Q4 2021 Generac Holdings Inc Earnings Call

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Good day, and thank you for standing by and welcome to the fourth quarter and full year 2021, Gen Rack Holdings, Inc earnings call at.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

I ask a question during the session you will need to press star one on your telephone. Please be advised that this call is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your host today, Michael Harris VP corporate development.

<unk> relations you may begin.

Good morning, and welcome to our fourth quarter and full year 2021 earnings call I'd like to thank everyone for joining US. This morning with me today is Aaron <unk>, President and Chief Executive Officer, and York Ragen, Chief Financial Officer, We will begin our call today by commenting on forward looking statements certain statements made during this presentation as well as other information.

<unk> provided from time to time by <unk> employees may contain forward looking statements and involve risks and uncertainties that could cause actual results to differ materially from these forward looking statements. Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors in.

<unk>, we will make reference to certain non-GAAP measures during today's call additional information regarding these measures, including reconciliation to comparable U S. GAAP measures is available in our earnings release and SEC filings I will now turn the call over to Aaron.

Thanks, Mike Good morning, everyone and thank you for joining us today the.

The fourth quarter was a great finish to an outstanding 2021 for <unk> with all time record performance for both the quarter and the full year for net sales adjusted EBITDA and adjusted EPS as we achieved record quarterly production levels and continued to experience exceptional demand for our products and our solutions.

Additionally, we completed the strategic acquisition of <unk> during the quarter, which represents a major step forward in our efforts to provide a broader residential energy ecosystem that includes intelligent monitoring and management solutions as well as an increasingly sophisticated user interface platform.

Fourth quarter revenue was well ahead of our expectations driven by higher shipments of home standby generators as build rates for the quarter exceeded our plan due to strong operational execution.

Shipments of C&I products also outperformed expectations during the quarter with broad based strength continuing across all channels and regions.

Despite the substantial increase in production levels, our backlog continued to grow in the fourth quarter across the business highlighted by home standby generators, providing us with substantial visibility into 2022 being another year of exceptional revenue growth.

Year over year overall net sales for the fourth quarter increased 40% to 1.07 billion, an all time record and also increased sequentially over the third quarter, which was the previous all time record.

Notably fourth quarter core sales growth of 35% accelerated relative to the third quarter's core growth rate of 30% highlighting our strong execution and the progress we continue to make and ramping capacity despite ongoing supply chain challenges.

Growth in the quarter was broad based with both residential and C&I products growing at a low 40% rate compared to the year ago period.

Residential sales growth was once again driven by a substantial increase in home standby generator shipments and continued momentum in power <unk> energy storage shipments as well as the impact from recent acquisitions.

C&I sales increase was led by our telecom and mobile channels domestically growth across all major regions internationally and the contribution from recent acquisitions adjusted.

Adjusted EBITDA margins of 27% were lower year over year as it reflected the impact of higher input costs, driven by ongoing supply chain challenges and the overall inflationary environment as well as the impact of additional operating expense from acquisitions.

Partially offsetting these cost headwinds were the initial impact of multiple pricing actions implemented over the past year, and we expect even greater realization of these price increases along with cost reduction initiatives and other favorable margin impacts as 2022 progresses.

Before discussing our fourth quarter results in more detail I want to provide some full year 2021 financial highlights as well as share some key accomplishments that we achieved during the year.

First and foremost I want to thank our team of over 9500 employees globally for their hard work and perseverance throughout an incredibly challenging operating environment in 2021.

Our teams have helped us successfully navigate the pandemic, while still providing an incredible level of service to our customers and our partners around the world the.

The hyperscale growth that we're experiencing is a reflection of their commitment to the execution of our strategy and their dedication to our success.

As a result of our team's collective efforts <unk> achieved another year of record revenue adjusted EBITDA and adjusted EPS in 2021 far exceeding the previous record levels seen last year in fact revenue increased by approximately $1 $3 billion.

Representing 50% growth year over year, and marking the highest annual growth rate in our history as a public company.

This performance came on top of very strong revenue growth over the three previous years that averaged in the mid teens and was highlighted by tremendous growth in home standby generator shipments an approximate doubling of clean energy revenue and strong and broad based growth in our global C&I products.

Adjusted EBITDA for the full year was $861 million with a very strong adjusted EBITDA margin of 23, 1% that was similar to the prior year. Despite a variety of supply chain challenges considerable inflationary headwinds and significant investments for future growth.

In the third quarter of 2021, we achieved an important milestone by starting production of home standby generators at our newest facility in Trenton South Carolina.

And we continue to make excellent progress in ramping production levels at this new facility as well as at our existing facilities in Wisconsin.

Additionally, the further build out of our clean energy market opportunity was a key highlight during the year as we significantly grew shipments of our power cell energy storage systems through the expansion of our supply chain increased targeted marketing efforts growth in our distribution network and the introduction of several exciting new products.

We also broadened our energy technology solutions portfolio with several strategic acquisitions highlighted by deep Sea electronics Chillicothe power for city code off grid energy tank utility and eco B <unk>.

2021 was also a heavy year of new products as we introduced our market, leading 26 kilowatt home standby generator or general branded micro inverter that we call power micro the industry's first dedicated engine driven battery charging system, we call power generator and our innovative power manager load control device.

We also introduced a host of new C&I products this year, including our hybrid mobile power solution pairing a mobile energy storage system with a traditional mobile generator on mobile battery powered light tower and our first C&I battery storage system for the North American market through the off grid acquisition.

We also announced smart grid ready capabilities for all our home standby generators power cell energy storage systems, and our natural gas C&I generators.

Smart grid ready technology is important to advancing our turnkey approach to grid services and enabling these products can be utilized in programs that provide grid resiliency and an incremental ROI for the asset owner.

Finally during our 2021 Investor Day last September we debuted our new enterprise strategy, we call powering a smarter world, which focuses on improving energy resilience and independents, optimizing energy efficiency and consumption and protecting and building critical infrastructure.

We also published our inaugural environmental social and governance report highlighting the alignment of our new strategy to key ESG related external frameworks and standards.

These accomplishments provide us considerable momentum as we head into 2022.

The guidance, we are initiating today is for another year of significant revenue growth between 32, and 36%, which is expected to be driven by further increases in home standby production throughout the year strong growth in clean energy markets continued broad based global demand for C&I products and contributions from recent acquisitions.

Notably this full year 2022 guidance projects, an approximate doubling of generates revenue as compared to 2020 levels with organic growth accounting for the vast majority of the increase.

In addition to the significant topline growth, we expect to maintain attractive margins, while continuing to make aggressive investments in next generation energy technology solutions.

We credit these accomplishments to the agility and dedication of the <unk> team as we overcome short term operational challenges and remain focused on our long term purpose of leading the evolution to more resilient efficient and sustainable energy solutions.

Now discussing our fourth quarter results in more detail demand for home standby generators in the fourth quarter continued to benefit from important megatrends, which further expanded consumer awareness of the category.

The home is a sanctuary trend remains a key driver of demand along with the impacts of more extreme weather, resulting in elevated power outage activity over the past several quarters, including three major outages over the past 18 months.

The combination of these factors along with broader electrification trends continues to drive incredibly strong demand for home standby generators.

As a result home consultations or sales leads increased again in the fourth quarter over the robust prior year comparison and for the year grew at a strong double digit rate and were nearly four times the full year 2019 levels.

Activations of home standby generators, which are a proxy for installations also grew at a significant rate compared to the prior year and our distribution footprint ended the fourth quarter with 8100 residential dealers and increase of approximately 800 dealers over the last 12 months.

As we have discussed we continue to make encouraging progress increasing production levels for home standby generators, most notably at our new facility in Trenton, South Carolina as daily build rates at all our facilities are dramatically higher when compared to prior year levels.

Build rates also grew sequentially as we added new production on new production line at both the trend and Jefferson, Wisconsin facilities during the quarter.

As a result of the higher output levels lead times have declined by approximately four to five weeks from 32 weeks at the end of the third quarter.

However, home standby order rates have remained very strong leading to a further increase in our backlog, which currently is still well over $1 billion and provides excellent visibility into 2022 revenue growth.

Output levels are projected to increase further throughout the year as additional capacity comes online. However demand has remained strong and although we expect to exit the year with improved lead times, we anticipate that we will still end 2022 with a significant backlog for home standby generators.

Many of the same factors underpinning tremendous demand for home standby generators, along with the increasing penetration of solar installations are also helping drive rapid growth for our clean energy products as.

As previously mentioned shipments of our power cell energy storage systems grew significantly in the quarter as compared to the prior year and also grew at a strong double digit rates sequentially.

Despite industry wide supply chain and logistics challenges impacting our clean energy solutions full year 2021 clean energy related revenue approximately doubled as end user demand remains robust for our power cell energy storage systems.

In addition to strong revenue growth key performance indicators for clean energy products continued to show favorable trends in the fourth quarter.

Home consultation and system Activations, both increased at a strong rate over the prior year and also increased sequentially.

In addition, we further built out our clean energy Installer network as we ended the fourth quarter with nearly 2500 trained and certified dealers with approximately a 1000 dealers registered on our powerplay sales platform.

The solar plus storage market continues to expand rapidly and we expect to see significant year over year growth again during 2022.

Shipments of power cell energy storage systems are anticipated to increase substantially during the year and we expect clean energy revenues to grow aggressively as compared to the 2021 levels were.

We are also very excited about beginning shipments of the previously mentioned new product introductions for clean energy, which are expected to contribute incrementally in 2022. This.

This includes our new PV micro inverter product offering called power micro with shipments expected to begin toward the end of the second quarter and ramping further during the second half of the year.

A key component of future growth for our clean energy offerings is establishing and developing our distribution network, including partnering with large national solar providers.

We recently announced an expansion of our partnership with Sonoma that adds even more of <unk> industry, leading technology to its current suite of offerings. In addition to energy storage systems. So Nova customers will now have access to the industry's only fully integrated lineup of home standby generators micro <unk> and load control devices delivered from a single equipment provider.

The scope of the new agreement includes integrating both companies software platforms, enabling the joint participation and grid services programs across the U S.

Additionally, synovus consumer friendly financing solution will now be made available to <unk> certified dealers for all their customers' financing needs, including home standby generators were very excited about our expanded partnership as it grows distribution capacity for our residential products increased financing opportunities for potential home standby customers and facilitate additional growth and grid services.

I would now like to provide an update on the <unk> acquisition, which closed in December and which helps to accelerate <unk> evolution into an energy technology company.

We believe we can leverage <unk> existing technology and capabilities to develop a home energy management platform, which will be core to our growing residential energy ecosystem of the future that benefits both homeowners and grid operators. This platform will enable homeowners to make smarter energy production storage and consumption decisions, while also integrating with our concerto software.

That form to provide grid operators more efficient access to our homes distributed energy resources.

Importantly, while still very early we are already starting to see near term commercial synergies from the acquisition as the initial integration with our existing commercial sales channels has been encouraging including expansion into <unk> residential and clean energy dealer networks as well as key retail relationships.

In addition, <unk> has a sizeable dedicated sales team directly engaging utilities and grid operators with their eco energy program, which is aimed at developing demand response and load control opportunities are <unk> services team has begun working closely with this group to coordinate and expand these efforts to develop our sales pipeline together by leveraging <unk> more than $2 million.

<unk> homes as a valuable installed base of potential distributed energy resources.

I'd also like to provide a further update on <unk> grid services group recently formed within the company that builds upon our October 2020 acquisition of Embolic power networks.

<unk> grid services has been making excellent progress in expanding its sales pipeline, including meaningful opportunities beyond traditional software as a service contracts.

The fourth quarter saw significant progress in new deals closed and in the final stages of negotiation, increasing our top line visibility for 2022.

The grid services team continues to integrate <unk> products and solutions into the concerto software platform with the resulting hardware cross selling opportunities expanding our sales funnel even further.

We believe this creates a unique advantage for <unk> in the market for grid services, given our increasingly unmatched set of an energy technology assets and industry, leading <unk> platform, helping us to maintain momentum with utilities grid operators and energy retailers, while raising our profile with key decision makers in the utility industry.

We also recently announced a key win for <unk> services to build virtual power plants or vps by recruiting and enrolling <unk> solar PV and battery storage system owners for Southern California, Edison's power Flex program.

This initiative gives give socal edison's reticent residential customers the opportunity to earn incentives by allowing some of their carbon free electricity stored in their power cell energy storage systems to be dispatched for grid stability purposes.

Public sector support for grid services opportunities has been increasing highlighted by the numerous programs within the recently passed infrastructure investment and jobs act that target grid flexibility and resilience and encourage utilities and grid operators to develop and manage virtual power plants using distributed energy resources.

Now, let me make some comments on our C&I business, which grew rapidly in the fourth quarter as key end markets and geographies continued to recover off the softer prior year impacted by the pandemic.

Global C&I product sales increased 43% on an as reported basis compared to the compared to the prior year and 30% on a core basis, which was well above 2019 levels during the quarter.

Our domestic C&I products saw growth across all channels in the fourth quarter led by National Telecom and rental equipment customers.

We also have a record backlog for C&I products, which increased further during the fourth quarter and has continued to build here in the first quarter, providing good visibility for another year of meaningful growth in 2022.

Shipments of C&I stationary generators through our North American distributor channel grew again at a solid rate and the channel continued to experience strong quoting and order activity, along with improving close rates and market share gains in the quarter.

We're also experiencing strong growth with our energy systems industrial distributor business in Northern California that we acquired in 2020.

As our investments and overall increased focus in this important backup power market are producing excellent results.

And working to build on this success in the fourth quarter, we acquired the power generation group of Pap and material handling are industrial distributor based in southern California further expanding our presence in the large and growing west coast market.

Shipments to telecom National account customers increased dramatically again during the fourth quarter as compared to the prior year benefiting from elevated levels of capital spending by several of our larger telecom customers.

The catalyst for the investment in backup power in this important vertical continues to be driven by an elevated power outage environment. The power security mandate in California, requiring a minimum of 72 hours of backup power.

And the build out of <unk> networks.

The long term demand outlook for backup power in the telecom sector remains very compelling driven by the increasingly critical nature of wireless communications.

We also experienced very strong growth with our national rental equipment customers as shipments of mobile products continued to recover at a significant rate off the pandemic driven lows of 2020.

These customers are investing heavily in fleet equipment, and we remain optimistic about the long term demand outlook for mobile products, given the mega trend around the critical need for infrastructure improvements.

We expect that the infrastructure investment and jobs Act tax passed in late 2021 will support a higher level of capital spending by rental equipment companies over the next several years.

Additionally, we're experiencing ongoing strength in project quoting and improved close rates for our natural gas generators used in applications beyond traditional emergency standby power generation such as they are used in energy as a service Microgrid solutions and other distributed generation projects.

Order rates for generators used in these applications increased dramatically during the full year 2021.

We believe the increased interest in these products is being driven by the need for enhanced resiliency and grit stability that these large blocks of power offer for grid operators, while simultaneously, providing a tangible and meaningful return on investment for the asset owners.

Internationally, we continue to see strong momentum as well with shipments increasing 47% year over year on an as reported basis during the fourth quarter with 26% core net sales growth when excluding the benefit of the deep sea and off grid energy acquisitions, and the impact of foreign currency.

