GNRC Stock | Generac Holdings, Inc. Q1 2026 Earnings Call

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 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 CNI segment, including an increase in projected global data center revenue, and the expected contribution from the acquisition of Intercon, 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 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 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 Intercon, a leading designer and manufacturer of generator enclosures and switch gear. 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, Intercon's expertise in other product categories such as switch gear 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 CNI segment.

During the first quarter, shipments to our domestic industrial distributor channel increased from the prior year and project quoting activity remained 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 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 market, global shipments of our control 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 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 Intercon acquisition. This is partially offset by softness in certain international regions, as previously mentioned. We now expect 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. I'd now 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, 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 Fern. 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 for home standby generators and higher shipments of portable generators. However, despite the elevated outage activity from Winter Storm Fern, 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 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 continue to execute against our plan of ramping production of Power Micro, the first Generac-branded micro inverter 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 with EcoB positioned as the energy management hub of the home. An important metric, EcoB's connected home count continued to grow in the quarter to more than five million homes, with service attach rates further increasing and providing us with a growing high-margin recurring revenue stream to complement EcoB's expanding hardware market share. Profitability continued to improve as well, with EcoB delivering its first positive adjusted EBITDA during the first quarter, which is normally a seasonally softer quarter for these products. We are expecting continued strong growth in EcoB shipments for the full year 2026. As a result, we believe the benefits of a scaling topline together with a strong gross margin profile and disciplined operating expense investment will support continued improvement in 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 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 Intercon acquisition, our confidence in capturing a growing share of the generational growth opportunity in the data center market has only increased. Additionally, the mega trends 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 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.

Hey Tommy.

Yeah, thanks Tommy. So the notice to proceed that we talked about at investor day and we mentioned again this morning, that's from one of the hyperscale customers that we continue to negotiate with. The best way to characterize it, Tommy, is that if this was a 100-yard dash, we're like 99 yards of the way done with the race. We've got one yard left. We're in the final stages with the final agreement. There's a process, it's a gauntlet. There's literally a hurdle for every step along the way here, but everything from product quality to supply chain visits, our factory visits, the audits that they put us through internal and external. We continue to march through the process, and we're passing all of those gates as we go, and we really are at the very last yard of this 100-yard race. So we feel really good about it. As such, we're into discussions about the specifics around certain sites, which sites we would see next year as part of that NTP, and we're preparing accordingly on that point. To transition to the second part of your question about service, as we deploy equipment to these large project areas, we need to make sure we're appropriately staffed. One of the great things about our industrial distribution network is that over the last five or six years, we've made investments there. Some of those investments have come in the form of acquisitions, and today we own about 30 to 35% of our industrial distribution network here in the US. We continue to work with our partners on staffing to appropriate levels to serve the market. The ability to react to any kind of service situation is critical, and I think we're in a really good spot there given our own ownership and our appetite to continue to invest and hire people as needed as the sites get deployed.

Hey, Greg.

Yeah, thanks George. Obviously an important question in this whole effort around data centers is supply chain based. It's not just the engine, although the engine is critical, but it's alternator supply, cooling package supply, the end packaging of the product, which with our acquisition that we closed on April 1st, we're taking a big step forward there trying to solve for what is becoming a fast bottleneck in the industry around finished packaging. Even if we can get great lead times on the unpackaged product, it doesn't help us if the packaging phase is constrained. So that was a big part of the calculus in acquiring Intercon, and we look to expand that operation pretty aggressively so we can control those lead times. With respect to engines, we have a multi-year agreement in place with our current large diesel engine supplier. That agreement allows us to have exclusivity here in the US. There are a couple of small exceptions to some legacy customers, but nothing that I would say any of those small customers are going to be able to get through the gauntlet with hyperscale customers. We don't foresee that at all. We feel really good about our engine supplier's capacity and their ability to produce at the kind of scale that is going to be needed with the volumes we're talking about with these hyperscale and non-hyperscale customers, but also their appetite to continue to invest and the global footprint they have and the ability to expand that footprint as needed. We're talking to the engine partner about potential production of these engines right here in the US at this point. It might even be something cohabitated with us on some kind of joint investment. We're not exactly sure at this stage. Right now there's plenty of capacity in place, so we feel really good about that, and we're working to solve the next level capacity constraints and supply chain around alternators and cooling packages. We're multi-sourcing those critical components as well, and we feel like the supply chain for those other critical components, if they don't already have the capacity added, they have really good plans to add it as we enter 2027 and beyond. At this stage of the game, we feel like we're in pretty good shape. But supply chain is something that's not 100% inside of our control, so that's something we have to keep a close eye on. I'm very pleased though with our team's engagement there. It's an area of strength for Generac historically, working with supply chain, developing deep partnerships, focusing on capacity adds where needed and getting ahead of it. We don't wait to react; we try to be proactive. I feel like we're covering those bases as well as we can today, and we're basically coiling the spring here as we get ready to get into the fourth quarter, back half of this year, and really into 2027, driving to the next level with the data center products.

