Generac Holdings Inc. (NYSE: GNRC), a leading designer and
manufacturer of backup power generation products, today reported
financial results for its second quarter ended June 30, 2010.
Second Quarter 2010 Highlights
-- Net income increased year-over-year by 16.7% to $12.8 million as
compared to $11.0 million for the second quarter of 2009; adjusted net
income increased 28.9% to $26.1 million from $20.3 million in the
second quarter of 2009.
-- Cash flow from operations improved over 36% year-over-year, from
$20.7 million to $28.2 million during the second quarter 2010.
-- Net sales of $140.5 million decreased 6.1% compared to $149.6 million
in the second quarter of 2009.
-- Adjusted EBITDA of $36.0 million compared to $40.0 million in the
second quarter of 2009.
-- Diluted net income per common share was $0.19 per share; adjusted
diluted net income per common share was $0.39 per share, both of which
include $0.03 per share of share based compensation expense.
"During the second quarter of 2010, we generated strong earnings
growth and cash flows from our operations. While our overall
top-line sales results have been challenged by difficult prior year
residential market comparisons and ongoing softness in our
industrial markets, our year-over-year sales decline has improved
for three consecutive quarters. We continue to make the necessary
investments in growth initiatives that leverage our technology,
distribution and leading market position which will drive growth as
market conditions improve." said Aaron Jagdfeld, Chief Executive
Officer of Generac.
Residential product sales of $87.9 million decreased 3.3% in the
second quarter 2010 from $90.9 million in the second quarter last
year. This year-over-year decline was driven by the continued
weakness in residential investment coupled with a reduced benefit
from power outages. This sales decline was offset by the Company's
initiatives to expand product offerings, increase distribution and
increase awareness for its products.
Industrial and commercial product sales of $43.3 million in the
second quarter decreased 15.7% from $51.4 million for the
comparable period in 2009. This decrease was driven by continued
weakness in U.S. non-residential construction activity and declines
in sales to industrial and commercial national account customers.
Despite this decline, we did see sequential growth for these
products from the first quarter of 2010, indicating improved
activity in this market.
Gross profit margin was 39.0% for the second quarter of 2010,
holding relatively steady from first quarter 2010 gross margin of
39.3% and down from prior year second quarter gross margin of
40.2%. Year-over-year gross margins declined 1.2% as a result of a
shift in residential sales to lower kilowatt products and an
increase in commodity prices versus prior year.
Operating expenses for the second quarter of 2010 increased 1.4%
to $35.9 million compared to $35.4 million in second quarter of
2009. On a year-over-year basis, the Company increased its
investments in engineering and product development and incurred
increased administrative costs following its initial public
offering. Additionally, the Company recorded $1.7 million of share
based compensation expense during the second quarter of 2010 to
account for the time based vesting of stock options, restricted
stock and other stock awards issued in connection with Generac's
initial public offering. These increases were partially offset by
reduced variable operating expenses due to lower sales volumes.
OUTLOOK
Mr. Jagdfeld concluded, "As we enter the second half of 2010, we
continue to be cautious about the near-term economic environment.
Given recent positive trends in our industrial and commercial
markets and assuming normalized power outage activity through the
balance of the year, we are optimistic about our second half
financial results. Further, we expect to generate significant cash
flows from operations throughout 2010, allowing us to actively
pursue our strategic growth initiatives. Longer term, we remain
confident that we will benefit from our focus on increasing the
awareness, availability and affordability of stand-by power as
market conditions improve."
Conference Call and Webcast
Generac management will hold a conference call at 10:00am EDT on
Friday, August 6, 2010 to discuss highlights of this earnings
release. The conference call can be accessed by dialing (866)
788-0547 (domestic) or +1 (857) 350-1685 (international) and
entering passcode 48354618.
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 53803371. The telephonic replay will be available
for 30 days.
Generac company news is available 24 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," "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 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 its 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.
