Generac Holdings Inc. (GNRC) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Fourth Quarter and Full Year 2014 Generac Holdings Incorporated Earnings Conference Call. My name is Katina and I will be your coordinator for today. At this time all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. [Operator Instructions] As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call Mr. York Ragen, Chief Financial Officer. Please proceed.

Thank you. Good morning and welcome to our fourth quarter and full year 2014 earnings call. I’d like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, our President and Chief Executive 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 our SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today’s call. Additional information regarding these measures, including reconciliation to comparable U.S. GAAP measures is available in our earnings release and SEC filings. I’ll now turn the call over to Aaron.

Thanks, York. Good morning, everyone and thank you for joining us today. Net sales in the fourth quarter of 2014 improved to 404 million as compared to 376 million in the prior year, an increase of 7%. Home standby generator sales exceeded our expectations during the fourth quarter with product activation rates proving to be resilient as we leveraged our innovative sales and marketing techniques to help create awareness for the product category. Commercial and industrial products continue to represent a growing portion of our business during the quarter as we grew 17% on an as reported basis through the combination of strength in oil and gas markets and the contributions from recent acquisitions. We also generated a record amount of free cash flow during the quarter of nearly $100 million. Despite a power outage environment that remained well below normal levels nationally the number of home standby activations or installations were at elevated levels during the quarter. This strength can be attributed to a variety of factors including an increase in targeted media spend during the second half of 2014 that drove a greater level of in-home consultations or IHCs. Coupled with the increase IHCs we saw a notable improvement in the conversion rate of consultations to sales which we attribute to our focus throughout 2014 on training centered around our PowerPlay selling system. Another contributing factor to the outperformance during the quarter was strength within Midwest region of the U.S., as well as select areas of Eastern Canada which both experienced particularly strong levels of activations resulting from heightened levels of localized outage activity in 2014. We also experienced notable strength during the fourth quarter of shipments of mobile products that serve the oil and gas markets. Increased utilization of this equipment throughout the fourth quarter continues to drive strong orders from our broad base of rental equipment customers. However, heading into 2015 the decline of energy prices experienced in recent months is expected to have a near-term negative impact on demand for oil and gas related products. Before further discussing additional details of the quarter and our outlook for 2015, I want to review some key financial highlights for 2014, as well as share with you several important accomplishments that we believe would position Generac for growth going forward. For the full year net sales declined slightly in 2014 to 1.46 billion as compared to 1.49 billion in 2013. Overall organic sales for the company improved slightly over the prior year when excluding the approximately $140 million sales headwind related to Superstorm Sandy, despite certain of our end-markets performing below our expectations during the year. While this level of organic growth is modest relative to our strong historical track-record, we believe holding the new and higher baseline level of demand during 2014 is an accomplishment worth recognizing. Residential product sales increased approximately 3% when excluding the prior year sales headwinds just mentioned and also improved organically when excluding the Pramac America’s acquisition once again with the backdrop of a below normal power outage environment for the year. Commercial and industrial product organic sales growth was approximately flat year-over-year as strength in oil and gas markets help to offset reduced capital spending with certain telecom customers and overall softness in Latin America. With the annualizing of the Tower Light and Baldor acquisitions during the year, along with the MAC acquisition that closed in early October 2014 our revenue base for C&I products continued to increase in scale and now represents nearly half of our total sales for the company. We also continue to generate a strong level of free cash flow during 2014 totaling $218 million representing 93% of our adjusted net income which is consistent with our solid cash flow conversion average over the past four years. We enter 2015 as a more diversified company with a strong balance sheet and the capability to generate significant free cash flow providing us with the flexibility to drive our Powering Ahead strategic plan forward. In 2014 we executed on a number of initiatives involving our residential products, in particular within our home standby category. As previously mentioned overall sales of residential products improved organically during the year on an adjusted basis. Portable generators declined again in 2014 as a direct result of the lower outage environment experienced, but this was more than offset by organic year-over-year growth in orders for home standby generators. This is very encouraging to see given the lack of power outage nationally both big and small over the last two years. And we believe that we have been very effective at offsetting a nationally lower demand environment through our continued investment in innovative sales and marketing efforts within this important product category. These efforts are highlighted by our four steps system to indentify and qualify sales leads and improve the sales closure rate for home stand by generators. Specifically this system includes our A.M.P. targeted marketing process to find the most likely sales prospects, the optimal selection of media to communicate our message including national television advertising campaigns, telemarketing and direct mail, the scheduling of in-home conciliations for qualified sales prospects through our Generac lead team, and the improvement in close rates through our PowerPlay in-home selling solution. These four elements are interconnected and have been successful in generating new sales leads and improving closure rates for our residential dealers. Recall these sales and marketing tools only became fully operational within the last two years and we have continuously improved on them since their launch. When coupled with the leads that we generate and qualify for our distribution partners, the PowerPlay selling system has become an important tool for our residential dealers and we ended the year with approximately 25% of our dealer base using this approach. As a result of all the above factors we believe we further expanded our market share for the home standby product category during 2014, improving from approximately 70% share in 2013 to 75% share at the end of the year. Heading into 2015 we will continue to focus on our main strategy of increasing the awareness, availability and affordability of home standby generators. We look to accomplish this through a variety of initiatives including some important projects focused on further reducing the total cost of ownership and by using advanced data analytics to further improve how we identify the most likely buyers for these products. From a longer-term perspective, we continue to expect the trend of an increasing level of power outages to remain in place driven by an aging and under invested electrical grid, favorable demographics and the frequency of severe weather that we believe will continue well into the future. With only approximately 3.5% of U.S. households owning a stationary backup generator, we believe there remains substantial opportunity to grow this market over the longer term. Innovation is a core value of Generac and remains an important element of our future growth. In 2014 we introduced a large of numbers of new products throughout the year, while continuing to build a substantial portfolio of future development initiatives. A few notable introductions include a new 22 kilowatt standby generator which provides the highest output for an air-cool generator currently available in the marketplace. Another new product introduction during 2014 was the Guardian Synergy the industry’s first variable speed home standby a best-in-class much quitter more fuel efficient generator with exceptionally clean power output. Also during 2014 we launched the industry’s most cost effective home standby generator called the PowerPact which combines all the benefits of automatic operations with many of the features found in Generac’s market leading Guardian series of generators, with the 7 kilowatt unit starting in an affordable 1899 retail price. We also launched the Rapid Start or RS series affordable generators in 2014 that provide back power with the turn of a new power dial an innovative feature that dramatically simplifies starting an operation making RS series portable generators the easiest to use product in the market today. We also introduced several new commercial and industrial products in 2014. We further expanded our broad line-up of natural gas generators with the introduction of a new 400 kilowatt power node at an industry leading price point. In addition to new stationary products we also introduced a new Vertical Mass light tower that provides the most compact footprint in the industry, improved use of the -- ease of use, transportation runtime and serviceability. We believe our ability to innovate is something that separates us from others in our industry and we have used the growth in our business over the past several years to accelerate our product development efforts and dramatically expand our research and development capabilities. As a result, we expect 2015 will be another important year of new product launches across of our business. The integration of the Baldor Generators acquisition was a key project for our team throughout 2014. We saw significant revenue synergies during the year through the sale of several gaseous fuel generator models that were part of the Baldor product line for use in oil and gas applications and we experienced strong growth for these products selling directly to Magnum's existing rental equipment customers as well. We also implemented some meaningful product cost savings as we transitioned the acquired products and facility into the Generac portfolio. We completed the consolidation of the manufacturing footprint for our larger industrial generators from our Eagle Wisconsin facility to the Baldor acquired facility in Oshkosh Wisconsin. With this project and with the increased demand for the acquired product lines, we expect to see improved utilization of the Oshkosh facility on a go forward basis. The additional capacity we now have is critical to providing our industrial business the ability to aggressively pursue the larger end of the industrial generator market, a market we have largely not participated in prior to the Baldor acquisition. In addition to added production capacity we were particularly focused throughout the year on increasing our sales bandwidth to better enable our distribution partners to sell the larger generators and systems now available to them. This includes a greater level of interfacing with the engineering firms and electrical contractors responsible for specifying and selecting these products in an effort to improve their awareness of our expanded product offering and our innovative solutions. We continue to remain active on the M&A front during 2014 by making two strategic acquisitions. In early September we purchased the brands and assets of Pramac Americas, LLC. This acquisition helps to expand our portable generator product offerings at both the consumer value end of the market to the Powermate brand and for the premium contractor segment through the licensing of the DeWalt brand. We remain focused on building out and enhancing our competitive position within the portable generator market as we look to further solidify our leading market share position by providing a full range of backup power products for the residential market. In early October we acquired the MAC Heater company in Bismarck, North Dakota. MAC is the leading manufacturer of premium grade commercial and industrial mobile heaters within the U.S. and Canada and offers a broad product line that includes flameless, indirect-fired and hydronic surface heaters. These products are primarily used in the oil and gas and construction markets, as well as other industrial sectors and are sold through national equipment rental companies and independent dealers. We're excited about the potential cross-selling opportunity this acquisition brings to us as we combine MAC's heater product line with Magnum's broad relationships in the equipment rental market and allows us to further penetrate the oil and gas market over the long-term. We have been talking in recent quarters about the notable strength during 2014 from rental equipment customers in the U.S. as a result of strong demand in the oil and gas market. This has come from the broad product line of mobile and stationary equipment that we have assembled through our Magnum and Baldor acquisitions including gaseous fuel generators that are capable of running on wellhead gas generated at drilling and production sites. A more stringent regulatory environment around the flaring of natural gas at these sites has been an important catalyst for increased awareness and demand for these generators throughout the year. We have also talked about the attractive secular opportunity related to domestic energy production for other support equipments such as light towers, mobile heaters, and portable pumps that are essential at these oil and gas sites. We made good progress during the second half of 2014 in evaluating the overall opportunity in oil and gas to better determine the appropriate levels of investment and resources needed as we position ourselves to participate in this end-market over the longer-term. This evaluation combined with our initial success in selling products to this market during the year clearly validates that there is an opportunity to further invest and better position Generac to participate in what we believe will be an attractive long-term up cycle in this end-market. However with the rapid decline in oil prices seen in the recent months we believe that it’s necessary to take a more measured approach at least in the short-term with respect to our level of investment. Also until we fully understand the impact of lower energy prices on the demand for capital equipment we're holding off on discussing any specifics regarding the overall industrial market opportunity for Generac's products within oil and gas. I would now like to turn the call back York to discuss fourth quarter results in more detail. York?

