Generac Holdings Inc. (NYSE: GNRC) (the “Company”), a leading
designer and manufacturer of power generation equipment and other
engine powered products, today reported financial results for its
first quarter ended March 31, 2015.
First Quarter 2015 Highlights
- Net sales were $311.8 million during
the first quarter of 2015 as compared to $342.0 million in the
prior-year first quarter.
- Residential product sales were $156.8
million during the first quarter as compared to $164.0 million in
the prior-year quarter, primarily due to lower portable generator
shipments resulting from a decline in power outage severity
compared to the prior year.
- Commercial & Industrial (C&I)
product sales were $133.8 million during the first quarter as
compared to $157.4 million in the prior-year quarter, primarily due
to a decline in shipments to telecom national account customers
and, to a lesser extent, oil & gas markets.
- Net income during the first quarter of
2015 was $19.7 million, or $0.28 per share, as compared to $34.7
million, or $0.50 per share, for the same period of 2014. Adjusted
net income, as defined in the accompanying reconciliation
schedules, was $34.1 million, or $0.49 per share, as compared to
$50.7 million, or $0.72 per share, in the first quarter of
2014.
- Adjusted EBITDA, as defined in the
accompanying reconciliation schedules, was $57.1 million as
compared to $77.5 million in the first quarter last year.
- Cash flow from operations in the first
quarter of 2015 was $25.3 million as compared to $36.4 million in
the prior year quarter. Free cash flow, as defined in the
accompanying reconciliation schedules, was $18.7 million as
compared to $31.4 million in the first quarter of 2014.
- For the trailing four quarters,
including the first quarter of 2015, net sales were $1.431 billion;
net income was $159.6 million; adjusted EBITDA was $316.9 million;
cash flow from operations was $241.9 million; and free cash flow
was $205.6 million.
- During the first quarter of 2015, the
Company made a voluntary pre-payment of term loan debt of $50
million. Total liquidity at March 31, 2015 was strong with cash and
cash equivalents on hand of $150.1 million and approximately $150
million available on the Company’s ABL revolving credit facility.
Total net debt to adjusted EBITDA, as defined in the accompanying
reconciliation schedules, at the end of the first quarter was 2.8
times.
“The first quarter of this year was particularly challenging
with several of the end markets we serve performing below our
expectations,” said Aaron Jagdfeld, President and Chief Executive
Officer. “With an extremely low power outage environment and
difficult winter weather, shipments of residential products were
weaker than expected. In addition, the rapid decline in oil and gas
related investment coupled with continued softness in capital
spending in the telecom sector also had a negative impact on our
C&I product shipments during the quarter. Despite a softer
demand environment in the near term, we remain focused on driving
awareness for our products, expanding and developing our
distribution, launching innovative new products and controlling
costs.”
Additional First Quarter 2015
Highlights
Residential product sales for the first quarter of 2015 were
$156.8 million as compared to $164.0 million for the first quarter
of 2014. The decline was primarily driven by a power outage
severity environment during the quarter that was well below
normalized levels and prior year, resulting in fewer shipments of
portable generators. Additionally, although shipments for home
standby generators were approximately flat during the quarter,
heavy snow and colder temperatures in certain key regions limited
growth for the category as installations were slowed by these
conditions.
C&I product sales for the first quarter of 2015 were $133.8
million as compared to $157.4 million for the comparable period in
2014. The decline was primarily due to reduced shipments to telecom
national account customers in the current year as a result of lower
capital spending by certain of these customers and, to a lesser
extent, reduced sales into oil & gas markets. Partially
offsetting these declines were contributions from recent
acquisitions and growth in Latin America.
Gross profit margin for the first quarter of 2015 was 32.9%
compared to 34.9% in the prior-year first quarter. The decline was
driven by a number of factors including a temporary increase in
certain costs associated with the slowdown of activity in west
coast ports, unfavorable absorption of manufacturing
overhead-related costs, mark-to-market adjustments on commodity
forward contracts, and the impact from recent acquisitions. These
declines were partially offset by a more favorable mix of
residential products.
Operating expenses for the first quarter of 2015 increased $3.5
million, or 6.4%, as compared to the first quarter of 2014. The
increase was primarily driven by increased marketing and
advertising expenses and the addition of recurring operating
expenses associated with recent acquisitions.
