Generac Holdings Inc. (GNRC) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Q3 2013 Generac Holdings Inc. Earnings Conference Call. My name is Mark, and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a Q&A session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to York Ragen, Chief Financial Officer. Please proceed.

Thank you. Good morning. And welcome to our third quarter 2013 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’ll make reference to certain non-GAAP measures during today’s call. Additional information regarding these measures including reconciliation to comparable U.S. GAAP measures is available in our earnings release and SEC filings. I’ll now turn the call over to Aaron.

Thanks York. Good morning, everyone, and thank you for joining us today. Our third quarter 2013 results continue to demonstrate the numerous secular growth drivers for our business, as well as the ongoing execution of our Powering Ahead strategic plan. Third quarter net sales increased 21% over the prior year to $363 million, as we once again -- experience double-digit organic growth lead by strong shipments of commercial and industrial products, as well as home standby generators. Adjusted EBITDA and adjusted earnings per share increased 31% and 36%, respectively in the quarter, with EBITDA margins increasing 210 basis points over the prior year, primarily as a result of ongoing improvements in warranty rates. Growth in shipments of home standby generators was again strong as the market adoption for these products continues to grow as a result of a combination of factors highlighted by the overall additional awareness created from power -- major power outages in recent years, additional distribution and increased sales and marketing efforts. Our residential dealer base further expanded as we ended the third quarter with over 5,200 dealers. We continue to add dealers at a pace above historical rates with over 400 net dealers added thus far in 2013 and nearly a 1,000 net dealer add since the end of 2011. Further adding to the growth in home standby generators is our progress on a number of recently launched sales and marketing initiatives highlighted by our amp targeted marketing process, the PowerPlay in-home selling solution, as well as our Power You Control national advertising campaign. We believe these factors including a more favorable environment for residential investment are driving a new and higher baseline level of demand for home standby generators. With penetration rates of home standby generators at only approximately 3% of single-family unattached homes in…

Thanks, Aaron. Net sales for the third quarter 2013 were $363.3 million, a 20.9% increase, as compared to $300.6 million in the third quarter of 2012. Looking at net sales by product class, residential product sales increased -- increased to $192.7 million in the third quarter of 2013, as compared to a strong prior year net sales comparison of $191 million. During the third quarter, Generac continue to experience solid growth in shipments of home standby generators in comparison the prior year, as well as continued growth on a sequential quarter-over-quarter bases. The continued strength in home standby shipment is due to a combination of factors, including the additional awareness credited by major power outages in recent year driving the further adoption of the category and expanded distribution broadening the availability of the product. Other drives of home standby growth are increased sales and marketing initiatives to create and close lease more effectively, overall strong operational execution to satisfy the increased demand and a more favorable environment for residential investment. The strength in home standby generators was partially offset by a decline in shipments of portable generators due to less severe power outages events in the current year quarter relative to the prior year. Recall that prior year third quarter had a number of major outages during the quarter which did not repeat. Also contributing to the revenue growth for residential products during the third quarter 2013 was our growing presence in the market for engine driven power washers. Looking at our commercial and industrial products, net sales increased 61.8% to $151.5 million in the third quarter of 2013, from $93.6 million in the third quarter of 2012. The increase in C&I net sales was primarily driven by a very strong organic increase and shipments to certain national account customers,…

Thanks, York. As a result of the continued strong demand for our home standby generators, as well as a modest impact from the expected closing of the Baldor Generators acquisition during the fourth quarter of 2013, we are once again raising our sales guidance. Full year net sales are now expected to increase in the low to mid 20% range over the prior year, which is an increase from the low 20% range previously expected. This guidance continues to assume no major power outage events for the remainder of the year. As we have discussed, demand for home standby generators continues to benefit from additional awareness and adoption created from the major power outage events in recent years, our expanded distribution, the execution of our current sales and marketing initiatives and a more favorable environment for residential investment. This has driven adoption rates for home standby generators even further than previously expected. As a result, total residential products sales are now expected to increase at a mid to high teens rate for the full year 2013 over the prior year, which compares to the high single-digit growth rate previously expected. As discussed, our guidance for the remainder of the year does not include any assumptions for major power outage events. However, the prior year fourth quarter included superstorm Sandy. As a result of this strong prior year comparison, we expect the fourth quarter of 2013 to show a continued decline in shipments of portable generators year-over-year. However, we expect shipments of home standby generators will increase during the fourth quarter will be further demonstrates the continued adoption of this emerging product category. Net sales for commercial and industrial products are expected to be in line with the previous guidance of increasing in the low 40% range. Summarizing our sales growth…

(Operator Instructions) Your first question comes from the line of Charlie Brady from BMO Capital Markets. Please proceed.

