Generac Reports Third Quarter 2013 Results

Strong organic revenue growth from commercial and industrial products and home standby generators drives continued growth in earnings

WAUKESHA, Wis. -- Oct. 24, 2013-- 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, 2013.

Third Quarter 2013 Highlights

Net sales increased year-over-year by 20.9% to $363.3 million as compared to $300.6 million in the third quarter of 2012.

Net income during the third quarter of 2013 was $47.1 million, or $0.67 per share, as compared to $25.5 million or $0.37 per share for the same period of 2012.

Adjusted net income, as defined in the accompanying reconciliation schedules, increased to $73.7 million from $54.1 million in the third quarter of 2012. Adjusted diluted net income per share was $1.06 as compared to $0.78 per share in the third quarter of 2012.

Adjusted EBITDA increased 31.2% to $100.1 million as compared to $76.3 million in the third quarter last year. Adjusted EBITDA margin during the third quarter improved to 27.5% as compared to 25.4% in the prior year primarily due to warranty rate improvements resulting in a favorable adjustment to warranty reserves.

Cash flow from operations in the third quarter of 2013 was $80.9 million as compared to $69.5 million in the prior year quarter. Free cash flow was $76.7 million as compared to $61.6 million in the third quarter of 2012.

For the trailing four quarters, including the third quarter of 2013, net sales were $1.452 billion; net income was $154.3 million; adjusted EBITDA was $382.1 million; cash flow from operations was $261.6 million; and free cash flow was $238.4 million.

On August 1, 2013, the Company closed on the previously announced acquisition of Tower Light Srl, a leading developer and supplier of mobile light towers throughout Europe, the Middle East and Africa.

Subsequent to the end of the quarter, the Company entered into a purchase agreement on October 7, 2013 to acquire substantially all of the assets of Baldor Electric Company’s generator division (“Baldor Generators”). Baldor Generators offers a complete line of generators ranging from 3kW to 2.5MW throughout North America.

“We experienced double-digit organic revenue growth again during the quarter as a result of increased spending from our national account customers and continued adoption of standby generators for both residential and commercial applications,” said Aaron Jagdfeld, President and Chief Executive Officer.

“We believe our expanded dealer base, targeted marketing efforts and continued roll-out of our PowerPlay® in-home sales process are having an impact on extending the awareness and distribution of standby generators, which is leading to a new and higher baseline level of demand for these products. In addition, over the last twelve months, we have announced several acquisitions that provide us with immediate access to new global markets and new products, helping to further grow and diversify our business.”

Additional Third Quarter 2013 Highlights

Residential product sales for the third quarter of 2013 increased to $192.7 million from $191.0 million for the comparable period in 2012. Shipments of home standby generators were higher sequentially and over the prior year due to a combination of factors including the additional awareness and adoption created by major power outages in recent years, the Company’s expanded distribution, increased sales and marketing initiatives, overall strong operational execution and a more favorable environment for residential investment.

The strength in home standby generators was partially offset by a decline in shipments of portable generators due to less severe power outage events in the current year quarter relative to prior year, although expanded placement for these products continued to lead to year-over-year market share gains. In addition, increased revenue from power washer products also contributed to the year-over-year sales growth in residential products.

Commercial and Industrial (CandI) product sales for the third quarter of 2013 increased 61.8% to $151.5 million from $93.6 million for the comparable period in 2012. Organic net sales increased at a strong double-digit rate during the current year quarter primarily driven by a significant increase in shipments to national account customers and increased sales of natural gas generators used in light commercial/retail applications. In addition, the Ottomotores acquisition, which closed in December 2012, and the Tower Light acquisition, which closed in August 2013, contributed to the year-over-year growth in CandI products.

Gross profit margin for the third quarter of 2013 was 38.4%, which was approximately flat as compared to the third quarter of 2012. Gross margin was affected by the mix impact from the addition of Ottomotores sales along with a higher mix of organic CandI product sales, mostly offset by the positive impact from a moderation in commodity costs and continued execution of cost-reduction initiatives.

