Generac Holdings Inc (GNRC) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Generac Holdings Inc.

fourth-quarter and full-year 2015 earnings conference call.

(Operator Instructions).

As a reminder, today's conference is being recorded.

I would like to introduce your host for this conference call, York Ragen, Chief Financial Officer.

You may begin.

Thank you.

Good morning and welcome to our fourth-quarter and full-year 2015 earnings call.

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

With me today is Aaron Jagdfeld, our President and Chief Executive Officer.

We will begin our call today by commenting on forward-looking statements.

Certain statements made during this presentation, as well as other information provided from time to time by Generac or its employees, may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements.

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

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

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

I will now turn the call over to Aaron.

Thanks, York.

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

Our overall financial performance for the fourth quarter exceeded our most recent guidance expectations with net sales and margins continuing the strong seasonal performance experienced during the second half of 2015.

Despite the persistent very low power outage environment in the quarter, higher than expected shipments of residential products improved organically on a sequential basis and helped to largely offset additional weakness within our Commercial & Industrial products, driven by lower-than-expected shipments of mobile products as a result of the further weakening in energy prices.

Also shipments of telecom -- shipments to telecom national account customers were higher than expected due to some year-end budget-related spending.

We generated a record free cash flow during the quarter of $101 million, which was largely due to a significant reduction in inventory levels and the monetization of receivables.

We also remained active with our share repurchase program as we increased our total repurchases to $100 million for the entire second half of 2015.

On a year-over-year basis net sales in the fourth quarter were $358 million as compared to $404 million in the prior year as we faced strong comparisons for both residential and Commercial & Industrial products.

The power outage severity environment remained very low during the quarter but was consistent with our previous guidance.

As a result activations of home standby generators declined on a year-over-year basis resulting in a corresponding decline in shipments of these products to our customers.

However, activations improved during the quarter at a healthy rate on a sequential basis as a result of the effectiveness of our sales, marketing and promotional programs.

Shipments of portable generators increased on an organic basis as compared to the prior year quarter due to cross-selling synergies from the Powermate acquisition, the recent launch of our new iQ2000 inverter generator, and some incremental demand driven by potential outage threats during the current quarter.

Regarding our C&I products, the significant decline in energy prices that persisted throughout 2015 continues to have a worse than expected impact on capital spending for our mobile products.

Rental customers have been actively repositioning their underutilized equipment from oil and gas related applications to other rental opportunities.

This is resulting in a deferral of new equipment spending and playing a major role in the decline of the overall demand for mobile equipment.

Recall that starting in the second quarter of 2014 we experienced a significant increase in demand for mobile equipment used in the oil and gas sector with this strength peaking through the fourth quarter of the prior year, creating a very challenging year-over-year comparison for our C&I products during the current quarter.

We remain optimistic on the long-term opportunity related to domestic energy production and the need for mobile products that are essential for these activities.

However, the adverse impacts from the severe drop in energy prices throughout the year, and the additional leg down in volatility in oil prices experienced thus far in 2016, continue to have a negative impact on industry fleet purchases.

Accordingly, we are taking what we believe to be a cautious approach to our 2016 outlook for shipments of mobile products as we evaluate the further impact of lower energy prices on the demand for capital equipment.

Before discussing additional fourth-quarter details and our outlook for 2016, I want to share with you several important accomplishments from 2015 as well as provide some added color on the Pramac acquisition that we announced yesterday.

We executed on a number of initiatives throughout 2015 involving our legacy residential products, in particular within the home standby generator category, but also with portable generators.

As mentioned previously, overall power outage severity declined significantly when compared to the prior year as there were no major outage events for the third consecutive year and the baseline level of outage activity also continued to decline.

Despite this very challenging backdrop, shipments of portable generators were only modestly lower on an organic basis for the full year.

This outperformance was encouraging to see as we fully integrated the Powermate product line and launched our new iQ2000 inverter generator during the second half of the year.

We remain focused on building out and enhancing our leading share position within the portable generator market which we now estimate to be in the high 20% range.

And we enter the year with our broadest lineup ever and with retail placement of these products currently at an all-time high.

The significant decline in outage is also led to a further reduction in shipments of home stand-by generators for the year.

However, as the clear market leader, we believe we had a notable influence on the end-user demand for these products in 2015 as we continue to make investments in our innovative sales and targeted marketing programs to increase the awareness of the category.

These investments continued to pay off in our efforts to grow the category as in-home consultations, or IHCs, increased at a strong rate over 2014 despite the challenging end market dynamics for home standby generators.

We also maintained our intense focus on new product introductions and efforts to develop distribution throughout the year.

As a result the year-over-year decline in activations and shipments of standby generators were much better relative to the overall decline in power outage severity.

Although the category experienced a very robust growth period following several major outage events in 2011 and 2012, residential product shipments have declined in each of the past two years.

Despite this decline we believe demand for our home standby and portable generators has remained relatively resilient.

In fact, the current baseline level of demand for these products is still much higher relative to the prior baseline period of lower outages, which occurred back in 2010, with shipments growing organically at an approximately 12% compounded annual rate over the past five years.

We believe this growth is evidence of the penetration opportunity that exists for home standby generators and emergency backup power in general.

While the power outage environment is obviously beyond our control, when market conditions inevitably improve we believe we are well-positioned to fully leverage the innovative sales and marketing programs for home standby generators which were largely only implemented within the last three years.

In the meantime we will continue to focus on a variety of strategic initiatives to increase the awareness, availability and affordability of home standby generators.

These initiatives include specific projects and activities targeted towards generating more sales leads, improving close rates and reducing the total overall cost of a home standby system.

Innovation has always been a core value of Generac and remains an important element of our future growth.

During 2015 we introduced a number of new products while continuing to build on a substantial portfolio of future development initiatives.

An important residential products introduction was the new iQ2000 inverter generator, the quietest, most intelligent portable generator on the market.

As the only inverter generator built in the US, the iQ2000 includes state-of-the-art sound mitigation technology coupled with advanced electronics that greatly reduces noise while also improving fuel economy and ease of operation.

We also introduced several new C&I products during the year including a number of stationary and mobile natural gas generators that further expand our broad gas product range.

We began shipping our new 400 kilowatt power node earlier in the year at an industry-leading price point.

And toward the end of the year we announced a new 500 kilowatt natural gas generator, the largest gas unit in our industrial generator line.

Both of these units are ideal for large standby power applications such as office buildings, mission-critical data centers and healthcare facilities.