Good morning, guys. How are you? Just touch on the warranty reserve reversal that was the one-off type of thing in this quarter. Obviously the warranty rates going down, but as far as the sharp reversal and the rate, the 6.7 rate that’s kind of a one-off for Q3, right, the rate on the percentage basis.

Because the $5.6 million that we referred to in the prepared remarks was really what, I guess what you say as sort of the one-offs, maybe non-run rateable reversal of the warranty reserves. So that’s where I think we try to recalibrate on a normalize basis, backing that out about 1.5% impact on margin.

Okay. But going forward your overall, I mean, there is some positive impact on a go-forward longer term rates, because your rates have come down on a longer-term run rate, correct?

Yeah. I think you can see that, because margins -- operating expense improved about 230 basis points and that impact of that reserve reversal was about 150 basis points, so we improved rate going forward.

Okay. On the portal, can you quantify how much portables were down in the quarter and kind of -- I mean you talked about market share gains, can you put any kind of granularity or quantify what kind of gains you are getting under market share on portables?

Yeah. Sorry, we don’t break out portables in home standby. But I mean from a market share gain perspective, we continue to see our share. I think we spoke publicly last year and on quarterly calls previously. We felt that our share was somewhere in that low 20% to approaching mid 20% range and we feel like we’re probably gaining. Obviously the growth in that share has slowed as we kind of approach, maybe more of steady state here of kind of that mid to upper 20% range of share. But we have picked up, we believe a few more points here on the quarter just year-over-year.

Okay. And then on the C&I I don’t know if you mentioned, what’s the core growth rate on C&I ex-acquisitions?

Yeah, as I said, we had very strong organic growth on C&I. It was probably in that high 30% range so and we saw strong growth there, highlighted by what I talked about from those national count customers, seeing significant capital spending from those national count customers.

And just following on the telecom side of that, can you quantify how much of that C&I growth came out of the telecom market?

No. Again, we don’t break up the different verticals just from a competitive standpoint, but it’s obviously an important part of our C&I business and was a driver as we mentioned.

Big driver.

Driver, we saw it ramped up. Sorry, Charlie?

You had majority of that C&I growth in the quarter in telecom?

No. We saw growth. As we mentioned in our prepared remarks, even in our -- the light commercial products continue to do very well, the natural gas products for small footprint retail. Those are really not telecom oriented. So broadly, we saw also with our Magnum business, the large national rental accounts were also pretty good purchasers of equipment in the quarter. So that’s something that -- those things were all drivers basically.

Okay. Great. Thanks.

Thanks Charlie.

Your next question comes from the line of Ross Gilardi from Bank of America. Please proceed.

Yeah. Thanks guys. Good morning.

Good morning Ross.

I just had a few questions. First of all, is there any way to look at your standby sales on more of it like a same-store basis and what I’m getting at is, is your sales growth really due to expanded distribution or are your existing dealers also seeing year-on-year growth.

And so, when we look at all of those figures and we haven’t reported them publicly but we have seen growth in what we -- what I think you would traditionally referred to as a same-store sales type number. So we are seeing that increase there as well as just raw points as we said, net dealer ads in general as well, so it’s really both.

Okay. And then on the portable side, I mean what’s your sense on inventory in the channel now given that it’s been a light hurricane season. And if that continues I realize we’ve got a few weeks left, would you expect that you’ve got a couple of quarters of destocking to go through in portables, or does it feel like the inventories were actually pretty balanced in the chain?

No. Inventories are definitely heavier. They’re seasonally appropriate ahead of events, but as you indicated they are having -- it’s been a pretty quite season thus far. So inventory in the channel for portable generators is at elevated levels. And I wouldn’t say they are beyond seasonally appropriate, but should we not -- should have remained quiet for the balance of the season here. We’ll go through the normal destocking effort a couple of quarters, is an appropriate way to think about that. So that’s the way we think about it when we plan for it. We plan not only -- but we’ve gotten our inventories here but also in the channel. We look at it in totality and then we decide kind of we’ll make a -- take a call on what we think the season is going to look like and we plan accordingly. And if you don’t get a season, you just have to burn that off. Again, for my comments about increased shelve space and market share, we’ve got the placement to be able to do that. So it doesn’t concern us. We’ll monetize the inventory and we’ll adjust our purchases and manufacturing accordingly if the season remains quiet.

