Generac Holdings Inc. (GNRC) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter and Full Year 2019 Generac Holdings Incorporated Earnings Conference Call. [Operator Instructions] We are joined today by Aaron Jagdfeld, Chief Executive Officer; and York Ragen, Chief Financial Officer. I would now like to hand the conference over to your speaker today, Mr. Mike Harris, Vice President of Corporate Development and Investor Relations. Thank you. Please go ahead, sir.

Good morning, and welcome to our fourth quarter and full year 2019 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer; and York Ragen, Chief Financial 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 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 a reconciliation to comparable US GAAP measures is available in our earnings release and SEC filings. I will now turn the call over to Aaron.

Thanks Mike, and welcome back. Good morning, everyone and thank you for joining us today. The fourth quarter was a strong finish to 2019 and capped a tremendous year for Generac. We achieved a record quarterly revenue - a record for revenue and all-time records for adjusted EBITDA, adjusted EPS and free cash flow. Revenue during the quarter exceeded our expectations headlined by strong home standby demand from robust growth in California, driven by the growing threat an occurrence of public safety power shut-offs, along with the overall continuation of a favorable outage environment. The revenue outperformance during the quarter was also due to strength in shipments of domestic commercial and industrial stationary generators sold through our North American distributor channel, along with higher than expected sales of domestic mobile products. These areas of strength were partially offset by lower than expected results from the continued slowdown in international markets. On a year-over-year basis, net sales increased 5% during the fourth quarter as compared to the very strong prior-year comparison where overall revenue growth was 14% and core sales growth was approximately 12%. Core sales growth for the - current year fourth quarter, which excludes both the impact of acquisitions and foreign currency was approximately 4%. Gross margin expanded 130 basis points compared to prior-year and was better than our expectations. Adjusted EBITDA margin remained strong at 22% and also came in better than forecasted. We monetized the significant amount of working capital during the quarter and generated robust free cash flow of $160 million. Before discussing fourth quarter results in more detail, I want to provide some full year financial highlights, as well as share some key accomplishments that we achieved during the year. 2019 was another record year for Generac across the board for revenue, adjusted EBITDA, adjusted EPS and free cash flow. Revenue grew 9% for the full year, which was on top of very strong top line growth in both 2018 and 2017 of 21% and 16%, respectively. Gross margin expanded 40 basis points for the year to 36.2% and adjusted EBITDA margin came in strong at 20.6%. Led by our fourth quarter performance, we generated over $250 million of free cash flow for the full year. We believe, 2019 provides further support that the secular penetration opportunity for home standby generators is as compelling as it has ever been, with shipments increasing at a strong rate during the year and very encouraging trends with several key performance metrics that we monitor closely. We made significant progress in ramping up efforts to capitalize on a dramatic increase in generator interest and demand in California due to the power shut-off events by local utilities as residential product shipments alone to the state increased by more than $50 million compared to the prior year. We also launched our new clean energy efforts during the year by entering into the energy storage and monitoring markets, including making the important strategic acquisitions of Pika and Neurio during the first half of 2019. We achieved an exciting milestone during the fourth quarter by shipping the first of our new PWRcell storage systems with our PWRview monitoring platform, which has been very well received by the market to date. Another key accomplishment during 2019 was the exceptionally strong growth experienced for domestic C&I stationary generators, which benefited from market share gains and the dual secular drivers of increasing penetration for natural gas generators and the impending deployment of next-generation 5G wireless technology. We also further expanded our International business with the Captiva acquisition in India during the first quarter, one of the largest power generation markets in the world. We generated record earnings and cash flow in 2019, while at the same time significantly increasing our operating and capital investments across the business to align with our long-term core growth targets and to capitalize on the numerous growth opportunities that lie ahead for Generac. Accordingly, we plan for a notable increase in operating expenses in order to invest in a variety of initiatives across the business. And we had a nearly 30% increase in capital expenditures for the year compared to 2018, with the majority relating to growth investments within our operations in our facilities. Discussing these accomplishments further across the business for 2019, shipments for home standby generators during the fourth quarter once again increased at a very strong rate compared to the prior year due to greater outage activity in the US and Canada, including the power shut-off events in California. In fact, power outage severity grew at a solid rate during the fourth quarter compared to last year and was considerably higher relative to the long-term baseline average. Activations were also up significantly during the fourth quarter when compared to the prior year with the regional strength being broad-based in nature with the exception of the Northeast. Growth in the West region was particularly strong, driven by California, which was approximately six times higher than the prior-year quarter. Also, in-home consultations or IHCz grew at a significant rate during the quarter compared to the prior year. For full year 2019, our leadership in the home standby product category continued as our market share further improved and ended the year at nearly 80%. Power outage severity for the full year 2019 was notably higher than the long-term baseline average, further reinforcing one of the key macro themes for our business related to increasing power quality issues from an aging and an under-invested electrical grid, which has lifted more vulnerable to the increasing unpredictability - unpredictable and more severe weather patterns that are being driven by climate change. We are particularly excited that in 2019, we generated the most IHCs ever with the IHC close rate reaching its highest level and representing a more than 50% increase from 2014 levels, which was the first full year of our proprietary PowerPlay in-home selling system. Also, the cost per IHC, which would represent our customer acquisition cost continues to come down and finish 2019 at its lowest level since the inception of PowerPlay. Additionally, we experienced an all-time high for home standby activations for the full year with the Midwest and West regions particularly strong and with the dramatic increase in California of nearly four times higher than 2018. We ended the year with approximately 6,500 residential dealers, a meaningful increase of roughly 500 dealers from the end of 2018, with dealer counts in California, significantly expanding from around 100 at the beginning of the year to over 350 at the end of the year. Generac created the home standby category over two decades ago, and we estimate the market today is well in excess of $1 billion annually, with every 1% of penetration representing approximately $2 billion of additional market opportunity at retail prices. With penetration rates of single-family unattached homes in the US still below 5%, there remains considerable room for this dynamic market to continue to grow. One area in particular with some of the greatest potential to increase penetration is California. During the fourth quarter, the market for emergency backup power in the state quickly accelerated with local utilities triggering numerous and significant power shut-off events impacting millions of customers in an attempt to mitigate the risk of wildfires. Some of these shut-offs were multi-day events and are projected to continue for the years ahead, as the impact of climate change and the massive under-investment in Northern California's power grid have combined to create a situation where public safety needs are being prioritized overpower quality. This has resulted in significant awareness and increased demand for our generators in California, where penetration rates of home standby generators stand at approximately only 1%. We are intensely focused on expanding distribution in California, and we are working together with local regulators, inspectors and gas utilities to increase their bandwidth and sense of urgency around improving and providing the infrastructure necessary for home standby, another backup power products. We are anticipating significant revenue growth in California during 2020, and continue to believe the total generator opportunity for Generac in the