Generac Holdings Inc

NYSE:GNRC

Earnings Call Analysis

Hurricane Beryl boosts Generac's outlook

Generac exceeded expectations for adjusted EBITDA and EPS in Q2 2024, leading to an increased full-year forecast. Net sales were nearly flat year-over-year at $998 million, with residential product sales up 8% and C&I sales down 10%. Gross margins grew to 37.6%, driven by lower input costs. The company raised its sales guidance to 4-8% growth due to elevated demand following power outages from Hurricane Beryl. Expectations for home standby generator sales growth are now in the high teens. Adjusted EBITDA margins are anticipated to reach 17-18% for the year. Investments in dealer and contractor networks continue to be a focus.

Strong Performance and Revised Outlook

Generac Holdings Inc. outperformed its expectations for the second quarter of 2024, with adjusted EBITDA and EPS coming in higher than forecasted. Sales remained consistent with the previous year at $998 million. This was achieved despite a decrease in global commercial and industrial (C&I) product sales. The company reported significant improvements in gross profit margins, attributable to favorable sales mix and lower input costs.

Residential Products Shine

Residential product sales increased by 8%, driven largely by a mid-teens surge in home standby generator shipments. Power outages, especially due to Hurricane Beryl, boosted demand for these products. The increased activity in Texas also elevated residential consultations and lead conversions. Generac expanded its residential dealer network to 8,900, adding 200 dealers since the end of 2023.

Challenges in the Global C&I Segment

Global C&I product sales saw a 10% decline due to weak demand in the telecom and rental markets. However, this was slightly offset by increased shipments to North American industrial distributor channels. The company expects long-term growth in the rental and telecom markets, driven by the need for resilient infrastructure.

Improved Margins and Profitability

Generac’s gross profit margin improved to 37.6% from 32.8% in the equivalent quarter last year. Adjusted EBITDA rose to $165 million, representing 16.5% of net sales, compared to 13.6% the prior year. The company’s operating expenses increased by 12%, mainly due to investments in growth initiatives, including higher spending on salaries, marketing, and promotional activities.

Increased Financial Guidance

Due to strong recent performance, Generac raised its revenue growth guidance for 2024. Net sales are now expected to grow by 4% to 8%, up from the previously estimated 3% to 7%. Adjusted EBITDA margins are projected to be between 17% to 18% for the full year, with gross margins expected to improve sequentially, culminating in a 200 basis point improvement in the fourth quarter.

Focused Investments and Strategic Acquisitions

Generac is leveraging its financial strength to invest in inventory and logistics capabilities, ensuring quick deployment of products in storm-affected areas. The company also acquired C&I battery energy storage solutions from SunGrid, enhancing its capabilities in microgrid solutions. This move positions Generac to better serve the growing demand for energy resilience and cost-efficient power solutions.

Strong Free Cash Flow and Share Repurchases

Generac generated $78 million in cash flow from operations for the quarter and $50 million in free cash flow, slightly down from the previous year. The company repurchased 355,640 shares for $51 million and continues to manage a disciplined capital allocation strategy, supported by a new $500 million credit facility maturing in 2031.

Challenges and Soft Spots

While residential product sales showed strength, the global softening in residential clean energy products remained a challenge. The company also observed declines in European markets for portable generators. Despite this, increased shipments to Latin America and India demonstrated pockets of resilience.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Second Quarter 2024 Generac Holdings Inc. Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kris Rosemann. Please go ahead.

[Kris Rosemann, executive]

Good morning, and welcome to our second quarter 2024 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.

[Aaron P. Jagdfeld, executive]

Thanks, Kris. Good morning, everyone, and thank you for joining us today. Our second quarter results were ahead of previous expectations for adjusted EBITDA and adjusted EPS, driven by lower input costs and operating expenses relative to our prior forecast. We are raising our 2024 full year outlook this morning as a result of the recent increase in power outage activity, including the impact of Hurricane Beryl. Year-over-year, overall net sales in the second quarter were nearly flat compared to the prior year at $998 million. Residential product sales increased 8% from the prior year due to strong growth in home standby generator shipments.

Global C&I product sales decreased 10% from a strong prior year second quarter as softness in the telecom and rental markets was partially offset by an increase in shipments to our industrial distributor customers. Additionally, gross and adjusted EBITDA margins expanded significantly from the second quarter of 2023 as a result of favorable sales mix and the realization of lower input costs. Home standby shipments were in line with our prior expectations during the quarter, increasing at a mid-teens rate from the softer prior year period that included a meaningful headwind from excess field inventory levels.

Power outage activity during the second quarter was above the long-term baseline average. Primarily due to strong storms in May that impacted multiple markets in Texas. Early in the third quarter, Hurricane Beryl made landfall in the Houston area driving year-to-date power outage activity well above the long-term baseline average and increasing demand for home standby and portable generators. After a slow start to the year, home consultations in the second quarter increased modestly over the prior year and grew at a strong rate on a sequential basis.

More importantly, home consultation activity increased significantly during the month of July due to Hurricane Beryl. Additionally, close rates have improved during the first half of 2024, as we continue to execute initiatives to improve sales lead conversion including data-driven lead optimization practices, sales tool enhancements and improved lead nurturing practices. Although we expect close rates to improve over time, they have historically moderated immediately following a major outage event in the affected region. We remain focused on making further investments to bring new and broader demographic categories into the home standby generator market and increase engagement with our end customers, particularly in regions that have not experienced material outage activity in recent periods.

We ended the second quarter with our residential dealer count at approximately 8,900, an increase of 200 dealers from the end of 2023. We also continue to strengthen our relationships with non-dealer contractors as we further grew our aligned contractor program, an effort that helps us expand our installation bandwidth while allowing contractors to purchase product through their preferred channel. We view our dealer and align contractor networks as an important competitive advantage for our business and we continue to invest heavily in these relationships with a focus on further developing tools and resources to optimize the selling, service and installation capabilities of our distribution partners.

Activations or installations of home standby generators were down modestly during the first half of 2024, reflecting the lower power outage environment from late 2023 through the first quarter of 2024. However, activations have returned to strong year-over-year growth in the month of July, and we expect continued growth in installations as we move through the seasonally stronger second half and impacted by the recent increase in outage activity. As the clear leader in residential backup power, we are uniquely positioned to respond to major outage events such as Hurricane Beryl. Our ability to leverage our strong financial position to invest in inventory for storm response, combined with our logistics capabilities allow us to rapidly deploy product into outage impacted areas.

