Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter 2020 Generac Holdings Inc. Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mike Harris, Vice President of Investor Relations and Corporate Development. Thank you. Please go ahead, sir.

Good morning, and welcome to our second quarter 2020 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer; and York Ragen, Chief Financial Officer. We will begin our call today by commenting on forward-looking statements. Certain statements made during this presentation as well as other information provided from time to time by Generac or its employees may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today's call. Additional information regarding these measures, including reconciliation to comparable U.S. GAAP measures, is available 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. We're excited to discuss our financial results reported earlier this morning, in which sales, adjusted EBITDA and adjusted EPS were all records for a second quarter, and were led by strong growth in residential products of approximately 27%. Relative to expectations, second quarter revenue dramatically exceeded our prior forecast, and adjusted EBITDA margins were much higher than previously forecasted, primarily due to the higher-than-expected shipments of residential products, which led to a considerable favorable mix impact on profitability. Home standby shipments came in significantly higher than our prior forecast, primarily driven by robust demand as a result of the heightened awareness of the need for backup power since the onset of the COVID-19 pandemic. We also experienced higher-than-expected growth for Chore products sold directly to consumers as homeowners increased outdoor project activity while spending more time at home. As expected, the ongoing pandemic around the world had an adverse impact on demand for C&I products during the second quarter, but collectively, shipments were modestly better than our prior forecast. On a year-over-year basis, net sales increased approximately 1% during the second quarter of 2020 as compared to the strong prior year second quarter. Gross margin, excluding the impact of restructuring charges, expanded 330 basis points compared to prior year. And adjusted EBITDA margin was very strong at 22.5%, increasing 190 basis points over the prior year as both exceeded our expectations primarily due to favorable mix from higher-than-expected shipments of residential products. Before discussing second quarter results in more detail, I wanted to stress that as the COVID-19 pandemic continues to grow, a high degree of uncertainty exists regarding the magnitude and timing of an economic recovery and the potential impacts on our end markets and overall business.…

Thanks, Aaron. Looking at our second quarter 2020 results in more detail. Net sales increased $546.8 million during the second quarter of 2020 as compared to $541.9 million in the prior year second quarter, resulting in core sales growth of approximately 1%. Looking at consolidated net sales for the second quarter by product class, residential product sales during the second quarter increased 27.2% to $341.4 million as compared to $268.4 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 approximately 30%. Supplementing the home standby strength during the second quarter was a significant increase in shipments of portable generators, primarily as a result of the much higher power outage activity in the current year quarter and the overall needs for backup power since the onset of COVID-19 pandemic. The growth in residential product sales also benefited from the higher shipments of Chore products, along with the shipments of the recently launched PWRcell Energy Storage Systems. Commercial and industrial product net sales for the second quarter of 2020 declined 32.8% to $154.9 million as compared to $230.4 million in the prior year quarter, with a core sales decline of approximately 31% when excluding the unfavorable impact from foreign currency. The significant weakness in shipments of C&I products was broad-based, both domestically and internationally. The continued negative impact of the COVID-19 pandemic accelerated the deferral of capital spending with our national rental account customers. In addition, shipments to telecom national accounts declined sharply as T-Mobile took a pause in capital spending following their merger with Sprint, and shipments to industrial distributors also declined during the second quarter. Internationally, C&I products declined 27% compared to the prior year on a core basis due to the continued broad-based sharp…

[Operator Instructions] And your first question is from Brian Drab with William Blair. Please go ahead.

Hi. Good Morning. Thanks for taking my questions. You mentioned, obviously, that consultations are way up in 2Q. And did you quantify that? Or can you quantify that? What do you see for total consultations in the second quarter year-over-year? And specifically, in California. I know last time you said they're up 10 times. Is it still kind of 10 times for the quarter?

