Generac Holdings Inc. (NYSE: GNRC), a leading designer and
manufacturer of generators and other engine powered products, today
reported financial results for its first quarter ended March 31,
2012.
Highlights
“Our first quarter results demonstrate the significant earnings
power and strong free cash flow generation of Generac’s business
model. With the hard work of our employees and our flexible
operations, we were able to quickly meet the increased demand for
our products following the major outage events that took place in
the second half of 2011,” said Aaron Jagdfeld, President and Chief
Executive Officer. “Shipments of home standby generators were again
robust during the first quarter, and we continue to gain share in
portable generators, further solidifying our leadership position in
these markets. Additionally, the Magnum acquisition outperformed
our expectations again this quarter as demand for mobile equipment
remained strong in the rental markets. The significant growth that
we delivered in the first quarter was a result of solid execution
and further illustrates the powerful fundamentals that drive our
business.”
Additional Highlights
Residential product sales for the first quarter of 2012
increased 153.1% to $175.1 million from $69.2 million for the
comparable period in 2011. The substantial growth was primarily
driven by strong demand for home standby generators resulting from
the increased awareness following multiple major outage events in
2011, as well as improved lead times for these products due to
increased production levels during the quarter. Also contributing
to the revenue growth were the continued expansion of the Company’s
distribution network, strong double-digit growth in portable
generator shipments and increased revenue from the power washer
product line, which was introduced in the first quarter of
2011.
C&I product sales for the first quarter of 2012 increased
137.0% to $105.0 million from $44.3 million for the comparable
period in 2011. The increase in net sales was primarily driven by
the Magnum Products acquisition and increased shipments into the
telecom, healthcare and data center markets. Additionally, our
position as the largest producer of natural gas generators in North
America has allowed us to benefit from the continuing shift in the
market towards these products. C&I net sales during the first
quarter also benefitted from the resolution of backlog related to a
short-term gap in the supply of certain components sourced
overseas.
Gross profit margin for the first quarter of 2012 was 37.7%
compared to 36.8% in the fourth quarter of 2011 and 38.1% in the
first quarter of 2011. The mix impact from the addition of Magnum
Products sales reduced total company gross margins during the first
quarter of 2012 as compared to the first quarter of last year. This
decline in gross margin was partially offset by a higher mix of
home standby generators and lower mix of portable generators. In
addition, the positive impact from price increases and improved
overhead absorption was largely offset by higher commodity costs
relative to the prior year.
Operating expenses for the first quarter of 2012 increased by
$15.5 million or 43.0% as compared to the first quarter of 2011.
These additional expenses were driven primarily by increased
variable operating expenses on the substantial increase in organic
sales, operating expenses associated with Magnum, increased sales,
engineering and administrative infrastructure to support the
strategic growth initiatives and higher baseline sales levels of
the Company, and increased incentive compensation expenses as a
result of the Company’s financial performance during the
quarter.
Free cash flow was $36.4 million in the first quarter of 2012 as
compared to $11.1 million in the same period last year. Strong
operating earnings were partially offset by increased working
capital investment driven by the replenishment of inventory levels
to support higher production rates and seasonal build
requirements.
Outlook
Primarily as a result of an increased full-year outlook for
residential sales, the Company is revising upward its guidance for
full-year 2012. Full-year 2012 total net sales are now expected to
increase towards the high end of its previously disclosed
mid-to-high teens rate as compared to 2011. Specifically for the
second quarter of 2012, net sales are forecasted to increase
approximately 35-40% in comparison to the second quarter of 2011,
which reflects the expectation of lead times for residential
products returning to more normalized levels during the quarter.
This revised guidance continues to assume no material improvement
in the macroeconomic environment and no comparable major outage
events during the balance of 2012.
Despite the conservative macro assumptions included in our
forecast, both residential and pro-forma C&I product sales
during the second half of 2012 are expected to increase at a
high-teens rate in comparison to the previous baseline level
experienced in the second half of 2010, which is the most recent
comparable period with no major outage events.
In accordance with our previously issued guidance, gross margins
are expected to remain approximately flat during 2012 as compared
to the prior year. In addition, consolidated operating expenses as
a percentage of net sales, excluding amortization of intangibles,
are also expected to remain slightly higher as compared to 2011, as
the Company continues to invest in its infrastructure to support
strategic growth initiatives and an overall higher level of
baseline sales.
As a result of this revised outlook, Adjusted EBITDA for the
full-year 2012 is expected to increase in the mid-teens range
compared to 2011, while second quarter 2012 Adjusted EBITDA is
expected to increase in the mid-20% range over the comparable prior
year period.
Proposed Special Cash Dividend to
Shareholders
In addition to the upwardly revised outlook for full-year 2012,
the Company is announcing its plan to execute a recapitalization in
which it intends to incur, subject to market and other conditions,
approximately $650 million of additional debt to fund in large part
a special cash dividend of up to $10 per share on its outstanding
common stock. As part of this transaction, the Company expects to
enter into new debt financing in the aggregate amount of
approximately $1.2 billion, which is expected to be comprised of
approximately $800 million of senior secured financing and the
remainder in senior unsecured financing, the proceeds of which will
be used to pay the special cash dividend and refinance the
Company’s existing credit facilities. In addition, the Company
anticipates its current $150 million unfunded revolver will be
replaced with a similar sized asset-backed revolver. The
declaration of the special cash dividend will not occur unless new
debt financing is obtained under acceptable terms. The Company
expects its Board of Directors to declare and the Company to pay
the special cash dividend before the end of the second quarter of
2012.
