Generac Reports Fourth Quarter and Full-Year 2013 Record Revenues

Diversified growth drives strong increase in revenue and earnings as compared to a very strong prior-year quarter and full year

WAUKESHA, Wis., Feb 13, 2014 -- Generac Holdings Inc., a leading designer and manufacturer of power generation equipment and other engine powered products, today reported financial results for its fourth quarter and year ended December 31, 2013. Additionally, the Company initiated its outlook for 2014.

Fourth Quarter 2013 Highlights

Full-Year 2013 Highlights

“2013 was another great year for Generac that helped drive a third consecutive year of record revenues with a compounded annual growth rate of 36% since implementing our Powering Ahead strategy three years ago,” said Aaron Jagdfeld, President and Chief Executive Officer. “Once again we experienced strong growth across all regions of the United States, as home standby generators further gain in popularity and the Generac brand is increasingly recognized as the leading name in backup power.

The secular penetration themes that drive our business continue to play out for our residential and C&I products as we made significant progress on several initiatives to extend awareness for standby generators, leading to further growth. In addition to our organic growth, we executed on three important acquisitions that provide additional product breadth and global scale to our C&I business and improved balance to the overall company.”

Additional Fourth Quarter 2013 Highlights

Residential product sales for the fourth quarter of 2013 were $199.1 million as compared to $216.0 million for the comparable period in 2012. Shipments of home standby generators experienced strong growth over the prior-year quarter as we continue to expand our leading position for these products through our innovative approach to the market.

The strength in home standby generators, however, was more than offset by a meaningful decline in shipments of portable generators due to less severe power outage events in the fourth quarter of 2013 relative to prior year, which included Superstorm Sandy.

C&I product sales for the fourth quarter of 2013 increased 42.7% to $157.9 million from $110.6 million for the comparable period in 2012. The increase was driven by the acquisitions of Ottomotores, Tower Light and Baldor Generators along with strong organic growth for stationary and mobile generators.

The strength in organic revenues was primarily driven by a significant increase in shipments to national account customers and increased sales of natural gas generators used in light commercial and retail applications.

Gross profit margin for the fourth quarter of 2013 was 38.7% compared to 36.9% in the prior-year fourth quarter. Gross margin improved over the prior year due to the combination of an improved product mix and a reduction in product costs due to a moderation in commodity costs and continued execution of cost reduction initiatives. These margin improvements were partially offset by the mix impact from the Ottomotores and Baldor acquisitions.

Operating expenses for the fourth quarter of 2013 declined $3.9 million, or 6.7%, as compared to the fourth quarter of 2012. The expense reduction was driven primarily by warranty rate improvements resulting in a favorable adjustment to warranty reserves of $5.3 million during the current year quarter, as well as a decline in the amortization of intangibles. These reductions were partially offset by the addition of operating expenses associated with the acquisitions of Ottomotores, Tower Light and Baldor Generators.

Interest expense in the fourth quarter of 2013 declined to $12.0 million compared to $16.6 million in the same period last year. The decline was primarily the result of a reduction in interest rate from the current-year credit agreement refinancing completed in May 2013.

2014 Outlook

The Company is initiating guidance for 2014 with revenue expected to grow over a very strong 2013. For the full-year 2014, the Company currently expects net sales to increase in the mid-single digit range as compared to the prior year. This top-line guidance assumes no material changes in the current macroeconomic environment, no major power outage events during 2014, and no benefit from additional acquisitions.

Gross margins are expected to decline by approximately 100 basis points during 2014 as compared to the prior year primarily as a result of a higher mix of C&I product shipments, including the impact of the addition of Baldor Generators.

Operating expenses as a percentage of net sales, excluding amortization of intangibles, are expected to increase approximately 100 basis points as compared to 2013, primarily as a result of favorable adjustments to warranty reserves in 2013 that are not expected to repeat in 2014.

Adjusted EBITDA margins are expected to remain attractive in the mid-20% range, which is consistent with the average level seen during the past four years.

We expect free cash flow generation to remain strong in 2014 due to our superior margin profile, low-cost of debt, favorable tax attributes and our capital-efficient operating model.

“We believe our 2013 financial results are further proof that our strategy is working,” continued Mr. Jagdfeld. “Heading into 2014, our team remains focused on the substantial penetration opportunity that exists for residential and light commercial standby generators, as well as increasing our share of the C&I market through our recently expanded product offering and our continued focus on natural gas generators. 

In addition, we expect to benefit from being a more balanced and globally-focused company as we continue to execute on our diversification and international expansion strategies, both organically and through acquisitions.”

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.