Q2 2020 Generac Holdings Inc Earnings Call
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Okay.
Thank you joining me now.
It's updated guidance and the out what portion of our prepared remarks. This morning.
No discussing our second quarter results in more detail.
Shipments for home standby generator during the quarter once again increased at a very strong rate compared to the prior year driven by the heightened awareness since the onset of covert 19, and also benefiting from the elevated outage activity in awareness events in recent years, an above average herky forecast for 2020, and a significant increase in demand in California.
Several key metrics that we monitor closely for home standby demand continued to be exceptionally strong during the second quarter.
Activations grew at a very substantial rate compared to the prior year with broad based strength across all U.S. reagents and Canada.
This strength was led by robust growth in the West region, driven by California, and the south central and southeast regions. The combination of in home and virtual consultations rose dramatically during the second quarter with broad based strength across the country, an outsized growth in California, Florida, and Texas in particular.
More importantly home consultations during the quarter experienced strong growth in every single state in the contiguous U.S., which we believe supports our view the emerging home as a sanctuary trend.
The power outage severity environment also continues to trend above baseline levels with outages significantly higher during the second quarter relative to the prior year.
In fact outage severity on a trailing 12 month basis has notably exceeded the long term baseline average in recent years.
We also ended the second quarter with over 6700 residential dealers an increase of approximately 650 were 11% compared to the end of the prior year second quarter.
This includes a significant increase in California wrapping up to over 450 dealers at the end of the quarter from approximately 200 dealers at the end of the prior year second quarter.
More recently early in the third quarter. These key demand metrics for home standby have continued to be much higher relative to prior year levels.
Specifically regarding home consultations as previously discussed during our last earnings call. We mentioned that April home consultations were up approximately doubled versus the prior year and since that time, there's tremendous strength has continued through July.
We believe this increase can be attributed to several factors overall power outage severity continued to trend above baseline levels second half predictions for a well above average Atlantic hurricane season, the prospects for an active wildfire season in California.
And now the emerging trend of Americans viewing their homes or the sanctuary.
Importantly, our dealers now have the ability to offer a homeowner a traditional in home consultation or one that can be largely conducted remotely, which we're referring to as a virtual home consultation or V. H C.
During the second quarter, we rolled out the VHP process through aggressive communication and training and to date, our dealers are experiencing similar close rates and sales cycle times in relation to the in home visits they have traditionally used.
Recall that our previous guidance anticipated a decline in close rates, assuming a lower consumer spending a buyer environment during a pandemic.
However, overall close rates have actually remain consistent with historical trends, which gives us confidence to raise but look for residential products for the full year.
Also the exceptional strength in home standby demand is occurring much earlier in the year than normal before we even entered the heart of the hurricane and wildfire seasons, which typically doesn't occur until the latter half of the third quarter or early into the fourth quarter.
Should these additional events materialize, we could see additional growth, particularly for portable generators.
With demand for home standby generators, and an all time high we're working to aggressively ramp our supply chain and production levels to satisfy the increased demand for these products and we're targeting to be at record daily build rates by the fourth quarter.
This production ramp also includes the official launch next week at the industry's largest air cool generator, a 24 kilowatt machine that will add to our broad product offering and increase our competitive advantage in the market.
This product comes on the heels of a number of other industry, leading features and products introduced over the last several years that have continued to advance our goals of driving the availability affordability and awareness of the home standby generator category.
Further lending supportive of in emerging home as the sanctuary trend. We also experienced strong growth for our chore products during the quarter, which significantly exceeded our expectations.
Recall that Youre products consist of a wide range of specialty outdoor power equipment, including feel them Rushmore shipper shredders log splitters, some grinders and pressure washers and are used in a variety of power property maintenance applications.
The strength experienced during the quarter was led by the sale these products directly to consumers as homeowners increased outdoor project activity, while spending more time at home.
So far in the third quarter demand for these products continues to outpace normal seasonality as homeowners spend much more time in the yards working on outdoor projects.
Rounding out our discussion on residential products as an update on clean energy.
The secular growth opportunity within the U.S. market for energy storage and monitoring systems remains very compelling through a combination of changing regulations advancements in technology is improving economics and the increased resiliency desired from these products.
Although shipments of our recently launched power sell energy storage systems contributed to the company's year over year growth in the second quarter. They declined on a sequential basis as the overall solar market was negatively impacted by a sharp drop in the pace of installations as a result of the koeppen 19 pandemic.
The decline of solar installations was due to permitting delays and other restrictions, including certain instances, where this activity was deemed not essential by certain state and local municipalities.
The consensus expectation for the solar industry is a for a V shaped recovery for installations during the second half of the year.
Based on this outlook and the visibility we have through existing orders and our sales pipeline along with recent trends for home consultations and system Activations, we're still expecting strong sequential improvement in power sell shipments during the third and fourth quarters.
But the overall pullback in the solar market during the second quarter. We now believe shipments of energy storage systems for full year 2020 to be at the low end of our previous guidance range of 125 to 150 megawatt hours of product.
This outlook remains significantly ahead of the expectations, we discussed during our Investor Day last September which reflects our success in the marketplace to date as well as the increasing level of solar plus storage attachment rates that the industry is experiencing in part driven by homeowner concerns over backup power.
Despite the cobot 19 pandemic, we're making good progress and building out our clean energy dealer base ramping our technical support capabilities and reducing our system costs.
In addition, we continue to be excited about our new Sonova partnership we're off to a very encouraging start as we have begun engaging and providing leads to their distributors.
We see the relationship as a strategic partnership and expect a solid sales ramp starting in the third quarter.
We're also make important strides and growing this nascent market through targeted advertising lead generation and virtual in home sales capabilities.
Our new clean energy infomercial. It began airing earlier this year continues to be very well received and is driving good lead volume into recently into our recently launched lead management and selling system that we call Powerplay CE.
We've also made important progress thus far in 2020 in developing and innovative pipeline of new products they'll be coming to market over the next several quarters.
We believe these new products will further enhance our competitive position and differentiation in the energy storage monitoring and management market and will ultimately provide what consumers really want a whole house storage solution with load management capabilities that can provide energy independence.
Well the impact of the pandemic has resulted in a brief softening in the market for energy storage for 2020, particularly in the second quarter. We believe the longer term drivers remain firmly in place.
With installations of these systems still forecasted to experienced exceptional growth over the next several years. We believe we are favorably positioned to participate in that growth by leveraging our strong brands innovative product portfolio and lead generation capabilities.
With regard to I've seen I'd products, it's quite clear that the cobot 19 pandemic is having a significant adverse impact on the overall market for power generation and related equipment, given major declines and GDP growth rates around the world.
Domestic shipments have seen I products declined during the second quarter in a significant rate as compared to prior year.
But were modestly ahead of our expectations as discussed during our last earnings call.
As expected shipments of mobile products, a national rental account customers declined significantly during the quarter, primarily due to the continued impact of the pandemic and the collapse in oil prices.