Okay. Thanks, Aaron. And then I was just asking, I mean you referred to the new and higher baseline a couple of times in your last few quarters, has that meant at all to be initial comment on 2014, anything you can say at this point about your level of confidence in growth for the next several quarters as we head into your, perhaps your tougher comps on the back of Sandy?

Yeah, I mean the new higher baseline comments is the one that we’ve actually used over the years, because I think it -- as we’ve said when you have a category and I’m referring to home standby generators now. When you have a category of product like that, that’s really in its infancy, it’s an emerging categories. Another word, we’ve referred to it as -- it takes a while to spool that up in terms of penetration rates. And you can look back at other installed home products as proxies over the years whether you are talking about home security or whether you are talking about central air-conditioning and it takes a period -- it takes, frankly a long period of time to ramp up penetration rates. In our world, what you’ll see from time to time is these accelerated points of adoption along the curve and that is really the result of large scale kind of large awareness events or ravage events things like Sandy or Irene, which can accelerate the adoption rates, so they could go faster for a period of time and then you kind of fall into a new, as we referred to it a new and higher base line level of demand. You can’t hold on to that demand or a good part of that demand. And the reasons for that as we’ve talked in the past, it’s that distribution that we’re expanding, right. So now you’ve got distribution points in markets that tier two, four haven’t had distribution and you’ve got increased awareness in general so. And the category is still very much word of mouth. It’s still very much in a vital marketing phase, so as one person gets one of these products and there are maybe five or six or ten neighbors around them to see that product and the next time there is an outage in their local neighborhood, their house is the only one that’s lit up. It’s takes on kind of a viral type of approach in terms of the next home owner that buys. And that’s really what is at the heart of our direct marketing strategies with our amp -- simulation of our amp data and some of the other sales and marketing initiatives we have been working on. But that’s really my comment on the new and higher baseline. Its grows and kind of holds until you get the next catalyst and there is some seasonality certainly in that as well that you will see from quarter-to-quarter, but that’s really what the comments about.

Okay. Thanks. I’ll get back in the line.

Great.

Your next question comes from the line of Brian Drab. Please proceed. Brian Drab - William Blair & Company: Good morning and congratulations on another great quarter.

Thanks, Brian.

Thanks, Brian. Brian Drab - William Blair & Company: First question, there is a lot of comments in your prepared remarks around warranty and some questions here in the Q&A. I just want to make sure that I’m understanding something correctly. How do you calculate the warranty rate and could the recent jump in sales that you’ve seen over the last three, four quarters have an impact on that just by virtue of boosting the denominator in that calculation and having a bunch of new equipment in the field?

Yeah. So we look at warranty rate claims history and then we bounce that claims history against when we sold those units originally. So you go back in time to when you sold the units, not to that quarter sales per say and that current quarter sales. So the warranty rate is indicative of when you sold the units back in whatever the sale period is. So, I think we’re calibrating and there is an issue what you are referring to where you are just increasing your sales in that particular quarter that would cause a sort of an artificial lower warranty rate? Brian Drab - William Blair & Company: No. It’s really the result of a meaningful decline in that experience rate.

The claims.

Yeah. The claims experience rates as York is indicating and the application of that, there is two pieces to it, right. There is the application that lower claims rate again -- that lower experience rate against future sales as you accrue warranty dollars in the future but then there is a release of the reserves which is really the adjustment that we talked about here. Brian Drab - William Blair & Company: Non run ratable.

Non run ratable piece that we talked about and that’s, so it’s really two pieces to moving warranty but… Brian Drab - William Blair & Company: Yeah. Sure. I understand that there are the two pieces but just trying to make sure that I understood whether the second piece -- going from a 150 basis points to 230 was more a function of quality, I guess it sounds like it’s exclusively really a function of quality improvements rather than math.

Yes, right. Brian Drab - William Blair & Company: Okay. Okay. Thanks. And then can you give us a sense at all for when you think Baldor will close beginning of the quarter or end of the quarter. I mean I guess we are already into the quarter but closer to very end of the year or not?

