Generac Holdings Inc (GNRC) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter and full-fiscal-year 2011 Generac Holdings Inc. earnings call. My name is Karissa and I will be your Operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I will now turn the conference over to your host for today's call, Mr. York Ragen, CFO. Please proceed.

Good morning and welcome to our fourth-quarter 2011 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, our President and Chief Executive Officer,

We will begin by our -- 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 our 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 a reconciliation to comparable US GAAP measures is available in our earnings release and SEC filings. I will now turn the call over to Aaron.

Thanks, York. Good morning, everyone. We are pleased to report our fourth-quarter and full-year 2011 results this morning. The continued strong demand for back-up power and our recent acquisition of Magnum Products continue to drive-- combined to drive significant year-over-year growth in net sales, net income and earnings per share, as well as ongoing strong free cash flow.

Total net sales during the fourth quarter increased 66% year over year to $267.3 million and grew 42% organically when excluding the impact of the Magnum Products acquisition.

Residential product sales improved 68% compared to the fourth quarter of 2010 -- 2011, mainly driven by awareness that was created by major power outage events that occurred in certain regions of the country during the second half of the year. Our Commercial and Industrial product sales increased 63% year-over-year and includes for the first time the results of the Magnum Products acquisition that we closed on in early October 2011.

Looking at selected results on a full-year basis for 2011, Generac achieved a number of important accomplishments during the year highlighted by a record level of revenue of $792 million, representing a 34% increase over 2010. The Company converted this double-digit growth in revenue into year-over-year growth in adjusted net income of 27%.

The Company also experienced strong grow in cash flow generation with free cash flow up 50% to $158 million in 2011. We were able to convert a significant percentage of our adjusted EBITDA into free cash flow during the year due to our capital efficient business model, attractive tax attributes and favorable capital structure. Additionally, we continued to demonstrate disciplined uses for this cash flow.

In 2011 we remained committed to delevering our balance sheet as evidenced by $59 million in voluntary pre-payments on our term loan debt. We also closed on the strategic acquisition of Magnum, which has helped to accelerate progress in our Powering Ahead strategic plan.

In addition, we also made progress on a number of initiatives during 2011, including the launch off our Honeywell licensing agreement, the introduction of our new power washer product line and the continued expansion of our Residential dealer base with the addition of nearly 400 new dealers on a net basis.

We have also made essential investments in the infrastructure of the Company to accommodate what we believe to be a new baseline of demand for our products. We have increased our total headcount by more than 50%, including Magnum, more than double capacity within our supply chain and have added additional manufacturing capacity through investments in automation and improved utilization through our focus on lean manufacturing. We believe these investments are important to support our continued growth into the future.

In addition to these accomplishments in 2011, on February 9 of 2012, we completed the refinancing of our existing credit facility which was scheduled to mature in November of this year. We believe we took advantage of an optimal market window to complete this refinancing which will provide us with an attractive cost of debt while also giving us significant flexibility to execute our future growth plans.

In the fourth quarter we again experienced robust shipments of levels of our Residential products as a result of the awareness created by the major power outages occurring in the second half of 2011. The severe early season snowstorm in the northeast in late October reignited a sharp increase in demand for portable generators and further improved demand for home standby generators which was already strong after major outage activity related to Hurricane Irene and other outages in the Midwest during the third quarter.

The close timing of these events occurring in similar regions of the country coupled with the strength of our Residential distribution network in those areas, led to a greater acceleration of demand for Residential products. Our significant investment during the past decade in new product development, scaling of operations throughout the Company and expanding distribution capabilities enabled us to respond rapidly to these major outage events.

As was the case in the third quarter of 2011, I'm once again very proud of how the Company's employees and distribution partners responded to the continued increase in demand for back-up power as our teams worked tirelessly to provide a high level of customer service during the quarter.

We believe that during major events such as these, we clearly demonstrate that Generac is the break away leader in the home standby generator market and that we are quickly building an equally important leadership position in the portable generator market.

Looking forward, due to the afterglow the Company historically experiences after major outage events, we expect demand for our home standby generators to remain strong over the next several quarters as homeowners look to protect themselves from future outages. As the initial surge in demand levels off, we believe that the awareness and addtional distribution points added will create a new and higher level of baseline of demand for home standby generators as we move towards the second half of 2012 and beyond.

As mentioned previously, Commercial and Industrial sales for the fourth quarter included for the first time the results of the Magnum Products acquisition. The vast majority of Magnum sales are classified within C&I and the initial results exceeded our expectations with the acquisition contributing $36.5 million to this product category during the fourth quarter.

As anticipated and as previously discussed, excluding Magnum, Commercial and Industrial net sales during the fourth quarter were unfavorably impacted by the timing of certain larger shipments to national account customers in the third quarter as well as a short-term gap in the supply chain of certain component source from overseas.

On our last earnings call we discussed that the strength in shipments to certain telecom customers seen during the third quarter would likely have an impact on our C&I numbers in the fourth quarter as those customers turn their attention more towards installation of generators rather than new purchases during the quarter. It's also worth noting that the short-term gap in our Japanese supply chain is now fully resolved and as such, we do not anticipate it will impact our C&I business in 2012.

