Generac Reports Strong 1st Quarter 2012 Results

Significant organic revenue growth and Magnum Products acquisition drive substantial increase in earnings and cash flow - Outlook raised for full-year 2012 - Company announces proposed special cash dividend to shareholders

WAUKESHA, Wis., May 8 -- Generac Holdings Inc., a leading designer and manufacturer of generators and other engine powered products, today reported financial results for its first quarter ended March 31, 2012.

HIGHLIGHTS

• Net sales increased year-over-year by 137.6% to $294.6 million as compared to $124.0 million in the first quarter of 2011.
• Residential product sales increased 153.1% compared to the first quarter of 2011. 
• Commercial & Industrial (C&I) product sales increased 137.0% compared to the prior year first quarter.
• Net sales over the trailing four quarters were $962.6 million and on a pro-forma basis, when including the results for Magnum Products for the entire period, net sales were $1.038 billion.
• Net income increased year-over-year to $30.1 million as compared to $4.8 million for the first quarter of 2011. Adjusted net income increased to $66.1 million from $17.1 million in the first quarter of 2011.
• Diluted net income per common share was $0.44 as compared to $0.07 per share in the first quarter of 2011. Adjusted diluted net income per common share was $0.96 as compared to $0.25 per share in the first quarter of 2011.
• Adjusted EBITDA increased to $75.8 million as compared to $27.5 million in the first quarter last year.
• Cash flow from operations in the first quarter of 2012 was $38.6 million as compared to $12.7 million in the prior year quarter. Free cash flow was $36.4 million as compared to $11.1 million in the first quarter of 2011.
• For the trailing four quarters, net income was $349.9 million; adjusted EBITDA, pro-forma for Magnum Products was $245.9 million; cash flow from operations was $195.6 million; and free cash flow was $183.0 million, which represents 93% of the adjusted net income reported during that time period.

"Our first quarter results demonstrate the significant earnings power and strong free cash flow generation of Generac's business model. With the hard work of our employees and our flexible operations, we were able to quickly meet the increased demand for our products following the major outage events that took place in the second half of 2011," said Aaron Jagdfeld, President and Chief Executive Officer.

"Shipments of home standby generators were again robust during the first quarter, and we continue to gain share in portable generators, further solidifying our leadership position in these markets. Additionally, the Magnum acquisition outperformed our expectations again this quarter as demand for mobile equipment remained strong in the rental markets.

The significant growth that we delivered in the first quarter was a result of solid execution and further illustrates the powerful fundamentals that drive our business."

ADDITIONAL HIGHLIGHTS

Residential product sales for the first quarter of 2012 increased 153.1% to $175.1 million from $69.2 million for the comparable period in 2011. The substantial growth was primarily driven by strong demand for home standby generators resulting from the increased awareness following multiple major outage events in 2011, as well as improved lead times for these products due to increased production levels during the quarter.

Also contributing to the revenue growth were the continued expansion of the Company's distribution network, strong double-digit growth in portable generator shipments and increased revenue from the power washer product line, which was introduced in the first quarter of 2011.

C&I product sales for the first quarter of 2012 increased 137.0% to $105.0 million from $44.3 million for the comparable period in 2011. The increase in net sales was primarily driven by the Magnum Products acquisition and increased shipments into the telecom, healthcare and data center markets.

Additionally, our position as the largest producer of natural gas generators in North America has allowed us to benefit from the continuing shift in the market towards these products. C&I net sales during the first quarter also benefitted from the resolution of backlog related to a short-term gap in the supply of certain components sourced overseas.

Gross profit margin for the first quarter of 2012 was 37.7% compared to 36.8% in the fourth quarter of 2011 and 38.1% in the first quarter of 2011. The mix impact from the addition of Magnum Products sales reduced total company gross margins during the first quarter of 2012 as compared to the first quarter of last year.

This decline in gross margin was partially offset by a higher mix of home standby generators and lower mix of portable generators. In addition, the positive impact from price increases and improved overhead absorption was largely offset by higher commodity costs relative to the prior year.

