Generac Reports Record Second Quarter 2021 Results
Continued elevated demand and strong execution across the business drives exceptional revenue and earnings growth; 2021 outlook further increased.
WAUKESHA, Wis., July 28, 2021 (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, 2021 and provided an update on its outlook for the full year 2021.
Second Quarter 2021 Highlights
- Net sales increased 68% to a record $920 million during the second quarter of 2021 as compared to $547 million in the prior-year second quarter. Core sales growth, which excludes both the impact of acquisitions and foreign currency, increased approximately 64%.
- Residential product sales grew 76% to $600 million as compared to $341 million last year.
- Commercial & Industrial (“C&I”) product sales increased 64% to $254 million as compared to $155 million in the prior year.
- Net income attributable to the Company during the second quarter was $127 million, or $2.01 per share, as compared to $66 million, or $1.02 per share, for the same period of 2020.
- Adjusted net income attributable to the Company, as defined in the accompanying reconciliation schedules, was a record $153 million, or $2.39 per share, as compared to $88 million, or $1.40 per share, in the second quarter of 2020.
- Adjusted EBITDA before deducting for noncontrolling interests, as defined in the accompanying reconciliation schedules, was a record $218 million, or 23.7% of net sales, as compared to $123 million, or 22.5% of net sales, in the prior year.
- Cash flow from operations was $122 million, a record for the second quarter of a year, as compared to $102 million in the prior year. Free cash flow, as defined in the accompanying reconciliation schedules, was also a second quarter record at $96 million as compared to $89 million for 2020. The increase in cash flow was primarily due to higher net income in the current year quarter, which was partially offset by a higher level of income taxes paid and capital expenditures in the current year relative to the prior year quarter.
- On June 1st, the Company closed on the acquisition of Deep Sea Electronics Limited, an advanced controls designer and manufacturer headquartered in Hunmanby, United Kingdom.
- On July 2nd, the Company closed on the acquisition of Chilicon Power, LLC (“Chilicon”). Based in California, Chilicon is a designer and provider of grid-interactive microinverter and monitoring solutions for the solar market.
- The Company achieved a significant milestone by starting production of home standby generators at its new manufacturing facility in Trenton, South Carolina in early July.
“Second quarter results were again exceptional with broad-based growth of 68% leading to all-time record revenue of $920 million. We are particularly proud of achieving this tremendous top-line growth along with a record level of adjusted EBITDA despite numerous supply chain challenges,” said Aaron Jagdfeld, President and Chief Executive Officer. “Shipments of home standby generators were almost double compared to the prior year due to incredible demand for these products and our successful capacity-expansion efforts. Our PWRcell® energy storage systems were also up dramatically compared to the prior year as well as sequentially as these products continued to gain important traction in the rapidly expanding clean energy market. Additionally, shipments of C&I products were up significantly over the prior year as we continue to see demand recover across a number of markets and geographies from the prior-year pandemic lows, with growth of these products now solidly above 2019 levels.”
Jagdfeld continued, “We recently announced two strategic acquisitions we believe will enable us to expand our capabilities and accelerate our strategy to continue Generac’s transition into an energy technology solutions company. In June, we closed on the acquisition of Deep Sea Electronics, which will improve our expertise and bandwidth for advanced systems controls and help us more quickly develop our product roadmap for the future. In early July, we further added to our suite of clean energy solutions by entering the large and growing microinverter market for solar applications with the acquisition of Chilicon Power.”
Additional Second Quarter 2021 Consolidated Highlights
Gross profit margin was 36.9% as compared to 38.2% in the prior-year second quarter. The current quarter’s margin performance was impacted by higher input costs relating to raw materials, labor, logistics and plant start-up costs, which was partially offset by improved pricing along with favorable overhead absorption from higher sales volumes.
Operating expenses increased $37.4 million, or 31.3%, as compared to the second quarter of 2020. The increase was primarily driven by higher variable expenses from the significant increase in sales volumes, higher employee costs and incentive compensation, and the impact of acquisitions.
Provision for income taxes for the current year quarter was $46.4 million, or an effective tax rate of 26.6%, as compared to $18.5 million, or a 22.5% effective tax rate, for the prior year. The increase in effective tax rate was primarily due to a discrete tax item resulting from a legislative tax rate change in a foreign jurisdiction which revalued deferred tax liabilities by $7.0 million, or approximately 4% tax rate impact, during the current year quarter.
Business Segment Results
Domestic Segment
Domestic segment sales increased 70% to $784.1 million as compared to $460.8 million in the prior year quarter, with the impact of acquisitions contributing approximately 2% of the revenue growth for the quarter. The core sales growth was driven by broad-based strength across both residential and C&I products highlighted by very strong growth with home standby generators, PWRcell® energy storage systems, telecom national account customers and C&I mobile products.
Adjusted EBITDA for the segment was $203.9 million, or 26.0% of net sales, as compared to $121.3 million in the prior year, or 26.3% of net sales. This margin performance was impacted by higher input costs in the current year quarter, which were mostly offset by improved pricing and higher operating leverage from the substantial revenue growth for the segment during the quarter.
International Segment
International segment sales increased 58% to $135.8 million as compared to $86.1 million in the prior year quarter, with the impact of acquisitions and foreign currency contributing approximately 13% of the revenue growth for the quarter. The core sales growth for the segment was primarily due to strength in the European and Latin American regions that are seeing a sharp increase in demand as end markets recover off the prior-year COVID lows.
Adjusted EBITDA for the segment, before deducting for noncontrolling interests, was $13.7 million, or 10.1% of net sales, as compared to $1.9 million, or 2.2% of net sales, in the prior year. The increase in margin was primarily due to improved operating leverage on the higher sales volumes and the impact of the Deep Sea Electronics acquisition.
Updated 2021 Outlook
The Company continues to expand its production of home standby generators at a better-then-expected rate, and demand for PWRcell® energy storage systems continues to increase combined with additional supply chain execution, which is leading to further increase in the shipment outlook for these products for the full-year 2021. The outlook for C&I products has also improved due to a further broad-based rebound in demand highlighted by a continued pickup in activity from telecom national account customers, overall stronger outlooks for domestic and international markets and the closing of the Deep Sea Electronics acquisition. However, the Company continues to experience higher input costs relative to our previous guidance due to rising commodities and significantly higher logistics costs.
As a result of these factors, the Company is increasing its full-year 2021 net sales growth guidance to now be approximately 47 to 50% compared to the prior year, which includes approximately 3% of favorable impact from acquisitions and foreign currency. This is an increase from the as-reported growth guidance of 40 to 45% previously expected.
Net income margin, before deducting for non-controlling interests, is now expected to be approximately 15.5 to 16.0% for the full-year 2021 as compared to the prior expectation of between 16.0 to 17.0%. The corresponding adjusted EBITDA margin is now expected to be 24.5 to 25.0%, as compared to the previous guidance range of approximately 24.5 to 25.5%.
Operating and free cash flow generation is still expected to be strong, with the conversion of adjusted net income to free cash flow still expected to be approximately 90%.
Conference Call and Webcast
Generac management will hold a conference call at 10:00 a.m. EDT on Wednesday, July 28, 2021 to discuss second quarter 2021 operating results. The conference call can be accessed by dialing (866) 415-3113 (domestic) or +1 (678) 509-7544 (international) and entering passcode 1966865.
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. 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 1966865. The telephonic replay will be available for 7 days.
