Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Gibraltar Industries Inc (NASDAQ:ROCK)
Q1 2020 Earnings Call
May 6, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Gibraltar Industries Q1 2020 Earnings Conference Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference call is being recorded.

It is now my pleasure to turn the conference over to your host, Carolyn Capaccio. Thank you. You may begin.

Carolyn Capaccio -- Investor Relations

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

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

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

William T. Bosway -- Chief Executive Officer

Thanks, Carolyn, and good morning, everybody and thank you for joining our call today. Before we get started, I just want to say I hope you and your families, friends and co-workers and everybody else you know are safe and healthy and remain so as we all continue to move forward through this current situation that's pandemic. I'll begin with a summary on where we are today and how we see things evolving in the near-term, and then Tim will provide a detailed review of Q1 results and thoughts moving forward, then I'll provide a short update on some of our key strategic initiatives, and then we'll open the call for questions.

So let's turn to Slide 3, which is titled, our Q1 Overview. As mentioned in this morning's earnings release, we did get off to the start we expected in Q1 despite experiencing some disruption due to the COVID pandemic. Overall, revenue increased 9.7%, adjusted EPS increased 68%, and our backlog grew 39%, actually to a record level of $258 million. We had continued strength in our growth businesses, particularly Renewable Energy & Conservation, which grew 40% -- just over 40%, of which 17.5% of that was organic. In our Residential Products business, we actually executed additional product line simplification initiatives and still delivered revenue equal to prior year. And then finally our growth -- our strength in our Infrastructure revenue was a bit offset by weakness in our Industrial markets.

So let's turn to Slide 4. There are a few if any experiences in our lifetime I think that could have prepared us for what's going on today. Rather, the closest experience for me was living, working in Asia during SARS, which if anything has at least provided me a framework for things to think about and maybe anticipate, so the health and safety of our team, the economic impact to both our markets in our business and then some of the social challenges that come as a result of both. We devised and implemented a solid playbook and continue to be very disciplined with our approach, the cadence we have, our processes and actions. In early February, we took our first step with implementing a travel ban to China and then formally launched our task force, which is comprised of our business leaders, our human resource leaders and our executive team. So we made every 48 hours to update, review and make changes to our plans as necessary. And we are also on call 24/7 in the event that we have issues surface unexpectedly. As well over the last six weeks, we've been hosting a weekly live stream communication for all our employees, where we talk about what's going on with the business, we address concerns and then try to answer everybody's questions.

For some context, all our businesses have been deemed essential by the states where we operate in by many of the customers we serve, which have also been deemed essential. So as a result, all our businesses are operating, some are at full strength, some at less than 100%. And so to operate safely and effectively, we really focused on six key initiatives to support our team, our customers, our supply chain, as well as the communities that we operate in.

So let me give a brief summary of the six initiatives. First, we implemented operating protocols consistent with CDC guidelines. We also created an awareness initiative, which I think is really important to encourage our team to share CDC best practices at home and throughout their communities. Secondly, we implemented social distancing, additional sanitization actions. We reduced the number of employees on a site -- on site at a time. We implemented shift management in our factories, zoning management inside our factories, temperature checks, employee tracking and follow-up and obviously new visitor policies. Thirdly, a work-from-home protocol, which enabled us to continue supporting our customers and manufacturing operations and suppliers through distance management.

In this effort, it was obviously critical, we execute our business continuity plan as well, both processes and digital technology to support the transition to effective remote management with proven cybersecurity tools and processes. Fourth, we worked closely with customers and supplier partners and have managed the landscape I think effectively, making sure that our folks, our suppliers in particular have essential classification. We worked through demand management, logistics and scheduling and then frankly working capital requirements. Fifth, we did repurpose three production lines to produce and distribute PPE to our 2,400 employees. This includes face mask, face shields and sanitizer, which our team is using today in our facilities.

We are fortunate to have some core competency and technology that enabled us to quickly pivot and produce critical PPE to protect our team and others, including employee family members, local healthcare facilities, suppliers, dealers and some small businesses. And then sixth, community support. Recently, we challenged ourselves to raise money to provide 1.5 million meals to food banks in the communities where we operate. And as you guys all know, food banks across the country are experiencing a significant increase in demand as more people are struggling to make ends meet. And so in just six days, our team responded exceptionally well. We raised enough money to donate 3.3 million meals, which will provide approximately 85,000 meals for a food bank. So, I'm pretty proud of our team.

We know 2020 will be a challenging year and how businesses choose to deal with that is really depending on their leadership position and financial strength. I think we are in a unique position with a healthy balance sheet. We have a strong order backlog in good end-markets. I think the ability to make money and generate cash during this crisis and the pipeline of attractive assets ready to join or be part of our journey. We've also developed flexibility and adaptability within our organization to manage through the uncertainties, such as the one we are experiencing now. We continue to work on our business, executing on the business we have, challenging our paradigms, improving our processes, tools and products and we continue to make investments for growth.

Currently, we are making an investment in our organization. We're keeping our team as much intact as possible even in our businesses where we're not running at full speed. I have the firm belief that this investment will put us in the best position to sprint out of this crisis faster than anyone else in our respective markets. And I'll finish before we get to Tim with -- I just -- I want to thank our entire team for their continued dedication and commitment particularly during this time. And we are honestly grateful that Gibraltar's in this position to contribute to hopefully easing the toll of the crisis has taken on our own people, let alone our healthcare workers and emergency responders serving all the communities where we operate and candidly, across society.

