Generac Holdings Inc. (GNRC) Q3 2020 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Third Quarter 2020 Generac Holdings Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mike Harris, Vice President of Corporate Development and Investor Relations. Please go ahead.

Good morning and welcome to our third 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 US GAAP measures, is available in our earnings release or SEC filings. I will now turn the call over to Aaron.

Thanks, Mike. Good morning, everyone, and thank you for joining us today. We're very pleased to discuss our financial results reported earlier this morning, in which net sales, adjusted EBITDA and adjusted EPS were all by far, all-time records for Generac. Third quarter revenue easily exceeded our prior forecast, and adjusted EBITDA margins were also well ahead of the previous guidance. Power outage activity was dramatically higher during the quarter as a result of a record Atlantic hurricane season, a severe wind event in the Midwest and high heat and growing wildfire risks in the western U.S., which led to higher shipments of both portable and standby generators, as well as aftermarket service parts. The extreme level of power outages, combined with the continuation of the home as a sanctuary trend led to unprecedented levels of demand for home standby generators during the quarter that was broadly based across the entire U.S. We are aggressively ramping production levels for home standby generators, and there is a substantial backlog for these products that continues to grow during the fourth quarter. Year-over-year, overall net sales increased approximately 16% on a core growth basis as compared to the strong prior year quarter. Dramatic growth in sales of home standby and portable generators, coupled with shipments for the recently launched PowerCell Energy Storage system, drove the net sales increase in the quarter. Very strong growth in aftermarket service parts and shore products also contributed to the revenue increase compared to the prior year. Partially offsetting this significant strength was a decline in shipments of C&I products. Gross margin expanded 320 basis points compared to the prior year, and adjusted EBITDA margin increased 450 basis points over the prior year to 25.5%, both of which were the highest margins reported since the fourth quarter of 2013. Before discussing third quarter results in more detail, I'd like to stress that as the COVID-19 pandemic continues to evolve, a high degree of uncertainty still remains regarding potential additional waves of the virus, the magnitude and timing of an economic recovery and the potential additional impacts on our end markets and overall business. However, as we have previously commented, our historical performance has repeatedly shown that demand for residential products can decouple from broader macroeconomic trends. And this has certainly proven to be the case during 2020. The combination of the dramatically higher power outage environment, along with the increasing trend of home as a sanctuary, is leading to a further increase in our full year revenue and earnings outlook for 2020, including higher expectations for the fourth quarter compared to our prior guidance. We'll provide further details regarding this updated guidance in the outlook portion of our prepared remarks this morning. Now discussing our third quarter results in more detail. Several key metrics that we monitor closely for home standby demand continued to be exceptionally strong during the quarter. Activations once again grew at a very substantial rate compared to the prior year, with broad-based strength across all U.S. regions and Canada. This strength was led by robust growth in the Western U.S. driven by California and very strong double-digit increases in the South Central, Southeast, and Northeast regions. The combination of in-home and virtual consultations once again rose during the third quarter in every single state in the contiguous U.S., with the majority of the states showing triple-digit growth, which we believe provides further support for the emerging home as a sanctuary trend. The power outage severity environment also continues to be favorable and trend well above the long-term baseline average in recent years. The significant outage activity was broad-based across the major regions of the U.S. and included a major event in Hurricane ESA [ph] which drove significant demand in the key Northeast region. We also ended the third quarter with over 7,000 residential dealers, an increase of approximately 800 or 13% over the last 12 months. This includes a significant increase in California ramping up to approximately 550 dealers at the end of the quarter, which is roughly 300 dealers higher as compared to the end of the prior year third quarter. More recently, early in the fourth quarter, these key demand metrics for home standby have continued to be much higher relative to prior year levels. Recall that we previously discussed trends with home consultations that were up approximately double versus the prior year and this tremendous strength has continued through October. We believe this increase can be attributed to several factors. The emerging trend of Americans viewing their homes as a sanctuary, the extreme level of outage activity during the third quarter and overall elevated baseline outages over the past several quarters, the active wildfire season in rolling blackouts in California, and the increasing awareness of the need for backup power. With demand for home standby generators at an all-time high, we've been working to aggressively ramp our supply chain and production levels and we achieved record daily build rates by the end of the third quarter. We continue to further ramp production levels for these products during the fourth quarter to significantly increase build rates well above previous peak levels and we are evaluating plans to put additional permanent capacity in place early in the second half of 2021. Despite our operations teams working around the clock to ramp up standby production as quickly as possible, the unprecedented strength and demand seen over the past several months has led to extended lead-times for these products. We had a substantial backlog for home standby generators at the end of the third quarter, which continues to grow during the fourth quarter, and we expect to enter 2021 with a very high level of open orders for these products, far exceeding anything previously experienced. Recall that Generac created the home standby category over two decades ago and the market continues to significantly expand, with every 1% of penetration, representing approximately $2.5 billion of additional market opportunity at retail prices. Despite the unprecedented home standby activity being experienced during 2020 in the form of home consultations, orders, build rates, activations, and net new dealers, the reality is that the overall penetration rate for the product category is only expected to be slightly over 5% at the end of the year. With demand for home standby generates being uniquely aligned with some key megatrends and secular growth drivers, we believe there remains considerable room for this dynamic market to continue to grow over the next several years. Also benefiting from the continuation of the home-as-a-sanctuary trend, we experienced strong growth for our core products during the quarter. Recall that chore products consists of a wide range of specialty outdoor power equipment, including field and brush mowers, chipper shredders, log splitters, stump grinders, and pressure washers and are used in a variety of property maintenance applications. The strength experienced during the quarter included the sale of these products directly to consumers as homeowners increased outdoor project activity while spending more time at home. And so far, in the fourth quarter, demand continues to outpace normal seasonality. In September, we further expanded our broad lineup of chore products by entering the battery-powered commercial mower market through acquiring the assets of Mean Green products. Based in Ross, Ohio, Mean Green is a leading manufacturer of an innovative line of commercial zero-turn and walk-behind, battery-powered turf care products. Importantly, this equipment provides quiet operation, zero emissions and minimal maintenance requirements as compared to traditional commercial mowers. The acquisition will support our goals to integrate and develop new battery-powered solutions by accelerating the electrification of our lineup of higher powered Chore Products. Rounding out our discussion on residential products is an update on clean energy. The secular growth opportunity within the U.S. market for energy storage and monitoring systems remains very compelling. Particularly around the increasing resiliency desired from these products, which is driving residential solar attachment rates that are currently approaching 30%. Shipments of our PWRcell Energy Storage Systems recovered as expected during the quarter, and we're a key contributor to the company's year-over-year growth, and we are expecting a further significant sequential increase in shipments during the fourth quarter. We are making important strides in growing the still nascent market for energy storage, through targeted advertising, lead generation and sales capabilities, along with expanding our distribution capabilities, including our strategic partnership with Sonova. Our new clean energy infomercial began airing earlier this year and continues to drive good volume into our lead management and selling system that we call PowerPlay CE. We are very encouraged by the trends with home consultations for PWRcel Systems as they accelerated during the third quarter and have continued to be strong so far in the fourth quarter. System activations, which are a proxy for installations and commissioning, have also improved notably in recent months as compared to the second quarter, providing further proof of the V-shaped recovery for the clean energy market. We have made tremendous progress in ramping our clean energy products from essentially a start-up in 2019 to year one revenues for 2020, which are expected to be in line with our previous guidance. And which are far ahead of the expectations we laid out at our Investor Day last September. We achieved profitability for these products during the month of September and were roughly breakeven during the quarter, and we were expecting to achieve our first full quarter of profitability in Q4. We have accomplished this by significantly advancing our capabilities with our supply chain through increased volume and reduced system costs. We have also had several important new product introductions in 2020, and we continue to develop an innovative pipeline of additional clean energy products