Q1 2020 Earnings Call
Ladies and gentlemen, your call we'll continue to be placed on music coldest conference began the conference will begin momentarily. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2020, Generac Holdings Inc. earnings call. At this time, all participants are in hey, listen only mode. After the speakers presentation. There will be a question and answer session to actually question. During the session you would need to press star one on your telephone. Please be advised today's conference is.
Being recorded if you require any father assistance. Please press star zero.
The hand, the conference over to your Speaker today, Mike Harris, Vice President corporate development and Investor Relations. Thank you. Please go ahead Sir.
Good morning, and welcome to our first quarter 2020 earnings call I'd like to make everyone for joining us. This morning with me today as Ernie I felt president and Chief Executive Officer, and York Reagan Chief Financial Officer.
We will begin our call today by commenting on forward looking statements certain statements made during this presentation as most other information provided from time to time by Genentech 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 FCC filings for a list of work expressions that identify such statements and the associated risk factors and.
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 on the earnings release in FCC filings I will now turn the call over to Aaron.
Thanks, Mike Good morning, everyone and thank you for joining us today.
Overall net sales were a record for the first quarter and met expectations led by strong core growth and residential products of approximately nine for side.
Relative to expectations home standby shipments came in well ahead of our prior forecast continuing the strike seen over the past several quarters, including strong demand in California.
Also we're pleased that shipments of our power so energy storage system met our expectations. After the first full quarter of its commercial launch in December.
This strong performance within residential products was mostly offset by lower than expected shipments for domestic mobile products and continued weakness in international markets. Following the onset of the cobot 19, pandemic, which is triggered a significant decline in demand in certain end markets we serve.
On a year over year basis, net sales increased 1% during the first quarter of 2020, that's compared to the very strong prior your first quarter, where overall revenue growth was 18%.
Core sales growth for the quarter declined approximately 3% against the robust prior year comparison, approximately 15% growth.
Gross margin expanded 170 basis points compared to the prior year and adjusted EBITDA margin was 18.1% as both exceeded our expectations, primarily due to favorable mix from higher than expected shipments of residential products.
Before discussing first quarter results in more detail, it's hard to overstate the impact to covert 19 pandemic has had in creating major economic uncertainty across the globe. So far in 2020.
Putting weaker demand and supply chain constraints, along with the unknown impacts from a variety of far reaching government actions.
Our team has been incredibly proactive and diligent in evaluating in responding to the impact on the business today.
Planning for various scenarios that may unfold during the months and quarters ahead.
This includes assembling specific tasks for task forces to address the variety of changing conditions on a daily basis across the business, including impacts on employee health and safety customer demand production in our supply chain.
At the event from this pandemic continue to evolve we are focused first and foremost on preventative measures to address the health safety and well being of employees customers suppliers in the communities across the world, where we operate and do business.
We have eliminated all corporate travel restricted vendors to visitors to our facilities implemented social dispensing practices and enhance cleaning protocols, along with other preventative efforts across all facilities, including providing face masks and other sanitization supplies and equipment.
Work from home programs have been implemented with our office teams globally, and we are picking a variety of additional measures for employees at our manufacturing and distribution facilities to ensure their health and safety, including temperature testing and physical barriers for situations, where appropriate social social distancing is difficult to achieve.
We've also instituting more flexible policies for all employees relating to sick leave of absence isn't furloughs.
Finally, we are closely watching legislative another regulatory updates on a daily basis to remain compliant with local state and national government mandates and recommended actions.
From a demand perspective, the cobot 19 pandemic is relatively is negatively impacting several areas of our business most notably across a number of in the end markets for our seeing eye products, both domestically and internationally.
However, while demand for our residential products may not be completely immune to the weaker consumer spending environment that is likely to result in the macroeconomic weakness there are some positive trends developing that are very encouraging.
The uncertainty over the magnitude and duration of a global recession, well like we have an impact on all of our product categories, but to varying degrees.
In particular, the combination of a collapse in oil prices alongside the cancellation of many events such as festivals in concert as well as an impending slow down and construction activity will significantly impact demand for our domestic mobile products as national rental customers have dramatically reduce their capital spending given lower fleet utilization rates.
Our domestic see an eye stationary products sold through our North American distributor channel are also expected to be negatively impacted from the potential downturn and nonresidential construction activity.
Additionally, we are also assessing the potential risk of our telecom customers extending their pause in capital spending on backup power in the near term in order to better optimize liquidity for the current environment.
However, the importance of maintaining uptime for the country's wireless communications infrastructure is being highlighted by this crisis and could translate to faster penetration a backup power by the carriers and other operators are these wireless networks in the long run.
As we've previously discussed our international business had begun to slow in the second half of last year and with the Cobot 19 pandemic, reaching the European continent. In early March we began to see fresh signs of further slowing in our international segment, which is expected to continue for the remainder of this year.
Although demand in Europe, and Asia has sharply decline we've seen less of an impact at this point in the Latin American region, but as the Mexican peso as rapidly weakened against the U.S. dollar. We expect this volatility could result in some amount of uncertainty in that region as well in the quarters ahead.
However, while we anticipate declines overall for our CFO I products on a global basis for the remainder of the year, we're seeing some very encouraging trends in the important residential products part of our business.
Historically residential products have tended to be defensive in nature as we've seen a number of examples over the last 25 years, where demand for home standby and portable generators as decoupled from broader economic trends as they are largely driven by power outages.
The aging in under invested electrical grid in the U.S. continues to be more vulnerable to unpredictable and weather related events, causing elevated power outages across the country, including the unique situation developing more recently in California around public safety shut off to prevent wildfires.
On top of the growing concerns around power outages is the fact that a vast majority of the U.S. population is now facing some form of shelter in place order and <unk> and we believe that is causing an added premium to be placed on residential backup power as people work from home school from home shopping home and entertain from home.
Additionally, as a recent entrant into the clean energy market. We expect this to be a significant long term growth opportunity for generac.
Although in the near term there has been a notable pullback in solar installation activity, we continue to see increasing attachment rates for energy storage that exceed original market projections, which is helping to mitigate the reduced solar installed trends.
Longer term, the improving economics, the solar plus storage coupled with added added resiliency concerns from homeowners should further benefit our clean energy efforts.
Regarding impacts of the cobot 19 pandemic on the supply side of the business. We're also focused on maintaining our operations to the extent possible as the products and services. We provide the customers and then my end users are both the central and critical.
Recall, our biggest concern related to covert 19 at the time or last earnings call on February 13 was with our suppliers in China in neighboring countries in Asia.
Well, we did experience some disruptions in our Chinese supply chain during the first quarter. It was relatively temporary and now as of Sept, essentially back to normal levels.
