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, 2011.
Highlights -
- Total net sales increased
year-over-year by 14.9% to $161.4 million as compared to $140.5
million in the second quarter of 2010.
- Year-over-year growth of 4.9% across
Residential product sales.
- Continued strength in Commercial &
Industrial (C&I) product sales with 32.4% year-over-year
growth.
- Net income increased year-over-year to
$15.3 million as compared to $12.8 million for the second quarter
of 2010; Adjusted net income increased 5.8% to $27.7 million from
$26.1 million in the second quarter of 2010.
- Diluted net income per common share was
$0.23 per share as compared to $0.19 per share in the second
quarter of 2010; Adjusted diluted net income per common share was
$0.41 per share as compared to $0.39 per share in the second
quarter of 2010.
“We are pleased with our strong second quarter results which
were driven by year-over-year growth in our home standby products
and ongoing momentum in our Commercial & Industrial product
sales,” said Aaron Jagdfeld, President and Chief Executive Officer
of Generac. “For our Residential product sales, we have seen
improved sales trends across our distribution channels relative to
the first quarter 2011. Second quarter residential results were up
approximately 5% year-over-year due to increased awareness of our
home standby products and the continued expansion of our
distribution network. Shipments of our C&I products remained
robust as we experienced over 30% year-over-year growth as a result
of strengthening demand from our national account customers. We are
also experiencing improved quote-to-order conversion rates for our
large industrial systems as we continue to bring value and
innovation to the market place.”
Residential product sales for the second quarter of 2011
increased 4.9% to $92.2 million from $87.9 million for the
comparable period in 2010. New distribution points, new product
offerings and increased awareness helped to generate this
year-over-year increase, partially offset by a slight
year-over-year decrease in sales for our lower kilowatt portable
generators due to elevated channel inventory levels.
Commercial & Industrial product sales for the second quarter
of 2011 increased 32.4% to $57.3 million from $43.3 million for the
comparable period in 2010. The increase was driven predominantly by
continued strength in sales to both industrial national account
customers and independent industrial dealers, particularly in
telecom, healthcare and data center applications.
Gross profit margin for the second quarter 2011 decreased to
37.4% from 39.0% in the same period last year, which was primarily
attributable to increased commodity and material costs and a sales
mix shift towards more industrial product sales. The impact of
increasing commodity levels was partially offset by selective price
increases that were implemented during the first quarter of
2011.
Operating expenses for the second quarter of 2011 increased to
$38.6 million from $35.9 million in the second quarter of 2010. The
year-over-year increase in operating expenses was primarily driven
by increased sales, marketing and engineering costs to support the
Company’s long term strategic growth initiatives coupled with
increases in variable operating expenses on higher sales volumes
versus prior year. Operating expense increases were partially
offset by a $1.1 million reduction in amortization of intangibles
that became fully amortized in 2010.
Adjusted EBITDA of $37.6 million in the second quarter 2011
increased from $36.0 million in the same period last year, as
increased sales volumes were partially offset by reduced gross
margins and higher operating expenses.
Interest expense increased in the second quarter of 2011 to $5.9
million, compared to $5.7 million in the same period last year. The
increase in interest expense was attributable to the impact of
interest rate swaps effective the third and fourth quarters of
2010, partially offset by interest expense reductions driven by
nearly $100 million of debt pre-payments over the last 12
months.
Net cash provided by operating activities was $15.3 million in
the second quarter of 2011, which was down from $28.2 million in
the same period last year. This decrease in cash flows was driven
by elevated net working capital levels, primarily related to a
temporary increase in inventory levels.
In April 2011, the Company used $24.7 million of its cash flow
to make a voluntary debt pre-payment on its first lien credit
facility. As of June 30, 2011, the Company currently has $633
million of debt outstanding.
OUTLOOK
Mr. Jagdfeld continued, “Given the strength of our C&I
products and the dedicated focus we have on our “Powering Ahead”
strategic plan, we remain confident that we can achieve moderate
sales growth overall in 2011. Although the second half of the year
should present more difficult prior year comparisons for our
C&I products, we still expect to generate solid double-digit
year-over-year growth throughout 2011 given the strong backlog that
exists for these products. Assuming no major outage events for the
balance of the year, we re-affirm our expectation that Residential
product sales will be roughly flat for the second half of 2011
compared to last year. Lastly, in spite of the headwind presented
by ongoing commodity volatility, we expect our margins to be up
sequentially in the second half of the year, driven by continued
realization of price increases, realized cost reductions during the
third quarter and improved overhead absorption.”
