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, 2012.
Highlights
- Net sales increased year-over-year by
25.6% to $300.6 million as compared to $239.3 million in the third
quarter of 2011. Net sales for the third quarter of 2012 were in
line with the high end of the Company’s previously announced
expected range of $295.0 to $300.0 million as pre-released on
October 1st.
- Residential product sales increased
17.8% compared to the strong third quarter of 2011, in which
year-over-year sales growth was 60.5%.
- Commercial & Industrial (C&I)
product sales increased 48.3% compared to the prior year third
quarter.
- Strong operating earnings during the
quarter were more than offset by higher interest expense from the
recent refinancing of the Company’s senior secured credit
facilities that closed on May 30, 2012, as well as a normalized
effective income tax rate. As a result, net income for the third
quarter of 2012 was $25.5 million or $0.37 per share as compared to
$37.4 million or $0.55 per share for the same period of 2011.
- Adjusted net income, as defined in the
accompanying reconciliation schedules, increased to $54.1 million
from $50.6 million in the third quarter of 2011. Adjusted diluted
net income per common share was $0.78 as compared to $0.75 per
share in the third quarter of 2011.
- Adjusted EBITDA increased to $76.3
million as compared to $61.6 million in the third quarter last
year.
- Cash flow from operations in the third
quarter of 2012 was $69.5 million as compared to $61.0 million in
the prior year quarter. Unlevered free cash flow was $67.7 million
as compared to $65.5 million in the third quarter of 2011.
- For the trailing four quarters, net
sales were $1.102 billion; net income was $332.1 million, which
includes a net $238.0 million income tax benefit in the fourth
quarter of 2011; adjusted EBITDA was $268.5 million; cash flow from
operations was $209.9 million; and unlevered free cash flow was
$214.0 million.
- As a result of the current major power
outage activity, the Company is raising its sales growth guidance
for full-year 2012 to the low-40% range over the prior year, which
represents an increase from the low-30% growth rate previously
expected in the October 1st business update. As a result, Adjusted
EBITDA for the full-year 2012 is now expected to increase in the
mid-40% range over the prior year, which is an increase from the
mid-30% growth rate previously expected. Diluted net income per
common share for 2012 is now expected to be in the range of $1.21
to $1.27, with adjusted diluted net income per common share of
$2.95 to $3.00, compared to the $2.65 to $2.70 per share range
previously expected.
“The events of the last few days continue to demonstrate for
home owners and business owners the importance of having a backup
plan for their power needs. Automatic standby generators have
emerged as a cost effective and increasingly important part of
those backup plans. As a result of the increased awareness these
outage events provide, adoption rates for home standby and light
commercial generators have accelerated over the last several
years.” said Aaron Jagdfeld, President and Chief Executive Officer.
“Shipments of home standby generators were again strong during the
third quarter and have continued to build towards a new and higher
baseline level of demand over the longer-term. In our commercial
and industrial markets, we continue to capitalize on our leadership
position in natural gas backup generators as demand for these
products continues to gain traction. In addition, our Magnum
branded light towers and mobile generators continue to perform well
and we remain excited about the strategic fit of these products as
they provide additional diversification and cross-selling
opportunities to our business.”
Third Quarter 2012 Details
Residential product sales for the third quarter of 2012
increased 17.8% to $191.0 million from $162.1 million for the
comparable period in 2011. The growth was primarily driven by a
strong double-digit increase in shipments for home standby
generators as a result of significant awareness and demand created
by major power outages over the last year, expanded distribution,
and increased sales and marketing efforts to create and close leads
more effectively. Although the third quarter presented a difficult
comparison versus the prior year, expanded placement for portable
generator products continues to lead to year-over-year market share
gains. Additionally, increased revenue from power washer products,
which began shipping in the second quarter of 2011, also
contributed modestly to the year-over-year sales growth in
residential products.
Commercial & Industrial product sales for the third quarter
of 2012 increased 48.3% to $93.6 million from $63.1 million for the
comparable period in 2011. The increase in net sales was primarily
driven by the Magnum Products acquisition.
Gross profit margin for the third quarter of 2012 was 38.5%
compared to 37.0% in the third quarter of 2011. Gross margin
improved over the prior year due to improved residential product
mix, as well as the positive impact from moderation in commodity
costs, improved pricing and improved overhead absorption relative
to the prior year. These margin improvements were partially offset
from the mix impact from the addition of Magnum Products sales.
