Q1 2023 Generac Holdings Inc Earnings Call
Speaker 2: After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1-1 on your phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.
Speaker 2: And I would now like to hand the conference over to your speaker today, Mr. Mike Harris, Senior Vice President of Corporate Development and Investor Relations. Sir, please go ahead.
Speaker 3: Good morning and welcome to our first quarter 2023 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Yagfeld, President and Chief Executive Officer, and York Reagan, Chief Financial Officer. We will begin our call today by commenting on forward-looking statements.
Speaker 3: Certain statements made during this presentation, as well as other information provided from time to time by Generac Arts employees, may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those of these forward-looking statements.
Speaker 3: Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today's call. Additional information regarding these measures, including reconciliation to comparable U.S. GAAP measures, will be provided to you.
Speaker 3: available in our earnings release and SEC pilots. I will now turn the call over to Aaron.
Speaker 3: Thanks, Mike. Good morning, everyone, and thank you for joining us today. Our first quarter net sales, adjusted EBITDA, and adjusted EPS were higher than expected, primarily due to continued strong shipments of our commercial and industrial products globally.
Speaker 3: Adjustity with our margins were also better than expected due to favorable price cost dynamics.
Speaker 3: Additionally, the inventory levels of home standby generators declined at a rate consistent with our expectations in the quarter.
Speaker 3: Year over year overall net sales decreased 22% to 888 million dollars.
Speaker 3: And core sales declined 24% during the quarter.
Speaker 3: Residential product sales decreased 46 percent as compared to a strong prior year quarter that included the benefit of significant excess backlog for home standby generators and was also impacted by elevated levels of field inventory for home standby generators as well as a decline in clean energy products.
Speaker 3: Global CNI product sales increased approximately 30% to an all-time quarterly record, with strength in most regions internationally and all channels domestically.
Speaker 3: Adjust the EBITDA margin was negatively affected by significant unfavorable sales mix and reduced operating leverage driven by lower home standby shipments and continued energy technology growth investments.
Speaker 3: These margin headwinds were mostly offset by favorable price cost dynamics.
Speaker 3: Now, discussing our first quarter results in more detail, while home standby shipments declined significantly in the quarter, leading indicators of demand for the category were exceptionally strong during the first quarter.
Speaker 3: Baseline power outage activity in the US was well above the long-term average during the quarter with several larger localized outages in multiple regions, marking the highest level of baseline power outage activity for a first quarter since we began tracking outages in 2010.
Speaker 3: Home consultations or sales leads were up significantly over the prior year period with broad-based growth experienced in almost all states.
Speaker 3: Additionally, home consultations were approximately flat sequentially during the quarter, which is highly unusual for the seasonally softer first quarter, particularly as we are coming off of a record fourth quarter, and this strength continued in the month of April .
Speaker 3: For historical perspective, first quarter home consultations were more than four times higher than the comparable period in 2019, supporting our belief that the home standby generator category has reached a new and higher baseline level of demand.
Speaker 3: Our residential dealer count was more than 8,600 at the end of the quarter, an increase of over 500 dealers from the prior year.
Speaker 3: While this is a slight decline on a sequential basis due to seasonal headwinds, we expect our dealer count to grow significantly over the coming years as we continue to focus on expanding our installation bandwidth.
Speaker 3: Activations, which are a proxy for installs, were impacted by severe weather in multiple regions and declined slightly from the prior year period, which included a challenging comparison in the south central region that saw notable strength in the prior year due to the backlog of activations related to the Texas Deep Freeze in 2021.
Speaker 3: The number of home standby generators and field inventory continued to decline towards more normalized levels during the first quarter, with the number of units falling meaningfully and ending the quarter approximately in line with our prior expectations.
Speaker 3: Days of field inventory relative to historical norms also decreased sequentially in the quarter, but remained elevated.
Speaker 3: We expect field inventory to decline further in the second quarter, resulting in another quarter of lower home standby orders and shipments relative to the higher end market demand, before returning to more normalized levels as we enter the second half of the year.
Speaker 3: Our initiative to increase home standby generator installation capacity remains a top priority for the company.
Speaker 3: We recently launched our dealer talent network, which is showing early signs of momentum as we help our dealers find the talent needed to successfully grow their businesses.
Speaker 3: further elevating the Generac brand within the electrical contractor community and providing additional training resources in key markets including Texas and Florida.
Speaker 3: Additionally, we have identified a number of project management improvement opportunities that we believe can help dealers optimize overall project timelines in addition to several product-related enhancements to further simplify the installation process.
Speaker 3: These initiatives are not only focused on solving near-term installation capacity challenges, but are also designed to provide sustainable solutions for tighter skilled labor markets. We believe these solutions, as well as continuing to expand overall distribution, could further increase Generac's competitive advantage given our unparalleled scale, focus, and expertise in the home standby market.
Speaker 3: Consistent with the comments provided on our fourth quarter earnings call in mid-February, we expect that the first quarter marked the trough for home standby shipments in the current channel de-stocking process.
Speaker 3: We continue to anticipate a return to year-over-year sales growth in the second half of the year as field inventory returns to more normalized levels.
Speaker 3: The above average outage environment and robust growth in home consultations thus far in 2023 further support this expectation. The range of threats that utilities and grid operators face was on full display in recent quarters as the outage environment has been driven by severe weather, power supply shortfalls, and unanticipated spikes in demand.
Speaker 3: Outage events are no longer limited to one-off major storms. And as reliance on electricity continues to grow, consumers and businesses have demonstrated that they are less willing to accept the deteriorating level of power liability, and they are taking actions to improve their own resiliency.
Speaker 3: I'd now like to provide some commentary on our residential energy technology products and solutions.
Speaker 3: While we're facing temporary headwinds for our residential clean energy offerings, our commitment to success in these markets has not changed. This strategically important area of our business gives us access to a number of highly attractive market opportunities that are supported by strong end demand and further reinforced by unprecedented levels of policy support.
Speaker 3: We expect that the combined served addressable market for residential solar MLPEs, storage, EV charging, home energy monitoring and management, and grid services will grow a strong double digit kegger through 2026, resulting in a domestic market opportunity of more than $10 billion. During the first quarter, shipments of power cell energy storage systems remained under pressure.
Speaker 3: In addition to our residential storage efforts, our energy monitoring and management capabilities remain well positioned as positive momentum in EcoBee's device sales, together with a number of product awards, are resulting in continued market share gains and highlight the consumer appeal of our feature-rich smart thermostat offerings. EcoBee's already strong customer satisfaction scores have improved further since the 2022 release.
Speaker 3: customer interest in our grid services offerings remains strong with another quarter of robot sales growth off of a low prior year base.
