Good morning, ladies and gentlemen, and welcome to the Second Quarter 2019 Generac Holdings Inc Earnings 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 call is being recorded. I would now like to turn the conference over to your host, Mr. York Ragen, Chief Financial Officer. Please go ahead sir.

Thank you very much. Good morning and welcome to our second quarter 2019 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer. We'll 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, York. Good morning everyone and thank you for joining us today. Our second quarter results represent a continuation to the strong start we experienced this year in the first quarter and are the best second quarter numbers we've ever had as a company. Strong domestic sales growth of 11% was driven by our residential and industrial stationary power generation markets during the quarter. Overall, net sales increased approximately 9% compared to the prior year when including contributions from our acquisitions which was slightly offset by unfavorable foreign currency impacts during the quarter. EBITDA margins exceeded our internal expectations and were slightly higher year-over-year at 20.6% as a combination of improved product mix, pricing and operating leverage on the higher sales volumes help to more than offset the impact of rising input costs and strategic investments that we believe will provide future growth. EBITDA dollars on a trailing 12 month basis reached an all-time high of nearly $450 million, demonstrating the continued earnings power of the company. Once again, strength in end market demand underpinned the increases in the quarter with interest in home standby generators in particular remaining very robust has increased power outage activity over the last several years together with our initiatives to grow the market resulted in continuing penetration gains. Shipments of stationary C&I products were also significantly higher year-over-year as demand for backup power increased primarily with our telecom customers, which helped to more than offset softer shipments of mobile products as a number of our larger rental customers deferred the timing of certain fleet purchases. Home standby generators continue to benefit from increasing category awareness and remained very strong during the quarter as shipments were approximately 20% higher than the prior year. Both activations and in-home consultations continue to be robust in the quarter…

Thanks, Aaron. Before discussing second quarter results in more detail, recall that effective January 1, 2018, Generac adopted the new GAAP revenue recognition accounting standard. Upon finalizing our accounting under this new standard, at the end of 2018, we made certain immaterial prior quarter reclassifications to our consolidated statements of comprehensive income related to extended warranties. Therefore, the prior period in our earnings release has been updated accordingly. See our press release for more information related to these reclassifications. Now looking at our second quarter 2019 results in more detail. Net sales for the quarter increased 8.9% to $541.9 million as compared to $497.6 million in the second quarter of 2018. Excluding the $12.4 million of contribution from the Selmec, Captiva, Neurio and Pika acquisitions and the almost $5 million negative impact from foreign currency, core growth rate during the quarter was approximately 7.4%. Looking at our consolidated net sales by product class. Residential product sales during the second quarter increased 8.9% to $268.4 million as compared to $246.4 million in the prior year quarter, with core growth being approximately 8% when excluding the M&A contributions from Neurio and Pika and the slightly unfavorable impact from foreign currency. As Aaron mentioned, home standby generator sales grew significantly once again during the quarter as we continue to execute on the awareness and demand created by baseline power outage activity. Shipments of portable generators were down in the quarters – the current year second quarter as the prior year quarter benefited from retail channel replenishment following elevated outage activity. Looking at our Commercial & Industrial products. Net sales for the second quarter of 2019 increased 6.9% to $230.4 million as compared to $215.6 million in the prior year quarter, with core growth being approximately 6% when excluding the M&A contributions from Selmec…

Thanks, York. As we’ve discussed, end market conditions for our domestic residential and C&I stationary products remain strong and better than expected. As a result, we are raising our guidance for revenue growth for full year 2019 as we now expect net sales to improve approximately 6% to 7% assuming no major power outage events and a baseline power outage level similar to the longer-term average. On a core basis, full year 2019 net sales growth is now expected to be approximately 4% to 5%. Should the outage environment in the second half of 2019 be higher due to an active hurricane season and widespread utility shut-offs in California, we could expect approximately 5% of incremental revenue growth over and beyond our baseline guidance. All of this compares to our previous guidance of 3% to 7% growth on a core basis or 5% to 9% on an as reported basis for the full year. As we discussed last quarter, the high end of the previous range included a major outage event. The comparable range based on our higher guidance this morning is 4% to 10% on a core basis or 6% to 12% on an as reported basis with the high end of the range again, including the potential upside of a major outage activity due to a active hurricane season and widespread utility shut-offs in California. As a result of more favorable sales mix and improved operating leverage compared to previous guidance, we’re also raising our margin expectations for full year 2019. Net income margins before deducting for non-controlling interest are now expected to be approximately 11%, with corresponding adjusted EBITDA margins of approximately 20% for the year, assuming no major power outages and an average baseline outage environment. Should the outage severity in the second half of 2019…

[Operator Instructions] Okay. Our first question is from the line of Ross Gilardi from Bank of America. Your line is open.