Operating expenses for the third quarter of 2012 increased by
$12.2 million or 27.4% as compared to the third quarter of 2011.
These additional expenses were driven primarily by operating
expenses associated with Magnum, and increased sales, engineering
and administrative infrastructure to support the strategic growth
initiatives and higher baseline sales levels of the Company.
Operating expenses during the current-year quarter were also
impacted by higher incentive compensation expenses and increased
variable operating expenses resulting from the increase in organic
sales.
Interest expense in the third quarter of 2012 increased to $16.9
million compared to $5.9 million in the same period last year. The
increase was a result of the higher debt levels from the recently
completed refinancing of the Company’s senior secured credit
facilities.
Net income in the current year quarter includes the impact of a
normalized effective income tax rate of 39.0% as compared to a tax
rate of 0.3% in the prior-year third 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 third quarter of 2012.
However, the Company’s cash tax obligations are expected to remain
nominal given its current tax attributes.
Outlook
The Company is significantly revising upward its guidance for
the remainder of 2012 due to increased demand for home standby and
portable generators in the fourth quarter as a result of major
power outage activity that is currently taking place. Full-year
2012 total net sales are now expected to increase in the low-40%
range over the prior year, which represents an increase from the
low-30% range previously provided in the October 1st business
update. As a result of the higher sales outlook, adjusted EBITDA
for the full-year 2012 is now expected to increase in the mid-40%
range over the prior year, which is an increase from the mid-30%
growth rate previously expected.
Diluted net income per common share for 2012 is now expected to
be in the range of $1.21 to $1.27 as compared to the $1.02 to $1.08
range previously expected. Adjusted diluted net income per common
share is now expected to be $2.95 to $3.00 relative to the previous
expectation of $2.65 to $2.70.
As mentioned in the business update earlier this month, the
Company has consistently exceeded its performance goals associated
with its Powering Ahead strategic plan initiated in 2010, reaching
many of those targets a year earlier than originally planned. At
its upcoming Investor Day on November 8, 2012, the Company will
provide further insights with regards to its future growth
strategy.
Mr. Jagdfeld continued, “The powerful macro drivers for our
business combined with executing on our Powering Ahead strategic
plan has lead to another strong quarter for Generac. The U.S.
electrical grid continues to age and has suffered from a lack of
investment. This coupled with a shift in demographics to an aging
population dependant on a constant source of power are leading to
the ongoing emergence of standby generators in the residential and
commercial markets. Additionally, we have a number of exciting
strategic initiatives underway that we expect will continue to
diversify and grow Generac. With these initiatives and macro growth
drivers, along with our competitive advantages and intense
operating focus, we believe Generac is well positioned to
capitalize on the expected increase in demand for backup
power.”
Conference Call and Webcast
Generac management will hold a conference call at 9:00 a.m. EDT
on Wednesday, October 31, 2012 to discuss highlights of this
earnings release. The conference call can be accessed by dialing
(866) 578-5801 (domestic) or +1 (617) 213-8058 (international) and
entering passcode 86565531.
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 19150949. 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," "forecast," "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.
Unlevered Free Cash Flow
In addition, we reference unlevered free cash flow to further
supplement Generac's condensed consolidated financial statements
presented in accordance with US GAAP. Unlevered free cash flow is
defined as net cash provided by operating activities less
expenditures for property and equipment plus cash interest expense.
