Q4 2020 Generac Holdings Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter and full year 2020 earnings call.
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Thank you. Please go ahead Sir.
Good morning, and welcome to our fourth quarter and full year 2020 earnings call I'd like to thank everyone for joining US. This morning with me today is Aaron Yogh film, President and Chief Executive Officer, and York Ragen, Chief Financial Officer.
We'll begin our call today by commenting on forward looking statements certain statements made during this presentation as well as other information provided from time to time on <unk> Arts 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.
Our SEC filings for a list of words or expressions that identify such statements and the associated risk factors.
In addition, we will make reference to certain non-GAAP measures during today's call additional information regarding these measures, including reconciliation to comparable U S. GAAP measures is available in our earnings release and SEC filings I will now turn the call over to Aaron.
Thanks, Mike Good morning, everyone and thank you for joining us today.
The fourth quarter was a tremendous finish to 2020 for <unk> with all time record performance for both the quarter and full year net sales adjusted EBITDA, adjusted EPS and free cash flow.
Fourth quarter shipments margins and profitability were all well ahead of our previous expectations.
The revenue outperformance was primarily due to higher shipments of home standby generators from better than expected production output.
We're also pleased that shipments of power cell energy storage systems matter of aggressive expectations during the quarter.
The ongoing elevated level of power outages combined with the emerging home is a sanctuary trend continuing to drive unprecedented levels of demand for home standby generators across the entire U S. We.
We continue to aggressively ramp production levels for home standby throughout the fourth quarter. The all time record daily build rates.
Despite this expanding production the ongoing robust demand created substantial backlog for these products at the end of the year far exceeding anything previously experienced in the history of the product category.
Year over year overall net sales increased approximately 28% on a core growth basis as compared to the prior year quarter.
This growth was primarily driven by the dramatic increase in sales of home standby generators, followed by the continued ramp of power cell energy storage systems.
In addition, the higher power outage activity also drove elevated shipments of portable generators and aftermarket service parts and short products also improved at a strong rate as compared to the prior year.
Partially offsetting this significant strength was a decline in shipments of C&I products, given the ongoing impacts of the COVID-19 pandemic.
Gross margin expanded 180 basis points compared to the prior year and adjusted EBITDA margin increased 380 basis points over the prior year to an impressive 25, 7%, which was the highest margin reported since the fourth quarter of 2013.
Before discussing fourth quarter results in more detail I wanted to provide some full year 2020 financial highlights as well as share some key accomplishments that we achieved during the year.
First and foremost I want to highlight the company's response to the COVID-19 pandemic is I'm extremely proud of our team's efforts in responding to the crisis as we focused on maintaining our operations to the fullest extent possible.
This was particularly important considering that our products and services are both essential and critical to help keep a variety of networks and infrastructure up and running including hospitals health care clinics 911 call centers on wireless networks.
Equally as important we accomplished this while at the same time implementing a wide range of preventative measures to address the health safety and wellbeing of our employees customers suppliers and the communities across the world, where we operate and do business.
Through the tireless execution of our nearly 7000 employees globally. During 2020 generic achieved another year of record financial results across the board and several metrics far exceeded the previous record level seen for the full year 2019.
Revenue grew 13% for the full year with adjusted EBITDA coming in at $584 million, an expansion of 290 basis points to 23 five per cent and we generated 427 million of free cash flow during the year.
Our ability to execute on the step function increase in demand for residential products that has emerged from the new home is a sanctuary megatrend was an important accomplishment during 2020.
In addition to building out of our clean energy market opportunity with a significant ramp in shipments of power cell energy storage systems was a key highlight.
We also expanded our product and services portfolio with the acquisitions of energy systems are in our industrial distributor located in northern California, and mean green a leading manufacturer of an innovative line of battery powered turf care products.
We also made the very strategic acquisition of <unk> power networks, which enables our entrance into the developing market for grid services.
We launched an important new products during the year with the introduction of the 24 kilowatt home standby generator. The market's most powerful air cooled unit with built in energy monitoring.
We also introduced the industry's largest rich Byrne industrial natural gas generator set at one on one megawatt of output, allowing us to target new market opportunities.
All of these key accomplishments as well as our execution on a number of other strategic initiatives enabled us to make important progress on our continuing evolution to an energy technology solutions company.
Our prior year accomplishments provide us with tremendous momentum as we head into 2021.
The guidance, we are initiating this morning calls for significant revenue growth of between 25% to 30% highlighted by unprecedented home standby demand continuing expansion of the clean energy markets and recovering C&I markets.
Adjusted EBITDA margin is expected to expand to $24 25 per cent for the full year 'twenty 'twenty one.
Near term supply chain concerns related to capacity constraints, increasing cost pressures in logistics delays across the business as we enter the new year.
Eric will provide more details on our 'twenty 'twenty one guidance on the outlook portion of our prepared remarks today.
Now let me provide a few more details on our accomplishments across the business for the fourth quarter and for full year 2020.
Several key metrics that we monitor closely for home standby demand continued to be exceptionally strong during the fourth quarter.
The combination of in home and virtual consultations.
Once again increased dramatically compared to the prior year broad based strength was experienced across the U S. During the fourth quarter similar to the trends seen in recent quarters, but the vast majority of states showing triple digit growth, which we believe provides further validation for the emerging home is a sanctuary trend.
Activations also grew at a strong rate compared to the prior year led by significant increases in the south central southeast and northeast regions.
The power outage severity environment also continues to be quite favorable and trended well above the long term baseline average benefiting from our record Atlantic Hurricane season early winter storms and continued power shut offs in California.
We also ended the fourth quarter with approximately 7300 residential dealers and increase of approximately 800 dealers over the last 12 months.
Includes the addition of a significant number of new dealers in California during the year as we enter 2020 with approximately 550 dealers in the state.
Importantly, thus far in the first quarter. These key demand metrics for home standby have continued to trend much higher relative to prior year levels.
Home consultations are tracking at approximately double the prior year levels through early February.
We believe this increase can be attributed to several factors that are leading to the product category, becoming more mainstream as homeowners have an increasing awareness of the need for power security as they continue to work from home learn from home entertained from home and shop from home.
But demand for home standby generators at all time highs, we continue to aggressively ramp our supply chain and production output and we achieve progressively higher record daily build rates throughout the fourth quarter.
We expect to further expand capacity for these products with our announcement yesterday of plans to open a new manufacturing assembly and distribution operation in Trenton, South Carolina.
The facility will support increased demand for home standby generators and certain other energy technology products and serve as a distribution center to customers on the south eastern part of the country, creating approximately 450, new jobs over the next two years.
The facility is expected to be operational by mid year and once fully ramped is projected to increase home standby capacity by approximately 75% relative to our previous normal levels. As we entered 2020 with the ability to further expand the facility well beyond its current size in the future.
Our operations teams did an amazing job during 2020 ramping production of our production output of home standby generators to record daily build rates by the end of the year, but despite the significant increase in output lead times for home standby generators continue to expand from the approximately 18 weeks at the end of 2022, approximately 20 weeks today.