So now let's turn to Slide 5 and we'll have Tim review our consolidated financial results.

Timothy F. Murphy -- Chief Financial Officer

Thank you, Bill, and good morning, everyone. After I provide an overview of the first quarter results, I'll provide some color on what we're seeing in each of the end-markets we participate in. Our first quarter results were not significantly impacted by the economic disruption caused by the pandemic. Consolidated revenues increased 9.7% within our guidance range as Renewable Energy & Conservation segment revenues continue to accelerate, Residential Products segment revenues were flat and Industrial & Infrastructure decreased 9.8%. Of the 9.7% increase in consolidated revenue, 2.8% was driven by organic growth and 6.9% was generated by the acquisition of Apeks Supercritical, which was completed in the third quarter of 2019, and Thermo Energy Solutions and Delta Separations, which were completed in the first quarter of 2020.

As Bill noted, backlog at quarter-end was $258 million, up 39% from the prior year, driven by our Renewable Energy & Conservation and Infrastructure businesses. On an organic basis, backlog was up 13%. Consolidated GAAP operating income was up 43.4% and adjusted operating income increased 42.9% in the first quarter. First quarter 2019 operating income included a $3.4 million charge incurred related to the field improvements for our Solar Tracker product.

Consolidated GAAP and adjusted EPS grew 94.7% and 67.9% respectively, exceeding guidance. The improvement from last year resulted from organic growth in Renewable Energy & Conservation, better price material costs alignment, continued benefits from 80/20 operational excellence initiatives and lower interest expense. Including GAAP results were costs of $3.8 million or $0.10 per share associated with acquisitions, restructuring and senior leadership transition. During the quarter, we achieved interest savings from last year's first quarter repayment of our outstanding debt of $2 million on a GAAP basis and $1 million adjusted.

Now, let's review each of our three reporting segments starting with Slide 6, the Renewable Energy & Conservation segment. Segment revenues increased 40.3%, driven by organic growth of 17.5% and 22.8% growth in the acquisition of Apeks Supercritical, Thermo Energy Solutions and Delta Separations. Organic growth was driven primarily by strong demand for our commercial greenhouse growing solutions, including design structures, system integration, field product -- project management and general contracting services. Our core Renewables and Conservation business showed improved adjusted operating margins on continued execution and volume leverage along with favorable product and vertical market mix, even after giving consideration to the prior year incremental costs relating to Solar Tracker.

Adjusted operating margins for the segment were impacted by the inclusion of the expected modest losses from acquisitions on seasonally lower volumes and lower margin products. We entered Q2 with strong backlog across the segment, up 58% from the prior year, as we gain further participation and see strong customer demand in both end-markets. Backlog from Conservation was up 73%, driven by our recent acquisitions and Renewables was up 39% from the prior year on continued strong end-market demand.

Let's move to Slide 7 to review our Residential Products segment. Residential Products segment revenues decreased 30 basis points from last year due to additional product line simplification initiatives. Excluding the impact of these initiatives, revenue expanded on continued participation in our postal and roofing accessories businesses. Adjusted operating margin increased 175 basis points, a result of strong execution, improved price material cost management and 80/20 simplification initiatives.

Let's move to Slide 8 to review our Industrial & Infrastructure Products segment. Segment revenues decreased 9.8% in the Industrial & Infrastructure business, driven by lower Industrial revenue, a result of lower demand for core products and reduced selling prices in a declining steel cost environment. The Infrastructure business continued to grow on both volume and pricing, and backlog for this business continued to grow. Adjusted operating margin was up 60 basis points through better price material cost alignment, continued execution on 80/20 profit improvement initiatives.

Let's move to Slide 9 titled Balance Sheet Provides Resilience, Supports Growth to discuss our liquidity. We used $43 million of cash in operations during the first quarter of this year, driven by an investment of approximately $37.5 million in working capital in Thermo Energy Solutions, which was under-capitalized at purchase. During the quarter, we used cash of $54.5 million to fund acquisitions and $2.8 million for the purchase of equipment. At March 31st and today, our revolver remains undrawn. So with the $86 million in cash on our balance sheet and our undrawn $400 million revolving credit facility, we have strong liquidity position to weather the economic impacts of the pandemic, while continuing to invest in operational excellence, growth and the development of our organization.

Given the economic uncertainty caused by the pandemic and federal, state and local governments responses to it, we currently paused our M&A activities, but remaining in contact with the companies we're interested in. We expect to reengage in these processes when the economic impact becomes clear. In the interim, we remain laser-focused on managing our working capital through adjusting scheduled deliveries of inventory to match current demand levels and closely monitoring customer credit and collection activities.

Let's move to Slide 10 titled Revenue Sensitivity to Current Economic Events. This slide shows the relative impact the pandemic is having on our businesses and reflects the activity we've seen in the past month. Our Renewables and Conservation business, which accounted for 39% of first quarter revenue is well positioned and end-market demand remains strong. We continue to build backlog in this business in the weeks after the end of the quarter, we are -- with customers in our core Renewable and Conservation business to adjust schedules, where we've been impacted by either local restriction on construction activities or permit delays.

We saw a more pronounced pause in the processing market once stay-at-home orders were issued. However, we've recently seen a increased interest from customers as harvest seasons approach. Our Residential business, which accounted for 41% of first quarter revenue has seen modest decreases in demand, while we continue to increase participation both geographically and through channels. Direct-to-homeowner market, where we sell gutter protection and awning systems that generate meaningful margins, has seen a significant slowing, and the second quarter is normally the peak of the awning business.

