Gibraltar Industries - Q1 2024

Transcript

Operator (participant)

Greetings. Welcome to the Gibraltar Industries Q1 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.

Carolyn Capaccio (SVP of Investor Relations)

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, gibraltar1.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 1 December 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 Investor section of the company's website, gibraltar1.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?

Bill Bosway (Chairman, President, and CEO)

Good morning, everyone, and thank you for joining today's call. We're gonna do this a little differently this quarter. We're gonna start with an overview of the Q1 results, and then Tim and I are gonna 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 Q1 2024 review. We had a good Q1, 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 $0.10 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 renewables being down 10% as planned going into the Q1. Residential, AgTech, and infrastructure businesses collectively generated 4% revenue growth, reflecting solid end market activity as well as additional participation gains. Total backlog for Gibraltar was impacted at quarter end by both AgTech and infrastructure businesses. The AgTech 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 Q1, 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 quoting 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 the segments, and we'll take it. Tim will take it from here.

Tim Murphy (CFO)

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 TerraTrak tracker technology. This transition has created some iterative redesign work and additional time to rescope and finalize projects for customers, and therefore, pushed revenue into the Q2 and H2 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 TerraTrak tracker, Fixed-Tilt, Canopy, and eBOS 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 the 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 of the Department of the Treasury guidance on the ITC tax credit. Bill?

Bill Bosway (Chairman, President, and CEO)

... Yeah, staying with renewables, let's take a closer look at TerraSmart's TerraTrak 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 TerraTrak 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 PeakYield operating system. Our PeakYield 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 TerraTrak 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. To date, we have installed over 500 MW 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 MW, we have larger projects in our backlog, with the largest to date being 97 MW. 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 Two project, located in Lostant, Illinois.

This is a 3 MW 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. 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. 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 the 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 Industries Association, referred to as SEIA, 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. Now, there has been a new development in the U.S. solar industry. There is a second antidumping and countervailing duty complaint that was filed on 24 April 2024.

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 antidumping and countervailing duties, to imported solar cells and modules from these countries. The language in the new petition excludes products covered by the China AD/CVD orders in the Auxin case to avoid doubling tariffs on an import. The DOC now has 20 days from April 24 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 gonna continue to assess the situation, but as of, as of now, we do not expect a new DOC investigation to have a significant impact on the industry in 2024. Let's move on to residential.

Tim Murphy (CFO)

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. 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?

Bill Bosway (Chairman, President, and CEO)

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. Let's start with expanding our market presence. From 2019 to 2023, 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. 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. In 2023, we continued our expansion initiatives by becoming more local in the Denver market, where we are leveraging an existing Gibraltar, 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 eighties of demand with a goal to serve customers within 24-hour lead times.

We will continue to expand into 32 major U.S. markets and drive growth, participation, and higher margins accordingly. We're also launching new products in the Q3 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 4-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.

Given the packaging footprint, freight costs for this mailbox will be lower by up to 50% versus standard factory-assembled mailboxes. Let's move on to AgTech.

Tim Murphy (CFO)

If we move to slide nine, AgTech's adjusted 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 Q3 and Q4. 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 $1 million due to start 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?

Bill Bosway (Chairman, President, and CEO)

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 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 consumer demand, and we also see outdoor growers moving additional production 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 Boone's Berry 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. When 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.

Tim Murphy (CFO)

Now, for infrastructure business. 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 remained 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 31, 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 counterseasonal 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 2024 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 in-source 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. 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.

Bill Bosway (Chairman, President, and CEO)

Thanks, Tim. Let's move to slide 13, and we'll talk about our 2024 priorities. You know, 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, 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 gonna 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 gonna 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 gonna review our 2024 guidance.

Tim Murphy (CFO)

Our Q1 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%, up between 120 and 150 basis points, and adjusted operating margin is expected to range between 13.5% and 13.7%, up between 80 and 100 basis points. Adjusted EBITDA margin is expected to range between 16% and 16.3%, up between 60 and 90 basis points.

GAAP EPS is expected to range between $4.04 and $4.29, compared to $3.59 in 2023, up 12% and 20%. Adjusted EPS is expected to range between $4.57 and $4.82, compared to $4.09 in 2023, up between 12% and 18%. We expect free cash flow of approximately 10% of sales for the year. 2024 is off to a good start, with our Q1 performance and current momentum supporting our full-year expectations. We look for renewables and AgTech 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 wanna say a big thank you to everyone in our, in our organization.

Bill Bosway (Chairman, President, and CEO)

So now let's open the call, up, and we'll take your questions.

Operator (participant)

At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore (Director of Research)

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 resi. You know, we've heard a little bit of incremental choppiness from, you know, some other building 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, and, you know, you're, 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, with this initial, initiative and, and then, you know, kind of longer term from a geographic perspective?