Speaker 3: We recently announced a strategic minority investment in rolling energy resources and EV load management software provider as part of our effort to be the leading solution for EV load management to utilities and consumers.
Speaker 3: We believe this innovative area of our business will help facilitate the transition to the next generation grid, and ongoing policy support remains a potential tailwind as regulators and policymakers increasingly recognize the value of flexible digital solutions to the challenges facing our evolving power grid.
Speaker 3: We continue to expect gross sales from residential energy technology products and services to deliver between $300 and $350 million for the full year 2023.
Speaker 3: Operating expenses as a percentage of sales are expected to be elevated in 2023 as we continue to build a home energy technology foundation for growth to position our combination of hardware and software solutions for long term success.
Speaker 3: With new leadership running this part of our business, our teams are focused on more deeply integrating the products and platforms we've acquired over the past four years, with an eye towards tightening our focus on the solutions where we believe we can create the most value for the consumer as part of the residential energy ecosystem.
Speaker 3: With improved focus and execution and by leveraging our core competencies around sales and marketing, lead generation distribution, customer support, and global sourcing and logistics, we believe we can create competitive advantages with our residential energy technology products and services that will become evident over time as we continue to develop the smart energy home of the future.
Speaker 3: Switching gears and I want to provide some commentary on our CNI products, which have experienced significant growth over the last two years and once again outperformed our expectations in the quarter.
Speaker 3: Global CNI product sales grew 30% over the prior year to an all-time quarterly record. And backlog for these products also remained at record levels at the end of the quarter as multiple megatrends support demand for backup power and mobile products around the world.
Speaker 3: Shipments for domestic C&I products grew in the first quarter, highlighted by strength across all channels, including national rental equipment, industrial distributors, telecom, and other direct customers for beyond standby applications. Shipments of C&I generators through our North American distributor channel grew significantly again in the first quarter.
Speaker 3: And order trends and channel backlog also increased at a strong rate. Quoting activity remains robust and close rates improve nicely on a year-over-year basis, highlighting our sustained market share gains and the ongoing strength and demand for backup power in this important channel.
Speaker 3: As a leading provider of backup power to the North American telecom market, shipments to national telecom customers also increased at a robust rate during the first quarter, as compared to the strong prior year comparison, as several of our larger national customers continue to deploy generators to harden their existing sites and build out their fifth generation of 5G networks. As a leading provider of backup power to the North American telecom market, shipments to national telecom customers also increased at a robust rate during the first quarter, as
Speaker 3: While shipment and order patterns for certain customers in this channel are expected to be lumpy in the second half of the year, investment in telecom infrastructure remains a secular trend as global tower and network hub counts further expand and the increasingly critical nature of wireless communications requires backup power for resiliency.
Speaker 3: We also experienced another quarter of tremendous growth for our national and independent rental equipment customers as they continue to refresh and expand their fleets.
Speaker 3: This end market is supported by the secular trend of critical need for significant infrastructure investments that will require years to complete, and mobile power products and light towers will be necessary in these essential construction projects.
Speaker 3: Natural gas generators used in applications beyond traditional emergency standby projects also continued to see increased traction during the first quarter as shipments of these products once again grew at an exceptional rate.
Speaker 3: We believe we are in the very early innings of growth for this exciting new market opportunity as grid stability concerns and volatile energy markets are expected to further drive demand for these solutions.
Speaker 3: Additionally, the business models of our direct customers in this vertical are innovating the generator marketplace by developing as-a-service offerings, which dramatically reduces the need for the large initial capital outlays that have traditionally been required for businesses to add resiliency to their operations.
Speaker 3: Internationally, robust momentum continued as shipments increased 17 percent year over year during the first quarter, with 19 percent core sales growth when excluding the net impact of contributions from acquisitions and the unfavorable impact of foreign currency. Core total sales growth was driven by strength across key regions.
Speaker 3: most notably in Europe , where power security for homes and businesses remain the top priority amid ongoing geopolitical and macroeconomic uncertainty.
Speaker 3: International segment EVA DAW margins also increased meaningfully during the quarter, primarily due to favorable price-cost dynamics and improved operating leverage on higher sales volumes.
Speaker 3: Supplementing our international performance, we're also beginning to see long-term growth potentially emerge in new and developing regions such as India, where we're experiencing positive sales momentum for our backup power solutions.
Speaker 3: This rapidly growing market has unique characteristics for a developing country with the size of its population, broad electrical infrastructure coverage, and an increasing number of homes and businesses with direct natural gas connections.
Speaker 3: We are currently building out our full range of residential and C&I gas solutions to address this large market opportunity.
Speaker 3: Additionally, during the quarter, we acquired the remaining 20% minority ownership interest in PRIMAC, bringing our total ownership to 100%.
Speaker 3: Primaq is a leading designer and manufacturer of stationary, mobile, and portable generators, along with energy storage solutions sold through a broad distribution network across the world. And it has been a key driver of our successful international expansion since we first acquired a majority interest in the company in early 2016.
Speaker 3: Through the combination of focused investment and PREEMEX global presence, this has become an important strategic element of our international growth aspirations.
Speaker 3: As we've been experiencing on the residential side of our business, our global C&I product category is similarly in the very early innings of its own energy technology evolution, and we've made meaningful progress towards that evolution here in 2023.
Speaker 3: In addition to our advanced controls and connectivity solutions, beyond standby natural gas generators and mobile energy storage systems, we've now added stationary energy storage solutions for behind the meter applications both domestically and internationally to our product portfolio.
Speaker 3: In February , we acquired Refu Storage Systems, a German-based developer and supplier of energy storage hardware products, advanced software, and platform services for international commercial and industrial customers.
Speaker 3: We also recently announced our new series of Generac branded stationary energy storage systems for the North American C&I market in partnership with a leading supplier of behind the meter storage solutions.
Speaker 3: These developments represent our initial foray into this rapidly growing market and advancing our CNI storage capabilities will remain a key initiative for Generac in the coming years.
Speaker 3: The long-term opportunity for energy technology solutions within our C&I product category is extremely robust, and I'm confident in our ability to leverage our existing positions of strength around the world to compete in these markets.
Speaker 3: In closing this morning, we believe our first quarter performance represents a trough in the current cycle as we continue to focus on reducing home standby field inventory levels and as we work to rebuild sales momentum for our power cell residential energy storage systems.
Speaker 3: That said, we're extremely pleased with the continued execution in our global C&I product categories that drove overall results ahead of our prior expectations, and we're encouraged by the progress we're making in addressing the near-term challenges that are impacting our residential product categories. In addition, the robust level of power outage activity and resulting strength in home consultations in 193 muttered locations across hallways.
Speaker 3: for home standby generators so far here in 2023 provides incremental support for our expectations to return to year-over-year sales growth in the residential product category in the second half of the year.
