WAUKESHA, WISCONSIN, (February 18, 2011) - Generac Holdings Inc., 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."
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