The core sales growth was driven by strength across all major regions has recovered well above the levels from 2019.

Overall, quoting and order activity continues to accelerate at a strong pace in key international markets in the fourth quarter driving growth in the international backlog and higher visibility for 2022.

We are also seeing a growing interest in home standby generators in certain international markets highlighting the potential for the product categories addressable market to grow significantly beyond the still Underpenetrated U S market.

Cleaner burning natural gas C&I generators are also experiencing positive momentum internationally as we work to educate the global market on the benefits of natural gas fuel generators over their traditional diesel solutions.

The international segment's fourth quarter EBITDA margin expanded to 13, 9% from six 8% in the year ago period due to the accretive margin profiles of the deep sea and off grid energy acquisitions improved overhead absorption on higher volumes and realizations from pricing actions, which were implemented throughout 2021.

The integrations of the deep sea and off grid energy acquisitions are progressing well as we continue expanding the reach of their energy technology solutions through our global distribution channels.

<unk> has seen very strong market interest for its mobile energy storage systems in new regions and with legacy <unk> customers and we are very excited to bring this innovative battery storage solution to the north American equipment rental market in 2020 to.

The deep Sea acquisition has substantially expanded our global controls in electronics engineering teams and provides important capabilities that are core to the growth of our portfolio of grid connected energy as a service and micro grid solutions.

In closing today 2021 was a year of tremendous progress for <unk> as we significantly expanded our capacity and further accelerate our evolution to an energy technology company with a number of key strategic investments across product categories and regions.

We believe this growth has resulted in market share gains in every part of our business during 2021 and I'm extremely proud of the hard work of our teams to achieve such strong results. Despite the incredibly challenging operating environment.

As we look forward. We believe we are just getting started on our newly introduced powering a smarter world enterprise strategy strategy.

Through the combination of aggressive organic investment and strategic acquisitions, we have built a portfolio of power generation and storage systems monitoring and management devices and platform and controls capabilities that provide for resiliency as well as participation and grid services programs, thereby creating enormous value for an increasingly broad range of stakeholders.

These solutions in tandem with our services our distribution our brand and importantly, our expertise <unk> is uniquely positioned to be a leader in the ongoing modernization and evolution of our electrical grid to be more flexible cleaner and smarter.

I now want to turn the call over to Europe to provide some additional details on our fourth quarter and full year 2021 results and our new outlook for 2022.

Thanks Aaron.

Looking at fourth quarter and full year 2021 results in more detail net.

Net sales increased 40% to $1.07 billion during the fourth quarter of 2021, an all time record as compared to 761 million in the prior year fourth quarter the.

The combination of contributions from the deep sea silicon.

Off grid take utility and <unk> acquisitions, and the unfavorable impact from foreign currency had an approximate 5% impact on revenue growth during the quarter.

Net sales for the full year 2021 increased 50% to approximately $3 $74 billion also an all time record for the company.

Briefly looking at consolidated net sales for the fourth quarter by product class.

Residential product sales grew to $706 million as compared to 499 million in the prior year, representing a 42% increase despite a strong prior year comparable.

Contributions from the <unk> silicone acquisitions and the impact of foreign currency contributed approximately 2% of revenue growth for the quarter.

Home standby generator sales made up the majority of the residential product growth increasing by approximately 50% over the prior year as we continue to make significant progress in expanding production capacity for these products despite the challenging supply chain environment.

Shipments of power cell energy storage systems also grew at a significant rate as compared to the prior year as overall solar market growth rising storage attachment rates and are expanding distribution continue to drive growth for our clean energy solutions.

An increase in shipments of portable generators and <unk> products also contributed to growth in the quarter.

Commercial and industrial products net sales for the fourth quarter of 2021 increased 43% to $284 million as compared to 199 million in the prior year quarter.

Contributions from the deep sea and off grid acquisitions, and the unfavorable impact of foreign currency had a combined impact of approximately 13% on net sales growth during the quarter.

The very strong core revenue growth was driven by an impressive impressive growth across all domestic C&I channels and.

All major regions internationally.

While this growth rate was aided by the softer prior comparison impacted by the COVID-19 pandemic.

C&I revenue was up approximately 19% on a core basis as compared to 2019 levels, which highlights the strong demand that we're seeing across most C&I markets.

Domestically the C&I growth was driven by a significant increase in shipments to telecom national account customers, resulting from the much higher capital spending as these customers continue to harden their wireless networks.

We also experienced strong growth in mobile product shipments to a rental channel customers as they continue to invest in their fleets given strength in their end markets.

Also contributing to the increase was solid growth with our industrial distributors as well as higher shipments of natural gas generators used in beyond standby applications.

Internationally the increase in C&I products was broad based from a geographic standpoint with growth in all major regions as global C&I markets continue to experience a sharp increase in demand of the softer prior year comparison impacted by Covid.

Have recovered well above 2019 levels.

Net sales for other products and services increased 21% to $77 million as compared to $64 million in the fourth quarter of 2020.

Recall this product category is primarily made up of aftermarket service parts product accessories extended warranty revenue remote monitoring and grid services subscription revenue and other service offerings.

Contributions from the <unk> and tank utility acquisitions, and the impact of foreign currency contributed approximately 4% of revenue growth during the quarter.

Strength in aftermarket service parts continues to be a core driver of sales growth and the category is heightened power outage activity.

A larger installed base is driving increased demand.

We're also experiencing higher levels of extended warranty revenue on a larger and growing base of extended warranty contracts.

Also contributing to the increase were higher levels of remote monitoring and grid services subscription revenue.

As well as increases in other services.

Gross profit margin was 34% compared to 39, 4% in the prior year fourth quarter as the challenging supply chain and overall inflationary environment drove input costs significantly higher during the quarter.

Specifically, the lagging impact of rising steel prices inbound logistics costs and labor rates, along with the Trenton plant startup all pressured margins in the current year quarter.

The early realization of initial pricing actions, partially offset these margin pressures importantly, our backlog as of the end of the year contains multiple rounds of additional price actions that will be increasingly realized in the coming quarters.

Operating expenses increased $58 million or <unk> 44, 8% as compared to the fourth quarter of 2020.

But declined approximately 100 basis points as a percentage of revenue, excluding intangible amortization and transaction related costs.

The overall increase in Opex dollars was primarily driven by the impact of acquisitions and related transaction costs higher.

Higher employee and marketing spend additional variable expenses from the significant increase in sales volumes and increased amortization expense.

Adjusted EBITDA before deducting for Noncontrolling interests as defined in our earnings release was an all time record of $220 million or 27% of net sales in the fourth quarter.

As compared to $196 million or 25, 7% of net sales in the prior year.

For the full year 2021, adjusted EBITDA before deducting for Noncontrolling interests came in at an all time record of $861 million, resulting in a strong 23, 1% margin that was similar to the 23, 5% margin in the prior year, despite the challenging operating environment and acquisitions that impacted margins during 2021.

I will now briefly discuss financial results for our two reporting segments.

Domestic segment sales increased 39% to $896 million in the quarter as compared to $645 million in the prior year with the impact of acquisitions contributing approximately 2% of the revenue growth for the quarter.

Adjusted EBITDA for the segment was $197 million, representing a 21, 9% margin as compared to $188 million in the prior year or 29, 1% of net sales.

Lower domestic EBITDA margin in the quarter was primarily due to the significantly higher input costs and the impact of acquisitions, partially offset by the early realization of pricing pricing actions implemented throughout the year.

For the full year 2021 domestic segment sales increased 52% over the prior year to $3 6 billion.

EBITDA margins for the segment were 25, 1% compared to 27.0% in the prior year.

International segment sales increased 47% to 171 million in the quarter as compared to $116 million in the prior year quarter.

Core sales, which excludes the impact of acquisitions and currency increased approximately 26% compared to the prior year.

Adjusted EBITDA for the segment before deducting for Noncontrolling interest was $23 7 million or 13, 9% of net sales as compared to $7 8 million or six 8% of net sales in the prior year.

The significant expansion in international EBITDA margins was primarily due to strong margin contributions from the deep sea and off grid energy acquisitions improved overhead absorption absorption and operating leverage as well as the impact of pricing actions.

For the full year 2021 International segment sales increased 45% over the prior year to $573 million.

Adjusted EBITDA margins for the segment before deducting for Noncontrolling interests were 11, 5% of net sales during 2021 640 basis point increase compared to the five 1% margin in the prior year.

Now switching back to our financial performance for the fourth quarter of 2021 on a consolidated basis.

As disclosed in our earnings release GAAP net income for the company in the quarter was $143 million as compared to $125 million for the fourth quarter of 2020.

GAAP income taxes during the current year fourth quarter were $20 6 million or an effective tax rate of 12, 4% as compared to $39 million or an effective tax rate of 23, 8% in the prior year.

The decline in effective tax rate was primarily due to certain discrete items related to acquisitions and a higher stock compensation deduction during the current year.

Diluted net income per share for the company on a GAAP basis was $2 <unk> in the fourth quarter of 2021 compared to $1 97.

In the prior year.

Adjusted net income for the company as defined in our earnings release was an all time record $162 million in the current year quarter or $2 51 per share.

This compares to adjusted net income of $136 million in the prior year or $2 12 per share.

Cash income taxes for the fourth quarter of 2021 were $29 7 million as compared to $34 9 million in the prior year quarter.

The current year now reflects a cash income tax rate of approximately 19, 7% for the full year 2021 compared to our previous expectation of approximately 20.0% to 25%.

The decrease primarily driven by a higher level of stock compensation deduction than previously expected.

This full year cash tax rate for 2021 compares to the prior year rate of 17, 9%.

The increase in the current year cash tax rate versus the prior year is primarily due to a significant increase in domestic pre tax income, which is taxed at a higher statutory rate along with an increase in nondeductible goodwill from acquisitions.

Cash flow from operations was $62 million as compared to 218 million in the prior year fourth quarter.

And free cash flow as defined in our earnings release was $42 million as compared to 191 million in the same quarter last year.

The decline in free cash flow was primarily due to a much higher working capital investment in the current year quarter, partially offset by an increase in operating earnings and lower capital expenditures relative to the prior year.

The higher working capital investment was primarily driven by further elevated inventory levels at the end of the year.

<unk> from extended logistics in transit times ongoing supply chain constraints, increasing production rates and continued investments in the ramping of our new trend facility.

We repurchased 350000 shares of common stock during the fourth quarter for $126 million under our current share repurchase program and we have approximately $124 million remaining under this authorization as of December 31 2021.

At yearend, we had approximately $550 million of liquidity comprised of approximately $150 million of cash on hand, and $400 million of availability on our ABL revolving credit facility, which matures in may of 2026.

Also total debt outstanding for the at the end of the year was $980 million net of unamortized original issue discount and deferred financing costs.

Our gross debt leverage ratio at the end of the fourth quarter was only one two times on an as reported basis.

In addition, our term loan doesn't mature until December 2026, and.

And we do not have any required principal payments on this facility until the maturity date.

And it is a low cost of debt of LIBOR, plus 175 basis points. We also have interest rates swap arrangements that fix our interest rate exposure on approximately $500 million of this debt through the maturity date of December 2026.

Further enhancing our overall liquidity is our strong cash flow profile.

For the full year 2021 free cash flow was $306 million.

Uses of cash during 2021 included $744 million for acquisitions, including earn out and Noncontrolling interest buyouts 126 million for share repurchases.

And 110 million for capital expenditures.

Our strong balance sheet and free cash flow generation give us the flexibility to grow our business execute on our strategy and invest in future shareholder value enhancing opportunities.

With that I will now provide further comments on our new outlook for 2022.

As Aaron previously highlighted key demand metrics for most of our product categories continue to trend strongly during the fourth quarter, leading to a further increase in backlog as we exit 2021.

Looking into 2022, we expect significant growth in home standby generator shipments as we ramp capacity in our Trenton, South Carolina plant.

We also expect strong growth from our clean energy products as a solar plus storage market continues to grow rapidly.

And as we launched several important new products, including power micro throughout the first half of the year.

We expect C&I products to continue to benefit from strong and broad based global demand highlighted by domestic telecom mobile and energy management customers and several key international markets in.

In addition, our 2021 energy technology acquisitions are expected to contribute meaningfully to our overall growth in particular, the <unk> deep sea electronics and off grid energy acquisitions.

In summary, we have tremendous momentum and significant visibility into our demand profile as we enter 2022.

As a result of this positive topline outlook, we're initiating guidance for 2022, then anticipate significant revenue growth as compared to the prior year.

Net sales are expected to increase between 32% to 36% as compared to the prior year on an as reported basis, which includes an approximate 5% to 7% net impact from acquisitions and foreign currency.

This revenue outlook assumes shipments of residential products increased at a low 40% rate during 2022.

And revenue for C&I products is expected to grow at a high teens rate compared to the prior year.

Importantly, this guidance assumes a level of power outage activity during the year in line with the longer term baseline average.

As a result, consistent with our historical approach. This outlook does not assume the benefit of a major power outage event during the year, such as a category three or higher landed hurricane.

Given we are expected to be producing at capacity for home standby generators throughout the year the upside of a major power outage event would be more limited to incremental portable generator shipments during 2022.

Any extra lift for home standby generators from a major power outage event would most likely result in incremental revenue in 2023.

As Aaron previously previously explained we expect to significantly reduce our backlog and lead times for home standby generators during 2022, but given the strong demand for these products, we still expect to carry a notable amount of home standby backlog into 2023.

As we ramp capacity for home standby and clean energy products, we're expecting a certain level of quarterly seasonality during 2022.

With net sales in the first half being approximately 47% weighted in sales in the second half being approximately 53% weighted.

Specifically related to the first quarter, we expect first quarter 2022 shipments to be similar to fourth quarter 2021 levels with increasing residential shipments being offset by seasonal impacts where C&I products.

Looking at our gross margin profile as we enter 2022, we anticipate cost pressures from ongoing supply chain challenges component shortages higher logistics costs and in overall inflationary environment to further impact gross margins in the first quarter, resulting in a sequential decline in gross margins from fourth quarter of 2020.

One the first quarter 2022.

We expect many of these inflationary pressures to progressively ease as we move through 2022 for a variety of reasons Steve.

Steel prices have come off their recent peaks and we expect freight cost will receive during the year at supply chain bottlenecks improve.

Also the realization of multiple pricing actions that we took in 2021 will have a meaningfully positive impact on gross margins, particularly in the second half supported by our significant backlogs that contained higher pricing levels.

In addition, the impact of plant startup cost will continue to lessen as production at the New Trenton, South Carolina facility further ramps.

Also we expect to realize certain cost reduction initiatives that began in 2021 to combat the significant increase in input costs, including important projects to improve the cost structure for certain high volume product lines.

These tailwind should be increasingly realize on a quarterly basis as we progress through 2022.

For the full year 2022, we expect pricing easing input cost pressures during the second half and cost reduction initiatives to more than offset the continuation of inflationary cost pressures during the first half.

As a result, we expect gross margins for full year 2022 to increase modestly compared to 2021.

With sequential improvements throughout the year.

