Generac Hldgs (NYSE:GNRC) reported first-quarter financial results on Wednesday. The transcript from the company’s first-quarter earnings call has been provided below.
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Summary
Generac Hldgs reported a 12% year-over-year increase in net sales for Q1 2026, driven mainly by a 28% rise in the commercial and industrial (CNI) segment, supported by data center demand and recent acquisitions.
The company raised its full-year guidance for net sales and adjusted EBITDA margin, citing strong performance in the CNI segment and expected contributions from the Enercon acquisition.
The backlog for data center-related orders increased significantly, providing visibility through 2027, with notable progress in securing hyperscale data center customer commitments.
Generac Hldgs’ residential segment saw improved EBITDA margins due to cost efficiencies from the new Generac Home organizational structure and favorable sales mix.
Management highlighted ongoing investments in capacity expansion to meet rising demand, particularly for large megawatt generator shipments, and discussed plans for further capacity increases and potential M&A to support growth.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the first quarter 2026 Generac Holdings Earnings Conference Call at this time, all participants are in a listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during this session, you’ll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to today’s speaker, Chris Roseman, Director of Corporate Finance and Investor Relations.
Chris Roseman (Director, Corporate Finance and Investor Relations)
Please go ahead sir Good morning and welcome to our first quarter 2026 earnings call. I’d like to thank everyone for joining us this morning. With me today is Aaron Yogfeld, President and Chief Executive Officer and York Ragan, Chief Financial Officer. We’ll 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’s 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 US GAAP measures, is available in our earnings release and SEC filings. I’ll now turn the call over to Aaron.
Aaron Yogfeld (President and Chief Executive Officer)
Thanks Chris Good morning everyone and thank you for joining us today. Our first quarter results reflect a return to strong growth as net sales increased 12% year over year with healthy gross margin performance and robust operating leverage. Growth during the quarter was led by a 28% increase in our commercial and industrial segment sales primarily driven by continued momentum in the data center end market and the Almond acquisition. First quarter adjusted EBITDA margin of 18.3% expanded significantly from the prior year and was stronger than anticipated driven by strong execution, favorable sales mix and lower than expected input costs and operating expenses. Given our first quarter outperformance, the continued strength in our Commercial and Industrial (CNI) segment including an increase in projected global data center revenue and the expected contribution from the acquisition of Enercon. We are raising our full year net sales and adjusted EBITDA margin outlook this morning. Now, discussing our performance by segment in more detail, we’re continuing to progress through the final stages of vendor approval with two hyperscale data center customers and we are very confident that we will be able to secure meaningful future volume commitments from these accounts. As previously disclosed, we received a non binding notice to proceed for approximately $600 million in 2027 deliveries with a certain hyperscale customer and we have begun discussing site level specifications for these projects and as we prepare to ramp our supply chain and production to meet this accelerating demand. We believe the successful navigation of these rigorous approval processes will solidify Generac as a top tier global supplier of large megawatt diesel backup power generators in the years ahead. Importantly, we have also realized significant order activity from both new and existing data center customers, increasing our current backlog to more than 700 million, which does not include the anticipated impact of the notice to proceed opportunity mentioned above and represents an increase of approximately 300 million since our fourth quarter update in mid February. This backlog growth provides visibility through 2027 even before considering the significant expected contribution from other hyperscale related opportunities and ongoing momentum with non hyperscale customers. As we prepare for meaningful growth in large megawatt generator shipments in the coming quarters, our new facility in Sussex, Wisconsin remains on track to begin production in the second half of this year, supporting the expected increase in our domestic generator manufacturing and assembly capacity for these products to more than a billion dollars by the fourth quarter. We believe this expanded footprint will allow us to capture an increasing share of the rapidly growing demand for backup power solutions from large data center customers and together with our international Commercial and Industrial (CNI) production base, provides us with unique global flexibility and scale to serve this market. Additionally, on April 1st we completed the previously announced acquisition of Enercon, a leading designer and manufacturer of generator enclosures and switchgear. This acquisition enhances our competitive positioning for large megawatt generators by giving us direct access to the design and manufacturing processes that are an important element of the bespoke content included with large megawatt generators. Additionally, our ability to invest in additional capacity for these highly customized genset packages will allow us to solve for a growing industry