Q1 2026 Generac Holdings Inc Earnings Call

April 29, 2026

Speaker #1: Good day, and thank you for standing by. Welcome to the first quarter 2026 Generac Holdings Inc. earnings conference call. At this time, all participants are in a listen-only mode.

Operator: Good day. Thank you for standing by. Welcome to the Q1 2026 Generac Holdings Inc. Earnings Conference 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 this session, you'll need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one 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, Kris Rosemann, Director, Corporate Finance and Investor Relations. Please go ahead, sir.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one one on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to hand the conference over to your speaker today, Kris Rosemann, Director of Corporate Finance and Investor Relations. Please go ahead, sir.

Speaker #2: Good morning and welcome to our first quarter 2026 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.

Kris Rosemann: Good morning, and welcome to our Q1 2026 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 Holdings 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'll 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.

Speaker #2: 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's 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.

Speaker #2: 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'll make reference to certain non-GAAP measures during today's call.

Speaker #2: Additional information regarding these measures, including reconciliation to comparable US GAAP measures, is available in our earnings release and SEC filings. I'll now turn the call over to Aaron.

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

Speaker #3: Thanks, Kris. Good morning, everyone, and thank you for joining us today. Our first quarter results reflect a return to strong growth as net sales increased 12% year over year, with healthy growth margin performance and robust operating leverage.

Aaron Jagdfeld: Thanks, Kris. Good morning, everyone, and thank you for joining us today. Our Q1 results reflect a return to strong growth as net sales increased 12% year over year with healthy gross margin performance and robust operating leverage. Growth during the quarter was led by a 28% increase in our Commercial & Industrial segment sales, primarily driven by continued momentum in the data center end market and the Allmand acquisition.

Speaker #3: Growth during the quarter was led by a 28% increase in our commercial and industrial segment sales, primarily driven by continued momentum in the data center end market and the almond acquisition.

Speaker #3: First quarter adjusted EBITDA margin of 18.3%, expanded significantly from the prior year, and was stronger than anticipated, driven by strong execution, favorable sales mix, and lower-than-expected input costs and operating expenses.

Aaron Jagdfeld: Q1 adjusted EBITDA margin of 18.3% expanded significantly from the prior year and was stronger than anticipated, driven by strong execution, favorable sales mix, and lower than expected input costs and OpEx. Given our Q1 outperformance, the continued strength in our C&I segment, including an increase in projected global data center revenue, and the expected contribution from the acquisition of Enercon, we are raising our full-year net sales and adjusted EBITDA margin outlook this morning. Now discussing our performance by segment in more detail. We're continuing to progress through the final stages of vendor approval with two hyperscale data center customers, and we are very confident that we'll be able to secure meaningful future volume commitments from these accounts. As previously disclosed, we received a non-binding notice to proceed for approximately $600 million in 2027 deliveries with a certain hyperscale customer.

Speaker #3: Given our first quarter outperformance, the continued strength in our CNI segment, including an increase in projected global data center revenue, and the expected contribution from the acquisition of Enercon, we are raising our full-year net sales and adjusted EBITDA margin outlook this morning.

Speaker #3: Now, discussing our performance by segment in more detail. We're continuing to progress through the final stages of vendor approval with two hyperscale data center customers, and we are very confident that we will be able to secure meaningful future volume commitments from these accounts.

Speaker #3: As previously disclosed, we received a non-binding notice to proceed for approximately $600 million in 2027 deliveries with a certain hyperscale customer, and we have begun discussing site-level specifications for these projects as we prepare to ramp our supply chain and production to meet this accelerating demand.

Aaron Jagdfeld: We have begun discussing site-level specifications for these projects as we prepare to ramp our supply chain and production to meet this accelerating demand. We believe the successful navigation of these rigorous approval processes will solidify Generac as a top-tier global supplier of large megawatt diesel backup power generators in the years ahead. Importantly, we have also realized significant order activity from both new and existing data center customers, increasing our current backlog to more than $700 million, which does not include the anticipated impact of the notice to proceed opportunity mentioned above, and represents an increase of approximately $300 million since our Q4 update in mid-February. This backlog growth provides visibility through 2027, even before considering the significant expected contribution from other hyperscale-related opportunities and ongoing momentum with non-hyperscale customers.

Speaker #3: We believe the successful navigation of these rigorous approval processes will solidify Generac as a top-tier global supplier of large megawatt diesel backup power generators in the years ahead.

Speaker #3: Importantly, we have also realized significant order activity from both new and existing data center customers. Increasing our current backlog to more than 700 million, which does not include the anticipated impact of the notice-to-proceed opportunity mentioned above, and represents an increase of approximately 300 million since our fourth quarter update in mid-February.

Speaker #3: This backlog growth provides visibility through 2027, even before considering the significant expected contribution from other hyperscale-related opportunities and ongoing momentum with non-hyperscale customers. As we prepare for meaningful growth in large megawatt generator shipments in the coming quarters, our new facility in Sussex, Wisconsin, remains on track to begin production in the second half of this year.

Aaron Jagdfeld: As we prepare for meaningful growth in large megawatt generator shipments in the coming quarters, our new facility in Sussex, Wisconsin remains on track to begin production in H2 of this year, supporting the expected increase in our domestic generator manufacturing and assembly capacity for these products to more than $1 billion by Q4. We believe this expanded footprint will allow us to capture an increasing share of the rapidly growing demand for backup power solutions from large data center customers, and together with our international C&I production base, provides us with unique global flexibility and scale to serve this market. Additionally, on 1 April, we completed the previously announced acquisition of Enercon, a leading designer and manufacturer of generator enclosures and switchgear.

Speaker #3: Supporting the expected increase in our domestic generator manufacturing and assembly capacity for these products to more than a billion dollars by the fourth quarter.

Speaker #3: We believe this expanded footprint will allow us to capture an increasing share of the rapidly growing demand for backup power solutions from large data center customers and together with our international CNI production base provides us with unique global flexibility and scale to serve this market.

Speaker #3: Additionally, on April 1st, we completed the previously announced acquisition of Enercon, a leading designer and manufacturer of generator enclosures and switchgear. This acquisition enhances our competitive positioning for large megawatt generators by giving us direct access to the design and manufacturing processes that are an important element of the bespoke content included with large megawatt generators.

Aaron Jagdfeld: This acquisition enhances our competitive positioning for large megawatt generators by giving us direct access to the design and manufacturing processes that are an important element of the bespoke content included with large megawatt generators. Additionally, our ability to invest in additional capacity for these highly customized genset packages will allow us to solve for a growing industry bottleneck and enable us to better control overall customer lead times for our products. By bringing these packaging capabilities in-house, we expect to expand our margin profile, further improving the profitability for products sold into the markets for these products, including data center applications. In addition, Enercon's expertise in other product categories such as switchgear and packaged electronics controls also enables our participation in interesting adjacent market opportunities, which we are currently evaluating as we fully integrate this business into our C&I segment.

Speaker #3: Additionally, our ability to invest in additional capacity for these highly customized GenSet et packages will allow us to solve for a growing industry bottleneck and enable us to better control overall customer lead times for our products.

Speaker #3: By bringing these packaging capabilities in-house, we expect to expand our margin profile further improving the profitability for products sold into the markets for these products, including data center applications.

Speaker #3: In addition, Enercon's expertise in other product categories such as switchgear and packaged electronics controls also enables our participation in interesting adjacent market opportunities which we are currently evaluating as we fully integrate this business into our CNI segment.

Speaker #3: During the first quarter, shipments to our domestic industrial distributor channel increased from the prior year, and project quoting activity remained solid to start the year.

Aaron Jagdfeld: During Q1, shipments to our domestic industrial distributor channel increased from the prior year and project quoting activity remains solid to start the year. While product lead times for this channel have continued to normalize over the last several quarters, we expect modest growth for the full year, supported by stable near-term end market demand, as well as our continuing investments in distribution that are helping to drive market share gains. Order rates from domestic telecom customers improved sequentially during the quarter, providing visibility to better than previously expected growth for the remainder of the year. Our telecom customers continue to invest in further hardening of their networks as dependence on wireless communications increases and global tower and network hub counts are expected to continue to grow well into the future.

Speaker #3: While product lead times for this channel have continued to normalize over the last several quarters, we expect modest growth for the full year supported by stable near-term end-market demand as well as our continuing investments in distribution that are helping to drive market share gains.

Speaker #3: Order rates from domestic telecom customers improved sequentially during the quarter, providing visibility to better-than-previously expected growth for the remainder of the year. Our telecom customers continue to invest in further hardening of their networks as dependence on wireless communications increases and global tower and network hub counts are expected to continue to grow well into the future.

Speaker #3: Additionally, the evolving telecom and digital infrastructure landscape is expanding our opportunity set with new and existing customers. We are working to leverage our track record of highly engineered solutions, market expertise, and customer relationships in traditional telecom applications to capitalize on these opportunities including data center-adjacent applications.

Aaron Jagdfeld: Additionally, the evolving telecom and digital infrastructure landscape is expanding our opportunity set with new and existing customers. We are working to leverage our track record of highly engineered solutions, market expertise, and customer relationships in traditional telecom applications to capitalize on these opportunities, including data center adjacent applications. Domestic mobile product shipments to both national and independent rental equipment customers exceeded our expectations during the quarter and increased at a strong rate from the prior year. The acquisition of Allmand in January contributed to the strong year-over-year growth and outperformed our prior expectations with respect to both sales and adjusted EBITDA contribution. Many of our rental customers have begun to invest in new equipment as part of a repleting cycle, and this timely acquisition has both broadened our customer base for mobile products and provided us with additional capacity and flexibility within our domestic manufacturing footprint.

Speaker #3: Domestic mobile product shipments to both national and independent rental equipment customers exceeded our expectations during the quarter and increased at a strong rate from the prior year.

Speaker #3: The acquisition of Almond in January contributed to the strong year-over-year growth and outperformed our prior expectations with respect to both sales and adjusted EBITDA contribution.

Speaker #3: Many of our rental customers have begun to invest in new equipment as part of a re-fleeting cycle and this timely acquisition has both broadened our customer base for mobile products and provided us with additional capacity and flexibility within our domestic manufacturing footprint.

Speaker #3: Additionally, robust order rates from our existing national rental customers are contributing to our increased overall net sales outlook for 2026. International shipments also increased at a strong rate year-over-year.

Aaron Jagdfeld: Additionally, robust order rates from our existing national rental customers are contributing to our increased overall net sales outlook for 2026. International shipments also increased at a strong rate year over year, driven primarily by revenue from products sold to the data center end market, global shipments of our controlled solutions, and the favorable impact from foreign currency. Sales increased across most regions, partially offset by softness in the Middle East and Latin American regions resulting from geopolitical instability and trade policy uncertainty. With a strong start to the year, we are increasing our full year 2026 C&I segment net sales guidance as a result of the increased expectations across our data center, telecom, and rental markets, as well as contributions from the Enercon acquisition. This is partially offset by softness in certain international regions, as previously mentioned.

Speaker #3: Driven primarily by revenue from products sold to the data center end market, global shipments of our controlled solutions, and the favorable impact from foreign currency.

Speaker #3: Sales increased across most regions. Partially offset by softness in the Middle East and Latin American regions resulting from geopolitical instability and trade policy uncertainty.

Speaker #3: With the strong start to the year, we are increasing our full-year 2026 CNI segment net sales guidance as a result of the increased expectations across our data center, telecom, and rental markets as well as contributions from the Enercon acquisition.

Speaker #3: This is partially offset by softness in certain international regions as previously mentioned. We now expect CNI segment net sales to increase in the mid to high 20s percent range, which represents an increase from our prior guidance for growth in the low to mid 20s percent range for this segment.

Aaron Jagdfeld: We now expect C&I Segment net sales to increase in the mid to high twenties % range, which represents an increase from our prior guidance for growth in the low to mid twenties % range for this segment. I'd now like to provide an update on our residential segment for both the quarter and the year. At our Investor Day in March, we introduced Generac Home, a new organizational structure within our residential segment that brings together our home standby, portable generator, and energy technology teams into a single group. As our residential backup power and energy technology solutions are increasingly integrated, this combination enables us to better leverage synergies across our product development, supply chain operations, sales and marketing, and customer service capabilities.

Aaron Jagdfeld: We now expect C&I Segment net sales to increase in the mid to high twenties percent range, which represents an increase from our prior guidance for growth in the low to mid twenties % range for this segment. I'd now like to provide an update on our residential segment for both the quarter and the year. At our Investor Day in March, we introduced Generac Home, a new organizational structure within our residential segment that brings together our home standby, portable generator, and energy technology teams into a single group. As our residential backup power and energy technology solutions are increasingly integrated, this combination enables us to better leverage synergies across our product development, supply chain operations, sales and marketing, and customer service capabilities.

Speaker #3: And I'd like to provide an update on our residential segment for both the quarter and the year. At our investor day in March, we introduced Generac residential segment that brings together our home standby, portable generator, and energy technology teams into a single group.

Speaker #3: As our residential backup power and energy technology solutions are increasingly integrated, this combination enables us to better leverage synergies across our product development, supply chains, operations, sales, and marketing, and customer service capabilities.

Speaker #3: The unification of these teams will allow us to further streamline our software platforms to better serve our customers as well as accelerate the development of products and solutions to help homeowners solve for the increasingly power reliance resiliency and cost challenges they are facing.

Aaron Jagdfeld: The unification of these teams will allow us to further streamline our software platforms to better serve our customers, as well as accelerate the development of products and solutions to help homeowners solve for the increasing power reliance, resiliency, and cost challenges they are facing. Importantly, the efficiencies resulting from this new structure reflect the continued recalibration of our clean energy operating expenses and are expected to enable cost savings that support our projected Residential segment adjusted EBITDA margins expansion in the coming years. We've already begun to realize these benefits, as evidenced by the expansion of our Residential segment EBITDA margins by nearly 500 basis points as compared to the prior year Q1, driven largely by lower operating expenses in the current quarter.

Speaker #3: Importantly, the efficiencies resulting from this new structure reflect the continued recalibration of our clean energy operating expenses and are expected to enable cost savings that support our projected residential segment adjusted EBITDA margins expansion in the coming years.

