Strong home standby shipments drive sequential sales improvement
in residential products as increased sales from C&I products
further diversifies business
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
second quarter ended June 30, 2014.
Second Quarter 2014 Highlights
- Net sales increased over the prior year
by 4.6% to $362.6 million as compared to $346.7 million in the
second quarter of 2013.
- Commercial & Industrial (C&I)
product sales increased 22.5% to $163.5 million as compared $133.4
million in the prior-year second quarter, primarily due to the
contribution of recent acquisitions and continued strength in the
oil & gas market.
- Residential product sales were $179.6
million during the second quarter of 2014 as compared to $196.6
million in the prior year quarter. The prior year second quarter
benefited from approximately $40 million in shipments due to
Superstorm Sandy. Excluding this prior year benefit, residential
product sales increased approximately 15% primarily as a result of
strong home standby generator shipments.
- Net income during the second quarter of
2014 was $54.0 million, or $0.77 per share, as compared to $28.3
million, or $0.40 per share, for the same period of 2013.
- Adjusted net income, as defined in the
accompanying reconciliation schedules, was $57.1 million, or $0.82
per share, as compared to $66.6 million, or $0.95 per share, in the
second quarter of 2013.
- Adjusted EBITDA, as defined in the
accompanying reconciliation schedules, was $84.5 million as
compared to $90.1 million in the second quarter last year.
- Cash flow from operations in the second
quarter of 2014 was $48.9 million as compared to $36.1 million in
the prior year quarter. Free cash flow, as defined in the
accompanying reconciliation schedules, was $40.5 million as
compared to $30.3 million in the second quarter of 2013.
- For the trailing four quarters,
including the second quarter of 2014, net sales were $1.444
billion; net income was $184.3 million; adjusted EBITDA was $365.7
million; cash flow from operations was $270.9 million; and free
cash flow was $236.9 million.
“Our second quarter results for residential products were
seasonally higher as we saw shipments increase as compared to the
first quarter of 2014 due to strength in home standby generators.
We remain focused on a number of key initiatives to continue to
grow the market, further building on our leadership position in
this product category,” said Aaron Jagdfeld, President and Chief
Executive Officer. “C&I products continue to represent a
growing portion of our sales as we have recently increased our
exposure to new markets such as oil & gas, broadened our
industrial product line, and strengthened our industrial
distribution network to further diversify our business. We also
continue to convert a significant amount of our earnings to free
cash flow, providing us with the flexibility to drive our Powering
Ahead strategic plan forward.”
Additional Second quarter 2014
Highlights
Residential product sales for the second quarter of 2014 were
$179.6 million as compared to $164.0 million in the first quarter
of 2014, and as compared to $196.6 million for the second quarter
of 2013. Sales of residential products during the prior-year second
quarter were positively impacted by approximately $40 million in
incremental shipments as a result of satisfying the extended lead
times that resulted from Superstorm Sandy, which did not repeat
during the second quarter of 2014. Excluding this benefit in the
prior year quarter, residential product revenue increased
approximately 15% during the current year quarter, driven by strong
shipments of home standby generators. In addition, increased
revenue from power washer products contributed to this
year-over-year sales growth in residential products.
C&I product sales for the second quarter of 2014 increased
22.5% to $163.5 million from $133.4 million for the comparable
period in 2013. The improvement was driven primarily by
contributions from recent acquisitions and strength in oil &
gas end markets, along with increased sales of natural gas
generators used in light commercial and retail applications.
Partially offsetting this strength was a year-over-year decline in
sales within Latin America driven by the combination of a difficult
prior-year comparison related to certain large projects which did
not repeat, as well as overall economic softness in the region.
Gross profit margin for the second quarter of 2014 was 35.3%
compared to 37.8% in the prior-year second quarter. Gross margin
was impacted over the prior year due to the addition of recent
acquisitions along with a return to regular promotional activities
consistent with a period of normal seasonality.
Operating expenses for the second quarter of 2014 declined $4.7
million, or 8.6%, as compared to the second quarter of 2013,
primarily driven by a $4.9 million gain recorded in the current
year quarter relating to a remeasurement of a contingent earn-out
obligation from a recent acquisition. Excluding this gain,
operating expenses were approximately flat relative to prior year
despite the addition of SG&A costs associated with recent
acquisitions.
Interest expense in the second quarter of 2014 declined to $11.4
million compared to $14.3 million in the same period last year,
resulting from a reduction in interest rate from the credit
agreement refinancing completed in May 2013. In conjunction with
the May 2013 refinancing and other debt prepayments made in the
prior year quarter, a $13.5 million loss on extinguishment of debt
was recorded during the second quarter of 2013.