Yes. It's up big, Brian. I mean, we haven't quoted specifically what they're up. But I think, stick to the prepared remarks here that they're up double again here in July, kind of third quarter. So it's a continuation of that theme, right? So we were up double in April, up double here in July. You can kind of back into probably what's in the middle there. But California is up big, continues to again off of a fairly low base. And we'll start coming up against some more difficult comps there in the back half. So you're not going to get the 10 times types of numbers we had quoted back in April. California is a big part of the increase. But I think I'd just point out, one comment we made this morning and probably the thing that floors me, and I've been around this business a long time. Every single state in the contiguous U.S. saw really strong growth in IHCs or home consultations during the quarter, which is amazing to me. I mean, I just the widespread nature of this, it's like kind of like a major event in every corner of the U.S.

So Aaron, you said I think that home standby was up about 30% in the second quarter, and you raised the guidance by about $300 million at the midpoint. I know you said C&I is going to be a little bit better than you previously expected. But is it fair to say kind of embedded in the guidance, is it like close to 30% growth in home standby now for 2020?

Yes. It's going to be it's maybe not that rich, but it's going to be in that ballpark. And if you look at that $300 million increase that you mentioned in increased guidance. Roughly, maybe 2/3 of that is going to be home standby. So really strong growth at all it also points to what Aaron just mentioned that it's very broad-based. It's not just California. It's not just Florida. It's every state, there's high level of interest. And we're seeing the IHCs as well as then the lagging indicator of activations strong on a broad-based basis, which gave us confidence to with the raise in the guide.

And then just a last question for me, if I could. I'm curious, given that you're seeing growth in every state in the U.S. It's unprecedented. There's this Home as a Sanctuary trend. Are you seeing increased demand for your home standby products in the international markets now? I know that's an area where longer term, you're hoping to penetrate further.

Yes. I mean, we have we've been seeing growth pretty consistently in home standby internationally. It's off of a very small base, obviously. But I think the bigger challenge around the international markets that we've as we've kind of built that out is the certifications and compliance are different from country to country. And frankly, even within countries, it can be a bit confusing and because the category is new in a lot of places. I'll just point to one example. I mean, Australia, which we've kind of coveted as a growing home standby market over the years. Just the relative difficulty in trying to get our products certified to all of the standards that Australia keeps throwing at the category. So we're finally there, and we've been pushing those products into the country there, and they've been all received. But again, it's going to take a while to grow, but longer term, there's, as you mentioned, Brian, we believe that internationally, there is there won't be any market that looks like the U.S., we don't think, but there are definite pockets of demand geographically that we'll be able to participate in.

And your next question is from Mike Halloran with Baird. Please go ahead.

Hey, good morning everyone. So maybe you could talk a little bit about lead times on the home standby side, what the conversion looks like? I know the conversion from in-home consultations to somebody booking something is good. But what does that look like then from conversion of order into actual installation or delivery? And then maybe just a little more context around why the sharp ramp from 3Q to 4Q above normal seasonality? Is that just related to lead times or some other sort of indicators there?

Yes, Mike, I'll take the first part of that question, and I'll leave the second part to York. But so on the first part, just in terms of backlog and demand and just kind of what things look like. Obviously, the robust demand there's seasonality normally in home standby, but normally, it happens kind of like around now. And kind of going into August, we'd start to see it pick up kind of latter half of third quarter going to the fourth quarter. That's been the normal seasonality in the category for 20 years. This year, it's just started three months earlier, four months earlier. Really as the pandemic took hold, and so we began ramping right away. We keep safety stock levels ahead of events because events can happen throughout the year. You can get an ice storm in the wintertime. You can get other events that are not in the normal seasonal cadence. So we do keep safety stock levels. And we obviously have finished good levels in our warehouses. And then we have a fairly robust field inventory as well of home standby that we talk about from time to time. All of those things are really low right now. Field inventory levels in terms of days of activated products are extremely low. Our field or our, excuse me, finished-good levels are very low. We would be, I think, in a backlog today. If you were to put a new order in, it's going to be a couple of weeks before you're going to get your hands on a machine. The normal sales cycle takes time though. So normally, there's a permitting process. So what would have normally happened previously and this repeats itself every time we go through these types of demand surges, is a dealer…

Yes, the seasonality just plays into what Aaron is talking about, ramping up that production and spinning up that second location. That will start really in the fourth quarter. So we'll just have we'll be producing more product home standby generator product in the fourth quarter versus the third quarter. That will sequentially drive more shipments. And then on the clean energy side, we'll be shipping as that builds up, we'll be shipping more clean energy as well. So that's the main reasons for the ramp, higher fourth quarter versus maybe normal seasonally.