Speaker 3: Importantly, we're maintaining our full year net sales and adjusted EBITDA margin guidance as we execute on our near-term initiatives and position Generac for sustained long-term success in our mission to lead the evolution to more resilient, efficient, and sustainable energy solutions.
Speaker 3: I'd now like to turn the call over to York, provide additional details on first quarter results, and discuss our outlook for 2023. York?
Speaker 3: Thanks Aaron. Looking at first quarter 2023 results in more detail.
Speaker 3: Net sales decreased 22% to 888 million during the first quarter of 2023 as compared to 1.14 billion in the prior year first quarter. The combination of contributions from recent acquisitions and the unfavorable impact from foreign currency had an approximate 2% net favorable impact on revenue growth during the quarter.
Speaker 4: We're looking at consolidated net sales for the first quarter by product class.
Speaker 4: Residential product sales declined 46% to $419 million as compared to $777 million the prior year.
Speaker 4: As Aaron discussed in detail, lower shipments of home standby generators and power cell energy storage systems grow this decline in residential product sales.
Speaker 4: Commercial and industrial product sales for the first quarter of 2023 increased 30 percent to $363 million as compared to $279 million prior to quarter.
Speaker 4: Contributions from recent acquisitions were nearly fully offset by the unfavorable impact with foreign currency during the quarter.
Speaker 4: The very strong core sales growth was broad-based across most regions internationally and all channels domestically, with particular strengths in domestic national rental equipment, industrial distributors, telecom, and other direct customers for beyond standby applications.
Speaker 4: was broad-based across most regions internationally and all channels domestically, with particular strengths in domestic national rental equipment, industrial distributors, telecom, and other direct customers for beyond standby applications.
Speaker 4: Net sales for other products and services increased 32% to $106 million as compared to $80 million in the first quarter of 2022.
Speaker 4: The acquisition of electronic environments contributed approximately 28 percent of this growth given their additional service capabilities. Core sales growth for the category was approximately 4 percent primarily due to growth in our energy technology service offerings along with continued growth in aftermarket service parts and extended warranty revenue recognition. Sales profit margin was 30.7 percent.
compared to 31.8% in the prior year first quarter due to the significant impact of unfavorable sales mix, given a sharp decline in home standby mix compared to the prior year.
This was mostly offset by realization of previously implemented pricing actions, together with lower input costs from improved commodities, logistics, plant efficiency, and other cost reduction efforts. Plant expenses increased $22 million, or 11%, as compared to the first quarter of 2022.
This increase was primarily driven by higher marketing, promotion, and employee costs.
This increase was primarily driven by higher marketing, promotion, and employee costs, certain legal and regulatory expenses.
and the impact of recurring operating expenses from use in acquisitions. Adjust the beta before deducting for non-controlling interests as defined in our Eurone Delice with 100 million or 11.3% of net sales in the first quarter.
As compared to 196 million, 15.3% of net sales in the prior year.
The lower EBITDA percent was primarily driven by the higher operating expenses as a percent of sales, given the lower sales compared to the prior year. I will now briefly discuss financial results for our two reporting segments.
Domestic Segment total sales, including inter-segment sales, decreased 26% to $720 million in the quarter as compared to $975 million in the prior year.
with the impact of acquisitions contributing approximately 3% revenue growth for the court. Adjustity for the top of the segment was $68 million, representing a 9.4% margin.
as compared to $170 million in the prior year, or 17.5% of total sales. The lower domestic EBITDA margin in the quarter was primarily due to unfavorable sales mix and reduced operating leverage on lower shipments.
In addition, the impact of acquisitions and continued energy technology growth investments negatively affected margins during the quarter. These factors were partially offset by the realization of previously implemented pricing actions and lower input costs.
International segment total sales, including inter-segment sales, increased 17% to $216 million in the quarter, as compared to $185 million in the prior year quarter.
Core sales, which exclude the impact of acquisitions and currency, increased approximately 19% compared to the prior year. Adjusting the top of the segment before deducting for non-controlling interest was $32 million, or 15% in net sales.
compared to 26 million or 14% of sales in the prior year. This margin increase was driven primarily by favorable price cost dynamics and improved operating leverage on higher volumes.
Now, switching back to our financial performance for this first quarter of 2023 on a consolidated basis.
As disclosed in our earnings release, gap net income for the company in the quarter was $12 million, compared to $114 million for the first quarter of 2022.
The current year net income includes approximately $13 million of additional interest expense in terms of prior year due to higher borrowings and interest rates.
Gap income taxes during the current year of first quarter were $8 million, or an effective tax rate of 35.7%, as compared to $29 million, or an effective tax rate of 19.7% for the prior year. The increase in effective tax rate was primarily due to a lower benefit from equity compensation alone.
on a low pre-tax earning base in the current year quarter. Diluted net income per share for the company on a GAAP basis was 5 cents for the first quarter of 2023 compared to $1.57 in the prior year.
Adjusted net income for the company and defining our earnings release was $39 million in the current year quarter, or $0.63 per share. This compares to adjusted net income of $128 million in the prior year, or $1.98 per share.
Cash flow used in operations was negative 19 million as compared to negative 10 million in the prior year first quarter.
And free cash flow, as defined in our earnings release, was negative 42 million as compared to negative 37 million in the same quarter last year.
The modest decline in free cash flow was primarily due to lower operating earnings and a $36 million one-time cash tax payment for tax planning related to a recent acquisition.
This was mostly offset by lower working capital investment in the current year quarter as we reduced our material receipts and production rates for residential products.
by lower working capital investment in the current year quarter as we reduce our material receipts and production rates for residential products and stabilized inventory levels.
Total debt outstanding at the end of the quarter was $1.61 billion resulting in a gross debt leverage ratio at the end of the first quarter of 2.25 times on an as-reported basis.
Outstanding debt increased $179 million during the current year quarter as we used proceeds from those borrowings to fund the $105 million pre-mac buyout.
the $36 million one-time cash tax paying for tax plan purposes, and the $16 million refuse storage acquisition.
With that, I will now provide further comments on our outlook for 2023. As disposed in our press release this morning, we are maintaining our prior outlook for the full year of 2023. We continue to expect the residential product category will be impacted by higher home standby field inventory levels in the second quarter.
before returning to year-over-year sales growth in the second half of the year, resulting in a full year decline in the high teams range compared to the prior year. Our outlook for C&I product sales to grow at a mid to high single digit rate during the year remains unchanged.
as we come up against increasingly challenging prior comparisons in the second half of the year. As a result, we continue to expect overall net sales for the full year to decline between minus 6 and minus 10 percent as compared to the prior year, which includes approximately 1 to 2 percent favorable impact from acquisitions and foreign currency.