Recently, we also introduced the new MGG450 mobile generator that operates on natural gas, wellhead gas or liquid propane and offers superior power density making it ideal for powering large equipment under continuous operation in remote field locations.

We believe our ability to innovate is something that separates us from competitors in our industry and we will continue our significant investment and focus on new product development as we work on a substantial pipeline of product launches across our business.

We also made further progress during the year in building out and expanding our capabilities for larger industrial generators, an area we have been focused on since acquiring the Baldor generator business in late 2013.

This includes a significant expansion of our product line to include a broader, more competitive offering of larger output systems, as well as improving our distribution capabilities, to better enable our industrial distributors to sell these more complex products.

As a result of these efforts, shipments of larger output diesel generators increased at an encouraging rate during 2015.

We also continued to experience growth for our industrial gas generators during the year as we further leveraged our core competencies with natural gas engines.

In addition, overall shipments through our domestic C&I distributors increased year over year, despite the overall softness in the bid spec construction market for industrial gen sets.

This outperformance gives us confidence that we are executing on a key portion of our powering ahead strategy of gaining industrial market share.

Heading into 2016 we remain committed to a number of important initiatives to further gain share in the larger end of the power generation market.

These include leveraging the recent introductions of new natural gas generator products, the continued optimization of our industrial dealer network, and targeting an improvement in the specification and closure rates for C&I products.

Regarding M&A activity, we continued to remain active throughout the year evaluating strategic acquisitions.

In early August we acquired Country Home Products, which was founded in 1985 and employs over 200 people at its facilities located in Vermont.

Country Home Products is a leading manufacturer of high-quality, professional grade engine powered equipment sold primarily under the DR brand and used in a wide variety of property maintenance tasks.

The Company's broad product line of chore-related engine powered tools are largely sold in North America through catalogs, outdoor power equipment dealers and select regional retailers and include field and brush mowers, chippers and shredders, trimmers, leaf vacuums, stump grinders and log splitters.

We are excited about the potential cross-selling opportunities for these products through existing distribution, along with gaining valuable expertise to help us further refine our targeted consumer marketing skills to continue to broaden the appeal of home standby generators.

This acquisition also provides additional scale to our existing platform of engine powered products, allowing us to target certain cost synergies as we leverage our global sourcing and manufacturing capabilities.

Lastly, as announced yesterday, we entered into an agreement to acquire a majority ownership interest in PR Industrial S.r.L and its subsidiaries collectively known as Pramac, which was founded in 1966 and is headquartered in Siena, Italy.

Pramac is a leading global manufacturer of stationary and mobile generators which provide continuous prime and backup power for a variety of commercial and industrial applications under the Pramac brand name, as well as portable generators used for numerous residential, light construction and recreational purposes.

The Company also produces a line of manual and electric material handling equipment marketed under the Lifter brand.

These products are sold into over 150 countries worldwide through a broad distribution network.

Pramac employs over 600 people across its four manufacturing plants and 14 commercial branches which are located across the globe.

The addition of Pramac, our largest acquisition to date, builds significantly upon the transactions we have completed over the past six years that have worked to transform Generac from a North American focused, power generation only company into a global power products company.

The acquisition of Pramac aligns directly with the key element of our powering ahead strategic plan of expanding our geographic footprint and revenue base internationally, essentially doubling our international sales mix outside the US and Canada and elevating us to a major player in the global power generation market.

We believe this transaction will create global cross-selling opportunities, including selling Pramac's stationary, mobile and portable generators through Generac's existing international distribution channels while also selling Generac's natural gas generators and our broad array of mobile equipment into Pramac's distribution.

With the combined scale of the two companies we believe we can achieve meaningful cost synergies as we leverage our global sourcing opportunity and manufacturing footprint.

The acquisition is anticipated to close before the end of the first quarter 2016.

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

York?

Thanks, Aaron.

Net sales for the fourth quarter of 2015 were $357.8 million as compared to $404 million in the fourth quarter of 2014.

Sequentially, net sales in the current quarter were approximately flat as compared to $359.3 million in the third quarter of 2015, continuing our seasonally strong performance.

Looking at net sales by product class, residential product sales during the fourth quarter of 2015 increased to $198.5 million, as compared to $194.9 million in the prior year quarter.

Contributions from the Country Home Products acquisition, and to a lesser extent an increase in shipments of portable generators, were mostly offset by a decline in shipments of home standby generators.

On an organic basis, residential product sales declined approximately 5% compared to prior year.

The softness in home standby shipments was primarily driven by very low levels of power outage severity during the current year.

Also, recall the prior year fourth-quarter saw record levels of activation rates as a result of the two-year anniversary of Superstorm Sandy, home owners being more proactive after the polar vortex winter in the previous year, and heightened levels of localized outage activity within the Midwest and Canada during 2014.

However, as Aaron mentioned, shipments of home standby generators did outperform our expectations in the quarter as home standby installation activity remains strong and improved sequentially from the third quarter.

Lastly, shipments of portable generators increased modestly during the fourth quarter as compared to the prior year due to cross-selling synergies achieved from the Powermate acquisition, new product introductions and some incremental demand driven by potential outage threats.

Looking at our Commercial & Industrial products, net sales for the fourth quarter of 2015 were $131.9 million as compared to $185 million for the comparable period in 2014.

The decline was primarily due to a significant decline in shipments of mobile products into oil and gas and general rental markets as a result of lower capital spending caused by the substantial decline in energy prices.

To a lesser extent shipments of C&I products were also impacted by declines in Latin America as a result of continuing softness in infrastructure spending in those markets.

The negative impact of foreign currency on C&I product sales was only approximately 2% during the quarter.

Net sales for the other products category were $27.5 million in the fourth quarter of 2015 as compared to $24.1 million in the prior year.

The increase was primarily driven by the addition of aftermarket parts sales from the recent Country Home Products acquisition and to a lesser extent additional service parts sales resulting from our growing base of stationary and mobile products in the market.

Gross profit margin for the fourth quarter of 2015 was 36.6% compared to 34.3% in the prior year fourth quarter.

This strong increase was driven by a variety of factors including the following: a favorable product mix given the higher sales mix of residential products in the current year quarter; the impact from the Country Home Products acquisition, which has a higher gross margin profile on average; the favorable impact of lower commodity costs and overseas sourcing benefits from a stronger US dollar; and finally, gross margin in the prior year was negatively impacted by temporary increases in certain costs associated with the West Coast port congestion as well as other overhead-related costs that did not repeat in the current year quarter.

