Good day, ladies and gentlemen. And welcome to the Fourth Quarter Full Year 2017 Generac Holdings Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introuduce your host for today’s conference over Vice President of Finance Mr. Mike Harris. Mr. Harris, you may begin.

Good morning. And welcome to our fourth quarter and full year 2017 earnings call. I’d like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer, and York Ragen, Chief Financial Officer. We will begin our call today by commenting on forward-looking statements. Certain statements made during this presentation, as well as other information provided from time-to-time by Generac or its employees, may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today’s call. Additional information regarding these measures, including reconciliation to comparable U.S. GAAP measures, is available in our earnings release and SEC filings. I will now turn the call over to Aaron.

Thanks, Mike. Good morning everyone and thank you for joining us today. Overall, fourth quarter results provided a great end to 2017 as we experience record quarterly sales through strong core organic growth of approximately 13%. Overall, net sales increased 17% compared to the prior year when including the contribution from the Motortech acquisition and favorable foreign currency impacts. This sales growth translated into an overall 80 basis point improvement in adjusted EBITDA margin and 19% increase in EBITDA dollars, along with record quarterly levels of operating and free cash flow of $138 million and $122 million respectively. Home standby shipments during the fourth quarter grew strongly following the significant outage activity experienced during the second half of the year as the overall demand environment continue to be favorable. Shipments of C&I products were also significantly higher during the fourth quarter, driven by the continued recovery in domestic mobile products. In addition, very strong year-over-year organic sales growth was experienced within the international segment, which was leveraged into a substantial improvement in adjusted EBITDA margins. Given our strong earnings and cash flow for the year, we reduced our net leverage ratio to 2.5 times as compared to 3.6 times at the end of 2016, improving further on our financial position as we enter 2018. Awareness for home standby generators benefited from base line power outage activity that remained elevated during the fourth quarter, as well as the after goal demand from the significant hurricane activity during the third quarter. End user activations for home standby generators remained strong and broad based with activations in Florida, Texas and Puerto Rico particularly elevated. Also the Northeast region continued to rebound and experienced double-digit growth for the first time in several years, benefiting from the increased outage activity during the quarter. With a…

Thanks, Aaron. Net sales for the quarter increased 16.9% to $488 million as compared to $417.4 million in the fourth quarter of 2016, including $9.6 million of contributions from the Motortech acquisition, which closed on January 1, 2017. This resulted in very attractive core growth rate of approximately 13%. Looking at our consolidated net sales by product class, residential product sales during the fourth quarter increased 11.2% to $265.5 million as compared to $238.9 million in the prior year quarter with all this growth being organic. As Aaron mentioned, the quarter saw near record shipments of home standby generators driven by the high power outage environment experienced in the second half of 2017. Shipments of portable generators were better than expected and down only slightly versus prior year despite a tough comparison with Hurricane Matthew, which occurred in October of 2016. During the current year fourth quarter, we continue to see strong portable replenishment demand from our retail partners on the back of the active hurricane season and higher base line activity. In addition, we also saw broad base growth of portable generators internationally at Pramac due to market share gains, new product introductions and overall market growth. Looking at our commercial industrial products, net sales for the fourth quarter of 2017 increased 27.1% to $188.3 million as compared to $148.1 million in the prior-year quarter with core organic growth being approximately 17%. Excluding the Motortech acquisition and favorable foreign currency impacts from a stronger euro versus dollar, the robust core organic increase was primarily due to the very strong growth in domestic mobile products, driven by the continuation of a fleet replacement cycle with our rental customers. In addition, our international segment benefited from larger project activity across the number of Pramac’s global sales branches. Net sales for the…