Recall that demand for mobile equipment was already softening at the beginning of this year as many of our national rental customers were deferring some capital spending.
The sudden decline in economic activity and corresponding drop in fleet utilization in March forced them to further and dramatically reduce equipment purchases, which has carried over into the second quarter.
Shipments the National Telecom customers also declined at a considerable rate on a year over year basis as compared to a strong prior year comparison as these customers initially de prioritize capital spending certain capital spending in response to the current environment.
Additionally, with the formal approval of the merger of T Mobile and sprint on April Onest capital spending for these companies is expected to be lower in the short term as they combine and rationalize their network assets.
Recall that demand trends with telecom national customers can vary from quarter to quarter based on the timing of capital deployment and project planning cycles.
Lastly shipments of see an eye stationary generators through our North American distributor channel were also lower in the quarter. As this channel began to experience the impacts from a decline in project quoting as non residential construction activity continues to slow.
However, the significant decline in quotations for new projects experienced in March and April during the onset of the pandemic has recovered somewhat in recent months, which has improved the overall outlook for this channel for the remainder of the year.
Additionally, our seeing eye products outlook now includes the recent acquisition of energy systems, our industrial distributor located in North Northern California.
This acquisition enhances our ability to serve what we view as one of the largest power generation markets in the U.S. for both see an eye and residential products.
We want to welcome the approximately 50% team of energy systems into the generate family and look forward to expanding our presence in the rapidly growing California market.
As expected the ongoing global pandemic had a significant impact on demand outside the U.S. and Canada during the second quarter.
As Cobot 19 moved from China in January to Europe in February and then on to Latin America. The first quarter demand environment was challenging and worsened considerably during the latter part of that period and into the second quarter.
At GDP growth rates were sharply reduced around the world revenues for our international segment in the second quarter declined approximately 25% on a core basis compared to the prior year.
These declines were broad based in almost every market that we serve and magnified the slower economic growth and geopolitical headwinds that were already being experienced in recent quarters. Despite this weakness overall international revenue during the second quarter moderately exceeded our expectations and our current full year outlook is also slightly more favorable for this business has certain reach.
In such as Europe are trending better than previously feared.
Recall that last quarter, we discuss the execution of between $25 million to $30 million of cost reduction initiatives that we were targeting across the business to address and expected slowdown in demand from the impact of the current virus pandemic.
Given the magnitude of the downturn in demand for seen I products, where shipments declined 33% over the prior year, we initiated a number of meaningful restructuring actions for this part of our business during the second quarter to better align our cost structure with current global customer demand trends.
Accordingly, as the as reported in our earnings release earlier. This morning. The second quarter includes 11.5 million a pre tax charges related to business optimization noncash noncash asset write downs and other restructuring costs with the vast majority related to see an eye products.
The specific restructuring efforts were mostly within our mobile in international operations and include work Furloughs and head count reductions as well as a recording of a number of noncash asset write downs.
We believe these actions are necessary to address the longer term negative impacts from the pandemic and we estimate the cost reductions will yield approximately $10 million to $12 million of annualized cost savings once fully implemented by the end of the year.
With the strengthen our residential business. The original cost reduction actions are more muted as the $25 million to $30 million of initial savings are partially offset by incremental incentive compensation and headcount investments given our increased outlook.
Although near term market conditions are challenging for these businesses, we remain optimistic on the long term opportunity for mobile products, which aligns with an expected fleet replacement cycle nearer term and the compelling mega trend of much needed infrastructure investments around the world.
In addition, the secular growth opportunities remain intact from international businesses, including the increasing penetration of home standby and natural gas generators for commercial industrial applications alongside the market share opportunities in supply and critical support equipment for wireless telecom sites and entering entering the emerging space for energy storage for both residential and Cnine applications.
In closing we remain very excited about our future growth prospects, which are driven by several mega trends and powerful macro SEC secular drivers and we will continue to aggressively invest in the strategic initiatives that aligned with generates powering our future strategy.
Demand for the company's residential generators continues to benefit from the trend of increasing power outages as a result of more severe weather driven impart by global warming.
And as we have discussed this morning recent demand for these products are now clearly benefiting from the new and emerging homes. The sanctuary trend with millions more working learning shopping entertaining and spending much more time at home.
In addition, we're confident that once we get through this pandemic future growth prospects for our Cnine products remain compelling driven by the increasing penetration of natural gas generators in a wide variety of applications. The major investment cycle need for legacy infrastructure and wireless telecommunications shifting to Fiveg architecture.
We're also extremely excited with the long term growth opportunity for our clean energy products, including the potential will leverage and combined our new capabilities and energy storage monitoring and management with our core competencies and strategies with natural gas generators.
We believe this will better enable us to enter new and adjacent markets that aligned with the evolving mega trend around the disruption to the traditional electrical utility model, including decentralization of the grid and a migration towards distributed energy resources.
I'd now like to call. It turn the call over to York to provide further details on our second quarter results Youre.
Thanks Aaron.
Looking at our second quarter 2020 results in more detail.
Net sales increased $546.8 million during the second quarter of 2020 as compared to 541.9 million in the prior year second quarter, resulting in core sales growth of approximately 1%.
Looking at consolidated net sales for the second quarter by product class.
Residential product sales during the second quarter increased 27.2% to 341.4 million as compared to 268.4 million in the prior year.
As Aaron already discussed in detail home standby generator sales continued to experience very strong year over year growth, which was approximately 30%.
Supplementing the home standby strength during the second quarter was a significant increase in shipments a portable generators, primarily as a result of the much higher power outage activity in the current year quarter and the overall needs for backup power since the onset of cobot 19 pandemic.
The growth and residential product sales also benefited from the higher shipments a chore products along with the shipments of the recently launched power So energy storage systems.
Commercial and industrial product net sales for the second quarter of 2020 declined 32.8% to 154.9 million as compared to 230.4 million in the prior quarter with a core sales decline of approximately 31% when excluding the unfavorable impact from foreign currency.
The significant weakness in shipments of Cnf products was broad based both domestically and internationally.
The continued negative impact to the cobot 19 pandemic accelerated the deferral of capital spending with our national rental account customers.
In addition shipments to telecom national accounts declined sharply as T mobile took a pause and capital spending following the merger with sprint.
And shipments to industrial distributors also declined during the second quarter.
Internationally Cnf products declined 27% compare to the prior year on a core basis due to the continued broad based sharp drop in global demand caused by the pandemic.
Net sales for the other products and services category, primarily made up of aftermarket service parts product accessories extended warranty revenue amortization and other service offerings increased 17.4% to $50.6 million as compared to 43.1 million in the second quarter of 2019.
The larger installed base of our products higher power outage.
Outage activity and higher levels of extended warranty revenue drove this increase versus the prior year.
As previously discussed second quarter results include the impact of 11.5 million a pretax charges relating to the business optimization and other restructuring costs to address the impact of the cold at 19 pandemic and decline in oil prices.