Thanks, Aaron. Net sales for the fourth quarter of 2014 were 404 million, a 7.4% increase as compared to 376.2 million in the fourth quarter of 2013. Looking at net sales by product class, residential product sales during the fourth quarter of 2014 were 194.9 million which improved sequentially as compared to 183.7 million in the third quarter of 2014. This quarter-over-quarter improvement was driven by solid increase shipments of home standby generators which exceeded our expectations for the variety of reasons as discussed previously. In addition the current year fourth quarter benefited from higher organic portable generator shipments and the modest contribution from the Pramac acquisition that closed in early September, which is partially offset by a seasonal decline in power washers relative to the current year third quarter. Comparing on a year-over-year basis residential product sales declined slightly from the 199.1 million shipped during the fourth quarter of 2013 which was a strong prior year comparison that still benefited from the one year anniversary of Superstorm Sandy. In addition, the fourth quarter of 2014 continued to experience a power outage severity environment that remained well below base line levels. These factors resulted in a modest year-over-year decline in both home standby and portable generator sales. However, in spite of the low outage environment we continue to see demand for home standby generators above our expectations for the quarter. Looking at our commercial and industrial products, net sales increased 17.1% to 185 million in the fourth quarter of 2015 from 157.9 million in the fourth quarter of 2013. The improvement was driven primarily by continued strong demand for mobile generators and light towers going into oil and gas and other general rental applications during the quarter. Contributions from the recent MAC acquisition also contributed to the year-over-year sales growth. These increases were partially offset by a continued decline in telecom shipments as compared to the prior year due to reduced capital spending by certain national account customers. On a sequential basis C&I product shipments improved compared to the third quarter of 2014 as we were able to ramp our operations in Oshkosh Wisconsin during the fourth quarter and return to normalize lead times for our larger industrial generators. As previously discussed the consolidation of our manufacturing footprint for these products took place in the third quarter of 2014 and resulted in the deferral of certain C&I shipments in the fourth quarter of 2014. Finally, although we have been experiencing a softer demand environment within Latin America over the past several quarters, shipments during the fourth quarter increased at a solid rate over the prior year as we believe the economic environment has stabilized in that region. Our other product sales category improved to 24.1 million in the fourth quarter of 2014, an increase of 25.7% from prior year fourth quarter sales of 19.2 million. This growth is due to an increase in service part sales as the base of stationary and mobile products in the market continues to expand. To a lesser extent part sales from recent acquisitions also contributed to this growth. Gross margin for the fourth quarter was 34.3% compared to 38.7% in the prior year fourth quarter. The decline was driven by the combination of a higher mix of organic C&I product shipments, the impact from recent acquisitions including Baldor, MAC and Pramac Americas and a temporary increase in certain products overhead related costs. During the fourth quarter, we incurred incremental cost associated with the West Coast port congestion, short-term transition costs related to the consolidation of our manufacturing and raw material storage footprints, manufacturing under absorption due to the reduction in telecom capital spending and copper forward contract mark-to-market adjustments. We expect these costs to continue into Q1 2015 and then moderate in Q2 2015. Operating expenses for the fourth quarter of 2014 increased 4.8 million or 8.9% as compared to the fourth quarter of 2013, the increase was driven by the addition of recent acquisitions, a more favorable adjustments to warrantee reserves in the fourth quarter of 2013 of 5.3 million as compared to the current year of 2.7 million, along with increased marketing and advertising expenses. These increases were partially offset by a 1 million reduction in amortization of intangible assets versus the prior year. Excluding non-cash intangible amortization expense, operating expenses as a percentage of net sales during the fourth quarter of ’14 were 13.4% as compared to 12.8% in the prior year quarter. Adjusted EBITDA was 92.2 million or 22.8% of net sales in the fourth quarter of 2014 as compared to 103.6 million or 27.5% of net sales in the same period last year. This decline in adjusted EBITDA margins compared to the prior year was attributable to the 4.4 decline in gross margins combined with the modest increase in operating expenses as a percent of net sales as a result of the factors just discussed. Adjusted EBITDA for the full year 2014 was 337.3 million or 23.1% of sales. GAAP net income for the fourth quarter of 2014 was 49.4 million as compared to 48.5 million for the fourth quarter of 2013. GAAP income taxes during the fourth quarter of 2014 were 17.5 million or 26.1% tax rate as compared to 29.9 million or 38.2% tax rate for the prior year. The decline in GAAP tax rate was primarily due to the impact from certain state R&D tax credits that were recognized during the current year fourth quarter. Adjusted net income as defined in our earnings release was 68.4 million in the current year quarter versus 77.5 million in the prior year. This decline over the prior years is the result of the overall decline in operating earnings as previously discussed partially offset by 2.9 million in lower cash income taxes. Diluted net income per share on a GAAP basis was $0.70 for the fourth quarter of 2014 compared to $0.69 per share in the fourth quarter of 2013. Adjusted diluted net income per share as reconciled in our earnings release was $0.98 for the current year quarter compared to $1.11 per share in the prior year quarter. With regards to cash income taxes, the fourth quarter of 2014 includes the impact of a cash income tax expense of 6.3 million as compared to 9.1 million in the prior year quarter. This year-over-year decline in cash income taxes for the quarter was primarily the result of a reduced cash income tax rate together with lower pre-tax earnings relative to prior year. The lower cash income tax rate wave was driven partly by the state R&D tax credits that were recognized during the current year quarter. For the full year of 2014, cash income tax rate increased to 13.3% as compared to 9.3% during the prior year due to our NOI carry forwards and certain tax credit carry forwards becoming fully utilized during 2013. Free cash flow defined as net cash provided by operating activities less capital expenditures was 98.5 million for the fourth quarter of 2014 as compared to 88.2 million in the same period last year. This record level of free cash flow was driven by a reduction in primary working capital compared to the prior year fourth quarter along with the reduction in cash taxes and capital expenditures partially offset by a decline in operating earnings during the current year quarter. Free cash flow for the full year 2014 was 218.3 million. Our uses of cash during 2014 included 34.7 million for capital expenditures, 61.2 million related to acquisitions and 87 million for the prepayment of term loan debt, including a $25 million payment during the current year fourth quarter. This debt repayment will be applied against our 2015 excess cash full payment that is required pursing to our term loan credit facility. As of December 31, 2014 we had a total of 1.09 billion of outstanding debt net of un-amortized original issue discount and 189.8 million of consolidated cash and cash equivalents on-hand resulting in consolidated net debt of 898.3 million. Our consolidated net debt to LTM adjusted EBITA leverage ratio at the end of the fourth quarter 2014 was 2.7 times a level that remains within our targeted range of two to three times. Additionally at the end of 2014 there was approximately 150 million available on our ABL revolving credit facility. Given our current liquidity profile and strong free cash flow generation, we're confident in our ability to continue to invest in the future growth for the business both organically and through acquisitions. With that I'd now like to turn the call back to Aaron to provide comments on our 2015 outlook.