that will be coming to market over the next several quarters. We believe this will further enhance our competitive position and differentiation in the energy storage, monitoring and management markets as we focus on whole house storage solutions with load management capabilities that provide the energy independence, we believe consumers really want in these systems. We remain extremely excited about the long-term growth opportunity for our clean energy products, including the potential to leverage and combine our new clean energy capabilities with our core competencies and strategies around our legacy natural gas generators. We believe this will better enable us to enter new and adjacent markets that align with the evolving megatrend around Grid 2.0, which is the evolution of the traditional electrical utility model, including decentralization of the grid and a migration towards distributed energy resources. To help accelerate our involvement with this trend, earlier this month, we closed on the acquisition of Enbala Power Networks, a leading distributed energy resources technology company based in Denver, Colorado. Enbala's best-in-class technology will enable us to participate in the market for grid services, which we see as a growing opportunity. The company's can share to a cloud-based platform is being used by utilities and energy retailers to leverage the power of distributed energy resources to respond to the real-time energy balancing needs of power systems and energy markets. Distributed Energy Resources, known as DERs, and our assets or systems that can generate, store or manage power, such as our residential or C&I natural gas generators, our PWRcel Energy storage systems and our devices that enable load management. In areas where grid stability is needed, these DER assets can be connected to Enbala's software platform and can be aggregated into a decentralized and virtual power network to provide flexible capacity to address peaks in electricity supply and demand. Importantly, Enbala has an open software platform that is both brand and equipment agnostic, providing the capability to connect to a wide range of assets or systems. The platform is currently being used in areas around the world where the increasing use of renewables is creating more variability in supply and where resiliency is needed as a result of power outages. A recent ruling by the Federal Energy Regulatory Commission, known as FERC 2222 and is a timely development for Enbala as it mandates utilities create programs that allow DERs to participate in the wholesale electric market. We believe this ruling will serve to accelerate the overall move towards a decentralized grid by providing a path to connect and monetize both legacy and new DERs. This could result in opportunities to leverage the existing installed base of natural gas generators and energy storage systems by connecting them to software platforms such as Enbala's, thereby turning them into much more productive assets. Enbala is an important acquisition for us as we continue our evolution from an equipment manufacturer to an energy technology solutions company. Now with regards to our C&I products, as expected, the COVID-19 pandemic has continued to have a significant adverse impact on the overall market for global power generation and related equipment, given major declines in GDP growth rates around the globe. Domestic shipments have seen a decline during the third quarter as compared to the prior year, but came in ahead of our expectations. While there remains some uncertainty relative to the pandemic and although we still expect shipments for domestic C&I products to decline on a year-over-year basis during the fourth quarter that the magnitude of the declines are slowing. As expected shipments of mobile products and national rental account customers declined significantly during the quarter, primarily due to the continued impact of the pandemic and lower oil prices. Demand for mobile equipment had already begun to soften as we entered 2020, with many of our national rental customers, reducing their capital spending budgets for the year. But the sudden decline in economic activity and corresponding drop in fleet utilization that occurred in March, forced them to further and dramatically reduce equipment purchases. As we are expecting continued demand headwinds for domestic mobile products in the near-term, we have focused our efforts on cost reductions and other restructuring actions, which we began implementing in the second quarter. We remain optimistic about the long-term opportunity for mobile products as an expected fleet replacement cycle nears and the compelling mega trend around an infrastructure improvement, which could be aided over the next couple of years by economic stimulus. Shipments to national telecom customers also declined on a year-over-year basis, but we're also ahead of our prior expectations. More recently, we are seeing indications from several of our large telecom customers of an improving outlook and we are now expecting overall shipments to grow in the fourth quarter as compared to the relatively soft prior year comparison. Recall the demand trends for these customers can vary from quarter-to-quarter based on the timing of their capital spending and their project planning cycles. Historically however, demand for telecom backup power tends to increase after periods of elevated power outage activity, similar to what we experienced during the third quarter. In addition, the California Public Utility Commission in July passed the mandate requiring a minimum of 72 hours of backup power at all cell tower locations in the state, which is expected to be implemented over the next three years, beginning in 2021. We've been in contact with the wireless operators in California to better understand the market opportunity and to gain better insights into their network spending plans related to this new mandate. While we're still in the early stages of understanding the impact, we currently estimate the backup power opportunity to state could range between $100 million to $200 million over the next three years beginning next year. The incremental demand for Generac will depend on whether or not existing capital spending by the carriers is reallocated to California from other regions in order to meet the requirements of this new mandate. Lastly, shipments of C&I stationary generators through our North American distributor channel were also lower in the quarter, but the decline was less than expected. While this channel initially experienced a large decline in quotations for new projects in March and April, during the onset of the pandemic, project quoting activity has largely recovered since then, which has improved the overall order outlook for this channel. We also continue to experience encouraging growth trends for natural gas generators, particularly in the higher kilowatt ranges as we begin selling into applications beyond emergency standby power. Additionally, results for our C&I products now include the acquisition of Energy Systems. Our industrial distributor located in Northern California, on which we closed the acquisition on July 1st. This acquisition expands our presence in the rapidly growing California market and enhances our ability to serve one of the largest power generation markets in the U.S. for both C&I and residential products. The ongoing global pandemic continued to have a significant impact on C&I product demand outside the U.S. and Canada during the third quarter as well. As GDP growth rates have been sharply reduced around the world, revenues for our international segment in the third quarter declined approximately 12% on a core basis when compared to the prior year. This decline was broad-based across numerous markets and further magnified the slower economic growth and geopolitical headwinds that were already being felt prior to pandemic. Despite this weakness and uncertainty in the global market, overall international revenue during the third quarter was modestly ahead of our expectations. And our current full year outlook is now more favorable for this segment as certain regions are trending better than previously feared. Importantly, despite the decline in revenue during the quarter, adjusted EBITDA margins for our international segments still expanded 310 basis points to 7.9%, primarily due to lower operating expenses as a result of the restructuring activities that we initiated during the second quarter. Similar to our domestic C&I products, we believe international shipments will continue to decline on a year-over-year basis during Q4, but with the magnitude of the decline slowing relative to recent quarters. Our international teams remain focused on several critical global initiatives around increasing the penetration of natural gas generators for residential and C&I applications, expanding our share globally in the important wireless telecom backup power segment and entering the emergency – the emerging energy storage market for both residential and C&I applications. In closing, this morning, I'm extremely proud of our team as we are on pace for another year of record financial results, including more than 10% core revenue growth. This is only made possible by the tireless execution of our 6,500 employees globally across the company, which has been even more difficult this year in the face of the COVID-19 pandemic. Generac continues to benefit from a number of megatrends and macro secular themes. In fact, we believe these trends and themes are more compelling today are more compelling today than they've ever been, when considering the emergence of the new home as a sanctuary trend, the effects of extreme weather driving continued power outage activity and the company's increasing capabilities with clean energy products and grid services, which is allowing us to participate in the evolution of the traditional electrical utility model. In addition, we're confident that once we get through this pandemic, our future growth prospects for our C&I products remain very compelling, driven by the increasing penetration of natural gas generators in a wide variety of applications, wireless telecommunications shifting to the 5G architecture and the major investment cycle needed for legacy infrastructure. Supplementing these powerful trends and drivers is our considerable financial strength, liquidity and free cash flow generation that puts us in the enviable position to aggressively invest further in a number of strategic initiatives to accelerate our powering our future strategy. As a result, we remain very excited about our long-term growth prospects and believe the future for Generac is brighter than it's ever been. I now want to turn the call over to York to provide further details on third quarter results and our updated outlook for 2020. York?