2015 Outlook Update
As a result of current end market conditions, the Company is
revising its prior guidance for revenue growth and adjusted EBITDA
margins for the full year 2015. Net sales for 2015 are now expected
to be approximately flat as compared to the prior year, primarily
the result of a power outage severity environment that is expected
to remain below normal during the first half of the year, with the
assumption of a return to more normalized baseline levels of outage
activity during the second half. Adjusted EBITDA for 2015 is also
expected to be approximately flat as compared to the prior year,
resulting in EBITDA margins of approximately 23.0% for the full
year. Free cash flow is expected to remain strong for the full year
2015 due to an attractive margin profile, low cost of debt,
favorable tax attributes and capital-efficient operating model.
“Although market conditions have been difficult so far in 2015,
we believe many of these headwinds to be temporary in nature as the
numerous long-term growth opportunities that impact our business
remain firmly in place,” continued Mr. Jagdfeld. “We have become a
more diversified company in recent years, with a strong balance
sheet and the capability to generate significant free cash flow,
providing us with the flexibility to drive our Powering Ahead
strategic plan forward.”
Conference Call and Webcast
Generac management will hold a conference call at 9:00 a.m. EDT
on Thursday, April 30, 2015 to discuss highlights of the first
quarter operating results. The conference call can be accessed by
dialing (866) 515-2914 (domestic) or +1 (617) 399-5128
(international) and entering passcode 95445197.
The conference call will also be webcast simultaneously on
Generac's website (http://www.generac.com), under the Investor
Relations link. The webcast link will be made available on the
Company’s website prior to the start of the call within the Events
section of the Investor Relations website.
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 53187252. The telephonic
replay will be available for 30 days.
About Generac
Since 1959, Generac has been a leading designer and manufacturer
of a wide range of power generation equipment and other engine
powered products. As a leader in power equipment serving
residential, light commercial, industrial, oil & gas, and
construction markets, Generac's power products are available
globally through a broad network of independent dealers,
distributors, retailers, wholesalers and equipment rental
companies, as well as sold direct to certain end user
customers.
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,"
“optimistic” 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 power
outages;
- availability, cost and quality of raw
materials and key components used in producing Generac
products;
- the impact on our results of possible
fluctuations in interest rates and foreign currency exchange
rates;
- the possibility that the expected
synergies, efficiencies and cost savings of our acquisitions will
not be realized, or will not be realized within the expected time
period;
- the risk that our acquisitions 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 or recalls; 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”), particularly in the Risk Factors
section of our 2014 Annual Report on Form 10-K and in its periodic
reports on Form 10-Q. Stockholders, potential investors and other
readers should consider these factors carefully in evaluating the
forward-looking statements.
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. To supplement the Company's condensed consolidated financial
statements presented in accordance with U.S. 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 U.S. GAAP, the Company
provides a summary to show the computation of adjusted net income.
Adjusted net income is defined as net income before provision 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, losses on
extinguishment of debt, and certain other 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 U.S. 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 U.S. 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 (U.S. Dollars in Thousands, Except Share and
Per Share Data) (Unaudited)
Three
Months Ended March 31, 2015 2014 Net sales
$ 311,818 $ 342,008 Costs of goods sold 209,215
222,494 Gross profit 102,603 119,514 Operating
expenses: Selling and service 30,128 27,969 Research and
development 8,163 7,746 General and administrative 14,206 13,148
Amortization of intangible assets 5,195 5,345
Total operating expenses 57,692
54,208 Income from operations 44,911 65,306
Other (expense) income: Interest expense (11,268 ) (11,689 )
Investment income 37 39 Loss on extinguishment of debt (1,368 ) –
Other, net (1,609 ) 568 Total other expense,
net (14,208 ) (11,082 ) Income before
provision for income taxes 30,703 54,224 Provision for income taxes
11,018 19,523 Net income $ 19,685
$ 34,701 Net income per common share - basic:
$ 0.29 $ 0.51 Weighted average common shares outstanding - basic:
68,806,337 68,421,800 Net income per common share - diluted:
$ 0.28 $ 0.50 Weighted average common shares outstanding - diluted:
70,088,935 70,008,490 Comprehensive income $ 12,867 $ 34,272
Generac Holdings Inc. Condensed Consolidated Balance Sheets
(U.S. Dollars in Thousands, Except Share and Per Share Data)
March 31, December 31,
2015 2014 (Unaudited) (Audited)
Assets Current assets: Cash and cash equivalents $ 150,085 $
189,761 Accounts receivable, less allowance for doubtful accounts
158,190 189,107 Inventories 356,929 319,385 Deferred income taxes
30,323 22,841 Prepaid expenses and other assets 9,001
9,384 Total current assets 704,528 730,478
Property and equipment, net 171,384 168,821 Customer lists,
net 38,231 41,002 Patents, net 54,889 56,894 Other intangible
assets, net 3,848 4,298 Trade names, net 182,761 182,684 Goodwill
635,565 635,565 Deferred financing costs, net 15,002 16,243
Deferred income taxes 36,093 46,509 Other assets 71
48 Total assets $ 1,842,372 $ 1,882,542
Liabilities and Stockholders’ Equity Current
liabilities: Short-term borrowings $ 3,103 $ 5,359 Accounts payable
135,099 132,248 Accrued wages and employee benefits 14,944 17,544
Other accrued liabilities 80,945 84,814 Current portion of
long-term borrowings and capital lease obligations 506
557 Total current liabilities 234,597 240,522
Long-term borrowings and capital lease obligations 1,033,610
1,082,101 Deferred income taxes 15,134 13,449 Other long-term
liabilities 56,338 56,671 Total
liabilities 1,339,679 1,392,743 Stockholders’ equity:
Common stock, par value $0.01, 500,000,000
shares authorized, 69,405,617 and 69,122,271shares issued at March
31, 2015 and December 31, 2014, respectively
694 691 Additional paid-in capital 438,038 434,906 Treasury stock,
at cost (11,449 ) (8,341 ) Excess purchase price over predecessor
basis (202,116 ) (202,116 ) Retained earnings 300,111 280,426
Accumulated other comprehensive loss (22,585 )
(15,767 ) Total stockholders’ equity 502,693
489,799 Total liabilities and stockholders’ equity $
1,842,372 $ 1,882,542 Generac Holdings Inc.
Condensed Consolidated Statements of Cash Flows (U.S. Dollars in
Thousands) (Unaudited)
Three Months
Ended March 31, 2015 2014 Operating
Activities Net income $ 19,685 $ 34,701 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation 3,839 3,230 Amortization of intangible assets 5,195
5,345 Amortization of original issue discount 987 452 Amortization
of deferred financing costs 718 751 Loss on extinguishment of debt
1,368 – Provision for losses on accounts receivable 8 67 Deferred
income taxes 3,182 12,606 Loss on disposal of property and
equipment 1 62 Share-based compensation expense 2,508 3,322 Net
changes in operating assets and liabilities: Accounts receivable
31,930 (17,324 ) Inventories (37,472 ) 7,931 Other assets 255 369
Accounts payable 2,619 4,459 Accrued wages and employee benefits
(2,304 ) (11,557 ) Other accrued liabilities (456 ) (1,533 ) Excess
tax benefits from equity awards (6,806 ) (6,528 ) Net
cash provided by operating activities 25,257 36,353
Investing Activities Proceeds from sale of property and
equipment 29 6 Expenditures for property and equipment (6,528 )
(4,925 ) Acquisition of business 374 –
Net cash used in investing activities (6,125 ) (4,919 )
Financing Activities Proceeds from short-term borrowings
4,000 4,000 Repayments of short-term borrowings (6,256 ) (6,571 )
Repayments of long-term borrowings and capital lease obligations
(50,375 ) (3,326 ) Payment of debt issuance costs – (4 ) Cash
dividends paid (1,427 ) (334 ) Taxes paid related to the net share
settlement of equity awards (9,304 ) (8,152 ) Excess tax benefits
from equity awards 6,806 6,528 Net cash
used in financing activities (56,556 ) (7,859 ) Effect of
exchange rate changes on cash and cash equivalents (2,252 )
18 Net increase (decrease) in cash and cash
equivalents (39,676 ) 23,593 Cash and cash equivalents at beginning
of period 189,761 150,147 Cash and cash
equivalents at end of period $ 150,085 $ 173,740
Generac Holdings Inc. Reconciliation Schedules (U.S. Dollars
in Thousands, Except Share and Per Share Data)
Net income to Adjusted EBITDA reconciliation Three Months
Ended March 31, 2015 2014 (unaudited) (unaudited)
Net income $ 19,685 $ 34,701 Interest expense 11,268 11,689
Depreciation and amortization 9,034 8,575 Provision for income
taxes 11,018 19,523 Non-cash write-down and other adjustments (1)
1,572 (554 ) Non-cash share-based compensation expense (2) 2,508
3,322 Loss on extinguishment of debt (3) 1,368 - Transaction costs
and credit facility fees (4) 201 203 Other 484
39 Adjusted EBITDA $ 57,138
$ 77,498 (1) Includes losses on disposals of
assets, unrealized mark-to-market adjustments on commodity
contracts and foreign currency related adjustments. A full
description of these and the other reconciliation adjustments
contained in these schedules is included in Generac's SEC filings.
