Generac Holdings Inc. (NYSE: NYSE:GNRC) has reported a significant increase in sales for the third quarter of 2024, with net sales reaching $1.17 billion, marking a 10% rise from the previous year. This growth was largely fueled by heightened power outage activity following Hurricanes Helen and Milton, which led to a 28% surge in residential product sales.
Despite a 15% decline in global commercial and industrial product sales and a 20% drop in international sales, the company has raised its 2024 outlook, expecting significant growth in residential sales and improved gross and adjusted EBITDA margins. Generac also announced a $50 million grant from the Department of Energy to implement microgrid solutions in California, which is expected to support the grid during peak demand.
Key Takeaways
- Generac's Q3 2024 net sales increased by 10% year-over-year to $1.17 billion.
- Residential product sales grew by 28%, driven by recent hurricanes.
- The company raised its 2024 outlook, expecting additional shipments worth $200 million.
- Adjusted EBITDA margins improved, with Q3 margins at 19.8%.
- Generac received a $50 million grant for California microgrid projects.
- The company faces a decline in international sales and C&I product shipments.
- GAAP net income for Q3 was $114 million, with diluted EPS of $1.89.
Company Outlook
- Anticipated net sales growth of 5% to 9% for 2024.
- Projected increase in residential product sales in the high teens percentage.
- Improved gross margins by about 450 basis points over 2023.
- Adjusted EBITDA margins estimated at 17.5% to 18.5% for the full year.
- Free cash flow expected to reach approximately $500 million for 2024.
Bearish Highlights
- Global commercial and industrial product sales fell by 15%.
- International sales dropped by 20%, influenced by weaker telecom market conditions and currency impacts.
- C&I and other product sales projections for 2024 revised to be $50 million lower than previously forecasted.
Bullish Highlights
- Positive growth trends in Latin America and the Middle East.
- New product launches and partnerships planned for the upcoming year.
- Expansion of financing options for home standby generators in 2025 to improve sales close rates.
Misses
- Rental market performance weaker than expected, with muted future demand through 2025.
- Delay in the commercial launch of PWRcell 2 energy storage system to February 2024.
Q&A Highlights
- Discussion on the impact of recent hurricanes on home standby generator sales.
- Anticipation of demand increase of approximately $200 million from hurricane events.
- Expansion of residential dealer network, notably in Texas.
- Production ramp-up influenced by supply chain capabilities.
- Record month projected for in-home consultations in October.
Generac Holdings Inc. remains confident in its strategic positioning and ability to meet increasing demand for backup power solutions. With the commercial launch of the PWRcell 2 energy storage system on the horizon and ongoing investments in energy technology, the company is poised to continue its growth trajectory despite current market challenges. Management is focused on navigating these conditions and preparing for future opportunities, with the next earnings call expected to discuss Q4 and full-year 2024 results in mid-February.
InvestingPro Insights
Generac Holdings Inc.'s (NYSE: GNRC) recent financial performance and future outlook align with several key insights from InvestingPro. The company's reported 10% increase in net sales for Q3 2024 and raised outlook for the year are consistent with the InvestingPro Tip that "Net income is expected to grow this year." This growth trajectory is further supported by the company's strong position in the residential product segment, which saw a 28% surge in sales due to recent hurricane activity.
InvestingPro Data shows that Generac's revenue for the last twelve months as of Q2 2024 was $4,021.81 million USD, with a gross profit margin of 36.21%. These figures provide context for the company's financial health and its ability to capitalize on market opportunities, such as the increased demand for home standby generators following natural disasters.
Another relevant InvestingPro Tip indicates that Generac is "Trading at a low P/E ratio relative to near-term earnings growth." This is particularly interesting given the company's raised outlook for 2024 and the anticipated additional shipments worth $200 million. The PEG ratio of 0.67 as of Q2 2024 supports this view, suggesting that the stock may be undervalued relative to its growth prospects.
Generac's strong market position is further evidenced by its impressive 1-year price total return of 96.92%, as reported by InvestingPro. This performance aligns with the company's bullish highlights, including positive growth trends in Latin America and the Middle East, as well as planned new product launches and partnerships.
It's worth noting that InvestingPro offers 11 additional tips for Generac, providing investors with a more comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable for those looking to make informed decisions in light of Generac's recent performance and future projections.
Full transcript - Generac Holdings (GNRC) Q3 2024:
Tommy Moll - Stephens Inc.:
George Gianarikas - Canaccord Genuity:
Mike Halloran - Baird:
Jeff Hammond - KeyBanc Capital Markets:
Brian Drab - William Blair:
Jerry Revich - Goldman Sachs:
Kashy Harrison - Piper Sandler:
Stephen Gengaro - Stifel Nicolaus:
Keith Housum - Northcoast Research:
Jordan Levy - Truist Securities:
Operator: Thank you for standing by, and welcome to Generac Holdings Third Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation there’ll be a question and answer session. [Operator Instructions]. I would now like to hand the call over to Kris Rosemann, Director of Corporate Development and Investor Relations. Please go ahead.
Kris Rosemann: Good morning, and welcome to our third quarter 2024 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 and 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 will now turn the call over to Aaron.
