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Note 7 - Segment Reporting
 12 Months Ended
Dec. 31, 2022
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 acquisitions not based in the U.S and Canada, all of which have revenues substantially derived from outside the U.S and Canada. Both reportable segments design and manufacture 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, organizational structure, and regional considerations.

 

The Company's product offerings consist primarily of power generation equipment, energy storage systems, energy management devices & 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 & services by reportable segment is as follows:

 

  

Net Sales by Segment

 
  

Year Ended December 31, 2022

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $2,782,037  $129,834  $2,911,871 

Commercial & industrial products

  746,172   514,565   1,260,737 

Other

  339,657   52,472   392,129 

Total net sales

 $3,867,866  $696,871  $4,564,737 

 

  

Year Ended December 31, 2021

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $2,366,908  $89,857  $2,456,765 

Commercial & industrial products

  556,520   442,478   998,998 

Other

  240,622   40,799   281,421 

Total net sales

 $3,164,050  $573,134  $3,737,184 

 

  

Year Ended December 31, 2020

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $1,495,383  $61,118  $1,556,501 

Commercial & industrial products

  404,867   296,884   701,751 

Other

  188,558   38,390   226,948 

Total net sales

 $2,088,808  $396,392  $2,485,200 

 

Residential products consist primarily of automatic home standby generators ranging in output from 7.5kW to 150kW, portable generators, energy storage systems, energy management devices & 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 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 systems, mobile heaters, mobile pumps, and related controllers for power generation equipment. These products are sold globally through industrial distributors and dealers, EPC companies, 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 customers, 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 and subscription revenue are recognized over the life of the contract. Other service revenue is recognized when the service is performed.

 

The following tables sets forth total sales by reportable segment and inclusive of intersegment sales:

 

  

Year Ended December 31, 2022

 
  

Domestic

  

International

  

Eliminations

  

Total

 

External net sales

 $3,867,866  $696,871  $-  $4,564,737 

Intersegment sales

  60,731   93,699   (154,430)  - 

Total sales

 $3,928,597  $790,570  $(154,430) $4,564,737 

 

  

Year Ended December 31, 2021

 
  

Domestic

  

International

  

Eliminations

  

Total

 

External net sales

 $3,164,050  $573,134  $-  $3,737,184 

Intersegment sales

  39,339   26,123   (65,462)  - 

Total sales

 $3,203,389  $599,257  $(65,462) $3,737,184 

 

  

Year Ended December 31, 2020

 
  

Domestic

  

International

  

Eliminations

  

Total

 

External net sales

 $2,088,808  $396,392  $-  $2,485,200 

Intersegment sales

  13,505   1,649   (15,154)  - 

Total sales

 $2,102,313  $398,041  $(15,154) $2,485,200 

 

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 primarily on the definition that is contained in the Company’s credit agreements.

 

  

Adjusted EBITDA

 
  

Year Ended December 31,

 
  

2022

  

2021

  

2020

 

Domestic

 $716,302  $795,417  $563,394 

International

  109,065   66,008   20,379 

Total adjusted EBITDA

 $825,367  $861,425  $583,773 
             

Interest expense

  (54,826)  (32,953)  (32,991)

Depreciation and amortization

  (156,141)  (92,041)  (68,773)

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

  2,091   3,070   327 

Non-cash share-based compensation expense (2)

  (29,481)  (23,954)  (20,882)

Loss on extinguishment of debt (3)

  (3,743)  (831)  - 

Transaction costs and credit facility fees (4)

  (5,026)  (22,357)  (2,151)

Business optimization and other charges (5)

  (4,371)  (33)  (12,158)

Provision for regulatory and clean energy product charges (6)

  (65,265)  -   - 

Other

  (139)  (800)  (954)

Income before provision for income taxes

 $508,466  $691,526  $446,191 

 

 

(1)

Includes gains/losses on disposals of assets and sales of certain investments, unrealized mark-to-market adjustments on commodity contracts, certain foreign currency related adjustments, and certain purchase accounting and contingent consideration 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 primarily to a voluntary prepayment of 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 year ended December 31, 2022, predominantly represents severance and other restructuring charges related to the suspension of operations at certain of our facilities. For the year ended December 31, 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. These charges represent expenses that do not reflect ongoing operations.
 

(6)

For the year ended December 31, 2022, represents a specific credit loss provision of $17,926 for a clean energy product customer that filed for bankruptcy, as well as a warranty provision of $37,338 to address certain clean energy product warranty-related matters. The amount also includes a provision of $10,000 for a pending and unresolved matter with the CPSC concerning the imposition of potential penalty fines for allegedly failing to timely submit a report under the CPSA in relation to certain portable generators that were subject to a voluntary recall previously announced on July 29, 2021.

 

The following tables summarize additional financial information by reportable segment:

 

  

Assets

 
  

December 31,

 
  

2022

  

2021

  

2020

 

Domestic

 $4,032,086  $3,742,101  $2,659,597 

International

  1,137,376   1,135,679   575,826 

Total

 $5,169,462  $4,877,780  $3,235,423 

 

  

Depreciation and Amortization

 
  

Year Ended December 31,

 
  

2022

  

2021

  

2020

 

Domestic

 $123,768  $66,675  $53,020 

International

  32,373   25,366   15,753 

Total

 $156,141  $92,041  $68,773 

 

  

Capital Expenditures

 
  

Year Ended December 31,

 
  

2022

  

2021

  

2020

 

Domestic

 $69,680  $100,672  $51,867 

International

  16,508   9,320   10,261 

Total

 $86,188  $109,992  $62,128 

 

The Company’s sales in the United States represent approximately 80%, 82%, and 82% of total sales for the years ended December 31, 2022, 2021 and 2020, respectively. Approximately 77% and 75% of the Company’s identifiable long-lived assets are located in the United States as of December 31, 2022 and 2021, respectively.