Speaker #3: We've already begun to realize these benefits as evidenced by the expansion of our residential segment EBITDA margins by nearly 500 basis points as compared to the prior year first quarter, driven largely by lower operating expenses in the current quarter.

Speaker #3: Looking at our first quarter residential segment results in more detail, home standby generator sales were approximately flat from the prior year, with higher pricing offsetting lower volumes as compared to a strong prior year period that included the benefit from an active 2024 hurricane season.

Aaron Jagdfeld: Looking at our Q1 residential segment results in more detail, home standby generator sales were approximately flat from the prior year, with higher pricing offsetting lower volumes as compared to a strong prior year period that included the benefit from an active 2024 hurricane season. The current quarter's performance was slightly ahead of our expectations as we experienced stronger than anticipated demand following Winter Storm Fern. This event and the related media coverage preceding it helped drive awareness for our products, resulting in strong year-over-year growth in home consultations for home standby generators and higher shipments of portable generators. However, despite the elevated outage activity from Winter Storm Fern, overall power outage activity for the Q1 was approximately in line with the long-term baseline average.

Speaker #3: The current quarter's performance was slightly ahead of our expectations, as we experienced stronger-than-anticipated demand following winter storm Fern. This event and the related media coverage preceding it helped drive awareness for our products, resulting in strong year-over-year growth in home consultations for home standby generators and higher shipments of portable generators.

Speaker #3: However, despite the elevated outage activity from winter storm Fern, overall power outage activity for the first quarter was approximately in line with the long-term baseline average.

Speaker #3: Activations or installations of home standby generators declined as expected from the first quarter of 2025, primarily driven by markets that were impacted by elevated hurricane activity in the second half of 2024.

Aaron Jagdfeld: Activations or installations of home standby generators declined as expected from Q1 2025, primarily driven by markets that were impacted by elevated hurricane activity in H2 2024. We expect activations will return to growth in H2 of this year, underpinned by our assumption for a return to a more normal baseline average power outage environment as compared to the exceptionally soft outage environment experienced in H2 2025. Our residential dealer network expanded further during the quarter and now includes more than 9,500 dealers, representing an increase of approximately 300 from the prior year. Continuing interest in the home standby category from these partners provides us with further confidence in the significant growth opportunity that remains for home standby generators as contractors continue to see value with their involvement in the category.

Speaker #3: We expect activations will return to growth in the second half of this year underpinned by our assumption for a return to a more normal baseline average power outage environment as compared to the exceptionally soft outage environment experienced in the second half of 2025.

Speaker #3: Our residential dealer network expanded further during the quarter and now includes more than 9,500 dealers, representing an increase of approximately 300 from the prior year.

Speaker #3: Continuing interest in the home standby category from these partners provides us with further confidence in the significant growth opportunity that remains for home standby generators as contractors continue to see value with their involvement in the category.

Speaker #3: Additionally, as we continue to integrate the teams within our new Generac Home organization, we intend to also unify our distribution networks with the goal of providing homeowners and channel partners greater access to a wider range of home energy solutions, with enhanced service and support capabilities.

Aaron Jagdfeld: Additionally, as we continue to integrate the teams within our new Generac Home organization, we intend to also unify our distribution networks with the goal of providing homeowners and channel partners greater access to a wider range of home energy solutions with enhanced service and support capabilities. Q1 sales of our residential solar and storage solutions decreased from the prior year as expected following the successful completion of our Department of Energy program in Puerto Rico. Throughout the quarter, we continued to execute against our plan of ramping production of PWRmicro, the first Generac-branded microinverter product with a contract manufacturing partner here in the US. The PWRmicro product offering is expected to deliver strong gross margin contribution as sales increase throughout H2 2026 and into 2027.

Speaker #3: First-quarter sales of our residential solar and storage solutions decreased from the prior year, as expected following the successful completion of our Department of Energy program in Puerto Rico.

Speaker #3: Throughout the quarter, we continue to execute against our plan of ramping production of power micro, the first Generac branded micro inverter product with a contract manufacturing partner here in the US.

Speaker #3: The Power Micro product offering is expected to deliver strong gross margin contribution as sales increase throughout the second half of 2026 and into 2027.

Speaker #3: The attractive margin profile for these products together with our ongoing focus on operational efficiencies within the new Generac Home structure are expected to contribute to our longer-term residential segment margin expansion.

Aaron Jagdfeld: The attractive margin profile for these products, together with our ongoing focus on operational efficiencies within the new Generac Home structure, are expected to contribute to our longer-term residential segment margin expansion. A significant focus for the Generac Home business is to market and sell our differentiated residential energy ecosystem with ecobee positioned as the energy management hub of the home. An important metric, ecobee's connected home count continued to grow in the quarter to more than 5 million homes, with service attach rates further increasing and providing us with a growing high margin recurring revenue stream to complement ecobee's expanding hardware market share. Profitability continued to improve as well with ecobee delivering its first positive adjusted EBITDA during Q1, which is normally a seasonally softer quarter for these products.

Speaker #3: A significant focus for the Generac Home business is to market and sell our differentiated residential energy ecosystem with Ecobee positioned as the energy management hub of the home.

Speaker #3: An important metric, Ecobee's connected home count, continued to grow in the quarter to more than 5 million homes, with service attach rates further increasing and providing us with a growing, high-margin recurring revenue stream to complement Ecobee's expanding hardware market share.

Speaker #3: Profitability continued to improve as well, with Ecobee delivering its first positive adjusted EBITDA during the first quarter, which is normally a seasonally softer quarter for these products.

Speaker #3: We are expecting continued strong growth in Ecobee shipments for the full year 2026, and as a result, we believe the benefits of a scaling top line, together with a strong gross margin profile and disciplined operating expense investment, will support continued improvement in profitability into the future.

Aaron Jagdfeld: We are expecting continued strong growth in ecobee shipments for the full year 2026, and as a result, we believe the benefits of a scaling top line together with a strong gross margin profile and disciplined operating expense investment will support continued improvement in profitability into the future. In closing this morning, our Q1 results and increased 2026 outlook provide an early look at the significant earnings growth pro-potential of our business given the dramatic sales increase in our C&I segment, healthy gross margin performance, and realization of strong operating leverage. Based on our continued progress in courting multiple hyperscale data center customers, combined with the improved competitive positioning and profitability resulting from the recent Enercon acquisition, our confidence in capturing a growing share of the generational growth opportunity in the data center market has only increased.

Speaker #3: In closing this morning, our first quarter results and increased 2026 outlook provide an early look at the significant earnings growth potential of our business given the dramatic sales increase in our CNI segment, healthy gross margin performance, and realization of strong operating leverage.

Speaker #3: Based on our continued progress in quoting multiple hyperscale data center customers, combined with the improved competitive positioning and profitability resulting from the recent Enercon acquisition, our confidence in capturing a growing share of the generational growth opportunity in the data center market has only increased.

Speaker #3: Additionally, the megatrends of lower power quality, higher power prices remain firmly intact, and continue to support long-term growth expectations for our residential segment. Highlighted by the 50-plus billion penetration opportunity that we believe exists for home standby generators.

Aaron Jagdfeld: Additionally, the megatrends of lower power quality and higher power prices remain firmly intact and continue to support long-term growth expectations for our residential segment, highlighted by the $50-plus billion penetration opportunity that we believe exists for home standby generators. We remain guided by our Powering a Smarter World enterprise strategy. We believe that we are on the cusp of a special moment in the history of Generac as a result of the more balanced growth drivers we're experiencing across our entire business. With that, I'd now like to turn the call over to York to walk through some of the Q1 financial results and our updated outlook in some more detail. York?

Speaker #3: We remain guided by our Powering a Smarter World enterprise strategy, and we believe that we are on the cusp of a special moment in the history of Generac as a result of the more balanced growth drivers we're experiencing across our entire business.

Speaker #3: With that, I'd now like to turn the call over to York to walk through some of the first quarter financial results and our updated outlook in some more detail.

Speaker #3: York?

Speaker #1: Thanks, Aaron. Looking at first quarter 2026 results in more detail, overall consolidated net sales during the quarter increased 12% to $1.06 billion as compared to $942 million in the prior year first quarter.

York Ragen: Thanks, Aaron. Looking at Q1 2026 results in more detail. Overall consolidated net sales during the quarter increased 12% to $1.06 billion as compared to $942 million in the prior year Q1. The net effect of acquisitions, divestitures, and foreign currency had an approximate 4% favorable impact on revenue growth during the quarter. Residential segment total sales increased approximately 1% to $552 million, as compared to $549 million in the prior year. This sales increase was primarily driven by higher portable generator shipments due to Winter Storm Fern in January 2026, partially offset by a decline in energy storage system sales due to the completion of our DOE Puerto Rico program.

Speaker #1: The net effect of acquisitions, divestitures, and foreign currency had an approximate 4% favorable impact on revenue growth during the quarter. Residential segment total sales increased approximately 1% to $552 million, as compared to $549 million in the prior year.

Speaker #1: This sales increase was primarily driven by higher portable generator shipments due to winter storm Fern in January 2026, partially offset by a decline in energy storage system sales due to the completion of our DOE Puerto Rico program.

Speaker #1: Home standby generator sales were approximately flat versus prior year, as higher pricing was offset by lower volumes due to a strong prior year period that included the benefit from a substantial 2024 hurricane season.

York Ragen: Home standby generator sales were approximately flat versus prior year, as higher pricing was offset by lower volumes due to a strong prior period that included the benefit from a substantial 2024 hurricane season. Commercial and Industrial segment total sales increased approximately 28% to $510 million, from $399 million in the prior year quarter, including an approximate 10% net favorable impact from the combination of acquisitions, divestitures, and foreign currency. Favorable FX and the Allmand C&I Mobile Products acquisition contributed to this inorganic growth, partially offset by two small divestitures that closed during the quarter. The core total sales growth for the segment was primarily driven by revenue from products sold to global data center customers.

Speaker #1: Commercial and industrial segment total sales increased approximately 28% to $510 million, from $399 million in the prior year quarter, including an approximate 10% net favorable impact from the combination of acquisitions, divestitures, and foreign currency.

Speaker #1: Favorable FX and the almond CNI mobile products acquisition contributed to this inorganic growth, partially offset by two small divestitures that closed during the quarter.

Speaker #1: The core total sales growth for the segment was primarily driven by revenue from products sold to global data center customers. In addition, increased shipments to our domestic industrial distributor and rental channels and higher sales of our controlled solutions to the global power generation market also contributed modestly to the CNI segment sales growth during the quarter.

York Ragen: Increased shipments to our domestic industrial distributor and rental channels and higher sales of our control solutions to the global power generation market also contributed modestly to the C&I segment sales growth during the quarter. Consolidated gross profit margin was 38.7% compared to 39.5% in the prior year Q1. The 0.8% decrease in gross margin was primarily driven by the higher mix of C&I sales in the quarter, partially offset by favorable price cost realization. As compared to our prior expectations, we experienced better-than-expected sales of our higher margin home standby generators following Winter Storm Fern. This favorable sales mix, together with strong execution and lower-than-expected input costs, supported our Q1 gross margin outperformance relative to our previous guidance. Operating expenses increased $4.6 million or 2% compared to the Q1 of 2025.

Speaker #1: Consolidated gross profit margin was 38.7% compared to 39.5% in the prior year first quarter. The 0.8% decrease in gross margin was primarily driven by the higher mix of CNI sales in the quarter, partially offset by favorable price-cost realization.

Speaker #1: As compared to our prior expectations, we experienced better-than-expected sales of our higher margin home standby generators following winter storm Fern. This favorable sales mix together with strong execution and lower-than-expected input costs supported our first quarter gross margin outperformance relative to our previous guidance.

Speaker #1: Operating expenses increased 4.6 million or 2% compared to the first quarter of 2025. The increase was primarily driven by higher intangible amortization from the almond acquisition.

York Ragen: The increase was primarily driven by higher intangible amortization from the Allmand acquisition. Importantly, we were able to realize strong operating leverage on higher shipment volumes while also capitalizing on operational efficiencies by recalibrating our clean energy spending as part of our Generac Home reorganization. To that end, OpEx as a percent of sales excluding intangible amortization expense improved from 27.9% in Q1 2025 to 24.8% in Q1 2026. Overall adjusted EBITDA before deducting for non-controlling interests as defined in our earnings release was $193 million or 18.3% of net sales in Q1 as compared to $150 million or 15.9% of net sales in the prior year.

Speaker #1: Importantly, we were able to realize strong operating leverage on higher shipment volumes while also capitalizing on operational efficiencies by recalibrating our clean energy spending as part of our Generac Home reorganization.

Speaker #1: To that end, OPEX as a percent of sales, excluding intangible amortization expense, improved from 27.9% in Q1 2025 to 24.8% in Q1 2026.

Speaker #1: Overall adjusted EBITDA before deducting for non-controlling interest as defined in our earnings release was $193 million, or 18.3% of net sales in the first quarter, as compared to $150 million, or 15.9% of net sales in the prior year.

Speaker #1: As just discussed, the improved operating leverage on higher sales volumes, coupled with reduced residential OPEX, drove this significant increase in adjusted EBITDA margins versus prior year.

York Ragen: As just discussed, the improved operating leverage on higher sales volumes coupled with reduced residential OpEx drove this significant increase in adjusted EBITDA margins versus prior year. Importantly, this represents strong outperformance compared to our prior expectations, helping to contribute to our higher full year 2026 guidance that I will discuss shortly. Adjusted EBITDA for the residential segment was $139 million or 25.1% of total residential sales as compared to $112 million in the prior year or 20.3%. This significant margin increase versus prior year was primarily driven by favorable price realization and operational efficiencies from the reorganization of Generac Home, resulting in lower operating expenses, partially offset by higher costs from tariffs and commodity prices.

Speaker #1: Importantly, this represents strong outperformance compared to our prior expectations, helping to contribute to our higher full-year 2026 guidance that I will discuss shortly. Adjusted EBITDA for the residential segment was $139 million, or 25.1% of total residential sales.

