Gibraltar Industries, Inc. (NASDAQ:ROCK) Q3 2023 Earnings Call Transcript

Gibraltar Industries, Inc. (NASDAQ:ROCK) Q3 2023 Earnings Call Transcript November 4, 2023

Operator: Greetings. And welcome to the Gibraltar Industries Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Carolyn Capaccio of LHA. Thank you. You may begin.

Carolyn Capaccio: Thanks, Christine. Good morning, everyone, and thank you for joining us today. With me on the call is Bill Bosway, Gibraltar Industries’ Chairman, President and Chief Executive Officer; and Tim Murphy, Gibraltar’s Chief Financial Officer. The press release that was issued this morning, as well as a slide presentation that management will use during the call are both available in the Investors section of the company’s website gibraltar1.com. Gibraltar’s earnings press release and remarks contain non-GAAP financial measures, tables of reconciliation of GAAP to adjusted financial measures can be found in the earnings press release that was issued today. Also, as noted on slide two of the presentation, the earnings press release and slide presentation contain forward-looking statements with respect to future results.

These statements are not guarantees of future performance and the company’s actual results may differ materially from the anticipated events, performance or results expressed or implied by these forward-looking statements. Gibraltar advises you to read the risk factors detailed in its SEC filings which can also be accessed through the company’s website. Now, I will turn the call over to Bill Bosway. Bill?

Bill Bosway: Thanks, Carolyn. Good morning, everyone, and thank you for joining today’s call. We will start with an overview of the third quarter results and Tim is going to take you through our financial performance and then I will walk you through our updated 2023 outlook. Then we will open the call for your questions. So let’s start by turning to slide three, titled the third quarter results, third quarter 2023 results, sorry. Our focus on driving quality of earnings in 2023 continues to pay-off in our delivery of higher profitability and strong cash flow duration. We executed well in the quarter, continuing our momentum from the first half of the year. We continue to experience solid end-market demand. We also expanded our market participation, particularly across our Residential and Infrastructure businesses.

In both our Renewables and AgTech businesses, we did experience some delays in start dates of contracted in active projects and those projects has since begun or shifted to either the fourth quarter or into early 2024. As well during the quarter, on an adjusted basis, we increased operating income 19%, EPS 23% and free cash flow increased to 23% of net sales. We continue to accelerate our 80/20 initiatives across product lines and operations and also optimize our supply chain management with market price actions. Our improvement in operating margin and working capital continue to drive solid cash generation performance. In all, our results [Technical Difficulty] we expect our momentum to continue in the fourth quarter and support strong full year performance in 2023.

As a result, we are changing our guidance for 2023. We are narrowing our net sales outlook and raising our outlook for both profitability and EPS, which we will review shortly. Now let’s turn to slide four for an update on the solar market. Our demand pipeline in Renewables is very active and bookings continue to grow as the industry continues to navigate through three basic issues, module supply, permitting delays and clarity on the final rules governing IRA tax benefits. First let’s start with module supply. It is improving as additional module suppliers are having more consistent success importing through the UFLPA process and this is encouraging, and yet we need to see additional progress as we close out 2023 and move into 2024. Also related to module supply, the Department of Commerce issued its final ruling in August on its AD/CVD investigation.

The DOC final report indicated three of the eight module suppliers were found not to be circumventing and as a result are able to export to the U.S. without duty. The report also confirmed that module suppliers using non-China wafer supply are also not subject to duty. The DOC also implemented the administration’s tariff waiver, which is in effect until early 2024 and maybe reevaluated at that time, because of the administration’s waiver, the DOC investigation results, a little less concerning relative to the UFLPA importation process. Secondly, delays in obtaining permits for projects remains an issue. Although, customer supply and permitting a challenge in the near-term, we are confident this situation will continue to improve as local government agencies ramp capacity to improve the approval process for us permit applications.

