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spk02: Greetings.
spk03: Welcome to the Gibraltar industry's first quarter 2024 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, Carolyn Capaccio of LHA Investor Relations. You may begin.
spk00: Thank you, operator. Good morning, everyone, and thank you for joining us today. With me on the call is Bill Bosway, Gibraltar Industries Chairman, President, and Chief Executive Officer, and Tim Murphy, Gibraltar's Chief Financial Officer. The earnings press release that was issued this morning, as well as a slide presentation that management will use during the call, are both available in the Investors section of the company's website, GibraltarOne.com. Gibraltar's earnings press release and remarks contain non-GAAP financial measures. Tables of reconciliation of GAAP to adjusted financial measures can be found in the earnings press release that was issued today. Further, please note that adjusted results exclude the net sales and operating results of the Japan renewables business that was sold on December 1, 2023. A PDF containing 2023 quarterly and annual consolidated and renewable segment results recast for the sale of the Japan business has been posted to the inventor section of the company's website, GibraltarOne.com. Also, as noted on slide two 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. Now I'll turn the call over to Bill Bosway. Bill?
spk06: Good morning, everyone, and thank you for joining today's call. We're going to do this a little differently this quarter. We're going to start with an overview of the first quarter results, and then Tim and I are going to take you through our segments, giving you both a financial and operating update, along with a closer look at what's happening now in each of the segments. Then I will walk through our 2024 outlook, and then we'll open the call for questions. So let's turn to slide three, our first quarter 2024 review. We had a good first quarter in line with our plan. In an adjusted basis, net sales increased 1%, operating income increased 4%, EBITDA increased 6%, and EPS increased 13%, all while absorbing a $4 million or 10 cent per share headwind associated with performance-based compensation. We also generated $53 million of operating cash flow through margin expansion and better working capital performance. which resulted in a free cash flow rate to sales of 17%. Overall demand was in line with plan, with net sales up 1% despite renewals being down 10% as planned going into the first quarter. Residential, ag tech, and infrastructure businesses collectively generated 4% revenue growth, reflecting solid in-market activity, as well as additional participation gains. Total backlog for Gibraltar was impacted at core end by both ag tech and infrastructure businesses. The ag tech backlog was down 21% at quarter end, but this does not reflect the current strength of the business. We signed over $40 million of new orders in April, which were previously expected in the first quarter. And we will start these projects in Q2, and they will accelerate in Q3 and Q4. And obviously, we're very excited about our additional pipeline of projects as well. The infrastructure backlog was impacted by a significant year-over-year comparison, which was driven by a large project signed in late 2022 and started in early 2023. We expect infrastructure backlog to turn positive during the year as bookings in Q1 were up 18% versus Q4, backlog was up 2.6% versus Q4, and the overall strength of design and coding activity. So at quarter end, total backlog was down 3% versus last year, but we are confident backlog and sales will grow as planned in 2024. For the full year, our outlook remains positive and unchanged, and we continue to expect all four segments to deliver revenue and margin growth as well as strong cash flow performance. Now let's review this segment, and Tim will take it from here.
spk05: Thanks, Bill, and good morning, everyone. Let's start with renewables on slide four. As expected, segment net sales, which have been adjusted for the divestiture of our Japanese renewables business, decreased 10.1%. The decrease in sales is the result of a delay of revenue as a number of customers started switching their technology preference in late 2023 from fixed tilt racking to our recently launched 1P TerraTrack tracker technology. This transition has created some iterative redesign work and additional time to re-scope and finalize projects for customers, and therefore push revenue into the second quarter and second half of the year. We're excited to see the rapid uptake of our 1P tracker, and we're working diligently with suppliers to ramp capacity sooner to support customer demand. Backlog in the renewables business finished up 8% at the end of the quarter, and we continue to have an active pipeline of projects across our TerraTrack tracker, Fixed Tilt, Canopy, and eBoss product lines. At the same time, customers continue to experience permitting delays and the industry is still waiting on final domestic content tax credit guidance from the Department of Treasury. Adjusted operating and EBITDA margins decreased 80 and 40 basis points respectively versus the prior year as volumes in the quarter were lower because of the product line mix shift associated with the ramp up of the 1P tracker product line. We continue to expect momentum to build throughout the year, assuming continued improvement in permitting and relative timeliness in the Department of Treasury guidance on the ITC tax credit.
