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,
2013.
Second Quarter 2013 Highlights
- Net sales increased year-over-year by
45.0% to $346.7 million as compared to $239.1 million in the second
quarter of 2012.
- Residential product sales increased
59.3% compared to the second quarter of 2012.
- Commercial & Industrial (C&I)
product sales increased 32.0% compared to the prior year second
quarter.
- Gross profit margin during the second
quarter improved 120 basis points over the prior year.
- Net income during the second quarter of
2013 was $28.3 million, or $0.40 per share, as compared to $9.3
million or $0.14 per share for the same period of 2012.
- Adjusted net income, as defined in the
accompanying reconciliation schedules, increased to $66.6 million
from $39.9 million in the second quarter of 2012. Adjusted diluted
net income per share was $0.95 as compared to $0.58 per share in
the second quarter of 2012.
- Adjusted EBITDA increased 65.0% to
$90.1 million as compared to $54.6 million in the second quarter
last year.
- Cash flow from operations in the second
quarter of 2013 was $36.1 million as compared to $21.1 million in
the prior year quarter. Free cash flow was $30.3 million as
compared to $17.8 million in the second quarter of 2012.
- For the trailing four quarters,
including the second quarter of 2013, net sales were $1.389
billion; net income was $132.8 million; adjusted EBITDA was $358.3
million; cash flow from operations was $250.2 million; and free
cash flow was $223.3 million.
- For the second consecutive year, the
Company returned significant capital to shareholders during the
quarter through a special cash dividend of $5.00 per share paid on
June 21, 2013.
- As previously announced, the Company
last week entered into a purchase agreement to acquire Tower Light
srl, a leading European developer and supplier of mobile light
towers with headquarters outside Milan, Italy. Targeted to close in
early August using cash on hand, the acquisition positions the
Company as a global leader in mobile light towers and accelerates
its global expansion efforts.
“Our second quarter results continue to demonstrate the success
we are experiencing in executing our Powering Ahead strategic
plan,” said Aaron Jagdfeld, President and Chief Executive Officer.
“We executed on very strong organic revenue growth again this
quarter which was broad based across our major product categories
and all significant regions of the United States. Our growth was
driven by continuing adoption of home standby generators, the
further expansion of our distribution, and increasing demand within
certain of our commercial and industrial end markets. When you
combine our organic growth initiatives with our recent
acquisitions, we are driving a new and higher baseline of demand
for our products, while also becoming a more balanced company with
global scale."
Additional Second Quarter 2013
Highlights
Residential product sales for the second quarter of 2013
increased 59.3% to $196.6 million from $123.4 million for the
comparable period in 2012, which was primarily driven by very
strong double-digit increases in shipments for both home standby
and portable generators. The growth was due to a combination of
factors including the additional awareness and adoption created by
major power outages in recent years, the Company’s expanded
distribution, increased sales and marketing initiatives, overall
strong operational execution and an improving environment for
residential investment. In addition, increased revenue from power
washer products contributed to the year-over-year sales growth in
residential products.
Commercial & Industrial product sales for the second quarter
of 2013 increased 32.0% to $133.4 million from $101.1 million for
the comparable period in 2012. The increase in net sales was
primarily driven by the Ottomotores acquisition which closed in
December 2012, along with strong shipments to national account
customers. Increased sales of natural gas generators used in light
commercial/retail applications also contributed to year-over-year
organic growth.
Gross profit margin for the second quarter of 2013 was 37.8%
compared to 36.6% in the second quarter of 2012. Gross margin
improved over the prior year due to the combination of improved
product mix, improved pricing, and a moderation in product costs
due to lower commodities and execution of cost-reduction
initiatives. These margin improvements were partially offset by the
mix impact from the addition of Ottomotores sales.
Operating expenses for the second quarter of 2013 increased $4.2
million, or 8.5%, as compared to the second quarter of 2012. These
additional expenses were driven primarily by operating expenses
associated with the Ottomotores businesses, and increased sales,
engineering and administrative infrastructure to support the
strategic growth initiatives and higher baseline sales levels of
the Company. These operating expense increases were partially
offset by warranty rate improvements and reduced amortization of
intangibles.
As previously announced, on May 31, 2013, the Company completed
a refinancing of its senior secured credit facilities, pursuant to
which it incurred $1.2 billion of senior secured term loans to
replace its prior term loan facilities. The new term loans accrue
interest initially at LIBOR plus 2.75% with a LIBOR floor of 0.75%,
which results in a 275 basis point reduction in interest rate as
compared to the Company’s previous facility, at current LIBOR
interest rates. Following the refinancing, the Company used a
portion of the proceeds from the new term loans to fund a special
cash dividend to its stockholders of $5.00 per share and to pay
related financing fees and expenses. The special dividend
constituted a declared amount of $342.1 million in the aggregate,
of which $340.8 million was paid on June 21, 2013. In conjunction
with this refinancing and other debt prepayments, a $13.5 million
loss on extinguishment of debt was recorded during the second
quarter of 2013.
