Good day, ladies and gentlemen and welcome to the Fourth Quarter and Full Year 2014 Generac Holdings Incorporated Earnings Conference Call. My name is Katina and I will be your coordinator for today. At this time all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. [Operator Instructions] As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call Mr. York Ragen, Chief Financial Officer. Please proceed.

Thank you. Good morning and welcome to our fourth quarter and full year 2014 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 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. Net sales in the fourth quarter of 2014 improved to 404 million as compared to 376 million in the prior year, an increase of 7%. Home standby generator sales exceeded our expectations during the fourth quarter with product activation rates proving to be resilient as we leveraged our innovative sales and marketing techniques to help create awareness for the product category. Commercial and industrial products continue to represent a growing portion of our business during the quarter as we grew 17% on an as reported basis through the combination of strength in oil and gas markets and the contributions from recent acquisitions. We also generated a record amount of free cash flow during the quarter of nearly $100 million. Despite a power outage environment that remained well below normal levels nationally the number of home standby activations or installations were at elevated levels during the quarter. This strength can be attributed to a variety of factors including an increase in targeted media spend during the second half of 2014 that drove a greater level of in-home consultations or IHCs. Coupled with the increase IHCs we saw a notable improvement in the conversion rate of consultations to sales which we attribute to our focus throughout 2014 on training centered around our PowerPlay selling system. Another contributing factor to the outperformance during the quarter was strength within Midwest region of the U.S., as well as select areas of Eastern Canada which both experienced particularly strong levels of activations resulting from heightened levels of localized outage activity in 2014. We also experienced notable strength during the fourth quarter of shipments of mobile products that serve the oil and gas markets. Increased utilization of this equipment throughout the fourth quarter continues to…

Thanks, Aaron. Net sales for the fourth quarter of 2014 were 404 million, a 7.4% increase as compared to 376.2 million in the fourth quarter of 2013. Looking at net sales by product class, residential product sales during the fourth quarter of 2014 were 194.9 million which improved sequentially as compared to 183.7 million in the third quarter of 2014. This quarter-over-quarter improvement was driven by solid increase shipments of home standby generators which exceeded our expectations for the variety of reasons as discussed previously. In addition the current year fourth quarter benefited from higher organic portable generator shipments and the modest contribution from the Pramac acquisition that closed in early September, which is partially offset by a seasonal decline in power washers relative to the current year third quarter. Comparing on a year-over-year basis residential product sales declined slightly from the 199.1 million shipped during the fourth quarter of 2013 which was a strong prior year comparison that still benefited from the one year anniversary of Superstorm Sandy. In addition, the fourth quarter of 2014 continued to experience a power outage severity environment that remained well below base line levels. These factors resulted in a modest year-over-year decline in both home standby and portable generator sales. However, in spite of the low outage environment we continue to see demand for home standby generators above our expectations for the quarter. Looking at our commercial and industrial products, net sales increased 17.1% to 185 million in the fourth quarter of 2015 from 157.9 million in the fourth quarter of 2013. The improvement was driven primarily by continued strong demand for mobile generators and light towers going into oil and gas and other general rental applications during the quarter. Contributions from the recent MAC acquisition also contributed to the year-over-year sales growth.…

Thanks York. Today we are initiating guidance for full year 2015 as we expect net sales to increase in the low to mid single-digit range as compared to the prior year. Importantly this top-line outlook assumes no material changes in the current macroeconomic environment and no major power outage events during 2015. But does assume a more normalized baseline level of power outage activity severity relative to the below normal levels experienced in the prior year. We expect the seasonality of quarterly results to demonstrate a normal historical pattern assuming no major power outage events occur throughout the year. As a result we currently expect the first half of the year to represent approximately 44% to 46% of total sales and the second half to represent approximately 54% to 56% of sales. We anticipate that the first quarter will be the lowest revenue quarter of the year and to be in the range of $315 million to $325 million as we expect a normal seasonality, a subdued level of investment in the telecom market and sequential declines in oil and gas will all have an impact on the quarter. Looking at our guidance by product class, for residential products we expect net sales to increase in the mid to high single-digit range during 2015 which assumes mid single-digit organic growth with the balance of growth attributed to Pramac Americas acquisition. This sales growth guidance is driven by a number of factors including the execution on a number of strategic initiatives to increase the awareness and demand from standby generators, the assumption of a more normalized baseline level of power outage severity during 2015, and an overall favorable environment for a residential investment. The strategic initiatives we are working on including expanded focus on lead generation and further improvement in lead…

