Generac Holdings Inc. (GNRC) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the fourth quarter and full year 2013 Generac Holdings Incorporated earnings conference call. My name is Janeda, and I will be your operator for today. (Operator Instructions) I would now like to turn the conference over to Mr. York Ragen, Chief Financial Officer. Please proceed.

Good morning, everyone, and welcome to our fourth quarter 2013 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, our President and CEO. 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 our 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 U.S. GAAP measures is available in our earnings release and SEC filings. I'll now turn the call over to Aaron.

Thanks, York. Good morning, everyone, and thank you for joining us today. Our fourth quarter 2013 results provide further evidence that our Powering Ahead strategy continues to be successful, as fourth quarter net sales increased 10% to $376 million over a very strong prior year quarter, which included Superstorm Sandy. Our revenue growth during the fourth quarter is a great example of the improving diversification of our business, as the combination of strong organic revenue growth for home standby generators and commercial and industrial products along with the revenue contribution from recent acquisitions more than offset a meaningful decline in shipments of portable generators. Adjusted EBITDA and adjusted earnings per share in the quarter increased 25% and 28%, respectively, with EBITDA margins increasing 320 basis points over the prior year, primarily as a result of an overall improvement in gross margin and ongoing improvements in warranty rates. Before further discussing additional details of the quarter and our outlook, I wanted to review some highlights for 2013 as well as important accomplishments within some key strategic areas of our business that made for another impressive year of growth for Generac. 2013 was another record year for the company in terms of revenue, adjusted earnings and free cash flow. Revenue increased 26% to $1.5 billion over a prior year 2012, where revenue increased 49% over 2011. Once again, we experienced strong growth across all regions of the United States, as home standby generators continue to gain popularity and the Generac brand is increasingly recognized as a leading name in backup power. Revenue growth within residential products in 2013 exceeded our original expectations, due to better than expected adoption upon standby generators, continued to expansion of our distribution, execution on sales and marketing initiatives and a more favorable environment for residential investment. With…

Thanks, Aaron. Net sales for the fourth quarter of 2013 were $376.2 million, a 10% increase as compared to $342 million in the fourth quarter of 2012, which includes the impact from Superstorm Sandy. Looking at net sales by product class, residential product sales were $199.1 million in the fourth quarter of 2013, as compared to $216 million for the comparable period in 2012. Shipments of home standby generators experienced strong growth in comparison to the prior year, as we continue to expand our leading position for these products through our innovative approach to the market. The continued strength in home standby shipments is due to the similar combination of factors discussed during recent quarters, including the additional awareness created by major power outages in recent years, expanded distribution broadening the availability of the product and increased sales and marketing initiatives to create and close leads more effectively. The strength in home standby generators, however, was more than offset by a meaningful decline in shipments of portable generators, due to less severe power outage events in the fourth quarter of 2013 relative to the prior year. The prior year fourth quarter benefited from increased demand from portable generators from Superstorm Sandy. Recall that, immediately before, during and shortly after major power outages, demand for portable generators increases significantly. Following the outage and for a period of time after, we see elevated demand for automatic home standby generators, and given the increased awareness and distribution that has created a new and higher base line of demand established for these products. Looking at our commercial and industrial products, net sales increased 42.7% to $157.9 million in the fourth quarter of 2013 from $110.6 million in the fourth quarter of 2012. The increase in C&I net sales was driven by the acquisition of…

Thanks, York. Today we are initiating guidance for 2014 with revenues expected to grow over a very strong 2013. For the full year 2014, we expect net sales to increase in the mid-single digit range as compared to the prior year. Importantly, this topline outlook assumes no material changes in the current macroeconomic environment, no major power outage events during 2014 and does not include the potential impact of additional acquisition. The expectation for overall mid-single digit year-over-year growth in 2014, considers the fact that coming into fiscal 2014, residential product lead times were at a normalized level of one to two weeks. Recall that entering 2013, as a result of elevated demand from Superstorm Sandy, lead times for residential products were approximately eight to 10 weeks. In the first quarter of 2013, we effectively executed in ramping production levels to satisfy this increased demand. The reduction in lead times for residential products had an approximate $140 million positive impact on the first half of 2013 sales that is not expected to repeat in the current year. As a result, the prior year first quarter of 2013 produced a record level of revenue. Given that lead times entering the first quarter of this year are trending at more normalized levels, we expect this seasonality of quarterly results during the year to return to a more normal historical pattern, assuming no major power outage events during 2014. As a result, we currently expect the first half of the year to represent approximately 46% of total sales and the second half approximately 54%, with the third quarter being the highest revenue quarter of 2014 and the first the lowest. When taking this into consideration, we expect solid year-over-year revenue growth for every quarter in 2014 with the exception of the first quarter.…

(Operator Instructions) Your first question comes from the line of Jerry Revich with Goldman Sachs.

