Q4 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter and full year 2019, Generac Holdings incorporated earnings Conference call. At this time, all participants' lines are in listen only mode.
After the speakers presentation, there will be a question and answer session.
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We're joined today by Air In York, <unk>, Chief Executive Officer, and Youre Reagan Chief Financial Officer.
Now I'd like to hand, the call every speaker today Mr., Mike Harris, Vice President corporate development and Investor Relations. Thank you. Please go ahead.
Good morning, and welcome to our fourth quarter and full year 2019 earnings call I'd like to thank everyone for joining US. This morning with me today as Aaron Jagdfeld, President and Chief Executive Officer, and York Ragen, Chief Financial Officer.
We will be get our call today by commenting on forward looking statements certain statements made during this presentation as well its 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 when these forward looking statements. Please see our earnings release.
So you see filings for a list of words or expressions that identify such statements and the associated risks factors. In addition, we will make reference to certain non-GAAP measures. During today's call additional information regarding these measures, including reconciliations to comparable U.S. GAAP measures is available in our earnings release in FCC filings.
I'll now turn the call over to Eric Thanks, Mike and welcome back.
Good morning, everyone. Thank you for joining us today fourth quarter was a strong finish to 2019 and kept a tremendous year for generac.
We achieved a record quarterly revenue record for revenue and all time records for adjusted EBITDA, adjusted EPS and free cash flow.
Revenue during the quarter exceeding our expectations headlined by strong home standby demand from robust growth in California, driven by the growing that threat and occurrence of public safety power shut off along with the overall continuation of a favorable outage environment.
The revenue outperformance during the quarter was also due to strength in shipments of domestic commercial and industrial stationary generators sold through our North American distributor channel along with higher than expected sales of domestic mobile products.
These areas of strength were partially offset by lower than expected results from the continued slow down in international markets.
On a year over year basis, net sales increased 5% during the fourth quarter as compared to the very strong prior year comparisons were overall revenue growth was 14% and core sales growth was approximately 12%.
Core sales growth for the fourth <unk> current your fourth quarter, which excludes both the impact of acquisitions in foreign currency was approximately 4%.
Gross margin expanded 130 basis points compared to prior year and was better than our expectations.
Adjusted EBITDA margin remained strong at 22% and also came in better than forecasted.
We monetize the significant amount of working capital during the quarter and generated robust free cash flow of $160 million.
Before discussing fourth quarter results in more detail I want to provide some full year financial highlights as well the share some key accomplishments that we achieved during the year.
2019 was another record year for Generac across the board for revenue adjusted EBITDA, adjusted EPS and free cash flow.
Revenue grew 9% for the full year, which was on top of very strong topline growth in both 2018 in 2017, 21% and 16% respectively.
Gross margin expanded 40 basis points for the year to 36.2% and adjusted EBITDA margin came in strong at 20.6%.
Led by our fourth quarter performance, we generated over 250 million of free cash flow for the full year.
We believe we believe 2019 provides further support that the secular penetration opportunity for home standby generators is as compelling as it has ever been.
With shipments increasing at a strong rate during the year and very encouraging trends with several key performance metrics that we monitor closely.
We made significant progress and ramping up efforts to capitalize on a dramatic increase in generator interest and demand in California due to the powershare shut off events by local utilities as residential product shipments alone to the state increased by more than $50 million compared to the prior year.
We also launched our new clean energy efforts during the year by entering into the energy storage and monitoring markets, including making the important strategic acquisitions of Pica energy out during the first half of 2019.
We achieved an exciting milestones during the fourth quarter by shipping the first of our new power self storage systems with our power view monitoring platform, which has been very well received by the market to date.
Another key accomplishment during 2019 was the exceptionally strong growth experienced for domestic see an eye stationary generators, which benefited from market share gains and the dual secular drivers of increasing penetration for natural gas generators and the impending deployment of next generation Fiveg wireless technology.
We also further expanded our international business with the Captiva acquisition in India. During the first quarter, one of the largest power generation markets in the world.
We generated record earnings and cash flow in 2019, while at the same time significantly increasing our operating and capital investments across the business to align with our long term core growth targets and to capitalize on the numerous growth opportunities that lie ahead for generac.
Accordingly, we plan for a notable increase in operating expenses in order to invest in a variety of initiatives across the business. We had nearly 30% increase in capital expenditures for the year compared to 2018 with the majority relating to growth investments within our operations and our facilities.
Discussing these accomplishments further across the business for 2019 shipments for home standby generators during the fourth quarter. Once again increased at a very strong rate compared to the prior year due to greater outage activity in the U.S. and Canada, including the power shut off events in California.
In fact power outage severity grew at a solid rate during the fourth quarter compared to last year. It was considerably higher relative to long term baseline average.
Activations were also up significantly during during the fourth quarter when compared to the prior year with the regional start strength being broad based in nature with the exception to the northeast.
Growth in the West region was particularly strong driven by California.
Which was approximately six times higher than the prior year quarter also in home consultations right sees grew at a significant rate during the quarter compared to the prior year.
For full year 2019, our leadership in the home standby product category continued as our market share further improved and ended the year at nearly 80%.
Power outage severity for the full year 2019 was notably higher than the long term baseline average further reinforcing one of the key macro themes for our business related to increasing power quality issues from an aging in and an under invested electrical grid, which has left at more vulnerable to the increasing unpredictably unpredictable and more severe weather patterns that are being driven by climate change.
We're particularly excited that in 2019, we generated the most I eat sees ever but the I see close rate, reaching its highest level and representing a more than 50% increase from 2014 levels, which was the first full year of our proprietary powerplay in home selling system.
Also the cost per H.C., which would represent our customer acquisition cost continues to come down and finished 2019 at its lowest level since the inception of powerplay.
Additionally, we experienced an all time high for home standby Activations for the full year with the Midwest in west regions, particularly strong and with a dramatic increase in California of nearly four times higher than 2018.
We ended the year with approximately 6500 residential dealers a meaningful increase of roughly 500 dealers from the end of 2018 with dealer counts in California significantly expanding from around 100 at the beginning of the year to over 350 at the end of year.
Generac created the home standby category over two decades ago, and we estimate the market today as well in excess of a billion dollars annually with every 1% of penetration representing approximately $2 billion of additional market opportunity at retail prices.
With penetration rates, a single family unattached homes in the U.S. still below 5% there remains considerable room for this dynamic market to continue to grow.
One area in particular with some of the greatest potential to increase penetration is California.
During the fourth quarter the market for emergency backup power in the state quickly accelerated with local utilities trigger triggering numerous and significant power shut off events impacting millions of customers in an attempt to mitigate the risk of wildfires.