state could potentially be as high as $200 million annually in the years ahead. Our efforts in this part of the country will also prove to be helpful in developing the energy storage and monitoring markets where the installed base of solar and other renewable sources are some of the highest in the US, but the corresponding penetration rates of complementary energy storage systems are very low. With regard to clean energy specifically, the market for residential energy storage and monitoring systems within the US continues to develop rapidly. Through a combination of changing regulations, advancements in technology and improving economics, the legacy utility model will undergo a massive amount of change in the decade ahead. We believe the need for distributed power generation coupled with sophisticated energy monitoring and energy management capabilities will allow homeowners and business owners more flexibility in where their power comes from, how much it costs and how they consume it. The new capabilities associated with the Pika and Neurio acquisitions have enabled us to bring an efficient and intelligent energy-saving solution to the market, which we believe will position Generac as a key participant going forward. We achieved a significant milestone during the fourth quarter with the first shipments of the new PWRcell energy storage system that began in mid-December. We are making excellent progress in ramping up our clean energy efforts, including building out our dealer base, reducing system cost through our global supply chain and deploying targeted marketing alongside our in-home selling capabilities. Although early, our new clean energy infomercial that launched in mid-January has performed well and we are generating sales leads through our proprietary in-home selling system that we call PowerPlay CE, the industry's first complete solar plus storage cells and lead management tool for installers and dealers. With demand for our clean energy products dramatically outpacing our initial expectations, we're working hard to secure additional capacity for key subsystems and components, allowing us to further ramp our supply chain. Our current outlook for clean energy in 2020 has far exceeded our original business case from earlier last year when we first completed the acquisitions of Neurio and Pika. Our latest view is that we now expect to deploy over 150 megawatt-hours of storage during 2020, which is a significant increase from our prior expectations of 100-plus megawatt-hours. Although very different from the extended emergency backup power space we serve today, we believe the energy storage market will develop similarly as the home standby generator market has over the past two decades. Our efforts to develop omni-channel distribution, targeted consumer-based marketing content and proprietary in-home sales tools have played a critical role in creating the market for home standby generators. And we intend to leverage our expertise and capabilities in these areas, as we work to grow the energy storage and monitoring markets and lower overall customer acquisition costs. We believe we have a unique opportunity to develop Generac into a company and a brand that is associated with the complete energy ecosystem of a home or a business, from power generation to storage to energy monitoring to energy management, thereby positioning us to be perhaps the only company that can offer products and solutions, allowing end-users to take full control of their energy needs. We are incredibly optimistic that our efforts around clean energy could create potential new business models for the Company in the future. And we are confident that it will become a meaningful part of our business in the years ahead. In addition to our efforts with clean energy and the expansion of our residential side of our business, our domestic C&I stationary generators also grew again during the quarter, with broad-based shipments through our North American distributor channel. This strength was partially offset by lower shipments of C&I products to national telecom and rental account customers. As we have previously discussed, demand trends with telecom can be lumpy from quarter-to-quarter based on the timing of our customers' capital spending needs. Also, domestic shipments of mobile equipment remain soft in the quarter as major rental customers continue to differ capital spending. For the full year 2019, we experienced exceptionally strong growth for domestic C&I stationary generators, benefiting from the secular drivers of increasing penetration of natural gas generators and in the impending deployment of next-generation 5G technology, along with higher specification rates, improvements in how we go to market and market share gains. Over the years, we have worked hard to promote the cleaner and more cost-effective use of natural gas power generation as an alternative for the traditional diesel-powered systems used in emergency backup applications. We believe the natural gas has many superior characteristics with its abundant supply, low price, logistical advantages and environmental benefits which have driven growth rates over the past several years for gas backup generators at twice the level of diesel generators. Importantly, the opportunity for natural gas generators outside the US remains nascent and a core part of our strategy is to capitalize on the opportunity with our growing global footprint, additional focused investment and leverage our unique expertise within this area. We also believe the long-term opportunity with selling backup power solutions to telecom national account customers is very compelling, as wireless carriers further build out and harden their existing networks to prepare for the impending deployment of the new 5G technology. The need for a continuous supply of power to wireless sites will become even more crucial as faster speeds and increased bandwidth will enable a number of impactful mission-critical technologies in the future. By taking advantage of our international footprint and scale, we believe we can become a global leader in the market for telecom backup power, similar to the leading position we have built in the Americas, as this key vertical begins another extended investment cycle in the years ahead. Although shipments for domestic mobile products experienced a cyclical decline during 2019, in our view, the longer-term need for higher levels of spending on infrastructure projects in the US is an important theme that remains intact. And we believe this will translate into greater demand for mobile products in the years ahead. With respect to the international side of our business, we continue to experience a challenging environment during the fourth quarter, with the economic slowdown in the Latin American region causing delays in many large projects and an overall soft demand environment during the second half of 2019 in certain key region of the world due to trade conflicts and geopolitical headwinds. However, the order rate within our International business has been improving in recent months with an improving book-to-bill, which we anticipate will lead to a resumption in growth beginning in the second quarter of 2020 and further acceleration during the second half of the year. Over the past several years, we have significantly expanded our served market internationally, primarily through acquisitions. We believe that the longer-term, this increased global presence will be important as interest in-home standby and gas generators for commercial and industrial applications continues to gain traction in many markets around the world. In addition, we believe our international footprint will provide an important avenue for growth as we enter the clean energy space on a global basis. We believe these will be important drivers towards our long-term goal of reaching double-digit adjusted EBITDA margins for our International business in the coming years. In closing, earlier this week, we rang the opening bell at the New York Stock Exchange, commemorating the 10th anniversary of our initial public offering in February of 2010. Since going public, Generac has transformed itself from a company primarily focused on emergency backup power to an industrial technology company and now with a more specific focus on energy technology solutions. During our time as a public company, the Company has grown revenue at a compounded annual rate of 10% organically and 14% on an as-reported basis, while making significant investments across the business to dramatically expand our served addressable markets, maintaining strong adjusted EBITDA margins in the low 20% range and generating approximately $2 billion of free cash flow during the last decade. We are extremely proud of this proven track record of strong and profitable revenue growth, which has led to a total shareholder return over the past 10 years that has significantly outperformed the overall market. As we enter 2020, we're as excited as we've ever been about the future growth prospects for the Company, which are driven by the overall megatrends and powerful macular secular drivers for our business. And we will continue to aggressively invest in the strategic initiatives are aligned with the company is powering our future strategy. I now want to turn the call over to York to provide further details on the fourth quarter and full year 2019 results. York?