Thanks, Aaron. Finishing up in 2015 we expect interest expense to be in the range of 47 million to 48 million which represents a similar level compared to 47.2 million for the prior year given a full year impact of our interest rate swaps that were entered into during 2014. The forecast for interest expense includes to 40 million to 41 million of cash outflow for debt service costs plus approximately 7 million for deferred financing cost and original issue discount amortization for our credit facility. The interest expense guidance assumes no additional debt repayment during 2015, our existing interest rate swap contracts remain in place and that LIBOR rates do not increase beyond our current LIBOR floor of 0.75%. Based on our guidance provided for 2015 our cash income taxes for the year expected to be approximately to $47 million to $49 million which translates into an anticipated full year 2015 cash income tax rate of approximately 18%. This represents a notable increase as compared to 34.3 million for cash income taxes in 2014 or a 13.3% rate. The projected increase in cash income taxes in 2015 is primarily due to expected higher overall pre-tax profitability levels and to a lesser extent less of a benefit from certain discreet tax deductions that were taken in 2014 and are not expected to repeat in 2015. The projected higher cash income tax rate is a function of the expected increase in pre-tax profitability levels as each incremental dollar of pre-tax profits over our tax shield is taxed at the expected GAAP income tax rate of approximately 36%. It is important to note however even though we're paying increasing levels of income taxes our favorable tax shield through annual and tangible asset amortization and our tax return remains intact through 2021 resulting…

Thank you. [Operator Instructions] Yourfirst question comes from the line of Jerry Revich representing Goldman Sachs. Please proceed.

I'm wondering if you gentlemen could talk about what surprised to the upside in the quarter top-line, I think was better than your guidance and I think better than most of us expected. Relative to your expectations, can you talk about what went better?

I think Jerry when we pull it apart as we mentioned home standby I think was probably the biggest part of the upside surprise for us during the quarter. We saw really strong activation rates which are installations, which is the lagging indicator for us just as to point out, but installations were strong throughout the balance of the fourth quarter and the seasonality in this category continues to surprise us a little bit. I mean we obviously were thinking a little bit stronger for third quarter than we ended up and not quite strong in the fourth quarter, so we continue to kind of learn the cadence of this market and especially in years without any kind of major events and even without any minor events frankly we didn’t have much in the way of outage events at all. So home standby was good, we attribute most of that increase in home standby by the way to as we kind of feel it apart to a lot of the additional spending that we’ve been doing on targeted advertising to particular the Power You Control infomercial that we’ve been running, the balance of 2014 in a lot of markets. We really ramped that up in the second half of the year and our PowerPlay selling app in concert with that, so we’re driving leads and driving those leads through distribution through our selling system and that really has picked up and we saw that start to accelerate in the third quarter and really do quite well for us in the fourth quarter in terms of the results of activation. So it’s driven home standby and then I think to a lesser degree the Magnum business, our Magnum business had a great year last year fourth quarter was actually was record year for Magnum in all of 2014, in the three years we’ve owned it and they had a very strong fourth quarter as well again going in the oil and gas markets in particular we saw particular strength there. We try to tamper out enthusiasm about where that’s going to go here in ’15 as oil prices have come down, but and then actually in Latin America we had a good quarter. And at Ottomotores we think we found a bottom there throughout the year in 2014 we’ve made some significant changes and investments in that business over the last several quarters, put some of the leadership in, done some things to consolidate our operating footprint and done some things down there that we feel are going to be an important catalyst for future growth and we also saw -- I think the market in Mexico has somewhat settled out as well. So we’re going to see what that brings for 2014 with oil prices being down, but we did have a good quarter in the fourth. So those are the things I would think that I would point out.

Can you talk about how the lead generation numbers look for you heading into the first quarter? You mentioned seasonality has been less of a factor for the standby business in the fourth quarter. We're looking at a pretty easy compare in the first quarter in the year-ago -- any color you can give us on what lead generation tells you and how we should think about standby seasonality ’15 compared to what we saw in ’14?