As a result of a substantial backlog for these products continues to grow so far here on the first quarter. Despite our normal seasonal low point for residential products is home consultations on orders remained very robust.
Now I want to provide an update this morning on our rapidly expanding energy storage systems effort and recent entrants into the grid services market.
We made tremendous progress during 2020 with our continuing transformation into an energy technology solutions company as we significantly ramp deliveries of our power <unk> energy storage system and with our entry into the market for grid services through the <unk> acquisition last October.
The secular growth opportunity within the U S market for renewables energy storage energy monitoring and energy management systems remains very compelling and has considerable momentum as we head into 2021.
As previously mentioned shipments of our power <unk> energy storage systems met our aggressive expectations. During the first during the fourth quarter as revenue for these products continue to ramp as they increased approximately 75 per cent on a sequential basis and were a key contributor to the company's year over year growth.
Overall for 2020 shipments of power solar energy storage systems increased significantly during the first year of commercial launch, particularly during the second half and were in line with our previous guidance of approximately $115 million for the full year.
The tremendous growth in energy storage from essentially a startup business was due to the important advances we have made in growing our capabilities around marketing distribution product development and sourcing of these products.
We further developed and refined our targeted marketing in home consultation processes and have been very encouraged by the trends with sales leads for power cell systems as they continue to be strong during the during the fourth quarter and have increased further here in the early parts of the first quarter.
System, Activations, which are a proxy for installations and commissioning also continued to ramp notably during the fourth quarter with this strength continuing so far through the early part of 2021.
An important element of expanding our sales and marketing efforts for clean energy is the progress we continue to make building out the distribution network for these products as we trained approximately 4200 energy storage consultants are contractors in 2020.
We continue to receive positive feedback from our growing dealer base regarding the ease of installation the whole on power and capacity of the power cell systems in the qualified sales leads being generated for them.
We have continued also continuing to advance our supply chain capabilities through increased volume and reduce system costs and achieved our first full quarter of profitability during Q4.
We also had several important new product introductions last year, and we have a very strong pipeline of innovative new clean energy related products that'll be coming to market over the next several quarters. This includes deep integration with our legacy generator products and includes the launch later this year of a purpose built generator solution that can be combined with our solar and storage system to allow an end user to operate.
Independently of the power grid.
Additionally, we will be launching the ability to more easily and cost effectively add a power self storage system to an existing solar installation.
And later in 'twenty 'twenty, one we expect to launch on new load management system that will be paired with our existing power view energy monitoring platform to allow a homeowner to more fully control their power generation and consumption.
We believe this system will be an industry will be industry, leading in terms of the technology on cost and will enable far greater control of the circuit level. Then it is available today.
When added as part of our solar and storage installation, a homeowner could effectively tailor their system to optimize for lowest cost our longest duration or some combination depending on their preferences or certain other factors. An example would be to allow the system to react to a power outage by prioritizing those loads deemed critical by a homeowner to extend the duration of their available energy storage.
We believe these product launches will further enhance our competitive position and differentiation in the energy storage monitoring and management markets, because we focus on whole house storage solutions with load management capabilities that provide the energy independents and flexibility we believe consumers really want in these systems.
The solar plus storage market continues to expand rapidly and we expect to see significant year over year growth during 2021 and shipments of power cell energy storage systems are anticipated to increase substantially as we're expecting them to grow approximately 50 to 75 per cent as compared to 2020 levels.
Recall early in the fourth quarter that we closed on the acquisition of <unk> power networks, a leading distributed energy resources Technology company based in Denver, Colorado.
And that was best in class software platform called Concerto gives utility's grid operators and energy retailers the ability to connect and utilize distributed energy resources also known as D. E ours to help support the operational stability of the power grid, thereby enabling us to participate in the nascent and growing market opportunity for grid services.
D E R assets, which include our legacy residential and C&I generators power cell energy storage systems and load management devices can be connected to the power that can share to a platform and can be aggregated into a decentralized and virtual power plant network or V. P. P.
Our V. P. P provides flexible capacity to address peaks in electricity demand.
The ability in supply due to increasing use of renewables and when resiliency is needed as a result of power outages.
While still very early in the integration process, we have made progress in developing a roadmap for integrating imbalanced software into our existing generator products and energy storage systems as part of an overall plan to provide a full suite of solutions for utilities energy retailers grid operators and end users.
As the market for grid services continues to develop we believe the integration of <unk> technology will enable us to not only improve our value proposition to end users with our legacy products, but will also allow us to participate and develop new revenue streams in the years ahead.
The solutions will be built around our products that generate store and manage power and that can be aggregated in a controlled resulting in the potential for revenue from sales of software platforms turnkey operations services and ultimately performance services that can deliver megawatts megawatts of power.
All of these efforts are targeted at enabling the equipment, we provide to be connected more seamlessly as day ours and grid services applications and in turn improve the value proposition of these assets, which we will believe which we believe will lead to increased demand for our products.
Now shifting gears, let me provide an update on C&I as.
As expected the COVID-19 pandemic continue to have an adverse impact on the overall market for global C&I power generation and related equipment, given major declines in GDP growth rates around the world.
Uncertainty remains around the pandemic, we are encouraged that the year over year revenue decline moderated as certain end markets began to show signs of recovery.
As expected shipments of mobile products to national rental account customers continue to decline significantly during the fourth quarter, primarily due to the impact of the pandemic.
As we dealt with the challenging demand environment for mobile products throughout 2020, we focused our efforts on cost reductions and other restructuring actions, which we began implementing during the second quarter of last year.
As we enter 2021, we expect shipments to improve from prior year levels as national accounts rental customers increase their spending on free equipment.
We remain optimistic about the long term opportunity for mobile products as unexpected fleet replacement cycle begins and the compelling mega trend that remains intact around the critical need for infrastructure improvements, which could potentially benefit from economic stimulus.
Shipments to national Telecom customers increased at a significant rate during the quarter as compared to the prior year with the magnitude of the increased pacing ahead of our prior expectations. We continue to see indications from several of our large telecom customers of an improving outlook and we expect that to translate into very strong growth in shipments during 2021.
Recall that demand trends for these customers can vary from quarter to quarter based on the timing of their capital spending and their project planning cycles here.
Historically, however demand for telecom backup power tends to increase after periods of elevated power apps power outage activity similar to what was experienced with the outage environment during the second half of 'twenty 'twenty.
In addition revenue growth during the current year is expected to benefit from the power security mandate in California, which requires a minimum of 72 hours of backup power at all cell tower locations.
We estimate that this new requirement in the state which went into effect at the beginning of this year could lead to purchases between $100 million to $200 million in new equipment from.
From wireless operators over the next three years.
Also shipments to other national account customers are expected to show a considerable ramp in 'twenty 'twenty, one as we gained traction with our lead gas initiatives through increasing quote activity and improving project close rates for our natural gas generators, which are used in applications beyond traditional emergency standby power generation, including their use as distributed generation assets.