That makes sense. And then just some thoughts on the distribution side for the clean energy piece, the battery piece. Maybe just more context to how you think that's progressing, competitive position for the wins you're seeing in the marketplace versus the broader marketplace? And any context around that?

Yes. I mean, we've had the products have been, I mean, incredibly well received. And we're sending leads, a lot of leads into the market, which one of the best ways that we've learned from our home standby experience is to create really good engagement and alignment with channel partners, is giving them sales leads, giving them an opportunity to win in the marketplace. So that's been incredibly well received. And I think that's been the, for us anyway, a great way to get the conversation started. It's the icebreaker, right? We talked about it on the prepared remarks, Mike, the pacing of solar installs really took a hit in Q2. It's just the pullback in a lot of the in fact, you go out to California and some other parts of the East Coast where solar installs are pretty popular, they actually deemed those kinds of activities nonessential. So it was largely shut down, like a hard shutdown, like people weren't even answering their phones. And for us, because we're the new kid on the block, this is largely a ground game, right? So in the early days here, we've got to engage people face-to-face. We've got to show them the product. They've got to touch and feel it, see our selling system, our PowerPlay CE selling system. There's just nothing there's really no substitute for face-to-face, that transfer of emotion of selling. And so you can try to do a lot of things with a video conferencing call, and we've done a lot of that. And we shifted to it virtually where we can with training and everything else. But we still need that ground game. And so we're encouraged by the fact that it's starting to get back on track here, but we just, we lost some…

And your next question is from Christopher Glynn with Oppenheimer. Please go ahead.

Thanks. Good morning. And congrats on all the success here. I wanted to extend on the last point about really, I think alluding to potential for new business models around the decentralization of the grid. I'm wondering where you are in terms of that being a theory versus being tangible ideas. And ESS is obviously a tangible idea that's manifesting right now. But just curious if there are other specific things that you're working toward along the lines of the way you introduced DSS into the portfolio?

Yes, it's a great question, Chris. And it seems like every day, there almost isn't a day that goes by where our learnings are creating critical insights into some opportunities around exactly, as you mentioned, new business models and new opportunities for Generac and for as we think in particular about look, our business. We're a legacy kind of power equipment company, right? That's where our 60-year history has been centered, internal combustion engine technology, which is a great technology, don't get me wrong, and it's had its own amazing advances. But I think you can probably make the argument that there's a sunset on some of that technology. And so our move into energy storage, our move into electrification, battery technologies, the software platforms and the amazing I mean, this stuff is high functioning stuff, the artificial intelligence and the algorithms and everything else that goes into this. We've been introduced to that in a big way through our acquisitions here and frankly, through the pipeline, our M&A pipeline that Mike and team continue to work on here. We see an incredible future. And I think we're in a super enviable position that in this industry, and I'm talking more broadly in the clean energy industry, we've got a balance sheet that gives us every right to go after some of this stuff in a very meaningful way. And I think there's some really cool things that we could do in the future here. Timing around things, again, we won't speak to specifics on that. But I'll call out one thing we announced in the quarter here. This partnership with Virtual Peaker, which I think is kind of a glimpse into some of the future, virtual power plants and where we can go, where the industry is going with…

Our next question is from Philip Shen with ROTH Capital Partners.

Hey guys, thanks for the question. Congrats on the quarter and the outlook. And as a follow-up on that last question, just a little bit of a kind of nitpicky. Well, not nitpicky, but just a detailed question. Have you guys started changing contracts or updating contracts with your customers to give you more flexibility in new revenue generation sources? And if not, when do you expect to maybe start to do that? Or perhaps you're doing that with the new contracts, but haven't gone back to the old contracts to give you guys the ability to maybe turn engines on to meet capacity needs from the grid, for example?

