Generac Holdings has reported financial results for its third quarter ended Sept. 30, 2022 and provided its outlook for the full year 2022.

Third Quarter 2022 Highlights
  • Net sales increased 15% to $1.09 billion during the third quarter of 2022 as compared to $943 million in the prior-year third quarter. Core sales growth, which excludes both the impact of acquisitions and foreign currency, increased approximately 10%.
    • Residential product sales grew 9% to $664 million as compared to $609 million last year.
    • Commercial & Industrial (“C&I”) product sales increased 20% to $311 million as compared to $258 million in the prior year.
  • Net income attributable to the Company during the third quarter was $58 million, or $0.83 per share, as compared to $132 million, or $1.93 per share, for the same period of 2021. The current year net income includes pre-tax charges totaling $55.3 million, including $17.9 million of bad debt expense related to a clean energy product customer that has filed for bankruptcy and $37.3 million of clean energy product warranty-related matters.
  • Adjusted net income attributable to the Company, as defined in the accompanying reconciliation schedules, was $112 million, or $1.75 per share, as compared to $151 million, or $2.35 per share, in the third quarter of 2021.
  • Adjusted EBITDA before deducting for noncontrolling interests, as defined in the accompanying reconciliation schedules, was $184 million, or 16.9% of net sales, as compared to $209 million, or 22.2% of net sales, in the prior year.
  • On Oct. 3, the Company closed on the acquisition of Blue Pillar, an industrial internet of things platform (IoT) developer headquartered in Indianapolis, Indiana that designs, deploys, and manages industrial IoT network software solutions to enable distributed energy generation monitoring and control.

“As disclosed in our preliminary announcement, despite net sales growing at a strong mid-teens rate, third quarter results fell short of our prior expectations,” said Aaron Jagdfeld, president and chief executive officer. “Commercial & Industrial product sales continued to experience strong growth during the quarter, but Residential product sales began to slow as installation capacity constraints in our distribution network led to higher field inventory levels for home standby generators. This has resulted in lower orders than expected from our channel partners even as we’ve seen sequential improvements in several key metrics for the home standby category. Additionally in the quarter, shipments of clean energy products were negatively impacted by a large clean energy product customer which ceased operations during the quarter.”

Jagdfeld continued, “While home standby order headwinds from our channel partners are expected to persist through the first half of 2023, the secular growth themes and mega-trends supporting the Company’s ‘Powering A Smarter World’ enterprise strategy are still very much intact. As reliance on electricity grows and supply & demand imbalances increase further, Generac will continue to invest in technologies and solutions to lead the evolution to the next generation grid.”

Additional Third Quarter 2022 Consolidated Highlights

Gross profit margin was 33.2% as compared to 35.6% in the prior-year third quarter. Continued higher input costs were partially offset by realization of previously implemented pricing actions, resulting in a modest price/cost headwind compared to the prior year. In addition, recent acquisitions and less favorable sales mix negatively impacted margins during the current year.

Operating expenses increased $111.2 million, or 68.4%, as compared to the third quarter of 2021, which includes $55.3 million of pre-tax charges comprised of $17.9 million of bad debt expense related to a clean energy product customer that has filed for bankruptcy and $37.3 million of clean energy product warranty-related matters. The quarter also includes a $13.5 million increase in acquisition-related amortization expense. The remaining increase was primarily driven by the impact of recurring operating expenses from recent acquisitions, increased employee costs, and higher marketing spend most notably in the home standby category.

Business Segment Results

Domestic Segment

Domestic segment total sales (including inter-segment sales) increased 18% to $946.6 million as compared to $802.2 million in the prior year quarter, with the impact of acquisitions contributing approximately 8% of the revenue growth for the quarter. Core sales growth was led by C&I product shipments experiencing strong growth across all channels, highlighted by national rental equipment, telecom and industrial distributor customers, with home standby generators also experiencing year-over-year growth in the quarter. This growth was partially offset by lower clean energy product sales.

Adjusted EBITDA for the segment was $159.8 million, or 16.9% of domestic segment total sales, as compared to $187.7 million in the prior year, or 23.4% of total sales. This margin performance was impacted by higher input costs, partially offset by pricing benefits. In addition, continued operating expense investments for future growth and the impact of acquisitions had an unfavorable effect on margins during the quarter, as operating expenses as percentage of sales came in higher than expected on the lower shipment volumes relative to expectations.

International Segment

International segment total sales (including inter-segment sales) increased 14% to $182.5 million as compared to $159.8 million in the prior year quarter, with the impact of acquisitions and foreign currency providing an approximately 8% net headwind to revenue growth for the quarter.   The 22% core total sales growth for the segment was driven by strong growth across all major regions as compared to the prior year, most notably in Europe.

Adjusted EBITDA for the segment, before deducting for noncontrolling interests, was $24.0 million, or 13.2% of international segment total sales, as compared to $21.5 million, or 13.4% of total sales, in the prior year.   This margin performance was impacted by less favorable sales mix, mostly offset by improved operating leverage on higher volumes.

2022 Outlook Update

Consistent with the update provided in the Company’s preliminary third quarter earnings announcement on Oct. 19, Generac expects its full-year 2022 net sales growth to be approximately 22 to 24% as compared to the prior year, which includes approximately 5 to 7% net impact from acquisitions and foreign currency.

Additionally, the Company expects net income margin, before deducting for non-controlling interests, to be approximately 9.0 to 10.0% for the full-year 2022. This net income guidance includes the impact of the aforementioned $55.3 million of third quarter pre-tax charges. The corresponding adjusted EBITDA margin is expected to be approximately 18.0 to 19.0%.

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