Generac Holdings Inc (GNRC) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter full-year 2013 Generac Holdings Incorporated earnings conference call.

My name is Jenaeda and I will be your operator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. York Ragen, Chief Financial Officer.

Please proceed.

Good morning, everyone, and welcome to our fourth quarter 2013 earnings call.

I'd like to thank everyone for joining us this morning.

With me today is Aaron Jagdfeld, our President and CEO.

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's employees, may contain forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements.

Please see our earnings release or our SEC filings for a list of words or expressions that identify such statements and the associated risk factors.

In addition, we'll make reference to certain non-GAAP measures during today's call.

Additional information regarding these measures including reconciliation to comparable US GAAP measures is available in our earnings release and SEC filings.

I'll now turn the call over to Aaron.

Thanks, York.

Good morning, everyone, and thank you for joining us today.

Our fourth-quarter 2013 is also provide further evidence that our powering-ahead strategy continues to this successful.

As fourth-quarter net sales increased 10% to $376 million over a very strong prior-year quarter, which included Superstorm Sandy.

Our revenue growth during the fourth quarter is a great example of the improving diversification of our business, as the combination of strong, organic revenue growth for home standby generators and commercial and industrial products, along with revenue contribution from recent acquisitions more than offset a meaningful decline in shipments of portable generators.

Adjusted EBITDA and adjusted earnings-per-share in the quarter increased 25% and 28%, respectively, with EBITDA margins increasing 320 basis points over the prior year, primarily result of an overall improvement in gross margin and ongoing improvements in warranty rates.

Before further discussing additional details of the quarter and our outlook, I wanted to review some highlights for 2013 as well as important accomplishments within some key strategic areas of our business that made for another impressive year of growth for Generac.

2014 was another record year for the Company, in terms of revenue, adjusted earnings and free cash flow.

Revenue increased 26% to $1.5 billion over a prior year 2012 where revenue increased 49% over 2011.

Once again, we experienced strong growth across all regions of the United States as home standby generators continue to gain in popularity and the Generac brand is increasingly recognized as leading name in backup power.

Revenue growth within residential products in 2013 exceed our original expectations due to better than expected adoption of home standby generators, continued expansion of our distribution, execution on sales and marketing initiatives and a more favorable environment for residential investment.

With regard to our commercial and industrial products, we experienced our third consecutive year of mid-teens organic growth as the secular penetration teams associated with this business continue to play out.

Including, the increased awareness and growing importance of backup power within the telecommunication and light commercial markets, as well as the industry shift toward cleaner burning, more cost-effective natural gas fuel and backup generators.

Supplementing our organic growth during 2013 were three important acquisitions that provide additional product breadth and global scale to our C&I business and an overall better balance for the company.

Adjusted EBITDA for the full-year increased 39% to $403 million, as compared to 2012.

And free cash flow during 2013 totaled $229 million.

Our consistent track record of strong cash flow generation, combined with our strong balance sheet, gives us the flexibility to pursue a number of shareholder value-enhancing activities as we enter 2014.

Specifically, regarding our residential products, our residential dealer base continued to expand in 2013 as we entered the fourth quarter with approximately 5400 dealers.

We added dealers at a pace above historical rates with approximately 550 net dealers joining our network during the year and with over 1100 net dealers added since the end of 2011.

Furthermore, the growth in home standby generators that we experienced in 2013 can be attributed to the significant progress made during the year with targeted sales and marketing initiatives to further extend and increase the awareness of home standby generators.

We expanded our efforts with the AMPP.

targeted marketing process and fully launched our Power You Control infomercial, Generac lead team and power plan home selling solution.

These four elements are interconnected and form an innovative and cost-effective approach to identifying and qualifying sales leads and improving sales closure rates for home standby generators.

Through these initiatives, we are better aligning our residential dealer base with Generac and extending our competitive advantage.

We plan to further invest in these important sales and marketing efforts during 2014, as we continue to execute on our strategic objective to grow the overall residential standby generator market.

Generac created the market for this emerging category over a decade ago and as result we have established a 70% market share.

During 2013, we achieved a significant milestone by manufacturing and selling our 1 millionth home standby generator into the market.

Having said that, there remains a substantial opportunity to further grow this category as only approximately 3% of US households own a home standby generator.

2013 was also an important year for expanding our commercial and industrial product portfolio as we executed on an number of strategic M&A related activities through the integration of Ottomotores and the acquisitions of Tower Light and Baldor generators.

We made solid progress on a number of integration initiatives involving Ottomotores, which we acquired in December of 2012, including significant changes to the supply base for certain key components, consolidating their operating footprint and implementing new information technology systems.

While ongoing integration efforts will continue throughout 2014, Ottomotores remains an essential platform for international expansion efforts by providing a local manufacturing presence and access to the important Latin American market for power generation.

In August, we acquired Tower Light, the leading European developer and supplier of mobile light towers with headquarters outside Milan, Italy.

With distribution in over 50 countries, Tower Light is a great strategic fit for our business, providing our first manufacturing footprint in Europe and expanded product offerings to support additional geographic markets.

When combined with Magnum, this acquisition positions Generac as a global leader in light towers, allowing us to participate in the growing domestic and international [rental] markets.

Tower Light has an established history of profitable growth and we've identified several attractive revenue and cost synergies as we further integrate this acquisition.

In November, we purchased, substantially, all the generator division assets of Baldor Electric Company, a wholly-owned subsidiary of ABB group.

Baldor generators offers a complete line of standby and primary products up to 2.5 mega watts and immediately expands our existing industrial product line, adds to our manufacturing capacity for industrial products and, essentially, doubles the addressable market for Generac and our distribution partners in the US and Canada.

The integration of Baldor generators will be a key corporate focus throughout 2014.

Although still early in the process, we have identified some meaningful cost synergies with regards to product costs, given our increased manufacturing and sourcing scale as we transition the acquired products and facility into the Generac portfolio.

All three of these acquisitions are focused on improving our C&I scale by providing us access to new products end markets, geographies and customers.

As we look forward, we continue to evaluate opportunities to expand into other regions of the world, which is important to enhancing our overall competitiveness and achieving our long-term goal of becoming a leading player in the worldwide market for power generation equipment that is estimated to be up to $18 billion annually.

Innovation continues to be a core value to Generac and an important element of our future growth.

We introduced a number of new products during 2013 while also developing a robust portfolio of future projects.

Our new line up of Guardian series home standby generators, introduced during 2013, included more than 85 product enhancements and innovations across the entire product line focused on improving the user experience and streamlining the installation process.

Alongside the new Guardian series, we also introduced an new cellular -based remote monitoring system called Mobile Link, which allows our customers to check the status of their generator conveniently from a desktop PC, tablet computer or mobile phone and also provides them with the capability to receive maintenance or service alerts.

In addition, in late 2013, we introduced the Protector series product line developed specifically for residential and like commercial users.

