UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | |||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2024
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 000-22462
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
(716 ) 826-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 28, 2024, the number of shares of common stock outstanding was: 30,341,121 .
GIBRALTAR INDUSTRIES, INC.
INDEX
| PAGE NUMBER | |||||||||||
| PART I. | |||||||||||
| Item 1. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| PART II. | |||||||||||
| Item 1. | |||||||||||
| Item 1A. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| Item 5. | |||||||||||
| Item 6. | |||||||||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general, and administrative expense | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Interest (income) expense | ( | ( | |||||||||||||||||||||
| Other expense (income) | ( | ( | ( | ||||||||||||||||||||
| Income before taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
3
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ( | ||||||||||||||||||||
| Total comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to consolidated financial statements.
4
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| September 30, 2024 | December 31, 2023 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Trade receivables, net of allowance of $ | |||||||||||
| Costs in excess of billings, net | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant, and equipment, net | |||||||||||
| Operating lease assets | |||||||||||
| Goodwill | |||||||||||
| Acquired intangibles | |||||||||||
| Other assets | |||||||||||
| $ | $ | ||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Billings in excess of cost | |||||||||||
| Total current liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Non-current operating lease liabilities | |||||||||||
| Other non-current liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Cost of | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| $ | $ | ||||||||||
See accompanying notes to consolidated financial statements.
5
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock compensation expense | |||||||||||
| Exit activity costs, non-cash | |||||||||||
| (Benefit of) provision for deferred income taxes | ( | ||||||||||
| Other, net | |||||||||||
| Changes in operating assets and liabilities net of effects from acquisitions: | |||||||||||
| Trade receivables and costs in excess of billings | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Other current assets and other assets | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other non-current liabilities | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows from Investing Activities | |||||||||||
| Purchases of property, plant, and equipment, net | ( | ( | |||||||||
| Acquisitions, net of cash acquired | ( | ||||||||||
| Net proceeds from sale of business | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities | |||||||||||
| Long-term debt payments | ( | ||||||||||
| Proceeds from long-term debt | |||||||||||
| Purchase of common stock at market prices | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash | ( | ||||||||||
| Net increase in cash and cash equivalents | |||||||||||
| Cash and cash equivalents at beginning of year | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See accompanying notes to consolidated financial statements.
6
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net settlement of restricted stock units | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Excise tax on repurchase of common stock | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchased under stock repurchase program | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net settlement of restricted stock units | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Excise tax on repurchase of common stock | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
7
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net settlement of restricted stock units | ( | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Awards of common stock | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Excise tax on repurchase of common stock | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchased under stock repurchase program | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net settlement of restricted stock units | ( | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Awards of common stock | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Excise tax on repurchase of common stock | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchased under stock repurchase program | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
8
GIBRALTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Gibraltar Industries, Inc. (the "Company") have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation of results for the interim period have been included. The Company's operations are seasonal; for this and other reasons financial results for any interim period are not necessarily indicative of the results expected for any subsequent interim period or for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2023.
The consolidated balance sheet at December 31, 2023 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. The Company has presented net costs in excess of billings separately on its consolidated balance sheet as of December 31, 2023 to conform with current year presentation.
Recent Accounting Pronouncements
The Company evaluated all recent Accounting Standard Updates, including those that are currently effective in or after 2024, and determined that the adoption of these pronouncements would not have a material effect on the financial position, results of operations or cash flows of the Company. There have been no material changes from the recent accounting pronouncements previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
(2) TRADE RECEIVABLES, NET
The following table provides a roll-forward of the allowance for credit losses, for the nine month period ended September 30, 2024, that is deducted from the amortized cost basis of trade receivables to present the net amount expected to be collected (in thousands):
| Beginning balance as of January 1, 2024 | $ | ||||
| Bad debt expense, net of recoveries | |||||
| Accounts written off against allowance and other adjustments | ( | ||||
| Ending balance as of September 30, 2024 | $ | ||||
(3) REVENUE
Sales includes revenue from contracts with customers for roof and foundation ventilation products, centralized mail systems, rain dispersion products, trims and flashings and other accessories, retractable awnings and gutter guards; designing, engineering, manufacturing and installation of solar racking systems and electrical balance of systems; designing, engineering, manufacturing and installation of greenhouses; structural bearings, expansion joints, pavement sealant, elastomeric concrete and bridge cable protection systems.
