Generac Holdings Inc. (NYSE: GNRC), a leading designer and
manufacturer of generators and other engine powered products, today
reported financial results for its second quarter ended June 30,
2012.
Highlights
- Net sales increased year-over-year by
48.2% to $239.1 million as compared to $161.4 million in the second
quarter of 2011.
- Residential product sales increased
33.8% compared to the second quarter of 2011.
- Commercial & Industrial (C&I)
product sales increased 76.4% compared to the prior year second
quarter.
- Net sales over the trailing four
quarters were $1.040 billion; on a pro-forma basis, when including
the results for Magnum Products for the entire period, net sales
were $1.082 billion.
- Net income was $9.3 million or $0.14
per share for the second quarter of 2012 as compared to $15.3
million or $0.23 per share for the same period of 2011. The current
year results include a charge for refinancing costs and a
normalized effective income tax rate. Adjusted net income, as
defined in the accompanying reconciliation schedules, increased to
$39.9 million from $27.7 million in the second quarter of 2011.
Adjusted diluted net income per common share was $0.58 as compared
to $0.41 per share in the second quarter of 2011.
- Adjusted EBITDA increased to $54.6
million as compared to $37.6 million in the second quarter last
year.
- Cash flow from operations in the second
quarter of 2012 was $21.1 million as compared to $15.3 million in
the prior year quarter. Free cash flow was $17.8 million as
compared to $13.5 million in the second quarter of 2011.
- For the trailing four quarters, net
income was $343.9 million; adjusted EBITDA, pro-forma for Magnum
Products was $258.3 million; cash flow from operations was $201.4
million; and free cash flow was $187.3 million, which represents
90% of the adjusted net income reported during that time
period.
- The Company is raising its sales growth
guidance for full-year 2012 to the low-20% range over the prior
year, which represents an increase from the high-teens growth rate
previously expected. As a result, Adjusted EBITDA for the full-year
2012 is now expected to increase in the high-teens range over the
prior year, which is an increase from the mid-teens growth rate
previously expected.
“Our second quarter results continue to demonstrate the progress
we are making in executing our Powering Ahead strategic plan,” said
Aaron Jagdfeld, President and Chief Executive Officer. “Growth in
shipments of home standby and portable generators were again strong
during the second quarter. In particular, the market for our home
standby generators continues to develop as more home owners
discover the importance of having backup power. In our commercial
and industrial products, Magnum continues to perform well as demand
for mobile equipment is benefiting from a shift towards renting
versus buying. In addition, while still a smaller portion of the
overall C&I market, our leadership position in natural gas
backup generators within North America has allowed us to benefit
from the increased demand for these products.”
Second Quarter 2012 Details
Residential product sales for the second quarter of 2012
increased 33.8% to $123.4 million from $92.2 million for the
comparable period in 2011. The growth was primarily driven by
strong double-digit increases in shipments for both home standby
and portable generators. The Company’s efforts to increase
awareness and availability of home standby generators together with
execution in meeting the increased demand for these products have
helped to drive baseline growth. In addition, expanded placement
for portable generator products continues to lead to year-over-year
market share gains. Increased revenue from the power washer product
line, which began shipping in the second quarter of 2011, also
contributed modestly to the year-over-year sales growth in
residential products.
C&I product sales for the second quarter of 2012 increased
76.4% to $101.1 million from $57.3 million for the comparable
period in 2011. The increase in net sales was primarily driven by
the Magnum Products acquisition, and to a lesser extent, increased
shipments of natural gas backup generators, partially offset by a
decline in shipments to national account customers.
Gross profit margin for the second quarter of 2012 was 36.6%
compared to 37.4% in the second quarter of 2011. Gross margin
declined over the prior year due to the mix impact from the
addition of Magnum Products sales, which was partially offset by a
higher mix of home standby generators and the positive impact from
price increases, improved overhead absorption and moderation in
commodity costs relative to the prior year.
Operating expenses for the second quarter of 2012 increased by
$11.7 million or 30.4% as compared to the second quarter of 2011.
These additional expenses were driven primarily by 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,
increased incentive compensation expenses as a result of the
Company’s financial performance during the quarter, and increased
variable operating expenses resulting from the double-digit
increase in organic sales.
As previously announced, on May 30, 2012, the Company completed
a refinancing of its senior secured credit facilities, pursuant to
which it has incurred $900 million of senior secured term loans to
replace its prior $575 million term loan facilities. Following the
refinancing, the Company used the available proceeds from the new
term loans and cash on hand to fund a special cash dividend to its
stockholders of $6.00 per share and to pay related financing fees
and expenses. The special dividend, which was paid on June 29,
2012, constituted a declared amount of approximately $408 million
in the aggregate of which $404 million was paid in the quarter. In
conjunction with this refinancing, an approximate $11.0 million
non-recurring charge was recorded during the second quarter of 2012
relating to refinancing costs and other related expenses. As a
result of the higher debt levels from the refinancing, interest
expense in the second quarter of 2012 increased to $9.9 million
compared to $5.9 million in the same period last year.