In our Industrial & Infrastructure businesses, which provide 20% of first quarter revenue, the Infrastructure market remains strong. We've seen continued expansion of the backlog since the end of the first quarter. We have seen delays in construction activities in certain states, where highway construction was paused. Our Industrial business has seen continued softness in demand for core products and a pause on shipments to the automotive customers. We've not seen a disruption from our suppliers and our supply chain team remains in close contact with key suppliers and alternative supply sources to mitigate the risk of potential supply disruption. As we continue to focus on execution, we are realizing the impact the work we have been doing to reshape our portfolio to focus on more attractive higher growth, higher margin end-markets, which better positions us to withstand a downturn.

The teams are remaining close to our customers and getting real-time end-market feedback from those with direct relationships. We maintained full staffing to protect our team from negative economic impacts as we assess the impact of the slowdown on our businesses and continue to invest in our team to be positioned to sprint as we come through the other side of this pandemic crisis. We also continue to invest in process improvement and digitization to emerge stronger.

Now, I'll turn the call back to Bill.

William T. Bosway -- Chief Executive Officer

Thanks, Tim. Hey, let's move to Slide 11 and look at how we're leveraging our operating foundation to get through this pandemic. As we discussed last quarter and before, our strategy is focused on excelling across our three pillars, that's business systems, portfolio management and organization development. Pillar -- Pillar 1, our business system, as a reminder, is just focused on our business model optimization, our 80/20 activities, productivity, supply chain management, innovation, new product development and IT digital systems.

And as it relates to today's situation, we implemented our playbook, our business continuity plan and our -- and customer and supply chain initiatives, while maintaining focus on our day-to-day execution. In parallel to that, we continue to make our business stronger. So as an example, in the information systems and digital technology world, we launched our new corporate website this past weekend. So if you get a chance, please go visit us at gibraltar1.com.

Pillar number 2, portfolio management is committed to optimizing our existing assets in allocating our time, capital and energy to better execute our plan. We are delivering integration plans for our recent acquisitions, that's Apeks, Delta Separations and Thermo Energy Systems. We are also continuing discussions as Tim just mentioned with companies interested in joining our journey, but we are currently paused until we collectively have more clarity on the general economy end-markets.

Pillar 3, organization development, it's really focused on our talent acquisition and development, assessing our org design and structure and then building the best place to work environment for the organization. And over the last eight weeks, our main priority has been the health and safety of our team, which will continue. Our task force has deployed our COVID-19 operating protocols. And I think the businesses continue to learn and optimize systems and processes and drive better performance in our modified operating environment. We're also strengthening the organization and we're continuing to fill critical positions from a broader more available pool of talent.

So to summarize, our immediate priority remains the same, to improve our revenue and income streams and stay focused on execution, working to improve our business, helping our team, our customers, suppliers and partners get through today's environment. As the economy does begin to recover, we are ready to accelerate performance and continue faster growth, improve profitability better utilization of our assets and higher return on invested capital. So let's talk about guidance for the rest of 2020. Given today's limited visibility across a number of our markets, we are going to rescind our previous guidance for the second quarter and full-year 2020.

And although we have a strong backlog in our Renewables and Conservation and Infrastructure segments, we still have 55% of our business that still resides in Residential Building Products and Industrial segments, which are more impacted by today's environment and consumer spending and general industrial market strength. So once we start to see the states open and how they open, little more confidence in consumer spending and less fear and the general economy recovering, we'll be in a better position to provide guidance for our business. That being said, we have been running scenarios to help us plan for an uncertain future. So under a challenging case in which we experienced a significant reduction in demand relative to what we actually are experiencing today. We are still and remain -- we still are confident, remain confident that we will deliver positive earnings and generate cash from operations for 2020.

We are continuing to transition our revenue and income streams toward end-markets that are both vital to the economy's core needs and that are less impacted by economic variables and we continue to invest in long-term growth. Our business model resiliency coupled with the strength of our highly liquid balance sheet places us in a better position today, I think to navigate through the current downturn than ever before in our company history, and that's going to allow us to further separate our businesses from the competition.

As I said before, listen I'm very proud of our team. We remain committed, passionate and focused helping our customers, suppliers, partners and communities and the effort frankly has just been outstanding. Today's situation is incredibly challenging for everyone around the world, but we do believe things will improve with time and we're going to continue to stay focused. We're going to work hard. We're going to contribute as much as possible to the solution, and we look forward to seeing everybody emerge from today's crisis.

So with that, now we'll open the call for questions.

Questions and Answers:

Operator

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Ken Zener with KeyBanc Capital Markets. Please proceed with your question.

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

Good morning, everybody.

William T. Bosway -- Chief Executive Officer

Hey Ken, how are you?

Timothy F. Murphy -- Chief Financial Officer

Good morning, Ken.

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

I'm well. It's very nice to hear you being so positive and proactive in your communities. I know the -- obviously, a couple of different questions here. But first of all, given the absence of the Investor Day, could you just break out where we are now in Renewable in terms of sales mix between Solar and Conservation, which would be, I guess, we -- everything not Solar?

