Good day, ladies and gentlemen, and welcome to the First Quarter 2017 Generac Holdings Inc. 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 be given at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to Vice President of Finance, Mr. Mike Harris. Please, go ahead sir.

Good morning, and welcome to our first quarter 2017 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 in 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. On a year-over-year basis, net sales in the first quarter increased 16% to $332 million, as compared to $287 million in the prior-year with core organic growth of 2% and a full three-month contribution from the Motortech acquisition, which closed on January 1 and two remaining months of contribution from the Pramac acquisition, which annualized on March 1. Overall, our first quarter net sales exceeded our expectations led by a broad-based of higher-than-expected shipments of commercial and industrial products. We continue to see improving demand trends in a number of our C&I markets during the quarter, as shipments of domestic mobile products increased at a strong rate, as compared to the prior-year levels due to demand from rental equipment customers, as they began to upgrade their fleets. Also, we are encouraged by the solid organic sales growth experienced within our International segment led by a strong start to the year from the team of Pramac. As we had expected, residential product shipments were lower in the quarter, as compared to the prior-year as higher field inventory levels of portable and home standby generators dampen demand from our distribution partners for these products. The first quarter of 2017 experienced some improvement in localized power outage activity, particularly within Midwest region in the back half of the quarter. This has helped to improve the pace of home standby generator installations thus far in the second quarter, which is further reducing field inventories to more seasonally appropriate levels. Capitalizing on the substantial long-term penetration opportunities for home standby generators remains a top priority for our team. An important element of this goal is expanding the availability of these products to the many channels that we go-to-market. To that end, we finished…

Thanks, Aaron. Net sales for the quarter increased 15.8% to $331.8 million, as compared to $286.5 million in the first quarter of 2016, including $40.5 million of contribution from the Pramac acquisition, which closed on March 1, 2016, and the Motortech acquisition, which closed on January 1, 2017. Looking at our consolidated net sales by product class, residential product sales during the first quarter of 2017 were $154.9 million, as compared to $159 million in the prior year quarter. As expected, we experienced lower year-over-year shipments of home standby and portable generators due to excess levels of field inventory for these products entering the first quarter of 2017. As discussed on our previous earnings call, this was caused by improved buying sentiment and effectiveness of our promotional programs with our distribution partners during the fourth quarter of 2016 in the wake of Hurricane Matthew. Home standby and portable generator field inventory moderated during the current year first quarter and should continue to right-size during the second quarter, as we see the benefits of our pull promotions and increased power outage severity. The year-over-year decline in shipments of residential backup generators was partially offset by the additional two months contribution of portable generator sales from the Pramac acquisition, along with increased organic shipments of DR branded outdoor power equipment from Country Home Products. Looking at our commercial and industrial products, net sales for the first quarter of 2017 increased to $151.4 million as compared to $103 million in the prior year quarter. The increase is primarily due the contribution from the recent acquisitions of Pramac and Motortech. However, we also experienced strong organic growth in a number of our C&I markets during the quarter as well. This strong organic growth was broad-based as we saw improving demand trends for both stationary…

Thanks, York. We are maintaining our prior guidance this morning for full year 2017. Net sales are still expected to increase between 5% to 7% as compared to the prior year, with core organic growth of between 1% to 3%. Adjusted EBITDA margin before adjusting for non-controlling interests is still expected to be between 19% to 19.5%. An important note, however, is that, should the product and geographic mix, as well as demand trends seen in the first quarter continue for the remainder of the year, it is possible that net sales could be towards the higher end of the guided range and that adjusted EBITDA margin could be towards the lower end of the range. Our top line outlook assumes no material changes in the current macroeconomic environment and also assumes a power outage severity level for the remainder of the year similar to that experienced during 2016, excluding the impact of Hurricane Matthew. As a reminder, should the baseline power outage environment improve, or if there is a major power outage event in 2017, it is likely we could exceed these expectations. For historical perspective an average major outage event could add between $25 million to $50 million of additional sales depending on a number of variables. Furthermore, we still expect the seasonality of quarterly results to demonstrate a normal historical pattern, assuming no major outage events occur during the year. As a result, our guidance remains unchanged with the first half of the year expected to represent approximately 45% to 47% of total sales and the second half approximately 53% to 55%. By way of comparison, 2016 organic seasonality was 46% in the first half and 54% in the second half. Similar to the pattern experienced over the past several years, second half 2017 adjusted EBITDA margins…

Thank you. And our first question comes from the line of Mike Halloran with Robert Baird. Your line is now open. Mike P. Halloran - Robert W. Baird & Co., Inc.: Hey. Good morning, guys.