Yeah. We’ve got some things to work through yet, towards closing so we are kind of in between signing and close here just documents and things to need to get buttoned up but more we would hope within the next 30 days that we are closed on the deal. Brian Drab - William Blair & Company: Okay. Great. And then just one last question some hurricane activity in Mexico recently have seen any impact on Ottomotores’ business as a result of that?

Yeah. Ottomotores is much more of a commercial and industrial focused business. So, longer term you can see impact from outage events on commercial and industrial but it doesn’t have -- they don’t have portable generators that they manufacture and sell in that business at this point. We are expanding our own distribution of portables and home standbys into Mexico through Ottomotores. It’s a part of the synergies that we like about that business that gives us a platform. But obviously those products are sold mainly through retail and we have to build those relationships. So there will be no -- you wouldn’t expect any major near-term impact from that, maybe longer-term impact on the C&I business and Ottomotores. Brian Drab - William Blair & Company: All right. Okay. Thank you very much.

Thanks Brian.

Your next question comes from Mike Halloran from Robert Baird. Please proceed.

Morning guys.

Morning Mike.

Hi Mike.

So first, just want to get a sense for the puts and takes on the margin line as we head into fourth quarter here. Obviously, very strong revenue guidance and the EBITDA guidance relative to the revenue guidance seem to imply some pressure on that margin line going from 3Q to 4Q. I’m sure there is a lot of very understandable reasons, but I just want to make sure I understand some of the puts and takes that would imply some lower margins relative to where we stand in the third quarter besides obviously the warranty expense item that we’ve already kind of talked about?

Yes. I think so the warranty non-rental piece you got to factor that out.

Yes.

And then I think really it’s a function of once you do all the math on our guidance and you’d see a bit of a mix shift there between C&I and resi. So I think that mix shift would have an impact. And I think that’s the biggest piece of it, Mike, to be fair.

Yes. That makes sense. I mean you’re basically implying there the seasonal uptick that you tend to get in the fourth quarter on that piece of the business relative to some of the pricing points.

Yes.

Okay. That makes sense. Yes. And then…

Yes. That’s part of that.

Yes. And then on the Baldor business, maybe, just talk a little bit strategically about that. The confidence you have going up a little bit more aggressively against some of the larger players on the industrial business, the positioning that Baldor currently has in the market. I know it’s not a large slice of the market today but the confidence in the technology and its ability to go against those guys, start there, please?.

Yes. So Mike, this is Aaron. Strategically, Baldor -- we had made a strategic decision internally as part of Powering Ahead and as part of our efforts to -- in particularly, in Powering Ahead to increase our share of the C&I market. That’s really the strategic objective we’re after here. And we were going to do that organically. And as we looked at the cost of that and the time it takes to do that organically, when this asset became available, we saw an opportunity to accelerate that. And so, again, they were purpose-built facility. It’s actually here in Wisconsin, which fits our footprint very well. But the underpinning of why we even wanted to get into the higher power ranges and get up against some of the bigger guys in the market, there is for us to be, I think, to have full mindshare with distribution in the Commercial and Industrial market. So we’ve got 42 dealers in the U.S. And they get full mindshare from these dealers. They’re generator dealers. And so they all power ranges because they’re generator guys. They don’t just sell up to 600KW or approach the over 600KW market in the way we do with our modular solution, which fits certain applications but not all. We saw that really the only path for us if we’re going to be serious about C&I going forward is that we have to be a full-line provider. We have to have a 100% of their mindshare, because we couldn’t let them buy those higher power range products from guys like Baldor or others and because Baldor has a full line as well. So it’s kind of, what we refer to as camel’s nose under the tent in terms of -- you can’t allow another OEM into your distribution to sell part of the product line. So it really takes away from your ability to get that deal or focused on everything that you want to focused on 100% and invest in Generac business as opposed to Generac and others. So that was really the genesis of the strategic thinking behind it and again the timing was just accelerated here with Baldor assets becoming available.

And if I remember correctly from my days when I covered Baldor, pretty quality assets, maybe just there compare and contrast maybe what they are bringing to the table, obviously are you reference of fact that they are not modular solutions then you guys are. But from a peer quality of product standpoint, how do you guys look at it and compare to with what you have and maybe peer group as well?