Thanks, York. Today, we are initiating guidance for full year 2018 as we expect net sales to increase between 3% to 5% when compared to the prior year, which includes the favorable currency impact of between 1% to 2%. This guidance excludes major outage events for the year. When excluding the benefit of elevated portable generated shipments during 2017 related to the active hurricane season, net sales in 2018 are expected to increase between 7% and 9% as compared to the prior year, which we believe to be a relevant comparison when evaluating year-over-year growth rates. In addition, our top line outlook assumes no material changes in the current macro economic environment and also assumes a base line power outage severity level similar to the longer term average, which excludes major events. As a reminder, should the power outage environment in 2018 be higher or if there is a major outage event during the year, it is likely we could exceed these expectations. For historical perspective, an average major outage event could result in $50 million or more of additional sales depending on a number of variables. Lastly, as previously mentioned, this guidance does not include any impact from the Selmec acquisition announced today. As a timing of closing is undetermined pending required regulatory approvals. Adjusted EBITDA margins for the full year before adjusting for non-controlling interest are expected to be between 19% to 19.5% as compared to 19% for 2017, which includes favorable impact from pricing and anticipated cost savings from our company wide profitability enhancement program or PEP initiatives. Consistent with historical seasonality, we expect sales and EBITDA margins in the second half for the year to be higher relative to the first half with the first quarter representing the low point as net sales for the quarter…

Thanks, Aaron. While we continue to assess the full impact of the tax reform act, our preliminary announces suggests a meaningful benefit from the legislation. Specifically for 2018, our GAAP effective tax rate is expected to decline between 25% to 26% as compared to the 35% adjusted full year rate for 2017 when excluding the $28.4 million non-cash gain recorded in the fourth quarter of 2017. Based on our guidance provided for 2018, our cash income tax expense for the year is expected to be approximately $28 million to $30 million, which translates into an anticipated full year 2018 cash income tax rate of between 12% to 13%. Before considering the impacts of the tax reform act, the anticipated cash tax rate for 2018 would have been approximately 17%. The reduction in the cash tax rate for 2018 as a result of tax reform is expected to result in a benefit to free cash flow of between $10 million to $12 million based on the outlook being provided. As a reminder, we still have a favorable tax shield as a result of the significant intangible amortization reduction in our corporate tax returns that results in our cash income tax rate being lower than our GAAP income tax rate. With the passage of the tax reform act, the tax affected annual value of this tax shield is now expected to be approximately $30 million per year due to decline in the federal tax rate from 35% to 21%. Lastly, I’ll provide some brief comments to help model cash flows and earnings per share for 2018. In 2018, we expect interest expense to be approximately $43 million, assuming the pricing in our newly amended term loan credit facility, our interest rate swap agreements that we currently have in place and a rising interest rate environment in 2018. Depreciation expenses forecast to be approximately $26 million, GAAP intangible amortization expense in 2018 is expected to be approximately $21 million, which is a reduction from $28.9 million in 2017. The year-over-year decline in expense is primarily a result of certain definite lives intangibles becoming fully amortized during 2017. Stock compensation expense is expected to increase to to approximately $12 million to $12.5 million. Our capital expenditures for 2018 are forecasted to be between 2% and 2.5% of our forecasted net sales for the year. For full year 2018, operating and free cash flow generation is once again expected to be strong and follow historical seasonality, benefiting from the solid conversion of adjusted net income to free cash flow expected to be over 90% in 2018. This concludes our prepared remarks. At this time, I'd like to open up the call for questions.

[Operator Instructions] Our first question comes from the line of Jeffrey Hammond from KeyBanc Capital Markets. Your line is now open.

This is [indiscernible] filling in for Jeff. So if you could just size up the storm contribution impact in 2017? It looks like the guidance implies, call it $65 million, in incremental portable demand. But could you break out the residential standby piece of that?

I think we've always said the residential product class that we have the vast majority of our sales are home standby generators. I think what we did quantify because as you know portables when you have a major event that’s much more reactionary product category that volume spikes and then comes back down to previous levels, which is why we thought it relevant to at least try to quantify what the strong impact on portable was. On standby its much different. It elevates and then hold the new in our base line. So we don’t think it make sense the back that out. But from a portable stand point, we quantify what we believe to be the 2017 impact from major events as roughly that $65 million to 70 million.

Just trying to get a better feel for where in the post storm cycle we are. Could you provide any color on demand trends and backlog? Heading into 2018 just point towards where we are in that cycle compared to what we saw with Sandy a few years ago.