It's Matt Ryback on the call for Jerry. Aaron and York, maybe you could just comment a little bit on or update us on the increase you're seeing at the start of the year on the standby side? And I know you mentioned it's going to be a tougher first quarter, whether or not you would expect shipments of the standby to be up sequentially?

I think as we laid out, Matt, our guidance indicates, and it's just kind of a important distinction here, when you come off of a year without a major event. We didn't have any major, what we would classify as major events in 2013. As a result, what the business normally looks like, you go to this normal cadence where the first half is generally lower than second half. Q3 is generally the highest quarter and Q1 is the lowest. And the reason for that seasonality is pretty plain. Q1, the winter months are generally the tougher months to install products, so when we look at our activation rates and some of the other leading indicators we watch, those rates approximate where we would think that we would be this time of year. And then Q3, obviously, you get kind of the more normalized summer weather patterns and what not that create more demand at that of the year. So that being said, to answer your question, what we're seeing so far in the year, obviously our guidance didn't include any major event. I would say that at this point, the things that we've seen, the outage events in Pennsylvania last week, about 0.5 million people without power, down south and the southeast here with the ice event here, another 0.5 million without power. I think earlier in the year we had some disturbances in Toronto and in parts of Michigan, but individually those events we wouldn't classify as a major outage event. Certainly they do help us move some portable generator inventory, which I think is important. We're sitting on a lot on a lot of portable generator inventory at the end of the year. Because we didn't get those major events, the retailer channels -- the channel was full, we were full. This is helping us chip away at that. And I think there should be some opportunity to pipe-fill behind that, I think going into the season, the upcoming season, Q2 and Q3 season where portable generators are more prevalent. But with residential standby, I think it's a little too early, usually the tail-on events, whether its the Pennsylvania events or the ice storm down in the southeast, the tail on that is a couple of quarters afterward, so we would expect demand to increase in those areas as a result of the outages, but like we said in our prepared remarks, just 250,000 people everyday in the country without power, so these events, at a 0.5 million people, just they don't really kind of move the needle relative to that.

And then to switch gears just a little bit, can you just talk a little bit more about how the Baldor integration is progressing? And maybe detail for us if the distribution structure in the C&I has changed at all after the deal and to what extent you're seeing cross-selling opportunities?

We're really excited about Baldor. We think that it's, for us, anyway it represents kind of a defining moment in our commercial and industrial products portfolio, just the ability to extend that as we've indicated with the addition of those products. And it's certainly, obviously, Baldor came with its own distribution network. Now some of those dealers and distributors look similar to what we have. So there is some overlap. But there is some interesting things that it comes with, we made this comment on our prepared remarks that Baldor has an interesting lead, I would say, in the marketplace on the serving the oil and gas vertical with product. That's not necessarily a channel with stationary equipment that we've served before. We do it with mobile equipment through our Magnum business. But as we look out, and we look at what distribution looks like in the future, we're going through a pretty comprehensive review right now of our distribution for our industrial products, as a result, and really the catalyst here is the Baldor acquisition. I do think that there will be changes that will come out of that. We would expect that. We would expect that we're going to see a higher level of investment by our distribution partners going forward in both sales resources and marketing resources. To go out there now and go for that doubling of the addressable market, that basically we've gotten the ability to serve now with this Baldor acquisition. So really excited about that and excited about the manufacturing footprint increases that they bring us as well. You pointed on something that's really important. The distribution impact to this is going to be a really important part of the integration project that we execute on.

And then I'll hop back in queue, last question from me. M&A pipeline was pretty busy in 2013. Just hoping you could maybe touch on what parts of the business you're still looking to round out with additional product offering as we head into '14?