Good morning, Mike.

Good morning, Mike. Mike P. Halloran - Robert W. Baird & Co., Inc.: So let's start on the C&I side. First time in a while, I think we've talked about couple of quarters now some momentum seeing there a little bit, certainly this quarter. How sustainable do you think that is? It certainly sounds like you're more constructive. And then on a related question to that, maybe just talk a little bit more about how you're looking at the rental channel today. You've obviously talked about an aging fleet within the context of that. But just maybe parse out demand versus age and just replenishment a little bit more thoroughly?

Sure. So, Mike, on the C&I side, you're right. I think our comments this morning a little bit more – quite have been more constructive than they've been maybe even in the last several quarters. We've seen a really nice recovery. A lot of that's driven by a really nice recovery in the mobile business as we said in the prepared remarks. And again that kind of goes to your secondary question of the rental fleets. And our viewpoint, and this is our viewpoint, but at least as we look at the data and as we talk to our national rental customers and we serve them all, the buying that's going on today is in their minds and in ours much more related to just simply a fleet that has aged due to reduced capital spending over the last several years. And that's aged out the fleet (23:00) buying that goes on every year by the different customers in that channel. And over the last two years, it's been pared back pretty dramatically, and again, precipitated, of course, by the pullback in energy prices that occurred year and a half, two years ago. That was really the catalyst for that pullback in buying. As we've seen that return, it's come back, kind of, frankly, more quickly than we were expecting as we said, this was (23:22) in the quarter. And in fact as we look at the balance of the year, we think that that's going to be a pattern that's going to stay intact. And so internally the way we've adjusted our forecast is to take those numbers up a bit to reflect that strength. On the balance of the other – the rest of the C&I business, at least domestically, the stationary business for us, a little bit of a Tale of Two Cities; even though we had growth in the quarter year-on-year in both our distribution channel, as well as our national account channels, we see the distribution channel continuing to improve here. I think a lot of the fruits of our labor over the last several years in terms of just broadening over product line, getting ourselves in a position to win more with the contractors that make those decisions and the end-users and operators of the equipment that make the decisions. We think we've positioned ourselves very well with the breadth of our product offering and also working with specifying engineering firms to improve our spec rate. Getting yourself in a specification, named in a specification is really critical to improving your overall win rate. And so those have been focal areas for us and have done really well. The other side of the coin would our national account business, which is primarily our telecommunications business and that has been a little bit – it's – even though it grew in the quarter, it's kind of off of a low base last year. Mike P. Halloran - Robert W. Baird & Co., Inc.: Yeah.

So the growth wasn't – the absolute numbers weren't like off the charts. We just see telecom being unfortunately kind of caught in between this 5G upgrade cycle. Generators are generally put in place, kind of at the end of cycles like this, not at the beginning. There is also, obviously, a lot to be set out there in terms of just were capital is being deployed by the telecom customers, and we just unfortunately don't see it probably being that strongly deployed towards emergency backup assets going forward. There are couple of bigger projects out there that may change that, but right now as we see it we just – I guess, we're taking what we have as information and putting it forward to say, it's probably going to be a little bit softer there for the balance of the year in the national account sector. Mike P. Halloran - Robert W. Baird & Co., Inc.: That was a lot of good color there. And then last one on the inventory side on the residential piece. It feels like you guys are a lot more comfortable with where things stand today, maybe just talk about how that looks versus normal. Seems like it's pretty close to normalize out?

