Q4 2024 Generac Holdings Inc Earnings Call
Okay.
Speaker Change: Hello, and welcome to generate Holdings, Inc, fourth quarter and full year 'twenty 'twenty four earnings conference call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you within your automated message advising your hand is raised to withdraw your question. Please press star one again, we ask that you limit yourself to one question only.
Chris Roseman: I would now like to turn the conference over to Chris Roseman, you may begin.
Chris Roseman: Good morning, and welcome to our fourth quarter and full year 2024 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.
Chris Roseman: We will begin our call today by commenting on forward looking statements certain statements made during this presentation as well as other information provided from time to time by general or its employees may contain forward looking statements and involve risks and uncertainties that could cause actual results to differ materially from those in these forward looking statements.
Chris Roseman: Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and associated risk factors.
Chris Roseman: In addition, 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 Eric.
Eric: Thanks, Chris Good morning, everyone and thank you for joining us today, our fourth quarter results highlight our ability to rapidly increase production and execute on the strong demand for home standby and portable generators, resulting from the elevated power outage environment in the second half of 2024.
Eric: The significant increase in demand for residential products led to fourth quarter Records for net sales adjusted EBITDA and adjusted net income while free cash flow generation during the quarter was an all time quarterly record.
Eric: Additionally, gross margins were very strong again during the quarter and drove adjusted EBITDA ahead of our prior expectations.
Eric: Year over year overall, net sales increased 16% to $1 3 billion for the quarter.
Eric: <unk> product sales grew 28% from the prior year driven by strong growth in home and shipments of home standby and portable generators as well as an increase in shipments of residential energy technology products.
Eric: C&I product sales, while still strong were approximately flat from the prior year as increases in the domestic industrial distributor in telecom channels were offset by weakness in other C&I end markets.
Eric: Favorable sales mix and lower input costs drove continued significant gross margin expansion in the fourth quarter, helping.
Eric: Helping further accelerate adjusted EBITDA margins to 21, 5%.
Eric: Our full year 2025 guidance anticipates continued net sales growth, primarily driven by higher shipments of residential products.
Eric: We project further gross margin improvement during the year on top of the very strong 2020 for performance and.
Eric: And expect to maintain strong adjusted EBITDA margins as compared to the prior year.
Eric: Our current outlook does not contemplate the effect of any new tariff related actions as we are currently evaluating the potential impacts, but we expect it will offset any newly imposed tariffs through the combination of cost reductions and higher pricing.
Eric: Before discussing fourth quarter results in more detail I want to provide some full year 2024 highlights.
Eric: Consolidated net sales returned to growth in the year as strength in domestic residential product sales more than offset weakness in certain C&I and international end markets. The.
Eric: The sales mix shift to higher margin residential products and realization of favorable input costs helped drive full year gross margins to the highest level since 2010.
Eric: The nearly 500 basis point year over year increase in gross margin to 38, 8% supported a significant increase in adjusted EBITDA as compared to the prior year.
Eric: Robust earnings growth and focused execution on a reduction in working capital contributed to an all time high for free cash flow generation of $605 million easily surpassing the previous record of $427 million that was set in 2020.
Eric: 2024 also provided significant evidence of the Mega trends that support our enterprise strategy and long term growth expectations. It was the most active year for power outages. Since we began tracking this data in 2010 with nearly $1 5 billion hours lost the outages in the U S largely driven by three major landed hurricanes in the second half of the year.
Eric: Severe and volatile weather patterns have become increasingly common placing even greater stress on our aging power grid.
Eric: The recent wildfires in California, and associated public safety power shut offs provide yet. Another example of the challenges grid operators will continue to face well into the future as more intense weather related events are projected to further compromise the reliability of the power grid.
Eric: We also saw grid operators and utilities aggressively raise their future expectations of power demand during the year the.
Eric: The rapid adoption of artificial intelligence and the resulting data center build out is projected to drive significant incremental demand on top of the established trends of electrification and Reindustrialization in North America.
Eric: At the same time foreign nations power supplies are transitioning to lower carbon sources, which are more intermittent in their operation, thereby creating additional pressure on reliability as demand rapidly accelerates.
Eric: This growing supply demand imbalances, threatening our power quality with some areas of the country coming dangerously close to having insufficient power, particularly during periods of intense hot or cold temperatures when demand is at its peak.
Eric: The North American electricity reliability Corporation recently warned that significant portions of the U S and Canada are at risk of power outages due to supply shortfalls over the next five years.
Eric: These trends are also impacting the forecasted cost of electricity for end users with prices anticipated to grow well beyond the 30% cumulative increase in average U S electricity electricity prices that we've already experienced since 2020.
Eric: Massive investments are needed new generating sources, including additional transmission and distribution infrastructure to support the growing demand for power and these costs will be passed along to ratepayers in the form of higher electricity prices.
Eric: These rising power costs, and the increasing risk of outages support our expectations for continued growth in energy management technologies as we believe homeowners and businesses will begin to invest more aggressively in solutions to help them reduce their electric bills and improve resiliency.
Eric: As concerns grow about power quality and power costs are powering a smarter world strategy is purposeful and the focus that it gives us as we develop energy ecosystems to help customers in the residential and C&I markets solve for these challenges.
Eric: These ecosystems deploy a mix of assets and the software needed to optimize solar self generation battery storage diesel and natural gas power generators and load management devices with a focus on giving homeowners businesses and institutions much greater control over the costs and availability of their power.
Eric: Over the last several years <unk> has made a number of strategic acquisitions as well as significant investments organically and developing these energy ecosystems that we believe have dramatically expanded the total addressable market for the company and positions us well for future growth as the mega trends around lower power quality and higher power prices continue to intensify.
Eric: Specifically for the home standby generator category, a significant penetration opportunity remains with only six 5% of the addressable market of owner occupied single family unattached homes greater than $175000 in value in the U S. Having a home standby generator installed at the end of the year.
Eric: Furthermore, every 1% of incremental penetration is worth approximately $4 billion in retail market value and with a market share above 70%. We believe gen. <unk> is incredibly well positioned to continue to lead this important product category.
Eric: Now discussing our results in more detail.
Eric: Fourth quarter home standby shipments increased at a mid 20% rate from the prior year following the elevated outage activity in the second half of the year.
Eric: Home consultations during the quarter increased at a dramatic rate.
Eric: And reached record levels for our fourth quarter.
Eric: Building on the category awareness created by the major outage events in 2024, we remain focused on increasing and optimizing our marketing investments to grow and diversify our sales funnel, while delivering high quality leads to our dealer network.
Eric: As expected close rates continued to moderate during the fourth quarter given the record set record setting levels of home consultations, we experienced in the second half of 2024.
Eric: Historically, the compression of close rates occurs temporarily as our dealer network absorbs the rapid increase in demand in select markets that suffered from significant outage activity.
Eric: We anticipate close rates will be cut will recover throughout 2025, resulting from ongoing investments in lead optimization dealer development and expansion consumer engagement and further penetration of financing offerings for homeowners.
Eric: Our residential dealer network continued to grow in the fourth quarter and ended the year at an all time high of approximately 90 to 100 dealers and increase of 500 from the prior year and 100 dealers ahead of the prior quarter.
The significant growth in dealer count during 2020 for not only increases overall category awareness, but also provides support for a new and higher baseline level of demand for the home standby category going forward by adding more sales installation and service capacity.
Eric: We also continue to see strong momentum in our aligned contractor program, which targets electrical contractors that purchased our products through wholesale distribution.
Eric: We believe this highly aligned network of dealers and contractors is an important competitive advantage for <unk>.
Eric: And we continue to invest heavily to provide these partners with the best tools and capabilities to drive additional sales installation and service bandwidth.
Eric: Activations or installations of home standby generators were nearly flat in the fourth quarter as compared to the prior year.
Eric: Strength in the South and West was offset by other regions that saw less significant power outage activity in the quarter.