So we did have some backlog coming into the year from Q4’s order rates. And again, we called this out in our third quarter call. It’s not nearly to the level that we experienced with Sandy for a number of reasons. The biggest of which of course just the fact that these storms happened a lot earlier than the season than Sandy. So a lot of the benefit of that event is really captured in Q4. So with Sandy, it was a late event and it took us a little bit longer to ramp. We didn’t have quiet expertise we have today and our ability to ramp up. And as a result, a lot of that benefit float into the first and second quarter really of 2013. So a different situation, really primarily related to timing. There is a couple of other reasons too. I mean, obviously, these events weren’t the size of Sandy either, which I think is another important factor in that. But in terms of where we're at today in the cycle, we still see some very good demand. Usually what we say is, you’ll see two to four quarters of elevated demand following an event like this and really pronounced that the one year anniversary of that event. So we would expect the same thing to happen. What we see as we saw in Q4, continuing to see activations pacing ahead of prior year here as we go into Q1. We’re continuing to work down that backlog. Our order rates -- our lead times for orders have come in nicely from where they were in Q4, but strong demand there. And then our C&I business as we called out in particular our mobile business, we continue to see that market rebound sharply here as we thought beginning of last year it’s continued again here beginning of 2018.

Thank you. And our next question comes from Ross Gilardi with Bank of America Merrill Lynch. Your line is now open.

I just want to ask you on the guide for 2018. I mean looks like you’re implying to be about $35 million of EBITDA at the midpoint versus $31.2 million in 2017, so an increase of $23 million, $24 million. I mean you’ve got a very easy comp in the first quarter presumably that I would think gets somewhere close to that that up positive $25 million, I am not asking for guidance on Q1. But it feels like you’re assuming basically very, very limited year-on-year growth after the first quarter. And I would think your Q2 comp is also relatively speaking compared to last two years also on the easier side given the strength you’ve been seeing in both resi and semi -- resi and C&I. So am I thinking about that correctly, is that fair?

Yes, I think that’s probably a fair assessment, Ross. I mean I think the big challenger of course is the second half of the year which because we don’t include any major events in our guide, it’s going to be a challenge at least on guidance -- as we issue guidance this morning, it’s difficult to comp that back half of the year. So that’s really I think where you probably are -- when you’re looking at it right I think in terms of first half, second half. But York, I don’t know…

I mean if you look, we’ve talked about that $65 million to $70 million portable impact from the storms, a lot of that happened in Q3. Based on the fact that we’re not assuming any major outages in 2018, that won’t repeat and that’s why we called that out. And then Q4 with our ability to ramp up here, we’re at near record levels on home standby in Q4. And again, without major events, you won’t be at that level but you will be at a new and higher base line, which I think is the key for home standby showing growth year-over-year there for the full year at least.

And then could you just talk about the Florida market -- have you seen things calm down since the summer, and field inventory levels and the storm impacted areas what are those looking like?

So Florida specifically, Ross, obviously, it’s not as a fever pitch it was during the events and near-term right after. But it remains very robust. We saw great activations in Q4 in Florida and Texas and Puerto Rico for that matter, other impacted regions. But Florida specifically, what’s interesting about Florida and this is maybe another comparison to if you want to look back to Sandy, we don’t have the concentration of dealers in that market that we had in Northeast, so that’s another headwind to really trying to do that comp directly apples-to-apples with Sandy. So right now, we’re focused on expanding distribution. It has been almost 11 years since there was a major event down there. So you get a normal amount of attrition. Contractor just frankly turnover and that’s our dealer base. So it’s an effort to increase distribution, which we’ve done in Q4 and we’re continuing to do here in Q1. IHC the home consultations remain very strong down in Florida and activations as well. I mean it is a market where you can install products here around. I think that’s one difference from when you get events in some other regions of the country. But by enlarge in relation to field inventories, field inventories feel very -- especially in the storm affected areas, tight. So I think it’s a different pricing environment right now. And so you won't see the normal promotional cadence you may have seen from us over the last several years. We’ll run our national promotions and thing like that. But some of the one off promotions that we’ve run in the past are going to be more limited, just as a result of the formal pricing environment. And so that clearly I think put a lead on where field inventories go. So we feel very good coming into this year, especially when you look where we were versus a year ago regarding field inventories.

So just one quick follow up to that point, so just getting your thoughts on price cost and what you’re baking in to the 2018 margin outlook; obviously, here in steel and copper up quite a bit. And didn’t get any sense from your comments here, you're overly concerned about that. Have you done anything to remove any of the metal content or anything like that from at a limited metal content from your generators.