Speaker #1: As compared to $112 million in the prior year, or 20.3%. This significant margin increase versus prior year was primarily driven by favorable price realization and operational efficiencies from the reorganization of Generac Home resulting in lower operating expenses, partially offset by higher costs from tariffs and commodity prices.

Speaker #1: Adjusted EBITDA for the commercial and industrial segment before deducting for non-controlling interests was 67 million, or 13.0% of CNI total sales, as compared to 45 million, or 11.4% of total sales in the prior year.

York Ragen: Adjusted EBITDA for the commercial and industrial segment before deducting for non-controlling interests was $67 million or 13.0% of C&I total sales as compared to $45 million or 11.4% of total sales in the prior year. This margin increase was primarily driven by improved price cost realization, the favorable impact of the Allmand acquisition, and operating leverage on higher shipment volumes. Switching back to our overall financial performance for Q1 2026 on a consolidated basis. As disclosed in our earnings release, GAAP net income for the company in the quarter was $73 million as compared to $44 million in Q1 2025. The current year includes a modest non-cash loss from the net impact of two small divestitures that closed during the quarter as we continue to trim the portfolio of non-core assets.

Speaker #1: This margin increase was primarily driven by improved price-cost realization; the favorable impact of the Almond acquisition; and operating leverage on higher shipment volumes. Now, switching back to our overall financial performance for the first quarter of '26 on a consolidated basis, as disclosed in our earnings release: GAAP net income for the company in the quarter was $73 million, as compared to $44 million in the first quarter of '25.

Speaker #1: The current year includes a modest non-cash loss from the net impact of two small divestitures that closed during the quarter, as we continue to trim the portfolio of non-core assets.

Speaker #1: The prior year included $10 million non-cash loss to reflect the change in fair value of our wallbox investment. Gap income taxes during the current year first quarter were 23.6 million, or an effective tax rate of 24.4%, as compared to 14.2 million, or an effective tax rate of 24.3% for the prior year.

York Ragen: The prior year includes a $10 million non-cash loss to reflect the change in fair value of our Wallbox investment. GAAP income taxes during the current year Q1 were $23.6 million or an effective tax rate of 24.4% as compared to $14.2 million or an effective tax rate of 24.3% for the prior year. Diluted net income per share for the company on a GAAP basis was $1.24 in the Q1 of 2026 compared to $0.73 in the prior year. Adjusted net income for the company, as defined in our earnings release, was $106 million in the current year quarter or $1.80 per share. This compares to adjusted net income of $75 million in the prior year or $1.26 per share.

Speaker #1: Diluted net income per share for the company on a gap basis was $1.24 in the first quarter of '26, compared to 73 cents in the prior year.

Speaker #1: Adjusted net income for the company as defined in our earnings release was $106 million in the current year quarter, or $1.80 per share, this compares to adjusted net income of $75 million in the prior year, or $1.26 per share.

Speaker #1: Cash flow from operations was $119 million in the current year quarter, as compared to $58 million in the prior year first quarter, and free cash flow, as defined in our earnings release, was $90 million, as compared to $27 million in the same quarter last year.

York Ragen: Cash flow from operations was $119 million in the current year quarter as compared to $58 million in the prior year Q1, and free cash flow, as defined in our earnings release, was $90 million as compared to $27 million in the same quarter last year. The strong increase in free cash flow was primarily driven by higher operating earnings and a lower use of cash for working capital as compared to the prior year. From a uses of cash standpoint, we closed the Allmand acquisition in January 2026 by funding the $123 million purchase price in cash. Subsequent to March 31 quarter end, we closed the Enercon acquisition on April 1. We funded the $122 million initial purchase price with $77 million in cash and $45 million in stock.

Speaker #1: The strong increase in free cash flow was primarily driven by higher operating earnings and a lower use of cash for working capital as compared to the prior year.

Speaker #1: From a uses of cash standpoint, we closed the Almond acquisition in January 2026 by funding the $123 million purchase price in cash. Subsequent to the March 31st quarter end, we closed the Enercon acquisition on April 1st. We funded the $122 million initial purchase price with $77 million in cash and $45 million in stock.

Speaker #1: Total debt outstanding at the end of the quarter was $1.32 billion, resulting in a gross debt leverage ratio at the end of the first quarter of 1.7 times on an as-reported basis, which is within our target gross debt leverage range of 1 to 2 times adjusted EBITDA.

York Ragen: Total debt outstanding at the end of the quarter was $1.32 billion, resulting in a gross debt leverage ratio at the end of the first quarter of 1.7 times on an as-reported basis, which is within our target gross debt leverage range of 1 to 2 times adjusted EBITDA. I will now provide further comments on our updated outlook for 2026. As disclosed in our earnings release this morning, we are raising our full-year 2026 outlook for net sales and adjusted EBITDA given further momentum across certain C&I end markets, the acquisition of Enercon, and our first quarter outperformance.

York Ragen: Total debt outstanding at the end of the quarter was $1.32 billion, resulting in a gross debt leverage ratio at the end of the first quarter of 1.7x on an as-reported basis, which is within our target gross debt leverage range of 1x to 2x adjusted EBITDA. I will now provide further comments on our updated outlook for 2026. As disclosed in our earnings release this morning, we are raising our full-year 2026 outlook for net sales and adjusted EBITDA given further momentum across certain C&I end markets, the acquisition of Enercon, and our first quarter outperformance.

Speaker #1: With that, I will now provide further comments on our updated outlook for 2026. As disclosed in our earnings release this morning, we are raising our full year 2026 outlook for net sales and adjusted EBITDA given further momentum across certain CNIN markets, the acquisition of Enercon, and our first quarter outperformance.

Speaker #1: As a result of these factors, we now expect consolidated net sales for the full year to increase at a mid to high teens rate, as compared to the prior year, which includes an approximate 2% favorable impact from the net effective foreign currency acquisitions and divestitures.

York Ragen: As a result of these factors, we now expect consolidated net sales for the full year to increase at a mid to high teens rate as compared to the prior year, which includes an approximate 2% favorable impact from the net effect of foreign currency, acquisitions, and divestitures. This net sales update compares to our previous guidance of growth in the mid-teens % range over the prior year. This increased net sales growth expectation is driven entirely by the C&I segment, with net sales for this segment now projected to increase in the mid to high 20% range compared to 2025, an increase from our previous range of low to mid 20% growth as disclosed at our Investor Day in March.

Speaker #1: This net sales update compares to our previous guidance of growth in the mid-teens percent range over the prior year. This increased net sales growth expectation is driven entirely by the CNI segment, with net sales for this segment now projected to increase in the mid to high 20% range compared to 2025, an increase from our previous range of low to mid-20% growth as disclosed at our investor day in March.

Speaker #1: Incremental sales from additional data center projects, higher shipments into our rental and telecom channels, and the Enercon acquisition are all contributing to this updated guidance for CNI segment net sales.

York Ragen: Incremental sales from additional data center projects, higher shipments into our rental and telecom channels, and the Enercon acquisition are all contributing to this updated guidance for C&I segment net sales. For the full year, significantly higher data center revenue is expected to be the main contributor to our C&I segment organic growth, while the net effect of foreign currency, the Allmand and Enercon acquisitions, and two small divestitures that closed in Q1 2026 are anticipated to have an approximate 5% favorable impact versus prior year. Our Residential segment net sales guidance remains consistent and is still expected to increase in the 10% range compared to the prior year.

Speaker #1: For the full year, significantly higher data center revenue is expected to be the main contributor to our CNI segment organic growth, while the net effective foreign currency, the almond, and Enercon acquisitions, and two small divestitures that closed in the first quarter of 2026 are anticipated to have an approximate 5% favorable impact versus prior year.

Speaker #1: Our residential segment net sales guidance remains consistent and is still expected to increase in the 10% range compared to the prior year. Growth in homestandby generators is expected to be the primary contributor to this net sales growth during the year, in particular in the second half of 2026, given a relatively easier prior year comparison that included a very low power outage environment.

York Ragen: Growth in home standby generators is expected to be the primary contributor to this net sales growth during the year, in particular in the H2 of 2026, given a relatively easier prior year comparison that included a very low power outage environment. Consistent with our historical approach, this guidance assumes a level of power outage activity in line with the longer-term baseline average for the remainder of the year and does not assume the benefit of a major power outage event during the year. From a seasonal pacing perspective, we now expect H1 sales to be approximately 45% weighted and sales in the H2 approximately 55% weighted, resulting in Q2 consolidated net sales growth in the approximate 9% to 10% range, driven entirely by the C&I segment.

Speaker #1: Consistent with our historical approach, this guidance assumes a level of power outage activity in line with the longer-term baseline average for the remainder of the year, and does not assume the benefit of major power outage event during the year.

Speaker #1: From a seasonal pacing perspective, we now expect first-half sales to be approximately 45% weighted, and sales in the second half approximately 55% weighted, resulting in second-quarter consolidated net sales growth in the approximate 9 to 10 percent range driven entirely by the CNI segment.

Speaker #1: Year-over-year net sales growth is expected to accelerate in the second half of the year, given expected continued data center strength and an easier prior year comparison for the residential segment that included very low power outage activity.

York Ragen: Year-over-year net sales growth is expected to accelerate in H2 of the year given expected continued data center strength and an easier prior year comparison for the Residential segment that included very low power outage activity. Looking at our updated gross margin expectations for the full year 2026, we now expect gross margin percent to increase approximately 50 basis points from our previous expectations, resulting in full year 2026 gross margins in the 38.5% to 39.5% range. This improved gross margin outlook is driven primarily by our first quarter outperformance and the margin accretive impact of the new Enercon acquisition. From a seasonality perspective, we now expect gross margins to be more level loaded throughout 2026.

Speaker #1: Looking at our updated gross margin expectations for the full year 2026, we now expect gross margin percent to increase approximately 50 basis points from our previous expectations, resulting in full year 2026 gross margins in the 38.5 to 39.5 percent range.

Speaker #1: This improved gross margin outlook is driven primarily by our first-quarter outperformance, and the margin accretive impact of the new Enercon acquisition. From a seasonality perspective, we now expect gross margins to be more level-loaded throughout 2026.

Speaker #1: Importantly, this updated guidance excludes the future impact of any potential tariff recovery, as a result of the recent Supreme Court ruling related to IEPA tariffs.

York Ragen: Importantly, this updated guidance excludes the future impact of any potential tariff recovery as a result of the recent Supreme Court ruling related to IEPA tariffs. Additionally, our outlook assumes that the removal of the IEPA tariffs will get fully offset by a new tariff framework made up of incremental Section 122, 232, and 301 tariffs. As a result, and given that the trade policy landscape remains dynamic, our assumptions around overall tariff rates remain consistent with our prior guidance. Given the factors outlined in our net sales and gross margin update, we are increasing our guidance range for adjusted EBITDA margins to 18.5% to 19.5%. This compares to our previous guidance range of 18.0% to 19.0%.

Speaker #1: Additionally, our outlook assumes that the removal of the IEPA tariffs will get fully offset by a new tariff framework made up of incremental Section 122, 232, and 301 tariffs.

Speaker #1: As a result, and given that the trade policy landscape remains dynamic, our assumptions around overall tariff rates remain consistent with our prior guidance. Given the factors outlined in our net sales and gross margin update, we are increasing our guidance range for adjusted EBITDA margins to 18.5 to 19.5 percent.

Speaker #1: This compares to our previous guidance range of 18.0 to 19.0 percent. We expect second-quarter adjusted EBITDA margins to increase modestly relative to second-quarter 2025 levels, in the 18% range, before improving sequentially in the back half of the year reaching approximately 20% in the fourth quarter of 2026.

York Ragen: We expect Q2 adjusted EBITDA margins to increase modestly relative to Q2 2025 levels in the 18% range before improving sequentially in H2, reaching approximately 20% in Q4 2026. This sequential H2 adjusted EBITDA margin improvement is projected to be driven primarily by stronger operating expense leverage on seasonally higher sales volumes in H2. 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 2026. Importantly, to arrive at appropriate estimates for adjusted net income and adjusted earnings per share, add back items should be reflected net of tax using our expected effective tax rate.

Speaker #1: This sequential second-half adjusted EBITDA margin improvement is projected to be driven primarily by stronger operating expense leverage, on seasonally higher sales volumes in the second half of the year.

Speaker #1: As is our normal practice, we will also provide we're also providing additional guidance details to assist with modeling adjusted earnings per share and free cash flow for the full year 2026.

Speaker #1: Importantly, to arrive at appropriate estimates for adjusted net income and adjusted earnings per share, add-back items add-back items should be reflected net of tax using our expected effective tax rate.

Speaker #1: For full year 2026, our gap effective tax rate is expected to be between 24.5 to 25.0 percent. We now expect interest expense to be approximately 65 million for full year '26, down from 65 to 69 million previously expected, assuming no additional term loan principal prepayments during the year.

York Ragen: For full year 2026, our GAAP effective tax rate is expected to be between 24.5% to 25.0%. We now expect interest expense to be approximately $65 million for full year 2026, down from $65 to 69 million previously expected, assuming no additional term loan principal prepayments during the year. Lower borrowings during the year are the primary driver for this reduction in interest expense guidance. Our capital expenditures are still projected to be approximately 3.5% of our forecasted net sales for the year, slightly elevated from historical levels as we continue to invest in incremental capacity and execute other projects to support future growth expectations, particularly for C&I data center products.

Speaker #1: Lower borrowings during the year are the primary driver for this reduction in interest expense guidance. Our capital expenditures are still projected to be approximately 3.5% of our forecasted net sales for the year, slightly elevated from historical levels as we continue to invest in incremental capacity and execute other projects to support future growth expectations particularly for CNI data center products.

Speaker #1: Depreciation expense is now forecast to be approximately 108 to 112 million in 2026, an increase from 104 to 108 million previously expected, primarily due to slightly higher CapEx guidance and recently closed acquisitions.

York Ragen: Depreciation expense is now forecast to be approximately $108 to 112 million in 2026, an increase from $104 to 108 million previously expected, primarily due to slightly higher CapEx guidance and recently closed acquisitions. GAAP and tangible amortization expenses in 2026 is now expected to be approximately $112 to 116 million during the year, up from $108 to 112 million previously expected, primarily due to updated assumptions around recently closed acquisitions. Stock compensation expense is still expected to be between $54 to 58 million for the year.