Good morning, guys.

Hey, Ross.

Your home standby generator shipments is up 20%, obviously, very strong. And I think that is off of a pretty tough comp a year ago. Is that the case? Can you remind us what that number was? And can you say how much California was up within that number?

Yes, Ross. We don’t break that out. We haven’t historically. I think we added the 20% just to give some additional context this year but – in this quarter. But we can say that it is up strongly as you indicate. And that was without any major outage events. I think – and that’s the think that, when we look at it, and in fact, when we look regionally across the board, we’re seeing strength in a lot of regions. The West obviously, as we’ve talked here as of late, has been very strong. Our teams were wearing out of path to the West here. We haven’t had a tremendous amount of development effort in that market over our history because as we’ve said, there are a lot of reasons for that. But primarily, it’s just been a market that hasn’t experienced a ton of outages, and as such, it just was slower to develop. With the shut-offs and all of the disruption to the grid that’s either been taking place or will be anticipated to take place in the future that the interest level on the product has changed dramatically. And in fact, I would point to just even in the last four weeks, we’ve seen activations and IHCs, again, in-home consultations as we refer to them, we’ve seen just fantastic numbers, which gives us a lot of strength and a lot of confidence in kind of underpinning the updated guidance this morning. So we're really pleased with that business. And I think a lot of us internally, we've all kind of collectively wondered aloud whether we've actually hit a tipping point maybe with home standby where it's kind of moving into more mainstream category and 4.5% penetration, it's may be hard to make that argument. But it sure feels like it's accelerating in the absence of anything major, any type of major catalyst.

And despite some headwinds in C&I and so forth, it seems like you're taking your guide up even though you appear to have some additional growth investment in your numbers. I mean, it seem to show on your cash flow numbers, your R&D as a percentage of sales was up a fair amount. So can you talk about how you're looking at overall growth investment in the various buckets into the second half of the year? And how are you doing on capacity because this has now been an 18-month period where you've had very strong generator shipments, and California which really wasn't that relevant of a market a couple of years ago. So are you contemplating a capacity increase on the West Coast or any place else.

Yes. From a capacity standpoint, I'll deal with that part of the question first. The capacity side of it, obviously, the home standby business has always been an interesting business. When you get events – and really the generator business in general, I shouldn't just put it as home standby. But that residential market in particular is fairly sensitive to when you do get surges in demand, you need to respond. So we've been very careful to build that with flexibility, upside flexibility in mind. And so as we sit here today, and I would say the last kind of major resetting of capacity in that business occurred after Sandy. We worked to expand capacity at that point, both in the supply chain which is oftentimes where we run into some bigger constraints than we do internally. But we refocused our supply chain and our internal capacity after Sandy, so call it 2013, 2014 kind of that next step level change in terms of capacity. We went through that again last year, that exercise, and we made some significant investments both internally, some of which has come online and some of which will come online in the future year. That's some pretty decent CapEx and you've seen our capital spending trend upwards. Some of that is related to some of that growth CapEx around expansion for capacity. But also, we've made some – we continue to grow our supply chain and our sourcing. Some of that is in relation to the tariff environment that we find ourselves in today. We've resourced some components or dual sourced some components to make sure we not only got adequate capacity but also a cost basis for those products and components, which reflects hopefully a lower tariff environment rather than a higher one. But all that being said, to get right to the point, we feel very good about our capacity for home standby, and we're going to continue to add that going forward. Now I'll let York speak to the other.

Yes. I mean in terms of future investments, that's – as you pointed out, you can see it in our R&D numbers, you can see it in our cash flow numbers, the reality is we've been putting in terms of head count, we think of those as investments as well. And when you think about our clean energy initiatives, our connectivity initiatives, our Lead Gas initiatives, those are all things that are going to bear fruit in the future. But you need to resource them upfront, and we believe that with the large opportunities we have in front of us, those are going to be good investments here. But you've got to put them in place beforehand so you can see that impact on margins. And then on the cash flow side, you're right. CapEx, we've had a – from a timing perspective, we front-end loaded our CapEx more this year on…

Some of that around those capacity

Around capacity expansions. So that's a little bit of timing difference there versus prior year. And then working capital, you think of that as an investment as well as you grow and ramp. And as we get ready for the season, not only on the home standby and portable side but on the mobile side of the business with our shore products that we've ramped up those inventories to get ready for the seasonal seasons, so we're ready for that. We've put in working capital in the first half of the year and we expect to monetize that in the second half.