As we said in our comments, we do have a very robust M&A pipeline and it's been robust the last several years. We've done five transactions effectively in last two-and-a-half years and that's coming from a point of not doing a transaction ever before that, so all of our growth, up until that point was organic. But what we found is that, to execute against our strategy, to really accelerate portions of the strategy and the strategic objectives we talked about, gaining share in the industrial market, diversifying product offering, entering new geographies, we found that acquisitions provide us the ability to get there faster. And we're going to continue to be, I think very conservative about acquisitions. And what I mean by that is we're going to be good buyers of company. And we're going to be very diligent in our approach to making sure that acquisitions meet our guidelines. I would tell you that, Matt, looking forward, there's a lot of places in the world where, even though we did the Ottomotores deal, which certainly gave us a footprint down in Latin America. Tower Light, I would call that more of a toehold, if you will in mobile products, really light towers in Europe. We've got the whole rest of the world to look at. So acquisitions worldwide, anything that can give us some global scale are definitely in the pipeline. Also other engine powered equipment. We found the light tower category two-and-a-half years ago with the Magnum acquisition. We believe putting that together with Tower Light, we're now one of the world's largest providers of light towers to the global rental markets. There are other products like that out there and we continue to look at them. You can think of all different types of products that have a diesel or gas engine in them, and they would be fair game frankly, and in particular, if they go through the channels that we've established for Generac, our core businesses and then also through Magnum and Tower Light, where we can leverage our sourcing, where we can leverage our manufacturing capabilities, our technical expertise and our distribution, those are going to be the things we're going to look at going forward.

Your next question comes from the line of Charley Brady with BMO Capital Markets.

I don't know if you mentioned in your prepared remarks, but how much were portables down? And can you talk about kind of on the elevated inventory levels of portables, you talked a little about it, kind of where you were going into the fourth quarter and kind of where you are now, middle of the way, what your expectation is for portables in '14?

In the prepared remarks, we didn't breakdown the home standby and portable, and we just don't give it because it's competitively sensitive. But I think we did indicate, portables are down meaningfully in Q4. As you would expect, I mean we're up against the fourth quarter of prior year, which includes Superstorm Sandy. And certainly I think if you recall, we indicated throughout the year last year in 2013 that the portable, the pipe-fill that occurred after Superstorm Sandy was relatively strong going into '13, so Q1, Q2. So inventories were very lean last year. So year-over-year, when you compare portable inventory positions at the end of the year, how we see, as I mentioned before, we were high and channel was high or channels falls, we'll fall. We have been chipping away at it. The kind of the cadence we look at there, as we come into a year, and we plan for basically the amount of shelf space that we have at retail to turn products through on an everyday basis, should we not get a major event. So the thesis is, we go into kind of the Q2 -- going into Q3, going at Q3 being the peak and we plan for inventory levels that we want to make sure, we have enough inventory on hand to satisfying any large events that could happen. Should they not happen, we want to be a sell that inventory down on an everyday basis over the next two to three, maybe four quarters at the longest. I would tell you that we're on the path to doing that. Again, without getting too discrete into the numbers, we've made a nice little dent in the portable business. We haven't gotten the full picture yet of January's retail numbers where inventories were at for some of our retail partners, but some of the numbers we have seen indicate that they also begin to flush inventory in parts of the country, where we had events. So we feel good that there maybe some restocking opportunities in those areas. We do have a couple of winds that we picked up, some additional shelf space this year in 2014, that will expand our shelf a little bit with portable generators, but we've got a nice kind of mid-20% share of that market, right now, and kind of, continue to grow a little bit more here into 2014. And we really think that we're largest portable generator provider here in the U.S. today.

And switching gears on the telecom market. What are you hearing from the major telecom companies in terms of what their CapEx spending looks like on the generator side into 2014 and how that play out in Q4?

