Generac Holdings Inc. (GNRC) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Second Quarter 2013 Generac Holdings Incorporated Earnings Conference Call. My name is Katrina and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will facilitate a Q&A session towards the end of the presentation. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. York Ragen, Chief Financial Officer. Please proceed.

Good morning and welcome to our second quarter 2013 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, our President and Chief Executive Officer. We will 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 by Generac or its employees, may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see our earnings release or our SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we'll 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'll now turn the call over to Aaron.

Thanks, York. Good morning everyone and thank you for joining us today. We are pleased to report our second quarter 2013 results this morning, which we believe continue to demonstrate the powerful macro growth drivers for our business as well as the ongoing progress we are making in executing our Powering Ahead strategic plan. Our second quarter net sales increased 45% over the prior year to $347 million with very strong double-digit organic growth which remain broadly based across our product categories at all major regions in United States. We are particularly impressed with the organic growth that we have experienced when considering as follows the prior year second quarter in which net sales increased nearly 50% over the second quarter of 2011. We converted this robust revenue growth into even higher growth rates for adjusted EBITDA and adjusted earnings per share of 65% and 64% respectively, as we saw a 320 basis point improvement in EBITDA margin during the quarter versus prior year. Growth in shipments of home standby generators were again very strong during the quarter as the market for these products continues to develop with more home owners becoming aware of the importance of having a backup power system. As home owners experience more frequent and longer duration power outages, they are increasingly seeking technology solutions which ensure their basic comfort, safety and expected standard of living. As a result, home standby generators are becoming more mainstream, given this increased need and awareness. The accelerated adoption rates for these products has led to further expansion of our residential and light commercial distribution network, ending the second quarter with over 5100 dealers which is nearly a 1000 more since the end of 2011. As we support the increased awareness with expanded distribution, we believe we are driving a…

Thanks, Aaron. Net sales for the second quarter of 2013 was $346.7 million, a 45% increase as compared to $239.1 million in the second quarter of 2012. Looking at net sales by product class, residential product sales increased 59.3% to $196.6 million in the second quarter of 2013 relative to a prior year net sales comparison of $123.4 million, which saw year-over-year sales growth of 34% over the second quarter of 2011. The growth in the current year was broad-based, primarily driven by very strong double-digit increases in shipments for both home standby and portable generators. With regards to home standby generators, the continued strength in shipments is due to a variety of factors including the continuing demand from recent major power outages driving further adoption of the category, expanded distribution broadening the availability of the product, increased sales and marketing initiatives extending the awareness of the category, overall strong operational execution to satisfy the increased demand and an improving environment for residential investment. Portable generator shipments during the second quarter of 2013 were up strongly in comparison to the prior year quarter. Our broad relationships at retail provide us with an increase in portable generator shelf space over the last several years. As demand remained strong for backup power following the recent major power outages, we are also seeing increased pull through portable generators. We believe our solid execution and working capital investments have allowed us to capture a leading share of the portable generator market. Also contributing to the revenue growth for residential products in the second quarter of 2013 was our growing presence in the market for engine driven power washers. Looking at our commercial and industrial products, net sales increased 32% to $133.4 million in the second quarter of 2013 from $101.1 million in the second…

Thanks, York. As a result of the continued strong demand for our products as well as the expected closing of the Tower Light acquisition earlier in the third quarter of 2013, we are again raising our sales guidance for full year 2013. Full year net sales are now expected to increase in the low 20% range over the prior year, which is an increase in the low to mid teens rate previously expected. Specifically for the second half of 2013, net sales are forecasted to increase in the mid single-digit range as compared to the very strong prior year's second half period. Even after excluding the pending Tower Light acquisition, net sales are still forecasted to grow in the lower single-digit range during the second half of 2013 over the prior year period. Importantly, the second half of 2012 had two major power outage events. The mid-Atlantic regions the Rachel early in Q3 and super storm Sandy in the fourth quarter. And our revised top line guidance for 2013 continues to assume no major power outage events for the remainder of this year. Additionally, our guidance also continues to assume no material changes in the current macroeconomic environment. We expect the demand for home standby generators will continue to benefit from increasing awareness and adoption, as a result of the major power outage events that have occurred in recent years along with our expanded distribution which is resulting in the formation of a new and higher baseline level of sales for these products. We also believe the ongoing improvement in the environmental residential investment and execution in our sales and marketing initiatives will further drive home standby penetration rates. As a result, total residential product sales are now expected to increase in the high single-digit range in full year 2013…

Thank you, ladies and gentlemen, (Operator instructions). Your first question comes from the line of Christopher Glynn representing Oppenheimer. Please proceed.