And finally, customers are anxiously awaiting final guidelines from the Department of Treasury on how to secure additional tax incentives under Inflation Reduction — under the Inflation Reduction Act. Tax credits directly affect project economics and returns and we are seeing some customers with projects in process pause and/or defer additional projects until they had a clear understanding of how to realize incremental tax benefits. We expect the industry to work through these challenges and as AEs will improve our customers will be in a better position to execute current demand and really properly plan to support robust demand pipeline as expected going forward. With that, I will turn it over to Tim for a review of our results.

Tim Murphy: Thanks, Bill and good morning, everyone. I will take you through our consolidated and segment results starting on slide five. Adjusted third quarter sales were flat at $390 million, timing shifts of the active projects in Renewables and AgTech business, as well as price management initiatives in the Residential business were positively offset by revenue from recent acquisitions and market participation gains across the business. Backlog at quarter end was $375 million, up approximately 5% versus the third quarter of 2022. Demand and order flow remained strong heading into the fourth quarter. Adjusted operating income and adjusted EBITDA dollars increased 19% and 18%, respectively, in the third quarter with adjusted EPS up 23%.

Margin improvement in the quarter was driven by solid execution, additional 80/20 initiatives, productivity and price cost management. Weighted average shares outstanding decreased 3.4% from the third quarter of 2022 to 30.7 million shares in the third quarter of 2023 and there were no share repurchases in the quarter. Now let’s review each segment starting with slide six, the Renewables segment. Segment net sales decreased 4.2% as customers start dates of contracting and active projects were impacted by delays in both global permitting and final Inflation Reduction Act Tax credit guidelines. The rate of decline is slowing compared to prior quarters as module availability continues to improve as the module importers climb up the UFLPA enforcement learning curve.

Bookings of new orders remain robust with year-over-year backlog growing 13.3%. And as Bill mentioned, some customers are waiting to sign contracts until Department of Treasury issues IRA tax credit guidance and our pipeline remains really strong. As a reminder, our backlog consists only of signed contracts with deposits. We do not include purchase orders without a signed contract and deposit, MSAs without specific work orders or verbal agreements with customers in our new bookings and backlog. Segment profitability again improved with adjusted operating and EBITDA margins of 16.7% and 18.9%, respectively, increasing 380 basis points and 390 basis points from last year. Our team executed well with supply chain productivity field operations efficiency and solid price cost management.

Assuming industry dynamics remain constant with improving module importation and continued delays in local permitting, we expect relatively flat sales in the fourth quarter with net sales in the second half accelerating from the first half. Let’s move to slide seven to review our Residential segment. Segment sales increased 5.6% from last year and recent acquisitions added 8.8% growth and organic sales decreased 3.2%, driven by prior quarter price adjustments in response to decreasing commodity prices and 80/20 initiatives we took to phase out less attractive product lines. Volumes built according to normal seasonality in the third quarter and we benefited from increased participation with new and existing customers, and from having expanded into new regions.

Both of our recent acquisitions are performing to our expectations. Demand remains at normal levels in the fourth quarter with the expectation of normal seasonal inventory reductions at our customers and we expect to continue to grow participation. Adjusted operating and EBITDA margin of 18.8% and 22%, respectively, expanded 200 basis points and 220 basis points through increased volume, improved price cost alignment, implementation of additional 80/20 initiatives and favorable product line mix. Quality Aluminum Products margin performance continues to improve towards Gibraltar levels as the integration continues. We expect continued year-over-year margin improvement in the fourth quarter through improved price management, increasing participation gains mix and the contribution of the two acquisitions we made over the past year.

Let’s move to slide eight to review our AgTech segment. Adjusted net sales decreased 26% as new product construction starts were delayed in the quarter. We began a large project which continued to drive improving results beginning in September. Orders continued to accelerate in the quarter driving backlog of 9.4% sequentially. On a year-over-year basis, backlog decreased as a few customers worked through project redesigns. We expect increasing activity to drive revenue acceleration in the fourth quarter. Segment adjusted operating and EBITDA margins of 5.6% and 8.1%, respectively, decreased 510 basis points and 540 basis points on lower volume as the timing of net sales shifted into the fourth quarter from the third quarter. Margins improved in September with project starts and are continuing into the fourth quarter and we expect volumes from new project execution underway to drive improved results in the fourth quarter.

