Generac Reports Fourth Quarter and Full-Year 2015 Results
Free cash flow a quarterly record of $101 million
WAUKESHA, Wis.–(BUSINESS WIRE)–Generac Holdings Inc. (NYSE: GNRC) (the “Company”), a leading designer
and manufacturer of power generation equipment and other engine powered
products, today reported financial results for its fourth quarter and
full-year ended December 31, 2015. Additionally, the Company initiated
its outlook for 2016.
Fourth Quarter 2015 Highlights
-
Net sales were $357.8 million during the fourth quarter of 2015 as
compared to $404.0 million in the prior-year fourth quarter, including
a $14.9 million contribution from a recent acquisition.-
Residential product sales increased 1.8% to $198.5 million as
compared to $194.9 million in the prior-year quarter, which was
primarily due to the contribution from a recent acquisition,
mostly offset by a decline in shipments of home standby generators
as a result of lower power outage activity. -
Commercial & Industrial (C&I) product sales were $131.9 million as
compared to $185.0 million in the prior-year quarter, which was
primarily due to a significant decline in shipments of mobile
products into oil & gas and general rental markets driven by the
substantial decline in energy prices.
Full-Year 2015 Highlights
-
Net sales were $1.317 billion during 2015 as compared to $1.461
billion during 2014.-
Residential product sales were $673.8 million as compared to
$722.2 million in the prior year. The decline from the prior year
was primarily due to lower demand of home standby generators as a
result of the significant decline in the power outage severity
environment during 2015, partially offset by the contribution from
recent acquisitions. -
Commercial & Industrial product sales were $548.4 million as
compared to $652.2 million in the prior year. The decline was
primarily due to a significant reduction in shipments into oil &
gas and general rental markets and, to a lesser extent, reduced
shipments to telecom national account customers and the negative
impact of foreign currency, partially offset by the contribution
from recent acquisitions.
-
Net income during 2015 was $77.7 million, or $1.12 per share, as
compared to $174.6 million, or $2.49 per share for 2014. Current-year
net income includes the impact of $40.7 million of pre-tax, non-cash
charges for the impairment of certain intangible assets as previously
discussed. Net income for both years also includes the impact of
changes in the contractual interest rate relating to the Company’s
term loan credit agreement, resulting in a $16.0 million gain during
2014 and $2.4 million loss during 2015. -
Adjusted net income was $198.4 million, or $2.87 per share, as
compared to $234.2 million, or $3.34 per share, in 2014. -
Adjusted EBITDA for 2015 was $270.8 million as compared to $337.3
million last year. -
Cash flow from operations was $188.6 million as compared to $253.0
million in the prior year. Free cash flow was $158.0 million as
compared to $218.3 million in 2014. -
On August 1, 2015, the Company acquired Country Home Products and its
subsidiaries, a leading manufacturer of high-quality, innovative,
professional-grade engine-powered equipment used in a wide variety of
property maintenance applications, which are primarily sold in North
America under the DR® Power Equipment brand. -
Uses of cash during 2015 included $30.7 million for capital
expenditures, $73.8 million related to acquisitions, $50.0 million for
the pre-payment of term loan debt, and approximately $100 million for
stock repurchases.
“Despite the ongoing low power outage environment, shipments of
residential products improved organically on a sequential basis during
the fourth quarter and exceeded our expectations,” said Aaron Jagdfeld,
President and Chief Executive Officer. “This strength helped to largely
offset additional weakness with shipments of mobile products caused by
the ongoing decline in energy prices. We achieved our second half 2015
goals for inventory reductions and margin improvements, which led to a
record level of free cash flow during the fourth quarter. On the
acquisition front, the Pramac acquisition announced yesterday
accelerates our strategy of expanding geographically and elevates us to
a major player in the global power generation market.”Additional Fourth Quarter 2015 Highlights
Residential product sales for the fourth quarter increased to $198.5
million as compared to $194.9 million for the fourth quarter of 2014.