This new line of compact diesel generators offers the industry's smallest footprint at price points well below those of larger, more traditional diesel products in the marketplace.

We also added to our industry-leading lineup of natural gas generators during the year with the introduction of several new power nodes up to 400 kilowatts.

We believe our ability to innovate is something that separates us from others in our industry and we have used the growth in our business over the past several years to accelerate our product development efforts and dramatically expand our research and development capabilities.

As a result, we expect 2014 will be another important year of new product launches across our business.

Our powering-ahead strategy has been guiding our investments in Generac for the last three years, allowing us to capitalize on the compelling secular growth drivers for our business and contributing to the transformation of Generac into a more diverse and globally focused company.

As we continue to move our powering-ahead plan into the future, we are focused on a number of initiatives that are driven by the same four key objectives: to grow the residential home standby generator market; gain commercial and industrial market share; diversify our end markets; and expand into new geographies.

Combining this strategy with the long-term growth drivers for our business and the potential for further recovery and key macroeconomic indicators, we believe Generac is well-positioned, over the long-term, to drive future growth and shareholder value.

I'd now like to turn the call back over to York to discuss fourth quarter results in more detail.

York?

Thanks, Aaron.

Net sales for the fourth quarter of 2013 were $376.2 million, a 10% increase as compared to $342 million in the fourth quarter of 2012, which included the impact from Superstorm Sandy.

Looking at net sales by product class, residential product sales were $199.1 million in the fourth quarter of 2013, as compared to $216 million for the comparable period in 2012.

Shipments of home standby generators experienced strong growth in comparison to the prior year as we continue to expand our leading position for these products through our innovative approach to the market.

The continued strength in home standby shipments is due to the similar combination of factors discussed during recent quarters including; the additional awareness created by major power outages in recent years, expanded distribution broadening the availability of the product, and increased sales and marketing initiatives to create and close leads more effectively.

The strength in home standby generators, however, was more than offset by a meaningful declining in shipments of portable generators due to less severe power outage events in the fourth quarter of 2013 relative to the prior year.

The prior-year fourth quarter benefited from increased demand for portable generators from Superstorm Sandy.

Recall that, immediately before, during, and shortly after major power outages, demand for portable generators increases significantly.

Following the outage, and for a period of time after, we see elevated demand for automatic home standby generators and given the increased awareness and distribution that it's created, a new and higher baseline demand is established for these products.

Looking at our commercial industrial products, net sales increased 42.7% to $157.9 million in the fourth quarter of 2013, from $110.6 million in the fourth quarter of 2012.

The increase in C&I net sales was driven by the acquisitions of Ottomotores, Tower Light and Baldor generators, along with strong organic growth for stationary and mobile generators.

The strength in organic sales was primarily driven by a significant increase in shipments to certain national account customers, highlighted by the telecom vertical, as well as increased sales of natural gas generators used in light commercial and retail applications.

Our other products sales category improved to $19.2 million in the fourth quarter of 2013, an increase of 24.6% from prior fourth quarter sales of $15.4 million.

This growth was primarily due to an organic increase in sales of service parts as the installed base of our products continues to grow with the overall growth of the company, as well as the addition of service parts and other revenue from recent acquisitions.

Gross margin for the fourth quarter was 38.7%, representing a 180 basis point increase, as compared to 36.9% in the prior-year fourth quarter.

Gross margin improved over the prior year quarter due in part to an improved product mix, primarily driven by a higher sales mix of home semi-generators and corresponding lower sales mix of portable generators.

Also contributing to the improving gross margin, was a reduction in product cost due to a moderation in commodity costs and continued execution of cost-reduction initiatives.

These margin improvements were partially offset by the mix impact from Ottomotores and Baldor acquisitions.

Operating expenses for the fourth quarter of 2013 declined $3.9 million or 6.7%, as compared to the fourth quarter of 2012.

As was the case in recent quarters, and large contributor to this reduction was improved overall warranty rates experienced during the current year quarter, which resulted in a $5.3 million favorable adjustment to warranty reserves, favorably impacting operating margins by approximately 140 basis points.

The ongoing impact of the lower overall warranty rates during the current-year fourth quarter was approximately $3 million, impacting margins favorably by approximately 75 basis points.

In addition, a $2.7 million decline in the amortization of intangibles also contributed to the reduction in operating expenses.

Partially offsetting these reductions were operating expenses associated with the acquisitions of Ottomotores, Tower Light and Baldor generators.

Excluding non-cash and tangible amortization expense, operating expenses as a percentage of net sales during the fourth quarter of 2013 were 12.8%, representing a 160 basis point decline, as compared to 14.4% in the prior-year quarter.

Again, the reversal of warranty reserves due to the improved overall warranty rate experience is the main driver of this decline as a percentage of net sales.

Excluding the $5.3 million favorable adjustment in warranty reserves, operating expenses and percentage of sales for the fourth quarter of 2013 would have been 14.2%.

Adjusted EBITDA increased 24.7% to $103.6 million, or 27.5% of net sales in the fourth quarter of 2013, as compared to $83.1 million or 24.3% of net sales in the same period last year.

This increase in adjusted EBITDA margin is primarily due to the overall improvement in gross profit margin and warranty rate improvements just discussed.

Adjusted EBITDA for the full-year 2013 increased 38.9% to a record $402.9 -- excuse me -- $402.6 million, or 27.1% of net sales, as compared to $289.8 million in 2012, or 24.6% of sales.

For the full year 2013, adjusted EBITDA margin includes the impact of $17.6 million in adjustments to warranty reserves.

Excluding this favorable benefit, EBITDA margin would have been, approximately, 120 basis points lower at 25.9%

GAAP net income for the fourth quarter of 2013 was $48.5 million, as compared to $28.3 million for the fourth quarter of 2012.

Adjusted net income as defined in our earnings release increased 27.7% to $77.5 million in the current-year quarter, versus $60.7 million in the prior-year fourth quarter.

T

his increase is attributable to improved operating earnings during the quarter, resulting from a 10% increase in net sales and higher EBITDA margins, as well as $4.6 million lower interest expense due to a reduction interest rate from the May 2013 refinancing of our senior secured term loans.

Offsetting these improvements was a $7.8 million increase in cash income tax expense as we are starting to become an income tax payer during 2013.

Diluted net income per share on a GAAP basis, was $0.69 in the fourth quarter of 2013, compared to $0.41 per share in the fourth quarter of 2012.

Adjusted diluted net income per share as reconciled in our earnings release, was $1.11 for the current-year quarter, compared with $0.87 per share in the prior-year quarter, a 27.6% year-over-year increase.

With regards to cash income taxes, the fourth quarter 2013 includes the impact of a cash income tax expense of $9.1 million, as compared to only $1.3 million in the prior-year quarter.

And for the full-year 2013, was $25.8 million, as compared to only $2.8 million during all of 2012.