Refer to Note 13 "Segment Information" for additional information related to revenue recognized by timing of transfer of control by reportable segment.
As of September 30, 2024, the Company's remaining performance obligations are part of contracts that have an original expected duration of one year or less.
For the three and nine months ended September 30, 2024 and 2023, respectively, there were no changes to estimated total costs to be incurred related to any individual contract that materially impacted the Company's consolidated financial statements.
Contract assets consist of net costs in excess of billings, classified as current assets in the Company's consolidated balance sheets. Contract liabilities consist of billings in excess of cost, classified as current liabilities, and unearned revenue, presented within accrued expenses, in the Company's consolidated balance sheets. Unearned revenue
9
as of September 30, 2024 and December 31, 2023 was $4.3 million and $3.9 million, respectively. The Company recognized revenue of $41.7 million and $32.2 million during the nine months ended September 30, 2024 and 2023, respectively, that was included in the contract liabilities balance of $48.7 million and $39.6 million at December 31, 2023 and 2022, respectively.
(4) INVENTORIES, NET
Inventories consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Raw material | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Gross inventory | |||||||||||
| Less reserves | ( | ( | |||||||||
| Total inventories, net | $ | $ | |||||||||
(5) ACQUISITION
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, and sells direct to roofing wholesalers. The results of this company have been included in the Company's consolidated financial results since the date of acquisition within the Company's Residential segment. The purchase consideration for this acquisition was $10.4 million, which includes a working capital adjustment and certain other adjustments provided for in the asset purchase agreement.
The purchase price for the acquisition was allocated to the assets acquired and liabilities assumed based upon their respective fair values estimated as of the date of acquisition. The Company has completed the process to confirm the existence, condition, and completeness of the assets acquired and liabilities assumed to establish fair value of such assets and liabilities and to determine the amount of goodwill to be recognized as of the date of acquisition. The excess consideration was recorded as goodwill and approximated $3.0 million, all of which is deductible for tax purposes. Goodwill represents future economic benefits arising from other assets acquired that could not be individually identified including workforce additions, growth opportunities, and increased presence in the domestic building products markets.
The allocation of the purchase consideration to the estimated fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
| Working capital | $ | ||||
| Property, plant and equipment | |||||
| Acquired intangible assets | |||||
| Other assets | |||||
| Other liabilities | ( | ||||
| Goodwill | |||||
| Fair value of purchase consideration | $ | ||||
The intangible assets acquired in this acquisition consisted of the following (in thousands):
| Fair Value | Weighted-Average Amortization Period | ||||||||||
| Trademarks | $ | ||||||||||
| Customer relationships | |||||||||||
| Total | $ | ||||||||||
In determining the allocation of the purchase price to the assets acquired and liabilities assumed, the Company uses all available information to make fair value determinations using Level 3 unobservable inputs in which little or no market data exists, and therefore, engages independent valuation specialists to assist in the fair value determination of the acquired long-lived assets.
10
The acquisition of the privately held Utah-based company was financed primarily through borrowings under the Company's revolving credit facility.
(6) GOODWILL AND RELATED INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 2024 are as follows (in thousands):
| Residential | Renewables | Agtech | Infrastructure | Total | |||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Adjustments to prior year acquisitions | ( | ( | |||||||||||||||||||||||||||
| Foreign currency translation | ( | ( | |||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Goodwill is recognized net of accumulated impairment losses of $133.2
The Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company determined that no triggering event had occurred as of September 30, 2024 which would require an interim impairment test to be performed.
Acquired Intangible Assets
Acquired intangible assets consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||
| Trademarks | $ | $ | $ | $ | |||||||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||||||||
| Trademarks | |||||||||||||||||||||||
| Unpatented technology | |||||||||||||||||||||||
| Customer relationships | |||||||||||||||||||||||
| Non-compete agreements | |||||||||||||||||||||||
| Total acquired intangible assets | $ | $ | $ | $ | |||||||||||||||||||
The following table summarizes the acquired intangible asset amortization expense (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | |||||||||||||||||||
Amortization expense related to acquired intangible assets for the remainder of fiscal 2024 and the next five years thereafter is estimated as follows (in thousands):
| 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | ||||||||||||||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
11
(7) LONG-TERM DEBT
The Company had no 1.4 million and $1.7 million, respectively.
