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Note 7 - Segment Reporting
 3 Months Ended
Mar. 31, 2023
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, Off Grid Energy, and REFUstor acquisitions, 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. While Residential products and Commercial &

Industrial (C&I) products include similar products, they differ based on 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 Reportable Segment

  
   

Three Months Ended March 31, 2023

  

Product Classes

  

Domestic

    

International

    

Total

  

Residential products

   $ 381,151     $ 37,712     $ 418,863  

Commercial & industrial products

     228,123       134,867       362,990  

Other

     95,112       10,945       106,057  

Total net sales

   $ 704,386     $ 183,524     $ 887,910  

 

   

Net Sales by Reportable Segment

  
   

Three Months Ended March 31, 2022

  

Product Classes

  

Domestic

    

International

    

Total

 

Residential products

   $ 750,327     $ 26,617     $ 776,944  

Commercial & industrial products

     145,737       132,991       278,728  

Other

     68,610       11,574       80,184  

Total net sales

   $ 964,674     $ 171,182     $ 1,135,856  

 

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, which they in turn sell or rent 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 product's 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, energy storage systems, mobile heaters, mobile pumps, and related controllers for power generation equipment. 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, which they in turn sell or rent 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 revenue and subscription revenue are recognized over the life of the contract. Other service revenue is recognized when the service is performed.

 

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

 

   

Three Months Ended March 31, 2023

    

Three Months Ended March 31, 2022

  
   

Domestic

    

International

    

Eliminations

    

Total

    

Domestic

    

International

    

Eliminations

    

Total

  

External net sales

   $ 704,386     $ 183,524     $ -     $ 887,910     $ 964,674     $ 171,182     $ -     $ 1,135,856  

Intersegment sales

     15,607       32,942       (48,549 )     -       10,270       14,250       (24,520 )     -  

Total sales

   $ 719,993     $ 216,466     $ (48,549 )   $ 887,910     $ 974,944     $ 185,432     $ (24,520 )   $ 1,135,856  

 

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 defined as net income before noncontrolling interest adjusted for the following items: interest expense, depreciation expense, amortization of intangible assets, income tax expense, certain non-cash gains and losses including purchase accounting and contingent consideration adjustments, share-based compensation expense, certain transaction costs and credit facility fees, business optimization expenses, certain specific provisions, and adjusted EBITDA attributable to noncontrolling interests.

 

   

Adjusted EBITDA by Reportable Segment

  
   

Three Months Ended March 31,

  
   

2023

    

2022

  

Domestic

   $ 67,662     $ 170,421  

International

     32,413       25,992  

Total adjusted EBITDA

   $ 100,075     $ 196,413  
                 

Interest expense

     (22,995 )     (9,554 )

Depreciation and amortization

     (39,951 )     (38,461 )

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

     3,160       7,792  

Non-cash share-based compensation expense (2)

     (10,334 )     (8,827 )

Transaction costs and credit facility fees (3)

     (1,091 )     (989 )

Business optimization and other charges (4)

     (1,100 )     (1,159 )

Provision for regulatory charges (5)

     (5,800 )     -  

Other

     46       289  

Income before provision for income taxes

   $ 22,010     $ 145,504  

 

 

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

(4)

 Represents severance and other non-recurring restructuring charges.
  (5) Represents a provision of $5,800 for a matter with the Consumer Product Safety Commission concerning the imposition of penalty fines for allegedly failing to timely submit a report under the Consumer Product Safety Act in relation to certain portable generators that were subject to a voluntary recall previously announced on July 29, 2021.

 

The Company’s sales in the U.S. represented approximately 75% and 83% of total sales for the three months ended March 31, 2023 and March 31, 2022, respectively. Approximately 76% and 77% of the Company’s identifiable long-lived assets were located in the U.S. at  March 31, 2023 and December 31, 2022, respectively.