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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 https://cdn.kscope.io/353ec371564f7c8133d9de66b69d8354-gibindcolorlogonotaga03.gif
 
FORM 10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
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 0-22462
 
 
GIBRALTAR INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
 
 
 
Delaware
 
16-1445150
(State or incorporation )
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
3556 Lake Shore Road
P.O. Box 2028
Buffalo
New York
 
14219-0228
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (716826-6500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.01 par value per share
 
ROCK
 
NASDAQ Stock Market
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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
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 May 4, 2020, the number of common shares outstanding was: 32,408,882.




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 
 March 31,
 
2020
 
2019
Net Sales
$
249,439

 
$
227,417

Cost of sales
193,052

 
183,517

Gross profit
56,387

 
43,900

Selling, general, and administrative expense
41,197

 
33,334

Income from operations
15,190

 
10,566

Interest (income) expense
(47
)
 
2,061

Other expense
192

 
589

Income before taxes
15,045

 
7,916

Provision for income taxes
2,986

 
1,571

Net income
$
12,059

 
$
6,345

 
 
 
 
Net earnings per share:
 
 
 
Basic
$
0.37

 
$
0.20

Diluted
$
0.37

 
$
0.19

Weighted average shares outstanding:
 
 
 
Basic
32,586

 
32,279

Diluted
32,883

 
32,617

See accompanying notes to consolidated financial statements.

3



GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three Months Ended 
 March 31,
 
2020
 
2019
Net income
$
12,059

 
$
6,345

Other comprehensive (loss) income:
 
 
 
Foreign currency translation adjustment
(5,898
)
 
842

Minimum pension and post retirement benefit plan adjustments
18

 
12

Other comprehensive (loss) income
(5,880
)
 
854

Total comprehensive income
$
6,179

 
$
7,199

See accompanying notes to consolidated financial statements.

4



GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

 
March 31,
2020
 
December 31,
2019
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
85,966

 
$
191,363

Accounts receivable, net of allowance of $5,781 and $6,330
172,452

 
147,515

Inventories
88,585

 
78,476

Prepaid expenses and other current assets
16,149

 
19,748

Total current assets
363,152

 
437,102

Property, plant, and equipment, net
95,882

 
95,409

Operating lease assets
33,991

 
27,662

Goodwill
382,045

 
329,705

Acquired intangibles
107,528

 
92,592

Other assets
1,924

 
1,980

 
$
984,522

 
$
984,450

Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
102,816

 
$
83,136

Accrued expenses
84,140

 
98,463

Billings in excess of cost
34,567

 
47,598

Total current liabilities
221,523

 
229,197

Deferred income taxes
39,999

 
40,334

Non-current operating lease liabilities
24,968

 
19,669

Other non-current liabilities
20,675

 
21,286

Shareholders’ equity:
 
 
 
Preferred stock, $0.01 par value; authorized 10,000 shares; none outstanding

 

Common stock, $0.01 par value; authorized 50,000 shares; 33,388 shares and 33,192 shares issued and outstanding in 2020 and 2019
334

 
332

Additional paid-in capital
297,269

 
295,582

Retained earnings
417,436

 
405,668

Accumulated other comprehensive loss
(11,271
)
 
(5,391
)
Cost of 986 and 906 common shares held in treasury in 2020 and 2019
(26,411
)
 
(22,227
)
Total shareholders’ equity
677,357

 
673,964

 
$
984,522

 
$
984,450

See accompanying notes to consolidated financial statements.

5



GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)(unaudited) 
 
Three Months Ended 
 March 31,
 
2020
 
2019
Cash Flows from Operating Activities
 
 
 
Net income
$
12,059

 
$
6,345

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
5,338

 
4,941

Stock compensation expense
1,665

 
2,371

(Benefit of) provision for deferred income taxes
(216
)
 
393

Other, net
411

 
2,456

Changes in operating assets and liabilities, excluding the effects of acquisitions:
 
 
 
Accounts receivable
(7,059
)
 
(27,623
)
Inventories
(6,004
)
 
35

Other current assets and other assets
6,144

 
165

Accounts payable
(17,789
)
 
5,332

Accrued expenses and other non-current liabilities
(37,561
)
 
(31,903
)
Net cash used in operating activities
(43,012
)
 
(37,488
)
Cash Flows from Investing Activities
 
 
 
Acquisitions, net of cash acquired
(54,539
)
 
(264
)
Net proceeds from sale of property and equipment
52

 
22

Purchases of property, plant, and equipment
(2,822
)
 
(3,132
)
Net cash used in investing activities
(57,309
)
 
(3,374
)
Cash Flows from Financing Activities
 
 
 
Long-term debt payments

 
(210,000
)
Payment of debt issuance costs

 
(1,235
)
Purchase of treasury stock at market prices
(4,184
)
 
(2,151
)
Net proceeds from issuance of common stock
24

 
139

Net cash used in financing activities
(4,160
)
 
(213,247
)
Effect of exchange rate changes on cash
(916
)
 
612

Net decrease in cash and cash equivalents
(105,397
)
 
(253,497
)
Cash and cash equivalents at beginning of year
191,363

 
297,006

Cash and cash equivalents at end of period
$
85,966

 
$
43,509

See accompanying notes to consolidated financial statements.

