Generac Holdings Inc. (GNRC) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2020 Generac Holdings Inc. Earnings Conference Call. At this time all participants are in a listen only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Mike Harris, Vice President of Corporate Development and Investor Relations. Thank you. Please go ahead, sir.

Good morning, and welcome to our first quarter 2020 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 reconciliation to comparable U.S. GAAP measures, is available on our earnings release and SEC filings. I will now turn the call over to Aaron.

Thanks, Mike. Good morning, everyone, and thank you for joining us today. Overall, net sales were a record for the first quarter and met expectations, led by strong core growth in residential products of approximately 9%. Relative to expectations, home standby shipments came in well ahead of our prior forecast, continuing the strength seen over the past several quarters, including strong demand in California. Also, we are pleased that shipments of our PWRcell energy storage system met our expectations after the first full quarter of its commercial launch in December. This strong performance within residential products was mostly offset by lower-than-expected shipments for domestic mobile products and continued weakness in international markets following the onset of the COVID-19 pandemic, which has triggered a significant decline in demand in certain end markets that we serve. On a year-over-year basis, net sales increased 1% during the first quarter of 2020 as compared to the very strong prior year first quarter, where overall revenue growth was 18%. Core sales growth for the quarter declined approximately 3% against the robust prior year comparison of approximately 15% growth. Gross margin expanded 170 basis points compared to the prior year, and adjusted EBITDA margin was 18.1% as both exceeded our expectations primarily due to favorable mix from higher-than-expected shipments of residential products. Before discussing first quarter results in more detail, it's hard to overstate the impact that COVID-19 pandemic has had in creating major economic uncertainty across the globe so far in 2020, including weaker demand and supply chain constraints, along with the unknown impacts from a variety of far-reaching government actions. Our team has been incredibly proactive and diligent in evaluating and responding to the impact on the business to date and was planning for various scenarios that may unfold during the months and quarters ahead. This includes assembling specific task forces to address the variety of changing conditions on a daily basis across the business, including impacts on employee health and safety, customer demand, production and our supply chain. As the events from this pandemic continue to evolve, we are focused first and foremost on preventative measures to address the health, safety and well-being of employees, customers, suppliers and the communities across the world where we operate and do business. We have eliminated all corporate travel, restricted vendors to visitors to our facilities, implemented social distancing practices and enhanced cleaning protocols, along with other preventative efforts across all facilities, including providing face masks and other sanitization supplies and equipment. Work from home programs have been implemented with our office teams globally, and we are taking a variety of additional measures for employees at our manufacturing and distribution facilities to ensure their health and safety, including temperature testing and physical barriers for situations where appropriate social distancing is difficult to achieve. We've also instituted more flexible policies for all employees relating to sick leave, absences and furloughs. Finally, we are closely watching legislative and other regulatory updates on a daily basis to remain compliant with local, state and national government mandates and recommended actions. From a demand perspective, the COVID-19 pandemic is relatively is negatively impacting several areas of our business, most notably across a number of the end markets for our C&I products, both domestically and internationally. However, while demand for our residential products may not be completely immune to the weaker consumer spending environment that is likely to result from the macroeconomic weakness, there are some positive trends developing that are very encouraging. The uncertainty over the magnitude and duration of a global recession will likely have an impact on all of our product categories, but to varying degrees. In particular, the combination of a collapse in oil prices, alongside the cancellation of many events such as festivals and concerts as well as an impending slowdown in construction activity, will significantly impact demand for our domestic mobile products as national rental customers have dramatically reduced their capital spending, given lower fleet utilization rates. Our domestic C&I stationary products sold through our North American distributor channel are also expected to be negatively impacted from the potential downturn in nonresidential construction activity. Additionally, we are also assessing the potential risk of our telecom customers extending their pause in capital spending on backup power in the near-term in order to better optimize liquidity for the current environment. However, the importance of maintaining uptime for the country's wireless communications infrastructure is being highlighted by this crisis, and could translate to faster penetration of backup power by the carriers and other operators of these wireless networks in the long run. As we have previously discussed, our International business had begun to slow in the second half of last year. And with the COVID-19 pandemic reaching the European continent in early March, we began to see fresh signs of further slowing in our International segment, which is expected to continue for the remainder of this year. Although demand in Europe and Asia has sharply declined, we have seen less of an impact at this point in the Latin American region. But as the Mexican peso has rapidly weakened against the U.S. dollar, we expect this volatility could result in some amount of uncertainty in that region as well in the quarters ahead. However, while we anticipate declines overall for our C&I products on a global basis for the remainder of the year, we are seeing some very encouraging trends in the important residential products part of our business. Historically, residential products have tended to be defensive in nature. As we have seen a number of examples over the last 25 years where demand for home standby and portable generators has decoupled from broader economic trends as they are largely driven by power outages. The aging and under-invested electrical grid in the U.S. continues to be more vulnerable to unpredictable and weather-related events, causing elevated power outages across the country, including the unique situation developing more recently in California around public safety shutoffs to prevent wildfires. On top of the growing concerns around power outages is the fact that a vast majority of the U.S. population is now facing some form of shelter-in-place order. And we believe that is causing an added premium to be placed on residential backup power as people work from home, school from home, shop from home and entertain from home. Additionally, as a recent entrant into the clean energy market, we expect this to be a significant long-term growth opportunity for Generac. Although in the near term, there has been a notable pullback in solar installation activity, we continue to see increasing attachment rates for energy storage that exceed original market projections, which is helping to mitigate the reduced solar install trends. Longer term, the improving economics of solar plus storage, coupled with added resiliency concerns from homeowners, should further benefit our clean energy efforts. Regarding impacts of the COVID-19 pandemic on the supply side of the business, we are also focused on maintaining our operations to the extent possible as the products and services we provide to customers and end users are both essential and critical. Recall, our biggest concern related to COVID-19 at the time of our last earnings call on February 13th was with our suppliers in China and neighboring countries in Asia. While we did experience some disruptions in our Chinese supply chain during the first quarter, it was relatively temporary and now is essentially back to normal levels. Beyond Asia, however, we are monitoring changing conditions and disruptions very closely with suppliers across Europe, India and North America and have developed mitigation actions, which, thus far, have limited the impacts to our operations. Regarding our own manufacturing and distribution facilities. Our all locations are operational today, with the exception of our facility in Kolkata, India, which houses our relatively small C&I generator business in that country. However, changes to our operations has been, and will likely continue to be, a very fluid situation. In particular, we have been experiencing higher-than-normal absenteeism at many of our facilities around the globe, which has created challenges in maintaining consistent output levels. Our operations teams have responded through a combination of labor pooling across facilities, unique work schedules as well as overtime. And to date, we have largely been able to meet all of our customer commitments. We have also been evaluating the need to right size production levels at certain facilities across the globe to adjust for anticipated demand changes as well as working to develop contingency plans for several key residential products, raw material warehousing and distribution facilities. In response to slowing demand trends in specific areas of our business, we're implementing a variety of prudent cost reduction actions in addition to exploring additional measures, so the severity of the pandemic situation worsen in the quarters ahead. In particular, with our C&I products, we have already begun taking specific restructuring actions within our operations for domestic mobile products and our international businesses that sell primarily into Europe, the Middle East and the Asia Pacific regions. These actions include work furloughs, hiring freezes and certain headcount reductions