Aaron Jagdfeld: Thanks, Chris. Good morning, everyone, and thank you for joining us today. Our third quarter results were ahead of our previous expectations as elevated power outage activity drove a return to robust growth in overall net sales and strong execution helped to deliver significant margin expansion. The recent increase in outage activity pushed year-to-date power outage hours through September to the highest level since we began tracking this data in 2010. As a result of the third quarter outperformance and the higher-than-expected outage activity, specifically the impact of Hurricane Helene and Hurricanes Milton, we are raising our 2024 outlook. Year-over-year, overall net sales in the quarter increased approximately 10% to $1.2 billion. Residential product sales increased 28% from the prior year due to accelerating demand for home standby and portable generators in the quarter. Global C&I product sales decreased 15% from a strong prior year as CapEx spending for U.S.-based rental, telecom and beyond standby products remained lower in the quarter and as market conditions further weakened in Europe. These softer end market conditions were partially offset by continued growth in shipments to our domestic industrial distributors as we continue to reduce our lead times. Additionally, favorable sales mix, lower input and logistics costs and improved production efficiencies drove significant expansion in gross and adjusted EBITDA margins in the quarter, with gross margins reaching their highest level since the third quarter of 2010. This margin expansion, together with our returned to overall net sales growth demonstrates the earnings power here at Generac as we continue to execute our strategic vision. Home standby shipments in the quarter increased at a high 20% rate from the prior year as a result of the elevated outage activity. Outage hours during the third quarter were at their highest quarterly level since the fourth quarter of 2012 and drove home consultations to an all-time quarterly record and continued to be strong in October due to the combined impacts of Hurricane Helen and Milton. Consistent with historical trends following periods of elevated outage activity, close rates have moved lower relative to the first half of 2024. This expected compression in close rates is expected to be temporary as our dealer network absorbs the rapid increase in home consultations and as we anticipate a return to the longer-term trend of improving close rates over time. We continue to invest heavily in lead optimization, sales to enhancements and improved lead nurturing practices to help improve the longer-term trajectory of close rates. We ended the third quarter with our residential dealer count at approximately 9,100, an increase of 400 dealers from the prior year with notable growth in Texas. We expect our dealer count to grow further in the regions recently impacted by severe weather, which not only helps drive overall category awareness but this expansion in distribution also plays a critical role in supporting a new and higher baseline level of demand for home standby generators going forward. Our aligned contractor program also grew during the quarter and is quickly becoming an important new element of our distribution network particularly with the additional installation bandwidth they provide. Aligned contractors, which now number over 2,000, purchase products through our wholesale channel partners and have access to several important sales and service tools. The scale of our installation network, including dealers and non-dealer contractors is an important advantage for Generac, particularly following accelerations in demand as we have seen in recent months. Activations or installations of home standby generators returned to year-over-year growth in the third quarter, driven by strength in the South Central region, and to a lesser extent, the Northeast and Southeast regions. Activations have continued to increase early in the fourth quarter, supporting our expectations for ongoing growth throughout through year-end despite a strong prior year comparison. With unmatched scale in this industry, we are uniquely positioned to meet the rapid increase in homeowner demand for residential backup power. In addition to our scale and logistics capabilities, our industry-leading distribution network and scalable call centers provide 24/7 consumer support and service to homeowners in their time of need. We also have unique marketing capabilities with the resources and capacity to drive additional awareness of our products and generate sales leads for our distribution partners, both within the impacted regions and more broadly across the nation. Additionally, we are further ramping our home standby production rates and have increased hiring in our Whitewater, Wisconsin and Trenton, South Carolina plants to meet the elevated demand levels we're seeing after Helen and Milton. Given our prior investment in additional home standby manufacturing capacity, we have been able to increase -- to accelerate production at a much quicker pace. In fact, as a result of these investments and the tremendous effort of our teams, we expect to ship approximately $200 million of incremental home standby and portable generators in 2024 related to the impact of the major hurricanes in the second half of the year. The combination of Hurricanes Helen and Milton is also expected to result in higher levels of awareness for backup power longer term as homeowners and businesses look for solutions as protection against power outages. With a nationwide home standby penetration rate at only approximately 6% and the combined penetration rate of the states recently impacted by severe hurricane activity being slightly below that level, we believe there is significant runway for future growth in the category as the mega trend around lower power quality continues to play out. Demand for portable generators also surged in the quarter as a result of the dramatic increase in power outage activity over the last four months with third quarter shipments increasing at a very strong year-over-year rate. These products not only provide an essential solution for any homeowners and emergencies, but they also often serve as an introduction for most first-time buyers to the backup power market helping to drive Generac brand awareness. In addition to the recent storm-driven benefit, we are leveraging our product breadth and our ability to react to sharp demand increases to further expand our relationships with the major retailers that serve as primary distribution channel partners for portable generators. Now moving to our Residential Energy Technology Products & Solutions. Our energy storage system sales benefited from initial shipments associated with the previously awarded Department of Energy Grand in Puerto Rico. This program is accelerating as we enter 2025 and provides favorable top line momentum, particularly with the upcoming commercial launch of our next-generation power cell energy storage system that we introduced at in September. PWRcell 2 it includes important upgrades over our previous generation of storage products with PWRcell 2 positioned as the market leader in storage capacity per cabinet, while also delivering improved continuous and peak power output. The AC coupled PWRcell 2 also brings additional flexibility, including an improved retrofit installation experience and seamless generator integration with both home standby and portable generators as well as a differentiated user interface through our ecobee platform. The introduction of the PWRcell 2 Series marks a key milestone for the company as we believe we are building a unique energy management ecosystem for the market, centered around the ecobee Smart Home Energy Hub and focused on both resiliency and energy savings. Additionally, as we accelerate our efforts in expanding and engaging our channel partners for these products over the coming quarters, we expect to further leverage our expertise in building and developing distribution, lead generation via direct-to-consumer marketing and our brand strength. In addition to growth in our clean energy storage solutions, our team at ecobee continues to execute very well, driving growth and significant gross margin expansion from the prior year, while also adding new products and partnerships. We believe ecobee's market share continues to grow as a result of these initiatives, building on the current installed base of more than 4 million connected homes. We see the intelligent HVAC control that ecobee provides within our energy management ecosystem as a meaningful differentiator, and we are working towards similar capabilities for EV charging management through our partnership with Wallbox (NYSE:WBX). Switching gears now to our C&I product category. As previously mentioned, global C&I product sales declined 15% from the prior year. Shipments to our North American industrial distributor channel, again, grew at a robust rate in the third quarter, and