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Note 7 - Segment Reporting
 9 Months Ended
Sep. 30, 2021
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 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, Selmec, Deep Sea, and Off Grid Energy acquisitions, all of which have revenues substantially derived from outside the U.S. and Canada. Both reportable segments design, manufacture, and provide a wide range of 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 storage systems, 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, 2021

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $585,150  $23,666  $608,816 

Commercial & industrial products

  140,824   117,485   258,309 

Other

  64,790   10,783   75,573 

Total net sales

 $790,764  $151,934  $942,698 

 

  

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 

 

  

Net Sales by Segment

 
  

Nine Months Ended September 30, 2021

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $1,690,707  $60,250  $1,750,957 

Commercial & industrial products

  402,357   312,637   714,994 

Other

  174,584   29,578   204,162 

Total net sales

 $2,267,648  $402,465  $2,670,113 

 

  

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 

 

Residential products consist primarily of automatic home standby generators ranging in output from 7.5kW to 150kW, 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, who 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 and controls used in C&I applications with power outputs up to 3,250kW. Also included in C&I products are mobile generators, light towers, mobile energy storage, mobile heaters, mobile pumps, and controllers. These products are sold globally 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, who 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 consists primarily of aftermarket service parts and product accessories sold to our dealers, the amortization of extended warranty deferred revenue, remote monitoring and grid services subscription revenue, as well as certain installation and maintenance service 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. Other service revenue is recognized when the service is performed.

 

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,

 
  

2021

  

2020

  

2021

  

2020

 

Domestic

 $187,726  $171,359  $598,730  $374,065 

International

  21,475   7,419   42,344   13,877 

Total adjusted EBITDA

 $209,201  $178,778  $641,074  $387,942 
                 

Interest expense

  (7,980)  (8,096)  (23,424)  (25,081)

Depreciation and amortization

  (23,216)  (17,168)  (62,682)  (50,087)

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

  (3,333)  (477)  (638)  (1,868)

Non-cash share-based compensation expense (2)

  (5,783)  (4,353)  (18,204)  (14,327)

Loss on extinguishment of debt (3)

  -   -   (831)  - 

Transaction costs and credit facility fees (4)

  (3,385)  (568)  (9,471)  (1,160)

Business optimization and other charges (5)

  -   (531)  (159)  (12,503)

Other

  (140)  (300)  (717)  (711)

Income before provision for income taxes

 $165,364  $147,285  $524,948  $282,205 

 

 

(1)

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

 

(2)

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

 (3)Represents the non-cash write-off of original issue discount and deferred financing costs due to voluntary prepayment of Term Loan debt.
 

(4)

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.

 

(5)

For the three and nine months ended September 30, 2021, represents severance and other charges related to the consolidation of certain of our facilities. 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. 

 

The Company’s sales in the U.S. represented approximately 82% and 84% of total sales for the three months ended September 30, 2021 and 2020, respectively. The Company's sales in the U.S. represented approximately 82% of the total sales for the nine months ended September 30, 2021 and 2020. Approximately 64% and 81% of the Company’s identifiable long-lived assets were located in the U.S. at  September 30, 2021 and December 31, 2020, respectively.