Diversified growth drives strong increase in revenue and
earnings as compared to a very strong prior-year quarter and full
year
Generac Holdings Inc. (NYSE: GNRC) (the “Company”), a leading
designer and manufacturer of power generation equipment and other
engine powered products, today reported financial results for its
fourth quarter and year ended December 31, 2013. Additionally, the
Company initiated its outlook for 2014.
Fourth Quarter 2013 Highlights
- Net sales increased year-over-year by
10.0% to $376.2 million as compared to $342.0 million in the fourth
quarter of 2012.
- Growth in shipments during the fourth
quarter was driven by strong organic revenue growth from home
standby generators and Commercial & Industrial (C&I)
products, along with the contribution from recent acquisitions,
partially offset by a decline in shipments of portable
generators.
- Gross profit margin during the fourth
quarter improved 180 basis points over the prior year.
- Net income during the fourth quarter of
2013 was $48.5 million, or $0.69 per share, as compared to $28.3
million or $0.41 per share for the same period of 2012.
- Adjusted net income, as defined in the
accompanying reconciliation schedules, increased to $77.5 million
from $60.7 million in the fourth quarter of 2012. Adjusted diluted
net income per share was $1.11 as compared to $0.87 per share in
the fourth quarter of 2012.
- Adjusted EBITDA increased 24.7% to
$103.6 million as compared to $83.1 million in the fourth quarter
last year. Adjusted EBITDA margin during the fourth quarter
improved to 27.5% as compared to 24.3% in the prior year.
- Cash flow from operations in the fourth
quarter of 2013 was $104.7 million as compared to $106.4 million in
the prior year quarter. Free cash flow was $88.2 million as
compared to $97.4 million in the fourth quarter of 2012.
- On November 1, 2013, the Company closed
its previously announced purchase of substantially all of the
assets of Baldor Electric Company’s generator division (“Baldor
Generators”). Baldor Generators offers a complete line of products
up to 2.5MW throughout North America.
Full-Year 2013 Highlights
- Net sales increased year-over-year by
26.3% to $1.486 billion as compared to $1.176 billion in 2012.
- Residential product sales increased
19.6% to $843.7 million as compared to a strong 2012 with revenues
of $705.4 million, which grew at a 43.7% rate over 2011.
- Commercial & Industrial product
sales increased 38.9% to $569.9 million as compared to $410.3
million in 2012.
- Gross profit margin during 2013 was
38.3%, representing a 90 basis point improvement over the prior
year.
- Net income during 2013 was $174.5
million, or $2.51 per diluted share, as compared to $93.2 million
or $1.35 per diluted share for 2012.
- Adjusted net income increased 36.6%
over the prior year to $301.7 million. Adjusted diluted net income
per common share increased 35.7% to $4.33.
- Adjusted EBITDA increased 38.9% to
$402.6 million in 2013 as compared to $289.8 million last year.
Adjusted EBITDA margin during 2013 improved to 27.1% as compared to
24.6% in the prior year.
- Cash flow from operations during 2013
was $259.9 million as compared to $235.6 million in the prior year.
Free cash flow was $229.2 million as compared to $213.2 million in
2012.
- In addition to the acquisition of
Baldor Generators that closed in early November, we integrated the
Ottomotores acquisition during 2013 and closed the acquisition of
Tower Light in early August. Ottomotores, which closed in December
2012, is a leading manufacturer of industrial generators in Mexico
and other parts of Latin America. Tower Light is a leading
developer and supplier of mobile light towers throughout Europe,
the Middle East and Africa.
“2013 was another great year for Generac that helped drive a
third consecutive year of record revenues with a compounded annual
growth rate of 36% since implementing our Powering Ahead strategy
three years ago,” said Aaron Jagdfeld, President and Chief
Executive Officer. “Once again we experienced strong growth across
all regions of the United States, as home standby generators
further gain in popularity and the Generac brand is increasingly
recognized as the leading name in backup power. The secular
penetration themes that drive our business continue to play out for
our residential and C&I products as we made significant
progress on several initiatives to extend awareness for standby
generators, leading to further growth. In addition to our organic
growth, we executed on three important acquisitions that provide
additional product breadth and global scale to our C&I business
and improved balance to the overall company.”