Speaker #1: GAAP intangible amortization expense in 2026 is now expected to be approximately $112 to $116 million during the year, up from $108 to $112 million previously expected, primarily due to updated assumptions around recently closed acquisitions.

Speaker #1: Stock compensation expense is still expected to be between 54 to 58 million for the year, consistent with prior guidance, operating and free cash flow generation is expected to be weighted toward the second half of the year in 2026, resulting in projected free cash flow generation of approximately 350 million for the full year 2026.

York Ragen: Consistent with prior guidance, operating and free cash flow generation is expected to be weighted toward H2 of the year in 2026, resulting in projected free cash flow generation of approximately $350 million for the full year 2026. Our full year weighted average diluted share count is still expected to be between 59.5 and 60 million shares in 2026. Finally, this 2026 outlook does not reflect potential additional acquisitions, divestitures, or share repurchases that could drive incremental shareholder value during the year. This concludes our prepared remarks. At this time, we would like to open up the call for questions.

Speaker #1: Our full year weighted average diluted share count is still expected to be between 59.5 and 60 million shares, in 2026. And finally, this 2026 outlook does not reflect potential additional acquisitions, divestitures, or share repurchases that could drive incremental shareholder value during the year.

Speaker #1: This concludes our prepared remarks. At this time, we'd like to open up the call for questions. Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. In fairness to all, we ask that you please limit yourselves to one question only. One moment for our first question. Our first question comes from the line of Tommy Moll with Stephens. Your line is open. Please go ahead.

Speaker #1: To withdraw your question, please press star 11 again. In fairness to all we ask that you please limit yourselves to one question only. One moment for our first question.

Speaker #1: Our first question comes from the line of Tommy Mall with Steven. Your line is open. Please go ahead.

Speaker #3: Good morning and thanks for taking my questions.

Tommy Moll: Good morning, and thanks for taking my questions.

Speaker #4: Hey, Tommy.

Aaron Jagdfeld: Hey, Tommy.

Speaker #3: Good morning. Aaron, you referenced the 600 million non-binding notice to proceed, which was also discussed at the investor day. I'm just curious, if you can share anything about how the product testing and pilots are going there, and then related the accompanying service capabilities don't get a ton of airtime, but you did mention it at the investor day, and I'm just curious, is that also potentially a gating factor here?

York Ragen: Good morning.

Tommy Moll: Aaron, you referenced the $600 million non-binding notice to proceed, which was also discussed at the Investor Day. I'm just curious if you can share anything about how the product testing and pilots are going there. Related, the accompanying service capabilities don't get a ton of airtime, but you did mention it at the Investor Day, and I'm just curious, is that also potentially a gating factor here? Do you need to staff up a lot with Generac folks to enable those capabilities? Thank you.

Speaker #3: Do you need to staff up a lot with Generac folks to enable those capabilities? Thank you.

Speaker #4: Yeah, thanks, Tommy. So yeah, the notice to proceed that we talked about at investor day, and we mentioned again this morning, that's from one of the hyperscale customers that we continue to negotiate with.

Aaron Jagdfeld: Yeah. Thanks, Tommy. Yeah, the notice to proceed that we talked about at Investor Day and we mentioned again this morning, you know, that's from one of the hyperscale customers that we continue to negotiate with. Maybe the best way to characterize it, Tommy, is that, you know, if this was a 100-yard dash, we're like 99 yards of the way done with the race. We've got 1 yard left. You know, we're in the final stages with, you know, the final agreement. You know, there's a process. It's a gauntlet. I mean, there's literally, you know, a hurdle for every step along the way here.

Speaker #4: And I would maybe the best way to characterize it, Tommy, is that if this was a 100-yard dash, we're like 99 yards of the way done with the race.

Speaker #4: We've got one yard left. We're in the final stages. With the final agreement, there's a process. It's a gauntlet. I mean, there's literally a hurdle for every step along the way here.

Speaker #4: But all of the everything from product quality, to supply chain visits, our factory visits, the audits that they put us through, internal and external, we continue to march through the process.

Aaron Jagdfeld: All of the, you know, everything from product quality, to supply chain visits, our factory visits, the audits that they put us through, internal and external, you know, we continue to march through the process, and we're passing all of those gates as we go. We really are at the very last yard of this race, this 100-yard race. We feel really good about it. As such, you know, we mentioned this in the prepared remarks, we're into discussions about the specifics around certain sites, which sites, you know, would we see next year as part of that NTP, the notice to proceed, and we're preparing accordingly. On that point, maybe transitioning to the second part of your question with service.

Speaker #4: And we're passing all of those gates, as we go. And we really are at the very last yard of this race this 100-yard race.

Speaker #4: So we feel really good about it. And as such, we're into we mentioned this in the prepared remarks. We're into discussions about the specifics around certain sites, which sites would we see next year as part of that NTP, the notice to proceed.

Speaker #4: And we're preparing accordingly. On that point, maybe transition to the second part of your question with service. This is obviously an area that, as we deploy equipment to these large project areas, we need to make sure we're appropriately staffed.

Aaron Jagdfeld: This is obviously an area that as we deploy equipment to these, you know, these large project areas, we need to make sure we're appropriately staffed. I think one of the great things about our industrial distribution network is over the last 5 or 6 years, you know, we've talked about the investments we've made there. Some of those investments have come in the form of acquisitions. Today, we own about 30% to 35% of our industrial distribution network here in the US. You know, we continue to work with our partners on staffing to appropriate levels to serve the market. I mean, obviously the ability to react to any kind of service situation is critical.

Aaron Jagdfeld: This is obviously an area that as we deploy equipment to these, you know, these large project areas, we need to make sure we're appropriately staffed. I think one of the great things about our industrial distribution network is over the last five or six years, you know, we've talked about the investments we've made there. Some of those investments have come in the form of acquisitions. Today, we own about 30% to 35% of our industrial distribution network here in the US. You know, we continue to work with our partners on staffing to appropriate levels to serve the market. I mean, obviously the ability to react to any kind of service situation is critical.

Speaker #4: I think one of the great things about our industrial distribution network is over the last five or six years, we've been in we've talked about the investments we've made there.

Speaker #4: Some of those investments have come in the form of acquisitions. And today, we own about 30 to 35 percent of our industrial distribution network here in the US.

Speaker #4: And we continue to work with our partners on staffing to appropriate levels to serve the market. I mean, obviously, the ability to react to any kind of service situation is critical.

Aaron Jagdfeld: Again, I think we feel like we're in a really good spot there given, you know, our own ownership and our appetite to continue to invest and hire people as needed as the sites get deployed.

Speaker #4: And again, I think we feel like we're in a really good spot there, given our own ownership and our appetite to continue to invest.

Speaker #4: And hire people as needed, as the sites get deployed.

Speaker #1: Thank you. One moment for our next question. Our next question comes from the line of George Gianericus with CTF, your line is open. Please go ahead.

Operator: Thank you. One moment for our next question. Our next question comes from the line of George Gianarikas with Canaccord Genuity. Your line is open. Please go ahead.

Speaker #5: Hi, good morning, everyone. Thanks for taking my questions.

George Gianarikas: Hi. Good morning, everyone. Thanks for taking my questions.

Speaker #4: Hey, George. Yeah, as you look to scale hyperscale demands, I mean, how are you de-risking your engine supply chain? And what sort of multi-year capacity guarantees have you secured?

Aaron Jagdfeld: Hey, George.

Aaron Jagdfeld: Yeah. As you look to scale hyperscale demands, I mean, how are you de-risking your engine supply chain? What sort of multi-year capacity guarantees have you secured? Maybe more specifically, any exclusivity frameworks you have to ensure that the supply remains an advantage to Generac? Thank you.

Speaker #4: And maybe more specifically, any exclusivity frameworks you have to ensure that the supply remains an advantage to Generac? Thank you.

Speaker #5: Yeah, thanks, George. Obviously, an important question. In this whole effort around data centers, is supply chain-based, right? And it's not just the engine, although the engine, of course, is critical, but it's alternator supply.

Aaron Jagdfeld: Yeah. Thanks, George. Obviously an important question. You know, in this whole, you know, effort around data centers is supply chain based, right? It is not just the engine, although the engine, of course, is critical, but it is alternator supply, it is cooling package supply, it is the end packaging of the product, which, you know, we are with our Enercon acquisition that we closed on 1 April, you know, we are taking a big step forward there trying to solve for what is becoming a fast becoming a bottleneck in the industry around, you know, finished packaging. Even if we can get great lead times on the unpackaged product, you know, it does not help us if the packaging phase is constrained. That was a big part of the thesis, our calculus in acquiring Enercon.

Speaker #5: It's cooling package supply. It's the end packaging of the product, which, with our Enercon acquisition that we closed on April 1st, we're taking a big step forward there, trying to solve for what is fast becoming a bottleneck in the industry around finished packaging.

Speaker #5: Even if we can get great lead times on the unpackaged product, it doesn't help us if the packaging phase is constrained. So that was a big part of the thesis our calculus in acquiring Enercon.

Aaron Jagdfeld: We look to expand that operation as well pretty aggressively here so that we can control those lead times. With respect to engines, maybe directly to your question there, you know, we have a multi-year agreement in place with our current engine supplier, our large diesel engine supplier. That agreement allows us to have exclusivity here in the US. There are a couple of small exceptions to some legacy customers there, but nothing that I would say any of those small customers are going to be able to get through the gauntlet. At least with hyperscale customers, we don't foresee that at all.

Speaker #5: And we look to expand that operation as well pretty aggressively here so that we can control those lead times. With respect to engines, maybe directly your question there, we have a multi-year agreement in place with our current engine supplier, our large diesel engine supplier.

Speaker #5: That agreement allows us to have exclusivity here in the US. There are a couple of small exceptions to some legacy customers there, but nothing that I would say any of those small customers are going to be able to get through the gauntlet, at least with hyperscale customers.

Speaker #5: We don't foresee that at all. Engine supply, we feel really good about our engine supplier's capacity. And their ability to not only produce at the kind of scale that is going to be needed, with the volumes that we're talking about with these hyperscale customers and non-hyperscale customers, but also their appetite to continue to invest.

Aaron Jagdfeld: Engine supply, we feel really good about our engine suppliers' capacity and their ability to not only produce at the kind of scale that is going to be needed with the volumes that we're talking about with these hyperscale customers and non-hyperscale customers, but also their appetite to continue to invest. And the footprint that they have, the global footprint that they have, and the ability to expand that footprint as needed. We're talking to this, you know, the engine partner about potential production of these engines right here in the US at this point. You know, might even be something cohabitated with, you know, with us on some kind of, you know, joint investment. We're not exactly sure at this stage.

Speaker #5: And the footprint that they have the global footprint that they have and the ability to expand that footprint as needed. So we're talking to this the engine partner about potential production of these engines right here in the US at this point.

Speaker #5: So it might even be something cohabitated with us on some kind of joint investment. We're not exactly sure at this stage, right now, there's plenty of capacity in place.

Aaron Jagdfeld: You know, right now there's plenty of capacity in place, so we feel really good about that. We're really working to solve, you know, kind of the next level capacity constraints and supply chain around alternators, cooling packages. We're multi-sourcing those critical components as well. We feel like the supply chain for those other critical components, you know, if they don't already have the capacity added, they have really good plans to add it as we enter 2027 and beyond. At this stage of the game, we feel like we're in pretty good shape. You know, it's, you know, supply chain is something that's not 100% inside of our control. Obviously, you know, that's something we have to keep a close eye on.

Speaker #5: So we feel really good about that. And we're really working to solve kind of the next level capacity constraints and supply chain around alternators, cooling packages.

Speaker #5: We're multi-sourcing those critical components as well. And we feel like the supply chain for those other critical components if they don't already have the capacity added, they have really good plans to add it as we enter 2027 and beyond.

Speaker #5: So at this stage of the game, we feel like we're in pretty good shape. But it's supply chain is something that's not 100% inside of our control.

Speaker #5: So obviously, that's something we have to keep a close eye on. I'm very pleased, though, with our team's engagement there. It's an area of strength for Generac historically, just working with supply chain developing deep partnerships, focusing on capacity adds where needed, and getting ahead of it.

Aaron Jagdfeld: I'm very pleased though with our team's engagement there. It's an area of strength for Generac historically, just working with supply chain, developing deep partnerships, focusing on capacity adds where needed and getting ahead of it. We don't wait to react. We try to be proactive. I feel like those, we're covering those bases as well as we can today. We're basically, you know, kind of coiling the spring here as we get ready to get into the Q4, H2 of this year and really into 2027, really driving to the next level with the data center, the data center products.

Speaker #5: We don't wait to react; we try to be proactive. And so I feel like those we're covering those bases as well as we can today.

Speaker #5: And we're basically kind of coiling the spring here as we get ready to get into the fourth quarter, back half of this year, and really into 2027, really driving to the next level with the data center products.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Mike Halloran with Baird. Your line is open. Please go ahead.

Speaker #1: Thank you. And one moment for our next question. Our next question comes from the line of Mike Holleran with Baird. Your line is open.

Speaker #1: Please go ahead.

Mike Halloran: Hey, morning, gentlemen.

Aaron Jagdfeld: Morning, Mike.

Speaker #4: Hey, morning, gentlemen.

York Ragen: Morning.

Speaker #5: Morning, Mike.

Mike Halloran: On the non-data center side of the C&I piece, maybe just talk to what you're seeing from a sequential and then how the rest of the year should play out on the, you know, kind of core rental, telecom, and then traditional C&I type categories? Related, layer in how the new product categories from the power range that you're bringing to bear, how those are early receptivity of those products into those markets?

Speaker #6: Morning.

Speaker #4: So on the non-data center side of the scene, IPs, maybe just talk to see to what you're seeing from a sequential and then how the rest of the year should play out on the kind of core rental, telecom, and then traditional CNI-type categories.

Speaker #4: And then related layering how the new product categories from a power range that you're bringing to bear, how those are really receptivity of those products into those markets.

