Good morning, and welcome to our second quarter 2022 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer; and York Ragen, Chief Financial Officer. We will begin our call today by commenting on forward-looking statements. Certain statements made during this presentation as well as other information provided from time to time by Generac or its employees may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today's call. Additional information regarding these measures, including reconciliation to comparable U.S. GAAP measures, is available in our earnings release and SEC filings. I will now turn the call over to Aaron.

Thanks, Mike. Good morning, everyone, and thank you for joining us today. Our second quarter results were very strong with robust revenue growth, significant sequential margin expansion, and all-time records in net sales, adjusted EBITDA, and adjusted EPS. Shipments of home standby generators and global C&I products outperformed our previous expectations, primarily driven by continued progress on our capacity expansion and our team's ability to effectively manage the challenging supply chain environment. Growth in adjusted EBITDA margins were also ahead of our expectations in the quarter, reinforcing our prior forecast of margins bottoming in the first quarter. Gross margins benefited from favorable product mix, largely driven by home standby generators. These dynamics drove adjusted EBITDA margin outperformance and sequential margin expansion, combined with impressive top line growth, resulting in an all-time quarterly record for adjusted EBITDA dollars. Positive underlying demand trends led to continued backlog strength with C&I products and home standby backlog, both providing us with considerable visibility for the quarters ahead. Year-over-year, overall net sales increased 40% to $1.29 billion and grew sequentially from the first quarter of 2022, which was the previous all-time record. Strong momentum in core sales, which excludes the impact of acquisitions and foreign currency, continued in the quarter with 33% growth over the prior year. Overall, residential sales growth was again very robust, driven by a substantial increase in shipments of home standby generators as well as the impact from recent acquisitions. The C&I sales increase was broad-based, led by growth across all channels domestically, all regions internationally, and the contribution from recent acquisitions. Adjusted EBITDA margins expanded sequentially from 17.3% in the first quarter to 21% due to improved price realization and the moderation of input costs. Importantly, we expect growing realization of previously announced price increases in the second half of the year, further execution on cost reduction projects, and continued easing of input cost headwinds resulting in sequentially improving margins over the remainder of the year. Now discussing our second quarter results in more detail. Shipments of home standby generators grew at an exceptionally strong rate over the prior year. Growth also accelerated sequentially from the first quarter as we continued to expand production and power outage activity in the U.S. as measured on a rolling 4-quarter basis at the end of the second quarter remained above the long-term baseline average. In addition to elevated baseline outage activity in the U.S., severe storms left more than 1 million utility customers without power in Ontario and Quebec in May, which resulted in robust leading indicators of demand in Canada as well. Power grid stresses are expected to persist, with forecasts for the upcoming hurricane season pointing to another year of above-average activity and multiple grid operators warning of potential outages as a result of excessive demand coinciding with supply challenges. Home consultations or sales leads continue to point to strong underlying demand for home standby generators, growing at a mid-teens rate despite a strong prior year comparable period driven by the Texas winter storm event in February of 2021. This demand was broad-based, with 4 or 5 regions experiencing year-over-year growth in home consultations in the quarter. To frame just how much home standby baseline demand has grown over the last several years, second quarter home consultations were more than 4 times greater than pre-COVID levels seen in the second quarter of 2019. Importantly, strength in this leading market indicator has continued here in the month of July. In addition, activations, which are a proxy for installs, continued to grow at a solid rate in the second quarter compared to the prior year, led by the South Central and Midwest regions as we further added to our residential dealer base as we ended the quarter with approximately 8,200 dealer partners. We continue to make excellent progress increasing our production levels for home standby generators, with daily build rates dramatically higher as compared to prior year levels and ramping sequentially as our Trenton, South Carolina facility continues to expand capacity. As we have increased build rates, lead times have continued to improve, and we are getting product in the hands of our customers and channel partners in a more consistent and timely basis. As a result of this progress, close rates on our sales leads have begun to improve, supporting our belief that reducing our lead times will improve our ability to capture more of the new and higher baseline of home consultations or sales leads within our sales pipeline. Our build rates and supply chain challenges have been the main growth constraint for the home standby category over the last few years. We have now ramped production capacity to the point that our lead times for the product category have materially improved. However, the constraint has now shifted to the installation capacity of our dealer base, driven primarily by contractor labor availability, permitting, and utility-related delays and shortages in certain materials needed to complete an installation. As a result, project lead times for homeowners, as measured by the time between the signed contract and the installation date, have not come down in proportion with our production lead times. We have a number of initiatives focused on increasing installation bandwidth in the market, including aggressive campaigns to add new dealers to our network, cultivate and train non-dealer contractors on home standby installations, and decrease the overall time associated with the project. Additionally, as housing construction activity begins to slow, we believe we have a greater ability to focus installing contractors on improving the pace of home standby installations. I'd now like to discuss our increasingly diverse suite of clean energy products and solutions. With the closing and integration of the ecobee acquisition, and given the growing commercial sales synergies and cross-functional initiatives between residential energy storage and microinverters, monitoring and management devices and grid services solutions, we now have one of the broadest portfolios of clean energy products and solutions in the industry. Net sales from these combined clean energy products grew well over 50% on an as-reported basis in the second quarter over the prior year. Macroeconomic uncertainty, input cost pressures, industry-wide supply chain and logistics challenges, and lack of clarity around regulatory policy have impacted residential clean energy markets as of late. But rising prices for traditional energy sources and a growing focus on energy independence and security have the potential to more than offset these concerns and continue to drive adoption of alternative and emerging solutions over time. Additionally, we're very encouraged by last week's announcement of the Inflation Reduction Act as a potential positive catalyst for demand, although it's still not fully through the legislative process. As we work to capture this demand, our residential clean energy installer network continues to grow as we ended the second quarter with approximately 2,800 trained and certified technicians, with approximately 1,150 registered dealers on our PowerPlay sales platform. We remain excited about the new and innovative products we're bringing to market in 2022, including the recent product launch of PWRmanager and the pending launches of our PWRgenerator, which is the industry's only engine-driven battery charger, an AC coupling solution for our PWRcell storage product for use in retrofit applications and our new PV microinverter product called the PWRmicro. As expected, we began shipping PWRmicros for beta testing in June and are now working to expand beta testing with a full commercial launch expected in the fourth quarter. I'd now like to provide a quick update on ecobee. Integration is proceeding as planned, and we continue to make good progress in developing cross-selling opportunities for ecobee's hardware solutions through Generac's distribution partners. The ecobee team successfully launched 2 new thermostats with industry-leading features during the quarter. And high temperatures and rising energy costs across North America are driving increased interest in the smart thermostat category. Early reception on these new products has been encouraging, reinforcing ecobee's differentiated competitive position, focused on intelligent, intuitive, feature-rich devices that maintain comfort while unlocking significant value creation and energy conservation for homeowners and grid operators. This differentiation also drives significant market opportunity for ecobee's energy services offering, which has been