Yeah, it's definitely coming in line with where we would consider, is kind of seasonally appropriate. I think our hope when we got into the first quarter was that, that was going to happen by the end of the quarter. And really what happened there is the pace of activations – it's really difficult to like pin down which month installations can't get done, and when they can't get done based on what weather is. We started the year kind of in a cold snap in a lot of places around the country, which, kind of, maybe delayed activations a bit. We're definitely seeing here in April a very nice uptick in activations year-on-year. And so that gives us a lot – and our forecasts, and we've done a lot to try and refine our ability to get comfortable with an activations forecasts that's out a number of quarters ahead of us here. And we use a lot of inputs to get that. And as we refine that over the years here, I think we've got some confidence built around the fact that we think activations in the second quarter are going to be much improved. Now some of that's from the Matthew event in the fourth quarter, some of its some power outage of activity that happened in March in Michigan. We are running more pull promotions to kind of stimulate end market demand, and I think we're finding a better balance there on promotion activity. In the past a lot of our promotion activity has been aimed directly at channel partners and I think that's one way to do it. But I think having a better balance of a mix of channel partner incentives to make sure that they're stocking around the right seasonal points in the curve where they should be. And then also the right amount of promotional activity to the end market to stimulate demand at certain, again, appropriate points in the year is something that we've struggled to maybe find the right balance. I think we are coming into a better place on that. And those things are really helping to put that filed inventory in a much better place here, certainly by the end of the quarter. Mike P. Halloran - Robert W. Baird & Co., Inc.: Great. Hey, appreciate the time.

Thanks Mike.

Thanks Mike.

And our next question comes from the line of Brian Drab with William Blair. Your line is now open. Brian P. Drab - William Blair & Co. LLC: Good morning. Thanks for taking the questions.

Good morning, Brian.

Hey, Brian. Brian P. Drab - William Blair & Co. LLC: Just on the guidance. I don't know if I missed it, but last quarter we got a little granularity in terms of resi and C&I, resi you said would be down most likely just slightly organically, and C&I I think it was my calculation or just backing into, I'd assume it would be around mid-single digits. My sense today, and I don't know if this is correct, is that, resi might be a little bit below the previous forecast and C&I a little bit above, is that correct?

Brian, its York. I think you're right, the qualitative commentary we gave on a product basis for our 2017 guidance was as you said on the resi side down, down slightly given the Q1 de-stock that we've been talking about and really once you lap to Q4 and not assuming another Hurricane Matthew we would have a tough comp in Q4, so that would – those were the drivers on the resi side. To talk about down slightly, in terms of where we're looking at today we still think that, that's not materially different, still down slightly. On the C&I side, we talked about strong growth on the mobile side. You know back in February when we launched our guidance we talked about solid growth elsewhere throughout the C&I channels that we sell-through and markets, and given Aaron's commentary, not only in the prepared remarks, but in the Q&A here, we're seeing very strong upside on the mobile side. So, we're taking that up. And then, we're still seeing good things on the C&I side, so – outside of mobile, so that's I guess the revisions there. Brian P. Drab - William Blair & Co. LLC: Okay. Okay. Thanks. So, the overall organic isn't changing, but the pieces did move slightly, but resi still you would call slightly down?

Correct, yeah. Brian P. Drab - William Blair & Co. LLC: Okay.

Brian, it's not materially different on the resi side. And I think if you were to – again, we gave a range, right? And within those ranges there's going to be some variability. So for us it's just we felt with only one quarter under our belt, three quarters to go, to change the ranges when – obviously, we've taken up as we've said because of the things that we're seeing on the industrial side, the C&I side, I think that that was an appropriate kind of adjustment internally here, and not really changing resi, I guess. As our comments – the prepared remarks is pretty clear. I mean, if the trends that we saw in Q1 continue to play out here, we could end up – it's likely we'd end up at the higher end of the sales range, which from a mix, just purely from a mix standpoint would take you more to the lower end of the range in the EBITDA guidance. But it's early in the year and we didn't feel appropriate to materially change the guidance that we gave a couple of months ago. Brian P. Drab - William Blair & Co. LLC: Okay. Thanks. And maybe one more question on C&I. The oil and gas industry in the U.S. really is seemed to have gained a lot of momentum and the rig count has doubled from what it was a year ago. Is your visibility getting a lot better in this business even into 2018, I mean should we – are you starting to expect that this is going to be some really sustainable growth in that business at this point?