Eric: Additionally, the later timing of Hurricanes, Helene and Milton and longer dealer project lead times in the impacted regions have led to stronger growth in activations. Thus far in the first quarter of 2025 with January marking a record high for the first months of the year.
Eric: We continue to focus on innovation and leadership in the home standby generator category and we recently introduced our newest lineup of home standby generators at our annual customer conference in Nashville last month.
Eric: The next generation product is our most comprehensive platform update in more than a decade and represents the most advanced home standby generator on the market.
Eric: Providing homeowners with unparalleled peace of mind.
Eric: With this new product line, we introduced the industry's largest air cooled generator, producing 28 kilowatts of output.
Eric: Providing homeowners that have higher power needs from electrical vehicle charging heat pumps and other large electric loads the lowest total cost solution for backup power.
Eric: Our next generation product line further secures our position in this very important market segment with the broadest most powerful most cost effective home standby generators in the industry.
Eric: We believe that both our end customers and installer partners will appreciate the significant value significant value added and innovative features of these new products, which are expected to begin shipping in the second half of 2025.
Eric: With this next generation platform, we are introducing automotive technologies like fuel injection and spark ignition to the market, allowing for better fuel efficiency and lower emissions we.
Eric: We've also developed a new advanced controller with integrated cellular Wi Fi and Bluetooth connectivity protocols at standard features providing significant upgrades to connection quality together with advanced remote diagnostic supporting the lowest total cost of ownership on the market.
Eric: These numerous benefits for our partners in the field are expected to improve efficiency and quality control and the installation and service processes.
Eric: Including a simplified and automated commissioning process streamlined wiring designs in an enclosure designed with technicians in mind.
Eric: In addition to our continued track record of innovation in the home standby generator market. We have also made significant investments over the last several years and our manufacturing capacity for these products.
Eric: The addition of the Trenton, South Carolina facility as well as increased automation around an engine an alternative production has dramatically increased our ability to meet the growing demand for these products, particularly during periods when demand surges.
Eric: As a result of these investments we were able to aggressively ramp our home standby production output to meet the increased demand following the active outage environment in the second half of 2024.
Eric: Given our ability to ramp rapidly ramp production home standby generator lead times did not increase significantly and we are at normalized levels as we entered 2025.
Eric: For the full year 2025, we expect home standby sales to increase for the full year due to a combination of the new and higher baseline of awareness to the category new product introductions, and our initiatives to drive close rate improvements dealer activity and marketing optimization.
Eric: Longer term, given our competitive advantages and a significant penetration opportunity. We believe that <unk> is uniquely positioned to deliver on the megatrends that support long term growth for backup power.
Eric: In addition to strong home standby shipments during the fourth quarter sales of portable generators more than doubled from the prior year as demand for these products is more sensitive to power outages in a given period.
Eric: Our team continues to drive increased shelf space with our key retail partners for portable generators and while we expect these recent wins to support greater baseline demand for these products moving forward. The second half of 2025, we will still face a challenging comparison to the prior year as our guidance does not assume any major outage events during the year.
Eric: As expected sales of our residential energy technology products during the fourth quarter increased at a significant year over year rate with growth coming from <unk> and energy storage systems in the period.
Eric: The <unk> team delivered exceptional results during the fourth quarter, achieving record sales and positive profitability.
Eric: In October we introduced the smart thermostat light specifically targeting the professional contractor channel and later the smart thermostat essential two key additions to our lineup of energy monitoring and management devices that allow us to tap into the rapidly growing value segment of the smart thermostat market.
We expect these new products to further support recent market share gains and continue to drive eco bes installed base of connected homes, which has grown to an impressive $4 to 5 million households, as of the end of 2024.
Eric: Our fourth quarter shipments of power cell energy storage systems benefited from the initial ramp of the department of energy program in Puerto Rico, increasing in a very significant rate from the prior year.
Eric: While the policy backdrop for the clean energy market is uncertain. We view the long term fundamentals is intact given the given the mega trends of lower power quality and rising power prices, which we believe will only further incentivize homeowners to generate store and manage electricity on site.
Eric: Importantly, our recent new product announcements with power cell two tower cell to Max and our next generation home standby generators are evidence of significant progress towards building out our residential energy ecosystem.
Eric: Power sales market, leading single single cabinet storage capacity together with our industry, leading home standby generator line gives <unk> unique capability to offer offer a bottomless battery at a lower cost relative to a storage only system that attempts to achieve a similar level of resilience by using multiple high cost battery cabinets.
Eric: This resilience, coupled with <unk> intelligent energy management capabilities and intuitive user interface results in a differentiated solution that can make home energy more resilient efficient and cost effective.
Eric: For the full year 2025, we anticipate strong double digit sales growth for our residential energy technology solutions, resulting in net sales of approximately $300 million to $400 million for the year.
Eric: This growth is expected to be driven by accelerated deployments of our power cell energy storage systems in Puerto Rico.
Eric: New power cell two product launch expected late in the first half of 2025 as well as continued strength in <unk> sales.
Additionally, we anticipate <unk> will achieve a major milestone in our journey to build a differentiated residential energy ecosystem by delivering positive profitability for the full year.
Eric: I would now like to provide some commentary on our commercial and industrial products.
Eric: Global C&I product sales increased slightly on a year over year basis as growth domestically was driven by strong execution in our manufacturing facilities, which was somewhat offset by softer international end market conditions.
Eric: Domestic C&I product sales increased modestly during the fourth quarter as strong growth in shipments to our industrial distributor in telecom customers was partially offset by expected weakness in the rental and beyond standby end markets.
Eric: Shipments to our North American industrial distributor channel grew again at a robust rate in the fourth quarter as we continued to reduce lead times and invest in strengthening our distribution capabilities.
Eric: Given our increased manufacturing throughput.
Eric: An extended and customer project lead times growth in shipments outpaced the increase in orders from this channel during the year.
Eric: As a result, we entered 2025 with a lower backlog as compared to the prior year presenting a headwind to growth for the industrial distributor channel.
Eric: Sales to the National Telecom to our National Telecom customers also increased at a strong rate on both a year over year and sequential basis during the fourth quarter.
Eric: We expect to deliver strong year over year growth throughout 2025, as we believe this signals the start of the next growth cycle. In this end market given the long term secular trend of increasing global tower network hub counts that require backup power.
Eric: As expected shipments to our national and independent rental equipment customers in the fourth quarter continued to decline from the prior year as these accounts pull back on capital spending in our categories during the year.
Our current visibility these trends are expected to continue throughout 2025, although moderating relative to 2024.
Eric: However, we continue to believe that this end market is further runway for growth as the cycle recovers given the critical need for future infrastructure related projects that leverage our products sold into the rental equipment channel.
Eric: And market activity for our C&I generators used in beyond standby applications also remains softer during the fourth quarter as elevated interest rates continued to slow project activity in this segment of the market.
Eric: However, we continue to see strong pipeline activity for our C&I battery energy storage systems or Beth.
Eric: In other solutions used in multi asset micro grids.
Eric: We believe we are well positioned to lead the C&I micro grid market, given our strength in natural gas generators distribution and investments in technologies and expertise.
Eric: In 2024, we completed two small, but strategic acquisitions, adding C&I bass, and micro grid controller capabilities and positioning our teams to help end customers solve for the challenges of lower power quality and higher power prices.
Eric: Importantly, as our C&I energy ecosystem matures, we believe that our efforts to produce turnkey solutions for multi asset micro grid projects will help to reduce the cost and complexity challenges that have hindered adoption to this point.
Eric: In addition to our latest development efforts around C&I best products and micro grids at our annual customer conference. We recently introduced a larger diesel generator product lineup with single Gen set power output up to $3 two five megawatts certified for the U S market.
Eric: These products are specifically designed for large load mission critical backup power applications, including data centers.
Eric: We believe that the megatrend of accelerating adoption of artificial intelligence and the associated build out of data centers.
Eric: <unk> presents a significant long term opportunity for <unk>, both directly through these new products and indirectly via increased power demand leading to overall grid instability issues.
