Generac Holdings Inc. (NYSE: GNRC), a leading designer and
manufacturer of backup power generation products, today reported
financial results for its third quarter ended September 30, 2010.
Third Quarter 2010 Highlights
- Net sales increased year-over-year by 11.4% to $160.7 million
as compared to $144.3 million in the third quarter of 2009.
- Net income increased year-over-year by 60.6% to $23.0 million
as compared to $14.3 million for the third quarter of 2009;
Adjusted net income increased 35.3% to $36.7 million from $27.1
million in the third quarter of 2009.
- Net cash provided by operating activities improved 50.0%
year-over-year, from $24.3 million to $36.5 million during the
third quarter 2010.
- Diluted net income per common share was $0.34 per share;
Adjusted diluted net income per common share was $0.55 per
share.
- The Company successfully launched its new economy home standby
product, CorePower™ Series, establishing a new lower opening price
for the category.
"Despite the difficult operating environment which persisted
throughout the third quarter of 2010, we achieved a double digit
year-over-year increase in net sales, driven by increased sales for
both our residential and industrial products. Although we have not
had the benefit of major outage activity this summer, improved
industrial market conditions and our ability to expand distribution
and create awareness for our residential products have helped us
drive strong revenue growth in our business," said Aaron Jagdfeld,
President and Chief Executive Officer of Generac.
Residential product sales of $101.0 million increased 12.6% in
the third quarter 2010 from $89.7 million in the third quarter last
year. This year-over-year increase was driven primarily by our
marketing programs for home standby generators, continued expansion
of our residential products distribution network, and a shift
towards in-season buying.
Industrial and commercial product sales of $49.6 million in the
third quarter increased 7.6% from $46.0 million for the comparable
period in 2009. This increase was driven by an improvement in our
focused end markets and expansion of our distribution.
The Company has also announced the following strategic
initiatives designed to improve Generac's long-term growth
profile:
- In October 2010, the Company announced it had reached a
licensing agreement with Honeywell to be the exclusive licensee of
Honeywell branded standby and portable generators. By leveraging
Generac's product offering and support network, the Honeywell brand
will provide incremental access to underpenetrated channels for the
Company including security and HVAC.
- At the recent 2011 Green Industry and Equipment (GIE) Expo in
Louisville, KY, the Company announced plans to re-enter the market
for residential and contractor grade pressure washers, allowing it
to leverage its existing customer base, supply-chain and
engineering expertise.
Overall, gross profit margin increased sequentially to 41.9%
from 39.0% in the second quarter 2010, but was down from 44.7% in
the same period last year. The year-over-year decline in gross
margins was mostly attributable to increased commodity costs versus
prior year and a higher mix of lower kilowatt residential products
sold during the current quarter compared to the prior year
quarter.
Operating expenses for the third quarter of 2010 increased 10.9%
to $37.6 million compared to $33.9 million in third quarter of
2009. The year-over-year increase in operating expenses was
attributable to increased administrative costs related to operating
as a public company, non-cash stock compensation expenses, higher
engineering and product development costs, and higher variable
operating expenses on higher net sales versus prior year.
Adjusted EBITDA of $45.7 million was relatively flat compared to
$46.1 million in the third quarter of 2009. Interest expense
decreased in the third quarter of 2010 to $6.5 million, compared to
$17.2 million in the same period last year due to debt repayments,
lower LIBOR rates, and the termination of certain interest rate
swap agreements.
Free cash flow generation remained strong, improving 51.1%
year-over-year to $35.2 million during the third quarter 2010 from
$23.3 million in the third quarter of 2009.
OUTLOOK
Mr. Jagdfeld concluded, "As we close out 2010, we expect to see
continued year-over-year strength from our industrial and
commercial products as demand in those markets continues to
improve. However, more than offsetting this improvement, we see our
fourth quarter 2010 residential product sales down year-over-year
as certain customers have approached seasonal stocking for lower
kilowatt products more conservatively this year versus last year.
Despite this, we remain confident in our longer term growth
initiatives including new product launches, continued expansion of
our distribution network and our entry into new geographies and
markets that will continue to drive sales growth and significant
cash flow generation for our business."
Conference Call and Webcast
Generac management will hold a conference call at 10:00am EDT on
Thursday, November 4, 2010 to discuss highlights of this earnings
release. The conference call can be accessed by dialing (800)
435-1398 (domestic) or +1 (617) 614-4078 (international) and
entering passcode 74351458.
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 36086456. 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 certain
non-cash gains.
