Q2 2025 Generac Holdings Inc Earnings Call

July 30, 2025

<unk> only mode.

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 will then hear and automated message advising that your hand is raised to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.

Chris Roseman director of corporate Finance and Investor Relations. Please go ahead.

Good morning, and welcome to our second quarter 2025 earnings call.

Like to thank everyone for joining us. This morning with me today is Aaron <unk>, President and Chief Executive Officer, and York Ragen, Chief Financial Officer.

We will begin our call today by commenting on forward looking statements certain statements made during this presentation as well as other information 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.

Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In 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.

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

Our second quarter results exceeded our expectations, driven primarily by C&I product sales to our industrial distributors as well as increased shipments of residential energy storage systems.

Additionally, adjusted EBITDA margins came in well ahead of our prior forecast for the quarter. As a result of continued strong gross margin performance and better than expected operating leverage on the higher shipment volumes on.

On a year over year basis overall net sales increased 6% to 1.06 billion for the quarter.

Residential product sales increased 7% from the prior year driven by significant growth in shipments of residential energy technology solutions as well as higher portable generator sales.

C&I products sales increased 5% year over year with increases in shipments to our domestic industrial distributor in telecom channels as well as higher European shipments, partially offset by certain softness in certain other C&I end markets.

Favorable price realization helped gross margins expand by 170 basis points in the quarter, resulting in adjusted EBITDA margins increasing to nearly 18%.

We also continued to execute on numerous new product development initiatives during the quarter, most notably the formal introduction of our large megawatt generators for data centers and other C&I backup power applications.

We have experienced very strong receptivity to our initial entry into the data center market in particular with our global backlog for product serving this important end market growing quickly and now standing at more than $150 million today.

Given increased visibility into our full year 2025 financial results, including our second quarter outperformance and lower than previously anticipated tariff related price increases in the second half we are narrowing our full year net sales growth assumption and increasing the low end of our adjusted EBITDA margin guidance range, resulting in an increase to our full year adjusted.

That EBITDA outlook at the midpoint of these ranges.

This guidance assumes that currently implemented tariff levels are maintained for the remainder of the year, we will continue to optimize our pricing strategy within the evolving tariff landscape, while aiming to fully offset the cost of tariffs in dollar terms.

Additionally, we are executing on a number of supply chain and cost reduction initiatives that will help to further offset the impact of tariffs and other cost increases over the next several quarters.

Now discussing our second quarter results in more detail.

Home standby sales were flat from the prior year as the category held a new and higher baseline level of demand despite power outage hours being down significantly as compared to a strong prior year period.

As expected with lower outages home consultations decreased on a year over year basis, given the strong comparable period that included the benefit of severe storms in the south Central region last year.

However, home console patients outside of this region were up nicely from the prior year highlighted by continued strength in the southeast resulting from last year's high profile outage events.

Close rates improved sequentially in the second quarter and we continue to expect further improvement as we move through the remainder of the year with strong signs of recovery here in the month of July.

Importantly, activations or installations of home standby generators increased modestly from the prior year also driven by the strength in the southeast region.

We ended the second quarter with roughly 9300 industrial dealers in our network an increase of approximately 400 over the prior year.

Our growing dealer network is an important competitive advantage and continues to support a new and higher baseline of consumer awareness for the home standby category and we remain committed to investing heavily in growing and developing our dealer base.

Additionally, we have had continued success in expanding our aligned contractor program, which targets electrical contractors that purchased our products through wholesale distribution and drives incremental engagement and training within this important distribution channel.

Collectively these efforts represent a critical element of unlocking the growth potential for the home standby category by expanding our sales installation and service bandwidth.

Additionally, we continue to work towards the upcoming launch of our next generation home standby generator line, representing the most comprehensive platform update for the product category in more than a decade.

In addition to the introduction of the market's first 28 kilowatt air cooled generator, the new home standby generator line features a lower total cost of ownership lower installation and maintenance costs as well as quieter operation and improved fuel efficiency.

The new platform also offers a number of benefits for our channel partners, including lower commissioning times and improved remote diagnostics, enabling operational efficiencies for their businesses and greater uptime and cost savings for their customers.

Portable generator sales increased at a robust rate from the prior year, despite the year over year decline in outage activity.

This growth was primarily due to market share gains, resulting from our team's success in driving increased shelf space with key retail partners.

While we expect these recent wins to support greater baseline demand for these products going forward. The second half of 2025 will face a challenging comparison to the prior year as our guidance does not assume any major outage events in the second half of 2025.

Moving to residential energy technology solutions shipments for these products and services exceeded our expectations and grew at a significant rate during the quarter.

Our team continued to execute extremely well on our department of energy project in Puerto Rico for our energy storage solutions and combined with a record quarter for <unk> sales resulted in strong outperformance for this part of our business in the second quarter.

Our <unk> team continued to add to their recent strong sales momentum and drove significant margin improvement compared to the prior year, resulting in positive EBITDA contribution through the first half of 2025.

Additionally, the connected homes count for <unk> devices increased to more than $4 5 million residents is during the quarter with energy services and subscription attach rates also continuing to grow contributing to our rapidly expanding high margin recurring revenue stream.

We view it could be premium feature set and user experience is a key differentiator within our growing residential energy ecosystem and further integration of our residential solutions with the <unk> platform will continue with every new product we launch <unk>.

Importantly, we continue to expect <unk> to deliver positive EBITDA contribution for the full year as the team further scales these products and solutions.

In addition to our success in Puerto Rico, We began taking orders in the second quarter for power cell two our next generation energy storage system with first shipments of these products beginning earlier this month.

We are also making very good progress towards the launch of power micro are new micro inverter product line, which we anticipate will begin shipping during the second half of this year.

The impact of the one big Beautiful Bill Act on residential solar and storage markets has been well documented over the last several weeks.

Despite the policy related changes that will reduce or eliminate incentive structures for these products. We continue to view. These technologies is important elements in the residential energy ecosystem. We are developing that is focused on providing the kind of resiliency and energy savings that homeowners are increasingly demanding.

The secular trends of rising power prices and declining component costs within the solar and storage markets provides an attractive long term backdrop for these markets to further develop and grow as the overall economics improve absent the incentives.

That said, we believe the residential solar market in particular will contract in the years ahead and as a result, we are evaluating the adjustments necessary to recalibrate our level of investment in these technologies as we are laser focused on significantly improving the adjusted EBITDA contribution from the residential energy technology portion of our business in the coming years.

Now, let me provide some commentary on our commercial and industrial product category.

Sales to our domestic industrial distributors increased again during the quarter, given resilient end market demand and strong operational execution that drove further reduction in C&I product lead times.

Project quoting activity and win rates in this important channel also increased on a year over year basis during the first half of the year.

We do expect however year over year shipment declines to develop in the second half of the year given the continued reduction in backlog, resulting from our accelerated production output in recent quarters.

Shipments to our National Telecom customers grew at a strong rate from the prior year during the second quarter. As this channel continues to recover and is expected to deliver robust growth for the full year 2025.

The telecom market remains a long term growth opportunity for <unk>, given the secular trends of expanding global tower and network hub counts and increasing reliance on wireless communications that require much higher power reliability.

Replacement opportunities within the Telecom channel are also becoming more relevant given our large installed base of product in our long history of serving this market.

As expected shipments to our national and independent rental equipment customers remained soft during the quarter and we continue to anticipate weakness throughout the second half of the year.

We will begin shipping during the second half of this year.

Despite the current cyclical softness with our rental customers. We believe that this end market has substantial runway for growth given the critical need for future infrastructure related projects that leverage our products sold into the rental equipment channel.

The impact of the one big Beautiful Bill Act on residential solar and storage markets has been well documented over the last several weeks.

Internationally total sales increased 7% from the prior year due to higher intersegment sales in C&I products shipments in Europe, partially offset by softness in other international markets.

Adjusted EBITDA in our international segment increased at a robust rate from the prior year, given the solid sales growth and favorable price cost dynamics in certain markets.

We expect the combination of recent order trends across multiple C&I product categories, and the favorable impact from foreign currencies to drive continued year over year sales growth in the second half of the year.

We also anticipate an incremental benefit beginning in the third quarter from the initial shipments of our new large megawatt generators to international datacenter customers.

With respect to the important development project around our new large megawatt generators. These products are expected to enable a very significant incremental opportunity for the global C&I part of our business, particularly within the large and growing datacenter market.

Now, let me provide some commentary on our commercial and industrial product category.

These mission critical solutions are a necessary part of the substantial investment in data centers, which are enabling the accelerated adoption of artificial intelligence.

Project quoting activity and win rates in this important channel also increased on a year over year basis during the first half of the year.

Given the tremendous power requirements of an increasingly increasingly large data center campuses demand for backup power for these applications is expected to continue to grow at a dramatic rate for the foreseeable future.

This rapidly growing demand for data center power infrastructure has resulted in market supply constraints for backup power equipment.

The telecom market remains a long term growth opportunity for <unk>, given the secular trends of expanding global power and network hub counts and increasing reliance on wireless communications that require much higher power reliability.

Replacement opportunities within the Telecom channel are also becoming more relevant given our large installed base of product in our long history of serving this market.

We expect global shipments of these products to begin in the second half of the year with a large majority of our existing backlog to be realized in 2026.

As expected shipments to our national and independent rental equipment customers remained soft during the quarter and we continue to anticipate weakness throughout the second half of the year.

Additionally, further global market opportunities exists for these products within our traditional end markets in particular, providing backup power for large manufacturers distribution centers health care facilities and other critical infrastructure that have high that a higher backup power requirements.

As we continue to ramp our capabilities for large megawatt generators with our expected annual production capacity sitting well above our current backlog. 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 support while also providing data center customers with a robust service network.

Internationally total sales increased 7% from the prior year due to higher intersegment sales in C&I products shipments in Europe, partially offset by softness in other international markets adjust.

Adjusted EBITDA in our international segment increased at a robust rate from the prior year, given the solid sales growth and favorable price cost dynamics in certain markets.

To ensure uptime for these critical applications.

In closing this morning, our second quarter results reflect strong execution and a dynamic operating environment with broad based strength across our product categories.

We will continue to lean into our core corporate value of agility, as we navigate evolving market and policy conditions, while maintaining focus on the significant growth opportunities that exist as we further execute on our enterprise strategy.

We also anticipate an incremental benefit beginning in the third quarter from the initial shipments of our new large megawatt generators to international data center customers.

The megatrends of lower power quality and higher power prices are being further supported by numerous underlying trends, providing incremental avenues for future growth in our business and we firmly believe our portfolio of products and solutions is uniquely positioned to deliver value and protection to homes businesses and institutions around the world.

These mission critical solutions are a necessary part of the substantial investment in data centers, which are enabling the accelerating adoption of artificial intelligence.

I'll now turn the call over to York to provide further details on our second quarter results and our updated outlook for 2025 sure. Thanks Aaron.

Given the tremendous power requirements of an increasingly of increasingly large data center campuses demand for backup power for these applications is expected to continue to grow at a dramatic rate for the foreseeable future.

Looking at second quarter 2025 results in more detail.

Net sales during the quarter increased 6% to 1.06 billion as compared to $998 million.

This rapidly growing demand for data center power infrastructure has resulted in market supply constraints for backup power equipment.

In the prior year second quarter, the combined effect of acquisitions and foreign currency had a slight favorable impact on revenue growth during the quarter.

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

Residential product sales increased 7% to $574 million as.

As compared to 538 million in the prior year.

We expect global shipments of these products to begin in the second half of the year with a large majority of our existing backlog to be realized in 2026.

This growth in residential product sales was driven by a strong increase in shipments of energy storage systems, and <unk> home energy management solutions.

Portable generator shipments also contributed to this sales growth while home standby generator sales were flat with the prior year.

Commercial and industrial product sales for the second quarter increased 5% to $362 million as compared to $344 million in the prior year.

Core sales growth of approximately 4% was driven by strength in shipments to our domestic industrial distributor in telecom customers as well as strong growth within Europe, partially offset by weakness in shipments to national rental accounts and other international markets.

Net sales for the other products and services category increased approximately 8% to $125 million as compared to $116 million in the second quarter of 2024.

To ensure uptime for these critical applications.

In closing this morning, our second quarter results reflect strong execution and a dynamic operating environment with broad based strength across our product categories.

Core sales increased approximately 6%.

Primarily due to growth in aftermarket service parts and accessories, <unk> remote monitoring subscription sales and other installation and maintenance services revenue.

Gross profit margin was 39 was 39, 3%.

Compared to 37, 6% in the prior year second quarter, primarily due to favorable pricing and lower input costs, partially offset by unfavorable sales mix.

The favorable price cost dynamics were partly due to the timing differences between the realization of recent price increases and the higher tariff related input costs.

I'll now turn the call over to York to provide further details on our second quarter results and our updated outlook for 2025.

In addition, gross margins exceeded expectations for the quarter, partially due to a lower tariff impact relative to our previous guidance.

Aaron.

Looking at second quarter 2020 results in more detail.

Operating expenses increased $33 million or 12% as compared to the second quarter of 2020 for this.

Net sales during the quarter increased 6% to 1.06 billion as compared to $998 million.

This growth in operating expenses was primarily driven by higher variable costs due to higher shipment volumes.

In the prior year second quarter, the combined effect of acquisitions and foreign currency had a slight favorable impact on revenue growth during the quarter.

Increased employee costs to support future growth across the business.

And ongoing operating expenses related to recent acquisitions.

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

Adjusted EBITDA before deducting for Noncontrolling interests as defined in our earnings release exceeded expectations at $188 million.

Residential product sales increased 7% to $574 million.

As compared to 538 million in the prior year.

Or 17, 7% of net sales in the second quarter.

This growth in residential product sales was driven by a strong increase in shipments of energy storage systems, and eco be home energy management solutions.

As compared to $165 million or 16, 5% of net sales in the prior year.

Portable generator shipments also contributed to this sales growth while home standby generator sales were flat with the prior year.

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

Domestic segment total sales, including inter segment sales increased 7% to $884 million in the quarter.

Commercial and industrial product sales for the second quarter increased 5% to $362 million as compared to 344 million in the prior year.

As compared to $827 million in the prior year, which included approximately 1% sales growth contribution from recent acquisitions.

Adjusted EBITDA for the segment was $158 million, representing 17, 9% of total sales as compared to $140 million in the prior year or 16, 9%.

International segment total sales, including Intersegment sales increased approximately 7% to $197 million in the quarter as compared to $185 million in the prior year quarter, including an approximate 1% benefit from foreign currency.

Net sales for the other products and services category increased approximately 8% to $125 million as compared to $116 million in the second quarter of 2024.

Core sales increased approximately 6%.

Primarily due to growth in aftermarket service parts and accessories, <unk> remote monitoring subscription sales and other installation and maintenance services revenue.

Adjusted EBITDA for the segment before deducting for Noncontrolling interests was $30 million or 15% of total sales.

Gross profit margin was 30 was 39, 3%.

As compared to $25 million or 13, 6% in the prior year.

Compared to 37, 6% in the prior year second quarter, primarily due to favorable pricing and lower input costs, partially offset by unfavorable sales mix.

Now switching back to our financial performance for the second quarter of 2025 on a consolidated basis.

As disclosed in our earnings release GAAP net income for the company in the quarter was $74 million as compared to 59 million for the second quarter of 2024.

The favorable price cost dynamics were partly due to the timing differences between the realization of recent price increases and the higher tariff related input costs.

Our interest expense declined from $23 3 million in the second quarter of 2024 to.

In addition, gross margins exceeded expectations for the quarter, partially due to a lower tariff impact relative to our previous guidance.

To $18 2 million in the current year quarter as a result of lower borrowings and lower interest rates relative to prior year.

Operating expenses increased $33 million or 12% as compared to the second quarter of 2020 for this growth in operating expenses was primarily driven by higher variable costs due to higher shipment volumes.

GAAP income taxes during the current year second quarter were $15 4 million or an effective tax rate of 17, 2%.

As compared to $19 6 million or an effective tax rate of 25% for the prior year.

Increased employee costs to support future growth across the business.

The decrease in effective tax rate was primarily driven by a favorable discrete tax item related to an immaterial business disposition in the current year quarter.

Ongoing operating expenses related to recent acquisitions.

Adjusted EBITDA before deducting for Noncontrolling interests as defined in our earnings release exceeded expectations at $188 million.

Diluted net income per share for the company on a GAAP basis was $1 25 in the second quarter of 2025 compared to <unk> 97 in the prior year.

Or 17, 7% of net sales in the second quarter as.

As compared to $165 million or 16, 5% of net sales in the prior year.

Adjusted net income for the company as defined in our earnings release was $97 million in the current year quarter or $1 $60 65 per share.

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

Domestic segment total sales, including intersegment sales increased 7% to $884 million in the quarter as.

This compares to adjusted net income of 82 million in the prior year or $1 35 per share.

As compared to $827 million in the prior year, which included approximately 1% sales growth contribution from recent acquisitions.

Cash flow from operations was $72 million as compared to 78 million in the prior year second quarter.

And free cash flow as defined in our earnings release was $14 million as compared to $15 million in the same quarter last year.

Adjusted EBITDA for the segment was $158 million, representing 17, 9% of total sales as compared to $140 million in the prior year or 16, 9%.

The change in free cash flow was primarily driven by higher working capital and capital expenditures, causing a greater use of cash during the current year quarter, partially offset by higher operating earnings.

We expect working capital capital to be a use of cash again in the third quarter as we continue to replenish portable generator inventories for storm season, and prepare for our next generation home standby product launch later this year.

Adjusted EBITDA for the segment before deducting for Noncontrolling interests was $30 million or 15% of total sales.

Additionally, we opportunistically opportunistically repurchased approximately 393000 shares.

As compared to $25 million or 13, 6% in the prior year.

Of our common stock during the quarter for $50 million.

Now switching back to our financial performance for the second quarter of 2025 on a consolidated basis.

There was approximately $200 million remaining on our current share repurchase authorization as of the end of the second quarter.

As disclosed in our earnings release GAAP net income for the company in the quarter was $74 million as compared to $59 million for the second quarter of 2024.

On July one, we amended and extended our existing term loan a and revolving credit facility, resulting in a new maturity date of July one 2030.

Our interest expense declined from $23 3 million in the second quarter of 2024 to.

This agreement updated the term loan outstanding principal balance to $700 million and reduced the revolving facility borrowing capacity to $1 billion.

To $18 2 million in the current year quarter as a result of lower borrowings and lower interest rates relative to prior year.

In addition, the amendment eliminated a 10 basis point credit spread spread adjustment that was included in the previous agreement.

GAAP income taxes during the current year second quarter were $15 4 million or an effective tax rate of 17, 2%.

And also resulted in a more favorable pricing grid based on our leverage ratio.

As compared to $19 6 million or an effective tax rate of 25% for the prior year.

Quarterly principal payments on the term loan a will begin in October 2026, with a lump sum due at maturity in July of 2013.

The decrease in effective tax rate was primarily driven by a favorable discrete tax item related to an immaterial business disposition in the current year quarter.

Total debt outstanding at the end of the quarter was $1 4 billion, resulting in a gross debt leverage ratio of one seven times on an as reported basis.

Diluted net income per share for the company on a GAAP basis was $1 25 in the second quarter of 2025 compared.

With that I will now provide further comments on our updated outlook for 2025.

Compared to <unk> 97 in the prior year.

Adjusted net income for the company as defined in our earnings release was $97 million in the current year quarter or $1 65 per share.

As disclosed in our press release. This morning, we're updating our full year 2025 outlook given our first half actual results driving increased visibility to expected full year 2025 net sales.

This compares to adjusted net income of 82 million in the prior year or $1 35 per share.

As a result of our second quarter outperformance being mostly offset by lower pricing assumptions in the second half of the year, primarily due to lower than expected tariffs.

Cash flow from operations was $72 million as compared to 78 million in the prior year second quarter.

And free cash flow as defined in our earnings release was $14 million as compared to $15 million in the same quarter last year.

We are narrowing our net sales growth guidance range, while holding the midpoint of that range.

In addition, we are increasing the low end of our adjusted EBITDA margin guidance range and raising our free cash flow conversion guidance for the full year 2025.

This guidance includes the following important assumptions.

We're assuming that current tariff levels that are in effect today stay in place for the remainder of the year.

This includes 30% tariff levels for China, compared to 145% assumed in our previous guidance and 20% tariff levels for Vietnam compared to 10% previously assumed.

Additionally, we opportunistically opportunistically repurchased approximately 393000 shares.

We continue to assume 10% reciprocal tariffs on all other countries and the continued quality qualification of U S MCA for Mexico and Canada.

Of our common stock during the quarter for $50 million.

There was approximately $200 million remaining on our current share repurchase authorization as of the end of the second quarter.

<unk> with our prior guidance.

Incremental tariffs have also been levied against steel and copper imports since our previous guidance update and we have assumed higher market prices for these metals in the second half of the year as a result.

On July one, we amended and extended our existing term loan a and revolving credit facility, resulting in a new maturity date of July one 2030.

Finally, consistent with our historical approach this outlook assumes a level of power outage activity for the remainder of the year in line with the longer term baseline average and does not assume the benefit of a major power outage event in the second half of the year, such as a major landed hurricane or major winter storm.

This agreement updated the term loan outstanding principal balance to $700 million and reduced the revolving facility borrowing capacity to $1 billion.

In addition, the amendment eliminated a 10 basis point credit spread spread adjustment that was included in the previous agreement.

And also resulted in a more favorable pricing grid based on our leverage ratio.

Considering all these factors we now expect consolidated net sales for the full year to increase between 2% to 5% over the prior year, which includes an approximate 1% favorable impact from the combination of foreign currency and acquisitions.

Quarterly principal payments on the term loan a will begin in October 2026, with a lump sum due at maturity in July of 2013.

Total debt outstanding at the end of the quarter was $1 4 billion, resulting in a gross debt leverage ratio of one seven times on an as reported basis.

This compares to our previous guidance of zero to 7% net sales growth over the prior year.

We now project full year 2025 residential product sales to be slightly lower compared to our previous expectation given lower assumed tariff related pricing in the home standby category.

With that I will now provide further comments on our updated outlook for 2025.

As disclosed in our press release. This morning, we're updating our full year 2025 outlook given our first half actual results driving increased visibility to expected full year 2025 net sales.

We also now project full year 2025, C&I product sales to be modestly higher compared to our previous expectation given second quarter outperformance and favorable foreign currency rates relative to our prior forecast.

As a result of our second quarter outperformance being mostly offset by lower pricing assumptions in the second half of the year, primarily due to lower than expected tariffs.

As a result, we now expect residential products and C&I products net sales growth to be more level loaded for the full year 2025 relative to our prior expectations.

We are narrowing our net sales growth guidance range, while holding the midpoint of that range.

In addition, we are increasing the low end of our adjusted EBITDA margin guidance range and raising our free cash flow conversion guidance for the full year 2025.

From a seasonal pacing perspective.

We expect third quarter overall net sales to be slightly ahead of the prior year with fourth quarter overall net sales approximately flat versus the prior year.

This guidance includes the following important assumptions.

We're assuming that current tariff levels that are in effect today stay in place for the remainder of the year.

Recall that the prior year periods included the benefit of multiple major outage events, which results in a strong prior year comparison in particular for residential products.

This includes 30% tariff levels for China, compared to 145% assumed in our previous guidance and 20% tariff levels for Vietnam compared to 10% previously assumed.

Looking at our updated gross margin expectations for the full year 2025.

We now expect gross margin percent to increase approximately 50 to 100 basis points compared to the full year 2024 coming in at approximately 39, 5% at the midpoint.

We continue to assume 10% reciprocal tariffs on all other countries and the continued quality qualification of U S MCA for Mexico and Canada.

This represents an increase from our prior expectation of approximately 39.0% due to our second quarter outperformance and lower tariff assumptions related relative to the prior guidance.

Consistent with our prior guidance.

Operator: At this time, all participants are in a listen-only mode. 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 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kris Rosemann, Director of Corporate Finance and Investor Relations.

Turning to our adjusted EBITDA margin expectations for the full year 2025.

Finally, consistent with our historical approach this outlook assumes a level of power outage activity for the remainder of the year in line with the longer term baseline average.

Given the factors I outlined in our net sales and gross margin update we are increasing the lower end of our guidance range for adjusted EBITDA percent to approximately 18% to 19% compared to our previous guidance range of 17% to 19%.

And does not assume the benefit of a major power outage event in the second half of the year, such as a major landed hurricane or major winter storm.

In line with normal seasonality, we expect third quarter adjusted EBITDA margins to improve 150 to 200 basis points sequentially from the second quarter, given the projected significant operating leverage on seasonally higher sales volumes.

Kris Rosemann: Please go ahead. Good morning and welcome to our second quarter 2025 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer, and York Ragen, Chief Financial Officer. We will begin our call today by commenting on forward looking statements. Certain statements made during this presentation, as well as other information provided from time to time by Generac 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. Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today's call.

Kris Rosemann: Good morning and welcome to our second quarter 2025 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer, and York Ragen, Chief Financial Officer. We'll 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 Generac 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. Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today's call. Additional information regarding these measures, including reconciliation to comparable US GAAP measures, is available in our earnings release and SEC filings.

Additionally, we are raising our free cash flow conversion forecast given the impact of the one big Beautiful Bill Act on our federal income tax payments.

This compares to our previous guidance of zero to 7% net sales growth over the prior year.

We now project full year 2025 residential product sales to be slightly lower compared to our previous expectation given lower assumed tariff related pricing in the home standby category.

Given the favorable tax impact of immediate expensing of research and development costs and bonus depreciation on certain capital expenditures. We now expect free cash flow conversion from adjusted net income to be approximately 90% to 100% for the full year 2025, as compared to our previous guidance range of 70% to 90%.

Kris Rosemann: Additional information regarding these measures, including reconciliation to comparable US GAAP measures, is available in our earnings release and SEC filings. I will now turn the call over to Aaron.

Additional information regarding these measures, including reconciliation to comparable US GAAP measures, is available in our earnings release and SEC filings. I will now turn the call over to Aaron.

Importantly, this will result in over 400 million of free cash flow in fiscal 2025, which provides for further near term optionality within our disciplined and balanced capital allocation framework.

As a result, we now expect residential products and C&I products net sales growth to be more level loaded for the full year 2025 relative to our prior expectations.

Kris Rosemann: I will now turn the call over to Aaron.

Aaron Jagdfeld: Thanks, Kris. Good morning, everyone, and thank you for joining us today. Our second quarter results exceeded our expectations, driven primarily by CNI product sales to our industrial distributors, as well as increased shipments of residential energy storage systems. Additionally, adjusted EBITDA margins came in well ahead of our prior forecast for the quarter as a result of continued strong gross margin performance and better than expected operating leverage on the higher shipment volumes. On a year-over-year basis, overall net sales increased 6% to 1.06 billion for the quarter. Residential product sales increased 7% from the prior year, driven by significant growth in shipments of residential energy technology solutions, as well as higher portable generator sales.

Aaron Jagdfeld: Thanks, Kris. Good morning, everyone, and thank you for joining us today. Our second quarter results exceeded our expectations, driven primarily by C&I product sales to our industrial distributors as well as increased shipments of residential energy storage systems. Additionally, adjusted EBITDA margins came in well ahead of our prior forecast for the quarter as a result of continued strong gross margin performance and better than expected operating leverage on the higher shipment volumes. On a year-over-year basis, overall net sales increased 6% to $1.06 billion for the quarter. Residential product sales increased 7% from the prior year, driven by significant growth in shipments of residential energy technology solutions as well as higher portable generator sales.

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.

From a seasonal pacing perspective.

We expect third quarter overall net sales to be slightly ahead of the prior year with fourth quarter overall net sales approximately flat versus the prior year.

For full year 2025 or.

Our GAAP effective tax rate is now expected to be between 23% to 23, 5% a modest decrease from our prior guidance of $24 5, million% to 25% due to the second quarter outperformance.

Recall that the prior year periods included the benefit of multiple major outage events, which resulted in a strong prior year comparison in particular for residential products.

Our GAAP effective tax rate for the remaining two quarters of the year is expected to be approximately 25% importantly to arrive at appropriate estimates for adjusted net income and earnings and adjusted earnings per share add back items should be reflected net of tax using our expected effective tax rate of approximately 25%.

Looking at our updated gross margin expectations for the full year 2025.

We now expect gross margin percent to increase approximately 50 to 100 basis points compared to the full year 2024 coming in at approximately 39, 5% at the midpoint.

Aaron Jagdfeld: C&I product sales increased 5% year over year with increases in shipments to our domestic industrial, distributor, and telecom channels as well as higher European shipments partially offset by softness in certain other C&I markets. Favorable price realization helped gross margins expand by 170 basis points in the quarter, resulting in Adjusted EBITDA margins increasing to nearly 18%. We also continued to execute on numerous new product development initiatives during the quarter, most notably the formal introduction of our Large Megawatt Generators for data centers and other C&I backup power applications. We have experienced very strong receptivity to our initial entry into the data center market, in particular with our global backlog for products serving this important end market growing quickly and now standing at more than $150 million today.

C&I product sales increased 5% year over year with increases in shipments to our domestic industrial, distributor, and telecom channels as well as higher European shipments partially offset by softness in certain other C&I markets. Favorable price realization helped gross margins expand by 170 basis points in the quarter, resulting in Adjusted EBITDA margins increasing to nearly 18%. We also continued to execute on numerous new product development initiatives during the quarter, most notably the formal introduction of our Large Megawatt Generators for data centers and other C&I backup power applications. We have experienced very strong receptivity to our initial entry into the data center market, in particular with our global backlog for products serving this important end market growing quickly and now standing at more than $150 million today.

Aaron Jagdfeld: CNI product sales increased 5% year-over-year, with increases in shipments to our domestic industrial distributor and telecom channels, as well as higher European shipments, partially offset by certain softness in certain other CNI and markets. Favorable price realization helped gross margins expand by 170 basis points in the quarter, resulting in adjusted EBITDA margins increasing to nearly 18%. We also continued to execute on numerous new product development initiatives during the quarter, most notably the formal introduction of our large megawatt generators for data centers and other CNI backup power applications. We have experienced very strong receptivity to our initial entry into the data center market in particular, with our global backlog for products serving this important end market growing quickly and now standing at more than $150 million today.