William T. Bosway -- Chief Executive Officer

Yeah, Ken, it's -- frankly, it hasn't changed, the mix hasn't changed a whole lot just because we've had some acquisitions on the growing side, but we've also had organic growth on the Solar side. So the mix between the two hasn't changed a whole lot year-over-year.

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

Okay.

William T. Bosway -- Chief Executive Officer

And so we're...

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

Now...

William T. Bosway -- Chief Executive Officer

Go ahead.

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

No, no, that's good. I appreciate that. So when you talked about -- if we can just talk about the Renewable Conservation because I think that was the area that many investors would have gained a lot of insight in -- at the Investor Day. Can you talk to some of the items in terms of the recently acquired businesses that affected your margins, you talked about the seasonality, Tim, I think you mentioned, people are waiting for harvest. I mean, could you just give us a little better feel for those acquisitions that you did there both in the pot [Phonetic] area, as well as the vegetable business you bought out of Canada?

William T. Bosway -- Chief Executive Officer

Yeah. So on the processing side, that's really Apeks and Delta Separations. We'll talk to that first. That industry paused during a lot of the stay-at-home orders that were mandated across various states. And that had initially to do with lots of dispensaries, where people would go for product. And then they -- then the states started to open up at different times and I think most of them are open that, that was deemed essential. So initially it wasn't and then it was. So we had a little bit of a roller coaster ride there on the end demand side of things.

The end demand for those products have continued to grow. So we've been tracking that. We've tracked that monthly and that continues to be solid growth. So that's good news. Maybe why it's growing isn't great news. I think a lot of people are anxious right now obviously in today's environment, but the end demand continues to grow. But remember, the makeup of the industry being relatively new, there's is a lot of small companies, and I think when you -- like a lot of Industries when you saw things effectively shut down or slow down significantly, a lot of companies in the industry said, hey, let's pause as well and gather ourselves to see what this is really going to be. So that really caused the processing industry to slow.

And then Tim referred to, well, you've got harvest season approaching. So we've seen more activity meaning inquiries and things of that nature really over the last 30 days than we saw the previous probably 45 or six weeks as we're coming out of the pause and people are moving more toward the summer months when the harvest starts to kick in. So that impacted our processing businesses during that time because of that. That makes sense?

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

It does. And the reason maybe, these are such uncertain times, both for you guys operating across trying to look into the business, it seems like you have maybe about a 10% revenue growth for your whole company tied to recent acquisitions, that's using well, I guess, it depends exactly how much, but, I mean, a high -- mid-to-high single-digit contribution from FX, from acquisitions. Does that mean other companies have talked about sales being down anywhere from 10% to 30% in the second quarter. Is there a broad generalization that you might be able to give us about the quarter, and Tim, perhaps about the EBIT leverage just so we can get a general sense of where your April sales trends are in terms of the different businesses, that would be helpful, just to get some sense of what you're seeing for the month of April and perhaps some type of EBIT leverage? General question, but it's hard to get specific in times like these as well.

William T. Bosway -- Chief Executive Officer

Tim, do you want...

Timothy F. Murphy -- Chief Financial Officer

Yeah, no, I will -- I can try and answer that. So, Ken, so, again, general answer. We saw revenues below prior year levels below our expectations as we came into the year, right? Nothing really surprising here. We're still closing April, so I'm basing that on basically the internal sales flashes and conversations we have, so I don't really have a great percentage for you. I will say that our -- certainly, our total sales will be down less because we did acquisitions this year that we didn't have last year, again, sort of a captain obvious comment.

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

That's all right.

Timothy F. Murphy -- Chief Financial Officer

And then on a deleveraging -- on a deleveraging basis, it will -- it's going to depend a little bit on which businesses, some are more profitable than the others. So we didn't give guidance because we didn't really have enough clarity to feel confident. So I don't want to give answers that change the guidance, but I don't have enough confidence in them.

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

Understood. It just is that a lot of companies and to the extent, I'll go out of the questioning, but to the extent, you guys can illuminate April trends where possible, a lot of companies have been kind of talking about that. Thank you guys very much.

Timothy F. Murphy -- Chief Financial Officer

Sure.

William T. Bosway -- Chief Executive Officer

And guys, there's one thing I would say, because I'm not sure it's on everybody's mind. And I think what we saw going into second quarter, particularly for April, when we think about that forecast going into the months, now we're a month later, we're still seeing ourselves down versus last year, but our experience in April is better than we originally thought. And again, we're -- we don't have things closed yet, but that's how I'd characterize one month into the quarter, that's what we saw in April.

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

Our next question is from Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore -- CJS Securities -- Analyst

Bill, Tim, good morning. Thanks for taking the questions and the color. I hope all of you are well -- you and your families are well also. Wanted to obviously, I know you want to kind of stay away from the guidance. But in the scenarios that you mentioned, I guess, number one, maybe a little color around the challenging or bear case is that you would expect to remain profitable for each quarter for the rest of the year in aggregate or for the full-year including Q1, just trying to get a little granularity there?

William T. Bosway -- Chief Executive Officer

I think it'd be both is the way to think about that, Dan. Tim, correct me if I'm wrong, but we look at it from a full-year perspective. And if you take the worst-case scenario, obviously with the country being shut down in April, the second quarter be the most challenging, third would be the second most and the fourth would be the third most challenging in that worst-case scenario. And, as I mentioned earlier, what we -- what's happened in April or what we think is rolling up in April is better than we thought going into the month. So that gives us some confidence that our worst-case scenario is, we're probably not on track for that, if that makes any sense.