Thanks York. Today we are initiating guidance for full year 2015 as we expect net sales to increase in the low to mid single-digit range as compared to the prior year. Importantly this top-line outlook assumes no material changes in the current macroeconomic environment and no major power outage events during 2015. But does assume a more normalized baseline level of power outage activity severity relative to the below normal levels experienced in the prior year. We expect the seasonality of quarterly results to demonstrate a normal historical pattern assuming no major power outage events occur throughout the year. As a result we currently expect the first half of the year to represent approximately 44% to 46% of total sales and the second half to represent approximately 54% to 56% of sales. We anticipate that the first quarter will be the lowest revenue quarter of the year and to be in the range of $315 million to $325 million as we expect a normal seasonality, a subdued level of investment in the telecom market and sequential declines in oil and gas will all have an impact on the quarter. Looking at our guidance by product class, for residential products we expect net sales to increase in the mid to high single-digit range during 2015 which assumes mid single-digit organic growth with the balance of growth attributed to Pramac Americas acquisition. This sales growth guidance is driven by a number of factors including the execution on a number of strategic initiatives to increase the awareness and demand from standby generators, the assumption of a more normalized baseline level of power outage severity during 2015, and an overall favorable environment for a residential investment. The strategic initiatives we are working on including expanded focus on lead generation and further improvement in lead conversion for home standby generators increased to improve retail shelf placement of products, the full year benefit of new product launches and the expansion of participation by our dealers and various programs such as PowerPlay and PowerPro among others. With regards to our commercial and industrial products for 2015 we expect net sales to be down slightly on an as reported basis but flat on a constant currency basis. As strong headwinds in the oil and gas and telecom markets will be offset by gains in our industrial distribution channel, improvements in Latin America and contributions from the MAC acquisition. Organic C&I growth is expected to be down in the mid single-digit range. Our 2015 outlook for C&I products is driven by the expectation of a favorable non-residential construction market, the continued secular ships in the market to our natural gas generators used in light commercial and oil and gas applications as well as a general preference towards the rental of mobile power equipment. However we expect that telecom capital spending environment to remain subdued throughout 2015 particularly during the first half of the year. In addition as discussed earlier in the call the significant decline in oil and gas prices experienced over the past several months is expected to have a notable impact on demand for our mobile equipment that is primarily used in upstream oil and gas applications. We also expect a modest level of foreign currency headwinds from the stronger dollar particularly against the euro. Partially offsetting these headwinds is the expectation for Ottomotores to experience an improvement in larger project bid activity despite modest overall economic growth in the Latin American region driven by improved infrastructure spending and execution on strategic initiatives. In addition we expect to see further progress on our efforts to gain share in the larger end of the power generation market, continued optimization of our industrial dealer network and various initiatives to improve our specification and close rates. In summarizing our sales growth assumptions for 2015 we expect total organic growth to be flat compared to the prior year despite the strong headwinds from declines in the oil and gas and telecom sectors, as well as negative impacts from currency. The acquisitions of Pramac Americas and MAC are expected to contribute approximately 3% growth for a total year-over-year net sales increase in the low to mid single-digit range. Gross margins for 2015 are expected to improve by approximately 150 to 175 basis points as compared to the prior year. The increase is primarily attributed to a reduction in product cost and more favorable pricing environment driven by a lower level of promotional activities as well as improved product mix partially offset by the full year impact of the Pramac America and MAC acquisitions. Operating expenses as a percentage of net sales excluding amortization of intangibles are expected to increase approximately 75 to 100 basis points as compared to 2014. This increase is due to a combination of higher warranty expense resulting from 5.1 million in favorable adjustments to warranty reserves in 2014 that are not expected to repeat in 2015 and increase in certain compensation costs and additional headcount to support strategic initiatives, as well as higher marketing and advertising expenses. Adjusted EBITDA margins are expected to remain attractive and be in a range of 23.5% to 24% and are expected to experience some variation as a result of normal seasonality. Second half 2015 adjusted EBITDA margins are expected to be approximately 300 basis points higher than the first half as a result of additional SG&A leverage on higher sales volumes and more favorable product mix and increasing benefit from product cost reductions. Specifically regarding the first quarter of 2015 adjusted EBITDA margins are expected to be approximately 21% and then improve each quarter sequentially throughout the year. I will now turn it back over to York to walk through some guidance items to help model out our cash flows and earnings per share for 2015.