Thanks, Aaron. Looking at third quarter 2020 results in more detail. Net sales increased 16.7% to $701.4 million during the third quarter of 2020, an all-time record as compared to $601.1 million in the prior year third quarter, which was our previous record. The combination of contributions from the energy systems and mean green acquisitions and favorable impact from foreign currency had an approximate 1% impact on revenue growth during the quarter. Briefly looking at consolidated net sales for the third quarter by product class, residential product sales during the third quarter increased 37% to $458.9 million as compared to $335 million in the prior year. As Aaron already discussed in detail, home standby generator sales continue to experience very strong year-over-year growth, which was once again, nearly 30%. In addition to this home standby strength, there was a significant increase in shipments of portable generators during the quarter despite the very strong prior year comparison caused by Hurricane Dorian. Portable generator shipments were at record levels during the current year quarter, primarily as a result of the higher power outage activity, which included demand from Hurricane ECS. Also significantly contributing to year-over-year growth in residential products for shipments of our PowerCell Energy storage systems following the expected recovery in the solar market during the third quarter. Shipments of Chore products were also higher during the quarter as the home as a sanctuary trend positively impacted demand for outdoor power equipment. Commercial and industrial product net sales for the third quarter of 2020 declined 18% to $176.2 million as compared to $214.9 million in the prior year quarter with a core sales decline of approximately 19% when excluding the impacts from the Energy Systems acquisition and favorable foreign currency. The weakness in shipments of C&I products was broad-based, both domestically and internationally. Domestically, the negative impact of the COVID-19 pandemic drove lower utilization of rental fleets, and as a result, our national rental account customers continue to defer capital spending for our C&I mobile products. In addition, shipments to our telecom national accounts continue to decline as key customers also took a pause in capital spending. Internationally, C&I products declined due to the continued broad-based sharp drop in global demand caused by the pandemic. Net sales for the other products and services category, primarily made up of aftermarket service parts, product accessories, extended warranty revenue amortization and other service offerings increased 29.4% to $66.3 million as compared to $51.2 million in the third quarter of 2019. As Aaron mentioned, very strong growth, very strong growth was experienced in aftermarket service parts as a result of power outage activity being dramatically higher in the current year quarter. A larger and growing installed base of our products, higher levels of extended warranty revenue and the addition of Energy Systems also contributed to the increase versus the prior year. Gross profit margin improved 320 basis points to 39.4% compared to 36.2% in the prior year third quarter. Operating expenses increased $8.6 million or 7.6% as compared to the third quarter of 2019, but declined 130 basis points as a percentage of revenue, excluding intangible amortization. As a result, adjusted EBITDA before deducting for noncontrolling interest, as defined in our earnings release, was $178.8 million or a very strong 25.5% of net sales, as compared to $126 million or 21% of net sales in the prior year. This 450 basis point improvement in EBITDA margin was driven by the impressive gross margin expansion during the quarter, primarily due to favorable sales mix. Improved leverage of fixed operating expenses on the much higher sales volumes and tight cost control. I will now briefly discuss financial results for our two other segments. Domestic segment sales increased 22.6% to $606.9 million as compared to $494.8 million in the prior year quarter. Adjusted EBITDA for the segment during the quarter was $171.4 million or 28.2% of net sales as compared to $120.8 million in the prior year or 24.4% of net sales. International segment sales, which consists primarily of C&I products, declined 11.1% to $94.5 million as compared to $106.3 million in the prior year quarter. Foreign currency had a net favorable impact of only 500 basis points on revenue growth during the quarter. Adjusted EBITDA for the segment during the quarter before deducting for noncontrolling interests was $7.4 million or 7.9% of net sales as compared to $5.1 million or 4.8% of net sales in the prior year. Now switching back to our financial performance for the third quarter of 2020 on a consolidated basis. As disclosed in our earnings release, GAAP net income attributable to the company in the quarter was $115 million, as compared to $75.6 million in the third quarter of 2019. GAAP income taxes during the current year third quarter were $32.1 million or an effective tax rate of 21.8%, as compared to $20.1 million or an effective tax rate of 21.1%. The increase in effective tax rate was primarily due to the prior year having more favorable discrete tax items compared to the current year quarter, which was partially offset by an overall more favorable mix of pretax income in the current year quarter. Diluted net income per share for the company on a GAAP basis was at $1.82 in the third quarter of 2020 compared to $1.18 in the prior year. The specific calculations for these 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 $132.9 million in the current year quarter or $2.08 per share, which was also an all-time record. This compares to an adjusted net income of $90 million in the prior year or $1.43 per share. Cash income taxes for the third quarter of 2020 were $23.6 million as compared to $15.1 million in the prior year quarter. The current year now reflects an expected cash income tax rate of approximately 16% for the full year 2020, which is a reduction from the approximately 17% rate previously expected for 2020, and compares to the prior year expectation of approximately 17% at that time. The reduction in the current year cash tax rate from previous expectations was primarily due to favorable return to provision adjustments reflected in our recently filed corporate tax returns. Cash flow from operations was very strong at $155.2 million as compared to $111.2 million in the prior year third quarter. And free cash flow, as defined in our earnings release, was $148.3 million as compared to $100.8 million in the same quarter last year. The increase was primarily due to higher sales volumes and resulting net income. Before discussing our updated outlook for 2020, it's important to reiterate our healthy balance sheet and liquidity position at the end of the third quarter of 2020, which allows us to confidently operate our business and execute our strategy even during these uncertain times. As of September 30, 2020, we had $808 million of liquidity, comprised of $514 million of cash on hand and $294 million of availability on our ABL revolving credit facility, which matures in June of 2023. Also, total debt outstanding at the end of the third quarter was $890 million, net of unamortized original issue discount and deferred financing costs. Our gross debt leverage ratio at the end of the third quarter was only 1.7 times on an as-reported basis. In addition, our term loan matures in December 2026, and we do not have any required principal payments on this facility until the maturity date. Also recall, there are no financial covenants on the term loan, which has a low-cost of debt of LIBOR plus 175 basis points. Finally, we have interest rate swap arrangements that fix our interest rate exposure on approximately $500 million of this debt to the maturity date on December 2026. Further enhancing our overall liquidity is our strong cash flow profile. And over the last 12 months ended September 30, 2020, cash flow from operations and free cash flow were impressive at $443 million and $397 million, respectively. 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 remains disciplined, balanced and consistent. With that, I will now provide comments on our updated outlook for 2020. As a result of the higher power outage environment experienced thus far in the second half of 2020, along with the increased production rates for home standby generators expected in the fourth quarter, we are raising our full year 2020 guidance for full -- for revenue growth to approximately 10% to 12% versus the prior year. This compares to the previous baseline guidance of 5% to 8% growth and is now expected to be at the high end of our previous upside case scenario communicated last quarter when factoring in the additional 2% to 3% of revenue growth associated with a more severe outage environment. Net sales for residential products continues to outpace our expectations due to higher shipments of portable generators from the much higher power edge environment and aggressively ramping up our home standby generator production capacity to record levels. As a result, year-over-year growth for these products is now expected to be even more significant for the full year 2020 as compared to previous expectations, with the fourth quarter expected to increase sequentially compared to the third quarter. Another key driver to our increased revenue guidance is a higher level of shipments of aftermarket service parts as a result of the increase in power outage hours during the third quarter. Revenue growth for C&I products is still expected to be down significantly for the full year 2020 versus prior year, but is moderately better relative to prior guidance. And fourth quarter is also expected to increase sequentially compared to the third quarter. This overall guidance assumes no further deterioration from additional waves of the COVID-19 pandemic. We're also raising our adjusted EBITDA margin guidance for the full year 2020 to be approximately 22.5% to 23%, which is an increase from the 21.5% to 22% previously expected. This improvement is driven by higher operating leverage and lower discretionary advertising and promotional costs, given the favorable demand environment. Operating and free cash flow generation for the full year 2020 is expected to remain strong with the conversion of adjusted net income to free cash flow still anticipated to be approximately 90%. Depreciation expense is forecast to be approximately $35 million in 2020 versus the $33 million to $34 million previously guided. In addition, share-based compensation expense is also expected to be slightly higher at $19 million to $20 million, compared to the $18 million to $19 million previously guided. The remaining guidance items provided in previous earnings calls are not expected to change. This concludes our prepared remarks. At this time, we'd like to open up the call for questions.