6



GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited) 
 
Common Stock
 
Additional
Paid-In Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive Loss
 
Treasury Stock
 
Total
Shareholders’ Equity
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Balance at December 31, 2019
33,192

 
$
332

 
$
295,582

 
$
405,668

 
$
(5,391
)
 
906

 
$
(22,227
)
 
$
673,964

Net income

 

 

 
12,059

 

 

 

 
12,059

Foreign currency translation adjustment

 

 

 

 
(5,898
)
 

 

 
(5,898
)
Minimum pension and post retirement benefit plan adjustments, net of taxes of $7

 

 

 

 
18

 

 

 
18

Stock compensation expense

 

 
1,665

 

 

 

 

 
1,665

Cumulative effect of accounting change (See Note 2)

 

 

 
(291
)
 

 

 

 
(291
)
Stock options exercised
3

 

 
24

 

 

 

 

 
24

Net settlement of restricted stock units
193

 
2

 
(2
)
 

 

 
80

 
(4,184
)
 
(4,184
)
Balance at March 31, 2020
33,388

 
$
334

 
$
297,269

 
$
417,436

 
$
(11,271
)
 
986

 
$
(26,411
)
 
$
677,357


See accompanying notes to consolidated financial statements.

7



GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited) 
 
Common Stock
 
Additional
Paid-In Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive Loss
 
Treasury Stock
 
Total
Shareholders’ Equity
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Balance at December 31, 2018
32,887

 
$
329

 
$
282,525

 
$
338,995

 
$
(7,234
)
 
796

 
$
(17,922
)
 
$
596,693

Net income

 

 

 
6,345

 

 

 

 
6,345

Foreign currency translation adjustment

 

 

 

 
842

 

 

 
842

Minimum pension and post retirement benefit plan adjustments, net of taxes of $4

 

 

 

 
12

 

 

 
12

Stock compensation expense

 

 
2,371

 

 

 

 

 
2,371

Cumulative effect of accounting change

 

 

 
1,582

 

 

 

 
1,582

Stock options exercised
12

 

 
139

 

 

 

 

 
139

Net settlement of restricted stock units
127

 
1

 
(1
)
 

 

 
59

 
(2,151
)
 
(2,151
)
Balance at March 31, 2019
33,026

 
$
330

 
$
285,034

 
$
346,922

 
$
(6,380
)
 
855

 
$
(20,073
)
 
$
605,833


See accompanying notes to consolidated financial statements.

8



GIBRALTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(1)
CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements 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, such as the impact of the COVID-19 pandemic, financial results for any interim period are not necessarily indicative of the results expected for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual Form 10-K for the year ended December 31, 2019.

The balance sheet at December 31, 2019 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.




9





(2)
RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements Adopted
Standard
 
Description
 
Financial Statement Effect or Other Significant Matters
ASU No. 2016-13
Financial Instruments - Credit Losses
(Topic 326)

 
The objective of this standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit, including trade receivables, held by an entity at each reporting date. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

 
The standard is effective for the Company as of January 1, 2020. The Company adopted the amendments in this update using the modified retrospective approach through a cumulative-effect adjustment to retained earnings of $291,000, net of $96,000 of income taxes, on the opening consolidated balance sheet as of January 1, 2020. The Company's financial assets that are in the scope of the standard are contract assets and accounts receivables which are short-term in nature. Additionally, the Company has identified and implemented appropriate changes to the Company's business processes, policies and internal controls to support reporting and disclosures.


Date of adoption: Q1 2020

ASU 2018-15
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

 
The amendments in this update require an entity to apply the same requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract as the entity would for implementation costs incurred to develop or obtain internal-use software. The accounting for the service element is not affected by the amendments in this update.

 
The standard is effective for the Company as of January 1, 2020. The Company adopted the amendments in this update using the prospective method of adoption, and the adoption did not have a material impact to the Company's financial statements.


Date of adoption: Q1 2020



Recent Accounting Pronouncements Not Yet Adopted
Standard
 
Description
 
Financial Statement Effect or Other Significant Matters
ASU No. 2019-12
Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes

 
The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improve consistent application by clarifying and amending existing guidance. The amendments of this standard are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued, with the amendments to be applied on a respective, modified retrospective or prospective basis, depending on the specific amendment.

 
The Company is currently evaluating the requirements of this standard. The standard is not expected to have a material impact on the Company's financial statements.











Date of adoption: Q1 2021



10



(3)
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable consists of the following (in thousands):
 
March 31, 2020
 
December 31, 2019
Trade accounts receivable
$
156,399

 
$
133,238

Costs in excess of billings
21,834

 
20,607

Total accounts receivables
178,233

 
153,845

Less allowance for doubtful accounts and contract assets
(5,781
)
 
(6,330
)
Accounts receivable
$
172,452

 
$
147,515



Refer to Note 4 "Revenue" concerning the Company's costs in excess of billings.

