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

Good morning and welcome to our third quarter 2020 earnings call. I’d like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer, and York Ragen, Chief Financial Officer. We will begin our call today by commenting on forward-looking statements. Certain statements made during this presentation, as well as other information provided from time-to-time by Generac or its employees may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today’s call. Additional information regarding these measures, including reconciliation to comparable US GAAP measures, is available in our earnings release or SEC filings. I will now turn the call over to Aaron.

Thanks, Mike. Good morning, everyone, and thank you for joining us today. We're very pleased to discuss our financial results reported earlier this morning, in which net sales, adjusted EBITDA and adjusted EPS were all by far, all-time records for Generac. Third quarter revenue easily exceeded our prior forecast, and adjusted EBITDA margins were also well ahead of the previous guidance. Power outage activity was dramatically higher during the quarter as a result of a record Atlantic hurricane season, a severe wind event in the Midwest and high heat and growing wildfire risks in the western U.S., which led to higher shipments of both portable and standby generators, as well as aftermarket service parts. The extreme level of power outages, combined with the continuation of the home as a sanctuary trend led to unprecedented levels of demand for home standby generators during the quarter that was broadly based across the entire U.S. We are aggressively ramping production levels for home standby generators, and there is a substantial backlog for these products that continues to grow during the fourth quarter. Year-over-year, overall net sales increased approximately 16% on a core growth basis as compared to the strong prior year quarter. Dramatic growth in sales of home standby and portable generators, coupled with shipments for the recently launched PowerCell Energy Storage system, drove the net sales increase in the quarter. Very strong growth in aftermarket service parts and shore products also contributed to the revenue increase compared to the prior year. Partially offsetting this significant strength was a decline in shipments of C&I products. Gross margin expanded 320 basis points compared to the prior year, and adjusted EBITDA margin increased 450 basis points over the prior year to 25.5%, both of which were the highest margins reported since the fourth quarter of…

Thanks, Aaron. Looking at third quarter 2020 results in more detail. Net sales increased 16.7% to $701.4 million during the third quarter of 2020, an all-time record as compared to $601.1 million in the prior year third quarter, which was our previous record. The combination of contributions from the energy systems and mean green acquisitions and favorable impact from foreign currency had an approximate 1% impact on revenue growth during the quarter. Briefly looking at consolidated net sales for the third quarter by product class, residential product sales during the third quarter increased 37% to $458.9 million as compared to $335 million in the prior year. As Aaron already discussed in detail, home standby generator sales continue to experience very strong year-over-year growth, which was once again, nearly 30%. In addition to this home standby strength, there was a significant increase in shipments of portable generators during the quarter despite the very strong prior year comparison caused by Hurricane Dorian. Portable generator shipments were at record levels during the current year quarter, primarily as a result of the higher power outage activity, which included demand from Hurricane ECS. Also significantly contributing to year-over-year growth in residential products for shipments of our PowerCell Energy storage systems following the expected recovery in the solar market during the third quarter. Shipments of Chore products were also higher during the quarter as the home as a sanctuary trend positively impacted demand for outdoor power equipment. Commercial and industrial product net sales for the third quarter of 2020 declined 18% to $176.2 million as compared to $214.9 million in the prior year quarter with a core sales decline of approximately 19% when excluding the impacts from the Energy Systems acquisition and favorable foreign currency. The weakness in shipments of C&I products was broad-based, both domestically…

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

Thanks. Good morning, gentlemen.

Good morning, Tom.

Hi, Tom.

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

Yes. It's a great question, Tom. And this is an acquisition that -- and it's a small company. It's another startup that we've added into our mix here of start-up companies that we've been acquiring. But we're really excited about Enbala. Enbala has -- and the name Enbala, it means literally, energy balance. So that's the connotation of the company's name. And it is an awesome team of people from the utility industry and people that are familiar with that industry, who have come through different start-ups and things in the past. But it's really aimed squarely at the idea of taking and leveraging not only our existing assets that we have in place like generally. We have over 2 million home standby generators on the ground as an example. And it represents just a pretty massive number in terms of megawatts available -- really, gigawatts available for potential use. Today, those generators sit largely unused, right? So, I mean, they operate when called upon, a couple of times a year, maybe, for a few hours a year, or longer depending on the region. But by and large, that becomes a somewhat underutilized asset. And we believe that Enbala, their platform -- it's a software company, so it's a technology play, that software platform can allow for the -- what they refer to in their lingo as enrolling an asset, like a generator or one of our power cell storage systems or even a load management device, enrolling that in their platform and allowing them to aggregate those assets and those systems for use by utilities or other grid operators. And the effective need there, the need case is really around places where you see grid power being augmented very heavily with renewables. So as you bring a lot of…

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

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

Thanks. Appreciate the color.