Let’s move to slide nine to review our Infrastructure segment. Segment sales increased 22.5% driven by solid end-market demand and market participation gains. Backlog increased 6.2% year-over-year. Market activity remained strong, including from commercial customers and airports, and the Infrastructure Bill continues to provide strong tailwinds. Our momentum continues into the fourth quarter and we expect to leverage these strong trends by increasing market participation through the remainder of the year. Segment adjusted operating income increased 146% and adjusted operating and EBITDA margins of 25.6% and 29.1%, respectively, improved 1,300 basis points and 1,230 basis points, driven by strong execution and price cost alignment, 80/20 initiatives, additional productivity investments, supply chain efficiency and product line mix.

The Infrastructure team continues to execute very well and we expect to report a strong year of growth and expanding profitability for this segment. Let’s move to slide 10 to discuss our balance sheet and cash flow. At September 30th, we had cash on hand of $86 million and $396 million available on our revolver. During the quarter, we generated $93 million of cash from operations through a combination of margin improvement and $43 million generated from reductions in working capital. We collected cash from accounts receivable and inventory reductions, and benefited from increases in accounts payable and other liabilities. Inventory is getting closer to normal levels as in-stock positions and supply from the balance. As a result, our frequent cash flow generation during the third quarter was again exceptionally strong at 23% of sales.

Free cash flow in the nine months of the year benefited from approximately $84 million of reduction in investment in working capital, reversing the prior two years impact from the increased working capital investments we managed through the pandemic era supply chain challenges. We expect strong cash flow for the remainder of the year. There were no share repurchases in the quarter and we paid down the outstanding balance on our revolver, therefore, we ended the quarter with an unlevered balance sheet. We will continue to focus on — we will continue to focus our capital allocation on organic growth, selective high quality M&A and opportunistically returning value to shareholders through our share repurchase program, and these investments will be funded through generated cash and supplemented as needed by use of our revolver, depending on the timing of any M&A or repurchases.

Now, I will turn the call back to Bill.

Bill Bosway: Thanks, Tim. Let’s move to slide 11 to review our 2023 strategy and priorities. Our focus on five basic initiatives is driving solid performance and will continue to do so as we finish 2203; first, focused on driving growth, quality of earnings and margin improvement and strong cash performance; secondly, continue to execute 80/20 initiatives and win more participation and drive service levels higher; third, stay the course with investments in our digital transformation to help scale our businesses with both speed and agility; fourth, strengthen our organization with the addition of experience and competency and a structure that drives more focused scalability and accountability; and fifth, conduct business in the right responsible way every day.

Now let’s turn to slide 12 and review our revised 2023 guidance. Given our results to-date, momentum heading into the fourth quarter, we are adjusting our guidance as follows. We are narrowing our consolidated net sales range to between $1.37 billion and $1.4 billion, compared to $1.38 billion in 2022; we expect GAAP operating margin to be between 11.2% and 11.4%, compared to 9.4% in 2022; and adjusted operating margin to be between 12.6% and 12.7%, compared to 10.9% in 2022. We expect GAAP EPS to be between $3.51 and $3.71, compared to $2.56 in 2022 and adjusted EPS to be between $4.05 and $4.15, compared to $3.40 in 2022. And finally, we expect free cash flow to exceed 14% of sales for the year. This compares to 6% in 2022, driven by higher margins and working capital performance.

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

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Q&A Session

Operator: Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Dan Moore with CJS Securities. Please proceed with your question.

Dan Moore: Thank you. Good morning, Bill. Good morning, Tim, and congrats on another really solid quarter. Maybe start with Resi, as we kind of look beyond Q4, are you seeing any change in tone in the overall market up or down? And second, your performance and participation gains, obviously, very impressive year-to-date. How do we think about that going forward, does it create tough comps or conversely is that momentum you have created kind of easier to continue to drive participation and share gains? Thanks.