Our industry-leading distribution network and our scalable call centers provide 24/7 consumer support and service in our customers' time of need. We are also increasing our advertising spend in the aftermath of the storm to leverage our expertise in marketing to drive awareness for our products and generate sales leads for our distribution partners, not only in the impacted region, but also more broadly across the nation. Simultaneously, we are ramping up our efforts to increase sales and installation bandwidth by adding more dealers and aligned contractors to our distribution network.

Finally, we are increasing our production rates for home standby generators to respond to increases in demand for these products as we have built our supply chain and operating footprint capacities to allow for the rapid expansion of output to respond quickly to market changes. As a result, we are raising our overall 2024 outlook due to anticipated higher demand for home standby and portable generators following the recent increase in power outage activity. The effect of Hurricane Beryl is also expected to drive higher levels of awareness for backup power longer-term as home and business owners seek protection from future power outages. With only approximately 6% penetration of the addressable market of homes in the U.S., we believe there are significant opportunities to further grow the residential standby generator market.

Now moving to our Residential Energy Technology Products & Solutions. The overall market for residential solar and storage continues to be negatively impacted from structural changes to California's net metering program as well as higher borrowing costs, which will continue to weigh on 2024s results for these products. Although market conditions are challenging in the near-term, we recently announced the execution of the previously awarded grant from the U.S. Department of Energy to provide energy storage systems to Puerto Rico with funding from the Puerto Rico Energy Resiliency Fund. The grant provides for up to $200 million in project funding over a 5-year term, which is an increase from the $100 million initially awarded when we announced our participation in the program in the fourth quarter of last year. The first shipments of energy storage systems for this program are expected to begin later this year with the bulk of program installations occurring in 2025 and 2026.

Ecobee continues to execute well. gaining market share and driving robust margin improvement over the prior year. Ecobee's connected homes count is now approaching $4 million, and services attach rates continue to increase with strong growth in both Energy Services and home monitoring services. Importantly, we are leveraging Ecobee's expertise in developing hardware and software experiences that are intelligent and intuitive as their development teams are leading our efforts around building the common platform that will serve as the heart of the Generac residential energy ecosystem.

As disclosed in our press release this morning, we also agreed to make an incremental $35 million minority investment in Wallbox, allowing for the expansion of our commercial agreement globally to include both residential and commercial EV charging solutions, across our distribution networks. Additionally, we have aligned on a software development approach that will deepen the integration of Wallbox EV chargers with our dealer and customer platforms. We believe that the ability to manage EV charging as part of our residential and C&I energy technology ecosystems will become increasingly important as growing electric vehicle penetration and the resulting increased demand for electricity have a rising impact on home and business owners as well as grid operators around the world.

As we continue to build out our energy technology solutions, we believe that the combination of our internal initiatives, strategic investments and core competencies will allow us to effectively compete in these large and growing markets. As we bring increasingly competitive solutions to market over the coming quarters, starting with our next-generation energy storage system later this year, we will accelerate our efforts in expanding and engaging our distribution network. This will allow us to gain market share by further leveraging our expertise in providing superior channel and customer support as well as our proficiency and deliver qualified sales leads to distribution partners and our brand strength. We believe our unique and comprehensive approach to residential energy management will provide further differentiation as we develop the smart energy home of the future.

Switching now to our C&I product category. As previously expected, global C&I product sales declined 10% from the prior year, driven by a decrease in shipments to both domestic telecom and rental customers. This decline was partially offset by continued growth with our North American industrial distributors as shipments to this channel, again grew at a robust rate in the second quarter and quoting activity remained resilient. We continue to expand our market share, primarily due to our ongoing focus on operational execution, leading to reduced product lead times and further optimization of our domestic distributor channel.

This includes additional investment in certain territories where we believe we have a potential to improve our share regionally through M&A or further development of our independent distribution partners. As expected, shipments to national telecom and rental equipment customers declined in the quarter from the strong prior year period, and we continue to believe these end markets will remain soft for the balance of the year. However, we see long-term growth opportunities in both markets despite the near-term cyclical weakness. We believe the critical need for future infrastructure projects provide substantial runway for growth in the rental channel.

In the market for backup power for telecom applications, our long-term growth expectations are supported by the secular trend of growing global tower and network hub counts and the increasingly critical nature of wireless communications and services that require significantly greater power reliability. As previously announced in late June, we acquired the C&I battery energy storage system product offering from SunGrid solutions located in Cambridge, Canada. This small but strategic acquisition brings us engineering and manufacturing expertise to better serve the growing market for behind-the-meter energy storage solutions for commercial and industrial applications including where it is deployed as a critical component in multi-asset microgrids.

We have an expanding pipeline of commercial projects in which we expect to provide stationary battery storage alongside our traditional generator product offerings. And additionally, we're seeing a number of projects in which EV charging equipment is also included. We believe our commercial agreement with Wallbox is important to helping expand our opportunity to win these and other similar projects. As we leverage our leading position in natural gas generators and our newly acquired capabilities in energy storage with the SunGrid acquisition, we believe we are uniquely positioned to deliver comprehensive solutions for the developing microgrid market, which is focused on providing C&I customers with important energy resiliency as well as lower overall energy costs.

Internationally, total sales were lower year-over-year primarily related to declines in intercompany shipments from our Mexican operations to the telecom market in the U.S. as well as lower shipments in Europe most notably for portable generators. Increases in shipments to other key regions such as Latin America and India partially offset the softness. As previously discussed our expanded agreement with Wallbox also includes incremental collaboration in international end markets. This is another example of our longer-term international growth strategy as we bring a broad portfolio of solutions to more markets around the world, building on the strong track record of growth and margin expansion in our international segment over the past several years.

In closing this morning, our second quarter margin outperformance and increased 2024 outlook highlight the fundamental momentum occurring within our business, significant year-over-year margin expansion and robust free cash flow generation in the first half of 2024, have supported our continued investments in accelerating our powering a Smarter World enterprise strategy while also enhancing shareholder value through continued share repurchases. Once again, Hurricane Beryl highlighted the vulnerability of the electrical grid and the need for resiliency. Beryl became the earliest Category 5 hurricane to form in the Atlantic on record, providing further evidence that the changing weather patterns continue to threaten the continuity of power that we are increasingly dependent on.