Yes. On a go-forward basis, that's certainly the case, Phil. We look at as we think about these blocks of power, right? Just think of a generator as a block of power being able to be used in a fashion by the customer, by the utility, by an aggregate or third party, maybe by the company at some point in the future. New contracts and new the language expressed around how these products are being positioned in the market. And there's some nuances there that are both technical in nature and then contractual in nature. Technical from a product standpoint in that if you're going to run a product like a natural gas generator outside of an emergency, so for non-emergency purposes, there's actually some different levels of permitting requirements around the tail pipe emissions and some things there. So that certainly, in terms of it's not necessarily a change in a contract as much as it is a change in the certification of the product. And so new products are being certified to a nonemergency standard in a lot of cases. And we're having that type of dialogue with customers so they understand that those products can be deployed in that manner. And there's still certain limitations on that in terms of the hours and the warranties that go with those products. So all of that is rapidly developing on a go-backward basis, so on a look back basis. It's a different conversation depending on each customer and how they've configured their systems historically. I think, at least as we think about it today, this is definitely a future-looking discussion, but I think that we do need to figure out what the path looks like going backward. And we also need to figure out, quite frankly, just what do the economics look like, right? What does the business model look like? Who participates in what level and to what degree. And there's going to obviously, there's potential savings, not only for the end customer, but for kind of every person in the value chain. So we're kind of penciling that out. And we're talking. As I said, there's a lot of people in this industry who have looked at this over the years, who have done it to some degree, actually, even with generators. There's a couple of companies out there that have done it. So as we talk to different people and we learn more about this. And again, the guys at Sunnova have been really helpful and that's because some of the leadership on that team has been involved in this for a long time. We're all starting to kind of center in on a couple of different business models that could work. And it's going to be really interesting to see how this plays out over the next 12 to 24 months. But I think we'll be able to give you more kind of clarity around that as it develops.

Great. Very exciting. Shifting gears to your 24 kilowatt engine. I was wondering if you could give a little more detail on the timing of when that could be available at scale? And I'm guessing because it's a higher powered engine instead of selling the 22, you might be selling more of the 24. So and I'm imagining there's a better margin profile that's associated with the 24-kilowatt. And so with that better margin profile, just curious on how you might use that margin. Do you think you would use that to go from 80% market share to even more, with one of your peers declaring bankruptcy? Or do you think we should just look for just margin support and expansion even for home standby going forward?

Yes. No, it's a great question, Phil. And I'm super excited about the 24 kilowatt. It's a beast of a machine. It is a cool it's our largest air cooled generator. It's built on the same platform as the 22, but we have a new alternator that we've put into the family, which is the business end of the machine. The engine is actually roughly the same. We were actually limited. We were alternator-limited in terms of output on the previous platform. So the engine had some more room in it. That engine makes just tremendous power in a compact footprint. But the alternator, the frame size of the alternator was we were kind of limited to what we had to work with, which and again, not to get too technical, but the size frame was just too small to get us above 22. So we invested heavily in a brand-new engine platform over the last three years, and that's in machine tooling as well. When you spool up a new alternator, it's not just the design engineering investment. It's the machine tool because we have to make this at scale. And you're exactly right. We would anticipate there's going to be a portion of the market we've kind of modeled it two ways. One, there's going to be a portion of the market that migrates from 22 KW on the air-cooled side to 24. And then there'll be we also believe there'll be a portion of the market that currently today is buying some of our smaller and liquid-cooled products. So in particular, homes in Florida and Texas, where we've just seen tremendous demand for better power, you have a lot of air conditioning loads. And whenever you have a lot of air conditioning loads, you have a need…

And your next question is from Mark Strouse with JPMorgan.

Good morning. Thank you very much for taking our questions. Of your 6,700 dealers, can you just talk about the percentage that are opting to sell the clean energy solution? How has that trended over the last couple of quarters? And can you talk about the geographies? Is that really just California and Hawaii at this point? Or are you kind of seeing it across the country?

