Generac Holdings Inc. (NYSE:GNRC) Q4 2023 Earnings Call Transcript
Generac Holdings Inc. (NYSE:GNRC) Q4 2023 Earnings Call Transcript February 14, 2024
Generac Holdings Inc. misses on earnings expectations. Reported EPS is $2.07 EPS, expectations were $2.09.
Generac Holdings Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to Generac Holdings Fourth Quarter and Full Year 2023 Earnings Conference 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 Kris Rosemann, Senior Manager, Corporate Development and Investor Relations. Please go ahead.
Kris Rosemann: Good morning, and welcome to our fourth quarter and full year 2023 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.
Aaron Jagdfeld: Thanks, Kris. Good morning, everyone, and thank you for joining us today. Happy Valentine's Day. I think I can say that. Our fourth quarter results reflect continued improvement in operating performance as shipments of home standby generators returned to strong year-over-year growth in the quarter, despite a softer-than-expected power outage environment. We also experienced significant margin expansion in the quarter, driven by favorable mix and price cost tailwinds on both a year-over-year and sequential basis. In addition, we generated record free cash flow in the quarter on the continued reduction of our inventory levels. Year-over-year, overall net sales increased 1% to $1.06 billion, and core sales were approximately flat during the quarter.
Residential product sales increased 1% from the prior year as growth in home standby generator shipments offset lower portable generator sales in the quarter. C&I product sales were approximately in line with the strong prior year fourth quarter, as softness in the domestic telecom and rental channels was offset by continued strength in broader C&I end markets. Before discussing our fourth quarter results in more detail, I want to provide some highlights for the full year 2023. Global C&I product sales in 2023 reached an all-time record of approximately $1.5 billion, our third consecutive year of strong double-digit growth in the category, resulting in a nearly 30% sales, compounded annual sales growth rate over those three years. This included record full year performance in our International segment for both net sales and adjusted EBITDA.
The strength in our C&I products has helped to offset the headwinds in our residential product categories related to elevated levels of home standby generator field inventory in 2023 and a strong comparable period that included the benefit of excess backlog reduction. Although our shipments to the market were impacted by these factors during the year, home consultations or sales leads increased for the full year despite not having the benefit of a major outage event during 2023. Additionally, our return to improving margin performance in the second half of the year, together with the continued reduction in our inventory levels, helped drive cash flow from operations to an all-time record for full year 2023. This robust cash flow generation provided additional flexibility with respect to our capital deployment as we completed $252 million of share repurchases, while also continuing to invest in advancing our products and solutions road maps during the year.
We continue to make significant investments in our engineering and manufacturing capabilities in 2023, as we opened an engineering center of excellence in Reno, Nevada, and broke ground on a new manufacturing facility in Wisconsin to increase capacity for C&I stationary products. We also continue to launch compelling new products during the year, including the introduction of stationary C&I energy storage solutions for the domestic market to help decentralize, digitize and decarbonize the future electrical grid with advanced microgrid applications. In addition, the ecobee team launched a smart doorbell camera product line, helping to drive engagement to their platform. We also made important progress towards our vision of building a common platform and user interface for our suite of residential solutions through the integration of our home standby generators and propane tank monitoring devices using ecobee as the central hub to manage our products and solutions.
Additionally, we introduced our new -- it's a power move advertising campaign to help drive incremental consumer awareness of the home standby generator category to a broader demographic range. We made further strategic investments in 2023 that help to accelerate our powering of Smarter World Enterprise Strategy, as we acquired REFU Storage Systems, a provider of stationary C&I energy storage solutions for European markets and made a minority investment in Wallbox, a leading provider of EV charging solutions for both residential and commercial applications. Our investment in Wallbox is expected to result in global commercial collaboration as well as the addition of a Generac seed on the Wallbox Board of Directors. We're excited to partner with an innovative technology leader in the EV charging industry and look forward to integrating Wallbox's solutions with our broader energy technology portfolio to further expand the value proposition of the energy ecosystem that we are building for homes and businesses.