Eric: Initial quoting of these larger diesel generators are expected to begin in the second quarter with the first shipments anticipated to occur later in the year, resulting in a minimal contribution to 2025 sales from this new initiative.
Eric: Internationally core total sales, which excludes the negative impact of foreign currency increased modestly during the fourth quarter from the prior year as strength in Latin America was offset by continued softness in Europe and.
Eric: Importantly, however, international order activity regained momentum and outpaced shipments during the quarter.
Eric: Adjusted EBITDA margins for the segment expanded during the quarter due to favorable sales mix and lower input costs.
Eric: For full year 2025, we expect mixed end market and regional performance to continue in our international segment.
Eric: Our C&I best micro grid and datacenter initiatives for domestic markets also extend to international markets as part of our focused international growth strategy. We.
Eric: We continue to focus on bringing new solutions to the market to improve our positioning in established markets. While also driving an expanded presence and increased penetration in certain new regions that align with the mega trends supporting our enterprise strategy.
Eric: In closing this morning, our record fourth quarter results reflect our significant leadership in the residential backup power market and unmatched ability to respond to the elevated demand created by power outage activity in the second half of the year.
Eric: Our recent new product announcements underscore the commitment to innovation and engineering capabilities that had been at our core since we began pioneering backup power markets more than 65 years ago, and we will continue to invest in the capabilities and solutions that we believe are necessary for the future.
Eric: As previously discussed the Megatrends that support our future growth expectations have never been more evident and we remain confident in our powering a smarter world enterprise strategy.
Eric: I'll now turn the call over New York provide further details on our fourth quarter and full year 2024 results as well as our outlook for 2025.
Speaker Change: Thanks Aaron.
Speaker Change: Looking at fourth quarter 2024 results in more detail.
Speaker Change: Total net sales during the quarter increased 16% to a fourth quarter record $1 3 billion as compared to 1.06 billion in the prior year fourth quarter.
Speaker Change: Effective acquisitions and foreign currency had a slight favorable impact on revenue growth during the quarter.
Speaker Change: Briefly looking at consolidated net sales for the fourth quarter by product class.
Speaker Change: Residential product sales increased 28% to a fourth quarter record $743 million as compared to $580 million in the prior year.
Speaker Change: As discussed growth in residential product sales was driven by a strong increase in shipments of home standby and portable generators on the back of an active power outage season.
Speaker Change: In addition growth in shipments of both power cell energy storage systems and <unk> products also contributed to the strong year over year growth.
Speaker Change: Commercial and industrial product sales for the fourth quarter of 2024 were approximately flat from the prior year, but still strong at $363 million.
Speaker Change: The combination of contributions from acquisitions and the impact of foreign currency had a slight favorable impact on sales growth during the quarter.
Speaker Change: This core sales performance was a result of strong growth in shipments of domestic industrial distributor and telecom customers being offset by a decrease in sales to national rental equipment accounts and other direct customers for beyond standby applications as well as a modest decline in international C&I product sales.
Speaker Change: Net sales for other products and services increased approximately 6% to $128 million.
Speaker Change: As compared to 100 120 million in the fourth quarter of 2023.
Speaker Change: Core sales growth of 4% was primarily due to growth in aftermarket service parts connectivity subscription sales <unk> services and other international services revenue.
Speaker Change: Gross profit margin was 46% compared to 36, 5% in the prior year fourth quarter as a result of favorable sales mix the realization of lower input costs and production efficiencies.
Speaker Change: Operating expenses increased $66 million or 28% as compared to the fourth quarter of 2023.
Speaker Change: This increase was primarily driven by increased employee costs to support future growth across the business additional marketing spend to drive incremental awareness for our products and increased incentive compensation and variable expenses on the higher shipment volumes and profitability compared to the prior year.
Speaker Change: Adjusted EBITDA before deducting for Noncontrolling interests as defining our earnings release was a fourth quarter record $265 million or 21, 5% of net sales in the in.
Speaker Change: In the current year quarter, as compared to $213 million or 20% of net sales in the prior year.
Speaker Change: For the full year 2024, adjusted EBITDA before deducting for Noncontrolling interest was $789 million or 18, 4% of net sales as compared to $638 million or 59% of sales in the prior year.
Speaker Change: I will now briefly discuss financial results for our two reporting segments.
Speaker Change: Domestic segment total sales, including inter segment sales increased 20%.
Speaker Change: To 1.07 billion in the quarter as compared to 891 million in the prior year, including approximately 1% sales growth contribution from acquisitions.
Speaker Change: Adjusted EBITDA for the segment was an all time record $243 million, representing 22, 7% of total sales as compared to 192 million in the prior year or 21, 6%.
Speaker Change: For the full year 2024 domestic segment total sales increased 9% over the prior year to $3 64 billion.
Speaker Change: And adjusted EBITDA margins for the segment were 19, 1% compared to 15, 8% in the prior year.
Speaker Change: International segment total sales, including inter segment sales decreased 1% to $187 million in the quarter as compared to $190 million in the prior year quarter, including an approximate 2% sales growth headwind from foreign currency.
Speaker Change: Resulting in an approximately 1% core total sales growth.
Speaker Change: Adjusted EBITDA for the segment before deducting for Noncontrolling interests was $22 5 million or 12% of total sales as compared to $20 4 million or 10, 7% in the prior year.
Speaker Change: For the full year 2024 International segment total sales decreased 13% compared to the prior year to $725 million.
Speaker Change: Adjusted EBITDA margins for the segment before deducting for Noncontrolling interests were 13, 2% of total sales during 2024 as compared to $13 seven in the prior year.
Speaker Change: Now switching back to our financial performance for the fourth quarter of 2024 on a consolidated basis.
Speaker Change: As disclosed in our earnings release GAAP net income for the company in the quarter was $117 million as compared to $97 million for the fourth quarter of 2023.
Speaker Change: The current year net income includes the change in fair value adjustment of approximately $35 million related to our investment in <unk> warrants and equity securities.
Speaker Change: GAAP income taxes during the current year fourth quarter were $27 3 million or an effective tax rate of 18, 9% as compared to $30 million or.
Speaker Change: Or an effective tax rate of 23, 7% for the prior year.
Speaker Change: The decrease in effective tax rate was primarily driven by the positive impact from earnings mix with higher earnings in lower tax jurisdictions as well as certain unfavorable discrete tax items in the prior year, which did not repeat in the current year.
Speaker Change: Diluted net income per share for the company on a GAAP basis was $2 15 in the fourth quarter of 24 compared to $1 50 in the prior year.
Speaker Change: The strong year over year increase in GAAP earnings per share relative to growth in net income was primarily driven by a favorable $11 $6 million of redemption value adjustment.
Speaker Change: That was reflected in the current year period, EPS calculation as well as a lower share count as compared to the prior year.
Speaker Change: Adjusted net income for the company as defined in our earnings release was $168 million in the current year quarter or $2 80 per share.
Speaker Change: This compares to adjusted net income of $126 million in the prior year or $2 <unk> per share.
Speaker Change: Cash flow from operations was $339 million as compared to 317 million in the prior year fourth quarter and free cash flow as defined in our earnings release was an all time quarterly record of $286 million as compared to $266 million in the same quarter last year.
Speaker Change: This strong free cash flow performance was driven by the record fourth quarter operating earnings together with the $170 million source of cash due to working capital reduction during the current year quarter.
Speaker Change: Total debt outstanding at the end of the quarter was $1 $33 billion, resulting in a gross debt leverage ratio at the end of the fourth quarter of one seven times on an as reported basis, which is within our target gross debt leverage range of one to two times adjusted EBITDA.
Speaker Change: For the full year 2024.
Speaker Change: Cash flow from operations was an all time record $741 million as compared to $522 million in the prior year.
Free cash flow as defined in our earnings release was also an all time high $605 million as compared to $396 million in 2023.
Speaker Change: This record free cash flow performance was aided.
Speaker Change: By an over $200 million source of cash from working capital reduction during the year.
