Q1 2025 Generac Holdings Inc Earnings Call
Okay.
Hello, and welcome to General Rack Holdings, Inc. First quarter 2025 earnings conference call.
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Speaker Change: I'll now turn the conference over to Chris Robison, you may begin.
Chris Robison: Good morning, and welcome to our first quarter 2025 earnings call I'd like to thank everyone for joining us this morning.
Chris Robison: With me today is Aaron Yaacov, President and Chief Executive Officer, and York Ragen, Chief Financial Officer.
Chris Robison: 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 <unk> 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 Robison: Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors.
Chris Robison: 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 first quarter results exceeded our expectations, primarily driven by strong shipments of home standby generators during the period.
Eric: Residential energy technology sales also outperformed as eco we had another great quarter and shipments of energy storage shipments systems also exceeded our prior forecast. Additionally.
Eric: Additionally continued strong gross margins were the primary driver of adjusted EBITDA coming in well ahead of our prior expectations for the quarter.
Eric: On a year over year basis overall, net sales increased 6% to $942 million for the quarter.
Eric: Residential product sales were 15% higher than the prior year driven by strong growth in shipments of home standby generators in energy technology solutions.
Eric: C&I product sales declined 5% year over year with increases in the domestic telecom and industrial distributor channels more than offset by softness in other C&I end markets.
Eric: Favorable sales mix and lower input costs resulted in continued gross margin expansion of nearly 400 basis points from the prior year to 39, 5%, which is our highest first quarter gross margin level since 2021.
Speaker Change: <unk> and adjusted EBITDA margins, increasing to nearly 16% for the quarter.
Speaker Change: While the first quarter marked a strong start to the year, the dynamic and uncertain nature of tariffs and other federal policy actions has introduced a wider range of potential outcomes for our end markets in 2025.
York Ragen: As York will discuss in more detail, we are widening our guidance ranges for the year to reflect the potential impact of more restrictive trade policy on consumer spending.
York Ragen: As disclosed in our press release, our updated outlook assumes the current tariff levels hold for the remainder of the year with tariffs on Chinese imports at a 145% steel and aluminum tariffs at 25% and all other reciprocal tariffs at 10%, including the assumption that these reciprocal tariffs continue beyond the current 90 day pause.
York Ragen: While we anticipate a more cautious economic environment around the consumer.
York Ragen: Our updated guidance assumes the U S economy will avoid a full recession during 2025.
York Ragen: At today's tariff levels, and reflecting our current global supply chain, we expect our product costs will increase in the second half of 2025 by approximately $125 million prior to any mitigation efforts.
York Ragen: In response to these anticipated higher costs, we have raised prices across a wide range of products and we expect that our price actions will fully offset the cost of tariffs on dollar terms.
York Ragen: Additionally, we are executing on a number of supply chain and other cost reduction initiatives initiatives that will help to further offset the impact of tariffs and other cost increases over the next several quarters.
York Ragen: Now discussing our first quarter results in more detail home standby shipments increased at a mid teens rate from the prior year as we continued to execute on the strong demand from the elevated power outage environment that occurred in the second half of 2024.
York Ragen: Power outage hours during the first quarter were above the long term baseline average primarily driven by the wildfires in southern California, which is a growing but underdeveloped market for home standby generators.
York Ragen: As a result home consultations were lighter than expected relative to the overall outage hours in the quarter as the IHT the outage our ratio in California is below the ratio we have historically seen in other more mature regions.
York Ragen: Penetration rates for home standby generators in California are less than 2% and our sales and marketing teams are focused on continuing to develop this important market through increased awareness for our products as well as further expanding our distribution in the state.
York Ragen: As expected close rates remained under pressure in the quarter as a result of the elevated demand experienced in the second half of last year relative to our sales and installation capacity.
York Ragen: In addition to increased focus on optimizing our marketing investments during 2025 to further drive and customer demand for our products. We will continue to invest in lead optimization dealer development and expansion consumer engagement and further penetration of home standby finance offerings to help support longer term close rate improvements.
York Ragen: We ended the first quarter with more than 90 to 100 residential dealers in our network growing slightly from the prior quarter and representing an increase of more than 400 dealers over the prior year.
York Ragen: The significant growth in dealer count over the last 12 months is an important element of our ability to support our new and higher baseline level of consumer awareness for the home standby category by adding more sales installation and service capacity to our distribution network.
York Ragen: Similarly, the continued success of our aligned contractor program targeting electrical contractors that purchased our products through wholesale distribution has provided an additional channel for us to further engage and align with a broader set of contractors that are selling and installing our products.
York Ragen: Activations or installations of home standby generators increased during the first quarter as compared to the prior year with particular strength in regions that have recently been impacted by elevated power outage activity, including the southeast South central and west regions.
York Ragen: Growth in Activations continued early in the second quarter with similar regional trends experienced here in the month of April.
York Ragen: Importantly, our next generation home standby lineup is on track for the previously announced second half 2025 launch representing the most comprehensive platform update for the product category in more than a decade.
York Ragen: These new products will deliver numerous value added benefits for homeowners and our channel partners relative to the current product line.
York Ragen: For homeowners. This includes a lower total cost of ownership with improved fuel efficiency quieter operation and lower overall installation and maintenance costs.
York Ragen: The new product line also includes the industry's highest output air cooled home standby generator at 28 kilowatts, improving affordability on a per kilowatt basis as backup power needs grow in response to increased residential electrification trends.
York Ragen: For our channel partners, the new home standby lineup offers more efficient installation and service processes, including faster commissioning times and improved remote diagnostics ultimately, enabling their businesses to provide greater uptime for customers, while also saving time and money.
York Ragen: Additionally, the transition to our next generation home standby generator platform has provided our operations and supply chain teams with an opportunity to implement more automation in our manufacturing processes and further increase the resiliency and diversity of our supply chain.
York Ragen: Despite the projected impact of tariffs on the macroeconomic environment. We continue to anticipate growth in home standby generator sales for 2025, driven by an increase in activations during the first half of the year and higher pricing beginning in the second quarter.
York Ragen: We also expect the category to hold the new and higher baseline of demand that was achieved following the multiple major power outage events in the second half of 2024.
York Ragen: Additionally, we will continue to execute on our initiatives to support close rates dealer effectiveness and marketing optimization, while also working on various manufacturing and sourcing initiatives related to the new product launch as well as the mitigation efforts around tariffs.
York Ragen: Now moving to our residential energy technology solutions, which exceeded our expectations during the quarter. As a result of continued strong momentum at <unk> and the further execution of the department of Energy program in Puerto Rico for our energy storage solutions.
York Ragen: The team at <unk> continues to perform very well delivering robust sales growth during the quarter and exceptional gross margin improvement compared to the prior year with higher shipments across channels, most notably to our retail and pro channel partners.