Thanks Aaron. Looking at our fourth quarter of 2019 results in more detail, net sales for the quarter increased by 4.9% to $590.9 million as compared to $563.4 million in the fourth quarter of 2018. Excluding the $9.1 million of contribution from the Captiva, Neurio and Pika acquisitions, and the almost $3 million negative impact from foreign currency, the core growth rate during the quarter was approximately 4%. Net sales for the full year 2019, increased 8.9% to $2.20 billion, an all-time record for the Company. Looking at our consolidated net sales for the fourth quarter by product class, residential product sales during the fourth quarter increased 9.7% to $322.5 million as compared to $293.9 million in the prior year with core growth being approximately 7% when excluding the contributions from clean energy products acquired through Neurio and Pika. As Aaron mentioned, home standby generator sales continue to experience very strong year-over-year growth primarily due to increased baseline power outage activity in the US and Canada, including the utility power shut-off event that took place in California during the quarter. As we continue our focus to drive the overall penetration of the homestand by product category, we have ramped up our efforts, particularly within California to increase awareness and distribution for these products within the state. Partially offsetting the home standby strength during the fourth quarter was a decline in shipments of portable generators compared to prior-year as a result of higher retail inventories entering the fourth quarter from the threat of Hurricane Dorian. Also recall, the prior year fourth quarter included the impact of Hurricane Michael, which resulted in additional portable generator shipments into the impacted region. Looking at our commercial and industrial products. Net sales for the fourth quarter of 2019 declined 2.7% to $217.1 million as compared to $223.2 million in the prior-year quarter, prior-year quarter, with the core growth decline of approximately 3% when excluding the contribution from the Captive acquisition and the unfavorable impact from foreign currency. Domestically, shipments of C&I stationery products through our industrial distributors remained very strong as we continue to drive share gains across our product portfolio. This continued to trend that we have seen for all of 2019. Offsetting this growth was a decline in shipments to our telecom national account customers due to the combination of a very strong prior-year comparison coupled with certain customers taking a pause and capital spending during the current year quarter. Also shipments of C&I mobile products declined compared to prior-year as our national rental account customers continue to defer capital spending on the rental fleet. Internationally, our C&I products declined compared to the prior year on a core basis. As Aaron mentioned, we continue to experience a challenging environment with international as slower economic growth, trade conflicts and geopolitical headwinds our leading the softer demand in many of the key regions of the world in which we operate. Net sales for the other products and services category primarily made up of aftermarket service parts and product accessories, the amortization of extended warranty deferred revenue and the service offerings in various parts of our business, increased 10.8% to $51.3 million as compared to $46.3 million in the fourth quarter of 2018. A larger installed base of our products and higher levels of extended warranty revenue and services drove this increase versus the prior year. Gross profit margin improved 130 basis points to 37.6% compared to 36.3% in the prior-year fourth quarter. Despite the impact of higher regulatory tariffs and the unfavorable mix impact from recent acquisitions, we successfully expanded our gross margins in the current year quarter through pricing actions, cost reductions, favorable sales mix and lower realized commodity and currency input costs. Operating expenses increased $22.3 million or 23.3% as compared to the fourth quarter of 2018. As a percentage of net sales, operating expenses excluding intangible amortization increased approximately 250 basis points versus the prior year as we continue to make important investments in a number of future growth opportunities for the Company. For example, a key driver of the increase in operating expenses is our entrance into and ramping up of our clean energy efforts this year, including the impact of acquisitions of Neurio and Pika. Another main driver is the addition of employee resources around strategic initiatives with a key focus on our connectivity, lead gas and beyond standby opportunities globally. We also continue to invest in developing new products and technologies, along with targeted spending on marketing content, campaigns and promotions to drive awareness of the home standby generator product category with an added focus on the California market. Finally, we incurred higher intangible amortization and depreciation expense given our acquisition activity and an increase in capital expenditures in recent years. Adjusted EBITDA before deducting for non-controlling interests and as defined in our earnings release, was $129.1 million in the fourth quarter of 2019 as compared to $126.1 million in the same period last year. The corresponding adjusted EBITDA margin was 21.9% in the quarter as compared to 22.4% in the prior year. This margin decline was primarily driven by the increased operating expense investment previously discussed, partially offset by the improvement in gross margin, exclusive of various EBITDA add-backs. For the full year 2019, adjusted EBITDA before deducting for non-controlling interests came in at an all-time record of $454 million, resulting in an attractive 20.6% margin. I will now briefly discuss financial results for our two reporting segments. We disclosed this morning that effective in the fourth quarter of 2019, we determine that the Latin American export operations of our legacy Generac business to be included in the International reportable segment. Previously, these results were reported in the Domestic segment in amounts that were not material. Accordingly, we have updated the net sales and adjusted EBITDA by segment included within the supplemental schedules of our press release. The change increased the net sales and adjusted EBITDA for the International segment by immaterial amounts while reducing the net sales and adjusted EBITDA for the Domestic segment by the same amounts. With that said, Domestic segment sales increased 7.7% to $470.1 million as compared to $436.3 million in the prior-year quarter, which includes $7.2 million of contribution from recent acquisitions, resulting in core growth of approximately 6%. Adjusted EBITDA for the segment during the quarter was $122.9 million or 26.1% of net sales as compared to $116.3 million in the prior year or 26.7% of net sales. For the full year 2019, Domestic segment sales increased 11.3% over the prior year with core sales growth of approximately 10%. Adjusted EBITDA margins for the segment were approximately flat versus prior year at 24.6%. International segment sales decreased 4.9% to $120.9 million as compared to $127.1 million in the prior-year quarter. Core sales declined approximately 4% versus prior-year when excluding the unfavorable impact of foreign currency and the Captiva acquisition. Adjusted EBITDA for the segment during the quarter before deducting for non-controlling interests was $6.2 million or 5.2% of net sales, as compared to $9.7 million or 7.7% of net sales in the prior year. For the full year 2019, International segment sales increased 1% over the prior year with the core sales decline of approximately 1%. Adjusted EBITDA margins for the segment before deducting for non-controlling interests were 5.5% of net sales during 2019, compared to 7.9% of net sales in the prior year. Now, switching back to our financial performance for the fourth quarter of 2019 on a consolidated basis. GAAP net income attributable to the Company in the quarter was $69.6 million as compared to $75.6 million for the fourth quarter of 2018. Included in the current year fourth quarter was a pre-tax settlement charge of $10.9 million related to the termination of the Company's domestic pension plan, which did not result in a reduction of benefits to plan participants. On a cash basis, we only incurred an incremental cash contribution of approximately $1 million during 2019 to settle our obligations under the plan. GAAP income taxes during the current year fourth quarter were $13.4 million for an effective tax rate of 16.1%, this compares to GAAP income taxes in the fourth quarter of 2018 of $20 million for an effective tax rate of 20.7%. The decline in tax rate was primarily related to a year-end revaluation adjustment related to a reduction in our state income tax rate. Diluted net income per share for the Company on a GAAP basis was $1.12 in the fourth quarter of 2019, compared to $1.20 in the prior year. Included in the current year quarter was $0.17 impact from the aforementioned pension settlement charge. Adjusted net income for the Company, as defined in our earnings release was $96.5 million in the current year quarter or $1.53 per share versus $88.1 million in the prior year or $1.42 per share. With regards to cash income taxes, the fourth quarter of 2019 includes the impact of cash income tax expense of $8.2 million as compared to $15.4 million in the prior-year quarter. The current year now reflects an expected cash income tax rates of 15% for the full year 2019 as compared to our previous expectation of 17%. The prior year fourth quarter was also based on an expected cash tax rate of 15% for the full year 2018. Recall that every dollar of pre-tax earnings over and beyond our $30 million tax yield is now tax - expected GAAP tax rate of approximately 24%. Cash flow from operations was $175.1 million as compared to $108.2 million in the prior-year fourth quarter. And free cash flow as defined in our earnings release was $160.3 million as compared to $87.3 million in the same quarter last year. The significant monetization of previous working capital investments along with lower capital expenditures were the primary drivers of the strong improvement in cash flow compared to the prior-year quarter. Free cash flow for the full year 2019 was an all-time record of $250.7 million as compared to $203.6 million for 2018. Uses of cash during 2019 included $112 million for acquisitions, $61 million for capital expenditures and $38 million for net repayment of debt. Taking a look at our balance sheet, on January 1, 2019, we adopted the new GAAP lease accounting standard. This new standard requires that we recognized the right of use assets and leased liabilities related to operating leases on our balance sheet. As a result, we recognized approximately $40 million of additional other assets and other long-term liabilities on our balance sheet in Q1 to adopt the new standard. As of December 31, 2019, we had $323 million of cash on hand, and there was approximately $269 million available on our ABL revolving credit facility, which matures in the year 2023. We had a total of $899 million of outstanding debt, net of unamortized original discount and deferred financing costs. On December 13, 2019, the Company amended its term loan credit agreement, which among other things, extended the maturity of the term loan from May 2023 to December 2026. As part of the amendment, the Company paid down $49 million of debt on the term loan. Our gross debt leverage ratio at the end of the fourth quarter was 2.0 times on an as-reported basis. With that, I'd now like to turn the call back over to Aaron to provide comments on our outlook for 2020.