Specifically from a seasonality perspective, we expect price cost headwinds to hit peak levels in the first quarter of 2022, leading to trough gross margins that are expected to be approximately 100 basis points below fourth quarter 2021 2021 levels.

We expect quarterly improvements throughout the year ultimately leading to fourth quarter 2022, gross margins recovering back to first quarter 2021 levels.

In addition, we continue to make significant operating expense investments to scale the business support innovation and drive future revenue growth in new and existing markets.

These energy technology investments and the impact of acquisitions completed in 2021 are expected to result in moderately higher operating expense as a percentage of revenue for the full year 2022, when compared to full year 2021.

As a result of these factors and our gross margin expectations adjusted EBITDA margins before deducting for Noncontrolling interests are expected to be approximately 22.0% to 23.0% compared to 23, 1% reported for the full year 2021.

This includes the combined impact from recent acquisitions that is expected to dilute adjusted EBITDA margins by approximately 150 basis points during 2022.

From a seasonality perspective, we expect adjusted EBITDA margins to improve significantly as we move through the year, primarily driven by improving gross margins throughout the year as previously discussed in detail and to a lesser extent improved leverage of operating expenses on the expected higher sales volumes.

Specifically regarding the first quarter adjusted EBITDA margins are expected to bottom in the first quarter at approximately 250 to 300 basis points below fourth quarter 2021 levels and then improve sequentially throughout the year returning to the mid 20% range in the fourth quarter of 2022, even when including the impact of recent acquisitions.

As is our normal practice, we're also providing additional guidance details to assist with modeling adjusted earnings per share and free cash flow for 2022.

As a reminder, our approximate $30 million per your tax shield that originated from the LVL transaction in 2006 fully expired at the end of 2021.

As a result 2021 was the last year that adjusted earnings will benefit from a notably lower cash income tax rate relative to the GAAP tax rate.

Given that our cash tax rate is now expected to be more in line with the GAAP tax rate. We are now only going to guide to the GAAP tax rate going forward.

For 2022, our GAAP effective tax rate is expected to be between 24% to 25% as compared to the 19, 7% full year cash tax rate for 2021.

This increase is driven primarily by the expiration of the previously mentioned tax shield as well as lower expected share based compensation deductions in 2022, when compared to the prior year.

In 2022, we expect interest expense to be approximately 41% to 43 million assuming no additional term loan principal payments during the year and assuming increasing LIBOR rates throughout 2022.

Our capital expenditures are projected to be approximately two 5% to 3% of our forecasted net sales for the year.

And depreciation depreciation expense is forecast to be approximately $56 million to $58 million in 2022, given our assumed capex guidance.

GAAP intangible amortization expense in 2022 is expected to be approximately $95 million to $100 million during the year.

This is an increase compared to $50 million of amortization expense in 2021 due to the impact of acquisitions completed during 2021 that resulted in a significant increase in finite live intangible assets such as trade names customer lists patents and technology.

Stock compensation expense is expected to be between 31% to $34 million for the year.

For full year 2022, operating and free cash flow generation is once again expected to follow historical seasonality of being disproportionately weighted towards the second half of the year.

Given the very strong organic sales growth expected. During 2022, we expect the conversion of adjusted net income to free cash flow to be approximately 70% to 80% for the year as a portion of cash flows will be invested in working capitals to support this growth.

Our full year weighted average diluted share count is expected to increase and be approximately 65, 3% to $65 5 million shares as compared to $64 3 million shares in 2021.

Finally, this 2022 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value.

This concludes our prepared remarks at this time, we'd like to open up the call for questions.

And thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question prints of the pound key.

Do ask that you limit yourself to one question and one follow up again, one question one follow up.

Our first question comes from Tommy Moll from Stephens. Your line is now open.

Good morning, and thanks for taking my questions.

Tommy.

Mark you gave some helpful insight on the growth and EBITDA margin progression through the year.

I wanted to drill down on the home standby business it sounds like.

Price cost should be a tailwind.

You get into the second half of the year I would think.

That one's Triton has scaled production there that that also ought to be margin accretive.

If you run it all through.

Things go according to plan could you exit 'twenty, two with a higher margin on that business.

When you guys put up in the past.

I mean, I think overall, what we guided what we're talking to and what we're our guidance anticipates is that our gross margins overall for the company.

Get back to I guess, what we're calling pretty inflationary environment.

If you look at Q1 2021 gross margins of roughly 40%.

Our guide basically gets us back there.

In Q4.

I guess I'd have to.

Not necessarily parse that out by product category in our guidance and in our prepared comments.

But I would think it would get back to at least similar margin track, where the pre inflationary environment was.

Earlier in the year in 2021.

Fair enough had to ask.

Erin to to follow up on grid services.

You made some news last month with the virtual power plant deal you announced in California.

I wanted to ask what you can tell us about that deal specifically and then you mentioned the funnel for grid services is pretty.

For 2022, how many more of these do you think you could sign this year.

Yes, the grid services piece, Tommy as we've indicated a couple of times I think publicly.

Is the pipeline there is growing at a rapid pace, where we're actually we've been expanding our sales force there we've more than doubled.

The head count in that business.

Closing in on 100 people that are focused on it every day and that's without the there is a dedicated team of pretty large dedicated team at <unk> as well that as I mentioned in my prepared remarks.

That's going to be.

Helpful. In some of the sales efforts there the challenge of course with Great services and we noted this during the Investor day is just a long sales cycle youre dealing with utilities and grid operators.

And folks that have they have a process for these types of.

These types of programs the process is.

One of approval through a regulatory agency a regulatory body in general.

A lot of these programs in some cases to certain utilities and grid operators are completely new so there is a pretty good sized learning curve here as well, but I would say that we're incredibly encouraged.

Talk specifically about the southern California Edison.

Power Flex program is kind of a proof point.

Some of the deals that are in the pipeline that are actually getting done.

That one is not a huge program admittedly, but it's a nice program for us because it helps us demonstrate not only to southern California, Edison, but we can use that program.

Elements of that program.

We can share that with other utilities I think a lot of utility companies are just struggling with what is the right equation for them.

On the right is it is it a demand management program is it some kind of grid support program or.

Is it some other kind of.

Some grid operators need help with with frequency or voltage on the grid and we can do that with a lot, particularly with our storage systems. Those things can be incredibly helpful to helping stabilize the grid, whether youre talking about voltage and frequency are you talking about augmenting our power.

Power generation or curtailing demand, we have basically a huge amount of flexibility in what we can design for program. So.

The kind of lack of formality around what type of program is needed by each grid operators you have to work with them on forming that and then the long sales cycle that goes into that it's going to be a while before we see.

Real meaningful.

Kind of impact from that in our results now we've contemplated that in the guidance were offering today and in fact, it's it's tracking very well if not above what we shared with you on the Investor day back in September , but really encouraging stuff, but just a long sales cycle.

And thank you and our next question comes from Ross Gilardi from Bank of America. Your line is now open.

Good morning, guys. Thank you.

Ross.

Bobby.

Can you guys quantify any more specifically.

What youre, assuming for home standby standby backlog exiting 'twenty two.

Just.

What is a normalized <unk>.

Level of orders for home standby.

In today's world.

Really what I'm trying to get at is.

Have enough.

Home standby backlog.

In your planning assumptions right now exiting 2022 to avoid a down year in 2023 without significantly above trend year in 'twenty, great. Hopefully you followed all that but I think you know what I'm asking.

Yes, I mean, youre asking for 'twenty 'twenty three guidance right.

Thanks.

I think I understand what youre, saying and so just a couple of comments I think we do think as we said in the prepared remarks, we're going to end the year. This year, we're going to end the year with.

A pretty substantial backlog yet of hsp, because we anticipate the order rate, which we've seen already so far this year and as we exited 2021 has been really strong in fact, so strong that even though we've taken our production capacity up.

We've continued to outstrip that and grow the backlog and we are going to grow our output throughout this year, we've got some pretty high.

<unk> growth as we've talked about our double double the theoretical capacity, we talked about how we're unsure how supply chain is going be able to feed that although we're getting more comfortable with that as the year progresses here again based on our prepared remarks, and we've got some pretty nice growth built into our forecast for the year, but that all said we're still going.

And with a pretty good backlog.

How much backlog is going to depend largely on the type of outage environment, we see over the next six to nine months as the year progresses. So if we get a heavy kind of our normal I'll say even.

Outage environment over the summer months and into the fall.

We may.

May outstrip that even further it made the backlog maybe even bigger so it's really difficult at this stage for sure to kind of answer the question you're asking.

I do think though that what's changed is when we last prepared remarks, we werent, we thought we'd be out of backlog by the end of 'twenty, two and Thats that has changed at this point.

Based on the current demand environment and.

And based on even though that we are adding more capacity so.

Really it's encouraging on the one hand, and we do think we're going to bring lead times down, but we're not going to get back down to that normal kind of one to two week lead time as we end the year.

Alright, Thanks, Darren and then I just wanted to ask you about international.

You made some interesting comments about growth in <unk>.

International Hsp, where are you seeing that and then your international <unk>.

<unk>.

Basically tripled from the first quarter to the fourth quarter I think a lot of that.

M&A, but you finished the year with a 14% EBITDA margin in the second half of the year, we carry that over into 2022 that seems like a pretty big <unk>.

<unk> hadn't really thought about before so can you talk more about labor.

Right.

Business.

Yes, so on the HFC side, specifically markets were seeing interest there is a number of markets, but very specifically down.

In South America, we're seeing it in Argentina, we're seeing it in Brazil.

When you go.

Elsewhere, you expand your aperture to a global basis, we're seeing obviously, Australia has been a market we've targeted for some time for HSV, we're starting to see growth there, which is very nice interest in Japan, which is interesting we're seeing interest in Russia, and Ukraine, which arguably might be related to some of the security concerns short term here, but typically.

This product category benefits from.

A concern over the.

Your power quality and whether that concern is driven by weather or whether it's driven by geopolitical concerns or something else.

We have seen a real.

Interesting increase in the interest level in fact, I would tell you that the teams over in Europe that are responsible for the rest of the world sales and marketing efforts they want more products from us because of our our production constraints here.

Theyre, telling us they could sell even more product if we can get in their hands. So we're very encouraged by that because.

I think largely as we've all talked this is the category has been primarily a U S North American focused.

Element and so to get outside of that I think is exciting now on EBITA margins, that's really exciting because we.

We've been pushing on this for a while we took we were heading the right direction up until the pandemic hit and then our international EBITDA margins kind of stepped backwards as we lost top line volume as volume returns and this is.

Strip out for a second.

The acquisitions takeout deep sea and off grid, which have they are accretive from a margin profile on those no doubt, but actually the core <unk> business as we referred to it in our international segment without those acquisitions actually was up as well. So we're really encouraged by what we're seeing in terms of progress on our March towards improved EBITDA margins in that business then you add.

And the acquisitions and like you said we ended the year ended.

Almost 14%.

In the fourth quarter, and we believe that.

That is going to be a nice.

If you call it a tailwind I call. It I call it kind of getting on finally on with where we want to be with this business longer term with EBITDA margins, but we're encouraged by it and again home standby generators because of the margin profile of those products certainly helps our natural gas C&I generators that have become are becoming popular theyre also help they're accretive to margin and then the acquisition.

So you put all those together plus just improvements in the general core business that is the ITW business, we're very pleased with where we're going with EBITDA margins there.

And thank you.

Next question comes from Philip scene from Roth Capital. Your line is now open.

Hey, guys. Thanks for taking the questions just following up on one of the last questions.

<unk>.

Around demand you just mentioned there in that.

Where you thought backlog would be by end of 'twenty two is.

Meaningfully higher now versus last time.

You hosted a call.

So given the demand signals that you're seeing.

And given the supply constraints.

Outlook for freight improving and so forth.

Where do you stand now with capacity expansion.

You're closer to making decision do you think we could.

Get something beyond the Q2 'twenty two double double.

Soon and if so what's the timing and the magnitude of what that expansion could be thanks.

Thanks, Phil and obviously, we continue to watch that very closely and continue to make the necessary moves. We think are important to make timing wise as we mentioned on last call. We.

Made a commitment to invest in additional tooling for production of our Alternators, which is one of the constraint areas and ramping production further ramping output further we made that.

Commitment because of the long lead times of those those those machines at this point that automation equipment is out 50 to 60 weeks lead time, So we've got that on order.

Don't necessarily have an address on what we're going to deliver it yet.

But it would based on the timing of that it would be sometime in 2023 early 2023, we'd have to find a home for that.

Considering whether we can add that to our existing footprint.

Maybe take some of the raw material or even finished goods storage that we do in the facilities. We use today, maybe move that to off site. So we're looking deeply at the at.

At the home standby capacity footprint to fill.

Out how we're going to affect that next leg up but we have put in motion.

The longer lead time items that make that possible. So I feel good about that.

And we continue to invest in additional automation in our existing operations and additional.

Capacity, we mentioned and we've talked about this for some at some time.

We really are producing home standbys and three facilities now the intent of course being once we ramped our Trenton facility. We would go down to two facilities, we kind of absorb what we're doing today on a bit of a temporary basis in Jefferson, Wisconsin, we would absorb that into Trenton more fully.

Looking at should we keep that third facility running and should be expanded even further in fact that in our prepared remarks today. We added another line in Jefferson in the fourth quarter. We also turned out another line in and Trenton during the fourth quarter. So the trend and one was contemplated that Jefferson one was planned as well, but we've got those up and running now and my <unk>.

Point is with this is that the trend one could become more permanent as a way to expand capacity beyond the double double so, yes, and that plus the additional tooling investments that were committed to we think we're going to be in really good shape at least.

We have taken care of some of the longer lead time items that make that possible as we get to early 'twenty three.

Great. Thanks for that color and then.

As it relates to chicken and the power of micro it sounds like you are ramping.

In Q2.

Can you talk about.

How the channel is receiving that yet does the channel yet have the Sam.

Samples to be able to test it.

<unk>.

Yes.

<unk> on the approved vendor list for different companies.

Financing partners and just curious on what kind of demand in terms of megawatts or revenue, we could see from children.

In Q3 and four yes.

Yes, Thanks, Phil we're super excited about the power micros.

This is a.

The opportunity for <unk> to begin to really fully participate in the clean energy markets beyond just the storage markets, which have been really good so far and really encouraging so far as storage attachment rates continue to climb, but we know there's still a substantial number of PV only type of systems going in that.

But today, we don't we don't participate in and so the power micros or a way to do that with telecom acquisition was our pathway, we're making really good progress on the redesign of the initial silicon the original silicon micro inverter design. They had a really great design the guys at silicon.

Super Bright guys had developed what we think is frankly, we think its industry, leading technology and in fact the approach the two to one <unk> two panels to one micro <unk>. We think is an important part of the value prop of the product going forward. We're on target for a Q2 launch.

And so we feel good about that and as we said in the prepared remarks that the.

Where youll start to see the benefit of that or we will experience a benefit of that is really in the second half of this year, we haven't given specific guidance on that yet.

Supply chain work ahead of us here to ramp and as you know a lot of the components that go into those those types of products.

Electronic side semiconductors processors microprocessors.

There are supply chain constraints that are formed for everybody in the industry and we're no different but we're working through that.

Looking to our supply chain partners today about how to to be ready for the second half.