Importantly, throughout 2023, the megatrends that we believe will drive our longer-term growth were on full display as increasingly severe weather, coupled with the continued evolution of the energy grid in the U.S. further demonstrated the important role that our products and solutions can provide to the market. Although, the U.S. did not experience any major power outage events during 2023 and despite the fourth quarter being the lowest fourth quarter for outage hours since 2015, there were numerous smaller scale severe weather events that did occur throughout the year across a number of regions in North America, which drove monthly power outage activity above the long-term average baseline. In addition to the increasingly frequent and higher magnitude weather-related power disruptions, legislative and regulatory reactions to climate change are also impacting the power grid as well.
On the supply side, utility scale, solar and wind power are being incentivized relative to traditional base-load thermal sources, but they are intermittent in nature and continue to face growing siting and permitting challenges. At the same time, demand is increasing as electrification trends are accelerating around heating, cooking and transportation and power-hungry data center and telecom infrastructure continues to rapidly build out. These changes are creating significant challenges as utilities and grid operators are struggling to reliably match supply and demand, particularly during periods of extreme heat during the summer and cold during the winter. In its 2023 long-term reliability assessment, the North American Electric Reliability Corporation, or NERC, continued to warn of the elevated risk of resource shortfalls across the majority of the U.S. and Canada.
As key forecasts around supply availability and future electricity peak demand are creating a higher risk of imbalance, leading to potential outages more so than any time in recent history. As a result of these factors, we expect there will continue to be significant opportunities for our portfolio of power resiliency and energy efficiency solutions well into the future. Specifically for the home standby generator category, we believe a massive penetration opportunity still remains. As only 6.25% of the addressable market of single-family unattached homes greater than $150,000 in value in the U.S. had a home standby generator installed at the end of 2023. Furthermore, every 1% of incremental penetration is worth approximately $3 billion of market value.
And with a market share greater than 70%, we believe Generac is incredibly well positioned to continue to lead the commercialization of this important product category. These same mega trends create significant opportunities for our global C&I products and solutions as businesses are also concerned about navigating power reliability issues and volatile energy prices. Near-term, we are focused on further executing on our strategic vision, which we believe puts Generac in a unique position to help home and business owners solve for the energy-related challenges that lie ahead. Now, discussing our results in more detail. Fourth quarter home standby shipments increased approximately 10% from the prior year despite continued field inventory de-stocking and a softer-than-expected power outage activity, which also weighed on home consultations during the quarter.
However, in early 2024, severe winter storms pushed outage activity to record levels for the month of January. Power conservation notices sent to homeowners in select markets, driven by unseasonably cold temperatures and the related spike in power demand also contributed to consumer awareness of the vulnerability of the electrical grid. As a result of these factors, home consultations in January of this year were an all-time record for the month. Our residential dealer count ended the fourth quarter at approximately 8,700 in line with the prior year count. Dealer productivity trends further improved in the quarter, and we continued to execute on our initiatives to train non-dealer contractors, helping to increase overall installation capacity.
Notably, close rates improved moderately during the fourth quarter, helping to offset the impact of lower power outage activity and softer home consultations. More importantly, activations, which are a proxy for installations, were at an all-time quarterly record in the fourth quarter, increasing slightly from the previous record of the fourth quarter of 2022, providing further support for our belief that the home standby category is holding a new and higher level baseline level of demand. The record activations in the fourth quarter helped to further reduce the number of home standby generators in our distribution channels as we continue to under ship end market demand in the quarter. As certain regions and channels of the home standby market have returned to normal ordering patterns, the gap between shipments and activations further narrowed as we exited 2023, and we continue to expect overall shipments and activations to align later in the first quarter of this year.
For 2024, we expect home standby sales to increase at a rate approximately in line with the mid-teens residential sales growth guidance disclosed in our press release this morning. Additionally, we expect home standby generator sales to increase on a year-over-year basis in each quarter throughout the year, assuming that power outage activity is in line with the historical baseline average. In addition to home standby generator shipments returning to growth, Sales of our residential energy Technology Products and Solutions also increased during the fourth quarter as compared to the prior year, led by continued growth at Ecobee as our team there continued to gain share in the smart thermostat market by driving momentum with professional contractors and further expanding their presence with key retail partners.
