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Generac Reports Fourth Quarter and Full-Year 2010 Results

Top-line growth and strong cash flow generation allow company to deliver significant debt pre-payment in fourth quarter

 

 

WAUKESHA, WISCONSIN, (February 18, 2011) - Generac Holdings Inc. (NYSE: GNRC), a leading designer and manufacturer of backup power generation products, today reported financial results for its fourth quarter and full year ended December 31, 2010.

 

Fourth Quarter 2010 Highlights

 

  • Net sales increased year-over-year by 4.6% to $161.0 million as compared to $154.0 million in the fourth quarter of 2009.
  • Cash flow remained strong as net cash provided by operating activities increased 6.4% to $31.4 million as compared to $29.5 million for the fourth quarter 2009.
  • Net income increased year-over-year by 55.8% to $18.6 million as compared to $11.9 million for the fourth quarter of 2009; Adjusted net income increased 27.2% to $33.0 million from $25.9 million in the fourth quarter of 2009.
  • Diluted net income per common share was $0.28 per share; Adjusted diluted net income per common share was $0.49 per share.
  • Debt pre-payment of $74.2 million during the fourth quarter 2010.

 

Full-Year 2010 Highlights

 

  • Net sales increased year-over-year by 0.8% to $592.9 million as compared to $588.2 million in fiscal 2009.
  • Net cash provided by operating activities totaled $114.5 million for the full year 2010 compared to $74.6 million in the prior year, a 53.4% increase.
  • Net income increased year-over-year by 32.2% to $56.9 million as compared to $43.1 million for the year ending 2009; Adjusted net income increased 38.6% to $115.9 million from $83.6 million for the year ending 2009.
  • Total debt reduction of $434.3 million for the full year 2010, representing a 39.8% reduction from December 31, 2009.

 

"I am very proud of our accomplishments in 2010 which enabled us to deliver net sales growth for the third consecutive year, generate strong cash flows, and position the Company for growth moving forward," said Aaron Jagdfeld, President and Chief Executive Officer of Generac. "Despite certain headwinds, sales of our residential generators proved resilient throughout the year and we built a strong foundation for the future through the introduction of new products and the addition of new distribution outlets. Sales of our commercial and industrial products rebounded nicely this year and delivered solid double-digit year-over-year growth in the second half of 2010. Throughout the year, we continued to invest in our business by making strong commitments to research and development and through the addition of several key hires in our sales, marketing and service functions. These investments will allow us to maintain our position as the innovation leader in the standby generator market and support our strategic growth initiatives. Our attractive cash flows and stronger balance sheet will provide us the flexibility to drive our business in 2011 and beyond."

 

Residential product sales of $99.9 million for the fourth quarter of 2010 were down 1.7% on a year-over-year basis due to certain retail customers approaching their inventory levels more conservatively compared to the fourth quarter of 2009. This trend was partially offset by an increase in seasonal stocking by certain other distribution partners. For the full fiscal year 2010, residential product sales of $372.8 million increased 0.6% from $370.7 million in the prior year, driven by the continued expansion of the Company's residential products distribution network, successful new product launches, and a continued increase in the awareness of the product category, all of which were offset by continued weakness in U.S. residential investment.

 

Commercial and industrial product sales for the fourth quarter of 2010 increased 16.9% to $52.4 million from $44.8 million for the comparable period in 2009, driven by our expanded distribution network for these products and renewed growth in several key end markets, with health care, telecom, and data center applications showing the greatest improvement. For the full year 2010, commercial and industrial product sales were down 2.0%, but displayed strong momentum in the second half as end markets began to recover.

 

Fourth quarter 2010 gross profit margin decreased to 39.6% from 41.3% in the same period last year, which was primarily attributable to increased commodity and material costs. Gross margin for the full year was 40.0%, which was consistent with 2009 gross margin.