This additional financial metric is intended to be a measure of
operational cash flow excluding the impact of the Company’s cash
debt service costs and 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 September 30,
Nine Months Ended September 30, 2012
2011 2012 2011 Net sales
$ 300,586 $ 239,324 $ 834,284 $ 524,668 Costs of goods sold
184,773 150,665 520,037
328,479 Gross profit 115,813 88,659 314,247
196,189 Operating expenses: Selling and service 26,409
21,028 73,657 52,650 Research and development 6,456 4,176 17,214
11,669 General and administrative 11,435 7,290 30,699 19,179
Amortization of intangibles 12,389
11,987 36,902 35,570
Total operating expenses 56,689 44,481
158,472 119,068 Income
from operations 59,124 44,178 155,775 77,121 Other (expense)
income: Interest expense (16,933 ) (5,895 ) (32,501 ) (17,830 )
Investment income 6 25 54 84 Costs related to acquisition – (601 )
– (601 ) Loss on extinguishment of debt – – (14,308 ) (186 ) Other,
net (330 ) (202 ) (2,350 )
(770 ) Total other expense, net (17,257 )
(6,673 ) (49,105 ) (19,303 )
Income before provision for income taxes 41,867 37,505 106,670
57,818 Provision for income taxes 16,326
126 41,734 306 Net
income $ 25,541 $ 37,379 $ 64,936
$ 57,512 Net income per common share - basic:
$ 0.38 $ 0.56 $ 0.96 $ 0.86 Weighted average common shares
outstanding - basic: 67,415,363 67,134,999 67,308,758 67,125,953
Net income per common share - diluted: $ 0.37 $ 0.55 $ 0.94
$ 0.85 Weighted average common shares outstanding - diluted:
69,166,501 67,646,423 68,980,970 67,433,740 Dividends
declared per share $ – $ – $ 6.00 $ – Comprehensive income $
26,350 $ 37,036 $ 66,380 $ 55,022 Generac Holdings
Inc. Condensed Consolidated Balance Sheets (Dollars in Thousands,
Except Share and Per Share Data)
September 30,
December 31, 2012 2011
(Unaudited) (Audited) Assets Current assets:
Cash and cash equivalents $ 57,966 $ 93,126 Accounts receivable,
less allowance for doubtful accounts 129,119 109,705 Inventories
187,114 162,124 Deferred income taxes 21,469 14,395 Prepaid
expenses and other assets 5,104 3,915
Total current assets 400,772 383,265 Property and
equipment, net 91,568 84,384 Customer lists, net 43,780
72,897 Patents, net 72,289 78,167 Other intangible assets, net
6,165 7,306 Deferred financing costs, net 14,578 3,459 Trade names,
net 148,417 148,401 Goodwill 547,893 547,473 Deferred income taxes
181,595 227,363 Other assets 116 78
Total assets $ 1,507,173 $ 1,552,793
Liabilities and stockholders’ equity Current
liabilities: Accounts payable $ 57,996 $ 81,053 Accrued wages and
employee benefits 16,121 14,439 Other accrued liabilities 73,701
47,024 Current portion of long-term borrowings 9,000
22,874 Total current liabilities 156,818
165,390 Long-term borrowings 873,865 575,000 Other long-term
liabilities 42,952 43,514 Total
liabilities 1,073,635 783,904 Stockholders’ equity: Common
stock, par value $0.01, 500,000,000 shares authorized, 68,101,331
and 67,652,812 shares issued and outstanding at September 30, 2012
and December 31, 2011, respectively 678 676 Additional paid-in
capital 740,967 1,142,701 Excess purchase price over predecessor
basis (202,116 ) (202,116 ) Accumulated deficit (92,078 ) (157,015
) Accumulated other comprehensive loss (13,913 )
(15,357 ) Total stockholders’ equity 433,538
768,889 Total liabilities and stockholders’
equity $ 1,507,173 $ 1,552,793
Generac Holdings Inc. Condensed Consolidated Statements of Cash
Flows (Dollars in Thousands) (Unaudited)
Nine Months
Ended September 30, 2012 2011
Operating activities Net income $ 64,936 $ 57,512
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 6,116 6,064 Amortization of
intangible assets 36,902 35,570 Amortization of original issue
discount 945 – Amortization of deferred financing costs 1,570 1,491
Amortization of unrealized loss on interest rate swaps 1,079 – Loss
on extinguishment of debt 14,308 186 Provision for losses on
accounts receivable 16 33 Deferred income taxes 39,526 – Loss on
disposal of property and equipment 106 17 Share-based compensation
expense 8,021 5,462 Net changes in operating assets and
liabilities: Accounts receivable (18,284 ) (54,472 ) Inventories
(24,685 ) 23,504 Other assets (2,059 ) 1,696 Accounts payable
(23,438 ) (630 ) Accrued wages and employee benefits 1,682 2,341
Other accrued liabilities 22,483 10,241
Net cash provided by operating activities 129,224 89,015
Investing activities Proceeds from sale of property
and equipment 19 4 Expenditures for property and equipment (13,425
) (4,461 ) Acquisition of business (2,275 ) –
Net cash used in investing activities (15,681 ) (4,457 )
Financing activities Proceeds from short-term
borrowings 23,000 – Proceeds from long-term borrowings 1,455,614 –
Repayments of short-term borrowings (23,000 ) – Repayments of
long-term borrowings (1,172,874 ) (24,731 ) Payment of debt
issuance costs (25,691 ) – Cash dividends paid (404,332 ) – Taxes
paid related to the net share settlement of equity awards (3,280 )
– Excess tax benefits from equity awards 1,860 – Proceeds from
exercise of stock options – 310
Net cash used in financing activities (148,703 ) (24,421 )
Net (decrease) increase in cash and cash equivalents (35,160 )
60,137 Cash and cash equivalents at beginning of period
93,126 78,583 Cash and cash equivalents
at end of period $ 57,966 $ 138,720
Generac Holdings Inc.