as well as reduced incentive compensation. Across the enterprise, we are also adjusting marketing and promotional spending to align more closely with lower expected revenue levels and reprioritizing resources focusing on product cost of projects. Overall, we believe these actions will reduce operating expenses by approximately $25 million to $30 million across the business for the remainder of 2020, with an estimated impact to adjusted EBITDA margin of between one and 1.5 percentage points, to offset the operating deleverage from the lower expected sales volumes. Now discussing our first quarter results in more detail. Shipments of home standby generators during the quarter once again increased at a very strong rate compared to the prior year, benefiting from the elevated outage activity and awareness in recent years as well as a significant increase in demand in California that also exceeded our expectations. Several key demand metrics that we monitor closely for home standby continued to be strong during the first quarter. Activations grew at a solid rate compared to the prior year, led by robust growth in installations in the west region driven by California, which was up over 5 times the prior year levels. The Midwest, South Central and Canadian regions were also strong. In-home consultations, or IHCs, grew significantly during the first quarter compared to the prior year, led again by considerable strength in California, but we also saw encouraging growth trends in several other parts of the U.S. Although power outage severity was lower in the current quarter relative to the prior year, on a trailing 12-month basis, outages were still very favorable to the long-term baseline average. We also ended the first quarter with over 6,500 residential dealers, an increase of approximately 500 or 9% compared to the end of the first quarter of 2019. This includes a significant increase in California, ramping up to over 400 dealers at the end of the quarter from approximately 150 dealers at the end of the prior year first quarter. In response to the current COVID-19 situation, we are actively working to convert our traditional in-home consultation process into one that can largely be conducted remotely, which we are now referring to as a virtual home consultation, or VHC. We have spent the last 45 days rolling out the VHC process to our dealers through aggressive communication and training. And as they have transitioned to it, they are experiencing similar close rates and sales cycle times in relation to the in-home visits they previously conducted. More recently, early in the second quarter, these key demand metrics for home standby have continued to be very strong, with outage severity picking up considerably and with activations in our new VHC process continuing to show strength. Specifically, we are encouraged that we have not seen evidence of any slowdown thus far in the demand for or installation of these products. And although while still early, the strength in-home standby demand appears to be accelerating further here in April. There have been some notable outages recently, including 1.4 million utility customers in the southern region of the U.S. alone last week. VHCs have spiked in April and are tracking at roughly double the levels compared to the prior year. Part of the strength we are experiencing can certainly be attributed to the recent pickup in outage activity, but based on the widespread nature of the VHC activity, we believe that it can also be attributed to the millions of people that are now working and learning from home, thereby, creating a heightened sense of awareness of the importance of backup power. The market for energy storage and energy monitoring systems continues to develop quickly through a combination of changing regulations, advancements in technologies, improving economics and the increased resiliency provided by these products. Recall that our Pika and Neurio acquisitions enabled us to bring an efficient and intelligent energy saving solution to the market in December called PWRcell, which we believe will position Generac as a key participant going forward. Q1 represented the first full quarter of commercial shipments of PWRcell unit of scale, which met our relatively high expectations. Despite the COVID-19 situation, we're making excellent progress in building out our dealer installation base, ramping our technical service capabilities, optimizing our supply chain and reducing our system costs. We are also making important strides in growing this nascent market through targeted advertising, lead generation and virtual in-home sales capabilities. Our new clean energy infomercial that launched in mid-January continues to be well received and is driving good lead volume, feeding into our recently launched selling system called PowerPlay CE, a proprietary lead management and sales tool, similar to the one developed to our legacy home standby generator market. Our current 2020 outlook for clean energy remains very encouraging as we're still expecting a further significant ramp in shipments of these products as the year progresses. However, due to the COVID-19 pandemic and its impact on slowing the pace of solar installations in the U.S., particularly, here in the second quarter, we are modestly lowering our expectations for shipments of energy storage systems for the remainder of the year, but we still expect to ship between 125- to 150-megawatt hours of residential product. Our updated outlook remains significantly ahead of the expectations we laid out during our Investor Day last September, which reflects our success in the marketplace to date as well as the increasing level of solar plus storage attachment rates the industry is experiencing, in part driven by homeowner concerns over backup power. We have good visibility with regard to these products for the remainder of the year through existing orders and our sales pipeline. While the impact of the pandemic has resulted in some softening in the market for energy storage for 2020, we believe the long-term drivers remain firmly in place, as installations of these systems are forecasted to experience exceptional growth over the next several years. With regard to our C&I products, domestic shipments declined during the first quarter as compared to the prior year. As expected, shipments to national telecom customers declined at a considerable rate on a year-over-year basis, as these customers had previously indicated a slowdown in capital spending for backup generators, based on the timing of installation projects. Recall that demand trends with telecom national customers can be lumpy from quarter-to-quarter based on the timing of capital deployment and project planning cycles. Also, shipments of mobile products to national rental account customers declined significantly in the quarter, primarily due to the onset of the COVID-19 pandemic as well as the collapse in oil prices. Demand for mobile equipment was already softer entering the quarter as many of our national rental customers were already deferring some capital spending. And the sudden stopped economic activity in March forced many of them to further and dramatically reduce equipment purchases. Lastly, shipments of C&I stationary generators through our North American distributor channel were slightly up compared to the prior year, as this channel continued to gain share in the North American industrial backup power market. With respect to the international side of our business, which is predominantly C&I products, we continue to experience a challenging environment during the first quarter, that worsened considerably during the latter half of the period. Revenues declined approximately 10% on a core basis compared to the prior year, with the decline primarily driven by a sharp drop in demand caused by the COVID-19 pandemic and its impact on certain key regions of the world, which magnified the slower economic growth and geopolitical headwinds that were already being experienced in recent quarters. The Latin American region, however, was relatively stable during the first quarter, and grew modestly with the benefit of a large project shipped during the period. As we continue to assess the impact of the global pandemic on our business, we believe that our C&I products are likely to be the most negatively impacted part of our business. This is due to a combination of the recessionary impact on non-residential construction activity, the expected further deferral of telecom capital spending, the dramatic decline in oil prices leading to lower rental equipment utilization rates, and an overall sharp decline in macroeconomic activity internationally. As previously discussed, we believe our residential products will be relatively less impacted as increased outage activity, heightened anxiety over the need for backup power during these shelter-in-place times, growth opportunities in California and the increasing penetration of our new clean energy products should help to mitigate any general economic weakness that may occur in residential investment. In closing, I want to highlight that Generac is in the very fortunate position of having a strong balance sheet and liquidity. This financial strength gives us the flexibility and confidence to continue to execute on our long-term strategy and to remain focused on providing innovative products and services that are essential to the safety and security of homes, businesses and critical infrastructure across the globe. We believe we have a unique opportunity to be particularly aggressive during this time of crisis in pursuing new commercial business opportunities, to gain market share as well as continuing to build a robust M&A pipeline to accelerate our powering our future strategic plan. Generac is built for moments like this, with our long history in supporting customers through difficult times. In the face of hurricanes, floods, fires and other natural disasters that caused power outages, our teams have proven themselves to be agile. And they know how to employ a healthy sense of urgency and solid decision-making to manage difficult situations. We are very confident that once we get past this pandemic, our future growth prospects will be as compelling as ever, driven by the overall megatrends and powerful macro secular drivers for our business. With that, I'd now like the call turn over to York to provide further details on the first quarter results. York?

