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Note 7 - Segment Reporting
 9 Months Ended
Sep. 30, 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 all 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 Company's various international 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 and solutions, and other power products designed 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 and services by reportable segment is as follows:

 

  

Net Sales by Segment

 
  

Three Months Ended September 30, 2023

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $539,775  $25,312  $565,087 

Commercial & industrial products

  238,212   146,321   384,533 

Other

  108,378   12,669   121,047 

Total net sales

 $886,365  $184,302  $1,070,667 

 

  

Net Sales by Segment

 
  

Three Months Ended September 30, 2022

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $635,772  $28,343  $664,115 

Commercial & industrial products

  196,485   114,701   311,186 

Other

  98,875   14,082   112,957 

Total net sales

 $931,132  $157,126  $1,088,258 

 

  

Net Sales by Segment

 
  

Nine Months Ended September 30, 2023

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $1,389,112  $93,426  $1,482,538 

Commercial & industrial products

  700,941   430,935   1,131,876 

Other

  305,239   39,344   344,583 

Total net sales

 $2,395,292  $563,705  $2,958,997 

 

  

Net Sales by Segment

 
  

Nine Months Ended September 30, 2022

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $2,246,113  $90,959  $2,337,072 

Commercial & industrial products

  515,771   383,492   899,263 

Other

  241,353   37,817   279,170 

Total net sales

 $3,003,237  $512,268  $3,515,505 

 

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 and 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.

 

The Other product class 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 is inclusive of intersegment sales:

 

  

Three Months Ended September 30, 2023

  

Three Months Ended September 30, 2022

 
  

Domestic

  

International

  

Eliminations

  

Total

  

Domestic

  

International

  

Eliminations

  

Total

 

External net sales

 $886,365  $184,302  $-  $1,070,667  $931,132  $157,126  $-  $1,088,258 

Intersegment sales

  7,640   23,293   (30,933)  -   15,485   25,416   (40,901)  - 

Total sales

 $894,005  $207,595  $(30,933) $1,070,667  $946,617  $182,542  $(40,901) $1,088,258 

 

  

Nine Months Ended September 30, 2023

  

Nine Months Ended September 30, 2022

 
  

Domestic

  

International

  

Eliminations

  

Total

  

Domestic

  

International

  

Eliminations

  

Total

 

External net sales

 $2,395,292  $563,705  $-  $2,958,997  $3,003,237  $512,268  $-  $3,515,505 

Intersegment sales

  33,960   84,078   (118,038)  -   44,742   59,075   (103,817)  - 

Total sales

 $2,429,252  $647,783  $(118,038) $2,958,997  $3,047,979  $571,343  $(103,817) $3,515,505 

 

Management evaluates the performance of the Company's 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, losses on extinguishment of debt, certain transaction costs and credit facility fees, business optimization expenses, and certain other specific provisions noted below.

 

  

Adjusted EBITDA

 
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Domestic

 $160,270  $159,810  $331,134  $572,159 

International

  28,332   24,006   94,088   79,532 

Total adjusted EBITDA

 $188,602  $183,816  $425,222  $651,691 
                 

Interest expense

  (24,707)  (15,514)  (72,862)  (35,303)

Depreciation and amortization

  (42,951)  (39,165)  (124,149)  (116,724)

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

  (2,055)  6,840   5,257   10,025 

Non-cash share-based compensation expense (2)

  (9,927)  (6,861)  (30,306)  (23,423)

Loss on extinguishment of debt (3)

  -   -   -   (3,743)

Transaction costs and credit facility fees (4)

  (921)  (1,250)  (3,161)  (3,831)

Business optimization and other charges (5)

  (5,291)  (622)  (8,151)  (3,371)

Provision for regulatory, legal, and clean energy product charges (6)

  (22,113)  (55,265)  (27,913)  (55,265)

Other

  (575)  61   (443)  951 

Income before provision for income taxes

 $80,062  $72,040  $163,494  $421,007 

 

 

(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 write-off of original issue discount and capitalized debt issuance costs due to voluntary debt prepayment.
 

(4)

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.
 (5)Represents severance and other restructuring charges related to the consolidation of certain operating facilities and organizational functions.
 (6)The amount recorded in the third quarter 2023 represents a provision for judgments, estimates of pre-judgment interest and costs, and legal expenses related to certain patent lawsuits. The amount recorded in the first quarter 2023 represents a provision of $5,800 for a matter with the Consumer Product Safety Commission ("CPSC") concerning the imposition of civil fines for allegedly failing to timely submit a report under the Consumer Product Safety Act ("CPSA") in relation to certain portable generators that were subject to a voluntary recall previously announced on July 29, 2021. The amount recorded in the third quarter of 2022 represents a specific bad debt 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 Company’s sales in the U.S. represented approximately 79% and 82% of total sales for the three months ended September 30, 2023 and 2022, respectively. The Company's sales in the U.S. represented approximately 77% and 82% of total sales for the nine months ended September 30, 2023 and 2022, respectively. Approximately 75% and 77% of the Company’s identifiable long-lived assets were located in the U.S. at  September 30, 2023, and December 31, 2022, respectively.