Bill Bosway: Yeah. So, Dan, we haven’t really seen a major shift. As you know, we have talked in the past the — we get visibility for the out sales from our big box retailers in particular. And I think we continue to see the growth that we have been seeing all year. It’s everything adjusted obviously for the seasonality and it’s back in the marketplace. So I — we feel like there’s a relatively solid continuation of what we have been seeing going forward and as it relates to participation, that’s a combination of working with existing customers, and again, a little bit bigger piece of the pie and some things that we are in today. It’s also the other big push there is picking up new customers that we traditionally haven’t had as much with and I think we are hitting both of those pretty well and I think that will carry us into 2024 with some decent momentum.

So like I said, we are on solid footing I think entering the year and we are in the middle of putting our plans together as we speak. In fact, we will meet the teams all next week to get our first really hard look at 2024, but from a Residential perspective, we feel pretty solid about going into next year.

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

Tim Murphy: Yeah. So we had a project that we thought was going to start pretty much at the beginning of the second quarter and it got delayed a few months and so — I am sorry, beginning of the third quarter. And so it got delayed and started up in September, running as expected. So we know headed into the fourth quarter we have got more normalized volume and so you should see margins begin to recover there. And then there’s a lot of stuff in the pipeline that we are pretty excited about, not in hand yet though. So hard to say when, we will know more over the course of the next few months, get ready for our plans there. But then our plan, we don’t really have fourth quarter next year in front of us. But in general, our expectation is always, grow topline and expand margins, that would be my expectation for each of the business every year.

Dan Moore: Helpful. And given that obviously strong free cash flow and liquidity position, maybe just talk about your priorities for capital allocation over the next several quarters, and specifically in this market, are you seeing more opportunities in the M&A funnel? Thanks again for the color.

Bill Bosway: Yeah. I think that maybe the M&A funnel will begin to open up a little bit more. Although, we made acquisitions, we made two in the last sort of 14 months from here. So — but I think, yeah, it’s active, we are always pretty active in that space and we are really selective. So there’s a combination of things that are available, things that makes sense for us, but I think we will continue to focus there. Certainly, when we can invest in safety or productivity internally. Although that’s not a huge use of capital. I don’t see any real change to that. And then the share repurchase program when appropriate we use there. I will also remind everyone, right, this year we are outperforming on free cash flow sort of making up and I have tried to be very clear that a part of it is making up for that big investment in working capital, we had to make in 2021 and 2022 as we dealt with that supply chain.

So I think we pulled — I think I said $84 million of our cash flow, which really owing the investment that we made in working capital out. But our margins much better than it was a year ago and so that’s going to obviously increase cash flow.

Dan Moore: Very good. Thank you again. I will jump back with any follow-ups.

Operator: [Operator Instructions] Our next question comes from the line of Walt Liptak with Seaport Global. Please proceed with your question.

Walt Liptak: Hey. Good morning, guys. Good quarter. I wanted to ask of the Renewables segment. You called out a number of different issues. I wonder if you could do those in rank order. And if any of them got worse or if they — if they’ are all getting better. Just how things changed during the quarter, like the permitting delays, you guys talked about that last quarter, I don’t know how long that takes or how long we will be talking about that as an issue. But I wonder if you can go through in rank, and then if things get better or worse?

Bill Bosway: Yeah. Well, I’d say that, sorry, excuse me, the panel supply, the module supply is still a little bit of a challenge, but it’s getting better literally month-to-month. So we continue to see progress and we have seen that all year, and I think, if you think about our business, you don’t really sign contracts, if you will, if you have, if you don’t have the panel. So in fact, that our backlog continues to grow. I think customers are getting more confident, they can get their hands on panels and that’s just a function of the panel manufacturers having more consistent success getting things through the UFLPA process. So that’s getting better. Permitting, I think is holding with kind of where we said the last quarter.

