What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-02 · 110 added, 120 removed, 180 unchanged (56% of the section changed)

13 unchanged sentences

The Company defines operating margin by segment as a percentage of total income from operations by segment to total net sales by segment and consolidated operating margin as a percentage of total consolidated income from operations to total consolidated net sales.

The Company believes consolidated gross margin, operating margin and consolidated operating margin may be useful to investors in evaluating the profitability of the Company's segments and the Company on a consolidated basis.

The Company believes consolidated gross margin and operating margin by segment may be useful to investors in evaluating the profitability of the Company's segments and the Company on a consolidated basis.

Gibraltar Industries, Inc.

5 unchanged sentences

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 June 30, 2023, the Company operated 30 facilities, comprised of 22 manufacturing facilities, one distribution center, and seven offices, which are located in 15 states, Canada, China, and Japan.

At September 30, 2023, the Company operated 31 facilities, comprised of 23 manufacturing facilities, one distribution center, and seven offices, which are located in 16 states, Canada, China, and Japan.

The Company's operational infrastructure provides the necessary scale to support regional and national customers in each of the Company's markets.

Recent Trends

The broader market dynamics over the past few years have resulted in impacts to the Company.

Supply chains continue to recover from global disruptions experienced over the last few year including shortages of solar modules used by the Company's customers in conjunction with the goods and services the Company provides and for which

such shortages have resulted in project delays.

We continue working to minimize supply chain challenges which have and may continue to adversely impact our performance and our financial results.

In addition, the uncertainty of the current environment and potential worsening of macro-economic conditions present risks for the Company.

Although such uncertainty did not significantly impact our financial results in the first half of 2023, the Company expects that some of these dynamics, along with higher interest rates, will continue in 2023.

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.

This has caused solar panels to be held at the border awaiting a determination that the panels do not contain components from Xinjiang.

While a few of the historically significant suppliers have begun to have panels cleared for importation, the clearance is still on a shipment-by-shipment basis, and formal documentation requirements have not yet been published.

Some of the Company's larger customers have continued to shift sourcing to modules manufactured outside of the typical southeast Asia manufacturers in efforts to clear U.S.

customs more efficiently and ramp up the execution of solar projects.

In December 2022, the U.S.

Department of Commerce ("USDOC") announced its preliminary ruling regarding the circumvention of antidumping and countervailing duties (“AD/CVD”) on Chinese imports of solar panels produced in four other countries in Southeast Asia.

Four of eight major manufacturers across the four countries investigated were found to have been circumventing the AD/CVD orders.

The findings are preliminary and further investigation is occurring with a final determination scheduled for August 17, 2023.

Independent of the DOC’s final determination, the Presidential Proclamation issued in June 2022 provides that duties will not be collected on the imports from the impacted countries until June 2024.

This provides U.S.

solar importers time to adjust supply chains to ensure compliance with U.S.

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.

The uncertainty of the current macro-economic environment, including shifting inflation and higher interest rates, along with trade related disruptions that continue to impact the supply of solar modules used by the Company’s customers, have impacted and may continue to adversely impact our performance and financial results.

the disruption in the supply of solar modules is improving, our customers are being challenged to obtain permits from relevant government entities to build new solar fields and the Company does expect that these aforementioned dynamics will continue in the remainder of 2023.

While the Company does not sell or import solar modules, the goods and services the Company provides for its customers depend upon the supply of solar modules for which such shortages have resulted in project delays over the past two years.

The supply has been primarily impacted by two regulatory items:

the Uyghur Forced Labor Prevention Act ("UFLPA") which was enacted in June 2022, and the circumvention of anti-dumping and countervailing duties (“AD/CVD”) investigation launched by the U.S.

Department of Commerce ("USDOC") in March 2022, against eight solar module manufacturers producing in four countries in Southeast Asia.

The UFLPA requires traceability of components of imported goods to validate components are not sourced from the Xinjiang province in China.

This requirement has caused delays in module availability as module manufacturers must follow a stringent importation process with the U.S.

Custom and Border Protection Agency.

While a few of the larger module manufacturers are experiencing more consistent success with the importation process, other module suppliers need to make further progress with UFLPA and the importation process.

The UFLPA continues to create a compliance burden and constrain supply of imported solar modules, but the Company expects continual improvement of supply as more module manufacturers move forward on the learning curve.

As a result of the USDOC’s AD/CVD investigation, and until the final ruling from the USDOC was announced in August 2023, projects were delayed due to the risk of retroactive tariffs being imposed on the import of solar modules produced in four countries in Southeast Asia, where Chinese manufacturers have operations.

