Generac Holdings Inc. (GNRC) Q2 2023 Earnings Call Transcript

For the period ending June 30, 2023

August 3, 2023 10:00 a.m. ET

Prepared Remarks

Questions and Answers

Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to the Second Quarter 2023 Generac Holdings Inc. Earnings Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to your speaker today, Mike Harris, SVP, Corporate Development and Investor Relations. Please go ahead.

Mike Harris

Good morning, and welcome to our second quarter 2023 earnings call. I’d like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer; and York Ragen, Chief Financial Officer. We will begin our call today by commenting on forward-looking statements. Certain statements made during this presentation as well as other information provided from time to time by Generac or its employees may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements.

Please see our earnings release or SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today’s call. Additional information regarding these measures, including reconciliation to comparable U.S. GAAP measures, is available in our earnings release and SEC filings.

I will now turn the call over to Aaron.

Aaron Jagdfeld

Thanks, Mike. Good morning, everyone, and thank you for joining us today. Our second quarter net sales were in line with our prior expectations as stronger-than-expected C&I product shipments offset residential products, which were lower than expected as a result of a softer consumer spending environment that impacted shipments of home standby generators and shore products. This had an unfavorable mix effect on gross margins, resulting in slightly lower adjusted EBITDA margins than previously expected. Year-over-year, overall net sales decreased 23% to $1 billion, and core sales declined 26% during the quarter. Residential product sales decreased 44% as compared to a strong prior year quarter that benefited from significant excess backlog reduction for home standby generators.

The current year quarter continued to be impacted by elevated levels of field inventory for home standby generators as well as a decline in clean energy product shipments year-over-year. Global C&I product sales increased approximately 24% to an all-time quarterly record with broad-based growth across nearly all regions and channels. Adjusted EBITDA margins were negatively affected by the significant unfavorable sales mix as well as reduced operating leverage driven by lower home standby shipments and continued investments for future growth. Importantly, continued favorable price cost dynamics have created a meaningful margin tailwind, providing a partial offset to the unfavorable sales mix. Second quarter home standby shipments grew at a strong sequential rate, but declined significantly on a year-over-year basis as the second quarter of 2022 included the reduction of excess backlog and we continue to meaningfully under-ship end market demand in the current quarter as we focused on further reducing field inventories of home standby generators.