 

Operating expenses for the fourth quarter of 2010 were $37.6 million compared to $34.3 million in the same period last year. For the full year 2010, operating expenses were $147.1 million compared to $137.3 million in 2009. Of this increase, $6.4 million was related to non-cash stock compensation expense to account for the time based vesting of equity awards issued in conjunction with our initial public offering. The remaining quarterly and full year operating expense increases were primarily driven by incremental engineering and product development investments and increased administrative costs associated with operating as a public company.

 

Adjusted EBITDA of $42.7 million in the fourth quarter 2010 decreased from $44.1 million in the same period last year. For the full year 2010, Adjusted EBITDA decreased to $156.2 million, compared to $159.1 million in 2009, as modest sales growth and consistent gross margins were more than offset by increased investment in the business. Adjusted EBITDA margins remained strong in fiscal 2010 at 26.4%.

 

Interest expense decreased in the fourth quarter of 2010 to $6.6 million, compared to $17.2 million in the same period last year, contributing to our strong net income growth. For the full year 2010, interest expense was $27.4 million compared to $70.9 million in 2009, due to debt repayments, lower LIBOR rates, and the termination of certain interest rate swap agreements.

 

Free cash flow, defined as net cash provided by operating activities less capital expenditures, was $26.1 million in the fourth quarter of 2010, a 6.5% decrease over the same period last year as we increased working capital and capital expenditure investment during the current year quarter. For the full year 2010, free cash flow increased by 49.6% to $104.9 million compared to $70.1 million in 2009. In the fourth quarter of 2010, the Company used $74.2 million of its cash flow to make a voluntary debt pre-payment on its first lien credit facility. Following this debt pre-payment, at December 31, 2010, the Company had $657.2 million of debt outstanding with $78.6 million of cash on hand.

 

 

OUTLOOK

 

Mr. Jagdfeld concluded, "Our long-term growth strategy, which we refer to as "Powering Ahead", includes four key objectives of growing the residential standby generator market, gaining industrial market share, expanding our product offering to diversify our end markets, and expanding into new geographies. We have identified and started to implement initiatives to support each of these strategic objectives, and over the next several years, we believe we will make substantial progress towards achieving our long-term growth goals."

 

"In 2011, while we do not expect a near-term recovery in U.S. residential investment and we are not forecasting any major outage events, we do expect growth from our residential products through additional new product introductions and increased domestic and international distribution. For our commercial and industrial products, we anticipate continued strength in 2011 led by increasing demand across certain end markets, improving market share and expanding distribution into new geographies. We are anticipating higher input costs in 2011 as a result of rising commodity prices and continued weakness in the US dollar.  We intend to offset these higher costs with selective price increases and continued focus on cost reduction. As a result, we remain optimistic that we can deliver moderate sales growth overall in 2011 while maintaining attractive gross margins and continuing to invest prudently in our operating infrastructure to support our long-term strategic growth plans."

 

 

Conference Call and Webcast

 

Generac management will hold a conference call at 9:00am EST on Friday, February 18, 2011 to discuss highlights of this earnings release. The conference call can be accessed by dialing (866) 383-8003 (domestic) or +1 (617) 597-5330 (international) and entering passcode 82911389.

 

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 will be made available on the Company's website prior to the start of the call.

 

The webcast is also being distributed through the Thomson Reuters StreetEvents Network. Individual investors can listen to the call at http://www.earnings.com, Thomson Reuters' individual investor portal, powered by StreetEvents. Institutional investors can access the call via StreetEvents (http://www.streetevents.com), a password-protected event management site.

 

Following the live webcast, a replay will be available on the Company's web site. A telephonic replay will also be available three hours after the call and can be accessed by dialing (888) 286-8010 (domestic) or +1 (617) 801-6888 (international) and entering passcode 80572047. 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 backup power generation products serving residential, light commercial and industrial markets. Generac's power systems range in output from 800 watts to 9 megawatts and are available through a broad network of independent dealers, retailers and wholesalers.

 

 

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," "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 of major power outages;
  • availability of quality raw materials and key components used in producing Generac products;
  • 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;
  • Generac's ability to adjust to operating as a public company;
  • loss of key management and employees;
  • increase in 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 Securities and Exchange Commission, or 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

 

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 taken during the periods presented. The computation of Adjusted EBITDA is based on the definition of EBITDA contained in Generac's credit agreement, dated as of November 10, 2006.