This represents an increase from our prior expectation of approximately 39.0% due to our second quarter outperformance and lower tariff assumptions related relative to the prior guidance.

We continue to expect interest expense to be approximately 74% to $78 million for the full year 2025, assuming no additional term loan principal prepayments during the year.

Turning to our adjusted EBITDA margin expectations for the full year 2025.

This contemplates a lower interest rate due to our recent amend and extend transaction, mostly offset by modestly higher outstanding borrowings.

Given the factors I outlined in our net sales and gross margin update we are increasing the lower end of our guidance range for adjusted EBITDA percent to approximately 18% to 19%.

This guidance is a significant decline from 2020 for interest expense levels due to a decrease in outstanding borrowings and the full year impact of lower sulfur interest rates.

Compared to our previous guidance range of 17% to 19%.

Our capital expenditures are still projected to be approximately 3% of our forecasted net sales for the full year in line with historical levels.

Aaron Jagdfeld: Given increased visibility into our full year 2025 financial results, including our Q2 outperformance and lower than previously anticipated tariff-related price increases in H2, we are narrowing our full year net sales growth assumption and increasing the low end of our Adjusted EBITDA margin guidance range, resulting in an increase to our full year Adjusted EBITDA outlook at the midpoint of these ranges. This guidance assumes that currently implemented tariff levels are maintained for the remainder of the year. We will continue to optimize our pricing strategy within the evolving tariff landscape while aiming to fully offset the cost of tariffs in dollar terms. Additionally, we are executing on a number of supply chain and cost reduction initiatives that will help to further offset the impact of tariffs and other cost increases over the next several quarters.

Given increased visibility into our full year 2025 financial results, including our Q2 outperformance and lower than previously anticipated tariff-related price increases in H2, we are narrowing our full year net sales growth assumption and increasing the low end of our Adjusted EBITDA margin guidance range, resulting in an increase to our full year Adjusted EBITDA outlook at the midpoint of these ranges. This guidance assumes that currently implemented tariff levels are maintained for the remainder of the year. We will continue to optimize our pricing strategy within the evolving tariff landscape while aiming to fully offset the cost of tariffs in dollar terms. Additionally, we are executing on a number of supply chain and cost reduction initiatives that will help to further offset the impact of tariffs and other cost increases over the next several quarters.

Aaron Jagdfeld: Given increased visibility into our full-year 2025 financial results, including our second quarter outperformance and lower than previously anticipated tariff-related price increases in the second half, we are narrowing our full-year net sales growth assumption and increasing the low end of our adjusted EBITDA margin guidance range, resulting in an increase to our full-year adjusted EBITDA outlook at the midpoint of these ranges. This guidance assumes that currently implemented tariff levels are maintained for the remainder of the year. We will continue to optimize our pricing strategy within the evolving tariff landscape while aiming to fully offset the cost of tariffs in dollar terms. Additionally, we are executing on a number of supply chain and cost reduction initiatives that will help to further offset the impact of tariffs and other cost increases over the next several quarters.

Depreciation expense GAAP intangible amortization expense and stock compensation expense are also expected to remain consistent with last quarter's guidance.

Additionally, we are raising our free cash flow conversion forecast given the impact of the one big Beautiful Bill Act on our federal income tax payments.

Our full year weighted average diluted share count is expected to be approximately $59 four to $59 5 million shares as compared to $60 3 million shares in 2024.

Given the favorable tax impact of immediate expensing of research and development cost and bonus depreciation on certain capital expenditures. We now expect free cash flow conversion from adjusted net income to be approximately 90% to 100% for the full year 2025, as compared to the previous guidance range of 70% to 90%.

Finally, this 2025 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value during the year.

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

Importantly, this would result in over 400 million of free cash flow in fiscal 2025, which provides for further near term optionality within our disciplined and balanced capital allocation framework.

Certainly 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 in the interest of time, please limit yourself to one question.

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.

Aaron Jagdfeld: Now discussing our second quarter results in more detail, home standby sales were flat from the prior year as the category held a new and higher baseline level of demand despite power outage hours being down significantly as compared to a strong prior year period. As expected, with lower outages, home consultations decreased on a year-over-year basis given the strong comparable period that included the benefit of severe storms in the South Central Region last year. However, home consultations outside of this region were up nicely from the prior year, highlighted by continued strength in the Southeast resulting from last year's high-profile outage events. Close rates improved sequentially in the second quarter, and we continue to expect further improvement as we move through the remainder of the year, with strong signs of recovery here in the month of July.

Aaron Jagdfeld: Now discussing our second quarter results in more detail, Home Standby sales were flat from the prior year as the category held a new and higher baseline level of demand despite power outage hours being down significantly as compared to a strong prior year period. As expected with lower outages, home consultations decreased on a year-over-year basis given the strong comparable period that included the benefit of severe storms in the South Central region last year. However, home consultations outside of this region were up nicely from the prior year, highlighted by continued strength in the Southeast resulting from last year's high-profile outage events. Close rates improved sequentially in the second quarter and we continue to expect further improvement as we move through the remainder of the year with strong signs of recovery here in the month of July.

Now discussing our second quarter results in more detail, Home Standby sales were flat from the prior year as the category held a new and higher baseline level of demand despite power outage hours being down significantly as compared to a strong prior year period. As expected with lower outages, home consultations decreased on a year-over-year basis given the strong comparable period that included the benefit of severe storms in the South Central region last year. However, home consultations outside of this region were up nicely from the prior year, highlighted by continued strength in the Southeast resulting from last year's high-profile outage events. Close rates improved sequentially in the second quarter and we continue to expect further improvement as we move through the remainder of the year with strong signs of recovery here in the month of July.

And our first question will be coming from Tommy Moll of Stephens. Your line is open.

For full year 2025.

Good morning, and thank you for taking my question Hey.

Our GAAP effective tax rate is now expected to be between 23 to 23, 5% a modest decrease from our prior guidance of $24 5, million% to 25% due to the second quarter outperformance.

Hey, gentlemen, good morning.

Aaron on the recent entry into the data center market. It sounds like things have gone pretty well, so far but I just wanted to ask for anything else you can give us there when could these revenues start to be meaningful.

Are the lead times for some of the incumbents there still is extended to that as they have been in recent years, what have you learned so far.

Yeah, Thanks, Toni so.

Yes.

This has been something we've been talking about for the last few quarters.

Aaron Jagdfeld: Importantly, activations or installations of home standby generators increased modestly from the prior year, also driven by the strength in the Southeast region. We ended Q2 with roughly 9,300 industrial dealers in our network, an increase of approximately 400 over the prior year. Our growing dealer network is an important competitive advantage and continues to support a new and higher baseline of consumer awareness for the home standby category, and we remain committed to investing heavily in growing and developing our dealer base. Additionally, we have had continued success in expanding our Aligned Contractor program, which targets electrical contractors that purchase our products through wholesale distribution and drives incremental engagement and training within this important distribution channel. Collectively, these efforts represent a critical element of unlocking the growth potential for the home standby category by expanding our sales, installation, and service bandwidth.

Importantly, activations or installations of home standby generators increased modestly from the prior year, also driven by the strength in the Southeast region. We ended Q2 with roughly 9,300 industrial dealers in our network, an increase of approximately 400 over the prior year. Our growing dealer network is an important competitive advantage and continues to support a new and higher baseline of consumer awareness for the home standby category, and we remain committed to investing heavily in growing and developing our dealer base. Additionally, we have had continued success in expanding our Aligned Contractor program, which targets electrical contractors that purchase our products through wholesale distribution and drives incremental engagement and training within this important distribution channel. Collectively, these efforts represent a critical element of unlocking the growth potential for the home standby category by expanding our sales, installation, and service bandwidth.

Aaron Jagdfeld: Importantly, activations or installations of home standby generators increased modestly from the prior year, also driven by the strength in the Southeast Region. We ended the second quarter with roughly 9,300 industrial dealers in our network, an increase of approximately 400 over the prior year. Our growing dealer network is an important competitive advantage and continues to support a new and higher baseline of consumer awareness for the home standby category. And we remain committed to investing heavily in growing and developing our dealer base. Additionally, we have had continued success in expanding our aligned contractor program, which targets electrical contractors that purchase our products through wholesale distribution and drives incremental engagement and training within this important distribution channel. Collectively, these efforts represent a critical element of unlocking the growth potential for the home standby category by expanding our sales, installation, and service bandwidth.

The entry into this market and something frankly, we've been working on for a couple of years, we haven't been talking about it much because we wanted to get to the finish line but.

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.

It will begin to impact revenues this year in the second half.

Our initial shipments in the international market will start in Q3, and then <unk>.

This contemplates a lower interest rate due to our recent amend and extend transaction, mostly offset by modestly higher outstanding borrower borrowings.

Late this year, we will start to get our first domestic shipments out to those customers, but not much of an impact. This year, it's really a 2026 story right now.

This guidance is a significant decline from 2020 for interest expense levels due to a decrease in outstanding borrowings and the full year impact of lower sulfur interest rates.

What we're being told and this is just kind of to kind of size the.

The opportunity for us anyway, because I think this is by far and away.

Our capital expenditures are still projected to be approximately 3% of our forecasted net sales for the full year in line with historical levels.

One of the biggest needle moving.

Opportunities that I've seen in my time here in my three decades with the company.

Depreciation expense GAAP intangible amortization expense and stock compensation expense are also expected to remain consistent with last quarter's guidance.

Both in the size of the market opportunity that datacenters in particular present, but also obviously the growth rate there and the fact that.

Aaron Jagdfeld: Additionally, we continue to work towards the upcoming launch of our next-generation Home Standby Generator line, representing the most comprehensive platform update for the product category in more than a decade. In addition to the introduction of the market's first 28-kilowatt air-cooled generator, the new Home Standby Generator line features a lower total cost of ownership, lower installation and maintenance costs, as well as quieter operation and improved fuel efficiency. The new platform also offers a number of benefits for our channel partners, including lower commissioning times and improved remote diagnostics, enabling operational efficiencies for their businesses and greater uptime and cost savings for their customers. Portable generator sales increased at a robust rate from the prior year despite the year-over-year decline in outage activity.

Additionally, we continue to work towards the upcoming launch of our next-generation Home Standby Generator line, representing the most comprehensive platform update for the product category in more than a decade. In addition to the introduction of the market's first 28-kilowatt air-cooled generator, the new Home Standby Generator line features a lower total cost of ownership, lower installation and maintenance costs, as well as quieter operation and improved fuel efficiency. The new platform also offers a number of benefits for our channel partners, including lower commissioning times and improved remote diagnostics, enabling operational efficiencies for their businesses and greater uptime and cost savings for their customers. Portable generator sales increased at a robust rate from the prior year despite the year-over-year decline in outage activity.

Aaron Jagdfeld: Additionally, we continue to work towards the upcoming launch of our next-generation home standby generator line, representing the most comprehensive platform update for the product category in more than a decade. In addition to the introduction of the market's first 28-kilowatt air-cooled generator, the new home standby generator line features a lower total cost of ownership, lower installation and maintenance costs, as well as quieter operation and improved fuel efficiency. The new platform also offers a number of benefits for our channel partners, including lower commissioning times and improved remote diagnostics, enabling operational efficiencies for their businesses and greater uptime and cost savings for their customers. Portable generator sales increased at a robust rate from the prior year, despite the year-over-year decline in outage activity. This growth was primarily due to market share gains resulting from our team's success in driving increased shelf space with key retail partners.

Our full year weighted average diluted share count is expected to be approximately $59 four to $59 5 million shares as compared to $60 3 million shares in 2024.

This feels like something that's going to go on for a long time, you combine that with the structural deficit.

In the.

The availability of these backup power products.

Finally, this 2025 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value during the year.

In our early conversations here over the last several months nearly every data center developer operator owner.

And customer has told us that there are two major components that they worry about in the lead time for construction of new data centers. The first as Transformers and the second is backup generators.

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

And so what we've learned to answer your question is that we believe based on our conversations that there appears to be about a structural deficit just in 2026 of something on the order of maybe 5000 machines.

And our first question will be coming from Tommy Moll from Stephens. Your line is open.

Aaron Jagdfeld: This growth was primarily due to market share gains resulting from our team's success in driving increased shelf space with key retail partners. While we expect these recent wins to support greater baseline demand for these products going forward, the second half of 2025 will face a challenging comparison to the prior year as our guidance does not assume any major outage events in the second half of 2025. Moving to Residential Energy Technology Solutions. Shipments for these products and services exceeded our expectations and grew at a significant rate during the quarter. Our team continued to execute extremely well on our Department of Energy project in Puerto Rico for our energy storage solutions, and, combined with a record quarter for ecobee sales, resulted in strong outperformance for this part of our business. In the second quarter.

This growth was primarily due to market share gains resulting from our team's success in driving increased shelf space with key retail partners. While we expect these recent wins to support greater baseline demand for these products going forward, the second half of 2025 will face a challenging comparison to the prior year as our guidance does not assume any major outage events in the second half of 2025. Moving to Residential Energy Technology Solutions. Shipments for these products and services exceeded our expectations and grew at a significant rate during the quarter. Our team continued to execute extremely well on our Department of Energy project in Puerto Rico for our energy storage solutions, and, combined with a record quarter for ecobee sales, resulted in strong outperformance for this part of our business. In the second quarter.

Based on current capacity in the market and based on current construction completion timelines for.

Good morning, and thank you for taking my question.

Hey, Tommy good morning.

Aaron Jagdfeld: While we expect these recent wins to support greater baseline demand for these products going forward, the second half of 2025 will face a challenging comparison to the prior year as our guidance does not assume any major outage events in the second half of 2025. Moving to residential energy technology solutions, shipments for these products and services exceeded our expectations and grew at a significant rate during the quarter. Our team continued to execute extremely well on our Department of Energy project in Puerto Rico for our energy storage solutions, and combined with a record quarter for Ecobee sales, resulted in strong outperformance for this part of our business in the second quarter. Our Ecobee team continued to add to their recent strong sales momentum and drove significant margin improvement compared to the prior year, resulting in positive EBITDA contribution through the first half of 2025.

The projects that are underway for datacenters.

Obviously 5000 machines as a lot of machines if you if.

If you look at kind of on the high side. Every every single copy of every machine would be about $1 million all in.

Are the lead times for some of the incumbents there still is extended to that because they have been in recent years, what have you learned so far.

It's a huge.

One it's a huge market just being served on an annual basis today much greater in size than anything that we've ever approached and to the structural deficit. That's there I think we will allow for a pretty rapid.

Yeah, Thanks, Toni so.

Yes.

This has been something we've been talking about for the last few quarters.

The entry into this market and something frankly, we've been working on for a couple of years, we haven't been talking about it much because we wanted to get to the finish line but.

Aaron Jagdfeld: Our ecobee team continued to add to their recent strong sales momentum and drove significant margin improvement compared to the prior year, resulting in positive EBITDA contribution through H1 2025. Additionally, the connected homes count for ecobee devices increased to more than 4.5 million residences during the quarter, with energy services and subscription attach rates also continuing to grow, contributing to a rapidly expanding high margin recurring revenue stream. We view ecobee's premium feature set and user experience as a key differentiator within our growing residential energy ecosystem, and further integration of our residential solutions with the ecobee platform will continue with every new product we launch. Importantly, we continue to expect ecobee to deliver positive EBITDA contribution for the full year as the team further scales these products and solutions.

Our ecobee team continued to add to their recent strong sales momentum and drove significant margin improvement compared to the prior year, resulting in positive EBITDA contribution through H1 2025. Additionally, the connected homes count for ecobee devices increased to more than 4.5 million residences during the quarter, with energy services and subscription attach rates also continuing to grow, contributing to a rapidly expanding high margin recurring revenue stream. We view ecobee's premium feature set and user experience as a key differentiator within our growing residential energy ecosystem, and further integration of our residential solutions with the ecobee platform will continue with every new product we launch. Importantly, we continue to expect ecobee to deliver positive EBITDA contribution for the full year as the team further scales these products and solutions.

Entry for us into the market I am shocked at the over $150 million that we've already booked in hard orders and the size of the pipeline that we're cultivating.

It will begin to impact revenues this year in the second half.

Our initial shipments in the international market will start in Q3, and then <unk>.

Late this year, we'll start to get our first domestic shipments out to those customers, but not much of an impact. This year, it's really a 2026 story right now.

Aaron Jagdfeld: Additionally, the connected homes count for Ecobee devices increased to more than 4.5 million residences during the quarter, with energy services and subscription attached rates also continuing to grow, contributing to a rapidly expanding high-margin recurring revenue stream. We view Ecobee's premium feature set and user experience as a key differentiator within our growing residential energy ecosystem, and further integration of our residential solutions with the Ecobee platform will continue with every new product we launch. Importantly, we continue to expect Ecobee to deliver positive EBITDA contribution for the full year as the team further scales these products and solutions. Shipments of our energy storage systems also increased at a dramatic rate during the second quarter.

In this market.

We've been very well received with the.

What we're being told and this is just kind of to kind of size the.

Not only just the product, but I think our brand our reputation the quality of our distribution and the quality of our balance sheet frankly, the ability to stand behind these products in these very critical applications I think.

The opportunity for us anyway, because I think this is by far and away.

One of the biggest needle moving.

Opportunities that I've seen in my time here in my three decades with the company.

<unk> been very well received initially here now we've got to deliver and we've got to execute so it's not we're not this isn't a lay up by any stretch the imagination, but we're taking this very seriously and we do have good capacity.

Both in the size of the market opportunity that datacenters in particular present, but also obviously the growth rate there and the fact that.

This feels like something that's going to go on for a long time, you combine now with the structural deficit.

To grow in the next year or so.

Aaron Jagdfeld: Shipments of our energy storage systems also increased at a dramatic rate during the second quarter. We are very pleased with the progress we've made in Puerto Rico through the first half of 2025 as this has enabled us to build strong relationships on the island, which is the second largest storage market in the US behind California. In addition to our success in Puerto Rico, we began taking orders in the second quarter for PWRcell 2, our next generation energy storage system, with first shipments of these products beginning earlier this month. We are also making very good progress toward the launch of PWRmicro, our new microinverter product line which we anticipate will begin shipping during the second half of this year. The impact of the One Big Beautiful Bill Act on residential, solar, and storage markets has been well documented over the last several weeks.

Shipments of our energy storage systems also increased at a dramatic rate during the second quarter. We are very pleased with the progress we've made in Puerto Rico through the first half of 2025 as this has enabled us to build strong relationships on the island, which is the second largest storage market in the US behind California. In addition to our success in Puerto Rico, we began taking orders in the second quarter for PWRcell 2, our next generation energy storage system, with first shipments of these products beginning earlier this month. We are also making very good progress toward the launch of PWRmicro, our new microinverter product line which we anticipate will begin shipping during the second half of this year. The impact of the One Big Beautiful Bill Act on residential, solar, and storage markets has been well documented over the last several weeks.

In.

Given the kind of situation that this market is facing from a structural deficit standpoint in terms of supply versus demand, we believe that based on our early.

The availability of these backup power products.

Aaron Jagdfeld: We are very pleased with the progress we've made in Puerto Rico through the first half of 2025, as this has enabled us to build strong relationships on the island, which is the second largest storage market in the US, behind California. In addition to our success in Puerto Rico, we began taking orders in the second quarter for PowerCell 2, our next-generation energy storage system, with first shipments of these products beginning earlier this month. We are also making very good progress toward the launch of Power Micro, our new microinverter product line, which we anticipate will begin shipping during the second half of this year. The impact of the One Big Beautiful Bill Act on residential solar and storage markets has been well documented over the last several weeks.

In our early conversations here over the last several months nearly every data center developer operator owner.

The early learnings here and then our early success.

And customer has told us that there are two major components that they worry about in the lead time for construction of new data centers. The first as Transformers and second as backup generators and so what we've learned to answer. Your question is that we believe based on our conversations that there appears to be about a structural deficit.

We're going to have to make some potentially bold moves around additional capacity, if we want that to be available for 2027 and beyond we.

We think we're in really good shape for 'twenty, six and really probably even for parts of 2007, but given the size of the deficit that 5000 machines just for next year.

Just in 2026.

There is there is real opportunity for us if we lean into this.

Something on the order of maybe 5000 machines.

And be aggressive again like I said I don't I haven't.

Aaron Jagdfeld: Despite the policy-related changes that will reduce or eliminate incentive structures for these products, we continue to view these technologies as important elements in the residential energy ecosystem we are developing that is focused on providing the kind of resiliency and energy savings that homeowners are increasingly demanding. The secular trends of rising power prices and declining component costs within the solar and storage markets provide an attractive long-term backdrop for these markets to further develop and grow as the overall economics improve, absent the incentives. That said, we believe the residential solar market in particular will contract in the years ahead. And as a result, we are evaluating the adjustments necessary to recalibrate our level of investment in these technologies, as we are laser-focused on significantly improving the adjusted EBITDA contribution from the residential energy technology portion of our business in the coming years.

Aaron Jagdfeld: Despite the policy related changes that will reduce or eliminate incentive structures for these products, we continue to view these technologies as important elements in the residential energy ecosystem we are developing that is focused on providing the kind of resiliency and energy savings that homeowners are increasingly demanding. The secular trends of rising power prices and declining component costs within the solar and storage markets provides an attractive long term backdrop for these markets to further develop and grow and as the overall economics improve absent the incentives. That said, we believe the residential solar market in particular will contract in the years ahead and as a result, we are evaluating the adjustments necessary to recalibrate our level of investment in these technologies as we are laser focused on significantly improving the Adjusted EBITDA contribution from the residential energy technology portion of our business in the coming years.

Despite the policy related changes that will reduce or eliminate incentive structures for these products, we continue to view these technologies as important elements in the residential energy ecosystem we are developing that is focused on providing the kind of resiliency and energy savings that homeowners are increasingly demanding. The secular trends of rising power prices and declining component costs within the solar and storage markets provides an attractive long term backdrop for these markets to further develop and grow and as the overall economics improve absent the incentives. That said, we believe the residential solar market in particular will contract in the years ahead and as a result, we are evaluating the adjustments necessary to recalibrate our level of investment in these technologies as we are laser focused on significantly improving the Adjusted EBITDA contribution from the residential energy technology portion of our business in the coming years.

Based on current capacity in the market and based on our current construction completion timelines for.

Never seen something that can move the needle like this I think.

If we do things the right way I think this part of our business, which has always been a good solid business right. It's overall call. It a $1 $5 billion opportunity today, that's our that's the size of the C&I products.

The projects that are underway for datacenters.

Obviously 5000 machines, there's a lot of machines.

If you look at kind of on the high side. Every every single copy of every machine would be about $1 million all in so.

Part of our business.

That's something that I think can grow dramatically in the next several years.

So it's a huge.

One it's a huge market just being served on an annual basis today much greater in size than anything that we've ever approach and to the structural deficit. That's there I think will allow.

And this we could be in a situation in several years, where the C&I products are larger than the rest of the company and so I think it's this is just an exciting time and something that we are.

For a pretty rapid.

Entry for us into the market I'm shocked.

We're going to lean into and it's a global operator, and it's a global opportunity I think that's the other exciting piece of that could add.

At the over $150 million that we've already booked in hard orders.

Okay.

The size of the pipeline that we're cultivating.

Aaron Jagdfeld: Now let me provide some commentary on our commercial and industrial product category. Sales to our domestic industrial distributors increased again during the quarter given resilient end market demand and strong operational execution that drove further reduction in C&I product lead times. Project quoting activity and win rates in this important channel also increased on a year-over-year basis during the first half of the year. We do expect, however, year-over-year shipment declines to develop in the second half of the year given the continued reduction in backlog resulting from our accelerated production output in recent quarters. Shipments to our national telecom customers grew at a strong rate from the prior year during the second quarter as this channel continues to recover and is expected to deliver robust growth for the full year 2025.

Now let me provide some commentary on our commercial and industrial product category. Sales to our domestic industrial distributors increased again during the quarter given resilient end market demand and strong operational execution that drove further reduction in C&I product lead times. Project quoting activity and win rates in this important channel also increased on a year-over-year basis during the first half of the year. We do expect, however, year-over-year shipment declines to develop in the second half of the year given the continued reduction in backlog resulting from our accelerated production output in recent quarters. Shipments to our national telecom customers grew at a strong rate from the prior year during the second quarter as this channel continues to recover and is expected to deliver robust growth for the full year 2025.

Aaron Jagdfeld: Now let me provide some commentary on our commercial and industrial product category. Sales to our domestic industrial distributors increased again during the quarter, given resilient end-market demand and strong operational execution that drove further reduction in CNI product lead times. Project quoting activity and win rates in this important channel also increased on a year-over-year basis during the first half of the year. We do expect, however, year-over-year shipment declines to develop in the second half of the year, given the continued reduction in backlog resulting from our accelerated production output in recent quarters. Shipments to our national telecom customers grew at a strong rate from the prior year during the second quarter, as this channel continues to recover and is expected to deliver robust growth for the full year 2025.

And one moment for our next question, which will be coming from George <unk> of Canaccord Genuity. Your line is open George.

In this market.

We've been very well received with the.

Good morning, and thank you for taking my questions. Good morning.

Yeah.

I'd like to concentrate on some of the comments you made around Jacobi and the solar.

Market opportunity at.

At least to me appears to be a little bit of a change in tone here around your willingness to continue to invest in.

And the inverted market over the long term over the medium term I was just wondering if you can sort of paint a broad brush and can help us understand a little bit around how you might be changing Europe.

To grow in the next year or so.

Of your philosophy around those markets and maybe just update us on what the dilution was from the.

But given the kind of situation that this market is facing from a structural deficit standpoint in terms of supply versus demand, we believe that based on our early.

Aaron Jagdfeld: The telecom market remains a long term growth opportunity for Generac given the secular trends of expanding global tower and network hub counts and increasing reliance on wireless communications that require much higher power reliability. Replacement opportunities within the telecom channel are also becoming more relevant given our large installed base of product and our long history of serving this market. As expected, shipments to our national and independent rental equipment customers remained soft during the quarter and we continue to anticipate weakness throughout the second half of the year. Despite the current cyclical softness with our rental customers, we believe that this end market has substantial runway for growth given the critical need for future infrastructure related projects that leverage our products sold into the rental equipment channel.

The telecom market remains a long term growth opportunity for Generac given the secular trends of expanding global tower and network hub counts and increasing reliance on wireless communications that require much higher power reliability. Replacement opportunities within the telecom channel are also becoming more relevant given our large installed base of product and our long history of serving this market. As expected, shipments to our national and independent rental equipment customers remained soft during the quarter and we continue to anticipate weakness throughout the second half of the year. Despite the current cyclical softness with our rental customers, we believe that this end market has substantial runway for growth given the critical need for future infrastructure related projects that leverage our products sold into the rental equipment channel.

Aaron Jagdfeld: The telecom market remains a long-term growth opportunity for Generac, given the secular trends of expanding global tower and network hub counts and increasing reliance on wireless communications that require much higher power reliability. Replacement opportunities within the telecom channel are also becoming more relevant, given our large installed base of product and our long history of serving this market. As expected, shipments to our national and independent rental equipment customers remain soft during the quarter, and we continue to anticipate weakness throughout the second half of the year. Despite the current cyclical softness with our rental customers, we believe that this end market has substantial runway for growth, given the critical need for future infrastructure-related projects that leverage our products sold into the rental equipment channel.

<unk> type business during the first half of the year. Thank you.

Yes, Thanks, George So yes.

I don't know if it represented.

The early learnings here and then our early success.

Change in tone.

Perhaps maybe that's the right way to characterize it let me, let me say what hasn't changed.

We are going to have to make some potentially bold moves around additional capacity, if we want that to be available for 2027 and beyond we.

And I think the comments we've wrote the specific commentary was we're laser focused.

We think we're in really good shape for 'twenty, six and really probably even for parts of 2007, but given the size of the deficit that 5000 machines just for next year.

Reducing the drag on earnings from this business I E. We wanted to get it to be in positive territory, we will get it to be in positive territory now we have to obviously recalibrate if the overall market size for solar in particular, if that is going to decrease in the years ahead, and it's likely that it will the question is how much right I think there is there is.

There is there is real opportunity for us if we lean into this.

And be aggressive again like I said I don't I've never seen something that can move the needle like this I think.

Aaron Jagdfeld: Internationally, total sales increased 7% from the prior year due to higher inter-segment sales and CNI product shipments in Europe, partially offset by softness in other international markets. Adjusted EBITDA in our international segment increased at a robust rate from the prior year, given the solid sales growth and favorable price-cost dynamics in certain markets. We expect the combination of recent order trends across multiple CNI product categories and the favorable impact from foreign currencies to drive continued year-over-year sales growth in the second half of the year. We also anticipate an incremental benefit beginning in the third quarter from the initial shipments of our new large megawatt generators to international data center customers.

Aaron Jagdfeld: Internationally, total sales increased 7% from the prior year due to higher intersegment sales and C&I product shipments in Europe partially offset by softness in other international markets. Adjusted EBITDA in our international segment increased at a robust rate from the prior year. Given the solid sales growth and favorable price cost dynamics in certain markets, we expect the combination of recent order trends across multiple C&I product categories and the favorable impact from foreign currencies to drive continued year over year sales growth in the second half of the year. We also anticipate an incremental benefit beginning in the third quarter from the initial shipments of our new large megawatt generators to international data center customers.

Internationally, total sales increased 7% from the prior year due to higher intersegment sales and C&I product shipments in Europe partially offset by softness in other international markets. Adjusted EBITDA in our international segment increased at a robust rate from the prior year. Given the solid sales growth and favorable price cost dynamics in certain markets, we expect the combination of recent order trends across multiple C&I product categories and the favorable impact from foreign currencies to drive continued year over year sales growth in the second half of the year. We also anticipate an incremental benefit beginning in the third quarter from the initial shipments of our new large megawatt generators to international data center customers.

If if we do things the right way I.

Still some things that need to be.

