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Generac Reports Record Quarterly and Full-Year 2019 Results

Fourth quarter results exceed expectations led by strong home standby demand; 2020 outlook anticipates continued strong revenue growth highlighted by expanding Clean Energy and California markets

WAUKESHA, Wis., Feb. 13, 2020 (GLOBE NEWSWIRE) -- Generac Holdings Inc. (NYSE: GNRC) (“Generac” or the “Company”), a leading global designer and manufacturer of energy technology solutions and other power products, today reported financial results for its fourth quarter and full-year ended December 31, 2019.

Fourth Quarter 2019 Highlights

  • Net sales increased 4.9% to $590.9 million during the fourth quarter of 2019 as compared to $563.4 million in the prior-year fourth quarter.  Core sales growth, which excludes both the impact of acquisitions and foreign currency, was approximately 4%.    
    • Residential product sales increased 9.7% to $322.5 million as compared to $293.9 million last year, with core sales growth of approximately 7%. 
    • Commercial & Industrial (“C&I”) product sales decreased 2.7% to $217.1 million as compared to $223.2 million in the prior year, with core sales also declining approximately 3%.
  • Net income attributable to the Company during the fourth quarter was $69.6 million, or $1.12 per share, as compared to $75.6 million, or $1.20 per share, for the same period of 2018.  See accompanying reconciliation schedules for related earnings per share calculations.
  • Adjusted net income attributable to the Company, as defined in the accompanying reconciliation schedules, was $96.5 million, or $1.53 per share, as compared to $88.1 million, or $1.42 per share, in the fourth quarter of 2018.
  • Adjusted EBITDA before deducting for noncontrolling interests, as defined in the accompanying reconciliation schedules, was $129.1 million, or 21.9% of net sales, as compared to $126.1 million, or 22.4% of net sales, in the prior year.
  • Cash flow from operations was $175.1 million as compared to $108.2 million in the prior year.  Free cash flow, as defined in the accompanying reconciliation schedules, was $160.3 million as compared to $87.3 million in 2018.  The increase was primarily driven by the monetization of previous working capital investments, together with lower capital expenditures compared to the prior year quarter. 
  • As previously announced, on December 13, 2019, the Company amended its Term Loan credit agreement, which among other things extended the maturity of the term loan from May 2023 to December 2026.  In conjunction with the amendment, the Company paid down $49 million of debt on the term loan.

Full-Year 2019 Highlights

  • Net sales increased 8.9% to $2.20 billion during 2019 as compared to $2.02 billion in 2018, including $41.2 million of contribution from acquisitions.  Total core sales growth for the year was approximately 8%.
    • Residential product sales increased 9.7% to $1.14 billion as compared to $1.04 billion last year, with core sales growth of approximately 9%. 
    • C&I product sales increased 6.3% to $871.6 million as compared to $820.3 million in the prior year, with core sales also increasing approximately 6%.
  • Net income attributable to the Company during 2019 was $252.0 million, or $4.03 per share, as compared to $238.3 million, or $3.54 per share for 2018.
  • Adjusted net income attributable to the Company was $317.8 million, or $5.06 per share, as compared to $292.2 million, or $4.70 per share, in 2018.
  • Adjusted EBITDA before deducting for non-controlling interests for 2019 was $454.1 million, or 20.6% of net sales, as compared to $424.6 million, or 21.0% of net sales, last year.
  • Cash flow from operations was $308.9 million as compared to $247.2 million in the prior year.  Free cash flow was $250.7 million as compared to $203.6 million in 2018. 