 

 

Adjusted Net Income

 

To further supplement Generac's condensed consolidated financial statements presented in accordance with US GAAP, the Company provides a summary to show the computation of Adjusted net income. Adjusted net income is defined as Net income before provision (benefit) for income taxes adjusted for the following items: cash income tax (expense) benefit, amortization of intangible assets, amortization of deferred loan costs related to the Company's debt, intangible impairment charges, and certain non-cash gains.

 

 

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 Operations  
(Dollars in Thousands, Except Share and Per Share Data)  
                         
                         
                         
    Three Months Ended December 31,     Year Ended December 31,  
    2010     2009     2010     2009  
    (Unaudited)     (Unaudited)     (Unaudited)     (Audited)  
                         
Net sales   $ 161,041     $ 153,964     $ 592,880     $ 588,248  
Costs of goods sold     97,209       90,320       355,523       352,398  
Gross profit     63,832       63,644       237,357       235,850  
                                 
Operating expenses:                                
Selling and service     14,538       14,960       57,954       59,823  
Research and development     3,916       3,090       14,700       10,842  
General and administrative     6,107       3,175       22,599       14,713  
Amortization of intangibles     13,063       13,097       51,808       51,960  
Total operating expenses     37,624       34,322       147,061       137,338  
Income from operations     26,208       29,322       90,296       98,512  
                                 
Other (expense) income:                                
Interest expense     (6,645 )     (17,210 )     (27,397 )     (70,862 )
Investment income     63       116       235       2,205  
Gain on extinguishment of debt     -       -       -       14,745  
Write-off of deferred financing costs related to debt extinguishment     (629 )     -       (4,809 )     -  
Other, net     (314 )     (265 )     (1,105 )     (1,206 )
Total other expense, net     (7,525 )     (17,359 )     (33,076 )     (55,118 )
                                 
Income before provision for income taxes     18,683       11,963       57,220       43,394  
Provision for income taxes     70       15       307       339  
Net income     18,613       11,948       56,913       43,055  
                                 
Preferential distribution to:                                
   Series A preferred stockholders     -       (4,330 )     (2,042 )     (14,151 )
   Class B common stockholders     -       (25,983 )     (12,133 )     (100,191 )
Beneficial conversion - see note (1)     -       -       (140,690 )     -  
 

Net income (loss) attributable to common stockholders (formerly Class A common stockholders)
  $ 18,613     $ (18,365 )   $ (97,952 )   $ (71,287 )
                                 
Net income (loss) per common share - basic (2):                                
   Common stock (formerly Class A common stock)   $ 0.28     $ (10,616 )   $ (1.65 )   $ (41,111 )
   Class B common stock     n/a     $ 1,082     $ 4,497     $ 4,171  
                                 
Net income (loss) per common share - diluted (2):                                
   Common stock (formerly Class A common stock)   $ 0.28     $ (10,616 )   $ (1.65 )   $ (41,111 )
   Class B common stock     n/a     $ 1,082     $ 4,497     $ 4,171  
                                 
Weighted average common shares outstanding - basic (2):                          
   Common stock (formerly Class A common stock)     67,094,441       1,730       59,364,958       1,734  
   Class B common stock     n/a       24,018       2,698       24,018  
                                 
Weighted average common shares outstanding - diluted (2):                          
   Common stock (formerly Class A common stock)     67,275,465       1,730       59,364,958       1,734  
   Class B common stock     n/a       24,018       2,698       24,018  
                                 
                                 
(1) Beneficial conversion feature related to Class B common stock and Series A preferred stock was reflected during the first quarter 2010 as a result of Generac's corporate reorganization and IPO. See discussion of Generac's equity structure and corporate reorganization in the 2009 Annual Report on Form 10-K for the fiscal year ended December 31, 2009.  
                                 