In addition, of the eight major manufacturers under investigation, five were found to have been circumventing the AD/CVD orders.

In parallel to the USDOC investigation, on June 6, 2022, an emergency Presidential Proclamation was issued delaying the imposition of duties on imports from the impacted countries until June 6, 2024.

This proclamation provides non-U.S.

based module manufacturers time to modify and secure supply chains to ensure compliance with U.S.

On August 16, 2022, the Inflation Reduction Act ("IRA") was signed into law.

Among other things, the IRA provides for Investment Tax Credits ("ITC") for renewable energy.

The IRA provides a 30% ITC for projects started prior January 29, 2023.

Projects started on or after this date have the opportunity to claim the 30% rate only if the project is less than one megawatt or adheres to the new prevailing wage and apprenticeship requirements.

Otherwise, these projects will default to a base rate of 6%.

The IRA also provides the option to earn an additional 10% credit for domestic content, and separately, an additional 10% credit for siting a project in an “energy community.” Lastly, under the IRA, Manufacturers Tax Credits ("MTC") that support clean energy manufacturing were established and expanded, and are available to suppliers of certain, specific solar tracker components, including mechanical parts and battery storage, that are made in the U.S.

Final guidance is pending and expected to be issued by the Department of Treasury over the course of 2023 for the domestic content, energy community, and MTC credits.

The Company believes that these enhanced tax credits under the IRA will provide long-term certainty for the industry and should reduce policy driven demand swings for our products.

We will work with our customers to maximize the tax credits available to them.

Among other things, the IRA provides for a variety of enhanced Investment Tax Credits ("ITC") and Production Tax Credits for renewable energy subject to specific dates and requirements.

Although the Company believes the IRA should assist in driving growth in the renewable energy industry, it is important that the Department of Treasury finalize rules governing the execution of additional investment tax incentives so industry and the Company's customers can move forward with projects currently on hold.

Overall, the Company believes the enhanced tax credits under the IRA will provide long-term certainty for the industry and support consistent and accelerating demand for our products.

The Company will work with its customers to optimize the various ITCs as the final rules are defined and implemented.

Business Strategy

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Portfolio Management is focused on optimizing the Company’s business portfolio in higher growth markets with leadership positions while ensuring its financial capital and human resources are effectively and efficiently deployed to deliver sustainable, profitable growth while increasing its relevance with customers and shaping its markets.

Recent acquisitions to help achieve these objectives include the assets of a small privately held manufacturing and distributing company of roof flashing and accessory products in July 2023 and Quality Aluminum Products ("QAP") in 2022, both within the Residential segment.

Recent acquisitions to help achieve these objectives include the assets of a small privately held manufacturing and distributing company of roof flashing and accessory products in July 2023

and Quality Aluminum Products ("QAP") in 2022, both within the Residential segment.

To further these objectives, the Company made the decision in 2022 to divest its non-core Processing business and is currently in the final stages of liquidation of this business.

9 unchanged sentences

Recent Developments

On July 5, 2023, the Company acquired the assets of a Utah based privately held company that manufactures and distributes roof flashing and accessory products, for $10.4 million.

On July 5, 2023, the Company acquired the assets of a privately held Utah based company that manufactures and distributes roof flashing and accessory products for $10.4 million.

On December 8, 2022, the Company entered into a Credit Agreement (the "Credit Agreement"), and concurrently with entering into the Credit Agreement, the Company paid off all amounts owed under the Sixth Amended and Restated Credit Agreement dated as of January 24, 2019, which was terminated with no prepayment penalties.

2 unchanged sentences

The Credit Agreement contains two financial covenants.

As of June 30, 2023, the Company was in compliance with both financial covenants.

As of September 30, 2023, the Company was in compliance with both financial covenants.

The Credit Agreement terminates on December 8, 2027.

On August 22, 2022, the Company purchased all the issued and outstanding membership interests of Quality Aluminum Products ("QAP"), a manufacturer of soffit, fascia, trim coil, rain carrying products and aluminum siding for an aggregate purchase price of $52.1 million.

On August 22, 2022, the Company purchased all the issued and outstanding membership interests of QAP, a manufacturer of soffit, fascia, trim coil, rain carrying products and aluminum siding for an aggregate purchase price of $52.1 million.

The acquisition of QAP was financed primarily through borrowings under the Company's revolving credit facility.

5 unchanged sentences

The repurchase program may be suspended or discontinued at any time at the Company's discretion.