spk06: Bill? Staying with renewables, let's take a closer look at TerraSmart's TerraTrack technology on slide five. TerraSmart introduced our 2P tracker product in late 2021, really to provide our C&I customers an additional technology option to meet growing demand in existing as well as new parts of the country. Then in late 2023, we further expanded our tracker offering with the introduction of our TerraTrack 1P tracker product line. And like our 2P technology, our 1P can be applied to different foundations, making it adaptable for use in any terrain. It's also controlled and managed through our peak yield operating system. Our peak yield continuously manages yield and uptime. It also boosts energy production with backtracking guided by machine learning. It employs on-site smart weather stations and weather forecasting and does all this in a very secure way. Effectively, the addition of the TerraTrack tracker platform provides customers with a broader suite of options to ensure project performance and returns regardless of the terrain, the topography, soil conditions, weather environment, and other local variables. And to date, we have installed over 500 megawatts of tracker, both 2P and 1P, with 18 C&I customers across 84 projects. While our average project size has been around between 6 and 7 megawatts, we have larger projects in our backlog, with the largest to date being 97 megawatts. In regards to the size of the project, we typically have the opportunity to provide turnkey design, engineering, manufacturing, and field installation services for foundations, racking systems, and EBOS systems. On the left side of the slide are a couple pictures of what we refer to as the Solitude 2 project located in Low Stand, Illinois. This is a three megawatt community solar project where we installed our screw foundations, the 1P tracker, and modules. More and more developers continue to view Illinois as a key growth market, given its consistent runway of new capacity blocks, i.e. land, and favorable incentives through the state's primary incentive program called Illinois Shines. And we look forward to doing many more projects in the state. Let's turn to slide six, and I'll give you an update on the overall solar market. And we'll start with the status of the 10% domestic content tax credit. The industry continues to wait for final guidelines from the Department of Treasury. And given the additional 10% can greatly influence project returns and financing, obviously the delay continues to cause customers to pause and or delay moving forward on some of their new projects. The industry continues to expect guidelines to be finalized at any time. Jumping to permitting, customers continue to experience delays, and we are working closely with them to effectively improve planning and scheduling so revenue recognition expectations are better matched with project execution schedules. As well, earlier this month, the Solar Energy Industry Association, referred to as SIA, sent a letter on behalf of 200 companies to the House and Senate leadership asking Congress to step in and resolve challenges with permitting, siting, transmission, and public land access for solar. I think the industry is very hopeful congressional leadership will respond and accelerate the necessary changes to resolve these core issues facing the industry. There has been a new development in the U.S. solar industry. There is a second anti-dumping, countervailing duty complaint that was filed on April 24th. A new petition was filed with the U.S. International Trade Commission and the U.S. Department of Commerce alleging potentially illegal trade practices by Cambodia, Malaysia, Thailand, and Vietnam, and asking them to apply new tariffs, both anti-dumping and countervailing duties, to imported solar cells and modules from these countries. The language in the new petition excludes products covered by the China ADCBD orders in the Oxen case to avoid doubling tariffs on an import. The DOC now has 20 days from April 24th to decide whether to open an investigation. While this complaint is new, the industry has been anticipating it for some time, and in discussing the situation with customers, many are much better prepared to manage their business in the event another investigation takes place. For example, We have a number of customers who have established panel supplies outside of China and Southeast Asia. We're going to continue to assess the situation, but as of now, we do not expect a new DOC investigation to have a significant impact on industry in 2024. Let's move on to residential.
spk05: Residential segment sales increased 3.1% from last year. Organic growth was 2.4%, and our recent acquisition added 0.7%. Organic growth was driven by participation gains with new and existing customers and through additional geographic expansion in the Rocky Mountain region. Customer demand continues to follow historical seasonality and our most recent acquisitions are performing to our expectations. Adjusted operating and EBITDA margins of 18.5 and 20.1% respectively, both expanded 200 basis points through solid execution, effective price cost management versus last year's quarter. and leverage of higher volume. We're on plan to move additional locations to our common ERP system this year, and we expect to continue to leverage our investments made to date. And we continue to expect modest revenue growth with continued improvement in margins this year as increasing market participation gains and recent acquisitions contributions to the top line, along with continuing 80-20 in operating efficiencies, drive profitability. Bill?