[Operator Instructions] Please be reminded that you can only ask one question and one follow-up. [Operator Instructions] Your first question comes from the line of Tom Hayes from Northcoast Research. Your line is open.

Thanks. Good morning, gentlemen.

Good morning, Tom.

Hi, Tom.

I was wondering if you could talk a little bit, maybe, about the Enbala acquisition. It sounds like a great piece to your complete solutions. So I'm just wondering, kind of, how you see that fitting into that solution set to how you take it to market, any other color you could provide would be great.

Yes. It's a great question, Tom. And this is an acquisition that -- and it's a small company. It's another startup that we've added into our mix here of start-up companies that we've been acquiring. But we're really excited about Enbala. Enbala has -- and the name Enbala, it means literally, energy balance. So that's the connotation of the company's name. And it is an awesome team of people from the utility industry and people that are familiar with that industry, who have come through different start-ups and things in the past. But it's really aimed squarely at the idea of taking and leveraging not only our existing assets that we have in place like generally. We have over 2 million home standby generators on the ground as an example. And it represents just a pretty massive number in terms of megawatts available -- really, gigawatts available for potential use. Today, those generators sit largely unused, right? So, I mean, they operate when called upon, a couple of times a year, maybe, for a few hours a year, or longer depending on the region. But by and large, that becomes a somewhat underutilized asset. And we believe that Enbala, their platform -- it's a software company, so it's a technology play, that software platform can allow for the -- what they refer to in their lingo as enrolling an asset, like a generator or one of our power cell storage systems or even a load management device, enrolling that in their platform and allowing them to aggregate those assets and those systems for use by utilities or other grid operators. And the effective need there, the need case is really around places where you see grid power being augmented very heavily with renewables. So as you bring a lot of renewables into the supply side of the equation, you increased volatility. The variability of those renewables by their very nature, they're more volatile power sources than, say, a traditional combined cycle power plant. And as a result, grid operators have to deal with that. And they have to deal with the potential for the wind dropping off or as we saw West this summer, high heat, creating a situation where demand spiked and they also had some cloudier days than they were predicting. And so, less solar production to satisfy that demand. So the ability to turn on an add or augment to the grid, these kind of distributed or decentralized assets to help balance out those parts of the grid that required it, is a really exciting area that's going to grow rapidly in the years ahead. In particular, as renewable mandates mature, many states, if not all, states, have some level of a renewable mandate, some percentage, high percentage of total power generation to come from renewables in future years. And so we see Enbala really enabling us to take the next logical step. Today, we've been – we're really a legacy equipment manufacturer and really a generator manufacturer and tomorrow, we see ourselves as much more of an energy technology solutions provider. And Enbala, I think, is a really key piece of technology and the talent that we acquired there is a really key piece of enabling us to step forward.

I appreciate the color. And maybe just as a quick follow-up. Regarding the backlog of the home and standby unit. Just wondering if you could quantify, was there any impact to the Q3 revenue, if you guys just having such a backlog?

Well, the Q3 revenue was up dramatically. In fact, orders, we just look at home standby orders. They were about 2.5 times greater than they were the year before. So now – I mean, it was massive. I mean we've never seen anything like that. And it's obviously, as we talked in the prepared remarks, we've got quite a backlog that we ended the quarter with, and that's only continued to grow here in Q4. And we've been hitting record outputs in our production environment in spite of all the headwinds there with component challenges and manning challenges and everything around the pandemic that is making that difficult. We're achieving record outputs in Q4 here, we've actually brought some additional capacity online and another factory here in Wisconsin. I also mentioned in the prepared remarks this morning, we're in sight for our selection process for another facility, another permanent facility, really a full second site that will not quite double production for these products, but will increase production dramatically for home standby, probably coming online sometime mid next year and then obviously needing to ramp throughout the back half of the year. But that backlog is going to be at just eye-popping numbers here. Now the good news is this, I mean, their home improvement projects. So our experience historically is the demand is pretty sticky. Once we – an order comes in, a dealer takes a down payment or we start the process of getting permits and the dealer can also do some site type of preparatory work ahead of having to actually put the generator down, so there can be some trenching. There can be – the transfer switch might be able to be installed ahead of time. So we can keep the project moving. But lead times for these products are extended right now and probably will remain so for the foreseeable future.

Thanks. Appreciate the color.

You bet.

Our next question comes from the line of Jed Dorsheimer from Canaccord Genuity. Your line is open.

Hi. Thanks and congrats on a fantastic quarter.

Thanks.

Two questions. First one, kind of a simple one. Lead times on the resi side. So you've expanded your dealer network. Lead times have gone from eight weeks to 16 weeks in many of those. So as you think about entering 2021, and I'm not asking for guidance, but it would seem – and I may have missed the backlog number, but it would seem like that backlog should seriously offset what we would expect to see in terms of normal seasonality? And then I have a follow-up question.