Operating expenses for the first quarter of 2012 increased by $15.5 million or 43.0% as compared to the first quarter of 2011. These additional expenses were driven primarily by increased variable operating expenses on the substantial increase in organic sales, operating expenses associated with Magnum, increased sales, engineering and administrative infrastructure to support the strategic growth initiatives and higher baseline sales levels of the Company, and increased incentive compensation expenses as a result of the Company's financial performance during the quarter.

Free cash flow was $36.4 million in the first quarter of 2012 as compared to $11.1 million in the same period last year. Strong operating earnings were partially offset by increased working capital investment driven by the replenishment of inventory levels to support higher production rates and seasonal build requirements.

OUTLOOK

Primarily as a result of an increased full-year outlook for residential sales, the Company is revising upward its guidance for full-year 2012. Full-year 2012 total net sales are now expected to increase towards the high end of its previously disclosed mid-to-high teens rate as compared to 2011.

Specifically for the second quarter of 2012, net sales are forecasted to increase approximately 35-40% in comparison to the second quarter of 2011, which reflects the expectation of lead times for residential products returning to more normalized levels during the quarter.

This revised guidance continues to assume no material improvement in the macroeconomic environment and no comparable major outage events during the balance of 2012.

Despite the conservative macro assumptions included in our forecast, both residential and pro-forma C&I product sales during the second half of 2012 are expected to increase at a high-teens rate in comparison to the previous baseline level experienced in the second half of 2010, which is the most recent comparable period with no major outage events.

In accordance with our previously issued guidance, gross margins are expected to remain approximately flat during 2012 as compared to the prior year. In addition, consolidated operating expenses as a percentage of net sales, excluding amortization of intangibles, are also expected to remain slightly higher as compared to 2011, as the Company continues to invest in its infrastructure to support strategic growth initiatives and an overall higher level of baseline sales.

As a result of this revised outlook, Adjusted EBITDA for the full-year 2012 is expected to increase in the mid-teens range compared to 2011, while second quarter 2012 Adjusted EBITDA is expected to increase in the mid-20% range over the comparable prior year period.

PROPOSED SPECIAL CASH DIVIDEND TO SHAREHOLDERS

In addition to the upwardly revised outlook for full-year 2012, the Company is announcing its plan to execute a recapitalization in which it intends to incur, subject to market and other conditions, approximately $650 million of additional debt to fund in large part a special cash dividend of up to $10 per share on its outstanding common stock. As part of this transaction, the Company expects to enter into new debt financing in the aggregate amount of approximately $1.2 billion, which is expected to be comprised of approximately $800 million of senior secured financing and the remainder in senior unsecured financing, the proceeds of which will be used to pay the special cash dividend and refinance the Company's existing credit facilities.

In addition, the Company anticipates its current $150 million unfunded revolver will be replaced with a similar sized asset-backed revolver. The declaration of the special cash dividend will not occur unless new debt financing is obtained under acceptable terms. The Company expects its Board of Directors to declare and the Company to pay the special cash dividend before the end of the second quarter of 2012.

Mr. Jagdfeld continued, "Our ability to return significant capital to shareholders through a special cash dividend is directly attributable to our strong free cash flow and demonstrated track record of paying down debt. We believe a special cash dividend is an effective way for our shareholders to realize the value of our cash flows. We are confident this new capital structure will allow us to further invest in future organic growth initiatives and will provide the flexibility for potential acquisitions in the future."

"As we execute on our Powering Ahead strategic plan, we are focused on growth initiatives that will continue to drive our baseline business higher while also building a company that is significantly more diverse with respect to the products we manufacture and the markets we serve," concluded Mr. Jagdfeld.

 "As we look further out, we continue to be excited about the long-term growth potential for Generac. Given the macro growth drivers for our end markets and the potential for future recovery in residential investment and non-residential construction, we believe our growth prospects are very compelling."

ABOUT GENERAC

Since 1959, Generac has been a leading designer and manufacturer of a wide range of generators 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 through a broad network of independent dealers, retailers, wholesalers and equipment rental companies. The Company markets and distributes its products primarily under its Generac and Magnum brand names.