York Ragen: We believe <unk> recently introduced lower cost smart thermostat offering will further drive market share gains by extending the product line into the faster growing value segment of the market.
York Ragen: <unk> connected homes Count also continues to grow rapidly having increased approximately 17% from the prior year, along with improving service attach rates and related recurring revenue.
York Ragen: Shipments of energy storage systems increased at a significant rate during the quarter as we continue to execute on the Doa program in Puerto Rico.
York Ragen: We also began taking our first orders earlier this month for power cell two our next generation energy storage system and we remain on track for our first shipments of these new systems later in the second quarter.
York Ragen: Our recent discussions with channel partners about the new platform have been very encouraging and we have received positive feedback on our unique approach to creating a residential energy ecosystem, providing unrivalled capabilities for homeowners to generate store monitor and manage their own power.
York Ragen: We believe our expertise in building and developing distribution our capabilities in direct to consumer marketing the strength of our brand and our financial stability combined with our differentiated ecosystem of solutions, including <unk> Smart thermostats power cell to energy storage devices electric vehicle Chargers in home standby generators creates an incredibly unique value proposition for both.
York Ragen: Installers and end customers.
York Ragen: Our prior expectation for residential energy technology sales in the range of $300 million to $400 million for the full year 2025 is unchanged given our current assumptions that the department of energy program in Puerto Rico continues as planned and the relevant portions of the inflation reduction act, including the investment tax credit for homeowners remain intact.
York Ragen: We also continue to anticipate <unk> will achieve profitability during the full year period.
York Ragen: Additionally, we believe that our residential energy storage systems will be minimally impacted by tariffs during 2025, given our current inventory levels.
York Ragen: We remain committed to investing in this strategically important area of our business and believe that the mega trends around lower power quality and rising power prices will provide growing in centers for homeowners to seek out solutions that help to both protect and lower the cost of their electricity over a longer term horizon.
York Ragen: For our commercial and industrial products during the quarter sales decreased by 5% on a year over year basis as growth in shipments to our domestic telecom and industrial distributor customers was more than offset by softness in domestic rental beyond standby and certain international end markets.
York Ragen: Shipments to our domestic industrial distributors grew again during the quarter as we continued to reduce our lead times for C&I products and the channel also experienced improved quoting activity and project win rates on a year over year basis.
York Ragen: Although we are encouraged by the resilience of this end market given recent trends in these leading indicators. We continue to expect that full year sales for industrial distributors will be softer compared to the prior year as a result of entering 2025 with a lower backlog.
York Ragen: Sales to National Telecom customers increased at a significant rate on a year over year basis. During the first quarter and we continue to expect a return to growth in this channel for the full year.
York Ragen: The telecom market represents an important long term growth opportunity for <unk>, given the secular trend around expanding global tower network installations, and the increasingly critical nature of wireless communications that require much higher power reliability.
York Ragen: As expected shipments to our national and independent rental equipment customers in the first quarter declined from the prior year driven by reduced capital spending from these accounts in our product categories.
York Ragen: Although we continue to expect this channel to be softer throughout the year and we believe that this end market is further runway for growth longer term as infrastructure related projects continued to build out over time.
York Ragen: Additionally, our effort to expand our product line into larger megawatt diesel generators remains on track as we formally began taking orders for these products earlier this month and expect initial shipments to begin later in the year.
York Ragen: We have experienced strong early indications of interest from prospective customers in the data center market that are seeking a reliable partner with more competitive lead times for emergency backup power Gen sets.
York Ragen: We believe that we are well positioned to take share in this market over time, given our unique focus which allows us to provide customized sales engineering and aftermarket experiences. While also providing data center customers with our nationwide service network to ensure greater uptime for these critical applications.
York Ragen: Internationally core total sales increased approximately 5% on a year over year basis. During the first quarter driven by strength in residential product shipments in Latin America, and higher intersegment sales to the U S market.
York Ragen: Although international C&I product sales declined from the prior year, we experienced.
York Ragen: <unk> positive order momentum in the quarter, which we believe supports our expectation of improved top line performance in our international segment over the remainder of the year.
York Ragen: We are also executing on our growing pipeline of data center opportunities internationally with initial shipments of our new large megawatt generators expected in the second half of this year.
York Ragen: In closing this morning, our first quarter results reflect strong performance in our residential product categories, given the benefit from elevated outage activity in 2024, and increasing momentum in our energy technology solutions.
York Ragen: As economic uncertainty grows we will continue to rely on our core corporate value of agility as we react to the rapidly evolving trade policy situation.
York Ragen: We have deep expertise across our engineering supply chain and operations teams and they will be focused on the execution of impactful opportunities to optimize our cost structure and positioning our supply chain to mitigate the impact of higher tariffs.
York Ragen: Importantly, the mega trends of lower power quality and higher power prices that support our longer term growth expectations remain firmly intact and we are confident that our powering smarter world Enterprise strategy is the correct approach for <unk> to help homeowners businesses and institutions solve these challenges.
York Ragen: I'll now turn the call over to York to provide further details on our first quarter results and our updated outlook for 'twenty 'twenty five sure. Thanks Aaron.
York Ragen: Looking at first quarter 2025 results in more detail.
York Ragen: Net sales during the quarter increased 6% to $942 million as compared to $889 million in the prior year first quarter.
York Ragen: The net effect of acquisitions and foreign currency had a slight favorable impact on revenue growth during the quarter.
York Ragen: Briefly looking at consolidated net sales for the first quarter by product class.
York Ragen: Residential product sales increased 15% to $494 million as compared to 429 million in the prior year.
York Ragen: As discussed growth in residential product sales was driven by a strong increase in shipments of home standby generators as we executed on the continued higher demand created by above average power outage activity in the second half of 2024.
York Ragen: In addition growth in shipments of both power cell energy storage systems, and <unk> products contributed to this strong year over year growth.
York Ragen: Commercial and industrial product sales for the first quarter of 2025 declined 5% to $337 million as compared to $354 million in the prior year.
York Ragen: Modest contributions from acquisitions were offset by an unfavorable impact from foreign currency, resulting in a net neutral impact on sales growth during the quarter.
York Ragen: The core sales decline was driven by softness in certain international end markets as well as a decrease in sales to national rental accounts and other direct customers for beyond standby applications, partially offset by growth in shipments of domestic telecom and industrial distributor customers.
York Ragen: Net sales to the other products and services category increased approximately 4% to $111 million as compared to $106 million in the first quarter of 2024.
York Ragen: Core sales increased approximately 1% primarily due to growth in aftermarket service parts connectivity subscription sales and international services revenue.
York Ragen: Gross profit margin was strong at 39, 5%.