Importantly, this guidance assumes a level of power outage activity during the remainder of the year that is in line with the longer term baseline average.
Consistent with our historical approach, this outlist does not assume the benefit of a major power outage event during the year.
Additionally, this outlook does not assume a prolonged deep recessionary environment that meaningfully impacts consumer spending during 2023.
Having said that, demand for our home standby products tends to be driven more by power averages rather than overall macroeconomic conditions.
We continue to expect sales to be more weighted to the back after the year as field inventory normalizes and consistent with normal seasonality excluding excess backlog. With overall net sales in the first half now being approximately 45% weighted.
and sales in the second half being approximately 55% weighted. Our gross margin expectations for the full year 2023 are also unchanged.
as we anticipate approximately 150 basis points of gross market improvement over 2022 levels.
From a seasonality perspective, we continue to expect that first quarter gross margins will mark the low point for the year.
We anticipate sequential quarterly improvements resulting from improved sales mix with higher shipments of home standby generators.
along with lower input costs, improved overhead absorption, and realization of cost reduction initiatives as we move throughout the year.
Gross margins are expected to progressively improve throughout the year, with second half 2023 gross margins to be approximately 500 basis points higher than first half 2023 margins.
The continued strength of our end markets gives us the confidence to continue to focus heavily on supporting innovation, executing on strategic initiatives, and investing for future growth.
As a result of these continued investments, we expect operating expenses as a percentage of net sales, excluding intangible amortization expense.
to be approximately 20% for the full year 2023, with operating leverage improving throughout the year. Given these gross margin and operating expense expectations, adjust the fiscal margins before deducting for non-controlling interest.
are still expected to be approximately 17 to 18% for the full year. From a seasonality perspective, we expected just EBITDA margins to improve significantly throughout the year, primarily driven by sequentially improving gross margins as previously discussed, and to a lesser extent, improved leverage of operating expenses on the expected higher sales Drama.
modeling adjusted earnings per share and pre-cash flow for the full year 2023.
For 2023, our GAAP effective tax rate is expected to be approximately 25% as compared to our previous guidance of 24-25%.
and the 19.6% full year gap tax rate for 2022.
The year-over-year increase is driven primarily by expectations for lower share-based compensation deductions, increased mix of income in higher tax jurisdictions, and higher tax restrictions.
and higher tax on foreign income in 2023 compared to 2022.
Interest expense is still expected to be approximately 90 million, assuming no additional term loan principal prepayments during the year and assuming elevated SOFR rates throughout 2023. Interest expense is expected to moderate in the back half of the year as cash flows on our interest rate swaps become more favorable and we pay down a portion of our outstanding revolver indebtedness.
Our capital expenditures are projected to be approximately 3% of our forecasted net sales for the year. Depreciation expense is now forecast to be approximately $60 million, as compared to the previous guidance of 56 to 58 in 2023, due to the addition of refuse storage related depreciation expense. Stop intangible amortization expense.
expense is still expected to be between 40 to 43 million for the year.
Operating in free cash flow generation is expected to follow historical seasonality of being disproportionately weighted toward the second half of the year in 2023.
For the full year, we expect adjusted net income to pre-cash flow conversion to be strong at well over 100% as working capital levels moderate off of peak levels.
Our full year weighted average diluted share count is still expected to decrease to approximately 63 million shares as compared to 64.7 million shares in 2022, which reflects the share repurchases that were completed in 2022. Finally, this 2023 outlook does not reflect potential additional acquisitions or share repurchases.
To withdraw your question, please press star 1-1 again. We ask that you please limit yourself to one question. Stand by as we compile the Q&A roster. And one moment please for our first question.
Our first question will come from Tommy Mall of Stevens Inc. Your line is open.
Our first question will come from Tommy Mall of Stevens Inc. Your line is open. Good morning and thanks for taking my questions.
Good morning, Tommy. Aaron, it's good to hear some of the constructive updates on IHCs in the period and on a related topic I wanted to talk about the close rates there.
Can you update us on what this looks like, maybe compared to the prior year or pre-pandemic? And as you progress through the year, do you see it landing somewhere in the range of a pre-pandemic kind of level, or is there something structurally different here? Thank you. Yeah, thanks. Thanks, Tommy. We actually were very encouraged by...
You know the sales lead volume that we saw you know as we said in Q1 it was in fact it would have been a record Q1 if not for the comp being you know the last record Q1 was was 2021 when we had Texas the deep freeze so if you take that out Q1 would have been a record for consultations.
baseline. Just for the baseline, yeah. So I mean it was it was pretty pretty robust and in fact that carried through here in April as well. Close rates interestingly enough like you know we've talked about this previous call so we're still well off our pre-pandemic close rates but those they have been recovering they kind of bottom.
the beginning of last year, so about a year ago. So from a comp perspective, we're up nicely off those close rates from a year ago. As far as do we think we'll recover to pre-pandemic levels by the end of this year, we've still got a ways to go. We continue to see progress. And we think that a big part of that story as we've mentioned previously is just.
there, we're seeing continued uptake in our financing options for homeowners. In fact, we had incredible growth on our financing program in Q1. And that's in spite of the residential category being down 46%. Financing was up dramatically in the quarter. So we do know that
There are consumers out there that are looking at financing as an option, as a way to improve the affordability of these products in spite of maybe their concerns around a slowdown in the economy. So again, not giving specific guidance on the close rates, but we are continuing to see improvements there.
you know, kind of sequentially, or at least over the prior year. And you know, I don't think that we'll return quite to pre-pandemic levels by this year. I don't think that that's not what our guide contemplates. So maybe that's upside for us, you know, as we continue to recover there.
Thank you. One moment please for our next question.
Next question will come from Michael Halloran of Beard. Your line is open.
Good morning everyone. So let's, Aaron, let's stick on that train of thought Aaron because obviously there's.
Good morning, everyone. So let's, Aaron, let's stick on that train of thought, Aaron, because obviously there's a lot of...
concern and questions just around the sustainability of that home standby piece from an underlying demand perspective. And you know we've certainly seen the positive, or heard certainly heard the positive commentary on the IHC side.
I would love to understand why the confidence level is so high that you can maintain that and also maybe put in historical perspective how you've tracked.
when you had kind of negative economy but positive storms in the past. I know New York made a quick reference to it in the prepared remarks, but just kind of laying out why you think things are gonna be, from an underlying perspective, pretty stable. Moving into the back half would be great. evil sounds
Yeah, obviously an area of deep focus for us, Mike, and we've got some experience around that and I'll talk to that here in a second, but I think just talking to the trends and what gives us confidence in the second half of the year. So the way we think about it, you know, those sales leads, which are an important leading indicator and category for us.