If you can elaborate on the closure rate improvement seen from power play and what you are measuring against because I think previously, you know, you talked about the earlier adopters maybe having higher closure rates to begin with.

Hey, Chris, that's a great question and something we are watching very closely as we roll this out. We really like what we are seeing in closure rates. I think it is still too early, it was probably too early in the first quarter that we had it out and I counted on it, but we are pretty excited about what we are looking at. We are digging deeper into that to understand, yeah those again we are targeting kind of about 20% of our dealers to be on power play. I think, yeah, that's 20% of the dealer count. I will say that these are the better dealers, they represent over half the sales that run though our dealer channels which represents the majority of sales in the residential standby category. So we think that as we increase the adoption rate, what we are seeing in closure rate today I think it is another couple of quarters or so we are going to be comfortable that kind of maybe talk more deeply about those improvements. But I'll tell you just my experience having been around this and having watched closure rates for a while, we really like the uptick that we are seeing. The system is having an impact. We definitely know that it's having an impact. We are dialing it in, we've released a couple of different versions of it since the initial version, I think version 3 or 3.5 at this point. We are expanding its functionality; we are expanding the training on it to make sure that you know, it is something that people understand how to fully use. We are now using it in conjunction with this new infomercial program that I've talked about this new campaign, the direct response television campaign that we launched called Power You Control, and that's something that is we are seeing some really interesting things in terms of the impact of both of those things in concert together. So I don't want to quote a specific closure rate, but I can tell you that they are materially higher than they were previous.

Okay, thanks for that. And then on Tower Light wondering if you could comment on margins relative to Generac core and then the revenue geographic split and current growth?

Yeah, Chris this is York. I think with regards to margins, I think it's – Aaron made some comments about their approach to the market and how they approach different geographies around the world as Aaron mentioned, they have distribution that serves about 50 countries around the globe and they have products that service specific needs for each of those markets. And therefore they are able, with that approach they are able to go to the market with premium margin. So I like in it, so I want to compare to say how do they compare to Magnum's margins which what we have commented in the past as more typical mobile equipment here in the North America sold through the national rental accounts. There are better margins in Magnum, probably in the high-teens range but that's pre-synergies. So as we talked about, there are some synergies we have identified. So we want to try to get those approaching 20% there, which are one of the reasons why we like this business was the margins that they are generating.

Okay. And then just maybe the split of Europe and ex-Europe and if it's overall growing right now?

I think you are talking about Tower Light Chris?

Yes please.

Yeah, so Tower Light is growing, it's growing from – we disclosed that it was EUR37 million in sales at the end of 2012, we can say that it's grown through the first half of this year. It's on plan definitely growing nicely. Their distribution, about two-thirds of the sales are in Europe and about one-third outside. So, mainly the outside sales are going to the Middle East and Africa, couple of other parts of the world therein. They have distribution like a little bit in Latin America, they have distribution in 50 countries which is another kind of really nice thing we like about this business is with their customer base and with their breadth of their distribution, we think there is some pretty new things we can do with that. In terms of adding additional products if you think about Magnum's product line, little bit fuller product lines there in terms of just outside the light tower, so is the rental market there are some other products that we think could possibly go into Tower Light as well and into those existing customers. So we are pretty excited about that.

Great. Thank you.

You bet.

Your next question comes from the line of John Quealy representing Canaccord Genuity. Please proceed.

Good morning, guys. Nice quarter and looks good to get back to positive retained earnings for you guys. So a couple of questions. First, on the standby business, can you talk about relative growth rates I think you talked about for the whole business across the country growth, but can you kind of segment that for us in terms of Northeast, Southeast, Southwest, West? How is the growth trends looking for you folks at this point of the year?