York Ragen: Compared to 35, 6% in the prior year first quarter as a result of favorable sales mix given the relative strength of home standby sales and the realization of lower input costs.
York Ragen: Operating expenses increased $39 million or 16% as compared to the first quarter of 2024.
York Ragen: This increase was primarily driven by increased employee costs to support future growth across the business.
York Ragen: Additional marketing spend to drive incremental product awareness and ongoing operating expenses related to recent acquisitions.
York Ragen: Adjusted EBITDA before deducting for Noncontrolling interests as defined in our earnings release was 150 million or 15, 9% of net sales in the first quarter as compared to $127 million or 14, 3% of net sales in the prior year.
York Ragen: I will now briefly discuss financial results for our two reporting segments domestic segment.
York Ragen: Segment total sale.
York Ragen: Clothing, intersegment sales increased 9% to $782 million in the quarter as compared to $720 million in the prior year, including approximately 2% sales growth contribution from acquisitions.
York Ragen: Adjusted EBITDA for the segment was $123 million, representing 15, 7% of total sales as compared to 99 million in the prior year or 13, 8%.
York Ragen: International segment total sales, including inter segment sales decreased slightly to $186 million in the quarter as compared to $187 million in the prior year quarter, including an approximate 5% sales growth headwind from foreign currency, resulting in approximately plus 5% core total sales growth.
York Ragen: Adjusted EBITDA for the segment before deducting for Noncontrolling interests was $27 million or 14, 6% of total sales.
York Ragen: Compared to $28 million or 15% in the prior year.
York Ragen: Now switching back to our financial performance for the first quarter of 2025 on a consolidated basis.
York Ragen: As disclosed in our earnings release GAAP net income for the company in the quarter was $44 million as compared to $26 million for the first quarter of 2024.
York Ragen: Our interest expense declined from $23 6 million in the first quarter of 2024 to $17 1 million in the current year period as a result of lower outstanding borrowings and lower interest rates relative to prior year.
York Ragen: GAAP income taxes during the current year fourth quarter were $14 2 million or an effective tax rate of 24, 3% as.
York Ragen: As compared to $12 million or an effective tax rate of 31, 2% for the prior year.
York Ragen: The decrease in effective tax rate was primarily driven by certain unfavorable discrete tax items in the prior year period that did not repeat in the current year.
York Ragen: Diluted net income per share for the company on a GAAP basis was <unk> 73 in the first quarter of 2025.
York Ragen: Fair to 39 in the prior year.
York Ragen: Adjusted net income for the company as defined in our earnings release was $75 million in the current year quarter or a $1.26 per share.
York Ragen: This compares to adjusted net income of 53 million in the prior year or <unk> 88 per share.
York Ragen: Cash flow from operations was $58 million as compared to 112 million in the prior year first quarter and.
York Ragen: And free cash flow as defined in our earnings release was $27 million as compared to $85 million in the same quarter last year.
York Ragen: The change in free cash flow was primarily driven by an increase in working capital during the current year quarter, which.
York Ragen: Which included the replenishment of home standby and portable generator finished good inventories.
York Ragen: Partially offset by higher operating earnings.
York Ragen: Total debt outstanding at the end of the quarter was $1 3 billion, resulting in a gross debt leverage ratio at the end of the first quarter of one six times on an as reported basis.
York Ragen: Which is within our targeted gross debt leverage range of one to two times adjusted EBITDA.
York Ragen: Additionally, we opportunistically opportunistically repurchased approximately 717000 shares of our common stock during the quarter for $97 million.
York Ragen: There are still $250 million remaining on our current share repurchase authorization as of the end of the first quarter.
York Ragen: Moving forward, we will continue to operate within our disciplined and balanced capital allocation framework as we evaluate future shareholder value enhancing opportunities over the long term.
York Ragen: With that I will now provide further comments on our updated outlook for 2025.
York Ragen: As disclosed in our press release. This morning, we are updating our outlook to reflect a broader range of potential outcomes for our business, resulting from higher tariff levels.
York Ragen: Uncertain government policy actions and their related impact on the markets that we serve.
York Ragen: While we are maintaining the high end of our guidance ranges for net sales growth and adjusted EBITDA margin, we are reducing the lower end of these ranges to consider the potential impact of a softer economic environment.
York Ragen: This guidance includes the following important assumptions.
York Ragen: We are assuming that current tariff levels that are in effect today stay in place for the remainder of the year. This.
York Ragen: This includes 145% tariff levels for China, 10% reciprocal tariffs for all of the countries and the U S MCA still qualifies.
In addition, we're assuming that government policy around clean energy remains materially intact during the year.
York Ragen: This will include sustaining the investment tax credit as part of the inflation reduction reduction Act.
York Ragen: As well as continued federal support of our Department of Energy program in Puerto Rico.
York Ragen: We're also assuming interest rates continue to remain at elevated levels, resulting in more cautious consumer spending trends through the year, but not falling into recessionary conditions during 2025.
York Ragen: Finally, consistent with our historical approach this outlook assumes a level of power outage activity during the year in line with the longer term baseline average and does not assume the benefit of a major power outage event during the year, such as a major landed hurricane or major winter storm.
York Ragen: Considering these factors we are now we now expect consolidated net sales for the full year to increase between <unk>, 7% compared to the prior year, which includes an approximate 1% favorable impact from the combination of foreign currency and acquisitions.
York Ragen: This compares to our previous guidance of 3% to 7% net sales gross growth over the prior year as we expect tariff related price increases to potentially be more than offset by lower shipment volumes.
York Ragen: Specifically for the second quarter, we project net sales growth in the low single digit range driven by modest year over year growth in residential product sales and approximately flat C&I products sales as compared to the prior year.
York Ragen: This resulted in our second half sales weighting of nearly 56% of full year sales and is expected to be more level loaded throughout the third and fourth quarters.
York Ragen: Looking at our updated gross margin expectations for the full year 2025.
York Ragen: We now expect gross margin percent to be approximately flat with full year 2024 levels in the 39% range.
York Ragen: This is only a slight decline from our prior expectation for gross margin percent to approach, 40% for the full year 2025.
York Ragen: Given the incremental macroeconomic uncertainty we.
York Ragen: We are also proactively addressing potentially lower shipment volumes with targeted operating expense reductions relative to our prior forecast.
York Ragen: These broad based actions are expected to hold our full year 2025 operating expenses as a percentage of net sales approximately in line with previous expectations.
York Ragen: Turning to our adjusted EBITDA margin expectations for the full year 2025, we have widened our guidance range to approximately 17% to 19% compared to our previous guidance range of 18% to 19%.
York Ragen: Primarily due to the unfavorable impact of reduced operating leverage on potentially lower shipment volumes importantly.
York Ragen: Importantly.