Some of these shops for multi day events and are projected to continue for the years ahead as the impact of climate change and the massive under investment in Northern California is power grid have combined to create a situation where public safety needs are being prioritize overpower quality.
This has resulted in significant awareness and increased demand for our generators in California, where penetration rates of home standby generator stand at approximately only 1%.
We're intensely focused on expanding distribution in California, and we are working together with local regulators inspectors and gas utilities to increase their bandwidth and sense of urgency around improving and providing the infrastructure necessary for home standby another backup power products.
We are anticipating significant revenue growth in California during 2020.
And continue to believe the total generator opportunity for Generac and the state could potentially be as high as $200 million annually in the years ahead.
Our efforts in this part of the country will also proved to be helpful. In developing the energy storage and monitoring Mark monitoring markets, where the installed base of solar and other renewable sources or some of the highest in the U.S., but the corresponding penetration rates of complimentary energy storage systems are very low.
With regard to clean energy, specifically the market for residential energy storage and monitoring systems within the U.S. continues to develop rapidly.
Through a combination of changing regulations advancements in technology and improving economics. The legacy utility model will undergo a massive amount of change and the decade ahead.
We believe the need for distributed power generation, coupled with sophisticated energy monitoring and energy management capabilities will allow homeowners and business owners more flexibility and where their power comes from how much it costs and how they consume it.
The new capabilities associated with the Pica Nuriel acquisitions have enabled us to bring inefficient and intelligent energy salute saving solution to the market.
Which we believe will position generac as a key participant going forward.
We achieved a significant milestone during the fourth quarter with the first shipments of the new powerful energy storage system that began in mid December.
We're making excellent progress and ramping up our clean energy energy efforts, including building out our dealer base, reducing system costs through our global supply chain and deploying targeted marketing alongside our in home selling capabilities.
Although early our new clean energy infomercial that launched in mid January has performed well and we're generating sales leads through our proprietary in home selling system that we call powerplay see the industry's first complete solar plus storage sales and lead management tool for installers and dealers.
With demand for our clean energy products dramatically outpacing our initial expectations.
We're working hard to secure additional capacity for key sub systems and components, allowing us to further ramp or supply chain.
Our current outlook for clean energy in 2020 as far exceeded our original business case from earlier last year. When we first completed the acquisition scenario and pica.
Our latest view is that we now expect to deploy to deploy over 150 megawatt hours of storage during 2020, which is a significant increase my prior expectations of 100 plus megawatt hours.
Although very different from the extended emergency backup power space. We serve today, we believe the energy storage market will develop similarly, as the home standby generator market has over the past two decades.
Our efforts to develop omni channel distribution targeted consumer based marketing content and proprietary in home sales tools have played a critical role in creating the market for home standby generators, and we intend to leverage our expertise and capabilities in these areas as we work to grow the energy storage in monitoring markets and lower overall customer acquisition costs.
We believe we have a unique opportunity to develop generac into a company and a brand that is associated with the complete energy ecosystem of a home or a business from power generation the storage to energy monitoring to energy management, thereby positioning us to be perhaps the only company that can offer products and solutions, allowing users to take full control of their energy.
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We're incredibly optimistic that our efforts around clean energy could pre could create potential new business models for the company in the future and we're confident that it will become a meaningful part of our business in the years ahead.
In addition to our efforts with clean energy and the expansion of our residential side of our business our domestic see United stationary generators also grew again during the quarter with broad based shipments through our North American distributor channel.
This strength was partially offset by lower shipments of Cnf products, the national Telecom and rental account customers.
As we've previously discussed demand trends with telecom telecom can be lumpy from quarter to quarter based on the timing of our customers capital spending needs.
Also domestic shipments of mobile equipment remained soft in the quarter as major rental customers continue to defer capital spending.
For the full year 2019, we experienced exceptionally strong growth for domestic see United stationary generators benefiting from the secular drivers of increasing penetration of natural gas generators and an impending deployment of next generation Fiveg technology, along with higher specification rates improvements in how we go to market and market share gains.
Over the years, we've worked hard to promote the cleaner and more cost effective use of natural gas power generation as an alternative for the traditional diesel powered systems used in emergency backup applications.
We believe the natural gas as many superior characteristics with its abundant supply low price logistical advantages and environmental benefits, which have driven growth rates over the past several years for gas backup generators at twice the level of diesel generators importantly, the opportunity for natural gas generated outside the U.S. remains nascent and a core part of our strategy is to capitalize on the opportunity with.
Growing global footprint additional focused investment and leverage our unique expertise within this area.
We also believe the long term opportunity with selling backup power solutions to telecom National account customers is very compelling as wireless carriers further build out and harden their existing networks to prepare for the impending deployment of the new Fiveg technology.
The need for a continuous supply a power to wireless sites will become even more crucial as faster speeds and increased bandwidth will enable a number of impactful mission critical technologies in the future.
By taking advantage of our international footprint scale. We believe we can become a global leader in the market for telecom backup power similar to the leading position we have built in the Americas as this key vertical begins another extended investment cycle in the years ahead.
Although shipments for domestic mobile products experienced a cyclical decline during 2019 in our view the longer term need for higher levels of spending on infrastructure projects in the U.S. is an important theme that remains intact and we believe this will translate into greater demand for mobile products in the years ahead.
With respect to the international side of our business, we continue to experience a challenging environment during the fourth quarter, but the economic slowdown in the Latin American region, causing delays and many large projects and an overall soft demand environment. During the second half of 2019 in certain key regions the world due to trade conflicts and geopolitical headwinds.
However, the order rate within our international business has been improving in recent months with an improving book to Bill, which we anticipate will lead to the <unk> a resumption in growth beginning in the second quarter 2020, and further acceleration during the second half of the year.
Over the past several years, we have significantly expanded our served market internationally, primarily through acquisitions, we believe that longer term. This increased gross global presence will be important as interest in home standby and gaseous generous generators for commercial and industrial applications continues to gain traction in many markets around the world.
In addition, we believe our international footprint footprint will provide an M and important avenue for growth as we enter the clean energy space on a global basis.
We believe these will be important drivers towards our long term growth goal of reaching double digit adjusted EBITDA margins for our international business in the coming years.
In closing earlier this week, we rang the opening bell at the New York Stock exchange commemorating the 10th anniversary of our initial public offering in February of 2010.
Since going public Generac is transformed itself from a company primarily focused on emergency backup power to an industrial technology company and now with a more specific focus on energy technology solutions.
During our time as a public company. The company has grown revenue at a compound annual rate of 10% organically and 14% on an as reported basis, while making significant investments across the business to dramatically expand our served addressable markets maintaining strong adjusted EBITDA margins in the low 20% range and generating approximately $2 billion the free cash flow.