I mean the metal content and generator to generator from that perspective. But I think from a price cut, the way we think about price cost is price on the price side, it will be -- I think Aaron just alluded to should be a relative prior year of more favorable pricing environment. So you’ll definitely see some positive impacts on the price side. On the cross side, we are seeing headwinds with commodities and currencies. But as -- we've talked about publically when we had our investor day and internally here we focus very hard on what we’re calling our profitability enhancement program and there is a lot of initiatives here that we're working on to help offset what may be headwinds relative to commodities and currencies. So from a overall net price cross standpoint, we think that should be a net favorable. And then given where we're seeing growth from '17 to '18, there is probably relative to mobile and international what not, probably a little bit of mix headwind but net-net, we do expect to grow margins up to 2017, EBITDA margins.

Thank you. And our next question comes from Brian Drab of William Blair. Your line is open.

On Selmec Mike, is there anything that you could tell us regarding purchase price roughly or revenue margins to help us model that one.

No, we’re not disclosing the details, other than what we’ve said these are bolt-on type acquisitions Brian. We've done a bunch of these in the past. And so it’s similar in size to many of those acquisitions, about 300 employees. But we’re not giving the specifics on the transaction at this point.

And then just clarifying the guidance and better understand what you’re modeling in terms of weather activity. It includes the assumption longer term level of weather activity. Where we’ve been relative to that longer term average over the last say 12 months, just want to gauge whether the guide incorporates the step up step down or flat assumption through you got to that base level?

Actually, if you look at the last few quarters, up just strip up even the major landed hurricanes. Base line outage activity actually has been elevated, actually above the longer-term average the last few quarters or months. So this guide actually assumes a version down back to the longer-term average of baseline outages excluding majors. So not necessarily trying to run rate the higher levels that we saw here in 2017.

And then just two more C&I in Europe, it sounds like you’re gaining traction there. Is there any more specifics you could provide regarding some of those new products that we saw that were in the works, we saw at the Analyst Day and how much traction they are gaining?

Brian, you hit the nail on the head, I mean that our European operations have done well. Obviously, the European economy is expanding, but we’re gaining traction with many of those new products. In particular, when you look on the mobile product side, the Lighting Towers that are more focused on LED lighting, fuel savings being the primary driver of that purchase in Europe with fuel cost being higher than you would find here in the U.S., driving the product line more that direction, hybridization of some of the products as well, again fuel savings being a key driver. But I think in general the other things that we’re very pleased with there is Pramac in particular has been focusing on some larger projects. We saw some projects in Russia and some other parts of the globe in China that we’re larger in scale from what they’ve historically done. So we believe that there is some great upside there of their ability to participate in those projects as a result of being part of a stronger company in terms of just the financial position of the company versus being a smaller independent company as they were before. So there is trust factor with the client base, the customers that are buying those extra types of products, and want to make sure that they’re back stopped by a strong company. And in particular our company with global operations many other companies we’re selling to have operations around the world and they want to have a consistent supplier around the world. So we’re starting to see that take hold as part of our thesis in building this out to become a Tier 1 C&I player. And we’re really seeing that grow. And I think what we’re going do in Latin America and what we’ve done already with Ottomotores and now with Selmec, you’re going to see us continue on this path.

And then the last one, just trying to gauge how much visibility you feel you have to the follow on impact of Irma and the recent hurricanes. I’m getting the sense that you’re communicating that the path has and demand that’s happened and you’ll see some -- we’re going to see some after effect continuing in home standby. But do you feel like you really have that pin down in terms of what the following demand is going to be as we move through 2018. Or is there a lot of variability around your estimate of that impact?

Well, again and maybe it’s a good opportunity to talk through this. It’s a step function type business. So we saw the pop last year to grow to a new level and now we’re holding that level. And in the absence -- as we do with guidance, this is the problem with guiding for this company, right. Because the episodic nature of our residential business when we guide without events, it’s maybe underwhelming when you hear it. But the reality of it is it provides a tremendous amount of upside potential with the company should those events happen. We’ve gotten use to not providing our guidance inclusive of the events, because we think it’s the more conservative position to take. I don’t know if that hurts the stock in the short run or helps us is long run. I don’t know that at all. But the fact of the matter is that we think that we continue to see as my comments said, we continue to see really good activity down in those markets that were impacted by the storm, that’s what helps us whole value in higher base line. We're looking at expanding distribution in those markets and we think that that normal two to four quarter pacing with home standby is going to continue this time around as we’ve seen in the past.