It’s still an issue and it’s really down to the individual projects. So it’s hard to tell you [Technical Difficulty]. Some of those start to free up is, I think, put few of these government offices behind that. The 8 Ball trying to catch up and that’s what we hear from our customers and they are working it every day and it’s frustrating for them. So I’d say that’s probably similar to what we saw last quarter, but that’s probably the number one thing right now. The number one would be that. What’s crept into the equation is the third item, which is the IRA incremental tax benefits or the additional tax benefits that you can get from the IRA and that’s really Department of Treasury finalizing the rules. And so what’s really clear today is prior to the IRA you had a certain investment tax credit [Technical Difficulty] level you have to do a couple of things and that’s very clear.

That’s prevailing wage and apprenticeship program and people moving in that direction. So that allows you to maintain your tax credit. To get the incremental ones above that, that’s when you start getting into a couple of other things like local manufacturing, Made in America, et cetera. and we are — I think the industry is still waiting for the final rules and actually what that means and how to keep score and all that good stuff from treasury and that will give you the extra benefits on top [Technical Difficulty] And I thought treasury — I think treasury even thought we would be out sooner and that’s probably coming late this year or early in Q1 is the latest we have heard from the industry. So number one is permitting [Technical Difficulty] incremental tax credit opportunity just being delayed, and number three is a module supply.

That’s how I would rank them today.

Walt Liptak: Okay. Great. You broke up a little bit as we were talking about, I think, I got most of it. And so as we are thinking about that IRA and the final ruling, should we have an expectation that at some point maybe going into the spring construction season that this the IRA rulings are behind us and some of that benefit from the IRA showing up in terms of more orders and the industry…

Bill Bosway: Yeah.

Walt Liptak: … gets back on its feet?

Bill Bosway: Yeah. I think that’s a fair assessment. As soon as we get clarity there, what that does for everybody that’s investing is boost your returns on that investment, because you get the incremental benefits. So if you think about that, that really helps deal with similar inflationary issues that the industry has dealt with the last couple of years, it offsets that and keep plowing ground. But you had a lot of customers right now that I think we are in a bit of a holding pattern because it felt like that was coming. So go ahead with the project and then some of them paused, because it’s just don’t quite have the clarity. And they don’t want to actually miss out on the opportunity and so that’s where you get a little bit of delay.

But if those things come into play as has been somewhat communicate to the industry, early next year, January, February, it’s going to make a difference obviously going into the construction season in Q2, Q3 and Q4 for Renewables as an industry for sure and for us.

Walt Liptak: Okay. Great. And then maybe the last one from me on Renewables, just the thought, a lot has changed in the last couple of years, I guess, on returns for community solar, you already had the supply chain issues, you get rising inflation, labor costs, rising interest rates and now you have offsets like with the IRA benefits that will happen. Are these — how has the return changed do you think on community solar projects, is it better or worse?

Bill Bosway: Yeah. I don’t — first of all, whether it’s community or utility, I think, it’s the same question. So I will try to answer this in the best way that covers both. But the levers that you would pull if you are investing had to do with, okay, how do you negotiate the right TPA so the power agreement that you are discussing and at what level can you get that. And I think developers, in particular, have worked that pretty hard and so as inflation has come into the fray, they have been able to get higher price points on their PPAs. And that’s effectively what this all means that the end of the day is as the price of energy, any type of energy has gone up, it’s all relative, solar has been able to go up with in terms of the cost of that generation.

So it’s going to be passed on to consumers. But it’s happening regardless of how you are generating the energy. So they have a release out there to offset the other inflationary things you just talked about, now the IRA kicks in and that’s where those incremental tax benefits can make a big difference. So those two levers on the plus side really do kind of neutralize the cost issues on the negative side and as a result, I think, that’s why you continue to see entrants — new entrants into the industry and demand continuing to stay where it is and continue to grow. So I feel like the economics are — and listen, project-to-project it could swing a bit, but in general the folks have been in this business for a long time understand that.

Walt Liptak: Yeah.