York Ragen: The estimated impact of higher tariffs is expected to be fully offset by pricing actions and supply chain initiatives.
York Ragen: Quickly for the second quarter, we expect adjusted EBITDA margins to decline slightly compared to the first quarter of 2025 run rate before sequentially improving to nearly 20% for the second half of the year given the projected significant operating expense leverage on seasonally higher sales volumes.
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 the full year 2025.
York Ragen: Importantly to arrive at appropriately 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.
York Ragen: For 2025, our GAAP effective tax rate is now expected to be between $24, 5% to 25%.
York Ragen: Slight increase from our prior guidance of 24 to 24, 5%.
York Ragen: We continue to expect interest expense to be approximately $74 million to $78 million for the full year 2025, assuming no additional term loan principal prepayments during the year.
York Ragen: This is a significant decline for 2024 levels due to a decrease in outstanding borrowings and the full year impact of lower sulfur interest rates.
York Ragen: Our capital expenditures are still projected to be approximately 3% of our forecasted net sales for the year.
York Ragen: In line with our historical levels as we continue to invest in incremental capacity and execute other projects to support future growth expectations.
York Ragen: Depreciation expense is now forecast to be approximately $90 million in 2025 and.
York Ragen: And GAAP intent GAAP intangible amortization expense in 2025 is now expected to be approximately $100 million during the year.
York Ragen: Stock compensation expense is still expected to be between 30.
York Ragen: 53% to $57 million for the year.
York Ragen: Operating and free cash flow generation is expected to be disproportionately weighted toward the second half of the year in 2025, as we expect to replenish home standby and portable finished good inventory levels. During the first half of 2025.
York Ragen: As a result for the full year.
York Ragen: We expect free cash flow conversion from adjusted net income to be between 70% to 90%.
York Ragen: This is a wider range compared to our previous guidance of 80% to 90% due to a projected larger use of cash for inventory as a result of higher tariffs during the year.
York Ragen: As a result of our first quarter share repurchases are.
York Ragen: Our full year weighted average diluted share count is now expected to decrease modestly to approximately $59 5 million shares.
York Ragen: As compared to $60 3 million shares in 2024.
York Ragen: Finally, this 2025 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value during the year.
York Ragen: This concludes this concludes our prepared remarks at this time, we'd like to open up the call for questions.
York Ragen: Thank you.
Speaker Change: 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.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Please limit yourself to one question only.
Speaker Change: Please stand by 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.
Speaker Change: Good morning, and thanks, Thanks for taking my questions Hey, Tommy.
Tommy Moll: Aaron I wanted to ask about the new product launches.
Speaker Change: For the data center end market.
Speaker Change: You put out a press release earlier this month with a lot of product details. So my question is really in two parts. One just if there's anything on the product design do you want to make sure to highlight for US and then Relatedly you mentioned.
Speaker Change: The ability to service this installed base one day with the nationwide service network I just wanted to make sure that go to market here.
Speaker Change: Perhaps similar to your telco sales, so sort of a direct sale, but then leveraging that service and aftermarket.
Speaker Change: Through your dealers.
Speaker Change: Understanding please let me know thank you.
Tommy Moll: Thanks, Tommy So yes super excited about.
Speaker Change: Our data center product line or a large megawatt diesel lineup.
Speaker Change: Data centers, obviously are a prime target also though our existing customers as we've talked before kind of the existing end markets. We serve from municipalities to manufacturing distribution health care. They all require larger blocks of backup power as well. So we feel like that's a part of the market that we haven't historically, so we're gonna be able to do that.
Tommy Moll: As it relates to data centers to take the second question first Tommy with data centers the comment about the nationwide service network.
Tommy Moll: Your assumption is exactly correct, we're going to ride on the back of what we've built for direct sales to our telecommunications customers primarily.
Tommy Moll: Thats a network we've built over the last 40 years, it's a combination of technicians with our industrial distributor.
Tommy Moll: Customers as well as our own Idc's, our owned company stores and so with that asset we're going be able to leverage that to serve on a coast to coast basis. The direct sales of data center products now outside of that for other applications outside of data centers for those larger products.
Tommy Moll: We'll service those products and in a similar fashion to the way we take care of products that we sell through those other applications, which is primarily through our industrial distributor channel. They generally do that we will occasionally jumping in if we need to.
Tommy Moll: Not unusual for us to we've got great resources here, even in Waukesha, Wisconsin, we can put somebody on a plane and they can be anywhere in the U S and less than four hours.
Tommy Moll: And beyond the ground.
Tommy Moll: Two to get something.
Tommy Moll: Up and running if theres, a problem or to assist a customer or.
Speaker Change: And then the operator or a distributor with the with that as far as the product itself is concerned I think what I would call out we made a little bit of a reference to it in our prepared remarks, but one of the hallmarks that we have as a company here in our C&I products space is our ability to customize.
Speaker Change: That is something that we brought to the market and really differentiates <unk> I think there is in our business. There is a couple of different models that are deployed.
Speaker Change: We are a true gen set manufacturer here others might just be assemblers.
Speaker Change: And even others might be building a base product and then sending it out to distribution partners or third parties to do that customization.
Speaker Change: We prefer to do a lot of that customization in house, both to control the quality and the cost and the control of the lead times that are associated with that and Thats. One of the things. We think is an important differentiator here is that we're going to take that business model as we've deployed on our broad C&I product line, we're going to extend that into these new products and offer these customers.
Speaker Change: Customization that are done at the factory from an engineering perspective, and from a manufacturing perspective sourcing perspective, obviously there are still pieces of this that will have to be done by third parties, sometimes that can be a specific type of canopy or enclosure thats on the unit those could be still done by third parties, but we're going to try and capture much more of.
Speaker Change: Then the market currently serves today and we think that will help differentiate us coupled with the lower lead times and shorter lead times as we've talked in the past.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Joel <unk> with Canaccord. Your line is open.
Joel: Hi, Good morning, everyone. Thank you for taking my question.
Speaker Change: Morning.
Speaker Change: I can appreciate the widening of the range guidance given the macro uncertainty.
Speaker Change: So if you can share any anecdotes or any data as to what.
Speaker Change: You may be seeing underground day that may lead you to believe.
Speaker Change: And see a softening in the business. Thank you.
George: Thanks, George Great question.
Speaker Change: Uh huh.
Speaker Change: There's a lot of different ways that different companies are approaching guidance right. I mean, I think you guys have all seen a wide range of outcomes here with people some companies, preferring not to give guidance others, maybe giving multiple.
Speaker Change: <unk>.
Speaker Change: Yes look multiple scenarios, we're not that smart. So we just decided look we have our guidance we know are.
Speaker Change: We know what our business does when the economy slows down and we know the impacts that can occur.
