Good day, and thank you for standing by. And welcome to the Fourth Quarter Full Year 2022 Generac Holdings Inc. Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Mike Harris, Senior VP, Corporate Development and Investor Relations. Please go ahead.

Good morning. And welcome to our Fourth Quarter and Full Year 2022 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer; and York Ragen, Chief Financial 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 SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today's call. Additional information regarding these measures, including reconciliation to comparable US GAAP measures is available in our earnings release and SEC filings. I will now turn the call over to Aaron.

Thanks, Mike. Good morning, everyone, and thank you for joining us today. Our fourth quarter results reflect continued strong momentum in our Commercial and Industrial product categories during the quarter, but softer residential product sales, resulted in consolidated net sales at the low end of our previous guidance range. Specifically, higher home standby field inventory levels continue to impact orders and shipments in the fourth quarter and clean energy product shipments were lower as we work to further improve the reliability of these products and expand our distribution capabilities. Year-over-year, overall net sales decreased 2% to $1.05 billion and core sales declined 7% during the quarter. Residential product sales decreased 19% from the prior year due to the previously mentioned home standby and clean energy products headwinds. C&I product sales increased 27% on a year-over-year basis with robust core sales growth across all channels domestically and all regions internationally. Adjusted EBITDA margins declined during the quarter as the unfavorable effect of sales mix, reduced operating leverage and the increase in recurring operating expenses from recent acquisitions were partially offset by favorable price cost dynamics. For the full year 2022, Generac achieved another year of record top line growth with total net sales increasing 22% over 2021, which marked our third consecutive year of double digit growth. While residential product shipments faced headwinds in the second half of 2022, the category still experienced strong year-over-year growth of approximately 19%. Additionally, sales of our C&I products have never been stronger, as global shipments grew 26% over the prior year, resulting in $1.26 billion in annual sales. We exited 2022 with record backlog for these products, setting our expectations for another strong year in 2023. In addition to record net sales, our international segment achieved all time highs and adjusted EBITDA and adjusted…

Thanks, Aaron. Looking at fourth quarter 2022 results in more detail. Net sales decreased 2% to $1.05 billion during the fourth quarter of 2022 as compared to $1.07 billion in the prior year fourth quarter. The combination of contributions from acquisitions and the unfavorable impact from foreign currency had an approximate 5% favorable impact on revenue growth during the quarter. Net sales for the full year 2022 increased 22% to approximately $4.56 billion, an all-time record for the company. Briefly looking at consolidated net sales for the fourth quarter by product class. Residential product sales declined 19% to $575 million as compared to $706 million in the prior year. A partial quarter of contribution from the ecobee acquisition and the slight unfavorable impact of foreign currency contributed approximately 4% of revenue growth for the quarter on a net basis. Lower shipments of home standby generators and weakness in PWRcell energy storage systems drove the decline in residential product core sales growth. Commercial and industrial product sales for the fourth quarter of 2022 increased 27% to $361 million as compared to $284 million in the prior year quarter. Contributions from the Electronic Environments and Blue Pillar acquisitions were fully offset by the unfavorable impact of foreign currency during the quarter. The very strong core sales growth was broad based across all regions internationally and all channels domestically, with particular strength in national rental equipment, telecom, industrial distributors and other direct customers for beyond standby applications. Net sales for other products and services increased 46% to $113 million as compared to $77 million in the fourth quarter of 2021. Contributions from the Electronic Environments and ecobee acquisitions contributed approximately 34% of this growth, given their additional service capabilities. Core sales growth for the category was 13% due to strong growth in our…

[Operator Instructions] And our first question comes from Tommy Moll from Stephens.

Aaron, I appreciated your comments and insight on the field inventory levels for home standby. I think what I heard you say was in terms of days on hand, it was down sequentially, but well above normal. So my related follow-on question is, is there any way you can frame quantitatively or qualitatively what normal looks like? And to what extent do you need to continue to build out the dealer network in order to achieve that level in the back half of this year?