Aaron Jagdfeld: Yeah. Thanks, Mike. The amazing thing is the balance of our C&I business is also, you know, as we indicated over the last couple of quarters, we were starting to see signs of, you know, nice recovery or growth in telecom, as an example, which, you know, really began, you know, kind of in earnest in Q4 of last year and has continued to pick up steam here in early 2026. Really kind of outpacing expectations on order volume, giving us good confidence, you know, as part of the guidance raise here, for, you know, for the balance of 2026 and the C&I segment is coming from telecom. The other area is rental. You know, it's interesting.

Speaker #5: Yeah, thanks, Mike. Yeah, the balance of our the amazing thing is the balance of our CNI business is also as we indicated over the last couple of quarters, we were starting to see signs of nice recovery or growth in telecom as an example.

Speaker #5: Which really began in earnest in the fourth quarter of last year, and has continued to pick up steam here in early 2026.

Speaker #5: Really kind of outpacing expectations on order volume giving us good confidence as part of the guidance phrase here for the balance of 2026 in the CNI segment is coming from telecom.

Speaker #5: The other area is rental. It's interesting. I kind of had an epiphany it's probably not an epiphany. It's probably too strong. I'm overstating. But driving by one of these data center construction sites, there's actually one going up right next door to our Beaver Dam, our new Beaver Dam manufacturing plant.

Aaron Jagdfeld: You know, I kind of had an epiphany. It's probably not an epiphany. That's probably too strong. I'm overstating. But, you know, driving by one of these data center construction sites, there's actually one going up right next door to our Beaver Dam, our new Beaver Dam manufacturing plant. When I was kind of taking a drive through that last year, and you know, it's right next door, I was struck by just how much of our mobile equipment and the type of equipment that we build is on that site, in light towers. Mobile generators, you know, for temporary power, temporary lighting, and temporary heat, even in, you know, the cold Wisconsin winters to keep construction going. Construction does go. It goes 24/7 on these sites.

Speaker #5: And when I was kind of taking a drive through that last year, and it's right next door, I was struck by just how much of our mobile equipment—and the type of equipment that we build—is on that site: light towers, mobile generators for temporary power, temporary lighting, and temporary heat, even in the cold Wisconsin winters to keep construction going.

Speaker #5: And construction does go. It goes 24/7 on these sites. And so it's really no surprise that what we're seeing and hearing from our rental customers starting with our national rental customers is that the re-fleeting cycle really has begun.

Aaron Jagdfeld: It, it's really no surprise that what we're seeing and hearing from our rental customers, starting with our national rental customers, is that, you know, the repleting cycle really has begun. We've been waiting on it to begin about 18 months here. It's been, you know, we've kind of been on the backside of that, and it's starting to kick up. Fortuitously, we had been negotiating for the Allmand acquisition, and we closed that deal on 1 January as we announced. It just, it, the timing couldn't have been better. You know, we've seen just a, you know, a really nice response there. That business has outperformed, you know, on top line, on bottom line.

Speaker #5: And we've been waiting on it to begin about 18 months here. It's been we've kind of been on the backside of that. And it's starting to kick up.

Speaker #5: And fortuitously, we had been negotiating for the Almond acquisition. And we closed that deal on January 1st as we announced. And it's just the timing couldn't have been better.

Speaker #5: We've seen just a really nice response there. That business has outperformed on top line, on bottom line. And the combination of that business, our business historically was focused on national rental account customers, which typically have a little bit lower gross margin profile because they're buying in bulk.

Aaron Jagdfeld: The combination of that business, you know, our business historically was focused on national rental account customers, which typically have, you know, a little bit lower gross margin profile because they're buying in bulk. Whereas the Allmand business was really focused on the independent rental channel. It was a great complementary fit for us from a distribution standpoint, and it also gave us some much needed capacity. They have a nice big factory in Nebraska, and the combination of our factory here in Wisconsin and that factory in Nebraska give us some great capacity for, you know, serving what is a growing market. Our core C&I business, the industrial distributor business has been good. You know, our quote rates remain pretty strong.

Speaker #5: Whereas the Almond business was really focused on the independent rental channel, so it was a great complementary fit for us from a distribution standpoint.

Speaker #5: And it also gave us a much-needed capacity they have a nice big factory in Nebraska and so the combination of our factory here in Wisconsin and that factory in Nebraska give us some great capacity for serving what is a growing market.

Speaker #5: Our core CNI business, the industrial distributor business, has been good. Our quote rates remain pretty strong. I would tell you I would remind you that as we talked over the last really four or five quarters, we've been working down our backlog there.

Aaron Jagdfeld: I would tell you or remind you that as we've talked over the last, you know, really 4 or 5 quarters, we've been working down our backlog there and shortening up our lead times, and we've kind of caught those now. You know, continue to grow, albeit not at the same rate we were growing previously for those core markets. I think maybe the last point of your question, Mike, was around, you know, these larger machines, you know, kind of taking those to market through our traditional channels. That's been very well received. The sales cycles are very long, especially in the traditional market, so we've only started to realize the first couple of orders coming through the pipeline here.

Aaron Jagdfeld: I would tell you or remind you that as we've talked over the last, you know, really four or five quarters, we've been working down our backlog there and shortening up our lead times, and we've kind of caught those now. You know, continue to grow, albeit not at the same rate we were growing previously for those core markets. I think maybe the last point of your question, Mike, was around, you know, these larger machines, you know, kind of taking those to market through our traditional channels. That's been very well received. The sales cycles are very long, especially in the traditional market, so we've only started to realize the first couple of orders coming through the pipeline here.

Speaker #5: And shortening up our lead times. And we've kind of caught those now. Continue to grow, albeit not at the same rate we were growing previously for those core markets.

Speaker #5: And then I think maybe the last point of your question, Mike, was around these larger machines, kind of taking those to market through our traditional channels.

Speaker #5: That's been very well received. The sales cycles are very long, especially in the traditional market. So we've only started to realize the first couple of orders coming through the pipeline here.

Aaron Jagdfeld: You know, just this week we had an engineering symposium conference in Waukesha with over 220 engineering firms represented. You know, it's an opportunity for us to talk about the expanded product line. You know, one of the shortcomings of Generac historically in the C&I markets has been, you know, our product line stopped at 2 MW. Now having a product line that goes to 3.25 MW, we've got an expansion of that even further to 4 MW on the drawing board, makes us a full line provider. You know, it really takes away any final excuses that specifying engineering firms may have had not to, you know, specify us by name.

Speaker #5: But just this week, we had an engineering symposium conference in Waukesha with over 200 and I think it was like 220 engineering firms represented.

Speaker #5: And it's an opportunity for us to talk about the expanded product line one of the shortcomings of Generac historically in the CNI markets has been our product line stopped at two megawatt.

Speaker #5: So now having a product line that goes to 3.25 megawatt and then we've got an expansion of that even further to four megawatt on the drawing board makes us a full line provider.

Speaker #5: And it really takes away any final excuses that specifying engineering firms may have had not to specify us by name. Either because they were concerned that they couldn't just they'd have to put us on certain specs and not on all specs because we didn't have a full product range.

Aaron Jagdfeld: You know, either because they were concerned that, you know, they couldn't they'd have to put us on certain specs and not on all specs because we didn't have a full product range. That's been completely eliminated now. Really good receptivity there, and we're expecting big things out of that product range in our traditional markets in the years ahead.

Speaker #5: That's been completely eliminated now. So really good receptivity there. And we're expecting big things out of that product range in our traditional markets in the years ahead.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is open. Please go ahead.

Speaker #1: Thank you. And one moment for our next question. Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is open.

Speaker #1: Please go ahead.

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

Speaker #6: Hey, morning, everyone. This is David Tarantino on for Jeff. Hey, David. Maybe switching to residential, could you give us some color on the strength and margins here?

Aaron Jagdfeld: Hey, Dave.

David Tarantino: Um-

York Ragen: Hey, Dave.

David Tarantino: Maybe switching to residential, could you give us some color on the strength in margins here? Sounds like there was some favorable mix here, can you parse out anything unique to this quarter and maybe how sustainable this level of margin is moving forward?

Speaker #6: It sounds like there was some favorable mix here. But could you parse out anything unique to this quarter, and maybe how sustainable this level of margin is moving forward?

Aaron Jagdfeld: Yeah, maybe I’ll start and then maybe York can chime in too. You know, the margin improvement there was, you know, pretty dramatic. It was 500 basis points of EBITDA margin expansion over the prior year. Combination of 2 things. I mean, it was primarily driven, as we said in the prepared remarks, though, by just, you know, better cost control, I would say. You know, as we have brought together our teams there under the Generac Home, you know, the one residential, one home business that we’ve referred to, it’s really helped us leverage our team members more efficiently across that business. We, you know, we built a world-class team in our energy technology business. You know, look, the market has shifted, right?

Aaron Jagdfeld: Yeah, maybe I’ll start and then maybe York can chime in too. You know, the margin improvement there was, you know, pretty dramatic. It was 500 basis points of EBITDA margin expansion over the prior year. Combination of two things. I mean, it was primarily driven, as we said in the prepared remarks, though, by just, you know, better cost control, I would say. You know, as we have brought together our teams there under the Generac Home, you know, the one residential, one home business that we’ve referred to, it’s really helped us leverage our team members more efficiently across that business. We, you know, we built a world-class team in our energy technology business. You know, look, the market has shifted, right?

Speaker #5: Yeah, maybe I'll start and then maybe York can chime in too. The margin improvement there was pretty dramatic. It was 500 basis points of EBITDA margin expansion over the prior year.

Speaker #5: And combination of two things. I mean, it was primarily driven, as we said in the prepared remarks, though, by just better cost control, I would say, as we have brought together our teams there under the Generac home the one residential, one home business that we've referred to.

Speaker #5: It's really helped us leverage our team members more efficiently across that business. We built a world-class team in our energy technology business. And look, the market has shifted, right?

Aaron Jagdfeld: It's moved based on policy, based on, you know, continued, persistently high interest rates and some other things that have been, you know, presented headwinds to that market. We believe that long term is still a good business opportunity as, you know, retail energy prices continue to rise. I mean, there's no question that self-generation, self-storage, you know, that cost containment for homeowners and businesses around electricity rates in particular is just going to become, you know, that's going to become a headline story here. It's already moving into the headlines. We like that business, but the reality of it is it's softer right now because of where the market's at.

Speaker #5: It's moved based on policy, based on continued high persistently high interest rates and some other things that have been presented headwinds to that market.

Speaker #5: We believe that that long-term is still a good business opportunity as retail energy prices continue to rise. I mean, there's no question that self-generation, self-storage, that cost containment for homeowners and businesses around electricity rates in particular is just going to become that's going to become a headline story here.

Speaker #5: It's already moving into the headlines. So we like that business. But the reality of it is it's softer right now because of where the market's at.

Aaron Jagdfeld: Being able to leverage that team, this world-class team that we built, and move that, you know, into our traditional residential business, what we refer to as consumer power around portable generators and home standby, you know, it's been a great move. We've been able to get a lot out of that team. We've been able to get some early wins here on cost containment. That's really the primary driver for a big chunk of that improvement in EBITDA margin, and you should expect to see that going forward, Dave. We also had some gross margin improvement there as well, and maybe I'll let York just maybe chime in a little bit around that.

Speaker #5: And so, being able to leverage that team—this world-class team that we've built—and move that into our traditional residential business, what we refer to as consumer power around portable generators and home standby—it's been a great move.

Speaker #5: We've been able to get a lot out of that team. We've been able to get some early wins here. On cost containment, that's really the primary driver for a big chunk of that improvement in EBITDA margin.

Speaker #5: And you should expect to see that going forward, Dave. We also had some gross margin improvement there as well. And maybe I'll let York just maybe chime in a little bit around that.

York Ragen: Yeah, no, like you said, probably about 3% of that 5% improvement was the OpEx side that Aaron just talked about. The remainder is the gross margin improvement that we saw with residential. We still continue, well, we did, our home standby shipments, we did see strong demand following Winter Storm Fern, so a little bit of favorable mix there relative to prior year. We still are seeing positive price cost here in the quarter for the residential segment. If you recall, we rolled out pricing probably in more Q2 of last year as a result of higher input costs and tariffs.

Speaker #4: Yeah, no, like you said, probably about 3% of that 5% improvement was the OPEX side that Aaron just talked about. The remainder is the gross margin improvement that we saw with residential.

Speaker #4: We still continue well, we did our home standby shipments. We did see strong demand following winter storm furnace, a little bit of favorable mix there, relative to prior year.

Speaker #4: But we still are seeing positive price-cost here in the quarter. For the residential segment, if you recall so we rolled out pricing probably in more Q2 of last year as a result of higher input costs and tariffs.

York Ragen: As we rolled out our next gen home standby in the H2 of last year, we with the added features to that product offering, we did roll out additional price with that new product offering as well. The combination of the higher input costs and the rollout of the new model allowed us to roll out additional price and we saw that reading through here, probably more than the cost is coming up. Still favorable price cost on the residential side that we're pleased with.

Speaker #4: And then as we rolled out our next-gen home standby, in the second half of last year, we with the added features to that product offering we did roll out additional price with that new product offering as well.

Speaker #4: So the combination of the higher input costs and the rollout of the new model allowed us to roll out additional price. And we saw that, reading through here, probably more than the cost is coming up.

Speaker #4: So still favorable price-cost on the residential side that we're pleased with.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Brian Drab with William Blair. Your line is open. Please go ahead.

Speaker #1: Thank you. And one moment for our next question. Our next question will come from the line of Brian Drab with William Blair. Your line is open.

Speaker #1: Please go ahead.

Brian Drab: Good morning. I just want to ask about the standby business at the moment. I think I gathered that you said it was flat in Q1, and then I heard a comment that said that Q2 growth would be driven entirely by C&I. I think you're still modeling for the year. I know, I don't know if you restated it today, but you're thinking like mid-teens growth for the standby business and for the full year 2026. Is there a significant ramp in H2 that you're expecting? I know there's easy comps with the weather, but can you just talk about if there is a ramp and what drives that?

Speaker #5: Hey, good morning. I just want to ask about the standby business at the moment. I think I gathered that you said it was flat in the first quarter.