quoting activity has remained resilient. Although our operational execution has allowed us to reduce lead times, and customer project time lines have extended more recently, and we will be monitoring these trends closely as we head into 2025. As expected, shipments to national telecom and rental equipment customers declined in the quarter from the prior year period. While we expect that our sales to the telecom market have bottomed, we believe demand for -- from our rental equipment customers will likely remain softer in the coming quarters. Despite the cyclical weakness we've experienced in 2024, we continue to view both the telecom and rental categories as long-term growth opportunities, given the mission-critical wireless networks and infrastructure-related projects that our products support. Shipments of our natural gas generators for use and beyond standby applications also declined during the quarter from a very strong prior year comparable period. End market activity remains subdued, but we are optimistic regarding the longer-term prospects for these applications and adjacent projects due to the supporting mega trends of lower power quality and higher power prices. We continue to develop a growing pipeline for our C&I battery energy storage systems or BES, as well as our multi-asset microgrid offerings, which often include traditional generator products as part of these solutions. In early August, we acquired Agito, a leading provider of microgrid controllers. This small but strategically important deal follows our recent acquisition of Sun Grid's C&I best product offering and brings us important technical capabilities that enable end users to coordinate, optimize and monitor multiple energy assets from a single interface. Agito also brings commercial synergies, given its strong reputation in the C&I microgrid space. By leveraging these capabilities, Generac was selected for negotiations by the Department of Energy to receive a grant of $50 million to deploy microgrid solutions across approximately 100 California water utility sites. The total investment from the DOE grant and water utilities, inclusive of all hardware components, installation costs and community benefits associated with the project is expected to be approximately $100 million. These microgrids will also form virtual power plants capable of delivering critical grid support during times of stress. We believe this award provides important validation of our strategic vision for energy technology within the C&I product category and has the potential to serve as a successful proof point for similar applications across the country. Internationally, total sales decreased year-over-year primarily due to lower intercompany shipments from our Mexican operations to the telecom market in the U.S. as well as a decline in portable generator and C&I product sales in Europe. Our international results continue to be impacted by varying market conditions around the globe as softness in Europe in the third quarter was partially offset by growth in other key regions, most notably Latin America. Adjusted EBITDA margins have been impacted by this decline in shipment volumes, but as we execute on our global growth initiatives, we expect to drive continued improved profitability over time in this important segment of our business. In closing this morning, our third quarter outperformance and increased 2024 outlook highlight our strong execution alongside the mega trends that support our long-term growth expectations. Significant margin expansion and robust free cash flow generation thus far in 2024, have helped to enable our disciplined and balanced capital allocation strategy. I also want to take a moment to thank the teams here at Generac that have been executing our rapid response to the significant increase in power outage activity over the last several months. Our operations, supply chain and customer support teams have been working tirelessly in response to Hurricanes Beryl, Helen and Milton. I'm incredibly proud of our team's efforts, particularly those of our field service field service storm response teams that travel directly into the areas impacted by these events to provide vital boots on the ground support to customers and distribution partners. As power outages have steadily trended higher over the last 30 years, the need for continuous and reliable sources of power is growing due to the increasingly electrified and connected nature of our homes, businesses and our transportation. These electrification trends together with the adoption of artificial intelligence and the reindustrialization of North America are driving expectations for power demand or load growth far beyond what has been seen in the last two decades. At the same time, renewable intermittent generation sources are being prioritized. We expect that these secular trends will drive grid-related supply-demand imbalances ultimately resulting in lower power quality and higher power prices for all ratepayers. By building on our well-established resiliency value proposition with solutions that optimize for efficiency, consumption, cost and comfort, we are confident that Generac is uniquely positioned to help home and business owners overcome the challenges of the evolving electrical grid. I'll now turn the call over to York to provide further details on the third quarter results and our increased outlook for 2024. York?
York Ragen: Thanks, Aaron. Looking at third quarter 2024 results in more detail. Net sales were $1.17 billion during the third quarter of 2024, as compared to $1.07 billion in the prior year third quarter. The combination of contributions from recent acquisitions and the unfavorable impact from foreign currency had a slight net positive impact on revenue during the quarter. Briefly looking at consolidated net sales for the third quarter by product class. Residential product sales increased 28% to $723 million as compared to $565 million in the prior year. This robust growth was driven by a significant power outage -- the significant power outage activity during the quarter due to Hurricanes Beryl and Helene, resulting in a high 20% increase in shipments of home standby generators and very strong growth for portable generators domestically. In addition, sales of residential energy technology solutions were higher during the quarter as we experienced growth in both our clean energy and ecobee product offerings. Commercial and industrial product sales for the third quarter of 2024 decreased 15% to $328 million as compared to $385 million in the prior year quarter, including a slight positive impact from the combination of contributions from acquisitions and unfavorable foreign currency. The core sales decline was due to the expected weakness in domestic shipments for telecom, national equipment rental and beyond standby applications as well as softer market conditions in Europe. This was partially offset by a robust increase in C&I product shipments through our domestic industrial distributor channel and growth in certain other international markets. Net sales for other products and services increased slightly to $123 million as compared to $121 million in the prior year quarter as strength in domestic service parts, accessories and deferred warranty revenue was partially offset by lower industrial project services revenue. Gross profit margin was 40.2% compared to 35.1% in the prior year third quarter, primarily due to favorable sales mix, given stronger home standby shipments, lower input and logistics costs and improved production efficiencies within our home standby manufacturing facilities. Third quarter gross margins were the highest we've seen in any quarter since 2010 and also exceeded our prior expectations. Operating expenses increased $33 million or 12% as compared to the third quarter of 2023. The overall growth in operating expenses was primarily due to ongoing investment in resources to drive future growth additional marketing spend to create incremental awareness for our products and higher variable expenses and incentive compensation given higher shipment volumes and profitability. These increases were partially offset by a $22 million provision for certain legal matters that was recorded in the prior year, which did not repeat in the current year period. As a result of these factors, adjusted EBITDA before deducting for non-controlling interest, as defined in our earnings release, was $232 million or 19.8% of net sales in the third quarter as compared to $189 million or 17.6% of net sales in the prior year. Adjusted EBITDA margins came in ahead of our prior expectations during the quarter as a result of the gross margin outperformance. The significant increase in adjusted EBITDA showcases the earnings power of Generac as we return to strong overall net sales growth with a robust margin profile. I will now briefly discuss financial results for our two reporting segments. Domestic segment total sales, including intersegment sales, increased 14% to $1.02 