Obviously, the field inventory destocking process that we're going through, there's a lot of metrics there that we have at our fingertips in terms of how much inventory is in the field, you know activation rates. You can look at them as we do on a seasonal basis, The comments, as you indicated, you were spot on, we said that from a days of field inventory standpoint, they improved sequentially from the fourth quarter, but still high. I think if you go back to our comments on the last call in November, we said we were about double. We thought field inventory levels were about double where they needed to be from a normal kind of, quote unquote, normal level. We're better than that today. So the raw numbers are, we're about 20% off the peak in terms of just raw units in field inventory, home standby units, which is great. And as that days of field inventory also coming down sequentially, the combination of those two things, reducing production rates, the activation rate was up nicely in the fourth quarter. So we continue to see installation building out. So all of those metrics are favorable. And point two, the destocking event that's going on. But as our prepared remarks indicated, still high relative to where they need to be normally. So it's not quite double. It's less than that, maybe, I don't know, 1.6 times, 1.7 times still the level in terms of just the raw numbers as we look at them, but coming down nicely. In terms of the second part of the question, there's a -- it's kind of a -- it's a multipart -- multipronged approach, if you will. The biggest of which, as we've indicated and I think you're latched on to as well, is…

And our next question comes from Michael Halloran from Baird.

So just a follow up on that, Aaron. Maybe you can just talk about what your assumptions are for the underlying demand dynamics as you work through the back half of the year? In other words, it sounds like you think that the current strength that you're seeing in home consultations and some of those megatrends you mentioned. It sounds like you think that carries through the year into the back half of the year. Just some thoughts on what's underpinning that back half strength from an underlying demand perspective, kind of ignoring that inventory normalization side that you've talked about?

Mike, I think there's -- optically, I think when you look at first half, second half, right, like I think it looks like, wow, that's a really big hill to climb. Again, seasonally, interestingly enough, you get kind of normal seasonality, you go back to 2019 levels, and actually pre-2019, just looking back, we're really not that far off of how the top line would pace seasonally. But we've got this, what I'll call, kind of artificially low. We're referring to it as an air pocket with home standby because of the destocking event. But to answer your question, what gives us confidence that the year will play out, at least the underpinned -- what's underpinning the demand metrics that we're seeing and how we're building out our view on the full year. So there's a couple of things. One is you look at the fourth quarter IHC levels. That was a record fourth quarter for us, it matched the fourth quarter of the prior year. So that was a record. And so they're both records in terms of IHC flow. So we're seeing really strong sales lead volume. And that has continued here in 2023, as we said, January was an all-time record for us for January. Best January we've ever had with IHCs. So we're really encouraged by the continued focus by homeowners. Look, I think that what is -- maybe there's a lot of noise in the story right now with the destocking and everything else that some of the clean energy challenges that we've had, we're talking about. But what's not -- which shouldn't be lost on people is the fact that power outages are happening and people are concerned about resiliency. Grid operators are very concerned about their ability to supply power on a normal…

And I know that there's a lot of discussion on hard landing, soft landing recession, whatever it may be. And I think to Aaron's point then as long as there's power outages, we've historically tended to decouple from that economic environment as long as it power outages. So that's -- put it back to full circle to what -- how Aaron started the answer to that question.

And our next question comes from Jeff Hammond from KeyBanc Markets.

So just want to go through the -- one, just the bridge on the margins, first half to second half, and how you get there. And I guess on a full year basis, it seems like EBITDA margins are kind of flattish to slightly down. And just given the revenue decline and the mix change, given home standbys under more in pressure, just some of the moving pieces on how to kind of hold those margins flat?