Lastly, net sales of C&I stationary generators through on North American distributor channel were lower in the quarter as expected due to the timing of shipments in the fourth quarter of 2019, which created a difficult prior year comparison.
As mentioned on our last call project quoting activity has largely recovered since the onset of the pandemic during the second quarter contributing to a higher backlog and improved overall order outlook for this channel and as a result, we're expecting growth to resume during 2021.
We're also expecting growth from the energy systems business, our industrial distributor located in Northern California that we acquired on July 1st of last year as our investments in integration activities begin to produce results on this large and rapidly growing power generation market.
Internationally the ongoing global pandemic continues to have a negative impact on C&I product demand during the fourth quarter as well.
At GDP growth rates slowed materially around the world in 2020 revenues for our international segment in the fourth quarter declined approximately 6% on a core basis when compared to the prior year.
This decline was driven by continued weakness in a number of key regions around the world, but overall international revenue during the fourth quarter was largely in line with our expectations.
Similar to our domestic C&I products business the international year over year decline in the fourth quarter was that a notably lesser rate relative to recent quarters as signs of recovery began to appear in certain regions.
While COVID-19 impacts are still being felt larger project quoting and order activity is increasing and we expect the international segment to return to solid growth during 2021.
Also it's important to reiterate that our international teams remain focused on several critical global initiatives around increasing the penetration of natural gas generators for residential and C&I applications expanding our share on the wireless telecom backup power segment globally, and entering new emerging energy storage market for both residential and C&I applications.
In closing this morning in recent years, we have continued to make important progress on involving our business model from a focus on clean energy products.
With a focus on clean energy products solutions and services aligned with the changing the changing legacy electric utility model.
In 2019, we began providing energy storage monitoring and management systems as clean energy solutions for residential use and last year, we entered the market for grid services involving distributed energy optimization and control software that will help support the operational stability of the power grid.
We've also been focused over the last several years on connecting the legacy standby generators, we manufacture.
Including building out our digital platform that creates tremendous value for our customers and our distribution partners over the product lifecycle.
As the leader in backup power solutions. We believe we are in the unique position to enable the potential utilization of these products as distributed energy resources on a very large scale, thereby providing us with a distinct advantage. It's a nascent market for grid services expands over the next several years.
Going forward, we intend to further build out our capabilities as an energy technology solutions provider through organic investment and continued acquisitions, we expect to.
To expand our energy storage capabilities beyond residential applications into C&I markets, and eventually globally and further expand our capabilities with energy monitoring and management devices and grid services.
These are incredibly exciting times at <unk>, because we've now built an incredible foundation for growth and we have the financial flexibility to be a major player on developing the energy grid of the future.
I'd now like to turn the call over to York to provide further details on our fourth quarter results and some outlook details for 'twenty 'twenty one.
Thanks Aaron.
Looking at fourth quarter and full year 2020 results in more detail.
Net sales increased 28, 8% to $761 1 million during the fourth quarter of 2020, and all time record as compared to $590 9 million in the prior year fourth quarter.
The combination of contributions from the energy systems mean, green and an umbrella acquisitions and the favorable impact from foreign currency had an approximately one per cent impact on revenue growth during the quarter.
Net sales for the full year 2020 increased 12, 7% to approximately $2 5 billion also an all time record for the company.
Briefly looking at consolidated net sales for the fourth quarter by.
By product class residential product sales during the fourth quarter increased 54, 6% to $498 7 million as compared to $322 5 million in the prior year.
As Aaron already discussed in detail home standby generator sales continue to experience robust year over year growth, which accelerated to over 40% during the fourth quarter as we made further progress increasing production levels for these products.
In addition to this strength shipments of power cell energy storage systems continue to significantly ramp during the quarter at the solar plus storage market expands at a rapid pace in the U S and we continue to build on our capabilities selling into this into the clean energy space.
Also contributing to the growth were a large increase in shipments of portable generators during the quarter, which benefited from the much higher power power outage activity as compared to the prior year.
Lastly shipments of chore products were also much higher during the quarter as the home is a sanctuary trend positively impacted demand for outdoor power equipment.
Commercial and industrial product net sales for the fourth quarter of 2020 declined eight five per cent to $198 6 million as compared to $217 1 million in the prior quarter.
The weakness on shipments of C&I products was experienced both domestically and internationally in the following areas domestically.
Domestically the negative impact of the COVID-19 pandemic continues our result, and our national rental account customers to defer capital spending for our mobile products and.
Shipments to our industrial distributors also decline against a particularly strong prior year comparison.
Partially offsetting these declines was a significant increase in shipments to national Telecom account customers.
Due to the capital spending outlook improving for these customers.
Internationally C&I products declined due to the continued weakness in demand across the majority of regions around the world as a result of the pandemic.
As mentioned, while still experiencing a year over year sales decline during the fourth quarter the rate of decline for C&I products continue to moderate or certain end markets begin to recover.
Net sales for the other products and services products and services category, primarily made up of aftermarket service parts product accessories extended warranty revenue remote monitoring subscription revenue and other service offerings, Inc.
<unk> increased 24, 4% to $63 8 million as compared to $51 3 million in the fourth quarter of 2019.
There was an approximate 7% benefit to net sales during the quarter from the impacts of the energy systems, and Ambala acquisitions and favorable foreign currency.
In addition, we experienced very strong growth in aftermarket service parts as a result of the higher level of power a power outage activity during the second half of the year.
A larger and growing installed base of our products also contributed to the increase versus the prior year.
Gross profit margin improved 180 basis points to 39 four per cent compared to 37, 6% in the prior year fourth quarter.
Operating expenses increased one.
$11 4 million or nine 7% as compared to the fourth quarter of 2019, but declined 270 basis points as a percentage of revenue excluding intangible amortization.
As a result, adjusted EBITDA before deducting for Noncontrolling interest as defined in our earnings release was $195 8 million or a very strong 25, 7% on net sales.
Compared to $129 1 million or 21, 9% on net sales in the prior year.
This 380 basis point improvement in EBITDA margin was driven by the significant gross margin expansion during the quarter, primarily due to the favorable sales mix, coupled with improved leverage of fixed operating expenses on the much higher sales volumes and tight cost control.
For the full year 2020, adjusted EBITDA before deducting for Noncontrolling interest came in at an all time record of $584 million.
<unk> in an attractive 23, 5% margin or a 290 basis point increase compared to the prior year.
I will now briefly discuss financial results for our two reporting segments.
Domestic segment sales increased 37, 2% to $645 1 million as compared to $470 1 million in the prior year quarter.
Adjusted EBITDA for the segment during the quarter was $188 million or 29, one percentage of net sales as compared to $122 9 million in the prior year or 26, 1% of net sales.
For the full year 2020 domestic segment sales increased 19, 8% over the prior year to $2 $1 billion.
Adjusted EBITDA margins for the segment were 27%, representing a 240 basis point increase compared to the prior year.
International segment sales, which consist primarily of C&I products declined $4, one per cent to $116 million as compared to $120 9 million in the prior year quarter.