Bill Bosway: Our understanding people are continuing to move forward. I would say, on the other side of that, so that’s the kind of returns side, where it’s got more challenging and frustrating for folks is just navigating through some of the administrative things, whether it’s importation process or permitting process and I do think that is easy and will get better. So those are the two buckets that I think about relative to the experience that a lot of our customers have had.

Walt Liptak: Okay. Great. I appreciate that answer. And then just one for me on Residential, you talked about how you are going to have normal seasonality where I guess your box stores bring down inventory levels.

Bill Bosway: Right.

Walt Liptak: I wonder if you could maybe help us gauge that, like, is this going to be a bigger than normal inventory correction because of we are coming to an end of the supply chain inventory buildup or has that happened already, because some of your customers may have to work so hard this year to reduce their inventories?

Bill Bosway: Yeah. No. I think it actually happened last year same time. This year, it’s just a reflection of what you typically would see in a normal demand environment, supply and demand environment. So our point isn’t that, hey, this is a correction because everyone’s overloaded. Our point is construction cycle starts to slow this time of the year and people have traditionally always slowed down here and they will start to ramp up towards the end of Q1 to get ready for the construction cycle next year. So we are just back to normal seasonality, but the real correction occurred a year ago, that’s when we started to see it, if you recall when supply chain start getting better and commodities came down, people really started to flush out in the channel that started really Q3 last year, Q4 and Q1.

So this year we are back to what we would consider to be normal prior to the pandemic. If you go back and look at the data historically, that’s what you would see actually, pretty…

Walt Liptak: Okay.

Bill Bosway: … normal seasonality play in the Residential business over the last, really 50 years.

Walt Liptak: Okay. Great. Thank you.

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

Julio Romero: Good morning. How are you guys doing?

Bill Bosway: Good. How are you?

Julio Romero: Good. I guess, my question is, can you — on Renewables, can you talk about your efforts, the efforts that you have made to make the Renewables segment less volume-dependent and one way for further improvement operationally to that hand?

Bill Bosway: Yeah. It’s a good question and we have talked about this a lot the last year so. We made a decision couple of years ago when things really started to push demand down in an industry that take advantage of this opportunity to figure out how to scale your business in a much different way, such that you can — you have more levers to drive the profitability of this business and then when volume comes back, you should be in a better position to have converted a higher rate. It’s pretty common sensible stuff, obviously, but ultimately for us when you think about our quote to cash processes, everything we do from making sure that business systems are tied together and in a much tighter way than they had been in the past from estimating all the way through release to fab to install in the field.

And tightening that was a big effort for us and that’s where I talked earlier about, hey, keeping our investments going into digitizing our businesses, this is really critical in our construction-oriented businesses like Renewables, because we weren’t as high there. Therefore, we weren’t scalable and if you are not scalable with good systems you have a chance of making more mistakes in a construction business where you are doing 400, 500 fields a year. So we have really tightened it up. The team has done a fantastic job of bringing the systems and tying them together such that we are much more scalable and we are less mistake driven on these construction projects and that’s really critical number one, because you can’t afford to do that.

Secondly, when you have this type of business, you also have to be very much linked in with supply chain and manufacturing. I know it sounds very common sensible to think about the project that may have been quoted in January of one year and finalized in January the next year. So making sure you don’t get it out of whack with an inflationary environment such that it really impacts your P&L, tightening up that quote process, I think, that when you released the fab, so you lock down actual input cost you have [Technical Difficulty] today than it was before. So we don’t have near as much exposure. Thirdly, it’s really product lines and how you mix sales and the impact that has on margin. So if you recall, our portfolio is pretty broad. We have an eBOS solution that has been growing quite well.

We have a fixed-tilt, we have tracker and we have a new tracker and that was launched a year and a half ago that really started to take off. So you mix well on your margins and your product lines as you drive your cost reduction and these new products are being very impactful for us. And then, thirdly or lastly, when you think about in the field, so we like the fact that we install a lot of things, because it opens up another revenue and profit stream for us, but it is construction. And so just like buttoning up inside your four walls with estimating and manufacturing, et cetera. You have got to be world-class in the field as well and you got to be efficient and so forth. So we have done a lot of work in all four buckets and we have done it in an environment where volumes have been down.