The fourth quarter of 2015 includes the impact of $40.7 million of pretax non-cash charges for the impairment of certain intangible assets.

Nearly all of this charge relates to the impairment of trade names totaling $36.1 million as a result of a new branding strategy to transition and consolidate various brands acquired through acquisitions over the past several years to the Generac trade name.

As a result we have reclassified these trade names as definite live intangibles for accounting purposes and we'll amortize the remaining book value over a two-year period.

Operating expenses for the fourth quarter of 2015 increased $44.5 million as compared to the fourth quarter of 2014, which includes the impact of the aforementioned $40.7 million of intangible impairment charges.

Excluding the impact of these charges, operating expenses for the quarter increased $3.8 million or 6.5% as compared to the prior year.

This increase was primarily driven by the addition of recurring operating expenses associated with the Country Home Products acquisition, partially offset by reductions in certain organic selling, general and administrative expenses.

Operating expenses as a percentage of net sales, excluding amortization of intangible assets and the intangible impairment charges, was 15.9% for the fourth quarter of 2015 as compared to 13.4% in the prior year period.

The result of Country Home Products, higher OpEx infrastructure and the reduced leverage of fixed SG&A costs on a lower organic sales base.

Adjusted EBITDA was $80.1 million or 22.4% of net sales in the fourth quarter of 2015 as compared to $92.2 million, or 22.8% of net sales in the same period last year.

The slight decline of adjusted EBITDA margins compared to prior year was primarily attributable to the 250 basis point increase in operating expense as a percent of net sales, partially offset by the improvement in gross margins as a result of the factors just discussed.

Adjusted EBITDA for the full year 2015 was $270.8 million or 20.6% of sales.

We were encouraged to see the strong seasonal increase in profitability develop during the second half of 2015 as adjusted EBITDA margins improved 420 basis points as compared to the first half.

GAAP net income for the fourth quarter of 2015 was $9.2 million as compared to $49.4 million for the fourth quarter of 2014.

The current year net income includes the impact of the $40.7 million pretax non-cash intangible impairment charge as previously discussed.

GAAP income taxes during the fourth quarter of 2015 were $6.4 million or a 41% tax rate as compared to $17.5 million or a 26.1% tax rate for the prior year.

The increase in GAAP tax rate in the current year fourth quarter was primarily due to the beneficial impact from certain one time, large state R&D tax credits that were recognized in the prior year fourth quarter, and, to a lesser extent, the impact of a portion of the intangible impairment charge recorded in the current year.

Adjusted net income as defined in our earnings release was $65.3 million in the current year quarter versus $68.4 million in the prior year.

This decline over the prior year is primarily the result of the overall decline in operating earnings as previously discussed, partially offset by $6.7 million in lower cash income taxes.

With regards to cash income taxes, the fourth quarter of 2015 includes the impact of a small cash income tax benefit of $450,000 as compared to a cash income tax expense of $6.3 million in the prior year quarter.

This year-over-year decline in cash income taxes for the quarter was primarily the result of a lower cash income tax rate for the full year 2015 of 4.9% as compared to the full-year 2014 rate of 13.3%.

In the first half of 2015 we were recognizing cash taxes at a higher rate than what ultimately played out.

That is the reason for the small benefit reflected in Q4.

The significant decline in the cash income tax rate as compared to 2014 was primarily due to the year-over-year decline in pretax earnings.

Pretax earnings in 2015 were almost completely shielded by the intangible amortization tax shield that is included in our tax return resulting in a very low cash tax rate in the current year.

Free cash flow, defined as net cash provided by operating activities less capital expenditures, was $101.2 million for the fourth quarter of 2015 as compared to $98.5 million in the same period last year.

This record level of free cash flow was a direct result of our efforts to bring working capital levels down in line with demand.

As a result of this focus we were able to monetize approximately $50 million of working capital during the quarter.

Free cash flow for the full year 2015 was $158 million.

As of December 31, 2015, we had a total of $1.06 billion of outstanding debt net of unamortized original issue discount, and $115.9 million of consolidated cash and cash equivalents on hand resulting in consolidated net debt of $942.5 million.

Our consolidated net debt to LTM adjusted EBITDA leverage ratio at the end of the fourth quarter of 2015 was 3.5 times on an as reported basis.

Additionally, at the end of 2015 there was approximately $149 million available on our ABL revolving credit facility.

As already mentioned, we repurchased 1.15 million shares of common stock during the fourth quarter for $35.6 million under our share repurchase program, which was announced in August 2015.

The program authorized the Company to repurchase up to $200 million of common stock over a 24-month period.

Our uses of cash during 2015 included $30.7 million of capital expenditures, $73.8 million related to acquisitions, $50 million for the prepayment of term loan debt, and approximately $100 million for stock repurchases.

We believe these investments to be a very attractive use of capital for shareholders and demonstrates our confidence in the long-term growth prospects and strong free cash flow generation capabilities of our business.

With that, I would now like to turn the call back over to Aaron for comments on our outlook for 2016.

Thanks, York.

Today we are initiating guidance for full-year 2016 as we expect net sales to increase between 10% to 12% as compared to the prior year, which assumes a contribution from the Pramac acquisition that is anticipated to close before the end of the first quarter.

Importantly, this top-line outlook assumes no material changes in the current macroeconomic environment and no improvement in power outage severity relative to the very low levels experienced during 2015.

We expect the seasonality of quarterly results to demonstrate a normal historical pattern assuming no major outage events occur during the year.

As a result, we expect the first half of the year to represent approximately 44% to 46% of total sales and the second half approximately 54% to 56%.

Specifically, we anticipate that the first quarter will be the lowest revenue quarter of the year and to be in a range of $270 million to $280 million as we expect that normal seasonality and a notable year-over-year decline in shipments into the oil and gas markets will have an impact on the first quarter of 2016.

Looking at our guidance by product class, for residential products we expect net sales to increase in the low teens range during 2016, which assumes approximately flat year-over-year organic growth with the balance of growth attributed to the Country Home Products acquisition and to a lesser degree some residential product sales from the Pramac acquisition.

This sales guidance is driven by a number of factors, including the assumption that power outage severity does not improve during 2016.

We expect to at least partially offset this impact through our execution on a number of strategic initiatives to increase the awareness and demand for home standby generators along with some expected continuing benefit from an overall favorable environment for residential investment.