As of June 30, 2023, the Company has repurchased 2,518,941 shares for an aggregate price of $111.0 million under this repurchase program.

As of September 30, 2023, the Company has repurchased 2,518,941 shares for an aggregate price of $111.0 million under this repurchase program.

Results of Operations

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

The following table sets forth selected results of operations data and its percentage of net sales for the three months ended June 30 (in thousands):

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

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):

Net sales $ 390,744 100.0 % $ 391,291 100.0 %

8 unchanged sentences

Net income $ 39,277 10.1 % $ 34,295 8.8 %

The following table sets forth the Company’s net sales by reportable segment for the three months ended June 30, (in thousands):

The following table sets forth the Company’s net sales by reportable segment for the three months ended September 30, (in thousands):

2023 2022 Total

5 unchanged sentences

Consolidated $ 390,744 $ 391,291 $ (547) $ 18,880 $ (1,546) $ (17,881)

Consolidated net sales decreased by $2.0 million, or 0.5%, to $364.9 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

The net sales decrease was largely due to a $25.6 million or 7.0% decrease in organic revenue, the net result of a 8% volume decline and a 1% increase in pricing to customers, essentially offset by $25.6 million of revenues generated from QAP, which was acquired during the third quarter of 2022 and reported as part of the Company's Residential segment.

Consolidated backlog remained flat at $411 million, as compared to the end of the prior year quarter.

Net sales in the Company's Renewables segment decreased $24.1 million, or 23.6%, to $77.5 million for the three months ended June 30, 2023 compared to $101.5 million for the three months ended June 30, 2022.

Revenue declined as a result of the continued lower demand for solar module installations impacted by importation challenges resulting from the UFLPA implemented in June 2022, along with timing delays experienced by new projects due to lengthier permitting processes.

New order bookings continued to accelerate during the quarter and backlog increased 6% from the prior year, as customers and solar module importers gain a better understanding of documentary compliance requirements relative to the UFLPA.

Net sales in the Company's Residential segment increased $28.0 million, or 14.0%, to $228.2 million for the three months ended June 30, 2023 compared to $200.2 million for the three months ended June 30, 2022.

Sales of $25.6 million generated by QAP, acquired in the third quarter of 2022, along with the positive impact of participation gains offset the year over year impact of market price adjustments made in prior quarters in response to lower commodity prices and some remaining channel inventory right-sizing.

Net sales in the Company's Agtech segment decreased 19.9%, or $8.7 million, to $35.0 million for the three months ended June 30, 2023 compared to $43.7 million for the three months ended June 30, 2022.

Revenue declined as the commercial business experienced customer-driven delays in project starts.

While backlog decreased 24% year

over year, primarily because of a slower commercial end market, the Company expects new produce projects to drive improved revenue in the second half of 2023.

Net sales in the Company's Infrastructure segment increased 12.6%, or $2.7 million, to $24.2 million for the three months ended June 30, 2023 compared to $21.5 million for the three months ended June 30, 2022.

The increase in revenue was due to continued solid market demand supported by the Infrastructure Investment and Jobs Act and ongoing efforts to increase market participation.

Consolidated net sales were essentially flat at $390.7 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Revenue of $18.9 million generated from recent acquisitions in the Residential segment was essentially offset by a $17.9 million or 5.0% decrease in organic revenue, the result of a 4% volume decline along with a 1% decrease in pricing to customers due to price management initiatives.

Consolidated backlog increased 5% to $375 million, as compared to the end of the prior year quarter.

Net sales in the Company's Renewables segment decreased $4.8 million, or 4.2%, to $106.4 million for the three months ended September 30, 2023 compared to $111.1 million for the three months ended September 30, 2022.

Revenue declined as module supply, local permitting delays and pending guidance on final IRA tax credit guidelines delayed the timing of contracted and active projects.

Module imports have declined as a result of continued, yet improving, importation challenges resulting from the UFLPA implemented in June 2022.

New order bookings remained robust as backlog increased 13% from the prior year, as customers and solar module importers gain a better understanding of documentary compliance requirements relative to the UFLPA.

Net sales in the Company's Residential segment increased $12.2 million, or 5.6%, to $227.7 million for the three months ended September 30, 2023 compared to $215.6 million for the three months ended September 30, 2022.

Sales of $18.9 million generated from recent acquisitions along with the positive impact of participation gains and expanded market presence offset the year over year impact of market price adjustments in response to lower commodity prices and 80/20 initiatives targeting less attractive product lines.