The increase was due to a combination of the contribution from a recent
acquisition and, to a lesser extent, an increase in shipments of
portable generators due to expanded placement of new products. These
increases were partially offset by a decline in shipments of home
standby generators primarily driven by very low levels of power outage
severity during the current year.C&I product sales were $131.9 million as compared to $185.0 million for
the comparable period in 2014. The decline was primarily due to a
significant decline in shipments of mobile products into oil & gas and
general rental markets as a result of lower capital spending caused by
the substantial decline in energy prices. To a lesser extent, shipments
of C&I products during the current year were also impacted by declines
in Latin America along with the negative impact of foreign currency.Gross profit margin was 36.6% compared to 34.3% in the prior-year fourth
quarter. The increase was primarily driven by favorable product mix
including the impact from a recent acquisition, along with the favorable
impact of lower commodity costs and overseas sourcing benefits from a
stronger U.S. dollar. In addition, gross margin in the prior year was
negatively impacted by temporary increases in certain costs associated
with the west coast port congestion as well as other overhead-related
costs that did not repeat in the current-year quarter.Net income during the fourth quarter of 2015 includes the impact of
$40.7 million of pre-tax, non-cash charges for the impairment of
intangibles with nearly the entire amount relating to certain tradenames
as a result of a new strategy to transition and consolidate various
brands acquired through acquisitions over the past several years to the
Generac® tradename.Operating expenses increased $44.5 million as compared to the fourth
quarter of 2014, which includes the impact of the aforementioned $40.7
million of intangible impairment charges. Excluding the impact of these
charges, operating expenses for the quarter increased $3.8 million, or
6.5%, as compared to the prior year. The increase was primarily driven
by the addition of recurring operating expenses associated with a recent
acquisition, partially offset by reductions in certain organic selling,
general and administrative expenses.Free cash flow was $101.2 million as compared to $98.5 million in the
same period last year, as the decline in operating earnings in the
current year was more than offset by a larger benefit from a reduction
in working capital investment, and to a lesser extent, a decline in cash
income taxes and capital spending levels.The Company repurchased 1.15 million shares of its common stock during
the fourth quarter of 2015 for $35.6 million under its share repurchase
program which was announced in August 2015. The program authorizes the
Company to repurchase up to $200 million of its common stock over a 24
month period, and to date, a total of 3.3 million shares of common stock
have been repurchased for approximately $100 million.2016 Outlook
The Company is initiating guidance for 2016 with net sales expected to
increase between 10 to 12% as compared to the prior year, which assumes
the contribution from the Pramac acquisition that is anticipated to
close before the end of the first quarter of 2016. Total organic sales
on a constant currency basis are anticipated to be down between 5 to 7%,
with nearly all of the decline expected to be from ongoing weakness in
mobile product shipments into the oil & gas and general rental markets.
This top-line guidance assumes no material changes in the current
macroeconomic environment and also assumes no improvement in power
outage severity relative to the very low levels experienced during 2015.
Adjusted EBITDA margins are expected to be approximately 20.0% for the
full-year 2016, and free cash flow generation is expected to be strong,
with the conversion of adjusted net income anticipated to be over 90%.“While several of our major end markets experienced significant
down-cycles during 2015, we still made important progress on a variety
of strategic initiatives throughout the year,” continued Mr. Jagdfeld.
“These included driving awareness for our products, developing and
expanding our distribution, further investing in innovative new
products, and implementing manufacturing improvements. In addition, we
continued to execute on our capital allocation priorities including
paying down debt, making another strategic acquisition and returning
capital to shareholders. Despite a weaker demand environment that
persists entering 2016, we remain optimistic regarding the overall
long-term growth prospects for our business. With the Pramac
acquisition, we enter the current year as a more globally diversified
company with a strong liquidity position that gives us the flexibility
to drive our Powering Ahead strategic plan forward.”Conference Call and Webcast
Generac management will hold a conference call at 9:00 a.m. EST on
Tuesday, February 16, 2016 to discuss highlights of the fourth quarter
and full-year 2015 operating results. The conference call can be
accessed by dialing (866) 415-3113 (domestic) or +1 (678) 509-7544
(international) and entering passcode 39115113.The conference call will also be webcast simultaneously on Generac’s
website (http://www.generac.com),
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
39115113. The telephonic replay will be available for 30 days.About Generac
Since 1959, Generac has been a leading designer and manufacturer of a
wide range of power generation equipment and other engine powered
products. As a leader in power equipment serving residential, light
commercial, industrial, oil & gas, and construction markets, Generac’s
power products 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 Generac
products; -
availability, cost and quality of raw materials and key components
used in producing Generac products; -
the impact on our results of possible fluctuations in interest rates
and foreign currency exchange rates; -
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 Generac may encounter as its business expands globally;
- competitive factors in the industry in which Generac operates;
- Generac’s dependence on its distribution network;
-
Generac’s ability to invest in, develop or adapt to changing
technologies and manufacturing techniques; - loss of key management and employees;
- increase in product and other liability claims or recalls; and
- changes in environmental, health and safety laws and regulations.