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
(loss). 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 Six Months Ended
June 30, June 30,
2010 2009 2010 2009
---------- ---------- ---------- ----------
Net sales $ 140,455 $ 149,577 $ 271,173 $ 290,023
Costs of goods sold 85,710 89,389 165,010 182,308
---------- ---------- ---------- ----------
Gross profit 54,745 60,188 106,163 107,715
Operating expenses:
Selling and service 13,809 15,853 28,121 30,243
Research and development 3,482 2,625 7,204 5,237
General and administrative 5,679 3,970 10,838 7,867
Amortization of
intangibles 12,921 12,954 25,682 25,766
---------- ---------- ---------- ----------
Total operating expenses 35,891 35,402 71,845 69,113
---------- ---------- ---------- ----------
Income from operations 18,854 24,786 34,318 38,602
Other (expense) income:
Interest expense (5,720) (18,482) (14,212) (36,448)
Investment income 36 694 110 1,960
Gain on extinguishment of
debt - 4,414 - 13,510
Write-off of deferred
financing costs related
to debt extinguishment - - (4,180) -
Other, net (259) (308) (575) (621)
---------- ---------- ---------- ----------
Total other expense, net (5,943) (13,682) (18,857) (21,599)
---------- ---------- ---------- ----------
Income before provision for
income taxes 12,911 11,104 15,461 17,003
Provision for income taxes 77 107 159 212
---------- ---------- ---------- ----------
Net income 12,834 10,997 15,302 16,791
Preferential distribution
to:
Series A preferred
stockholders - (3,320) (2,042) (6,112)
Class B common
stockholders - (24,731) (12,133) (48,859)
Beneficial conversion - see
note 1 - - (140,690) -
---------- ---------- ---------- ----------
Net income (loss)
attributable to common
stockholders (formerly
Class A common
stockholders) $ 12,834 $ (17,054) $ (139,563) $ (38,180)
========== ========== ========== ==========
Net income (loss) per
common share - basic (2):
Common stock (formerly
Class A common stock) $ 0.19 $ (9,824) $ (2.71) $ (21,993)
Class B common stock n/a $ 1,030 $ 2,230 $ 2,034
Net income (loss) per
common share - diluted
(2):
Common stock (formerly
Class A common stock) $ 0.19 $ (9,824) $ (2.71) $ (21,993)
Class B common stock n/a $ 1,030 $ 2,230 $ 2,034
Weighted average common
shares outstanding - basic
(2):
Common stock (formerly
Class A common stock) 67,093,250 1,736 51,507,358 1,736
Class B common stock n/a 24,018 5,440 24,018
Weighted average common
shares outstanding -
diluted (2):
Common stock (formerly
Class A common stock) 67,200,565 1,736 51,507,358 1,736
Class B common stock n/a 24,018 5,440 24,018
(1) Beneficial conversion feature related to Class B common stock and
Series A preferred stock was reflected during the first 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 income (loss) 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.
Generac Holdings Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Share and Per Share Data)
June 30, December 31,
2010 2009
------------ ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 93,109 $ 161,307
Accounts and notes receivable, less
allowance for doubtful accounts 68,410 54,130
Inventories 111,436 123,700
Prepaid expenses and other assets 3,412 5,880
------------ ------------
Total current assets 276,367 345,017
Property and equipment, net 72,580 73,374
Customer lists, net 115,700 134,674
Patents, net 88,875 92,753
Other intangible assets, net 7,121 7,791
Deferred financing costs, net 7,589 13,070
Trade names 142,247 144,407
Goodwill 525,875 525,875
Other assets 73 282
------------ ------------
Total assets $ 1,236,427 $ 1,337,243
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 42,985 $ 33,639
Accrued wages and employee benefits 6,041 6,930
Other accrued liabilities 36,948 52,326
Current portion of long-term debt - 39,076
------------ ------------
Total current liabilities 85,974 131,971
Long-term debt 731,422 1,052,463
Other long-term liabilities 20,829 17,418
------------ ------------
Total liabilities 838,225 1,201,852
Class B convertible voting common stock, par
value $0.01, 110,000 shares authorized, 0 and
24,018 shares issued at June 30, 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 June 30, 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, 67,522,102 and 1,617 shares
issued at June 30, 2010 and December 31, 2009,
respectively 675 -
Additional paid-in capital 1,130,514 2,394
Excess purchase price over predecessor basis (202,116) (202,116)
Accumulated deficit (523,269) (538,571)
Accumulated other comprehensive loss (7,602) (4,492)
Stockholder notes receivable - (29)
------------ ------------