Daniel Moore -- CJS Securities -- Analyst

It does. It does. And then would you be willing to comment on sort of the best case scenario, I mean, it seems given there is, we haven't had any guidance update, one or two folks, some of the estimates out there are still close to your guidance range, and just trying to want it to be your prior guidance range, wondering if that is just absolutely too pollyannaish given the likely impact that we're to see here in Q2?

William T. Bosway -- Chief Executive Officer

Yeah, I would love to be able to do that. I seriously. I mean, we talk about it a lot, but unfortunately, the thing that, that we struggle with is like everybody else, I mean, we're not telling anything any different than probably any other company right now, but trying to predict what states are going to open when and what construction sites are going to be allowed and what permits are going to be done and what big-box guys are going to do? It's every two days it seems like we're learning something new. So as with the downside, it's tough to do it on the positive side of this.

So again, not trying -- I wish I didn't have to give you that answer, but unfortunately that's kind of where we are. And like I said, April was better than what we thought. And I -- I would not have predicted what we think is happening in April. Again, we're still down versus last year, but it's better than what we thought. I -- that is not what I thought just a week ago or a week and a half ago. So that's the -- that's kind of the situation that we're trying to manage through, but, so that...

Daniel Moore -- CJS Securities -- Analyst

Understood. And maybe a broader question. What are the key indicators, mileposts you will be looking to get more clarity on the overall environment and how long would you maintain full production capacity if demand levels were to remain a little bit more depressed than perhaps you'd hope to see in terms of recovery?

William T. Bosway -- Chief Executive Officer

Yeah. I would suggest in our thinking right now is that Q2 is probably the toughest quarter, right, and April was the month of the entire country shutting down effectively. And you could argue it started really happening in March, that's when the mandates really started kicking in. So you got to -- you got to think in some respects, that the toughest piece of this has been the last six weeks and we've been able to manage through that relatively well with all the things we've talked about.

So we're not assuming that, that May or June is going to be better than April, but we're not assuming it's going to be worse either. So right now the way we're sized in our operations, most of our operations are -- actually, all our operations are running right now, and where we're not running at full speed, we made some adjustments there. But I think it's -- again, it's going to be a week-to-week to see how things evolve on the demand side, where obviously we have more visibility in some of our businesses and others. So if you look at Infrastructure and you look at Renewables and you look at Conservation, you look at the backlog, that continues to build and that's positive.

The question for us is when does it all fall into what time slot, because again, starts and stops and states opening and when they open and how they open and all that is something we're trying to deal with. Now, I'll tell you proactively what we're trying to do in that example is, we have a number of subcontractors that help us implement and execute in the field, right, as you would with any major project business. We're out now trying to make PPE for them, so they can actually go to work because as states open up, you're being required in some cases to have that with you whether you're wearing it all the time or not. So just trying to get our folks, our supply chain in that scenario available to work in certain states, we're doing some things to help them through that.

But those starts and stops or those things like that are -- make it even difficult on the most predictable part of our business, let alone the other, the other piece. So I think backlog is a good indicator for us on, I think about that's 45% of our business, the other 55%, which is Residential and Industrial. Those metrics and what we're tracking there are literally just point-of-sale on the retail -- on the Residential side point-of-sale through our big-box partners, as well as our wholesale order entry week-to-week. We're mainly -- just remind everybody, we are -- we're not, I won't say we're as consumer spending driven as maybe some, but most of our stuff is repair, replace and remodel. So maybe that weathers this a little bit better than other. But again, still a lot of unknowns out there that we're trying to deal with. So that was probably more than you're looking for, but that's how we're walking through it. Every 48 hours, we're talking to our business leaders and trying to see how demand is evolving.

Daniel Moore -- CJS Securities -- Analyst

At this time more is better than less. Lastly, just in terms of capital allocation, obviously M&A is on the back-burner for the near-term. Maybe an updated view of capex and any other changes in your thought process in terms of allocating capital? Thank you again for the color.

William T. Bosway -- Chief Executive Officer

Yeah, from a M&A perspective, we mentioned earlier we're on pause. We don't want to give the impression, we're not active. We are very active on the M&A side and we continue all the discussions we had in flight and there is more work that we're working on. There'll be things that will happen in our respective industries through this pandemic that, that will come about and as they do, we'll -- we'll take that in consideration. That's part of the reason for the pause. A, it's just trying to understand what's going on in the world and then b, keeping all our relationships warm and moving forward, and then see are there any structural shifts or changes in the markets that we're operating in as well. So as we learn through all three of those, we'll come out of this with some opportunities that we think are pretty positive and we'll move forward on those.

Timing of that, let's see how the next quarter evolves. And when we have little more confidence in what the broad economy is going to do then we'll make a decision then, but we're very active and continue that. In terms of capex, where we have opportunities to deploy the capital and we see the returns and they make sense, we'll do that. But in general, as you can imagine, we probably spend a little less than we had originally planned just because of the giant pause, right. You can only spend -- you can only spend so much in a certain period of time, but we're not -- we don't have a complete pause on that as projects come around that makes sense, that give returns, that improve our safety, performance etc., we're not holding back. We're moving forward on those key initiatives.

Operator

Our next question comes from Julio Romero with Sidoti. Please proceed with your question.

Julio Romero -- Sidoti -- Analyst

Hey, good morning. I hope you folks are doing well.

William T. Bosway -- Chief Executive Officer

Hi, Julio, how are you?