Conference Call and Webcast
Generac management will hold a conference call at 9:00 a.m. EDT
on Friday, August 5, 2011 to discuss highlights of this earnings
release. The conference call can be accessed by dialing (866)
730-5765 (domestic) or +1 (857) 350-1589 (international) and
entering passcode 84945309.
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
three hours after the call and can be accessed by dialing (888)
286-8010 (domestic) or +1 (617) 801-6888 (international) and
entering passcode 65205593. 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 and cost 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 June 30, Six Months
Ended June 30, 2011 2010 2011 2010
Net sales $ 161,363 $ 140,455 $ 285,344 $ 271,173
Costs of goods sold 101,010 85,710
177,814 165,010 Gross profit 60,353
54,745 107,530 106,163 Operating expenses: Selling and
service 17,317 13,809 31,622 28,121 Research and development 3,608
3,482 7,493 7,204 General and administrative 5,772 5,679 11,889
10,838 Amortization of intangibles 11,856
12,921 23,583 25,682 Total
operating expenses 38,553 35,891
74,587 71,845 Income from operations 21,800
18,854 32,943 34,318 Other (expense) income: Interest
expense (5,934 ) (5,720 ) (11,935 ) (14,212 ) Investment income 23
36 59 110 Write-off of deferred financing costs related to debt
extinguishment (186 ) – (186 ) (4,180 ) Other, net (327 )
(259 ) (568 ) (575 ) Total other expense, net
(6,424 ) (5,943 ) (12,630 ) (18,857 )
Income before provision for income taxes 15,376 12,911
20,313 15,461 Provision for income taxes 87 77
180 159 Net income 15,289 12,834
20,133 15,302 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) $ 15,289 $ 12,834 $ 20,133 $
(139,563 ) Net income (loss) per common share - basic (2):
Common stock (formerly Class A common stock) $ 0.23 $ 0.19 $ 0.30 $
(2.71 ) Class B common stock n/a n/a n/a $ 505 Net income
(loss) per common share - diluted (2): Common stock (formerly Class
A common stock) $ 0.23 $ 0.19 $ 0.30 $ (2.71 ) Class B common stock
n/a n/a n/a $ 505 Weighted average common shares outstanding
- basic (2): Common stock (formerly Class A common stock)
67,134,999 67,093,250 67,121,356 51,507,358 Class B common stock
n/a n/a n/a 24,018 Weighted average common shares
outstanding - diluted (2): Common stock (formerly Class A common
stock) 67,718,654 67,200,565 67,463,440 51,507,358 Class B common
stock n/a n/a 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)
June 30, December
31, 2011 2010 (Unaudited) Assets
Current assets: Cash and cash equivalents $ 78,746 $ 78,583
Accounts and notes receivable, less allowance for doubtful accounts
79,810 63,154 Inventories 139,728 127,137 Prepaid expenses and
other assets 3,043 3,645 Total current
assets 301,327 272,519 Property and equipment, net 74,729
75,287 Customer lists, net 77,913 96,944 Patents, net 81,055
84,933 Other intangible assets, net 5,809 6,483 Deferred financing
costs, net 4,640 5,822 Trade names 140,050 140,050 Goodwill 527,136
527,148 Other assets 116 697 Total
assets $ 1,212,775 $ 1,209,883
Liabilities
and stockholders’ equity Current liabilities: Accounts payable
$ 44,736 $ 41,809 Accrued wages and employee benefits 6,814 6,833
Other accrued liabilities 39,386 38,043 Current portion of
long-term debt – – Total current
liabilities 90,936 86,685 Long-term debt 632,498 657,229
Other long-term liabilities 26,261 24,902
Total liabilities 749,695 768,816
Stockholders’ equity:
Common stock (formerly Class A non-voting
commonstock), par value $0.01, 500,000,000 sharesauthorized,
67,579,525 and 67,524,596 shares issuedat June 30, 2011 and
December 31, 2010, respectively
675 675 Additional paid-in capital 1,137,945 1,133,918 Excess
purchase price over predecessor basis (202,116 ) (202,116 )
Accumulated deficit (461,525 ) (481,658 ) Accumulated other