Speaker Change: As an example, higher prices, but there are some elasticity of demand that we are aware of in different categories based on history. So we tried to apply all of that put our best foot forward with guidance. We didn't think that pulling guidance was the right approach either so we felt like giving just basically sharing everything we know and so to your question George what we know.
Speaker Change: Is that higher prices tend to dampen demand.
Speaker Change: Overcoming that though we also know that outages matter more than anything in our business. So as we've said historically here.
Speaker Change: I think we hesitate to use terms like decouple or.
Speaker Change: We're countercyclical when it comes to the economy, but when the power goes out.
Speaker Change: People re prioritize their spending.
Speaker Change: And we tend to see generator sales be very resilient.
Speaker Change: In the face of any economic conditions, good or bad frankly, and so our assumptions I think the big assumption that we've made here and make every time, we do guidance is that the outage environment is going to be in line with our long term average should the outage environment be lighter than that we could underperform should it be greater than that we can.
Speaker Change: Outperform.
Speaker Change: Maybe thats at the low end of the range or the higher end of the range.
Speaker Change: We chose to take the low end of the range down.
Speaker Change: Because primarily where we do see pricing and have history with elasticity of demand impact is in the consumer market. So even though even if we were to maintain outages or hit that outage number in the long term average there are going to be some buyers who may fall out of the funnel if prices go up and we just we just know that.
Speaker Change: And we tried to reflect that I think in our guidance to the best of our ability.
Speaker Change: But time will tell I mean, there is a tremendous amount of uncertainty right now around the overall economic environment. The consumer in particular, but I think what we've seen on the ground and what Youre hearing from others is the consumer is kind of hanging in there I think visa reported this morning, I think youre seeing consumer flows in terms of spending habits and things.
Speaker Change: It really changed dramatically yet.
Speaker Change: But again this is there's a lot of uncertainty and we have to see what the next 60 to 90 days brings I think that will tell us a lot both in kind of the.
Speaker Change: The statistics that we all watch, but also kind of what happens with the current administration with some of the current trade policy efforts and the negotiations that are ongoing. So we're all waiting eagerly to hear what's going to happen next.
Speaker Change: I think the good news is we're used to.
Speaker Change: Having to pivot we called out our core one of our core values here at the company, which is agility, we're very proud of that agility I think it underpins, what we do here and being able to react to.
Speaker Change: External stimuli that happened in demand as well as.
Speaker Change: Net things can happen on the supply side and that's what we're reacting to today.
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: Hey, good morning, everyone.
Speaker Change: Good morning, Mike.
Speaker Change: So just kind of a follow up on that area and I certainly understand the logic behind the broadening out of the range I just want to understand the moving pieces that are at the lower end of the range.
Speaker Change: It sounds like that is driven almost exclusively by demand generation.
Speaker Change: <unk> degradation.
Speaker Change: And you still feel relatively comfortable having on an EBITDA dollar basis neutral from all the tariff impacts.
Speaker Change: Is that true or false am I interpreting that correctly and then secondarily can you just give us some sort of framework for how much of your Cogs are exposed.
Speaker Change: Any kind of regional sourcing dynamics you might have thank you guys. Thanks.
Speaker Change: Thanks, Mike So the low end of the range I mean, what we wanted to do there is to reflect the potential impact by the way to the consumer right. So.
Speaker Change: I mean, obviously, if you look at the midpoint of the guide it does come down 150 basis points from the previous guidance and that is to your point reflective of and our assumption is reflective of a softer consumer environment.
Speaker Change: That demand destruction, if you want to call it that being offset by pricing while higher pricing.
Speaker Change: And all of that going to offset on a dollar for dollar basis, those pricing impacts to offset the tariff impacts and to give you just a little bit of color, we called out $125 million of potential impact here in the second half given no mitigation efforts and the tariffs being exactly where they are today, that's what that's what the second half would bring us to 125 million.
Speaker Change: From just from a supply chain standpoint, we source.
Speaker Change: About so roughly 70% to 80% of our Cogs is materials.
Speaker Change: We source about 50% of those materials are sourced in the U S or in North America. The other 50% outside of North America.
Speaker Change: And outside when you look at kind of as a percentage of our total material purchases.
Speaker Change: It's really spread out I mean, it was an incredibly global supply chain, we buy a lot from Europe, we buy a lot obviously from Asia as do a lot of other other companies.
Speaker Change: The China exposure, specifically is less than 10% of our material purchases on an annual basis.
Speaker Change: And frankly, that's been cut in half from where it was five years ago. When we went through Covid in the first round of tariffs we've been working very hard to to further diversify our supply chain in fact, with our new product offering in home standby, we're kind of taking the next leg of diversification of the supply chain moving away from.
Speaker Change: Some of those countries that are have higher tariff.
Speaker Change: And really were on our roadmap to move away from any way will come down so they'll come down even further we think that that could be half again at less than 10% can be something even half again from that number in the next 12 to 18 months as we launch our new products and we get the supply chain.
Speaker Change: Oriented around.
Speaker Change: Further diversification so we feel like we're in a good position here, we just have.
Speaker Change: To be very blunt, 145% is a big number for tariffs right and so and.
Speaker Change: So absorbing that is really difficult.
Speaker Change: And we have to pass that along and price now if that doesn't persist here if something changes in the next 30 to 60 days, we can still react to that we had because we have a new product line coming we're going to reset pricing anyway on that new product line in the second half of the year. So we've got some time and if you look at our balance sheet right now youll see a little bit more inventory on our balance sheet at the end of Q1 because we.
Speaker Change: We're building ahead of that transition, so sometimes better to be lucky than smart right. I mean, we we were building because of this transition but in fact, a lot of that inventory is not at these tariff levels. So and also as we called out just as another note to that.
Speaker Change: Clean energy business with storage, we have a lot of inventory leftover in that market as well. So we don't believe we're going to have any tariff impact to those products in 2025, it's really some on the consumer side and then on the C&I side and that's what we're focused on mitigating that and we're paddling hard to do that.
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.
Speaker Change: Hey, Jeff Good morning, Jeff.
Speaker Change: <unk> cadence is a little bit different than normal I'm just wondering.
Speaker Change: What if any you saw kind of pull forward.
Speaker Change: Selling versus sell through kind of getting ahead of price increases.
Speaker Change: Our channel partners and then just in general.
Speaker Change: Our IHS afterglow trending in the markets, where you saw storms kind of relative to history.
Speaker Change: Hey, you want to take a pacing.
Speaker Change: No in terms of the pull forward question, Yes, we did have a good quarter lost in all of this is Q1 was a very good quarter I would say there was only a small amount probably that was pulled forward.
Speaker Change: To to get ahead of the price increases that were launching on home standby, maybe $20 million roughly so relatively small number on the pull forward side yeah.