Additionally, the rapid adoption of intermittent generation sources and growing demand from electrification trends as well as the adoption of artificial intelligence are providing additional stresses on our nation's aging power grid. These secular trends will continue to manifest in lower power quality and higher power prices for all rate payers in the decades to come. By expanding on Generac's core resiliency value proposition and helping optimize for efficiency, consumption, cost and comfort, we remain confident that our products and solutions are uniquely capable of helping home and business owners solve the challenges around resiliency and rising utility costs.

I'll now turn the call over to York to provide additional details on our second quarter results and our increased outlook for 2024. York?

[York Ragen, executive]

Thanks, Aaron. Looking at second quarter 2024 results in more detail. Net sales were $998 million during the second quarter of 2024 as compared to $1 billion in the prior year second quarter. The combination of contributions from acquisitions and the favorable impact from foreign currency had a slight positive impact on revenue during the quarter. Briefly looking at consolidated net sales for the second quarter by product class. Residential product sales increased 8% to $538 million as compared to $499 million in the prior year. Growth in residential product sales was primarily driven by a mid-teens increase in shipments of home standby generators and strong growth for portable generators domestically. This was partially offset by a decrease in portable generator shipments in Europe given a strong prior year comparison ongoing softness in the domestic clean energy market and lower store product sales.

Commercial and industrial product sales for the second quarter of 2024 decreased 10% to $344 million as compared to $384 million in the prior year quarter. Foreign currency and acquisitions contributed approximately 1% growth in the quarter. The core sales decline was primarily due to the expected weakness in sales to our domestic telecom and national equipment rental customers. This was partially offset by a robust increase in C&I product shipments through our domestic industrial distributor channel and growth in certain other key international markets. Net sales for other products and services decreased slightly to $116 million as compared to $117 million in the prior year quarter.

Gross profit margin was 37.6% compared to 32.8% in the prior year second quarter, primarily due to favorable sales mix, given stronger home standby shipments and the realization of lower input costs, including lower freight and steel costs as well as improved production efficiencies. Second quarter gross margins exceeded our expectations as we were able to deliver the implied gross margin ramp in the second half of the year sooner than expected given improving input costs. Operating expenses increased $30 million or 12% as compared to the second quarter of 2023. This increase was primarily due to ongoing investment in resources to drive future growth across the business, including salaries, benefits, stock compensation and bonus and higher marketing and promotional spend to create incremental awareness for our products.

As a result of these factors, adjusted EBITDA before deducting for noncontrolling interest, as defined in our earnings release, was $165 million or 16.5% of net sales in the second quarter as compared to $137 million or 13.6% of net sales in the prior year. Adjusted EBITDA margins came in ahead of our expectations during the quarter as a result of the gross margin outperformance as well as lower operating expenses compared to prior forecast.

I will now briefly discuss financial results for our 2 reporting segments. Domestic segment total sales including intersegment sales, increased 1% to $827 million in the quarter as compared to $815 million in the prior year quarter, as strong growth in the residential product category was mostly offset by expected weakness in C&I product shipments. Adjusted EBITDA for the segment was $140 million, representing a 16.9% margin as compared to $103 million in the prior year or 12.7% of total sales. This margin improvement was primarily driven by favorable sales mix and the realization of lower input costs, partially offset by higher operating expense investments to support future growth initiatives.

International segment total sales, including intersegment sales decreased 18% to $185 million in the quarter as compared to $224 million in the prior year quarter. The approximate 18% core total sales decline for the segment was primarily driven by a decrease in intercompany shipments from our Mexican operations to the domestic telecom market as well as lower shipments in most European markets, most notably for portable generators.

This softness was partially offset by increased sales in other key regions such as Latin America and India. Adjusted EBITDA for the segment before deducting for noncontrolling interest was $25 million or 13.6% of total sales as compared to $33 million or 14.9% of total sales in the prior year. This margin decline was primarily due to reduced operating leverage on lower shipments during the quarter.

Now switching back to our financial performance for the second quarter of 2024 on a consolidated basis. As disclosed in our earnings release, GAAP net income for the company in the quarter was $59 million as compared to $45 million for the second quarter of 2023. GAAP income taxes during the current year second quarter were $20 million, or an effective tax rate of 25% as compared to $16 million or an effective tax rate of 25.9% for the prior year. The decrease in effective tax rate was primarily driven by certain unfavorable discrete tax items in the prior year period, which did not repeat in the current year.

Diluted net income per share for the company on a GAAP basis was $0.97 in the second quarter of 24 compared to $0.70 in the prior year. Adjusted net income for the company, as defined in our earnings release, was $82 million in the current year quarter or $1.35 per share. This compares to adjusted net income of $68 million in the prior year or $1.08 per share.

Cash flow from operations in the current year second quarter was $78 million, as compared to $83 million in the prior year second quarter, and free cash flow, as defined in our earnings release, was $50 million as compared to $54 million in the same quarter last year. This change in free cash flow was primarily driven by higher cash income tax payments in the current year quarter, partially offset by higher operating earnings. Additionally, during the second quarter, we repurchased 355,640 shares of our common stock for approximately $51 million. There is an approximately $449 million remaining under our current repurchase authorization as of June 30. In early July, we amended and replaced our existing $530 million Term Loan B credit facility, which was set to mature in December 2026, with a new credit facility that has an aggregate principal amount of $500 million after we made a $30 million cash prepayment in connection with the term loan amendment.

This new credit facility has a maturity date of July 3, 2031. The new credit facility maintains the existing low rate of SOFR plus 175 basis points, while also eliminating a 10 basis point credit spread adjustment that was included in the previous term loan B credit facility. Quarterly principal payments equal to $1.25 million will begin in October 2024, with a lump sum due at maturity in July 2031. Total debt outstanding at the end of the quarter was $1.56 billion, resulting in a gross debt leverage ratio at the end of the second quarter of 2.25x on an as-reported basis, a continued reduction from 2.5x at the end of 2023. As we expect to generate strong free cash flow in the second half of '24, we will continue to execute a disciplined and balanced capital allocation strategy.

