Generac Holdings Inc. (NYSE: GNRC), a leading designer and
manufacturer of generators and other engine powered products, today
reported financial results for its fourth quarter and year ended
December 31, 2012. Additionally, the Company provided its current
outlook for 2013.
Fourth Quarter 2012 Highlights
- Net sales increased year-over-year by
28.0% to $342.0 million as compared to $267.3 million in the fourth
quarter of 2011.
- Residential product sales increased
28.9% compared to the fourth quarter of 2011.
- Commercial & Industrial (C&I)
product sales increased 29.4% compared to the prior year fourth
quarter.
- The Ottomotores acquisition closed on
December 8, 2012, building a more balanced, globally focused
business. The entire $44.8 million net purchase price was funded
using cash on hand.
- Net income during the fourth quarter of
2012 was $28.3 million, or $0.41 per diluted share.
- Adjusted net income, as defined in the
accompanying reconciliation schedules, increased 17.1% over the
prior year quarter to $60.7 million. Adjusted diluted net income
per common share increased 15.3% to $0.87 per share.
- Adjusted EBITDA increased 34.5% over
the prior year fourth quarter to $83.1 million.
- Cash flow from operations in the fourth
quarter of 2012 was $106.4 million as compared to $80.7 million in
the prior year quarter. Free cash flow was $97.4 million as
compared to $73.1 million in the fourth quarter of 2011.
- As a result of this strong free cash
flow conversion, on February 11, 2013, the Company prepaid $80.0
million of principal on its existing term loan, contributing to
significantly improved leverage ratios since refinancing the
Company’s credit facilities in the second quarter of 2012.
Full-Year 2012 Highlights
- Net sales increased year-over-year by
48.5% to $1.176 billion as compared to $792.0 million in 2011.
- Residential product sales during 2012
increased 43.7% as compared to a strong 2011, which grew at a 31.7%
rate over 2010.
- C&I product sales increased 64.0%
as compared to 2011. Excluding the impact of Magnum Products and
the modest impact from the recent Ottomotores acquisition, C&I
product sales increased 14.0% versus 2011 on an organic basis.
- Net income during 2012 was $93.2
million, or $1.35 per diluted share.
- Adjusted net income increased 50.0%
over the prior year to $220.8 million. Adjusted diluted net income
per common share increased 47.0% to $3.19.
- Adjusted EBITDA increased 53.8% over
the prior year to $289.8 million.
- Cash flow from operations during 2012
was $235.6 million as compared to $169.7 million in the prior year.
Free cash flow was $213.2 million as compared to $157.7 million in
2011, which represents 97% and 107% of the adjusted net income
reported during the respective years.
“2012 was a tremendous year for Generac as we achieved record
financial results with significant growth across all product
categories and regions of the United States,” said Aaron Jagdfeld,
President and Chief Executive Officer. “With 49% growth in 2012
following 34% growth in 2011, we have nearly doubled the size of
our business in the past two years and have used our positive
momentum to reinvest heavily in our future over that time using our
Powering Ahead strategy as our roadmap. Specifically, in the fourth
quarter, we launched our AMP™ marketing tool which combines data
from existing owners, third party demographic data and power outage
tracking to identify and direct market to potential sales prospects
more effectively. This tool, coupled with our new PowerPlay™ tablet
based in-home selling solution which also launched in the fourth
quarter, should improve sales lead flow and closure rates for home
standby opportunities through our distribution partners. In 2012,
we also accelerated our re-entry into the market for power washers
and have recently launched our OneWash™ product, the industry’s
first and only variable speed washer, which has helped us to gain
valuable shelf space for the upcoming 2013 season.”
“In addition to investments in our core markets in the U.S., our
efforts to become a more global player took a major step forward
with the acquisition of the Ottomotores businesses late in the
fourth quarter of 2012,” continued Mr. Jagdfeld. “With over 500
employees and locations in Mexico and Brazil, Ottomotores is a
leading market share player in the growing Latin American standby
power market. This acquisition provides us with the essential
elements of a local manufacturing presence, added distribution and
access to higher-power products that we believe are critical for us
to begin building a foundation to successfully compete in the
global market for backup power generation.”
Additional Fourth Quarter 2012
Highlights
Residential product sales for the fourth quarter of 2012
increased 28.9% to $216.0 million from $167.5 million for the
comparable period in 2011. The growth was primarily driven by
increased demand for portable and home standby generators, and to a
lesser extent power washers. The strength in shipments was driven
by a combination of the significant awareness and demand created by
major power outages in recent years, expanded distribution, and
overall strong operational execution.