Yes. We -- again we did a lot of diligence on this on the front end but Baldor has pretty good name in the market place in our market place relatively to the product quality. They do manufacture not only standby rate of machines, but prime duty machines as well and that usually where you’re going to see a prime duty machine typically would be outside the U.S. Now most of their volumes in the U.S. and Canada where you see prime duty equipment inside the U.S. and Canada is going to be in the oil field services, its going to be in the energy production sectors where those piece of equipment are running either 24/7 or close to it where you totally power not available and so you have to have a quality machine to that. And so that -- the engineering efforts, the design, the manufacturing that they put into that product to make it that robust extensions through also into their standby products. So what we feel we’re getting here is the high quality product line that we think we can do some things with both from a revenue synergy as I indicated with combining a distribution in our prepared remarks but then on the cost side, we continue to position ourselves as a more significant purchaser from a sourcing standpoint not only diesel engines but other components that you would find typically in a generator. We also have the ability we think to extend some of the things that we do vertically from a vertical innovation standpoint into these products to help lean out the product cost structure for the Baldor product line and then again to play on the back of manufacturing and sourcing scale. We think there is some good cost synergies opportunities there once we close. It’s still pretty early as we indicated in the comments but when we get there, hopefully next quarter, we will give people a better steer on what we are thinking about for synergies for that business.

Great, stuff. Appreciate the time.

All right. Thanks Mike.

Thank Mike.

The next question in queue is from Jerry Revich from Goldman Sachs. Please proceed sir.

Good morning.

Morning Jerry.

Morning Jerry.

Aaron, can you talk about your broader portfolio at this point a lot of additions pieces coming together. What are the next areas that you are focused on just give us a broad sense? Are you still looking to add additional pieces to the C&I portfolio or does this pretty much get you what you need in the U.S. and then what other regions look interesting to you?

I think from a peer -- it’s a great question Jerry. From a peer U.S. and Canada domestic market, if you will, standpoint as it relates to the one strategic objective that we have which is to increase our C&I market share, I think the Baldor acquisition certainly puts us on a pathway there. There could be other ancillary type of products that refer more to the generator space that might be interesting but frankly that I think we are closing in on kind of being where we want to be there from that strategic objective. From a diversification strategic objective and then also expanding geographies which are two other legs of the stool, there are plenty of other assets and other companies for us to continue to consider. Our M&A pipeline is still very full. We think that there are opportunities to kind of continue to build that out. Other products that could fit into the distribution that we built here either through the Magnum distribution in the rental markets or through our own distribution here on the C&I side. And then certainly internationally, there are whole regions of the world where we’re really not attacking yet aggressively, southeastern Asia. We’ve got a toehold in Europe now in Tower Light, but that’s really on a -- that’s a mobile construction equipment play. We really haven’t sought for stationary power generation yet. So there are ton of opportunities. The western hemisphere we’re getting better with Ottomotores. We’ve got Brazil. We’ve just reconstituted the Ottomotores Brazil entity. We combined it with Tower Light out of Brazil entity. We combined those entities and created a Generac Brazil entity which is a new entity down there, which got a facility and it’s got staff. And then we’ve got our -- obviously our facilities to Mexico through Ottomotores. But I look out and I see a lot of opportunity yet in our pipeline. We’re being pretty aggressive on that. And obviously with our free cash flow characteristics, we think that continued to put the cash flow to work in this manner to accelerate our Powering Ahead plan is a good use of cash.

And Aaron, can you give us an update on the margin performance on acquired Tower Light and Ottomotores business? I know Tower Light you haven’t had that long, but perhaps you can give us an update on how that’s doing so far and what have you seen out of the margin profile Ottomotores versus the prior owner?

Yes, I mean Ottomotores, I’ll focus on that first. We haven’t broken out Tower Light but it is, as we said I think publicly, it’s a good, very good margin business, Tower Light, much better than what you would see traditionally here in the U.S. in a mobile equipment company. But in Ottomotores, as we said before that was a business we bought that had been underinvested in. This product cost structure was not as lean as we would have liked to see in it. We’ve done some rationalization of the manufacturing footprint. They already were moving in the right direction I think to get that to lean that out. And we are bullish on where the synergies could go with that business. I think we publicly stated $2 million in cost synergies for Ottomotores. We feel like we are definitely on track with that. But what we learned even with Magnum, as an example, that was an acquisition we did two years ago is that when you get into second and then ultimately the third year that’s where you start to I think really sharpen your pencil when it comes to other potential synergies. And we think that will be the case as well with Ottomotores as we go forward and lean out that cost structure and really start to use our scale, our new found scale here in purchasing and manufacturing to the benefit of that business from a margin standpoint.