Additional Fourth Quarter 2013
Highlights
Residential product sales for the fourth quarter of 2013 were
$199.1 million as compared to $216.0 million for the comparable
period in 2012. Shipments of home standby generators experienced
strong growth over the prior-year quarter as we continue to expand
our leading position for these products through our innovative
approach to the market. The strength in home standby generators,
however, was more than offset by a meaningful decline in shipments
of portable generators due to less severe power outage events in
the fourth quarter of 2013 relative to prior year, which included
Superstorm Sandy.
C&I product sales for the fourth quarter of 2013 increased
42.7% to $157.9 million from $110.6 million for the comparable
period in 2012. The increase was driven by the acquisitions of
Ottomotores, Tower Light and Baldor Generators along with strong
organic growth for stationary and mobile generators. The strength
in organic revenues was primarily driven by a significant increase
in shipments to national account customers and increased sales of
natural gas generators used in light commercial and retail
applications.
Gross profit margin for the fourth quarter of 2013 was 38.7%
compared to 36.9% in the prior-year fourth quarter. Gross margin
improved over the prior year due to the combination of an improved
product mix and a reduction in product costs due to a moderation in
commodity costs and continued execution of cost reduction
initiatives. These margin improvements were partially offset by the
mix impact from the Ottomotores and Baldor acquisitions.
Operating expenses for the fourth quarter of 2013 declined $3.9
million, or 6.7%, as compared to the fourth quarter of 2012. The
expense reduction was driven primarily by warranty rate
improvements resulting in a favorable adjustment to warranty
reserves of $5.3 million during the current year quarter, as well
as a decline in the amortization of intangibles. These reductions
were partially offset by the addition of operating expenses
associated with the acquisitions of Ottomotores, Tower Light and
Baldor Generators.
Interest expense in the fourth quarter of 2013 declined to $12.0
million compared to $16.6 million in the same period last year. The
decline was primarily the result of a reduction in interest rate
from the current-year credit agreement refinancing completed in May
2013.
2014 Outlook
The Company is initiating guidance for 2014 with revenue
expected to grow over a very strong 2013. For the full-year 2014,
the Company currently expects net sales to increase in the
mid-single digit range as compared to the prior year. This top-line
guidance assumes no material changes in the current macroeconomic
environment, no major power outage events during 2014, and no
benefit from additional acquisitions.
Gross margins are expected to decline by approximately 100 basis
points during 2014 as compared to the prior year primarily as a
result of a higher mix of C&I product shipments, including the
impact of the addition of Baldor Generators.
Operating expenses as a percentage of net sales, excluding
amortization of intangibles, are expected to increase approximately
100 basis points as compared to 2013, primarily as a result of
favorable adjustments to warranty reserves in 2013 that are not
expected to repeat in 2014.
Adjusted EBITDA margins are expected to remain attractive in the
mid-20% range, which is consistent with the average level seen
during the past four years.
We expect free cash flow generation to remain strong in 2014 due
to our superior margin profile, low-cost of debt, favorable tax
attributes and our capital-efficient operating model.
“We believe our 2013 financial results are further proof that
our strategy is working,” continued Mr. Jagdfeld. “Heading into
2014, our team remains focused on the substantial penetration
opportunity that exists for residential and light commercial
standby generators, as well as increasing our share of the C&I
market through our recently expanded product offering and our
continued focus on natural gas generators. In addition, we expect
to benefit from being a more balanced and globally-focused company
as we continue to execute on our diversification and international
expansion strategies, both organically and through
acquisitions.”
Conference Call and Webcast
Generac management will hold a conference call at 9:00 a.m. EST
on Thursday, February 13, 2014 to discuss highlights of this
earnings release. The conference call can be accessed by dialing
(800) 706-7749 (domestic) or +1 (617) 614-3474 (international) and
entering passcode 46073661.