The cost actions taken include certain head count reductions noncash asset write downs and other charges the charges, which primarily to really relate to see unite products globally consist of 6.3 million classified within cost of goods sold.
And 5.2 million classified within operating expenses.
Excluding the impact of these charges gross profit margin improved 330 basis points to 39.4% compared to 36.1% in the prior year second quarter, and operating expenses increased 9.3 million or 8.9% as compared to the second quarter 2019.
Adjusted EBITDA before deducting for non controlling interests as defined in our earnings release was 123.1 million or 22.5% of net sales as compared to 111.9 million or 20.6% of net sales in the prior year.
This 190 basis point improvement in EBITDA margin was primarily driven by the impressive gross margin expansion during the quarter due to favorable sales mix, partially offset by the increase investment operating expenses and the early ramp of our clean energy products.
I will now briefly discuss financial results for our two reporting segments.
Domestic segment sales increased 9.3% to 460.8 million as compared to 421.5 million in the prior year quarter.
Adjusted EBITDA for the segment during the quarter was 121.3 million or 26.3% in net sales as compared to 103.7 million in the prior year or 24.6% of net sales.
International segment sales, which consist primarily of Cnf products declined 28.5% to 86.1 million as compared to 120.4 million of the prior year quarter.
Core sales declined approximately 25% versus prior year, when excluding the unfavorable impact of foreign currency.
Adjusted EBITDA for the segment during the quarter before deducting for non controlling interests was 1.9 million or 2.2% of net sales as compared to 8.2 million or 6.8% of net sales in the prior year.
Now switching back to our financial performance for the second quarter 2020 on a consolidated basis.
As disclosed in our earnings release GAAP net income attributable to the company in the quarter was 66.1 million as compared to 62 million for the second quarter of 2019.
GAAP income taxes during the current year second quarter were 18.5 million or an effective tax rate of 22.5% as compared to 18.8 million or an effective tax rate of 23.4%.
The decline in tax rate was driven by a 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 a dollar two cents in the second quarter of 2020 compared to 98 cents in the prior year.
The specific calculations for these earnings per share amounts are included in the reconciliation schedules of our earnings release.
Adjusted net income for the company as defined in our earnings release was 80.5 million in the current year quarter or $1.40 cents per share versus 74.9 million in the prior year or $1.20 cents per share.
Cash income taxes for the second quarter of 2020 were 13.9 million as compared to 14.1 million in the prior year quarter.
The current year now reflects an expected cash income tax rates of approximately 17% for the full year 2020, which is consistent with the prior expectation at that time.
Cash flow from operations was 101.8 million as compared to $8 million in the prior year second quarter.
And free cash flow as defined in our earnings release was a positive 89 million as compared to a negative 9.8 million in the same quarter last year.
The increase was primarily due to a significant working capital investment that was made in the prior year, which did not repeat in the current year, along with modestly higher net income and lower capital expenditures lower capital expenditures during the current year quarter versus the prior year.
Before discussing our updated outlook for 2020, it's important to reiterate our healthy balance sheet and liquidity position at the end of the second quarter, 2020, which allows us to confidently operator business and execute our strategy even in this uncertain world.
As of June Thirtyth 2020, we had $689 million liquidity comprised of 397 million of cash on hand, and 292 million of availability on our ABL revolving credit facility, which matures in June of 2023.
Also total debt outstanding at the end of the second quarter was 896 million net of Anam unamortized original issue discount and deferred financing costs.
Our gross debt leverage ratio at the end of the second quarter was only 1.9 times on an as reported basis.
Recall that in December 2019, we amended our term loan credit agreement, which among other things extended the maturity of the term loan to December 2026, and we do not have any required principal payments on this facility until maturity date.
Also recall that there are no financial covenant on the term loan.
And it has a low cost of debt of LIBOR, plus 175 basis points.
In addition earlier this year, we entered into some and additional interest rate swap arrangements that hedge or fix our interest rate exposure on approximately 500 million of this debt through the maturity date of December 2026.
Further enhancing our overall liquidity as our strong cash flow profile and over the last 12 months ended June Thirtyth 2020 cash flow from operations and free cash flow were impressive at approximately 400 million and 350 million respectively.
Lastly, 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 and our approach for capital deployment remains disciplined balanced and consistent.
With that I will now provide comments on our updated outlook for 2020.
While we still expect the impact of Cobot 19 pandemic on global Sea and I products to be severe demand for our residential products has been extremely strong and overall better than expected benefiting from the emerging home as a six short sanctuary trend and a continuation of other fundamental drivers, which drove significant revenue outperformance during the second quarter and is driving a much.
Our outlook for the second half of the year.
Furthermore, our residential products have historically proven to be more resilient intended to decouple from the broader economic environment as demand is more driven by power outages and power outage severity has continued to be favorable during 2020 relative to historical baseline levels.
As a result of the incremental residential strength being experienced we're raising our guidance for revenue growth for full year 2020, as we now expect overall net sales growth of approximately 5% to 8% versus the prior year, which compares to the previous guidance of 5% to 10% decline.
At the mid points.
That is 14% additional rubber revenue growth outlook between guidance statements.
These growth rates assume normal baseline power outage activity for the remainder of the year as well as the benefit of one significant power shopping event in California and recovery of the solar market during the second half of the year.
Net sales for residential products are now expected to see significant year over year growth for the full year 2020, as compared to the previous expectation of mid single digit growth.
And seen I products are still expected to be down significantly versus prior year, but slightly better than previously expected based on our prior guidance.
As a result of improved operating leverage and favorable sales mix compared to previous guidance. We're also raising our margin expectations for full year 2020.
Adjusted EBITDA margins now expected to be approximately 21.5% to 22%, which is an increase from the 19% to 20% previously expected.
This updated baseline guidance implies that adjusted EBITDA margins in the second half the year will improve by approximately 300 basis points as compared to the first half of the year, which is largely due to improved operating leverage on higher sales volumes and favorable sales mix.
Our baseline guidance anticipates that net sales and adjusted EBITDA margins will improve sequentially between the third and fourth quarters as we ramp up home standby production throughout the second half of the year.
Specifically net sales in the fourth quarter are expected to be appreciably higher on a sequential basis over the third quarter, even higher than normal baseline seasonality due to higher levels of home standby production during the fourth quarter with a further margin benefit from the improved operating leverage on the higher sales volumes.
Should the outage environment in the second half of 2020 be higher than our baseline guidance due to an active hurricane season, and widespread utility shut off in California, approximately 2% to 3% of additional revenue growth as possible beyond this baseline guidance.
This upside potential is now expected it to consist of heavier mix of portables as production for home standby generators is currently ramping up to meet existing demand.
Operating and free cash flow generation for the full year 2020 is expected to remain strong with the conversion of adjusted net net income to free cash flow now anticipate paid to be approximately 90%.
Reflecting the additional working capital investment required to ramp up our operations in response to higher demand.