Operating expenses for the third quarter of 2013 declined $4.5 million, or 8.0%, as compared to the third quarter of 2012. The expense reduction was driven primarily by warranty rate improvements resulting in a favorable adjustment to warranty reserves, as well as a decline in the amortization of intangibles. These reductions were partially offset by the addition of operating expenses associated with the Ottomotores and Tower Light businesses, and increased sales, engineering and administrative infrastructure to support the strategic growth initiatives and higher baseline sales levels of the Company.

Interest expense in the third quarter of 2013 declined to $12.5 million compared to $16.9 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.

Outlook

The Company is revising upward its sales guidance for full-year 2013 primarily due to continued strong demand for home standby generators, as well as a modest impact from the expected closing of the Baldor Generators acquisition in the fourth quarter of 2013.

Full-year 2013 net sales are now expected to increase in the low-to-mid 20% range over the prior year, which is an increase from the low-20% rate previously expected. This top-line guidance continues to assume no material changes in the current macroeconomic environment and no major power outage events for the remainder of 2013.

Gross margins for full-year 2013 are now expected to increase approximately 50 basis points as compared to the prior year, which is an improvement from the previous expectation of approximately flat as compared to the prior year.

Operating expenses as a percentage of net sales, excluding amortization of intangibles, are now expected to decline by approximately 75 to 100 basis points as compared to 2012, which is an improvement from the previous expectation of approximately flat as compared to the prior year.

As a result of the higher sales outlook and the improved gross margin and operating expense guidance, adjusted EBITDA for the full-year 2013 is now expected to increase in the low-30% range, which is an increase from the low-20% range previously expected.

“We remain excited about the compelling secular penetration opportunities for our products,” continued Mr. Jagdfeld. “These organic growth drivers are highlighted by the substantial opportunity to increase the penetration of standby generators in both the residential and light commercial markets, the significant opportunity to provide backup power for critical communications infrastructure, along with the overall ongoing shift in the market toward natural gas generators. At the same time, we continue to remain active on the acquisition front in recent months with the closing of the Tower Light transaction and the agreement to purchase Baldor Generators. These acquisitions are an integral part of our Powering Ahead strategic plan to become a more balanced company with improved global scale.”

Generac to Acquire Tower Light Business Based in Italy

Acquisition of leading light tower manufacturer positions Generac as a global leader in mobile power equipment and accelerates international expansion efforts

WAUKESHA, Wis. — July 25 -- Generac Holdings Inc., a leading designer and manufacturer of generators and other engine powered products, announced today the signing of a purchase agreement to acquire the equity of Tower Light Srl and its wholly-owned subsidiaries from European private equity fund Ambienta I, advised by Ambienta SGR, and a group of minority-share investors.

Founded in 1996 and headquartered outside Milan, Italy, Tower Light is a leading developer and supplier of mobile light towers throughout Europe, the Middle East and Africa. Tower Light has experienced growth and built a leading market position in the equipment rental markets by leveraging their broad product offering and strong global distribution network in over 50 countries. With approximately 100 employees, Tower Light’s net sales for year ended December 31, 2012 were approximately €37 million.

“Tower Light is a great strategic fit for Generac’s business, providing an expanded product offering of light tower generators to support additional geographic markets beyond those we serve today,” said Aaron Jagdfeld, President and Chief Executive Officer of Generac. “Acquiring Tower Light positions us as a global leader in light towers, allowing us to participate in the growing rental market for these products outside the U.S.”

“This is a very exciting development for Tower Light which opens up many new opportunities and allows us to continue to innovate and further develop the Tower Light product range. We are pleased to join the Generac family, and we look forward to our continued success as we work together to execute on potential synergies and drive global growth for mobile power products,” said Andrea Fontanella, Founder and Managing Director of Tower Light Srl.

Following the close of the transaction, Tower Light’s management team will continue to lead the company and the Tower Light brand name will join Generac’s brands, including Magnum and Ottomotores, in serving global power generation and associated markets. It is expected that the transaction will close in the third quarter of 2013, pending standard closing conditions. The purchase price of the acquisition was not announced.

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 internationally through a broad network of independent dealers, retailers, wholesalers and equipment rental companies.