Net sales in the Company's Agtech segment decreased 28.3%, or $12.6 million, to $31.7 million for the three months ended September 30, 2023 compared to $44.2 million for the three months ended September 30, 2022.

The revenue decline was driven by timing of new project construction shifting from the third quarter to the fourth

quarter, partially offset by new project construction activity commencing at the end of the quarter.

Backlog decreased 6% year over year.

Net sales in the Company's Infrastructure segment increased 22.5%, or $4.6 million, to $25.0 million for the three months ended September 30, 2023 compared to $20.4 million for the three months ended September 30, 2022.

The increase in revenue was due to strong end market demand and ongoing efforts to increase market participation.

Backlog also benefited from these efforts resulting in a 6% increase year over year.

The Company's consolidated gross margin increased to 26.5% for the three months ended June 30, 2023 compared to 24.6% for the three months ended June 30, 2022.

The increase was driven by improved price to material cost alignment, solid execution in field operations and continued operational efficiencies, along with favorable business and product mix.

Selling, general, and administrative ("SG&A") expenses increased by $3.5 million, or 7.0% to $53.7 million for the three months ended June 30, 2023 compared to $50.1 million for the three months ended June 30, 2022.

The Company's consolidated gross margin increased to 27.0% for the three months ended September 30, 2023 compared to 24.2% for the three months ended September 30, 2022.

The increase was driven by improved price to material cost alignment, solid execution in field operations and continued operational efficiencies, along with 80/20 initiatives and favorable business and product mix.

Selling, general, and administrative ("SG&A") expenses increased by $5.0 million, or 10.7% to $52.2 million for the three months ended September 30, 2023 compared to $47.2 million for the three months ended September 30, 2022.

The $5.0 million increase was primarily due to higher performance-based compensation expense as compared to the prior year quarter.

SG&A expenses as a percentage of net sales increased to 14.7% for the three months ended June 30, 2023 compared to 13.7% for the three months ended June 30, 2022.

The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the three months ended June 30, (in thousands):

SG&A expenses as a percentage of net sales increased to 13.4% for the three months ended September 30, 2023 compared to 12.1% for the three months ended September 30, 2022.

The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the three months ended September 30, (in thousands):

2023 2022 Total

Change Portfolio Management Ongoing Operations

Income from operations:

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The Renewables segment generated an operating margin of 12.1% in the current year quarter compared to 12.8% in the prior year quarter.

The increase in operating margin was driven by field operations efficiencies, favorable price to cost alignment and improved supply chain management that offset lower volumes and restructuring charges incurred in the current year quarter.

The decrease in operating margin was a result of restructuring charges incurred in the current year quarter related to addressing customer issues arising from the discontinued legacy solar tracker solution, largely offset by favorable price to cost alignment and field operations efficiencies.

The Residential segment generated an operating margin of 18.5% in the current year quarter compared to 16.6% in the prior year quarter.

1 unchanged sentence

The Agtech segment generated an operating margin of 6.7% in the current year quarter compared to 8.5% in the prior year quarter.

Operating margin declined year over year, due to portfolio management charges related to the liquidation of the processing business recorded in the current quarter, partially offset by 80/20 initiatives, supply chain optimization initiatives, and improvement in project management systems.

The Infrastructure segment generated an operating margin of 24.1% during the three months ended June 30, 2023 compared to 13.4% during the three months ended June 30, 2022.

The margin improved year over year driven by strong operating execution, 80/20 productivity, supply chain efficiency, and product line mix.

Unallocated corporate expenses increased $4.7 million from $6.8 million during the three months ended June 30, 2022 to $11.5 million during the three months ended June 30, 2023.

Operating margin declined year over year due to less favorable price to cost alignment, volume deleverage and product mix, partially offset by 80/20 initiatives.

The Infrastructure segment generated an operating margin of 25.6% during the three months ended September 30, 2023 compared to 12.6% during the three months ended September 30, 2022.

The margin improved year over year driven by strong operating execution, strategic pricing, 80/20 productivity, supply chain productivity and favorable product line mix.

Unallocated corporate expenses increased $1.4 million from $9.0 million during the three months ended September 30, 2022 to $10.4 million during the three months ended September 30, 2023.

The increase in expense was primarily the result of higher performance-based compensation expense as compared to the prior year quarter.

Interest expense increased $0.6 million to $1.3 million for the three months ended June 30, 2023 compared to $0.7 million for the three months ended June 30, 2022.

The increase in interest expense was primarily due to higher interest rates as rates more than tripled as compared to the prior year quarter.