Yes. That's exactly it, Jed. And in fact, if you go back to – the best thing I can point people to would be kind of after Hurricane Sandy. There were a couple of big storms, Sandy being the culmination of that, in 2011 and 2012 out in the Northeast grew our dealer base, grew our backlog. We exited 2012 with a massive backlog – at the time what we thought was a massive number. It will look small compared to wherever we land here with the backlog when we end the year. But it really did kind of – I don't want to say disrupt, but it disrupted the normal seasonality, the seasonal rhythms of the business when it comes to home standby. Normally, we would see, a cadence would be Q1 is typically the lowest quarter of the year for that category. Generally, it's more difficult to install during the colder winter months. And you just see demand kind of fall off. Weather patterns generally aren't as aggressive. It's not hurricane season, that kind of stuff. But because the backlog is going to be high, Q1 will be a bit more dependent on what kind of weather. If we have a really brutal winter, that may create a situation where they just can't get product installed until the ground thaws. But remember, we have a lot of demand that we're seeing in parts of the Southeast and South central regions and out West, where you really don't have a problem necessarily doing installations during the kind of January through March months. So you're absolutely right, though. It's going to really distort the normal seasonality in that business.

Got it. And so just as a follow-up, completely separate topic. But as you mentioned the increase in the renewable, as well as that on the 26 kilowatt, for example, on the standby and the PowerView Home app that you have. I'm wondering if you could articulate the monetization plans around the increased level of data and intelligence that you're now going to be getting from a microgrid or a supply demand perspective that you may have. How should we think about that?

Yes. I mean, it's super exciting, Jed, and I think it's really early innings in this game. The idea of taking an asset which here to or has really been viewed as it's basically insurance, right? I mean you buy a home standby generator because we want to protect your home, protect your family, from power outages. And so the decision for – in the residential market, in particular, has largely been -- I don't want to say it's all emotional, but there's not much of an ROI that you can ascribe to those products, right? I mean, you can say, okay, I won't throw away a freezer full of meat or food or I might not to stay a couple of nights in a hotel, and you might be able to -- maybe I get a break on my homeowners insurance policy because I have a home standby generator, which are programs that are gaining acceptance. But you'd be hard-pressed to kind of create a payback model there that works beyond anything that is really just peace of mind, right? I mean that's really what those products are. Going forward, though, and kind of what your question is leaning into, is the fact that I think these products can be sold in a different way. And really, we look to how we're selling our power cell, energy storage systems, right? The energy storage system, we went into that thinking it was more about the ROI and less about resiliency. And what we found actually is that, it's really all about resiliency and some about ROI. So we think that there's an opportunity. We think the resiliency is going to be a big theme, no matter what. Whether you're talking about battery storage or whether you're talking about generators. It's really going to -- it's going to depend on the use case and if you live in areas where longer duration outages are going to happen, a generator is probably still going to be the best play for you. But the idea of being able to monetize that generator further, I'd love to give you a crisp answer on here's exactly what we're thinking of. We're thinking it could be a PPA-type arrangement. The generator maybe its owned and operated by a third-party and the homeowner pays a monthly and gets a credit on their power bill, something like that. The truth of the matter is, I think it's going to take a lot of different formats. We're currently engaged with a number of utility companies, a number of grid operators, a number of kind of strategic partners that we're talking to about what should that model look like. And I think it will become clearer as the market develops and they're going to become clearer as maybe the incentive structures develop but I don't have like a solid -- this is exactly how you should think about monetizing that. I think as we get into 2021 and we do some guidance there, clearly, around the Enbala piece, that -- again, the revenues there are software related.

Enables us to do more things.

Exactly. And it's an enabler for us. And so as that enabler takes root, I think we'll probably have much crisper ideas and thoughts around how we intend to monetize it. What I like though, just largely, I think it gives us a platform on which to just sell more equipment based solely on the fact that it moves the product category, that being the legacy home standby category from this peace of mind insurance product to one that could be monetized further for the benefit of the homeowners either reduce their energy costs or somehow participate in a program -- a virtual power plant type of program.

Same thing for C&I.

Yes. And same on C&I, correct.

We have our next question from the line of Philip Shen with ROTH Capital. Your line is open.

Hey guys. Thanks for the questions.

Hey Phil.

I wanted to dig in deeper on a couple of topics. First one, on the new site location, can you share when you think you'll finalize that decision as to where it might be? And where could it be, maybe the short list of where it might be? And then you talked about -- it's not quite a double, so I'm guessing kind of in that 70% to 80% increased capacity. And then following up on the slower season, typically in this first half of the year. I mean is it possible that you guys end up with no slow season at all this year effectively, where kind of the exit run rate of Q4 volume could kind of extend at least for home standby into Q1 and Q2?

Yes, let me -- I'll deal with the first part of the question, Phil, and I'll let York kind of tackle the second part as it relates to how the seasonality, again, we've been talking about the distorted seasonality, I think, given some of the some of the things that are going on right now. But on the site selection, we're evaluating a number of sites. We have most of our manufacturing base here in the U.S. is in Wisconsin. We have six factories here. We love the State of Wisconsin. Our customers, though, as we develop the home standby markets and our storage markets, they're out west, they're further down south. So, we're looking at -- we're evaluating Wisconsin in the mix, of course. But frankly, I would think that where you're probably likely to see something is if you think anything from Northern Texas across to the Carolinas, we're kind of evaluating through there just really -- just based primarily on reduced logistics cost and timelines. We should have a decision finalized here, I would say, in the next 30 to 60 days, we want to negotiate with locally to make sure we've got the right understanding of local codes and things. I mean, obviously, that always comes into play when you're manufacturing. So, we're picking a site though that can move for speed. Speed is the critical element here. We want to have this facility up and operating by midyear next year and really fully ramped by the end of next year at the latest. We've already put down orders for all the machine tooling and things that are going to go into this longer lead-time type of things that we know we're going to need to equip this factory. So we've got that on order. We just don't know where it's going to go. So we haven't given them a shipping address yet, but that's kind of the -- how we're thinking about capacity. And then again, you mentioned it's like a 70% to 80% increase overall in the production capabilities or ultimate capacity products. And then York…

Yeah, in terms of seasonality for next year, while we're not giving guidance for next year, as Aaron has been talking about, our backlog is significant now, and we're going to continue to evaluate what that looks like at the end of the year and what it's going to look like coming into next year. But I guess from a production standpoint, you're absolutely right. We're going to be producing full speed really throughout all of next year, and which means from a production standpoint, you won't have that lull in the first quarter and then building into the second quarter and then and then maxing on the second half. We're going to be producing full out pretty much all of next year, right?

Great. Thanks for that color. Really helpful. As it relates to any pinch points in the manufacturing, are you constrained on any of your inputs at all, engine blocks or anything like that? And then shifting to clean energy, with the success that you guys are seeing in the marketplace based on some of the checks that we've done, are you possibly going to be able to deliver on more than 125-megawatt hours of storage in 2020? At one point, you guys were had a range of $125 million to $150 million, but just kind of wanting to understand if you guys have some upside there? Thanks.