Interest expense in the second quarter of 2013 increased to
$14.3 million compared to $9.9 million in the same period last
year. The increase was a result of higher debt levels and interest
rates compared to the prior year period. Due to the reduction in
interest rate from the current-year refinancing completed in May
2013, interest expense during the third quarter of 2013 is expected
to be approximately $13.0 million, which includes approximately
$1.5 million of deferred financing costs and original issue
discount amortization.
Outlook
The Company is revising upward its sales guidance for full-year
2013 primarily due to continued strong demand for home standby and
portable generators, an improved outlook for C&I shipments, as
well as the expected closing of the Tower Light acquisition early
in the third quarter of 2013. Full-year 2013 net sales are now
expected to increase in the low-20% range over the prior year,
which is an increase from the low-to-mid teens rate previously
expected. Specifically for the second half 2013, net sales are now
forecasted to increase in the mid-single digit range as compared to
the very strong prior-year second-half period. This top-line
guidance continues to assume no material changes in the current
macroeconomic environment and no major power outage events for the
remainder of 2013.
Gross margins for 2013 are still expected to be approximately
flat as compared to the prior year.
Operating expenses as a percentage of net sales, excluding
amortization of intangibles, are now expected to be approximately
flat as compared to 2012, which is an improvement from the previous
expectation of slightly up compared to the prior year.
As a result of the higher sales outlook and the improved
operating expense guidance, adjusted EBITDA for the full-year 2013
is now expected to increase in the low-20% range, which is an
increase from the low-teens percentage range previously
expected.
Cash flow conversion is still 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.
As previously announced, the Company recently signed an
agreement to acquire the equity of Tower Light srl. Founded in 1996
and located outside of Milan, Italy, Tower Light is a leading
developer and supplier of mobile light towers throughout Europe,
the Middle East, and Africa. Tower Light has experienced growth and
built a leading market position in the equipment rental markets by
leveraging their broad product offering and strong global
distribution network in over 50 countries. With approximately 100
employees, Tower Light’s net sales for year ended December 31, 2012
were approximately €37 million.
“The powerful macro drivers for our business, which include the
underinvestment in the electrical grid, an aging population, and an
increasing reliance on uninterrupted power and data, should drive
further awareness of the need for back-up power,” concluded Mr.
Jagdfeld. “Through innovation and solid execution of our strategic
initiatives, we expect to continue to drive the adoption of standby
generators for homes and businesses. At the same time, we are
building Generac into a larger, more balanced company with improved
global focus by continuing to diversify our product offerings, our
distribution channels, and the geographies we serve. Combine with
this the potential for further recovery in residential investment
and non-residential construction, and we believe Generac is well
positioned 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 Tuesday, July 30, 2013 to discuss highlights of this earnings
release. The conference call can be accessed by dialing (866)
515-2911 (domestic) or +1 (617) 399-5125 (international) and
entering passcode 74698026.