Average outstanding balances on the Company's revolving credit facility were $61.9 million and $60.9 million for the three months ended June 30, 2023, and 2022, respectively.

The Company recorded other income of $0.5 million for the three months ended June 30, 2023, compared to other expense of $0.3 million recorded for the three months ended June 30, 2022.

Interest expense decreased $0.6 million to $0.4 million for the three months ended September 30, 2023 compared to $1.0 million for the three months ended September 30, 2022.

Despite higher interest rates in the current year quarter as compared to the prior year quarter, the decrease in interest expense was primarily due to lower average outstanding balances on the Company's revolving credit facility during these respective quarters.

The Company recorded other income of $1.0 million for the three months ended September 30, 2023, compared to other expense of $0.4 million recorded for the three months ended September 30, 2022.

The change year over year is the combined result of foreign currency translation fluctuations and changes in the fair market valuation allowance related to the liquidation of the processing business.

The Company recognized a provision for income taxes of $11.6 million and $9.9 million, with effective tax rates of 27.3% and 25.2% for the three months ended June 30, 2023, and 2022, respectively.

The effective tax rate for the three months ended June 30, 2023, and 2022, respectively, was greater than the U.S.

The Company recognized a provision for income taxes of $14.5 million and $11.7 million, with effective tax rates of 27.0% and 25.4% for the three months ended September 30, 2023, and 2022, respectively.

The effective tax rate for the three months ended September 30, 2023, and 2022, respectively, was greater than the U.S.

federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items due to an excess tax benefit on stock-based compensation.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

The following table sets forth selected results of operations data and its percentage of net sales for the six months ended June 30 (in thousands):

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

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):

Net sales $ 1,048,925 100.0 % $ 1,076,105 100.0 %

8 unchanged sentences

Net income $ 91,099 8.7 % $ 79,058 7.3 %

The following table sets forth the Company’s net sales by reportable segment for the six months ended June 30, (in thousands):

The following table sets forth the Company’s net sales by reportable segment for the nine months ended September 30, (in thousands):

2023 2022 Total

5 unchanged sentences

Consolidated $ 1,048,925 $ 1,076,105 $ (27,180) $ 58,709 $ (2,838) $ (83,051)

Consolidated net sales decreased by $26.6 million, or 3.9%, to $658.2 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The 3.9% decrease in revenue was driven by a $65.2 million or 9.5% decrease in organic revenue, the net result of a 11% volume decline and a 1% increase in pricing to customers which primarily occurred in the first quarter of 2023.

Partially offsetting the year over year decrease were $39.8 million of revenues generated by QAP, which was acquired during the third quarter of 2022 and reported as part of the Company's Residential segment.

Consolidated backlog remained flat at $411 million, as compared to the end of the prior year period.

Net sales in the Company's Renewables segment decreased $43.7 million, or 24.2%, to $136.7 million for the six months ended June 30, 2023 compared to $180.3 million for the six months ended June 30, 2022.

The decline was the result of decreased demand for solar module installations, which continues to be impacted by importation challenges resulting from the UFLPA implemented in June 2022, along with timing delays incurred due to lengthier permitting processes.

New order bookings continued to accelerate during the year and backlog increased 6% from the prior year, as customers and solar module importers gain a better understanding of documentary compliance requirements relative to the UFLPA.

Net sales in the Company's Residential segment increased $28.0 million, or 7.4%, to $407.7 million for the six months ended June 30, 2023 compared to $379.7 million for the six months ended June 30, 2022.

Sales of $39.8 million generated by QAP, acquired in the third quarter of 2022, along with the positive impact of participation gains more than offset channel inventory correction, price declines related to commodity cost reductions, and adverse winter weather conditions in the earlier months of 2023.

Net sales in the Company's Agtech segment decreased 17.7%, or $15.2 million, to $70.9 million for the six months ended June 30, 2023 compared to $86.1 million for the six months ended June 30, 2022.

Revenue declined as both the segment's commercial business and produce projects experienced delayed project starts, the latter the result of key project re-scoping and prioritizing.

While backlog decreased 24% year over year, primarily because of a slower commercial end market, the Company expects new produce projects to drive improved revenue in the second half of 2023.

Net sales in the Company's Infrastructure segment increased 11.1%, or $4.3 million, to $42.9 million for the six months ended June 30, 2023 compared to $38.6 million for the six months ended June 30, 2022.

The increase in revenue was due to continued solid market demand supported by the Infrastructure Investment and Jobs Act and ongoing efforts to increase market participation.

