Generac Holdings Inc. (NYSE: GNRC), a leading designer and
manufacturer of back-up power generation products, today reported
financial results for its first quarter ended March 31, 2010.
First Quarter 2010
Highlights.
- Net sales of $130.7 million
decreased 6.9% from net sales of $140.4 million for the same period
last year.
- Net income was $2.5 million
versus net income of $5.8 million in the first quarter of 2009.
Non-GAAP Adjusted net income increased to $20.1 million versus
$10.3 million in the first quarter of 2009.
- Adjusted EBITDA increased 10.2%
to $31.8 million from $28.9 million for the same period last
year.
- Initial public offering and
subsequent debt repayment completed during the quarter, resulting
in a significant reduction in leverage. Consolidated debt net of
cash, was $665.1 million as of March 31, 2010.
Operations Review
“We are pleased with our increased Adjusted EBITDA results
during the first quarter of 2010. Despite difficult comparables in
our residential markets and continued softness in our industrial
markets, we were able to improve operating income versus the prior
year quarter as a result of normalized commodity costs, cost
reduction initiatives and the full impact of price increases that
were implemented during the prior year quarter,” said Aaron
Jagdfeld, Chief Executive Officer of Generac.
Residential product sales of $84.0 million decreased 5.1% in
2010 from $88.5 million in 2009. This decrease was driven mainly by
a stronger 2009 winter storm season compared to 2010 that impacted
portable generator volume during the quarter. This was offset in
part by year-over-year increases in sales of residential home
standby products as a result of Generac’s continued efforts to
increase distribution and awareness.
Industrial and commercial product sales of $38.3 million
decreased 15.0% in 2010 from $45.1 million in 2009. This decrease
was mainly driven by continued declines in sales to industrial and
commercial national account customers. Additionally, further
weakness in U.S. non-residential construction activity has also had
a negative impact on the market demand for commercial and
industrial standby generators. Despite the overall decline in these
markets, we are beginning to see pockets of improved demand in our
light commercial products where we offer a lower cost, standardized
back-up power solution for small footprint retail applications.
Gross profit margin improved to 39.3% of net sales in 2010 from
33.8% of net sales in 2009. Although we have seen recent
quarter-over-quarter market increases in commodity costs, copper
and steel in particular, gross margin in the first quarter of 2010
still benefited from lower commodity costs versus the prior year
quarter. In addition, gross profit margins improved year-over-year
due to price increases implemented during the first quarter 2009
and cost reductions implemented throughout 2009.
Operating expenses increased $2.2 million to $36.0 million
compared to $33.7 million in first quarter of 2009. A reduction in
variable operating expenses due to lower sales volumes was more
than offset by additional investments in product development,
marketing activities, additional public company administrative
costs, as well as $1.2 million of stock-based compensation expense
recorded during the first quarter of 2010 to account for stock
options, restricted stock and other stock awards issued in
connection with Generac’s initial public offering over their
vesting period.
Overall, Adjusted EBITDA margins increased to 24.3% in the first
quarter of 2010 from 20.6% in the first quarter of 2009, driven
mainly by the aforementioned improvements in gross margin.
Non-GAAP adjusted net income improved to $20.1 million in first
quarter 2010 from $10.3 million in first quarter 2009. Improvements
in income from operations coupled with reductions in debt service
costs are the primary drivers of this increase. Debt service costs
improved year-over-year due to debt prepayments, lower LIBOR rates,
and the expiration of interest rate swap contracts in January
2010.
Cash flows from operating activities improved from $0.1 million
in the first quarter of 2009 to $18.4 million in the first quarter
of 2010. Improvements in operating income, reductions in cash
interest and reductions in overall working capital levels
contributed to this increase in cash flows from operating
activities. Capital expenditures increased to $1.6 million in the
first quarter of 2010 compared to $0.4 million in the first quarter
of 2009 due to timing of expenditures.
Capital Structure
On February 17, 2010, Generac completed its initial public
offering (IPO) of 18,750,000 shares of common stock at a price of
$13.00 per share. In addition, on March 18, 2010, the underwriters
exercised their option to purchase 1,950,500 additional shares of
common stock. Generac received a total of approximately $247.6
million in net proceeds from the offering, after deducting the
underwriting discount and total expenses related to the offering.