I also want to share with you a few brief comments regarding the purchase of Magnum Products. Our progress to date with the integration has been very favorable as the similar cultures and close proximity of Generac and Magnum have been positive factors for our teams as they execute our integration plan.

As the leader in the mobile light tower market and a strong up and coming player in the mobile generator and mobile pump markets, we see good growth prospects with Magnum's product line both in the United States and internationally.

We are particularly excited about the opportunities from revenue synergies as the combined sales teams work together on cross selling opportunities. With little to no overlap for the two business on products, distribution channels and end markets, we believe we will be able to offer Magnum's products to Generac customers and vice versa.

Additionally we are making good progress towards our goal of achieving roughly $2 million in cost synergies. Much of the savings we are projecting will come primarily as a result of improved purchasing scale with certain components and commodities as well as from improved utilization and efficiencies in Magnum's manufacturing operations. We expect we will begin to realize these savings throughout 2012 and will achieve the full realization on an annualized basis by the end of the year.

In addition to the Magnum Products acquisition, on February 1 of 2012, we closed on the acquisition of Gen-Tran Corporation, a leading provider of transfer switch products and other back-up power accessories. This acquisition gives Generac immediate access to a complete line of manual transfer switches that are complementary to our portable generator products and will allow us to offer a more complete assortment of back-up power solutions to our customers.

Although not material to the overall financial results of the Company, we believe we can leverage our existing customer relationships and bring meaningful synergies to the combined Companies. I would now like to turn the call back over to York to discuss fourth-quarter results in more detail. York?

Thanks, Aaron. As previously mentioned, net sales for the fourth quarter 2011 were $267.3 million, a 66% increase compared to $161 million in the fourth quarter of 2010. Looking at net sales by product class, Residential product sales increased 67.6% to $167.5 million in the fourth quarter of 2011 from net sales of $99.9 million in the fourth quarter of 2010.

As Aaron commented, Generac once again experienced robust shipment levels of both portable and home standby generators as a result of the high profile power outages seen during the second half of 2011. As we have previously stated, the vast majority of our Residential product sales relates to home standby generators.

In the fourth quarter, we experienced significant year-over-year growth in home standby generator sales as millions of people in certain regions of the country were impacted by multiple outage events in the second half of 2011. The broad awareness for home standby generators created by these outages was significant and we believe this additional awareness will drive prolonged demand for these products into 2012.

With regards to portable generators, we continue to see strong demand for these products during the fourth quarter of 2011. Replenishment of inventory levels at retail, coupled with the early season snowstorm in the northeast helped to drive continued demand for these products during the quarter.

Now looking at our Commercial and Industrial products, net sales increased 63.3% to $85.5 million in the fourth quarter of 2011 from $52.4 million in the fourth quarter of 2010. Magnum Products contributed $36.5 million in C&I revenue during the fourth quarter of 2011.

As highlighted during our third quarter conference call, we expected C&I product sales in the fourth quarter of 2011 to be negatively impacted by the timing of certain larger shipments to national account customers in the third quarter, as well as a short-term gap in the supply of certain component source overseas.

This was the case in certain national account customers, focused on installations of products in the fourth quarter of 2011 after significant receipts of product in the third quarter of 2011. Additionally, the short-term supply chain gap in the fourth quarter of 2011 resulted in less than a $5 million impact for the quarter. We believe the supply chain gap is now resolved and we should be able to catch up in the first quarter of 2012.

With regards to Magnum. Results during the fourth quarter of 2011 came in above our expectations as strong demand from energy and construction end markets continued. Additionally, as fleets continue to age, rental equipment companies have started to replace equipment, helping to drive growth for Magnum. Looking forward, we expect to take advantage of future cross selling opportunities which we believe will drive additional growth for Generac and Magnum as a whole.

Our Other product sales category improved to $14.3 million in the fourth quarter of 2011, an increase of 63% from prior year fourth-quarter sales of $8.7 million. Magnum Products contributed $2.3 million in Other product sales during the fourth quarter. As a reminder, this product category is comprised of the sales of aftermarket service parts, loose engines to lawn and garden OEMs and shipments of RV generators to OEM coach manufacturers.

The approximately 37% organic increase in Other product category primarily relates to elevated service parts sales as a result of focused initiatives to drive increased parts sales to our distribution partners, as well as increased demand that was generated by the mobile -- by the major power outages during the quarter.

Gross margin for the fourth quarter of 2011 was 36.8% compared to 37% in the third quarter of 2011 and 39.6% in the prior-year fourth quarter. The 280 basis point reduction in gross margin versus prior year, was largely driven by the mixed impact from the addition of Magnum Product sales in the fourth quarter of 2011, which reduced total Company gross margins by approximately 2.3%. Additionally, the decline in gross margin for prior year was also due to a high sales mix of portable generators during the current year quarter.

Operating expenses for the fourth quarter of 2011 increased by $25 million, or 66.4% as compared to the fourth quarter of 2010. Operating expenses for the quarter included Magnum Products for the first time. In addition, the current year quarter include the $9.4 million pre-tax trade name write down as we continue to strategically transition to our primary Generac label.