Thanks, Aaron. Finishing up in 2015 we expect interest expense to be in the range of 47 million to 48 million which represents a similar level compared to 47.2 million for the prior year given a full year impact of our interest rate swaps that were entered into during 2014. The forecast for interest expense includes to 40 million to 41 million of cash outflow for debt service costs plus approximately 7 million for deferred financing cost and original issue discount amortization for our credit facility. The interest expense guidance assumes no additional debt repayment during 2015, our existing interest rate swap contracts remain in place and that LIBOR rates do not increase beyond our current LIBOR floor of 0.75%. Based on our guidance provided for 2015 our cash income taxes for the year expected to be approximately to $47 million to $49 million which translates into an anticipated full year 2015 cash income tax rate of approximately 18%. This represents a notable increase as compared to 34.3 million for cash income taxes in 2014 or a 13.3% rate. The projected increase in cash income taxes in 2015 is primarily due to expected higher overall pre-tax profitability levels and to a lesser extent less of a benefit from certain discreet tax deductions that were taken in 2014 and are not expected to repeat in 2015. The projected higher cash income tax rate is a function of the expected increase in pre-tax profitability levels as each incremental dollar of pre-tax profits over our tax shield is taxed at the expected GAAP income tax rate of approximately 36%. It is important to note however even though we're paying increasing levels of income taxes our favorable tax shield through annual and tangible asset amortization and our tax return remains intact through 2021 resulting in approximately 49 million of cash tax savings per year for the next seven years. As a result our cash income tax rate is expected to be significantly lower than our current projected GAAP income tax rate for the foreseeable future. As we drive higher profitability overtime cash income taxes can be estimated by applying a projected GAAP income tax rate of approximately 36% on pre-tax profits going forward and then deducting the approximately 49 million of annual cash tax savings from the tax shied each year through 2021. Depreciation expense in 2015 is forecasted to be approximately 16 million to 16.5 million. GAAP intangible amortization expense in 2015 is expected to be approximately 21.5 million to 22 million. In 2015 stock compensation expense is expected to decline to approximately 10 million to 10.5 million primarily the result of the remaining unvested equity gain in France related to the 2010 initial public offering becoming fully vested. Finally in 2015 our capital expenditure spending is forecasted to increase to approximately $36 million to $37 million which is still less than 2.5% of our forecasted net sales for the year. As we continue to invest in certain infrastructure and technology expansion projects to drive organic growth and build a common global platform across our businesses. We expect to continue generating significant free cash flow in 2015 given our superior margin profile together with our low cost of debt, favorable tax attributes and capital efficient operating model. For full year 2015 we expect the conversion of adjusted net income to free cash flow to be approximately 90% resulting in improved levels over the prior year. In closing this morning our Powering Ahead strategy has been guiding our investments in Generac for the last four years allowing us to capitalize on the compelling secular growth drivers for our business and contributing to the evolution of Generac into a more diverse and globally focused company. As we continue to move the Powering Ahead plan into the future, we're focused on a number of initiatives that are driven by the same four key objectives to grow the residential home standby generator market, gain commercial industrial market share, diversify our end-markets and expand into new geographies. Combining this strategy with the long-term growth opportunities of our business we believe Generac is well positioned to drive future growth and shareholder value. This concludes our prepared remarks, at this time we would like to open up the call for questions.

Thank you. [Operator Instructions] Yourfirst question comes from the line of Jerry Revich representing Goldman Sachs. Please proceed.

I'm wondering if you gentlemen could talk about what surprised to the upside in the quarter top-line, I think was better than your guidance and I think better than most of us expected. Relative to your expectations, can you talk about what went better?