Yes, when you look at the seasonality of this business when it gets cold and when it snows, installations activations really slow down. I mean in particular we’ve got some very strong markets in the Midwest and Northeast which have over the last several weeks been pounded with winter kind of finally arriving, so that has dampened installation and activation activity. Similar to what we saw last year in Q1 relative to the polar vortex which was more cold-driven but this year it is probably a little more snow driven. And then unfortunately those events haven’t led to any kind of major outrages, so I mean I guess if you’re in those areas that’s a fortunate thing but if you’re selling generators not so much. So what we’ve seen is that comedown, we think that our guidance that we issued here the kind of discreet guidance for Q1 kind of take all of that in the consideration and as reflective of at that point of our expectations here and where things are going to end up.

Your next question comes from the line of Jeff Hammond representing KeyBanc. Please proceed.

So it sounds like you want to wait on the size in the oil and gas opportunity. But if you can -- you've done a number of deals. Can we size what you think your oil and gas exposure is overall as a percentage of your sales, and maybe while you're at it, touch on telecom? And then can you talk about order rates within the different components of the business -- the heaters, the lighting towers, the gaseous generators, and where you are seeing or expect to see the greatest weakness?

Yes so I think you’re right, Jeff, we kind of pulled back on quantifying the oil and gas opportunity given the kind of rapid decline in energy prices here, but when we look at 2014 to kind of answer your question. And again it’s not a perfect number because when you sell to a rental equipment company you’re not exactly sure where the equipment ends up in terms of application and in terms of end application and it could be in one application one day and then the next week it’s in a different application. So it’s a little bit kind of tough but we can look at the general geographies that we’re shipping into and kind of make a guess there and as you could guess and so we think about 10% of our revenues top-line last year where kind of in that oil and gas space if you will, and that’s everything from the heaters. And again we didn’t have a full year of the MAC business under our belt so that’s not a pro forma number that would be on an as reported basis, so that might consider that up a bit from there when you think about MAC in a full year run rate. But obviously that’s going to pull back this year from that level and we think that our guidance is modeling that appropriately we have model a pretty fair headwind here for oil and gas. And then the other one as you mentioned is telecom, there was a point in the curve here earlier this year where we saw telecom start to come down we had a very good first half of 2014 for telecom so we've got a tough compeer up against there as we come into '15. But in the second…

Can you give us a sense of within your commercial guidance, how much you are thinking telecom and oil and gas are going to be down?

Yes I think when we look at the headwinds I think we kind of modeling somewhere in that $50 million range if you want to think it that way is kind of the number we put on I mean again it's not a perfect science. But we think that that is reflective of kind of what we're going to see in the market here for 2015 that kind of a pullback no goals obviously yes but a 20% decline over prior year when you look at those two oil and gas and telecom.

And then just on the cost side, can you quantify what this port issue cost you and when that resolves itself and then the added marketing spend? And do you think that persists through ’15?

Yes the port issue is amazing I mean we have had a lot of great planning earlier in the year in 2014 around that we saw it coming we're ordering inventory spending lead times on our ordering windows and talking about supply chain and that’s gone nine months. So even the best laid plans unfortunately didn’t anticipate to nine months kind of stretch on this what is turning to a freaking nightmare for -- I got to imagine I saw retail federation obviously getting things on retail store shelves but obviously in the manufacturing sector and other sectors in the economy we all depend on a global supply chain a lot of that global supply chain comes through what goes ports. We haven’t really quantified the amount but it is a little hard to quantify maybe we can look at airplane cost and everything else and that’s easy to put a number on but it's really the impacted disruption that’s going on in our business when you're trying to run products down in production line and you run out of one component and you've got to shift to a different production there is switching cost and there is -- you sending people home some days early you're working overtime other days to catch up. So it's a general disruption in the business from a resolution standpoint I think what I've heard is that there is hope that they're closed on arrangement here some kind of a contract but that it could take six to eight weeks to kind of unwind there are 25 ships at anchor out in the West Coast just off of Long Beach and up and down the cost there is elevated levels of traffic that needs to be resolved so it has led to all kind of shortages and trucking chasses and rail shortage capacity and all kind of dislocations so it's been a mess and we're going to continue to manage it, but it’s been a mess.

Your next question comes from the line of Mike Halloran representing Robert W. Baird. Please proceed.

So just one quick follow-up on Jeff's question, are you guys assuming a -- that the second half of the year run rate on telecom is what just carries through ’15, or are you guys thinking, given all the headwinds you mentioned, a modest step down from the second half and that's more the normalized run rate?