Excluding Magnum and the impact of the trade name write down, operating expenses increased $12.3 million, or 32.7% as compared to the fourth quarter of 2010. This increase was primarily driven by increased variable operating expenses on the 41.9% increase in organic sales, increased sales and engineering infrastructure to support the strategic growth initiatives of the Company, an increase incentive compensation expenses as a result of the Company's financial performance during the quarter.

Adjusted EBITDA of $61.8 million in the fourth quarter increased 44.6% from $42.7 million in the same period last year. Our adjusted EBITDA for the year ended December 31, 2011 is $188.5 million as compared to $156.2 million during the year ended December 31, 2010, a 20.6% increase. On a pro forma basis, when including the results for Magnum for the full year, our adjusted EBITDA in 2011 would have been $201.9 million.

GAAP net income for the fourth quarter of 2011 increased to $267.1 million compared to $18.6 million for the fourth quarter of 2010. Net income for the fourth quarter of 2011 includes the net $238 million income tax benefit largely due to the reversal of the full valuation allowance on our net deferred tax assets. In addition, fourth quarter 2011 net income includes the previously mentioned $9.4 million pre-tax trade name write down.

Regarding the $238 million income tax benefit, prior to the fourth quarter of 2011, the Company was previously in a three-year cumulative loss position due primarily to a goodwill and trade name impairment write off back in the fourth quarter of 2008. Because of this three-year cumulative net loss position and in accordance with generally accepted accounting principals, the Company previously did not consider expected future taxable income in analyzing the realization of the Company's deferred tax assets.

As a result, we previously established a full valuation allowance against those deferred tax assets. With the inclusion of the fourth quarter 2011 results, the Company is no longer in a three-year cumulative net loss position and therefore was allowed to eliminate the valuation allowance on its deferred tax assets after reviewing expected future taxable income.

The reversal of the valuation loan shows up on our income statement as a large non cash benefit running through the income tax line item. It is important to note that due to restoring the net deferred tax assets on the balance sheet, the Company is expected to have a more normalized GAAP tax rate going forward given there is no longer a valuation allowance to offset. We expect this normalized tax rate to be in the 38% to 40% range.

More importantly, this expected tax provision rate is virtually all non cash in nature as Generac will continue to experience significant cash tax savings from the step up on an asset basis and NOL carry forwards relating to the 2006 change in control transaction and to a lesser extent the recent Magnum acquisition. Given these tax attributes, we believe we will not be paying federal income taxes for the foreseeable future, which is the reason we only reflect cash taxes in our adjusted net income calculation.

Adjusted net income, as defined in our earnings release, increased 57.3 % to $51.8 million versus $32.9 million in the prior year. The improvement in adjusted net income is attributed to the improved operating earnings during the quarter from the 66% increase in revenue, coupled with lower interest expense compared to prior year.

Interest expense declined in the fourth quarter of 2011 to $5.9 million compared to $6.6 million in the same period last year. This decrease is a result of nearly $134 million of debt pre-payments that were made over the last 13 months.

Diluted net income per share for the fourth quarter was $3.91 per share compared to $0.28 per share in the fourth quarter of 2010. The current year EPS amount includes the net income tax benefit of $3.48 per share which includes the reversal of the full valuation allowance on net deferred tax assets and an $0.08 per share charge or $0.14 per share pre-tax charge related to the trade name write down.

Adjusted diluted net income per share, as reconciled in our earnings release, was $0.76 per share for the current-year quarter compared to $0.49 per share in the prior-year quarter, a 55% increase. For the full fiscal year, adjusted diluted net income per share in 2011 was $2.17 per share.

Free cash flow, defined as net cash provided by operating activities less capital expenditures, was $73.1 million in the fourth quarter of 2011, which is up significantly from the $26.1 million in the same period last year.

Collections on the record shipments of Residential products during the second half of 2011 helped to generate significant cash flow in the fourth quarter which was partially offset by inventory replenishment as we increased production rates for the higher demand in restocked portable generators. In addition, Magnum contributed modestly to our free cash flow generation during the quarter.

With regards to Magnum, the opening balance sheet as of October 3, 2011 included approximately $30 million of primary working capital defined as accounts receivable plus inventory less accounts payable, which contributed significantly to the year-over-year change in those balance sheet accounts.

For the full year 2011, free cash flow generation of the Company was $157.7 million. We use this cash in order of our stated priorities. First to organically grow the business with $12 million of capital expenditures, next to reduce our leverage by paying down $59 million of outstanding debt during the year, and lastly for highly strategic and synergistic acquisitions where we used $83.9 million of cash on the balance sheet for the acquisition of Magnum Products.

Looking at our capital structure, as of December 31, 2011 we had $597.9 million of term loan debt outstanding and $93.1 million of consolidated cash and cash equivalents on hand resulting in consolidated net debt of $504.7 million. At December 31, 2011, our consolidated net debt to LTM adjusted EBITDA leverage ratio was 2.7 times. This compares to a 3.7 times net debt leverage ratio at December 31, 2010.

On a pro forma basis when including the results of Magnum Products for the full 2011 fiscal year and assuming expected analyzed synergies of $2 million to be phased in during 2012, our leverage ratio was 2.5 times as of December 31, 2011.