Morning Mike.

Yeah, thanks Mike. The balance of our CNI business is also, as we indicated over the last couple of quarters, we were starting to see some improvement in the domestic industrial distributor channel. That continued in Q1. We saw good quoting activity, good order activity there. We expect that to continue through the year. On the rental side, we had a really strong quarter. The Almond acquisition contributed to that, but also our existing national rental customers are ordering at robust rates. We see that continuing. On the telecom side, we saw a nice sequential improvement in Q1. We expect that to continue through the year as our telecom customers continue to harden their networks. On the international side, we saw strong growth driven by data center and control solutions, partially offset by softness in the Middle East and Latin America. We expect that dynamic to continue. With respect to new product categories, we're very excited about the power range products we're bringing to bear. The early receptivity has been very strong. We're seeing good interest from both existing and new customers. These products are helping us to expand our addressable market and we're confident they will contribute to our growth going forward.

We see signs of a nice recovery or growth in telecom, which began in earnest in the fourth quarter of last year and has continued to pick up steam in early 2026, really outpacing expectations on order volume. That gives us good confidence in the guidance raise for the balance of 2026 in the CNI segment. The other area is rental. I had an epiphany driving by a data center construction site right next door to our new Beaver Dam manufacturing plant. I was struck by how much of our mobile equipment—light towers, mobile generators for temporary power, lighting, and heat—is on that site. Construction goes 24/7, so it's no surprise that our rental customers, starting with national accounts, are beginning a refresh cycle we've been waiting on for about 18 months. Fortuitously, we closed the Almond acquisition on January 1st, and the timing couldn't have been better. That business has outperformed on top and bottom lines. It was a great complementary fit for distribution and gave us much-needed capacity with their factory in Nebraska. Our core CNI industrial distributor business has been good, with strong quote rates. We've worked down our backlog and shortened lead times. On larger machines going through traditional channels, sales cycles are long, but we've started to realize the first orders. We just had an engineering symposium with over 200 engineering firms. One of Generac's historical shortcomings in CNI was that our product line stopped at 2 megawatts. Now we go to 3.25 to 5 megawatts, with a 4-megawatt expansion on the drawing board. That makes us a full-line provider and takes away any excuses for specifying engineering firms not to specify us.

Hey Dave.

The margin improvement was pretty dramatic—500 basis points of EBITDA margin expansion over the prior year. It was primarily driven by better cost control. Bringing our teams together under the Generac One Home business has helped us leverage team members more efficiently. We built a world-class team in our energy technology business. The market has shifted based on policy, high interest rates, and other headwinds, but we believe long-term it's still a good opportunity as retail energy prices continue to rise. Self-generation and storage for cost containment will become a headline story. The reality is it's softer right now, but being able to leverage that team into our traditional residential business has been a great move. We've gotten early wins on cost containment, which is the primary driver of that EBITDA margin improvement, and you should expect to see that going forward. We also had some gross margin improvement. I'll let York chime in on that.

A good chunk of that is price. About half the growth in 2026 is price with the new product line. As York said, the return to baseline normal outage environment is a big assumption for the second half. We started off the year well, and Winter Storm Fern was a nice kick. We saw a lot of interest in sales leads in Q1. We'll see what conversion looks like in Q2. It's the first real test of our new lead pool system. We're modeling Q2 off historical close rates. We'll see if that holds or is better. It's a good start to the year, and with easy comps in the back half, we're going to see growth in home standby.

Hi Stephen.

Thanks Stephen. I'll take the second part and let York tackle the margin progression. In terms of growth rates, we put aggressive targets out at Investor Day. Near-term growth is even better given the incremental nature—going from zero to the $700 million backlog and converting that over this year and next. The hyperscale opportunities aren't even reflected in that backlog. The $600 million notice to proceed is a good representation of the potential. The answer to your question is highly linked to capex spending assumptions for data center buildout. Every conversation we have—with data center customers, developers, and component suppliers—suggests this will be more than a multi-year run. The impact of AI on businesses and society is just in the early innings. As that takes root, the need for data center capacity will grow. We feel really good about our longer-term growth rates. I'll kick it to York on margin progression.