Yeah I mean we don't obviously we don't disclose growth rates by regions. But what we can say is obviously as you would expect the growth rates in the northeast, mid-Atlantic and Southeast regions of the U.S. are beyond what they are in other parts of the country. But that being said, we continue to see John even the Midwest we haven't had any major events here in the Midwest to speak of, but yes just the frequency of events that we do get they are more localized in nature. They impact power, we are not talking about weeks on end, you're maybe talking about a day or two or maybe more. But some of our best penetrated states remain here in the Midwest which Illinois, Michigan, parts of even parts of Pennsylvania in terms of Western Pennsylvania there is some great regions of the country here that for us anyway represent good business and good growth rates. And lower growth rates as you would are West where you don't get the severity of weather with the good, most it's underground, and so you've but still growth. And that's the – it's up nicely I mean if you look at that we talk about what's driving that, and again it gets back to this under penetration story across the board that as we continue to drive awareness for the category, drive distribution points more points of lights. We think it's having that kind of an impact with our initiatives and with things that are driving awareness.

Okay, great. And then on the portable side it sounds like you guys have been positively surprised on the strengths there, obviously whether it was tough compares year-on-year decline in shipments in the back half of the year, is that channel still ahead of an expected somewhat storm season for the channel Aaron, or what do you think going on in the portable side for the back half?

Yeah there is definitely some inventory replenishment. There is no question in the front half that took place. The second half which we still see, even though there is a good everyday business on portable generators for the same reason that you know I mentioned with power outages that happen every day around the U.S. there is still 0.25 million people or more without power every day in this country. And you know the typical solution for most people is coming out and get a portable generator with our expanded shelf position, retail partners and this has been a category that frankly you know has exceeded my expectations. When we made the decision to get back into it several years ago, you know it was more of a complementary product for us. It really is you know for us it has become a way to strengthen our relationship with our retail partners, a way to really create a brand in Generac that speaks to backup power for the residential in consumer markets and I would say a lot of that come on the backs of our success in portable generator. But a lot of it is you know with inventory replenishment here in the first half of the year and second half I think the replenishment is pretty well done. It's a cycle now, what you're going to see is normal sell through ahead of you know then normal weather patterns, there is seasonality in the category that happens typically late in the second quarter and throughout the third quarter with your active weather patterns around the U.S. just you know summer storm season.

Yeah. And then last two questions quickly. In terms of the national account business, was that surprising and what are your qualitative expectations for national accounts in the back half of the year?

Yeah, so I mean we're watching national accounts with a lot of interest. I mean it's a big piece of our business. We love that business because we think we do it very well, we think we have a good program setup with our national account sales team. You know a lot of it is coming as we said from the telecommunications vertical, we are seeing some traction in other verticals as well. Financial services industry, we've got a couple of national account customers there that are new to us. But it's primarily the telecom space and as in our prepared remarks we said you know it's not only the competitive pressures in terms of uptime with the networks but also the regulatory pressures, the drumbeat there around you know is this going to be our cell towers is going to be regulated relative to meeting backup power. We are watching that with great interest obviously, in terms of the impact it could have for us. But our customers our national account customers are by and large proactive on that already. So it's not like it's going to push them to do it faster. But they are already out there you know and we serve all the major telecom companies. We are the primary suppliers to all of them. It's kind of specialized space. Those products are a little bit niche, they are somewhat customized for each of the different networks and the network providers. We like the future of that as we kind of indicated in our implied guidance here in the back half, a lot of that can be driven by national account business. Some of the other national accounts step on the rental space, are also starting to come alive. The CapEx spending by the larger national rental accounts which is mainly what we serve through our Magnum business, we are starting to see that pickup as well. So we continue to be bullish on national accounts barring any unforeseen pullback on a macro basis in the economy.

Great, thanks very much guys.

Thanks, John.

Your next question comes from the line of Charley Brady representing BMO Capital Markets. Please proceed.

Hi, good morning guys. This is Andrew joining on for Charley Brady.

Hi, Andrew.

Hi, Andrew.

I was just wondering with respect to rental companies, you guys seeing them just replacing what they have but also kind of expanding their fleets in terms of you know light towers and generators?