I think this part of our business, which has always been a good solid business right. It's overall call. It a $1 $5 billion opportunity today, that's our that's the size of the C&I products.

<unk>.

And understood as the one big beautiful Bill kind of now moves from.

It being passed legislation into kind of interpretation by treasury.

Part of our business that that's something that I think can grow dramatically in the next several years.

And what happens there in terms of the.

The actual impact to the market, but clearly the market is going to contract for solar.

And this we could be in a situation in several years, where the C&I products are larger than the rest of the company and so I think it's this is just an exciting time and something that we are.

Is it going to contract, 20% or is it going to contract, 50%, so but take a range, maybe it's 20% to 50%.

We believe that that market. If you just step back has been heavily.

We're going to lean into and it's a global offer and it's a global opportunity I think that's the other exciting piece of that and I can add.

Impacted obviously by.

Aaron Jagdfeld: With respect to the important development project around our new Large Megawatt Generators, these products are expected to enable a very significant incremental opportunity for the global C&I part of our business, particularly within the large and growing data center market. These mission critical solutions are a necessary part of the substantial investment in data centers which are enabling the accelerated adoption of artificial intelligence. Given the tremendous power requirements of increasingly large data center campuses, demand for backup power for these applications is expected to continue to grow at a dramatic rate for the foreseeable future. This rapidly growing demand for data center power infrastructure has resulted in market supply constraints for backup power equipment.

With respect to the important development project around our new Large Megawatt Generators, these products are expected to enable a very significant incremental opportunity for the global C&I part of our business, particularly within the large and growing data center market. These mission critical solutions are a necessary part of the substantial investment in data centers which are enabling the accelerated adoption of artificial intelligence. Given the tremendous power requirements of increasingly large data center campuses, demand for backup power for these applications is expected to continue to grow at a dramatic rate for the foreseeable future. This rapidly growing demand for data center power infrastructure has resulted in market supply constraints for backup power equipment.

Aaron Jagdfeld: With respect to the important development project around our new large megawatt generators, these products are expected to enable a very significant incremental opportunity for the global CNI part of our business, particularly within the large and growing data center market. These mission-critical solutions are a necessary part of the substantial investment in data centers, which are enabling the accelerated adoption of artificial intelligence. Given the tremendous power requirements of increasingly large data center campuses, demand for backup power for these applications is expected to continue to grow at a dramatic rate for the foreseeable future. This rapidly growing demand for data center power infrastructure has resulted in market supply constraints for backup power equipment.

The incentive structures over the years, it's been distorted that's the word we keep using internally here, it's a market that's been.

Okay.

And one moment for our next question, which will be coming from George generic <unk> of Canaccord Genuity. Your line is open George.

Frankly. This is this is one of the major problems you run into in terms of distortions that can happen in markets. When you have subsidization for as long as you have had with this market and the changing kind of timelines around those subsidization subsidization that changing quantum's of those subsidization.

Good morning, and thank you for taking my questions. Good morning.

Okay.

I'd like to concentrate on some of the comments you made around Jacoby.

And the solar.

Market opportunity here.

To me it appears to be a little bit of a change in tone here or on your willingness to continue to invest in.

We actually believe the elimination of subsidies for solar is a good thing for the market in the long run it will help this market grow structurally grow in a way that normal market growth right now it doesn't look anything like a normal market. In fact, you can look at how a typical solar system is transacted that transaction.

And the inverter market over the long term over the medium term I was just wondering if you can sort of paint a broad brush in and help us understand a little bit around how you might be changing Europe.

Aaron Jagdfeld: Our highly competitive lead times and the strength of our reputation in the power generation industry contributed to the strong initial response to our formal entrance into this market during the second quarter, and we have quickly built a global backlog of more than $150 million for these applications, with momentum continuing to build around a growing and significant pipeline of new opportunities. We expect global shipments of these products to begin in the second half of the year, with a large majority of our existing backlog to be realized in 2026. Additionally, further global market opportunities exist for these products within our traditional end markets, in particular providing backup power for large manufacturers, distribution centers, healthcare facilities, and other critical infrastructure that have higher backup power requirements.

Aaron Jagdfeld: Our highly competitive lead times and the strength of our reputation in the power generation industry contributed to the strong initial response to our formal entrance into this market during the second quarter, and we have quickly built a global backlog of more than $150 million for these applications. With momentum continuing to build around a growing and significant pipeline of new opportunities, we expect global shipments of these products to begin in the second half of the year, with the large majority of our existing backlog to be realized in 2026. Additionally, further global market opportunities exist for these products within our traditional end markets, in particular providing backup power for large manufacturers, distribution centers, healthcare facilities, and other critical infrastructure that have higher backup power requirements as we continue to ramp our capabilities for large megawatt generators.

Our highly competitive lead times and the strength of our reputation in the power generation industry contributed to the strong initial response to our formal entrance into this market during the second quarter, and we have quickly built a global backlog of more than $150 million for these applications. With momentum continuing to build around a growing and significant pipeline of new opportunities, we expect global shipments of these products to begin in the second half of the year, with the large majority of our existing backlog to be realized in 2026. Additionally, further global market opportunities exist for these products within our traditional end markets, in particular providing backup power for large manufacturers, distribution centers, healthcare facilities, and other critical infrastructure that have higher backup power requirements as we continue to ramp our capabilities for large megawatt generators.

Of your philosophy around those markets and maybe just update us on what the dilution was from.

The clean type business during the first half of the year. Thank you.

Almost looks like nothing else on the planet in terms of how it's structured the financial engineering the craziness around it.

Yes, Thanks, George so.

I don't know if it represents.

Change in tone.

And I think a lot of that has had a negative effect actually.

Perhaps maybe that's the right way to characterize it let me, let me say what hasn't changed.

On the underlying structural integrity of the market in terms of its had kind of a distorted effect on the overall ASP for a project I think the Asp's for projects are higher there is a reason that they are considerably higher here in the U S than they are in Europe, and I think a lot of that has to do with the.

And I think the comments we wrote the specific commentary was we're laser focused.

Just the the amount of subsidization the amount of incentives that go into that in the structures that come out of those transactions with tax equity structures and other elements I think if we get rid of all of that over time, what will be laid bare is a market that can work you can see what's going on in Europe. It works.

Aaron Jagdfeld: As we continue to ramp our capabilities for large megawatt generators, with our expected annual production capacity sitting well above our current backlog, 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 support, while also providing data center customers with a robust service network to ensure uptime for these critical applications. In closing this morning, our second quarter results reflect strong execution in a dynamic operating environment with broad-based strength across our product categories. We will continue to lean into our core corporate value of agility as we navigate evolving market and policy conditions while maintaining focus on the significant growth opportunities that exist as we further execute on our enterprise strategy.

Aaron Jagdfeld: With our expected annual production capacity sitting well above our current backlog, 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 support while also providing data center customers with a robust service network to ensure uptime for these critical applications. In closing this morning, our second quarter results reflect strong execution in a dynamic operating environment with broad-based strength across our product categories. We will continue to lean into our core corporate value of agility, as we navigate evolving market and policy conditions while maintaining focus on the significant growth opportunities that exist as we further execute on our enterprise strategy. The megatrends of lower power quality and higher power prices are being further supported by numerous underlying trends providing incremental avenues for future growth in our business.

With our expected annual production capacity sitting well above our current backlog, 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 support while also providing data center customers with a robust service network to ensure uptime for these critical applications. In closing this morning, our second quarter results reflect strong execution in a dynamic operating environment with broad-based strength across our product categories. We will continue to lean into our core corporate value of agility, as we navigate evolving market and policy conditions while maintaining focus on the significant growth opportunities that exist as we further execute on our enterprise strategy. The megatrends of lower power quality and higher power prices are being further supported by numerous underlying trends providing incremental avenues for future growth in our business.

Still some things that need to be.

<unk>.

And understood as the one big beautiful Bill kind of now moves from.

It is being passed legislation into kind of interpretation by treasury.

Power prices are going up.

You can look at your own power Bill look at your neighbors power Bill look at power builds across the country. This is without a doubt a story thats underreported, we can talk about power outages, all we want but at the end of the day the cost of power is going up and Theres lots of reasons people.

And what happens there in terms of.

The actual impact to the market, but clearly the market is going to contract for solar.

Is it going to contract, 20% or is it going to contract, 50%, so but take a range, maybe it's 20% to 50%.

We believe that that market. If you just step back has been heavily.

Pick there.

The reason and it differs by utility it differs by region.

Impacted obviously by.

It differs by type of customer, but at the end of it at the end of the day your power costs My power costs have gone up over 30% in the last five years and are expected to double in the next 10 or greater Youre already seeing this play out in parts of the country.

Aaron Jagdfeld: The megatrends of lower power quality and higher power prices are being further supported by numerous underlying trends, providing incremental avenues for future growth in our business. And we firmly believe our portfolio of products and solutions is uniquely positioned to deliver value and protection to homes, businesses, and institutions around the world. I'll now turn the call over to York to provide further details on our second quarter results and our updated outlook for 2025. York?

The incentive structures over the years, it's been distorted that's the word we keep using internally here, it's a market that's been.

Aaron Jagdfeld: We firmly believe our portfolio of products and solutions is uniquely positioned to deliver value and protection to homes, businesses, and institutions around the world. I'll now turn the call over to York to provide further details on our second quarter results and our updated outlook for 2025.

We firmly believe our portfolio of products and solutions is uniquely positioned to deliver value and protection to homes, businesses, and institutions around the world. I'll now turn the call over to York to provide further details on our second quarter results and our updated outlook for 2025.

As power cost increase and as the cost of these technologies I E solar storage energy management.

Kris Rosemann: York, thanks, Aaron. Looking at Q2 2025 results in more detail, net sales during the quarter increased 6% to $1.06 billion as compared to $998 million in the prior year. Q2, the combined effect of acquisitions and foreign currency had a slight favorable impact on revenue growth during the quarter. Briefly looking at consolidated net sales for Q2 by product class, residential product sales increased 7% to $574 million as compared to $538 million in the prior year. This growth in residential product sales was driven by a strong increase in shipments of energy storage systems and ecobee home energy management solutions. Portable generator shipments also contributed to this sales growth. While home standby generator sales were flat with the prior year. Commercial and industrial product sales for Q2 increased 5% to $362 million as compared to $344 million in the prior year.

All of these technologies continue to come down rapidly and cost they have done that over the last couple of decades and they will continue to do so.

Kris Rosemann: Thanks, Aaron. Looking at second quarter 2025 results in more detail, net sales during the quarter increased 6% to 1.06 billion as compared to 998 million in the prior year's second quarter. The combined effect of acquisitions in foreign currency had a slight favorable impact on revenue growth during the quarter. Briefly looking at consolidated net sales for the second quarter by product class, residential product sales increased 7% to 574 million as compared to 538 million in the prior year. This growth in residential product sales was driven by a strong increase in shipments of energy storage systems and Ecobee home energy management solutions. Portable generator shipments also contributed to this sales growth, while home standby generator sales were flat with the prior year. Commercial and industrial product sales for the second quarter increased 5% to 362 million as compared to 344 million in the prior year.

Those subsidization, we actually believe the elimination of subsidies for solar is a good thing for the market in the long run it will help this market grow structurally grow in a way that normal market growth right now it doesn't look anything like a normal market. In fact, you can look at how a typical solar system is.

You can get to economic.

Outcomes, there that are very beneficial to homeowners and businesses by installing solar even without the incentive structures and that I think is where this ultimately lands now theres going to be a couple more years of noise here as the incentives taper off youre going to have some pull forward of demand was safe harboring maybe in the second half.

<unk> that transaction almost looks like nothing else on the planet in terms of how it's structured the financial engineering the craziness around it.

Of this year and all of that has to wash through the system, but for US we think that solar and storage are still important technologies and our residential energy ecosystem and parts of that now that they are not the only parts. Okay. We believe EV charging is going to be an important can play an important role we believe that energy management.

And I think a lot of that has had a negative effect actually.

With the eco products are going to play an important role. We believe generators are going to play an important role in the energy ecosystem. All of this linked together is how we're going to keep homeowners and business is resilient.

Just the the amount of subsidization and the amount of incentives that go into that in the structures that come out of those transactions with tax equity structures and other elements I think if we get rid of all of that over time, what will be laid bare is a market that can work you can see what's going on in Europe. It works.

Kris Rosemann: Core sales growth of approximately 4% was driven by strength in shipments to our domestic industrial, distributor, and telecom customers as well as strong growth within Europe, partially offset by weakness in shipments to national rental accounts and other international markets. Net sales for the other products and services category increased approximately 8% to $125 million as compared to $116 million in the second quarter of 2024. Core sales increased approximately 6% primarily due to growth in aftermarket service, parts, and accessories, ecobee, and remote monitoring, subscription sales, and other installation and maintenance services revenue. Gross profit margin was 39.3% compared to 37.6% in the prior year second quarter, primarily due to favorable pricing and lower input costs, partially offset by unfavorable sales mix.

Core sales growth of approximately 4% was driven by strength in shipments to our domestic industrial, distributor, and telecom customers as well as strong growth within Europe, partially offset by weakness in shipments to national rental accounts and other international markets. Net sales for the other products and services category increased approximately 8% to $125 million as compared to $116 million in the second quarter of 2024. Core sales increased approximately 6% primarily due to growth in aftermarket service, parts, and accessories, ecobee, and remote monitoring, subscription sales, and other installation and maintenance services revenue. Gross profit margin was 39.3% compared to 37.6% in the prior year second quarter, primarily due to favorable pricing and lower input costs, partially offset by unfavorable sales mix.

Kris Rosemann: Core sales growth of approximately 4% was driven by strength in shipments to our domestic industrial distributor and telecom customers, as well as strong growth within Europe, partially offset by weakness in shipments to national rental accounts and other international markets. Net sales for the other products and services category increased approximately 8% to 125 million as compared to 116 million in the second quarter of 2024. Core sales increased approximately 6%, primarily due to growth in aftermarket service parts and accessories, Ecobee and remote monitoring subscription sales, and other installation and maintenance services revenue. Gross profit margin was 39.3% compared to 37.6% in the prior year's second quarter, primarily due to favorable pricing and lower input costs, partially offset by unfavorable sales mix. The favorable price-cost dynamics were partly due to the timing differences between the realization of recent price increases and the higher tariff-related input costs.

And we're going to help them save money on their power builds we're going to give them a lot more independents going forward, it's going to take time to build that out but we are not going to continue to lose money on this business in perpetuity, we said that the drag on this I think you work for the first half of the year was about $3 to 400 basis points, but overall for the year it's call it.

Power prices are going up.

You can look at your own power Bill look at your neighbors power Bill look at power bills across the country. This is without a doubt a story thats underreported, we can talk about power outages, all we want but at the end of the day the cost of power is going up and Theres lots of reasons people can.

300, and 350, yes, that's our expectation full year for the full year, but continuing to improve we have seen that improvement already in <unk> and we're going to continue to see that and the rest of the business now we will adjust our spending right. If the market smaller we're going to have to adjust adjust the level of our investment recalibrate of investment we've got a lot of new product coming to market. This year, we won't have.

Pick there.

They are the reason and it differs by utility it differs by region.

A lot of that new product cost. If you will the development costs will start to taper and we will go more into a sustaining mode on those new products going into 2026. So I think we're in a good place to make the recalibration that we need to make there, but we are still committed to this being part of <unk>.

Kris Rosemann: The favorable price-cost dynamics were partly due to the timing differences between the realization of recent price increases and the higher tariff-related input costs. In addition, gross margins exceeded expectations for the quarter, partially due to a lower tariff impact relative to our previous guidance. Operating expenses increased $33 million or 12% as compared to the second quarter of 2024. This growth in operating expenses was primarily driven by higher variable costs due to higher shipment volumes, increased employee cost to support future growth across the business, and ongoing operating expenses related to recent acquisitions. Adjusted EBITDA before deducting for non-controlling interest as defined in our earnings release exceeded expectations at $188 million or 17.7% of net sales in the second quarter as compared to $165 million or 16.5% of net sales in the prior year.

The favorable price-cost dynamics were partly due to the timing differences between the realization of recent price increases and the higher tariff-related input costs. In addition, gross margins exceeded expectations for the quarter, partially due to a lower tariff impact relative to our previous guidance. Operating expenses increased $33 million or 12% as compared to the second quarter of 2024. This growth in operating expenses was primarily driven by higher variable costs due to higher shipment volumes, increased employee cost to support future growth across the business, and ongoing operating expenses related to recent acquisitions. Adjusted EBITDA before deducting for non-controlling interest as defined in our earnings release exceeded expectations at $188 million or 17.7% of net sales in the second quarter as compared to $165 million or 16.5% of net sales in the prior year.

As power cost increase and as the cost of these technologies I E solar storage and energy management.

Energy ecosystem, we think is an important element for us to plant the flag in going forward.

Kris Rosemann: In addition, gross margins exceeded expectations for the quarter, partially due to a lower tariff impact relative to our previous guidance. Operating expenses increased 33 million, or 12%, as compared to the second quarter of 2024. This growth in operating expenses was primarily driven by higher variable costs due to higher shipment volumes, increased employee costs to support future growth across the business, and ongoing operating expenses related to recent acquisitions. Adjusted EBITDA before deducting for non-controlling interests, as defined in our earnings release, exceeded expectations at 188 million, or 17.7% of net sales in the second quarter, as compared to 165 million, or 16.5% of net sales in the prior year. I will now briefly discuss financial results for our two reporting segments.

Here at the company.

All of these technologies continue to come down rapidly and cost they have done that over the last couple of decades and they will continue to do so.

And one moment for our next question.

Question will be coming from Mike Halloran of Baird. Your line is open mic.

You can get to economic.

Hey, good morning, everyone.

Good morning, Mike.

Aaron can you just continue that two units up in.

What is the next call. It 12 to 18 months look like as far as.

Iterations go through how you get that.

Two.

Kind of a mutual profitability level clean energy teas.

Of this year and all of that has to wash through the system, but for US we think that solar and storage are still important technologies and our residential energy ecosystem and.

What are the types of things you're thinking internally.

What's the timeline look like.

Yes.

The clean energy.

Typically or does that include <unk>, which.

And parts of that now that they are not the only parts. Okay. We believe EV charging is going to be an important play an important role we believe that energy management with the eco products are going to play an important role. We believe generators are going to play an important role in the energy ecosystem. All of this linked together is how we're going to keep homeowners and business is resilient.

Kris Rosemann: I will now briefly discuss financial results for our two reporting segments. Domestic segment total sales, including intersegment sales, increased 7% to $884 million in the quarter as compared to $827 million in the prior year, which included approximately 1% sales growth contribution from recent acquisitions. Adjusted EBITDA for the segment was $158 million, representing 17.9% of total sales as compared to $140 million in the prior year or 16.9%. International segment total sales, including intersegment sales, increased approximately 7% to $197 million in the quarter as compared to $185 million in the prior year quarter, including an approximate 1% benefit from foreign currency. Adjusted EBITDA for the segment before deducting for non-controlling interest was $30 million or 15% of total sales as compared to $25 million or 13.6% in the prior year.

I will now briefly discuss financial results for our two reporting segments. Domestic segment total sales, including intersegment sales, increased 7% to $884 million in the quarter as compared to $827 million in the prior year, which included approximately 1% sales growth contribution from recent acquisitions. Adjusted EBITDA for the segment was $158 million, representing 17.9% of total sales as compared to $140 million in the prior year or 16.9%. International segment total sales, including intersegment sales, increased approximately 7% to $197 million in the quarter as compared to $185 million in the prior year quarter, including an approximate 1% benefit from foreign currency. Adjusted EBITDA for the segment before deducting for non-controlling interest was $30 million or 15% of total sales as compared to $25 million or 13.6% in the prior year.

Correct me, if I'm wrong, but that is already at a profitable level. So is that the net of the two or is that exclusive.

Kris Rosemann: Domestic segment total sales, including inter-segment sales, increased 7% to 884 million in the quarter, as compared to 827 million in the prior year, which included approximately 1% sales growth contribution from recent acquisitions. Adjusted EBITDA for the segment was 158 million, representing 17.9% of total sales, as compared to 140 million in the prior year, or 16.9%. International segment total sales, including inter-segment sales, increased approximately 7% to 197 million in the quarter, as compared to 185 million in the prior year quarter, including an approximate 1% benefit from foreign currency. Adjusted EBITDA for the segment before deducting for non-controlling interests was 30 million, or 15% of total sales, as compared to 25 million, or 13.6% in the prior year. Now switching back to our financial performance for the second quarter of 2025 on a consolidated basis.

Colby.

So yes, correct, Mike <unk> is profitable year to date, and we expect to be fully profitable for the year. It's done it that team has done an outstanding job in the growth rate there has.

And we're going to help them save money on their power bills, we're going to give them a lot more independents going forward, it's going to take time to build that out but we are not going to continue to lose money on this business in perpetuity, we said that the drag on this I think you work for the first half of the year was about three three to 400 basis points, but overall for the.

Been fantastic, it's a huge part obviously of our whole energy technology business. When you look at it together the big kind of drag remains in what we refer to as our clean energy products, which are the storage products to solar products, where we've had very heavy development cycles ongoing to bring these new products to market and as I said kind of on the previous.

A year, it's call. It 300 to 300, yes, that's our expectation full year for the full year, but continuing to improve we've seen that improvement already in <unk> and we're going to continue to see that and the rest of the business now we will adjust our spending right. If the market smaller we're going to have to adjust adjust the level of our investment recalibrate our investment we've got a lot of new product coming to market. This year.

Terry those new product cycles of new product introduction costs in those cycles should start to taper as we get these new products in the market. So power cell two which is our new storage device just started shipping here earlier in July and our power micro our new micro inverter product line is going to hit the market later this year so the development cycles.

We won't have a lot of that new product.

Cost if you will the development costs will start to taper and will go more into a sustaining mode on those new products going into 2026. So I think we're in a good place to make the recalibration that we need to make there, but we are still committed to this being part of.

<unk> are starting we're getting in the final innings of the development cycles, and Thats, where a lot of the spend has been now transitioning that spend spend over to <unk>.

Kris Rosemann: Now switching back to our financial performance for the second quarter of 2025 on a consolidated basis, as disclosed in our earnings release, GAAP net income for the company in the quarter was $74 million as compared to $59 million for the second quarter of 2024. Our interest expense declined from $23.3 million in the second quarter of 2024 to $18.2 million in the current year quarter as a result of lower borrowings and lower interest rates relative to prior year. GAAP income taxes during the current year second quarter were $15.4 million or an effective tax rate of 17.2% as compared to $19.6 million, or an effective tax rate of 25% for the prior year. The decrease in effective tax rate was primarily driven by a favorable discrete tax item related to an immaterial business disposition in the current year quarter.

Now switching back to our financial performance for the second quarter of 2025 on a consolidated basis, as disclosed in our earnings release, GAAP net income for the company in the quarter was $74 million as compared to $59 million for the second quarter of 2024. Our interest expense declined from $23.3 million in the second quarter of 2024 to $18.2 million in the current year quarter as a result of lower borrowings and lower interest rates relative to prior year. GAAP income taxes during the current year second quarter were $15.4 million or an effective tax rate of 17.2% as compared to $19.6 million, or an effective tax rate of 25% for the prior year. The decrease in effective tax rate was primarily driven by a favorable discrete tax item related to an immaterial business disposition in the current year quarter.

Kris Rosemann: As disclosed in our earnings release, GAAP net income for the company in the quarter was 74 million, as compared to 59 million for the second quarter of 2024. Our interest expense declined from 23.3 million in the second quarter of 2024 to 18.2 million in the current year quarter as a result of lower borrowings and lower interest rates relative to prior year. GAAP income taxes during the current year's second quarter were 15.4 million, or an effective tax rate of 17.2%, as compared to 19.6 million, or an effective tax rate of 25% for the prior year. The decrease in effective tax rate was primarily driven by a favorable discrete tax item related to an immaterial business disposition in the current year quarter.

Support.

And sustaining efforts.

Is was kind of the next phase anyway, and so that was already kind of in the plan and obviously they'll if the market is smaller you won't need as much support you won't need as much in.

And energy ecosystem, we think is an important element for us to plant the flag in going forward here.

Here at the company.

In terms of sustaining in theory.

And one moment for our next question.

And so I think theres an opportunity there to look at Recalibrating that depending again on where we think the market's going to be the answer your question directly over the next 12 to 18 months is difficult because we don't know where the market is going to be over the next 12 to 18 months. That's a piece that we're still kind of vetting out we want to get a very clear understanding of where it's going to go we know it's going to contract.

Next question will be coming from Mike Halloran of Baird.

It's open mic.

Hey, good morning, everyone.

Good morning, Mike.

Aaron can you just continue that path.

What is the next call. It 12 to 18 months look like as far as.

Current levels and by the way current levels are depressed I would just point out that current levels are also depressed, though because of two factors. One you had the change in the net metering rules in California from net metering to point out three point out which had an impact a negative impact on the market now that's largely started to wash.

Iterations go through how you get.

To kind of a mutual profitability level clean energy teas.

Kris Rosemann: Diluted net income per share for the company on a GAAP basis was $1.25 in the second quarter of 2025 compared to $0.97 in the prior year. Adjusted net income for the company as defined in our earnings release was $97 million in the current year quarter or $1.65 per share. This compares to adjusted net income of $82 million in the prior year or $1.35 per share. Cash flow from operations was $72 million as compared to $78 million in the prior year second quarter, and free cash flow as defined in our earnings release was $14 million as compared to $15 million in the same quarter last year. The change in free cash flow was primarily driven by and capital expenditures causing a greater use of cash during the current year quarter partially offset by higher operating earnings.

Diluted net income per share for the company on a GAAP basis was $1.25 in the second quarter of 2025 compared to $0.97 in the prior year. Adjusted net income for the company as defined in our earnings release was $97 million in the current year quarter or $1.65 per share. This compares to adjusted net income of $82 million in the prior year or $1.35 per share. Cash flow from operations was $72 million as compared to $78 million in the prior year second quarter, and free cash flow as defined in our earnings release was $14 million as compared to $15 million in the same quarter last year. The change in free cash flow was primarily driven by and capital expenditures causing a greater use of cash during the current year quarter partially offset by higher operating earnings.

Kris Rosemann: Diluted net income per share for the company on a GAAP basis was $1.25 in the second quarter of 2025, compared to 97 cents in the prior year. Adjusted net income for the company, as defined in our earnings release, was 97 million in the current year quarter, or $1.65 per share. This compares to adjusted net income of 82 million in the prior year, or $1.35 per share. Cash flow from operations was 72 million, as compared to 78 million in the prior year's second quarter, and free cash flow, as defined in our earnings release, was 14 million, as compared to 15 million in the same quarter last year. The change in free cash flow was primarily driven by higher working capital and capital expenditures, causing a greater use of cash during the current year quarter, partially offset by higher operating earnings.

What are the types of things you're thinking internally.

What's the timeline look like.

The.

<unk> clean energy.

Quickly or does that include <unk>.

Through but the second kind of effect that's been depressing. The market is high interest rates and I think you could make a case that it's more likely than not that interest rates are going to go down as opposed to up in the future, which should provide a backdrop for a bit stronger market dynamics all things equal in these.

Correct me, if I'm wrong, but that is already at a profitable level. So is that the net of the two or is that exclusive of <unk>.

Okay.

So yes, correct, Mike <unk> is profitable year to date, and we expect to be fully profitable for the year. It's done it that team has done an outstanding job in the growth rate there has.

In the clean energy types of products. So.

Been fantastic, it's a huge part obviously of our whole energy technology business. When you look at it together the big kind of drag remains in what we refer to as our clean energy products, which are the storage products. The solar products, where we've had very heavy development cycles ongoing to bring these new products to market and as I said kind of on the previous common.

I do think the market is going to contract. There's no doubt we're going to recalibrate spending we are still targeting we had said at our Investor day, a couple of years ago that by 2027. This was a profitable area for us that's still a focus for the company. We think that we've got to find a path to do that <unk> certainly has done there.

Kris Rosemann: We expect working capital to be a use of cash again in Q3 as we continue to replenish portable generator inventories for storm season and prepare for our next generation home standby product launch later this year. Additionally, we opportunistically repurchased approximately 3,393,000 shares of our common stock during the quarter for $50 million. There is approximately $200 million remaining on our current share repurchase authorization as of the end of Q2. On 1 July 2024, we amended and extended our existing Term Loan A and Revolving Credit Facility resulting in a new maturity date of 1 July 2030. This agreement updated the Term Loan A outstanding principal balance to $700 million and reduced the revolving facility borrowing capacity to $1 billion.

We expect working capital to be a use of cash again in Q3 as we continue to replenish portable generator inventories for storm season and prepare for our next generation home standby product launch later this year. Additionally, we opportunistically repurchased approximately 3,393,000 shares of our common stock during the quarter for $50 million. There is approximately $200 million remaining on our current share repurchase authorization as of the end of Q2. On 1 July 2024, we amended and extended our existing Term Loan A and Revolving Credit Facility resulting in a new maturity date of 1 July 2030. This agreement updated the Term Loan A outstanding principal balance to $700 million and reduced the revolving facility borrowing capacity to $1 billion.

Kris Rosemann: We expect working capital to be a use of cash again in the third quarter as we continue to replenish portable generator inventories for storm season and prepare for our next-generation home standby product launch later this year. Additionally, we opportunistically repurchased approximately 393,000 shares of our common stock during the quarter for $50 million. There is approximately 200 million remaining on our current share repurchase authorization as of the end of the second quarter. On July 1st, we amended and extended our existing Term Loan A and Revolving Credit facility, resulting in a new maturity date of July 1, 2030. This agreement updated the Term Loan A outstanding principal balance to 700 million and reduced the revolving facility borrowing capacity to 1 billion.

They are well on the way and in fact, I would say they're ahead of plan in terms of where we're coming out there which is great now we've got to turn our attention to the rest of that part of the business and again like I said, we're super excited about the new products, we've got coming to market and the receptivity, we've had with our with our early discussions with the solar channel in particular.

Or are starting we're getting in the final innings of the development cycles, and Thats, where a lot of the spend has been now.