We're in conversation with two hyperscale customers in particular. Both would present multi-year opportunities. The agreements involve a master supply agreement, and once you're on the approved vendor list, they can cut purchase orders. Each customer has a different approach to forecasts and POs. Because planning cycles are so long and lead times are stretched, many are already looking at 2028 and beyond. Our visibility is limited to 2027, but we hope to get better as we finalize negotiations with these two customers. The customer we have the notice to proceed with is closest to the finish line, but the other is close behind. The volume numbers they've discussed are significant. We're already turning our attention to the next leg of capacity growth, trying to accelerate our Sussex facility ramp into Q3. We're going to need a bigger boat if we win both accounts, as that's not in our current capacity. We would definitely have to add more. I'll kick it to York on the tariff question.

On the residential opex, the unification has happened quickly. We began evaluating last year and accelerated the combination into 2026. That is clearly having an impact. We're on the back side of new product introductions with Power Micro getting into market and PowerCell 2. The hardcore development work from last year is tapering. On the software side, we're benefiting from AI trends in coding, not needing the same headcount intensity, and productivity is up dramatically. It's a combination of those areas. As we go into 2026, expenses typically ramp seasonally with marketing for home standby and portables, but the top line also increases in the second half. The Generac One Home project is not a complete success yet—there's still work to bring teams together—but we like what we see and are getting a lot of leverage out of the combined entity.

Thanks Tanner. When we laid out our original business case to enter the large megawatt gen set market, historical pricing levels were lower because we put the business case together in a much less constrained supply backdrop. As that's changed, we've seen pricing improve, which has improved the overall business case for those products, even with data center customers who buy in large quantities. Margins are lower on a net basis relative to selling into our legacy traditional market, but they're not dramatically lower, and they're dramatically better than historical margins in that product segment. Looking forward, lead times are going to remain constrained for the next several years, underpinned by engine supply constraints. Our competitors are adding capacity, but it will take time to come online. Over time, that will probably normalize, but at this stage, we see opportunities to increase vertical integration and efficiencies, like the Intercon acquisition. The ASPs on the gen sets and the packages have increased. The opportunity to capture that value in our gross margins is very strong. As we improve efficiency and leverage our footprint, there are other opportunities to continue improving margin, though that may be offset by ASPs normalizing or coming down slightly. We think those gross margins will hang in there for the foreseeable future.

Thanks Vic. On the CNI question about permitting, all permitting—air, water, or other—has become more challenging as communities grapple with data center impacts. On diesel backup generators specifically, there are solutions like Tier 4 certified engines and after-treatment packages that can be added to improve the emissions profile. Some markets require best available technologies. We have projects where we're discussing site certifications that include after-treatment or Tier 4 certified product. That's not a showstopper; we can solve for that. On capacity, we're already looking for ways to expand. We need to think about not a billion dollars in capacity, but two or three billion. Can we get more out of our existing footprint, including Sussex and Intercon? Beyond that, we're looking at other facilities. Do we have time for a greenfield? Can we buy existing real estate or companies through M&A? Everything is on the table. You will hear from us about capacity additions as we get through these hyperscaler negotiations. On the residential question, the One Home project has gone well. We still love energy technology. We have a very competitive micro inverter in market and are scaling from a prototype line to a scaled domestic line. We're getting on AVLs for more customers and dabbling with prepaid lease products. The market is changing rapidly with consolidation of distribution and shifts in OEM focus. Longer term, if retail electricity prices continue to rise and storage and electronics costs come down, we'll see strong demand. It will be a bumpy 2026 and into 2027 for these products, but we're well positioned with our home ecosystem. It helps round out our residential segment.

Absolutely, have not moved on that.

Great question. On telecom, cycles are usually multi-year and follow project buildout. A lot is new build of sites, with retrofitting of existing sites still part of the opportunity. This is mostly outside plant backup—towers along highways and hillsides—much of it still around the 5G buildout. We're the primary supplier to all tier one wireless carriers and have been for decades. We customize products and work with their engineering and operations teams to create bespoke solutions at scale. It's a lot like the hyperscale opportunities on the data center side, just in a bigger form factor and dollars. Telecom is usually a multi-year run, and we feel really good about that. On the mobile side, it's a refresh cycle. There is some new equipment, but the cycle is they'll buy for a couple of years and then not buy for a year or two as equipment ages out. They watch utilization rates, rental rates, and residual equipment values very closely. Rental equipment companies have become very sophisticated in the math they run. They know when to hit the gas on capex to refresh. Those runs are usually a year or two on and maybe a year to 18 months off. That's what we saw in the latest run. There can be other cycle factors. In the past, we've seen energy cycles as domestic energy production increases, which can increase the intensity of the rental market cycle. We're seeing a little bit of that now. Everything we're hearing is that a lot of the refresh they've had in their fleets, and demand is continuing to be strong around data center construction and domestic energy production.