Generac Reports Fourth Quarter and Full-Year 2011 Results

Continued strong demand for back-up power and Magnum Products acquisition drive growth

WAUKESHA, Wis.-- Feb. 14, 2012-- Generac Holdings Inc. a leading designer and manufacturer of generators and other engine powered products, today reported financial results for its fourth quarter and year ended December 31, 2011.

Fourth Quarter 2011 Highlights

    On an as-reported basis, net sales increased year-over-year by 66.0% to $267.3 million as compared to $161.0 million in the fourth quarter of 2010.
 
·         Residential product sales increased 67.6% compared to the fourth quarter of 2010.
 
·         On an as-reported basis, Commercial & Industrial (C&I) product sales increased 63.3% compared to the prior year, driven predominantly by the Magnum acquisition.
 
·         The fourth quarter of 2011 includes $38.8 million of net sales from Magnum Products, which was acquired on October 3, 2011.
 
·         Net income increased year-over-year to $267.1 million as compared to $18.6 million for the fourth quarter of 2010. Current year net income includes a net $238.0 million income tax benefit largely as a result of the reversal of the full valuation allowance on net deferred tax assets and a $9.4 million pre-tax write down of a certain trade name as we strategically transition to the Generac brand. Adjusted net income increased 57.3% to $51.8 million from $32.9 million in the fourth quarter of 2010.
·         Adjusted EBITDA increased 44.6% to $61.8 million as compared to $42.7 million in the same period last year.
 
·         Diluted net income per common share was $3.91 as compared to $0.28 per share in the fourth quarter of 2010. Diluted earnings per share for the fourth quarter of 2011 includes the net income tax benefit of $3.48 per share, which includes the reversal of the full valuation allowance on net deferred tax assets, and an $0.08 per share charge ($0.14 per share pre-tax) related to the trade name write down. Adjusted diluted net income per common share was $0.76 as compared to $0.49 per share in the fourth quarter of 2010.
 
·         The Company paid down $34.6 million of debt during the fourth quarter of 2011, reducing total debt outstanding as of December 31, 2011 to $597.9 million. On February 9, 2012, the Company closed on the refinancing of its credit facility into a new senior secured credit facility comprised of a $150 million unfunded Revolver, a $325 million Term Loan A and a $250 million Term Loan B. In conjunction with the refinancing, the Company paid down an additional $22.9 million of debt, resulting in total debt outstanding at the date of closing of $575.0 million.
 
Full-Year 2011 Highlights
 
·         On an as-reported basis, net sales increased year-over-year by 33.6% to $792.0 million as compared to $592.9 million in 2010. On a pro-forma basis when including the results for Magnum Products for the full year, net sales in 2011 would have been $897.9 million.
 
·         Residential product sales increased 31.7% compared to 2010.
 
·         On an as-reported basis, C&I product sales, which includes net sales from the Magnum Products acquisition, increased 36.3% compared to 2010. Excluding the impact of Magnum Products, C&I product sales increased 16.5% versus 2010 on an organic basis.
 
·         Net income increased year-over-year to $324.6 million as compared to $56.9 million in 2010. Net income for 2011 includes the impact of the tax and trade name related items noted above that were recorded in the fourth quarter of 2011. Adjusted net income increased 26.9% to $147.2 million vs. $116.0 million last year.
 
·         Adjusted EBITDA increased 20.6% to $188.5 million as compared to $156.2 million in 2010. On a pro-forma basis when including the results for Magnum Products for the full year, adjusted EBITDA in 2011 would have been $201.9 million.
 
“Generac achieved a number of important accomplishments during 2011, highlighted by a record level of revenue and strong profitability following the major power outage events that occurred across the country during the second half of the year,” said Aaron Jagdfeld, President and Chief Executive Officer. 

“Our significant investment during the past decade in new product development, scaling of operations and expanding distribution capabilities enabled us to respond rapidly to the major outage events this year, driving robust shipments of residential products during the third and fourth quarters of 2011. I am very proud of both our employees and our distribution partners for their ability to respond quickly to the significant increase in demand and meet our customers’ needs in a timely and efficient manner. We expect the impact of these events on our residential product demand to continue into 2012 as we take advantage of the increased awareness and distribution in the affected areas.”
 