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 Operations
(Dollars in Thousands, Except Share and Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
----------- ----------- ----------- -----------
Net sales $ 160,666 $ 144,261 $ 431,839 $ 434,284
Costs of goods sold 93,304 79,770 258,314 262,078
----------- ----------- ----------- -----------
Gross profit 67,362 64,491 173,525 172,206
Operating expenses:
Selling and service 15,295 14,620 43,416 44,863
Research and
development 3,580 2,515 10,784 7,752
General and
administrative 5,654 3,671 16,492 11,538
Amortization of
intangibles 13,063 13,097 38,745 38,863
----------- ----------- ----------- -----------
Total operating expenses 37,592 33,903 109,437 103,016
----------- ----------- ----------- -----------
Income from operations 29,770 30,588 64,088 69,190
Other (expense) income:
Interest expense (6,540) (17,204) (20,752) (53,652)
Investment income 62 129 172 2,089
Gain on extinguishment
of debt - 1,235 - 14,745
Write-off of deferred
financing costs
related to debt
extinguishment - - (4,180) -
Other, net (216) (320) (791) (941)
----------- ----------- ----------- -----------
Total other expense,
net (6,694) (16,160) (25,551) (37,759)
----------- ----------- ----------- -----------
Income before provision
for income taxes 23,076 14,428 38,537 31,431
Provision for income
taxes 78 112 237 324
----------- ----------- ----------- -----------
Net income 22,998 14,316 38,300 31,107
Preferential
distribution to:
Series A preferred
stockholders - (3,709) (2,042) (9,821)
Class B common
stockholders - (25,349) (12,133) (74,208)
Beneficial conversion
- see note 1 - - (140,690) -
----------- ----------- ----------- -----------
Net income (loss)
attributable to
common stockholders
(formerly Class A
common stockholders) $ 22,998 $ (14,742) $ (116,565) $ (52,922)
=========== =========== =========== ===========
Net income (loss) per
common share
- basic (2):
Common stock
(formerly Class A
common stock) $ 0.34 $ (8,492) $ (2.05) $ (30,485)
Class B common stock n/a $ 1,055 $ 3,364 $ 3,090
Net income (loss) per
common share
- diluted (2):
Common stock
(formerly Class A
common stock) $ 0.34 $ (8,492) $ (2.05) $ (30,485)
Class B common stock n/a $ 1,055 $ 3,364 $ 3,090
Weighted average common
shares outstanding
- basic (2):
Common stock
(formerly Class A
common stock) 67,094,447 1,736 56,760,150 1,736
Class B common stock n/a 24,018 3,607 24,018
Weighted average common
shares outstanding
- diluted (2):
Common stock
(formerly Class A
common stock) 67,231,403 1,736 56,760,150 1,736
Class B common stock n/a 24,018 3,607 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)
September 30, December 31,
2010 2009
------------- -------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 128,334 $ 161,307
Accounts and notes receivable, less
allowance for doubtful accounts 73,787 54,130
Inventories 127,358 123,700
Prepaid expenses and other assets 3,526 5,880
------------- -------------
Total current assets 333,005 345,017
Property and equipment, net 71,852 73,374
Customer lists, net 106,047 134,674
Patents, net 86,904 92,753
Other intangible assets, net 6,781 7,791
Deferred financing costs, net 7,020 13,070
Trade names 141,148 144,407
Goodwill 525,875 525,875
Other assets 527 282
------------- -------------
Total assets $ 1,279,159 $ 1,337,243
============= =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 61,487 $ 33,639
Accrued wages and employee benefits 6,390 6,930
Other accrued liabilities 36,006 52,326
Current portion of long-term debt - 39,076
------------- -------------
Total current liabilities 103,883 131,971
Long-term debt 731,422 1,052,463
Other long-term liabilities 22,987 17,418
------------- -------------
Total liabilities 858,292 1,201,852
Class B convertible voting common stock,
par value $0.01, 110,000 shares
authorized, 0 and 24,018 shares issued at
September 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
September 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, 67,522,096 and 1,617
shares issued at September 30, 2010 and
December 31, 2009, respectively 675 -
Additional paid-in capital 1,132,189 2,394
Excess purchase price over predecessor
basis (202,116) (202,116)
Accumulated deficit (500,271) (538,571)
Accumulated other comprehensive loss (9,610) (4,492)
Stockholder notes receivable - (29)
------------- -------------
Total stockholders' equity (deficit) 420,867 (742,814)
------------- -------------
Total liabilities and stockholders' equity $ 1,279,159 $ 1,337,243
============= =============
Generac Holdings Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
2010 2009
------------- -------------
Operating activities
Net income $ 38,300 $ 31,107
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation 5,777 5,818