I think Jerry when we pull it apart as we mentioned home standby I think was probably the biggest part of the upside surprise for us during the quarter. We saw really strong activation rates which are installations, which is the lagging indicator for us just as to point out, but installations were strong throughout the balance of the fourth quarter and the seasonality in this category continues to surprise us a little bit. I mean we obviously were thinking a little bit stronger for third quarter than we ended up and not quite strong in the fourth quarter, so we continue to kind of learn the cadence of this market and especially in years without any kind of major events and even without any minor events frankly we didn’t have much in the way of outage events at all. So home standby was good, we attribute most of that increase in home standby by the way to as we kind of feel it apart to a lot of the additional spending that we’ve been doing on targeted advertising to particular the Power You Control infomercial that we’ve been running, the balance of 2014 in a lot of markets. We really ramped that up in the second half of the year and our PowerPlay selling app in concert with that, so we’re driving leads and driving those leads through distribution through our selling system and that really has picked up and we saw that start to accelerate in the third quarter and really do quite well for us in the fourth quarter in terms of the results of activation. So it’s driven home standby and then I think to a lesser degree the Magnum business, our Magnum business had a great year last year fourth quarter was actually was record year for Magnum in all of 2014, in the three years we’ve owned it and they had a very strong fourth quarter as well again going in the oil and gas markets in particular we saw particular strength there. We try to tamper out enthusiasm about where that’s going to go here in ’15 as oil prices have come down, but and then actually in Latin America we had a good quarter. And at Ottomotores we think we found a bottom there throughout the year in 2014 we’ve made some significant changes and investments in that business over the last several quarters, put some of the leadership in, done some things to consolidate our operating footprint and done some things down there that we feel are going to be an important catalyst for future growth and we also saw -- I think the market in Mexico has somewhat settled out as well. So we’re going to see what that brings for 2014 with oil prices being down, but we did have a good quarter in the fourth. So those are the things I would think that I would point out.

Can you talk about how the lead generation numbers look for you heading into the first quarter? You mentioned seasonality has been less of a factor for the standby business in the fourth quarter. We're looking at a pretty easy compare in the first quarter in the year-ago -- any color you can give us on what lead generation tells you and how we should think about standby seasonality ’15 compared to what we saw in ’14?

Yes, when you look at the seasonality of this business when it gets cold and when it snows, installations activations really slow down. I mean in particular we’ve got some very strong markets in the Midwest and Northeast which have over the last several weeks been pounded with winter kind of finally arriving, so that has dampened installation and activation activity. Similar to what we saw last year in Q1 relative to the polar vortex which was more cold-driven but this year it is probably a little more snow driven. And then unfortunately those events haven’t led to any kind of major outrages, so I mean I guess if you’re in those areas that’s a fortunate thing but if you’re selling generators not so much. So what we’ve seen is that comedown, we think that our guidance that we issued here the kind of discreet guidance for Q1 kind of take all of that in the consideration and as reflective of at that point of our expectations here and where things are going to end up.

Your next question comes from the line of Jeff Hammond representing KeyBanc. Please proceed.

So it sounds like you want to wait on the size in the oil and gas opportunity. But if you can -- you've done a number of deals. Can we size what you think your oil and gas exposure is overall as a percentage of your sales, and maybe while you're at it, touch on telecom? And then can you talk about order rates within the different components of the business -- the heaters, the lighting towers, the gaseous generators, and where you are seeing or expect to see the greatest weakness?

Yes so I think you’re right, Jeff, we kind of pulled back on quantifying the oil and gas opportunity given the kind of rapid decline in energy prices here, but when we look at 2014 to kind of answer your question. And again it’s not a perfect number because when you sell to a rental equipment company you’re not exactly sure where the equipment ends up in terms of application and in terms of end application and it could be in one application one day and then the next week it’s in a different application. So it’s a little bit kind of tough but we can look at the general geographies that we’re shipping into and kind of make a guess there and as you could guess and so we think about 10% of our revenues top-line last year where kind of in that oil and gas space if you will, and that’s everything from the heaters. And again we didn’t have a full year of the MAC business under our belt so that’s not a pro forma number that would be on an as reported basis, so that might consider that up a bit from there when you think about MAC in a full year run rate. But obviously that’s going to pull back this year from that level and we think that our guidance is modeling that appropriately we have model a pretty fair headwind here for oil and gas. And then the other one as you mentioned is telecom, there was a point in the curve here earlier this year where we saw telecom start to come down we had a very good first half of 2014 for telecom so we've got a tough compeer up against there as we come into '15. But in the second half we really saw that come down we attributed that primarily to a couple of things I mean first as the cyclical business but secondly there were some major M&A activities that were announced in that space and we've seen that movie before where and we do a consolidation like that in the industry typically equipment purchases kind of slowdown as the acquired companies or the acquiring companies evaluate what they bought in terms of footprint and equipment. What's happened now is I think it's going beyond that I think the net neutrality discussion that’s out there some of the customers that we sell to directly in that space have been very clear and their remarks, their public remarks about capital spending as it relates to building out their networks. As this net neutrality the new rules kind of developed here with the SEC so it's kind of a wait and see, we think we’ve modeled a very subdued 2015 as it relates to telecom capital investment. So I think we're appropriately reflecting kind of how we see the market playing out there is still a lot of opportunities there don’t get me wrong it's not like it's gone to zero but it's certainly off of its pace from the first half of last year. And then I think when you look at what pieces of equipment in general we see as kind of get an impact by all these to answer your question I mean it's the mobile equipment business primarily as it relates to oil and gas and then the telecom business is more stationary diesel sets smaller stationary of diesel sets that are primarily delivered to those markets. And that’s hurting us as we mentioned on the small stationary diesel sets we had some absorption issues that we were up against in Q4 we are doing some consolidation of our operating footprint we continue those projects here in the first quarter. But that’s kind of lot of volume if you will in terms of a unit basis running through our factories here those stationary diesel sets for like the telecom market. So that again we think we reflect in our guidance kind of appropriate hedge against the fact that we could be faced with some absorption headwinds here first quarter and kind of maybe relaxing a little bit further in the year as volume builds.

Can you give us a sense of within your commercial guidance, how much you are thinking telecom and oil and gas are going to be down?

Yes I think when we look at the headwinds I think we kind of modeling somewhere in that $50 million range if you want to think it that way is kind of the number we put on I mean again it's not a perfect science. But we think that that is reflective of kind of what we're going to see in the market here for 2015 that kind of a pullback no goals obviously yes but a 20% decline over prior year when you look at those two oil and gas and telecom.

And then just on the cost side, can you quantify what this port issue cost you and when that resolves itself and then the added marketing spend? And do you think that persists through ’15?