Beyond Asia, However, we're monitoring changing conditions and disruptions very closely with suppliers across Europe, India, and North America, underdeveloped mitigation actions, which thus far have limited the impacts to our operations.
Regarding our own manufacturing and distribution facilities are all locations are operational today with the exception of our facility in Calcutta, India, which houses are relatively small CNR generator business in that country.
However changes to our operations has been and will likely continue to be very fluid situation.
In particular, we've been experiencing higher than normal absenteeism at many of our facilities around the globe, which is created challenges and maintaining consistent output levels.
Our operations teams have responded through a combination of labor pulling across facilities unique work schedules as well as overtime and today, we have largely been able to meet all of our customer commitments.
We've also been evaluating the need to rightsize production levels at certain facilities across the globe to adjust for anticipated demand changes as well is working to develop contingency plans for several key residential products raw material warehousing and distribution facilities.
In response to slowing demand trends in specific areas of our business. We're implementing a variety of prudent cost reduction actions. In addition to exploring additional measures should the severity of the pandemic situation worsen in the quarters ahead.
In particular with are seeing eye products, we have already begun taking specific restructuring actions within our operations for domestic mobile products and our international businesses that sell primarily into Europe, the middle East and the Asian Pacific regions.
These actions include worked furloughs hiring freezes and certain head count reductions as well as reduced incentive compensation.
Across the enterprise, we're also adjusting marketing and promotional spending to align more closely with lower expected revenue levels and Reprioritize reprioritizing resources, focusing on product cost l. projects.
Overall, we believe these actions will reduce operating expenses by approximately $25 million to $30 million across the business for the remainder of 2020 with an estimated impact to adjusted EBITDA margin of between one and one and a half percentage points.
Offset the operating deleverage from the lower expected sales volumes.
Now discussing our first quarter results in more detail.
Shipments of home standby generator during the quarter once again increased at a very strong rate compared to the prior year benefiting from the elevated outage activity in awareness in recent years as well as a significant increase in demand in California that also exceeded our expectations.
Several key demand metrics that we monitor closely for home standby continued to be strong during the first quarter.
Activations grew at a solid rate compared to the prior year led by robust broken installations in the West region, driven by California, which was up over five times the prior year levels.
The Midwest South Central and Canadian regions were also strong.
In home consultations right sees grew significantly during the first quarter compared to the prior year led again by considerable strength in California, but we also saw encouraging growth trends and several other parts of the U.S.
Although power outage severity was lower in the current quarter relative to the prior year on a trailing 12 month basis outages were still very favorable to the long term baseline average.
We also ended the first quarter with over 6500 residential dealers, an increase of approximately 500 or 9% compared to the ended the first quarter 2019.
This includes a significant increase in California wrapping up to over 400 dealers at the end of the quarter for approximately 150 dealers at the end of the prior year first quarter.
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In response to the current cobot 19th situation, we're actively working to convert our traditional in home consultation process into one that can largely be conducted remotely, which we're now referring to as a virtual home consultation or V. H C.
We have spent the last 45 days rolling out the VHQ process to our dealers through aggressive communication and training and as they have transition to it they're experiencing similar close rates in sales cycle times in relation to the in home visits they previously conducted.
More recently early in the second quarter. These key demand metrics for home standby have continued to be very strong without severity picking up considerably and with Activations and our new VHQ process continuing to show strength.
Specifically, we are encouraged that we've not seen evidence of any slowdown thus far in the demand for or installation of these products and although while still early the strength in home standby demand appears to be accelerating further here in April.
There have been some notable outages recently, including 1.4 million utility customers in the southern region of the U.S. alone last week.
VHS have spiked in April and are tracking at roughly double levels compared to the prior year.
Part of the strength, we're experiencing can certainly be attributed to the recent pick up an outage activity, but based on the widespread nature of the Phd activity. We believe that it can also be attributed to the millions of people that are now working and learning from home, thereby creating a heightened sense of awareness of the importance of backup power.
The market for energy storage and energy monitoring systems continues to develop quickly through a combination of changing regulations advancements in technologies, improving economics and the increase resiliency provided by these products.
Recall that our pica nuriel acquisitions enabled us to bring inefficient and intelligent energy saving solution to the market in December called power sell.
Which we believe will position generac as a key participant going forward.
Q1 represented the first full quarter of commercial shipments of power sold units at scale, which met our relatively high expectations.
Despite the cobot 19 situation, we're making excellent progress and building out our dealer installation base ramping our technical service capabilities, optimizing our supply chain and reducing our system costs.
We're also making important strides in growing this nascent market through targeted advertising lead generation and virtual in home sales capabilities.
Our new clean energy infomercial that launched in mid June mid January continues to be well received and is driving good lead volume feeding into our recently launched selling system called Powerplay CE, a proprietary lead management and sales tool similar to the one developed to our legacy home standby generator market.
Our current 2020 outlook for clean energy remains very encouraging as we're still expecting a further significant ramp in shipments of these products as the year progresses.
However, due to the cobot 19 pandemic and its impact on slowing the pace of solar installations in the U.S., particularly here in the second quarter, we're modestly lowering our expectations for shipments of energy storage systems for the remainder of the year, but we still expect to ship between 125 to 150 megawatt hours of residential product.
Our updated outlook remains significantly ahead of the expectations, we laid out during our Investor Day last September which reflects our success in the marketplace to date as well as increasing level of solar plus storage attachment rates. The industry is experiencing in part driven by homeowner concerns over backup power.
We have good visibility with regard to these products for the remainder of the year through existing orders and our sales pipeline.
Well the impact of a pandemic has resulted in some softening of the market for energy storage for 2020, we believe the long term drivers remain firmly in place as installations are these systems are forecasted to experience exceptional growth over the next several years.
With regard to RC and I products domestic shipments declined during the first quarters compared to the prior year.
As expected shipments the national Telecom customers declined at a considerable rate on a year over year basis. As these customers had previously indicated a slowdown in capital spending for backup generators based on the timing of installation projects.
Recall that demand trends with telecom national customers can be lumpy from quarter to quarter based on the timing of capital deployment and project planning cycles.
Also shipments of mobile products, the national rental account customers declined significantly in the quarter.
Primarily due to the onset of the coven 19 pandemic as well as the collapse in oil prices.
Demand for mobile equipment was already softer entering the quarter as many of our national rental customers were already deferring some capital spending and the sudden stopped economic activity in March forced many of them to further and dramatically reduce equipment purchases.
Lastly shipments of see an eye stationary generators through our North American distributor channel were slightly up compared to the prior year as this channel continued to gain share in the North American industrial backup power market.
