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Gibraltar Industries Inc (NASDAQ:ROCK)
Q3 2019 Earnings Call
Oct 25, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Gibraltar Industries Third Quarter 2019 Earnings Conference Call. Today's call is being recorded and webcast. My name is Rob and I'll be your coordinator today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session toward the end of the conference call.

I would now like to turn the call over to Carolyn Capaccio from the company's Investor Relations firm LHA Investor Relations. Please proceed Carolyn.

Carolyn Capaccio -- LHA Investor Relations

Thanks, Rob. Good morning everyone and thank you for joining us today. With me on the call are Bill Bosway, Gibraltar Industries, President and Chief Executive Officer, and Tim Murphy, Gibraltar's Chief Financial Officer. The earnings press release that was issued this morning as well as the slide presentation that management will use during the call are both available in the Investor Info section of the company's website gibraltar1.com.

As noted on Slide 2 of the presentation, the earnings press release and slide presentation contain forward-looking statements with respect to future financial results. These statements are not guarantees of future performance and the company's actual results may differ materially from the anticipated events, performance or results expressed or implied by these forward-looking statements. Gibraltar advises you to read the risk factors detailed in its SEC filings, which can also be accessed through the company's website. Additionally, Gibraltar's earnings press release and remarks contain non-GAAP adjusted financial measures, reconciliations of GAAP to adjusted financial measures have been appended to the earnings release and slides.

Now I will turn the call over to Bill Bosway. Bill?

William T. Bosway -- Chief Executive Officer

Thank you, Caroline. Good morning everyone and thank you for joining us today. Let me begin by sharing our third quarter highlights and then, Tim is going to review the results of each of our business segments. After Tim's review, I'll come back and update you on our key initiatives, our current guidance, and then we'll take your questions.

So let's start with -- start on Slide 3. Our third quarter results were consistent with our expectations from our Q2 earnings call. As expected, with our strong backlog coming into the quarter and our continued focus on top line execution, we delivered solid revenue growth of 6.8%, nearly $300 million, of which 4.3% was generated through organic growth. The remaining 2.5% came from acquisitions in our Renewable Energy & Conservation segment, including our first strategic investment into extraction processing part of our conservation business. And I'll introduce this acquisition in more detail shortly.

We also delivered solid margin and cash performance during the quarter. GAAP EPS grew 25%, adjusted EPS grew 34% and cash from operations grew 57% up to $66 million. Operationally, we delivered positive leverage on our incremental volumes. We executed our plan 80/20 and productivity initiatives and improved working capital performance, specifically, inventory and payables. We continue to focus on our top line performance as we build stronger positions in our faster growing markets, as we optimize our product and service offering in and frankly continue to execute better. Our backlog currently at $241 million remains robust and is up 45% over last year, gives us solid momentum as we enter the fourth quarter.

Our backlog is driven mainly by three businesses, our return -- Renewable Energy & Conservation businesses, both of which continue to accelerate in our infrastructure business. So in all, for the quarter, we delivered solid performance in both growth and margin. And although we have much work to do, we are pleased with our progress and results.

So now, I'll turn the call over to Tim for a review of the results of each of our segments.

Timothy F. Murphy -- Chief Financial Officer

Thank you, Bill and good morning everyone. Let's move to Slide 4 in the presentation entitled, solid consolidated financial performance. Consolidated revenue increased 6.8% above our guidance as Renewable Energy & Conservation segment revenues accelerated and Industrial & Infrastructure and Residential Products segment revenues were essentially flat. Of the 6.8% increase in revenue, 4.3% was driven by organic growth and 2.5% was driven by the prior-year acquisition of SolarBOS and Apeks Supercritical, which we acquired during the third quarter of 2019.

As Bill noted, backlogs at quarter end was $241 million, up 45% from the prior year, driven by Renewable Energy & Conservation business. Consolidated GAAP operating margin of 10.5% was equal to the prior year and consolidated adjusted operating margin of 13.3%, increased 120 basis points from 12.1% in the prior year. Consolidated GAAP and adjusted EPS grew 25% and 33.8%, respectively, with GAAP EPS within and adjusted EPS exceeding the guidance provided on our second quarter earnings call.