The Company is exposed to credit losses through sales of products and services. The Company’s expected loss allowance methodology for accounts receivable and costs in excess of billings (collectively "accounts receivable") is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of customers' accounts receivables. Due to the short-term nature of such accounts receivable, the estimated amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances. Additionally, specific allowance amounts are established to record the appropriate provision for customers that no longer share risk characteristics similar with other accounts receivable. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the coronavirus ("COVID-19") pandemic and determined that the estimate of credit losses was not significantly impacted as of March 31, 2020.

Estimates are used to determine the allowance. It is based on assessment of anticipated payment and all other historical, current and future information that is reasonably available.

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.
Beginning balance as of January 1, 2020
$
6,330

Adoption of ASU 2016-13, cumulative-effect adjustment to retained earnings
387

Bad debt expense
69

Write-off charged against the allowance and other adjustments
(1,005
)
Ending balance as of March 31, 2020
$
5,781




(4)
REVENUE

Sales includes revenue from contracts with customers for designing, engineering, manufacturing and installation of solar racking systems and greenhouse structures; extraction systems; roof and foundation ventilation products; centralized mail systems and electronic package solutions; rain dispersion products and roofing accessories; expanded and perforated metal; perimeter security solutions; expansion joints and structural bearings.

Refer to Note 14 "Segment Information" for additional information related to revenue recognized by timing of transfer of control by reportable segment.

As of March 31, 2020, the Company's remaining performance obligations are part of contracts that have an original expected duration of one year or less.

Contract assets consist of costs in excess of billings. Contract liabilities consist of billings in excess of cost and unearned revenue. The following table presents the beginning and ending balances of costs in excess of billings, billings in excess of cost and unearned revenue as of March 31, 2020 and December 31, 2019, respectively, and

11



revenue recognized during the three months ended March 31, 2020 and 2019, respectively, that was in billings in excess of cost and unearned revenue at the beginning of the period (in thousands):
 
March 31, 2020
 
December 31, 2019
Costs in excess of billings
$
21,834

 
$
20,607

Billings in excess of cost
(34,567
)
 
(47,598
)
Unearned revenue
(19,388
)
 
(17,311
)
 
Three Months Ended
March 31, 2020
 
Three Months Ended
March 31, 2019
Revenue recognized in the period from:
 
 
 
Amounts included in billings in excess of cost
 at the beginning of the period
$
29,221

 
$
9,697

Amounts included in unearned revenue
 at the beginning of the period
$
9,619

 
$
4,661




(5)
INVENTORIES

Inventories consist of the following (in thousands):
 
March 31, 2020
 
December 31, 2019
Raw material
$
50,601

 
$
45,700

Work-in-process
9,471

 
5,988

Finished goods
28,513

 
26,788

Total inventories
$
88,585

 
$
78,476




12



(6)    ACQUISITIONS

On February 13, 2020, the Company purchased substantially all of the assets of Delta Separations, LLC, a California limited liability company, and Teaching Tech, LLC, a California limited liability company (collectively described as "Delta Separations"). Delta Separations was a privately-held engineering company primarily engaged in the assembly and sale of centrifugal ethanol-based extraction systems. The results of Delta Separations have been included in the Company's consolidated financial results since the date of acquisition within the Company's Renewable Energy and Conservation segment. The preliminary purchase consideration for the acquisition of Delta Separations was $47.2 million, which includes a working capital adjustment and certain other adjustments provided for in the asset purchase agreement expected to be remitted in the next three to six months, at which time a final purchase price will be determined.

The purchase price for the acquisition of the assets was preliminarily allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill and approximated $39.3 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 presence in the extraction processing markets.

The preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
Working capital
$
3,183

Property, plant and equipment
337

Acquired intangible assets
7,600

Other assets
923

Other liabilities
(4,189
)
Goodwill
39,335

Fair value of purchase consideration
$
47,189




The intangible assets acquired in this acquisition consisted of the following (in thousands):
 
Fair Value
 
Weighted-Average Amortization Period
Trademarks
$
2,000

 
5 years
Technology
2,200

 
10 years
Customer relationships
3,400

 
5 years
Total
$
7,600

 
 


On January 15, 2020, the Company purchased substantially all of the assets of Thermo Energy Systems, Inc., a Canadian-based, privately held provider of commercial greenhouse solutions in North America supporting the plant based organic food market. The results of Thermo Energy Systems have been included in the Company's consolidated financial results since the date of acquisition within the Company's Renewable Energy and Conservation segment. The preliminary purchase consideration for the acquisition of Thermo Energy Systems was $7.3 million.
The purchase price for the acquisition was preliminarily allocated to the assets acquired and liabilities assumed based upon their respective estimated fair values and the remaining consideration was recorded to goodwill. Goodwill of approximately $13.3 million was recorded, 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 commercial greenhouse markets.