Commercial & Industrial product sales for the fourth quarter
of 2012 increased 29.4% to $110.6 million from $85.5 million for
the comparable period in 2011. The increase in net sales was
primarily driven by an increase in shipments to national account
customers for both stationary standby and mobile power equipment.
C&I net sales in the fourth quarter of 2012 includes a modest
contribution of revenue from the Ottomotores acquisition that
closed in December 2012. The Magnum Products acquisition became
fully annualized as of the fourth quarter of 2012, and accordingly,
the full impact of its financial results are reflected in both the
current and prior year quarterly periods.
Gross profit margin for the fourth quarter of 2012 was 36.9%
compared to 36.8% in the fourth quarter of 2011. The positive
impact from improved pricing and a moderation in commodity costs
was largely offset by changes in product mix during the current
year quarter.
Operating expenses for the fourth quarter of 2012 declined by
$4.2 million or 6.8% as compared to the fourth quarter of 2011.
Additional operating expenses to support the strategic growth
initiatives and higher baseline sales levels of the Company were
more than offset by a non-recurring, non-cash impairment charge
that was recorded in the prior year totaling $9.4 million.
Operating expenses during the current-year quarter were also
modestly impacted by the acquisition of Ottomotores in December
2012.
Interest expense in the fourth quarter of 2012 increased to
$16.6 million compared to $5.9 million in the same period last
year. The increase was a result of the higher debt levels from the
refinancing of the Company’s senior secured credit facilities in
May 2012.
Net income in the current year quarter includes an income tax
provision of $21.4 million as compared to a $238.0 million income
tax benefit in the fourth quarter of 2011. The large income tax
benefit in the prior-year fourth quarter consisted primarily of the
reversal of the full valuation allowance on the Company’s net
deferred tax assets.
2013 Outlook
The Company is initiating guidance for 2013 with solid revenue
growth expected off a very strong 2012. For the full-year 2013, the
Company currently expects net sales to increase approximately 10%
as compared to the prior year. This top-line guidance assumes no
material changes in the current macroeconomic environment and no
major power outage events for the remainder of 2013.
Gross margins are expected to decline by approximately 80 to 100
basis points during 2013 as compared to the prior year primarily as
a result of the addition of Ottomotores partially offset by the
expected favorable impact from cost reduction initiatives.
Operating expenses as a percentage of net sales, excluding
amortization of intangibles, are expected to be slightly up
compared to 2012, 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, Adjusted EBITDA for the full-year 2013 is expected
to increase in the mid single-digit percentage range as compared to
2012.
Cash flow conversion is expected to remain strong during 2013
and be consistent with the cumulative average during the past four
years of free cash flow representing between 90-95% of adjusted net
income.
Mr. Jagdfeld concluded, “Over the course of the past two years,
we have significantly increased our product development efforts by
doubling the size of the Company’s engineering functions and
investing heavily in our capabilities. We expect to bring more new
products to market in 2013 than at any other time in the history of
Generac which we believe will both add to our leadership positions
in the markets for portable and home standby generators and
significantly broaden our commercial and industrial product lines.
As we focus on driving the adoption of back-up power generation for
homes and businesses and diversifying our product offerings, our
distribution channels and the geographies we serve, we are
transforming Generac into a larger, more balanced company with
improved global focus. Through innovation and solid execution in
2013, we expect to accelerate the penetration rate for home standby
generators, increase our share of the commercial and industrial
markets, and further diversify our business through new products
and geographies. As a recognized leader in the market for back-up
power, we believe Generac is incredibly well positioned to
capitalize on the macro opportunities that are in front of us.”
Conference Call and Webcast
Generac management will hold a conference call at 9:00 a.m. EST
on Thursday, February 14, 2013 to discuss highlights of this
earnings release. The conference call can be accessed by dialing
(888) 396-2386 (domestic) or +1 (617) 847-8712 (international) and
entering passcode 62910893.
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 20752381. 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 internationally through a broad network of independent
dealers, retailers, wholesalers and equipment rental companies.
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
Ottomotores businesses or other acquisitions will not be realized,
or will not be realized within the expected time period;
- the risk that the Ottomotores
businesses or other acquisitions that we make 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 recognized 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.
SOURCE: Generac Holdings Inc.