billion in the quarter as compared to $894 million in the prior year quarter, including a slight benefit from acquisitions. Adjusted EBITDA for the segment was $212 million, representing a 20.7% margin as compared to $160 million in the prior year or 17.9% of total sales. International segment total sales, which includes intersegment sales, decreased 20% to $167 million in the quarter as compared to $208 million in the prior year quarter, including a slight unfavorable impact from foreign currency. Adjusted EBITDA for the segment before deducting for non-controlling interest was $20 million or 12.2% of total sales as compared to $28 million or 13.6% of total sales in the prior year. Now switching back to our financial performance for the third quarter of '24 on a consolidated basis. As disclosed in our earnings release, GAAP net income for the company in the quarter was $114 million as compared to $60 million for the third quarter of 2023. The current year third quarter GAAP net income includes a $5.2 million gain on the change in fair value of our investment in Wallbox equity securities and warrants, which was partially offset by a $4.9 million loss on extinguishment of debt related to our previously announced Term Loan B refinancing. GAAP income taxes during the current year third quarter were $33 million or an effective tax rate of 22.7% as compared to $19 million or an effective tax rate of 24.3% for the prior year. The decrease in effective tax rate was primarily driven by certain unfavorable discrete tax items in the prior year period, which did not repeat in the current year. Diluted net income per share for the company on a GAAP basis was $1.89 in the third quarter of '24 compared to $0.97 in the prior year. Adjusted net income for the company, as defined in our earnings release, was $136 million in the current year quarter or $2.25 per share. This compares to adjusted net income of $102 million in the prior year or $1.64 per share. Cash flow from operations in the current year third quarter was $212 million as compared to $140 million in the prior year third quarter. And free cash flow, as defined in our earnings release, was $184 million as compared to $117 million in the same quarter last year. The improvement in free cash flow was primarily driven by higher operating earnings and a greater reduction in primary working capital in the current year quarter partially offset by an increase in capital expenditures relative to the prior year. Additionally, during the third quarter, we repurchased nearly 691,000 shares of our common stock for approximately $102 million. Over the last two calendar years, we've repurchased approximately 3.2 million shares at an average cost of $125 per share. There's approximately $347 million remaining under the current repurchase authorization as of September 30. As previously announced, we also deployed capital during the third quarter with an additional $35 million investment in Wallbox and the small but strategic acquisition of Agito. In addition, we made a $30 million prepayment on our term loan B credit facility in connection with the refinancing that closed on July 3. Total debt outstanding at the end of the quarter was $1.5 billion, resulting in a gross debt leverage ratio at the end of the third quarter of 2.1 times on an as-reported basis, a continued reduction from 2.5 times at the end of 2023. With that, I will now provide further comments on our updated outlook for 2024. As disclosed in our press release this morning, we are increasing our overall outlook for the full year 2024. Given the higher than previously expected power outage activity in the Southeast region of the U.S., specifically the impact of Hurricanes Helene and Milton. We now expect overall 2024 net sales growth to be approximately 5% to 9% as compared to the prior year. This is an increase from the previously expected range of 4% to 8%. Breaking this down by product class, relative to our prior expectations, residential products are expected to increase by approximately $100 million, primarily due to incremental home standby and portable generator sales resulting from the higher power outage activity. As a result, our overall residential product sales growth is now expected to be in the high teens range on a year-over-year basis compared to our prior expectations of mid-teens increase. However, softer-than-expected market conditions within certain domestic and European end markets for our C&I and other product categories are projected to partially offset the increased residential product sales outlook. We now expect the combination of C&I and other product sales to be approximately $50 million below our prior forecast, resulting in C&I product sales now projected to be down high single digits compared to the prior year for the full year 2024. The other sales category is anticipated to be nearly flat on a year-over-year basis for the full year 2024. Our gross margin expectations for the full year '24 have also increased relative to our previous guidance due to the third quarter outperformance and higher sales mix of home standby generator is now expected in the fourth quarter. We now project gross margins to improve by approximately 450 basis points over the full year 2023, resulting in implied fourth quarter gross margins that are similar to third quarter gross margin in the 40% range. As a result of the increased outlook for gross margins, adjusted EBITDA margins before deducting for non-controlling interests are now expected to be approximately 17.5% to 18.5% for the full year 2024 as compared to the previous guidance range of 17% to 18%. This implies fourth quarter adjusted EBITDA margins of approximately 20%. As is our normal practice, we're also providing updated guidance details to assist with modeling adjusted earnings per share and free cash flow for the full year 2024. For the full year, our GAAP effective tax rate is lower than our prior outlook now expected to be approximately 24% to 25% compared to our previous guidance range of 25% to 26%. This is expected to result in a GAAP effective tax rate of approximately 24% to 24.5% in the fourth quarter. Importantly, to arrive at appropriate estimates for adjusted net income and adjusted earnings per share, add back items should be reflected net of tax using the 24% to 25% expected effective tax rate. As a result of lower interest rate expectations, our gross interest expense is now expected to be approximately $91 million to $93 million as compared to prior guidance of $92 million to $94 million. This guidance assumes no additional term loan or revolver principal prepayments during the year. Stock compensation is now expected to be between $50 million to $52 million for the year as compared to prior guidance of $52 million to $54 million. As a result of our share repurchases that were completed in the third quarter of 2024, our full year weighted average diluted share count is now expected to decrease to approximately 60.5 million shares as compared to prior guidance of 60.5 million to 61 million shares. Our guidance for capital expenditures as a percent of sales remains consistent at approximately 3% of sales. Depreciation expense and GAAP intangible amortization expense also remained consistent with last quarter's guidance. We continue to expect free cash flow conversion for the full year to be well above 100% as we anticipate a further reduction in working capital in the fourth quarter. This would result in free cash flow of approximately $500 million for the full year 2024 giving us significant optionality to drive further shareholder value in the future. This concludes our prepared remarks. At this time, we'd like to open up the call for questions. Operator?
Operator: [Operator Instructions] Our first question comes from the line of Tommy Moll of Stephens Inc. Your question please, Tommy.
Tommy Moll: Good morning. And thank you for takin my question. I want to start on home standby. So you guided the residential revenue of high teens year-over-year now. Within that, is it safe to assume that home standby would be a little bit above and what are you assuming for activations embedded in that full year guidance? Thank you.
Aaron Jagdfeld: Yes, Tommy. So yes, home standby is going to be a little bit above that 15% range. In terms of activations, we're anticipating -- we returned to growth here in the third quarter with activations. We believe that's going to accelerate, as we said in the prepared remarks this morning throughout the fourth quarter as the market digests the increase in demand here from the recent events. So again, I don't think we've given specific guidance on activations for the full year, but it is expected to be -- and again, I would remind you, we had a really strong fourth quarter last year. So it's a pretty strong comp that we're up against there on activations, but we're pretty confident given all of the signs here. We are seeing activations here early in the fourth quarter kind of pacing to where we thought they'd be.