The fourth quarter launch of Ecobee smart doorbell camera was well received by consumers and industry experts and continued to showcase their expertise in delivering consistently positive customer experiences. Ecobee finished 2023 with more than 3.5 million connected homes, giving us a large installed base of satisfied customers that we can cross-sell our products and service capabilities to as we work towards rolling out our residential energy technology ecosystem. We experienced another important event during the fourth quarter as we were awarded grants from the Department of Energy to utilize our residential energy technology solutions for resiliency focused programs in Puerto Rico and Massachusetts over the next several years. The program in Puerto Rico is expected to utilize our energy storage systems to provide clean energy independence for residents.
The program in Massachusetts is expected to include our energy storage systems, Ecobee Smart Thermostats and grid services capabilities, demonstrating our ability to integrate multiple technologies to support our home's energy needs while also providing additional value for grid operators by aggregating and managing these distributed energy resources in a virtual power plant setting. As previously mentioned, we made an important minority investment in Wallbox during the fourth quarter, which provides for a future seat on the Wallbox Board of Directors and creates the opportunity for global commercial collaboration across our residential and C&I distribution networks. The partnership also brings future access to industry-leading bidirectional charging development, which we believe will play an increasingly critical role in our emerging residential energy technology ecosystem as the penetration of electric vehicles increases in the future.
For 2024, we expect gross sales for residential energy technology products and services, including energy storage, energy management devices and services, connectivity and home EV charging solutions to be in a range of $325 million to $350 million, a year-over-year growth rate of approximately 25%. We continue to make meaningful investments in building out our residential energy ecosystem, including our next-generation energy storage system, which is expected to be commercially available later in the second half of this year. I would now like to provide some commentary on our commercial and industrial products. Global C&I product sales were approximately flat on a year-over-year basis in the fourth quarter and increased 19% for the full year 2023, to approximately $1.5 billion.
Domestic C&I product sales declined modestly during the fourth quarter as softness in shipments to the telecom and rental channels offset continued strength in sales to our industrial distributors and other direct customers for beyond standby applications. Shipments of C&I generators through our North American distributor channel again grew at a robust rate in the fourth quarter. Although order patterns in the second half of the year were impacted by extended product time lines, quoting activity remained resilient despite being off the peak levels experienced earlier in 2023. Shipments of natural gas generators used in applications beyond traditional standby projects increased at a very strong rate during the fourth quarter. As the leading provider of natural gas generators, we continue to pioneer new market opportunities for beyond standby generator applications and other energy technology solutions in C&I end markets.
We are working to facilitate the development of our increasingly comprehensive products and solutions in multi-asset applications, such as pairing our smart grid ready natural gas generators with our emerging C&I storage, connectivity, advanced controls and grid services platforms. While we believe this is an important long-term growth opportunity, today's higher interest rates are putting pressure on project time lines. And as a result, we expect shipments of products for beyond standby related applications to be negatively impacted in 2024. Sales to our national and independent rental equipment customers in the fourth quarter declined from the prior year as order patterns remained weaker than the stronger prior year comparisons. Despite the normal cyclical softness in this vertical that is impacting our overall 2024 expectations, we continue to believe that this end market has substantial runway for growth given the critical need for future infrastructure related projects that leverage our products sold into the rental equipment channels.
As expected, shipments to national telecom customers declined again during the quarter, particularly when compared to the very strong prior year fourth quarter level as these customers further reduced capital expenditures. Given our current visibility, we expect shipments to telecom national accounts will remain soft in the coming quarters, weighing on our overall 2024 outlook. However, we have experienced these CapEx spending cycles over the 40 years we have been serving this market, and we believe the near-term cyclicality will not change the longer-term secular trend of increasing global tower and network hub counts and the increasingly critical nature of wireless communications and related services that are requiring significantly greater power reliability.
Internationally, total sales were pressured by lower inter-segment sales, primarily related to declines in inter-company shipments from our Mexican operations to the domestic telecom market, as well as lower shipments of portable generators in Europe, as energy security concerns resulting from the Russia-Ukraine war continue to abate. Helping to offset this weakness, international net sales in other emerging markets such as India, the Middle East and East Asia grew at a strong rate during the quarter. International growth remains an important strategic focus for us moving forward with significant opportunities and continued geographic expansion and further penetration of underserved markets as we implement the generic playbook across a growing global footprint.