Q4 was a good quarter for us with telecom, as we indicated. I think some of the telecom's may have been a little more conservative with CapEx earlier in the year and a little less conservative within the second half, and that's a more normal telecom, when we look at our customers in that channel. They tend to come out of the year maybe a little bit conservative, kind of wait and see approach, and how the year is going to play out. And then maybe do a little bit of budget going towards the end of the year and we think that played out last year. As we come into '14, I wish that they gave us really discrete guidance of what they were going to spend on generators. We get some indication of CapEx numbers in totality for new site build and retrofit. But they don't unfortunately give us what that equates to in their minds in generators. So in some cases there are third-party project managers, in between the telecom provider and ourselves, and in some cases we're helping project manage along the way. We think that again, this a market that has a tremendous amount of upside potential. As we've said, our estimates are -- and the wireless industry estimates are, that they're about 300,000 wireless towers sites in the U.S. About 30% of those sites today have some kind of backup power, the other 70% do not. More and more critical communications, wireless, voice and data are going across these networks and the hardening of these networks is something that is definitely on the minds of the providers, and if not the regulators as well. So this is going to be a secular trend for us. It's going to take a number of years to continue that to build out. And we expect that in '14 and beyond that that's going to be an important vertical for us and continue to be an important vertical for us. And we lead that vertical from a share perspective, and really have for almost two decades, and that's a really important channel for us.

And one more, I'll hop back in the queue. Can you just talk about, you had a more focused effort on the C&I market, going after like C stores and gas stations and things like that. Can you talk about kind of what kind of traction you've seen since you become a bit more focused on that space?

Yes. We've got an internal initiative that we kicked-off last year. Again, on the heels of some of the major awareness events that have happened in the last several years. And we just felt and we have felt for a long time that there is a very compelling ROI for many small footprint retail businesses, as we refer to them and/or sometimes that we also call the optional standby market. So where a standby generator is not required by code or regulation, it's a business decision, a business investment decision to purchase such a product. And the protection of revenue stream, the protection of perishable inventories, the continuity of business, all of those things weigh into that decision. Certainly there are verticals within the small footprint retail or light commercial space, where the ROI is very compelling. You get into small restaurants, convenient stores, gas stations and the like and the ROI is off the chart. I mean you can literally pay for a natural gas fired, small light commercial genset in a single outage of 24 hours or less. So there is, in some of those applications, it's just no-brainer, it's just a question of building awareness. So it feels a lot like where we were at 10 years ago with the residential category, right. We had a lot of kind of missionary work to do in the front-end of this to educate. And so we put in place a number of things. We've got a website that we put up last year called, poweryoucontrol or [ph] powerforyourbusiness.com, it helps people kind of get just some simple ideas on the return on investment and just some of the industry verticals that we've identified here. We're going to continue to expand on that to create a richer pipeline of sales…

I'm going to speak one more here. Can you just talk about the opportunity at some point with homebuilders, new homebuilding coming and adding a standby generator as an option when you're building a new house? Any ideas, any plans to maybe partner up with the homebuilder to become sort of the preferred supplier for that?

Yes. We talked about new constructions where you want to install a standby. I mean you have all the trades on-site, you've got all the permits pulled, all the walls are open, it's much easier, that the installation cost is a fraction on a home standby generator in new construction versus a retrofit. Again, more than 90% of what we do is retrofit, only 10% is new construction. We have tried for a number of years with some degrees of success to penetrate that new construction marketplace. Obviously that became very challenging at the depths of the housing crises in '08 and '09. That was a really tough conversation to have with a builder when they were really just trying to keep their heads above water. Today, though, I think we're reaching a point, an inflection point in the demand for these types of products. Really that's related to the improved awareness of them. It was really hard to have a conversation with builders about the category when customers weren't asking for it. They weren't asking for because they didn't know about it. So it was this vicious cycle that was difficult to break. Where we're getting traction is with the custom homebuilders. The custom builders understand that they need to differentiate their product, if you will, from the large production builders and the track builders, tracked homebuilders. So that's something where we're seeing some important traction there. We've got a sales team put together for that. We have a number of initiatives to target that directly. We were just at the International Builder Show last week. A show we've been at for the last five years displaying products. So that's been an important part of building awareness within the build, the new construction community, and with the people, the trades that are involved with that community. And that's been a really important part of that strategy and will be going forward. I still think it's going to be something that at some point, builders are going to offer this as a standard option on certain dwellings. And I think it's just going to be -- the argument is too compelling when you look at the macro pieces that we have talked about with the aging grid and the aging demographics in this country. Having a backup generator in home just makes far too much sense and it's a really important thing for a lot of people going forward.

Your next question comes from the line of John Quealy with Canaccord.

It's Chip Moore for John. Just following up on that last one. On new housing starts, we're back to a 1 million here in the U.S., give or take. How much is that alone helping you guys do you think?