With that, I will now provide further comments on our updated outlook for 2024. As disclosed in our press release this morning, we are increasing our overall outlook for full year 2024. Given the elevated demand for backup power in the state of Texas due to the recent power outages, including Hurricane Beryl that made landfall in early July, we now expect overall 2024 net sales growth to be approximately 4% to 8% as compared to the prior year. This is an increase from the previously expected range of 3% to 7%. Again, as a result of the recent outage activity in Texas, we are increasing our expectations for 2024 home standby generator sales growth to be in the high teens range and portable generator sales are also now expected to be well above our prior forecast.

Partially offsetting these strong trends in Texas, we are seeing continued softness in residential clean energy and chore markets, resulting in only a modest reduction in our outlook for those products. As a result, overall residential product sales for the full year are now expected to grow at a mid-teens rate as compared to our prior forecast for low double-digit growth. Our full year 2024 sales growth outlook for the remaining product categories is unchanged from our prior forecast.

From a pacing perspective, we anticipate year-over-year net sales growth will accelerate as we move through the second half of the year, with third quarter net sales growth in the high single-digit range and fourth quarter net sales growth in the low to mid-teens range. This guidance assumes power outage activity that is in line with the longer-term baseline average for the remainder of the year and does not assume the benefit of an additional major power outage event for the rest of the year.

Our gross margin expectations for the full year 2024 have also increased relative to our previous guidance, given the second quarter outperformance and higher sales mix from home standby generator sales in the second half of the year. We now expect gross margins to improve by approximately 350 to 400 basis points over the full year 2023. This is an increase from the 300 to 350 basis point improvement previously expected.

Gross margins are projected to grow sequentially through the remainder of the year due to continued favorable mix, price and cost with fourth quarter gross margin improving over third quarter gross margins by approximately 50 basis points. As a result of this increased outlook for gross margins, adjusted EBITDA margins before deducting for noncontrolling interests are now expected to be approximately 17% to 18% for the full year 2024. Additionally, we also expect adjusted EBITDA margins to grow sequentially through the remainder of the year, driven by the above-mentioned gross margin improvement and additional operating leverage on higher shipments as we move throughout the second half of the year. This will result in fourth quarter adjusted EBITDA margins improving over third quarter adjusted EBITDA margins by approximately 200 basis points resulting in fourth quarter adjusted EBITDA margins of approximately 20%.

As is our normal practice, we will also provide additional guidance details to assist with modeling adjusted earnings per share and free cash flow for the full year 2024. For the full year, our GAAP effective tax rate is still expected to be approximately 25% to 26%. This is expected to result in a GAAP effective tax rate of approximately 25% for each of the remaining 2 quarters of the year. Importantly, to arrive at appropriate estimates for adjusted net income and adjusted earnings per share, add-back items should be reflective net of tax using the 25% expected effective tax rate.

Gross interest expense is now expected to be approximately $92 million to $94 million as compared to the prior guidance of $90 million to $93 million. This guidance assumes no additional term loan or revolver principal prepayments during the year. Stock compensation expense is now expected to be between $52 million to $54 million for the year as compared to prior guidance of $55 million to $60 million. We're also increasing our free cash flow conversion guidance for the full year to be well above 100% as we anticipate an incremental benefit from working capital reduction in the second half of the year. This compares to our prior guidance of approximately 100%. Our full year weighted average diluted share count is now expected to decrease to approximately 60.5 million to 61 million shares as compared to prior guidance of 61 million shares.

This updated guidance reflects the share repurchases that were completed in the second quarter of this year. Our guidance for capital expenditures as a percentage of sales remains consistent at approximately 3% of sales. Depreciation expense in GAAP intangible amortization expense also remained consistent with last year's -- last quarter's guidance.

And finally, this 2024 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value. This concludes our prepared remarks. At this time, we'd like to open up the call for questions.

[Operator]

[Operator Instructions] First question comes from Tommy Moll with Stephens Inc.

[Thomas Moll, analyst]

Aaron, I wanted to start on home standby. It sounds like the outlook for the year went from mid-teens -- to high teens. It's a 2-part question. First part is, can you characterize how much of that growth is just lapping over the destock versus incremental underlying demand? And then second part on the demand. Can you characterize activations versus shipments in Q2 and maybe even through July after the storm?

[Aaron P. Jagdfeld, executive]

Yes. So maybe, Tommy, I'll take the second part of that question first. Yes, on the first part of the question, obviously, we have been talking about a $300 million impact from the field inventory situation last year. And so part of -- obviously, part of the increased guide here I would say that the guidance we had originally proposed considered that the destocking. So the increase in guidance from the mid-teens to the higher number would be really the delta that's storm related.

[York Ragen, executive]

That's all incremental.

[Aaron P. Jagdfeld, executive]

So that's all incremental. I'd have to do the math to give you like a more precise answer than that, but that's how I would answer it is the original guidance to contemplate that. The destocking occurred in Q1, and we don't -- that hasn't been a problem as we had expected here in Q2 and it won't be a problem in the balance of the year. As far as the activation and shipment trends from Q2, as we said, activations in the first half of the year were modestly down. That really is related to the low power outage activity that we saw last year.

And in the beginning, we kind of started off the year a little bit slow here in 2024, Q1's outage hours were below the baseline average, but they've obviously picked up here in Q2. And we anticipate those activation rates to grow through the balance of the year here. And in fact, as we noted in the prepared remarks this morning, July, we're already seeing from a trend standpoint, we're seeing that pick up. So shipments were, I would say, ahead of activations if you're looking just at Q2, but that's seasonally to be expected. That's how -- yes. And it was only slightly not -- it wasn't a big number, but that is -- that's how the business paces in terms of preparing for the season.

We want our channel partners to have that product ready to go. But again, as we've said previously, as we exited Q1, we feel like those field inventory levels are normal, right? So this is all part of the normal seasonal trend at this point.

[Operator]

One moment for our next question. The next question comes from George Gianarikas with Canaccord Genuity.

[George Gianarikas, analyst]

I'd just like to focus on what you've seen or what you saw in July that led to the guidance increase. Clearly, there's been an impact on the hurricane. But can you just sort of isolate the pockets of increased interest and in-home consultation and activations. Is it strictly in the areas that were impacted by the hurricane? Or were there reverberations throughout Texas we saw increased activity and interest outside of those regions. And to the extent you could share this data to the extent you have it, what are the high penetration rates, the highest penetration rates that you're seeing in parts of Texas and how much further can we go on penetration in your opinion over the long-term?