Net income in the current year quarter includes the impact of a
normalized effective income tax rate of 40.5% as compared to a tax
rate of 0.6% in the prior-year second quarter. Until the fourth
quarter of 2011, a full valuation allowance was recorded on the
Company’s net deferred tax assets, resulting in substantially no
tax provision. A full valuation allowance is no longer required on
the Company’s net deferred tax assets, and therefore, a normalized
income tax provision was recorded in the second quarter of 2012.
However, the Company’s cash tax obligations are expected to remain
nominal given its current tax attributes.
Free cash flow was $17.8 million in the second quarter of 2012
as compared to $13.5 million in the same period last year. Strong
operating earnings were partially offset by increased working
capital investment driven by seasonal finished goods inventory
replenishment and additional raw material safety stock for rapid
demand response.
Outlook
The Company is revising upward its sales guidance for full-year
2012 as a result of solid execution in the second quarter of 2012
and an increased outlook for residential sales for the third
quarter of 2012. Full-year 2012 total net sales are now expected to
increase in the low-20% range over the prior year, which represents
an increase from the high-teens growth rate previously expected.
The higher revenue outlook is primarily attributable to recent
major power outage events that occurred in the Midwest and
Mid-Atlantic regions in late June and early July. The Company
expects these events should result in improved shipments of
portable and home standby generators, relative to prior guidance,
due to the increased awareness and demand for back-up power. This
revised guidance continues to assume no material changes in the
macroeconomic environment, as well as no additional major power
outage events during the remainder of 2012.
As a result of this higher sales outlook, Adjusted EBITDA for
the full-year 2012 is now expected to increase in the high-teens
range over the prior year, which is an increase from the mid-teens
growth rate previously expected.
As previously announced, the Company’s guidance for interest
expense for the full-year 2012 is expected to be in the range of
$49.0 to $50.0 million, which includes $45.0 to $45.5 million of
debt service costs, at current LIBOR rates, plus approximately $4.5
million for deferred financing cost and original issue discount
amortization for the new credit facility. Interest expense during
the third quarter of 2012, the first full quarter under the new
capital structure, is expected to be approximately $17.1 to $17.3
million, which includes approximately $1.5 million of deferred
financing cost and original issue discount amortization.
Mr. Jagdfeld continued, “Major outage events like the ones
recently experienced in the Midwest and Mid-Atlantic regions
demonstrate the fact that prolonged under investment in the aging
electrical grid in the U.S. is leading to more frequent and longer
power disruptions for homeowners and businesses. Given the
relatively low awareness and penetration of home and
light-commercial standby generators, we believe there is
significant growth opportunity as the leader in this emerging
product category. Our Powering Ahead strategic plan focuses on
baseline sales growth within new and existing products and markets,
and complements the powerful secular trends that continue to drive
our business. Add to this the potential for future recovery in both
residential investment and non-residential construction, and we
believe Generac is well positioned over the long term to continue
driving organic revenue growth, superior margins and strong free
cash flow.”
Conference Call and Webcast
Generac management will hold a conference call at 9:00 a.m. EDT
on Thursday, August 2, 2012 to discuss highlights of this earnings
release. The conference call can be accessed by dialing (866)
314-4483 (domestic) or +1 (617) 213-8049 (international) and
entering passcode 55783069.
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 41917818. 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 and duration of major power
outages;
- availability, cost and quality of raw
materials and key components used in producing Generac
products;
- the impact on our results of the
substantial increases in our outstanding indebtedness and related
interest expense due to the dividend recapitalization completed in
May 2012;
- 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;
- 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 May 30,
2012, which is substantially the same definition that was contained
in the Company’s previous credit agreements. 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 financing costs and original issue
discount related to the Company's debt, intangible impairment
charges, certain transaction costs and other purchase accounting
adjustments, and certain non-cash gains and losses.