The strategic initiatives we are working on include specific projects and activities targeted towards generating more sales leads, improving close rates and reducing the total overall cost of a home standby system.

In addition, we anticipate residential products will benefit in 2016 from increased retail shelf placement of products, the full-year impact of new product launches, and the continued development of our dealer base including increased participation in various programs such as [PowerPlay] and [PowerPro] among others.

As a reminder, should the baseline power outage environment normalize relative to the very low levels experienced in 2015, or if there is a major outage event in 2016, it is likely we could exceed these expectations.

With regard to our Commercial & Industrial products for the year, we expect net sales to increase approximately 10% on an as reported basis, which includes the benefit of C&I products acquired in the Pramac transaction.

Organic net sales are expected to decline in the low teens range which includes an expected negative impact from foreign currency of approximately 1%.

The organic decline in net sales was probably due to continued strong headwinds impacting shipments of mobile products into oil and gas and general rental customers as these markets continue to search for a bottom during 2016.

To a lesser extent, the organic decline is also attributed to our expectation of lower sales with certain national account customers, primarily related to our assumption that the telecom capital spending environment remains subdued throughout 2016, particularly during the first half of the year.

Modestly offsetting these headwinds is the expectation for our organic international business to grow and shipments into our industrial distribution channel to improve as we make further progress on our efforts to gain share in the larger end of the power generation market.

In summarizing our consolidated [net] sales growth assumptions for 2016, we expect total core organic growth on a constant currency basis to be down between 5% to 7% compared to the prior year with only a minimal negative impact from foreign currency.

As discussed, nearly all of the organic sales decline is expected to be from ongoing weakness in mobile product shipments into the oil and gas and general rental markets.

Excluding the impact to these specific markets organic sales are expected to be roughly flat.

The acquisitions of Country Home Products and Pramac are expected to contribute approximately 17% growth for a total year-over-year net sales increased between 10% and 12%.

Gross margins for 2016 are expected to improve by approximately 175 to 200 basis points as compared to the prior year.

The increase is primarily attributed to a notable reduction in product costs given the expected benefit from lower commodities, sourcing benefits from a strong US dollar and other cost reduction efforts.

To a lesser extent also contributing to the improvement in gross margins are an improved product mix including the full-year impact of the Country Home Products acquisition.

Partially offsetting these favorable benefits is the mix impact of the Pramac acquisition's largely industrial product offering.

Operating expenses as a percentage of net sales, excluding amortization of intangibles, are expected to increase approximately 250 basis points as compared to 2015.

This increase is due to the addition of recurring operating expenses from Country Home Products and Pramac acquisition along with the reduced leverage of fixed selling, general and administrative costs on the anticipated lower organic sales base.

Adjusted EBITDA margins are expected to be approximately 20% for 2016 with some variation throughout the year as a result of normal seasonality.

Similar to the seasonal pattern experienced in the prior year, second-half 2016 adjusted EBITDA margins are expected to be approximately 400 basis points higher than the first half as a result of increasing benefit from product cost reductions, a more favorable product mix and improving SG&A leverage on higher sales volumes to the back half of the year.

Specifically, adjusted EBITDA margin margins in the first quarter of 2016 are expected to be the low point for the year, and are anticipated to then improve sequentially each quarter throughout the year.

I am now going to turn the call back over to York to walk through some guidance details to help model out the Company's cash flows and earnings per share for 2016.

York?

Thanks, Aaron.

In 2016 we expect interest expense to be in the range of $47.5 million to $48.5 million, which represents an increase compared to $42.8 million for the prior year due to several factors.

The primary drivers of the increase are the full-year impact of the 25 basis point spread increase with our term loan credit facility, our assumption that LIBOR rates modestly increase beginning in the second half of 2016, and the addition of interest expense from debt assumed with the Pramac acquisition.

The forecast for interest expense includes $42 million to $43 million of cash for debt service costs, plus approximately $5.5 million for deferred financing cost and original issued discount amortization for our credit facility.

This interest expense guidance assumes no additional debt prepayments during 2016 (technical difficulty) to be approximately $17 million to $19 million which translates into an anticipated full-year 2016 cash income tax rate of approximately 10%.

This represents a notable increase as compared to $6.1 million for cash income taxes in 2015 or a 4.9% rate.

The projected higher cash income tax rate is a function of the expected increase in pretax profitability levels as each incremental dollar of pretax profits over our tax [shield] is taxed at the expected GAAP income tax rate of 36%.

As a reminder, our favorable tax shield through annual intangible amortization in our tax return resulted in expected cash income tax rate being significantly lower than our currently projected GAAP income tax rate of approximately 36% for 2016.

As we drive profitability over time, cash income taxes can be estimated by applying a protected longer-term GAAP income tax rate of 36% on pretax profits going forward and then deducting the approximately $50 million of annual cash tax savings from the tax shield each year through 2021.

Depreciation expense in 2016 is forecast to be approximately $20.5 million to $21 million.

GAAP intangible amortization expense in 2016, excluding the impact of the Pramac acquisition, is expected to be approximately $29 million to $29.5 million, which is an increase from the $23.6 million in 2015.

The increase is primarily the result of changing the classification of certain trade names to definite live intangible assets that are now subject to a two-year amortization period as a result of the new branding strategy to transition and consolidate various brands to the Generac trade name.

We will provide an update to this intangible amortization guidance when we finalize the Pramac purchase accounting.

In 2016 stock compensation expense is expected to increase to approximately $10.5 million to $11 million.

Related to the Pramac acquisition, recall we are acquiring a majority ownership position in that company.

As a result, there will be a minority non-controlling interest associated with this acquisition that must be reflected into the 2016 adjusted net income and EPS.

Finally, in 2016, our capital expenditures are forecast to increase to approximately $35 million to $36 million, which is still only approximately 2.5% of our forecasted net sales for the year, as we continue to invest in certain infrastructure, technology and capacity expansion projects.

We expect to continue to generate -- we continue to expect to generate significant free cash flow in 2016 given our superior [model] margin profile, low cost of debt, favorable tax attributes and capital efficient operating model.

For full-year 2016, free cash flow generation is expected to be strong with the conversion of adjusted net income anticipated to be over 90%, resulting in improved levels over the prior year.

In closing this morning, several of our major end markets experienced significant down cycles during 2015 caused by macro factors that were largely beyond our control.

However, we continued to execute during the year on matters that we could control including significant progress on a variety of strategic initiatives including driving awareness for our products, developing and expanding our distribution, launching innovative new products and implementing manufacturing improvements.