As disclosed in our press release this morning, we expect global C&I product sales to decline by approximately 10% for full year 2024, as weakness in shipments to certain direct telecom, rental and beyond standby customers is expected to more than offset growth in other regions and channels. In closing this morning, we believe our fourth quarter results reflect a return to positive momentum in our overall business as our residential product sales began to grow again, which should help to offset cyclical softness in certain C&I customers and end markets. We believe we are nearing the end of the excess field inventory overhang for home standby generators and expect to realize strong year-over-year growth in shipments of these products in 2024.
This momentum gives us confidence in continuing to focus on building out our longer-term vision for both residential and C&I energy technology ecosystems. Our record cash flow performance in the fourth quarter is continued evidence of the earnings power of our business and gives us flexibility to prioritize further organic investments, execute on strategic acquisitions and opportunistically return capital to shareholders. Most importantly of all, the mega trends that support our longer-term opportunities remain firmly intact and our conviction in our powering a Smarter World enterprise strategy is as strong as ever. I'll now turn the call over to York to provide further details on our fourth quarter and full year 2023 results and our outlook for 2024.
York?
York Ragen: Thanks, Aaron. Looking at fourth quarter 2023 results in more detail. Net sales increased 1% to $1.06 billion during the fourth quarter of 2023 as compared to $1.05 billion in the prior year fourth quarter. The combination of favorable contributions from acquisitions and foreign currency had an approximate 1% impact on revenue growth during the quarter. Net sales for the full year 2023 decreased 12% to approximately $4.02 billion. The combination of favorable contributions from acquisitions and foreign currency had an approximate 2% impact on revenue during the full year. Briefly looking at consolidated net sales for the fourth quarter by product class. Residential product sales increased 1% to $580 million as compared to $575 million in the prior year.
Growth in residential product sales was driven by a strong 10% increase in shipments of home standby generators and a more modest increase in energy technology products led by Ecobee. This was partially offset by lower portable generator shipments in the US and Europe, given a tough prior year comparison. Commercial and industrial product sales for the fourth quarter of 2023 increased slightly to $363 million as compared to $361 million in the prior year quarter. Contributions from foreign currency and the refuse storage acquisition contributed approximately 3% growth during the quarter. This core sales decline is due to weakness in sales to our domestic telecom and national equipment rental customers, partially offset by an increase in C&I product shipments to industrial distributors and direct customers for beyond standby applications, in addition to strengthening international sales into emerging markets.
Net sales for the other products and services increased approximately 6% to $120 million as compared to $113 million in the fourth quarter of 2022. Core sales growth of 5% was primarily due to growth in our domestic C&I service offerings from our owned industrial distributors, aftermarket service parts, connectivity subscription revenue and ecobee services. Gross profit margin was 36.5% compared to 32.7% in the prior year fourth quarter as a result of favorable sales mix, production efficiencies and lower raw material and logistics costs as supply chain challenges abated relative to the prior year. Operating expenses increased $2 million or 1% as compared to the fourth quarter of 2022. This increase was primarily driven by higher employee and marketing costs.
The current year and prior year quarters also include approximately $11 million and $10 million, respectively, of onetime items that we believe are not indicative of our ongoing operations. See the reconciliation schedules in our earnings release for more information on these items. Adjusted EBITDA before deducting for non-controlling interest, as defined in our earnings release, was $213 million or 20% of net sales in the fourth quarter as compared to $174 million or 16.6% of net sales in the prior year. For the full year 2023, adjusted EBITDA before deducting for non-controlling interest was $638 million or 15.9% of net sales as compared to $825 million or 18.1% in the prior year. I will now briefly discuss financial results for our two reporting segments.
Domestic segment total sales, including intersegment sales, increased 1% to $891 million in the quarter as compared to $881 million in the prior year. Adjusted EBITDA for the segment was $192 million, representing 21.6% of total sales as compared to $144 million in the prior year or 16.4%. For the full year 2023, domestic segment total sales decreased 15% over the prior year to $3.32 billion. Adjusted EBITDA margins for the segment were 15.8% compared to 18.2% in the prior year full year. International segment total sales, including intersegment sales, decreased 13% to $190 million in the quarter as compared to $219 million in the prior year quarter, including an approximate 7% sales growth contribution from foreign currency and acquisitions, resulting in approximately 20% core total sales decline.