And to scale, we do expect to get in the early in the second quarter get the samples into beta test sites for our channel partners receptivity by channel partners by the way continues to be incredibly strong. They are very excited to see us enter the market and I think it really rounds out our product offering.

It's that product's supermarket approach that we've talked about so much that I think from a single provider to be able to offer everything from generators to storage systems to PV.

And burgers too to load control devices and.

And integrate that on a single pane of glass like we're planning on doing here and then expose all of that through our grid services teams.

Nobody in the industry that can do what we can do.

By the time, we get to the second half of this year with the product launches, we've got that being a key one of course.

And thank you and our next question comes from Brian Drab from William and Blair.

Your line is now open.

Hi, Thanks for taking the question I'll just ask one question here.

Aaron I'm wondering if you could talk a little bit about the dynamics.

I guess the dynamics that are impacting the dealer count and how.

Flattened out.

I think obviously that's.

I think you've talked about this related to.

New dealers not being able to get product right away that they werent given the lead time. So how do you view that playing out and I am wondering if this.

In the end.

Sort of spring loads growth in the 23 in the home standby category because as the lead times come down.

There is an inverse relationship there with the dealers and.

Then all of a sudden you get a little bit of extra growth because youre growing that dealer base again.

Yes, it's a great question, Brian and thanks for bringing it up the pipeline for new dealers remains very strong our challenge of course have been fulfilling those orders for new dealers because of the backlog so.

Is the backlog.

Was extended as it is.

We're doing everything we can to get product to those folks, but it did flatten out at the end of the year here I was still added 800 in the full year, which is more than we've ever added in a single year.

But I think you bring up a good point.

There is no question that continued expansion of that channel is critical to our growth I mean, we need that installation bandwidth, we need that sales bandwidth Lee that service and support bandwidth as the install base grows so.

Our laser focused on continuing to grow that channel and.

It is arguable that maybe we it does spring load that a bit for 2023 or 2022 here.

Not necessarily kind of <unk>.

<unk> it that way, but it's.

I think it's probably the right way to think about it and that is.

Incredibly important area for us and.

And it is getting a lot of attention and I think we're going to we're going to find our way through to continue to grow that.

Throughout the year here, even hopefully as we.

As we increase our production capacity that certainly helps us satisfy those new dealers with product because the last thing we wanted to assign a dealer up and then we can't deliver to them.

At the demoralizing experience for the dealer so we've got to focus on that as we get into 2022 here.

Is there some sort of lead times threshold that you think you need to get to where that starts to.

Dealer count set to grow again.

I think youre going to see growth I mean, just naturally you may have seen a little bit of a flattening out here in the back half of the year simply because of the lead times being extended but as I mentioned lead times are actually starting to come down in fact, they are down four to five weeks from where they were at the end of Q3, so that as it comes in I don't think its going to remain.

I think it's going to accelerate here as we get out of.

We exit 2021 and get into 2022, you will see dealer counts.

Again to pick up again.

Thanks very much.

Yes.

Yes.

And thank you and our next question comes from Jeff Hammond from Keybanc. Your line is now open.

Hey, good morning, guys. Good afternoon, I guess.

We're not there yet.

Anyways.

Just maybe talk about I think you gave kind of residential commercial but maybe just how you're thinking about growth rates in storage. This year clean energy all in and then just give us your view on kind of the California net metering proposal and how you think it impacts battery storage or short term and long.

Term.

Jeff I'll start there.

As I highlighted.

Embedded in the 32% to 36% overall growth guidance I mentioned residential products will increase in the low 40% range.

That isn't that is clean energy.

We do have aggressive growth plans, we doubled we doubled that business here in from 2020 to 2021, we've got aggressive growth plans here in 2022, well north of well north of 50% growth. So we're excited about that so.

That will be accretive to our overall residential product growth overall, and then Jeff just on the on the California net metering.

Situation is playing out there.

Really interesting for me personally I mean, I've gotten a front row seat to this for the first time, we're involved I'm on the there is that there is a war room for the Ceos in the industry on this NEM discussion, that's being sponsored by California Solar storage Association Khalsa and so this is kind of our first kind of foray into the <unk>.

Right around policy changes that impact the industry and clearly.

The concern there is a valid one in terms of the draft resolution that's been put forth.

By our California Regulatory Commission there the CPUC.

And so I personally.

As a provider of storage, we think that this net metering fight is going to play out everywhere.

This is like.

Early innings on what's going to happen when solar hit the tipping point you do run up against the fact that you need to kind of take a hard look at the incentive structure.

Net metering provides to assure a fair and equitable.

Incentive structure going forward, yet you don't want to dampen obviously enthusiasm for renewable energy. So there's got to be balanced in that and I think the industry recognizes that and I think what.

The proposed.

Draft that was put out on California, three point al.

Clearly it doesn't achieve balance and I think that's the concern that being said I do think that as any as the battle for NEM plays out and as you find balance it is going to drive storage rates higher which is good for us in the short term, we actually are underexposed in California, So it probably doesn't hurt or help us in California much.

Initially here.

But over time this net metering fight if you want to call it that or this debate is going to play out.

It has highlighted for us something that was important and that is that I think we need to have a stronger voice in the debate around policy as a company. We've I think we've probably taken a bit of a lower profile there than we than we should and so we're starting to lock shoulders lock arms here with the industry and go shoulder to shoulder with others to kind of one really.

Become deeply knowledgeable on the on the policy related things that are going on in the industry and then try to figure out how we impacted how we impacted positively for the broader industry as well as for <unk> and our customers So and our dealer partners. So I think we are.

We're going to be investing in policy and investing in the regulatory forefront more so than we ever have.

But it's been it's been really interesting to see this kind of firsthand.

Okay, Great and then.

In your analyst day, I think you put out 2020 for EBITDA margin targets of 24 to 25 and clearly we've had.

This unprecedented supply chain cost, which seems like it's going to get better in the second into the second half some acquisitions coming in most notably Colby just how should we think about the same or different around that around that target as you look at it today.

Yes, Jeff This is York.

As I mentioned.

On the EBITDA pacing.

We were looking at Q4 EBITDA margins in our in our guidance to be somewhere in that mid 20% range, which is for a fourth quarter thats, a seasonally strong quarter, but.

Looking out I don't see any any now that will level set and reset the margin profile.

With the with the pricing actions, we've implemented in and maybe with some moderation in some of the inflationary pressures here, we should get back to sort of the cadence that we've been thinking about all along and that at our investor day that 24% to 25% EBITDA margin longer term.

And thank you and ladies and gentlemen, just as a reminder, please limit yourself to one question and we will not be havent follow ups. So.

I'll follow up thank you.

And our next question comes from Mark Strouse J P. Morgan.

Yes, good morning, thanks for taking our questions.

You've been raising pricing three or four times now over the past year your backlog continues to build.

Just curious at a high level once we eventually get to the other side of the the raw material pricing in the shipping pricing coming down.

What is your what is your strategy on pricing to your customers do you bring down cost equivalent equivalents equivalently.

Or do you kind of leave pricing, where it is and.

Try and juice up your margins a bit.

Yes, Mark I think there is.

Within that question. There is there is there is a lot of moving pieces, obviously on <unk>.

Where to Costco.

Is the inflationary environment transitory I mean look at the PPI yesterday was a nine 7% read on annualized for the last 12 months.

So 10% and costs are up dramatically you look at our business and I don't think all of its read through yet personally I think this is the problem with the fed and the problem with these statistics as theyre backward looking and they're lagging.

Youre looking at data.

That's dated.

Every new contract that comes up I don't care, if it's for snow plowing grass cutting delivering materials to the facilities trucking.

If it's.

Everything that we do.

His hire all the insurance renewals everything else is coming in every time, we get a new renewal software cost theyre higher so inflation is going to continue to kind of.

Read through here I think over the next six months to 12 months.

Again in spite of what.

Economists and other talking heads say they should really go work for a company because its really just easy if you just look at all the cost I said this a year ago. There's no way. This is transitory wages are going up we just don't go back down doesn't happen sorry.

And we look at some of the costs and some of the inputs there, they're not going back down there structural so.

It's not that hard and I think a lot of these folks just get tied up in the data. So my point on all of this is the pricing we put in was to help us neutralize. These.

These cost increases that being said, we didn't put as much pricing in as costs have gone up because we are going to work very hard this year to offset that with some some notable cost out projects. We've got some big projects that we've been working on and we actually initiated last summer when we saw costs really starting to climb.

Kind of help us kind of not have to fully bake in the pricing to offset dollar for dollar the cost increases so where things go from here.

Let's hope that they that they come down at some point and we're able to bring our pricing down we want products to be affordable, we think thats, an important tenant of growing the category going forward.

Ed. Thank you and the next question comes from Joseph Osha from Guggenheim Partners. Your line is now open.

Yeah.

Hello, and thanks for taking my question I wanted to ask a little.

What about some of the trends you're seeing in consultation activity around the country I've I've heard in the past.

You were seeing some interesting growth in consultations in parts of the country, but.

Necessarily been big markets for you in the past and that might signal.

Some some higher growth in places like California. For example, so I'm wondering what kind of trends youre seeing kind of what that might signal in terms of how how in the U S. Your sales shape up this year.

Yes, no. Thanks, Joe that's a great question and obviously, we watch we call them IH fees in home consultations that we are seeing a move towards more virtual nature there but.

On a year to date basis, as we said I mean, we saw 46 states that had growth in IAC counts.

And.

It's amazing how widespread the growth was how broad based it was in the fourth quarter. There were a couple of regions that.

We did see a little bit of cooling off in a couple of reasons that we're just again really strong reasons like the Midwest regions like South central.

In the western regions continue to be very strong with consultations some of that could be that some of those areas have individually. There's some states underneath some of those areas that maybe have lower installed bases or lower penetration rates. So they are kind of catching up to the averages, whereas maybe some of the other regions like the northeast and southeast might have a little bit.

<unk>.

Kind of national average penetration rates. So so maybe they are slowing down a little bit I mean, a lot of that is based on what's been experienced in that region directly that's our that's our our history with IHS, but.

Still phenomenally I mean for the whole quarter.

Up double digits again for the quarter across the country. So.

Just a really strong read on Iac's and I think it portends really well and it gives us confidence in the guide that we're issuing this morning around around 2022, given that kind of front end interest that we're seeing in the product category.

And thank you and our next question comes from Jed <unk> from Canaccord Genuity. Your line is now open.

Hi, Thanks, Congrats on a great quarter and outlook Aaron I guess.

One question is just around grid services and the VP.

And the deal you mentioned with Socal Edison.

The which is obviously on.

<unk> and my question is.

Europe is proposing.

Proposing to reconstitute, both nuclear and Nat gas is.

Clean energy and.

Europe's kind of been a leading indicator for some of the trends here. So I'm wondering.

Your.

<unk> that's out there in the field.

It seems to be over 20 gigawatt hours of capacity most of that Nat gas.

I'm wondering how your discussions are going around.

Moving that over from a BP perspective, or whether or not that's still a roadblock because it.

Nat gas powered yes.

Yes.

It's a great question I mean, we're really encouraged by seeing that move in Europe to kind of re designate if you will nat gas and nuclear as quote unquote cleaner renewable.

And I mean.

Look and you follow the energy markets and a lot of folks in this call do as well I think we all understand the importance.

Continuous sources of Baseload power, we want to clean it up as much as we can we want to move to lower intense forms of energy lower carbon intense forms of energy natural gas provides for us an awesome opportunity to do that and move away from things like coal and move to natural gas and nuclear and other forms that drew.

<unk> change the profile of Baseload power.

In the context of how clean it is versus today and.

And especially as we go to electrify everything right.

Our dependence on.

Electrical power just electricity in general you would think of it.

Pickle home today, and we depend on not only electricity, but oftentimes most homes depend on natural gas for heating or cooking and certainly with transportation, we depend on gasoline.

I think having those three fuels provides for some flexibility if we.

We go to relying on a single source going forward.

The challenge with reliability becomes.

I think it's going to be.

Incredibly risky to do that and back to your point, though your point in terms of the conversations we're having here in the U S. I think most of the utility operation and grid operators. They understand it and maybe they are not able to publicly say that Nat gas is something that needs to be around and you've got these movements of foot kind of local community to local community, where they are trying to ban new natural gas connect.

<unk>, which is ridiculous.

Lately shortsighted and it actually serves it serves us negatively as a populous to do this and so.

I think it's well intentioned, but I think the outcomes are are really.

To be very undesirable. So the conversations are happening that fleet of product that we have is really desirable.

And I'm excited that we're going to be able to connect those products as we said through our smart grid ready technology, we're going to make them available and exposed.

To use in PPP programs.

What youre seeing in Socal Edison and a lot of other places.

And thank you and our next question comes from Christopher Glynn from Oppenheimer.

Your line is now open.

Yes. Thanks, Good morning, everyone. Just a quick one a lot's been asked.

I'm curious if the guidance assumes that trenton's.

Running full throughput at the targeted capacity for the second half or if you have some more.

More gated assumptions there just based on all the factors required.

To make Trent.

Hum at that to accomplish that double double.

Yes, Thanks, Chris.

The simple answer is that you've got two types of capacity a theoretical capacity and then you kind of have your real world a real realized capacity rate like what you can actually do and so theoretical capacity is a bigger number than what we planned for here and again because.

We've got again, we've got a pretty good line of sight on everything we need but you've got labor potential labor constraints, you've got potential supply chain constraints logistics constraints, we've baked in if you will of hedge.

I don't know Thats, the right word to use People's can call. It whatever you want to call. It but we are planned below the theoretical capacity of the facility for the balance of the year now if we get some breakthroughs on that could it be higher potentially.

And we're obviously shooting for higher numbers.

And we want to get to that theoretical capacity.

It's always difficult to run a facility out of theoretical capacity.

Rarely ever run a facility at 100% Youre always generally running at something less than 100% because of the real world implications of doing that you need downtime for equipment repair and maintenance you need you have people come and go in terms of whether it's illness or whether its something else.

You have you have the human limitations, there and you try and put all of that into.

Into the into the modeling if you will and that's what we come up with is kind of a real world capacity, which is below the theoretical capacity of the facility.

Thank you.

Next question comes from J B Lowe from Citi. Your line is now open.

Hey, guys.

Good morning.

We talk about.

I mean, obviously there is good.

I'm pretty decent visibility on the resi storage, but was wondering what you guys are thinking how.

How do you guys think about the opportunity on the commercial storage side and then also just international expansion for the battery product.

Jamie it's Greg the off grid energy acquisition has been.

That was our first foray into commercial storage.

It's generally the product they have the form factor of the product is is really ideal for the rental market. So it's monitored on a trailer it can be paired with a mobile generators seeking charged it right. There in the field and then you can run off of batteries, particularly useful in construction sites, especially when you get into metro areas, where it's difficult to run kind of general.

<unk> at night or you have noise restrictions things like that these products are have become very popular and we're just now introducing them here in the U S. So we've got a couple of our national rental account partners that are really excited to add them to their fleets. So we're going to be putting that equipment here in the U S.

We're also introducing off grid to all of our rental customers through our <unk> group, which is our <unk> group in Italy. They have the European rental market is quite well developed you get into the UK you get into any of the European mainland countries.