<unk>.

And we've got to see where the market kind of shakes out here the overall market.

In terms of our forecast for 2026 in particular, but also as we think about the next three years.

Transitioning that then spend over to support right and sustaining efforts.

Is what's kind of the next phase anyway, and so that was already kind of in the plan and obviously they'll if the market is smaller you won't need as much support you won't need as much.

And our next question will be coming from Jeff Hammond.

Bank capital markets, Jeff Your line is open.

Hey, Good morning, everyone. This is David Tarantino on for Jeff.

In terms of sustaining in theory.

And so I think theres an opportunity there to look at Recalibrating that depending again on where we think the market is going to be the answer your question directly over the next 12 to 18 months is difficult because we don't know where the market is going to be over the next 12 to 18 months. That's a piece that we're still kind of vetting out we want to get a very clear understanding of where it's going to go we know it's going to contract.

David.

Kris Rosemann: In addition, the amendment eliminated a 10 basis points credit spread adjustment that was included in the previous agreement and also resulted in a more favorable pricing grid based on our leverage ratio. Quarterly principal payments on the Term Loan A will begin in October 2026 with a lump sum due at maturity in July of 2030. Total debt outstanding at the end of the quarter was $1.4 billion, resulting in a gross debt leverage ratio of 1.7x on an as-reported basis.

In addition, the amendment eliminated a 10 basis points credit spread adjustment that was included in the previous agreement and also resulted in a more favorable pricing grid based on our leverage ratio. Quarterly principal payments on the Term Loan A will begin in October 2026 with a lump sum due at maturity in July of 2030. Total debt outstanding at the end of the quarter was $1.4 billion, resulting in a gross debt leverage ratio of 1.7x on an as-reported basis.

Kris Rosemann: In addition, the amendment eliminated a 10 basis point credit spread adjustment that was included in the previous agreement and also resulted in a more favorable pricing grid based on our leverage ratio. Quarterly principal payments on the Term Loan A will begin in October 2026, with a lump sum due at maturity in July of 2030. Total debt outstanding at the end of the quarter was 1.4 billion, resulting in a gross debt leverage ratio of 1.7 times on an as-reported basis. With that, I will now provide further comments on our updated outlook for 2025. As disclosed in our press release this morning, we're updating our full-year 2025 outlook, given our first half actual results driving increased visibility to expected full-year 2025 net sales.

Maybe on home standby could you give us some more color on the underlying trends here and how we should expect the category to progress through the rest of the year, particularly around what the dealers are telling you run the demand afterglow from outage events last year and how inventories look in the channel.

Yeah. Thanks, David So home standby, it's pretty what's really amazing about home standby is.

From current levels and by the way current levels are depressed I would just point out that current levels are also depressed, though because of two factors. One you had the change in the net metering rules in California from net metering to point out a three point out which had an impact a negative impact.

The outages have been kind of light here in the first half of the year, we had a great second half of the year, obviously in terms of outages very active.

Great of course, if you experience that was in some of the reasons why you're experiencing but we're there to help our customers with our products.

Kris Rosemann: With that, I will now provide further comments on our updated outlook for 2025 as disclosed in our press release this morning. We're updating our full year 2025 outlook given our first half actual results driving increased visibility to expected full year 2025 net sales as a result of our second quarter outperformance being mostly offset by lower pricing assumptions in the second half of the year, primarily due to lower than expected tariffs. We are narrowing our net sales growth guidance range while holding the midpoint of that range. In addition, we are increasing the low end of our Adjusted EBITDA margin guidance range and raising our free cash flow conversion guidance for the full year 2025. This guidance includes the following important assumptions. We are assuming that current tariff levels that are in effect today stay in place for the remainder of the year.

With that, I will now provide further comments on our updated outlook for 2025 as disclosed in our press release this morning. We're updating our full year 2025 outlook given our first half actual results driving increased visibility to expected full year 2025 net sales as a result of our second quarter outperformance being mostly offset by lower pricing assumptions in the second half of the year, primarily due to lower than expected tariffs. We are narrowing our net sales growth guidance range while holding the midpoint of that range. In addition, we are increasing the low end of our Adjusted EBITDA margin guidance range and raising our free cash flow conversion guidance for the full year 2025. This guidance includes the following important assumptions. We are assuming that current tariff levels that are in effect today stay in place for the remainder of the year.

On the market now that's largely started to wash through but the second kind of effect that has been depressing the market is high interest rates.

And we had a very active second half of last year that as we would normally expect right. We've always said six to 12 months of Afterglow. If you will from those big events and Thats really kind of played out here in the first half of the year.

And I think it's you can make a case that it's more likely than not that interest rates are going to go down as opposed to up in the future, which should provide a backdrop for a bit stronger market dynamics all things equal in these in the clean energy types of products. So yes I.

Kris Rosemann: As a result of our second quarter outperformance being mostly offset by lower pricing assumptions in the second half of the year, primarily due to lower than expected tariffs, we are narrowing our net sales growth guidance range while holding the midpoint of that range. In addition, we are increasing the low end of our adjusted EBITDA margin guidance range and raising our free cash flow conversion guidance for the full year 2025. This guidance includes the following important assumptions. We're assuming that current tariff levels that are in effect today stay in place for the remainder of the year. This includes 30% tariff levels for China compared to 145% assumed in our previous guidance, and 20% tariff levels for Vietnam compared to 10% previously assumed.

Installations of products are up year to date, which is great and they were up in the second quarter. So we're kind of holding onto that that new and higher baseline. We continue to add dealers, which I think is is always one of those things that we watch very closely is the pace at which we can continue to add dealers has remained.

I do think the market's going to contract there's no doubt we're going to recalibrate spending we are still targeting we had said at our Investor day, a couple of years ago that by 2027. This was a profitable area for us that's still a focus for the company. We think that we've got to find a path to do that <unk> certainly has done there.

Has remained robust.

These were down in the quarter, but you would expect that with with lower outages.

Seasonally the second half of the year is really important right. So no doubt we're watching.

Great attention to what happens in the second half of the year. We don't have just remember we don't put any major events in our guide, which so we're guiding our that business that part of our business. We are guiding to a baseline level of outages, which is generally significantly lower particularly in the back half if you do get.

They are well on the way in fact, I would say they're ahead of plan in terms of where we're coming out there which is great now we've got to turn our attention to the rest of that part of the business and again like I said, we're super excited about the new products, we've got coming to market and the receptivity, we've had with our with our early discussions with the solar channel in particular.

Kris Rosemann: This includes 30% tariff levels for China compared to 145% assumed in our previous guidance and 20% tariff levels for Vietnam compared to 10% previously assumed. We continue to assume 10% reciprocal tariffs on all other countries and the continued qualification of USMCA for Mexico and Canada. Consistent with our prior guidance, incremental tariffs have also been levied against steel and copper imports since our previous guidance update, and we have assumed higher market prices for these metals in the second half of the year as a result. Finally, consistent with our historical approach, this outlook assumes a level of power outage activity for the remainder of the year in line with the longer term baseline average and does not assume the benefit of a major power outage event in the second half of the year such as a major landed hurricane or major winter storm.

This includes 30% tariff levels for China compared to 145% assumed in our previous guidance and 20% tariff levels for Vietnam compared to 10% previously assumed. We continue to assume 10% reciprocal tariffs on all other countries and the continued qualification of USMCA for Mexico and Canada. Consistent with our prior guidance, incremental tariffs have also been levied against steel and copper imports since our previous guidance update, and we have assumed higher market prices for these metals in the second half of the year as a result. Finally, consistent with our historical approach, this outlook assumes a level of power outage activity for the remainder of the year in line with the longer term baseline average and does not assume the benefit of a major power outage event in the second half of the year such as a major landed hurricane or major winter storm.

Kris Rosemann: We continue to assume 10% reciprocal tariffs on all other countries and the continued qualification of USMCA for Mexico and Canada, consistent with our prior guidance. Incremental tariffs have also been levied against steel and copper imports since our previous guidance update, and we have assumed higher market prices for these metals in the second half of the year as a result. Finally, consistent with our historical approach, this outlook assumes a level of power outage activity for the remainder of the year in line with the longer-term baseline average and does not assume the benefit of a major power outage event in the second half of the year, such as a major landed hurricane or major winter storm.

Major outages. So I would tell you that it's almost like there is a free option there on home standby, if we do get some kind of event in the second half.

<unk>.

And we've got to see where the market kind of shakes out here the overall market.

In terms of our forecast for 2026 in particular, but also as we think about the next three years.

And we've always said those events are between 50 and $100 million impact we saw that play out pretty much on point last year.

Our next question will be coming from Jeff Hammond.

And we would we would say that that that would probably be the situation again this year I might I might say the only difference might be.

Key Bank capital markets, Jeff Your line is open.

Hey, Good morning, everyone. This is David Tarantino on for Jeff.

We've done a really nice job in portable generators, we have got a new team there thats, leading that business that part of our business those products and they've done a great job getting some really major wins at some.

David.

Some incredible retailers and expanding our shelf space. So we're feeling really good about where we sit for a market share standpoint in portable gens. So if we were to get some major outages, we might actually have a nicer tailwind there we're going to be set from an inventory standpoint, it's a little bit of the cash flow in the quarter.

Kris Rosemann: Considering all these factors, we now expect consolidated net sales for the full year to increase between 2% to 5% over the prior year, which includes an approximate 1% favorable impact from the combination of foreign currency and acquisitions. This compares to our previous guidance of 0% to 7% net sales growth over the prior year. We now project full year 2025 residential product sales to be slightly lower compared to our previous expectation given lower assumed tariff-related pricing in the home standby category. We also now project full year 2025 C&I product sales to be modestly higher compared to our previous expectation given second quarter outperformance and favorable foreign currency rates relative to our prior forecast. As a result, we now expect residential products and C&I products net sales growth to be more level loaded for the full year 2025 relative to our prior expectations.

Considering all these factors, we now expect consolidated net sales for the full year to increase between 2% to 5% over the prior year, which includes an approximate 1% favorable impact from the combination of foreign currency and acquisitions. This compares to our previous guidance of 0% to 7% net sales growth over the prior year. We now project full year 2025 residential product sales to be slightly lower compared to our previous expectation given lower assumed tariff-related pricing in the home standby category. We also now project full year 2025 C&I product sales to be modestly higher compared to our previous expectation given second quarter outperformance and favorable foreign currency rates relative to our prior forecast. As a result, we now expect residential products and C&I products net sales growth to be more level loaded for the full year 2025 relative to our prior expectations.

Kris Rosemann: Considering all these factors, we now expect consolidated net sales for the full year to increase between 2% to 5% over the prior year, which includes an approximate 1% favorable impact from the combination of foreign currency and acquisitions. This compares to our previous guidance of 0% to 7% net sales growth over the prior year. We now project full-year 2025 residential product sales to be slightly lower compared to our previous expectation, given lower assumed tariff-related pricing in the home standby category. We also now project full-year 2025 CNI product sales to be modestly higher compared to our previous expectation, given second quarter outperformance and favorable foreign currency rates relative to our prior forecast. As a result, we now expect residential products and CNI products net sales growth to be more level-loaded for the full year 2025 relative to our prior expectations.

Yeah. Thanks, David So you know at home standby, it's pretty what's really amazing about home standby is.

The outages have been kind of light here in the first half of the year, we had a great second half of the year, obviously in terms of outages very active.

Terms of our working capital needs in Q2 were driven by kind of re planning portables, a heavy storm season from last year, but also getting ready for this year's storm season, and the fact that we've got increased placement.

Not great of course, if you experience that was in some of the reasons why you're experiencing but we're there to help our customers with our products.

And we had a very active second half of last year that as we would normally expect right. We've always said six to 12 months.

With our in the retail channel with those products.

What the market's telling us around home standby, though is it is.

<unk>, if you will from those big events and Thats really kind of played out here in the first half of the year installations.

It's and it's always been kind of a regional story. So the southeast remains pretty robust rate coming out of last year. The activity. There is great. There are other parts of the country, where it's weaker because we haven't had the outage activity, but I think if you stand back and you look at it on a whole and you look at kind of the.

Installations of products are up year to date, which is great. They were up in the second quarter.

We're kind of holding on to that that new and higher baseline. We continue to add dealers, which I think is is always one of those things that we watch very closely is the pace at which we can continue to add dealers has remained.

Kris Rosemann: From a seasonal pacing perspective, we expect Q3 overall net sales to be slightly ahead of the prior year with Q4 overall net sales approximately flat versus the prior year. Recall that the prior year periods included the benefit of multiple major outage events which results in a strong prior year comparison in particular for residential products. Looking at our updated gross margin expectations for the full year 2025, we now expect gross margin percent to increase approximately 50 to 100 basis points compared to the full year 2024 coming in at approximately 39.5% at the midpoint. This represents an increase from our prior expectation of approximately 39.0% due to our Q2 outperformance and lower tariff assumptions related relative to the prior guidance.

From a seasonal pacing perspective, we expect Q3 overall net sales to be slightly ahead of the prior year with Q4 overall net sales approximately flat versus the prior year. Recall that the prior year periods included the benefit of multiple major outage events which results in a strong prior year comparison in particular for residential products. Looking at our updated gross margin expectations for the full year 2025, we now expect gross margin percent to increase approximately 50 to 100 basis points compared to the full year 2024 coming in at approximately 39.5% at the midpoint. This represents an increase from our prior expectation of approximately 39.0% due to our Q2 outperformance and lower tariff assumptions related relative to the prior guidance.

Kris Rosemann: From a seasonal pacing perspective, we expect third quarter overall net sales to be slightly ahead of the prior year, with fourth quarter overall net sales approximately flat versus the prior year. Recall that the prior year periods included the benefit of multiple major outage events, which result in a strong prior comparison, in particular for residential products. Looking at our updated gross margin expectations for the full year 2025, we now expect gross margin percent to increase approximately 50 to 100 basis points compared to the full year 2024, coming in at approximately 39.5% at the midpoint. This represents an increase from our prior expectation of approximately 39.0% due to our second quarter outperformance and lower tariff assumptions related to the prior guidance.

Home standby business are the products there as a segment as a group it's been incredible how it continues to grow and after every one of those major events like we had last fall. It holds on to that higher baseline level and it grows from there now it might be slower growth for a little bit of time here until we see another inflection.

<unk> has remained robust.

These were down in the quarter, but you would expect that with with lower outages.

Seasonally the second half of the year is really important right. So no doubt we're watching.

With great attention to what happens in the second half of the year. We don't have just remember we don't put any major events in our guide, which so we're guiding our that business that part of our business. We are guiding to a baseline level of outages, which is generally significantly lower particularly in the back half if you do.

Point with more outages, but it is an incredible.

Part of our business in terms of the ability to grow that business on the back of outage high profile outage events, and then to hold on to that growth.

And move from there so really pleased with kind of how that business has continued to do to pace.

Major audits.

So I would tell you that it's almost like there is a free option there on home standby, if we do get some kind of event in the second half.

Okay.

Our next question.

And we've always said those events are between 50 and $100 million impact we saw that play out pretty much on point last year.

Our next question will be coming from Brian Drab William Blair. Your line is open.

Hi, Thanks for taking my question.

Kris Rosemann: Turning to our Adjusted EBITDA margin expectations for the full year 2025, given the factors I outlined in our net sales and gross margin update, we are increasing the lower end of our guidance range for Adjusted EBITDA percent to approximately 18% to 19% compared to our previous guidance range of 17% to 19%. In line with normal seasonality, we expect Q3 Adjusted EBITDA margins to improve 150 to 200 basis points sequentially from Q2 given the projected significant operating leverage on seasonally higher sales volumes. Additionally, we are raising our free cash flow conversion forecast given the impact of the One Big Beautiful Bill Act on our federal income tax payments.

Turning to our Adjusted EBITDA margin expectations for the full year 2025, given the factors I outlined in our net sales and gross margin update, we are increasing the lower end of our guidance range for Adjusted EBITDA percent to approximately 18% to 19% compared to our previous guidance range of 17% to 19%. In line with normal seasonality, we expect Q3 Adjusted EBITDA margins to improve 150 to 200 basis points sequentially from Q2 given the projected significant operating leverage on seasonally higher sales volumes. Additionally, we are raising our free cash flow conversion forecast given the impact of the One Big Beautiful Bill Act on our federal income tax payments.

Kris Rosemann: Turning to our adjusted EBITDA margin expectations for the full year 2025, given the factors I outlined in our net sales and gross margin update, we are increasing the lower end of our guidance range for adjusted EBITDA percent to approximately 18% to 19% compared to our previous guidance range of 17% to 19%. In line with normal seasonality, we expect third quarter adjusted EBITDA margins to improve 150 to 200 basis points sequentially from the second quarter, given the projected significant operating leverage on seasonally higher sales volumes. Additionally, we are raising our free cash flow conversion forecast, given the impact of the One Big Beautiful Bill Act on our federal income tax payments.

And we would we would say that that that would probably be the situation again this year I might I might say the only difference might be.

Can you just.

Hey, good morning can you just talk about pricing in that.

The 7% to 8% increase I guess in March.

We've done a really nice job in portable generators, we've got a new team there thats, leading that business that part of our business those products.

So that had some positive impact on gross margin, but how was that received overall in the in.

They've done a great job getting some really major wins at some.

In the market any effect on demand and how are you adjusting your plan for pricing.

Some incredible retailers and expanding our shelf space. So we're feeling really good about where we sit for a market share standpoint in portable gens. So.

On the new product line, given how tariffs have evolved.

Yeah. Thanks for the question, Brian So pricing, obviously dynamic environment. We're in we're all kind of glued too.

Want to get some major outages, we might actually have a nicer tailwind there we're going to be set from an inventory standpoint, it's a little bit of the cash.

The 24 hour news cycle here on on where these trade agreements are coming out it sounds like the administration is making progress here.

Cash flow in the quarter.

Our working capital needs in Q2 were driven by kind of re planning portables, a heavy storm season from last year, but also getting ready for this year's storm season, and the fact that we've got increased placement.

It's slow going obviously these are major deals and it takes time to get these deals put together.

Kris Rosemann: Given the favorable tax impact of immediate expensing of research and development costs and bonus depreciation on certain capital expenditures, we now expect free cash flow conversion from adjusted net income to be approximately 90% to 100% for the full year 2025 as compared to the previous guidance range of 70% to 90%. Importantly, this would result in over $400 million of free cash flow in fiscal 2025, which provides for further near term optionality within our disciplined and balanced capital allocation framework. 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. For full year 2025, our GAAP effective tax rate is now expected to be between 23% to 23.5%, a modest decrease from our prior guidance of 24.5% to 25%.

Given the favorable tax impact of immediate expensing of research and development costs and bonus depreciation on certain capital expenditures, we now expect free cash flow conversion from adjusted net income to be approximately 90% to 100% for the full year 2025 as compared to the previous guidance range of 70% to 90%. Importantly, this would result in over $400 million of free cash flow in fiscal 2025, which provides for further near term optionality within our disciplined and balanced capital allocation framework. 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. For full year 2025, our GAAP effective tax rate is now expected to be between 23% to 23.5%, a modest decrease from our prior guidance of 24.5% to 25%.

Kris Rosemann: Given the favorable tax impact of immediate expensing of research and development costs and bonus depreciation on certain capital expenditures, we now expect free cash flow conversion from adjusted net income to be approximately 90% to 100% for the full year 2025, as compared to the previous guidance range of 70% to 90%. Importantly, this would result in over 400 million of free cash flow in fiscal 2025, which provides for further near-term optionality within our disciplined and balanced capital allocation framework. 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. For full year 2025, our GAAP effective tax rate is now expected to be between 23% to 23.5%, a modest decrease from our prior guidance of 24.5% to 25% due to the second quarter outperformance.

But I think in the end.

We put price into the market in response to what we understood the tariff environment to be those were effective I think beginning of April.

With that are in the retail channel with those products. So what the market is telling us around home standby, though is.

That was roughly the 7% to 8% Brian that you referenced there.

And I'm talking specifically now about the home standby impact there.

Did not see much material impact on demand.

Did just to remind you we would update our updated guidance at the time did contemplate some demand destruction on higher price for the remainder of the year. So.

There is some demand destruction that we built in and I think we've largely based on our results I think it's kind of played out the way that we saw it playing out the second part of your question kind of where are we going from here. So we have a new product line coming out in the second half of the year as our next generation home standby product line, which is.

Products there as a segment as a group it's been incredible how it continues to grow and after every one of those major events like we had last fall. It holds on to that higher baseline level and it grows from there and how it might be slower growth for a little bit of time here until we see another inflection point with more outages.

Kris Rosemann: Due to the second quarter outperformance, our GAAP effective tax rate for the remaining 2/4 of the year is expected to be approximately 25%. 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 of approximately 25%, we continue to expect interest expense to be approximately $74 to 78 million for the full year 2025, assuming no additional term loan principal prepayments during the year. This contemplates a lower interest rate due to our recent amendment and extend transaction, mostly offset by modestly higher outstanding borrowings. This guidance is a significant decline from 2024 interest expense levels due to a decrease in outstanding borrowings and the full year impact of lower SOFR interest rates.

Due to the second quarter outperformance, our GAAP effective tax rate for the remaining 2/4 of the year is expected to be approximately 25%. 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 of approximately 25%, we continue to expect interest expense to be approximately $74 to 78 million for the full year 2025, assuming no additional term loan principal prepayments during the year. This contemplates a lower interest rate due to our recent amendment and extend transaction, mostly offset by modestly higher outstanding borrowings. This guidance is a significant decline from 2024 interest expense levels due to a decrease in outstanding borrowings and the full year impact of lower SOFR interest rates.

It's phenomenal actually the product itself is just so far advanced from even the existing platform and so far ahead of where the market's at today, we're super excited about that.

Kris Rosemann: Our GAAP effective tax rate for the remaining two quarters of the year is expected to be approximately 25%. 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 of approximately 25%. We continue to expect interest expense to be approximately 74 to 78 million for the full year 2025, assuming no additional term loan principal prepayments during the year. This contemplates a lower interest rate due to our recent amend and extend transaction, mostly offset by modestly higher outstanding borrowings. This guidance is a significant decline from 2024 interest expense levels due to a decrease in outstanding borrowings and the full year impact of lower SOFR interest rates.

But it is an incredible.

Part of our business in terms of the ability to grow that business on the back of outage a high profile outage events, and then to hold on to that growth.

If there is a bit more cost in that product with some of the feature sets that we've added which is which is good but that will require some additional pricing adjustments and of course, we've got some new we've got additional knowledge on the tariff side. The trade deals that have been inked, so far and where we're sitting so theres probably as we released product into the market, we just announced.

<unk> moved from there so really pleased with kind of how that business has continued due to pace.

Okay.

Our next question.

Our next question will be coming from Brian drab with William Blair. Your line is open.

Hi, Thanks for taking my question.

The availability of our new 14 kilowatt and 18 kilowatt units. That's the first part of the new product line to be released those just went on order here. This week as a matter of fact early this week.

Can you just.

Hey, good morning can you just talk about pricing in that.

So we have 7% to 8% increase I guess in March.

I know you said that it had some positive impact on gross margin, but how was that received overall and the.

The order book opened on those and we'll begin shipping those next week.

And those contain a price increase somewhere in the depending on the SKU and the mix, 5% to 7% call. It of additional price that will go in.

And the market any effect on demand and how are you adjusting your plan for pricing.

Kris Rosemann: Our capital expenditures are still projected to be approximately 3% of our forecasted net sales for the full year in line with historical levels. Depreciation expense, GAAP and tangible amortization expense, and stock compensation expense are also expected to remain consistent with last quarter's guidance. Our full year weighted average diluted share count is expected to be approximately 59.4 to 59.5 million shares as compared to 60.3 million shares in 2024. Finally, this 2025 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value during the year. This concludes our prepared remarks. At this time, we'd like to open up the call for questions.

Our capital expenditures are still projected to be approximately 3% of our forecasted net sales for the full year in line with historical levels. Depreciation expense, GAAP and tangible amortization expense, and stock compensation expense are also expected to remain consistent with last quarter's guidance. Our full year weighted average diluted share count is expected to be approximately 59.4 to 59.5 million shares as compared to 60.3 million shares in 2024. Finally, this 2025 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value during the year. This concludes our prepared remarks. At this time, we'd like to open up the call for questions.

Kris Rosemann: Our capital expenditures are still projected to be approximately 3% of our forecasted net sales for the full year, in line with historical levels. Depreciation expense, GAAP intangible amortization expense, and stock compensation expense are also expected to remain consistent with last quarter's guidance. Our full year weighted average diluted share count is expected to be approximately 59.4 to 59.5 million shares, as compared to 60.3 million shares in 2024. Finally, this 2025 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value during the year. This concludes our prepared remarks. At this time, we'd like to open up the call for questions.

On the new product line, given how tariffs have evolved.

Related to that kind of again, mostly because of the additional feature sets that we're including with the products, but theres a little bit of kind of rebalancing with some of the tariff information that is now known that wasn't known back when we did the last round of pricing in April we still have a good chunk of the product line to be released here in the second half of the year our larger nodes.

Yeah. Thanks for the question, Brian So pricing, obviously, a dynamic environment. We're in we're all kind of glued too.

The 24 hour news cycle here on on where these trade agreements are coming out it sounds like the administration is making progress here.

It's slow going obviously these are major deals and it takes time to get these deals put together.

So everything from the 20 kilowatt nodes all the way to the 28 kilowatt nodes, which represents an important part of that that product offering and so we haven't released pricing on those nodes. Yet. So we'll continue to watch the tariff environment. We may have to go back and touch pricing again on the 14th 2000, Eighteen's, if something changes, but probably not material at this point is probably small.

I think in the end we.

We put price into the market in response to what we understood the tariff environment to be those were effective I think at the beginning of April.

That was roughly the 7% to 8% Brian that you referenced there that's I'm.

Talking specifically now about the home standby impact there.

So we feel pretty good about where we're sitting with respect to pricing and again the demand destruction. If you want to call. It that that may have occurred we think that played out largely in line with with our guidance.

Did not see much material impact on demand. We did just to remind you we would update our updated guidance at the time did contemplate some demand destruction on higher price for the remainder of the year. So.

Operator: Certainly. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 101. Again, in the interest of time, please limit yourself to one question. And our first question will be coming from Tommy Moll of Stephens. Your line is open.

Operator: Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In the interest of time, please limit yourself to one question. And our first question will be coming from Tommy Maul of Stevens. Your line is open.

Okay.

One moment for our next question.

There is some demand destruction that we built in and I think we've largely based on our results I think it's kind of played out the way that we saw it playing out the second part of your question kind of where are we going from here. So we have a new product line coming out in the second half of the year. It's our next generation home standby product line, which is.

Our next question comes from Mark Strouse of Jpmorgan Mark Your line is open.

Okay.

Kris Rosemann: Good morning and thank you for taking my question.

Tommy Moll: Good morning and thank you for taking my question.

Aaron Jagdfeld: Good morning, and thank you for taking my question.

Thank you and good morning.

Aaron Jagdfeld: Hey, Tommy.

Operator: Hey, Tommy.

Kris Rosemann: Good morning, Aaron. On the recent entry into the data center market. Sounds like things have gone pretty well so far, but I just wanted to ask for anything else you can give us there. When could these revenues start to be meaningful? Are the lead times for some of the incumbents that are still as extended as they have been in recent years? What have you learned so far?

Tommy Moll: Good morning, Aaron. On the recent entry into the data center market. Sounds like things have gone pretty well so far, but I just wanted to ask for anything else you can give us there. When could these revenues start to be meaningful? Are the lead times for some of the incumbents that are still as extended as they have been in recent years? What have you learned so far?

Aaron Jagdfeld: Good morning. Aaron, on the recent entry into the data center market, it sounds like things have gone pretty well so far, but I just wanted to ask for anything else you can give us there. When could these revenues start to be meaningful? Are the lead times for some of the incumbents there still as extended as they have been in recent years? What have you learned so far?

A couple of questions going back to the data center opportunity can you just kind of talk about the backlog that you have before.

It's it's phenomenal actually the product itself is just so far advanced from even the existing platform and so far ahead of where the market's at today, we're super excited about that.

And the initial conversations that you're having are those with.

Kind of larger hyperscale or type data centers with a more traditional data centers any color. There you can provide.

Then going back to your comments about potentially expanding capacity can you just talk about kind of looking at your footprint looking at your supply chain.

There is a bit more cost in that product with some of the feature sets that we've added which is which is good but that will require some additional pricing adjustments and of course, we've got some new knot. We've got additional knowledge on the tariff side. The trade deals that have been inked, so far and where we're sitting so yes. There is probably as we released product into the market, we just announced.

Aaron Jagdfeld: Yeah, thanks, Tommy. So, yeah, I mean, this has been something we've been talking about for the last few quarters, you know, the entry into this market and something frankly we've been working on for a couple of years. We haven't been talking about it much because we wanted to get to the finish line, but it'll begin to impact revenues this year in the second half. Our initial shipments in the international market will start in Q3, and then very late this year we'll start to get our first domestic shipments out to those customers, but not much of an impact this year. It's really a 2026 story right now, what we're being told.

York Ragen: Yeah, thanks, Tommy. So, yeah, I mean, that that this has been something we've been talking about for the last few quarters, you know, the entry into this market and something, frankly, we've been working on for a couple of years. We haven't been talking about it much because we wanted to get to the finish line, but, it'll begin to impact revenues this year in the second half. our initial shipments in the international market will start in Q3, and then, you know, very late this year, we'll start to get our first domestic shipments out to those customers, but not much of an impact this year. It's really a 2026 story right now.

Other factors that go into that how.

I don't want to use the word easily but how quickly can that be done and can you talk about the capex requirement, if youre going to double capacity.

The triple capacity whatever it ends up being how we should be thinking about that thank you.

Availability of our new 14 kilowatt and 18 kilowatt units. That's the first part of the new product line to be released those just went on order here. This week as a matter of fact early this week.

Yeah. Thanks, Mark So just on the pipeline or opportunities include both.

I would call it traditional data center owner operators as well as Hyperscale, but where.

The order book opened on those and we'll begin shipping those next week.