We're actually modeling Mike kind of a modest increase in telecom throughout the year and some of the…

In the second half.

In the second half of 2015…

Aaron, I meant relative to the back half of 2014 run rate that you saw?

Yes, probably up slightly from that point Mike from the back half of '14 just when you look at the comp. So I guess our views on that -- there are some projects in the pipeline -- there are some potential customers that have told us about some plans but again I temper the enthusiasm around hey I think we have modeled it appropriately but just overall for the full year I think until some of the net neutrality stuff becomes a little clear I think these guys are a lot less inclined to continue to build out rate of their networks until they know where they things are going to head.

Yes first half '15 looks slightly up from back half of '14 and then it build in into the second half.

Normal seasonality from that level then makes sense, so on the residential side of things, maybe just an update on the dealer count side of things and how you think that's tracking, what the pipeline there looks like. And then also how inventories for you guys track. I know you don't have a lot of standby inventory, but how the portable inventory bled through the fourth quarter and into the first quarter here.

Yes. So I will talk to dealer count one first before I get to inventories. Dealer count approximately 5,200 dealers is where we kind of are today and that say it's down from where we ended the year last year I think we ended the year about 5,400 so down a couple of 100 dealer on a net basis. Certainly not what we were expecting but given the challenging power outage environment it's not only difficult to create demand at the end-market level it's difficult to create interest at the distribution level. And so that comes off of three very large years of that we added over 1,000 dealers almost 1,100 dealers as a matter of fact in a three year period there two to three year period. So the count today is pretty stable, what we do like is that we see improvements in the engagement level of the dealers that we have in the channel. So even though the dealer count overall was down their engagement in the tools that we put in front of them with PowerPlay and PowerPro have really been effective. We just had our annual dealer meeting down in Orlando, Florida here in early January and we had 1,200 dealers at that meeting 1,300 dealers at that meeting and that's a record number for us and just a tremendous amount of interest in certainly new products which of course is always the life blood of distribution but the sales process and techniques that we're doing to make them more effective sales people. And the leads that we're driving them I mean we're driving tens of thousands and tens of thousands of leads these guys which is when you can get sales opportunities to distribution that's when you get a very close relationship going, so…

And then on the tools that you guys are given, I think you cited about 25% of the people -- of your distribution is using some of these great tools you guys introduced. Maybe you can help frame how that's impacting the P&L from a growth perspective. What's that 25% seeing? And compare that to maybe the 75% or so that hasn't adopted amp, PowerPlay, and all of the other stuff? How would you differentiate what that looks like from a growth perspective and from a prospecting perspective?

It's a great question and these are things that we talk to dealers -- we try to move to the system -- we talk to them a lot about, right. We want to tell them how the 25% that are using this system how they are succeeding in terms of growth rates ahead of the 75% who don't use it. And we see double-digit increases in sales for the guys who are on the system and quite a bit less than that for people that aren’t. And so the leads don’t go to people unless they are on the system. So the leads that we generated you only get those as a dealer if you are part of the PowerPlay if you are using the PowerPlay system because the scheduling application is built in to that system. And so it creates a tremendous amount of alignment between ourselves and the dealers and the information flow coming back Mike the other way is really powerful as well in terms of just given us I mean dealer by dealer specific close rates and what their average quoted prices are so that we can help them try and sharpen their pencil when it comes to things that -- we see dealers from a best practice standpoint in one market that are closing sales at a certain percentage and we see dealers in other market at 2x that percentage, we want to take those best practices and we want to share them amongst the distribution. A lot of times we see a high correlation though between price points so the higher the price points that’s quoted out there the lower the close rate, so we see it’s directly inverse calculation. So our desire here is to not only get people on the system but to continue to reduce the total cost of ownership and we’re already focused very much on that next year, but we definitely see the difference in close rates and growth rates for dealers that are on the system versus the dealers that aren’t.

The next question comes from the line of Charley Brady representing BMO Capital Markets. Please proceed.

So I just want to understand -- you've got essentially a flat dealer network, it sounds like, but you are seeing a pickup in Q4 sales. So can you give us any color on, I guess, maybe kind of the same-store sales for existing dealers? It sounds like, at least in Q4, maybe that's gotten better. But I don't know if there's just some seasonality around pretending you track that directly?

