Generac Reports Record Quarterly Results

WAUKESHA, Wis., Oct. 31, 2019 (GLOBE NEWSWIRE) -- Generac Holdings Inc. (NYSE: GNRC) (“Generac” or the “Company”), a leading global designer and manufacturer of energy solutions and other power products, today reported financial results for its third quarter ended September 30, 2019.    

Third Quarter 2019 Highlights

• Net sales increased 6.9% to $601.1 million during the third quarter of 2019 as compared to $562.4 million in the prior-year third quarter.  Core sales growth, which excludes both the impact of acquisitions and foreign currency, was also approximately 7%.    
  • Residential product sales increased 7.4% to $335.0 million as compared to $311.9 million last year, with core sales growth of approximately 7%. 
  • Commercial & Industrial (“C&I”) product sales increased 4.1% to $214.9 million as compared to $206.4 million in the prior year, with core sales growth of approximately 5%.
• Net income attributable to the Company during the third quarter was $75.6 million, or $1.18 per share, as compared to $75.8 million, or $1.11 per share, for the same period of 2018.  See accompanying reconciliation schedules for related earnings per share calculations.
• Adjusted net income attributable to the Company, as defined in the accompanying reconciliation schedules, was $90.0 million, or $1.43 per share, as compared to $89.1 million, or $1.43 per share, in the third quarter of 2018.
• Adjusted EBITDA before deducting for noncontrolling interests, as defined in the accompanying reconciliation schedules, was $126.0 million, or 21.0% of net sales, as compared to $124.5 million, or 22.1% of net sales, in the prior year.
• Cash flow from operations was $111.2 million as compared to $59.3 million in the prior year quarter.  Free cash flow, as defined in the accompanying reconciliation schedules, was $100.8 million as compared to $47.0 million in the third quarter of 2018.
• The Company is increasing its full-year 2019 sales growth guidance to approximately 8 to 9% with Adjusted EBITDA margins, before deducting for non-controlling interests, of approximately 20.5%.

“We are pleased with our results for the third quarter of 2019 as we posted all-time record net sales and adjusted EBITDA as a result of continued strong growth across various product categories,” said Aaron Jagdfeld, President and Chief Executive Officer.  “Our performance in 2019 demonstrates the powerful secular growth opportunities around an aging electrical grid in the United States that is more susceptible to power outages due to a changing climate, the increasing penetration of natural gas power generation globally, and the importance of reliable telecommunication networks.  In addition, with the growing threat of utility shut-offs in California, interest in our back-up power solutions is at all-time high.  Finally, we are quickly scaling our Clean Energy product portfolio, supply chain, and go-to-market strategies to take advantage of the rapidly developing markets for energy monitoring, management and storage, and intend to launch our new product line in the fourth quarter.”

Additional Third Quarter 2019 Consolidated Highlights

Gross profit margin was 36.2% compared to 35.6% in the prior-year third quarter.  Pricing actions and favorable sales mix, as well as lower realized commodity and currency input costs, were partially offset by increased regulatory tariffs.

Operating expenses increased $18.1 million, or 19.3%, as compared to the third quarter of 2018.  The increase was primarily driven by additional employee headcount related to strategic initiatives, higher marketing and promotional spend, recurring operating expenses from recent acquisitions and higher intangible amortization expenses.

Provision for income taxes for the current year quarter was $20.1 million, or an effective tax rate of 21.1%, as compared to $20.1 million, or a 20.8% effective tax rate, for the prior year.

Cash flow from operations was $111.2 million as compared to $59.3 million in the prior year quarter.  Free cash flow, as defined in the accompanying reconciliation schedules, was $100.8 million as compared to $47.0 million in the third quarter of 2018.  Improved working capital efficiency in the current year, as well as additional pension funding and interest payments in the prior year, drove the increase.

Business Segment Results

Domestic Segment

Domestic segment sales increased 9.2% to $498.2 million as compared to $456.1 million in the prior year quarter.  Core sales growth, which excludes the impact of the Neurio and Pika acquisitions, was approximately 8.5%.  The current year quarter experienced strong growth in shipments of home standby generators given continued strong end market conditions, while portable generator shipments were approximately flat compared to the prior year.  In addition, C&I stationary generator shipments were also strong during the quarter primarily with our natural gas and telecom products.  The overall Domestic segment growth was partially offset by lower shipments of C&I mobile products to national rental account customers. 

Adjusted EBITDA for the segment was $121.2 million, or 24.3% of net sales, as compared to $117.1 million in the prior year, or 25.7% of net sales.  Pricing initiatives and favorable sales mix, improved commodity and currency input costs, and fixed operating cost leverage were more than offset by the aforementioned regulatory tariffs and higher operating expenses.  

International Segment

International segment sales decreased 3.1% to $103.0 million as compared to $106.3 million in the prior year quarter.  Core sales, which excludes the unfavorable impact of currency and the impact of the Captiva acquisition, was approximately flat compared to the prior year as geopolitical headwinds caused economic softness in certain regions of the world.

Adjusted EBITDA for the segment, before deducting for noncontrolling interests, was $4.7 million, or 4.6% of net sales, as compared to $7.4 million, or 6.9% of net sales, in the prior year.  Unfavorable sales mix and incremental operating expense investment contributed to the decline.