Speaker #5: And then I heard a comment that said that the second quarter growth would be driven entirely by CNI. But I think you're still modeling for the year.

Speaker #5: I know I don't know if you restated it today, but you were thinking like mid-teens growth for the standby business and for the full year '26.

Speaker #5: Is there a significant ramp in the second half that you're expecting? I know there's easy comps with the weather. But can you just talk about if there is a ramp and what drives that?

York Ragen: Yeah.

Brian Drab: Go ahead.

York Ragen: Well, I guess a couple things. Sorry, Aaron, I'll start and then you can maybe follow. You know, the Winter Storm Fern did help some of the residential side in Q1. We're not modeling any, I guess we're just modeling baseline weather for Q2. Yeah, normal seasonality would have the H2, sequentially increasing H1, H2. That's just normal seasonality. When you're looking at year-over-year growth in the H2, you should see significant home standby growth because we just didn't have a season in 2025, H2 2025. Basically the 15% home standby growth that you're referring to or overall 10% for the Residential segment will come in the H2 for the most part.

Speaker #4: Yeah, a couple. Well, I guess a couple of things. Sorry, Aaron. I'll start and then you can maybe follow. But the winter storm furn did help some of the residential side in Q1.

Speaker #4: We're not modeling any I guess we're just modeling baseline weather for Q2. But yeah, normal seasonality would have the second half sequentially increasing first half, second half.

Speaker #4: That's just normal seasonality. And then when you're looking at year-over-year growth in the second half, there should see you should see significant home standby growth because we just didn't have a season in '25.

Speaker #4: Second half '25. So basically, the 15% home standby growth that you're referring to or overall 10% for the residential segment will come in the second half for the most part.

Aaron Jagdfeld: A good chunk of that is there's price as well. About half the growth in 2026, Brian, is price. With the new product line we introduced, a bit higher price there, so that's part of the equation. As York said, that return to base, that assumption that we return to baseline normal outage kind of long-term outage environment is a big assumption for H2. We started off the year well and Winter Storm Fern was a nice kick. We saw a lot of interest in terms of sales leads in Q1. We'll see what conversion looks like here as we get into Q2.

Speaker #5: And a good chunk of that is, there's price as well. About half the growth in 2026, Brian, is price. With the new product line we introduced, there's a bit higher price there.

Speaker #5: So that's part of the equation. But as York said, that return to that assumption—that we return to baseline normal outage, kind of long-term outage environment—is a big assumption for the second half.

Speaker #5: But we started off the year well. And winter storm furn was a nice kick. We had a lot of we saw a lot of interest in terms of sales leads.

Speaker #5: In Q1, we'll see what conversion looks like here as we get into Q2. It's kind of the first real test for us of our new pool, our lead pool system.

Aaron Jagdfeld: It's kind of the first real test for us of our new pool, our lead pool system. You know, we're modeling Q2 off of our historical close rates when we get an influx like that. We'll see if that holds or if it's better. You know, maybe it'll be better. We're not sure yet at this point. We've gotta watch the read-through. You know, it's a good start to the year. As York said, you know, we feel like with the easy comps in the H2 that, you know, we're gonna see growth, you know, see really nice growth in the H2 with home standby in particular.

Speaker #5: So we're modeling Q2 off of our historical close rates when we get an influx like that. So we'll see if that holds or if it's better.

Speaker #5: Maybe it'll be better. We're not sure yet at this point. We've got to watch the read-through. But it's a good start to the year.

Speaker #5: And as York said, we feel like with the easy comps in the back half, that we're going to see growth. We see really nice growth in the second half with home standby in particular.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Stephen Gengaro with Stifel. Your line is open. Please go ahead.

Speaker #1: Thank you. And one moment for our next question. Our next question comes from the line of Stephen Gengaro with Stifel. Your line is open.

Speaker #1: Please go ahead.

Stephen Gengaro: Thanks. Good morning, everybody.

Speaker #5: Thanks. Good morning, everybody.

Aaron Jagdfeld: Hey, Stephen.

York Ragen: Good morning.

Speaker #6: Hi, Stephen.

Stephen Gengaro: Two kind of connected topics for me. The first is: how should we, and I know you kind of gave the full year guide for the company, how should we think about sort of the C&I margin progression given, you know, obviously the strong growth that we're seeing? Maybe attached to that, I know it's early, but based on what you're seeing in order flow and you talked about the non-binding notice, do you think growth rates in that business can remain in the teens plus into 2027?

Speaker #4: Good morning. Two kind of connected topics for me. The first is how should we and I know you kind of gave the full year guide for the company.

Speaker #4: How should we think about sort of the CNI margin progression given obviously the strong growth that we're seeing? And maybe attach to that. I know it's early, but based on what you're seeing in order flow and you talked about the non-binding notice, do you think growth rates in that business can remain in the teens plus into '27?

Aaron Jagdfeld: Yeah. Thanks, Stephen. Maybe I'll take the first or the second part of the question and let York kind of tackle the margin progression because there's, you know, there's a lot of moving pieces in that, but a lot of that's coming from, you know, leverage that we're going to get on the OpEx line. In terms of the, you know, just the growth rates there, I, you know, it's obviously, you know, we put some aggressive targets out there in long-term growth rates at the investor day. The growth rates here near term are even better just given, you know, given the incremental nature, right?

Speaker #5: Yeah. Thanks, Stephen. Maybe I'll take the first or the second part of the question and let York kind of tackle the margin progression because there's some there's a lot of moving pieces in that, but a lot of that's coming from leverage that we're going to get on the OPEX line.

Speaker #5: But in terms of just the growth rates there, it's obvious we've put some aggressive targets out there, and long-term growth rates, at the Investor Day.

Speaker #5: But and the growth rates here near term, are even better just given the incremental nature, right? We're going from almost from zero to the kind of the 700-plus-million-dollar backlog that we've talked about, right, and converting that backlog over the course of this year and next in particular.

Aaron Jagdfeld: Like we're going from, you know, almost from zero to, you know, to the kind of, the $700 plus million backlog that we've talked about, right? Converting that backlog over the course of, you know, this year and next in particular, and then the hyperscale opportunities that aren't even reflected in that backlog. You know, the notice to proceed of $600 million is a good representation, I think, of the kind of volumes that are, you know, the potential that's there in terms of growth rates. I think that the answer to your question, Stephen, though, is somewhat, you know, highly linked though to the CapEx spending assumptions for, you know, for data center build-out.

Speaker #5: And then the hyperscale opportunities that aren't even reflected in that backlog. And the notice to proceed of 600 million is a good representation I think of the kind of volumes that are the potential that's there in terms of growth rates.

Speaker #5: I think that the answer to your question, Stephen, though, is somewhat highly linked, though, to the CAPEX spending assumptions for data center buildout. And so it really depends on where you land on the spectrum there.

Aaron Jagdfeld: You know, so it really depends on where you kind of land on the spectrum there. I will say this, and, you know, I think it's easy and you gotta be really careful in situations like this 'cause it's easy to talk yourself into all kinds of things. Every single conversation we have, and it's up and down the line. It's not just the data center customers themselves, but it's the developers, you know, it's the, you know, it's the other component suppliers that are feeding this. You know, obviously here in Wisconsin, we have the benefit of having a few other companies that are also feeding the data center market with products as OEMs. So, you know, just kind of comparing notes, right? Just sharing notes.

Speaker #5: And I will say this. And I think it's easy and you got to be really careful in situations like this because it's easy to talk yourself into all kinds of things.

Speaker #5: But every single conversation we have, and it's up and down the line. It's not just the data center customers themselves, but it's the developers, it's the other component suppliers that are feeding this.

Speaker #5: Obviously, here in Wisconsin, we have the benefit of having a few other companies that are also feeding the data center market with products as OEMs and so just kind of comparing notes, right, just sharing notes.

Aaron Jagdfeld: I think most if not all, of these, you know, I guess, you know, forecasts are gonna be more than a multi-year run. The kind of impact that AI is gonna have on businesses and on, you know, kind of society at large, I think we're just at the, you know, very early innings of that and, you know, starting to see some of the power of this and what it can do. As that takes root. You know, the need for data center capacity is just gonna grow. We feel really good about our, you know, our longer-term growth rates.

Speaker #5: I think most, if not all, of these—I guess forecasts—are, this is going to be more than a multi-year run. And the kind of impact that AI is going to have on businesses and on, kind of, society at large, I think we're just at the very early innings of that.

Speaker #5: And starting to see some of the power of this and what it can do. And as that takes root, the need for data center capacity is just going to be—it's just going to grow.

Speaker #5: And so we feel really good about our longer-term growth rates. And then maybe I'll kick it to York just on the margin progression if there are any comments there, York, you want to make.

Aaron Jagdfeld: And then maybe I'll kick it to York just on the margin progression, if there are any comments there, York, you'd wanna make.

York Ragen: Just to follow up on the growth rate. If you recall in our Investor Day back in March, we did guide a 3-year CAGR for our C&I segment of low to mid 20% range. Like, obviously, you know, we've got some visibility to the 2027 numbers with that notice to proceed that Aaron talked about, as well as the backlog that we have, the $700 million of backlog that we have that some of that will spill into 2027. We have at least clear visibility there, and we're feeling good about the growth rate. The margin progression, you're obviously seeing it here in Q1. You're starting to see that. A couple comments there is, the Enercon acquisition, which really starts 1 April, that's when that closed.

Speaker #4: Yeah. Just to follow up on the growth rate. So if you recall in our investor day back in March, we did have guide a three-year CAGR for our CNI segment of low to mid-20% range.

Speaker #4: And it obviously we've got some visibility to the 2027 numbers with that notice to proceed that Aaron talked about as well as the backlog that we the 700 million of backlog that we have that will spill some of that will spill into 2027.

Speaker #4: So we have at least clear visibility there. And we're feeling good about the growth rate. The margin progression you're obviously seeing it here in Q1.

Speaker #4: You're starting to see that. A couple of comments there is the Intercon acquisition, which really starts April 1. That's when that closed. That should actually with the vertical integration and the margin profile of that and getting the margin stack of that business on top of the margin, the data center margins that we were guiding previously, that's actually going to give us about a 50 basis point lift to our to the CNI segment EBITDA margins or gross margins.

York Ragen: That should actually With the vertical integration, and the margin profile of that and getting the margin stack of that business on top of the data center margins that we were guiding previously, that's actually gonna give us about a 50 basis point lift to our or to the C&I segment EBITDA margins or gross margins. That's good. Again, as you grow low to mid 20% CAGR over the next 3 years, you start really leveraging the OpEx infrastructure that we're building to support the data center initiative. You should start seeing more mid to high teens EBITDA margins, you know, in the out years in that 2028, when you get out into 2028.

Speaker #4: So that's good. And then again, as you grow low to mid-20% CAGR over the next three years, you start really leveraging the OPEX infrastructure that we're building to support the data center initiative.

Speaker #4: And you should start seeing more mid to high teens EBITDA margins in the out years in that 2028 when you get out into 2028.

York Ragen: continued margin growth for C&I is expected as you grow dramatically on the top line.

Speaker #4: So continued margin growth for CNI is expected as you grow dramatically on the top line.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Praneeth Satish with Wells Fargo. Your line is open. Please go ahead.

Speaker #1: Thank you. And one moment for our next question. Our next question comes from the line of Satish with Wells Fargo your line is open.

Speaker #1: Please go ahead.

Praneeth Satish: Yeah, thanks. Good morning. So the release in there, it references a potential multi-year hyperscale agreement. Is that referring to the same customer behind the $600 million notice to proceed, that was discussed at the Investor Day, potentially extending that order? Or are you signaling a separate hyperscale, hyperscaler opportunity? Just trying to get some more detail on the opportunity set. Then just very quickly, can you confirm whether you've included the impact of the new Section 232 rules on steel in the guidance?

Speaker #6: Yeah. Thanks, good morning. So the release in there it references a potential multi-year hyperscale agreement. Is that referring to the same customer behind the 600 million dollar notice to proceed that was discussed at the investor day, potentially extending that order?

Speaker #6: Or are you signaling a separate hyperscale opportunity just trying to get some more detail on the opportunity set? And then just very quickly, can you confirm whether you've included the impact of the new section 232 rules on steel in the guidance?

Aaron Jagdfeld: Yeah. I'll take the first part of your question, and then I'll let York tackle the tariff assumptions. Yeah. Praneeth, we're really in conversation with two hyperscale customers in particular. And both would be, we would assume, would present multi-year opportunities for us. You know, the agreements themselves, you know, there's kind of a master supply agreement once. Then once you get past that, you're officially added to the Approved Vendor List, and then they can cut POs. Each customer has a different approach to that in terms of giving you a forecast, and then those POs that would be with that.

Speaker #5: Yeah. I'll take the first part of your question and then I'll let York tackle the tariff assumptions. Yeah. Praneeth, we're really we're in conversation with two hyperscale customers in particular.

Speaker #5: And both would be we would assume would present multi-year opportunities for us. The agreements themselves are there's kind of a master supply agreement. And then once you get past that, you're officially added to the approved vendor list.

Speaker #5: And then they can cut POs. So and each customer has a different approach to that in terms of giving you a forecast. And then those POs that would be with that.

Aaron Jagdfeld: You know, because the planning cycles are so long on these, on these projects, and because lead times have been stretched in our industry anyway, our lead times may be shorter, but industry lead times are longer. You know, many of the planning cycles they're already looking at, in some cases, 2028 and beyond because the traditional supply base for these backup systems, you know, are constrained. You know, the visibility we have, you know, right now is limited to 2027. We hope that we'll get better visibility to that as we kinda get through this final, you know, final stage of negotiations with these two customers.

Speaker #5: But because the planning cycles are so long on these projects, and because lead times have been stretched in our industry anyway, our lead times may be shorter, but industry lead times are longer.

Speaker #5: Many of the planning cycles we're already they're already looking at in some cases 2028 and beyond because the traditional supply base for these backup systems are constrained.

Speaker #5: And so the visibility we have right now is limited to 2027. We hope that we’ll get better visibility to that as we kind of get through this final stage of negotiations with these two customers.