As we disclosed last week in an 8-K filing, on February 9, 2012 the Company closed on the refinancing of its prior credit facility into a new senior secured credit facility. Given the Company's prior revolver and term loan were scheduled to mature in November 2012 and November 2013 respectively and given current market conditions, we believe it was an opportunistic time to execute this refinancing transaction.

The new credit facility is comprised of a $150 million unfunded revolver, a $325 million term loan A and a $250 million term loan B. The revolver and term loan A both have a five-year term with interest payable on a leverage based pricing grid starting at LIBOR plus 2.25%. The term loan B matures in seven years and accrues interest at LIBOR plus 2.75% with a 1% LIBOR floor and was issued with a 99.5% original issue discount.

In conjunction with the refinancing, on February 9, 2012 the Company paid down an additional $22.9 million of debt resulting in total debt outstanding at the date of closing of $575 million. As a result of this refinancing transaction, $22.9 million of debt is classified as current and $575 million is classified as long-term debt on our December 31, 2011 balance sheet.

Our average cost of debt under our previous credit facility at current LIBOR rates was approximately 3.8%. Under our new credit facility, we anticipate our average cost of debt at current LIBOR rates will be approximately 4%.

Our current interest rate swaps that cover $300 million notional amount of debt will roll over to the new credit facility and have been reflected in the average cost of debt figures just mentioned. With this refinancing transaction, we were able to extend our credit facility out through 2017 and 2019 at an attractive cost of debt which it provides significant financial flexibility to execute our growth strategies.

I would now like to walk through some guidance items to help model out our cash flows and earnings per share for 2012. In 2012, we expect interest expense to be in the range of $25.5 million to $26.5 million, which includes $23 million to $24 million of debt service costs at current LIBOR rates, plus approximately $2.5 million for deferred financing costs amortization for our new credit facility.

The write off for deferred financing costs from our previous credit facility should be approximately $3.5 million in the first quarter of 2012. Our cash taxes for 2012 are expected to be approximately $500,000 to $1 million given our favorable tax attributes.

Depreciation expense in 2012 is forecast to be approximately $9 million to $10 million. In 2012, our amortization expense is expected to decline slightly to $46 million to $47 million as certain of our definite lived intangible assets become fully amortized. Our stock compensation expense is forecast to increase to approximately $11 million to $11.5 million, which reflects an increase over 2011 stock compensation expense of $8.6 million as a result of expected grants of long-term equity incentive awards during 2012.

Finally in 2012, our capital expenditure spending is budgeted to increase to approximately $16 million to $18 million, or less than 2% of net sales, as we continue to invest in high return product development and cost reduction projects as well as certain infrastructure expansion projects. With that I'd now like to turn the call back over to Aaron to provide additional comments on our outlook for 2012.

Thanks, York. We continue to be focused on executing our long-term Powering Ahead growth strategy. For the full year 2012, we expect as reported net sales to increase at a mid-to-high teens rate as compared to the prior year.

On a pro forma basis, when including the full-year 2011 results of Magnum Products, we expect total net sales in 2012 to increase in the mid-single digits as compared to the prior year. On the same pro forma basis, we are estimating Residential sales increasing in the mid-to-high single-digit range and C&I sales increasing in the low single-digit range.

Our 2012 expectations for revenues assume no material improvement in the macro economic environment and no comparable outage events during the year. From a seasonality standpoint, revenue for Generac during the second half of any given year is typically stronger in comparison to the first half of the year. However we anticipate seasonality for 2012 to significantly deviate from our historical norms.

Given the strong increase in demand during the second half of 2011 for home standby and portable generators combined with the closing of the Magnum Products acquisition in early October 2011, we expect that year-over-year revenue growth in 2012 will be heavily weighted towards the first half of the year on an as-reported basis.

While we do not expect a near-term recovery in US Residential investment, sales of home standby generators are expected to improve for the full year 2012 partially offset by an expected year-over-year decline for portable generators should no comparable events occur.

As a result of increased awareness, we expect significant revenue growth for our Residential products during the first half of the year. And assuming no major outage events during 2012, year-over-year revenue growth comparisons are expected to become more difficult during the second half of the year particularly for portable generator sales.

With that said, we expect Residential product sales during the second half of 2012 to be appreciably higher than the previous baseline sales level experienced in the second half of 2010. As the leader in the home standby generator category over the last decade, we have witnessed a unique growth cycle in the penetration rate for these products.

Depending on the severity and location of major outage events, adoption rates tend to surge for a period of 6 to 12 months afterwards and gradually settle back down to a new normal rate of adoption which is greater than the previous baseline rate. We believe the increased awareness of home standby generators combined with a more targeted approach to finding prospective buyers for these products and greater distribution are all contributing factors to the baseline growth of this product category.

Commercial and Industrial products sales are anticipated to increase significantly over 2011, primarily as a result of Magnum acquisition. We are expecting strong double-digit revenue growth rates during the first three quarters of 2012, until the Magnum Products acquisition becomes annualized during the fourth quarter.

Pro forma for Magnum Products we expect C&I product sales to increase at a low single-digit rate during the year following the strong revenue growth experienced during 2011 which was primarily driven by a rebound in certain industrial and telecom markets. Our organic growth outlook for C&I assumes no material improvement in the non-residential construction market during 2012.