The conference call will also be webcast simultaneously on
Generac's website (http://www.generac.com), under the Investor
Relations link. The webcast link will be made available on the
Company’s website prior to the start of the call within the Events
section of the Investor Relations website.
Following the live webcast, a replay will be available on the
Company's web site. A telephonic replay will also be available
approximately one hour after the call and can be accessed by
dialing (888) 286-8010 (domestic) or +1 (617) 801-6888
(international) and entering passcode 79686453. The telephonic
replay will be available for 30 days.
About Generac
Since 1959, Generac has been a leading designer and manufacturer
of a wide range of power generation equipment and other engine
powered products. As a leader in power equipment serving
residential, light commercial, industrial and construction markets,
Generac's power products are available globally through a broad
network of independent dealers, retailers, wholesalers and
equipment rental companies, as well as sold direct to certain end
user customers.
Forward-looking Information
Certain statements contained in this news release, as well as
other information provided from time to time by Generac Holdings
Inc. or its employees, may contain forward looking statements that
involve risks and uncertainties that could cause actual results to
differ materially from those in the forward looking statements.
Forward-looking statements give Generac's current expectations and
projections relating to the Company's financial condition, results
of operations, plans, objectives, future performance and business.
You can identify forward-looking statements by the fact that they
do not relate strictly to historical or current facts. These
statements may include words such as "anticipate," "estimate,"
"expect," "forecast," "project," "plan," "intend," "believe,"
"confident," "may," "should," "can have," "likely," "future" and
other words and terms of similar meaning in connection with any
discussion of the timing or nature of future operating or financial
performance or other events.
Any such forward looking statements are not guarantees of
performance or results, and involve risks, uncertainties (some of
which are beyond the Company's control) and assumptions. Although
Generac believes any forward-looking statements are based on
reasonable assumptions, you should be aware that many factors could
affect Generac's actual financial results and cause them to differ
materially from those anticipated in any forward-looking
statements, including:
- demand for Generac products;
- frequency and duration of major power
outages;
- availability, cost and quality of raw
materials and key components used in producing Generac
products;
- the impact on our results of the
substantial increases in our outstanding indebtedness and related
interest expense due to the dividend recapitalization transactions
completed in May 2012 and 2013;
- the possibility that the expected
synergies, efficiencies and cost savings of our acquisitions will
not be realized, or will not be realized within the expected time
period;
- the risk that our acquisitions will not
be integrated successfully;
- difficulties Generac may encounter as
its business expands globally;
- competitive factors in the industry in
which Generac operates;
- Generac's dependence on its
distribution network;
- Generac's ability to invest in, develop
or adapt to changing technologies and manufacturing
techniques;
- loss of key management and
employees;
- increase in product and other liability
claims; and
- changes in environmental, health and
safety laws and regulations.
Should one or more of these risks or uncertainties materialize,
Generac's actual results may vary in material respects from those
projected in any forward-looking statements. A detailed discussion
of these and other factors that may affect future results is
contained in Generac's filings with the U.S. Securities and
Exchange Commission (“SEC”).
Any forward-looking statement made by Generac in this press
release speaks only as of the date on which it is made. Generac
undertakes no obligation to update any forward-looking statement,
whether as a result of new information, future developments or
otherwise, except as may be required by law.
Reconciliations to GAAP Financial
Metrics
Adjusted EBITDA
The computation of adjusted EBITDA is based on the definition of
EBITDA contained in Generac's credit agreement, dated as of May 31,
2013, which is substantially the same definition that was contained
in the Company’s previous credit agreements. To supplement the
Company's condensed consolidated financial statements presented in
accordance with US GAAP, Generac provides a summary to show the
computation of adjusted EBITDA, taking into account certain charges
and gains that were recognized during the periods presented.
Adjusted Net Income
To further supplement Generac's condensed consolidated financial
statements presented in accordance with US GAAP, the Company
provides a summary to show the computation of adjusted net income.