Well, couple of things there. So penetration rates for new construction are about double what they are for the penetration rates of existing homes. So if we say that the existing, the all-in rate is 3%, new construction penetration rates are probably somewhere in that maybe 4% to 6%. Again, you have to do the math. The challenge there, the increase from 0.5 million homes to 1 million homes, not all of those are homes that would typically take a generator. So you have to strip out some of the stuff that we wouldn't think would be, some of the lesser value homes or maybe some of the certainly, multifamily homes, which I don't think you're including, Chip, in your number of a 1 million. But if you look at just that penetration rate being a little bit higher there, and our 70% share, which we think is fairly consistent in that marketplace, it's had an impact. And obviously going from a 500,000 to 1 million, it's had an impact, and we'll continue it on a go-forward basis. What we have to do is increase that penetration rate because it just makes so much more sense to have that product there. Again, it's such a compelling value relative to a retrofit when it comes to the installation cost. It's just a fraction of the cost.

And as the follow-up, maybe little more color on some of the marketing initiatives, where do you stand on PowerPlay option. How does that translates into closure rates?

So PowerPlay, we talked about this, we had some targets last year that I think we gave you guys, we wanted to have over 1,000 users on PowerPlay. We hit that number. We're very happy with our achievement there. There is a good percentage of sales running through PowerPlay today. And we see a marked difference between dealers that are using the PowerPlay selling solution versus dealers that don't in terms of increases in sales year-over-year. And we strip out storm affected areas versus non-storm affected areas. We do that analysis to understand kind of the underlying impact of PowerPlay. Close rates continue to -- I am impressed with our close rates when we use PowerPlay. I think they could be better, though, and we have a lot of initiatives in 2014 here around improving close rates with the PowerPlay users. So a couple of things that we're working on; one, we're expanding very dramatically our training of PowerPlay users as it relates to, what we call IHC university. IHC is our in-home consultation. The residential standby category, the home standby category is really, it's an in-home selling proposition. It's a kitchen table pitch, as what we refer to it as. And so it's a contractor, which is our dealer, sitting across the table from a family and running through all the things that go into that decision process. Contractors and our dealers, we have some guys in there that are really good sales people, but by and large, contractors are, I would say, they are awesome trades people and they are very good technical people with what they do, but maybe selling is not chief among the skill sets that you'd put up at the top. So training them properly and giving them the tools to win is really…

Your next question comes from the line of Stanley Elliott with Stifel.

Quick question for you. On the EBITDA margins, did you say that there would be going to be 400 basis points higher in the back half of the year or in the first half of year, or did I miss hear that?

What we said was 400 basis points difference second half versus first half, so we're talking mid-20s for the year and be about a 400 basis point difference in second half versus first half. And I think that's just sort of theme that --from a seasonality perspective, we talked about normal seasonality patterns that we're expecting in 2014, we haven't seen normal seasonality patterns for last couple of years. So I think we have to educate investors and calibrate in terms of how the seasonality we're expecting, in terms of not only topline, and not only margins, and not only cash flows, how to play out from a seasonality perspective. But in general, as we talked about, revenues will be higher in the second half versus first half, margins will be higher in the second half versus the first half, cash flows will be higher in the second half versus the first half. And probably, when you think about the first half, you would think those categories would build from Q1 into Q2. So I think that's how we're thinking about trends there from a seasonality perspective.

And then, on the Mobile Link, could you give us a feel for how large the installed base is relative to the number of home standby units you had out there? And is this a year where you're going to look to try to monetize some of the installed base?

One of our prepared remarks, and we had a pretty significant milestone that we had this year. We built and sold our 1 million home standby generators. So in terms of our installed base, there are 1 million Generac home standby generators out there, which I think that that's really cool and only be 3% penetrated, and the kind of opportunity we have ahead of us is remarkable. But aside from that, the Mobile Link is retroactive, it works retroactively with products from our 2008 product line forward. So there is a good chunk of that million units that would be in that sweet spot of available monetization if you will for Mobile Link. And so we've started actively marketing the Mobile Link solution. And it's kind of unique for us, because we don't sell in product direct to the consumer. And so this is really a change in business model in terms of both selling a service and then selling it direct. And it's a subscription-based service. I was really blown away by the uptake on that in the first year of it, it exceeded our expectations, because I think it is such a compelling thing. Actually, we're rolling out android and Apple app-based platform for that here and it will be at the end of this month in February. So that you can pull it up on your app, you can see your generator, it will send you the maintenance alerts, text alerts for service. You can include your dealer in that loop for service. We think that the revenue model going forward could be refined and matured to have different levels of service pricing and plan. So I'm really excited about it, because we've never really kind of drilled in on the monetization. We have aftermarket parts, of course, that we sell for these products, but it's pretty limited. It's really not been an area of focus for us. Our focus has been on creating the awareness for the category and creating kind of the category in general. So monetizing this is going to be kind of fun to see how that develops over time. And it will be small at first, but there is obviously a big base to work from.