“The fourth quarter was a great finish to a very strong 2019 with record performance for both the quarter and the full-year for net sales, adjusted EBITDA and free cash flow,” said Aaron Jagdfeld, President and Chief Executive Officer.  “Home standby demand was again robust during the quarter driven by California as public utility shut-offs drove a dramatic increase in interest for these products.  We also made the first shipments of our new PWRcell™ energy storage system during the quarter, and the outlook for our clean energy products continues to exceed our expectations.  Our full-year results for residential products were also exceptionally strong and broad-based, and we experienced similar trends with domestic C&I product shipments through our industrial distributors as the penetration of natural gas generators continues to accelerate. Additionally, shipments to our telecom national account customers for the full year increased significantly as they continue to expand and harden their networks in preparation for the impending rollout of 5G technology.  We believe our 2019 performance is further evidence of the tremendous growth opportunities for Generac, and as we enter 2020 we are incredibly excited about the long-term prospects for our business.”

Additional Fourth Quarter 2019 Consolidated Highlights

Gross profit margin improved 130 basis points to 37.6% compared to 36.3% in the prior-year fourth quarter.  Pricing actions and favorable sales mix, as well as lower realized commodity and foreign currency input costs, were partially offset by increased regulatory tariffs, and the unfavorable mix impact from acquisitions.

Operating expenses increased $22.3 million, or 23.3%, as compared to the fourth quarter of 2018.  The increase was primarily driven by higher employee costs, recurring operating expenses from recent acquisitions, additional intangible amortization and depreciation expense, as well as greater marketing and promotional spend as we continue to invest in a number of initiatives to capitalize on future growth opportunities.

Provision for income taxes for the current year quarter was $13.4 million, or an effective tax rate of 16.1%, as compared to $20.0 million, or a 20.7% effective tax rate, for the prior year.  The current year quarter was favorably impacted by a year-end revaluation adjustment related to a reduction in the state income tax rate.  For the full year, the effective tax rate for 2019 was 21.1% compared to 22.5% in the prior year. 

During the fourth quarter of 2019, the Company completed the termination of its domestic pension plan, which did not result in a reduction of benefits to plan participants.  This resulted in pre-tax settlement charges of $10.9 million during the quarter, or $0.17 per share. 

Business Segment Results

Domestic Segment

Domestic segment sales increased 7.7% to $470.1 million as compared to $436.3 million in the prior year quarter.  Core sales growth, which excludes the impact of the Neurio and Pika acquisitions, was approximately 6%.  The current year quarter experienced strong growth in shipments of home standby generators due to increased outage activity across the U.S. and Canada, which included public safety power shut-offs in California.  In addition, C&I stationary generator shipments were also strong during the quarter and broad-based through the Company’s North American distributor channel.  The overall Domestic segment growth was partially offset by lower shipments of C&I products to national telecom and rental account customers.

Adjusted EBITDA for the segment was $122.9 million, or 26.1% of net sales, as compared to $116.3 million in the prior year, or 26.7% of net sales.  Pricing initiatives, favorable sales mix, and improved commodity and currency input costs were more than offset by the aforementioned regulatory tariffs and higher operating expense investments.  

International Segment

International segment sales decreased 4.9% to $120.9 million as compared to $127.1 million in the prior year quarter.  Core sales, which excludes the unfavorable impact of currency and the impact of the Captiva acquisition, declined approximately 4% compared to the prior year as slower economic growth and geopolitical headwinds caused softness in certain key regions of the world in which we operate.

Adjusted EBITDA for the segment, before deducting for noncontrolling interests, was $6.2 million, or 5.2% of net sales, as compared to $9.7 million, or 7.7% of net sales, in the prior year.  Decreased operating leverage on the lower sales volumes was the primary contributor to the margin decline.

2020 Outlook

The Company is initiating guidance for 2020 with net sales expected to increase between 6 to 8% as compared to the prior year on an as-reported basis, and 5 to 7% on a core basis.  This guidance assumes a level of power outages in line with the longer-term baseline average, but includes the benefit of one significant power shut-off event in California. Should there be a major event, such as a landed hurricane, along with additional public safety power shut-offs in California, we could expect approximately 3 to 5% of incremental revenue growth on top of the baseline guidance, resulting in an upside case as-reported sales growth of 9 to 13%.