Where we're getting traction is with the Hyperscale is because they are there.

York Ragen: what we're being told, and this is just, you know, kind of to kind of size the the the, opportunity for us anyway, because I think this is by far and away one of the biggest needle-moving, opportunities that I've seen in my time here in my three decades with the company, just both in the size of the market opportunity that data centers in particular present, but also obviously the growth rate there and the fact that, you know, this feels like something that's going to go on for a long time. You combine that with the structural deficit in, the availability of these backup power products. in our early conversations here over the last several months, nearly every data center developer, operator, owner, and customer has told us that there are two major components that they worry about in the lead time for construction of new data centers.

Aaron Jagdfeld: This is just kind of to size the opportunity for us anyway, because I think this is by far and away one of the biggest needle moving opportunities that I've seen in my time here, in my three decades with the company. Just both in the size of the market opportunity that data centers in particular present, but also obviously the growth rate there and the fact that, you know, this feels like something that's going to go on for a long time. You combine that with the structural deficit in the availability of these backup power products. In our early conversations here over the last several months, nearly every data center developer, operator, owner, and end customer has told us that there are two major components that they worry about in the lead time for construction of new data centers.

This is just kind of to size the opportunity for us anyway, because I think this is by far and away one of the biggest needle moving opportunities that I've seen in my time here, in my three decades with the company. Just both in the size of the market opportunity that data centers in particular present, but also obviously the growth rate there and the fact that, you know, this feels like something that's going to go on for a long time. You combine that with the structural deficit in the availability of these backup power products. In our early conversations here over the last several months, nearly every data center developer, operator, owner, and end customer has told us that there are two major components that they worry about in the lead time for construction of new data centers.

And those container prices increase somewhere in the depending on the SKU and the mix, 5% to 7% call. It of additional price that will go in.

Their power needs are greater and frankly, that's where the biggest part of the deficit in the market seems to exist is around those but it is a market wide deficit in terms of supply versus demand. So we're seeing those opportunities manifest.

Related to that kind of again, mostly because of the additional feature set that we're including with the products, but theres a little bit of kind of rebalancing with some of the tariff information that is now known that wasn't known back when we did the last round of price in April we still have a good chunk of the product line to be released here in the second half of the year, our larger nodes. So.

Across the board, but we are having I would say some of our more interesting conversations are with the hyperscale side of the business and we're not just talking about 2026 planning with these customers, we're talking about 'twenty seven and beyond at this stage because they are they are planning out obviously, they're trying to lock up supply.

Everything from the 20 kilowatt nodes all the way to the 28 kilowatt nodes, which represents an important part of that that product offering and so we haven't released pricing on those nodes. Yet. So we'll continue to watch the tariff environment. We may have to go back and touch pricing again on the 14th 2000, Eighteen's, if something changes, but probably not material at this point is probably small.

Further out.

And they are there.

27, 28, some cases 2029, the conversations are out so.

Then the second part of your question on footprint. So we have nine facilities around the world that are capable of producing commercial and industrial products.

Aaron Jagdfeld: The first is transformers and the second is backup generators. And so what we've learned, to answer your question, is that we believe, based on our conversations, that there appears to be about a structural deficit just in 2026 of something on the order of maybe 5,000 machines based on current capacity in the market and based on current construction completion timelines for the projects that are underway for data centers. So obviously, 5,000 machines is a lot of machines. If you, if you look at kind of on the high side, every. Every single copy of every machine would be about $1 million all in. So it's a huge, you know, one. It's a huge market just being served on an annual basis today, much greater in size than anything that we've ever approached.

The first is transformers and the second is backup generators. And so what we've learned, to answer your question, is that we believe, based on our conversations, that there appears to be about a structural deficit just in 2026 of something on the order of maybe 5,000 machines based on current capacity in the market and based on current construction completion timelines for the projects that are underway for data centers. So obviously, 5,000 machines is a lot of machines. If you, if you look at kind of on the high side, every. Every single copy of every machine would be about $1 million all in. So it's a huge, you know, one. It's a huge market just being served on an annual basis today, much greater in size than anything that we've ever approached.

York Ragen: The first is transformers, and the second is backup generators. And so what we've learned, to answer your question, is that we believe, based on our conversations, that there appears to be about a structural deficit just in 2026 of something on the order of maybe 5,000 machines, based on current capacity in the market and based on, current construction completion timelines for, the projects that are underway for data centers. So obviously, I mean, 5,000 machines is a lot of machines. You know, if you if you look at kind of on the high side, every every single copy of every machine would be about a million dollars all in. So it's a huge, you know, it's one, it's a huge market just being served on an annual basis today, much greater in size than anything that we've ever approached.

And so we have three here in the U S.

One in Mexico, one in Brazil, one in India, one in China.

Okay.

One moment for our next question.

We have a facility in Italy, and a facility in Spain, I think thats nine if I did my math right.

Our next question comes from Mark Strouse of Jpmorgan. Your line is open.

And so those facilities are capable of producing C&I products not all of them are capable of producing the large megawatt products, but what I would say is by by the by expanding capacity in the mid range of our products, we're able to create additional capacity.

Okay.

Thank you and good morning.

A couple of questions going back to the data center opportunity can you just kind of talk about the backlog do you have so far and the initial conversations that you're having are those with.

Kind of larger hyperscale or type data centers with a more traditional data centers any color. There you can provide and then going back.

Opportunities for large megawatt I'll give you. An example here in North America here in the U S. We just opened a new plant here in Wisconsin.

Your comments about potentially expanding capacity can you just talk about kind of looking at your footprint looking at your supply chain.

Our biggest plant in the U S 345000 square feet in Beaver Dam, Wisconsin, We've just commissioned that plant back on April 1st cut the ribbon on it locally here just this past last week.

Other factors that go into that how.

Aaron Jagdfeld: To the structural deficit that's there, I think will allow for a pretty rapid entry for us into the market. I'm shocked at the over $150 million that we've already booked in hard orders and the size of the pipeline that we're cultivating in this market. We've been very well received with not only just the product, but I think our brand, our reputation, the quality of our distribution, the quality of our balance sheet, frankly, the ability to stand behind these products in these very critical applications. I think, you know, we've been very well received initially here. Now we've got to deliver and we've got to execute. So, you know, it's not, we're not. This isn't a layup by any stretch of the imagination, but we're taking this very seriously. We do have good capacity, you know, to grow in the next year or so.

York Ragen: And two, the structural deficit that's there, I think, will allow for a pretty rapid, entry for us into the market. I'm shocked at the, you know, over 150 million that we've already booked in hard orders and the the size of the pipeline that we're cultivating, in this market. we've been very well received, with the, with, you know, not only just the product, but, you know, I think our brand, our reputation, the quality of our distribution, the quality of our balance sheet, frankly, you know, the the ability to stand behind these products in these very critical applications, I think, you know, we've been very well received, initially here. Now we've got to deliver and we've got to execute. So, you know, it's not, we're not, this isn't a layup by any stretch of the imagination, but, we're taking this very seriously.

I don't want to use the word easily but how quickly can that be done.

To the structural deficit that's there, I think will allow for a pretty rapid entry for us into the market. I'm shocked at the over $150 million that we've already booked in hard orders and the size of the pipeline that we're cultivating in this market. We've been very well received with not only just the product, but I think our brand, our reputation, the quality of our distribution, the quality of our balance sheet, frankly, the ability to stand behind these products in these very critical applications. I think, you know, we've been very well received initially here. Now we've got to deliver and we've got to execute. So, you know, it's not, we're not. This isn't a layup by any stretch of the imagination, but we're taking this very seriously. We do have good capacity, you know, to grow in the next year or so.

Talked about the Capex requirement, if youre going to double capacity triple capacity whatever it ends up being how we should be thinking about that thank you.

And so that plant's operational what that plan allows us to do it is focused on our mid range.

Gen sets up to basically up to one megawatt and so that's going to be more of our traditional.

Yeah. Thanks, Mark So just on the pipeline or opportunities include both.

Market end markets like telecom.

I would call it traditional data center owner operators as well as Hyperscale are but where we're getting.

And some of our traditional backup markets, but what it allows us to do is take a product that we are currently manufacturing those higher.

Getting traction is with the Hyperscale is because they are there.

There are power needs are greater and frankly, that's where the biggest part of the deficit in the market seems to exist is around those but it's a market wide deficit in terms of supply versus demand. So we're seeing those opportunities manifest.

Output product. So we're currently manufacturing in one of our other facilities nearby Oshkosh, Wisconsin, and free that facility up to be focused not quite 100%, but close to.

The opportunities that exist with these large megawatt units and so by the very nature of that we've added a lot of capacity in the system by bringing this new plant on even though the new plant wasn't maybe aimed directly at the large megawatt product.

Across the board, but we are having I would say some of our more interesting conversations are with.

The hyperscale side of the business and we're not just talking about 2026 planning with these customers. We're talking about 27 and beyond at this stage because they are they're planning out obviously, they're trying to lock up supply further out.

York Ragen: we do have good capacity, you know, to to grow in the next year or so. but given the kind of, situation that this market is facing from a a structural deficit standpoint in terms of supply versus demand, we believe that, you know, based on our early, the early learnings here and then our early success, you know, we we are going to have to make some, you know, potentially bold moves around additional capacity if we want that to be available for 2027 and beyond. we think we're in really good shape for '26 and really probably even four parts of '27, but given the size of the deficit, that 5,000 machines just for next year, we think there's there's real opportunity for us if we lean into this, and and be aggressive.

That plant that we just brought online was about $65 million to $70 million investment all in so as we think about and it took us about 15 months to bring the plant down 12 to 15 months depending on.

Aaron Jagdfeld: But given the kind of situation that this market is facing from a structural deficit standpoint in terms of supply versus demand, we believe that, you know, based on the early learnings here and then our early success, you know, we are going to have to make some, you know, potentially bold moves around additional capacity if we want that to be available for 2027 and beyond. We think we're in really good shape for 2026 and really probably even first parts of 2027. But given the size of the deficit, 5,000 machines just for next year, we think there's real opportunity for us if we lean into this and be aggressive again. Like I said, I've never seen something that can move the needle like this.

But given the kind of situation that this market is facing from a structural deficit standpoint in terms of supply versus demand, we believe that, you know, based on the early learnings here and then our early success, you know, we are going to have to make some, you know, potentially bold moves around additional capacity if we want that to be available for 2027 and beyond. We think we're in really good shape for 2026 and really probably even first parts of 2027. But given the size of the deficit, 5,000 machines just for next year, we think there's real opportunity for us if we lean into this and be aggressive again. Like I said, I've never seen something that can move the needle like this.

And there I mean, they're out 27 28, some cases 2029, the conversations are out so.

I actually closer to 12 months and <unk> to.

To bring it up to speed and to <unk>.

Then the second part of your question on footprint. So we have nine facilities around the world.

Construct it and get it going so as we think about the future and again 2006 were fine we have plenty of capacity were well over the $150 million backlog, we've got and we're going to get.

Are capable of producing commercial and industrial products.

And so we have three here in the U S.

Orders of magnitude over that in terms of what our raw capacity globally for these large systems, but when we think about the opportunity that exists for $27 28, and beyond I want to get ahead of this and I want to get ahead of it now and so we're going to have to take.

One in Mexico, one in Brazil, one in India, one in China.

We have a facility in Italy, and a facility in Spain, I think thats nine if I did my math right.

And so those facilities are capable of producing C&I products not all of them are capable of producing the large megawatt products, but what I would say is bye bye bye.

York Ragen: Again, like I said, I don't, I've never seen something that can move the needle like this. I think if we, if if if we do things the right way, I think this part of our business, which has always been a good, solid business, right? It's over a, call it a $1.5 billion opportunity today. That's our, that's the size of the the CNI products, part of our business. You know, that that's something that I think, can grow dramatically in the next several years. and you know, this, we could be in a situation in several years where the CNI products are larger than the rest of the company. And so I think it's, you know, this is just an exciting time and, something that we're, you know, we're we're going to lean into.

And make some big bold bets on additional capacity.

Aaron Jagdfeld: I think if we do things the right way, I think this part of our business, which has always been a good, solid business, right, it's over, call it a $1.5 billion opportunity today. That's the size of the C&I products part of our business, you know, that. That's something that I think can grow dramatically in the next several years. And, you know, we could be in a situation in several years where the C&I products are larger than the rest of the company. And so I think it's, you know, this is just an exciting time and something that we're, you know, we're going to lean into.

I think if we do things the right way, I think this part of our business, which has always been a good, solid business, right, it's over, call it a $1.5 billion opportunity today. That's the size of the C&I products part of our business, you know, that. That's something that I think can grow dramatically in the next several years. And, you know, we could be in a situation in several years where the C&I products are larger than the rest of the company. And so I think it's, you know, this is just an exciting time and something that we're, you know, we're going to lean into.

And that could come through organic efforts, we can build some factories, we could buy some buildings. We can do some things there that are frankly in our wheelhouse in terms of again.

By expanding capacity in the mid range of our products, we're able to create additional capacity opportunities for large megawatt I'll give you. An example here in North America here in the U S. We just opened a new plant here in Wisconsin.

I referred to this in my prepared remarks, but our core corporate agility one of them is.

Core corporate value is agility.

Our biggest plant in the U S 345000 square feet in Beaver Dam, Wisconsin, We just commissioned that plant back on April 1st cut the ribbon on at local here just this past last week.

Just move fast at the company, we know how to do that we're comfortable with that.

It's a legacy of serving kind of honestly it comes from our residential side of our business, it's a legacy of being able to react to exogenous events that happen.

And so that plant's operational what that plant allows us through its focus on our mid range.

We think that our our supply chain, we've got a.

Kris Rosemann: And it's a global opportunity.

And it's a global opportunity.

Kris Rosemann: And it's a global opportunity.

Aaron Jagdfeld: And it's a global opportunity. I think that's the other exciting piece of that. And I could add.

And it's a global opportunity. I think that's the other exciting piece of that. And I could add.

York Ragen: And it's a global opportunity. I think that's the other exciting piece of that. Yeah, good ad.

Gen sets up to basically up to one megawatt and so thats going to be more of our traditional.

We've got great partnerships built in the supply chain for these large megawatt units and they are prepared they have got lot of capacity already they are prepared to add more.

Operator: Okay, and one moment for our next question, which will be coming from George Gianarikas of Canaccord Genuity. Your line is open. George.

Operator: And one moment for our next question, which will be coming from George DeAnercus of Canaccord United. Your line is open, George.

Market end markets like telecom.

And some of our traditional backup markets, but what it allows us to do is take a product that we are currently manufacturing those higher.

What we need to do is continue to look at all elements of the value chain their end to end to make sure that there are not other constraints that exist and if there are how do we solve for them. So this is going to be an all out effort by the.

George Gianarikas: Everyone, good morning, and thank you for taking my questions.

Aaron Jagdfeld: Good morning and thank you for taking my questions. I'd like to concentrate on some of the comments you made around ecobee and the solar market opportunities, at least to me. It appears to be a little bit of a change in tone here around your willingness to continue to invest in, in the inverter market over the long term, over the medium term. I was wondering if you can sort of paint a broad brush and help us understand a little bit around how you might be changing your philosophy around those markets and maybe just to update us on what the dilution was from the cleantech business during the first half of the year. Thank you. Yeah, thanks, George. So I don't know if it represents a change in tone. Perhaps, you know, maybe that's the right way to characterize it. Let me, let me say what hasn't changed.

George Gianarikas: Good morning and thank you for taking my questions. I'd like to concentrate on some of the comments you made around ecobee and the solar market opportunities, at least to me. It appears to be a little bit of a change in tone here around your willingness to continue to invest in, in the inverter market over the long term, over the medium term. I was wondering if you can sort of paint a broad brush and help us understand a little bit around how you might be changing your philosophy around those markets and maybe just to update us on what the dilution was from the cleantech business during the first half of the year. Thank you.

York Ragen: Morning, George.

Output products that were currently manufacturing in one of our other facilities nearby Oshkosh, Wisconsin, and free that facility up to be focused not quite 100%, but close to the opportunities that exist with these large megawatt units and so by the very nature of that we've added a lot of capacity in the system by bringing this new plant on even.

George Gianarikas: I'd like to concentrate on some of the comments you made around Ecobee and the solar market opportunities. There's, at least to me, appears to be a little bit of a change in tone here around your willingness to continue to invest in the inverter market over the long term or the medium term. I'm just wondering if you can sort of paint a broad brush and help us understand a little bit around how you might be changing your philosophy around those markets and maybe just to update us on what the dilution was from the clean tech business during the first half of the year. Thank you.

The company to figure out how we grow this segment of our business very very quickly in the years ahead, and it's going to come and we're going to need to invest the good news is we've got a really great balance sheet, we generate a lot of cash flow what would generate $400 million 400 million. This year. So we've got a head of steam and we got a head of steam in terms of our momentum going.

Though the new plant wasn't maybe aimed directly at the large megawatt product.

That plant that we just brought online was about $65 million to $70 million investment all in so as we think about and it took us about 15 months to bring the plant down 12 months to 15 months depending on.

Forward here, so with our backlog so we feel like we're well positioned.

Maybe you want to call it a rotation of investment.

Aaron Jagdfeld: Yeah, thanks, George. So I don't know if it represents a change in tone. Perhaps, you know, maybe that's the right way to characterize it. Let me, let me say what hasn't changed.

York Ragen: Yeah, thanks, George. So, yeah, I don't know if it represents a change in tone. Perhaps, you know, maybe that's the right way to characterize it. Let me say what hasn't changed. And I think the comments we wrote, the specific commentary was we're laser-focused on reducing the drag on earnings from this business, i.e., we want to get it to be in positive territory. We will get it to be in positive territory. Now, we have to obviously recalibrate if the overall market size for solar in particular, if that's going to decrease in the years ahead, and it's likely that it will. The question is how much, right?

Somewhat out of some of the energy technology things, we've been focused on and into <unk>.

Actually closer to 12 months and <unk>.

C&I opportunity, which we.

To bring it up to speed and.

We just want it we just think we can win there with.

To get it constructed and get it going so as we think about the future and again 26 were fine we have plenty of capacity were well over the $150 million backlog, we've got and we're going to get.

With our approach so super excited about that.

Aaron Jagdfeld: And I think the comments we wrote, the specific commentary was we're laser focused on reducing the drag on earnings from this business. That is, we want to get it to be in positive territory. We will get it to be in positive territory. Now we have to obviously recalibrate if the overall market size for solar in particular if that's going to decrease in the years ahead, and it's likely that it will. The question is how much. Right. I think there's still some things that need to be vetted and understood as the one big beautiful bill kind of now moves from it being passed as legislation into kind of interpretation by Treasury and what happens there in terms of, you know, the actual impacts to the market. But clearly the market's going to contract for solar.

And I think the comments we wrote, the specific commentary was we're laser focused on reducing the drag on earnings from this business. That is, we want to get it to be in positive territory. We will get it to be in positive territory. Now we have to obviously recalibrate if the overall market size for solar in particular if that's going to decrease in the years ahead, and it's likely that it will. The question is how much. Right. I think there's still some things that need to be vetted and understood as the one big beautiful bill kind of now moves from it being passed as legislation into kind of interpretation by Treasury and what happens there in terms of, you know, the actual impacts to the market. But clearly the market's going to contract for solar.

And our next question will be coming from Keith Hausman of Northcoast Research. Your line is open.

Orders of magnitude over that in terms of what our capacity is globally.

Good morning, guys and thanks for the opportunity here.

These large systems, but when we think about the opportunity that exists for $27 28 and beyond.

Just hoping you guys could perhaps dimensionalize, a little bit weaker industry capacity for these data centers.

I want to get ahead of this and I want to get ahead of it now and so we're going to have to take.

<unk>.

Deficit of about 5000 devices.

And make some big bold bets on additional capacity.

I'm not sure what the markets do today and then perhaps what is your capacity is.

York Ragen: I think there's still some things that need to be vetted and understood as the One Big Beautiful Bill kind of now moves from, you know, it being passed as legislation into kind of interpretation by Treasury and what happens there in terms of, you know, the actual impacts to the market. But clearly, the market's going to contract for solar. It's just, is it going to contract 20% or is it going to contract 50%? So, but take a range. Maybe it's 20% to 50%. We believe that that market, if you just step back, has been heavily impacted, obviously, by the incentive structures over the years. It's been distorted. That's the word we keep using internally here.

And that can come through organic efforts, we could build some factories, we can buy some buildings. We can do some things there that are frankly in our wheelhouse in terms of again.

$300 million $400 million you guys currently.

Yes, I think so.

The overall market size again, theres a lot of there's a lot of moving pieces there but.

I referred to this in my prepared remarks, but our core corporate agility one of them is.

It's it's significantly above the 5000 deficit obviously.

Core corporate value is agility.

Just moved fast at the company, we know how to do that we're comfortable with that.

But it continues to evolve.

Aaron Jagdfeld: It's just, is it going to contract 20% or is it going to contract 50%? So, but take a range, maybe it's 20% to 50%. We, we believe that that market, if you just step back, has been heavily impacted obviously by the incentive structures over the years. It's been distorted. That's the word we keep using internally here. It's a market that's been, frankly, this is one of the major problems you run into, in terms of distortions that can happen in markets when you have subsidization for as long as you've had with this market and the changing kind of timelines around those subsidizations, the changing quantums of those subsidizations. We actually believe the elimination of subsidies for solar is a good thing for the market. In the long run, it will help this market grow, structurally grow in a way that normal markets grow.

It's just, is it going to contract 20% or is it going to contract 50%? So, but take a range, maybe it's 20% to 50%. We, we believe that that market, if you just step back, has been heavily impacted obviously by the incentive structures over the years. It's been distorted. That's the word we keep using internally here. It's a market that's been, frankly, this is one of the major problems you run into, in terms of distortions that can happen in markets when you have subsidization for as long as you've had with this market and the changing kind of timelines around those subsidizations, the changing quantums of those subsidizations. We actually believe the elimination of subsidies for solar is a good thing for the market. In the long run, it will help this market grow, structurally grow in a way that normal markets grow.

And a lot of that is going to be.

It's a legacy of serving kind of honestly it comes from our residential side of our business, it's a legacy of being able to react to exogenous events that happen.

It's going to be defined by how quickly the datacenters can come online.

One of the one of the challenges it still has to be solved by the data centers is the ability to connect to the grid.

We think that our our supply chain, we've got a we've.

So what we're seeing and I think what you for those of you who track some of the companies in the marketplace that provide different solutions for what we refer to as bridge power right, maybe unique solutions individual solutions that can create a somewhat independent almost micro grid. If you will for a data center.

We've got great partnerships built in the supply chain for these large megawatt units and they are prepared they've got lot of capacity already they are prepared to add more.

York Ragen: It's a market that's been, frankly, this is one of the major problems you run into in terms of distortions that can happen in markets when you have subsidization for as long as you've had with this market. And the changing kind of timelines around those subsidizations, the changing quantums of those subsidizations, we actually believe the elimination of subsidies for solar is a good thing for the market. In the long run, it will help this market grow, structurally grow in a way that normal markets grow. Right now, it doesn't look anything like a normal market. In fact, you can look at how a typical solar system is transacted. That transaction almost looks like nothing else on the planet in terms of how it's structured, the financial engineering, the craziness around it.

We need to do is continue to look at all elements of the value chain their end to end to make sure that there are not other constraints that exist and if there are how do we solve for them. So this is going to be an all out effort by the.

Site, so that they can operate independent of the grid.

And they can stand up that Mike.

That data center and bring it online more quickly.

The company to figure out how we grow this segment of our business very very quickly in the years ahead, and it's going to come and we're going to need to invest the good news is we've got a really great balance sheet, we generate a lot of cash flow what would generate $400 million $400 million. This year. So we've got a head of steam and we got a head of steam in terms of our momentum going.

Those solutions are also there's capacity constraints within those solutions as well so a lot of the the overall size of the market as being dictated by how quickly can these data centers to be put into service either by connecting to the grid or through their self sufficiency with some kind of bridge power solution.

Aaron Jagdfeld: Right now, it doesn't look anything like a normal market. In fact, you can look at how a typical solar system is transacted. That transaction almost looks like nothing else on the planet in terms of how it's structured, the financial engineering, and the craziness around it. And I think a lot of that has had a negative effect, actually, on the underlying structural integrity of the market in terms of, you know, it's had kind of a distorted effect on the overall ASP for a project. I think the ASPs for projects are higher. There's a reason that they're considerably higher here in the US than they are in Europe.

Right now, it doesn't look anything like a normal market. In fact, you can look at how a typical solar system is transacted. That transaction almost looks like nothing else on the planet in terms of how it's structured, the financial engineering, and the craziness around it. And I think a lot of that has had a negative effect, actually, on the underlying structural integrity of the market in terms of, you know, it's had kind of a distorted effect on the overall ASP for a project. I think the ASPs for projects are higher. There's a reason that they're considerably higher here in the US than they are in Europe.

Forward here, so with our backlog so we feel like we're well positioned.

Until they can connect to the grid so.

Maybe you want to call it a rotation of investment.

It's a moving number it's a moving target again, the 5000 deficit that we reference is kind of based on what the what the individual market participants have told us that they believe.

Somewhat out of some of the energy technology things, we've been focused on and into <unk>.

C&I opportunity, which we.

York Ragen: And I think a lot of that has had a negative effect, actually, on the underlying structural integrity of the market in terms of, you know, it's had kind of a distorted effect on the overall ASP for a project. I think the ASPs for projects are higher. There's a reason that they're considerably higher here in the US than they are in Europe. And I think a lot of that has to do with the, you know, just the the amount of subsidization, the amount of incentives that go into that, and the structures that come out of those transactions with tax equity structures and other elements. I think if we get rid of all of that over time, what will be laid bare is a market that can work. You can see what's going on in Europe. It works. You, you power prices are going up.

We just want it we just think we can win there with.

And that market participants in terms of Gen set participants, but the customers for data centers, what they believed it to be a deficit in the market. So they are not telling us how big the whole thing is they're just saying they believe there is.

With our approach so super excited about that.

Okay.

And our next question will be coming from Keith <unk> of Northcoast Research. Your line is open.

There are thousands and thousands of units short here even for 2026, our own capacity can you just kind of looking at what we think we can do in terms of capacity for next year I think it's easily north of $500 million in terms of what we have is capacity today.

Good morning, guys and thanks for that.

Here.

Just hoping to ask perhaps dimensionalize, a little bit weaker industry capacity for these data centers you mentioned ductless.

Aaron Jagdfeld: And I think a lot of that has to do with the, you know, just the amount of subsidization, the amount of incentives that go into that, and the structures that come out of those transactions with tax equity structures and other elements. I think if we get rid of all that over time, what will be laid bare is a market that can work. You can see what's going on in Europe. It works. Power prices are going up. You can look at your own power bill, look at your neighbor's power bill, look at power bills across the country. This is without a doubt a story that's underreported. You know, we can talk about power outages all we want, but at the end of the day, the cost of power is going up. And there's lots of reasons.

And I think a lot of that has to do with the, you know, just the amount of subsidization, the amount of incentives that go into that, and the structures that come out of those transactions with tax equity structures and other elements. I think if we get rid of all that over time, what will be laid bare is a market that can work. You can see what's going on in Europe. It works. Power prices are going up. You can look at your own power bill, look at your neighbor's power bill, look at power bills across the country. This is without a doubt a story that's underreported. You know, we can talk about power outages all we want, but at the end of the day, the cost of power is going up. And there's lots of reasons.

Deficit of about 5000 devices.

On the nine facilities, we have based on bringing Beaver dam online here. This year and also some expansion that we're doing investing in some areas and some of our other plants to allow them to do even more to expand their capacity of large megawatt product in particular, either through additional test capacity, which is generally the.

I'm just because the market due to date and then perhaps what is your capacity.

$300 million $200 million.

Premium.

Yeah, I think so.

The overall market size again, theres a lot of there's a lot of moving pieces there but.

York Ragen: You can look at your own power bill, look at your neighbor's power bill, look at power bills across the country. This is, without a doubt, a story that's underreported. You know, we can talk about power outages all we want, but at the end of the day, the cost of power is going up, and there's lots of reasons. People can, can, you know, pick their their their their reason, and it and it differs by utility, it differs by region, you know, it differs by type of customer. But at the end of it, at the end of the day, your power costs, my power costs have gone up over 30% in the last five years and are expected to double in the next 10 or greater. You're already seeing this play out in parts of the country.

It's it's significantly above the 5000 deficit obviously.

Or through some of the other production capacity, what we need to do is size that with our supply chain as well, we think right now our supply chain could keep up with that but this is where I think real quick very quickly do you think about $500 million I mean, that's.

But it continues to evolve.

And a lot of that is going to be.

It's going to be defined by how quickly the datacenters can come online.

Aaron Jagdfeld: People can pick their reason, and it differs by utility, it differs by region. You know, it differs by type of customer. But at the end of the day, your power costs. My power costs have gone up over 30% in the last five years and are expected to double in the next 10 or greater. You're already seeing this play out in parts of the country as power costs increase and as the cost of these technologies, that is, solar, storage, energy management, and all of these technologies, continue to come down rapidly in cost. They have done that over the last couple of decades, and they will continue to do so. You can get to economic outcomes there that are very beneficial to homeowners and businesses by installing solar, even without the incentive structures. And that, I think, is where this ultimately lands.

People can pick their reason, and it differs by utility, it differs by region. You know, it differs by type of customer. But at the end of the day, your power costs. My power costs have gone up over 30% in the last five years and are expected to double in the next 10 or greater. You're already seeing this play out in parts of the country as power costs increase and as the cost of these technologies, that is, solar, storage, energy management, and all of these technologies, continue to come down rapidly in cost. They have done that over the last couple of decades, and they will continue to do so. You can get to economic outcomes there that are very beneficial to homeowners and businesses by installing solar, even without the incentive structures. And that, I think, is where this ultimately lands.

One of the one of the challenges it still has to be solved by the data centers is the ability to connect to the grid.

That's a third of our entire C&I business today.

Again.