Speaker Change: And I would just say a commentary on the IFC kind of afterglow Geoff to your question.
Speaker Change: It's interesting.
Speaker Change: This is a business, where you see outages, perhaps seen outages.
Speaker Change: You see youll.
Speaker Change: Youll see strength and a lot of the metrics and where outages hasn't happened for a while.
Speaker Change: And so if you could just kind of parse a part of our <unk> IC numbers.
Speaker Change: Outage.
Speaker Change: <unk> remained very strong like in the southeast coming out of a strong second half of last year with the outage environment and then the western regions with what we saw in California with the wildfires, even though in our prepared remarks, we talked about that California represents still a pretty immature market for us relative to other markets in terms of a lot of outage hours, but we didn't get a ton of them.
Speaker Change: It grew dramatically, but it kind of underperformed, where we would expect a mature market to perform with that many outage hours, but that's really because it's still developing right. We're less than 2% penetrated there we're growing at double where it was five years ago, but still represents a great opportunity for us, but just not the same level of intensity if you will.
Speaker Change: <unk> of Iac's per outage hours, there and we kind of called that out but the trends are and then kind of.
Speaker Change: On the off side of that equation.
Speaker Change: East, Canada, we didn't have a lot of outage events winter outage events this year.
Speaker Change: In Q4, and Q1 and that we have lower <unk>. So I think we're seeing good afterglow in those markets that.
Speaker Change: Rughal with outages last year second half of last year as well as what we saw in Q1.
Speaker Change: And in the areas that didn't.
Speaker Change: We kind of got what we would expect there which is lower iht's year over year.
Speaker Change: Thank you.
Speaker Change: 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.
Brian Drab: Hey, good morning, Thanks for taking my question good morning.
Speaker Change: I was wondering if we could talk.
Brian Drab: Talking about the impact more specifically of the.
Speaker Change: Assumption that the China tariff remains at 145%.
Can you give us any any.
Speaker Change: Granularity on what percentage of.
Speaker Change: Cogs is currently material so we can kind of I.
Speaker Change: I know you said.
Speaker Change: Material sales materials.
Speaker Change: Input from China is.
Speaker Change: <unk> is under 10%, but still seems like there could be a really big.
Speaker Change: A big number.
I'm, just trying to figure out what what happens to your guidance yet.
Speaker Change: If we reverse this situation with China are mitigated significantly.
Speaker Change: Yeah, sure I would say that the $125 million.
Speaker Change: About two thirds of that is really China related. So I mean, you can do the math on that whatever I don't have a calculator in front of me, but whatever that is.
Speaker Change: If it goes to <unk>.
Speaker Change: 887 million whenever that is if it goes to 50%. Then then you can impute the impact that that would have not.
Speaker Change: Not only in the second half of the year, but obviously you know whatever 2026 models you might be looking at as well, Brian, but but yes, I mean look at again, China continues to be a smaller part of our supply chain overall.
Speaker Change: And that's been a trend we've been on for you know for some time now and continue to work at I think the decoupling in these two economies is clearly underway has been probably underway for some time is just being accelerated today with.
Speaker Change: These these these.
Speaker Change: Current with the current set of trade policy things and enforce and if those change if theres some kind of a grand bargain. That's that's.
Speaker Change: Truck here between the two countries.
Speaker Change: We will watch that closely because obviously, what we don't want to do and what other companies probably are trying to avoid as well is you don't want to.
Speaker Change: We're trying to avoid passing along the full impact of that to.
Speaker Change: To the market, if we don't need to right, if there's going to be some change or certainly.
Speaker Change: Trying to.
Speaker Change: Reflect the future changes are going to continue to happen in the supply chain, we want to reflect that and how we think about.
Speaker Change: We want to be thoughtful in how we think about pricing to the market right. We don't want to just because again.
Speaker Change: Increasing the price is going to put pressure on demand.
Speaker Change: Even though outages.
Speaker Change: Ultimately our the biggest thing that matter you still youre still going to see people fall out of the funnel around the edges with higher price. That's just that's just part of what the math is when you look at elasticity of demand around this category.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Jerry Revich with Goldman Sachs. Your line is open.
Jerry Revich: Yes, hi, good morning Arun.
Arun: We've seen just continued really good category interest.
Jerry Revich: April and then I'm wondering if you could just talk about what kind of conversion.
Speaker Change: Its youre seeing between.
Arun: <unk> into orders.
Jerry Revich: The chart you shared at the analyst day.
Jerry Revich: Are we closing back to where we were.
Jerry Revich: Last cycle on that category given the.
Jerry Revich: The high level of interest.
Jerry Revich: Yes.
Jerry Revich: Through April.
Jerry Revich: Yeah, Thanks, Jerry actually close rates.
Jerry Revich: We kind of saw pressure in Q4.
Jerry Revich: In the back half of last year really is and this happens historically when you get.
Jerry Revich: Big demand events like we saw in the second half of the year that tends to kind of swamp. The boat in terms of our capacity with with sales and installation bandwidth and then we fill in behind that with new distribution.
Jerry Revich: We increase awareness in markets like California, and like I was speaking to that are a little bit more mature and then close rates recover over time. So it's a cycle. That's been repeated for 12 months you have to look at it.
Jerry Revich: The maturity of the close rate over time looking at it at a point in time is I think it's only representative of maybe what you've seen just over 90 days as opposed to looking over a longer period of time, some people just take longer to make that decision.
Jerry Revich: Sometimes they need a promotion or they need an extra level of engagement with our teams or our dealer teams.
Jerry Revich: To get them over over the off the fence in terms of buying so we saw pressure on close rates again here in Q1. It has moderated from the decline rates that we saw in the second half of the year, but we should start to see and have modeled a recovery of that for the balance of the year again consistent with what we would see historically, but those rates were.
Jerry Revich: Under pressure in the second half of the year last year and remained so here in Q1.
Jerry Revich: As expected it wasn't it wasn't anything worse than expected.
Jerry Revich: Thank you.
Jerry Revich: Please next question.
Speaker Change: Our next question comes from the line of Mark Strouse with Jpmorgan. Your line is open.
Mark Strouse: Hey, good morning, guys. Thanks for taking my questions Marc.
Speaker Change: Apologize I'm going to ask you to go down another another rabbit hole here with the kind of scenario analyses, but just thinking about the indirect impact of tariffs and specific to steel prices.
Mark Strouse: Which are up $35, 40% ish.
Mark Strouse: I'm, assuming your 2025 guide is buffered somewhat by your hedges, but assuming there.
Mark Strouse: Excuse me, assuming tariffs stay in place and steel prices remain elevated once those hedges expire can.
Mark Strouse: Can you just kind of talk about how we should think about that in terms of either margin impact or the pricing reaction that might be needed in order to offset it. Thank you.