Net income margin, before deducting for non-controlling interests, is expected to be approximately 11% for the full-year 2020, with corresponding adjusted EBITDA margin expected to be approximately 20.0%.  Should there be a more active outage environment during 2020, we would expect margins to increase by approximately 50 basis points above this baseline guidance, resulting in an upside case adjusted EBITDA margin of approximately 20.5%.

Operating and free cash flow generation is expected to be strong, with the conversion of adjusted net income to free cash flow expected to be approximately 90%.

Conference Call and Webcast

Generac management will hold a conference call at 9:00 a.m. EST on Thursday, February 13, 2020 to discuss fourth quarter and full year 2019 operating results. The conference call can be accessed by dialing (866) 415-3113 (domestic) or +1 (678) 509-7544 (international) and entering passcode 9159339.

The conference call will also be webcast simultaneously on Generac's website (http://www.generac.com), accessed 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 website. A telephonic replay will also be available approximately two hours after the call and can be accessed by dialing (855) 859-2056 (domestic) or +1 (404) 537-3406 (international) and entering passcode 9159339. The telephonic replay will be available for 7 days.

About Generac

Founded in 1959, Generac is a leading global designer and manufacturer of a wide range of energy technology solutions and other power products.  As an industry leader serving residential, light commercial, and industrial markets, Generac's products and solutions are available globally through a broad network of independent dealers, distributors, retailers, e-commerce partners, 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:

  • frequency and duration of power outages impacting demand for our products;
  • availability, cost and quality of raw materials and key components from our global supply chain and labor needed in producing our products;
  • the impact on our results of possible fluctuations in interest rates, foreign currency exchange rates, commodities, product mix and regulatory tariffs;
  • 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 we may encounter as our business expands globally or into new markets;
  • our dependence on our distribution network;
  • our ability to invest in, develop or adapt to changing technologies and manufacturing techniques;
  • loss of our key management and employees;
  • increase in product and other liability claims or recalls;
  • failures or security breaches of our networks or information technology systems; and
  • Changes in environmental, health and safety, or product compliance laws and regulations affecting our products or operations.

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 the 2018 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.

Non-GAAP Financial Metrics

Core Sales

The Company references core sales to further supplement Generac's condensed consolidated financial statements presented in accordance with U.S. GAAP.  Core sales excludes the impact of acquisitions and fluctuations in foreign currency translation.  Management believes that core sales facilitates easier and more meaningful comparison of net sales performance with prior and future periods.

Adjusted EBITDA

The computation of adjusted EBITDA attributable to the Company is based on the definition of EBITDA contained in Generac's credit agreement dated as of May 31, 2013, as amended.  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, which excludes the impact of noncontrolling interests, 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 attributable to the Company. Adjusted net income attributable to the Company is defined as net income before noncontrolling interests and 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, business optimization expenses, certain other non-cash gains and losses, and adjusted net income attributable to non-controlling interests.

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, plus proceeds from beneficial interests in securitization transactions, 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 the accompanying Reconciliation Schedules and our SEC filings for additional discussion of the basis for Generac's reporting of Non-GAAP financial measures, which includes why the Company believes these measures provide useful information to investors and the additional purposes for which management uses the non-GAAP financial information.

SOURCE: Generac Holdings Inc.

CONTACT:
Michael W. Harris
Vice President – Corporate Development & Investor Relations
(262) 506-6064
InvestorRelations@generac.com



Generac Holdings Inc.  
Consolidated Statements of Comprehensive Income  
(U.S. Dollars in Thousands, Except Share and Per Share Data)  
(Unaudited)  
             
  Three Months Ended December 31,   Year Ended December 31,  
    2019       2018       2019       2018    
                 
Net sales $ 590,932     $ 563,404     $ 2,204,336     $ 2,023,464    
Costs of goods sold   368,710       359,098       1,406,584       1,298,424    
Gross profit   222,222       204,306       797,752       725,040    
                 
