Generac Holdings Inc. (GNRC)
Q1 2013 Earnings Call
May 2, 2013 9:00 AM ET
York Ragen – CFO
Aaron Jagdfeld – President and CEO
Christopher Glynn – Oppenheimer
Jeff Hammond – KeyBanc Capital Markets
Ross Gilardi – Bank of America/Merrill Lynch
Charley Brady – BMO Capital Markets
Brian Drab – William Blair
Steve Tusa – JPMorgan
John Quealy – Canaccord
Jerry Revich – Goldman Sachs
Aaron Jagdfeld – Goldman Sachs
Stanley Elliott – Stifel
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And I would like to turn the call over to York Ragen, Chief Financial Officer. Over to you.
Thanks, Gary. Good morning everyone and welcome to our first quarter 2013 earnings call. I’d like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, our President and Chief Executive Officer.
We will begin our call today by commenting on forward-looking statements. Certain statements made during this presentation as well as other information provided from time to time by Generac or its employees may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see our earnings release or our SEC filings for a list of words or expressions that identify such statements and the associated risk factors.
In addition, we’ll make reference to certain non-GAAP measures during today’s call. Additional information regarding these measures including a reconciliation to comparable U.S. GAAP measures is available in our earnings release and SEC filings.
I’ll now turn the call over to Aaron.
Thank you, York. Good morning everyone and thank you for joining us today. We are very pleased to report our first quarter 2013 results this morning, which we believe continue to demonstrate the accelerated adoption of standby generators into the residential and commercial markets. The awareness for the need for backup power has steadily increased over the last several years as power outages have occurred more frequently and for longer period of time. With our sales marketing and distribution efforts in our superior operational execution we have quickly build Generac into a very powerful brand in the emerging market for residential and commercial standby generators.
Our first quarter net sales increased 36% over the prior year to a record $400 million with strong organic growth of 29% which remain broad based across all major regions in the United States. This strong organic growth is even more impressive when considering as follows the first, the prior year first quarter in which net sales more than doubled over the first quarter of 2011. We converted these record shipment levels during the first quarter of 2013 into record levels of adjusted EBITDA and adjusted earnings per share.
Growth in shipments of home standby generators were again very strong during the quarter as the market for these products has further developed with more home owners becoming aware of the importance of having a backup power system. With penetration rates at less than 3% of single family unattached homes in the U.S. we believe there remains a substantial opportunity to continue to grow the market for these products.
As the leader in the home standby generator category over the last decade with approximately 70% of market share our efforts remain focused on driving growth for this emerging product category. When combining the elevated awareness for major power outage events in recent years along with our AMP targeted marketing process power play in-home selling solution and efforts to expand distribution we believe we can continue to drive demand for home standby generators going forward.
In addition to increased home standby sales during the first quarter of 2013 we also experienced a substantial year-over-year increase in portable generator shipments to the combination of inventory replenishment and overall expanded placement for these products at our retail customers. In a relatively short period of time since we entering this product category we have leveraged our technical knowledge, manufacturing capabilities and our distribution relationships to build a leading share in the portable generator market. In doing so we have further positioned the Generac brand is representing quality innovative products to provide the reliability and durability that our customers demand.
Building on our success in portable generators we set out to reenter the engine driven power washer market last year. Through our technical expertise in air-cooled engines and detailed customer research we have developed a full line of washers, which includes the industry’s only variable speed power washer that we can OneWash. We recently launched this innovative new product for the spring selling season and have received positive initial feedback from both retailers and consumers. With the successful first quarter rollout of OneWash and increased placement of our consumer and prosumer units at our retail channel partners we believe we are making good progress in taking share in the power washer product category.
In addition to executing on the significant increase and demand for residential products the first full quarter the Ottomotores has also contributed to our year-over-year sales growth. Our progress to-date with the integration of both the Mexico and Brazil operations has been favorable as we work toward realizing the potential revenue and cost synergies. Although we are still early in the integration process the Generac and Ottomotores sales and marketing teams remain excited about the potential to sell our residential and light commercial standby generators and mobile power equipment in the Latin American market.
Much of the cost savings we are projecting will come primarily as a result of increased purchasing scale with certain components and commodities as well as from improved utilization and efficiencies in the Ottomotores operations. We remain on track to begin realizing savings of approximately $2 million a year on an annualized basis towards the second half of 2013 with the potential for additional cost reductions during the second full year of ownership.
Demand for our Generac brand commercial and industrial stationery generators continues to see positive momentum during the increased awareness of the need for backup power on the part of businesses. In particular we experience strong shipments of light commercial generators used in smaller footprint retail applications as the market interest in cleaner burning more cost effective natural gas fueled backup generators continues to increase as a result of the exceptional value proposition of these products.
Additionally we saw revenue growth from our telecom national account customers as wireless providers look to further safeguard their networks from power outages. Our strong results have generated over $210 million of free cash flow over the 12 months ending March 31st 2013. Our attractive margins, capital efficient business model and favorable tax attributes are the drivers of our significant cash flows which we believe sets us apart from any of our peers. This strong cash flow generation has allowed us to pursue several shareholder value enhancing activities.