Aaron Jagdfeld: You know, the customer that we are working with that we, that we've got the notice to proceed with is the customer that we're closest to the finish line. I would say the other customer is close behind. There's just a few more steps there that we have to work through. Both of them, and the volume numbers that they've, you know, kind of talked to us about in preparing us for, being able to, you know, be a supplier, they're significant. You know, I think we're already turning our attention to, you know, what do we think about for the next leg of capacity growth? We're trying to accelerate our Sussex facility ramp, here into Q3.

Speaker #5: The customer that we are working with that we've got the notice to proceed with is the customer that we're closest to the finish line.

Speaker #5: But I would say the other customer is close behind. There are just a few more steps there that we have to work through. But both of them, and the volume numbers that they've kind of talked to us about in preparing us for being able to be a supplier—they're significant.

Speaker #5: And I think we're already turning our attention to what do we think about for the next leg of capacity growth? Because we're trying to accelerate our Sussex facility ramp here into Q3.

Aaron Jagdfeld: We originally slated it as Q4, trying to pull that in so that we've got an opportunity to maybe even do some of this in Q4. You know, we're gonna need, you know, it's the old Jaws phrase. We're gonna need to build a bigger boat. We need a bigger boat if we're gonna win both of these accounts, 'cause that's not in our, you know, our current capacity, capability today. We would definitely have to add more. Then I'll kick it to York on the tariff question.

Speaker #5: We originally slated it as Q4 trying to pull that in so that we've got an opportunity to maybe even do some of this in the fourth quarter.

Speaker #5: But we're going to need it's the old Jaws phrase. We're going to need to build a bigger boat. If we need a bigger boat, if we're going to if we're going to win both of these accounts.

Speaker #5: Because that's not in our current capacity capability today. We would definitely have to add more. So, and then I'll kick it to York on the tariff.

York Ragen: Yeah. On the 232, obviously with the IEPA reciprocal tariffs getting overruled by the Supreme Court, that would be a savings to us. With the Section 122 at least temporarily in place, and then to your question, the 232 steel aluminum tariffs, the way we've modeled it is that we're assuming that just offsets any IEPA tariff savings. It's not gonna be detrimental to our to our run rate margins. Currently as they're stated today, there's some benefit, but there's some uncertainty as to sort of what, you know, 232 tariffs will be in H2, what 301 tariffs will be in H2. We've just assumed that in the outlook that we've presented today that we're just being consistent with the tariff rates from our previous guidance.

Speaker #4: Yeah, on the 232, obviously, with the AIPA reciprocal tariffs getting overruled by the Supreme Court, that would be a savings to us. But with Section 122, at least temporarily in place.

Speaker #4: And then to your question, the 232 steel aluminum tariffs, the way we've modeled it is that we're assuming that that just offsets any AIPA tariff savings.

Speaker #4: So it's not going to be detrimental to our run rate margins. Currently, as I stated today, there's some benefit, but there's some uncertainty as to sort of what 232 tariffs will be in the second half, what 301 tariffs will be in the second half.

Speaker #4: So we've just assumed that in the outlook that we've presented today that we're just being consistent with the tariff rates from our previous guidance.

York Ragen: Not any worse, not any better, which probably is a conservative view here.

Speaker #4: So, not any worse, not any better, which probably is a conservative view here.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Christopher Glynn with Oppenheimer & Co. Your line is open. Please go ahead.

Speaker #1: Thank you. And one moment for our next question. Our next question comes from the line of Christopher Glynn with Oppenheimer & Co. Your line is open.

Speaker #1: Please go ahead.

Christopher Glynn: Hey, thanks. Good morning. Just wanted to go back to the residential margin upside. Curious, you know, it clearly sounds like it, you know, came in ahead of your expectations. Wonder if that was the speed of the unification benefits or kind of the scope of the cost structure opportunity? It sounds like maybe those 3 percentage points of OpEx, you know, may be a way point and a point in time that you continue to build off of. You know, really just kind of trying to tie into the 50 basis points boost to the EBITDA margin guidance. It seems like what you delivered in the Q1 residential EBITDA margins is really considered pretty modestly in the full-year guide, especially since Q1 is the seasonal mix low for residential.

Speaker #7: Hey, thanks. Good morning. Just wanted to go back to the residential margin upside. Curious—it clearly sounds like it came in ahead of your expectations.

Speaker #7: Wonder if that was the speed of the unification benefits or kind of the scope of the cost structure opportunity? It sounds like maybe those three percentage points of OpEx may be a waypoint.

Speaker #7: And a point in time that you continue to build off of. And really just kind of trying to tie into the 50 basis points boost to the EBITDA margin guidance, it seems like what you delivered in the first quarter residential EBITDA margins is really considered pretty modestly in the full year guide, especially since first quarter is the seasonal mix low for residential.

York Ragen: Yeah, I mean, I can start with that. If you factor in the updated margin guide, the extra 50 basis point improvement in gross margins, you're right, it's the outperformance in Q1, and then the margin accretion from the Enercon acquisition that I mentioned, that'll help impact improve margins for industrial. We, for the most part, are holding everything else. Again, that tariff assumption that I just gave on the previous question. Obviously the mix elements there, you know, with taking up C&I, you'd actually expect it to mix down, but there's a little bit improvement that we've baked in to offset that.

Speaker #4: Yeah, I mean, I can start with that. Yeah. So if you factor in—what did we factor in—the updated margin guide, the extra 50-basis-point improvement in gross margins, you’re right.

Speaker #4: It's the outperformance in Q1, and then the margin accretion from the Intercon acquisition that I mentioned that'll help impact and improve margins for Industrial. We, for the most part, are holding everything else; again, that tariff assumption that I just gave on the previous question.

Speaker #4: Obviously, the mixed elements there with taking up CNI, you'd expect you'd actually expect it to mix down, but there's a little bit improvement that we've baked into offset that.

York Ragen: We're basically holding Q2, Q3, Q4 outside of our margin profile, outside of those other, the Q1 beats and the Enercon acquisition.

Speaker #4: So we're basically holding Q2, Q3, Q4 outside of our margin profile outside of those other the Q1 beat and the Intercon acquisition.

Aaron Jagdfeld: Maybe on the-

Speaker #7: And then maybe on the yeah. And then maybe on the residential OpEx Chris, just to put a finer point on that. I mean, there's some really good things going on there.

Aaron Jagdfeld: Yeah.

York Ragen: Yeah.

Aaron Jagdfeld: Yeah. Then maybe on the residential OpEx, you know, Kris, just to put a finer point on that. I mean, there, you know, there's some really good things going on there. I mean, unification has happened quickly. That was a process, you know, we began evaluating last year and really accelerated the combination, you know, as we got in here into 2026. So there's clearly, you know, that is having an impact. I would also say, you know, we're on the backside of some of those new product introductions with the PWRmicro now getting into market and we're ramping there. Then PWRcell 2 are also into market.

Speaker #7: I mean, the unification has happened quickly. That was a process we began evaluating last year, and really accelerated the combination as we got in here into 2026.

Speaker #7: And so there's clearly that is having an impact. I would also say we're on the backside of some of those new product introductions. With the Power Micro now getting into market, we're ramping there.

Speaker #7: And then PowerCell 2 also into market. So some of the hardcore development work being done last year on those projects is tapering and then on the software side, like everybody else, we are benefiting from the trends in coding around AI and just not needing the intensity of headcount there to produce productivity is up dramatically.

Aaron Jagdfeld: You know, some of the hardcore development work being done last year on those projects is tapering. Then on the software side, you know, like everybody else, we are benefiting from, you know, from the trends in coding around AI and just, you know, not needing the intensity of headcount there to produce. You know, productivity is up dramatically, and that's certainly helpful. I mean, it's a combination of, you know, those areas that is helpful. I think also, you know, as you look forward, kind of the other part of your question, you know, I think it's a good jumping off point as we go into 2026 here. You know, we do typically have expenses start to ramp as the season.

Speaker #7: And that's certainly helpful. So I mean, it's a combination of those areas that is helpful. And I think also as you look forward, kind of the other part of your question, I think it's a good jumping-off point as we go into 2026 here we do typically have expenses start to ramp as the season you go back to our core business around HSB, home standby, and portables, there'll be some marketing ramp and whatnot as we as you would normally expect seasonally here.

Aaron Jagdfeld: You know, when you go back to our core business around HSB, home standby and portables, there'll be some marketing ramp and whatnot as we, you know, as you would normally expect seasonally here. The raw quantum of dollars will increase, but so does the top line as we've laid it out into H2. We feel really good about this, though. I think the Generac Home project, you know, I'm not ready to call it a complete success at this point. I mean, there's still a lot of things we're working through to bring those teams together, but we like what we see so far, and we're getting a lot of leverage out of that combined entity.

Speaker #7: So the raw quantum of dollars will increase, but so does the top line as we've laid it out into the second half of the year.

Speaker #7: So we feel really good about this though. I think the Generac One Home project, I'm not ready to call it a complete success at this point.

Speaker #7: I mean, there's still a lot of things we're working through to bring those teams together. But we like what we see so far, and we're getting a lot of leverage out of that combined entity.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Julien Dumoulin-Smith with Jefferies. Your line is open. Please go ahead.

Speaker #1: Thank you. And one moment for our next question. Our next question will come from the line of Julian Domoland Smith with Jeffreys. Your line is open.

Speaker #1: Please go ahead.

Tanner James: Hi, good morning, team. This is Tanner James on for Julian. Maybe just a question on what you're seeing for pricing momentum for large diesel gensets. You spoke to the lead time advantage relative to competitors. You're talking about additional capacity growth and investment. Just prospectively, how should we think about the sequential pricing ex tariffs here into the 2027, 2028, 2029 time frame? Thanks.

Speaker #8: Hi. Good morning, team. This is Tanner James on for Julian. Maybe just a question on what you're seeing for pricing momentum for large diesel gen sets.

Speaker #8: You spoke to the lead time advantage relative to competitors. You're talking about additional capacity growth and investment. Just perspectively, how should we think about the sequential pricing ex-tariffs here into the 27, 28, 29 time frame?

Speaker #8: Thanks.

Aaron Jagdfeld: Yeah. Thanks, Tanner. It's a great question. You know, I'll preface my response by saying, you know, when we laid out our original business case to go into the large megawatt genset market, historical pricing levels, you know, and the ASPs of those machines were lower, you know, 'cause we put our business case together with a much less constrained backdrop of supply. As that's changed, and as you would expect, you know, we've seen pricing improve, and that has improved the overall, you know, business case for those products.

Speaker #5: Yeah. Thanks, Tanner. It's a great question. And I'll preface my response by saying when we laid out our original business case to go into the large megawatt gen set market, historical pricing levels on the ASPs of those machines were lower.

Speaker #5: Because we put our business case together in a much less constrained with a much less constrained backdrop of supply. And so as that's changed, and as you would expect, we've seen pricing improve.

Speaker #5: And that has improved the overall business case for those products. Even with data center customers who buy in large quantities where you would typically assume you'd have margin pressure.

Aaron Jagdfeld: Even with data center customers who buy in, you know, in large quantities, where you would typically assume you'd have margin pressure, and the margins are lower, kind of net, you know, on a net basis relative to selling a similar machine into more of our legacy traditional market, but they're not dramatically lower. They're dramatically better than historical margins in that product segment would have been. So we feel good about that. Speaking to the forward ASPs, you know, I think everything that we look at today is that lead times are gonna remain constrained for the next several years. A lot of that is underpinned by, you know, continued engine supply constraints. With our competitive set, they are adding capacity.

Speaker #5: And the margins are lower, kind of net on a net basis. Relative to selling a similar machine into more of our legacy traditional market, but they're not dramatically lower.

Speaker #5: And they're dramatically better than historical margins in that product segment would have been. So we feel good about that. Speaking to the forward ASPs, I think everything that we look at today is that lead times are going to remain constrained for the next several years.

Speaker #5: And a lot of that is underpinned by continued engine supply constraints. So with our competitive set, they are adding capacity. They've announced those projects and those plans, but it's going to take time to get that online.

Aaron Jagdfeld: They've announced those projects and those plans, but it's gonna take time to get that online. I do think, you know, over time, that probably will find its baseline and normalize. At this stage of the game, you know, we feel like there are also opportunities to increase our vertical integration and efficiencies. You know, again, back to the Enercon acquisition, you know, a part of our calculus there is the opportunity to capture that value with the machine. And the math is very good there. You know, as you can imagine, you know, it's not only the ASPs on the gen sets themselves, you know, the bare gen sets that have increased, but also the packaged ASPs have increased.

Speaker #5: I do think over time, that probably will find its baseline and normalize. But at this stage of the game, we feel like there are also opportunities to increase our vertical integration and efficiencies.

Speaker #5: Again, back to the Intercon acquisition, a part of our calculus there is the opportunity to capture that value with the machine and the math is very good there.

Speaker #5: As you can imagine, it's not only the ASPs on the gen sets themselves the bare gen sets that have increased, but also the package ASPs have increased.

Aaron Jagdfeld: The opportunity to capture some of that value and bring that through in our gross margins there, you know, is very strong. We'll look at other areas as well. I think as we improve our efficiency and we leverage our footprint here, we think there's, you know, probably some other opportunities there to continue to improve margin on a go-forward basis. That may be offset by, you know, ASP kind of normalizing or even coming down slightly. We think those gross margins are gonna hang in there for the foreseeable future.

Speaker #5: And so the opportunity to capture some of that value and bring that through in our gross margins there is very strong. And so we'll look at other areas as well.

Speaker #5: And I think as we improve our efficiency and we leverage our footprint here, we think there's probably some other opportunities there to continue to improve margin on a go-forward basis, but that may be offset by ASP kind of normalizing or even coming down slightly.

Speaker #5: But we think those gross margins are going to hang in there for the foreseeable future.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Vikram Bagri with Citi. Your line is open. Please go ahead.

Speaker #1: Thank you. And one moment for our next question. Our next question comes from the line of Vikram Bagri with Citi. Your line is open.

Speaker #1: Please go ahead.