spk06: All right, let's switch to slide eight. We have two important residential initiatives I want to share with you, expanding our market presence and the launch of two new product lines. And let's start with expanding our market presence. From 2019 to 2020-23, the residential business has grown over 15% per year, with revenue increasing over $350 million to more than $800 million in 2023. Also during this same period, operating margins increased 370 basis points. Our performance has been driven by 80-20, more consistent execution, better overall service, and participation gains. And what's most interesting is we accomplished this despite only serving 40% of the top 32 markets in the U.S., which provides even more opportunity for expansion and growth going forward. So in 2023, we continue our expansion initiatives by becoming more local in the Denver market, where we are leveraging an existing Gibraltar facility and are now supporting wholesalers serving this market. As well, we acquired a company based in Salt Lake City serving wholesalers in this market and surrounding region. Both of these locations provide us with very flexible and cost-effective operations supporting the 80s of demand with a goal to serve customers within 24-hour lead times. We will continue to expand into the 32 major U.S. markets and drive growth, participation, and higher margins accordingly. We're also launching new products in the third quarter of 2024, which I referred to during our Q4 call. Our new shingle vent roll, which we have applied for design, utility, and process patents, creates a simpler and more cost-effective installation process for contractors versus the four-foot stick ventilation products traditionally used in roof ventilation. We will also launch our next-generation patented mailbox, recently approved by the U.S. Postal Service. This is the first of its kind to market. It is consumer-assembled. And the packaging for this product has been reduced by 60%, eliminating waste and helping optimize shelf space for our customers. And given the packaging footprint, freight costs for this mailbox will be lowered by up to 50% versus standard factory-assembled mailboxes. Let's move on to ag tech.
spk05: If we move to slide 9, ag tech suggested net sales increased 2.1%, and as mentioned, new bookings accelerated significantly in April with over $40 million of new projects signed. Had these projects been signed in Q1 as originally planned, quarter end segment backlog would have increased over 30%. The increase in bookings was mainly driven by demand in produce projects, but we also had some good order activity in our commercial business. We'll start these new projects this quarter and then accelerate execution in the third and fourth quarters. We're engaged in additional design build contracts and expect bookings to increase further in the coming months. Segment margin was impacted as adjusted operating and EBITDA income decreased less than a million dollars due to stark delays of some higher margin refurbishment service work and market mix across the business. We expect volume leverage on stronger sales growth as we move through 2024. Bill?
spk06: So let's move to slide 10. I'd like to provide some background on our high-tech CEA business, which stands for Controlled Environment Agriculture, and why we're are so enthusiastic about our position in this market and our future going forward. As mentioned in our last call, we are experiencing good demand momentum driven by accelerating investment for CEA growing capacity in both the U.S. and Canada. CEA growers continue to expand capacity to meet retailer and end consumer demand, and we also see outdoor growers moving additional production to indoor environments. Our growers are mostly focused on growing high-quality fruits and vegetables. localizing the supply chain for end consumers, minimizing the potential impact of disruptive climate-related events on production, and doing this in a much smaller and efficient footprint versus outdoor farming. For example, shown here is Boomberry Farms, which is quickly becoming the largest high-tech strawberry farm in North America. And with our customer, we have completed four phases of design and construction covering 80 acres of strawberry growing production. We're currently building an additional 40 acres And with the final 55-acre phase planned for 2025 and 2026, a total of 175 acres will be producing 100,000 pounds per acre or 17.5 million pounds of strawberries per year by 2026. If you think about what we do in this market, we are the leading turnkey provider in North America of large-scale controlled environment growing facilities, commercial greenhouses, and cultivation structures. We oversee every aspect of structure and systems design and engineering. We manufacture structures and systems. We integrate systems, both manufactured and sourced, and we construct and install the entire facility. Our strength is based in our organization. We have significant growing experience and expertise and strong domain knowledge in design, engineering, manufacturing, integration, and construction management. With our current demand momentum, as well as our design activity across a broadened customer base, we expect to deliver both revenue margin growth in 2024. Now for infrastructure business.