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) (Unaudited)
Three
Months Ended June 30, Six Months Ended June 30,
2012 2011
2012 2011
Net sales $ 239,137 $ 161,363 $ 533,698 $ 285,344 Costs of goods
sold 151,708 101,010
335,264 177,814 Gross profit 87,429
60,353 198,434 107,530 Operating expenses: Selling and
service 22,122 17,317 47,248 31,622 Research and development 5,703
3,608 10,758 7,493 General and administrative 10,158 5,772 19,264
11,889 Amortization of intangibles 12,288
11,856 24,513 23,583
Total operating expenses 50,271
38,553 101,783 74,587
Income from operations 37,158 21,800 96,651 32,943 Other
(expense) income: Interest expense (9,894 ) (5,934 ) (15,568 )
(11,935 ) Investment income 29 23 48 59 Loss on extinguishment of
debt (9,999 ) (186 ) (14,308 ) (186 ) Other, net (1,595 )
(327 ) (2,020 ) (568 ) Total
other expense, net (21,459 ) (6,424 )
(31,848 ) (12,630 ) Income before provision
for income taxes 15,699 15,376 64,803 20,313 Provision for income
taxes 6,364 87 25,408
180 Net income $ 9,335 $
15,289 $ 39,395 $ 20,133 Net
income per common share - basic: $ 0.14 $ 0.23 $ 0.59 $ 0.30
Weighted average common shares outstanding - basic: 67,309,260
67,134,999 67,254,870 67,121,356 Net income per common share
- diluted: $ 0.14 $ 0.23 $ 0.57 $ 0.30 Weighted average common
shares outstanding - diluted: 68,645,533 67,718,654 68,599,867
67,463,440 Dividends declared per share $ 6.00 $ - $ 6.00 $
- Comprehensive income $ 10,039 $ 12,587 $ 40,030 $ 17,986
Generac Holdings Inc. Condensed Consolidated Balance
Sheets (Dollars in Thousands, Except Share and Per Share Data)
June 30, December 31,
2012 2011
(Unaudited) (Audited) Assets Current assets:
Cash and cash equivalents $ 10,307 $ 93,126 Accounts receivable,
less allowance for doubtful accounts 100,108 109,705 Inventories
227,038 162,124 Deferred income taxes 17,000 14,395 Prepaid
expenses and other assets 4,503 3,915
Total current assets 358,956 383,265 Property and
equipment, net 85,786 84,384 Customer lists, net 53,785
72,897 Patents, net 74,276 78,167 Other intangible assets, net
6,548 7,306 Deferred financing costs, net 15,078 3,459 Trade names,
net 148,434 148,401 Goodwill 547,968 547,473 Deferred income taxes
200,900 227,363 Other assets 44 78
Total assets $ 1,491,775 $ 1,552,793
Liabilities and stockholders’ equity Current
liabilities: Short-term borrowings $ 13,000 $ – Accounts payable
75,391 81,053 Accrued wages and employee benefits 12,405 14,439
Other accrued liabilities 59,881 47,024 Current portion of
long-term borrowings 6,750 22,874
Total current liabilities 167,427 165,390 Long-term
borrowings 875,513 575,000 Other long-term liabilities
44,229 43,514 Total liabilities
1,087,169 783,904 Stockholders’ equity: Common stock, par
value $0.01, 500,000,000 shares authorized, 68,055,203 and
67,652,812 shares issued and outstanding at June 30, 2012 and
December 31, 2011, respectively 680 676 Additional paid-in capital
738,384 1,142,701 Excess purchase price over predecessor basis
(202,116 ) (202,116 ) Accumulated deficit (117,620 ) (157,015 )
Accumulated other comprehensive loss (14,722 )
(15,357 ) Total stockholders’ equity 404,606
768,889 Total liabilities and stockholders’ equity $
1,491,775 $ 1,552,793 Generac Holdings Inc.
Condensed Consolidated Statements of Cash Flows (Dollars in
Thousands) (Unaudited)
Six Months Ended June
30, 2012 2011
Operating activities Net income $ 39,395 $ 20,133
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 3,995 3,940 Amortization of
intangible assets 24,513 23,583 Amortization of original issue
discount 343 – Amortization of deferred financing costs 1,016 996
Loss on extinguishment of debt 14,308 186 Provision for losses on
accounts receivable 67 (29 ) Deferred income taxes 23,610 – Loss on
disposal of property and equipment 91 18 Share-based compensation
expense 5,257 3,717 Net changes in operating assets and
liabilities: Accounts receivable 10,676 (16,627 ) Inventories
(64,609 ) (12,591 ) Other assets (306 ) 1,183 Accounts payable
(6,043 ) 2,927 Accrued wages and employee benefits (2,034 ) (19 )
Other accrued liabilities 9,428 567
Net cash provided by operating activities 59,707 27,984
Investing activities Proceeds from sale of property
and equipment 16 4 Expenditures for property and equipment (5,504 )
(3,404 ) Acquisition of business (2,279 ) –
Net cash used in investing activities (7,767 ) (3,400 )
Financing activities Proceeds from short-term
borrowings 13,000 – Proceeds from long-term borrowings 1,455,614 –
Repayments of long-term borrowings (1,172,874 ) (24,731 ) Payment