bottleneck and enable us to better control overall customer lead times for our products. By bringing these packaging capabilities in house, we expect to expand our margin profile, further improving the profitability for products sold into the markets for these products, including data center applications. In addition, Enercon’s expertise in other product categories such as switchgear and packaged electronics controls also enables our participation in interesting adjacent market opportunities which we are currently evaluating as we fully integrate this business into our Commercial and Industrial (CNI) segment. During the first quarter, shipments to our domestic industrial distributor channel increased from the prior year and project quoting activity remains solid to start the year, while product lead times for this channel have continued to normalize over the last several quarters. We expect modest growth for the full year supported by stable near term end market demand as well as our continuing investments in distribution that are helping to drive market share gains. Order rates from domestic telecom customers improved sequentially during the quarter, providing visibility to better than previously expected growth for the remainder of the year. Our telecom customers continue to invest in further hardening of their networks as dependence on wireless communications increases and global tower and network hub counts are expected to continue to grow well into the future. Additionally, the evolving telecom and digital infrastructure landscape is expanding our opportunity set with new and existing customers. We are working to leverage our track record of highly engineered solutions, market expertise and customer relationships in traditional telecom applications to capitalize on these opportunities, including data center adjacent applications. Domestic mobile product shipments to both national and independent rental equipment customers exceeded our expectations during the quarter and increased at a strong rate from the prior year. The acquisition of Almond in January contributed to the strong year over year growth and outperformed our prior expectations with respect to both sales and adjusted EBITDA contribution. Many of our rental customers have begun to invest in new equipment as part of a re fleeting cycle and this timely acquisition has both broadened our customer base for mobile products and provided us with additional capacity and flexibility within our domestic manufacturing footprint. Additionally, robust order rates from our existing national rental customers are contributing to our increased overall net sales outlook for 2026. International shipments also increased at a strong rate year over year, driven primarily by revenue from products sold to the data center end market. Global shipments of our controlled solutions and the favorable impact from foreign currency sales increased across most regions, partially offset by softness in the Middle east and Latin American regions resulting from geopolitical instability and trade policy uncertainty. With a strong start to the year, we are increasing Our full year 2026 Commercial and Industrial (CNI) segment net sales guidance as a result of the increased expectations across our data center, telecom and rental markets as well as contributions from the Enercon acquisition. This is partially offset by softness in certain international regions. As previously mentioned, we now expect Commercial and Industrial (CNI) segment net sales to increase in the mid to high 20s percent range, which represents an increase from our prior guidance for growth in the low to mid 20s percent range for this segment. And now I’d like to provide an update on our residential segment for both the quarter and the year. At our Investor Day in March, we introduced Generac Home, a new organizational structure within our residential segment that brings together our home standby portable generator and energy technology teams into a single group as our residential backup power and energy technology solutions are increasingly integrated. This combination enables us to better leverage synergies across our product development and supply chains, operations, sales and marketing, and customer service capabilities. The unification of these teams will allow us to further streamline our software platforms to better serve our customers as well as accelerate the development of products and solutions to help homeowners solve for the increasing power reliance, resiliency and cost challenges they are facing. Importantly, the efficiencies resulting from this new structure reflect the continued recalibration of our clean energy operating expenses and are expected to enable cost savings that support our projected residential segment adjusted EBITDA margins expansion in the coming years. We’ve already begun to realize these benefits as evidenced by the expansion of our residential segment EBITDA margins by nearly 500 basis points as compared to the prior year first quarter, driven largely by lower operating expenses in the current quarter. Looking at our first quarter residential segment results in more detail, Home standby generator sales were approximately flat from the prior year with higher pricing offsetting lower volumes as compared to a strong prior year period that included the benefit from an active 2024 hurricane season. The current quarter’s performance was slightly ahead of our expectations as we experienced stronger than anticipated demand following Winter Storm Firm. This event and the related media coverage preceding it helped drive awareness for our products, resulting in strong year over year growth in home consultations and for home standby generators and higher shipments of portable generators. However, despite