spk05: Let's move to slide 11. Infrastructure segment sales increased 17.1% on strong execution, continued solid end market demand, and market participation gains. Backlog decreased 10%, which was expected due to our continued progress on a large project that was booked in mid-2022 and we began to work on in 2023. Driven by strong funding for infrastructure projects, Demand, project design, and quoting activity remain strong, and we expect order flow to increase progressively over the course of the year. Segment adjusted operating and EBITDA margins improved 790 and 710 basis points respectively, driven by volume, price-cost alignment, ongoing strong execution, 80-20 productivity, and improving product mix. We expect continued sales growth and margin expansion in 2024. Let's move to slide 12 to discuss our balance sheet and cash flow. At March 31st, we had cash on hand of $147 million and $396 million available on our revolver. During the quarter, we generated $53 million in cash from operations through a combination of margin improvement and counter seasonal generation of about $17 million from working capital. As a result, our free cash flow generation for the quarter was very strong at 16.7% of sales. and our objective for free cash flow of approximately 10% for the year is unchanged. There were no share repurchases in the quarter, and we remain debt-free. We continue to expect to generate strong cash flow driven by revenue growth and margin expansion in 24 and beyond. Our priorities in capital allocation this year are to continue to invest in our organic growth and operating systems for scale. With capital expenditures planned between 2% to 3% of sales, At the higher end, assuming we're able to prove out cost savings, we anticipate on a number of opportunities to insource manufacturing to improve profitability. We also remain focused on high quality M&A. We're equipped with a strong balance sheet to pursue opportunities with a higher probability in the near term in the residential segment and the medium to long term in other segments. And we'll opportunistically return value to shareholders through the remaining $89 million authorized under our repurchase program. funded by cash generated from operations, and supplemented as needed by the use of our revolver, depending on the timing of any M&A and repurchases. Now I'll turn the call back to Bill. Thanks, Tim.
spk06: Let's move to slide 13, and we'll talk about our 2024 priorities. Our five core areas of focus for 2024 really are unchanged, and they've been pretty consistent over the last year or two. Number one, just continue to focus on driving growth, margin improvement, and strong cash performance. Secondly, continue to focus on our 80-20 initiatives, expand our participation and our presence in the marketplace, and just continue to drive service levels higher with speed and agility. We're going to continue to invest in digital transformation to scale the business, connect better with our customers, suppliers, and organization, and optimize our operating systems. Obviously, we're going to continue to focus on strengthening the team, adding the right experience and competency, and finally, just conduct business the right way and do it every day. Now let's turn to slide 14, and we're going to review our 2024 guidance. Our first quarter results and momentum to date validate our full year expectation for positive performance in all four segments, and we are reiterating our 2024 outlook. Consolidated revenue is expected to range between $1.43 billion and $1.48 billion, compared to $1.37 billion in 2023, up between 4% and 9%. GAAP operating margin is expected to range between 12.1 and 12.4 percent, up between 120 and 150 basis points. An adjusted operating margin is expected to range between 13.5 and 13.7 percent, up between 80 and 100 basis points. Adjusted EBITDA margin is expected to range between 16 percent and 16.3 percent, up between 60 and 90 basis points. Gap EPS is expected to range between $4.04 and $4.29 compared to $3.59 in 2023, up between 12% and 20%. And adjusted EPS is expected to range between $4.57 and $4.82 compared to $4.09 in 2023, up between 12% and 18%. And we expect free cash flow of approximately 10% of sales for the year. 2024 is off to a good start. With our first quarter performance and current momentum supporting our full-year expectations, we look for renewables and ag tech to accelerate top-line growth during the year, and all four businesses improving revenue, expanding margin, and delivering strong cash flow performance in 2024. Our performance, frankly, is just simply a result of a great team effort and the ownership our people take each and every day for making things happen. And our team knows each day truly does matter. So I want to say a big thank you to everyone in our organization. So now let's open the call up, and we'll take your questions.
spk03: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. And our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.
spk04: Thank you. Good morning, Bill. Good morning, Tim. Thanks for taking the questions. Obviously, congrats on a solid start to the year. Maybe start with Rezi. We've heard a little bit of incremental choppiness from some other buildings, products, companies. Clearly, you're more tied to R&R, but just curious if you're seeing any change in order patterns or demand over the last, call it, 90 days. And then perhaps more importantly, when we think about the expansion into, you know, the Rockies area and, you know, you're quoting only serving 40% of the top 32 markets today, how much incremental TAM is there to go after, you know, both with this initial initiative and then, you know, kind of longer term from a geographic perspective?
spk06: Yeah, Dan, thanks. On the last part of your question, obviously we'd like to see ourselves in 80% of those top 32 markets. So theoretically, if you could take your business and do something pretty significant with it, I guess is the answer. We're learning every day as we expand into a number of these markets that we haven't been in what the possibilities are. So I think Salt Lake and Denver were really eye-opening opportunities for us. We were trying to serve those markets from afar, and the more local we became, the more success we had in both top and bottom line, serving wholesalers in particular with quick service. So you'll see us continue to expand this year in a number of other locations, and that could be a combination of both organic and inorganic efforts, but we have a pretty good roadmap as to where we want to go and how we're going to go about doing that. So more to come on that front. As it relates to just demand, we're in the lowest period of time, as you know, seasonality-wise for the industry. I would say if you look at POS sales that we see from some of our big box guys, it's slower now than it was a year ago. We actually grew during that same time period in the first quarter, and I think that goes back to, as you know, our playbook has a lot to do with how do we drive participation. So When I talk about, as an example, Salt Lake and Denver, that's participation gains, right, in an existing marketplace. So even if those two cities were down a bit or those two markets were down, for us it's new and for us it's share gains. So we're going to continue to drive that path. And our plan going into this year was built on assuming the market would not be robust. It was going to be, again, more of the playbook of driving participation. So that's how we have seen the first quarter materialize and and that's the game plan going forward.