Speaker Change: Capital expenditures during the full year totaled $137 million as we prioritize organic investments for additional production capacity and other capabilities to support future growth.
Speaker Change: We also strategically deployed approximately $35 million of capital in 2024 for acquisitions to accelerate our powering a smarter world enterprise strategy and bolster our technology and distribution capabilities for our C&I products.
Speaker Change: Additionally, we opportunistically repurchased approximately 1.05 million shares of our common stock during the full year for $153 million.
Speaker Change: And there is a 347 million remaining on our current share repurchase authorization as of the end of 2024.
Speaker Change: We also repaid approximately $278 million of debt and extended the maturity of our term loan b credit facility during the year.
Speaker Change: Moving forward, we will continue to operate within our disciplined and balanced capital allocation framework as we evaluate future shareholder value enhancing opportunities.
Speaker Change: With that I will now provide further comments on our outlook for 2025.
Speaker Change: As disclosed in our press release this morning.
Speaker Change: We are initiating 2025 net sales guidance that anticipates continued solid year over year growth for the full year period.
Speaker Change: We expect consolidated net sales for the full year to increase between 3% to 7% as compared to the prior year, which includes a slight unfavorable impact from the net combination of foreign currency and acquisitions.
Speaker Change: Importantly, this guidance assumes a level of power outage activity during the year in line with the longer term baseline average.
Speaker Change: Consistent with our historical approach this outlook does not assume the benefit of a major power outage event during the year, such as a major landed hurricane or major winter storm.
Speaker Change: Breaking this down by product class.
Speaker Change: We expect overall residential net sales to increase at a mid to high single digit rate from the prior year.
Speaker Change: We expect this growth to be led by shipments of home standby generators as the elevated power outage activity in 2024 resulted in a new and higher baseline level of demand for the category.
Speaker Change: In addition, we expect strong year over year growth for our residential energy technology products as we execute on previously announced project wins in Puerto Rico.
Speaker Change: And launch new products into the market.
Speaker Change: This growth is expected to be partially offset by lower portable generator shipments in 2025, given the assumption of no major outage events included in our guidance.
Speaker Change: As Aaron discussed in detail, we anticipate mixed performance across our C&I end markets, both domestically and internationally in 2025.
Speaker Change: We expect growth from telecom, C&I, Bes and data center opportunities to be mostly offset by declines in rental beyond standby and domestic industrial distributor shipments.
Speaker Change: In addition, we expect the effect of foreign currency to have a modestly unfavorable impact on year over year growth for C&I products.
Speaker Change: Considering these factors overall global C&I product sales are expected to be approximately flat on a year over year basis during the year.
Speaker Change: From a seasonality perspective.
Speaker Change: Given lead times and backlog for our home standby products have normalized coming into 2025.
Speaker Change: We expect 2025 consolidated net sales to follow normal historical seasonality.
Speaker Change: Resulting in overall net sales in the first half being between 45% to 45%, 44% to 45% weighted.
Speaker Change: Sales in the second half being 55% to 56% weighted.
Speaker Change: Specifically for the first quarter, we expect overall net sales to increase at a low single digit rate from the prior year with strong growth for residential product sales, partially offset by a by a high single digit decline in C&I product sales.
Speaker Change: Looking at our gross margin expectations for the full year 2025, we expect the full year impact of lower input costs will drive continued year over year margin improvement, resulting in an approximately 100 basis point increase for the full year as compared to 2024 approaching 40%.
Speaker Change: Importantly.
Speaker Change: The recently announced tariff actions are not directly reflected in this guidance as we continue to evaluate the potential impact from these tariffs. We expect that any increase will be offset by a combination of cost reductions and price increases, resulting in an EBITDA margin percent neutral impact for the year.
Speaker Change: From a seasonality perspective, we expect gross margins to increase throughout the year from approximately 38% to 39% in the first half of 2025 to approximately $40 to 41% in the second half of 2025, primarily as a result of favorable sales mix and improving input costs.
Speaker Change: Looking at our adjusted EBITDA margin expectations for the full year 2025.
Speaker Change: Adjusted EBITDA margins before deducting for Noncontrolling interests are expected to be approximately 18% to 19% for the full year 2025.
Speaker Change: Compared to 18, 4% in 2024 as the full year impact of rising operating expenses will offset the aforementioned gross margin improvement.
Speaker Change: We expect adjusted EBITDA margins to follow normal seasonality and improved significantly as we move throughout the year.
Speaker Change: Specifically regarding the first quarter adjusted EBITDA margins are expected to be approximately flat compared to the prior year at approximately 14%.
Speaker Change: And then improve sequentially throughout the year, reaching approximately 21% in the fourth quarter.
Speaker Change: Significant operating expense leverage on the seasonally higher sales volumes together with the previously mentioned favorable sales mix and cost improvement.
Speaker Change: The main drivers of this EBITA margin sequential improvement throughout the year, which is expected to result in our second half adjusted EBITDA margins to be more than 500 basis points higher than first half margins.
Speaker Change: As is our normal practice.
Speaker Change: We're also providing additional guidance details to assist with modeling adjusted earnings per share and free cash flow for the full year 2025.
Speaker Change: Importantly to arrive at appropriate estimates for adjusted net income and adjusted earnings per share add back items should be reflected net of tax using our expected effective tax rate.
Speaker Change: For 2025, our GAAP effective tax rate is expected to be between 24% to 24, 5% as compared to the 22, 6% full year GAAP rate.
Speaker Change: For 2024.
Speaker Change: We expect interest expense to be approximately $74 million to $78 million for the full year 25, assuming no additional term loan principal prepayments during the year.
Speaker Change: This is a significant decline from 2024 levels due to a decrease in outstanding borrowings coming into 2025, and the full year impact of lower sulfur interest rates.
Speaker Change: Our capital expenditures are projected to be approximately 3% of our forecasted net sales for the year in line with historical levels as we continue to invest in incremental capacity and execute other projects to support future growth expectations.
Speaker Change: Depreciation expense is forecast to be approximately $83 million to $87 million in 2025, given our assumed capex guidance.
Speaker Change: GAAP intangible amortization expense in 'twenty five is expected to be approximately $92 million to $96 million during the year.
Speaker Change: Stock compensation expense is expected to be between 53% to $57 million for the year.
Speaker Change: In line with normal seasonality operating and free cash flow generation is expected to be disproportionately weighted towards the second half of the year in 'twenty five as we expect to replenish home standby and portable finished good inventory levels. During the first half of 2025.
Speaker Change: As a result for the full year, we expect free cash flow conversion from adjusted net income to be between 80% to 90%.
Speaker Change: Our full year weighted average diluted share count is expected to increase modestly to approximately $60 5 million shares as compared as compared to $60 3 million shares in 2024.
Speaker Change: And finally, this 2025 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value during the year.
Speaker Change: This concludes our prepared remarks at this time, we'd like to open up the call for questions.
Les: Thank you Les.
Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Les: Please limit yourself to one question only.
Les: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Tommy Moll with Stephens. Your line is open.
Tommy Moll: Good morning, and thank you for taking my questions.
Les: Great.
Speaker Change: Aaron I wanted to ask about your comments regarding some of the new and larger C&I products that you plan to introduce where the data center market aperture I think it was a little wider now can you just give us a little more context, how much of the Tam does this unlock for you and what's the strategy to penetrate that thank you.
Tommy Moll: Thanks Tommy.
Tommy Moll: We're very excited about the announcement here.
Tommy Moll: And honestly our.
Tommy Moll: Distributor customers and other customers are also very excited.
Tommy Moll: Been on this journey.
Tommy Moll: Internationally, our international teams started.
Tommy Moll: Working on a larger product offering and actually engaging with data center partners. They have been doing that actively over all of 2024.
Tommy Moll: And they'll begin to actually shipping products into the market here this year.
Tommy Moll: And just starting to get the flywheel spinning there and now we've got a U S. Certified version of the product and Thats, what we introduced at our customer conference in Nashville.