That's a great question Andrew. I mean the light tower category in particular has – is one of those categories that's expanding and there is lot of when you talk about the shift to more night time construction that's kind of new market if you will, you know there has always been some amount of night construction. But road construction at night is becoming much more prevalent around the U.S. as you know construction companies, municipality, state governments they try to avoid you know congestion issues that come from shutting down the roadways during the day. The other part of the – the sector there that has obviously come out strong is the oil and gas sector, the energy sector. That has remained relatively soft in the first half this year, the energy sector. But road construction has remained pretty bullish. There is a lot of infrastructure rebuild to go on in this country, so I think there is an expansion of some fleets, certainly there is a replenishment cycle there you know these are products that go above four years in terms of their average life, four to five years that replacement cycle has been pretty heavy in 2011, and all the way into the first half of 2012. You know that started to slowdown but what we are seeing now is those companies are becoming more aggressive at spending CapEx dollars again as we indicated the back half of '13. On the mobile generator side, just to kind of round out the discussion, we are taking share there. Magnum only has been in that market for about six or seven years, and so it takes time to build those relationships, to prove themselves the quality of the product and we continue to deepen our penetration of those products Magnum branded products at their rental customers that are currently buying light towers and that's been a success story for us.

Okay, great. That was helpful. And I was just wondering if you could quantify the gross margin impact the Ottomotores had in the quarter?

Yes, it's York. I mean it's probably if you are talking the margins were up 120 basis points that there was an offset to that with Ottomotores maybe a 1% to 1.5%.

Okay. And last question just is that $13 million in the $1.5 million of deferred financing, the run rate we should use going forward?

Yeah that was the Q3 2013 first full quarter with the new credit facility.

We would remind you that there is a function within that credit facility that if we get to net debt leverage of three times or less, we'll step down a quarter, quick quarter point the LIBOR plus 250 it still remains the 75 basis points more but –

If the Second quarter of 2014 if our net leverage is below three times, 3.0 times we'll step down to that 2.5 point. It will reduce 0.25%.

Yeah that can bring our run rate down obviously slightly.

Okay, great. Thanks, guys.

Thanks Andrew.

Your next question comes from the line of Jeffrey Hammond representing KeyBanc Capital. Please proceed.

Hey good morning guys. I don't know if I missed this, but did you give an organic growth rate for the quarter in commercial, or can you give us the Ottomotores contribution?

Yeah, it was – we didn't specifically give it, but we still had about if we grew 32% for C&I all-in, we still had about 11% organic. So still very healthy organic growth on the C&I side for the quarter.

Okay, great. And then you guys I mean clearly you've been talking about a robust demand period, share gains I am just wondering what all of this is within all this what you are seeing from a competitive landscape, are people investing more adding capacity, introducing new products at the rate you guys are, or is it pretty quiet?

No, Jeff I think the main competitors for us in the -- we just talk on standby for a second, the main competitors in that space have been they remain relatively unchanged for the last several years and they've always been aggressive. I think they compete with us in terms of trying to expand the market. But in terms of their level of investment, I think one of the things that benefits Generac is this is our focus, our primary focus whereas the primary focus of most of our competitors is something else first. And so I think in terms of management resource, in terms of financial resource, in terms of focus, I think that benefits us in terms of why we've been able to maintain our share and grow the market on the same breadth here on all the initiatives and things that we are working on. But the competitive side is we are well aware of the opportunity here, it's just a question of focus and a question of resources and time allocation I think by those other companies.

Okay. And then just longer term question about capital allocation, clearly private equities less involved, you had a couple of years of the special dividend. How should we think the same or differently about capital deployment in the out years as you continue to generate strong cash flows?

I think we've been pretty consistent in our message on how we're going to allocate capital and the deployment of capital going forward. I mean the first thing we want to put as much capital towards growth as we can in terms of growing the business organically. We've said that we want to pay down debt, I think more confirmable range for us in terms of leverage ratio be somewhere in that two to three times on a net debt basis. So, we think that there is some room to continue to pay down debt. Both on M&A which we've been doing right along here, would kind of be the next priority for us and you see that evidence with another acquisition here we just announced with Tower Light which we really like in terms of broadening the company out both in product and in global scale. And then after that we get through that progression, Jeff I think we'd evaluate what does make sense? Is it time to initiate a regular dividend for the Company for the shareholders, is it – would be another special dividend, share buyback I mean there is range of options there. I think the thing that we want to be our shareholders with the knowledge of it is that we are going to deploy capital in the way that's going to get them the best return and get us the best return. We have lot of opportunities out there for us to grow this company organically and through M&A and I think we are going to be very judicious and we've always have been, it's kind of in our DNA, we are very judicious about how we spend capital there.