Thanks, Aaron. Looking at our first quarter 2020 results in more detail. Net sales for the quarter increased 1.2% to $475.9 million as compared to $470.4 million in the first quarter of 2019. Excluding the $21.2 million of contribution from the Captiva, Neurio and Pika acquisitions and approximately $3 million negative impact from foreign currency, core sales declined approximately 3% during the quarter. Briefly looking at consolidated net sales for the first quarter by product class. Residential product sales during the first quarter increased 18.3% to $257.6 million as compared to $217.8 million in the prior year, with core growth being approximately 9% when excluding the contributions from clean energy products acquired through Neurio and Pika. As Aaron already discussed in detail, home standby generators sales continue to experience very strong year-over-year growth approaching 20%. Partially offsetting the home standby strength during the first quarter was a decline in shipments of portable generators, primarily as a result of the higher power outage activity in the prior year quarter. Commercial and industrial product net sales for the first quarter of 2020 declined 17.7% to $172.1 million as compared to $209.1 million in the prior year quarter, with a core sales decline of approximately 17% when excluding the contributions from the Captiva acquisition and the unfavorable impact from foreign currency. As Aaron mentioned, shipments to both national telecom and rental account customers declined significantly compared to the prior year as these customers can significantly fluctuate their capital expenditures from quarter-to-quarter, especially during this current environment. Internationally, our C&I products declined compared to the prior year on a core basis due to the continuation of a challenging economic environment entering the first quarter, that worsened during the quarter as the spread of coronavirus pandemic accelerated. Net sales for the other products and services category, primarily made up of aftermarket service parts, product accessories, extended warranty amortizations and other service offerings, increased 6.5% to $46.2 million as compared to $43.4 million in the first quarter of 2019. A larger installed base of our products and higher levels of extended warranty revenue drove this increase versus prior year. As disclosed in our earnings release earlier this morning, gross profit margin improved 170 basis points to 36.2% compared to 34.5% in the prior year first quarter. And operating expenses increased $18.5 million or 20.3% as compared to the first quarter of 2019. Adjusted EBITDA, before deducting for noncontrolling interests, as defined in our earnings release, was $86 million or 18.1% of net sales as compared to $87.1 million or 18.5% of net sales in the prior year. This slight EBITDA margin decline was primarily driven by the increased operating expense investments, partially offset by the impressive gross margin expansion during the quarter. All of this was despite the dilution from the initial ramp of our clean energy products. I'll now briefly discuss financial results for our two reporting segments. Domestic segment sales increased 5.5% to $376 million, as compared to $356.5 million in the prior year quarter, which includes $20.5 million of contribution from recent acquisitions, resulting in approximately flat core growth. Adjusted EBITDA for the segment during the quarter was $82.8 million or 22% of net sales as compared to $81.2 million in the prior year or 22.8% of net sales. International segment sales declined 12.3% to $99.9 million as compared to $113.9 million in the prior year quarter. Core sales declined approximately 10% 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 noncontrolling interest was $3.3 million or 3.3% of net sales as compared to $5.9 million or 5.2% of net sales in the prior year. Now switching back to our financial performance for the first quarter of 2020 on a consolidated basis. As disclosed in our earnings release, GAAP net income attributable to the company in the quarter was $44.5 million as compared to $44.9 million in the first quarter of 2019. GAAP income taxes during the current year first quarter were $9.4 million or an effective tax rate of 17.9% as compared to $15 million or an effective tax rate of 24.7%. The decline in tax rate was driven by higher share-based compensation deductions and favorable geographical mix of earnings in the current year quarter. Diluted net income per share for the company on a GAAP basis was $0.68 in the first quarter of 2020 compared to $0.76 in the prior year. The specific calculations for earnings per share amounts are included in the reconciliation schedules of our earnings release. Adjusted net income for the company, as defined in our earnings release, was $55.1 million in the current year quarter or $0.87 per share versus $56.5 million in the prior year or $0.91 per share. Cash income taxes for the first quarter of 2020 were $7.3 million as compared to $10.5 million in the prior year quarter. The current year now reflects an expected cash income tax rate of approximately 14% for the full year 2020 as compared to our previous guidance of between 15.5% to 16.5%. The prior year first quarter was based on an expected cash tax rate of approximately 17% for the full year 2019. Recall that every dollar of pre-tax earnings over and beyond our $30 million tax shield is now taxed at the expected GAAP tax rate of approximately 24%. Cash flow from operations was $11.3 million as compared to $14.6 million in the prior year first quarter, and free cash flow, as defined in our earnings release, was a negative $0.9 million as compared to a negative $0.6 million in the same quarter last year. Recall, historical seasonality would have much lower levels of free cash flow in the first half of the year with significantly higher cash flow generated during the second half of the year. Before discussing our updated outlook for 2020, I think it's important to discuss in detail our healthy balance sheet and liquidity position at the end of the first quarter of 2020, which gives us confidence to operate our business and execute our strategy in this uncertain world. As of March 31, 2020, we had $573 million of liquidity comprised of $307 million of cash on hand, and approximately $266 million available on our ABL revolving credit facility, which