Generac Holdings Inc. (NYSE: GNRC), a leading designer and
manufacturer of backup power generation products, today reported
financial results for its first quarter ended March 31, 2011.
Highlights -
- Total net sales decreased
year-over-year by 5.2% to $124.0 million as compared to $130.7
million in the first quarter of 2010.
- Continued strength in Commercial &
Industrial product sales with 15.6% year-over-year growth.
- Difficult prior year comparisons with
regards to severe power outages, resulting in 17.6% year-over-year
reduction in Residential product sales.
- Net income increased year-over-year to
$4.8 million as compared to $2.5 million for the first quarter of
2010; Adjusted net income decreased 15.0% to $17.1 million from
$20.2 million in the first quarter of 2010.
- Diluted net income per common share was
$0.07 in the first quarter of 2011; Adjusted diluted net income per
common share was $0.25 in the first quarter of 2011. Prior year
earnings per share results are not comparable given our equity
structure change in connection with our initial public offering
(IPO) in February 2010.
- Continued disciplined capital
allocation, including a $24.7 million debt pre-payment in April
2011. Over the last five months, we have pre-paid approximately
$100 million of debt, bringing our total debt pay-down since our
IPO to $459 million.
- Company remains optimistic about
achieving moderate year-over-year sales growth overall in
2011.
“Our first quarter 2011 results were impacted by headwinds in
our residential markets, partially offset by improving demand in
our Commercial & Industrial markets,” said Aaron Jagdfeld,
President and Chief Executive Officer of Generac. “We continue to
see strong year-over-year growth in our Commercial & Industrial
(C&I) products. We have been able to improve our closure rates
on sales of C&I products by offering cost effective, innovative
back-up power solutions that continue to be adopted by specifying
engineering firms and our national account customers. As capital
spending for commercial projects further improves, we believe that
demand for our C&I products will show continued strength.”
“For our Residential product sales, the first quarter of 2011
was challenging given difficult prior year comparables with regards
to severe power outages. The prior year first quarter had more
severe power outage events as compared with the current year first
quarter, impacting year-over-year sales growth for our lower
kilowatt portable generators. Additionally, as mentioned last
quarter, we saw an increase in seasonal stocking in the fourth
quarter of 2010 by certain distribution partners in anticipation of
an active winter storm season, which had a residual effect on first
quarter 2011 residential generator sales. While the environment for
U.S. residential investment continues to be challenging, we believe
year-over-year sales trends for our residential products will
accelerate from current levels as we execute on our growth
initiatives. We are excited about our new licensing arrangement
with Honeywell and the launch of our new line of power washers,
both of which began shipping late in the first quarter of
2011.”
“As we look forward, we are committed to our strategic growth
initiatives and are confident in the strong cash flow generation of
the business, which allowed us to pre-pay another $24.7 million of
term loan debt in April 2011. Our disciplined capital allocation
has strengthened our balance sheet, affording us the ability to
invest in future growth.”
Commercial & Industrial product sales for the first quarter
of 2011 increased 15.6% to $44.3 million from $38.3 million for the
comparable period in 2010, driven by strong shipments to industrial
national account customers and strong demand for our larger
industrial systems which benefit from innovative features and value
price points. As our national account customers increase capital
spending and contractors look to reduce the cost of their projects,
Generac has been able to capitalize on these opportunities with our
broad C&I product offering and dedicated customer service.
Residential product sales of $69.2 million for the first quarter
of 2011 decreased 17.6% compared to $84.0 million in the first
quarter of 2010. The majority of this year-over-year sales decline
is attributable to a decline in portable generator sales as a
result of less severe power outages versus prior year. To a lesser
extent, home standby generator sales declined versus prior year due
to higher levels of inventory in the channel coming into the year
versus prior year.
Gross profit margin for the first quarter 2011 decreased to
38.1% from 39.3% in the same period last year, which was primarily
attributable to increased commodity and material costs. We expect
that selective price increases implemented during the first quarter
of 2011 will begin to be fully realized during the second quarter
as we work through quotes, backlog and pricing resets throughout
our distribution channels.
Operating expenses for the first quarter of 2011 were
essentially flat in comparison with the first quarter of 2010 at
$36.0 million. Additional non-cash stock compensation expense of
$0.8 million was offset by a $1.0 million reduction in amortization
of intangibles. The remaining nominal year-over-year increase in
operating expenses was primarily driven by additional
infrastructure added to support the long-term strategic growth of
the Company.
Adjusted EBITDA of $27.5 million in the first quarter 2011
decreased from $31.8 million in the same period last year as a
result of the previously mentioned sales and margin declines.
Interest expense decreased in the first quarter of 2011 to $6.0
million, compared to $8.5 million in the same period last year,
contributing to our improved net income compared to prior year. The
decline in interest expense is attributable to the debt
pre-payments that were made during 2010 that further decreased the
leverage of the Company.
