Generac (GNRC) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Generac Holdings Inc.'s unaudited condensed consolidated financial statements for Q1 2025 and 2024, including balance sheets, comprehensive income, cash flows, and detailed notes on accounting policies, acquisitions, and debt Condensed Consolidated Balance Sheets As of March 31, 2025, total assets were $5.06 billion, a slight decrease from $5.11 billion at year-end 2024, with total liabilities also decreasing slightly to $2.59 billion from $2.61 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $187,464 | $281,277 | | Inventories | $1,095,082 | $1,031,647 | | Total current assets | $1,988,539 | $2,032,170 | | Total assets | $5,060,454 | $5,109,331 | | Liabilities & Equity | | | | Total current liabilities | $1,007,588 | $1,033,152 | | Long-term borrowings and finance lease obligations | $1,195,861 | $1,210,776 | | Total liabilities | $2,587,429 | $2,611,888 | | Total stockholders' equity | $2,473,025 | $2,497,443 | Condensed Consolidated Statements of Comprehensive Income For the three months ended March 31, 2025, net sales increased to $942.1 million from $889.3 million in the prior-year period, with net income attributable to the company significantly rising to $43.8 million, or $0.73 per diluted share Q1 2025 vs Q1 2024 Performance (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net sales | $942,121 | $889,273 | | Gross profit | $371,986 | $316,379 | | Income from operations | $83,638 | $66,869 | | Net income attributable to Generac | $43,840 | $26,232 | | Diluted EPS | $0.73 | $0.39 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities was $58.2 million for Q1 2025, a decrease from $111.9 million in Q1 2024, primarily due to an increase in working capital, resulting in a net decrease in cash and cash equivalents of $93.8 million Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $58,152 | $111,898 | | Net cash used in investing activities | $(33,539) | $(26,637) | | Net cash used in financing activities | $(119,719) | $(36,331) | | Net (decrease) increase in cash | $(93,813) | $48,361 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of the financial statements, covering accounting policies, acquisitions, derivative use, fair value measurements, segment performance, debt, and legal proceedings - The company executed several acquisitions in 2024, including Wolverine Power Systems, Ageto, LLC, the C&I BESS product offering from SunGrid Solutions, and Huntington Power Equipment, with a combined preliminary purchase price of $46.3 million[25][34] - The company is exposed to market risks from commodity prices, foreign currencies, and interest rates, and uses derivative instruments like interest rate swaps and foreign currency contracts to manage these risks, not for trading purposes[37][38] - The company has two reportable segments: Domestic and International, with the Domestic segment generating $774.6 million in net sales and the International segment generating $167.5 million for Q1 2025[57][58] - As of March 31, 2025, the company was in compliance with all financial covenants for its credit facilities, with a total leverage ratio of 1.40 to 1.00 and an interest coverage ratio of 11.25 to 1.00[80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial performance, highlighting a 5.9% net sales increase and improved gross margin, driven by mega-trends, and details operational results, liquidity, cash flow, and non-GAAP reconciliations Overview and Strategic Drivers Generac positions itself as a leading energy technology solutions provider, capitalizing on mega-trends like deteriorating power quality, rising energy prices, and AI-driven demand to expand its markets for backup power and energy management - Key mega-trends driving demand include lower power quality, higher power prices, accelerating AI adoption, growing demand for cleaner fuels (natural gas), and the 'Home as a Sanctuary' concept[114] - The company sees significant opportunity in the low penetration of home standby generators, with only about 6.5% of the addressable U.S. market currently served[116] - Generac is investing in solar, storage, and energy management markets, expecting them to become significant as utility customers seek alternatives to rising power prices and grid instability[117] Results of Operations For Q1 2025, net sales increased 5.9% year-over-year to $942.1 million, driven by an 8.7% rise in the Domestic segment, with gross margin expanding significantly to 39.5% and net income attributable to the company rising 67.1% to $43.8 million Q1 2025 vs Q1 2024 