comprehensive loss (11,899 ) (9,752 ) Total
stockholders’ equity 463,080 441,067
Total liabilities and stockholders’ equity $ 1,212,775 $
1,209,883 Generac Holdings Inc. Condensed
Consolidated Statements of Cash Flows (Dollars in Thousands)
(Unaudited)
Six Months Ended June 30, 2011
2010 Operating activities Net income $ 20,133
$ 15,302 Adjustments to reconcile net income to net cash provided
by operating activities: Depreciation 3,940 3,829 Amortization
23,583 25,682 Write-off of deferred financing costs related to debt
extinguishment 186 4,180 Amortization of deferred financing costs
996 1,301 Provision for losses on accounts receivable (29 ) (69 )
Loss on disposal of property and equipment 18 – Share-based
compensation 3,717 2,959 Net changes in operating assets and
liabilities: Accounts receivable (16,627 ) (14,211 ) Inventories
(12,591 ) 12,264 Other assets 1,183 1,999 Accounts payable 2,927
9,346 Accrued wages and employee benefits (19 ) (860 ) Other
accrued liabilities 567 (15,077 ) Net cash
provided by operating activities 27,984 46,645
Investing
activities Proceeds from sale of property and equipment 4 –
Expenditures for property and equipment (3,404 )
(3,035 ) Net cash used in investing activities (3,400 ) (3,035 )
Financing activities Proceeds from issuance of common
stock – 248,309 Payment of long-term debt (24,731 ) (360,117 )
Proceeds from exercise of stock options 310 –
Net cash used in financing activities (24,421 )
(111,808 ) Net increase (decrease) in cash and cash
equivalents 163 (68,198 ) Cash and cash equivalents at beginning of
period 78,583 161,307 Cash and cash
equivalents at end of period $ 78,746 $ 93,109
Generac Holdings Inc. Reconciliation Schedules (Dollars in
Thousands, Except Share and Per Share Data)
Net income to
Adjusted EBITDA reconciliation Three Months Ended
June 30, Six Months Ended June 30, 2011
2010 2011 2010 (unaudited) (unaudited)
(unaudited) (unaudited) Net income $ 15,289 $ 12,834 $
20,133 $ 15,302 Interest expense 5,934 5,720 11,935 14,212
Depreciation and amortization 13,860 14,859 27,523 29,511 Income
taxes provision 87 77 180 159 Non-cash impairment and other charges
(1) 158 415 604 564 Non-cash share-based compensation expense (2)
1,717 1,713 3,717 2,959 Write-off of deferred financing costs
related to debt extinguishment 186 - 186 4,180 Transaction costs
and credit facility fees 258 305 431 667 Other 127
35 391 236 Adjusted
EBITDA $ 37,616 $ 35,958 $ 65,100 $ 67,790
(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.
Net income to Adjusted
net income reconciliation Three Months Ended June
30, Six Months Ended June 30, 2011 2010
2011 2010 (unaudited) (unaudited) (unaudited)
(unaudited) Net income $ 15,289 $ 12,834 $ 20,133 $ 15,302
Provision for income taxes 87 77
180 159 Income before provision for income
taxes 15,376 12,911 20,313 15,461 Amortization of intangible assets
11,856 12,921 23,583 25,682 Amortization of deferred loan costs 494
562 996 1,301 Write-off of deferred financing costs related to debt
extinguishment 186 - 186
4,180 Adjusted net income before provision for income
taxes 27,912 26,394 45,078 46,624 Cash income tax expense
(256 ) (245 ) (280 ) (310 ) Adjusted net
income $ 27,656 $ 26,149 $ 44,798 $ 46,314
Adjusted net income per common share - diluted (3): $
0.41 $ 0.39 $ 0.66 n/m Weighted average common shares
outstanding - diluted (3): 67,718,654 67,200,565 67,463,440 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 June 30,
Six Months Ended June 30, 2011 2010
2011 2010 (unaudited) (unaudited) (unaudited)
(unaudited) Net cash provided by operating activities $
15,314 $ 28,209 $ 27,984 $ 46,645 Expenditures for property and
equipment (1,835 ) (1,471 ) (3,404 )
(3,035 ) Free Cash Flow $ 13,479 $ 26,738 $ 24,580
$ 43,610
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