Foreign currency had a net favorable impact of approximately 140 basis points on revenue growth during the quarter.
Adjusted EBITDA for the segment during the quarter before deducting for non controlling interest was $7 8 million or six eight per cent of net sales as compared to $6 2 million or five 2% on net sales on the prior year.
For the full year 2020 International segment sales declined 14, 1% over the prior year to $396 million.
Adjusted EBITDA margins for the segment before deducting for non controlling interests were $5 one per cent of net sales during the 2020.
Compared to five five percentage of net sales on the prior year.
Now switching back to our financial performance for the fourth quarter of 2020 on a consolidated basis.
As disclosed in our earnings release GAAP net income attributable to the company in the quarter was $125 million.
Compared to $969 6 million for the fourth quarter of 2019.
GAAP income taxes during the current year fourth quarter were $39 million or an effective tax rate of 23, 8% at.
As compared to $13 4 million or an effective tax rate of 16, 1% for the prior year.
The increase in effective tax rate was primarily due to the significant increase in pre tax income in the current year.
While the prior year quarter was impacted by more favorable discrete tax items, including a year end revaluation adjustment related to a reduction in the blended state income tax rate.
For the full year the effective tax rate for 2020 was 22 two per cent compared to 21, 1% in the prior year.
Diluted net income per share for the company on a GAAP basis.
On the $1 97 in the fourth quarter of 2020.
Compared to $1.12 from the prior year.
Adjusted net income for the company as defined in our earnings release was $135 7 million in the current year quarter or $2 12 per share, which was also an all time record.
This compares to adjusted net income of $96 5 million in the prior year or $1 53 per share.
Cash income taxes for the fourth quarter of 2020, with $34 9 million as compared to $8 2 million in the prior year quarter.
The current year now reflects a cash income tax rate of 17, 9% for the full year 2020, which is an increase from the approximately 16% rate previously expected for 2020.
This also compares to the prior year rate of 15%.
The increase in the current year cash tax rate versus prior year was primarily due to higher pre tax income, which is taxed at the higher domestic statutory rate.
Cash flow from operations was robust at $218 2 million as compared to $175 1 million in the prior year fourth quarter.
And free cash flow as defined on our earnings release was $190 7 million as compared to $160 3 million in the same quarter last year.
The increase was primarily due to higher net income in the current year quarter, partially offset by the lower monetization of working capital and higher capital expenditures relative to the prior year.
Before discussing our guidance initiation for 'twenty 'twenty, one I want to make a few comments regarding our healthy balance sheet and liquidity position at the end of the fourth quarter of 2020, which allows us to confidently operate our business and accelerate our strategy.
As of December 31, 2020, we had nearly 1 billion of liquidity comprised of $655 million of cash on hand, and $300 million of availability on our ABL revolving credit facility, which matures in June 2023.
Also total debt outstanding at the end of the fourth quarter was $885 million.
Net of unamortized original issue discount and deferred financing costs.
Our gross debt leverage ratio at the end of the fourth quarter was only one five times on an as reported basis.
In addition, our term loan doesn't mature until December 2026.
We do not have any required principal payments on this facility until the maturity date.
And it has a low cost of debt of LIBOR, plus 175 basis points.
We also have interest rate swap arrangements that fixed our interest rate exposure on approximately $500 million of this debt through the maturity date of December 2026.
Further enhancing our overall liquidity is our strong cash flow profile and.
And for the full year 2020 free cash flow was easily an all time record of $427 million.
As compared to $251 million in 2019, which was our previous record.
Uses of cash during 2020 included 69 million for acquisitions 62 million per capital expenditures and $25 million for the net repayment of debt.
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.
With that I will now provide further comments on our new outlook for 2021.
Key demand metrics for home standby generators, including home consultations and orders continue to trend much higher during the fourth quarter relative to prior year levels and this strength has continued thus far in the first quarter.
Due to this ongoing unprecedented demand, which is extended lead times for these products. There was a substantial backlog of wars for home standby generators at the end of 2020, which has further increased thus far in the first quarter.
As we expand manufacturing capacity during 2021 with a new facility coming online we expect to further ramp production levels for home standby generators.
Moving to alleviate this backlog.
In addition, the solar plus storage market is expected to experience significant year over year growth during 2021 storage attachment rates continue to climb.
The expectation of substantial growth in shipments of power cell energy storage systems as we continue to build out our presence in this market.
Although demand for C&I products. During 2020 was negatively impacted by the onset of the COVID-19 pandemic.
Year over year revenue declines continue to moderate and shipments for these products are expected to return to growth during 2021 across a number of key end markets and geographies.
As a result of this positive topline outlook, we're initiating guidance for 2021 and anticipate significant revenue growth as compared to the prior year.
Net sales are expected to increase between 25% to 30% as compared to the prior year on an as reported basis, which includes only approximately 2% of favorable impact from acquisitions and foreign currency.
This revenue outlook assumes shipments of residential products increase at a very robust rate during 2021.
Right that is similar to the year over year growth rate experienced in 2020.
Revenue for C&I products is expected to rebound at a strong rate as compared to the softer prior year comparisons.
Right approximately in the mid teens range.
Importantly, this guidance assumes a level of power outages during the year in line with the long term baseline average however, consistent with our historical approach. This outlook does not assume the benefit of a major power outage event during the year, such as a category three or higher landed hurricane.
Given current capacity constraints for home standby the upside of a major power outage event would be more limited to incremental portable generator shipments during 2021, meaning any extra lift for home standby generators from a major power outage event would most likely spill over into 2022.
Due to the significant home standby backlog at the end of 2020, we're expecting the quarterly seasonality in 2021 to be more level loaded relative to normal historical patterns with sales in the first half being approximately 48% weighted in sales in the second half being approximately 52% weighted.
As a result total year over year growth is forecasted to be approximately 50% for each of the first and second quarters of the year.
Looking at margin profile as we enter 2021, there are near term cost pressures ongoing logistics delays and various capacity constraints in several areas across the supply chain, which are resulting in higher input costs, including rising commodities foreign currency headwinds increased logistics costs additional tariffs and higher.
Wages.
We expect these inflationary cost pressure pressures together with new facilities start up costs to be largely offset by favorable sales mix pricing and cost reduction initiatives across the organization through our profit enhancement program.
As a result, we expect gross margins for full year 2021 to be similar to the second half of 2020 run rate.
In addition, we continue to make operating expense investments to scale, the business support innovation and drive future revenue growth into new and existing markets.
As a result of these factors adjusted EBITDA margins before deducting for non controlling interest are expected to be approximately 24% to 25%, which is an increase from the 23, 5% reported for the full year 2020.
We expect adjusted EBITDA margins during the first half of the year to be moderately lower between 50 to 100 basis points relative to the second half of 2021.
Given the full realization benefit from pricing and cost reduction initiatives in the back half of the year.
As is our normal practice, we are providing additional guidance details to assist with modeling adjusted earnings per share and free cash flow for 2021.
For 2021, our GAAP effective tax rate is expected to increase to between 23, 5% to 24, 5% as compared to the 22, 2% full year rate for 2020.