This improvement was a result of increased profitability in Renewable Energy & Conservation and Industrial & Infrastructure Products segment, continued benefit of operational excellence actions, as well as lower interest expense related to the repayment of our outstanding debt in the first quarter. Included in GAAP results, our expenses were $6.7 million or $0.20 per share associated with restructuring, senior leadership transition and acquisitions. During the quarter, we achieved $2.9 million in interest savings from the first quarter repayment of our outstanding debt.

Now let's review each of our three reporting segments starting with Slide 5, the Renewable Energy & Conservation segment. Segment revenue increased 18.6%, driven by organic growth of 11.3% and 7.3% growth from the third quarter acquisition of SolarBos in 2018 and the third quarter 2019 acquisition of Apeks Supercritical. Organic growth was driven by strong demand for our commercial greenhouse solutions, including design, structures, system integration, field project management and general contracting services.

Operating margins expanded over last year with good operating leverage and increased volume and favorable mix in both products and vertical markets, along with improved operating execution. We continue to make good progress with field modification and our tracker installations with 90% of site modifications completed and 65% of these operating, with the remaining sites waiting to be turned on.

Incoming order volumes are improving as customers experienced good results from the field modifications. We entered Q4 with solid backlog across the segment up 72% over the prior year, as we continue to gain participation and see strong customer activity in both end markets. Backlog from Conservation, more than doubled and Renewables was up over 40% from the prior year quarter.

Let's move to Slide 6, review -- to review our Residential Products segment. Residential Products segment revenues increased slightly from last year, as modest increases in volume were partially offset by market price. Operating margin declined as a result of selling price to material cost alignment as the prior year benefited from timing, as well as an unfavorable shift in product and customer mix, partially offset by benefits from 80/20 simplification initiatives. Looking ahead, we expect market demand to be similar to the prior year during the fourth quarter.

Let's move to Slide 7 to review our Industrial & Infrastructure Products segments. Segment revenues increased nearly 1%, as higher volume in Infrastructure business was partially offset by lower industrial revenue as lower steel prices impacted core products. The significant increase in operating margin was driven by stronger operating execution, 80/20 initiatives and a better sales mix of higher margin products. As we enter the fourth quarter, we expect to see solid margin performance continue.

Let's move to Slide 8, titled balance sheet continues to strengthen, to discuss our liquidity position. During the third quarter, we generated cash from operations of $66 million, up 50%, -- up 57% over the prior year, and improved liquidity by $56 million or 12% from the second quarter, driven by improved working capital management. We continue to optimize inventory levels and work with our suppliers to more closely match payment terms with those offer our customers. While we use net cash of $8.7 million for acquisitions this year, at September 30, we had cash on hands of $137.6 million and an undrawn revolving credit facility of $400 million. Our untapped liquidity supports the execution of both our organic and inorganic growth strategies.

With that, I'll turn it over to Bill. Please turn to Slide 9. Five key initiatives.

William T. Bosway -- Chief Executive Officer

Thanks, Tim. So as I mentioned during our last call, the next phase of our transformation is really focused on enhancing the growth and margin profile of our company. And although we're on a journey, we are making some progress across our five key initiatives. So let me start with accelerating operations excellence, we are building a stronger business systems across Gibraltar, effectively institutionalizing our 80/20 initiatives but also adding more focus on customer experience, new product development, working capital, safety and organization development.

We're starting to see some positive results. So, third quarter adjusted operating income improved 120 basis points to 13.3%, which is really driven by better operational execution, and some good favorable product mix and obviously volume leverage. On a full year basis, we expect to improve adjusted operating margin 50 basis points to 70 basis points, so take us 10.6% to 10.8%.