So speaking to EBITDA margins. So we mentioned Q1 would be in that 10% range. The double hit of the destock, coupled with a tough comp from the prior year, but looking at 10% EBITDA for Q1. Talked about Q4, building out through the year to Q4 being in that low 20% range. So you're right, that's an abnormally larger EBITDA range progressing through the year. But I think given some of the things that Aaron talked about, that's the rationale for it. And when you look at a lot of the pieces, I mean, half of that growth just alone half of that growth, as home standby recovers in the back half, you'll get a better mix in Q4 than you did in Q1 of home standby. You'll get a tremendous amount of operating leverage then on the higher volumes. So I would say just half of the margin recovery is just better mix and operating leverage on the higher home standby volumes. And then the other half is really a story on cost. So we're currently realizing on a leg basis, we're still realizing higher input costs, higher commodity costs, higher logistics costs, because there's legs to get through our supply chain and legs to get through our inventory levels in terms of realizing our input costs. So when you model it out, we expect as we get through Q4 relative to Q1, we'll have lower commodities, we'll have lower electronic surcharges that we've been incurring all throughout 2022, lower logistics costs, the better manufacturing overhead absorption as we ramp up productions. And then we always have our profitability enhancement programs that we're working on every year that are focused on cost reductions of the bill of material of our products, focused cost reductions, cross functional initiatives, things like that. So on the cost side, that's the other half of the puzzle. And we feel confident as we work through the legs, we'll see better margins relative as a result of better input costs.

And our next question comes from Christopher Glynn from Oppenheimer. Christopher, is your line on mute, please unmute. And our next question comes from Mark Strouse from JPMorgan.

I wanted to turn to the Clean Power business. I apologize if I missed this. Did you say what that revenue number was in '22, and then how should we think about that range kind of heading into 2023? And then I'm kind of also curious, I know you've got a lot of things going on that are company specific. How are you thinking about kind of the macro environment for that business in particular? Just hearing some kind of mixed commentary from some of the other companies in the space.

So that energy technology business, which includes the Clean Energy, PWRcell energy storage business, our ecobee connected devices business and grid services business, that was around $300 million for the year. And I think in Aaron's prepared remarks, we expect that same energy technology business to be around $300 million to $350 million for 2023.

And then from a macro standpoint, Mark, the way we see this space, obviously, we're in this for the long run. And so from a macro environment standpoint, I think there's a number of forecasts out there they're calling for residential solar to maybe be down in '23. And there's a couple of reasons for that, obviously, higher interest rates. As part of that story, another part of that story, would be some of the changes that are ongoing kind of at the state level, you look at like California with NEM 3.0 and the impact that, that can have on the pace of solar penetration rates, I would say, that's largely -- there's a view that that's largely offset by some of the federal stimulus that the IRA Act is providing. So we remain bullish that while growth maybe isn't going to be huge, as York said, between $300 million and $350 million, which is a little bit of growth over the prior year. But we are seeing, at least within our network for the Clean Energy side, again, we've got some specific company challenges, as you mentioned, that we're working through. But on our connected devices businesses, specifically ecobee, seen really nice growth in that business as well as grid services, like we mentioned in our prepared remarks this morning. So that all kind of goes under this umbrella that we refer to as residential energy technology, put together the Clean Energy devices, connected devices and grid services. So not tremendous growth in '23 but we see the opportunity for that business long term. It's an important strategic part of what we need to build out, and we're going to be successful there longer term.

And for our next question, we have Brian Drab with William Blair.

I was wondering if you could just elaborate on the EV charging opportunity. Can you say anything about what you think the revenue opportunity might be there longer term, and are you essentially leveraging the PWRcell technology to build that product?