spk04: Very helpful. I might jump around a bit, so forgive me, but moving to renewables, just remind us of any meaningful delta in price and or margin for the 1P tracker line, and what does kind of EBOS attachment rate look like for that line relative to, you know, the prior tracker line and or fixed tilt before that?
spk06: Yeah, so on the second part of that, and I'll circle back, we're taking eBoss with all of our racking opportunities regardless whether it's fixed tilt, it could be canopy, or it could be tracker, it could be 1 or 2P. So getting our eBoss business, which we've talked about in the last couple years, in a position where it can actually support a customer base that's made up of a lot of opportunities, a lot of projects per week. That's really working on the design, the estimating, the manufacturing, getting that capability in place. So now that we feel we're in a better position to do that, we're actually out talking with customers more and more about that. We're getting more and more uptake. So it's still in the early stages, but we're getting more of that success, which is helpful. But it's not really tied to one of our racking technologies more than the other. It's actually a customer initiative. The biggest challenge that we've been dealing with is actually getting customers to buy from us differently because since the inception of the industry, they only had one option was to buy from a separate company, Racking and eBoss Solutions. So they're incented that way to buy that way. They're structured that way. And now we have some of our larger customers that we're working with and are now starting to look at that collectively. And that's been very helpful for us. So I think you'll see more and more of that happen. From a margin perspective, you know, we're in the ramp up of one piece. So we're going to have a bit of that ramp and margin that's going to take place over time. But effectively, when you get to the ramped up state, our margin profile is not going to be too dissimilar than what we see in our core business, whether it's fixed tilt or otherwise. And the reason is, remember, we're not selling the technology per se. We're selling a return on that project. And we do have projects that will take a combo of different racking technologies on the same land, or we could be doing multiple projects with the same developer that are using different technologies based on the location. So it all comes down to return profile for us effectively, and the more that we can package in with that all the way through field services. Remember, we're quoting an entire package of stuff, not necessarily just the technology. So our intent is to drive a margin profile that is similar to what we've been experiencing and hopefully be able to springboard off of that in the future. as we continue to grow and build the base.
spk04: Very good. Maybe one more. I'll jump back to you. But on the ag tech side, if you look at a project like Berry Farms, how do we think about the upfront revenue opportunity of a project of that size and scale? And what does ongoing maintenance and repair opportunity look like relative to the initial investment? Thanks again.
spk06: Yeah, good question. So when we sign a contract, very similar renewals, we'll get a deposit up front. And once we get that deposit, we will start issuing POs simultaneously. And that will then trigger the flow of revenue pretty quickly thereafter. So these projects, as long as they're permitted and ready to go, can start pretty soon after they come into the books. And for the ones we have signed recently, we are ramping up pretty quickly on, and you'll start to see some flow in Q2 but it's really going to ramp up in Q3 and Q4, but they're ready to roll. So that's what's exciting about the 40 million that's come in so far. We also have started about probably nine months. The team has done a fabulous job of getting into this refurbishment aspect of the business where we're going in and helping people either convert or fix or optimize something that was designed and built for them some time ago. And we're able to do that with a couple customers that has subsequently led to some new design deal contracts for new facilities, that are yet to come into the pipeline in terms of backlog, but we're actively working on. And those, obviously, for us can be better margin, but that's where we're going in and, again, doing refurbishment. So I wouldn't call it necessarily recurring revenue per se, but it's a different type of business that we're executing. It's a different source, but it's actually helped us broaden our customer base versus where we were three or four years ago. The number of customers we're serving now And the end that we took to get there is a lot to do with this refurbishment initiative that has really taken hold. And that's now starting to result in some of these new projects that are being signed. So we have some new customers that are part of the $40 million. We have some existing customers that are part of the $40 million. And if I think about what's in the pipeline, which arguably is even more so than what we just talked about signing, there's just a lot of really positive momentum right now.
spk04: All right, very helpful. I will jump back with a follow-up or two. Thanks. Great. Thanks, Dan.