So, a lot of our comments over the last several years actually prior to the breakdown in pricing in the energy sector, we were very bullish on oil and gas. Domestic energy production, we think is a long term play. There is a secular trend there that is going to be punctuated by points in the curve that are going to – there's going to be pull backs, the oil markets have always been. They've always had those sharp movements and over the long-haul, we're very bullish about our position serving those markets. And so as they recover and really it's the capital spending that in the ancillary type equipment that we would provide for temporary lighting, temporary power, temporary heat. As that capital spending picks up in that market, we're looking for good things. Now, does it happen next quarter? Does it happen in the back half of this year? I don't know. We are optimistic, it's going to happen. I guess we're being less discrete about when it happens. It's a question of really not if, but when. And so for us we like the market. We think it's going to happen. We're starting to see some signs. You're right. The green shoots are out there relative to rig counts and things like that. As those production activities pick up, we really like to see oil prices elevate a bit higher, because everything we've heard in the marketplace is that kind of that mid-50s to upper-50s range is really what gets the industry very excited now. They continue to bring down their costs per barrel, their production cost per barrel. So maybe that breakeven point or the point to make money moves down further. And so, maybe we need to recalibrate, and we'd see better things at $52 than at $49, I don't know. But we're bullish about the long term.

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

Hey, good morning guys.

Good morning, Jeff.

Can you give us a sense of that $40.5 million or acquisition contribution, what the mix would have been between commercial and res. I'm just trying to kind of get a better sense of kind of organic commercial versus organic res?

Yeah. As we said that Pramac business only has – a small piece of that is portables. So of the $40 million again Motortech and Pramac January and February for Pramac are in there. And of the Pramac piece, a small piece is in resi. It's small; we haven't quantified it, Jeff. But it is small. And on the resi side, the as reported number, it's only a little bit of that because of the Pramac contribution from acquisition.

Okay. Okay. So just as you look at the installations – so it seems like res maybe down mid singles organically. How does that kind of frame up going into 2Q, given kind of the installation activity you've seen in April?

We would think that, that would lead to increased buying by channel partners. Again, if we get our inventory levels as we said, the pace of activations or installations as they're occurring, we would see that being at a much more seasonally appropriate level at the end of Q2. And remember coming into Q3, we want channel partners to have inventory, because they need to be ready for season. So there's – well, what we talk about here as seasonally appropriate, those are levels that – consistent with prior years that are levels that would reflect that. But we think that the activation data we're seeing today, Jeff, is frankly, very supportive of what our second quarter and kind of the balance of the year for our forecast would be reflective of.

Okay. And then just on – so inventories I think the comment was by the end of the quarter just given the installation activity by the end of the quarter, you'd be pretty well balanced?

Correct.

Okay. And then just – sorry, just on the – I'll jump back in queue, guys. Thanks.

All right. Thanks, Jeff.

Thank, Jeff.

Our next question comes from the line of Christopher Glynn with Oppenheimer. Your line is now open. Christopher Glynn - Oppenheimer & Co., Inc.: Thanks. Good morning.

Good morning, Chris. Christopher Glynn - Oppenheimer & Co., Inc.: On the C&I organic upside, it sounds like maybe you're kind of hedging the outlook relative to the momentum you see right now there. Just wondering if you could comment on how much maybe in the first quarter you saw some inventory normalization in your channels versus sustainability. I know it's probably a tough question, but what's your feel there?

On the C&I side, there's not much in the way of field inventory at all. You've got – the rental partners have their fleets obviously, but in terms of actual inventory in the field, that market doesn't have much of that. Our field inventory comments, Chris, are almost always exclusively talking about the residential side. Christopher Glynn - Oppenheimer & Co., Inc.: No, I meant just in terms of – so it's all sell-through, when you sell something it goes right through to use?

Yeah. Correct. And the stationary C&I business is a very project oriented business. So, when a piece of equipment is ordered, it's a lead-time business, so it's a book-to-bill business. So there's a fair amount of lead-time and the sales cycle is very long on those stationary products. The mobile product's a little different. That's a almost – I don't want to call it a retail sale, but it's being sold to a rental customer for use and almost immediately in a rental yard, because they're very in tune with the return on the invested capital there and deploying those assets almost immediately into a rental application is what they're after. Christopher Glynn - Oppenheimer & Co., Inc.: Okay. And then on building out the C&I, you've been pretty busy for years and notably so recently. Just wondering, if you could discuss the medium to long term expectation on the EBITDA margins for the resi versus C&I and international versus domestic? How that opportunity you see that to kind of close the gap between those different splits?