I think all those things just kind of exacerbated the 1H, 2H kind of pacing of our free cash flow, so we're

We feel good about it.

We feel good about it. So that doesn't really change anything fundamentally. It's just – I think it's largely around timing.

Now the California utilities are actually advising their customers to consider buying a generator. And are you seeing a lot of new referrals of business as a result of that?

I mean, the utility companies have – they've all taken an interesting approach, and we've reached out to all of them obviously and we have – we've had plenty of dialogue. They're all reluctant to kind of name an OEM partner, which we find to be a little bit frustrating on our part because we think that we could be all working towards the purposes of helping people in their service areas be better prepared, but look, that's their approach. So we can't sit there and wait for the utility to promote one brand, your brand X over brand Y. And I guess in the end result, that's probably not their responsibility. But we've always taken the angle that our responsibility is to grow the market. As the leader in the market with the kind of share position we have and the effort that we've expended to date over the last 20 years to build this market, what we just – that's our cross to bear. It's our mantle. And so we've got that, and we're going to continue to push hard on that here in the market. And so over the last four weeks, we've put together a plan on the page for that market in particular and a lot of it includes much of the same awareness type of building activities that we would typically have. But I would tell you, what's really unique about this situation is we never get the luxury of getting a map where something might happen, right? We always have to react to an event with very little notice oftentimes. And so I do think we have the opportunity here to be a lot more proactive in our efforts. So that's getting us a little bit outside of how we think about developing markets normally, which I think is a good thing. And it's kind of refreshing that way. So we've got, as I said, we have a lot of people out there in the market working to grow that with our existing distribution partners and we're rapidly adding new distribution partners. That really is our focus. And then education, education for inspectors, for utilities, for the municipalities that issue permits. There's just a lot of – we see this every time. There's a new market development effort. It's just a learning curve for everybody, so we're going to get up that curve. That may act as a bit of a constraint on growth in that market this year for us at least in the short term. But longer term, we see that market has a tremendous amount of potential. I mean, if you just run the raw numbers and even get from the 1% that we're at today to the 4.5% where we're at nationally, there is a lot of room to run – to grow the market in a very short period of time in California.

Thanks very much guys.

Thank you, Ross.

Our next question is from the line of Mike Halloran from Baird. Your line is open.

Hey, good morning guys. So following up on the question or the answer you've just given there, maybe can you give some context on the receptivity from a distribution perspective, the ability to expand that? How rapidly is it expanding? The knowledge base, how much of a constraint it is this year? Just provide a little bit more context there. And then maybe the same on the regulation side from an ability to move that forward a little more proactively?

Yes. It’s a good question, Mike. I mean, from a distribution standpoint purely, your dealer counts there today in California are less than 200, so we have 6,100 nationwide. So obviously, we have – it’s probably appropriate for 1% penetrated market but not for 4.5% or greater penetrated market. So we anticipate as generally is the pattern that is followed in these instances, we anticipate adding a lot of distribution in that market. And we’re going to start with dealers because the dealer base is probably our most efficient way to reach the end consumer. We also have the most developed tools in terms of sales tools, tracking of leads and such in the dealer channel. But beyond that, I think this is where our omnichannel approach to distribution is really going to pay off and generally does pay off. The fact that we distribute products very widely through the electrical wholesale channel. We have the opportunity. Electrical wholesalers are very prevalent as are contractors in California. We can turn those branches on very, very quickly and put products in the hands of those electrical wholesale branches so that the electrical contractors in the market can get access immediately. So they don’t have to go through all of the steps to become a dealer. They can do that alongside of that, but they can get access to the product quickly and get on that learning curve even faster. On top of that, we have retail outlet relationships. All of the DIY retailers that we distribute products through the U.S., they also have California footprints. Some of them more so than others, but we are currently in dialogue with all of those regional markets for those DIY retailers to have some special programs put together, endcap displays, other types of events…

That wasn’t in the previous.