Lastly, interest expense is now expected to be approximately $33 million to $34 million for the year, a $3 million decrease from previous expectation, primarily as result of lower market interest rates.
The remaining guidance items provided in the previous earnings calls are not expected to change.
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 keypad. We ask that you. Please limit your question to one question and one follow up question Tim They've your question from the key press the pound key please standby Paul we compile the roster.
And your first question is from Brian drop with William Blair. Please go ahead.
Good morning, Thanks for taking my questions.
Okay very good morning.
[music].
You mentioned.
We see the consultations are way up.
To Q.
Did you quantify that or can you quantify that what do you see for total.
Consultations in the second quarter year over year, and specifically in California, and the last time, you said there are panamaxes it's still.
Our tenants for the quarter.
Yes, it's up Big Brian I mean, we haven.
Quoted specifically, what what theyre up but.
I think to stick to the prepared marks remarks here that theyre up double again here in July kind of third quarter. So it's it's a continuation of that theme right. So we were up double in April up double here in July you can kind of back into probably what's in the middle there but.
California is up Big continues to again off of a fairly low base.
And we will start coming up against some more difficult comps during the back half so you're not going to get the tax types in numbers we had.
Quoted back in April but.
California is a big part of the increase but I think I just point out one one comment we made this morning, and probably a thing floors me and I've been around this business along time.
Every single state in the contiguous us saw really strong growth in icees or home consultations during the quarter, which.
Is amazing to me I mean, I just the widespread nature of this it's it's like a it's like I kind of like a major event in every.
Corner of the us.
So Eric.
So I.
I think the palm Standalone was up about 30% in the second quarter and you raised the guidance by about 300 million at the midpoint. I know you said cnine is going be a little bit better than you previously expected but.
As it is it fair to say kind of embedded in the guidance is like close to 30% growth in home standby now for for 2020.
Yeah, it's going to be.
It it's maybe not that rich, but it's going to be in that ballpark and if you look at that 300 million dollar increase that you.
You mentioned it in an increased guidance said roughly maybe two thirds of that is going to be home standby. So.
A really strong growth at all it also willing to do what Aaron just mentioned that it's very broad based.
It's not just on just California, it's not just Florida.
Every state there's high level of interest and we're seeing.
The the ITC those wells than the the lagging indicator of Activations.
[noise] strong on a broad based basis, which.
Gave us confidence to.
With with the raising the guide.
Thanks, and then just the last question for me if I could.
I'm curious given that you're seeing growth in every state in the U.S.. It's unprecedented there's this.
Tom as the sanctuary trend are you seeing increased demand for your home standby products in the international markets now I know that scenario, where you no longer term you're hoping that.
Great further.
Yes, I mean, we have we've been seeing growth pretty consistently in home standby internationally. It's it's off a very small base obviously, but.
I think that the the bigger challenge around the international markets that Weve as we kind of built that out.
Is the certifications and compliance are different from country to country in and frankly, even within countries or it can be a bit confusing and because the category is new and a lot of places.
I would point to one example, I mean, Australia, which we've had we've kind of coveted as growing.
As a growing home standby market over the years, just the relative difficulty in trying to get our product certified to all of the standards that Australia keeps throwing at the category. So we're finally, there and we've been we've been pushing those products into the country, there and they've been well received but.
Again, it's going to is going to take awhile to grow but.
Longer term theirs as you mentioned, Brian we we believe that internationally there is and will there won't be any market. It looks like the U.S., we don't think but there are definitely pockets of demand.
Geographically that will will be.
We'll be able to participate in.
And your next question is from Mike Halleran with Baird. Please go ahead.
Hey, good morning, everyone, great quarter to good morning, Mike.
So maybe you could talk a little bit about lead times on the home standby side.
What the conversion looks like another conversion from in whom.
Consultations to somebody booking something is good but what is that what does that look like then from conversion of order into actual installation were delivery and then maybe just a little more context around why the sharply in Q3 Q4, Q above normal seasonality units that just relates to lead times or some other sort of indicators there.
Yes, Mike I'll take the first part that question and I'll leave the second part to York, but.
So on the on the first part just in terms of backlog in demand and just kind of what what things look like.
Obviously, the robust demand, there's seasonality normally in home standby, but but normally it happens kind of like around now and kind of going into August we start to see it pick up kind of.
Latter half as third quarter going in the fourth quarter Thats been the near normal seasonality the category for 20 years. This year. It's just it started three months earlier Fourmonths earlier.
Really as the pandemic took hold.
And so we began ramping right away, we keep safety stock levels.
Ahead of events because of its can happen throughout the year using a can get ice storm in the wintertime you can get other events that are.
Not in the normal seasonal cadence. So we do keep safety stock levels and we obviously have finished good levels in our warehouses and then we have a fairly robust field inventory as well of home standby that we talk about from time to time.
All of those things are really low right now [laughter] feel inventory levels in terms of days of activated product are extremely low our our field. Our our excuse me finished good levels are very low.
We would be I think in a in a backlog today. If you were to put a new ordering it's going to be a couple of weeks before you're going to get your hands on a machine.
Yes, the normal sales cycle takes time, though so normally there is a permitting process. So what what would've normally happen previously and weakness in this is repeats itself. Every time. We go through these types of demand surges is a dealer normally wouldn't our channel partner wouldn't normally order a product from us until they have a permit in hand, because it just a certainty to.
It they don't need outlay any working capital then for the machine and they can install it as soon as it's delivered all it does is it shifts the time when they order to ahead of when they get the permit so from a customer perspective, they may not have to wait any longer. So the order cycle just might be happening a little sooner. So we're watching that to understand the overall impact.
Think what's going to happen, though is as we move into what is the traditional season as that probably going to too.
Even more elevated or elongated in terms of the lead times and so we expect that we are working very diligently to increase production levels. In fact, we're the first time ever in our history, we're going to have a secondary site, where we produce home standby generators as we enter the fourth quarter here. So we'll have to physical sites.
We're producing the product it's been largely the domain of our whitewater, Wisconsin facility, but we're going to move production and expand production to a second facility.
And and we're going to levels, we've never experienced before I mean these are.
Really elevated levels of production, which is great. We made some key investments in automation about a year and a half ago that.
Look really really smart now [laughter], which we thought was going to help us kind of for the next three to five years that might help us for next three to five months.
And we're going to have to continue to invest beyond that.
Lights out we feel we're in decent a decent position we've been here before we know how to manage this.
And our teams are pretty savvy at it and I, it's fun when it's going like this it's fun. We've got we're trying to hire 400 people right now that's that's a challenge, but we'll get through that as well.
Got it say.
It's that the lead times are going to get longer and then I think on the ramp is sequential ramp lay of the seasonality just plays into what they're in talking about ramping up that production in something of that second locations that will that will start.
It really in the in the fourth quarter. So, we'll just have will be producing more product home standby generator product.