further enhanced by synergies with Generac's grid services efforts. ecobee's installed base of more than 2 million connected homes is particularly valuable to grid operators seeking load flexibility and resilience. Consumer awareness of elevated energy market volatility is also driving potential growth for recurring services revenue as ecobee enables consumers to take advantage of variable rate pricing structures. Additionally, we are beginning to leverage the amazing talent within the ecobee team to help accelerate the development of our residential energy ecosystem, a key element of our connected devices strategy. Now expanding a bit more on Generac Grid Services, the team continues to drive momentum in its increasingly impressive and diverse sales pipeline, building on the recent success across software-as-a-service, turnkey, and performance contracts as well as experiencing an increasing mix of hardware sales, which are proving to be a competitive differentiator for our Grid Services business. From distributed generation and storage to load flexibility assets, our grid services suite of solutions is unmatched in the market. We announced a number of recent contract wins since our first quarter call that highlighted our expanding capabilities, including EV charging, monitoring and optimization, a turnkey program for low- and moderate-income households utilizing PWRcell energy storage systems, and a unique solution for the German power market. Utilities and grid operators continue to warn of potentially significant disruptions to the power grid as a result of supply/demand imbalances, underscoring the need for new technologies to decentralize and digitize the power grid through the development of virtual power plants or VPPs. As an example, this need was on full display during the recent heatwave in Texas, as a number of home standby generators enrolled in the VPP program were autonomously controlled by our Concerto software platform to take demand off the grid and help keep critical community resources online. The market opportunity for residential energy storage and microinverters, monitoring and management devices, and grid services solutions remains extremely compelling and we believe will prove to be a key long-term future growth driver for Generac. For the full year 2022, we expect net sales of these clean energy products and solutions to approximately double from the prior year to more than $500 million in sales, with strong core and inorganic growth contributions and an even larger opportunity in the years ahead. Now let me make some comments on our C&I products, which also grew at a strong rate in the second quarter across nearly all end markets and geographies. Specifically, global C&I net sales increased 22% on an as-reported basis and 16% on a core basis compared to the prior year. Strong growth in net sales for domestic C&I products in the second quarter was led by national rental equipment and telecom customers as well as our North American distributor channel. We saw continued strength in demand during the quarter, which contributed to a further increase in our backlog for C&I products and supports our expectations for solid growth to continue in the category. Shipments of C&I stationary generators through our North American distributor channel also grew significantly in the second quarter, and improving close rates helped drive growth in orders and backlog in this channel. Strong momentum in quoting activity has continued as of late, highlighting the sustainability of demand trends for backup power for C&I applications. Shipments to national telecom customers increased again during the second quarter as compared to the prior year as several of our larger telecom customers further invest in hardening their existing LTE sites and begin to build out their fifth-generation or 5G networks. Telecom infrastructure upgrades remain one of the key megatrends we expect to drive growth for our business in the coming years. We also experienced substantial growth with our national and independent rental equipment customers during the quarter. These customers have been investing heavily in equipment to refresh and expand their fleets to serve increased commercial construction activity as well as other infrastructure projects, supporting a resilient demand environment for mobile products and the megatrend of the critical need for infrastructure improvements. We also continue to see material traction in orders for Off Grid Energy's mobile energy storage systems from our key North American rental channel partners as they work to reduce the carbon footprint of their equipment fleets. Momentum remains strong across our domestic C&I channels and is being supplemented by emerging capabilities that support the long-term growth profile of the category. Specifically, we're establishing a strong reputation and applications beyond traditional emergency standby projects, driven by our ability to deliver customized turnkey solutions to serve this market. Our unique hardware and software portfolio in this vertical is highlighted by expanding smart grid-ready features that allow connection to grid services programs. Large C&I generators can provide enhanced resiliency and stability for grid operators while simultaneously providing a tangible and meaningfully improved return on investment for the asset owners, which is driving demand for these solutions across a diverse range of customers. Strong momentum also continued in our international segment, with total sales increasing 43% year-over-year during the second quarter, with 34% core sales growth when excluding the benefit of the Deep Sea and Off Grid Energy acquisitions and the unfavorable impact of foreign currency. The core sales growth was driven by strength across all regions, most notably in Europe and Latin America. The European region has seen strong demand across product lines as the heightened focus on energy independence and security that emerged following Russia's invasion of Ukraine has continued. But longer-term implications are uncertain as geopolitical and macroeconomic conditions in the region remain volatile. International energy security concerns are not unique to Europe, and we are evaluating additional opportunities for home standby generators across multiple regions as a result. External sales in the Latin American region continued to grow at a solid rate, while intersegment sales grew substantially as our Generac Mexico operations continue to ramp production of telecom products for the North American market. In addition to strong core growth, our recent international acquisitions, Deep Sea Electronics and Off Grid Energy reported impressive results in the second quarter. Demand for Off Grid Energy's mobile storage systems continues to grow across our global distribution footprint as we integrate the product offering through our commercial sales branches and channels. In addition, we have several product development projects underway within the C&I energy storage category, including expansion of the power capacity range of the mobile product lineup as well as potential stationary applications. Concerns around power security and energy prices in key international markets underpin the opportunity for an increasingly broad storage product portfolio for C&I applications. Deep Sea also benefited from healthy global demand for advanced generator controls during the quarter. And we remain very excited about the additional engineering capabilities Deep Sea brings as we leverage the team's electronics controls expertise to advance product roadmaps across our enterprise. Our international segment has also experienced much stronger profitability despite inflationary headwinds and supply chain challenges. Second quarter adjusted EBITDA margins expanded to 14.5% from 9.7% in the prior year period due to the accretive margin profiles of the Deep Sea and Off Grid acquisitions, improved overhead absorption, and better operating leverage on significantly higher volumes. In closing this morning, I'm extremely proud of our team's continued ability to deliver record results and maintain our 2022 outlook despite the developing uncertain economic environment. Our strong sequential margin improvement reinforces our expectation that margins bottomed in the first quarter of 2022 and will continue to improve throughout this year. Additionally, our recent refinancing has provided further liquidity to accelerate our evolution into an energy technology solutions company. We remain focused on executing against our Powering a Smarter World enterprise strategy, and the megatrends supporting this strategy are as compelling as ever, many of which have the potential to decouple from the broader macroeconomic environment. Structural supply-demand imbalances facing the grid are not impacted by inflation, and increasingly severe and volatile weather cannot be slowed by higher interest rates. The energy ecosystems that we are building for the future will give our end customers the ability to take control of their power security, lower their energy bills, and reduce energy consumption while also helping utilities and grid operators to balance supply and demand. With our broad portfolio of products and solutions, combined with our services, our distribution, our brand, and importantly, our expertise, Generac is uniquely positioned to lead the evolution to a more resilient, efficient, and sustainable energy future. I now want to turn the call over to York to provide further details on our second quarter 2022 results and our outlook for the year.