Thank you. And our next question comes from Stanley Elliott with Stifel. Your line is now open.

Couple of quick questions. Do you guys have any delays in terms of the install on the whole standby because of weather either in Q4 or even in the January?

No, not really, Stanley. Again, I think this time around because we're in much of the storm activity was in normal weather climate, really provided an opportunity to install products on a pre consistent basis, so already installed and are notoriously long, because the permitting process can be longer. Generally there is an LP tank involved if you don’t have an natural gas line available, so there is a little bit more in terms of logistics, which can stretch out install. But we're not seeing anything that would be dramatic, not like if you had in event in the northeast or mid west where you’d have the frozen ground. We see seasonality with installs there, normal seasonality there.

And as far as the margin improvement that you guys had on the international business, which was great. Is there a way to parse out what you’ve done structurally in terms of the cost out there or versus how much of that is mix from some of the larger projects you guys ship?

It’s more the mix and the leverage than anything, Stanley, that’s really how I would characterize that. We've done some cost out as well, so that -- especially when you look at in Latin America in particular.

And then lastly from me with getting rid of the cash sweep and the improved free cash flow. Does it change your appetite in terms of M&A from bolt-on the deals to larger size deals, especially with your leverage be in right in the middle of your targeted range?

We’ve talked about this in the past. Our acquisition strategy today has been anything that helps us advance our powering ahead strategy faster. So I think bolt-ons has been a great way for us to do that. It’s not that we don’t look at larger deals, it’s just -- and I think even with our financial position a year ago, we would have able to do a larger deal if we wanted to, just being in better financial position today, give us an even better position to do that, it could. I mean, I won’t say that our funnel doesn’t include larger things, it does but I would say our primary focus is on bolt-ons.

Thank you. And our next question comes from Chip Moore with Canaccord Genuity. Your line is now open.

I guess with dealers at 5,700 and growing this year. Most of those new dealer additions on power play and may be you can talk about close rates for those guys whether you’re churning out some not using the sales tools.

What I can say about that, Chip, is that we endeavored to put all dealers on power play. We have a lot of them on power play. In fact, if you want to strip apart the distribution, the better dealers are on power play and you see that not only in their size but also their close rates, so dealer that use power play have higher close rates. Again, we don’t get into quoting specifics on what they are, but they are materially higher than you would see in dealers that don’t use the tool. And again, for us the biggest thing that it gives us is great visibility for those deals that don’t close. And that’s been I think an area of intense focus here on how we work that file as we refer to it internally, call it a file. And that file of unclosed IHCs and proposals that that is there is a really rich marketing opportunity for us. And as that file grows and as outages happen, we track outages as we said before as we look to do promotions whether they be nationally or regionally, we can tap that file in ways that just wasn’t available to us five years ago prior to having it. So it’s a really important tool for us. It also give us great visibility on how install costs are trending, how they trend from one dealer to the next, one region to the next. It’s just an incredible amount of data for us, and it’s been something that’s been huge part of how we’ve focused on growing that market in spite of not having any major events. And I think it really paid out for us as we said during the third quarter call, we saw IHC rates that were we’ve never seen before, because we haven’t pressure tested the tool. So it’s been great to watch to that, the upside of that is on the data that we get.

And maybe follow on rolling out remote monitoring capabilities initial reception how that’s trending?

So the product line is going to launch here in April-May timeframe with standard remote connectivity. We think that this is a again another major initiative, major differentiator between ourselves and competitors, but probably even more than that, because I think what’s really important is this connectivity layer that we’re putting in and we’re developing in all in-house we’re working on it for last couple of years and it will be across the product line, there will be different levels of service. Of course, there is a pay level of service to the premium level service. But I think what’s really important is longer term when you think about that, it’s not only that we can give the home owner and the dealer better information about their product, and it’s all about the uptime of our emergency product, but we see on market in the future that could develop where these assets, these generators, as opposed to being singularly used as an emergency back up only could be deployed in a different fashion. They could be deployed in as part of our businesses, energy strategy or homeowners’ energy strategy to help reduce their energy cost. And connectivity layer makes that all possible. And so we think that this is -- we haven’t talked a lot of about this is part of our lead gas initiatives and strategy. And you’re going to hear more about that going forward. But the term distributed generation demand response, these are terms that in particular have always centered on the commercial and industrial part of the market and come in, in and out of favor based on where gas prices are and utility prices are. But we see this as a major market opportunity for us in the future across our entire business line. And we think residential is going to play a role on that. It’s going to be pretty cool of what’s just developed over the next few years, but that connectivity layer is central to it.