In the fourth quarter versus the third quarter that will sequentially drive more.
More more shipments and then on the clean energy side will be shipping.
As that builds up will be shipping more clean energy as well. So that's that's lead the main reasons for the.
The ramp higher fourth quarter versus maybe normal seasonality.
That makes sense and then.
Just some thoughts on the distribution side for the clean energy piece the battery piece.
Maybe just little more context, how are you seeing thats progressing competitive position.
For for the wins, you're seeing in the marketplace versus the broader marketplace in any context.
Yeah, I mean, we've had the products have been very I am incredibly well received and we're we're sending leads.
A lot of leads into the market.
Which one of the best ways, we've learned from our home standby experiences to.
Create really good engagement alignment with channel partners is giving them sales leads giving an opportunity to win.
In the marketplace. So that's been incredibly well receive and I think thats been the.
For us anyway, a great way to get the.
The conversation started at the ice breaker right.
I, though we talked about it on the prepared remarks, Mike the pacing of solar installs really took a hit in Q2 I just.
Yes, the pullback in a lot of if in fact, the using you got to California and.
And some other parts of the east coast, where solar installs are pretty popular.
They actually deemed those kinds of activities non essential so it was largely shutdown like hard shutdown like people weren't even answering their phones.
And for us because where the new Kid on the block. This is largely a ground game right. So in the early days here, we've got to engage people face to face we've got a shown the product they've got a touch and feel at CR selling system, our powerplay selling system.
There's just nothing there's really no substitute for face to face that transfer emotion of selling and so.
I can try to do a lot of things with a with a video conferencing call and we've done a lot of that was shifted to had virtually where we can with training and everything else.
But we still need that ground game and so we're encouraged by the fact that is starting to get back.
Back on track here, but we just we lost some momentum in the second quarter. Unfortunately.
We really had a head of steam come out of Q1 felt like we really were the kind of world was our oyster with this thing and then the pandemic hit but we're encouraged by.
What we're seeing early days, our Sonova partnership we called this out on prepared remarks, that's that's been really encouraging right. It's a great group of.
People in the industry that incredibly knowledgeable about the industry, we're learning a lot from them.
And.
I've been in close contact with.
Theres CEO.
And the rest of their team.
And we're continuing to expand our partnerships and build on kind of the early wins, we've had here, but we're really bullish on clean energy for the long term. This is really a long term play and where it's really starting to show us.
Yes, a much clear path around.
The changes that are coming the macro changes that are coming in the grid. The decentralization and we've got a line of sight on some pretty cool stuff here, both in our product pipeline as well as.
Just some thoughts strategically around where we can go with this in the future.
As we continue to diversify the company here into more of an energy technology energy solutions.
Type of play.
And your next question is from Chris Christopher Glynn with Oppenheimer. Please go ahead.
Hey, Thanks, good morning, and congrats on all the success here.
And I wanted to extend on the last point about.
It really I think alluding to potential for.
New business models around the decentralization of the grid.
Wondering where you are in terms of that.
Being this.
Gary versus being.
Tangible ideas and NSS is obviously a tangible idea that's manifesting.
Right now but.
Yes, just curious if there are other specific things.
That you're working towards along the lines the way you introduce DSS into the portfolio.
Thats a great question Chris.
And.
It seems like every day there is almost almost isn't a data goes by were our learnings are.
Our creating critical insights into some opportunities around exactly as you mentioned, new business models and new opportunities for Generac and for.
As as we think in particular about I'd look at our business World legacy.
Power equipment company right. That's why our 60 year history has been centered internal combustion engine technology.
Which is a great technology don't get me wrong and has had its own amazing advances.
I think you could probably make the argument that there's there's a sunset on some of that technology and so our our move into energy storage.
Our move into electrification.
Battery technologies.
The software platforms.
And the.
The amazing.
I mean, this up as high funky stuff the artificial intelligence and.
The algorithms and everything else that goes into this.
We've been introduced that in a big way through our acquisitions here and frankly through the pipeline, our M&A pipeline that that Mike and and team continue to work on here.
We see an incredible future and I I think we're in a super enviable position that in this industry and I'm talking more broadly in the clean energy industry, We've got a balance sheet.
Okay.
Gives us every right to go after some of this stuff in them in a very meaningful way.
And I think there is.
Theres, some really cool things that we could do in the future here timing around things again, we will speak to specifics on that but I'll call out one thing we announced in the quarter here. This partnership with virtual Peaker, which I think as it is a kind of a glimpse into some of the future virtual power plants, and where we can go where the industry.
He is going with distributed energy resources de ours and distributed energy resource management Derms their software platforms, but you aggregate these blocks of loading and so in the clean energy space. Most people have in considering these blocks of load to be storage items or a win win power or.
Other clean sources, and we look at natural gas generators, which in their own writer are quite clean.
We look at those is tremendous DDR potential.
And as the number one producer of backup gas generators in the world.
We're extremely excited about the potential marrying of the technology here the combination of all of this into something that.
Yeah, just kind of pencil it out could be incredibly meaningful I mean that the electric utility industry just in the us in the four trillion dollar annual business.
And that's going to change.
Through decentralization and through the.
The Mega trends that we've talked about around.
The grid 2.0, if you will.
And as we think about that and we just think about generac and our brand in our capabilities and our competencies.
We think that boy, that's a that's a space for for us as a place that we can play and Thats a place where.
We can really I think have an impact so thats kind of how we're thinking about it.
Thank you.
Our next question is from pilot Philip Shen with Roth Capital Partners.
Hey, guys. Thanks for the questions congrats on oil the quarter.
Outlook in and Oh.
As a follow up on that last question, just a little bit of.
Nit picky, well not nitpicky, but just the detailed question.
Have you guys started changing contracts or updating contracts with your.
Customers to give you more flexibility in new revenue generation sources and if not.
When do you expect to maybe start to do that or perhaps you're doing that with the new contracts, but haven't gone back to the old contracts to give you guys. The ability to maybe turn engines on to meet.
Capacity needs from the grid for example, yes on a go forward basis that certainly the case fell and we look at as we think about.
These blocks of power right, just think of a generator as a block of power being able to be used in a fashion.
By the customer by the utility by an aggregator third party maybe by the company at some point in the future new contracts and new.
The language expressed around how these products are being position in the market.
And there is some nuances there that are.
Both technical in nature, and then contractual in nature technical from product standpoint in that if you're going to run a product like a natural gas generator outside of an emergency.
So for non emergency purposes, there's actually some different levels of permitting requirements around the tailpipe emissions and some things there. So that certainly in terms of not necessarily a change in a contract as much as it has a change in certification of the product and so new products are being certified to a non emergency standard in a lot of cases.
We're having that type of dialogue with customers. So they can they understand that those products can be deployed in that manner.
Theres still certain limitations on that in terms of the hours in the warranties that go with those products. So all of that is rapidly developing on a go backward basis. So on a look back basis.