Revolving Credit Facility
On December 8, 2022, the Company entered into a Credit Agreement (the "Credit Agreement") which provides for a revolving credit facility and letters of credit in an aggregate amount equal to $400 million. The Company can request additional financing to increase the revolving credit facility to $700 million or enter into a term loan of up to $300 million subject to conditions set forth in the Credit Agreement. The Credit Agreement contains two financial covenants. As of September 30, 2024, the Company was in compliance with all financial covenants. The Credit Agreement terminates on December 8, 2027.
Borrowings under the Credit Agreement bear interest, at the Company’s option, at a rate equal to the applicable margin plus (a) a base rate, (b) a daily simple secured overnight financing rate ("SOFR") rate, (c) a term SOFR rate or (d) for certain foreign currencies, a foreign currency rate, in each case subject to a 0 % floor. Through March 31, 2023, the Credit Agreement had an initial applicable margin of 0.125 % for base rate loans and 1.125 % for SOFR and alternative currency loans. Thereafter, the applicable margin ranges from 0.125 % to 1.00 % for base rate loans and from 1.125 % to 2.00 % for SOFR and alternative currency loans based on the Company’s Total Net Leverage Ratio, as defined in the Credit Agreement. In addition, the Credit Agreement is subject to an annual commitment fee, payable quarterly, which was initially 0.20 % of the daily average undrawn balance of the revolving credit facility and, from and after April 1, 2023, ranges between 0.20 % and 0.25 % of the daily average undrawn balance of the revolving credit facility based on the Company’s Total Net Leverage Ratio.
Borrowings under the Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and general intangibles of the Company’s significant domestic subsidiaries. Capital distributions are subject to certain Total Net Leverage Ratio requirements and capped by an annual aggregate limit under the Credit Agreement.
Standby letters of credit of $4.9 million have been issued under the Credit Agreement to third parties on behalf of the Company as of September 30, 2024. These letters of credit reduce the amount otherwise available under the revolving credit facility. The Company had $395.1 million and $396.1 million of availability under the revolving credit facility as of September 30, 2024 and December 31, 2023, respectively.
(8) EQUITY-BASED COMPENSATION
On May 3, 2023, the stockholders of the Company approved the adoption of the Gibraltar Industries, Inc. Amended and Restated 2018 Equity Incentive Plan (the "Amended 2018 Plan") which includes a total of 1,631,707 shares available for issuance. The Amended 2018 Plan allows the Company to grant equity-based incentive compensation awards, in the form of non-qualified options, restricted shares, restricted stock units, performance shares, performance stock units, and stock rights to eligible participants.
The Gibraltar Industries, Inc. Amended and Restated 2016 Stock Plan for Non-Employee Directors ("Non-Employee Directors Plan") which includes 200,000 shares available for issuance, allows the Company to grant awards of shares of the Company's common stock to current non-employee Directors of the Company, and permits the Directors to defer receipt of such shares pursuant to the terms of the Non-Employee Directors Plan.
12
Equity-Based Awards - Settled in Stock
The following table provides the number of stock units granted during the nine months ended September 30, along with the weighted-average grant-date fair value of each award:
| 2024 | 2023 | |||||||||||||||||||||||||
| Awards | Number of Awards | Weighted- Average Grant-Date Fair Value | Number of Awards (2) | Weighted- Average Grant-Date Fair Value | ||||||||||||||||||||||
| Performance stock units (1) | $ | $ | ||||||||||||||||||||||||
| Restricted stock units | $ | $ | ||||||||||||||||||||||||
| Deferred stock units | $ | $ | ||||||||||||||||||||||||
| Common shares | $ | $ | ||||||||||||||||||||||||
(1) The Company’s performance stock units (“PSUs”) represent shares granted for which the final number of shares earned depends on financial performance. The number of shares to be issued may vary between 0 % and 200 % of the number of PSUs granted depending on the relative achievement to targeted thresholds. The Company's PSUs with a financial performance condition are based on the Company’s return on invested capital (“ROIC”) over a one-year performance period.
(2) PSUs granted in the first quarter of 2023 include 7,825 units that were forfeited in the third quarter of 2023 and 154,996 units that will be converted to shares and issued to recipients in the first quarter of 2026, representing 200.0 % of the target amount granted and not subsequently forfeited, based on the Company's actual ROIC compared to ROIC target for the performance period ended December 31, 2023.
