Generac Holdings Inc. Q2 FY2025 earnings call

• Second quarter results exceeded expectations with C&I product sales to industrial distributors and residential energy storage shipments driving growth. Adjusted EBITDA margins were ahead of forecast due to strong gross margins and operating leverage. - Residential: Home standby sales flat, but installations up; portable generators saw robust growth from market share gains. Residential energy technology solutions shipments exceeded expectations, with ecobee connected homes over 4.5 million. - C&I: Sales grew in industrial distributors, telecom, and Europe; new large megawatt generators for data centers have a global backlog over $150 million. - New product development: Next-generation home standby generator line and large megawatt generators for data centers introduced. - Supply chain and cost: Executing initiatives to offset tariffs and cost increases, with focus on operational efficiencies.

Net sales for the quarter were $1.06 billion, up 6% year-over-year. Residential product sales increased 7% to $574 million, driven by energy storage and portable generator sales. C&I product sales rose 5% to $362 million, with growth in industrial distributors, telecom, and Europe. Other products and services sales increased 8% to $125 million. Gross margin expanded by 170 basis points, and adjusted EBITDA margins reached nearly 18%. Residential product sales contributed ~54.15% of net sales, C&I ~34.15%, and other products and services ~11.79%.

• Net sales guidance narrowed to 2%-5% growth for full year 2025, down from prior 0%-7% due to lower tariff assumptions. - Adjusted EBITDA margin guidance: lower end increased to ~18%, midpoint 18%-19%. - Free cash flow conversion expected to be 90%-100% for full year 2025, up from prior guidance. - Assumes current tariff levels remain in place for the rest of the year.

• Uncertainties in tariff policies impacting pricing and margins. - Softness in certain C&I end markets. - Potential contraction of the residential solar market due to policy changes, requiring recalibration of investment in clean energy technologies.

Q: On the recent entry into the data center market, when could these revenues start to be meaningful?

A: Initial shipments in the international market will start in Q3, and very late this year, first domestic shipments will go out, but meaningful impact is in 2026.

Q: I'd like to concentrate on some of the comments you made around ecobee and the solar market opportunity. How might you be changing your philosophy around those markets?

A: Solar market is expected to contract, so we will recalibrate investment. Ecobee is profitable year-to-date and we expect it to be fully profitable for the year. We are laser-focused on reducing the drag on earnings from the clean energy business.

Q: Can you give us more color on the underlying trends here and how we should expect the home standby category to progress through the rest of the year?

A: Installations of home standby generators are up year-to-date. We added dealers robustly. The second half of the year is important, and there's a free option on home standby if major outages occur, which could impact between $50M and $100M. Portable generator sales are strong with market share gains.

Q: Going back to the data center opportunity. Can you just kind of talk about the backlog you have so far in the initial conversations that you're having?

A: Backlog is over $150 million, including opportunities with both traditional data center owner operators and hyperscalers. The biggest part of the deficit seems to exist with hyperscalers.

Q: In terms of the data center piece, how should we think about margins for that book of business?

A: Gross margins on data center projects are stronger than initial business case, and EBITDA margins will be accretive to the consolidated margin profile over the next couple of years.