And maybe if could just…

Thank you. And our next question comes from Charlie Brady with SunTrust Robinson Humphrey. Your line is now open.

Just on the mobile product side, that’s an area that’s been pretty strong for almost a year as we go through Q1 of last year towards relate to your tail end. Do you have a sense -- and it sounds like it’s still going pretty strong in the 2018 here. Do you have a sense as to how length of time until, I don’t want to say the restock saturation, but you’ve soaked up this demand because of a lack buying during the energy patch downturn when they’re rotating products outside of energy and other areas, just to trying to get an idea of the length of how long we might see this rapid growth in mobile it sounds pretty good.

The information we get from our customers and we’re talking all and the major and independent rental companies out there. There is a couple of factors. First of all, actually the oil and gas piece of that is only in nearly innings with oil prices only really recently getting into a range where oil and gas exploration and production have begun to ramp. The products that serve those markets, the lighting towers the gen, the heaters, pumps and things that we manufacture, are really starting to only now improve in terms of our order rates. I think up until this point, it’s really been about general rates weighting, the fleets went through an extra year or two of the rental company holding on to those assets before the secondary markets were depressed. So in terms of getting the returns that they are looking for and utilization rates were depressed, they held on to the equipment as opposed to turning it. And so that refresh cycle has been ongoing. And actually that’s still -- we’re probably more middle innings on that. When we talk to our customer base there, it feels like the majority of 2018 could be a pretty solid year that we're planning for to such in terms of our production capacities and our supply chain readiness, we’re attacking that pretty vigorously. We think that there is going to be window here to raise for share that market and make sure that we not only maintain our share but maybe even grow our share opportunistically by taking some bigger bets on whether its inventory safety stock or some other could be finished good safety stock there as the rental companies deploy CapEx throughout the year. Just looking the public comments that many of the rental companies have made clearly CapEx spending is going to be up this year versus prior years. And then I think lot of those comments were made really prior to the tax reform act, which could have an added bonus there in both literally and vigorously in bonus depreciation. So the ability to accelerate depreciation on purchases of capital equipment here over the next several years could lead to may be an exacerbated fleet refresh cycle as a result of that. So we have to wait to see we're still evaluating that, but that’s how we view it.

Just as a follow up, I just want to go back to your comment and I guess in prepared remarks you talked about the seasonality this year and you talked about first quarter representing the low point for net sales for the quarter and you got percentage of total year. I'm just trying to square that up, because you’ve got obviously a second half pretty tough comp you mentioned in resi, and you still got some flow through at least a little bit of backlog coming out of Q4 from the hurricanes. Is it a function of the mix between the resi and the C&I that drives that, so you’ve got some offsetting there I am just trying to…

I think the way we’ve laid it out, Charlie, I mean that just -- given the seasonality of the residential business even with some backlog coming into '18, that Q1 is always the low point of the year. And I think and looking at how we're laying things out, we think it’s going to be more indicative of the longer term average. So if you look at first quarter as a percentage of the total year. The last couple of years, it’s just been low relative to longer term average we think Q1 would be benefit us from that excess resi backlog coming here it will be more normalized. And then it will be build from there it’s just the way the resi side of the business works. And then on the C&I side, I guess, we just expect some building throughout the year as well.

I think the important thing there is without the assumption of any major events, resi is more level loaded for the year. And Q1 still be more so than normal, much more so than normal. And again I think we said in the prepared remarks. But it’s really the assumption of not having outages the major outages in the guidance.

Thank you. And our next question comes from Christopher Glynn with Oppenheimer. Your line is now open.

On the overall pricing and cost inflation curve, just wondering if you’re in a steady stated balance there or if there is some call it on the gross margin impact in the first half versus the second half. Just the mix of lead times to price realization for a lot companies is all over the map. So just trying to figure out where you guys sit there?