Adjusted net income is defined as net income before provision
(benefit) for income taxes adjusted for the following items: cash
income tax expense, amortization of intangible assets, amortization
of deferred financing costs and original issue discount related to
the Company's debt, intangible impairment charges, certain
transaction costs and other purchase accounting adjustments, losses
on extinguishment of debt, and certain other non-cash gains and
losses.
Free Cash Flow
In addition, we reference free cash flow to further supplement
Generac's condensed consolidated financial statements presented in
accordance with US GAAP. Free cash flow is defined as net cash
provided by operating activities less expenditures for property and
equipment and is intended to be a measure of operational cash flow
taking into account additional capital expenditure investment into
the business.
The presentation of this additional information is not meant to
be considered in isolation of, or as a substitute for, results
prepared in accordance with US GAAP. Please see our SEC filings for
additional discussion of the basis for Generac's reporting of
Non-GAAP financial measures.
Generac Holdings Inc. Condensed Consolidated
Statements of Comprehensive Income (Dollars in Thousands, Except
Share and Per Share Data)
Three Months Ended December 31, Year Ended
December 31, 2013 2012 2013
2012 (Unaudited) (Unaudited) (Unaudited) (Audited)
Net sales $ 376,236 $ 342,022 $ 1,485,765 $ 1,176,306 Costs of
goods sold 230,554 215,869
916,205 735,906 Gross profit
145,682 126,153 569,560 440,400 Operating expenses: Selling
and service 24,467 27,791 107,515 101,448 Research and development
8,379 6,285 29,271 23,499 General and administrative 15,332 15,332
55,490 46,031 Amortization of intangibles 6,286
8,965 25,819
45,867 Total operating expenses 54,464
58,373 218,095 216,845
Income from operations 91,218 67,780 351,465 223,555
Other (expense) income: Interest expense (12,003 ) (16,613 )
(54,435 ) (49,114 ) Loss on extinguishment of debt – – (15,336 )
(14,308 ) Investment income 26 25 91 79 Costs related to
acquisition (27 ) (1,062 ) (1,086 ) (1,062 ) Other, net (756
) (448 ) (1,983 ) (2,798 ) Total
other expense, net (12,760 ) (18,098 )
(72,749 ) (67,203 ) Income before provision
for income taxes 78,458 49,682 278,716 156,352 Provision for income
taxes 29,940 21,395
104,177 63,129 Net income 48,518 28,287
174,539 93,223 Net income per common share - basic: $ 0.71 $
0.42 $ 2.56 $ 1.38 Weighted average common shares outstanding -
basic: 68,203,811 67,515,127 68,081,632 67,360,632 Net
income per common share - diluted: $ 0.69 $ 0.41 $ 2.51 $ 1.35
Weighted average common shares outstanding - diluted: 69,918,699
69,477,244 69,667,529 69,193,138 Dividends declared per
share $ – $ – $ 5.00 $ 6.00 Other comprehensive income
(loss): Amortization of unrealized loss on interest rate swaps $ –
$ 1,003 $ 2,381 $ 2,082 Foreign currency translation adjustment 352
(34 ) 1,238 (34 ) Net unrealized gain on derivatives 774 – 774 365
Pension liability adjustment 7,688
(1,552 ) 7,688 (1,552 ) Other
comprehensive income (loss) 8,814 (583
) 12,081 861 Comprehensive
income $ 57,332 $ 27,704 $ 186,620
$ 94,084 Generac Holdings Inc.