Bill Bosway (Chairman, President, and CEO)

Yeah, Dan, thanks. You know, on the last part of your question, obviously, we'd like to see ourselves at 80% of those top 32 markets. So theoretically, 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 yeah, 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 on 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'll be, you know, could be a combination of both organic and inorganic efforts, but we have a pretty good roadmap as to where we wanna go and how we're gonna go about doing that. So, more to come on that front. As it relates to just demand, you know, we're in the lowest period of time, as you know, seasonality-wise for the industry. I would say, if you look at, like, 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 Q1, 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, you know, Salt Lake and Denver, that's participation gains, right? In 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 sheer gain. So, you know, we're gonna continue to drive that path, and our plan going into this year was built on assuming the market would not be robust. It was gonna be, again, more of the playbook of driving participation. So, that's how we have seen the Q1 materialize, and that's the game plan going forward.

Daniel Moore (Director of Research)

Very helpful. I might jump around a bit, so forgive me. But moving to, you know, renewables, just remind us of any delta, any meaningful delta in price and/or margin for the 1P tracker line. And, you know, what does kind of eBOS attachment rate look like for that line relative to, you know, the prior tracker line and/or fixed-tilt, yeah, before that?

Bill Bosway (Chairman, President, and CEO)

Yeah. So, on the second part of that, and I'll circle back, we're taking eBOS with all of our racking opportunities, regardless whether it's Fixed-Tilt, it could be canopy, or it could be tracker, it could be 1P or 2P. So getting our eBOS business, which we've talked about in the last couple of years, in a position where it can actually support a customer base that's made up of a lot of opportunities, you know, 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, and 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've only had one option, was to buy from a separate company, racking and eBOS 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 1P.

So we're gonna have a bit of that ramp in margin that's gonna take place over time. But effectively, when you get to the ramped-up state, our margin profile is not gonna 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, you know, 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.

Daniel Moore (Director of Research)

Very good. Maybe one more, I'll jump back to the queue. But, on the AgTech side, if you look at a project like Berry Farms, you know, how do we think about kind of the upfront revenue opportunity of a, a project of that, that size and scale, and what does ongoing maintenance and repair opportunity look like relative to the initial investment? Thanks again.

Bill Bosway (Chairman, President, and CEO)

Yeah, good question. So when we sign a contract, very similar renewables, 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, you know, 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 gonna 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 build 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, are can be better margin, but that's where we're going in and, again, doing refurbishment. So it's. 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, where versus where we were three, 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 then 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.

Daniel Moore (Director of Research)

... All right, very helpful. I will jump back with a follow-up or two. Thanks.

Bill Bosway (Chairman, President, and CEO)

Great. Thanks, Dan.

Operator (participant)

Thank you. Our next question comes from the line of, Julio Romero with Sidoti & Company. Please proceed with your question.

Julio Romero (Equity Research Analyst)

Hey, good morning, Bill and Tim. Appreciate the updated slides. Nice work.

Bill Bosway (Chairman, President, and CEO)

Thank you.

Julio Romero (Equity Research Analyst)

Maybe to start on renewables, anything in the Q1 that kind of changes the way you're thinking about the cadence of renewable sales growth momentum expected throughout 2024?

Bill Bosway (Chairman, President, and CEO)

No, you know, I think we came in the year. We knew Q1 was gonna be slower just because of this transition. Just to remind everyone, that transition isn't what caused a bit of a delay in 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, 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 that'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, your designs, and everything that you do because you're generating more power, and that just drives a lot of different things, right? So, and how you attach that to a foundation is different than if you do fixed tilt. So, you know, it's a good news story, but at the same time, it's a short term, a bit of a, a delay for us, but, but we'll take it, just because the uptake has been so rapid, much more than we thought. We just had, you know, 30 developers in Florida at our, at our tracker, engineering location to look at the technology for two days back in March.

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. We'll get our arms around it, but that's really pushed more of the revenue into the H2, related to that, and so some of that Q1 into Q2 as well.

Julio Romero (Equity Research Analyst)

Yeah, good color and good reminder that, you know, that 1P tracker and the longer lead times, you know, kind of caused that expected dynamic in the Q1. Just on that point, yeah, how much, how much revenue do you expect from 1P tracker in the Q2, and maybe for the full year?

Bill Bosway (Chairman, President, and CEO)

Yeah, it's hard. I don't have an exact number for you, Julio. Our backlog on 1P is up significantly. Now, it's coming off a very small base, so it's still gonna come down to just like any other racking system we'd use, those projects flowing in, get 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 gonna make it a... I can't give you an exact number right now just on where everything's gonna flow, but it's gonna be a bigger piece of what we're doing.

And 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. So we're kind of looking at all five and how they're moving, but it's 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 it—we switched from one tech to the other tech in a short period of time. If we would've known that we were gonna transition to 1P, we would've brought inventory in much sooner to help with the startup. That's where we got caught.

So it's not the push in sales is, I would say, is more of a one-time event. It's not because we have 12-week lead times or 8-week or 10 versus our traditional four. It's we'll get there eventually, but it's because we didn't have the 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?

Julio Romero (Equity Research Analyst)

It does, and that's helpful. And maybe just last one for me is, you know, you had a really good cash flow quarter. You know, 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 valuations 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?

Bill Bosway (Chairman, President, and CEO)

Yeah. 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 exists 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 you, you know, the margin profile of that business is different, than it would otherwise be. So that's, that's my comment around 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, we're in a good position, we, to, 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, but I think you'll see, hopefully, some opportunities there for us to bring across the finish line.