We look at both commodities and currencies and look at our lags and many. I think to your point it varies depending on the supplier. But on average, it may -- there maybe three to four months of passing on particular commodity movement or currency movement with the supply chain. And then it might be another two to three months to get through inventory. So I mean there could be some pretty long lags relative to when we see a commodity move or a currency move to when it shows up in our financial statements. And that really gives us time actually in terms of executing cost reductions as well. So I think we’ve seen with the weakening of the dollar, there are some things that we’re looking at there and we’re watching it closely. But the commodities have moderated a bit here but we’re watching it close and have forecasted them quarterly with the corporate lags.

So it sounds like you’re pretty well balance currently with the good price inputs?

I mean that’s the key, as we believe that the pricing environmentally be more favorable to help offset that.

And then in the outlook for 2% to 3% organic for the year, if I missed it, but could you give some qualitative comments on resi versus C&I in that?

I think as far as resi goes, I think we quantify that I guess call it the headwind from portables that if you don’t assume a major. So I think the portables year-over-year will be down but we believe home standby will see some nice growth. Obviously, heavier in the first half versus the second half from a growth perspective, but we think that home standby growth will help to offset that portable headwind. And on C&I, there is a number of pieces there but that mobile business Aaron just alluded we believe we’re going to see some very strong continued growth in the mobile side. And that international segment we’re going to continue to see some very nice growth there as well. So again expect some strong growth out of the C&I side.

Thank you. And our next question comes from Jerry Revich from Goldman Sachs. Your line is now open.

I’m wondering if you could just expand on the comments around the operational plans to ramp up production for the mobile business. Can you just may be share lead times with us, where they stand today, how you assess the bottlenecks for particularly that part of that business. And on the flip side Aaron you spoke about ramping up faster on the standby gen-set side. And in this post storm period, can you talk about where lead times stand today compared to three months ago and what's your operational plan to scale that down from an employee standpoint et cetera.

So on the mobile product side it’s really about adding shifts, manpower to achieve some of those higher level. In terms of lead times on those products today, it depends on the product. But if you look at a typical lighting tower I mean the lead times are getting extended there, depending on the configuration. I mean in fact for us we’ve seen most of our production get booked up here in Q1, and we’re kind booking slots now into Q2. Now that can change if we can continue to ramp, we’re starting to see some potential constraints there even some of the supply chain, some of the major engine suppliers in those product ranges are beginning to also feel tightness and are pushing out lead times. So that’s actually impacting us more. Frankly, if we could get some of these engines, we could build more product here but starting to tighten up. Now, we have other engine partners and so we're bringing those online as well. But it’s been normal stuff you run through when you grow as quickly as that business is rebounded. On the standby side, my comments were about the residential stand, we're really able to grab a lot quicker in response to the active storm season this past fall in that business and may be the last comparable in 2012 with Sandy, for a couple of reasons; one, we had more safety stock components; two, we had gotten our supply chain into a position this time around, to be able to supply more product more quickly; and three, through continued investments in automation and other improvements in our efficiencies on the actual assembly of the products, we’re just able to get there quicker. And as far as the ramp down on the other side of that, there is a normal attrition rate that takes place in any manufacturing environment that we would see. I think we’ll be able to achieve. We do want to make sure we’ve got appropriate levels of inventory both in our stock as well as in the field going into next season. So that ramp down won’t be a cliff, it will be -- gradually decline down, you let attrition take over there, and then you get into a position where you’re ready for the next storm season. So we feel really good about where we're at in that cycle today. And I think the benefit of having pressure tested that whole ramp up ramp down I think only goes to benefit the company in the long run when we see these episodic events happen.

And Aaron on the lead times for the standby product, can you just give us an update or maybe comment on different way where you’re coming order rates versus production for this quarter?

So what I can say about that, Jerry, is that our lead times for product really in the Q3 to Q4 range we're out, two to three weeks depending on the products on average. And today they’re much near inside of a week. So we’ve been able to -- as we’ve said we in our prepared remarks, there is a little bit of backlog coming into the beginning of the year and nice flow of backlog there, excess backlog as we would say that we work down here into January and February. And today we feel -- it’s a pretty good balance of what we’re seeing.

Thank you. And I’m not showing any further questions at this time. I would now like to turn the call back over to Aaron Jagdfeld, President and CEO for any further remarks.

Okay, thanks. We want to thank everyone for joining us this morning. We look forward to reporting our first quarter 2018 earnings results, which we anticipate will be at some point in early May. With that, have a good day. Thanks.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone, have a wonderful day.