With respect to the international side of our business, which is predominantly seen I products. We continue to experience a challenging environment. During the first quarter that worsened considerably during the latter half of the period.
Revenues declined approximately 10% on a core basis compared to the prior year. The decline primarily driven by a sharp drop in demand caused by the cobot 19 pandemic and its impact on certain key regions of the world, which magnified the slower economic growth and geopolitical headwinds there were already being experienced in recent quarters.
The Latin American region, However was relatively stable during the first quarter and grew modestly with the benefit of a large project shipped during the period.
As we continue to assess the impact of the global pandemic on our business. We believe that are seeing eye products are likely to be though the most negatively impacted part of our business. This is due to a combination of the recessionary impact on non residential construction activity. The expected further deferral of <unk> telecom capital spending the dramatic decline in oil prices leading to lower.
But utilization rates and an overall sharp decline in macroeconomic macroeconomic activity internationally.
As previously discussed we believe our residential products will be relatively less impacted as increased outage activity heightened anxiety over the need for backup power during the shelter in place times growth opportunities in California, and the increasing penetration of our new clean energy products should help to mitigate any general economic weakness that may occur in residential investment.
In closing I want to highlight the Generac is in the very fortunate position of having a strong balance sheet and liquidity.
This financial strength gives us the flexibility in confidence to continue to execute on our long term strategy and to remain focused on providing innovative products and services that are essential to the safety and security of homes businesses and critical infrastructure across the globe.
We believe we have a unique opportunity b to b, particularly aggressive during this time of crisis in pursuing new commercial business opportunities to gain market share as well is continuing to build a robust M&A pipeline to accelerate our powering our future strategic plan.
General purpose built for moments like this with our long history and supporting customers through difficult times.
In the face of Hurricanes floods fires and other natural disasters, a class power outages. Our teams have proven themselves to be agile and they know how to employ a healthy sense of urgency and solid decision, making to manage difficult situations.
We're very confident the once we get passed this pandemic, our future growth prospects will be as compelling as ever driven by the overall mega trends and powerful macro macro secular drivers for our business.
With that I'd now like to call the turnover to York to could to provide further details on the first quarter results Youre. Thanks Aaron.
Looking at our first quarter 2020 results in more detail net sales for the quarter increased 1.2% to 475.9 million as compared to 470.4 million in the first quarter of 2019.
Excluding the 21.2 million of contribution from the Captiva, Norio and Pike acquisitions, and approximately 3 million negative impact from foreign currency.
Core sales declined approximately 3% during the quarter.
Briefly looking at consolidated net sales for the first quarter by product class residential product sales during the first quarter increased 18.3% to 257.6 million as compared to 217.8 million in the prior year with core growth being approximately 9% when excluding the contributions from clean energy products acquired through scenario.
Pica.
As Aaron already discussed in detail home standby generators sales continue to experience very strong year over year growth approaching 20%.
Partially offsetting the home standby strength during the first quarter was a decline in shipments a portable generators, primarily as result of the higher power <unk> power outage activity in the prior quarter.
Commercial and industrial product net sales for the first quarter of 2020 declined to 17.7% to 172.1 million as compared to 209.1 million in the prior year quarter with a core sales decline of approximately 17% when excluding the contributions from the captive acquisition and the unfavorable impact from foreign currency.
As Aaron mentioned shipments to both national Telecom and rental account customers declined significantly compared to the prior year as these customers can significantly FID significantly fluctuate their capital expenditures from quarter to quarter, especially during this current environment.
Internationally are seeing eye products declined compared to the prior year on a core basis due to the continuation of a challenging economic environment entering the first quarter that worsened during the quarter as the spread of krona virus pandemic accelerated.
Net sales for the other products and services category, primarily made up of aftermarket service parts product accessories extended warranty amortization and other service offerings increased 6.5% to 46.2 million as compared to 43.4 million in the first quarter of 2019.
A larger installed base of our products and higher levels of extended warranty revenue drove this increase versus prior year.
As disclosed in our earnings release earlier this morning.
Gross profit margin improved 170 basis points to 36.2% compared to 34.5% in the prior year first quarter.
In operating expenses increased 18.5 million or 20.3% as compared to the first quarter of 2019.
Adjusted EBITDA before deducting for non controlling interests as defined in our earnings release was $86 million or 18.1% of net sales as compared to 87.1 million or 18.5% in net sales in the prior year.
This slight EBITDA margin decline was primarily driven by the increase operating expense investments, partially offset by the impressive gross margin expansion during the quarter.
All this was despite the dilution from the initial ramp of our clean energy products.
I will now briefly discuss financial results for our two reporting segments.
Domestic segment sales increased 5.5% to 376 million as compared to 356.5 million in the prior year quarter, which includes 20.5 million of contribution from recent acquisitions, resulting in approximately flat core growth.
Adjusted EBITDA for the segment during the quarter was 82.8 million or 22% in net sales as compared to 81.2 million in the prior year or 22.8% of net sales.
International segment sales declined 12.3% to 99.9 million as compared to 113.9 million in the prior quarter.
Core sales declined approximately 10% 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 3.3 million or 3.3% of net sales as compared to 5.9 million or 5.2% of net sales in the prior year.
Now switching back to our financial performance for the first quarter of 2020 on a consolidated basis.
As this as disclosed in our earnings release GAAP net income attributable to the company in the quarter was 44.5 million as compared to 44.9 million in the first quarter of 2019.
GAAP income taxes during the current your first quarter were 9.4 million.
For an effective tax rate of 17.9%.
As compared to 15 million or an effective tax rate of 24, 24.7%.
The decline in tax rate was driven by higher share based compensation deductions and favorable geographical mix of earnings in the current year quarter.
Diluted net income per share for the company on a GAAP basis was 68 cents in the first quarter of 2020 compared to 76 cents in the prior year.
The specific calculations for the earnings per share amounts are included in the reconciliation schedules of our years of our earnings release.
Adjusted net income for the company as defined in our earnings release was 55.1 million in the current your quarter or 87 cents per share.
Versus 56.5 million in the prior year or 91 cents per share.
Cash income taxes for the first quarter of 2020 were 7.3 million as compared to 10.5 million in the prior year quarter.
The current year now reflects an expected cash income tax rate of approximately 14% for the full year 2020.
As compared to our previous guidance of between 15.5% to 16.5%.
The prior year first quarter was based on an expected cash tax rate of approximately 17% for the full year 2019.
Recall that every dollar of pre tax earnings over and beyond our $30 million tax shield is not tax at the expected GAAP tax rate of approximately 24%.
Cash flow from operations was 11.3 million as compared to 14.6 million in the prior year first quarter and free cash flow as defined in our earnings release was a negative point 9 million as compared to negative point 6 million in the same quarter last year.