Condensed Consolidated Balance Sheets (Dollars in Thousands, Except
Share and Per Share Data)
December 31, 2013 2012
(Unaudited) (Audited)
Assets Current assets: Cash and cash
equivalents $ 150,147 $ 108,023 Restricted cash 6,645 – Accounts
receivable, less allowance for doubtful accounts of $2,658 at
December 31, 2013 and $1,166 at December 31, 2012 164,907 134,978
Inventories 300,253 225,817 Deferred income taxes 26,869 48,687
Prepaid expenses and other assets 5,358
5,048 Total current assets 654,179 522,553
Property and equipment, net 146,390 104,718 Customer lists,
net 42,764 37,823 Patents, net 62,418 70,302 Other intangible
assets, net 4,447 5,783 Deferred financing costs, net 20,051 13,987
Trade names, net 173,196 158,831 Goodwill 608,287 552,943 Deferred
income taxes 85,104 136,754 Other assets 1,369
153 Total assets $ 1,798,205
$ 1,603,847
Liabilities and stockholders’
equity Current liabilities: Short-term borrowings $ 9,575 $
12,550 Accounts payable 109,238 94,543 Accrued wages and employee
benefits 26,564 19,435 Other accrued liabilities 92,997 86,081
Current portion of long-term borrowings and capital lease
obligations 12,471 82,250
Total current liabilities 250,845 294,859 Long-term
borrowings and capital lease obligations 1,175,349 799,018 Other
long-term liabilities 54,940
46,342 Total liabilities 1,481,134 1,140,219
Stockholders’ equity: Common stock, par value $0.01, 500,000,000
shares authorized, 68,767,367 and 68,295,960 shares issued at
December 31, 2013 and 2012, respectively 688 683 Additional paid-in
capital 421,672 743,349 Treasury stock, at cost, 163,458 and 0
shares, respectively (6,571 ) – Excess purchase price over
predecessor basis (202,116 ) (202,116 ) Retained earnings
(accumulated deficit) 105,813 (63,792 ) Accumulated other
comprehensive loss (2,415 ) (14,496 )
Total stockholders’ equity 317,071 463,628
Total liabilities and stockholders’ equity $ 1,798,205
$ 1,603,847 Generac
Holdings Inc. Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
Year
Ended December 31, 2013 2012
(Unaudited) (Audited)
Operating activities Net income $
174,539 $ 93,223 Adjustment to reconcile net income to net
cash provided by operating activities: Depreciation 10,955
8,293 Amortization of intangible assets 25,819 45,867 Amortization
of original issue discount 2,074 1,598 Amortization of deferred
finance costs 2,698 2,161 Amortization of unrealized loss on
interest rate swaps 2,381 2,082 Loss on extinguishment of debt
15,336 14,308 Provision for losses on accounts receivable 1,037 204
Deferred income taxes 82,675 62,429 Loss on disposal of property
and equipment 370 261 Share-based compensation expense 12,368
10,780 Net changes in operating assets and liabilities: Accounts
receivable (5,257 ) (137 ) Inventories (52,488 ) (31,656 ) Other
assets (10,902 ) (8,416 ) Accounts payable (5,847 ) (3,898 )
Accrued wages and employee benefits 6,248 3,168 Other accrued
liabilities 9,491 39,915 Excess tax benefits from equity awards
(11,553 ) (4,588 ) Net cash provided by
operating activities 259,944 235,594
Investing
activities Proceeds from sale of property and equipment 80 91
Expenditures for property and equipment (30,770 ) (22,392 )
Proceeds from sale of business, net 2,254 – Acquisition of
business, net of cash acquired (116,113 )
(47,044 ) Net cash used in investing activities (144,549 )
(69,345 )
Financing activities Proceeds from
short-term borrowings 16,007 23,018 Proceeds from long-term
borrowings 1,200,000 1,455,614 Repayments of short-term borrowings
(18,982 ) (23,000 ) Repayments of long-term borrowings and capital
lease obligations (901,184 ) (1,175,124 ) Payment of debt issuance
costs (22,376 ) (25,691 ) Cash dividends paid (343,429 ) (404,332 )
Taxes paid related to the net share settlement of equity awards
(15,020 ) (6,425 ) Excess tax benefits from equity awards 11,553
4,588 Proceeds from exercise of stock options 32
– Net cash used in financing activities