(2) 2010 Net income (loss) per common share and weighted average common shares outstanding reflect the corporate reorganization and IPO that occurred on February 10, 2010. The share structure prior to February 10, 2010 has been retroactively restated to only reflect the reverse stock split that occurred with the corporate reorganization.  

 

 

Generac Holdings Inc.  
Condensed Consolidated Balance Sheets  
(Dollars in Thousands, Except Share and Per Share Data)  
             
             
    December 31,  
    2010     2009  
    (Unaudited)     (Audited)  
Assets            
Current assets:            
Cash and cash equivalents   $ 78,583     $ 161,307  
Accounts and notes receivable, less allowance for doubtful accounts of $723 in 2010 and $1,981 in 2009     63,154       54,130  
Inventories     127,137       123,700  
Prepaid expenses and other assets     3,645       5,880  
Total current assets     272,519       345,017  
                 
Property and equipment, net     75,287       73,374  
                 
Customer lists, net     96,944       134,674  
Patents, net     84,933       92,753  
Other intangible assets, net     6,483       7,791  
Deferred financing costs, net     5,822       13,070  
Trade names     140,050       144,407  
Goodwill     527,148       525,875  
Other assets     697       282  
Total assets   $ 1,209,883     $ 1,337,243  
                 
Liabilities and stockholders' equity                
Current liabilities:                
Accounts payable   $ 41,809     $ 33,639  
Accrued wages and employee benefits     6,833       6,930  
Other accrued liabilities     38,043       52,326  
Current portion of long-term debt     -       39,076  
Total current liabilities     86,685       131,971  
                 
Long-term debt     657,229       1,052,463  
Other long-term liabilities     24,902       17,418  
Total liabilities     768,816       1,201,852  
                 
Class B convertible voting common stock, par value $0.01, 110,000 shares authorized, 0 and 24,018 shares issued at December 31, 2010 and 2009, respectively     -       765,096  
Series A convertible non-voting preferred stock, par value $0.01, 30,000 shares authorized, 0 and 11,311 shares issued at December 31, 2010 and 2009, respectively     -       113,109  
                 
Stockholders' equity (deficit):                
Common stock (formerly Class A common stock), par value $0.01, 500,000,000 shares authorized, 67,524,596 and 1,617 shares issued at December 31, 2010 and 2009, respectively     675       -  
Additional paid-in capital     1,133,918       2,394  
Excess purchase price over predecessor basis     (202,116 )     (202,116 )
Accumulated deficit     (481,658 )     (538,571 )
Accumulated other comprehensive loss     (9,752 )     (4,492 )
Stockholder notes receivable     -       (29 )
Total stockholders' equity (deficit)     441,067       (742,814 )
                 
Total liabilities and stockholders' equity   $ 1,209,883     $ 1,337,243  

 

 

Generac Holdings Inc.  
Condensed Consolidated Statements of Cash Flows  
(Dollars in Thousands)  
             
             
    Year Ended December 31,  
    2010     2009  
    (Unaudited)     (Audited)  
Operating activities            
Net income   $ 56,913     $ 43,055  
Adjustment to reconcile net income to net cash provided by operating activities:                
   Depreciation     7,632       7,715  
   Amortization     51,808       51,960  
   Gain on extinguishment of debt     -       (14,745 )
   Write-off of deferred financing costs related to debt extinguishment     4,809       -  
   Amortization of deferred finance costs     2,439       3,417  
   Amortization of unrealized loss on interest rate swaps     -       24,222  
   Provision for losses on accounts receivable     (124 )     227  
   Loss on disposal of property and equipment     56       41  
   Share-based compensation expense     6,363       38  
   Net changes in operating assets and liabilities:                
      Accounts receivable     (8,621 )     11,779  
      Inventories     (3,151 )     280  
      Other assets     1,177       (1,739 )
      Accounts payable     7,896       (20,886 )
      Accrued wages and employee benefits     (197 )     1,280  
      Other accrued liabilities     (12,519 )     (32,037 )
Net cash provided by operating activities     114,481       74,607  
                 