Operating expenses:                
Selling and service   58,729       50,013       217,683       191,887    
Research and development   19,488       11,897       68,394       50,019    
General and administrative   30,852       28,228       110,868       103,841    
Amortization of intangibles   8,645       5,320       28,644       22,112    
Total operating expenses   117,714       95,458       425,589       367,859    
Income from operations   104,508       108,848       372,163       357,181    
                 
Other (expense) income:                
Interest expense   (10,116 )     (10,017 )     (41,544 )     (40,956 )  
Investment income   878       798       2,767       1,893    
Loss on extinguishment of debt   (926 )           (926 )     (1,332 )  
Loss on pension settlement   (10,920 )           (10,920 )        
Other, net   (65 )     (2,946 )     (1,933 )     (5,710 )  
Total other expense, net   (21,149 )     (12,165 )     (52,556 )     (46,105 )  
                 
Income before provision for income taxes   83,359       96,683       319,607       311,076    
Provision for income taxes   13,423       19,986       67,299       69,856    
Net income   69,936       76,697       252,308       241,220    
Net income attributable to noncontrolling interests   322       1,122       301       2,963    
Net income attributable to Generac Holdings Inc. $ 69,614     $ 75,575     $ 252,007     $ 238,257    
                 
Other comprehensive income (loss):                
Foreign currency translation adjustment $ 9,862     $ (7,214 )   $ 2,210     $ (5,976 )  
Net unrealized gain (loss) on derivatives   1,043       (7,479 )     (13,855 )     2,924    
Pension liability adjustment   10,541       437       10,541       437    
Other comprehensive income (loss)   21,446       (14,256 )     (1,104 )     (2,615 )  
Total comprehensive income   91,382       62,441       251,204       238,605    
Comprehensive income attributable to noncontrolling interests   1,371       679       (635 )     1,647    
Comprehensive income attributable to Generac Holdings Inc. $ 90,011     $ 61,762     $ 251,839     $ 236,958    
                 
Net income attributable to common shareholders per                
  common share - basic: $ 1.14     $ 1.21     $ 4.09     $ 3.57    
Weighted average common shares outstanding - basic:   62,056,624       61,669,467       61,926,986       61,662,031    
                 
Net income attributable to common shareholders per                
  common share - diluted: $ 1.12     $ 1.20     $ 4.03     $ 3.54    
Weighted average common shares outstanding - diluted:   63,219,078       62,201,066       62,865,446       62,233,225    
                 



Generac Holdings Inc.  
Consolidated Balance Sheets  
(U.S. Dollars in Thousands, Except Share and Per Share Data)  
(Unaudited)  
         
  December 31,  
    2019       2018    
Assets        
Current assets:        
Cash and cash equivalents $ 322,883     $ 224,482    
Accounts receivable, less allowance for doubtful accounts of $6,968 and   319,538       326,133    
$4,873 at December 31, 2019 and 2018, respectively    
Inventories   522,024       544,750    
Prepaid expenses and other assets   31,384       25,404    
Total current assets   1,195,829       1,120,769    
         
Property and equipment, net   316,976       278,929    
         
Customer lists, net   55,552       61,194    
Patents and technology, net   85,546       29,970    
Other intangible assets, net   8,259       3,043    
Tradenames, net   148,377       152,283    
Goodwill   805,284       764,655    
Deferred income taxes   2,933       163    
Operating lease and other assets   46,913       15,308    
Total assets $ 2,665,669     $ 2,426,314    
         
Liabilities and stockholders’ equity        
Current liabilities:        
Short-term borrowings $ 58,714     $ 45,583    
Accounts payable   261,977       328,091    
Accrued wages and employee benefits   41,361       40,819    
Other accrued liabilities   132,629       144,236    
Current portion of long-term borrowings and finance lease obligations   2,383       1,977    
Total current liabilities   497,064       560,706    
         