Recall historical seasonality would have much lower levels of free cash flow in the first half of the year with significantly higher cash flow generated during the second half of the year.
Before discussing our updated outlook for 2020, I think it's important to discuss in detail our healthy balance sheet and liquidity position at the end of the first quarter 2020, which gives us confidence to operate our business and execute our strategy in this uncertain world.
As as of March 31, 2020.
We had 573 million of liquidity comprised of 307 million of cash on hand, and approximately 266 million available on our ABL revolving credit facility, which matures in June 2023.
Also.
Total debt outstanding at the end of the first quarter was 894 million net of unamortized original issue discount and deferred financing costs.
Our gross debt leverage ratio at the end of the first quarter was only 2.0 times on an as reported basis.
Which is at the low end of our targeted range of 2.0 to 3.0 times.
Recall that in December 2019, we amended our term loan at credit agreement, which among other things extended the maturity of the term loan to December 26 to December 2026.
And we currently do not have any required principal payments on this facility until the maturity date.
[noise] also recall that there are no financial covenants on the term loan.
And it has a low cost of debt of LIBOR, plus one set 175 basis points.
In addition, we recently entered into some additional interest rate swap arrangements that hedge or fix our interest rate exposure on approximately 500 million of this debt to the maturity date of December 2026.
Further enhancing our liquidity position over the last 12 months ended March 31st 2020 cash flow from operations was 305.7 million and free cash flow was 250.4 million.
Lastly, given our strong balance sheet and free cash flow generation, we have significant resources to drive further shareholder value as we execute our long term strategic priorities and our approach toward capital deployment priorities remains to plus disciplined balanced and consistent.
With that I will now provide comments on our updated outlook for 2020.
Given the current and pending impact of covet 19 on our end customers distribution partners operations supply chain logistics and global end markets. We're revising our previous guidance that was initiated on February 13th of this year.
For the full year 2020, net sales are now expected to decline between 5% to 10% compared to the prior year on an as reported basis.
Consistent with our historical approach this revised guidance still assumes an average level of baseline power outages during the year and does not assume the benefit of a major power outage event, such as a category three or higher landed hurricane.
Given its high probability of occurring we have included the impact of one significant shut off event in California in this space guidance.
Should there be a major power outage vet during 2020, along with multiple public safety power shut off in California, We could expect approximately 3% to 5% of incremental revenue growth on top of the baseline guidance, resulting in flat to down 7% as reported sales sales growth as an upside case.
Looking at the baseline guidance by product class.
Despite the impacts of cobot 19.
Net sales for residential products are still expected to be.
Expected to see solid year over year growth for the full year 2020.
As previously mentioned because power outages can happen anytime and anywhere demand for our residential products is more resilient intends to decouple from overall macroeconomic trends.
As the vast majority of U.S. says you. The citizens are spending much more time at home facing some form of sheltering in place orders. The awareness of backup power is increasing especially as homeowners are doing more critical activities like working and learning from home.
In addition, with California emerging as a major market for backup power and our entrance into clean energy. We believe these incremental growth drivers will help to offset the impact of lower consumer spending due to cobot 19.
Net sales for our seen I products are now expect to be down significantly versus prior year.
As previously discussed for our CFO in markets around the world, We're seeing a significant negative impact as a result of pandemic and lower oil prices.
In particular global demand from old products is sharply declined over the last 45 days and based on our current visibility. We expect these conditions to persist for the remainder of 2020.
Additionally, we have recently, we've recently seen global weakness, we're seeing eye stationary products as quoting an order rates for this equipment have declined projects are getting deferred or canceled and capital expenditures are getting curtailed.
These considerable headwinds have created significant uncertainty and as a result, we have lowered our expectations for seeing eye products for the remainder of 2020.
The impact of covert 19, our business is expected to be more pronounced during the second quarter, especially for seeing eye products.
Specifically on a consolidated basis net sales during the second quarter are expected to decline modestly on a sequential basis as compared to the first quarter of 2020.
We're seeing approximates expect to be down sequentially and residential product shipments are expected to be up sequentially compared to the first quarter of 2020.
Using our baseline guidance for 2020 net sales adjusted EBITDA margins before deducting for non controlling interests are now expected to be approximately 19% to 20%, which is only a slight reduction from our original 20% guidance that was initiated in our last earnings release.
We believe holding EBITDA margins largely in line in this environment is notable as we expect the operating deleverage on lower sales volumes to be mostly offset by favorable sales mix of residential products and the reduction in operating expenses from the cost cutting the actions that were previously mentioned.
Additionally, assuming our upside case revenue guidance adjusted EBITDA margins could incrementally increase by approximately 50 basis points over the baseline guidance.
Adjusted EBITDA margins are expected to decline modestly on a sequential basis in the second quarter as compared to the first quarter, primarily due to reduced operating leverage on the lower expected revenue volumes.
But then improved sequentially during each of the third and fourth quarters as we work to reduce the cost structure of our energy storage products implement cost reduction actions realize additional savings from our profitability enhancement program and improved leverage of our operating expenses through higher topline.
For full year 2020, operating free cash flow generation is still expected to be strong and follow historical seasonality benefiting from the healthy conversion of adjusted net income to kick free cash flow expected to be approximately 100% in 2020.
This concludes our prepared remarks at this time, we'd like to open the call for questions.
As a reminder to ask a question you need to press star one on your telephone to withdraw your question press the pound key please stand by while we capacity Kuni roster.
Your first question lineup, Brian drab with William Blair.
Hi, Good morning, I'm, sorry, I asked something that you touched on some overlapping calls this morning, but.
Can you talk a little bit about what you're expecting in the solar market in the second quarter and beyond.
Expecting drop off in.
Consultations and installations in the in that market, just given social dispensing and what have you seen so far in April in that market.
Yeah, Brian So I'm on the clean energy market as we define and it's really solar plus storage.
And what we did is we put our guidance range at a 125 to 150 megawatts for that for the full year, which is down somewhat slightly from the more bullish number we gave on the last call and that really a lot of that pullbacks going to happen here in the second quarter solar installations are down notably.
Some 25, 30% depending on.
Which from you talked to in which part of the country you look at but.
The good news is solar storage attachment rates are up so that's kind of offsetting some of that so I think net net you know, we're saying that the new guide for storage for the years 125 250 megawatt hours.
But the second quarter is probably going to be a little bit lower than than we were hoping.
Okay, and then how has your Ah supply I know, you're you're saying one of the limitations here the big limitation that clean energy business was your supply chain and how how's that shaping up in this environment and is that still restraining.
Yeah actually.
Oddly enough I mean weve. The team has been working very hard on supply chain and this to broaden our base generally the company that the companies we acquired were smaller startup businesses with.