Equity-Based Awards - Settled in Cash
The Company's equity-based awards that are settled in cash are the awards under the Management Stock Purchase Plan (the “MSPP”) which is authorized under the Company's equity incentive plans. The MSPP provides participants the ability to defer a portion of their compensation, convertible to unrestricted investments, restricted stock units, or a combination of both, or defer a portion of their directors’ fees, convertible to restricted stock units. Employees eligible to defer a portion of their compensation also receive a company-matching award in restricted stock units equal to a percentage of their deferred compensation.
The deferrals and related company match are credited to an account that contains a share-based liability. The portion of the account deferred to unrestricted investments is measured at fair market value of the unrestricted investments, and the portion of the account deferred to restricted stock units and company-matching restricted stock units is measured at a 200 -day average of the Company’s stock price. The account will be converted to and settled in cash payable to participants upon retirement or a termination of their service to the Company.
Total MSPP liabilities recorded on the consolidated balance sheet as of September 30, 2024 were $24.8 million, of which $2.7 million was included in current accrued expenses and $22.1 million was included in non-current liabilities. Total MSPP liabilities recorded on the consolidated balance sheet as of December 31, 2023 were $20.0 million, of which $2.0 million was included in current accrued expenses and $18.0 million was included in non-current liabilities. The value of the restricted stock units within the MSPP liabilities was $19.3 million and $17.3 million at September 30, 2024 and December 31, 2023, respectively.
The following table provides the number of restricted stock units credited to active participant accounts and the payments made with respect to MSPP liabilities during the nine months ended September 30,:
| 2024 | 2023 | ||||||||||
| Restricted stock units credited | |||||||||||
| MSPP liabilities paid (in thousands) | $ | $ | |||||||||
(9) PRODUCT WARRANTIES
The Company generally warrants that its products will be free from material defects in workmanship and materials. Warranty reserve estimates are based on management’s judgment, considering such factors as historical experience, anticipated rates of claims, and other available information. Management reviews and adjusts these estimates, if necessary, based on the differences between actual experience and historical estimates.
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The reserve for product warranties is presented within accrued expenses on the Company’s consolidated balance sheets. Activity in the product warranties is summarized as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Provisions for product warranties, net of reductions | |||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | |||||||||||||||||||
(10) EXIT ACTIVITY COSTS AND ASSET IMPAIRMENTS
The Company has incurred exit activity costs and asset impairment charges as a result of its 80/20 simplification and portfolio management initiatives. These initiatives have resulted in the identification of low-volume, low margin, internally-produced products which have been or will be outsourced or discontinued, the simplification of processes, the sale and exiting of less profitable businesses or product lines, and a reduction in the Company's manufacturing footprint.
As a result of process simplification initiatives, the Company has incurred exit activity costs related to moving and closing costs and severance, along with asset impairment costs (recoveries) related to the write-down of inventory and other charges such as warranty costs associated with discontinued product lines. Additionally, the Company has incurred the aforementioned costs resulting from the sale and/or closure of facilities including costs recorded during the nine months ended September 30, 2023.
The following tables set forth the exit activity costs and asset impairment charges (recoveries) incurred by segment related to the restructuring activities described above (in thousands):
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| Exit Activity | Asset Impairment | Total | Exit Activity | Asset Impairment | Total | ||||||||||||||||||||||||||||||
| Residential | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Renewables | ( | ||||||||||||||||||||||||||||||||||
| Agtech | |||||||||||||||||||||||||||||||||||
| Infrastructure | |||||||||||||||||||||||||||||||||||
| Corporate | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| Exit Activity | Asset Impairment | Total | Exit Activity | Asset Impairment | Total | ||||||||||||||||||||||||||||||
| Residential | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Renewables | ( | ||||||||||||||||||||||||||||||||||
| Agtech | |||||||||||||||||||||||||||||||||||
| Infrastructure | |||||||||||||||||||||||||||||||||||
| Corporate | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
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The following table provides a summary of where the exit activity costs and asset impairments were recorded in the consolidated statements of income (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Cost of sales | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general, and administrative expense | |||||||||||||||||||||||
| Total exit activity and asset impairment charges | $ | $ | $ | $ | |||||||||||||||||||
The following table reconciles the beginning and ending liability for exit activity costs recorded in current accrued expenses on the consolidated balance sheet relating to the Company’s restructuring efforts (in thousands):
| 2024 | 2023 | ||||||||||
| Balance at January 1 | $ | $ | |||||||||
| Exit activity costs recognized | |||||||||||
| Cash payments | ( | ( | |||||||||