matures in June 2023. Also, total debt outstanding at the end of the first quarter was $894 million, net of unamortized original issue discount and deferred financing costs. Our gross debt leverage ratio at the end of the first quarter was only 2.0 times on an as-reported basis, which is at the low end of our targeted range of 2.0 to 3.0 times. Recall that in December 2019, we amended our term loan and credit agreement, which, among other things, extended the maturity of the term loan to December 26 to December 2026, and we currently do not have any required principal payments on this facility until the maturity date. Also recall that there are no financial covenants on the term loan, and it has a low cost of debt of LIBOR plus 175 basis points. In addition, we recently entered into some additional interest rate swap arrangements that hedge or fix our interest rate exposure on approximately $500 million of this debt through the maturity date of December 2026. Further enhancing our liquidity position over the last 12 months ended March 31, 2020, cash flow from operations was $305.7 million, and free cash flow was $250.4 million. Lastly, given our strong balance sheet and free cash flow generation, we have significant resources to drive further shareholder value as we execute on our long-term strategic priorities, and our approach toward capital deployment priorities remains disciplined, balanced and consistent. With that, I will now provide comments on our updated outlook for 2020. Given the current and impending impact of COVID-19 on our end customers, distribution partners, operations, supply chain, logistics and global end markets, we are revising our previous guidance that was initiated on February 13 of this year. For the full year 2020, net sales are now expected to decline between 5% to 10% compared to the prior year on an as-reported basis. Consistent with our historical approach, this revised guidance still assumes an average level of baseline power outages during the year and does not assume the benefit of a major power outage event, such as a Category III or higher landed hurricane. Given its high probability of occurring, we have included the impact of one significant shutoff event in California in this base guidance. Should there be a major power outage event during 2020, along with multiple public safety power shutoffs in California, we could expect approximately 3% to 5% of incremental revenue growth on top of the baseline guidance, resulting in flat to down 7% as reported sales growth as an upside case. Looking at the baseline guidance by product class. Despite the impacts of COVID-19, net sales for residential products are still expected to be expected to see solid year-over-year growth for the full year 2020. As previously mentioned, because power outages can happen anytime and anywhere, demand for our residential products is more resilient and tends to decouple from overall macroeconomic trends. As the vast majority of U.S. citizens are spending much more time at home, facing some form of sheltering in place orders, the awareness of backup power is increasing, especially as homeowners are doing more critical activities like working and learning from home. In addition, with California emerging as a major market for backup power and our entrance into clean energy, we believe these incremental growth drivers will help to offset the impact of lower consumer spending due to COVID-19. Net sales for our C&I products are now expected to be down significantly versus prior year. As previously discussed, for our C&I end markets around the world, we are seeing a significant negative impact as a result of the pandemic and lower oil prices. In particular, global demand for mobile products has sharply declined over the last 45 days. And based on our current visibility, we expect these conditions to persist for the remainder of 2020. Additionally, we have recently we are recently seeing global weakness for C&I stationary products as quoting and order rates for this equipment have declined, projects are getting deferred or canceled, and capital expenditures are getting curtailed. These considerable headwinds have created significant uncertainty. And as a result, we have lowered our expectations for C&I products for the remainder of 2020. The impact of COVID-19 on our business is expected to be more pronounced during the second quarter, especially for C&I products. Specifically, on a consolidated basis, net sales during the second quarter are expected to decline modestly on a sequential basis as compared to the first quarter of 2020, with C&I product shipments expected to be down sequentially and residential product shipments expected to be up sequentially compared to the first quarter of 2020. Using our baseline guidance for 2020 net sales, adjusted EBITDA margins before deducting for noncontrolling interests are now expected to be approximately 19% to 20%, which is only a slight reduction from our original 20% guidance that was initiated in our last earnings release. We believe holding EBITDA margins largely in line in this environment is notable, as we expect the operating deleverage on lower sales volumes to be mostly offset by favorable sales mix of residential products and the reduction in operating expenses from the cost-cutting actions that were previously mentioned. Additionally, assuming our upside case revenue guidance, adjusted EBITDA margins could incrementally increase by approximately 50 basis points over the baseline guidance. Adjusted EBITDA margins are expected to decline modestly on a sequential basis in the second quarter as compared to the first quarter, primarily due to reduced operating leverage on the lower expected revenue volumes, but then improved sequentially during each of the third and fourth quarters as we work to reduce the cost structure of our energy storage products, implement cost reduction actions, realize additional savings from our profitability enhancement program and improve leverage of our operating expenses through higher top line. For full year 2020, operating and free cash flow generation is still expected to be strong and follow historical seasonality, benefiting from the healthy conversion of adjusted net income to free cash flow expected to be approximately 100% in 2020. This concludes our prepared remarks. At this time, we'd like to open up the call for questions.