Yes. It's Mark, it's actually really broad-based. And again, I think it follows the overall trends that we're seeing in terms of the interest level in the category. So the growth has been broad-based. Obviously, as we called out, California has represented about 250 of the 650 new dealers that we've added over the last 12 months to get to that 6,700. So California does have an outsized position. But of the 400 other dealers, it's pretty well diversified. To answer the other part of your question about the number of dealers that are also offering clean energy products, it's still relatively small. That part of the thesis has played out a little slower than we would have liked it to. And I think it's just there's a couple of reasons why, but our traditional legacy customer for home standby in that dealer is an electrician, it's an electrical contractor. And frankly, they've just been a little bit slower to move on the shift to more clean energy technology products. Where we have had a lot of really great success is signing new partners for our clean energy initiatives, so solar dealers on a direct basis. The exciting thing is that almost every single solar channel partner that we sign is actually really interested in adding home standby generators to their product line, because their customers are asking for a system that can be resilient over time. And the challenge with storage still to this point is economically, it's just not a viable option in a multiday type of outage. And so you really need to augment that system with a generator. And so these guys are super excited. I think it gives us a unique competitive advantage in that we can offer basically a home energy system. It doesn't matter if you're talking about a gas generator or a storage system or an energy monitoring system. It really is a we were kind of thinking about we're trying to think about our dealers going forward as home energy consultants, right? We wanted to think more broadly than just backup power or just solar. We want to think about, again, this feeds really right back into that distributed generation play and that decentralized grid that we're talking about in the future. We think that the way that's going to get served is through a channel of home energy consultants. And that's going to look different than it looks today. But we're I think we're headed down the right path. It's just going to probably take some time to materialize.

Okay. That's helpful. And then just as a follow-up, kind of a high-level question on margins. Going back to your Analyst Day from about a year ago, you kind of put out a 21% target for EBITDA in 2022. You're trending above that this year. I understand there's a mix issue this year. But just given the strength in home standby and the restructuring for the C&I business, do you think that 21% is kind of the still the right bogey to be targeting? Or do you think there could be potential upside there?

Yes, this is York. I think, obviously, when the C&I business does come back on the back end of the next cycle, that will have an impact on margins. I think the outsized impact on margins today is because of that heavy home standby mix and the declines on the C&I side and the international side. So I think the 21% still feels right once the cycle returns. But we will be updating that, obviously, periodically as we run our long-range planning models and have a view toward what do margins look like three years from now on an updated basis. But I think once the cycle returns, that 21% still feels about right.

And your next question is from Ross Gilardi with Bank of America.

Good Morning, guys. I just had a couple of questions. Just on your clean energy guide, clearly, you've got huge opportunity longer term, which you focused on. But given what happened in the second quarter, I mean, how long of a putt do you feel like it is to reach the low end of your guide? You have about 125 to 150, do you feel like you have visibility on that? Or do you have to make like a lot of progress in the next two quarters just on order intake?

Yes. So we've actually got a we don't talk about backlog much in our businesses, but we actually have a really strong backlog position in that business. So we've already taken a lot of orders in. What we saw there was a shift in shipments from Q2 out. So largely what the guide contemplates for us is that we're just some of that stuff is pushing into the back half. Now numerically, you can look at it and I'm as much of a skeptic as anybody. And with our own teams here on back-end loaded forecast, I would much prefer to see a more steady ramp but this is the way it's playing out. And as I look, I'm one of these people, I got to see it for myself. So I've been listening in on our clean energy business sales pipeline calls because I just want to hear. I just I have to hear the tone in the voices. And I got to I even pipe in and ask a couple questions. But I'm really encouraged by what I'm hearing because the team is look, like I said before, it's a ground game. We've got to get out there in front of customers. That's starting to open up again. Could things back up if you get a second wave? Maybe. But I think because of that backlog and because the solar installs are happening and we track registrations every day. I was really encouraged. We saw registrations on Sunday this past week, coming out of our registration reports Monday morning, which is great. We haven't seen Sunday registrations yet. So that tells me that the installed base is actually working over the weekend to get caught up. So that I think that's a sign that's encouraging, just little things like that. We're putting it all together. But make no bones about it. It's still a steep ramp. The team is hanging in there. We are coming in at the lower end of that original guidance at 125-megawatt hours as opposed to the 150. But I think the sales pipeline that we have visibility to, the backlog we have visibility to, I think it's very doable.