“We also closed on the strategic and accretive acquisition of Magnum Products in the fourth quarter of 2011,” continued Mr. Jagdfeld. “We are very pleased with the initial progress of the acquisition as Magnum’s financial results have exceeded our initial expectations. Both companies share a lean operating culture and strong brand reputation. I am particularly excited about the potential for cross-selling opportunities as the combined company can now offer both Generac and Magnum products into their respective end markets. Our integration is proceeding on plan and we increasingly believe the acquisition will prove to be an attractive use of shareholder capital.”
 
Additional Fourth Quarter 2011 Highlights
 
Residential product sales for the fourth quarter of 2011 increased 67.6% to $167.5 million from $99.9 million for the comparable period in 2010, largely driven by demand created by the major power outages in the third and fourth quarters. The frequency and duration of these major outages in certain regions of the country led to a surge in demand for portable generators and increased awareness and accelerated adoption of home standby generators.
 
C&I product sales for the fourth quarter of 2011 increased 63.3% to $85.5 million from $52.4 million for the comparable period in 2010. Magnum Products contributed $36.5 million in C&I revenue during the fourth quarter, with the remainder of Magnum’s net sales consisting of parts revenue classified as Other Products sales. As anticipated, C&I net sales, excluding the impact of Magnum Products, were negatively impacted during the fourth quarter by the timing of certain larger shipments to national account customers in the third quarter of 2011, as well as a short-term gap in the supply of certain components sourced overseas.
 
Gross profit margin for the fourth quarter of 2011 was 36.8% compared to 37.0% in the third quarter of 2011 and 39.6% in the fourth quarter of 2010. The mix impact from the addition of Magnum Products sales reduced total company gross margins by 2.3% during the fourth quarter of 2011. Additionally, the decline in gross margin from prior year was also due to a higher sales mix of portable generators during the current year quarter.
 
Operating expenses for the fourth quarter of 2011 increased by $25.0 million or 66.4% as compared to the fourth quarter of 2010. Operating expenses for the fourth quarter of 2011 included the impact from Magnum Products and the $9.4 million pre-tax charge related to the trade name write down.
 
In addition, operating expenses in the fourth quarter of 2011 increased by $12.3 million or 32.7% as compared to the fourth quarter of 2010. These additional expenses were driven primarily by increased variable operating expenses on the 41.9% increase in organic sales, increased sales and engineering infrastructure to support the strategic growth initiatives of the company, and increased incentive compensation expenses as a result of the company’s financial performance during the quarter.
 
Interest expense in the fourth quarter of 2011 declined to $5.9 million, compared to $6.6 million in the same period last year. This decline was a result of nearly $134 million of debt pre-payments that were made over the last thirteen months.
 
In the fourth quarter of 2011, a net $238.0 million income tax benefit was recorded primarily as a result of the reversal of the full valuation allowance on the Company’s net deferred tax assets. As part of the normal assessment of the future realization of the net deferred tax assets, in accordance with Generally Accepted Accounting Principles, it was determined that a valuation allowance was no longer required as the Company emerged from a three-year cumulative loss position during the quarter.
 
Free cash flow was $73.1 million in the fourth quarter of 2011, which was up substantially from $26.1 million in the same period last year. Collections on the record shipments of residential products during the second half of 2011 helped to generate significant cash flow in the fourth quarter, which was partially offset by inventory replenishment.
 
Outlook
 
For the full-year 2012, the Company currently expects as-reported net sales to increase at a mid-to-high teens rate as compared to 2011. On a pro-forma basis when including the results for Magnum Products for the full year 2011, total net sales in 2012 are expected to increase in the mid-single digits compared to 2011, with residential sales increasing in the mid-to-high single-digit range and C&I sales increasing in the low single digit range. This assumes no material improvement in the macroeconomic environment and no comparable outage events during 2012. Given the strong revenue growth experienced during the second half of 2011 from major outage events, year-over-year revenue growth in 2012 is expected to be heavily weighted toward the first half of the year. If no major outage events occur in 2012, revenue comparisons for residential products in the second half of the year are expected to become more difficult, particularly for portable generator sales. If major outages do occur in 2012, net sales growth could be higher than these forecast assumptions.