It's a different conversation depending on each customer and how they've configure their systems historically I think at least as we think about it today. This is definitely a future looking discussion.
But I think that we do need to figure out what the path looks like going backward and we also need to figure out quite frankly, just what are the economics look like right, who and what is the business model look like who participates in what level and to what degree.
And there is going to be obviously theres potential savings not only for the end customer but for kind of every person in the value chain. So we're kind of pencilling that out and we're we're talking as I said, there's a lot of people in this industry, who have looked at this over the years, we've done it to some degree actually even with generators. There's a couple of companies out there.
That have done it so as we talk to different people and we learn more about this.
And again the guy the guys. It Sonova I've been really helpful. On this because some of the the leadership on that team has been involved in this for a long time.
We're also starting to kind of centering on a couple of different business models that could work and and it's going to be really interesting to see how this plays out over the next 12 to 24 months, but I think though it will be able to give you more kind of clarity around that as as it develops.
Great very exciting.
Shifting gears to Youre, a 24 kilowatt engine.
Was wondering if you could give a little more detail on the timing of one that could be available at scale.
And I'm guessing because it's a higher powered engine.
Uhhuh instead of selling the 22, you might be selling more than 24.
So and I'm imagining theres, a better margin profile, that's associated with the 24 kilowatt and so with that better margin profile. Just curious on how you might use that margin do you think you would use that to go from 80 percents market share it even more with the one of your peers to claim.
Bankruptcy or do you think we should just look for just margin supports and expansion even for home standby.
Any forward, yes, no. It's a great question Phil and.
I'm I'm Super excited with the 24 can it is a piece of a machine. It is a cool it's our largest air cool generator is built on the same platform is the 22, but we have a new alternator that we put into the family which is the business ended the machine. The engine is actually roughly the same we were we were actually limited we were alternator limited in terms of output on the previous platform.
So the engine had some more ruminant that engine makes just tremendous power in a compact footprint.
But the alternator the frame size of the alternator was we were kind of limited to what we had to work with which.
And again not to get to technical but the size frame was just too small to get us above 22, So we invested heavily.
In a brand new engine platform over the last three years and that's been machine tooling as well when you.
Spool up into alternator, it's not just the design.
Engineering investment, it's the machine tool because we have to make us at scale and you're exactly right. We would anticipate there's going be a portion of the market. We're we've kind of model. The two ways. One there is going to be a portion of the market. The migrates from 22 kw on air cooled side to 24.
And then there will be we also believe there'll be a portion of the market that currently today as buying some of our smaller and liquid cooled product. So in particular homes in Florida, and Texas, where where we've just seen tremendous demand for backup power you have a lot of air conditioning loads wherever you have a lot of air conditioning load you, having a need for a high so.
Starting Kate motor starting capabilities, which leads to higher kilowatt machines that typically means that moves you from an air cooled platform to a liquid cooled platform, which is a sizable bump.
In terms of price point.
So and as a result that generally mix makes that a smaller market because affordability. Just is is not as just just not to not as great on that into the market. So we think theres, a cool opportunity here to take that and to to kind of go after it both ways.
In terms of availability, it's available Monday, we start making them Monday, we've been we've been maybe holding this on our hip pocket a little bit I've been working on it for a while.
Competitively, we think that's what we've got great market share, there's always an opportunity to go.
And.
Our our mission here has been to grow the market and alongside that we've just been able to continue to to grow our share of the market but.
When you are the leader in the market and you take all the innovation and things that we do and you continue to push on that.
I think it just it continues to fall into kind of kind of our lap in terms of share in and so youre right that we got some competitors, who are or maybe struggling a little bit more.
You know and some other fronts.
And we think there's probably an opportunity there to go after not only distribution, but just you know again, just broader share with with the increased product offering.
And your next question is from Mark Strouse with JP Morgan.
Yeah. Good morning, Thank you very much for taking my questions learning.
Morning.
Your 6700 dealers can you just talk about.
The percentage that are all our hurt opting to sell the the clean energy solution, how has that trended over the last couple of quarters and can you talk about the geography is is that really just California and why at this point or you kind of seeing that across the country.
Yeah, if markets, it's it's actually really broad based and again I think it follows the overall trends that we're seeing in terms of the interest level in the category. So the gross been broad based obviously as we called out California has represented about 250 of the 650, new dealers that we've added over the last 12 months to get to that 6700, So, California does have an outsize position, but of the 400.
Other dealers, it's pretty it's pretty well diversified.
To answer the other part of your question about the number of dealers that are also offering clean energy product. It's still so it's still relatively small that part of the thesis has played out a little slower than we would've liked it too.
And I think Thats, just that a couple of reasons why but our traditional legacy customer for home standby in that dealer is an electrician, it's an electrician its electrical contractor and frankly, they've just been a little bit slower to move on.
The shift to more clean energy technology products.
Where we have had a lot to really great success is signing new partners for our clean energy initiatives, So solar dealers on a direct basis.
The exciting thing is that almost every single solar channel partner that we sign is actually really interested in adding home standby generators to their product line because their customers are asking for a.
A system that can be resilient over time and that challenge with storage still to this point is economically it's just not a viable option in a multi day type of outage and so you really need to augment that system with a generator and so these guys are super excited I think it gives us.
Our unique competitive advantage in that we can offer basically a home energy system. It doesn't matter, if you're talking about a gas generator or.
Storage system or an energy monitoring system.
It really is a if we were kind of thinking about neutral or trying to think about our dealers going forward as home energy consultants right. We want them to think more broadly than just backup power just solar what to think about again is feeds really right back into that distributed generation play in that decentralized grid that we're talking about the future we think that the.
Away that's going to get served is through a channel of home energy consultants.
And that's going to look different than it looks today, but.
I think we're headed down the right path, it's just going to probably take some time to materialize.
Okay. That's helpful. Thanks, and then just as a follow up.
I have a high level question on margins.
Going back to your analyst day from about a year ago, you kind of put out a 21% targets for for EBITDA in 2022, you're trending above that this year I understand there's a mix issue this year, but you're just given the strength in home standby and the restructuring for the C. Eni business do you think the 21%.
Is the kind of the.
Still the right bogey to be targeting or do you think there could be potential upside to though.
Yeah. This is York I think obviously when the season I business does come back on the on the back end of the next cycle.
That will that will have an impact on margins I think the outsized impact on margins today is because that heavy home standby mix and and the declines on on the Cnine side and the international side. So I think the 21% still feels right one once the cycle returns but.
You know we will be updating you know that obviously periodically as we as we run our long range planning models and and.
Have a view towards what do margins look like three years from now on an updated basis, but I think to.
Once the cycle returns at 21% still feels about right.
And your next question is from Ross Gilardi with Bank of America.
Good morning, guys good morning Ross.
Yes, just sort of a couple of questions just on your clean Energy Guide I mean clearly the.
You got huge opportunity longer term, what you folks Dom.
But given what happened in second quarter, how long of a pot do you feel like it is to reach the low end of your guide you have.