13



The preliminary 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):
Cash
$
58

Working capital
(16,464
)
Property, plant and equipment
1,029

Acquired intangible assets
9,386

Other assets
1,285

Other liabilities
(1,285
)
Goodwill
13,324

Fair value of purchase consideration
$
7,333



The intangible assets acquired in this acquisition consisted of the following (in thousands):
 
Fair Value
 
Weighted-Average Amortization Period
Trademarks
$
635

 
3 years
Technology
2,541

 
15 years
Customer relationships
6,210

 
10 years
Total
$
9,386

 
 


On August 30, 2019, the Company acquired all of the outstanding membership interests of Apeks LLC ("Apeks"), a designer and manufacturer of botanical oil extraction systems and equipment. The results of Apeks have been included in the Company's consolidated financial results since the date of acquisition within the Company's Renewable Energy and Conservation segment. The aggregate purchase consideration for the acquisition of Apeks was $12.6 million, which includes a working capital adjustment and certain other adjustments provided for in the stock purchase agreement.
The purchase price for the acquisition was preliminarily allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill and approximated $5.9 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 presence in the extraction processing markets.
The preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
Cash
$
4,154

Working capital
(1,412
)
Property, plant and equipment
1,059

Acquired intangible assets
3,400

Other assets
508

Other liabilities
(1,081
)
Goodwill
5,933

Fair value of purchase consideration
$
12,561




14



The intangible assets acquired in this acquisition consisted of the following (in thousands):
 
Fair Value
 
Weighted-Average Amortization Period
Trademarks
$
1,900

 
5 years
Technology
900

 
7 years
Customer relationships
600

 
6 years
Total
$
3,400

 
 


In determining the allocation of the purchase price to the assets acquired and the 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.

The acquisitions of Delta Separations, Thermo Energy Systems and Apeks were funded from available cash on hand.

The Company incurred certain acquisition-related costs composed of legal and consulting fees. These costs were recognized as a component of selling, general, and administrative expenses in the consolidated statement of operations.
During the three months ended March 31, 2020, the Company incurred $1.3 million of acquisition-related costs. The Company did not incur any acquisition-related costs during the three months ended March 31, 2019.


(7)
GOODWILL AND RELATED INTANGIBLE ASSETS

Goodwill
The changes in the carrying amount of goodwill for the three months ended March 31, 2020 are as follows (in thousands):
 
Renewable Energy & Conservation
 
Residential Products
 
Industrial and
Infrastructure
Products
 
Total
Balance at December 31, 2019
$
77,602

 
$
198,075

 
$
54,028

 
$
329,705

Acquired goodwill
52,659

 

 

 
52,659

Adjustments to prior year acquisitions
75

 

 

 
75

Foreign currency translation
75

 

 
(469
)
 
(394
)
Balance at March 31, 2020
$
130,411

 
$
198,075

 
$
53,559

 
$
382,045



The Company conducts its annual goodwill impairment test as of October 31 each year. All of the Company’s ten reporting units had fair values exceeding their carrying values as of October 31, 2019. In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company considered the current and future macroeconomic and market conditions, along with its current market capitalization, projected cash flows and internal and external forecasts, and projections relating to the impact of the COVID-19 pandemic on each of its reporting units. The Company determined that a triggering event has not occurred which would require an interim impairment test to be performed.

15



Acquired Intangible Assets
Acquired intangible assets consist of the following (in thousands):
 
March 31, 2020
 
December 31, 2019
 
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Weighted-Average Amortization Period
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
Trademarks
$
45,770

 
$

 
$
45,770

 
$

 
Indefinite
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
Trademarks
8,693

 
4,239

 
6,139

 
4,105

 
3 to 15 Years
Unpatented technology
34,289

 
16,354

 
29,544

 
15,807

 
5 to 20 Years
Customer relationships
80,777

 
41,490

 
71,195

 
40,294

 
5 to 17 Years
Non-compete agreements
1,649

 
1,567

 
1,649

 
1,499

 
4 to 10 Years
 
125,408

 
63,650

 
108,527

 
61,705

 
 
Total acquired intangible assets
$
171,178

 
$
63,650

 
$
154,297

 
$
61,705

 
 


The following table summarizes the acquired intangible asset amortization expense for the three months ended March 31 (in thousands):
 
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
Amortization expense
 
$
2,078

 
$
1,797



Amortization expense related to acquired intangible assets for the remainder of fiscal 2020 and the next five years thereafter is estimated as follows (in thousands):
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025
Amortization expense
$
5,311

 
$
6,937

 
$
6,459

 
$
5,921

 
$
5,666

 
$
5,566




(8)
LONG-TERM DEBT

The Company did not have any long-term debt outstanding at March 31, 2020 and December 31, 2019.

Senior Credit Agreement

On January 24, 2019, the Company entered into a Sixth Amended and Restated Credit Agreement ("Senior Credit Agreement"), which amends and restates the Company’s Fifth Amended and Restated Credit Agreement dated December 9, 2015, and provides for a revolving credit facility and letters of credit in an aggregate amount equal to $400 million. The Company can request additional financing from the lenders 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 Senior Credit Agreement. The 2019 Senior Credit Agreement contains three financial covenants. As of March 31, 2020, the Company is in compliance with all three covenants.

Borrowings under the Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and general intangibles of the Company’s significant domestic subsidiaries.

Standby letters of credit of $5.9 million have been issued under the Senior Credit Agreement on behalf of the Company as of March 31, 2020. These letters of credit reduce the amount otherwise available under the revolving credit facility. As of March 31, 2020, the Company had $394.1 million of availability under the revolving credit facility. No borrowings were outstanding under the Company's revolving credit facility at March 31, 2020 and December 31, 2019.