Consolidated net sales decreased by $27.2 million, or 2.5%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

The decrease in revenue was driven by a $83.1 million or 7.7% decrease in organic revenue, largely the result of a 8% volume decline.

Partially offsetting the year over year decrease were $58.7 million of revenues generated by recent acquisitions, which are reported as part of the Company's Residential segment, along with participation gains.

Consolidated backlog increased 5% to $375 million, as compared to the end of the prior year period.

Net sales in the Company's Renewables segment decreased $48.4 million, or 16.6%, to $243.0 million for the nine months ended September 30, 2023 compared to $291.5 million for the nine months ended September 30, 2022.

The decline was the result of decreased demand for solar racking installations, which continues to be impacted by importation challenges resulting from the UFLPA, timing delays incurred due to lengthier permitting processes, and pending guidance on final IRA tax credit guidelines.

New order bookings continued to accelerate during the year and backlog increased 13% from the prior year.

Net sales in the Company's Residential segment increased $40.2 million, or 6.8%, to $635.5 million for the nine months ended September 30, 2023 compared to $595.3 million for the nine months ended September 30, 2022.

Sales of $58.7 million generated by recent acquisitions, along with the positive impact of participation gains and expanded market presence more than offset channel inventory corrections and price declines related to commodity cost reductions and 80/20 initiatives targeting less attractive product lines.

Net sales in the Company's Agtech segment decreased 21.3%, or $27.8 million, to $102.5 million for the nine months ended September 30, 2023 compared to $130.3 million for the nine months ended September 30, 2022.

Revenue declined as both the segment's commercial business and produce projects experienced delayed new project starts, driven by the timing of project construction.

While backlog decreased 6% year over year, the Company expects new project execution that is underway to help drive revenue growth in the fourth quarter of 2023.

Net sales in the Company's Infrastructure segment increased 15.1%, or $8.9 million, to $67.9 million for the nine months ended September 30, 2023 compared to $59.0 million for the nine months ended September 30, 2022.

The increase in revenue was due to continued solid market demand and ongoing efforts to increase market participation.

Backlog also benefited from these efforts resulting in a 6% increase year over year.

The Company's consolidated gross margin increased to 26.4% for the six months ended June 30, 2023 compared to 22.7% for the six months ended June 30, 2022.

The increase was driven by improved price to material cost alignment, solid execution in field operations, improvement in supply chain management and continued operational efficiencies, along with favorable business and product mix.

Selling, general, and administrative ("SG&A") expenses increased by $7.4 million, or 7.9%, to $101.2 million for the six months ended June 30, 2023 compared to $93.8 million for the six months ended June 30, 2022.

The Company's consolidated gross margin increased to 26.6% for the nine months ended September 30, 2023 compared to 23.2% for the nine months ended September 30, 2022.

Selling, general, and administrative ("SG&A") expenses increased by $12.5 million, or 8.9%, to $153.4 million for the nine months ended September 30, 2023 compared to $140.9 million for the nine months ended September 30, 2022.

The $12.5 million increase was primarily due to higher performance-based compensation expense as compared to the prior year.

Incremental SG&A expenses incurred by QAP, acquired in the third quarter of 2022, also contributed to the increase.

SG&A expenses as a percentage of net sales increased to 15.4% for the six months ended June 30, 2023 compared to 13.7% for the six months ended June 30, 2022.

The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the six months ended June 30, (in thousands):

Incremental SG&A expenses incurred by recent acquisitions also contributed to the increase.

SG&A expenses as a percentage of net sales increased to 14.6% for the nine months ended September 30, 2023 compared to 13.1% for the nine months ended September 30, 2022.

The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the nine months ended September 30, (in thousands):

2023 2022 Total

Change Portfolio Management Ongoing Operations

Income from operations:

6 unchanged sentences

The Renewables segment generated an operating margin of 8.7% in the current year compared to 4.8% in the prior year.

The increase in operating margin was driven by field operations productivity, favorable price to cost alignment and improved supply chain management that offset lower volumes.

The increase in operating margin was driven by field operations productivity, favorable price to cost alignment and improved supply chain management that offset lower volumes and higher restructuring expenses recorded in the current year.

The Residential segment generated an operating margin of 18.2% in the current year compared to 17.6% in the prior year.

The decrease in operating margin was the result of the anticipated lower margins from the Company's recent acquisition of QAP largely offset by continued price/cost rebalancing, 80/20 activities and mix.

The increase in operating margin was the result of continued price/cost rebalancing, 80/20 activities and mix, offset by the anticipated lower margins from the Company's recent acquisitions.