(73,399 ) (151,352 ) Effect of
exchange rate changes on cash and cash equivalents 128 – Net
increase in cash and cash equivalents 42,124 14,897 Cash and cash
equivalents at beginning of period 108,023
93,126 Cash and cash equivalents at end of
period $ 150,147 $ 108,023
Supplemental disclosure of cash flow information Cash
paid during the period Interest $ 55,828 $ 33,076 Income taxes
25,821 2,811 Generac Holdings Inc. Reconciliation
Schedules (Dollars in Thousands, Except Share and Per Share Data)
Net income to Adjusted EBITDA
reconciliation
Three months ended December 31, Year Ended December
31, 2013 2012 2013 2012 (unaudited)
(unaudited) (unaudited) (unaudited) Net income $ 48,518 $
28,287 $ 174,539 $ 93,223 Interest expense 12,003 16,613 54,435
49,114 Depreciation and amortization 9,272 11,142 36,774 54,160
Income taxes provision 29,940 21,395 104,177 63,129 Non-cash
write-down and other charges (1) 43 388 78 247 Non-cash share-based
compensation expense (2) 2,897 2,759 12,368 10,780 Loss on
extinguishment of debt – – 15,336 14,308 Transaction costs and
credit facility fees (3) 835 2,307 3,863 4,117 Other 139
237 1,043
731 Adjusted EBITDA $ 103,647 $ 83,128
$ 402,613 $ 289,809 (1) Includes losses
on disposals of assets and unrealized mark-to-market adjustments on
commodity contracts. A full description of these and the other
reconciliation adjustments contained in these schedules is included
in Generac's SEC filings. (2) Includes share-based
compensation expense to account for stock options, restricted stock
and other stock awards over their respective vesting periods.
(3) Represents transaction costs incurred directly in
connection with any investment, as defined in our credit agreement,
equity issuance or debt issuance or refinancing, together with
certain fees relating to our senior secured credit facilities.
Net income to Adjusted net income
reconciliation
Three months ended December 31, Year Ended December
31, 2013 2012 2013 2012 (unaudited)
(unaudited) (unaudited) (unaudited) Net income $ 48,518 $
28,287 $ 174,539 $ 93,223 Provision for income taxes 29,940
21,395 104,177
63,129 Income before provision for income taxes
78,458 49,682 278,716 156,352 Amortization of intangible assets
6,286 8,965 25,819 45,867 Amortization of deferred finance costs
and original issue discount 1,225 1,244 4,772 3,759 Loss on
extinguishment of debt – – 15,336 14,308 Transaction costs and
other purchase accounting adjustments (4) 688
2,136 2,842 3,317
Adjusted net income before provision for income taxes 86,657 62,027
327,485 223,603 Cash income tax expense (5) (9,141 )
(1,328 ) (25,821 ) (2,811 ) Adjusted
net income $ 77,516 $ 60,699 $ 301,664
$ 220,792 Adjusted net income per common share
- diluted: $ 1.11 $ 0.87 $ 4.33 $ 3.19 Weighted average
common shares outstanding - diluted: 69,918,699 69,477,244
69,667,529 69,193,138 (4) Represents transaction costs
incurred directly in connection with any investment, as defined in
our credit agreement, equity issuance or debt issuance or
refinancing. Also includes certain purchase accounting adjustments.
(5) Amount for the twelve months ended December 31, 2013 is
based on actual cash income taxes paid during the full year-ended
2013, which equates to a cash income tax rate of 9.3% for the year.
Free Cash Flow Reconciliation Three months ended
December 31, Year Ended December 31, 2013
2012 2013 2012 (unaudited) (unaudited)
(unaudited) (unaudited) Net cash provided by operating
activities $ 104,731 $ 106,370 $ 259,944 $ 235,594 Expenditures for
property and equipment (16,513 ) (8,967 )
(30,770 ) (22,392 ) Free Cash Flow $ 88,218
$ 97,403 $ 229,174 $ 213,202
SOURCE: Generac Holdings Inc.
Generac Holdings Inc.York A. RagenChief Financial Officer(262)
506-6064InvestorRelations@generac.comorMichael W. HarrisVice
President – Finance and Investor Relations(262) 544-4811
x2675Michael.Harris@generac.com
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