As we commented during recent conference calls, our cash income taxes for 2013 were expected to increase due to a combination of our NOL carry-forward becoming fully utilized during 2013 and higher overall profitability levels.

Accordingly, our cash income tax rate for 2013 was 9.3%, as compared to only 1.8% in 2012.

Free cash flow, defined as net cash provided by operating activities less capitol expenditures, was $88.2 million in the fourth quarter of 2013, as compared with $94.7 million in the same period last year.

The strong increase in operating earnings, compared to the prior-year quarter, was more than offset by less of a benefit from monetizing working capital, compared the prior year, as well as increased levels of capitol expenditures.

Free cash flow for the full-year 2013 was a record $229.2 million.

Our uses of cash during 2013 included $31 million for capitol expenditures, $116 million for acquisitions and the payment of $5 per share special dividend in June 2013.

As of December 31, 2013, we had a total of $1.2 billion of outstanding debt, net of unamortized original issue discount, and $150.1 million of consolidated cash and cash-equivalents on hand, resulting in consolidated net debt of $1.05 billion.

Thanks to our strong cash flow and earnings growth, we were able to end the year with consolidated net debt to adjusted EBITDA leverage ratio of 2.6 times.

At similar levels to where we started the year, despite making the acquisitions of Power Light and Baldor generators and paying a $5 per share special dividend.

Given our strong free cash flow profile, we are confident in our ability to continue to invest in the future growth of the business, both organically and through M&A, while also evaluating further reductions in leverage levels and opportunities to return capital to shareholders.

I would now like to walk through some guidance items to help model out our cash flows and earnings per share for 2014.

In 2014, we expect interest expense to be in the range of $45 million to $47 million, which represents a decline compared to $54.4 million in 2013.

The forecast for interest expense includes $40 million to $42 million of cash outflow for debt service costs, plus approximately $5 million for deferred financing costs and original issue discount amortization for our credit facility.

This interest expense guidance assumes no additional debt prepayments during fiscal 2014, our existing interest rate swap contracts remain in place and that LIBOR rates do not increase beyond our current LIBOR floor of 75 basis points.

Based on our guidance provided for 2014, our cash income taxes for the year are expected to be approximately, $63 million to $65 million, which translates into an anticipated full-year 2014 cash income tax rate of 21% to 22%.

This represents a notable increase as compared to the $25.8 million for cash income taxes in 2013 or a 9.3% rate.

The projected increase in cash income taxes in 2014 is due to a combination of our NOL carry-forwards and certain tax credit carry-forward becoming fully utilized during 2014 -- 2013, rather, less of a benefit from certain discrete tax reductions during 2014 and to lesser extent, higher overall pretax profitability levels.

It's important to note, however, our favorable tax shield through annual asset amortization in our tax return remains intact through 2021, resulting in, approximately, $49 million of cash tax savings per year for the next eight years.

As result, our cash income tax rate is expected to be significantly lower than our current projected 36% to 38% GAAP income tax rate for the foreseeable future.

As we drive higher profitability over time, cash income taxes can be estimated by applying the projected 36% to 38% GAAP income tax rate on pretax profits going forward and then deducting the approximately $49 million of annual cash tax savings from the tax shield each year through 2021.

Depreciation expense in 2014 is forecast to be approximately $14 million to $14.5 million.

In 2014, our GAAP intangible amortization expense is expected to decline to $21 million to $22 million, as certain of our definite live intangible assets become fully amortized.

Stock compensation expense is forecast to be approximately $13 million to $13.5 million.

And finally in 2014, our capitol expenditure spending is budgeted to increase modestly to, approximately, $32 million to $34 million, which is still only approximately 2% of our forecasted net sales for the year.

With that, I'd like to turn the call over to Aaron to provide additional comments on our outlook for 2014.

Thanks, York.

Today we are initiating guidance for 2014 with revenues expected to grow over a very strong 2014.

For the full year 2014, we expect net sales to increase in the mid-single digit range, as compared to the prior year.

Importantly, this top-line outlook assumes no material changes in the current macroeconomic environment, no major power outage events and during 2014 and does not include the potential impact of additional acquisitions.

The expectation for overall mid-single digit year-over-year growth in 2014 considers the fact that coming into fiscal 2014 residential product lead times were at a normalized level of one or two weeks.

Recall that entering 2013, as a result of elevated demand from Superstorm Sandy, lead times for residential products were approximately 8 to 10 weeks.

In the first quarter of 2013, we effectively executed in ramping production levels to satisfy this increased demand.

The reduction in lead times for residential product had an approximate $140 million positive impact on the first half of 2013 sales that is not expected to repeat in the current year.

As a result, the prior-year first quarter of 2013 produced a record level of revenue.

Given that lead times entering the first quarter of this year are trending at more normalized levels, we expect the seasonality of quarterly results during the year to return to a more normal historical pattern, assuming no major power outage events during 2014.

As result, we currently expect the first half of the year to represent, approximately, 46% of total sales and the second half, approximately, 54%, with the third quarter being the highest revenue quarter of 2014 and the first quarter, the lowest.

When taking this into consideration, we expect solid year-over-year revenue growth for every quarter of 2014 with the exception of the first quarter.

Although power outages in various size and severity occur every day across the US, thereby driving awareness for standby generators, our guidance assumes no major power outage events.

Based on our historical experience, an average major power outage could provide incremental net sales of between $20 million and $50 million in the current year, representing the potential for 1% to 3% additional growth to our forecast, depending on several factors.

More specifically, the impact of any single, major outage event is dependent on the time of year, the geographic region and number of people impacted, our existing distribution in the area impacted, the frequency of prior outages in the affected area and the duration of the event.

As we have previously noted, we continue to grow to Generac both organically and through acquisition over the last several years.

Although our guidance for 2014 does not include any assumptions for additional acquisitions, it's worth noting that we've established our internal business development and integration capabilities over the past three years and the currently have an active M&A pipeline.

With our strong cash flows and liquidity, we are well-positioned to execute on opportunities that meet our acquisition criteria should they become actionable.

Looking at our guidance by product class, within our residential products, we expect shipments of home standby generators in 2014 will be reflective of the new and higher baseline level of demand that we believe has been established for these products in recent years.

Excluding the impact of the aforementioned production ramp up in the first quarter of 2013 to normalize product lead times, we expect residential product shipments during 2014 to increase between 10% to 12% over the prior year.

This growth will be driven by our expanded distribution, continued focus on the optimization of the power play selling solution, increased investment in a number of other sales and marketing initiatives, increased placement of power washers, and several new product launches throughout the year.

With regards to our commercial and industrial products, we expect net sales to increase at a low 20% year-over-year growth rate through a combination of the acquisitions of Tower Light and Baldor generators, as well as mid- to high-single digit organic growth rate for both stationary and mobile power equipment.