Financial Summary (in thousands) | Metric | Q1 2025 | Q1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $942,121 | $889,273 | $52,848 | 5.9% | | Gross profit | $371,986 | $316,379 | $55,607 | 17.6% | | Income from operations | $83,638 | $66,869 | $16,769 | 25.1% | | Net income attributable to Generac | $43,840 | $26,232 | $17,608 | 67.1% | - Domestic segment sales increased 9% to $782.3 million, driven by higher sales of home standby generators and energy technology solutions[135] - International segment sales decreased slightly, impacted by a 5% unfavorable effect from foreign currency[136] - Residential product sales grew 15.2% to $494.2 million, while Commercial & Industrial product sales declined 4.7% to $337.4 million[134] Liquidity and Financial Condition As of March 31, 2025, Generac had total liquidity of $1.44 billion, comprising $187.5 million in cash and $1.25 billion available under its Revolving Facility, while repurchasing $97.5 million in stock during Q1 2025 - Total liquidity as of March 31, 2025, was $1.44 billion, consisting of $187.5 million in cash and $1.25 billion available credit[151] - In Q1 2025, the company repurchased $97.5 million of its common stock, with $249.8 million remaining authorization under the current program[148][149] - The company was in compliance with all debt covenants, with a total leverage ratio of 1.40 to 1.00 (below the 3.75 to 1.00 limit) and an interest coverage ratio of 11.25 to 1.00 (above the 3.00 to 1.00 requirement)[147] Non-GAAP Measures The company provides reconciliations for non-GAAP financial measures, Adjusted EBITDA and Adjusted Net Income, which management uses to evaluate performance, with Adjusted EBITDA at $148.9 million and Adjusted Net Income at $75.4 million for Q1 2025 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income attributable to Generac | $43,840 | $26,232 | | Adjustments (Interest, D&A, Taxes, etc.) | $95,128 | $94,489 | | Change in fair value of investment | $9,947 | $6,019 | | Adjusted EBITDA | $149,546 | $127,233 | Adjusted Net Income (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Adjusted net income attributable to Generac | $75,366 | $52,951 | | Adjusted diluted EPS | $1.26 | $0.88 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposures since the 2024 Annual Report on Form 10-K, referring to Note 3 for details on derivative instruments and hedging activities - There have been no material changes in market risk since the 2024 Annual Report on Form 10-K[183] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[184] - No material changes to internal control over financial reporting occurred during the first quarter of 2025[185] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 14 of the condensed consolidated financial statements for detailed information regarding the company's ongoing legal proceedings, including class action lawsuits, patent infringement, and government inquiries - For details on legal proceedings, the report directs readers to Note 14, 'Commitments and Contingencies,' in the financial statements[187] - The company is involved in several legal matters, including a putative securities class action, shareholder derivative actions, a patent infringement lawsuit, and is cooperating with inquiries from the DOJ, EPA, and CPSC[91][92][93][94][95] Item 1A. Risk Factors The company states that there have been no material changes to its risk factors since the filing of its Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes in risk factors have occurred since the filing of the 2024 Annual Report on Form 10-K[188] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended March 31, 2025, the company repurchased a total of 780,289 shares at an average price of $135.96 per share, with approximately $249.8 million remaining available for future repurchases under the program Stock Repurchase Activity for Q1 2025 | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Remaining Authorization | | :--- | :--- | :--- | :--- | :--- | | Jan 2025 | - | - | - | $347,256,871 | | Feb 2025 | 213,522 | $141.67 | 213,522 | $317,007,965 | | Mar 2025 | 566,767 | $133.81 | 503,163 | $249,803,018 | | Total Q1 | 780,289 | $135.96 | 716,685 | $249,803,018 | Item 5. Other Information On March 6, 2025, CEO Aaron Jagdfeld modified a pre-existing Rule 10b5-1 trading arrangement, adjusting the amount of shares to be sold, price limits, and timing of sales under the plan - CEO Aaron Jagdfeld modified a Rule 10b5-1 trading plan on March 6, 2025, changing the terms for selling up to 31,303 shares and exercising options for 13,697 shares[192]