Thanks York. We are initiating guidance for the full year 2020 and expect continued strong revenue growth highlighted by the rapidly expanding clean energy in California markets for our energy technology products and solutions. For the full year, net sales are expected to increase between 6% to 8% compared to the prior year on an as-reported basis and 5% to 7% on a core growth basis. Importantly, this guidance assumes a level of power outages during the year in line with the longer-term baseline average. But given the high likelihood of a significant power shut off event in California, again in 2020, we have included the benefit of one of these events in our guidance. However, consistent with our historical approach, this outlook does not assume the benefit of a major power outage event during the year, such as a category three or higher landed hurricane. Incremental to our baseline revenue guidance, should there be a major event during 2020 along with any additional power shut-offs in California, we could expect approximately 3% to 5% of additional revenue growth, resulting in an upside case as reported sales growth of - between 9% and 13%. From a seasonality perspective, we are anticipating normal historical trends for the year. Specifically, our baseline guidance assumes net sales in the first half are projected to be approximately 45% of full-year revenue with the second half expected to be approximately 55%. Year-over-year growth is forecasted to be in the low-single digits in the first quarter, as the demand softness with telecom and international is anticipated to continue in the near term, but growth is expected to accelerate during the second quarter. Our upside case scenario, should it occur is more likely to take place during the second half of the year where the probabilities increase for additional significant outage activity such as a major landed hurricane or additional power shut-offs during the wildfire season in California. Using our baseline guidance for 2020 net sales, adjusted EBITDA margins before deducting for non-controlling interests are expected to be approximately 20% in spite of the significant ramp of clean energy during the year, which is projected to have an approximate 125 basis point dilutive impact on margins for the full year. Additionally, assuming our upside case revenue guidance, adjusted EBITDA margins could incrementally increase by approximately 50 basis points over the baseline guidance to 20.5%. Consistent with historical seasonality, assuming our baseline guidance, we expect adjusted EBITDA margins in the second half of the year to be higher relative to the first half with the sequential improvement being approximately 500 basis points. Adjusted EBITDA margins are expected to sequentially improve through the year as we work to reduce the cost structure of our energy storage products, realize additional savings from our profitability enhancement program and improve leverage of our operating expenses through the higher top line. Specifically for the first quarter, margins are expected to be the lowest for the year, but similar to the prior year first quarter when excluding the impact of clean energy, which is expected to have a significant dilutive impact during the quarter of more than 200 basis points. Adjusted EBITDA margins are then anticipated to show a meaningful sequential improvement during the second quarter and further improvement during the second half of 2020. I'd now like to hand the call back over to York to walk through some additional guidance details for 2020. York?