spk03: Thank you. Our next question comes from the line of Julio Romero with Sidoti and Company. Please proceed with your question.
spk02: Hey, good morning, Bill and Tim. Appreciate the updated slides. Nice work. Thank you. Maybe to start on renewables, anything in the first quarter that kind of changes the way you're thinking about the cadence of renewable sales growth momentum expected throughout 2024?
spk06: No, I think we came in the year, we knew Q1 was going to be slower just because of this transition. Just to remind everyone that transition isn't, what causes a bit of a delay and push is a lot of A lot of our key customers were thinking fixed. They moved to Tracker, and that was somewhat correlated with moving to different states where Tracker they felt more comfortable with because of weather patterns and different environment versus what they either grew up with or were used to using, say, if they were in the Northeast. And that's why Illinois, as an example I used, is so important. That was our first 1P job that we did that we finished here recently, and that was – with one of our customers we kind of grew up with in the Northeast, but they grew up mainly with fixed tilt because of the weather conditions. So as we move more towards places like Illinois and you have different land masses, different weather patterns, and they saw incentives from Illinois Shines becoming more attractive where permitting was less challenging, the siting or zoning was less challenging, they migrated there pretty quickly and then as a result that switched pretty quickly to Tracker where they can take advantage of that. So it's a combination of things that really cause what we're referring to as this delay of sales. And so the bookings are there. It's just a matter of when you change from fixed to Tracker, you can imagine you go back through and rehash your designs and everything that you do because you're generating more power. That just drives a lot of different things, right? and how you attach that to a foundation is different than if you do fixed tilt. It's a good news story, but at the same time, it's a short-term, a bit of a delay for us, but we'll take it just because the uptake has been so rapid, much more than we thought. We just had 30 developers in Florida at our tracker engineering location to look at the technology for two days back in March, and typically, you know, things take a little bit longer, but I think there's just been a combination of things that have helped customers move a little bit quicker and that caught us a little bit off guard. So, you know, we're ramping up as quick as we can with our supply chain. We'll get it, get our arms around it, but that's really pushed more of the revenue into the second half related to that and some of that Q1 into Q2 as well.
spk02: Yeah, good caller and good reminder that, you know, that 1P tracker and the longer lead times, you know, kind of caused that expected dynamic in the first quarter. Just on that point, yeah, how much revenue do you expect from 1P tracker in the second quarter and maybe for the full year? Yeah, it's hard.
spk06: I don't have an exact number for you, Julio. Our backlog on 1P is up significantly, right? Now, it's coming off a very small base, so it's still going to come down to just like any other racking system we'd use, those projects flowing and their permits and all that good stuff, but it's becoming, it'll be a bigger piece of what we're doing this year than it has been, obviously, because it's new, but the acceleration is going to make it a, I can't give you an exact number right now just on where everything's going to flow, but it's going to be a bigger piece of what we're doing. Once we get this base year behind us, I think it'll be better, it'll be easier for us to figure out where the mix is going to be going forward between fixed, canopy, and tracker, and then inside tracker 1P and 2P. We're kind of looking at all five and how they're moving, but it is accelerating for sure. Now, just to clarify one thing, it's not the lead time from the supply chain that is the problem. It's the fact that we switched from one tech to the other tech in a short period of time, if we would have known that we were going to transition to 1P, we would have brought inventory in much sooner to help with the startup. That's where we got caught. So it's not the push and sales, I will say, is more of a one-time event. It's not because we have 12 weekly times or eight week or 10 versus our traditional four. We'll get there eventually, but it's because we didn't have inventory planned for the launch because it happened unexpectedly sooner than we thought. So that will work itself out, I guess, is my point. And we have ways to do that, such that the lead time of the supply chain does not become an issue in the future. Does that make sense?
spk02: It does, and that's helpful. And maybe just the last one for me is, you know, you had a really good cash flow quarter. You talked a little bit about the M&A pipeline, and I think you said better probability of a near-term deployment towards some inorganic growth and some residential tuck-ins, is that a function of evaluations more than anything, and would those residential tuck-ins be more inclined to focus towards either of your initiatives of either geographical expansion or new product rollout?