| Balance at September 30 | $ | $ | |||||||||
(11) INCOME TAXES
The following table summarizes the provision for income taxes for continuing operations and the applicable effective tax rates:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Provision for income taxes (in thousands) | $ | $ | $ | $ | |||||||||||||||||||
| Effective tax rate | % | % | % | % | |||||||||||||||||||
(12) EARNINGS PER SHARE
Weighted average shares outstanding for basic and diluted earnings were as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income available to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Denominator for basic earnings per share: | |||||||||||||||||||||||
| Weighted average shares outstanding | |||||||||||||||||||||||
| Denominator for diluted earnings per share: | |||||||||||||||||||||||
| Weighted average shares outstanding | |||||||||||||||||||||||
| Common stock options and stock units | |||||||||||||||||||||||
| Weighted average shares and conversions | |||||||||||||||||||||||
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The following table provides the potential anti-dilutive common stock units not included in the diluted weighted average shares calculations (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Common stock units | |||||||||||||||||||||||
(13) SEGMENT INFORMATION
The Company is organized into four reportable segments on the basis of the production processes, products and services provided by each segment, identified as follows:
(i)Residential, which primarily includes roof and foundation ventilation products, centralized mail systems and electronic package solutions, retractable awnings and gutter guards, rain dispersion products, trims and flashings and other accessories;
(ii)Renewables, which primarily includes designing, engineering, manufacturing and installation of solar racking and electrical balance of systems;
(iii)Agtech, which provides growing solutions including the designing, engineering, manufacturing and installation of greenhouses; and
(iv)Infrastructure, which primarily includes structural bearings, expansion joints and pavement sealant for bridges, airport runways and roadways, elastomeric concrete and bridge cable protection systems.
When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics.
The following table illustrates certain measurements used by management to assess performance of the segments described above (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Residential | $ | $ | $ | $ | |||||||||||||||||||
| Renewables | |||||||||||||||||||||||
| Agtech | |||||||||||||||||||||||
| Infrastructure | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
| Income from operations: | |||||||||||||||||||||||
| Residential | $ | $ | $ | $ | |||||||||||||||||||
| Renewables | |||||||||||||||||||||||
| Agtech | |||||||||||||||||||||||
| Infrastructure | |||||||||||||||||||||||
| Unallocated corporate expenses | ( | ( | ( | ( | |||||||||||||||||||
| Total income from operations | $ | $ | $ | $ | |||||||||||||||||||
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The following table illustrates the total assets of the Company's reportable segments and unallocated corporate assets as of (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Residential | $ | $ | |||||||||
| Renewables | |||||||||||
| Agtech | |||||||||||
| Infrastructure | |||||||||||
| Unallocated corporate assets | |||||||||||
| Total assets | $ | $ | |||||||||
The following tables illustrate segment revenue disaggregated by timing of transfer of control to the customer for the (in thousands):
| Three Months Ended September 30, 2024 | |||||||||||||||||||||||||||||
| Residential | Renewables | Agtech | Infrastructure | Total | |||||||||||||||||||||||||
| Point in Time | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Over Time | |||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||
| Residential | Renewables | Agtech | Infrastructure | Total | |||||||||||||||||||||||||
| Point in Time | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Over Time | |||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Nine Months Ended September 30, 2024 | |||||||||||||||||||||||||||||
| Residential | Renewables | Agtech | Infrastructure | Total | |||||||||||||||||||||||||
| Point in Time | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Over Time | |||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||
| Residential | Renewables | Agtech | Infrastructure | Total | |||||||||||||||||||||||||
| Point in Time | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Over Time | |||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
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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. 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.
The Company uses certain operating performance measures, specifically consolidated gross margin, operating margin by segment and consolidated operating margin, to manage the Company's businesses, set operational goals, and establish performance targets for incentive compensation for the Company's employees. The Company defines consolidated gross margin as a percentage of total consolidated gross profit to total consolidated net sales. 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, consolidated operating 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.
Overview
Gibraltar Industries, Inc. (the "Company") is a leading manufacturer and provider of products and services for the residential, renewable energy, agtech and infrastructure markets.
The Company operates and reports its results in the following four reporting segments:
•Residential
•Renewables
•Agtech
•Infrastructure
The Company serves customers primarily in North America including home improvement retailers, wholesalers, distributors, contractors, renewable energy (solar) developers, and institutional and commercial growers of fruits, vegetables, flowers and other plants.
