Aaron P. Jagdfeld
Chairman, President and Chief Executive Officer at Generac
Thanks, Kris. Good morning, everyone, and thank you for joining us today. Our first-quarter results were ahead of our prior expectations due to higher-than-expected C&I shipments, favorable input costs, and strong operational execution. We are reiterating our overall 2024 outlook this morning for net sales, adjusted EBITDA margin, and free cash flow conversion, which York will discuss more in detail later in the call. Year-over-year overall net sales increased slightly to $889 million. Residential product sales increased 2% as compared to the prior-year quarter as strong growth in home standby generator shipments was partially offset by a decline in certain other residential product sales.
Global C&I product sales decreased 2% from a strong prior-year period as a robust increase in shipments to our industrial distributor customers mostly offset weakness in the domestic rental and telecom markets. Significant year-over-year margin expansion and disciplined working capital management helped drive a substantial improvement in free cash flow generation from the prior year, while we continue to invest in our strategic initiatives.
Home standby shipments were in line with our prior expectations during the quarter, increasing at a mid-teens rate from the softer prior-year period that included a meaningful headwind from excess field inventory levels. As expected, shipments and activations were aligned exiting the first quarter, signaling that field inventory levels are reaching more normalized levels. The removal of the excess field inventory headwind is expected to support strong year-over-year growth in home standby generator sales in the coming quarters. Power outage activity in the US during the first quarter was approximately in line with the longer-term baseline average as higher outages in January were offset by lower outage activity in the months of February and March.
Activations, which are a proxy for installs declined modestly from the prior-year period, reflecting the softer outage environment over the last several quarters and resulting in weaker home consultation performance, specifically in the fourth quarter of 2023. Home consultations did increase sequentially during the first quarter, but declined on a year-over-year basis from a very strong prior-year period. For historical perspective, home consultations in the first quarter were modestly higher than the first quarter of 2022 but were more than 3.5 times higher than the first quarter of 2019.
Additionally, we experienced a moderate sequential improvement in close rates during the first quarter as we continue to execute initiatives that we believe will drive further increases beyond this year, including data-driven lead optimization practices, sales tool enhancements, and improved lead nurturing practices. We are also making ongoing investments and engaging with our end customers and bringing awareness of the category to new and broader demographic categories to expand the overall sales funnel for home standby generators. We ended the first quarter with our residential dealer count at approximately 8,800, a net increase of 100 dealers during the period.
We have also been experiencing good traction with non-dealer contractors as we have seen steady increases in the number of installers in our aligned contractor program, an effort that helps us better strengthen these relationships and improve our installation bandwidth while allowing contractors to purchase products through their preferred channel. We will continue to invest in growing our network of installers, including both dealers and non-dealer installers as well as in the tools and teams -- as well as the tools and teams to support and optimize these distribution partners, which we view as a key competitive advantage for our business.
Our teams have also continued to make incremental operational improvements within our home standby production facilities. These improvements contributed to the margin expansion that we experienced in recent quarters and this momentum bodes well for future growth and profitability. We believe we are emerging from the recent field inventory challenges with a continued focus on quality and execution as well as an improved competitive position.
We will continue to leverage our unparalleled scale and strength in manufacturing, sourcing, marketing, distribution, and our strong financial profile to drive growth in the home standby market in the years ahead as we grow the number of consumers engaging in the category, expand our industry-leading omnichannel distribution network, invest in customized sales processes and tools to drive close rates higher and expand the broadest product portfolio in the market. While home standby shipments were in line with our prior expectations during the first quarter, however, our overall residential product sales were lower than expected due to continued softness in global portable generator shipments as well as weaker domestic energy storage in EV markets and continued post-pandemic-related challenges with the market for chore products. We expect these specific softer end-market conditions to impact our overall residential product category, sales growth for the full year 2024, but our expectations for home standby generator shipments are unchanged relative to our prior guidance.
Now, moving to our residential energy technology products and solutions. Our ecobee team continued to drive year-over-year sales growth in the first quarter, despite a challenging retail environment as performance with professional contractors remained strong. Ecobee's number of connected homes and services attached rate also experienced positive momentum during the quarter. Importantly, ecobee's gross margin improved meaningfully on a year-over-year basis, primarily due to cost-reduction initiatives and improvement in electronic component supply chains relative to the first quarter of 2023.
Within our residential clean-energy product suite, we continue to make progress on key product development objectives and additionally, fleet health of our installed base has materially improved after substantially completing our warranty upgrade program in 2023 and with a continued laser focus on improving the quality of these products and solutions. We are also moving forward in our partnerships with the Department of Energy as we work to bring clean power generation and resiliency to Puerto Rico via our residential energy storage systems and through our participation in the Grid Resilience and Innovation Partnership program in Massachusetts, which demonstrates our ability to integrate multiple technologies to support a home's energy needs, while also providing additional value for grid operators.