spk06: When I was talking about the expansion, We have, as an example, I mentioned in Denver, we're leveraging an existing Gibraltar facility to actually get into the wholesale market, which traditionally we were not. And so we have opportunities like that that exist for us, and that would be more of an organic play. There are parts of the country where we're just not, and there are companies that are similar to what we just described that are serving, say, Denver and Salt Lake. that may be available to bring into the fray as well. So those are the tuck-ins I think that would help us with our expansion initiative where we're really focused on driving the wholesale business. And that's really critical because that's all 24-hour kind of service. And if you can do that consistently, then you can grow and the margin profile of that business is different than it would otherwise be. So that's my comment on that. There is other M&A activity I think Tim mentioned in his comments around I'd say there's more activity that we're seeing develop in the residential space as an example than there has been in the last year or two. So that would be separate from the initiatives I just talked about necessarily. So yeah, we're in a good position to act on some of the opportunities. There is more activity. We're engaging and we'll see how things evolve as the year moves on. I think you'll see hopefully some opportunities there for us to bring across the finish line.
spk02: Very helpful. Thanks very much.
spk06: Okay. Thanks, Julio.
spk03: Thank you. And just as a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the question and answer queue. Our next question comes from the line of Walt Littak with Seaport Global Securities. Please proceed with your questions.
spk01: Hey, good morning, guys. Good quarter. Thanks, Walt. Thanks, Walt. So I wanted to ask about the bookings in the renewable segment. How are bookings looking and how's the funnel looking? I know you kind of went into it in the last question a little bit, but I wonder if you can just provide a little bit more detail. Thanks.
spk06: Yeah, I would say despite, you know, I've mentioned this new ADCVD potential investigation. We still have these ongoing permitting things that we're working through as an industry. It's as active now as it has been. Nothing's changed on that front. I think the industry's been relatively resilient despite not having the extra 10%. I would say, you know, you get to a point when you, like in this 10% domestic content credit, where it shows up is you engage, you get to say stage three, uh, or stage four on the seven stage process with a customer. Uh, then thinking that, Hey, they may get this, may not. And then they pause and then they'll either move forward or they won't. But I would say the activity across the seven gates that we measure in our sales process, it's pretty filled up probably as much as it ever has been, if not the most. Some of that's related to just a lot of activity coming with 1P and 2P as it's come out here recently. And some of the larger projects that I mentioned, you know, we have one we brought across the finish line, 97 megawatt. Those take a little bit longer in the design cycle versus our traditional 6 to 7 megawatt. So we've got a lot of things going on inside under the hood, if you will, around demand profiles, mixes of the different aspects of the business. uh, customer activity, uh, but it's all pointing towards, uh, I'd say pretty, pretty interesting pipeline of, of things, you know, uh, that are out there in front of us. So I know that's not a very specific answer, but it's, there's a lot of moving parts, but it's, it seems to us to be relatively positive despite some of the macro things that continue to be in the industry.
spk01: Okay. And I'm, I'm, I wonder if we could just talk about the 1P tracker versus some of those macro things, like from the IRA tax credits. What do you think will be the bigger catalyst for future orders? Is it getting the 1P tracker, just ramping that with your customers, or is it getting this tax credit thing behind us?
spk06: I think it's just ramping with our customers. You know, everyone's been waiting for the tax credit for two and a half years, and I think people are anticipating it's coming, and it will be helpful. I mean, you think about how things are financed. A large chunk of these projects are financed through tax equity, so cash flow associated with an extra 10% of the total project is a big deal, right? So it absolutely will be helpful, but I don't think it's holding up necessarily you know, what we're seeing on 1P, I think it's just more of us, we're ramping up accordingly as we've talked about. Our order board continues to grow in that space. So I would say it that way, Walt. And, you know, once the 10% comes, then, you know, I guess, you know, that just, I don't know if that'll ramp things up quicker, but it may prevent some of the iterative pauses that have been going on. It may give, you know, our developers just a better sense of confidence that they can get more in the pipeline and work it themselves, we'll see. But that's how we characterize.
spk01: Okay, great. And then just switching gears to just the corporate expense, it ran a little bit higher than I was thinking of. In the first quarter last year, you were lower and you were at sort of a 10 million a quarter run rate. Was there something in the corporate expenses that was one time in nature? And what do you think corporate expenses will be for the full year?
spk05: So not really one time well, but our performance-based comp was, we called it up, about $4 million or 10 cents a share in the first quarter. And I think it's more probably timing than a lot of difference, but part of it's driven by stock price in our deferred comp plans. Part of it's driven by we had really good performance last year. And so some of that cost gets spread over a period. And I think, you know, last year we had one tranche of some of the equity that we earned a few years ago. We didn't earn anything. So we've sort of probably normalized that. So I think you'll see that lesson as we move through the year. But this quarter, it was pretty noticeable.
spk01: Okay, great. Thank you.
spk03: Thank you. Our next question comes from the line of Daniel Moore with CJS Security. Please proceed with your question.