During the last decade.
We're extremely proud of this proven track record of strong and profitable revenue growth, which has led to a total shareholder return over the past 10 years at a significantly outperformed the overall market.
As we enter 2020, whereas excited as we've ever been about the future growth prospects for the company, which are driven by the overall mega trends and powerful macular secular drivers for our business and we will continue to aggressively invest in the strategic initiatives going aligned with the company's powering our future strategy.
I want to turn the call over to York to provide further details on the fourth quarter and full year 2019 results York.
Thanks, Eric.
Looking at our fourth quarter 2019 results in more detail.
Net sales for the quarter increased 4.9% to 590.9 million as compared to 563.4 million in the fourth quarter of 2018.
Excluding the 9.1 million of contribution from the Captiva, Norio and Pike acquisitions, and the almost 3 million negative impact from foreign currency the core growth rate during the quarter was approximately 4%.
Net sales for the full year 2019 increased 8.9% to 2.20 billion, an all time record for the company.
Looking at our consolidated net sales for the fourth quarter by product class.
Residential product sales during the fourth quarter increased 9.7% to 322.5 million as compared to 293.9 million in the prior year with core growth being approximately 7% when excluding the contributions from clean energy products acquired through scenario and pica.
As Aaron mentioned home standby generator sales continue to experience very strong year over year growth, primarily due to increased baseline power outage activity in the U.S. in Canada, including the utility power shut off event that took place in California during the quarter.
As we continue our focus to drive the overall penetration of the home standby product category, we have ramped up our efforts, particularly within California to increase awareness and distribution for these products within the state.
Partially offsetting the home standby strength during the fourth quarter was the decline in shipments a portable generators compared to prior year as a result of higher retail inventories entering the fourth quarter from the threat of Hurricane Dorian.
Also recall the prior year fourth quarter included the impact of Hurricane, Michael which resulted in additional portable generator shipments into the impacted region.
Looking at our commercial industrial products.
Net sales for the fourth quarter of 2019 declined 2.7% to 217.1 million as compared to 223.2 million in the prior year quarter.
For the core growth decline of approximately 3% when excluding the contribution from the captive acquisition and the unfavorable impact from foreign currency.
Domestically shipments was seen I stationary products through our industrial distributors remained very strong as we continue to drive share gains across our product portfolio.
This continuing a trend that we've seen for all of 2019.
Offsetting this growth was a decline in shipments to our telecom national account customers due to the combination of a very strong prior comparison, coupled with certain customers, taking a pause in capital spending during the current year quarter.
Also shipments of Cnine mobile products declined compared to prior year as our national rental account customers continued to defer capital spending on their rental fleet.
Internationally are seeing eye products declined compared to the prior year on a core basis as Aaron mentioned, we continue to experience a challenging environment within international as slower economic growth trade conflicts and geopolitical headwinds are leading to softer demand in many of the key regions of the world in which we operate.
Net sales for the other products and services category, primarily made up of aftermarket service parts and product accessories, the amortization of extended warranty deferred revenue and the service offerings in various parts of our business.
Increased 10.8% to 51.3 million, that's compared to 46.3 million in the fourth quarter of 2018.
A larger installed base of our products and higher levels of extended warranty revenue and services drove this increase versus the prior year.
Gross profit margin improved 130 basis points to 37.6% compared to 36.3% in the prior year fourth quarter.
Despite the impact of regular higher regulatory tariffs and the unfavorable mix impact from recent acquisitions, we successfully expanded our gross margins in the current year quarter through pricing actions cost reductions favorable sales mix and lower realized commodity and currency input costs.
Operating expenses increased 22.3 million for 23.3%, that's compared to the fourth quarter of 2018.
As a percentage of net sales operating expenses, excluding intangible amortization increased approximately 250 basis points versus the prior year as we continue to make important investments in a number of future growth opportunities for the company.
For example, a key driver of the increase in operating expenses is our entrance into and ramping up of our clean energy efforts this year, including the impact of acquisitions of Nario and pica.
Another main driver is the addition of employ resources around strategic initiatives with a key focus on our connectivity lead gas and be on standby opportunities globally.
We also continued continue invest in developing new products and technologies, along with targeted spending on marketing content campaigns and promotions to drive awareness of the home standby generator product category with an added focus on the California market.
Finally, we incurred higher intangible amortization and depreciation expense given our acquisition activity an increase in capital expenditures in recent years.
Adjusted EBITDA before deducting for non controlling interest and as defined in our earnings release was 129.1 million in the fourth quarter of 2019 as compared to one to 126.1 million in the same period last year.
The corresponding adjusted EBITDA margin was 21.9% in the quarter as compared to 22.4% in the prior year.
This margin decline was primarily driven by the increased operating expense investment previously discussed partially offset by the improvement in gross margin exclusive of various you, but I add backs.
For the full year 2019, adjusted EBITDA before deducting for Noncontrolling interest came in at an all time record of 454 million, resulting in an attractive 20.6% margin.
I will now briefly discuss financial results for our two reporting segments.
We disclose this morning that effective in the fourth quarter of 2019, we determined that the Latin American export operations of our legacy Generac business to be included in the international Reportable segment.
Previously these results were reported in the domestic segment in amounts that were not material.
Accordingly, we have updated the net sales and adjusted EBITDA by segment included within the supplemental schedules of our press release.
The change increase the net sales of adjusts and adjusted EBITDA for the international segment by immaterial amounts, while reducing the net sales and adjusted EBITDA for the domestic segment by the same amounts.
With that said.
Domestic segment sales increased 7.7% to 470.1 million as compared to 436.3 million in the prior year quarter, which includes 7.2 million of contribution from recent acquisitions, resulting in core growth of approximately 6%.
Adjusted EBITDA for the segment during the quarter was 122.9 million or 26.1% of net sales as compared to 116.3 million the prior year or 26.7% of net sales.
For the full year 2019 domestic segment sales increased 11.3% over the prior year.
With core sales growth of approximately 10%.
Adjusted EBITDA margins for the segment were approximately flat versus prior year at 24.6%.
International segment sales decreased 4.9% to 120.9 million as compared to 127.1 million in the prior year quarter.
Core sales declined approximately 4% versus prior year, when excluding the unfavorable impact of foreign currency and the captive acquisition.
Adjusted EBITDA for the segment during the quarter before deducting for non controlling interest was 6.2 million or 5.2% of net sales as compared to 9.7 million or 7.7% of net sales in the prior year.
For the full year 2019 International segment sales increased 1% over the prior year, where the core sales decline of approximately 1%.
Adjusted EBITDA margins for the segment before deducting for non controlling interests were 5.5% of net sales during 2019 compared to 7.9% enough sales in the prior year.