Tommy Moll: As far as that the total addressable market I think.
Tommy Moll: There's a lot of numbers that are out there available to people in terms of how big the market really is in a lot of that is based on your views on how quickly data centers can be built out.
Tommy Moll: And so I think I hesitate to probably provide a discrete number along those lines, just but just to say that.
Tommy Moll: Some of the data points that are available in the marketplace. You would look at the current lead times of these types of products from the existing suppliers and they are very long.
Tommy Moll: Many cases, most cases, they are well in advance of a full year, some even longer than that depending on the product nodes of the entire supply chain for these products is very tight today as a result of all the increased demand. So we believe there is ample room for us to participate we.
Tommy Moll: We think there is ample room for us to be successful given our.
Tommy Moll: Our our brand.
Tommy Moll: Given our ability to serve these these types of customers on a national basis, a lot of these data center developers are developing.
Tommy Moll: In markets, all over the country or the world and so having a global footprint as well as our coast to coast U S footprint is valuable in terms of making sure that.
Tommy Moll: We have the ability to provide kind of aftermarket support that's needed to ensure the kind of uptime thats required by the data center operators themselves. So very excited about this.
Tommy Moll: As I said on the prepared remarks, it's not going to be much of a contribution for our domestic results. This year because the certified use certified versions of these products, we really won't begin shipping until late in the fourth quarter.
We're going to open the order book in the second quarter, So that will give us some insight into demand we're already having I would what I would call or characterize as encouraging dialogue with a lot of that.
Tommy Moll: Data center.
Tommy Moll: Customers.
Tommy Moll: Our operators are developers and so.
Tommy Moll: We're encouraged by that so more to come in the future but.
Tommy Moll: But in an exciting development for us.
Lisa: Thank you Lisa.
Tommy Moll: Please standby for our next question.
Speaker Change: Our next question comes from the line of George <unk> with Canaccord. Your line is open.
Speaker Change: Hey, good morning, everyone. Thank you for taking my questions morning, George.
Speaker Change: So just very quickly I noticed you mentioned that <unk> would turn to profitability in 2025 can you just sort of.
Speaker Change: Illuminate us as to how much margin dilution. The total energy Tech business will have overall in general and whether you still expect that to get to breakeven potentially in 2026. Thank you.
York Ragen: Hey, George This is York I know, yes.
Speaker Change: We're actually eco be delivered.
Speaker Change: Above breakeven quarter for Q4. So we were we were encouraged by that and looking out at the.
Speaker Change: The growth opportunities that they have for 2025.
Speaker Change: We're projecting that that.
Speaker Change: Profitably will continue for the full year 2025 and.
Speaker Change: In terms of the overall energy technology business, which I think was your question.
Speaker Change: While in 2020 for the.
Speaker Change: Dilution of that business overall for the total company was call it 354% of our EBITA margins the.
Speaker Change: The dilution on overall company, that's going to improve to somewhere maybe three three and a half year in 2025, so there will be improvement.
Speaker Change: And that will continue to improve over the next couple of years as we continue.
Speaker Change: And George and I think that the.
Speaker Change: Clearly the important milestones here in that business are getting these new products to market right. So we've got power cell too we're introducing mid year here and then.
Speaker Change: Micro, which we've also talked about that.
Speaker Change: We've got kind of our eyes on the second half here for that that product to get into market as well, but we are making very good progress on both of those product lines.
Speaker Change: I think the one change referring to the commentary about getting to profitability overall buy.
Speaker Change: By the end of the year by the end of 2026, even if we did that by the way there would still be some dilution overall.
Speaker Change: From EBITDA and EBITDA margins from this this effort.
Speaker Change: At least for the next several years, but I think that obviously the policy landscape is shifting.
And we're watching that very closely that as an end market, which 2024 was very weak due mainly due to the high interest rates I think that was the.
Speaker Change: The sticky point in 2024 in terms of growth in energy technology, even though.
We we found our footing there delivered a nice Q4.
Speaker Change: And we won some nice projects, but we'll see where the policy landscape goes here.
Speaker Change: Think longer term.
Speaker Change: These are technologies, whether youre talking about solar or are you talking about battery storage are you talking about electric vehicles are you talking about energy management. These are technologies that are going to be critical to helping homeowners and businesses.
Speaker Change: As I said in my prepared remarks to help them gain much greater control over the resiliency of their power as well as the cost of that power I think the one.
Speaker Change: The thing Thats been going on here look we know power quality is a problem everybody knows that there's a lot of data around that there is no secret that thats been why <unk> I think done.
<unk> done so well over the last several decades, but the reality of it is one of the other kind of.
Speaker Change: Things that is coming up quickly here as power costs are increasing and I don't think we're talking about that enough.
Speaker Change: As a society, we are seeing evidence.
Speaker Change: Just the U S. National average is up 30% in the last four or five years is projected to double by 2035.
Speaker Change: There are parts of the country today, where the power Bill the electric Bill is second only to the rent or your mortgage in terms of your highest cost.
Speaker Change: Expense.
Speaker Change: For a homeowner or a business so.
Speaker Change: These are things that.
Speaker Change: These are trends like I said, we call them Mega trends lower power quality hydropower prices. These are the two things that are front and center for us and what we're doing in all of the investments, we're making here in the future not only in our our legacy products like generators, but also in the energy ecosystem that we're building for homes and businesses.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Mike Halloran with Baird. Your line is open.
Mike Halloran: Good morning, guys.
Speaker Change: Yeah.
Speaker Change: So just a couple a couple of parts to this but all related so could you just I think I missed it could you repeat what the residential growth expectations are for the first quarter, but more broadly maybe talk about how youre looking at the performance in this outage environment with the new facility in the southeast.
Speaker Change: Manage your lead times and then how you're looking at the back part of last year Fund part of this year just from a cadence seeing versus history, and just kind of put all that in context to help understand.
Speaker Change: How is the guide we will through this year.
Speaker Change: And how instructed this maybe is for the future outages, because obviously the lead time variances versus history were much better much better yet just quickly. The first very first part of that your asthma resi growth in Q1 are we in the prepared comments, we said strong growth again, partially offset by the high single digit decline in C&I products. So.
Speaker Change: <unk> double digit growth for for <unk> in Q1.
Mike Halloran: And then Mike I think the balance of your question kind of the pacing or the the way the business is I'll say trading that that part of the business back half of last year into this year.
Mike Halloran: I think what's really interesting. So if you go back historically right as the category has been growing and every kind of active period of outages driving demand rapidly and then we have responded by.
Mike Halloran: To play catch up frankly in terms of capacity and we were running behind over the last four or five years, as we said, resulting in kind of where we got to.
Mike Halloran: As we exited 2021 and into 'twenty, two where we're getting these these lead times in the category that we're just super extended so we took the necessary moves to.
Stop playing catch up and made some significant investments in capacity for home standby generators.
Mike Halloran: We brought the Trenton plant online mid year 2022, we added.
Mike Halloran: A lot of automation and we probably haven't talked as much about the automation we've added as much as we've talked about the trend facility, but in our existing facilities in whitewater and additional and automation even in Trenton over the last couple of years that has significantly changed our our overall theoretical capacity for the category and what that's allowed us.
Mike Halloran: To do is rapidly respond much more rapidly respond to the surges in demand as an example, the back half of last year, what we saw to have that kind of.
Mike Halloran: Environment, we would have typically had this been kind of pre those investments you would have seen us enter 2025 with a probably a large backlog.
And as a result of two things one our inability to produce enough product to satisfy demand in the back half of the year and to what that creates I think there is a really important kind of emotional element I just want to talk about a second here when there is scarcity in the market and we all saw this during COVID-19, but we've seen it in our business, notably over the year.
Mike Halloran: There is every time there is a major event.
Mike Halloran: You get a scarcity mentality amongst our distribution partners and when lead times start to extend they start to place more orders to guarantee supply further out further out the lead times go the further out they place orders the more as they place.
Mike Halloran: You get this emotional buying that comes from that scarcity.