Net income for the first quarter 2011 increased to $4.8 million,
compared to $2.5 million for the first quarter of 2010. Included in
prior year net income was a $4.2 million non-cash write-off of
deferred financing costs associated with debt pre-payments in the
first quarter of 2010. Adjusted net income as defined in the
accompanying reconciliation schedules, which excludes this
write-off of deferred financing costs, decreased 15.0% to $17.1
million in the first quarter of 2011 compared to $20.2 million in
the prior year.
Net cash provided by operating activities was $12.7 million in
the first quarter of 2011, which was $5.8 million lower than the
same period last year, as reduced profitability and increased
working capital needs were partially offset by reduced cash
interest paid during the current year quarter. From a seasonality
standpoint, the first quarter of the year is typically the low
point with regards to net sales and cash flows.
OUTLOOK
Mr. Jagdfeld continued, “As we stated last quarter, we remain
optimistic that we can deliver moderate total sales growth overall
in 2011 while maintaining attractive gross margins and continuing
to invest prudently in our operating infrastructure to support our
long-term strategic growth plans. Given first quarter 2011 results,
we are seeing a sales mix shift towards more C&I products which
we believe will continue throughout 2011. Given the headwinds
experienced in our residential markets in the first quarter of
2011, assuming no U.S. residential investment recovery in 2011, and
assuming no major power outage events in 2011, we anticipate that
Residential product sales will be roughly flat with prior year for
the remaining three quarters of 2011 and C&I product sales will
continue double-digit year-over-year growth.”
“From a margin standpoint, we expect higher commodity costs and
the weaker U.S. dollar to continue to modestly impact margins. We
have implemented price increases and cost reductions that we
believe will mostly offset these higher input costs, realization of
which will begin in Q2 and Q3, respectively. Additionally, we
anticipate that the expected sales mix shift towards C&I
products will have a slight unfavorable impact on our overall
margins. Even with these margin challenges, we believe that we will
still be able to deliver best-in-class EBITDA margins given our
advantaged operating model.”
“Looking forward, we expect to generate significant free cash
flow in 2011 given our attractive margins, asset-light model,
favorable tax attributes and low cost debt structure. This cash
flow will continue to provide us operational flexibility and allow
us to focus on our strategic initiatives to propel the future
growth of the Company.”
Conference Call and Webcast
Generac management will hold a conference call at 9:00am EDT on
Thursday, May 5, 2011 to discuss highlights of this earnings
release. The conference call can be accessed by dialing (800)
260-8140 (domestic) or +1 (617) 614-3672 (international) and
entering passcode 97648433.
The conference call will also be webcast simultaneously on
Generac's website (http://www.generac.com), under the Investor
Relations link. The webcast link and any supporting materials will
be made available on the Company’s website prior to the start of
the call.
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
beginning three hours after the call and can be accessed by dialing
(888) 286-8010 (domestic) or +1 (617) 801-6888 (international) and
entering passcode 48011850. 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 quality 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 and gains 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.
Adjusted net income is defined as Net income 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 March 31, 2011
2010 Net sales $ 123,981 $ 130,718 Costs of
goods sold 76,804 79,300 Gross profit
47,177 51,418 Operating expenses: Selling and service 14,305
14,312 Research and development 3,885 3,722 General and
administrative 6,117 5,159 Amortization of intangibles
11,727 12,761 Total operating expenses
36,034 35,954 Income from operations 11,143
15,464 Other (expense) income: Interest expense (6,001 )
(8,492 ) Investment income 36 74 Write-off of deferred financing
costs related to debt extinguishment – (4,180 ) Other, net
(241 ) (316 ) Total other expense, net (6,206 )
(12,914 ) Income before provision for income taxes
4,937 2,550 Provision for income taxes 93 82
Net income 4,844 2,468 Preferential distribution to:
Series A preferred stockholders – (2,042 ) Class B common
stockholders – (12,133 ) Beneficial conversion - see note (1)
– (140,690 ) Net income (loss) attributable to
common stockholders (formerly Class A common stockholders) $ 4,844
$ (152,397 ) Net income (loss) per common share -
basic (2): Common stock (formerly Class A common stock) $ 0.07 $
(4.26 ) Class B common stock n/a $ 505 Net income (loss) per
common share - diluted (2): Common stock (formerly Class A common
stock) $ 0.07 $ (4.26 ) Class B common stock n/a $ 505
Weighted average common shares outstanding - basic (2): Common
stock (formerly Class A common stock) 67,107,560 35,748,290 Class B
common stock n/a 24,018 Weighted average common shares