Thanks, Aaron. Looking at second quarter 2022 results in more detail, net sales increased 40% to $1.29 billion during the second quarter of 2022, another all-time record, as compared to $920 million in the prior year's second quarter. The combination of contributions from acquisitions and the unfavorable impact from foreign currency had an approximate 7% impact on revenue growth during the quarter. Briefly looking at consolidated net sales for the second quarter by product class, residential product sales grew to $896 million as compared to $600 million in the prior year, representing a 49% increase despite a strong prior year comparable. Contributions from our clean energy acquisitions and the unfavorable impact of foreign currency contributed approximately 7% of revenue growth for the quarter. Home standby generator sales made up the vast majority of the residential product core sales growth, increasing by more than 50% over the prior year as we continue to expand production capacity for these products. Commercial and industrial product net sales for the second quarter of 2022 increased 22% to $309 million as compared to $254 million in the prior-year quarter. Contributions from the Deep Sea and Off Grid acquisitions and the unfavorable impact of foreign currency had a net impact of approximately 6% on net sales growth during the quarter. The strong core revenue growth was broad-based, driven by growth across all regions globally and all channels domestically. Net sales for other products and services increased 31% to $86 million as compared to $66 million in the second quarter of 2021. Contributions from acquisitions and the impact of foreign currency contributed approximately 13% of this revenue growth during the quarter. Strength in aftermarket service parts continues to be a key driver of the core sales growth in this category due to a larger and growing installed base of our products in the field, which is also leading to higher levels of extended warranty revenue. Also contributing to the increase was continued growth in our services offering in certain parts of our business. Gross profit margin was 35.4% compared to 36.9% in the prior-year second quarter as the challenging supply chain and overall inflationary environment drove higher input costs during the quarter. Specifically, the lagging impact of elevated commodity prices and other surcharges, higher inbound logistics and expediting costs, increased labor rates, and continued plant ramp-up costs all pressured margins relative to the prior-year quarter. The increasing realization of multiple pricing actions previously implemented and favorable sales mix partially offset these higher input costs. We're very encouraged that gross margins expanded 360 basis points on a sequential basis as pricing benefits increased and input costs began to ease during the second quarter, reinforcing our expectation that margins have bottomed in the first quarter. Operating expenses increased $83 million or 53% as compared to the second quarter of 2021. This increase was primarily driven by higher recurring operating expenses from recent acquisitions and an increase in intangible amortization expense. Higher employee costs and additional variable expenses from the significant increase in sales volumes also contributed to the increase. Operating expenses, excluding intangible amortization as a percentage of revenue, increased approximately 75 basis points as compared to the prior year period due to the impact of recent acquisitions that have a higher operating expense load relative to sales as those businesses scale for future growth. Adjusted EBITDA before deducting for noncontrolling interest as defined in our earnings release was an all-time record $271 million or 21% of net sales in the second quarter as compared to $218 million or 23.7% of net sales in the prior year. The decline in EBITDA margin versus prior year was driven by the previously discussed decline in gross margins and higher operating expenses. But again, we're very pleased with the 370 basis point sequential improvement in EBITDA margins relative to Q1 2022. I will now briefly discuss financial results for our 2 reporting segments. Domestic segment total sales, including intersegment sales, increased 42% to $1.13 billion in the quarter as compared to $793 million in the prior year, with the impact of acquisitions contributing approximately 6% of the revenue growth for the quarter. Adjusted EBITDA for the segment was $242 million, representing a 21.5% margin as compared to $204 million in the prior year or 25.7% of net sales. The lower domestic EBITDA margin in the quarter was primarily due to higher input costs and the impact of acquisitions, partially offset by the increasing realization of previously implemented pricing actions and favorable sales mix. International segment total sales, including intersegment sales, increased 43% to $203 million in the quarter as compared to $142 million in the prior-year quarter. Core sales, which excludes the impact of acquisitions and currency, increased approximately 34% compared to the prior year. Adjusted EBITDA for the segment before deducting for non-controlling interests was $29.5 million or 14.5% of net sales as compared to $13.7 million or 9.7% of net sales in the prior year. The significant expansion in international EBITDA margins was primarily due to strong margin contributions from the Deep Sea and Off Grid Energy acquisitions and improved overhead absorption and operating leverage on significantly higher sales volumes. Now switching back to our financial performance for the second quarter of 2022 on a consolidated basis. As disclosed in our earnings release, GAAP net income for the company in the quarter was $156 million as compared to $127 million for the second quarter of 2021. GAAP income taxes during the current year quarter were $45.8 million or an effective tax rate of 22.5% as compared to $46.4 million or an effective tax rate of 26.6% for the prior year. The decrease in effective tax rate was primarily due to a discrete tax item in the prior-year quarter, resulting from a legislative tax rate change in a foreign jurisdiction that unfavorably revalued deferred tax liabilities by $7 million, which had an approximate 4% tax rate impact to the prior-year quarter. Diluted net income per share for the company on a GAAP basis was $2.21 in the second quarter of 2022 compared to $2.01 in the prior year. Adjusted net income for the company, as defined in our earnings release, was $194 million in the current year quarter or $2.99 per share. This compares to adjusted net income of $153 million in the prior year or $2.39 per share. Recall from last quarter, and as disclosed in our reconciliation schedules in our earnings release, our adjusted net income and EPS for the current year no longer adjust for cash taxes due to the expiration of our significant tax shield that originated from our LBO transaction in 2006. Cash flow from operations was $24 million as compared to $123 million in the prior-year second quarter. And