Our 2014 outlook for C&I products is driven by an improving non-residential construction market and strong secular trends with regards to natural gas fuel generators, the building awareness of light commercial optional standby generators and opportunities to further penetrate the wireless telecom backup power market.

In addition to these growth drivers, we believe the expansion of our C&I product line, as result of the Baldor generators acquisition, will provide us with exciting new opportunities to gain share in the industrial generator market.

In summarizing our sales growth assumptions for 2014, excluding the impact of the $140 million headwind related to the first quarter 2013 production ramp-up to normalize product lead times, we expect total organic year-over-year growth to be between 9% and 11%.

When including this headwind, we expect organic growth to be flat year-over-year in 2014.

The acquisitions of Tower Light and Baldor generators are expected to contribute, approximately, 5% growth for a total year-over-year net sales increase in mid single-digit range.

As previously mentioned, our guidance does not include any major outage events, which could add another 1% to 3% to our growth depending on the impact.

Consolidated gross margins for 2014 are expected to decline by approximately 100 basis points, as compared to the prior year.

The reduction is primarily the result of a higher mix anticipated for C&I product shipments; including the impact of the addition of Baldor generators, partially offset by improved pricing and an overall reduction in product cost within the base business.

Operating expenses as a percentage of net sales, excluding amortization of intangibles, are expected to increase, approximately 100 basis points as compared to 2013, primarily as a result of the $17.6 million of favorable adjustments to warranty reserves in 2013 that are not expected to repeat in 2014.

Excluding this favorable adjustment, operating expenses as a percentage of net sales are expected to decline slightly in 2014, relative to 2013.

Adjusted EBITDA margins are expected to remain attractive in the mid-20% range, which is consistent with the average level seen the during the past four years.

Adjusted EBITDA margins in 2014, are expected to increase some variation as result of seasonality.

The second half of the year is expected to be approximately 400 basis points higher than the first half as result of more favorable product mix, increasing synergies from acquisitions, and additional SG&A leverage on higher sales volumes.

We expect to continue generating significant free clash flow in 2014, given our superior margin profile, capitol efficient operating model, low cost of debt and favorable tax attributes.

For full-year 2014, we expect our conversion of adjusted net income to free cash flow to be approximately 90%.

In closing this morning, we believe demand for our products will continue to be driven by some compelling long-term growth opportunities.

Within residential backup power, the penetration rate of home standby generators remains relatively low at approximately 3% of addressable US households with several powerful macro-trends expected to further drive awareness in this emerging product category over the long-term.

With 70% share of the home standby generator market as a result of our broad product offering, strong distribution and innovative sales and marketing approach, we believe we are very well-positioned to continue to capture this opportunity.

As a reminder, each 1% increase in the penetration rate represents approximately $2 billion of market value.

Within the commercial and industrial generator market we continue to see a secular shift toward more natural gas generators, particularly within the underpenetrated optional standby market.

As a leader in natural gas fuel gensets we are committed to capturing this future growth opportunity.

In addition, the growing importance of backup power for critical telecommunications infrastructure has resulted in a significant penetration opportunity with regards to wireless cell towers.

As the leading provider of backup generators to this market, we believe we are in an ideal position to capitalize on this secular trend.

Finally, through recent acquisitions and new product development, we have significantly expanded our product offering of commercial industrial generators, more than doubling the addressable market that we and our distribution partners can serve.

Our expanded offering of mobile power equipment positions Generac as one of the world's leading providers of these products.

With extensive product line and unique national account service model, we expect to benefit from the secular shift towards renting versus buying mobile equipment.

In addition, our recent acquisitions provide us access to a growing oil and gas market that will require mobile power and mobile lighting infrastructure as it continues to build out over the long term.

Finally, we remain focused on geographic expansion by leveraging our Ottomotores and Tower Light acquisitions and driving growth in the markets they serve with additional investment and focus.

In addition, we expect to execute on the number of identified revenue and cost synergies across the enterprise.

Furthermore, we continue to evaluate other regions of the world for future expansion through both organic, growth and potential acquisitions.

Powering ahead remains the foundation for our investments to execute on these opportunities.

With a disciplined approach that includes innovation, agility and an intense focus on products and markets we serve, we believe we can continue to provide profitable growth for Generac shareholders going forward.

This concludes our prepared remarks.

At this time we'd like to open up the call for questions.

Operator?

Thank you.

(Operator Instructions)

And your first question comes from the line of Jerry Revich with Goldman Sachs.

Please proceed.

Good morning, guys.

It's Matt Rybak on the call for Jerry.

Aaron and York, maybe you could just comment a little bit on -- and update us on the increase you're seeing to start the year on the standby side?

And whether or not -- I know you mentioned it's going to be a tougher first quarter, but whether or not you would expect shipments of the standby to be up sequentially?

Yes, I think, as we lay it out, Matt, our guidance indicates -- it's kind of an important distinction here.

When you come off of a year without a major event, as we had -- we didn't have any major -- what we would classify as major events in 2013.

As a result, what the Business normally looks like -- you go to this normal cadence where the first half is generally lower than second half, Q3 is generally the highest quarter and Q1 is the lowest.

The important thing to note there -- and the reason for that seasonality is pretty plain.

Q1 is generally -- the Winter months are generally tougher months to install products.

So, when we look at our activation rates and some of the other leading indicators we watch, those rates approximate where we would think that we would be this time of year.

And then Q3, obviously, you get the more normalized Summer weather patterns and whatnot that create more demand at that time of the year.

So, that being said, to answer your question, what we're seeing so far in the year, obviously, our guidance didn't include any major events.

I would say that at this point, the things that we've seen, the outage event in Pennsylvania last week -- half a million people without power -- down south, in the southeast here with the ice event here, another half million people without power.

I think, earlier in the year we had some disturbances in Toronto and in parts of Michigan.

But individually, those events we wouldn't classify as a major outage event.

Certainly, they do help us move some portable generator inventory, which, I think, is important.

We're sitting on a lot of portable generator inventory at the end of the year because we didn't get those major events.

The retailer channels were -- the channel was full; we were full.

This is helping us chip away at that.

There should be some opportunity to pipe-fill behind that, I think, going into the season -- the upcoming season, Q2 and Q3 season, where portable generators are more prevalent.

But with residential standby, I think it's a little too early -- usually the tail-on events, whether it's the Pennsylvania event or the ice storm down in the southeast -- the tail on that is a couple quarters afterwards.

So, we would expect demand to increase in those areas as a result of the outages.

But like we said in our prepared remarks, there's 250,000 people every day in the country without power, so these events at half a million people -- they don't really move the needle relative to that.

Sure.

And then to switch gears just a little bit, can you just talk a little bit more about how the Baldor integration is progressing?

And, maybe, detail for us if the distribution structure in C&I has changed at all after the deal, and to what extent you're seeing cross-selling opportunities?

Yes, it's a great -- I mean, we're really excited about Baldor.