That wasn’t in the previous guidance. So that’s kind of the add for this year. But we think in the future, and we’ll quantify this as we build out our models going forward, but we would obviously expect that to be greater in the years ahead.

Yes. That makes a lot of sense. And then on the connected strategy or the power management energy storage strategy, two-fold question here. Just talk about what you’re doing to accelerate some of the penetration opportunities, who you’re partnering with, some of the go-to-market pieces there. And then also how quickly can this be a meaningful contributor to your revenue and earnings beyond what the acquisition has already given you?

Exactly. So – as it relates specifically, I’d kind of put it into two buckets. One is connectivity to the generator, right? remote monitoring of the generator. That is really – there is some ability to monetize that. Clearly, there is a number of levels that we offer customers in terms of the level of monitoring that they want to do with their product. There is a free version of that product that gives people information on a monthly basis. And then on a real-time basis, it’s a product that’s paid for. As a service, it’s paid for annually. So there’s an opportunity to monetize that, but that I would tell you is more about creating customer satisfaction, higher levels of customer satisfaction with customers, making sure we have the highest level of uptime possible with the install base of product that’s out there. So that’s a really good thing. And then also creating additional opportunities for our dealers to connect with customers for preventive maintenance, for repairs, again, all in the interest of uptime, but giving our dealers an opportunity to better monetize within their business model kind of a service and aftermarket support side. That’s on the generator connectivity. Then you’ve got our energy monitoring pieces, the storage and monitoring pieces. That – there, our Neurio acquisition, our Pika acquisition. I think on Neurio specifically as it relates to energy monitoring, we intend to launch a product here in the fourth quarter that will bundle with our existing standby generators. So we’ll have products that will have monitoring capabilities on board. And that’s – the process to do that is in place right now, but we intend to basically build out the value proposition for our homeowner when we think about connectivity. So connecting to the Mobile Link…

Our next question is from the line of Jerry Revich from Goldman Sachs. Your line is open.

Yes. Hi, good morning, everyone.

Hey Jerry.

Hey Jerry.

So every time we’ve seen major outage event with national attention like we’re seeing in California, you folks have been able to deliver higher in-home consultations and a higher sales and build a higher baseline. Is that how we should be thinking about California? Is this a Sandy-type awareness event as you see it? How broad-based has the interest been given all the headlines compared to prior major outage event?

Yes, it is interesting, Jerry, because what – there's been a lot of headlines around it but very few shut-offs to date, right? I think there was one notable shut-off in Northern California, but it was a small, it's like 30,000 people and there's a small outage. But I think it definitely created a conversation for people that this is real. And we do believe there is a very high likelihood. If you just look at how the utilities have kind of spelled out under what conditions shut-offs would occur, those conditions present themselves every year, and not just once or twice a year but a number of times a year. And the way the utilities are describing their efforts around the shut- offs is they're going to be extended periods of time. They're not only just going to shut the grid off initially but they're going to keep it off until they can physically inspect every single mile of line. Now that is – for us, when we hear that and we know just kind of the topography of California, we know the vast nature of the service areas that are being discussed there, this is going to be days of outages. And so when it happens, I think today, I wouldn't say it's reached the stage of a major outage. The interest level is very high and which I think is for us, a leading indicator in the possibility. I think we won't probably see the real impact of this until shut-offs occur. And again, we're highly confident that, that is likely to happen based on all the conditions that have been stated today. But that's something that, should it happen, we do think it would reach the status of a major outage, could in fact do that and it's going to depend on exactly how many people for exactly how long. So we'll have to see how it plays out.

How many times…

And how many times they do it. Frequency is oftentimes an important part of that. But I think, Jerry, when we look at this, to set up for it, I mean it's incredible to think that the service area we're talking about here is 5.5 million connected meters, which represents maybe 11 million to 11 million people that could be without power for an extended period of time. And it's a major area, so how that plays out remains to be seen. Should it happen, will definitely qualify in our eyes as a major outage.

And dealer development has been a big part of the way you folks have grown that standby business. Can you just talk about how big that pipeline is? So you spoke about how many dealers you have now, but as you look at the pipeline based on the interest level, what does that California dealer base look like if we fast-forward six to 12 months, how high is the interest level from dealers and how much could the distribution points increase as a result?