And so my point everybody is, if at the end the day you believe or feel like the only lever you have is volume to drive your margin then that’s a tough position to be in. We feel like where we have multiple levers to now pull in a much more effective way than we did before. So it’s really those four buckets over the last two years and we worked really hard on to be in today’s position. So as some of these headwinds ease on this industry and the volume starts to come back, yes, we should be in a better position to convert accordingly than we would have been two years ago. So that’s a long answer to your question, but it’s a pretty short answer relative to all the work that’s actually been done, but that’s how we would characterize it for you.

Julio Romero: Thank you for the color. That makes sense. Second question I have is, has permitting delays abated at all and what are you hearing from your customers in terms of where the local government office — offices are ramping up capacity to alleviate the permitting bottleneck?

Bill Bosway: Yeah. I would say it’s still — it’s probably similar to what it was last quarter and when you think about, our customers are doing projects all over the country. So it really comes down to each experience they are having regard — based on where the field is that they are working on. So it’s hard for me to give you a specific answer across each project. But what I would tell you in general is, it’s the number one challenge right now for our customers. I think the only the positive in that as they don’t feel like that’s a structural issue. That is a big change. It’s just a ramp-up capacity issue. And I think they are optimistic that, that’s going to get — it’s going to continue to improve, but it really comes down to each local municipality that you are working with to get the permitting in the first place and that’s where it gets — it’s case-by-case.

So it’s real and it has been, and it needs to get better. It’s I don’t think preventing people from signing new projects with us or signing contracts and give us deposits. It’s just a frustration, I think, they have as to when they can actually get started, because you can imagine you are trying to line up. What you need to line up to actually go to work, right? And so, when you get pushed 30 days, 60 days or what have you, it’s more of a frustration than it is a structural issue that, it sounds like the UFLPA was and it’s not like waiting for the IRA tax incentives to be finalized. And those are structural things that, when they flip kind of will be very positive. This is frankly a local — localized capacity issue that’s got to ramp up and I think that it will happen and our customers feel like the near-term issue.

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

Bill Bosway: I am sorry, the last part of that, any preliminary, so can you repeat that.

Julio Romero: As to how big — any preliminary thoughts as to how big Phase 2 can be?

Bill Bosway: Oh! Yeah. So, sorry. Yeah. So we — that was the project that Tim referenced, we thought would start at the beginning of the quarter. It started in September. So that’s also running. If you recall, it’s a $30 million project I believe. And so you will start — you will see that start to read through in Q4 and they really started to accelerate in September. But it just pushed and again that that can happen. Phase 2 will probably be a little bit bigger than Phase 1. It’s actually the seventh phase of a very large complex that we have built the entirety of over the last five years, but this is really a — not a big piece everybody. This is the last two phases. And I think the second phase is probably going to be anywhere from $10 million to $20 million bigger than the phase that we just started.

And I think we will have that come, we will start working on that halfway through next year and hopefully get that across the finish line. It’s not an issue of not getting the business we have, it’s just a matter of the timing when it interest our books and that will be the second half of next year, we will see that some time. What’s been exciting about this business is, yes, we have this project that’s kicked in but subsequent to last quarter we started to see the backlog build on other projects as we started the fourth quarter. So we are — yeah, we like what we are seeing and we like what we see evolving and we will talk more about that next earnings release as we go through some of these developments that we have been working on.

Julio Romero: Thank you for taking my questions.

Operator: Thank you. Mr. Bosway, it appears we have further questions at this time, I would like to turn the floor back over to you for closing comments.

Bill Bosway: Okay. Thank you and thank you everyone today for joining us. We are coming up, we expect to present in November at UBS Industrials Conference, as well as the BofA Clean Energy Conference and in January at the CGS Winter Conference in addition to some other marketing activities. So we look forward to updating you on our progress when we report our full year results. Well, thank you again and have a great day. Thank you very much.

Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.