[Operator Instructions] Your first question from the line of Brian Drab with William Blair.

But can you talk a little bit about what you're expecting in the solar market in the second quarter and beyond, expecting drop-off in consultations and installations in that market, just given social distancing? And what have you seen so far in April in that market?

Yes, Brian, so on the clean energy market, as we define it, it's really solar plus storage. And what we did is, we put our guidance range at 125 to 150 megawatts for the full year, which is down somewhat slightly from the more bullish number we gave on the last call. And that really a lot of that pullback is going to happen here in the second quarter. Solar installations are down notably, some 25%, 30%, depending on which firm you talk to and which part of the country you look at. But the good news is solar storage attachment rates are up. So, that's kind of offsetting some of that. So I think net-net, we're saying that the new guide for storage for the year is 125 to 150 megawatt hours, but the second quarter is probably going to be a little bit lower than we were hoping.

Okay. And how has your supply I know you're saying one of the limitations here, the big limitation in that clean energy business was your supply chain. And how is that shaping up in this environment? And is that still restraining you?

Yes. Actually, oddly enough. I mean, we've the team has been working very hard on supply chain and this to broaden our base. Generally, the companies we acquired were smaller, start-up businesses with fairly localized supply chains initially and certainly not supply chains that could build the scale. So, we had to completely reinvent that for the most part. And the teams did a great job on that. And I think that was a watch out early on for us. But right now, we feel like we're in a pretty good position. And frankly, I think with the overall pullback in the market, our numbers, I think, would mirror much of what others are saying about the clean energy space in general. I think there's probably going to be a little bit more supply to be added than maybe was originally anticipated simply because of the lower volumes that are going to be out there.

Okay, great. And then maybe I'll just ask one more for now. But did you say anything about what you have seen in April in terms of in-home consultations for the legacy home standby product? And maybe could you comment about what you're seeing in terms of IHCs inside California and outside California?

Yes. I mean, IHCs have been really strong for us so far in April. We track we track a lot of metrics for that business, obviously, leading indicators, lagging indicators. But the one that we track very closely, obviously, as a leading indicator is IHCs, VHCs, we now call them VHCs because they're virtual. They're double so far in April here versus last year, which is great. And for this time of year, in particular, generally, we would be kind of entering a bit of a lull period here in terms of new sales leads, coming kind of the transition from winter to spring is something that generally slows the sales cycle down a bit. Seasonally, we've just seen this. It repeats pretty reliably. We've definitely decoupled from that. Now we had a lot of power outages down south last week, about 1.4 million people in the south last week and about 300,000 people actually yesterday in Texas and Louisiana. But what's interesting is so certainly, some of that strength is coming from that. And we look specifically at those regions. But specifically, when we look at VHCs kind of regionally, they're strong everywhere. And in fact, what's really odd to us, you look at California alone, California and you look at IHCs, it's they're in April here, they're crazy high. I mean, they're 10 times what they were last year. And there haven't been any outages yet in California. So our thesis underpinning this is that, there's just been a dramatic increase in the awareness around the importance of backup power with everybody sheltering in place. The idea of working from home and learning from home and all these other things that the home is a sanctuary, I think a continuous supply of power, safety, security, the ability to go on with life, takes on a completely new meaning, when you're cooped up inside your home 24/7. And I think people in the uncertainty around how long the pandemic may last, and whether it may reoccur in the fall or may persist or rather future pandemics, whatever the case may be, I think it just adds one more layer of consideration for people when it comes to thinking about needing backup power. And I think that's also contributing to some of the increased attachment rates that we're seeing in the solar plus storage. I think we know from customers that resiliency is important to them. Now we also know and we told customers, they don't get a tremendous amount of resiliency out of those products, but they do get some. And I think it's important though to note that those things all kind of point to the fact that I think the pandemic itself is raising the awareness and just heightening the level of anxiety around making sure people have backup power.

And your next question line of Mike Halloran with Baird.

So just staying on the home standby side here. Maybe just talk a little bit about how you see this cadencing out here? Obviously, strong consultations, as we sit here today. How does that compare to installs? Is it just building a backlog for you to execute on? Are you able to execute on as it sits today? And then when you think about the guidance range as well, is the expectation for growth in the home standby product category year-over-year, is that what's embedded in guidance as well?

Yes. I mean I think what we said in the prepared comments is that residential products overall would be up solid, I think, was the word I used in the prepared comments, but underpinning that would be growth slight growth in home standby, which I think is which is a win in this environment.

And Mike, I think just to answer the first part of your question there about IHCs or VHCs and how they kind of mature into installations and are we able to keep up and backlog and things like that. I think thankfully, we've got it's amazing to me. The residential part of our business, which I would have said 6, seven years ago, our visibility in that part of the business was much more limited. It's definitely easily, probably are most visible. Part of the business today in terms of just the metrics that we track all the time fences between when an IHC occurs to when that turns into an order, to when that order turns into an installation, to when that installation turns into a first use of the product. I mean we've got all of those interesting time fences. So we're able to kind of take and model a lot of what we see for those leading indicators like VHCs. We're able to model those into installations down the line and look at kind of what we're going to need in terms of installation bandwidth, production bandwidth, things like that. And so obviously, our first priority here right now is making sure we keep our residential home standby production lines as operational as fully operational as we can. We're looking to hire 150 people right now between our Whitewater and Jefferson facilities. Some of that is to cover for some of the increased absenteeism we're seeing, but some of it is just flat out growth in the production rates as we go forward here. We're entering the important time of kind of preseason build for that market. Now we're sitting on a pretty decent amount of inventory in our four walls, but our field inventory levels, I would say are I don't know, you're clearly looking at this the other day, but field inventory are...

These are lower than last year.

Days of inventory days on hand are lower than they were a year ago. So, obviously when we kind of put all that together, and again, that's just another really cool statistic that we're able to pull out because we every 100% of all products get activated. So, we know 100% clarity to field inventory, which is, I think, unique. So, we put all that together. And again, our priority is on that. Now what could go wrong with that? I mean obviously, a supply chain disruption, some potential reoccurrence or re-emergence of the pandemic or an acceleration of it. Those are all things that could be a problem. On the installation side itself, we've been very encouraged that, although, we've heard kind of spotty cases of inspectors not being able to make inspections and things, because they're not working right now, they've been furloughed or but largely, our activation rates, when we look at it, which is installations, they've remained very robust. So, we know the installations are happening. We know where they're happening. And where they're not happening, we're helping out. We're trying to help out with inspectors and walk them through those things. It's interesting how many municipalities. We think that probably half of all the municipalities today have shifted to a virtual permitting process. Now the inspection process itself isn't quite there yet, but they're issuing the permits virtually, the construction permits that are needed and the building permits in any of these projects. So we're watching a lot of data points, but we feel pretty good on that. And York?

And I will add the number that I gave in terms of that home standby growth year-over-year was our baseline guidance. That doesn't include a major event, should that happen.

Good point.

And then you certainly spent a lot of time talking about mobile, telecoms, some other things. Maybe a little comment and context on how the traditional commercial businesses are tracking? Obviously, got some puts and takes there, some decent secular drivers as well as the more institutional side, where there's still going to be decent demand versus some nonres concerns. Maybe just put all those pieces together and talk about what you're seeing on that side?