Yes, we haven’t quoted the same-store sales number and we’re not to probably do that but from what drove this Charley I mean the -- again I think that we can point very clearly within our own data to the fact that the -- when we talk about what we’ve been doing on a sales and marketing side in terms of this four-step process right of driving awareness for the category is really critical and what we did and probably didn’t attribute enough value too in terms of our guide on fourth quarter was the fact that we were ramping our spending and our focus on this not only throughout all of 2014 but we really accelerated that in the second half, so we got the third quarter and there is a lag. It takes time when you start that spending you start those efforts in terms of a ramp on that for you to see it in the activations rate and the sales rate for the dealers and so what we saw which is we saw positive traction with that in the third quarter that led to improved shipment rates and activation rates for products in the fourth quarter. So if you want that mathematically yes that would lead to an improvement in the same-store sales just on the raw math basis across the average dealer. Certainly you know I think there are pockets also that we called out where -- there were even though activations or outages were very low and actually last year there were pockets where like the parts of the Midwest year Michigan in particular Eastern Canada again Toronto area and some parts of Canada where activation rates were particularly strong on the back of elevated outage activity on a localized basis in those market. And so if we didn’t get a lot outage but where we did get them where at couple of targeted few markets that ended up being and has historically frankly been good markets for us. The Midwest is going to be good market for us and it’s a market that doesn’t get Hurricanes, doesn’t get really ice storms. You get winter weather and you get some severe summer weather and that typically what drives that is as well as the tree cover here and the age of the grid in this part of the country. But even the northeast which, it wasn’t up in Q1, but it was certainly started to come back, very slow first three quarters of the year and then we saw the Northeast rebound very nicely for us in the fourth quarter in terms of stabilization and still down year-over-year on a comp basis based on the Sandy impact, but that region was up very nicely on a sequential basis for us in the quarter.

And just on the commentary on your -- within your guidance, moving back towards normal outage activity -- again, in the guidance in 2015, I guess can you help us frame if we don't get back to that normal, what the top-line impact might be? Because we are down, what, 70%, and obviously, you're offsetting some of that, just internal stuff you're doing. So you're not getting the full brunt of it. But if we don't snap back to a normal 2015, what's the downside risk, I guess, is what I'm trying to drive to?

Yes, Charley, as you asked the question I think the challenge with that question, obviously when we project and forecast and put our budgets together all we have to go buy is its historical averages, so that’s why guide the way we do. Now having said that in answer to your question, if you look at 2014 we’ve been talking pretty clearly that that’s last year was a period pretty much every quarter where we had below average normalized baseline level of outages, so you can start with 2014. Look at our resi business for 2014, that’s a period of time that experienced below average outages so now you got a layer in Powermate, so we’ve acquired Powermate so there is some acquisitions growth and a modest acquisition growth from Powermate. And then to your point you got to give us some credit for all of our internal initiatives to drive awareness regardless of outages, we’re doing lots of things to really create our own awareness the sales and marketing and the tools and driving penetration of PowerPlay and getting our dealers aligned with us and all those things to drive growth regardless of outages. So you got to give us credit for, so you’ll be able to model a number then based on that and that gives you an idea sort of where -- what could 2015 look like with below average outages, now I think the other side of the coin is we haven’t assumed that in major outages either so there is upside to that as we get landed Hurricane and I know you’re trying to put a collar around it, but you have to keep that in mind as well.

Your next question comes from Brian Drab representing William Blair. Please proceed.

So in the first quarter, you gave us the guidance -- this range of 315 million to 325 million. I don't know that you've given any granularity here in terms of what we should expect for the segments. But I guess from the call, what I would model here, what I'm gathering, is that maybe residential and portable is down a little bit year over year and a pretty steep decline in C&I year over year in the first quarter. Is that fair?

Yes that’s fair Brian I think Aaron mentioned we talked about seasonality of the residential business and with snow on the ground and very cold condition it is tough to install so seasonally historically Q1 is always got a lowest point in time for resi. So you would expect some moderation from Q4 to Q1 for resi but to your point about C&I there is some things on the C&I business that there is a still seasonality on the C&I business in particular what the mobile products. I mean there is just less construction in Q1 so therefore the mobile gens and mobile light towers seasonally will be off from Q4 to Q1. Our heater business, the heat business the season is Q3, Q4, Q1 comes around and in order rates drop fall off at that point. So that’s a seasonally thing, seasonally impact. But there is sequential decline in our guidance for oil and gas so we had a strong oil and gas quarter in Q4 we're expecting moderation off of that in Q1 for sequential decline oil and gas. Telecom year-over-year now for telecom that’s going to be a really tough comp Aaron mentioned we did ship a good amount of telecom product in the first step of '14. So year-over-year that’s going to be a tough one for C&I but I think we already comment about sequentially what telecom will look like and then there is the transition to moving our manufacturing footprints from Eagle to Oshkosh that did cause deferral sales aim from Q3 into Q4 that now that we've caught the normalize lead times that won't repeat in Q1. So that will be sort of an artificial sequential decline from Q4 to Q1. So I think the way you framed it Brian is quite right that C&I will be impacted more so sequentially.