Generac Holdings Inc. Condensed
Consolidated Statements of Comprehensive Income (Dollars in
Thousands, Except Share and Per Share Data)
Three
Months Ended December 31, Year Ended December 31,
2012 2011 2012 2011
(Unaudited) (Unaudited) (Unaudited)
(Audited) Net sales $ 342,022 $ 267,308 $ 1,176,306 $
791,976 Costs of goods sold 215,869
168,843 735,906 497,322
Gross profit 126,153 98,465 440,400 294,654 Operating
expenses: Selling and service 27,791 25,126 101,448 77,776 Research
and development 6,285 4,807 23,499 16,476 General and
administrative 15,332 10,833 46,031 30,012 Amortization of
intangibles 8,965 12,450 45,867 48,020 Trade name write-down
– 9,389 –
9,389 Total operating expenses 58,373
62,605 216,845 181,673
Income from operations 67,780 35,860 223,555 112,981
Other (expense) income: Interest expense (16,613 ) (5,888 ) (49,114
) (23,718 ) Loss on extinguishment of debt – (191 ) (14,308 ) (377
) Investment income 25 26 79 110 Costs related to acquisition
(1,062 ) (274 ) (1,062 ) (875 ) Other, net (448 )
(385 ) (2,798 ) (1,155 ) Total other
expense, net (18,098 ) (6,712 ) (67,203
) (26,015 ) Income before provision for
income taxes 49,682 29,148 156,352 86,966 Provision (benefit) for
income taxes 21,395 (237,983 )
63,129 (237,677 ) Net income $ 28,287
$ 267,131 $ 93,223 $ 324,643
Net income per common share - basic: $ 0.42 $ 3.98 $
1.38 $ 4.84 Weighted average common shares outstanding - basic:
67,515,127 67,143,422 67,360,632 67,130,356 Net income per
common share - diluted: $ 0.41 $ 3.91 $ 1.35 $ 4.79 Weighted
average common shares outstanding - diluted: 69,477,244 68,369,773
69,193,138 67,797,371 Dividends declared per share $
- $ - $ 6.00 $ - Other comprehensive income (loss):
Amortization of unrealized loss on interest rate swaps $ 1,003 $ –
$ 2,082 $ – Foreign currency translation adjustment (34 ) – (34 ) –
Net unrealized gain (loss) on derivatives – 1,807 365 (683 )
Pension liability adjustment (1,552 ) (4,922 )
(1,552 ) (4,922 ) Other comprehensive income
(loss) (583 ) (3,115 ) 861
(5,605 ) Comprehensive income $ 27,704
$ 264,016 $ 94,084 $ 319,038
Generac Holdings Inc. Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Share and Per Share Data)
December 31, 2012 2011
(Unaudited) (Audited) Assets Current assets:
Cash and cash equivalents $ 108,023 $ 93,126
Accounts receivable, less allowance for
doubtful accounts of $1,166 in 2012 and $789 in 2011
134,978 109,705 Inventories 225,817 162,124 Deferred income taxes
48,687 14,395 Prepaid expenses and other assets 5,048
3,915 Total current assets 522,553 383,265
Property and equipment, net 104,718 84,384 Customer
lists, net 37,823 72,897 Patents, net 70,302 78,167 Other
intangible assets, net 5,783 7,306 Deferred financing costs, net
13,987 3,459 Trade names, net 158,831 148,401 Goodwill 552,943
547,473 Deferred income taxes 136,754 227,363 Other assets
153 78 Total assets $ 1,603,847
$ 1,552,793
Liabilities and stockholders’
equity Current liabilities: Short-term borrowings $ 12,550 $ –
Accounts payable 94,543 81,053 Accrued wages and employee benefits
19,435 14,439 Other accrued liabilities 86,081 47,024 Current
portion of long-term borrowings 82,250
22,874 Total current liabilities 294,859 165,390
Long-term borrowings 799,018 575,000 Other long-term liabilities
46,342 43,514 Total liabilities
1,140,219 783,904 Stockholders’ equity:
Common stock (formerly Class A non-voting
common stock), par value $0.01, 500,000,000 shares authorized,
68,295,960 and 67,652,812 shares issued and outstanding at December
31, 2012 and 2011, respectively
683 676 Additional paid-in capital 743,349 1,142,701 Excess
purchase price over predecessor basis (202,116 ) (202,116 )
Accumulated deficit (63,792 ) (157,015 ) Accumulated other
comprehensive loss (14,496 ) (15,357 ) Total
stockholders’ equity 463,628 768,889 Total
liabilities and stockholders’ equity $ 1,603,847 $
1,552,793 Generac Holdings Inc. Condensed
Consolidated Statements of Cash Flows (Dollars in Thousands)
Year Ended December 31, 2012
2011 (Unaudited) (Audited) Operating
activities Net income $ 93,223 $ 324,643 Adjustment to
reconcile net income to net cash provided by operating activities:
Depreciation 8,293 8,103 Amortization of intangible assets 45,867
48,020 Trade name write-down – 9,389 Amortization of original issue
discount 1,598 – Amortization of deferred finance costs 2,161 1,986