Beginning in the second quarter of 2014, there was a further 25
basis point reduction in borrowing costs as a result of the
leverage ratio as defined in the credit agreement falling below 3.0
times, resulting in a $16.0 million non-cash gain being recorded in
the current year quarter.
2014 Outlook
The Company is reaffirming its prior guidance for 2014 in terms
of revenue growth, EBITDA margins and cash flows. For the full-year
2014, the Company still expects net sales to increase in the
mid-single digit range as compared to the prior year. This sales
outlook assumes an increased level of power outage severity in the
second half of 2014 as compared to recent quarters, returning to a
more normalized annual baseline level. Adjusted EBITDA margins are
expected to remain in the mid-20% range as previously guided, which
are consistent with the average levels seen during the past four
years. Free cash flow is still expected to be approximately 90% of
full year 2014 adjusted net income.
“We remain excited about the compelling penetration
opportunities for our residential and light commercial standby
generators as we continue to focus our efforts on several high
impact initiatives to increase the adoption for these products,”
continued Mr. Jagdfeld. “These initiatives are targeted at
improving the awareness, availability and affordability of standby
generators and are highlighted by our innovative sales and
marketing processes, our efforts to increase and develop
distribution, and our introduction of new products. In addition, we
have several initiatives aimed at increasing our share of the
C&I market by leveraging our recently expanded product
offering. We also believe the overall secular trends toward natural
gas generators, rental of mobile power equipment, and the
penetration of certain end markets such as telecommunications and
oil & gas will continue to drive additional growth. Through the
execution of our Powering Ahead strategic plan, we expect to
capitalize on these long-term opportunities, while also becoming a
more balanced company as we further implement our diversification
and international expansion strategies.”
Conference Call and Webcast
Generac management will hold a conference call at 9:00 a.m. EDT
on Thursday, July 31, 2014 to discuss highlights of the second
quarter operating results. The conference call can be accessed by
dialing (877) 703-6103 (domestic) or +1 (857) 244-7302
(international) and entering passcode 50076462.
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 19346995. 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 and construction markets,
Generac's power products are available globally through a broad
network of independent dealers, 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" 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;
- 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; 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 2013 Annual Report on Form 10K and in its periodic
reports on Form 10Q. 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, 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, 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 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,
2014 2013 2014 2013
Net sales $ 362,609 $ 346,688 $ 704,617 $ 746,260
Costs of goods sold 234,597 215,735
457,091 461,845 Gross
profit 128,012 130,953 247,526 284,415 Operating expenses:
Selling and service 29,115 27,072 57,084 58,753 Research and
development 8,012 7,064 15,758 13,709 General and administrative
12,503 14,039 25,651 26,465 Amortization of intangible assets 5,099
6,345 10,444 12,530 Gain on remeasurement of contingent
consideration (4,877 ) – (4,877
) – Total operating expenses 49,852
54,520 104,060
111,457 Income from operations 78,160 76,433 143,466
172,958 Other (expense) income: Interest expense (11,428 )
(14,263 ) (23,117 ) (29,938 ) Investment income 42 25 81 42 Loss on
extinguishment of debt – (13,497 ) – (15,336 ) Gain on change in
contractual interest rate 16,014 – 16,014 – Other, net (366
) (1,909 ) 202 (1,513 )
Total other expense, net 4,262 (29,644
) (6,820 ) (46,745 ) Income before
provision for income taxes 82,422 46,789 136,646 126,213 Provision
for income taxes 28,397 18,535
47,920 47,285 Net income $
54,025 $ 28,254 $ 88,726 $
78,928 Net income per common share - basic: $ 0.79 $
0.41 $ 1.30 $ 1.16 Weighted average common shares outstanding -
basic: 68,538,251 68,140,330 68,481,682 68,003,164 Net
income per common share - diluted: $ 0.77 $ 0.40 $ 1.27 $ 1.13
Weighted average common shares outstanding - diluted: 70,087,976
69,809,599 70,088,438 69,801,498 Dividends declared per
share $ - $ 5.00 $ - $ 5.00 Comprehensive income $ 52,730 $
29,276 $ 87,002 $ 80,952 Generac Holdings Inc. Condensed
Consolidated Balance Sheets (Dollars in Thousands, Except Share and
Per Share Data)
June 30, December
31, 2014 2013 (Unaudited)
(Audited) Assets Current assets: Cash and cash
