Generac Holdlings Inc. (GNRC)

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Generac Holdings Inc. (GNRC)

J.P. Morgan Diversified Industries Conference Call

June 5, 2013 08:45 AM ET


Aaron P. Jagdfeld - President and CEO



Aaron P. Jagdfeld

Good morning everyone. We are at the Generac Presentation this morning. It's our 8:45 presentation here. Want to welcome everyone. I have got with me today Michael Harris, who is our Director of Investor Relations. I am Aaron Jagdfeld, President and Chief Executive Officer at Generac. We have got about 40 minutes, so what we are going to try and do is get through a standard presentation here in about 20 to 30 minutes, and then leave you plenty of time for some Q&A, kind of this fireside chat format that the guys at JPM have been promoting here.

So just real briefly on Generac, in case you don't know why you'd want to invest in this company. We have got a slide here for you on that. So, the investment highlights in Generac, we think there is a pretty compelling case on why you'd want to own shares of this company. Our best in class organic revenue growth, 21% per year over the last 11 years organically, and we have been adding to that now with M&A as well, and I will talk about that here in a second.

We are a market leader in many of the markets that we serve, primarily also in the residential market, where we have a 70% market share. Very dominant leadership position in a very fast growing and exciting market, that is residential backup power. Superior financial profile, fantastic EBITDA margins. We have great free cash flow, it's a business that continues to generate just a tremendous amount of cash, and beyond that, last but not least, as the bullet point states here, we think we have great opportunities for additional expansion through additional products, and geographic expansion opportunities, other markets that we believe as a company, we can be successful in.

Just a real quick synopsis on the company, started back in 1959, where it was a (inaudible) based company, about 3,000 employees. About 1.6 million square feet of manufacturing space, most of that primarily located in Wisconsin. We also have facilities now in Mexico City, two there, as well as one in Brazil, as a result of our recent acquisition of Ottomotores.

On an LTM basis, our sales approaching $1.3 billion now. That is a significant step up from where we were even a few years ago, and you can see the breakout there, 61% of those revenues being residential. 34% being in what we refer to as commercial and industrial, which are the larger installed generators, as well as the construction equipment that you would find at the Magnum Company, which is another company we acquired back in October of 2011; and we have a revenue sleeve here that is listed as other, which is 5%, which is mostly aftermarket service parts.

This is a chart that we really like to show, because it's fun if you are a CEO of a company to talk about something like this, when a chart looks like this. But we have had just tremendous growth as a company. As again, organically we have grown 21% a year from 2002-2012, which is pretty remarkable and I have been at the company, I started my 20th year here now. I have seen the company grow about 20% a year for my entire career, which is a pretty phenomenal amount of growth rate, and which I can attribute that all to my doing, but I can't. It has been a company that culturally has been ingrained with growth. It's a company that focuses on growing, focuses on new opportunities, focuses on being fast to market, focuses on being flexible, and taking advantage of those opportunities, in a way that I think other companies may be struggle with, in terms of the aggressiveness of growth.

We think a lot of the underpinnings of our growth are from the innovations that we bring to market. We are a very pure play on backup power. So with that type of focus, we get to bring a lot of the innovations that are in the power gen market -- come from us. We compete with some very big companies in power generation, like Caterpillar, like Cummins. Kohler, which is more -- maybe, more well known for its bath fixtures and plumbing fixtures. But Generac is really all about power generation, and so the amount of resources we bring to bear on the category, the amount of resources we bring to bear on the industry, our knowledge our almost 60 years of history here, have really brought to bear a lot of the innovation, and we think that that underpins much of the growth that we have.

We are also the value player in the industry. So value is a, we believe, a large component of the success that we have seen in the residential market, that we believe that people, when they buy pieces of equipment, whether they be generators, whether they be power washers, whether they be construction equipment, that value does play a role. So the combination of an innovation and price is kind of the intersection of value and quality of course fits into that as well.

So great organic growth, great rates here over the past 11 years or so, and then we are augmenting this, as I said before, with M&A. So part of the reason why the bar chart is even elevated further here over the last few years is some of the things that we have done from an M&A standpoint.

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