[Aaron P. Jagdfeld, executive]

Yes. Thanks, George. So what we saw in July, obviously, was the Hurricane Beryl impact was significant in a market in Houston that had been also impacted earlier in May by -- I think some people refer to it as a derecho kind of a straight-line wind event that created outages. And I think really the impact of Beryl even though it was a cat 1 storm and not really that strong meteorologically, the way they -- the way they're scored. The ground was very saturated and there was high enough wins that led to just a lot of infrastructure damage, physical damage with trees and other things taking out components of the grid. And so it took a long time to repair.

And it's -- what we've -- in our experience with outages, it's really, frankly, more the length of the outage. So the duration plays a huge role in kind of getting people to a point of high interest in finding solutions, right? And so our increased guidance is really reflected -- reflective of 2 things: One, we sold a lot of portable generators in July. As you would expect, as one of the leaders in the industry, we carry a fair amount of inventory in preparation for these types of events, and that inventory was deployed very quickly down in that market. Maybe not as much as we would normally see strictly because that storm, you would normally have time ahead of the storm to prepare. This storm kind of caught people off guard. It was supposed to hit kind of the Mexico, Texas border and then it took a severe right-hand turn and went north kind of at the wrong time and impacted obviously the Houston market instead.

So not a ton of time to prepare and get more inventory positioned ahead of the storm. But in the aftermath, we certainly we're able to deploy that. But then obviously, the increase in IHCs has been -- in-home consultations has been dramatic in the month of July, I would say. We have continued to see in our history here since we've been tracking IHCs. And remember, that really goes back to kind of around the post-Sandy era. So kind of in that 2012 to 2013 timeframe. So about a decade that we've been doing this. We continue to see with every hour of outage activity, a higher level of intensity of the number of IHCs or sales leads we get per hour. And that definitely fit the bill in the storm. And some of that, again, is related to the fact that -- that market was also impacted earlier in the year by the previous event.

So the combination of those things, we have about 800 dealers in Texas. So we think we're in pretty shape to respond to the event. We don't have 800 in Houston. We have a lot in Houston, but not 800, but 800 across the Texas market. And there is a bit of an echo effect that happens when you see an event like that hit a market like Texas, you generally see an uplift in other markets with IHCs. I would say with this event, and that generally comes because of media coverage of an event. I do think that for whatever reason, the media coverage of this -- of Hurricane Beryl was maybe a little more muted than you might expect on a national stage. Certainly, if something would have happened on the East Coast or the West Coast, that tends to get the media's attention a little bit greater or something happens down in Texas, maybe not as much.

But nonetheless, I think the increase that we've seen in IHCs we believe, is -- underpins kind of the increase that we've given in terms of the guidance. And today, Texas is still underpenetrated in our view. So we're roughly 6% penetrated nationally on the average in the state, we're less than 5% penetrated today. So we think there's room and obviously, it's a huge housing market. And a lot of the -- there's a lot of people went through those multiple outages here. And we do think that pen rate is going to increase in the years ahead.

[Operator]

One moment for our next question. next question comes from Mike Halloran with Baird.

[Michael Halloran, analyst]

Question then on the Clean Energy side of things and the margin trajectory. I heard the comment in the prepared remarks about Ecobee's margin starting to tranche better. Maybe what's the driver behind that? And when you think more broadly about the current headwind associated with all the investments and then the timing of the new product launches and when you can start really getting revenue associated with that. Has the timeline changed at all from your perspective as far as that profitability improvement curve might look like in those businesses?

[York Ragen, executive]

Mike, York here. Doug jump in on the gross margin commentary. Ecobee, the team up at Ecobee has been -- there's been a tremendous amount of focus on gross margin improvement, really just working on the cost of the bill material of the tstat itself and significant effort in terms of supply chain cost reductions and whatnot. So I would say the execution of those initiatives are reading through now. And there's a pretty significant impact in terms of the improvement of the gross margin. They were good before and now they're even better.

[Aaron P. Jagdfeld, executive]

Yes. And I think some of that, too, is the fact that when we acquired Ecobee at the depths of the pandemic. So I think the cost curves there were inflated or maybe even artificially surcharge products especially around electronic components, and that is obviously relaxed as well. So that's part of it, not to discredit or take away anything from the teams in terms of their efforts, which have been great, but some of that is market forces.

And then I think, Mike, to answer the question on timing, I would say this on timing. Nothing has really changed in the timing of our new product introductions, right? So we're still targeting the end of this year for our next-generation storage device, first half of next year for our microinverter products. Those are all still intact. I think what -- and we may have mentioned this on the last call, we may have changed is just the sour mood around solar plus storage that market, right? The market trends there have been muted, have been relatively negative this year and have kind of persisted through this year with higher rate environment and still kind of absorbing the impact of net metering 3.0 in California.

So -- but that, I would say, for us, again, it's not much of an impact this year, but I think some of that might get offset if the market remains a little bit weak. We talked about this Department of Energy grant that we were awarded. That grant was -- we generally thought that, that would impact us to the tune of about $100 million when we announced it late last year, and that was going to be over a 5-year term. That was upsized significantly here through our discussions and negotiations with the DOE and the other partners on the island. And now we think that impact is $200 million. And the bulk of those installs are going to happen in 2025 and 2026.

So that's kind of an element that we didn't have necessarily in our project win of that magnitude. We didn't have that in our original kind of pacing. So I think that helps to offset any market weakness that may persist into '25. So I guess a long-winded way, as I generally do, of saying we're really not changing the timing on this. I think it's -- the puts and takes there might be a little bit different than what we had originally contemplated. But I think the timing is intact.

[Operator]

One moment for our next question. The next question comes from Jeff Hammond with KeyBanc Capital Markets.

[Jeffrey Hammond, analyst]

Two-part question. I guess one, input cost tailwinds, do you think they'll continue into the second half? And then just I guess we're in a unique period where we've had kind of these elevated IHCs and maybe more tire kickers around grid instability. And I'm wondering with this storm activity, if maybe and this nurturing initiative, if maybe the uptake from some of those warm leads can drive some incremental uptake versus normal?