This increase was driven by higher pre tax income and a higher mix of domestic pretax income relative to the prior year.
Based on our guidance provided for 2021, our cash income tax expense for the year is expected to be approximately $135 million to $140 million, which translates into an anticipated full year 2021 cash income tax rate of between 25 to 21, 5%.
As compared to 17, 9% rate for the full year 2020.
As a reminder, our approximate $30 million per your tax shield that originated from the LBO transaction in 2006 fully expires at the end of this year.
As a result 2021 as the last year that adjusted earnings will benefit from a notably lower cash income tax rate relative to our GAAP income tax rate.
Beginning in 2022, the cash tax rate is expected to be more in line with the GAAP tax rate in the 25% to 27% range.
In 2021, we expect interest expense to be approximately 34 million assuming no additional principal payments during the year and flat LIBOR rates throughout 2021.
Our capital expenditures for 2021 reflect continued investments in expanding capacity and are projected to be between two 5% to 3% of our forecasted net sales for the year.
This capex guidance includes the new Trenton, South Carolina facility and related equipment that we expect to bring online during the second half of 2021.
Depreciation expense is forecast to be approximately $40 million in 2021, given our assumed capital spending guidance.
GAAP intangible amortization expense in 2021 is expected to be approximately 34% to $35 million during the year.
Stock compensation expense is expected to be between 20 to 24 million per the year.
For our full year 2021, operating and free cash flow generation is once again expected to be strong and follow historical seasonality benefiting from the solid conversion of adjusted net income to free cash flow expected to be approximately <unk> 90 per cent for the year.
Finally, our full year diluted share count is expected to increase and be approximately 64% to 65 and a half 64 to 64 and a half million shares. This compares to $63 7 million shares in 2020.
This 2021 outlook does not reflect potential business acquisitions or stock buybacks.
This concludes our prepared remarks at this time I'd like to open up the call for questions.
And gentlemen at this time as a reminder, inc.
You May ask a question. Please press star one on your telephone.
On your question price.
Keith.
Okay.
Yeah.
Yeah.
Yeah.
Yeah, we're not getting we're not hearing anything on our end.
Okay.
First question, so Shen from Roth capital.
Hey, guys congrats on the strong results.
Bill.
Okay.
It just seems like.
You guys are just running flat out.
Running at call.
Call. It 24 hours seven days a week three shifts.
And with your strong guidance.
I think George you alluded to this if there's an outage or some kind of event.
There might be limited upside and it might be limited to portables, just because it seems like you're maxed out.
When do you guys think you can.
Catch up and.
And kind of get ahead of the curve here.
The facility announcement is definitely a great start.
And it seems like you might be able to get to X. The.
You talked about 75 per cent more capacity, but we looked at the facility. It looks like maybe you can get to <unk> that number.
And at one point, Aaron I think you were talking about.
Being able to get to.
The ability to expand the five X that 75%. So I was wondering if this location.
It gives you that potential.
Yeah, I mean, obviously capacity right now Phil.
Yes.
Hi.
As you say, we're flat out.
And we're starting to see actually capacity pressures, even in our C&I business, which thankfully we have a brand new plant down in.
In Mexico that we brought online last year, we haven't talked a ton about it but it's a beautiful.
<unk>, it's primarily there to serve the Latin American market consolidation of our previous operations down in Mexico City.
But we can use that facility as well for other things and.
We will probably end up doing some products for the U S and Canada down there simply just because of where we're going to be up against some capacity things here too, especially in the smaller C&I ranges for telecom and telecom businesses looking like it's.
The lineup there is pretty strong relative to demand, but on the back on the home standby side, yes, the new facility in Trenton is going to be a big boost youre right to 75% improvement that we say are increase that we've been indicating.
Adding in capacity was off a day.
Previous capacity limitations as we entered 2020, so we did raise those numbers over the course of 2020 so.
In fact with that new facility coming online.
We can get more more capacity than that that site is actually expandable about 225 times its its existing size today, if we choose to go that route.
So to answer your question.
When do we see catching this.
We're going to be working hard all year long to do that remember recall that we do have some temporary production that we stood up in one of our other facilities here in Wisconsin. The initial plan was to take that down as we ramped up the Trenton facility over the summer.
We could choose to leave if demand remains strong and every indication right now.
Is that debt will be the case, we could leave that temporary capacity add on line, which gives us kind of an incremental bump above.
Above where kind of we would be if it was just whitewater and trend so.
But the way we size the equipment and everything and the Trenton facility.
We think we will be ramping throughout the full year and will will kind of hit the ground running here mid year and hopefully be at.
Max rates by the end of the year that would be the goal.
Okay. Thanks, Aaron and then and <unk> said it in your guidance.
Next question Tommy Moll from Stephens.
Good morning, and thanks for taking my questions.
No problem, Tommy I apologies to Phil.
Later, we'll follow up.
Happen to me last quarter, So I guess.
And so on where we are these debt yes.
Lots of interest on the call well anyway, I'll get I'll get to the questions here.
So what I wanted to talk about.
Some of the.
Demand dynamics, you've seen around the home of the sanctuary theme.
Have you discern anything different in terms of the demographics or anything you you pick up on on the types of customers, whose lead you are qualifying or maybe through channel conversations.
You've commented that it's a much broader.
Swell of demand geographically so many more states for example, so that it's clear that that's changed I just wonder for years and years, you've had a pretty.
Pretty good.
Insight into the types of folks who are interested in your products.
Mcgrath <unk> wise and I, just wonder if youre seeing any shifts.
There is a part of this trend.
Yes, it's a great question Tommy.
We do a ton of work around on the demographics of the customer basis by those products over the years.
As the leader in that category and is building it out we had to develop the market. So understanding who the buyer was and where the opportunities were and frankly one of the things we learned in that is understanding who the buyer. It wasn't right, so who wasn't buying the products and why who went through the sale process and didn't buy and why didn't they buy those are all important considerations.
To answer your question, though demographically typically the product category historically has skewed older right. So something on the order of 70% of the customers have been over age 50, historically and Thats really because homeownership.
Followed those trends.
We have seen indications early on the pandemic, what we saw and it's a little bit dicey. When we talk about this because you have to talk about that expansion on the geography.
As an example, Florida was such a hot market last year for us and it just it typically demographically is an older market. So we actually saw our demo shift older but when you strip out Florida actually the demo for other states was shifting younger which is really fascinating and I think what it speaks to Florida was an interesting dynamic.
Because you had a lot of people who went down over the winter last year. The pandemic started to take hold February and March they chose to kind of shelter in place and stay in Florida, if they do.
None of generators.
It came to the conclusion very quickly they needed one because they were going to be basically stuck in Florida, and they will start to get worried about.
That if you're not living there you don't worry about over the summer, which is the hurricane season. So we saw a marked interest in Florida.
By that market and that led to kind of a skew towards older but everywhere else. It was younger and so what we're seeing is younger families in particular people who are.
Moving out of cities metro areas and into homes.