As well, we generated $66 million [Technical Issues] creating more direct relationship with our customers. For us it's critical, we have a strong relationship with all our customers, those that we actually sell to and all our channel partners. Direct connection typically creates more clarity in identifying customer and marketing opportunities, while facilitating a little more efficient ideation in development of new solution sets. And in the quarter, over half -- 51% of our revenue was direct to customer, that's up from 41% in Q2 and up from 47% in Q3 2018.

The 10 point increase over Q2 is actually driven by growth in our renewable energy, conservation, infrastructure and perimeter security businesses, all which are supporting our customers through a direct to customer business model. Where we're not deploying a direct to customer model, we are continuing to deploy resources for our strategic focus -- for our trade focused initiatives. Again, it's really important we connect with the folks that use or apply our products. So as an example, connecting with roofing contractors is really helping us identify and prioritize our new product development plans in our residential business.

Our third initiative really revolves our new products and innovation. During the quarter, our patented products represented 11.1% of our sales, that's up from 10.4% in 2018. And with the recent launch of our next generation tracker product line, percent of patented product sales will reach higher levels as we move forward. As well in 2020, and we're going to start measuring the percentage of sales related to new products and services, which will include our patented products. And we believe this metric will illustrate say, better illustrates the company's ability to successfully bring new solution sets to market and it also tends to correlate by strongly with both growth and margin performance.

Our fourth initiative portfolio optimization, we continue to deploy our strategic rubric model and process to evaluate our markets, but also our businesses, business models, product lines and customers. I'm excited with the attractiveness of many of our end markets and frankly the leadership positions, we continue to build, particularly in our Renewable Energy, Conservation, Residential and Infrastructure businesses. I'm also confident, we have opportunity to create additional value across Gibraltar and each of our businesses. And our teams are focused in doing so.

And we're going to continue to evaluate our portfolio as we strive to enhance as I mentioned earlier, the growth and margin profile of the overall business. And lastly, our fifth initiative acquisitions as a strategic accelerator, we continue to be very active in the end markets. We believe the most attractive to strengthen our platforms, build relevance with our customers and establish a strong industry-leading position. Acquisitions are an important part of our strategy and they remain the primary focus of capital allocation. The acquisition of Apeks Supercritical, I mentioned earlier, is a good example, how we're trying to strengthen our conservation platform.

So with that, let's move to Slide 10. And I'll share with you a little bit more on Apeks Supercritical. So Gibraltar has established a strong leadership position in the commercial greenhouse growing and cultivation space. I believe the industry's best portfolio of products and services focused on designing and building, as well as optimizing growing and cultivation operations. Once the plant has finished growing, it typically goes through a processing stage to create a variety of end products for consumers. And as with growing and cultivation processing uses multiple technologies, intelligent integrated systems, highly controlled processes and it really require scalable, efficient way of operations. That's our experience and strength.

As well, many of our customers are growers and processors. So making entering the processing market a good fit for us. So in Q3, we took our first step with the acquisition of Apeks Supercritical, a leading extraction processing company with a strong leadership team, patented technology, and leading-edge clean extraction technology. Apeks Supercritical is a designer and manufacturer of botanical oil extraction technologies, utilizing subcritical and supercritical CO2. Its trailing 12-month revenues as of June 30, 2019 were $17.7 million, selling mostly to customers, primarily in the cannabis industry. Growing and processing are both high-growth markets and we're going to continue to broaden our capabilities and invest in this space.

So finally, let's move to Slide 11, and discuss our guidance. So given our year-to-date performance. We are narrowing our guidance for full-year revenues and earnings to the upper end of our previous ranges. We now expect 2019 consolidated revenues in the range of $1,040 million to $1,050 million. GAAP EPS between $2.03 and $2.10, or $2.48 to $2.55 on an adjusted basis, compared with $1.96 and $2.14 respectively, in 2018. For the fourth quarter, we expect revenue between $251 million to $261 million, that compares with $241 million in the fourth quarter 2018. A GAAP EPS between $0.48 and $0.55, or $0.52 to $0.59 on an adjusted basis, that's compared with $0.40 and $0.47, respectively.

So at this time let's open it up for questions.