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 our 2014 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.Reconciliations to GAAP Financial Metrics
Adjusted EBITDA
The computation of adjusted EBITDA 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, 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. Adjusted net
income is defined as net income before 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 and certain other non-cash gains and losses.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 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 our SEC filings for additional
discussion of the basis for Generac’s reporting of Non-GAAP financial
measures.Generac Holdings Inc. Consolidated Statements of Comprehensive Income (Dollars in Thousands, Except Share and Per Share Data) Three Months Ended December 31, Year Ended December 31, 2015 2014 2015 2014 (Unaudited) (Unaudited) (Unaudited) (Audited) Net sales $ 357,830 $ 403,997 $ 1,317,299 $ 1,460,919 Costs of goods sold 226,706 265,587 857,349 944,700 Gross profit 131,124 138,410 459,950 516,219 Operating expenses: Selling and service 36,925 30,363 130,242 120,408 Research and development 8,015 7,914 32,922 31,494 General and administrative 12,050 15,715 52,947 54,795 Amortization of intangibles 6,131 5,303 23,591 21,024 Tradename and goodwill impairment 40,687 – 40,687 – Gain on remeasurement of contingent consideration – – – (4,877 ) Total operating expenses 103,808 59,295 280,389 222,844 Income from operations 27,316 79,115 179,561 293,375 Other (expense) income: Interest expense (10,602 ) (11,804 ) (42,843 ) (47,215 ) Investment income 12 11 123 130 Loss on extinguishment of debt – (248 ) (4,795 ) (2,084 ) Gain (loss) on change in contractual interest rate – – (2,381 ) 16,014 Costs related to acquisition (1,042 ) – (1,195 ) (396 ) Other, net (130 ) (220 ) (5,487 ) (1,462 ) Total other expense, net (11,762 ) (12,261 ) (56,578 ) (35,013 ) Income before provision for income taxes 15,554 66,854 122,983 258,362 Provision for income taxes 6,372 17,464 45,236 83,749 Net income $ 9,182 $ 49,390 $ 77,747 $ 174,613 Net income per common share – basic: $ 0.14 $ 0.72 $ 1.14 $ 2.55 Weighted average common shares outstanding – basic: 66,482,219 68,598,310 68,096,051 68,538,248 Net income per common share – diluted: $ 0.14 $ 0.70 $ 1.12 $ 2.49 Weighted average common shares outstanding – diluted: 67,472,321 70,170,300 69,200,297 70,171,044 Other comprehensive income (loss): Foreign currency translation adjustment $ (1,069 ) $ (1,052 ) $ (7,624 ) $ (3,082 ) Net unrealized gain (loss) on derivatives 1,106 (701 ) (965 ) (1,420 ) Pension liability adjustment 1,881 (8,850 ) 1,881 (8,850 ) Other comprehensive income (loss) 1,918 (10,603 ) (6,708 ) (13,352 ) Comprehensive income $ 11,100 $ 38,787 $ 71,039 $ 161,261 Generac Holdings Inc. Consolidated Balance Sheets (Dollars in Thousands, Except Share and Per Share Data) December 31, 2015 2014 Assets Current assets: Cash and cash equivalents $ 115,857 $ 189,761 Accounts receivable, less allowance for doubtful accounts of $2,494
atDecember 31, 2015 and $2,275 at December 31, 2014
182,185
189,107
Inventories 325,375 319,385 Deferred income taxes 29,355 22,841 Prepaid expenses and other assets 8,600 9,384 Total current assets 661,372 730,478 Property and equipment, net 184,213 168,821 Customer lists, net 39,313 41,002 Patents, net 53,772 56,894 Other intangible assets, net 2,768 4,298 Tradenames, net 161,057 182,684 Goodwill 669,719 635,565 Deferred financing costs, net 12,965 16,243 Deferred income taxes 6,673 46,509 Other assets 964 48 Total assets $ 1,792,816 $ 1,882,542 Liabilities and stockholders’ equity Current liabilities: Short-term borrowings $ 8,594 $ 5,359 Accounts payable 108,332 132,248 Accrued wages and employee benefits 13,101 17,544 Other accrued liabilities 82,540 84,814 Current portion of long-term borrowings and capital lease obligations 657 557 Total current liabilities 213,224 240,522 Long-term borrowings and capital lease obligations 1,050,097 1,082,101 Deferred income taxes 6,166 13,449 Other long-term liabilities 57,458 56,671 Total liabilities 1,326,945 1,392,743 Stockholders’ equity: Common stock, par value $0.01, 500,000,000 shares authorized,
