Generac Reports Record Fourth Quarter and Full-Year 2020 Results

WAUKESHA, Wis., Feb. 11, 2021 (GLOBE NEWSWIRE) -- Generac Holdings Inc. (NYSE: GNRC) (“Generac” or the “Company”), a leading global designer and manufacturer of energy technology solutions and other power products, today reported financial results for its fourth quarter and full-year ended December 31, 2020 and initiated its outlook for the full year 2021.     

Fourth Quarter 2020 Highlights

• Net sales increased 29% to a record $761 million during the fourth quarter of 2020 as compared to $591 million in the prior-year fourth quarter. Core sales growth, which excludes both the impact of acquisitions and foreign currency, increased approximately 28%.
  - Residential product sales increased 55% to $499 million as compared to $323 million last year.
  - Commercial & Industrial (“C&I”) product sales decreased 9% to $199 million as compared to $217 million in the prior year.  
• Net income attributable to the Company during the fourth quarter was $125 million, or $1.97 per share, as compared to $70 million, or $1.12 per share, for the same period of 2019.
• Adjusted net income attributable to the Company, as defined in the accompanying reconciliation schedules, was a record $136 million, or $2.12 per share, as compared to $97 million, or $1.53 per share, in the fourth quarter of 2019.
• Adjusted EBITDA before deducting for noncontrolling interests, as defined in the accompanying reconciliation schedules, was a record $196 million, or 25.7% of net sales, as compared to $129 million, or 21.9% of net sales, in the prior year.
• Cash flow from operations was a record $218 million as compared to $175 million in the prior year. Free cash flow, as defined in the accompanying reconciliation schedules, was a record $191 million as compared to $160 million for 2019. The increase was primarily due to higher net income in the current year quarter, partially offset by the lower monetization of working capital and higher capital expenditures relative to the prior year quarter.
• As previously announced on October 7, 2020, the Company closed on the acquisition of Enbala Power Networks Inc. (“Enbala”). Based in Denver, Colorado, Enbala is one of the leading providers of distributed energy optimization and control software that helps support the operational stability of the world’s power grids.
• The Company is initiating its full-year 2021 net sales growth guidance to be approximately 25 to 30% compared to the prior year on an as-reported basis, which includes approximately 2% of favorable impact from acquisitions and foreign currency.   Adjusted EBITDA margin, before deducting for non-controlling interests, is expected to be approximately 24.0 to 25.0%, which is an increase from the 23.5% reported for the full-year 2020.
  

Full-Year 2020 Highlights

• Net sales increased 13% to a record $2.5 billion during 2020 as compared to $2.2 billion in 2019, which includes $32 million of contribution from acquisitions. Total core sales growth for the year was approximately 12%.
  - Residential product sales increased 36% to $1.56 billion as compared to $1.14 billion last year.
  - C&I product sales declined 19% to $702 million as compared to $872 million in the prior year.
• Net income attributable to the Company during 2020 was a record $351 million, or $5.48 per share, as compared to $252 million, or $4.03 per share for 2019.   The current year net income includes $11.5 million of pre-tax charges relating to restructuring costs and asset write-downs recorded during the second quarter to address the impact of the COVID-19 pandemic.
• Adjusted net income attributable to the Company was a record $412 million, or $6.47 per share, as compared to $318 million, or $5.06 per share, in 2019.
• Adjusted EBITDA before deducting for non-controlling interests for 2020 was a record $584 million, or 23.5% of net sales, as compared to $454 million, or 20.6% of net sales, last year.
• Cash flow from operations was a record $487 million as compared to $309 million in the prior year. Free cash flow was a record $427 million as compared to $251 million in 2019.  
  

“We continued to experience incredible demand for our home standby generators due to significantly higher power outage activity in recent quarters and the “Home as a Sanctuary” trend gained further traction, resulting in substantial backlog for these products as we enter 2021,” said Aaron Jagdfeld, President and Chief Executive Officer. “In addition, shipments of our PWRcell energy storage systems continued to further ramp during the quarter and were significantly higher on a sequential basis, and have considerable momentum heading into 2021.   C&I product shipments continued to be negatively impacted from the COVID-19 pandemic, but the year-over-year revenue decline moderated as we saw certain end markets began to recover.”

Jagdfeld continued, “2020 was a very challenging year and I am extremely proud of the way our teams responded, particularly as we maintained operations with our designation as an essential business. In the face of a global pandemic, our record performance during the year was even more impressive as we made important progress with our evolution into an energy technology solutions company. We expect 2021 to be another very strong year given the significant momentum for our residential products and an expected return to growth for our C&I products.   Our strong balance sheet and significant liquidity puts Generac in the enviable position to further capitalize on our key mega trends and drive additional shareholder value by expanding our addressable markets.”       

Additional Fourth Quarter 2020 Consolidated Highlights

Gross profit margin improved 180 basis points to 39.4% compared to 37.6% in the prior-year fourth quarter.   The increase was primarily driven by favorable sales mix from significantly higher shipments of residential products and a lower mix of C&I products.