Thanks again, Aaron. As is our normal practice, we are providing additional guidance details to assist with modeling adjusted earnings and free cash flow for 2020. Please note, these additional items assume our baseline guidance case for the year. For 2020, our GAAP effective tax rate is expected to increase to between 23.5% to 24% as compared to 21.1% for full year rate 2019. Based on our guidance provided for 2020, our cash income tax expense for the year is expected to be approximately $55 million to $59 million, which translates into an anticipated full year 2020 cash income tax rate of between 15.5% to 16.5%, as compared to 15% rate for the full year 2019. As a reminder, we still have a favorable tax shield as a result of a significant intangible amortization deduction in our corporate tax return that results in our cash income tax rate being notably lower than our GAAP income tax rate. The tax affected annual value of this tax shield is expected to be approximately $30 million per year and expires fully in 2021. In 2020, we expect interest expense to be approximately $37 million to $38 million, assuming no additional principal payments during the year and flat LIBOR rates throughout 2020. Our capital expenditures for 2020 reflect continued investments in expanding capacity and are forecasted to be approximately 2.5% of our forecasted net sales for the year. Depreciation expense is forecast to be approximately $33 million to $34 million in 2020 given our assumed CapEx guidance. GAAP and intangible amortization expense in 2020 is expected to be approximately $31 million to $32 million during the year. Stock compensation expense is expected to be $18 million to $19 million in 2020. For full-year 2020, operating and free cash flow generation is once again expected to be strong and follow historical seasonality, benefiting from the solid conversion of adjusted net income to free cash flow expected to be approximately 90% in 2020. Finally, our full-year diluted share count is expected to increase and be approximately 64 million shares, this compares to 62.9 million shares in 2019. This 2020 outlook does not reflect potential business acquisitions or stock buybacks. Given our strong balance sheet and free cash flow generation, we have significant resources to drive further shareholder value as we execute on our long-term strategic priorities. This concludes our prepared remarks. At this time, we'd like to open up the call for questions.

[Operator Instructions] Our first question comes from Christopher Glynn with Oppenheimer. Your line is now open.

So for the 150 megawatts for clean energy coverage, curious how you're seeing the relative value on this initial trust from your captive legacy channels in dealers versus partnerships that are peculiar just to this category for you.

Chris, it's a great question. Obviously, we think that we're going to be able to tap our existing distribution channels for clean energy opportunities in the future. And in fact, we were - we had our annual conference with all of our distribution partners down in Orlando, last week. We had over 3,000 people there, representing about 1,500 dealers. And so the products were incredibly well-received. We talked about not only the product, the technology and a lot of the programs around that, but I think one of the things it's very evident to us that the typical dealer for us is a small electrical contractor, that's about 85% of the channel for us. And I think most of those contractors would tell you privately that this is pretty new stuff for them, right. They haven't dealt with a lot of the clean energy technology. Some of them have. They're perfectly comfortable with solar and even some comfortable storage. Storage has been so thinly penetrated to this point that it's really new for everybody. But what we're seeing out of 150 megawatts, to answer your question more directly is that that's coming from a lot of the new channel partners that we've picked up, so there is - there are a number of distributor companies that are involved in the clean energy space to distribute all the components necessary to build out a system, whether that be a solar array, or whether that be the storage system itself. And so we've been very successful garnering interest of new customers, which is great because obviously, we want to tap into our legacy channel too, but one of the things we want to do is also grow a new channel. So I think over time, as our traditional channels, if we can call on that get more comfortable with the technology and they do a few installs, they get a few under their belt that will accelerate. I think initially, it's going to be a little bit slower ramp, not maybe slower than our expectations. It's just we expected it to be slow. It's difficult to take a small business like a small electrical contractor and give them something that new and have them be comfortable out of the box with it. So that they'll get there like it's just like home standby really 20 years ago. Now, we don't want to take 20 years and I don't think it well, but because the market is going to move a lot faster than that. But a lot of that is coming from new channel partners, which is great.

And then I had a question on core home standby. I think you mentioned the Northeast wasn't as strong as some other areas. So I'm wondering if you've seen some states or regions kind of fundamentally move past peak and penetration, but that shifting to other regions, if you just kind of speak to that notion.

Yes. I think what - again the Northeast notwithstanding, right. I mean the Northeast was up really big after a couple of major events in 2011-2012, nor'easters in '20 - I think that was in '20 - early 2018. We had some nor'easter type storms like three or four of them in a row. So the nor'easter is interesting. And it's softened after those major events in 2011 and 2012. After growing off of a massive base and it's softened, but into a range that was materially higher than the baseline before those events. Then it picked back up again with the nor'easters in 2018. So we're kind of comping - for full year '19, we're comping those nor'easters with the Northeast, that was the only region that was down. And when we look across all the regions for our activations, which is amazing. The broad-based strength in the category continues to surprise even us, honestly. It's a function of again additional points of light in distribution that we put out there, the breadth of our product offering, the aggressiveness of our marketing - with the direct targeted marketing that we do for home standby is we spend a lot of money, we spend a lot of time and we generated a lot of leads. So as I said in the prepared remarks, 2019 was the highest year ever for our in-home consultations - a number of in-home consultations. IHC has reached record levels. So I think there's always going be some puts and takes, right. You're going to have difficult comps off of peaks and they come back around. But I think what's really impressive to us is the broad-based strength that we see generally regionally, and then obviously the West based on our prepared remarks was off the hook as they say. It was crazy good, so.

Our next question comes from Ross Gilardi with Bank of America. Your line is now open.

Aaron, I just want to ask, I mean look, your stock's obviously soaring, you got a $7 billion market cap right now. Your leverage is low. You're generating a lot of cash. What is in you're clearly very optimistic about the clean energy business? What's your appetite for a larger clean energy storage acquisition? And what do you tolerate a year or two of earnings dilution if something was out there that really bolstered your long-term position and you felt like it was the right thing to do for the Company?

Yes. I mean obviously it's something we're talking a lot about, Ross. The fact that - obviously, the stock has performed well, of course, and I think the business - the prospects for our business have never been brighter. As I said, we tapped into, I think some really big megatrends here at the Company relative to the changing utility landscape. This - we're calling it an energy revolution here internally that - and we view those comments externally with our channel partners and others that, there are going to be a lot of changes ahead. And with all those changes ahead, I think that as we look at - and obviously, we don't comment specifically on our M&A funnel, but we're looking at a lot of things in that funnel that I would say are different from what we would have looked at historically, bigger things, things that are obviously fit in with the clean energy space. There's - it's changed our gaze if you will, in terms of where we look and the size of the things that we look at. Now, we're still looking at a lot of different potential bolt-on acquisitions to that build out some of our platforms and maybe fully can round out some things that were already working on. But there are some technology players out there. I just - I think we're in a great position, right. Obviously, the strength of our balance sheet, York and the team getting done with the - they went through in it, amended and extended the - our credit agreement, again here gave us just a fantastic liability structure for a number of years through 2023, so we're - 2026, excuse me, so we're in a really, really good shape there. So we're looking at a lot of things. And again, I can't comment specifically, but I'm excited about the future and I'm excited that we're in a position where we can capitalize on that future.