Yes the port issue is amazing I mean we have had a lot of great planning earlier in the year in 2014 around that we saw it coming we're ordering inventory spending lead times on our ordering windows and talking about supply chain and that’s gone nine months. So even the best laid plans unfortunately didn’t anticipate to nine months kind of stretch on this what is turning to a freaking nightmare for -- I got to imagine I saw retail federation obviously getting things on retail store shelves but obviously in the manufacturing sector and other sectors in the economy we all depend on a global supply chain a lot of that global supply chain comes through what goes ports. We haven’t really quantified the amount but it is a little hard to quantify maybe we can look at airplane cost and everything else and that’s easy to put a number on but it's really the impacted disruption that’s going on in our business when you're trying to run products down in production line and you run out of one component and you've got to shift to a different production there is switching cost and there is -- you sending people home some days early you're working overtime other days to catch up. So it's a general disruption in the business from a resolution standpoint I think what I've heard is that there is hope that they're closed on arrangement here some kind of a contract but that it could take six to eight weeks to kind of unwind there are 25 ships at anchor out in the West Coast just off of Long Beach and up and down the cost there is elevated levels of traffic that needs to be resolved so it has led to all kind of shortages and trucking chasses and rail shortage capacity and all kind of dislocations so it's been a mess and we're going to continue to manage it, but it’s been a mess.

Your next question comes from the line of Mike Halloran representing Robert W. Baird. Please proceed.

So just one quick follow-up on Jeff's question, are you guys assuming a -- that the second half of the year run rate on telecom is what just carries through ’15, or are you guys thinking, given all the headwinds you mentioned, a modest step down from the second half and that's more the normalized run rate?

We're actually modeling Mike kind of a modest increase in telecom throughout the year and some of the…

In the second half.

In the second half of 2015…

Aaron, I meant relative to the back half of 2014 run rate that you saw?

Yes, probably up slightly from that point Mike from the back half of '14 just when you look at the comp. So I guess our views on that -- there are some projects in the pipeline -- there are some potential customers that have told us about some plans but again I temper the enthusiasm around hey I think we have modeled it appropriately but just overall for the full year I think until some of the net neutrality stuff becomes a little clear I think these guys are a lot less inclined to continue to build out rate of their networks until they know where they things are going to head.

Yes first half '15 looks slightly up from back half of '14 and then it build in into the second half.

Normal seasonality from that level then makes sense, so on the residential side of things, maybe just an update on the dealer count side of things and how you think that's tracking, what the pipeline there looks like. And then also how inventories for you guys track. I know you don't have a lot of standby inventory, but how the portable inventory bled through the fourth quarter and into the first quarter here.

Yes. So I will talk to dealer count one first before I get to inventories. Dealer count approximately 5,200 dealers is where we kind of are today and that say it's down from where we ended the year last year I think we ended the year about 5,400 so down a couple of 100 dealer on a net basis. Certainly not what we were expecting but given the challenging power outage environment it's not only difficult to create demand at the end-market level it's difficult to create interest at the distribution level. And so that comes off of three very large years of that we added over 1,000 dealers almost 1,100 dealers as a matter of fact in a three year period there two to three year period. So the count today is pretty stable, what we do like is that we see improvements in the engagement level of the dealers that we have in the channel. So even though the dealer count overall was down their engagement in the tools that we put in front of them with PowerPlay and PowerPro have really been effective. We just had our annual dealer meeting down in Orlando, Florida here in early January and we had 1,200 dealers at that meeting 1,300 dealers at that meeting and that's a record number for us and just a tremendous amount of interest in certainly new products which of course is always the life blood of distribution but the sales process and techniques that we're doing to make them more effective sales people. And the leads that we're driving them I mean we're driving tens of thousands and tens of thousands of leads these guys which is when you can get sales opportunities to distribution that's when you get a very close relationship going, so we're pretty pleased with that effort and focused very hard on that over the last several years. And then your question on inventory levels, you are right we don't keep a lot of standby inventory in our warehouses and because they are big heavy expensive boxes we don't see a lot that stays in channels. We would say that the standby inventory level is pretty normal where we were about a year ago in terms of channel levels by the end of the year. And then portable generator inventories are elevated I mean those are fourth quarter we just we were off I think I don't the record in our prepared remarks but our fourth quarter outages were 70 plus percent below kind of the normal baseline that we have been tracking. So fourth quarter was just really, really low and so I guess again it's what gives us some hope on the on standby side the things that we're doing are having an impact. I mean they are certainly overcoming the softness from kind of the macro softness that we're seeing in the end market. But portables are a different game I mean that was down again in 2014 down in 2013, so without some catalyst to propel those sales forward we were going to have elevated inventory levels for a while. We try to burn that stuff off over the next six to nine months that's kind of how we calibrate in terms of we kind of corporately set the inventory levels that are at a certain rate during the season like we did last fall. And then if you don't get a season then you are burdened with that inventory and the carrying cost of the inventory which is for us our carrying costs are relatively low so it's not a huge burden but we do have a lot of inventory.

And then on the tools that you guys are given, I think you cited about 25% of the people -- of your distribution is using some of these great tools you guys introduced. Maybe you can help frame how that's impacting the P&L from a growth perspective. What's that 25% seeing? And compare that to maybe the 75% or so that hasn't adopted amp, PowerPlay, and all of the other stuff? How would you differentiate what that looks like from a growth perspective and from a prospecting perspective?

It's a great question and these are things that we talk to dealers -- we try to move to the system -- we talk to them a lot about, right. We want to tell them how the 25% that are using this system how they are succeeding in terms of growth rates ahead of the 75% who don't use it. And we see double-digit increases in sales for the guys who are on the system and quite a bit less than that for people that aren’t. And so the leads don’t go to people unless they are on the system. So the leads that we generated you only get those as a dealer if you are part of the PowerPlay if you are using the PowerPlay system because the scheduling application is built in to that system. And so it creates a tremendous amount of alignment between ourselves and the dealers and the information flow coming back Mike the other way is really powerful as well in terms of just given us I mean dealer by dealer specific close rates and what their average quoted prices are so that we can help them try and sharpen their pencil when it comes to things that -- we see dealers from a best practice standpoint in one market that are closing sales at a certain percentage and we see dealers in other market at 2x that percentage, we want to take those best practices and we want to share them amongst the distribution. A lot of times we see a high correlation though between price points so the higher the price points that’s quoted out there the lower the close rate, so we see it’s directly inverse calculation. So our desire here is to not only get people on the system but to continue to reduce the total cost of ownership and we’re already focused very much on that next year, but we definitely see the difference in close rates and growth rates for dealers that are on the system versus the dealers that aren’t.

The next question comes from the line of Charley Brady representing BMO Capital Markets. Please proceed.

So I just want to understand -- you've got essentially a flat dealer network, it sounds like, but you are seeing a pickup in Q4 sales. So can you give us any color on, I guess, maybe kind of the same-store sales for existing dealers? It sounds like, at least in Q4, maybe that's gotten better. But I don't know if there's just some seasonality around pretending you track that directly?