16




(9)
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following tables summarize the cumulative balance of each component of accumulated other comprehensive loss, net of tax, for the three months ended March 31, (in thousands):
 
Foreign Currency Translation Adjustment
 
Minimum  pension and post retirement benefit plan
adjustments
 
Total Pre-Tax Amount
 
Tax (Benefit) Expense
 
Accumulated  Other
Comprehensive
(Loss) Income
Balance at December 31, 2019
$
(4,173
)
 
$
(1,939
)
 
$
(6,112
)
 
$
(721
)
 
$
(5,391
)
Minimum pension and post retirement health care plan adjustments

 
25

 
25

 
7

 
18

Foreign currency translation adjustment
(5,898
)
 

 
(5,898
)
 

 
(5,898
)
Balance at March 31, 2020
$
(10,071
)
 
$
(1,914
)
 
$
(11,985
)
 
$
(714
)
 
$
(11,271
)


 
Foreign Currency Translation Adjustment
 
Minimum  pension and post retirement benefit plan
adjustments
 
Total Pre-Tax Amount
 
Tax (Benefit) Expense
 
Accumulated  Other
Comprehensive
(Loss) Income
Balance at December 31, 2018
$
(5,939
)
 
$
(2,040
)
 
$
(7,979
)
 
$
(745
)
 
$
(7,234
)
Minimum pension and post retirement health care plan adjustments

 
16

 
16

 
4

 
12

Foreign currency translation adjustment
842

 

 
842

 

 
842

Balance at March 31, 2019
$
(5,097
)
 
$
(2,024
)
 
$
(7,121
)
 
$
(741
)
 
$
(6,380
)


The realized adjustments relating to the Company’s minimum pension liability and post retirement health care costs were reclassified from accumulated other comprehensive loss and included in other expense in the consolidated statements of income.

(10)
EQUITY-BASED COMPENSATION
On May 4, 2018, the shareholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2018 Equity Incentive Plan (the "2018 Plan"). The 2018 Plan provides for the issuance of up to 1,000,000 shares of common stock and supplements the remaining shares available for issuance under the existing Gibraltar Industries, Inc. 2015 Equity Incentive Plan (the "2015 Plan"). Both the 2018 Plan and the 2015 Plan allow 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.
In 2016, the shareholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2016 Stock Plan for Non-Employee Directors ("Non-Employee Directors Plan") which allows the Company to grant awards of shares of the Company's common stock to 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.


17



Equity Based Awards - Settled in Stock

The following table sets forth the number of equity-based awards granted during the three months ended March 31, which will convert to shares upon vesting, along with the weighted average grant date fair values:
 
2020
 
2019
Awards
Number of
Awards (1)
 
Weighted
Average
Grant Date
Fair Value
 
Number of
Awards (2)
 
Weighted
Average
Grant Date
Fair Value
Performance stock units
123,870

 
$
53.29

 
145,420

 
$
40.55

Restricted stock units
42,101

 
$
52.31

 
117,821

 
$
39.37


(1) The Company’s performance stock units (“PSUs”) represent shares granted for which the final number of shares earned depends on financial performance or market conditions. The number of shares to be issued may vary between 0% and 200% of the number of performance stock units granted depending on the relative achievement to targeted thresholds. The Company's PSUs with a financial performance condition are based on either the Company’s return on invested capital (“ROIC”) over a one-year period performance period or revenue, gross profit and operating profit thresholds over a two or three-year performance period. The Company's PSUs with a market condition are based on the ranking of the Company’s total shareholder return (“TSR”) performance, on a percentile basis, over a three year performance period compared to the S&P Small Cap Industrial sector, over the same three year performance period.
(2) Performance stock units granted in 2019 have converted to 168,688 shares to be issued to recipients in the first quarter of 2022, representing 116% of the targeted 2019 award, based on the Company’s actual ROIC compared to ROIC target for the performance period ended December 31, 2019.
Equity Based Awards - Settled in Cash

The Company's equity-based liability includes awards under a management stock purchase plan. As of March 31, 2020, the Company's total share-based liabilities recorded on the consolidated balance sheet were $28.7 million, of which $12.2 million was included in non-current liabilities. The share-based liabilities as of December 31, 2019 were $28.0 million, of which $13.2 million was included in non-current liabilities.

The Management Stock Purchase Plan ("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 compensation.

The deferrals and company-matching are credited to an account that represents 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 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.

The following table provides the number of restricted stock units credited to active participant accounts and the payments made with respect to restricted stock units issued under the MSPP during the three months ended March 31,:
 
2020
 
2019
Restricted stock units credited
52,411

 
51,608

Share-based liabilities paid (in thousands)
$
4,433

 
$
4,933



(11)
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, in the sale and exiting of less profitable businesses or products lines, and the reduction in our manufacturing footprint.

18




Exit activity costs were incurred during the three months ended March 31, 2020 and 2019 which related to moving and closing costs, contract terminations, and severance incurred as a result of process simplification initiatives. No facilities were closed as a result of these initiatives during these respective periods.