About Tower Light Srl

Tower Light Srl, founded in 1996 and based at Villanova d’Ardenghi (PV), is the European leader in the production of lighting towers for construction and other applications. Through continuous product development and a broad distribution network, Tower Light Srl has become a leading supplier to construction and equipment rental companies, providing mobile power equipment that meets the specific needs of geographic markets across the world.

Generac Is the One to Watch Out For

July 15 -- Power outages are getting more common in US and Canada.

The energy crisis has taken over the whole world and its adverse effects are encompassing the residential and commercial sectors alike. According to the estimates of U.S. Department of Energy, power cuts cost businesses an average $80 billion loss per year. This has opened the gates for standby energy source providers in the market to take advantage of this opportunity. The use of standby power generators are growing more popular each day. Companies providing such machinery are expected to experience exponential growth on the basis of growing demand. The companies are expanding their operations outside the U.S. so that they can cater a larger market. One company working on this principle is Generac Holdings.  Let’s see if investors can trust the company’s growth expectations or not.

Generac’s business outlook

Generac is a manufacturer and marketer of generators and other engine-powered machinery for residential, commercial and industrial markets. The company has a huge market share in the residential sector holding a 70% share of the domestic home standby market in the US. It has a huge distribution network of over 4800 dealers which acts as a competitive advantage and a barrier to entry for the new players in the market. The company’s sales rocketed up to the $1 billion mark for the first time in 2012, which was a 48% growth in sales from 2011. Along with this, the company’s 3 year average income growth stands at a huge 29.4% compared to the industry average of just 3.5%. The cash flows of the company increased from $105 in 2010 to $213 million in 2012.

Though it is performing better than the industry, the company has a lower return on equity and return on assets compared to rival Cummins.  But it may not be too worrisome for Generac, as Cummins has gone down with its revenues last year and its performance might deteriorate more in coming future due to the strict regulations recently introduced by the government on diesel engines. Briggs and Stratton on the other hand is a large cap stable company with little or no growth expected in near future. Thus it is unable to excite you with its margins or returns.

The company’s main focus these days is the optional standby power supply for markets, restaurants, healthcare institutions and telecom companies. This is because of the huge losses these places incur when power is cut and there is no secondary power source.  Hospitals cannot risk the life of patients by not keeping power generators. They are bound to keep power generators for emergency purposes. Moreover, the company is also considering working on a line of generators that use natural gas as the power source. This decision might be fruitful as natural gas prices have declined and demand for such products would be high.

Competitive situation

As mentioned above some of its peers are Briggs and Stratton and Cummins. Cummins gives Generac a tough time in the residential market whereas Briggs is present as a dominant force in the commercial sector. Moreover Cummins is not just confined to power generation; it has a number of other operations. Currently its diesel engine business is in a funk as the government has conducted some serious changes in the regulations for diesel engine vehicles. Cummins is currently working on Natural gas engines to take advantage from the low natural gas prices in the country.

Briggs on the other hand also has two segments i.e. engines and products. Most of its sales and profits are attributed to the engines segment whereas its product line of generators and power washers have reported losses since the past 3 years. Both these other companies have their primary focus on engines, but Generac is focused on the production of power generators only. This gives the company an advantage over its peers to increase its market share of the power generators market. Furthermore, both Cummins and Briggs provide a decent yield to their investors which Generac does not, but Generac does give out hefty special dividends to its investors. In June 2012 the company paid a $6 per share dividend which is huge compared to what you have to pay for the company’s stock.

Recent acquisition

In the last quarter of 2012 the company made a strong move to enter international markets by acquiring Ottomotores. Through this acquisition, the company would take over the operations of Ottomotores Mexico and Ottomotores Brazil in Curitiba. This would enable Generac to combine both companies which are involved in the manufacturing and selling of diesel generators from 15 kW to 2.5 MW. Ottomotores is a leading company in Latin American standby power industry. This would help the company to strengthen its grasp on the Latin American market where its competitor Briggs & Stratton is already present.

Conclusion

Power generators are an essential component for both residential and commercial users alike. With the energy shortage in different countries increasing, the market for these power generators is growing. Growing companies like Generac can make full use of this opportunity due to its exceptional presence in the market over more than 50 years and its strong profitability and cash flows indicating that the company can take a few leaps of faith. Furthermore, its acquisition of Ottomotores will help it to focus on its sales outside the US market and take advantage of synergies.