Right. So what we're seeing and I think what you for those of you who track some of the companies in the marketplace that provide different solutions for what we refer to as bridge power right, maybe unique solutions individual solutions that can create a somewhat independent almost micro grid. If you will for a data center.

I keep using the term needle moving because that is truly a needle moving opportunity.

Well the good news is we.

We've got good capacity and put in place we've got as York mentioned momentum with our backlog and were willing to commit to additional capacity as the market grows and as our participation grows alongside of it.

York Ragen: As power costs increase and as the cost of these technologies, i.e., solar, storage, energy management, all of these technologies continue to come down rapidly in cost. They have done that over the last couple of decades, and they will continue to do so. You can get to economic, outcomes there that are very beneficial to homeowners and businesses by installing solar, even without the incentive structures. And that, I think, is where this ultimately lands. Now, there's going to be a couple more years of noise here as the incentives taper off. You're going to have some pull forward of demand with safe harboring, maybe in the second half, of this year, and all of that has to wash through the system. But for us, we think that solar and storage are still important technologies in a residential energy ecosystem. And parts of that.

Our site so that they can operate independent of the grid.

They can stand up that Mike.

And one moment for our next question.

Data center and bring it online more quickly.

Our next question will be coming from simple both die.

Those solutions are also there.

Bank of America simple your line is open.

As capacity constraints within those solutions as well so.

Hi, Thank you I appreciate the time today.

A lot of the the overall size of the market as being dictated by how quickly can these data centers would be put into service either by connecting to the grid or through their self sufficiency with some kind of bridge power solution until they can connect to the grid. So it's a moving number so moving target again, the 5000 deficit that we referenced.

You raised EBITDA margins to 18% to 19% from 17% to 19% previously my question is what's driving the confidence in margin expansion rate how much of this is due to structural improvements seen input costs with temporary tailwind from mix pricing as opposed to uplift from tariffs right and houses.

Aaron Jagdfeld: Now there's going to be a couple more years of noise here as the incentives taper off. You're going to have some pull forward of demand with safe harboring maybe in the second half of this year. And all of that has to wash through the system. But for us, we think that solar and storage are still important technologies in a residential energy ecosystem, and parts of that. Now, they're not the only parts. Okay. We believe EV charging is going to be an important, going to play an important role. We believe that energy management with the ecobee products are going to play an important role. We believe generators are going to play an important role in the energy ecosystem. All of this linked together is how we're going to keep homeowners and businesses resilient, and we're going to help them save money on their power bills.

Now there's going to be a couple more years of noise here as the incentives taper off. You're going to have some pull forward of demand with safe harboring maybe in the second half of this year. And all of that has to wash through the system. But for us, we think that solar and storage are still important technologies in a residential energy ecosystem, and parts of that. Now, they're not the only parts. Okay. We believe EV charging is going to be an important, going to play an important role. We believe that energy management with the ecobee products are going to play an important role. We believe generators are going to play an important role in the energy ecosystem. All of this linked together is how we're going to keep homeowners and businesses resilient, and we're going to help them save money on their power bills.

It's kind of based on what the what the individual market participants have told us that they believe in.

<unk> margins into 2026.

Yes, no I think what we've been.

And that market participants in terms of Gen set participants with the customers for data centers, what they believed it to be a deficit in the market. So they're not telling us how big the whole thing is they're just saying they believe there is.

Our gross margin performance has been quite strong I would say for the last four quarters.

We've demonstrated.

That we can we can execute on strong gross margin so.

York Ragen: Now, they're not the only parts. Okay, we believe EV charging is going to be an important, going to play an important role. We believe that energy management with the Ecobee products are going to play an important role. We believe generators are going to play an important role in the energy ecosystem. All of this linked together is how we're going to keep homeowners and businesses resilient, and we're going to help them save money on their power bills. We're going to give them a lot more independence going forward. It's going to take time to build that out, but we are not going to continue to to lose money on this business in perpetuity. We've said that. The drag on this, I think, York, for the first half of the year, was about.

That alone gives us confidence that that can continue on now.

From a tariff standpoint.

<unk>.

The market as absorb the pricing.

And.

You can see from our Q2 performance that we were able to withstand that we believe in the second half will continue that.

Just on the nine facilities, we have based on bringing Beaver dam online here. This year and also some expansion that we're doing investing in some areas and some of our other plants to allow them to do even more to.

Aaron Jagdfeld: We're going to give them a lot more independence going forward. It's going to take time to build that out. But we are not going to continue to lose money on this business in perpetuity. We've said that the drag on this, I think York for the first half of the year was about 300 to.

We're going to give them a lot more independence going forward. It's going to take time to build that out. But we are not going to continue to lose money on this business in perpetuity. We've said that the drag on this, I think York for the first half of the year was about 300 to.

We've got confidence that the impact of tariffs will get offset by price and that will allow us to hold those strong margins and I think.

To expand their capacity of large megawatt product in particular, either through additional test capacity, which is generally the constraint or through some of the other production capacity.

Kris Rosemann: The first half, 3 to 400 base points, but overall for the year, let's call it, 300 to 350.

Kris Rosemann: 400 basis points, but overall for the year it's called 300 to 350.

George Gianarikas: 400 basis points, but overall for the year it's called 300 to 350.

The increase from our prior outlook is just a function of holding those margin dollar levels on slightly lower sales and slightly lower pricing. So that alone will drive your margins up but.

Aaron Jagdfeld: Yeah, that's our expectation.

York Ragen: Yeah, that's that's our expectation.

Kris Rosemann: For the full year.

George Gianarikas: For the full year.

Kris Rosemann: For the full year.

We need to do is size that with our supply chain as well, we think right now our supply chain could keep up with that but this is where I think real quick very quickly do you think about 500 million I mean, that's that's a third of our entire C&I business today.

Aaron Jagdfeld: For the full year, but continuing to improve. We've seen that improvement already in ecobee, and we're going to continue to see that in the rest of the business. Now we'll adjust our spending. Right. If the market's smaller, we're going to have to adjust the level of our investment, recalibrate our investment. We got a lot of new product coming to market this year. We won't have a lot of that new product cost, if you will. The development costs will start to taper, and we'll go more into a sustaining mode on those new products going into 2026. So I think we're in a good place to make the recalibrations that we need to make there. But we are still committed to this, being part of an energy ecosystem we think is an important element for us to plant the flag in going forward here at the company.

York Ragen: For the full year, but continuing to improve. We've seen that improvement already in Ecobee, and we're going to continue to see that in the rest of the business. Now, we'll adjust our spending, right? If the market's smaller, we're going to have to adjust the level of our our investment, recalibrate our investment. We got a lot of new product coming to market this year. We won't have a lot of that new product, cost, if you will. The development costs will start to taper, and we'll go more into a sustaining mode on those new products going into 2026.

<unk>.

What we've seen today is we believe we can we can offset those tariff impact I would say I would add to that tempo that when you think about longer term margins.

Again.

I keep using the term needle moving because that that is truly a needle moving opportunity.

Again, as we continue to focus on reducing the drag.

But the good news is we've got good capacity in put in place. We've got as York mentioned momentum with our backlog and were willing to commit to additional capacity as the market grows and as our participation grows alongside of it.

From some of the energy Tech.

Products that we talked about earlier and then if we as that C&I business begins to rapidly grow the leverage that we're going to get from that growth.

York Ragen: So I think we're in a good place to to make the recalibrations that we need to make there, but we are still committed to this being part of, you know, an energy ecosystem we think is an important element for us to plant the flag in going forward, here at the company.

Is is going to also be I think a positive overall for our margin. So the combination of those two factors as well. It gives me confidence longer term that our margins have opportunity to continue to expand I mean, we had laid that out also.

Yeah.

And one moment for our next question.

Our next question will be coming from simple beside of Bank of America Nimble. Your line is open.

Operator: One moment for our next question. Our next question will be coming from Mike Halloran of Baird, your wireless open mic.

Operator: And one moment for our next question. Our next question will be coming from Mike Halloran of Baird. Your line is open, Mike.

Operator: One moment for our next question. Our next question will be coming from Mike Halloran of Baird, your wireless open mic.

Thank you I appreciate the time today.

At our last IR event, we were targeting higher margins, even in where we're operating today and we believe that that is still very achievable.

You raised EBITDA margins to 18% to 19% from 17% to 19% previously my question is what's driving the confidence in margin expansion rate how much of this is due to structural improvements you know seeing input costs with temporary tailwind from mix pricing as opposed to uplift from tariffs right and houses.

Kris Rosemann: Hey, good morning, everyone. Good morning. Hey, Aaron, can you just continue that train of thought then? What does the next call at 12, 18 months look like as far as the iterations go, for how you get that back to kind of a neutral profitability level? The clean energy piece, what are the types of things you're thinking internally? You know, what's that timeline look like? Is this the clean energy piece specifically, or does that include ecobee, which, correct me if I'm wrong, but that is already at a profitable level? So is that the net of the two or is that exclusive of ecobee?

Michael Halloran: Hey, good morning, everyone.

Mike Halloran: Hey, good morning, everyone.

Aaron Jagdfeld: Good morning.

Kris Rosemann: Good morning.

York Ragen: Hey, Mike.

Michael Halloran: Hey, Aaron, can you just continue that train of thought then? What does the next call at 12, 18 months look like as far as the iterations go, for how you get that back to kind of a neutral profitability level? The clean energy piece, what are the types of things you're thinking internally? You know, what's that timeline look like? Is this the clean energy piece specifically, or does that include ecobee, which, correct me if I'm wrong, but that is already at a profitable level? So is that the net of the two or is that exclusive of ecobee?

Mike Halloran: Hey, Aaron, can you just continue that train of thought then? What does the next, call it, 12 to 18 months look like as far as the iterations go for how you get that back to kind of a neutral profitability level, the clean energy piece? What are the types of things you're thinking internally? You know, what's that timeline look like? And is this the clean energy piece specifically, or does that include Ecobee, which, correct me if I'm wrong, but that is already at a profitable level? So is that the net of the two, or is that exclusive of Ecobee?

And that's even kind of before we get to some of the the potential opportunities within the data center market that we've been talking about this morning it definitely.

The EBITDA lined up on the EBITDA level those operating leverage on the EBITDA line won't be large absolutely.

Dana below these margins into 2026.

Yeah, No I think what we've been our gross margin performance has been quite strong I would say for the last four quarters or.

And one moment for our next question.

Our next question will be coming from Sean Milligan of Janney. Your line is open.

So we've demonstrated.

Thank you for taking the question guys.

That we can we can execute on on strong gross margin so.

The data center piece.

You just kind of hit on it but I was trying to understand how we should think about margins for that book of business.

That alone gives us confidence that that can continue on now.

From a tariff standpoint.

Hey.

I guess, both from a growth and the EBITDA side within the C&I piece like are they going to drag that margin profile higher over the next couple of years also.

Aaron Jagdfeld: So, yeah, no, so correct, Mike. You know, ecobee is profitable year to date, and we expect it to be fully profitable for the year. It's done it. That team has done an outstanding job, and the growth rate there has been fantastic. It's a huge part obviously of our whole energy technology business. When you look at it together, the big kind of drag remains in what we refer to as our clean energy products, which are the storage products, the solar products, where we've had very heavy development cycles ongoing to bring these new products to market. And as I said kind of on the previous commentary, those new product cycles of new product introduction, costs in those cycles should start to taper as we get these new products in the market. So PowerCell 2, which is our new storage device, just started shipping here earlier in July.

York Ragen: So, yeah, no, so correct, Mike. You know, Ecobee is profitable year to date, and we expect it to be fully profitable for the year. It's done at that team has done an outstanding job, and the growth rate there has been fantastic. It's a huge part, obviously, of our whole energy technology business when you look at it together. The big, you know, kind of drag remains in what we refer to as our clean energy products, which are the storage products, the solar products, where we've had very heavy development cycles ongoing to bring these new products to market. And as I said, kind of on the previous commentary, you know, those new product cycles and new product introduction costs in those cycles should start to taper as we get these new products into market.

<unk>.

The market has absorbed the pricing.

And you.

You can see from our Q2 performance that we were able to withstand that we believe in the second half.

I think that the gross margin line. If you just looked at those projects on their own.

They don't look they don't look tremendously different than our than our C&I product margins.

We'll continue that.

We've got confidence that the impact of tariffs will get offset by price and that will allow us to hold those strong margins and I think.

There may be a little bit softer than that on a percentage basis, but actually there are quite a bit stronger than our initial business case going into this market presented we thought that those percentages would be.

The increase from our prior outlook is just a function of holding those margin dollar levels on slightly lower sales and slightly lower pricing. So that alone will drive your margins up but.

More challenging than they would be potentially dilutive at the gross margin line I don't necessarily see it happening that way with C&I products, now given where because of the structural deficit in the market.

York Ragen: So PowerCell 2, which is our new storage device, just started shipping here earlier in July, and our Power Micro, our new microinverter product line, is going to hit the market later this year. So, you know, the development cycles, you know, are are starting, we're getting in the final innings of the development cycles, and that's where a lot of the spend has been. Now, transitioning that spend spend over to, support, right, and sustaining efforts, you know, is was kind of the next phase anyway. And so that was already kind of in the plan. And obviously, though, if the market is smaller, you won't need as much support. You won't need as much, you know, in terms of sustaining, in theory. and so I think there's an opportunity there to look at recalibrating, you know, that depending, again, on where we think the market's going to be.

What we've seen today is we believe we can we can offset those tariff impact and I would say I would add to that tempo that.

Pricing.

Those products to the market.

Aaron Jagdfeld: Our PWRmicro, our new microinverter product line, is going to hit the market later this year. The development cycles are starting. We're getting in the final innings of the development cycles. That's where a lot of the spend has been now, transitioning that spend over to support. Right. Sustaining efforts, you know, is kind of the next phase anyway. That was already kind of in the plan. Obviously, though, if the market is smaller, you won't need as much support, you won't need as much, you know, in terms of sustaining, in theory.

Our PWRmicro, our new microinverter product line, is going to hit the market later this year. The development cycles are starting. We're getting in the final innings of the development cycles. That's where a lot of the spend has been now, transitioning that spend over to support. Right. Sustaining efforts, you know, is kind of the next phase anyway. That was already kind of in the plan. Obviously, though, if the market is smaller, you won't need as much support, you won't need as much, you know, in terms of sustaining, in theory.

Has gone up from our initial business case, and it is putting us in a place with gross margins on those products that look a lot more like our traditional C&I products.

When you think about longer term margins.

Again, as we continue to focus on reducing the drag.

And as a result, and even even if we were to do the business case that we if we were talking about the business case. We originally had we were going to see accretion on the EBITDA margin line because of that leverage we're going to see it's going to work out even better now because the gross margin is also will be stronger than we had initially planned for and Youll get the leverage on the operating leverage.

From some of the energy Tech.

Products that we talked about earlier and then if we if as that C&I business begins to rapidly grow the leverage that we're going to get from that growth.

<unk> at the EBITDA margin line. So net net Sean I think it's this is again, we're kind of my previous answer to <unk> question, why I've got confidence that our EBITDA margins can continue to expand in the future is in particular on the back of what we're looking at doing here in data center, even on a consolidated but even on a consolidated maybe slightly maybe dilutive on the gross margin.

Aaron Jagdfeld: And so I think there's an opportunity there to look at recalibrating, you know, that depending again on where we think the market's going to be. The answer to your question directly over the next 12 to 18 months is difficult because we don't know where the market's going to be over the next 12 to 18 months. That's a piece that we're still, you know, kind of we're vetting out. We want to get a very clear understanding of where it's going to go. We know it's going to contract from current levels. And by the way, current levels are depressed. I would just point out that current levels are also depressed though, because of two factors. One, you had the change in the net metering rules in California from net metering 2.0 to 3.0, which had an impact, a negative impact on the market.

And so I think there's an opportunity there to look at recalibrating, you know, that depending again on where we think the market's going to be. The answer to your question directly over the next 12 to 18 months is difficult because we don't know where the market's going to be over the next 12 to 18 months. That's a piece that we're still, you know, kind of we're vetting out. We want to get a very clear understanding of where it's going to go. We know it's going to contract from current levels. And by the way, current levels are depressed. I would just point out that current levels are also depressed though, because of two factors. One, you had the change in the net metering rules in California from net metering 2.0 to 3.0, which had an impact, a negative impact on the market.

At our last IR event, we were targeting higher margins, even where we're operating today and we believe that that is still a.

York Ragen: The answer to your question directly over the next 12 to 18 months is difficult because we don't know where the market's going to be over the next 12 to 18 months. That's a piece that we're still, you know, kind of we're vetting out. We want to get a very clear understanding of where it's going to go. We know it's going to contract from current levels. And by the way, current levels are depressed. I would just point out that current levels are also depressed, though, because of two factors. One, you had the change in the net metering rules in California from net metering 2.0 to 3.0, which had an impact, a negative impact, on the the market. Now, that's largely started to wash through. But the second kind of effect that's been depressing the market is high interest rates.

Very achievable.

And that's even kind of before we get to some of the potential opportunities within the data center market that we've been talking about this morning is definitely on the on the EBITDA lined up on the EBITA lab those operating leverage on the EBITDA line won't be large absolutely.

On a consolidated basis, but accretive to app somewhere and accretive on a consolidate basis EBITDA margin for sure.

Thank you.

Our next question.

Which will come from Joseph Osha of Guggenheim Partners. Joseph Your line is open.

And one moment for our next question.

Our next question will be coming from Sean Milligan.

Hi, Thanks, I'm wondering if you could talk a little bit about your diesel sourcing strategy I'm wondering whether for starters that.

Your line is open.

Aaron Jagdfeld: Now that's largely started to wash through. But the second kind of effect that's been depressing the market is high interest rates. And I think it's. You could make a case that it's more likely than not that interest rates are going to go down as opposed to up in the future, which should provide a backdrop for a bit stronger market dynamics. You know, all things equal in these, in the clean energy types of products. So, you know, I do think the market's going to contract. There's no doubt we're going to recalibrate spending. We are still targeting. We had said at our investor day a couple years ago that by 2027 this was a profitable area for us. That's still our focus for the company. We think that we've got to find a path to do that. ecobee certainly has done their part.

Now that's largely started to wash through. But the second kind of effect that's been depressing the market is high interest rates. And I think it's. You could make a case that it's more likely than not that interest rates are going to go down as opposed to up in the future, which should provide a backdrop for a bit stronger market dynamics. You know, all things equal in these, in the clean energy types of products. So, you know, I do think the market's going to contract. There's no doubt we're going to recalibrate spending. We are still targeting. We had said at our investor day a couple years ago that by 2027 this was a profitable area for us. That's still our focus for the company. We think that we've got to find a path to do that. ecobee certainly has done their part.

Thank you for taking the question guys.

In terms of the data center piece.

Y J this is joey.

You just kind of hit on it but I was trying to understand how we should think about margins for that book of business or are they I.

Signs of stress as well given how busy data centers are in also.

York Ragen: And I think it's you could make a case that it's more likely than not that interest rates are going to go down as opposed to up in the future, which should provide a backdrop for a bit stronger market dynamics, you know, all things equal in in in these in the clean energy types of products. So, you know, I do think the market's going to contract. There's no doubt. We're going to recalibrate spending. We are still targeting. We had we had said at our investor day a couple of years ago that by 2027, this was a profitable area for us. That's still a focus for for the company. We think that we've got to find a path to do that. Ecobee certainly has done their part. They are well on the way.

How youre thinking about where you might procure.

Particularly what your opportunities are outside of China. Thank you.

I guess, both from a gross and EBITDA side within the C&I piece like are they going to drag that margin profile higher over the next couple of years also.

Yes, Thanks, Joe its great question, because obviously at the heart of every one of those machines is what we referred to as a large bore diesel engine that produces.

I think that the gross margin line. If you just look at those projects on their own.

What kind of output that.

They don't look they don't look tremendously different than our than our C&I product margins.

That is required in each of these machines and these are engines that they've been around a long time, but they have been traditionally had been used in power generation in the traditional market sense, but typically you see them in rail you see them in mining you see them in marine and those larger power applications.

When you look across the planet.

Aaron Jagdfeld: They are well on the way. In fact, I would say they're ahead of plan in terms of where we're coming out there, which is great. Now we've got to turn our attention to the rest of that part of the business. And again, like I said, we're super excited about the new products we've got coming to market and the receptivity we've had with our early discussions with the Solar Channel in particular. And we've got to see where the market kind of shakes out here, the overall market in terms of a forecast for 2026 in particular. But also as we think about the next three years.

They are well on the way. In fact, I would say they're ahead of plan in terms of where we're coming out there, which is great. Now we've got to turn our attention to the rest of that part of the business. And again, like I said, we're super excited about the new products we've got coming to market and the receptivity we've had with our early discussions with the Solar Channel in particular. And we've got to see where the market kind of shakes out here, the overall market in terms of a forecast for 2026 in particular. But also as we think about the next three years.

York Ragen: In fact, I would say they're ahead of plan in terms of where we're coming out there, which is great. Now we've got to turn our attention to the rest of that part of the business. And again, like I said, we're super excited about the new products we've got coming to market and the receptivity we've had, with our with our early discussions with the solar channel in particular. and you know, we've got to see where the market kind of shakes out here, the overall market, in terms of a forecast for 2026 in particular, but also, you know, as we think about the next three years.

There are a handful of manufacturers of these large diesel engines and.

A couple of them are very well known caterpillar comments.

We also have very well now in power generation divisions of groups.

Pricing.

Those products to the market has gone up from our initial business case and it is putting us in a place with gross margins on those products that look a lot more like our traditional C&I products.

That are leading the charge forward on kind of serving the data center markets, but thats, where the constraint slide for them they've both both cat incumbents have announced expansion plans for capacity in those diesel engine.

And as a result, and even you know even if we were to do the business case that we if we were talking about the business case. We originally had we were gonna see accretion on the EBITDA margin line because of that leverage we're going to see it's going to work out even better now because the gross margins also will be stronger than we had initially planned for and Youll get the leverage on the operating lever.

In the diesel engine production capacity.

It will come online in the next several years.

And that's somewhat unique for them because normally those markets. The primary markets of rail marine and mining can be cyclical right in the past I think the reticence to add capacity in those large bore diesel engines for manufacturing capacity. It is expensive and so it is a capital intensive a bit a bit expensive to add.

Operator: Our next question will be coming from Jeff Hammond of KeyBank Capital Markets. Jeff, your line is open.

Operator: Our next question will be coming from Jeff Hammond of KeyBanc Capital Markets. Jeff, your line is open.

Kris Rosemann: Hey, good morning, everyone. This is David Tarantino on for Jeff. Hey, David, maybe on Home Standby, could you give us more color on the underlying trends here and how we should expect the category to progress through the rest of the year, particularly around what the dealers are telling you, around the demand afterglow from the outage events last year, and how inventories look in the channel.

David Tarantino: Hey, good morning, everyone. This is David Tarantino on for Jeff. Hey, David, maybe on Home Standby, could you give us more color on the underlying trends here and how we should expect the category to progress through the rest of the year, particularly around what the dealers are telling you, around the demand afterglow from the outage events last year, and how inventories look in the channel.

Mike Halloran: Hey, good morning, everyone. This is David Tarantino on for Jeff.

<unk> at the EBITDA margin line. So net net Sean I think it's yes. This is again, we're kind of my previous answer to <unk> question, why I've got confidence that our EBITDA margins can continue to expand in the future is in particular on the back of what we're looking at doing here in data center, even on a consolidated but even on a consolidated maybe slightly maybe dilutive on the gross margin.

Kris Rosemann: Hey, David.

York Ragen: Hey, Dave.

Mike Halloran: Maybe on home standby, could you give us some more color on the underlying trends here and how we should expect the category to progress through the rest of the year, particularly around what the dealers are telling you around the demand afterglow from the outage events last year and how inventories look in the channel?

Passenger so typically they've kind of.

I think.

<unk> held the line on doing that and just waiting for markets to rollover.

On a consolidated basis, but accretive to have somewhat of an accretive on a portfolio basis EBITDA margin for sure.

In terms of cycles, but this time, they I think they all view it differently I think which is actually a very bullish sign I think overall that there is a belief that this part of the market is going to run for a lot longer and is going to be relevant.

Aaron Jagdfeld: Yeah, thanks, David. So, you know, Home Standby, it's pretty. What's really amazing about Home Standby is, you know, outages have been kind of light here in the first half of the year. We had a great second half of the year, obviously in terms of outages. Very active. Not great, of course, if you experience those and some of the reasons why you experience them. But we're there to help our customers with our products. And we had a very active second half of last year that as we would normally expect. Right. We've always said six to 12 months of afterglow, if you will, from those big events. And that's really kind of played out here in the first half of the year. Installations of products are up year to date, which is great. They were up in the second quarter.

York Ragen: Yeah, thanks, David. So, you know, on home standby, it's pretty what's really amazing about home standby is, you know, outages have been kind of light here in the first half of the year. We had a great second half of the year, obviously, in terms of outages, very active. not great, of course, if you experience those and some of the reasons why you experience them, but we're there to help our customers with our products. and you know, we had a very active second half of last year that, as we would normally expect, right? We've always said 6 to 12 months of afterglow, if you will, from those big events. And that's really kind of played out here. In the first half of the year, installations of products are up year to date, which is great. They were up in the second quarter.

Thank you.

Our next question.

It will come from Joseph Osha of Guggenheim Partners. Joseph Your line is open.

In a big way going forward and is worthy of making that next level of capacity investment that said our supply chain <unk>.

Oh, hi, Thanks, I'm wondering if you could talk a little bit about your diesel sourcing strategy I'm wondering whether.

For starters that.

We've worked very hard over the last few years to put a deal together with a supplier there that is not new to the market, but maybe new to the U S market.

Hi, Jay this is Joey.

Signs of stress as well given how busy data centers are and also.

How youre thinking about where you might procure.

And so we've been working with that partner to get those products qualified for U S certification that they were qualified last year for use in Europe and Thats why our European team is maybe a quarter or two ahead of where we're at here in the U S and the products are now qualified for duty here in in the U S market, It's a world class manufacturer.

Particularly what your opportunities are outside of China. Thank you.

Yes, Thanks, Joe its great question, because obviously at the heart of every one of those machines is.

Aaron Jagdfeld: So we're kind of holding on to that new and higher baseline. We continue to add dealers, which I think is always one of those things that we watch very closely: the pace at which we continue to add dealers has remained, you know, robust. IHCs were down in the quarter, but you would expect that with lower outages seasonally; the second half of the year is really important. Right. So no doubt we're watching with great attention to what happens in the second half of the year. You know, just remember we don't put any major events in our guide, which so we're guiding that business, that part of our business. We're guiding to a baseline level of outages which is generally significantly lower, particularly in the back half if you do get major outages.

So we're kind of holding on to that new and higher baseline. We continue to add dealers, which I think is always one of those things that we watch very closely: the pace at which we continue to add dealers has remained, you know, robust. IHCs were down in the quarter, but you would expect that with lower outages seasonally; the second half of the year is really important. Right. So no doubt we're watching with great attention to what happens in the second half of the year. You know, just remember we don't put any major events in our guide, which so we're guiding that business, that part of our business. We're guiding to a baseline level of outages which is generally significantly lower, particularly in the back half if you do get major outages.

York Ragen: so they, you know, we're kind of holding on to that that new and higher baseline. We continue to add dealers, which I think is is always one of those things that we watch very closely, is the pace at which we can continue to add dealers has remained, you know, has remained robust. IHCs were down in the quarter, but you would expect that with with lower outages. seasonally, the second half of the year is really important, right? So no doubt we're watching, with great attention to what happens in the second half of the year.

What we referred to as a large bore diesel engine that produces.

The kind of output that.

That is required in each of these machines and these are engines that had been around a long time, but they have been traditionally had been used in power generation in the traditional market sense, but typically you see them in rail you see them in mining you see them in marine and those larger power applications.

And they have a tremendous amount of capacity and they have a very large appetite for additional investment. So we feel that were paired there with a very competent supplier and one that is going to give us a lot of room to run in terms of.

When you look across the planet.

There are a handful of manufacturers of these large diesel engines and.

York Ragen: You know, we don't have, just remember, we don't put any major events in our guide, which, you know, so we're guiding our that business, that part of our business, we're guiding to a baseline level of outages, which is generally significantly lower, particularly in the back half if you do get major outages. So, you know, I would tell you that it's almost like there's a free option there on home standby if we do get some kind of event in the second half. and we've always said those events are, you know, between 50 and $100 million impact. We saw that play out pretty much on on point last year. and we would, you know, we would say that that that would probably be the the situation again this year.

With this initial foray into the market one of the major reasons why we've been successful is we've been able to quote.

A couple of them are very well known caterpillar comments.

Considerably shorter lead times, and where the market's at maybe half the lead time.

We also have very well now in power generation divisions or groups.

The market today, and that's great, but that's not what you build the business on we've got to build the business on a reputation that states by our performance as well performance of the equipment itself, but also the uptime of the equipment and our ability to serve and support those customers in a way that we think we know how given our long history.

That are leading the charge forward on kind of serving the data center markets, but thats, where the constraint slide for them. They both both cat and comments have announced expansion plans for capacity in those diesel engine.

Aaron Jagdfeld: So I would tell you that it's almost like there's a free option there on home standby if we do get some kind of event in the second half. And we've always said those events are between $50 and $100 million impact. We saw that play out pretty much on point last year, and we would say that that would probably be the situation again this year. I might say. The only difference might be we've done a really nice job in portable generators. We've got a new team there that's leading that business, that part of our business, those products, and they've done a great job getting some really major wins at some incredible retailers and expanding our shelf space. So we, we're feeling really good about where we sit for a market share standpoint in portable gens.

So I would tell you that it's almost like there's a free option there on home standby if we do get some kind of event in the second half. And we've always said those events are between $50 and $100 million impact. We saw that play out pretty much on point last year, and we would say that that would probably be the situation again this year. I might say. The only difference might be we've done a really nice job in portable generators. We've got a new team there that's leading that business, that part of our business, those products, and they've done a great job getting some really major wins at some incredible retailers and expanding our shelf space. So we, we're feeling really good about where we sit for a market share standpoint in portable gens.