As we navigate through the difficult macro conditions in the near-term we will be focused during 2016 on several important strategic initiatives to drive our powering ahead plan forward, including the integration of the Pramac acquisition just announced.

We will leverage our strong liquidity position going forward to continue to invest in the future growth of the business while also evaluating our priority uses of capital to increase shareholder value.

This concludes our prepared remarks.

And at this time I would like to open up the call for questions.

(Operator Instructions).

Mike Halloran, Robert Baird.

Could you help with more details on the acquisition?

What percent ownership stake did you guys take?

So, the ownership, arrangement, Mike, is a 65%-35% arrangement.

And is the idea to increase that over time depending on how it performs or is anything set in stone on that side?

We have an agreement in place that allows for us to acquire the remaining 35% over a period of time based on -- not necessarily performance of the business, but based on a series of different things that could occur.

So not to get into too much detail but it does allow for that and that is the anticipated endgame.

And then what kind of profitability levels are we thinking about relative to the current portfolio?

Gross margins are very similar to our industrial products.

I mean that -- I think what that business has is quite a bit more op expense as a result of having a pretty far reach globally.

So they have got -- to support a global footprint it just takes more OpEx.

So the EBITDA margins are lower on the lower end than what we would see historically -- or traditionally.

So there are some opportunities there to realize, as we said at the prepared remarks, some pretty nice cost synergies which puts us in a very good position to explore that with our component suppliers of major components for those types of products.

We also intend to better leverage the OpEx of Pramac through the combination of the two companies.

Some of the cross-selling synergies that we talked about should help us do that.

We think that there is an opportunity here to double the EBITDA margins of the business over a period of time.

So that is our goal as we kind of laid out our plan here and has been pretty consistent with other acquisitions that we have done.

So we feel pretty comfortable that that is a reasonable thing to achieve.

That makes sense.

And then on the residential side, maybe you could just talk about what the inventory levels looked like through the quarter.

But then more importantly, what you are seeing from all of the initiatives you put in place.

What kind of information are you getting back on closure rates, things like that through the power play up and all that other stuff?

Sure.

Mike, this is York.

On the inventory side, our inventory -- as I mentioned in my prepared remarks, we did a very good job of rightsizing the inventory levels and working capital levels and monetized like I said $50 million of working capital in the quarter.

So we believe our inventories are about an line with where they need to be coming into 2016.

If you are looking -- you are talking about field inventories, they're maybe a little bit higher than where they were at this time last year coming into the year, activations are actually lower in the fourth quarter of 2015 versus 2014 so on a day's basis, field inventory days are higher.

So, we -- that was part of our calculus in coming up with first-quarter guidance.

So, we think we've properly reflected that in our commentary on the outlook.

And then, Mike, to answer your question on some of the initiatives that we are focused in home standby and kind of what we saw as successes or lack thereof in 2015.

I would say that the PowerPlay application, the infomercial that we continue to run, the marketing that we are doing in those categories are I think having a pretty notable impact on offsetting the really weak power outage environment.

I mean, it is amazing to me that we sit here today more than several years removed after any major events, three seasons without a hurricane, without any kind of major outage events and yet we are still activating home standby generators at a rate that --.

If you had told me that five years ago where we would be today versus where we probably should be if were to take into consideration our historical perspective on a lack of outages, we are doing -- we feel really good about it.

And I think we can [directly] point to things like the expansion of PowerPlay as an example.

We have expanded that program, that is our in-home selling solution system.

That has been very well received by our distribution.

We continue to focus on training elements for distribution on not only how to use that app and how to better sell and close sales.

But also on the installation side of the equation where we think there is still a pretty good opportunity to make these products more affordable.

With close rates, specifically to your question -- close rates remain fairly constant year-over-year.

We were hoping to see a little bit more of an increase.

But I think the reality is setting in that in an environment like we have got, the backdrop of no outages, it gets tougher every year that goes by when you have that to convince homeowners that this is a product that they need for themselves.

So we're selling against kind of a market that is not necessarily buying and I think we are doing a reasonably good job, as I said in my prepared remarks.

I think that home standby activations and shipments have been remarkably resilient in my eye versus kind of the historical backdrop and where the last kind of low outage environment was back in 2010.

Jeff Hammond, KeyBanc Capital Markets.

Just to go back here on Pramac a little bit.

Can you give us a sense of geographic mix and any kind of quantification of how you are thinking about that cost synergy number?

Yes, so, Jeff, we are not going to quantify the cost synergy number quite yet.

We have got a lot of work to do on that front to get oriented around where we think -- we know there is some good opportunity there, we are not going to put a number on it quite yet today.

But we will -- as that develops and becomes I think something we have a better line of sight to we will be more comfortable talking to that in the quarters ahead.

As far as the footprint geographically and where the sales are, as we said in the prepared remarks, we sell to over 150 countries.

But there is no country, there is no single country that exceeds 15% and frankly the rest of them are all below 10%.

So as you can imagine, there is a fair concentration of sales in Europe because that is -- it's an Italian company and that is where a good part of their sales are.

But they have got factories worldwide, they have got factories in Europe and Italy and Spain but also a factory in Brazil and also a factory in China.

And there are 14 sales branches located across the globe, some of those in Europe but a lot of them outside of Europe.

So, we are really pleased that this gives us -- for us to try and build this organically would really be a difficult putt and would take a long time.

It is taken Pramac since 1966 to get to this point.

I think they have done a remarkable job as a family-owned business kind of expanding into other parts of the globe here.

And we are going to be able to take some of the things that we do really well, some of the things that they do really well, and the combination of that is going to put us in a very good position in terms of becoming a major player globally for power gen.

We were already a major player in North America, but this elevates our game to a whole new level globally.

Okay, that is helpful.

Just on the residential business.

You took a little bit different tact on the storm front and how you are thinking about that.

If we just kind of have normal outages versus this kind of low level, what do you think the sensitivity is for the residential versus -- I think you are saying flat.

And then can we also get an updated dealer count?

Yes, so -- and, Jeff, we played this game I don't know how many years, right.

We have tried to take a reasonable approach to guidance and say, of course outages at some point will revert to the mean.

So we issued guidance in that respect over the last several years.

This year given the low backdrop and just what is really transpired over the last several years, we said, look, we are not going to anticipate outages increase.

So, I think if we return to the normal baseline they will go up.

If we get a major event they will go up.