The following tables set forth the exit activity costs (recoveries) incurred by segment during the three months ended March 31, related to the restructuring activities described above (in thousands):
 
Three months ended March 31,
 
2020
 
2019
Renewable Energy and Conservation
$
18

 
$
94

Residential Products
221

 
151

Industrial and Infrastructure Products
(2
)
 
(33
)
Corporate
54

 
7

Total exit activity costs
$
291

 
$
219




The following table provides a summary of where the exit activity costs (recoveries) were recorded in the consolidated statements of income for the three months ended March 31, (in thousands):
 
Three Months Ended 
 March 31,
 
2020
 
2019
Cost of sales
$
87

 
$
(34
)
Selling, general, and administrative expense
204

 
253

Net exit activity charges
$
291

 
$
219



The following table reconciles the beginning and ending liability for exit activity costs relating to the Company’s facility consolidation efforts (in thousands):
 
2020
 
2019
Balance at January 1
$
5,449

 
$
1,923

Exit activity costs recognized
291

 
219

Cash payments
(4,728
)
 
(550
)
Balance at March 31
$
1,012

 
$
1,592



(12)
INCOME TAXES

The following table summarizes the provision for income taxes for continuing operations (in thousands) for the three months ended March 31, and the applicable effective tax rates:
 
Three Months Ended 
 March 31,
 
2020
 
2019
Provision for income taxes
$
2,986

 
$
1,571

Effective tax rate
19.8
%
 
19.8
%

The effective tax rate for the three months ended March 31, 2020 and 2019, respectively, was less than the U.S. federal statutory rate of 21% due to favorable discrete items partially offset by state taxes and nondeductible permanent differences.


19



(13)    EARNINGS PER SHARE

Basic earnings and diluted weighted-average shares outstanding are as follows for the three months ended March 31, (in thousands):
 
Three Months Ended 
 March 31,
 
2020
 
2019
Numerator:
 
 
 
Net income available to common shareholders
$
12,059

 
$
6,345

Denominator for basic earnings per share:
 
 
 
Weighted average shares outstanding
32,586

 
32,279

Denominator for diluted earnings per share:
 
 
 
Weighted average shares outstanding
32,586

 
32,279

Common stock options and stock units
297

 
338

Weighted average shares and conversions
32,883

 
32,617



The weighted average number of diluted shares does not include potential anti-dilutive common shares issuable pursuant to equity based incentive compensation awards, aggregating to 18,000 and 258,000 for the three months ended March 31, 2020 and 2019, respectively.


(14)
SEGMENT INFORMATION

The Company is organized into three reportable segments on the basis of the production process and products and services provided by each segment, identified as follows:
(i)
Renewable Energy and Conservation, which primarily includes designing, engineering, manufacturing and installation of solar racking, electrical balance of systems, extraction systems and greenhouse structures;
(ii)
Residential Products, which primarily includes roof and foundation ventilation products, rain dispersion products and roofing accessories, centralized mail systems and electronic package solutions; and
(iii)
Industrial and Infrastructure Products, which primarily includes expanded and perforated metal, perimeter security systems, expansion joints, and structural bearings.

When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics.

20



The following table illustrates certain measurements used by management to assess performance of the segments described above for the three months ended March 31, (in thousands):
 
Three Months Ended 
 March 31,
 
2020
 
2019
Net sales:
 
 
 
Renewable Energy and Conservation
$
96,497

 
$
68,837

Residential Products
103,419

 
103,709

Industrial and Infrastructure Products
49,801

 
55,188

Less: Intersegment sales
(278
)
 
(317
)
Net Industrial and Infrastructure Products
49,523

 
54,871

Total consolidated net sales
$
249,439

 
$
227,417

 
 
 
 
Income from operations:
 
 
 
Renewable Energy and Conservation
$
5,699

 
$
1,632

Residential Products
13,725

 
12,090

Industrial and Infrastructure Products
3,989

 
4,129

Unallocated Corporate Expenses
(8,223
)
 
(7,285
)
Total consolidated income from operations
$
15,190

 
$
10,566



The following tables illustrate revenue disaggregated by timing of transfer of control to the customer for the three months ended March 31 (in thousands):
 
Three Months Ended March 31, 2020
 
Renewable Energy and Conservation
 
Residential Products
 
Industrial and Infrastructure Products
 
Total
Net sales:
 
 
 
 
 
 
 
Point in Time
$
14,588

 
$
102,331

 
$
39,495

 
$
156,414

Over Time
81,909

 
1,088

 
10,028

 
93,025

Total net sales
$
96,497

 
$
103,419

 
$
49,523

 
$
249,439

 
Three Months Ended March 31, 2019
 
Renewable Energy and Conservation
 
Residential Products
 
Industrial and Infrastructure Products
 
Total
Net sales:
 
 
 
 
 
 
 
Point in Time
$
7,290

 
$
102,892

 
$
45,287

 
$
155,469

Over Time
61,547

 
817

 
9,584

 
71,948

Total net sales
$
68,837

 
$
103,709

 
$
54,871

 
$
227,417







21



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 and the industries in which we operate. 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” disclosed in our Annual Report on Form 10-K along with Item 1A of this Form 10-Q. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition, liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition, liquidity, and the development of the industries in which we operate are consistent with the forward-looking statements contained in this quarterly report, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make herein speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

We use certain operating performance measures, specifically consolidated gross margin, operating margin by segment and consolidated operating margin, to manage our businesses, set operational goals, and establish performance targets for incentive compensation for our employees. We define consolidated gross margin as a percentage of total consolidated gross profit to total consolidated net sales. We define operating margin by segment as a percentage of total income from operations by segment to total net sales by segment and consolidated operating margin as a percentage of total consolidated income from operations to total consolidated net sales. We believe gross margin and operating margin may be useful to investors in evaluating the profitability of our segments and Company on a consolidated basis.