Speaker Change: Did two important things we added all this capacity and then we also changed the number of our order policies. We think that the effect of doing those two things basically took the emotion out of that ordering and kept certainly lead times from getting along and it kept dealers from placing orders for products that they haven't sold yet and I think that.
Speaker Change: That was the significant change here and should be a significant change going forward right I think when we think about it we think that this is a healthier way to run the business. We think also I think it's important to note Mike that when you put this in context, it's a much bigger business. If you just look at home standby the base business of whats going on there every single day and the absence of outages.
Speaker Change: Major outages is pretty remarkable and that continues to grow and the pen rate still being in only six 5% at the end of the year.
Speaker Change: It's amazing just how big the penetration opportunity remains for us. So it's one of the major reasons why we've been so confident to invest heavily in the capacity and invest heavily in automation invest heavily in new products like our next generation product line that we just announced here. So again I think these are things a great setup for us to continue to lead that market.
Speaker Change: But I think it's kind of I think it's a different kind of pacing as it goes forward, which I think is at the core of your question.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Jeff Hammond with Keybanc capital markets. Your line is open.
Jeff Hammond: Hey, good morning, guys, Hey, John.
Jeff Hammond: Good good color there and maybe just a follow on because I appreciate the the investments in and maybe the change in the order patterns, but maybe just feedback youre getting from your contractors on the on the three big storms in kind of the uptick in NIH CS relative to expectations.
Jeff Hammond: And then kind.
Jeff Hammond: The afterglow effect that you are.
Jeff Hammond: Seeing versus kind of past similar storms that'd be great.
Jeff Hammond: Yes, thanks, Jeff So I do think notable with these with these storms as they were.
Jeff Hammond: Fairly concentrated regionally right so.
Jeff Hammond: And you could argue I mean barrel was Texas and that happened in July and while powerful event. It was fairly localized to the Texas market, which is a good market for us and when you look at it really Houston and when you look at Texas. In fact, now that states pen rate is actually closing in on the National average, which is really interesting.
Jeff Hammond: So I think that from where we were at 2% to 3% you know where all the way up to six now so it's grown a lot over the last several years since the the freeze of 2021, but then you think about.
Jeff Hammond: Helene and Milton obviously Helene was more widespread right that was the biggest event that we had seen in a long time impacting largely Florida and the Carolinas.
Jeff Hammond: Then you've got Milton on the back of that Milton was a smaller storm and kind of impacted the same Florida markets for the most part and it was two weeks later so you could almost argue that that was an extension like when we look at our like all the stats that we track and almost when you look at the mill the Milton stats almost looked like an extension they just elongated the helene impact for us.
Jeff Hammond: So my point here is that we.
Jeff Hammond: We have these concentrated events.
Jeff Hammond: Good dealer basis in those areas, but they were inundated with IHS I mentioned in the prepared remarks, the compression of the close rates. So the commentary coming back is that there was we need more bandwidth for sales and now thats getting into installs as well, we're seeing activations now.
Jeff Hammond: The major storms you all if you look at Helena Milton hit really kind of beginning of Q3 Q4 excuse me end of Q3, beginning of Q4, our normal project timeline from from quote doing that IAC to doing the actual install call. It 100 days 110 days 120 days, depending on the market, Florida tends to be longer because.
Jeff Hammond: The permitting cycles. There. So we're just now starting to see the impact of the installs occurring in those markets as it takes time to mature take time to mature. So we think that those markets are going to be active Texas, Florida. The Carolinas as a result here going into 2025, the flip side of that coin is we had other markets around the U S. We're frankly not us.
Jeff Hammond: Active last.
Jeff Hammond: Last year as they had been right. So places in the Midwest, Michigan, Ohio. Those in particular notable areas parts of Canada, where we've actually done quite well in Ontario over the years, we're much quieter last year. So we saw growth we saw the activation rates slow or the install rates slow slow in those markets year over year was kind of I'll say.
Jeff Hammond: Quote unquote covered up if you will by the.
Jeff Hammond: The large influx of IH sees from those events, but but again. This is I think it's one of the interesting things about how this business trades. If you will again I'll use that term but.
Jeff Hammond: Outages or theyre localize, but they happen every day all over the place.
Jeff Hammond: We're seeing Ics in California that are notably higher in January versus last year, because of the power safety shut offs and that.
Jeff Hammond: So it moves around and that's why having a huge dealer base like we have 90 to 100 and we need more.
Jeff Hammond: Is such a huge focus for us because having those dealers in those markets, where an outage could occur and then helping propel those markets forward, even as the initial demand surge wanes, you want those dealers and market marketing selling and promoting the category.
Jeff Hammond: And the <unk> and the.
Products I think that's really critical and it's a big part of that new and higher baseline demand concept that we continually talked about and that I think we've demonstrated continues to play out.
Jeff Hammond: Thank you.
Jeff Hammond: Please standby for our next question.
Speaker Change: Our next question comes from the line of Brian Drab with William Blair. Your line is open.
Jeff Hammond: Okay.
Brian Drab: Hi, Thanks for taking my question I guess, there's a lot of focus on home standby. So maybe yes. Good morning.
Brian Drab: Maybe ask you to talk a little bit more about C&I.
Brian Drab: I know you said telecom getting better I was wondering if you can add a little more color what what's driving that improvement we are hearing that from some other companies and.
Brian Drab: What can get this rental market going again for you guys.
Brian Drab: <unk>.
Brian Drab: In some areas like highway activity construction.
Brian Drab: Oil and gas with some of the new policies of the New administration may be some pickup there.
Brian Drab: Any hope that maybe that gets going in the back half of the year.
Brian Drab: Yes, Thanks, Brian I appreciate the shift over to the C&I business, which we never end up talking enough about it and it's a really great business for us.
Brian Drab: It's a great kind of steady counterweight to some of the some of the volatility we sometimes see in the <unk> business, but yes. The telecom market as we said kind of bottomed Q3, Q2, Q3, and we were seeing green shoots.
Brian Drab: In our discussions with customers and that actually played out in better.
Brian Drab: Better sell through and sell in and sell through in Q4.
Brian Drab: Again, I think probably the just to answer your question directly about what's at the root of that in our markets. We can point to very easily high profile outage events.
Brian Drab: Every single carrier had challenges with network uptime as a result of those events and that always tends to.
Brian Drab: I would say help them.
Brian Drab: Reevaluate to reevaluate just kind of where the level of investments going to be needed going forward to harden the network and so today, we think tower counts continue to grow hub counts continue to grow.
Brian Drab: That market is probably about 50% penetrated with backup power so.
Brian Drab: There is a huge market there it's up more than 400000 overall site opportunities for us and we.
Brian Drab: We see that as we're the leader there by far in terms of our customer base and our installed footprint.
Brian Drab: So we're encouraged by that we think that the investment cycle is going to be positive for that business as.
Brian Drab: As we go forward here into 2025.
Brian Drab: And the.
Speaker Change: On the flip side of that coin Youll rental you mentioned it what can we do to get that going again.
Brian Drab: Hi.
Brian Drab: Our product categories light towers mobile generators mobile heaters in particular, maybe maybe somewhat disproportionately impacted.
Brian Drab: By Capex spending for these.
Brian Drab: These these customers for ours because of ours, because they had they have gone through if you recall, we had some pretty robust years, there where they were re fleeting.
Brian Drab: And those fleets are aging there's no question, they're aging and I think when we put this guidance together.
Brian Drab: Obviously, the political environment and the policy environment continues to shift here and so.
Brian Drab: Could domestic oil and gas production create potential tailwind there for us could additional infrastructure investment that might be being contemplated by the new administration could prevent.
Brian Drab: Could that create tailwind for us that might accelerate that possibly the way we built our guidance as we are not contemplating that we're basically contemplating that that market is going to be.
Brian Drab: <unk> again, although not nearly at the rate it was down last year, it's moderating the decline.
Brian Drab: But we still think that in particular Q1, there is a little bit more to come off that's part of what the C&I down.