spk04: Thanks again. Just wanted to touch a little on infrastructure, which doesn't get quite as much attention, but certainly a bright spot and 22% might be a record margin, I have to look back. What drove that and how sustainable is it near term and you know, talk about just pipeline as well as, you know, reasonable kind of longer-term expectation ranges as far as margin is concerned.
spk06: Yeah, you know, we've been on this trajectory for a bit of time, Dan. I think, you know, we've got a good ground game going now. We've got our supply chain linked with the business in a much stronger way. If you recall way back, go back three years when or two years, whenever it was. It's hard to imagine these days. But when supply chain really took off, this business at the same time, like renewables and anything else, when steel was really going haywire, this was also a business that we weren't necessarily linked closely with contracts and supply chain locking that in, so our input costs were aligned with our pricing. And arguably, you could say in this business, it's even more of a challenge because you may sign projects two, three years previous to a change, right? And so we worked through all that and subsequently have come back and changed the way we manage a lot of our agencies with this business. So I think that's helped take some of the variability out and some of the surprises on the business. And it then has allowed us to focus on really doing a lot of more 80-20. We've been investing accordingly in 80-20, but also some new automation in this business. And I think that's really helped on the margin profile. We've also 80-20 from a customer perspective, look at our product lines to see where we were and where we're not making money and then really honed in on how do we actually generate better margins. And then we just got good top line opportunities that we're able to take advantage of. Arguably some of those we wouldn't have touched three or four years ago because we weren't in the position to make the type of money we wanted to and now we are. So that's facilitating more growth. Obviously you have the infrastructure bill that has given our customers more visibility beyond the year with federal funding. So I think that's helped. And I just think we've gained more business than we were in the past. So as I mentioned in my comments, bookings were up 18% sequentially. We're trying to overcome arguably the largest job we ever had. We signed in late 2022 or started early 2023. That's why backlog was a little wonky for the quarter, but the reality is that will correct itself just with the momentum we have. So we don't see the end market slowing down a whole lot right now. We've got some other products that we're working on as well I think will help us down the road, and we still have another couple years of the infrastructure bill that I think will support the industry. So right now it's a pretty solid outlook for the end market, and We feel good about the type of performance that we've achieved and we think we can maintain.
spk05: If you look sequentially last year, our second quarter margins were a lot higher than our first last year. We'll see improvement, but I wouldn't expect 800 basis points off of what we did last year for the remainder of the year. just to set that expectation.
spk04: Yep, that makes sense. Last for me, just going back to M&A, sounds like near-term resi is more likely, and it sounds like the dialogues are picking back up. Is that simply a function of availability or strategic as well as you look to build out some of your geographic penetration?
spk01: Well, I mean, I think I would...
spk06: characterize it mainly as strategic, number one. Again, I think there's going to be an organic and inorganic play as we expand in the markets I mentioned earlier. And then there's some other opportunities that we're finding pretty interesting as well that we've been engaged with and been engaged with for some time. And I think I've mentioned in previous calls where we We're in processes that stopped, that look to be restarting. So hopefully we'll see those things happen as we expect, and as they do, we'll participate, and we'll see which of those that make most sense for us and get across the finish line. But there's definitely more activity now, more potential now than there was the last 12, 18, 24 months. And it's mainly residential. And I'd say that, Dan, probably is much of a function of what ag tech and renewables as an industry are going through, right? It's not a robust M&A environment necessarily in renewables just because there's a lot of moving parts. And I think sellers and buyers are kind of holding patterns until they work through some of these things, as we've all discussed the last couple of years. And valuations have changed dramatically in the last two or three years. So there's a lot of nuances there that I think in the renewal space, and I think ag tech, there's some similar things going on yet a little bit different. So we've said, and we said a couple years ago, we've got to get those two businesses running, get them generating the type of performance that we expect, and then we'll focus on some additional opportunities maybe to bolt on or build them out. But we've got, you know, our first responsibility is making sure they get up and running. And that's really 90% of Gibraltar right there, right? So... That's the way we continue to look at it.
spk04: All right. Thank you again.
spk03: All righty. Thank you. And we have reached the end of the question and answer session. I'll now turn the call back over to Bill Bosley for closing remarks.
spk06: Great. Again, thank you, everyone, for joining us today. Coming up, we do plan to present at the CPORT Third Annual Growth Discovery Conference. and the CJS Summer Conference. So thanks again for your ongoing support of Gibraltar, and I hope you guys have a great day and a good rest of the week. Thank you.
spk03: And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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