Generac (US:GNRC)2022-11-06 16:00Market Opportunities - Generac's residential standby generator market penetration is only approximately 5.5%, indicating significant growth opportunities domestically and internationally[119] - The company has made significant investments in rapidly growing markets such as residential clean energy storage, solar microinverters, and energy monitoring devices[112] - Generac's natural gas generators are expected to grow at a faster rate than traditional diesel generators, driven by demand for cleaner power generation[124] - The introduction of the PWRmicro microinverter in 2021 is expected to enhance Generac's capabilities in the residential solar market, with availability anticipated in 2023[120] - The evolution towards "Grid 2.0" is expected to drive demand for distributed energy resources and solutions, positioning Generac favorably in the market[121] - The telecommunications market presents a significant opportunity, with approximately half of existing cell tower sites in the U.S. lacking backup power solutions[125] Financial Performance - Net sales for the three months ended September 30, 2022, were $1,088,258, a 15.4% increase from $942,698 in the same period of 2021[139] - Gross profit for the third quarter of 2022 was $361,104, with a gross profit margin of 33.2%, down from 35.6% in the prior year[144] - Domestic segment total sales increased 18.0% to $946.6 million, with non-annualized acquisitions contributing $64.2 million to revenue growth[140] - International segment total sales rose 14.3% to $182.5 million, with a net headwind of $(12.1) million from acquisitions and foreign currency[141] - Income from operations decreased by 49.6% to $87,523, down from $173,579 in the same quarter of 2021[139] - Net income attributable to Generac Holdings Inc. was $58,270, a decline of 55.7% from $131,570 in the prior year[139] - Adjusted EBITDA for the Domestic segment was $572.2 million, or 18.8% of total domestic sales, down from $598.7 million, or 26.1% in the prior year[163] - Adjusted EBITDA for the International segment increased to $79.5 million, or 13.9% of total international sales, compared to $42.3 million, or 10.1% in the prior year, reflecting improved operating leverage[164] - Net sales for the nine months ended September 30, 2022, were $3.515 billion, a 31.7% increase from $2.670 billion in the prior year[153] - Gross profit margin for the nine months ended September 30, 2022, was 33.5%, down from 37.4% in the prior year, impacted by higher input costs and less favorable sales mix[158] - Adjusted Net Income for the nine months ended September 30, 2022, was $425.3 million, a decrease of 6.9% from $457.1 million in the prior year[165] Operating Expenses and Costs - Operating expenses for the third quarter of 2022 totaled $273,581, a 68.4% increase compared to $162,415 in the prior year[139] - The company continues to face significant raw material and cost pressures, impacting margins and resulting in higher input costs[128] - Operating expenses increased by $267.8 million, or 59.3%, compared to the prior year, driven by acquisition-related amortization, warranty provisions, and increased employee costs[159] - Research and development expenses increased by 47.2% to $39,985 compared to $27,165 in the prior year[139] Cash Flow and Liquidity - As of September 30, 2022, the company had $530 million outstanding under the Tranche B Term Loan Facility and $750 million under the Tranche A Term Loan Facility, with $1,248.6 million available under the Revolving Facility[172] - The secured leverage ratio was 1.25 to 1.00 times as of September 30, 2022, well below the covenant limit of 3.75 to 1.00 times, and the interest coverage ratio was 20.81 to 1.00[173] - The company reported a net cash used in operating activities of $(42,352) thousand for the nine months ended September 30, 2022, a decrease of 112.1% compared to the same period in 2021[180] - Net cash used in investing activities for the nine months ended September 30, 2022 was $(85,082) thousand, a decrease of 84.4% compared to $(546,773) thousand in 2021[180] - Net cash provided by financing activities for the nine months ended September 30, 2022 was $214,871 thousand, an increase of 742.5% compared to $(33,445) thousand in 2021[180] - As of September 30, 2022, the company had $1,478.5 million in liquidity, consisting of $229.9 million in cash and equivalents and $1,248.6 million available under the Revolving Facility[174] Impairment and Goodwill - The company identified a triggering event for its clean energy reporting unit requiring an interim impairment assessment due to the loss of a key customer[189] - The company determined that the goodwill and indefinite-lived intangible assets ascribed to the clean energy reporting unit were not impaired as of September 30, 2022[190] Shareholder Returns - The company repurchased 536,633 shares of common stock for $123.9 million during the third quarter of 2022, with a total of 9,563,339 shares repurchased for $555.4 million since the inception of all stock repurchase programs[175][176] Adjusted Metrics - Adjusted EBITDA for the nine months ended September 30, 2022, was $651.69 million, representing an increase of 1.0% from $641.07 million in the same period of 2021[196] - Adjusted net income attributable to Generac Holdings Inc. for the three months ended September 30, 2022, was $112.19 million, down from $151.14 million in the same period of 2021[207] - Adjusted net income per diluted share attributable to Generac Holdings Inc. for the three months ended September 30, 2022, was $1.75, compared to $2.35 in the same period of 2021[207]