Aaron P. Jagdfeld
Chairman, President and Chief Executive Officer at Generac
Thanks, Mike. Good morning, everyone, and thank you for joining us today. We experienced another all-time record in shipments during the first quarter as net sales, adjusted EBITDA and adjusted EPS were all ahead of our previous expectations. The revenue outperformance was primarily driven by continued progress on our capacity expansion plans and effective management of a challenging supply chain environment. This led to higher-than-expected shipments of home standby generators, PWRcell energy storage systems and C&I products globally. The higher revenues drove adjusted EBITDA dollars, which were also ahead of our prior expectations, despite elevated input costs resulting in lower-than-expected margins in the quarter. Demand for our products also exceeded our expectations for the quarter, resulting in an increase in overall backlog from the end of 2021, with the home standby backlog remaining significant and providing us with considerable visibility in the quarters ahead. Year-over-year, overall net sales increased 41% to $1.14 billion and also grew sequentially from the fourth quarter of 2021, which was the previous all-time record. We continue to experience robust and broad-based growth across the business with each of our residential and C&I product classes and Domestic and International reporting segments, all growing at incredibly strong double-digit rates as compared to the prior year on an as-reported basis. Strong momentum in core sales, which excludes the impact of acquisitions and foreign currency, continued in the quarter with 33% growth over the prior year, led by our residential product category.
Overall, residential sales growth was again driven standby generators and PWRcell energy storage systems as well as the impact from recent acquisitions. The C&I sales increase was led by our mobile and telecom channels domestically, growth across all regions internationally and the contribution from recent acquisitions. Adjusted EBITDA margins of 17.3% were lower year-over-year, primarily due to the impact of higher input costs, driven by ongoing supply chain challenges in the overall inflationary environment. Partially offsetting those cost headwinds where the increasing impact of multiple pricing actions implemented over the past year, favorable sales mix and the early impact of product cost reduction initiatives. Importantly, we expect growing realization of the previously announced price increases as 2022 progresses as well as incremental favorable margin impacts from additional pricing actions, which were enacted during the second quarter, further execution on cost reduction projects and easing input cost headwinds, resulting in sequentially improving margins throughout the year. Now, discussing our first quarter results in more detail. Shipments of home standby generators in the first quarter grew at an exceptionally strong rate over the prior year and continues to benefit from the convergence of multiple megatrends that have significantly increased consumer awareness for the category. Power outage activity as measured on a rolling four quarter basis at the end of the first quarter was approximately in line with the long-term baseline average. And early forecast for the upcoming hurricane season are pointing to another year of above-average activity.
As discussed previously, home consultations faced a challenging comparison with the prior year due to the high-profile Texas winter storm event and several significant outages in other states in the first quarter of last year, but were in line with our expectations for the quarter. For some perspective, home consultations during the first quarter were nearly 3x higher than the levels seen in the first quarter of 2020, reinforcing our view that demand for the home standby category has once again achieved and held a new and higher baseline level. Activations, which are a proxy for installs, continued to grow at a solid rate compared to the prior year, led by the South Central and Midwest regions. We ended the quarter with over 8,100 residential dealers, an increase of more than 400 dealers over the past 12 months. We made better-than-expected progress increasing production levels for home standby generators as daily build rates at our Wisconsin facilities further increased over prior year levels and build rates continue to aggressively ramp sequentially at our new Trenton, South Carolina facility. Higher output levels are driving an important -- an improvement in lead times, which have been declining to approximately 20 weeks from the approximately 27 weeks at the end of 2021. Despite the ongoing improvements in build rates and lead times, home standby backlog remains well above $1 billion. While build rates are projected to further increase throughout the year, we still expect to carry a meaningful portion of this backlog into 2023 even without the benefit of a major outage event in our forecast.