We're really excited about this. We're the first generation product, I'll call it, that we're launching this year is more of a standard level two charger that we'll have in the market by later this year. We really want to get something in the hands of our distribution partners, in particular, our dealer partners who are starting to see more opportunities for EV charger implementation. The team is really focused -- longer term, we believe there's some innovation there. As you kind of indicate, the current architecture we have with our PWRcell system, the rebus architecture, as we refer to it, that we have, we think there's a great opportunity to do more with EV charging and really to separate ourselves from a technical standpoint longer term. That won't be the initial product. But the initial product is going to, again, get us in the space. We do think there's some opportunities around the initial product to help homeowners manage the different loads in their homes so that they can maybe avoid a costly upgrade of their electrical system. One of the things that many homeowners are confronting as they look at an EV charger, look at buying an EV is it's not just that they have to install the charger, which can cost $1,000, $1,500, but they also have to oftentimes upgrade their electrical system, because their panel is either deficient in the amount of power that it can supply or perhaps it's not up to code. So in fact, some of the installation partners are telling us that 60% of the time when they're installing a charger, they have to do some major electrical work around upgrading the panel. We think there's an opportunity with some of our PWRmanager technology to help homeowners manage some of the heavier loads and avoid some of those more expensive panel upgrades and electrical upgrades. So that's going to be part of our value proposition around EV charging initially here. And then longer term, we think there's some pretty exciting things perhaps around bidirectional charging. As that market matures, we think we can really add some value there for homeowners. In particular, when you think of the EV charger in the context of one component in the broader home energy ecosystem, we think that that's going to be at the very large load for the home and being able to control that load, both from an efficiency standpoint as well as a cost standpoint, it's going to be super critical to how homes manage their overall energy generation, their storage and all of their resiliency efforts as well longer term.

And our next question comes from Jerry Revich from Goldman Sachs.

Aaron, I'm wondering if you could just expand on the comments regarding 20% decline in field inventory. So in the 10-Q, you folks disclosed $220 million of dealer financing guarantees on inventories. So is that 20% applied to that $220 million? In other words, are you under shipping end demand by $40 million in the fourth quarter, or is that a subset of the overall dealer inventory picture that you look at?

So yes, that disclosure that you're speaking to on the field, the floor plan financing program is just a subset of our field inventory that…

Field inventory is across all channels, right…

All channels...

e-commerce partners…

And not everybody, and even the dealers not everybody uses the field floor plan financing. So it's subset. It is improving that number off the peaks. So again, if you just look at raw units across the entire subset based on the information we track with all the data we have, just raw units were down 20% from peak levels from earlier this year -- earlier in middle part of 2022.

And our next question comes from Joseph Osha from Guggenheim.

Just penciling through what you said so far and looking at the -- in particular, how residential energy tech is trending. It looks to me like somewhere around Q3 for this to work you need your HSB business to see a 30% or so sequential increase Q2 to Q3, or is that [Technical Difficulty] of the whole year guidance?

Well, you definitely would need -- you will definitely see a sequential -- a larger than normal sequential increase from Q2 to Q3 in home standby, just because you won't have the field inventory overhang. And so that's an artificial reduction in the first half…

And then there's some normal seasonality that takes place.

Yes, you had normal seasonality…

Right. The season for home standby generators typically picks up in the third and fourth quarter.

You would expect to see a sizable increase in home standby if that's what you're interpreting from our comments, yes.

And our next question comes from Donovan Schafer from Northland Capital Markets.

I'd like to take a moment and just ask something a bit kind of maybe a higher level or not as maybe a near term quarter to quarter issue. But in the last couple of years with how much -- it kind of feels like the home standby market itself has changed just with how much growth there's been with the COVID demand and everything. I'm wondering if you can give us an update on kind of the competitive landscape there. Of course, rising tide lifts all boats, so everyone can be doing well. But for a long time, you've talked about having the 75% market share. I'm curious if you still -- if your sense is still that, that's kind of where you are today, about 75% market share with home standby or if there are there any changes there, is that is incrementally moving higher or lower even while everything rises? Or if you don't have that in particular, are you seeing competitors make any move saying, hey, this is getting to be a really big market, you purchase and own your own copper winding equipment because of the scale that you have, but if the whole market is growing, are you aware of like competitors making moves like that, buying their own copper lining equipment? Anything like that kind of just higher level update on the competitive dynamics in the home standby market.