That 125 to 150 do you look you have visibility on that or do you have to make like a lot of progress.
And.
The next two quarters just on order intake yeah. So we've actually got to we don't talk about backlog much in the in our businesses, but we actually have a really strong backlog position in that business. So we've already taken a lot orders in what we saw there was a shift in shipments from Q2 out.
So largely what the guide contemplates Ross is that we're just some of that stuff is pushing into the back half now.
Numerically or you can look at it and and I'm I'm as much of a skeptic as anybody else in with our own teams here you know on backend loaded.
Forecasts I I am I would much prefer to see.
A more steady ramp but this is the way, it's playing out and as I look I.
I'm one of the people I got to see it for myself. So I've been listening in on our clean energy business sales pipeline calls because I just want to I want to here, yes, I have to hear the tone in the in the voices and I got to you know even piping and ask a couple of questions, but I'm really encouraged by what I'm hearing because the team as you look like I said before it's a ground game, we got to get out in front of customers.
That's starting to open up again.
I could think back up if you get a second wave I, maybe but I think because of that backlog and because that.
The solar installs are happening and we track registrations everyday.
I was really encouraged we saw registrations on Sunday this past week coming out of our registration reports Monday morning, which is great. We haven't seen Sunday registrations, yet. So that tells me that the installed base is actually working over the weekend to get caught up so that I think thats assigned that's encouraging I would just little things like that we're putting it all together, but but make no no bones about.
Got it it's still a steep ramp the team is hanging in there we are coming in the lower end to that original guidance that 125 megawatt hours as opposed to the 150, but.
I think the sales pipeline that we have visibility to the backlog of we have visibility too I think it's very doable and the trends on a trend on one leads and that trend on leads and Activations are that's that's very supportive.
And then I'm going to two pronged follow up I mean are you are.
Are you, losing any leads because in the process of customers shopping there. They are actually realizing that a home standby generators, what they actually want which is that will be a high class problem, but you guys have said all along that you want to buy a generator as a backup power solution and buying and energy storage system is really more of an ROI.
Hi, and cost savings type of investment through do you think the consumers actually.
Tapping into that is that part of the reason why your home standby businesses. So strong and then I'm just curious on competition on the clean energy side, what you're seeing from the incumbents that seems like there's a lot of new products out there and are you seeing any copycats on your tier your turn key approach that is really focused on lightweight ease of use in you kind of your direct.
Marketing approach.
Yes, those are great questions Ross I mean that the.
No I mean.
The the market there is.
It is interesting. So we're doing these infomercials regular plant clean energy infomercials, and we have people, calling asking for home standby because they see the brand and the brand has become so strong and synonymous with a backup generator that it's just.
The imprint impressions that we're getting with the brand are just leading people ask about standby. That's a percentage of the calls we get the people are calling all about clean energy are pretty fixated on a storage solution. If they have if they if they if they understand.
What we're telling them in those infomercials they get that at that it's a different type of product that's what they want and in some cases I would say, it's more of maybe somebody who might have and looking at one of the competitive solution sets out there for energy storage that then sees our infomercial and that's what kind of spurs them to action into call us.
Clearly, though and I've listened to calls as we listen to our call centers, and we're actually bringing that call centers in house.
For clean energy here that starts next month in August and a couple of days here because we just it's it with what we're finding is a very technical sale.
It's just a complex sale. So we've tried to use outside call centers.
Our conversion rates are too low relative to what we think we should be seeing so we're going to bring that in house and we're ramping up a team of people internally here to do to take those calls so we're going to have an opportunity to refine our messaging a lot quicker, but but in the calls I haven't listening to.
And that the team has been listening to.
Yes, there are people, who sometimes come to the conclusion that what they really just want is backup power and that maybe the clean part of that which is for a lot of people, they're thinking about saving money on their energy bills that maybe that's a lesser goal for them than simply having a constant source of power in the event of a longer term outage.
So.
While there are these are concentric circles and there's some overlap in the two markets, we still see them as two separate markets.
But it's yeah, we have definitely had people tip over into the end again like you said, it's not a bad result [laughter].
In the end, we sell them home standby.
Yes, it's not a bad results. So I think theres cases, where they want to quote for both and then they make a decision and that's why I think like solar guys want to be dealers on that generators exactly yeah, Yeah, and then and the competitive response process to date. The second part the question and move on air but.
I think right now everybody in the industry is kind of got their own path right. So we're still a new kids on the block Im not sure everybody's convinced our path or our approach is going to be the one that everybody picks, but one thing we have centered on and you I said it in our prepared remarks, but a lot of the initial engagement with not only channel partners, but also in homeowners and others, they're looking for.
As a whole home solution.
And our system is beautifully situated for that type of applications. We've got the largest inverter seeing put the most power across the inverter, which means you can power a lot more things in your home with our system. Then you can maybe a competing system and the modularity in our in our yes S allows for people to step up in.
And add additional modules to cover more power to cover more more things in their home.
And then some of the things we've gotten our pipeline going forward around load control and the integration the much more tightly integrated backup generator pieces are really lend itself beautifully to kind of a whole home energy system. That's got.
And your next question is from Jerry Revich with Goldman Sachs.
Yes, hi, good morning, everyone and congratulations hi, Jerry.
Oh I'm wondering if you could talk about you know with the you're saying by business. We have the points of white, if you will with distributors.
Can we have a similar conversation across your channels for battery storage business. How many folks are active powerplay users or however, you want to frame it as we look at.
How much excess.
In the field within installers.
Yes, so gerry yet.
Let me start need to start talking about that a little bit more.
You know more pointedly, so that that thank you for bringing that up.
About 500, so far is what we got in terms of dealer base pulled together for our clean energy business directly, but again, there's a little bit overlap between the two channels, but not a ton at this point.
Yeah, I think you know that the.
The introduction of the powerfully CE tool I would say, we have a lower penetration of C powers Powerplay CE usage at this point with that dealer base than we do with our traditional legacy dealer at the 6700 dealers selling home standby, we have a higher percentage of those dealers using powerplay than we do in the powerplay see clean world at this point that's.
Really just a rollout and training thing just gonna take time to ramp them their brand new to it were brand new to it we have been doing some refining of the powerplay C product. We've got some really good feedback from the dealer partners on the usage of that early on.
We want to make it a platform that they can use.
For their business.
What kind of in terms of where we're targeting for total dealers for the full year here, we're kind of looking at about we think probably about 1200 dealers is where we would like to beaches and powerful here's an powerplay C and I know we've trained over 3000 half of solar installers to two to at least installing solar products right of which we want to have.
About 1200, using the Si systems and some work in process, though but look we when we know anything about what we've done with home standby its points of white matter.
That is a strategy that works the omni channel approach works.
And.
We're going to use that same approach in this clean energy market, because you've got to have representation everywhere and so we think that this is again, it's a ground game I keep saying that but but it absolutely as we've built background game over a 20 year period with home standby Im very successful with that and we believe that the playbook is relatively similar for.