Yes. So, on our -- I'll call it our traditional C&I channel, which is our industrial distributor channel here in North America, I'll speak to that first. Actually, for the quarter, they were slightly up. So, we think we're doing all right there, outside of the telecom, kind of lumpiness that we talked about. And actually, we knew the first half of this year, the telecom companies had told us based on their scheduling and the way their CapEx budgets were rolling through this year, that, that was going to be more of a back half type of update for them. That's the part of the guidance really that took the biggest hit was telecom in the second half. And then the mobile products, of course, which we've talked in length about, with the collapse in oil prices, in particular, driving that. But the core C&I business, those products are generally late cycle, right? So, you build a building, a new hospital wing, a grocery store or whatever, the product the generator itself doesn't need to arrive at the site until the facility is just about ready to open. So what we see going on right now, as we see a lot of projects coming to closure and the generators being put into those projects. What we're worried about going forward is where does nonres construction activity go. So you look at AIA Billings Indexes and you look at other leading indicators there, and they would indicate some weakness, at least certainly in Q2 here. But perhaps longer term, if this is more of a U-type recovery or maybe even an L-type recovery depending on your viewpoints, if it doesn't do if it doesn't come back like in a V shape through the second half, and we've and that's kind of what we've assumed. We have assumed that it doesn't come back in the second half for that traditional C&I business. So if we get a better or a quicker recovery there, maybe it will. But largely, we feel like we're still winning in that market. We just think that, that market, knowing what we know about trends and watching our quotation, our inbound quotation trend has been very choppy the last kind of six weeks or so. We've had some up weeks, we've had some down weeks. And so we're watching it. But my sense is, knowing that we're late cycle and knowing that we're entering kind of a period of economic uncertainty. I think we're going to see fewer projects going forward, which likely is going to put pressure on that channel, and that's really what we've modeled here in the guidance today.

Your next question from the line of Christopher Glynn with Oppenheimer.

Just wanted to verity on the comment, VHC is up to a double year-over-year. Is that combining the VHC/IHC concepts or like total consultations, is what that refers to?

Correct. So think of them as all VHCs going forward, Chris. That's how we'll start to refer to them.

And I think you addressed the deployment characteristics. Sounds like dealers are proving very resilient so far. I'm wondering, if there's any market for ESS attachments, independent of solar or if it's exclusively tied to solar?

Yes. There are some. It really depends on the market specifics in terms of the price of power in a particular market, incentives that may be available in that market. Some utilities have policies prohibiting some of those types of approaches. So it's kind of utility-to-utility as well. So I would say though largely, the market is a solar plus storage market at this point. As power rates continue to increase, so the spark spread, the cost at which you can buy power on the wholesale market versus the cost at which you can produce it on-site or store it on-site for, as that continues to widen, a storage-only type of approach or an approach where you're producing power through some other means, a gas generator, maybe geothermal, something like this and then storing that power in a system and then using it at a later time. That could become more prevalent in the future.

Okay. And last one here. The $25 million to $30 million cost out, should we think of that as predominantly flowing through your C&I businesses?

It will be more disproportionately impacting the C&I businesses. Although, I will say some of the advertising that we've taken out the advertising and promotion we've taken out in our residential businesses to match kind of the slight reduction in guide there. There's a part of that, the dollars add up quick on that side of business because it's such a big business. But largely, the $25 million to $30 million, you can think of as cost-outs associated with mobile, stationary C&I and our international businesses.

And your next question comes from the line of Jerry Revich with Goldman Sachs.

Yes. Can you folks talk about what proportion of your dealer network is it has accepted and is doing VHCs there? And in terms of the productivity that you folks are getting at, can you talk about the improvement as a result of VHCs instead of IHCs? What have the early numbers been like in terms of how many more proposals or single distributors able to do as a result of the efficiency gains there?

Yes. Jerry, the VHC process, it's interesting. We actually have been developing this over the last couple of years. And we've been reticent to turn it on because there's a fundamental belief that a sales transaction, the act of selling is a transferal of a motion, and that transference of a motion generally tends to take place more readily in person. And so that's been the foundational element of our in-home sales process, which is largely a kind of kitchen table sales pitch. So, we've had this VHC process in development. We obviously accelerated it, as anxiety levels for anybody coming in your home today are much higher than they were two months ago. We accelerated that, rolled it out to the dealers over the last 45 days. The dealers it's been a learning curve, and but what they found, interestingly enough to kind of get to the heart of your question. They found that they're able to be more productive overall because they don't have the travel element. Or they don't have as great of a travel element and the time commitment to do the VHC is substantially lower. They're able to do these proposals and send them off electronically. They're able to conduct with a couple of pictures, a couple of questions from the homeowner, maybe a walk around the site, depending on kind of complexities of a particular site, maybe job to job. But largely, the feedback from dealers is they've been more productive. Now it's pretty new. So the last 45 days, I don't think it would be worthwhile to give you like hard stats on, like the numbers in terms of productivity, and it continues to ramp. But the percentage of dealers that are doing it is very high. And again, that's largely because homeowners are they're just not keen on people being in their homes right now. So, we've encouraged them to shift to this process and they've accepted it quite well. Homeowners have accepted it quite well. And everybody at this point is very pleased with the transition.

And just to clarify, even with everything's going on in relatively limited rollout of VHCs, you folks the combination of IHC plus VHCs have doubled year-over-year in April, with everything that's going on?

Exactly. Yes, that's the part that again, I can't stress enough how amazing or resilient the home standby business is for us. It's a shockingly durable business and I've seen this before. We saw this in the '08 housing crisis. The home that residential products business for us grew during the housing crisis. Now it's got low penetration rates and it's got obviously, power outages continue to grow and people's dependence on power grows. And you add this additional layers that we've talked about of sheltering-in-place as an additional level of anxiety around losing your power. And it's just a...

Dependency on technology...

Dependency on technology and communication and connectivity of the world. I mean it's amazing. If you lose power and you're in your home today, I mean, it's a different experience and maybe it even was 30 days ago or 60 days ago.

Okay. And in terms of the battery storage part of the business, just order of magnitude, can you just correct me if I'm wrong, so you folks installed about 20 or so megawatts in first quarter? And it sounds like you expect to do something like 10 in the second and exit the year, 60 megawatts? Is that the right way to think about the ramp? Can you just put a finer point on that for us, if you don't mind?

