Generac Holdings Inc. (NYSE:GNRC) Q2 2020 Earnings Conference Call - Final Transcript
Jul 30, 2020 • 09:00 am ET
Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter 2020 Generac Holdings Inc. Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mike Harris, Vice President of Investor Relations and Corporate Development. Thank you. Please go ahead, sir.
Michael W. Harris
Good morning, and welcome to our second quarter 2020 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. Thanks, Mike. Good morning, everyone, and thank you for joining us today. We're excited to discuss our financial results reported earlier this morning, in which sales, adjusted EBITDA and adjusted EPS were all records for a second quarter, and were led by strong growth in residential products of approximately 27%. Relative to expectations, second quarter revenue dramatically exceeded our prior forecast, and adjusted EBITDA margins were much higher than previously forecasted, primarily due to the higher-than-expected shipments of residential products, which led to a considerable favorable mix impact on profitability. Home standby shipments came in significantly higher than our prior forecast, primarily driven by robust demand as a result of the heightened awareness of the need for backup power since the onset of the COVID-19 pandemic. We also experienced higher-than-expected growth for Chore products sold directly to consumers as homeowners increased outdoor project activity while spending more time at home. As expected, the ongoing pandemic around the world had an adverse impact on demand for C&I products during the second quarter, but collectively, shipments were modestly better than our prior forecast. On a year-over-year basis, net sales increased approximately 1% during the second quarter of 2020 as compared to the strong prior year second quarter. Gross margin, excluding the impact of restructuring charges, expanded 330 basis points compared to prior year. And adjusted EBITDA margin was very strong at 22.5%, increasing 190 basis points over the prior year as both exceeded our expectations primarily due to favorable mix from higher-than-expected shipments of residential products. Before discussing second quarter results in more detail, I wanted to stress that as the COVID-19 pandemic continues to grow, a high degree of uncertainty exists