Now switching back to our financial performance for the fourth quarter planting on a consolidated basis.
GAAP net income attributable to the company in the quarter was 69.6 million as compared to 75.6 million for the fourth quarter of 2018.
Included in the current your fourth quarter was a pre tax settlement charge of 10.9 million related to the termination of the company's domestic pension plan, which did not result in a reduction of benefits to plan participants.
On a cash basis, we only incurred an incremental cash contribution of approximately 1 million during 2019 to settle our obligations under the plan.
GAAP income taxes during the current your fourth quarter with 13.4 million for an effective tax rate of 16.1%. This compares to GAAP income taxes in the fourth quarter of 2018 of 20 million for an effective tax rate of 20.7%.
The decline in tax rate was primarily related to a year end revaluation adjustment related to a reduction in our state income tax rate.
Diluted net income per share for the company on a GAAP basis.
Was $1.12 cents in the fourth quarter of 2019.
Her to $1.20 cents in the prior year.
Included in the current your quarter was 17 cents impact from the aforementioned pension settlement charge.
Adjusted net income for the company as defined in our earnings release was 96.5 million in the current your quarter or $1.53 per share.
This is 88.1 million the prior year or $1.42 per share.
With regards to cash income taxes, the fourth quarter of 2019 includes the impact of a cash income tax expense of 8.2 million as compared to 15.4 million in the prior quarter.
The current year now reflects an expected cash income tax rates of 15% for the full year 2019, as compared to our previous expectation of 17%.
The prior year fourth quarter was also based on expected cash tax rate of 15% for the full year 2018.
Recall that every dollar of pre tax earnings over and beyond or 30 million dollar tax shield is now tax of expected GAAP tax rate of approximately 24%.
Cash flow from operations was 175.1 million as compared to 108.2 million in the prior year fourth quarter.
And free cash flow as defined in our earnings release was 160.3 million as compared to 87.3 million in the same quarter last year.
The significant monetization of previous working capital investments along with lower capital expenditures were the primary drivers of the strong improvement in cash flow compared to the prior year quarter.
Free cash flow for the full year 2019 was an all time record of 250.7 million as compared to 203.6 million for two or two 2018.
Uses of cash during 2019 included 112 million for acquisitions 61 million for capital expenditures and 38 million for net repayment of debt.
Taking a look at our balance sheet on January one 2019, we adopted the new gap lease accounting standard.
This new standard requires that we recognize right of use assets and lease liabilities related to operating leases on our balance sheet.
As a result, we recognize approximately $40 million of additional other assets and other long term liabilities on our balance sheet in Q1 to adopt the new standard.
As of December 31, 2019, we had 323 million of cash on hand, and there was approximately 269 million available on our ABL revolving credit facility, which matures in the year 2023.
We had a total of 899 million of outstanding debt net of unamortized original discount and deferred financing costs.
On December 13th 2019.
The company amended its term loan credit agreement, which among other things extended the maturity of the term loan from May 2023 to December 2026.
As part of the amendment the company pay down $49 million of debt on the term loan.
Our gross debt leverage ratio at the end of the fourth quarter was 2.0 times on an as reported basis.
With that and I'd like to turn the call back over to enter to provide comments on our outlook for 2020.
Thanks, Mark we are initiating initiating guidance for the full year 2020, and expect continued strong revenue growth highlighted by the rapidly expanding clean energy and California markets for our energy technology products and solutions.
For the full year net sales are expected to increase between 6% to 8% compared to the prior year on an as reported basis and 5% to 7% on a core growth basis.
Importantly, this guidance assumes a level of power outages during the year in line with the longer term baseline average, but given the high likelihood of a significant power shut off of it in California again in 2020, we have included the benefit of one of these events in our guidance. However, 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 three or higher landed hurricane.
Incremental to our baseline revenue guidance should there be a major event during 2020, along with any additional power shut off in California, We could expect approximately 3% to 5% of additional revenue growth, resulting in an upside case as reported sales growth of between nine and 13%.
From a seasonality perspective, we are anticipating normal historical trends for the year, specifically, our baseline guidance assumes net sales in the first half are projected to be approximately 45% of full year revenue, but the second half expected to be approximately 55%.
Year over year growth is forecasted to be in the low single digits in the first quarter as the demand softness with telecom International is anticipated to continue in the near term, but growth is expected to accelerate during the second quarter.
Our upside case scenario should it occur is more likely to take place during the second half of the year, where the probabilities increase for additional significant outage activity such as a major landed hurricane or additional power shut off during the wildfire season in California.
Using our baseline guidance for 2020 net sales adjusted EBITDA margins before deducting for non controlling interests are expected to be approximately 20% in spite of the significant significant ramp of clean energy during the year, which is projected to have an approximate 125 basis point dilutive impact on margins for the full year.
Additionally, assuming our upside case revenue guidance adjusted EBITDA margins could incrementally increase by approximately 50 basis points over the baseline guidance to 20.5%.
Consistent with historical seasonality, assuming our baseline guidance, we expect adjusted EBITDA margins in the second half of the year to be higher relative to the first half with the sequential improvement being approximately 500 basis points.
Adjusted EBITDA margins are expected to sequentially improve through the year as we work to reduce the cost structure of our energy storage products realize additional savings from our profitability enhancement program and improved leverage of our operating expenses through the <unk> the higher topline.
Specifically for the first quarter margins are expected to be the lowest for the year, but similar to the prior year first quarter when excluding the impact to clean energy, which is expected to have a significant dilutive impact during the quarter of more than 200 basis points.
Adjusted EBITDA margins are then anticipated to show a meaningful sequential improvement during the second quarter and further improvement during the second half of 2020.
I'd now like to hand, the call back over to York to walk through some additional guidance details for 2020 York. Thanks again.
As is our normal practice, we're providing additional guidance details to assist with modeling adjusted earnings and free cash flow for 2020.
Please note these additional items assume our baseline guidance case for the year.
For 2020, our GAAP effective tax rate is expected to increase to between 23.5% to 24% as compared to 21.1%.
For full year rate 2019.
Based on our guidance provided for 2020, our cash income tax expense for the year is expected to be approximately 55 to 59 million, which translates into an anticipated full year 2020 cash income tax rate of between 15.5% to 16.5% as compared to 15% rate for the full year 2019.
I mean.
As a reminder, we still have a favorable tax shield as a result of a significant intangible amortization deduction in our corporate tax return that results in our cash income tax raping, notably lower than our GAAP income tax rate.
The tax affected annual value of this tax shield is expected to be approximately $30 million per year and expires fully in 2021.
