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Note 7 - Segment Reporting
 9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

7.   Segment Reporting

 

The Company has two reportable segments for financial reporting purposes – Domestic and International. The Domestic segment includes the legacy Generac business (excluding its traditional Latin American export operations), and the acquisitions that are based in the U.S. and Canada, all of which have revenues that are substantially derived from the U.S. and Canada. The International segment includes the legacy Generac business’ Latin American export operations, and the Ottomotores, Tower Light, Pramac, Motortech and Selmec acquisitions, all of which have revenues that are substantially derived from outside the U.S. and Canada. Both reportable segments design and manufacture a wide range of power generation equipment, energy technology solutions, and other power products. The Company has multiple operating segments, which it aggregates into the two reportable segments, based on materially similar economic characteristics, products, production processes, classes of customers, distribution methods, and regional considerations.

 

The Company's product offerings consist primarily of power generation equipment, energy technology solutions, and other power products geared for varying end customer uses. Residential products and C&I products are each a similar class of products based on similar power output and end customer. The breakout of net sales between residential, C&I, and other products by reportable segment is as follows:

 

  

Net Sales by Segment

 
  

Three Months Ended September 30, 2020

 

Product Classes

 

Domestic

  

International

  

Total

 
Residential products $441,532  $17,345  $458,877 
Commercial & industrial products  108,774   67,426   176,200 
Other  56,569   9,709   66,278 

Total net sales

 $606,875  $94,480  $701,355 

 

  

Three Months Ended September 30, 2019

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $322,134  $12,895  $335,029 

Commercial & industrial products

  132,491   82,414   214,905 

Other

  40,185   11,016   51,201 

Total net sales

 $494,810  $106,325  $601,135 

 

  

Net Sales by Segment

 
  

Nine Months Ended September 30, 2020

 

Product Classes

 

Domestic

  

International

  

Total

 
Residential products $1,013,219  $44,629  $1,057,848 
Commercial & industrial products  294,940   208,216   503,156 
Other  135,521   27,593   163,114 

Total net sales

 $1,443,680  $280,438  $1,724,118 

 

  

Nine Months Ended September 30, 2019

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $778,733  $42,500  $821,233 

Commercial & industrial products

  390,514   263,944   654,458 

Other

  103,593   34,120   137,713 

Total net sales

 $1,272,840  $340,564  $1,613,404 

 

Residential products consist primarily of automatic home standby generators ranging in output from 6kW to 60kW, portable generators, energy storage and monitoring solutions, and other outdoor power equipment. These products are predominantly sold through independent residential dealers, national and regional retailers, e-commerce merchants, electrical/HVAC/solar wholesalers, solar installers, and outdoor power equipment dealers. The residential products revenue consists of the sale of the product to our distribution partners, which in turn sell or rent the product to the end consumer, including installation and maintenance services. In some cases, residential products are sold direct to the end consumer. Substantially all of the residential products revenues are transferred to the customer at a point in time.

 

C&I products consist of larger output stationary generators used in C&I applications and fueled by diesel, natural gas, liquid propane and bi-fuel, with power outputs ranging from 10kW up to 3,250kW. Also included in C&I products are commercial-grade mobile generators, light towers, mobile heaters and mobile pumps. These products are predominantly sold through industrial distributors and dealers, equipment rental companies and equipment distributors. The C&I products revenue consists of the sale of the product to our distribution partners, which in turn sell or rent the product to the end customer, including installation and maintenance services. In some cases, C&I products are sold direct to the end customer. Substantially all of the C&I products revenues are transferred to the customer at a point in time.

 

Other products and services consist primarily of aftermarket service parts and product accessories sold to our dealers, the amortization of extended warranty deferred revenue, and remote monitoring subscription revenue. The aftermarket service parts and product accessories are generally transferred to the customer at a point in time, while the extended warranty revenue and subscription revenue are recognized over the life of the contract.

 

Management evaluates the performance of its segments based primarily on Adjusted EBITDA, which is reconciled to Income before provision for income taxes below. The computation of Adjusted EBITDA is based on the definition contained in the Company’s credit agreements.

 

  

Adjusted EBITDA

 
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 
Domestic $171,359  $120,833  $374,065  $305,747 
International  7,419   5,120   13,877   19,220 

Total adjusted EBITDA

 $178,778  $125,953  $387,942  $324,967 
                 

Interest expense

  (8,096)  (10,704)  (25,081)  (31,428)

Depreciation and amortization

  (17,168)  (15,494)  (50,087)  (42,841)

Non-cash write-down and other adjustments (1)

  (477)  (347)  (1,868)  (673)

Non-cash share-based compensation expense (2)

  (4,353)  (3,549)  (14,327)  (11,477)

Transaction costs and credit facility fees (3)

  (568)  (358)  (1,160)  (2,047)

Business optimization and other charges (4)

  (531)  (567)  (12,503)  (809)

Other

  (300)  27   (711)  556 

Income before provision for income taxes

 $147,285  $94,961  $282,205  $236,248 

 

 

(1)

Includes certain foreign currency and purchase accounting related adjustments, gains/losses on disposal of assets, and unrealized mark-to-market adjustments on commodity contracts.

 

(2)

Represents share-based compensation expense to account for stock options, restricted stock and other stock awards over their respective vesting periods.

 

(3)

Represents transaction costs incurred directly in connection with any investment, as defined in our credit agreement, equity issuance, debt issuance or refinancing, together with certain fees relating to our senior secured credit facilities.

 

(4)

For the three and nine months ended September 30, 2020, represents severance, non-cash asset write-downs, and other charges to address the impact of the COVID-19 pandemic and decline in oil prices on demand for C&I products. For the three and nine months ended September 30, 2019, represents severance and other charges related to the consolidation of certain of our facilities.

 

In the fourth quarter of 2019, management determined that the Latin American export operations of the legacy Generac business (GPS LATAM) should have been included in the International reportable segment beginning in 2018. Previously, GPS LATAM was reported in the Domestic segment, in amounts that were not material. To reflect this change, management has chosen to correct the net sales and adjusted EBITDA by segment as follows: For the three and nine months ended September 30, 2019, net sales of $3,353 and $10,509, and adjusted EBITDA of $384 and $976, respectively, were moved from the Domestic segment to the International segment.

 

The Company’s sales in the U.S. represented approximately 84% and 78% of total sales for the three months ended September 30, 2020 and 2019, respectively. The Company's sales in the U.S. represented approximately 82% and 75% of total sales for the nine months ended September 30, 2020 and 2019, respectively. Approximately 82% and 80% of the Company’s identifiable long-lived assets were located in the U.S. at  September 30, 2020 and December 31, 2019, respectively.