Yeah. Thanks, Phil. Yeah, I'll just address just pinch points. Supply chain is tight. We're working actively with all of our suppliers to continue to improve their output levels, but they have a lot of the same challenges we have with manpower. I mean, just managing factories today in the COVID-19 world is -- well, I don't know if there's an easier way to say it is a pain in the butt. I mean it's difficult. It’s presented a new kind of layer of complexity there that none of us really need when you're trying to run a factory, and that extends all the way up to supply chain. So we're good right now, and we'll have to continue to work with these guys because, obviously, if we're going to increase max capacity longer term that means supply chain's got to get there, too. That's probably going to come in the form of adding new suppliers and second and third type of sources in some cases where – and broadly, we have a lot of secondary sources already on. We may have to go to third sources. So that's -- that's where that's at. But we're managing kind of day-to-day. And then on clean energy. Yeah, again, we've reiterated our guidance there. We feel really good about the V-shaped recovery that's taking hold in clean energy. I think it really -- everybody's been talking about it. I know, Phil, you -- in particular, you talked to a lot of the companies involved in this space. We saw exactly what everybody else saw, just a pretty solid recovery there in the third quarter and accelerating here in the fourth quarter. I think that's the exciting thing about it. And then I just step back from the whole thing, and I look at where we were a year ago with the start up businesses. I mean, this business was, I don't know, what was it, York, it was $10 million of revenues?

Yeah.

And we're running towards that kind of 1.15 [ph] number or whatever the previous guidance, and I think that was our previous guidance. So I mean, to do that in a year and then have the runway that with our new product pipeline that I'm looking at, I am really excited. I mean, our teams have been working tirelessly here. Russ Minick, who heads up that business for us, has been really driving the team, doing a nice job, bringing these start-ups together. And then you put Enbala as a mix there, going forward, and just really positive on longer term where we're going…

And turning profitable in Q4. That's another…

Yeah, September was our first month of profit in that business. And Q4 is going to be nicely profitable for us as well. And we anticipate accelerating off of that as we kind of laid out previously.

We have our next question from the line of Mark Strouse with JPMorgan. Your line is open.

Good morning. Thank you very much for taking our questions..

Good morning.

In an effort to completely beat a dead horse, I'd like to go back to capacity. Can you just kind of give some color on how you came up with that 70% to 80% expansion? Is there a target utilization rate that you're going for? And I guess, how much wiggle room do you foresee leaving yourself before you are looking for a third site?

Yes. So it's a great question, Mark. And the way our business works, we have these – we have obviously some pronounced seasonality spikes in demand that can happen from time to time. This – what we're seeing right now is abnormal to anything we've ever seen. But if you think about – the way we think about sizing a factory and the way we think about this new site, we really wanted to give ourselves. So we think about utilization being in that kind of max. You get above 80% to 85% utilization in the facility, and you start to run the risk of equipment shutdowns and other things, and you run a lot of overtime generally when you're up in those levels. So we're kind of sizing it, thinking around that 80% number in terms of utilization between the two sites that we would have. The $70 million to $80 million that we called out as an increase is – it's a function on the one end of using that 80% utilization assumption. But then it's also a function of saying, 'Hey, seasonally, we know that our incoming demand can spike upwards of – could be 52, in this case, a lot more than that. But let's say, on average, 50% higher at certain peak points. So we wanted to size the facility to give ourselves some room that even if we were operating at that 80% effective utilization rate, that we would have the ability once demand returns to normal patterns. That's kind of the assumption underpinning all this, by the way, if it doesn't, we'll be talking about a third facility we'll have to add, right? So – but assuming it returns to more normal levels in the future, along the lines of what our long-range plan kind of indicated, we would give – the new factory would give us basically some expansion capacity or between the two facilities, depending on how we want to balance it out, it would give us some expansion capacity to take those seasonal demand increases. If you see a hurricane or an ice storm or a power shutoff, a safety shutoff out in California, something like that. So that's how we're sizing it, and that's how we're thinking about it going forward.

Okay. That's very helpful. Thank you. And then just a quick follow-up, York. Are you able to say, what percentage of the increase in the guidance for this year was organic versus the acquisitions?

Well, the acquisitions were relatively small to the increase in guide if we went from 5% to 8% to 10% to 12%, it was maybe 1% – about 1%, maybe roughly, not even 1%,

Not even a full percent.

Not even a full percent of that.

They're really small. Especially, well, Mean Green seasonally, they don't have – they're mowing companies.

They think of it all roughly about $10 million businesses and you get basically a quarter to a quarter and half of roughly almost two quarter to two [ph] quarters of revenue there.

We have our next question coming from the line of Brian Drab with William Blair. Your line is open.

Hi, good morning. Obviously, very impressive results. I was just wondering on the capacity expansion. Can you talk at all about how much it will cost to set up this facility and then, I mean, I guess if you're saying around 80% expansion, we're talking about a facility that can do something like $800 million in revenue. That's the ballpark maybe for the capacity? I'm trying to get a sense for what the return on investment is for this expansion? : Yes. I mean, the – I mean, it's a great question, Brian, and one that we don't make any decision around here, unless we're looking at the return that we can get for money that we invest on anything, really. I mean, and a new facility would be no different than how we think of everything else. I would say this, home standby being a pretty unique and special category of product for us. It's almost very difficult for me to come up with any kind of investment number that we don't get a great return on given the profile, the financial profile of those products and the growth rates of the product. So in terms of the quantum around the investment necessary, some of that's still up in the air in terms of whether we lease a facility or whether we own it. We're working through that as part of the site selection. So I'd be premature to give any kind of a number around that. But again, in the context of how we think about capital spending here, our kind of we've always said kind of 2% to 2.5% of revenues is our capital spending benchmark and what we need. Next year, frankly, we're probably going to be in that 2.5% to maybe 3% at the outside edge of that because some growth CapEx, but we're not talking about hundreds of millions of dollars here for a new facility. It's something quite a bit less than that.

Okay. So yes, I mean, that was my impression is that -- I mean, this is -- I had no idea, but I would think it's -- you're in the $50 million range or less, and that you can do generate a couple of hundred million in EBITDA out of this facility. It seems like the ROIC is off the chart. So I was trying to give you a soft fall there.

Great return.

The ROI is excellent.

And it's -- I mean, it seems like it's like well over 100% on that. I'll follow-up with 2 more later on that. And then can you just comment quickly on the C&I and I know that rental CapEx is down for the year, but are the trends that are improving? And does that bode well for growth on easy comps for C&I in 2021?