In response to higher inflationary pressures, we're also taking additional pricing actions in home standby category in the second quarter, and we expect to realize the benefit of these additional increases primarily during the second half of 2022. New orders now reflect this higher pricing and orders in backlog will also see a price increase effective June 1. In addition to the several pricing actions we've taken, significant cost-reduction initiatives and moderating input costs are expected to further benefit margins for the product category moving forward. Our clean energy products contributed meaningfully to overall growth in the first quarter as shipments of our power cell energy storage systems grew significantly from the prior year period as our team successfully navigated industry-wide supply chain and logistic challenge. Supporting this rapid growth is the continued build-out of our installer network as we ended the first quarter with more than 2,600 trained and certified dealers with approximately 1,100 registered on our PowerPlay sales platform. In response to rising input and expedited logistics costs, we have also recently implemented additional price increases for our clean energy products. In spite of policy-related uncertainty in the near term, we believe the megatrends and secular growth drivers underpinning consumer demand for residential clean energy solutions is as compelling as ever. We remain very optimistic about the new and innovative product offerings we're bringing to market in 2022, including our new PV microinverter product offering called the PWRmicro, which has continued to receive significant prelaunch interest from our channel partners.
In addition, our recently launched PowerManager load control device has garnered positive feedback in the market. And we expect this industry-leading innovative product to further strengthen our position within the residential energy storage market. We are still expecting clean energy revenue growth well above 50% for the full year with continued strength in power cell energy storage systems, along with contributions from the initial rollout of new products. I'd now like to provide a quick update on ecobee. We're seeing good progress in developing cross-selling opportunities for ecobee's hardware solutions with Generac's retail and wholesale partners. Longer term, we're pursuing opportunities with residential and clean energy dealers as well as working to leverage ecobee's existing HVAC dealer base to sell Generac products. In the smart thermostat product category, the ecobee brand resonates well with consumers, and we have exciting new product introductions coming here in the second quarter. Additionally, ecobee's dedicated energy services team has seen a number of wins with several utilities and grid operators, including a recently announced demand response program with a local utility provider in Colorado. This is a simple but important example of a program that can be replicated across the country, which allows for the adjustment of ecobee smart thermostats during periods of high demand, resulting in energy conservation, financial benefits for homeowners and improved grid stability. We're also seeing promising commercial developments between ecobee and Generac Grid Services with utilities having an increasing interest in ecobee's product offerings. The Generac Grid Services and ecobee sales teams are jointly bidding on projects.
And this collaboration offers significant growth potential in a large and rapidly expanding market by leveraging ecobee's growing installed base of more than 2 million connected homes. Our ability to increase our share of the value stack of a grid services program is also improving the economics and payback for homeowners, which has the potential to improve demand for ecobee hardware as well as participation in Grid Services programs. Expanding a bit more on Generac Grid Services. The team is executing on its strategic vision and has an increasingly impressive and diverse sales pipeline that includes expanding the cross-selling of Generac equipment, along with other opportunities beyond Software-as-a-Service contracts, driven by our unique hardware plus software plus services value proposition. Generac Grid Services also experienced strong growth during the quarter in key metrics such as connected assets under management. And we signed and closed a number of important software-as-a-service, turnkey and performance contracts. In addition, a growing proportion of hardware orders, including home standby generators and PWRcell energy storage systems, along with other contracts in the final stages of negotiation, have improved our line of sight for a significant ramp in this business during 2022. Importantly, the Generac Grid Services team is making great progress integrating Generac products onto the Concerto software platform to create complete solutions for utilities and grid operators. We are excited about the economic and societal value of these opportunities as we work to facilitate the decentralization, the digitization and the decarbonization of the power grid.
Now let me make some comments on our C&I products, which also grew rapidly in the first quarter with strength across multiple end markets and geographies. Specifically, global C&I net sales increased 38% on an as-reported basis and 24% on a core basis as compared to the prior year. Strong growth in net sales for domestic C&I products in the first quarter was led by national telecom and rental equipment customers as well as growing demand for our natural gas generators used in applications beyond traditional emergency projects. We also have a substantial backlog for C&I products, which increased further during the first quarter, supporting our expectations for solid growth to continue in the category. Shipments of C&I stationary generators through our North American distributor channel grew again in the first quarter, and improving close rates helped drive growth in orders and backlog in this channel. Shipments to national telecom customers increased significantly during the first quarter as compared to the prior year, benefiting from elevated levels of capital spending by several of our larger telecom customers. The catalyst for the investment in backup driven by the elevated power outage environment over the last several years, the power security mandate in California and the growing number of connected wireless devices alongside the build-out of high-powered and increasingly critical 5G communications infrastructure. We also experienced very strong growth with our national and independent rental customers this quarter. These customers are investing heavily in fleet equipment.