And the trends on

And the trends.

On leads and

The trends on leads and activations are, that's very supportive.

And then I got a two-pronged follow-up. I mean, are you losing any leads because in the process of customers shopping, they are actually realizing that a home standby generator is what they actually want? Which is that would be a high class problem, but you guys have said all along that you want to buy a generator as a backup power solution. And buying an energy storage system is really more of an ROI and cost savings type of investment. So do you think the consumer's actually tapping into that? Is that part of the reason why your home standby business is so strong? And then I'm just curious on competition on the clean energy side, what you're seeing from the incumbents. It seems like there's a lot of new products out there. Are you seeing any copy cats on your turnkey approach that's really focused on lightweight, ease of use in kind of your direct marketing approach?

Yes. Those are great questions, Ross. I mean, the market there, it is interesting. So we're doing these infomercials, right? We're playing clean energy infomercials. And we have people calling asking for a home standby because they see the brand. And the brand has become so strong and synonymous with a backup generator that it just the impressions that we're getting with the brand are just leading people to ask about standby. That's a percentage of the calls we get. The people who are calling though about clean energy are pretty fixated on a storage solution. If they have if they understand what we're telling them in those infomercials, they get that it's a different type of product. That's what they want. And in some cases, I would say it's more of maybe somebody who might have been looking at one of the competitive solution sets out there for energy storage that then sees our infomercial. And that's what kind of spurs into action and to call us. Clearly, though, and I've listened to calls, as we listen to our call centers, and we're actually bringing that call centers in-house for clean energy here. That starts next month in August, in a couple days here because we just, what we're finding is it's a very technical sale. It's just a complex sale. So we've tried to use outside call centers. Our conversion rates are too low relative to what we think we should be seeing. So we're going to bring that in-house, and we're ramping up a team of people internally here to take those calls. So we're going to have an opportunity to refine our messaging a lot quicker. But in the calls I have been listening to and that the team has been listening to, yes, there are people who sometimes come to the conclusion that what they really just want is backup power. And maybe the clean part of that, which is for a lot of people, they're thinking about saving money on their energy bills, that maybe that's a lesser goal for them than simply having a constant source of power in the event of a longer-term outage. So while there are these are concentric circles and there's some overlap in the two markets, we still see them as two separate markets. But it's we have definitely had people to tip over into it. And again, like you said, it's not a bad result. I mean, in the end, we sell them a home standby. It's not a bad result. So.

I think there are cases where they want a quote for both, and then they make a decision. And that's why I think the solar guys want to be dealers of home generators as well.

Exactly, yes. And then the competitive response, Ross, just to hit the second part of the question and move on here. But I think right now, everybody in the industry has kind of got their own path, right? So we're still the new kids on the block. I'm not sure everybody is convinced our path or our approach is going to be the one that everybody picks. But one thing we have centered on, and I said it in our prepared remarks. But a lot of the initial engagement with not only channel partners but also homeowners and others, they're looking for a whole home solution. And our system is beautifully situated for that type of application. We've got the largest inverter, so you can put the most power across the inverter, which means you can power a lot more things in your home with our system than you can maybe a competing system. And the modularity in our ESS allows for people to step up and add additional modules to cover more things in their home. And then some of the things we've got in our pipeline going forward around load control and the integration in the much more tightly integrated backup generator pieces are really going to lend itself beautifully to kind of a whole home energy system that's got kind of long-term resiliency alongside giving somebody the capability to reduce their energy costs. So I think the way we're positioning ourselves, we believe is the right place to position ourselves. And frankly, is somewhat unique, uniquely available to us based on kind of the competencies and capabilities we have. I know that even if others wanted to do it that they could do it either easily or do it at all, maybe for that matter.

And the lead gen, no one is necessarily being a copycat on our lead gens.

Not at this point. There's people who have talked about doing some lead gen, but nobody is out there putting infomercials on TV and spending millions like we are.

And your next question is from Jerry Revich with Goldman Sachs.

Yes. Hi. Good morning, everyone, and congratulations. I'm wondering if you could talk about with your standby business, we have a point of light, if you will, with the distributors. Can we have a similar conversation across your channels for the battery storage business? How many folks are active PowerPlay users or however you want to frame it as we look at how much success you're having in the field with the installers.