And we have a lot of great relationships there because we provide backup generators are construction generators as well as lighting towers.

Water pumps things like that so we've got a really great history with those customers.

Again here in the U S as well as in Europe , and the off grid products are being incredibly well received so our first foray into storage is kind of geared towards the rental market. We are taking those products sell and we are developing a roadmap for stationary storage that puts us kind of into I would say, it's more akin to what we do on the C&I Gen.

<unk> market globally, and that that's not necessarily what the off grid product is geared towards today, but in the future of the roadmap would give us a product that would look like kind of storage for those stationary C&I applications. So more to come on that as we develop that but really good kind of early innings here with with storage for C&I.

And thank you and our next question comes from Kashi Harrison from Piper Sandler Your line is now open.

Good morning, everyone and thanks for taking the question.

Good morning, Good morning, So back at your Investor Day, you provided the multiyear outlook on the revenue CAGR through 2024, obviously, it's only been a few months since that color was provided but.

I was just wondering if you could maybe walk us through some notable developments.

In that multiyear view since that Investor day that you think might be worth pointing now have there been any big developments, we should be paying attention to.

And if there are whats what are there.

Okay.

Yes, No. This is York thinking out loud, we've been talking about how our backlog.

Coming into 2022, and therefore, ending the year in 2023.

Is going to be probably higher than we were anticipating back in the AARP.

Period that we launched in September of last year, So that obviously will be a tailwind there.

As you progress through the model <unk> was not in the MLP model.

Layer that on top that's probably the biggest development that wasn't in the ERP model is just our strategy around <unk> and developing a home energy ecosystem and in all of the synergies that will come with that that's probably the biggest thing thats not in the owner, but yes, I would agree with that and I think the fact that I think maybe not fully appreciating the MRP in my prepared.

Paired remarks today I said based on our read of the markets that we participate in we gained share everywhere across the board and that might not have been fully contemplated in the <unk> as well as those share gains share gains tend to be pretty sticky.

So when you are picking up share.

That is a compounding effect.

In out years, so that could be a positive tailwind, although I think you're right probably the bigger tailwind there would be the higher anticipated backlog for HSV exiting 'twenty, two and the <unk> acquisition, which clearly we're really wasn't baked into the <unk> model last September but good question.

And thank you and our next question comes from Donovan.

Asia from callers security your line is now open.

Hey, guys. Thanks for taking my question.

I wanted to focus on international markets here. So the acquisitions from 2010 to 2018, we're really focused on building an international footprint to benefit from Megatrends like the shift from diesel to natural gas generation.

Now it looks like that was really starting to play out for you.

Wanted to hone in on what specifically have you seen in the last year.

Moving aside COVID-19 , because I know that had an impact but within say the last year, what's really been driving this and what could we see or what would you expect it to drive that over the next.

Medium term three to five years and then just on the kind of threw out some candidates.

Factors the LNG market has been growing very aggressively.

Brazil, and Argentina, I think those are LPG markets.

Could that be part of what drives things there Japan has been talking about developing offshore methane hydrates for years now India launched a pilot program for residential natural gas distribution. So from a whole grab bag. What do you think are the most important things, yes, Donovan really appreciate that and you are spot on I mean over the last 10 years.

<unk> is about giving is about building the footprint right and building the team building the capabilities to deliver products to manufacture and deliver products into the markets whenever those products, maybe our long term view was always around.

<unk> products potentially C&I natural gas products and of course, more recently clean energy products, whether they be storage and we're demonstrating its right. Just my comments just on the previous question around off grid energy the ability to take those storage systems and put them in the hands of our teams, where we already have business, where we already have customers, where we already have distribution in those countries.

The comments I made in the prepared remarks about <unk>, expanding and then that we talked about here on the Q&A about markets like Argentina, and Brazil, and Youre right. Its where you see markets, where natural gas is expanding India is another market opportunity for us longer term I didn't talk about that but there is a lot of new pipeline capacity.

<unk> being put online and it's definitely on the drawing board right now in India.

To get through the regulatory processes and things in India, but nonetheless natural gas is an enabler LPG markets are an enabler for many of these products and it fits right in with what we're doing we said, we always said that our effort in investing globally was always about the long term and when we said long term we met.

Decades, we didn't mean years is starting to play out, which we're really happy to see some of these things in the near term, but longer term I am not going to speak specifically to like three to five year type of growth rates, but we're incredibly encouraged by the interest level in these products and we haven't even gotten to our entire portfolio of clean energy assets, yet in getting those enhanced residential.

Storage PV micro Inverters in these other markets, where we certainly know, especially in markets like Europe and in Australia, where there are a lot more developed we think we have opportunities there and we are going to execute on those opportunities in the years ahead.

And thank you and I'm showing no further questions I would now like to turn the call back over to Michael Harris for closing remarks.

We wanted to thank everyone for joining us. This morning, we look forward to discussing our first quarter 2022 earnings results with you in late April Thank you again and goodbye.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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Good day, and thank you for standing by and welcome to the fourth quarter and full year 2021, Gen Rack Holdings, Inc earnings call.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

To ask a question during the session you will need to press star one on your telephone. Please be advised that this call is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your host today, Michael Harris VP corporate development.

Mr Relations you may begin.

Good morning, and welcome to our fourth quarter and full year 2021 earnings call I'd like to thank everyone for joining US. This morning with me today is Aaron YOD felt president and Chief Executive Officer, and York Ragen, Chief Financial Officer, We will begin our call today by commenting on forward looking statements certain statements made during this presentation as well as other information.

<unk> provided from time to time by <unk> employees may contain forward looking statements and involve risks and uncertainties that could cause actual results to differ materially from these forward looking statements. Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors in.

And we will make reference to certain non-GAAP measures during today's call additional information regarding these measures, including reconciliation to comparable U S. GAAP measures is available in our earnings release and SEC filings I will now turn the call over to Aaron.

Thanks, Mike Good morning, everyone and thank you for joining US today, the fourth quarter was a great finish to an outstanding 2021 for <unk> with all time record performance for both the quarter and the full year for net sales adjusted EBITDA and adjusted EPS as we achieved record quarterly production levels and continued to experience exceptional demand for our products and our solutions.

Additionally, we completed the strategic acquisition of <unk> during the quarter, which represents a major step forward in our efforts to provide a broader residential energy ecosystem that includes intelligent monitoring and management solutions as well as an increasingly sophisticated user interface platform.

Fourth quarter revenue was well ahead of our expectations driven by higher shipments of home standby generators as bill rates for the quarter exceeded our plan due to strong operational execution.

Shipments of C&I products also outperformed expectations during the quarter with broad based strength continuing across all channels and regions.

Despite the substantial increase in production levels, our backlog continued to grow in the fourth quarter across the business highlighted by home standby generators, providing us with substantial visibility into 2022 being another year of exceptional revenue growth.

Year over year overall net sales for the fourth quarter increased 40% to 1.07 billion, an all time record and also increased sequentially over the third quarter, which was the previous all time record.

Notably fourth quarter core sales growth of 35% accelerated relative to the third quarter's core growth rate of 30% highlighting our strong execution and the progress we continue to make and ramping capacity despite ongoing supply chain challenges.

Growth in the quarter was broad based with both residential and C&I products growing at a low 40% rate compared to the year ago period.

Residential sales growth was once again driven by a substantial increase in home standby generator shipments and continued momentum in power <unk> energy storage shipments as well as the impact from recent acquisitions.

Our C&I sales increase was led by our telecom and mobile channels domestically growth across all major regions internationally and the contribution from recent acquisitions.

Adjusted EBITDA margins of 27% were lower year over year as it reflected the impact of higher input costs, driven by ongoing supply chain challenges and the overall inflationary environment as well as the impact of additional operating expense from acquisitions.

Partially offsetting these cost headwinds were the initial impact of multiple pricing actions implemented over the past year, and we expect even greater realization of these price increases along with cost reduction initiatives and other favorable margin impacts as 2022 progresses.

Before discussing our fourth quarter results in more detail I want to provide some full year 2021 financial highlights as well as share some key accomplishments that we achieved during the year.

First and foremost I want to thank our team of over 9500 employees globally for their hard work and perseverance throughout an incredibly challenging operating environment in 2021.

Our teams have helped us successfully navigate the pandemic, while still providing an incredible level of service to our customers and our partners around the world the.

The hyperscale growth that we're experiencing is a reflection of their commitment to the execution of our strategy and their dedication to our success.

As a result of our team's collective efforts <unk> achieved another year of record revenue adjusted EBITDA and adjusted EPS in 2021 far exceeding the previous record levels seen last year in fact revenue increased by approximately $1 $3 billion.

Representing 50% growth year over year, and marking the highest annual growth rate in our history as a public company.

This performance came on top of very strong revenue growth over the three previous years that averaged in the mid teens and was highlighted by tremendous growth in home standby generator shipments an approximate doubling of clean energy revenue and strong and broad based growth in our global C&I products.

Adjusted EBITDA for the full year was $861 million with a very strong adjusted EBITDA margin of 23, 1% that was similar to the prior year. Despite a variety of supply chain challenges considerable inflationary headwinds and significant investments for future growth.

In the third quarter of 2021, we achieved an important milestone by starting production of home standby generators at our newest facility in Trenton, South Carolina, and we continue to make excellent progress in ramping production levels at this new facility as well as at our existing facilities in Wisconsin.

Additionally, the further build out of our clean energy market opportunity was a key highlight during the year as we significantly grew shipments of our power <unk> energy storage systems through the expansion of our supply chain increased targeted marketing efforts growth in our distribution network and the introduction of several exciting new products.

We also broadened our energy technology solutions portfolio with several strategic acquisitions highlighted by deep Sea electronics Silicon power Priscilla code off grid energy tank utility Andy Kobe.

2021 was also a heavy year of new products as we introduce our market, leading 26 kilowatt home standby generator or general branded micro inverter that we call power micro the industry's first dedicated engine driven battery charging system, we call power generator and our innovative power manager load control device.

We also introduced a host of new C&I products this year, including our hybrid mobile power solutions pairing a mobile energy storage system with a traditional mobile generator on mobile battery powered light tower and our first C&I battery storage system for the North American market through the off grid acquisition.

We also announced smart grid ready capabilities for all our home standby generators power cell energy storage systems, and our natural gas C&I generators.

Smart grid ready technology is important to advancing our turnkey approach to grid services and enabling these products can be utilized in programs that provide grid resiliency and an incremental ROI for the asset owner.

Finally during our 2021 Investor Day last September we debuted our new enterprise strategy, we call powering a smarter world, which focuses on improving energy resilience and independence, optimizing energy efficiency and consumption and protecting and building critical infrastructure.

We also published our inaugural environmental social and governance report highlighting the alignment of our new strategy to key ESG related external frameworks and standards.

These accomplishments.

<unk> provide us considerable momentum as we head into 2022 the.

The guidance, we are initiating today is for another year of significant revenue growth between 32, and 36%, which is expected to be driven by further increases in home standby production throughout the year strong growth in clean energy markets continued broad based global demand for C&I products and contributions from recent acquisitions.

Notably this full year 2022 guidance projects, an approximate doubling of <unk> revenue as compared to 2020 levels with organic growth accounting for the vast majority of the increase.

In addition to the significant top line growth, we expect to maintain attractive margins, while continuing to make aggressive investments in next generation energy technology solutions.

We create these accomplishments to the agility and dedication of the general team as we overcome short term operational challenges and remain focused on our long term purpose of leading the evolution to more resilient efficient and sustainable energy solutions.

Now discussing our fourth quarter results in more detail.

<unk> for home standby generators in the fourth quarter continued to benefit from important megatrends, which further expanded consumer awareness of the category.

The home is a sanctuary trend remains a key driver of demand along with the impacts of more extreme weather, resulting in elevated power outage activity over the past several quarters, including three major outages over the past 18 months.

The combination of these factors along with broader electrification trends continues to drive incredibly strong demand for home standby generators.

As a result home consultations or sales leads increased again in the fourth quarter over the robust prior year comparison and for the year grew at a strong double digit rate and were nearly four times the full year 2019 levels.

The activations of home standby generators, which are a proxy for installations also grew at a significant rate compared to the prior year and our distribution footprint ended the fourth quarter with 8100 residential dealers and increase of approximately 800 dealers over the last 12 months.

As we have discussed we continue to make encouraging progress increasing production levels for home standby generators, most notably at our new facility in Trenton, South Carolina as daily build rates in all our facilities are dramatically higher when compared to prior year levels.

Build rates also grew sequentially as we added new production on new production line at both the trend and Jefferson, Wisconsin facilities during the quarter.

As a result of the higher output levels lead times have declined by approximately four to five weeks from 32 weeks at the end of the third quarter.

However, home standby order rates have remained very strong leading to a further increase in our backlog, which currently is still well over $1 billion and provides excellent visibility into 2022 revenue growth.

Output levels are projected to increase further throughout the year as additional capacity comes online. However demand has remained strong and although we expect to exit the year with improved lead times, we anticipate that we will still end 2022 with a significant backlog for home standby generators.

Many of the same factors underpinning tremendous demand for home standby generators, along with the increasing penetration of solar installations are also helping drive rapid growth for our clean energy products.

As previously mentioned shipments of our power cell energy storage systems grew significantly in the quarter as compared to the prior year and also grew at a strong double digit rates sequentially.

Despite industry wide supply chain and logistics challenges impacting our clean energy solutions full year 2021 clean energy related revenue approximately doubled as end user demand remains robust for our power <unk> energy storage systems.

In addition to strong revenue growth key performance indicators for clean energy products continued to show favorable trends in the fourth quarter.

Home consultation and system Activations, both increased at a strong rate over the prior year and also increased sequentially.

In addition, we further built out our clean energy Installer network as we ended the fourth quarter with nearly 2500 trained and certified dealers with approximately a 1000 dealers registered on our powerplay sales platform.

The solar plus storage market continues to expand rapidly and we expect to see significant year over year growth again during 2022.

Shipments of power cell energy storage systems are anticipated to increase substantially during the year and we expect clean energy revenues to grow aggressively as compared to the 2021 levels were.

We are also very excited about beginning shipments of the previously mentioned new product introductions for clean energy, which are expected to contribute incrementally in 2022. This.

This includes our new PV micro inverter product offering called power micro with shipments expected to begin towards the end of the second quarter and ramping further during the second half of the year.

A key component of future growth for our clean energy offerings is establishing and developing our distribution network, including partnering with large national solar providers.

We recently announced an expansion of our partnership with Sonoma that adds even more <unk> industry, leading technology to its current suite of offerings. In addition to energy storage systems. So Nova customers will now have access to the industry's only fully integrated lineup of home standby generators micro <unk> and load control devices delivered from a single equipment provider.

The scope of the new agreement includes integrating both companies software platforms, enabling the joint participation and grid services programs across the U S.

Additionally, synovus consumer friendly financing solution will now be made available to <unk> certified dealers for all of their customers' financing needs, including home standby generators.

We're very excited about our expanded partnership as it grows distribution capacity for our residential products increased financing opportunities for potential home standby customers and facilitate additional growth and grid services.