(2) Represents share-based compensation expense to account
for stock options, restricted stock and other stock awards over
their respective vesting periods. (3) Represents the
write-off of original issue discount and capitalized debt issuance
costs due to a voluntary debt prepayment. (4) 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 March
31, 2015 2014 (unaudited) (unaudited) Net
income $ 19,685 $ 34,701 Provision for income taxes 11,018
19,523 Income before provision
for income taxes 30,703 54,224 Amortization of intangible assets
5,195 5,345 Amortization of deferred finance costs and original
issue discount 1,705 1,203 Loss on extinguishment of debt (5) 1,368
- Transaction costs and other purchase accounting adjustments (6)
263 (187 ) Adjusted net income
before provision for income taxes 39,234 60,585 Cash income tax
expense (7) (5,115 ) (9,870 ) Adjusted
net income $ 34,119 $ 50,715
Adjusted net income per common share - diluted: $ 0.49 $ 0.72
Weighted average common shares outstanding - diluted: 70,088,935
70,008,490 (5) Represents the write-off of original issue
discount and capitalized debt issuance costs due to a voluntary
debt prepayment. (6) Represents transaction costs incurred
directly in connection with any investment, as defined in our
credit agreement, equity issuance or debt issuance or refinancing
and certain purchase accounting adjustments. (7) Amount for
the three months ended March 31, 2015 is based on an anticipated
cash income tax rate of approximately 17% for the full year-ended
2015. Amount for the three months ended March 31, 2014 is based on
an anticipated cash income tax rate of approximately 19% for the
full year-ended 2014.
Free cash flow reconciliation
Three Months Ended March 31, 2015 2014
(unaudited) (unaudited) Net cash provided by operating
activities $ 25,257 $ 36,353 Expenditures for property and
equipment (6,528 ) (4,925 ) Free cash
flow $ 18,729 $ 31,428
LTM
free cash flow reconciliation
LTM March 31,
2015 (unaudited) 2014 net cash provided by operating
activities, as reported $ 252,986 Add: March 2015 net cash provided
by operating activities, as reported 25,257 Less: March 2014 net
cash provided by operating activities, as reported (36,353 )
LTM net cash provided by operating activities 241,890
2014 expenditures for property and equipment, as reported
(34,689 ) Include: March 2015 expenditures for property and
equipment, as reported (6,528 ) Exclude: March 2014 expenditures
for property and equipment, as reported 4,925 LTM
expenditures for property and equipment (36,292 )
Free cash flow $ 205,598
LTM Adjusted EBITDA
reconciliation
LTM March 31,
2015
(unaudited) 2014 Adjusted EBITDA, as reported $ 337,283 Add:
March 2015 Adjusted EBITDA, as reported 57,138 Less: March 2014
Adjusted EBITDA, as reported (77,498 ) Adjusted EBITDA $
316,923
Net Debt to Adjusted EBITDA Ratio
March 31, March 31, 2015
2014 (Unaudited) (Unaudited) Short-term borrowings $
3,103 $ 7,004 Current portion of long-term borrowings and capital
lease obligations 506 12,543 Long-term borrowings and capital lease
obligations 1,033,610 1,172,368 Less: Cash (150,085 )
(173,740 ) Net debt 887,134 1,018,175 Adjusted EBITDA
(LTM) 316,923 371,310 Net
debt to adjusted EBITDA ratio 2.8
2.7
SOURCE: Generac Holdings Inc.
Generac Holdings Inc.Michael W. HarrisVice President – Finance
and Investor Relations(262) 544-4811
x2675Michael.Harris@Generac.com
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