And then lastly, you mentioned earlier in your comments whether there is going to be some seasonality in your residential business over the next couple of quarter. It’s been a while since we’ve had a typical seasonal year from a storm standpoint. Can you just flash that out for us? You mentioned I think standby should be flat in 4Q versus 3Q. What’s the typical seasonal pattern as you see it into the early part of next year?

Yes. Actually -- we mentioned in our remarks that standby is going to be actually up in the fourth quarter. So we are actually expecting that to be up. We do expect again to -- from a seasonal standpoint if it remains a quiet season here for the balance, the fourth quarter from a portable generator standpoint, we would see further declines in the run rates on portable generators in the fourth quarter. And then you -- we are formulating working through our guidance in 2014 right now pursuant to all my comments both prepared and here in Q&A. We’ve got a tremendous amount of initiatives that we’ve been focused on to drive the company forward. You look at the residential, let’ say, new and higher base line we talk about all the things from app to PowerPlay to are in commercial, the power you control in commercial that launched here in May. Those things are all having an impact we believe on that base line and on extending the awareness here of portable -- excuse me -- our standby generators. But when we get around to the fourth quarter result that’s when we give a much tighter read on guidance. Certainly seasonality, if we get a quite period, I think the one thing we would say, we get a quite season here seasonality from a quarterly basis 2014, we probably look a lot like what it has in the past without storms. So last year was different because you are coming around from storm. 2011 was different because you are coming off of Irene. So I don’t think you’d expect the same type of seasonality with respect to the quarterly numbers as it relates to residential, if we have a continued quite period here this season.

Okay. Thank you very much.

Okay.

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

Hey, good morning guys. Congratulations.

Good morning, John.

The first question is on the dealer ads. So if you go back trailing four quarters, you publicly stated you are adding about 100 net per quarters, since Q1. And I think the Q4 ‘12 to Q1 ‘13 jump was about 200 dealers, but can you comment on the gross adds there or how you are feeling with churn and what I mean about churn is the dealers more profitable than they were or could you just comment on a little bit more on the dealer metrics? Thanks.

Yes. So what we’ve said with respect to dealer ads, we’ve always reported those numbers on a net basis. I would tell you this, John, we haven’t seen anything out of the ordinary return that would create an issue for us there that we foresee at this point. So that’s pretty consistent. But what I would say is -- and we said in our comments, we’ve added -- we’ve got 1,000 net dealer adds since the end of 2011. And that’s -- when you look at that, I mean there is a material increase in our base offering about 5,200 today. So essentially we are in the low 4,000s at that point and that end of 2011. And we do track on a same-store sale basis as I said previously, we are seeing improvements in top line run rate. From an economic standpoint, the broader the base of product that gets out in the marketplace with 3% penetration today and had it higher, there is a lot of product out there from a service standpoint, service opportunity standpoint both on an annual service basis but we are also -- we are connecting customers who purchased their products through other non dealer channels, we are connecting those to our dealers, because our dealers are best equipped from a training standpoint, a technical ability standpoint to repair, service and maintain products. So if somebody goes and buys a product from a big box retailer or online any of the many other channels where they are available that’s great. We give great accessibility to product but at the end of the day it is a mechanical product and does need to be serviced. That’s really the economics for the dealer. And so improving profitability, I think it’s going to be a direct result of the increase in base of product that’s out there and available to be serviced.

And in terms of sort of margin per standby unit, anecdotally it sounds like Mobilink has had a pretty decent uptake and I got to imagine that decent margin is an add-on sort of product to the core stationary. Can you comment a little bit about how you’re feeling with applications like Mobilink. What you think the uptick was tracking to your expectations?

Yeah. Mobilink is exceeding our expectations here in the first year of the launch. We just launched that product earlier in 2013 here. And that is a great way for people to interact with the product, text messages, email, they can go online. We’ve got some other development around that product. That type of remote monitoring is really the class of product that we’re talking about there. And its -- really it’s a revenue model that we haven’t had here. We’re dealing directly with end consumers. We’re selling the service, if you will. In a lot of cases, the service in the first year has given away free as a way to entice people to get kind of soak into the product here and get used to using it. But we think there’s been a nice take rate so far on it. We like the product. We’re looking to expand it other places and do some other things with it going forward. And we see -- there’s an opportunity to build not only better customer interaction with the product, but also a revenue model there that is a much more recurring revenue stream than we’ve had in anything we do there other than maybe service parts. But it’s very much in infancy and as it matures, I’m excited about where that could go.