You know, they mature over a period of 90 to 120 days, call it, you know, from when you do the consultation to when the product actually gets installed. So we think that in terms of near-term visibility, right, next quarter, quarter and a half perhaps, we think we have, you know, a pretty good view on the, you know, kind of the end market demand as it were. Music
kind of the shipping pace with the demand pace, right? So we were out of step with that because of the field inventory, the field inventory challenges that we've, that we've talked much about here. So you put those together and those were pacing to have that abate as we enter the second half of the year, we think that that's something that's gonna improve.
As we've said, we're going to get back to more normal levels there. So we return to more normal levels there. You also have normal seasonality. The first half of the year, Q1 in particular, is always a challenging quarter for the category because it's just difficult to do installations. In fact, this Q1, some of the reason why we saw so many home consultations with the outage environment being driven by weather also provided some challenges to our install crews in terms of them being able to actually...
install product into one. So it was a little bit of a, you know, kind of a bit of an irony there. But so, you know, you take that out of it though, and we look to the future, and then kind of just speaking more broadly, I think to our experience in the category, when you have maybe a softening economic backdrop, you know, I can point to the last kind of pullback economically back in 2008, 2009, you know, when you look at housing in particular, and I would say, I would argue this recessionary, I gotta be careful of the term I use, but the slowdown in the economy right now.
like what we get pegged at in this category, we get pegged as a big ticket discretionary item, right? Tied to residential investment. You would have thought that would have been the worst environment ever for this category back in 08-09. We actually grew our residential part of our business back then. So, you know, and there's a bunch of reasons for that. I mean, first of all, the category does skew older, right? So 65% of the buyers of the category are over age 60.
And so I don't want to say they're insulated necessarily from economic pullbacks, but I would say that they probably are less effective. Right? I also mentioned the use of our financing tools. We're seeing an increase in the use of those financing tools. So I think we have some things today that...
you know help homeowners who are still interested in the category um you know shop the category and still become buyers and I think the biggest thing over my time here almost three decades at the company is that power outages trump the economy every day of the week. I mean when your power's out the generator categories go right to the top of the list you know we maybe get reshuffled maybe that kitchen remodel or that new pool you were thinking about or even a family vacation gets further down the list.
Thank you. One moment please for our next question.
Hey, good morning guys.
Hey, good morning guys. Hey Jeff.
Hey, just can you quantify maybe how much inventory you think came out of the channel in one queue and what you think that number looks like in two queue? And if I could just sneak in a commercial one, just what prevents you from kind of raising the bar there, giving a strong start. Thanks.
Yeah, no, thanks Jeff, all good questions. I think on the field inventory, the way we described it, it's a meaningful decrease in the law inventory numbers there. The big thing to look at, and we've mentioned this before, the days of field inventory. We mentioned, I think in the third quarter of last year, we were about double where we thought we needed to be. That was kind of...
And we made progress down to about 1.7 times when we got to, you know, kind of the Q4 call here in February . Now we think that range is somewhere in the 1.4 to 1.5 times kind of quote-unquote normal, right? There's some debate about what normal means, but we're looking at our history, you know, in the categories and we're making good progress. It's all, you know, in line. We also said it wasn't going to be a linear pull down here.
Because of the seasonality primarily the way Q1 works, just installs being normally seasonally lower in Q1, we just knew that it wasn't going to linearly drop from 1.7 to 1.35 to one times at the end of Q2. But we feel like we're progressing right where we wanna be. And again, we're buoyed by the fact that we see the end market demand remaining very robust. So we feel like this is gonna be
you know, we're going to get to where we need to get to there down the line. Now, I would just say the reason, you know, you kind of point out why didn't, why not take up, you know, kind of the guidance based on the, the outperformance and Q1, the outperformance primarily came from CNI, right? So our CNI business is crushing it, which is awesome. Especially internationally, a pre-macc team, you know, we, we were able to acquire now we own a hundred percent of that business, which is awesome.
and they've been a significant part of our global expansion here as a company over the last seven years. But that said, you know, one of the big kind of drivers, one of the big verticals in there that we've always talked about is our telecom business. And we are seeing some, you know, some lumpiness in kind of the back half of the year relative to some of our channel partners there, right? We serve all the major
wireless telecom companies as well as the co-locators in the marketplace. And a couple of those accounts for us, we've delivered a lot of product and they've got to get that product installed now. So they're working through, they've got to, so they, you know, maybe pull some of that in is what it maybe looks like. But all indications as we talk to them about their CapEx spending and kind of what they need to do to harden their networks going forward.
as they think about the next generation technology or fifth generation 5G technologies, they're all, you know, this is a secular cycle right now for telecom in terms of cap-ex spending and building out networks. And so we think it's just, you know, kind of just the lumpiness that we see from time to time. And that's really why we didn't take up the guide in the back half. It's really related to that. That's kind of the simple answer. There's some moving pieces underneath that, but that's really it.
or fifth generation 5G technologies, they're all, you know, this is a secular cycle right now for telecom in terms of cap extending and building out networks. And so we think it's just, you know, kind of just the lumpiness that we see from time to time. And that's really why we didn't take up the guide in the back half. It's really related to that. That's kind of the simple answer. There's some moving pieces underneath that, but that's really it. Thank you.
One moment, please, for our next question. Our next question will come from Christopher Glynn of Oppenheimer. Your line is open. Thank you. Good morning, guys. Hey, I wanted to ask about the, you mentioned the home consultations for HSB were up significantly in almost all the states, so I wanted you to dive into that a little bit and then also clarify the expectation for residential growth in the second half.
Does that explicitly include growth in 3Q, or if not, are you biased in that respect to see at least a bit of top line positive from Resy in 3Q? Yeah, thanks, Chris. Maybe just I'll address that first. Yes, we are seeing a return to growth starting in the third quarter, so that is the expectation and the way we built the guidance around residential. More specifically to the commentary about home consultations being very broad-based, right?
almost all states. I think what was really encouraging again, and this is what I think is different from kind of the pre-pandemic period to today. And as you may recall, we mentioned that just consultations in general up dramatically from that pre-pandemic period, almost really more than 4x off of that base.
And I think when you step back and you look at that kind of pre-pandemic to today, it is the broad-based nature of that growth that's really encouraging for us. And I think speaks to just, again, I can't stress enough just where we're at in this journey.