Yes, we haven’t quoted the same-store sales number and we’re not to probably do that but from what drove this Charley I mean the -- again I think that we can point very clearly within our own data to the fact that the -- when we talk about what we’ve been doing on a sales and marketing side in terms of this four-step process right of driving awareness for the category is really critical and what we did and probably didn’t attribute enough value too in terms of our guide on fourth quarter was the fact that we were ramping our spending and our focus on this not only throughout all of 2014 but we really accelerated that in the second half, so we got the third quarter and there is a lag. It takes time when you start that spending you start those efforts in terms of a ramp on that for you to see it in the activations rate and the sales rate for the dealers and so what we saw which is we saw positive traction with that in the third quarter that led to improved shipment rates and activation rates for products in the fourth quarter. So if you want that mathematically yes that would lead to an improvement in the same-store sales just on the raw math basis across the average dealer. Certainly you know I think there are pockets also that we called out where -- there were even though activations or outages were very low and actually last year there were pockets where like the parts of the Midwest year Michigan in particular Eastern Canada again Toronto area and some parts of Canada where activation rates were particularly strong on the back of elevated outage activity on a localized basis in those market. And so if we didn’t get a lot outage but where we did get them where at couple of targeted few markets that ended up being and has historically frankly been good markets for us. The Midwest is going to be good market for us and it’s a market that doesn’t get Hurricanes, doesn’t get really ice storms. You get winter weather and you get some severe summer weather and that typically what drives that is as well as the tree cover here and the age of the grid in this part of the country. But even the northeast which, it wasn’t up in Q1, but it was certainly started to come back, very slow first three quarters of the year and then we saw the Northeast rebound very nicely for us in the fourth quarter in terms of stabilization and still down year-over-year on a comp basis based on the Sandy impact, but that region was up very nicely on a sequential basis for us in the quarter.

And just on the commentary on your -- within your guidance, moving back towards normal outage activity -- again, in the guidance in 2015, I guess can you help us frame if we don't get back to that normal, what the top-line impact might be? Because we are down, what, 70%, and obviously, you're offsetting some of that, just internal stuff you're doing. So you're not getting the full brunt of it. But if we don't snap back to a normal 2015, what's the downside risk, I guess, is what I'm trying to drive to?

Yes, Charley, as you asked the question I think the challenge with that question, obviously when we project and forecast and put our budgets together all we have to go buy is its historical averages, so that’s why guide the way we do. Now having said that in answer to your question, if you look at 2014 we’ve been talking pretty clearly that that’s last year was a period pretty much every quarter where we had below average normalized baseline level of outages, so you can start with 2014. Look at our resi business for 2014, that’s a period of time that experienced below average outages so now you got a layer in Powermate, so we’ve acquired Powermate so there is some acquisitions growth and a modest acquisition growth from Powermate. And then to your point you got to give us some credit for all of our internal initiatives to drive awareness regardless of outages, we’re doing lots of things to really create our own awareness the sales and marketing and the tools and driving penetration of PowerPlay and getting our dealers aligned with us and all those things to drive growth regardless of outages. So you got to give us credit for, so you’ll be able to model a number then based on that and that gives you an idea sort of where -- what could 2015 look like with below average outages, now I think the other side of the coin is we haven’t assumed that in major outages either so there is upside to that as we get landed Hurricane and I know you’re trying to put a collar around it, but you have to keep that in mind as well.

Your next question comes from Brian Drab representing William Blair. Please proceed.

So in the first quarter, you gave us the guidance -- this range of 315 million to 325 million. I don't know that you've given any granularity here in terms of what we should expect for the segments. But I guess from the call, what I would model here, what I'm gathering, is that maybe residential and portable is down a little bit year over year and a pretty steep decline in C&I year over year in the first quarter. Is that fair?

Yes that’s fair Brian I think Aaron mentioned we talked about seasonality of the residential business and with snow on the ground and very cold condition it is tough to install so seasonally historically Q1 is always got a lowest point in time for resi. So you would expect some moderation from Q4 to Q1 for resi but to your point about C&I there is some things on the C&I business that there is a still seasonality on the C&I business in particular what the mobile products. I mean there is just less construction in Q1 so therefore the mobile gens and mobile light towers seasonally will be off from Q4 to Q1. Our heater business, the heat business the season is Q3, Q4, Q1 comes around and in order rates drop fall off at that point. So that’s a seasonally thing, seasonally impact. But there is sequential decline in our guidance for oil and gas so we had a strong oil and gas quarter in Q4 we're expecting moderation off of that in Q1 for sequential decline oil and gas. Telecom year-over-year now for telecom that’s going to be a really tough comp Aaron mentioned we did ship a good amount of telecom product in the first step of '14. So year-over-year that’s going to be a tough one for C&I but I think we already comment about sequentially what telecom will look like and then there is the transition to moving our manufacturing footprints from Eagle to Oshkosh that did cause deferral sales aim from Q3 into Q4 that now that we've caught the normalize lead times that won't repeat in Q1. So that will be sort of an artificial sequential decline from Q4 to Q1. So I think the way you framed it Brian is quite right that C&I will be impacted more so sequentially.

As we look at -- I guess the way I was framing it -- thanks for all that. But the way I was framing it was year over year as well. And I'm wanting to make sure that I am modeling down year over year for both of those segments, which is down more for C&I, is that fair?

I guess we haven’t given the street guidance but I think Jeff pointed out there was some easier comps with the polar vortex last year. But we still see that seasonal challenge with installation with lots on the snow on the ground and lots of cold. So I wouldn’t expect resi to be dramatically off that with prior year but C&I I think I gave my comments there.

And then any impact recently from the winter storms that we are seeing on East Coast on the portable sales here in January?

No they're very minimal. So just have minimal outages associated with those storms there have been pockets but it's mostly just snow events. And I think from a portable gen standpoint, we really haven't seen much uptick.

Okay. Then could you give us acquisition revenue in the quarter?

Yes so in the quarter so for C&I because it was up 17% a good junk of that the vast majority was acquisition related, so organic growth for C&I was in that low single-digit range. Now keep in mind that we had a very strong oil and gas organic growth and then but that was tempered by very tough comps on telecom so that’s really the reason for the sort of the muted organic growth on the C&I side of the business. So the majority of that 17% is in fact the MAC coming on board and actually one month of the Baldor business. And the on the resi side a very small amount where we reported minus 2% year over year are very small amount of that was related to the power made, so a little bit more negative from an organic standpoint for resi.

Your next question comes from the line of Ross Gilardi representing Bank of America Merrill Lynch. Please proceed.

