 1,333,453 under the Company’s recently authorized share repurchase program totaled $55.5 million with the balance repurchased for the net settlement of tax obligations for participants in the Company's equity incentive plans. Net cash used in financing activities of continuing operations for the nine months ended September 30, 2021 of $30.3 million was primarily the result of $83.6 million in payments on long-term debt and $6.2 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. Critical Accounting Estimates There have been no material changes to our critical accounting estimates during the nine months ended September 30, 2022 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. 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.