of debt issuance costs (24,928 ) – Cash dividends paid (404,332 ) –
Taxes paid related to the net share settlement of equity awards
(2,785 ) – Excess tax benefits from equity awards 1,546 – Proceeds
from exercise of stock options – 310
Net cash used in financing activities (134,759 ) (24,421 )
Net (decrease) increase in cash and cash equivalents (82,819
) 163 Cash and cash equivalents at beginning of period
93,126 78,583 Cash and cash equivalents
at end of period $ 10,307 $ 78,746
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,
Year Ended December 31, 2012 2011 2012
2011 2011 (unaudited) (unaudited) (unaudited)
(unaudited) (unaudited) Net income $ 9,335 $ 15,289 $ 39,395
$ 20,133 $ 324,643 Interest expense 9,894 5,934 15,568 11,935
23,718 Depreciation and amortization 14,290 13,860 28,508 27,523
56,123 Income taxes provision 6,364 87 25,408 180 (237,677 )
Non-cash impairment and other charges (1) 454 158 250 604 10,400
Non-cash share-based compensation expense (2) 2,818 1,717 5,257
3,717 8,646 Loss on extinguishment of debt 9,999 186 14,308 186 377
Transaction costs and credit facility fees (3) 1,284 258 1,419 431
1,719 Other 153 127 280
391 527 Adjusted EBITDA $
54,591 $ 37,616 $ 130,393 $
65,100 $ 188,476 (1) Includes losses on
disposals of assets, amortization of earn-out discount 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. (3) Represents transaction costs
incurred directly in connection with any investment, as defined in
our credit agreement, equity issuance or debt issuance or
refinancing, together with certain fees relating to our senior
secured credit facilities.
Net income to Adjusted
net income reconciliation Three Months Ended June 30,
Six Months Ended June 30, 2012 2011
2012 2011 (unaudited) (unaudited) (unaudited)
(unaudited) Net income $ 9,335 $ 15,289 $ 39,395 $ 20,133
Provision for income taxes 6,364 87
25,408 180 Income before
provision for income taxes 15,699 15,376 64,803 20,313 Amortization
of intangible assets 12,288 11,856 24,513 23,583 Amortization of
deferred financing costs and original issue discount 853 494 1,359
996 Transaction costs and other purchase accounting adjustments (4)
1,292 - 1,292 - Loss on extinguishment of debt 9,999
186 14,308 186
Adjusted net income before provision for income taxes 40,131
27,912 106,275 45,078 Cash income tax expense (272 )
(256 ) (327 ) (280 ) Adjusted net
income $ 39,859 $ 27,656 $ 105,948
$ 44,798 Adjusted net income per common share
- diluted: $ 0.58 $ 0.41 $ 1.54 $ 0.66 Weighted average
common shares outstanding - diluted: 68,645,533 67,718,654
68,599,867 67,463,440 (4) Represents transaction costs and
other purchase accounting adjustments incurred directly in
connection with any investment, as defined in our credit agreement,
equity issuance or debt issuance or refinancing.
Free
cash flow reconciliation Three Months Ended June 30,
Six Months Ended June 30, 2012 2011
2012 2011 (unaudited) (unaudited) (unaudited)
(unaudited) Net cash provided by operating activities $
21,123 $ 15,313 $ 59,707 $ 27,984 Expenditures for property and
equipment (3,366 ) (1,835 ) (5,504 )
(3,404 ) Free cash flow $ 17,757 $
13,478 $ 54,203 $ 24,580
LTM June 30, 2012 (unaudited) 2011 net cash
provided by operating activities, as reported $ 169,712 Add: June
2012 YTD net cash provided by operating activities, as reported
59,707 Less: June 2011 YTD net cash provided by operating
activities, as reported (27,984 ) LTM net cash provided by
operating activities 201,435 2011 expenditures
for property and equipment, as reported (12,060 ) Include: June
2012 YTD expenditures for property and equipment, as reported
(5,504 ) Exclude: June 2011 YTD expenditures for property and
equipment, as reported 3,404 LTM expenditures for
property and equipment (14,160 ) Free cash flow $
187,275
Pro forma sales reconciliation
LTM June 30, 2012 (unaudited) 2011 net sales,
as reported $ 791,976 Add: June 2012 YTD net sales, as reported
533,698 Less: June 2011 YTD net sales, as reported (285,344 ) Pro
forma Magnum net sales (July 1, 2011 - September 30, 2011)
41,689 Pro forma net sales $ 1,082,019
Pro forma Adjusted EBITDA reconciliation LTM June 30,
2012 (unaudited) 2011 Adjusted EBITDA, as reported $
188,476 Add: June 2012 YTD Adjusted EBITDA, as reported 130,393
Less: June 2011 YTD Adjusted EBITDA, as reported (65,100 ) Pro
forma Magnum adjusted EBITDA (July 1, 2011 - September 30, 2011)
4,560 Pro forma adjusted EBITDA $ 258,329
SOURCE: Generac Holdings Inc.
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