Timothy F. Murphy -- Chief Financial Officer

Good morning.

Julio Romero -- Sidoti -- Analyst

Wanted to ask about the headwinds you're seeing in resi, and if you could quantify at all how much of that would be from the sales channel through which some of those products are sold versus maybe more of just consumer confidence than folks holding back on discretionary spend or some combination of the two there?

William T. Bosway -- Chief Executive Officer

Yeah. So our resi is kind of broken in a couple of different buckets. Tim mentioned that our home improvement business, where we sell gutters and awnings that, that's not a big piece of overall Gibraltar, it's a higher margin business. But that's one of those businesses that requires an in-home sale, right. And you can imagine right now, not many people are inviting others in to talk to them about those kind of things. So we saw that really fall off. We anticipated that, that is actually the group that we pivoted to start making the PPE for the rest of our organization because it comes [Phonetic] sewing fabric, right, makes sense.

So we pivoted quickly and done that. We started to see more activity in that business as states have opened up and as some of our dealers have been able to go online and engage customers in that way. Still not anywhere near where we'd like to be, but at least there is some activity. So that's -- that piece of the Residential. The rest of the -- then we have two other buckets in Residential, that's more roof-related. So if we think about ventilation, our building accessories, our roofing accessories businesses, those are doing actually relatively well with our big-box.

So the Residential, if you look at the marketplace, Residential Products have done much better, and I'd say the retail channel than they have in the wholesale channel. And that makes sense. I mean, at the end of the day, you've got large big-box guys have been deemed essential. They've got good balance sheets. They can manage through this probably in a way that is a bit easier. And so we've seen sales through that channel actually be positive year-to-date.

On the wholesale side, I think it's a little bit different where you're more private in some respects in terms of companies and if not, you may be just smaller. And so there is, you got to figure out how to manage your balance sheet and how to move inventory and such. And I think that's been a bit of a more challenge for that particular channel. Eventually, is there going to be a shift or permanent shift as with contractors going to one of the other, that's hard to say today. Obviously, we've seen it because of the convenience associated with the big-box guys being open and being everywhere, but I'm not sure what that will mean longer-term.

So we do see a tale of two stories on that front, positive sales, one part of the channel and not so positive on the other. And we'll see, I think that will continue for some time, but eventually we'll see how that kind of work. And then the last piece of our Residential business is the postal piece and that actually has stayed relatively strong throughout this timeframe. And part of that I think is we've got orders for the business in Q1 and then you start to realize that a lot of projects cannot be signed off unless they physically have a mailbox on site. You can't get your -- you literally can't close on these projects without having that. It's deemed necessary, if you will, to make that happen.

So we saw a lot of activity. I think as shutdowns started coming, we started to see more activity, people want to move a little bit quicker there. And, but that business has stayed there relatively strong. Some of that goes online, which is held in, some goes through big-box and then some goes through other means. So it's really a mix of different things though to be honest, but it's interesting to see how the market is kind of shifting and moving. As it relates to what's driving it, we've been tracking probably like yourself, the amount of activity of people wanting to do home improvement or do-it-yourself kind of home improvement. There are different types of home improvement, right. So do-it-yourself home improvement is just really accelerating. I think we saw something the other day from a webinar where I think paint searches were up -- searches on paint were up 700% like a two-week period. So I do think people are being very active. I do think the unemployment level that you're -- that we all see today needs to -- you have to think about how to stratify that in terms of looking at the makeup of that unemployed group of people and who owns homes and so forth. But there is definitely a lot more activity and do-it-yourself kind of things right now, the last, I would say a quarter, yeah, I'd say the last month or two definitely we've seen a spike there.

So a lot of moving parts. We've got a series of storms that have been coming through as you know in the Southeast, a lot of hail. Will that translate into, I mean, we -- again, there's a lag behind that, don't know what that will mean yet. But we're trying to watch everything, and again at the end of the day as I said earlier, every 48 hours we're just getting the pulse of what's going on in the residential world as with our other businesses.

Julio Romero -- Sidoti -- Analyst

Helpful. I appreciate the color there. And that kind of flows into my next question is, from a strategic standpoint, is this sudden disruption kind of create any opportunities for you or perhaps greater adoption of some of your new products or any changes in market share that's kind of more up for grabs? Thank you.

William T. Bosway -- Chief Executive Officer

Yeah, it's a great question and we get that asked a lot across all our businesses. But in particular, I've mentioned a couple of times, where we've been doing much more work to understand the market by trade focus and we do have new products that we were introducing last year. We do have some regions where we put people, we didn't have before. We have been working on product line expansion in some of our big-box guys. And all of those things I think are opportunities for us. And we're seeing those discussions kind of manifest, well, I should manifest. I think we're seeing those kind of activities and discussions around them actually accelerate right now.

So part of the reason that we're keeping our team intact as best we can is because we do believe there are companies that just may not be able to do that. And so service levels are falling I think in some areas. And then when that happens, we're in a position to step in and maybe be that solution. So we are seeing opportunities. How much they've flown through -- have flowed through yet, yet to be determined just because everything's depressed, if you will. But I would say that our ability to gain participation during this time is something that we're looking forward to. How much that will be, don't know yet, but again very active in trying to make that happen as much as we can.

Julio Romero -- Sidoti -- Analyst

Understood. Thanks for taking the questions and stay healthy.