[York Ragen, executive]

Yes. On the input cost side, looking like first half to second half, Jeff, if there is, let's say, a couple of percent improvement from first half to second half on gross margins, I'd say the vast majority of that is just going to be with a higher mix of home standby reading through in the second half. Well over 50% of that gross margin increase will be just that mix improvement. But we are expecting some further price cost improvements first half, second half to continue to read through, but it will be smaller -- it will be a smaller piece of the puzzle.

[Aaron P. Jagdfeld, executive]

Yes. And then, Jeff, I think with the IHCs and kind of the "tire kickers" we have seen an increase in I'll call it the broadening of the top end of our funnel. We've talked about our efforts and outreach to engage new demographics and trying to broaden the consumer appeal for these products more broadly. And that has produced, I think, the effect it's had is it's -- we've got a lot more people shopping in the category. There's obviously the -- I would also talk about the broader mentions of potential power outages from some of the structural things that are going on with the grid. We talk about the electrification trends. We talk about the decarbonization trends, we talk about power quality being impacted negatively in the future here today and in the future and also power prices are expected to continue to rise.

And that -- the media -- I think mainstream media has picked up these narratives. And I think that also is leading to people coming into the funnel and exploring their options around resiliency and trying to manage their own power and independence and efficiency. That said, when you get an event like Beryl and you get the increased outage activity we have, it's obviously an opportunity for us to engage clearly on the resiliency story. With those people who may have received an IHC and for whatever reason, didn't -- we didn't get to closure on a project.

I think it's important to note, close rates have improved throughout this year and they're up nicely from the end of last year. But what typically happens historically, what we see is when you get a large-scale event like Beryl, you'll see a weakening in the close rate kind of temporarily in the affected markets because you get such an influx of leads. You get a lot of people into the funnel at once.

Now that could be somewhat offset by some of these warm leads being -- we're able to nurture those to closure as a result of the event. So I think that will all kind of work out in the future here as we look at what the close rate does. But we do expect the close rate to kind of step back here temporarily but we have a lot more leads. So -- and that's, again, a combination of all of those elements is what goes into our calculus around raising guidance today. So -- and once those leads are in our system, we can nurture them later, too, even if they don't get the closure today, we have, I think, much better nurturing techniques and capabilities today than we've ever had.

And so the opportunity to work those leads in the future either on the back of future outage events or certain promotions or new financing opportunities, things like that, we've been pretty bullish about the opportunities that as our growing house file, if you will, of sales leads, the ability to mine that file to the benefit of driving more sales.

[Operator]

One moment for our next question. Next question comes from Brian Drab with William Blair.

[Brian Drab, analyst]

I just like to see if I could ask you to put a finer point on the revenue guidance update. So if we're increasing revenue growth by 1%, that's about $40 million, obviously, in incremental revenue. You had storm activity that we've talked about in May and then Hurricane Beryl and that's [ driven ] some portables. You gave us -- you said we're going from mid-teens to high teens in home standby. And that's $50 million like 50, plus or minus 5 maybe in that move from mid-teens to high teens. I'm just wondering if you could put a finer point on this, so I can understand why we're not being conservative, especially given the outage hours related to this Hurricane Beryl were very close to the outage hours associated with the ice storm of '21, which at the time categorizes a top 5 all-time weather outage event.

[York Ragen, executive]

Yes. Brian, this is York. I think your numbers are close in terms of directionally close in terms of how you're quantifying the impact that we've included at least in the implied guidance. You've got that home standby growth that you just referred to, you get a little bit of portable improvement. You get a little small offsets with clean energy on some of the comments we made on that outlook. Chore products saw some slight declines there that are offsetting. So when you put it all together, we've always said that the impact of a major power outage event would be -- in that year would be roughly somewhere between $50 million to $100 million, like we've said that for a number of years.

So I would say what we've included in our guidance, partly because it's early. We've included our guidance maybe towards the lower end of that $50 million to $100 million in terms of our impact from Hurricane Beryl. It's early. Well, the portable, I think Aaron's comments about how the hurricane sort of took a sharp turn -- sort of unexpectedly and our -- we weren't able to deploy portables maybe before the storm, maybe -- so maybe the portable uptake wasn't as significant maybe in the storm as it would have been in maybe some other hurricanes where you can plan ahead a little bit better, that might be some of the impact that on the portable side.

But I think a home standby side, it's early. We've got a lot of IHCs have come in as a result of these, we'll see how the close rates play out on that, and we'll be able to update throughout the next quarter here.

[Operator]

Next question comes from Jerry Revich with Goldman Sachs.

[Jerry Revich, analyst]

Yes. Good morning, everyone. Just talk about the gross margin performance. Last quarter, we spoke about better material costs in the first quarter. It looks like that continued versus plan. In the second. And I'm wondering, as we think about the implied guidance in the back half of the year, is there an opportunity for the normalizing material logistics costs to drive a tailwind relative to guidance given the continued strong performance each quarter so far?

[York Ragen, executive]

Yes, Jerry, now that I mean gross margins were up almost 5% year-over-year. We've been seeing that for a number of quarters here as price/cost improvements have been reading through. And then now we're starting to see, as home standby field inventory becomes normalized, and we're seeing that year-over-year growth in our home standby shipments, we're definitely getting the mix improvement there. So in the second quarter, I would say of that roughly 5% improvement in gross margins, I'd say maybe 3 of that 5% was mix related. The other 2% was price cost.

Again, we've been seeing that for a number of quarters. And then as I mentioned, I think when Jeff Hammond asked the question, as we jump from first half to second half, we do expect sequential improvement in gross margins, again, some further -- mostly due to just continued mix improvements with a higher mix of home standby in the second half of the year relative to the first half. But we do expect some price cost improvements. And as a result, you would -- you would continue to see year-over-year price cost improvements as a result of all that. So at least in the second half of the year. So Yes. No, again, gross margins are getting healthy as the mix of home standby normalizes and price cost normalizes and improves.

[Operator]

The next question comes from Kashy Harrison with Piper Sandler.

[Kashy Harrison, analyst]

So just a few for me. How much does Texas contribute annually to resi demand in a normal year on the resi side? And then on the C&I side, I was just curious if you've had any updates from your telecom rental customers on how they're thinking about the deterioration of the downturn? And then also, I was wondering if you could just speak to the sustainability of some of the strength you're seeing in the industrial distribution business in light of some of the weaker macro that we saw in 2Q?

