GIBRALTAR INDUSTRIES, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Certain information set forth herein includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and, therefore are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “anticipates,” “aspires,” “expects,” “estimates,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, competition, strategies, margins, integration of acquired businesses, the industries in which we operate and the expected impact of evolving laws and regulation. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” disclosures in our most recent Annual Report on Form 10-K. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition, liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition, liquidity, and the development of the industries in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make herein speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data. The Company uses certain operating performance measures, specifically consolidated gross margin, operating margin by segment and consolidated operating margin, to manage the Company's businesses, set operational goals, and establish performance targets for incentive compensation for the Company's employees. The Company defines consolidated gross margin as a percentage of total consolidated gross profit to total consolidated net sales. The Company defines operating margin by segment as a percentage of total income from operations by segment to total net sales by segment and consolidated operating margin as a percentage of total consolidated income from operations to total consolidated net sales. The Company believes consolidated gross margin, consolidated operating margin, and operating margin by segment may be useful to investors in evaluating the profitability of the Company's segments and the Company on a consolidated basis. Overview Gibraltar Industries, Inc. (the "Company") is a leading manufacturer and provider of products and services for the residential, agtech, renewable energy and infrastructure markets. The Company operates and reports its results in the following four reporting segments: • Residential • Agtech • Renewables • Infrastructure The Company serves customers primarily in North America including home improvement retailers, wholesalers, distributors, contractors, institutional and commercial growers of fruits, vegetables, flowers and other plants, convenience store, travel centers, food retailers, and quick-serve restaurants, and renewable energy (solar) developers. At March 31, 2025, the Company operated forty facilities, comprised of thirty-two manufacturing facilities, two distribution centers, and six offices, which are located in nineteen states, Canada, and China. The Company's operational infrastructure provides the necessary scale to support local, regional, and national customers in each of the Company's markets. Recent Trends Impacts of Macroeconomic Conditions on our Business 18 Table of Contents The Company is closely monitoring the fluid nature of the current macroeconomic conditions as it could be adversely impacted by the potential expansion of tariffs for imports of raw materials, primarily steel and aluminum, used in its manufacturing processes, and to a lesser extent, logistics and imported products used by the Company's customers, such as solar modules, as well as responsive or related policies enacted in other countries. The global and regional economic conditions may cause volatility in demand for our products as well as cost of materials and logistics, and transportation delays. These conditions may result in impacts to the pricing of the Company's products, product availability and its results of operations, for which such impact is uncertain at this time. Business Strategy The Company's mission is to make life better for people and the planet, fueled by advancing the disciplines of engineering, science, and technology. The Company is innovating to reshape critical markets in comfortable living, productive growing, and sustainable power throughout North America. Furthermore, the Company strives to create compounding and sustainable value for its stockholders and stakeholders with strong and relevant leadership positions in higher growth, profitable end markets focused on addressing some of the world's most challenging opportunities. The foundation of the Company's strategy is built on three core pillars: Business System, Portfolio Management, and Organization Development. 1. Business System reflects the necessary systems, processes, and management tools required to deliver consistent and continuous performance improvement, every day. The Company's business system is a critical enabler to grow, scale, and deliver its plans. The Company's focus is on deploying effective tools to drive growth, improve operating performance, and develop the organization utilizing 80/20 and lean quote-to-cash initiatives along with digital systems for speed, agility and responsiveness. The Business System pillar challenges existing operating paradigms, drives day-to-day performance, forces prioritization of resources, tests the Company's business models, and drives new product and services innovation. 2. Portfolio Management is focused on optimizing the Company’s business portfolio in higher growth markets with leadership positions while ensuring its financial capital and human resources are effectively and efficiently deployed to deliver sustainable, profitable growth while increasing its relevance with customers and shaping its markets. 