Tommy Moll: Thanks, Aaron. As a follow-up, we haven't talked too much today about the margin impact from the energy technology investments. But I know that the intention there is for that to fade over time. And while you're not going to guide us for 2025 today, anything you can do to help frame how that margin drag could fade next year based on what you're seeing would be helpful. Thank you.
Aaron Jagdfeld: Yes. I mean, this year, it's going to be in that 350 to 400 basis point range. It's kind of been hanging in that level. It's -- obviously, it's a high level of investment for us. As we said in the prepared remarks, we are making progress at RE plus this year, which is the renewable energy show out in Anaheim, we introduced our PWRcell 2. We had really good receptivity there. I think the idea of building out this ecosystem with the ecobee Energy Hub as we refer to it. At the center of that was incredibly well received. We think it's a differentiator in terms of the ability to control one of the heaviest loads in the home in terms of HVAC and do that in concert with energy storage and build out that ecosystem. And then as we said, doing similar things with some of the other heavier loads that present like EV charging, we just believe that that's something that's going to be really, really important going forward. And we don't think that there's really anybody else that's going to be doing it similar to us. Now as we laid out in our Investor Day last year in 2023, we still think that by the end of 2026 that we're going to be closer to breakeven. That's that we believe is still within reach for that business. And so the drag on EBITDA, again, we're not going to be able to pin down specifically next year's impact. But obviously, it's going to abate from the 350 to 400 basis point drag run rate, if you will, today, to that kind of breakeven point, which, by the way, even if we hit breakeven with that business, still going to present a drag on EBITDA margins in '26 until we get significantly to the other side of that. But we are seeing progress. We're excited about the receptivity of those products. Now we've got to do the hard work of commercializing these new products that we're bringing to market. And that's, I think, something that, again, we haven't really had with the first-generation product that we've been selling. It's been more difficult for us to make headway -- and we -- I know the teams here, the commercial teams, in particular, and energy technology are really excited to have new products to sell as we get into 2025.
Operator: Thank you. Our next question comes from the line of George Gianarikas of Canaccord Genuity. Your question please, George.
George Gianarikas: Hi. Good morning, everyone. And thanks for taking my question. I'd love if you can kind of dig in a little bit as to what's happening in your European business and when you expect those trends to potentially rebound? Thank you.
Aaron Jagdfeld: Yes. Thanks, George. So Europe has been kind of -- we were seeing trends earlier this year around portable generators mainly. I mean that was our -- again, we had some pretty tough comps from the prior year on the back of the Ukraine-Russia war, there were energy security issues, concerns around energy security that really drove portable generator sales higher in 2023. As we rounded 2024, those concerns after kind of a mild-ish winter, somewhat abated and we were kind of seeing struggles there. That has now expanded to include kind of the broader C&I complex of products in Europe as well. It's not all bad news for our international segment. We are seeing pockets of, I would say, surprising strength in Latin America, in particular, we've got a new team managing that business down there. I think we've done a nice job. They've done a nice job really tackling the market and improving our position there. But broader Europe, Germany in particular, I mean, if we had to kind of pin it down to a particular country, not to call anyone out here, but Germany has really been a struggle. And it's an important market for our operations there. So I think it's something that I think everybody has seen the recent headlines. Even the automotive sector, in particular, in Germany is really struggling. Volkswagen (ETR:VOWG_p) announcing their first plant closures in Germany ever in something like 84 years or something like that, I think, was the headline. So I think that it's going to be a struggle in Europe, Mainland Europe for a bit until we see maybe the economic shift happened there. Hopefully, that happens sometime in 2025. I would tell you right now, we're probably going to see -- I would expect to see maybe a recovery in C&I domestically before we see a recovery in Europe. I just say I think that maybe is how the pacing will work. We're starting to see some green shoots domestically for telecom here in the U.S. I think rental is going to remain down. We were a little bit below our guide even for the third quarter in rental. The season hasn't been as strong. It wasn't a huge miss. But I think the rental companies are taking a little bit more of a wait-and-see approach. I don't know how much of that is based on the current election environment, just getting to the other side of that, whatever party ends up being in power here, but I think there is some trepidation around CapEx spending there. And so I think Europe is going to be tough, probably for all of next year, would be my guess -- tougher anyway, again, offset by some pockets of strength in Latin America and maybe some other areas of the world.
Operator: Our next question comes from the line of Mike Halloran of Baird. Please go ahead, Mike.
Mike Halloran: Good morning, guys. I wasn't sure if that was lending -- you needed to hear the validation for you guys. So there's probably a couple of years to this, but could you place the activity you're seeing today in historical context, what kind of uplift are you seeing? How does that compare to history? And I'm asking from kind of two perspectives. One, your penetration and awareness is much higher in these regions today than it was then maybe less of the penetration, but certainly the awareness. And so how is that manifesting when it comes to the activity levels that you're seeing -- but then secondarily, how is that awareness impacting non-impacted regions, if that makes sense. So both how are the regions tracking? How are the other regions tracking? Is there a spillover effect in place in some historical context as well, please?