In 2020, we expect interest interest expense to be approximately 37 to 38 million assuming no additional principal payments during the year and flat LIBOR rates throughout 2020.
Our capital expenditures for 2020 reflect continued investments in expanding capacity.
And our forecasted to be approximately 2.5% of our forecasted net sales for the year.
Depreciation expense is forecast to be approximately 33% to 34 million in 2020, given our assume capex guidance.
GAAP intangible amortization expense in 2020 is expected to be approximately 31 to 32 million during the year.
Stock compensation expense is expected to be 18 to 19 million in 2020.
For full year 2020, operating and free cash flow generation has once again expected to be strong and follow historical seasonality benefiting from the solid conversion of adjusted net income to free cash flow expected to be approximately 90% in 2020.
Finally.
Our full year, our full year diluted share count is expected to increase and be approximately 64 million shares. This compares to 62.9 million shares in 2019.
This 2020 outlook does not reflect potential business acquisitions or stock buybacks, given our strong balance sheet and free cash flow generation, we have significant resources to drive further shareholder value as we execute on our long term strategic priorities.
This concludes our prepared remarks at this time, we'd like to open up the call for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key and the interest of time, we ask that you. Please limit yourself to one question and one follow up.
Please standby, while we compile the Q and a roster.
Our first question comes from Christopher Glynn with Oppenheimer. Your line is now open.
Thank you good morning.
Morning.
So for the 150 megawatts for clean energy coverage.
Yes, how you're seeing.
The relative value on this initial trust from your captive.
Legacy channels and dealers versus partnerships that are peculiar adjust to this category for you.
Yeah, Chris its its a great question, obviously, we think that we're going to be able to tap our existing distribution channels for.
You know a clean energy opportunities in the future and in fact, we where we had our annual conference with all of our distribution partners down in Orlando last week.
We had over.
Over 3000 people they are representing about 1500 dealers and so the products were incredibly well received we talked about not only the product the technology and the programs around that but I.
I think one of the thing it's very evident to US you know that the typical.
Dealer for us is a small electrical contractor.
So what 85% of the channel for Us and I think most of those contractors would tell you a privately that this is pretty new stuff for them right. They haven't dealt with a lot of the clean energy technology. Some of them have their perfectly comfortable with solar and even some comfortable istorage storage has been so.
Thinly penetrated to this point that it's really new for everybody, but what we what we're seeing out at 150 megawatts answer. Your question more directly is that that's coming from a lot of the new channel partners that we picked up so.
There is there a number of distributor companies that are involved in the clean energy space to distribute all the components.
Necessary to build out of system.
Whether that be a solar array or whether that be the storage system itself.
And so we've been very successful garnering interest of new customers, which is which is great. Because obviously, we want to tap into our legacy channel too, but one of the things. We want to do is also growing new channel. So I think over time as our traditional channels. If we can call and that get more comfortable with the tech.
Analogy and they do a few installs I get a few under their belt.
With that will accelerate I think initially it's going to be a little bit slower ramp not not maybe slower than our expectations. Just we expected it to be slow it's difficult to take a small business like a small electrical contractor and and give them something that new.
Have them be comfortable out of the box with it so they'll get there like the it's just like home standby really 20 years ago now we don't want it to take 20 years, and I don't think a well, but because of the market's going to move a lot faster than that but but a lot of that is coming from new channel partners, which is great.
Thanks, and then I had a question on core home standby.
I think you mentioned the northeast wasn't as strong as some other areas. So I'm wondering if.
Are you seeing some states or regions kind of.
Fundamentally move past peak penetration, but that's shifting to other regions. If you just kind of speak to that notion.
Yeah, I think what again the northeast notwithstanding right I mean, the northeast was was up really big after a couple of major event.
In 2011 2012.
Nor easters in 20, I think it was in 20 early 2018, how against northeast, nor Easter type storms like three or four of them in a row.
So the north northeast is interesting it it has softened after those major events in 2011 and 12 after growing off of a massive base it softened but into a arrange that was materially higher than the baseline before those events then it pick back up again with the nor Easters in 2018. So we're kind of comping for for full year 19 were comping those nor easters with the northeast.
That was the only region that was down when we look across all the regions for our Activations, which is which is amazing the broad based strength in the category continues to surprise even us.
Honestly, it's a function of you know again additional points, a light and distribution that we put out there the breadth of our product offering the aggressiveness of our marketing direct targeted marketing that we do.
For home standby is you know we spent a lot of money. We spent a lot of time and we generate a lot of leads as I said in the prepared remarks 2019 was the highest year ever for our in home consultations number of in home consultations.
I see is reached record levels so I.
I think there's always going be some puts and takes right you're going to have difficult comps off of peaks and they come back around but I think what's really impressive to us as the broad based strength that we see generally regionally and then obviously the west based on our prepared remarks was was off the hook as they say it was it was it was it was crazy good so.
Thank you. Our next question comes from Ross Gilardi with Bank of America. Your line is now open hi, good morning, guys.
Good morning, Ross, Hey, Aaron I, just wanted to ask I mean look your stocks, obviously soaring you've got a 7 billion dollar market cap right now he that you leverage is low you're generating a lot of cash what in your clearly very optimistic about the clean energy business. What's your what's your appetite for a larger clean energy storage acquisition and.
And would you tolerate a year or two earnings dilution if something was out there that really both through your long term position you felt like was the right thing to do for the company.
Yeah, I mean, obviously, it's a it's something we're talking a lot about Ross you know that the fact that obviously that weve. The stock has performed well of course and I think the business the prospects for our business of have never been brighter as I said, we tapped into I think.
Some really big Mega trends here at the company relative to the changing utility landscape. This so we're calling in and energy Revolution here internally that and we've used those comments externally with our channel partners and others that.
They're going to be a lot of changes ahead and with all those changes. The had you know I think that as we look at and obviously, we don't comment specifically on our M&A funnel, but but we're looking at a lot of things in that funnel that I would say are different from what we would have looked at historically bigger things things that are obviously.
They fit in with the clean energy space.
Theres, it's it's changed our our gaze if you will in terms of where we look and the size of the things that we look at now we're still looking at a lot of different.
Potential bolt on acquisitions to that build out some of our platforms and maybe fully.
Second round out some things that we're already working on but.
There are some technology plays out there I just I think we're we're in a great position right. Obviously the strength of our balance sheet. You know you arkon team getting done with the you know they went through an amended and extended the our credit agreement again here gave US you know just did a fantastic liability structure for a number.
For years through 2023, so were twice excuse me through it. So we're really really good shape. There. So we're looking at a lot of things and I.
I can't can't comment specifically, but I'm excited about the future I'm excited that we're in a position where we can capitalize on that future.
The dilution aspect of though and we can you comment at all I would think about that like would you.