William T. Bosway -- Chief Executive Officer

Yeah. You too.

Operator

[Operator Instructions] Our next question comes from Walter Liptak with Seaport Global. Please proceed with your question.

Walter Liptak -- Seaport Global -- Analyst

Hi, good morning, guys.

William T. Bosway -- Chief Executive Officer

Hey Walt, how are you?

Walter Liptak -- Seaport Global -- Analyst

Good, good. I want you guys are all safe. I wanted to try and talk a little bit about the employment levels and kind of your fixed levels of employment and variable levels of employment with the idea to see how much of your costs are variable. So if we are slowing in the resi part of the business in April, May, June, whatever the amount is double-digit, how much of your costs are variable like have you -- and when you talk about employment and keeping the team together, I imagine that some of your workers are hourly workers that there might have been some layoffs or furloughs as they maybe able to make more money on unemployment just temporarily and then bringing them back. I wonder if you could just discuss that a little bit, so can have an idea about how some of those costs in manufacturing flex during the second quarter?

William T. Bosway -- Chief Executive Officer

Yeah, so today Walt, we haven't laid anybody off. We've kept the team together. And so really what we did initially, if you go back again eight weeks just for context here, and this is something that -- and it's a little bit softer, but I think it's really important to us. But when you -- and again, it's not as if for me SARS was -- prepared us 100% for this because it doesn't, right, this is unique.

But I would tell you this is very -- this is eerily similar if you lived in the world of where I was, this felt very much the same. So the two things that really get people into an organization, what really challenges the psyche is, obviously, you have the health and safety piece of this and then you have the economic or financial concerns that go along with it. Our strategy from day one was, we're going to take one of those off the table for our people. We don't want them to worry about that. We want them to focus on health and safety. This thing was moving so quickly, and the last thing they need to do is think about -- and this is prior to understanding all the government support that's come since, the stimulus that's come since.

But the idea behind that was let's take that off the table right now. So we are actually for our production employees offered or provided we call COVID pay. So it's not hazard pay. It's hours that you can use with to take care of whatever we need to. So if your child care went away, if you've got a sick relative, if you're sick, if you have anxiety, if you're just scared and you cannot and do not want to be at on site for some period of time, you can use those hours, stay employed, keep your health benefits and then circle back when you're ready.

And you have a bucket of a bank to use, if you will. And we did that because one, we knew all these issues were coming quickly to the people, what do I do with child care now it's been shut down, my schools are shut down, now I've got kids at home, don't have -- all those things that people were dealing with. So we want to kind of help people navigate through that. And as we did that, our demand stayed relatively strong and then it kind of worked us up through kind of where we are today. We have some businesses that are slower than others. And where that's the case, people have started to furlough. It's a small group of our organization or -- they will start to, again, there is some benefit for them to do that personally.

But for the most part, the rest of our team is staying intact and still have their bank of hours to use accordingly. So strategically that's been our approach is to help people through this within our own team, stay intact not knowing exactly how long this would last and knowing that week-to-week it's changing as we see, as we've talked about, to be in a position to ready -- to be ready to go. So as we start to see things turn back, I think we'll be in a good position. If things really go in a different direction, then there are still levers to pull and actions to take, but right now, that's not in our foreseeable plan based on what we know today and what we're seeing in a -- as we've come through April with our business. About half of our employees are production, maybe a little bit more than that and the rest is will deem salary. Is that helpful?

Walter Liptak -- Seaport Global -- Analyst

Okay, great. Yeah, yeah, that's helpful. Thanks for that. And maybe another way to think about the cost of goods sold. It could be -- if maybe we can just get a breakdown of what's labor in the COGS, what's material and what's manufacturing overhead?

William T. Bosway -- Chief Executive Officer

Yeah, I don't have the exact, I mean, it's a -- labor is a relatively small piece of what we do, but I don't have the exact number in front of me. Tim, you want to chime in on that.

Timothy F. Murphy -- Chief Financial Officer

Yeah, well, I can -- overall, material costs are a little bit less than 50% of COGS and labor is probably 12%, 13% depending on what quarter you're in, but on a -- on a normalized basis sort of like that and the rest is either fixed or variable overheads.

Walter Liptak -- Seaport Global -- Analyst

Okay, great. Okay, thanks for that. And maybe the last one from me is, just to talk about the M&A deals and just help us understand. It sounded like there was some dilution from the M&A deals because of that pause that took place, and was that -- was the dilution related to kind of deal charges or -- and other upfront costs or was it because of the pause that took place? And if those businesses are starting to get back or could you get accretion from the deals throughout the year?

William T. Bosway -- Chief Executive Officer

Well, let me take the first and pass it back and you can add some color. So well, I would say that the results that we're talking about were adjusted, so they don't include the actual deal costs. But remember, the processing businesses are relatively small, and it's a seasonal business where people buy processing equipment right now sort of running up to a harvest season. So we think when we look at their historicals, it's sort of like first and second are slower, fourth -- third and fourth is, is where historically the bulk of business is. We expect that even out over time, but that's the market as it is today. And so as expected, I would say, those results were in the first quarter much more seasonally impacted. The pause toward the end of the quarter, we started to see that and into the first part of April. And then like we said the last 30 days or so, we've seen more activity than we did 30 days before that, but I think that's that.

And then the other business, the greenhouse business up in Canada, we just acquired relatively low margin sort of work-in-process, right. These are big projects, and so we will -- we're working on that business just like we did when we bought RBI back in 2015, and we think over time we can get that up to segment levels, but it doesn't happen the day after we buy it.