At September 30, 2024, the Company operated twenty-eight facilities, comprised of twenty-one manufacturing facilities, two distribution centers, and five offices, which are located in fifteen states, Canada, and China. The Company's operational infrastructure provides the necessary scale to support local, regional, and national customers in each of the Company's markets.
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Recent Trends
The Company's customers in the Renewables business continue to be impacted by regulatory, trade and tax policy changes, uncertainty primarily due to investigations and pending finalization of governmental guidance. These include but are not limited to:
•In May 2024, a second independent anti-dumping and countervailing duties ("AD/CVD") investigation was initiated by the U.S. Department of Commerce claiming potentially illegal trade practices with Cambodia, Malaysia, Thailand and Vietnam, the same four countries named in the 2022 AD/CVD case, for which resolution is anticipated in 2025;
•Expiration in 2024 of the Presidential Executive Order that paused tariffs on imports of solar modules for two years. Modules procured during this pause could be subject to significant tariffs if not installed and operating prior to the December 3, 2024 expiration of the tariff moratorium; and
•The Department of Treasury has not yet published final guidance relative to rules under the Inflation Reduction Act in order to maximize tax incentives.
As this uncertainty continues, a portion of our customers paused signing new contracts as they work through trade and/or regulatory issues specific to their projects, including gathering documents to satisfy solar module import tracking requirements.
Business Strategy
The Company's mission is to make life better for people and the planet, fueled by advancing the disciplines of engineering, science, and technology. The Company is innovating to reshape critical markets in sustainable power, comfortable and efficient living, and productive growing throughout North America. Furthermore, the Company strives to create compounding and sustainable value for its stockholders and 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. The Company's business system is a critical enabler to grow, scale, and deliver its plans. The Company's 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. The Business System pillar challenges existing operating paradigms, drives day-to-day performance, forces prioritization of resources, tests the Company's business models, and drives new product and services innovation.
2.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.
3.Organization Development drives the Company’s continuous focus on ensuring it has the right design and structure to scale the organization in order to execute the Company’s plans and meet commitments. The Company's focus is 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. The Company believes doing so helps it attract and retain the best people to execute its business plans.
The Company believes the key elements of the Company's strategy enable the Company to respond timely to changes in the end markets the Company serves, including the broader market dynamics experienced over the past few years. The Company continues to examine the need for restructuring of the Company's operations, including consolidation of facilities, reducing overhead costs, curtailing investments in working capital, and managing the Company's business to generate incremental cash. The Company believes its strategy enables the Company to respond to volatility in commodity and other input costs and fluctuations in customer demand, along with striving to maintain and improve margins. The Company has used cash flows generated by these initiatives to improve the Company's liquidity position, invest in growth initiatives and return capital to the Company's shareholders through share repurchases. Overall, the Company continues to strive to achieve stronger financial results, make more efficient use of capital, and deliver higher stockholder returns.
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Recent Developments
On December 1, 2023, the Company sold its Japan-based solar racking business within its Renewables segment to a third party and received net proceeds of $8.0 million.
Results of Operations
Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
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):
| 2024 | 2023 | ||||||||||||||||||||||
| Net sales | $ | 361,196 | 100.0 | % | $ | 390,744 | 100.0 | % | |||||||||||||||
| Cost of sales | 267,670 | 74.1 | % | 285,360 | 73.0 | % | |||||||||||||||||
| Gross profit | 93,526 | 25.9 | % | 105,384 | 27.0 | % | |||||||||||||||||
| Selling, general, and administrative expense | 49,528 | 13.7 | % | 52,194 | 13.4 | % | |||||||||||||||||
| Income from operations | 43,998 | 12.2 | % | 53,190 | 13.6 | % | |||||||||||||||||