I'd now like to provide an update on the <unk> acquisition, which closed in December and which helps to accelerate <unk> evolution into an energy technology company.

We believe we can leverage <unk> existing technology and capabilities to develop a home energy management platform, which will be core to our growing residential energy ecosystem of the future that benefits both homeowners and grid operators. This platform will enable homeowners to make smarter energy production storage and consumption decisions, while also integrating with our concerto software.

Platform to provide grid operators more efficient access to our homes distributed energy resources.

Importantly, while still very early we are already starting to see near term commercial synergies from the acquisition as the initial integration with our existing commercial sales channels has been encouraging including expansion into <unk> residential and clean energy dealer networks as well as key retail relationships in.

In addition, <unk> has a sizeable dedicated sales team directly engaging utilities and grid operators with their eco energy program, which is aimed at developing demand response and load control opportunities are.

<unk> services team has begun working closely with this group to coordinate and expand these efforts to develop our sales pipeline together by leveraging <unk> more than 2 million connected homes as a valuable installed base of potential distributed energy resources.

I'd also like to provide a further update on <unk> grid services a group recently formed within the company that builds upon our October 2020 acquisition of Embolic power networks.

<unk> grid services has been making excellent progress in expanding its sales pipeline, including meaningful opportunities beyond traditional software as a service contracts.

Fourth quarter saw significant progress in new deals closed and in the final stages of negotiation, increasing our top line visibility for 2022.

The grid services team continues to integrate <unk> products and solutions into the concerto software platform with the resulting hardware cross selling opportunities expanding the sales funnel even further.

We believe this creates a unique advantage for <unk> in the market for grid services, given our increasingly unmatched set of an energy technology assets and industry, leading <unk> platform, helping us to maintain momentum with utilities grid operators and energy retailers, while raising our profile with key decision makers in the utility industry.

We also recently announced a key win for <unk> services to build virtual power plants or vps by recruiting and enrolling <unk> solar PV and battery storage system owners for Southern California, Edison's power Flex program.

This initiative gives give socal edison's reticent residential customers the opportunity to earn incentives by allowing some of their carbon free electricity stored in their power cell energy storage systems to be dispatched for grid stability purposes.

Public sector support for grid services opportunities has been increasing highlighted by the numerous programs within the recently passed infrastructure investment and jobs act that target grid flexibility and resilience and encourage utilities and grid operators to develop and manage virtual power plants using distributed energy resources.

Now, let me make some comments on our C&I business, which grew rapidly in the fourth quarter as key end markets and geographies continued to recover off a softer prior year impacted by the pandemic.

Global C&I product sales increased 43% on an as reported basis compared to the compared to the prior year and 30% on a core basis, which is well above 2019 levels during the quarter.

Our domestic C&I products saw growth across all channels in the fourth quarter led by National Telecom and rental equipment customers.

We also have a record backlog for C&I products, which increased further during the fourth quarter and has continued to build here in the first quarter, providing good visibility for another year of meaningful growth in 2022.

Shipments of C&I stationary generators through our through our North American distributor channel grew again at a solid rate and the channel continued to experience strong quoting and order activity, along with improving close rates and market share gains in the quarter.

We're also experiencing strong growth with our energy systems industrial distributor business in Northern California that we acquired in 2020 as our investments and overall increased focus in this important backup power market are producing excellent results and.

And working to build on this success in the fourth quarter, we acquired the power generation group of Pap and material handling are industrial distributor based in southern California further expanding our presence in the large and growing west coast market.

Shipments to telecom National account customers increased dramatically again during the fourth quarter as compared to the prior year benefiting from elevated levels of capital spending by several of our larger telecom customers.

The catalyst for the investment in backup power in this important vertical continues to be driven by an elevated power outage environment. The power security mandate in California, requiring a minimum of 72 hours of backup power and the build out of <unk> networks. The.

The long term demand outlook for backup power in the telecom sector remains very compelling driven by the increasingly critical nature of wireless communications.

We also experienced very strong growth with our national rental equipment customers as shipments of mobile products continued to recover at a significant rate off the pandemic driven lows of 2020.

These customers are investing heavily in fleet equipment, and we remain optimistic about the long term demand outlook for mobile products, given the megatrend around the critical need for infrastructure improvements.

We expect that the infrastructure investment and jobs Act tax passed in late 2021 will support a higher level of capital spending by rental equipment companies over the next several years.

Additionally, we're experiencing ongoing strength in project quoting and improve close rates for our natural gas generators used in applications beyond traditional emergency standby power generation such as they are used in energy as a service micro grid solutions and other distributed generation projects.

Order rates for generators used in these applications increased dramatically during the full year 2021.

We believe the increased interest in these products is being driven by the need for enhanced resiliency and grid stability that these large blocks of power offer for grid operators, while simultaneously, providing a tangible and meaningful return on investment for the asset owners.

Internationally, we continue to see strong momentum as well with shipments increasing 47% year over year on an as reported basis during the fourth quarter with 26% core net sales growth when excluding the benefit of the deep sea and off grid energy acquisitions, and the impact of foreign currency.

The core sales growth was driven by strength across all major regions has recovered well above the levels from 2019.

Overall, quoting and order activity continues to accelerate at a strong pace in key international markets in the fourth quarter.

Driving growth in the international backlog and higher visibility for 2022.

We are also seeing a growing interest in home standby generators in certain international markets highlighting the potential for the product categories addressable market to grow significantly beyond the still underpenetrated market.

Cleaner burning natural gas C&I generators are also experiencing positive momentum internationally as we work to educate the global market on the benefits of natural gas fuel generators over their traditional diesel solutions.

The international segment's fourth quarter EBITDA margin expanded to 13, 9% from six 8% in the year ago period due to the accretive margin profiles of the deep sea and off grid energy acquisitions improved overhead absorption on higher volumes and realizations from pricing actions, which were implemented throughout 2021.

The integrations of the deep sea and off grid energy acquisitions are progressing well as we continue expanding the reach of their energy technology solutions through our global distribution channels.

<unk> seen very strong market interest for its mobile energy storage systems in new regions and with legacy <unk> customers and we are very excited to bring this innovative battery storage solution to the north American equipment rental market in 2022.

The deep Sea acquisition has substantially expanded our global controls in electronics engineering teams and provides important capabilities that are core to the growth of our portfolio of grid connected energy as a service and micro grid solutions.

In closing today 2021 was a year of tremendous progress for <unk> as we significantly expanded our capacity and further accelerate our evolution to an energy technology company with a number of key strategic investments across product categories and regions.

We believe this growth has resulted in market share gains in every part of our business during 2021 and I am extremely proud of the hard work of our teams to achieve such strong results. Despite the incredibly challenging operating environment.

As we look forward. We believe we are just getting started on our newly introduced powering a smarter world enterprise strategy strategy.

Through the combination of aggressive organic investment and strategic acquisitions, we have built a portfolio of power generation and storage systems monitoring and management devices and platform and controls capabilities that provide for resiliency as well as participation and grid services programs, thereby creating enormous value for an increasingly broad range of stakeholders with.

These solutions in tandem with our services our distribution our brand and importantly, our expertise <unk> is uniquely positioned to be a leader in the ongoing modernization and evolution of our electrical grid to be more flexible cleaner and smarter.

I'd now like to turn the call over to Europe to provide some additional details on our fourth quarter and full year 2021 results and our new outlook for 2020 to Europe .

Thanks Aaron.

Looking at fourth quarter and full year 2021 results in more detail net.

<unk> net sales increased 40% to $1.07 billion during the fourth quarter of 2021, an all time record as compared to 761 million in the prior year fourth quarter the.

The combination of contributions from the deep sea silicon.

<unk> grid tank utility and <unk> acquisitions, and the unfavorable impact from foreign currency had an approximate 5% impact on revenue growth during the quarter.

Net sales for the full year 2021 increased 50% to approximately $3 $74 billion also an all time record for the company.

Briefly looking at consolidated net sales for the fourth quarter by product class.

Residential product sales grew to $706 million as compared to 499 million in the prior year, representing a 42% increase despite a strong prior year comparable.

Contributions from the <unk> and <unk> acquisitions, and the impact of foreign currency contributed approximately 2% of revenue growth for the quarter.

Home standby generator sales made up the majority of the residential product growth increasing by approximately 50% over the prior year as we continue to make significant progress in expanding production capacity for these products despite the challenging supply chain environment.

Shipments of power cell energy storage systems also grew at a significant rate as compared to the prior year as overall solar market growth rising storage attachment rates and are expanding distribution continue to drive growth for our clean energy solutions.

An increase in shipments of portable generators and <unk> products also contributed to growth in the quarter.

Commercial and industrial product net sales for the fourth quarter of 2021 increased 43% to $284 million as compared to 199 million in the prior year quarter.

Contributions from the deep sea and off grid acquisitions, and the unfavorable impact of foreign currency had a combined impact of approximately 13% on net sales growth during the quarter.

The very strong core revenue growth was driven by the impressive impressive growth across all domestic C&I channels and all major regions internationally.

While this growth rate was aided by the softer prior comparison impacted by the COVID-19 pandemic. Our C&I revenue was up approximately 19% on a core basis as compared to 2019 levels, which highlights the strong demand that we're seeing across most C&I markets.

Domestically the C&I growth was driven by a significant increase in shipments to telecom national account customers, resulting from the much higher capital spending as these customers continue to harden their wireless networks.

We also experienced strong growth in mobile product shipments to a rental channel customers as they continue to invest in their fleets given strength in their end markets.

Also contributing to the increase was solid growth with our industrial distributors.

As well as higher shipments of natural gas generators used in beyond standby applications.

Internationally the increase in C&I products was broad based from a geographic standpoint with growth in all major regions as global C&I markets continue to experience a sharp increase in demand of the softer prior year comparison impacted by Covid.

Have recovered well above 2019 levels.

Net sales for other products and services increased 21% to $77 million as compared to $64 million in the fourth quarter of 2020.

Recall this product category is primarily made up of aftermarket service parts product accessories extended warranty revenue remote monitoring and grid services subscription revenue and other service offerings.

Contributions from the <unk> and tank utility acquisitions, and the impact of foreign currency contributed approximately 4% of revenue growth during the quarter.

Strength in aftermarket service parts continues to be a core driver of sales growth in the category as heightened power outage activity and a larger installed base is driving increased demand.

We're also experiencing higher levels of extended warranty revenue on a larger and growing base of extended warranty contracts.

Also contributing to the increase were higher levels of remote monitoring and grid services subscription revenue as well as increases in other services.

Gross profit margin was 34% compared to 39, 4% in the prior year fourth quarter as the challenging supply chain and overall inflationary environment drove input costs significantly higher during the quarter.

Specifically, the lagging impact of rising steel prices inbound logistics costs and labor rates, along with the Trenton plant startup all pressured margins in the current year quarter.

The early realization of initial pricing actions, partially offset these margin pressures.

Accordingly, our backlog as of the end of the year contains multiple rounds of additional price actions that will be increasingly realized in the coming quarters.

Operating expenses increased $58 million or 44, 8% as compared to the fourth quarter of 2020.

But declined approximately 100 basis points as a percentage of revenue, excluding intangible amortization and transaction related costs.

The overall increase in Opex dollars was primarily driven by the impact of acquisitions and related transaction costs higher.

Higher employee and marketing spend additional variable expenses from the significant increase in sales volumes and increased amortization expense.

Adjusted EBITDA before deducting for Noncontrolling interests as defined in our earnings release was an all time record of $220 million or 27% of net sales in the fourth quarter as compared to $196 million or 25, 7% of net sales in the prior year.

For the full year 2021, adjusted EBITDA before deducting for Noncontrolling interests came in at an all time record of $861 million, resulting in a strong 23, 1% margin that was similar to the 23, 5% margin in the prior year, despite the challenging operating environment and acquisitions that impacted margins during 2021.

I will now briefly discuss financial results for our two reporting segments.

Domestic segment sales increased 39% to $896 million in the quarter as compared to 645 million in the prior year with the impact of acquisitions contributing approximately 2% of the revenue growth for the quarter.

Adjusted EBITDA for the segment was $197 million, representing a 21, 9% margin as compared to $188 million in the prior year or 29, 1% of net sales.

The lower domestic EBITDA margin in the quarter was primarily due to the significantly higher input costs and the impact of acquisitions, partially offset by the early realization of pricing pricing actions implemented throughout the year.

For the full year 2021 domestic segment sales increased 52% over the prior year to $3 6 billion adjusted EBITDA margins for the segment were 25, 1% compared to 27 zero percent in the prior year.

International segment sales increased 47% to 171 million in the quarter as compared to 116 million in the prior year quarter.

Core sales, which excludes the impact of acquisitions and currency increased approximately 26% compared to the prior year adjusted.

Adjusted EBITDA for the segment before deducting for Noncontrolling interest was $23 7 million or 13, 9% of net sales as compared to $7 8 million or six 8% of net sales in the prior year.

The significant expansion in international EBITDA margins was primarily due to strong margin contributions from the deep sea and off grid energy acquisitions improved overhead absorption absorption and operating leverage as well as the impact of pricing actions.

For the full year 2021 International segment sales increased 45% over the prior year to $573 million.

Adjusted EBITDA margins for the segment before deducting for Noncontrolling interests were 11, 5% of net sales during 2021 640 basis point increase compared to the five 1% margin in the prior year.

Now switching back to our financial performance for the fourth quarter of 2021 on a consolidated basis.

As disclosed in our earnings release GAAP net income for the company in the quarter was $143 million as compared to $125 million for the fourth quarter of 2020.

GAAP income taxes during the current year fourth quarter were $20 6 million or an effective tax rate of 12, 4% as compared to $39 million or an effective tax rate of 23, 8% in the prior year.

The decline in effective tax rate was primarily due to certain discrete items related to acquisitions and a higher stock compensation deduction during the current year.

Diluted net income per share for the company on a GAAP basis was $2 <unk> in the fourth quarter of 2021 compared to $1 97.

In the prior year.

Adjusted net income for the company as defined in our earnings release was an all time record $162 million in the current year quarter or $2 51 per share.

This compares to adjusted net income of $136 million in the prior year or $2 12 per share.

Cash income taxes for the fourth quarter of 2021 were $29 7 million as compared to $34 9 million in the prior year quarter.

The current year now reflects a cash income tax rate of approximately 19, 7% for the full year 2021 compared to our previous expectation of approximately 20.0% to 25%.

The decrease primarily driven by a higher level of stock compensation deduction than previously expected.

This full year cash tax rate for 2021 compares to the prior year rate of 17, 9%.

The increase in the current year cash tax rate versus the prior year.

Is primarily due to a significant increase in domestic pre tax income, which is taxed at a higher statutory rate along with an increase in nondeductible goodwill from acquisitions.

Cash flow from operations was $62 million as compared to 218 million in the prior year fourth quarter and free cash flow as defined in our earnings release was $42 million as compared to 191 million in the same quarter last year.

The decline in free cash flow was primarily due to a much higher working capital investment in the current year quarter, partially offset by an increase in operating earnings and lower capital expenditures relative to the prior year.

The higher working capital investment was primarily driven by further elevated inventory levels at the end of the year, resulting from extended logistics in transit times ongoing supply chain constraints, increasing production rates and continued investments in the ramping of our new trend facility.