[Aaron P. Jagdfeld, executive]

Got it. Thanks, Kashy. So yes, I mean, Texas is -- obviously, it's a big market. We don't break out each kind of state that way, but we have grown if you recall, back with the Texas freeze that event in February of 2021, we said our penetration rates were sub 3% then. Today, they're sub-5%. So in Texas, at 200 basis points roughly of penetration growth in Texas in a pretty brief period of time, about a little like 3 years' worth of time. So it's been an important part of growth here. And obviously, these events, both derecho in May and then the Hurricane Beryl event are going to continue to drive that market. forward. But again, still sub 6% at 5%. I mean, there's a lot of houses that said another way, as we like to tell our teams here, 95% of the homes in Texas don't have the product. So -- and they are all kind of potential targets for a generator, and it's a huge market. And so we're really bullish on that.

In terms of the kind of the question on telecom specifically, we kind of think this is the bottom here for telecom for us, especially relative to the comparisons last year, the current pacing though, the current run rate feels like it's at the bottom. In fact, the back half contemplates a little bit of increase, especially as we get into Q4. So kind of Q2, Q3 here is kind of the bottom for the telecom cycle as we see it and starting to maybe show some green shoots there or -- we're hopeful about 2025, but the reality of it is we don't have any solid forecast or information from our telecom partners at this point that would say that '25 is going to be better than '24. They haven't shared anything with us yet. But once they get to that stage of planning for next year, hopefully, we'll be able to relay some of that information as we get into the 2025 guidance next year.

But -- it's an important market. We have an outsized share there. So that's why it's kind of impacted us negatively this year with the pullback. But that's -- we're bullish about that long-term. As I said before, tower counts, hub counts, all those important elements of the infrastructure for wireless communications and then the critical nature of those comms and the need for reliable power infrastructure especially, again, when we have outage -- large outage events like Beryl, it really does highlight the need for hardening of those networks. So that we expect to be important long-term. And then your last question on the industrial distributors. Yes, we've done a lot. The current -- our team here, a leadership there, Eric Wilde and his team have done an awesome job really working through our distributors here in the U.S. and putting the other plans to make the right investments in whether it be sales, whether it's service whether it's our ability to support where we're selling direct, either through telecom or other opportunities.

We have to make sure we have that kind of coast-to-coast support. But also, we've done some acquisitions there. We've acquired a couple of distributors where we were underperforming in certain markets, and we felt that we could do better. And that actually has paid off quite well in the markets where we've done acquisitions, we've seen our share improve dramatically. Again, we were underneath our share nationally in those markets. So just getting to the share position would be an increase, but we've actually gone beyond that. So we've seen some really nice results there alongside kind of our organic efforts with development of the distribution partners.

So those are all paying off. We're gaining share, and we really like where we're going with that channel. It's helped kind of be a bellwether here as we weather the downturn in telecom and rental in 2024 here. That channel has performed quite well, and we expect it to continue to remain strong here through the next several years.

[Operator]

[Operator Instructions] Next question comes from Stephen Gengaro with Stifel.

[Stephen Gengaro, analyst]

Just a quick one for me. You talked earlier about sort of the impact of storms kind of reverberating kind of across other markets. And I'm just curious, a, have you seen that at all in IHCs and maybe even big, is there a historical precedent where you've actually seen a meaningful uptick in adjacent markets or not? Am I sort of reading a little too much into this.

[Aaron P. Jagdfeld, executive]

Yes. Stephen, it's a great question. I can tell you, historically, whenever you get a widespread outage, it makes people think, right? So as an example, in Texas, you get a hurricane hit in Texas early in the season, first cat 5 ever on record in the Atlantic, that early and people in Florida are watching. And so Florida IHCs, there is a reverberation there that's positive, that gets people to action quicker. We advertise on a national basis so that advertising resonates better when in the background, you have outages taking place. So we have historical reference points for that, and we certainly have seen some of that here as well.

Again, the only cautionary point I would put on that is that, for whatever reason, the Hurricane Beryl, Texas event was maybe less covered nationally. It's really quite a significant event relative to just the raw hours and the duration of the outages. And yet, nationally, the media just - I don't think covered it quite as well, maybe as they might have -- if that had happened, perhaps somewhere on the East Coast or somewhere on the West Coast. So -- and that happens. But nonetheless, that's a reality of some of the way those cycles work.

So -- but we are seeing, definitely, especially the Gulf Coast states when you get into hurricane season and somebody sees when people see a storm of that magnitude something that gets to that magnitude that quickly this early in the season and in particular, where we've got a very strong season still predicted. So I think that's another important element here. As it -- that hasn't gone away, right? Nothing's changed there. Yes, it's gone quiet here for a little bit. But normally, it would be in July and August or July, in particular, is usually a quiet month for events, but we'll see how it turns out the rest of the year.

[Operator]

Our next question comes from Jordan Levy with Truist Securities.

[Jordan Levy, analyst]

Appreciate you all squeezing me in here. I just wanted to get your thoughts quickly on the home standby. I don't think I heard you brought it up unless I missed it. I know it's kind of a quiet period for that, but just any thoughts on any traction in that segment?

[Aaron P. Jagdfeld, executive]

Yes. Thanks, Jordan. We're still bullish on that segment. It's just gone -- it's gone. As you said, it's been a little bit quieter here. The higher rate environment has made some of those projects a little more difficult to pencil out. Kind of what's interesting is it kind of falls along the lines of a lot of the other, I'll call it, kind of clean energy-related efforts in terms of the impact of high rates. And that's something that's created a situation where the projects haven't gone away, they just haven't gotten to closure. So I think what's happening there is those projects are kind of idling in the background, waiting for a more constructive rate environment.

And then we would expect that, that segment is still going to grow. We're a leader in natural gas gensets, which are used in those types of applications. I think one extension of that, that is becoming a little clearer, we're finding that the whole beyond standby category, which we had, I think, largely defined as just using a generator for purposes other than just emergency backup, using it to also supplement a grid that's under heavy stress. I think what we're finding is that maybe we have to expand our definition of that to include some of these microgrid projects as well. Because in effect, what's happening is many of the microgrid projects have natural gas generators as an important component but they also contain other pieces. They contain storage.