Great, thanks guys.

Thanks a lot.

Your next question comes from the line of Ross Gilardi representing Bank of America/Merrill Lynch. Please proceed. Ross Gilardi – Bank of America/Merrill Lynch: Yeah, thanks guys. Good morning.

Hey, Ross. Ross Gilardi – Bank of America/Merrill Lynch: Yeah I just had a few questions. So your residential growth rate actually accelerated in the second quarter versus the first quarter on a year-on-year basis. Was that comp issue, so the comp just easier or is underlying demand actually accelerating as we get further from Sandy? And can you talk at all about what kind of demand you are seeing for standby kind of in the here now in July or any color you can provide sort of as the quarter progressed in terms of growth rates?

Yeah. So Ross I think your observation there is absolutely correct. I think there is a couple of things underlying that. I mean certainly the Q2 comp actually was a little bit easier than Q1. There was quite a bit of backlog demand we were fulfilling in the first quarter of '12 that made that quarter a little bit more difficult comp and that relaxed obviously we got to Q2 of 2012. But I look at the new initiatives that we have got that we have just rolled out here at the end of the year, the end of 2012 and in the first quarter with power play, with our AMP direct targeted marketing, we have got our national ad campaign now in market that started in late May, around the Memorial Day holiday, I think all of those things everything that we see on our dashboards as we look at the company and the KPIs we watch are telling us that closure rates are improving, lead generation is up significantly, web hits are up significantly. So interest level in the category home standby that is in particular which is the majority of that residential bucket is up significantly. We also had our power washers, that again this is our second full year in washers. So there is a little bit there in Q2 over the prior year Q2. So there is some pickup there which is good, we launched our OneWash product. So we are gaining share and there we are still small player, no question about it. But it continues to be a part of that overall growth for residential. Here and now we don't want to make comments about the current quarter. I think as we've said that we really have been impressed with the tail on this home standby business from Sandy. We think that the echo effect of Sandy happening in the same region as Irene a year before, has had a more substantial impact on the length of that tail, whereas we have said in the past we would expect to normally see an elevated period of demand for about 6 to maybe 12 months after event. I think we are going to see all of 12 months maybe longer with this event. So it will remain to be seen what happens as the season shapes up this year, but at least right now we really like the trajectory of that business. Ross Gilardi – Bank of America/Merrill Lynch: That's great guys. And then as you are seeing faster penetration or faster growth in portables, I mean what kind of opportunity do you see longer term for many of those consumers to upgrade to a standby product and are you seeing increasing incidence of that?

Yeah, that's the beauty of it. I mean we look at our own data, when you look at home standby sales data and we look at the registration data underlying that and underpinning that, about half of the people who have a home standby or buy a home standby generator either own or own portable. So if we can give people a good experience, people kind of as a starter product if you will for backup power with a Generac branded portable generator, the upgrade path to a Generac branded home standby we believe is something that is an opportunity for us. And so the ability to market directly to those people now that we have that data it becomes a readymade kind of upgrade path marketing project for us and something that we are playing with right now in terms of how we can do that after people who have owned a portable generator a couple of years and maybe used it a few times, they understand that it's not a fully automatic solution, you do have refuel it often times it's inconvenient points in the middle of the evening, you have to have extension cords, you know the lack of automation on it and you got to be home when the power is out, you've got to be in an area that isn't so where the power outages are so wide spread that you can't even get fuel. So downside of using a portable generator are it works, but works in a pinch, and that's a great product. But the increased utility and value you get by spending little more money on a home standby is a great upgrade path and it's something we see as a great marketing opportunity for us as we have done very well in portable generators over the next few years, we think there could be good conversion rate opportunity there. Ross Gilardi – Bank of America/Merrill Lynch: And then you talked about inventory replenishment in the first half by the mass merchants but what did the mass merchants do in preparation for hurricane season? Do they build lot more safety stock this year and if there isn't a major outage event this summer, are you concerned at all that we have – that you'll only go through a big destocking event later in the second quarter?

