Generac Holdlings Inc.

Hello, and welcome to Generac Holdings Inc. 4th Quarter and 4-Year 2024 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 the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. We ask that you limit yourself to one question only. I would now like to turn the conference over to Chris Roseman. You may begin.

Good morning and welcome to our fourth quarter and full year 2024 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Yagfeld, President and Chief Executive Officer, and York Reagan, Chief Financial Officer. We will begin our call today by commenting on forward-looking statements. Certain statements made during this presentation, as well as other information provided from time to time by Generac or its employees, may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today's call. Additional information regarding these measures, including reconciliation to comparable US GAAP measures, is available in our earnings release and SEC filings. I will now turn the call over to Erin.

Thanks, Chris. Good morning, everyone. Thank you for joining us today. Our fourth quarter results highlight our ability to rapidly increase production and execute on the strong demand for home standby and portable generators, resulting from the elevated power outage environment in the second half of 2024. The significant increase in demand for residential products led to fourth quarter records for net sales, adjusted EBITDA, and adjusted net income, while free cash flow generation during the quarter was an all-time quarterly record. Additionally, gross margins were very strong again during the quarter and drove adjusted EBITDA ahead of our prior expectations. Year over year, overall net sales increased 16% to $1.23 billion for the quarter. Residential product sales grew 28% from the prior year, driven by strong growth in shipments of home standby and portable generators, as well as an increase in shipments of residential energy technology products. CNI product sales, while still strong, were approximately flat from the prior year as increases in the domestic industrial distributor and telecom channels were offset by weakness in other CNIN markets. Favorable sales mix and lower input costs drove continued significant gross margin expansion in the fourth quarter, helping further accelerate adjusted EBITDA margins to 21.5%. Our full year 2025 guidance anticipates continued net sales growth, primarily driven by higher shipments of residential products. We project further gross margin improvement during the year on top of the very strong 2024 performance and expect to maintain strong adjusted EBITDA margins as compared to the prior year. Our current outlook does not contemplate the effect of any new tariff related actions as we're currently evaluating the potential impacts, but we expect it will offset any newly imposed tariffs through the combination of cost reductions and higher pricing. Before discussing fourth quarter results in more detail, I want to provide some full year 2024 highlights. Consolidated net sales return to growth in the year has strengthened domestic residential product sales more than offset weakness in certain CNI and international end markets. The sales mix shift to higher margin residential products and realization of favorable input costs helped drive full year gross margins to the highest level since 2010. The nearly 500 basis point year over year increase in gross margin to 38.8% supported a significant increase in adjusted EBITDA as compared to the prior year. Robust earnings growth and focused execution on a reduction in working capital contributed to an all-time high for free cash flow generation of $605 million, easily surpassing the previous record of $427 million that was set in 2020. 2024 also provided significant evidence of the mega trends that support our enterprise strategy and long-term growth expectations. It was the most active year for power outages since we began tracking this data in 2010, with nearly 1.5 billion hours lost to outages in the U.S., largely driven by three major landed hurricanes in the second half of the year. Severe and volatile weather patterns have become increasingly common, placing even greater stress on our aging power grid. The recent wildfires in California and associated public safety power shutoffs provide yet another example of the challenges grid operators will continue to face well into the future as more intense weather-related events are projected to further compromise the reliability of the power grid. We also saw grid operators and utilities aggressively raise their future expectations of power demand during the year. The rapid adoption of artificial intelligence and the resulting data center build-out is projected to drive significant incremental demand on top of the established trends of electrification and re-industrialization in North America. At the same time, our nation's power supplies are transitioning to lower carbon sources, which are more intermittent in their operation thereby creating additional pressure on reliability as demand rapidly accelerates. This growing supply-demand imbalance is threatening our power quality, with some areas of the country coming dangerously close to having insufficient power, particularly during periods of intense hot or cold temperatures when demand is at its peak. The North American Electricity Reliability Corporation recently warned that significant portions of the US and Canada are at risk of power outages due to supply shortfalls over the next five years. These trends are also impacting the forecasted cost of electricity for end users, with prices anticipated to grow well beyond the 30% cumulative increase in average U.S. electricity prices that we've already experienced since 2020. Massive investments are needed in new generating sources, including additional transmission and distribution infrastructure, to support the growing demand for power, and these costs will be passed along to ratepayers in the form of higher electricity prices. These rising power costs and the increasing risk of outages support our expectations for continued growth in energy management technologies, as we believe homeowners and businesses will begin to invest more aggressively in solutions to help them reduce their electric bills and improve resiliency. As concerns grow about power quality and power costs, our Powering a Smarter World strategy is purposeful in the focus that it gives us as we develop energy ecosystems to help customers in the residential and C&I markets solve for these challenges. These ecosystems deploy a mix of assets and the software needed to optimize solar self-generation, battery storage, diesel and natural gas power generators, and load management devices with a focus on giving homeowners, businesses, and institutions much greater control over the cost and availability of their power. Over the last several years, Generac has made a number of strategic acquisitions as well as significant investments organically in developing these energy ecosystems that we believe have dramatically expanded the total addressable market for the company and positions us well for future growth as the megatrends around lower power quality and higher power prices continue to intensify. Specifically for the home standby generator category, a significant penetration opportunity remains, with only 6.5% of the addressable market of owner-occupied single-family unattached homes greater than $175,000 in value in the U.S., having a home standby generator installed at the end of the year. Furthermore, every 1% of incremental penetration is worth approximately $4 billion in retail market value. And with a market share above 70%, we believe Generac is incredibly well positioned to continue to lead this important product category. Now, discussing our results in more detail. Fourth quarter home standby shipments increased at a mid-20% rate from the prior year, following the elevated outage activity in the second half of the year. Home consultations during the quarter increased at a dramatic rate and reached record levels for a fourth quarter. Building on the category awareness created by the major outage events in 2024, we remain focused on increasing and optimizing our marketing investments to grow and diversify our sales funnel while delivering high quality leads to our dealer network. As expected, close rates continued to moderate during the fourth quarter, given the record setting levels of home consultations we experienced in the second half of 2024. Historically, the compression of close rates occurs temporarily as our dealer network absorbs the rapid increase in demand in select markets that suffered from significant outage activity. We anticipate close rates will recover throughout 2025, resulting from ongoing investments in lead optimization, dealer development and expansion, consumer engagement, and further penetration of financing offerings for homeowners. Our residential dealer network continued to grow in the fourth quarter and ended the year at an all-time high of approximately 9,200 dealers. an increase of 500 from the prior year, and 100 dealers ahead of the prior quarter. The significant growth in dealer count during 2024 not only increases overall category awareness, but also provides support for a new and higher baseline level of demand for the home standby category going forward by adding more sales, installation, and service capacity. We also continue to see strong momentum in our aligned contractor program, which targets electrical contractors that purchase our products through wholesale distribution. We believe this highly aligned network of dealers and contractors is an important competitive advantage for Generac, and we continue to invest heavily to provide these partners with the best tools and capabilities to drive additional sales, installation, and service bandwidth. Activations or installations of home standby generators were nearly flat in the fourth quarter as compared to the prior year. Strength in the south and west was offset by other regions that saw less significant power outage activity in the quarter. Additionally, the later timing of Hurricanes Helene and Milton and longer dealer project lead times in the impacted regions have led to stronger growth and activations thus far in the first quarter of 2025, with January marking a record high for the first month of the year. We continue to focus on innovation and leadership in the home standby generator category, and we recently introduced our newest lineup of home standby generators at our annual customer conference in Nashville last month. The next generation product is our most comprehensive platform update in more than a decade and represents the most advanced home standby generator on the market. providing homeowners with unparalleled peace of mind. With this new product line, we introduced the industry's largest air-cooled generator, producing 28 kilowatts of output, providing homeowners that have higher power needs from electrical vehicle charging, heat pumps, and other large electric loads the lowest total cost solution for backup power. Our next generation product line further secures our position in this very important market segment with the broadest, most powerful, most cost-effective home standby generators in the industry. We believe that both our end customers and installer partners will appreciate the significant value-added and innovative features of these new products, which are expected to begin shipping in the second half of 2025. With this next generation platform, we are introducing automotive technologies like fuel injection and spark ignition to the market, allowing for better fuel efficiency and lower emissions. We've also developed a new advanced controller with integrated cellular, Wi-Fi, and Bluetooth connectivity protocols as standard features, providing significant upgrades to connection quality, together with advanced remote diagnostics supporting the lowest total cost of ownership on the market. These numerous benefits for our partners in the field are expected to improve efficiency and quality control in the installation and service processes, including a simplified and automated commissioning process, streamlined wiring designs, and an enclosure designed with technicians in mind. In addition to our continued track record of innovation in the home standby generator market, we have also made significant investments over the last several years in our manufacturing capacity for these products. The addition of the Trenton, South Carolina facility, as well as increased automation around engine and alternator production, has dramatically increased our ability to meet the growing demand for these products, particularly during periods when demand surges. As a result of these investments, we were able to aggressively ramp our home standby production output to meet the increased demand following the active outage environment in the second half of 2024. Given our ability to rapidly ramp production, home standby generator lead times did not increase significantly and were at normalized levels as we entered 2025. For the full year of 2025, we expect home standby sales to increase for the full year due to a combination of the new and higher baseline of awareness for the category new product introductions, and our initiatives to drive close rate improvements, dealer effectivity, and marketing optimization. Longer term, given our competitive advantages and the significant penetration opportunity, we believe that Generac is uniquely positioned to deliver on the megatrends that support long-term growth for backup power. In addition to strong home standby shipments during the fourth quarter, sales of portable generators more than doubled from the prior year, as demand for these products is more sensitive to power outages in a given period. Our team continues to drive increased shelf space with our key retail partners for portable generators. And while we expect these recent wins to support greater baseline demand for these products moving forward, the second half of 2025 will still face a challenging comparison to the prior year, as our guidance does not assume any major outage events during the year. As expected, Sales of our residential energy technology products during the fourth quarter increased at a significant year-over-year rate, with growth coming from Ecobee and energy storage systems in the period. The Ecobee team delivered exceptional results during the fourth quarter, achieving record sales and positive profitability. In October, we introduced the Smart Thermostat Lite, specifically targeting the professional contractor channel. and later the Smart Thermostat Essential, two key additions to our lineup of energy monitoring and management devices that allow us to tap into the rapidly growing value segment of the Smart Thermostat market. We expect these new products to further support recent market share gains and continue to drive Ecobee's installed base of connected homes, which has grown to an impressive 4.25 million households as of the end of 2024. Our fourth quarter shipments of PowerCell energy storage systems benefited from the initial ramp of the Department of Energy program in Puerto Rico, increasing at a very significant rate from the prior year. While the policy backdrop for the clean energy market is uncertain, we view the long-term fundamentals as intact, given the megatrends of lower power quality and rising power prices, which we believe will only further incentivize homeowners to generate, store, and manage electricity on site. Importantly, our recent new product announcements with PowerCell 2, PowerCell 2 Max, and our next generation home standby generators are evidence of significant progress towards building out our residential energy ecosystem. PowerCell's market leading single cabinet storage capacity, together with our industry leading home standby generator line, gives Generac the unique capability to offer a bottomless battery at a lower cost relative to a storage only system that attempts to achieve a similar level of resilience by using multiple high-cost battery cabinets. This resilience, coupled with Ecobee's intelligent energy management capabilities and intuitive user interface, results in a differentiated solution that can make home energy more resilient, efficient, and cost effective. For the full year 2025, we anticipate strong double-digit sales growth for our residential energy technology solutions. resulting in net sales of approximately 300 to 400 million for the year. This growth is expected to be driven by accelerated deployments of our PowerCell energy storage systems in Puerto Rico, the new PowerCell 2 product launch expected late in the first half of 2025, as well as continued strength in Ecobee sales. Additionally, we anticipate Ecobee will achieve a major milestone in our journey to build a differentiated residential energy ecosystem by delivering positive profitability for the full year. I would now like to provide some commentary on our commercial and industrial products. Global CNI product sales increased slightly on a year-over-year basis, as growth domestically was driven by strong execution in our manufacturing facilities, which was somewhat offset by softer international and market conditions. Domestic CNI product sales increased modestly during the fourth quarter, as strong growth in shipments to our industrial distributor and telecom customers was partially offset by expected weakness in the rental and beyond standby end markets. Shipments to our North American industrial distributor channel grew again at a robust rate in the fourth quarter as we continued to reduce lead times and invest in strengthening our distribution capabilities. Given our increased manufacturing throughput and extended end customer project lead times, growth in shipments outpaced the increase in orders from this channel during the year. As a result, we entered 2025 with a lower backlog as compared to the prior year, presenting a headwind to growth for the industrial distributor channel. Sales to our national telecom customers also increased at a strong rate on both a year-over-year and sequential basis during the fourth quarter. We expect to deliver strong year-over-year growth throughout 2025 as we believe this signals the start of the next growth cycle in this end market, given the long-term secular trend of increasing global tower and network hub counts that require backup power. As expected, shipments to our national and independent rental equipment customers in the fourth quarter continued to decline from the prior year, as these accounts pulled back on capital spending in our categories during the year. Given our current visibility, these trends are expected to continue throughout 2025, although moderating relative to 2024. However, we continue to believe that this end market has further runway for growth as the cycle recovers given the critical need for future infrastructure-related projects that leverage our products sold into the rental equipment channel. And market activity for our CNI generators used in Beyond Standby applications also remained softer during the fourth quarter, as elevated interest rates continued to slow project activity in this segment of the market. However, we continue to see strong pipeline activity for our CNI battery energy storage systems, or BES, and other solutions used in multi-asset microgrids. We believe we are well positioned to lead the CNI microgrid market, given our strength in natural gas generators, distribution, and investments in technologies and expertise. In 2024, we completed two small but strategic acquisitions, adding CNIBES and microgrid controller capabilities and positioning our teams to help end customers solve for the challenges of lower power quality and higher power prices. Importantly, as our CNI energy ecosystem matures, we believe that our efforts to produce turnkey solutions for multi-asset microgrid projects will help to reduce the cost and complexity challenges that have hindered adoption to this point. In addition to our latest development efforts around CNI best products and microgrids, at our annual customer conference, we recently introduced a larger diesel generator product lineup with single genset power output up to 3.25 megawatts certified for the U.S. market. These products are specifically designed for large load, mission-critical backup power applications, including data centers. We believe that the megatrend of accelerating adoption of artificial intelligence and the associated build-out of data centers presents a significant long-term opportunity for Generac, both directly through these new products and indirectly via increased power demand leading to overall grid instability issues. Initial quoting of these larger diesel generators is expected to begin in the second quarter, with the first shipments anticipated to occur later in the year, resulting in a minimal contribution to 2025 sales from this new initiative. Internationally, core total sales, which excludes the negative impact of foreign currency, increased modestly during the fourth quarter from the prior year as strength in Latin America was offset by continued softness in Europe. Importantly, however, international order activity regained momentum and outpaced shipments during the quarter. Adjusted EBITDA margins for the segment expanded during the quarter due to favorable sales mix and lower input costs. For full year 2025, we expect mixed end market and regional performance to continue in our international segment. Our CNIBEST microgrid and data center initiatives for domestic markets also extend to international markets as part of our focused international growth strategy. We continue to focus on bringing new solutions to the market to improve our positioning in established markets while also driving on expanded presence and increased penetration in certain new regions that align with the megatrends supporting our enterprise strategy. In closing this morning, our record fourth quarter results reflect our significant leadership in the residential backup power market and unmatched ability to respond to the elevated demand created by power outage activity in the second half of the year. Our recent new product announcements underscore the commitment to innovation and engineering capabilities that have been at our core since we began pioneering backup power markets more than 65 years ago. And we will continue to invest in the capabilities and solutions that we believe are necessary for the future. As previously discussed, The megatrends that support our future growth expectations have never been more evident, and we remain confident in our Powering a Smarter World enterprise strategy. I'll now turn the call over to York to provide further details on our fourth quarter and full year 2024 results, as well as our outlook for 2025. York?

Thanks, Aaron. Looking at fourth quarter 2024 results in more detail, total net sales during the quarter increased 16%, to a fourth quarter record 1.23 billion as compared to 1.06 billion in the prior year fourth quarter. The net effect of acquisitions in foreign currency had a slight favorable impact on revenue growth during the quarter. Briefly looking at consolidated net sales for the fourth quarter by product class, residential product sales increased 28% to a fourth quarter record 743 million as compared to 580 million in the prior year. As discussed, Growth in residential product sales was driven by a strong increase in shipments of home standby and portable generators on the back of an active power outage season. In addition, growth in shipments of both PowerCell energy storage systems and Ecobee products also contributed to this strong year-over-year growth. Commercial industrial product sales for the fourth quarter of 2024 were approximately flat from the prior year, but still strong at $363 million. The combination of contributions from acquisitions and the impact of foreign currency had a slight favorable impact on sales growth during the quarter. This core sales performance was a result of strong growth in shipments of domestic industrial distributor and telecom customers being offset by a decrease in sales to national rental equipment accounts and other direct customers for Beyond Standby applications, as well as a modest decline in international CNI product sales. Net sales for other products and services increased approximately 6% to $128 million as compared to $120 million in the fourth quarter of 2023. Core sales growth of 4% was primarily due to growth in aftermarket service parts, connectivity subscription sales, ecobee services, and other international services revenue. Gross profit margin was 40.6% compared to 36.5% in the prior year fourth quarter. as a result of favorable sales mix, the realization of lower input costs, and production efficiencies. Operating expenses increased 66 million, or 28%, as compared to the fourth quarter of 2023. This increase was primarily driven by increased employee costs to support future growth across the business, additional marketing spend to drive incremental awareness for our products, and increased incentive compensation and variable expenses on the higher shipment volumes and profitability compared to the prior year. Adjusted EBITDA before deducting for non-controlling interest as defining our earnings release was a fourth quarter record $265 million or 21.5% of net sales in the current year quarter as compared to $213 million or 20% of net sales in the prior year. For the full year 2024, adjusted EBITDA before deducting for non-controlling interest was $789 million or 18.4% of net sales as compared to $638 million, or 15.9% of sales in the prior year. I will now briefly discuss financial results for our two reporting segments. Domestic segment total sales, including intersegment sales, increased 20% to $1.07 billion in the quarter, as compared to $891 million in the prior year, including approximately 1% sales growth contribution from acquisitions. Adjusted EBITDA for the segment was an all-time record $243 million, representing 22.7% of total sales, as compared to $192 million in the prior year, or 21.6%. For the full year of 2024, domestic segment total sales increased 9% over the prior year to $3.64 billion, and adjusted EBITDA margins for the segment were 19.1% compared to 15.8% in the prior year. International segment total sales, including intersegment sales, decreased 1% to $187 million in the quarter, as compared to $190 million in the prior year quarter, including an approximate 2% sales growth headwind from foreign currency, resulting in an approximately 1% core total sales growth. Adjusted EBITDA for the segment before deducting for non-controlling interest was $22.5 million, or 12% of total sales, as compared to $20.4 million or 10.7% in the prior year. For the full year of 2024, international segment total sales decreased 13% compared to the prior year to $725 million. Adjusted EBITDA margins for the segment before deducting for non-controlling interests were 13.2% of total sales during 2024 as compared to 13.7% in the prior year. Now switching back to our financial performance for the fourth quarter of 2024 on a consolidated basis, as disclosed in our earnings release, GAAP net income for the company in the quarter was $117 million as compared to $97 million for the fourth quarter of 2023. The current year net income includes a change in fair value adjustment of approximately $35 million related to our investment in wall box warrants and equity securities. Gap income taxes during the current year fourth quarter were $27.3 million or an effective tax rate of 18.9% as compared to $30 million or an effective tax rate of 23.7% for the prior year. The decrease in effective tax rate was primarily driven by the positive impact from earnings mix with higher earnings in lower tax jurisdictions as well as certain unfavorable discrete tax items in the prior year which did not repeat in the current year. Diluted net income per share for the company on a gap basis was $2.15 in the fourth quarter of 24 compared to $1.50 in the prior year. The strong year-over-year increase in gap earnings per share relative to growth in net income was primarily driven by a favorable $11.6 million redemption value adjustment that was reflected in the current year period EPS calculation, as well as a lower share count as compared to the prior year. Adjusted net income for the company, as defined in our earnings release, was $168 million in the current year quarter, or $2.80 per share. This compares to adjusted net income of $126 million in the prior year, or $2.07 per share. Cash flow from operations was $339 million, as compared to $317 million in the prior year fourth quarter. And free cash flow, as defined in our earnings release, was an all-time quarterly record of $286 million as compared to $266 million in the same quarter last year. This strong free cash flow performance was driven by the record fourth quarter operating earnings, together with the $170 million source of cash due to working capital reduction during the current year quarter. Total debt outstanding at the end of the quarter was $1.33 billion, resulting in a gross debt leverage ratio at the end of the fourth quarter of 1.7 times on an as reported basis, which is within our target gross debt leverage range of one to two times adjusted EBITDA. For the full year 2024, cash flow from operations was an all-time record, $741 million as compared to $522 million in the prior year. Free cash flow, as defined in our earnings release, was also an all-time high, $605 million, as compared to $396 million in 2023. This record free cash flow performance was aided by an over $200 million source of cash from working capital reduction during the year. Capital expenditures during the full year totaled $137 million as we prioritize organic investments for additional production capacity and other capabilities to support future growth. We also strategically deployed approximately $35 million of capital in 2024 for acquisitions to accelerate our Powering a Smarter World enterprise strategy and bolster our technology and distribution capabilities for our CNI products. Additionally, we opportunistically repurchased approximately 1.05 million shares of our common stock during the full year for $153 million. And there is $347 million remaining on our current share repurchase authorization as of the end of 2024. We also repaid approximately $278 million of debt and extended the maturity of our term loan B credit facility during the year. Moving forward, we will continue to operate within our disciplined and balanced capital allocation framework as we evaluate future shareholder value enhancing opportunities. With that, I will now provide further comments on our new outlook for 2025. As disclosed in our press release this morning, we are initiating 2025 net sales guidance that anticipates continued solid year-over-year growth for the full year period. We expect consolidated net sales for the full year to increase between 3% to 7% as compared to the prior year, which includes a slight unfavorable impact from the net combination of foreign currency and acquisitions. Importantly, this guidance assumes a level of power outage activity during the year in line with the longer term baseline average. Consistent with our historical approach, this outlook does not assume the benefit of a major power outage event during the year, such as a major landed hurricane or major winter storm. Breaking this down by product class, we expect overall residential net sales to increase at a mid to high single digit rate from the prior year. We expect this growth to be led by shipments of home standby generators as the elevated power outage activity in 2024 results in a new and higher baseline level of demand for the category. In addition, we expect strong year-over-year growth for our residential energy technology products as we execute on previously announced project wins in Puerto Rico and launch new products into the market. This growth is expected to be partially offset by lower portable generator shipments in 2025, given the assumption of no major outage events included in our guidance. As Aaron discussed in detail, we anticipate mixed performance across our CNIN markets both domestically and internationally in 2025. We expect growth from telecom, CNI bests and data center opportunities to be mostly offset by declines in rental beyond standby and domestic industrial distributor shipments. In addition, we expect the effect of foreign currency to have a modestly unfavorable impact on year-over-year growth for CNI products. Considering these factors, overall global CNI product sales are expected to be approximately flat on a year-over-year basis during the year. From a seasonality perspective, Given lead times and backlog for our home standby products have normalized coming into 2025, we expect 2025 consolidated net sales to follow normal historical seasonality, resulting in overall net sales in the first half being between 44% to 45% weighted and sales in the second half being 55% to 56% weighted. Specifically for the first quarter, we expect overall net sales to increase at a low single-digit rate from the prior year, with strong growth for residential product sales partially offset by a high single-digit decline in C&I product sales. Looking at our gross margin expectations for the full year 2025, We expect the full year impact of lower input costs will drive continued year-over-year margin improvement, resulting in an approximately 100 basis point increase for the full year as compared to 2024, approaching 40%. Importantly, the recently announced tariff actions are not directly reflected in this guidance. As we continue to evaluate the potential impact from these tariffs, We expect that any increase will be offset by a combination of cost reductions and price increases, resulting in an EBITDA margin percent neutral impact for the year. From a seasonality perspective, we expect gross margins to increase throughout the year from approximately 38 to 39 percent in the first half of 2025 to approximately 40 to 41 percent in the second half of 2025, primarily as a result of favorable sales mix and improving input costs. Looking at our adjusted EBITDA margin expectations for the full year 2025, adjusted EBITDA margins before deducting for non-controlling interest are expected to be approximately 18% to 19% for the full year 2025, compared to 18.4% in 2024, as the full year impact of rising operating expenses will offset the aforementioned gross margin improvement. We expect adjusted EBITDA margins to follow normal seasonality and improve significantly as we move throughout the year. Specifically, regarding the first quarter, adjusted EBITDA margins are expected to be approximately flat compared to the prior year at approximately 14% and then improve sequentially throughout the year reaching approximately 21% in the fourth quarter. Significant operating expense leverage on the seasonally higher sales volumes together with the previously mentioned favorable sales mix and cost improvement are the main drivers of this EBITDA margin sequential improvement throughout the year, which is expected to result in a second half adjusted EBITDA margins to be more than 500 basis points higher than first half margins. As is our normal practice, we are also providing additional guidance details to assist with modeling adjusted earnings per share and free cash flow for the full year 2025. 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. For 2025, our gap effective tax rate is expected to be between 24 to 24.5% as compared to the 22.6% full-year gap rate for 2024. We expect interest expense to be approximately $74 to $78 million for the full-year 2025, assuming no additional term loan principal prepayments during the year. This is a significant decline from 2024 levels due to a decrease in outstanding borrowings coming into 2025 and the full year impact of lower sulfur interest rates. Our capital expenditures are projected to be approximately 3% of our forecasted net sales for the year, in line with historical levels as we continue to invest in incremental capacity and execute other projects to support future growth expectations. Depreciation expense is forecast to be approximately $83 to $87 million in 2025, given our assumed CapEx guidance. Gap intangible amortization expense in 2025 is expected to be approximately $92 to $96 million during the year. Stock compensation expense is expected to be between $53 to $57 million for the year. In line with normal seasonality, operating and free cash flow generation is expected to be disproportionately weighted toward the second half of the year in 2025, as we expect to replenish home standby and portable finished good inventory levels during the first half of 2025. As a result, for the full year, we expect free cash flow conversion from adjusted net income to be between 80% to 90%. Our full year weighted average diluted share count is expected to increase modestly to approximately 60.5 million shares as compared to 60.3 million shares in 2024. And finally, this 2025 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value during the year. This concludes our prepared remarks. At this time, we'd like to open up the call for questions.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question only. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tommy Mall with Stevens. Your line is open.

Good morning, and thank you for taking my questions. Aaron, I wanted to ask about your comments regarding some of the new and larger CNI products that you plan to introduce, where the data center market aperture, I think, is a little wider now. Can you just give us a little more context? How much of the TAM does this unlock for you, and what's the strategy to penetrate that? Thank you.

Yeah, thanks, Tommy. Yeah, we're very excited about the announcement here. And honestly, our distributor customers and other customers are also very excited. We've actually been on this journey internationally. Our international team started working on a larger product offering and actually engaging with data center partners. They've been doing that actively over all of 2024. And they'll begin actually shipping products into the market here this year. And we're just starting to get the flywheel spinning there. And now we've got a U.S. certified version of the product, and that's what we introduced at our customer conference in Nashville. As far as the total adjustable market, I think there's a lot of numbers that are out there available to people in terms of how big the market really is, and a lot of that is based on your views on how quickly data centers can be built out. And so I think I hesitate to probably provide a discrete number along those lines, but just to say that some of the data points that are available in the marketplace, you would look at the current lead times of these types of products from the existing suppliers, and they are very long. In many cases, most cases, they're well in advance of a full year, some even longer than that, depending on the product nodes. The entire supply chain for these products is very tight today as a result of all the increased demand. So we believe there's ample room for us to participate in We think there's ample room for us to be successful given our brand, given our ability to serve these types of customers on a national basis. A lot of these data center developers are developing in markets all over the country or the world. And so having a global footprint as well as a coast-to-coast U.S. footprint is valuable in terms of making sure that we have the ability to provide customers kind of aftermarket support that's needed to ensure the kind of uptime that's required by the data center operators themselves. So very excited about this. You know, as I said on the prepared remarks, it's not going to be much of a contribution for our domestic results this year because the certified, U.S. certified versions of these products, we really won't begin shipping until late in the fourth quarter. And we're going to open the order book in the second quarter, so that'll give us some insight into demand. We're already having what I would call or characterize as encouraging dialogue with a lot of uh, data center, um, uh, customers, uh, you know, owner operators or developers. Uh, and so we're, we're encouraged by that. So, uh, more to come in the future, but, um, but an exciting development for us.

Thank you. Please stand by for our next question. Our next question comes from the line of George Geronakis with Canaccord. Your line is open.

Hey, good morning, everyone. Uh, thank you for taking my questions.

Morning, George.

So just very quickly, I noticed you mentioned that Ecobee would turn to profitability in 2025. Can you just sort of illuminate us as to how much margin dilution the total energy tech business will have overall on Generac and whether you still expect that to get to break even potentially in 2026? Thank you.

Hey, George, this is York. I know. Yeah, so we're, we're, we're actually eco be delivered a above break even quarter for q4. So we were, we were encouraged by that and looking out at the growth opportunities that they have for 2025. They were projecting that that that profitably will continue for the full year 2025. And in terms of the the overall energy technology business, which I think was your question, While in 2024, the dilution of that business overall for the total company was called 3.5%, 4% of our EBITDA margins, the dilution on overall company. That's going to improve to somewhere maybe to 3, 3.5% here in 2025. So there will be improvement, and that will continue to improve.

over the next couple of years as we continue to... And George, I think that clearly the important milestones here in that business are getting these new products to market, right? So we've got PowerCell 2, we're introducing mid-year here, and then our Power Micro, which we've also talked about. We've got kind of our eyes on the second half here for that product to get into market as well, but we are making very good progress on both of those product lines. I think the one change, you know, referring to the commentary about getting to profitability overall, uh, by the end of the year, by the end of 2026, even if we did that, by the way, there'd still be some dilution overall, uh, from EBITDA on EBITDA margins from this, uh, this effort, uh, at least for the next several years. But, you know, I think that obviously that the policy landscape is shifting, uh, and we're watching that very closely. That is an end market, which, you know, 2024 was, was, was very weak. mainly due to the high interest rates. I think that was the sticky point in 2024 in terms of growth in energy technology, even though we found our footing there, delivered a nice Q4, and we won some nice projects. But we'll see where the policy landscape goes here. I think longer term, these are technologies. Whether you're talking about solar or you're talking about battery storage or you're talking about electric vehicles or you're talking about energy management, These are technologies that are going to be critical to helping homeowners and businesses, you know, as I said in my prepared remarks, to help them gain much greater control over the resiliency of their power as well as the cost of that power. I think the one kind of thing that's been going on here, look, we know power quality is a problem. Everybody knows that. There's a lot of data around that. There's no secret that that's been why Generac's, I think, done so well over the last several decades. But the reality of it is one of the other kind of things that's coming up quickly here is power costs are increasing. And I don't think we're talking about that enough. As a society, we are seeing evidence, just the US national average is up 30% in the last four or five years. It's projected to double by 2035. There are parts of the country today where the power bill, the electric bill is second only to the rent or your mortgage in terms of your highest cost expense for a homeowner or a business. These are trends. Like I said, we call them megatrends, lower power quality, higher power prices. These are the two things that are front and center for us in what we're doing in all the investments we're making here in the future, not only in our legacy products like generators, but also in the energy ecosystems that we're building for homes and businesses.

Thank you. Please stand by for our next question. Our next question comes from the line of Mike Halloran with Bayer. Your line is open.

Hey, good morning, guys. Good morning. So just a couple parts to this, but all related. So could you just – I think I missed it. Could you repeat what the residential growth expectations are for the first quarter? But more broadly, maybe talk about how you're looking at the performance of in this outage environment with the new facility in the southeast that manage your lead times and and then how you're looking at the back part of last year front part of this year just from a cadencing versus history and just kind of put put all that in context to help understand how how the guide rolled through this year um and and how instructive this maybe is for future outages and because obviously the lead time variances versus history were much better much better

Yeah, just quickly, on the very first part of that, you were asked about resi growth in Q1. In the preparer accounts, we said strong growth, again, partially offset by the high single-digit decline in CNI products. So strong double-digit growth for resi in Q1.

Yeah. And then, you know, Mike, I think, you know, the balance of your question, kind of the pacing or the way the business is, I'll say, trading, that part of the business back half of last year into this year, you know, I think, I think what's really interesting, so if you go back historically, right, as the category has been growing and, you know, as every kind of active period of outages driving demand rapidly, and then, you know, we've responded by, you know, trying to play catch up, frankly, in terms of capacity. And we were running behind over the last four or five years, as we said, resulting in kind of where we got to, you know, as we exited 2021 and into 22, where we were getting these you know, these lead times in the category that were just super extended. So we took the necessary moves to, you know, stop playing catch up and made some significant investments in capacity for home standby generators. We brought the Trenton plant online mid-year 2022. We added a lot of automation, and we probably haven't talked as much about the automation we've added as much as we've talked about the Trenton facility, but in our existing facilities in Whitewater and additional automation even in Trenton, over the last couple of years that has significantly changed our overall theoretical capacity for the category. And what that's allowed us to do is rapidly respond, much more rapidly respond to the surges in demand that, as an example, the back half of last year, what we saw to have that kind of environment, we would have typically, had this been kind of pre those investments, you would have seen us enter 2025 with a probably a large backlog as a result of two things. One, our inability to produce enough product to satisfy demand in the back half of the year. And two, what that creates. I think there's a really important kind of emotional element I just want to talk about a second here. When there is scarcity in a market, and we all saw this during COVID, but we've seen it in our business, notably over the years, every time there's a major event, you get a scarcity mentality amongst our distribution partners. And when lead times start to extend, they start to place more orders to guarantee supply further out. The further out the lead times go, the further out they place orders, the more orders they place. And you get this emotional buying that comes from that scarcity. We did two important things. We added all this capacity, and then we also changed the number of our order policies. We think that the effect of doing those two things basically took the emotion of that ordering and kept certainly kept you know lead times from getting long and it kept dealers from placing orders for products that they hadn't sold yet and I think that was the significant change here and should be the significant change going forward right I think that when we think about it we think that this is a healthier way to run the business we think also I think it's important to note Mike that when you put this in context it's a much bigger business if you just look at home stand by the base business of what's going on there every single day in the absence of outages, major outages, is pretty remarkable. And that continues to grow. And the PEN rate still being at only 6.5% at the end of the year, it's amazing just how big the penetration opportunity remains for us. So it's one of the major reasons why we've been so confident to invest heavily in the capacity and invest heavily in automation. invest heavily in new products like our next generation product line that we just announced here. So, you know, again, I think these are things, a great setup for us to continue to lead that market. But I think it's a different kind of pacing as it goes forward, which I think is the core of your question.

Thank you. Please stand by for our next question. Our next question comes from the line of Jeff Hammond with KeyBank Capital Markets. Your line is open.

Hey, good morning, guys. Good caller there, maybe just to follow on, because I appreciate the investments and maybe the change in the order patterns, but maybe just feedback you're getting from your contractors on the three big storms and kind of the uptake in IHCs relative to expectations, and then kind of the afterglow effect that you're you know, seen, you know, versus kind of past similar storms. That'd be great.

Yeah, thanks, Jeff. So I do think notable with these storms is they were fairly concentrated regionally, right? So, and you could argue, I mean, Barrel was Texas, and that happened in July. And, you know, while a powerful event, it was fairly localized to the Texas market, which is a good market for us. And when you look at, and really Houston, and when you look at Texas, in fact, you know, Now that state's pen rate is actually closing in on the national average, which is really interesting. So, I mean, I think that, you know, from where we were at 2% to 3%, you know, we're all the way up to 6% now. So it's grown a lot over the last several years since the freeze of 2021. But then you think about, you know, Helene and Milton. Obviously, Helene was more widespread, right? That was the biggest event that we had seen in a long time, impacting largely Florida and then the Carolinas. Then you got Milton on the back of it. Milton was a smaller storm and kind of impacted the same Florida markets for the most part. And it was two weeks later. So you could almost argue that that was an extension. Like when we look at all the stats that we track, when you look at the Milton stats, it almost looked like an extension. They just elongated the Helene impact for us. So my point here is that we have these concentrated events. We have good dealer bases in those areas, but they were inundated with IHCs. I mentioned in the prepared remarks the compression of the close rates. So the commentary coming back is that we need more bandwidth for sales, and now that's getting into installs as well. We're seeing activations now. The major storms, if you look at Helene and Milton, hit really kind of beginning of Q3, or Q4, excuse me, end of Q3, beginning of Q4. Our normal project timeline from quote, doing that IHC to doing the actual install, call it 100 days, 110 days, 120 days, depending on the market. Florida tends to be longer because of the permitting cycles there. So we're just now starting to see the impact of the installs occurring in those markets. Just takes time to mature, right? Just takes time to mature. So, you know, we think that those markets are going to be active, Texas, Florida, the Carolinas, as a result here going into 2025. The flip side of that coin is we had other markets around the U.S. that were, frankly, not as active last year as they had been, right? So places in the Midwest. Michigan, Ohio, those in particular notable areas, parts of Canada where we've actually done quite well in Ontario over the years. We're much quieter last year, so we saw the activation rates slow or the install rates slow, IHCs slow in those markets year over year. It was kind of, I'll say, kind of quote-unquote covered up, if you will, by the large influx of IHCs from those events. But again, I think it's one of the interesting things about how this business is trades, if you will. Again, I'll use that term. Outages, they're localized, but they happen every day all over the place. We're seeing IHCs in California that are notably higher in January versus last year because of the power safety shutoffs. It moves around. That's why having a huge dealer base like we have, 9,200, and we need more, is such a huge focus for us because Having those dealers in those markets where an outage could occur and then helping propel those markets forward, even as the initial demand surge wanes, you want those dealers in market, marketing, selling, and promoting the category and the products. I think that's really critical, and it's a big part of that new and higher baseline demand concept that we continually talk about and that I think we've demonstrated continues to play out.

Thank you. Please stand by for our next question. Our next question comes from the line of Brian Drab with William Blair. Your line is open.

Hi, thanks for taking my question. I guess there's a lot of focus on home standby. So maybe, yeah, morning. Maybe ask you to talk a little bit more about CNI. I know you said telecom's getting better. I was wondering if you could add a little more color. What's driving that improvement? We're hearing that from some other companies. And you know, what can get this rental market going again for you guys? And, you know, we're expecting in some areas like highway activity, construction, oil and gas with some of the new policies and new administration, maybe some pickup there. Is there any hope that maybe that gets going in the back half of the year?

Yeah, thanks, Brian. Appreciate the shift over the CNI business, which we never end up talking enough about. And it's a really great business for us. It's a It's a great kind of steady counterweight to some of the volatility we sometimes see in the res business. But yeah, the telecom market, as we said, kind of bottomed Q3, Q2, Q3, and we were seeing green shoots in our discussions with customers, and that actually played out in better sell-through and sell-in and sell-through in Q4. Again, I think probably just to answer your question directly about what's at the root of that, In our markets, we can point to very easily, you know, high profile outage events. Every single carrier had challenges with network uptime as a result of those events. And that always tends to, I would say, help them re-evaluate or re-evaluate just, you know, kind of where the level of investment's going to be needed going forward to harden the network. And so today we think, you know, tower counts continue to grow, hub counts continue to grow. We, that market's probably about 50% penetrated with backup power. So, you know, there's a, that's a, there's a huge market there. It's a more than 400,000 overall site opportunities for us. And, you know, we just, we see that as a, we're the leader there by far in terms of our, our customer base and our installed footprint. So we're encouraged by that. We think that the investment cycle is going to be positive for that business. You know, as we go forward here into 2025 and, and, you know, The flip side of that coin, rental. You mentioned it. What can we do to get that going again? Our product categories, light towers, mobile generators, mobile heaters, and particularly maybe somewhat disproportionately impacted by CapEx spending for these customers of ours because they had gone through, if you recall, we had some pretty robust years there where they were re-fleeting And those fleets are aging. There's no question they're aging. And I think when we put this guidance together, obviously the political environment and the policy environment continues to shift here. And so could domestic oil and gas production create potential tailwinds there for us? Could additional infrastructure investment that might be being contemplated by the new administration, could that create tailwinds for us that might accelerate that? Possibly. The way we've built our guidance is we're not contemplating that. We're basically contemplating that that market's going to be down again, although not nearly at the rate it was down last year. It's moderating the decline, but we still think that in particular, Q1, there's a little bit more to come off. That's part of what the CNI down that York talked about in Q1 in particular is just kind of comping last year's rental. That was when things really started to come off, but You know, we've seen this movie before. It's a very cyclical market, and we don't believe we've lost any share, and we believe the need is still there and the fleet is aging. So it's just a question of when the trigger gets pulled from a capital spending standpoint on re-fleeting.

Thank you. Please stand by for our next question. Our next question comes from the line of Jerry Rivich with Goldman Sachs. Your line is open.

Yes, hi. Good morning, everyone.

Good morning, Jerry.

Aaron, can we just expand on the cadence of the standby business over the course of 25 and just how much visibility do you have on the ramp over the year based on the planned installations? So typically, given the ramp in in-home consultations, we typically see a pig through the python effect with a much sharper 1Q. It doesn't sound like that's happening this year, and I'm wondering if you could just expand on the visibility that you folks have on the standby business ramping up over the course of a year as these leads translate into installations?

Yeah, no, I think, Jerry, I think as I, in the prepared comments, we said that our guidance basically assumes the long-term baseline outage. We basically look at long-term baseline outages. We take all major events out of the mix, and we look at what outage activity is on a baseline basis over the last five years. And And we use that as our basis for putting together our guidance. And we also look at the seasonality of those outages as well. It tends to have more outage activity in the second half of the year. And then you couple that with the comments we made that coming into 2025, we're at normal lead times. So we have inventory of these products. So basically, we believe that the guide for home standby for 2025 then is going to look more just like sort of normal seasonality in terms of how we pace that with nice growth for the full year.

Absolutely. And that's been a historical kind of trend. And that is largely driven by, you know, just the larger patterns around seasonality. You know, with Q1 – In particular, in the winter areas, the areas of the U.S. impacted by winter weather, it's harder to install products. So, you know, the snow that is covering the ground in a lot of areas in the cold weather just prevents installations from being affected. So that's why Q1 is almost always a lower quarter. Again, this kind of goes back to my expanded description of the change in the pacing of the business here. Normally, you know, if we had come in with a large backlog – we would be satisfying that, and Q1 is shipping against that. That doesn't necessarily mean they would have been installed until things got warmer. We would have just been satisfying backlog. We didn't have that this year because we basically satisfied all that in Q4 and took the emotional ordering off the table with that approach. So I think the pacing is going to return to a more normal pacing, growing from Q1 throughout the year, as York said.

Thank you. Please stand by for our next question. Our next question comes from the line of Kashi Harrison with Piper Sandler. Your line is open.

Good morning and thanks for taking the questions. Just two quick ones or two quick sets of questions for me. The first one is on the data center opportunities. Are these edge data centers or larger data centers? And then are these backup or prime power generators? And then just on the OPEC side, if we look at 2025, I think on a dollar basis, you're more or less in line with where 2026 was going to be at the investor day on a dollar basis. But we're obviously pretty far away from those revenue targets. And so does that mean that getting to 20% EBITDA margins is no longer a focus? I'm just trying to understand how you're currently philosophically thinking about the appropriate level of, you know, bottom line margins and OPEX investments on a multi-year basis. Thank you.

Yeah, Kashi, I'll take the first half of the question and maybe let York add some commentary around the OPEX EBITDA margin kind of targets the long term. So with the data center product, that product is aimed at both edge data centers as well as hyperscale. Today we have products for edge data centers. It's a market we've dabbled in. We probably haven't focused on it as much, but The new products are diesel backup-only generators. So they're emergency backup. They are not for prime power. They are U.S.-certified, and they will be targeting both the hyperscale market as well as the edge data centers. And York, I think on the OPEX, kind of questioning.

Yeah, on the OPEX, I think longer term, our projections of EBITDA margins are still in that low 20% range, 21%. 22%, which is what we guided to back in our investor day way back when in 2023. Those expectations still hold. As Aaron said, I guess a couple of them are C&I. The down cycle probably happened a little bit, I guess, deeper and sooner than we were projecting in those investor day targets. And then the clean energy business, that market's been a bit soft here for the reasons Aaron talked about. So I would say that pushing that out, call it 12 to 18 months, then you start really leveraging that OpEx load, and you get closer to those low 20% EBITDA margins that we were expecting back in the original investor day materials. gross gross margins and gross margins are are very attractive as well they're actually better they're better they're actually coming in better than we are and that's kind of the offset i think that's the offset yeah good yep thank you please stand by for our next question our next question comes from the line of mark strose with jp morgan your line is open yes excuse me uh good morning thank you very much for taking our questions um

I wanted to go back to the tariff conversation. I appreciate what you're saying about 2025 and the ability to have a neutral impact from pricing and cost cuts. Medium term, though, I mean, as what you've seen over the last three or four weeks, been enough to kind of change how you're thinking about medium term and maybe increasing the amount of domestic supply for your raw materials. And then kind of a follow-up question to that is, Can you maybe compare and contrast Generac to your competitors? Do you see that as potentially an advantage or a disadvantage if the tariffs really do start ramping up here? Thank you.

Mark, thanks. I can't speak to our competitors. I'm not exactly sure their cost structures and how they're thinking about the tariffs. I can speak to what we know, obviously the 10% impact on China, the 25% threatened impacts to Mexico and Canada. that has been deferred for at least 30 days. We've obviously done, we've had more time to react to that. Monday's news or Sunday night's news about the 25% tariff on metals, on steel and aluminum, we're evaluating. But we already have a pretty robust domestic supply chain around, certainly around sheet metal, around metal. So we're not as concerned about that, to be honest. We have to evaluate aluminum to understand that. On the tariffs, the 10% on China, I think one of the benefits of having gone through the, crawling through the broken glass that we all crawled through back in COVID in terms of supply chain disruptions and needing to deal with that is that we got a lot smarter about not being sole sourced on a lot of components. In particular, everything with our home standby, it's our goal to have at least two sources, if not three. Now that's not only both for resiliency in the supply chain, but also for additional capacity, just because we've grown the overall output. We just need to add more competent suppliers. But we've done that also with a focus to not have concentrations of supply base in certain regions of the world. And that has helped us then to, it's given us flexibility to shift supply to areas of the country, or areas of the world, excuse me, that are perhaps not being as targeted with tariffs. That said, I don't think there's any avoiding some kind of cost increase. That's going to come through, you know, whether it be additional logistics or those secondary sources, perhaps being higher cost than, than maybe a primary source, all of that, you know, we're working through, but we see the impacts of that, you know, as something that one, we're going to go back to supply chain and we're going to say, okay. Um, you know, if we've got a supplier in China, let's say, uh, we're going to go back and we're going to ask that supplier to evaluate their costs, their price to us. uh to reduce that to absorb the tariff um after all that's what leadership in this country has been telling us is it's not us who pay for it it's it's uh it's the other countries so let's let's make sure that happens so we're going through and we're working through that um but that probably is not realistic to assume that all suppliers are willing to uh absorb the added cost of tariffs or you know especially when you're talking about 25 percent uh in mexico or canada that you know we've got to continue to evaluate that but I think long term, if you look at the rest of the year here, there's going to be some pricing actions. There's going to be more cost outs that we're going to focus on. We're going to try and minimize the pricing actions to the best of our ability. We know that price is important to customers and we want to remain competitive. Today, we lead the market in price. We believe that this won't change that. Again, I can't speak specifically to our competitors other than to say we have tremendous scale in some of these markets like Home Standby that is unmatched. That is probably a bigger benefit, to be honest, both within the supply chain as well as of our operating environment than anything our competitors could bring forth.