Mark Strouse: Thanks, Mark Yeah, So I mean, we.
Mark Strouse: Obviously, our biggest inputs are steel aluminum and copper those are the three big ones.
Mark Strouse: And to your I think one of your <unk>.
Question, we saw some pressure there even if we have metals that weren't impacted directly by tariffs the indirect effect of tariffs is that it gives.
Mark Strouse: Steel producers.
Mark Strouse: And the mills and other fabricators gives them great air cover for increased pricing in some cases or just the market.
Mark Strouse: Taking those prices higher to your point, we have reflected that in our guidance here at the current level. So should they go higher could it be a headwind we do have some hedges and some of those metals, but not dramatically. So.
Mark Strouse: It's pretty small.
Mark Strouse: And so I would just say that we react to historically the way we reacted with that is more price, but we do have other levers to pull.
Mark Strouse: We've referred to it a few times in the past we have an ongoing product enhancement our profitability enhancement program, we call. It pop here, it's a cost out program thats kind of institutionalized in our business and we really use that to help us offset a lot of inflationary kind of typical inflationary pressures I wouldn't call. It tariff related things typical by any means but yes.
Mark Strouse: Some of the metals things, maybe you could argue they're atypical, but then again you look historically, where some of those metals prices are at and they are not kind of the heights that they hit after it when COVID-19 hit they are elevated but we'll watch them I think some of that is going to be offset by always call. It out we're seeing shipping rates draw.
Mark Strouse: Dropped dramatically right, so container rates sailing rates from Asia to the U S are down there in half from what they were even 30 days ago and falling hard and I think everybody has seen the reports of just the number of sailings that are they're down $25, 30% to 35%.
Mark Strouse: Over the last four to six weeks and that is opening up I think.
Mark Strouse: Some opportunities there to reduce our logistics cost so maybe there'll be an offset to some of that so there's always moving pieces with with those inputs.
Mark Strouse: But I would tell you that we reflected everything in the guide today that we know and we would respond accordingly with additional cost outs or pricing should those those inputs go even higher in the future.
Mark Strouse: Thank you.
Mark Strouse: Please standby for our next question.
Speaker Change: Our next question comes from the line of Keith Keith <unk> with Northcoast Research. Your line is open.
Speaker Change: Morning, guys, just trying to understand a little bit better the impact of tariffs across the product line. Obviously, you guys got a pretty diverse lineup focus.
Speaker Change: But others as well can you just give us an idea which of your products are probably most impacted by the tariffs as well as the increased cost.
Speaker Change: Keith we're not going to provide it on a product by product basis, because it's just I mean, there's so many different products even within certain product families. We've got certain items that are more sensitive to tariffs because of where we source them from them then maybe a similar product in the same lineup. So it's just it's not really something that we're going to give that level of granularity.
Speaker Change: Pretty around again, we would just point to kind of a 125 million that we've given.
Speaker Change: We continue to work that down we believe we have got great.
Speaker Change: Great opportunities to mitigate and again 925 is completely on mitigating that assumes that that other than what we've got in flight here It assumes that.
Speaker Change: Those tariffs stay at high levels and that we don't have any other mitigation opportunities.
Speaker Change: So should the tariffs either come down or the mitigation.
Speaker Change: Grow the opportunities to mitigate grow that will come down as well so.
Speaker Change: Yes.
Speaker Change: Wouldn't say that any one of our products is more sensitive or less sensitive we have sensitivities across all products in some manner to tariffs are just there are so many things in supply chain I just don't I don't know if people really get that there's just whole industries that aren't here in the U S.
Speaker Change: Can't buy things, we can't buy everything from the U S. Maybe over time that can be developed but definitely not over 30 days, that's just not how it works.
Speaker Change: Everybody is generally aware of that but just having more time and being thoughtful about how we deploy this.
Speaker Change: Be more helpful for companies industries markets to absorb I.
Speaker Change: I do think that some of Thats already underway has been underway for the last several years and we will now accelerate but there are also other big challenges on the other side of that in terms of availability of labor here in the U S.
The cost to automate even if we automate a lot of the automation equipment or parts of the automation equipment come from high tariff countries. So cost of automation is going to grow.
Speaker Change: So theres a lot of kind of structural issues that have to be dealt with here.
Speaker Change: In order to shift the supply chain, whether it be re shoring or near shoring.
Speaker Change: Decoupling from some specific other economies. It just takes time to do that and we're all working towards that goal.
Speaker Change: To continue to work towards that goal, but there's going to be no avoiding some level of tariffs and by the way they're already tariffs in our run rate the $125 incremental tariffs based on the latest changes here. So there is a certain level of tariffs already in our run rate reflected from the three.
301 tariffs and other tariffs that were put in.
Speaker Change: In previous years.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of John Wenham with UBS. Your line is open.
John Wenham: Alright, perfect. Thanks, just a quick housekeeping question I was just looking at your global manufacturing footprint can you remind us.
John Wenham: The activities for Mexico, India, and China manufacturing facilities.
John Wenham: Sure I mean, we have facilities in all three of those countries.
John Wenham: And a lot of it is around a in country for country manufacturing strategy because generators are big heavy products and Theyre also localized four codes and cogent Sanders electrically and for a lot of tailpipe emissions that differ from one country to the next we do manufacture some products as an example in Mexico, we called out there.
John Wenham: The intersegment sales internationally to the U S. There is a little bit there that we do manufacturer, but a lot of what we do in Mexico is for central is for Mexico, and Central America. Some for South America, what we do in India is almost exclusively for India and what we do in China is for a mix of China and Europe, primarily.
John Wenham: So I think those footprints are well established I do think that it's interesting I mean, we have some unique flexibility I think because of that.
John Wenham: As we examine.
John Wenham: Again looking at mitigation strategies around tariffs, how can we utilize best utilize our footprint our international footprint to help us mitigate the impact of tariffs are there ways that we can shift more production to areas that where we benefit from the U S. MCA.
John Wenham: Agreement as an example today, we don't do a lot of that down in Mexico.
John Wenham: But we could maybe do more.
John Wenham: We think we have a lot of plants right here in the U S. As well, we just opened a new plant in Wisconsin, and Beaver Dam, Wisconsin, one of our biggest plants in the U S. Just went online April one.
John Wenham: And that serves our mostly our C&I products here in the U S and Canada for products and so pretty pretty proud of that we've got seven facilities seven big manufacturing plants here in the U S. It's been a big supporter of manufacturing here in the upper Midwest for a long time, its our heritage its our history.
John Wenham: And frankly, the U S market still represents a great opportunity for us and that's why we're committed to this.
John Wenham: This market, but we're going to utilize our footprint in the best manner possible to help us mitigate the impact of tariffs.
John Wenham: Thank you.