The Agtech segment generated an operating margin of 3.3% in the current year compared to 4.1% in the prior year.

Operating margin declined year over year, due to portfolio management charges related to the liquidation of the processing business recorded in the current year, largely offset by 80/20 initiatives, supply chain optimization initiatives, and improvement in project management systems.

The Infrastructure segment generated an operating margin of 19.9% during the six months ended June 30, 2023 compared to 10.5% during the six months ended June 30, 2022.

Operating margin declined year over year due to volume deleverage and product mix, partially offset by 80/20 initiatives and improvement in project management systems.

The Infrastructure segment generated an operating margin of 22.0% during the nine months ended September 30, 2023 compared to 11.3% during the nine months ended September 30, 2022.

The margin improved year over year driven by strong operating execution, 80/20 productivity, supply chain efficiency, and product line mix.

Unallocated corporate expenses increased $5.7 million from $13.3 million during the six months ended June 30, 2022 to $19.0 million during the six months ended June 30, 2023.

Unallocated corporate expenses increased $7.1 million from $22.2 million during the nine months ended September 30, 2022 to $29.4 million during the nine months ended September 30, 2023.

The increase in expense was primarily due to higher performance-based compensation expense as compared to the prior year.

Interest expense increased year over year with $2.8 million for the six months ended June 30, 2023 compared to $1.1 million for the six months ended June 30, 2022.

The increase in expense was largely due to higher interest rates which more than tripled compared to the prior year.

Higher average outstanding balances on the Company's revolving credit facility of $72.5 million and $55.4 million for the six months ended June 30, 2023, and 2022, respectively, also contributed to the increased expense.

The Company recorded other income of $0.9 million for the six months ended June 30, 2023, compared to other expense of $0.4 million recorded for the six months ended June 30, 2022.

Interest expense increased year over year with $3.2 million for the nine months ended September 30, 2023 compared to $2.2 million for the nine months ended September 30, 2022.

The increase in expense was due to higher interest rates which nearly tripled compared to the prior year, largely offset by higher average outstanding balances in the prior year, $50 million compared to $73 million, for September 30, 2023 and 2022, respectively.

The Company recorded other income of $1.9 million for the nine months ended September 30, 2023, compared to other expense of $0.8 million recorded for the nine months ended September 30, 2022.

The change year over year is the combined result of foreign currency translation fluctuations and changes in the fair market valuation allowance related to the liquidation of the processing business.

The Company recognized a provision for income taxes of $18.7 million and $15.0 million, with effective tax rates of 26.6% and 25.1% for the six months ended June 30, 2023 and 2022, respectively.

The effective tax rate for the six months ended June 30, 2023, and 2022, respectively, was greater than the U.S.

The Company recognized a provision for income taxes of $33.3 million and $26.7 million, with effective tax rates of 26.7% and 25.2% for the nine months ended September 30, 2023 and 2022, respectively.

The effective tax rate for the nine months ended September 30, 2023, and 2022, respectively, was greater than the U.S.

federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items due to an excess tax benefit on stock-based compensation.

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The following table sets forth the Company's liquidity position as of (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Cash and cash equivalents $ 85,465 $ 17,608

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Generally, the Company's foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements.

As of June 30, 2023 and December 31, 2022, the Company's foreign subsidiaries held $16.4 million and $15.2 million of cash, respectively.

As of September 30, 2023 and December 31, 2022, the Company's foreign subsidiaries held $22.3 million and $15.2 million of cash, respectively.

Outstanding balances on the Company's revolving credit facility under the Company's Credit Agreement accrue interest at a rate, at the Company's option, equal to the applicable margin plus (a) a base rate, (b) a daily simple secured overnight financing rate ("SOFR"), (c) a term SOFR rate, or (d) for certain foreign currencies, a foreign currency rate.

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The repurchase program may be suspended or discontinued at any time at the Company's discretion.

As of June 30, 2023, the Company has repurchased 2,518,941 shares for an aggregate price of $111.0 million under this repurchase program, including 521,575 shares repurchased for an aggregate price of $25.2 million during the six months ended June 30, 2023.

As of September 30, 2023, the Company has repurchased 2,518,941 shares for an aggregate price of $111.0 million under this repurchase program, including 521,575 shares repurchased for an aggregate price of $25.2 million during the nine months ended September 30, 2023.

Over the long-term, the Company expects that future investments, including strategic business opportunities such as acquisitions, may be financed through a number of sources, including internally available cash, availability under the Credit Agreement, new debt financing, the issuance of equity securities, or any combination of the aforementioned.