Finally, we remain excited about our collaboration with Wallbox as we will begin shipments of the company's best-in-class EV charging solutions during the second quarter. We continue to expect that the investments we're making to develop residential energy technology solutions will generate attractive returns in the years to come.
Our teams are focused on deep integration of the products and platforms we have acquired while tightening our focus on building high-quality solutions where we believe we can create the most value for the consumer. With improved focus and execution and by leveraging our core competencies around sales and marketing, lead generation, distribution, customer support, and global sourcing, we believe we can create competitive advantages that will become evident over time as we continue to develop the Smart Energy home of the future.
Switching gears, I now want to provide some commentary on our C&I products. Global C&I product sales declined 2% from the prior year, which was ahead of our prior expectations, driven by a decrease in sales to domestic telecom and rental customers, partially offset by continued growth in our North American industrial distributor channel and certain industrial or international markets.
As a result of the strong first-quarter outperformance, our expectations for full-year 2024 C&I product sales are now higher. Shipments of C&I generators through our North American distributor channel again grew significantly in the first quarter. Quoting activity remained resilient in the quarter and we continued to drive market share gains within our core product lineup. In addition, our operational execution helped to reduce lead times during the quarter.
As expected, shipments to national telecom and rental customers declined in the quarter from the strong prior-year period. Consistent with our prior expectations, we believe these end markets will remain soft in the coming quarters. However, despite the cyclical weakness in the rental channel, we continue to believe this end market has a substantial runway for future growth, given the critical need for future infrastructure projects that leverage our products. Additionally, leveraging our 40 years of experience serving the telecom market, we are confident in our ability to capture the future growth potential around the secular trend of increasing global tower and network hub counts and the increasingly critical nature of wireless communications and services that require significantly greater power reliability.
Shipments of natural gas generators used in applications beyond traditional standby projects declined moderately during the quarter as the higher interest-rate environment impacted project ROIs and timelines. Longer-term, we view these applications as an important opportunity for Generac, our end customers, and grid operators as reliability concerns, energy prices, and market volatility all trend higher. Additionally, we will continue to build a pipeline of multi-asset projects that utilize both our natural gas generators and our recently introduced C&I energy storage systems. While we are in the early innings of the growth opportunity, we intend to leverage our leading position in natural gas generators to drive market-share gains in behind-the-meter energy storage in the coming years as our C&I customers seek to utilize energy storage for short-duration outages, variable-rate arbitrage and grid service opportunities, while also leveraging our traditional generator offerings for a complete resiliency solution.
We believe we are uniquely positioned to bring these solutions to market and continue to invest in the teams, technology, and processes necessary to deliver comprehensive solutions for the C&I market focused on energy resilience and efficiency. Internationally, total sales were lower year-over-year, primarily related to declines in intercompany shipments from our Mexican operations to the telecom market in the US as well as lower shipments in certain European markets, most notably for portable generators as energy security concerns eased relative to the first quarter of 2023. Strong growth in shipments to Latin American end markets partially offset this softness. Internationally, international adjusted EBITDA margins held at 15%, consistent with the prior-year period as disciplined price-cost actions were offset by lower operating leverage on decreased shipment volumes.
In closing, this morning, we are encouraged by the ongoing improvement in operational execution reflected in our first-quarter results as strong year-over-year performance in home standby generators and increased shipments of C&I products to our industrial distributor customers offset end-market softness in other areas of our business. The return to our historically robust gross margin and cash-flow generation profile allows for additional capital allocation optionality and further strengthens our confidence in executing our powering a Smarter World enterprise strategy.
Additionally, the recent acceleration in data center construction activity, driven in large part by the emergence of artificial intelligence has further increased the growing pressure on electricity supply-demand imbalances and underscores the relevance of the megatrends that underpin our enterprise strategy. Data centers will not only directly increase industry-wide demand for backup power, but will also served to raise public awareness of the looming electrical grid supply constraints. Accelerating demand for artificial intelligence and the deployment of energy-intensive data centers joined the growing trends of electrification and the reindustrialization of North America, which is driving power consumption forecasts meaningfully higher than previously forecasted.
At the same time, grid operators continue to add intermittent power generation sources and retire baseload thermal generation, while also facing extensive sighting and permitting challenges as well as critical equipment shortages. After multiple decades of very little electrical -- growth in electrical demand, the aging power grid in the US is clearly not prepared for the future trajectory of power consumption needed to satisfy these converging trends. This is even before considering the long-term trend of increasingly frequent severe weather events that are creating additional stress on the nation's electrical grid.
Generac's backup power portfolio in particular is well-positioned to provide home and business owners with the continuity and resilience they demand in an increasingly electrified world. In addition, our next-generation energy technology solutions across both residential and C&I product categories will further expand our resiliency value proposition by helping optimize for efficiency, consumption, comfort, and cost. We believe our broad offering of products and solutions are uniquely capable in helping home and business owners solve the challenges resulting from this accelerating energy transition.
I'll now turn the call over to York to provide further details on our first-quarter results and our updated outlook for 2024. York?