Fairly localize supply chains, initially and and certainly not supply chains that could build to scale. So we had to completely.
Reinvent that for the most part and the teams did a great job on that and I think that wasn't watch out early on for us, but right now we feel like where we're in a pretty good position and frankly, I think with the overall pullback in the market our numbers I think would mirror much of what.
Others are saying about the clean energy space in general I think there's probably going to be a little bit more supply to be had and then maybe was originally anticipated simply because of the lower volumes that are going to be out there.
Okay, Great and then maybe I'll just ask one more for for now but did you say anything about what you have seen in April in terms of.
In hone tonsils stations for the legacy home standby product and maybe could you comment about what you're seeing in terms of by each season inside California, and outside California, Yeah, I mean, I IXYS had been really strong for us.
So far in April.
Yeah, we track we track a lot of metrics for that business, obviously, leading indicators lagging indicators, but the one that we track very closely obviously as a leading indicator is HCC agencies.
We now called Phds, because a virtual their double so far in April here versus last year, which is great and.
For this time of year particular, generally we would be kind of entering a little bit of a long period here in terms of.
New sales leads coming out you know kind of the transition from winter to spring.
No is it something that generally slows the sales cycle down a bit seasonally we've just seen this repeats pretty reliably we've definitely decouple from that now we had a lot of power outages down South last week about 1.4 million people in the south.
Last week and about 300000 people actually yesterday in Texas, and Louisiana, but what's interesting is so certainly some of that strength is coming from from that when we looked specifically at those regions, but specifically when we look at DHC is kind of regionally their strong everywhere and in fact, what's really odd to US you look at California alone.
Foreign Yeah, you look at ice sees.
It's there.
In April here, it's there there are crazy high I mean, there 10 times, what they were last year and they're there haven't been any outages yet in California. So.
Our thesis underpinning. This is that there's just been a dramatic increase in the awareness around the importance of backup power with everybody sheltering in place.
I'd of working from home and.
Learning from home and all these other things that the home is the sanctuary.
I think a continuous supply a power safety security.
The the ability to go on with life takes on a completely new meaning when you're cooped up inside your home 24 seven.
And I think people you know in the in the uncertainty around how long the pandemic me, Alaska and whether it may re occur in the fall or may persist or in the future pandemics whatever the case may be I think it just add one more layer of consideration for people when it comes to thinking about needing backup power and I think that's also contributing to somebody.
You know increased attachment rates that we're seeing in the solar plus storage I think.
We know from customers that resiliency is important to them now we also know and we told customers. They don't get a tremendous they'll get a tremendous amount of resiliency, how those products, but they do get some.
And I think it's important though to note that.
Those those things all kind of point to the fact that I think the pandemic itself is raising the awareness and just heightening the level of anxiety around making sure people have have backup power.
Okay. Thank you I'll get back in line. Thanks, Frank.
And your next question, Mike Halloran with buried.
The morning, guys, Hey, Mike when it might.
So just staying on the home standby side here.
Maybe just talk a little bit about how you see this this cadence in out here obviously strong.
Consultations use since you today, how does that compare to installs.
Building a backlog ceded to execute on are you able to execute on as it sits today.
And then.
When you think about the guidance range as well.
The expectations for growth in the home standby product category over the years out what's embedded in guidance as well.
Yeah, I mean, I think what we said in the prepared comments is that residential products overall would be up solid I think was the word I used in the prepared comments, but underpinning that.
What would be would be growth slight growth in home standby, which I think is.
Which is which is a win in this environment and Mike I think just to answer the first part of your question there about HCS OVH season, how they kind of mature into installations and are we able to keep up in backlog and things like that I think.
Thankfully, we've got I, it's amazing to me the residential part of our business, which I would have said six seven years ago.
Our visibility in that part of business was much more limited.
It's definitely easily probably our most visible part of the business today in terms of just the metrics that we track.
That is we track all the time fences between when I see occurs to win that turns into in order to when that order turns into an installation.
When that installation turns into a first use of the product I mean, we've got all of those interesting time fences. So we're able to kind of take and model a lot of what we see for those leading indicators like the HCM, we're able to model those into.
Installations down the line and a and look at kind of what we're going to need in terms of inflation bandwidth production bandwidth things like that.
And so obviously our.
Our first priority here right now is making sure we keep our residential home standby production lines.
As you know as operational is fully operational as we can we're looking to hire 150 people right now between our whitewater and Jefferson facilities, what some of that is to cover for some of the increased absenteeism, we're seeing with some of it is just flat out.
Growth in in the production rates as we go forward here, we're entering the important time of kind of pre season build for that market now we're sitting on a pretty decent amount of inventory in our four walls, but our field inventory levels. I would say are I don't know York. We're looking at this the other day with field inventory as our Cesar lower than last eight days the of inventory days on.
On hand, or lower than they were a year ago. So obviously, when we kind of put all that together and again thats just another really cool statistic that we're able to pull out because we every 100% of all products can activate it. So we know 100% clarity to feel inventory, which is which is anything unique.
So we put all that together and again our priority is on that now what could go wrong with that I mean, obviously a supply chain disruption.
Some.
Potential recurrence or reemergence of the pandemic or an acceleration of it those are all things that could be a problem on the installation side itself.
We've been very encouraged that although we've heard kind of.
Spotty cases.
Wins inspectors, not being able to make inspections and things because they're not.
Working right now they've been furloughed or but largely our activation rates. When we look at it which is installations they've remained very robust. So we know the installations are happening, we know whether happening and whether or not happening. We're helping out we're trying to help out with inspectors and walking through those things. It's interesting how many municipalities, we think that probably half of all the municipalities today.
We have shifted to a virtual permitting process now the inspection process itself isn't quite there yet what their issuing the permits virtually the construction permits that are needed in the building permits their need for these projects. So we're watching a lot of data points, but we know we feel pretty good on that New York and I will add the number that I gave in terms of 'em that home standby growth year over year was our base.
Line guidance or that doesn't include a major event could.
Should it should that happen.
Good point.
Makes sense to color there and then.
You soon we spent a lot of time talking about mobile telecom smaller things, maybe little time in context, and how the traditional commercial businesses are tracking.
You got some puts and takes there's some decent secular drivers as well as the more institutional side would you still can be decent demand versus non Reds concerns, maybe just put all those pieces together and talk about leasing on that side.
Yes on our true I'll call it our traditional seeing eye channel, which is our industrial distributor channel here in North America.
Speak to that first.
Actually for the quarter they were slightly off so yeah. We think we're doing all right there outside of the telecom kind of Lumpiness that we talked about and actually we knew the first half of this year. The telecom companies had told us based on their scheduling and the way their capex.