We repurchased 350000 shares of common stock during the fourth quarter for $126 million under our current share repurchase program and we have approximately $124 million remaining under this authorization as of December 31 2021.

At yearend, we had approximately $550 million of liquidity comprised of approximately $150 million of cash on hand, and $400 million of availability on our ABL revolving credit facility, which matures in may of 2026.

Also total debt outstanding for the at the end of the year was $980 million net of unamortized original issue discount and deferred financing costs.

Our gross debt leverage ratio at the end of the fourth quarter was only one two times on an as reported basis.

In addition, our term loan doesn't mature until December 2026, and.

And we do not have any required principal payments on this facility until the maturity date.

And it is a low cost of debt of LIBOR, plus 175 basis points.

We also have interest rate swap arrangements that fix our interest rate exposure on approximately $500 million of this debt through the maturity date of December 2026.

Further enhancing our overall liquidity is our strong cash flow profile and for the full year 2021 free cash flow was $306 million.

Uses of cash during 2021 included $744 million for acquisitions, including earn out and Noncontrolling interest buyouts.

$126 million of share repurchases and $110 million for capital expenditures.

Our strong balance sheet and free cash flow generation give us the flexibility to grow our business execute on our strategy and invest in future shareholder value enhancing opportunities.

With that I will now provide further comments on our new outlook for 2022.

As Aaron previously highlighted key demand metrics for most of our product categories continue to trend strongly during the fourth quarter, leading to a further increase in backlog as we exit 2021.

Looking into 2022, we expect significant growth in home standby generator shipments as we ramp capacity in our Trenton, South Carolina plant.

We also expect strong growth from our clean energy products as the solar plus storage market continues to grow rapidly and as we launched several important new products, including power micro throughout the first half of the year.

We expect C&I products to continue to benefit from strong and broad based global demand highlighted by domestic telecom mobile and energy management customers and several key international markets.

In addition, our 2021 energy technology acquisitions are expected to contribute meaningfully to our overall growth in particular, the <unk> deep sea electronics and off grid energy acquisitions.

In summary, we have tremendous momentum and significant visibility into our demand profile as we enter 2022.

As a result of this positive top line outlook. We are initiating guidance for 2022, then anticipate significant revenue growth as compared to the prior year.

Net sales are expected to increase between 32% to 36% as compared to the prior year on an as reported basis, which includes an approximate 5% to 7% net impact from acquisitions and foreign currency.

This revenue outlook assumes shipments of residential products increased at a low 40% rate during 2022.

And revenue for C&I products is expected to grow at a high teens rate compared to the prior year.

Importantly, this guidance assumes a level of power outage activity during the year in line with the longer term baseline average.

As a result, consistent with our historical approach. This outlook does not assume the benefit of a major power outage event during the year, such as a category three or higher landed hurricane.

Given we are expected to be producing at capacity for home standby generators throughout the year the upside of a major power outage event would be more limited to incremental portable generator shipments during 2022.

Any extra lift for home standby generators from a major power outage event would most likely result in incremental revenue in 2023.

As Aaron previously previously explained we expect to significantly reduce our backlog and lead times for home standby generators during 2022, but given the strong demand for these products, we still expect to carry a notable amount of home standby backlog into 2023.

As we ramp capacity for home standby and clean energy products, we're expecting a certain level of quarterly seasonality during 2022.

With net sales in the first half being approximately 47% weighted in sales in the second half being approximately 53% weighted.

Specifically related to the first quarter, we expect first quarter 2022 shipments to be similar to fourth quarter 2021 levels with increasing residential shipments being offset by seasonal impacts where C&I products.

Looking at our gross margin profile as we enter 2022, we anticipate cost pressures from ongoing supply chain challenges component shortages higher logistics costs and in overall inflationary environment to further impact gross margins in the first quarter, resulting in a sequential decline in gross margins from fourth quarter of 2020.

One the first quarter 2022.

We expect many of these inflationary pressures to progressively ease as we move through 2022 for a variety of reasons Steve.

Steel prices have come off their recent peaks and we expect freight cost we will receive during the year as supply chain bottlenecks improve.

Also the realization of multiple pricing actions that we took in 2021, we will have a meaningfully positive impact on gross margins, particularly in the second half supported by our significant backlogs that contained higher pricing levels.

In addition, the impact of plant startup costs will continue to lessen as production at the New Trenton, South Carolina facility for the ramps.

Also we expect to realize certain cost reduction initiatives that began in 2021 to combat the significant increase in input costs, including important projects to improve the cost structure for certain high volume product lines.

These tailwind should be increasingly realize on a quarterly basis as we progress through 2022.

For the full year 2022, we expect pricing easing input cost pressures during the second half and cost reduction initiatives to more than offset the continuation of inflationary cost pressures during the first half.

As a result, we expect gross margins for full year 2022 to increase modestly compared to 2021.

With sequential improvements throughout the year.

Specifically from a seasonality perspective, we expect price cost headwinds to hit peak levels in the first quarter of 2022, leading to trough gross margins that are expected to be approximately 100 basis points below fourth quarter 2021 2021 levels.

We expect quarterly improvements throughout the year ultimately leading to fourth quarter 2022, gross margins recovering back to first quarter 2021 levels.

In addition, we continue to make significant operating expense investments to scale the business support innovation and drive future revenue growth in new and existing markets.

These energy technology investments and the impact of acquisitions completed in 2021 are expected to result in moderately higher operating expense as a percentage of revenue for the full year 2022, when compared to full year 2021.

As a result of these factors and our gross margin expectations adjusted EBITDA margins before deducting for Noncontrolling interests are expected to be approximately 22.0% to 23.0% compared to 23, 1% reported for the full year 2021.

This includes the combined impact from recent acquisitions that is expected to dilute adjusted EBITDA margins by approximately 150 basis points during 2022.

From a seasonality perspective, we expect adjusted EBITDA margins to improve significantly as we move through the year, primarily driven by improving gross margins throughout the year as previously discussed in detail and to a lesser extent improved leverage of operating expenses on the expected higher sales volumes.

Specifically regarding the first quarter adjusted EBITDA margins are expected to bottom in the first quarter at approximately 250 to 300 basis points below fourth quarter 2021 levels and then improve sequentially throughout the year returning to the mid 20% range in the fourth quarter of 2022, even when including the impact of recent acquisitions.

As is our normal practice, we're also providing additional guidance details to assist with modeling adjusted earnings per share and free cash flow for 2022.

As a reminder, our approximate $30 million per your tax shield that originated from the LVL transaction in 2006 fully expired at the end of 2021.

As a result 2021 was the last year that adjusted earnings will benefit from a notably lower cash income tax rate relative to the GAAP tax rate.

Given that our cash tax rate is now expected to be more in line with the GAAP tax rate. We are now only going to guide to the GAAP tax rate going forward.

For 2022, our GAAP effective tax rate is expected to be between 24% to 25% as compared to the 19, 7% full year cash tax rate for 2021.

This increase is driven primarily by the expiration of the previously mentioned tax shield as well as lower expected share based compensation deductions in 2022, when compared to the prior year.

In 2022, we expect interest expense to be approximately 41 to 43 million assuming no additional term loan principal payments during the year and assuming increasing LIBOR rates throughout 2022.

Our capital expenditures are projected to be approximately two 5% to 3% of our forecasted net sales for the year.

And depreciation depreciation expense is forecast to be approximately $56 million to $58 million in 2012, due given our assumed capex guidance.

GAAP intangible amortization expense in 2022 is expected to be approximately $95 million to $100 million. During the year. This is an increase compared to $50 million of amortization expense in 2021 due to the impact of acquisitions completed during 2021 that resulted in a significant increase in finite live intangible assets such as trading.

Ames customer lists patents and technology.

Stock compensation expense is expected to be between 31% to $34 million for the year.

For full year 2022, operating and free cash flow generation is once again expected to follow historical seasonality of being disproportionately weighted towards the second half of the year.

Given the very strong organic sales growth expected. During 2022, we expect the conversion of adjusted net income to free cash flow to be approximately 70% to 80% for the year as a portion of cash flows will be invested in working capitals to support this growth.

Our full year weighted average diluted share count is expected to increase and be approximately $65 three to $65 5 million shares as compared to $64 3 million shares in 2021.

Finally, the 2022 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value.

This concludes our prepared remarks at this time, we'd like to open up the call for questions.

And thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question principal balance sheet. We do ask that you limit yourself to one question and one follow up again, one question one follow up.

First question comes from Tommy Moll from Stephens. Your line is now open.

Good morning, and thanks for taking my questions.

Hey, Tommy.

Mark you gave some helpful insight on the growth and EBITDA margins in their progression through the year I wanted to drill down on the home standby business it sounds like.

Price cost should be a tailwind as you get into the second half of the year I would think that one's Trenton has scaled production there that that also ought to be margin accretive so.

So if you run it all through.

Things go according to plan.

Did you exit 'twenty, two with the higher margin on that business.

Then you have put up in the past.

I mean, I think overall, what we guided what we're talking to and what we're our guidance anticipates is that our gross margins overall for the company.

Get back to I guess, what we're calling pretty inflationary environment.

If you look at Q1 2021 gross margins of roughly 40%.

Our guide basically gets us back there in Q4.

<unk>.

I guess I would have to we haven't necessarily parse that out by product category in our guidance and in our prepared comments.

But I would think it would get back to at least similar margin track, where the pre inflationary environment was.

Earlier in the year in 2021.

Fair enough had to ask.

To follow up on grid services, you've made some news last month with the virtual power plant deal you announced in California, I wanted to ask what you can tell us about that deal specifically and then you mentioned the funnel for grid services is pretty.

For 2022, how many more of these do you think you could sign this year.

Yes, the grid services piece, Tommy as we've indicated a couple times I think publicly.

Is the pipeline there is is growing at a rapid pace, where we're actually we've been expanding our sales force there we've more than doubled the head count in that business.

Closing in on 100 people that are focused on it every day and Thats without the there is a dedicated team of pretty large dedicated team at <unk> as well that as I mentioned in my prepared remarks.

That is going to be.

Helpful. In some of the sales efforts here the challenge of course with Great services and we noted this during the Investor day is just a long sales cycle youre dealing with utilities and grid operators.

And folks that have they have a process for these types of.

These types of programs that process is.

One of approval through a regulatory agency a regulatory body in general.

A lot of these programs in some cases to certain utilities and grid operators are completely new so there is a pretty good sized learning curve here as well, but I would say that we're incredibly encouraged.

Talk specifically about the southern California Edison.

Power Flex program is kind of a proof point.

Some of the deals that are in the pipeline that are actually getting done.

That one is not a huge program admittedly, but it's a nice program for us because it helps us demonstrate not only to southern California, Edison, but we can use that program in the end the elements of that.

Program.

We can share that with other utilities I think a lot of utility companies are just struggling with what is the right equation for them.

What's the right is it is it a demand management program is it some kind of grid support program or.

Is it some other kind of.

Some grid operators need help with with frequency or voltage on the grid and we can do that with a lot and in particular with our storage systems. Those things can be incredibly helpful to helping stabilize the grid, whether youre talking about voltage of frequency or youre talking about augmenting our power generation or curtailing demand we have basically.

Huge amount of flexibility in what we can design for program. So.

The kind of lack of formality around what type of program is needed by each grid operators you have to work with them on forming that and then the long sales cycle that goes into that it's going to be a while before we see.

Real meaningful.

What kind of impact from that in our results now we've contemplated that in in the guidance were offering today and in fact, it's it's tracking very well if not above what we shared with you on the Investor day back in September , but really encouraging start purchased a long sales cycle.

And thank you and our next question comes from Ross Gilardi from Bank of America. Your line is now open.

Good morning, guys. Thank you.

Morning Ross.

Bobby can you guys quantify any more specifically.

What youre, assuming for home standby standby backlog exiting 'twenty to an.

And just like.

What is a normalized <unk>.

Level of orders for home standby and.

In today's world I mean, really what I'm trying to get at is do you have enough.

Home standby backlog.

For your planning assumptions right now exiting 2022 to avoid a down year in 2023 without significantly above trend order year and 'twenty, great. Hopefully you followed all that but I think you know what.

<unk>.

Yes, I mean, you are asking for 'twenty 'twenty three guidance.

Okay.

No I think I understand what youre, saying and so just a couple of comments I think we do think as we said in the prepared remarks, we're going to end the year. This year, we're going to end the year with.

A pretty substantial backlog yet of hsp, because we anticipate the order rate, which we've seen already so far this year and as we exited 2021 has been really strong in fact, so strong that even though we've taken our production capacity up.

We've continued to outstrip that.

And grow the backlog.

And we are going to grow our output throughout this year, we've got some pretty.

Heady growth as we've talked about our double double the theoretical capacity, we talked about how we're unsure how supply chain is going be able to feed that although we're getting more comfortable with that as the year progresses here again based on our prepared remarks, and we've got some pretty nice growth built into our forecast for the year.

But.

That all said, we're still going to end with a pretty good backlog.

Question of how much backlog is going to depend largely on the type of outage environment. We see over the next six to nine months as the year progresses. So if we get a heavy kind of our normal I'll say even.

Outage environment over the summer months and into the fall.

We may.

He may outstrip that even further it made the backlog maybe even bigger so it's really difficult at this stage for sure to kind of answer the question you're asking.

I do think though that what's changed is when we last prepared remarks, we werent, we thought we'd be out of backlog by the end of 'twenty, two and Thats that has changed at this point.

Based on the current demand environment.

Based on even though that we are adding more capacity so.

Really it's encouraging on the one hand, and we do think we're going to bring lead times down, but we're not going to get back down to that normal kind of one to two week lead time as we end the year.

Alright, Thanks, Darren and then I just wanted to ask you about international.

You made some interesting comments about growth in <unk>.

International Hsp, where are you seeing that and then your international contribution.

Yeah.

Really tripled from the first quarter to the fourth quarter I think a lot of that.

M&A, but you finished the year with a 14% EBITDA margin in the second half of the year, we carry that over into 2022 that seems like a pretty big tailwind.

<unk> thought about before so can you talk more about labor.

Brian .

Business, yes.

Yes, yes, so on the HFC side, specifically mark.

We're seeing interest there is a number of markets, but very specifically.

In South America, we're seeing it in Argentina, we're seeing it in Brazil when.

When you go.

Elsewhere, you expand your aperture to a global basis, we're seeing obviously, Australia has been a market we have targeted for some time for HSV, we're starting to see growth there, which is very nice interest in Japan, which is interesting we're seeing interest in Russia, and Ukraine, which arguably might be related to some of the security concern short term here, but tip.

This product category benefits from.

A concern over.

Your power quality and whether that concern is driven by weather or whether it's driven by geopolitical concerns or something else.

We have seen a really interesting increase in the interest level in fact, I would tell you that the teams over in Europe that are responsible for the rest of the world sales and marketing efforts.

More product from us because of our our production constraints here.

Telling us they could sell even more product if we can get it in their hands. So we're very encouraged by that because I.

I think largely as we've I'll talk this is the category has been primarily a U S North American focused.

Element and so to get outside of that I think is exciting now on EBITA margins, that's really exciting because we.