As we look at -- I guess the way I was framing it -- thanks for all that. But the way I was framing it was year over year as well. And I'm wanting to make sure that I am modeling down year over year for both of those segments, which is down more for C&I, is that fair?

I guess we haven’t given the street guidance but I think Jeff pointed out there was some easier comps with the polar vortex last year. But we still see that seasonal challenge with installation with lots on the snow on the ground and lots of cold. So I wouldn’t expect resi to be dramatically off that with prior year but C&I I think I gave my comments there.

And then any impact recently from the winter storms that we are seeing on East Coast on the portable sales here in January?

No they're very minimal. So just have minimal outages associated with those storms there have been pockets but it's mostly just snow events. And I think from a portable gen standpoint, we really haven't seen much uptick.

Okay. Then could you give us acquisition revenue in the quarter?

Yes so in the quarter so for C&I because it was up 17% a good junk of that the vast majority was acquisition related, so organic growth for C&I was in that low single-digit range. Now keep in mind that we had a very strong oil and gas organic growth and then but that was tempered by very tough comps on telecom so that’s really the reason for the sort of the muted organic growth on the C&I side of the business. So the majority of that 17% is in fact the MAC coming on board and actually one month of the Baldor business. And the on the resi side a very small amount where we reported minus 2% year over year are very small amount of that was related to the power made, so a little bit more negative from an organic standpoint for resi.

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

I was just wondering, can you help us at all with a more updated view of the geographic dealer network representation with everything that's going on over the last couple of years? You mentioned the strength in Eastern Canada and Midwest. Just -- and I know you don't fully disclose these numbers, but any help on Northeast versus the Midwest versus the Southeast that you could provide?

No. I don’t mean to -- we haven’t provided that a lot of detail Ross. The Northeast is obviously very strong region for us in terms of -- are you talking dealer account or you just talking…?

Dealer account yes I am talking about the 5200 dealers like…

No we haven’t broken that, no.

Okay.

I mean it follows population and outages, if you were to map if you were to overlay a U.S. map of population centers and outages you'd find a pretty…

Investor Relations deck has that map.

Yes I mean we have got a map and I mean we don't have the accounts broken out necessarily but…

But general trends…

Yes we haven’t done it that way.

You have been pretty clear on what happened with oil and gas in Q4 and what you expect earlier in the year. But can you kind of give any more color on what physically you are actually seeing with some of your rental customers? Because, clearly, they must have overbought in the fourth quarter and have got a lot of idle fleet to contend with in some of the energy-producing states. So are they now liquidating that fleet in the used market? Are they moving it around to other parts of the country just curious how that dynamic plays out. What physically unfolds that spills back into your business?

Yes I mean they watch utilization rates very closely in the rental market, right. I mean that's kind of their key metric in terms of the ROI and the equipment it's one of the key metrics as a number of them but utilization rate is the big one. So they are constantly dialing that in and obviously with the pull back in energy prices depending on some of the rental companies are definitely a lot more exposed to that than others. I would say generally the smaller regional players are the guys who are in the Bakken shale or in the Permian basins they are in the Eagle Ford shale I mean they are in the shale plays in the Marcellus directly those are the guys who are definitely having some challenges with idle equipment, right. But the big national accounts have a bigger footprint I think they have more flexibility to move things around. I can't tell you that I have heard directly that somehow there is bigger liquidations going on out there in the option markets and things like that. We do know the utilization rates have come down in the areas of the country that are in these direct energy play, so that’s definitely one. Now some of that thing offset by continued improvement around non-res construction, so non-res construction, road construction other non-res construction has been decent here has finally shown some signs of life which is helpful. But I think beyond that if you directly associated with especially rental type of company in the energy plays I think you are looking at some of the same things that we've modeled in terms of pull backs in oil and gas.