Budgets were rolling through this year that that was going to be more of a back half.
Type of a you know update for them.
That's the part of the guidance really took the biggest hit was telecom in the second half and then the mobile products of course, which we've talked at length about with the collapse in oil prices in particular, driving that but but the core see eni business. Those products are generally late cycle right. So you build a building a new hospital weighing a grocery store or whatever the product.
Generator itself doesn't need to arrive at the site until the the facility is just about ready to open so what we see going on right now.
A lot of projects coming to closure in the generators being put into those into those projects.
What we're worried about going forward is where does nonres construction activity go.
So you look at AK Billings Index is you look at other leading indicators there and they would indicate some weakness at least certainly in Q2 here, but perhaps longer term. If this is more of a are you type recovery or maybe even an l. type recovery depending on your viewpoint.
You know if it doesn't do if it doesn't come back like in a V shape to the second half.
And weve and that kind of what we've assumed we've assumed that it doesn't come back in the second half for that traditional cfd business. So if we get a better recover or quicker recovery there maybe it will but but largely we feel like we're still winning in that market. We just think that that market knowing what we know about trends in watching our quotation our inbound quotation trends, it's been very choppy last.
You know kind of six weeks or so.
We've had some up weeks, we've had some down weeks and so we're watching it but my sense is knowing that were late cycle and knowing that we're entering kind of a period of economic uncertainty I think we're going to see fewer projects going forward, which likely is going to put pressure on a channel and that's really what we've modeled here in the guidance today.
Gentlemen, appreciate it thanks, Mike.
Your next question line of Christopher Glynn with Oppenheimer.
Yeah. Thanks, Good morning, just take around interest.
On the common VH seize up.
But double year over year is is that combining the VHQ H.C.
Concepts. So like total current consultations is what that refers to.
Correct. So think of them as all VHP is going forward, Chris that's how we'll we'll start to refer to them.
Okay, great and.
Thank you addressed the deployment characteristics sounds like dealers are proving very resilient so far.
Oh, I'm wondering if there's any markets for.
Yes, the attachments independent of solar or if its exclusively tied to solar yes. There are some really depends on the market specifics in terms of you know the price of power in a particular market incentives it may be.
Available in that market some utilities have policies prohibiting some of those types of approaches. So it's kind of utility the utility as well so I would say the largely the market as a solar plus storage market at this point.
As power rates continue to increase so the spark spread the cost at which you can buy power on the wholesale market versus the cost of which you can produce an onsite are stored on site for as that continues to widen a storage only type of approach or an approach where you're producing power through some other means the gas generator, maybe geothermal some.
Thing like this and then storing that power ends in a in.
In a system and then using it into later time that could become more prevalent in the future.
Okay and last one here the 25 to 30 million cost out should we think of data is predominantly.
Flown through you see an eye businesses.
I will be it will be more disproportionately impacting the CNS businesses, although I will say some of the advertising that we've taken out the advertising and promotion we've taken out.
Our residential businesses to match kind of the they the slight reduction and guide there.
There is a part of that the dollars add up quick on that side of business, because it's such a big business, but but largely the 25 to 30 million you can think of as cost outs associated with mobile.
Stationary seen I and our our into international businesses.
Okay. Thank you you bet.
And your next question line of Jerry Revich with Goldman Sachs.
Hi, good morning, everyone.
Jerry Jerry.
Okay.
Can you talk about what proportion of your dealer network is has it shifted and is doing.
Seeds.
In terms.
The productivity, but you folks are getting it can you talk about improvement as result of the achieves its going to buy exceeds what really numbers being like in terms of how many more proposal. The single distributors do as a result of both efficiency gains there.
Yes.
Jerry the PSC process. It's interesting we actually have been developing this over the last couple of years and we've been reticent to turn it on because.
There is there there's a fundamental belief that.
Sales transaction the active selling is the transfer will have a motion and that transference of emotion generally tends to take place more readily in person and so that's been the foundational element of our in home sales process, which is largely a kind of kitchen table sales pitch. So we've had this VHQ process in development we are.
Obviously accelerated it when things I'd levels for anybody coming in your home today are much higher than they were two months ago, we accelerate that rolled it out to the dealers over the last 45 days. The dealers you know that's been a learning curve and and but what they found interestingly enough to kind of get to the heart of your question. They found that they're able to be more productive.
Overall, because they don't have the travel element or they don't have as great of a travel element and the time commitment to do the H.C. is is substantially lower.
They're able to do these proposals and send them off electronically, they're able to conduct with a couple of pictures a couple of questions from the homeowner.
Maybe a walk around the site depending on.
Kind of complexities of a particular site maybe job the job, but but largely the feedback from dealers as they've been more productive now it's pretty new so the last 45 days I don't think a b. I don't think it be worthwhile to give you like hard stats on like the numbers in terms of productivity and it continues to ramp but the percentage of dealers that are doing it has very high and again.
Thats largely because homeowners are you know, there's just not keen on people being in their homes right. Now so we've encouraged them to ship to this process and they've accepted it quite well homeowners accepted it quite well and everybody at this point is very pleased with.
The transition.
And just to clarify even with everything is going on in relatively limited rollout is viewed sees you folks you come nationwide C plus bdcs have doubled year over year in April with everything Thats going on.
Exactly yeah. That's that's [laughter], that's the part that again I can't stress enough, how amazing resilient the home standby businesses for us I, it's a shockingly.
Durable business.
And I've seen this before we saw this in the await housing crisis, the homes that residential products business for US grew during the housing crisis now got low penetration rates and it's got obviously power outages continue to grow and People's dependence on power grows and you add this additional layers that we've talked about of sheltering in place.
As an additional level of anxiety around losing your power and it's just a dependency on technology, but dependency on technology and communication and connectivity to the world I mean, it's amazing if you if you lose power and you're in your home today I mean, it's a different experience and maybe even was 30 days ago or 60 days ago.
Okay and the in terms of the battery storage party business just order of magnitude.
Can you just correct me if I'm wrong. So you folks foods fold about 20, or so megawatts in the first quarter and it sounds like you expect to do something like 10 in the second been exit the year 60 megawatts exactly right way to think about their land can you just put a finer point on that for US if you don't mind.
I mean, we didnt give necessarily.
Seasonal guidance on the 125 250 megawatt hours deployed but but.
I think with Q2 that we had originally expected that to grow pretty evenly throughout the year.
When we originally guided I think with the impact of the the pandemic I think the Q2 rates will have slowed maybe not as significantly as you just rattled off there, but then it should grow nicely off of Q2 into Q3, and then sequentially into Q4 so.
Didnt necessarily provide that level detail.