You guys have got very high margins in Europe.
Your overall business stemming from standby how would you how would you consider that.
Yeah I.
Obviously dilution, we think about it but but look that doesn't scare us think of all the things that we've done the high margin profile. We have honestly, it's very difficult to find anything to buy that would not be dilutive [laughter]. That's been that's been the challenge is everything you know our margins, we've got great margins and we've got a great position in the marketplace, it's difficult to find things that become accretive to margins.
If their strategic and their incremental and they make it frankly, they fit well with our views on the future, which I guess you could you could call strategy strategic thinking then we'll do it and if that means we have to suffer through some dilution for a period time and we've done this right I mean with some of the acquisition some of the larger acquisitions, we've done over the years have had exactly that.
Packed.
You know even clean acquisitions, we did last year right. I mean, we spent 100 and a 100 plus million dollars on pica, Nario and and as we said in the prepared remarks that is having a drag on on on EBITDA margins. You know is a I think we said something like 50 basis points last year and this year, it's going to be a 125 basis points all in and out of the gate Q1.
And it's going to be you know, it's going to be 200 basis points. So it's going to improve as a cost structure and preserve those products and as we scale, but but dilution doesn't scare me because I I know long term I know what our capabilities. Our we've proven as with all the things that we've done here. We are we're still at basically the same margins we've been at over the course of the last 567 years, So I'm Ok.
With that especially if we have a path to improve margins you have to have that obviously you have to that.
Thank you. Our next question comes from Philip Shen with Roth Capital Partners. Your line is now open.
Hey, guys. Thanks for the question.
Congrats on another deal.
Yeah.
Yeah, that's a big one no there are few solar leasing companies out there in general.
Can you talk about how you ended up with Nova specifically in an exclusive.
And can you share.
How the agreement structured possibly know is like a typical dealer are there any upfront payments from other party.
Did the geographic footprint for example serve as a key driver in the decision I know they have a presence in.
Puerto Rico another islands, how important was that.
Yes, great Great question, Phil I'm, you know, we're really excited about the the partnership with Sonova and we're we're thrilled that they've.
Selected us as their partner and the exclusivity really really is related to the financing arrangement that they can offer you know they've got some.
Some some pretty great financing packages and and pretty unique approach to that others have different packages as well and we have talked to a really we're talking to the entire industry. Because we think we've got a great story to tell in terms of the technology pod of storage technology, and really maybe even more importantly, we probably.
Talk enough about this the monitoring technology that we've got and the energy management technologies that we're working on and we're going to put together and have had been putting together in our in our power sell storage system.
Sonova was was just the first wanted to sign up with US on this program and on this path and you know we're talking to others.
You know, we're going to work with as many partners I want to work with us.
And those larger partners represent about 30% of the market and and then I think you know our focus obviously, where we think we really can have an impact is in the independent channel. We think we can bring a lot of unique solutions tools and and and a value proposition for the independent channel that is something that.
They have not seen before up until this point.
We can give them a turnkey solution with a power and version.
Storage all the power electronics, you know the Optimizers on the rooftops, we put all that in one package and you know it's basically under one brand.
And we can give that to them and we can offer them that in a unique way. So again, we're not trying to limit ourselves in any one way the exclusivity was really about the the financing arrangement with sonova.
Again really excited about that I'm not going to comment on the on the specifics of the financing package itself.
One reason I'm not as well versed in the in the details of the financing packages as others are but but obviously felt we can take you offline. We can get you have more comfortable with that as well going forward here, but we're really super excited about Nova and and our partnership and looking forward to that growing as weak.
Spanned our efforts here with clean energy.
Great and did you graphic footprint in fact that decision you know given their presence in Puerto Rico and other island.
Countries or or territories I mean, it did because we when we look at obviously, we're looking at what everybody else looks at is where are the biggest opportunity sets for us to go after a and you look at the island's you look at a in the Caribbean you look at Puerto Rico, and the places where I know the has a stronger footprint.
It fits really well with some of the areas that are projected to have some of the heaviest growth going forward and then are you know what penetration rates and attach more importantly, where attachment rates for storage make the most sense and that's really yeah. It's that is a part of this and one of the reasons why I think both Cnova and us Wanna get going on this because we both see attach.
Current rates for storage increasing.
And it at a really decent clip here into 2020, and I think the them, having additional storage partners that.
That can bring a unique solution like we have I think is attractive for them and for their their customer base.
Thank you. Our next question comes from Jeff Hammond with Keybanc Capital. Your line is now open.
Hi, good morning Gosh.
Jeff warning, Jeff Hey, So just just on the guidance. It seems like most of the most all of the organic growth is coming from the energy storage and maybe some growth in California. So just maybe talk about how you're thinking about home standby outside of California for the year and and just you know maybe them.
Moving pieces in the Cnine mobile mobile telecom et cetera.
Yep, Yeah, Hey, Jeff.
New York, So yeah. So I think you're right looking at you know if we guide our core growth rate of 5% to 7% a large percentage that will be the clean growth in California growth home standby, we are projected to be up up modestly I think we always have this challenge every year, when we guide, especially our baseline guidance when we don't have.
Assume any type of major act a major outage events from mother nature.
Yes, we tend to guide it modestly modest growth on the residential side home standby again would be up modestly portables without an event. We we did sell a number of portal about 30 million affordables.
As <unk> as a result was result of Hurricane Dorian last year that wouldnt repeat so little bit of a headwind there, but we think we can make up for that with some home standby on the see an eye side looking at low single digit growth.
I think the start out the year little slower telecom and international and it will probably continue its trends that we're seeing here in Q4.
In into the first quarter, but we expect that to pick up in the second half overall for the year looking at Cnine, maybe in that low single digit growth range. So when you put it all together.
Outside of California, clean roughly flat to slightly up and then we've got that 3% to 5% upside should we get some major events in 2020.
Okay and then.
What's it I think you said, you're you think you're going to put in 150 megawatt hours you know.
Up from 100 can you just talking about whats informing you know that Delta is it. The sonova is it you know order rates to date and just you know how how you think your supply chain is reacting as you kind of ratchet up those expectations. Thanks, Yeah, and obviously you know Jeff you've you follow the company for long time.
So you know, we don't do that lightly right.
[laughter] increase a guy like that until you know, we generally have pretty decent.
Yeah.
Viewpoints on that in terms of just our are available.
Knowledge that we have in front of us here and that's a combination of all things you mentioned I mean that obviously, we're excited about the Sonova opportunity. We we've also as I said previously you know we signed on a couple of.
Larger distributor partners that you know, we haven't done press releases on but they're important meaningful distributors in the space that.
We're really excited to be partnered with as well.