Yes, it's a great question, Donovan. I mean we don't talk too much about that. And we probably -- it's a good checkpoint. I would tell you that we believe our share is probably north of that 75%. We've probably grown over the last few years, a little bit probably more outsized. You're right though that a rising tide raises all boats there. And I think our competitors are -- first of all, the competitive set is the same and it's been the same for almost 20 years in the category, which is interesting to me. And the two other competitors that play in that space, it's a much smaller part of their business, right? Like their businesses, their core businesses or other things. So for those competitors, the power -- the home standby generators in particular are a tertiary or even further down the pole kind of product line for them. So in terms of their focus, right, just raw focus on the products, the development, we still are the only product in the market that has connectivity out of the box, right? So that we give homeowners, every homeowner who buys a home standby today can get updates on the status of their generator through Mobile Link, which is our app or now they can get through the ecobee platform, which is awesome. We just rolled that out as part of our ecosystem. Those types of things, our competitors don't have that, and that's I think one of the beautiful things about scale. And you pointed out that the advantages of that on the manufacturing side, right, our ability to invest heavily in the machine tooling and the capabilities we need to continue to drive the kind of -- not only the capacity that we need right to…

And our next question comes from Maheep Mandloi from Credit Suisse.

Firstly, I just want to check if -- do you assume any price reductions for the home standby generators in the guidance? And second question on the online channels versus your dealer and distributors. Could you just talk about that dynamic, what the share is and if you're seeing a growth in online versus dealers, and how is that impacting the relationship with your traditional channels?

So I think I'll deal with it. From a share perspective, we don't break down the channel share. But our dealer channel is our biggest channel, it's a really important channel. Obviously, they do -- obviously, the lion's share of installations in the network that's not restricted just to dealers. I mean, if you're an electrical contractor, you can do installations as well and you have access to the product through an electrical wholesale channel, if you want to buy, but maybe you don't want to commit to the level that you need to commit to, to be a dealer, right, to carry inventory, to supply service and to do the work there to be a dealer. It's a different level. Our e-commerce partners are also an important channel, though, and have been for some time. It's a great way for homeowners who -- if they find they want to project manage this on their own, right, hire their own electrical contractor or plumber to do the work, there might be a way for them to save a few dollars that way, but it's a little more work, right? A dealer provides a turnkey solution for most homeowners. And what we're finding is as the category matures, dealer share has grown faster than other channel share, because more people who get into the category really want a turnkey solution. So dealers will pull the permit, they'll do all the work that's needed to make that a seamless project for the homeowner. As far as pricing, your question on pricing, really, all we've built into the guide this year, and I think we've called this out, that's a higher level of promotion, as you would expect, as the category starts to normalize in terms to get to that new and higher level, baseline level. We would expect a higher level of promotion. There's been very little in the way of promotion over the last several years. So when you think about price on a net basis, I would say there's some of that net price built in, there's probably less price this year, a lower price this year on a net basis than prior year simply because of increased discounts.

Now that we've caught the backlog when you're in a position of backlog, you don't promote as much. But there's a normal cadence of promotion every year when you're not in backlog, and we'll revert back to that.

And our next question comes from Kashy Harrison from Piper Sandler.

So core sales in the C&I business in Q4 was about 27%, it sounds like, and I think maybe 30% for the full year. You're indicating you have a record backlog and you're seeing strength across all segments. And so I was wondering if you could maybe speak to the durability of demand in C&I over a multiyear time period? And then maybe just provide some color as to why C&I revs are only up in the mid to high single digits just given what you saw in Q4 and in 2022?