Brian Drab: Down that you talked about in Q1 in particular is just kind of Comping last year's rental that was when things really kind of come start to come off but.
Brian Drab: We've seen this movie before it's a very cyclical market.
Brian Drab: And we don't believe we've lost any share and we believe the need is still there in the fleet is aging. So it's just a question of when the trigger gets pulled from a capital spending standpoint on re fleeting.
Brian Drab: Thank you.
Brian Drab: Please standby for our next question.
Speaker Change: Our next question comes from the line Jerry Revich with Goldman Sachs. Your line is open.
Jerry Revich: Yes, hi, good morning, everyone. Good morning.
Speaker Change: Eric Hi, Eric.
Speaker Change: Can you just expand on the cadence of the standby business. So over the course of 'twenty five and just how much visibility do you have on the ramp over the year based on the planned installations. So typically given the ramp in home consultations, we typically see fig.
Speaker Change: Pig through the Python effect.
Speaker Change: Much sharper <unk> it doesn't sound like that's happening this year and I'm wondering if you could just expand on the visibility that you folks have on the standby business ramping up.
Speaker Change: Over the course of the year as these leads translate into installations.
Speaker Change: Yes, no I think Jerry I think as I in the prepared comments, we said that our our guidance basically assumes the long term baseline.
Outage.
Speaker Change: Basically look at long term baseline outages, we take all major events out of the out of the mix and we look at what outage activity is on a baseline basis over the last five years.
Speaker Change: And we use that as our.
Speaker Change: Basis for putting together our guidance and we also look at the seasonality of those outages as well.
Speaker Change: It tends to have more outage active in the second half of the year. So.
Speaker Change: So and then you couple that with the comments, we made that coming into 2025 were at normal lead times.
Speaker Change:
Speaker Change: So we have inventory of these products. So basically we believe that the guide for for home standby for 2025, then it's going to look more just like sort of normal seasonality in terms of how we how we pace that yes.
Speaker Change: With nice growth for the full year, absolutely and that's that's been a historical kind of trend and that is largely driven by.
Speaker Change: The larger patterns around.
Speaker Change: Seasonality with Q1.
Speaker Change: In particular in the winter areas.
Speaker Change: The areas of the U S impacted by winter weather, it's harder to install products. So.
Speaker Change: No that is covering the ground and a lot of areas in the cold weather just prevents.
Speaker Change: Prevents installations from being affected so thats why Q1 is almost always a lower quarter.
Speaker Change: Again, this kind of goes back to my expanded.
Speaker Change: Description of it.
Speaker Change: Change in the pacing of the business here normally if we had come in with a large backlog we would be satisfying that in Q1 is shipping against that that doesn't necessarily mean, there would've been installed until until things Scott.
Speaker Change: Things got warmer we would just been satisfying backlog, we didn't have that this year, because we basically satisfied all of that in Q4.
Speaker Change: It took the emotional ordering off the table with them with that approach. So I think the pacing is going to return to a more normal.
York Ragen: Pacing growing from Q1 throughout the year as York said.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Our next question comes from the line of Kashi Harrison with Piper Sandler Your line is open.
Kashi Harrison: Good good morning, and thanks for taking.
Speaker Change: Questions just some.
Speaker Change: Two quick ones or two quick questions from me.
Speaker Change: First one is on the data center opportunities are these edge data centers or larger data centers and then are these backup or prime power generators and then my and then just on the Opex side. If we look at 2025 I think on a dollar basis youre more or less in line with where 2026 was going to.
Speaker Change: At the Investor day on a dollar basis, but we're obviously pretty far away from those those revenue targets and so.
Kashi Harrison: How do you does that mean that getting to 20% EBITDA margins is no longer a focus I'm just I'm just trying to understand how you're currently philosophically thinking about the appropriate level of bottom line margin and Opex investments on a multiyear basis. Thank you yeah, Kashi I'll take the first half.
York Ragen: The question and maybe let York add some commentary around the Opex.
York Ragen: EBITA margin kind of targets the long term so with the data center product that product is aimed at both edge data centers as well as hyperscale today, we have products for edge data centers the market we've dabbled in.
York Ragen: We havent focused on it as much but.
York Ragen: The new products are diesel backup only generator, so theyre emergency backup there not for prime power there.
York Ragen: They are certified and they will be we will be targeting both the hyperscale market as well as the edge data centers in New York I think on the Opex kind of questioning and then the.
York Ragen: Opex I think longer term, our projections of EBITDA margins are still in that low 20% range.
Speaker Change: 'twenty one.
Speaker Change: 22%, which is what we guided to back in our Investor day way back when in 2023 that the.
Speaker Change: Expectation still hold as we said thing as Aaron said.
Speaker Change: I guess a couple of them are C&I, the downcycle, probably happened a little bit I guess deeper in sooner than we were projecting in that in those investor day targets and then the clean energy businesses.
That market's been a bit soft here for the reason there and talked about so I would say that.
Speaker Change: <unk>.
Speaker Change: I would say that pushing that out call. It 12 months to 18 months.
Speaker Change: Then you start really leveraging that opex load.
Speaker Change: And you get closer to those low 20% EBITDA margins that we were expecting.
Speaker Change: Back in the original Investor day materials.
Speaker Change: And gross gross margins and gross margins are very attractive as they are actually better the better they are actually coming in better than we were and thats kind of the offset I think that's the offset.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Our next question comes from the line of Mark Strouse with Jpmorgan. Your line is open.
Speaker Change: Excuse me good morning, Thank you very much for taking our questions.
Speaker Change: I wanted to go back to the tariff conversation I appreciate what youre, saying about 2025, and the ability to have a neutral impact from pricing and cost cuts.
Speaker Change: Medium term, though.
Speaker Change: I mean.
Speaker Change: What you've seen over the last three or four weeks.
Speaker Change: Been enough to kind of change how youre thinking about medium term and maybe increasing the amount of.
Speaker Change: Domestic supply for your raw materials.
Speaker Change: And then kind of a follow up question to that is.
Speaker Change: Can you maybe compare and contrast, <unk> your competitors do you see that as potentially an advantage or a disadvantage.
Speaker Change: The tariffs really do start ramping up here. Thank you hey, Mark Thanks.
Speaker Change: Speak to our comparison I'm not exactly sure of their cost structures and how they're thinking about the tariffs I can't I can't speak to what we know.
Obviously, the 10% impact on China, the 25%.
Speaker Change: Threatened impacts to Mexico and Canada.
Speaker Change: Has been deferred for at least 30 days we.
Speaker Change: Obviously done we'd have more time to react to that Monday's news or Sunday nights news about 25%.
Speaker Change: Tariff on.
Hi.
Metals on steel and aluminum were evaluating but we already have a pretty robust domestic supply chain around certainly around sheet metal around metal. So we're not as concerned about that to be honest, we have to evaluate aluminum to understand that but.
Speaker Change: On the tariffs that.
Speaker Change: 10% on China, I think one of the benefits of having gone through the crawling through the broken glass that we all crawled through back in Covid in terms of the supply chain disruptions.
Speaker Change: Needing to.
Speaker Change: Deal with that is that.
Speaker Change: We got a lot smarter about not being sole sourced on.
Speaker Change: A lot of components in particular everything with our home standby. It's our goal to have at least two sources if not three now.
Speaker Change: Not only both for resiliency in the supply chain, but also for additional capacity just because we've grown the overall.
Speaker Change: Output, we just need to we need to add more competent suppliers.
But we've done that.
Speaker Change: Also with a focus to not have concentrations of supply base in certain regions of the world and that has helped US then too it has given us flexibility to shift supply to areas of the country are areas of the world excuse me that.
Speaker Change: Or perhaps not being as targeted with with tariffs.
Speaker Change: That said I don't think theres any avoiding some kind of cost increase that's going to come through whether it be additional logistics or are those secondary sources, perhaps being higher cost than than maybe a primary source all of that we're working through but we see the impacts of that as something that one we're going to go back to supply chain and we are going to see.
