George Gianarikas: 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?
York Ragen: 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.
Aaron Jagdfeld: 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.
Operator: And our next question comes from Henry Roberts from Truist Securities.
Jordan Levy: 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?
Aaron Jagdfeld: 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 kind of ruin the surprise for everybody at this point. But I think as we pace throughout here, throughout 2023, we’ll be able to give you some more commentary around how it’s going. We’re going to do a lot of extended field testing, obviously, in that product to make sure it’s ready for prime time when we get to it next year. But the team is very encouraged. And again, I think it fits well with my previous comments on how important we see residential energy storage being for the future. It’s an incredibly important product category, especially in light of things like NEM 3.0 in California, really to make the economics work for solar in California today, you got to add a storage device.
And frankly, homeowners want that anyway, because they want the resiliency, they want the ability to improve the payback on that solar investment and they’re going to need storage. And so we’re very focused on that. We’re very focused on what the supply chain changes are going to need to be around not only the batteries, the packs and the other components here as the Inflation Reduction Act really kind of starts to take hold and you get these production tax credit opportunities for domestic manufacturing or North American manufacturing, as that becomes clearer, we’ll start to also really have that reflected in our supply chain for those products. So there’s a lot of work to be done there. I think it maybe goes hand-in-hand with my comments a minute ago around the investment level needed to be successful here, even though PWRcell itself we’ve got recovery to do there.
And I think we’re going to be okay as we go out throughout this year. We’re still investing heavily in next generation products and where we’re going for the future.
Operator: And I am showing no further questions. I would now like to turn the call back over to Mike Harris for closing remarks.
Mike Harris: 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.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