John Wenham: Please standby for her next question.
Speaker Change: Our next question comes from the line of Jordan Levy with <unk> Securities. Your line is open.
Jordan Levy: Good morning, all thanks for squeezing me in I don't know.
Speaker Change: I didn't think I heard much on.
Speaker Change: The club.
Speaker Change: The Q&A, but maybe just on the resi solar space still remains under pressure here in the near term not a surprise I know you've got some good inventory of power cells go into Puerto Rico. This year to help kind of bolster that segment I'm just wondering how youre thinking about some of the new product Rollouts, there and the economics around those given both the tariff.
Speaker Change: Domestic challenges to that bucket.
Jordan Levy: Yes. Thanks for the question Jordan Youre right. We Havent spent a ton of time on <unk>, but it actually had we had a great quarter in energy Tech.
Speaker Change: A lot of that underpinned by <unk> as we said they continue to just knocked the cover off the ball.
Jordan Levy: In terms of their market share.
Speaker Change: They introduced a new low cost kind of entry level.
Speaker Change: T Stat smart thermostat in the fourth quarter, and it's been very well received and kind of going after that value.
Speaker Change: Portion of the of the marketplace, but even in the clean energy piece, which is the other piece of the energy technology complex for US. We also had a great quarter now its off of a very small base and.
Jordan Levy: And it's primarily right now as you indicated Jordan we've got this nice chunk of business with the Department of Energy program in Puerto Rico, We've got inventory for that program. We've got our installs were ramping there.
Speaker Change: And we're starting to hit our stride in terms of install rates and things.
Speaker Change: Economic or decent on that.
Speaker Change: But we've got our eyes on the future as we have talked about here for some time is we've been working on our next generation product lines.
Speaker Change: For storage in particular, we opened up our order book here recently for power sell to which is the next generation version of our storage system and have had some really good dialogue with installers, who are looking for alternative options, there's been somewhat of consolidation in the storage market given the given the.
Speaker Change: Current state of the solar market in general there is some of the suppliers are exiting I think you may have seen yesterday, Panasonic announced that they are leaving the U S market and there have been others that have announced they're leaving the U S market as well as and that consolidation of supply I think opens up a couple of things for us.
Speaker Change: That.
Speaker Change: Could end up being positives again off of a pretty small base for us, but I think you've got.
Speaker Change: We've got some some pretty high hopes that.
Speaker Change: Storage in particular, if you look at the economics, you know you can take away the incentives and even if the ITC goes to zero.
Speaker Change: Are there some re.
Speaker Change: <unk> narrowed the ITC with more domestic content requirements whatever that may be.
Speaker Change: With less support.
Speaker Change: The reality of it is power cost continue to rise and that is that is the real kind of nugget I think that's really important here and why things like solar and storage are going to make sense long term with or without support.
Speaker Change: Those things had to be weaned off of support at some point in the future anyway, and so I don't think anybody saw that coming.
Speaker Change: Might be an abrupt weaning off of the support but that might be filled in by certain state level programs and things like that I think the market is going to react to that but I do think that when you look at the payback of a solar plus storage system in a high cost or high tariffs area high electrical rate tariff area.
Speaker Change: <unk> is still going to be strong even without incentives and the need for resiliency is still going to be strong because power quality is continuing to go lower and so we just again, maybe that has some impact on the total addressable market in the near term here over the next several years until that washes through.
Speaker Change: But our new products, they're going to be lower costs are going to be higher performing kind of on level footing with the rest of the market offerings and then we've got some other exciting new product offerings behind that that we've alluded to in the past, but you'll hear more about it already plus this year, that's the renewable energy show in Las Vegas in September.
Speaker Change: So I encourage you to come and see what we're launching there, but very encouraged by what we're seeing certainly with our smart thermostats and our <unk> business and then also the <unk>.
Speaker Change: The recovery that we're seeing in energy technology at this point for us.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Our next question comes from the line of Sean Milligan with Janney. Your line is open.
Sean Milligan: Thank you for fitting me in and thank you for all the detail today, I guess on the $125 million impact.
Speaker Change: From tariffs can you kind of talk about how much you expect to.
Speaker Change: I'll get back from price increases versus cost out supply chain initiatives, and then honestly I don't know if you addressed it but last quarter you changing out price increases for the new product in residential home standby curious if you could update us on kind of how much total price increases you expect resignations fee. This year now with tariffs.
Speaker Change: Yes, I think in terms of the pricing impact to offset the tariffs.
Speaker Change: The 125 in the second half.
Speaker Change: The philosophy. We took is we wanted to have enough mitigation to offset.
Speaker Change: The impact of those dollar for dollar as well as the at the EBITDA margin level right.
Speaker Change: EBITDA percent basically holding our EBITDA percent so basically.
Speaker Change: So.
Speaker Change: So the price, we're putting in the market as well as the supply chain initiatives that we're working on at least in the short term will should do that now having said that there's a lot more work going on behind the scenes from a supply chain standpoint, too to continue to mitigate and diversify our supply chain. So so we'll work on that and continue to uptick.
Great.
Speaker Change: Update our progress on that but.
Speaker Change: The pricing that we're going out with is to basically hold that EBITDA margin percent at the EBITDA line right now with the announced pricing the 7% to 8% price increases that we merged that went into effect March 30th. So that's what's contemplated in the guide that's what you're referring to in terms of the offset too.
Speaker Change: To maintain EBITDA margins.
Speaker Change: Basically in that category, if we're just talking about home standby now.
Speaker Change: We have a new product line coming in the second half of the year, we are going to go with another price adjustment there, but that's really reflective of the additional value that we're extending to customers and channel partners with that product is theres a lot of additional features and things that are in that product.
Speaker Change: Obviously, theres a little bit more cost related to those even takeaway the tariffs and everything else that was it.
Speaker Change: In fact, I would argue that new product line actually reduces our tariff exposure because of the supply chain is actually effectively more diverse. So it's there is a combination of that so it's a little bit there's a lot of moving pieces underneath that.
Speaker Change: But at the end of the day when you look there might be a little bit more price associated with tariffs alongside of that increase that goes out for the new product line, but it won't be much of a seven to eight is really kind of the <unk>.
Speaker Change: Point of that today, and then we'll have <unk>.
Speaker Change: Yes, it will kind of see where the tariffs.
Speaker Change: Again were trying not to get ahead of ourselves with putting too much price in the market.
Speaker Change: We will if we need to and we've kind of assumed that if we had to do that we would but I think we're watching closely to see where these negotiations go on a country by country basis with the current the current administration.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, due to the interest of time 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 second quarter 2025 earnings results with you in late July Thank you again and goodbye.
Speaker Change: Ladies and gentlemen that does concludes today's conference call. Thank you for your participation you may now disconnect.
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