Aaron Jagdfeld: Yes. Thanks, Mike. Yes, I think it's a great question, actually. And when you put it in perspective, there's a couple of things. I think so the states that were impacted here, and I think there's 6 or 7 states that bore the brunt of Helen and Milton those states actually oddly enough, are slightly below the national average of 6% pen rate for home standby. So when we just talking HSB for a second, while they're not materially below like maybe like California as per the -- as compared to the national average, they're still below. So in terms of the upside, I think there are -- the interesting thing is we have a good dealer representation in those markets because they are markets we've sold into in the past. Obviously, Texas has had a number of high-priority events. So barrel hits -- that said, we've added a lot of dealers in Texas. We said of the 400 dealers we've added over the last year, a good chunk of those are coming out of Texas. We would expect to see in the fourth quarter dealer counts improve probably coming out of Florida and the Carolinas. Those are going to grow. But I think just going back to the core of your question, putting it in perspective, so we've always said these events are -- can provide between $50 million to $100 million impact in the current year, depending on the timing of the event, right? And so the later timing of the event in the year, the less of that $50 million to $100 million you're going to be able to get. So if you add up all 3 events that would put your range somewhere between $150 million to $300 million upside. We said that the upside we're going to experience this year is around $200 million from these events, right? So I think we're kind of right where we think we should be with some of that probably spilling over into 2025. And we've got a lot of time between now and then before we give kind of proper formal guidance around that, we're going to watch a lot of things, but we're ramping our production. So what you're going to see in Q4 based on our guidance update is really based on what we can get out of the factories in Q4. It's a combination of our supply chain in our factories. I will say this from a historical perspective, we've added a lot of capacity, right? So when we brought online Trenton, South Carolina, which is a mirror image of our Whitewater, Wisconsin facility, that really effectively doubled our HSB capacity. So our ability to ramp more quickly, I think, is important, right? So lead times today for these products are around four to eight weeks, depending on the node. And that's probably as high as they'll probably get. As we ramp our production throughout the quarter here, we think we're going to catch that. And we think we'll bring that into a more normal looking place as we get into 2025. Now that's, of course, assuming there aren't any other major events that happen, right, between now and then the -- obviously, the extreme nature of these types of events and the weather and just the rapid intensification of these hurricanes and some of the things that we're seeing in terms of the extremities of air temperature and water temperature, I think is important. So I think putting it in perspective though, we're able to ramp quicker. I think that what we've seen out of these events kind of is right down the middle of the fairway and what we would have expected. We're encouraged by the fact that we do have good dealer representation in the markets, and I think our brand is well represented in these markets as well. And you asked one other part of that question, Mike, which was the spillover effect of the areas outside of the markets impacted by this. I think interestingly enough, if you just look at October here when we look at home consultations, we're seeing a nice lift outside of those six or seven states that were impacted by these events this year. So I would say it's more broadly impacting our demand, which is great. I think, in fact, outside of Canada, I think every other region in the U.S. was an easier comp, but Canada was a tougher comp from last year. So -- but every other region so far this quarter, we saw nice growth. And in fact, I would -- just 1 last point on this. I mean, October is not done yet. We still got today to go. But October is likely to be a record month for in-home consultations for us. And that is -- I think that's an important data point as we think about not only the impact of Q4 as we've laid out here this morning, but also the impact on the continued awareness of the category. And as we kind of build that new and higher baseline for the category as we go into 2025.
Operator: Our next question comes from the line of Jeff Hammond of KeyBanc Capital Markets. Your line is open, Jeff.
Jeff Hammond: Hey. Good morning, guys. So maybe just back on clean energy. Can you just talk about what you think is really differentiated in the new product and just the initial feedback you're getting any kind of early distribution partner wins? And just an update on the inverter intro timing?
Aaron Jagdfeld: Yes. It's great, Jeff. I appreciate that. So the new product, PWRcell 2, obviously, it's basically -- it's a ground-up redesign of the platform. So the acquired platform from Pika days when we acquired that back in 2019, I believe it was. We went through kind of our ups and downs of that platform, have been working very hard over the last 1.5 years with our teams. We've invested tremendously, as you can see, obviously, the 350 to 400 basis point drag that we talked about on EBITDA margins. It's a heavy lift here. But the differentiating factors of that platform. So our focus -- and this is really going back to the first-generation product, we really positioned ourselves from a storage standpoint of being focused on resiliency. The product, of course, can take care of the time shifting needs that you need when you've got solar attached to it and you're trying to store product from a savings standpoint. But what we really felt that people wanted, what homeowners want is if they have a battery, they want it to last some period of time if they do have an outage. And so the first generation product was the largest capacity battery in market. The second-generation product here will remain the largest capacity battery in product. But we've also done some other cool things to focus on some other important upgrades there around -- just around improved continuous and peak power output, which allows you to cover more of your house at once when there is an outage, so you're not limited to having to make choices about what you get -- what's backed up by the storage device and what's not. And that's kind of at the storage level, right? So that's that product, I'll call those the product enhancements. I think more broadly, though, Jeff, is really the expansion of this concept of an ecosystem, and you'll see some other companies going after this, but I think this was core to our thesis in acquiring ecobee is the technology that ecobee brings in not only the HMI, the human interface, the UX portion of the device, right? They've got a great kind of front end in terms of the user experience the app experience, the device experience, it's high end, it's premium. And it's a truly smart thermostat. There's a lot of capability within that device. We're going to leverage the capability within that device to control the entire ecosystem and create an experience for the end customer that really takes, I think, not only savings but takes resiliency to the next level, right? So the most prime example we can share with you there is if you take the example of you have an outage, a utility outage. And if you have the ecobee thermostat/Energy Hub at the center of your ecosystem, you have a PWRcell 2 device. You have a generator perhaps, you maybe have an EV charger from Wallbox. You have all of these devices that are now going to be integrated onto the platform, the ecobee Smart Hub is going to be making choices for you about how to preserve the maximum amount of duration for your battery. So it might if it's a cold day, it might turn down your thermostat a few degrees or if it's a hot day, it might turn up thermostat a few days, giving you a couple of precious more hours of backup -- and you don't even have to kind of be aware of that, it will obviously have work within parameters of comfort that you've set or that it knows. It's learned from your behaviors. But it also can make those choices. If you're not home, it can definitely adjust the thermostat to a greater degree, again, to preserve that duration. It can make sure that the EV charging system is not charging your vehicle during an outage, right? You don't want to take the precious energy that's stored in your power cell system, you don't want to use that to put that into your vehicle during an outage, you want to preserve that. So these different kind of scenarios that are going to play out and the complexities around those scenarios that will play out. And as the ecosystem grows with more content, I think it's going to become even more clearly evident how important that is to have a central brain. In effect, what we're creating here is a mini micro grid. It's a personal microgrid for your home, right, with a multitude of assets that you can tie into that micro grid but that micro grid can be optimized for resiliency, it can be optimized for cost. It can be optimized for conservation, for comfort, right? So all of those different settings can be prioritized and those prioritizations can change. So I think we demonstrated that at RE+ in a very visceral way in our booth, in our show booth. And I think that, that was, for me, it was an eye-opening experience, I went to the show in engaging with customers and distribution partners there, they really understood very quickly the value of that. And I think that, that is going to be for us. I think that's going to set us apart -- you couple that with our brand and then you put together with that our kind of our marketing capabilities here and our ability to build and develop distribution. And I really like how we're positioned as we go forward, timing on the products real quick. So PWRcell 2, we were going to be shipping product here. We wanted to be in market at the very end of the fourth quarter. That's probably shifted about six weeks into February a little bit. Four to six weeks. I think we're just putting the finishing touches on our customer field trials there and hope to be in market kind of in that early to mid-Q1, and then the micro is still slated for early second half of next year. So that product is pacing ahead as well.