Additionally, due to the timing of capital spending by our national account customers, we could experience some variability in product shipments from quarter to quarter, similar to our experiences in the third and fourth quarters of 2011. We expect gross margins to be approximately flat during 2012 compared to the prior year on an as-reported basis.

The unfavorable mix impact from the full year results of Magnum Products will be partially offset by a higher sales mix shift towards home standby generators and a lower mix of portable generators. Further offsetting the impact of Magnum, we expect margins will be favorably impacted by the realization of price increases, improved manufacturing overhead absorption, commodity cost moderation and cost reduction projects.

Our consolidated operating expenses as a percentage of net sales, excluding amortization of intangibles, are expected to be slightly up when compared to 2011 as we continue to invest in the infrastructure necessary to support our strategic growth initiatives and the anticipated higher level of baseline sales.

This investment is focused most notably in adding new employees within our sales and engineering related functions, corresponding with our expected increase in spending on targeted marketing initiatives, distribution related development efforts, product enhancements and new product development programs.

Given our best in class margins, capital efficient business model, favorable tax attributes and our attractive capital structure, we expect to continue generating significant free cash flow in 2012. Our strong free cash flow and disciplined approach to our use of cash has resulted in a dramatically improved balance sheet as compared to several years ago and has allowed us to aggressively pursue growth both organically and through strategic acquisitions such as Magnum and Gen-Tran.

We believe that our ability to grow organically will continue in the current year as a result of the high profile outage events in the second half of 2011 which we expect will result in a new and higher level of baseline demand for our products.

In addition to supporting the anticipated higher level of baseline business, we will continue to focus on a number of strategic initiatives to grow the home standby generator market by improving the awareness, availability and affordability of these products. We will be launching several new programs for our Residential dealers in 2012 that we believe will continue to solidify our position as the preferred partner for these products.

In addition to the Residential market, we are also committed to growing our share of the Commercial and Industrial market through several strategic programs including upgrading our distribution capabilities, focusing on expanding the addressable market for our dealers through new product development and capitalizing on revenue synergies with Magnum.

Consistent with our Powering Ahead strap plan, in 2012 we will also focus on further diversifying our end markets through new engine powered products and service-related offerings as well as increasing our distribution footprint by expanding into new geographies. These objectives could be achieved organically or through additional acquisitions that fit within our strategy.

Along with the momentum we are seeing in many of our end markets coupled with the initiatives that we currently have underway, we believe that Generac is well positioned for growth in 2012 and we are very excited about our future. This concludes our prepared remarks. Thank you again for joining us today. At this time we'll open up the call for questions.

(Operator Instructions) Steve Sanders of Stephens Inc.

Hi, good morning, guys, impressive quarter.

Good morning, Steve.

Maybe first on the portable side, I think you mentioned that there's going to be some rebuild in the channel. I'm curious, because you guys responded so effectively to this, do you think you took significant share in the back half of the year?

Yes, we saw-- we did see our share grow we believe in the second half of the year based on not only our own statistics internally but some other independent statistics that showed that we did pick up some share. I think that, that momentum has been building, Steve, as we've talked over the last couple of years and I think the events that happened in the second half of 2011 were really the first time we were able to kind of stretch our wings and show our full capabilities and really I think experience the size of the distribution pipe that we've been building here over the last couple of years.

Okay and then how did the core power mix play out over the past couple of quarters?

Yes, core power continues to be I think a very attractive product as a lead in to the market for standby generators. We positioned that product as an entry level price point product. And what we find is that at retail and at other channels where price is more sensitive, that that product has done quite well. It's really kind of exceeded our expectations in some of those channels. And then what we also see is as being used in our dealer channels in particular, it's used by dealers to breakdown objections to price in getting homeowners into this category and we find it-- we find the dealers use it as a way to help upsell consumers to more of the flagship product line.

Okay, so so far it's working out as you expected, it's not cannibalizing, it's bringing more people to the category?

We feel it's bringing more people to the category, people who would have otherwise probably bought a portable generator.

Okay. And then in terms of the mild winter, it seems like that would be good for the Resi installation business but maybe a negative for the orders. How has that played out over the past couple of months?

I think that characterizes it pretty well. The lead times that stretched out here in the fourth quarter and even into the first quarter here were not only a function of our only lead times here manufacturing just ramping up, but also distribution's capacity to process all the leads that they have on their side and quite frankly, the installations. And normally this time of year would be quite a bit slower for them with installations if you had a food of snow or a couple feet of snow on the ground out east or in the Midwest here, that makes it very difficult to install these products. So that clearly has helped-- the weather, the warm weather that is, has clearly helped those guys kind of catch up.

And obviously without any major events, ice storms or other weather, at least to this point in the season, I think that we're still pleased with the progress to date here in the first quarter on orders, but clearly without that kind of severe winter weather that would have caused outages, most likely the impact there is going to be on portable generators, we're rebuilding that stock now and we'll have to see how the reorders go as we progress into Q2, especially down in the southeast.

Okay, and then last question just a quick update on the power washer business. I know it's still early, but I think sometime over the next few months, you were hoping to get a sense of shelf space and how the opportunity looked in the first season?