To put a quantification around that, I am not going to do that at this stage.

I think it is fair to say though that I think one of the really interesting things here is that a lot of the things that we have been working on in the residential standby market are all new since Sandy.

So the infomercial PowerPlay, the expansion -- the further expansion of our dealer base, the training that we have done, the tools that we have given them, the focus on installation cost -- these are all relatively new initiatives.

And what I am excited about is the fact that activations have remained fairly resilient in a kind of poor outage environment.

And we haven't really pressure tested all these new initiatives in a return to the normal or even beyond normal outage environment.

So I think it could be something that is going to be very interesting to see how it plays out.

I know it will go up.

The question of how far depends on the location and where the outages occur, frequency, duration of those outages -- there are so many factors.

I think we just took the prudent approach this year of kind of saying we weren't going to offer that out.

Run rate the low level.

Right.

And then the dealer count.

Oh, I am sorry, the dealer count.

Roughly flat year-over-year, which for us I think we wanted to grow -- we always want to grow dealer count.

But I won't say that we were disappointed because when you have outages down year-over-year or something like I think we were down 38% in outage activity year-over-year severity as we track it, to remain neutral on the dealer count, we felt pretty good about that at the end of the day.

Okay, I will get back in queue.

Thanks, guys.

Chip Moore, Canaccord.

Can you talk a little bit about where leverage shakes out post-deal?

What is the goal, I guess, of getting that down and what is the capital allocation thoughts buyback dry powder for M&A, et cetera?

Yes, so we are at 3.5 times coming into 2016.

Leverage may tick up just a tiny bit as a result of the deal.

So we talked about in our prepared comments that our interest expense guidance didn't anticipate any further paydowns of term loan principal.

We don't have an excess cash flow sweep requirement this year.

That has been satisfied by past prepayments of term loan.

So when you talk about capital allocation, then you start thinking about M&A and buyback before anything else then.

So those are the (inaudible) capital that we have been talking through since we have been public.

And I think we demonstrated that last year and will continue to.

Okay.

And maybe just one more on international.

I think you talked about Latin America.

Maybe you can just give us a little more color on some of the other geographies.

Thanks.

Yes, I mean for us for the year, Chip, as we said Latin America was actually pretty flat as the way it ended out.

It started out the year with a little bit more vigor than that, and as the -- in particular because we are so exposed to Mexico -- as the peso devalued through the back of the year and kind of accelerated here in the fourth quarter, it has been a bit softer more towards the back half of the year in terms of trajectory.

Europe for us, which up until the Pramac acquisition, is really we are talking about our Tower Light entity, which we have renamed Generac mobile products, part of the trade name impairment that we talked about this morning, actually, in terms of our branding strategy.

But Europe for us was -- they actually did quite well.

They had a good year in spite of really fighting kind of the currency headwinds all year long.

So it was a -- we were pretty pleased with the performance of that business.

That is actually a great business, it is run really well.

And we are really looking forward to combining that business more aggressively with the Pramac entity.

I think there is a lot of opportunities with the combination of those two businesses, not only in Europe but also in some of the other areas that Tower Light serves, which Africa was a decent market for us.

The Middle East was up year-over-year for that business.

And that was offset by some weakness in Russia and some further weakness in -- we actually have some products that we sell into the Australia New Zealand markets which continue to kind of -- the air kind of continues to come out of that with mining.

So those products are used almost directly in the mining and energy businesses in those parts of the world.

Great, thanks.

Charley Brady, SunTrust Robinson Humphrey.

Hi, guys, this is actually [Patrick Woo] standing in for Charlie; thanks for taking my question.

Good morning, good morning.

Just wanted to I guess touch a little bit on C&I side.

And what is the percentage of sales in the quarter that was through the rental channel?

And sort of can you quantify how that much was down year-over-year?

Yes, this is York.

So I would say a probably little -- I mean if you are talking about consolidated sales, what did we do, about $1.3 billion in sales?

I would say maybe a little over 10% was tied to the rental side.

And that is both domestically and internationally.

So you have got our former Magnum and MAC businesses which is our mobile products business in North America and then you've got our Tower Light business, which is our mobile products business in Europe.

So when you look at those businesses and you bounce it off total sales it is about 10%.

And so when you think about business, that rental channel is very much tied into oil and gas either directly or indirectly.

When you have a direct exposure to oil and gas when you are renting equipment into the oil patches, obviously that capital or the utilization of that equipment is down significantly.

And therefore that is spilling over into the gen rents market because they are just not buying equipment because it is just holistically underutilized.

So, when you think about our oil and gas business, I mean the direct business tied to oil and gas is probably down 45% this year.

So it is a major impact to our results.

It was even down harder in the fourth quarter because we were shipping a lot of product in the fourth quarter last year into oil and gas applications.

In 2014, yes.

In 2014.

(multiple speakers).

In Q4 of 2014.

So, 2015 though was a tough year for oil and gas, it is going to continue to be a tough year for oil and gas.

We project probably oil and gas will be down another 35% to 40% in 2016 over 2015 as well.

So that is all reflected in our guidance.

Okay, that is great color, thanks.

And I guess just moving over to the PowerPlay dealer adoption and also just the total cost of ownership.

I know you guys mentioned it a little bit briefly, but is there a way to maybe take a stab at quantifying total cost of ownership for customers?

How is that tracking for you guys?

Are you guys seeing -- as more dealers adopt that platform are you guys seeing much better numbers coming from a cost of ownership perspective?

Yes, we are working on a number of initiatives to target exactly that, because we think there is a great opportunity.

We have done a number of sensitivity studies to understand the elasticity of price -- or the elasticity of demand around lower price point.

We know kind of what we are targeting there and we have got a number of initiatives, we basically started a lot of those initiatives in 2015.

A lot of that resulted in a great deal of research around how to bring that TCO down, that total cost of ownership down.

It has been tracking in a relatively kind of tight range.

Some of that due to the product mix, we've introduced some higher KW nodes which kind of when you look you kind of have to peel the covers back.

And we are not going to give too much detail on the call here, but, we think there are some really good opportunities within that to reduce that and they're really going to come from two areas.

The first is what -- through all the research we've done we have gone out on hundreds and hundreds of installs alongside dealers to understand just the best practices that exist in installing these products.

I mean it is remarkable the variation between two dealers in a local market who on a relatively similar dwelling with a similar style unit and similar style installation how kind of varied -- how varied the time it takes to do the installation can be.