Yeah. The International segment was really created over the last three or four years, starting with Ottomotores acquisition, and Tower Light, and Pramac, and Motortech. And as we've highlighted those are businesses with lower EBITDA margins and the investment thesis there is that you buy a company with, call it, mid single digit EBITDA margins and you want to double that through synergies and driving the top line. And in getting – that International segment is all about getting into that addressable market that we had not had access to prior to those acquisitions. It's over $15 billion annual market and why shouldn't we be playing in that market. So, we expect those margins to increase on the international side. And we have a path to do that and we believe they will continue to increase over time here. Christopher Glynn - Oppenheimer & Co., Inc.: Okay. Thank you.

Our next question comes from the line of Jerry Revich with Goldman Sachs. Your line is now open. Jerry Revich - Goldman Sachs & Co.: Hi. Good morning, everyone.

Good morning, Jerry. Jerry Revich - Goldman Sachs & Co.: I'm wondering if you can give us some more color on the organic growth in C&I by the underlying businesses. So you had it looks like about 8% organic growth in the quarter, and I'm just trying to understand if growth was stronger in Brazil. And it sounds like on the mobile genset side those, I would guess, would be the categories that are at the top of list, but maybe you can just help us understand, which businesses are up most significantly within C&I, just so we could get our bearings for the remainder of the year?

Yeah, without getting too granular Jerry, because we just – we don't kind of break it down that way for competitive reasons. But obviously the mobile business for us was a big part of that. We're talking – in an overall C&I kind of mid-teens growth there. And in terms of like you mentioned Brazil as kind of one area of the world, for us, the Brazil business for us is a very small business and it's a challenging market obviously, I think as most would attest to. But it's really not a meaningful part of the story here. The really meaningful part of the story is the mobile products piece. C&I stationary growth is – that's – I don't want to say it's more pedestrian, but it's definitely – it grew, but it's a little bit more of a – I don't want to say it's a GDP grower, but it's kind of a GDP to two times GDP type grower. So you're really looking at that kind of low to mid single-digit type of growth normally in that business, but really the snapback in the mobile business is really what drove that. Jerry Revich - Goldman Sachs & Co.: Okay. And then you folks made some comments about material costs in the back half of the year. I'm wondering, could you just provide some more context, I know you have the engineering initiatives, but on the flip side, raw material inflation, should I think be accelerating for most assemblers, so maybe just give us a break out of the magnitude of the R&D driven cost savings just to help us get an appreciation for what's allowing you to – I think you mentioned more than offset inflation in your prepared remarks?

Hey, Jerry, this is York. So I think when you think of commodities, a lot of that what were the higher inflationary pressures on the commodity side are that's going to be in the run rate here in the first half, given the legs that we see with our supply chain in our inventory. On the flip side, we've had benefits on the FX side. So those have helped, muted some of that, those commodity pressures. When you look forward to the second half of the year, as seasonally we've indicated EBITDA margins will increase. A large piece of that is just leveraging your OpEx on the higher sales volumes. There is price in there. We've gone out with price increases. As the market strengthens, we'll get more price – we'll get that price. On the cost side, that's a small piece of the puzzle bridging from first half to second half. But there is still a similar cost improvements that we see from first half to second half, in particular the things you've talked about on our Strategic Global Sourcing Group, design improvements on our products to lower the cost of product. So we do have a piece of that, a small piece of the bridge is that, but the bigger piece of the puzzle going from first half to second half is going to be leveraging OpEx on the higher sales volume, and then getting some price with the price increases that we rolled out. And the mix, I guess, the other – the last piece of the puzzle is improved mix with higher home standby sales mix in the second half versus the first half.

And our next question comes from the line of Charley Brady with SunTrust. Your line is now open.

Thanks. Good morning, guys.

Hey, Charley.

Good morning.