The dilution aspect of that, Aaron, can you comment at all, how to think about that, like would you - clearly, you guys have got very high margins in your overall business stemming from standby, how would you consider that?

Yes. Obviously, dilution we think about it, but look, that doesn't scare us. Think of all the things that we've done with the high margin profile we have, honestly, it's very difficult to find anything to buy that would not be dilutive. That's been the challenge is everything - our margins, we've got great margins and we've got a great position in the marketplace. It's difficult to find things that become accretive to margins. If they're strategic and they are incremental, and they make - frankly, they fit well with our views on the future, which I guess you could call strategy, strategic thinking then we'll do it. And if that means we have to suffer through some dilution for a period of time and we've done this, right. I mean some of the acquisitions - some of the larger acquisitions we've done over the years have had exactly that impact. Even the clean acquisitions we did last year, right. I mean we spent $100 million-plus on Pika and Neurio. And as we said in the prepared remarks, that is having a drag on EBITDA margins, you know, is that I think we said something like 50 basis points last year and this year it's going to be 125 basis points all-in, and out of the gate, Q1 it's going to be 200 basis points. So it's going to improve as the cost structure improves of those products and as we scale. But dilution doesn't scare me because I know long-term, I know what our capabilities are and we've proven this. With all the things that we've done, here we are. We're still at basic with the same margins we've been at over the course of the last five, six, seven years. So I'm okay with that.

Especially if we have a path to improve margins over time.

You have to have that. Obviously, you have to have that.

Our next question comes from Philip Shen with ROTH Capital Partners. Your line is now open.

Congrats on the NOVA deal.

Thanks. Yeah.

Yes, that's a big one. There are few solar leasing companies out there, in general, can you talk about how you ended up with NOVA, specifically in an exclusive? And can you share how the agreement is structured, possibly? Is it like a typical dealer? Are there any upfront payments from the other party? Did the geographic footprint, for example, serve as a key driver in the decision? I know they have a presence in Puerto Rico and other islands, how important was that?

Yes. Great question, Phil. We're really excited about the partnership with Sunnova. And we're thrilled that they've selected us as their partner. And the exclusivity really is related to the financing arrangement that they can offer. They've got some pretty great financing packages and pretty unique approach to that. Others have different packages as well and we have talked to - really, we're talking to the entire industry because we think we've got a great story to tell in terms of the technology - the storage technology. And really maybe even more importantly, we probably don't talk enough about this, the monitoring technology that we've got and the energy management technologies that we're working on, and we're going to put together and have been putting together in our PWRcell storage system. Sunnova was just the first one to sign up with us on this program and on this path. I mean we're talking to others. We're going to work with the - as many partners that want to work with us. And those larger partners represent about 30% of the market. And then I think our focus obviously, where we think we really can have an impact is in the independent channel. We think we can bring a lot of unique solutions, tools and a value proposition for the independent channel, that is something that they've not seen before, up until this point. We can give them a turnkey solution with power inversion, with storage, all the power electronics, the optimizers on the rooftop, and we can put all of that in one package. And it's basically under one brand and we can give that to them, and we can offer them that in a unique way. So again, we're not trying to limit ourselves in any one way. The exclusivity was really about the financing arrangement with Sunnova. Again, really excited about that. I'm not going to comment on the specifics of the financing package itself. One reason, I'm not as well versed in the details of the financing packages as others are. But obviously, Phil, we can take you offline. We can get you more comfortable with that as well going forward here. But we're really super excited about NOVA and our partnership, and looking forward to that growth as we expand our efforts here with clean energy.

And the geographic footprint impact that decision given their presence in Puerto Rico and other island, countries or territories?

I mean it is because we look at - obviously, we're looking at what everybody else looks at is where are the biggest opportunity sets for us to go after. And you look at the islands, you look at - in the Caribbean, you look at Puerto Rico and the places where NOVA has a stronger footprint. It fits really well with some of the areas that are projected to have some of the heaviest growth going forward and then our - where penetration rates and attach - more importantly, where attachment rates for storage make the most sense. And that's really - you know, it's - that is a part of this, and one of the reasons why I think both Sunnova and us want to get going on this because we both see attachment rates for storage increasing at a really decent clip here in 2020. And I think the - them having additional storage partners that can bring a unique solution like we have I think is attractive for them and for their customer base.

Our next question comes from Jeff Hammond with KeyBanc Capital. Your line is now open.

So just on the guidance, it seems like most - most to all of the organic growth is coming from the energy storage and maybe some growth in California. So just maybe talk about how you're thinking about home standby outside of California for the year, and just maybe the moving pieces in the C&I, mobile, telecom et cetera?

Yes. Hi, Jeff. This is York. Yeah. So I think you're right. Looking at the guide our core growth rate of 5% to 7%, a large percentage of that will be the clean growth and California growth. Home standby, we are projecting it to be up modestly. I think we always have this challenge every year when we guide, especially our baseline guidance when we don't assume any type of major outage events from Mother Nature. We tend to guide modestly - modest growth on the residential side. Home standby again would be up modestly. Portables without an event, we did sell a number of portables - of $30 million portables as a result of Hurricane Dorian, last year. That wouldn't repeat, so a little bit of a headwind there, but we think we can make up for that with some home standby. On the C&I side, looking at low-single-digit growth, I think that start out the year a little slower, telecom and international, and will probably continue its trends that we're seeing here in Q4, into the first quarter. But we expect that to pick up in the second half. Overall for the year, looking at C&I, may be in that low-single-digit growth range. So when you put it altogether outside of California clean, roughly flat to slightly up, and then we've got that 3% to 5% upside, should we get some major events in 2020.

And then what's - I think you said you think you're going to put in 150-megawatt hours up from a 100-megawatt. Can you just talk about what's informing that delta? Is it the Sunnova? Is it order rates to date? And just how you think your supply chain is reacting as you kind of ratchet up those expectations? Thanks.