We think that it's -- for us, anyway, it represents a defining moment in our commercial and industrial products portfolio.

The ability to extend that, as we've indicated, with the addition of those products.

And it certainly -- obviously, Baldor came with its own distribution network.

Now, some of those dealers and distributors look similar to what we have, so there is some overlap.

But a lot of them -- there's some interesting things that it comes with.

We made this comment in our prepared remarks that Baldor has an interesting lead, I would say, in the marketplace on serving the oil-and-gas vertical with product.

That's not necessarily a channel with stationary equipment that we've served before.

We do it with mobile equipment through our Magnum business.

But as we look out, and we look at what distribution looks like in the future, we're going through a pretty comprehensive review right now of our distribution for our industrial products, as a result.

And, really, the catalyst here is the Baldor acquisition.

I do think that there will be changes that will come out of that.

We would expect that.

We're going to see a higher level of investment by our distribution partners going forward in both sales resources and marketing resources, to go out there, now, and go for that doubling of the addressable market that, basically, we've gotten the ability to serve now, with this Baldor acquisition.

So, really excited about that, and excited about the manufacturing footprint increases that they bring us as well.

But I think the distribution -- you pointed on something that's really important.

The distribution impact of this is going to be a really important part of the integration project that we execute on.

Got you.

And then I'll hop back in queue.

Last question for me.

M&A pipeline was pretty busy in 2013.

Just hoping you could, maybe, touch on what parts of the Business you're still looking to round out with additional product offerings as we head into 2014?

Thanks, guys.

Yes, absolutely.

As we said in our comments, we do have a very robust M&A pipeline, and it's been robust for the last several years.

We've done five transactions, effectively, in the last 2.5 years, and that's coming from a point of not doing a transaction ever before that.

So, all of our growth up until that point was organic.

But what we found is that, to execute against our strategy, to really accelerate portions of the strategy, and the strategic objectives we talk about: gaining share in the industrial market, diversifying product offering, entering new geographies.

We found that acquisitions provide us the ability to get there faster.

We're going to continue to be, I think, very conservative about acquisitions.

And what I mean by that is we're going to be good buyers of companies, and we're going to be very diligent in our approach to making sure that acquisitions meet our guidelines.

I would tell you that, Matt, looking forward, there's a lot of places in the world where -- even though we did the Ottomotores deal, which certainly gave us the footprint down in Latin America.

Tower Light, I would call that more of a toe-hold, if you will, in mobile products, really light towers in Europe.

We've got the whole rest of the world to look at.

So, acquisitions worldwide -- anything that can give us some global scale are definitely in the pipeline.

Also, other engine-powered equipment.

We found the light tower category 2.5 years ago with the Magnum acquisition.

We believe, putting that together with Tower Light, we're now one of the world's largest providers of light towers to the global rental markets.

There are other products like that out there, and we continue to look at them.

You can think of all different types of products that have a diesel or gas engine in them, and they would be fair game, frankly, for -- and in particular if they go through the channels that we've established for both Generac and our core businesses, and then also through Magnum and Tower Light.

Where we can leverage our sourcing, where we can leverage our manufacturing capabilities, our technical expertise, and our distribution, those are going to be the things we're going to look at going forward.

Thank you very much.

Your next question comes from the line of Charley Brady with BMO Capital Markets.

Please proceed.

Thanks.

Good morning, guys.

I don't know if you mentioned in the prepared remarks, but how much were portables down?

And can you talk about -- kind of on the elevated inventory levels of portables, you talked a little bit about them, but where you were going into the fourth quarter?

And where you are now (inaudible) being whittled away.

And what your expectation is for portables in 2014?

Yes, I mean, it's -- in the prepared marks we didn't break down the home standby in portable, and we just don't give it because it's competitively sensitive.

But I think we did indicate, portables are down meaningfully in Q4, as you would expect.

We're up against the fourth quarter of prior year, which includes Superstorm Sandy.

And, certainly, I think, if you recall, we indicated throughout the year last year, in 2013, that the portable -- the pipe-fill that occurred after Superstorm Sandy was relatively strong going into 2013 -- so, Q1, Q2.

Inventories were very lean last year.

So, year over year, when you compare portable inventory positions at the end of the year, obviously, as I mentioned before, we were high.

The channel was high.

The channel is full.

We're full.

We have been chipping away at it.

We like -- the way we -- the kind of the cadence we look at there is we come into a year and we plan for, basically, the amount of shelf space that we have at retail to turn products through on an everyday basis should we not get a major event.

So, the thesis is, we go into, kind of the Q2 -- going into Q3, building at Q3 being the peak, and we plan for inventory levels that -- we want to make sure we have enough inventory on hand to satisfy any large events that could happen.

Should they not happen, we want to be able to sell that inventory down on an everyday basis over the next two to three, maybe four quarters at the longest.

I would tell you that we're on the path to doing that.

Again, without getting too discrete into the numbers, we've made a nice little dent in the portable business.

We haven't gotten the full picture, yet, of January's retail numbers, where inventories were at for some of our retail partners, but some of the numbers we have seen indicate that they, also, began to flush inventory in parts of the country where we had events.

So, we feel good that there may be some restocking opportunities in those areas.

We do have a couple of wins that we picked up, some additional shelf space this year, in 2014.

So, we'll expand our shelf a little bit with portable generators.

But we've got a nice, mid-20% share of that market right now, and growing -- continue to grow a little bit more here into 2014.

And we really think that we're the largest portable generator provider here in the US today.

Right.

And on the telecom market, what are you hearing from the major telecom companies in terms of what their CapEx spending looks like -- on the generator side into 2014?

And how did that play out in Q4?

Yes.

Q4 was a good quarter for us with telecom, as we indicated.

There were some -- I think some of the telecoms may have been a little more conservative with CapEx earlier in the year, and a little less conservative with it in the second half.

And that's a more normal telecom.

When we look at our customers in that channel, they tend to come out of the year, maybe, a little bit conservative, kind of a wait-and-see approach on how the year's going to play out.

And then, maybe, do a little bit of budget burn towards the end of the year.

And we think that played out last year.

As we come into 2014, I wish that they gave us really discrete guidance on what they were going to spend on generators.

We get some indication of CapEx numbers in totality for new site build and retro-fits, but they don't, unfortunately, give us what that equates to, in their minds, in generators.

So, we work with the -- in some cases, there are third-party project managers in between the telecom provider and ourselves, and in some cases we're helping project manage along the way.

We think that, again, this is a market that has a tremendous amount of upside potential.

As we've said, our estimates are -- and through the wireless industry estimates are -- that there are about 300,000 wireless tower sites in the US.

About 30% of those sites, today, have some kind of back-up power.

The other 70% do not.

More and more critical communications, wireless, voice and data are going across these networks.

And the hardening of these networks is something that is definitely on the minds of the providers, and if not the regulators as well.