Did you guys cover in your prepared remarks the commentary about your expectations for gross profit margin and the OpEx on a year-over-year basis?

We did not. We did talk about given the trends we're seeing in Q1 and should those trends improve, and particularly on the mobile side, top the sales, top end – would be on the top end of our guidance range, EBITDA margin would be on the low end. So if you just carry that forward into gross margin and OpEx, gross margin should be on the low end of any range that you had for gross margin, and OpEx should be better because you'll leverage the increase in sales, so when you net that all together the gross margin moving down on the mix, OpEx improving a bit on the volume you'd get to the low end of the range in EBITDA.

I've got some prior guidance, it had been up 25 bps from 36% in 2016, ex the charge in 1Q 2016.

Just like I said that, layering in that upside for mobile should bring that gross margin down from a mix standpoint, but you'll leverage your OpEx a little bit.

Okay, the top line will be higher.

But the top line will be higher too, so.

Okay, understood. On the mobile side, that goes into the rental channel. Can you give us any sense on the average age of that fleet inventory at the rental channel, and kind of what an average fleet is? I'm just trying to get a sense of, what kind of legs this replacement cycle might have on that part of the market?

Yeah. We get some third-party data that we track, Charley. And we're prohibited from disclosing it. So it is proprietary data and it's sold. We're a buyer of that data, so we can't give it here on the public call or any call. But it is older than it has been. I guess is the best way I can say it. And there is different ages for different customers for different equipment. And as you can imagine it's all over the map. But in general, when you step back and you look at the average ages of the fleet, which is what we track for both lighting towers and primarily for generators, we see an older fleet today than we saw last year, and than we saw two years ago. And that historically in that business there are a couple of things that are really important to watch. One is the age of the fleet. The other is rental rates, what are the average rental rates per day for the equipment. And then what are the used equipment prices, so the secondary market prices. So putting those kind of three data points together (45:22) position of future demand with that market and with those individual customers. So we take as much data as we can to try and feed into the formulation of that forecast and that's kind of what's helping us get more bullish here as we go through 2017 and have taken up our viewpoints on that.

(45:45) comes from the line of John (45:48). Your line is now open.

Hey. Good morning, guys sorry. So two questions.

Hi, John (45:54).

Hey how are you doing? Two questions, more macro. Number one, how are you folks feeling on integration of all the commercial businesses? Seems like they've been integrated without issue et cetera, how much more complexity can you add to the organization around that supply chain, et cetera? And then the second question is, can you talk about and sketch out sort of organic R&D efforts where that are looking across the platform. Thanks, guys.

Sure. John (46:24), from an integration standpoint, integrations are – we've done, I guess 9 almost – maybe 10 acquisitions now over the last five plus years. So we've gotten a little bit better at it. I'd like to think every time we do an acquisition, I think we have an improved approach every time, continuous improvement, like any company. Some of the acquisitions also depends; some of the acquisitions are operated more standalone Motortech is a much more standalone company. It's a component supplier to the industry. And so, the benefits of deep integration there are more limited. It doesn't mean that we don't have synergies relative to cost structures and in other areas where we can work together, that was part of our thesis. But other businesses, whether it be Pramac or CHP or other companies like that, I think we've done a very nice job of working through the integration programs and we're seeing actually in a lot of cases some really nice synergistic things occurring both on the cost side now and the revenue side. In terms of additional complexity, the business has become more complex. There is no question about it, as a result of the acquisitions, as a result of our expansion organically. We've had to adjust the way that we manage the business because we want to manage obviously that complexity in a more simple fashion and keep it simple if we can. As it relates to supply chain and some of the other areas you pointed out, one of the things that a core tenant of the acquisition strategy here over the course of the last five plus years has been to acquire companies where it was clear there were advantages synergistically in supply chain. So that actually is pretty easy. A…

And our next question comes from the line of Ross Gilardi with Merrill Lynch. Your line is now open.

Hey, good morning. Thanks, guys.

Good morning, Ross.

Good morning, Ross.