Questions and Answers:

Operator

Thank you. We'll now be conducting the question-and-answer session. [Operator Instructions]. Thank you. Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your questions.

Daniel Moore -- CJS Securities -- Analyst

Good morning, thanks for taking the questions. I appreciate the time. Will start with renewables where margins are pretty exceptional -- exceptionally strong how -- talking about the sustainability of those levels, is there anything unusual in the quarter other than the strong execution and how -- whether SolarBos was meaningfully accretive or just generally sort of in line with the overall? And a quick follow-up.

Timothy F. Murphy -- Chief Financial Officer

Dan, I would say, you know, strong execution, you've got pretty high volume that's helping and quite honestly the conservation business, that side of the business really had a great quarter. So I don't know that I would say, expect this level of margin every quarter going forward. Yeah, I think it's probably something we can achieve if the conditions are right and what we strive to achieve over time as we continue to improve the business. And then, I wouldn't say SolarBos was the driver of that.

Daniel Moore -- CJS Securities -- Analyst

Helpful. And switching gears to Apeks. You talked a little bit about what organic revenue growth has looked like over the last few years, margin profile and really you started to touch on it, Bill, but really what differentiates them in terms of technology, patents, customer relationships, etc. Thanks.

William T. Bosway -- Chief Executive Officer

So, thanks Dan. Couple of things, inside processing market when you do extraction is really three technologies that are deployed today and CO2 -- using CO2 is one of those and they are the leading company in CO2 extraction, number one, and they are -- they had developed technology and their patents with that technology in that space. So number one, we -- I think we have the best and the leader in this space using CO2 technology. We continue to look at that marketplace, more to come there, there are other technologies to consider, but we thought that was a good start for us very strong team, as I mentioned earlier, very well respected and known in the industry. So it's a good fit for what we're trying to do as we build relevance with our platform, particularly as we're doing more and more direct work with customers, helping them, knowing [Phonetic] build out their growing sites, but actually trying to help them with processing, which tends to happen on site as well and then optimizing those operations.

Timothy F. Murphy -- Chief Financial Officer

And Dan, growth has been strong.

William T. Bosway -- Chief Executive Officer

Yeah, I think it's consistent with what we're seeing in the industry and reflective very similar to what we're seeing in our traditional core growing business -- growing solutions business.

Daniel Moore -- CJS Securities -- Analyst

And margins generally comparable with the renewable segment a little better, a little worse. How do we think about that?

Timothy F. Murphy -- Chief Financial Officer

They are comparable and we're -- as I mentioned earlier, and we've talked before, one of the things we're trying to do is enhance those growth and margin profile of overall Gibraltar and I would say, this steps in our approach doing so. We're -- we feel good about margin opportunity with this business and what it brings to the team.

Daniel Moore -- CJS Securities -- Analyst

And lastly, along the same lines business, do we think about this is a beachhead for additional acquisitions in the space. How, I assume it's a pretty fragmented industry. Just help us think about this is a -- maybe a first step, if you will.

Timothy F. Murphy -- Chief Financial Officer

Yeah, I think, it is a first step as we said and as I also mentioned, we're going to continue to invest in building out our platform. So, we have both organic and inorganic opportunities that are in front of us in this is area. So we're going to remain active, as I mentioned, in these markets and so more to come.

Daniel Moore -- CJS Securities -- Analyst

Perfect. I'll jump back with any follow-up. Thanks.

William T. Bosway -- Chief Executive Officer

Alright. Thanks, Dan.

Operator

Thank you. The next question comes from the line of Ken Zener with KeyBanc Capital Markets. Please proceed with your questions.

Ken Zener -- Capital Markets -- Analyst

Good morning, gentlemen.

William T. Bosway -- Chief Executive Officer

Good morning, Ken.