Yes. The C&I business, actually, the stationary C&I business, kind of our legacy C&I business is actually decent. It was better than we thought it was going to be in the quarter. But mobile just continues to be a struggle for us, the mobile equipment sector. And from everything we've seen in the marketplace and talking to our customer base, I think we're pretty much in line with everybody else. I don't think it's a generic specific issue. It's an industry-wide issue on fleet utilization rates and just capital spending pullback by the large nationals. We're eagerly watching them to understand kind of their guidance for next year on spending. We're having conversations with them right now. I would tell you, I mean, just me, this is Aaron's thoughts around this. But my -- based on everything that I've seen, if it's a recovery next year, it's a back half of next year recovery, in my opinion, and I don't know, I just -- there could be -- maybe that can accelerate if there's some magical stimulus thing that hits around infrastructure earlier. But I don't hold out a lot of hope. So we've been talking about stimulus for a long time here, and we just can't even get -- seem to get – get everybody's head on straight with getting that done. It needs to get done. And when it does eventually get done, we're going to be in a really good spot for that. But until that happens, I just think that – I think 2021 will be a recovery year, but I think it's probably – I just -- I'm handicapping, it's more back half of the year than the front half.

You have your next question from the line of Ross Gilardi with Bank of America. Your line is open.

Hey, good morning guys. Thanks for squeezing me in the end.

Good Morning, Ross.

Good morning. I just was wondering, is there any pricing opportunity here beyond the norms? I mean, you're sold out, the lead times are extended, you dominate the market here. Is that something that could generate some upside for you? Just like what's your pricing philosophy in the cycle market?

Yeah. It's a great question, Ross. There's two angles on pricing that I would address. One is the normal seasonal discounting cadences that we would have -- we haven't had to do it, right? So in effect, by doing less discounting, we're getting more price. I mean that's kind of how I view price. I still think price as I think about home standby, that idea of affordability is still a really important thing there. And so the second piece of pricing. So first is less discounting, which effectively gets us a little bit better pricing position. The second part, though, is we continue to introduce products that help us raise the ASP, which is effectively what we did with the 24-kilowatt machine that we introduced earlier this year. Oddly enough, the way it works out for the homeowner, it's actually a little bit better deal on a per KW basis. So at a retail price point, they actually -- when it's fully installed because the installation really doesn't cost more. So they actually get a better deal in terms of just on a per kilowatt basis. And we get a better deal on an ASP per unit basis. So in effect, I think we have taken some pricing there through new product introduction and less discounting. But as we kind of put together our 2021 plan, we always talk about pricing. We look -- really, what we look at is what are the cost headwinds that we might be facing next year. So as those become maybe a little bit more known, I think, rather than say we will or won't take pricing at this point in the game I think I'll probably reserve those comments for kind of the 2021 guide once we put all that together.

All right. And then I want to ask you on top of that, distribution, obviously, your footprint has expanded dramatically, particularly in California, but as you guys have pointed out, and as you can see in the data, I mean, the demand is coming from everywhere. I mean I think there are 300,000 people out of power in Oklahoma yesterday, if I saw it right on your database, you had the Midwest storms in the ice states, I think Utah was -- I mean, do you have distribution in all of these places to monetize that demand? And are there any investments that you're thinking you need to make, even though you've got third-party distribution to make sure you're scooping up all the acorns here because it seems like they're everywhere beyond the big obvious centers of demand for Generac?

Yeah. I think that's the unique thing about this business, Ross, and I've seen this over my career here is that when you get events, whether it be an ice storm in Oklahoma or whether it's an outage in Utah, you're right. I mean, like Salt Lake City doesn't get a lot of outages. And so those areas of the country, you'll see distribution kind of fill in after an event, right? So initially, the initial surge of demand is generally satisfied by people who are maybe in our database as dealers. They maybe are contractors buying through -- could be through retail or online or perhaps electrical wholesale types of entities. And that's why the omnichannel distribution strategy is so important in this category, because I mean the dealer channel is absolutely -- and in my opinion, the best way to acquire this product, if you're a homeowner, you want a turnkey solution. The dealer can take care of it from the beginning of the process, all the way through and make that as pain-free as possible, as you possibly can, make a home improvement project. But you're right. I mean, the fill in that has to happen in the areas of the country where we haven't had these types of events. And we're going through that curve right now. It's a maturity curve. We're going through in California. We're adding a lot of distribution out there. It's an area of the country that's not -- they're not as familiar with the product category, the familiarity, the challenges run not just from finding good representation in the market and then onboarding the representation, there's actually a full education process all the way through the value stream, going back to the -- the permits, right? I mean you might have to talk to an inspector who has ever written a permit for a generator before. And so, they have questions about the product, they have questions about the placement of the product, the operation of the product, and as you can imagine, that's an education process, a learning curve for everybody involved. The friction gets reduced over time as people get more familiar and as we fill in with more dealers. But, generally, there's quite a bit of friction on the front end to get these markets started. So, I think, what's great about us is we've got a lot of learning cycles here. We've been through this a lot. In terms of investment, we continue to invest in things like training in our PowerPlay selling platform, which is really critical, especially for new dealers coming onboard, to give them a ready-made sales process and put that in their hands, it makes them that much more successful out of the gate, which gets them really engaged with the category and with us, which is just a good thing for all of us long term. So we're going to make -- we're going to continue to make those investments at elevated levels. We're going to continue to put marketing dollars in the regions that we haven't. We've never advertised in Utah before. But we've got infomercials running in Salt Lake City today. In Iowa, in Illinois, in Oklahoma, we will be on the air probably in the next couple of weeks. California, we're blitzing the California markets with a lot of media right now. And so, it's the development of those markets. Market development, and this is -- not to belabor the point, because we're getting long-winded here, but the idea of going in and creating a market versus simply going into an existing market and fighting for share are two completely different things for a business, I think, to deal with. Creating a market, you have to burn a lot more calories with distribution and brand awareness, category awareness, all those things that we just talked about, that is hard work. It's really -- it's quite missionary and it really pays off over the long run. And we're going to see the need to do that in a lot of these markets, as you pointed out.

We have our next question from the line of Jeff Hammond with KeyBanc. Your line is open.

Hey, good morning, guys.

Good morning, Jeff.

Hi, Jeff.

Hey. So my questions are on the CE side of the business. Just, I think you talked about a 30% attach rate on new solar installs. Can you just talk about what you think the long-term opportunity is? And then, just kind of update us on where you are in terms of introducing something that could go at the retrofit side?

Yeah. So on the attachment rate, Jeff, we think that the attachment rate -- first of all, it's completely blown past, I think, all the expectations, right, in terms of -- it was coming from something like high mid -- high singles to 10% last year to almost 30% this year, it's approaching 30% now. So it surprised, I think, everybody in the market with the -- and a lot of that, I think, underpinning that back to what I was talking about before, the resiliency element is driving, I think, that attachment rate a lot quicker, the need, and that's really, I think, indicative of the power outage environment, the elevated power outage environment that we're in, in particular, in states like California, where we have a lot of solar going in and already installed. So, where it could go long-term? There have been some projections out there that say, a 50% attachment rate maybe long-term. We've got some customers that are over 60% and approaching 70%. Some of our solar channel partners are already at that level because they're operating in certain states or regions where maybe net metering is reducing in terms of the impact. So, in order to get the right ROI on a solar install, you've got to add a battery, right? So, it's kind of coming at it from both the resiliency side and in some markets, the necessity side economically to make the math work. So, it could -- where it could go, I think 50% is probably an easy target long-term. As far as the retrofit market, you're going to hear from us again, this robust product pipeline that I've been talking about. We've got some cool things coming really think next year around -- that are aimed a little bit more cleanly at that retro market. We think it is a decent market. There's a couple of million rooftops out there that have solar on them already. And if attachment rates on new solar are approaching 30%, then existing should be an opportunity as well. So, we don't want to ignore that. There are some technical things that we can get there, we can do it today, but there's some new product offerings coming next year that will reduce the complexity technically to making that happen and make it easier to retrofit a system.