Hey, Aaron, I'm just wondering on the addressable market for the residential standby. Have you reassessed the size of it at all, you're now seeing penetration of 4%. I think over the last six to 12 months it's been more like 3.5%, which of course is a very subtle change. But if anything, shipments seem like they've been trending down for the last year, so why would penetration be higher now than it was six months ago, unless you've sort of, kind of framing the addressable market a little bit differently. And I just have a follow-up to that.

Well, Ross, penetration grows with every single unit we put in the market. So even if sales are down year-over-year slightly, it accumulates, right? So penetration is an accumulation. So it's not an annual number, it's an accumulation. A total amount of installed products on households and that's a little less than, right around 4% today. Again, as we said in the prepared remarks, no single region where it's more than 6%. So, we think that there's a lot of runway left in terms of our – we are constantly reassessing the addressable market to make sure that we're – so that's really a function of marketing, right, to make sure that we're pointing ourselves in the right direction where the opportunities are. As we've said in the past, we do believe that if you look at the first kind of fence post in the penetration curve portable generators would represent a nice place to start. And those portable generators are in roughly 12% to 14% of U.S. households, all U.S. households today...

And growing.

...and growing. So, we think that that represents an opportunity area for us. If people go out and spend the average ticket there is $700 to $1000 depending on the machine. If they're out there spending that kind of money and if we can introduce them to this category, the installed product, which is clearly a step-up product, we think there is a great opportunity to convert those buyers into owners of home standby over time. And that's really been the thesis and there's – it's multifaceted, right. We go after new construction, where we see penetration kind of over-indexed almost two times, what it – the overall penetration rate is here today, overall. So we've seen people looking at home standby generators as they're building new homes, which is what you want to do because it reduces the installation cost. We've been very focused on reducing the overall total cost of ownership of these products, which we think helps continue to unlock additional layers of demand, and we've done a lot of testing, just elasticity modeling on price versus volume. And what we see there is as we can push price down, the total cost of ownership that's the equipment and the installation cost. As we bring that lower, there's more market to be had. And so we're focusing on that with our channel partners first in the installation cost side of that as we've remarked over the last couple of years here. We think there's an opportunity within that to continue to improve the efficiency of an installation, to make the machines easier to connect to a home. And so, we think there's a fair amount of work to still be done there. And so we're very bullish overall as we said. I think that – you just have to think in terms of the raw numbers here, every 1% of penetration, Ross, is a $2 billion market opportunity. We believe our market share is somewhere in that 75% range. So as we like to say around here that's really good math. So, we're going to continue to focus on that.

Still not the (53:27) distribution.

And then just the follow-up to that was, how do you manage and avoid an overall market saturation issue because as you explained your overall points of distribution right now it sound like they're at record levels. And how do you deal with the potential channel conflict between your big retail partners, Internet distributors versus just your core bread and butter independent electrician that you've always relied so heavily on?

It's a great question. So our contractor channel, our dealer channel is a very important channel to us. It's our largest channel and it goes hand-in-hand really with all the other channels. We use a very omni-channel approach to distribution and sales and marketing of the residential products. We think that's very fundamental. When you have a category like this it's only 4% penetrated. We don't think it's developed or matured to the point where it makes sense to pick a channel. I think it – and if you think of the individual kind of roles of each of the channels, they all have their role and their place in the market. So our dealer channel is kind of a turnkey solution, right? So if you as a homeowner, you don't want to project manage this on your own, you don't want to go to Home Depot and put it in the back of a pickup truck. You just want to have a turnkey solution. Somebody's going to do everything from the minor landscaping that has to be done, to the gas connections, to the electrical connections, to then maintaining the product down the line with a service contract. That's where the dealer channel comes in and they do very, very well at maintaining those customers. In fact, it's our best customer experience. But you do have people who want to buy and do these projects. They want to project manage it themselves, they want to save a few dollars. So they might go to Home Depot or they might buy a product online and manage that themselves or maybe they have certain elements of the skill sets that they want to do themselves, they want to have their own sweat equity into the project to reduce the total cost.…

And our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is now open.

Hey guys. Just back on the International margins. I think the run around mid-single digits, and I think you said over time you think you can double them, what's like a reasonable timeframe, and what are kind of the big bridge items to get to that level? Thanks.