free cash flow, as defined in our earnings release, was $6 million as compared to $96 million in the same quarter last year. The decline in free cash flow was primarily due to a much higher working capital investment in the current year quarter, partially offset by higher operating earnings. Inventory levels stabilized in the second quarter, so the higher working capital investment during the current year quarter was primarily driven by an increase in accounts receivable, given sequential sales growth and a reduction in accounts payable as we optimize inventory levels and purchasing patterns. We expect free cash flow conversion to return to the historical long-term average in the second half of 2022, resulting in approximately 90% conversion of adjusted net income to free cash flow. We significantly enhanced our liquidity profile in the second quarter with the amendment of our existing credit facilities. This included establishing a new term loan facility in an aggregate principal amount of $750 million and a new revolving credit facility in an aggregate principal amount of $1.25 billion, which was unfunded at closing. Proceeds from the $750 million new term loan were used to prepay $250 million of the existing term loan B facility and to fully pay off the existing ABL revolving credit facility, which had $285 million outstanding at closing, with the remaining funds added to the balance sheet to be used for general corporate purposes. Our new term loan A and revolving credit facility mature in June 2027. These new debt facilities will initially bear interest at SOFR plus 150 basis points through the end of 2022. And beginning on January 1, 2023, the applicable spread will range from 125 to 175 basis points based on the company's total leverage ratio. Additionally, our existing term loan B does not mature until December 2026. We do not have any required principal payments on this facility until the maturity date, and it has a low cost of SOFR plus 175 basis points. We also maintained our interest rate swap arrangements that fix our interest rate exposure on approximately $500 million of this debt through the maturity date of December 2026. As of June 30, 2022, we had approximately $1.72 billion of liquidity, comprised of $467 million of cash on hand and $1.25 billion of availability on our revolving credit facility. Also, total debt outstanding at the end of the quarter was $1.37 billion, resulting in a gross debt leverage ratio at the end of the second quarter of only 1.5 times on an as-reported basis. Before discussing outlook, I want to highlight that we've been repurchasing our shares opportunistically thus far in the third quarter. In fact, we have exhausted the remaining $124 million of share repurchase authorization that existed as of the end of the second quarter. As a result, on July 29, 2022, the company's Board of Directors approved a new stock repurchase program that allows for the repurchase of up to $500 million of our common stock over a 24-month period. With that, I will now provide further comments on our outlook for 2022. As Aaron previously discussed, we are maintaining our sales growth and adjusted EBITDA margin guidance for the full year 2022. We continue to expect net sales to increase between 36% to 40% as compared to the prior year on an as-reported basis, which includes an approximate 4% to 7% net impact from acquisitions and foreign currency. This revenue outlook still assumes shipments of residential products increase at a mid- to high 40% rate during 2022. And revenue for C&I products is still expected to grow at a high teens rate compared to the prior year. Looking at seasonality for the second half of the year. Revenue is expected to increase sequentially in both the third and fourth quarters, continuing the strong double-digit year-over-year growth trends, with fourth quarter sales levels up more modestly above the third quarter. Looking at our gross margin profile. As discussed, we expect that margins have bottomed in the first quarter. We continue to expect fourth quarter gross margins to recover back to first quarter 2021 levels in the 40% range, driven by increasing price realization, continued easing of inflationary pressures through the remainder of the year and further materialization of cost reduction benefits. This would result in gross margin percent for the full year 2022 to be approximately in line with 2021 levels, which is consistent with our previous expectations. Operating expenses as a percent of sales, excluding amortization expense, for the full year 2022 are still expected to increase approximately 100 basis points compared to full year 2021, primarily due to the impact of recent acquisitions that have a higher operating expense load relative to sales as they continue to invest for future growth. Adjusted EBITDA margins before deducting for non-controlling interests are still expected to be approximately 21.5% to 22.5% for the full year. From a seasonality perspective, adjusted EBITDA margins are projected to improve sequentially in the second half, primarily driven by improving gross margins as previously discussed, with fourth quarter 2022 adjusted EBITDA margins approaching 26%. Several additional guidance themes that we provide to assist with modeling adjusted earnings per share and free cash flow require updating for the full year 2022. Our GAAP effective tax rate is now expected to be approximately 24% for the remaining quarters of the year, resulting in a full-year 2022 GAAP effective tax rate of approximately 23%. For full-year 2022, we now expect interest expense to be approximately $52 million to $54 million, an increase from the previous guidance of $42 million to $44 million, reflecting our updated capital structure due to the refinancing of our credit facilities in June 2022. In addition, we have revised our interest rate assumptions to align with the latest market expectations for SOFR in the latter half of 2022. This assumes no further changes in outstanding debt for the rest of the year. Depreciation expense is anticipated to be around $54 million to $56 million in 2022, based on our expected CapEx guidance. GAAP intangible amortization expense for 2022 is now projected to be roughly $100 million to $105 million, updated from our previous estimate of the upper end of the $95 million to $100 million range. Stock compensation expense is still estimated to be between $32 million and $34 million for the year. We now expect the full-year weighted average diluted share count to be at the lower end of the previous guidance range of approximately 65 million to 65.5 million shares, due to our share repurchase activity in July 2022. Our capital expenditures are still forecasted to be about 2.5% to 3% of our projected net sales for the year. Additionally, free cash flow conversion is expected to revert to historical averages of about 90% in the second half of the year. Lastly, this 2022 outlook does not account for any potential additional acquisitions or share repurchases that could enhance shareholder value.