Your next question comes from the line of Stanley Elliott representing Stifel Nicolaus. Please proceed.

A quick question in North Dakota, there was a lot of push to run the generators right off of the wellhead. Have you seen any sort of regulatory moves in other shale plays to where that would be the norm going forward?

The Bakken is the place where flaring occurs most prevalently. So that’s been the concentration of regulatory environment both state level really at the local level, state level and the national level. EPA has got some stringent rules there state of North Dakota as you mentioned. Stanley it has also got some pretty strong rules that have been putting in there. When you get down in like the Permian Basin as an example I mean it's only about 3% of wells with flare so it's a much higher number in the Bakken and that's where we have seen early legislation some of these shale plays continue to develop like the Marcellus Southeast and some of the other parts of the country. I would suspect if and a lot of this is because of the type of drilling right it's frac -- it's frac drilling so that's where you tend to get more of that by-product from that is gas and gets flared off. The Bakken is primarily a frac type of environment in terms of the technique used. So where fracing is used more prevalently that's where you are going to see a general increase in flaring. And in particular in new shale plays like the Bakken -- the Permian is an older shale play it's pretty well developed so there are ways to actually capture that gas and put it into commerce clean it up and put in commerce do something else with it sell it or turn it into electricity or something like that.

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

Hey, just real quick, on the new home builds, can you characterize them -- sorry, Aaron, if you gave it in your comments, but what penetration is like in the new home on the resi side right now?

I don't know that we've actually talked about that I mean the index is higher than our current 3.5% penetration rate across but we've said probably 2x is what we've seen it. I don't have a direct read in front of me on that John just in terms of like most updated stats for the quarter on that. But obviously it's a nice thing to see and we continue to make efforts there to -- we have put a lot of effort on that in fact with our sales teams here to bring new home builders in, we have had some wins in back half of 2014 in particular again some homebuilders who are doing whole developments with home standby generic heater as an option or as a standard feature on the homes that they are putting in and that’s something we haven't seen really ever. And so we like that and obviously it's in areas of the country we would expect to possibly see that like the Northeast and the Midwest where outages have been more prevalent in the last several years. But it is actually about 2x to kind of the overall penetration rate.

And just a real quick follow-up, just in terms of -- you have had some really good revenue growth and capture on, I call it, more of a centralized channel where you are helping these distributors close deals in homes. Is there a cost to capture from your standpoint at Generac that you measure? And would we likely see that number grow with national advertising, et cetera? It is still going to be pretty early innings for this effort, but I just wanted to get a feel on how you think about cost to capture from a Generac perspective? Thanks, guys.

It’s a great question, John, I mean we look at cost per lead that we generate, we look at the close rates and technically you work all way down to a cost per sale in terms of the efficacy of those efforts and not only the direct marketing spends if it’s direct mail, television, print those types of things but also we’re starting to look at the total cost to capture in terms of the efforts to produce those selling platforms, the efforts to improve selling platforms, the cost for the headcount that we need to take the leads, qualify the leads, and to push those leads out, training, the analyze -- we’ve got a massive effort going on. As you can imagine we’ve accumulated a tremendous amount of data over the last four years on activation data and we’re mining that data now at a level we’ve never done before we’ve brought analysts on board that are point through that data they’re trying to find queues in the data that help us sharpen our approach to our sales and marketing efforts so that we’re more targeted. So that we can keep those cost to capture in a relative range, but you’re right it’s early innings and we’re trying a lot of things right now, so the cost to capture is pretty high I mean thankfully our scale with 75% share gives us the opportunity that to really go after this hard and spend a lot of money on this. And you see it reflected in our SG&A, we’re spending millions and millions of dollars on these efforts and it’s not a small effort, but we think that we’ve got an opportunity here, a rate opportunity to take the market only 3.5% penetrated U.S. single-family homes and do something pretty unique in growing that. And that’s going to come from us it’s not going to come from anybody else in this market. We’re not going to sit around and wait Mother Nature to deliver the next catalyst for leg up in terms of demand we’re going to do it on our own. And when those outages happen we’re going to be in a really good stop in terms of being able to tell the story about these products and to capture those leads and close those leads. So we really like what we’re doing there. We think the payoff is well work the effort at this point, but it’s expensive.

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to turn the call back to Mr. Aaron Jagdfeld for closing remarks.