Operator: Our next question comes from the line of Brian Drab of William Blair. Your question please Brian.
Brian Drab: Hi. Thanks for takin my question. I'm just looking at the timing of the hurricanes you know, Helene and Melton. I mean, there's still obviously significant outages in several states, even in mid-October. And there's a cycle time to getting these home standbys installed, obviously, and getting to the dealers and all those conversations need to happen. I'm just trying to figure out why even half of the demand related to those recent hurricanes would be fulfilled in 2024. It seems like this is -- I mean, you've only had like a couple of weeks since these people even got their power back on. I don't know, it just feels like just the beginning of a wave of demand rather than you're kind of making it sound like, I think, like a lot of it will be satisfied in 2024?
Aaron Jagdfeld: Yes, I think that's a great question, Brian. I think it's 1 that bears a little bit further explanation. I mean, clearly -- so at least here in 2024, our ability to fulfill that demand is going to be gated, as I said, by what we can do from a supply chain and operations standpoint. And that's with a pretty significant ramp. We actually started ramping after barrel in early July. Yes, that was early July. So we got the benefit of that. We kind of got ahead of it a little bit. In terms of prioritizing with our supply chain, both portables, kind of getting our portable generator inventories in a better place ahead of the season and then obviously, with the home standby ramp, we were starting to -- we were able to begin execution on that maybe a little earlier because of that early season event. I think that put us on alert that and obviously, all the predictions were for a pretty active season. And then nothing really happened after that until we got Helene in late September. So I think it was a matter of being able to get that ramp going and now we're going to continue in the back half of the year. The question of whether the demand -- I think the important thing to note here is, consistent with prior events, we've always seen a surge in demand followed by kind of a pullback to a new and higher baseline level, right? I think the question is the surge in demand, how long does it last? And what is the pullback -- when does the pullback happen and where does that new and higher baseline level kind of emerge. And those are kind of an answer yet at this point, and I think we're not prepared, at least on this call, to do that because to your point, to an effect, it is early, right? I mean, it is -- we're not even done with October, and we're still talking about how we've seen IHCs, this will be our strongest month ever with IHC power outages since we started tracking them the most outage hours that we've seen from an impact standpoint, certainly going back since 2010. So I think it is something that when we think about the future demand, we want to see how things play out here for the balance of the year. Again, it's an election cycle year. We've got an interest rate environment that's higher today than maybe historically, when we've been in the category, I don't know that we've had a number of -- I don't know that we've had very good proxy periods to kind of compare it to there. So in terms of the impact on kind of how people think about a project for their home, there's a lot of homeowners, I think that might tell you they feel a little bit stuck in their current home because of where their current mortgage rates are at. So as that shifts and it hasn't shifted materially yet, even with a 50 basis point decline from the Fed hasn't really read through completely to a decrease in 30-year mortgage rates. So at least not to that extent. So we're watching that and we'll see what -- where that goes as well because I think that's another kind of factor as we think about this. But look, these are -- it's an area of the country, the Southeast, that I think is understanding the importance of needing a resiliency plan. And I think our products are the right answer for that. It's just a question of timing, again, around kind of that demand peak, where it happens, when it happens, how far does it come off of that peak and where does that new and higher level of baseline demand emerge.
Operator: Our next question comes from the line of Jerry Revich of Goldman Sachs. Your question please, Jerry.
Jerry Revich: Yes, hi. Good morning, Aaron. Aaron, York, I'm wondering if you could just talk about the level of in-home consultations that you're seeing based on web traffic. It looks like you're setting records in terms of interest in your products. Is that translating into home consultations? And with the revised residential standby guidance, it looks like you're not counting on a sequential pickup in the standby business 4Q versus I'm wondering, is that right? And can you talk about that because normally, seasonally, you do see higher shipment rates 4Q versus 3Q?
Aaron Jagdfeld: Yes. Thanks, Jerry. On the IHC, yes, I mean, again, October here, we're not completed yet. We got one more day, but we're going to be at a record level. And we think that, that -- when you look at 3Q, as we mentioned, that was...
York Ragen: How portable they're going to go down Q3 to Q4 and home Sam's going to go up as we ramp production course is sort of matched by the portable decline.
Aaron Jagdfeld: Yes. So home standby is going to increase and portable is obviously, unless we have so a lot of -- we sold a lot of portable generators. Frankly, even if we have another major event here anytime soon our inventory levels are quite low. So we're in the middle of replenishing those stock levels. So it's really a shift between higher home standby lower portables for Q4 when you're going trying to compare the Q3 to Q4 run rate.
Operator: Our next question comes from the line of Kashy Harrison of Piper Sandler. Your line is open, Kashy.
Kashy Harrison: Good morning, guys. And thank you for taking my question. I'll keep in mind to the C&I side of the business. Can you help us think through whether the implied 4Q C&I numbers have essentially stabilized or whether based on what you're seeing on cycle times in the U.S. than Europe and rental and everything else, that there could be some more risk? I'm just trying to get a sense of if the business has in aggregate bottomed by your measures? Or if you think there could still be some softness as we think about the coming quarters qualitatively?