Yes. And obviously, Jeff, you follow the Company for a long time, so you know we don't do that lightly, right? We don't just increase the guide like that until we generally have pretty decent viewpoints on that in terms of just our available kind of knowledge that we have in front of us here. And that's a combination of all the things you mentioned. I mean, obviously, we're excited about the Sunnova opportunity. We - also, as I said previously, we've signed on a couple of larger distributor partners that we haven't done press releases on but they are important meaningful distributors in the space that we're really excited to be partnered with as well. So it's a combination of those kind of partnerships that we've nailed down. We've got pretty good visibility with incoming order rate so far, some backlog. And that's what's informing kind of our views on this. And then obviously, there are some broader overall market trends. As I said, storage attachment rates being higher and headed higher. And our longer-term view and this may not be as much around the guide change from 100-megawatts to 150-megawatts, as much as it is our views longer-term. But the intensification around storage going forward is going to be - we believe is going to be meaningful. And whether that happens, you know, in the current year or it happens in some future period, storage is going to play an incredibly important role in this push towards renewable energy. And the ability to use that storage and smaller form factors at homes and businesses, the improved cost structure of that product as a result of the push towards larger format storage to support utilities and utility-scale for the push towards renewables is going to be a net positive long-term. And that's why all the trajectory I look the way they do for storage. On the supply chain side, we're working really hard to bring that supply chain on board. There was an existing supply chain. It wasn't like we're starting from scratch, but we have had to expand things very quickly. Now, thankfully, we have a very deep supply chain already for our legacy products and there are a lot of things that look similar to that. Aside from the basic battery pack themselves, a lot of the power electronics and components, the boxes that these things go in, all the other kind of elements of this are a lot like other components that we source today for our legacy products. So we're able to introduce the Pika and Neurio teams to our existing supply channel - supply chain partners. And we've been very successful converting some of their existing suppliers over to new supply base quickly. And we're optimistic that we're going to stay on that track. But as we've said in previous comments, this is more of a supply-side challenge for the year than it is the demand side, in our view. We think the demand side is, it feels pretty good. We have good visibility, feels really firm and that's why we took the guide up. And we think our supply chain is going to be able to meet that. And obviously, that's why we took the number up the way we did. But it's going to be - we're going to be chasing that all year long.

Our next question comes from Stanley Elliott with Stifel. Your line is now open.

Sticking on the supply chain, is there any concerns, impact of the virus from China? And how that would impact your ability to get the products through over the course of the year?

Yes. I mean, obviously, there's probably not a company that isn't thinking about this. And we've got - we've actually got operations in China as well. We've got a facility in Southern China. We have a technical center outside of Shanghai. So we have a fair amount of employees over there as well. So it's interesting because you get a lot of mixed signals right now that some facilities have started back up, including our own. We've restarted our facility in Southern China because we're not directly in a quarantine zone. But there are other facilities that have been told that they can't start for another week or two. So it's kind of a --a mixed kind of bag in terms of capacity right now. I think the next couple of weeks are going to be really critical. I think what I can tell you, Stanley is the one thing we have assessed is there's not going be an impact to our Q1. So Q1, we feel good about being able to satisfy kind of where we're guiding here for Q1. And Q2, we're going to come into the quarter in pretty good shape because we'll be building for a season at this point. I think where we'll run into our first problems if we run into them at all, are going to be on the operational side of our business, which is we'll just - we may - this air pocket that might get created here, normally we - we're kind of in an interesting situation because we were buying ahead anyway to cover the Chinese New Year period like everybody does. And we always go a little stronger because you never know it used to be that suppliers didn't get the same level of people returning after Chinese New Year, so their output was usually a little constrained after the New Year. But I think we're in a pretty - we feel like we're of a decent spot right now for the next, call it 60 days. And - but the next couple of weeks are going to be really critical to really assessing the full impact that this might have on the rest of the year. But Q1 seems safe. But after that, it's a matter of what happens next.

Yes. That sounds fair. And a lot of moving parts, unfortunately. Switching gears onto the telecom side, with the Sprint, T-Mobile, is that - as you guys have internally gameplay, is that good for the business telecom? Or is it possibly push out some of the backup generators installs that you would expect to see given they'll be working through the M&A logistics?

Yes. I think the actual deal itself getting approved. We actually think it's a good thing, right. It just takes away the uncertainty that surrounded that. So that I would put a check in the positive column. I think on the other side of the ledger, you have the fact that as our prepared remarks indicated and we're going to start out the year a little bit slow with telecom. There's a bit of an air pocket here on - in terms of the cycles of capital spending. And we've seen this forever in this industry. There just - there is green light, red light, green light, red light. It can be lumpy. We were - last year, overall telecom demand was greater than the previous year, but it's slowed down later in 2019. And that slowness has continued here in early 2020. So without getting into the specifics of kind of which carriers are causing that, because we don't like to talk directly about individual customers, but I think that we're - the long-term prospects here are immense, and the 5G technology is game-changing. The amount of stuff that, that's going to enable from drone delivery to automated driving to the robotic surgery, all these super high-functioning technologies are going to require a consistent 5G connection. And that consistent 5G connection is going to only come from a site that has consistent power. And so the penetration rate of backup power at cell sites is going to have to improve - is going to have to increase dramatically. And so I - we just don't think there's any question about it. It's not a question of if. It's only a question of when. And so - but the when has been the challenging part, right. It's been a lumpy quarter-to-quarter. And the first half of this year, - first couple of quarters of this year, Phil, at least right now based on the visibility we have, and again, we've always said this, we don't get great visibility out of those guys, but it could change tomorrow. But at least at the visibility, we have today, we think it's going to start off, kind of like 2019 ended a little slow.

Our next question comes from Brian Drab with William Blair. Your line is now open.

In your longer-term guide at the Analyst Day, and I just want to kind of try to put a finer point slightly on the clean energy outlook. But you talked at the Analyst Day about clean energy, potentially accounting for about 2 points of growth through 2022, and it was somewhat back-end loaded in your mind at the time, I believe. But is it fair to assume at this point that number one, the 2 points through 2022 is conservative? And number two, that maybe you can get 2 points already in 2020 from clean energy?

Yes. Brian, it's York. I think you're right. We - I think - as Aaron said, I think our expectations with clean have far exceeded what we had originally thought. And I'm thinking into that September 4, Investor Day. These 150-megawatt hours that we are looking to deploy in 2020, that is - that's probably three times more than what we were thinking. And now, I don't know how that's going to transpose or extrapolate into where we think that will be three years from now. But --

But it's off faster.

…it's off a lot faster, so we expect to see some nice growth in 2020 overall for the Company related to clean. And that's a lot better than expectation, back when we talked during the Investor Day.

So it sounds like maybe it could be even more than 2 points of growth next year if it's triple…

Yes. Based on the math that - yes.