This is a category of product, home standby generators, still less than 6% penetrated, single family, US houses greater than $150,000 in value. Every 1% of penetration is a $3 billion market opportunity and we have 75% share of the market. So when we think about the opportunity ahead of us and we look at the growth that we're experiencing in the States. For more information, visit www.fema.gov
I'll just give you a couple of examples. And I'll throw Canada in there as well, right? So we can talk territories and provinces as well as states because Canada has been just on fire for us because they have also been experiencing much as we have here in the US in increasing frequency of outages and the duration of those outages. And I think what's different today from the outages four years ago and what drove people to the category four years ago.
is what's causing those outages. Weather is still kind of largely, you know, the cause behind most outages, but I think what we're also seeing and what homeowners and business owners are seeing is that the grid is struggling to deliver, right? So, and what I mean by that is, as we race to electrify everything.
heating, cooking, cooling, transportation, right? You're seeing demand, or you're seeing supply be outstripped by demand. And it happens very rapidly. This was on full display in the Carolinas over Christmas, over the Christmas holiday, right? So the utility companies in the Carolinas were struggling to keep up with.
The demand surge, because it got so cold that everybody turned on their heat pumps and their electric baseboard heaters, which created an enormous amount of demand on the system that was unplanned, and that system had struggled to keep up with it. So, you know, they had to resort to rolling brownouts, rolling blackouts in order to keep the system up.
And that's the kind of difference, I think, between today and four years ago that we look at and we see as being, you know, I think a basic part of the story going forward. And I just think, you know, when you talk about the states where we're seeing the most growth,
So let's just step back. Our top five states from a penetration standpoint are also our top five growth states in terms of the penetration rate accelerating, highest growth rates. So it's not like you get to a point of kind of where you saturated the market in these states. They're continuing to grow. In fact, I would say...
You might question whether – maybe there's a tipping point that a state gets to. Is it 10 percent penetrated and then it accelerates? We definitely have seen evidence over the last several years that if you just look at the top five states from a pen rate standpoint, they are also almost always the top five growth states over time. So it's very interesting to see how this continues to – almost the penetration rate continues to accelerate as awareness for the category deepens and as these challenges around grid reliability.
continue to become more apparent to homeowners and businesses. Thank you. One moment, please, for our next question. Our next question will come from Mark Strauss of J. P. Morgan. Your line is open.
Yes, good morning. Thank you very much for taking our questions. York, I wanted to go back to your comments on pricing, the pricing action, the kind of benefits and gross margin.
How broad-based of a comment is that? Is that RESI and CNI? And then kind of what does the guidance imply regarding future price action this year?
Yeah, at least for the first quarter it applied for the most across the board. On the resi side, in particular home standby side, the last price increase that kicked in was June 1st of 2022. So we're still in the process of annualizing that price increase on the home standby side.
And then on the C&I side, there were a number of price increases that came through here in the beginning of 2023. We had them in 2022, but there was another round in 2023 that should continue on. So I'd say more of a price impact in the first half as you...
As we haven't annualized the home standby side yet, but still yet some benefit in the back half on the CNI side. Thank you 1 moment, please for our next question. Our next question will come from the line of Brian drab, a William Blair. The line is open.
products and what are you doing there to improve the distribution capabilities? And then to follow up with that, the 300 to 350 million guide for the full year in Resi Clean Energy, can you kind of give some direction to each of the products like Ecobee, Powercell and Grid Services and what their potential is for the full year? Thank you.
Yeah, thanks Tyler. So yeah, so we're working very hard to rebuild, you know, you know, not only the distribution, obviously to replace the loss of that customer in the third quarter last year, but also confidence right in the marketplace. I mean, we stumbled with execution with this, you know, one of the companies we acquired that had a component that, you know, we've struggled with the
overall longevity of that component. And we're going through that upgrade campaign, the SnapRS upgrade campaign that we've talked about at length and that we took the charge for last three Q. Making good progress there by the way. And I would tell you that we're getting high marks from the distribution partners that we're involved with on that campaign in terms of standing behind the product, taking care of the issues. They've seen different OEMs deal with different issues over the last three years.
the course of, you know, kind of the solar market's early days to today, right? Like, I mean, a lot of OEMs, I think, have struggled. It's a challenging environment, rooftop mounted electronics that have a long warranty period, and, you know, duty cycle that, you know, they're constantly running, you know, or for the most part, so they run a lot. So, it's something that, you know, we learned a lot doing, and I think we're making really good strides rebuilding that. We've got some, I think, some pretty good ground chutes that we're excited about there.
probably more towards the back half of the year. There was a little bit of field inventory to work through there as well. As you can imagine with kind of the abrupt closure of that distribution partnering two, three last year and kind of the way the market kind of ground to a halt for us. We had to work through some of the inventory that was in the field there too. It wasn't nearly to the same degree as what we had with our home standby business, but we're working through that. And that market also has had some, some, some, some.
I would say some jogs left and right around some of the new rules around NEM 3.0 and waiting for the IRA to be finalized. What does that really mean in terms of what's available for tax credits and things? So as that gets clearer to homeowners and to distribution partners going forward.
we see that market continue to recover throughout the year. We're not going to give specific breakdowns on the different pieces, but we can tell you that obviously Ecobee, which we called out specifically in the prepared remarks today, has been doing really well. I mean, they are, their Smart Dumber Staff product line is doing great. They're going to be launching a Smart Doorbell Cam alongside of that.
here in the second half of the year, which we're really excited about, already being very well received by some of the channel partners that today sell our Smart Thermostats. They're very excited to carry these products as well. And we've had a couple of nice wins there that we'll have some placement, where we'll do some load-ins in the second half of the year. So we're talking about, you know, that's a part of the story here in the 300 to 350 guide. And then also grid services, you know, off of a low base.
But a nice rate of growth here in Q1, and we continue to see that growing. Still, again, small base, but there's a lot of discussion with a lot of utilities and grid operators about the importance of needing these types of digital solutions to help them manage these potential grid shortfalls that I talked about previously.
And they see something like our concerto platform that is at the heart of our grid services team, they see that concerto platform as a way to – just another tool in the toolkit to deal with potential shortfalls in supply when you see spikes in demand. So more to come on all that, but I think we've bottomed. I guess that's the message here. We feel like we're going to come off the bottom in Q1.
green shoots ahead for those businesses and good momentum in things like ecobee and the liquid services team.
ahead for those businesses and good momentum and things like ecobee and the grid services team. Thank you.
And one moment for our next question. Our next question will come from Jerry Revich of Goldman Sachs. Your line is open. Yes, hi, good morning everyone. Hey, Jerry. I'm wondering if you just talk about the fourth quarter margin outlook and maybe just outline your expectations for...
you would expect from price cost, that would be helpful if you don't mind. Yeah, this is Jerry. This is York. I know we're contemplating that EthaPal margins get back to those low 20 percent range that we're used to by Q4, as we talked about. Specifically, we talked about at least first half, second half.
that EBITDA margins should improve about 800 basis points sequentially first half, second half with, I'd say, roughly, let's say, 3% of that 800, 300 of the 800 basis points just as a function of mix in that home standby as we normalize inventory and seasonally increase first half, second half.