Ken Zener -- Capital Markets -- Analyst

So, Bill, first acquisition here really after spending some time with you earlier in the quarter, it kind of feels like this is almost the beginning of the third iteration of Gibraltar as a company, because Mascot [Phonetic] is still a metal bending company. Obviously, under the prior CEO, the margins got rated, generated a lot of cash, which you still have on your balance sheet yet now. You're talking about things like backlog you're talking about renewable and specifically, you're deploying capital and renewable and that's where your highest growth rates are. I assume, I think, in time you will give us a broader view of the company, I assume, within a more formal setting like in Analyst Day or something, but the implied growth rates in the renewable, we -- if you look out a couple of years, I mean, it seems like you're going to be potentially much more of a renewable company, then you are a metal bender and industrial and residential. Can you just take a [Technical Issues] to comment on your kind of vision there because the math implies you're going to be much more of a renewable company than what you are today and I'm not sure investors really understand that. I just want you to see if you would agree with that.

William T. Bosway -- Chief Executive Officer

Yeah. So good observation, Ken. And as we've discussed with you as well, things are evolving. We've talked about one of our four pillars being this ongoing assessment of the portfolio, portfolio management. Just remind everybody, if you think back, going back three years ago, we made our first step into the renewable space, which gave us renewables, as well as the conservation business and there are some foresight there and I think, now that we're seeing the markets have all weakened. We can take advantage of that and build that out. And during that time, we just to remind everybody, we actually exited some of our traditional metal oriented businesses. So I would say that there is a trend and there is a movement here toward evolving the portfolio, and it's all happens, it's because of some good end market dynamics right now and we just try continuing as we see more and more of that in the Renewables & Conservation space. That doesn't mean necessarily though that we're not happy with some of the other features that are in the portfolio still, and we're working pretty hard on that as well. But clearly, I think we're going to become a little more oriented toward some of the markets, some of the end markets that we believe give us the best opportunity for growth. Which both will be also translate into different growth and margin profile for us as a company and I think over time, you will see more and more of that as the portfolio evolves. So, I think it's a fair observation. But it's not the only thing we're going to be doing, but clearly right now it's a pretty interesting space.

Ken Zener -- Capital Markets -- Analyst

Okay. Do appreciate that. I understand your constraints. When you're looking at this this recent acquisition, can you help us think about, I mean this wasn't huge in terms of the revenue side, which -- though I think, you've implied these acquisitions are more likely to be bolton not transformative. But how should we think about what you're targeted, returns on capital. I mean, and or these dilutive to margins and your kind of be up toward where you are today after two or three years, or how should we think about the capital going out and the potential impact on the segment margins and your two or three year return on capital targets?

Timothy F. Murphy -- Chief Financial Officer

So we always target 16% in year three, and then on larger technology-based acquisitions they might stretch down a little bit, but generally we're looking strong -- I would say, this -- the size of this business, at the date of acquisition doesn't have much of an impact on margins either way, it's just not, it's not big enough to make a difference. So in this instance, I think it's going to be margin positive over time as we continue to improve both what we acquire and that business continues to grow and then our core portfolio increases.

Ken Zener -- Capital Markets -- Analyst

Understood.

Timothy F. Murphy -- Chief Financial Officer

So, and I say, it's, -- you said it wasn't large more of a bolton but it is moving us across this value chain, we historically focused first just on structures, we expanded that to do this general contracting project management services for our customers where we really given the turnkey, growing environment and after they finished growing, they have to process, whatever it is, they grew, and this is an area that value chain that we thought was pretty attractive. So it expands our service offering to that group of customers that we find very active right now.

Ken Zener -- Capital Markets -- Analyst

In the Renewable Energy & Conservation, what is that split between solar and greenhouse again?

William T. Bosway -- Chief Executive Officer

It's about, a third, Conservation; two-thirds, Renewable Energy.

Ken Zener -- Capital Markets -- Analyst

Okay. And my last question, I'll get back in queue. But the industrial top line 3Q versus 2Q, I mean, how much of the sales change was price versus volume because obviously, there was a big swing in 2Q. When people didn't take in volumes, just because the stalling steel prices, but could you kind of break that out for 3Q and 2Q, so we could understand the dynamics.

William T. Bosway -- Chief Executive Officer

Yeah, I think it's more volume than price.