Adjusted EBITDA for the segment before deducting for non-controlling interests was $20.4 million or 10.7% of total sales as compared to $29.5 million or 13.5% in the prior year quarter. For the full year of 2023, International segment total sales increased 6% over the prior year to $838 million. Adjusted EBITDA margins for the segment before deducting for non-controlling interests were 13.7% of total sales during 2023 as compared to 13.8% in the prior year full year. Now switching back to our financial performance for the fourth quarter of 2023 on a consolidated basis, as disclosed in our earnings release, GAAP net income for the company in the quarter was $97 million as compared to $71 million for the fourth quarter of 2022. The current year net income includes approximately $5 million of additional interest expense compared to the prior year due to higher borrowings and interest rates.
GAAP income taxes for the current year fourth quarter were $30 million or an effective tax rate of 23.7% as compared to $13.6 million or an effective tax rate of 15.5% for the prior year. The increase in effective tax rate was primarily driven by discrete tax benefits in the prior year quarter that did not repeat in the current year. Diluted net income per share for the company on a GAAP basis was $1.57 in the fourth quarter of 2023 compared to $0.83 in the prior year. The strong year-over-year increase in net earnings per share relative to growth in net income was primarily driven by an unfavorable $18.4 million redeemable non-controlling interest redemption value adjustment that was recorded in the prior year period, as well as a lower share count in the current year period.
Adjusted net income for the company, as defined in our earnings release, was $126 million in the current year quarter or $2.07 per share. This compares to adjusted net income of $113 million in the prior year or $1.78 per share. Cash flow from operations was $317 million as compared to $101 million in the prior year fourth quarter, and free cash flow, as defined in our earnings release, was an all-time quarterly record of $266 million as compared to $80 million in the same quarter last year. The significant improvement in free cash flow was primarily due to a $144 million reduction in inventory during the quarter and higher operating earnings. This was partially offset by higher capital expenditures during the current year quarter. Total debt outstanding at the end of the quarter was $1.58 billion, resulting in a gross debt leverage ratio at the end of the fourth quarter of 2.5 times on an as-reported basis.
Additionally, during the fourth quarter, we repurchased approximately 1.3 million shares of our common stock for approximately $151 million. As disclosed in our press release this morning, the company's Board of Directors has approved a new stock repurchase program that allows for the repurchase of up to $500 million of our common stock over a 24-month period, replacing the remaining balance on the previous program. For the full year, cash flow from operations was an all-time record of $522 million as compared to $59 million in the prior year. And free cash flow, as defined in our earnings release, was $396 million as compared to minus $24 million in 2022. We strategically deployed approximately $153 million of capital in 2023, with the acquisition of refuse storage systems, the purchase of the remaining 20% minority ownership interest in Pramac and the minority investment in Wallbox.
In addition, capital expenditures totaled $129 million to support additional capacity for future organic growth. We also opportunistically repurchased approximately 2.2 million shares of our common stock for $252 million during the second half of the year. Moving forward, we will continue to operate within our disciplined and balanced capital allocation framework as we accelerate our powering a Smarter World enterprise strategy and execute other shareholder value-enhancing opportunities. With that, I will now provide further comments on our new outlook for 2024. As disclosed in our press release this morning, we're initiating 2024 net sales guidance that anticipates a return to growth for the full year period. This increase is expected to be led by higher home standby generator sales as shipments are projected to be more closely aligned with activations during 2024.
We also expect our residential energy technology sales to grow as we expand distribution and launch our next-generation energy storage system later in 2024, and we continue to drive strong growth with our Ecobee products and solutions. Overall, we expect residential product sales to grow in the mid-teens range for 2024. However, in our C&I product category, cyclical pressures for certain telecom, rental and beyond standby customers, are expected to be more than offset or expected to more than offset continued growth in broader C&I end markets around the world. As a result, we are projecting global C&I sales to decline by approximately 10% in 2024 compared to the prior year. As a result of these factors, we expect consolidated net sales for the full year to increase between 3% to 7% as compared to the prior year, which includes a slight favorable benefit from foreign currency.
