Generac Holdings Inc. (NYSE: GNRC), a leading designer and
manufacturer of generators and other engine powered products, today
reported financial results for its third quarter ended September
30, 2011.
Highlights -
- Total net sales increased
year-over-year by 49.0% to $239.3 million as compared to $160.7
million in the third quarter of 2010.
- 60.5% year-over-year growth in
Residential product sales.
- Commercial & Industrial (C&I)
product sales up 27.4% compared to prior year.
- Net income increased year-over-year to
$37.4 million as compared to $23.0 million for the third quarter of
2010; Adjusted net income increased 37.8% to $50.6 million from
$36.7 million in the third quarter of 2010.
- Diluted net income per common share was
$0.55 per share as compared to $0.34 per share in the third quarter
of 2010; Adjusted diluted net income per common share was $0.75 per
share as compared to $0.55 per share in the third quarter of
2010.
- Cash flow from operations in the third
quarter 2011 increased 67.3% to $61.0 million as compared to $36.5
million in the prior year quarter.
- On October 3, 2011, the Company
acquired substantially all the assets and certain liabilities of
Magnum Products, LLC, funded solely by cash on the balance
sheet.
“The third quarter of 2011 was marked by a number of significant
milestones for Generac,” said Aaron Jagdfeld, President and Chief
Executive Officer of Generac. “We saw record shipments of our
residential products following the major power outage events that
occurred in the Midwest and along the East Coast during the third
quarter. Our sustained efforts over the past three years to build a
leading position in the market for portable generators resulted in
a sharp increase in sales due to the increased demand for these
products in the third quarter. We also saw increased demand for our
home standby generators in the quarter and we expect that demand
will grow over the next several quarters as homeowners look to
protect themselves from future power outages.”
“In addition to our record sales during the quarter, in early
October we completed our acquisition of Magnum Products, a leading
provider of light towers, mobile generators and pumps to the
construction, energy and government markets. The Magnum Products
business is an excellent strategic fit for Generac as it provides
us an entry point into new adjacent power products, new customers
and new end markets. We have been disciplined with the use of our
corporate cash having paid down nearly $100 million of debt over
the last 12 months. In this acquisition, we saw an opportunity to
use cash on our balance sheet to drive an even stronger return for
our shareholders.”
Residential product sales for the third quarter of 2011
increased 60.5% to $162.1 million from $101.0 million for the
comparable period in 2010. Higher shipments of portable generators
were the primary driver of this increase, as widespread power
outages caused an immediate increase in the demand for back-up
power. Following the outage events, sales of home standby
generators also increased during the quarter.
Commercial & Industrial product sales for the third quarter
of 2011 increased 27.4% to $63.1 million from $49.6 million for the
comparable period in 2010. This outperformance was predominantly
driven by timing of larger shipments to certain national account
customers given their capital spending requirements during the
current year.
Gross profit margin for the third quarter of 2011 was 37.0%
compared to 37.4% in the second quarter of 2011 and 41.9% in the
same period last year. The majority of the gross margin decline
from prior year was attributable to the significant shift in sales
mix towards more portable generators in the current year quarter.
To a lesser extent, higher commodity costs versus the prior year
also contributed to the year-over-year gross margin decline.
Operating expenses for the third quarter of 2011 increased by
approximately $6.9 million or 18.3% as compared to the third
quarter of 2010. This was primarily driven by increased variable
operating expenses on the 49.0% year-over-year growth in sales,
increased sales and engineering costs to support the strategic
growth initiatives of the Company, and increased incentive
compensation expenses as a result of the Company’s financial
performance during the quarter.
Adjusted EBITDA of $61.6 million in the third quarter 2011
increased from $45.7 million in the same period last year,
resulting in a last-twelve-month’s Adjusted EBITDA of $169.4
million.
Interest expense in the third quarter of 2011 declined to $5.9
million, compared to $6.5 million in the same period last year.
This decline was a result of nearly $100 million of debt
pre-payments that were made over the last 12 months.
Net cash provided by operating activities was $61.0 million in
the third quarter of 2011, which was up from $36.5 million in the
same period last year. Increased shipments helped to monetize
inventory levels generating significant cash flow in the third
quarter.
OUTLOOK
Mr. Jagdfeld continued, “Given the major outage events that
occurred during the third quarter of 2011, we now expect that
residential product sales in the fourth quarter will increase
year-over-year by over 30%. We expect that higher residential sales
will be primarily driven by increased shipments of home standby
generators, as the demand for these products is expected to remain
strong into fiscal 2012 in the regions impacted by recent outages.
With regards to C&I product sales, given the timing of certain
larger shipments to national account customers in the third quarter
of 2011, coupled with a short-term gap in certain Japanese
component supply chain, we expect our C&I fourth quarter
shipments to be roughly flat compared to the fourth quarter of
2010, excluding the impact of the Magnum Products acquisition.”