| Interest (income) expense | (1,931) | (0.5) | % | 417 | 0.1 | % | |||||||||||||||||
| Other expense (income) | 455 | 0.1 | % | (1,040) | (0.3) | % | |||||||||||||||||
| Income before taxes | 45,474 | 12.6 | % | 53,813 | 13.8 | % | |||||||||||||||||
| Provision for income taxes | 11,435 | 3.2 | % | 14,536 | 3.7 | % | |||||||||||||||||
| Net income | $ | 34,039 | 9.4 | % | $ | 39,277 | 10.1 | % | |||||||||||||||
The following table sets forth the Company’s net sales by reportable segment for the three months ended September 30, (in thousands):
| Impact of | |||||||||||||||||||||||||||||
| 2024 | 2023 | Total Change | Portfolio Management | Ongoing Operations | |||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||
| Residential | $ | 212,363 | $ | 227,747 | $ | (15,384) | $ | — | $ | (15,384) | |||||||||||||||||||
| Renewables | 84,064 | 106,362 | (22,298) | (4,760) | (17,538) | ||||||||||||||||||||||||
| Agtech | 41,527 | 31,666 | 9,861 | (780) | 10,641 | ||||||||||||||||||||||||
| Infrastructure | 23,242 | 24,969 | (1,727) | — | (1,727) | ||||||||||||||||||||||||
| Consolidated | $ | 361,196 | $ | 390,744 | $ | (29,548) | $ | (5,540) | $ | (24,008) | |||||||||||||||||||
Consolidated net sales decreased by $29.5 million, or 7.6%, to $361.2 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The net sales decrease was largely due to a 6% decrease in organic revenue, the result of a 7% volume decline partially offset by a 1% increase in pricing to customers, along with portfolio management activities in the prior year quarter. Growth in the Company's Agtech segment was more than offset by a $5.5 million decrease in net sales related to portfolio management along with a decline in revenue in the Company's Residential, Renewables and Infrastructure segments. Consolidated backlog decreased 15% to $319 million, as compared to prior year.
Net sales in the Company's Residential segment decreased $15.4 million, or 6.7%, to $212.4 million for the three months ended September 30, 2024 compared to $227.7 million for the three months ended September 30, 2023. The sales decline was driven by a slowdown in the residential market, including the repair and remodel sector, which is impeding the timing and benefit of participation gains as customers take longer to flush inventory from incumbent suppliers.
Net sales in the Company's Renewables segment decreased $22.3 million, or 21.0%, to $84.1 million for the three months ended September 30, 2024 compared to $106.4 million for the three months ended September 30, 2023. The decrease was largely driven by trade and regulatory headwinds associated with the two independent AD/CVD investigations which are compelling the industry to significantly focus on completing panel installations and the administrative reporting requirements ahead of the December 3, 2024 expiration of the tariff moratorium for panels
20
granted through the two-year Presidential Proclamation from June 2022. Order backlog decreased 24% from the prior year as a result of the aforementioned challenges. Order backlog decreased 24% from the prior year as a result of these aforementioned challenges.
Net sales in the Company's Agtech segment increased 30.9%, or $9.9 million, to $41.5 million for the three months ended September 30, 2024 compared to $31.7 million for the three months ended September 30, 2023. The revenue increase was primarily driven by projects starting to accelerate in our produce division. Although backlog decreased 3% year over year in this segment, we anticipate the addition of new projects in both the produce and commercial markets as we complete design work and finalize projects for launch.
Net sales in the Company's Infrastructure segment decreased 7.2%, or $1.7 million, to $23.2 million for the three months ended September 30, 2024 compared to $25.0 million for the three months ended September 30, 2023. The decrease in revenue was a result of timing on a large project in the prior year. Backlog increased 3% from the prior year. Demand and quoting remain strong, supported by continued investment at the federal and state levels.
The Company's consolidated gross margin decreased to 25.9% for the three months ended September 30, 2024 compared to 27.0% for the three months ended September 30, 2023. The decrease was driven by product line mix and volume leverage in the Renewables segment, partially offset by overall continued operational efficiencies along with 80/20 initiatives.
Selling, general, and administrative ("SG&A") expenses decreased by $2.7 million, or 5.1% to $49.5 million for the three months ended September 30, 2024 compared to $52.2 million for the three months ended September 30, 2023. The $2.7 million decrease was primarily due to lower performance-based compensation expense as compared to the prior year quarter. SG&A expenses as a percentage of net sales increased to 13.7% for the three months ended September 30, 2024 compared to 13.4% for the three months ended September 30, 2023.