Reconciliation Schedules (Dollars in Thousands, Except Share and
Per Share Data)
Net income to Adjusted EBITDA
reconciliation Year Ended Three Months Ended
September 30, Nine Months Ended September 30,
December 31,
2012
2011
2012
2011
2011
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Net income $ 25,541 $ 37,379 $ 64,936 $ 57,512 $ 324,643
Interest expense 16,933 5,895 32,501 17,830 23,718 Depreciation and
amortization 14,510 14,111 43,018 41,634 56,123 Income taxes
provision 16,326 126 41,734 306 (237,677 ) Non-cash impairment and
other charges (1) (391 ) 1,402 (141 ) 2,006 10,400 Non-cash
share-based compensation expense (2) 2,764 1,745 8,021 5,462 8,646
Loss on extinguishment of debt - - 14,308 186 377 Transaction costs
and credit facility fees (3) 391 835 1,810 1,266 1,719 Other
214 74 494
465 527 Adjusted EBITDA $ 76,288
$ 61,567 $ 206,681 $ 126,667 $
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
Anticipated
Three Months Ended September 30, Nine Months Ended
September 30, Year Ended December 31, 2012
2012
2011
2012
2011
Low
High
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
(unaudited) Net income $ 25,541 $ 37,379 $ 64,936 $ 57,512 $
84,000 $ 88,000 Provision for income taxes 16,326
126 41,734 306
54,900 56,600 Income
before provision for income taxes 41,867 37,505 106,670 57,818
138,900 144,600 Amortization of intangible assets 12,389 11,987
36,902 35,570 47,000 46,000 Amortization of deferred financing
costs and original issue discount 1,156 495 2,515 1,491 4,400 4,000
Transaction costs and other purchase accounting adjustments (4)
(111 ) 601 1,181 601 2,100 1,700 Loss on extinguishment of debt
- - 14,308
186 15,000 14,500
Adjusted net income before provision for income taxes 55,301 50,588
161,576 95,666 207,400 210,800 Cash income tax expense
(1,156 ) (35 ) (1,483 ) (315 )
(2,400 ) (2,600 ) Adjusted net income $ 54,145
$ 50,553 $ 160,093 $ 95,351
$ 205,000 $ 208,200 Adjusted net
income per common share - diluted: $ 0.78 $ 0.75 $ 2.32 $ 1.41 $
2.95 $ 3.00 Weighted average common shares outstanding -
diluted: 69,166,501 67,646,423 68,980,970 67,433,740 69,600,000
69,400,000 (4) Represents transaction costs 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
September 30, Nine Months Ended September 30,
2012
2011
2012
2011
(unaudited) (unaudited) (unaudited) (unaudited) Net cash
provided by operating activities $ 69,517 $ 61,031 $ 129,224 $
89,015 Expenditures for property and equipment (7,921 )
(1,057 ) (13,425 ) (4,461 ) Free
cash flow $ 61,596 $ 59,974 $ 115,799 $ 84,554
Cash Interest Expense 6,140
5,558 Unlevered free cash flow $ 67,736
$ 65,532
LTM September 30,
2012
(unaudited) 2011 net cash provided by operating activities,
as reported $ 169,712 Add: September 2012 YTD net cash provided by
operating activities, as reported 129,224 Less: September 2011 YTD
net cash provided by operating activities, as reported
(89,015 ) LTM net cash provided by operating activities
209,921 2011 expenditures for property and equipment,
as reported (12,060 ) Include: September 2012 YTD expenditures for
property and equipment, as reported (13,425 ) Exclude: September
2011 YTD expenditures for property and equipment, as reported
4,461 LTM expenditures for property and equipment
(21,024 ) Free cash flow $ 188,897 Cash
Interest Expense 25,070 Unlevered free cash flow $ 213,967
SOURCE: Generac Holdings Inc.
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