Total stockholders' equity (deficit) 398,202 (742,814)
------------ ------------
Total liabilities and stockholders' equity $ 1,236,427 $ 1,337,243
============ ============
Generac Holdings Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
2010 2009
-------- --------
Operating activities
Net income $ 15,302 $ 16,791
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 3,829 3,855
Amortization 25,682 25,766
Gain on extinguishment of debt - (13,510)
Write-off of deferred financing costs related
to debt extinguishment 4,180 -
Amortization of deferred finance costs 1,301 1,710
Amortization of unrealized loss on interest rate
swaps - 12,930
Provision for losses on accounts receivable (69) 31
Loss on disposal of property and equipment - 59
Share-based compensation expense 2,959 19
Net changes in operating assets and liabilities:
Accounts receivable (14,211) 2,450
Inventories 12,264 5,012
Other assets 1,999 1,155
Accounts payable 9,346 (8,124)
Accrued wages and employee benefits (860) 526
Other accrued liabilities (15,077) (27,849)
-------- --------
Net cash provided by operating activities 46,645 20,821
Investing activities
Proceeds from sale of property and equipment - 56
Expenditures for property and equipment (3,035) (1,885)
Collections on receivable notes - 105
-------- --------
Net cash used in investing activities (3,035) (1,724)
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) increase in cash and cash equivalents (68,198) 9,597
Cash and cash equivalents at beginning of period 161,307 81,229
-------- --------
Cash and cash equivalents at end of period $ 93,109 $ 90,826
======== ========
Supplemental disclosure of noncash financing and
investing activities
Contributions of capital related to debt extinguishment $ - $ 13,989
Generac Holdings Inc.
Reconciliation Schedules
(Dollars in Thousands)
Net income to Adjusted
EBITDA reconciliation Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2010 2009 2010 2009
(unaudited) (unaudited) (unaudited) (unaudited)
Net income $ 12,834 $ 10,997 $ 15,302 $ 16,791
Interest expense 5,720 18,482 14,212 36,448
Depreciation and
amortization 14,859 14,894 29,511 29,621
Income taxes provision 77 107 159 212
Non-cash impairment and
other charges (1) 415 (169) 564 (1,366)
Non-cash share based
compensation expense
(2) 1,713 - 2,959 -
Write-off of deferred
financing costs
related to debt
extinguishment - - 4,180 -
Transaction costs and
credit facility fees 305 311 667 710
Non-cash gains - (4,414) - (13,510)
Business optimization
expenses - - 108 -
Sponsor fees - 125 56 250
Letter of credit fees 19 (2) 21 23
Other state franchise
taxes 35 27 96 54
Holding company
interest income (19) (317) (45) (317)
----------- ----------- ----------- -----------
Adjusted EBITDA $ 35,958 $ 40,041 $ 67,790 $ 68,916
=========== =========== =========== ===========
(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) Second quarter 2010 includes $1.7 million of share based compensation
expense to account for the time based vesting of stock options,
restricted stock and other stock awards issued in connection with
Generac's initial public offering.
Net income to
Non-GAAP
adjusted net
income
reconciliation Three months ended June 30, Six months ended June 30,
---------------------------- ----------------------------
2010 2009 2010 2009
(unaudited) (unaudited) (unaudited) (unaudited)
Net income $ 12,834 $ 10,997 $ 15,302 $ 16,791
Provision for
income taxes 77 107 159 212
----------- ----------- ----------- -----------
Income before
provision for
income taxes 12,911 11,104 15,461 17,003
Amortization of
intangible
assets 12,921 12,954 25,682 25,766
Amortization of
deferred loan
costs 562 854 1,301 1,710
Write-off of
deferred
financing
costs related
to debt
extinguishment - - 4,180 -
Non-cash gains - (4,414) - (13,510)
----------- ----------- ----------- -----------
Adjusted net
income before
provision for
income
taxes 26,394 20,498 46,624 30,969
Cash income tax
expense (263) (230) (373) (363)
----------- ----------- ----------- -----------
Non-GAAP
adjusted net
income $ 26,131 (2) $ 20,268 $ 46,251 (2) $ 30,606
=========== =========== =========== ===========
Adjusted net
income per
common share -
diluted (3): 0.39 n/m n/m n/m
Weighted
average common
shares
outstanding -
diluted (3): 67,200,565 n/m n/m n/m
(3) pre-IPO share and per share data is not meaningful due to the corporate
reorganization which occurred during the first quarter of 2010.
York Ragen CFO Generac Holdings, Inc. Phone: (262) 506-6064
E-mail: investorrelations@generac.com
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