Updated 2019 Outlook

The Company is increasing its full-year 2019 guidance for revenue growth reflecting stronger end market demand for residential products, partially offset by slowing commercial & industrial activity.  We are now raising our full-year net sales growth to approximately 8 to 9%, with core sales growth now expected to be approximately 7% compared to the prior year. 

Net income margin, before deducting for noncontrolling interests, is now expected to be approximately 11.5% for the full-year 2019, with corresponding Adjusted EBITDA margin of approximately 20.5%. 

Despite the slower start to the year, Operating and Free Cash Flow generation for the full year is still expected to be strong, with the conversion of adjusted net income to free cash flow expected to be approximately 80%.

Conference Call and Webcast

Generac management will hold a conference call at 9:00 a.m. EDT on Thursday, October 31, 2019 to discuss third quarter 2019 operating results. The conference call can be accessed by dialing (866) 415-3113 (domestic) or +1 (678) 509-7544 (international) and entering passcode 5737459.

The conference call will also be webcast simultaneously on Generac's website (http://www.generac.com), accessed under the Investor Relations link. The webcast link will be made available on the Company’s website prior to the start of the call within the Events section of the Investor Relations website.

Following the live webcast, a replay will be available on the Company's website. A telephonic replay will also be available approximately two hours after the call and can be accessed by dialing (855) 859-2056 (domestic) or +1 (404) 537-3406 (international) and entering passcode 5737459. The telephonic replay will be available for 7 days.
               
About Generac

Founded in 1959, Generac is a leading designer and manufacturer of energy solutions and other power products.  As an industry leader serving residential, light commercial, and industrial markets, Generac's products and solutions are available globally through a broad network of independent dealers, distributors, retailers, wholesalers and equipment rental companies, as well as sold direct to certain end user customers. 

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," "forecast," "project," "plan," "intend," "believe," "confident," "may," "should," "can have," "likely," "future," “optimistic” 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:

• frequency and duration of power outages impacting demand for our products;
• availability, cost and quality of raw materials and key components and labor needed in producing our products;
• the impact on our results of possible fluctuations in interest rates, foreign currency exchange rates, commodities, product mix and regulatory tariffs;
• the possibility that the expected synergies, efficiencies and cost savings of our acquisitions will not be realized, or will not be realized within the expected time period;
• the risk that our acquisitions will not be integrated successfully;
• difficulties we may encounter as our business expands globally or into new markets;
• our dependence on our distribution network;
• our ability to invest in, develop or adapt to changing technologies and manufacturing techniques;
• loss of our key management and employees;
• increase in product and other liability claims or recalls;
• failures or security breaches of our networks or information technology systems; and
• changes in environmental, health and safety, or product compliance laws and regulations affecting our products or operations.

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 U.S. Securities and Exchange Commission (“SEC”), particularly in the Risk Factors section of the 2018 Annual Report on Form 10-K and in its periodic reports on Form 10-Q. Stockholders, potential investors and other readers should consider these factors carefully in evaluating the forward-looking statements.

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.

Non-GAAP Financial Metrics

Core Sales

The Company references core sales to further supplement Generac's condensed consolidated financial statements presented in accordance with U.S. GAAP.  Core sales excludes the impact of acquisitions and fluctuations in foreign currency translation.  Management believes that core sales facilitates easier and more meaningful comparison of net sales performance with prior and future periods.

Adjusted EBITDA

The computation of adjusted EBITDA attributable to the Company is based on the definition of EBITDA contained in Generac's credit agreement dated as of May 31, 2013, as amended.  To supplement the Company's condensed consolidated financial statements presented in accordance with U.S. GAAP, Generac provides a summary to show the computation of adjusted EBITDA, which excludes the impact of noncontrolling interests, taking into account certain charges and gains that were recognized during the periods presented. 

Adjusted Net Income

To further supplement Generac's condensed consolidated financial statements presented in accordance with U.S. GAAP, the Company provides a summary to show the computation of adjusted net income attributable to the Company. Adjusted net income attributable to the Company is defined as net income before noncontrolling interests and provision for income taxes adjusted for the following items: cash income tax expense, amortization of intangible assets, amortization of deferred financing costs and original issue discount related to the Company's debt, intangible impairment charges, certain transaction costs and other purchase accounting adjustments, losses on extinguishment of debt, business optimization expenses, certain other non-cash gains and losses, and adjusted net income attributable to non-controlling interests.

Free Cash Flow

In addition, we reference free cash flow to further supplement Generac's condensed consolidated financial statements presented in accordance with U.S. GAAP.  Free cash flow is defined as net cash provided by operating activities, plus proceeds from beneficial interests in securitization transactions, 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 U.S. GAAP.  Please see the accompanying Reconciliation Schedules and our SEC filings for additional discussion of the basis for Generac's reporting of Non-GAAP financial measures, which includes why the Company believes these measures provide useful information to investors and the additional purposes for which management uses the non-GAAP financial information.

SOURCE: Generac Holdings Inc.

CONTACT:
York Ragen
Chief Financial Officer
(262) 506-6064
InvestorRelations@generac.com