And again, they're working from home now in particular, they are not driving back into the city to go into an office. They are staying in their home and so they start to connect the dots and maybe they experienced their first or their first outage in their new home and they figure out very quickly just how vulnerable. They are and so you hear us use this term power security we started introducing in.
In the terminology here and it's not an unfamiliar term for those around the industry, but this idea of making sure that you've got a continuous source of power to.
To protect your home your family your livelihood.
I think it's really resonating across.
Certainly across geographies as we talked but demographically I think it's resonating in particular with people who.
Are shifting to that work from home model and learn from home model.
That's very helpful context.
Much appreciate it.
To ask a follow up on a different theme here around.
The potential to go build out from virtual power plants, now that you've got and Bala under the portfolio and the portfolio and specifically you made some comments around the potential to enrolled natural gas generators, whether they'd be on the resi or the C&I side into that kind of platform.
Correct.
Is the what is the potential ramp there look like here in North America.
Maybe because you have such great market share on the resi side not many others have talked about that concept, but it sounds like you have some product innovation in the pipeline debt.
To enable it and so I'm curious what the opportunity set looks like.
Yes.
It's something that.
As part of the thesis behind the acquisition of <unk>.
Was that obviously, we make.
We make a lot of products that could be used as distributed energy resources right. So we have 2 million home standby generators on the ground.
We have.
Literally hundreds of megawatts of C&I product that we put into the market every year.
It's actually if you step back and you think of the potential.
And that's why I called it out in the prepared remarks, we think we are in this incredibly unique position given the scale that we can bring to this with the assets that we already not only that we already have on the ground, but certainly that we put into the market on a year on year out basis in those assets combined now with the technology, which is in Bala can channel platform as the.
Enablement of those assets to be used.
On a much more.
Fulsome way right.
On the benefit of the end users grid operators utility company.
Companies ourselves right <unk> I mean, there's an opportunity for us to participate in that we havent given really clear.
Longer range guidance guidance on this yet because we're trying to get our arms around just what are the different business models that are out there and available to us and there are a lot of them I talked about a few of them in the script here today, but.
There's a lot of different ways, we can play this.
The opportunity.
Begin, though until we get the products to be connected to the network and that's what our effort is here in the early innings. So we just closed on this acquisition and really the beginning of Q4 in October. So we've we've been diligently working on our Roadmaps to make sure. We can take our existing residential generators are existing C&I generators are.
Existing power cell storage devices, and then some of our newer load management products that I talked about on the call today, we're going to make all of those what we referred to as <unk>.
And by doing that.
Fact, we have an asset that can be much more strongly positioned with a much higher value proposition for an end user beyond well beyond just emergency standby in the case of our legacy products and so again I'm not answering your question directly only because we're still kind of working through how do we want to speak to this what is the potential how easy or hard.
Will it be to to monetize that potential right and then what does that monetization look like for US specifically, so I think in the end one thing we are convinced that it's going to be able to sell more assets right. I mean, the assets. We sell today, we're selling a lot of assets today, primarily on the premise of emergency backup if now those assets could be deployed as part of a virtual power.
On our distributed grid and they have much more utility and value suddenly taken assets like a home standby debt. It doesn't have a payback for homework, that's not why a homeowner buys it and you turn it into something that could provide a payback for that homeowners generally on where to be switched on by the <unk> network by a grid, operator or an energy retailer several times a year.
Several hours a year for the benefit of reducing the premium they pay on the open market when there are supply demand imbalances.
On the grid. So it is a super exciting area for us.
More to come more to come from us on that and really looking forward to again our unique position.
With that with grid services.
Next question Philip Shen from Roth capital.
You bet.
Thanks for.
Tell me back sorry, but I'll come back on what happened there.
Yeah. So I'll just ask one more on pass it on but as it relates to the guidance and.
I think you guys are in terms of clean energy last year, you did $115 million.
Revenue for clean energy and I think you said that you expect that to be 50% to 75% higher.
In 'twenty one so just wanted to make sure that you know roughly 180 $590 million of revenue.
At the midpoint.
For clean energy in 'twenty, one and then as a kind of on.
Another topic there.
We finished that up and then I'll come back on us followup on clean energy sorry, yes.
That basically you confirm what we said in our prepared remarks.
Large ramp in Q4.
Up 75% from Q3 and.
That momentum is going to continue into this year.
And with the positive things, we're seeing we're showing we're talking 50 to 75 per cent increase in 'twenty one versus 2020.
Great and we've heard some.
Logistical issues on on the storage side as you guys are ramping up in <unk>.
And.
No.
Growing this business some of it has to do with ports in.
And congestion and and maybe.
Certain installers when they go on getting their goods, maybe they get the battery, but they don't get the optimizer. They don't get the snap on us or something so can you talk about when you expect to resolve that.
Friction if you will and.
That may be limiting some of the growth and in fact once you.
Salt that do you think the growth could perhaps even to celebrate.
Yeah, Phil we think that those are largely behind us we had some constraints as you mentioned logistics fleet logistics mainly.
For a while there were flying pieces and parts over the top of boats on the.
The West Coast ports.
We've got we got a full inventory position now and everything we need.
And we think that that is going to be.
Again, it give us.
A good start here to 2021 and.
It is certainly an important part of getting to that 50% to 75% growth rate that we're quoting for our expectations next year, so but supply chain is a constraint.
It's a concern or challenge I would imagine for most companies right now like ours. It's every day is a new battle with something right I mean, it's just.
It's just it's hand to hand combat right now down in the trenches on trying to get pieces and parts from the supply chain all the way through into our into our warehouses and in the hands of our customers. So, but particular things youre mentioning there we've got behind us.
Next question Ross Gilardi from Bank of America.
Good morning, guys.
Hey, Ross.
We're running out of superlatives for for <unk> on your performance congratulations thanks.
Can you speak at all to the size of the backlog for us or do you want to see the absolute number just some sense of like how it compares to when you were exiting 2012.
On the on the back of Sandy and I'm, just trying to get a better sense of the production versus the retail.
Trends in home standby as they unfolded in 2020, it's hard to believe that as strong as the category has been with you guys running above capacity that you've actually underproduce.
Demand, so materially, but just trying to understand those dynamics a little better yeah.
I'm right alongside you on that one Ross we.
We have been making some major investments in our whitewater facility, where which has been the primary center of gravity for manufacturing of those products and those are investments multiyear multi tens of millions of dollars, we've been putting that facility to ramp production there.
And honestly, we came into this year, we put a bunch of automation on that facility early in the year.
Well before the pandemic hit so we thought we were in pretty good shape and then the demand curve has just been.
Aye.
You talked about the loss of words superlatives.
Mike's running out of things and this assortment.
Chris here to say every time, we write these prepared remarks, we are trying to figure out how else to describe what we're seeing because it's it is it's it's really something.
And I guess, while we're not quoting a distinct number I'll just get to the heart of it at the end of the year I think we said in Q3 call. We said our lead times on home standby generators were between 16 to 20 weeks. So pick the midpoint on that its about 18 weeks is kind of where we exited the year at if you ordered one was 18 weeks out today, we stand at about 20 weeks.