Perfect. And then lastly real quick, York, I’m sorry if I missed this but I could imagine coppers in your favor. Can you talk about forward purchasing or hedging that you’re doing there? Thanks guys.

Yes. We’ve got some, I guess what we call more opportunists. We have a formal hedging program. We’ve some opportunistic hedges out there, but they are more short-term in nature and more modest in nature. And so I guess I wouldn’t say that we’re locked in on copper at today’s levels.

Operator, do we have anybody else left in queue?

Your next question comes from the line of Jeffrey Hammond. Please proceed.

Hi. Good morning, guys.

Hi, Jeff.

Maybe to ask the -- I mean, you mentioned home standby being up into the fourth quarter and I think you’ve talked in the past kind of 12 month afterglow on the longer end. Can you just talk about -- I mean, is the resiliency there a function of kind of AMP PowerPlay in the new dealers or maybe just talk about what you’re seeing on in terms of momentum on web hits and registrations and leads?

Yes. So, Jeff I think, probably I’m not going to give you any new here, other than what’s in my prepared remarks. But just that the fact that, when you combine all those things, right, I mean, those are all new programs. I think you just mentioned and there is the third one which is the infomercial as well. So you take AMP, you take PowerPlay, you take the infomercial, both AMP and PowerPlay were kind of in testing phase late last year, fully rolled out here beginning of the year and then the power you control in infomercial are direct response. TV campaign was rolled in May. When you put all of that together, I think its having -- everything is the evidence that we show. Obviously, we’re looking at closure rates on at the dealer level. And the impact of those tools that were giving people and those marketing initiatives and what we’re definitely seeing that our closure rates is a result, we believe of those items. And that’s why we’re going to continue to focus on those going forward here, through the balance of ‘13 and actually end of ‘14 as well. I think it’s not out of the question to see us do something’s not only to the aggressive level, we’re already doing them, but maybe even further with some of those things. The point here what we’re trying to make is that, obviously you’re going to get events like Sandy. You’re going to get events Irene from time and again that’s just -- that’s the way it works. And that’s going to accelerate adoption rate for the category at points in the curve. But as we build out this base and as it becomes a more mainstream category of product. We think we just got a -- we’ve got a great opportunity here to take and extend the awareness from those types of events but then do some meaningful structural things like what we are doing in a sales and marketing side to keep that running forward on a positive basis. Obviously, we said in our prepared remarks about Q4 and you referenced that as well. And again, I would call out the prior revision or more normal seasonality patterns with these types of products once you get into next year, if the season remains quite, but very bullish on the new baseline that we are building at this point.

And what’s the -- what’s the new boggy as you kind of surpass these 20% dealer on Powerplay. What’s kind of the new bogey to think about in terms of adoption rates there?

That’s a great question. I haven’t given a tremendous amount of thought. We are in the middle of our planning stage right now. We are having some dialog back and forth with our team here to make sure we’re all aligned on what we do think that is, but I think it’s a meaningful step up. I think part of it is you have to look at, there is a 20% that have adopted, they don’t represent just 20% of the sales. Its generally that the dealers who are more heavily involved in the category from a mind share standpoint, from a staffing standpoint resource standpoint. So that 20% of dealers that have adopted that’s on dealer account basis that represents more than 20% of the dollar. So obviously, there is a point of dimension in terms you push this out and push it out, but you are getting connected to smaller and smaller dealer that’s one side of the coin. The other side of the argument that we make or I would like to make here is that but you don’t know where the next great deal is going to come from, you sign up for dealer and gets involved in category for the first time. If you give that dealer the right tools to be successful. And they are entrepreneurial enough to promote the category, promote the business in there and they do the things that we ask them to do. They could have great success with that. So you can’t just say because they are small dealer today we shouldn’t push it. They could be a big dealer tomorrow as a result of pushing it. So its really -- I don’t want to quote a number at this point but I would think we are going to be pushing hard to a get a number and we will get you something on that when we get to next year.