This concludes our prepared remarks. At this time, we'd like to open up the call for questions.

Your first question comes from Michael Halloran of Baird.

So there's a lot of great content in there. Could you just help me triangulate with something? You're talking about backlogs that are starting to be filled, lead times coming down, at the same time, really good IHC consultations, and you feel pretty good about the underlying demand environment. So could you maybe give some context to what that backlog bleed has looked like or what the inventory lead times look like? And maybe put that in context for the visibility that you have, how far out that tracks relative to a typical timeline?

Yes, Mike, this is Aaron. The lead times for home standby units have decreased to an average of 8 to 10 weeks, which is a direct result of our efforts to increase production and was always part of our plan. We are particularly encouraged by the front-end lead generation and the end market performance, which is exceeding our expectations. There are a few catalysts contributing to this. First, we have received multiple high-profile warnings from utilities and grid operators regarding potential supply shortages, which is new this year. Additionally, the hurricane season forecast is above average, even though it has been quiet so far. Lastly, there was a significant outage affecting 1 million utility customers in Ontario and Quebec about 1.5 months ago, which highlights the importance of the Canadian market for us. We have over 500 dealers there, and the demographics align well with our target buyers. The impact of that outage has been noticeable in our regional statistics. Overall, end market demand remains strong, and we are continually ramping up production to reduce lead times.

The backlog part of that question then, Aaron? Where is the backlog rough and tough? And then maybe some thoughts on how far that visibility stretches out for you at this point?

Yes. Home standby visibility has historically been weak because we typically don't have a backlog. However, we have been in a backlog situation for nearly two years as we work to increase production and address supply chain challenges. This backlog remains substantial. In fact, as we have mentioned before, we anticipate still having a backlog when we finish this year. Despite our ongoing increase in production output, we will not fully catch up by year-end. We will work to reduce lead times, but the home standby backlog is still considerable.