We've got a number of cost reductions we're working on, plant efficiency, better absorption, again, sequentially first half, second half, that'll improve about 2% of that 800 first half, second half improvement. And then the remaining 3% is really just operating leverage on the much higher sales volumes on our leveraging that OpEx.
infrastructure. So, you know, that's really the bridge, at least sequentially. Year over year, like I said, they'll probably be modest. Most of the pricing will have lapped on a year over year basis by Q4. So a lot of that is just more cost improvement and mix improvement year over year will drive that.
That as well as that will drive most of the year-over-year improvement from Q4 last year to Q4 this year. Thank you.
as well as that will drive most of the year over year improvement from Q4 last year to Q4 this year. Thank you. One moment, please for our next question.
Our next question will come from Joseph Osher of Guggenheim. Your line is open. Hey, thanks very much. I wanted to return to the residential clean energy business a little bit. Obviously, you go through this reset. One of the questions I think that's come up.
is around the residential home architecture and the fact that you're advancing sort of two parallel inverter architectures at the same time, which drives a lot of complexity in the other parts of the system. So I'm wondering if you're able to.
maybe give us any clarity today or when we might have some clarity in terms of you know how you intend to move forward with those those multiple architectures thank you yeah Joe it's a great question we talked a little bit about this maybe not even maybe not publicly or maybe one-on-one with you in particular because I think you've been focused on this space quite a bit which is great you know I think we've got a brand new team that's running that business and we've got a lot of
you know, technology and platform over the last four years. And so, you know, I think the, the, the viewpoint on how best to deploy that technology, the first, the first order of kind of focus, if you will, is, is integrating as much of it as we can, right? Like, I think that is.
We always knew there was a heavy lift coming there with all of the companies that we've acquired. Some of them start up, some of them more at a scale level like Ecobee and trying to figure out where can we add the most value.
I think we're a little bit agnostic about which, if you're speaking strictly about inverter technologies, which inverter technology is going to quote unquote win, right? I mean, I don't know that we see this as a VHS beta max kind of a fight as much as we just see it as two different paths to achieve a similar outcome, right? There's just different technologies that are available. And I do think that it's your point about having
You know if you have to cover too much ground if I if I can just you know kind of paraphrase it too much ground that might you know is that really the right way to go is that the most efficient
path in terms of how much calorie burn we use to support two different architectures. I think over time, I think it will become clearer which architectures or which architecture may be the best for us. And this is as we go through and we start thinking about as we have been working on our next generation storage products.
You have to be cognizant though that there's a huge market out there where we want to be able to add storage to existing homes that are already invested in solar. And those homes may have – they could be DC coupled, they could be AC coupled in terms of their architecture from an inverter standpoint.
So, how do we put that – how do we make sure that we keep a – and then we get a product to market that can serve the entire existing solar market. So, we're looking at that. And then we know that we need to be in the market or we need to have a product that keeps us in the market for solar only. If we just focus on solar plus storage, that's going to be too limiting for us.
we believe. Today, you know, attachment rates are 15 to 20 percent, and they're growing, which is great, but that still means there's a high percentage of new solar installs that don't have storage being installed. We want to participate in that market. So finding a pathway that gets us there.
and gets us there most economically and where we can add the most value is really important. So more to come on that. We do have an investor day that we've got scheduled here for September . So I think, you know, we'll be prepared to discuss that in more detail in September , but know that the team is continuing to look at that and figure out just exactly strategically.
what's going to make the most sense for us long term. Thank you. One moment, please, for our next question. Our next question will come from Cassie Harrison of Piper Sandler. Your line is open.
Good morning and thanks for taking the question. So, you know, there's a lot of uncertainty in the market from a banking and financing perspective. Just curious if you could give us a sense of how the uncertain financing environment is impacting operations for your dealer and channel partners. Thank you. Thank you.
That's a great question. Obviously, you would think that they might be impacted by that, but largely they're not. They pay us by credit card a lot. A lot of dealers are. They like the points that they accumulate on their American Express and their different card programs. We tend to see credit card payments being kind of
one big path to paying us. They also use our floor plan financing program very aggressively, and that's been a program that has been a very successful program for us. It allows the dealer to, it kind of de-risks their ability to bring product in. We want to have them have some inventory level. And we help subsidize the cost of that. And we help subsidize the cost of that. The first 180 days. The burden of that cost is not met. Exactly, they don't bear that cost. So it's really our cost. For the first 180 days, they get free floor plan financing. So we kind of de-risk that for them. So in terms of like their overall direct exposure, we haven't heard much in the way of them seeing.
any kind of compression. Theirs is more of a project-based business and where they're probably gonna see more challenges is if housing were to slow down, right? Like, and that's a real risk out there, of course, as we've talked, but in terms of like, their project flow, they're paid kind of as they go, right, on a progress basis. So, if that kind of progress flow or that project flow were to dry up, that's probably where they would feel more pain.
but we haven't heard any or seen any evidence directly around that. We'll have more time to install generators. That is our view. Thank you. One moment, please, for our next question. Our next question will come from George G. and Rickus of Kennacord Genuity. Your line is open.
Hi, good morning and thanks for taking my question. And believe it or not, I've actually had a power outage during this call and I'm not a Generac customer yet. And while I have you here, my patience is Vacay. Wow, exactly.
So my question actually, just to jump on the previous one with regards to the spasms that we're seeing in financial markets, how does that impact your C&I business? How much of it is project related that we may see some sort of impact if this continues on projects related to renewables? Thank you.
Yeah, that's a great question, you know, typically so you want to look at non-residential construction spending is a you know It's an interesting indicator for us and I would tell you that you know the that business tends to be late cycle, right so
We typically see our rez business is more of an early cycle business in terms of how it reacts to Economic cycles even though I as we've mentioned here today both prepared remarks and on the Q&A It's probably less sensitive because as power allergies happen You know homeowners they react right? It's a more emotional category
Although in the CNI side, I think that as non-res construction may slow down in the future, and that category is late cycle, you could see that breakdown. You have to think about the megatrends if you step back for a second. Telecom has one really major important vertical for us there. As I said in the prepared remarks and in some of the Q&A, very much in a secular upcycle market here in terms of CapEx spending.
for the telcos. And so that's a really important vertical for us. The other one is, I think, just the increasing penetration rate of backup power, much the same as what's been occurring in residential, businesses, just like yourself, they're struggling with outages, right? Like they're having outages happen more frequently. It's interrupting their revenue streams. It's causing spoilage of inventory or destruction of processes. When things are in process, if you're a manufacturer, it's causing a fl CameronanAllightX.com
In particular, so we're seeing power, backup power being added to businesses that in the past hadn't thought about it as part of their strategy around resiliency, right? Or a lot of businesses will refer to it as disaster recovery strategies, right? So their DR strategies didn't include backup power, you know, or a generator. We're now seeing backup power be added to that.