Ken Zener -- Capital Markets -- Analyst

Those price neutral, year-over-year?

William T. Bosway -- Chief Executive Officer

What's that? Are you talking [Speech Overlap] Ken, are you talking sequential or quarter-over-quarter?

Ken Zener -- Capital Markets -- Analyst

Well, year-over-year. It's basically a flat sales you had in industrial was that flat price, flat volume where as 2Q was flat price, down volume.

William T. Bosway -- Chief Executive Officer

Yeah. So, year-over-year, it's generally -- its infrastructure up, that's volume and then really on the industrial side, it's price, because again, steel price was sort of peaking, second, third quarter last year into the fourth and this year it's down a lot. So this is in the core products, the price adjust regularly.

Ken Zener -- Capital Markets -- Analyst

Thank you.

Operator

Our next question is from the line of Julio Romero with Sidoti. Please proceed with your question.

Julio Romero -- Sidoti -- Analyst

Hey, good morning.

William T. Bosway -- Chief Executive Officer

Good morning, Julio.

Julio Romero -- Sidoti -- Analyst

Wanted to ask about raw material costs. Just to puts through outlook on maybe the commodity side going forward, understanding the dealers kind of continue to maybe trend down directionally, when do you expect maybe cycle through some of the higher priced inventory and when does that maybe start to become a tailwind for you?

William T. Bosway -- Chief Executive Officer

We don't have much in the way of high-priced inventory in hand. I mean, not -- I wouldn't say that's a drag right now. What we look at steel, every time we look at it, the future look is it's going to come down a little bit more. It's not abnormal for steel in the fourth quarter to decline a little bit, you just look at the normal seasonal curves. So it's been -- and I know some of the mills have taken capacity out. So we -- it's hard to predict where steel is going to go for go for us. When we look at everything, we look at it, we really manage it by just staying pretty close to flow through. So we don't carry, a ton of raw material. And then we -- it's time to work with our customers to adjust price as needed. So on an yearly basis, it doesn't usually have much of an impact, that'll be -- if it moves a lot in one quarter, you can see an impact in that quarter and the next quarter, but generally we just managed through it. And you can see that, remember last year, when it really moved around a lot, didn't have much of an impact on us in a full-year basis.

Julio Romero -- Sidoti -- Analyst

Okay, understood. And on the residential side, can you just talk about volumes there. I had seen the national armor numbers were pretty strong. And understanding that I have a national number and you guys have a different geographic exposure, can you just maybe talk about volumes in the quarter and if labor availability or anything on that side kind of impacted you there?

William T. Bosway -- Chief Executive Officer

We saw a modest volume increase and I think it's not direct to us, they were availability search. It's a market condition for the roofers, that impacts that. We believe that continues where roofers can get it up furnished to do all the work that's available. So I think, as we head into the fourth quarter, we sit here thinking there is good end market demand for work, and we'll have to see how the weather plays out. I'd agree with your armor, I think is a modest I think, depending on which the single [Indecipherable] you look at, there's some participation changes going on there. There are regional strength in some of the markets.

But overall, I think it's pretty consistent with last year across the country and that's more or less what we've been seeing is relatively consistent markets. We saw, like you said, a little volume we gave a little price.

Julio Romero -- Sidoti -- Analyst

Okay, very good. Thanks for taking the questions and best of luck in 4Q.

William T. Bosway -- Chief Executive Officer

Thanks.

Operator

[Operator Instructions] The next question is from the line of Walter Liptak with Seaport Global. Please proceed with your questions.

Walter Liptak -- Seaport Global -- Analyst

Hi, thanks. Good morning, guys. And good quarter.

William T. Bosway -- Chief Executive Officer

Thanks, Walt.

Walter Liptak -- Seaport Global -- Analyst

So, one thing I was -- I get involved a little bit late, so I want to ask you about the -- in the commentary that you made that third quarter was in line -- the consensus numbers are numbers include the fourth quarter guidance, looks fine for revenue, a little bit lower for profit. So I wonder, what is it about fourth quarter profit mix or product mix or timing of projects that we should be thinking about with the backlog up significantly, what does that that mean for your 2020 incorporates?