Long-term borrowings and finance lease obligations   837,767       876,396    
Deferred income taxes   96,328       71,300    
Operating lease and other long-term liabilities   140,432       95,647    
Total liabilities   1,571,591       1,604,049    
         
Redeemable noncontrolling interest   61,227       61,004    
         
Stockholders’ equity:        
Common stock, par value $0.01, 500,000,000 shares authorized, 71,667,726        
and 71,186,418 shares issued at December 31, 2019 and 2018, respectively   717       712    
Additional paid-in capital   498,866       476,116    
Treasury stock, at cost, 9,103,013 and 9,047,060 shares at December 31,        
2019 and 2018, respectively   (324,551 )     (321,473 )  
Excess purchase price over predecessor basis   (202,116 )     (202,116 )  
Retained earnings   1,084,383       831,123    
Accumulated other comprehensive loss   (24,917 )     (23,813 )  
Stockholders’ equity attributable to Generac Holdings Inc.   1,032,382       760,549    
Noncontrolling interests   469       712    
Total stockholders’ equity   1,032,851       761,261    
Total liabilities and stockholders’ equity $ 2,665,669     $ 2,426,314    
         



Generac Holdings Inc.
Consolidated Statements of Cash Flows
(U.S. Dollars in Thousands)
(Unaudited)
       
  Year Ended December 31,
    2019       2018  
Operating activities      
Net income $ 252,308     $ 241,220  
Adjustment to reconcile net income to net cash provided by operating activities:      
Depreciation   32,265       25,296  
Amortization of intangible assets   28,644       22,112  
Amortization of original issue discount and deferred financing costs   4,712       4,749  
Loss on extinguishment of debt   926       1,332  
Loss on pension settlement   10,920        
Deferred income taxes   18,733       23,600  
Share-based compensation expense   16,694       14,563  
Other   1,086       2,474  
Net changes in operating assets and liabilities:      
Accounts receivable   8,231       (43,243 )
Inventories   26,369       (152,594 )
Other assets   (358 )     (6,362 )
Accounts payable   (69,404 )     86,359  
Accrued wages and employee benefits   (3,724 )     12,626  
Other accrued liabilities   (16,252 )     16,972  
Excess tax benefits from equity awards   (2,263 )     (1,877 )
Net cash provided by operating activities   308,887       247,227  
       
Investing activities      
Proceeds from sale of property and equipment   95       214  
Proceeds from beneficial interest in securitization transactions   2,630       3,933  
Expenditures for property and equipment   (60,802 )     (47,601 )
Acquisition of business, net of cash acquired   (112,001 )     (65,440 )
Net cash used in investing activities   (170,078 )     (108,894 )
       
Financing activities      
Proceeds from short-term borrowings   73,340       53,965  
Proceeds from long-term borrowings   1,660       51,425  
Repayments of short-term borrowings   (59,518 )     (27,880 )
Repayments of long-term borrowings and finance lease obligations   (53,049 )     (101,827 )
Stock repurchases         (25,656 )
Payment of contingent consideration   (5,550 )      
Cash dividends paid to noncontrolling interest of subsidiary   (285 )     (314 )
Payment of debt issuance costs   (1,473 )     (1,702 )
Taxes paid related to equity awards   (6,438 )     (5,659 )
Proceeds from the exercise of stock options   9,395       5,614  
Net cash used in financing activities   (41,918 )     (52,034 )
       
Effect of exchange rate changes on cash and cash equivalents   1,510       (289 )
       
Net increase in cash and cash equivalents   98,401       86,010  
Cash and cash equivalents at beginning of period   224,482       138,472  
Cash and cash equivalents at end of period $ 322,883     $ 224,482  
       
Supplemental disclosure of cash flow information      
Cash paid during the period      
Interest $ 35,465     $ 41,007  
Income taxes   61,767       41,044  
       



Generac Holdings Inc.  
Segment Reporting and Product Class Information  
(U.S. Dollars in Thousands)  
(Unaudited)  
                   