We're also seeing increasing codes and standards that are driving generators as a requirement. We saw this in California with the requirement for 48 hours of backup in the telecommunication sites. We also are seeing certain states adopt what Florida adopted several years ago in the elderly care spaces and the healthcare spaces.
a requirement that those facilities, those types of facilities have a minimum of 48 hours of backup power. Those are new codes and standards. So you're seeing kind of maybe maybe some of the softness in a non-residential construction spend in the future. I think it's going to be potentially more than offset by the increasing need for resiliency.
And, you know, some of these mega trends, as we refer to them, or these secular trends that you're seeing in telecom and in infrastructure spending for that matter. On the renewable side, we're not necessarily focused on utility scale or front of the meter projects. So, any financing breakdowns with those projects wouldn't necessarily impact us. Good point. Thank you. And one moment for our next question. Our next question will come from...
drive down channel inventory like actually faster than you expected. Kind of the logic was maybe there would be a pocket here or there where the installation bottleneck would be weaker and it's kind of like more rolls of the dice if you will. Like probabilistically you get more rolls, different geographies you might find under the right characteristics.
You were pretty clear in the call that the inventory drawdown was in line with your expectations, but also clear that yes, in fact, based on your analysis, outage activity in aggregate was well above the historical average. So I'm figuring the disconnect there probably comes down to the installation bottleneck and that it is perhaps more uniform than I was thinking.
But if you could just kind of – if you have the above average activity in the first quarter, is it that continuing labor bottleneck that doesn't lead you to having more optimistic outlook for home standby backup generators going into the second, third – for basically the remainder of the year? You get that since you're already assuming baseline average kind of your typical outlook. You kind of have to be in a position to get to the point where you feel like, right, you have very good
Then if we already have some of this, there's not really an end in sight on the installation restriction or just kind of what's going on there. And then also just because these are geographically diverse, it'd be nice to just get an update on how they're unfolding because you probably have a clearer signal.
How are those unfolding? Have you seen the demand surge from Hurricane Ian at this point and the installations are happening? I mean, that was a long time ago at this point, so just kind of fleshing out that. Yeah, thanks, Donovan. So I would say your thesis is correct, but I think what you probably aren't appreciating is that there's a time fence there that sun Grand indie
you know, from when we get a sales lead to when it becomes a sales, and when it gets installed, there's permitting involved. And again, we've said anywhere between 90, 120 days, and that's down from what it used to be, mainly because, you know, so longer lead times and the permitting processes were elevated in some markets, you know, with COVID kind of driving that elevation or that elongated kind of permitting process. That's, so it's shorter today than it was, say maybe a couple of years ago.
where it was out as high as 180 days or longer in some cases. So you really got to let those sales leads, right? It's a sales funnel, so they go in at the top of the funnel and then there's a conversion process and that conversion process takes some time. So we would anticipate that you know kind of as we exit.
kind of Q2 and get into the second half of the year, that's going to definitely start reading through. And that's what gives us the confidence around, you know, the kind of second half guide that we're talking about here in spite of maybe the weaker backdrop economically, you know, overall. So we feel really good about that. In terms of installation bandwidth, you know, I would just say that.
Q1 is always the tough install quarter. It's always our lowest because winter weather sets in and you just can't do those installs in the Northeast and the upper Midwest in particular. But what we also saw this year was in California, Northern Cal, even parts of Southern Cal, the weather was just so aggressive.
that installers could not get out and get the product on the ground. So we saw those headwinds, which actually created tailwinds for us in the sales consultations and sales leads, created some headwinds for us on the installation side. All indications are we're making really good progress on installation bandwidth. That is going to continue to expand. It's expanded every year, by the way.
Every year we've been in this category, it's expanded. So we don't have any reason to believe that we've kind of topped out there. And as we've said last year, kind of after realizing that was a constraint for the first time ever for us, we really kind of refocused our efforts around adding new distribution partners, looking for ways to make them more efficient.
improving our products, right, so making it easier to install, helping them hire the talent they need. We stood up something we call our dealer talent network, which is now in full force, and we're helping dealers hire installation crews. One of the reasons they told us they couldn't expand installation bandwidth last year is because we couldn't find people.
So I said, okay, let's figure out how we solve that together. Right? So when we have the kind of scale we have with 8600 channel partners, or 8600 dealer partners, you know, we can put a lot of effort towards those things. And they can have, you know, kind of meaningful outcomes. So I think we're making all the right things happen. And I think what your thesis maybe just didn't take into consideration is the timeline.
around letting those sales mature into kind of installation. So that's coming and we expect to see that kind of as we exit Q2 and enter the second half of the year. Thank you. One moment please for our next question. Our next question will come from Praneet Satish, Wells Fargo, your line is open. Thanks, I know you talked about Ecobee being this single pane of glass but I...
love about ecobee is the display is fantastic in that thing. In fact, with the doorbell cam, I have one in my house on a beta trial right now, if somebody pushes your doorbell, if you have if you're anywhere near your ecobee thermostat, and you can have that thermostat anywhere in your house, you can have multiple thermostats, it actually displays the doorbell camera on on the thermostat. It's it's cool. It's it's cool as hell really. I mean, I gotta be honest. It's like
is one of the more cool features of the Ecobee device. And it's one of the reasons why, I think this is a really key point, and I'll make it since you gave me the opportunity to do that. We wanna use it as the central hub for energy in the home. So we wanna use it as, I mean, we're gonna use it obviously for the doorbell cam, but the ability to, as we just did, we integrated.
If you have a Generac generator in your home and you have an Ecobee thermostat, your Ecobee thermostat will tell you if your generator, it'll show you on the screen, on the display, it'll tell you any fault messages you may have, it'll tell you when it's running in exercise mode, it'll tell you when it's running during a power outage, it'll show you the status of that generator. We're going to be integrating our tank utility, which is our LP tank monitoring device into that next. Then we're going to look at our water heater disconnect switches and integrate those next.
Other energy devices like our storage device are on also on the docket to be integrated into the ecobee thermostat Our premise here has been that you know people looked at us and said well, why'd you buy ecobee back in December of? What year is it 2021? 21. You're going into HVAC thermostat. No, we need a hub in the home Right only less than six percent of homes have a home standby generator and even smaller percentage have storage solar and storage
But almost every home has HVAC, right? The nice ones anyway. And so, every home has a thermostat. So the opportunity, just the raw opportunity for us to enter the home with a device that's low cost and it has a tremendous amount of power inside of it. In fact, Stewart Lombard, who's the principal and the founder of that company, would tell you that, effectively, that's like your iPhone mounted on the wall. In terms of the display quality, in terms of the processing power, the memory.