Yes as we mentioned Steve, we secured some shelf space last year at what I would refer to more as secondary or tertiary retailers, not any of the kind of tier 1 retailers. We had a couple of promotions that we ran. But short of that, last year was the launch year for us really in Q2. Got the product out there, really started to get our sales teams to start pushing the product. Really geared for the line review season which is beginning now here next month at a lot of the major retailers. So we should have a pretty good sense as we go into Q2 where we kind of stand for the season for 2013. This is really, the line review season right now that we're going into here in 2012 is really for next year.

So we have got some decent shelf position for this year. I think we have been fairly conservative how we're modeling in. We actually have been getting a couple of nice wins there along the way. I think that there's a couple of manufacturers out there who are having some difficulties delivering based on the availability of some certain components, and that's helping us win a little bit more shelf space than I think we would have thought at this point. But I think we're still being pretty modest in our projections here in '12 with probably a better eye towards 2013 as we move into the second quarter this year.

Okay, thanks very much.

You bet, thanks, Steve.

Thanks Steve.

Jeff Hammond of KeyBanc Capital Markets.

I just really want to delve into the Residential variance a little bit better-- more. You had said 30% plus, you came in kind of high 60%s. And it sounds like weather maybe helped you from an install standpoint, and then you had the early storm. But, are you seeing better uptick on standby demand or where were the variances exactly?

Yes, I think in fairness on that, Jeff, when we gave that guidance, the snowstorm had just hit that weekend prior to the guidance being issued. So I think that was not having a depth of the understanding of what was going on out east at that point, we probably would have been a little bit more bullish on our projections for Q4 had we known the depth of that. And really what was unique there is when you overlay the geography of where the snowstorm occurred, you overlay that on the hurricane Irene path and it really was a-- it was kind of a double whammy for most of the country. And probably our most mature and tenure dealers are up there as well, so we've got a very deep distribution network. We've done very well in the northeast for a long time, and that really helped us. So the combination of those factors is what really led to the out performance.

I will say that the portable generators we were able to-- with the replenishment we had done to that point, we were able to push that product through very quickly in early part of fourth quarter to satisfy that demand surge. In fact we probably could have sold more had we had more, we just hadn't fully rebuilt our position at that point. Home standby though, we've been very pleased with the up take on home standby in that region of the country and in the Midwest as well. A lot of the outage events of this past summer in the Chicago land area and some of the other markets in the Midwest created a much higher level of awareness for these products. And again it's got our distribution kind of lined up on the right side of helping promote these products, helping get the word out about the availability and the affordability of the products. And so we're very pleased with the uptake right on home standby and the traction that we're getting in that product category.

Okay and then just on Magnum, big variance there on what you had said you were going to do $25 million to $30 million versus the $38 million. What's going on there? And then I'm kind of backing in to $90 million to $95 million contribution from Magnum in your guidance and that would imply kind of down sales over the first three quarters, can you just give a little more color there?

Yes I mean what's driving Magnum is their exposure to the energy markets in particular, that demand has continued to grow. They-- anywhere you'd need temporary power or temporary lighting, whether it'd be road construction, commercial construction, or in particular in a lot of the exploration and extraction efforts that are going on out west down in the Gulf Coast, up in Canada in the oil sands, Magnum has a preferred position with that supply chain or that customer base I should say that's serving those end markets and that really just-- that's continued to exceed our expectations in Q4. As it relates to the guidance, York, I think--

Yes, 2012, if you're looking at 2012 and trying to figure out the pieces between Generac and Magnum might-- I guess what I'd offer is that we talked about on a pro forma basis assuming we had Magnum for all of '11, C&I we're guiding towards low single-digit growth '11 to '12. I would say that Generac standalone and Magnum would have similar growth rates to that guidance. So I guess that's maybe the best way to answer that.

Okay, perfect. And then just a couple housekeeping items, can you run through the interest expense and what some of the one timers within that number are? And just how big is Gen-Tran?

Yes, with interest expense with the refi, so now you need to take down our debt to $575 million. So as I talked about, we paid down another $22.9 million in-- on February 9. So you start with $575 million and then you break that up into the pieces in terms of the refi that I talk about with $325 million of the term loan A being at LIBOR plus 2.25%. And then the $250 million of term loan B is at LIBOR plus 2.75% but with a 1% LIBOR floor. So you need to factor all that in.

And then speaking to the one times, there should be, and again these are the deferred financing costs related the old credit facility should be roughly I believe I said $3.5 million of a write down in the first quarter of 2012. And then going forward from there, then amortization of the deferred financing costs for the new credit facility should be roughly $2.5 million amortized throughout the year starting on February 9, throughout the year.

So the $25 million to $26 million include this $3.5 million?

It does not, so--

Okay, so that's basically the interest expense and then the amortization that's ongoing and then this $3.5 million is kind of the one time--

Correct so the $3.5 million is not in the $25 million to $26 million.

Okay, perfect. And then Gen-Tran?

Yes Gen-Tran it was a small acquisition, relatively small company, less than $10 million in sales and really not material to the overall financial results of the company. But yet we felt it was strategic in terms of filling out our product portfolio on the Residential side of our business.