And we remain optimistic about the long-term demand outlook for mobile products given the megatrend of the critical need for infrastructure improvements and recently passed legislation supporting infrastructure spending. We're also very excited about the opportunity to bring our mobile energy storage solutions, which we recently added through the Off Grid Energy acquisition in the UK to the North American market in 2022. And we have already seen meaningful order activity from key domestic channel partners for these products. Additionally, we're experiencing significant momentum in project wins for our natural gas generators used in applications beyond traditional standby power generation such as their use in Energy-as-a-Service, microgrid solutions and other distributed generation projects. A diverse range of customers from national and regional commercial accounts to municipalities and beyond are showing substantial interest in these solutions. We believe this demand is being driven by the need for enhanced resiliency and grid stability that these larger blocks of power offer for grid operators, while simultaneously providing a tangible and meaningfully improved return on investment for the asset owners. Strong momentum also continued in our International segment as well with shipments increasing 49% year-over-year on an as-reported basis during the first quarter, with 27% core net sales growth when excluding the benefit of the Deep Sea and Off Grid Energy acquisitions and the unfavorable impact of foreign currency. The core sales growth was driven by strength across all regions, most notably in Europe and Latin America.
Overall demand remains very strong across our International segment with backlog further increasing since our fourth quarter earnings call. The European region is seeing particularly strong demand for portable generators, mobile products, and C&I generators due in part to the Russian invasion of Ukraine. In the near-term, a heightened focus on energy independence and security has emerged in the region. But longer term implications of the conflict remain uncertain given the troubling and very fluid nature of the situation. In addition to strong core growth, our recent international energy technology acquisitions, Deep Sea Electronics and Off Grid Energy, reported impressive results in the first quarter. Numerous sales synergies are developing for Off Grid Energy's mobile storage systems through Generac's global distribution footprint, resulting in incremental demand in new geographies and driving significant backlog for these products. We have also begun additional product development projects within the mobile storage category to the power capacity range product lineup. Global demand for Deep Sea's controls and automation products at are at all-time highs. And order intake has surpassed our previous expectations. With respect to synergies, we are further embedding Deep Sea controls and technology into our legacy C&I products globally. Additionally, Deep Sea provides important capabilities that are core to the growth of our portfolio of grid-connected Energy-as-a-Service and microgrid solutions. Our international segment has also experienced much stronger profitability despite inflationary headwinds and supply chain challenges.
First quarter adjusted EBITDA margins expanded to 15.2% from 6.2% in the prior year period due to the accretive margin profiles of the Deep Sea and Off Grid acquisitions, improved overhead absorption, and better operating leverage on significantly higher volumes. In closing today, I'm extremely proud of Generac team's efforts in delivering record sales -- record net sales results and navigating the difficult operating environment to deliver overall results that exceeded our previous expectations. We'll be discussing in detail our 2022 forecast update during the outlook portion of our prepared comments this morning. But in short, we're raising our net sales guidance for full year 2022 and maintaining our overall guidance for adjusted EBITDA dollars, which reflects the visibility provided from our increased backlog and confidence in our ability to execute. Supply chain challenges in the overall inflationary environment have persisted, but we believe we've also taken appropriate measures to offset these ongoing headwinds. While we are tactically executing on our near-term initiatives, we remain focused on the longer-term megatrends for our business and their alignment with the strategic pillars of our Powering a Smarter World enterprise strategy. As we execute on our strategic plan, we're building out an ecosystem of connected energy technology solutions for both the residential and C&I markets to address the challenges faced by the aging electrical grid and the serious supply and demand imbalances that are developing. We remain confident and squarely focused on building out the solutions portfolio, as the modernization of the power grid is expected to significantly expand our addressable markets and ultimately lead to further growth opportunities for our business in the years ahead.
I now want to turn the call over to York, to provide further details on our first quarter 2022 results and our updated outlook for 2022. York?