And your next question is from Julien Dumoulin-Smith, Bank of America.

So let me just come back to the gross margin question. Obviously, you guys reaffirming here the outlook and troughing off 1Q. Can you comment a little bit about some of the input cost reductions flowing through? How much latitude should that provide you as you look forward going into your longer-term outlook, '23-'24, etc.? How much is that going to cascade? And also, can you speak a little bit more about repricing the backlog, the success and perhaps pricing trajectory given some of the moderation in the cost input here?

Yes, Julien, this is York. We achieved 35.4% gross margins in the second quarter and are pleased with the improvement from Q1. We are beginning to see the effects of our pricing initiatives. In April, we announced a price increase that went into effect on June 1, which affected the backlog. We also have additional pricing changes from late last year that will impact the backlog in Q3. As we mentioned, we reached a 35.4% gross margin in Q2 and expect to approach 40% by the year's end. This increase of about 4% to 5% will be driven by price realization and a moderation of input costs. As we observe commodities starting to decline, we'll see their lagging effects. Realization always has a lag when commodity prices change. We expect to see some of these benefits in the latter part of the year. Inbound freight costs are decreasing, and some of our expediting costs are also down, which is improving plant absorption. We are working on cost-reduction projects related to our product build and materials, which will come into play in the second half. All of this makes us confident in our trajectory of sequential margin improvement, and we believe that by the end of 2022, we will be comfortable with our margin profiles, similar to those in early 2021 before inflationary pressures arose.

Got it, yes. It sounds like maybe there's even more latitude there as you continue to compound with some of these benefits. But maybe just if I can pivot quickly, I know you said high teens for C&I. Just with respect to that business and obviously, there's a litany of reasons why you should continue to see some of that input. How is that trajectory going today? And how much is that helping some of the backlog commentary here to just continue to keep that at a robust level? I know that, obviously, the backlog here is normalizing for some of the factors from last year. But can you comment a little bit on C&I here and how that could complement the backlog?

Yes, Julien, this is Aaron. We really should discuss the C&I business more often. It’s a strong segment that has been growing well and is benefiting from several megatrends. Specifically, in the telecom market, we hold a significant share and supply all the major Tier 1 carriers in the U.S., along with many secondary and tertiary players. We offer a diverse range of products and engineer specific solutions for various network applications. Although many of our gen-sets might seem standard, they are tailored to meet the unique needs of each customer’s network. This customization is key. Furthermore, as telecom companies invest heavily to enhance their networks and expand fifth-generation services, we expect to continue benefiting from this trend for the next several years. Another trend is in the rental space. Our rental partners have been refreshing their fleets after reducing purchases during the uncertainty of the COVID-19 pandemic. As the economy picked up due to stimulus spending, these partners discovered they had older or inadequately sized fleets for market demands. We lead in areas like power generation, temporary lighting, dewatering, and heating applications, and our products are in high demand among major rental accounts. This has turned out to be a very successful business segment. Additionally, our international C&I business is performing exceptionally well. While we have a growing residential segment, we’re also witnessing increased home standby activations globally, driven by ongoing power security concerns, both in the U.S. and worldwide. The international side has excelled for several quarters, especially against the backdrop of energy security issues in Europe. The need for reliable power, particularly given global conflicts like the Russia-Ukraine situation, emphasizes the long-term demand for backup generation. Overall, the C&I business is thriving, with positive book-to-bill metrics this quarter and growth in our backlog.

And your next question is from Philip Shen of ROTH Capital Partners.

Some of our checks indicate that lead flow has decreased in certain regions. While some areas maintain a healthy lead flow, others have seen declines, with some reporting decreases of 25% to 40% compared to four or five months ago. Can you discuss how this might serve as a leading indicator? I know you mentioned healthy IHCs, but lead flow does play a role in that. Additionally, could you provide insights on lead flow for the solar business? When you launched the solar division, generating lead flow was a critical point of differentiation. How does this impact your ability to create value for your dealers?

Yes, thank you, Phil. I'll clarify that, focusing mainly on leads. Let's discuss home standby leads. In four out of five regions, we experienced a quarter-over-quarter increase, with significant growth in some areas. The only region that saw a decline was South Central, specifically Texas. If we exclude the impact of the February 2021 winter event, Texas had very high lead numbers a year ago. Notably, Texas still generated the highest number of leads compared to all 50 states in the quarter, despite the decrease in the South Central region. Therefore, if you're conducting channel checks, Texas is the exception based on our data. As we mentioned before, we are excited about the lead activity because it's an excellent indicator of future market trends. We have been tracking sales leads for nearly a decade, and it reliably predicts future volumes. Regarding our clean energy business, leads have been a significant differentiator for us compared to competitors, aiding us in attracting new channel partners and dealers. Providing leads to customers in the solar market, for instance, addresses their historically high customer acquisition costs. We excel in this area based on our experience, and our channel partners recognize its value. That said, there is more potential for us to improve our market approach, including our messaging, media buying strategies, and targeted regions. Overall, we've seen promising success in the clean energy sector recently.