Yes, it's really, Jeff, a way for us to offer kind of a-- you think of it as kind of a full solution for any customer within any price range, right? So the products that Gen-Tran manufactures are primarily they're focused on what we refer to as manual transfer switches. Every generator automatic-- standby generator has an automatic transfer switch. Portable generators you can either run extension cords to or some people can choose to have an electrician wire a manual transfer switch on the wall of their garage or in their home that they would plug the portable generator into during an outage event and then power up certain select circuits within their home.

It really is-- it's kind of a neat little product category that we didn't' have in our portfolio, really represents I think the epitome of what we're looking for in terms of acquisitions, nice bolt-ons that we believe are very synergistic to take those products. And if you think of it, we can do some pretty interesting things with packaging together these products with portable generators and selling full solutions at retail. We can leverage our retail relationships or our dealer relationships, our wholesale relationships to sell these products. So we're pretty excited about it. Even though it's a small company, kind of excited about the opportunity it can present to us.

Okay, thanks, guys.

Thanks, Jeff.

Thanks, Jeff.

(Operator Instructions) Jerry Revish of Goldman Sachs.

Gentlemen, can we dig in on the Commercial and Industrial segment outlook a bit more? York your comment on the generator side of low single-digit growth compares to what we're hearing from the diesel competitors that they're looking at a 20% plus increase this year, is there any difference in mix that would drive the shift for you, or is it a customer issue? Just give us more color there.

I think what you'd look at if you look at 2011 Jerry, we outperformed much of our competitors because a lot of our end markets rebounded quicker in 2011 and probably a little steeper rebound. In particular, the telecommunications market, some of the other commercial markets that-- or I should say industrial markets that we serve in manufacturing, we have a little bit better share position in those end markets. And I think we were able to come out a little bit faster than other guys. I think what you're seeing now is that they're coming up to speed and probably catching up a little bit with our growth from 2011.

We feel pretty good that we're going to hold that growth here in 2011, albeit that the growth rates are not going to be the same as what they were last year. We're pretty excited that 2012 is going to represent kind of again holding a higher level of sales in those markets. And then when you layer on Magnum on top of that and some of the potential synergies there, we think there's some real opportunities within that to take that even further and continue to take share from our competition.

Aaron, can you quantify that last point? What's the range of upside we should be thinking about?

Yes, we haven't-- we've offered a range on cost synergies of $2 million. We haven't offered a range on revenue synergies because we're still kind of working through the cross selling opportunities to really understand what they are. But I can tell you just as an examples one of the early things that we've seen, we, and I think I may have mentioned this once before, but we've got a very deep national account presence with-- in particular telecommunications companies, also some national retail companies. And those companies often times have both a stationery gen set back-up strategy and also a mobile gen set for emergency deployment in areas where they may have stores or may have cell sites or communication centers that don't have a stationery back-up system.

We've never been able to participate in that mobile market at any great degree. The acquisition of Magnum now allows us to go back to those partners and offer a full solution. And in fact, we've got a couple of those customers that have already placed some orders for mobile products here in 2012 that I think without the Magnum relationship, would otherwise not have placed those orders from us.

And Aaron on the assumptions from the Magnum business, we're hearing from your customers that their CapEx budgets are going to be up 20%, they're already at prior cycle high utilization levels and they're getting 5 to 10 points of pricing. So given those factors, why are we looking at single-digit organic growth for the Magnum product lines?

Yes, again Magnum was up kind of similar to the story on C&I for us, Jerry, Magnum's rebound really happened in 2011. They were up quite big in 2011. And that's something that, up over 60% really, and that's something that again their markets came back, in particular as I mentioned the oil and gas exposure they've got the energy markets there. The rental customers, we remain cautious. We know what they've said, their fleets continue to age and a lot of that makes sense. Maybe some of it is our just gaining knowledge in how this market works. I've recently been-- we've been in a lot of dialog with these customers to understand their purchase cycles and we've talked very deeply with the Magnum Management team to get a better handle on it and they're very bullish on it and very optimistic about the year. I think that for us we think that the increase they saw last year in particular was such a huge increase that just holding those gains here into 2012, and even though those growth rates are kind of tailing off a little bit here in '12, still they're at places that Magnum's never been in terms of sales rates.

Okay. And can you give us an update on lead times across your businesses and on Resi standby in particular? And it sounds like you worked through all of the major supply chain issues based on your prepared remarks, is that fair?

That is fair. And that supply chain interruption was really related to C&I, really one product line, our larger product line that kind of pushed things out almost to 20 weeks on lead times that were normally running in that kind of 8 to 12 week range. So generally you'll see lead times on our C&I business in that anywhere from 6 to 12 weeks, depending on the product, depending on the customer and the end market. On the Residential side, we've been pretty good at delivering products over the last couple of years inside of two weeks when a customer places an order, depending on where it's going and what the complexity of the order is. But those lead times, as we've talked, have stretched out here in the fourth quarter and into Q1 with the surge and demand. And what we're seeing now is we are starting to see those lead times, we're pulling them back in. They ran out sometimes as long for certain models out to 8 to 10 weeks.