The C&I business, we said in the prepared remarks, but it continues to outperform our expectations. They had a fantastic Q4. And so the durability of the demand, that is a lead time business, right, I think we've talked about this in the past. Our residential business, in particular, the home standby business has not traditionally been a backlog business or a lead time business, even though it got to that position through the outsized demand that was happening over the last several years. But C&I has always been kind of a business, you look at book-to-bill, and we see record levels of backlog in that business as we exit 2022. And that's both domestically as well as internationally. And so that gives us confidence and, frankly, really good visibility into the year here. I would say that within the C&I business, there's a couple of big pieces of that, though, that where maybe visibility is less so and maybe kind of leads to why we're saying mid to high single-digit growth for the year. The growth cycles for telecom and for our mobile equipment, which are generally sold through the larger national rental account customers can be a bit lumpy from time to time. They can turn the CapEx spending on and off quite quickly. And so we have some visibility based on forecasts, you can listen to -- as we do when we dialog with our national rental account customers, we listen to their guides on CapEx spending for the upcoming year. And they're all, by enlarge, kind of forecasting similar levels to last year, if not greater levels based on the company. And our telecom customers are also telling us they're continuing to build out their networks, harden their networks, they're focused on building out 5G. But look, we've been down this road before and we're also -- we're cognizant of the fact that things can happen and they can turn the CapEx spending off quickly. So I think we're positioning a bit to say we have less visibility around telecom and national rental accounts versus some of our distributor business, both kind of internationally and domestically here, where we have very good backlog and very good visibility, and put all that together and we also have some tougher comps in the second half of the year. Q4 was really, really heavy. And so kind of coming up against that tougher comp in the second half of the year, we're just -- that kind of manifests itself, I think, in a lower growth rate. So I think you put all that together, I think kind of mid to high single digit growth still feels kind of appropriate right now at this kind of stage of the cycle, but we're watching it.

Our next question comes from Praneeth Satish from Wells Fargo.

I wanted to go back to HSB and the guidance for the large increase in the second half. I guess I'm just wondering how much improvement in installation capacity would you need to see over the course of the year to achieve that growth? And could you get there based on the current pace of installation capacity growth over the last few quarters, or would you need to kind of see a more pronounced growth in installation capacity to support your revenue guidance for the second half?

So it's a great question and fundamental, obviously, to how we think about the ability to hit these targets in the second half. We do need installation bandwidth to continue to expand and grow. Now we grew very nicely last year and ended the year very strong in Q4. You've got normal seasonality that happens there. You get into the winter months here, the depths of the winter months. And as we would expect activations are down versus fourth quarter, because that's kind of pacing we normally see, right? It's really hard to install product when there's a foot of snow on the ground or there's still frost in the ground in the Northeast, the Midwest, in other areas of the country like that. But to answer your question directly, we do have built into the model that there has to be an increase yet in installation bandwidth. Now we added 500 new dealers in the back half of the year, that's going to help a lot and we're going to continue to add dealers and focus on expanding distribution here throughout 2023 to pace towards that higher activation rate that we're going to need by the time we exit 2023. But I will say this, it's not the kind of increase like looking back, it's not the kind of increase we would have needed at this point last year. If we had probably been kind of -- I think we're more optimistic that the channel was going to respond favorably to our increase in capacity output at the factory, we felt that they were going to increase their installation capacity at the same -- commensurate with that pace. And if you kind of stood back and looked at that, today, it's like, wow, okay, that's really large. The question you're asking, that's a really large increase last year. This year, it's not nearly the size increase year-over-year, because we've made really good progress. And in Q4, we made really good progress as well on increasing activation. So it's a smaller kind of hill to climb than if you compare it to the prior year, it was a much bigger hill to climb. And again, looking back on that and now kind of fully understanding the challenges that distribution had in adding the labor they needed and doing all the things that they needed to do to respond on a commensurate basis with our capacity increases, that was really the fundamental problem we ran into in kind of running well past them in terms of shipments. So that I think we feel better about where we're at today as we think about that hill we have to climb, but there is still an increase needed as we exit 2023.

And our next question comes from George Gianarikas from Canaccord Genuity.

