Generac Holdings (NYSE: GNRC) reported Q4 EPS of $1.53, $0.17 better than the analyst estimate of $1.36. Revenue for the quarter came in at $590.9 million versus the consensus estimate of $588.74 million.

Fourth Quarter 2019 Highlights

• Net sales increased 4.9% to $590.9 million during the fourth quarter of 2019 as compared to $563.4 million in the prior-year fourth quarter. Core sales growth, which excludes both the impact of acquisitions and foreign currency, was approximately 4%.
  • Residential product sales increased 9.7% to $322.5 million as compared to $293.9 million last year, with core sales growth of approximately 7%.
  • Commercial & Industrial (“C&I”) product sales decreased 2.7% to $217.1 million as compared to $223.2 million in the prior year, with core sales also declining approximately 3%.
• Net income attributable to the Company during the fourth quarter was $69.6 million, or $1.12 per share, as compared to $75.6 million, or $1.20 per share, for the same period of 2018. See accompanying reconciliation schedules for related earnings per share calculations.
• Adjusted net income attributable to the Company, as defined in the accompanying reconciliation schedules, was $96.5 million, or $1.53 per share, as compared to $88.1 million, or $1.42 per share, in the fourth quarter of 2018.
• Adjusted EBITDA before deducting for noncontrolling interests, as defined in the accompanying reconciliation schedules, was $129.1 million, or 21.9% of net sales, as compared to $126.1 million, or 22.4% of net sales, in the prior year.
• Cash flow from operations was $175.1 million as compared to $108.2 million in the prior year. Free cash flow, as defined in the accompanying reconciliation schedules, was $160.3 million as compared to $87.3 million in 2018. The increase was primarily driven by the monetization of previous working capital investments, together with lower capital expenditures compared to the prior year quarter.
• As previously announced, on December 13, 2019, the Company amended its Term Loan credit agreement, which among other things extended the maturity of the term loan from May 2023 to December 2026. In conjunction with the amendment, the Company paid down $49 million of debt on the term loan.

“The fourth quarter was a great finish to a very strong 2019 with record performance for both the quarter and the full-year for net sales, adjusted EBITDA and free cash flow,” said Aaron Jagdfeld, President and Chief Executive Officer. “Home standby demand was again robust during the quarter driven by California as public utility shut-offs drove a dramatic increase in interest for these products. We also made the first shipments of our new PWRcell™ energy storage system during the quarter, and the outlook for our clean energy products continues to exceed our expectations. Our full-year results for residential products were also exceptionally strong and broad-based, and we experienced similar trends with domestic C&I product shipments through our industrial distributors as the penetration of natural gas generators continues to accelerate. Additionally, shipments to our telecom national account customers for the full year increased significantly as they continue to expand and harden their networks in preparation for the impending rollout of 5G technology. We believe our 2019 performance is further evidence of the tremendous growth opportunities for Generac, and as we enter 2020 we are incredibly excited about the long-term prospects for our business.”

2020 Outlook

The Company is initiating guidance for 2020 with net sales expected to increase between 6 to 8% as compared to the prior year on an as-reported basis, and 5 to 7% on a core basis. This guidance assumes a level of power outages in line with the longer-term baseline average, but includes the benefit of one significant power shut-off event in California. Should there be a major event, such as a landed hurricane, along with additional public safety power shut-offs in California, we could expect approximately 3 to 5% of incremental revenue growth on top of the baseline guidance, resulting in an upside case as-reported sales growth of 9 to 13%.

Net income margin, before deducting for non-controlling interests, is expected to be approximately 11% for the full-year 2020, with corresponding adjusted EBITDA margin expected to be approximately 20.0%. Should there be a more active outage environment during 2020, we would expect margins to increase by approximately 50 basis points above this baseline guidance, resulting in an upside case adjusted EBITDA margin of approximately 20.5%.

Operating and free cash flow generation is expected to be strong, with the conversion of adjusted net income to free cash flow expected to be approximately 90%.

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