Regarding the Magnum Products acquisition, Generac expects the
transaction to be immediately accretive to earnings in the fourth
quarter of 2011, with the opportunity for additional accretion
thereafter as a result of anticipated cost synergies. Based on
current projections, the acquisition should add approximately
$25-$30 million in revenue and $0.03-$0.04 in adjusted diluted
earnings per share in the fourth quarter of 2011, excluding certain
purchase accounting adjustments.
Fourth quarter 2011 gross margins, excluding Magnum, are
expected to sequentially improve from the third quarter due to a
sales mix shift towards more home standby generator shipments and
the realization of price increases, cost reductions, commodity cost
moderation and improved manufacturing overhead absorption. The
Company estimates that the inclusion of Magnum’s results will
reduce total Company gross margins by approximately 250 basis
points during the fourth quarter given the current margin profile
of the Magnum product line. Gross margins for Magnum’s products are
expected to improve in 2012 as synergies are implemented during the
year.
Mr. Jagdfeld concluded, “We are very pleased with our third
quarter performance as our employees and distribution partners
responded quickly to meet the strong demand for portable and home
standby generators. With the relatively low penetration of home
standby generators, we believe the events of the third quarter will
create increased awareness and accelerate the adoption rate for
these products. Additionally, we have a number of initiatives in
place through our Powering Ahead strategic plan that, together with
our acquisition of Magnum, we believe will help us to gain
industrial market share, diversify our end markets, and expand
internationally. As a result of these efforts, we believe we are
well positioned for 2012 and beyond.”
Conference Call and Webcast
Generac management will hold a conference call at 9:00 a.m. EDT
on Tuesday, November 1, 2011 to discuss highlights of this earnings
release. The conference call can be accessed by dialing (866)
825-1709 (domestic) or +1 (617) 213-8060 (international) and
entering passcode 62184879.
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 supporting materials, if any,
will be made available on the Company’s website prior to the start
of the call.
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 64350990. The telephonic replay will be available
for 30 days.
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 generators and other engine powered products. As
a leader in power equipment serving residential, light commercial,
industrial and construction markets, Generac's power products are
available through a broad network of independent dealers,
retailers, wholesalers and equipment rental companies. The company
markets and distributes its products primarily under its Generac
and Magnum brand names.
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;
- the possibility that the expected
synergies, efficiencies and cost savings of the acquisition of the
Magnum Products business will not be realized, or will not be
realized within the expected time period;
- the risk that the Magnum Products
business will not be integrated successfully;
- 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 U.S. Securities and
Exchange Commission (“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
The computation of Adjusted EBITDA is based on the definition of
EBITDA contained in Generac's credit agreement, dated as of
November 10, 2006. 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. Transaction costs,
amortization of definite-lived intangible assets and the write-up
of inventory basis all related to the Magnum Products transaction
will be included in the Adjusted EBITDA reconciliation and added
back for Adjusted EBITDA purposes.
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.
Transaction costs, amortization of definite-lived intangible assets
and the write-up of inventory basis all related to the Magnum
Products transaction will be included in the Adjusted Net Income
reconciliation and added back for Adjusted Net Income purposes.
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 September
30, Nine Months Ended September 30, 2011
2010 2011
2010 Net sales $ 239,324 $ 160,666 $
524,668 $ 431,839 Costs of goods sold 150,665
93,304 328,479 258,314 Gross
profit 88,659 67,362 196,189 173,525 Operating expenses:
Selling and service 21,028 15,295 52,650 43,416 Research and
development 4,176 3,580 11,669 10,784 General and administrative
7,290 5,654 19,179 16,492 Amortization of intangibles 11,987
13,063 35,570 38,745
Total operating expenses 44,481 37,592
119,068 109,437 Income from
operations 44,178 29,770 77,121 64,088 Other (expense)
income: Interest expense (5,895 ) (6,540 ) (17,830 ) (20,752 )
Investment income 25 62 84 172 Costs related to pending acquisition
(601 ) – (601 ) – Write-off of deferred financing costs related to
debt extinguishment – – (186 ) (4,180 ) Other, net (202 )
(216 ) (770 ) (791 ) Total other expense, net
(6,673 ) (6,694 ) (19,303 ) (25,551 )
Income before provision for income taxes 37,505 23,076
57,818 38,537 Provision for income taxes 126
78 306 237 Net income 37,379
22,998 57,512 38,300 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) $ 37,379 $ 22,998 $ 57,512 $
(116,565 ) Net income (loss) per common share - basic (2):