Yeah, it's a good question Ross, just kind of two parts of the question. The first part I think that it's natural for retailers as they did last year after Irene to probably go heavier the season after a major event right. So they did after Irene, they stocked up really heavy for Sandy because they did I think we benefited from that. I think the stocking levels were main elevators, Sandy may be even have gone up a little bit more. If we look at our in-channel inventory where our partners have talked about their inventory levels and where they want to be for the season, it is somewhere higher than the prior year. Are we concerned about not getting storm? I think we put that into our guidance. Our guidance doesn't assume a major outage. It assumes there is no outage and as such would assume destocking would occur in the back half of the year as a result we built that into our guidance. The way we kind size ourselves around that and plan around that, it's pretty simple. We felt what's our everyday shop space in portable generators and then we kind of look at that, okay, if we didn't get in the event how long it will take us to burn that inventory off. And so we calibrate our own inventory levels as well as looking at those in the field and in channel and we create, we have a decision to we make there, we make some decisions about what could happen if we don't get a storm and I think you are seeing that reflected in the second half guidance as it relates to what we've issued this morning here. Ross Gilardi – Bank of America/Merrill Lynch: I got you, thanks. That’s helpful. And then your dealer network is clearly growing very rapidly and you're citing that as a source of strength in the standby category. But is dealer inventory an increasingly important issued to follow talking obviously more about local electricians; do you have dealers that are building speculative inventory of standby product in front of the hurricane season?

It's a good question I mean actually one that we have remarkable visibility to now given our activation data and things that we talk about on calls previously. There is no question that when you are look into certain regions of the countries, the Northeast, the Mid-Atlantic we're seeing some dealers that are carrying inventory. The thing we're noticing now is that the demand has remained so strong that really every time they get inventory position the demand kind of is set up and so it's sold already. And when you are small dealer, what we said traditionally and what we can see here is there are some outlier dealers. Some of the larger dealers I think do take stock and positions as it's clear based on the data we see that's the case. And as dealers become bigger and we have more of them certainly field inventory becomes bigger every year as the category grows. But most dealers by and large of what we see these are small contractors, they don't have a lot of additional working capital and frankly not a lot of space to store 400 pound or 500 pound item, waiting betting on the come. And so what they do is often times they will not buy for mass until they've sold to a consumer. So they go and they do a consultation, an in-home consultation for a consumer or home owner. And then if the home owner chooses to accept their proposal, there is a permitting process. These are products it has to be – building permits has to be issued for electrical inspection test to be conducted. There is a lot of – there is some initial work upfront. They generally will not order for the product from us until they have that permit in hand because for them there is no reason to be out of pocket that working capital until they absolutely know they need to be.

Your next question comes from the line of Stanley Elliott repressing Stifel. Please proceed. Stanley Elliott – Stifel Nicolaus: Good morning guys, thanks for taking my question. Question, as we're thinking about the power washer product, I mean I know it's relatively new but is it not – to think you guys couldn't get a 10% market share, something of that magnitude in another about two years down?

I think Stanley think that's very reasonable goal for us. We're pushing people internally harder than that. I talked about we're calibrating that we want to be the number one provider in this space. I think it's an area where we have expertise based on our history we have expertise in terms of the manufacturing, in terms of the engineering, we have fantastic sourcing capabilities. These are engine-powered washers. So we're not in the electric washer space which would represent frankly about half of the market. So that's not a part of the market that we're going to address for the product line today. But on the gas washer side it is something that I think when you talk about share there, I think it's very reasonable to say 10% is something that's achievable for us. Stanley Elliott – Stifel Nicolaus: Then as far as the discussions with the national accounts and I guess the line reviews have been ongoing. You had a big win last year, are you seeing any other sorts of big wins this coming season, for next year I guess rather.

