Generac Reports Second Quarter 2024 Results

Significant margin expansion drives strong earnings growth; 2024 outlook increased as a result of recent power outages

WAUKESHA, Wisc., July 31, 2024 (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 second quarter ended June 30, 2024 and provided an update on its outlook for the full-year 2024.

Second Quarter 2024 Highlights

• Net sales were $998 million during the second quarter of 2024 as compared to $1.00 billion in the prior-year second quarter. Core sales, which excludes both the impact of acquisitions and foreign currency, was approximately flat from the prior year period.
  • Residential product sales increased approximately 8% to $538 million as compared to $499 million last year.
  • Commercial & Industrial (“C&I”) product sales decreased approximately 10% to $344 million as compared to $384 million in the prior year.
• Net income attributable to the Company during the second quarter was $59 million, or $0.97 per share, as compared to $45 million, or $0.70 per share, for the same period of 2023.
• Adjusted net income attributable to the Company, as defined in the accompanying reconciliation schedules, was $82 million, or $1.35 per share, as compared to $68 million, or $1.08 per share, in the second quarter of 2023.
• Adjusted EBITDA before deducting for noncontrolling interests, as defined in the accompanying reconciliation schedules, was $165 million, or 16.5% of net sales, as compared to $137 million, or 13.6% of net sales, in the prior year.
• Cash flow from operations was $78 million during the second quarter, as compared to $83 million in the prior year. Free cash flow, as defined in the accompanying reconciliation schedules, was $50 million as compared to $54 million in the second quarter of 2023.
• The Company repurchased 355,640 shares of its common stock during the second quarter for approximately $51 million. There is approximately $449 million remaining under the current repurchase program as of June 30, 2024.
• Subsequent to quarter end:
  • On July 3rd, the Company amended and replaced its existing $530 million term loan B credit facility with a new term loan B credit facility which has an aggregate outstanding principal amount of $500 million and a maturity date of July 3, 2031.
  • On July 12th, the Company finalized the previously awarded grant from the U.S. Department of Energy, which provides for up to $200 million in residential clean energy related project funding over a five-year term as part of the $1 billion Puerto Rico Energy Resilience Fund.
  • On July 30th, the Company agreed to increase its minority interest with an additional $35 million investment and further expand its commercial relationship with Wallbox, a global leader in smart electric vehicle charging and energy management solutions.
• The Company is updating its overall net sales growth guidance for the full-year 2024 to be 4 to 8% compared to the prior year on an as-reported basis, an increase from the previous guidance range of 3 to 7%. Adjusted EBITDA margin, before deducting for non-controlling interests, is now expected to be 17.0 to 18.0% as compared to the previous expectation of 16.5 to 17.5%.
  

"Our second quarter results outperformed our prior outlook for adjusted EBITDA and adjusted EPS as input costs and operating expenses came in better than expected,” said Aaron Jagdfeld, President and Chief Executive Officer. “In line with our expectations, home standby generator shipments increased at a strong rate compared to a softer prior year period which included the impact of elevated field inventory levels, while shipments of C&I products declined versus prior year primarily due to expected weakness in our telecom and rental markets.”

Jagdfeld continued, “Early in the third quarter, Hurricane Beryl highlighted the rising threat of severe and volatile weather as millions of Texans experienced power outages in the aftermath of the storm. This major power outage event is expected to drive incremental demand for home standby and portable generators in the current year, while also driving higher levels of awareness for backup power longer-term as home and business owners seek protection from future power outages. With only approximately 6% penetration of the addressable market of homes in the U.S., we believe there are significant opportunities to further penetrate the residential standby generator market as the clear leader in this category.”

Additional Second Quarter 2024 Consolidated Highlights

Gross profit margin was 37.6% as compared to 32.8% in the prior-year second quarter. The increase in gross margin was primarily driven by favorable sales mix and the realization of lower input costs.

Operating expenses increased $29.9 million, or 12.3%, as compared to the second quarter of 2023. The growth in operating expenses was primarily driven by increased employee costs to support future growth and higher marketing spend to drive incremental awareness for our products.

Provision for income taxes for the current year quarter was $19.6 million, or an effective tax rate of 25.0%, as compared to $15.9 million, or a 25.9% effective tax rate, for the prior year. The decrease in effective tax rate was primarily driven by certain unfavorable discrete tax items in the prior year period which did not repeat in the current year.