Amortization 38,745 38,863
Gain on extinguishment of debt - (14,745)
Write-off of deferred financing costs
related to debt extinguishment 4,180 -
Amortization of deferred finance costs 1,870 2,562
Amortization of unrealized loss on
interest rate swaps - 18,167
Provision for losses on accounts
receivable 1 89
Loss on disposal of property and
equipment 31 36
Share-based compensation expense 4,634 28
Net changes in operating assets and
liabilities:
Accounts receivable (19,658) 6,094
Inventories (3,658) (19,711)
Other assets 1,431 1,369
Accounts payable 27,848 9,421
Accrued wages and employee benefits (511) (14)
Other accrued liabilities (15,869) (33,953)
------------- -------------
Net cash provided by operating activities 83,121 45,131
Investing activities
Proceeds from sale of property and equipment 38 56
Expenditures for property and equipment (4,324) (2,902)
Collections on receivable notes - 105
------------- -------------
Net cash used in investing activities (4,286) (2,741)
Financing activities
Stockholders' contributions of capital
- Series A preferred stock - 20,000
Proceeds from issuance of common stock 248,309 -
Payment of short-term and long-term debt (360,117) (9,500)
------------- -------------
------------- -------------
Net cash (used in) provided by financing
activities (111,808) 10,500
------------- -------------
Net (decrease) increase in cash and cash
equivalents (32,973) 52,890
Cash and cash equivalents at beginning of
period 161,307 81,229
------------- -------------
Cash and cash equivalents at end of period $ 128,334 $ 134,119
============= =============
Supplemental disclosure of noncash financing
and investing activities
Contributions of capital related to debt
extinguishment $ - $ 14,754
Generac Holdings Inc.
Reconciliation Schedules
(Dollars in Thousands, Except Share and Per Share Data)
Net income to Adjusted
EBITDA reconciliation
Three months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
2010 2009 2010 2009
(unaudited) (unaudited) (unaudited) (unaudited)
Net income $ 22,998 $ 14,316 $ 38,300 $ 31,107
Interest expense 6,540 17,204 20,752 53,652
Depreciation and
amortization 15,011 15,060 44,522 44,681
Income taxes provision 78 112 237 324
Non-cash impairment and
other charges (1) (781) (23) (217) (1,389)
Non-cash share-based
compensation
expense (2) 1,675 - 4,634 -
Write-off of deferred
financing costs
related to debt
extinguishment - - 4,180 -
Transaction costs and
credit facility fees 183 458 850 1,168
Non-cash gains (3) - (1,235) - (14,745)
Other 9 198 245 208
----------- ----------- ----------- -----------
Adjusted EBITDA $ 45,713 $ 46,090 $ 113,503 $ 115,006
=========== =========== =========== ===========
(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 issued in connection with
Generac's initial public offering over their respective vesting
periods.
(3) Includes gains on extinguishment of debt.
Net income to Adjusted
net income reconciliation
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2010 2009 2010 2009
(unaudited) (unaudited) (unaudited) (unaudited)
Net income $ 22,998 $ 14,316 $ 38,300 $ 31,107
Provision for income
taxes 78 112 237 324
----------- ----------- ----------- -----------
Income before provision
for income taxes 23,076 14,428 38,537 31,431
Amortization of
intangible assets 13,063 13,097 38,745 38,863
Amortization of
deferred loan costs 569 852 1,870 2,562
Write-off of deferred
financing costs
related to debt
extinguishment - - 4,180 -
Gain on extinguishment
of debt - (1,235) - (14,745)
----------- ----------- ----------- -----------
Adjusted net income
before provision for
income taxes 36,708 27,142 83,332 58,111
Cash income tax expense (22) (26) (395) (389)
----------- ----------- ----------- -----------
Adjusted net income $ 36,686 $ 27,116 $ 82,937 $ 57,722
=========== =========== =========== ===========
Adjusted net income
per common share
- diluted (4): $ 0.55 n/m n/m n/m
Weighted average common
shares outstanding
- diluted (4): 67,231,403 n/m n/m n/m
(4) pre-IPO share and per share data is not meaningful due to the corporate
reorganization which occurred in conjunction with the IPO during the
first quarter of 2010.
Free Cash Flow
Reconciliation
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2010 2009 2010 2009
(unaudited) (unaudited) (unaudited) (unaudited)
Net cash provided by
operating activities $ 36,476 $ 24,310 $ 83,121 $ 45,131
Expenditures for
property and equipment (1,289) (1,017) (4,324) (2,902)
----------- ----------- ----------- -----------
Free Cash Flow $ 35,187 $ 23,293 $ 78,797 $ 42,229
=========== =========== =========== ===========
For Investor Inquiries: Generac Holdings Inc. York Ragen Chief
Financial Officer 262-506-6064
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