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):
| 2024 | 2023 | Total Change | |||||||||||||||||||||||||||
| Income from operations: | |||||||||||||||||||||||||||||
| Residential | $ | 42,055 | 19.8 | % | $ | 42,158 | 18.5 | % | $ | (103) | |||||||||||||||||||
| Renewables | 825 | 1.0 | % | 12,907 | 12.1 | % | (12,082) | ||||||||||||||||||||||
| Agtech | 3,853 | 9.3 | % | 2,136 | 6.7 | % | 1,717 | ||||||||||||||||||||||
| Infrastructure | 6,494 | 27.9 | % | 6,386 | 25.6 | % | 108 | ||||||||||||||||||||||
| Unallocated Corporate Expenses | (9,229) | (2.6) | % | (10,397) | (2.7) | % | 1,168 | ||||||||||||||||||||||
| Consolidated income from operations | $ | 43,998 | 12.2 | % | $ | 53,190 | 13.6 | % | $ | (9,192) | |||||||||||||||||||
The Residential segment generated an operating margin of 19.8% in the current year quarter compared to 18.5% in the prior year quarter. Operating margin improved year over year, driven by solid execution, effective price/cost management and 80/20 initiatives.
The Renewables segment generated an operating margin of 1.0% in the current year quarter compared to 12.1% in the prior year quarter. The decrease in operating margin was impacted by lower volume resulting from the aforementioned trade and regulatory challenges in this segment along with product mix associated with the launch and learning curve of the new tracker product line in the current year quarter. Furthermore, margin was impacted by restructuring charges incurred during the quarter related to addressing customer issues arising from discontinued legacy solar tracker solutions.
The Agtech segment generated an operating margin of 9.3% in the current year quarter compared to 6.7% in the prior year quarter. Operating margin improved year over year due to volume leverage, product mix shift, 80/20 initiatives and solid field execution.
The Infrastructure segment generated an operating margin of 27.9% during the three months ended September 30, 2024 compared to 25.6% during the three months ended September 30, 2023. The margin improved year over year due to product line mix, 80/20 initiatives and strong execution.
21
Unallocated corporate expenses decreased $1.2 million from $10.4 million during the three months ended September 30, 2023 to $9.2 million during the three months ended September 30, 2024. The decrease in expense was largely the result of lower performance-based compensation expense as compared to the prior year quarter.
The Company recorded interest income of $1.9 million for the three months ended September 30, 2024, compared to interest expense of $0.4 million for the three months ended September 30, 2023. Income during the current year quarter was the result of earnings on certain interest-bearing cash accounts. Expense in the prior year quarter was the result of an outstanding balance on the Company's revolving credit facility during the three months ended September 30, 2023, while no amounts were outstanding during the three months ended September 30, 2024.
The Company recorded other expense of $0.5 million for the three months ended September 30, 2024, compared to other income of $1.0 million recorded for the three months ended September 30, 2023. The change year over year is the result of costs related to the liquidation of the processing business.
The Company recognized a provision for income taxes of $11.4 million and $14.5 million, with effective tax rates of 25.1% and 27.0% for the three months ended September 30, 2024, and 2023, respectively. The effective tax rate for the three months ended September 30, 2024, and 2023, 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.
Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
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):
| 2024 | 2023 | ||||||||||||||||||||||
| Net sales | $ | 1,006,707 | 100.0 | % | $ | 1,048,925 | 100.0 | % | |||||||||||||||
| Cost of sales | 732,920 | 72.8 | % | 769,873 | 73.4 | % | |||||||||||||||||
| Gross profit | 273,787 | 27.2 | % | 279,052 | 26.6 | % | |||||||||||||||||
| Selling, general, and administrative expense | 155,584 | 15.5 | % | 153,415 | 14.6 | % | |||||||||||||||||
| Income from operations | 118,203 | 11.7 | % | 125,637 | 12.0 | % | |||||||||||||||||
| Interest (income) expense | (4,176) | (0.5) | % | 3,216 | 0.3 | % | |||||||||||||||||
| Other income | (219) | 0.0 | % | (1,946) | (0.2) | % | |||||||||||||||||
| Income before taxes | 122,598 | 12.2 | % | 124,367 | 11.9 | % | |||||||||||||||||
| Provision for income taxes | 31,415 | 3.1 | % | 33,268 | 3.2 | % | |||||||||||||||||
| Net income | $ | 91,183 | 9.1 | % | $ | 91,099 | 8.7 | % | |||||||||||||||
The following table sets forth the Company’s net sales by reportable segment for the nine months ended September 30, (in thousands):
| Impact of | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Total Change | Acquisitions | Portfolio Management | Ongoing Operations | ||||||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||||||||
| Residential | $ | 611,790 | $ | 635,476 | $ | (23,686) | $ | 3,480 | $ | — | $ | (27,166) | |||||||||||||||||||||||
| Renewables | |||||||||||||||||||||||||||||||||||