Yeah, we are still in the season right now in terms of line of years, we are getting some indications back and there is some puts and takes there. And what we have heard so far, I think you know, we remain optimistic that we are going to have more wins, and we will have losses obviously as we roll out the product line. But it is a tough market. It is a competitive market, you've got to bring innovation to these accounts every year, year in and year out. You've got to be sharp on your costs, you've got to be sharp on your execution in terms of being able to meet their timelines, their rapid development cycles. Those are things that you know, we're developing competencies at the Company here. We've got elements of those competencies, we have more to develop but you know more to come as season kind of bears out here. And we have got more information in the months ahead. Stanley Elliott – Stifel Nicolaus: Great. Then lastly, has there been any sort of improvement on regulatory environment, the FCC had they were some hearings I guess earlier this year, but is there any update of the status of that?

Yeah I mean from all indications that we kind of see things from the outside looking in a little bit, we've got some ears to the ground obviously pretty aggressively in Washington DC where this is taking place. But everything we see is that with the change in the chairperson of FCC you know, that has put everything a little bit on the backburner as far as things, our priorities are potentially, you know, re-ordered going forward. It remains to be seen whether this will continue to be priority as it looks early on for the FCC. You know, I don't think there are anybody that can dispute there are more critical communications. You know, mobile voice and data communications that are going over wireless. That is the future of new LTE networks that are being rolled out very aggressively here by the carriers, you know, as well as the older networks that are vulnerable to power outages. We believe most of our customers have been very pro-active in that regard in addressing the areas of the country where they certainly have power quality issues, they are more prevalent. A more widespread regulatory approach to this could you know, obviously accelerate that for us, our business honestly and I say dramatically as one of the largest providers. But everything we heard right now, it is kind of everything is a little bit of a holding pattern till the FCC kind of figures out with the new chairperson what are the priorities are going to be going forward. Stanley Elliott – Stifel Nicolaus: That's great. Well, thank you very much for your time and thanks a lot guys, great quarter.

Okay, thanks Stanley.

Thanks Stanley.

Your next question comes from the line of [Tim Marooney] representing William Blair. Please proceed.

Good morning guys.

Good morning Tim.

Good morning Tim.

I've got a couple of just real quick ones. First of all going back to the geographic question you've got, you've got all power inventories, Tower Light, after the close of Tower Light, what percent of your sales will be outside of the U.S. and what would be an ideal target that you look out over the next several years.

Yeah, I think we were saying about 10% to 15% of our sales would be outside the U.S. and Canada going forward, if you perform a Tower Light into the operations there. And obviously with the expectations for growth beyond that and whether that growth is organically through the acquisitions we've made through the introduction of new products and new customers and being part of a more larger entity like the Generac, the benefit that we can give these entities like Ottomotores, Tower Light in particular, you know the benefit in scale which is we think is you know potentially significant when you look at some things like Tower Light in particular, as I said before, the ability to offer additional products to Tower Light customers that they don't have today. We are very focused on a singular product line in light towers, but going forward you know right now about 10% to 15%, and we would expect to grow that even further, what is the comfortable position out there, you know, I don't think we quoted anything specific, but we like the opportunities that are ahead of us. There is a huge market worldwide for power generation for mobile equipment in particular. And so we think there is a lot of potential opportunity ahead of us.

Okay, thank you. And lastly statement in your outlook statement you discussed an improved outlook in C&I shipments. Is that driven at all by an improved outlook for commercial construction market or is it more your infrastructure and telecom?

I think it is more the infrastructure and telecom piece here, but there is a piece here. We said we expected a little bit of improvement in the non-res construction indices here going forward. But frankly all indications are that still remains fairly soft off of obviously a very low base of the last several years. You know the rental companies as well as part of our C&I growth, so the national accounts there. They build out their fleets, we replenish their fleets and add a new product like mobile generators like I said we are getting some better traction there with our mobile generator line in those accounts. That's also a part of that C&I object that we are expecting in the second half.

Great thanks, guys.

Thanks Tim.

Thanks Tim.

Ladies and gentlemen this does conclude the time we have for questions and answers. I would now like to turn the call back over to Aaron for any closing remarks.

Thank you. We really appreciate everybody's attention this morning for our second quarter call and we look forward to our third quarter call which should be sometime in the late October timeframe. Thanks again for your time this morning.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.