So it's actually gone the wrong way on us and Thats again were at all time Daily Records. We're hitting every day at our facility there that Trenton facility can't come on line fast enough.
I wish we had a better answer for people our customers are really patient.
I think the one thing that the one saving Grace. If there is one here is this is a home improvement project. So people are somewhat acclimated to home improvement projects generally taking a long time, there's permitting involved there's inspections involved.
It's not just a kind of a one and done deal.
Do you have something.
The order and then it gets shipped to your house. This is.
This is theres contractors involved in and other.
Sorry.
Curious fictional authorities and things like that so I think I'm not trying to say we have some cover for the longer lead times, but they get accepted to a degree lead times or are long, but we don't see a ton of cancellations. It's very sticky backlog to answer your question about as compared to when we exited 2012 in 2013 after sandy.
It's orders of magnitude higher.
Hundreds of millions.
It's a huge number.
You can do some of the back of the envelope math, if you look at our hsp kind of pacing in Q4, and you kind of think about our normal lead times are one to two weeks and being out 18 at the end of the year and then that growing another two weeks.
You can kind of model that out and probably arrive at some.
A range there of some thoughts on what the backlog might look like but it's it's.
Not in English word, but ginormous as one of the words that you can use to describe it.
Alright, good enough.
And then can you talk a little bit more about the profitability on your clean energy business and with power cell and then you mentioned that you were profitable I think that was an EBITDA comment, but I wanted to clarify that and can you talk at all about the gross margin for your clean energy business, where we.
Roughly will they be by the end of 2021 in comparison to your overall gross margin and just how should we think of it more on like a two to three year basis as you continue to ramp.
Yes, Ross York, So yet to making very good progress on.
On on gross margin optimization, a lot of focus on on the bill of material a lot of focus on supply chain.
And you're right, leaving the year here in 2020 in Q4, we were profitable that was a that was a nice landmark.
On milestone for free.
The startup business being profitable in Q4, but throughout 2021, yeah, we do expect to ramp up our gross margins to somewhere in the.
The mid 30% range.
So that's relative what we do almost 40%.
Well I guess high thirties here.
Gross margin for 2020, so close to the company average by the end of 'twenty one is the.
Is the plan and then obviously, what we're going to be ramping up our app or our operating expenses to really go fast after this market.
So expecting EBITDA margins.
To grow throughout the year as well along with gross margins, maybe some you know hitting double digits. There by the end of the year is for EBITDA margins.
Next question, Mike Halloran from Baird.
Hey, good morning, everyone.
Hey, Mike.
Let's stay on the clean energy side, maybe just an update on how distributor penetration going on earlier and you made some on the prepared comments on the prepared remarks, but more importantly, just some thoughts on the competitive dynamics. How do you think the receptivity of your product in the marketplace.
Comparing to others, obviously very strong demand holistically. So more curious on the relative side for you and how you think that's tracking versus what your hopes were.
Yes, Mike so making really good progress on the distribution front. That's your question.
I think on their prepared remarks, we said like we trained over 4200.
Energy, we call on contractors, we sell kind of in a multiple of ways there into the channels to step through electrical wholesalers, you'll clean energy electrical wholesalers and we also sell.
Some cases direct large national partners like <unk>, who is one of our from is a great partner of ours.
And then we serve a number of other kind of larger independent kind of long tail.
On.
Energy.
Clean energy companies directly so really made good progress so and.
It's been a I think it's.
One thing we learned with the home standby business is.
You really got to have a lot of points of light, especially on something that's growing.
That's not as penetrated right and certainly storage is a lot like the parallels there between home standby.
In terms of the early days on home standby 20 years ago, and what storage looks like today or early similar.
Super low penetration rates super low awareness pretty expensive.
Kind of kind of lacked kind of availability in terms of where you could access the product market access.
So we know we knew the roadmap we had to take to change that so we've been really focused heavily on that here and.
I think our our.
Our sales and marketing.
Efforts the efforts to to put together sales processes for these channel partners.
And past leads to them right I mean, one of their one of their barriers to growth has always been customer acquisition costs and here, we are giving our channel partners leads for free we're paying on when they're not free of course.
Were spending millions and millions on advertising to drive the leads into our hands, but we're giving them to our channel partners. So that they can see so they can have success.
If they have success we have success.
Symbiotic relationship so.
Again, I don't know if I'm getting to the heart of your question, but I really focused on building out that distribution network.
So more I think on along the lines of when you think about what youre doing in the market everyone's growing do you think youre getting your fair share more than your fair share and how do you think the competitive offerings stacks up.
So I think the one thing that we've done is we're basically going to market from a differentiation standpoint, the way, we differentiate as we focus on whole home backup.
Home power capability right. So we have the largest inverter in the industry, which allows for more to be connected to the system at any one point in time right. So people, we compete with have smaller inverters and therefore, the capacity constraints that are there.
The manifest as a result of that mean that you can't take everything in your home and try and run it at the same time.
Theres just serious limitations to that if you are a smaller and Bert it's one of the reasons, we really like the pika energy system is it had a very high capacity and <unk> and also the battery cabinets in the battery capacity. We believe we have one of the largest <unk>.
Passenger availabilities in the industry. So you can get longer duration debt if the outage lasts.
More than four hours eight hours you start to run into trouble, but we definitely can can do quite a bit with the current size of the system.
So that's our that's how we differentiate our we're getting our fair share I think so I mean, we're growing very quickly.
You can look at growth rates from others, who are in this industry on how they described their own growth in Q4 and clean energy.
In particular around storage right. If we just want to focus on that.
And I would say are 75% growth rate is best in class at least for those companies that have talked about it openly.
So we feel like we're making good headway, we feel like we're building the brand in the space, they're adding the distribution and as I said on the prepared remarks, we've got it we've got a huge pipeline of really cool new stuff coming that I think is going to only continue to separate us from the pack here as the market growth.
Next question Christopher Glynn from Oppenheimer.
Hey, good morning, guys.
At least that's been asked just wanted to kind of go into the split first half second half $48 52.
How should we think about the residential and the C&I relative to that $48 52, do they both kind of track debt.
Part of the impetus for the question is.
You've talked about.
<unk> and <unk>.
Hitting kind of Max capacity.
Later in the year in the second half, but it sounded like you were talking about actually utilization not just its ability to be on line.
Yes, I think the first part of your question is I would say that both resi and C&I would probably follow similar similar trends in that 48 52.
And I don't know if your second question was around that.
The 75% increase in capacity right. That's a capacity number it doesn't necessarily mean, that's where we'll be at the building by the end of the year, but.
We haven't given that number out.
Like what do you hope to have the capability to be at full utilization by the end of the year should we need it yeah I think that's the answer to the question. It's a good point.
Next question.
Jed <unk> from Canaccord Genuity.
Hey, Thanks, guys great.
Great job on all the way around.
So Aaron just if I think about resiliency.