Mr. Jagdfeld continued, “Our ability to return significant
capital to shareholders through a special cash dividend is directly
attributable to our strong free cash flow and demonstrated track
record of paying down debt. We believe a special cash dividend is
an effective way for our shareholders to realize the value of our
cash flows. We are confident this new capital structure will allow
us to further invest in future organic growth initiatives and will
provide the flexibility for potential acquisitions in the
future.”
“As we execute on our Powering Ahead strategic plan, we are
focused on growth initiatives that will continue to drive our
baseline business higher while also building a company that is
significantly more diverse with respect to the products we
manufacture and the markets we serve,” concluded Mr. Jagdfeld. “As
we look further out, we continue to be excited about the long-term
growth potential for Generac. Given the macro growth drivers for
our end markets and the potential for future recovery in
residential investment and non-residential construction, we believe
our growth prospects are very compelling.”
Conference Call and Webcast
Generac management will hold a conference call at 9:00 a.m. EDT
on Tuesday, May 8, 2012 to discuss highlights of this earnings
release. The conference call can be accessed by dialing (866)
202-4367 (domestic) or +1 (617) 213-8845 (international) and
entering passcode 98436460.
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
approximately one hour after the call and can be accessed by
dialing (888) 286-8010 (domestic) or +1 (617) 801-6888
(international) and entering passcode 85931716. 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 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, cost and quality of 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;
- the impact on our results of the
substantial increases in our outstanding indebtedness and related
interest expense that will occur if we complete our proposed
dividend recapitalization;
- 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;
- loss of key management and
employees;
- increase in product and other 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
February 9, 2012, which is substantially the same definition that
was contained in the Company’s previous credit agreement. 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.
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, certain transaction costs, 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 Comprehensive Income (Dollars in Thousands, Except
Share and Per Share Data)
Three Months Ended March
31, 2012 2011 (Unaudited)
(Unaudited) Net sales $ 294,561 $ 123,981 Costs of
goods sold 183,556 76,804 Gross
profit 111,005 47,177 Operating expenses: Selling and
service 25,126 14,305 Research and development 5,055 3,885 General
and administrative 9,106 6,117 Amortization of intangibles
12,225 11,727 Total operating expenses
51,512 36,034 Income from
operations 59,493 11,143 Other (expense) income: Interest
expense (5,674 ) (6,001 ) Investment income 19 36 Loss on
extinguishment of debt (4,309 ) – Other, net (425 )
(241 ) Total other expense, net (10,389 )
(6,206 ) Income before provision for income taxes
49,104 4,937 Provision for income taxes 19,044
93 Net income $ 30,060 $ 4,844
Net income per common share - basic: $ 0.45 $ 0.07 Weighted
average common shares outstanding - basic: 67,200,480 67,107,560
Net income per common share - diluted: $ 0.44 $ 0.07
Weighted average common shares outstanding - diluted: 68,637,927
67,344,349 Comprehensive income $ 29,991 $ 5,399
Generac Holdings Inc. Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Share and Per Share Data)
March 31, December 31, 2012
2011 (Unaudited) (Audited) Assets
Current assets: Cash and cash equivalents $ 91,730 $ 93,126
Accounts receivable, less allowance for doubtful accounts 114,027
109,705 Inventories 200,129 162,124 Deferred income taxes 15,778
14,395 Prepaid expenses and other assets 4,260
3,915 Total current assets 425,924 383,265
Property and equipment, net 84,422 84,384 Customer lists,
net 63,516 72,897 Patents, net 76,253 78,167 Other intangible
assets, net 6,926 7,306 Deferred financing costs, net 10,139 3,459
Trade names 148,751 148,401 Goodwill 547,782 547,473 Deferred
income taxes 207,784 227,363 Other assets 220
78 Total assets $ 1,571,717 $ 1,552,793
Liabilities and stockholders’ equity Current
liabilities: Accounts payable $ 91,097 $ 81,053 Accrued wages and
employee benefits 11,700 14,439 Other accrued liabilities 50,381
47,024 Current portion of long-term debt 14,063
22,874 Total current liabilities 167,241
165,390 Long-term debt 559,588 575,000 Other long-term
liabilities 44,115 43,514 Total
liabilities 770,944 783,904 Stockholders’ equity: Common
stock, par value $0.01, 500,000,000 shares authorized, 67,946,135
and 67,652,812 shares issued at March 31, 2012 and December 31,
2011, respectively 679 676 Additional paid-in capital 1,144,591
