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Note 7 - Segment Reporting
 6 Months Ended
Jun. 30, 2024
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 and all historical acquisitions based in the U.S. and Canada, all of which have revenues substantially derived from the U.S. and Canada. The international segment includes all historical 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. While Residential products and Commercial & Industrial ("C&I") products include similar products, they differ based on power output and end customer. The composition 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 June 30, 2024

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $515,166  $23,233  $538,399 

Commercial & industrial products

  200,315   143,854   344,169 

Other

  102,077   13,552   115,629 

Total net sales

 $817,558  $180,639  $998,197 

 

  

Net Sales by Reportable Segment

 
  

Three Months Ended June 30, 2023

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $468,184  $30,403  $498,587 

Commercial & industrial products

  234,605   149,748   384,353 

Other

  101,750   15,730   117,480 

Total net sales

 $804,539  $195,881  $1,000,420 

 

  

Net Sales by Reportable Segment

 
  

Six Months Ended June 30, 2024

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $927,319  $40,030  $967,349 

Commercial & industrial products

  406,808   291,331   698,139 

Other

  195,768   26,214   221,982 

Total net sales

 $1,529,895  $357,575  $1,887,470 

 

  

Net Sales by Reportable Segment

 
  

Six Months Ended June 30, 2023

 

Product Classes

 

Domestic

  

International

  

Total

 

Residential products

 $849,336  $68,114  $917,450 

Commercial & industrial products

  462,729   284,614   747,343 

Other

  196,862   26,675   223,537 

Total net sales

 $1,508,927  $379,403  $1,888,330 

 

Residential products consist primarily of automatic home standby generators ranging in output from 7.5kW to 150kW, portable generators, residential 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 the Company's 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, C&I battery energy storage systems, mobile heaters, mobile pumps, and related controllers for power generation equipment. These products are sold globally through industrial distributors and dealers, Engineering, Procurement, and Construction ("EPC") companies, equipment rental companies, and equipment distributors. The C&I products revenue consists of the sale of the product to the Company's 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 the Company's 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, sometimes based on achievement of milestones.

 

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

 

  

Three Months Ended June 30, 2024

  

Three Months Ended June 30, 2023

 
  

Domestic

  

International

  

Eliminations

  

Total

  

Domestic

  

International

  

Eliminations

  

Total

 

External net sales

 $817,558  $180,639  $-  $998,197  $804,539  $195,881  $-  $1,000,420 

Intersegment sales

  9,581   3,869   (13,450)  -   10,713   27,842   (38,555)  - 

Total sales

 $827,139  $184,508  $(13,450) $998,197  $815,252  $223,723  $(38,555) $1,000,420 

 

  

Six Months Ended June 30, 2024

  

Six Months Ended June 30, 2023

 
  

Domestic

  

International

  

Eliminations

  

Total

  

Domestic

  

International

  

Eliminations

  

Total

 

External net sales

 $1,529,895  $357,575  $-  $1,887,470  $1,508,927  $379,403  $-  $1,888,330 

Intersegment sales

  17,718   13,642   (31,360)  -   26,320   60,784   (87,104)  - 

Total sales

 $1,547,613  $371,217  $(31,360) $1,887,470  $1,535,247  $440,187  $(87,104) $1,888,330 

 

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 by Reportable Segment

 
  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2024

  

2023

  

2024

  

2023

 

Domestic

 $139,674  $103,202  $238,849  $170,863 

International

  25,015   33,343   53,073   65,757 

Total Adjusted EBITDA

 $164,689  $136,545  $291,922  $236,620 
                 

Interest expense

  (23,318)  (25,160)  (46,923)  (48,155)

Depreciation and amortization

  (42,880)  (41,247)  (84,782)  (81,198)

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

  (1,885)  4,152   (2,395)  7,312 

Non-cash share-based compensation expense (2)

  (12,715)  (10,045)  (25,155)  (20,379)

Transaction costs and credit facility fees (3)

  (1,267)  (1,149)  (2,692)  (2,240)

Business optimization and other charges (4)

  (1,140)  (1,760)  (1,626)  (2,860)

Provision for regulatory, legal, and clean energy product charges (5)

  (363)  -   (2,898)  (5,800)

Change in fair value of investment (6)

  (2,117)  -   (8,136)  - 

Other

  (313)  86   (113)  132 

Income before provision for income taxes

 $78,691  $61,422  $117,202  $83,432 

 

 

(1)

Includes gains/losses on dispositions of assets other than in the ordinary course of business, gains/losses on 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 the Company's credit agreement, equity issuance or debt issuance or refinancing, together with certain fees relating to the Company's senior secured credit facilities, such as administrative agent fees and credit facility commitment fees under the Company's Amended Credit Agreement.
 

(4)

Represents severance and other restructuring charges related to the consolidation of certain operating facilities and organizational functions.
 (5)

Represents the following significant and unusual charges not indicative of our ongoing operations:
•  A provision for judgments and legal expenses related to certain patent and securities lawsuits - $363 and $2,170 in the second and first quarter of 2024, respectively. 
•  Additional customer support costs related to a clean energy product customer that filed for bankruptcy in 2022 – $365 in the first quarter of 2024. 

•  A provision 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 - $5,800 in the first quarter of 2023.

 (6)Represents non-cash losses from changes in the fair value of the Company's investment in warrants and equity securities of Wallbox N.V.

 

The Company’s sales in the U.S. represented approximately 78% and 75% of total sales for the three months ended June 30, 2024 and 2023, respectively. The Company’s sales in the U.S. represented approximately 77% and 75% of total sales for the six months ended June 30, 2024 and 2023, respectively. Approximately 74% of the Company’s identifiable long-lived assets were located in the U.S. on  June 30, 2024 and December 31, 2023.