I was just wondering, can you help us at all with a more updated view of the geographic dealer network representation with everything that's going on over the last couple of years? You mentioned the strength in Eastern Canada and Midwest. Just -- and I know you don't fully disclose these numbers, but any help on Northeast versus the Midwest versus the Southeast that you could provide?

No. I don’t mean to -- we haven’t provided that a lot of detail Ross. The Northeast is obviously very strong region for us in terms of -- are you talking dealer account or you just talking…?

Dealer account yes I am talking about the 5200 dealers like…

No we haven’t broken that, no.

Okay.

I mean it follows population and outages, if you were to map if you were to overlay a U.S. map of population centers and outages you'd find a pretty…

Investor Relations deck has that map.

Yes I mean we have got a map and I mean we don't have the accounts broken out necessarily but…

But general trends…

Yes we haven’t done it that way.

You have been pretty clear on what happened with oil and gas in Q4 and what you expect earlier in the year. But can you kind of give any more color on what physically you are actually seeing with some of your rental customers? Because, clearly, they must have overbought in the fourth quarter and have got a lot of idle fleet to contend with in some of the energy-producing states. So are they now liquidating that fleet in the used market? Are they moving it around to other parts of the country just curious how that dynamic plays out. What physically unfolds that spills back into your business?

Yes I mean they watch utilization rates very closely in the rental market, right. I mean that's kind of their key metric in terms of the ROI and the equipment it's one of the key metrics as a number of them but utilization rate is the big one. So they are constantly dialing that in and obviously with the pull back in energy prices depending on some of the rental companies are definitely a lot more exposed to that than others. I would say generally the smaller regional players are the guys who are in the Bakken shale or in the Permian basins they are in the Eagle Ford shale I mean they are in the shale plays in the Marcellus directly those are the guys who are definitely having some challenges with idle equipment, right. But the big national accounts have a bigger footprint I think they have more flexibility to move things around. I can't tell you that I have heard directly that somehow there is bigger liquidations going on out there in the option markets and things like that. We do know the utilization rates have come down in the areas of the country that are in these direct energy play, so that’s definitely one. Now some of that thing offset by continued improvement around non-res construction, so non-res construction, road construction other non-res construction has been decent here has finally shown some signs of life which is helpful. But I think beyond that if you directly associated with especially rental type of company in the energy plays I think you are looking at some of the same things that we've modeled in terms of pull backs in oil and gas.

Your next question comes from the line of Stanley Elliott representing Stifel Nicolaus. Please proceed.

A quick question in North Dakota, there was a lot of push to run the generators right off of the wellhead. Have you seen any sort of regulatory moves in other shale plays to where that would be the norm going forward?

The Bakken is the place where flaring occurs most prevalently. So that’s been the concentration of regulatory environment both state level really at the local level, state level and the national level. EPA has got some stringent rules there state of North Dakota as you mentioned. Stanley it has also got some pretty strong rules that have been putting in there. When you get down in like the Permian Basin as an example I mean it's only about 3% of wells with flare so it's a much higher number in the Bakken and that's where we have seen early legislation some of these shale plays continue to develop like the Marcellus Southeast and some of the other parts of the country. I would suspect if and a lot of this is because of the type of drilling right it's frac -- it's frac drilling so that's where you tend to get more of that by-product from that is gas and gets flared off. The Bakken is primarily a frac type of environment in terms of the technique used. So where fracing is used more prevalently that's where you are going to see a general increase in flaring. And in particular in new shale plays like the Bakken -- the Permian is an older shale play it's pretty well developed so there are ways to actually capture that gas and put it into commerce clean it up and put in commerce do something else with it sell it or turn it into electricity or something like that.

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

Hey, just real quick, on the new home builds, can you characterize them -- sorry, Aaron, if you gave it in your comments, but what penetration is like in the new home on the resi side right now?

I don't know that we've actually talked about that I mean the index is higher than our current 3.5% penetration rate across but we've said probably 2x is what we've seen it. I don't have a direct read in front of me on that John just in terms of like most updated stats for the quarter on that. But obviously it's a nice thing to see and we continue to make efforts there to -- we have put a lot of effort on that in fact with our sales teams here to bring new home builders in, we have had some wins in back half of 2014 in particular again some homebuilders who are doing whole developments with home standby generic heater as an option or as a standard feature on the homes that they are putting in and that’s something we haven't seen really ever. And so we like that and obviously it's in areas of the country we would expect to possibly see that like the Northeast and the Midwest where outages have been more prevalent in the last several years. But it is actually about 2x to kind of the overall penetration rate.

And just a real quick follow-up, just in terms of -- you have had some really good revenue growth and capture on, I call it, more of a centralized channel where you are helping these distributors close deals in homes. Is there a cost to capture from your standpoint at Generac that you measure? And would we likely see that number grow with national advertising, et cetera? It is still going to be pretty early innings for this effort, but I just wanted to get a feel on how you think about cost to capture from a Generac perspective? Thanks, guys.

It’s a great question, John, I mean we look at cost per lead that we generate, we look at the close rates and technically you work all way down to a cost per sale in terms of the efficacy of those efforts and not only the direct marketing spends if it’s direct mail, television, print those types of things but also we’re starting to look at the total cost to capture in terms of the efforts to produce those selling platforms, the efforts to improve selling platforms, the cost for the headcount that we need to take the leads, qualify the leads, and to push those leads out, training, the analyze -- we’ve got a massive effort going on. As you can imagine we’ve accumulated a tremendous amount of data over the last four years on activation data and we’re mining that data now at a level we’ve never done before we’ve brought analysts on board that are point through that data they’re trying to find queues in the data that help us sharpen our approach to our sales and marketing efforts so that we’re more targeted. So that we can keep those cost to capture in a relative range, but you’re right it’s early innings and we’re trying a lot of things right now, so the cost to capture is pretty high I mean thankfully our scale with 75% share gives us the opportunity that to really go after this hard and spend a lot of money on this. And you see it reflected in our SG&A, we’re spending millions and millions of dollars on these efforts and it’s not a small effort, but we think that we’ve got an opportunity here, a rate opportunity to take the market only 3.5% penetrated U.S. single-family homes and do something pretty unique in growing that. And that’s going to come from us it’s not going to come from anybody else in this market. We’re not going to sit around and wait Mother Nature to deliver the next catalyst for leg up in terms of demand we’re going to do it on our own. And when those outages happen we’re going to be in a really good stop in terms of being able to tell the story about these products and to capture those leads and close those leads. So we really like what we’re doing there. We think the payoff is well work the effort at this point, but it’s expensive.

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to turn the call back to Mr. Aaron Jagdfeld for closing remarks.