The $10.4 million preliminary purchase price for the acquisition of a privately held Utah-based company was financed primarily through borrowing on our revolving credit facility.

All potential acquisitions are evaluated based on the Company's acquisition strategy, which includes the enhancement of the Company's existing products, operations, and/or capabilities, as well as expanding the Company's access to new products, markets, and customers, with the goal of creating compounding and sustainable stockholder value.

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See Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

The following table sets forth selected cash flow data for the six months ended June 30, (in thousands):

The following table sets forth selected cash flow data for the nine months ended September 30, (in thousands):

Cash provided by (used in):

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Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2023 of $114.1 million consisted of net income of $51.8 million, non-cash net charges totaling $21.6 million, which include depreciation, amortization, stock-based compensation, exit activity recoveries and other non-cash charges, and $40.7 million of cash generated from working capital and other net operating assets.

The cash generated from working capital and other net operating assets was largely due to increases in accounts payable, the result of the timing of purchases and vendor payments, and billings in excess of costs, the result of increased advance payments from and billings to customers on projects.

Net cash provided by operating activities for the nine months ended September 30, 2023 of $206.7 million consisted of net income of $91.1 million, non-cash net charges totaling $31.5 million, which include depreciation, amortization, stock-based compensation, exit activity recoveries and other non-cash charges, and $84.1 million of cash generated from working capital and other net operating assets.

The cash generated from working capital and other net operating assets was largely due to increases in accounts payable, the result of the timing of purchases and

vendor payments, and billings in excess of costs, the result of increased advance payments from and billings to customers on projects.

In addition, cash was generated due to the Company's focus on reducing its investment in inventory to better align with lower sales volumes while still meeting customer demand.

These activities were partially offset by an increase in accounts receivable largely the result of seasonal increases in demand.

Net cash provided by operating activities for the six months ended June 30, 2022 of $0.5 million consisted of income from continuing operations of $44.8 million and non-cash net charges totaling $20.7 million, which include depreciation, amortization, stock-based compensation, exit activity costs and other non-cash charges, offset by a $64.9 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 along with increased raw material and freight costs impacting inventory.

Net cash provided by operating activities 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.

The overall increase was partially offset by an increase in accrued expenses and other non-current liabilities due to increases in advance payments from and billings to customers on projects.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2023 of $4.7 million was primarily due to capital expenditures of $5.3 million, offset by receipt of the $0.6 million final working capital settlement resulting from the 2022 acquisition of QAP.

Net cash used in investing activities for the six months ended June 30, 2022 of $11.2 million was primarily due to capital expenditures of $11.3 million.

Net cash used in investing activities for the nine months ended September 30, 2023 of $17.8 million consisted of cash paid of $10.4 million for the acquisition of a privately held Utah-based company offset by receipt of the $0.6 million final working capital settlement related to the 2022 acquisition of QAP and net capital expenditures of $8.0 million.

Net cash used in investing activities 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 net capital expenditures of $15.7 million.

Financing Activities

Net cash used in financing activities for the six months ended June 30, 2023 of $108.0 million consisted of net long-term debt payments of $79.2 million and $28.8 million of common stock repurchases.

Net cash used in financing activities for the nine months ended September 30, 2023 of $120.2 million consisted of net long-term debt payments of $91.0 million and $29.2 million of common stock repurchases.

Net long-term debt payments consisted of $141.0 million in long-term debt payments, offset by $50.0 million in proceeds from borrowing on the Company's long-term debt credit facility.

The Company paid $26.0 million during the six months ended June 30, 2023 related to repurchase of 538,575 shares under the Company's authorized share repurchase program.

The Company paid $26.0 million during the nine months ended September 30, 2023 related to repurchase of 538,575 shares under the Company's authorized share repurchase program.

The remainder of the repurchased common stock of $3.2 million related to the net settlement of tax obligations for participants in the Company's equity incentive plans.

Net cash provided by financing activities for the six months ended June 30, 2022 of $16.0 million was the result of $120.5 million in proceeds from borrowing on our long-term credit facility, offset by $51.0 million in payments on long-term debt and $53.5 million of common stock repurchases.

Net cash provided by financing activities 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 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.

Critical Accounting Estimates

There have been no material changes to the Company's critical accounting estimates during the six months ended June 30, 2023 from those disclosed in the consolidated financial statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

There have been no material changes to the Company's critical accounting estimates during the nine months ended September 30, 2023 from those disclosed in the consolidated financial statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis