Margin Outlook
Q: What's causing the 200 basis point margin decline beyond normal seasonality?
A: Generac expects operating expenses as a percentage of sales to increase in 2024 due to investments across all business units—including consumer power, industrial, and energy technologies—to drive future growth. These costs are incurred before revenue is realized, impacting margins in the near term. Investments are necessary to improve odds of success as the market changes.

HSB and Residential Growth
Q: Explain the underlying activation growth supporting mid-teens 2024 guidance?
A: Generac anticipates mid-teens year-over-year growth in home standby (HSB) generators for 2024. This is supported by the easing of field inventory destocking by Q2 and maintaining activation rates at a new, higher baseline. While they are not assuming major outages, the market is expected to hold steady without declining.

Energy Technology Growth
Q: How will new product launches impact Energy Tech revenue and margins?
A: New energy storage products are slated to hit the market later this year, with only a modest top-line impact in 2024. Generac is focusing on development, distribution, and integrating products into a seamless ecosystem. Margin dilution from Energy Tech investments will persist in 2024 but is expected to abate in 2025, aiming for breakeven by 2026.

C&I Business Outlook
Q: What's the outlook for C&I business recovery and impact of interest rates?
A: The Commercial & Industrial (C&I) segment is experiencing softness, particularly in telecom and rental accounts, due to reduced customer CapEx and higher interest rates delaying projects. Historically, such downturns last 4–6 quarters. Generac anticipates recovery as interest rates normalize, with potential benefits from infrastructure investments and sustained growth in other areas offsetting some weaknesses.

Channel Inventory and Destocking
Q: Update on home standby channel inventories and $300 million destocking tailwind?
A: Excess field inventory in home standby is expected to be largely gone by end of Q1 2024. Generac undershipped the market by $300 million in 2023 due to destocking, but not all of that will be regained in 2024. A portion will contribute as a tailwind to growth as destocking effects abate.

Gross Margin Guidance
Q: What's driving the gross margin guidance increase to 37% in 2024?
A: The anticipated improvement to a 37% gross margin is driven about half by favorable mix—with residential and home standby growing faster—and half by cost reductions. Cost improvements include easing supply chain pressures, lower logistics costs, better overhead absorption from increased production, reduced warehousing costs, and efficiency gains from profitability enhancement programs. Pricing adjustments are modest.

Close Rates Trends
Q: How are close rates and in-home consultations trending?
A: In-home consultations (IHCs) saw modest improvement in close rates during Q4. Despite a soft quarter for power outages, IHCs were up for the year, and January showed a strong start due to weather events and increased consumer awareness. Close rates are expected to improve modestly over 2024.

Dealer Count Progress
Q: What's the status of increasing the dealer count towards the 10,000 goal?
A: The dealer network remained flat at 8,700 in 2023 after significant growth in prior years. Challenges include churn from dealers added recently and a softer power outage environment. Generac is confident in reaching the 10,000 dealer target by expanding into HVAC contractors and leveraging Ecobee's network of 14,000 contractors.

Impact of Interest Rates on HSB Sales
Q: How do interest rates affect HSB sales?
A: The home standby category is not highly sensitive to interest rates since purchases are often not financed. While higher rates may impact the broader economy, the core customer demographic continues to prioritize home protection over financing costs.

Product Strategy on Generators and Storage
Q: Update on DC generators and storage strategy, including AC coupling?
A: Generac is shifting focus from DC generators to AC generators for coupling with storage due to better cost structures and scale. They plan to improve AC coupling capabilities with new storage products launching later this year and will continue offering DC-coupled solutions where efficient. Full integration with microinverter products is expected by 2025.