equivalents $ 197,959 $ 150,147 Restricted cash – 6,645 Accounts
receivable, less allowance for doubtful accounts 203,692 164,907
Inventories 287,233 300,253 Deferred income taxes 22,392 26,869
Prepaid expenses and other assets 5,879
5,358 Total current assets 717,155 654,179 Property
and equipment, net 153,063 146,390 Customer lists, net
36,076 42,764 Patents, net 58,509 62,418 Trade names, net 173,062
173,196 Goodwill 607,763 608,287 Other intangible assets, net 3,543
4,447 Deferred income taxes 61,391 85,104 Deferred financing costs,
net 18,548 20,051 Other assets 58 1,369
Total assets $ 1,829,168 $ 1,798,205
Liabilities and Stockholders’ Equity Current
liabilities: Short-term borrowings $ 6,509 $ 9,575 Accounts payable
116,149 109,238 Accrued wages and employee benefits 16,115 26,564
Other accrued liabilities 74,840 92,997 Current portion of
long-term borrowings and capital lease obligations 436
12,471 Total current liabilities
214,049 250,845 Long-term borrowings and capital lease
obligations 1,154,316 1,175,349 Other long-term liabilities
52,241 54,940 Total liabilities
1,420,606 1,481,134 Stockholders’ equity: Common stock, par
value $0.01, 500,000,000 shares authorized, 69,026,792 and
68,767,367 shares issued at June 30, 2014 and December 31, 2013,
respectively 690 688 Additional paid-in capital 427,269 421,672
Treasury stock, at cost (7,681 ) (6,571 ) Excess purchase price
over predecessor basis (202,116 ) (202,116 ) Retained earnings
194,539 105,813 Accumulated other comprehensive loss (4,139
) (2,415 ) Total stockholders’ equity 408,562
317,071 Total liabilities and
stockholders’ equity $ 1,829,168 $ 1,798,205
Generac Holdings Inc. Condensed Consolidated
Statements of Cash Flows (Dollars in Thousands) (Unaudited)
Six Months Ended June 30, 2014 2013
Operating Activities Net income $ 88,726 $ 78,928
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 6,512 5,126 Amortization of
intangible assets 10,444 12,530 Amortization of original issue
discount 1,514 1,138 Amortization of deferred financing costs 1,507
1,189 Amortization of unrealized loss on interest rate swaps –
2,005 Loss on extinguishment of debt – 15,336 Gain on change in
contractual interest rate (16,014 ) – Gain on remeasurement of
contingent consideration (4,877 ) – Provision for losses on
accounts receivable 115 636 Deferred income taxes 28,145 35,324
Loss on disposal of property and equipment 95 36 Share-based
compensation expense 6,203 6,192 Net changes in operating assets
and liabilities: Accounts receivable (38,924 ) (36,908 )
Inventories 12,460 (62,561 ) Other assets 839 182 Accounts payable
6,717 18,984 Accrued wages and employee benefits (10,427 ) 1,452
Other accrued liabilities (521 ) 3,130 Excess tax benefits from
equity awards (7,229 ) (8,401 ) Net cash
provided by operating activities 85,285 74,318
Investing
Activities Proceeds from sale of property and equipment 7 35
Expenditures for property and equipment (13,317 ) (10,051 )
Proceeds from sale of business, net – 2,254 Acquisition of business
(429 ) 6,278 Net cash used in investing
activities (13,739 ) (1,484 )
Financing Activities
Proceeds from short-term borrowings 4,000 14,007 Proceeds from
long-term borrowings – 1,200,000 Repayments of short-term
borrowings (7,066 ) (2,510 ) Repayments of long-term borrowings and
capital lease obligations (18,567 ) (897,750 ) Payment of debt
issuance costs (4 ) (21,698 ) Cash dividends paid (459 ) (343,421 )
Taxes paid related to the net share settlement of equity awards
(8,950 ) (11,259 ) Excess tax benefits from equity awards
7,229 8,401 Net cash used in financing
activities (23,817 ) (54,230 ) Effect of exchange rate
changes on cash and cash equivalents 83
(29 ) Net increase in cash and cash equivalents 47,812
18,575 Cash and cash equivalents at beginning of period
150,147 108,023 Cash and cash
equivalents at end of period $ 197,959 $ 126,598
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, 2014 2013 2014 2013
(unaudited) (unaudited) (unaudited) (unaudited) Net income $
54,025 $ 28,254 $ 88,726 $ 78,928 Interest expense 11,428 14,263
23,117 29,938 Depreciation and amortization 8,381 8,906 16,956
17,656 Income taxes provision 28,397 18,535 47,920 47,285 Non-cash
write-down and other adjustments (1) (5,198 ) 1,240 (5,752 ) 817
Non-cash share-based compensation expense (2) 2,881 3,261 6,203
6,192 Loss on extinguishment of debt (3) - 13,497 - 15,336 Gain on
change in contractual interest rate (4) (16,014 ) - (16,014 ) -
Transaction costs and credit facility fees (5) 498 1,589 701 1,903
Other 134 552 173
843 Adjusted EBITDA $ 84,532 $
90,097 $ 162,030 $ 198,898 (1)
Includes losses on disposals of assets, unrealized mark-to-market
adjustments on commodity contracts and adjustments to certain
earn-out obligations in connection with acquisitions ($4.9
million). 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) Relates to
the May 2013 credit agreement refinancing and other debt
prepayments, resulting in a loss on extinguishment of debt.