So we have roughly a little less than 200 dealers [indiscernible]. We started the year with about 100. So if it tells you the pacing kind of in a six-month timeframe here, we've added. We've almost doubled the number of dealers in that area. Now admittedly, only 100 dealers in our entire network is 6,100. So California is a massive state, fifth largest economy in the world on its own. So it should have more than 100 dealers but I think that's a consequence of just below penetration than it's historically had and the relatively good power quality that California has experienced historically. So we doubled that dealer count already. The interest level is very high. I'm not going to sit here and give you a prediction of where we'll be at the end of year because we have a lot of feet on the ground, lot of boots on the ground and a lot of effort adding distribution. And again, a lot of that distribution expansion, you have to think of it not just in the context of dealers. You have to think of it in the context of our omnichannel approach to it. We have all of these wholesaler branches, this wholesale electrical wholesale branches that we can put product in immediately and our retail outlets we can put product in immediately. Our e-commerce partners are seeing a lot of interest from California residents, shipping product into that market. So I think we're blessed with having this omnichannel approach. I think this is what really serves us well and it's one of the main core tenants of why we've designed it this way is it allows us to expand very quickly into markets where there is a development effort that need to take place. California is going to fall squarely into that. But it's not just signing up the dealers. You have this whole onboarding process, and that takes a while. There's a learning curve with that. We're going to try to accelerate it. We may even have a physical presence in California by year's end because I think we all view this as a unique opportunity where having brick-and-mortar in the state could actually be beneficial to us in terms of accelerating training, accelerating that onboarding process by having our own people housed in California. That's not typical of what we would do in a market. Even after a major event, we might rent a couple of hotel conference rooms or things like that and do some widespread training. But this might end up looking more like a longer-term physical presence in California, given that these power shut-ups are likely to happen over a long period of time and be fairly consistent. So we'll allow that to develop, but we're very bullish on dealer counts are going to go up very dramatically here as we keep going. And we think that, that's something that is going to be an important part of how we grow the market.

Our next question is from the line of Chip Moore from Canaccord. Your line is open.

Good morning. Thanks. Hey guys.

Good morning, Chip.

So curious on you hear that you're going to have sort of Generac-branded energy management storage products by the end of the year. Can you maybe talk a bit more about how you initially? If you call out some new partners, would this be residential solar installers or how do we think about that? And maybe potential for cross-selling of standby generators as well there?

Yes. I am, like very excited about this. This is one where we've made a sizable leap into this market, right? We put a lot of capital behind this. So we believe in this. It's been a great rallying point for our team. I think it's completely coincidental that all the things we just talked about in California from a shut-off standpoint have happened at the same time. I mean it's remarkably ironic to me that here was a market we didn't have a ton of distribution or effort going on to as it relates to standby power and we kind of looked at it as, well, there was a little bit of a heavy lift, right, to set up distribution, for energy storage and energy monitoring. And it's almost fallen on our lap. I mean it's the combination of these two things and being able to go after that market, and not just go after new distribution points talking about power generation but going after those new distribution points and talking about energy storage and energy monitoring, things that are very pertinent, top of mind for those types of distributors and distribution points in California. It's been fantastic. You talk about the opportunity to cross-sell. It's great. It's going to be a major way that we're going to go-to-market in the West and in the Southwest, in the Sun states, is going to be through cross-selling. New distribution partners. We're talking to partners – I've been to visit some of the largest residential solar companies here as of late. I've been there personally with our teams just because we're learning. We're all learning at the same rate here on how best to serve this market, how best to partner, what should these programs look like, what should the partnerships…

That’s great. Maybe one follow-up to your point on the potential growth in that market. Over time, do you see yourself sourcing batteries from third-party guys? Or could you go after a lithium ion manufacturer or something like that?

Yes. So – this is how we see it. This is kind of our view of the world there. We're not going to be battery manufacturer and we don't want to own a battery manufacturer. Battery manufacturing takes a ton of scale to be good at it, good from both a cost position but also the level of scale necessary to effect the cost position needed, as well as the continued investment level needed, right? Chemistries are going to continue to change. Automation is going to continue to improve. That's just not where we want to be. We look at the battery itself, the cells, the lithium ion cells that exist today, we look at those as a component ingredient, a commodity ingredient in a battery pack. And so almost as we would look at, you think of an engine today, an internal combustion engine, the aluminum ingot used in an engine casing is a commodity ingredient. We're not in the aluminum ingot business. We design, and in some cases, manufacture the engine itself, and that's where we think the battery packs themselves. We think that that's in our wheelhouse and something that we can do. But we view the battery themselves, the cells as being a commodity ingredient that we're going to continue to source from others. Now today, and in our acquisition of Pika, they use a third-party battery source. We're likely going to continue to build on that relationship. It's a very good relationship today. We want to build on that. But as the market grows, we may find ourselves in a situation where we need to expand source. I do think that there is a possibility, if the market is going to grow according to the projections that are out there, that capacity could end up being a constraint on market growth long term. So we want to make sure we've got enough partners to be able to make sure that doesn't hold us back from a growth standpoint. But we're not going to be in the battery business.