Great. Regarding backlog, we have discussed it a bit already, and some of our conversations with dealers indicate that the 22- and 24-kilowatt products are essentially up to speed, with a lead time of about 1 to 2 weeks. It appears that the liquid-cooled generators have the longer lead times. I am curious if that assessment is accurate. Additionally, how many cancellations have you experienced in your backlog? Some contacts mentioned that their inventory is full and they don't require as much due to current circumstances. I'm interested to know if you are observing any similar trends.

Yes. Regarding lead times, the current category averages around 8 to 10 weeks for both air-cooled and liquid-cooled products. Some specific SKUs do perform better than that average, while others take longer, often due to component supply challenges. For instance, we are launching the 26-kilowatt product this month, which has contributed to an increased backlog, resulting in longer lead times. In the air-cooled segment, we've encountered some component shortages and constraints, and on the liquid-cooled side, despite strong demand, our production output has faced some supply chain issues. We are actively working to reduce these lead times. It's important to note that average lead times can vary for different dealers; some may be eager for more product while others, especially smaller dealerships, may lack the storage space or financial capacity to take on additional inventory. Many smaller dealers are also struggling with installation bandwidth, labor shortages, and various delays related to permitting and utilities, which impact their operations as we ramp up our production. We are collaborating with our channel partners to address these issues, whether by engaging with local authorities about permitting or by assisting our dealers in hiring contractors. Additionally, we continue to bring new dealers onboard, adding 100 in the past quarter, totaling 8,200. In terms of cancellations, our order policy is generally accommodating, allowing cancellations or deferrals, particularly among smaller dealers facing constraints. While this is something we manage on a case-by-case basis, overall, cancellations do not represent a significant issue in the bigger picture. We're also promoting programs like our Wells Fargo partnership to help dealers stock products and ensure they are prepared for the upcoming season, which is a critical message we are sharing in the field.

And your next question is from Jeff Hammond of KeyBanc Capital Markets.

Okay. If we could just get into battery storage. I think you said there's some noise and I know there's a lot of supply chain issues. So just talk about what's going on in that business and what kind of your growth expectation or updated growth expectation is on that.

Yes, that's great. Thanks, Jeff. I appreciate it. Regarding storage, we have faced numerous supply chain challenges, particularly in the second quarter, which was our most difficult period. The issues were not related to cell supply but rather stemmed from difficulties with various electronic components, including microprocessors and FETs, which are essential for our inverters, storage cabinets, and storage devices. This created significant obstacles in the quarter, but we are hopeful that the second half will see improved supply of these components. Demand has remained robust, especially with clean energy leads showing good strength. There has been considerable discussion regarding the regulatory environment, including questions about the 'Build Back Better' initiative and the Inflation Reduction Act, which still has challenges to overcome but could drive additional demand, as mentioned in our prepared remarks. We continue to feel confident about our position in storage, though the supply chain issues have impacted us in Q2. Looking ahead, we have a positive forecast for the remainder of the year. Rather than focusing on specific megawatt numbers, we believe it's more meaningful to discuss the diversity of our clean energy business, which encompasses energy monitoring, management, grid services, power generators, and load management controls. As we've indicated, we expect the total offering in clean energy, including smart thermostats and associated products, to exceed $500 million for the year, which would be roughly double last year's figure. We feel very optimistic about the future of this business.

Okay, great. Many of my companies have incorporated a significant amount of working capital in the first half. Given the supply chain and demand situation, I am curious if you have updated the free cash flow guidance and how significant you believe working capital could be in the second half.

Yes, Jeff. This is York. We noted that based on our performance so far, we feel good about our working capital as we enter the second half of the year. We observed that inventories stabilized in the second quarter. As a result, we anticipate returning to a more normal free cash flow conversion for the entire second half of the year. Typically, the normal cash flow conversion for our business is around 90%. It may lean more towards Q4, but overall, we expect free cash flow conversion to improve and revert back to standard levels for this business in the second half.

And your next question is from Brian Drab of William Blair.

On home standby, field rates, you mentioned, are up significantly year-over-year, obviously. Can you quantify how much we're up year-over-year for second quarter build rates? And where is your capacity now relative to what you feel you need in that business?

Well, we did mention shipments were up over 50% for home standby, which is indicative of our build rates for this category.

Of our build rates. Yes, being free there. That's a good proxy for that.

Yes. I believe as we get Trenton operational and add another set of machine tooling in the second quarter, we will reach our projected capacity increases. This also allows some extra capacity beyond what we currently have, enabling us to ramp up if a significant demand arises. We are positioned well in terms of capacity based on our current expectations.

Okay, can you provide any details about the plans for capacity expansion in the medium term? Is there another phase of capacity expansion expected in the next couple of years? Do you believe that will be necessary?

Well, there could be, Brian. Last year, we decided to obtain an additional machine to fill an order, even though we don't currently have a delivery address. We'll monitor how the season unfolds. If the aggressive hurricane forecast that's been predicted happens, it's not included in our guidance. In that case, we would likely need to find a location for that tooling. This could involve expanding our Trenton facility, which is capable of expansion, or it might be another new site. For now, we're taking a wait-and-see approach to the market. However, we believe that as the category continues to grow, additional capacity will eventually be necessary.

Okay. Lastly, you mentioned there is a lot of discussion on IHCs. Did you specifically say whether IHCs increased from the first quarter to the second quarter?