Thank you. Please stand by for our next question. Our next question comes from the line of Jordan Levy with Truett Securities. Your line is open.

Morning, Ellen. Thanks for all the details. I just wanted to touch on the next-gen technology. home standby rollout later this year. Can you just talk about how we should think about pricing and cost structure there on that line relative to the current fleet, and what's sort of baked into your guidance on that front as you roll it out in the back half of the year?

Yeah, there's certainly, you know, the feature set we talked about, Jordan, there's some additional cost in that product. We think it's fairly nominal in relation to the overall cost of the product, but there is You know, there's, there's a, there's going to be some additional costs. And then as a result, the pricing will be higher when the new line, uh, hits the market in the second half of the year. Um, so we have put some pricing in, we've made some assumptions around pricing impacts. Um, we haven't, we haven't, uh, formally initiated that pricing, uh, through the market at this point, largely because of the tariff noise that's going on. We want to kind of see where things land. I mean, the last thing we'd want to do is put pricing out on a new product line. and then have to adjust it before we even start shipping. So we want to understand supply chain impacts from the tariffs and some other things as we, you know, and we'll finalize that here shortly. I mean, we do have to get pricing out to the market. And we had to bake an assumption into our guidance. But, you know, it's pretty nominal. I think it's small on balance for, you know, it's pretty modest. But there is some pricing there in the second half of the year as a result of that.

Thank you. Please stand by for our next question. Our next question comes from the line of Keith Howsam with North Coast Research. Your line is open.

Good morning, guys. I'll try to make it quick here. York, I thought I heard you guys say that for 2025, you expect energy technology sales of $300 to $400 million. I guess first, can you compare that to what you have for 2024? And then second, threats by the administration to withhold funding for some of the agencies that are out there I would assume the Department of Energy would be one of the agencies perhaps at risk. Could that perhaps lower some of your expectations for 2025?

Keith, the comparative number, we ended the year at $280 million in 2024, so the midpoint of the $300 to $400 is a 25% increase.

Right, on net sales.

On net sales.

Right. Keith, to your question about the DOE, clearly there's a lot going on in the policy world. We have not received a formal notice. that this program, and I'll speak specifically about the Puerto Rican DOE program, we've not received notice that that program has been canceled formally. And it is, I think it's important to note that it's not tied directly to IRA funding or to any of the infrastructure funding that was the bipartisan infrastructure law that was out there from 2023 actually, I think is, or 22 even maybe, I don't know where that funding came from. IRA and BIL, this Puerto Rican DOE grant is not tied to that, it's separate. I don't know if that gives it any better standing or worse. I would also note that one of our major competitors in residential batteries, Tesla, they're the largest residential battery provider in the DOE program for Puerto Rico. I think, does that mean anything? I don't know, I'm just saying I think it's an important interesting point of context, I think, around whether or not this program is targeted. But again, we've not received any official notification. And I would say that it's why we're putting a wider range on the sales for this year, 300 to 400. There's more risk there, obviously, with the current policy environment. We'll see where it goes. We're still pretty excited about the opportunity when we bring new products into market. That entire business was not built on big projects like the Puerto Rico DOE business. That's a nice opportunity for us. this year, but long-term, you know, we believe that self-generation, storage, resiliency, controlling power costs, these are all important things and considerations for homeowners and why these technologies over time we believe are going to be needed and why they're important to our Powering a Smarter World strategy.

Thank you. Please stand by for our next question. Our next question comes from the line of Vikram Begri with Citi. Your line is open.

Good morning, everyone. I wanted to ask about some of the assumptions underpinning the guidance. I think, Aaron, you talked about surge and pullback in demand last quarter. I was wondering how much is the anticipated pullback based into the guidance after the strong surge you witnessed last year? And on a relative note, York, you talked about probably looking at pricing on new products and maybe more due to tariffs. And you rightly said it's a price-sensitive market. How do you reconcile increasing pricing versus the strategy to push close rates higher? And what would be the strategy to test the market for pricing? Would you run pilots? How do you understand how much to raise the pricing bar? Would you slowly raise pricing and see what the impact of close rates will be? Thank you.

Yeah, I think, you know, I can talk a little bit. I think your question, Vikram, on the surge, there's no... We're not anticipating a pullback per se here in 2025. I mean, there's a normalization of a new and higher baseline is the assumption. So, and again, I would say there's not a pullback because we satisfied the surge in demand in Q4. That was the surge, right? So that was the peak. And then I guess if you want to say there's a pullback, it's the new and higher baseline assumption for 2025. I think maybe the one notable point with that, that's not necessarily a home standby point to make, but a portable generator point to make, which is you know, we saw a lot of portable generators in Q4. Our guidance does not assume major events. So therefore, you know, we have a tough comp in Q4 that won't repeat. So that has the effect of kind of dampening, you know, residential growth rates for the full year. And that's in the guidance. And that is in the guidance. So just to be clear on that, I just wanted to level set. And then I think, you know, your question on close rates, you know, again, we've seen close rates compressed. As I said in my prepared remarks, historically, when we get these large, uh, you know, surges in demand for consultations or quotations for the products. Um, you know, projects, uh, they, they, um, you know, they tend to take a little longer to close and they don't close it quite the rate because the markets are inundated with those. So it just takes time for those quotes to mature. And so we think that the close rates will start to rebound here in 2025. Um, you know, your commentary around testing and pricing. I mean, we, we are doing a lot of things. behind the scenes, under the covers to see what we can do to it. You know, find an inflection point in close rates, either, either to get close rates to improve faster or just to have them improve overall. One of the things that we think is a needle mover in close rates is consumer financing. We've seen continued uptake in consumer financing as a percentage of all deals. We think that there's more room to, to, to do more there. And we are working with our partner, uh, Synchrony on different programs. We're looking at other options that are there. on how we can be more creative and more aggressive with consumer financing because we have seen a high correlation between projects that have consumer financing as a component and better close rates. So we think that that's something that is going to be a continued area of focus for us in 25.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Chris for closing remarks.

We want to thank everyone for joining us this morning. We look forward to discussing our first quarter 2025 earnings results with you in late April. Thank you again and goodbye.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.