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Generac Reports Record Fourth Quarter and Full-Year 2012 Results

GENERAC REPORTS RECORD FOURTH QUARTER AND FULL-YEAR 2012 RESULTS

Fourth quarter results significantly exceed expectations - Strong broad based organic revenue growth and operational execution lead to record levels of revenue, adjusted EBITDA and cash flow in the quarter

WAUKESHA, Wis.-- Feb. 14, 2013-- 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, 2012.  Additionally, the Company provided its current outlook for 2013.

Fourth Quarter 2012 Highlights

Net sales increased year-over-year by 28.0% to $342.0 million as compared to $267.3 million in the fourth quarter of 2011.

Residential product sales increased 28.9% compared to the fourth quarter of 2011.

Commercial & Industrial (C&I) product sales increased 29.4% compared to the prior year fourth quarter.

The Ottomotores acquisition closed on December 8, 2012, building a more balanced, globally focused business. The entire $44.8 million net purchase price was funded using cash on hand.

Net income during the fourth quarter of 2012 was $28.3 million, or $0.41 per diluted share.

Adjusted net income, as defined in the accompanying reconciliation schedules, increased 17.1% over the prior year quarter to $60.7 million. Adjusted diluted net income per common share increased 15.3% to $0.87 per share.

Adjusted EBITDA increased 34.5% over the prior year fourth quarter to $83.1 million.

Cash flow from operations in the fourth quarter of 2012 was $106.4 million as compared to $80.7 million in the prior year quarter. Free cash flow was $97.4 million as compared to $73.1 million in the fourth quarter of 2011.

As a result of this strong free cash flow conversion, on February 11, 2013, the Company prepaid $80.0 million of principal on its existing term loan, contributing to significantly improved leverage ratios since refinancing the Company’s credit facilities in the second quarter of 2012.

Full-Year 2012 Highlights

Net sales increased year-over-year by 48.5% to $1.176 billion as compared to $792.0 million in 2011.

Residential product sales during 2012 increased 43.7% as compared to a strong 2011, which grew at a 31.7% rate over 2010.

C&I product sales increased 64.0% as compared to 2011. Excluding the impact of Magnum Products and the modest impact from the recent Ottomotores acquisition, C&I product sales increased 14.0% versus 2011 on an organic basis.

Net income during 2012 was $93.2 million, or $1.35 per diluted share.

Adjusted net income increased 50.0% over the prior year to $220.8 million. Adjusted diluted net income per common share increased 47.0% to $3.19.

Adjusted EBITDA increased 53.8% over the prior year to $289.8 million.

Cash flow from operations during 2012 was $235.6 million as compared to $169.7 million in the prior year. Free cash flow was $213.2 million as compared to $157.7 million in 2011, which represents 97% and 107% of the adjusted net income reported during the respective years.

“2012 was a tremendous year for Generac as we achieved record financial results with significant growth across all product categories and regions of the United States,” said Aaron Jagdfeld, President and Chief Executive Officer.

“With 49% growth in 2012 following 34% growth in 2011, we have nearly doubled the size of our business in the past two years and have used our positive momentum to reinvest heavily in our future over that time using our Powering Ahead strategy as our roadmap. Specifically, in the fourth quarter, we launched our AMP™ marketing tool which combines data from existing owners, third party demographic data and power outage tracking to identify and direct market to potential sales prospects more effectively. This tool, coupled with our new PowerPlay™ tablet based in-home selling solution which also launched in the fourth quarter, should improve sales lead flow and closure rates for home standby opportunities through our distribution partners.

In 2012, we also accelerated our re-entry into the market for power washers and have recently launched our OneWash™ product, the industry’s first and only variable speed washer, which has helped us to gain valuable shelf space for the upcoming 2013 season.”

“In addition to investments in our core markets in the U.S., our efforts to become a more global player took a major step forward with the acquisition of the Ottomotores businesses late in the fourth quarter of 2012,” continued Mr. Jagdfeld. “With over 500 employees and locations in Mexico and Brazil, Ottomotores is a leading market share player in the growing Latin American standby power market.