Operating expenses increased $11.4 million, or 9.7%, as compared to the fourth quarter of 2019. The increase was primarily driven by higher variable expenses from the significant increase in sales volumes, incremental spend related to clean energy products, and the impact of acquisitions. These increases were partially offset by a reduction in operating expenses as a result of restructuring actions initiated in the second quarter of 2020 and an overall reduction in controllable operating expenses.

Provision for income taxes for the current year quarter was $39.0 million, or an effective tax rate of 23.8%, as compared to $13.4 million, or a 16.1% effective tax rate, for the prior year.   The increase in effective tax rate was primarily due to the significant increase in pretax income in the current year, while the prior year quarter was impacted by more favorable discrete tax items. For the full year 2020, the effective tax rate was 22.2% compared to 21.1% in the prior year.

Business Segment Results

Domestic Segment

Domestic segment sales increased 37.2% to $645.1 million as compared to $470.1 million in the prior year quarter. This growth was primarily driven by a significant increase in shipments of home standby generators, followed by the continued ramp of PWRcell energy storage systems. In addition, higher power outage activity drove elevated shipments of portable generators and aftermarket service parts, and shipments of chore products also improved at a strong rate as compared to the prior year.   This broad-based residential products growth was partially offset by continued weakness in sales of C&I mobile products due to the impacts from the COVID-19 pandemic, while shipments to national telecom account customers increased at a significant rate compared to the prior year.

Adjusted EBITDA for the segment was $188.0 million, or 29.1% of net sales, as compared to $122.9 million in the prior year, or 26.1% of net sales. This margin increase was driven by favorable sales mix and higher operating leverage from the significant revenue growth for residential products.

International Segment

International segment sales decreased 4.1% to $116.0 million as compared to $120.9 million in the prior year quarter. The decline was driven by continued weakness in global C&I product demand in several regions caused by the COVID-19 pandemic. However, the year-over-year decline in the fourth quarter was at a notably lesser rate relative to recent quarters as certain regions are beginning to show signs of recovery.

Adjusted EBITDA for the segment, before deducting for noncontrolling interests, was $7.8 million, or 6.8% of net sales, as compared to $6.2 million, or 5.2% of net sales, in the prior year.   The improvement in margin was due to the combination of lower operating expenses as a result of the restructuring activities initiated in the second quarter of 2020, partially offset by reduced operating leverage on the lower sales volumes.

2021 Outlook

Key demand metrics for home standby generators continued to trend much higher during the fourth quarter relative to prior year levels, leading to a substantial backlog for these products at the end of 2020, and this strength has continued thus far in the first quarter. In addition, the solar plus storage market is projected to experience significant year-over-year growth during 2021, contributing to the expectation of substantial growth of PWRcell energy storage systems as the Company continues to expand its presence in the clean energy market. Although demand for C&I products during 2020 was negatively impacted from the onset of the COVID-19 pandemic, shipments for these products are expected to return to growth across a number of key end markets and geographies.

As a result of these factors, the Company is initiating guidance for 2021 that anticipates significant revenue growth as compared to the prior year. Net sales are expected to increase between 25 to 30% as compared to the prior year on an as-reported basis, which includes approximately 2% of favorable impact from acquisitions and foreign currency.

Net income margin, before deducting for non-controlling interests, is expected to be approximately 15.0 to 16.0% for the full-year 2021, with the corresponding adjusted EBITDA margin expected to be approximately 24.0 to 25.0%, which is an increase from the 23.5% reported for the full-year 2020.

Operating and free cash flow generation is expected to be strong, with the conversion of adjusted net income to free cash flow expected to be approximately 90%.

Conference Call and Webcast

Generac management will hold a conference call at 10:00 a.m. EST on Thursday, February 11, 2021 to discuss fourth quarter and full-year 2020 operating results. The conference call can be accessed by dialing (866) 415-3113 (domestic) or +1 (678) 509-7544 (international) and entering passcode 3877036.

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 3877036. The telephonic replay will be available for 7 days.
        
About Generac

Founded in 1959, Generac is a leading global designer and manufacturer of a wide range of energy technology 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, e-commerce partners, 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 from our global supply chain 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, information technology systems, or connected products;
• changes in environmental, health and safety, or product compliance laws and regulations affecting our products, operations, or customer demand; and
• the duration and scope of the impacts of the COVID-19 pandemic are uncertain and may or will continue to adversely affect our operations, supply chain, distribution, and demand for certain of our products and services.
  

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. In the current environment, some of the above factors have materialized and may or will continue to be impacted by the COVID-19 pandemic, which may cause actual results to vary from these 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 2019 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 and adjusted EBITDA margin 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:
Michael W. Harris
Vice President – Corporate Development & Investor Relations
(262) 506-6064
InvestorRelations@generac.com