69,582,669and 69,122,271 shares issued at December 31, 2015 and 2014,
respectively696 691 Additional paid-in capital 443,109 434,906 Treasury stock, at cost, 3,567,575 and 198,312 shares at December 31, 2015 and 2014, respectively (111,516 ) (8,341 ) Excess purchase price over predecessor basis (202,116 ) (202,116 ) Retained earnings 358,173 280,426 Accumulated other comprehensive loss (22,475 ) (15,767 ) Total stockholders’ equity 465,871 489,799 Total liabilities and stockholders’ equity $ 1,792,816 $ 1,882,542 Generac Holdings Inc. Consolidated Statements of Cash Flows (Dollars in Thousands) Year Ended December 31, 2015 2014 Operating activities Net income $ 77,747 $ 174,613 Adjustment to reconcile net income to net cash provided by operating
activities:Depreciation 16,742 13,706 Amortization of intangible assets 23,591 21,024 Amortization of original issue discount 3,050 3,599 Amortization of deferred financing costs 2,379 3,016 Tradename and goodwill impairment 40,687 – Loss on extinguishment of debt 4,795 2,084 (Gain) loss on change in contractual interest rate 2,381 (16,014 ) Gain on remeasurement of contingent consideration – (4,877 ) Provision for losses on accounts receivable 481 672 Deferred income taxes 26,955 37,878 Loss on disposal of property and equipment 59 576 Share-based compensation expense 8,241 12,612 Net changes in operating assets and liabilities: Accounts receivable 9,610 (2,988 ) Inventories 9,084 3,508 Other assets 5,063 2,456 Accounts payable (27,771 ) 15,269 Accrued wages and employee benefits (5,361 ) (9,405 ) Other accrued liabilities 445 6,229 Excess tax benefits from equity awards (9,559 ) (10,972 ) Net cash provided by operating activities 188,619 252,986 Investing activities Proceeds from sale of property and equipment 105 394 Expenditures for property and equipment (30,651 ) (34,689 ) Acquisition of businesses, net of cash acquired (73,782 ) (61,196 ) Net cash used in investing activities (104,328 ) (95,491 ) Financing activities Proceeds from short-term borrowings 26,384 6,550 Proceeds from long-term borrowings 100,000 – Repayments of short-term borrowings (23,149 ) (26,444 ) Repayments of long-term borrowings and capital lease obligations (150,826 ) (94,035 ) Stock repurchases (99,942 ) – Payment of debt issuance costs (2,117 ) (4 ) Cash dividends paid (1,436 ) (902 ) Taxes paid related to the net share settlement of equity awards (12,956 ) (12,160 ) Excess tax benefits from equity awards 9,559 10,972 Net cash used in financing activities (154,483 ) (116,023 ) Effect of exchange rate changes on cash and cash equivalents (3,712 ) (1,858 ) Net increase (decrease) in cash and cash equivalents (73,904 ) 39,614 Cash and cash equivalents at beginning of period 189,761 150,147 Cash and cash equivalents at end of period $ 115,857 $ 189,761 Supplemental disclosure of cash flow information Cash paid during the period Interest $ 39,524 $ 42,592 Income taxes 6,087 34,283 Contacts
Generac Holdings Inc.
Michael W. Harris
Vice President ?
Finance
(262) 544-4811 x2675
Michael.Harris@Generac.com -
Residential product sales were $673.8 million as compared to
-
Residential product sales increased 1.8% to $198.5 million as