In the diesel engine production capacity.

It will come online in the next several years.

In serving some areas like telecommunications is an example on a direct basis.

And that's somewhat unique for them because normally those markets. The primary markets of rail marine and mining can be cyclical right in the past I think the reticence to add capacity in those large bore diesel engines for manufacturing capacity, it's expensive and so it is a capital intensive a bit a bit expensive to add.

So we think our supply chain is in really good shape. There Joe we think we've got the right partner.

York Ragen: I might I might say the only difference might be we've done a really nice job in portable generators. We've got a new team there that's leading that business, that part of our business, those products. And, they've done a great job getting some really major wins at some, some incredible retailers and and expanding our shelf space. So we're feeling really good about where we sit from a market share, standpoint in in portable gens. So if we were to get some major outages, we might actually have a nicer tailwind there. We're going to be set from an inventory standpoint.

And again I think we're we're poised for some significant growth.

Hi.

I would now like to turn the conference back to Chris for closing remarks.

We want to thank everyone for joining us. This morning, we look forward to discussing our third quarter 2025 earnings results with you in late October. Thank you again and goodbye.

Capacity, so typically they kind of.

I think.

Held the line on doing that and just waiting for markets to rollover.

Aaron Jagdfeld: So if we were to get some major outages, we might actually have a nicer tailwind there. We're going to be set from an inventory standpoint. So a little bit of, you know, the cash flow in the quarter, you know, in terms of our working capital needs in Q2 were driven by kind of replenishing portables, a heavy storm season from last year, but also getting ready for this year's storm season, and the fact that we've got increased placement with our, in the retail channel with those products. So, you know, what the market's telling us around home standby though is, you know, it's. And it's always been kind of a regional story. So the Southeast remains pretty robust. Right. Coming out of last year. The activity there is great. There are other parts of the country where it's weaker because we haven't had the outage activity.

So if we were to get some major outages, we might actually have a nicer tailwind there. We're going to be set from an inventory standpoint. So a little bit of, you know, the cash flow in the quarter, you know, in terms of our working capital needs in Q2 were driven by kind of replenishing portables, a heavy storm season from last year, but also getting ready for this year's storm season, and the fact that we've got increased placement with our, in the retail channel with those products. So, you know, what the market's telling us around home standby though is, you know, it's. And it's always been kind of a regional story. So the Southeast remains pretty robust. Right. Coming out of last year. The activity there is great. There are other parts of the country where it's weaker because we haven't had the outage activity.

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

York Ragen: It's a little bit of, you know, the the cash flow, in the quarter, you know, in terms of our working capital needs in in Q2, we're driven by kind of replanting portables a heavy storm season from last year, but also getting ready for this year's storm season and the fact that we've got increased, placement, with, our in the retail channel with those products. So, you know, what the market's telling us around home standby, though, is, you know, it's, it's and it's always been kind of a regional story. So the Southeast remains pretty robust, right? Coming out of last year, the activity there is great. There are other parts of the country where it's weaker because we haven't had the outage activity.

Going to be relevant.

In a big way going forward and is worthy of making that next level of capacity investment that said our supply chain <unk>.

We worked very hard over the last few years to put a deal together with a supplier there that is not new to the market, but maybe new to the U S market.

And so we've been working with that partner to get those products qualified for U S certification. They had they were qualified last year for use in Europe, and that's why our European team is maybe a quarter or two ahead of where we're at here in the U S and the products are now qualified for duty here in in the U S market, It's a world class manufacturer.

Aaron Jagdfeld: But, you know, I think if you stand back and you look at it on the whole and you look at kind of the home standby business or the products there as a segment, as a group, it's been incredible how it continues to grow. And after every one of those major events like we had last fall, it holds on to that higher baseline level and it grows from there. Now, it might be slower growth for a little bit of time here until we see another inflection point with more outages, but it's an incredible part of our business in terms of the ability to grow that business on the back of high-profile outage events and then to hold on to that growth and move from there. So really pleased with kind of how that business has continued to pace.

But, you know, I think if you stand back and you look at it on the whole and you look at kind of the home standby business or the products there as a segment, as a group, it's been incredible how it continues to grow. And after every one of those major events like we had last fall, it holds on to that higher baseline level and it grows from there. Now, it might be slower growth for a little bit of time here until we see another inflection point with more outages, but it's an incredible part of our business in terms of the ability to grow that business on the back of high-profile outage events and then to hold on to that growth and move from there. So really pleased with kind of how that business has continued to pace.

York Ragen: But, you know, I think if you if you stand back and you look at it on on a whole and you look at kind of the the home standby business or the products there as a segment or as a group, it's been incredible how it continues to grow. And after every one of those major events like we had last fall, it holds on to that higher baseline level and it grows from there. Now, it might be slower growth for a little bit of time here until we see another inflection point with more outages, but it's an incredible, part of our business in terms of the ability to grow that business, on the back of of outage, high-profile outage events, and then to hold on to that growth and and and move from there.

With this initial foray into the market one of the major reasons why we've been successful is we've been able to quote.

Considerably shorter lead times, and where the market's at maybe half the lead time of the market today and that's great, but that's not what you build a business on we've got to build the business on a reputation that states by our performance as well performance of the equipment itself, but also the uptime of the equipment and our ability to serve and support those custom.

York Ragen: So really pleased with kind of how that business has continued to to pace.

Operator: One moment for our next question. Our next question will be coming from Brian Drab of William Blair. Your line is open.

Operator: And one moment for our next question. Our next question will be coming from Brian Draft of William Blair. Your line is open.

Operator: One moment for our next question. Our next question will be coming from Brian Drab of William Blair. Your line is open.

<unk> in a way that we think we know how given our long history in serving some areas like telecommunications as an example on a direct basis.

Aaron Jagdfeld: Hi, thanks for taking my question. Hey, morning.

Brian Drab: Hi, thanks for taking my question. Hey, morning.

Mike Halloran: Hi, thanks for taking my question.

Operator: Brian?

We think our supply chain is in really good shape there Joe we think we've got the right partner.

Mike Halloran: Hey, good morning. Can you just talk about pricing and the so we had the 7% to 8% increase, I guess, in March, and I know you said that it had some positive impact on gross margin, but how is that received overall in the in the market? Any effect on demand? And how are you adjusting your plan for pricing on the new product line given how tariffs have evolved?

Kris Rosemann: Can you just talk about pricing? So we had the 7% to 8% increase, I guess, in March. You said that it had some positive impact on gross margin, but how is that received overall in the market? Any effect on demand? How are you adjusting your plan for pricing on the new product line given how tariffs have evolved?

Can you just talk about pricing? So we had the 7% to 8% increase, I guess, in March. You said that it had some positive impact on gross margin, but how is that received overall in the market? Any effect on demand? How are you adjusting your plan for pricing on the new product line given how tariffs have evolved?

And again I think we're we're poised for some significant growth.

Hi.

I would now like to turn the conference back to Chris for closing remarks.

We want to thank everyone for joining us. This morning, we look forward to discussing our third quarter 2025 earnings results with you in late October. Thank you again and goodbye.

Aaron Jagdfeld: Yes, thanks for the question, Brian. So, pricing, obviously, dynamic environment we're in. We're all kind of glued to the 24-hour news cycle here on where these trade agreements are coming out. It sounds like the administration is making progress here. You know, it's slow going. Obviously, these are major deals, and it takes time to get these deals put together. But I think in the end we put price into the market in response to what we understood the tariff environment to be. Those were effective, I think, at the beginning of April. That was roughly the 7% to 8%, Brian, that you referenced there. And I'm talking specifically now about the home standby impact there. Did not see much material impact on demand.

York Ragen: Yeah, thanks for the question, Brian. So pricing, you know, obviously dynamic environment we're in. We're all kind of glued to the 24-hour news cycle here on on where these trade agreements are coming out. It sounds like the administration's making progress here. You know, it's slow going. Obviously, these are major deals, and you know, it takes time to get these deals put together. But I think in the end, you know, we we we put price into the market in response to what we understood the tariff environment to be. Those were effective. I think at the beginning of April, that that was roughly the 7% to 8%, Brian, that you referenced there. That's and I'm talking specifically now about the home standby impact there. Did not see much material impact on demand.

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

Okay.

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Aaron Jagdfeld: We did, just to remind you, our updated guidance at the time did contemplate some demand destruction on higher price for the remainder of the year. So there is some demand destruction that we built in. And I think we've largely, based on our results, I think it's kind of played out the way that we saw it playing out. The second part of your question kind of, where are we going from here? So we have a new product line coming out in the second half of the year. It's our next generation home standby product line, which is phenomenal, actually. The product itself is just so far advanced from even the existing platform and so far ahead of where the market's at today. We're super excited about that.

We did, just to remind you, our updated guidance at the time did contemplate some demand destruction on higher price for the remainder of the year. So there is some demand destruction that we built in. And I think we've largely, based on our results, I think it's kind of played out the way that we saw it playing out. The second part of your question kind of, where are we going from here? So we have a new product line coming out in the second half of the year. It's our next generation home standby product line, which is phenomenal, actually. The product itself is just so far advanced from even the existing platform and so far ahead of where the market's at today. We're super excited about that.

York Ragen: We did, just to remind you, you know, we had updated our updated guidance at the time, did contemplate some demand destruction on higher price for the remainder of the year. So, you know, there's there is some demand destruction that we built in. And, you know, I think we've largely, based on our results, I think it's kind of played out the way that we saw it playing out. The second part of your question, kind of where are we going from here? So we have a new product line coming out in the second half of the year. It's our next generation home standby product line, which is, it's it's it's phenomenal, actually. The the product itself is just so far advanced from even the existing platform and so far ahead of of where the market's at today. We're super excited about that.

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Aaron Jagdfeld: There is a bit more cost in that product with some of the feature sets that we've added, which is good, but that will require some additional pricing adjustments. Of course we've got some new, you know, we've got additional knowledge on the tariff, the trade deals that have been inked so far, and where we're sitting. So, you know, there's probably, as we release product into the market, we just announced the availability of our new 14-kilowatt and 18-kilowatt units. That's the first part of the new product line to be released. Those just went on order here this week. As a matter of fact, early this week the order book opened on those and we'll begin shipping those next week.

There is a bit more cost in that product with some of the feature sets that we've added, which is good, but that will require some additional pricing adjustments. Of course we've got some new, you know, we've got additional knowledge on the tariff, the trade deals that have been inked so far, and where we're sitting. So, you know, there's probably, as we release product into the market, we just announced the availability of our new 14-kilowatt and 18-kilowatt units. That's the first part of the new product line to be released. Those just went on order here this week. As a matter of fact, early this week the order book opened on those and we'll begin shipping those next week.

York Ragen: there is a bit more cost in that product with some of the feature sets that we've added, which is which is good, but that will require some additional pricing adjustments. And of course, we've got some new, you know, we've got additional knowledge on the tariff, the trade deals that have been inked so far and where we're sitting. So, you know, there's probably, as we release product into the market, we just announced the availability of our new 14 kilowatt and 18 kilowatt units. That's the first part of the new product line to be released. Those just went on order here this week, as a matter of fact, early this week. the the, the order book opened on those, and we'll begin shipping those next week.

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Aaron Jagdfeld: Those contain a price increase somewhere in the, you know, depending on the SKU in the mix, 5% to 7%, call it, of additional price that will go in related to that kind of. Again, mostly because of the additional feature sets that we're including with the products. But there's a little bit of kind of rebalancing with some of the tariff information that is now known that wasn't known back when we did the last round of pricing in April. We still have a good chunk of the product line to be released here in the second half of the year. Our larger nodes, so everything from the 20kW nodes all the way to the 28kW nodes, which represent an important part of that product offering. We haven't released pricing on those nodes yet. We'll continue to watch the tariff environment.

York Ragen: and those contain a price increase somewhere in the, you know, depending on the skew in the mix, 5% to 7%, call it, of additional price that will go in, related to, you know, that kind of, you know, again, mostly because of the additional feature sets that we're including with the products. But there's a little bit of kind of rebalancing with some of the tariff information that is now known that wasn't known back when we did the last round of pricing in April. We still have a good chunk of the product line to be released here in the second half of the of the year, our larger nodes. So everything from the the 20 kilowatt nodes all the way to the 28 kilowatt nodes, which represents, you know, an important part of that that product offering. And so we haven't released pricing on those nodes yet.

Those contain a price increase somewhere in the, you know, depending on the SKU in the mix, 5% to 7%, call it, of additional price that will go in related to that kind of. Again, mostly because of the additional feature sets that we're including with the products. But there's a little bit of kind of rebalancing with some of the tariff information that is now known that wasn't known back when we did the last round of pricing in April. We still have a good chunk of the product line to be released here in the second half of the year. Our larger nodes, so everything from the 20kW nodes all the way to the 28kW nodes, which represent an important part of that product offering. We haven't released pricing on those nodes yet. We'll continue to watch the tariff environment.

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Hum.

York Ragen: So we'll continue to watch the tariff environment. We may have to go back and touch pricing again on the 14s and 18s if something changes, but probably not material at this point. It's probably small. So we feel pretty good about where we're sitting, with respect to pricing and, again, the the demand destruction, if you want to call it that, that that may have occurred. We think that played out largely in line with with our guide.

Aaron Jagdfeld: We may have to go back and touch pricing again on the 14s and 18s if something changes, but probably not material at this point. It's probably small. So we feel pretty good about where we're sitting with respect to pricing. And again, the demand destruction, if you want to call it that, that may have occurred. We think that played out largely in line with our guide.

We may have to go back and touch pricing again on the 14s and 18s if something changes, but probably not material at this point. It's probably small. So we feel pretty good about where we're sitting with respect to pricing. And again, the demand destruction, if you want to call it that, that may have occurred. We think that played out largely in line with our guide.

Operator: And one moment for our next question. Our next question comes from Mark Strauss of JP Morgan. Mark, your line is open.

Operator: One moment for our next question. Our next question comes from Mark Strouse. So J.P. Morgan. Mark, your line is open.

Kris Rosemann: Thank you. Good morning. A couple questions going back to the data center opportunity. Can you just kind of talk about the backlog that you have so far in the initial conversations that you're having? Are those with kind of larger hyperscaler type data centers, are they more traditional data centers? Any color there you can provide. And then, going back, Aaron, to your comments about potentially expanding capacity, can you just talk about kind of looking at your footprint, looking at your supply chain, you know, other factors that go into that, how I don't want to use the word easily but you know, how quickly can that be done? And can you talk about the CapEx requirements? You know, if you're going to double capacity, triple capacity, whatever it ends up being, how we should be thinking about that. Thank you.

Mark Strouse: Thank you. Good morning. A couple questions going back to the data center opportunity. Can you just kind of talk about the backlog that you have so far in the initial conversations that you're having? Are those with kind of larger hyperscaler type data centers, are they more traditional data centers? Any color there you can provide. And then, going back, Aaron, to your comments about potentially expanding capacity, can you just talk about kind of looking at your footprint, looking at your supply chain, you know, other factors that go into that, how I don't want to use the word easily but you know, how quickly can that be done? And can you talk about the CapEx requirements? You know, if you're going to double capacity, triple capacity, whatever it ends up being, how we should be thinking about that. Thank you.

Mike Halloran: Thank you. Good morning. a couple of questions. Going back to the the data center opportunity, can you just kind of talk about the the backlog that you have so far in the initial conversations that you're having? Are those with, kind of larger hyperscaler-type data centers? Are they more traditional data centers? Any color there you can provide? And then going back, Aaron, to your comments about potentially expanding capacity, can you just talk about kind of looking at your footprint, looking at your supply chain, you know, other factors that go into that? How I don't want to use the word easily, but, you know, how quickly can that be done? and can you talk about the the CapEx requirements, you know, if you're going to double capacity, triple capacity, whatever it ends up being, how we should be thinking about that? Thank you.

Aaron Jagdfeld: Yeah, thanks Mark. So just on the pipeline, our opportunities include both, you know, I would call it traditional data center owner operators as well as hyperscalers. But where we're getting traction is with the hyperscalers because they are, their power needs are greater and frankly that's where the biggest part of the deficit in the market seems to exist, is around those. But it's a market-wide deficit in terms of supply versus demand. So we're seeing those opportunities manifest across the board. But we are having, I would say some of our more interesting conversations are with the hyperscale side of the business. And we're not just talking about 2026 planning with these customers.

York Ragen: Yeah, thanks, Mark. So just on the pipeline, our opportunities include both, you know, the I would call it traditional data center owner-operators as well as hyperscalers. But where we're getting traction is with the hyperscalers because they are their their power needs are greater. And frankly, that's where the biggest part of the deficit in the market seems to exist is around those. But but but it's a market-wide deficit in terms of supply versus demand. So we're seeing, those opportunities manifest, across the board. But we are having, I would say, some of our more interesting conversations are with the the hyperscale side of the business. And and and we're not just talking about 2026 planning with these customers. We're talking about '27 and beyond at this stage because they are they're planning out, obviously, they're trying to lock up supply further out.

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Aaron Jagdfeld: We're talking about 2027 and beyond at this stage because they are, they're planning out obviously they're trying to lock up supply further out and they're, you know, they're out 2027, 2028, some cases 2029, the conversations are out. So then the second part of your question on footprint. So we have nine facilities around the world that are capable of producing commercial and industrial products. And so we have three here in the US, we have one in Mexico, one in Brazil, one in India, one in China. We have a facility in Italy and a facility in Spain. I think that's nine if I did my math right. And so those facilities are capable of producing C&I products. Not all of them are capable of producing the large megawatt products.

We're talking about 2027 and beyond at this stage because they are, they're planning out obviously they're trying to lock up supply further out and they're, you know, they're out 2027, 2028, some cases 2029, the conversations are out. So then the second part of your question on footprint. So we have nine facilities around the world that are capable of producing commercial and industrial products. And so we have three here in the US, we have one in Mexico, one in Brazil, one in India, one in China. We have a facility in Italy and a facility in Spain. I think that's nine if I did my math right. And so those facilities are capable of producing C&I products. Not all of them are capable of producing the large megawatt products.

York Ragen: and they're, you know, I mean, they're out '27, '28, some cases 2029, the conversations are out. So then the second part of your question on footprint. So we have nine facilities around the world that are capable of producing, commercial and industrial products. and so we have three here in the US. we have one in Mexico, one in Brazil, one in India, one in China. we have a facility in Italy and a facility in Spain. I think that's nine if I did my math right. and so those facilities, are capable of producing CNI products. Not all of them are capable of producing the large megawatt products. But what I would say is by by the by expanding capacity in the mid-range of our products, we're able to create additional capacity opportunities for large megawatt. I'll give you an example.

Aaron Jagdfeld: But what I would say is by expanding capacity in the mid range of our products, we're able to create additional capacity opportunities for large megawatt. I'll give you an example here in North America or here in the US. We just opened a new plant here in Wisconsin, our biggest plant in the US, 345,000sq ft in Beaver Dam, Wisconsin. We just commissioned that plant back on 1 April, cut the ribbon on it locally here just this past week. That plant's operational. What that plant allows us to do, it's focused on our mid range gensets up to basically up to 1 megawatt. That's going to be more of our traditional market end markets like telecom and some of our traditional backup markets.

But what I would say is by expanding capacity in the mid range of our products, we're able to create additional capacity opportunities for large megawatt. I'll give you an example here in North America or here in the US. We just opened a new plant here in Wisconsin, our biggest plant in the US, 345,000sq ft in Beaver Dam, Wisconsin. We just commissioned that plant back on 1 April, cut the ribbon on it locally here just this past week. That plant's operational. What that plant allows us to do, it's focused on our mid range gensets up to basically up to 1 megawatt. That's going to be more of our traditional market end markets like telecom and some of our traditional backup markets.

York Ragen: Here in North America or here in the US, we just opened a new plant here in Wisconsin. our biggest plant in the US, 345,000 square feet in Beaverdam, Wisconsin. We just commissioned that plant back on April 1st, cut the ribbon on it locally here just this past, last week. and so, that plant's operational. What that plant allows us to do, it's focused on our mid-range, gen sets up to basically up to one megawatt. And so that's going to be more of our traditional, market end markets like telecom, you know, and some of our our traditional backup markets.

Aaron Jagdfeld: But what it allows us to do is take product that we are currently manufacturing, those higher output products that we're currently manufacturing in one of our other facilities nearby Oshkosh, Wisconsin, and free that facility up to be focused, not quite 100%, but close to the opportunities that exist with these large megawatt units. And so by the very nature of that, we've added a lot of capacity in the system by bringing this new plant on. Even though the new plant wasn't maybe aimed directly at the large megawatt product. That plant that we just brought online is about a $65 to 70 million investment all in.

But what it allows us to do is take product that we are currently manufacturing, those higher output products that we're currently manufacturing in one of our other facilities nearby Oshkosh, Wisconsin, and free that facility up to be focused, not quite 100%, but close to the opportunities that exist with these large megawatt units. And so by the very nature of that, we've added a lot of capacity in the system by bringing this new plant on. Even though the new plant wasn't maybe aimed directly at the large megawatt product. That plant that we just brought online is about a $65 to 70 million investment all in.

York Ragen: But what it allows us to do is take, product that we are currently manufacturing, those higher, output products that we're currently manufacturing in one of our other facilities nearby, Oshkosh, Wisconsin, and free that facility up to be focused not quite 100%, but close to, the opportunities that exist with these large megawatt units. And so by the very nature of that, we've added a lot of capacity in the system by bringing this new plant on, even though the new plant wasn't maybe aimed directly at the large megawatt product. That plant that we just brought online was about a $65 to $70 million investment all in.

York Ragen: So, you know, as we think about, and it took us about 15 months to bring the plant on, 12 to 15 months, depending on, you know, it was pretty actually closer to 12 months than 15, to bring it up up to speed and, to get it constructed and get it going. So as we think about the future, and again, 2026, we're fine. We have plenty of capacity. We're well over the 150 million backlog we've got, and we're going to get, you know, we're orders of magnitude over that in terms of what our raw capacity is globally for these large, systems. But when we think about the opportunity that exists for '27, '28, and beyond, I want to get ahead of this, and I want to get ahead of it now.

Aaron Jagdfeld: So, you know, as we think about, and it took us about 15 months to bring the plant down, 12 to 15 months depending on, you know, it's pretty actually closer to 12 months than 15 to bring it up to speed and to get it constructed and get it going. So as we think about the future and again 2026, we're fine; we have plenty of capacity. We're well over the $150 million backlog we've got. And we're going to get, you know, we're orders of magnitude over that in terms of what our raw capacity is globally for these large systems. But when we think about the opportunity that exists for 2027, 2028, and beyond, I want to get ahead of this and I want to get ahead of it now.

So, you know, as we think about, and it took us about 15 months to bring the plant down, 12 to 15 months depending on, you know, it's pretty actually closer to 12 months than 15 to bring it up to speed and to get it constructed and get it going. So as we think about the future and again 2026, we're fine; we have plenty of capacity. We're well over the $150 million backlog we've got. And we're going to get, you know, we're orders of magnitude over that in terms of what our raw capacity is globally for these large systems. But when we think about the opportunity that exists for 2027, 2028, and beyond, I want to get ahead of this and I want to get ahead of it now.

Aaron Jagdfeld: And so, you know, we're going to have to take, you know, and make some big bold bets on additional capacity, you know, and that could come through organic efforts. You know, we could build some factories, we could buy some buildings. We can do some things there that are frankly in our wheelhouse in terms of again, I referred to this in my prepared remarks, but our core corporate agility, one of them is our core corporate value is agility. We just move fast at the company. We know how to do that. We're comfortable with that. It's a legacy of serving. Honestly, it comes from our residential side of our business. It's a legacy of being able to react to exogenous events that happen.

And so, you know, we're going to have to take, you know, and make some big bold bets on additional capacity, you know, and that could come through organic efforts. You know, we could build some factories, we could buy some buildings. We can do some things there that are frankly in our wheelhouse in terms of again, I referred to this in my prepared remarks, but our core corporate agility, one of them is our core corporate value is agility. We just move fast at the company. We know how to do that. We're comfortable with that. It's a legacy of serving. Honestly, it comes from our residential side of our business. It's a legacy of being able to react to exogenous events that happen.

York Ragen: And so, you know, we're going to have to take, you know, and make some big, bold bets on additional, capacity. you know, and that could come through organic efforts. You know, we could build some factories. We could buy some buildings. We can do some things there that are, frankly, in our wheelhouse in terms of, you know, again, I referred to this in my prepared remarks, but our core corporate agility, one of them is our core corporate value is agility. we just move fast at the company. we know how to do that. We're comfortable with that. it's a legacy of serving kind of, honestly, it comes from our residential side of our business. It's a legacy of being able to react to exogenous events that happen.

York Ragen: you know, we think that our our supply chain, we've got a, you know, we've got great partnerships built in the supply chain for these large megawatt units, and they are prepared. They've got a lot of capacity already. They're prepared to add more. what we need to do is continue to look at all elements of the the value chain there, end to end, to make sure that there are not other constraints that that exist. And if there are, how do we solve for them? So this is going to be, an all-out effort by, the company to figure out how we grow this segment of our business very, very quickly in the years ahead. And it's going to come, we're going to need to invest. The good news is we've got a really great balance sheet. We generate a lot of cash flow.

Aaron Jagdfeld: We think that our supply chain, we've got, you know, we've got great partnerships built in the supply chain for these large megawatt units, and they are prepared. They've got a lot of capacity already. They're prepared to add more. What we need to do is continue to look at all elements of the value chain there, end to end, to make sure that there are not other constraints that exist, and if there are, how do we solve for them? So this is going to be an all-out effort by the company to figure out how we grow this segment of our business very, very quickly in the years ahead. And it's going to come. We're going to need to invest. The good news is we've got a really great balance sheet. We generate a lot of cash flow.

We think that our supply chain, we've got, you know, we've got great partnerships built in the supply chain for these large megawatt units, and they are prepared. They've got a lot of capacity already. They're prepared to add more. What we need to do is continue to look at all elements of the value chain there, end to end, to make sure that there are not other constraints that exist, and if there are, how do we solve for them? So this is going to be an all-out effort by the company to figure out how we grow this segment of our business very, very quickly in the years ahead. And it's going to come. We're going to need to invest. The good news is we've got a really great balance sheet. We generate a lot of cash flow.

Thank you.

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Aaron Jagdfeld: You know, we generate, you know, $400 million, $400 million this year.

You know, we generate, you know, $400 million, $400 million this year.

York Ragen: You know, we generate, you know, 400 million, 400 million this year. So.

Kris Rosemann: So we've got a head of steam and.

Mark Strouse: So we've got a head of steam and.

Kris Rosemann: And we've got ahead of steams.

Aaron Jagdfeld: We've got a head of steam, yeah. In terms of our momentum going forward here. So with our backlog, so we feel like we're well positioned to maybe you want to call it a rotation of investment somewhat out of some of the energy technology things we've been focused on and into this C&I opportunity which we just want to, we just think we can win there with our approach. So super excited about that.

York Ragen: And we've got ahead of steams. Yeah, in terms of our momentum going forward here, so with our backlog. So we feel like we're well positioned, to, you know, maybe you want to call it a rotation of investment, you know, somewhat out of some of the energy technology things we've been focused on and into, this CNI opportunity, which, you know, we just want to, we just think we can win there with, with our approach. So super excited about that.

Operator: Our next question will be coming from Keith Housum of Northcoast Research. Your line is open, Keith.

Operator: And our next question will be coming from Keith Housum of North Coast Research. Your line is open, Keith.

Operator: Our next question will be coming from Keith Housum of Northcoast Research. Your line is open, Keith.

Aaron Jagdfeld: Good morning, guys, and thanks for the opportunity here. I hope you guys could perhaps just dimensionalize a little bit the current industry capacity for these data centers. You mentioned a deficit of about 5,000 devices. How much can the market do today? And then, perhaps, what is your capacity? Is it 300 million, 400 million as you guys currently have it built? Yeah. Thanks, Keith. So the overall market size, again, there's a lot of moving pieces there, but it's significantly above the 5,000 deficit, obviously. But it continues to evolve and a lot of that is going to be, it's going to be defined by how quickly the data centers can come online. One of the challenges that still has to be solved by the data centers is the ability to connect to the grid. Right.

Keith Housum: Good morning, guys, and thanks for the opportunity here. I hope you guys could perhaps just dimensionalize a little bit the current industry capacity for these data centers. You mentioned a deficit of about 5,000 devices. How much can the market do today? And then, perhaps, what is your capacity? Is it 300 million, 400 million as you guys currently have it built?

George Gianarikas: Good morning, guys, and thanks for the opportunity here. Hey, do you hope you guys could perhaps just contextualize a little bit the current industry capacity for these data centers? You mentioned a deficit of about 5,000 devices. How much can the market do today? And then perhaps, what is your capacity? Is it, you know, 300 million, 400 million, as you guys currently have it built?

Aaron Jagdfeld: Yeah. Thanks, Keith. So the overall market size, again, there's a lot of moving pieces there, but it's significantly above the 5,000 deficit, obviously. But it continues to evolve and a lot of that is going to be, it's going to be defined by how quickly the data centers can come online. One of the challenges that still has to be solved by the data centers is the ability to connect to the grid. Right.

York Ragen: Yeah, thanks, Keith. So, you know, the overall market size, again, is there's a lot of there's a lot of moving pieces there, but, you know, it's it's it's significantly above the 5,000 deficit, obviously. but it's, you know, it continues to evolve. and a lot of that is going to be, it's it's going to be defined by how quickly the data centers can come online. You know, the one of the one of the challenges that still has to be solved by the data centers is the ability to connect to the grid, right? So what we're seeing, and I think what you, for those of you who track some of the companies in the marketplace that provide different solutions for what we refer to as bridge power, right?

Aaron Jagdfeld: So what we're seeing, and I think what you, for those of you who track some of the companies in the marketplace that provide different solutions for what we refer to as bridge power, right, maybe unique solutions, individual solutions that can create a somewhat independent almost microgrid, if you will, for a data center site so that they can operate independent of the grid and they can stand up that data center and bring it online more quickly, those solutions are also there's capacity constraints within those solutions as well. A lot of the overall size of the market is being dictated by how quickly can these data centers be put into service, either by connecting to the grid or through their self-sufficiency with some kind of bridge power solution until they can connect to the grid.