Timothy F. Murphy -- Chief Financial Officer

Yeah, Walt. I think, given that we have a fair amount of the business, as this project based stuff. We came instead of high end of revenue, closed some -- we've had some pretty profitable work completed. So I think it's not necessary, we see something different in the fourth quarter versus the third more that the mix of work that we had in the second half of the year by the timing of it might have shifted a little bit. But we're going into the fourth quarter with strong backlog across the business. You get into seasonally slower periods depending on weather, it's -- some of this is dependent on construction season but it's doing pretty good.

Walter Liptak -- Seaport Global -- Analyst

Okay. In your fourth quarter guidance, did you factor in like a normal level ton or influence [Indecipherable] so, in this stage for work because it's [Indecipherable]

William T. Bosway -- Chief Executive Officer

Walt, I struggled to hear the details that you ended with.

Timothy F. Murphy -- Chief Financial Officer

Yeah, Walt, can you -- you're a little muffled, can you repeat that please.

Walter Liptak -- Seaport Global -- Analyst

Okay. Yeah. Sorry about that. Yeah, I guess what kind of seasonality and weather assumptions to be made for the fourth quarter were you conservative about that kind of what is that you have, because of weather.

William T. Bosway -- Chief Executive Officer

No, I think we -- I think, normal. It's the way I -- what did I mean, it's hard to predict, we're not good at weather prediction. [Speech Overlap]

No, we -- I would -- my reaction is, hey we plan, whatever normal is we don't have any exceptions made to the plan based on a weather forecast or whatever. We're hoping that the weather stays reasonable, so much of the work that we have in front of us we have a shot at. So we'll see how it goes, but nothing on a forecast for some exception to weather or what have to.

Walter Liptak -- Seaport Global -- Analyst

Okay, great. Okay, we'll -- I'll switch gears from that. You see, the backlog up significantly, presumably, part of that is because of the renewables business. I wonder if you could talk about utility project backlog versus community backlog, I think are they both up, is one up, but not the other and timing of those projects?

William T. Bosway -- Chief Executive Officer

Yeah, Walt. So the backlog we called out the conservation backlogs almost, it's more than doubled from last year. And the renewables up over 40%. And in renewables, we're not utility focused. So what we're going to see in there is a lot of community, smaller size projects that's just -- that's our [Indecipherable]. It's a very [Technical Issues] base right now.

Walter Liptak -- Seaport Global -- Analyst

Okay. Why is that community solar market doing so well right now?

William T. Bosway -- Chief Executive Officer

I think it's just the combination of -- there is end market demand. Look, the price of solar generated energy continues to decline. There is the ITC step down at the end of this year, goes from 30% to 26%. But you have to have a percentage of the project invested to take advantage of that. And I can't imagine that we will start all of these projects, it's not necessarily a plan. So hard to say, if just out there is a lot of interest. Our guys continue to really do a good job executing. And I think, I was just at the Annual Solar Show, a few weeks ago. And I think there is a participation gain opportunity for us, if we continue to execute well. So we've got a good end market. We've got a good array of products, if you will, from both tracker and textile. And we're excited with activity we're seeing.

And we'll see about the ITC. I mean it's not clear yet. I don't think in the industry, how people going to actually deal with that. I think, as you find in most situations like this industries tend to wait and wait and wait to the last moment. So we don't have clarity on that yet. But we're starting to see more -- have more and more discussions with customers and how to transition through that. But putting that aside, it's been again continued, I'd say consistent growth in the industry and we're doing our best to participate as much as we can and then make money.

Walter Liptak -- Seaport Global -- Analyst

Okay, sounds good. And just a last one from me with Apeks acquisition. Just with 80/20, do you started 80/20 right away with companies or do you leaving the loan for a little while and then start introduce into the company culture?