In terms of quarter to quarter seasonality.
I appreciate that essentially thanks.
Sure.
Your next question come from the line of Jeff Hammond with Keybanc capital markets.
Hey, good morning, guys.
Good morning, Jeff Good morning, Jeff.
He just on I guess on on solar I, just wanted to understand a little bit better like channel fill versus sell through and you. Maybe just talk about you know as you kind of ramp this business up you know any more progress on.
Similar dealer distribution partners and feedback from your traditional channel.
So I mean, we've got we kind of alluded to it on the call we've got.
Pretty good visibility there already a lot of preordering in that business early auditing and you know here in the first quarter. So we have a decent backlog that were working from yeah. We're shifting our attention to continuing to add customers, which I think as the other part of your question Jeff in terms of acceptance of the product. It is interesting ornish.
Well thesis there was that we take the 6500 residential dealers would introduce these new products and.
They would say would grab that made run forward with it and promote it the truth of the matter as.
Some of them have some of them that are a little bit more out in the vanguard some of them. We're already involved with solar so that's a much easier connection point, but largely that's going to take more time [laughter].
The take away there for us, but where we are getting success.
And we were having where we're seeing some really good acceptance is in the solar install channel themselves. Both the national installers are the national companies as well as the independent channel.
And the distribution partners that they use so the the wholesale channels that feed the equipment into those independent dealers. We had a lot of really good success early on here introducing the product to them.
Well, obviously, we're out there talking to and how we're driving leads in the space, we're driving awareness around solar plus storage the importance and driving those attachment rates.
And that gets we get really high marks from these guys because that perennial challenge in the solar market is been customer acquisition costs, and obviously anybody coming into the space.
Writing large checks and we're writing large checks right now to drive.
Not only our own brand awareness and space, but also market awareness overall penetration rates.
Anybody doing that to help them with their customer at costs and keep those lower is that goes a long way so.
We're getting a lot of great pickup there the interesting thing a part of our thesis that we didnt have right.
Aside from the dealers not maybe picking it up is quickly but these solar dealers are very interested in home standby.
We've had many of them are adding home standby. So we're picking up new points of light there that we really hadnt attributed much.
Much business to kind of and how we had modeled our entrance into clean energy. So yes. The let's play now maybe a little differently than we thought but I would say that on a net net basis. It's it's playing out more favorably as as obviously is our numbers would indicate more favorably than what we had laid out back in the Investor day back in September.
Okay, Great and then.
For now certainly the numbers pretty eye popping on like the growth rate and one Q <unk>. She growth rates can you just I'm just trying to maybe frame you know size of California in 19.
Kind of how you're thinking about the the longer term goal and you know what those growth rates look like into the second half when you kind of hit the.
I guess, the little bit tougher comps.
Yeah, I mean, it we haven't specifically broke out our sales into California across the company I know, we talked last over the last maybe a couple of quarters 2018. It was it was a very small number.
We we added roughly.
Little over $75 million last year to California.
And we expect to add.
A sizable amount to two to two California into 2020.
Since maybe something similar.
And and that will continue we expect that to continue to grow into 2021, and 2022, especially as we build out distribution. We quoted we have over 400 dealers now in California, we're going to continue to add dealers and.
So it's a it's a it's a nice growth opportunity for for us and the numbers I'm quoting are just power generation that does not include any clean energy I just want to be clear correct.
Okay very helpful. Thanks, guys. Thanks, Jeff.
And your next question in light of Ross Gallery, we at the Bank of America.
Good morning, guys, Hey, Ross good morning.
Hey, your Karen.
I'd Love to just get your read on you know the California regulatory environment right now I always say a joint to analyze that but.
What do you think I mean, its piccinini really going to shut the power off on California in the fall as co bid comes back and people are stuck working from home I think the major.
Economic implications for California, they do that potentially outside of California. So.
What kind of discussions or are happening I mean are there potentially any.
Subsidies for.
Consumers to install generators is there any opportunity to form from some type of.
Distribution agreement with the public utilities on our partnership and preparation for wildfires season because.
This just seems you know doubly dangerous going into.
The second half of the year not only the human aspect of it as was the case last year, but just economically it will be devastating its a.
If they.
Continue to kind of carry forward with the same tactics.
Yeah I it's.
It's a fascinating situation out there Ross.
In terms of the regulatory environment I won't comment on the beach is being closed out there, but I think that was announced this morning, but but as it relates to power.
Yeah.
So there's two schools of thought right I mean, you have okay. All these people sheltering in place and so you can't possibly shut the power off on them.
You know because of that but but actually.
Every conversation we've had is no. It's just the opposite you have all these people shelter in place. Therefore, they are in their homes. So you have to prevent wildfires I mean, a catastrophic effects you know in terms of the human toll on that should should there be a fire with everybody in their homes could be much greater than the economic effect of and sorry.
Well here, there's already going to be an economic effect from covert 19. So I don't think I don't think we any of us can avoid that at this point.
So I I think that what the schools of thought there are and in particular PGT would tell you and we've heard them say this that they believe the power shut off last year were largely responsible for the reduction in wildfires.
Maybe quite a high correlation to that so in in terms of their operating process going forward. They feel that they're going to use that absolutely as a tool, whereas in the past the habit right. So.
And again, there's a lot of things are going to that decision now as far as other partnerships and things we were actually I commend PG any they were trying to do the right thing you know in terms of grid support projects, we were actually bidding NRC and I business on some large grid support projects out there with natural gas gens and other products.
But regulators have made it.
Almost impossible for them to make the kinds of changes that they need to make there was reticence to add those types of products because they're fossil fuel based but yet at the same time.
The additional technologies that could be used are not ready for primetime the cost effectiveness in those technologies. The overall effect its effectiveness of those technologies are not there yet and so their hands are tied and so they killed some of those projects was good support projects.
And I think that always that's only going to put more pressure on the grid and on PG and easy to use power shut off as a tool as we go into the fall. So I you know again, a lot of its going to depend on the fire season, there having an early drought.
The I think the weather service identified it as a mega drought in parts of the country here, the California isn't now they've got a little bit of rain lately, but but overall, it's been very dry and some very warm so.
We see it and the trends Ross there people are obviously worried about it our VHS are way up our Activations are way up our dealer counts are way up people are concerned about power outages in California.
Got it makes a makes sense.
And then Oh color you could provide on the margin sensitivity to that.
Clean energy ramp.
Thanks versus variable or originally I think he was a big on EBITDA breakeven by mid year.
Guide down it had but.
Like any clarity on the revenue breakeven point or just at what point does it become a bigger drag.
Margins, if it doesn't ramp as quickly as you expect in the second half the year from.