So what we're seeing, and I think what you, for those of you who track some of the companies in the marketplace that provide different solutions for what we refer to as bridge power, right, maybe unique solutions, individual solutions that can create a somewhat independent almost microgrid, if you will, for a data center site so that they can operate independent of the grid and they can stand up that data center and bring it online more quickly, those solutions are also there's capacity constraints within those solutions as well. A lot of the overall size of the market is being dictated by how quickly can these data centers be put into service, either by connecting to the grid or through their self-sufficiency with some kind of bridge power solution until they can connect to the grid.

York Ragen: Maybe unique solutions, individual solutions that can create a somewhat independent, almost microgrid, if you will, for a data center site so that they can operate independent of the grid, and they can stand up that micro, that that data center and bring it online more quickly. those solutions are also, there's there's capacity constraints within those solutions as well. So, you know, a lot of the the the overall size of the market is being dictated by how quickly can these data centers be put into service, either by connecting to the grid or through their self-sufficiency with some kind of bridge power solution until they can connect to the grid. So it's it's a moving number. It's a moving target.

Aaron Jagdfeld: So it's a moving number, it's a moving target. Again, the 5,000 deficit that we reference is kind of based on what the individual market participants have told us that they believe. And not market participants in terms of genset participants, but the customers for data centers, what they believe to be a deficit in the market. So they're not telling us how big the whole thing is, they're just saying they believe there's, you know, there's thousands and thousands of units short here even for 2026, our own capacity.

So it's a moving number, it's a moving target. Again, the 5,000 deficit that we reference is kind of based on what the individual market participants have told us that they believe. And not market participants in terms of genset participants, but the customers for data centers, what they believe to be a deficit in the market. So they're not telling us how big the whole thing is, they're just saying they believe there's, you know, there's thousands and thousands of units short here even for 2026, our own capacity.

York Ragen: Again, the 5,000 deficit that we reference is kind of based on what the what the individual market participants have told us that they believe, and not market participants in terms of gen set participants, but the customers for data centers, what they believe that to be a deficit in the market. So they're not telling us how big the whole thing is. They're just saying they they believe there's, you know, there are thousands and thousands of units short here, even for 2026.

York Ragen: Our own capacity, you know, just kind of looking at what we think we can do in terms of capacity for next year, I think it's, you know, easily north of 500 million in terms of what we have as capacity today, based on the nine facilities we have, based on bringing Beaverdam online here this year, and also some expansion that we're doing, investing in some areas in some of our other plants to allow them to do even more, to expand their capacity of large megawatt product in particular, either through additional test capacity, which is generally the constraint, or through, some of the other production capacity. what we need to do is size that with our our supply chain as well.

Aaron Jagdfeld: Just kind of looking at what we think we can do in terms of capacity for next year, I think it's easily north of 500 million in terms of what we have as capacity today based on the nine facilities we have, based on bringing Beaver Dam online here this year, and also some expansion that we're doing, investing in some areas in some of our other plants to allow them to do even more to expand their capacity of large megawatt product. In particular, you either through additional test capacity, which is generally the constraint, or through some of the other production capacity. What we need to do is size that with our supply chain as well. We think right now our supply chain could keep up with that. But this is where I think real quick, very quickly, you think about 500 million.

Just kind of looking at what we think we can do in terms of capacity for next year, I think it's easily north of 500 million in terms of what we have as capacity today based on the nine facilities we have, based on bringing Beaver Dam online here this year, and also some expansion that we're doing, investing in some areas in some of our other plants to allow them to do even more to expand their capacity of large megawatt product. In particular, you either through additional test capacity, which is generally the constraint, or through some of the other production capacity. What we need to do is size that with our supply chain as well. We think right now our supply chain could keep up with that. But this is where I think real quick, very quickly, you think about 500 million.

York Ragen: We think right now our supply chain could keep up with that, but this is where I think real quick, you know, very quickly, you know, you think about 500 million. I mean, that's that's a third of our entire CNI business today. You know, so I mean, it's a, again, I I keep using the term needle moving because that that is truly a needle moving opportunity. but the good news is, you know, we've got good capacity in in place. We've got, as York mentioned, momentum with our backlog, and we're willing to commit to additional capacity as the market grows and as our participation grows alongside of it.

Aaron Jagdfeld: I mean, that's 1/3 of our entire C&I business today. So I mean, again, I keep using the term needle moving because that is truly a needle moving opportunity. But the good news is we've got good capacity in place. We've got, as York mentioned, momentum with our backlog. And we're willing to commit to additional capacity as the market grows and as our participation grows alongside of it.

I mean, that's 1/3 of our entire C&I business today. So I mean, again, I keep using the term needle moving because that is truly a needle moving opportunity. But the good news is we've got good capacity in place. We've got, as York mentioned, momentum with our backlog. And we're willing to commit to additional capacity as the market grows and as our participation grows alongside of it.

Operator: One moment for our next question. Our next question will be coming from Dimple Gosai of Bank of America. Dimple, your line is open. Thank you. I appreciate the time. Today you raised EBITDA margins to 18% to 19% from 17% to 19% previously. My question is what's driving the confidence in margin expansion? Right. How much of this is due to structural improvements, say in input costs or temporary tailwinds from mix pricing as opposed to uplifts from tariffs? Right. And how sustainable are these margins into 2026?

Operator: And one moment for our next question. Our next question will be coming from Dimple Gosai of Bank of America. Dimple, your line is open.

Operator: One moment for our next question. Our next question will be coming from Dimple Gosai of Bank of America. Dimple, your line is open.

Dimple Gosai: Thank you. I appreciate the time. Today you raised EBITDA margins to 18% to 19% from 17% to 19% previously. My question is what's driving the confidence in margin expansion? Right. How much of this is due to structural improvements, say in input costs or temporary tailwinds from mix pricing as opposed to uplifts from tariffs? Right. And how sustainable are these margins into 2026?

Dimple Gosai: Thank you. I appreciate the time today. You raised EBITDA margins to 18 to 19 percent from 17 to 19 percent previously. My question is, what's driving the confidence in margin expansion, right? How much of this is due to structural improvements, you know, say in input costs or temporary tailwinds from mixed pricing as opposed to uplifts from tariffs, right? And how sustainable are these margins into 2026?

Kris Rosemann: Yes, no, I think we've been. Our gross margin performance has been quite strong, I would say, for the last four quarters. So we've demonstrated that we can execute on strong gross margin. So that alone gives us confidence that that can continue on. Now from a tariff standpoint, the market has absorbed the pricing, and you can see from our Q2 performance that we were able to withstand that. We believe in the second half we'll continue that. We've got confidence that the impact of tariffs will get offset by price, and that will allow us to hold those strong margins. And I think the increase from our prior outlook is just a function of holding those margin dollar levels on slightly lower sales, on slightly lower pricing. So that alone will drive your margins up.

Aaron Jagdfeld: Yes, no, I think we've been. Our gross margin performance has been quite strong, I would say, for the last four quarters. So we've demonstrated that we can execute on strong gross margin. So that alone gives us confidence that that can continue on. Now from a tariff standpoint, the market has absorbed the pricing, and you can see from our Q2 performance that we were able to withstand that. We believe in the second half we'll continue that. We've got confidence that the impact of tariffs will get offset by price, and that will allow us to hold those strong margins. And I think the increase from our prior outlook is just a function of holding those margin dollar levels on slightly lower sales, on slightly lower pricing. So that alone will drive your margins up.

Mike Halloran: Yeah, no, I think what we've been, our gross margin performance has been quite strong, I would say, for the last four quarters. So we've we've demonstrated that we can we can execute on on strong gross margins. So that that alone gives us confidence that that can continue on. Now, from a tariff standpoint, you know, the the market has absorbed the pricing. and you can see from our our Q2 performance that we were able to withstand that. We believe in the second half, we'll continue that. we've we've got confidence that the impact of tariffs will get offset by price and that will allow us to.Hold

[music].

Operator: those strong margins. And I think the increase from our prior outlook is just a function of holding those margin dollar levels on slightly lower sales, on slightly lower pricing. So that alone will drive your margins up. But what we've seen today is we believe we can offset those tariff impacts.

Kris Rosemann: But what we've seen today is we believe we can offset those tariff impacts.

But what we've seen today is we believe we can offset those tariff impacts.

Aaron Jagdfeld: I would say I would add to that, Dimple, that when you think about longer-term margins, again as we continue to focus on reducing the drag from some of the energy tech products that we talked about earlier, and then if, as that C&I business begins to rapidly grow, the leverage that we're going to get from that growth is going to also be, I think, a positive overall for our margins. So the combination of those two factors as well gives me confidence longer term that our margins have opportunity to continue to expand. I mean, we had laid that out also at our last IR event. We were targeting higher margins even than where we're operating today. And we believe that that is still very achievable.

Kris Rosemann: I would say I would add to that, Demple, that when you think about longer-term margins, you know, again, as we continue to focus on reducing the drag from some of the energy tech products that we talked about earlier, and then if we, you know, as that C&I business begins to rapidly grow, the leverage that we're going to get from that growth is going to also be, I think, a positive overall for our margins. So the combination of those two factors as well gives me confidence longer-term that our margins have the opportunity to continue to expand. I mean, we had laid that out also at our last IR event. We were targeting higher margins even than where we're operating today. And we believe that that is still very achievable.

Aaron Jagdfeld: That's even kind of before we get to some of the potential opportunities within the data center market that we've been talking about this morning.

Kris Rosemann: And that's even kind of before we get to some of the potential opportunities within the data center market that we've been talking about this morning.

That's even kind of before we get to some of the potential opportunities within the data center market that we've been talking about this morning.

Kris Rosemann: Definitely on the EBITDA line.

Operator: Definitely on the EBITDA outline.

Aaron Jagdfeld: Definitely on the EBITDA line.

Kris Rosemann: On the EBITDA outline.

Operator: Yeah, those operating leverage on the EBITDA outline will be large.

Kris Rosemann: The operating leverage on the EBITDA line will be large.

Aaron Jagdfeld: Absolutely.

Kris Rosemann: Absolutely.

Operator: One moment for our next question. Our next question will be coming from Sean Milligan. Janney, your line is open.

Aaron Jagdfeld: And one moment for our next question. Our next question will be coming from Sean Milligan of Janie. Your line is open.

Operator: One moment for our next question. Our next question will be coming from Sean Milligan. Janney, your line is open.

Kris Rosemann: Thank you for taking the question, guys. In terms of the data center piece, you just kind of hit on it. But I was trying to understand how we should think about margins for that book of business. You know, are they, I guess both from a gross and EBITDA side within the C&I side piece, like are they going to drag that margin profile higher over the next couple of years?

Sean Milligan: Thank you for taking the question, guys. In terms of the data center piece, you just kind of hit on it. But I was trying to understand how we should think about margins for that book of business. You know, are they, I guess both from a gross and EBITDA side within the C&I side piece, like are they going to drag that margin profile higher over the next couple of years?

York Ragen: Thank you for taking the question, guys. In terms of the data center piece, you just kind of hit on it, but I was trying to understand how we should think about margins for that scope of business. You know, are they, I guess, both from a gross and the EBITDA side within the C&I piece, like are they going to drag that margin profile higher over the next couple of years also?

Aaron Jagdfeld: Also, I think at the gross margin line, if you just look at those projects on their own, they don't look tremendously different than our CNI product margins. They're maybe a little bit softer than that on a percentage basis, but actually they're quite a bit stronger than our initial business case. Going into this market presented, we thought that those percentages would be more challenging and they would be potentially dilutive at the gross margin line. I don't necessarily see it happening that way with CNI products. Now, given where because of the structural deficit in the market, pricing of those products to the market has gone up from our initial business case and is putting us in a place with gross margins on those products that look a lot more like our traditional CNI products.

Kris Rosemann: I think at the gross margin line, if you just looked at those projects on their own, you know, they don't look tremendously different than our C&I product margins. You know, they're maybe a little bit softer than that on a percentage basis, but actually, they're quite a bit stronger than our initial business case going into this market presented. We thought that those percentages would be more challenging, and they would be potentially dilutive at the gross margin line. I don't necessarily see it happening that way with C&I products now, given where, because of the structural deficit in the market, pricing of those products to the market has gone up from our initial business case and is putting us in a place with gross margins on those products that look a lot more like our traditional C&I products.

Aaron Jagdfeld: And as a result, and even if we were to do the business case that we, if we were talking about the business case we originally had, we were going to see accretion on the EBITDA margin line because of that leverage. We're going to see it's going to work out even better now because the gross margins also will be stronger than we had initially planned for and you'll get the leverage on the operating leverage at the EBITDA margin line. So net net, Sean, I think it's, you know, this is again where kind of my previous answer to Dimple's question, why I've got confidence that our EBITDA margins can continue to expand in the future is in particular on the back of what we're looking at doing here in data centers.

And as a result, and even if we were to do the business case that we, if we were talking about the business case we originally had, we were going to see accretion on the EBITDA margin line because of that leverage. We're going to see it's going to work out even better now because the gross margins also will be stronger than we had initially planned for and you'll get the leverage on the operating leverage at the EBITDA margin line. So net net, Sean, I think it's, you know, this is again where kind of my previous answer to Dimple's question, why I've got confidence that our EBITDA margins can continue to expand in the future is in particular on the back of what we're looking at doing here in data centers.

Kris Rosemann: And as a result, and even if we were to do the business case that we, if we were to talk about the business case we originally had, we were going to see accretion on the EBITDA margin line because of that leverage. We're going to see it's going to work out even better now because the gross margins also will be stronger than we had initially planned for, and you'll get the leverage on the operating leverage at the EBITDA margin line. So net-net, Sean, I think it's, you know, this is again where kind of my previous answer to Dimple's question, you know, why I've got confidence that our EBITDA margins can continue to expand in the future is, in particular, on the back of what we're looking at doing here in data centers.

Okay.

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Kris Rosemann: Even on a consolidated basis.

Sean Milligan: Even on a consolidated basis.

Operator: Even on a consolidated basis.

Aaron Jagdfeld: Even on a consolidated basis.

Kris Rosemann: Even on a consolidated basis.

Operator: Maybe slightly, maybe dilute about the gross margin line on a consolidated basis, but accretive to EBITDA margin.

Kris Rosemann: Maybe dilutive about the gross margin line on a consolidated basis, but accretive to.

Sean Milligan: Maybe dilutive about the gross margin line on a consolidated basis, but accretive to.

Aaron Jagdfeld: Absolutely accretive on a consolidated basis. EBITDA margin for sure.

Kris Rosemann: Accretive on a consolidated basis, EBITDA margin for sure.

Operator: Thank you. One moment for our next question, which will come from Joseph Osha of Guggenheim Partners. Joseph, your line is over.

Aaron Jagdfeld: Thank you. One moment for our next question, which will come from Joseph Osher of Guggenheim Partners. Joseph, your line is open.

Aaron Jagdfeld: Hi. Thanks.

Joseph Osha: Hi. Thanks.

George Gianarikas: Hi, thanks. I'm wondering if you could talk a little bit about your diesel sourcing strategy. I'm wondering whether, you know, for starters, that supply chain is showing some signs of stress as well, given how busy data centers are and also how you're thinking about where you might procure, in particular, what your opportunities are outside of China. Thank you.

Kris Rosemann: I'm wondering if you could talk a little bit about your diesel sourcing strategy? I'm wondering whether, for starters, that supply chain is showing some signs of stress as well, given how busy data centers are and also how you're thinking about where you might procure, in particular, what your opportunities are outside of China? Thank you.

I'm wondering if you could talk a little bit about your diesel sourcing strategy? I'm wondering whether, for starters, that supply chain is showing some signs of stress as well, given how busy data centers are and also how you're thinking about where you might procure, in particular, what your opportunities are outside of China? Thank you.

Aaron Jagdfeld: Yeah, thanks, Joe. It's a great question because obviously at the heart of every one of those machines is what we refer to as a large bore diesel engine that produces the kind of output that is required in each of these machines. These are engines that they've been around a long time, but they've been traditional and they've been used in power generation in the traditional market sense. Typically you see them in rail, you see them in mining, you see them in marine, in those larger power applications.

Kris Rosemann: Yeah, thanks, Joe. It's a great question because obviously at the heart of every one of those machines is a lot, what we refer to as a large board diesel engine that produces, you know, the kind of output that is required in each of these machines. And these are engines that they've been around a long time, but they've been traditional, and they've been used in power generation in the traditional market sense. But typically, you see them in rail, you see them in mining, you see them in marine, in those larger power applications. You know, when you look across the planet, there are a handful of manufacturers of these large diesel engines.

Aaron Jagdfeld: When you look across the planet, there are a handful of manufacturers of these large diesel engines and, you know, a couple of them are very well known: Caterpillar, Cummins, you know, and they also have very well known power generation divisions or groups that are leading the charge forward on, you know, kind of, you know, serving the data center markets. But that's where the constraints lie for them. You know, they've both, Cat and Cummins, have announced expansion plans for capacity in the diesel engine production capacity that will come online in the next several years. And that's somewhat unique for them because normally those markets, the primary markets of rail, marine, and mining, can be cyclical. Right.

When you look across the planet, there are a handful of manufacturers of these large diesel engines and, you know, a couple of them are very well known: Caterpillar, Cummins, you know, and they also have very well known power generation divisions or groups that are leading the charge forward on, you know, kind of, you know, serving the data center markets. But that's where the constraints lie for them. You know, they've both, Cat and Cummins, have announced expansion plans for capacity in the diesel engine production capacity that will come online in the next several years. And that's somewhat unique for them because normally those markets, the primary markets of rail, marine, and mining, can be cyclical. Right.

Kris Rosemann: And you know, a couple of them are very well known, Caterpillar, Cummins, you know, and they also have very well-known power generation divisions or groups that are leading the charge forward on, you know, kind of, you know, serving the data center markets. But that's where the constraints lie. For them, you know, they've both, both CAT and Cummins have announced expansion plans for capacity in those diesel engines, in the diesel engine production capacity that will come online in the next several years. You know, and that's somewhat unique for them because normally those markets, the primary markets of rail, marine, and mining can be cyclical, right? And in the past, I think the reticence to add capacity in those large board diesel engines for manufacturing capacity, it's expensive. And so it's a capital-intensive, you know, a bit expensive to add capacity.

Aaron Jagdfeld: In the past, I think the reticence to add capacity in those large bore diesel engines for manufacturing capacity. It's expensive and so it's a capital intensive, a bit expensive to add capacity. So typically they've kind of, I think held the line on doing that and just waited for markets to roll over in terms of cycles. But this time I think they all view it differently, which is actually a very bullish sign. I think overall that there's a belief that this part of the market is going to run for a lot longer and is going to be relevant in a big way going forward and is worthy of making that next level of capacity investment.

In the past, I think the reticence to add capacity in those large bore diesel engines for manufacturing capacity. It's expensive and so it's a capital intensive, a bit expensive to add capacity. So typically they've kind of, I think held the line on doing that and just waited for markets to roll over in terms of cycles. But this time I think they all view it differently, which is actually a very bullish sign. I think overall that there's a belief that this part of the market is going to run for a lot longer and is going to be relevant in a big way going forward and is worthy of making that next level of capacity investment.

Kris Rosemann: So typically, they've kind of, you know, I think held the line on doing that and just, you know, waited for markets to roll over in terms of cycles. But this time, I think they all view it differently, I think, which is actually a very bullish sign. I think overall that there's a belief that this part of the market is going to run for a lot longer and is, you know, going to be relevant in a big way going forward and is worthy of making that next level of capacity investment. That said, our supply chain, Generac, you know, we've worked very hard over the last few years to put a deal together with a supplier there that is not new to the market, but maybe new to the US market. And so we've been working with that partner to get those products qualified for US certification.

Aaron Jagdfeld: That said, our supply chain. Generac's, we've worked very hard over the last few years to put a deal together with a supplier there that is not new to the market, but maybe new to the US market. And so we've been working with that partner to get those products qualified for US certification. They were qualified last year for use in Europe, and that's why our European team is maybe a quarter or two ahead of where we're at here in the US, and the products are now qualified for duty here in the US market. It's a world class manufacturer, and they have a tremendous amount of capacity, and they have a very large appetite for additional investment. So we feel that we're paired there with a very competent supplier and one that is going to give us a lot of room to run in terms of.

That said, our supply chain. Generac's, we've worked very hard over the last few years to put a deal together with a supplier there that is not new to the market, but maybe new to the US market. And so we've been working with that partner to get those products qualified for US certification. They were qualified last year for use in Europe, and that's why our European team is maybe a quarter or two ahead of where we're at here in the US, and the products are now qualified for duty here in the US market. It's a world class manufacturer, and they have a tremendous amount of capacity, and they have a very large appetite for additional investment. So we feel that we're paired there with a very competent supplier and one that is going to give us a lot of room to run in terms of.

Kris Rosemann: They were qualified last year for use in Europe. And that's why our European team is maybe a quarter or two ahead of where we're at here in the US. And the products are now qualified for duty here in the US market. It's a world-class manufacturer, and they have a tremendous amount of capacity, and they have a very large appetite for additional investment. So we feel that we're paired there with a very competent supplier and one that is going to give us a lot of room to run in terms of, you know, with this initial foray into the market. One of the major reasons why we've been successful is we've been able to quote, you know, considerably shorter lead times than where the market's at, maybe half the lead time of the market today.

Aaron Jagdfeld: With this initial foray into the market, one of the major reasons why we've been successful is we've been able to quote considerably shorter lead times than where the market's at, maybe half the lead time of the market today. That's great, but that's not what you build a business on. We've got to build a business on a reputation that's staked by our performance as well. Performance of the equipment itself, but also the uptime of the equipment and our ability to serve and support those customers in a way that we think we know how, given our long history in serving some areas like telecommunications as an example, on a direct basis. So we think our supply chain is in really good shape there. Joe, we think we've got the right partner, and again, I think we're poised for some significant growth.

With this initial foray into the market, one of the major reasons why we've been successful is we've been able to quote considerably shorter lead times than where the market's at, maybe half the lead time of the market today. That's great, but that's not what you build a business on. We've got to build a business on a reputation that's staked by our performance as well. Performance of the equipment itself, but also the uptime of the equipment and our ability to serve and support those customers in a way that we think we know how, given our long history in serving some areas like telecommunications as an example, on a direct basis. So we think our supply chain is in really good shape there. Joe, we think we've got the right partner, and again, I think we're poised for some significant growth.

Kris Rosemann: And you know, that's great, but that's not what you build a business on. You know, we've got to build a business on a reputation that's staked by our performance as well, performance of the equipment itself, but also the uptime of the equipment and our ability to serve and support those customers in a way that, you know, we think we know how, given our long history in serving, you know, some areas like telecommunications as an example on a direct basis. So we think our supply chain's in really good shape there, Joe. We think we've got the right partner. And again, I think we're poised for some significant growth.

Operator: I would now like to turn the conference back to Kris for closing remarks.

Aaron Jagdfeld: I would now like to turn the conference back to Chris for closing remarks.

Kris Rosemann: We want to thank everyone for joining us this morning. We look forward to discussing our Q3 2025 earnings results with you in late October. Thank you again and goodbye.

Mike Halloran: We want to thank everyone for joining us this morning. We look forward to discussing our third quarter 2025 earnings results with you in late October. Thank you again and goodbye.

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

Aaron Jagdfeld: And this concludes today's conference call. Thank you for participating. You may now disconnect.

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

Good day and thank you for standing by welcome to the second quarter 2025 generic Holdings, Inc. Earnings call. At this time, all participants are in a listen only mode.

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 will then hear an automated message advising that your hand is raised to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.

Chris Roseman director of corporate Finance and Investor Relations. Please go ahead.

Good morning, and welcome to our second quarter 2025 earnings call.

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.

Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors.

In addition, we will make reference to certain non-GAAP measures during today's call additional information regarding these measures, including a reconciliation to comparable U S. GAAP measures is available in our earnings release and SEC filings I will now turn the call over to Erin. Thanks, Chris Good morning, everyone and thank you for joining us today.

Our second quarter results exceeded our expectations, driven primarily by C&I product sales to our industrial distributors as well as increased shipments of residential energy storage systems.

On a year over year basis overall net sales increased 6% to 1.06 billion for the quarter.

Residential product sales increased 7% from the prior year driven by significant growth in shipments of residential energy technology solutions as well as higher portable generator sales.

Favorable price realization helped gross margins expand by 170 basis points in the quarter, resulting in adjusted EBITDA margins increasing to nearly 18%.

I'll look at the midpoint of these ranges.

Now discussing our second quarter results in more detail home standby sales were flat from the prior year as the category held a new and higher baseline level of demand despite power outage hours being down significantly as compared to a strong prior year period.

However, home console patients outside of this region were up nicely from the prior year highlighted by continued strength in the southeast resulting from last year's high profile outage events.

Importantly, activations or installations of home standby generators increased modestly from the prior year also driven by the strength in the southeast region.

We ended the second quarter with roughly 9300 industrial dealers in our network an increase of approximately 400 over the prior year.

Collectively these efforts represent a critical element of unlocking the growth potential for the home standby category by expanding our sales installation and service bandwidth.

Portable generator sales increased at a robust rate from the prior year, despite the year over year decline in outage activity.

This growth was primarily due to market share gains, resulting from our team's success in driving increased shelf space with key retail partners.

Moving to residential energy technology solutions shipments for these products and services exceeded our expectations and grew at a significant rate during the quarter.

Our team continued to execute extremely well on our department of energy project in Puerto Rico for our energy storage solutions and combined with a record quarter for <unk> B sales resulted in strong outperformance for this part of our business in the second quarter.

<unk> team continued to add to their recent strong sales momentum and drove significant margin improvement compared to the prior year, resulting in positive EBITDA contribution through the first half of 2025.

We view it could be premium feature set and user experience as a key differentiator within our growing residential energy ecosystem and further integration of our residential solutions with Eagle platform will continue with every new product we launch.

Importantly, we continue to expect <unk> to deliver positive EBITDA contribution for the full year as the team further scale these products and solutions.

We are also making very good progress toward the launch of power micro are new micro inverter product line, which we anticipate will begin shipping during the second half of this year.

The impact of the one big Beautiful Bill Act on residential solar and storage markets has been well documented over the last several weeks.

Now, let me provide some commentary on our commercial and industrial product category <unk>.

Project quoting activity and win rates in this important channel also increased on a year over year basis during the first half of the year.

Replacement opportunities within the Telecom channel are also becoming more relevant given our large installed base of product in our long history of serving this market.

As expected shipments to our national and independent rental equipment customers remained soft during the quarter and we continue to anticipate weakness throughout the second half of the year.

Internationally total sales increased 7% from the prior year due to higher intersegment sales in C&I products shipments in Europe, partially offset by softness in other international markets.

Adjusted EBITDA in our international segment increased at a robust rate from the prior year, given the solid sales growth and favorable price cost dynamics in certain markets. We.

We also anticipate an incremental benefit beginning in the third quarter from the initial shipments of our new large megawatt generators to international datacenter customers.

With respect to the important development projects around our new large megawatt generators. These products are expected to enable a very significant incremental opportunity for the global C&I part of our business, particularly within the large and growing datacenter market.

These mission critical solutions are a necessary part of the substantial investment in data centers, which are enabling the accelerated adoption of artificial intelligence.

This rapidly growing demand for data center power infrastructure has resulted in market supply constraints for backup power equipment.

We expect global shipments of these products to begin in the second half of the year with a large majority of our existing backlog to be realized in 2026.

To ensure uptime for these critical applications.

In closing this morning, our second quarter results reflect strong execution and a dynamic operating environment with broad based strength across our product categories.

The mega trends of lower power quality and higher power prices are being further supported by numerous underlying trends, providing incremental avenues for future growth in our business and we firmly believe our portfolio of products and solutions is uniquely positioned to deliver value and protection to homes businesses and institutions around the world.

I'll now turn the call over New York to provide further details on our second quarter results and our updated outlook for 2025.

Aaron.

Looking at second quarter 2025 results in more detail.

Net sales during the quarter increased 6% to 1.06 billion as compared to $998 million.

In the prior year second quarter, the combined effect of acquisitions and foreign currency had a slight favorable impact on revenue growth during the quarter.

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

Residential product sales increased 7% to $574 million.

As compared to 538 million in the prior year.

This growth in residential product sales was driven by a strong increase in shipments of energy storage systems and equally home energy management solutions.

Portable generator shipments also contributed to this sales growth while home standby generator sales were flat with the prior year.

Commercial and industrial product sales for the second quarter increased 5% to $362 million as compared to $344 million in the prior year.

Core sales growth of approximately 4% was driven by strength in shipments to our domestic industrial distributor and telecom customers.

As well as strong growth within Europe, partially offset by weakness in shipments to national rental accounts and other international markets.

Net sales for the other products and services category increased approximately 8% to $125 million as compared to $116 million in the second quarter of 2024.

Core sales increased approximately 6%.

Primarily due to growth in aftermarket service parts and accessories equal and remote monitoring subscription sales and other installation and maintenance services revenue.

Gross profit margin was 30 was 39, 3%.

Compared to 37, 6% in the prior year second quarter, primarily due to favorable pricing and lower input costs, partially offset by unfavorable sales mix.

The favorable price cost dynamics were partly due to the timing differences between the realization of recent price increases and the higher tariff related input costs.

In addition, gross margins exceeded expectations for the quarter, partially due to a lower tariff impact relative to our previous guidance.

Increased employee costs to support future growth across the business and ongoing operating expenses related to recent acquisitions.

Adjusted EBITDA before deducting for Noncontrolling interests as defined in our earnings release exceeded expectations at $188 million.

Or 17, 7% of net sales in the second quarter as.

As compared to $165 million or 16, 5% of net sales in the prior year.

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

Domestic segment total sales, including intersegment sales increased 7% to $884 million in the quarter as.

As compared to $827 million in the prior year, which included approximately 1% sales.

Q2 2025 Generac Holdings Inc Earnings Call

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