On an as reported basis, gross margins are expected to be approximately flat during 2012 compared to the prior year. The unfavorable mix impact of adding Magnum Products is expected to be offset by a higher sales mix shift towards home standby generator shipments and lower mix of portable generators, along with the favorable impact from the realization of price increases, improved manufacturing overhead absorption, commodity cost moderation and cost reduction projects.

Consolidated operating expenses as a percentage of net sales, excluding amortization of intangibles, are expected to be slightly up compared to 2011, as the Company continues to invest in its infrastructure to support strategic growth initiatives and an overall higher level of baseline sales.

Given the Company’s prior Revolver and Term Loan were scheduled to mature in November 2012 and November 2013, respectively, the Company entered into a new senior secured credit facility on February 9, 2012. The new facility is comprised of a $150 million unfunded Revolver, a $325 million Term Loan A and $250 million Term Loan B. The Revolver and Term Loan A both have a five-year term, with interest payable on a leveraged-based pricing grid starting at LIBOR plus 2.25%. The Term Loan B matures in seven years and accrues interest at LIBOR plus 2.75%, with a LIBOR floor of 1.0%.

Mr. Jagdfeld concluded, “High profile outage events, such as the ones experienced during 2011, have historically resulted in a new and higher level of baseline demand for Generac’s products going forward. In addition to supporting the anticipated higher level of baseline business, we will continue to focus during 2012 on a number of strategic initiatives to grow the home standby generator market by improving the awareness, availability and affordability of these products.

We are also committed to growing Generac’s market share for C&I products through several strategic programs including upgrading our distribution capabilities, focusing on new product innovation and capitalizing on revenue synergies with Magnum.

Consistent with our Powering Ahead strategic plan, the Company will also focus on further diversifying our end markets through new product and service offerings in 2012, as well as increasing our distribution footprint by expanding into new geographies. With these initiatives underway, we believe that Generac is well positioned for growth in 2012 and beyond.”

Generac Reports Strong Third Quarter 2011 Results

WAUKESHA, Wis., Nov 01 -- Generac Holdings Inc., a leading designer and manufacturer of generators and other engine powered products, today reported financial results for its third quarter ended September 30, 2011.

Highlights - -- Total net sales increased year-over-year by 49.0% to $239.3 million as compared to $160.7 million in the third quarter of 2010. -- 60.5% year-over-year growth in Residential product sales.

-- Commercial & Industrial (C&I) product sales up 27.4% compared to prior year.

-- Net income increased year-over-year to $37.4 million as compared to $23.0 million for the third quarter of 2010; Adjusted net income increased 37.8% to $50.6 million from $36.7 million in the third quarter of 2010.

-- Diluted net income per common share was $0.55 per share as compared to $0.34 per share in the third quarter of 2010; Adjusted diluted net income per common share was $0.75 per share as compared to $0.55 per share in the third quarter of 2010.

-- Cash flow from operations in the third quarter 2011 increased 67.3% to $61.0 million as compared to $36.5 million in the prior year quarter.

-- On October 3, 2011, the Company acquired substantially all the assets and certain liabilities of Magnum Products, LLC, funded solely by cash on the balance sheet.

"The third quarter of 2011 was marked by a number of significant milestones for Generac," said Aaron Jagdfeld, President and Chief Executive Officer of Generac.

"We saw record shipments of our residential products following the major power outage events that occurred in the Midwest and along the East Coast during the third quarter. Our sustained efforts over the past three years to build a leading position in the market for portable generators resulted in a sharp increase in sales due to the increased demand for these products in the third quarter. We also saw increased demand for our home standby generators in the quarter and we expect that demand will grow over the next several quarters as homeowners look to protect themselves from future power outages."

"In addition to our record sales during the quarter, in early October we completed our acquisition of Magnum Products, a leading provider of light towers, mobile generators and pumps to the construction, energy and government markets. The Magnum Products business is an excellent strategic fit for Generac as it provides us an entry point into new adjacent power products, new customers and new end markets.

We have been disciplined with the use of our corporate cash having paid down nearly $100 million of debt over the last 12 months. In this acquisition, we saw an opportunity to use cash on our balance sheet to drive an even stronger return for our shareholders."

