Gibraltar Industries(ROCK) - 2020 Q4 - Annual Report

PART I Business Gibraltar Industries provides products for renewable energy, residential, and infrastructure markets, expanding through 2020 acquisitions and growing backlog to $297 million - The company's strategy is built on three core pillars: Business System (operational efficiency), Portfolio Management (optimizing business mix), and Organization Development (talent and culture)[15] 2020 Acquisitions | Business Acquired | Date of Acquisition | Preliminary Purchase Price (in millions) | Description | | :--- | :--- | :--- | :--- | | TerraSmart LLC | December 31 | $228.0 | Provider of screw-based, ground-mount solar racking technology | | Sunfig Corporation | December 11 | $4.0 | Provider of software solutions for solar energy investment optimization | | Architectural Mailboxes | October 15 | $27.0 | Provider of decorative residential mailboxes | | Delta Separations | February 13 | $46.0 | Provider of ethanol-based botanical extraction systems | | Thermo Energy Systems | January 15 | $7.0 | Provider of commercial greenhouse solutions | - In Q4 2020, the company classified its Industrial business as held for sale and reported its results as discontinued operations to focus on higher-growth markets[17][28] - The company operates in three reporting segments: Renewable Energy and Conservation, Residential Products, and Infrastructure Products[20][21] - Backlog from continuing operations increased by 50% year-over-year, from $198 million at the end of 2019 to $297 million at the end of 2020, primarily related to the Renewable Energy and Conservation and Infrastructure segments[50] - As of December 31, 2020, the company employed 2,337 people (939 salaried, 1,398 hourly) and focused on human capital initiatives like health, safety, and diversity, with the Total Recordable Incident Rate (TRIR) improving by 37% in 2020[58][62] Risk Factors The company faces significant risks including customer concentration, cannabis industry uncertainties, market competition, and acquisition integration challenges - A single home improvement retail customer accounted for 14% of consolidated net sales in 2020, 2019, and 2018, representing a significant customer concentration risk[95] - A portion of the business depends on the cannabis industry, which faces risks as cannabis remains illegal under U.S. federal law, despite state-level legalization[96] - The business is dependent on federal, state, and local government incentives for solar power, and the reduction or elimination of these credits could adversely impact demand for related products[103] - The COVID-19 pandemic poses ongoing risks, including supply chain disruptions, reduced workforce availability, and potential decreases in customer demand, which could materially impact business operations[113] - The company's acquisition strategy involves risks such as failure to properly integrate new businesses and their IT systems, diversion of management attention, and potential unforeseen liabilities[109][111] - Volatility in the price of principal raw materials, including steel, aluminum, and resins, could significantly impact gross profit and cash flow[120] Unresolved Staff Comments The company reports no unresolved staff comments - None[126] Properties As of December 31, 2020, the company operated 38 facilities globally, including 27 manufacturing plants, with 9 owned and 29 leased Properties by Segment and Type (as of Dec 31, 2020) | Segment | Manufacturing Plants | Distribution Centers | Offices | Total Facilities | Owned | Leased | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Renewable Energy & Conservation | 13 | 2 | 5 | 20 | 2 | 18 | | Residential Products | 12 | 0 | 2 | 14 | 5 | 9 | | Infrastructure Products | 2 | 0 | 0 | 2 | 2 | 0 | | Corporate | 0 | 0 | 2 | 2 | 0 | 2 | | Total | 27 | 2 | 9 | 38 | 9 | 29 | Legal Proceedings The company is not a party to any material pending legal proceedings, only ordinary, routine litigation incidental to its business - The Company is not a party to any material pending legal proceedings[129] Mine Safety Disclosures This section is not applicable to the company - Not applicable[130] PART II Market for Common Equity and Related Stockholder Matters The company's common stock trades on the NASDAQ under the symbol "ROCK", with 39 shareholders of record as of February 24, 2021, and no cash dividends declared in 2020 or 2019 - The Company's common stock is traded on NASDAQ under the symbol "ROCK"[132] - No cash dividends were declared in 2020 or 2019, as the company plans to use cash for reinvestment and acquisitions[133] Management's Discussion and Analysis of Financial Condition and Results of Operations The company's 2020 financial performance saw 15.0% net sales growth to $1.03 billion, with improved operating income and liquidity, and strong 2021 revenue projections Results of Operations In 2020, consolidated net sales grew 15.0% to $1.03 billion from acquisitions and organic growth, improving gross margin to 24.8% and operating margin to 10.4% Consolidated Financial Highlights (2020 vs. 2019) | Metric (in thousands) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $1,032,578 | $898,233 | 15.0% | | Gross profit | $256,343 | $219,897 | 16.6% | | Income from operations | $107,190 | $80,812 | 32.6% | | Net income | $64,566 | $65,091 | -0.8% | | Gross Margin | 24.8% | 24.5% | +30 bps | | Operating Margin | 10.4% | 9.0% | +140 bps | Net Sales by Segment (2020 vs. 2019, in thousands) | Segment | 2020 | 2019 | Total Change | Change due to Acquisitions | Change due to Operations | | :--- | :--- | :--- | :--- | :--- | :--- | | Renewable Energy & Conservation | $447,567 | $373,023 | $74,544 | $84,598 | $(10,054) | | Residential Products | $522,814 | $461,630 | $61,184 | $5,315 | $55,869 | | Infrastructure Products | $62,197 | $63,580 | $(1,383) | $0 | $(1,383) | | Consolidated | $1,032,578 | $898,233 | $134,345 | $89,913 | $44,432 | - Operating margin in the Residential Products segment increased significantly to 18.1% in 2020 from 13.7% in 2019, driven by volume leverage, cost management, and simplification initiatives[147][148] Outlook The company projects full-year 2021 consolidated revenues between $1.30 