This acquisition provides us with the essential elements of a local manufacturing presence, added distribution and access to higher-power products that we believe are critical for us to begin building a foundation to successfully compete in the global market for backup power generation.”

Additional Fourth Quarter 2012 Highlights

Residential product sales for the fourth quarter of 2012 increased 28.9% to $216.0 million from $167.5 million for the comparable period in 2011. The growth was primarily driven by increased demand for portable and home standby generators, and to a lesser extent power washers. The strength in shipments was driven by a combination of the significant awareness and demand created by major power outages in recent years, expanded distribution, and overall strong operational execution.

Commercial & Industrial product sales for the fourth quarter of 2012 increased 29.4% to $110.6 million from $85.5 million for the comparable period in 2011. The increase in net sales was primarily driven by an increase in shipments to national account customers for both stationary standby and mobile power equipment. C&I net sales in the fourth quarter of 2012 includes a modest contribution of revenue from the Ottomotores acquisition that closed in December 2012. The Magnum Products acquisition became fully annualized as of the fourth quarter of 2012, and accordingly, the full impact of its financial results are reflected in both the current and prior year quarterly periods.

Gross profit margin for the fourth quarter of 2012 was 36.9% compared to 36.8% in the fourth quarter of 2011. The positive impact from improved pricing and a moderation in commodity costs was largely offset by changes in product mix during the current year quarter.

Operating expenses for the fourth quarter of 2012 declined by $4.2 million or 6.8% as compared to the fourth quarter of 2011. Additional operating expenses to support the strategic growth initiatives and higher baseline sales levels of the Company were more than offset by a non-recurring, non-cash impairment charge that was recorded in the prior year totaling $9.4 million. Operating expenses during the current-year quarter were also modestly impacted by the acquisition of Ottomotores in December 2012.

Interest expense in the fourth quarter of 2012 increased to $16.6 million compared to $5.9 million in the same period last year. The increase was a result of the higher debt levels from the refinancing of the Company’s senior secured credit facilities in May 2012.

Net income in the current year quarter includes an income tax provision of $21.4 million as compared to a $238.0 million income tax benefit in the fourth quarter of 2011. The large income tax benefit in the prior-year fourth quarter consisted primarily of the reversal of the full valuation allowance on the Company’s net deferred tax assets.

2013 Outlook

The Company is initiating guidance for 2013 with solid revenue growth expected off a very strong 2012. For the full-year 2013, the Company currently expects net sales to increase approximately 10% as compared to the prior year. This top-line guidance assumes no material changes in the current macroeconomic environment and no major power outage events for the remainder of 2013.

Gross margins are expected to decline by approximately 80 to 100 basis points during 2013 as compared to the prior year primarily as a result of the addition of Ottomotores partially offset by the expected favorable impact from cost reduction initiatives.

Operating expenses as a percentage of net sales, excluding amortization of intangibles, are expected to be slightly up compared to 2012, 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, Adjusted EBITDA for the full-year 2013 is expected to increase in the mid single-digit percentage range as compared to 2012.

Cash flow conversion is expected to remain strong during 2013 and be consistent with the cumulative average during the past four years of free cash flow representing between 90-95% of adjusted net income.

Mr. Jagdfeld concluded, “Over the course of the past two years, we have significantly increased our product development efforts by doubling the size of the Company’s engineering functions and investing heavily in our capabilities. We expect to bring more new products to market in 2013 than at any other time in the history of Generac which we believe will both add to our leadership positions in the markets for portable and home standby generators and significantly broaden our commercial and industrial product lines.

As we focus on driving the adoption of back-up power generation for homes and businesses and diversifying our product offerings, our distribution channels and the geographies we serve, we are transforming Generac into a larger, more balanced company with improved global focus. Through innovation and solid execution in 2013, we expect to accelerate the penetration rate for home standby generators, increase our share of the commercial and industrial markets, and further diversify our business through new products and geographies. As a recognized leader in the market for back-up power, we believe Generac is incredibly well positioned to capitalize on the macro opportunities that are in front of us.”

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 internationally through a broad network of independent dealers, retailers, wholesalers and equipment rental companies.GR