Okay. Then just a couple of housekeeping items on the acquisitions. Can you quantify what the acquired revenue was in the quarter?

When we talk about organic growth for C&I in the that high 30% range, so if we would grew 62% in C&I, the delta there would be acquisitions, Jeff.

Okay. And you had two months of Tower Light?

We had really one if you think about it.

Yeah really one unfortunately Italy kind of shuts down for a month or so in August.

In August.

We buy a company and it closes but.

Okay. That’s probably why it seems like a lower number. And then…

Yes.

You got to think about that in terms of the run rate, correct.

Is there any way that kind of give us a rough size, trailing 12 month sales on Baldor and kind of where any profitability metrics in terms of where they stand relative to your other businesses?

Yes. I mean we haven’t disclosed revenues for some pretty competitive reasons there but I think obviously as we’ve said, the current businesses is not optimized. I mean so when you look at the profitability of that business today I think we really believe that there is an opportunity to take our scale, to take our manufacturing capabilities to really go after leaning out that product cost structure and doing some things there. There is also some great revenue synergies that, this is the product line that our dealers don’t have access to directly from Generac. They do from others but not all of our dealers are in this market because we don’t offer it. And we are going to have -- we’ll have some nice synergies with that. There’s some great connection of synergies between the Magnum business and the Baldor business relative to the rental markets and the oil and gas markets. We’re really excited about that. We think that there’s an opportunity there to do something that is pretty cool. But the other think I would mention, this is a carve-out of a much bigger business, right. So it’s a -- and we’re buying assets. So it’s a little hard to really kind of look at the true profitably. You can do as much as you can do in diligence to try and figure out what it would run rate too. But at the end of the day until you really get it in-house and we assimilate into our portfolio of both on a facility basis and the way we do manufacturing as well as from a product basis and the way we design products. I think we’ll have a better glimpse ones we get this in closed and get into the next quarter, Jeff, we’ll maybe able to make some more comments on it then.

Okay. Thanks guys.

Thank you.

Your next question comes from Christopher Glynn from Oppenheimer. Please proceed sir.

Hey Chris.

I don’t know what happened. I don’t know if he disconnected. (Operator Instruction) He is in the call. He is back in, one moment.

All right.

Okay, Christopher Glynn.

Yes. Can you hear me?

Yes.

Hi Chris.

Hi. Good morning. Not sure what happened there. So we’ve been talking about new higher resi base line in -- from my question I don’t think there’s any possibility of an empirical answer. But if you have any gut thoughts on how much of what we are seeing right now is the new baseline versus some element of extended afterglow?

Obviously, what gets really hard to part on this and we talk about this on other calls is, you’ve had -- so you had -- if you go back, right, we had not only Sandy, we had Irene, we had the snow storm in October Snowtober, I think is referred to. There are the numerous outages out in east coast, smaller to larger. They all build on each other and so to try and parse apart, day flying versus what’s coming off of which outage. I mean what you point to and it’s just really, we try to do that scientifically, we try to do it from a gut perspective and both ways. What we continue to focus on Chris is, is expanding distribution and focusing on the programs and the tools that we put on hand of those dealers that we are putting out on the street to sell our products. And then some of the more, I would say national level on regional level marketing campaigns that we’ve been ramping up here to get the product category in front of more people and explain it to more people but that …

Create our own awareness.

Yes. To create our own awareness if you will, to create our own storm if you will but that’s really what we are focused on here going forward because that’s -- it’s a really that strategy to sit around and watch the weather channel. I mean that’s not -- that’s not a strategy for our business.

It’s not. Okay. And then if we look at the mix in the margin impact in the fourth quarter understand but would that be probably a good proxy to start thinking about 2014 as things have kind of coming down a little on the residential fact?

Yes. Chris, this is York. We are pulling those numbers here, now so we haven’t commented on 2014 margins. At this point, we haven’t given any guidance on 2014 or so. We are still pulling out to get ourselves, so it would be pretty mature to have comment on 2014 margins.

Fair enough. Thanks.

All right.

There is no further question in queue. And now I would like to turn the call over to Aaron Jagdfeld for closing remarks.

Thank you. We want to thank everyone this morning for joining us. We look forward to discussing our fourth quarter and full year 2013 earnings results which will be out sometime in February of next year. So with that, we thank you.

Thank you very much. This concludes today’s conference. Thank you for your patience -- participation. You may now disconnect. Have a great day.