This is going to be a secular trend for us.

It's going to take a number of years to continue that build-out.

And we expect that, in 2014 and beyond, that that's going to be an important vertical for us, and continue to be an important vertical for us.

And we lead that vertical from a share perspective.

And really have for almost two decades.

And that's a really important channel for us.

Okay.

One more and I'll hop back in the queue.

Can you just talk about -- you've had a more focused effort on the C&I market, going after, like, C-stores and gas stations and things like that.

Can you talk about what kind of traction you've seen since you've become a bit more focused on that space?

Yes.

We've got an internal initiative that we kicked off last year, on the heels of some of the major awareness events that have happened in the last several years.

And we just felt, and have felt for a long time, that there's a very compelling ROI for many small footprint retail businesses, as we refer to them, or sometimes we also call it the optional standby market.

Where a standby generator is not required by code or regulation, a business -- it's a business decision, a business investment decision to purchase such a product.

And the protection of revenue streams, the protection of perishable inventories, the continuity of business, all of those things weigh into that decision.

Certainly, there are verticals within the small footprint retail or light-commercial space where the ROI is very compelling.

You get into small restaurants, convenience stores, gas stations and the like, and the ROI is off the charts.

You can literally pay for a natural-gas-fired small light-commercial genset in a single outage of 24 hours or less.

In some of those applications, it's just a no-brainer.

It's just a question of building awareness.

It feels a lot like where we were at 10 years ago with the residential category, right?

We've got a lot of missionary work to do on the front end of this to educate.

And so, we've put in place a number of things.

We've got a website that we put up last year, called Power You Control -- or PowerForYourBusiness.com -- excuse me -- that is a -- it helps people get just a -- some simple ideas on the return on investment, and some of the industry verticals that I have identified here.

We're going to continue to expand on that to create a richer pipeline of sales leads off of that, and as well as off of some other marketing efforts that we've got.

One of the things that we found, maybe we fell into it or maybe it was really good planning, but we talk about this AMP marketing data that we have, the confluence of our activation data for home standby generators, outage data, and then third-party homeowner demographic data.

That's a really -- that's really turned out to be a very important data set for us to use for small businesses, because as you would imagine, most of the small businesses we're talking about, and small footprint retail, are clustered around were homeowners live.

So, it really is kind of giving us -- it's shining a light for us on the path of where we need to go to do the marketing.

So, we're able to use that AMP marketing data and exploit that for this light-commercial segment in a way that I don't think we had anticipated early on.

All of those things are good things, but they're going to take time.

There is some missionary work to be had here, but we like the penetration opportunity.

We think there is about 6 million businesses or buildings out there that could benefit from a back-up generator in this, quote unquote, optional standby category.

And we think that being the natural gas leader in the industry, we should dominate that in the way that we've dominated the residential space.

I'm going to sneak one more in here.

Can you talk about the opportunity, at some point, with homebuilders?

The new homebuilding coming in and adding a standby generator as an option when you're building a new house?

Any plans to, maybe, partner up with a homebuilder to become the preferred supplier for that?

Yes, we talked about -- new construction is where you want to install a standby.

You have all the trades on-site, you've got all the permits pulled, all the walls are open.

It's much easier to -- the installation cost is a fraction on a home standby generator in new construction versus a retrofit.

Again, more than 90% of what we do is retrofit, only 10% is new construction.

We have tried for a number of years, with some degrees of success, to penetrate that new construction marketplace.

Obviously, that became very challenging at the depths of the housing crisis in 2008 and 2009.

That was a really tough conversation to have with a builder when they were really just trying to keep their heads above water.

Today, though, I think we're reaching a point, an inflection point in the demand for these types of products.

Really, that's related to the improved awareness of them.

It was really hard to have a conversation with builders about the category when customers weren't asking for it.

They weren't asking for it because they didn't know about it.

It was this vicious cycle that was difficult to break.

Where we're getting traction is with the custom home builders.

The custom builders understand that they need to differentiate their product, if you will, from the large production builders and the tract builders -- tract home builders.

So, that's something where we're seeing some important traction there.

We've got a sales team put together for that.

We have a number of initiatives that target that directly.

We were just at the international builders show, last week; a show we've been at for the last five years, displaying products.

So, that's been an important part of building awareness within the new construction community and with the people -- the trades that are involved with that community.

And that's been a really important part of that strategy, and will be going forward.

I still think it's going to be something that, at some point, builders are going to offer this as a standard option on certain dwellings.

I think it's just going to be -- the argument's too compelling, when you look at the macro-thesis that we've talked about with the aging grid and the aging demographics in this country, having a back-up generator in your home just makes far too much sense, and it's a really important thing for a lot of people going forward.

Your next question comes from the line of John Quealy with Canaccord.

Please proceed.

Yes.

Thanks, folks.

It's Chip Moore for John.

Just following up on that last one.

On new housing starts, we're back to a million here in the US, give or take.

How much is that, alone, helping you guys, do you think?

Well, I think, if you -- from a couple things there.

So, penetration rates for new construction are about double what they are for the penetration rates of existing homes.

If we say the all-in rate's 3%, new construction penetration rates are probably somewhere in that, maybe, 4% to 6%, again, we'd have to do the math.

The challenge there is not -- the increase from half a million homes to a million homes, not all of those are homes that would typically take a generator.

So, they have to strip out some of the stuff that we wouldn't think would be as a -- some of the lesser valued homes, or maybe, certainly, the multi-valued -- multi-family homes, which I don't think you're including, Chip, in your number of a million.

But if you look at just that penetration rate being a little bit higher there, and our 70% share, which we think is fairly consistent in that marketplace, it's had an impact.

And, obviously, going from 500,000 to a million has had an impact, and will, continuing, on a go-forward basis.

What we have to do is increase that penetration rate because it just makes so much more sense to have that product there.

Again, it's such a compelling value, relative to a retrofit, when it comes to the installation cost.

It's just a fraction of the cost.

Yes.

And to follow up, maybe a little more color on some of the marketing initiatives.

Where do you stand on power-play option?

How does that translate into closure rates?

Thanks.

Yes.

So, power-play, we talked about this.

We have some targets last year, that I think we gave you guys, of -- we wanted to have over a thousand users on power-play.

We hit that number.

We're very happy with our achievement there.

There's a good percentage of sales running through power-play, today.

And we see a marked difference between dealers that are using the power-play selling solution versus dealers that don't, in terms of increases in sales year over year.

We strip out storm-affected areas versus non-storm-affected areas.

We do that analysis to understand the underlying impact of power-play.

Close rates continue to -- I'm impressed with our close rates when we use power-play.

I think they could be better, though, and we have a lot of initiatives in 2014 here, around improving close rates with the power-play users.

So, a couple things that we're working on.

One, we're expanding, very dramatically, our training of power-play users as it relates to what we call IHC -- we're calling it IHC University.

IHC is our in-home consultations.