So the SunGrid acquisition that we announced this quarter. And then we talked a little bit about it in the prepared remarks, gets us closer to another critical component of microgrids, which is the behind-the-meter storage element of that. And then we also called out that we're seeing EV charging be part of these -- some of these projects as well. So commercial grade EV charging. So our partnership with Wallbox, I think, helps us be a little bit more of an important supplier to a microgrid project, and we continue to build out our competencies there in not only the assets but the ecosystem, if you will, as we call it, similar to the residential ecosystem, we think there's an ecosystem developing on the C&I side.

And we think that kind of that beyond standby moniker, kind of -- it's likely going to grow to include some of the activity we're seeing around these microgrid projects. So still bullish on it, but I think in a challenging rate environment, just I think it's softer than it will be longer-term.

[Operator]

[Operator Instructions] The next question comes from Donovan Schafer with Northland Capital Markets.

[Donovan Schafer, analyst]

I just want to see if we can get any more color on in the prepared remarks you said on the C&I. I think -- I believe it was on the C&I side but some of the weakness there was being offset by strength in India and that's always been a market that is kind of interesting to talk about. So what have you been seeing more recently on the ground? Anything impacted by election politics or anything like that. And just generally, any more color on the Indian market would be great.

[Aaron P. Jagdfeld, executive]

Yes. Thanks, Donovan. I mean India is -- it's a growing market for us. We through our Pramac subsidiary in Europe, we acquired an Indian manufacturer a number of years ago and expanded that relationship through our ownership of that in its entirety built a new factory there for that market. And that -- our positioning there is different than other Indian genset manufacturers and that -- and again, it's a little bit like a page out of the domestic playbook here. We're really focused on natural gas and most traditional solutions for backup power in the C&I markets globally, our diesel solutions.

And we do offer a diesel product line, but where we're getting the most traction is actually with our gas products. So those are products that are actually designed here in the U.S. built in India with our engines and our fuel systems and ignition systems, and then they're deployed in the Indian market. We're bullish on that because the Indian market is converting to natural gas. We see a lot of pipeline projects on the drawing board as part of the burgeoning infrastructure build-out in India. I think from -- if you just step back, India is poised very well to be the -- I think the chief beneficiary of some of the geopolitical tensions that have been rising between the U.S. and China.

India is in a very good position to see the growth in their economy come at probably at the detriment to China as a lot of manufacturers shift production away from China and move to places like India and other markets. In India, for all it is, it's -- there's still a lot of opportunity there. It hasn't grown as fast as China historically. A lot of that is just based on the infrastructure within the country is still not mature, has a ways to go, but there has been progress. I think the political environment in India has been more receptive to business here as of late in the last several years, which is also a positive. And again, I think we're bullish on India longer-term. It's still a small business for us. I think you just -- you put it all together, but it's a growing business, got nice growth rates. And again, we separate ourselves there by focusing on gas where other manufacturers are still focused on diesel.

[Operator]

The next question comes from Keith Housum with Northcoast Research.

[Keith Housum, analyst]

Just focusing more back on Texas, just real quick. In terms of historically, when major storms [indiscernible] have gone through, how long had that tailwind been towards sales there? Has it been just a quarter or 2? Has it been lasting longer?

[Aaron P. Jagdfeld, executive]

Yes. Thanks, Keith. It usually goes 2 to 4 quarters. Of course, the bigger the event, sometimes you'll get an echo that's even bigger than that. In fact, I would say with the Texas freeze of 2021 that echo has only recently been quieter. And some of that was exacerbated by the pandemic and just the impact that, that created for people being concerned about outages. But something like -- even like a Hurricane Sandy back in 2012, definitely went beyond the 2 to 4 quarters. It remains to be seen whether this event will rise to that. I think we're kind of sizing it on the smaller end of a major event at this point, just -- but again, that may change -- our views on that may change as time grows.

But I would say that at a minimum, this will take us through this year and into the first half of next year. Especially when you hit the anniversary of the event, right? Like that's when media picks up. Hey, remember a year ago, it started the hurricane season. Remember, we had Hurricane Beryl in July, kind of early in the season. So those things get picked up again. The media drives a lot of that kind of echo effect.

[York Ragen, executive]

And then to clarify, like these events, the way it works is that while you'll get a surge in demand and then that after will last for a while for a number of quarters, then it levels off at a new and higher baseline than where it was previously. So that's why these major events and the broad awareness created by them, you tend to increase distribution that props up they're actively in market now on an ongoing basis to continue to satisfy demand, and you hold up that new props up -- in our baseline going forward.

[Operator]

Next question comes from Chip Moore with ROTH.

[Alfred Moore, analyst]

Just wondering if you could expand a bit just on how you're thinking about back half of the year swing factors for that 4% to 8% revenue range. Obviously, it sounds like Beryl activations will play a large role. But just other key puts and takes. What are you baking in on consumer? Any softening there on the low end?

[York Ragen, executive]

No. I mean we're not necessarily seeing that in terms of...

[Aaron P. Jagdfeld, executive]

Not anything beyond what we already.

[York Ragen, executive]

Yes, exactly. In terms of change from our prior guidance for the most part, the guidance increase is the impact of Beryl particularly in Texas, but maybe some around the edges, broader awareness around the nation. And -- but we're not necessarily seeing a softening of the consumer that's offsetting that...

[Aaron P. Jagdfeld, executive]

Beyond what we are...

[York Ragen, executive]

Beyond what we are [indiscernible].

[Aaron P. Jagdfeld, executive]

Our guidance did contemplate for some -- Yes. We have talked about that in terms of [indiscernible].

[York Ragen, executive]

For instance, close rates are hanging in there. Now maybe we'll -- with the with the large increase in IHCs from Texas, maybe those won't all close at the same rate. So maybe you'll see a temporary moderation in close rates. But for the most part, close rates are hanging in there around the nation.

[Operator]

This concludes the question-and-answer session. And I would now like to turn it back to Kris Rosemann for closing remarks.

[Kris Rosemann, executive]

We want to thank everyone for joining us this morning. We look forward to discussing our third quarter 2024 earnings results with you in late October. Thank you again, and goodbye.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.