Cash flow from operations was $77.7 million during the second quarter, as compared to $83.1 million in the prior year. Free cash flow, as defined in the accompanying reconciliation schedules, was $49.7 million as compared to $53.9 million in the second quarter of 2023. Higher operating earnings in the current year quarter were more than offset by an increase in income tax payments as compared to the prior year.

Business Segment Results

Domestic Segment

Domestic segment total sales (including inter-segment sales) increased 1% to $827.1 million as compared to $815.3 million in the prior year, including a slight benefit from acquisitions. Higher home standby and portable generator shipments and growth in C&I product sales to industrial distributors were offset by lower C&I product shipments to telecom and national rental equipment customers.

Adjusted EBITDA for the segment was $139.7 million, or 16.9% of domestic segment total sales, as compared to $103.2 million, or 12.7% of total sales, in the prior year. This margin improvement was primarily driven by favorable sales mix and the realization of lower input costs, partially offset by higher operating expense investments to support future growth initiatives.

International Segment

International segment total sales (including inter-segment sales) decreased 18% to $184.5 million as compared to $223.7 million in the prior year quarter, including a slight benefit from foreign currency. The core total sales decline for the segment was primarily driven by lower inter-segment sales related to softness in the telecom market and weaker shipments in Europe, most notably for portable generators.

Adjusted EBITDA for the segment, before deducting for noncontrolling interests, was $25.0 million, or 13.6% of international segment total sales, as compared to $33.3 million, or 14.9% of total sales, in the prior year. This margin decline was primarily due to reduced operating leverage on lower shipments during the quarter.

2024 Outlook

As a result of recent power outage activity, which includes the impact of major outage event Hurricane Beryl, the Company is updating its full-year 2024 net sales guidance to 4 to 8% growth as compared to the prior year, an increase from the previous expectation of 3 to 7%.

Additionally, the Company now expects net income margin, before deducting for non-controlling interests, to be approximately 6.5 to 7.5% for the full-year 2024 as compared to the prior expectation of 6.0 to 7.0%. The corresponding adjusted EBITDA margin is now expected to be approximately 17.0 to 18.0% as compared to the previous guidance range of 16.5 to 17.5%.

The Company continues to expect strong operating and free cash flow generation for the full year, with free cash flow conversion from adjusted net income well above 100%.

Conference Call and Webcast

Generac management will hold a conference call at 10:00 a.m. EST on Wednesday, July 31, 2024 to discuss second quarter 2024 operating results. The conference call can be accessed at the following link: https://register.vevent.com/register/BIda289d036c8c4968881c6413359be673. Individuals who wish to listen via telephone will be given dial-in information.

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 for 12 months.

About Generac

Generac is a leading energy technology company that provides backup and prime power products and energy storage systems for home and commercial & industrial applications, energy monitoring & management devices and services, and other engine & battery powered tools and equipment. Founded in 1959, Generac introduced the first affordable backup generator and later created the automatic home standby generator category. The Company has continued to expand its energy technology offerings in its mission to lead the evolution to more resilient, efficient, and sustainable energy solutions.

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:

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 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 2023 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

To supplement Generac’s condensed consolidated financial statements presented in accordance with U.S. GAAP, the Company provides the computation of Adjusted EBITDA attributable to the Company, which is defined as net income before noncontrolling interests adjusted for the following items: interest expense, depreciation expense, amortization of intangible assets, income tax expense, certain non-cash gains and losses including certain purchase accounting adjustments and contingent consideration adjustments, share-based compensation expense, certain transaction costs and credit facility fees, business optimization expenses, certain specific provisions, mark-to-market gains and losses on a minority investment, and Adjusted EBITDA attributable to noncontrolling interests, as set forth in the reconciliation table below. The computation of Adjusted EBITDA is based primarily on the definition included in our Credit Agreement.

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 adjusted for the following items: 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, business optimization expenses, certain specific provisions, mark-to-market gains and losses on a minority investment, other non-cash gains and losses, and adjusted net income attributable to non-controlling interests.

Free Cash Flow

In addition, the Company references 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:
Kris Rosemann
Senior Manager – Corporate Development & Investor Relations
(262) 506-6064
InvestorRelations@generac.com