You bet.

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

Hi. Thanks and congrats on a fantastic quarter.

Thanks.

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

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

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

Yes. I mean, it's super exciting, Jed, and I think it's really early innings in this game. The idea of taking an asset which here to or has really been viewed as it's basically insurance, right? I mean you buy a home standby generator because we want to protect your home, protect your family, from power outages. And so the decision for – in the residential market, in particular, has largely been -- I don't want to say it's all emotional, but there's not much of an ROI that you can ascribe to those products, right? I mean, you can say, okay, I won't throw away a freezer full of meat or food or I might not to stay a couple of nights in a hotel, and you might be able to -- maybe I get a break on my homeowners insurance policy because I have a home standby generator, which are programs that are gaining acceptance. But you'd be hard-pressed to kind of create a payback model there that works beyond anything that is really just peace of mind, right? I mean that's really what those products are. Going forward, though, and kind of what your question is leaning into, is the fact that I think these products can be sold in a different way. And really, we look to how we're selling our power cell, energy storage systems, right? The energy storage system, we went into that thinking it was more about the ROI and less about resiliency. And what we found actually is that, it's really all about resiliency and some about ROI. So we think that there's an opportunity. We think the resiliency is going to be a big theme, no matter what. Whether you're talking about battery storage or whether you're talking about generators. It's…

Enables us to do more things.

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

Same thing for C&I.

Yes. And same on C&I, correct.

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

Hey guys. Thanks for the questions.

Hey Phil.

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

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

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

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

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

Yeah.

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

And turning profitable in Q4. That's another…

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

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

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

Good morning.

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

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

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

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

Not even a full percent.

Not even a full percent of that.

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

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

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

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

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

Great return.

The ROI is excellent.

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

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

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

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

Good Morning, Ross.

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

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

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

Yeah. I think that's the unique thing about this business, Ross, and I've seen this over my career here is that when you get events, whether it be an ice storm in Oklahoma or whether it's an outage in Utah, you're right. I mean, like Salt Lake City doesn't get a lot of outages. And so those areas of the country, you'll see distribution kind of fill in after an event, right? So initially, the initial surge of demand is generally satisfied by people who are maybe in our database as dealers. They maybe are contractors buying through -- could be through retail or online or perhaps electrical wholesale types of entities. And that's why the omnichannel distribution strategy is so important in this category, because I mean the dealer channel is absolutely -- and in my opinion, the best way to acquire this product, if you're a homeowner, you want a turnkey solution. The dealer can take care of it from the beginning of the process, all the way through and make that as pain-free as possible, as you possibly can, make a home improvement project. But you're right. I mean, the fill in that has to happen in the areas of the country where we haven't had these types of events. And we're going through that curve right now. It's a maturity curve. We're going through in California. We're adding a lot of distribution out there. It's an area of the country that's not -- they're not as familiar with the product category, the familiarity, the challenges run not just from finding good representation in the market and then onboarding the representation, there's actually a full education process all the way through the value stream, going back to the -- the permits, right? I mean you might have…

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

Hey, good morning, guys.

Good morning, Jeff.

Hi, Jeff.

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

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

Okay, great. Thanks guys.

Thanks Jeff.

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

Good morning and thanks for taking my questions.

Hey Tommy.

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

Yes. No, it's something we're thinking about it at a very high level, even in our boardroom. Obviously, we're talking about these things in terms of -- and what we've kind of what we've kind of -- the words we're using are, are we at a tipping point? Are we at a tipping point for the category, right? So, we're approaching, as we said, probably about 5% penetration of single-family households, single-family unattached homes greater than $100,000 in value. That's the total addressable market. It's 53 million homes or something like that. That 5% of that number is where the market will be at the end of the year. That still means 95% of the homes don't have it. And when you look at the things that have transpired this year, and you think about -- let's just think about home-as-a-sanctuary of that trend and what the pandemic has done. I think the pandemic, as a lot of companies are pointing out, has accelerated some of the long-standing trends that were already happening, things like telecommuting. I mean we've been talking about telecommuting for decades, right? So a way to cut down on having to drive to work and the amount of time you spending your car. And the technology today is far greater in its capabilities to allow for some of the things that have happened. In fact, I can't even imagine. Like if we had had this pandemic 10 years ago, 5 years ago, just how much more difficult it would have been for society in general, to deal with the idea of being kind of mandated to stay in your home. Today, you can work from home. Your Kids can learn from home. I was on a call recently, one of our customers did a top-to-top kind…

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

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

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

Then just making the introduction.

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

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

Hi, good morning, everyone.

Hey, Jerry.

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

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

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

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

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