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 72906440. 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 transactions
completed in May 2012 and 2013;
- the possibility that the expected
synergies, efficiencies and cost savings of the acquisitions of the
Ottomotores and Tower Light businesses or other acquisitions will
not be realized, or will not be realized within the expected time
period;
- the risk that the Ottomotores and Tower
Light businesses or other acquisitions that we make will not be
integrated successfully;
- difficulties Generac may encounter as
its business expands globally;
- 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 31,
2013, 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, 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, 2013 2012
2013 2012 Net sales $ 346,688 $
239,137 $ 746,260 $ 533,698 Costs of goods sold 215,735
151,708 461,845
335,264 Gross profit 130,953 87,429 284,415 198,434
Operating expenses: Selling and service 27,072 22,122 58,753
47,248 Research and development 7,064 5,703 13,709 10,758 General
and administrative 14,039 10,158 26,465 19,264 Amortization of
intangibles 6,345 12,288
12,530 24,513 Total operating expenses
54,520 50,271 111,457
101,783 Income from operations 76,433
37,158 172,958 96,651 Other (expense) income: Interest
expense (14,263 ) (9,894 ) (29,938 ) (15,568 ) Investment income 25
29 42 48 Loss on extinguishment of debt (13,497 ) (9,999 ) (15,336
) (14,308 ) Other, net (1,909 ) (1,595 )
(1,513 ) (2,020 ) Total other expense, net
(29,644 ) (21,459 ) (46,745 )
(31,848 ) Income before provision for income taxes
46,789 15,699 126,213 64,803 Provision for income taxes
18,535 6,364 47,285
25,408 Net income $ 28,254 $
9,335 $ 78,928 $ 39,395 Net
income per common share - basic: $ 0.41 $ 0.14 $ 1.16 $ 0.59
Weighted average common shares outstanding - basic: 68,140,330
67,309,260 68,003,164 67,254,870 Net income per common share
- diluted: $ 0.40 $ 0.14 $ 1.13 $ 0.57 Weighted average common
shares outstanding - diluted: 69,809,599 68,645,533 69,801,498
68,599,867 Dividends declared per share $ 5.00 $ 6.00 $ 5.00
$ 6.00 Comprehensive income $ 29,276 $ 10,039 $ 80,952 $
40,030 Generac Holdings Inc. Condensed Consolidated Balance
Sheets (Dollars in Thousands, Except Share and Per Share Data)
June 30, December 31, 2013
2012 (Unaudited) (Audited)
Assets Current assets: Cash and cash equivalents $ 126,598 $
108,023 Accounts receivable, less allowance for doubtful accounts
162,711 134,978 Inventories 287,258 225,817 Deferred income taxes
30,838 48,687 Prepaid expenses and other assets 3,664
5,048 Total current assets 611,069 522,553
Property and equipment, net 109,481 104,718 Customer
lists, net 29,638 37,823 Patents, net 66,392 70,302 Other
intangible assets, net 5,009 5,783 Deferred financing costs, net
21,283 13,987 Trade names, net 161,371 158,831 Goodwill 551,242
552,943 Deferred income taxes 119,860 136,754 Other assets
22 153 Total assets $ 1,675,367
$ 1,603,847
Liabilities and stockholders’
equity Current liabilities: Short-term borrowings $ 24,047 $
12,550 Accounts payable 112,155 94,543 Accrued wages and employee
benefits 20,963 19,435 Other accrued liabilities 78,362 86,081
Current portion of long-term borrowings 9,000
82,250 Total current liabilities 244,527 294,859
Long-term borrowings 1,177,329 799,018 Other long-term
liabilities 47,570 46,342 Total
liabilities 1,469,426 1,140,219 Stockholders’ equity: Common
stock, par value $0.01, 500,000,000 shares authorized, 68,588,061
and 68,295,960 shares issued at June 30, 2013 and December 31,
2012, respectively 686 683 Additional paid-in capital 416,184
743,349 Treasury stock, at cost (6,543 ) – Excess purchase price
over predecessor basis (202,116 ) (202,116 ) Retained earnings
(accumulated deficit) 10,202 (63,792 ) Accumulated other
comprehensive loss (12,472 ) (14,496 ) Total
stockholders’ equity 205,941 463,628
Total liabilities and stockholders’ equity $ 1,675,367
$ 1,603,847 Generac Holdings Inc.
Condensed Consolidated Statements of Cash Flows (Dollars in
Thousands) (Unaudited)
Six Months Ended June
30, 2013 2012 Operating
activities Net income $ 78,928 $ 39,395 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation 5,126 3,995 Amortization of intangible assets 12,530
24,513 Amortization of original issue discount 1,138 343
Amortization of deferred finance costs 1,189 1,016 Amortization of
unrealized loss on interest rate swaps 2,005 271 Loss on
extinguishment of debt 15,336 14,308 Provision for losses on
accounts receivable 636 67 Deferred income taxes 35,324 23,610 Loss
on disposal of property and equipment 36 91 Share-based
compensation expense 6,192 5,257 Net changes in operating assets
and liabilities: Accounts receivable (36,908 ) 10,676 Inventories
(62,561 ) (64,609 ) Other assets 182 (306 ) Accounts payable 18,984