    Net Sales  
    Three Months Ended December 31,   Year Ended December 31,  
Reportable Segments   2019     2018     2019     2018  
Domestic (1) $ 470,058   $ 436,339   $ 1,742,898   $ 1,566,520  
International (1)   120,874     127,065     461,438     456,944  
Total net sales $ 590,932   $ 563,404   $ 2,204,336   $ 2,023,464  
                   
Product Classes                
Residential products $ 322,490   $ 293,949   $ 1,143,723   $ 1,042,739  
Commercial & industrial products   217,137     223,151     871,595     820,270  
Other   51,305     46,304     189,018     160,455  
Total net sales $ 590,932   $ 563,404   $ 2,204,336   $ 2,023,464  
                   
    Adjusted EBITDA  
    Three Months Ended December 31,   Year Ended December 31,  
      2019     2018     2019     2018  
Domestic (1) $ 122,920   $ 116,343   $ 428,667   $ 388,495  
International (1)   6,228     9,724     25,448     36,057  
Total adjusted EBITDA (2) $ 129,148   $ 126,067   $ 454,115   $ 424,552  
                   
(1) In the fourth quarter of 2019, management determined that the Latin American export operations of the legacy Generac business (GPS LATAM) should have been included in the International reportable segment. Previously, GPS LATAM was reported in the Domestic segment, in amounts that were not material. To reflect this change, management has chosen to correct the net sales and adjusted EBITDA by segment as follows: For the first, second and third quarters ended in 2019, net sales of $2,705, $4,406, and $3,353, respectively, and adjusted EBITDA of $(253), $845, and $384, respectively, were moved from the Domestic segment to the International segment. For the first, second, third, and fourth quarters ended in 2018, net sales of $3,822, $5,907, $2,577, and $1,499, respectively, and adjusted EBITDA of $312, $815, $(94), and $(843), respectively, were moved from the Domestic segment to the International segment.  
                   
(2) See reconciliation of Adjusted EBITDA to Net income attributable to Generac Holdings Inc. on the following reconciliation schedule.  
                   



Generac Holdings, Inc.  
Reconciliation Schedules  
(U.S. Dollars in Thousands, Except Share and Per Share Data)  
(Unaudited)  
                       
Net income to Adjusted EBITDA reconciliation                
        Three Months Ended December 31,   Year Ended December 31,  
          2019       2018       2019       2018    
                       
Net income attributable to Generac Holdings Inc. $ 69,614     $ 75,575     $ 252,007     $ 238,257    
Net income attributable to noncontrolling interests   322       1,122       301       2,963    
Net income         69,936       76,697       252,308       241,220    
Interest expense       10,116       10,017       41,544       40,956    
Depreciation and amortization     17,926       12,284       60,767       47,408    
Provision for income taxes     13,423       19,986       67,299       69,856    
Non-cash write-down and other adjustments (1)   (433 )     10       240       3,532    
Non-cash share-based compensation expense (2)   5,217       4,653       16,694       14,563    
Loss on extinguishment of debt (3)   926             926       1,332    
Loss on pension settlement (4)     10,920             10,920       -    
Transaction costs and credit facility fees (5)   677       1,413       2,724       3,883    
Business optimization expenses (6)     763       202       1,572       952    
Other         (323 )     805       (879 )     850    
Adjusted EBITDA       129,148       126,067       454,115       424,552    
Adjusted EBITDA attributable to noncontrolling interests   1,243       2,126       4,965       7,759    
Adjusted EBITDA attributable to Generac Holdings Inc. $ 127,905     $ 123,941     $ 449,150     $ 416,793    
                       
(1) Includes gains/losses on disposals of assets, unrealized mark-to-market adjustments on commodity contracts, and certain foreign currency and purchase accounting 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 voluntary debt prepayments.  
                       
(4) Represents pre-tax settlement charges related to the termination of the Company’s domestic pension plan in the fourth quarter of 2019.  
                       