Yeah. It's good to quote I think previously we talked yeah, we expect to breakeven with those products for the year, we still expect to breakeven even with a slight pullback that we had we just moderated.
Some of the opex around that but I think internally, we're still expecting to breaking for those products for the year with.
With a startup losses in the first half profitability in the second half I think for the for the year overall, roughly maybe about a you know rough but a 1.5%.
Drag on overall corporate margins as result of that business.
But obviously the exit.
EBITDA margins I'm, leaving the year should look good and they should continue to improve into 2021 then.
Okay. Thanks, you are.
And your next question comes from the line.
To steal Shane with Roth capital partners.
Hey, guys. Thanks for the questions first though on his.
Hey, first one is on the visibility that you have you talked about and having great visibility into your key leading indicators in stats.
Can you share how the timing between the closing of the sale.
And activation.
Slash installation has changed what was the pre coated.
And what do you think it could be now you talked about also maybe 50% of the building departments out there doing virtual permits well that suggesting a half are actually not doing those virtual permits and.
Resulting in delays so.
I can imagine theres been an extension of that installation time, just wanted to get us feel for the.
Degree.
And then how long do you guys expect.
This to take to normalize yeah, no. It's a great question Phil and.
I'm actually looking at a chart that we pulled together on that very point, because it's again, it's another kind of data point, we watch very closely because.
If you if you pull out the number of days or to extend the number of days that can certainly result, and creating a potential air pocket at some point in the future for for a purchases as you work backwards from the install to when the dealer needs to buy the equipment, but.
So there's a lot of different time fences involved here, but I think what a largely say rather we haven't given a ton of granularity around this historically, but I will say that's it has it has gotten longer I'm kind of pre co bid you know the levels were kind of thinking that 60 to 70 day range between.
VH C and the activation so the quote and the install right. If you want to use more kind of different nomenclature, there, but and so what that peaked at around 90 days, so kind of at the height of kind of as we got through the month of March.
So it went up considerably you know that's that's a 40% to 50% increase in the amount of time, but but more recently in the last few weeks, we've seen a come down back into almost normal levels, which is interesting so.
Now the comment about 50% of inspectors doing a virtual permitting that remember there are a lot of places around the country, where the permitting still going on so you can still walk up to your local township and get a permit or where they they just they haven't shut down as hard as maybe areas of like the northeast or.
You know parts of the country, where clearly that's been more challenging.
In the Midwest largely here you can still a you can still get a permit I take it a haircut you can get a permit for building project, but it is interesting and it is something we watch very closely and will and we'll continue to watch very closely.
Great. Thanks Aaron.
So just as a follow up to that and I know you haven't provided specific guidance, but.
But youre anyway. So you guys can qualitatively talk about the cadence between Q2.
Home standby sales versus Q3 from a modeling standpoint, I think that can be very helpful. Because you know if your I can imagine Q3 should be up relative to Q2.
You know if close if your double year over year in terms of each sees.
And your close ratios are basically the same which is what I think you said and if this is.
Yeah, I think again, a base case guidance Doesnt assume a major.
Major power outage.
I think for the year I said home standby as would be up up up slightly at least that's what we modeled that's what's embedded into our residential guidance and the second half would would look would look like that in terms of Ah.
Oh that guidance so.
So if that's the again that was I mean, there's a lot of uncertainty with covet 19 or that we don't know exactly the impact on consumer spending so but the category in general has a fair amount of seasonality to it. So it definitely some are year over yeah, yeah, but definitely freight in terms of pacing, though when you're kind of going but when you connect the ice either up double but yeah, we're only showing up slightly there.
There's a bit of a disconnect there partly maybe we're taking a conservative view on on on the impact on consumer spending related to cobot 19, but we also know that tends to decouple from yeah, I cannot environments. When when power outages actually have I would just one last comment there is typically be axes, we would see an increase as we go into the season, so where it that increases has obviously had.
Running earlier than the normal so the extent to the the you have to kind of put in perspective in season to season. So there is some of that that you have to do as well, but but yeah I'd say, we get the question and it's yeah. We think we're modeling it appropriately we had a lot of experience doing this and it's it's hard to say, what the consumer impacts going to be.
In the back half so what kind of trying to model some of that as well, there's a little bit of the air that's going to come out of the balloon certainly around resin investment, but that's a good question. Phil. Thanks. Your final question comes on line of Joseph Moshe with JP Group.
Hey, good morning, I made it how are you guys. Good morning right Joe.
Well for starters is resident in the California, I can tell you the states will roll wife would choose the most economic we'd disasters path. So.
Just wanted to clarify that [laughter].
Two questions for you first I'm wondering whether some of this incremental supply chain looseness, you've talked about has turned up.
In your sell supplies situation are you finding that you were able to get enough fall lithium ion supply for your storage business.
Yes, Joe that hasn't been a that hasn't been a challenge at this point now we are actively.
Looking to expand our supply base on all of our major components again kind of coming from a position of you know to start up companies that largely had a pretty nascent supply chain.
You know the Pike organization was buying through distribution as an example for that lithium product and so yeah. We've gone direct to the manufacturer obviously as a way to not only short in the supply chain, but make it more cost effective but <unk>. It a lot it really depends and lithium and as you well know lot of it really depends on TV.
Man, So what does heavy demand goal here and I think largely 2020 could be a more challenging space for easy to ban in parts of the of the world in particular like China than than what was originally forecasted so that should certainly loosen up supply for cells, but.
But that being said we are still looking at continuing to expand our base of supply for those.
Okay, Great and then secondly, it's just kind of an odd question I'm wondering if you as you point out of your storage give use through sort of near term resilient, but that's not going to get you through 72 hours and PGD shutting down but there are some bugger cases to be made for storage in terms of time shifting in time abuse. So.
Have you seen anyone look at a solar plus storage plus backup power configuration is that happening.
Yeah that is a that's a request that we hear a repeatedly from a repeatedly from our customers at this point and you know we believe we're in a great position to be able to solve that and Ah. That's that's something that you know as we go forward. There is a you know there's there's a there's a really good case to be made.
For.
The the durability of a system like that and in fact with natural gas prices, where they're at in terms of just you know as low as they are the ability to produce your own power on site.
For the purposes of either charging your your storage system or perhaps using some of that power.
To extend the resiliency you know you know again, either as a as a battery charging system and or as a substitute.
For the battery itself at the battery gets fully depleted. We believe there are some use cases, there and I think that's a that's a product that you will see in the marketplace here.
In short order.
And I will now turn the call back over to Mike Harris for closing remarks.
We want to thank everyone for joining us. This morning, we look forward to discussing our second quarter earnings results with you in late July Thank you again and goodbye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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