(6,043 ) Accrued wages and employee benefits 1,452 (2,034 ) Other
accrued liabilities 3,130 10,703 Excess tax benefits from equity
awards (8,401 ) (1,546 ) Net cash provided by
operating activities 74,318 59,707
Investing
activities Proceeds from sale of property and equipment 35 16
Expenditures for property and equipment (10,051 ) (5,504 ) Proceeds
from sale of business, net 2,254 – Acquisition of business
6,278 (2,279 ) Net cash used in investing
activities (1,484 ) (7,767 )
Financing activities
Proceeds from short-term borrowings 14,007 13,000 Proceeds from
long-term borrowings 1,200,000 1,455,614 Repayments of short-term
borrowings (2,510 ) – Repayments of long-term borrowings (897,750 )
(1,172,874 ) Payment of debt issuance costs (21,698 ) (24,928 )
Cash dividends paid (343,421 ) (404,332 ) Taxes paid related to the
net share settlement of equity awards (11,259 ) (2,785 ) Excess tax
benefits from equity awards 8,401 1,546
Net cash used in financing activities (54,230 ) (134,759 )
Effect of exchange rate changes on cash and cash equivalents
(29 ) – Net increase (decrease) in cash and cash equivalents
18,575 (82,819 ) Cash and cash equivalents at beginning of period
108,023 93,126 Cash and cash
equivalents at end of period $ 126,598 $ 10,307
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, 2013 2012 2013
2012 (unaudited) (unaudited) (unaudited) (unaudited)
Net income $ 28,254 $ 9,335 $ 78,928 $ 39,395 Interest expense
14,263 9,894 29,938 15,568 Depreciation and amortization 8,906
14,290 17,656 28,508 Income taxes provision 18,535 6,364 47,285
25,408 Non-cash write-down and other charges (1) 1,240 454 817 250
Non-cash share-based compensation expense (2) 3,261 2,818 6,192
5,257 Loss on extinguishment of debt 13,497 9,999 15,336 14,308
Transaction costs and credit facility fees (3) 1,589 1,284 1,903
1,419 Other 552 153 843
280 Adjusted EBITDA $ 90,097
$ 54,591 $ 198,898 $ 130,393
(1) Includes losses on disposals of assets and unrealized
mark-to-market adjustments on commodity contracts. A full
description of these and the other reconciliation adjustments
contained in these schedules is included in Generac's SEC filings.
(2) Includes share-based compensation expense to account for
stock options, restricted stock and other stock awards over their
respective vesting periods. (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, 2013 2012 2013
2012 (unaudited) (unaudited) (unaudited) (unaudited)
Net income $ 28,254 $ 9,335 $ 78,928 $ 39,395 Provision for income
taxes 18,535 6,364 47,285
25,408 Income before provision for
income taxes 46,789 15,699 126,213 64,803 Amortization of
intangible assets 6,345 12,288 12,530 24,513 Amortization of
deferred finance costs and original issue discount 1,150 853 2,327
1,359 Loss on extinguishment of debt 13,497 9,999 15,336 14,308
Transaction costs and other purchase accounting adjustments (4)
1,430 1,292 1,177
1,292 Adjusted net income before provision for
income taxes 69,211 40,131 157,583 106,275 Cash income tax expense
(5) (2,650 ) (272 ) (7,170 )
(327 ) Adjusted net income $ 66,561 $ 39,859
$ 150,413 $ 105,948 Adjusted net
income per common share - diluted: $ 0.95 0.58 2.15 1.54 Weighted
average common shares outstanding - diluted: 69,809,599 68,645,533
69,801,498 68,599,867 (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.
(5) Amount for the three and six months ended June 30, 2013
is based on an anticipated cash income tax rate of approximately
6%.
Free cash flow reconciliation Three Months
Ended June 30, Six Months Ended June 30, 2013
2012 2013 2012 (unaudited) (unaudited)
(unaudited) (unaudited) Net cash provided by operating
activities $ 36,052 $ 21,123 $ 74,318 $ 59,707 Expenditures for
property and equipment (5,729 ) (3,366 )
(10,051 ) (5,504 ) Free cash flow $ 30,323
$ 17,757 $ 64,267 $ 54,203
LTM free cash flow reconciliation LTM June
30, 2013 (unaudited) 2012 net cash provided by
operating activities, as reported $ 235,594 Add: June 2013 net cash
provided by operating activities, as reported 74,318 Less: June
2012 net cash provided by operating activities, as reported
(59,707 ) LTM net cash provided by operating activities
250,205 2012 expenditures for property and equipment,
as reported (22,392 ) Include: June 2013 expenditures for property
and equipment, as reported (10,051 ) Exclude: June 2012
expenditures for property and equipment, as reported 5,504
LTM expenditures for property and equipment (26,939 )
Free cash flow $ 223,266
LTM Adjusted
EBITDA reconciliation LTM June 30, 2013
(unaudited) 2012 Adjusted EBITDA, as reported $ 289,809 Add:
June 2013 Adjusted EBITDA, as reported 198,898 Less: June 2012
Adjusted EBITDA, as reported (130,393 ) Adjusted EBITDA $
358,314
SOURCE: Generac Holdings Inc.
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