William T. Bosway -- Chief Executive Officer

So, it's a great question and for us it's an immediate integration process. And so, there is various pieces of integration. And there are certain different levels depending on the company you're acquiring what to do this is very complementary business to us. So that's good. So the initial efforts are back-end, which, that would include operating cadences and processes as well as financial. And then it's front-end, how are we actually going out and talking to the industry, because as I mentioned earlier, a lot of our customers are going both growing/cultivation and processing at the same site.

So being able to go to a customer and have a broader discussion has been very helpful. Frankly, a lot of our customers have been pushing and pulling on us to help them in that part of the world -- that part of the process, but most of our integration will upfront right now with Apeks as the back-end. So we have dedicated people that are responsible for making that happen. And then on the front-end, where we're doing the market and having discussions little differently. So [Technical Issues] question but I think, the answer is yes. We'd like to go more immediate than otherwise. Otherwise, if you'd let it sit for time on the end, you never get there, right. So.

Walter Liptak -- Seaport Global -- Analyst

Okay. Alright, sounds good. Thank you, guys.

Operator

Thank you. A follow-up question from the line of Ken Zener with KeyBanc Capital Markets. Please proceed with your questions.

Ken Zener -- Capital Markets -- Analyst

Hello again. Tim, Bill, could you just comment generically. I know you give guidance by segment for the year, but I mean how should someone, think about a certain growth rate, therefore, EBIT leverage in your company. Obviously, with 80/20 you guys got a lot of lift there. But I mean, to the extent someone wanted to forecast 2% or 5% growth rates. Should we be thinking about your EBIT leverage in the 25% range or 30% range, consistent with your gross margin or is there is going to be excess investment cost, as you work out some of these investments that you're doing. Thank you very much.

Timothy F. Murphy -- Chief Financial Officer

I would say, if the growth came across the same product mix that we have today, you would see a flow through higher than gross margin. It's modest, because -- when our capacity constrained generally, so and any investments we have to make that be pretty modest, if we needed to for growth. So when you look at our capex, a portion of that is maintenance, a portion of that is cost reduction, and a portion of that's capacity and we've been spending $12 million, $13 million a year for the last three to four. So, I would expect the flow through better than gross margin.

William T. Bosway -- Chief Executive Officer

Yeah. And Ken, I'd say one other thing -- add to that. I think internally, it's our team has the clarity around our expectations. And as you described, but anytime that you had incremental volume, we should be targeting levering at levels consistent of your existing or better then your gross margin, right. So I think everybody knows that's what we expect. I think how we're institutionalizing our operating business system I mentioned earlier, is really important to us and that kind of gets add that. So if you get the variable as Tim mentioned, that we've got to manage through, but ultimate in the days, the incremental volume comes -- flow through our expectations. We perform better on that incremental dollar than we would otherwise.

So, we're working at really hard. We're making some partners, I referenced earlier. More work to be done but what a good problem to have, if we can be in some good solid end markets that afford us the growth that we hope to see. We are looking forward to executing on it. A better in the future than we had in the past. So that's our objective.

Ken Zener -- Capital Markets -- Analyst

Thank you.

Operator

Thank you. We have reached the end of the question-and-answer session. I'll now turn the call over to Bill Bosway for closing remarks.

William T. Bosway -- Chief Executive Officer

So, guys, thanks again for joining us today. Just to let you know, we do plan on attending the Baird Global Industrials Conference in Chicago, that's in November. We're going to be at SunTrust Industrial Summit in New York in December and the CGS Winter Conference in New York in January. And we look forward to see many of these events. I would say, also there we are thinking about an Investor Day, we've not have it on the calendar, but that will probably be sometime early in the year 2020. I'm looking forward to hopefully host a new and many others there as well. So thanks again and have a great day.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Carolyn Capaccio -- LHA Investor Relations

William T. Bosway -- Chief Executive Officer

Timothy F. Murphy -- Chief Financial Officer

Daniel Moore -- CJS Securities -- Analyst

Ken Zener -- Capital Markets -- Analyst

Julio Romero -- Sidoti -- Analyst

Walter Liptak -- Seaport Global -- Analyst

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