Aaron Jagdfeld: Yes, Kashy, thanks for that. I appreciate the question. So I think as we said on the last call, actually, we kind of viewed Q2, Q3 is the bottom for telecom. We don't see that pulling back. In fact, we're seeing some green shoots and Q4 would contemplate the guidance we gave this morning would contemplate that, that actually improved slightly Q3 and Q4. I think on the rental market side, as I said in a previous question, we actually saw that be a little weaker than we would have hoped in Q3. So normally, that's a little bit of more of a seasonal business for us. We see lighting towers from that season is when we kind of get to this time of year, that has not played out. Again, it's not materially off of our expectations, but it was disappointing to see kind of maybe further weakness than we expected there. But it's -- I think in terms of bottoming out, it feels like that is probably kind of maybe where we're at. I just -- the question -- the fundamental question on rental is kind of where does that go kind of next year, right? And I think our views on rental right now without additional kind of direct guidance from the major rental companies that we serve. We haven't been given any kind of guide yet on next year's CapEx spend in our categories. But we would believe at this point that's probably going to remain pretty muted throughout 2025. I think telecom, as we said, those green shoots, we're hoping to see continued improvement. I think when you think about our core industrial distributor channel, we've been working to catch our lead times. We've been executing quite well operationally, but we've been seeing book-to-bill rates that are under 1. And that -- so as we catch that backlog and we've reduced our lead times, that could be an area where we see that pull back a little bit. Now quotings remain resilient. So the challenge we're seeing is that the quote to order time line is pushing out. So we're seeing projects get delayed. And this is something that can happen in this part of the cycle, especially if you have high rates persisting. So perhaps if maybe the uncertainty around the election is taken away, and we see rates continue to come down as they are projected to come down into next year. It might be a very temporary thing that we see there. It might just be related more to us catching our backlog and bringing lead times down. I think for us, one of the other fundamental questions is Europe, although I think when we think about that, we have, again, Mainland Europe, I think that doesn't feel very good. But I see other markets outside of that, that we've been seeing pretty decent -- actually nice growth in Latin America, as I said, some in the Middle East. We've seen a little bit there. And we have some new products coming to market next year. We've got some new partnerships there in that business. So I would like to believe, at least kind of the early read here is, I think we've maybe hopefully found the bottom in terms of our European operations, our international operations. Even if Europe may soften further, I think that will be, at this point, at least fully offset or more than offset perhaps by some of the other regions of the world where we have operations, and we have opportunities.
Operator: Our next question comes from the line of Stephen Gengaro of Stifel. Your question please, Stephen.
Stephen Gengaro: Thanks. Good morning, everybody. So a quick one for me. When we think about the margin progression that you've seen and relative maybe to the prior guidance, but even just relative throughout the year. Can you talk about or give us some sense for how much is mix and how much is sort of cost out and efficiency gains that you've been able to achieve?
York Ragen: Yes. Stephen, this is York. So gross margins improved roughly 5% year-over-year. We've been seeing that for quite some time now over a number of quarters. This particular quarter, I'd say about say, 40% to 50% of that 5% was mix related. So obviously, as home standby generators increase in mix, we're going to get a nice bump in margins. So that means around 50% to 60% was price cost. So we're still on a year-over-year basis, still seeing the benefits of lower input costs coming through the P&L as we turn through that higher cost of inventory or as we sell through that in the past, and now we're -- now that's not running through the P&L. And then logistics costs, we continue to do a good job in terms of bringing material to the plants and getting out to our customers. So we continue to run our factories more efficiently as -- in particular, the home standby volume picks up. So price cost has been favorable for a number of quarters, continues to be in Q3, like I said, around 50% to 60% of that year-over-year increases price cost. What's interesting is if you look from, say, like now look ahead from Q3 to Q4 now sequentially now, not talking year-over-year but sequentially. I'd probably say a lot of that price cost is now running through our P&L here in Q3. I mean we carded, what, 40% gross margins in Q3. That's the best we've seen since 2010. So we're feeling good in terms of where we're at from our gross margin profile and that we believe will continue into Q4. And so I'd say, sequentially, the price/cost scenario has played out, but year-over-year, we'll still see benefits.
Operator: Our next question comes from the line of Keith Housum of Northcoast Research. Your question please, Keith.
Keith Housum: Great thanks. Appreciate. Good morning, guys. In terms of like the power outages and the driving of demand, all focuses have been on HSB. But can you touch on, is there any opportunity for growth within C&I or the beyond standby batteries in terms of those guys benefiting from when you have these massive storms come through?
Aaron Jagdfeld: Yes. Thanks, Keith, and I appreciate you bringing that up because I probably should have mentioned that when we're talking about C&I on one of the last questions. Absolutely. When we get outage events, I mean, longer-term trends, the outages drive awareness, whether you're a small business owner or whether you are a wireless telephone network operator that has thousands and thousands of sites, hundreds of thousands of sites, you realize very quickly if you haven't invested in a backup plan, you realize the impact that can have on your operations and on your revenue streams on your continuity of operations, maybe spoilage of inventory that can happen. And so we just -- we also know that historically, for us, and when we look at our business, that usually is more of a delayed reaction. And the point -- the reason for that really is that in the business world, those are business decisions. They're usually CapEx budgets. There are approval processes. It takes time to get those projects going. So we would expect, as historically would follow on is sometime late -- kind of in that 4-quarter cycle basis, you would start to see some demand start to pull through from those events directly related to those events in the affected areas and perhaps indirectly affected -- indirectly impacted areas outside of that, when you're talking about a national telecom operator who is now going to allocate more dollars in the budget process for hardening of networks, right? So they put more dollars aside for purchases of generators or storage devices. Those things definitely are things that we see historically. And that also, I think, could be an offset to any potential longer term weakness in kind of the core industrial C&I markets that we're currently seeing. We think those are fleeting. We've seen these cycles before, and I think you bring up a really good point. As soon as you get kind of an active period of events like this, that definitely gets people on notice and brings it more to the forefront from a business planning standpoint, from a disaster planning standpoint, continuity of operations ending plan regulatory standpoint, all of those things come to the front of the line.
Operator: Our next question comes from the line of Jordan Levy of Truist Securities. Your question please, Jordan.
Jordan Levy: Morning all. And thanks for all the detail. We've talked before about the percentage of the HSB category that finance or I think your program with Synchrony. I think you said it's around 20% of dealer network sales or so. I'm just curious how you think about the potential to ever kind of expand that financing optionality on HSB as more customers start to think through power quality and outage activity sort of issues?
York Ragen: Yes. No, this is York, Jordan. Definitely having financing is -- I mean, price in general is always a barrier to driving close rates higher financing as a way to sort of break-through that challenge that you might have in terms of closing a deal. I know for a fact in 2025, we're going to be doing some -- we're going to be ramping up that -- the financing initiatives throughout the dealer channel, and it's going to be a big focus throughout 2025, just like it has been in 2024 here. So yes, no, it's -- I agree -- we agree with you that, that will be an important aspect to trying to drive close rates higher.
Operator: I would now like to turn the conference back to Kris Rosemann for closing remarks. Sir?
Kris Rosemann: We want to thank everyone for joining us this morning. We look forward to discussing our fourth quarter and full year 2024 earnings results with you in mid-February. Thank you again, and goodbye.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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