GNRC - Generac Holdings Inc. (GNRC) Q4 2023 Earnings Call Transcript

2024-02-14 12:02:08 ET

Generac Holdings Inc. (GNRC)

Q4 2023 Earnings Conference Call

February 14, 2024 10:00 AM ET

Company Participants

Kris Rosemann - Senior Manager-Corporate Development & Investor Relations

Aaron Jagdfeld - President & Chief Executive Officer

York Ragen - Chief Financial Officer

Conference Call Participants

George Gianarikas - Canaccord Genuity

Michael Halloran - Baird

David Tarantino - KeyBanc Capital Markets

Brian Drab - William Blair

Christopher Glynn - Oppenheimer & Co.

Jerry Revich - Goldman Sachs

Stephen Gengaro - Stifel

Mark Strouse - JPMorgan

Donovan Schafer - Northland Capital Markets

Kashy Harrison - Piper Sandler

Joseph Osha - Guggenheim

Chip Moore - ROTH MKM

Keith Housum - Northcoast Research

Presentation

Operator

Good day, and welcome to Generac Holdings Fourth Quarter and Full Year 2023 Earnings Conference 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 Kris Rosemann, Senior Manager, Corporate Development and Investor Relations. Please go ahead.

Kris Rosemann

Good morning, and welcome to our fourth quarter and full year 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 US GAAP measures, is available in our earnings release and SEC filings.

I will now turn the call over to Aaron.

Aaron Jagdfeld

Thanks, Kris. Good morning, everyone, and thank you for joining us today. Happy Valentine's Day. I think I can say that. Our fourth quarter results reflect continued improvement in operating performance as shipments of home standby generators returned to strong year-over-year growth in the quarter, despite a softer-than-expected power outage environment.

We also experienced significant margin expansion in the quarter, driven by favorable mix and price cost tailwinds on both a year-over-year and sequential basis. In addition, we generated record free cash flow in the quarter on the continued reduction of our inventory levels.

Year-over-year, overall net sales increased 1% to $1.06 billion, and core sales were approximately flat during the quarter. Residential product sales increased 1% from the prior year as growth in home standby generator shipments offset lower portable generator sales in the quarter.

C&I product sales were approximately in line with the strong prior year fourth quarter, as softness in the domestic telecom and rental channels was offset by continued strength in broader C&I end markets.

Before discussing our fourth quarter results in more detail, I want to provide some highlights for the full year 2023. Global C&I product sales in 2023 reached an all-time record of approximately $1.5 billion, our third consecutive year of strong double-digit growth in the category, resulting in a nearly 30% sales, compounded annual sales growth rate over those three years. This included record full year performance in our International segment for both net sales and adjusted EBITDA.

The strength in our C&I products has helped to offset the headwinds in our residential product categories related to elevated levels of home standby generator field inventory in 2023 and a strong comparable period that included the benefit of excess backlog reduction....

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