The residential standby category, or home standby category, is really -- it's an in-home selling proposition.

It's a kitchen table pitch, is what we refer to it as.

And so, it's a contractor, which is our dealer, sitting across the table from a family, and running through the -- all the things that go into that decision process.

Contractors and our dealers, you know, we have some guys in there that are really good sales people, but by and large, contractors are, I would say -- they're awesome trades people and they're very good technical people with what they do, but, maybe, selling is not chief among the skill sets that you'd put up at the top.

So, training them properly and giving them the tools to win is really what we're focused on here in 2014.

The other thing we're going to do is continue to increase our spending on our infomercial.

That infomercial was, we think, very successful last year for us.

We really liked the -- we liked the results.

We like what we see.

It's the first time we'd ever done something like that.

That's something that -- we're going to continue to play that out and push on that even harder this year as we continue to look at that.

And we've also got some new programs for dealers that we think can help them win as well, and improve that close rate.

We've got a new consumer financing program that we've launched here, with GE, that was going to be pretty meaningful and will be fully integrated into the power-play solution.

So, we will be able to -- basically, a dealer will be able to sit at a kitchen table or at a homeowner's residence and go through that pitch, and really offer them the financing package right away.

Because, obviously, coming up with the out-of-pocket funds for a product like this is, generally, where the close rate kind of breaks down, right?

So, improving close rate access to capital for the homeowner is an important part of that.

We're focused on that as well.

Also, educating homeowners on installation costs and working -- continuing to work on bringing the installation cost down.

That's another factor here.

We've got to continue to bring down -- the affordability of these products, we've got to continue to improve that, and continue to make them more accessible.

And that's something we've been doing for over 10 years, but I think there's still room to be had on that installation side to make that even more attractive.

So that you get the total turn-key cost to a homeowner is that much more compelling.

Your next question comes from the line of Stanley Elliott with Stifel.

Please proceed.

Hello, guys.

Thank you for taking my question.

Quick question for you.

On the EBITDA margins, did you say they were going to be 400 basis points higher in the back half of the year than in the first half of the year, or did I mis-hear that?

No, I think -- Stanley, it's York.

What we said was 400 basis points difference second half versus first half.

So, we're talking mid-20%s for the year, that would be about a 400-basis-point difference second half versus first half.

And I think that's just sort of a theme that, from a seasonality perspective, we haven't -- we talked about normal seasonality patterns that we're expecting in 2014.

We haven't seen normal seasonality patterns for the last couple years, so I think we have to -- we have to educate investors and calibrate in terms of how the seasonality we're expecting, in terms of, not only top line and not only margins and not only cash flows, but how it'll play out from a seasonality perspective.

But in general, as we talked about, revenues will be higher in the second half versus first half.

Margins will be higher in the second half versus first half.

Cash flows will be higher in the second half versus first half.

And probably, when you think about the first half, you would think those categories would build from Q1 into Q2.

So, I think that's how we're thinking about the trends there, from a seasonality perspective.

And then, on the mobile link, can you give us a feel for how large the install base is relative to the number of home standby units you have out there?

Is this a year where you're going to look to try to monetize some of the install base?

Yes.

That's a great question.

One of our prepared remarks, we had a pretty significant milestone that we hit this year.

We built and sold our one-millionth home standby generator.

So, in terms of our install base, there are a million Generac home standby generators out there, which -- I think that's -- that's really cool.

And to only be 3% penetrated, and the kind of opportunity we have ahead of us is remarkable.

But aside from that, the mobile link is retroactive -- works retroactively with a product from our 2008 forward -- 2008 product line forward.

So, there's a good chunk of that million units that would be in that sweet spot of available monetization, if you will, for mobile link.

We've started actively marketing the mobile link solution.

And this is really -- it's kind of unique for us because we don't sell end products direct to the consumer.

So, this is really a change in business model in terms of both selling a service and then selling it direct.

It's a subscription-based service.

We were -- I was really blown away by the uptake on that in the first year of it.

It exceeded our expectations.

Because I think it is such a compelling thing.

We're actually -- we're rolling out an android and Apple app-based platform for that here in -- it will be the end of this month, in February.

You can pull it up on your app, you can see your generator.

It will send you the maintenance alerts, text alerts for service.

You can include your dealer in that loop for service.

We think that the revenue model, going forward, could be refined and matured to have different levels of service pricing and plans.

I'm really excited about it because we've never, really, drilled in on the monetization.

We always -- we have after-market parts, of course, that we sell for these products, but it's pretty limited.

It's, really, not been an area of focus for us.

Our focus has been on creating the awareness for the category.

And creating the -- the category in general.

So, monetizing this is going to be kind of fun to see how that develops over time.

It'll be small at first, but there's, obviously, a big base to work from.

Your next question comes from the line of the Jeffrey Hammond with KeyBanc Capital Markets.

Please proceed.

Hello, guys.

It's James [Sturgill] filling in for Jeff.

Can you hit on how you're thinking about capital allocation?

Is it safe to assume that a special dividend is off the table with private equity now to the fixture?

Just any color there.

We've talked a lot about uses of cash since we've been public, and we've been pretty consistent on how we've demonstrated our uses of cash.

We, first and foremost, want to grow organically, and we have.

We want to pay down leverage, and we've reduced our leverage over time.

We're down to 2.6 times net debt leverage, here at the end of the year, which is well within our range here that we've talked about from a targeted leverage standpoint.

We wanted to do M&A, bolt-on M&A, like we have been doing over the last few years.

And then, once you step through those priorities, the Board will consider return of capital to shareholders.

The last couple of years we've done that.

I think, when you look forward, I don't think the priorities are much different than that.

We want to grow organically, we want to get into our targeted leverage range of 2 to 3 times.

We want to continue to do M&A, like Aaron talked about, from an M&A pipeline standpoint.

And we have opportunities there.

Once we've stepped through those priorities again, then the Board, at that time, will consider all the different alternatives that may be out there, be it a regular dividend, be it a share buyback, be it a special dividend.

Each option will be evaluated at that time, when we step through the priorities.

Your next question comes from the line of Ross Gilardi with Bank of America Merrill Lynch.

Please proceed.

Hello.

Good morning.

Thanks, guys.

I just wanted to follow up on that question.

So, your willingness to pay another special dividend, is that largely a function of availability?

Of attractive acquisitions over the next six months in terms of whether or not you have the excess cash?

Because, as you said, you're already within your targeted leverage range.

Yes.

Like I said, we want to step through our priorities.

We have three other priorities before the Board will start evaluating return of capital to shareholders.

So we're operating to that plan.

And once we step through those -- that plan -- and evaluate what opportunities, to your point, Ross, on the M&A pipeline -- it's a broader, probably, view than just six months in terms of how we view that.

I mean, it's like Aaron talked about, we have a broad pipeline, from an M&A standpoint.