Using proceeds from the IPO together with cash on hand, Generac
made a $360.1 million prepayment on its term loans during the first
quarter of 2010, first to pay down its second lien term loan in
full and then to repay a portion of its first lien term loan.
Following this debt prepayment, Generac reduced its total debt
balance to $731.4 million of first lien term loan debt, with
consolidated debt, net of cash, totaling $665.1 million as of March
31, 2010. The Company has terminated its second lien facility and
has no borrowings outstanding on its revolver, which has $146
million of availability.
“Our improved balance sheet and strong cash flows will give us
the flexibility to continue to execute on our growth strategy while
reducing our debt leverage going forward,” said Jagdfeld.
Outlook
Looking further into 2010, Mr. Jagdfeld commented, “We continue
to be cautious about the economic environment as our end customers
closely monitor big ticket capital spending. We believe that in the
short term, we will continue to see similar year-over-year sales
trends that we have seen over the last nine months, given weaker
storm activity over the last several quarters and the softness in
non-residential construction. We are confident that we will
continue to see the benefits of our expanded distribution, new
product introductions and efforts to increase awareness of
residential and light commercial stand-by generators in the second
half of 2010. We have invested in future growth through increased
new product development and marketing efforts and given our high
market share in our focused end markets, we believe we are well
positioned for growth as markets recover.”
“We expect to maintain attractive Adjusted EBITDA margins as the
impact of rising commodity costs will be more than offset by
seasonal mix shifts and increased production volumes. We believe
our cash flows will benefit from our strong margins, capital
efficient operating model, favorable tax attributes, and improved
balance sheet. While near-term market conditions are challenging,
we believe that our business model will allow us to capitalize on
the significant penetration trends driving our markets as the
economic climate improves.”
Conference Call and
Webcast
Generac management will hold a conference call at 10:00am EDT on
Friday, May 7, 2010 to discuss highlights of this earnings release.
The conference call can be accessed by dialing (866) 804-6921
(domestic) or +1 (857) 350-1667 (international) and entering
passcode 22484062.
The conference call will also be webcast simultaneously on
Generac's website (http://www.generac.com), under the Investor
Relations link.
The webcast is also being distributed through the Thomson
Reuters StreetEvents Network. Individual investors can listen to
the call at http://www.earnings.com, Thomson Reuters' individual
investor portal, powered by StreetEvents. Institutional investors
can access the call via StreetEvents (http://www.streetevents.com),
a password-protected event management site.
Following the live webcast, a replay will be available on the
Company's web site. A telephonic replay will also be available
three hours after the call and can be accessed by dialing (888)
286-8010 (domestic) or +1 (617) 801-6888 (international) and
entering passcode 42336045. The telephonic replay will be available
for 30 days.
Annual Meeting of
Stockholders
Generac Holdings Inc.’s 2010 annual meeting of stockholders will
be held at 9:00am central time on Friday, June 4, 2010, at the
Marriott Milwaukee West, W231 N1600 Corporate Court, Waukesha,
Wisconsin 53186.
Generac company news is
available24 hours a day, on-line at: http://www.generac.com.
About Generac
Since 1959, Generac has been a leading designer and manufacturer
of a wide range of backup power generation products serving
residential, light commercial and industrial markets. Generac's
power systems range in output from 800 watts to 9 megawatts and are
available through a broad network of independent dealers, retailers
and wholesalers.
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,” “project,” “plan,” “intend,” “believe,” “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 of major power
outages;
- availability of raw materials
and key components used in producing Generac products;
- competitive factors in the
industry in which Generac operates;
- Generac’s dependence on the
Company’s distribution network;
- Generac’s ability to invest in,
develop or adapt to changing technologies and manufacturing
techniques;
- Generac’s ability to adjust to
operating as a public company
- loss of key management and
employees;
- increase in 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 Securities and Exchange
Commission, or 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
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 that were taken during the periods
presented. The computation of Adjusted EBITDA is based on the
definition of EBITDA contained in Generac’s credit agreement, dated
as of November 10, 2006.