Your next question comes from the line of Jeffrey Hammond with KeyBanc Capital Markets.

This is James Picariello in for Jeff. Can you just hit on how you're thinking about capital allocation? I mean it is safe to assume that a special dividend is off the table with private equity now to the fixture, is there any color there?

Yes, and we've talked a lot about uses of cash, since we've been public and we've been pretty consistent on how we've demonstrated our uses of cash. First and foremost, we want to grow organically and we want to pay down leverage and we've reduced our leverage over time. We are down to 2.6x net debt leverage here at the end of the year, which is well within our range here that we've talked about from a targeted leverage standpoint. We wanted to do bolt-on M&A like we have been doing over the last few years. And then, once you step to those priorities, the board will consider returning capital shareholders, in last couple of years we've done that. I think when you look forward I don't think the priorities are much different than that. We want to grow organically, we want to get into our targeted leverage range of 2x to 3x, and want to continue to do M&A like Aaron talked about from an M&A pipeline standpoint, and we have opportunities there. But once we step to those priorities, again, then the board at that time will consider all the different alternatives that maybe out there, be it a regular dividend, be it share buyback, be it special dividend, each option will be evaluated at that time, when we step to the priorities.

Your next question comes from the line of Ross Gilardi with Bank of America Merrill Lynch.

I just want to follow-up on that question. So your willingness to pay another special dividend, is that largely a function of availability of attractive acquisitions over the next six months, in terms of whether or not you have the excess cash, because as you said, you're already within your targeted leverage range?

Like I said, we want to step through our priorities. We have three other priorities, before the board will start evaluating returning capital to shareholders. So we're operating to that plan, and once we step to that plan and evaluate what opportunities look to your point, Ross, on the M&A pipeline. It's a broader, probably, view than just six months, in terms of how we view that. I mean it's like Aaron talked about, we have a broad pipeline from M&A standpoint. And as things become actionable, we want to be able to act on them. And we'll evaluate it throughout the year, but we want to step to the first three priorities for us there, Ross.

Your next question comes from the line of Brian Drab with William Blair.

Most topics have been touched on at this point, impart just because you guys are so comprehensive. But Aaron you speak so quickly and comprehensively that there is so much information in these calls. So international is still very small percentage of revenue. Can you just touch on roughly, what percentage of revenue is international in 2013? When will international be more meaningful, I don't if it's 5% or 10%. Do you have an idea in mind, when you reach that percentage or level of revenue international?

It's interesting, Brian. If you go back two years ago, our sales outside the U.S. and Canada were less than 1%. Today, when you pro forma for the acquisitions, you can pro forma those acquisitions in between '13, you get about 12%. And obviously, that's good growth internationally and that's not a much bigger base by the way of total sales. So those are starting to become important pieces of our business. We've got a long way to go. We're going to globalize this business. As I said in the prepared remarks and in some of the Q&A here, I think it's an $18 billion market worldwide for power generation. And then you get into some of the other power equipment things like towers and other engine powered things that we've talked about, that's even greater. Our opportunity I think is really pretty tremendous. We've got to execute, obviously, and doing acquisitions domestically is one thing, doing them internationally is another. And our Ottomotores acquisition that we did in December of 2012, that 2013 we did a lot of work on that acquisition to integrate it in. And we've learned a lot in terms of operating, manufacturing outside the U.S. But when you think of the world, and the way I think of it, if you look at Latin America, I think we've got a great platform there with Ottomotores to go after Latin American markets. So I think for the Americas, we feel pretty good about where we sit, at least in terms of power generation. When you look at the rest of the world though, we really don't have any presence in Europe, Middle East or Africa, when it comes to stationery gensets. We deal with mobile products with Tower Light, but stationery gensets are completely different end-market and different product. And then you get into China, you get into India, some closed markets like that, even Brazil I would consider to be a closed market. And there is opportunities within those areas of the world, where I think as we look at building out the company globally, those are areas that we need to either find acquisitions or find our way organically. And that's our focus going forward here.