Yes. I mean, we didn't give necessarily seasonal guidance on the 125 to 150 megawatt hours deployed. But I think with Q2 that we had originally expected that to grow pretty evenly throughout the year. When we originally guided, I think with the impact of the pandemic, I think the Q2 rates will have slow, maybe not as significantly as you just raveled off there, but then it should grow nicely off of Q2 into Q3 and then sequentially into Q4. So didn't necessarily provide that level of detail in terms of quarter-to-quarter seasonality.

Your next question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

Just on, I guess on solar, just want to understand a little bit better like, channel sale versus sell-through? And maybe just talk about as you kind of ramp this business up, any more progress on solar dealer distribution partners and feedback from your traditional channel?

Yes. So I mean, we've got, we kind of alluded to it on the call. We've got pretty good visibility there already. A lot of preordering in that business early on here in the first quarter. So we have a decent backlog that we're working from. We're shifting our attention to continuing to add customers, which I think is the other part of your question, Jeff, in terms of acceptance of the product, it is interesting. Our initial thesis there was that we take these 6,500 residential dealers, we'd introduce these new products, and they would grab that and they'd run forward with it and promote it. The truth of the matter is, some of them have, some of them that are a little bit more out in the vanguard, some of them were already involved with solar. So that's a much easier connection point. But largely, that's going to take more time. I think it's the takeaway there for us. But where we are getting success and we're having where we're seeing some really good acceptance is in the solar installed channel themselves, both the national installers, the national companies as well as the independent channel and the distribution partners that they use. So the wholesale channels that feed the equipment into those independent dealers, we've had a lot of really good success early on here, introducing the product to them. Obviously, we're out there talking to them how we're driving leads in this space, we're driving awareness around solar plus storage, the importance and driving those attachment rates. And that gives we get some really high marks from these guys because, that perennial challenge in the solar market has been customer acquisition costs. And obviously, anybody coming into the space, writing large checks, and we're writing large checks right now to drive not only our own brand awareness in space, but also market awareness overall and penetration rates. Anybody doing that, to help them with their customer act costs and keep those lower is that goes a long way. So we're getting a lot of great pickup there. The interesting thing, the part of our thesis that we didn't have, right, aside from the dealers, not maybe picking it up as quickly, but these solar dealers are very interested in home standby. We've had many of them are adding home standby. So we're picking up new points of life there that we really hadn't attributed much business to kind of in how we had modeled our entrance into clean energy. So it's explaining out maybe a little differently than we had thought. But I would say that, on a net-net basis, it's playing out more favorably, as obviously, as our numbers would indicate, more favorably than what we had laid out back in the Investor Day, back in September.

And then California, certainly, the number is pretty eye-popping on like the growth rate in 1Q and IHC growth rates. Can you just I'm just trying to maybe frame size of California in 2019, kind of how you're thinking about the longer-term goal? And what those growth rates look like into the second half, when you kind of hit the, I guess, the little bit tougher comps?

Yes. I mean, we haven't specifically broke out our sales into California across the company. I know we talked over the last maybe couple of quarters. 2018, it was a very small number. We added roughly a little over $75 million last year to California. And we expect to add a sizable amount to California into 2020, sounds maybe something similar. And that will continue we expect that to continue to grow into 2021 and 2022, especially as we build out distribution. We quoted, we have over 400 dealers now in California. We're going to continue to add dealers. And so it's a nice growth opportunity for us. And the numbers I'm quoting are just power generation. That does not include any clean energy. I just want to be clear.

And your next question comes from the line of Ross Gilardi with Bank of America.

Aaron, I'd love to just get your read on the California regulatory environment right now, always a joy to analyze that. But what do you think? I mean, is PG&E really going to shut the power off on California in the fall, as COVID comes back and people are stuck working from home. It would be major economic implications for California, if they do that, potentially outside of California. So like, what kind of discussions are happening? I mean, are there potentially any subsidies for the consumers to install generators? Is there any opportunity to form some type of distribution agreement with the public utilities or partnership in preparation for wildfire season? Because this just seems doubly dangerous going into the second half of the year, not only the human aspect of it, as was the case last year, but just economically, it would be devastating, if they continue to kind of carry forward with the same tactics?

Yes. It's a fascinating situation out there, Ross. In terms of the regulatory environment, I won't comment on the beaches being closed out there, but I think that was announced this morning. But as it relates to power, so there's two school of thought, right? I mean you have, okay all these people sheltering-in-place and so you can't possibly shut the power off on them because of that. But actually, every conversation we've had is, no. It's just the opposite. You have all these people sheltering-in-place, therefore, they're in their homes. So, you have to prevent wildfires. I mean the catastrophic effects in terms of the human toll on that should there be a fire, with everybody in their homes, could be much greater than the economic effect. And it's arguable, there's already going to be an economic effect from COVID-19. So, I don't think any of us can avoid that at this point. So, I think that what the schools of thought there are, and in particular, PG&E would tell you, and we've heard them say this, that they believe the power shutoffs last year were largely responsible for the reduction in wildfires. They've equated a high correlation to that. So, and in terms of their operating process going forward, they feel that they're going to use that absolutely as a tool whereas in the past, they haven't, right? So and again, there's a lot of things that go into that decision. Now as far as other partnerships and things, we were actually I commend PG&E. They were trying to do the right thing. In terms of grid support projects, we were actually bidding in our C&I business on some large grid support projects out there with natural gas gens and other products. But regulators have made it almost impossible for them to make the kinds of changes that they need to make. There was reticence to add those types of products because they're fossil fuel based. But yet at the same time, the additional technologies that could be used are not ready for prime time. The cost effectiveness in those technologies, the overall effectiveness of those technologies are not there yet. And so their hands are tied. And so they killed some of those projects, those grid support projects. And I think that always that's only going to put more pressure on the grid and on PG&E to use power shutoffs as a tool as we go into the fall. So I again, a lot of it's going to depend on the fire season. They're having an early drought. I think the weather service identified it as a mega drought in parts of the country here that California is in. Now they've had a little bit of rain lately, but overall, it's been very dry and it's been very warm. So we see it in the trends, Ross. There are people are obviously worried about it. Our VHCs are way up, our activations are way up, our dealer counts are way up. People are concerned about power outages in California.

And then any color you can provide on the margin sensitivity to the clean energy ramp in terms of fixed versus variable? Or originally, I think you had baked in EBITDA breakeven by the end of the year. Are you taking your guide down as pad, but like any clarity on the revenue breakeven point? Or just at what point does it become a bigger drag from margins, if it doesn't ramp as quickly as you expect in the second half of the year?