Residential product sales for the third quarter of 2011 increased 60.5% to $162.1 million from $101.0 million for the comparable period in 2010. Higher shipments of portable generators were the primary driver of this increase, as widespread power outages caused an immediate increase in the demand for back-up power. Following the outage events, sales of home standby generators also increased during the quarter.

Commercial & Industrial product sales for the third quarter of 2011 increased 27.4% to $63.1 million from $49.6 million for the comparable period in 2010.

This outperformance was predominantly driven by timing of larger shipments to certain national account customers given their capital spending requirements during the current year.

Gross profit margin for the third quarter of 2011 was 37.0% compared to 37.4% in the second quarter of 2011 and 41.9% in the same period last year. The majority of the gross margin decline from prior year was attributable to the significant shift in sales mix towards more portable generators in the current year quarter.

To a lesser extent, higher commodity costs versus the prior year also contributed to the year-over-year gross margin decline.

Operating expenses for the third quarter of 2011 increased by approximately $6.9 million or 18.3% as compared to the third quarter of 2010. This was primarily driven by increased variable operating expenses on the 49.0% year-over-year growth in sales, increased sales and engineering costs to support the strategic growth initiatives of the Company, and increased incentive compensation expenses as a result of the Company's financial performance during the quarter.

Adjusted EBITDA of $61.6 million in the third quarter 2011 increased from $45.7 million in the same period last year, resulting in a last-twelve-month's Adjusted EBITDA of $169.4 million.

Interest expense in the third quarter of 2011 declined to $5.9 million, compared to $6.5 million in the same period last year. This decline was a result of nearly $100 million of debt pre-payments that were made over the last 12 months.

Net cash provided by operating activities was $61.0 million in the third quarter of 2011, which was up from $36.5 million in the same period last year. Increased shipments helped to monetize inventory levels generating significant cash flow in the third quarter.

OUTLOOK

Mr. Jagdfeld continued, "Given the major outage events that occurred during the third quarter of 2011, we now expect that residential product sales in the fourth quarter will increase year-over-year by over 30%. We expect that higher residential sales will be primarily driven by increased shipments of home standby generators, as the demand for these products is expected to remain strong into fiscal 2012 in the regions impacted by recent outages.

With regards to C&I product sales, given the timing of certain larger shipments to national account customers in the third quarter of 2011, coupled with a short-term gap in certain Japanese component supply chain, we expect our C&I fourth quarter shipments to be roughly flat compared to the fourth quarter of 2010, excluding the impact of the Magnum Products acquisition."

Regarding the Magnum Products acquisition, Generac expects the transaction to be immediately accretive to earnings in the fourth quarter of 2011, with the opportunity for additional accretion thereafter as a result of anticipated cost synergies. Based on current projections, the acquisition should add approximately $25-$30 million in revenue and $0.03-$0.04 in adjusted diluted earnings per share in the fourth quarter of 2011, excluding certain purchase accounting adjustments.

Fourth quarter 2011 gross margins, excluding Magnum, are expected to sequentially improve from the third quarter due to a sales mix shift towards more home standby generator shipments and the realization of price increases, cost reductions, commodity cost moderation and improved manufacturing overhead absorption. The Company estimates that the inclusion of Magnum's results will reduce total Company gross margins by approximately 250 basis points during the fourth quarter given the current margin profile of the Magnum product line.

Gross margins for Magnum's products are expected to improve in 2012 as synergies are implemented during the year.

Mr. Jagdfeld concluded, "We are very pleased with our third quarter performance as our employees and distribution partners responded quickly to meet the strong demand for portable and home standby generators. With the relatively low penetration of home standby generators, we believe the events of the third quarter will create increased awareness and accelerate the adoption rate for these products.

Additionally, we have a number of initiatives in place through our Powering Ahead strategic plan that, together with our acquisition of Magnum, we believe will help us to gain industrial market share, diversify our end markets, and expand internationally. As a result of these efforts, we believe we are well positioned for 2012 and beyond."

About Generac Since 1959, Generac has been a leading designer and manufacturer of a wide range of generators 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 through a broad network of independent dealers, retailers, wholesalers and equipment rental companies. The company markets and distributes its products primarily under its Generac and Magnum brand names.