3. Organization Development drives the Company’s continuous focus on ensuring it has the right design and structure to scale the organization in order to execute the Company’s plans and meet commitments. The Company's focus is on creating an environment for our people to have the best opportunity for success, continue to develop, grow and learn. At core of this pillar is the Company’s development process focused on helping employees reach their potential, improve performance, develop career roadmaps, identify ongoing education requirements, and succession plans. The Company believes doing so helps it attract and retain the best people to execute its business plans. The Company believes the key elements of the Company's strategy enable the Company to respond timely to changes in the end markets the Company serves, including the broader market dynamics experienced over the past few years. The Company continues to examine the need for restructuring of the Company's operations, including consolidation of facilities, reducing overhead costs, curtailing investments in working capital, and managing the Company's business to generate incremental cash. The Company believes its strategy enables the Company to respond to volatility in commodity and other input costs and fluctuations in customer demand, along with striving to maintain and improve margins. The Company has used cash flows generated by these initiatives to improve the Company's liquidity position, invest in growth initiatives, including most recently the acquisition of three businesses in separate transactions all of which were funded with cash on hand, and return capital to the Company's shareholders through share repurchases. Overall, the Company continues to strive to achieve stronger financial results, make more efficient use of capital, and deliver higher stockholder returns. Recent Developments In April 2025, the Company's Board of Directors authorized a new share repurchase program of up to $200 million of the Company's issued and outstanding common stock. The new program has a duration of three years, ending April 30, 2028. Repurchases may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. Any such repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The repurchase program may be suspended or discontinued at any time at the Company's discretion. The Company has not made repurchases under the new repurchase program as of April 30, 2025. 19 Table of Contents On March 31, 2025, the Company acquired two privately held businesses that primarily specialize in the manufacturing of metal roofing systems. The Company purchased all the outstanding stock of one of the businesses and substantially all of the assets of the other business for a combined preliminary purchase consideration of $90 million in an all cash transaction. These businesses are reported as part of the Company's Residential segment. On February 11, 2025, the Company purchased all the outstanding stock of Lane Supply, a privately held company that designs, manufactures and installs structural canopies serving the convenience store, travel center, food retail, and quick serve restaurant markets, for $117 million in an all cash transaction. Lane Supply is reported as part of the Company's Agtech segment. On December 17, 2024, the Company sold its electronic locker business within its Residential segment to a third party and received net proceeds of $28 million. Results of Operations Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024 The following table sets forth selected results of operations data and its percentage of net sales for the three months ended March 31 (in thousands): 2025 2024 Net sales $ 290,015 100.0 % $ 292,506 100.0 % Cost of sales 212,315 73.2 % 208,118 71.1 % Gross profit 77,700 26.8 % 84,388 28.9 % Selling, general, and administrative expense 52,190 18.0 % 52,652 18.1 % Income from operations 25,510 8.8 % 31,736 10.8 % Interest income (1,637) (0.5) % (750) (0.3) % Other expense (income) 94 0.0 % (1,021) (0.4) % Income before taxes 27,053 9.3 % 33,507 11.5 % Provision for income taxes 5,934 2.0 % 8,561 3.0 % Net income $ 21,119 7.3 % $ 24,946 8.5 % The following table sets forth the Company’s net sales by reportable segment for the three months ended March 31, (in thousands): Impact of 2025 2024 Total Change Acquisitions Portfolio Management Ongoing Operations Net sales: Residential $ 179,994 $ 185,111 $ (5,117) $ — $ (2,745) $ (2,372) Agtech 45,040 34,027 11,013 15,284 — (4,271) Renewables 43,658 51,496 (7,838) — — (7,838) Infrastructure 21,323 21,872 (549) — — (549) Consolidated $ 290,015 $ 292,506 $ (2,491) $ 15,284 $ (2,745) $ (15,030) Consolidated net sales decreased by $2.5 million, or 0.9%, to $290.0 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. A 5% decrease in organic revenue, primarily the result of market softness in the Renewables segment, and portfolio management activities in the prior year related to the sale of the Company's residential electronic locker business, were nearly offset by $15.3 million of net sales generated from the current quarter acquisition of Lane Supply in the Residential segment. Consolidated backlog increased 30% to $434 million, as compared to prior year. Net sales in the Company's Residential segment decreased $5.1 million, or 2.8%, to $180.0 million for the three months ended March 31, 2025 compared to $185.1 million for the three months ended March 31, 2024. The decrease was due in part to portfolio management activities in the prior year related to the sale of the Company's residential electronic locker business. Market softness in retail end market point-of-sale revenue along with mail and 20 Table of Contents package product sales was nearly offset by participation gains and new product penetration in our building accessories product sales. Net sales in the Company's Agtech segment increased 32.4%, or $11.0 million, to $45.0 million for the three months ended March 31, 2025 compared to $34.0 million for the three months ended March 31, 2024. The revenue increase was largely due to $15.3 million generated from the current quarter acquisition of Lane Supply, which more than offset a 12.6% decrease in organic sales related to project start delays for two produce projects waiting on permit approval. The Company expects to have permits finalized and start construction around the end of the second quarter. Backlog increased 226% year over year in this segment, driven by both organic orders and with the acquisition of Lane Supply. Net sales in the Company's Renewables segment decreased $7.8 million, or 15.1%, to $43.7 million for the three months ended March 31, 2025 compared to $51.5 million for the three months ended March 31, 2024. The decrease was in line with expectations given the slower bookings realized in the second half of 2024 due to headwinds associated with the December 2024 panel installation deadline related to the expiration of the 2022 Presidential Proclamation tariff moratorium. Order backlog decreased 