(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.  
                       
(6) Represents severance and other non-recurring restructuring charges related to the consolidation of certain of our facilities.  
                       
Net income to Adjusted net income reconciliation                
        Three Months Ended December 31,   Year Ended December 31,  
          2019       2018       2019       2018    
                       
Net income attributable to Generac Holdings Inc. $ 69,614     $ 75,575     $ 252,007     $ 238,257    
Net income attributable to noncontrolling interests   322       1,122       301       2,963    
Net income         69,936       76,697       252,308       241,220    
Provision for income taxes     13,423       19,986       67,299       69,856    
Income before provision for income taxes   83,359       96,683       319,607       311,076    
Amortization of intangible assets     8,645       5,320       28,644       22,112    
Amortization of deferred finance costs and original issue discount   1,115       1,195       4,712       4,749    
Loss on extinguishment of debt (3)   926             926       1,332    
Loss on pension settlement (4)     10,920             10,920       -    
Transaction costs and other purchase accounting adjustments (7)   (499 )     1,062       874       2,578    
Business optimization expenses (6)     763       202       1,572       952    
Adjusted net income before provision for income taxes   105,229       104,462       367,255       342,799    
Cash income tax expense (8)     (8,247 )     (15,355 )     (47,945 )     (47,064 )  
Adjusted net income       96,982       89,107       319,310       295,735    
Adjusted net income attributable to noncontrolling interests   530       1,031       1,488       3,522    
Adjusted net income attributable to Generac Holdings Inc. $ 96,452     $ 88,076     $ 317,822     $ 292,213    
                       
Adjusted net income attributable to Generac Holdings Inc. per                
  common share - diluted:   $ 1.53     $ 1.42     $ 5.06     $ 4.70    
Weighted average common shares outstanding - diluted:   63,219,078       62,201,066       62,865,446       62,233,225    
                       
(7) 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.  
                       
(8) Amount for the three months and year ended December 31, 2019 is based on an anticipated cash income tax rate of 15% for the full year ended 2019. Amount for the three months and year ended December 31, 2018 is based on an anticipated cash income tax rate of 15% for the full year ended 2018. Cash income tax expense for the respective periods is based on the projected taxable income and corresponding cash tax rate for the full year after considering the effects of current and deferred income tax items, and is calculated for each respective period by applying the derived cash tax rate to the period’s pretax income.  
                       
Free Cash Flow Reconciliation                  
        Three Months Ended December 31,   Year Ended December 31,  
          2019       2018       2019       2018    
                       
Net cash provided by operating activities $ 175,085     $ 108,229     $ 308,887     $ 247,227    
Proceeds from beneficial interests in securitization transactions   594       1,108       2,630       3,933    
Expenditures for property and equipment   (15,355 )     (22,024 )     (60,802 )     (47,601 )  
Free cash flow     $ 160,324     $ 87,313     $ 250,715     $ 203,559    
                       
GAAP Earnings Per Share                  
        Three Months Ended December 31,   Year Ended December 31,  
          2019       2018       2019       2018    
Numerator                      
Net income attributable to Generac Holdings Inc. $ 69,614     $ 75,575     $ 252,007     $ 238,257    
Redeemable noncontrolling interest redemption value adjustment   1,054       (1,088 )     1,253       (17,970 )  
Net income attributable to common shareholders $ 70,668     $ 74,487     $ 253,260     $ 220,287    
                       
Denominator                    
Weighted average shares, basic     62,056,624       61,669,467       61,926,986       61,662,031    
Dilutive effect of stock compensation awards   1,162,454       531,599       938,460       571,194    
Diluted shares       63,219,078       62,201,066       62,865,446       62,233,225    
                       
Net income attributable to common shareholders per share                
Basic       $ 1.14     $ 1.21     $ 4.09     $ 3.57    
Diluted       $ 1.12     $ 1.20     $ 4.03     $ 3.54    


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Source: Generac Holdings Inc