Yes. So Jerry, we probably start need to start talking about that a little bit more, more pointedly. So thank you for bringing that up. It's about 500 so far is what we've got in terms of dealer base pulled together for our clean energy business directly. Again, there's a little bit of overlap between the two channels, but not a ton at this point. I think the introduction of the PowerPlay CE tool, I would say, we have a lower penetration of PowerPlay CE usage at this point with that dealer base than we do with our traditional legacy dealer, the 6,700 dealers selling home standby. We have a higher percentage of those dealers using PowerPlay than we do in the PowerPlay CE clean world at this point. That's really just a rollout and training thing. It's just going to take time to ramp them. They're brand new to it. We're brand new to it. We have been doing some refining of the PowerPlay CE product. We've got some really good feedback from the dealer partners on the usage of that early on. We want to make it a platform that they can use for their business. We're kind of in terms of where we're targeting, for total dealers for the full year here, we're kind of looking at about we think probably about 1,200 dealers is where we would like to be.

Using PowerPlay.

Using PowerPlay CE.

And I know we've trained over 3,000 solar installers to at least install and sell our products, of which we want to have about 1,200 using the CE systems.

It's a work in process, though. But look, if we know anything about what we've done with home standby, it's point of light matter. That is a strategy that works. The omnichannel approach works. And we're going to use that same approach in this clean energy market because you've got to have representation everywhere. And so we think that this is again, it's a ground game. I keep saying that, but it absolutely is, and we've built that ground game over a 20-year period with home standby and been very successful with that. And we believe that the playbook is relatively similar for clean energy.

And Aaron, you mentioned that the outside call center conversion rates were lower than you experienced in home standby lower than you expected. Can you just expand on that point? Are you not getting the conversion from the call-in into a qualified lead? Or is it a situation where once the installer is on-site the installer can't close the sale?

It's the conversion to a qualified lead. So we get an inbound call, and there's a percentage of those calls that drop out immediately based on qualification. But then the so there's a conversion factor. And when we look at historically how home standby kind of over the seven or eight years we've been doing that, how that kind of conversion rate has matured. And we look at where we're at, even early days with clean energy, we just feel like we should better. And as we dig in and start listening on the calls, what we're finding is it's just a very technical sale, a very complex sale. So a lot of pieces there. There's a lot to explain to a homeowner. And we believe that we're just going to need a higher grade of salesperson effectively, who's got some really good system knowledge, some really good knowledge of kind of how things not only work technically, but just to help the homeowner better understand what this product does and what they should expect from it. So we're bringing that in-house. And again, those conversion rates have been pretty low out of the gate. Which we didn't it wasn't completely unexpected. We normally would see kind of as we onboard certain new dealers, you have the conflux of new dealer coming on board, plus a complex sale. We're new to the market in terms of our brand translating to it. So we kind of expected low conversions. We just, we're impatient people here. I'll be very honest. I mean, it's just, we just don't have a lot of patience for stuff. So we try to instill a sense of urgency. And if something is not working, why sit there and wait for it to work? Let's do something about it. So we're moving that call center in-house. And I think we're going to have better success with that.

Our next question is from Jed Dorsheimer with Canaccord Genuity.

Hi. Thanks. A lot of my questions have been answered, but I do have a question on the resi side of things. Was there a particular model or SKU or size that jumped out as in terms of highest seller? Or was it pretty even across that distribution? And then I do have a question on the clean energy side, too.

Yes, Jed, from that standpoint, the 22-kilowatt has been our workhorse in the fleet. But everything has been strong, frankly, every single part of the product line. I would say probably indexing a little bit more on the higher end of the product line simply because of the strength in the Southeast that we called out specifically. Again, higher air conditioning loads, the South and the Southeast have been very good markets for us. And as such, because they have greater power need that tends to I would say probably it's maybe skewing a little bit more toward that whole home solution in the higher KW air-cooled and lower KW liquid-cooled products.