1,142,701 Excess purchase price over predecessor basis (202,116 )
(202,116 ) Accumulated deficit (126,955 ) (157,015 ) Accumulated
other comprehensive loss (15,426 ) (15,357 )
Total stockholders’ equity 800,773
768,889 Total liabilities and stockholders’ equity $
1,571,717 $ 1,552,793 Generac
Holdings Inc. Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
Three Months Ended March
31, 2012 2011 (Unaudited)
(Unaudited) Operating activities Net income $ 30,060
$ 4,844 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 1,993 1,936 Amortization 12,225
11,727 Loss on extinguishment of debt 4,309 – Amortization of
deferred financing costs 506 502 Provision for losses on accounts
receivable 79 29 Deferred income taxes 18,239 – Loss on disposal of
property and equipment 107 3 Share-based compensation expense 2,439
2,000 Net changes in operating assets and liabilities: Accounts
receivable (3,255 ) 715 Inventories (37,700 ) (16,650 ) Other
assets (530 ) 283 Accounts payable 9,663 10,403 Accrued wages and
employee benefits (2,739 ) (303 ) Other accrued liabilities
3,188 (2,818 ) Net cash provided by operating
activities 38,584 12,671
Investing activities
Proceeds from sale of property and equipment – 3 Expenditures for
property and equipment (2,138 ) (1,569 ) Acquisition of business
(2,279 ) – Net cash used in investing
activities (4,417 ) (1,566 )
Financing activities
Proceeds from long-term borrowings 573,614 – Repayments of
long-term borrowings (597,874 ) – Payment of debt issuance costs
(10,756 ) – Taxes paid related to the net share settlement of
equity awards (1,278 ) – Excess tax benefits from equity awards 731
– Proceeds from exercise of stock options –
309 Net cash (used in) provided by financing
activities (35,563 ) 309 Net (decrease) increase in cash and
cash equivalents (1,396 ) 11,414 Cash and cash equivalents at
beginning of period 93,126 78,583
Cash and cash equivalents at end of period $ 91,730
$ 89,997 Generac Holdings Inc.
Reconciliation Schedules (Dollars in Thousands, Except Share and
Per Share Data)
Net income to Adjusted EBITDA
reconciliations Three Months Ended March 31, Year
Ended December 31, 2012 2011 2011
(unaudited) (unaudited) (unaudited) Net income $ 30,060 $
4,844 $ 324,643 Interest expense 5,674 6,001 23,718
Depreciation and amortization 14,218 13,663 56,123 Income taxes
provision 19,044 93 (237,677 ) Non-cash impairment and other
charges (1) (204 ) 446 10,400 Non-cash share-based compensation
expense (2) 2,439 2,000 8,646 Loss on extinguishment of debt 4,309
- 377 Transaction costs and credit facility fees 135 173 1,719
Other 127 264 527
Adjusted EBITDA $ 75,802 $ 27,484 $
188,476 (1) Includes losses on disposals of assets,
non-cash trade name write-down, inventory write-off 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 March 31,
2012 2011 (unaudited) (unaudited) Net income $
30,060 $ 4,844 Provision for income taxes 19,044
93 Income before provision for income taxes
49,104 4,937 Amortization of intangible assets 12,225 11,727
Amortization of deferred financing costs 506 502 Loss on
extinguishment of debt 4,309 -
Adjusted net income before provision for income taxes 66,144 17,166
Cash income tax expense (55 ) (24 )
Adjusted net income $ 66,089 $ 17,142
Adjusted net income per common share - diluted: $ 0.96 0.25
Weighted average common shares outstanding - diluted: 68,637,927
67,344,349
Free cash flow reconciliations
Three Months Ended March 31, 2012 2011
(unaudited) (unaudited) Net cash provided by operating
activities $ 38,584 $ 12,671 Expenditures for property and
equipment (2,138 ) (1,569 ) Free cash
flow $ 36,446 $ 11,102
LTM
March 31, 2012 (unaudited) 2011 net cash provided
by operating activities, as reported $ 169,712 Add: March 2012 net
cash provided by operating activities, as reported 38,584 Less:
March 2011 net cash provided by operating activities, as reported
(12,671 ) LTM net cash provided by operating activities
195,625 2011 expenditures for property and
equipment, as reported (12,060 ) Include: March 2012 expenditures
for property and equipment, as reported (2,138 ) Exclude: March
2011 expenditures for property and equipment, as reported
1,569 LTM expenditures for property and equipment
(12,629 ) Free cash flow $ 182,996
Pro forma sales reconciliation LTM March 31,
2012 (unaudited) 2011 net sales, as reported $
791,976 Add: March 2012 net sales, as reported 294,561 Less: March
2011 net sales, as reported (123,981 ) Pro forma Magnum net sales
(April 1, 2011 - September 30, 2011) 75,884
Pro forma net sales $ 1,038,440
Pro forma
Adjusted EBITDA reconciliation LTM March 31, 2012
(unaudited) 2011 Adjusted EBITDA, as reported $ 188,476 Add:
March 2012 Adjusted EBITDA, as reported 75,802 Less: March 2011
Adjusted EBITDA, as reported (27,484 ) Pro forma Magnum adjusted
EBITDA (April 1, 2011 - September 30, 2011) 9,078
Pro forma adjusted EBITDA $ 245,872
SOURCE: Generac Holdings Inc.
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