Julio Romero (Equity Research Analyst)

Very helpful. Thanks very much.

Bill Bosway (Chairman, President, and CEO)

Okay. Thanks, Julio.

Operator (participant)

Thank you. Just as a reminder, if anyone has any questions, you may press star one on your telephone keypad to join the question-and-answer queue. Our next question comes from the line of Walt Liptak with Seaport Global Securities. Please proceed with your question.

Walt Liptak (Senior Analyst)

Hey, good morning, guys. Good quarter.

Bill Bosway (Chairman, President, and CEO)

Thanks, Walt. Thanks, Walt.

Walt Liptak (Senior Analyst)

And so I wanted to ask about the bookings in the renewables 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.

Bill Bosway (Chairman, President, and CEO)

Yeah, I'd say, despite, you know, I've mentioned, this new AD/CVD potential investigation, we still have these ongoing permitting things that we're working, through as an industry. It's as, active now as, 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, or stage four on a seven-stage, you know, process with a customer, them thinking that, hey, they, they, they may get this, may not, and then it-- they pause, and then they'll either move forward or they won't.

I would say the activity across the seven gates that we measure in our sales process is 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 assets and 2P assets 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 MW. Those take a little bit longer in the design cycle versus our traditional 6 to 7 MW.

So we've got a lot of, a lot of things going on inside, under the hood, if you will, around demand profiles, mixes of the different aspects of the business, customer activity, but it's all pointing towards, I'd say, pretty, pretty interesting pipeline of, of things, you know, 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 seems to us to be, you know, relatively positive, despite some of the macro things that continue to, you know, be in the industry.

Walt Liptak (Senior Analyst)

Okay. And then, you know, I wonder if we could just talk about the 1P tracker versus, you know, some of those macro things, like from the IRA tax credits. What, what will, what do you think will be the bigger, you know, catalyst for future orders? Is it, is it getting the 1P tracker, just ramping that with your customers, or is it getting this tax credit thing behind us?

Bill Bosway (Chairman, President, and CEO)

I think it's just ramping with our customers. You know, everyone's been waiting for the tax credit for 2.5 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 absolutely, it 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.

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 I would characterize.

Walt Liptak (Senior Analyst)

Okay, great. And then just switching gears to, you know, just the corporate expense. It ran a little bit higher than I was thinking of. You know, in the Q1 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?

Tim Murphy (CFO)

... So not really one-time, well, but, our performance-based comp was, we called it up about $4 million or $0.10 a share in the Q1. And I think it's, it's more probably timing than a lot of difference. But, part of it's driven by stock price and 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 sort of probably normalized that. So, I think you'll see that lessen as we move through the year, but, this quarter, it was pretty noticeable.

Walt Liptak (Senior Analyst)

Okay, great. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore (Director of Research)

Thanks again. Just wanted to touch a little on infrastructure, which doesn't get quite as much attention, but certainly a bright spot. And, you know, 22% might be a record margin, 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 for as far as margin's concerned.

Bill Bosway (Chairman, President, and CEO)

Yeah, you know, we've been on this trajectory for a bit of time, Dan. I think, you know, it's. 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.

You could arguably 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 T&Cs 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 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 in the margin profile.

We've also 80/20 from a customer perspective, looked 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. 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. That's facilitated 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, you know, business than we were in the past.

So, you know, 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 in early 2023, so that's why, you know, 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 of years of the infrastructure bill that I think will support the industry.

So, you know, right now it's a, you know, 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.

Tim Murphy (CFO)

Yeah, Dan, I can just add to that.

Daniel Moore (Director of Research)

Go ahead.

Tim Murphy (CFO)

If you look sequentially last year, our Q2 margins were a lot higher than our first last year. And so, you know, 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 be set that expectation.

Daniel Moore (Director of Research)

Yep. Yep, makes sense. Last for me, just going back to M&A. Sounds like near-term resi is more likely, and, you know, sounds like the dialogues are picking back up. Is that simply a function of availability or strategic as well as you, you know, look to build out some of your geographic penetration?

Bill Bosway (Chairman, President, and CEO)

Well, I mean, I think I would characterize it mainly as strategic, number one. Again, I think there's gonna be an organic and inorganic play as we expand into 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 then been engaged with for some time. And I think I've mentioned in previous calls where we were in processes that stopped that have... That look to be restarting. So we will 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 when we get across the baseline.

But, there's definitely more activity now than—more potential now than there, there was, you know, the last 12, 18, 24 months. And I'd say that, Dan, probably as much of a function of what AgTech 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 till they work through some of these things, as we've all discussed in 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 renewables space, and I think AgTech, there's some similar things going on, yet a little bit different.

So we've said, and we said a couple of 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 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.

Daniel Moore (Director of Research)

All right. Thank you again.

Bill Bosway (Chairman, President, and CEO)

All righty.

Operator (participant)

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

Bill Bosway (Chairman, President, and CEO)

Great. Again, thank you, everyone, for joining us today. Coming up, we do plan to present at the Seaport 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.

Operator (participant)

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.