Clean energy.
And Eric you mentioned that the.
So call center conversion rates were lower than you experienced at home standby lower than you expected can you can you just expand on that point are you not getting the conversion from the call lean into a qualified lead or is it a situation where once the installers onsite.
Good start can't close.
It's the conversion to a qualified leads so we get an inbound calls there's a percentage those calls it drop out immediately based on qualification, but then the so it's a conversion factor when we look at historically, how home standby kind of over the seven or eight years, we've been doing that how that kind of conversion rate has matured.
And we look at where we're at even early days with clean energy. We just feel like you know, we should be better and as we dig in and start listening on the calls we'll are finding is it's just a very technical sale a very complex sale. So a lot of pieces. There is a lot to explain to a homeowner and we believe that we're just going to need a higher grade of sales per se.
Effectively who has got some really good system knowledge.
Some really good knowledge of kind of how things not only work technically but but just to help the homeowner better understand what this product does and what they should expect from it.
So we're bringing that in house and.
And those conversion rates have been pretty low out of the gate, which yes, we didnt it wasn't completely unexpected we normally would see.
As we onboard certain new dealers you have the conflux of new dealers coming on board plus a complex sale were new to the market in terms of our brand translating to it. So we kind of expected low conversions. We just we're in patient people here [laughter] I'll be very honest I mean, it's just we just don't have a lot patients for stuff. So we try to instill a sense of urgency in or something.
Not working with why sit there and wait for it to work, let's do something about it. So we're moving that call center in house I think we're going to have better success with that.
And your next question is from Jed Dorsheimer with Canaccord Genuity.
Hi, Thanks, one of my question, Ben answer, but I do.
I do have a question on the resi side of things was there a particular model or skewer size that jumped out is.
In terms of high a seller or was it pretty even across that distribution and then they do have a question on the.
Clean energy side too yeah, Jed from that standpoint is that the 22 kilowatt has been our work horse in the fleet, but we have everything.
Everything has been strong frankly, a every single.
Part of the old product line, I would say, probably indexing a little bit more on the higher into the product line simply because the strength in the southeast that we called out specifically again higher air conditioning loads, the south and southeast have been very good markets for us.
And as such because they have.
Greater power needs it tends to it I would say, probably it's maybe skewing a little bit more towards that whole home solution in the higher kw air cooled lower kw electrical products.
Got it and then on clean energy two questions. So the first is you have a pretty clear conflict mineral policy in so I'm just wondering how you're thinking about the sourcing of mineral.
Around the battery pack and then second as you look at.
Where things are going with a whole home solution.
For example, and the combination of the pack as well the battery backup with say a 22 kilowatt generator. What are you thinking about in terms of control system.
Two.
To monitor loads and automatically switch back and forth. It I didnt see that is being available, but maybe I'm wrong. There. Thanks, Yeah, no great great questions that so first on the conflict minerals, yet we're working with our partners on supply chain to make sure.
That theyre fully compliant so I don't have all the nuances of that but I know the team has got that front center, we make sure that as we qualify new new companies. That's a really important thing that we have to to make sure. We're compliant with and that our partners are compliant with and that by the way is no small task.
As I think everybody and basically any industry can probably a test to maybe even more so in the clean energy industry given some of the minerals are going to these products.
Me.
The.
Product side of things your question, there with kind of an integrated fully integrated split system. The platform you're right today load management. So we have home energy management, so our him system, which by the way I should say that's going to ship.
Bundled in with every 24 kilowatt generator that'd be the first product for his legacy product where were packaging hams in as a standard feature which is pretty cool. So I think we have somebody asked the question previously about the differentiation there we're actually going to package hams with every one of those machines, which is I'm super excited about that because it just.
It gives us a ton of data I mean, the data that comes at US from homes is just so rich and so exciting but from load control you're right today not in the product available set will be tomorrow, we have in our roadmap some really cool stuff coming on load control and.
And alongside of the actual physical elements of load control right. So the capability to actually control.
Each circuit individually or.
You could go even further with that strategy down too.
And actual appliance level strategy in terms of control, but it's also the software that goes with that right. The the brains behind the system right. So that we can really create a smart load control system not just one that theres some systems out there in the marketplace. It frankly don't have the intelligence we believe.
That that are going to be required going forward. So we want to make sure that our system isn't just a hardware based approach, but also in integrated hardware software based approach that that work seamlessly with our storage system and our whole our home energy management system. So kind of we want to make it a one stop kind of turnkey.
Solution and we're getting close to that from a launch point I mean as a generator manufacturer were experts in power electronic we arent load control and then you couple that with a scenario technologies guys in Vancouver, who.
That's what base Thats, what they do and it's been incredibly helpful. I mean, our teams here were used to working with codes and standards.
[laughter] electrical connections and so our guys have and we've been working very very well together with the teams from NURI on Pike two to develop the solution sets.
And your final question comes from William Griffin with CBS.
Great. Thank you just a couple of quick ones for me.
Yes.
The.
Clean energy supply chain ramp in Vietnam, just wondering how thats progressing and are you still expecting.
Margin to be in line with the corporate average.
On that business.
Yes that the supply chain ramp has been has been going well I would say that there are a couple of the couple of our new product things that we've been kicking around here on the phone are probably a little bit a few months delayed because of.
Some of the things that with the pandemic that if kind of.
Created some.
And some challenges there, but but in terms of moving to the supply chain the new supply chain.
We've talked about that's going very well in fact.
Again, we we've got a really good line of sight to those corporate average margins by the time, we exit.
The year here.
We believe we're going to be kind of right on top of breakeven for that clean energy business by the end of the air and profitable as we exit the ended the year. So.
All of that is intact and we.
We continue to too.
Look at how we can continue to expand the supply chain as well because if we we think about the future here and what this could be.
We're going to need we're going to need more and bigger partnerships to.
To bridge to where we think we can go in the next three to five years.
Got it and then are you able to share how many megawatt hours of clean energy projects were shipped in the second quarter.
Yes.
It was down sequentially, that's out kind of we kind of spell that out so rather than kind of go kind of quarter to quarter here with that pacing, we just a or with a discrete number you know we've said it was was was down sequentially, but we're still sticking with the guidance range, albeit the lower end to the guidance range.
The 125 megawatt hours, but.
I think you know as you follow the industry.
You know as well on this and just that solar install.
Capability that got really hit hard.
In Q2, Thankfully, it's coming back online we have some really good evidenced that it is but we think the third and fourth quarters are going to be.
I'm going to be are going to be a lot of whereas a lot of growth to her in and get knee systems out there.
And I'll hand, the call back over to Mike Harris for closing remarks.
We want to thank everyone for joining us this morning, and we look forward to discussing our third quarter earnings results with you in late October. Thank you again and goodbye.
Thank you again for joining US today. This does conclude todays presentation you may now disconnect.
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