billion and $1.35 billion, with GAAP EPS expected to range from $2.78 to $2.95 Full Year 2021 Guidance | Metric | 2021 Guidance | 2020 Actual | | :--- | :--- | :--- | | Consolidated Revenues | $1.30B - $1.35B | $1.03B | | GAAP EPS | $2.78 - $2.95 | $2.53 | Liquidity and Capital Resources Total liquidity decreased to $341.2 million in 2020 due to acquisitions, with operating cash flow at $73.0 million and $324.7 million used in investing activities Liquidity Position (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $32,054 | $191,363 | | Availability on revolving credit facility | $309,175 | $393,991 | | Total Liquidity | $341,229 | $585,354 | Cash Flow Summary (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Operating activities of continuing operations | $73,016 | $112,536 | | Investing activities of continuing operations | $(324,677) | $(17,279) | | Financing activities of continuing operations | $79,463 | $(217,050) | - Net cash used in investing activities of $324.7 million was primarily for the acquisition of five businesses ($313.7 million)[164] - Net cash from financing activities of $79.5 million was driven by an $85 million draw on the revolving credit facility to help finance the TerraSmart acquisition[151][166] Critical Accounting Estimates Critical accounting estimates include revenue recognition for long-term contracts (40% of 2020 sales), annual impairment testing of goodwill and intangibles (47% of total assets), and fair value determination in acquisitions - Revenue recognized over time using the cost-to-cost method represented 40% of 2020 consolidated net sales, requiring significant estimation of total contract costs[175] - Goodwill and indefinite-lived intangible assets totaled $514.3 million and $56.6 million, respectively, representing 47% of total assets as of December 31, 2020, and are tested annually for impairment[178] - No impairment charges against goodwill were recorded in 2020, 2019, or 2018[183] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from volatile raw material prices, interest rate fluctuations on $85.0 million variable-rate debt, and foreign exchange exposure from international operations - The company is subject to market risk from volatile prices of its principal raw materials: steel, aluminum, and resins[193] - As of December 31, 2020, the company had $85.0 million in variable-rate debt, and a hypothetical 1% increase in interest rates would change 2020 interest expense by $0.2 million[197][198] - The company has foreign exchange risk from international operations, with sales originating outside the U.S. representing approximately 7% of consolidated net sales in 2020[122][199] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2020, including statements of operations, balance sheets, and cash flows, detailing $1.03 billion net sales, $64.6 million net income, and the impact of acquisitions and discontinued operations Consolidated Statements of Operations (in thousands) | | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net sales | $1,032,578 | $898,233 | $837,097 | | Gross profit | $256,343 | $219,897 | $210,926 | | Income from operations | $107,190 | $80,812 | $81,141 | | Income from continuing operations | $83,291 | $59,928 | $54,112 | | (Loss) income from discontinued operations | $(18,725) | $5,163 | $9,697 | | Net income | $64,566 | $65,091 | $63,809 | | Diluted EPS | $1.96 | $1.99 | $1.96 | Consolidated Balance Sheets (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total current assets | $425,460 | $437,102 | | Total assets | $1,212,494 | $984,450 | | Total current liabilities | $302,240 | $229,197 | | Long-term debt | $85,636 | $0 | | Total liabilities | $468,689 | $300,486 | | Total shareholders' equity | $743,805 | $673,964 | - The Industrial business was classified as held for sale, resulting in a pre-tax loss from discontinued operations of $16.6 million in 2020, which includes a $29.6 million loss recognized on the classification[351][355] - During 2020, the company acquired five businesses for a total preliminary purchase consideration of $313.3 million, significantly increasing goodwill and intangible assets[286] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section is not applicable to the company - Not applicable[383] Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, excluding five 2020 acquisitions from the assessment scope - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the reporting period[384] - Management concluded that the Company's internal control over financial reporting was effective as of December 31, 2020[385] - The five acquisitions completed in 2020 (Thermo, Delta Separations, Architectural Mailboxes, Sunfig, and TerraSmart) were excluded from management's annual report on internal control over financial reporting[386] PART III Directors, Executive Officers, and Corporate Governance Information regarding directors, executive officers, and corporate governance matters is incorporated by reference from the company's 2021 Proxy Statement - Required information is incorporated by reference to the Company's 2021 Proxy Statement[401] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2021 Proxy Statement - Required information is incorporated by reference to the Company's 2021 Proxy Statement[403] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and equity compensation plans is incorporated by reference from the company's 2021 Proxy Statement - Required information is incorporated by reference to the Company's 2021 Proxy Statement[404] Certain Relationships and Related Transactions and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the company's 2021 Proxy Statement - Required information is incorporated by reference to the Company's 2021 Proxy Statement[405] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2021 Proxy Statement - Required information is incorporated by reference to the Company's 2021 Proxy Statement[406] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, including consolidated financial statements and various corporate documents - This section lists all documents filed as part of the Form 10-K, including financial statements, schedules, and exhibits required by Item 601 of Regulation S-K[408][411]