Yes, it's good. I think previously, we talked yes, we expect to break even with those products for the year. We still expect to breakeven even, even with the slight pullback that we had, we just moderated some of the OpEx around that. But I think internally, we're still expecting to break even for those products for the year with start-up losses in the first half, profitability in the second half. I think for the year overall, roughly maybe about a 1.5% drag on overall corporate margins as a result of that business. But obviously, the exit EBITDA margins, leaving the year should look good and they should continue to improve into 2021 then.

And your next question comes from the line to Phil Shen with Roth Capital Partners.

First one is first one is on the visibility that you have. You talked about, Aaron, having great visibility into your key leading indicators and stats. Can you share how the timing between the closing of a sale and activation/installation has changed? What was the pre-COVID and what do you think it could be now? You talked about also maybe 50% of the building departments out there doing virtual permits. Will that suggesting half are actually not doing those virtual permits and resulting in delays. So, I can imagine there's been an extension of that installation time. Just want to get a feel for the degree? And then how long do you guys expect this to take to normalize?

Yes. No, it's a great question, Phil. And I'm actually looking at a chart that we pulled together on that very point because it's, again, it's another kind of data point we watch very closely. Because if you pull out the number of days or if you extend the number of days, that can certainly result in creating a potential air pocket at some point in the future for purchases as you work backwards from the install to when the dealer needs to buy the equipment. But so there's a lot of different time fences involved here. But I think what I'll largely say rather than we haven't given a ton of granularity around this historically, but I will say this, it has gotten longer, kind of pre-COVID, the levels were kind of thinking that 60- to 70-day range between VHC and the activation. So, the quote and the install, right, if you want to use more kind of different nomenclature there. But and so what that that peaked at around 90 days? So, kind of at the height of, kind of as we got through the month of March, so it went up considerably. That's a 40% or 50% increase in the amount of time. But more recently, in the last few weeks, we've seen it come down back into almost normal levels, which is interesting. So, now the comment about 50% of inspectors doing virtual permitting. Remember, there are a lot of places around the country where the permitting is still going on. So, you can still walk up to your local township and get a permit. Or were they just they haven't shut down as hard as maybe areas of like the Northeast or parts of the country where, clearly, that's been more challenging. In the Midwest, largely here, you can still go get a permit. You can't get a haircut, but you can get a permit for building project. But it is interesting, and it is something we watch very closely, and we'll continue to watch that very closely.

Great. And so just as a follow-up to that. And I know you haven't provided specific guidance, but York, in any way that you guys can qualitatively talk about the cadence between Q2 home standby sales versus Q3 from the modeling standpoint, I think that could be very helpful? Because if your I can imagine Q3 should be up relative to Q2. If you're double year-over-year in terms of VHCs and your close ratios are basically the same, which is what I think you said? And if this...

Yes, I think, again, a base case guidance doesn't assume a major power outage. I think for the year, I said home standbys would be up slightly, at least that's what we modeled. That's what's embedded into our residential guidance. And the second half would look like that in terms of that guidance. So, that's how that's again, that was I mean, there's a lot of uncertainty with COVID-19. We don't know exactly the impact on consumer spending. So...

But the category in general has a fair amount of seasonality to it. So, it's definitely...

Yes, somewhere year-over-year growth, yes.

Yes, yes. But definitely, in terms of pacing, though, you're kind of going through...

But when you connect the I see that have doubled, overall it's showing up slightly. There's a bit of a disconnect there partly. Maybe we're taking a conservative view on the impact on consumer spending related with COVID-19. But we also know that tends to be coupled from economic environments when power outages actually happen. So...

I would just add one last comment there. Typically, VHCs, we would see an increase as we go into the season. So, that increase is obviously happening earlier than normal. So, the extent of the -- you have to kind of put it in perspective, the in-season, out-of-season. So there is some of that, that you have to do as well. But yes, we get the question, and it's we think we're modeling it appropriately. We got a lot of experience doing this. And it's hard to say what the consumer impact is going to be in the back half. So we're kind of trying to model some of that as well. There's a little bit of the air that's going to come out of the balloon certainly around res investment, but that's a good question, Phil.

Your final question comes from the line of Joseph Osha with JMP Group.

Well, for starters, as a resident of California, I can tell you that the state will reliably choose the most economically disastrous path. So just wanted to clarify that. two questions for you. First, I'm wondering whether some of this incremental supply chain looseness you've talked about has turned up in your cell supply situation? Are you finding that you're able to get enough lithium-ion supply for your storage business?

Yes, Joe, that hasn't been a challenge at this point. Now we are actively looking to expand our supply base on all of our major components, again, kind of coming from a position of two start-up companies that largely had a pretty nascent supply chain, the Pika organization was buying through distribution, as an example, for that lithium product. And so we've gone direct to the manufacturer, obviously, is a way to not only shorten the supply chain, but making more cost effective. But a lot it really depends in lithium, and as you well know, a lot of it really depends on EV demand. So where does EV demand go here? And I think largely, 2020 could be a more challenging space for EV demand in parts of the world, and particularly like China than what was originally forecasted. So that should certainly loosen up supply for cells. But that being said, we are still looking at continuing to expand our base of supply for those.

And then secondly, this is kind of an odd question. I'm wondering if and as you point out, your storage gives you sort of near-term resilience. But and that's not going to get you through 72 hours of PG&E shutting down. But there are some other cases to be made for storage in terms of time shifting, and time of using and so forth. Have you seen anyone look at a solar plus storage plus backup power configuration? Is that happening?

Yes. That is a that's a request that we hear repeatedly from our customers at this point. And we believe we're in a great position to be able to solve that. And that's something that as we go forward, there's a really good case to be made for the durability of a system like that. And in fact, with natural gas prices where they're at, in terms of just as low as they are, the ability to produce your own power on-site for the purposes of either charging your storage system or perhaps, using some of that power to extend the resilience, again, either as a battery charging system and/or as a substitute for the battery itself, if the battery gets fully depleted. Now we believe there are some use cases there. And I think that's a product that you will see in the marketplace here, in short order.

And I will now turn the call back over to Mike Harris for closing remarks.

We want to thank everyone for joining us this morning. We look forward to discussing our second quarter earnings results with you in late July. Thank you again, and good bye.

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