Overview
Gibraltar Industries, Inc. (the "Company") is a leading manufacturer and provider of products and services for the renewable energy, conservation, residential, industrial and infrastructure markets.

The Company operates and reports its results in the following three reporting segments:
Renewable Energy and Conservation;
Residential Products; and
Industrial and Infrastructure Products.

The Company serves customers primarily in North America including renewable energy (solar) developers, institutional and commercial growers of food and plants, home improvement retailers, wholesalers, distributors, and contractors. As of March 31, 2020, we operated 45 facilities in 19 states, Canada, China and Japan which includes 33 manufacturing facilities and five distribution centers. Our operational infrastructure provides the necessary scale to support local, regional, and national customers in each of our markets.

Our businesses and the end markets that our businesses serve are subject to changes in economic conditions that are influenced by various factors that could cause actual results to differ materially from current expectations. Such factors include, but are not limited to:
the impacts of the recent outbreak of the COVID-19 pandemic on the global economy, our customers, suppliers, employees, operations, business, liquidity and cash flows;
general economic conditions and conditions in the particular markets in which we operate;
changes in customer demand for residential construction, repair and remodeling, non-residential construction and infrastructure projects, botanical extraction equipment, and renewable energy sources;

22



capital spending, competitive factors and pricing pressures;
our ability to develop and launch new products in a cost-effective manner;
our ability to realize synergies from newly acquired businesses, and our ability to derive expected benefits from restructuring, productivity initiatives, liquidity enhancing actions, and other cost reduction actions;
changes in interest rates, exchange rates, commodity costs;
changes in governmental policies and funding, tax policies and incentives, tariffs, trade policies;
the need for protection of high value assets; and
climate change.

The impact of the recent outbreak of COVID-19 pandemic on our future consolidated results of operations is uncertain and will depend on the duration of the outbreak and its impact on our customers, suppliers, employees and subcontractors. Refer to the Company's Outlook section in this management discussion and analysis for consideration relative to future periods. We are taking proactive measures to respond to the challenges to our business and are altering our operations accordingly to continue to serve our end markets and maintain the safety of our employees.

We believe the key elements of our strategy discussed below will allow us to respond timely to the challenges presented by the COVID-19 pandemic and changes in the other various factors that could cause our actual results to differ materially from current expectations.

Business Strategy
Gibraltar’s mission is to create compounding and sustainable value with strong leadership positions in higher growth, profitable end markets. At the beginning of 2019, after four years of steady improvement in operational execution and financial results under the leadership of Frank Heard, the Company announced the appointment of Bill Bosway as Chief Executive Officer, with Frank Heard vacating the CEO role and being appointed Executive Vice Chair of the Board through his planned retirement in March 2020. Under Mr. Bosway’s leadership, management completed a thorough evaluation of the markets the Company participates in, as well as its position in each market. This work solidified the Company’s strategy and defined plans to accelerate growth and further improve the Company’s margin profile, both through organic and inorganic investment. It has also helped focus and prioritize the Company's key investments to delivers increasing returns and sustainable value for its shareholders.
The Company migrated from a Four-Pillar strategy to a Three-Pillar strategy with the operating foundation focused on three core tenets: Business Systems, Portfolio Management, and Organizational Development.

1.
Business Systems, which combines two of the Company's previous strategic pillars - operational excellence and product innovation is supported by an execution review of the Company's monthly business performance, implementation of key investments, information technology operating and digital systems performance, and new product and services innovation.

2.
Portfolio Management, which combines the two other previous strategic pillars - acquisitions and portfolio management is focused on optimizing the Company’s business portfolio and ensuring our human and financial capital are invested to provide sustainable, profitable growth while expanding our relevance with customers and shaping our markets. The recent acquisitions of Apeks, LLC ("Apeks") in August 2019, Thermo Energy Systems, Inc. ("Thermo") in January 2020, and Delta Separations LLC and Teaching Tech LLC (collectively “Delta Separations”) in February 2020 were the direct result of our portfolio management strategy.

3.
Organizational Development is the third pillar of our strategy. In order to execute Business Systems and Portfolio Management, the Company must have a strong organization to execute, and the organization must continuously develop and improve. The Company aspires to make our workplace the "Best Place to Work", by focusing on creating the best development and learning environment for our people, proactively operate businesses that mitigate environmental and climate related impacts, and engage and support the communities in which we are located. We believe doing so helps us attract and retain the best people, enhancing our ability to execute our business plans.

In addition to migrating from a Four-Pillar strategy to a Three-Pillar strategy, the Company:
Implemented new management tools to complement our core 80/20 toolkit and drive improvements in our operating margins;

23



Increased the percentage of our sales that are direct to end customers, allowing us to have a more meaningful connection with our end customers, providing the opportunity to better understand the challenges our customers face, and developing solutions to these challenges; and
Continued to shift the focus of our portfolio to take advantage of rising tides in the renewable energy and conservation markets.