outstanding - diluted (2): Common stock (formerly Class A common
stock) 67,344,349 35,748,290 Class B common stock n/a 24,018
(1) Beneficial conversion feature related to Class B common
stock and Series A preferred stock was reflected during the first
quarter of 2010 as a result of Generac's corporate reorganization
and IPO. See discussion of Generac's equity structure and corporate
reorganization in the 2010 Annual Report on Form 10-K for the
fiscal year ended December 31, 2010. (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)
March 31, December 31,
2011 2010 (Unaudited) Assets Current
assets: Cash and cash equivalents $ 89,997 $ 78,583 Accounts and
notes receivable, less allowance for doubtful accounts 62,410
63,154 Inventories 143,787 127,137 Prepaid expenses and other
assets 3,800 3,645 Total current assets
299,994 272,519 Property and equipment, net 74,914 75,287
Customer lists, net 87,481 96,944 Patents, net 83,004 84,933
Other intangible assets, net 6,148 6,483 Deferred financing costs,
net 5,320 5,822 Trade names 140,050 140,050 Goodwill 527,148
527,148 Other assets 259 697 Total
assets $ 1,224,318 $ 1,209,883
Liabilities
and stockholders’ equity Current liabilities: Accounts payable
$ 52,212 $ 41,809 Accrued wages and employee benefits 6,530 6,833
Other accrued liabilities 35,949 38,043 Current portion of
long-term debt 24,731 – Total current
liabilities 119,422 86,685 Long-term debt 632,498 657,229
Other long-term liabilities 23,623 24,902
Total liabilities 775,543 768,816
Stockholders’ equity:
Common stock (formerly Class A non-voting
common stock), par value$0.01, 500,000,000 shares authorized,
67,565,154 and 67,524,596 sharesissued at March 31, 2011 and
December 31, 2010, respectively
675 675 Additional paid-in capital 1,136,227 1,133,918 Excess
purchase price over predecessor basis (202,116 ) (202,116 )
Accumulated deficit (476,814 ) (481,658 ) Accumulated other
comprehensive loss (9,197 ) (9,752 ) Total
stockholders’ equity 448,775 441,067
Total liabilities and stockholders’ equity $ 1,224,318 $
1,209,883 Generac Holdings Inc. Condensed
Consolidated Statements of Cash Flows (Dollars in Thousands)
(Unaudited)
Three Months Ended March 31, 2011
2010 Operating activities Net income $ 4,844 $
2,468 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 1,936 1,891 Amortization 11,727
12,761 Write-off of deferred financing costs related to debt
extinguishment – 4,180 Amortization of deferred financing costs 502
739 Provision for losses on accounts receivable 29 (27 ) Loss on
disposal of property and equipment 3 – Share-based compensation
2,000 1,246 Net changes in operating assets and liabilities:
Accounts receivable 715 1,475 Inventories (16,650 ) 16,611 Other
assets 283 841 Accounts payable 10,403 (5,900 ) Accrued wages and
employee benefits (303 ) (1,222 ) Other accrued liabilities
(2,818 ) (16,627 ) Net cash provided by operating activities
12,671 18,436
Investing activities Proceeds from sale
of property and equipment 3 – Expenditures for property and
equipment (1,569 ) (1,564 ) Net cash used in
investing activities (1,566 ) (1,564 )
Financing
activities Proceeds from issuance of common stock – 248,309
Payment of long-term debt – (360,117 ) Proceeds from exercise of
stock options 309 – Net cash provided
by (used in) financing activities 309 (111,808
) Net increase (decrease) in cash and cash equivalents
11,414 (94,936 ) Cash and cash equivalents at beginning of period
78,583 161,307 Cash and cash
equivalents at end of period $ 89,997 $ 66,371
Generac Holdings Inc. Reconciliation Schedules (Dollars in
Thousands, Except Share and Per Share Data)
Net income to
Adjusted EBITDA reconciliation Three Months Ended
March 31, 2011 2010 (unaudited) (unaudited)
Net income $ 4,844 $ 2,468 Interest expense 6,001 8,492
Depreciation and amortization 13,663 14,652 Income taxes provision
93 82 Non-cash impairment and other charges (1) 446 149 Non-cash
share-based compensation expense (2) 2,000 1,246 Write-off of
deferred financing costs related to debt extinguishment - 4,180
Transaction costs and credit facility fees 173 362 Other 264
201 Adjusted EBITDA $ 27,484 $ 31,832
(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
grants of stock options, restricted stock and other stock awards
over their respective vesting periods.
Net income
to Adjusted net income reconciliation Three Months
Ended March 31, 2011 2010 (unaudited) (unaudited)
Net income $ 4,844 $ 2,468 Provision for income taxes
93 82 Income before provision for income taxes
4,937 2,550 Amortization of intangible assets 11,727 12,761
Amortization of deferred financing costs 502 739 Write-off of
deferred financing costs related to debt extinguishment -
4,180 Adjusted net income before provision for
income taxes 17,166 20,230 Cash income tax expense (24 )
(65 ) Adjusted net income $ 17,142 $ 20,165
Adjusted net income per common share - diluted (3): $ 0.25
n/m Weighted average common shares outstanding - diluted
(3): 67,344,349 n/m (3) 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 March 31, 2011 2010 (unaudited) (unaudited)
Net cash provided by operating activities $ 12,671 $ 18,436
Expenditures for property and equipment (1,569 )
(1,564 ) Free Cash Flow $ 11,102 $ 16,872
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