Timothy F. Murphy -- Chief Financial Officer

And I think...

William T. Bosway -- Chief Executive Officer

Yeah, sorry, Tim, go ahead. And I think we expect all of them to be profitable for the year.

Timothy F. Murphy -- Chief Financial Officer

I think the thing on the Thermo business, it's just kind of as we had expected, but like our core business, growing business, we've had some starts and stops on permits and things of that nature as well. So the backlog is good. It continues to build. It's really set up for a strong 2021, I believe with the types of projects that we're closing now. And so we're excited about that, but in the immediate term again, puts and takes as growers and sellers were trying to figure out things and now we're starting to see people kind of get their feet on the ground and dig a little, be able to think through what they want to do next. And so it's just something we're managing through, but anyway that's the thought on Thermo.

Walter Liptak -- Seaport Global -- Analyst

Okay, all right, thanks. Yeah, thanks for that. And then the last one on the M&A, considering the financial strength, would you look at distressed assets if a target ran into a liquidity situation. is there an possibility to find something like that? And would you -- I mean, now that you're -- you want to buy good strategic businesses, but if you found one that was in a tough liquidity situation or even a profitability crunch because of the virus how -- actually changed a little bit of your strategy to take advantage of those opportunities?

William T. Bosway -- Chief Executive Officer

Yeah, it's a great question. If something fits our strategy, that's the most important thing and if it's in the marketplace where it drives the fundamental strategy of what we're trying to do become more relevant, lead that industry and so forth, then absolutely, we'll take a look at it. We -- we've had a number of calls as you can image every week. So as I said earlier, we're very active. We had a slew of discussions ongoing before this hit, those discussions continue. And we've had a number of calls at the same time across a couple of our different Industries. So, if the opportunity is there and it makes sense, absolutely we'll act on it. And we're keeping everyone of those opportunities warm right now.

Walter Liptak -- Seaport Global -- Analyst

Great. Okay, thank you. Good luck, guys.

William T. Bosway -- Chief Executive Officer

Thanks.

Operator

Our next question comes from Ken Zener with KeyBanc Capital Markets. Please proceed with your question.

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

Thank you gentlemen for one more. On the Solar side, can you talk to, given the turmoil in debt market and stuff, can you talk to specifically developers access to capital to develop your, I guess, 2-gigawatt to 5-gigawatt targeted market? Thank you.

William T. Bosway -- Chief Executive Officer

Yeah. So, Ken, I don't have a -- I probably can't give you a -- just because of general understanding down to the detailed levels, every one of those developers. But let me just context around that business, we implemented a new CRM system probably six months ago. Our new leader there that came on board named [Indecipherable] looked like his -- and his team have done a great job putting some business processes in place, and I think have really helped us see some opportunities that we weren't seeing before.

As a result of that, I would say our broader activity is much improved in terms of opportunity, quote, finding projects and bringing those to the finish line. I think that's one reason our backlog in Solar has gone up so much is we're just winning more. We're winning more because we have visibility and we have different engagement. We're winning more because our ability to deliver, which we've always been proud of, but we're getting better at that. We've been implementing and investing in better processes, project management and so forth. So I think at a broad-brush, we've done some things in the business that just make us that much more effective, that much more productive, and I think our customers are starting to see it. That's one thing.

Second thing is, we've had some competitors that maybe have not been able to deliver or struggled last year and or struggled a little bit more this year because of the current situation. So again, we're in a better position. And I think our customers are recognizing that. And so again we have an opportunity to bid more and win more, which is what's happening. I would say in general, the strength from an end demand perspective, and again I think this whole event that we're in the middle right now probably supports it even further when you start thinking about renewables and sources of energy and so forth, but the general strength continues to be very solid.

So I think the funding that at least the developers we're working with is there. I mean, these are when we say backlog, people ask, well, you think that may go away, we don't think so. The activity going into April and going into May and the number of jobs that are being quoted and taking across the finish line continue to be at a very high pace. So I think the developers are funded. I think they are just moving forward. The timing when each of those projects falls, I can't tell you exactly, but we feel pretty good about the strength of the end-market, the developer positions and our ability to participate differently than we have in the past. So, so far it's been pretty positive this year.

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

We have reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to Mr. Bill Bosway for closing comments.

William T. Bosway -- Chief Executive Officer

Well, so just want to thank everybody again for joining us today. And again, I hope everybody stays safe and healthy. We are in clearly a unique time and it's not easy for everybody around the world, for sure. But we -- I do believe we'll get through it. I do believe we have to attack the problem and we're trying to do that as a company and as an organization and we're going to continue to do so. So, look forward to speaking with you. We have a number of virtual conferences and non-deal roadshows coming up. Looking forward to having more conversations with you and updating you as to where we are. And then we'll circle back at the -- for our second quarter call. So have a great day. And again thanks for your interest. Take care.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Carolyn Capaccio -- Investor Relations

William T. Bosway -- Chief Executive Officer

Timothy F. Murphy -- Chief Financial Officer

Kenneth R. Zener -- KeyBanc Capital Markets -- Analyst

Daniel Moore -- CJS Securities -- Analyst

Julio Romero -- Sidoti -- Analyst

Walter Liptak -- Seaport Global -- Analyst

More ROCK analysis

All earnings call transcripts

AlphaStreet Logo