23% from the prior year as a result of the aforementioned challenges. Net sales in the Company's Infrastructure segment decreased 2.7%, or $0.5 million, to $21.3 million for the three months ended March 31, 2025 compared to $21.9 million for the three months ended March 31, 2024. The decrease in revenue was a result of project delays pushing shipments into the second quarter. Backlog increased 11% from the prior year. Demand and quoting remain strong, supported by continued investment at the federal and state levels. The Company's consolidated gross margin decreased to 26.8% for the three months ended March 31, 2025 compared to 28.9% for the three months ended March 31, 2024. The decrease was driven by product line mix and volume leverage in the Renewables segment, partially offset by overall continued operational efficiencies along with 80/20 initiatives. Selling, general, and administrative ("SG&A") expense decreased by $0.5 million, or 0.9% to $52.2 million for the three months ended March 31, 2025 compared to $52.7 million for the three months ended March 31, 2024. The $0.5 million decrease was primarily due to lower performance-based compensation expense as compared to the prior year quarter. SG&A expense as a percentage of net sales was relatively flat at 18.0% for the three months ended March 31, 2025 compared to 18.1% for the three months ended March 31, 2024. The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the three months ended March 31, (in thousands): 2025 2024 Total Change Income from operations: Residential $ 31,260 17.4 % $ 34,346 18.6 % $ (3,086) Agtech 3,385 7.5 % 2,608 7.7 % 777 Renewables (3,145) (7.2) % 1,644 3.2 % (4,789) Infrastructure 5,258 24.7 % 4,896 22.4 % 362 Unallocated Corporate Expenses (11,248) (3.9) % (11,758) (4.0) % 510 Consolidated income from operations $ 25,510 8.8 % $ 31,736 10.8 % $ (6,226) The Residential segment generated an operating margin of 17.4% in the current year quarter compared to 18.6% in the prior year quarter. Operating margin declined year over year, primarily as a result of product mix and lower volume during the current year quarter. The Agtech segment generated an operating margin of 7.5% in the current year quarter compared to 7.7% in the prior year quarter. Operating margin declined year over year due to product mix shift along with costs related to the acquisition of Lane Supply. The Renewables segment generated an operating margin of (7.2)% in the current year quarter compared to 3.2% in the prior year quarter. The decrease in operating margin was impacted by lower volume and field inefficiencies related to the launch and ramp of the 1P tracker technology introduced in 2024. In addition, margin was impacted 21 Table of Contents by restructuring charges incurred during the current quarter to optimize operations for the 1P tracker technology along with costs related to the discontinued legacy solar tracker solutions. The Infrastructure segment generated an operating margin of 24.7% during the three months ended March 31, 2025 compared to 22.4% during the three months ended March 31, 2024. The margin improved year over year driven by strong execution, supply chain management and product line mix. Unallocated corporate expenses decreased $0.5 million from $11.8 million during the three months ended March 31, 2024 to $11.2 million during the three months ended March 31, 2025. The decrease was largely the result of lower performance-based compensation expense partially offset by higher acquisition-related expense as compared to the prior year quarter.. The Company recorded interest income of $1.6 million for the three months ended March 31, 2025, compared to $0.8 million for the three months ended March 31, 2024. Increase in interest income during the current year quarter was the result of earnings on certain interest-bearing cash accounts. No amounts were outstanding on the Company's revolving credit facility during the three months ended March 31, 2025 and 2024, respectively. The Company recorded other expense of $0.1 million for the three months ended March 31, 2025, compared to other income of $1.0 million recorded for the three months ended March 31, 2024. The change year over year is the combined result of $1.0 million for the final working capital settlement recorded in the prior year quarter related to the sale of the Company's Japan-based solar racking business within its Renewables segment along with foreign currency translation fluctuations. The Company recognized a provision for income taxes of $5.9 million and $8.6 million, with effective tax rates of 21.9% and 25.6% for the three months ended March 31, 2025, and 2024, respectively. The effective tax rate for the three months ended March 31, 2025 was greater than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by benefits related to tax credit generation or utilization and favorable discrete items due to an excess tax benefit on stock-based compensation. The effective tax rate for the three months ended March 31, 2024 was greater than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items due to an excess tax benefit on stock-based compensation. Liquidity and Capital Resources The following table sets forth the Company's liquidity position as of (in thousands): March 31, 2025 December 31, 2024 Cash and cash equivalents $ 25,114 $ 269,480 Availability on revolving credit facility 395,069 395,069 $ 420,183 $ 664,549 Sources of Liquidity The Company's primary sources of liquidity are comprised of cash on hand and its available borrowing capacity provided under the Company's Credit Agreement. The Credit Agreement provides for a revolving credit facility and letters of credit in an aggregate amount equal to $400 million and terminates on December 8, 2027. The Company can request additional financing to increase the revolving credit facility to $700 million or enter into a term loan of up to $300 million subject to conditions set forth in the Credit Agreement. See Note 7 to the Company's consolidated financial statements in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for further information on the Credit Agreement. Generally, the Company's foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements. As of March 31, 2025 and December 31, 2024, the Company's foreign subsidiaries held $6.7 million and $8.9 million of cash, respectively. The Company believes that these sources, together with cash expected to be generated from operations, should provide the Company with ample liquidity and capital resources to meet both its short-term and long-term cash requirements and to continue to invest in operational excellence, growth initiatives, share repurchases and the development of the organization. 