Investing activities                
Proceeds from sale of property and equipment     76       69  
Expenditures for property and equipment     (9,631 )     (4,525 )
Collections on receivable notes     -       105  
Acquisition of business, net of cash acquired     (1,649 )     -  
Net cash used in investing activities     (11,204 )     (4,351 )
                 
Financing activities                
Stockholders' contributions of capital -  Series A preferred stock     -       20,000  
Payment of expenses incurred in advance of stock issuance     -       (678 )
Proceeds from issuance of common stock     248,309       -  
Payment of short-term and long-term debt     (434,310 )     (9,500 )
Net cash (used in) provided by financing activities     (186,001 )     9,822  
                 
Net (decrease) increase in cash and cash equivalents     (82,724 )     80,078  
Cash and cash equivalents at beginning of period     161,307       81,229  
Cash and cash equivalents at end of period   $ 78,583     $ 161,307  

 

 

Generac Holdings Inc.  
Reconciliation Schedules  
(Dollars in Thousands, Except Share and Per Share Data)  
                         
Net income to Adjusted EBITDA                        
reconciliation

 
  Three months ended December 31,   Year Ended December 31,  
    2010     2009     2010     2009  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
                         
Net income   $ 18,613     $ 11,948     $ 56,913     $ 43,055  
Interest expense     6,645       17,210       27,397       70,862  
Depreciation and amortization     14,918       14,994       59,440       59,675  
Income taxes provision     70       15       307       339  
Non-cash impairment and other charges (1)     (144 )     (203 )     (361 )     (1,592 )
Non-cash share-based compensation expense (2)     1,728       -       6,363       -  
Write-off of deferred financing costs related to debt extinguishment     629       -       4,809       -  
Transaction costs and credit facility fees     169       20       1,019       1,188  
Non-cash gains (3)     -       -       -       (14,745 )
Other     118       97       362       305  
 

Adjusted EBITDA
  $ 42,746     $ 44,081     $ 156,249     $ 159,087  
                                 
(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 issued in connection with Generac's initial public offering over their respective vesting periods.  
(3) Includes gains on extinguishment of debt.
  
                 

 

Net income to Adjusted net income                        
reconciliation

 
  Three months ended December 31,     Year Ended December 31,  
    2010     2009     2010     2009  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
                         
Net income   $ 18,613     $ 11,948     $ 56,913     $ 43,055  
Provision for income taxes     70       15       307       339  
Income before provision for income taxes     18,683       11,963       57,220       43,394  
Amortization of intangible assets     13,063       13,097       51,808       51,960  
Amortization of deferred loan costs     569       855       2,439       3,417  
Write-off of deferred financing costs related to debt extinguishment     629       -       4,809       -  
Gain on extinguishment of debt     -       -       -       (14,745 )
Adjusted net income before provision for income taxes     32,944       25,915       116,276       84,026  
Cash income tax expense     (9 )     6       (404 )     (383 )
 

Adjusted net income
  $ 32,935     $ 25,921     $ 115,872     $ 83,643  
                                 
Adjusted net income per common share - diluted (4):   $ 0.49       n/m       n/m       n/m  
                                 
Weighted average common shares outstanding - diluted (4):     67,275,465       n/m       n/m       n/m  
                                 
(4) pre-IPO share and per share data is not meaningful due to the corporate reorganization which occurred in conjunction with the IPO during the first quarter of 2010.

 
 

 

Free Cash Flow Reconciliation                        
    Three months ended December 31,     Year Ended December 31,  
    2010     2009     2010     2009  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
                         
Net cash provided by operating activities   $ 31,360     $ 29,476     $ 114,481     $ 74,607  
Expenditures for property and equipment     (5,307 )     (1,623 )     (9,631 )     (4,525 )
 

Free Cash Flow
  $ 26,053     $ 27,853     $ 104,850     $ 70,082  

 

 

SOURCE: Generac Holdings Inc.

 

For Investor Inquiries:
Generac Holdings Inc.
York Ragen
Chief Financial Officer
262-506-6064

 

 

HUG#1490336