Non-GAAP 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 Non-GAAP Adjusted net
income (loss). Non-GAAP Adjusted net income (loss) is defined as
Net income (loss) before provision (benefit) for income taxes
adjusted for the following items: cash income tax expense
(benefit), amortization of intangible assets, amortization of
deferred loan costs related to the Company’s debt, intangible
impairment charges, and non-cash gains.
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 Operations (Dollars in Thousands, Except Share and
Per Share Data) (Unaudited)
Three Months Ended
March 31, 2010 2009
Net sales $ 130,718 $ 140,446 Costs of goods
sold 79,300 92,919 Gross profit
51,418 47,527 Operating expenses: Selling and service 14,312
14,390 Research and development 3,722 2,612 General and
administrative 5,159 3,897 Amortization of intangibles
12,761 12,812 Total operating expenses
35,954 33,711 Income from
operations 15,464 13,816 Other (expense) income: Interest
expense (8,492 ) (17,966 ) Investment income 74 1,266 Gain on
extinguishment of debt – 9,096
Write-off of deferred financing
costs related to debt extinguishment
(4,180 ) – Other, net (316 ) (313 ) Total
other expense, net (12,914 ) (7,917 )
Income before provision for income taxes 2,550 5,899
Provision for income taxes 82 105
Net income 2,468 5,794 Preferential distribution to:
Series A preferred stockholders (2,042 ) (2,792 ) Class B common
stockholders (12,133 ) (24,128 ) Beneficial conversion (1) (140,690
) – Net loss attributable to common stockholders
(formerly Class A common stockholders) $ (152,397 ) $
(21,126 ) Net (loss) income per common share - basic and
diluted (2): Common stock (formerly Class A common stock) $ (4.26 )
$ (12,169 ) Class B common stock $ 1,109 $ 1,005 Weighted
average common shares outstanding - basic and diluted (2): Common
stock (formerly Class A common stock) 35,748,290 1,736 Class B
common stock 10,941 24,018
(1) Beneficial conversion feature
related to Class B common stock and Series A preferred stock was
reflected during the quarter as a result of Generac's corporate
reorganization and IPO. See discussion of Generac's equity
structure and corporate reorganization in the 2009 Annual Report on
Form 10-K for the fiscal year ended December 31, 2009.
(2) 2010 Net (loss) income per
common share and weighted average common shares outstanding reflect
the corporate reorganization and IPO that occurred on February 10,
2010. The share structure prior to February 10, 2010 has been
retroactively restated to only reflect the reverse stock split that
occurred with the corporate reorganization. Because additional
common stock equivalents would cause earnings per share to be
anti-dilutive, basic and diluted earnings per share are
identical.
Generac Holdings Inc. Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Share and Per Share Data)
March 31, December 31,
2010 2009
(Unaudited) Assets Current assets: Cash and cash
equivalents $ 66,371 $ 161,307 Accounts and notes receivable, less
allowance for doubtful accounts 52,682 54,130 Inventories 107,089
123,700 Prepaid expenses and other assets 4,508
5,880 Total current assets 230,650 345,017
Property and equipment, net 73,047 73,374 Customer
lists, net 125,248 134,674 Patents, net 90,825 92,753 Other
intangible assets, net 7,458 7,791 Deferred financing costs, net
8,151 13,070 Trade names 143,333 144,407 Goodwill 525,875 525,875
Other assets 135 282 Total
assets $ 1,204,722 $ 1,337,243
Liabilities and stockholders’ equity Current liabilities:
Accounts payable $ 27,739 $ 33,639 Accrued wages and employee
benefits 5,679 6,930 Other accrued liabilities 35,547 52,326
Current portion of long-term debt –
39,076 Total current liabilities 68,965 131,971
Long-term debt 731,422 1,052,463 Other long-term liabilities
18,718 17,418 Total liabilities 819,105
1,201,852
Class B convertible voting common
stock, par value $0.01, 110,000 shares authorized, 0 and 24,018
shares issued at March 31, 2010 and December 31, 2009,
respectively
– 765,096
Series A convertible non-voting