Amortization of unrealized loss on interest rate swaps 2,082 – Loss
on extinguishment of debt 14,308 377 Provision for losses on
accounts receivable 204 (7 ) Deferred income taxes 62,429 (238,170
) Loss on disposal of property and equipment 261 10 Share-based
compensation expense 10,780 8,646 Net changes in operating assets
and liabilities, net of effects from acquisitions: Accounts
receivable (137 ) (22,235 ) Inventories (31,656 ) (11,224 ) Other
assets (8,416 ) (6,834 ) Accounts payable (3,898 ) 18,517 Accrued
wages and employee benefits 3,168 6,516 Other accrued liabilities
35,327 21,975 Net cash provided
by operating activities 235,594 169,712
Investing
activities Proceeds from sale of property and equipment 91 14
Expenditures for property and equipment (22,392 ) (12,060 )
Acquisition of business, net of cash acquired (47,044 )
(83,907 ) Net cash used in investing activities
(69,345 ) (95,953 )
Financing activities Proceeds
from short-term borrowings 23,018 – Proceeds from long-term
borrowings 1,455,614 – Repayments of short-term borrowings (23,000
) – Repayments of long-term borrowings (1,175,124 ) (59,355 )
Payment of debt issuance costs (25,691 ) – Cash dividends paid
(404,332 ) – Taxes paid related to the net share settlement of
equity awards (6,425 ) (371 ) Excess tax benefits from equity
awards 4,588 200 Proceeds from exercise of stock options –
310 Net cash used in financing
activities (151,352 ) (59,216 ) Net
increase (decrease) in cash and cash equivalents 14,897 14,543 Cash
and cash equivalents at beginning of period 93,126
78,583 Cash and cash equivalents at end of
period $ 108,023 $ 93,126
Supplemental disclosure of cash flow information Cash
paid during the period Interest $ 33,076 $ 24,264 Income taxes
2,811 437 Generac
Holdings Inc.
Reconciliation Schedules
(Dollars in Thousands, Except Share and Per Share Data)
Net income to Adjusted EBITDA
reconciliation
Three months ended December 31, Year Ended December
31, 2012 2011 2012 2011 (unaudited)
(unaudited) (unaudited) (unaudited) Net income $ 28,287 $
267,131 $ 93,223 $ 324,643 Interest expense 16,613 5,888
49,114 23,718 Depreciation and amortization 11,142 14,489 54,160
56,123 Income taxes provision 21,395 (237,983 ) 63,129 (237,677 )
Non-cash write-down and other charges (1) 388 8,394 247 10,400
Non-cash share-based compensation expense (2) 2,759 3,184 10,780
8,646 Loss on extinguishment of debt - 191 14,308 377 Transaction
costs and credit facility fees (3) 2,307 453 4,117 1,719 Other
237 62 731
527 Adjusted EBITDA $ 83,128 $ 61,809
$ 289,809 $ 188,476 (1) Includes
losses on disposals of assets, unrealized mark-to-market
adjustments on commodity contracts and a 2011 non-cash trade name
write-down. 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 December 31, Year Ended December
31,
2012
2011 2012 2011 (unaudited) (unaudited)
(unaudited) (unaudited) Net income $ 28,287 $ 267,131 $
93,223 $ 324,643 Provision for income taxes 21,395
(237,983 ) 63,129
(237,677 ) Income before provision for income taxes 49,682 29,148
156,352 86,966 Amortization of intangible assets 8,965 12,450
45,867 48,020 Amortization of deferred finance costs and original
issue discount 1,244 495 3,759 1,986 Loss on extinguishment of debt
- 191 14,308 377 Trade name write-down - 9,389 - 9,389 Transaction
costs and other purchase accounting adjustments (4) 2,136
274 3,317
875 Adjusted net income before provision for income taxes
62,027 51,947 223,603 147,613 Cash income tax expense (1,328
) (122 ) (2,811 ) (437 )
Adjusted net income $ 60,699 $ 51,825 $
220,792 $ 147,176 Adjusted net income
per common share - diluted: $ 0.87 $ 0.76 $ 3.19 $ 2.17
Weighted average common shares outstanding - diluted: 69,477,244
68,369,773 69,193,138 67,797,371 (4) Represents transaction
costs incurred directly in connection with any investment, as
defined in our credit agreement, equity issuance or debt issuance
or refinancing. Also includes certain purchase accounting
adjustments.
Free Cash Flow Reconciliation Three
months ended December 31, Year Ended December 31,
2012 2011 2012 2011 (unaudited)
(unaudited) (unaudited) (unaudited) Net cash provided by
operating activities $ 106,370 $ 80,697 $ 235,594 $ 169,712
Expenditures for property and equipment (8,967 )
(7,599 ) (22,392 ) (12,060 ) Free Cash
Flow $ 97,403 $ 73,098 $ 213,202
$ 157,652
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