the elevated outage activity from Winter Storm Firm, overall power outage activity for the first quarter was approximately in line with the long term baseline average activations or installations of home standby generators declined as expected from the first quarter of 2025, primarily driven by markets that were impacted by elevated hurricane activity in the second half of 2024. We expect activations will return to growth in the second half of this year, underpinned by our assumption for a return to a more normal baseline average power outage environment as compared to the exceptionally soft outage environment experienced in the second half of 2025. Our residential dealer network expanded further during the quarter and now includes more than 9,500 dealers, representing an increase of approximately 300 from the prior year. Continuing interest in the home standby category from these partners provides us with further confidence in the significant growth opportunity that remains for home standby generators as contractors continue to see value with their involvement in the category. Additionally, as we continue to integrate the teams within our new Generac Home organization, we intend to also unify our distribution networks with the goal of providing homeowners and channel partners greater access to to a wider range of home energy solutions with enhanced service and support capabilities. First quarter sales of our residential, solar and storage solutions decreased from the prior year as expected following the successful completion of our Department of Energy program in Puerto Rico. Throughout the quarter we continued to execute against our plan of ramping production of Power Micro, the first Generac branded microinverter product with a contract manufacturing partner here in the US The Power Micro product offering is expected to deliver strong gross margin contribution as sales increase throughout the second half of 2026 and into 2027. The attractive margin profile for these products, together with our ongoing focus on operational efficiencies within the new Generac home structure are expected to contribute to our longer term residential segment margin expansion. A significant focus for the Generac home business is to market and sell our differentiated residential energy EcoSystem and with Ecobee positioned as the energy management hub of the home an important metric, ecobee’s connected home count grew to continue to grow in the quarter to more than 5 million homes with service attach rates further increasing and providing us with a growing high margin recurring revenue stream to complement ecobee’s expanding hardware market share. Profitability continued to improve as well, with ecobee delivering its first positive adjusted EBITDA during first quarter which is normally a seasonally softer quarter for these products. We are expecting continued strong growth in Ecobee shipments for the full year 2026 and as a result we believe the benefits of a scaling top line together with a strong gross margin profile and disciplined operating expense investment will support continued improvement and profitability into the future. In closing this morning, our first quarter results and increased 2026 outlook provide an early look at the significant earnings growth potential of our business. Given the dramatic sales increase in our Commercial and Industrial (CNI) segment, healthy gross margin performance and realization of strong operating leverage based on our continued progress in courting multiple hyperscale data center customers, combined with the improved competitive positioning and profitability resulting from the recent Entercon acquisition, our confidence in capturing a growing share of the generational growth opportunity in the data center market has only increased. Additionally, the megatrends of lower power quality and higher power prices remain firmly intact and continue to support long term growth expectations for our residential segment highlighted by the 50 plus billion dollar penetration opportunity that we believe exists for home standby generators. We remain guided by our Powering a Smarter World enterprise strategy and we believe that we are on the cusp of a special moment in the history of Generac. As a result of the more balanced growth drivers we’re experiencing across our entire business. With that, I’d now like to turn the call over to York to walk through some of the first quarter financial results and our updated outlook in some more detail. York.
York Ragan (Chief Financial Officer)
Thanks Aaron. Looking at first quarter 2026 results in more detail, Overall consolidated net sales during the quarter increased 12% to 1.06 billion as compared to 942 million in the prior year. First quarter the net effect of acquisitions, divestitures and foreign currency had an approximate 4% favorable impact on revenue growth during the quarter. Residential segment total sales increased approximately 1% to 552 million as compared to 549 million in the prior year. This sales increase was primarily driven by higher portable generator shipments due to Winter storm fern in January 2026, partially offset by a decline in energy storage system sales due to the completion of our DOE Puerto Rico program. Home standby generator sales were approximately flat versus prior year as higher pricing was offset by lower volumes due to a strong prior year period that included the benefit from a substantial 2024 hurricane season. Commercial and industrial segment total sales increased approximately 28% to 510 million from 399 million in the prior year quarter, including an approximate 10% net favorable impact from the combination of acquisitions, divestitures and foreign currency. Favorable FX and the Allman CNI mobile products acquisition