Common stock (formerly Class A common stock) $ 0.56 $ 0.34 $ 0.86 $
(2.05 ) 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) $ 0.55 $ 0.34 $ 0.85 $ (2.05 ) 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 67,094,447 67,125,953 56,760,150 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) 67,646,423 67,231,403 67,433,740 56,760,150 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)
September 30, December 31,
2011 2010
(Unaudited) Assets Current assets: Cash and cash
equivalents $ 138,720 $ 78,583 Accounts receivable, less allowance
for doubtful accounts 117,593 63,154 Inventories 103,633 127,137
Prepaid expenses and other assets 2,576
3,645 Total current assets 362,522 272,519 Property
and equipment, net 73,663 75,287 Customer lists, net 68,240
96,944 Patents, net 79,083 84,933 Other intangible assets, net
5,467 6,483 Deferred financing costs, net 4,145 5,822 Trade names
140,050 140,050 Goodwill 527,136 527,148 Other assets 70
697 Total assets $ 1,260,376
$ 1,209,883
Liabilities and stockholders’
equity Current liabilities: Accounts payable $ 41,179 $ 41,809
Accrued wages and employee benefits 9,174 6,833 Other accrued
liabilities 49,190 38,043 Total
current liabilities 99,543 86,685 Long-term debt 632,498
657,229 Other long-term liabilities 26,474
24,902 Total liabilities 758,515 768,816
Stockholders’ equity: Common stock (formerly Class A
non-voting common stock), par value $0.01, 500,000,000 shares
authorized, 67,603,255 and 67,524,596 shares issued at September
30, 2011 and December 31, 2010, respectively 675 675 Additional
paid-in capital 1,139,690 1,133,918 Excess purchase price over
predecessor basis (202,116 ) (202,116 ) Accumulated deficit
(424,146 ) (481,658 ) Accumulated other comprehensive loss
(12,242 ) (9,752 ) Total stockholders’ equity
501,861 441,067 Total liabilities and
stockholders’ equity $ 1,260,376 $ 1,209,883
Generac Holdings Inc. Condensed Consolidated Statements of
Cash Flows (Dollars in Thousands) (Unaudited)
Nine Months
Ended September 30, 2011
2010 Operating activities Net income $
57,512 $ 38,300 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation 6,064 5,777
Amortization 35,570 38,745 Costs related to pending acquisition 601
– Write-off of deferred financing costs related to debt
extinguishment 186 4,180 Amortization of deferred financing costs
1,491 1,870 Provision for losses on accounts receivable 33 1 Loss
on disposal of property and equipment 17 31 Share-based
compensation 5,462 4,634 Net changes in operating assets and
liabilities: Accounts receivable (54,472 ) (19,658 ) Inventories
23,504 (3,658 ) Other assets 1,696 1,431 Accounts payable (630 )
27,848 Accrued wages and employee benefits 2,341 (511 ) Other
accrued liabilities 9,640 (15,869 ) Net cash
provided by operating activities 89,015 83,121
Investing
activities Proceeds from sale of property and equipment 4 38
Expenditures for property and equipment (4,461 )
(4,324 ) Net cash used in investing activities (4,457 ) (4,286 )
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 60,137 (32,973 ) Cash and cash equivalents at beginning
of period 78,583 161,307 Cash and cash
equivalents at end of period $ 138,720 $ 128,334
Generac Holdings Inc. Reconciliation Schedules (Dollars in
Thousands, Except Share and Per Share Data)
Net
income to Adjusted EBITDA reconciliation Three Months
Ended September 30, Nine Months Ended September 30,
2011 2010 2011 2010 (unaudited)
(unaudited) (unaudited) (unaudited) Net income $ 37,379 $
22,998 $ 57,512 $ 38,300 Interest expense 5,895 6,540 17,830 20,752
Depreciation and amortization 14,111 15,011 41,634 44,522 Income
taxes provision 126 78 306 237 Non-cash impairment and other
charges (1) 1,402 (781 ) 2,006 (217 ) Non-cash share-based
compensation expense (2) 1,745 1,675 5,462 4,634 Write-off of
deferred financing costs related to debt extinguishment - - 186
4,180 Transaction costs and credit facility fees 835 183 1,266 850
Other 74 9 465 245
Adjusted EBITDA $ 61,567 $ 45,713 $ 126,667
$ 113,503 (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 September 30, Nine Months Ended September
30, 2011 2010 2011 2010 (unaudited)
(unaudited) (unaudited) (unaudited) Net income $ 37,379 $
22,998 $ 57,512 $ 38,300 Provision for income taxes 126
78 306 237 Income
before provision for income taxes 37,505 23,076 57,818 38,537
Amortization of intangible assets 11,987 13,063 35,570 38,745
Amortization of deferred loan costs 495 569 1,491 1,870 Costs
related to pending acquisition 601 - 601 - Write-off of deferred
financing costs related to debt extinguishment -
- 186 4,180 Adjusted net
income before provision for income taxes 50,588 36,708 95,666
83,332 Cash income tax expense (35 ) (10 )
(315 ) (320 ) Adjusted net income $ 50,553 $ 36,698
$ 95,351 $ 83,012 Adjusted net income
per common share - diluted (3): $ 0.75 $ 0.55 $ 1.41 n/m
Weighted average common shares outstanding - diluted (3):
67,646,423 67,231,403 67,433,740 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 September 30, Nine
Months Ended September 30, 2011 2010 2011
2010 (unaudited) (unaudited) (unaudited) (unaudited)
Net cash provided by operating activities $ 61,031 $ 36,476 $
89,015 $ 83,121 Expenditures for property and equipment
(1,057 ) (1,289 ) (4,461 ) (4,324 ) Free Cash
Flow $ 59,974 $ 35,187 $ 84,554 $ 78,797
SOURCE: Generac Holdings Inc.
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