Importantly, this guidance assumes a level of power outage activity during the year in line with the longer term baseline average. Consistent with our historical approach, this outlook does not assume the benefit of a major power outage event during the year, such as a Category 3 or higher landed hurricane or major winter storm, which we believe could add $50 million to $100 million of sales. As a result of this top line outlook, we expect sales to be in line with normal historical seasonality, resulting in overall net sales in the first half being approximately 45% weighted and sales in the second half being approximately 55% weighted. Specifically for the first quarter, we expect overall net sales to be nearly flat from the prior year first quarter, with solid growth in residential product sales offset by a decline in C&I product shipments.
With Q1 2024 being the seasonal low point of the year, we expect sales for each product class to increase sequentially throughout the year. Looking at our gross margin expectations for the full year 2024, we expect the realization of lower input costs and favorable mix impact from higher home standby sales volumes to drive continued year-over-year improvement throughout the year. As a result, we expect gross margins to increase by approximately 300 basis points for the full year as compared to 2023. From a seasonality perspective, we expect gross margins to increase by approximately 350 basis points on a year-over-year basis in the first quarter to approximately 34% to 34.5% due to favorable sales mix impact from higher home standby shipments and realization of lower input costs.
These factors are also expected to result in sequential gross margin improvement into the second half of the year with second half gross margins projected in the 38% range. With respect to operating expenses, we continue to invest heavily in the resources needed to position our business for longer term growth in new and existing markets, maintaining a heavy focus on supporting innovation, and executing our strategic initiatives across the enterprise. As a result of these investments, we expect operating expenses as a percentage of sales to be approximately 23% for the full year 2024. We expect to leverage these costs as we sequentially grow from first half to second half, helping to improve our EBITDA margins throughout the year. As a result of our gross margin and operating expense expectations, adjusted EBITDA margins before deducting for non-controlling interests are expected to be approximately 16.5% to 17.5% for the full year, compared to 15.9% in 2023.
From a seasonality perspective, we expect adjusted EBITDA margins to improve significantly as we move throughout the year. Specifically, regarding the first quarter, adjusted EBITDA margins are expected to be the lowest for the year in the mid-12% range, and then improved sequentially throughout the year, returning to approximately 20% in the fourth quarter. As a result, second half adjusted EBITDA margins are expected to be nearly 600 basis points higher than the first half margins. Additionally, as Aaron discussed, we continue to make significant investments in our residential energy technology products and solutions to capitalize on the opportunities presented by these robust long-term growth markets. As a result, we currently expect residential energy technology to dilute our EBITDA margins by approximately 350 basis points to 400 basis points for the full year 2024, similar to the level of dilution experienced in 2023.
As is our normal practice, we're also providing additional guidance details to assist with modeling adjusted earnings per share and free cash flow for the full year 2024. Importantly, we arrive at appropriate estimates for adjusted net income and adjusted earnings per share, add back items should be reflected net of tax using our expected effective tax rate. For 2024, our GAAP effective tax rate is expected to be between 25% to 26%, as compared to 25.2% full year GAAP tax rate for 2023. We expect interest expense to be approximately $85 million to $90 million, assuming no additional term loan or revolver principal prepayments during the year, and assuming sulfur rates declined throughout 2024 in line with market expectations. Our capital expenditures are projected to be approximately 3% of our forecasted net sales for the year.
At the high end of our historical range, as we add incremental C&I manufacturing capacity and execute other projects to support future growth expectations. Depreciation expense is forecast to be approximately $70 million to $73 million in 2024, given our assumed CapEx guidance. GAAP intangible amortization expenses in 2024 is expected to be approximately $95 million to $100 million during the year. Stock compensation expense is expected to be between $55 million to $60 million for the year. Operating and free cash flow generation is expected to be disproportionately weighted toward the second half of the year in 2024, similar to 2023. For the full year, we expect free cash flow conversion from adjusted net income to be strong at approximately 100% as we continue to monetize working capital builds of prior years.
Our full year weighted average diluted share count is expected to decrease to approximately 61 million shares, as compared to 62.1 million shares in 2023, which reflects the share repurchases that were completed in the latter half of 2023. Finally, this 2024 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value. This concludes our prepared remarks. At this time, we'd like to open up the call for questions.
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