And so, we are trying to understand why does dealer A -- why can they do it in 50% of the time that dealer B can do it?

And so, taking those best practices, using our buying power to make sure that we are allowing dealers to buy all the materials they need for the installation, getting the benefit of our scale as opposed to buying it one-off from their local distributor or wholesaler, that is another part of that, is providing that scale and being able to extend that to them.

And then lastly, what you will see in 2016 is some pretty important product level changes on the home standby product that make it easier to install.

So, a lot of the learnings that we took from 2015 are being applied to new product introduction.

We have a new product coming out in 20 -- in the third quarter of this year that is aimed directly at that.

So it is our legacy, our flagship product line that has a number of improvements and a number of enhancements that make the unit easier to install.

So there is a lot of focus on that right now.

We anticipate that that focus should have a material impact on the TCO over the next several years.

So it is a long kind of -- it is a long slog, you have got to put the training in place and you have got to put the product changes in place and there is also some bigger things hanging out there that we continue to work on that we think could have an impact on that even further out.

So we are pretty excited about that because I think it is probably one of the ripe areas for us to help us increase -- continue to increase penetration of these products.

Jerry Revich, Goldman Sachs.

Aaron, can you talk about how long you anticipate it will take to integrate the supply chain into Pramac?

I guess we saw the sweet spot of the new product introductions for Magnum I think two to three years out.

Is that the type of timeframe we should be thinking about?

And then just to take a step back about the point about cross-selling.

I guess how much commonality is there in terms of the key components for service ability in other regions for core Generac products that you would be cross-selling through Pramac distribution?

Yes, it is a great question, Jerry.

As you pointed out with Magnum, it took us a couple years, two to three years before we were really kind of getting the full impact run rate of the benefit of those cost synergies.

As managers of the business we always want to be optimistic about how quickly we can move with respect to the synergies.

But the reality of it always ends up being that it is a lot more complicated than that.

And as you know, we are going to be making some pretty big decisions, some meaningful decisions and long-term decisions about supply chain partnerships both on the engine side, but also there are some of the other major components like alternators that we don't produce alternators today above 500 kilowatts.

There is going to be decisions made around that.

And also the rationalization, if you will, of manufacturing footprint -- how do we best leverage our combined footprints?

It doesn't really -- frankly probably doesn't make sense to have two plants in Brazil, it probably doesn't make sense -- because we have one already.

So there is decisions like that that will get made this year throughout 2016.

And it's early, right, it is only February.

I expect to start to see some of that as we get into 2017, but really accelerating probably realistically towards the back half of 2017 and into 2018.

So I think it is just the reality of everything from the time it takes to do -- put those relationships together, to do the design work -- a lot of times there is a lot of design work involved, to work through the inventory lag to introduce the products, get market acceptance.

It just it takes a long time.

Longer than we would all like it to take.

So we are going to be realistic about that.

That is partly why we are not calling out a distinct synergy number today.

Because we just need to have a better line of sight to how that is going to play out.

We have thoughts around it.

And then in terms of cross-selling opportunities, when you look at Pramac's product line, it looks very, very similar to our product line.

I mean, for the most part it is an industrial generator company.

It also has -- it has got a small portable generator business, a residential business, as we would refer to it here.

And then it is got this kind of small legacy, material handling business, really hand pallet trucks electric and manual that is just a small part of the business.

So it is primarily an industrial generator company.

And I would say that in terms of cross-selling synergies, what we are really excited about there is their products are very well-suited to emerging markets, markets where continuous duty and prime operation are the norm versus an emergency duty or standby application as we would see here in North America.

So, in other words, the product is engineered to I would say probably a more heavy-duty spec, which is needed in those countries.

And that is something that we think for our efforts to expand distribution outside of the US and Canada, we had to really take our existing standby product and try and upsell it as a prime and continuous product.

And that is sometimes a miss application, sometimes not, depends on what the ultimate endgame is.

But we think that the Pramac product in many of those areas is a much better fit.

So we are excited about that.

And then I think the more important thing is Pramac, it is all diesel products.

So the real get here is as we have seen in North America natural gas power generation has been expanding at a growth rate greater than diesel products have been expanding over the last 20 years.

We expect that trend to be something that emerges around the globe as natural gas becomes the de facto fuel for countries across the world.

And we think that having the distribution footprint through Pramac and allowing us to take those natural gas gen sets into that distribution footprint is a really good thing as that trend emerges.

Now it is going to take time.

That is a long-term trend, it took a long time here in the US.

But we think that we are very well-positioned with this acquisition to be in the right places that we need to be to sell those products as those markets mature.

Brian Drab, William Blair.

On organic revenue growth, I am just curious, what is your expectation for -- or I should say organic revenue decline.

What is your expectation for first half organic revenue versus second half?

We didn't get in that level of detail.

What we did say in the commentary is first quarter would be and that $270 million to $280 million range, which would obviously result in being down year over year both as reported and organically.

So I mean we didn't give that level of detail in terms of the acquisition.

I guess the acquisitions probably have -- maybe the best way to answer it is it is probably similar seasonality in terms of how you -- how it would model out.

But being a C&I business, the Pramac business, it is a little bit more consistent seasonally as opposed to the resi business, that is more back end --.

Our seasonal patterns are very much driven by -- as a Company, total Company are very much driven by the residential side of the business.

Yes.

That is why you see the margin expansion that we have in the second half versus first half as well is because of that mix.

But Pramac as a C&I business is more -- maybe probably more level loaded (multiple speakers).

Right, right.

Okay, that is helpful.

I just wanted to give you a chance to address the back end loaded nature of forecast given we are seeing that from a lot of different industrial companies, not all of them with the seasonal drivers that you have.

But that makes sense.

Yes.

I think that that is the big difference here.

Brian, a lot of our back [halfedness], if I can make up a word there, is really we have demonstrated that over the last several years when you look at our residential products, as we said, that is a seasonal category and seasonal shipments of those products is just stronger in the second half than it is in the first half.

And that is really what drives -- what drives that bus in terms of just overall impact on our 2H versus 1H top line.

Yes.

The main challenge there will be Q1 and then from there from a growth standpoint.

Yes.

Stanley Elliott, Stifel.

A quick question -- on the oil and gas guidance in 2016 down 35% to 40%.

Was that just oil and gas or was that rental channel and how should we think about that?

Good clarification.

That was more just oil and gas.

There is some spillover into gen rents, but in terms of the numbers that I was quoting, that's 35% to 40%.