I don't have that information right now, but yes, they were up sequentially. They have been experiencing significant growth in Q2, particularly due to the catalyst I mentioned. To be frank, we have been surprised by the strong demand in the end market. This indicates that the category is becoming more mainstream, serving as a common appliance for homeowners.

In fact, they were up very nicely sequentially.

And our next question is from Mark Strouse of JPMorgan.

I may be nitpicking a bit, but I wanted to revisit the installation challenges, specifically regarding dealer labor, permitting, and other factors. Are those conditions worsening since your last call, or is it more that they are not keeping pace with your increased manufacturing output?

No, they are increasing. We mentioned that activations actually improved year-over-year, so we are seeing an increase in installs. They're just not growing at the same pace. It's not a decline; rather, the rate of increase isn't matching our output growth.

Okay, okay. That helps. And then just curious, within the home standby business for new construction, new homes, just curious what you're hearing from your partners within that channel.

New home construction is slowing, but our IHCs are increasing. We have always had limited exposure to new construction, which accounts for about 10% to 15% of our total volume. It's not a significant aspect of our business and hasn’t been traditionally. We see it as a potential growth area and its share has grown to around 15% now. However, it's still relatively minor as our focus is largely on retrofits. Many regions in the country have existing housing stock that faces power quality issues. We haven't heard any concerns from our channel partners about this trend. What we do hear is that more home builders are interested in offering our product as a feature for potential home buyers, rather than making it a standard feature.

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

Aaron, I wonder if we could just put a finer point around the order trends in standby. It sounds like based on your backlog comments, that net orders were about $200 million in the quarter compared to $500 million last quarter. Can you just comment on that? Because I know you look at it on a forward production basis when you quote lead times. And just put that into context for us because, obviously, a sharp pickup in-home consultations year-over-year. So would just love to get your thoughts on that disconnect if those numbers are right.

Jerry, this is York. We haven't necessarily talked orders historically. We are running up against tough comps on the order standpoint, just given the Texas outage last year. So comparing that and as well as some of the installed bandwidth comments that Aaron talked about. But I mean, you really have to look at the IHCs to really understand what's going on with the end market demand and having those up nicely year-over-year here in the quarter and up, what we said, what, 4 times from...

Over 4 times, yes.

The underlying demand for the category remains very strong, even at over four times the pre-pandemic levels. However, comparing that order rate to priority may not be the most accurate measure.

Okay. And what we've seen is higher baseline post-major outages. We've seen generally a 30% peak-to-trough decline as the second adopters, if you will, wind up installing gensets a year after the peak installation rate. Can you just talk about, based on your IHCs, how you feel like that might play out this year? I know we touched on it on the last quarter's call, but I'm wondering if you could expand on that, given we've got one more quarter of information across the board here.

Yes, Jerry, this is Aaron. When considering the category, I believe it’s important to note how much it has evolved over the past few years. The trends that drive demand within this category, especially in independent home contacts, seem likely to persist for the foreseeable future. The world has changed significantly, influenced by factors like remote work and the trend of viewing homes as sanctuaries. Additionally, ongoing concerns about power quality are central to homeowners today. Many are exploring this category primarily due to worries about potential outages, which historically were the main focus. While outages remain a critical driver, the challenges faced by utility companies in managing raw supply, especially as we strive for electrification and decarbonization, highlight serious vulnerabilities in supply and demand. This chaotic energy landscape is beneficial not only for home standby generators but also for our commercial and industrial products, clean energy solutions, and grid services. The grid has become a patchwork with many gaps, leading to significant anxiety about maintaining power for homes, businesses, and families. Therefore, comparing this situation to historical trends may not be appropriate.

And your next question is from William Grippin of UBS.

Just a simple one here, but wondering if you could talk about some of the puts and takes on the sequential margin improvement in the Domestic segment. And specifically, to what extent any product discounting initiatives may have been an offset to that?

No. I mean, price realization is actually going up. If anything, there is very limited promotion occurring. There is always some general underlying presence of minor promotions.

We have planned promotions that are there but...

But I mean, normally when we're not in a backlog situation, there's an ordinary course of promotions. But even when you're in backlog, you have some minor promotions going on. So sequentially, there's nothing going on there. And in fact, we've, obviously, raised price, repriced the backlog June 1. And I think partly maybe where you're going with that is did that price increase stick in the marketplace? And it did.

Yes, we don't disclose that. That's why you didn't hear it.

And your next question is from Maheep Mandloi of Crédit Suisse.

Yes.

So I have two quick questions. First, regarding the backlog, it was stated to be over $1 billion last quarter. Is it still within that range or is it different? I have a separate follow-up as well.

We have discussed that our backlog consists of orders covering 8 to 10 weeks and it is substantial. We anticipate maintaining a significant backlog as we approach the end of the year, even with the increase in our production rate. It’s crucial for us to reduce this backlog because we believe that providing the market with shorter lead times is essential for being competitive, especially regarding the sales leads we have mentioned. This is a top priority for us, and we will continue to focus on it, along with enhancing our installation capabilities.

I would now like to turn the call back over to Mike Harris for any closing remarks. We want to thank everyone for joining us this morning. We look forward to discussing our third quarter 2022 earnings results with you in early November. Thank you again, and goodbye.

And this concludes today's conference call. Thank you for participating. You may now disconnect.