(4) Non-cash gain relating to a 25 basis point reduction in
borrowing costs, effective second quarter 2014, as a result of the
credit agreement leverage ratio falling below 3.0 times. (5)
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, 2014
2013 2014 2013 (unaudited) (unaudited)
(unaudited) (unaudited) Net income $ 54,025 $ 28,254 $
88,726 $ 78,928 Provision for income taxes 28,397
18,535 47,920
47,285 Income before provision for income taxes 82,422
46,789 136,646 126,213 Amortization of intangible assets 5,099
6,345 10,444 12,530 Amortization of deferred finance costs and
original issue discount 1,818 1,150 3,021 2,327 Loss on
extinguishment of debt (6) - 13,497 - 15,336 Gain on change in
contractual interest rate (7) (16,014 ) - (16,014 ) - Transaction
costs and other purchase accounting adjustments (8) (4,512 )
1,430 (4,699 ) 1,177
Adjusted net income before provision for income taxes 68,813
69,211 129,398 157,583 Cash income tax expense (9) (11,690 )
(2,650 ) (21,560 ) (7,170 )
Adjusted net income $ 57,123 $ 66,561 $
107,838 $ 150,413 Adjusted net income
per common share - diluted: $ 0.82 $ 0.95 $ 1.54 $ 2.15 Weighted
average common shares outstanding - diluted: 70,087,976 69,809,599
70,088,438 69,801,498 (6) Relates to the May 2013 credit
agreement refinancing and other debt prepayments, resulting in a
loss on extinguishment of debt. (7) Non-cash gain relating
to a 25 basis point reduction in borrowing costs, effective second
quarter 2014, as a result of the credit agreement leverage ratio
falling below 3.0 times. (8) 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
and adjustments to certain earn-out obligations in connection with
acquisitions ($4.9 million). (9) Amount for the three and
six months ended June 30, 2014 is based on an anticipated cash
income tax rate of approximately 18% for the full year-ended 2014.
Amount for the three and six months ended June 30, 2013 is based on
an anticipated cash income tax rate of approximately 6% for the
full year-ended 2013.
Free cash flow reconciliation
Three Months Ended June 30, Six Months Ended June 30,
2014 2013 2014 2013 (unaudited)
(unaudited) (unaudited) (unaudited) Net cash provided by
operating activities $ 48,932 $ 36,052 $ 85,285 $ 74,318
Expenditures for property and equipment (8,392 )
(5,729 ) (13,317 ) (10,051 ) Free cash
flow $ 40,540 $ 30,323 $ 71,968
$ 64,267
LTM free cash flow reconciliation
LTM June 30, 2014 (unaudited) 2013 net cash
provided by operating activities, as reported $ 259,944 Add: June
2014 net cash provided by operating activities, as reported 85,285
Less: June 2013 net cash provided by operating activities, as
reported (74,318 ) LTM net cash provided by operating
activities 270,911 2013 expenditures for
property and equipment, as reported (30,770 ) Include: June 2014
expenditures for property and equipment, as reported (13,317 )
Exclude: June 2013 expenditures for property and equipment, as
reported 10,051 LTM expenditures for property and
equipment (34,036 ) Free cash flow $ 236,875
LTM Adjusted EBITDA reconciliation LTM June
30, 2014 (unaudited) 2013 Adjusted EBITDA, as
reported $ 402,613 Add: June 2014 Adjusted EBITDA, as reported
162,030 Less: June 2013 Adjusted EBITDA, as reported
(198,898 ) Adjusted EBITDA $ 365,745
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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