So it's quite a ramp up there as we brought our production lines up, we've made some-- we've hired over 300 people here over the course of the last 90 to 120 days. We've put additional shifts on at our factories. I mentioned in my prepared remarks, we've increased significantly in the capacity in our supply chain which I think is always one of the areas that people forget about when you want to do a ramp up, is it's one thing to go ahead and hire your own people and put on additional shifts, but you've got to get your supply chain to orient around a higher level of production as well. So we've worked through that, I'm very proud of our operations teams and our global supply teams. They've done a tremendous job working very, very hard over the last 90 days to make that happen.

We've also seen that the home standby orders they were very sticky and have been sticky in the past, they don't go away. There aren't a great degree of cancellations, even though people have to wait. It is an installed product so you have to think about it this way that typically people, even though a dealer or a retail partner could get a product from us inside of two weeks, the installation process and the coordination of that project generally took awhile longer, there's building permits involved, there's scheduling and logistics involved. So customers have-- they've not experienced getting a product installed inside of two weeks, even though a product was available. So it's only a little bit longer I guess in terms of the overall project length to the end consumer. So those orders tend to be sticky and people tend to wait for the product.

And, Aaron you mentioned your high was 8 to 10 weeks in the fourth quarter, what is it down to now on the Residential products just pure manufacturing lead times?

Yes, we're getting back inside of-- in some models it depends, we're down as low as some of our liquid-cooled products we're back inside of two to three weeks of lead time. Air-cooled products, which are the smaller KW sizes and quite frankly the more popular sets that we sell, are still-- some of the models are still in that six week range, six to eight weeks in some cases on some of the higher running models and coming down. We expect it will be back to normal lead times sometime by the time we get out of the first quarter and into the second quarter.

Thank you very much.

Thanks, Jerry.

Thanks, Jerry.

Brian Drab of WIlliam Blair.

Hello, good morning, congratulations on a great quarter.

Thanks, Brian.

Thanks, Brian.

I just have a couple quick ones at this point. But have you talked at all yet about the capacity utilization? I don't think you've commented yet, what kind of capacity utilization do you have to run at to put up numbers like you did in this quarter? And if you could talk about how many shifts you have to run, what kind of overtime's required to put up numbers like that?

Yes so it's a great question, Brian. We've said in the past we were anywhere between 60% and 65% utilized as a Company in terms of our footprint and what we had available. And obviously when you ramp up the way we've ramped up you start to put pressure on that. We think we're probably from a utilization standpoint somewhere around 80% to 85% utilized. A little bit more probably in some of our plants where the focus a little bit more on Residential products in particular. We've added third shifts in those areas, so where we were kind of doing a two shift overtime type of approach, maybe two 10-hour days in some cases, we've now gone to three full shifts in all those factories that are supporting Residential.

What that's done is obviously that we've had to add quite a few people, but it's cut out the overtime component of that. And we think that the overhead absorption is going to be-- we're going to start to see that here in the first quarter. It does though, start to point out that as we've said, as we approach kind of $1 billion in sales level, which we're kind of if you do the math, we're headed that way trajectory wise, we are going to need to evaluate adding some additional capacity. We've been doing it right now through being smart about putting some automation in places in the plants and really focusing on lean manufacturing. We've been lean for a long time, but really redoubling our efforts on lean in some of our factories and really help squeezing out as much additional utilization as we can get.

But I'll tell you it really is-- and in particular probably more glaring for us was where we see the shortfalls just in supply chain. You really kind of see where the rocks-- when water level drops, you see where the rocks stick out of the water and we've really worked very, very hard to isolate some areas where we think we can continue to add capacity throughout our supply chain as well.

Okay, great. And then as we're trying to model 2012, you've giving us a lot of great detail and a lot to work with, but can you talk at all now you're at-- we're at mid-February, what kind of demand level you're seeing in the first quarter relative to what you saw as you exited the fourth quarter? And are we still carrying that same type of momentum?

Yes I mean we won't give the particulars here in the first quarter, we'll have to-- we'll summarize that when we get to the end of the quarter. But-- because it is pretty early to tell, we're only in the second week of February here. But I think as I may have mentioned here earlier, we still continue to be pleased with the uptick and the acceptance of the home standby generator market, there is going to be some refill on pipeline. Portable generators, that kind of continues through Q4, it's tapered off a little bit here in Q1 as we go forward.

I think Q2, if you look at history, if history is our-- any guidepost for us, what's happened in the past with portable generators is you'll see more of a pipeline fill as you go into the second quarter. You get closer to the kind of traditional seasonality of that product category. In fact a lot of our inventory checks in markets have shown that we had quite a few retailers and other distribution partners kind of reposition stock during Irene and during the snowstorm from the southeastern markets up to the northeast and in the Midwest, and so we think that there's probably maybe an opportunity to continue to fill the pipeline in those regions and maybe even to a degree in the northwest going into the second quarter.

Okay, great. Thanks very much.

Thanks, Brian.

(Operator Instructions) And at this time, there are no further questions. I'd like to turn the call over to Management for closing remarks.

Thank you very much, Operator. We are very pleased with the results of Generac here in the fourth quarter and for full year 2011. We're very excited about our future and we're excited to share with you our first-quarter results when we are complete. So thanks again for joining us this morning.

This concludes today's conference, thank you for your participation. You may now disconnect, have a great day.