Generac Holdlings Inc. (GNRC)

GNRC 
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Generac Holdings Inc. (GNRC)

Bank of America Merrill Lynch Global Industrials & Materials Conference Call

September 5, 2012 11:45 am ET

Executives

Aaron P. Jagdfeld – President and Chief Executive Officer

Analysts

Andrew Obin – Bank of America Merrill Lynch

Presentation

Andrew Obin – Bank of America Merrill Lynch

I am Andrew Obin, Bank of America Merrill Lynch machinery analyst, and we have here the management of Generac. We have Aaron Jagdfeld, Company’s President and CEO, and York Ragen, the Company’s CFO.

Generac produces power units. In fact, I was chatting with Aaron about getting one for my in-laws. And the company has experienced rapid growth as due to sort of unforeseen weather events, and increased adoption of the product, and it’s a very interesting story.

And I’ll let Aaron talk about it. Thank you very much for being here.

Aaron P. Jagdfeld

Thanks, Andrew. As Andrew said, I’m Aaron Jagdfeld, President and Chief Executive Officer at Generac. With me is York Ragen, our CFO. I’m not sure how familiar you are with the company, and we can go through these pretty quickly, these slides. We got a prepared deck here, and maybe leave a little more time for Q&A for those of you guys that are in attendance here, and skip lunch to be with us. So one of the downsides of presenting at 11:45 apparently.

But as Andrew said, I think there are a couple of things that from a highlight standpoint make this a very attractive investment. The first of which is just the rapid growth the company has experienced with the adoption of our residential products, and I’ll get into that, the second and that has led to best-in-class organic revenue growth.

We have created the backup power space at the residential market side, what we call the home standby generator market. That’s a category we effectively created about 12 years ago. We’re the market leader in that category, and we’ve created significant barriers to entry that I’ll cover here as well.

We have a financial profile that is pretty unique for a company like ours, and you’ll see that demonstrated in some of the financial information we’ll share with you, but in particular, the free cash flow generation of this company, no pun intended is very dramatic, relative to a company of our size, in terms of the percentage of our EBITDA that we convert to free cash flow. So we’ll cover that as well.

I think one of the last highlights too is that, we have strong market product opportunities outside of the U.S., 99% of our revenues today are generated in the U.S. and Canada. So here we have this kind of homegrown story here in the U.S. and the U.S market, but we’ve got an entire world out there that we’ve only began to scratch the surface on. So those four characteristics we believe are significant in terms of how you want to view this as an investment going forward.

Just a little bit about the business, about the company, was founded in 1959 by an engineer, we’re located just west of Milwaukee, Wisconsin, about 30 minutes west. It was founded as a portable generator manufacturer actually. These are the small gasoline power portable gens that you’d see and they’re very prevalent and typical during widespread outages, people run to Home Depot and Lowe’s to buy these types of products, those are the types of products that the company actually began building back in the late 50s, actually really invented that category as well.

But today we offer a wide range of products, all the way from those, we still offer those small portable generators. Although it’s a very large industrial systems for backup of data centers, hospitals, supermarkets, waste water treatment plants and those types of things.

Our LTM sales here through Q2 is approximately $1.1 billion, and that breaks down about 58% of that being residential, which again are those permanently installed home standby generators as well as the small portable products that we have. And the balance 36% is in the commercial and industrial market where frankly we’re a smaller player, more focused in the niche space of natural gas, which I’ll explain here in a second on why that’s been a good thing to us in the last few years in particular.

We have about 2,200 employees and about 1.2 million square feet of manufacturing, most of that located in Wisconsin. This is a slide that I think, many companies would be envious of relative to the growth trajectory, top line as it were here, about a 15% CAGR over the last 11 years, and that’s on an organic basis.

The last two bars that you see there, the two larger bars, the gold colored piece of those bars actually represent the transaction, the first significant transaction of size from an acquisition standpoint that we did last year in a company called Magnum Products, and I’ll get into that here in a second. But all of the rest of those bars, all the orange portions of those bars are actually organic growth. So, no M&A of significance in the company’s history prior to last year.

And that is really, again, a testament to some of the product categories that we’ve created here in (inaudible) like the home standby generator category. Some of the innovations that we brought to market in natural gas technology, some of the innovations we brought to market in different ways to deploy our industrial systems have also been drivers of growth over that period of time.

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