I think it's a couple of years, Jeff. We can pick on one example with Pramac, which as we've said I think we've made public comments. It's kind of a mid-single digit margin kind of company. And we think that the opportunity there is to expand that to something closer to the low-teens. Now that could take time. It doesn't happen overnight. There – a company like that, each one is different, right? So – but a company like that, internationally they have a very broad footprint. They have 14 sales offices serving 150 countries. So there are fixed cost layer to serve that the rest of the world is expensive.

Established.

But it's established and it's good. What we have to do is help them grow the top line. They've done a nice job of that even without our help, frankly, over the last several years and they continue to do very well in that regard. For us it's about how can we help them not only leverage some of the products that we manufacture whether it be gas products or other mobile products and put that into those distribution – those established distribution channels, established distribution branches, but then also how do we consolidate on our supply chain side to get some of the – squeeze the juice out of some of that. And so it's going to come from both sides of that, but it's going to take a number of years before we see that.

And our next question comes from the line of Stanley Elliott with Stifel. Your line is now open. Stanley Elliott - Stifel, Nicolaus & Co., Inc.: Hey, guys. Thank you for fitting me in. Two quick questions. One on the telecom biz, I mean obviously at one point that was a nice, very profitable business, because of the reprioritization of those providers just – it just didn't seem to be as much activity. Has something fundamentally changed from a mindset perspective of the cell tower owners, do you think as far as having backup power or do you still see this is as kind of a lull until they kind of reprioritize this back into the picture?

I think it's a combination of things. Stanley, personally, not having the specter of having had any major outage events here in the last several years doesn't help, right? There's no sharp point around network quality when it comes to power outages. If outages are low as they've been historically here over the last five years or so, there's no real sense of urgency around having that backup asset, so that doesn't help. I will say this, we don't think that fundamentally anything's changed other than their focus, right? Their focus is being pulled in a lot of different directions right now, everything from what's going to happen with some of the net neutrality rules, what's going to happen as they spend to buy more spectrum, what's going to happen as they buy other assets, the conversion to 5G. There's just a lot of – I would call it almost uncertainty, around what the network of the future is going to look like. And so with that level of uncertainty, I think just comes a natural level of, okay, we're not exactly sure what assets we're going to buy. And frankly, if you're looking at deploying capital they always historically have deployed it first for the site and then they come back around and add a generator later. You can operate the site without the generator. You just take the risk that if power goes out in that area that you may not. I think the one thing that really continues to be in our favor, it's really two things. Its power quality, just longer term is going to continue to be poor because of the fundamental problem with the electrical infrastructure in this country. Nothing's been done to address that in any material way at this point. So that's…

No, certainly not lower margin. The mix for resi would put you towards better margins, not worse... Stanley Elliott - Stifel, Nicolaus & Co., Inc.: Right.

...within the category. It's really – our guidance kind of contemplates the fact that there was this field inventory overhang a bit, which extended here into the beginning of the second quarter, just because of the broad timing of the activations and when they happen, instead of happening in March that lift, it's happening in April instead on the back of – again, some of these pull promotions and then some of the outage activity we saw. But I think, for us, as we said the residential guidance remains largely unchanged. It didn't – still kind of down a bit for the year is what we're pacing towards. We've said I think the surprise upside potential there is if you do get a normalization back to kind of normal outage rates or maybe a larger outage event. Those things are – and we've always said that in this company. It's kind of – it's an embedded upside opportunity within owning GNRC shares is that you've got this kind of unpredictable thing, but it's all upside. And frankly when it does happen as you guys have seen historically with the company and as I've seen over my 20-plus years with the company, it happens fast and it generally is very, very positive thing for the company. So those things just haven't happened in the last four or five years. And we do believe that there will be a normal return to that cycle eventually. It's just a question of when. Stanley Elliott - Stifel, Nicolaus & Co., Inc.: Yes. No doubt. Thank you guys, and best of luck.

Thanks, Stanley.

And that is all the time we have for Q&A today. I would now like to hand the call back over to President and CEO, Mr. Aaron Jagdfeld for closing remarks.

We'd like to thank everyone for joining us this morning and we look forward to our second quarter 2017 earnings release, which we anticipate will be sometime in early August. With that, we'll say goodbye. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.