Vikram Bagri: Good morning, everyone. I had two questions, one on C&I, and one on residential, quick ones. Are you hearing air quality permits for diesel generators as a sort of like a gating factor or a reason for delay in final orders? You talked about potential for next leg of capacity growth. Where do you see, you know, sort of like the gating factors in capacity growth? You've acquired Enercon, so that part is said. Would it require any more M&A to expand capacity beyond what you have? Then on residential, you're seeing, you know, multiple benefits from Generac Home and OpEx recalibration. I was wondering if you have accelerated the ET energy transition breakeven timeline at all. Any update on that? Thank you.

Speaker #8: Good morning, everyone. I have two questions. One on CNI and one on residential. Quick ones. Are you hearing air quality permits for diesel generators as a sort of like a gating factor or a reason for delay in final orders?

Speaker #8: You talked about potential for the next leg of capacity growth. Where do you see, sort of, the gating factors in capacity growth? You've acquired Enercon.

Speaker #8: So that part is said. Would it require any more M&A to expand capacity beyond what you have? And then on residential, you're seeing multiple benefits from at-home and expense recalibration.

Speaker #8: I was wondering if you have accelerated the ET, energy transition break-even timeline at all? Any update on that? Thank you.

Aaron Jagdfeld: Yeah, thanks, Vik. The C&I question, you know, in terms of. I think the question was diesel, you know, on permitting, air permitting around some of these bigger projects. You know, I think all permitting, whether you're talking air or water or other things, that's become more challenging as communities grapple with the impacts that data centers may have on air, on water, on energy. You know, there are solutions there, you know, with respect specifically to diesel backup generators. You know, the option of using a Tier 4 certified solution. You know, there are after-treatment packages that can be added to those projects to further improve the emissions profile.

Speaker #5: Yeah. Thanks, Vic. Yeah. So the CNI question in terms of I think the question was diesel on permitting, air permitting around some of these bigger projects.

Speaker #5: And I think all permitting—whether you're talking air, water, or other things—that's become more challenging as communities grapple with the impacts that data centers may have.

Speaker #5: On air, on water, on energy. There are solutions there. With respect specifically to diesel backup generators, the option of using a tier four certified solution there are after-treatment packages that can be added to those projects.

Speaker #5: To further improve the emissions profile—and in particular, there are some markets where that’s required—kind of best commercial, best available technologies are required, either because of the concentration of data centers in a particular market, or just concerns around diesel particulate and emissions.

Aaron Jagdfeld: In particular, there are some markets where that's required, you know, kind of best available technologies are required either because of the concentration of data centers in a particular market or just, you know, concerns around diesel particulate and emissions. Again, we have projects that we're involved with where, you know, we're discussing site certifications that would include aftertreatment and/or, you know, Tier 4 certified product. You know, there are ways around that. We don't see that being a showstopper, put it that way. You know, that's something that we can solve for.

Speaker #5: But again, there we have projects that we're involved with where we're discussing site certifications that would include after-treatment and/or tier four certified product. And so there are ways around that.

Speaker #5: We don't see that being that's not a showstopper, put it that way. That's something that we can solve for. On the capacity question with CNI, that question as we look at the future here, we're already looking for ways to expand capacity.

Aaron Jagdfeld: On the capacity question with C&I, you know, that question, as we look at the future here, I you know, we're already looking for ways to expand capacity. As I said before, we've got to be forward-thinking here, and we've got to be thinking not about $1 billion in capacity, but $2 or 3 billion in capacity. What does that look like? How do we achieve that? You know, we can get more out of our existing footprint, the footprint inclusive of Sussex, inclusive of what we've acquired with Enercon. But beyond that, we're also looking at other facilities and where would we site those facilities? Do we have time to do a greenfield? Do we not? You know, we can buy existing real estate. Can you buy existing companies?

Speaker #5: As I said before, we've got to be forward-thinking here. And we've got to be thinking not about a billion dollars in capacity, but two or three billion in capacity.

Speaker #5: What does that look like? How do we achieve that? Can we get more out of our existing footprint, the footprint inclusive of Sussex? Inclusive of what we've acquired with Enercon?

Speaker #5: But beyond that, we're also looking at other facilities. And where would we site those facilities? Do we have time to do a greenfield? Do we not?

Speaker #5: We can buy existing real estate. Can you buy existing companies? To your point, could some of that be solved through M&A? And so we're looking at all those things.

Aaron Jagdfeld: To your point, could some of that be solved through M&A? You know, we're looking at all those things. Everything's on the table, and I think you will hear from us, you know, about those capacity adds, as we go forward here. In particular, you know, as we get through these negotiations with these hyperscalers, and it becomes more real, we definitely have to take action. You should see that coming. The residential question, you know, I think as you reiterated, the one home project has gone well. We still love energy technology.

Speaker #5: Everything's on the table. And I think you will hear from us about those capacity adds as we go forward here and in particular, as we get through the these negotiations with these hyperscalers and it becomes more real, we definitely have to take action.

Speaker #5: So you should see that coming. The residential question, again—I think, as you reiterated, the one-home project has gone well. We still love energy technology.

Aaron Jagdfeld: You know, the technologies themselves and where we're at in the cycle there, you know, we've got a very competitive microinverter that's in market today, and we're starting to scale. We're moving from our initial production tooling, which was more of a prove-out line. We're moving it to a scaled line that's here domestically. You know, we're getting on AVLs for more customers there. We're starting to dabble with some prepaid lease products, so that we can take away, you know, additional constraints there. You know, and the market's changing too rapidly. As you know, you know, there's a lot going on here in terms of consolidation of distribution. There's changes in terms of focus with other OEMs that supply either, you know, inverter products or batteries into the market.

Speaker #5: The technologies themselves, and where we're at in the cycle there, we've got a very competitive microinverter that's in market today, and we're starting to scale.

Speaker #5: So we're moving from our initial production tooling, which was more of a proof outline. We're moving it to a scaled line that's here domestically.

Speaker #5: We're getting on ABLs for more customers there. We're starting to dabble with some prepaid lease products, so that we can take away additional constraints there.

Speaker #5: And the market's changing too rapidly, as you know. There's a lot going on here in terms of consolidation of distribution. There are changes in terms of focus with other OEMs that supply either inverter products or batteries into the market.

Aaron Jagdfeld: You know, some of those pivots are the necessity of the current environment. Longer term, you know, look, this is simple math. If retail electricity prices continue to rise, and you know, things like storage costs and electronics costs continue to come down, you know, we're gonna see strong demand for these products in the long run. It's clearly gonna be a bumpy 2026 and into 2027 probably for these products in terms of market demand. We feel we're very well positioned, and when we put that together with our home ecosystem that we're building out, which is differentiated, you know, we feel like we're in a really good position there to capture, you know, opportunities. You know, it's a unique market.

Speaker #5: Some of those pivots are the necessity of the current environment. But longer term, look, this is simple math. If electricity, retail electricity prices continue to rise, and things like storage costs and electronics costs continue to come down, we're going to see strong demand for these products in the long run.

Speaker #5: Clearly, 2026 and likely into 2027 are going to be bumpy for these products in terms of market demand. But we feel we're very well positioned.

Speaker #5: And when you put that together with our home ecosystem that we're building out, which is differentiated, we feel like we're in a really good position there to capture opportunities.

Speaker #5: And it's a unique market. I think it helps round out our residential segment quite well. And we're very excited about the future. We just have to get through this kind of air pocket in at least as it relates to energy technology here in the market over the next, I would say, next year, year and a half.

Aaron Jagdfeld: I think it helps round out our residential segment quite well. We're very excited about the future. We just have to get through this kind of air pocket in at least as it relates to energy technology here in the market over the next, I would say, you know, next year and a half.

Vikram Bagri: The break-even timeline remains intact for 2027?

Speaker #1: And the break-even timeline remains intact for 2027?

Aaron Jagdfeld: Absolutely. Have not moved on that.

Speaker #5: Absolutely. Have not moved on that.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Keith Housum with Northcoast Research. Your line is open. Please go ahead.

Speaker #6: Thank you. And one moment for our next question. Our next question comes from the line of Keith Husam with North Coast Research. Your line is open.

Speaker #6: Please go ahead.

Keith Housum: Thanks, guys, for fitting me in here. I appreciate it. Just in terms of, like, the telecom and the National Rental trajectory for the both those companies, it appears obviously they're both on the upper swing here. Can you just remind us, are these more refresh opportunities or growth within these markets? Traditionally, when you guys have had an upward cycle, how long do these cycles generally last?

Speaker #7: Thanks, guys, for fitting me in here. I appreciate it. Just in terms of the telecom and the national rental trajectory for both those companies, it appears obviously they're both on the upper swing here.

Speaker #7: Can you just remind us, are these more refresh opportunities or growth within these markets? And then traditionally, when you guys have had upward cycle, how long do these cycles generally last?

Aaron Jagdfeld: Yeah. Thanks, Keith. Great question. I'll talk to telecom first. Telecom cycles usually go. They're multiyear. You know, and actually that cycle, you know, it tends to follow kind of project build-out. So a lot of it is new builds of sites. There is retrofitting of existing sites still available as part of the opportunity with telecom. And this is mostly what's referred to in the industry as outside plant backup. So it's the towers that you'd see along highways, hillsides, things like that. You know, and a lot of that is still around the 5G build-out that continues for many of the carriers. We're the primary supplier to all the tier one wireless carriers and have been for decades. You know, we customize product for them.

Speaker #5: Yeah. Thanks, Keith. Great question. I'll talk to telecom first. Telecom cycles usually go, they're multi-year. And actually, that cycle it tends to follow kind of project build-out.

Speaker #5: So a lot of it is new builds of sites. There is retrofitting of existing sites still available as part of the opportunity with telecom.

Speaker #5: And this is mostly what's referred to in the industry as outside plant backup. So, it's the towers that you'd see along highways, hillsides, things like that.

Speaker #5: For and a lot of that is still around the 5G build-out that continues for many of the carriers. We're the primary supplier to all the tier one wireless carriers and have been for decades.

Speaker #5: We customize products for them. We have great response rates from a service standpoint. We're able to work with their engineering and operations teams to create bespoke solutions and then build those at scale.

Aaron Jagdfeld: We have great response rates from a service standpoint. You know, we're able to work with their engineering and operations teams to create bespoke solutions and then build those at scale. You know, in all honesty, it's a lot like what these hyperscale opportunities are on the data center side in terms of, you know, working with engineering teams and operations teams for bespoke solutions and then turning that into product at scale, and then being able to provide the service and support to surround it. It's just obviously a lot bigger form factor and a lot bigger dollars. Telecom is usually a multiyear run. We feel really good about that going forward. A lot of new builds there.

Speaker #5: In all honesty, it's a lot like what these hyperscale opportunities are on the data center side, in terms of working with engineering teams and operations teams for bespoke solutions, and then turning that into product at scale.

Speaker #5: And then being able to provide the service and support to surround it. It's just, obviously, a lot bigger factor, form factor, and a lot bigger dollars.

Speaker #5: But telecom is usually a multi-year run. We feel really good about that going forward. A lot of new builds there. And then on the mobile side, that's a re-fleeting cycle.

Aaron Jagdfeld: Then on the, you know, on the mobile side, that's a refleeting cycle. You know, it is new equipment, but the cycle is, you know, they'll buy, you know, for a couple years, and then they'll not buy for, you know, a year or two as they let the equipment kind of age out. They watch very closely their utilization rates, their rental rates, and then they watch the residual, you know, equipment value rates as well. It is kind of, you know, it is basically math. A lot of the equipment companies, the rental equipment companies have become very sophisticated, in terms of the math that they run and the metrics that they watch.

Speaker #5: There is some new it's new equipment, but the cycle is they'll buy for a couple of years and then they'll not buy for a year or two.

Speaker #5: As they let the equipment kind of age out, they watch very closely. Their utilization rates, their rental rates, and then they watch the residual equipment value rates as well.

Speaker #5: And it's kind of it's basically math. A lot of the equipment companies and rental equipment companies have become very sophisticated in terms of the math that they run and the metrics that they watch.

Aaron Jagdfeld: They kind of know when they need to kind of hit the gas on spending CapEx to refleet so that it's available for the market, and where it's supported obviously by the metrics that they need it to be supported by. Those typically runs can be usually, again, a year or 2 on, and generally maybe a year, 18 months off. That's kind of what we saw here in the latest run. There can be other cycle factors there. I'd just point this out. In the past, we've seen energy cycles. As domestic energy production increases, that can increase the intensity of the rental market cycle. We think we're seeing a little bit of that right now.

Speaker #5: And so they kind of know when they need to kind of hit the gas on spending CapEx to re-fleet so that it's available for the market.

Speaker #5: And where it's supported, obviously, by the metrics that they need it to be supported by. And those typically, those runs, can be usually, again, a year or two on and generally maybe a year 18 months off.

Speaker #5: That's kind of what we saw here in the latest run. There can be other cycle factors there. I just point this out. In the past, we've seen energy cycles.

Speaker #5: As domestic energy production increases, that can increase the intensity of the rental market cycle. And I think we're seeing a little bit of that right now.

Aaron Jagdfeld: We'll see where that goes here, you know, over the next couple of quarters. You know, everything we're hearing is a lot of the refleeting cycle right now is just the age out of some of the equipment they've had in their fleets. Obviously demand is continuing to be pretty strong, again, you know, built around data center construction activity and other activity in the domestic energy production sector.

Speaker #5: We'll see where that goes here. Over the next couple of quarters. But everything we're hearing is a lot of the re-fleeting cycle right now is just the age out of some of the equipment they've had in their fleets.

Speaker #5: And then obviously, demand is continuing to be pretty strong. Again, you can built around data center construction activity and other activity in the domestic energy production sector.

Operator: Thank you. I'm showing no further questions at this time, and I would like to hand the conference back over to Kris Rosemann for closing remarks.

Speaker #6: Thank you. I have no further questions at this time, so I will hand the conference back over to Chris Rosemann for closing remarks.

Kris Rosemann: We want to thank everyone for joining us this morning. We look forward to discussing our Q2 earnings results in late July. Thank you again and goodbye.

Speaker #1: We want to thank everyone for joining us this morning. We look forward to discussing our second quarter earnings results in late July. Thank you again, and goodbye.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Q1 2026 Generac Holdings Inc Earnings Call

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