<unk> been pushing on this for a while we took we were heading the right direction up until the pandemic hit and then our international EBITDA margins to kind of step backwards as we lost top line volume as volume returns and this is.

Strip out for a second the acquisitions take out deep sea and off grid, which have they are accretive from a margin profile on those no doubt, but actually the core <unk> business as we referred to in our international segment without those acquisitions actually was up as well. So we're really encouraged by what we're seeing in terms of progress on our March towards improved <unk>.

<unk> margins in that business, then you add in the acquisitions and like you said we ended the year ended.

Almost 14%.

In the fourth quarter, and we believe that.

That is going to be a nice.

If you call it a tailwind I call. It I call it kind of getting on finally on with where we want to be with this business longer term with EBITDA margins, but we're encouraged by it and again home standby generators because of the margin profile of those products certainly helps our natural gas C&I generators that have become are becoming popular theyre also help they are accretive to margin and then the acquisition.

So you put all those together plus just improvements in the general core business that is the <unk> business, we're very pleased with where we're going with EBITDA margins there.

And thank you and our next question comes from Philip <unk> from Roth Capital. Your line is now open.

Hey, guys. Thanks for taking the questions just following up on one of the last questions.

Around demand you just mentioned there in that.

Were you thought backlog would be by end of 'twenty. Two is is meaningfully higher now versus last time.

You hosted a call and so given the demand signals that you're seeing.

And given the supply constraints.

And outlook for freight improving and so forth, where do you stand now with capacity expansion.

Are you closer to making decision do you think we could.

Get something beyond the Q2 'twenty two double double sometime soon and if so what's the timing and the magnitude of what that expansion could be thanks.

Yes, Thanks, Phil and obviously, we continue to watch that very closely and continue to make the necessary moves. We think are important to make timing wise as we mentioned on last call. We.

Made a commitment to invest in additional tooling for production of our Alternators, which is one of the constraint areas and ramping production further ramping output further we made that.

Commitment because of the long lead times of those those those machines at this point that automation equipment is out 50 to 60 weeks and lead time, So we've got that on order.

Don't necessarily have an address and what we're going to deliver it yet.

But it would based on the timing of that it would be sometime in 2023 early 2023, we'd have to find a home for that were.

Considering whether we can add that to our existing footprint.

And maybe take some of the raw material or even finished goods storage that we do in the facilities. We use today, maybe move that to off site. So we're looking deeply at the at.

At the home standby capacity footprint to fill.

Out how we're going to affect that next leg up but we have put in motion.

The longer lead time items that make that possible. So I feel good about that.

And we continue to invest in additional automation in our existing operations and additional.

Capacity, we mentioned and we've talked about this for some at some time.

We really are producing home standbys and three facilities now the intense of course being once we ramped our Trenton facility. We would go down to two facilities, we kind of absorb what we're doing today on a bit of a temporary basis in Jefferson, Wisconsin, we absorbed that into trend more fully.

Looking at should we keep that third facility running and should be expanded even further in fact that in our prepared remarks today. We added another line in Jefferson in the fourth quarter. We also turned out another line in and Trenton during the fourth quarter. So the trend one was contemplated that Jefferson one was planned as well, but we've got those up and running now and my <unk>.

Point is with this is that the trend one could become more permanent as a way to expand capacity beyond the double double so, yes, and that plus the additional tooling investments that were committed to we think we're going to be in really good shape at least.

We have taken care of some of the longer lead time items that make that possible as we get to early 'twenty three.

Great. Thanks for that color and then.

As it relates to chicken in the power of micro it sounds like you are ramping.

In Q2.

Can you talk about.

How the channel is receiving that yet because the channel yet have the <unk>.

Samples to be able to test.

<unk>.

Yes.

Inverters on the approved vendor lists for different companies.

Financing partners and just curious on what kind of demand in terms of megawatts or revenue, we could see from children.

In Q3 and four yes.

Yes, Thanks, Phil we're super excited.

Cited about the power micros.

I think this is a.

The opportunity for <unk> to begin to really fully participate in the clean energy markets beyond just the storage markets, which have been really good so far and really encouraging so far as storage attachment rates continue to climb, but we know there's still a substantial number of PV only type of systems going in that.

But today, we don't we don't participate in and so the power micros or a way to do that with telecom acquisition was our pathway, we're making really good progress on the redesign of the initial silicon the original silicon micro inverter design they had a really great design.

The guys that silicon.

Super Bright guys had developed what we think is frankly, we think its industry, leading technology and in fact the approach the two to one <unk> two panels to one micro <unk>. We think is an important part of the value prop of the product going forward. We're on target for a Q2 launch.

And so we feel good about that and as we said in the prepared remarks that the.

Where youll start to see the benefit of that or we will experience a benefit of that is really in the second half of this year, we haven't given specific guidance on that yet.

Supply chain work ahead of us here to ramp and as you know a lot of the components that go into those those types of products.

Electronic side semiconductors processors microprocessors.

There are supply chain constraints that are formed for everybody in the industry and we're no different but we're working through that and we're talking to our supply chain partners today about how to to be ready for the second half.

And to scale, we do expect to get in the early in the second quarter get samples into beta test sites for our channel partners.

Receptivity by channel partners by the way continues to be incredibly strong. They are very excited to see us enter the market.

And I think it really rounds out our product offering that product supermarket approach that we've talked about so much that I think from a single provider to be able to offer everything from generators to storage systems to PV.

Inverters to two load control devices.

And integrate that on a single pane of glass like we're planning on doing here and then expose all of that through our grid services teams.

Nobody in the industry that can do what we can do.

By the time, we get to the second half of this year with the product launches, we've got and that being a key one of course.

And thank you and our next question comes from Brian Drab with William and Blair.

Your line is now open.

Hi, Thanks for taking the question I'll just ask one question here.

Aaron I'm wondering if you could talk a little bit about the dynamics.

I guess the dynamics that are impacting the dealer count and how.

Flattened out.

I think obviously thats.

I think you've talked about this related to.

New dealers not being able to get product right away that they werent given the lead times. So how do you view that playing out and I am wondering if this.

In the end.

Spring loads growth in the <unk> 23 in the home standby category, because as the lead times come down.

There is an inverse relationship there with the dealers.

Then all of a sudden you get a little bit of extra growth because youre growing that dealer base again.

Yes, it's a great question, Brian and thanks for bringing it up the pipeline for new dealers remains very strong our challenge of course has been fulfilling those orders for new dealers because of the backlog so.

Is the backlog.

Was extended as it is.

We're we're doing everything we can to get product to those folks, but it did flatten out at the end of the year here I was still added 800 in the full year, which is more than we've ever added in a single year.

But I think you bring up a good point.

There's no question that continued expansion of that channel is critical to our growth I mean, we need that installation bandwidth, we need that sales bandwidth Lee that service and support bandwidth as the installed base grows so.

We're laser focused on continuing to grow that channel and.

It is arguable that maybe we it does spring load that a bit for 2023 or 2022 here we.

We didn't necessarily kind of.

Speak to it that way, but it's I think it's probably the right way to think about it and that is.

Incredibly important area for us and is getting a lot of attention and I think we're going to we're going to find our way through to continue to grow that throughout the year here, even hopefully as we.

As we increase our production capacity that certainly helps us satisfy those new dealers with product because the last thing we wanted to sign a deal or up and then we can't deliver to them I mean thats.

At the demoralizing experience for the dealers. So we've got to focus on that as we get into 2022 here is theirs.

Some sort of lead time threshold that you think you need to get to where that starts to grow again.

I think youre going to see growth I mean, just naturally you may have seen a little bit of a flattening out here in the back half of the year simply because of the lead times being extended but as I mentioned lead times are actually starting to come down in fact, they're down four to five weeks from where they were at the end of Q3, so that as it comes in.

I think it's going to remain flat I think it's going to accelerate here as we get out of as we exit 2021 and get into 2022, you will see dealer counts.

Begin to pick up again.

Thanks very much.

Yes.

And thank you and our next question comes from Jeff Hammond from Keybanc. Your line is now open.

Hey, good morning, guys.

Afternoon.

So we're not there yet.

Anyways.

Just maybe talk about I think you gave kind of a residential commercial but maybe just how you're thinking about growth rates in storage. This year clean energy all in and then just give us your view on kind of the California net metering proposal.

How do you think it impacts battery storage or short term and long term.

Yes, Jeff I'll start there.

As I highlighted.

Embedded in the 32% to 36% overall growth guidance I mentioned residential products will increase in the low 40% range.

Embedded in that is clean energy.

We do have aggressive growth plans, we doubled we doubled that business here in from 2020 to 2021, we've got aggressive growth plans here in 2022.

Well north of well north of 50% growth. So we're excited about that so.

That will be accretive to our overall residential product growth overall, and then and then Jeff just on the on the California net metering.

Situation is playing out there.

Really interesting for me personally I mean, I've gotten a front row seat to this for the first time, we're involved I'm on the there is that there is a war room for the Ceos in the industry on this NEM discussion, that's being sponsored by California Solar storage Association Khalsa and so this is kind of our first kind of foray into the <unk>.

Right around policy changes that impact the industry and clearly.

The concern there is a valid one in terms of the draft resolution that has been put forth.

By our California Regulatory Commission there the CPUC.

And so I personally.

As a provider of storage, we think that this net metering fight is going to play out everywhere.

This is like.

Early innings on what's going to happen when solar hit the tipping point you do run up against the fact that you need to kind of take a hard look at the incentive structure that net metering provides to assure a fair and equitable.

Incentive structure going forward, yet you don't want to dampen obviously enthusiasm for renewable energy. So there's got to be balanced in that and I think the industry recognizes that and I think what the.

The proposed.

A draft that was put out on californium three point al.

Clearly it doesn't achieve balance and I think that's the concern that being said I do think that as any as the battle for NEM plays out and as you find balance it is going to drive storage rates higher which is good for us in the short term, we actually are underexposed in California, So it probably doesn't hurt or help us in California much.

Initially here.

But over time this net metering fight if you want to call it that or this debate is going to play out.

It has highlighted for us something that was important and that is that I think we need to have a stronger voice in the debate around policy as a company.

I think we've probably taken a bit of a.

A lower profile there than we than we should and so we're starting to lock shoulders lock arms here with the industry and go shoulder to shoulder with others to kind of one really become deeply knowledgeable on the on the policy related things that are going on in the industry and then try to figure out how we impacted how we impacted positively.

For the broader industry as well as for general <unk> and our customers so and our dealer partners. So I think we are going to be investing in policy and investing in the regulatory forefront more so than we ever have.

But it's been it's been really interesting to see this kind of firsthand.

Okay, Great and then.

In your analyst day, I think you put out 2020 for EBITDA margin targets of 24 to 25 and clearly we've had.

This unprecedented supply chain cost, which seems like it's going to get better in the second into the second half some acquisitions coming in most notably Colby just how should we think about the same or different around that around that target as you look at it today.

Yes, Jeff This is York.

As I mentioned.

On the EBITDA pacing.

We were looking at Q4 EBITDA margins in our in our guidance to be somewhere in that mid 20% range, which is for a fourth quarter thats, a seasonally strong quarter, but.

Looking out I don't see any any now that will level set and reset the margin profile.

With the with the pricing actions, we've implemented in and maybe with some moderation in some of the inflationary pressures here, we should get back to sort of the cadence that we've been thinking about all along and that at our investor day that 24% to 25% EBITDA margin longer term.

And thank you and ladies and gentlemen.

As a reminder, please limit yourself to one question and we will not be havent follow ups as well.

So follow up thank you.

And our next question comes from Mark Strouse J P. Morgan.

Yes, good morning, thanks for taking our questions.

<unk>.

You've been raising pricing three or four times now over the past year your backlog continues to build.

Curious at a high level once we eventually get to the other side of the.

The raw material pricing in the shipping pricing coming down.

What is your what is your strategy on pricing to your customers do you bring down cost equivalent equivalent equivalently.

Or do you kind of leave pricing, where it is and.

Try and juice up your margins a bit.

Yes, Mark I think there is.

Within that question. There is there is there is a lot of moving pieces, obviously on where to Costco.

Is the inflationary environment transitory.

The PPI yesterday was a nine 7% read on annualized.

For the last 12 months.

So 10% and costs are up dramatically you look at our business and I don't think all of its read through yet personally I think this is the problem with the fed and the problem with these statistics as Theyre backward looking and there are lagging.

Youre looking at data.

David.

Every new contract that comes up I don't care, if it's for snow plowing grass cutting delivering materials to the facilities trucking.

If it's.

Everything that we do.

Higher all the insurance renewals everything else is coming in every time, we get a new renewal software costs. They are higher so inflation is going to continue to kind of read through here I think over the next six months to 12 months.

Again in spite of what.

Economists and other talking heads say they should really go work for a company because its really just easy if you just look at all the cost I said this a year ago. There's no way. This is transitory wages are going up we just don't go back down doesn't happen sorry.

And we look at some of the costs and some of the inputs theyre not theyre not going back down there structural so it's not that hard and I think a lot of these folks just get tied up in the data. So my point on all of this is the pricing we put in was to help us neutralize. These.

These cost increases that being said, we didn't put as much pricing in as costs have gone up because we are going to work very hard this year to offset that with some some notable cost out projects. We've got some big projects that we've been working on we actually initiated last summer when we saw costs really starting to climb.

Are going to help us kind of not have to fully bake in the pricing offset dollar for dollar the cost increases so where things go from here.

Let's hope that they that they come down at some point and we're able to bring our pricing down we want products to be affordable and we think thats an important tenant of growing the category going forward.

Thank you and our next question comes from Joseph Osha from Guggenheim Partners. Your line is now open.

Hello, and thanks for taking my question I wanted to ask a little bit about some of the trends you're seeing in consultation activity around the country I've I've heard in the past.

We're seeing some interesting growth in consultations in parts of the country.

Zero, we've been big markets for you in the past and that might signal.

Some some higher growth in places like California. For example, so I'm wondering what kind of trends youre seeing now what that might signal in terms of how how in the U S. Your sales shape up this year.

Yes, no. Thanks, Joe that's a great question and obviously, we watch we call them IH fees in home consultations that we are seeing a move towards more virtual nature there but.

On a year to date basis, as we said I mean, we saw 46 states that had growth.

IAC counts.

And.

It's amazing how widespread the growth was how broad based it was in the fourth quarter. There were a couple of regions that we did see a little bit of cooling off in a couple of reasons that we're just again really strong reasons like the Midwest regions like South central and.

In the western regions continue to be very strong with consultations some of that could be some.

Some of those areas have individually, there's some states underneath some of those areas that maybe have lower installed bases or lower penetration rates. So they are kind of catching up to the averages, whereas maybe some of the other regions like the northeast and southeast might have a little bit above kind.

Kind of national average penetration rates. So so maybe they are slowing down a little bit I mean, a lot of that is based on what's been experienced in that region directly that's our that's our our history with IHS, but still phenomenally I mean for the whole quarter.

Up double digits again for the quarter across the country. So.

Just a really strong read on Iac's and I think it portends really well and it gives us confidence in the guide that we're issuing this morning around around 2022, given that kind of front end interest that we're seeing in the product category.

And thank you and our next question comes.