And as things become actionable, we want to be able to act on them.

So, we'll evaluate it throughout the year and -- but, we want to step through the first three priorities first there, Ross.

Your next question comes from the line of Brian Drab with William Blair.

Please proceed.

Good morning.

Congratulations on a great year.

Most topics have been touched on at this point, in part, just because you guys are so comprehensive, but, Aaron, you speak so quickly and comprehensively that -- you fit in so much information in these calls.

So, international is still a very small percentage of revenue.

Can you just touch on, roughly, what percentage of revenue is international in 2013?

When will international be more meaningful?

I don't know if it's 5% or 10%, do you have an idea in mind, so when you reach that percentage or level of revenue international?

Yes.

We're past that.

I mean, it's interesting, Brian, you go back two years ago, our sales outside the US and Canada were less than 1%.

Today, when you pro forma for the acquisitions -- if you pro forma those acquisitions in for 2013, we'd be at about 12%.

So, you know, it -- you know, obviously, that's good growth, internationally.

That's on a much bigger base, by the way, of total sales.

Those are starting to become important pieces of our Business.

We've got a long way to go.

If we're going to globalize this Business, as I said in the prepared remarks, and in some of the Q& A here, I think there's -- it's an $18-billion market worldwide for power generation.

And then you get into some of the other power equipment, things like light towers and other engine-powered things that we've talked about, that's even greater.

Our opportunity is really pretty tremendous.

We've got to execute obviously, and doing acquisitions domestically is one thing.

Doing them internationally is another.

In our Ottomotores acquisition that we did in December of 2012, that 2013 -- we did a lot of work on that acquisition to integrate it in, and we've learned a lot in terms of operating, manufacturing outside the US.

But when you think of the world, the way I think of it, you look at Latin America, I think we've got a great -- a great platform there with Ottomotores to go after the Latin American markets.

So I think from the -- for the Americas, we feel pretty good about where we sit in terms of -- at least in terms of power generation.

When you look at the rest of the world, though, we really don't have any presence in Europe, Middle East, or Africa when it comes to stationary gensets.

We do with mobile products with Tower Light, but stationary gensets is a completely different market, end markets, and different product.

And then you get into China, you get into India, some closed markets like that.

Even, Brazil, I would consider to be a closed market.

And there's opportunities within those areas of the world where I think -- as we look at building out the Company globally, those are areas that we need to -- we need to either find acquisitions or find our way organically.

And that's our focus, going forward here.

Your next question comes from the line of Ross Gilardi with Bank of America Merrill Lynch.

Please proceed.

Hello, guys.

Thanks.

Sorry about that.

I just had one follow-up.

On the C&I side of the Business, can you just repeat what the guidance was?

Was it up 20%?

Yes.

So, we talked about, for 2014, it would be up low-20%s, and organically, it would be in that mid- to high-single-digit range.

Okay.

And you had explained that, in terms of visibility from telecom, it's a bit limited right now.

Clearly, there's a very long runway and a lot of penetration opportunity, but what kind of visibility do you really have on organic growth?

Because, clearly, you've got very, very, difficult comparatives on the C&I side of the Business as well.

Is it what you're seeing out of the rental market, or just in some of these newer end markets that gives you confidence to forecast organic growth at this point?

Yes.

I think there are a couple of things.

One of the leading indicators there is non-res construction, which is an important -- there seems to be some life in some of those indicators.

So that gives us hope that as it relates to some of the areas, in particular retail, and some of these areas where we're actually focusing even more on -- with the optional standby market, that we like what that looks like.

¶ The rental markets, there's a secular shift, as we've talked about to renting equipment versus buying it.

It's very prevalent here in the Americas, and certainly in the US.

We're starting to see that pick up in places in the world, like Europe, where, maybe, buying equipment was the first choice as opposed to renting.

But all it takes is a good economic crisis to, I think, get people to align around the idea of renting versus buying.

You know, better matching their expenses with their revenues, and renting, certainly, allows them to do that.

And that's a mindset shift for places like Europe, where the traditional solution has just been for a contractor or a company to go out and buy a piece of equipment.

And that's one of the reasons we really like Tower Light.

They have excellent relationships there.

The other one that I would call out is the recovery in the oil and gas -- domestic energy production is another secular trend here.

If you believe anything about the US, you believe that the next couple of decades are going to be really important in the terms of domestic energy production.

What that allows for us to do is through -- and really, this is all through acquisitions, through Magnum a couple years ago, and then here, through Baldor.

We've got a nice product portfolio and some nice relationships with -- from a distribution standpoint, to serve that vertical.

And that would not be a position we would have been in a couple years ago.

Obviously, that pulled back a little bit, over the last year and a half, and now we've seen signs where, given the increase in natural gas prices, and I think, just the overall demand for nat gas going forward, as it becomes a more widely used fuel.

If we can get it into -- in terms of a transportation fuel, I mean, certainly, that could create an amazing amount of opportunity for domestic energy production.

But we really like that vertical.

We like the recovery in that here.

And we like that we're kind of building a nice niche around that.

Your next question comes from the line of Jeffrey Hammond with KeyBanc Capital Markets.

Please proceed.

Hello, guys.

Just a quick follow-up here.

Regarding your year-end dealer number of 5,400, if I heard correctly, the net add was 550 dealers?

Can you just quantify what the total attrition was?

We don't break out the attrition.

We do have churn in that.

In the -- we had -- about every year, and this is the interesting thing about the dealer base, right, these are small contractors, small businesses.

And small businesses are formed and dissolved very quickly.

In fact, the life span of a small business, in the contracting space, is about seven years.

Theoretically, we'd lose about 15 -- a little more than 15% of our distribution base every year just to attrition business.

Does it go out of business?

People who sell their business.

Owners who retire, die.

Whatever the case may be.

However they get out of business.

And then there are a lot of businesses that get formed.

We have a constant pipeline of that, but we have some pretty stringent requirements going in to become a dealer.

That has -- every year that's gone by, we've continued to increase the amount of requirement to becoming a dealer.

We're a lot more targeted in where we add them.

We're really focused on adding dealers where we feel penetration rates are low.

We don't want to take and put a new dealer in a good dealer's backyard.

That doesn't do anybody any good, from an investment standpoint.

But what we do want to do is find a new dealer or a new contractor, and put them in a market where we're underrepresented or we feel there's opportunity.

So, that's really our focus, going forward, and has been for a long time.

We were -- that rate of 550 net adds was over our historical rate of 300 to 400 net adds on an annual basis.

We think 2014 will revert back to that 300 to 400 cadence, again, going forward.

This concludes the Q&A session for today's call.

I would now like to turn the call back over to Aaron Jagdfeld for any closing remarks.

Thank you.

We want to thank everyone for joining us this morning.

We look forward to our first-quarter 2014 earnings release, which we anticipate will be sometime in early May.

Thanks again for your time.

Goodbye.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.