It's going to be quite a bit better than that, Brian.

Yes.

And again I think just - I think it's - you hate to say this as a CEO but it almost feels like we've caught lightning in a bottle here in terms of our timing and in terms of our - the companies that we acquired, I think were the right companies we acquired. I think it was the right time to enter the space. And everything we see is - has punctuated by just a lot of energy, no pun intended around storage and around our entry into it, specifically, our brand, the things that we can bring to that market with our distribution, our selling systems, our targeted marketing. And nobody has done that. And I think there's just a lot of optimism from the channel partners that we've engaged with already, including people like Sunnova where we've announced partnerships that we're super excited. I mean, we're playing an infomercial already on clean energy and we're making the phone ring. And we've got people that were we're talking to, we're creating sales leads at a cost per sale that materially lower than what the solar plus storage industry has historically seen from a customer acquisition cost standpoint. So we just see a lot of room to run with that and I think that's reflective of our optimism in the guidance.

And then just quickly, I joined a little late given an overlapping call. But did you mention the total dealer count as you exited 2019, and what the growth was there for the year?

Yes. It was about 6,500 dealers, Brian. And that's a 500 dealer add year-over-year.

Yes.

I can only remember, maybe one other year in my career here where we had that many new dealers. So it will - that has, as you guys know when we expand the dealer base that much, that'll have a meaningful impact in the future. I mean there is no doubt that that is something that factors into the future - potential growth for home standby.

And our final question comes from Jerry Revich with Goldman Sachs. Your line is now open.

On the battery storage increased target, really nice to see folks getting that much traction. Can you just talk about your anticipated mix of channel? And are you anticipating any significant further announcements of distribution arrangements with Tier 1 installers to get to the 150-megawatt number you mentioned earlier on the call?

Yes. I think, Jerry, we've been assessing kind of the distribution - the path to market here with the distribution. And as I've said before, the market the way it's - it kind of breaks out about 30% of the solar market non-speaking and again storage is pretty nascent still in comparison. But 30% of call it clean-energy type of distribution has done through larger companies like Sunnova, like the one that we partnered with. And the other - the remaining 70% is really done through independent dealers, so smaller contractors either specifically involved in clean energy or in some cases may be electrical contractors like we would have as dealers. We've got some dealers who are involved in that and will be part of that independent channel. I think, you know, longer-term, I think that we would look at our sales spread, just kind of mirroring that maybe overweighting the independent channel a little bit, given our the value prop that we bring to the independents in terms of the fact that we're going to have a selling system. And again, it's very similar to - with the selling system we have in our legacy products with home standby. It's called PowerPlay. We call it PowerPlay CE. And PowerPlay CE really starts at the sizing of the rooftop solar array. So we've made an investment in a Company there to help us with that. And they kind of plug-in on the front end of PowerPlay CE, and help the independent contractor take that through to a final proposal, and obviously, focused on adding storage along the way, in that proposal. And then you're being able to offer some financing and other things. But basically, as I said previously, kind of a one-stop-shop. A lot of the independent channels, the way they approach the market before - I've been using this phrase internally. I don't know if it's others are or if it's popular or not, but they kind of radio shack it, right. They go out and they buy all the pieces and parts that they needed. They come to your house, they size your - the solar array that you needed, and they do that in a very kind of rule of thumb manner, in a very kind of informal manner. They produce a kind of a handwritten proposal for you, and then they go by all the pieces and parts that they need from either the distributors that serve that channel or maybe if they're large enough they're able to buy from some OEMs direct. But they had to kind of cobble together systems. They really had to be engineers in a lot of cases to put these systems together. The prospect of working with somebody that can deliver a turnkey solution for them really takes a lot of the guesswork out of it, takes a lot of the engineering out of it. And we're going to stand behind it with a single warranty across the entire package. And I think that, that is at least in our early discussions with many of the channel partners, that is a really exciting prospect for them because it simplifies things. And we haven't found a channel partner yet, that doesn't like to have to think simplified. So we're excited that we're going to be able to do that. And I think it's a big part of - I think the value that we're going to bring to that independent channel.

And in terms of the cost per lead that you alluded to earlier, can you just talk about how it compares and the storage business compared to the legacy standby business, just to give us a bit more context on how that's tracking? And if you can comment on close rates as well, that would be helpful.

Yes. So our legacy, - I'll start with our legacy costs, they're down to all-time lows in 2019. Again we had all-time highs at the number of IHCs we drove, the number of appointments - the times we made the phone ring, we turn those into appointments, the highest close rate we ever had also in 2019. So when you convert that to a cost-per-sale, we're at, really low levels or historically low levels compared to when we rolled the program out in 2014. On the flip side of that, obviously, it's brand new with what we're doing with clean energy. So we've really dialed in over the last six years - five or six years, the legacy product in terms of the media that we buy, the times that we buy, where we kind of air it, the demographics, DMAs that we focus on. And we're working through that with clean energy. We just got on the air in mid-January, quite 30 days yet. But what we're impressed by is the fact that we're making the phone rings. And probably even more impressive interestingly enough is kind of a side comment. There's a lot of people calling just because it's our brand. We're getting people calling asking for home standby, in some cases. So I think the power of the brand has been really interesting to us. I mean we - Generac, we always - we never thought of Generac as a household brand. We just - but what we've done over the last decade to build that brand into something that means something in the eyes of a customer, certainly in terms of backup power. And what we're trying to do in the future to put that brand in the context of something that's in that energy ecosystem in the home or the business. When you think of your home's energy supply today, you really don't think of any brand other than your local utility. So you don't think about the brand on your distribution panel, you don't think of the brand of the breakers, the Romex, the plugs and switches, everything else, the lights and everything else that are in your home. We think that we can change that. We think that we can make Generac the brand you think of when you think of power in your home. And we're going to do that in a number of different ways. We're going to be out in front again with generation - power generation, with power storage, with energy storage, with energy monitoring and with energy management. We think that those four core components and being involved in those four components in the home or the business is going to put the brand in a very powerful position going forward. So anyway, we're not - we're going to bring the cost down overall, as we go forward here and we dial-in. Our media spend is higher than our legacy costs, as you would imagine, but it's still materially lower than what the industry has told us it cost them on a per-sale basis to acquire a customer.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back over to Mike Harris, for any closing remarks.

We want to thank, everyone for joining us this morning. We look forward to discussing our first quarter earnings results with you in late April. Thank you again and goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.