22 Table of Contents Uses of Cash / Cash Requirements The Company's material short-term cash requirements primarily include accounts payable, certain employee and retiree benefit-related obligations, operating lease obligations, capital expenditures, and other purchase obligations originating in the normal course of business for inventory purchase orders and contractual service agreements. The Company's principal capital requirements are to fund its operations' working capital and capital improvements, as well as provide capital for acquisitions and to strategically allocate capital through repurchases of Company stock under the Company's new authorized program as further detailed below. The Company will continue to invest in growth opportunities as appropriate while focusing on working capital efficiency and profit improvement opportunities to minimize the cash invested to operate its business. In April 2025, the Company's Board of Directors authorized a new share repurchase program of up to $200 million of the Company's issued and outstanding common stock. The new program has a duration of three years, ending April 30, 2028. Repurchases may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. Any such repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The repurchase program may be suspended or discontinued at any time at the Company's discretion. Over the long-term, the Company expects that future investments, including strategic business acquisitions, may be financed through a number of sources, including internally available cash, availability under the Credit Agreement, new debt financing, the issuance of equity securities, or any combination of the aforementioned. These expectations are forward-looking statements based upon currently available information and may change if conditions in the credit and equity markets deteriorate or other circumstances change. To the extent that operating cash flows are lower than current levels, or sources of financing are not available or not available at acceptable terms, the Company's future liquidity may be adversely affected. Except as disclosed above, there have been no material changes in the Company's cash requirements since December 31, 2024. See Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. Cash Flows The following table sets forth selected cash flow data for the three months ended March 31, (in thousands): 2025 2024 Cash provided by (used in): Operating activities $ 13,684 $ 53,181 Investing activities (195,664) (4,366) Financing activities (62,394) (1,434) Effect of foreign exchange rate changes 8 (142) Net (decrease) increase in cash and cash equivalents $ (244,366) $ 47,239 Operating Activities Net cash provided by operating activities for the three months ended March 31, 2025 of $13.7 million consisted of net income of $21.1 million, non-cash net charges totaling $12.4 million, which include depreciation, amortization, stock-based compensation and other non-cash charges, and $19.8 million of cash invested in working capital and other net operating assets. The cash invested in working capital and other net operating assets was primarily the result of payments made for prior year-end accruals of performance based incentive plans, deferred compensation, and settlements of customer rebates. Net cash provided by operating activities for the three months ended March 31, 2024 of $53.2 million consisted of net income of $24.9 million, non-cash net charges totaling $11.0 million, which include depreciation, amortization, stock-based compensation and other non-cash charges, and $17.3 million of cash generated from working capital and other net operating assets. The cash generated from working capital and other net operating assets was largely due to increases in accounts payable, the result of the timing of purchases and vendor payments, partially offset by investment in inventory to align with anticipated seasonal sales volumes increases. 23 Table of Contents Investing Activities Net cash used in investing activities for the three months ended March 31, 2025 of $195.7 million was primarily due to the acquisitions of Lane Supply and the two metal roofing related businesses of $184.6 million. To a lesser extent, net capital expenditures of $11.4 million, offset by receipt of the $0.3 million final working capital settlement resulting from the sale of the Company's electronic locker business within the Company's Residential segment in the fourth quarter of 2024, also contributed to the net investment of cash. Net cash used in investing activities for the three months ended March 31, 2024 of $4.4 million consisted of net capital expenditures. Financing Activities Net cash used in financing activities for the three months ended March 31, 2025 of $62.4 million consisted of common stock repurchases. The Company paid $60.0 million during the three months ended March 31, 2025 related to repurchase of 914,679 shares under the Company's authorized share repurchase program. The remainder of the repurchased common stock of $2.4 million related to the net settlement of tax obligations for participants in the Company's equity incentive plans. Net cash used in financing activities for the three months ended March 31, 2024 of $1.4 million consisted of common stock repurchases related to the net settlement of tax obligations for participants in the Company's equity incentive plans. Critical Accounting Estimates There have been no material changes to the Company's critical accounting estimates during the three months ended March 31, 2025 from those disclosed in the consolidated financial statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. Recent Accounting Pronouncements See Note 1 to the Company's consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on recent accounting pronouncements.