Mine was a little longer term in nature. I know that the company's margins have deleveraged this year. But I'm wondering if there's anything structural over the long term that will hinder you from getting back to EBITDA margins in the low to mid-20s?

Just even thinking about our Q4 guide, so for Q4 2023, we're guiding to get back to those low 20% range, at least for that seasonal time period. So when you think about '24 and '25, we think we're well on our way to getting back to those levels on a full year basis. And I think with some continued growth and continued leverage, in particular, on the energy technology side, where we'll continue to grow that business and go from investment mode to -- and start-up mode to growth mode and profitability mode, that will definitely help improve the overall company's profitability in '24 and '25.

And I think just on that point, York is right. I mean, we kind of alluded to it in the prepared remarks this morning, but we're investing heavily in that part of the business. And the growth rates are not there right now. They were -- we ran into our challenges, obviously, well documented here. And so we've got a lot of work to do around that. But I think the takeaway this morning for everybody is we're not pivoting away from it. We're going to continue to invest in it. We've brought in new leadership and strengthening that team, which is I think a really critical part of kind of our turnaround efforts, I'll just call it, what it is there when it comes to certain of those products in the energy tech space, we have work to do. And it's proving to be more difficult and it's going to prove to be more costly than we originally anticipated. But we still think that it's worth the effort. This is an area where, again, the macro environment favors this based on everything we've talked about this morning, based on everything that is known out there in the marketplace. We think we have every right to play here. We think we have to execute better. And to execute better, we're going to have to spend more money, and we're going to have to spend more time, and we're going to have to do things the right way going forward. And that's -- we own that, and we've addressed it. I feel really good about what we've done, the changes we've made in that business over the last six months. But it is still going to be a significant drag on kind of our EBITDA margins at least here in 2023, but that should relax as we go forward and we start to kind of recover in parts of that business. And we see the continued growth in other parts of that business, like the ecobee pieces as well as grid services. So longer term, we are absolutely committed to it and we're going to be successful there. If people think that this has scared us off or this is going to turn us away from it, they don't know us, they don't know me. We're definitely going to go after this business. We have every right to play and hear in every right to win here, and we're going to do that. It's just going to take more time and it's going to be a heavier investment than we had originally calibrated around.

And our next question comes from Henry Roberts from Truist Securities.

This is Jordan Levy from Truist Securities. On the energy technology business, I just wanted to see if we could get some more insight into how you're thinking about the recovery of PWRcell as we moved through the year and regaining some of the ground that was lost there this year in terms of your guidance of $300 million to $350 million for the year for the entire segment?

That PWRcell business is exactly what I was talking about in the previous question. And we've got -- basically, that's going to sequentially improve throughout the year. That's kind of how we're kind of viewing our expectations for the year. We're coming off of a pretty low base just in terms of where we're at because of the loss of that major customer in the third quarter last year. We've got to rebuild and build a stronger distribution network for those products and we've got to recover confidence from the market in general in those products. We're having those conversations. We're making the right improvements to the product and have been making that over the back half of this year. Now we've got to get back to selling. We've got to get back to engaging with the channel and building out and finding new distribution partners to work with on that. I think what's really exciting about that and not trying to turn it into a 2024 story. But as I mentioned in the prepared remarks, we have our next generation of our storage device that is going to alpha testing here. We'll start shipping that in Q2, and we'll hopefully expand that to beta testing throughout the back half of this year. But I've seen some prototypes of it, and our team, we've got -- again, we've got a very different technical team that's working on that product today than what was working on the original kind of what we refer to as our R1 product, the acquired product from Pika Energy, which we've worked to improve and harden. But we're looking forward to the next-generation device. And we're very excited about what that device is going to be able to do in the market. I don't want to…

And I am showing no further questions. I would now like to turn the call back over to Mike Harris for closing remarks.

We want to thank everyone for joining us this morning. We look forward to discussing our first quarter 2023 earnings results with you in early May. Thank you again, and goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.