And efficiency I think most people in investors tend to think well both are positives, but many don't realize that.
Youre diametrically oppose between resiliency and efficiency. So as you think about the business and kind of climbing that.
Efficiency, but also where there is freely available resilience.
That that parabolic curve, if you will.
If we think about home is a sanctuary. It seems like we're sort of in that first order, which is I've got a rolling blackout, and so or I've got a storm or a fire that hit and so I don't want that to happen again, so I want to make my home more resilient, but when you think broader.
Sort of away from the coast and you look at the policy that's being pushed out right now in terms of the four de carbonization. It seems like there's a much bigger play here in terms of that.
That discussion along resiliency and efficiency, where even these great results are kind of first inning type stuff I'm, just curious how youre thinking about that absolutely Jed.
When you look at I would take our start with our legacy business right, which we've been focused on for over 60 years and it's about emergency backup in an emergency backup system is frankly, it's about cost raises my first piece cost and what that system is capable of in terms of output right and so efficiency rarely.
If ever it comes into the consideration right for for a homeowner or even a business owner for that matter. It's what's the cost of the system what does my potential loss during an outage.
And how long could ironic if I needed to right.
And so the efficiency was never really a consideration of course.
We're concerned about things like that and in fact I might point out one of the reasons, we've been able to successfully go.
Larger with like our air cooled solution as an example, we introduced the 24 kw Air cooled unit is because we did focus on efficiency right. We looked at the.
The internal workings of the machine itself, both at the engine and at the alternator and made some design changes that allowed us to get a more efficient connected output just convert the mechanical energy to electrical so that that was an example, where.
It's allowed us to position.
With the industry's leading product line now thinking forward.
Right as you think about a distributed energy network or do you think of the.
The grid to point, our three pointed out depending on your viewpoints on what you want to call it.
I think that the new grid this changing energy landscape, it's about a focus on decarbonising digitizing and decentralizing right. The three DS of of that transition in that transformation, that's underway and so efficiency does play an important role there.
But that being said I think that the ability, though to take an asset which was primarily viewed only in the context of resiliency in them for an emergency duty and to use it more frequently for peak.
Peak times right. If you want to think about peak times. There is a significant benefit to that when you think about that machines usefulness over its life right. So as it sits there today on machine delivered for emergency backup only will run a very limited amount of time and its life that machine is fully capable of running much.
Much more.
But unless it's called upon.
It doesn't and so but with the embolic platform and with the idea of expanding grid services. It could be put into that type of mode and that is a that's an exciting advancement as we talked on the prepared remarks, and then on some of this Q&A and I think we are very early in the innings in this transformation.
<unk>.
As I said before I think one of the really interesting things as we look across.
What's going on in our business today, all the demand for home standby is about resiliency, primarily right and so most of those customers who are buying a home standby today are clamoring for one really aren't even thinking about debt that could be used in a different way, we're going to be educating people that it could and I think that's going to open up even more opportunity and potential.
With the category those existing categories, the legacy products and that's what makes it so exciting I think because again, we just we think that the <unk>.
Added value prop the improved value prop of those products is going to help us sell a lot more of them. So.
That's why when you think about where this is going and our unique position as the asset manufacturer coming out. This right I think a lot of others in this industry that we're competing against have come at it from maybe the software aspect or maybe the clean energy aspect, we're coming at it from an asset production aspect and we're saying, let's enable those assets.
To do a lot more because we know they can and by the way the majority of those assets their natural gas fire. So they are very clean in terms of the overall carbon footprint. So it's just we think it's just a really good good setup.
Last question, Jerry Revich from Goldman Sachs.
Yes, hi, good morning, everyone.
Aaron I'm wondering if you could talk about the backwards compatible nature of the Wi Fi connected assets.
In the field now so going forward into this.
Future leasing them up the grid that you folks laid out will you be able to take the gen sets that are being installed today that our Wi Fi connected.
And connect them to the ball on network could you talk about that on.
Separately I'm wondering if you could talk about nothing but you have.
Sign ups of new points of light if you will for your power. So distribution can you just quantify what that pipeline looks like for you how many.
So why do you think you're adding per month at this point.
Yes, So we talk about power partners and again, because we're selling in some cases to step right. So we're selling the contractors there so on the clean energy part of your question.
Jerry.
That really is it's about I think 700.
We've got a bunch of them in the pipeline as well theyre using our CE lead Gen system correct correct and then the first part of your question on the connected the Collectability. So we've got 2 million home standby is in the field I'll just focus on residential because I think it's a little bit easier to get our arms around the answer the question and frankly the numbers are just big too.
Machines that we put out in the field over the last call. It 2025 years.
Starting with the products in 2008 those versions of products those are connected both through our Wi Fi solutions.
Starting in I think it was 2018 they began coming out of the box is standard with Wi Fi connectivity, but the 10 years of product the generation of product previous to that you can buy a device from us.
On an accessory device to make those connector bolt that represents about $1 5 million of the $2 million going from 2008 forward. So think about in terms of ease of connect ability you can still connect the previous generation products of 500000 are out there. It's just a little bit harder the software on the hardware and a little more complicated on those machines are older.
<unk> not as quite as obviously they've been out in the market for for some time anything pre 2008. These machines have a lifecycle of 15 to 20 years. So.
Now just taking this one step further what we have on our Wi Fi and cellular platforms. Today, it's about a quarter million machines that are actively talking to us every day. So I think that's pretty exciting when you just look at the scale of that.
$1 million since really 2018, the number of machines are out there, it's pretty meaningful we haven't really talked about that so that's kind of an important data point that we haven't given before but.
And it's rapidly growing.
We have some.
Descriptions revenues to some of the services.
Some of them are sold through our channel partners, we call them fleet subscriptions.
Some of them are just consumer subscriptions, it's actually a pretty cool business.
And it's growing quite nicely, but what's really important about that is those machines on corn really machines.
For the most part.
Youre just talking about software.
And all of those machines today by the way everything Thats been coming out standard since 2018, you can do over the over the air updates with the firmware.
And software, which is awesome. So any new features like the <unk> platform, we can send it across the airwaves as an update to that equipment. So that's pretty powerful stuff, it's not unlike what youre hearing from others out there in different industries.
You have that capability, we thought that that was going to be really important for us to make sure that was in the technology roadmap here on the technology stack and it is so.
Anyway kind of bringing it to closure, though.
This is actively ramping there is a lot of machines out there that we're getting data from and then we can enroll in those in those platforms and then going forward. The roadmap we want to make embolic standard much. The same as we've made Wi Fi connected will technology standard in 2018, we believe that every machine by the end of this year every home standby shipping will have.
It will be embolic ready, if you will in stores and in.
In our storage devices as well.
There are no further questions Mike Harris do you have any closing comments.
We want to thank everyone for joining us. This morning, we look forward to discussing our first quarter 2021 earnings results with you in late April Thank you again and goodbye.
Ladies and gentlemen. This concludes today's conference call. Thank you all for participating you may now disconnect have a good day.
Okay.
Yes.
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