It's really the rent exposure (multiple speakers).

That was more the direct exposure to oil and gas.

But you could argue that that rental number -- at least the domestic rental number that I was quoting could have some spillover to gen rents.

But again, we have reflected that I think appropriately in the guidance we have issued today.

Yes.

And kind of focused more on the gen rent side, one of the large players in the space said -- had talked about being cautious on CapEx in Q1, but possibly accelerating that as the year progresses.

Is that factored into your guidance?

And kind of what are your thoughts that maybe things like the Highway Bill or general non-res construction, something like that, might actually cause the gen rents piece to be a little better than you would expect?

Yes, I mean, we obviously -- we have a lot of conversations with national account customers and we have served that group of customers for a long time and they are very important in their views obviously in terms of the way the market buys and kind of the cadence at which they buy, right.

And so, that is one of the reasons why we have called out certainly in Q1, not only the impact and the pullback in oil prices, but also some of the early guidance issued by some of our national account customers around CapEx spending.

We are also seeing a bit of similar type of -- not to get off-topic, but a little bit of a similar trend with large national account customers in the telecom space as well.

So, I think it's just -- what it feels like is a little bit of a slow start to the year in terms of industrial CapEx, whether you are talking about rental CapEx or other industrial CapEx.

I think back to your more direct question, Stanley, about the rental side.

It is interesting because we get a pretty good look at the book of business that is national accounts.

And there are some differences there depending on geographically where they are located but also depending on their level of exposure to oil and gas.

So some of the national accounts were more exposed to oil and gas and are more exposed geographically.

So the spillover effect of the oil and gas having a bigger impact on certain national accounts where they have bigger footprint in those areas of the country where domestic energy production occurs versus other national accounts who maybe don't have that similar geographic exposure nor the oil and gas exposure.

So it is contemplated in our guidance that it would ramp into the back half of the year on the rental side, so that is really the takeaway I think from your question.

But there is a lot of kind of puts and takes and we are going to watch very closely as the year develops here.

The Highway Bill is interesting.

We finally have a Highway Bill, non-res construction has found kind of a level footing here.

So we like where that is, it is just a question of how much impact does the spillover from oil and gas have on the general rents business in terms of utilization rates, in terms of resale rates on equipment that is currently on auction, those things are getting impacted in a very negative way right now.

And so, there is going to have to be some stabilization of those things before we probably see growth.

The one immutable truth in all this, this is just a cycle and usually there is a catalyst to make the cycle occur; in this case it was oil and gas.

But the cycle always does come to an end and move up.

Fleets do age and they do need to eventually acquire new equipment.

We are positioned very well on the lighting tower side and on the mobile generator side.

And we are becoming a growing player in the dewatering pump product lines as well.

So we really like where we are headed there.

And then the heating products that we added last year with MAC obviously, we like our product offering.

Michael Feniger, Bank of America.

I was just curious who are your major competitors, guys, when we think about the Pramac acquisition?

Can you give us any idea of who the major competitors you are competing against is going to be in that space?

And how has that business, their business trended over the last 6 to 12 months?

Yes, so, the competitive landscape there looks a lot like our competitive landscape on the industrial side.

So, Caterpillar and Cummins you have got some of the larger [Indian] gen set manufacturers that sell on a global basis and a couple of other European manufacturers that sell on a global basis.

So, the competitive set is very similar to what we would see for Generac's industrial products.

So there is really no major surprises there.

We just get to -- I think we get to go a little bit further in being toe to toe with them in terms of our scale and our ability to compete more globally with those guys.

In terms of trends in the business, the Pramac business, they performed well.

They were coming out of a pretty tough economic situation back in 2011 and 2012, the business ran aground on some of the things that they were working on in the alternative energy space.

So unfortunately they got kind of wrapped up in some of the financial difficulties of solar and wind and some of those alternative energy plays that put the Company in a very difficult position and it had to go through basically a restructuring.

And so, sales dipped down to a pretty low level back in 2011-2012 and it's been growing kind of back -- it's returning back to kind of the pre-restructuring levels, if you wanted to use that term, in more recent periods here.

So its performance has been very strong.

Great, thanks, guys.

Jeff Hammond, KeyBanc Capital Markets.

Just wanted to come back on the margins here a little bit.

So, it looks like your margin guidance is down about 50 basis points.

And I just want to understand a little bit better the moving pieces.

So it seems like D&A up a little bit and then the offset would be mix from this Pramac deal?

Yes, I can get you the pieces there, Jeff, because there are a lot of moving parts.

So if you look at the pieces, gross margin, we did talk about in the comments that that would be up about call it 175 to 200 basis points.

A large part of that is cost tailwinds.

So starting to realize the lower level commodities where we are at, starting to realize the strength in the US dollar from our global sourcing, continued efforts on our sourcing -- strategic global sourcing team and our new product introduction teams to take cost out, continue to work on logistics and freight costs.

We also, I think if you recall throughout 2015, more particular the first half, we talked a lot about some excess cost of goods sold variances with West Coast ports and things like that, that won't repeat.

So, when you think of the cost side, a large part of that 175 to 200 basis point improvement is going to be on the cost side.

And then partially offsetting that is maybe to the tune of 75 bps is the impact of the combined Pramac and CHP acquisitions rolling in.

So that would probably be relative to Pramac being more of a C&I business.

They have good C&I margins, it's just that relative to our average that would take our overall average gross margins down.

So, those are probably the two biggest pieces.

Mix -- mix actually is probably -- just organic mix is a small impact, price is a small impact.

So costs, tailwinds and then the impact from Pramac and CHP would offset that.

And then on the OpEx side, if you are talking like all the way down to EBITDA, Pramac and CHP do have a higher OpEx infrastructure.

So on average that would probably increase OpEx as a percentage of sales by maybe 100 bps.

And then the rest is really just reduced leverage on fixed SG&A on the lower organic sales base.

So, you put that -- so, OpEx we expect to be about -- as a percentage of sales up 250 bps.

And then that is how you get to EBITDA being down roughly 50 bps overall, year over year.

Okay, thanks, guys.

And I am not showing any further questions at this time.

I would like to turn the call back over to Aaron for closing comments.

We want to thank everyone for joining us this morning.

And we look forward to our first-quarter 2016 earnings release, which we anticipate will be sometime in late April.

With that we'll conclude the call this morning.

Thank you for joining us.

Ladies and gentlemen, this does conclude today's presentation.

You may now disconnect and have a wonderful day.