Free cash flow a quarterly record of $101 million
WAUKESHA, Wis., (February 16, 2016) – 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
Full-Year 2015 Highlights
“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.
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.
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.
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:
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
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.
SOURCE: Generac Holdings Inc.
Michael W. Harris
Vice President – Finance (262) 544-4811 x2675