Okay, great. Thanks guys.

Thanks Jeff.

We have our next question coming from the line of Tommy Moll with Stephens. Your line is open.

Good morning and thanks for taking my questions.

Hey Tommy.

I want to follow-up on the home standby business. So, this has been a great year. It sounds like with backlog continuing to reach new record levels next year shaping up to be a good one as well. And then today, there's been a lot of commentary around the increased capacity, which is a decision, I know you don't make without a lot of consideration. So, my question is, in order to get comfortable to invest in a new facility, what are the things you have seen change in terms of the medium term, let's say, demand outlook here? And what I mean is, obviously, with the home-as-a-sanctuary trend, you've had some event-specific demand pick up, but my hunch is you're seeing a broader base and more durable improvement in that market. And so I'm curious how you would describe that for us -- as you get closer to turning dirt on a new facility?

Yes. No, it's something we're thinking about it at a very high level, even in our boardroom. Obviously, we're talking about these things in terms of -- and what we've kind of what we've kind of -- the words we're using are, are we at a tipping point? Are we at a tipping point for the category, right? So, we're approaching, as we said, probably about 5% penetration of single-family households, single-family unattached homes greater than $100,000 in value. That's the total addressable market. It's 53 million homes or something like that. That 5% of that number is where the market will be at the end of the year. That still means 95% of the homes don't have it. And when you look at the things that have transpired this year, and you think about -- let's just think about home-as-a-sanctuary of that trend and what the pandemic has done. I think the pandemic, as a lot of companies are pointing out, has accelerated some of the long-standing trends that were already happening, things like telecommuting. I mean we've been talking about telecommuting for decades, right? So a way to cut down on having to drive to work and the amount of time you spending your car. And the technology today is far greater in its capabilities to allow for some of the things that have happened. In fact, I can't even imagine. Like if we had had this pandemic 10 years ago, 5 years ago, just how much more difficult it would have been for society in general, to deal with the idea of being kind of mandated to stay in your home. Today, you can work from home. Your Kids can learn from home. I was on a call recently, one of our customers did a top-to-top kind of CEO forum. And on the call, it was mentioned, you think about school, as an example, here in Wisconsin, we'll have a couple of days a year where we get some heavy snow and you have a snow day. Kids love that. I love it as a kid. Going forward, kids aren't going to have snow days. They'll have virtual learning days, right? So the -- but in order to enable that, you've got to have the technology one, which is the ability to do that, and you've got a power to enable that technology. And I think the conclusion that people are reaching is that, look, my home is going to become my office, it's going to become my classroom, it's going to become my gym, it's going to become my -- where I shop, all of those things are going to happen in the home. And none of them happen without a source of power. If your power is out and look at the outages that are going on. And the more people that experience outages the more people are concluding that, look, this is not an option anymore, where it was maybe a nice to have before, and this is the tipping point, tipping point from nice to have to necessity. And that's really what we're talking about as a tipping point. So as we think about the future of the category and we think about where this is going, I think we see a future where back of power, whether it's a generator or whether that's an energy storage system, as that technology continues to develop, we think it's going to be imperative that all homes and businesses have some level of that resiliency built in going forward.

Our next question from the line of Joseph Osha with JMP Securities. Your line is open.

Hello guys. Thanks for taking my call. I wanted to return to this issue of FERC 2222 and this notion of distributed energy assets. So if you look at storage, it's mostly third-party owned at this point, right, and that makes it relatively straightforward to sign up. If you look at your network of generators, which are mostly owned by the people that bought them, how do you go about this process of signing them up to distribute in something like a grid services deal?

No, you're onto it, Joe. In terms of just some of the additional complexities, and that's why I hesitated to kind of talk about how we would monetize that because you do have that added complexity that is different from storage and that you've got -- you're dealing with an individual homeowner, right? I mean that's where the unit is owned and operated by the homeowner. So the programs that could be available to that homeowner, they don't -- they're not necessarily different than the programs that could be available to a third party operator. There's just a lot more individual conversations than having a conversation with say 1/3 party that might own and operate a couple of thousand megawatt hours of storage, right? So it's just -- it's a different conversation. And it's and they're numerous ones, right? There are numerous conversations. But you could – I could still find a path there that would give you a conversation to engage with a homeowner, let's say you've got a homeowner out in Florida and -- or Michigan or California doesn't really matter where it is. But if you had a utility company locally that had a need for this kind of balancing opportunity that exists with – as an example within Enbala's network and with their approach to things, and that opportunity is – that asset, I should say, is valuable to that utility company. So it might actually be just pairing the utility with that owner.

Then just making the introduction.

It’s just making the introduction to the utility company. Utility company could have the program. They have that homeowners information because they're providing power today. So we kind of see it probably looking more like that longer-term is a utility kind of based type of approach where the utility companies could enroll those assets using – maybe it's a volatile platform to help enable. There could be some pieces of technology that have to be put into that, too. So there's – you're talking about maybe it's not thousands of dollars, maybe a couple of hundred dollars of pieces of equipment, but again, depends on how valuable that asset is to the utility, and there are certain utilities around the U.S. that are going to find that very valuable because they have constraints and they have kind of this volatility around the supply side that they've got to deal with as renewables become a bigger percentage of their supply.

We have our last question from the line of Jerry Revich with Goldman Sachs. Your line is open.

Hi, good morning, everyone.

Hey, Jerry.

Aaron, can you talk about your update in terms of points of light, if you will, on the clean energy distribution side, where are you today? And I'm sure you have a pipeline that you're working on. Can you just give us a look forward on where you think it will be if we look at a couple of quarters?

Yes. So we continue to pick up users of our PowerPlay CE platform. That's kind of how we're looking at people who are actually quoting through the platform. Today, it's about getting closer to 700 users on that platform. We think that we can be close to 1,000 by the end of the year. And so we've got a lot of work to still do with clean energy, and that's part of just kind of leaning into building out the distribution there. Also, I would just point out, as we announced previously, this partnership that we have with Senova, we're really excited about that. They've got some great dealer partners as well. So getting them up the curve, we actually began to transact here in Q3 with Sunnova, and that's going to accelerate through the back half of the year here. But we're doing a lot of training right now and introducing people to Generac the name. For those that aren't familiar with us, in the space and more specifically, our solution, our PWRcell solution and our HEMS, Home Energy Management Solutions. And that's going to be a major focal point for us going forward. Because for us to be successful here, if there's anything that we've learned but the home standby business is the importance of the points of light around distribution, and that is a critical area of focus going forward.

There are no further questions at this time. I will now turn the call over back to Mike Harris.

We want to thank everyone for joining us this morning. We look forward to discussing our fourth quarter and full year 2020 earnings results with you in mid-February of next year. Thanks again, and goodbye.

This concludes today's teleconference. You may now disconnect.