Got it. And then on clean energy, two questions. So the first is you have a pretty clear conflict mineral policy. And so I'm just wondering how you're thinking about the sourcing of minerals around the battery pack? And then second, as you look at where things are going with a whole home solution, for example, in the combination of the pack as well the battery backup with say a 22-kilowatt generator. What are you thinking about in terms of control system to monitor loads and automatically switch back and forth? I didn't see that as being available, but maybe I'm wrong there.

Yes. No, great questions. So first on the conflict minerals, yes, we're working with our partners on supply chain to make sure that they're fully compliant. So I don't have all the nuances of that, but I know the team has got that front and center. We made sure that as we qualify new companies, that's a really important thing that we have to make sure we're compliant with and that our partners are compliant with. And that, by the way, is no small task, as I think everybody in basically any industry can probably attest to, maybe even more so in the clean energy industry, given some of the minerals that go into these products. On the product side of things, your question there with kind of an integrated, fully integrated system, the platform. You're right, today, load management so we have home energy management. So our HEM system, which, by the way, I should say, that's going to ship bundled in with every 24-kilowatt generator. That will be the first product, the first legacy product where we're packaging HEMs in as a standard feature, which is pretty cool. So I think we have somebody asked the question previously about the differentiation there. And we're actually going to package HEMs with every one of those machines, which is I'm super excited about that because it just gives us a ton of data. I mean the data that comes at us from HEMs is so rich and so exciting. But from load control, you're right, today, not in the product available set, will be tomorrow. We have in our road map some really cool stuff coming on load control. And alongside of the actual physical elements of load control, right? So the capability to actually control each circuit individually or you could go even further with that strategy down to an actual appliance-level strategy in terms of control. But it's also the software that goes with that, right? The brains behind the system, right? So that we can really create a smart load control system, not just one that there's some systems out there in the marketplace that frankly don't have the intelligence we believe that are going to be required going forward. So we want to make sure that our system isn't just a hardware-based approach, but also an integrated hardware-software based approach that works seamlessly with our storage system and our home energy management system. So kind of we want to make it a one-stop kind of turnkey solution and we're getting close to that from a launch point.

I mean, as a generator manufacturer, we're experts in power electronics and load control. And then you couple that with the Neurio Technology guys in Vancouver, who that's what they do.

And it's been incredibly helpful. I mean, our teams here, we're used to working with codes and standards around electrical connections. And so our guys have been we've been working very, very well together with the teams from Neurio and Pika to develop these solution sets.

And your final question comes from William Grippin with UBS.

Great. Just a couple of quick ones for me. The clean energy supply chain ramp in Vietnam, just wondering how that's progressing? And are you still expecting margin to be in line with the corporate average on that business?

Yes. The supply chain ramp has been going well. I would say that there are a couple of our new product things that we've been kicking around here on the phone were probably a little bit, a few months delayed because of some of the things with the pandemic that have kind of created some challenges there. But in terms of moving to the supply chain, the new supply chain that we talked about, that's going very well. In fact, again, we've got a really good line of sight to those corporate average margins by the time we exit the year here. And we believe we're going to be kind of right on top of breakeven for that clean energy business by the end of the year and profitable as we exit the end of the year. So all of that's intact. And we continue to look at how we can continue to expand the supply chain as well, because if we think about the future here and what this could be, we're going to need more and bigger partnerships to bridge to where we think we can go in the next three to five years.

Got it. And then are you able to share how many megawatt hours of clean energy projects were shipped in the second quarter?

Yes. It was down sequentially. That's how kind of we kind of spelled it out. So rather than kind of go kind of quarter-to-quarter here with that pacing, we just are with a discrete number. We said it was down sequentially, but we're still sticking with the guidance range, albeit the lower end of the guidance range of 125-megawatt hours. But I think as you follow the industry as well on this and just that solar install capability that got really hit hard in Q2. Thankfully, it's coming back online. We have some really good evidence that it is. But we think the third and fourth quarters are going to be are going to be a lot of we're going to see a lot of growth there in getting these systems out there.

And I'll hand the call back over to Mike Harris for closing remarks.

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

Thank you again for joining us today. This does conclude today’s presentation. You may now disconnect.