Speaker Change: Okay.
Speaker Change: If we've got a supplier in China, let's say, we're going to go back and we're going to ask that supplier to evaluate their cost their price to us.
Speaker Change: To reduce that to absorb the tariff.
Speaker Change: After all that's what leadership in this country has been telling us that it's not us who pay for it.
Speaker Change: It's the other countries so, let's let's make sure that happens so we're going through and we're working through that.
Speaker Change: But that probably is not realistic to assume that all suppliers are willing to.
Absorb the added cost of tariffs or especially when youre talking about 25%.
Speaker Change: In Mexico, or Canada that we've got to continue to evaluate that but I think long term. If you look at the rest of the year here theres going to be some pricing actions.
Speaker Change: There's going to be more cost out so we're going to focus on and we're going to try and minimize the pricing actions to the best of our ability. We know that price is important to customers and we want to remain.
Speaker Change: Competitive today, we lead the market and price.
Speaker Change: Believing that this won't change that.
Speaker Change: Again, I can't speak specifically to our competitors other than to say we have.
Speaker Change: Under scale in some of these markets like home standby that is unmatched in that is probably a bigger benefit to be honest, both within the supply chain as well as if our operating environment than anything our competitors could could bring forth.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Jordan Levy with Troy Securities. Your line is open.
Jordan Levy: Good morning. Thanks, I was wondering details just wanted to touch on the Nextgen home spend by a rollout later this year can you just talk about how we should think about pricing and cost structure. There on that line relative to the crude fleet and what's sort of baked into your guidance on that front as we roll it out.
Speaker Change: About half of the year.
Speaker Change: There's certainly the feature set we talked about Jordan there. There is some additional cost in that product. We think it's fairly nominal in relation to the overall cost of the product, but there is.
There is a there is going to be some additional costs and then as a result, the pricing will be higher when the new line hits the market in the second half of the year. So we have put some pricing we've made some assumptions around pricing impacts.
We haven't we haven't formally initiated that pricing to the market at this point largely because of the tariff noise. That's going on we want to kind of see where things land I mean, the last thing we'd want to do is put pricing out on a new product line and then have to adjust it before we even start shipping.
Speaker Change: So we want to understand supply chain impacts from tariffs.
Speaker Change: Some other things as we finalize that here shortly I mean, we do have to get pricing out to the market and we had to make an assumption into our guidance, but it's pretty nominal I think it's small on balance for yeah, it's pretty modest but there is some pricing there in the second half of the year as a result of that.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Our next question comes from the line of Keith Wholesome with North Coast Research. Your line is open.
Speaker Change: Good morning, guys I'll try to make it quick here, you're correct I thought I heard you guys say that for 2025, we expect energy technologies sales of three to 400 million I guess first and compare that to what you have for 2024 and then second.
Speaker Change: Correct too.
Speaker Change: By the administration to withhold funding for some of the agencies that are out there.
Speaker Change: Department of energy would be one of the agencies, perhaps at risk could that perhaps slow some of your expectations for 2025, yet keep the comparative number we ended up the euro at 282 hundred $80 million 24, so the midpoint of the three to four hundreds of like 25% increase right net sale unmet sales right and so like.
Speaker Change: And Keith to your question about the Doe.
Speaker Change: I mean, clearly there's a lot going on in the policy World. We have not received a formal notice that this program.
Speaker Change: Specifically about the Puerto Rican.
Speaker Change: <unk> program, we have not received notice that that program has been cancelled formerly.
Speaker Change: And it is I think it's important to note that it's not tied directly to IRS funding or to any of the infrastructure funding that was the bipartisan infrastructure law that.
Speaker Change: That was out there from 2023 actually I think is R 22, even maybe I don't know where that funding came from but.
Speaker Change: IRA and Vil Theyre not.
Speaker Change: Puerto Rican daily Grant is not tied to that as separate I don't know if that gives it any better standing or worse.
Speaker Change: I would also note that one of our major competitors in residential batteries Tesla.
Speaker Change: Has.
Speaker Change: They are the largest residential battery provider in the Doa program for Puerto Rico. So.
Speaker Change: I think does that mean anything I don't know Im just saying I think it's important interesting point of context, I think around whether or not this.
Speaker Change: This program is targeted but again, we've not received any official notification and I would say that it's why we're putting a wider range on the sales for this year 300 to 400 it's.
Speaker Change: Theres more risk there obviously with the current policy environment, we'll see where it goes.
Speaker Change: We're still pretty excited about the opportunity when we bring new products into market.
Speaker Change: That entire business was not built on big projects like the Puerto Rico Doughy business, that's a nice opportunity for us this year, but long term we.
Speaker Change: We believe that self generation storage resiliency.
Speaker Change: Controlling power costs. These are all important things and considerations for homeowners and why these technologies over time, we believe are going to be needed and why they're important to our powering a smarter world strategy.
Speaker Change: Thank you Lisa.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Big ramp agree with Citi. Your line is open.
Speaker Change: Good morning, everyone I wanted.
Speaker Change: Wanted to ask about some of the assumptions underpinning the guidance I think Adam you talked about <unk> and pullback in demand last quarter.
Speaker Change: Wondering how much is the anticipated feedback baked into the guidance. After the strong surge you've witnessed last year and on a related note.
You talked about you can probably looking at pricing on new products and maybe more due to that is.
Speaker Change: And you're right you said its a price sensitive market. So how do you reconcile increasing pricing versus the strategy to push close rates higher and what would be distracted you to test the market sort of pricing, we do run pilots would you.
Speaker Change: Do you understand how much to raise the pricing, but it will slowly these pricing and see what the what the impact could close rates will be thank you.
Speaker Change: Yes.
Speaker Change: I can talk a little bit I think your question Vikram on the search we're not anticipating a pullback per say here in 2025.
Speaker Change: Normalization of a new and higher baseline is the assumption so and again I would say there is not a pullback because we satisfied the surge in demand in Q4 that was the search right. So that was the peak and then I guess, if you want to say, there's a pullback in the new and higher baseline assumptions and only 25.
Speaker Change: I think maybe the one notable point with that.
Speaker Change: Not necessarily a home standby point to make but a portable generator point to make which is we saw a lot of portable generators in Q4, our guidance does not assume major events. So therefore, we have a tough comp.
Speaker Change: That won't repeat so that has the effect of kind of dampening.
Speaker Change: Residential growth rates for the full years, that's been the guy and that is in the guidance. So just to be clear on the I just wanted to level set and then I think your question on close rates.
Speaker Change: Again, we've seen close rates compressed as I said in my prepared remarks, historically when we get these.
Large.
Speaker Change: Surges in demand for consultations or quotations for the products.
Speaker Change: Projects.
Speaker Change: They.
Speaker Change: They tend to take a little longer to close and they don't close at quite the rate because the markets are inundated with those so it just takes time for those quotes to mature and so we think that the close rates will start to rebound here in 2025.
Speaker Change: The commentary around testing and pricing I mean, we are doing a lot of things.
Speaker Change: Behind the scenes under the covers to see what we can do to find an inflection point in close rates either either to get close rates to improve faster or just to have them improve overall one of the things that we think is a needle mover in close rates as consumer financing. We've seen continued uptake in consumer financing as a percentage of all deals we think that theres more room to.
Speaker Change: To do more there and we are working with our partner synchrony on different programs. We're looking at other options that are there on how we can be more creative.
Speaker Change: And more aggressive with consumer financing because we have seen a.
Speaker Change: A high correlation between projects that have consumer finances financing as a component and better close rates. So we think that thats something that yes.
Speaker Change: He is going to be a continued area of focus for us in 'twenty five.
Speaker Change: Thank you ladies.
Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue I would now like to turn the call back over to Chris for closing remarks.
Speaker Change: We want to thank everyone for joining us. This morning, we look forward to discussing our first quarter 2025 earnings results with you in late April Thank you again and goodbye.
Speaker Change: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
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