Our next question is from the line of Brian Drab from William Blair. Your line is open.

Hey, good morning. Thanks for taking my questions.

Hey, Brian.

Good morning, Brian.

Hey, good morning. So on the five points of additional growth, that potential, I'm looking at that and thinking maybe that would require a hurricane that generates another like $50 million in revenue and then these outages in California, think about that as a major event, like that's another $40 million, $50. Is that kind of what needs to happen to get those five points? Or am I kind of off track here?

Yes, I think Aaron alluded to it just on an earlier question. I think our previous upside guidance from last quarter that we included that high end of the range that we talked about. That was somewhere in that $75 million range. And so we added another percent on top of that, which is roughly called $25 million to $30 million. So that’s – given, so I think some of the constraints around expanding distribution, I think initially the initial surge if you will, demand, if they were to turn the power off and when they turn the power off to millions of people, there may be a restricted play on that. So but I guess to answer your question, we put $25 million to $30 million on top of that.

This is a combination of a potential hurricane and that potential step-up in demand in California, right?

Correct, that’s the 5%.

Yes. It assumes both situations, Brian.

But I think it's important to note, our guidance today where we came out with this –the guidance we gave is just the baseline guidance assuming no events and an average level of outage activity and then there's upside. And I think where previously, we talked about 3% to 7% core growth, we actually are incrementally positive on that. So we're taking it effectively to 4% to 10% and so –but –as a result of all the positive things we're seeing in the end markets and the additional upside of California.

And in those five points, is that related to California? Is that kind of a knee-jerk reaction to the outage event, people running to get their portable generator in large part? Or is it kind of both, standby and portables?

It’s both. I mean largely, there will be a knee-jerk reaction and largely there's going to be some portables that will go into the market. I think the –but it does include –it does contemplate both, Brian.

Got it. And then the last question. So in California today, what is the penetration of home standby into that market and what percent? And then if that goes to 4.5%, 5% over some period, how long do you think that –how long will that take do you think for you to kind of get to the market average penetration rates in California?

Yes. So today, we’re a little less than 1% penetrated in California. Obviously, there's a lot of single family unattached housing in the state that are greater than $100,000 in value. I think one of the really interesting things I'll point out is we've always said that –what's really important is you have to look at the value of the home in relation to the investment, right, in a home standby. The average investment of home standby is between $8,000 and $10,000 completely installed. And when you look at average house prices, that $8,000 and $10,000 in relation to a $300,000 home which is our median average, it's a fairly decent sized investment. So when you look at the median home prices in California, they're materially higher. So you think about that investment in the context of the value of the home there. And all of a sudden, the home standby doesn't sound like that, it doesn't sound that expensive. And so how quickly could the penetration increase, I think there is a couple of factors that are going to influence that. How quickly can we add distribution and how impactful are the shut-offs, right? How frequent are they? And how long do they last? And unfortunately, I don't have exact answers for you on that, Brian. We're going to have to kind of see how that plays out. But I can only tell you that we're going to be pushing very hard at least on the things that we can control there, which is building out the distribution and how rapidly we onboard them.

All right. Thanks very much.

Great. Thank you.

I’m showing no further questions at this time. I would now like to turn the conference back to Mr. Aaron Jagdfeld. Please go ahead, sir.

Thank you. We want to thank everyone for joining us this morning, and again, we'd like to take this opportunity to remind everybody that we do have an upcoming Investor Day on Wednesday, September 4th in New York. We look forward to providing an overview of our strategies, growth drivers, long-range targets and other key investment highlights during that event. And more details are going to follow as we get closer to the date. So with that, we’ll conclude our presentation this morning. We thank you for joining us.

Ladies and gentlemen, this conclude today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.