preferred stock, par value $0.01, 30,000 shares authorized, 0 and
11,311 shares issued at March 31, 2010 and December 31, 2009,
respectively
– 113,109 Stockholders’ equity (deficit):
Common stock (formerly Class A
common stock), par value $0.01, 500,000,000 shares authorized,
67,529,290 and 1,617 shares issued at March 31, 2010 and December
31, 2009, respectively
675 – Additional paid-in capital 1,128,801 2,394 Excess purchase
price over predecessor basis (202,116 ) (202,116 ) Accumulated
deficit (536,103 ) (538,571 ) Accumulated other comprehensive loss
(5,640 ) (4,492 ) Stockholder notes receivable –
(29 ) Total stockholders’ equity (deficit) 385,617
(742,814 ) Total liabilities and stockholders’
equity $ 1,204,722 $ 1,337,243 Generac
Holdings Inc. Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands) (Unaudited)
Three Months
Ended March 31, 2010
2009 Operating activities Net income $
2,468 $ 5,794
Adjustment to reconcile net income
to net cash provided by operating activities:
Depreciation 1,891 1,915 Amortization 12,761 12,812 Gain on
extinguishment of debt – (9,096 )
Write-off of deferred financing
costs related to debt extinguishment
4,180 – Amortization of deferred finance costs 739 856 Amortization
of unrealized loss on interest rate swaps – 7,283 Provision for
losses on accounts receivable (27 ) (5 ) Gain on disposal of
property and equipment – (43 ) Stock-based compensation 1,246 9 Net
changes in operating assets and liabilities: Accounts receivable
1,475 13,427 Inventories 16,611 7,464 Other assets 841 1,411
Accounts payable (5,900 ) (13,226 ) Accrued wages and employee
benefits (1,222 ) (347 ) Other accrued liabilities (16,627 )
(28,143 ) Net cash provided by operating activities
18,436 111
Investing activities Proceeds from sale of
property and equipment – 43 Expenditures for property and equipment
(1,564 ) (367 ) Net cash used in investing
activities (1,564 ) (324 )
Financing activities
Proceeds from issuance of common stock 248,309 – Payment of
long-term debt (360,117 ) (9,500 ) Net cash
used in financing activities (111,808 ) (9,500
) Net decrease in cash and cash equivalents (94,936 ) (9,713
) Cash and cash equivalents at beginning of period 161,307
81,229 Cash and cash equivalents at end
of period $ 66,371 $ 71,516 Generac
Holdings Inc. Reconciliation Schedules (Dollars in Thousands)
Net income to Adjusted EBITDA
reconciliation
Three months ended March 31, 2010 2009
(unaudited) (unaudited) Net income $ 2,468 $ 5,794
Interest expense 8,492 17,966 Depreciation and amortization 14,652
14,727 Income taxes provision 82 105 Non-cash impairment and other
charges (1) 149 (1,197 ) Non-cash stock-based compensation expense
(2) 1,246 -
Write-off of deferred financing
costs related to debt extinguishment
4,180 - Transaction costs and credit facility fees 362 399 Non-cash
gains - (9,096 ) Business optimization expenses 108 - Sponsor fees
56 125 Letter of credit fees 2 25 Other state franchise taxes 61 27
Holding company interest income (26 ) -
Adjusted EBITDA $ 31,832 $ 28,875
(1) Includes losses on disposals
of assets and unrealized losses / (gains) 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) First quarter 2010 includes
$1.2 million of stock-based compensation expense to account for
stock options, restricted stock and other stock awards issued in
connection with Generac's initial public offering over their
vesting period.
Net income to Non-GAAP adjusted
net income reconciliation
Three months ended March 31, 2010 2009
(unaudited) (unaudited) Net income $ 2,468 $ 5,794 Provision
for income taxes 82 105 Income
before provision for income taxes 2,550 5,899 Amortization of
intangible assets 12,761 12,812 Amortization of deferred loan costs
739 856
Write-off of deferred financing
costs related to debt extinguishment
4,180 - Non-cash gains - (9,096 )
Adjusted net income before
provision for income taxes
20,230 10,471 Cash income tax expense (110 )
(133 ) Non-GAAP adjusted net income $ 20,120 (2 ) $
10,338
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