So it's a combination of those kind of partnerships that we've that we've nailed down.
Yeah, we've got pretty good visibility with incoming order rate, so far backlog and that's what's informing kind of our views on this and then obviously, there's some broader overall market trends I said storage attachment rates being higher in headed higher and our longer term view and this may not as may not be as much around that.
The guide changed from 100 megawatts to 150 as much as it is our views longer term, but you know the incentive vacation around storage going forward is going to be <unk>. We believe is gonna be meaningful and whether that happens.
In the current year it happens in some future period.
Hi storage is going to play an incredibly important role in this push towards renewable energy.
And the ability to use that storage and smaller form factors at homes and businesses.
You know the improved cost structure that that product as a result of the push towards larger format storage to support utilities have utility scale for the push towards renewables is going to be a net positive long term and that's why all the all the trajectory is a look the way they do for storage on the supply chain side.
Where we're working really hard to to bring that supply chain on board.
There was an existing supply chain. It wasn't like we are starting from scratch, but we have had to.
Expand things very quickly now thankfully, we have a very deep supply chain already for our legacy products and there are a lot of things that look similar to that aside from the you know the basic battery packs themselves a lot of the power electronics and components.
The boxes that these things go in to all the other kind of a elements of this are a lot like other components that we source today for our legacy products. So we're able to introduce the pica scenario teams to our existing supply channel supply chain partners.
And we've been very successful converting some of their their existing suppliers over to new supply base quickly and we're optimistic that we're going to stay on that track, but but as we've said in previous comments. This is more of the supply side.
Challenge for the year than it is the demand side in our view, we think the demand side is is it feels pretty good we have good visibility feels really from and and that's why we took the guide up and we think our supply chain is gonna be able to meet that I think obviously, that's why we took the the number up the way we did but it's going to be a you know we're going to be chasing that all year long.
Thank you. Our next question comes from Stanley Elliott with Stifel. Your line is now open.
Hey, guys Board and thanks for taking the question.
On the sticking on the supply chain is there any concerns impacted virus from from China, and how that would impact up your ability to get the products through over the course the year.
Yeah, I mean, obviously I know theres, probably not a company that is in thinking about this and.
We've got we've actually got operations in China as well, we've got a facility in southern China, We have a technical center outside Shanghai.
So we have a fair amount of employees over there as well so you know.
It's interesting because you get a lot of mixed signals right now that some some facilities have started back up.
Including our own we've we've restarted our facility in southern China.
Because we're not directly into quarantine zone, but there are other facilities that you have been told that they can't start for another week or two.
So it's kind of.
I am a mixed.
Kind of bag in terms of capacity right now I think the next couple of weeks are gonna be really critical I I think what I can tell you Stanley is the the one thing we have assessed as it does not give me an impact to our Q1. So Q1, we feel good about.
About being able to satisfy kind of where we're guiding here for Q1.
And Q2, we're going to come into the quarter in pretty good shape, because we'll be building for season at this point I think we're well run into our first problems. If we run into him at all are going to be on the operational side of our business, which is.
Well just we made this air pocket that Mike. It created here normally we were kind of an interesting situation as we were buying ahead anyway to cover the Chinese new year periods like everybody does.
We always go little stronger because you never know it used to be that suppliers didnt get the same level of people returning after Chinese new year. So they're all put was usually a little constrained after after the new year, but.
I think we're in a pretty we feel like sort of decent spot right now for the next call. It 60 days and but but the next couple of weeks are gonna be really critical to really assessing the full impact that this might have on on the rest of year, but Q1, Q ones seem safe, but after that it's it's a matter of what happens next.
Sounds fair a lots of moving parts. Unfortunately switching gears onto the telecom side with the sprint T. Mobile is that is you guys have internally gameplay. That's good for the business telecom or is it.
Possibly push out some of the a the backup generator installs that you would expect to see given they'll they'll be working through a the M&A logistics.
Yeah, I think the actual deal itself getting approved we actually think is a good thing right. It just takes away the uncertainty that surrounded that so that that that I would put a checking the in the positive column I think on the on the other side of the Ledger you have you know the fact that as a lot.
Prepared remarks indicated you were going to start the year, a little bit slower telecom, there's a bit of an air pocket here on terms of the cycles of capital spending and we've seen this forever in this industry. They're just this.
Theres Greenlight Red light Greenlight re it's it can be lumpy.
We were.
Last year overall telecom demand was greater than the previous year, but it slowed down later in 2019 and that slowness has continued here in early 2020.
So without getting into the specifics of of you know kind of which carriers are causing that because we don't like to talk directly about individual customers, but but I think that where.
The long term prospects here are immense the fiveg technology is game changing the amount of stuff that that's going to enable from drone delivery to automated driving.
Two robotic surgery, all these super high functioning technologies are going to require a consistent.
You know fiveg connection and that consistent Fiveg connection is going to only come from a site that has consistent power and so the penetration rate of backup power at cell sites is gonna have to improve.
It's going to have to increase dramatically and so I. We just don't think there is any question about it. It's it's not a question of of if it's only a question of when and so yes, but the win has been the challenging part right, it's been lumpy quarter to quarter, So and the first half of this year for a couple of course this year feel at least right now based on the visibility we have and again, we've always said this we don't get great.
Visibility out of those guys, but.
It could change tomorrow, but but at least at the visibility. We have today, we think it's going to start off kind of like 2019 ended a little slow.
Thank you. Our next question comes from Brian Drab with William Blair. Your line is now open.
Hi, Thanks for taking my questions.
In your longer term guidance the analyst day.
I just want to kind of try to put a finer point slightly on the clean energy outlook that you talked at the analyst day about.
Clean energy potentially accounting for about two points of growth through 2022.
It was somewhat back end loaded in your mind at the time I believe but is it fair to assume at this point that.
Number one.
The two points through 2020, twos Conservatives and number two the.
Maybe you can get two points already in 2020 from clean energy.
Yeah, No that is Brian's York I would I think you're right. We think Aaron as Aaron said, I think our expectations with clean.
You know have far exceeded what we had originally thought and I'm thinking does that September 4th Investor Day.
You know, there's 150 megawatt hours that we're looking to deploy in 2020 that is.
Yeah, that's probably.
Three times more than what we're thinking and you know now I don't know how that's going to.
Transpose or or extrapolate into where we think that will be three years from now, but but it's off faster is awful lot faster. So were you know we expect to see some nice growth in 2020 overall for the company related to clean and that's a lot Oh.
A lot better than expectation back when we talked a during the Investor day.
Okay. So it sounds like it could be even more than.
Two points of growth.