Your next question comes from the line of Ross Gilardi with Bank of America Merrill Lynch.

Just had one follow-up. So on the C&I side of the business, York, can you just repeat what the guidance was? I think it was, was it up 20?

Yes. So we talked about, for 2014 it would be up low-20s and organically it would be in that mid-to-high single-digit range.

And you would explain that in terms of visibility from telecom, it's a bit limited right now, clearly there is a very long runway and a lot of penetration opportunity. But what kind of visibility you really have on organic growth, because clearly you've got very, very difficult comparatives on the C&I side of the business as well as is it what you're seeing out of the rental market or just in some of these new rent markets that gives you confidence to forecast organic growth at this point?

I think there is a couple of thing. I mean one of the leading indictors there is non-resi construction, which is I think an important -- there seems to be some life in some of those indicators. So that gives us hope that as it relates to some of the areas, in particular retail and some of these areas where we're actually focusing even more on with the optional standby market that we like what that looks like. The rental market, there is a secular shift, as we've talked about, to renting equipment versus buying it. It's very prevalent here in the Americas and certainly in the U.S. We're starting to see that pickup in places of the world like Europe, where maybe buying equipment was the first choice as opposed to renting. But all it takes is a good economic price as to I think get people to align around the idea of renting versus buying, better matching their expenses with their revenues, and renting certainly allows them to that. And that's a mindset shift for places like Europe, where the traditional solution has just been for a contract or a company to go out and buy a piece of equipment. And that's one of the reason we really like Tower Light, is that they have excellent relationships there. The other one that I would call out, the recovery in the oil and gas and domestic energy production is another secular trend here. If you believe anything about the U.S., you believe that the next couple of decades are going to be really important in terms of domestic energy production. And what that allows for us to do is and really this is all through acquisitions, through Magnum couple of years ago and then here through Baldor, we've got a nice product portfolio and some nice relationships with from a distribution standpoint to serve that vertical. And that would not be a position we would have been in a couple of year ago. And obviously that pulled back a little bit over last year-and-a-half, and now we've seen signs where given the increase in natural gas prices and I think just the overall demand for nat gas going forward, as it becomes a more widely used fuel, if we can get it into in terms of the transportation fuel, I mean certainly that could create just an amazing amount of opportunity for domestic energy production. But we really like that vertical. We like the recovery in that here. And we like that we're kind of building a nice niche around that.

Your next question comes from the line of Jeffrey Hammond with KeyBanc Capital Markets.

Just a quick follow-up here. Regarding your yearend dealer number of 5,400, if I heard correctly, the net add was 550 dealers. Can you just quantify what the total attrition was?

We don't breakout the attrition. I mean we do have churns in that, and we had about every year, and this is the interesting thing about the dealer base. These are small contractors, small businesses, and small businesses are formed and dissolved very quickly. So in fact, the lifespan of a small business in the contracting space is about seven years. So theoretically, we've moved about 15%, a little more than 15% of our distribution base every year, just to attrition businesses that go out of business, people who sell their business, owners who retire or die, whatever the case may be, however they get out of business. And then there a lot of businesses that get formed. So we have a constant pipeline of that. But we have some pretty stringent requirements going into become a dealer that every year that's going by. We've continued to increase the amount of requirements to becoming a dealer. And we're a lot more targeted in where we add them. We're really focused on adding dealers, where we feel penetration rates are low. We don't want to put a new dealer in a good dealer's backyard, that doesn't do anybody any good from an investment standpoint. But what we do want to do is find a new dealer or a new contractor and put them in a market where we're underrepresented or we feel there is opportunity. And so that's really our focus going forward and has been for a long time. That rate of 550 net adds was over kind of our historical rate of 300 to 400 net adds on an annual basis. We think 2014 will revert back to kind of that 300 to 400 cadence again going forward.

And this concludes the Q&A session for today's call. I would now like to turn the call back over to Aaron Jagdfeld for any closing remarks.

Thank you. We want to thank everyone for joining us this morning. And we look forward to our first quarter 2014 earnings release, which we anticipate will be sometime in early May. Thanks again for your time. Good bye.

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