contributed to this inorganic growth, partially offset by two small divestitures that closed during the quarter. The core total sales growth for the segment was primarily driven by revenue from products sold to global data center customers. In addition, increased shipments to our domestic industrial, distributor and rental channels and higher sales of our control solutions to the global power generation market also contributed modestly to the CNI segment sales growth during the quarter. Consolidated gross Profit margin was 38.7% compared to 39.5% in the prior year. First quarter the 0.8% decrease in gross margin was primarily driven by the higher mix of CNI sales in the quarter, partially offset by favorable price cost realization as compared to our prior expectations. We experienced better than expected sales of our higher margin home standby generators following Winter Storm fern. This favorable sales mix together with strong execution and lower than expected input costs supported our first quarter gross margin outperformance relative to our previous guidance. Operating expenses increased 4.6 million or 2% compared to the first quarter of 2025. The increase was primarily driven by higher intangible amortization from the Almond acquisition. Importantly, we were able to realize strong operating leverage on higher shipment volumes while also capitalizing on operational efficiencies by recalibrating our clean energy spending as part of our Generac Home reorganization. To that end, opex as a percent of sales excluding intangible amortization expense improved from 27.9% in Q1 of 2025 to 24.8% in Q1 of 2026. Overall adjusted EBITDA before deducting for non controlling interest as defined in our earnings release was 193 million or 18.3% of net sales in the first quarter as compared to 150 million or 15.9% of net sales in the prior year. As just discussed, the improved operating leverage on higher sales volumes coupled with reduced residential OPEX drove this significant increase in adjusted EBITDA margins versus prior year. Importantly, this represents strong outperformance compared to our prior expectations, helping to contribute to our higher full year 2026 guidance that I will discuss shortly. Adjusted EBITDA for The residential segment was 139 million or 25.1% of total residential sales as compared to 112 million in the prior year or 20.3%. This significant margin increase versus prior year was primarily driven by favorable price realization and operational efficiencies from the reorganization of Generac Home, resulting in lower operating expenses partially offset by higher costs from tariffs and commodity prices. Adjusted EBITDA for the commercial and industrial segment before deducting for Non controlling interest was 67 million or 13.0% of CNI total sales as compared to 45 million or 11.4% of total sales in the prior year. This margin increase was primarily driven by improved price cost realization, the favorable impact of the almond acquisition and operating leverage on higher shipment volumes. Now switching back to our overall financial performance for the first quarter of 2016 on a consolidated basis. As disclosed in our earnings release, GAAP net income for the company in the quarter was $73 million as compared to $44 million in 1Q25. The current year includes a modest noncash loss from the net impact of two small divestitures that closed during the quarter as we continue to trim the portfolio of non core assets. The prior year includes a $10 million noncash loss to reflect the change in fair value of our Wallbox investment. GAAP income taxes during the current year first quarter were $23.6 million or an effective tax rate of 24.4% as compared to 14.2 million or an effective tax rate of 44.3% for the prior year. Diluted net Income per share for the company on a GAAP basis was $1.24 in 1Q26 compared to $0.73 in the prior year. Adjusted net income for the company as defined in Our earnings release was 106 million in the current year quarter or $1.80 per share. This compares to adjusted net income of 75 million in the prior year or $1.26 per share. Cash flow from operations was $119 million in the current year quarter as compared to $58 million in the prior year first quarter and free cash flow as defined in our earnings release was $90 million as compared to $27 million in the same quarter last year. The strong increase in free cash flow was primarily driven by higher operating earnings and a lower use of cash for working capital as compared to the prior year from a uses of cash standpoint, we closed the Almond acquisition in January 2026 by funding the $123 million purchase price in cash subsequent to March 31 quarter end. We closed the Enercon acquisition on April 1. We funded the $122 million initial purchase price with $77 million in cash and $45 million in stock. Total debt outstanding at the end of the quarter was 1.32 billion, resulting in a gross debt leverage ratio at the end of the first quarter of 1.7 times on an as reported basis, which is within our target gross debt leverage range of 1 to 2 times adjusted EBITDA. With that, I will now provide further comments on our updated outlook for 2026. As disclosed in our earnings release this morning, we are raising our full year 2026 outlook for net sales and adjusted EBITDA. Given further momentum across certain CNIN markets, the acquisition of Enercon and our first quarter outperformance. As a result of these factors, we now expect consolidated net sales for the full year to increase at a mid to high teens rate as compared to the prior year, which includes an approximate 2% favorable impact from the net effect of foreign currency acquisitions and divestitures. This net sales update compares to our previous …
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