Next year, if its triple what yeah, yeah. That's just on the math that Ah, yes, there's one hours, that's going to be quite a bit better than that Brian and again I think you'd ask you know just it I think it's.
Yeah, I hate to say this is a CEO, but it almost feels like we've caught lightning in a bottle here in terms of our timing in terms of our you know the companies that we acquired I think where the right companies you acquire I think it was the right time to enter the space and everything. We see is is has punctuated by you know just a just a lot of energy.
Ended around storage and around.
Our entry into it specifically our brand the things that we can bring to that market with our distribution are selling systems are targeted marketing nobody's done that and I think theres just a lot of optimism from the channel partners that we've engaged with already including people like Sonova, where we've announced partnerships.
They are super side I mean, we're we're playing an informational already on clean energy and we're making the phone ring and we've got people that were we're talking to recreating sales leads at a cost per sale that materially lower than what the what the solar plus storage industry has historically seen from from a customer acquisition cost standpoint. So we just see a lot of room to run with that and I.
That's reflective of our you know our optimism in the guidance.
Okay, Great and then just quickly I joined us a little late given an overlapping call, but did you mentioned the total dealer count as you exited 2019 and what the growth was there for the for the year.
Yes, It was about 6500 dealers, Brian and that's a that's up that's a 500 dealer add year over year I can only remember maybe one other here in my career here, where we have that many new dealers. So it'll that has as you guys know when we expand the dealer base that much that'll have a meaningful impact in the future I'm Theres no doubt that that is something that that that factor.
His into.
The future potential growth for home standby.
Great. Thank you very much.
You bet.
Thank you and our final question comes from Jerry Revich with Goldman Sachs. Your line is now.
Hi, good morning.
Eric.
On the battery storage.
Crease target really nice to see folks getting that much traction can you just talk about your anticipated mix of channel and are you anticipating any significant further announcements of distribution arrangements with tier one installers to get to the 150 megawatt number you mentioned earlier on the call.
Yes, I think you know Jerry we we've been.
Assessing kind of the distribution the path to market here with distribution and as I said before the market the way, it's it kinda breaks out to about 30% of the.
The solar market I'm speaking and again storage is pretty nascent still in comparison, but 30% of call. It clean energy type of distribution has done through larger companies like sonova like the one that we partnered with and the other the remaining 70% is really done through independent dealers. So.
Smaller contractors, either specifically involved in clean energy or in some cases, maybe electrical contractors like we would have as dealers. We've got some dealers who are involved in that and we part of that independent channel I think you no longer term I I think that.
We would we would look at our our sales spread it's kind of mirroring that maybe maybe overweighting independent channel a little bit given our.
The value prop that we bring to the independents in terms of the the fact that we're going to have a selling system and again, it's very similar to the selling system. We have in our legacy products with home standby with its call Powerplay, we caught powerplay CE and powerplay CE really starts at the sizing of the rooftop solar array. So we've made an investment.
In a company there to help us with that and they they kinda plug in on the front end of so of Powerplay CE and help the independent contractor take that through to a final proposal and obviously focused on adding storage along the way in that proposal.
And then you are being able to offer some financing and other things, but basically as I said previously kind of a one stop shop, a lot of the independent channel the way they approach the market before.
I've been using this phrase internally I don't know if its others or if its its popular enough that they kind of radio shack. It right. They go out and they buy all the pieces and parts.
That they needed they come to your house they size, you're putting the solar array that you needed and they do that in a very kind of rule of thumb manner in a very kind of informal manner. They produce kind of a handwritten proposal for you and then they go by all the pieces and parts that they need from either the distributors that serve that channel or maybe if they were large enough variable.
To buy from some Oems direct but they had to kind of cobbled together systems. They really had to be engineers and a lot of cases to put these systems together the prospect of working with somebody that can deliver a turnkey solution for them really takes a lot of the guest work out of it takes a lot of the engineering out of it we're going to stand behind it with a single warranty or you know across.
The entire package.
And I think that that is at least in our early discussions with many of the channel partners that is a really exciting prospect for them because it simplifies things and I. We haven't found a channel partner yet that doesn't like to have things simplified. So we're excited that we're going be able to do that and I think it's it's a it's a big part of I think the value that we're going to bring to that independent channel.
And in terms of the cost per lead the you alluded to earlier can you just talk about how it compares in the storage business compared to the legacy.
Standby business just to give us a bit more context on how that's tracking and.
If you can comment on close rates as well that'd be helpful.
Yeah, So our legacy I'll start with our legacy UMB costs.
Or down to all time lows in 2019 again, we had all time highs with the number of agencies. We drove a number of appointments. We you know the times, we made the phone ringing we turn those into appointments highest close rate. We've ever had also in 2019. So when you when you convert that to a cost for sale. We were at really low levels are historically low levels compared to when we rolled the program out in a in.
2014 on the flip side of that obviously, it's brand new with what we're doing with clean energy. So we've really dialed in over the last six years five or six years the legacy.
Product in terms of Ah, yes, the media that we buy that [laughter] the times that we buy it where we kind of air at the demographics that the amazed that we focus on you know were and we're working through that with clean energy. We just got on the air in mid January.
Quite 30 days, yet, but what we're impressed by is the fact that we're making the phone ringing probably even more impressive.
Interestingly enough is kind of aside comment.
There's a lot of people, calling just because our brand well getting people, calling asking for home standby in some cases so I.
I think a power the brand is been really interesting to us I mean, we.
Generally we never thought of generale, because I always hold brand, we've just but but what we've done over the last decade to build that brand into something that that means something in the eyes of a customer certainly in the terms of backup power and what we're trying to do in the future to put that brand in the context of something that's in that energy ecosystem in the home or the business. When you think of your.
Homes energy supply today, you really don't think of any brand other than your local utility. So you don't think about the brand on your on your distribution panel you don't think of the brand of the Breakers, you know the Rome ex the plugs and switches everything else the lights and everything else that are in your in your home. We think that we can change that we think that we can make generac. The brands you think of when you think of power in your.
Hello.
And we're going to do that in a number of different ways. We're gonna be out in front again with generation power generation with power storage with energy storage with a energy monitoring and with energy management, we think that those four core components and being involved in those four components into how in the home or the business is going to put the brand in a very powerful position going forward. So anyway, we're not.
Yes.
On to bring the costs down overall.
As we go forward here and we dial in our media spend it's higher than our legacy costs as you would imagine, but it's still materially lower than what the industry has told us it cost them on a per sale basis to acquire a customer.
Thank you.
Ladies and gentlemen, this concludes our question and answer session I would now like to turn the call back over to Mike Harris for any closing remarks.
We want to thank everyone for joining us. This morning, we look forward to discussing our first quarter earnings results with you in late April Thank you again and goodbye.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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