We believe the key elements of our strategy have, and will continue to enable us, to respond timely to changes in the end markets we serve, including evolving changes due to the outbreak of COVID-19. We have and expect to continue to examine the need for restructuring of our operations, including consolidation of facilities, reducing overhead costs, curtailing investments in inventory, and managing our business to generate incremental cash. We believe our enhanced strategy enabled us to better react to volatility in commodity costs and fluctuations in customer demand, along with helping to improve margins. We have used the improved cash flows generated by these initiatives to pay down debt, improve our liquidity position, and invest in growth initiatives. Overall, we continue to strive to achieve stronger financial results, make more efficient use of capital, and deliver higher shareholder returns.

Recent Developments
On February 13, 2020, the Company acquired the assets of California-based Delta Separations and Teaching Tech ("Delta Separations"), a privately held ethanol-based extraction systems manufacturer and training and laboratory design and operations consultative partner for $50 million in an all cash transaction. Delta Separations had revenue of approximately $46 million in 2019.

On January 15, 2020, the Company acquired the assets of Canadian-based Thermo Energy Systems ("Thermo"), a privately held provider of commercial greenhouse solutions in North America supporting the biologically grown organic food market, in an all cash transaction for approximately $7 million. The Company also expects to invest approximately $25 million into Thermo to provide an appropriate level of working capital. Thermo is expected to contribute annual revenue at a run rate of approximately $75 million.

On August 30, 2019, the Company acquired all of the outstanding membership interests of Apeks LLC ("Apeks"), a designer and manufacturer of botanical oil extraction systems utilizing subcritical and supercritical carbon dioxide ("CO2"). The acquisition was financed through cash on hand of $12 million. Apeks had trailing twelve months of revenues as of June 30, 2019 of $17.7 million. The results of operations of Apeks have been included in the Renewable Energy and Conservation segment of the Company's consolidated financial statements from the date of acquisition.

On March 18, 2019, the Company appointed Patrick M. Burns as Chief Operating Officer. In his position as Chief Operating Officer, Mr. Burns is responsible for all aspects of Gibraltar’s day-to-day operations across its businesses and such other executive duties as he is assigned from time to time by the Board of Directors and the Chief Executive Officer.

On January 24, 2019, we entered into the Company's Sixth Amended and Restated Credit Agreement (the "Senior Credit Agreement") which includes a 5-year, $400 million revolving credit facility. The Senior Credit Agreement also provides the Company the opportunity, upon request, to increase the amount of the revolving credit facility to $700 million. In conjunction with entering into the Senior Credit Agreement, on February 1, 2019, the Company redeemed all $210 million of its outstanding 6.25% Senior Subordinated Bonds. The amended Senior Credit Agreement provides the Company with access to capital and improves our financial flexibility.

On January 2, 2019, the Company appointed William T. Bosway as President and Chief Executive Officer of the Company and a member of the Board of Directors. Over the past 29 years, Mr. Bosway has worked for two Fortune 500 industrial companies and brings to the Company strong leadership skills and significant experience in acquisitions, driving organic growth, lean manufacturing and continuous improvement techniques. In connection with Mr. Bosway’s appointment, then Chief Executive Officer Frank Heard was appointed Executive Vice Chair of the Board and he announced his intention to retire on March 3, 2020.




24



Results of Operations
Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019
The Company did not experience any significant impact on its operations from the COVID-19 pandemic during the quarter ended March 31, 2020, as stay at home and shelter in place orders were not issued until the later days of March 2020. Our businesses are deemed essential and therefore we generally continued to operate after these orders were issued. Refer to the Company's Outlook section in the MD&A for consideration relative to future periods.
The following table sets forth selected results of operations data (in thousands) and its percentage of net sales for the three months ended March 31:
 
2020
 
2019
Net sales
$
249,439

 
100.0
 %
 
$
227,417

 
100.0
%
Cost of sales
193,052

 
77.4
 %
 
183,517

 
80.7
%
Gross profit
56,387

 
22.6
 %
 
43,900

 
19.3
%
Selling, general, and administrative expense
41,197

 
16.5
 %
 
33,334

 
14.7
%
Income from operations
15,190

 
6.1
 %
 
10,566

 
4.6
%
Interest (income) expense
(47
)
 
0.0
 %
 
2,061

 
0.9
%
Other expense
192

 
0.1
 %
 
589

 
0.2
%
Income before taxes
15,045

 
6.0
 %
 
7,916

 
3.5
%
Provision for income taxes
2,986

 
1.2
 %
 
1,571

 
0.7
%
Net income
$
12,059

 
4.8
 %
 
$
6,345

 
2.8
%

The following table sets forth the Company’s net sales by reportable segment for the three months ended March 31, (in thousands):
 
2020
 
2019
 
Total
Change
Net sales:
 
 
 
 
 
Renewable Energy and Conservation
$
96,497

 
$
68,837

 
$
27,660

Residential Products
103,419

 
103,709

 
(290
)
Industrial and Infrastructure Products
49,801